Report & Accounts
for the year ended 31 December 2020
Contents
Company Highlights
Strategic Report
Chairman’s Statement
Our Purpose, Strategy and Business Model
Manager’s Report
Investment Portfolio
Principal Risks and Viability
Governance
Board of Directors
J. Rothschild Capital Management
Corporate Governance Report
Audit and Risk Committee Report
Directors’ Remuneration Report
Directors’ Report
Financial Statements
Consolidated Income Statement and Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Parent Company Balance Sheet
Consolidated Statement of Changes in Equity
Parent Company Statement of Changes in Equity
Consolidated and Parent Company Cash Flow Statement
Notes to the Financial Statements
Independent Auditor’s Report
Other Information
Investment Portfolio Reconciliation
Glossary and Alternative Performance Measures
Historical Information and Financial Calendar
Investor Information
Directory
1
3
5
9
14
17
23
26
27
40
44
49
54
55
56
57
58
59
60
85
97
98
100
101
102
Company Highlights
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.
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.
Performance for the year
NAV per share total return
Share price total return
RPI plus 3.0%
MSCI All Country World Index (ACWI)
Key data*
NAV per share
Share price
Premium/(discount)
Net assets
Gearing
Average net quoted equity exposure
Ongoing charges figure for the year
First interim dividend (April)
Second interim dividend (October)
Total dividend in year
* 31 December unless otherwise stated.
Performance history
NAV per share total return
Share price total return
RPI plus 3.0% per annum
ACWI
Performance since inception
2020
16.4%
-0.4%
4.2%
12.7%
Change
14.4%
-2.4%
-15.4% pts
14.1%
-2.8% pts
-
-0.02% pts
2.9%
2.9%
2.9%
10 Years
114.9%
105.9%
72.5%
158.9%
2020
2,292 pence
2,065 pence
-9.9%
£3,590 million
4.4%
43%
0.66%
17.5 pence
17.5 pence
35.0 pence
3 Years
31.5%
11.0%
15.9%
29.6%
2019
2,004 pence
2,115 pence
5.5%
£3,146 million
7.2%
43%
0.68%
17.0 pence
17.0 pence
34.0 pence
5 Years
59.5%
34.1%
30.9%
77.7%
3,200%
2,800%
2,400%
2,000%
1,600%
1,200%
800%
400%
0%
RIT NAV per share total return
ACWI
RPI plus 3.0%
1
9
8
8
1
9
9
0
1
9
9
2
1
9
9
4
1
9
9
6
1
9
9
8
2
0
0
0
2
0
0
2
2
0
0
4
2
0
0
6
2
0
0
8
2
0
1
0
2
0
1
2
2
0
1
4
2
0
1
6
2
0
1
8
2
0
2
0
A description of the terms used above and in the Strategic Report is set out in the Glossary and Alternative Performance Measures (APMs)
section on page 98 and 99. The Group’s designated APMs are the NAV per share total return, share price total return, gearing and the ongoing
charges figure.
RIT Capital Partners plc Report and Accounts December 2020 1
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Strategic Report
RIT Capital Partners plc
Chairman’s Statement
Sir James Leigh-Pemberton
2020 was a year characterised by extraordinary challenges
for any investment company, and RIT was no exception.
The pandemic required rapid and significant change in
our Company’s operations and ways of working, and
created an exceptionally volatile investment climate.
For much of the year, financial markets were driven by
the impact on the global economy of the health crisis and
the policy reactions to it. Stock market indices initially
saw new highs in February, followed by the fastest
correction in history and then a swift recovery, buoyed
first by stimulus measures and monetary easing of
exceptional scope and scale, and latterly by the approval
of vaccination programmes. There was wide dispersion
in the performance of regional indices, with the US and
China up 18% and 17%, whereas the Eurozone and the
UK were down by -3% and -11% respectively. Behind
these headline index performances lay a complex and
quickly changing pattern of asset price behaviour and
capital flows. All of this resulted in a market environment
which was difficult to navigate, with at times savage
movements in most asset classes.
In a difficult environment such as this, the means by which
your Company seeks to achieve its corporate objective
are severely tested. The objective set by your Board for
our Manager, J. Rothschild Capital Management Limited,
is to protect shareholders from the worst excesses of
market declines, but also to achieve healthy participation
over the long term in market rises. The approach taken by
JRCM to achieve this has to be sophisticated, dynamic
and disciplined in each of the key areas of asset allocation,
portfolio construction and security selection. While there
may be times in the future when our performance does
not meet our high expectations, I am pleased to report
that 2020 was not one of them. RIT’s net asset value per
share ended the year at 2,292 pence, representing a NAV
total return for the year (including dividends) of 16.4%.
This compares to the Company’s two principal KPIs for
investment performance of RPI+3.0% per annum and the
ACWI which were 4.2% and 12.7% respectively.
The Manager’s Report provides detail in relation to
performance and attribution, and it is pleasing to see a
broad spread of strong results across the portfolio, with
all of the key asset classes making a positive impact.
These included allocations designed to capture long-
term structural trends within our public and private
positions, and those that target less correlated areas
such as absolute return and real assets. The performance
In a difficult environment such as this
... I am pleased to report ... RIT’s net
asset value per share ended the year at
2,292 pence, representing a NAV total return
for the year (including dividends) of 16.4%.
drivers also demonstrate the importance of our network
of relationships which enable us to identify attractive
investments, notably within the fast-evolving Chinese
and other Asian economies, and to allocate funds to
exceptional external managers. Our objective requires
an approach to portfolio management which reflects
a subtle balance between caution and opportunity.
Caution has been and will continue to be one of our core
watchwords, but we also recognise that market stresses
provide opportunities for the astute deployment of capital,
as we saw in March and October. The privilege of loyal
shareholders and a permanent capital base allows us to
take a long-term view, and to act decisively where we see
fundamental value and the potential to deliver long-term
growth in shareholders’ capital.
Share capital
We are very much aware that the move in your
Company’s rating over the year to trade at a discount
to the NAV, resulted in shareholders experiencing a flat
overall return, lagging the growth in the NAV. However,
the nature and composition of our investment portfolio
means we do not publish a daily NAV. And so, the strong
performance in December, well above many market
estimates, was not reflected in the share price, resulting
in a discount of 9.9% at year end. This discount narrowed
since the year end, and as I mentioned to shareholders in
August, we monitor the share price carefully, and bought
back approximately 116,000 shares at a discount to
NAV during the last three months of the year, benefiting
shareholders. We intend to continue to take the
opportunity to selectively purchase shares in the market
when we judge that doing so is beneficial.
Dividend
We paid a final interim dividend of 17.5 pence per share
in October, providing shareholders with a total dividend in
2020 of 35 pence per share. For 2021, we are intending
to pay a dividend of 35.25 pence per share, an increase of
0.7% over the previous year, slightly above inflation. This
RIT Capital Partners plc Report and Accounts December 2020 3
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Chairman’s Statement
will be paid in two equal instalments in April and October.
Supported by our significant reserves, our policy remains
to maintain or increase the annual dividend, as long as
it does not come into conflict with your Company’s core
objective of capital preservation.
Governance
In light of the range of matters which we have had to
address, the Board and its Committees have been busier
than normal this year. We have an experienced and
diverse Board who have all engaged with the increased
frequency of Board and Committee meetings we felt
it necessary to undertake. I would like to express my
gratitude and appreciation to Board colleagues for their
dedication, support and wise counsel over the year.
Your Board has worked closely to develop and refine our
approach to responsible investing and other environmental,
social and governance (ESG) matters, looking at how
we continually integrate these considerations into our
behaviour within both our operating businesses and
our investment processes. JRCM is a signatory of the
United Nations’ Principles for Responsible Investment
and we believe that this focus on sustainability is a natural
component of how we approach our long-term objectives;
for some time now, we have more explicitly incorporated
ESG into our fundamental assessment of investments. We
will continue to develop our approach in this area, which
will necessarily evolve over time.
Finally, I would like to record our thanks to the team at
JRCM. The combined challenges of major operational
change and extremely demanding investment conditions
have been met with admirable determination and
success. Led by the JRCM Executive Committee, our
employees have been unwavering in their efforts to
deliver returns for shareholders and to operate in a way
that met our obligations to our regulators, counterparties
and suppliers while prioritising the safety and well-being
of colleagues. I am very aware of the difficulties that
employees have had to operate under at times, and
the acute personal challenges many of them and their
families have had to face. Everyone in the Group has our
sincere thanks for their dedication and professionalism.
Outlook
The pandemic has severely affected the lives of millions
of people worldwide. The economic consequences,
together with the extraordinary policy responses, will
be an enduring feature of markets for some time to
come. In the near term, these factors pose the question
of whether the recovery in equity and credit markets is
justified by underlying economic indicators. The spectre
of inflation may well return and could meaningfully
alter the investment landscape. These uncertainties are
accentuated by a backdrop of significant political change
and rapidly shifting societal expectations of the business
community. We will continue to apply our tried and tested
approach to asset allocation and diversified portfolio
composition to protect our shareholders’ capital and grow
it over the medium term, and although we will be faced
with many difficult questions, I am confident that our
talented and dedicated team and unique global network
provide us with a strong foundation on which to build an
appropriate response.
Sir James Leigh-Pemberton
Chairman
4 Report and Accounts December 2020 RIT Capital Partners plc
Our Purpose, Strategy and Business Model
Purpose and strategic aims
We consider our purpose and strategic aims to be clearly
set out in our 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.”
Our purpose as an investment company is to provide
diversified portfolio management on behalf of our
shareholders to achieve this objective.
However, as we differ from many conventional
investment trusts who always aim to be fully invested in
quoted equities, this section provides further clarification
of what we are trying to achieve for shareholders over
time.
The most important objective is long-term capital growth
while preserving shareholders’ capital. The essence
of our investment approach is to protect and enhance
shareholders’ wealth.
There may be times when we will deliberately place
protection of shareholders’ funds ahead of growth but
we believe that active management of equity exposure,
combined with early identification of opportunities and
themes, while investing across multiple asset classes, is
more likely to lead to long-term outperformance.
We would seek therefore to display healthy participation
in up markets, and reasonable protection in down
markets. Over time, this should allow us to compound
ahead of markets throughout the cycles. Indeed, since
your Company’s listing in 1988, we have participated in
73% of the market upside but only 38% of the market
declines. This has resulted in our NAV per share total
return compounding at 11.2% per annum, a meaningful
outperformance of global equity markets. Over the same
period the total return to shareholders was 11.7% per
annum.
Investment approach
The strategic aims are expressed in more practical terms
in our 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.”
This policy guides our Manager and subsidiary, JRCM as
it manages your portfolio. So, while we have a core equity
bias, we typically invest your portfolio across multiple
asset classes, geographies, industries and currencies.
This has been the basis of our approach over many years
– combining thematic investing with individual securities,
We would seek therefore to display
healthy participation in up markets,
and reasonable protection in down markets.
Over time, this should allow us to compound
ahead of markets throughout the cycles.
Indeed, since your Company’s listing in 1988,
we have participated in 73% of the market
upside but only 38% of the market declines.
and private investments with public stocks. The long-term
success of your Company has been the result of active
management of a distinctive blend of stocks, private
investments, equity funds, real assets, and absolute
return and credit, all overlaid with currency positioning
and macro exposure management.
We believe the extent of our global reach and unique
network allows us to maximise our ability to deploy
capital effectively. Our Manager’s in-house investment
team works closely with core external managers,
enabling us to invest in funds which may be closed
to new investors, and cannot be accessed by a retail
investor. In addition, this strong network provides access
to intellectual capital, and co-investment opportunities.
This aspect of our model is key to our ability to identify
and deliver value from differing sectors, markets and
assets. And while access to such specialist managers
comes at a cost, it is an important part of the investment
decision and, if warranted, is one that we are comfortable
paying.
Above all, our approach is long term. The permanent
capital structure of an investment trust compared to
open-ended funds, means we do not suffer from liquidity-
driven pressures to fund redemptions. We can therefore
hold our investments in both public and private markets
over an extended period and choose to realise them at
the optimal time.
Another key facet of the investment approach is risk
management. The Board establishes and oversees
the risk appetite through regular monitoring of asset
allocation and security limits. These are intended to allow
JRCM to efficiently and effectively manage the portfolio
in line with the Corporate Objective. The Manager has
developed a sophisticated risk management approach,
which incorporates quantitative and qualitative measures,
and on which it reports regularly to the Board. The risk
management tools assist in the construction of a portfolio
designed to provide diversified sources of return and to
monitor closely the performance of individual assets and
the portfolio composition. Further information on risk
management is set out on pages 17 to 21.
RIT Capital Partners plc Report and Accounts December 2020 5
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Our Purpose, Strategy and Business Model
In summary, our flexible and distinctive model, with the
freedom to utilise multiple asset classes and different
investment structures, allows our Manager to deploy
capital and manage risks as effectively as possible.
Further information in relation to the investment approach
as well as portfolio attribution and returns is set out in the
Manager’s Report on pages 9 to 13.
Business model, culture and values
RIT Capital Partners plc is a listed investment company,
approved by HM Revenue and Customs (HMRC) as an
investment trust. It is a UK Alternative Investment Fund
(AIF) in accordance with UK legislation effective from
1 January 2021 which replicates the European Union’s
Alternative Investment Fund Managers Directive (AIFMD).
Investment management, as well as administration
and company secretarial, is delegated under a formal
agreement to JRCM, a subsidiary of the Company. JRCM
is separately regulated by the Financial Conduct Authority
(FCA) as the UK Alternative Investment Fund Manager
(AIFM) under the same UK rules. JRCM is governed by
a separate board of directors – its Executive Committee.
This committee is led by Francesco Goedhuis as
Chairman and Chief Executive Officer, and is responsible
for day-to-day operations (see page 26).
Board of
Directors
Alternative
Investment
Fund
RIT Capital Partners
plc
Investment management,
administration and company
secretarial
Executive
Committee
Alternative
Investment
Fund Manager
J. Rothschild Capital
Management Limited
In addition, the Manager is also responsible for our
subsidiary, Spencer House Limited (SHL). This company
provides premises management for Spencer House and
our other investment properties in St. James’s. It also
operates an events business.
I am responsible for the leadership of the Board, which
is ultimately tasked with ensuring that we meet our
Corporate Objective, and maintain high standards of
corporate governance.
The main focus of the Board is on ensuring that the
investment approach is suitable for achieving our
Corporate Objective, and on monitoring the performance
of the Manager. In order to do this, we receive regular
6 Report and Accounts December 2020 RIT Capital Partners plc
In summary, our flexible and distinctive
model, with the freedom to utilise multiple
asset classes and different investment
structures, allows our Manager to deploy
capital and manage risks as effectively as
possible.
and detailed reports covering investment performance,
risk, finance and operational matters.
The employees of our Manager and SHL are critical to
our ability to meet all of the objectives of the Company.
A key part of the monitoring of the Group is ensuring
that the Manager is appropriately incentivised to deliver
sustained, risk-adjusted returns and is able to attract,
retain and develop a top quality team which operates in
accordance with our core values within a culture of high
performance.
Our core values of respect, dignity and integrity are
evidenced by the Group’s five business principles
of collaboration, enterprise, efficiency, effective
communication and professional ethics, which are
regularly communicated and reinforced through the
Group’s recruitment and appraisal processes. JRCM
monitors the health of its culture by assessing regularly
how well these principles are being applied, and the
Board receives regular reports on this topic.
The Group has a clear and proactive approach to regular
employee engagement, which was particularly important
during remote working and the many other challenges of
2020. The Corporate Governance Report on pages 27 to
39 provides more detail of these interactions.
We are firm believers in the benefits that cognitive
diversity as well as diversity more generally, brings to
decision-making, and seek to ensure this is reflected in
our recruitment processes, both at Board level and within
our subsidiaries. At the year end the Board comprised 10
Directors, of which seven were men and three women.
Within our subsidiaries, the employee base comprised 40
men and 13 women.
Corporate governance
The Directors are responsible for compliance with
applicable rules, regulations and guidance in relation to
governance, in particular taking into account the matters
set out in Section 172(1) of the Companies Act 2006,
which guides our approach to strategy and decision
making (see pages 31, 32 and 52). The Board recognises
that its actions have lasting impacts and consequences
for the future of the Company, its shareholders and
other stakeholders, and approaches its responsibilities
accordingly.
Our Purpose, Strategy and Business Model
The Board has a responsibility for ensuring that there
are strong and healthy ties with all of our stakeholders,
making sure that we consider their interests and
acknowledge that the Group’s interaction with them is
fundamental to the long-term success of the business.
The Directors receive regular feedback and reports from
the Manager on its investor relations activity, as well
as from brokers and analysts, and our own shareholder
interactions, to ensure that shareholders’ views are well
understood by the Board.
When it comes to our Corporate Objective, shareholders
understandably focus on our investment performance.
This informs the Board’s desire to seek healthy, risk-
adjusted returns over the long term and through the
cycles, with careful attention to capital preservation, and
mindful of the Company’s reputation as a responsible
fiduciary of shareholder capital. In assessing the right
strategy to achieve these aims, the Board considers
the ongoing suitability of the Investment Policy and, in
particular, the approach taken by the Manager to execute
on the policy.
Other areas considered by the Board where shareholder
views were taken into account were the 2021 dividend
and the approach to share buybacks (as discussed in my
Chairman’s Statement). In relation to the latter, shareholders’
desire for lower volatility in the premium or discount to NAV
at which your Company’s shares trade, helped the Board to
form a view on buying back shares accretively when trading
at a discount, where we consider it to be in shareholders’
interests. In addition, shareholder views informed the Board’s
decisions in relation to the cessation of contributions to the
Honorary President (see page 34) and the redesignation of
Jeremy Sillem as a non-independent Director following the
2020 AGM (see page 45).
The Group has relationships with a number of suppliers
and service providers which play an important role
in enabling us to operate our business efficiently.
The Groups’ overarching policy with respect to these
relationships is that they should be managed so that
they are both sustainable and mutually beneficial over
the medium term, and deliver value for money for our
shareholders (see page 32).
The Board believes that consideration of environmental,
social and governance (ESG) factors is important for the
delivery of sustainable financial returns from our portfolio,
and for the protection of the value of our shareholders’
capital. We are taking a proactive approach to this area,
and are spending considerable time refining our approach,
with advice from independent experts. Our Manager
is a signatory of the United Nations’ Principles for
Responsible Investment (UNPRI) and ESG factors form
part of the due diligence undertaken by JRCM prior to
selecting investments. Within our own activities, we have
always striven to act as good corporate citizens, to apply
robust governance and to minimise our environmental
Our Corporate Objective...informs the
Board’s desire to seek healthy, risk-
adjusted returns over the long term and
through the cycles, with careful attention
to capital preservation, and mindful of
the Company’s reputation as a responsible
fiduciary of shareholder capital.
impact. Further information is set out on pages 31, 32, 50
and 51.
Measuring performance and KPIs
While we believe our success can only truly be assessed
over the long term, we also recognise that providing
shareholders with a comparator against which to
measure our performance over shorter periods is helpful.
The strategic aims highlighted on this and earlier pages,
reflect the desire to produce real capital growth and to
exceed markets over time. These are reflected in the
following targets or key performance indicators (KPIs):
1.
2.
3.
Absolute outperformance: NAV total return in excess
of RPI plus 3.0% per annum;
Relative outperformance: NAV total return in excess
of the MSCI All Country World Index (ACWI); and
Share price total return or total shareholder return
(TSR).
The first two of these relate to our Manager’s investment
performance, with the RPI plus 3.0% KPI reflecting
the desire to produce strong absolute returns, with a
meaningful premium above inflation.
The second reflects our unconstrained global investment
approach and the desire to outperform markets over the
long term. Consistent with many investment companies,
we currently use the ACWI, which we believe is an
appropriate comparator for our global, unconstrained
approach. More specifically, we use a blended index
consisting of 50% of the ACWI measured in sterling (and
exposed to currency risk) and 50% of the sterling-hedged
ACWI.
While JRCM is tasked with managing the portfolio
to deliver a NAV return, ultimately, the return to our
shareholders is through share price growth and dividends.
We therefore also consider the TSR as our third KPI.
Incentive structure
Our approach to remuneration incorporates the Directors’
Remuneration Policy as well as specific structures within
JRCM and SHL designed to attract, motivate and retain
RIT Capital Partners plc Report and Accounts December 2020 7
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Our Purpose, Strategy and Business Model
the high-quality individuals we need to deliver our long-
term strategic aims and sustainable success.
The remuneration approach is designed to align with, and
reinforce, these strategic aims.
The Group operates an Annual Incentive Scheme (AIS) for
employees as well as longer-term share-based awards.
The cap for total payments under the AIS is 0.75% of
net assets. This approach is designed to measure and
reward the Company’s performance, and seek to provide
an appropriate balance between shorter-term awards and
longer-term incentives, as well as the need for robust risk
management.
The AIS rewards investment outperformance as
measured against two KPIs: RPI plus 3.0% and the
ACWI. It also rewards wider achievements linked not
to the NAV return, but to the Group’s five business
principles. The scheme is measured annually and includes
longer-term features such as a three-year absolute
‘high water mark’ as well as significant deferral into the
Company’s shares, which vest over three years.
The second main aspect of the remuneration approach is
a long-term incentive plan (LTIP). Following a review by
the Remuneration Committee and with external advice,
we are planning to use restricted share units (RSUs) for
future awards, which we believe will further reinforce the
alignment with shareholders.
Further details of remuneration are provided in the
Directors’ Remuneration Report on pages 44 to 48.
Shareholder communication and AGM
While this report forms a core part of the annual
communication to shareholders, there are many
additional ways to remain informed. Reflecting the nature
of our portfolio, including the allocations to external
managers (many of whom report monthly performance),
we publish a monthly NAV as soon as reasonably
practicable following the month end. Shareholders are
encouraged to visit our website, www.ritcap.com, which
provides regular updates of performance and exposure
including our monthly factsheets. I hope to meet as many
of you as possible at our AGM on 22 April, at Spencer
House, though in light of the circumstances, as we had
to do last year, this may again need to be conducted
remotely. As normal, there will also be an opportunity on
that occasion to hear directly from our Manager.
I would like to thank shareholders for their continuing loyalty
and support. These are not things we take for granted, and I
hope we will continue to justify them in the years to come.
Covid-19
Throughout this report, you will find discussion of the
impact of the Covid-19 pandemic. This ongoing feature
of our lives, means that perhaps more than ever, I would
like to offer my sincere thanks to our employees and their
families, as well as to our many advisers, counterparties
and suppliers, who have worked so hard during 2020
in often difficult circumstances, and without whom we
could not operate.
Sir James Leigh-Pemberton
Chairman
8 Report and Accounts December 2020 RIT Capital Partners plc
Manager’s Report
Overview and performance highlights
In an unprecedented year, with global output estimated
to decrease by 5% and extreme market volatility, we are
delighted to have delivered a NAV total return for the year
of 16.4%, outperforming both of our reference hurdles:
RPI plus 3.0% which measured 4.2%, and our fully-
invested equity index (ACWI) which returned 12.7%.
This year represented the ninth consecutive year of
positive returns for the portfolio, including 2018 when
global equity markets and many funds experienced
negative performance. A healthy participation in market
rises while shielding the portfolio from the worst
excesses of market sell-offs is a hallmark of our strategic
aims. As a result of this favourable asymmetric return
profile we have been able to deliver equity-type returns
with considerably less risk. For example, our three-year
NAV total return of 31.5% has exceeded the strong
market returns, though with lower volatility and reflecting
an average net quoted equity exposure of 44%.
Notwithstanding the enormous swings during the
year, global equity market indices finished with decent
absolute returns. However, there was wide disparity
across regions and sectors. Investors passively exposed
to the FTSE 100 would have experienced their worst
year in a decade, while those invested in the technology-
heavy NASDAQ, their best. For the larger part of the year,
investors sought top line growth at all costs, shunning
businesses whose earnings are more dependent on
economic growth. Positive vaccine news late in the year
jolted cyclical stocks, with investors pricing in a recovery
and a rapid re-opening of economies.
The year saw further cuts in interest rates, with negative
or near zero rates across much of the developed world.
With central bankers now accepting the prospect of
above target inflation, longer maturity yields stayed well
behaved in the face of an economic recovery.
Currency markets were also volatile, sensitive to both
macroeconomic developments and geopolitical changes.
Sterling was particularly affected by the pandemic as well
as the developments surrounding Brexit.
In terms of asset allocation, we deployed relatively
modest levels of market exposure, with net quoted equity
averaging 43% of NAV. As is often the case, it was where
this exposure was deployed, rather than the aggregate
level, that proved more important for returns. The book
was tilted towards Asian equities, particularly China,
where we continued to see value opportunities from its
expanding domestic market. We retained our allocations
to healthcare, a sector whose reputation has seen a
rehabilitation as a result of the vaccine efforts. Other
themes reflected in the quoted equities portfolio over the
course of the year included quality growth stocks, cyclical
stocks and ESG-friendly stocks.
Our allocation to private investments often targets firms
engaging in disruptive technologies in the US and Asia.
We use our unique and extensive global network to invest
either directly or indirectly through funds; with these
allocations designed to allow us to capture pre-IPO value
creation opportunities, which can be sizeable.
Asset allocation and portfolio contribution
Asset category
Quoted equity
Private investments
Absolute return and credit
Real assets
Government bonds and rates
Currency
Total investments
Liquidity, borrowings and other
Total
Average net quoted equity exposure1
31 December 2020
% NAV
48.4%
25.6%
22.5%
2.0%
0.0%
1.2%
99.7%
0.3%
100.0%
43%
2020
Contribution %
6.4%1
9.8%
2.5%
0.5%
(0.1%)
(0.6%)2
18.5%
(2.1%)3
16.4%
31 December 2019
% NAV
46.7%
25.1%
22.9%
2.9%
1.2%
1.3%
100.1%
(0.1%)
100.0%
43%
2019
Contribution %
12.7%1
2.4%
0.7%
0.9%
(0.1%)
(3.1%)2
13.5%
(1.5%)3
12.0%
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 and expenses.
RIT Capital Partners plc Report and Accounts December 2020 9
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Manager’s Report
Additionally, we continued to deploy significant capital
to non-equity strategies, designed to act as portfolio
diversifiers with low sensitivity to broad equity markets –
including absolute return and credit as well as real assets.
We actively managed our sterling levels over the year,
increasing our exposure in the final quarter and also using
options to help hedge Brexit risks, before reducing the
levels following the strong rally.
Overall the key drivers of performance for the year were:
•
•
•
•
strong performance from our quoted positions
exposed to long-term structural themes;
private investments were very well positioned to
benefit from the technology trends in the US and
Asia, within both our direct and fund portfolios;
helpful contributions from our non-equity ‘diversifiers’
including our allocations to absolute return and credit,
as well as real assets; and
the main headwinds were assets with a more
cyclical bias, which, notwithstanding a significant
recovery in the fourth quarter, detracted from
returns, as did the mark-to-market increase in our
fixed-rate loan note liability, reflecting further declines
in interest rates.
Quoted equity
This category includes directly held stocks, long-only
funds, equity hedge funds and our equity exposure
management positions.
The quoted equity portfolio had a good year contributing
6.4% to the overall NAV return.
Quoted equity portfolio by category
Long-only funds, 57%
Hedge funds, 22%
Stocks, 21%
Note: This chart includes the notional exposure from single stocks
held via equity swaps and excludes portfolio hedges.
Direct stocks, having faced a challenging start, staged
a strong comeback in the second half of the year. This
book is now largely exposed to quality growth stocks
– businesses with a proven model and the ability to
10 Report and Accounts December 2020 RIT Capital Partners plc
grow cash earnings in excess of GDP, while running
conservative balance sheets. These businesses tend
to do well in a volatile environment. The additions of
Disney and Visa in the second half of 2020 are examples
of such companies which performed well. The largest
position, Acorn, is a former private investment, and holds
underlying positions in two stocks: Keurig Dr Pepper and
JDE Peets (which listed in May).
The main detractors were mostly cyclical companies
which were significantly affected by the economic
shutdown, such as Bookings and Citigroup. The bulk of
the losses were mainly incurred during the first half of
the year and were partially mitigated by the recovery and
our addition of a basket of stocks in September, designed
to benefit disproportionately from any positive vaccine
news.
The long-only fund managers delivered excellent returns,
well in excess of markets, largely driven by our allocation
to Asian equities and particularly China. Key contributors
included Springs Opportunities as well as Ward Ferry’s
Asian Smaller Companies fund. These managers
benefited from owning innovative companies that are
addressing the evolving demands of the Asian consumer,
as well as from cyclical recovery stocks that rallied in
response to the region’s superior economic growth.
Our core holding in HCIF, a biotech specialist, continued
to benefit from the strong absolute performance of the
healthcare sector, with meaningful outperformance. One
of our key ESG exposures, Lansdowne New Energy,
benefited from the strong tailwinds in this area. More
challenging areas were those managers exposed to
non-Asian emerging markets, as well as value cyclicals,
where, notwithstanding a strong rally, they did not
recover fully from the March lows.
We made a number of new investments, including with
Discerene, a manager which invests globally, pursuing a
fundamental, contrarian and long-term value philosophy,
and with whom we are working closely.
Hedge funds also delivered strong performance,
particularly on a risk-adjusted basis, led by BlackRock
European Hedge and our long-standing position in the
Chinese fund, Gaoling. Early in the year, we allocated
additional capital to Springs Global in a new diversified
strategy focused on emerging Chinese hedge fund
managers.
In terms of geographical allocation (as shown on page 11),
our quoted equity book retains a meaningful exposure to
China and Asia more generally.
Manager’s Report
Quoted equity portfolio by geography
US, 33%
Asia, 31%
Europe, 16%
Japan, 14%
CEEMEA, 4%
LATAM, 2%
Note: CEEMEA denotes Central and Eastern Europe, Middle East
and Africa. LATAM denotes Latin America.
We continue to retain a similar level in the US, and while
this might appear low relative to global indices, it is
worth noting that a significant proportion of our private
investments are in the US.
Private investments
The private investment portfolio represented 26% of net
assets at the year end, of which 17% was held in third-
party funds and 9% in direct investments. The asset class
had a very strong year and contributed 9.8% to the overall
NAV, 4.5% from direct and 5.3% from fund investments.
Coupang was the strongest contributor in the direct
portfolio. The Korean e-commerce giant experienced
strong revenue growth and a consequent revaluation
from the general partner (GP) of the fund with which we
co-invested in this company. It has been widely reported
that Coupang is planning an IPO in the first half of 2021,
and in February 2021 the company made a preliminary
filing with the US Securities and Exchange Commission,
updating this on 1 March 2021 (see note 33 for further
details).
The portfolio also benefitted from realisations of two
positions: CSL and Credit Karma. CSL was sold in
the second half of the year at a sizeable uplift from its
carrying value, and Credit Karma was taken over by
Intuit with the transaction completing in December.
These investments generated IRRs of 25% and 33%
respectively. The aggregate contribution from both exits
represented just under 1% of NAV.
The remainder of the portfolio saw modest uplifts driven
by operational performance, with some investments
facing headwinds from Covid-19. However, given the
portfolio’s tilt towards disruptive technologies, it also
benefited from the acceleration in uptake of online
activity.
During the year we made further investments including:
a technology-enabled US insurance company, a US online
consumer financial platform as well as a promising cloud
software business. Many of these are co-investments
alongside GPs where we have established successful
relationships.
The private funds portfolio benefitted from strong
performance across many of our core holdings. The
portfolio’s targeted thematic exposure to technology
resulted in healthy returns and was the main driver of the
year’s performance. Realisations continued throughout
the year, with in excess of £93 million of distributions
from these funds.
We made approximately £145 million of new
commitments over the year to a range of private funds
– many of whom are US firms where we have existing
and successful relationships, and often with a venture or
growth bias. Utilising our strong global network, we also
made new commitments outside of the US to a mixture
of well-established and emerging managers, including
Sequoia Capital China and Firstminute, in Europe.
As normal, and reflecting this industry’s well-known
reporting lag, the bulk of our private fund positions as well
as many of our direct private co-investments, are held
at the GP’s end-September fair valuations. These are the
latest valuations available and were adjusted during the
last quarter for subsequent investments/distributions and
currency moves. We monitor any additional information or
new valuations relating to 2020 up to publication of this
report.
Absolute return and credit
The absolute return and credit book finished the year on
a strong footing and contributed 2.5% to the overall NAV.
The returns were broadly distributed across managers
and sub-strategies, with all key funds delivering a positive
return.
The book benefitted from timely additions to credit in
the early part of the year when we used the market
dislocation to opportunistically increase our allocation to
the asset class. We invested both in Europe and the US
through custom mandates with Tresidor and Farmstead.
Outside of credit, our macro managers performed well,
delivering broadly uncorrelated returns throughout the
year. Funds deploying ‘market-neutral’ strategies linked
to corporate transactions were impacted in the first half
of the year, however the strategy saw a turnaround in the
second half, ending the year profitable.
Real assets
The real assets category contributed 0.5% for the year,
mainly a reflection of our 4% in gold, which reached an
all-time high in early August. Our St. James’s investment
properties detracted slightly as demand for office space
fell, however, the residential nature of some of the
properties was supportive.
RIT Capital Partners plc Report and Accounts December 2020 11
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Manager’s Report
Currencies
2020 was an eventful year for currencies with a sharp
increase in volatility as many investors expressed
macroeconomic views through currency markets.
We also carefully use derivatives, mainly designed to
both protect the NAV against unwanted exposures (for
example currency hedging) as well as to enhance returns
through efficient structuring.
As a global investor, with often a relatively modest
allocation to UK assets (and therefore low ‘natural’
sterling exposure) the value of sterling could have a
sizeable impact on our net asset value. Over this year, we
used currency hedges against the non-sterling exposure
to maintain a historically high net weighting to sterling,
which proved beneficial as the currency gained 15%
against the US dollar from its March lows. Moreover, we
increased our exposure to sterling with options in the
latter part of the year to protect the portfolio from the
possibility of a last-minute Brexit deal, as well as a more
constructive global risk sentiment which we felt could put
pressure on the US dollar. Following the strong rally in
mid-December, we reduced sterling at the year end, and
were gratified that our careful risk management kept the
overall impact from translation to -0.6% of NAV over the
year.
30%
Currency exposure as % of NAV
US dollar
Sterling
Euro
Japanese yen
Other
18%
9%
3%
4%
6%
6%
14%
12%
59%
69%
31 December 2020
31 December 2019
0%
20%
40%
60%
80%
Note: The chart excludes exposure from currency options. Where
available, the exposures in this chart are estimated by
considering the underlying currency exposure of third-party funds
rather than by the fund’s currency of denomination.
Debt and leverage
At the year end, we held drawn borrowings of
£189 million through our revolving credit facilities, with a
further £185 million committed and undrawn.
The fair value of RIT’s £151 million loan note liability
increased over the year as gilt yields declined, triggering
an accounting mark-to-market loss of approximately £15
million. While this adjustment has a temporary impact on
fair value, it will ultimately reverse over the remaining life
of the notes.
12 Report and Accounts December 2020 RIT Capital Partners plc
Operations and costs
JRCM manages the Group on a day-to-day basis on
behalf of the Board, providing investment management,
administration and company secretarial services. At the
year end, we employed 41 people in JRCM and 12 in our
sister company, SHL.
SHL maintains and manages the investment property,
including Spencer House as well as other properties in
St James’s, and also operates an events business, albeit
this is currently in effective hibernation due to Covid-19
restrictions awaiting the ability to re-open.
It is our primary responsibility to guarantee the health
and wellbeing of our staff. Over the year, the business
followed government guidelines, with staff working
remotely. It is pleasing to report that the transition to
remote working was successful, with no disruption to the
management or administration of the portfolio.
We would like to express our gratitude to all of our staff
for their flexibility, dedication and professionalism over
what was a very difficult and challenging year.
It is a priority for JRCM to minimise the effect of costs
on NAV and shareholder returns. We therefore strive to
manage the portfolio as efficiently as possible, taking into
consideration the direct costs of the Group, as well as the
fees charged by external fund managers.
In order to provide investors with information on the
costs of RIT’s own investment business, we calculate an
ongoing charges figure (OCF) based on recommendations
from the Association of Investment Companies (AIC).
These assume no change in the composition or value of
the portfolio (therefore excluding transaction costs and
direct performance-related compensation) and excludes
finance costs. For 2020, RIT’s own OCF amounted to
0.66% (2019: 0.68%), with further information provided
on page 98.
In addition to our Group costs, RIT’s Investment Policy
includes the allocation of part of the portfolio to third
party managers, which have their own fees. These include
long-only equity and hedge fund managers, as well as
private equity and absolute return and credit funds. The
managers’ fee structure is a key consideration in our
due diligence, with the investment decision made on
the basis of expected returns, net of all fees. To assist
shareholders, we estimate that the average annual
management fees for external managers represent an
additional 0.89% of average net assets (2019: 0.90%).
Manager’s Report
This excludes performance fees/carried interest which
are typically paid for outperformance against an index or
an absolute hurdle, and deducted from the valuations we
receive. Further information on fees is provided on page
49 and 50.
Outlook
As for 2021, we believe that financial markets will
continue to reflect the balance between the pandemic’s
impact, the roll out and efficacy of the vaccines, and
government and central banks’ policy responses. If there
are challenges to the vaccination programme, we are
likely to see meaningful market volatility, given the degree
of optimism we feel is already embedded in many asset
prices. On the other hand, a smooth path to broader
immunity, may also pose a risk for stocks as it is likely to
bring us closer to the potential resurgence of inflation.
Here, the combination of record monetary and fiscal
stimulus, with a post pandemic economic recovery could
result in the transmission of asset price inflation to price
rises in the real economy.
As investors seek to adjust to such a change, they are
likely to demand an additional risk premium. And at a
time when much of the invested capital is premised on
sustained low-rates and a lack of inflation pressures, a
shift in the perception of these, could have a sizeable
impact.
Our approach in this regard is to use thoughtful portfolio
construction and a security selection process focusing
on assets with asymmetric outcomes. We are likely to
continue with our modest quoted equity exposure and
diversified themes, and have undertaken some de-risking
of some of the more frothy areas where we see risks
of overstaying our welcome. Ultimately we will seek
to continue to reinforce our approach which worked so
well in 2020 – namely our belief that robust performance
can only be driven by a resilient focus on our long-term
convictions, excellent sourcing of investments, and a
combination of discipline and agility around our portfolio
construction.
Francesco Goedhuis
Chairman and Chief Executive Officer
J. Rothschild Capital Management Limited
Ron Tabbouche
Chief Investment Officer
J. Rothschild Capital Management Limited
RIT Capital Partners plc Report and Accounts December 2020 13
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Investment Portfolio
Investment portfolio as at 31 December 2020
Investment holdings
Quoted equity1
Stocks:
Acorn2
Helios Towers
IQVIA Holdings
Walt Disney Company
Alphabet
Visa
T-mobile
Other stocks
Total stocks:
Long-only funds:
HCIF Offshore
Morant Wright3
Springs Opportunities
Ward Ferry Asian Smaller Companies
BlackRock Emerging Markets
Lansdowne New Energy
Discerene3
Sand Grove UK
Sumi Trust Japan
Emerging India Focus
Brown Advisory LATAM3
Other long-only funds
Total long-only funds:
Hedge funds:
BlackRock European Hedge Fund
Gaoling
Springs Global Strategic Partners
Tribeca
Other hedge funds
Total hedge funds:
Derivatives:
Global Value Basket
SGX Nifty 50 Futures
iShares NASDAQ Biotech ETF Swap
Other derivatives
Total derivatives:
Total quoted equity
Country/region
Industry/description
Global
Africa
United States
United States
United States
United States
United States
–
Consumer staples
Communication services
Healthcare
Communication services
Information technology
Information technology
Consumer discretionary
–
All-cap, biotechnology
Small/mid-cap, value bias
All-cap, diversified
Small/mid-cap, diversified
United States
Japan
China
Asia
Emerging Markets All-cap, value bias
All-cap, clean energy
Global
United States
All-cap, value bias
United Kingdom All-cap, diversified
Japan
India
Latin America
–
Small-cap, diversified
All-cap, diversified
All-cap, diversified
–
Europe
China
China
Global
–
All-cap, diversified
All-cap, diversified
All-cap, diversified
All-cap, commodities
–
Global
India
United States
–
Long, 0.4% notional
Short, 0.7% notional
Short, 0.5% notional
–
Value of
investments
£ million
% of
NAV
91.5
43.3
37. 9
33.5
30.0
25.6
24.1
70.0
355.9
156.7
151.5
142.9
93.4
80.5
71.7
71.1
70.0
51.6
51.1
34.4
30.7
1,005.6
156.0
108.1
62.3
29.5
17.5
373.4
0.4
0.0
0.2
5.3
5.9
2.5%
1.2%
1.1%
0.9%
0.8%
0.7%
0.7%
2.0%
9.9%
4.4%
4.2%
4.0%
2.6%
2.2%
2.0%
2.0%
1.9%
1.4%
1.4%
1.0%
0.9%
28.0%
4.4%
3.0%
1.7%
0.8%
0.5%
10.4%
0.0%
0.0%
0.0%
0.1%
0.1%
1,740.8
48.4%
14 Report and Accounts December 2020 RIT Capital Partners plc
Investment Portfolio
Investment holdings
Private investments – direct:
Coupang4
KeepTruckin4
Age of Learning4
Hippo Insurance4
EQRx4
Infinity Data Systems
NerdWallet4
Brex4
Airtable
Other private investments – direct
Total private investments – direct
Private investments – funds:
Iconiq Funds
Thrive Capital Funds
Hillhouse Funds
BDT Capital Funds
Ribbit Capital Funds
Mithril Funds
Arch Venture Funds
Eight Partners Funds
Other private investments – funds
Total private investments – funds
Absolute return and credit:
Eisler Capital Fund
Attestor Value Fund
Tresidor Credit
Elliott International
Country/region
Industry/description
Information technology
Information technology
Information technology
Information technology
Healthcare
Asia
United States
United States
United States
United States
United Kingdom Information technology
Information technology
United States
Information technology
United States
Information technology
United States
–
–
United States
United States
China
United States
United States
United States
United States
United States
–
Venture capital
Venture capital
Private equity
Private equity
Venture capital
Venture capital
Venture capital
Venture capital
–
Global
Global
Global
Macro strategy
Distressed and special situations
Distressed and special situations
Global
Global
Global
Global
United States
Global
Global
Global
RIT US Value Partnership
Sand Grove Tactical
Caxton Dynamis
Farmstead Fund
Woodline Fund
Hein Park Investors
LionTree Advisory Loan Note
iShares Core GBP Corporate Bond Swap United Kingdom Credit, long 1.4% notional
Other absolute return and credit
–
Total absolute return and credit
Real assets:
Spencer House
Multi-strategy
Multi-strategy
Multi-strategy
Macro strategy
Distressed and special situations
Multi-strategy
Distressed and special situations
Corporate loan
–
St. James’s properties
Gold Futures
Other real assets
Total real assets
Government bonds and rates:
Euro 30-year swap
Interest rate options
Total government bonds and rates
United Kingdom Investment property
United Kingdom Investment property
Long, 3.6% notional
United States
–
–
Europe
Global
Short, 4.8% notional5
Premium
Value of
investments
£ million
140.8
44.5
13.6
12.0
9.6
8.5
7.8
7.6
7.4
62.1
313.9
155.1
110.6
74.6
50.9
18.7
13.4
12.4
11.7
160.5
607.9
170.7
116.5
83.6
83.2
58.2
53.1
45.0
40.4
38.0
30.5
29.4
0.1
62.2
810.9
30.8
27.0
5.3
9.0
72.1
% of
NAV
3.9%
1.2%
0.4%
0.3%
0.3%
0.2%
0.2%
0.2%
0.2%
1.8%
8.7%
4.3%
3.1%
2.1%
1.4%
0.5%
0.4%
0.3%
0.3%
4.5%
16.9%
4.8%
3.2%
2.3%
2.3%
1.6%
1.5%
1.3%
1.1%
1.1%
0.8%
0.8%
0.0%
1.7%
22.5%
0.9%
0.8%
0.1%
0.2%
2.0%
(2.2)
(0.0%)
0.8
0.0%
(1.4)
(0.0%)
RIT Capital Partners plc Report and Accounts December 2020 15
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Investment Portfolio
Investment holdings
Other investments:
Currency forward contracts
Currency options
Total other investments
Total investments
Liquidity:
Liquidity
Total liquidity
Borrowings:
ICBC6
National Australia Bank loan
RIT Senior Notes
Total borrowings
Other assets/(liabilities)
Total net asset value
Country/region
Industry/description
Global
Various
Forward currency contracts
Premium
-
-
-
-
-
Cash at bank/margins
Revolving credit facility
Revolving credit facility
Fixed interest loan notes
Various
Value of
investments
£ million
38.6
1.9
40.5
% of
NAV
1.1%
0.1%
1.2%
3,584.7
99.7%
338.3
338.3
9.4%
9.4%
(80.2)
(108.8)
(181.5)
(370.5)
37.9
(2.2%)
(3.0%)
(5.0%)
(10.2%)
1.1%
3,590.4 100.0%
Note: where relevant, the portfolio positions are ordered by their notional exposure rather than fair value.
1 The quoted equity category includes stocks (held directly and via co-investment vehicles), funds and derivatives. As a result, the liquidity of the
individual positions may be influenced by market volumes as well as the redemption terms of the specific funds or co-investment vehicles.
2 Acorn is a co-investment vehicle which holds the Group’s interests in Keurig Dr Pepper and JDE Peet’s and was reclassified from the direct
private investment category to quoted equity at 30 June 2020.
3 These funds are segregated accounts, managed externally on behalf of the Group.
4 These investments are held through co-investment vehicles managed by a GP.
5 In relation to interest rate derivatives the notional exposure is measured in units of a 10-year equivalent bond.
6 Industrial and Commercial Bank of China.
16 Report and Accounts December 2020 RIT Capital Partners plc
Principal Risks and Viability
Risk management and internal control
The principal risks facing RIT are both financial and
operational. The ongoing process for identifying,
evaluating and managing these risks, as well as any
emerging risks, is the ultimate responsibility of the
Board and the Audit and Risk Committee. Day-to-day
management is undertaken by JRCM within parameters
set by the Board.
As an investment company, RIT is exposed to financial
risks inherent in its portfolio, which are primarily market-
related and common to any portfolio with significant
exposure to equities and other financial assets. The
ongoing portfolio and risk management includes an
assessment of the macroeconomic and geopolitical
factors that can influence market risk, as well as
consideration of investment-specific risk factors.
Your Company’s broad and flexible investment mandate
allows the Manager to take a relatively unconstrained
approach to asset allocation and utilise whatever action is
considered appropriate in mitigating any attendant risks
to the portfolio.
As described in the Manager’s Report, the Covid-19
pandemic and the policy responses were some of the key
drivers of markets throughout the year – one of the most
volatile in history. While 2020 ultimately ended with global
equity markets posting gains, many geographic markets,
sectors and stocks saw declines, in some cases sizeable.
The year whipsawed between record highs, rapid lows
and a progressive recovery. It also saw a material rotation
between the areas showing market leadership, ongoing
geopolitical concerns and the impact of government and
central bank policy responses to the pandemic. All of
which necessitated a careful and structured approach to
risk management.
In addition to equity markets, currencies were also a
key focus. As a UK company with global investments,
sterling’s exchange rate can have an important impact on
the NAV. 2020 was a particularly challenging year, with
sterling’s fortunes heavily influenced by the uncertainty
surrounding the nature of the UK’s exit from the transition
stage of Brexit. The final deal announcement in late
December 2020, saw sterling see its highest level against
the US dollar for the year, which necessitated careful
management. From an operational point of view, and in
line with our expectations, the end of the Brexit transition
period had no significant impact on our Manager’s
operations.
As a permanent capital vehicle, and unlike open-ended
funds, we do not need to manage the portfolio to
meet redemptions. With sizeable assets relative to our
modest borrowings and ongoing liabilities, as confirmed
later in this section, we do not consider the Company’s
viability or going concern to represent principal risks.
Nevertheless, and in particular at times of market stress,
the Manager utilises a detailed, day-to-day liquidity risk
management framework to help effectively manage the
balance sheet, including careful monitoring of the banking
covenants.
The Board sets the portfolio risk parameters within
which JRCM operates. This involves an assessment
of the nature and level of risk within the portfolio
using qualitative and quantitative methods. Additional
information in relation to market risk, liquidity risk
and credit risk in accordance with IFRS 7 Financial
Instruments, is shown in note 13 on pages 69 to 72.
Climate risk, and the ongoing development of the ESG
movement, is becoming a key influencer of shareholder
behaviour, corporate activity and governmental response.
As such, it will continue to influence a number of our
principal risk categories, whether in relation to the impact
on markets for us as asset owners, or through our own
operations and disclosures.
In terms of the Group’s operations, again, as with the
financial risks, these were dominated by the pandemic.
The Manager switched quickly to remote working during
March. Reflecting a combination of the nature of the
industry, the robustness of the IT infrastructure, and the
constructive, flexible and professional reaction from our
employees, the Manager was able to continue without
interruption. As a relatively small business, the ongoing
risks to staff health and well-being receive an especially
high focus and are carefully monitored.
Operational risks more generally include those related to
the legal environment, regulation, taxation, information
security and other areas where internal or external factors
could result in financial or reputational loss. These are
managed by JRCM with regular reporting to, and review
by, the Audit and Risk Committee and the Board.
The Board is responsible for the Group’s system of
internal controls and it has delegated the supervision
of the system to the Audit and Risk Committee. Such
systems are designed to manage, rather than eliminate,
the risk of failure to achieve business objectives and,
as such, can provide only reasonable and not absolute
assurance against any material misstatement or loss.
Further information is provided in the Audit and Risk
Committee Report on pages 40 to 43.
RIT Capital Partners plc Report and Accounts December 2020 17
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Principal Risks and Viability
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.”
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 Board is responsible for monitoring the investment
strategy to ensure it is consistent with the Investment
Policy and appropriate to meet the Corporate Objective.
The Directors receive a detailed monthly report from the
Manager to enable them to monitor investment performance,
attribution and exposure. They also receive a comprehensive
investment report from the JRCM CIO in advance of the
quarterly Board meetings. In response to the Covid-19
pandemic, the Board and Audit and Risk Committee held
ad hoc meetings focused on its impact on the investment
portfolio and the Manager’s operations, and ensuring that
appropriate measures were in place.
The overall risk appetite is set by the Board, with portfolio
risk managed by JRCM within prescribed limits. This involves
careful assessment of the nature and level of risk within the
portfolio using qualitative and quantitative methods.
The JRCM Investment Committee meets regularly to review
overall investment performance, portfolio exposure and
significant new investments.
The Group has a widely diversified investment portfolio which
significantly reduces the exposure to individual asset price
risk. Detailed portfolio valuations and exposure analysis are
prepared regularly, and form the basis for the ongoing risk
management and investment decisions. In addition, regular
scenario analysis is undertaken to assess likely downside
risks and sensitivity to broad market changes (including during
the year in relation to the impact of Covid-19), as well as
assessing the underlying correlations amongst the separate
asset classes.
Exposure management is undertaken with a variety of
techniques including using equity index futures and options
to hedge or to increase equity exposure depending on overall
macroeconomic and market views.
Currency exposure is managed via an overlay strategy, typically
using a combination of currency forwards and/or options
to adjust the natural currency of the investments in order
to achieve a desired net exposure. The geographic revenue
breakdown for stocks as well as correlations with other asset
classes are also considered as part of our hedging strategy.
18 Report and Accounts December 2020 RIT Capital Partners plc
Principal Risks and Viability
Financial risks
Mitigation
Liquidity risk
Liquidity risk is the risk that the Group will have difficulty in
meeting its obligations in respect of financial liabilities as they
fall due.
The Group has significant investments in and commitments
to direct private investments and funds which are inherently
illiquid. In addition, the Group holds investments with other
third-party organisations which may require notice periods in
order to be realised. Capital commitments could, in theory,
be drawn with minimal notice. In addition, the Group may be
required to provide additional margin to support derivative
financial instruments.
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.
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.
The Group manages its liquid resources to ensure sufficient
cash is available to meet its expected needs. It monitors the
level of short-term funding, and balances the need for access
to such funding and liquidity, with the long-term funding
needs of the Group, and the desire to achieve investment
returns. Covenants embedded within the banking facilities
and long-term notes are monitored on an ongoing basis for
compliance, and form part of the regular stress tests. The
Manager further enhanced, and increased the frequency of,
its monitoring of liquidity, borrowings and covenants during
March as a result of the Covid-19 induced volatility.
In addition, existing cash reserves, as well as the significant
liquidity that could be realised from the sale or redemption of
portfolio investments and undrawn, committed borrowings,
could all be utilised to meet short-term funding requirements
if necessary. As a closed-ended company, there is no requirement
to maintain liquidity to service investor redemptions. The
Depositary, BNP Paribas Securities Services (BNP) has separate
responsibilities in monitoring the Company’s cash flow.
The majority of the exposure to credit risk within the absolute
return and credit portfolio is indirect exposure as a result of
positions held within funds managed externally. These are
typically diversified portfolios monitored by the third-party
managers themselves, as well as through JRCM’s ongoing
portfolio management oversight.
Listed transactions are settled on a delivery versus payment
basis using a wide pool of brokers. Cash holdings and margin
balances are also divided between a number of different
financial institutions, whose credit ratings are regularly
monitored.
All assets held directly by the custodian are in fully
segregated client accounts. Other than where local market
regulations do not permit it, these accounts are designated in
RIT’s name. The custodian’s most recent credit rating was A
from Standard & Poor’s (S&P).
This risk is closely monitored by the Board, through its
oversight of the Manager’s incentive schemes (on which
it has received external advice) as well as the succession
plans for key individuals. The potential impact is also reduced
by an experienced Board of Directors, with distinguished
backgrounds in financial services and business.
RIT Capital Partners plc Report and Accounts December 2020 19
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Principal Risks and Viability
Operational risks
Mitigation
Legal and regulatory risk
As an investment trust, RIT’s operations are subject to wide
ranging laws and regulations including in relation to the
Listing Rules and Disclosure, Guidance and Transparency
Rules of the FCA’s Primary Markets function, the Companies
Act 2006, corporate governance codes, as well as continued
compliance with relevant tax legislation including ongoing
compliance with the rules for investment trusts. JRCM is
authorised and regulated by the FCA and acts as Alternative
Investment Fund Manager.
The financial services sector continues to experience
regulatory change at national and international levels,
including in relation to climate change. Failure to act in
accordance with these laws and regulations could result
in fines, censure or other losses including taxation or
reputational loss.
Co-investments and other arrangements with related parties
may result in conflicts of interest.
Operational risk
Operational risks are those arising from inadequate or failed
processes, people and systems or other external factors.
Key operational risks include reliance on third-party suppliers,
dealing errors, processing failures, pricing errors, fraud,
reliability of core systems and IT security issues.
The Operational Risk Committee of JRCM provides oversight
of all legal, regulatory and other operational risks across the
Group. This Committee reports key findings to the JRCM
Executive Committee and the Audit and Risk Committee.
JRCM employs a legal counsel and a compliance officer as
well as other personnel with experience of legal, regulatory,
disclosure and taxation matters. In addition, specialist external
advisers are engaged in relation to complex, sensitive or
emerging matters. For example, during 2020 the Group
engaged external advisers in supporting its consideration of
ESG matters.
Where necessary, co-investments and other transactions are
subject to review by the Conflicts Committee and/or the FCA.
Systems and control procedures are the subject of continued
development and regular review. Further details on internal
controls can be found in the Audit and Risk Committee
Report on pages 40 to 43.
Processes are in place to ensure the recruitment and ongoing
training of appropriately skilled staff within key operational
functions. Suitable remuneration policies are in place to
encourage staff retention and the delivery of the Group’s
objectives over the medium term.
Independent pricing sources are used where available and
performance is subject to regular monitoring. In relation
to more subjective areas such as private investments and
property, the valuations are estimated by experienced
staff and specialist external valuers using industry
standard approaches, with the final decisions taken by the
independent Valuation Committee, and subject to external
audit as part of the year-end financial statements.
A business continuity and disaster recovery plan is
maintained, and was revised during 2020 to reflect the
remote working protocols implemented to deal with the
impact of the Covid-19 pandemic. Cyber security continues
to receive an enhanced focus, with systems and processes
designed to combat the ongoing risk developments in this
area. Such processes are kept under regular review including
ensuring effective firewalls, internet and email gateway
security and anti-virus software. This is complemented
with staff awareness programmes (including periodic
mock phishing exercises) which monitor and test both
the robustness of our systems as well as keeping staff
alert to potential risks. During the year, the Group further
enhanced its security protocols by introducing multi-factor
authentication in relation to its upgraded remote working
platform. The Group has specific insurance cover in place to
cover information security and cyber risks.
20 Report and Accounts December 2020 RIT Capital Partners plc
Principal Risks and Viability
Viability statement
In accordance with provision 36 of the AIC Code and as
part of an ongoing programme of risk assessment, the
Directors have assessed the prospects of the Group, to
the extent that they are able, over a five-year period. As
the Company is a long-term investor, the Directors have
chosen a five-year period as this is viewed as sufficiently
long term to provide shareholders with a meaningful
view, without extending the period so far into the future
as to undermine the exercise.
The Directors confirm that they have a reasonable
expectation that the Group will continue to operate and
meet its liabilities as they fall due for the next five years.
In making this assessment, the Directors have taken
into consideration the emerging and principal risks
and mitigants set out on the preceding pages and the
impact these might have on the business model, future
performance, solvency and liquidity. In addition, the
Directors reviewed the following:
•
•
•
•
•
the Group’s current financial position (with total
assets at the year end of approximately £4.0 billion);
the nature, composition and liquidity profile of
the investment portfolio (including the significant
holdings of liquidity and the value of assets that
could be realised within a relatively short time frame
as well as over longer periods);
the term structure and availability of borrowings (of
which drawn borrowings at the year end totalled
£370 million, with committed but undrawn facilities
totaling £185 million);
the ability to satisfy the associated loan covenants
and meet the ongoing costs of the business and fund
dividends; and
the level of outstanding capital commitments
(primarily to long-term private funds) and the ongoing
distributions from this part of the portfolio.
As part of the approach, due consideration has been
given to the uncertainty inherent in financial forecasts
and, where applicable, reasonable sensitivities have
been applied to the investment portfolio in moderate and
severe stress situations, including in relation to equity
market declines, currency movements, the imposition of
restrictions on redemptions from external funds, and the
level of capital calls in respect of existing commitments.
The stress scenarios under which the loan covenants
would be breached involve severe equity market
declines as well as historically high levels of capital calls,
significantly in excess of what was experienced during
the Covid-19 driven volatility in early 2020. However,
this theoretical outcome does not take into account the
Company’s ability to adjust the portfolio composition to
avoid a breach, and to work with its lenders in order to
either avert a breach, or minimise the consequences.
With current gearing of 4.4%, and in the absence of
either a significant adverse change to the regulatory or
taxation environment, it is difficult to reasonably envisage
a situation which would threaten the ongoing viability of
the Company over the five-year time frame.
Going concern
Having assessed the emerging and principal risks and the
other matters considered in connection with the Viability
Statement, and in particular the liquidity balances totaling
£297 million and committed but undrawn borrowings
of £185 million, and cash flow forecasts for the period
to 30 June 2022, as well as what the Group considers
its readily realisable securities of £265 million, and the
amounts that could be realised from the remainder of
the portfolio, the Directors consider it appropriate to
adopt the going concern basis in preparing the financial
statements.
The Strategic Report on pages 3 to 21 was approved by
the Board and signed on its behalf by:
Sir James Leigh-Pemberton
Chairman
RIT Capital Partners plc Report and Accounts December 2020 21
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Governance
Board of Directors
Non-Executive Chairman (Independent)
Senior Independent Director
Sir James Leigh-Pemberton
Philippe Costeletos
Sir James Leigh-Pemberton is non-executive Chairman having
joined the Board of the Company as a non-executive Director in
April 2019. He is Chairman of the Nominations Committee and
a member of the Remuneration Committee and of the Valuation
Committee. He previously served as an independent non-executive
Director of the Company from 2004 to 2013.
Sir James joined UK Financial Investments (UKFI) in October 2013
as Chief Executive and in January 2014 was appointed Executive
Chairman. On 1 April 2016 he became Non-Executive Chairman
of UKFI. Following the merger of UKFI and UK Government
Investments (UKGI), he became Deputy Chairman of UKGI.
Before joining UKFI, Sir James was Managing Director and
Chief Executive Officer of Credit Suisse in the UK, based in
London. In this role, he was responsible for developing the Bank’s
client relationships in Private Banking, Investment Banking and
Asset Management in the UK. He was also a member of the Credit
Suisse Europe, Middle East & Africa (EMEA) Operating Committee.
He joined Credit Suisse First Boston (CSFB) in 1994. Prior to joining
CSFB, he was a Director of SG Warburg Securities, where he
worked for 15 years.
In the 2019 New Year Honours List, Sir James received a
knighthood for services to financial services, British industry
and government.
Non-Executive Directors (Independent)
Philippe Costeletos joined the Board as a non-executive Director in
July 2017 and became its Senior Independent Director in April 2019.
He is Chairman of the Conflicts Committee and the Remuneration
Committee and a member of the Nominations Committee, and the
Valuation Committee.
He has over 30 years’ of private investment and board governance
experience and is Founder of Stemar Capital Partners, a private
investment firm focused on building long-term investment
platforms. Philippe was formerly Chairman of International of
Colony Capital, a global real estate and investment management
firm. Previously, he was Head of Europe at TPG, a leading
global private investment firm and a member of TPG’s Global
Management and Investment Committees. Prior to that, Philippe
was a Member of the Management Committee at Investcorp, a
leading manager of alternative investment products. Previously,
Philippe held positions at JP Morgan Capital, JP Morgan’s Private
Equity Group and Morgan Stanley.
Philippe is Chairman of Mistral Fertility and a board member of
Digital Care, Vangest Group and Generation Home. He is a Senior
Advisor to the Blackstone Group. Philippe is a member of the
President’s Council on International Activities at Yale University
and the Yale Center for Emotional Intelligence Advisory Board.
He graduated magna cum laude with a BA with distinction in
Mathematics from Yale University and received an MBA from
Columbia University.
Maggie Fanari
Maxim Parr
Maggie Fanari joined the Board of the Company as a non-executive
Director in April 2019 and is a member of the Conflicts Committee
and the Remuneration Committee.
Maxim Parr joined the Board as a non-executive Director in
May 2020 and is a member of the Conflicts Committee and the
Valuation Committee.
Maggie is a Managing Director of Ontario Teachers’ Pension
Plan heading the High Conviction Equities team’s direct equities
investments for Europe, the Middle East, and Africa. She is also
responsible for supporting the build of the global strategy for
Teachers’ Innovation Platform (TIP) and the execution of that
strategy in EMEA.
Maxim started his career at Jardine Matheson and has over 15
years’ experience working in cross-border investment between
Asia and Europe. Maxim lived in Beijing for well over a decade
where, as Founder and CEO of Atlas Capital Group, he worked
alongside FTSE 100 and European corporates on their China
investment strategy in start-ups, growth capital and buyouts.
Maggie has been with Ontario Teachers’ since 2006 and was
based in Toronto until moving to London in 2015. Maggie has
structured and executed on large-scale, partnership-driven minority
investments in both public and private companies in multiple
sectors globally. She started her career as an auditor at KPMG and
previously worked in equity research at Scotia Capital.
Maggie is a Chartered Accountant and a CFA charterholder.
She also holds a BBA from the Schulich School of Business at
York University and ICD.D certification from the Institute of
Corporate Directors.
Working between Paris and Asia, Maxim is the Executive Chairman
of nr2, a cross border technology investment platform.
Maxim graduated with First Class Honours from the School of
Oriental and African Studies and was awarded the Stephen K
Hassenfeld Fellowship to study at the Hopkins Nanjing Centre of
the School of Advanced International Studies.
He is fluent in Mandarin and proficient in Cantonese, Russian,
German and French.
RIT Capital Partners plc Report and Accounts December 2020 23
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Board of Directors
Non-Executive Directors (Independent)
André Perold
Mike Power
André Perold joined the Board of the Company as a non-executive
Director in April 2018 and is a member of the Audit and Risk
Committee.
Mike Power joined the Board of the Company as a non-executive
Director in January 2014 and is Chairman of the Valuation
Committee and a member of the Audit and Risk Committee.
André is Co-Founder, Managing Partner and Chief Investment
Officer of HighVista Strategies, a Boston based investment firm. He
is a board member of the Vanguard Group, the global investment
company and also serves on the Investment Committee of the
Partners Healthcare System and for the Museum of Fine Arts. He
was previously the George Gund Professor of Finance and Banking
at the Harvard Business School where he also held senior roles
including Chair of the Finance Faculty and Senior Associate Dean.
He is a Fellow of the Institute of Chartered Accountants in England
and Wales (ICAEW) and Professor of Accounting at the London
School of Economics and Political Science, where he is a Governor
and has written extensively on risk and corporate governance
issues. He was a non-executive director of St. James’s Place
plc from 2005 to 2013 where he chaired the Risk Committee
and was a member of the Audit Committee. He remains on the
board of St. James’s Place International plc, which he joined in
September 2012 and was appointed as its Chairman in 2014.
Mike has held a number of other advisory positions, including
the Financial Reporting Lab Advisory Committee at the Financial
Reporting Council, and the Technical Development Committee of
the Institute of Risk Management. In 2016 he was elected as a
Fellow of the British Academy.
Jonathan Sorrell
Amy Stirling
Jonathan Sorrell joined the Board as a non-executive Director in
May 2020 and is a member of the Audit and Risk Committee.
Jonathan Sorrell is President of Capstone, a global alternative
investment management firm, having previously been President
of Man Group plc. As President of Man Group, Jonathan had
responsibility for global sales and marketing, certain investment
businesses (Man Global Private Markets and Man Financial Risk
Management), group strategy, and M&A. Previously, Jonathan was
Chief Financial Officer of Man Group, having joined from Goldman
Sachs where he was a Managing Director.
Amy Stirling joined the Board of the Company as a non-executive
Director in February 2015 and is Chairman of the Audit and Risk
Committee and a member of the Valuation Committee.
She is a Fellow of the ICAEW and is Chief Financial Officer of the
Virgin Group. Further to the acquisition of Virgin Money by CYBG
in October 2018, she was appointed as non-executive Director of
Clydesdale Bank plc, CYBG plc and Virgin Money plc.
Until July 2017, Amy served as a Director and Chairman of the
Audit Committee of Pets at Home Group plc. She also served as
the Chief Financial Officer of TalkTalk Telecom Group plc until 2013,
having been with the business since its start up as part of the
Carphone Warehouse Group, which she joined in 2000.
24 Report and Accounts December 2020 RIT Capital Partners plc
Board of Directors
Non-Executive Directors (Non-Independent)
Hannah Rothschild CBE
Jeremy Sillem
Hannah Rothschild joined the Board of the Company as a
non-independent non-executive Director in August 2013.
In addition, she is a non-executive director of WHAM, a Director
of Five Arrows Limited and serves as a Trustee of the Rothschild
Foundation.
Hannah is also a writer and filmmaker with a long standing career
in the media. Her first novel, The Improbability of Love was
published in the UK, US and ten other countries.
She has served as chair of the Trustees of the National Gallery,
becoming the first woman to do so.
In the 2018 Queen’s Birthday Honours, Hannah was appointed
Commander of the Order of the British Empire (CBE) for services
to the arts and to charity.
Jeremy Sillem is a non-independent non-executive Director. He
joined the Board of the Company in April 2018 and is a member of
the Nominations Committee.
He is Managing Partner and Founder of Spencer House Partners
LLP, which provides corporate finance and strategic advice to asset
and wealth management businesses.
From 2000 to 2004 he was Executive Chairman of Bear Stearns
International in London, prior to which he had a 28-year career with
Lazard in London and New York.
He was Chairman of BioPharma Credit plc, a listed investment
trust, from its formation in 2016 until 2020.
RIT Capital Partners plc Report and Accounts December 2020 25
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
J. Rothschild Capital Management
JRCM is a wholly-owned subsidiary of RIT and acts as RIT’s Manager. Directors of JRCM are listed below:
Chairman and Chief Executive Officer
Francesco Goedhuis
Executive Directors
Andrew Jones (Chief Financial Officer)
Jonathan Kestenbaum (Chief Operating Officer)
Ron Tabbouche (Chief Investment Officer)
The Executive Committee of JRCM comprises the above directors, led by Francesco Goedhuis. They are responsible for the
day-to-day management of the business. The biographies of the Executive Committee members can be found below:
Francesco Goedhuis
Andrew Jones
Francesco Goedhuis is the Chairman and Chief Executive Officer,
and also leads the Manager’s private investment strategies. He
joined JRCM as the Principal in Lord Rothschild’s Office (the
Company’s Honorary President, founder and former Chairman) in
2010. Previously, he was in New York working for the Economics
Nobel Laureate Robert Merton and the former Vice Chairman of
J.P. Morgan, Roberto Mendoza at IFL, commercialising financial
academic theory on both the buy and sell sides.
Andrew Jones is the Chief Financial Officer and Chief Risk
Officer. Prior to joining JRCM in 2008, he spent three years
in venture capital and four years at Nomura, advising on its
private equity investments as well as risk, global corporate
development and strategy. A Fellow of the ICAEW, he qualified
as a chartered accountant with Deloitte where he spent time in
audit before specialising in valuation advice.
Jonathan Kestenbaum
Ron Tabbouche
Jonathan Kestenbaum is the Chief Operating Officer. He joined
JRCM in 2011, having previously been Chief Executive of Five Arrows
Limited. He is also an adviser to philanthropic foundations connected
to Lord Rothschild and a non-executive director of WHAM. He was
previously Chief Executive of the National Endowment for Science,
Technology and the Arts. Prior to that he was Chief of Staff to the
Chairman of Apax Partners, Sir Ronald Cohen. In January 2011
Jonathan was appointed to The House of Lords.
Ron Tabbouche is the Chief Investment Officer. He joined JRCM in
2012 having previously been the Head of Investments for Managed
Portfolios at GAM. At the age of 26, he joined GAM’s Investment
Committee. Subsequently, he led the overall investment strategy
of multi-billion dollar funds across a broad range of asset classes.
Ron is an Adviser to the WHAM Investment Advisory Committee,
and is also a Member of the Investment Committee of the
Wolfson Foundation.
26 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
Introduction
The Directors present the Company’s Corporate
Governance Report. This describes our principal
governance bodies, their composition, purpose and
operation within the context of the Principles and
Provisions of the Association of Investment Companies
(AIC) Code of Corporate Governance (AIC Code) and
the UK Corporate Governance Code (UK Code) of the
Financial Reporting Council (FRC), which can be viewed
at www.theaic.co.uk and www.frc.org.uk respectively.
The AIC Code, which has been endorsed by the FRC,
adapts the Principles and Provisions of the UK Code
to make them relevant for investment companies. The
Board of Directors therefore considers the AIC Code to
represent the most appropriate governance framework
for the Company, while recognising that as a self-
managed investment trust, aspects of the UK Code
remain relevant. This report sets out how the Company
has applied the relevant principles and provisions of the
Codes during the financial year ending 31 December
2020.
Leadership
The Company has a non-executive Board, chaired by
Sir James Leigh-Pemberton. The Board is collectively
responsible for setting the Company’s long-term strategic
aims, and its ongoing business and investment strategies.
The schedule of matters reserved for the Board may be
viewed on the website, www.ritcap.com.
The day-to-day management of the business is delegated
under a formal agreement to JRCM, the Company’s
subsidiary and Manager. JRCM is managed by its
Executive Committee, led by its Chairman and CEO,
Francesco Goedhuis. The JRCM Executive Committee
attend the regular Board meetings and provide
detailed reports on investment performance as well
as all operational and financial matters of the Group.
JRCM also attends and reports to all Board committee
meetings. As a result of the Manager being a wholly-
owned subsidiary of the Company, the Board considers
that this approach provides the most effective means
to constructively challenge and scrutinise all aspects of
the Manager’s performance. It ensures all Directors are
regularly involved in the process, rather than delegating
this responsibility to a selection of Directors through a
separate management engagement committee.
As at the date of this Report, the Board comprised
ten non-executive Directors, of which eight have been
determined by the Board to be independent, with two
non-independent. This balance is intended to limit the
scope for an individual, or a small group of individuals, to
dominate the Board’s decision making.
The Company has in place a structure of five Board
Committees, with clearly defined responsibilities. This
structure of permanent Board Committees, together
with the delegation of investment management,
administration and company secretarial matters to the
Manager, is considered by the Board as appropriate for a
self-managed investment trust on an ongoing basis. The
terms of reference of each of the permanent committees
may be viewed at www.ritcap.com.
As Chairman of the Board, Sir James Leigh-Pemberton
is responsible for its leadership and effectiveness
in dealing with the matters reserved for its decision
with adequate time for consideration. This includes
ensuring a culture of openness and debate and
that Directors are properly briefed on issues arising at
Board meetings. The Chairman is also responsible for
ensuring effective communication with shareholders,
making Directors aware of any concerns raised by
shareholders and for facilitating the contribution of the
Directors.
The Audit and Risk Committee
The Audit and Risk Committee Report is shown on
pages 40 to 43.
The main features of the Group’s internal controls and
risk management are described in the Audit and Risk
Committee Report on pages 40 to 43 and in Principal
Risks and Viability on pages 17 to 21.
The Conflicts Committee
The Conflicts Committee meets at least once a year on
a formal, scheduled basis and on other occasions as
and when required. The Committee is chaired by the
Senior Independent Director, Philippe Costeletos, and
is comprised solely of independent Directors. Maxim
Parr was appointed to the Committee on 26 May 2020.
The Committee’s principal responsibility is to monitor
transactions with related parties (as described in note 17)
and to ensure that potential conflicts of interest are
avoided, or managed appropriately.
RIT Capital Partners plc Report and Accounts December 2020 27
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
The Remuneration Committee
The Directors’ Remuneration Report is shown on
pages 44 to 48.
The Valuation Committee
The Valuation Committee comprises five Directors, all of
whom are independent, and with appropriate experience.
Maxim Parr was appointed to the Committee on 26 May
2020. The Committee plays a key role in providing the
Board with assurance that the valuation process is
rigorous and independently challenged.
The Committee is chaired by Mike Power. It meets at
least twice each year and additionally as may be required.
The Committee’s principal responsibility is to review the
Company’s direct private and other investments to ensure
that they are presented in the annual and half-yearly
accounts at fair value. As a result of the inherent
subjectivity of the valuation of private investments, these
form a key area of focus for the Committee.
At each meeting, the Committee reviews a detailed
report from the Manager which includes: a valuation
report on each of the largest (above 0.20% of net assets)
directly-held private investments, including information
on the companies’ performance and valuation and/or
the GP’s valuation where relevant; a sample and overall
summary of the valuation of the smaller directly-held
private investments; a valuation report from JLL in
relation to the Company’s investment properties; the
valuation approach for the remainder of the portfolio,
including an analysis of the Company’s investments in
private funds; and a valuation of the Company’s loan
notes.
As part of its review and challenge, the Committee
considers: the consistency of the Manager’s approach
over time; the relevance and appropriateness of the
valuation techniques adopted; and a review of the
differences between the ultimate sale price and the most
recent valuation for any assets sold during the period.
Corporate Governance Report
The Nominations Committee
The Nominations Committee meets at least twice
each year and on additional occasions as required. The
Committee is chaired by Sir James Leigh-Pemberton.
In accordance with the AIC Code, the majority of its
members are independent non-executive Directors. Its
responsibilities include overseeing the process of the
appointment of new Directors to the Board, overall Board
composition, succession planning, monitoring progress
on diversity and other matters set out in its terms of
reference.
The Board had previously identified East Asia (and
China in particular) and alternative asset managers as
areas of expertise which could be enhanced and this
was addressed during the year through the elections
of Maxim Parr and Jonathan Sorrell as Directors. More
generally, consideration of candidates from a diversity
of backgrounds and experiences is a key feature of
succession planning.
The Committee also reviews the designation of Directors
as independent or non-independent. Pursuant to the 2020
AGM, the Company consulted with shareholders and as a
consequence, in July 2020, the Committee re-designated
Jeremy Sillem as a non-independent Director. At the
same time, Jeremy Sillem stepped down as a member
of both the Conflicts Committee and Remuneration
Committee to comply with the requirements of their
respective terms of reference and also (in respect of the
Remuneration Committee) the AIC Code in relation to
independent members. Further information on this can be
found on page 34.
The Committee is mindful of Board balance, experience
and diversity when considering appointments to the
Board and its terms of reference acknowledges the
benefits of diversity. The Committee is required to have
due regard for this in any process for identifying suitable
Board candidates, including considering candidates
from a wide range of backgrounds. The Board utilises its
broad range of business contacts to identify candidates
for Director appointments on the basis of their potential
contribution to the Company. During the year, the
Company was advised by Russell Reynolds Associates
to assist with this process. Russell Reynolds Associates
has no other relationships with the Group and is therefore
independent.
28 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
The current members of the five Board Committees are as follows:
Audit and Risk Committee
Amy Stirling (Chairman)
André Perold
Mike Power
Jonathan Sorrell
Remuneration Committee
Philippe Costeletos (Chairman)
Maggie Fanari
Sir James Leigh-Pemberton
Conflicts Committee
Philippe Costeletos (Chairman)
Maggie Fanari
Maxim Parr
Nominations Committee
Sir James Leigh-Pemberton (Chairman)
Philippe Costeletos
Jeremy Sillem
Valuation Committee
Mike Power (Chairman)
Philippe Costeletos
Sir James Leigh-Pemberton
Maxim Parr
Amy Stirling
Board and Committee attendance
The Board and Committee attendance of the Directors at meetings during the year is shown below. In each case the
number of meetings attended is shown first, followed by the number of meetings that the Director was eligible to
attend. Due to the impact of Covid-19, a number of Board and Committee meetings were held virtually.
Number of meetings held during the year
Chairman
Sir James Leigh-Pemberton1
Non-executive Directors
Philippe Costeletos2
Maggie Fanari
Michael Marks3
Maxim Parr4
André Perold
Mike Power
Hannah Rothschild
Jeremy Sillem5
Jonathan Sorrell6
Amy Stirling
The Duke of Wellington7
Board Audit and Risk
5
5
Conflicts
3
Nominations Remuneration
5
4
Valuation
2
5/5
5/5
5/5
3/3
2/2
5/5
5/5
5/5
5/5
2/2
5/5
3/3
–
–
–
–
–
5/5
5/5
–
3/3
2/2
5/5
–
–
3/3
3/3
–
2/2
–
–
–
1/1
–
–
–
4/4
3/3
–
–
–
–
–
–
4/4
–
–
–
3/3
5/5
5/5
–
–
–
–
–
3/3
–
–
–
2/2
2/2
–
–
2/2
–
2/2
–
–
–
2/2
–
1 Appointed as a member of the Remuneration Committee on 26 May 2020.
2 Appointed as a member of the Nominations Committee on 26 May 2020.
3 Retired as a Director on 26 May 2020.
4 Elected as a Director and appointed as a member of the Conflicts Committee and the Valuation Committee on 26 May 2020.
5 Stepped down as a member of the Audit and Risk Committee on 26 May 2020 and the Conflicts Committee and Remuneration Committee on
10 July 2020.
6 Elected as a Director and appointed as a member of the Audit and Risk Committee on 26 May 2020.
7 Retired as a Director on 26 May 2020.
RIT Capital Partners plc Report and Accounts December 2020 29
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Subject to his continued annual re-election, the
Chairman’s tenure is not intended to exceed nine years
from the date of his appointment, in line with the relevant
corporate governance expectations. Moreover, as part
of the wider annual evaluation of the Board, length of
service is a key consideration when assessing the general
requirements to regularly refresh the membership,
diversity and overall composition of the Board.
Accountability
The Board, acting where appropriate through the Audit
and Risk Committee, is responsible for determining
the nature and extent of the principal risks it is willing
to take in achieving its strategic objectives. It is also
responsible for maintaining sound risk management and
internal control systems, for setting corporate reporting,
risk management and internal control principles and
for maintaining an appropriate relationship with the
Company’s auditor. These areas are further described in
the Audit and Risk Committee Report on pages 40 to 43.
Corporate Governance Report
Effectiveness and evaluation
Many of the Directors have held or hold senior positions
in the financial services industry, including at prominent
investment banks or asset management companies. In
addition, there are Directors with considerable experience
beyond these areas, including general commercial
organisations and academia. The biographies of the
Directors and the JRCM Executive Committee on pages
23 to 26 demonstrate a strength of experience in the
areas required to oversee and implement the Company’s
strategic, investment and operational aims.
As described above, the process for the appointment
of new Directors to the Board is the responsibility of
the Nominations Committee, as is their induction and
ensuring, on an ongoing basis, that each Director is able
to allocate sufficient time to the Company to discharge
their responsibilities effectively.
JRCM provided relevant and timely information on the
financial, legal and regulatory developments during 2020
in the papers and presentations provided at Board and
Committee meetings.
The Board undertakes an annual review of its
performance, its committees and each individual
Director (including the Chairman) in accordance with
the requirements of the AIC Code. The 2020 annual
performance evaluation was led by Philippe Costeletos,
the Senior Independent Director. The evaluation took
the form of questionnaires, completed by Directors,
assessing the performance and the effectiveness of the
Chairman, Board and each of its Committees. The results
were evaluated and considered by the Board as a whole.
Key matters discussed included succession planning and
diversity, and allocation of time to business and strategy
topics at Board and committee meetings.
Overall, it was concluded that the Board and its
committees operate effectively and that each Director
continues to contribute effectively and demonstrates
commitment to the role. The evaluation highlighted areas
of focus for the next financial year, including further
incorporating ESG into our investment processes and
maintaining the effectiveness of the Board during the
challenges presented by Covid-19.
In accordance with the Codes, all Directors (other than
those retiring or standing for their first election) stand
for re-election annually, subject of course to continued
satisfactory performance. The re-election of Directors
at the forthcoming AGM is therefore recommended by
the Board.
30 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
Relations with stakeholders
The Board recognises the benefits of engaging with
our shareholders and other key stakeholders in order to
ensure that we are aware, and can take account, of their
views during Board discussions and when the Board
makes decisions. As a result, the following processes and
initiatives are in place.
Shareholders
•
an ongoing dialogue with principal shareholders,
proxy advisors and analysts is maintained and
the Manager regularly reports to the Board on its
shareholder and analyst meetings to ensure that the
members of the Board understand shareholders’
views of the Company. Moreover, the Chairman has
engaged with major shareholders and will continue
to do so each year;
•
•
•
•
•
the Board is aligned with shareholders on the
importance of ESG and has appointed a leading
international sustainability consultancy to assist in
this area. The Manager has become a signatory of
the UN Principles for Responsible Investment as part
of our commitment to further ESG integration;
a regular review of the composition of our share
register and receipt of feedback from our brokers,
including in the form of an independent survey of
shareholder views conducted by the brokers;
a designated email account (investorrelations@ritcap.
co.uk) for shareholders to communicate directly with
the Group;
the impact of Covid-19 meant that since March 2020,
our shareholder engagement activities switched
to virtual platforms. This included shareholder and
analyst meetings held by video calls to enable us to
continue engaging directly with shareholders and
continue to be informed of their views. In light of
the market turbulence caused at the onset of the
pandemic, the Manager enhanced its shareholder
communications, with a letter to all shareholders
published at the end of the first quarter of the year
following the extraordinary market turbulence at that
time, and has also added a ‘Manager Report’ to the
Half-Yearly Financial Report; and
the 2020 AGM was held remotely to follow
government guidelines and public health advice on
restricting public gatherings. Shareholders were
invited to access the AGM remotely and encouraged
to submit questions to the Directors and the
Manager in advance of the AGM and all questions
submitted were directly addressed during the
meeting.
Employees
•
the swift and successful implementation of
remote working measures and flexible working
arrangements helped to ensure the health and
well-being of our employees during the Covid-19
pandemic;
•
•
•
•
•
•
•
•
employee communication has been a priority during
remote working. Virtual ‘town hall’ meetings with
the Group’s employees were held and chaired by
the Chairman (who is designated as the Director
responsible for engagement with employees) as
well as the Chief Executive Officer of JRCM. More
generally, internal communication platforms were
enhanced to accommodate remote working and
regular communication was encouraged. This was
also used to assess resource needs, administer
employee feedback surveys, monitor sickness,
employee support and address any specific individual
challenges relating to home working;
financial assistance to casual and agency staff whose
roles were directly affected as a consequence of the
closure of our offices during this period;
an ongoing commitment to professional
development and the nurturing of talent by giving
employees the appropriate training, development
and support they need and providing them with the
opportunities to gain new skills to perform their roles
effectively;
support and investment in employees’ health and
well-being by providing a wide range of benefits that
are regularly reviewed and updated;
provision of a clear and independent whistleblowing
process;
a carefully structured performance management
process is designed to reinforce the Group’s overall
strategy and culture;
policies to ensure that we continue to provide a
safe and healthy working environment where all our
employees are treated with dignity and respect; and
provision of an employee assistance programme
providing confidential support on mental health
issues.
RIT Capital Partners plc Report and Accounts December 2020 31
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Corporate Governance Report
Suppliers
•
we place a high value on the relationships with
a broad group of key suppliers and service
providers including fund managers, our auditor and
professional advisers, our custodian/depositary,
bankers, trading counterparties, and brokers, and are
committed to developing and maintaining sustainable
and transparent working relationships over the long-
term. Understanding our fund managers’ approach to
ESG forms part of the due diligence undertaken by
JRCM prior to selecting investments; and
•
while we ensure these relationships are subject
to regular review and refreshed where necessary,
equally some of the suppliers have worked with us
for very many years. Effective management of our
supplier relationships is critical to our ability to deliver
on our broad mandate, and we utilise a combination
of formal and informal feedback, directly and via our
Manager.
Environment and the community
•
we obtained carbon neutral status for our internal
operations through participation in an accredited
scheme involving the planting of trees at primary
schools to offset our carbon footprint;
a ‘zero to landfill’ waste and recycling policy;
encouraging employees to reduce their own
environmental impact through a cycle to work
scheme;
procurement of all electricity usage in our property
portfolio from renewable sources;
facilitate employees taking advantage of ‘Give As You
Earn’ for personal charitable donations; and
various employee events to raise money for
designated charities.
•
•
•
•
•
Compliance with the Codes
It is the Board’s view that the Company has complied
with both the principles and the relevant provisions of the
Codes during the year.
The following table describes how the Board has applied
the 17 principles of the AIC Code in practice.
32 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
AIC Code Principle
Application
A. A successful Company is led by an effective Board, whose
role is to promote the long-term sustainable success of the
Company, generating value for shareholders and contributing
to wider society.
B. The Board should establish the Company’s purpose, values
and strategy, and satisfy itself that these and its culture are
aligned. All Directors must act with integrity, lead by example
and promote the desired culture.
C. The Board should ensure that the necessary resources are
in place for the Company to meet its objectives and measure
performance against them. The Board should also establish
a framework of prudent and effective controls, which enable
risk to be assessed and managed.
The Board considers the Company has continued to perform
satisfactorily during the year, with a NAV per share total
return of 16.4%. The annual internal Board evaluation, led
by the Senior Independent Director, concluded that the
Board continues to operate effectively. The Board is mindful
of its contribution to the wider society and strives to meet
its obligations through ensuring effective stakeholder
engagement by the Group. Pages 31 and 32 of this Report
illustrates initiatives contributing to the environment and
wider society.
The Directors consider that the purpose and strategy
are enshrined in the Company’s Corporate Objective and
Investment Policy, as described in the Strategic Report
(pages 5 and 6). Our values underpin and govern our Group’s
operations and are based on integrity and respect for all our
stakeholders. Together, our purpose, values and strategy
foster a strong and healthy culture of honest and open
communication and engagement between Directors and
within the wider workforce of the Group, promoting fairness,
equality and professional development. The Directors
recognise the importance of their role in monitoring and
assessing the Company’s purpose, values and strategy,
which are reinforced in meetings between the Directors and
the Manager. Furthermore, the Manager provides quarterly
updates to the Directors on how the Company’s values and
culture are being applied throughout the Group’s operations
and in the implementation of its strategy.
The Board receives from the Manager regular and detailed
information in relation to the Company’s investment
performance as well as in relation to its finance and operational
capability, including the annual budget. Performance is
measured against, and the Manager rewarded by reference
to, the published KPIs, as well as wider qualitative criteria
including in relation to risk management, controls and
promotion of the Group’s values and business principles.
RIT Capital Partners plc Report and Accounts December 2020 33
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Corporate Governance Report
AIC Code Principle
Application
D. In order for the Company to meet its responsibilities to
shareholders and stakeholders, the Board should ensure
effective engagement with, and encourage participation from,
these parties.
F. The Chairman leads the Board and is responsible for its
overall effectiveness in directing the Company. They should
demonstrate objective judgement throughout their tenure
and promote a culture of openness and debate. In addition,
the Chairman facilitates constructive Board relations and
the effective contribution of all non-executive Directors, and
ensures that Directors receive accurate, timely and clear
information.
The Board receives regular reports from the Manager in
relation to shareholder engagement as part of an extensive
investor relations programme. Shareholders are encouraged
to attend the AGM, where the Manager presents on
investment performance and strategy (in respect of the
2020 AGM, where physical attendance was not possible,
measures were put in place for shareholders to listen
remotely and submit any question to the Board and Manager
in advance of the meeting). Stakeholders are also able to
access and review all key Company literature on its website
(www.ritcap.com). Questions may be directed to the Board
or the Manager, via the registered office or a dedicated email
address (investorrelations@ritcap.co.uk).
Further to the results of the shareholder resolutions at the
2020 AGM, the Company engaged directly with relevant
shareholders to understand their concerns about the
designation of Jeremy Sillem as an independent Director.
The Board acknowledged these concerns and subsequently
re-designated him as a non-independent Director in July
2020.
The Manager also reports to the Board regularly on its
broader stakeholder engagement, as set out on pages 31
and 32.
The Chairman encourages active participation at Board
meetings, including setting the agenda items for discussion.
The Board receives a comprehensive suite of regular
information, including in-depth reports from the Manager
of performance, attribution, transactions and exposures
on a monthly and quarterly basis. The quarterly Board
meetings also include detailed reports on the finance and
operational activities of the Manager and Group, including
costs, liquidity, risk, investor relations, PR, IT, regulatory, legal
and compliance matters and HR. At these meetings, the
Manager also provides a quarterly update on ESG integration,
which is a standing agenda item.
Furthermore, Board meetings provide the opportunity for
the chairs of each Committee to present a summary of
the activities of their Committee, with minutes from the
meetings included in the Board papers.
Note: the AIC Code does not include a Provision E.
34 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
AIC Code Principle
Application
G. The Board should consist of an appropriate combination
of Directors (and, in particular, independent non-executive
Directors) such that no one individual or small group of
individuals dominates the Board’s decision making.
H. Non-executive Directors should have sufficient time
to meet their Board responsibilities. They should provide
constructive challenge, strategic guidance, offer specialist
advice and hold third party service providers to account.
I. The Board, supported by the company secretary, should
ensure that it has the policies, processes, information, time
and resources it needs in order to function effectively and
efficiently.
J. Appointments to the Board should be subject to a formal,
rigorous and transparent procedure, and an effective
succession plan should be maintained. Both appointments
and succession plans should be based on merit and objective
criteria and, within this context, should promote diversity
of gender, social and ethnic backgrounds, cognitive and
personal strengths.
The Board has delegated responsibility to key Committees,
as well as engaging the Manager under a formal investment
management and services agreement. At 31 December
2020, the Board comprised an independent non-executive
Chairman and nine non-executive Directors, of which seven
are independent, and all are independent of the Manager,
with a clear division of responsibilities between the Board
and the Manager. As such, the Board considers that its
decision making is not dominated by an individual or small
group of individuals.
The Directors consider they have sufficient time to meet
Board responsibilities. While there is a standing meeting
timetable for the Board and Committees, the Directors have
participated in additional Board and Committee meetings
as necessary, including ad hoc meetings of Board and Audit
and Risk Committee during the year to address the Group’s
response to Covid-19. The Board and Committee meetings
provide opportunities for detailed assessment of both the
Manager’s performance as well as reviewing performance of
other key service providers (see page 32).
The Manager provides company secretarial services to the
Company and, together with external specialist advisors,
ensures that Board procedures and applicable rules and
regulations are observed. Such services also include advice
and support to the Board on all governance matters and on
the discharge of Directors’ duties. Directors are able to take
independent external professional advice to assist with the
performance of their duties at the Company’s expense.
Appointments to the Board follow a careful process, led
by the Nominations Committee who identify candidates to
complement and enhance the collective skills, knowledge
and experience of the Board. This process led to the
elections of Maxim Parr and Jonathan Sorrell at the 2020
AGM and was based on a succession plan which included
identifying candidates who would provide the necessary
skills and experience to complement the existing Directors.
More generally, diversity of gender, social and ethnic
backgrounds are key considerations for the Board’s
succession planning.
RIT Capital Partners plc Report and Accounts December 2020 35
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Corporate Governance Report
AIC Code Principle
Application
K. The Board and its committees should have a combination
of skills, experience and knowledge. Consideration should
be given to the length of service of the Board as a whole and
membership regularly refreshed.
L. Annual evaluation of the Board should consider its
composition, diversity and how effectively members work
together to achieve objectives. Individual evaluation should
demonstrate whether each director continues to contribute
effectively.
M. The Board should establish formal and transparent
policies and procedures to ensure the independence and
effectiveness of external audit functions and satisfy itself on
the integrity of financial and narrative statements.
Directors’ varying backgrounds and wide-ranging experience,
including in the investing world and financial services
generally, as well as commercial businesses and academia,
ensures broad cognitive diversity, which is viewed as key in
assisting effective challenge and discipline. Biographies of
the Board are set out on pages 23 to 25 and demonstrate
the strength of experience in the areas required to provide
effective strategic leadership and appropriate governance of
the Company.
The Board seeks to ensure an appropriate balance between
continuity and experience, and the positive benefits from
refreshing membership and the development of a diverse
Board. During 2020, there were two new Directors elected.
In addition, a number of Committees were refreshed with
new members (see page 28).
The Senior Independent Director led a formal and rigorous
internal evaluation of the Board in 2020. Each Director
completed a questionnaire which evaluated the performance
of the Chairman, each Director, the Board as a whole and its
Committees. Following this review, the performance of the
Board, and each Director was considered to be satisfactory.
During the year the Board identified East Asia (and China
in particular) and alternative asset managers as areas of
expertise which could be enhanced and this was addressed
through the elections of Maxim Parr and Jonathan Sorrell as
Directors at the 2020 AGM.
The Board has delegated the assessment of the external
audit function and the review of the integrity of the Annual
Report and Accounts (ARA) and Half-Yearly Financial Report
to the Audit and Risk Committee. EY has been auditor of
the Group since 2018 and the Committee undertook an
assessment of EY’s performance in respect of the annual
statutory audit of the Group for the year ended 31 December
2019, concluding that EY had performed satisfactorily (see
page 43). The Audit and Risk Committee also performed
a detailed review of the 2019 ARA, the 2020 Half-Yearly
Financial Report and this 2020 ARA, as well as reviewing
supporting papers from the Manager, in order to ensure the
integrity of the statements (see page 40).
36 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
AIC Code Principle
Application
N. The Board should present a fair, balanced and
understandable assessment of the Company’s position and
prospects.
O. The Board should establish procedures to manage risk,
oversee the internal control framework, and determine the
nature and extent of the principal risks the Company is willing
to take in order to achieve its long-term strategic objectives.
P. Remuneration policies and practices should be designed to
support strategy and promote long-term sustainable success.
The Audit and Risk Committee reviewed the financial and
narrative statements within the 2019 and 2020 ARAs and
2020 Half-Yearly Financial Report, as well as supporting
papers and evidence from the Manager in relation to this
area. The Committee concluded that the published reports
were consistent with the fair, balanced and understandable
requirement and advised the Board accordingly. The Board
considered the Committee’s advice and its own review,
before reaching the same conclusion.
Day-to-day risk management is undertaken by the
Manager and overseen by the Audit and Risk Committee
which receives detailed reports twice a year on the risk
management and internal control functions. The Group’s
system of internal controls is administered by the Manager,
and designed to manage as far as possible the principal
risks of the Company. Further information can be found in
the Principal Risks and Viability section of the Report on
pages 17 to 21 and the Audit and Risk Committee Report on
pages 40 to 43.
The Directors’ remuneration policy was approved by
shareholders at the 2020 AGM and is in accordance with
the provisions of the Codes for non-executive Directors’
remuneration. Directors receive fixed fees without any
performance related elements. The Remuneration Committee
also has oversight of the remuneration policies and practices
within JRCM and SHL, and seeks to ensure these are tied
to the strategy and long-term sustainable success of the
Company, with clear links to the corporate KPIs (see pages 7
and 8).
RIT Capital Partners plc Report and Accounts December 2020 37
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Corporate Governance Report
AIC Code Principle
Application
Q. A formal and transparent procedure for developing
remuneration policy should be established. No director
should be involved in deciding their own remuneration
outcome.
As set out in the Directors’ Remuneration Report on
pages 44 to 48, Directors are paid on a fixed-fee basis,
as recommended by the Remuneration Committee and
approved by the Board. Such fees take account of the
fees paid by other investment trusts and the advice of its
remuneration consultant, Alvarez & Marsal.
R. Directors should exercise independent judgement and
discretion when authorising remuneration outcomes, taking
account of Company and individual performance, and wider
circumstances.
Directors are remunerated on the basis of a flat standard
fee supplemented by additional Committee membership
and chairmanship fees. There are no performance-related
aspects to Directors’ remuneration.
In the oversight of JRCM and SHL’s remuneration, Directors
ensure that it is set by reference to the performance of the
Company and individuals, relative to KPIs and individual
objectives.
In addition, as a self-managed investment trust, the Board
has also considered the following principle from the
UK Code:
UK Code Principle
Application
E. The Board should ensure that workforce policies and
practices are consistent with the Company’s values and
support its long-term sustainable success. The workforce
should be able to raise any matters of concern.
The Group’s workforce, who are employed by JRCM and
SHL, are subject to consistent standards of behaviour set out
in an employee handbook and monitored by the Manager.
All employees are expected to adhere to a standard of
conduct based on respect, courtesy and dignity, adhering to
the highest ethical standards. The employee handbook also
contains policies on equal opportunities, anti-harassment,
dignity at work, anti-corruption, whistleblowing, conflict
management and the environment.
Well-established whistleblowing procedures are in place in
which employees have available direct lines of communication
to the Chairman of the Audit and Risk Committee. More
generally, our culture seeks to encourage honest and open
communication across the Group.
The impact of Covid-19 meant that most employees worked
from home for the majority of the year. Measures were put in
place to ensure an effective transition to remote working and
also ensure ongoing support for employees during this time,
including provision of IT equipment, flexible working, regular
communications and monitoring of employee welfare.
38 Report and Accounts December 2020 RIT Capital Partners plc
Corporate Governance Report
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Report
and Accounts in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the
Directors have prepared the Group and Parent Company
financial statements in accordance with international
accounting standards in conformity with the requirements
of the Companies Act 2006. Under company law, the
Directors must not approve the financial statements
unless they are satisfied that they give a true and fair
view of the state of affairs, and of the profit or loss of the
Group and Parent Company for that period.
Under the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules, the Group financial
statements are required to be prepared in accordance
with international financial reporting standards (IFRSs)
adopted pursuant to Regulation (EC) No. 1606/2002
as it applies in the European Union. In preparing these
financial statements, the Directors are required to:
•
•
•
•
•
select suitable accounting policies and then apply
them consistently;
in respect of the group financial statements, state
whether international accounting standards in
conformity with the requirements of the Companies
Act 2006 and IFRSs adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European
Union have been followed, subject to any material
departures disclosed and explained in the financial
statements;
in respect of the parent company financial
statements, state whether international accounting
standards in conformity with the requirements of the
Companies Act 2006 have been followed, subject to
any material departures disclosed and explained in
the financial statements;
make judgements and accounting estimates that are
reasonable and prudent; and
•
prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Group and Parent Company will continue in
business.
enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the
Companies Act 2006.
The Directors are also responsible for safeguarding the
assets of the Group and Parent Company, and hence for
taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the Parent Company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that, following advice from the
Audit and Risk Committee, the Report and Accounts
taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders
to assess the Group and Parent Company’s position,
performance, business model and strategy. The Audit
and Risk Committee had reviewed the draft Report and
Accounts for the purpose of this assessment.
Each of the Directors, whose names and responsibilities
are listed in the Corporate Governance Report confirm
that, to the best of their knowledge:
•
•
the Parent Company financial statements, which
have been prepared in accordance with international
accounting standards in conformity with the
requirements of the Companies Act 2006, give a
true and fair view of the assets, liabilities, financial
position and profit for the Company;
the Group financial statements, which have been
prepared in accordance with international accounting
standards in conformity with the requirements of the
Companies Act 2006 and IFRSs adopted pursuant
to Regulation (EC) No. 1606/2002 as it applies in
the European Union give a true and fair view of the
assets, liabilities, financial position and profit of the
Group; and
the Strategic Report contains a fair review of the
development and performance of the business and
the position of the Group, together with a description
of the principal risks and uncertainties that it faces.
The Corporate Governance Report was approved by the
Board and signed on its behalf by:
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
Sir James Leigh-Pemberton
Chairman
RIT Capital Partners plc Report and Accounts December 2020 39
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Audit and Risk Committee Report
The Audit and Risk Committee
I am pleased to present the Audit and Risk Committee
Report for 2020.
This year was a particularly challenging year in terms of
the impact of Covid-19 on regular ways of working. The
Committee would like to note its thanks and appreciation
to the finance and compliance functions of the Manager
for their professionalism and determination to maintain
consistently high standards of reporting and control
across the operations of the Group throughout the year.
Committee responsibility and composition
The Committee has oversight responsibilities delegated
to it by the Board in three principal areas: financial
reporting, risk management and the external audit.
The responsibilities are set out in more detail in the
Committee’s terms of reference, which may be viewed at
www.ritcap.com.
The Committee currently comprises four Directors,
each of whom is non-executive and independent of the
Company. The Board is satisfied that I have requisite,
recent and relevant financial experience to chair the
Committee: I am a Fellow of the ICAEW, Chief Financial
Officer of the Virgin Group and have held various
executive and non-executive roles for public, private and
governmental organisations, many of which were audit
committee roles. I have also been a member of this
Committee since 30 April 2015.
The three other members of the Committee at the year
end also have recent and relevant financial experience.
Mike Power is a Fellow of the ICAEW and Professor
of Accounting at the London School of Economics and
Political Science and André Perold is Chief Investment
Officer of an investment management firm having
previously been a professor of Finance and Banking at
Harvard Business School.
In May 2020, Jeremy Sillem stood down as a member
of the Committee and was replaced by Jonathan Sorrell.
Jonathan is President of Capstone (a global asset
manager) and formerly Chief Financial Officer of Man
Group.
Our individual biographies are shown on page 24. I can
confirm that the Board considers all members of the
Committee to have sufficient recent and relevant financial
experience so as to comply with the requirements of the
2019 AIC Code and the relevant aspects of the 2018 UK
Code (together, the Codes).
Our review included the assessment and assurance
that the annual reports, taken as a whole, were fair,
balanced and understandable and provide the information
necessary for shareholders to assess the Group’s
position, performance, business model and strategy. For
both the 2019 and 2020 annual reports, we were satisfied
that this was the case and advised the Board accordingly.
We also considered the year-end reports from the
external auditor and discussed matters arising with
JRCM. The adequacy of the Group’s accounting policies
and financial reporting procedures are discussed with
the external auditor at least annually. Following these
discussions and our review of the annual reports, we
concluded that the accounting policies are appropriate for
the Company and take into account, where necessary,
new accounting standards.
We held an additional committee meeting in April 2020
to understand and assess the impact of the Covid-19
pandemic on the Group which is discussed in detail
below.
We held two further meetings, in May and November
2020, reviewing the effectiveness of the Group’s risk
management and internal controls, by reference to
reports prepared by the Manager and its internal audit
function.
We also reviewed the Group’s whistleblowing procedures
for staff to follow in the event that they might have any
concerns about possible improprieties in matters of
financial reporting or other matters. The procedures in
place provide staff with direct access to the Committee,
through myself as Chairman, and I can confirm that no
issues were raised during the year.
We recently held the first meeting of 2021, focused
on our review of the Group’s 2020 Annual Report and
Accounts.
In addition to the activities described above, significant
matters we considered during the year are set out below:
Covid-19 response
At our April interim Committee meeting, we covered the
specific areas below as those potentially most impacted
by Covid-19:
• Business continuity; and
•
Investment risk limits – relating to liquidity, covenant
compliance and general risk limits.
Committee meetings and activity during the year
We met five times in 2020; two Committee meetings
were held to review the Group’s 2019 Annual Report and
Accounts and the June 2020 Half-Yearly Financial Report.
Through our discussions we were satisfied that, having
transitioned to full remote working, the Manager had
been able to undertake all critical day-to-day functions
and remain in compliance with FCA requirements. The
40 Report and Accounts December 2020 RIT Capital Partners plc
Audit and Risk Committee Report
Group’s IT systems had performed well and all internal
control procedures had continued to be applied with
specific adaptations to enable controls to be effective
remotely. The Manager noted that in certain cases,
processes were taking longer to complete, though this
did not result in any additional risk.
We noted the increase in frequency of both formal and
informal communications with staff throughout the year
in order to provide information and support in a remote
working environment.
The Manager enhanced its daily monitoring of liquidity
and borrowings in March given the volatility experienced
in markets. While the Group has relatively modest
borrowings compared to the value that could be realised
from its total assets, nevertheless, at times of market
stress, this focus on enhanced liquidity management is a
key part of the Manager’s role. We spent time throughout
the year considering the impact of the different liquidity
profiles of the portfolio investments, and the impact
this might have on the ability to realise capital. We were
satisfied that, even at times of significant stress, the
ongoing viability of the Group was not at risk.
As part of its response to strengthen the control
environment, the Manager increased the frequency of
meetings of its own Operational Risk Committee (for
which we receive and review minutes). Investment risk
management continued to receive a high degree of focus
by the Manager reflecting its overall approach to risk as
an embedded feature of portfolio management, as well as
the unusual degree of market and asset volatility.
Our ongoing assessment of the actual and potential
impact of the pandemic continued throughout the year,
with each meeting devoting time to review updates.
The valuation of direct private investments and other
assets
Direct private investments comprise approximately 9%
of net assets. By their very nature such investments
merit individual attention when considering their fair
value. The estimation of fair value requires the exercise of
considerable judgement and in many instances the use
of a range of valuation techniques, as well as a degree of
reliance on external managers. This subjectivity means
that there is a higher degree of uncertainty in such
valuations compared with those of other assets.
We have considered the work of the Valuation Committee
and the results of their discussions with both the
Manager and the external auditor. We view the work as
detailed, comprehensive and that the persons preparing
the reports have sufficient and appropriate expertise
through their experience and qualifications. Furthermore,
we believe that the process is planned and managed so
as to devote adequate time and resource to preparation
and review by both the Manager and the members of the
Valuation Committee.
We also considered the work of the Valuation Committee
as it relates to other assets in the portfolio. Here, the
combination of detailed processes, rigorous analysis and,
where relevant, external advice has provided comfort over
the portfolio valuations. Two members of this Committee,
myself included, also sit on the Valuation Committee. This
Committee also receives an executive summary of the
Manager’s main valuation report as well as the minutes
from the Valuation Committee.
Investment risk limits (IRLs)
The Board establishes and oversees the risk appetite
through high-level asset allocation and security limits.
These IRLs establish the parameters within which the
Manager is normally expected to manage the portfolio
on an ongoing basis. Over time these have been
incrementally expanded to include areas of more granular
portfolio management. As a result, we agreed with the
Manager (and which was ultimately approved by the
Board) to divide the limits between a smaller number of
key Board IRLs, while delegating the remainder to JRCM
as part of its ongoing portfolio management with the
details of all limits continuing to be disclosed monthly to
the Board in the Manager’s investment report.
Operational due diligence
In November, the Committee met with the Manager’s
Operational Due Diligence Executive who presented on
the process used to assess and monitor the operational
robustness of current and potential third-party investment
managers. The Committee discussed the impact of
remote working on the effectiveness of due diligence and
the responsiveness of managers to requests for further
information. It was noted that this key function within the
Manager was of increasing importance given the breadth
of investment managers within the portfolio.
Post-Brexit environment
As a global investor, one of the many geopolitical factors
which influenced market risk during 2020 was the end
of the transition period following the United Kingdom’s
departure from the European Union. As neither of our
operating subsidiaries have business activities within
the European Union, there was no direct operational
impact. The ongoing impact of the Brexit situation on
market risk was considered as a normal part of portfolio
management.
RIT Capital Partners plc Report and Accounts December 2020 41
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Audit and Risk Committee Report
Internal audit and compliance
As part of the review of the control environment, the
Manager undertakes an internal audit of selected areas
agreed with the Committee. The 2020 internal audits
included reviews of liquidity management, derivative
risk management and counterparty risk management
with additional focus on new controls that have been
implemented as a result of remote working. No material
weaknesses were identified through the course of this
review.
The Manager also reports to the Committee the results of
its monitoring of external managers’ compliance with the
terms of their investment management arrangements,
as well as periodically reviewing their own control
procedures.
The Board has reviewed the effectiveness of the key
systems of internal control in operation during the
financial year, and up to the date of this report, through
the Committee. During the reviews conducted, the
Committee has not identified or been apprised of
any failings or weaknesses representing a significant
business risk.
FRC review
The Conduct Committee of the FRC is a body authorised
by the Secretary of State to review and investigate the
annual accounts, strategic reports and directors’ reports
of public and large private companies for compliance
with relevant reporting requirements. Their reviews are
solely based on the contents of report and accounts
without detailed knowledge of the specific businesses or
underlying transactions, however they are conducted by
staff who understand the relevant legal and accounting
framework.
In September 2020 we received a letter from the Conduct
Committee informing us that a review of the 2019 Report
and Accounts had been performed. I am delighted to
report that this letter stated that the FRC’s review had
raised no queries or concerns.
Related party disclosures
Related party transactions are a common feature
of commerce and business. The Group often takes
advantage of opportunities offered to it, or services
provided to it via many relationships built up over time
(including those arising from Board members). Disclosure
of such transactions is a requirement in order to allow
shareholders and other users of the financial statements
to assess the risks and opportunities facing the Group.
We consider the work of the Conflicts Committee in
reviewing advisory services, co-investment transactions
and any other similar arrangements with any related
parties and have discussed with the Manager the
systems and processes in place to identify, review, record
and disclose such transactions. We note the importance
the Board and the Manager place upon the work of the
Conflicts Committee. We have reviewed the disclosures
made in the financial statements regarding such
transactions and consider that the necessary disclosures
have been made.
Internal control
The Board of Directors is responsible for the Group’s
system of internal control although it has delegated
the supervision of the system to this 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.
The Board has delegated to the Manager the
implementation and day-to-day management of the
system of internal control within an established
framework acceptable throughout the Group. The system
of internal control is reviewed twice each year by the
Committee, using a comprehensive report prepared by
the Manager. The report outlines each of the principal
risks and their management, covering all aspects of
financial risks (including market risk, liquidity risk etc)
and operational risk (including key man risk, information
security risk etc) as is summarised in the Principal Risks
and Viability section on pages 17 to 21. The relative
importance of each principal risk is assessed by reference
to the possible impact on the Group’s net asset value or
share price should a loss occur, alongside the likelihood of
that loss occurring, taking into consideration the existing
control environment.
The Committee considers that the procedures in place
are consistent with the Guidance on Risk Management,
Internal Control and Related Financial and Business
Reporting published by the FRC in September 2014.
42 Report and Accounts December 2020 RIT Capital Partners plc
Audit and Risk Committee Report
information on fees paid to the auditor is set out in note 5
to the financial statements.
The Committee considered EY’s independence,
objectivity, and the effectiveness of the audit process
with the benefit of formal and informal feedback from the
Manager and concluded satisfactorily on each of these
points.
Amy Stirling
Chairman, Audit and Risk Committee
External auditor
The external auditor is Ernst & Young LLP (EY), who have
completed their third annual audit.
EY attended all meetings of the Committee relevant
to them and provided reports on their audit approach
and work undertaken, the quality and effectiveness of
the Group’s accounting records and their findings in
connection with the Group’s annual statutory audit for the
year ended 31 December 2020. I have also had regular
contact with the lead audit partner during the year.
The level of non-audit services provided to the Group by
the auditor is subject to pre-approval in accordance with
our policy on non-audit services and is monitored, as
is the auditor’s objectivity in providing such service, to
ensure that the independence of the audit team from the
Group is not compromised. Non-audit services provided
by EY in 2020 totalled £40,000 for audit-related assurance
work (regarding JRCM’s regulated activities). Their
selection for this work was based on cost efficiency and
synergies with the audit process and these services are
permitted by the FRC’s revised Ethical Standard. Further
RIT Capital Partners plc Report and Accounts December 2020 43
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Directors’ Remuneration Report
Introduction
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for the year ended
31 December 2020.
There are no performance conditions relating to Directors’
fees and they are not entitled to any long-term incentive
or pension schemes. No compensation is payable on loss
of office.
The objective of our approach to remuneration is to
attract and retain talented Directors and senior executives
in order to help deliver sustained superior returns for our
shareholders over the long term.
Having successfully transitioned to a conventional,
non-executive Board, and in line with the three-yearly
timetable, the current Directors’ Remuneration Policy was
approved by shareholders with 99.9% of the vote at the
2020 AGM.
Committee structure and responsibilities
I have chaired the Committee since 22 July 2019,
having previously served on it since 26 April 2018. As at
31 December 2020, the Committee included two further
independent non-executive Directors: Sir James Leigh-
Pemberton (who joined the Committee on 26 May 2020)
and Maggie Fanari (who has been on the Committee
since 25 April 2019). The Committee meets at least twice
a year on a scheduled basis and additionally as may be
required.
As well as the remuneration of RIT Directors, the
Committee is also responsible for oversight of the
remuneration policies associated with our operating
subsidiaries – JRCM and SHL. Here, incentive schemes
are in place, tailored to the respective businesses and
we spent time during 2020 reviewing these to ensure
they were appropriately structured and aligned with
shareholders’ interests.
The Directors’ Remuneration Policy and Remuneration
Report have been prepared in accordance with the Listing
Rules of the FCA, the relevant sections of the Companies
Act 2006 and The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment)
Regulations 2013 as amended in 2018. It also sets out
how it has applied the principles of the Codes relevant to
the Company.
Directors’ Remuneration Policy
In accordance with the provisions of the AIC Code and
the UK Code, non-executive Directors’ remuneration
reflects their duties and time commitments and is set at
a reasonable level which is consistent with the
requirement to attract and retain Directors of the
appropriate quality and experience. The Board’s policy is
that the fees paid to the non-executive Directors should
reflect the experience of the Board as a whole, be fair
and should take account of the level of fees paid by other
investment trusts. Any views expressed by shareholders
on the fees being paid to Directors will be taken into
consideration by the Board when reviewing the Directors’
Remuneration Policy.
Furthermore, the Company’s Articles of Association
currently limit the aggregate base fees of the non-
executive Directors (excluding the Chairman) to £400,000
per annum. The non-executive Directors receive base fees
and Committee chairmanship and membership fees. They
are not eligible for any other remuneration or benefits
apart from the reimbursement of allowable expenses.
44 Report and Accounts December 2020 RIT Capital Partners plc
The Committee is responsible for recommending the
fees paid to the non-executive Chairman and Directors,
by reference to the roles and time commitment of each
individual concerned. The final determination of the fees
payable to non-executive Directors is a matter for the
Board of Directors as a whole.
The overall fee structure is assessed in part by reference
to other companies of similar size and business
objectives. The Committee seeks information and advice
as required, including from JRCM management.
The Remuneration Committee appointed a remuneration
specialist from Alvarez & Marsal, to provide the
Committee with advice. During the year, fees of
approximately £22,500 were paid to Alvarez & Marsal
and AON Hewitt (previous remuneration adviser) in
respect of their advice. Alvarez & Marsal abides by the
Remuneration Consultant’s Code of Conduct which
requires it to provide objective and impartial advice. It has
no other relationships with the Group and is therefore
independent.
In accordance with Chapter 6 of the Companies Act
2006, the Directors’ Remuneration Policy applies
to the Directors of the Company, all of whom are
non-executives.
The Remuneration Committee also has oversight of the
remuneration structures of JRCM and SHL. JRCM is a
regulated entity whose remuneration arrangements are
governed by the FCA’s applicable Remuneration Codes.
Incentive structures
In accordance with the relevant principles of the Codes,
the Remuneration Committee has sought to ensure that
there is an appropriate Group-wide incentive structure
to attract, motivate and retain the high-quality individuals
we need to deliver our long-term strategic aims and
sustainable success. The remuneration approach is
designed to align with and reinforce these strategic aims.
Directors’ Remuneration Report
The Group operates an Annual Incentive Scheme (AIS) for
employees as well as longer-term share-based awards.
The annual cap for total payments under the AIS is 0.75%
of net assets. Our approach is designed to measure and
reward the Company’s performance, and seeks to provide
an appropriate balance between shorter-term awards and
longer-term incentives, as well as the need for robust
risk management. Following an extensive review with
our advisers during the year, we are satisfied with the
suitability of the AIS in order to meet our objectives.
The scheme rewards investment outperformance as
measured against two KPIs: RPI plus 3.0% and the ACWI.
It also rewards wider achievements not directly linked to
the NAV return. The AIS is measured annually and includes
longer-term features such as a three-year absolute ‘high
water mark’ as well as significant deferral into RIT shares
(which vest over the subsequent three years).
We are satisfied that rewards are linked to the strong
investment outperformance achieved in 2020. Decisions
made by the Committee have followed a careful appraisal
of Company performance and at all times aim to reinforce
shareholder alignment, both through the link to our
objectives and also the payment via shares.
The Remuneration Committee retains the ability to
clawback elements of previous awards if necessary.
The second main aspect of the remuneration approach is
a long-term incentive plan (LTIP). Here we also carefully
considered the appropriate structures used for longer-
term incentives, shareholder alignment and retention.
With advice from Alvarez & Marsal, we have decided
to switch from share appreciation rights (SARs) and
performance shares to restricted share units (RSUs) for
future awards. These have the advantages of reinforcing
shareholder alignment and greater simplicity, in contrast
to SARs which are used much less frequently in the
market. The RSUs vest after three years and then have a
further two-year lock up before the shares can be sold.
They also incorporate qualitative performance standards,
as well as malus and clawback features.
Consulting with shareholders
Where appropriate, the Committee is responsible
for ensuring that there is pro-active engagement and
consultation with major shareholders and shareholder
representatives in respect of remuneration.
Further to the 2020 AGM in May, the Company consulted
with a number of shareholders and proxy advisors regarding
contributions that had been made towards the office
and medical insurance costs of the Company’s Honorary
President, founder and former Chairman, Lord Rothschild.
Based on these discussions, the Committee made a
decision to cease these contributions from September 2020
and no further contributions are planned. No other payments
were made to past Directors during the year.
We are grateful for the valuable comments, perspectives,
and specific feedback provided. Our goal is to continue
our dialogue with shareholders on a regular basis
to ensure that our policies reflect good corporate
governance and stay aligned with investor expectation.
External non-executive Directorships
Where a Directorship is accepted in furtherance of the
Group’s business, any fees received are remitted to
the Group. If the appointment is not connected to the
Group’s business, the Director is permitted to retain any
fees received.
Non-executive Directors’ remuneration
The remuneration of the non-executive Chairman and
Directors is determined by the Board as a whole. Non-
executive fees are reviewed periodically by the Board
with reference to market levels in comparably sized
listed companies. The Board has discretion to periodically
review and amend fee rates; the current fee rates are
listed below:
Base fee:
Non-executive Chairman1
Non-executive Director
Additional fees:
Senior Independent Director fee
Committee membership fees:
Audit and Risk Committee
Conflicts Committee
Nominations Committee
Remuneration Committee
Valuation Committee
Audit and Risk Committee Chairmanship2
All other Committees’ Chairmanship fee
(per committee)2
£150,000
£30,000
£7,500
£6,000
£3,000
£4,000
£4,000
£6,000
£10,000
£7,500
1 The non-executive Chairman fee is inclusive of membership of Board
Committees.
2 The Committee Chairmanship fees are in addition to the Committee
membership fees.
The non-executive Directors each have letters of
appointment that are subject to termination upon one
month’s written notice on either side. The non-executive
Chairman’s letter of appointment provides for six months’
notice on either side.
The letters of appointment for the non-executive
Directors are available for inspection at the Company’s
registered office.
Annual report on remuneration
The annual report on remuneration will be put to
an advisory shareholder vote at the 2021 AGM. The
information on pages 46 to 47 has been audited where
required under the regulations and is indicated as audited
information where applicable.
RIT Capital Partners plc Report and Accounts December 2020 45
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Directors’ Remuneration Report
Directors’ remuneration – audited
Non-executive Director
Chairman
Year ended
31 December 2020
Salary/
fees
£
Bonus
£
Taxable
benefits
£
Long-term
incentive
£
Pension
allowance
£
Total
remuneration
£
Sir James Leigh-Pemberton
150,000
Directors
Philippe Costeletos
Maggie Fanari
Michael Marks1
Maxim Parr2
André Perold3
Mike Power
Hannah Rothschild
Jeremy Sillem
Jonathan Sorrell4
Amy Stirling
The Duke of Wellington1
67,895
37,000
12,500
23,350
36,000
49,500
30,000
40,215
21,554
52,000
12,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,714
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,000
67,895
37,000
12,500
23,350
43,714
49,500
30,000
40,215
21,554
52,000
12,500
1 Michael Marks and the Duke of Wellington retired as Directors of the Company on 26 May 2020.
2 Maxim Parr was appointed as a Director of the Company on 26 May 2020.
3 André Perold received £7,714 in benefits relating to travel from the US.
4 Jonathan Sorrell was appointed as a Director of the Company on 26 May 2020.
Note: Lord Rothschild, the Company’s Honorary President, founder and former Chairman, received a contribution of £41,250 towards his office
and medical insurance costs for the nine months up to and including September 2020, after which time these contributions ceased.
Director
Chairman
Sir James Leigh-Pemberton1
Lord Rothschild3
Directors
Philippe Costeletos
Maggie Fanari4
Michael Marks
André Perold5
Mike Power6
Hannah Rothschild
Jeremy Sillem
Amy Stirling
The Duke of Wellington
Year ended
31 December 2019
Salary/
fees
£
Bonus
£
Taxable
benefits2
£
Long-term
incentive
£
Pension
allowance
£
Total
remuneration
£
54,731
200,962
53,860
25,188
36,190
36,000
49,500
30,000
44,065
52,000
44,269
–
–
–
–
–
–
–
–
–
–
–
–
33,538
–
–
–
29,817
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,500
54,731
272,000
–
–
–
–
–
–
–
–
–
53,860
25,188
36,190
65,817
49,500
30,000
44,065
52,000
44,269
1 Sir James Leigh-Pemberton was appointed as a Director of the Company on 25 April 2019 and as non-executive Chairman on 1 October 2019.
2 Taxable benefits include provision of a company car, health insurance, an annual health assessment and certain travel expenses.
3 Lord Rothschild retired as Chairman and Executive Director on 30 September 2019. His remuneration includes salary and benefits for the
period served.
4 Maggie Fanari was appointed as a Director of the Company on 25 April 2019.
5 André Perold received £29,817 in benefits relating to travel.
6 Mike Power also received fees of £5,213 as a Trustee of the RITCP Pension and Life Assurance Scheme up to 15 May 2019, when he retired as
a Trustee.
46 Report and Accounts December 2020 RIT Capital Partners plc
Directors’ Remuneration Report
Fees
The total fees payable to Directors for the year was
£532,514 (compared to £626,765 in the year ended
31 December 2019). This includes the Directors’ base
fees (subject to a cap) as well as committee fees.
Except as stated in note 17 to the financial statements no
Director has, or has had during the year under review, any
beneficial interest in any contract or arrangement with the
Company or any of its subsidiaries within the terms set
out in the FCA Listing Rules.
The aggregate base fees of the non-executive Directors
(excluding the Chairman) for the year was £270,924,
which was within the £400,000 limit for such fees under
the Company’s Articles of Association.
Relative importance of spend on pay
The following table shows the year-on-year movement
in total remuneration of all employees, compared to the
dividends paid.
£ million
Total staff costs
Dividends
Year ended
31 December
2019
22.3
Year ended
31 December
2020
35.9
52.6
54.7
Change
13.6
2.1
Statement of shareholder voting
Votes in respect of the resolution to approve the
Directors’ Remuneration Report at the Company’s AGM
in May 2020 were cast as follows:
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Number of
shares
54,665,997
8,175,770
62,841,767
17,029,086
% of
votes cast
86.9%
13.1%
100.0%
–
Votes in respect of the resolution to approve the
Directors’ Remuneration Policy at the Company’s AGM in
May 2020 were cast as follows:
Votes cast in favour
Votes cast against
Total votes cast
Votes withheld
Number of
shares
75,438,607
62,857
75,501,464
4,367,470
% of
votes cast
99.9%
0.1%
100.0%
–
The non-Executive Chairman’s fee for 2021 remains at
£150,000.
Statement of Directors’ Shareholdings – audited
The interests of the Directors holding office at
31 December 2020 in the ordinary shares of the
Company are shown below:
Ordinary shares
of £1 each
Sir James
Leigh-Pemberton
Philippe Costeletos
Maggie Fanari
Maxim Parr
André Perold
Mike Power
Hannah
Rothschild1
Jeremy Sillem
Jonathan Sorrell
Amy Stirling
31 December 2020
Beneficial
Non-
beneficial
% of voting
rights
5,855
51,850
–
–
–
1,202
–
–
–
–
–
–
14,338,613
14,979
2,429
2,058
15,193,064
–
–
–
–
0.03%
–
–
–
–
18.84%
0.01%
–
–
1 The majority of the beneficial interests shown in the table above
for Hannah Rothschild are in respect of shares held via trusts or
companies where she is either one of the beneficiaries or one of
the individuals able to exert significant influence. Similarly, the
non-beneficial interests are held through a charitable foundation
where Hannah is one of the controlling trustees.
Between the end of the year and the date of this report,
there were no changes in the Directors’ interests.
Requests from the Chairman for permission to deal
in the ordinary shares of the Company are considered
by the Senior Independent Director. Requests from
other Directors are referred to the Chairman or Senior
Independent Director. Employees of the Group are
subject to approval by the JRCM Executive Committee
and/or JRCM’s Compliance Officer.
RIT Capital Partners plc Report and Accounts December 2020 47
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Directors’ Remuneration Report
Performance graph
In accordance with the Directors’ Remuneration Report regulations, a performance graph which measures the
Company’s TSR over the period from 31 March 2010 against that of a broad equity market index is shown below. This
is calculated by reference to the Company’s share price including dividend reinvestment. The Committee considers
the ACWI to be the most suitable index for this purpose, being a KPI. In addition, the graph includes the Company’s
absolute return hurdle of RPI plus 3.0%. Further information can be found in the Company’s Strategic Report.
300
260
220
180
140
100
60
Mar
2010
RIT total shareholder return
ACWI
RPI plus 3.0%
Mar
2011
Mar
2012
Dec
2012
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Dec
2020
Audit
The tables in this report on pages 46 to 47 have been audited by Ernst & Young LLP.
The Directors’ Remuneration Report on pages 44 to 48 was approved by the Board and signed on its behalf by:
Philippe Costeletos
Chairman, Remuneration Committee
48 Report and Accounts December 2020 RIT Capital Partners plc
Directors’ Report
Directors’ Report: statutory and other disclosures
The Directors present their report and audited financial statements for the year ended 31 December 2020.
Business review and future
developments ............................... page 3
Corporate governance ............... page 27
Directors’ remuneration ..............page 44
Directors’ shareholdings .............page 47
Dividend ........................................page 3
Risk management
and internal control .................... page 17
The section above identifies where certain information required to be disclosed in the Directors’ Report, is shown within
other sections of the Report and Accounts, starting on the page indicated. Additional statutory disclosures are set out below.
Status of Company
The Company is registered as a public company and is
incorporated in the UK and registered in England and
Wales (Company Registration Number 2129188). It
conducts its affairs so as to qualify for approval as an
investment trust for tax purposes, and has been accepted
as an approved investment trust by HMRC, subject to
continuing to meet eligibility conditions. The Directors
are of the opinion that the Company has conducted its
affairs in a manner which will satisfy the conditions for
continued approval as an investment trust under Section
1158 of the Corporation Tax Act 2010.
The Company’s subsidiaries are mainly engaged in
investment activities and the activities of the Group are
principally undertaken in the UK.
Directors
The Directors at the date of this report are listed on
pages 23 to 25.
During the year ended 31 December 2020:
Directorate changes
•
Maxim Parr and Jonathan Sorrell were both elected
as Directors by shareholders at the AGM held on
26 May 2020; and
•
Michael Marks and the Duke of Wellington both
retired as Directors on 26 May 2020.
Committee composition
•
Maxim Parr was appointed as a member of the
Conflicts Committee and Valuation Committee on
26 May 2020;
•
•
•
•
Jonathan Sorrell was appointed to the Audit & Risk
Committee on 26 May 2020;
Philippe Costeletos was appointed to the
Nominations Committee on 26 May 2020;
Sir James Leigh-Pemberton was appointed to the
Remuneration Committee on 26 May 2020; and
Jeremy Sillem stepped down as a member of the
Audit & Risk Committee on 26 May 2020 and the
Conflicts and Remuneration Committees on 10 July
2020.
Corporate Objective
The Company’s Corporate Objective is: “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.”
Investment Policy
The Company’s Investment Policy is: “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.”
Asset allocation and risk diversification
The Group’s assets continue to be allocated across a
diversified range of asset classes, geographies, industries
and currencies. There are no external restrictions on the
allocation of assets. The portfolio is further diversified
through the use of external managers with different
mandates. Exposures are monitored and managed by
JRCM under the supervision of the Board.
Gearing
The Company maintains structural gearing principally
through fixed-rate private placement notes and revolving
credit facilities. At 31 December 2020, the drawn
indebtedness was £370 million with debt held at fair
value, or £340 million with debt held at par value. This
represented net gearing calculated in accordance with
AIC guidance of 4.4%.
The maximum indebtedness that the Company is
empowered to incur under its Articles of Association is
five times its adjusted capital and reserves.
Further information is shown under debt and leverage on
page 12.
Direct and indirect investment management fees
Consistent with the Investment Policy, the Company
invests a significant proportion of the portfolio with
external managers. The majority of the management and
performance fees charged by such managers are incurred
indirectly by the Company as they are included within the
fund investment valuations and therefore form part of the
investment return. Five fund investments are structured
as segregated accounts. Here, the fees are incurred
directly by the Company (see note 3 on page 64).
RIT Capital Partners plc Report and Accounts December 2020 49
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Directors’ Report
Fees within the long-only equity funds, whether
structured as segregated accounts or otherwise, typically
involve a 1% per annum management fee and in some
cases a performance fee for outperformance relative to
a benchmark. The hedge funds and absolute return and
credit funds are slightly higher – typically a 1% to 2%
management fee and a 15% to 20% performance fee.
Private equity fees are structured differently and will
usually have a 1% to 2% annual charge (often based on
commitments in early years and declining over time with
realisations), as well as a 20% carried interest above an
8% hurdle.
Aggregate management fees (excluding performance
fees and net of fee rebates) for the external funds for
2020 have been estimated at 0.89% of RIT’s total
average net assets (2019: 0.90%).
Share capital
At 31 December 2020, the issued share capital
comprised 156,848,065 £1 ordinary shares, of which
116,040 were held by the Company in treasury following
a series of share buy backs undertaken during the year.
Further details are shown in note 20 on page 78.
No £1 ordinary shares were issued during the year and
the existing shareholder authorities given to the Company
at the last AGM to allot and purchase shares will expire
at the conclusion of the Company’s forthcoming AGM
scheduled for 22 April 2021. At the AGM, shareholders
will be asked to renew these authorities, as explained in
the separate Notice of the meeting.
Major holders of voting rights
As at 31 December 2020, the following notifications
had been received from the holders of 3% or more of
the voting rights conferred through the direct or indirect
holding of the Company’s ordinary shares of £1 each.
31 December 2020
Total number
of shares
% of
voting rights5
Major holders of
voting rights1
Lord Rothschild2,3
Hannah Rothschild2
The Rothschild
Foundation2
19,415,083
15,193,064
15,181,204
Five Arrows Limited4
6,757,835
Direct or
indirect
Indirect
Indirect
Direct
Direct
12.39
9.69
9.68
4.31
1 The above table does not include Lord Rothschild’s or Hannah
Rothschild’s direct voting rights in shares in the Company which are
below the notifiable threshold.
2 As Lord Rothschild and Hannah Rothschild are trustees of the
Rothschild Foundation, the above notifiable interests include the
same 15,181,204 shares held by this charity (which also represent
Hannah Rothschild’s non-beneficial interests on page 47 under
Directors’ shareholdings).
3 Part of Lord Rothschild’s holdings include entities where Hannah
Rothschild is one of the beneficiaries, and therefore the relevant
shares also form part of her beneficial interests on page 47.
4 Lord Rothschild and Hannah Rothschild have an indirect beneficial
interest in the shares of the Company held by Five Arrows Limited.
50 Report and Accounts December 2020 RIT Capital Partners plc
5 The total interests notified to the Company that directly relates to,
and is overseen by, the family offices of Lord Rothschild and Hannah
Rothschild (including shares in which Lord Rothschild and Hannah
Rothschild do not have voting rights conferred through a direct or
indirect holding) is 21.10%.
As at 26 February 2021, the voting rights in the above
table remained unchanged.
There are no restrictions or significant agreements that may
restrict, on a change of control, transfer of securities in the
Company or the voting rights attached to those securities.
The shares of the Company qualify for inclusion within an
Individual Savings Account.
Corporate responsibility
The Board is responsible for ensuring that appropriate
standards of corporate responsibility are adopted within
the Group, with day-to-day responsibility residing with our
Manager.
Within our own Group activities, we have always sought
to ensure we act as good corporate citizens through
minimising our environmental impact, and robust
corporate governance reinforced with an awareness of
our social responsibility.
In respect of the environment the Board considers
our direct impact is low. The Company considers the
largest environmental impact is the emissions from
business travel, and from our premises. Where possible,
executives will only travel where alternatives such as
video conference facilities are not practical. In relation
to its premises, page 32 sets out how the Company
monitors and has taken steps to reduce its emissions and
maximise the recycling of materials.
Total energy consumption for the year ended
31 December 2020 was 297,987 kWh.
Greenhouse gas emissions required to be reported in
respect of the years ended 31 December 2020 and 2019
were as follows:
Source
2020:
Scope 1 Gas
Scope 2 Electricity
Total
Source
2019:
Scope 1 Gas
Scope 2 Electricity
Total
1 Full-time occupant.
Intensity ratio:
CO2 (tonnes)
per FTO1
CO2 (tonnes)
15
51
66
0.2
0.7
0.9
Intensity ratio:
CO2 (tonnes)
per FTO1
CO2 (tonnes)
39
91
130
0.7
1.7
2.4
Directors’ Report
Our greenhouse gas emissions are calculated for the
Group under the financial control approach and in
accordance with ISO 14064-1: 2018 standard using the
2020 conversion factors developed by the Department for
Environment, Food & Rural Affairs.
The Group operates an ethics policy which applies to
all staff, including in relation to social and human rights
issues. The Board is also supportive of moves towards
greater diversity. At the year end, the RIT Board consisted
of ten Directors, seven of whom were men and three of
whom were women. The overall employee base is divided
between 40 men and 13 women.
Further information on how ESG factors are considered in
terms of how we engage with our stakeholders is set out
in our Corporate Governance Report.
Diversity
As part of the Group’s diversity policy, recruitment
processes are in place to allow us to monitor the diversity
of Board candidates and job applicants, ensuring we
are attracting potential candidates from a variety of
backgrounds. Further initiatives that we have in place
to support diversity include a flexible working policy,
enhanced maternity leave as well as adoption and shared
parental leave.
JRCM is participating in the ‘#10000BlackInterns
programme’ initiative and will offer internships in the
summer of 2021 to black students in the United Kingdom
as a way of attracting a more diverse range of talent to
the asset management sector.
Modern slavery
We do not tolerate slavery or human trafficking and we
are committed to acting ethically and with integrity in all
our business dealings and relationships. In accordance
with the Modern Slavery Act 2015, JRCM publishes a
Modern Slavery Statement annually which may be viewed
on the Company’s website: www.ritcap.com.
Engagement and stewardship
The Company’s Engagement and Stewardship Policy may
be viewed on its website.
Save for voting rights on the Company’s investments held
in segregated accounts (managed by external managers
who have control on the voting of those shares) the
Manager’s investment department determines voting
on resolutions of directly-held investee companies and
funds. It does not use proxy advisors.
In line with the Engagement and Stewardship Policy,
the Manager will exercise the Company’s vote on items
where it is in the long-term interest of the Company and
its shareholders. In addition, as a signatory of the UNPRI,
we also commit to be active owners and incorporate ESG
issues into our stewardship policies and practices.
In 2020, the Company generally voted in favour of
resolutions for investee companies in which it held a
publicly notifiable interest. Monitoring of directly-held
investments is also carried out by JRCM’s investment
department which is responsible for elevating any
matters of concern to the JRCM Investment Committee.
Active intervention appropriate for the circumstances will
be considered where it is in the Company’s best interests
and aligned with the commitments set out in the previous
paragraph.
Cross holdings
The FCA Listing Rules also require closed-ended
investment companies to disclose quarterly all of their
investments in “other listed closed-ended investment
funds ... which themselves do not have stated investment
policies to invest no more than 15% of their total assets
in other listed closed-ended investment funds.”
The Group discloses such investments when necessary,
but does not restrict its own investment policies in this
manner.
Annual General Meeting
The Company’s AGM is scheduled to be held on 22 April
2021 at 12:00. Further details will be sent out in the
notice of AGM to be circulated to shareholders and made
available on the Company’s website: www.ritcap.com, in
due course.
Auditor
EY has expressed its willingness to continue in office
as the Company’s external auditor. Resolutions to
reappoint EY and to authorise the Directors to set their
remuneration will be proposed at the forthcoming AGM.
Other
The Company seeks to agree the best possible terms on
which business will take place with its suppliers. It is the
Company’s policy to abide by such terms.
The Company maintained a qualifying third-party liability
insurance for its Directors and Officers throughout the
year and up to the date of approval of the financial report
and accounts.
RIT Capital Partners plc Report and Accounts December 2020 51
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
•
•
the Group financial statements, which have been
prepared in accordance with international accounting
standards in conformity with the requirements of
the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation
(EC) No. 1606/2002 as it applies in the European
Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group;
and
the Strategic Report, together with the Corporate
Governance Report and the Directors’ Report,
contained in the Report and Accounts includes a
fair review of the development and performance
of the business and the position of the Group and
Company, together with a description of the principal
risks and uncertainties that it faces.
The Directors’ Report on pages 49 to 52 was approved by
the Board and signed on its behalf by:
Sir James Leigh-Pemberton
Chairman
Directors’ Report
Statement by the Directors in performance of
their statutory duties in accordance with s172(1)
Companies Act 2006
The Directors consider, both individually and together,
that they have acted in a way they consider, in good faith,
is most likely to promote the success of the Company for
the benefits of its members as a whole (having regard to
the stakeholders and matters set out in s172(1)(a-f) of the
Companies Act 2006 in the decisions taken during the
year ended 31 December 2020 (see pages 7 and 28).
Disclosure of information to the auditor
With regard to the preparation of the Report and Accounts
of the Company for the year ended 31 December 2020,
the Directors have confirmed to the auditor that:
•
•
so far as they are aware, there is no relevant audit
information of which the auditor is unaware; and
they have taken the steps that they ought to have
taken as Directors in order to make themselves
aware of any relevant audit information and to
establish that the auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act 2006.
Listing Rules disclosures
There are no disclosures required under Listing
Rule 9.8.4.
The Companies, Partnerships and Groups (Accounts
and Reports) Regulations 2015
Information on subsidiaries that is required to be
disclosed under the above regulations is disclosed in
note 29.
Disclosable information in respect of other investments is
contained in note 32.
Statement under the disclosure and
transparency rules
Each of the Directors, whose names and functions are
listed on pages 23 to 25 confirm that, to the best of their
knowledge:
•
the Parent Company’s financial statements, which
have been prepared in accordance with international
accounting standards in conformity with the
requirements of the Companies Act 2006, give a
true and fair view of the assets, liabilities, financial
position and profit of the Company; and
52 Report and Accounts December 2020 RIT Capital Partners plc
Financial Statements
for the year ended 31 December 2020
RIT Capital Partners plc
Consolidated Income Statement and Consolidated Statement
of Comprehensive Income
Consolidated income statement
Year ended 31 December
£ million
Investment income
Other income
Gains/(losses) on fair value investments
Gains/(losses) on monetary items and borrowings
Expenses
Operating expenses
Profit/(loss) before finance costs and tax
Finance costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the year
Earnings/(loss) per ordinary share – basic
Earnings/(loss) per ordinary share – diluted
Notes
2
3
4, 5
6
7
8
9
9
Revenue
14.6
8.1
–
–
22.7
Capital
–
–
518.5
21.7
540.2
2020
Total
14.6
8.1
518.5
21.7
562.9
(20.6)
2.1
(3.3)
(1.2)
–
(1.2)
(0.8p)
(22.8)
517.4
(13.2)
504.2
0.9
505.1
323.2p
(43.4)
519.5
(16.5)
503.0
0.9
503.9
322.4p
Revenue
33.0
8.6
–
–
41.6
(24.8)
16.8
(4.1)
12.7
–
12.7
8.2p
Capital
–
–
365.9
(14.2)
351.7
(5.2)
346.5
(16.3)
330.2
(0.6)
329.6
212.9p
2019
Total
33.0
8.6
365.9
(14.2)
393.3
(30.0)
363.3
(20.4)
342.9
(0.6)
342.3
221.1p
(0.8p)
321.8p
321.0p
8.2p
212.6p
220.8p
The total column of this statement represents the Group’s consolidated income statement, prepared in accordance with
international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union.
The supplementary revenue and capital columns are both prepared under guidance published by the AIC. All items in the above
statement derive from continuing operations.
Consolidated statement of comprehensive income
Year ended 31 December
£ million
Profit/(loss) for the year
Revaluation gain/(loss) on property, plant and equipment
Actuarial gain/(loss) in defined benefit pension plan
Deferred tax (charge)/credit allocated to actuarial loss
Total comprehensive income/(expense) for the year
Notes
10
11
12
Revenue
(1.2)
–
(0.8)
0.1
(1.9)
Capital
505.1
(1.8)
–
–
503.3
2020
Total
503.9
(1.8)
(0.8)
0.1
501.4
Revenue
12.7
–
(0.8)
0.1
12.0
Capital
329.6
(1.8)
–
–
327.8
2019
Total
342.3
(1.8)
(0.8)
0.1
339.8
The notes on pages 60 to 83 form part of these financial statements.
54 Report and Accounts December 2020 RIT Capital Partners plc
Consolidated Balance Sheet
At 31 December
£ million
Non-current assets
Investments held at fair value
Investment property
Property, plant and equipment
Deferred tax asset
Retirement benefit asset
Derivative financial instruments
Current assets
Derivative financial instruments
Other receivables
Cash at bank
Total assets
Current liabilities
Borrowings
Derivative financial instruments
Other payables
Amounts owed to group undertakings
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Lease liability
Net assets
Equity attributable to owners of the Company
Share capital
Share premium
Capital redemption reserve
Own shares reserve
Capital reserve
Revenue reserve
Revaluation reserve
Total equity
Net asset value per ordinary share – basic
Net asset value per ordinary share – diluted
Notes
13, 14
13, 15
10
12
11
13
13
16
18
13
19
18
13
20
21
22
23
25
26
27
28
28
2020
2019
3,520.2
37.8
23.6
2.5
0.7
0.3
3,585.1
57.3
105.3
296.8
459.4
4,044.5
(189.0)
(4.5)
(63.5)
(5.3)
(262.3)
197.1
3,782.2
(181.5)
(5.4)
(1.1)
(3.8)
(191.8)
3,590.4
156.8
45.7
36.3
(15.3)
3,350.1
5.1
11.7
3,590.4
2,303p
2,292p
3,086.1
36.1
24.2
1.5
1.0
0.7
3,149.6
50.4
172.2
61.1
283.7
3,433.3
(50.0)
(2.9)
(55.3)
(3.3)
(111.5)
172.2
3,321.8
(166.4)
(7.9)
(1.4)
(0.5)
(176.2)
3,145.6
156.8
45.7
36.3
(7.8)
2,894.1
7.0
13.5
3,145.6
2,007p
2,004p
The financial statements on pages 54 to 59 were approved by the Board and authorised for issue on 1 March 2021.
Sir James Leigh-Pemberton
Chairman
The notes on pages 60 to 83 form part of these financial statements.
RIT Capital Partners plc Report and Accounts December 2020 55
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Parent Company Balance Sheet
At 31 December
£ million
Non-current assets
Investments held at fair value
Investment property
Property, plant and equipment
Investments in subsidiary undertakings
Derivative financial instruments
Current assets
Derivative financial instruments
Other receivables
Cash at bank
Total assets
Current liabilities
Borrowings
Derivative financial instruments
Other payables
Amounts owed to group undertakings
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Lease liability
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Capital reserve:
At 1 January
Profit for the year
Treasury shares purchase
Dividends paid
Capital reserve at 31 December
Revenue reserve:
At 1 January
Loss for the year
Revenue reserve at 31 December
Revaluation reserve
Total equity
Notes
13, 14
13, 15
10
29
13
13
16
18
13
19
17
18
13
20
21
22
30
25
26
27
2020
2019
3,450.7
37.8
23.4
75.6
0.3
3,587.8
57.3
104.9
260.6
422.8
4,010.6
(189.0)
(4.5)
(43.4)
(87.4)
(324.3)
98.5
3,686.3
(181.5)
(5.4)
(1.1)
(3.8)
(191.8)
3,494.5
156.8
45.7
36.3
2,910.9
526.9
(2.3)
(54.7)
3,380.8
(97.6)
(39.2)
(136.8)
11.7
3,494.5
3,036.4
36.1
24.0
55.9
0.7
3,153.1
50.4
171.7
55.0
277.1
3,430.2
(50.0)
(2.9)
(45.4)
(90.1)
(188.4)
88.7
3,241.8
(166.4)
(7.9)
(1.4)
(0.5)
(176.2)
3,065.6
156.8
45.7
36.3
2,633.5
330.0
–
(52.6)
2,910.9
(95.9)
(1.7)
(97.6)
13.5
3,065.6
The Company’s total profit for the year was £485.9 million (2019: £326.5 million).
The financial statements on pages 54 to 59 were approved by the Board and authorised for issue on 1 March 2021.
Sir James Leigh-Pemberton
Chairman
The notes on pages 60 to 83 form part of these financial statements.
56 Report and Accounts December 2020 RIT Capital Partners plc
Consolidated Statement of Changes in Equity
£ million
Balance at 1 January 2019
Profit/(loss) for the year
Revaluation gain/(loss) on property, plant and
equipment
Actuarial gain/(loss) in defined benefit plan
Deferred tax (charge)/credit allocated to
actuarial gain
Total comprehensive
income/(expense) for the year
Dividends paid
Movement in own shares reserve
Movement in share-based payment reserve
Share issuance
Balance at 31 December 2019
Balance at 1 January 2020
Profit/(loss) for the year
Revaluation gain/(loss) on property, plant and
equipment
Actuarial gain/(loss) in defined benefit plan
Deferred tax (charge)/credit allocated to
actuarial gain
Total comprehensive
income/(expense) for the year
Dividends paid
Purchase of treasury shares
Movement in own shares reserve
Movement in share-based payments
Balance at 31 December 2020
Share
capital
155.4
–
Share
premium
17.3
–
Capital
redemption
reserve
36.3
–
Own
shares
reserve
(13.4)
–
Capital
reserve
2,624.3
329.6
Revenue
reserve
(5.0)
12.7
Revaluation
reserve
15.3
–
Total
equity
2,830.2
342.3
–
–
–
–
–
–
–
1.4
156.8
156.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28.4
45.7
45.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36.3
36.3
–
–
–
–
–
–
–
–
156.8
–
45.7
–
36.3
–
–
–
–
–
5.6
–
–
(7.8)
(7.8)
–
–
–
–
–
–
(7.5)
–
(15.3)
–
–
–
329.6
(52.6)
–
(7.2)
–
2,894.1
2,894.1
505.1
–
–
–
505.1
(54.7)
(2.3)
–
7.9
3,350.1
–
(0.8)
0.1
12.0
–
–
–
–
7.0
7.0
(1.2)
–
(0.8)
0.1
(1.9)
–
–
–
5.1
(1.8)
–
(1.8)
(0.8)
–
0.1
(1.8)
–
–
–
–
13.5
13.5
–
(1.8)
–
339.8
(52.6)
5.6
(7.2)
29.8
3,145.6
3,145.6
503.9
(1.8)
(0.8)
–
0.1
(1.8)
–
–
–
11.7
501.4
(54.7)
(2.3)
(7.5)
7.9
3,590.4
The notes on pages 60 to 83 form part of these financial statements.
RIT Capital Partners plc Report and Accounts December 2020 57
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Parent Company Statement of Changes in Equity
£ million
Balance at 1 January 2019
Profit/(loss) for the year
Revaluation gain/(loss) on property, plant and equipment
Total comprehensive income/(expense) for the year
Dividends paid
Share issuance
Balance at 31 December 2019
Balance at 1 January 2020
Profit/(loss) for the year
Revaluation gain/(loss) on property, plant and equipment
Total comprehensive income/(expense) for the year
Dividends paid
Purchase of treasury shares
Share
capital
155.4
–
–
–
–
1.4
156.8
156.8
–
–
–
–
–
Share
premium
17.3
–
–
–
–
28.4
Capital
redemption
reserve
36.3
–
–
–
–
–
45.7
45.7
–
–
–
–
–
36.3
36.3
–
–
–
–
–
Capital
reserve
2,633.5
330.0
–
330.0
(52.6)
–
2,910.9
2,910.9
526.9
–
526.9
(54.7)
(2.3)
Revenue
reserve
(95.9)
(1.7)
–
(1.7)
–
–
Revaluation
reserve
15.3
–
(1.8)
(1.8)
–
–
(97.6)
(97.6)
(39.2)
–
(39.2)
–
–
13.5
13.5
–
(1.8)
(1.8)
–
–
Total
equity
2,761.9
328.3
(1.8)
326.5
(52.6)
29.8
3,065.6
3,065.6
487.7
(1.8)
485.9
(54.7)
(2.3)
Balance at 31 December 2020
156.8
45.7
36.3
3,380.8
(136.8)
11.7
3,494.5
The notes on pages 60 to 83 form part of these financial statements.
58 Report and Accounts December 2020 RIT Capital Partners plc
Consolidated and Parent Company Cash Flow Statement
Notes
31
30
Year ended 31 December
£ million
Cash flows from operating activities:
Cash inflow/(outflow) before taxation and interest
Interest paid
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities:
Sale/(purchase) of property, plant and equipment
Investments in subsidiary undertakings
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities:
Repayment of borrowings
Drawing of borrowings
Purchase of ordinary shares by EBT1
Purchase of ordinary shares into treasury
Equity dividend paid
Net cash inflow/(outflow) from financing activities
Increase/(decrease) in cash in the year
Cash at the start of the year
Effect of foreign exchange rate changes on cash
Cash at the year end
Reconciliation:
Cash at bank
Cash at the year end
1 Shares are disclosed in the own shares reserve on the consolidated balance sheet.
Consolidated cash flow
2019
2020
Parent Company cash flow
2019
2020
172.3
(16.4)
155.9
(0.2)
–
(0.2)
(295.0)
445.0
(10.1)
(2.3)
(54.7)
82.9
238.6
61.1
(2.9)
296.8
155.9
(20.4)
135.5
(0.2)
–
(0.2)
(225.0)
–
(7.1)
–
(52.6)
(284.7)
(149.4)
210.9
(0.4)
61.1
147.5
(16.4)
131.1
(0.2)
(15.4)
(15.6)
(295.0)
445.0
–
(2.3)
(54.7)
93.0
208.5
55.0
(2.9)
260.6
175.0
(20.4)
154.6
(0.2)
(7.5)
(7.7)
(225.0)
–
–
–
(52.6)
(277.6)
(130.7)
186.1
(0.4)
55.0
296.8
296.8
61.1
61.1
260.6
260.6
55.0
55.0
The notes on pages 60 to 83 form part of these financial statements.
RIT Capital Partners plc Report and Accounts December 2020 59
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
1. Accounting Policies
The consolidated financial statements of the Group and Company
are prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006 and
in accordance with international financial reporting standards (IFRS)
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies
in the European Union. The Company is domiciled in the United
Kingdom.
The financial statements have been prepared on a going concern
basis and under the historical cost basis, except for the revaluation
of financial instruments (including derivatives), investment properties
held at fair value through profit or loss (FVPL) and property, plant
and equipment held at fair value. In making this going concern
assumption the Directors have taken into account the closed-ended
nature of the Company, its existing cash balances (£297 million) and
monitoring procedures, its borrowing capacity (£185 million facilities
committed and undrawn), as well as the value of investments
which could be realised to fund liabilities, and covenants as well
as cash flow forecasts for the period to 30 June 2022 and uncalled
commitments (£256 million). Further details can be found on
page 21.
The principal accounting policies adopted are set out below.
Where the presentational guidance set out in the Statement of
Recommended Practice: Financial Statements of Investment
Trust Companies (the SORP) issued by the Association of
Investment Companies (AIC) in October 2019, is consistent with
the requirements of IFRS, the Directors have sought to prepare
the financial statements on a basis which complies with the
recommendations of the SORP.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. The Board has
concluded that the Company, being the parent entity of the Group,
continues to meet the particular characteristics of an ‘Investment
Entity’. The ‘Investment Entity’ amendment to IFRS 10 Consolidated
Financial Statements requires that:
(i) the single subsidiary (JRCM), that is not itself an investment
entity, which provides investment management services to
the Group, is consolidated on a line-by-line basis with balances
between the parent and this subsidiary eliminated; and
(ii) all other subsidiaries are accounted for as investments held
at FVPL.
In the financial statements of the Parent, investments in
non-consolidated subsidiaries are carried at fair value and the
consolidated subsidiary is carried at cost less any provision for
impairment made in accordance with IAS 36 Impairment of Assets.
Impairment tests are carried out twice each year concurrent with the
Group’s principal reporting dates.
(ii) exposure, or rights, to variable returns from its involvement with
the investee; and
(iii) the ability to use its power over the investee to affect the amount
of the Company’s returns.
Both the Group and Company hold investments in associates and
joint ventures at fair value as allowed by IAS 28 Investments in
Associates and Joint Ventures.
Presentation of income statement
In order to better reflect the activities of an investment trust
company, and in accordance with guidance issued by the AIC,
supplementary information which analyses the consolidated income
statement between items of a revenue and capital nature has
been presented within the consolidated income statement and the
consolidated statement of comprehensive income (SOCI).
Income
Dividend income from investments is recognised when the right to
receive payment has been established and this is normally the ex-
dividend date.
UK dividend income is recorded at the amount receivable. Overseas
dividend income is shown net of withholding tax under investment
income.
Interest and other income is accrued on a time basis.
Rental income from investment properties under short-term leases
is accounted for on a straight-line basis, over the lease term.
Allocation between capital and revenue
In respect of the analysis between capital and revenue items
presented within the consolidated income statement, the SOCI and
the statement of changes in equity, all expenses and finance costs,
which are accounted for on an accruals basis, have been presented
as revenue items except those items listed below:
•
•
•
expenses are allocated to capital where a direct connection with
the maintenance or enhancement of the value of the investments
can be demonstrated. Expenses are allocated to revenue where
there is an indirect connection;
all segregated account fees are considered to be a cost of
achieving a capital return for those external managers operating
segregated accounts. This ensures consistency with the
treatment of all other investment management fees within our
fund investments, which are automatically included in capital and
reflected in the investment gain/loss;
the Group has in place certain incentive arrangements
whereby individuals receive share awards based on investment
performance and/or share price growth. The cost of these
arrangements derives principally from the capital performance
and therefore the Directors consider it appropriate to allocate
such costs to capital;
The financial statements of the subsidiaries are prepared at the
same reporting date using consistent accounting policies. Control is
achieved where the Company has all of the following;
•
expenses which are incidental to the purchase or disposal of an
investment are deducted from the initial fair value or disposal
proceeds of the investment; and
(i) power over the investee;
60 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
•
costs incurred in connection with aborted portfolio investment
transactions are also allocated to capital.
Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset is realised.
The following are also presented as capital items:
•
•
•
•
gains and losses on the realisation of investments, including
foreign exchange differences;
increases and decreases in the valuation of investments held at
the year end, including foreign exchange differences;
realised and unrealised gains and losses on derivatives
transactions of a capital nature; and
expenses, together with the related taxation effect, allocated to
capital in accordance with the above policies.
Finance costs
Finance costs on borrowings are accounted for on an accruals basis
and are settled at the end of each contractual period. Finance costs
on derivatives are settled in line with the underlying contract.
Finance costs are allocated in the ratio 20:80 to the revenue and
capital columns of the income statement.
Foreign currencies
The individual financial statements of each Group entity are
presented in the currency of the primary economic environment
in which the entity operates, i.e. its functional currency. For the
purpose of the consolidated financial statements, the results and
financial position of each entity are expressed in sterling which is
the functional currency of the Company, and the presentational
currency of the Group. Transactions in currencies other than sterling
are recorded at the rate of exchange prevailing on the dates of
the transactions. At each balance sheet date, monetary items
and non-monetary assets and liabilities that are fair valued and
are denominated in foreign currencies are translated at the rates
prevailing on the balance sheet date. All foreign exchange gains and
losses are recognised in the consolidated income statement.
Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year.
Taxable profit differs from profit before tax as reported in the
consolidated income statement because it excludes items of income
or expense that are taxable or deductible in other years and it further
excludes items that are not subject to tax or are not deductible for
tax purposes. The Group’s liability for current tax is calculated using
tax rates that have been enacted or substantively enacted by the
balance sheet date.
Investment trusts which have approval under Section 1158 of the
Corporation Tax Act 2010 are not subject to tax on capital gains.
In view of the Company’s status as an investment trust, and its
intention to continue meeting the conditions required to maintain
approval for the foreseeable future, the Company has not provided
current or deferred tax on any capital gains or losses arising on the
revaluation or disposal of investments.
The carrying amount of the deferred tax asset is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax is charged or credited to the consolidated income
statement or SOCI, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also dealt
with in equity.
Investments
Investments are recognised and derecognised on the trade date
where a purchase or sale is made under a contract whose terms
require delivery within the timeframe established by the market
concerned. All investments are measured initially and at subsequent
reporting dates at fair value and classified in accordance with IFRS
as ‘fair value through profit or loss’ (FVPL). Unrealised changes in the
fair value of these investments are recognised in the consolidated
income statement as capital items. The realised gain or loss arising
on the disposal of investments is determined as the difference
between the sale proceeds and the carrying amount of the asset
at the beginning of the year and is recognised in the consolidated
income statement. Transaction costs are included within gains or
losses on these investments.
Fair value, for quoted investments, is either the bid price or the
last traded price, depending on the convention of the exchange on
which the investment is quoted. Investments in externally-managed
funds are valued at the closing price, the bid price or the single
price as appropriate, released by the relevant fund administrator or
investment manager.
In respect of private investments, or where the market for a financial
instrument is not active, fair value is estimated by using appropriate
valuation techniques and often involves significant judgement and
estimation uncertainty. For direct private investments held through
co-investment vehicles managed by a GP, as well as private funds
managed by a GP, the estimated fair value is based on the most
recent valuation provided by the GP. These valuations are normally
prepared quarterly and usually received within three months of the
relevant valuation date. Depending on the timing of the finalisation
of the half-year and year-end report and accounts, it is likely that
the majority of these assets are valued at the previous quarter end.
Where this is the case, the valuations are adjusted for subsequent
investments, distributions and currency moves. Further, in light of
the intrinsic valuation uncertainty, where information is received
after the year end which relates to conditions present at the year
end, an adjustment will be considered if it would be likely to have
a material impact on the valuation. Ultimately these valuations are
dependent on the reasonableness of the fair value estimation by the
GP. The valuations are reviewed periodically by the Manager, and in
the absence of contrary information, are assumed to be reliable. A
review is also conducted annually in respect of the valuation bases of
the investee funds to confirm these are in accordance with fair value
standards.
Where the Manager has sufficient information to undertake
its own valuations, these will be prepared having regard to the
International Private Equity and Venture Capital Valuation Guidelines
as recommended by the British Private Equity and Venture Capital
Association. The inputs into the valuation methodologies adopted
include observable data such as historical earnings or cash flows as
well as more subjective data such as earnings forecasts or discount
RIT Capital Partners plc Report and Accounts December 2020 61
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
rates. At period ends, all of the valuations are subject to review,
adjustment as appropriate and ultimately approval by the Company’s
independent Valuation Committee.
fair value at grant date using a trinomial option valuation model. The
cost is then recognised through the capital column of the income
statement over the three-year vest period.
The gains and losses on financial assets classified at FVPL exclude
any related interest income, dividend income and finance costs
where these items are separately identifiable.
These items are disclosed separately in the financial statements.
Leasehold and freehold investment properties are measured initially
at cost, including related transaction costs. After initial recognition
at cost, investment properties are carried at their fair values based
on the professional valuation made as of each reporting date.
Valuation surpluses and deficits arising in the year are included in the
consolidated income statement.
Derivative financial instruments, including futures, options and
other derivatives, are stated in the balance sheet at fair value. For
derivatives that are capital in nature, the associated change in value
is presented as a capital item in the income statement. The Group
has adopted trade date accounting. Accordingly, derivative financial
instruments are recognised on the date the Group enters into the
relevant contract, and are derecognised on the date on which it
commits to their sale or they expire. All derivatives are classified as
FVPL and are presented as assets when their fair value is positive,
and as liabilities when their fair value is negative.
Cash at bank
Cash at bank in the balance sheet comprises cash balances and
deposits.
Provisions
A provision is recognised in the balance sheet when the Group or
Company has a constructive or legal obligation as a result of a past
event and it is probable that an outflow of economic benefits will be
required to settle the obligation.
Share-based payment
In accordance with IFRS 2 Share-based Payment, the Group is
required to reflect in its income statement and balance sheet the
effects of share-based payment transactions. The Group’s share-
settled incentive schemes include the AIS (in part), SARs and
performance shares.
AIS awards are structured such that 60% of individual amounts in
excess of £150,000 to £250,000 (with the lower amount for senior
management) are paid in deferred shares of the Company which vest
equally over the three years following the award. Deferred shares
are valued using the prevailing market price at award. The expense is
recognised over the year the award relates to and the following three
years.
SARs are equity-settled awards accounted for in accordance with
IFRS 2. Annual awards are typically made and are measured at the
Periodic awards of performance shares have also been made. These
are conditional awards of shares subject to performance conditions.
They are accounted for as equity settled in accordance with IFRS 2.
The awards are fair valued at grant using a Monte Carlo model and
the resulting cost of an award is then recognised through the capital
column of the income statement over the vest period particular to
that award.
Shares required to meet the estimated future requirements from
grants or exercises under all schemes, are purchased by an EBT,
which is consolidated by the Group. The cost of own shares held at
the end of the year by the EBT is reflected in the Group’s own shares
reserve on the consolidated balance sheet.
The movement in equity arising under IFRS 2 Share-based Payment
is applied to the capital reserve, reflecting the nature of the Group’s
share-based payment awards.
Property, plant and equipment
Property, plant and equipment is shown at cost less accumulated
depreciation, save as detailed below. Depreciation is calculated
by the Group on a straight-line basis by reference to original cost,
estimated useful life and residual value. Cost includes the original
purchase price of the asset and the costs attributable to bringing
the asset to its working condition for its intended use. The period
of estimated useful life for this purpose is between three and five
years for the majority of assets except for the Company’s leasehold
interest in 27 St James’s Place for which the estimated useful life
is 64 years. The proportion of this asset occupied by the Group is
accounted for at fair value under the revaluation model allowed by
IAS 16 Property, Plant and Equipment, which is intended to ensure
that the carrying value of the asset is never substantially different to
its fair value. Changes in fair value are reflected in the SOCI and a
separate revaluation reserve. The proportion of property assets not
occupied by the Group is accounted for as investment properties at
fair value. Determination of fair value requires significant judgement
and external advisers are used.
Pensions
JRCM is a participating employer in the Group’s non-contributory,
funded, defined benefit retirement scheme which is closed to new
members and the assets of which are held in a trustee-administered
fund. There are no longer any active members of this scheme.
The Group accounts for this defined benefit retirement scheme
by reference to IAS 19 Employee Benefits. The cost of benefits
accruing during the year in respect of past service is charged to the
income statement and allocated to revenue. The net interest on
the net defined benefit liability or asset is recognised in the income
statement. Actuarial gains and losses and the return on plan assets,
62 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
excluding amounts included in the net interest on the net defined
benefit liability or asset, are recognised in the SOCI. An actuarial
valuation of the defined benefit retirement scheme is undertaken
every three years as at 1 January and is updated as at each principal
reporting date. The valuation is carried out using the projected
unit credit method of funding basis. The income statement also
includes costs incurred in respect of defined contribution schemes,
comprising the contributions payable in the year.
Other receivables/other payables
Other receivables/other payables do not carry any interest, are
short-term in nature and are carried at amortised cost. Application of
the expected credit loss model to receivables has had an immaterial
impact on their carrying value. The carrying value of receivables and
payables approximates to their fair value.
Bank borrowings
Interest-bearing bank loans are recorded initially at the proceeds
received and subsequently at fair value. The fair value is calculated as
the amount to replace the facility which is equal to par.
Loan notes
Loan notes are classified as a financial liability at FVPL and are
measured initially and subsequently at fair value with movements
in fair value taken to the income statement as a capital item. The
fair value is calculated with a discounted cash flow model using the
fixed interest and redemption payments based on the underlying
contractual cash flows. The discount rate adopted reflects the
prevailing market rate for similar instruments. As a result, the
determination of fair value requires management judgement. Further
details of the loan notes are provided on page 78.
Dividends
The Company recognises interim dividends in the year in which they
are paid.
Share capital and share premium
Share capital is classified as equity. Share premium reflects the
excess of the consideration received on issuing shares over the
nominal value of those shares, net of issue costs.
Treasury shares
The cost of repurchasing shares into treasury, including all related
costs, is dealt with in the Statement of Changes in Equity and
deducted from the Capital Reserve.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Manager and Board to exercise judgement in the
process of applying the Group’s accounting policies. The areas
requiring a higher degree of judgement or complexity and where
assumptions and estimates are significant to the consolidated
financial statements, are in relation to the valuation of private
investments (see pages 61 and 62 and note 13) and property (see
page 62 and notes 10 and 15).
RIT Capital Partners plc Report and Accounts December 2020 63
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
2. Investment income
£ million
Income from listed investments:
Dividends
Income from unlisted investments:
Dividends
Interest
Income from investment properties
Total investment income
2020
8.1
2.1
2.3
2.1
14.6
3. Gains/(losses) on fair value investments
£ million
2020
Operating expenses include costs incurred by JRCM in managing
RIT’s assets, property costs from the Group’s property portfolio,
as well as costs which are recharged to third parties. Further
information is provided in note 6.
The figures include Directors’ emoluments, details of which are
shown in the Directors’ Remuneration Report on pages 44 to 48.
The average monthly number of employees during the year was 52
(2019: 56) of which 40 (2019: 43) were employed by JRCM and 12
(2019: 13) were employed by SHL.
5. Other disclosable expenses
During the year the Group obtained the following services from the
Company’s auditor and its associates:
2019
11.4
5.7
13.4
2.5
33.0
2019
503.2
349.0
£ thousand
2020
2019
Fees payable to the Company’s auditor and
its associates for the audit of the Parent
Company and consolidated financial
statements
Fees payable to the Company’s auditor and
its associates for other services:
Audit of the Company’s subsidiaries
Audit-related assurance services
Total
163
158
68
40
271
67
45
270
Transaction costs
The following transaction costs represent commissions paid on the
purchase and sale of listed investments and are included within
gains/(losses) on fair value investments:
£ million
Purchases
Sales
Transaction costs
2020
0.8
0.6
1.4
2019
0.6
0.7
1.3
Furthermore, £0.2 million of professional fees (2019: £0.3 million)
incurred on purchases of investments are included within gains/
(losses) on fair value investments.
Gains/(losses) on fair value investments
excluding segregated accounts
Gross gains/(losses) on segregated
accounts
Segregated account fees - annual
Segregated account fees - performance
Gains/(losses) on fair value investments
held in segregated accounts
Gains/(losses) on fair value investments
19.5
(1.7)
(2.5)
15.3
518.5
18.7
(1.8)
–
16.9
365.9
The Company’s investment policy involves the allocation of part of
the portfolio to external fund managers. The vast majority of these
managers operate funds where the fees are charged within the fund.
These ‘indirect’ investment management and performance fees are
therefore automatically reflected within the valuations received from
the administrators or managers, and form part of the investment
gains/(losses). At 31 December 2020, five funds (31 December 2019:
four) were structured as segregated accounts (disclosed within
the Investment Portfolio on pages 14 to 16), where the managers
separately invoice the Company for investment management. In
order to provide a consistent presentation for all external fees, these
are included within the gain/(losses) on fair value investments as
shown above. Further details on the typical fee structures for the
external funds are set out in the Directors’ Report on page 49 and 50.
4. Operating expenses
£ million
Staff costs:
Wages and salaries
Social security costs
Share-based payment costs (note 24)
Pension costs (note 11)
Total staff costs
Auditor’s remuneration (note 5)
Depreciation
Lease payments
Other operating expenses
Total operating expenses
2020
18.9
2.4
14.3
0.3
35.9
0.3
0.4
0.4
6.4
43.4
2019
12.4
1.7
7.5
0.7
22.3
0.3
0.4
0.4
6.6
30.0
64 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
6. Business and geographical segments
For 2020 and 2019, the Group is considered to have three principal
operating segments, all based in the UK, as follows:
8. Taxation
£ million
Year ended 31 December 2020
Revenue
Capital
Segment
RIT
JRCM
SHL
Business
Investment trust
Investment
manager/
administration
Events/premises
management
AUM
£ million1
–
3,590
–
Employees1
–
41
12
1 At 31 December 2020
Key financial information for 2020 is as follows:
£ million
RIT
JRCM
SHL
Adjustments3
Total
Net
assets
3,494.6
102.0
0.8
(7.0)
3,590.4
Income/
gains1
Operating
expenses1
561.1
53.4
1.9
(53.5)
562.9
(56.4)
(38.1)
(2.4)
53.5
(43.4)
Key financial information for 2019 is as follows:
£ million
RIT
JRCM
SHL
Adjustments3
Total
Net
assets
3,065.6
86.2
1.2
(7.4)
3,145.6
Income/
gains1
Operating
expenses1
389.4
39.5
4.1
(39.7)
393.3
(41.2)
(25.1)
(3.4)
39.7
(30.0)
Profit2
504.7
15.3
(0.5)
–
519.5
Profit2
348.2
14.4
0.7
–
363.3
1 Includes intra-group income and expenses.
2 Profit before finance costs and tax.
3 Consolidation adjustments in accordance with IFRS 10 Consolidated
Financial Statements.
7. Finance costs
£ million
Interest on borrowings
Interest on swaps
Other finance costs
Finance costs
2020
11.3
4.5
0.7
16.5
2019
9.9
9.7
0.8
20.4
UK corporation tax charge/(credit)
Current tax charge/(credit)
Deferred tax charge/(credit)
Effect of tax rate changes
Taxation charge/(credit)
–
–
–
–
–
(0.9)
–
(0.9)
–
(0.9)
£ million
UK corporation tax charge/(credit)
Current tax charge/(credit)
Deferred tax charge/(credit)
Effect of tax rate changes
Taxation charge/(credit)
Year ended 31 December 2019
Revenue
Capital
–
–
–
–
–
0.6
–
0.6
–
0.6
Total
(0.9)
–
(0.9)
–
(0.9)
Total
0.6
–
0.6
–
0.6
The deferred tax movement relates to the origination and reversal of
timing differences.
The tax charge for the year differs from the effective rate of
corporation tax in the UK for 2020 of 19% (2019: 19%). The
differences are explained below:
£ million
Profit/(loss) before tax
Tax at the standard
Year ended 31 December 2020
Revenue
(1.2)
Capital
504.2
Total
503.0
UK corporation tax rate of 19%
(0.2)
95.8
95.6
Effect of:
Capital items exempt from
corporation tax
Dividend income not taxable
Expenses not deductible
for tax purposes
Tax losses not recognised
Other items
Total tax charge/(credit)
£ million
Profit/(loss) before tax
Tax at the standard
–
(1.2)
0.1
–
1.3
–
(98.1)
–
–
1.3
0.1
(0.9)
(98.1)
(1.2)
0.1
1.3
1.4
(0.9)
Year ended 31 December 2019
Revenue
12.7
Capital
330.2
Total
342.9
UK corporation tax rate of 19%
2.4
62.7
65.1
Effect of:
Capital items exempt from
corporation tax
Dividend income not taxable
Expenses not deductible for
tax purposes
Tax losses not recognised
Other items
Total tax charge/(credit)
–
(1.3)
–
–
(1.1)
–
(69.3)
–
0.5
7.0
(0.3)
0.6
(69.3)
(1.3)
0.5
7.0
(1.4)
0.6
RIT Capital Partners plc Report and Accounts December 2020 65
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
9. Earnings/(loss) per ordinary share –
basic and diluted
The basic earnings per ordinary share for 2020 is based on the profit
of £503.9 million (2019: profit of £342.3 million) and the weighted
average number of ordinary shares in issue during the period of
156.3 million (2019: 154.8 million). The weighted average number of
shares is adjusted for shares held in the employee benefit trust and
in treasury in accordance with IAS 33.
£ million
Net revenue profit/(loss)
Net capital profit/(loss)
Total profit/(loss) for the year
pence
Revenue earnings/(loss)
per ordinary share – basic
Capital earnings/(loss)
per ordinary share – basic
Total earnings per share – basic
2020
(1.2)
505.1
503.9
2020
(0.8)
323.2
322.4
2019
12.7
329.6
342.3
2019
8.2
212.9
221.1
The diluted earnings per ordinary share for the period is based on
the weighted average number of ordinary shares in issue during the
period adjusted for the effect of all dilutive share-based payment
awards.
Weighted average (million)
Number of shares in issue
Own shares
Basic shares
Effect of share-based payment awards
Diluted shares
pence
Revenue earnings/(loss)
per ordinary share – diluted
Capital earnings/(loss)
per ordinary share – diluted
Earnings per ordinary share – diluted
2020
156.8
(0.5)
156.3
0.7
157.0
2020
(0.8)
321.8
321.0
2019
155.4
(0.6)
154.8
0.2
155.0
2019
8.2
212.6
220.8
10. Property, plant and equipment
The Group’s property, plant and equipment as at 31 December 2020
was £23.6 million (2019: £24.2 million).
Group
£ million
At 1 January 2020
Additions
Charge for depreciation
Revaluation gain/(loss)
Fair value at
31 December 2020
Of which:
Property – leasehold
Cost
15.7
1.6
–
–
17.3
14.0
Accumulated
depreciation Revaluation
Net book/fair
value
(5.0)
–
(0.4)
–
13.5
–
–
(1.8)
(5.4)
11.7
(3.9)
11.7
24.2
1.6
(0.4)
(1.8)
23.6
21.8
66 Report and Accounts December 2020 RIT Capital Partners plc
Group
£ million
At 1 January 2019
Additions
Charge for depreciation
Revaluation gain/(loss)
Fair value at
31 December 2019
Of which:
Property – leasehold
Cost
15.5
0.2
–
–
15.7
14.0
Accumulated
depreciation Revaluation
Net book/fair
value
(4.6)
–
(0.4)
–
15.3
–
–
(1.8)
(5.0)
13.5
(3.5)
13.5
26.2
0.2
(0.4)
(1.8)
24.2
24.0
The Company’s property, plant and equipment as at 31 December
2020 was £23.4 million (2019: £24.0 million).
Company
£ million
At 1 January 2020
Additions
Charge for depreciation
Revaluation gain/(loss)
Fair value at
31 December 2020
Of which:
Property – leasehold
Company
£ million
At 1 January 2019
Additions
Charge for depreciation
Revaluation gain/(loss)
Fair value at
31 December 2019
Of which:
Property – leasehold
Accumulated
depreciation Revaluation
Net book/fair
value
(3.5)
–
(0.4)
–
13.5
–
–
(1.8)
(3.9)
11.7
(3.9)
11.7
24.0
1.6
(0.4)
(1.8)
23.4
21.8
Accumulated
depreciation Revaluation
Net book/fair
value
(3.1)
–
(0.4)
–
15.3
–
–
(1.8)
(3.5)
13.5
(3.5)
13.5
26.0
0.2
(0.4)
(1.8)
24.0
24.0
Cost
14.0
1.6
–
–
15.6
14.0
Cost
13.8
0.2
–
–
14.0
14.0
The fair value at both year ends predominantly relates to the
proportion of the leasehold interest in 27 St. James’s Place occupied
by the Group. The property valuations are based on JLL’s valuations
at the respective year ends.
11. Pension commitments
JRCM has pension commitments in respect of its participation in
the RITCP Pension and Life Assurance Scheme (the Scheme). The
Scheme consists of a defined benefit section which is closed to new
members. The assets of the Scheme are held in a separate Trustee-
administered fund.
Under IAS 19 Employee Benefits, actuarial gains and losses are
recognised in full in the SOCI in the year in which they occur. The
retirement benefit asset recognised in the balance sheet represents
the fair value of the Scheme’s assets as reduced by the present
value of the defined benefit obligation (DBO). The cost of providing
benefits is determined using the projected unit credit method.
The Scheme is administered under a Trust Deed and Rules. The
Trustees are responsible for agreeing a funding plan with JRCM
such that any deficit in the scheme is expected to be eliminated, and
for agreeing a Statement of Investment Principles that the Scheme
adopts in order to achieve its aim of providing retirement benefits.
Notes to the Financial Statements
11. Pension commitments (continued)
The trustees have delegated the day-to-day investment management
responsibility to GAM Investments and administration of the Scheme to
JRCM. A corporate trustee, Law Debenture Pension Trust Corporation
plc, who is independent of the Group, was appointed in May 2019.
Description of Scheme characteristics and associated risks
The Scheme operates as a defined benefit scheme in the UK. A full
actuarial valuation was carried out at 1 January 2020 by a qualified
independent actuary, for the purposes of these disclosures.
As this is a closed Scheme, the age profile of the active membership
is rising. Key risks associated with the Scheme are set out below:
•
•
•
Asset volatility: The Scheme’s liabilities are calculated using a
discount rate set with reference to corporate bond yields. If the
Scheme’s assets underperform this yield, this may lead to a
worsening of the funding position of the Scheme. The Scheme
holds a significant proportion of equities which are expected to
outperform corporate bonds in the long term but give exposure to
volatility and risk in the short term;
Changes in bond yields: A decrease in corporate bond yields
will increase the Scheme’s liabilities, although this will be
partially offset by an increase in the value of the Scheme’s bond
holdings; and
Life expectancy and concentration risk: The majority of the
Scheme’s obligations are to provide benefits for the life of the
members, so increases in life expectancy will result in an increase
in the Scheme’s liabilities, and furthermore, inflationary increases
result in higher sensitivity to changes in life expectancy. There
is the risk that the members live longer than implied by current
assumptions used. In particular, the majority of the Scheme’s
liabilities are held by a small number of members, and if these
members live longer than assumed this could put pressure on the
funding of the Scheme.
As a result of the most recent actuarial valuation performed as at
1 January 2020, the sponsoring employer, JRCM, agreed to pay
contributions to the Scheme of £1,110,000 per annum for four and a
half years from 1 January 2021 (previously £500,000 per annum). The
next actuarial valuation will be as at 31 December 2022.
Benefits paid to members of the Scheme upon retirement will depend
upon that member’s final salary upon retirement or date of leaving the
Scheme, if earlier, and the length of service. Pensions in retirement
increase at 4% per annum (for the element earned before 6 April
1997) and between 4% and 5% per annum for elements earned after
6 April 1997, depending upon the annual increase in the RPI.
The costs associated with the Scheme, their recognition in the
financial statements, the assumptions underlying the calculation
of those costs and their disclosure in the consolidated income
statement or SOCI are set out below.
Defined benefit cost
£ thousands
Current service cost
Net interest on defined benefit asset
Remeasurement effects recognised in the
SOCI
Total cost/(credit)
2020
–
(26)
832
806
2019
54
(45)
818
827
Recognised in the consolidated income statement
£ thousands
Defined contribution schemes
Defined benefit scheme:
Current service cost
Net interest on defined benefit liability
Total pension cost recognised in the
Consolidated Income Statement
Recognised in the SOCI
£ thousands
Defined benefit scheme:
Actuarial (gain)/loss due to liability
experience
Actuarial (gain)/loss due to liability
assumption changes
Actuarial (gain)/loss due to demographic
2020
319
–
(26)
2019
736
54
(45)
293
745
2020
2019
1,131
10
2,526
3,304
assumption changes in DBO
(1,136)
–
Return on Scheme assets (greater)/less
than discount rate
(1,689)
(2,496)
Remeasurement effects recognised in
the SOCI
Total expense
832
818
1,125
1,563
The Scheme’s assets and liabilities are shown below together with
the actuarial assumptions used.
Changes in the DBO
£ thousands
DBO at end of prior year/period
Current service cost
Interest cost on the DBO
Actuarial (gain)/loss - demographic
experience
Actuarial (gain)/loss - demographic
assumptions
Actuarial (gain)/loss - financial assumptions
Benefits paid from scheme assets
Total DBO
Changes in Scheme assets
£ thousands
Opening fair value of the Scheme assets
Interest income on Scheme assets
Return on Scheme assets greater/(less)
than discount rate
Employer contributions
Benefits paid
Total Scheme assets
2020
25,562
–-
517
2019
22,384
54
638
1,131
10
(1,136)
2,526
(643)
27,957
2020
26,553
543
1,689
500
(643)
28,642
–-
3,304
(828)
25,562
2019
23,702
683
2,496
500
(828)
26,553
RIT Capital Partners plc Report and Accounts December 2020 67
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Revised DBO
for each
sensitivity
27,964
25,930
26,592
Notes to the Financial Statements
11. Pension commitments (continued)
The Company has an unrestricted rights to any surplus in the
Scheme upon wind-up. As such there is no irrecoverable surplus for
either the current year or prior year.
Significant actuarial assumptions at 31 December 2019:
Assumptions
used for
sensitivity
analysis
Sensitivity
analysis
£ thousands
Development of the net balance sheet position
£ thousands
Net definited benefit asset at end of prior
year
Service cost
Net interest on definited benefit asset at
end of prior year
Remeasurement efforts recognised in the
SOCI
Employer contributions
Net defined benefit asset
2020
2019
Discount rate
Price inflation (RPI)
Life expectancy
1.55% pa
3.75% pa
–
0.5% pa decrease
0.5% pa increase
Increase of 1 year
991
–
26
(832)
500
685
1,318
(54)
45
(818)
500
991
The weighted average duration of the DBO is 18 years. Further
Scheme analysis is shown below.
Analysis of DBO by participant category
£ thousands
Deferred participants
Pensioners
DBO
2020
4,665
23,292
27,957
2019
4,269
21,293
25,562
The assumptions used to determine the measurements at the
reporting dates are shown below:
The fair value of Scheme assets of £28.6 million is analysed in the
table below (2019: £26.6 million).
Scheme asset breakdown
Equities securities
Fixed income and credit
Alternative investments
Cash and liquidity/other
Scheme asset breakdown
Equity securities
Fixed income and credit
Alternative investments
Cash and liquidity/other
Quoted
securities1
51%
38%
5%
–
94%
Quoted
securities1
51%
39%
5%
–
95%
Other
–
–
–
6%
6%
Other
–
3%
–
2%
5%
Total
2020
51%
38%
5%
6%
100%
Total
2019
51%
42%
5%
2%
100%
1 Classed as Level 2 assets under IFRS 13 .
12. Deferred tax asset
The gross movement on deferred tax during the year is shown
below:
£ million
Balance at start of year
(Debit)/credit to consolidated income
statement
(Debit)/credit to SOCI
Balance at end of year
2020
1.5
0.9
0.1
2.5
2019
2.0
(0.6)
0.1
1.5
Discount rate
Price inflation (RPI)
Rate of salary increase
Pension increases for pre 6 April 1997
2020
1.45%
3.25%
n/a
2019
2.05%
3.25%
n/a
pension
4.00%
4.00%
Pension increases for post 6 April 1997
pension
4.20%
4.30%
Pension increases for deferred benefits
(non Guaranteed Minimum Pension)
Scheme participant census date
Post retirement mortality assumption-
3.25%
31 December
2020
3.25%
31 December
2019
source
SAPS1
SAPS1
1 Self-administered Pension Scheme light series year of birth tables allowing
for Continuous Mortality Investigation projections and a 1.5% per annum
long-term trend.
Sensitivity analysis
In accordance with IAS 19 (revised), the sensitivity of the DBO to
the relevant actuarial assumptions is shown below. In each case the
changed assumption has been considered in isolation (i.e. all other
factors remain constant).
£ thousands
DBO
2020
27,957
2019
25,562
Significant actuarial assumptions at 31 December 2020:
Assumptions
used for
sensitivity
analysis
Sensitivity
analysis
£ thousands
Discount rate
Price inflation (RPI)
Life expectancy
0.95% pa
3.75% pa
–
0.5% pa decrease
0.5% pa increase
Increase of 1 year
Revised DBO
for each
sensitivity
30,579
28,337
29,284
68 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
12. Deferred tax asset (continued)
The deferred tax asset is analysed below:
£ million
Share-based payments
Capital allowances
Retirement benefit liability/(asset)
Balance at end of year
2020
2.5
0.2
(0.2)
2.5
2019
1.7
0.1
(0.3)
1.5
The Group had carried forward tax losses of £333 million at
31 December 2020 (2019: £325 million) that have not been recognised
as a deferred tax asset, as it is unlikely that the unrecognised asset
will be utilised in the foreseeable future.
13. Financial instruments
As an investment company, financial instruments make up the
vast majority of the Group’s assets and liabilities and generate
its performance.
Financial instruments comprise securities, derivatives and other
investments, cash, short-term receivables and payables, and short
and long-term borrowings.
The nature and extent of the financial instruments outstanding can
be seen on the face of the balance sheet and the risk management
policies employed by the Group and Company are set out below.
The Group’s policy for determining the fair value of investments
(including private investments) is set out on pages 61 and 62. In relation
to receivables, payables and short-term borrowings, the carrying amount
is viewed as being a reasonable approximation of fair value.
13.1 Financial risk management
The main risks arising from the Group’s financial instruments are
market risk, credit risk and liquidity risk. The day-to-day identification,
mitigation and monitoring of these risks is undertaken by the
Manager under the authority of the Board and the Audit and Risk
Committee, and is described in more detail below.
The objectives, policies and processes for managing risks have not
changed since the previous accounting year. The risk management
processes of the Company are aligned with those of the Group
as a whole and it is at the Group level that the majority of the
risk management procedures are performed. Where relevant and
materially different from the Group position, Company-specific risk
exposures are explained alongside those of the Group.
13.1.1 Market risk
The fair value or future cash flows of a financial instrument or
investment property held by the Group may fluctuate as a result
of changes in market prices. Market risk can be summarised as
comprising three types of risk:
• Price risk
The risk that the fair value or future cash flows of financial
instruments and investment properties will fluctuate because of
changes in market prices (other than those arising from interest
rate risk or currency risk).
•
Interest rate risk
The risk that the fair value or future cash flows of financial
instruments and investment properties will fluctuate because of
changes in interest rates.
• Currency risk
The risk that the fair value or future cash flows of financial
instruments will fluctuate because of changes in foreign
exchange rates.
The Group’s exposure to, sensitivity to and management of each of
these risks are described in further detail below.
Management of market risk is fundamental to the Group’s
investment objective. The investment portfolio is continually
monitored to ensure an appropriate balance of risk and reward.
The Manager may seek to reduce or increase the portfolio’s exposure
to stock markets, interest rates and currencies by utilising derivatives
such as index futures, options, swaps and currency forward contracts.
These instruments are used for the purpose of hedging some or all of
the existing exposure within the portfolio to those currencies or particular
markets, as well as to enable increased exposure when deemed
appropriate. With respect to equity, foreign exchange and interest rate
options, the notional exposure presented in this note is adjusted to reflect
the sensitivity of the option to movements in the underlying security.
13.1.2 Price risk
Price risk may affect the value of the quoted and private investments
held by the Group.
The Group has a widely diversified investment portfolio which
significantly reduces the exposure to individual asset price risk. The
performance of third-party investment managers is regularly reviewed
and assessed to ensure compliance with their mandates and that their
performance is compatible with the Group’s investment objective.
The Group’s exposure to price risk is monitored and managed by
analysing the levels of direct exposure from quoted equity price risk
and the exposure from other price risk.
The Group’s exposure to quoted equity price risk (also described as
net quoted equity exposure) can be assumed to be equivalent to the
quoted equity investments in the investment portfolio adjusted for:
• Notional exposure from quoted equity derivatives;
• Estimated cash balances held by external managers; and
• Estimated net equity exposure from hedge fund managers.
Other price risk exposure relates to investments in private
investments, absolute return and credit, and real assets, adjusted for
the notional exposure from commodity derivatives.
£ million
Exposure to quoted equity price risk1
Exposure to other price risk
Total exposure to price risk
31 December
2020
31 December
2019
1,497.7
1,809.3
3,307.0
1,331.6
1,612.2
2,943.8
1 Quoted equity price risk represented 42% of year-end net assets (2019: 42%).
RIT Capital Partners plc Report and Accounts December 2020 69
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Notes to the Financial Statements
13. Financial instruments (continued)
Price risk sensitivity analysis
The sensitivity of the Group’s net assets and profit with regards to
changes in market prices is illustrated below. This is based on an
assumed 10% increase in general market prices with all other variables
held constant. A 10% decrease is assumed to produce an equal and
opposite effect.
The sensitivity analysis takes account of the relevant derivative
transactions the Group has entered into including those designed to
provide a hedge against such movements.
£ million
Quoted equity
Other
Total
2020
Impact on profit
and net assets
2019
Impact on profit
and net assets
149.8
180.9
330.7
133.2
161.2
294.4
The Group is exposed to market risk in respect to the fair value of the
investment properties. The investment properties are valued by JLL using
a market valuation approach and as such, the valuation will be influenced
by trends experienced in the property market and also the wider
economic environment. In particular, the valuation will be dependent on
rental income yields, demand and supply for office space in London and
comparable transactions completed in the marketplace. Fluctuations in
any of the inputs used by the valuers to value the investment properties
may increase or decrease the fair value of the properties.
13.1.3 Interest rate risk
The Group finances its operations mainly through its share capital and
reserves, including realised gains on investments. In addition, financing
has been obtained through bank borrowings and fixed rate loan notes.
Changes in interest rates have a direct or indirect impact on the fair
value or future cash flows of the following financial assets and liabilities:
• Gilts and other government securities;
• Money market funds;
• Credit funds;
• Cash and cash equivalents;
• Group borrowings; and
• Certain derivative contracts.
Changes in interest rates indirectly affect the fair value of the Group’s
other investments including those in quoted equity securities, private
investments or property.
Interest rate risk is managed by taking into account the possible effects
on fair value and cash flows that could arise as a result of changes in
interest rates when making decisions on investments and borrowings.
Exposure of the Group’s financial assets and liabilities to floating
interest rates (giving cash flow interest rate risk when rates are
reset) and fixed interest rates (giving fair value risk), is shown below.
£ million
Portfolio investments –
debt securities1
Cash
Borrowings
Total2
£ million
Portfolio investments –
debt securities1
Cash
Borrowings
Total2
31 December 2020
Floating
rate
–
296.8
(189.0)
107.8
Fixed
rate
37.7
–
(181.5)
(143.8)
31 December 2019
Floating
rate
–
61.1
(50.0)
11.1
Fixed
rate
77.4
–
(166.4)
(89.0)
Total
37.7
296.8
(370.5)
(36.0)
Total
77.4
61.1
(216.4)
(77.9)
1 In addition, the Group holds £366.8 million (2019: £232.7 million) in funds
which predominantly invest in credit instruments. These provide indirect
exposure to interest rate risk.
2 In addition, the Group holds £402.2 million (2019: £2.6 million) notional
exposure to interest rate derivatives.
Exposures vary throughout the year as a consequence of changes
in the composition of the net assets of the Group arising out of
investment, borrowing and risk management processes.
Portfolio investments include direct and indirect (via externally-
managed funds) investments in government securities, money
markets, as well as quoted and unquoted debt securities issued by
companies.
Interest received on cash and cash equivalents is at prevailing market
rates.
The Group has total borrowings with a fair value of £370.5 million
outstanding at the year end (2019: £216.4 million). The revolving
credit facility comprising £189.0 million of this total incurs floating
interest payments. The loan notes with a fair value of £181.5 million
(par value of £151.0 million) have fixed interest payments. Further
details are provided in note 18.
Interest rate risk sensitivity analysis
The approximate sensitivity of the Group’s net assets and profit in
regard to changes in interest rates is illustrated below. This is based
on an assumed 50 basis point annualised increase in prevailing
interest rates at the balance sheet date applied to the floating rate
and fixed rate assets and liabilities and the following assumptions:
•
•
the fair values of all other assets and liabilities are not affected by
a change in interest rates;
funds will be reinvested in similar interest-bearing securities on
maturity; and
•
all other variables are held constant.
70 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
13. Financial instruments (continued)
A 50 basis point decrease is assumed to produce an equal and
opposite impact.
£ million
Total
2020
Impact on profit
and net assets
2019
Impact on profit
and net assets
12.7
8.4
The Group has direct exposure to the effect of interest rate changes
on the valuation and cash flows of its interest-bearing assets and
liabilities. However, it may also be indirectly affected by the impact of
interest rate changes on the earnings of certain companies in which
the Group invests, and the impact on valuations that use interest
rates as an input, including valuation models for private investments.
Therefore, the sensitivity analysis may not reflect the full effect on
the Group’s net assets.
13.1.4 Currency risk
Consistent with its Investment Policy, the Group invests in financial
instruments and transactions denominated in currencies other
than sterling. As such, the Group’s profit and net assets could be
significantly affected by currency movements.
Currency risk is managed by the Group by entering into currency
options or forward currency contracts as a means of limiting or
increasing its exposure to particular currencies. These contracts are
used for the purpose of hedging part of the existing currency exposure
of the Group’s portfolio (as a means of reducing risk) or to enable
increased exposure when this is deemed appropriate by the Manager.
Foreign currency exposure
Currency
US dollar
Japanese yen
Euro
Swiss franc
Other non-sterling
Total1
2020
Net exposure
% of NAV
2019
Net exposure
% of NAV
29.7
5.6
4.4
–
1.4
41.1
17.6
5.7
6.1
0.3
1.2
30.9
1 Amounts in the above table are based on the carrying value of all foreign
currency denominated assets and liabilities and the underlying notional
amounts of forward currency contracts. It does not take into account any
estimates of ‘look-through’ exposure from our fund investments.
£ million
US dollar
Japanese yen
Euro
Swiss franc
Other non-sterling
Total
2020
Impact on profit
and net assets
2019
Impact on profit
and net assets
(94.9)
(20.3)
(8.5)
–
(5.1)
(128.8)
(55.5)
(17.9)
(19.4)
(1.1)
(3.6)
(97.5)
13.1.5 Credit risk
Credit risk is the risk that a counterparty to a financial instrument
held by the Group will fail to discharge an obligation or commitment
that it has entered into with the Group, which could result in a loss
to the Group.
This risk is not considered significant and is managed as follows:
•
•
•
the vast majority of the Group’s listed transactions are settled on
a delivery versus payment basis;
use of a range of brokers and counterparties with their credit
quality monitored regularly;
liquid investments (cash and cash equivalents) and cash margins
are divided between a number of different financial institutions;
and
•
careful selection of a diversified portfolio of credit managers.
A credit exposure could arise in respect of derivative contracts
entered into by the Group if a counterparty was unable to fulfil its
contractual obligations.
The Group has exposure to certain debt instruments acquired as
part of its private equity investments. The credit risk associated with
these instruments is managed as part of the overall investment risk
in the relevant portfolio companies and is not considered separately.
Credit risk exposure
£ million
Portfolio investments – debt securities1
Derivative financial instruments2
Cash margin
Other receivables
Cash at bank
Total3
2020
37.7
57.6
43.9
61.4
296.8
497.4
2019
77.4
51.1
75.5
96.7
61.1
361.8
Currency risk sensitivity analysis
The sensitivity of the Group’s net assets and profit in regard to changes
in key currencies is illustrated below. This is based on an assumed
10% strengthening of sterling relative to the foreign currencies as at
31 December 2020, and assumes all other variables are held constant.
A 10% weakening is assumed to produce an equal and opposite effect.
1 Debt securities held within portfolio investments include a private loan note
issued by LionTree Advisory Holdings LLC.
2 Represents the fair value of assets held by counterparties.
3 In addition to the table above, the Group holds a credit index derivative with
a notional exposure of £137.5 million, designed to provide some protection
against the deterioration of general investment grade credit.
The sensitivity analysis is based on the net foreign currency assets held
at the balance sheet dates and takes account of currency forwards and
options that adjust the effects of changes in currency exchange rates.
The credit quality of certain financial assets that are not past due,
where the risk of loss is primarily that a counterparty fails to meet an
obligation, can be assessed by reference to external credit ratings.
RIT Capital Partners plc Report and Accounts December 2020 71
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
13. Financial instruments (continued)
The Manager has a review process in place that included an
evaluation of a potential counterparty’s ability to service and repay its
debt. This is considered on a regular basis. Cash margins and other
receivables comprise mainly balances with counterparties which are
investment grade financial institutions with a short-term credit rating
by S&P of A-2 or higher (2019: A-2).
BNP is the custodian and depositary to the Company. As custodian,
substantially all of the listed portfolio investments and cash at
bank are held by BNP. Bankruptcy or insolvency of the custodian
may cause the Group’s rights with respect to securities held by
the custodian to be delayed; however, the custodian’s local long-
term rating from S&P was A in the most recent rating prior to 31
December 2020 (2019: A).
As depositary under AIFMD, the main obligation of BNP is the
safeguarding of those custodied assets on behalf of the RIT
shareholder. The depositary is liable for the loss of financial
instruments held in custody, other than under limited circumstances.
As a result of this obligation, the depositary maintains oversight of
all transactions undertaken by the AIFM (JRCM) on behalf of the AIF
(RIT). This includes reviewing all cash movements, receiving copies
of internal sign‐off documentation and key legal agreements, and
oversight and review of key procedures and controls.
13.1.6 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.
In addition to the Group’s liquidity balances and committed but undrawn
borrowings, the investment portfolio includes a substantial amount of
assets which would be expected to be realised within a relatively short
time frame, depending on market conditions. This will include stocks
(unless held via a co-investment fund or subject to a lock-up), government
bonds and derivatives. Other investments can be realised over varying
timeframes depending on the nature of the investment and/or the legal
terms governing disposal. Investments in externally-managed equity and
hedge funds have redemption periods which typically range from daily
to quarterly and longer, depending in part on the underlying nature of
the portfolio holdings. There is also a risk in stress situations of the funds
imposing additional restrictions or ‘gates’ on redemptions (as happened in
particular to hedge funds during the global financial crisis). Direct private
and private fund investments are inherently less liquid, and while there
is a secondary market, participants will often experience discounts to fair
value, in particular at times of stress.
JRCM manages the Group’s liquid resources in line with a
liquidity risk framework overseen by the Board. This establishes a
minimum level of liquidity available to meet expected contractual
commitments, including ongoing costs, margin calls and capital calls
(from funds with a commitment/drawdown structure - see note 14).
The Manager monitors the level of short-term funding, and balances
the need for access to short-term funding, with the long-term
funding needs of the Group.
The Group has three revolving credit facilities with a total capacity
of £385 million (£189 million drawn at the year end and £185 million
committed and undrawn) and £151 million of long-term loan notes
(details of which are disclosed in note 18).
72 Report and Accounts December 2020 RIT Capital Partners plc
The remaining contractual maturities of the Group’s financial liabilities
at the year end, based on the earliest date on which payment could
be required are as follows:
£ million
Current liabilities:
Bank loan/overdraft
Derivative financial
instruments
Purchases for future
settlement
Amounts owed to Group
undertakings
Non-current liabilities:
Derivative financial
instruments
Borrowings
Lease liability
Financial liabilities
Other non-financial liabilities
Subtotal
Commitments
Total
£ million
Current liabilities:
Bank loan/overdraft
Derivative financial
instruments
Purchases for future
settlement
Amounts owed to Group
undertakings
Non-current liabilities:
Derivative financial
instruments
Borrowings
Lease liability
Financial liabilities
Other non-financial liabilities
Subtotal
Commitments
Total
31 December 2020
3 months
or less
3-12
months
>1 year
Total
189.0
4.5
3.1
5.3
–
–
–
201.9
63.1
265.0
256.0
521.0
–
–
–
–
–
4.8
0.4
5.2
0.4
5.6
–
5.6
–
–
–
–
5.4
199.8
4.3
209.5
2.9
212.4
–
212.4
189.0
4.5
3.1
5.3
5.4
204.6
4.7
416.6
66.4
483.0
256.0
739.0
31 December 2019
3 months
or less
3-12
months
>1 year
Total
50.0
2.9
9.0
3.3
–
–
–
65.2
54.9
120.1
210.8
330.9
–
–
–
–
–
4.8
–
4.8
0.4
5.2
–
5.2
–
–
–
–
7.9
209.6
10.2
227.7
2.9
230.6
–
230.6
50.0
2.9
9.0
3.3
7.9
214.4
10.2
297.7
58.2
355.9
210.8
566.7
13.2 Collateral
Collateral in the form of cash margin is posted by the Group in
relation to certain derivative transactions, transacted under the
auspices of the International Swaps and Derivatives Association. The
Group does not hold collateral from other counterparties.
Set out below is the amount of financial assets pledged as collateral
at the year end.
£ million
Cash margin
2020
43.9
2019
75.5
Notes to the Financial Statements
13. Financial instruments (continued)
13.3 Derivative financial instruments
The Group typically uses the following types of derivative
instruments in the portfolio:
•
•
•
futures and forward contracts relating to market indices, foreign
currencies and government bonds;
options relating to foreign currencies, market indices, stocks and
interest rates; and
swaps relating to interest rates, bonds, credit spreads, equity
indices and stocks.
As explained above, the Manager uses derivatives to hedge various
exposures and also selectively to increase or decrease exposure
where desired. The notional amount of certain types of derivatives
provides a basis for comparison with instruments recognised on
the balance sheet, but does not necessarily indicate the amount of
future cash flows involved or the current fair value of the derivatives.
The derivative instruments become favourable (assets) or
unfavourable (liabilities) as a result of fluctuations in indices, security
prices, market interest rates or foreign exchange rates relevant to
the terms of the derivative instrument. The aggregate contractual or
notional amount of derivative financial instruments held, the extent
to which instruments are favourable or unfavourable and thus the
aggregate fair values of derivative financial assets and liabilities can
fluctuate significantly from time to time.
Details of the unsettled derivatives at 31 December 2020 and
31 December 2019 are:
As at 31 December 2020
£ million
Commodity derivatives
Credit derivatives
Currency derivatives
Equity derivatives
Fixed income derivatives
Interest rate derivatives
Total
As at 31 December 2019
£ million
Commodity derivatives
Credit derivatives
Currency derivatives
Equity derivatives
Fixed income derivatives
Interest rate derivatives
Total
Notional1
amount
128.4
189.1
2,300.3
80.8
102.9
315.9
Notional1
amount
108.3
309.4
2,087.7
42.1
–
2.6
Group and Company
Assets
(positive
fair value)
Liabilities
(negative
fair value)
Total
fair value
5.3
0.1
44.6
6.4
0.5
0.7
57.6
–
(3.1)
(4.1)
–
(0.4)
(2.3)
(9.9)
5.3
(3.0)
40.5
6.4
0.1
(1.6)
47.7
Group and Company
Assets
(positive
fair value)
Liabilities
(negative
fair value)
Total
fair value
4.1
–
44.9
2.1
–
–
51.1
–
(7.9)
(2.5)
(0.4)
–
–
(10.8)
4.1
(7.9)
42.4
1.7
–
–
40.3
1 Long and short notional exposure has been netted.
13.4 IFRS 13 fair value measurement classification
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 year 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 investments 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.
RIT Capital Partners plc Report and Accounts December 2020 73
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
13. Financial instruments (continued)
Level 3
The Group considers all private investments, whether direct or funds,
(as described in the Investment Portfolio on page 15) 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 as well as direct co-investments are held at
fair values provided by the GPs managing those funds/co-investments,
and are subject to periodic review by the Manager. 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 independent Valuations Committee
of which the Audit and Risk Committee chair is also a member. The
specific techniques used will typically include earnings multiples,
discounted cash flow analysis, the value of recent transactions, 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 31 December 2020 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 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. Further information is shown in note 15.
The following table analyses the Group’s assets and liabilities within
the fair value hierarchy, at 31 December 2020:
As at 31 December 2020
£ million
Level 1
Level 2
Level 3
Total
Financial assets at FVPL:
Portfolio investments
Non-consolidated subsidiaries
Investments held at fair value
Derivative financial instruments
Total financial assets at FVPL
Non-financial assets measured
at fair value:
Investment property
Property, plant and
equipment
Total non-financial assets
measured at fair value
Financial liabilities at FVPL:
Borrowings
Derivative financial
538.7
–
538.7
5.8
544.5
1,749.4
–
1,749.4
51.8
1,801.2
1,162.6
69.5
1,232.1
–
1,232.1
3,450.7
69.5
3,520.2
57.6
3,577.8
–
–
–
–
–
–
–
37.8
37.8
23.6
23.6
61.4
61.4
–
(370.5)
(370.5)
instruments
(0.3)
(9.6)
–
(9.9)
Total financial liabilities at
FVPL
(0.3)
(9.6)
(370.5)
(380.4)
Total net assets measured at
fair value
544.2
1,791.6
923.0
Other non-current assets
Cash at bank
Other current assets
Other current liabilities
Other non-current liabilities
Net assets
3,258.8
3.2
296.8
105.3
(68.8)
(4.9)
3,590.4
Movements in level 3 assets
Year ended 31 December 2020
£ million
Opening balance
Purchases
Sales
Realised gains/(losses) through profit
Investments
held at fair
value
1,132.6
279.3
(347.4)
Properties
Total
60.3
3.2
–
1,192.9
282.5
(347.4)
or loss
48.9
–
48.9
Unrealised gains/(losses) through
profit or loss
250.6
0.1
250.7
Unrealised gains/(losses) through
other comprehensive income
Transfer out of level 3
Other
Closing balance
–
(131.9)
–
1,232.1
(1.8)
–
(0.4)
61.4
(1.8)
(131.9)
(0.4)
1,293.5
74 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
13. Financial instruments (continued)
During the year, a direct private investment with a fair value of
£91.5 million was reclassified from level 3 to level 2. This reflected
the fact that, following an IPO, its main underlying investments were
listed. This is now disclosed in the Investment Portfolio (on page 14)
within quoted equity. Investments in funds with a fair value of £40.4
million were transferred from level 3 to level 2 as a result of new
financial information received during the year in respect of the
underlying investments of the funds. In addition, a quoted equity
stock was reclassified from level 2 to level 1 as a result of a lock-up
expiring that previously prevented the ability to sell the position.
Level 3 assets
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 or approach used in fair valuing the asset. 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.
Third-party valuations
Market multiples
Recent financing round
Discounted cash flow
Primary valuation method/approach
£ million
Third-party valuations
Market multiples
Recent financing round1
Discounted cash flow
Agreed sale/offer
Other industry metrics1
Total
2020
202.5
48.7
47.7
14.0
–
1.0
313.9
2019
126.9
85.1
93.3
17.3
5.2
3.9
331.7
Agreed sale/offer
Other industry metrics
1 Included within these methods are directly-held private investments held within
the non-consolidated subsidiaries with a total of £4.0 million (2019: £1.0 million).
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, often with
a final discount to reflect the risks associated with the transaction
completing or any price adjustments. 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. Where we have
co-invested alongside a GP, we typically utilise the GP’s latest available
valuation, consistent with our approach to private funds.
The following table provides a sensitivity analysis of the valuation of
directly-held private investments, and the impact on net assets:
Primary valuation method
Sensitivity analysis
A 5% change in the value of these
assets would result in a £10.1 million
or 0.28% (2019: £6.3 million, 0.20%)
change in net assets.
Assets in this category are valued using
a multiple of 10.2x for EV/Sales and 3.7x
for EV/revenue. If the multiple used
for valuation purposes is increased or
decreased by 5% then the net assets
would increase/decrease by £0.6 million
or 0.02% (2019: £4.6 million, 0.14%).
A 5% change in the value of these
assets would result in a £2.4 million
or 0.07% change in net assets (2019:
£4.7 million, 0.15%).
Assets in this category are valued using
a weighted average cost of capital range
of 5% - 30%. A 1% point increase/
decrease in the underlying discount rate
would result in a decrease/increase in
the net assets of £1.4 million or 0.04%
(2019: £2.5 million, 0.08%).
A 5% change in the value of these
assets would impact the net assets by
£nil or (2019: £0.3 million, 0.01%).
A 5% change in the value of these
assets would result in a £0.1 million
or 0.001% (2019: £0.2 million, 0.01%)
change in net assets.
The investment property and property, plant and equipment with an
aggregate fair value of £61.4 million (2019: £60.3 million) were valued
using a third-party valuation provided by JLL. The properties were
valued using weighted average capital values of £1,652 per square
foot (2019: £1,709) developed from rental yields and supported by
market transactions. A £25 per square foot increase/decrease in
capital values would result in a £0.8 million increase/decrease in fair
value (2019: £0.8 million increase/decrease).
The non-consolidated subsidiaries are held at their fair value of
£69.5 million (2019: £49.7 million) representing £63.4 million of
portfolio investments (2019: £43.5 million) and £6.1 million of
remaining assets and liabilities (2019: £6.2 million). A 5% change in
the value of these assets would result in £3.5 million or 0.1% (2019:
£2.5 million, 0.08%) change in net assets.
The remaining investments held at fair value and classified as level 3
were funds valued using third-party valuations from a GP, administrator
or fund manager totalling £852.7 million (2019: £752.2 million). A 5%
change in the value of these assets would result in a £42.6 million or
1.19% (2019: £37.6 million, 1.20%) 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 £1,293.5 million (2019: £1,192.9 million).
RIT Capital Partners plc Report and Accounts December 2020 75
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
13. Financial instruments (continued)
The following table analyses the Group’s assets and liabilities within
the fair value hierarchy, at 31 December 2019:
13.5 Capital management
The Group’s primary objectives in relation to the management of
capital are:
As at 31 December 2019
£ million
Financial assets at FVPL:
Portfolio investments
Non-consolidated subsidiaries
Investments held at fair value
Derivative financial instruments
Total financial assets at FVPL
Non-financial assets measured
at fair value:
Investment property
Property, plant and
equipment
Total non-financial assets
measured at fair value
Financial liabilities at FVPL:
Borrowings
Derivative financial
instruments
Total financial liabilities at
FVPL
Level 1
Level 2
Level 3
Total
457.2
–
457.2
4.1
461.3
1,496.3
–
1,496.3
47.0
1,543.3
1,082.9
49.7
1,132.6
–
1,132.6
3,036.4
49.7
3,086.1
51.1
3,137.2
–
–
–
–
–
–
–
–
–
–
36.1
36.1
24.2
24.2
60.3
60.3
(216.4)
(216.4)
(10.8)
–
(10.8)
(10.8)
(216.4)
(227.2)
Total net assets measured at
fair value
461.3
1,532.5
976.5
Other non-current assets
Cash at bank
Other current assets
Other current liabilities
Other non-current liabilities
Net assets
Movements in level 3 assets
2,970.3
2.5
61.1
172.2
(58.6)
(1.9)
3,145.6
Year ended 31 December 2019
£ million
Investments
held at fair
value
Properties
Total
Opening balance
Purchases
Sales
Realised gains/(losses) through profit
1,029.0
196.7
(139.0)
61.6
0.2
–
1,090.6
196.9
(139.0)
or loss
8.2
–
8.2
Unrealised gains/(losses) through
profit or loss
57.9
0.6
58.5
Unrealised gains/(losses) through
other comprehensive income
Transfer in to level 3
Transfer out of level 3
Other
Closing balance
–
57.5
(77.7)
–
1,132.6
(1.8)
–
–
(0.3)
60.3
(1.8)
57.5
(77.7)
(0.3)
1,192.9
•
•
to deliver long-term capital growth for its shareholders, while
preserving shareholders’ capital;
to deliver for shareholders increases in capital value in excess of
the relevant indices over time through an appropriate balance of
equity capital and gearing; and
•
to ensure the Group’s ability to continue as a going concern.
The Company is subject to externally imposed capital requirements:
•
•
the Company’s Articles of Association restrict borrowings to a
maximum of five times share capital and reserves; and
the Company’s borrowings are subject to covenants limiting
the total exposure based on a minimum net assets and a cap of
borrowings as a percentage of adjusted net assets.
All these conditions were met during this year and the previous
financial year.
In addition, JRCM is subject to capital requirements imposed by
the FCA and must ensure that it has sufficient capital to meet these
requirements. JRCM was compliant with those capital requirements
throughout the year.
The Group’s capital at 31 December 2020 and 31 December 2019
comprised:
£ million
Equity share capital
Retained earnings and other reserves
Net asset value
Borrowings
Total capital
2020
156.8
3,433.6
3,590.4
370.5
3,960.9
2019
156.8
2,988.8
3,145.6
216.4
3,362.0
There have been no significant changes to the Group’s capital
management objectives, policies and processes in the year, nor has
there been any change in what the Group considers to be its capital.
14. Financial commitments
Financial commitments to invest additional funds which have not
been provided for are as follows:
£ million
Commitments
31 December 2020
31 December 2019
Group
Company
Group
Company
256.0
256.0
210.8
210.8
The financial commitments are principally uncalled commitments to
private funds, which are typically established as 10-year funds with
a 5-year investment period, and are diversified across multiple funds
and vintage years.
76 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
15. Investment property
£ million
Rental income from investment
properties
Direct operating expenses arising from
investment properties that generated
rental income during the year
Cash outflow from leases
2020
2.1
(1.5)
(0.5)
2019
2.5
(1.4)
(0.4)
The Group and Company is committed to making the following
payments under non-cancellable leases over the periods described.
£ million
Within one year
2020
0.4
2019
0.2
Under non-cancellable leases the Group and Company will receive
the following:
£ million
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
2020
2019
1.3
1.0
0.3
–
–
–
1.4
0.9
0.9
–
–
–
All investment properties held by the Group during the year
generated rental income.
The Company leases Spencer House from the Spencer Trustees (the
Trustees). The terms of this lease include provisions such that: any
assignment or sale of the lease can occur only with the consent of the
Trustees, there are limits on event frequency and that the Trustees retain
certain (de minimis) usage rights over the ‘fine rooms’. The Company
is required to externally redecorate every three years and to internally
redecorate every seven years. The property is typically open to the public
for viewing every Sunday, except during August. The investment property
portfolio is valued by JLL on a six-monthly basis in accordance with
current RICS Valuation – Global Standards 2017, published by the Royal
Institution of Chartered Surveyors, on the basis of open market value. The
most recent valuation, which reflects the factors highlighted above, was
undertaken as at 31 December 2020.
16. Other receivables
£ million
Group
Company
Group
Company
31 December 2020
31 December 2019
Cash margin
Amounts receivable
Prepayments and accrued
income
Sales for future settlement
Unsettled investment
subscriptions
Total
43.9
1.2
5.1
39.8
43.9
1.2
4.7
39.8
75.5
1.3
4.0
53.7
75.5
1.2
3.6
53.7
15.3
105.3
15.3
104.9
37.7
172.2
37.7
171.7
The carrying amount of other receivables approximates their fair
value, due to their short-term nature.
17. Related party transactions
In the normal course of its business, the Group has entered into a
number of transactions with related parties. All arrangements with
related parties are monitored by the Conflicts Committee, which is
comprised solely of independent non-executive Directors.
Transactions with Hannah Rothschild or parties related to her
During the current and prior year the Group transacted with entities
classified as related to Hannah Rothschild as a result of her having
significant influence over them, a beneficial interest in them, or
otherwise in accordance with IAS 24.
The Group has cost-sharing arrangements with these related
parties covering the provision and receipt of administrative as well
as investment advisory, support and supply services. Under these
arrangements the Group received £456,792 (31 December 2019:
£513,512) and paid £225,006 (31 December 2019: £308,338).
Certain of these related parties occupy office space in St James’s
Place which is owned or leased by the Group. The rent, rates and
services charged by the Group for the year ended 31 December
2020 amounted to £322,862 (31 December 2019: £386,753).
During the year, the contribution by the Group in respect of the
Company’s founder and previous Chairman’s office and private
medical costs was £41,250 (31 December 2019: £13,750). These
payments ceased on 30 September 2020.
Certain activities of the Group are carried out in properties owned by
related parties. The cost to the Group for the rent was £4,749 in the
year ended 31 December 2020 (31 December 2019: £29,548).
The balance due by the Group to the parties related to Hannah
Rothschild at 31 December 2020 was £nil (31 December 2019:
£16,500) and the balance due to the Group from the related parties
was £6,789 (31 December 2019: £18,399).
Other
The Company has an agreement with Spencer House Partners,
of which Jeremy Sillem is a member, for the provision of corporate
finance advisory services. Over 2020 RIT has incurred expenses of
£170,000 in respect of these services (2019: £170,000). Spencer
House Partners rents space in one of the Company’s properties and
over the same period paid rent of £178,857 (2019: £183,038).
Law Debenture Trust, a related party to a director of JRCM for part of
2020, received fees for the provision of pension trustee services of
£51,192 (2019: £17,369).
During the year JRCM senior management subscribed £50,000
pari passu alongside the Company’s £50,000 investment in JRCM
(London) LLP, a subsidiary.
Group undertakings
JRCM acts as the Company’s manager, administrator and corporate
secretary. During the year ended 31 December 2020, the charge
for these services from JRCM to the Company amounted to
£52.9 million (2019: £39.0 million). JRCM incurred rent charges
of £580,000 (2019: £580,000) from the Company. During the year
Spencer House Limited (also a wholly-owned subsidiary of the
Company) earned revenues of £94,007 from JRCM (2019: £85,901)
and £1,569,481 from the Company (2019: £1,595,339).
RIT Capital Partners plc Report and Accounts December 2020 77
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
17. Related party transactions (continued)
Amounts due from subsidiaries and to subsidiaries are disclosed on
the face of the Company’s balance sheet. The balances outstanding
between the Company and its subsidiaries at the year ends are
shown below:
£ million
Total
£ million
JRCM
RIT Capital Partners Associates Limited
J. Rothschild Capital Management US, Inc
Other subsidiaries
Total
Amounts owed by
Group undertakings
2020
–
2019
–
Amounts owed to
Group undertakings
2020
(82.3)
–
(5.1)
–
(87.4)
2019
(86.8)
–
(3.3)
–
(90.1)
RITCP Pension and Life Assurance Scheme
The Group’s pension scheme is deemed to be a related party of the
Company pursuant to IAS 24. Details of the pension contributions
made during the year are disclosed in note 11. There were no
amounts owing to or by the pension scheme to the Company, or any
subsidiary, at 31 December 2020 (31 December 2019: £nil).
Directors and key management personnel
Details of the remuneration and benefits attributable to Directors and
key management personnel are set out below.
£ million
Short-term employee benefits
Share-based payment
Total
2020
11.5
11.4
22.9
2019
6.9
6.51
13.4
flexible as to currency, duration and number of drawdowns, and bear
interest linked to the LIBOR rate (or equivalent) relevant to the period
and currency drawn. As they are drawn in tranches with tenors less
than one year they are classified within current liabilities. The fair
value and par value of the drawn borrowings is £189 million (2019:
£50 million). A change in interest rates is not expected to have a
significant impact on the fair value of the RCFs. No bank loans are held
within subsidiaries. The weighted average interest rate on the RCFs at
the year end was 1.76% (2019: 2.32%).
On 1 June 2015 the Company issued £151.0 million of fixed rate
loan notes with tenors between 10 and 20 years and coupons from
3.00% to 3.56%. These notes are held at fair value and pay interest
on a semi-annual basis. The fair value of this debt at the end of the
year was £181.5 million (2019: £166.4 million) calculated using a
discount rate of 1.32% (2019: 2.41%). A 5% increase / decrease in
the underlying discount rate would result in an increase / decrease in
net assets of £1.1 million (2019: £1.9 million) or 0.03% (2019: 0.06%).
The weighted average interest rate payable on these notes is 3.45%
and their remaining weighted average tenor is 10.2 years.
The overall weighted average interest rate on the borrowings at the
year end was 2.49% (2019: 3.17%).
19. Other payables
£ million
Group
Company
Group
Company
31 December 2020
31 December 2019
Accruals
Other creditors
Purchases for future
settlement
Total
24.3
36.1
3.1
63.5
4.3
36.0
3.1
43.4
10.4
35.9
9.0
55.3
0.8
35.6
9.0
45.4
The carrying value of the Group’s other payables approximates their
fair value, due to their short-term nature.
1 This includes the costs associated with the accelerated vesting of Lord
Rothschild’s remaining share-based payment awards on his retirement.
The Group has no ultimate controlling party.
20. Share capital
2020
Nominal
value of
total shares
in issue
2019
Nominal
value of
total shares
in issue
Shares in
issue
Allotted, issued and fully paid:
At 1 January
Issue of new ordinary shares
At 31 December
156,848,065
–
156,848,065
156.8
–
156.8
155.4
1.4
156.8
The Company has one class of ordinary shares which carry no right
to fixed income. The share capital is not distributable.
In the year to 31 December 2020 116,040 shares were bought back
and held in treasury (2019: nil).
No £1 ordinary shares were issued during the year (2019: 1,496,634).
18. Borrowings
£ million
Unsecured loans payable within one year:
Revolving credit facilities
Unsecured loans payable in more than one year:
Fixed rate loan notes
Total borrowings
Group and Company
£ million
2020
2019
189.0
50.0
181.5
370.5
166.4
216.4
At 31 December 2020 the Company had three revolving credit
facilities (RCFs): a £150 million three-year facility with National
Australia Bank agreed in December 2019, a £150 million five-year
facility with Commonwealth Bank of Australia agreed in December
2018 and a £85 million three-year facility with Industrial and
Commercial Bank of China agreed in December 2019. These are
78 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
The movement in share-based awards is as follows:
Number (thousand)
2020
2019
Outstanding at the start of the year:
SARs/performance shares
Deferred shares
Total
Granted during the year:
SARs/performance shares
Deferred shares
Total
Exercised during the year:
SARs/performance shares
Deferred shares
Total
Lapsed/forfeited during the year:
SARs/performance shares
Deferred shares
Total
Outstanding at the end of the year:
SARs/performance shares
Deferred shares
Total
SARs exercisable at year end
Intrinsic value exercisable at year end
3,681
285
3,966
1,654
342
1,996
4,209
357
4,566
897
253
1,150
(2)
(139)
(141)
(1,084)
(288)
(1,372)
(1,116)
–
(1,116)
4,217
488
4,705
174
(341)
(37)
(378)
3,681
285
3,966
176
(£ million)
1.1
0.9
For share-based awards granted during the year, the weighted
average fair value was 720 pence (2019: 570 pence). The main
assumptions adopted in the valuation of the share-based awards with
performance conditions attached (SARs/performance shares) were:
Valuation methodology
Share price at issue (pence)
Exercise price (pence)
Expected volatility pa3
Expected life (years)
Dividend yield
Risk-free rate4
Monte Carlo1
Trinomial2
1,806
–
18.2%-26.9%
1-7
1.94%
1,806
1,579
17.5%
4.5
1.94%
0.49%-0.58% 0.52%
1 Used to estimate the fair value of performance shares.
2 Used to estimate the fair value of SARs.
3 Expected volatility was estimated using the historical share price volatility
over a period matching the expected life of the awards.
4 The risk-free rate uses the sterling benchmark swap curve for a duration
matching the expected life of the awards.
Share-based awards with only service conditions attached (deferred
shares) were valued using the prevailing market price.
21. Share premium
£ million
At 1 January
Issue of new ordinary shares
At 31 December
2020
45.7
–
45.7
2019
17.3
28.4
45.7
No share premium arose during the year (2019: £28.4 million on
issue of shares). The share premium is not distributable.
22. Capital redemption reserve
2020
2019
£ million
Group
Company
Group
Company
Balance at start of year
Movement during the year
Balance at end of year
36.3
–
36.3
36.3
–
36.3
36.3
–
36.3
36.3
–
36.3
The capital redemption reserve is not distributable and represents
the cumulative nominal value of shares acquired for cancellation.
23. Own shares reserve
£ million
Opening cost
Own shares acquired
Own shares transferred
Closing cost
2020
(7.8)
(10.1)
2.6
(15.3)
2019
(13.4)
(7.1)
12.7
(7.8)
The Group has established an Employee Benefit Trust (EBT) which
purchases shares in order to meet the anticipated value of equity
settled, share-based awards. At the year end, the EBT held 809,044
shares with a cost of £15.3 million and market value of £16.7 million
(2019: 419,145 shares, cost £7.8 million, market value £8.9 million).
The own shares reserve is not distributable.
24. Share-based payments
The Group utilises share-based awards for employees, the vast
majority of which are equity-settled and designed to align the
interests of employees with those of shareholders.
Employee awards include share appreciation rights (SARs) and
performance shares (both of which vest based on market-based
performance conditions and subject to continued service). The
performance conditions are designed to reinforce the Company’s KPIs
– SARs vest based on RIT’s TSR exceeding RPI+3% and performance
shares are divided into two tranches, with proportionate vesting based
on the extent to which the TSR outperforms RPI+3% or the ACWI.
In addition, 60% of annual bonuses over £150,000 (for JRCM
directors) or £250,000 (for other employees) are made in deferred
shares which vest over three years (based on a service condition).
The total expense for share-based awards, including related social
security costs, recognised in the consolidated income statement
was £14.3 million (2019: £7.5 million) of which £5.0 million related to
SARs and performance shares, and £9.3 million relating to deferred
shares.
RIT Capital Partners plc Report and Accounts December 2020 79
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
25. Capital reserve
28. Net asset value per ordinary share –
31 December 2020
31 December 2019
basic and diluted
£ million
Group
Company
Group
Company
Balance at start of year
Gains/(losses) for the year
Dividend paid
Other capital items
Taxation
Total capital return
Balance at end of year
2,894.1
540.2
(54.7)
(30.4)
0.9
456.0
3,350.1
2,910.9
540.2
(54.7)
(15.6)
–
469.9
3,380.8
2,624.3
351.7
(52.6)
(28.7)
(0.6)
269.8
2,894.1
2,633.5
351.5
(52.6)
(21.5)
–
277.4
2,910.9
Net asset value per ordinary share is based on the following data:
31 December
Net assets (£ million)
Number of shares in issue (million)
Own shares adjustment (million)1
Basic shares (million)
Effect of share-based payment awards (million)
Diluted shares (million)
2020
2019
3,590.4
156.8
(0.9)
155.9
0.8
156.7
3,145.6
156.8
(0.1)
156.7
0.2
156.9
The Company’s Articles of Association allow distribution by dividends
of realised capital reserves.
1 EBT and treasury shares.
2020
2019
31 December
Net asset value per ordinary share – basic
Net asset value per ordinary share – diluted
2020
pence
2,303
2,292
2019
pence
2,007
2,004
£ million
Capital reserve:
in respect of investments realised
in respect of investments held
Balance at end of year
2,233.8
1,147.0
3,380.8
2,114.5
796.4
2,910.9
26. Revenue reserve
31 December 2020
31 December 2019
£ million
Group
Company
Group
Company
Balance at start of year
Profit/(loss) for the year
Actuarial gain/(loss)
Deferred tax (charge)/credit
Balance at end of year
7.0
(1.2)
(0.8)
0.1
5.1
(97.6)
(39.2)
–
–
(136.8)
(5.0)
12.7
(0.8)
0.1
7.0
(95.9)
(1.7)
–
–
(97.6)
As permitted by Section 408 of the Companies Act 2006, the
Company has not published a separate income statement or
statement of comprehensive income. The Company’s revenue
loss after tax amounted to £39.2 million (2019: loss £1.7 million).
The Company’s total profit for the year was £485.9 million (2019:
£326.5 million profit).
27. Revaluation reserve
£ million
Balance at start of year
Revaluation gain/(loss)
on property, plant and
equipment
Balance at end of year
31 December 2020
31 December 2019
Group
Company
Group
Company
13.5
13.5
15.3
15.3
(1.8)
11.7
(1.8)
11.7
(1.8)
13.5
(1.8)
13.5
The revaluation reserve is not distributable.
80 Report and Accounts December 2020 RIT Capital Partners plc
29. Investments in subsidiary undertakings
£ million
Carrying value at 1 January 2020
Additions
Disposals
Other movements in year
Carrying value at 31 December 2020
£ million
Carrying value at 1 January 2019
Additions
Disposals
Other movements in year
Carrying value at 31 December 2019
Shares
55.9
15.4
–
4.3
75.6
Shares
54.1
7.5
(8.9)
3.2
55.9
Investments in subsidiary undertakings are stated at cost or fair
value where appropriate.
At 31 December 2020 the Company held investments in the
following subsidiaries, which, unless otherwise stated, are wholly-
owned, share the same accounting reference date as the Company
and operate principally in their country of incorporation. The voting
share capital, unless otherwise stated, is held directly by the
Company.
In accordance with IFRS 10 the Group consolidates the subsidiary
below:
Name
JRCM1
Issued share capital
£6,250,001 divided into 6,250,000 ordinary shares
of £1 each and one special share of £1 held by The
J. Rothschild Name Company Limited
1 Registered office and principal place of business: 27 St James’s Place,
London SW1A 1NR.
Notes to the Financial Statements
29. Investments in subsidiary undertakings
31. Reconciliation of profit/(loss) before finance
(continued)
In accordance with IFRS 10 the Company and Group holds the
following subsidiaries at fair value at 31 December 2020:
Principal place of
business
Name
Spencer House Limited1,5
RIT US Value Partnership LP1,6
RIT Investments GP Limited2,3,5
J. Rothschild Capital Management US Inc4,5 United States
RIT Investments US Inc3,4,5
United States
RIT US Holdings LLP3,4,6
United States
England
England
Scotland
Ownership
interest
100%
100%
100%
100%
100%
100%
1 Registered office and principal place of business: 27 St James’s Place,
London SW1A 1NR.
2 Registered office and principal place of business: 50 Lothian Road, Edinburgh
EH3 9WJ.
3 Held indirectly.
4 Registered office: 251 Little Falls Drive, Wilmington, Delaware 19808, USA.
5 Ownership interest is ordinary shares.
6 Ownership interest is partnership capital.
For all of the above the proportion of voting rights held is equivalent
to the ownership interest.
There are no significant restrictions arising from any contractual
arrangements or regulatory requirements that would affect the ability
of any of the above entities to transfer funds to or repay loans made
by the Company.
During 2020 the Company subscribed for £50,000 partnership
capital into JRCM (London) LLP whose registered office and principal
place of business is 27 St. James’s Place, London, SW1A 1NR.
A commitment of £50,000 remains at the year end.
There are no other current commitments or contractual
arrangements to provide financial support to any of the entities
above other than in the normal course of business (e.g. funding of
investment transactions/capital calls). The Company has not assisted
any of the above entities in obtaining financial support in any way
over the year and has no current intentions to do so.
30. Dividends
2020
Pence
per share
2019
Pence
per share
2020
£ million
Dividends paid in year
35.0
34.0
54.7
2019
£ million
52.6
The above amounts were paid as distributions to equity holders of
the Company in the relevant year from accumulated capital profits.
On 4 March 2020 the Board declared a first interim dividend of
17.5 pence per share in respect of the year ended 31 December
2020 that was paid on 30 April 2020. A second interim dividend of
17.5 pence per share was declared by the Board on 4 August 2020
and paid on 30 October 2020.
The Board declares the payment of a first interim dividend of
17.625 pence per share in respect of the year ending 31 December
2021. This will be paid on 30 April 2021 to shareholders on the register
on 6 April 2021, and funded from the accumulated capital profits.
costs and taxation to net cash inflow/(outflow)
from operating activities
£ million
Profit/(loss) before dividend and interest income,
finance costs and taxation
Dividend income
Interest income
Profit/(loss) before finance costs and taxation
(Increase)/decrease in other receivables
Increase/(decrease) in other payables
Other movements
(Gains)/losses on borrowings
Realised foreign exchange (gains)/losses on
repayments and drawings of borrowings
Purchase of investments held at fair value
Sale of investments held at fair value
(Gains)/losses on fair value investments
Interest paid
Net cash inflow/(outflow) from operating
Group
2020
2019
507.0
10.2
2.3
519.5
66.9
8.2
(18.8)
15.1
(33.0)
(1,328.1)
1,518.9
(576.4)
(16.4)
332.8
17.1
13.4
363.3
76.3
3.8
(47.5)
11.3
–
(775.0)
818.7
(295.0)
(20.4)
activities
155.9
135.5
£ million
Profit/(loss) before dividend and interest income,
finance costs and taxation
Dividend income
Interest income
Profit/(loss) before finance costs and taxation
(Increase)/decrease in other receivables
Increase/(decrease) in other payables
Other movements
(Gains)/losses on borrowings
Realised foreign exchange (gains)/losses on
repayments and drawings of borrowings
Purchase of investments held at fair value
Sale of investments held at fair value
(Gains)/losses on fair value investments
Interest paid
Net cash inflow/(outflow) from operating
Company
2020
2019
491.8
10.2
2.3
504.3
66.8
(2.0)
(59.6)
15.1
(33.0)
(1,297.3)
1,529.6
(576.4)
(16.4)
318.2
17.1
13.4
348.7
76.5
2.7
(25.5)
11.3
–
(760.0)
816.4
(295.1)
(20.4)
activities
131.1
154.6
Reconciliation of liabilities arising from financing activities:
£ million
Borrowings – current
Borrowings – non-current
Total
1 Including currency translation.
Non-cash
changes in
fair value1
Net
drawdowns
2020
11.0
(15.1)
(4.1)
(150.0)
–
(150.0)
(189.0)
(181.5)
(370.5)
2019
(50.0)
(166.4)
(216.4)
RIT Capital Partners plc Report and Accounts December 2020 81
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements
Unconsolidated structured entities
The Group holds interests in closed-ended limited partnerships
which invest in underlying companies or securities for the
purposes of capital appreciation. The Group, alongside the other
limited partners, makes commitments to finance the investment
programme of the relevant GP or manager, who may draw down this
committed amount either upfront or over a period of years. The table
below shows the Group’s carrying value of such investments and
represents the maximum exposure to loss.
£ million
Total1
2020
1,460
2019
1,140
1 Included within Investments held at fair value.
The list of significant related undertakings on page 83 is pursuant to
the requirements of Companies Act 2006, Statutory Instrument 2015
No. 980 The Companies, Partnerships and Groups (Accounts and
Reports) Regulations 2015, IFRS and the SORP.
Disclosed on page 83 for the year ended 31 December 2020 are:
•
•
•
Entities classified as significant holdings (20% or greater interest
in a class of shares or partnership);
Material investee undertakings in which the Group had an interest
of over 3% of the allotted shares of any class; and
Material investment funds in which the Group had an interest of
10% or more in any class of share or unit.
All the investments in the table on page 83 are held at FVPL.
32. Material investments and related undertakings
Further information regarding investments is shown here.
Disclosed below are the ten largest investments in the portfolio
(excluding investments in non-consolidated subsidiaries) shown at
fair value:
As at 31 December 2020
Eisler Capital Fund
HCIF Offshore
BlackRock European Hedge Fund
Springs Opportunities
Coupang
Attestor Value Fund
Gaoling
Ward Ferry Asian Smaller Companies
Acorn
Tresidor Credit
Total
As at 31 December 2019
HCIF Offshore
Eisler Capital Fund
Acorn
BlackRock European Hedge Fund
Attestor Value Fund
Elliott International
Springs Opportunities
BlackRock Emerging Markets
Gaoling
Ward Ferry Asian Smaller Companies
Total
£ million
170.7
156.7
156.0
142.9
140.8
116.5
108.1
93.4
91.5
83.6
1,260.2
£ million
151.2
149.9
117.1
112.7
111.3
101.2
100.2
94.9
70.8
59.4
1,068.7
Further to the disclosures in note 29 (investments in subsidiary
undertakings), the table on the following page shows a list of
significant related undertakings of the Group as at 31 December
2020. For the investments shown the principal place of business
is considered to be the place of registration and the proportion of
voting rights held is considered to be the ownership interest.
The Directors do not consider that any of the portfolio investments
shown in the table on the following page fall within the definition
of an associated company (aside from the entities noted below the
table) as the Group does not exercise significant influence over their
operating and financial policies as it is a passive investor.
In a number of cases the Group owns more than 50% of a particular
class of shares or partnership interest. The Group does not consider
these holdings, although greater than 50%, provide control of the
investee entities concerned as firstly the Group’s position as a
passive investor in these entities acts as a substantive barrier to its
exercising any power over the investee and secondly the nature of
the Group’s holding does not give it the ability to direct the relevant
activities of the investee because it does not control or participate in
the governing bodies of these entities.
82 Report and Accounts December 2020 RIT Capital Partners plc
Notes to the Financial Statements
32. Material investments and related undertakings (continued)
Investment Name
1992 Co-Invest (Offshore) LP
AC530 Offshore Fund Ltd
BlackRock Emerging Markets Flexible Fund,
Class R
BlackRock European Hedge Fund Ltd, Class I
Blumberg Capital I LP
BX-B Ribbit Opportunity IV, LLC
BX-C Ribbit Opportunity IV, LLC
Caxton Dynamis Limited
Darwin Private Equity I LP
Dukes Investments Ltd 1
Eisler Capital Fund Ltd, R Shares
Emerging India Focus Funds - Class E
Firebird New Russia Fund Ltd, Class A1
Gaoling UK Feeder Fund Ltd, Class A
Green Park Ventures LP
Hein Park Offshore Investors Ltd, Class F
ICQ Holdings 6 LLC
Infinity SDC Ltd 1
JNE Fund Ltd
Lansdowne Developed Markets Strategic
Investment Fund DIS Limited, Class N Relative
GBP Designated Investment shares
Lansdowne NE Fund, Unhedged Non-Restricted
absolute shares
Media Technology Ventures IV LP
RR Capital Partners LP
Sand Grove Tactical Fund LP
Sand Grove UK Tactical Portfolio
Social Capital Public Equity Partners Offshore
Fund Ltd
Springs Global Strategic Partners Fund - Anchor
Class
Springs Opportunities Fund LP, Series A
Japan Small Cap Fund
Tangible Segregated Portfolio of the South Africa
Alpha SPC
Tresidor Credit Opportunities Fund
TRG Select Opportunities Fund, Ltd
Tribeca Global Natural Resources Feeder Fund
Class A Participating Shares Unrestricted
Westcap Strategic Operator Fund, L.P.
Xander Seleucus II LP
Xander Seleucus LP
Xander Seleucus Retail LP
Place of registration
Cayman Islands
Cayman Islands
Ireland
Cayman Islands
Delaware, USA
Delaware, USA
Delaware, USA
Virgin Islands
Scotland
Cayman Islands
Cayman Islands
Mauritius
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Delaware, USA
England & Wales
Cayman Islands
Registered address
Fair value
£ million
%
interest
PO Box 309, Ugland House, Grand Cayman, KY1-1104
PO Box 309, Ugland House, Grand Cayman, KY1-1104
15.7
5.4
49.7%
42.8%
2 Ballsbridge Park, Ballsbridge, Dublin 4
PO Box 309, Ugland House, Grand Cayman, KY1-1104
580 Howard Street, Suite 401, San Francisco, California 94105
1209 Orange Street, Wilmington, Delaware 19801
1209 Orange Street, Wilmington, Delaware 19801
Maples Corporate Services, PO Box 173, Road Town, Tortola
50 Lothian Road, Festival Square, Edinburgh EH3 9WJ
87 Mary Street, George Town, Grand Cayman KY1-9005
PO Box 309, Ugland House, Grand Cayman, KY1-1104
5th Floor, Barkly Wharf, Le Caudan Waterfront , Port Louis
PO Box 897, Windward 1, Grand Cayman KY1-1103
27 Hospital Road, George Town, Grand Cayman, KY1-9008
190 Elgin Avenue, George Town, Grand Cayman KY1-9005
27 Hospital Road, George Town, Grand Cayman, KY1-9008
2711 Centerville Road, Suite 400, Wilmington, Delaware 19808
500-600 Witan Gate West, Milton Keynes MK9 1SH
PO Box 309, Ugland House, Grand Cayman, KY1-1104
156.0
2.9
6.9
0.7
80.5 100.0%
41.5%
56.1%
22.9%
29.2%
45.0 100.0%
23.9%
4.5
49.9%
0.0
53.9%
170.7
33.4%
51.1
25.4%
2.2
74.0%
108.1
49.9%
0.1
30.5
36.0%
49.5 100.0%
8.5
23.9%
0.7 100.0%
Cayman Islands
PO Box 309, Ugland House, Grand Cayman, KY1-1104
2.0
34.5%
Ireland
California, USA
Delaware, USA
Cayman Islands
Cayman Islands
Cayman Islands
32 Molesworth Street, Dublin 2
185 Berry Street, Suite 3600, San Francisco, California 94107
One Maritime Plaza, Suite 2100, San Francisco, California 94111
PO Box 309, Ugland House, Grand Cayman, KY1-1104
PO Box 309, Ugland House, Grand Cayman, KY1-1104
Floor 4, Willow House, Cricket Square, PO Box 268, Grand
Cayman KY1‐1104
70.0%
71.7
38.5%
1.5
20.5%
0.2
53.1
67.6%
70.0 100.0%
2.1
31.8%
Ireland
Cayman Islands
Ireland
2nd Floor, 2 Custom House Plaza, Harbourmaster Place, Dublin 1
4th Floor, Willow House, Cricket Square, Grand Cayman KY1-9010
Block 5, Harcourt Centre, Harcourt Road, Dublin 2
62.3 100.0%
54.8%
20.0%
142.9
51.6
Cayman Islands 103 South Church Street, George Town, Grand Cayman, KY1-1002
2nd Floor, 2 Custom House Plaza, Harbourmaster Place, Dublin 1
PO Box 309, Ugland House, Grand Cayman, KY1-1104
Ireland
Cayman Islands
20.6%
11.3
83.6 100.0%
41.4%
12.6
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
27 Hospital Road, George Town, Grand Cayman, KY1-9008
94 Solaris Avenue, PO Box 1348, Grand Cayman, KY1-1108
PO Box 309, Ugland House, Grand Cayman KY1-1104
PO Box 309, Ugland House, Grand Cayman KY1-1104
PO Box 309, Ugland House, Grand Cayman KY1-1104
29.5
7.6
0.5
0.1
1.2
62.3%
49.4%
41.9%
43.3%
48.8%
1 The Directors consider these entities, in which it holds ordinary shares, as associated companies as the Group has significant influence due to circumstances
particular to the investment. The Group has chosen to account for associated companies held for investment purposes at FVPL in accordance with IFRS 9.
33. Event after the reporting period
On 1 March 2021, one of the Company’s direct private investments – Coupang – published an amended pre-IPO filing with the US Securities
and Exchange Commission. This filing included an initial estimate of the pricing range for a planned IPO. The actual price achieved on any
future IPO will depend on a number of factors, including market conditions and investor demand at that time.
RIT Capital Partners plc Report and Accounts December 2020 83
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Independent Auditor’s Report
84 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of
RIT Capital Partners plc
Report on the audit of the Financial Statements
Opinion
In our opinion:
RIT Capital Partners plc’s (the “Group”) Group financial statements and Parent Company financial statements (the “financial
statements”) give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2020 and of
the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC)
No. 1606/2002 as it applies in the European Union (“IFRS”);
the Parent Company financial statements have been properly prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 as applied in accordance with section 408 of the Companies Act 2006;
and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements of RIT Capital Partners plc which comprise:
Group
Parent Company
Consolidated Income Statement and Consolidated Statement of
Comprehensive Income for the year to 31 December 2020
Consolidated Balance Sheet as at 31 December 2020
Parent Company Balance Sheet as at 31 December 2020
Parent Company Statement of Changes in Equity for the year to 31
December 2020
Consolidated Statement of Changes in Equity for the year to 31
December 2020
Consolidated and Parent Company Cash Flow Statement for the year
to 31 December 2020
Consolidated and Parent Company Cash Flow Statement for the year
to 31 December 2020
Related notes 1 to 32 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Accounting Standards in
conformity with the requirements of the Companies Act 2006 and, as regards to the Group financial statements, International Financial
Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union and as regards the Parent
Company financial statements, as applied in accordance with section 408 of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report
below. We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
RIT Capital Partners plc Report and Accounts December 2020 85
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Parent Company’s ability to continue to
adopt the going concern basis of accounting included:
obtaining an understanding of the Directors’ process and controls for determining the appropriateness of the use of the going concern
basis. This included discussions with J. Rothschild Capital Management Limited (the “Manager”) on the governance structure and
protocols around the going concern assessment and corroborating our understanding with the Audit and Risk Committee;
obtaining the Directors’ going concern assessment, including cashflow forecasts and covenant calculations, covering the period to 30
June 2022, at least twelve months from the date of signing this audit opinion;
reviewing the Group’s cashflow forecasts and stress tests, assessing the completeness of the severe scenarios that consider the key
risks identified by the Group. We considered the appropriateness of the methods used to calculate the cashflow forecasts and covenant
calculations and determined through inspection and review of the methodology and calculations that the methods utilised were
appropriately sophisticated to be able to make an assessment for the entity;
obtaining the Group’s reverse stress tests and identifying the factors that would lead to the Group utilising all liquidity or breaching
financial covenants during the going concern period;
considering the actions the Group can take to mitigate the impact of the reverse stress test scenarios. This included evaluating the
company’s ability to prevent a breach of financial covenants using mitigating actions if required, such as the repayment of long term
borrowings. We also verified credit facilities available to the Group by obtaining third party confirmations;
reviewing the liquidity and regulatory capital position of the Group, including an assessment of the liquidity profile of the Group’s
portfolio;
enquiring of the Manager as to the impact of COVID-19 on the business and reviewing board minutes & key regulatory documents for
risks, events or contrary evidence that may impact the Group’s ability to continue as a going concern; and
reviewing the Group’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate
and in conformity with the reporting standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for the period assessed by
the Directors, being the period to 30 June 2022, at least twelve months from when the financial statements were authorised for issue.
In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this
report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
86 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of RIT Capital Partners plc
Overview of our audit approach
Risk of inaccurate recognition of investment income and gains/(losses) on investments held at fair value.
Key audit matters
Risk of incorrect valuation of illiquid fund investments.
Risk of incorrect valuation of direct private investments.
Risk of incomplete or inaccurate related party disclosures.
Our key audit matters are consistent with those identified for the 2019 audit.
Audit scope
Materiality
The Group is principally managed from one location in London. All core functions, including finance
and operations, are located in London.
The Group comprises one consolidated subsidiary and seven subsidiaries held at fair value.
Monitoring and control over the operations of these subsidiaries, including those located overseas, is
centralised in London.
The London based Group audit team directly performed audit procedures on all items material to the
Group and Parent Company financial statements.
This approach is consistent with the 2019 audit.
Overall Group materiality of £35.9m which represents 1% of net assets.
This approach is consistent with the 2019 audit.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account
size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other
factors such as recent internal audit results when assessing the level of work to be performed at each entity.
The investment portfolio balance is the most material part of the Consolidated Balance Sheet. Monitoring and control over the valuation
of investments is exercised by the Manager centrally in London, and as such is audited wholly by the London based Group audit team.
Monitoring and control over the operations of the subsidiaries within the Group is centralised in London. The Group audit team performed all
the work necessary to issue the Group and Parent Company audit opinion, including undertaking all of the audit work on the risks of material
misstatement identified above. There were no component audit teams.
In establishing our audit approach, we considered the type of audit procedures required to be performed and the audit evidence required
to obtain sufficient and appropriate audit evidence as a basis of our opinion on the Group. As a result of COVID-19, the audit fieldwork was
executed remotely. All audit evidence was received electronically and there were no on-site visits. All meetings with the Manager and the
Directors were conducted virtually and all audit queries were discussed over video conferencing with audit evidence transferred via a secure
Portal site. The audit team encountered no difficulties in connecting virtually with the Manager or the Directors and were able to execute the
audit fieldwork effectively.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a
whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
RIT Capital Partners plc Report and Accounts December 2020 87
Independent Auditor’s Report to the Members of RIT Capital Partners plc| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Risk
Our response to the risk
Risk of inaccurate recognition of investment income
and gains/(losses) on investments held at fair value
(£533.1 million, 2019: £398.9 million)
Refer to the Audit and Risk Committee Report (pages 40
to 43); Accounting policies (pages 60 to 63); and Notes 2
and 3 of the Consolidated Financial Statements (page 64)
The Group’s revenue consists of investment income and
gains/(losses) on investments held at fair value.
The accuracy of recognition and measurement of revenue is
important to the Group’s financial statements.
Shareholder expectations may place pressure on the
Manager to influence the recognition of revenue. This may
result in overstatement or deferral of revenues to assist in
meeting current or future targets or expectations.
We obtained an understanding of the Manager’s processes and controls
around the investment income process and valuation process to ascertain
whether realised and unrealised gains/(losses) and investment income are
appropriately calculated by performing walkthroughs in which we evaluated
the design and implementation of controls.
For gains/(losses) on investments held at fair value, on a sample basis, we
have:
recalculated the unrealised gains/(losses), considering the procedures
performed on the valuations where relevant;
agreed purchases and sales of investments during the year to trade
tickets, call and distributions notices, and to the corresponding cash
movements in bank statements; and
recalculated realised gains/(losses) from disposals of investments in the
year.
For investment income, on a sample basis, we have:
agreed dividend income to an independent source and to corresponding
receipts in bank statements;
agreed distributions received to the notices from the fund managers and
to bank statements to gain assurance over occurrence, measurement
and appropriate classification;
agreed accrued income at the period end to post year end bank
statements and notices received from the fund managers or an external
source for occurrence and measurement;
recalculated interest income based on the terms of underlying
agreements;
tested the completeness of income receipts by verifying that any
income declared during the period, per an independent source, has
been correctly recorded as an income receipt; and
recalculated income from investment properties based on the terms of
the underlying agreements.
Key observations communicated to the Audit and Risk Committee
Our audit procedures did not identify any material matters regarding the recognition of investment income and gains/(losses) on
investments held at fair value.
All transactions tested have been recognised in accordance with contractual terms and IFRS.
Based on our procedures performed we had no further matters to report to the Audit and Risk Committee.
88 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of RIT Capital Partners plc
Risk
Our response to the risk
Risk of incorrect valuation of direct private investments
(£313.9 million, 2019: £331.7 million)
Refer to the Audit and Risk Committee Report (pages 40 to
43); Accounting policies (pages 60 to 63); and Note 13 of
the Consolidated Financial Statements (pages 69 to 76)
The valuations of direct private investments are material,
complex and include estimates and significant judgments.
The valuations are determined by the Manager and the
final valuations are reviewed and approved by the Valuation
Committee. The valuation of direct private investments are
based on the nature of the underlying business which has
been invested in. The methods used include:
We obtained an understanding of the Manager’s processes and controls for
determining the fair valuation of direct private investments by performing
a walkthrough in which we evaluated the design and implementation
of controls. This included reviewing the governance structure and
protocols around oversight of the valuation process and corroborating our
understanding by attending Valuation Committee meetings.
We assessed the Manager’s valuation methodology against applicable
reporting frameworks, including IFRS and the International Private Equity
and Venture Capital (“IPEV”) Guidelines. We sought explanations from
the Manager where there were judgments applied in its application of the
guidelines and assessed their appropriateness.
On a sample basis, we corroborated the key inputs into the valuation models and
performed the following procedures on key judgments made by the Manager.
applying a multiple to earnings and revenues;
We have:
using a discounted cash flow model; and
using recent transaction prices and recent offers.
challenged the appropriateness of assumptions made by the Manager in
the application of the valuation models;
assessed the suitability of earnings multiples by considering the
appropriateness of the selected comparable companies, including
adjustments made to reflect the differences between these and the
investee company;
challenged the appropriateness of discount rates applied in discounted
cash flow models;
tested the mathematical accuracy of the valuation models;
compared the fair valuation to recently completed market transactions or
recent offers, where relevant; and
where a valuation was prepared by a third-party manager or general
partner, obtained independent confirmation of the most recently
available valuation.
With the assistance of our valuation specialists:
we formed an independent range for the key assumptions used in the
valuation of a sample of direct private investments, with reference to
relevant industry and market valuation considerations;
we derived a range of fair values using our assumptions and other
qualitative risk factors; and
we compared these ranges to the Manager’s fair values and discussed
our results with both the Manager and the Audit and Risk Committee.
We discussed with the Manager the rationale for any differences between
the exit prices of investments realised during the year and the prior year
fair value, to further verify the reasonableness of the current year valuation
models and methodology adopted by the Manager.
We considered the impact of COVID-19 throughout the procedures
performed on the valuation of direct private investments, by challenging
whether the valuation methodologies and assumptions used remained
appropriate.
All valuations tested were found to be carried in accordance with IFRS and the IPEV Guidelines.
Key observations communicated to the Audit and Risk Committee
The valuations of the two most material direct private investments prepared by the Manager which were reviewed by our valuations
specialists were within the independently calculated reasonable ranges.
Through our back testing of exit prices we gained an understanding of the differences between the exit prices of investments realised
during the year and the prior year fair value. We did not identify any realisations of direct private investments with a significant movement
from the prior year fair value.
Based on our procedures performed we had no material matters to report to the Audit and Risk Committee.
RIT Capital Partners plc Report and Accounts December 2020 89
Independent Auditor’s Report to the Members of RIT Capital Partners plc| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Risk
Our response to the risk
Risk of incorrect valuation of illiquid fund investments
(£1,392.9 million, 2019: £1,176.7 million)
Refer to the Audit and Risk Committee Report (pages 40
to 43); Accounting policies (pages 60 to 63); and Note 13
of the Consolidated Financial Statements (pages 69 to 76)
The valuations of illiquid fund investments are material
to the financial statements. The valuations can include
estimates and significant judgments, as they are often
based on fair valuations of the underlying direct private
investments, for which there may be limited observable
information available.
The valuations of illiquid fund investments are determined
by the governing bodies of the underlying funds, typically
including the underlying fund managers. The valuations
are provided to the Group and assessed by the Manager,
who make any adjustments they deem appropriate,
for example for transactions between the date of the
valuation provided and the reporting date.
We obtained an understanding of the Manager’s processes and controls
for reviewing the fair valuation of illiquid fund investments by performing
a walkthrough in which we evaluated the design and implementation of
controls.
We discussed with the Manager the processes around their oversight of
the valuations performed by the underlying funds and corroborated our
understanding by attending Valuation Committee meetings.
On a sample basis, we have:
confirmed the most recently available fund valuation to third party
statements, including from the general partner, fund manager or fund
administrator;
assessed prior year valuations which were based on unaudited net asset
statements by reference to their respective audited financial statements.
We then investigated and obtained explanations for all material
movements;
obtained and assessed the due diligence performed by the Manager for
new fund investments invested in the year; and
where the most recently available fund valuation is not at the valuation
date, we reviewed the Manager’s approach to address the timing
difference and challenged any adjustments made to the last valuation
received. Where applicable, we corroborated these adjustments by
agreeing any cash flows between the date of the fund valuation and the
valuation date to supporting documentation.
We challenged the Manager on the IFRS 13 levelling classification of
the illiquid fund portfolio, focusing on those which are considered to be
subjective. We selected a sample of Level 2 investment fund holdings,
for which the judgment is made considering the nature of the underlying
investments of the fund, and reviewed their financial statements to confirm
the appropriate levelling classification.
During the post year end period, we monitored the receipt by the Manager of
updated valuation statements and other financial information relevant to the
valuation of the illiquid fund investments, to ensure no material differences
arose.
The valuation of the illiquid fund investments was found to be reasonable and materially in accordance with IFRS.
Key observations communicated to the Audit and Risk Committee
We did not identify any material issues when comparing prior year valuations which were based on unaudited net asset statements to their
respective audited financial statements.
Based on our procedures performed we had no matters to report to the Audit and Risk Committee.
90 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of RIT Capital Partners plc
Risk
Our response to the risk
Risk of incomplete or inaccurate related party disclosures
Refer to the Audit and Risk Committee Report (pages 40
to 43); Accounting policies (pages 60 to 63); and Note 17
of the Consolidated Financial Statements (pages 77 and 78)
Due to the number and nature of the Group’s related party
transactions, there is a risk that the list of related party
transactions identified by the Manager is not complete.
This is a key focus of the Group’s Conflicts Committee.
We obtained an understanding of the Manager’s processes and controls
surrounding the identification of related parties and related party transactions
by performing a walkthrough.
We inspected the Manager’s list of related parties and related party
transactions for completeness, considering our knowledge gained throughout
the current and prior year audits.
We obtained and reviewed:
the materials and minutes of the Group’s Conflicts Committee who
monitor all arrangements with related parties, including the Conflicts
Committee Report for the period which details relevant members of
the Rothschild family as well as Directors and company affiliates of the
Rothschild family;
the minutes of the Board of Directors and all sub-committees for any
conflict of interest declarations; and
the population of journal entries for evidence of undisclosed related
parties, haphazardly testing a sample of journal entries to assess the
completeness of the related parties disclosures.
We agreed related party transactions disclosed in the notes to the financial
statements to supporting documentation provided by the Manager.
We obtained representations from the Directors regarding the completeness
and accuracy of related party disclosure.
We verified the accuracy and completeness of the related party disclosures
within the financial statements for compliance with IFRS and the Listing
Rules.
Key observations communicated to the Audit and Risk Committee
Our audit procedures did not identify any material inconsistencies between the reported related parties and our testing throughout our
audit. We did not identify any issues from our review of financial statements with respect to the accuracy and completeness of related party
disclosures. Based on our procedures performed, we had no matters to report to the Audit and Risk Committee.
RIT Capital Partners plc Report and Accounts December 2020 91
Independent Auditor’s Report to the Members of RIT Capital Partners plc| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit
procedures.
We determined materiality for the Group to be £35.9 million (2019: £31.5 million), which is 1% (2019: 1%) of net assets. We believe that net
assets provides us with a consistent year on year basis for determining materiality, and is the most relevant measure to the stakeholders of
the entity.
We determined materiality for the Parent Company to be £34.9 million (2019: £30.7 million), which is 1% (2019: 1%) of net assets.
We calculated materiality during the planning stage of the audit and then during the course of our audit, we reassessed initial materiality
based on 31 December 2020 net assets, and adjusted our audit procedures accordingly.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgment was
that performance materiality was 75% (2019: 75%) of our planning materiality, namely £26.9 million (2019: £23.0 million). We have set
performance materiality at this percentage based on the fact that there were no material prior year misstatements, that the internal control
environment is consistent with the prior year and there have been no significant changes in circumstances.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of £1.8 million (2019:
£1.5 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report, set out on pages 1 to 52 and 96 to 102, including the
Strategic Report (including sections on: Chairman’s Statement, Our Purpose, Strategy & Business Model, Manager’s Report, Investment
Portfolio and Principal Risks and Viability), Governance (including sections on: Board of Directors, J. Rothschild Capital Management,
Corporate Governance Report, Audit and Risk Committee Report, Directors’ Remuneration Report and Directors’ Report) and Other
Information (including sections on: Investment Portfolio Reconciliation, Glossary and Alternative Performance Measures, Historical
Information and Financial Calendar, Investor Information and Directory), other than the financial statements and our auditor’s report thereon.
The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement
in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
92 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of RIT Capital Partners plc Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable legal
requirements;
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the
Financial Conduct Authority (“the FCA Rules”), is consistent with the financial statements and has been prepared in accordance with
applicable legal requirements; and
information about the Company’s corporate governance code and practices and about its administrative, management and supervisory
bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in:
the Strategic Report or the Directors’ Report; or
the information about internal control and risk management systems in relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit; or
a Corporate Governance Statement has not been prepared by the Parent Company.
Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 21;
Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is
appropriate set out on page 21;
Directors’ statement on fair, balanced and understandable set out on page 39;
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 18;
the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 17; and
the section describing the work of the Audit and Risk Committee set out on page 40
RIT Capital Partners plc Report and Accounts December 2020 93
Independent Auditor’s Report to the Members of RIT Capital Partners plc| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 39, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined below, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including
fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company
and management.
Our approach was as follows:
We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant are those that relate to the reporting framework (IFRS, the Companies Act 2006, the AIC code, the 2018 UK Corporate
Governance Code and the Companies (Miscellaneous Reporting) Regulations 2018) and relevant tax compliance regulations. In addition,
we concluded that there are certain significant laws and regulations which may influence the determination of the amounts and
disclosures in the financial statements including the Listing Rules of the UK Listing Authority.
We understood how RIT Capital Partners plc is complying with those frameworks by making enquiries of the Manager, including the
Legal Manager and Company Secretary, Chief Financial Officer, Head of Compliance and Internal Audit and also the Non-Executive
Directors including the Chair of the Audit and Risk Committee and Valuation Committee. We corroborated our understanding through
our review of board minutes, papers provided to the Audit and Risk Committee and correspondence received from regulatory bodies.
We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
meeting with Directors and the Manager to understand where they considered there was susceptibility to fraud. We also considered
performance targets and their potential influence on efforts made by Directors and the Manager to manage NAV per share or the NAV
per share total return. We identified fraud and management override risks in relation to revenue recognition and estimation uncertainty
relating to the valuation of illiquid investments. Our audit procedures stated above in the ‘Key audit matters section’ of this Auditor’s
report were performed to address each identified fraud risk.
Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our
procedures involved: journal entry testing, with a focus on manual journals and journals indicating large or unusual transactions based
on our understanding of the business; enquiries of senior management; and focused testing, as referred to in the key audit matters
section above.
The Group operates in the wealth and asset management industry which is a regulated environment. As such, the Senior Statutory
Auditor considered the experience and expertise of the engagement team to ensure that the team had the appropriate competence and
capabilities to identify non-compliance with the applicable laws and regulations.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
94 Report and Accounts December 2020 RIT Capital Partners plc
Independent Auditor’s Report to the Members of RIT Capital Partners plc
Other matters we are required to address
We were appointed by the Company on 26 April 2018 to audit the financial statements for the year ending 31 December 2018 and
subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments is three years, covering the years ending
31 December 2018 to 31 December 2020.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting the audit.
The audit opinion is consistent with the report of the Audit and Risk Committee.
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Matthew Price (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor London
1 March 2021
Notes:
1.
The maintenance and integrity of the RIT Capital Partners plc website is the responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
RIT Capital Partners plc Report and Accounts December 2020 95
Independent Auditor’s Report to the Members of RIT Capital Partners plc| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information |
Other Information
31 December 2020
RIT Capital Partners plc
Investment Portfolio Reconciliation
Investment portfolio reconciliation
The following table shows a summary reconciliation between the amounts reported within the Investment Portfolio, as shown on pages 14
to 16, and the 31 December 2020 consolidated balance sheet, as shown on page 55:
£ million
Non-current assets
Portfolio investments at fair value
Non-consolidated subsidiaries
Investments held at fair value
Investment property
Property, plant and equipment
Deferred tax asset
Retirement benefit asset
Derivative financial instruments
Current assets
Derivative financial instruments
Other receivables
Cash at bank
Total assets
Current liabilities
Borrowings
Derivative financial instruments
Other payables
Amounts owed to group undertakings
Net current assets/(liabilities)
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Provisions
Finance lease liability
Net assets
Quoted
equity
Private
investments
Absolute
return
and credit
Real
assets
Other
investments
Net liquidity/
borrowing/
other
Consolidated
balance
sheet
31 December 2020
1,769.5
0.1
1,769.6
–
–
–
–
–
916.7
5.1
921.8
–
–
–
–
–
755.5
58.2
813.7
–
–
–
–
–
1,769.6
921.8
813.7
6.4
0.1
3.2
9.7
–
–
–
–
0.1
0.3
–
0.4
1,779.3
921.8
814.1
–
–
(38.5)
–
(38.5)
(28.8)
–
–
–
–
–
–
1,740.8
921.8
–
–
–
–
–
–
–
–
–
–
1,740.8
921.8
–
–
–
–
–
0.4
814.1
–
(3.2)
–
–
(3.2)
810.9
9.0
–
9.0
37.8
23.4
–
–
–
70.2
5.3
–
–
5.3
75.5
–
–
–
–
–
5.3
75.5
–
–
–
(3.4)
(3.4)
72.1
–
–
–
–
–
–
–
0.3
0.3
45.5
–
–
45.5
45.8
–
(4.5)
–
–
(4.5)
41.0
41.3
–
(2.2)
–
–
(2.2)
39.1
–
6.1
6.1
–
0.2
2.5
0.7
–
9.5
–
104.9
293.6
398.5
408.0
3,450.7
69.5
3,520.2
37.8
23.6
2.5
0.7
0.3
3,585.1
57.3
105.3
296.8
459.4
4,044.5
(189.0)
(189.0)
–
(25.0)
(5.3)
(219.3)
179.2
188.7
(4.5)
(63.5)
(5.3)
(262.3)
197.1
3,782.2
(181.5)
(181.5)
–
(1.1)
(0.4)
(5.4)
(1.1)
(3.8)
(183.0)
(191.8)
5.7
3,590.4
RIT Capital Partners plc Report and Accounts December 2020 97
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Glossary and Alternative Performance Measures
Glossary
Within this Annual Report and Accounts, we publish certain
financial measures common to investment trusts. Where relevant,
these are prepared in accordance with guidance from the AIC, and
this glossary provides additional information in relation to them.
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.
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 IFRS and the AIC SORP. They are denoted
with an * in this section.
Gearing*: Gearing is a measure of the level of debt deployed within
the portfolio. The ratio is calculated in accordance with AIC guidance
as total assets, net of cash, divided by net assets and expressed as
a ‘net’ percentage, e.g. 110% would be shown as 10%.
£ million
Total assets
Less: cash
Sub total
Net assets
Gearing
2020
4,044.5
(296.8)
3,747.7
3,590.4
4.4%
2019
3,433.3
(61.1)
3,372.2
3,145.6
7.2%
Leverage: Leverage, as defined by the Alternative Investment Fund
Managers Directive (AIFMD), is any method which increases the
exposure of the portfolio, whether through borrowings or leverage
embedded in derivative positions or by any other means.
MSCI All Country World Index: The MSCI All Country World
Index is a total return, market capitalisation-weighted equity index
covering major developed and emerging markets. Described in
this report as the ACWI or the ACWI (50% £), this is one of the
Company’s KPIs or reference hurdles and, since its introduction in
2013, has incorporated a 50% sterling measure. This is calculated
using 50% of the ACWI measured in sterling and therefore exposed
to translation risk from the underlying foreign currencies. During
2020 we slightly amended the calculation for the remaining 50%.
This now 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.
NAV total return*: The NAV total return for a period represents the
change in NAV per share, adjusted to reflect dividends paid during
the period. The calculation assumes that dividends are reinvested in
the NAV at the month end following the NAV going ex-dividend. The
NAV per share at 31 December 2020 was 2,292 pence, an increase
of 288 pence, or 14.4%, from 2,004 pence at the previous year end.
As dividends totalling 35 pence per share were paid during the year,
the effect of reinvesting the dividends in the NAV is 2.0%, which
results in a NAV total return of 16.4%.
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 performance-related compensation from JRCM, as this is
analogous to a performance fee for an externally-managed trust.
£ million
Operating expenses
JRCM direct performance-
related compensation
Other adjustments
Ongoing charges
Average net assets
OCF
2020
43.4
(22.8)
(0.1)
20.5
3,115
0.66%
2019
30.0
(8.8)
(0.7)
20.5
3,000
0.68%
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
NAV across the year and annual management fee rates per fund
(excluding performance fees), these represent an additional 0.89%
of average net assets (2019: 0.90%).
98 Report and Accounts December 2020 RIT Capital Partners plc
Glossary and Alternative Performance Measures
Premium/discount: The premium or discount (or rating) is
calculated by taking the closing share price on 31 December
2020 and dividing it by the NAV per share at 31 December 2020,
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.
RPI: The RPI refers to the United Kingdom Retail Price Index
as calculated by the Office for National Statistics and published
monthly. It is used as a measure of inflation in one of the
Company’s KPIs RPI + 3.0% per annum.
Share price total return or total shareholder return (TSR)*: The
TSR for a period represents the change in the share price adjusted
to reflect dividends paid during the period. Similar to calculating
a NAV total return, the calculation assumes the dividends are
notionally reinvested at the daily closing share price following the
shares going ex-dividend. The share price on 31 December 2020
closed at 2,065 pence, a decrease of 50 pence, or 2.4%, from 2,115
pence at the previous year end. Dividends totalling
35 pence per share were paid during the year, and the effect of
reinvesting the dividends in the share price is 2.0%, which results
in a TSR of -0.4%. The TSR is one of the Company’s KPIs.
RIT Capital Partners plc Report and Accounts December 2020 99
| Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Historical Information and Financial Calendar
Historical information
02 August 1988
31 March 1989
31 March 1990
31 March 1991
31 March 1992
31 March 1993
31 March 1994
31 March 1995
31 March 1996
31 March 1997
31 March 1998
31 March 1999
31 March 2000
31 March 2001
31 March 2002
31 March 2003
31 March 2004
31 March 2005
31 March 2006
31 March 2007
31 March 2008
31 March 2009
31 March 2010
31 March 2011
31 March 2012
31 December 2012
31 December 2013
31 December 2014
31 December 2015
31 December 2016
31 December 2017
31 December 2018
31 December 2019
31 December 2020
Notes:
Diluted
net assets
£ million
280.5
344.4
334.0
318.0
305.5
385.9
468.6
450.2
560.8
586.1
737.5
759.7
811.4
759.8
758.3
674.7
981.1
1,113.1
1,534.7
1,635.6
1,690.0
1,350.5
1,815.7
1,984.0
1,920.0
1,847.2
2,146.0
2,299.6
2,441.3
2,692.1
2,858.3
2,830.2
3,145.6
3,590.4
Diluted
NAV
per share
pence
105.9
134.2
131.0
131.7
140.7
181.1
221.6
213.4
283.2
303.5
384.1
398.6
509.0
484.3
483.4
430.2
628.2
712.7
982.7
1,047.3
1,091.6
874.3
1,180.1
1,289.4
1,249.3
1,191.4
1,383.6
1,483.0
1,572.5
1,730
1,839
1,821
2,004
2,292
Closing
share price
pence
81.5
114.0
97.0
92.0
85.2
117.0
171.0
174.0
223.0
242.5
327.0
341.0
439.0
436.5
424.5
371.5
577.5
694
1,020
1,000
1,147
831
1,082
1,307
1,220
1,131
1,260
1,397
1,681
1,885
1,962
1,910
2,115
2,065
Premium/
(discount)
%
(23.0)
(15.1)
(26.0)
(30.1)
(39.4)
(35.4)
(22.8)
(18.5)
(21.3)
(20.1)
(14.9)
(14.5)
(13.8)
(9.9)
(12.2)
(13.6)
(8.1)
(2.6)
3.8
(4.5)
5.1
(5.0)
(8.3)
1.4
(2.3)
(5.1)
(8.9)
(5.8)
6.9
9.0
6.7
4.9
5.5
(9.9)
Diluted
earnings
per share
pence
n/a
29.3
(2.5)
0.7
6.6
40.5
41.5
(8.1)
63.3
17.2
81.5
14.6
100.2
(28.8)
2.2
(50.2)
195.9
90.0
270.3
67.0
50.6
(205.2)
306.3
111.7
(35.7)
(29.6)
215.7
129.8
121.4
195.0
142.4
17.5
220.8
321.0
Dividend
per share
pence
n/a
1.7
2.6
2.4
1.1
1.1
1.6
1.7
1.6
1.8
2.0
2.2
3.1
3.1
3.1
3.1
3.1
3.1
3.1
3.1
4.0
7.5
4.0
4.0
4.0
28.0
28.0
29.4
30.0
31.0
32.0
33.0
34.0
35.0
1. The Company commenced its business as an approved investment trust on 3 August 1988, following the listing of its share capital on the London Stock
Exchange.
2. Prior to 31 March 2000, the diluted net assets were measured on the assumption that all convertible stock was converted at the balance sheet date. By
31 March 2000, all convertible stock had been converted or redeemed.
3. Dividends per share represent the amounts paid in the relevant financial year or period.
4. Since 31 March 2005 the closing share price has been displayed to the nearest pence and from 31 December 2016 the diluted net assets per share has been
disclosed to the nearest pence.
Financial Calendar
22 April 2021, 11:00 am:
30 April 2021:
Annual General Meeting.
Payment of interim dividend of 17.625 pence per ordinary share to shareholders on the register on
6 April 2021.
100 Report and Accounts December 2020 RIT Capital Partners plc
Investor Information
Share price information
The Company’s £1 ordinary shares are listed on the London Stock Exchange and may be identified using the following codes:
TIDM:
SEDOL:
ISIN:
RCP LN
0736639 GB
GB0007366395
The closing price of the shares is published in the Financial Times and The Daily Telegraph. Daily and 15 minute delay share price
information is displayed on the Company’s website: www.ritcap.com, as well as numerous online platforms.
Registrar
The Company’s registrar may be contacted as follows:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
Tel: 0370 703 6307
Overseas: +44 370 703 6307
Shareholders may contact the registrar should they need to notify a change of name or address, or have a query regarding the
registration of their holding or the payment of a dividend. Shareholders who wish to have dividends credited directly to their bank
account rather than paid by cheque may do so by arrangement with the registrar. Shareholders may also arrange with the registrar
to have their dividend payment invested in additional RIT Capital Partners plc ordinary shares purchased in the market.
Registered holders of ordinary shares of RIT Capital Partners plc may elect to receive communications from the Company
electronically as an alternative to receiving hard copy accounts and circulars. This facility is provided by the registrar and shareholders
will need to go online at www.investorcentre.co.uk and select the ‘eComms’ signup section to participate. To complete the
registration process shareholders will need their postcode or country of residence, along with their shareholder reference number
(as shown on their share certificates or dividend advices). Shareholders will also be asked to agree to the terms and conditions for
electronic communication.
Registered shareholders also have the facility to check their shareholding, change their address or update their bank mandate
instruction by registering to become a member of ‘Investorcentre’.
Regardless of whether shareholders sign up for ‘eComms’ or become a member of ‘Investorcentre’, they are able to cast proxy
votes in respect of general meetings electronically if they wish by using the link provided on their proxy form or in their email
notification.
RIT Capital Partners plc Report and Accounts December 2020 101
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MANAGER, ADMINISTRATOR, COMPANY SECRETARY AND REGISTERED OFFICE
J. Rothschild Capital Management Limited
27 St James’s Place
London SW1A 1NR
INDEPENDENT AUDITOR
Ernst & Young LLP
25 Churchill Place
London E14 5EY
SOLICITOR
Linklaters LLP
One Silk Street
London EC2Y 8HQ
BROKERS
JP Morgan Cazenove Limited
25 Bank Street
London E14 5JP
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
ADVISER TO THE REMUNERATION COMMITTEE
Alvarez & Marsal
Park House
16-18 Finsbury Circus
London EC2M 7EB
CUSTODIAN AND DEPOSITARY
BNP Paribas Securities Services
10 Harewood Avenue
London NW1 6AA
AIC
The Company is a member of the Association of Investment Companies
www.theaic.co.uk
FOR INFORMATION
27 St James’s Place
London SW1A 1NR
Tel: 020 7647 8565
Fax: 020 7493 5765
Email: investorrelations@ritcap.co.uk
Website: www.ritcap.com
102 Report and Accounts December 2020 RIT Capital Partners plc
Warning to shareholders
From time to time investment companies and their shareholders can be the subject of investment scams. The perpetrators
obtain lists of shareholders and make unsolicited phone calls or send correspondence concerning investment matters. They
may offer to sell worthless or high risk shares or, in the case of your RIT Capital Partners plc stock, may offer to buy your
current shareholdings at an unrealistic price. They will often also inform you of untrue scenarios to make you think that you
need to sell your shares or to justify an offer that seems too good to be true.
To find out more about share fraud or ‘boiler room’ scams please visit the website of the Financial Conduct Authority,
https://www.fca.org.uk/scamsmart.
Please note that you cannot buy or sell the shares of RIT Capital Partners plc directly with us, and we will never contact you
with offers to buy or sell shares, nor will our registrar, Computershare. In the event that you are contacted we strongly
recommend that you review the FCA website above and follow the necessary steps. Please do report any company making
unsolicited calls to the FCA using the form that can be found via the above link.
27 St James’s Place London SW1A 1NR