Redbank Copper Annual Report 2022

Plain-text annual report

R I T C a p i t a l P a r t n e r s p l c R e p o r t & A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 2 2 Report & Accounts for the year ended 31 December 2022 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 6 10 17 20 27 30 31 44 48 52 57 58 59 60 61 62 63 88 99 100 102 103 104 Notes Nothing in this Annual Report & Accounts should be construed as advice to buy or sell a particular investment. RIT Capital Partners plc (RIT or the Company) is a UK public listed company, and as such complies with the rules of the UK Listing Authority. The Company conducts its affairs so as to qualify for approval as an investment trust, and has been accepted as an approved investment trust by HM Revenue & Customs (HMRC), subject to continuing to meet the eligibility conditions. As an investment trust, it is not authorised or regulated by the Financial Conduct Authority (FCA). RIT is classiﬁed as an Alternative Investment Fund (AIF) in accordance with the UK Alternative Investment Fund Managers Directive (AIFMD). The investment manager, administrator, and company secretary (the Manager) is J. Rothschild Capital Management Limited (JRCM), a subsidiary of RIT. JRCM is authorised and regulated by the FCA and is classiﬁed as an Alternative Investment Fund Manager (AIFM) in accordance with AIFMD. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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* CPI 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 Performance history NAV per share total return* Share price total return* CPI plus 3.0% MSCI All Country World Index (ACWI) Performance since inception 2022 -13.3% -21.5% 13.5% -12.9% Change -14.5% -22.7% -9.4% pts -15.2% 0.1% pts -5% pts 0.17% pts 5.0% 5.0% 5.0% 10 Years 139.9% 125.3% 73.8% 157.0% 2022 2,388 pence 2,125 pence -11.0% £3,722 million 6.2% 38% 0.89% 18.5 pence 18.5 pence 37.0 pence 3 Years 24.8% 5.6% 27.5% 17.7% 2021 2,794 pence 2,750 pence -1.6% £4,390 million 6.1% 43% 0.72% 17.625 pence 17.625 pence 35.250 pence 5 Years 40.9% 17.7% 39.7% 35.5% 4,000% 3,500% 3,000% 2,500% 2,000% 1,500% 1,000% 500% 0% 1 9 8 8 NAV per share total return ACWI CPI plus 3.0% 1 9 9 3 1 9 9 8 2 0 0 3 2 0 0 8 2 0 1 3 2 0 1 8 2 0 2 2 A description of the terms used in this report, including further information on the calculation of Alternative Performance Measures (APMs), is set out in the Glossary and APMs section on pages 100 and 101. The Group’s designated APMs (denoted above with an *) are the NAV per share total return, share price total return, gearing and the ongoing charges ﬁgure. RIT Capital Partners plc Report and Accounts December 2022 1 Strategic Report RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Chairman’s Statement Sir James Leigh-Pemberton Background and Performance 2022 was the most difficult year for ﬁnancial markets for more than a decade. The global economy was affected by signiﬁcant supply shocks, with particularly sharp rises in energy and raw material prices. The consequent resurgence of inﬂation was met with a dramatic tightening of monetary policy. Businesses across a range of sectors faced increased costs of materials, labour and capital, impacting margins at a time when revenue growth has been under pressure as economic activity has faltered, consumer conﬁdence and purchasing power has waned and the risk of recession has risen. At the same time, the conﬂict in Ukraine has given rise to fundamental geopolitical changes in the relatively stable world order of recent decades. In ﬁnancial markets almost all asset classes saw declines. The S&P 500 and the NASDAQ closed the year down -18% and -32% respectively, while Emerging Markets recorded a loss of -16%, Europe -10% and the FTSE 250 -17%. Fixed income markets were no less adversely affected; long-term US Treasuries lost -29% and UK government bonds -40%. Corporate bonds also showed marked declines as both risk-free rates and credit spreads reacted to tighter monetary policy. It was the ﬁrst time in 150 years that both US stocks and bonds were down by more than 10%. Furthermore, these year-on-year ﬁgures, stark though they are, do not tell the whole story of 2022, which saw signiﬁcant shifts in investor sentiment and money ﬂows at different points of the year, resulting in elevated levels of volatility. A good illustration of this in the UK was sterling, which started the year at an exchange rate of 1.35 against the US dollar, saw an extraordinarily rapid fall to a low of 1.04 in September, down 23%, before recovering some 16% from the lows to end the year at 1.21. Our NAV per share was not immune to the market declines, and we ended the year at 2,388p per share. This represented a -13.3% total return (including dividends) for the year, broadly in line with the MSCI ACWI (50% £) which fell by -12.9%. While any decline in NAV is uncomfortable, it is important to restate that our aims and objectives are long term. In order to achieve them, we must ensure that we have enough capital deployed in those areas which will support future growth, while aiming to mitigate as far as possible participation in down markets. This we seek to achieve by taking a holistic and careful approach to portfolio construction, holding a diversiﬁed portfolio of assets, including those which are not typically correlated with equity markets, and which, through the cycles, are capable of generating healthy Our aims and objectives are long term... Over the last 10 years our NAV per share growth (including dividends) was 140%... Since inception in 1988, our share price total return has averaged 11.2% per annum against markets of 7.0%. returns. These considerations have been the principal determinants of our portfolio composition for a number of years, and we believe that this approach remains the most effective means of achieving our corporate objective over the long term. Indeed, over the last 10 years, our NAV per share growth (including dividends) was 140%. Equally, over more recent years, incorporating both up and down markets, our NAV has grown by 24.8% over three years compared to 17.7% for the ACWI and 27.5% for CPI plus 3%. And over ﬁve years, our NAV total return was 40.9% compared to 35.5% for the ACWI, and 39.7% for our inﬂation index. Since inception, our share price total return has averaged 11.2% per annum against markets of 7.0%. A key driver of RIT’s long-term track record has been private investments, which, whether direct investments or commitments to funds, have always been an essential part of our portfolio. These are, by design, multi-year investments, which we are not forced to sell to fund redemptions; we held an investment in the Economist for 22 years, realising 27x our capital. More recent investments such as Coupang – one of our most successful ever private investments – materially boosted returns. Over 2020 and 2021 private investments added around 34% to total NAV; it is this growth in their value which has driven the increased proportion of NAV which they represent. In 2022, the sharp correction in public markets, and in particular tech markets, has meant that we have written down a portion of these signiﬁcant gains. During the course of the year, the lower value of our private direct investments and fund holdings detracted from the NAV by some 6%. However, on a three-year basis, we estimate that our private investments added approximately 26% to total NAV – a strong return, and against the backdrop of both positive and negative years for markets. Over this period, we also received in the order of £500 million of distributions from this portfolio. A key feature of private investments is, of course, the challenge in valuing positions which lack a daily traded share price. Our independent Valuation Committee has RIT Capital Partners plc Report and Accounts December 2022 3 Chairman’s Statement devoted signiﬁcant time to ensuring that our investments are marked at levels which reﬂect both changes in market conditions and underlying operating performance. I highlighted the rigorous efforts we made in the ﬁrst half of the year to ensure our direct investments were fairly valued, and we have continued this approach at the year end. For our private fund investments, we are more naturally reliant on the external managers or ‘GPs’. While there is a well-understood, industry wide time-lag in their reporting, our NAV will always reﬂect the latest available information. As importantly, our Manager undertakes rigorous due diligence before committing to these funds – all of which are required to provide us with fair value. Critically, the majority of our direct portfolio companies continue to exhibit strong operating performance. Our funds exposure is also targeting areas uniquely positioned to capture some of the most innovative and transformative structural trends that are underway, and the great bulk of our investments in funds are with managers with outstanding track records with whom we have long standing relationships developed over many years. Deploying our permanent capital in a diversiﬁed portfolio in these proﬁtable areas has been, and remains to this day, a core ingredient in RIT’s long term performance track record. While private investments are important, they represent only one part of our diversiﬁed multi-asset portfolio which is constructed and managed by JRCM on a holistic, top-down basis. For example, a higher allocation to the digital transition theme in our private investments was deliberately offset with a reduction within our quoted equity portfolio. Furthermore, our pessimistic outlook for markets also led us to run with the lowest quoted equity exposure for more than a decade. Within this book, we were more proactive than usual, with a continued shift from a bias towards long-duration growth assets, to more value and reﬂationary assets. These changes were broadly accretive to performance, with some standout performers including our exposure to Japan value-oriented managers as well as to the energy transition theme. Exposure management is also deployed in this book, with hedges against tech markets helping to mitigate some of the declines. Our absolute return and credit positions held up reasonably well, notwithstanding the widespread credit market declines, reﬂecting the lower-correlation nature of this exposure and therefore the diversiﬁcation beneﬁts for the overall portfolio. Within currencies, the exposure required careful management through the volatility, and overall the book made a meaningful positive contribution. The main driver was holding around half of the portfolio outside a depreciating sterling. We continue to hold gold, which, notwithstanding a late comeback, in light of the shift in inﬂation expectations, perhaps underperformed expectations. We do continue to view it as being capable of 4 Report and Accounts December 2022 RIT Capital Partners plc providing both portfolio diversiﬁcation as well as being in a position to beneﬁt from a number of wider secular trends. Throughout 2022, your Board continued to review the strategy and portfolio composition in the context of our unchanging corporate objective. The fundamentals of the multi-asset diversiﬁed approach, and our long-term aims, have not altered. We continue to believe that, notwithstanding the declines we saw in 2022, this remains the right approach for our shareholders and is likely to generate the superior returns through the cycles that RIT is renowned for producing. Share capital and dividend Throughout your Company’s history, the discount or premium at which our shares have traded relative to our NAV has seen wide variations. During 2022, we saw the discount widen, in part perhaps reﬂecting the monthly nature of our reporting during times of volatility, and also perhaps some more widespread concerns around private equity generally. Where not precluded by being in a closed period or approaching an imminent publication of NAV, we have continued seeking to capture value for shareholders by buying back shares as we approached a high single-digit discount. Over the year, we bought back some 515,000 shares accretively at a cost of £11.0 million and by the year end, we held some 690,000 shares in treasury. In addition, we have enhanced our reporting, providing additional commentary outside of our main six- monthly cycle. Our corporate objective is to deliver long-term capital growth. However, we recognise the value to shareholders of a modest income yield; our policy remains to maintain or increase the dividend, subject to the overriding capital preservation objective. We paid a total dividend of 37 pence per share during 2022 and intend to increase the dividend again in 2023 to 38 pence per share, representing a 2.7% increase. The dividend will be paid as normal in equal instalments in April and October, funded from our signiﬁcant reserves. Governance and employees During 2022 we welcomed three new non-executive Directors to the Board. Jutta af Rosenborg was appointed in May, and Vikas Karlekar and Cecilia McAnulty in August. These appointments further strengthened the skills, experience and knowledge of the Board. We appreciate the beneﬁts which diversity of background and experience brings to your Board, and I am pleased we comply with both the FCA’s new requirements and the recommendations of the Parker and Hampton-Alexander Reviews in terms of the composition of the Board. After nine years’ dedicated service on the Board, Mike Power will not stand for re-election at the upcoming AGM. I would like to thank Mike for the expertise, energy and diligence he has devoted to his role as a Director and for his signiﬁcant contributions to the Company over this time, including chairing both the Audit and Risk, and Valuation Committees. On Mike’s retirement and in | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Chairman’s Statement accordance with the Board’s succession planning, Jutta af Rosenborg will assume the role of Chair of the Audit and Risk Committee and Maxim Parr will assume the role of Chair of the Valuation Committee. ESG integration remains a core objective of the Board and we are continuing to develop initiatives aimed at our stakeholders, and making a positive impact on the society and the environment we work in. JRCM’s Responsible Investment Framework & Policy is fully integrated into our investment processes and is kept under regular review, and as a signatory of the UN Principles of Responsible Investment (UN PRI), we look forward to submitting our ﬁrst report under this framework in 2023. Many commentators have highlighted the impact that the widespread challenges I described earlier can have, and are having, on people’s mental health. This is important to us, and we have invested time with our Manager in ensuring that our employees are appropriately supported. Steps taken in this regard include a cost-of-living contribution for employees who would beneﬁt most from a one-off payment, and targeted support for staff well-being. JRCM colleagues have also been engaged in activities to help support our community with charitable donations, conscious of our wider responsibilities. Our employees and my Board colleagues are central to our long-term success, and once again, I would like to thank them all for their hard work and commitment during another particularly challenging year. Outlook In last year’s statement written in early 2022, I highlighted some of the challenges we may see as a result of the removal of many of the extraordinary underpins for markets of recent years. It is not clear at all that we are through the fundamental transition entailed by the end of low interest rates. While the reintroduction of more rational pricing for risk and capital is welcome, the consequences of such a signiﬁcant shift (and at such a fast pace) are unlikely to be short lived. The existence of ‘free money’ for so long, will no doubt have created widespread embedded distortions, which will take time to resolve. Low rates of economic growth, continuing pressure on both corporate earnings and consumer conﬁdence, and limited scope for ﬁscal stimulus are likely to remain with us for some time, so that the conditions for a sustained recovery in markets appear at present to be remote. In this environment we expect to continue with a relatively cautious exposure to quoted equities, while at the same time remaining positive about the opportunities for the long term which will emerge in stocks and alternatives such as the dislocated regional credit markets. Where we see interesting investments, we will be very selective, and the wide network we can call upon, as well as our Manager’s disciplined due diligence, will be important. While these are challenging markets, we have managed through them before, and we remain conﬁdent that our approach is the right one for RIT’s long-term performance and for our shareholders. Sir James Leigh-Pemberton Chairman RIT Capital Partners plc Report and Accounts December 2022 5 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.” This has reﬂected our aims since Lord Jacob Rothschild ﬁrst led what was then called the Rothschild Investment Trust in the 1970s. Our purpose as an investment company is therefore 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 aim of our investment approach is to protect and enhance shareholders’ wealth over time. There may be periods when we will 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 do not target absolute returns and therefore, ensuring we have sufficient capital deployed to generate long-term growth will naturally result in us being exposed to market risk. Over time, we believe that a combination of healthy participation in up markets and reasonable protection in down markets, should help us to compound ahead of markets through the cycles. Indeed, since your Company’s listing in 1988, we have participated in 74% of the monthly market increases but only 41% of the market declines. This has resulted in our NAV per share total return compounding at 10.7% per annum, a meaningful outperformance of global equity markets at 7.0%. Over the same period the total return to shareholders was 11.2% 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.” 6 Report and Accounts December 2022 RIT Capital Partners plc Over time we believe that a combination of healthy participation in up markets and reasonable protection in down markets should help us to compound ahead of markets… Indeed, since your Company’s listing in 1988 we have participated in 74% of monthly market increases but only 41% of market declines. This policy guides our Manager and subsidiary, J. Rothschild Capital Management Limited (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, 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 involves paying fees, the level of these fees is considered carefully as part of the investment decision and, if warranted, given our focus on net returns, 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, on which it reports regularly to the Board. This incorporates quantitative and qualitative | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Our Purpose, Strategy and Business Model measures, as well as the careful use of hedging. 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 20 to 25. 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 10 to 16. 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 replicated 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 our Manager, 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 has a separate Board of Directors and is governed by 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 30). 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 a proﬁtable events business. I am responsible for the leadership of the Board, which is ultimately tasked with ensuring that we both meet our Corporate Objective, and maintain high standards of corporate governance. 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. 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 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 the last few years. The Corporate Governance Report on pages 31 to 43 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 six were men and four women. Within our subsidiaries, the employee base comprised 45 men and 17 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 35, 36 and 55). The Board recognises RIT Capital Partners plc Report and Accounts December 2022 7 Our Purpose, Strategy and Business Model that its actions have lasting impacts and consequences for the future of the Company, its shareholders and other stakeholders, and approaches its responsibilities accordingly. 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 undertake their 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 the approach taken by the Manager to execute on the policy. Other areas considered by the Board where shareholder views were taken into account included the 2023 dividend and Board diversity and succession planning. Our current Board composition complies with the recommendations of both the Parker Review and the Hampton-Alexander Review, and also meets the requirements of the FCA’s new listing rules in relation to diversity. ESG and sustainability will continue to help inform our approach to this area. 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 35). ESG and sustainability The Board believes that consideration of ESG factors is important for the delivery of sustainable ﬁnancial returns from our portfolio, and for the preservation of the value of our shareholders’ capital. In respect of our internal operations, we aim to be good corporate citizens, to apply robust governance and minimise our environmental impact. Over the past 12 months, your Board has continued to devote time to enhancing our ESG capabilities and ensuring that appropriate policies are in place. Our Manager is a signatory of the UN PRI, and has in place a Responsible Investment Framework & Policy, which is disclosed to shareholders via the Company website. This policy ensures that ESG factors are ﬁrmly integrated across our investment management and internal operations. We believe that this policy aligns the Corporate Objective with a commitment to principles of responsible investment. ESG factors form part of the due diligence undertaken by JRCM prior to selecting all investments and continue to be monitored throughout our holding of the investment. Further information is set out on pages 35, 36, 45, 53 and 54. 8 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Our Purpose, Strategy and Business Model 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 with capital preservation 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 CPI 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. CPI plus 3.0% per annum represents the desire to grow the real value of our portfolio over time, 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 although it does not drive our Manager’s portfolio construction. 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 the high-quality individuals we need to deliver our long-term strategic aims and sustainable success. 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. The AIS rewards investment outperformance as measured against two KPIs: CPI plus 3.0% and the ACWI. It also rewards wider achievements linked not to the NAV return, but to the Group’s business principles and culture. 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 component of the remuneration approach is a long-term incentive plan (LTIP). Restricted share units (RSUs) may be awarded to employees of JRCM and SHL under the LTIP. RSUs vest after three years, with typically a further two-year holding period before they can be sold. Further details of remuneration are provided in the Directors’ Remuneration Report on pages 48 to 51. 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 look forward to meeting as many of you as possible at our AGM on 26 April. As normal, there will also be an opportunity on that occasion to hear directly from our Manager. I would like to once again thank shareholders for their continuing loyalty and support over many years. The remuneration approach is designed to align with, and reinforce, these strategic aims. Sir James Leigh-Pemberton Chairman 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 Group’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. RIT Capital Partners plc Report and Accounts December 2022 9 JRCM Manager’s Report Overview and performance highlights In 2022, ﬁnancial markets suffered the worst year since the global ﬁnancial crisis. Most major equity indices saw high double-digit declines, driven by multi-decade high inﬂation, leading to unprecedented global monetary tightening. This occurred amidst a backdrop of geopolitical uncertainty, a war in Ukraine, and a stiﬂed Chinese economy. In the UK, the Bank of England was forced into emergency bond-buying to stabilise the government bond market, after the turmoil of September’s mini-budget. With investors concerned about both inﬂation and a growth slowdown, the swings in market sentiment have been extreme. Amidst this unstable backdrop, the NAV total return was -13.3%, broadly in line with the ACWI (50% £) which was down -12.9% and below the ‘inﬂation plus’ hurdle (CPI plus 3.0%) which hit 13.5% for the year. In years such as this, investing through market cycles can feel uncomfortable, but we remain conﬁdent in our long- term investment approach, which is supported by our longer-term performance. Over three years, our NAV has outperformed our equity index, and over ﬁve years, it has outperformed both reference hurdles, while maintaining lower volatility than the market. Since inception, we have participated in 74% of the monthly market increases but only 41% of the declines. Overall, the key drivers of performance for the year were: • • • • • • a decline in the value of our private investments, largely as a result of a reset in markets and public company comparables; our low quoted equity exposure, which provided some mitigation against the broad declines in equity markets; within the quoted equity book, our exposure to China was impacted by the government’s policy decisions, such as zero-covid and property deleveraging; a helpful shift in our quoted equity book from growth assets into assets with a reﬂationary focus, driven both by conviction and the desire for further diversiﬁcation; our investment with Eisler Capital, which was down -17.7%, and which we redeemed at the year end; and the allocation of the portfolio’s currency exposure outside of sterling, notably to the US dollar, which rallied as investors searched for a safe haven amidst the enduring volatility. In order to assist shareholders with their understanding of our portfolio, we have increased the level of disclosure and provided more detailed descriptions of our underlying exposures. Asset allocation and portfolio contribution 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 2022 % NAV 35.1% 40.7% 20.1% 1.8% 0.0% 1.1% 98.8% 1.2% 100.0% 38% 2022 Contribution % (6.7%)1 (6.2%) (0.6%) (0.2%) (0.9%) 2.1%2 (12.5%) (0.8%)3 (13.3%) 31 December 2021 % NAV 42.6% 36.5% 17.7% 1.5% 0.0% 0.5% 98.8% 1.2% 100.0% 43% 2021 Contribution % 1.2%1 22.4% 2.1% (0.1%) 0.3% (0.8%)2 25.1% (1.5%)3 23.6% 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. 10 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | JRCM Manager’s Report Quoted equity This category includes directly-held stocks, long-only funds, equity hedge funds and our quoted derivatives, used predominantly to manage exposures. The quoted equity portfolio detracted -6.7% from the overall NAV return this year. The main inﬂuences were as follows: • • • • • our recent investment with a Japanese manager, 3D, was the largest positive contributor to our NAV, as they capitalised on the improvement in Japan’s corporate governance; a shift into more value-oriented holdings, epitomised by Discerene, who produced double-digit returns. Our investment with Morant Wright also added to our NAV; funds invested in China lagged global markets, primarily due to the zero-covid policies that negatively impacted the economy. Our core Chinese holding, Springs Opportunities, underperformed given its tilt toward consumer facing companies; in light of the share price volatility, we reduced the size of our Coupang position, and notwithstanding strong fundamentals, its share price weakened. Nevertheless, we estimate this investment added around 7% to NAV over the last three years (including the direct hedges we deployed post IPO); and ﬁnally, our risk management strategy made an impact, as growth and technology-related hedges partially mitigated market declines. Quoted equity portfolio by category We proactively shifted our exposures from growth assets, such as technology, towards value-oriented assets that were poised to perform better in a more reﬂationary and volatile environment. This also provided further diversiﬁcation to the overall portfolio, by balancing the weight of our more growth-focused private investments book. Additionally, to further insulate the overall NAV from the increased volatility in technology markets, we tactically increased some of the hedges we had in place. The quoted equities portfolio has been shifting towards single stock opportunities, which arise from the indiscriminate selling during extreme swings in sentiment. These are opportunities where we can consider there to be healthy long-term returns, with low risk of permanent capital losses. An example of such an investment made amidst market volatility was Builders FirstSource, a distributor of homebuilding products, which we purchased at less than ﬁve times free cash ﬂow. As the largest player in a highly fragmented industry, it has scale advantages and geographic reach, which, combined with innovation, should help the company to grow above its industry peers. We also believe there is a healthy margin of safety from its scale, free cash ﬂow generation, balance sheet strength, and a constructive approach to shareholder returns. To illustrate the changes we made in portfolio composition and the opportunity set we see ahead of us, the tables below compare the top three positions in the quoted equity portfolio between December 2021 and 2022: Quoted equity – top three positions Name HCIF 3D Opportunity Discerene Description Biotech Japan value Global value Long-only funds, 44% Stocks, 36% Hedge funds, 20% Name Coupang BlackRock Strategic Equity Springs Opportunities Description Retail Long-short equity China Note: This chart includes the notional exposure from single stocks held via equity swaps and excludes portfolio hedges. We maintained an average net quoted equity exposure of 38% for the year, towards the low end of the book’s 10-year historical range, helping a more defensive stance overall. 2022 % of NAV 3.5% 3.5% 3.2% 2021 % of NAV 4.3% 3.3% 3.0% RIT Capital Partners plc Report and Accounts December 2022 11 JRCM We remain confident in our long- term investment approach, which is supported by our long-term performance. Over three years our NAV has outperformed our equity index … over five years it has outperformed both reference hurdles. Private investments Private investments are a key element of our long-term investment strategy and have been a core part of our historical track record. The private investment portfolio represented 40.7% of NAV at year end, split between 11.9% in direct investments and 28.8% in third-party diversiﬁed funds. The book detracted -6.2% from the NAV performance for the year, split broadly equally between direct and fund investments. This represents a decline of around 17% for the year, compared to the S&P 500 which lost 18% and the NASDAQ which lost 32%. Despite some mark-to-market volatility in the short term, over the long term the private investment book remains an important returns contributor for the RIT shareholder. This includes both our direct and fund investments, where our unique network and the privilege of our patient, permanent capital base have allowed us to access high quality assets which can generate attractive returns over time. By way of example, in the last 10 years, new private direct and fund commitments have collectively delivered a compound return of approximately 25% per annum. After very strong performance in 2020 and 2021, the mark-to-market decline in the direct investments for 2022 followed a rigorous and detailed review of the valuation of the individual investments by RIT’s independent Valuation Committee. The decline was largely driven by the re-rating of public markets during the year, partly offset by continued strong performance for many of our companies, including some third-party funding rounds at higher valuations. For example, Motive (previously called KeepTruckin’) continues to deliver strong recurring revenue growth, and raised $150 million in new equity during 2022 at a 20% higher valuation to the previous funding round, one year earlier. We remain conﬁdent about the future prospects for this book, which is diversiﬁed across a range of industry sectors, and with businesses at different stages of maturity. For example, the majority of our top 10 holdings Manager’s Report We believe there is a compelling opportunity for outperformance in certain Japanese stocks, which exhibit a combination of low valuations and momentum from the improvement of corporate governance. These stocks can also represent a rare opportunity set where global macro factors do not override fundamental, bottom-up considerations. Biotech remains a structural theme for us. An uptick in corporate activity in the latter half of the year brought some renewed optimism to the sector, and we also saw the start of a new product cycle. As a result, during bouts of sector price weakness, we increased our allocation to this theme. It remains a fertile environment for stock picking in the ‘value’ sector. We express this view through our own stock positions as well as via a concentrated portfolio with Discerene. This fund focuses on businesses with strong defensive moats, robust cashﬂows and cheap valuations; in the past 18 months, two of the fund’s top ﬁve positions have been acquired, while a third position has received an acquisition offer. While we partially trimmed our exposure to China during 2022, we continue to see potential beneﬁts from the government’s structural economic goals. Investing in the right areas and with the right partners remains critical. In terms of geographical allocation, while our quoted equity book continues to retain a meaningful exposure to the US, the holdings in the region tend to be highly idiosyncratic. For example, our exposure to the biotech theme is expressed primarily via US listed companies. The remainder of the quoted equity book is diversiﬁed between Asia, Japan and Europe. Quoted equity portfolio by region US, 46% Asia, 20% Japan, 18% Europe, 13% Other, 3% 12 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | JRCM Manager’s Report are proﬁtable, and additionally, the majority of the book’s investments also beneﬁt from a degree of structural protection. In the case of our largest holding, nearly 80% of our initial capital was deployed via a convertible debt instrument designed to provide downside protection as well as equity upside. £1.0 billion (around 140% of the capital we had invested) and with £0.4 billion remaining, this represents an approximate 100% proﬁt. Over more recent years, the almost £0.3 billion we have invested into 2020 to 2022 vintage funds has already produced a 1.3x return, notwithstanding the funds being earlier in their lives. Private direct book by sector Private fund book by vintage year (%,TRM) 13%, 1.6x 32%, 1.3x Financials, 30% Industrials, 19% Information technology, 14% Communication services, 11% Healthcare, 10% Consumer discretionary, 8% Real estate, 7% Consumer staples, 1% The private fund book detracted -3.2% from the NAV performance for the year, with decreases in valuations largely reﬂective of the broader market volatility. That said, the book continues to generate long-term value for our shareholders. In the last 10 years, across all new private fund commitments, we invested approximately £0.6 billion and have already received back in distributions around half this amount, with a further £0.9 billion in remaining value at the year end. This equates to a Total Return Multiple (TRM) of around 2.0x. This is a common performance measure for private funds and means that for these funds, the aggregate of distributions we have received plus the remaining NAV represented twice the capital we had invested, or an overall proﬁt of around 100%. Taken together, these funds have delivered a compound return of approximately 22% per annum over the 10 years to 31 December 2022. The portfolio is diversiﬁed across styles, managers and fund ‘vintages’ (i.e. the year the fund started making investments). It includes funds early in their life cycles (where they are predominantly deploying capital) and those later in their life cycle (where they are typically generating realisations from disposals). Funds which are past their main investment period (typically ﬁve years from launch), had invested £0.7 billion, distributed 2022 – 2020 2019 – 2017 2016 – 2014 Prior 26%, 3.4x 29%, 2.0x We are taking a selective approach to new commitments, with 2022 commitments of around £89 million, down substantially from previous years. The portfolio was self- funding with new capital calls of approximately £95 million funded out of distributions of the same amount. As of the reporting date, 94% of our private fund positions were held at the GP’s September valuations and 6% at December. This is consistent with the industry, which as standard reports on a quarter’s lag. These were the latest valuations available, and we adjusted the September marks for subsequent investments, distributions and currency moves between 30 September and the year end. While the performance overall was negative during the year, we saw a wide range of performance, with many of the funds generating positive returns, reﬂecting the diverse nature of the underlying exposures. We have provided further granularity on the diversity of strategies within our private fund holdings. As shown below, around 60% of the book consists of growth equity, meaning funds where the underlying holdings are primarily more established, mature businesses, but which continue to generate robust growth. Approximately 18% of the book consists of traditional private equity strategies, and around 16% are focused on investing in businesses at the earliest stages. The balance of around 6% of the book consists of life sciences holdings, which often have their own unique life cycle as distinct from other industries. RIT Capital Partners plc Report and Accounts December 2022 13 JRCM provide additional chances to deploy capital into credit, as corporations need to reﬁnance their capital structures. Real assets This category detracted slightly from performance this year, with gold and our investment properties slightly lower. While gold disappointed somewhat given the shift in the inﬂationary regime, we remain supportive of the role it can play in our portfolio. There is a strong demand for the commodity from emerging market central banks as they diversify out of sanction-prone ﬁat currencies. Furthermore, the precious metal can also serve as a good asymmetric hedge to a potential central bank ‘pivot’, a reversal of a strong US dollar, or more generally against the increasing probability of broad-based market dislocation. Currencies With a global investment mandate, we consider currency exposures a core part of our portfolio construction. As with most asset classes, the currency markets were not immune to 2022’s high levels of volatility, with sterling particularly impacted during September. The portfolio beneﬁtted from the diversity of our exposure and active currency management (as we shifted out of sterling), which contributed 2.1% for the year, mainly driven by the strength of the dollar, acting as a safe haven in turbulent markets. Currency exposure (% of NAV) 53.0% 68.7% 24.5% 18.9% Sterling US dollar Euro Japanese yen 6.4% 0.5% 4.4% 2.9% Other 11.7% 9.0% 31 December 2022 31 December 2021 0% 10% 20% 30% 40% 50% 60% 70% 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. Manager’s Report If we consider the past 20 years of annual NAV returns, not only have we never lost money on a rolling three-year basis, but we have generated healthy growth averaging 10.2% per annum. It is this combination which sets us apart from the majority of other trusts. Private fund book by strategy Growth equity, 60% Private equity, 18% Early stage, 16% Life sciences, 6% Absolute return and credit The absolute return and credit portfolio showed modest declines overall, and demonstrated a dispersion of returns across styles and managers, a key rationale in our allocation to this category. Our credit-focused funds held their value against the sharp downdraft in credit markets, with several managers’ producing healthy alpha. We also implemented credit hedges, which beneﬁted the book. Of note, ARCM, an Asian credit specialist, successfully navigated the market volatility and produced double-digit returns. The performance of our macro managers was more mixed with a wide range of returns. Our investment with Eisler Capital was down -17.7% for the year, and we redeemed our fund at the year end. During the year, a combination of higher risk-free rates, indiscriminate mutual fund selling and low appetite from investment banks to reﬁnance corporates, provided us an opportunity to deploy capital in European credit markets. These investments have double-digit yields for short duration, with moderate loan-to-value, and, thus, a low likelihood of permanent capital impairment. We have a segregated account with our partner, Tresidor, to exploit this opportunity, and believe the upcoming year will 14 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | JRCM Manager’s Report Debt and leverage Having reﬁnanced two of our revolving credit facilities (RCFs) during the year, at the year end we held drawn borrowings of £236.2 million, with a further £90 million committed and undrawn. The fair value of RIT’s £151 million loan note liability decreased over the year as gilt yields increased, triggering a mark-to-market gain of approximately £35 million. We continue to use derivatives where appropriate, principally to protect the NAV from unwanted exposures. Currency hedging, where we typically increase our levels of sterling to our desired weight, thus reducing the currency translation risk, is a prime example of our use of derivatives to protect the overall portfolio. Additionally, we deploy hedges to limit potential downside and to protect unrealised gains made on proﬁtable investments. We also use derivatives to enhance returns through efficient structuring. 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 49 people in JRCM and 13 in our sister company, SHL. SHL maintains and manages the investment property portfolio, including Spencer House as well as other properties in St. James’s, and also operates a proﬁtable events business. 2022 marked the return of the ‘new normal’ with regard to working arrangements, where, thanks to the professionalism and dedication of our staff, we have ﬁrmly embedded our hybrid and ﬂexible working policies. It remains a priority for JRCM to minimise the effect of costs on NAV and shareholder returns and 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 and GPs. 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). This assumes no change in the composition or value of the portfolio (therefore excluding transaction costs and direct performance-related compensation) and excludes ﬁnance costs. For 2022, RIT’s own OCF amounted to 0.89% (2021: 0.72%), with further information provided on page 100. 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 always a key consideration in our due diligence, with the investment decision made on the basis of expected returns, net of all fees. We estimate that the average annual management fees for external managers represent an additional 0.88% of average net assets (2021: 0.87%). 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. As they are a necessary cost in investing in many difficult to access, high-quality managers or unique deals, and are only paid for good performance, we would always rather have the strong performance net of such fees, adding to the NAV return, than not. Further information on fees is provided on pages 52 and 53. Outlook It may well be that we are witnessing a reversal of a decade’s material outperformance of ﬁnancial assets over the real economy. Investors will likely need to adjust their expectations to the very different environment of a higher cost of capital, labour and raw materials, and with no safety net provided by central banks. Participating in this market will be remarkably difficult, with central banks having unﬁnished business in their ﬁght against inﬂation, companies facing margin pressures and uncertainty around economic growth, and consumers adjusting to the tighter ﬁnancial conditions after a period of generous covid support schemes. This backdrop, in our view, warrants a cautious net quoted exposure combined with dry powder. However, we also believe the macro uncertainty discussed above, combined with the risk of ‘ﬁnancial accidents’, can create compelling bottom-up liquid opportunities in both equities and credit markets. We will follow our long-standing disciplined approach, focused on fundamentals-driven investing while looking for strategic openings which present themselves in such dislocated markets. We would note that our patient approach also means we are unlikely to participate in short-term sentiment driven rallies. Nevertheless, we have demonstrated our resolve to act quickly and decisively when there is an opportunity, such as the value-oriented assets that beneﬁtted from a more reﬂationary environment. We believe there will RIT Capital Partners plc Report and Accounts December 2022 15 JRCM Manager’s Report be additional opportunities in the upcoming year. For example, in 2022, the market disproportionately punished all long duration assets as a result of higher discount rates, without discriminating between the fundamental ability for companies to produce healthy cash ﬂows and continued growth. We believe that many high-quality companies in our private investment book as well as our quoted biotech exposure could beneﬁt from the market taking a more discriminating view of long duration assets. Additionally, over the past year, driven by the sharp rise in the cost of capital, there has been a considerable expansion of the opportunity set for strategies that do not require rising equity markets. For example, merger arbitrage, structured credit, and equity market-neutral strategies can produce healthy returns with little resort to leverage in the current market environment. We are all shareholders in RIT and ﬁrmly believe that our tried and tested approach remains the best way to manage money over the long term, balancing caution with deploying risk capital to ensure that investors’ capital grows through the cycles. Over the last 10 years, our NAV per share total return of approximately 140% stands up well against other investments and often with considerably less risk. Even on a shorter time horizon, we believe our approach of combining capital preservation with capital growth is a powerful one. Indeed, if we consider the past 20 years of annual NAV returns, not only have we never lost money on a rolling three-year basis, but we have generated healthy growth averaging 10.2% per annum. It is this combination which sets us apart from the majority of other trusts. Francesco Goedhuis Chairman and Chief Executive Officer J. Rothschild Capital Management Limited Ron Tabbouche Chief Investment Officer J. Rothschild Capital Management Limited 16 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Investment Portfolio Investment portfolio as at 31 December 2022 Country/region Industry/description Value of investments £ million % of NAV Investment holdings Quoted equity1 Stocks: Marsh & McLennan Corteva Builders FirstSource Helios Towers Thermo Fisher Canadian Paciﬁc Railway Coupang Black Knight2 Mastercard2 Keurig Dr Pepper2 Other stocks Total stock: Long-only funds: HCIF Offshore Discerene3 Morant Wright3 Springs Opportunities NE Fund Ward Ferry Asian Smaller Co.’s Sand Grove UK Tenere Capital United States United States United States Africa United States Canada South Korea United States United States United States – Insurance brokers Fertilisers & agricultural chemicals Building products Telecommunication services Life science tools & services Transportation & logistics Retailing Software, long 0.5% Software & services, long 1.0% Consumer staples, long 1.2% – United States Global Japan China Global Asia United Kingdom All-cap, diversiﬁed All-cap, technology Global All-cap, biotechnology All-cap, value bias Small/mid-cap, value bias All-cap, diversiﬁed All-cap, clean energy Small/mid-cap, diversiﬁed Other long-only funds – – Total long-only funds: Hedge funds: 3D Opportunity BlackRock Strategic Equity HHLR EcoR1 Capital Coreview Other hedge funds Total hedge funds: Derivatives: Reﬂation basket European basket Biotech basket Total derivatives: Total quoted equity Japan Global China United States China – All-cap, diversiﬁed All-cap, diversiﬁed All-cap, diversiﬁed All-cap, biotechnology All-cap, diversiﬁed – Global Europe Global Long, 1.2% notional Long, 0.7% notional Long, 0.6% notional 41.0 39.5 35.0 33.3 25.9 24.8 17.2 0.3 1.1% 1.1% 0.9% 0.9% 0.7% 0.7% 0.5% 0.0% 0.6 (3.1) 41.6 256.1 0.0% (0.1%) 1.1% 6.9% 131.0 118.4 108.3 92.7 71.5 67.3 46.5 16.3 22.5 674.5 130.1 97.1 62.4 33.4 28.4 24.2 375.6 3.5% 3.2% 2.9% 2.5% 1.9% 1.8% 1.2% 0.4% 0.6% 18.0% 3.5% 2.6% 1.7% 0.9% 0.8% 0.7% 10.2% 0.2 (0.3) 1.0 0.9 0.0% (0.0%) 0.0% 0.0% 1,307.1 35.1% RIT Capital Partners plc Report and Accounts December 2022 17 Investment Portfolio Investment holdings Private investments – direct4: Motive Webull Epic Systems Brex OneFootball Blueground Paxos Kraken Animoca Airtable Level Home Papaya Inﬁnity Age of Learning Dandy Lede Bolt Financial Scale AI Other private investments – direct Total private investments - direct Private investments – funds: Thrive funds Iconiq funds BDT Capital funds Greenoaks Capital funds Ribbit Capital funds Hillhouse funds Arch Venture funds Lindenwood Biomatics Capital funds Mithril funds WestCap Strategic funds Eight Partner funds Sound Ventures funds Expa Capital Firstminute Capital Social Capital funds Blackstone Tactical Opportunities Braemar Energy LCV Fund Corsair funds Other private investments –- funds Total private investments – funds Country/region Industry/description United States United States United States United States Trucking Investment banking & brokerage Health care equipment & services Diversiﬁed ﬁnancials Media & entertainment Diversiﬁed real estate activities Diversiﬁed ﬁnancials Financial exchanges & data Media & entertainment Application software Consumer electronics Data processing & outsourced services Global United States United States United States Global United States United States United States United Kingdom Real estate operating company’s United States United States United States United States United States – Education services Health care equipment & services Media & entertainment Data processing & outsourced services Application software – Growth equity United States Growth equity United States Private equity United States Growth equity United States Growth equity United States Private equity China Life sciences United States Growth equity United States Life sciences United States Growth equity United States Growth equity United States Early stage United States Early stage United States United States Early stage United Kingdom Early stage Early stage United States Private equity United States Growth equity United States Early stage United States Private equity United States – – Value of investments £ million 76.2 46.9 24.7 18.6 17.7 16.9 16.2 16.2 14.2 13.0 11.8 10.8 10.8 9.9 9.6 8.3 8.3 8.2 104.4 442.7 168.9 168.2 76.0 72.6 70.5 61.6 47.7 39.6 20.1 18.6 18.2 17.9 17.3 15.1 12.6 10.6 10.4 10.0 9.2 9.1 198.9 1,073.1 % of NAV 2.0% 1.3% 0.7% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 2.8% 11.9% 4.5% 4.5% 2.0% 2.0% 1.9% 1.7% 1.3% 1.1% 0.5% 0.5% 0.5% 0.5% 0.5% 0.4% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 5.3% 28.8% 18 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Investment Portfolio Investment holdings Absolute return and credit: Attestor Value Tresidor Credit Opportunities ARCM RIT US Value Partnership Caxton Dynamis Sand Grove Tactical Woodline Liontree Advisory loan note Tresidor Europe Credit Hein Park Highbridge Other absolute return and credit Total absolute return and credit Real assets: Spencer House St. James’s properties Gold futures Other real assets Total real assets Other investments: Currency forwards Total other investments Total investments Liquidity: Liquidity Total liquidity Borrowings: Short-term bank borrowings5 RIT senior loan notes Total borrowings Other assets/(liabilities) Margin Unsettled fund redemptions Other assets/(liabilities) Total other assets/(liabilities) Total net asset value Country/region Industry/description Global Global Asia Global Global Global Global United States Europe Global Global – Credit, distressed and special situations Credit, distressed and special situations Credit, distressed and special situations Multi-strategy Macro strategy Multi-strategy Multi-strategy Corporate loan Credit, distressed and special situations Credit, distressed and special situations Multi-strategy – United Kingdom Investment property United Kingdom Investment property Long, 4.5% notional Global – – Various Forward currency contracts – – – – – – Cash at bank Revolving credit facilities Fixed interest loan notes – – – Value of investments £ million 148.6 108.0 95.6 72.4 71.8 63.1 54.6 36.4 30.2 25.8 26.6 13.7 746.8 28.3 27.1 6.4 3.6 65.4 42.6 42.6 % of NAV 4.0% 2.9% 2.6% 1.9% 1.9% 1.7% 1.5% 1.0% 0.8% 0.7% 0.7% 0.4% 20.1% 0.8% 0.7% 0.2% 0.1% 1.8% 1.1% 1.1% 3,677.7 98.8% 206.3 206.3 5.5% 5.5% (236.2) (134.4) (370.6) (6.3%) (3.6%) (9.9%) 85.4 152.3 (29.4) 208.3 2.3% 4.0% (0.7%) 5.6% 3,721.7 100.0% 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 Held via total return swaps with notional exposure disclosed in the table. 3 These funds are segregated accounts, managed externally on behalf of the Group. 4 The private direct book includes investments held through co-investment vehicles managed by a general partner (GP). 5 The Group has three revolving credit facilities with Industrial and Commercial Bank of China, Commonwealth Bank of Australia and BNP Paribas. RIT Capital Partners plc Report and Accounts December 2022 19 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 responsibility of the Board and the Audit and Risk Committee. Day-to-day management is undertaken by JRCM within parameters set by the Board. As an investment company, RIT is exposed to ﬁnancial risks inherent in its portfolio, which are primarily market- related and common to any portfolio with signiﬁcant exposure to equities and other ﬁnancial assets. The ongoing portfolio and risk management includes an assessment of the macroeconomic and geopolitical factors that can inﬂuence market risk, as well as consideration of investment-speciﬁc risk factors. Your Company’s broad and ﬂexible investment mandate allows the Manager to take a relatively unconstrained approach to asset allocation and utilise whatever action is considered appropriate in mitigating any attendant risks to the portfolio. As discussed in the Manager’s Report, with inﬂation rates reaching multi-decade highs, political and ﬁscal volatility impacting the UK, energy price ﬂuctuations magniﬁed and exacerbated by Russia’s invasion of Ukraine, and the underperformance of China, 2022 was extremely turbulent globally, with no asset classes outpacing inﬂation and losses across equities and bond markets. As such, once again, risk management remained critical. The portfolio risk management approach undertaken by the Manager, and considered regularly by the Board, is designed to produce a healthy risk-adjusted return over the long term, through careful portfolio construction, security selection and the considered use of hedging. Part of this approach is to emphasise or de-emphasise parts of the portfolio to compensate for risk in other areas. For example, with a decision to deploy capital to the technology transition theme through the private portfolio, the exposure to this theme within the quoted equity book was deliberately smaller. Equally the deployment of hedges, whether to manage currency translation risk, or to reduce exposure to particular companies or sectors, was an important part of mitigating losses over the year. As a permanent capital vehicle, and unlike open-ended funds, we do not need to manage the portfolio to meet redemptions. With sizeable assets relative to our modest borrowings and ongoing liabilities, as conﬁrmed later in this section, we do not consider the Company’s viability or going concern to represent principal risks. Nevertheless, and in particular at times of market stress, the Manager utilises a detailed, day-to-day liquidity risk management framework to help effectively manage the balance sheet, including careful monitoring of the banking covenants. The Board sets the portfolio risk parameters within which JRCM operates. This involves an assessment of the nature and level of risk within the portfolio using qualitative and quantitative methods. Additional information in relation to market risk, credit risk and liquidity risk in accordance with IFRS 7 Financial Instruments: Disclosures is shown in Note 13 on pages 71 to 75. Operational risks include those related to the legal environment, regulation, taxation, information security, climate and other areas where internal or external factors could result in ﬁnancial or reputational loss. These are also managed by JRCM with regular reporting to, and review by, the Audit and Risk Committee and the Board. The Board is ultimately responsible for the Group’s system of internal controls and it has delegated the supervision of the system to the Audit and Risk Committee. Such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and, as such, can provide only reasonable and not absolute assurance against any material misstatement or loss. Further information is provided in the Audit and Risk Committee Report on pages 44 to 47. 20 Report and Accounts December 2022 RIT Capital Partners plc | 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 there are no material emerging risks, and the principal risks are as described below: Risk Mitigation Investment strategy risk As an investment company, a key risk is that the investment strategy, guided by the Investment Policy: “To invest in a widely diversiﬁed, international portfolio across a range of asset classes, both quoted and unquoted; to allocate part of the portfolio to exceptional managers in order to ensure access to the best external talent available.” does not deliver the Corporate Objective: The Board is responsible for monitoring the investment strategy to ensure it is consistent with the Investment Policy and appropriate to meet the Corporate Objective. The Directors receive a detailed monthly report from the Manager to enable them to monitor investment performance, attribution and exposure. They also receive a comprehensive investment report from JRCM in advance of the regular quarterly Board meetings. “To deliver long-term capital growth, while preserving shareholders’ capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders increases in capital value in excess of the relevant indices over time.” The 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. Market risk Price risk RIT invests in a number of asset categories including stocks, equity funds, private investments, absolute return and credit, real assets, government bonds and derivatives. The portfolio is therefore exposed to the risk that the fair value of these investments will ﬂuctuate because of changes in market prices. Currency risk Consistent with the Investment Policy, the Group invests globally in assets denominated in currencies other than sterling as well as adjusting currency exposure to either seek to hedge and/or enhance returns. This approach exposes the portfolio to currency risk as a result of changes in exchange rates. Interest rate risk In addition, the Group is exposed to the direct and indirect impact of changes in interest rates. The 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, as well as assessing the underlying correlations amongst the separate asset classes. Exposure management is undertaken with a variety of techniques including using equity index and interest rate futures and options to hedge or to increase equity and interest rate exposure depending on overall macroeconomic and market views. Currency exposure is managed via an overlay strategy, typically using a combination of currency forwards and/or options to adjust the natural currency of the investments in order to achieve a desired net exposure. The geographic revenue breakdown for stocks as well as correlations with other asset classes are also considered as part of our hedging strategy. RIT Capital Partners plc Report and Accounts December 2022 21 Principal Risks and Viability Risk 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. In addition, existing cash reserves, as well as the signiﬁcant liquidity that could be realised from the sale or redemption of portfolio investments and undrawn, committed borrowings, could all be utilised to meet short-term funding requirements if necessary. As a closed-ended company, there is no requirement to maintain liquidity to service investor redemptions. The Depositary, BNP Paribas Trust Corporation UK Limited (BNP) has separate responsibilities in monitoring the Company’s cash ﬂow. 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. 22 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Principal Risks and Viability Risk Mitigation Climate-related risks Ongoing climate changes may impact either our own business, the external managers with whom we invest, and/ or the underlying portfolio investments. For our own business this could result in increased costs of complying with new regulations and/or changes to the way we operate. Portfolio companies could see demand pressures, an increased cost of capital, tighter regulation or increased taxation, all impacting proﬁtability. Our ability to make climate-change disclosures may be impacted by our investment approach if the external fund managers with whom we invest do not provide the desired information. More frequent extreme weather could disrupt businesses, travel, global supply chains and proﬁtability. 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. We do not consider climate-related risks have material, speciﬁc impacts on our own asset management businesses as distinct from the investment portfolio. Our Manager continues to monitor, and minimise, the climate-related impacts of our internal operations; we offset the carbon emissions of this business – categorised as Scope 1 and Scope 2 emissions by the Greenhouse Gas (GHG) Protocol – through participation in an accredited scheme and we are taking steps to further develop our understanding of our indirect emissions impact (categorised as Scope 3 emissions). JRCM is a signatory to the UN PRI, and the Board worked with our Manager to develop JRCM’s Responsible Investment Framework & Policy, which incorporates environmental factors into our investment approach. This allows us to consider the potential wider impacts of climate change risks to our investments. JRCM is working with an external adviser to consider our ability to make additional climate-disclosures in relation to our investment portfolio, while acknowledging the likely challenges caused by having external funds. We monitor developments in regulation and disclosures and seek as far as possible to prepare for future changes. The Group’s adoption of fair value in relation to its investments, means that the climate-related risks recognised by market participants are incorporated in the valuations (see Note 1, Accounting Policies). The Operational Risk Committee of JRCM provides oversight of all legal, regulatory and other operational risks across the Group. This Committee reports key ﬁndings to the JRCM Executive Committee and the Audit and Risk Committee. JRCM employs a general counsel and a compliance officer as well as other personnel with experience of legal, regulatory, disclosure and taxation matters. In addition, specialist external advisers are engaged in relation to complex, sensitive or emerging matters. For example, during 2022 the Group again engaged external advisers in supporting its consideration of ESG matters. Where necessary, co-investments and other transactions are subject to review by the Conﬂicts Committee and/or the FCA. RIT Capital Partners plc Report and Accounts December 2022 23 Principal Risks and Viability Risk Mitigation Operational risk Operational risks are those arising from inadequate or failed processes, people and systems or other external factors. Key operational risks include reliance on third-party managers and suppliers, dealing errors, processing failures, pricing or valuation errors (including under or over-stating the valuations of private investments leading to the incorrect valuation of these portfolio holdings), fraud, reliability of core systems and IT security issues. Systems and control procedures are the subject of continued development and regular review. During the year the Audit and Risk Committee reviewed, and satisﬁed itself with, the Manager’s approach to due diligence as part of its investment decision making. Further details on this and internal controls more generally can be found in the Committee’s Report on pages 44 to 47. Processes are in place to ensure the recruitment and ongoing training of appropriately skilled staff within key operational functions. Suitable remuneration policies are in place to encourage staff retention and the delivery of the Group’s objectives over the medium term. Independent pricing sources are used where available and performance is subject to regular monitoring. In relation to more subjective areas such as private investments and property, the valuations are estimated by experienced staff and specialist external managers and valuers using industry standard approaches, with the ﬁnal decisions taken by the independent Valuation Committee, and subject to external audit as part of the year-end ﬁnancial statements. A business continuity and disaster recovery plan is maintained, and was updated in 2022 following the move to a hybrid working arrangement. Cyber security continues to receive an enhanced focus, with systems and processes designed to combat the ongoing risk developments in this area. Such processes are kept under regular review including multi-factor authentication, ensuring effective ﬁrewalls, internet and email gateway security and anti-virus software. This is complemented with staff awareness programmes (including periodic mock phishing exercises) which monitor and test both the robustness of our systems as well as keeping staff alert to potential risks. During the year, the Manager was awarded the government’s ‘cyber essentials plus’ security certiﬁcation in March 2022, the highest level of certiﬁcation offered under this scheme. The Group has speciﬁc insurance cover in place to cover information security and cyber risks. 24 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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 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 £4.2 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 £371 million, with committed but undrawn facilities totalling £90 million); the ability to satisfy the associated loan covenants, meet the ongoing costs of the business and fund dividends; the level of outstanding capital commitments (primarily to long-term private funds) and the ongoing distributions from this part of the portfolio; and the continued attractiveness to shareholders of the Group’s Corporate Objective and investment approach. 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 borrowing 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. This theoretical outcome also 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 6.2%, 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 totalling £206 million and committed but undrawn borrowings of £90 million, and cash ﬂow forecasts for the period to 30 June 2024, as well as what the Group considers its readily realisable securities of £258 million, transactions awaiting settlement of £152 million at year end, 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 25 and the s172 statement on page 55 have been approved by the Board and signed on its behalf by: Sir James Leigh-Pemberton Chairman RIT Capital Partners plc Report and Accounts December 2022 25 Governance | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Board of Directors Non-Executive Chairman Senior Independent Director Sir James Leigh-Pemberton I C N R V Philippe Costeletos I C N R V A 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 Conﬂicts, Remuneration and Valuation Committees. 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, a position he held until September 2022. 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 Philippe Costeletos joined the Board as a non-executive Director in July 2017 and became its Senior Independent Director in April 2019. He is Chair of the Conﬂicts and Remuneration Committees and a member of the Audit and Risk, Nominations, and Valuation Committees. 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 Chair 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 Chair of Janus 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 I C N R Vikas Karlekar I Maggie Fanari joined the Board of the Company as a non-executive Director in April 2019 and is a member of the Conﬂicts, Nominations and Remuneration Committees. Maggie is the Senior Managing Director, Global Group Head High Conviction Equities at Ontario Teachers’ Pension Plan which has a global mandate to invest in public and private companies. 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. Vikas Karlekar joined the Board as a non-executive Director in August 2022. He is a qualiﬁed chartered accountant, and a graduate of the London School of Economics specialising in Management Sciences and has held a number of senior ﬁnance roles across the ﬁnancial services industry. Vikas is currently Managing Director of Group Finance at Intermediate Capital Group PLC, a UK listed asset manager specialising in private markets, covering all aspects of ﬁnancial and regulatory reporting, valuation governance, key accounting judgments, ﬁnancial planning and analysis, and platform and operating model transformation. In addition, he is a member of the Board of Trustees, and Treasurer, of the Pepal Foundation, a charity focused on bringing together NGOs and global corporations to develop leaders and ﬁnd practical solutions to challenging social issues. Vikas previously spent 10 years at Barclays in a series of pan ﬁnance leadership roles, including Global Finance Controller for Barclays International Division, managing all aspects of ﬁnancials, key accounting decisions, valuations, driving technology and process improvements, and leading key regulatory relationships. He also spent 13 years at UBS Investment Bank, in both London and New York in various ﬁnance leadership roles. Vikas qualiﬁed as a chartered accountant with KPMG. RIT Capital Partners plc Report and Accounts December 2022 27 Board of Directors Non-Executive Directors Cecilia McAnulty I Maxim Parr I C R V Cecilia joined the board as a non-executive director in August 2022. She is a qualiﬁed accountant and has held senior investment roles for banks and hedge funds. Her investment experience encompasses several asset classes including distressed debt, private equity and credit. Cecilia is a non-executive director and audit Chair of both Northern 2 VCT plc and Polar Capital Global Financials Trust plc and recently resigned as an independent NED of Alcentra Limited, an asset manager wholly owned by Bank Of New York Mellon, specialising in sub investment grade credit. She is also a member of the Industrial Development Advisory Board, part of The Department of Business, Energy & Industrial Strategy (BEIS) which advises on grants to UK businesses. She has held senior roles at Centaurus Capital, Barclays Capital, Royal Bank of Scotland and PwC. She qualiﬁed as a chartered accountant with Peat Marwick (now KPMG) in Glasgow. She has also held a number of charity roles including Chair of the Finance and General Purposes Committee for English National Ballet. Maxim Parr joined the Board as a non-executive Director in May 2020 and is a member of the Conﬂicts, Remuneration and Valuation Committees. 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. Working between Europe and Asia, Maxim is the Executive Chair 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. André Perold I A Mike Power I A V 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 Chair of the Valuation and the Audit and Risk Committees. André is Co-Founder, 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. 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 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. 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. 28 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Board of Directors Non-Executive Directors Jutta af Rosenborg I A V Hannah Rothschild CBE NI Jutta af Rosenborg joined the Board as a non-executive Director in May 2022 and is a member of the Audit and Risk, and Valuation Committees. She is a qualiﬁed accountant and holds a Master’s degree in Business Economics and Auditing from Copenhagen Business School and has held a number of senior roles in group ﬁnance, auditing and risk management. Jutta is a non-executive director of JPMorgan European Growth & Income plc and Chair of its audit committee. In addition, she is a non-executive director of Nilﬁsk Holding A/S and chairs its audit committee. She is also a member of the supervisory board of BBGI Global Infrastructure S.A., where she chairs the audit committee. She was previously a non-executive director at abrdn plc (formerly Standard Life Aberdeen plc) and NKT A/S, and was also executive vice president, chief ﬁnancial officer of ALK Abelló A/S and Chair of Det Danske Klasselotteri A/S. 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 an award-winning writer and ﬁlmmaker with a long standing career in the media. She was the ﬁrst woman to Chair the Trustees of the National Gallery. 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 philanthropy. I NI A C N R V Independent Director Non-Independent Director Audit and Risk Committee member Conﬂicts Committee member Nominations Committee member Remuneration Committee member Valuation Committee member Committee Chair RIT Capital Partners plc Report and Accounts December 2022 29 J. Rothschild Capital Management JRCM is a wholly-owned subsidiary of RIT and acts as RIT’s Manager. The members of the Executive Committee of JRCM are listed below: Executive Committee Francesco Goedhuis (Chairman and Chief Executive Officer) Andrew Jones (Chief Financial & Operating Officer) Ron Tabbouche (Chief Investment Officer) The Executive Committee of JRCM is led by Francesco Goedhuis and is 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 & Operating Officer. He is responsible for the Group’s ﬁnancial activities and its operations. 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 corporate ﬁnance and valuation advice. Andrew is a member of the audit committee of the British Academy. Ron Tabbouche 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. 30 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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 2022. 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 our Manager is 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 10 non-executive Directors, of which nine have been determined by the Board to be independent, with one, Hannah Rothschild, designated as non-independent. The Company has in place a structure of ﬁve Board Committees, with clearly deﬁned responsibilities. This is intended to limit the scope for an individual, or a small group of individuals, to dominate the Board’s decision making. The 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 Board 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 current members of the ﬁve Board Committees are as follows: Audit and Risk Committee Mike Power (Chair) Philippe Costeletos André Perold Jutta af Rosenborg Remuneration Committee Philippe Costeletos (Chair) Maggie Fanari Sir James Leigh-Pemberton Maxim Parr Conﬂicts Committee Philippe Costeletos (Chair) Maggie Fanari Sir James Leigh-Pemberton Maxim Parr Valuation Committee Mike Power (Chair) Philippe Costeletos Sir James Leigh-Pemberton Maxim Parr Jutta af Rosenborg Nominations Committee Sir James Leigh-Pemberton (Chair) Philippe Costeletos Maggie Fanari RIT Capital Partners plc Report and Accounts December 2022 31 Corporate Governance Report Board and Committee attendance The Board and Committee attendance of the Directors at meetings in 2022 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. All Directors receive papers and agendas before Board and Committee meetings they are eligible to attend. Where a Director is unable to attend a meeting, they are encouraged to give the Chairman or relevant Committee Chair their views in advance. Number of meetings held during the year Chairman Sir James Leigh-Pemberton Non-executive Directors Philippe Costeletos1 Maggie Fanari2 Vikas Karlekar3 Cecilia McAnulty3 Maxim Parr André Perold Mike Power Jutta af Rosenborg4 Hannah Rothschild Amy Stirling5 Board Audit and Risk 4 5 Conﬂicts 1 Nominations Remuneration 2 3 Valuation 2 5/5 5/5 5/5 1/1 1/1 5/5 5/5 4/5 3/3 5/5 2/2 – – – – – – 4/4 4/4 3/3 – 1/1 1/1 1/1 1/1 – – 1/1 – – – – – 3/3 3/3 2/2 – – – – – – – – 2/2 2/2 2/2 – – 2/2 – – – – – 2/2 2/2 – – – 2/2 – 2/2 2/2 – – 1 Appointed as a member of the Audit and Risk Committee on 9 February 2023 and therefore did not attend any of its meetings in 2022. 2 Appointed as a member of the Nominations Committee on 4 May 2022. 3 Appointed as a Director on 11 August 2022. 4 Appointed as a Director and a member of the Audit and Risk, and the Valuation Committees on 19 May 2022. 5 Retired as a Director on 4 May 2022. The Audit and Risk Committee The Audit and Risk Committee Report is shown on pages 44 to 47. The Committee has four members, all of whom are viewed by the Board as having recent and relevant ﬁnancial experience. Jutta af Rosenborg was appointed to the Committee on 19 May 2022 and Philippe Costeletos on 9 February 2023. The main features of the Group’s internal controls and risk management are described in the Audit and Risk Committee Report on pages 44 to 47 and in Principal Risks and Viability on pages 20 to 25. 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. 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. 32 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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. All of its members are independent non-executive Directors. Maggie Fanari was appointed to the Committee on 4 May 2022. The current composition of the Board complies with its own Diversity and Inclusion Policy, which includes meeting the gender and/or ethnic diversity recommendations of both the Parker Review and the Hampton-Alexander Review and also meets the reporting requirements around diversity in new listing rules introduced by the FCA. 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 Committee is mindful of Board balance, experience and diversity when considering appointments to the Board and is responsible for identifying suitable Board candidates, including considering candidates from a wide range of backgrounds and experiences. In terms of succession planning, the Committee acknowledges the importance and beneﬁts of diversity, especially in respect of gender and ethnicity and the Committee is responsible for the implementation of the Board’s Diversity and Inclusion Policy, which was published in May 2022, and may be viewed on the Company’s website. The Nominations Committee was responsible for implementing the Board’s succession planning in respect of Amy Stirling’s retirement from the Board. With effect from her retirement, Mike Power replaced her as the Chair of the Audit and Risk Committee. Mike had been a member of the Audit and Risk Committee for eight years and it was determined he had the requisite skills and experiences to be appointed as Chair. The Committee also oversaw the process to appoint a new Director to replace Amy. At the conclusion of this process, Jutta af Rosenborg was appointed to the Board on 19 May 2022. Her skills and experiences complement those of the other Directors, including being a qualiﬁed accountant and having held a number of senior roles in group ﬁnance, auditing and risk management, and she joined the Audit and Risk, and Valuation Committees on her appointment. The Committee continuously monitors Board composition to ensure it has the right skillset and breadth of experience with which to function as an effective Board. As part of this role, the Committee recommended that Vikas Karlekar and Cecilia McAnulty join the Board and they were both appointed as Directors on 11 August 2022. Vikas is a qualiﬁed accountant who has held a number of senior ﬁnancial roles across the ﬁnancial services industry. Cecilia is also a qualiﬁed accountant, holding senior investment roles for banks and hedge funds. The Board appointed Russell Reynolds Associates to assist with the recruitment of new Directors during the year. Russell Reynolds Associates has no other relationships with the Group and is therefore independent. To ensure a smooth transition as a result of the recent Board changes, Mike Power has agreed to remain as a Director until the forthcoming AGM. The Board has approved that, following his retirement as a Director at the AGM, Jutta af Rosenborg will replace him as Chair of the Audit and Risk Committee, and Maxim Parr will replace him as Chair of the Valuation Committee. Both Jutta and Maxim currently sit on the Audit and Risk, and Valuation Committees respectively and it was determined that each has the requisite skills and experience to chair these committees. The Remuneration Committee The Directors’ Remuneration Report is shown on pages 48 to 51. The Valuation Committee The Valuation Committee comprises ﬁve Directors, all of whom are independent, and with appropriate experience. The Committee plays a key role in providing the Board with assurance that the valuation process is rigorous and independently challenged. The Committee is currently chaired by Mike Power and on his retirement at the forthcoming AGM, Maxim Parr will become Chair of the Committee, in line with the Board’s succession planning. 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 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 Jones Lang LaSalle (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. RIT Capital Partners plc Report and Accounts December 2022 33 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 Board recommends shareholders approve the election and re-election of Directors (as applicable) standing at the forthcoming AGM. Subject to his continued annual re-election, the Chairman’s tenure is not intended to exceed nine years, 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 44 to 47. Corporate Governance Report 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 price achieved at a liquidity event and the most recent valuation prior to the event. 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. The biographies of the Directors and the JRCM Executive Committee on pages 27 to 30 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 2022, including 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 2022 annual performance evaluation was led by Philippe Costeletos, the Senior Independent Director. The evaluation included Directors completing questionnaires which assessed the performance and effectiveness of each Director, the Board collectively and each of its committees. The results were evaluated and considered by the Board as a whole. The overall conclusion of the evaluation was that the Board and its committees operate effectively and that each Director continues to make constructive contributions and demonstrates commitment to the role. The evaluation noted that the areas of focus recommended in the 2021 Board evaluation (conducted externally by BoardAlpha) had been addressed throughout the year, including Board diversity and succession planning (see page 54) and shareholder engagement (see page 49). It also set out the Board’s areas of focus for 2023, including further ESG integration and continuing to keep under review our strategy and portfolio in the context of our Corporate Objective. The next external evaluation is scheduled for 2024. 34 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Corporate Governance Report Engaging 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, corporate governance specialists 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. As part of our ongoing commitment to ESG integration the Manager became a signatory of the UN PRI and has adopted a Responsible Investment Framework & Policy which can be viewed at www. ritcap.com; 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; we maintained our regular programme of shareholder engagement activities including shareholder and analyst meetings and webinars to enable us to continue engaging directly with shareholders and continue to be informed of their views; and all shareholders are encouraged to attend the AGM and ask questions of the Directors and the Manager. All shareholders have the opportunity to cast their votes in respect of the proposed resolutions at the AGM by proxy, either electronically or by post. Employees • there is a focus on having a working environment where there is engagement and communications with employees at all levels. Throughout the year ‘town hall’ meetings for all Group employees were held and chaired by the Chief Executive Officer of JRCM as well as the Chairman (who is designated as the Director responsible for engagement with employees). More generally, regular internal • • • • • • • communications are encouraged through team meetings, training sessions, presentations and also social and team-building events; as part of our employee well-being programme, hybrid working policies have been introduced with ﬂexible and remote working arrangements available; a ﬁnancial contribution was made to those employees impacted the most by the rising cost of living; 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 and professional qualiﬁcations 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, designed to reinforce the Group’s overall strategy and culture; policies to ensure that we continue to provide an inclusive working environment where all our employees are treated with dignity and respect, regardless of their gender, age, ethnicity, disability, sexual orientation or background; and • provision of an employee assistance programme providing conﬁdential support on mental health issues. 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, information providers, trading counterparties, and brokers, and are committed to developing and maintaining sustainable and transparent working relationships over the long term; • 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; and • as part of JRCM’s Responsible Investment Framework & Policy, ascertaining our fund managers’ approach to ESG forms part of the due diligence RIT Capital Partners plc Report and Accounts December 2022 35 Corporate Governance Report undertaken by JRCM during the investment selection process and as part of ongoing monitoring. Environment and the community • although it is a last resort after our actions to reduce and avoid carbon emissions, we offset the carbon emissions of our residual internal operations through participation in an accredited scheme, Carbon Footprint Limited, involving the planting of trees at primary schools; • • • • a ‘zero to landﬁll’ waste and recycling policy; encouraging employees to reduce their own environmental impact through such initiatives as a cycle to work scheme; procurement of all electricity used in our property portfolio from renewable sources; introduction of a biodiversity management plan for the Spencer House garden, including removal of the use of pesticides, pollinator-friendly planting and wild-ﬂowering; • facilitate employees taking advantage of ‘Give As You Earn’ for personal charitable donations; • • various employee events to raise money for designated charities and donations were made by the Manager to locally based charities which were voted for by employees; and as part of our commitment to improving diversity and inclusion in the asset management sector, we have continued our partnership with 10,000 Black Interns initiative and in 2022, JRCM welcomed its ﬁrst intern under the Girls Are INvestors (GAIN) programme which aims to improve gender diversity in the sector. 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, and the one relevant principle of the UK Code, in practice. 36 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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. The 2022 Board evaluation (see page 34), concluded that the Board and its Committees continue to operate effectively, with the recommendations of the prior year external evaluation, addressed during the year. 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. As part of its role to promote the long-term sustainable success of the Group, the Board is tasked with meeting the Company’s Corporate Objective of delivering long-term capital growth while preserving shareholders’ capital and it keeps the strategy to achieve this under review. Moreover, the Board acknowledges the value to shareholders of a modest income yield and the Board’s policy is to maintain or increase the dividend, subject to the overriding capital preservation objective. 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 35 and 36 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 6 and 7). 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 application of the Manager’s Responsible Investment Framework & Policy, with its central principles of ESG and continual engagement with counterparties, is an example of the Company’s purpose, values and culture working in practice. 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, the published KPIs, as well as wider qualitative criteria including in relation to ESG integration, risk management, compliance, internal controls and promotion of the Group’s values and business principles. RIT Capital Partners plc Report and Accounts December 2022 37 Corporate Governance Report AIC Code Principle Application 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 and there is an opportunity for shareholders to ask questions to the Board and the Manager. 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) and throughout the year, the Manager’s investor relations function has responded to a range of enquiries raised by shareholders. The Group also engaged with leading proxy advisors during the year as part of its ongoing monitoring of wider shareholder expectations on ESG matters. The Manager reports to the Board regularly on its broader stakeholder engagement, as set out on pages 35 and 36. 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 regular 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 Committee meetings included in the Board papers. 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 2022, the Board comprised an independent non-executive Chairman and nine non-executive Directors. Nine Directors (including the Chairman) 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. 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. 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. Note: the AIC Code does not include a Provision E. 38 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Corporate Governance Report AIC Code Principle Application 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. 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. 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 participate in additional Board and Committee meetings as necessary. 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 35). 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. The Board’s Diversity and Inclusion Policy acknowledges the beneﬁts of diversity of gender, social and ethnic backgrounds on the Board and these are key considerations for the Board’s succession planning. The current composition of the Board complies with the recommendations of the Parker Review, the Hampton-Alexander Review and the FCA’s new listing rules reporting requirements on diversity. Directors’ varying backgrounds and wide-ranging experience, including in the investing world and ﬁnancial services generally ensures broad cognitive diversity, which is viewed as key in assisting effective challenge and discipline. Biographies of the Board are set out on pages 27 to 29 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 (see page 33). RIT Capital Partners plc Report and Accounts December 2022 39 Corporate Governance Report AIC Code Principle Application 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. N. The Board should present a fair, balanced and understandable assessment of the Company’s position and prospects. The Senior Independent Director led a formal and rigorous internal evaluation of the Board in 2022. As part of the evaluation, each Director completed a questionnaire which evaluated the performance of the Chairman, each Director, the Board as a whole and its Committees. The evaluation concluded that the Board and its Committees continue to operate effectively. In respect of its evaluation of its composition and diversity, the Board’s current composition complies with its own Diversity and Inclusion Policy, which includes meeting the gender and/or ethnic diversity recommendations of the Parker Review, the Hampton-Alexander Review and the FCA’s new listing rules reporting requirements. 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 2022, concluding that EY had performed satisfactorily (see page 47). The Audit and Risk Committee also performed a detailed review of the 2021 ARA, the 2022 Half-Yearly Financial Report and this 2022 ARA, as well as reviewing supporting papers from the Manager, in order to ensure the integrity of the statements (see page 44). The Audit and Risk Committee reviewed the ﬁnancial and narrative statements within the 2022 ARA and 2022 Half-Yearly Financial Report, as well as supporting papers and evidence from the Manager in relation to this area. The Committee concluded that these 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. 40 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Corporate Governance Report AIC Code Principle Application 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. Q. A formal and transparent procedure for developing remuneration policy should be established. No director should be involved in deciding their own remuneration outcome. 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 20 to 25 and the Audit and Risk Committee Report on pages 44 to 47. The Directors’ remuneration policy is subject to a binding shareholders’ vote every three years and will next be tabled to shareholders for approval at the forthcoming AGM. The Policy 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. As set out in the Directors’ Remuneration Report on pages 48 to 51, 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 independent remuneration consultant, Alvarez & Marsal. RIT Capital Partners plc Report and Accounts December 2022 41 Corporate Governance Report AIC Code Principle Application 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 Chair 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 inclusion and equal opportunities, anti-harassment/discrimination/bullying, 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 Chair of the Audit and Risk Committee. More generally, our culture seeks to encourage honest and open communication across the Group. 42 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Corporate Governance Report Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law the Directors have elected to prepare the Group and Parent Company ﬁnancial statements in accordance with UK adopted international accounting standards (UK adopted IAS). Under company law the Directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the proﬁt or loss of the Group and the Parent Company for that period. In preparing these ﬁnancial statements the directors are required to: • • • • • • • select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the speciﬁc requirements in UK adopted IAS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Parent Company ﬁnancial position and ﬁnancial performance; in respect of the Group ﬁnancial statements, state whether UK adopted IAS have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; in respect of the Parent Company ﬁnancial statements, state whether UK adopted IAS have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements; and prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Parent Company and the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s and Group’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the Parent Company and the Group and enable them to ensure that the Parent Company and the Group ﬁnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and corporate governance statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information included on the Parent Company’s website. The Directors conﬁrm, to the best of their knowledge: • • • that the consolidated ﬁnancial statements, prepared in accordance with UK adopted IAS give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt or loss of the Parent Company and undertakings included in the consolidation taken as a whole; that the Annual Report, including the Strategic Report, includes a fair review of the development and performance of the business and the position of the Parent Company and undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and that they consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Parent Company’s position, performance, business model and strategy. The Corporate Governance Report was approved by the Board and signed on its behalf by: Sir James Leigh-Pemberton Chairman RIT Capital Partners plc Report and Accounts December 2022 43 Audit and Risk Committee Report Introduction I am pleased to present the Audit and Risk Committee Report for 2022. As highlighted in our Strategic Report, we faced a multitude of challenges in the environment in which we operate, characterised by high levels of uncertainty and volatility. It is with this in mind, that I would like to reiterate our thanks and appreciation to the ﬁnance, risk and compliance functions of the Manager for their continued professionalism and for ensuring high standards of reporting and control across the operations of the Group during the year. The depth of experience, knowledge and skill in our teams provides considerable comfort as we face the challenges ahead. 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. As noted in last years’ report, Amy Stirling elected not to stand for re-election at our AGM in May. I would like to thank Amy for her signiﬁcant contribution, insight and professionalism in leading this Committee. Having been a member of this Committee for eight years, I accepted the offer to stand as Committee Chair. The Board is satisﬁed that I have requisite recent and relevant ﬁnancial experience to chair the Committee: I am a Fellow of the ICAEW and Professor of Accounting at the London School of Economics and Political Science. I served as a non-executive director on the board of St. James’s Place plc from 2005 to 2013 where I chaired the Risk Committee and was also a member of the Audit Committee. I joined the Board of RIT Capital Partners plc as a non-executive Director in 2014 and am also Chair of the Valuation Committee. The two other members of the Committee at the year end were André Perold and Jutta af Rosenborg. André is Chief Investment Officer of an investment management ﬁrm, having previously been a professor of Finance and Banking at Harvard Business School. Jutta joined the Board as a non-executive Director in May 2022 and is also a member of the Valuation Committee. She is a qualiﬁed accountant and holds a Master’s degree in Business 44 Report and Accounts December 2022 RIT Capital Partners plc Economics and Auditing from Copenhagen Business School. She has held numerous senior roles in ﬁnance, audit and risk management and has signiﬁcant experience in non-executive capacities. In addition, I am delighted to welcome Philippe Costeletos, who joined the Committee in February 2023. Philippe is our Senior Independent Director, previously head of Europe for a global private equity business and has widespread experience in senior roles in banking and investment ﬁrms. Our individual biographies are shown on pages 27 to 29. 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). Committee meetings and activity during the year We met four times in 2022, and once so far in 2023. Committee meetings were held to review the Group’s 2021 Annual Report and Accounts and the June 2022 Half-Yearly Financial Report. A review of the Group’s 2022 Annual Report and Accounts was considered in February 2023. Our reviews included the assessment and assurance that the annual reports, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group’s position, performance, business model and strategy. In addition, the Committee considered the evidence supporting the Group’s going concern and ongoing viability, including cash ﬂow forecasts as well as levels of available liquidity. For both the 2021 and 2022 Annual Report and Accounts, we were satisﬁed with our reviews and advised the Board accordingly. We also considered the year-end reports from the external auditor, Ernst & Young LLP (EY), and discussed matters arising with the Manager. 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 two further meetings, in May and November 2022, reviewing the effectiveness of the Group’s risk management and internal control, by reference to reports prepared by the Manager, including from its internal audit function. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Audit and Risk Committee Report In addition to the activities described above, signiﬁcant matters we considered during the year are set out below: direct access to the underlying companies, it prepares its own valuations using industry-standard approaches. Environmental, social and governance During 2022, the Group worked to strengthen its approach to integrating ESG considerations into its strategy and operations, including building on the Responsible Investment Framework & Policy published in 2021. ESG considerations are embedded within the approach taken by the Manager to new investments, and the Manager prepares a quarterly status report in respect of this, which will help support future reporting, including under UN PRI during 2023. In view of the pace of developments, we will keep under review the ongoing ﬁnancial reporting obligations in this area, having previously recognised the importance of climate-related matters in both our accounting policies and as a principal risk. Under listing rule 15.4.29(R), the Company, as a closed ended investment fund, is exempt from complying with the Task Force on Climate related Financial Disclosures (TCFD). Nonetheless, the Company recognises that the TCFD recommendations are intended to help determine climate-related risks and opportunities across our operations and our portfolio. Consequently, over the course of 2022, the Board engaged a leading international sustainability consultancy to assist its consideration on TCFD reporting. In 2023, we will continue to work with this consultancy to further develop our non-ﬁnancial reporting in line with elements of the TCFD framework. Our internal ESG documentation processes will be subject to an internal audit during 2023. The valuation of private investments and other assets Private investments represent 40.7% of net assets and comprise direct investments, as well as direct co- investments and diversiﬁed funds managed by external managers (or GPs). By their very nature such investments merit careful attention when considering their fair value. As these are unlisted investments, without a public share price, the estimation of fair value requires the exercise of considerable judgement. This subjectivity means that there is a higher degree of uncertainty in such valuations compared with those of other assets. In assessing the fair values, there is, by necessity, a degree of reliance on the GPs, with co-investments and funds representing the majority of the private investments portfolio. The GPs will typically have access to conﬁdential information about the underlying companies and are required to report fair values in accordance with internationally recognised accounting standards. The valuations are usually prepared on a quarterly basis, albeit with a time lag which may be up to three months, as is normal in the industry. The Manager reviews these valuations and, where possible, the justiﬁcation for any changes, as well as considering any additional supporting information. In addition, where the Manager has The results of this analysis are reported in detail on a six-monthly basis to the Valuation Committee, which is responsible for the ﬁnal decisions on valuation. We have therefore considered the work of the Valuation Committee (which I also chair), the results of their discussions with the Manager and the external auditor. We view the work as detailed and comprehensive, and are conﬁdent 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 to devote adequate time and resource to preparation and review, both by the Manager and also by 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. Three members of this Committee, myself included, also sit on the Valuation Committee. The Audit and Risk Committee also receives an executive summary of the Manager’s main valuation report as well as the minutes from the Valuation Committee. Cyber risk In light of the ongoing elevated cyber risks facing organisations, the Committee carefully considered the measures in place across the Group to mitigate these risks. During the early part of the year, the Manager undertook an external review of its cyber security framework, following which the Manager gained accreditation for ‘cyber essentials’ and ‘cyber essentials plus’, both provided by the National Cyber Security Centre. During the year, the Committee received a separate presentation from the Manager’s Head of IT, focused on cyber risk and cloud-based systems and the employee training and awareness programmes in this area. While there is no room for complacency in such a fast-moving area, the Committee was satisﬁed that sufficient and ongoing measures are in place to address this risk as far as is reasonably practicable. 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. RIT Capital Partners plc Report and Accounts December 2022 45 Audit and Risk Committee Report We consider the work of the Conﬂicts Committee in reviewing advisory services, co-investment transactions and any other similar arrangements with any related party, and have discussed with the Manager the systems and processes in place to identify, review, record and disclose such transactions. We note the importance that 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. identiﬁed through the course of these audits and the Committee considers the resource devoted to internal audit to be appropriate to the nature of the Company’s operations. In addition, BNP Paribas Trust Corporation UK Limited (as Depositary), undertook a review of the Manager’s arrangements under AIFMD for investment administration, compliance, risk management and business continuity, with no concerns noted. Internal control The Board of Directors is responsible for the Group’s system of internal control and it has delegated the supervision of the system to this Committee. The system is 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 applicable 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 and operational risk as is summarised in the Principal Risks and Viability section on pages 20 to 25. 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 review included consideration of the ﬁve-year cash ﬂow forecasts and a liquidity summary, the main portfolio exposures, as well as the results of the quarterly portfolio stress tests. In addition, the Committee reviewed the log of operational risk incidents during the year, noting that none had a signiﬁcant impact on the business. 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. Internal audit and compliance As part of the review of the control environment, the Manager, through its Compliance Officer, undertakes an internal audit of selected areas agreed with the Committee. The 2022 internal audits included an evaluation of the internal process around private investments know-your-customer procedures and controls. The dealing process of the Manager was also considered to ascertain whether best execution was consistently achieved. No material weaknesses were 46 Report and Accounts December 2022 RIT Capital Partners plc EY separately audited the Manager’s client asset procedures in relation to a very small amount of legacy client money. During the year, after an extensive tracing exercise in accordance with FCA guidance, the Manager was able to pay the residual balance to charity (while retaining the liability in case any future claimants arise). Under the FCA’s new Investment Firms Prudential Regime (IFPR), the Manager is required to produce an Internal Capital Adequacy and Risk Assessment (ICARA). The Committee was updated on this process, and on the satisfactory completion of the ﬁrst report, with no substantive concerns raised. The Manager also reports to the Committee the results of its monitoring of external fund manager’s 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 system 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 informed of any failings or weaknesses representing a signiﬁcant business risk. BEIS White Paper The Department for Business, Energy and Industrial Strategy (BEIS) published a White Paper ‘Restoring trust in audit and corporate governance’ in March 2021, which proposes wide-ranging changes to the responsibilities of audit committees and considers attestation on internal controls among other proposals. Consultation continued in 2022 and we expect that further updates will follow in due course. The Committee is aware of these proposals and will take the appropriate action once any proposals relevant to the Company are ﬁnalised. Post Covid-19 environment The Group operates a hybrid working policy, which has proved helpful in a competitive market for talent, while also allowing the effective and efficient operation of the Group. The IT systems have continued to perform well and all internal control procedures have continued to be applied with speciﬁc adaptations to enable controls to be effective while operating remotely. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Audit and Risk Committee Report External auditor The external auditor, EY, has completed its ﬁfth annual audit following its appointment as a result of a tender process in 2017. synergies with the audit process, and the fact that these services are permitted by the FRC’s revised Ethical Standard. Further information on fees paid to the auditor is set out in Note 5 to the ﬁnancial statements. EY attended all meetings of the Committee and provided reports on: its audit approach and work undertaken; the quality and effectiveness of the Group’s accounting records; and its ﬁndings in connection with the Group’s annual statutory audit for the year ended 31 December 2022. I have also had regular contact with the lead audit partner during the year, who will be replaced by a new EY partner after this year end, as part of EY’s auditor rotation protocols. 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 2022 totalled £12,000 for audit-related assurance work (regarding the Managers regulated activities). Their selection for this work was based on cost efficiency, 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. As the Chairman has noted, I will not be standing for re- election at the forthcoming AGM and this will therefore be my ﬁrst and last report as Chair of this Committee. I would like to thank my colleagues on the Committee for their support and wise counsel, and for the team at the Manager for their dedication and professionalism. I am delighted to conﬁrm that Jutta af Rosenborg has agreed to take over as Chair of the Committee, with effect from the AGM. Mike Power Chair, Audit and Risk Committee RIT Capital Partners plc Report and Accounts December 2022 47 Directors’ Remuneration Report 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 2022, the Committee included three further independent non-executive Directors: Sir James Leigh-Pemberton, Maggie Fanari and Maxim Parr. The Committee meets at least twice a year on a scheduled basis and additionally as may be required. 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 investment trusts. The Committee seeks information from JRCM management and advice from an independent advisor, as required. The Remuneration Committee has appointed a remuneration specialist from Alvarez & Marsal, to provide the Committee with advice. In 2022, fees of approximately £11,519 (2021: £18,142) were paid to Alvarez & Marsal 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 Part 15, Chapter 6 of the Companies Act 2006, the Directors’ Remuneration Policy applies to the Directors of the Company, all of whom are non-executives. 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. The Group operates an Annual Incentive Scheme (AIS) for employees as well as longer-term share-based awards. The annual cap for total awards under the AIS is limited to 0.75% of net assets. Our approach is designed to measure and reward 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. We remain satisﬁed with the suitability of the AIS in order to meet our objectives. Introduction On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2022. The current Directors’ Remuneration Policy was approved by shareholders with 99.9% of the vote at the 2020 AGM and in line with the three-yearly timetable, we shall submit a new Director’s Remuneration Policy as set out below, to a binding shareholder vote at the forthcoming AGM. 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, a regulated entity whose remuneration arrangements are governed by the FCA’s applicable Remuneration Codes, and SHL. Here, incentive schemes are in place, tailored to the respective businesses and 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) Regulations 2008 (as amended). It also sets out how it has applied the principles of the Codes relevant to the Company. Proposed 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 Chair and membership fees. They are not eligible for any other remuneration or beneﬁts apart from the reimbursement of allowable expenses. 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. 48 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Directors’ Remuneration Report The performance assessment for awards under the AIS reﬂect investment outperformance (as measured against two KPIs: CPI plus 3.0% and the ACWI) as well as 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’. In addition, and in particular for management and senior employees, AIS awards include signiﬁcant deferrals into RIT shares, which vest over the subsequent three years. Decisions made by the Committee have followed a careful appraisal of 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 which is structured as awards of restricted share units (RSUs). The RSUs vest after three years and then typically have a further two-year lock up before the underlying RIT 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. No payments were made to past Directors during the year. 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 other investment trusts. 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 Chair2 All other Committee Chair fees (per committee)2 £150,000 £35,000 £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 Chair 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 2023 AGM. The information on pages 50 and 51 has been audited where required under the regulations and is indicated as audited information where applicable. RIT Capital Partners plc Report and Accounts December 2022 49 Directors’ Remuneration Report Directors’ remuneration – audited Directors’ remuneration is in the form of fees and, if applicable, taxable beneﬁts comprising of travel and subsistence expenses incurred by or on behalf of Directors in the course of travel to attend Board or Committee meetings. The following table sets out the total remuneration for each Director: Year ended 31 December Non-executive Director Chairman Sir James Leigh-Pemberton Directors Philippe Costeletos Maggie Fanari Vikas Karlekar3 Cecilia McAnulty3 Maxim Parr André Perold4 Mike Power Jutta af Rosenborg5 Hannah Rothschild Amy Stirling6 Jeremy Sillem7 Jonathan Sorrell7 2021 Total remuneration £ 2022 Total remuneration1 £ % Change in total remuneration between 2020 and 20212 % Change in total remuneration between 2021 and 2022 150,000 150,000 69,500 37,000 – – 41,774 36,000 49,500 – 30,000 52,000 28,856 30,554 74,500 44,667 13,731 13,731 48,000 52,228 61,167 31,962 35,000 19,658 – – – 2.4 – n/a n/a 78.9 (17.6) – n/a – – (28.2) 41.8 – 7.2 20.7 n/a n/a 14.9 45.1 23.6 n/a 16.7 (62.2) n/a n/a Unless taxable beneﬁts are speciﬁcally outlined below for each Director, total remuneration above constitutes fees only. 1 With effect from 1 January 2022 the annual base fee for each non-executive Director (excluding the non-executive Chairman) was increased from £30,000 to £35,000. This was the ﬁrst such increase since 2016 and followed advice from Alvarez & Marsal on the level of fees paid to non-executive directors of other investment trusts. 2 The year-on-year percentage changes in total remuneration are inﬂuenced by a number of factors including where Directors have completed part-year service and/or being appointed to Board Committees during the relevant periods. 3 Vikas Karlekar and Cecilia McAnulty were appointed as Directors on 11 August 2022. 4 André Perold received £11,228 taxable beneﬁts relating to travel from overseas in 2022, in addition to his annual Director fee of £41,000. In 2021 he received his annual Director fee of £36,000 and did not receive any taxable beneﬁts. 5 Jutta af Rosenborg was appointed as a Director on 19 May 2022; she received £2,918 taxable beneﬁts relating to travel from overseas in 2022, in addition to her Director fee of £29,044. 6 Amy Stirling retired as a Director of the Company on 4 May 2022. 7 Jeremy Sillem and Jonathan Sorrell retired as Directors of the Company on 4 November 2021. 50 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Directors’ Remuneration Report Fees The total fees payable to Directors for the year was £530,498 (compared to £525,184 in the year ended 31 December 2021). This includes the Directors’ base fees as well as committee fees. The aggregate base fees of the non-executive Directors (excluding the Chairman) for the year was £271,160, which was within the £400,000 limit for such fees under the Company’s Articles of Association. Statement of Directors’ shareholdings – audited The interests of the Directors holding office at 31 December 2022 in the ordinary shares of the Company are shown below: 31 December 2022 Beneﬁcial Non- beneﬁcial Ordinary shares of £1 each Sir James Leigh- – Pemberton – Philippe Costeletos – Maggie Fanari – Vikas Karlekar – Cecilia McAnulty – Maxim Parr – André Perold – Mike Power Jutta af Rosenborg – Hannah Rothschild1 14,354,512 15,402,708 5,855 51,850 – 993 – 321 – 2,488 4,032 % of voting rights <0.1 <0.1 – <0.1 – <0.1 – <0.1 <0.1 19.1 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. 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. 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 and share buybacks. £ million Total staff costs Dividends Share buybacks Year ended 31 December 2021 46.9 Year ended 31 December 2022 35.6 55.0 1.4 57.6 11.0 Change (11.3) 2.6 9.6 Statement of shareholder voting Votes in respect of the resolution to approve the Directors’ Remuneration Report at the Company’s AGM in May 2022 were cast as follows: Votes cast in favour Votes cast against Total votes cast Votes withheld Number of shares 69,084,379 64,506 69,148,885 339,079 % of votes cast 99.9 0.1 100.0 – 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 2012 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 CPI plus 3.0%. Further information can be found in the Company’s Strategic Report. RIT total shareholder return ACWI CPI plus 3.0% 340 300 260 220 180 140 100 60 Mar 2012 Dec 2012 Dec 2014 Dec 2016 Dec 2018 Dec 2020 Dec 2022 Audit The tables in this report on pages 50 and 51 have been audited by Ernst & Young LLP. The Directors’ Remuneration Report on pages 48 to 51 was approved by the Board and signed on its behalf by: Philippe Costeletos Chair, Remuneration Committee RIT Capital Partners plc Report and Accounts December 2022 51 Directors’ Report Directors’ Report: statutory and other disclosures The Directors present their report and audited ﬁnancial statements for the year ended 31 December 2022. Business review and future developments ............................. page 3 Corporate governance ............... page 31 Directors’ remuneration .............page 48 Directors’ shareholdings ............page 51 Dividend .....................................page 4 Risk management and internal control .......................... page 20 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 (and forms part of the Directors’ Report) 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 27 to 29. During the year ended 31 December 2022: Directorate changes • Amy Stirling retired as a Director on 4 May 2022; • • Jutta af Rosenborg was appointed as a Director on 19 May 2022; and Vikas Karlekar and Cecilia McAnulty were both appointed as Directors on 11 August 2022. Committee composition • Mike Power was appointed as Chair of the Audit and Risk Committee on 4 May 2022; • • Maggie Fanari was appointed as a member of the Nominations Committee on 4 May 2022; and Jutta af Rosenborg was appointed as a member of the Audit and Risk, and Valuation Committees on 19 May 2022. 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.” 52 Report and Accounts December 2022 RIT Capital Partners plc 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 2022, the drawn indebtedness was £371 million with debt held at fair value, or £387 million with debt held at par value. This represented net gearing calculated in accordance with AIC guidance of 6.2%. 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 pages 14 and 15. 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. They are included within the fund investment valuations and therefore form part of the investment return. Three fund investments are structured as segregated accounts. Here, the fees are incurred directly by the Company (see Note 3 on page 67). Fees within the long-only equity funds, whether structured as segregated accounts or otherwise, typically incur a management fee of up to 1% per annum and in some cases a performance fee for outperformance relative to a benchmark. The hedge funds and absolute | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Directors’ Report return and credit funds are slightly higher – typically a 1% to 2% management fee and typically a 15% to 20% performance fee. Fees for investments into private funds are structured differently and will usually have a 1% to 2.5% annual charge (often based on commitments in early years and declining over time with realisations), as well as a 20% to 30% carried interest. This may be above an 8% per annum hurdle and/or with the higher rates often earned when investors have received back a minimum multiple of their invested capital (e.g. 3x). Aggregate management fees (excluding performance fees and net of fee rebates) for the external funds for 2022 have been estimated at 0.88% of RIT’s total average net assets (2021: 0.87%). Share capital At 31 December 2022, the issued share capital comprised 156,848,065 £1 ordinary shares, of which 689,863 were held by the Company in treasury as a result of a series of share buybacks. Further details are shown in Note 20 on page 81. 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 26 April 2023. At the AGM, shareholders shall be asked to renew these authorities, as will be explained in the separate Notice of the meeting. Major holders of voting rights As at 31 December 2022, 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. Major holders of voting rights1 Total number of shares % of voting rights5 31 December 2022 Lord Rothschild2,3 19,307,179 Hannah Rothschild2 15,402,708 The Rothschild Foundation2 Evelyn Partners Inv. Mgt. LLP Five Arrows Limited4 15,390,848 7,880,671 6,757,835 12.4 9.9 9.9 5.0 4.3 Direct or indirect Indirect Indirect Direct Indirect Direct 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 both members and trustees of the Rothschild Foundation, the above notiﬁable interests include the same 15,390,848 shares held by this charity (which are also included in Hannah Rothschild’s non-beneﬁcial interests on page 51 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 51. 4 Lord Rothschild and Hannah Rothschild have an indirect beneﬁcial interest in the shares of the Company held by Five Arrows Limited. 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 20.9%. As at 15 February 2023, 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 primary environmental impact, outside of our investment portfolio, comes from direct emissions generated 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 35 sets out how the Company monitors and has taken steps to reduce its Greenhouse Gas (GHG) emissions and maximise the recycling of materials. Total energy consumption for the year ended 31 December 2022 was 452,923 kWh compared to 367,646 kWh for the year ended 31 December 2021. The increase in total energy consumption reﬂects there being no Covid restrictions in place during the year and the office being fully open throughout 2022. GHG emissions required to be reported in respect of the years ended 31 December 2022 and 2021 were as follows: Source 2022: Scope 1 Gas Scope 2 Electricity Total Source 2021: Scope 1 Gas Scope 2 Electricity Total 1 Full-time occupant. Intensity ratio: CO2 (tonnes) per FTO1 CO2 (tonnes) 26 59 85 0.4 0.8 1.2 Intensity ratio: CO2 (tonnes) per FTO1 CO2 (tonnes) 18 57 75 0.2 0.9 1.1 RIT Capital Partners plc Report and Accounts December 2022 53 Directors’ Report Our GHG emissions are calculated for the Group under the ﬁnancial control approach and in accordance with ISO 14064-1: 2018 standard using the 2022 GHG conversion factors developed by the Department for Environment, Food & Rural Affairs. The Group supports the ambitions of the Paris Climate Change Agreement and is committed to reducing its operational emissions, including through energy efficiency initiatives in areas such as lighting and heating in our offices. We continue to take steps to further understand our impact on the environment, covering not just our direct operational emissions, but also through our indirect emissions (Scope 3). Consideration of our Scope 3 emissions forms part of our preparation for the requirements of the Task Force on Climate-related Financial Disclosures (TCFD) in advance of any reporting of the TCFD by the Group. 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 and inclusivity. At the year end, the composition of the RIT Board complied with the recommendations of the Parker Review, the Hampton- Alexander Review and the FCA’s new listing rules reporting requirements on diversity. The overall employee base is divided between 45 men and 17 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 and inclusion policies, recruitment processes are in place to allow us to monitor the diversity of Board candidates and job applicants, ensuring we are attracting candidates regardless of their gender, age, ethnicity, disability, sexual orientation or background. 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 continues to participate in the 10,000 Black Interns initiative to attract a more diverse range of talent to the asset management sector and in 2022, JRCM welcomed its ﬁrst intern under the Girls Are INvestors (GAIN) programme which aims to improve gender diversity in the sector. 54 Report and Accounts December 2022 RIT Capital Partners plc 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 all the resolutions of directly-held investee companies and funds. It does not use proxy advisors. In addition, as a signatory of the UN PRI, we also commit to be active owners and incorporate ESG issues into our stewardship policies and practices. In 2022, 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, in line with its Responsible Investment Policy & Framework, who are 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. There were no such investments held by the Group as at 31 December 2022 and 31 December 2021. Annual General Meeting The Company’s AGM is scheduled to be held on 26 April 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. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Directors’ Report 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. 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. The Directors’ Report on pages 52 to 55 was approved by the Board and signed on its behalf by: Sir James Leigh-Pemberton Chairman 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 Report and Accounts. 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 2022 (see pages 7, 8, 33, 35 and 36). 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 2022, 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. RIT Capital Partners plc Report and Accounts December 2022 55 Financial Statements for the year ended 31 December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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, 5 4, 5 6 7 8 9 9 Revenue 19.1 7.6 – – 26.7 (36.0) (9.3) (5.0) (14.3) – (14.3) (9.2p) (9.2p) Capital – – (555.5) 20.2 (535.3) (7.6) (542.9) (20.0) (562.9) – (562.9) (362.1p) 2022 Total 19.1 7.6 (555.5) 20.2 (508.6) (43.6) (552.2) (25.0) (577.2) – (577.2) (371.3p) (362.1p) (371.3p) Revenue 12.7 3.8 – – 16.5 (29.6) (13.1) (4.0) (17.1) (0.2) (17.3) (11.1p) (11.0p) Capital – – 901.8 18.0 919.8 (24.8) 895.0 (16.0) 879.0 (2.5) 876.5 561.4p 556.5p 2021 Total 12.7 3.8 901.8 18.0 936.3 (54.4) 881.9 (20.0) 861.9 (2.7) 859.2 550.3p 545.5p The total column of this statement represents the Group’s consolidated income statement, prepared in accordance with UK adopted international accounting standards (UK adopted IAS). The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. Consolidated statement of comprehensive income Year ended 31 December £ 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 gain/(loss) Total comprehensive income/(expense) for the year Notes 10 11 12 Revenue (14.3) – (4.5) Capital (562.9) (2.1) – 2022 Total (577.2) (2.1) (4.5) Revenue (17.3) – 1.9 Capital 876.5 (0.2) – 1.1 (17.7) – (565.0) 1.1 (582.7) (1.1) (16.5) – 876.3 2021 Total 859.2 (0.2) 1.9 (1.1) 859.8 The Notes on pages 63 to 86 form part of these ﬁnancial statements. RIT Capital Partners plc Report and Accounts December 2022 57 Consolidated Balance Sheet At 31 December £ million Non-current assets Investments held at fair value Investment property Property, plant and equipment Retirement beneﬁt asset Derivative ﬁnancial instruments Current assets Derivative ﬁnancial instruments Other receivables Amounts owed by group undertakings 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 Deferred tax liability 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 2022 2021 13, 14 13, 15 10 11 13 13 16 17 18 13 19 17 18 13 12 20 21 22 23 25 26 27 28 28 3,586.3 37.9 20.7 0.5 1.0 3,646.4 57.3 245.3 4.5 218.0 525.1 4,171.5 (236.2) (10.4) (63.5) (0.1) (310.2) 214.9 3,861.3 (134.4) – (0.2) (1.8) (3.2) (139.6) 3,721.7 156.8 45.7 36.3 (46.3) 3,548.9 (29.1) 9.4 3,721.7 2,414p 2,388p 4,291.8 38.3 23.1 3.8 2.9 4,359.9 32.7 262.8 3.7 325.9 625.1 4,985.0 (240.0) (8.2) (168.8) – (417.0) 208.1 4,568.0 (168.9) (2.9) (1.3) (1.0) (3.6) (177.7) 4,390.3 156.8 45.7 36.3 (23.0) 4,174.4 (11.4) 11.5 4,390.3 2,819p 2,794p The ﬁnancial statements on pages 57 to 62 were approved by the Board and authorised for issue on 27 February 2023. Sir James Leigh-Pemberton Chairman The Notes on pages 63 to 86 form part of these ﬁnancial statements. 58 Report and Accounts December 2022 RIT Capital Partners plc | 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 2022 2021 13, 14 13, 15 10 29 13 13 16 18 13 19 17 18 13 20 21 22 20 30 25 26 27 3,485.2 37.9 20.6 107.2 1.0 3,651.9 57.3 244.9 193.9 496.1 4,148.0 (236.2) (10.4) (54.1) (90.2) (390.9) 105.2 3,757.1 (134.4) – (2.2) (3.2) (139.8) 3,617.3 156.8 45.7 36.3 4,203.4 (556.2) (11.0) (57.6) 3,578.6 (176.1) (33.4) (209.5) 9.4 3,617.3 4,190.5 38.3 23.0 107.5 2.9 4,362.2 32.7 262.4 313.9 609.0 4,971.2 (240.0) (8.2) (143.8) (125.1) (517.1) 91.9 4,454.1 (168.9) (2.9) (1.0) (3.7) (176.5) 4,277.6 156.8 45.7 36.3 3,380.8 879.0 (1.4) (55.0) 4,203.4 (136.8) (39.3) (176.1) 11.5 4,277.6 The Company’s total comprehensive expense for the year was £591.7 million (2021: income of £839.5 million). The ﬁnancial statements on pages 57 to 62 were approved by the Board and authorised for issue on 27 February 2023. Sir James Leigh-Pemberton Chairman The Notes on pages 63 to 86 form part of these ﬁnancial statements. RIT Capital Partners plc Report and Accounts December 2022 59 Consolidated Statement of Changes in Equity £ million Balance at 1 January 2021 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/(loss) 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 2021 Balance at 1 January 2022 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/(loss) 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 2022 Share capital 156.8 – Share premium 45.7 – Capital redemption reserve 36.3 – Own shares reserve (15.3) – Capital reserve 3,350.1 876.5 Revenue reserve 5.1 (17.3) Revaluation reserve 11.7 – Total equity 3,590.4 859.2 – – – – – – – – 156.8 156.8 – – – – – – – – – – – – – – – – 45.7 45.7 – – – – – – – – – – – – – – – – 36.3 36.3 – – – – – – – – – 156.8 – 45.7 – 36.3 – – – – – – (7.7) – (23.0) (23.0) – – – – – – – 876.5 (55.0) (1.4) – 4.2 4,174.4 4,174.4 (562.9) – – – – – – (23.3) – (46.3) (562.9) (57.6) (11.0) – 6.0 3,548.9 – 1.9 (0.2) – (0.2) 1.9 (1.1) – (1.1) (16.5) – – – – (11.4) (11.4) (14.3) – (4.5) 1.1 (17.7) – – – – (29.1) (0.2) – – – – 11.5 11.5 – (2.1) – 859.8 (55.0) (1.4) (7.7) 4.2 4,390.3 4,390.3 (577.2) (2.1) (4.5) – 1.1 (2.1) – – – – 9.4 (582.7) (57.6) (11.0) (23.3) 6.0 3,721.7 The Notes on pages 63 to 86 form part of these ﬁnancial statements. 60 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Parent Company Statement of Changes in Equity £ million Balance at 1 January 2021 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 Balance at 31 December 2021 Balance at 1 January 2022 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 Balance at 31 December 2022 Share capital 156.8 – – – – – 156.8 156.8 – – – – – 156.8 Share premium 45.7 – – – – – Capital redemption reserve 36.3 – – – – – 45.7 45.7 – – – – – 45.7 36.3 36.3 – – – – – Capital reserve 3,380.8 879.0 – 879.0 (55.0) (1.4) 4,203.4 4,203.4 (556.2) – (556.2) (57.6) (11.0) Revenue reserve (136.8) (39.3) – (39.3) – – Revaluation reserve 11.7 – (0.2) (0.2) – – (176.1) (176.1) (33.4) – (33.4) – – 11.5 11.5 – (2.1) (2.1) – – 9.4 Total equity 3,494.5 839.7 (0.2) 839.5 (55.0) (1.4) 4,277.6 4,277.6 (589.6) (2.1) (591.7) (57.6) (11.0) 3,617.3 36.3 3,578.6 (209.5) The Notes on pages 63 to 86 form part of these ﬁnancial statements. RIT Capital Partners plc Report and Accounts December 2022 61 Consolidated and Parent Company Cash Flow Statement 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 Notes 31 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 Dividends 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 23 20 30 1 Shares are disclosed in the own shares reserve on the consolidated balance sheet. Consolidated cash ﬂow 2021 2022 Parent Company cash ﬂow 2021 2022 57.7 (25.0) 32.7 (0.1) – (0.1) (591.6) 555.4 (40.4) (11.0) (57.6) (145.2) (112.6) 325.9 4.7 218.0 218.0 218.0 71.8 (20.0) 51.8 (0.1) – (0.1) (421.9) 469.8 (21.0) (1.4) (55.0) (29.5) 22.2 296.8 6.9 325.9 325.9 325.9 7.7 (25.0) (17.3) (0.1) (2.5) (2.6) (591.6) 555.4 – (11.0) (57.6) (104.8) (124.7) 313.9 4.7 193.9 193.9 193.9 78.1 (20.0) 58.1 (0.1) (3.1) (3.2) (421.9) 469.8 – (1.4) (55.0) (8.5) 46.4 260.6 6.9 313.9 313.9 313.9 The Notes on pages 63 to 86 form part of these ﬁnancial statements. 62 Report and Accounts December 2022 RIT Capital Partners plc | 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 UK adopted IAS and the requirements of the Companies Act 2006. The Company has taken advantage of section 408 of the Companies Act 2006 not to present the parent company proﬁt and loss account. The Company is domiciled in the United Kingdom. The ﬁnancial statements have been prepared on a going concern basis and under the historical cost convention except for the revaluation of ﬁnancial instruments (including derivatives), investment properties held at fair value through proﬁt or loss (FVPL), associates held at FVPL, certain non-consolidated subsidiaries held at 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 (£207 million) and monitoring procedures, its borrowing capacity (£90 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 2024 and uncalled commitments (£385 million). Further details can be found on page 25. 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 July 2022 is consistent with the requirements of UK adopted IAS, the Directors have sought to prepare the ﬁnancial statements on a basis which complies with the recommendations of the SORP. Climate change In preparing the ﬁnancial statements, the Directors have considered the impact of climate change insofar as they are reasonably able, particularly in the context of the climate-related risks identiﬁed in the principal risks and viability section of the Strategic Report. These considerations did not have a material impact on the ﬁnancial reporting judgements and estimates in the current year, nor were they expected to have a signiﬁcant impact on the Group’s going concern or viability. 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 J.Rothschild Capital Management Limited (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, including Spencer House Limited (SHL), RIT Investments US, Inc and RIT Investments GP Limited, are accounted for as investments held at FVPL. In the ﬁnancial statements of the Company 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. 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; (i) power over the investee; (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 and IFRS 9 Financial Instruments. 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; RIT Capital Partners plc Report and Accounts December 2022 63 Notes to the Financial Statements • 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; • 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 • costs incurred in connection with aborted portfolio investment transactions are also allocated to capital. 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 calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. 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 as capital items. 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 General Partner (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 of private funds are adjusted for subsequent investments, distributions and currency moves. In relation to direct co-investments, the valuations will also be adjusted for subsequent investments, distributions and currency moves, as well as pricing 64 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements events where there is sufficient information to suggest the period- end valuation should be adjusted. 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 net assets. 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 rates. At period ends, all of the valuations are subject to review, adjustment as appropriate and ultimately approval by the Company’s Valuation Committee that operates as a sub-committee of the Board comprised entirely of independent non-executive Directors. 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 external 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 Annual Incentive Scheme (AIS) (in part), share appreciation rights (SARs) and restricted share units (RSUs). 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. Historically, long-term incentive plan (LTIP) awards were made via SARs and performance shares. SARs were measured at the 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. Performance shares were conditional awards of shares subject to performance conditions. They were accounted for as equity settled in accordance with IFRS 2. The awards were 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. Following a review by the Remuneration Committee, it was decided that from 2021, future LTIP awards would be made using restricted share units (RSUs), with the ﬁrst such award in March 2021. RSUs are equity-settled awards accounted for in accordance with IFRS 2 and are measured at fair value using the share price at the grant date, adjusted for a two year post-vesting sale restriction. The cost is recognised through the revenue column of the income statement over the three-year vest period. On 31 March 2021, staff members were given the option to convert their existing SARs and performance shares at fair value into RSUs, with the vast majority subsequently converted. This conversion was accounted for in accordance with IFRS 2. Shares required to meet the estimated future requirements from grants or exercises under all schemes, are purchased by an Employee Beneﬁt Trust (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 is applied to the capital reserve. 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 61 years, which is also the period remaining on the property lease. The proportion of this RIT Capital Partners plc Report and Accounts December 2022 65 Notes to the Financial Statements 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 81. 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. New and amended standards and interpretations not applied The new and amended standards and interpretations that are relevant to RIT and issued, but not yet effective up to the date of issuance of the ﬁnancial statements, are disclosed below. The Group intends to adopt these, if applicable, when they become effective: • • • Amendments to UK adopted IAS 1 Presentation of Financial Statements on the Classiﬁcation of Liabilities as Current or Non- current, effective for annual reporting periods beginning on or after 1 January 2023; Amendments to UK adopted IAS 1 Presentation of ﬁnancial statements and IFRS Practice Statement 2 Making Materiality Judgments on the Disclosure of Accounting Policies, which provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures, effective for annual reporting periods beginning on or after 1 January 2023; and Amendments to UK adopted IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors, effective for annual reporting periods beginning on or after 1 January 2023. The impact of these amendments is not expected to be material to the reported results and ﬁnancial position of the Group. Critical accounting estimates and judgements The preparation of ﬁnancial statements in conformity with UK adopted IAS 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 64 and 65 and Note 13) and property (see pages 65 and 66 and Notes 10 and 15). 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, 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. Amounts owed to/by Group undertakings Amounts owed to/by Group undertakings do not carry any interest and are carried at amortised cost. Application of the expected credit loss model to these items has had an immaterial impact on their carrying value. The carrying value of amounts owed to/by Group undertakings approximates to their fair value. Bank borrowings Interest-bearing bank loans are recorded initially at the proceeds received and subsequently at FVPL, on the basis that the Group and its performance is evaluated on a fair value basis, in line with IFRS 9, paragraph 4.2.2. 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 66 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements 2. Investment income £ million 2022 2021 Income from listed investments: Dividends Income from unlisted investments: Interest Interest income on cash balances Income from investment properties Total investment income 7.2 4.3 5.5 2.1 19.1 3. Gains/(losses) on fair value investments £ million 2022 Gains/(losses) on fair value investments excluding segregated accounts Net 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 (579.2) 28.0 (1.7) (2.6) 23.7 (555.5) 8.5 2.0 0.2 2.0 12.7 2021 908.4 (3.4) (1.9) (1.3) (6.6) 901.8 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 2022, three funds (31 December 2021: three) were structured as segregated accounts (disclosed within the Investment Portfolio on pages 17 to 19), 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 pages 52 to 55. 4. Operating expenses £ million Staff costs: Wages and salaries Social security costs Share-based payment costs1 (Note 24) Pension costs (Note 11) Total staff costs Auditor’s remuneration (Note 5) Depreciation Lease payments Other operating expenses Total operating expenses 1 Including related social security costs. 2022 13.3 1.7 20.3 0.3 35.6 0.3 0.4 0.4 6.9 43.6 2021 23.0 3.1 20.4 0.4 46.9 0.3 0.3 0.4 6.5 54.4 Operating expenses include costs incurred by JRCM in managing the Group'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 48 to 51. The average monthly number of employees during the year was 59 (2021: 55) of which 47 (2021: 43) were employed by JRCM and 12 (2021: 12) 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: £ thousand 2022 2021 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 228 202 94 12 334 83 12 297 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 2022 1.5 1.2 2.7 2021 1.2 1.2 2.4 Furthermore £0.02 million of professional fees (2021: £0.03 million) incurred on purchases of investments are included within gains/ (losses) on fair value investments. 6. Business and geographical segments For 2022 and 2021, the Group is considered to have three principal operating segments, all based in the UK, as follows: 2022 AUM £ million1 2022 Employees1 2021 AUM £ million2 2021 Employees2 – – – 3,722 49 4,390 – 13 – – 46 12 Segment Business RIT JRCM SHL Investment trust Investment manager/ administration Events/premises management 1 At 31 December 2022 2 At 31 December 2021 RIT Capital Partners plc Report and Accounts December 2022 67 Notes to the Financial Statements Key ﬁnancial information for 2022 is as follows: £ million RIT JRCM SHL Adjustments3 Total Net assets 3,617.3 110.3 0.9 (6.8) 3,721.7 Income/ gains1 (511.6) 50.3 3.7 (51.0) (508.6) Operating expenses1 (52.7) (38.4) (3.5) 51.0 (43.6) Key ﬁnancial information for 2021 is as follows: £ million RIT JRCM SHL Adjustments3 Total Net assets 4,277.6 119.0 0.8 (7.1) 4,390.3 Income/ gains1 Operating expenses1 931.2 74.3 2.8 (72.0) 936.3 (74.3) (49.2) (2.9) 72.0 (54.4) Proﬁt2 (564.3) 11.9 0.2 – (552.2) Proﬁt2 856.9 25.1 (0.1) – 881.9 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 8. Taxation £ million 2022 14.3 10.4 0.3 25.0 2021 9.6 10.1 0.3 20.0 Year ended 31 December 2022 Revenue Capital Total UK corporation tax charge/(credit) Current tax charge/(credit) Deferred tax charge/(credit) Taxation charge/(credit) – – – – – – – – £ million UK corporation tax charge/(credit) Current tax charge/(credit) Deferred tax charge/(credit) Taxation charge/(credit) Year ended 31 December 2021 Revenue Capital 0.2 – 0.2 0.2 2.5 – 2.5 2.5 – – – – Total 2.7 – 2.7 2.7 The Finance Act 2021 included an increase in the main corporation tax rate from the current 19% to 25% with effect from 1 April 2023. The tax charge for the year differs from the effective rate of corporation tax in the UK for 2022 of 19% (2021: 19%). The differences are explained as follows: £ million Proﬁt/(loss) before tax Tax at the standard Year ended 31 December 2022 Revenue (14.3) Capital (562.9) Total (577.2) UK corporation tax rate of 19% (2.7) (107.0) (109.7) 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 3.8 – – 102.9 – – 4.8 (0.7) – 102.9 (1.2) 0.1 8.6 (0.7) – Year ended 31 December 2021 Revenue (17.1) Capital 879.0 Total 861.9 UK corporation tax rate of 19% (3.2) 167.0 163.8 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) – (1.1) 0.1 4.3 0.1 0.2 (173.6) – (173.6) (1.1) – 8.3 0.8 2.5 0.1 12.6 0.9 2.7 Refer to Note 12 on page 71 for the explanation of carried forward tax losses. 9. Earnings per ordinary share – basic and diluted The basic earnings per ordinary share for 2022 is based on the loss of £577.2 million (2021: proﬁt of £859.2 million) and the weighted average number of ordinary shares in issue during the period of 155.5 million (2021: 156.1 million). The weighted average number of shares is adjusted for shares held in the employee beneﬁt trust (EBT) and in treasury in accordance with IAS 33. £ million Net revenue proﬁt/(loss) Net capital proﬁt/(loss) Total proﬁt/(loss) for the year Weighted average (million) Number of shares in issue Shares held in EBT Shares held in treasury Basic shares 2022 (14.3) (562.9) (577.2) 2022 156.8 (1.0) (0.3) 155.5 2021 (17.3) 876.5 859.2 2021 156.8 (0.5) (0.2) 156.1 68 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements pence Revenue earnings/(loss) per ordinary share – basic Capital earnings/(loss) per ordinary share – basic Total earnings per share – basic (9.2) (11.1) Company £ million (362.1) (371.3) 561.4 550.3 2022 2021 The Company’s property, plant and equipment as at 31 December 2022 was £20.6 million (2021: £23.0 million). The diluted earnings per ordinary share for the period is based on the basic shares (above) adjusted for the effect of share-based payments awards for the period. This adjustment is not required for 2022 as an increase in shares in issue would reduce the basic loss per ordinary share. As a result, there is no difference between the basic and diluted loss per ordinary share. Weighted average (million) 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 Total earnings per ordinary share – diluted 2022 155.5 – 155.5 2021 156.1 1.4 157.5 2022 2021 (9.2) (11.0) (362.1) (371.3) 556.5 545.5 10. Property, plant and equipment The Group’s property, plant and equipment as at 31 December 2022 was £20.7 million (2021: £23.1 million). Group £ million At 1 January 2022 Additions Charge for depreciation Revaluation gain/(loss) Fair value at 31 December 2022 Of which: Property – leasehold Group £ million At 1 January 2021 Additions Charge for depreciation Revaluation gain/(loss) Fair value at 31 December 2021 Of which: Property – leasehold Accumulated depreciation Revaluation Net book/fair value (5.8) – (0.4) – (6.2) (4.6) 11.5 – – (2.1) 9.4 9.4 23.1 0.1 (0.4) (2.1) 20.7 19.0 Accumulated depreciation Revaluation Net book/fair value (5.4) – (0.4) – 11.7 – – (0.2) (5.8) 11.5 (4.2) 11.5 23.6 0.1 (0.4) (0.2) 23.1 21.4 Cost 17.4 0.1 – – 17.5 14.2 Cost 17.3 0.1 – – 17.4 14.1 At 1 January 2022 Additions Charge for depreciation Revaluation gain/(loss) Fair value at 31 December 2022 Of which: Property – leasehold Company £ million At 1 January 2021 Additions Charge for depreciation Revaluation gain/(loss) Fair value at 31 December 2021 Of which: Property – leasehold Accumulated depreciation Revaluation Net book/fair value (4.2) – (0.4) – (4.6) (4.6) 11.5 – – (2.1) 9.4 9.4 23.0 0.1 (0.4) (2.1) 20.6 18.9 Accumulated depreciation Revaluation Net book/fair value (3.9) – (0.3) – 11.7 – – (0.2) (4.2) 11.5 (4.2) 11.5 23.4 0.1 (0.3) (0.2) 23.0 21.4 Cost 15.7 0.1 – – 15.8 14.2 Cost 15.6 0.1 – – 15.7 14.1 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 Jones Lang LaSalle’s (JLL) valuations at the respective year ends. 11. Pension commitments The Group 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 plan which is closed to new members. The Scheme is administered under a Trust Deed and Rules and a corporate trustee, Law Debenture Pension Trust Corporation plc, who is independent of the Group, and was appointed in May 2019. In December 2022, the Group de-risked its retirement beneﬁt obligations by supporting the trustees of the Scheme in completing a £20 million bulk annuity insurance policy ‘buy-in’. The ‘buy-in’ secured an insurance asset that fully matches almost all the remaining pension liabilities of the Scheme, with the result that the Group no longer bears material investment, longevity, interest rate or inﬂation risk. The annuity policy is held in the name of the Trustees. As the Scheme was in surplus on an accounting basis at 31 December 2022, in accordance with the relevant accounting standard the impact of this transaction was to record a re- measurement loss of £4.5 million before tax to other comprehensive income. There was no impact on proﬁt before tax and no incremental funding was required. As a result of the ‘buy-in’, current cash contributions into the Scheme will cease, with the possibility of minimal further contributions. In addition, the Group will no longer record non-cash interest income on the accounting surplus. Within the next 18 months it is expected that a full ‘buy-out’ of the scheme will occur, during which individual insurance policies will be purchased for the beneﬁciaries of the scheme. After the ‘buy-out’ has completed, the Group will no longer have any liabilities against the Scheme. RIT Capital Partners plc Report and Accounts December 2022 69 Notes to the Financial Statements 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 £ millions Net interest on deﬁned beneﬁt asset Remeasurement effects recognised in the SOCI Total cost/(credit) Recognised in the consolidated income statement £ millions Deﬁned contribution schemes Deﬁned beneﬁt scheme: Net interest on deﬁned beneﬁt liability Total pension cost recognised in the consolidated income statement Recognised in the SOCI £ millions Deﬁned beneﬁt scheme: Actuarial loss due to liability experience Actuarial (gain)/loss due to liability assumption changes Actuarial gain due to demographic assumption changes in deﬁned beneﬁt obligation (DBO) Return on Scheme assets greater than discount rate Remeasurement effects recognised in the SOCI Total (credit)/expense 2022 (0.1) 4.5 4.4 2022 0.4 (0.1) 0.3 2021 (0.1) (1.9) (2.0) 2021 0.5 (0.1) 0.4 0.4 (9.6) (0.1) 13.8 4.5 4.8 0.9 (1.7) (0.1) (1.0) (1.9) (1.5) The Scheme’s assets and liabilities are shown below together with the actuarial assumptions used. Changes in the DBO £ millions DBO at end of prior year Interest cost on the DBO Actuarial loss - demographic experience Actuarial gain - demographic assumptions Actuarial gain - ﬁnancial assumptions Beneﬁts paid from scheme assets Total DBO Changes in Scheme assets £ millions Opening fair value of the Scheme assets Interest income on Scheme assets Return on Scheme assets greater than discount rate Employer contributions Beneﬁts paid Total Scheme assets 2022 26.7 0.5 0.3 – (9.6) (0.8) 17.1 2022 30.5 0.6 (13.8) 1.1 (0.8) 17.6 2021 28.0 0.4 0.8 (0.1) (1.7) (0.7) 26.7 2021 28.6 0.5 1.0 1.1 (0.7) 30.5 70 Report and Accounts December 2022 RIT Capital Partners plc The Company has 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. Development of the net balance sheet position £ millions Net deﬁned beneﬁt asset at end of prior year Net interest on deﬁned beneﬁt asset at end of prior year Remeasurement effects recognised in the SOCI Employer contributions Net deﬁned beneﬁt asset 2022 2021 3.8 0.1 (4.5) 1.1 0.5 0.7 0.1 1.9 1.1 3.8 The assumptions used to determine the measurements at the reporting dates are shown below: 2022 2021 Discount rate Price inﬂation (RPI) Rate of salary increase Pension increases for pre 6 April 1997 2022 4.95% 3.35% n/a 2021 1.90% 3.70% n/a pension 4.00% 4.00% Pension increases for post 6 April 1997 pension 4.25% 4.30% Pension increases for deferred beneﬁts (non Guaranteed Minimum Pension) Scheme participant census date Post retirement mortality assumption- 3.35% 31 December 2022 3.70% 31 December 2021 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). £ millions DBO 2022 17.1 2021 26.7 Signiﬁcant actuarial assumptions at 31 December 2022: Assumptions used for sensitivity analysis £ millions Discount rate Price inﬂation (RPI) Life expectancy 4.45% 3.85% – Sensitivity analysis 0.5% point decrease 0.5% point increase Increase of 1 year Revised DBO for each sensitivity 18.3 17.2 17.7 | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements Revised DBO for each sensitivity 29.0 27.0 27.9 2021 4.5 22.2 26.7 11. Pension commitments (continued) Signiﬁcant actuarial assumptions at 31 December 2021: Assumptions used for sensitivity analysis £ millions Discount rate Price inﬂation (RPI) Life expectancy 1.40% 4.20% – Sensitivity analysis 0.5% point decrease 0.5% point increase Increase of 1 year The weighted average duration of the DBO is 13 years. Further Scheme analysis is shown below. Analysis of DBO by participant category £ millions Deferred participants Pensioners DBO 2022 2.2 14.9 17.1 The fair value of Scheme assets of £17.6 million is analysed in the table below (2021: £30.5 million). Scheme asset breakdown Equities securities Fixed income and credit Bulk insurance policy Cash and liquidity/other Total Scheme asset breakdown Equities securities Fixed income and credit Bulk insurance policy Cash and liquidity/other Total Quoted securities1 – – – – – Quoted securities1 – 99% – – 99% Other – – 96% 4% 100% Other – – – 1% 1% Total 2022 – – 96% 4% 100% Total 2021 – 99% – 1% 100% 1 Classed as Level 2 assets under IFRS 13. 12. Deferred tax 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 2022 (1.3) – 1.1 (0.2) The deferred tax asset/(liability) is analysed below: £ million Retirement beneﬁt asset Balance at end of year 2022 (0.2) (0.2) • 2021 2.5 (2.7) (1.1) (1.3) 2021 (1.3) (1.3) 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 64 and 65. 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 (including price risk, interest rate risk and currency 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 had carried forward tax losses of £453 million at 31 December 2022 (2021: £412 million) that have not been recognised as a deferred tax asset, as it is considered unlikely that the unrecognised asset will be utilised in the foreseeable future. RIT Capital Partners plc Report and Accounts December 2022 71 Notes to the Financial Statements 13. Financial instruments (continued) 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 target 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 estimated sensitivity of the option to movements in the underlying security. 13.1.2 Price risk Price risk may affect the value of the quoted, private and other 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 and credit derivatives. £ million Exposure to quoted equity price risk1 Exposure to other price risk Total exposure to price risk 31 December 2022 31 December 2021 1,361.1 2,394.5 3,755.6 1,755.0 2,669.5 4,424.5 1 Quoted equity price risk represented 37% of year-end net assets (2021: 40%). 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 estimated using 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 2022 Impact on proﬁt and net assets 2021 Impact on proﬁt and net assets 137.4 239.4 376.8 177.1 266.9 444.0 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. 72 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements 13. Financial instruments (continued) 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. 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. £ million Portfolio investments – debt securities1 Cash Borrowings Total2 £ million Portfolio investments – debt securities1 Cash Borrowings Total2 31 December 2022 Floating rate – 218.0 (236.2) (18.2) Fixed rate 40.7 – (134.4) (93.7) 31 December 2021 Floating rate – 325.9 (240.0) 85.9 Fixed rate 29.7 – (168.9) (139.2) Total 40.7 218.0 (370.6) (111.9) Total 29.7 325.9 (408.9) (53.3) 1 In addition, the Group holds £746.8 million (2021: £777.4 million) invested in absolute return and credit, of which £443.7 million (2021: £313.5 million) is in funds that predominantly invest in credit instruments. These provide indirect exposure to interest rate risk. 2 In addition, the Group holds £nil million (2021: £97.3 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 £370.6 million outstanding at the year end (2021: £408.9 million). The revolving credit facility comprising £236.2 million of this total incurs ﬂoating interest payments (2021: £240.0 million). The loan notes with a fair value of £134.4 million (par value of £151.0 million) have ﬁxed interest payments (2021: fair value £168.9 million; par value £151.0 million). 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 A 50 basis point decrease is assumed to produce an equal and opposite impact. £ million Total 2022 Impact on proﬁt and net assets 2021 Impact on proﬁt and net assets 6.1 4.2 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 Other non-sterling Total1 2022 Net exposure % of NAV 2021 Net exposure % of NAV 32.5 4.2 7.5 2.9 47.1 26.8 2.7 1.5 0.4 31.4 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. RIT Capital Partners plc Report and Accounts December 2022 73 Notes to the Financial Statements 13. Financial instruments (continued) 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 2022, and assumes all other variables are held constant. A 10% weakening is assumed to produce an equal and opposite effect. 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. £ million US dollar Japanese yen Euro Other non-sterling Total 2022 Impact on proﬁt and net assets 2021 Impact on proﬁt and net assets (120.8) (15.6) (27.8) (11.2) (175.4) (97.9) (11.9) (6.6) (1.7) (118.1) 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 and are held directly by the custodian in fully segregated client accounts; use of a range of brokers and counterparties with their credit quality monitored regularly; cash balances are predominantly held with our custodian, whose credit worthiness is regularly monitored; cash margin is held by a range of approved counterparties, with both margin balances and counterparties’ creditworthiness monitored regularly; 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. The Group’s maximum credit exposure is limited to the carrying amount of ﬁnancial assets recognised at the reporting date, as summarised below. Credit risk exposure £ million Portfolio investments – debt securities1 Derivative ﬁnancial instruments2 Cash margin Other receivables Cash at bank Total 2022 40.7 58.3 85.4 159.9 218.0 562.3 2021 29.7 35.6 87.6 175.2 325.9 654.0 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. 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. The Manager has a review process in place that includes 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 (2021: A-2). BNP is the custodian and depositary to the Company under the Alternative Investment Fund Managers Directive (AIFMD). Under the UK equivalent regulations, the Company is the Alternative Investment Fund (AIF) and JRCM is the Alternative Investment Fund Manager (AIFM). As custodian, substantially all of the Company’s directly-held 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 2022 (2021: 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. 74 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements 13. Financial instruments (continued) 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 might 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 £335 million (of which £90 million was committed and undrawn at the year end) and £151 million of long-term loan notes (details of which are disclosed in Note 18). 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 Non-current liabilities: Derivative ﬁnancial instruments Borrowings Lease liability Financial liabilities Other non-ﬁnancial liabilities Total 31 December 2022 3 months or less 3-12 months >1 year Total 236.2 7.0 – – – 243.2 63.5 306.7 – 3.4 – 5.6 0.4 9.4 – 9.4 – – 0.0 189.3 5.9 195.2 1.8 197.0 236.2 10.4 0.0 194.9 6.3 447.8 65.3 513.1 £ million Current liabilities: Bank loan/overdraft Derivative ﬁnancial instruments Purchase for future settlement Non-current liabilities: Derivative ﬁnancial instruments Borrowings Lease liability Financial liabilities Other non-ﬁnancial liabilities Total 31 December 2021 3 months or less 3-12 months >1 year Total 240.0 7.9 99.9 – – – 347.8 168.8 516.6 – 0.3 – – 5.2 0.4 5.9 – 5.9 – – – 2.9 194.6 3.9 201.4 1.0 202.4 240.0 8.2 99.9 2.9 199.8 4.3 555.1 169.8 724.9 In addition, the Company has contingent liabilities in the form of commitments amounting to £385 million (2021: £360.2 million) as set out in Note 14. 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 2022 85.4 2021 87.6 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. RIT Capital Partners plc Report and Accounts December 2022 75 Notes to the Financial Statements 13. Financial instruments (continued) 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 2022 and 31 December 2021 are: As at 31 December 2022 £ million Commodity derivatives Credit derivatives Currency derivatives Equity derivatives Fixed income derivatives Total As at 31 December 2021 £ million Commodity derivatives Credit derivatives Currency derivatives Equity derivatives Fixed income derivatives Total Notional1 amount 169.1 – 1,815.1 253.2 – Notional1 amount 132.8 178.4 2,364.4 53.0 81.2 Group and Company Assets (positive fair value) Liabilities (negative fair value) Total fair value 6.4 – 49.6 2.3 – 58.3 – – (7.0) (3.4) – (10.4) 6.4 – 42.6 (1.1) – 47.9 Group and Company Assets (positive fair value) Liabilities (negative fair value) 3.0 0.4 28.6 3.5 0.1 35.6 – (3.3) (7.6) (0.2) – (11.1) Total fair value 3.0 (2.9) 21.0 3.3 0.1 24.5 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 76 Report and Accounts December 2022 RIT Capital Partners plc 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. Level 3 The Group considers all private investments, whether direct or funds, (as described in the Investment Portfolio on page 18) as level 3 assets, as the valuations of these assets are not typically based on observable market data. Where other funds invest into illiquid stocks, these are also considered by the Group to be level 3 assets. Private fund investments are held at the most recent fair values provided by the GPs managing those funds, adjusted for subsequent investments, distributions, and currency movements up to the period end, and are subject to periodic review by the Manager. Direct co-investments are also held at the most recent fair values provided by the GPs managing those co-investments, adjusted for subsequent investments, distributions, currency moves, as well as pricing events where the Manager has sufficient information to suggest the period end valuation should be adjusted. The remaining directly-held private investments are valued on a semi-annual basis using techniques including a market approach, income approach and/or cost approach. The valuation process involves the investment functions of the Manager who prepare the proposed valuations, which are then subject to review by the ﬁnance function, with the ﬁnal valuations being presented to the Valuation Committee, comprised of independent non-executive Directors, of which the Audit and Risk Committee Chair is also a member. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements 13. Financial instruments (continued) Speciﬁc valuation techniques used will typically include the value of recent transactions, earnings multiples, discounted cash ﬂow analysis, and, where appropriate, industry speciﬁc methodologies. The acquisition cost, if determined to be fair value, may be used to calibrate inputs to the valuation. The valuations will often reﬂect a synthesis of a number of distinct approaches in determining the ﬁnal fair value estimate. The individual approach for each investment will vary depending on relevant factors that a market participant would take into account in pricing the asset. These might include the speciﬁc industry dynamics, the company’s stage of development, proﬁtability, growth prospects or risk as well as the rights associated with the particular security. Borrowings at 31 December 2022 comprise bank loans and senior loan notes. The bank loans are revolving credit facilities paying ﬂoating interest, and are typically drawn in tranches with a duration of three or six months. The loans are therefore short-term in nature, and their fair value approximates their nominal value. The loan notes were issued in 2015 with tenors of between 10 and 20 years with a weighted average of 16 years. They are valued on a monthly basis using a discounted cash ﬂow model where the discount rate is derived from the yield of similar tenor UK Government bonds, adjusted for any signiﬁcant changes in either credit spreads or the perceived credit risk of the Company. The fair value of investments in non-consolidated subsidiaries is considered to be the net asset value of the individual subsidiary as at the balance sheet date. The net asset value comprises various assets and liabilities which are fair valued on a recurring basis and is considered to be level 3. On a semi-annual basis, the Group engages external, independent and qualiﬁed valuers to determine the fair value of the Group’s investment properties and property, plant and equipment held at fair value. 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 2022: As at 31 December 2022 £ million Level 1 Level 2 Level 3 Total Financial assets at fair value through proﬁt or loss (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 506.8 – 506.8 6.4 513.2 1,204.2 – 1,204.2 51.9 1,256.1 1,774.2 101.1 1,875.3 – 1,875.3 3,485.2 101.1 3,586.3 58.3 3,644.6 – – – – – – – – – – 37.9 37.9 20.7 20.7 58.6 58.6 (370.6) (370.6) (10.4) – (10.4) (10.4) (370.6) (381.0) Total net assets measured at fair value 513.2 1,245.7 1,563.3 Other non-current assets Cash at bank Other current assets Other current liabilities Other non-current liabilities Net assets 3,322.2 0.5 218.0 249.8 (63.6) (5.2) 3,721.7 Movements in level 3 assets Year ended 31 December 2022 £ million Opening balance Purchases Sales Realised gains/(losses) through proﬁt Investments held at fair value 1,914.3 222.2 (210.3) Properties 61.4 0.1 – Total 1,975.7 222.3 (210.3) or loss 8.7 – 8.7 Unrealised gains/(losses) through proﬁt or loss (59.7) (0.4) (60.1) Unrealised gains/(losses) through other comprehensive income Transfer in to level 3 Transfer out of level 3 Other Closing balance – – – 0.1 1,875.3 (2.1) – – (0.4) 58.6 (2.1) – – (0.3) 1,933.9 During the year no investments were reclassiﬁed between level 2 and level 3. RIT Capital Partners plc Report and Accounts December 2022 77 Notes to the Financial Statements 13. Financial instruments (continued) The following table provides a sensitivity analysis of the valuation of directly-held private investments, and the impact on net assets: 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 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. Valuation method/approach Sensitivity analysis Third-party valuations A 5% change in the value of these assets would result in a £12.3 million or 0.33% (2021: £18.1 million, 0.41%) change in net assets. Discount to recent transaction Assets in this category are valued Primary valuation method/approach £ million Third-party valuations1 Discount to recent transaction2 Earnings multiple Recent transaction Other industry metrics Discount to agreed third-party offer Total 2022 246.3 90.5 49.8 23.6 21.7 10.8 442.7 2021 361.1 – – 140.0 12.3 – 513.4 1 Included in this method are directly-held private investments held within the non-consolidated subsidiaries with a total of £24.5 million (2021: £29.7 million). 2 Included in this method are direct private investments which have been discounted due to a decline in public markets. The majority of the direct private investments are structured as co- investments, managed by a GP. For these investments, we typically use the latest quarterly fair valuations provided by the GP, adjusted for any subsequent investments/distributions and currency moves as well as pricing events, where there is sufficient information to suggest the period-end valuation should be adjusted. Where the Manager has sufficient information to undertake its own valuation, a range of methods will typically be used. For companies with positive earnings, we seek to utilise an earnings multiple approach, typically using EBITDA or similar. The earnings multiple is assessed by reference to similar listed companies or transactions involving similar companies. When an asset is undergoing a sale and the price has been agreed but not yet completed or an offer has been submitted, we use the agreed or offered price, often with a ﬁnal discount to reﬂect the risks associated with the transaction completing or any price adjustments. Where a company has been the subject of a recent ﬁnancing round which is viewed as representative of fair value, we will use this transaction price. Other methods employed include discounted cash ﬂow analysis and industry metrics such as multiples of assets under management or revenue, where market participants use these approaches in pricing assets. 78 Report and Accounts December 2022 RIT Capital Partners plc using a discount applied to a recent ﬁnancing round or secondary transaction. Discounts range between 15% and 70%, reﬂecting factors such as the elapsed time since the transaction and the movement in prices of broadly similar listed companies. A 5% change to the discount would result in a £4.5 million or 0.12% (2021: n/a) change in net assets. Assets in this category are valued using EV/ sales multiples in the range of 4.0x - 8.5x. If the multiple used for valuation purposes is increased or decreased by 5% then the net assets would increase/decrease by £2.5 million or 0.07% (2021: n/a). A 5% change in the value of these assets would result in a £1.2 million or 0.03% (2021: £7.0 million, 0.16%) change in net assets. A 5% change in the value of these assets would result in a £1.1 million or 0.03% (2021: £0.6 million, 0.01%) change in net assets. The asset in this category is valued using a 15% discount to an agreed offer. A 5% change in the discount would result in a £0.1 million or <0.01% (2021: n/a) change in net assets. Earnings multiple Recent transaction Other industry metrics Discount to agreed third-party offer The investment property and property, plant and equipment with an aggregate fair value of £58.6 million (2021: £61.4 million) were valued using a third-party valuation provided by JLL. The properties were valued using weighted average capital values of £1,580 per square foot (2021: £1,658) 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 (2021: £0.8 million increase/decrease). The non-consolidated subsidiaries are held at their fair value of £101.1 million (2021: £101.4 million) representing £104.7 million of portfolio investments (2021: £104.3 million) and £3.3 million of remaining liabilities (2021: £2.9 million of remaining liabilities). A 5% change in the value of these assets would result in £5.1 million or 0.1% (2021: £5.1 million, 0.1%) change in total net assets. The remaining investments held at fair value and classiﬁed as level 3 of £1,355.7 million (2021: £1,329.2 million) were valued using third-party valuations from a GP, administrator or fund manager. A 5% change in the value of these assets would result in a £67.8 million or 1.82% (2021: £66.5 million, 1.51%) change in net assets. | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Notes to the Financial Statements 13. Financial instruments (continued) 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 £1,933.9 million (2021: £1,975.7 million). The following table analyses the Group’s assets and liabilities within the fair value hierarchy, at 31 December 2021: As at 31 December 2021 £ million Level 1 Level 2 Level 3 Total 13.5 Capital management The Group’s primary objectives in relation to the management of capital are: • • 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: Financial assets at fair value through proﬁt or loss (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 579.6 – 579.6 2.9 582.5 1,797.9 – 1,797.9 32.7 1,830.6 1,813.0 101.3 1,914.3 – 1,914.3 4,190.5 101.3 4,291.8 35.6 4,327.4 • • 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. 38.3 38.3 23.1 23.1 61.4 61.4 (408.9) (408.9) The Group’s capital at 31 December 2022 and 31 December 2021 comprised: – – – – (11.1) – (11.1) £ million (11.1) (408.9) (420.0) Equity share capital Retained earnings and other reserves Net asset value Borrowings Total capital 2022 156.8 3,564.9 3,721.7 370.6 4,092.3 2021 156.8 4,233.5 4,390.3 408.9 4,799.2 Total net assets measured at fair value 582.5 1,819.5 1,566.8 Other non-current assets Cash at bank Other current assets Other current liabilities Other non-current liabilities Net assets 3,968.8 3.8 325.9 266.5 (168.8) (5.9) 4,390.3 Movements in level 3 assets Year ended 31 December 2021 £ million Opening balance Purchases Sales Realised gains/(losses) through proﬁt Investments held at fair value 1,232.1 857.6 (882.1) Properties Total 61.4 0.1 – 1,293.5 857.7 (882.1) or loss 37.5 – 37.5 Unrealised gains/(losses) through proﬁt or loss 767.5 0.6 768.1 Unrealised gains/(losses) through other comprehensive income Transfer in to level 3 Transfer out of level 3 Other Closing balance – 40.9 (139.2) – 1,914.3 (0.2) – – (0.5) 61.4 (0.2) 40.9 (139.2) (0.5) 1,975.7 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 2022 31 December 2021 Group Company Group Company 385.0 385.0 360.2 360.2 The ﬁnancial commitments are principally uncalled commitments to private funds, which are typically established as 10-year funds with a ﬁve-year investment period, and are diversiﬁed across multiple funds and vintage years. The majority are denominated in US dollars and therefore subject to currency ﬂuctuation. RIT Capital Partners plc Report and Accounts December 2022 79 Notes to the Financial Statements 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 had 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 £61,757 (2021: £122,673) and paid £74,077 (2021: £82,996). 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 2022 amounted to £203,539 (2021: £270,690). Nothing was owed by the Group to the parties related to Hannah Rothschild at either 31 December 2022 or 31 December 2021. The balance due to the Group from these related parties at 31 December 2022 was £11,693 (2021: £7,663). Other No subscriptions were made to its associate, JRCM (London) LLP in the year (2021: Company £nil; JRCM management £nil) and the Company has a remaining commitment of £50,000 (2021: £50,000). Group undertakings JRCM acts as the Company’s manager, administrator and corporate secretary. During the year ended 31 December 2022, the charge for these services from JRCM to the Company amounted to £49.7 million (2021: £71.5 million). JRCM incurred rent charges of £580,000 (2021: £580,000) from the Company. During the year Spencer House Limited (also a wholly-owned subsidiary of the Company) earned property management revenues of £98,827 from JRCM (2021: £74,961) and £1,597,394 from the Company (2021: £1,671,731). 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 2022 2.1 (1.4) (0.4) 2021 2.0 (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 2022 0.4 2021 0.4 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 2022 2021 1.1 0.6 0.1 0.1 – – 1.3 0.6 0.1 – – – 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, 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 2022. 16. Other receivables 31 December 2022 31 December 2021 £ million Group Company Group Company Cash margin Amounts receivable Prepayments and accrued income Sales for future settlement Unsettled investment subscriptions Total 85.4 0.6 7.0 152.3 – 245.3 85.4 0.6 6.6 152.3 – 244.9 87.6 0.7 2.9 123.6 48.0 262.8 87.6 0.7 2.5 123.6 48.0 262.4 The carrying amount of other receivables approximates their fair value, due to their short-term nature. 80 Report and Accounts December 2022 RIT Capital Partners plc | 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 Group’s balance sheet. The balances outstanding at the year ends are show below: £ million RIT Investments US, Inc RIT Investments GP Limited Total £ million RIT Investments US, Inc JRCM Total Amounts owed by/(to) Group undertakings 2022 4.5 (0.1) 4.4 2021 3.7 – 3.7 Amounts owed by/(to) Company undertakings 2022 4.5 (94.7) (90.2) 2021 3.7 (128.8) (125.1) value of the drawn borrowings at the year end was £236.2 million (2021: £240.0 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 drawn down RCFs at the year end was 5.85% (2021: 1.69%). 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 £134.4 million (2021: £168.9 million) calculated using a discount rate of 5.24% (2021: 2.04%). A 5% increase/decrease in the underlying discount rate would result in an increase/decrease in net assets of approximately £2.3 million (2021: £1.4 million) or 0.06% (2021: 0.03%). The weighted average interest rate payable on these Notes is 3.45% and their remaining weighted average tenor is 8.2 years. The overall weighted average interest rate on drawn borrowings at the year end was 4.93% (2021: 2.38%). 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 2022 (2021: £nil). Directors and key management personnel Details of the remuneration and beneﬁts attributable to Directors and key management personnel are set out below. 19. Other payables £ million Accruals Other creditors Purchases for future settlement Total 31 December 2022 31 December 2021 Group Company Group Company 14.5 24.9 24.1 63.5 5.3 24.7 24.1 54.1 28.3 40.6 3.5 40.4 99.9 168.8 99.9 143.8 £ million Short-term employee beneﬁts Share-based payment Total 2022 4.1 16.0 20.1 2021 14.6 16.2 30.8 The carrying value of the Group’s other payables approximates their fair value, due to their short-term nature. The Group has no ultimate controlling party. 20. Share capital Group and Company £ million 2022 2021 Allotted, issued and fully paid: At 1 January 236.2 240.0 At 31 December 2022 Nominal value of total shares in issue 2021 Nominal value of total shares in issue Shares in issue 156,848,065 156,848,065 156.8 156.8 156.8 156.8 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 134.4 370.6 168.9 408.9 The Company has one class of ordinary shares which carry no right to ﬁxed income. The share capital is not distributable. At 31 December 2022 the Company had three revolving credit facilities (RCFs): an £85 million three-year facility with BNP Paribas SA agreed in December 2022, a £150 million ﬁve-year facility with Commonwealth Bank of Australia agreed in December 2018 and a £100 million three-year facility with Industrial and Commercial Bank of China agreed in December 2022. These are ﬂexible as to currency, duration and number of drawdowns, and bear interest linked to SONIA, LIBOR or equivalent relevant to the period and currency drawn. As they are drawn in tranches with tenors less than one year they are classiﬁed as current liabilities. The fair value and par In 2022, 514,634 shares were bought back at a cost of £11.0 million and held in treasury (2021: 59,189 shares at a cost of £1.4 million) meaning at 31 December 2022, 689,863 shares were held in treasury (2021:175,229 shares). RIT Capital Partners plc Report and Accounts December 2022 81 Notes to the Financial Statements 21. Share premium £ million At 1 January At 31 December The share premium is not distributable. The movement in share-based awards is as follows: 2022 45.7 45.7 2021 45.7 45.7 Number (thousand) Outstanding at the start of the year: SARs/performance shares RSUs Deferred shares Total Granted during the year: RSUs Deferred shares Total Conversion during the year: SARs/performance shares (surrendered) RSUs (replacement) Total Exercised/vested during the year: SARs/performance shares RSUs Deferred shares Total Lapsed/forfeited during the year: SARs/performance shares RSUs Deferred shares Total Outstanding at the end of the year: SARs RSUs Deferred shares Total SARs exercisable at year end Intrinsic value of SARs exercisable at year end 2022 2021 342 1,397 841 2,580 352 553 905 – – – (3) (256) (406) (665) (24) (10) – (34) 315 1,483 988 2,786 122 4,217 – 488 4,705 493 554 1,047 (3,505) 1,151 (2,354) (263) (246) (201) (710) (107) (1) – (108) 342 1,397 841 2,580 53 (£ million) 0.1 0.4 For share-based awards granted during the year, the weighted average fair value of each award was 2,470 pence (2021: 2,230 pence). Share-based awards with only service conditions attached (deferred shares and RSUs) were valued using the prevailing market price and a lock-up discount factor as applicable. 22. Capital redemption reserve £ million Balance at start of year At 31 December 2022 2021 Group Company Group Company 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 2022 (23.0) (40.4) 17.1 (46.3) 2021 (15.3) (21.0) 13.3 (23.0) 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 1,988,580 shares with a cost of £46.3 million and market value of £42.3 million (2021: 932,403 shares, cost £23.0 million, market value £25.6 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. Restricted share units (RSUs) were awarded to employees during the year. These are commonly used long-term incentive awards that comprise awards of shares made to employees that will vest after a three-year service period and then are typically subject to a further two-year holding period. There are also a small number of legacy share appreciation rights (SARs) remaining which vest based on market-based performance conditions and subject to continued service. These are no longer awarded to employees since the conversion to RSUs was made in 2021. 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 £20.3 million (2021: £20.4 million) of which £0.1 million related to SARs, £9.9 million to RSUs, and £10.3 million to deferred shares. 82 Report and Accounts December 2022 RIT Capital Partners plc | 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 2022 31 December 2021 basic and diluted £ million Group Company Group Company Balance at start of year Gains/(loss) for the year Dividend paid Other capital items Taxation Total capital return Balance at end of year 4,174.4 (535.3) (57.6) (32.6) – (625.5) 3,548.9 4,203.4 (535.3) (57.6) (31.9) – (624.8) 3,578.6 3,350.1 919.8 (55.0) (38.0) (2.5) 824.3 4,174.4 3,380.8 919.7 (55.0) (42.1) – 822.6 4,203.4 The Company’s Articles of Association allow distribution by dividends of realised capital reserves. £ million Capital reserve: in respect of investments realised in respect of investments held Balance at end of year 2,542.3 1,036.3 3,578.6 2,854.1 1,349.3 4,203.4 26. Revenue reserve 31 December 2022 31 December 2021 £ million Group Company Group Company Balance at start of year Loss for the year Actuarial gain/(loss) Deferred tax (charge)/credit Balance at end of year (11.4) (14.3) (4.5) 1.1 (29.1) (176.1) (33.4) – – (209.5) 5.1 (17.3) 1.9 (1.1) (11.4) (136.8) (39.3) – – (176.1) 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 £33.4 million (2021: loss £39.3 million). The Company’s total comprehensive expense for the year was £591.7 million (2021: £839.5 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 2022 31 December 2021 Group Company Group Company 11.5 11.5 11.7 11.7 (2.1) 9.4 (2.1) 9.4 (0.2) 11.5 (0.2) 11.5 The revaluation reserve is not distributable. Net asset value per ordinary share is based on the following data: 31 December Net assets (£ million) Number of shares in issue (million) Shares held in EBT (million) Shares held in treasury (million) Basic shares (million) Effect of share-based payment awards (million) Diluted shares (million) 2022 2021 31 December Net asset value per ordinary share – basic Net asset value per ordinary share – diluted 2022 2021 3,721.7 156.8 4,390.3 156.8 (2.0) (0.7) 154.1 1.7 155.8 2022 pence 2,414 2,388 (0.9) (0.2) 155.7 1.4 157.1 2021 pence 2,819 2,794 107.5 2.5 – (2.8) 107.2 75.6 3.1 – 28.8 107.5 29. Investments in subsidiary undertakings £ million Carrying value at 1 January 2022 Additions Disposals Fair value movements in year Carrying value at 31 December 2022 £ million Carrying value at 1 January 2021 Additions Disposals Fair value movements in year Carrying value at 31 December 2021 Investments in subsidiary undertakings are stated at cost or fair value where appropriate. At 31 December 2022 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 subsidiary below is consolidated by the Group and held by the Company at cost: Name JRCM1 Issued share capital £6,250,001 divided into 6,250,000 ordinary shares of £1 each and one special share of £1 which provides rights over the use of the “J. Rothschild” name. 1 Registered office and principal place of business: 27 St. James’s Place, London SW1A 1NR. RIT Capital Partners plc Report and Accounts December 2022 83 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 2022: costs and taxation to net cash inflow/(outflow) from operating activities before taxation and interest Name Principal place of business Ownership interest £ million 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 United States RIT Investments US Inc3,4,5 United States RIT US Holdings LLP3,4,6 England England Scotland 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. 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. 30. Dividends 2022 Pence per share 2021 Pence per share Dividends paid in year 37.0 35.25 2022 £ million 57.6 2021 £ million 55.0 The above amounts were paid as distributions to equity holders of the Company in the relevant year from accumulated capital proﬁts. On 28 February 2022 the Board declared a ﬁrst interim dividend of 18.5 pence per share in respect of the year ended 31 December 2022 that was paid on 29 April 2022. A second interim dividend of 18.5 pence per share was declared by the Board on 1 August 2022 and paid on 28 October 2022. The Board declares the payment of a ﬁrst interim dividend of 19 pence per share in respect of the year ending 31 December 2023. This will be paid on 28 April 2023 to shareholders on the register on 11 April 2023, and funded from the accumulated capital proﬁts. 84 Report and Accounts December 2022 RIT Capital Partners plc 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 movements1 (Gains)/losses on borrowings Unrealised 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 Net cash inﬂow/(outﬂow) from operating activities before taxation and interest £ 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 movements1 (Gains)/losses on borrowings Unrealised 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 Net cash inﬂow/(outﬂow) from operating activities before taxation and interest Group 2022 2021 (569.2) 7.2 9.8 (552.2) 17.5 (105.3) 35.7 (34.5) 871.2 8.5 2.2 881.9 (157.5) 105.3 12.7 (12.6) (5.2) (886.3) 1,395.6 192.4 3.7 (1,351.6) 1,397.5 (807.6) 57.7 71.8 Company 2022 2021 (581.6) 7.2 9.8 (564.6) 17.5 (89.7) (20.0) (34.5) 849.0 8.5 2.2 859.7 (157.5) 100.4 34.9 (12.6) (5.2) (883.8) 1,395.6 192.4 3.7 (1,348.5) 1,405.6 (807.6) 7.7 78.1 1 Prior year realised foreign exchange (gains)/losses on repayments and drawings of borrowings of £0.6m have been re-presented within Other movements. Reconciliation of liabilities arising from ﬁnancing activities: £ million Borrowings – current Borrowings – non-current Total 2021 (240.0) (168.9) (408.9) 1 Including currency translation. Non-cash changes in fair value1 Net (drawdowns)/ repayments (32.4) 34.5 2.1 36.2 – 36.2 2022 (236.2) (134.4) (370.6) | 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 based on the Group’s contributions to date. £ million Total1 2022 2,034 2021 2,590 1 Included within Investments held at fair value. The list of signiﬁcant related undertakings on page 86 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 86 for the year ended 31 December 2022 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 86 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 2022 Attestor Value HCIF Offshore 3D Opportunities Tresidor Credit Opportunities BlackRock Strategic Equity ARCM IV Springs Opportunities Motive RIT US Value Partnership Caxton Dynamis Total As at 31 December 2021 Coupang Eisler Capital BlackRock Strategic Equity Springs Opportunities Attestor Value HCIF Offshore Ward Ferry Asian Smaller Companies Iconiq Strategic Partners III NE Fund (previously Lansdowne New Energy) Sand Grove Tactical Total £ million 148.6 131.0 130.1 108.0 97.1 95.6 92.7 76.2 72.4 71.8 1,023.5 £ million 188.8 163.9 143.8 131.9 130.8 127.5 93.4 87.5 80.7 76.1 1,224.4 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 2022. 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. RIT Capital Partners plc Report and Accounts December 2022 85 Notes to the Financial Statements 32. Material investments and related undertakings (continued) Investment name Place of registration Registered address Fair value £ million % interest 1992 Co-Invest (Offshore) LP Blumberg Capital I LP BX-B Ribbit Opportunity IV, LLC BX-C Ribbit Opportunity IV, LLC Clay Point Investors SPV 9, LP Darwin Private Equity I LP Firebird New Russia Fund Ltd, Class A1 Fortress Credit Opportunities Fund (C) LP ICQ Holdings 6 LLC Inﬁnity SDC Ltd1 JRCM (London) LLP1 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 Springs Global Strategic Partners Fund – Anchor Class Springs Opportunities Fund LP, Series A Tresidor Credit Opportunities Fund Tribeca Global Natural Resources Feeder Fund Class A Participating Shares Unrestricted Xander Seleucus II LP Xander Seleucus LP Xander Seleucus Retail LP Cayman Islands PO Box 309, Ugland House, Grand Cayman, KY1-1104 Delaware, USA 580 Howard Street, Suite 401, San Francisco, California 94105 Delaware, USA 1209 Orange Street, Wilmington, Delaware 19801 Delaware, USA 1209 Orange Street, Wilmington, Delaware 19801 Delaware, USA 651 N. Broad St., Suite 206, Middletown, Delaware 19709 Scotland 50 Lothian Road, Festival Square, Edinburgh EH3 9WJ PO Box 897, Windward 1, Grand Cayman KY1-1103 Cayman Islands Cayman Islands Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808 500-600 Witan Gate West, Milton Keynes MK9 1SH 27 St James’s Place, London SW1A 1NR 32 Molesworth Street, Dublin 2 Delaware, USA England & Wales England & Wales Ireland California, USA Delaware, USA Cayman Islands Cayman Islands Ireland 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 2nd Floor, 2 Custom House Plaza, Harbourmaster Place, Dublin 1 26.6 5.4 16.8 1.8 4.1 0.8 1.8 1.1 49.7% 56.1% 22.9% 29.2% 58.1% 23.9% 25.0% 33.3% 39.7 100.0% 23.9% 10.8 50.0% 0.0 50.4% 71.5 3.0 0.3 38.5% 20.5% 63.1 100.0% 46.5 100.0% 30.2% 11.2 Cayman Islands 4th Floor, Willow House, Cricket Square, Grand Cayman KY1-9010 2nd Floor, 2 Custom House Plaza, Harbourmaster Place, Dublin 1 27 Hospital Road, George Town, Grand Cayman, KY1-9008 Ireland Cayman Islands 92.7 53.8% 81.9 100.0% 62.5% 1.0 Cayman Islands Cayman Islands Cayman Islands 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 0.5 0.0 1.5 41.9% 43.3% 48.8% 1 The Directors consider these entities, in which the Group holds ordinary shares, or limited partnership interests, 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 IAS 28 Investments in Associates and Joint Ventures and IFRS 9 Financial Instruments. 86 Report and Accounts December 2022 RIT Capital Partners plc Independent Auditor’s Report RIT Capital Partners plc Report and Accounts December 2022 87 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 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 2022 and of the Group’s loss for the year then ended; the Group ﬁnancial statements have been properly prepared in accordance with UK-adopted international accounting standards; the Parent Company ﬁnancial statements have been properly prepared in accordance with UK-adopted international accounting standards 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 (the ‘Parent Company’) and its subsidiaries (collectively the ‘Group’) for the year ended 31 December 2022 which comprise: Group Parent Company Consolidated Income Statement and Consolidated Statement of Comprehensive Income for the year to 31 December 2022 Consolidated Balance Sheet as at 31 December 2022 Parent Company Balance Sheet as at 31 December 2022 Parent Company Statement of Changes in Equity for the year to 31 December 2022 Consolidated Statement of Changes in Equity for the year to 31 December 2022 Consolidated and Parent Company Cash Flow Statement for the year to 31 December 2022 Consolidated and Parent Company Cash Flow Statement for the year to 31 December 2022 Related notes 1 to 32 to the ﬁnancial statements, including a summary of signiﬁcant accounting policies 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 UK-adopted international accounting standards 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence 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. 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. 88 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Independent Auditor’s Report to the Members of RIT Capital Partners plc 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’ processes 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, corroborating our understanding with the Audit and Risk Committee and obtaining the Directors’ going concern assessment, including cashﬂow forecasts, stress tests and covenant calculations, covering the period to 30 June 2024, which is sixteen months from the date these ﬁnancial statements were authorised for issue; Reviewing the Group’s cashﬂow forecasts, stress tests and covenant calculations, 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, stress tests and covenant calculations and determined through inspection and review of the methodology and calculations that the methods utilised were appropriate 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 Parent Company’s ability to prevent a breach of ﬁnancial covenants using mitigating actions if required, such as the repayment of borrowings. We also veriﬁed credit facilities available to the Parent Company 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; Making enquiries of the Manager and reviewing board minutes and 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 Reports & Accounts 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 a period assessed by the Directors, being the period to 30 June 2024, which is sixteen months from the date these 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. RIT Capital Partners plc Report and Accounts December 2022 89 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 direct private and illiquid fund investments. This approach is consistent with the 2021 audit. Audit scope Materiality The Group is principally managed from one location in London. All core functions 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 2021 audit. Overall Group materiality of £37.2 million which represents 1% of net assets. This approach is consistent with 2021 audit. An overview of the scope of the Parent Company and Group audits 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 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 also 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. All audit evidence was received electronically and there were regular on-site visits to the Manager’s offices. Meetings with the Manager and the Directors were conducted in person or over video conferencing. The audit team encountered no difficulties in connecting with the Manager or the Directors and were able to execute the audit ﬁeldwork effectively. Climate change There has been increasing interest from stakeholders as to how climate change will impact companies. The Group has determined that the most signiﬁcant future impacts from climate change on its operations may be from environmental exposure, and existing or proposed regulation that may adversely affect their underlying portfolio investments. This is explained on page 23 in the Principal Risks and Viability section of the Strategic Report, which forms part of the “Other information”, rather than the audited ﬁnancial statements. Our procedures on these disclosures therefore consisted solely of considering whether they are materially inconsistent with the ﬁnancial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated. In planning and performing our audit we assessed the potential impacts of climate change on the Group’s business and any consequential material impact on its ﬁnancial statements. Our audit effort in considering climate change was focused on the adequacy of the Group’s disclosures in the ﬁnancial statements as set out in Note 1 and concluded that there was no material impact from climate change on the ﬁnancial statements. We also challenged the Directors’ considerations of climate change in their assessment of viability and associated disclosures. Based on our work we have not identiﬁed the impact of climate change on the ﬁnancial statements to be a key audit matter or to impact a key audit matter. 90 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Independent Auditor’s Report to the Members of RIT Capital Partners plc 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. Risk Our response to the risk Risk of inaccurate recognition of investment income and gains/(losses) on investments held at fair value (losses of £536.4 million, 2021: gains of £914.5 million) Refer to the Audit and Risk Committee Report (pages 44 to 47); Accounting policies (pages 63 to 66); and Notes 2 and 3 of the Consolidated Financial Statements (page 67) 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 material 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 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; recalculated interest income based on the terms of underlying agreements; tested the completeness of income receipts by verifying that income declared during the period, per an independent price 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. All transactions tested have been materially recognised in accordance with contractual terms and UK-adopted international accounting standards. Based on our procedures performed we have no further matters to report to the Audit and Risk Committee. RIT Capital Partners plc Report and Accounts December 2022 91 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 and illiquid fund investments (£2,262.6 million, 2021: £2,379.3 million) Refer to the Audit and Risk Committee Report (pages 44 to 47); Accounting policies (pages 63 to 66); and Note 13 of the Consolidated Financial Statements (pages 71 to 79) The Group’s investment portfolio includes both direct private and illiquid fund investments. We obtained an understanding of the Manager’s processes and controls for determining the fair valuation of direct private and illiquid fund investments by performing walkthroughs in which we evaluated the design and implementation of controls. This included reviewing the governance structure and protocols around oversight of the valuation process, including their oversight of the valuations performed by the underlying GPs and funds and corroborating our understanding by attending Valuation Committee meetings in an observational capacity. Direct private investments Of the direct private investments, £174.3 million of valuations were assessed directly by the Manager as at 31 December 2022. The valuations are determined by the Manager and the ﬁnal valuations are reviewed and approved by the Valuation Committee. The valuations are based on the nature of the underlying business which has been invested in. The methods used may include: We assessed the Manager’s valuation methodology against applicable reporting frameworks, including UK-adopted international accounting standards 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. Direct private investments For the valuation of direct private investments assessed by the Manager, on a sample basis, we corroborated the key inputs into the valuation models and performed procedures on key judgments made by the Manager, including: applying a multiple to earnings or revenues; using a discounted cash ﬂow model; using recent transaction prices and recent offers; and assessing the movement in the market via listed comparable companies. challenging the appropriateness of assumptions made by the Manager in the application of the valuation models; assessing 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; challenging the appropriateness of discount rates applied in discounted cash ﬂow models; testing the mathematical accuracy of the valuation models; comparing the fair valuation to recently completed market transactions or recent offers, where relevant and observable; and reviewing the appropriateness of comparable companies considered by the Manager and independently verifying market movements to external sources. 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; derived a range of fair values using our assumption and other qualitative risk factors; and compared the range to the Manager’s fair value and discussed our results with the Manager. We have considered the impact of COVID-19, the Russia-Ukraine conﬂict and recent declines in the cryptocurrency market throughout the procedures performed on the valuation of direct private investments, by challenging whether the valuation methodologies and assumptions used remained appropriate. 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. 92 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Independent Auditor’s Report to the Members of RIT Capital Partners plc Risk Our response to the risk Illiquid fund investments (including GP-led direct private investments) The valuations of the illiquid funds and remaining direct private investments, which are investments in private companies held by third-party managed special purpose vehicles (‘GP-led direct private investments’), are material. The illiquid funds include investments that are classiﬁed by the Manager as ‘private investments – funds and absolute return and credit’. The valuations are determined by the governing bodies of the investment vehicles, typically including the fund managers, General Partners (‘GP’) and sponsors. The valuations can include signiﬁcant estimates and judgments, as they are often based on fair valuations of their underlying direct private investments, for which there may be limited observable information available and uncertainty about future business performance. The valuations are provided to the Group and assessed by the Manager, who are afforded discretion to make any adjustments they deem appropriate, for example for transactions between the date of the valuation provided and the reporting date. Illiquid fund investments (including GP-led direct private investments) For the valuation of illiquid fund and GP-led direct private investments, on a sample basis, we: conﬁrmed the most recently available fund valuation to third party statements, including from the GP, 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 have investigated and obtained explanations for all material movements; obtained and assessed the due diligence performed by the Manager for new fund investments made in the year; and where the most recently available fund valuation is not at the year end 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 Group’s year end valuation date to supporting documentation. For our sample, we also assessed the impact of contradictory evidence, to ensure an appropriate valuation was determined. 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 in order to assess whether any material differences arose. Key observations communicated to the Audit and Risk Committee All valuations tested, including those reviewed by EY valuation specialists, were found to be materially carried in accordance with the UK-adopted international accounting standards and IPEV Guidelines. 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 unexplained movement from the prior year fair value. 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 material matters to report to the Audit and Risk Committee. RIT Capital Partners plc Report and Accounts December 2022 93 Independent Auditor’s Report to the Members of RIT Capital Partners plc 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 £37.2 million (2021: £43.9 million), which is 1% (2021: 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 £36.2 million (2021: £42.8 million), which is 1% (2021: 1%) of net assets. We calculated materiality during the planning stage of the audit and then during the course of our audit, we reassessed materiality based on 31 December 2022 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% (2021: 75%) of our planning materiality, namely £27.9m (2021: £32.9m). 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 £1.9 million (2021: £2.2 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 other than the ﬁnancial statements and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual report. 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 this gives rise to 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. 94 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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 the Strategic Report and the Directors’ report have been prepared in accordance with applicable legal requirements. 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. 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. Corporate Governance Statement We have reviewed the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group and Parent Company’s compliance with the provisions of the UK Corporate Governance Code speciﬁed for our review by the Listing Rules. 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 25; Directors’ explanation as to its assessment of the Parent Company’s prospects, the period this assessment covers and why the period is appropriate set out on page 25; Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set out on page 25; Directors’ statement on fair, balanced and understandable set out on page 43; Board’s conﬁrmation that it has carried out a robust assessment of the emerging and principal risks set out on page 21; The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 20; and The section describing the work of the audit committee set out on page 44. RIT Capital Partners plc Report and Accounts December 2022 95 Independent Auditor’s Report to the Members of RIT Capital Partners plc Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement set out on page 43, 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 above, 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 Parent Company and the Manager. 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 (UK-adopted international accounting standards, 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 General Counsel and Company Secretary, Chief Financial and Operating 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, Remuneration Committee minutes, papers provided to the Audit and Risk Committee, including Valuation Committee packs, minutes of the Board’s Conﬂicts 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 the net asset value (‘NAV’) per share or the NAV per share total return. We identiﬁed a fraud risk with respect to management override in relation to the risk of inaccurate recognition of investment income and gains/(losses) on unquoted investments held at fair value and the risk of incorrect valuation of direct private 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. In order to address the residual risk of management override we have performed journal entry testing and enquiries of senior management as detailed below. 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 the directors of the Manager and of the Audit and Risk Committee at the planning and completion stages of the audit; and focused testing, as referred to in the key audit matters section above. 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. 96 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Independent Auditor’s Report to the Members of RIT Capital Partners plc Other matters we are required to address We were appointed by the Parent 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 ﬁve years, covering the years ending 31 December 2018 to 31 December 2022. The audit opinion is consistent with the additional report to 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 Group and 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 27 February 2023 Notes: 1. The maintenance and integrity of the RIT Capital Partners plc web site 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 web site. 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 2022 97 Other Information 31 December 2022 (Unaudited) RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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 17 to 19, and the 31 December 2022 consolidated balance sheet, as shown on page 58: £ million Non-current assets Portfolio investments at fair value Non-consolidated subsidiaries Investments held at fair value Investment property Property, plant and equipment Retirement beneﬁt asset Derivative ﬁnancial instruments Current assets Derivative ﬁnancial instruments Other receivables Amounts owed by group undertakings 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 Deferred tax liability 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 2022 1,323.7 0.1 1,323.8 1,483.5 32.3 1,515.8 – – – 1.0 – – – – 674.4 72.4 746.8 – – – – 3.6 – 3.6 37.9 20.7 – – 1,324.8 1,515.8 746.8 62.2 1.3 0.1 – 11.7 13.1 – – – – – – – – – – 1,337.9 1,515.8 746.8 – (3.4) (27.4) – (30.8) (17.7) – – – – – – – – – – – – 1,307.1 1,515.8 746.8 – – – – – – – – – – – – – – – – – – 1,307.1 1,515.8 746.8 6.4 – – – 6.4 68.6 – – – – – 6.4 68.6 – – – – (3.2) (3.2) 65.4 – – – – – – – – 49.6 – – – 49.6 49.6 – (7.0) – – (7.0) 42.6 42.6 – – – – – – 42.6 – (3.7) (3.7) – – 0.5 – (3.2) – 245.2 4.5 206.3 456.0 452.8 (236.2) – (36.1) (0.1) (272.4) 183.6 180.4 3,485.2 101.1 3,586.3 37.9 20.7 0.5 1.0 3,646.4 57.3 245.3 4.5 218.0 525.1 4,171.5 (236.2) (10.4) (63.5) (0.1) (310.2) 214.9 3,861.3 (134.4) (134.4) – (0.2) (1.8) – (136.4) 44.0 – (0.2) (1.8) (3.2) (139.6) 3,721.7 RIT Capital Partners plc Report and Accounts December 2022 99 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 UK adopted IAS and the AIC SORP. They are denoted with an * in this section. CPI: The CPI refers to the United Kingdom Consumer Price Index as calculated by the Office for National Statistics and published monthly. It is the UK Government’s target measure of inﬂation and, from 1 January 2022, is used as a measure of inﬂation in one of the Company’s KPIs, CPI plus 3.0% per annum. Gearing*: Gearing is a measure of the level of debt deployed within the portfolio. The ratio is calculated in accordance with AIC guidance as total assets, net of cash, divided by net assets and expressed as a ‘net’ percentage, e.g. 110% would be shown as 10%. £ million Total assets Less: cash Sub total Net assets Gearing 2022 4,171.5 (218.0) 3,953.5 3,721.7 6.2% 2021 4,985.0 (325.9) 4,659.1 4,390.3 6.1% Leverage: Leverage, as deﬁned by the UK Alternative Investment Fund Managers Directive (AIFMD), is any method which increases the exposure of the portfolio, whether through borrowings or leverage embedded in derivative positions or by any other means. MSCI All Country World Index: The MSCI All Country World Index is a total return, market capitalisation-weighted equity index covering major developed and emerging markets. Described in this report as the ACWI or the ACWI (50% £), this is one of the Company’s KPIs or reference hurdles and, since its introduction in 2013, has incorporated a 50% sterling measure. This is calculated using 50% of the ACWI measured in sterling and therefore exposed to translation risk from the underlying foreign currencies. The remaining 50% uses a sterling-hedged ACWI from 1 January 2015 (from when this is readily available). This incorporates hedging costs, which the portfolio also incurs, to protect against currency risk and is an investable index. Prior to this date it uses the index measured in local currencies. Before December 1998, when total return indices were introduced, the index is measured using a capital-only version. NAV total return*: The NAV total return for a period represents the change in NAV per share, adjusted to reﬂect dividends paid during the period. The calculation assumes that dividends are reinvested in the NAV at the month end following the NAV going ex-dividend. The NAV per share at 31 December 2022 was 2,388 pence, a decrease of 406 pence, or 14.5%, from 2,794 pence at the previous year end. As dividends totalling 37.0 pence per share were paid during the year, the effect of reinvesting the dividends in the NAV is 1.2%, which results in a NAV total return of -13.3%. Net quoted equity exposure: This is the estimated level of exposure that the trust has to listed equity markets. It includes the assets held in the quoted equity category of the portfolio adjusted for the notional exposure from quoted equity derivatives, as well as estimated cash balances held by externally-managed funds and estimated exposure levels from hedge fund managers. Notional: In relation to derivatives, this represents the estimated exposure that is equivalent to holding the same underlying position through a cash security. Ongoing charges ﬁgure (OCF)*: As a self-managed investment trust with operating subsidiaries, the calculation of the Company’s OCF requires adjustments to the total operating expenses. In accordance with AIC guidance, the main adjustments are to remove direct performance-related compensation from JRCM, as this is analogous to a performance fee for an externally-managed trust. £ million Operating expenses JRCM direct performance- related compensation Other adjustments Ongoing charges Average net assets OCF 2022 43.6 (7.6) 0.0 36.0 4,045 0.89% 2021 54.4 (24.8) (0.1) 29.5 4,085 0.72% In addition to the above, managers charge fees within the external funds (and in a few instances directly to RIT in relation to segregated accounts). We have estimated that, based on average net assets across the year and annual management fee rates per fund (excluding performance fees), these represent an additional 0.88% of average net assets (2021: 0.87%). 100 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | Glossary and Alternative Performance Measures Premium/discount: The premium or discount (or rating) is calculated by taking the closing share price on 31 December 2022 and dividing it by the NAV per share at 31 December 2022, expressed as a net percentage. If the share price is above/below the NAV per share, the shares are said to be trading at a premium/ discount. Share price total return or total shareholder return (TSR)*: The TSR for a period represents the change in the share price adjusted to reﬂect dividends paid during the period. Similar to calculating a NAV total return, the calculation assumes the dividends are notionally reinvested at the daily closing share price following the shares going ex-dividend. The share price on 31 December 2022 closed at 2,125 pence, a decrease of 625 pence, or 22.7%, from 2,750 pence at the previous year end. Dividends totalling 37.0 pence per share were paid during the year, and the effect of reinvesting the dividends in the share price is 1.2%, which results in a TSR of -21.5%. The TSR is one of the Company’s KPIs. RIT Capital Partners plc Report and Accounts December 2022 101 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 31 December 2021 31 December 2022 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 4,390.3 3,721.7 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 2,794 2,388 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 2,750 2,125 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) (1.6) (11.0) 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 17.5 220.8 321.0 545.5 (371.3) 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 35.25 37.0 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: 26 April 2023, 12:00pm: 28 April 2023: Annual General Meeting. Payment of interim dividend. 102 Report and Accounts December 2022 RIT Capital Partners plc | Company Highlights | Strategic Report | Governance | Financial Statements | Other Information | 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 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 2022 103 Directory 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 45 Gresham Street London EC2V 7BF ADVISER TO THE REMUNERATION COMMITTEE Alvarez & Marsal Park House 16-18 Finsbury Circus London EC2M 7EB CUSTODIAN AND DEPOSITARY BNP Paribas Trust Corporation UK Limited 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 Email: investorrelations@ritcap.co.uk Website: www.ritcap.com 104 Report and Accounts December 2022 RIT Capital Partners plc This report is printed on Revive 100% White Silk a totally recycled paper produced using 100% recycled waste at a mill that has been awarded the ISO 14001 (cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:868)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17) (cid:55)(cid:75)(cid:72)(cid:3)(cid:83)(cid:88)(cid:79)(cid:83)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:79)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:79)(cid:82)(cid:85)(cid:76)(cid:81)(cid:72)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:11)(cid:55)(cid:38)(cid:41)(cid:12)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3) (cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:72)(cid:74)(cid:72)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:78)(cid:86)(cid:17) 27 St. James’s Place London SW1A 1NR

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