Annual Financial Report
British & American Investment Trust PLC
Annual Financial Report
for the year ended 31 December 2012
Registered number: 00433137
Directors Registered office
J Anthony V Townsend (Chairman) Wessex House
Jonathan C Woolf (Managing Director) 1 Chesham Street
Dominic G Dreyfus (Non-executive) London SW1X 8ND
Ronald G Paterson (Non-executive) Telephone: 020 7201 3100
Registered in England
No.433137
30 April 2013
This is the Annual Financial Report as required to be published under DTR 4 of
the UKLA Listing Rules.
Financial Highlights
For the year ended 31 December 2012
2012 2011
Revenue Capital Total Revenue Capital Total
return return return return
£000 £000 £000 £000 £000 £000
Profit/(loss) 2,107 (1,435) 672 2,587 (1,589) 998
before tax -
realised
Profit/(loss) - 1,446 1,446 - (7,612) (7,612)
before tax -
unrealised
__________ __________ __________ __________ __________ __________
Profit/(loss) 2,107 11 2,118 2,587 (9,201) (6,614)
before tax - total
__________ __________ __________ __________ __________ __________
Earnings per £1
ordinary share - 7.02p 0.04p 7.06p 8.93p (36.80)p (27.87)p
basic
__________ __________ __________ __________ __________ __________
Earnings per £1
ordinary share - 6.01p 0.03p 6.04p 7.38p (26.29)p (18.91)p
diluted
__________ _________ __________ __________ _________ __________
Net assets 23,345 23,430
__________ __________
Net assets per
ordinary share
- deducting
preference 53p 54p
shares at par
__________ __________
- diluted 67p 67p
__________ __________
Diluted net asset
value per ordinary
share at 26 April
2013 73p
__________
Dividends declared
or proposed for
the period
per ordinary share
- interim paid 2.7p 2.7p
- final proposed 4.9p 4.7p
per preference 3.5p 3.5p
share
Chairman's Statement
I report our results for the year ended 31 December 2012.
Revenue
The return on the revenue account before tax amounted to £2.1 million (2011: £
2.6 million), a decrease of 19 percent resulting from a decline in gross income
to £2.5 million from the level of £2.9 million achieved in the previous year.
The level of income received in 2012 was more commensurate with long-run income
levels in prior years compared to 2011 which was unusually high due to
exceptional amounts of special dividends received in that year. £2.3 million
of this amount (2011: £2.7 million) represented income from portfolio
investments and £0.2 million (2011: £0.2 million) from film, property and
other income.
The total return before tax amounted to a gain of £2.1 million (2011: £6.6
million loss), includes net revenue of £2.1 million, a realised loss of £1.2
million and an unrealised gain of £1.4 million. The revenue return per
ordinary share was 7.0p (2011: 8.9p) on an undiluted basis and 6.0p (2011:
7.4p) on a diluted basis.
Net Assets
Group net assets at the year end were £23.3 million (2011: £23.4 million),
virtually unchanged from the previous year. This compares to increases in the
FTSE 100 and All Share indices of 5.8 percent and 8.2 percent, respectively,
over the period. On a total return basis, after adding back dividends paid
during the year, group net assets increased by 9.0 percent compared to a total
return on the two indices of between 9.1 and 10.5 percent. Total return over
the year thus tracked market return over the year, but did not match the
outperformance we were able to report at the half year. This was eroded by the
significant rise in equity markets generally in the closing months of the year,
as discussed in more detail below, while the value of our largest investment,
Geron Corporation, remained relatively static over the year.
The net asset value per ordinary share remained unchanged at 67p (2011: 67p)
on a diluted basis. Deducting prior charges at par, the net asset value per
ordinary share decreased to 53p (2011: 54p).
Our share price fluctuated from between 60p and 75p over the year, which
represents a trading range generally equal to or in excess of net asset value.
This is an improvement to previous years when shares have often traded at
significant discounts to NAV and compares favourably to trading discounts
generally for investment trusts. It is believed that investors have been
attracted by the significantly higher than market yield offered by our stock
and our record of tracking the market on a total return basis over the longer
term.
Dividend
We are pleased to recommend an increased final dividend of 4.9p per ordinary
share, which together with the interim dividend makes a total payment for the
year of 7.6p (2011: 7.4p) per ordinary share. This represents an increase of
2.7 percent over the previous year's total dividend and a yield of 10.3 percent
based on the share price of 75p at the end of the year. The final dividend will
be payable on 20 June 2013 to shareholders on the register at 31 May 2013. A
dividend of 1.75p will be paid to preference shareholders resulting in a total
payment for the year of 3.5p per share.
GeronCorporation
We remain deeply unsatisfied with the management and performance of our major
investment, Geron Corporation, although the substantial declines in value which
were experienced in the previous year were not repeated in 2013. As already
communicated to shareholders, however, we are very pleased by the actions taken
by our own major shareholder, Romulus Films Ltd, which has been instrumental in
arranging and funding the purchase of Geron's stem cell business by the US
listed biotechnology company BioTime Inc in such a way as to benefit Geron
shareholders such as ourselves. Once the transaction becomes effective later
this year, Geron shareholders will receive directly shares in a new listed and
well funded company which will reactivate and develop these important and
valuable assets. We will thus maintain our exposure to this ground breaking
regenerative medicine business and it is hoped that, particularly with the
substantial interest and revived valuations now being shown by the market in
stem cell companies throughout the world, we will be able to recoup the
significant value lost to us in recent years by the actions of current Geron
management in discontinuing this business.
Outlook
A major revival in equity valuations globally has taken place since the end of
2012, with indices in the USA finally surpassing their all time high levels at
the end of the first quarter. Equities in the UK have also been buoyant
although prices in European markets have lagged significantly against the
background of continued economic decline in many eurozone countries and the
prospect of further years of imposed austerity measures.
Markets generally took heart from the reduction in perceived long term and
possible catastrophic risk represented by the debt crisis in developed markets,
particularly in Europe, and the fiscal impasse in the USA. By the end of 2012
both these risks had been averted by actions of the European Central Bank in
Europe and a last minute, if temporary, settlement by politicians of the
so-called fiscal cliff in the USA.
Consequently, for the last few months, market sentiment has been firm and
continues to be so. However, many major and potentially systemic risks still
remain on the horizon, not least the recent revival of concerns around the Euro
and its long term survival as well as a re-run of the US fiscal debates later
this year.
As a result, we expect that despite the generally firmer tone of the last few
months, markets will still display a degree of volatility as expected or
unexpected risk events present themselves in a world where sovereign
indebtedness remains unfeasibly high, growth is very weak and emergency
recovery measures remain in place.
Against this background, we maintain our long-term and income generating
strategies that are primarily based on equity investment in the UK and USA.
As at 26 April 2013, group net assets had increased to £25.6 million, an
increase of 9.5 percent since the beginning of the calendar year. This is
equivalent to 62 pence per share (prior charges deducted at par) and 73 pence
per share on a diluted basis. Over the same period the FTSE 100 increased 9.0
percent and the All Share Index increased 9.6 percent.
Anthony Townsend
30 April 2013
Managing Director's report
In 2012, the UK equity market moved in a series of waves corresponding to
perceived risks in the wider financial markets, particularly worries
surrounding developed country sovereign indebtedness and its implications for
economic growth and financial market stability. Stocks rose in the first
quarter but retraced their gains in the second quarter to end the half year
flat. In the second half, however, sentiment firmed noticeably and sustainably
after the European Central Bank defused anxieties surrounding highly indebted
Eurozone member countries by stating that it would do everything necessary to
support the Euro.
As a result, by year end UK equities had advanced 15 percent from a low point
at the end of May. This rally was more in the nature of relief that the
market's worst fears were less likely to be fulfilled, rather than being based
on underlying economic fundamentals. Concerns remained until year end that
politicians in the US would not resolve the potentially damaging fiscal policy
divisions facing Congress. However, after this was resolved, or at least
postponed, markets went on to rise strongly into the first quarter of 2013 by a
further approximately 10 percent, and more in the US where the indices finally
surpassed their all time highs.
Performance
As noted above, our portfolio lagged its benchmark indices at year end as the
equity market rose strongly in the final months of the year. On a total return
basis, however, our portfolio performed in line with the benchmark indices.
This has been the pattern of recent years. While our income generating
strategy has performed satisfactorily, our capital appreciation strategy has
not, principally as a result of the significant losses suffered in our major
investment Geron Corporation. As a result, capital growth has failed to match
the market and we have only tracked but not outperformed the benchmark on a
total return basis.
GeronCorporation
As noted above, steps have been taken by our major shareholder to buy out from
Geron Corporation its regenerative medicine business in an effort to re-start
this important business for the benefit of Geron's existing shareholders,
including ourselves. Geron shareholders will be able to maintain a significant
and direct interest in the re-capitalised and re-activated business without
having to make any further financial contribution and will be put in a similar
position to where they would have been had the business been re-capitalised and
funded as part of Geron. We are therefore hopeful that we will be able to
recover value lost after the major disappointment and mis-management of these
assets over the last two years. Regenerative medicine is considered to be a
business whose potential and importance has finally been recognised as
evidenced by the substantial market outperformance of companies in this sector
over the last year. We hope to share in the great promise which regenerative
medicine offers to its owners and patients worldwide in the future.
Economic comment
Following the recovery in equity prices noted above, markets have now risen to
their pre-crash highs in a period of 5 years. This has been a relatively fast
recovery by comparison with the other major global financial crashes of
previous years (25 years in the case of the Great Depression of 1931 and over
23 years and continuing since the market high in Japan in 1989). It is a
testament to the much improved policy responses from governments and central
banks on this occasion when vast and exceptional amounts of liquidity were
supplied to the markets compared to previous occasions when they were not.
However, while equity markets have recovered over the period, economic
fundamentals generally have not and many other measures of economic health and
outlook (debt levels, fiscal imbalances, central bank balance sheets,
international trade, safe-haven investment bubbles, real returns on investment)
remain worryingly untackled.
The austerity policies introduced by governments to tackle their fiscal
imbalances and over-indebtedness together with the natural caution of
corporates and the public to invest or spend against this background have
hampered efforts to restart growth. When combined with the newly found
reluctance of banks to lend arising out of their own losses and newly imposed
capital requirements, the prospects of renewed economic growth have in the near
term been even more remote.
Outlook
As policy-makers began to realise in 2012 that this rebalancing could not be
tackled solely by austerity, economic policy focus began to switch from debt
and crisis management to an emphasis on growth generation by means other than
monetary policy, which has included competitive currency devaluation.
This has been the natural and in some cases not unwelcomeresult of the
crisis-management policies of money creation and ultra-low interest rates
exerting downward pressure on currencies. A period of competitive currency
devaluation has taken hold in developed economies, particularly in the USA and
Japan, to stimulate exports and domestic demand.
The combination of these measures has inevitably led to bubbles forming in
certain asset classes including property and equities, with investments in safe
haven assets such as US treasuries, gold and low-yielding bonds being unwound.
As part of this revolve, equity markets rose strongly towards the end of 2012
and in the first quarter of 2013, regaining their all time highs in the US as
previously mentioned.
However, despite this return to risk in investment markets, European economies
have remained locked into negligible or negative growth as the restrictions of
a single currency have left over-indebted peripheral eurozone countries unable
to manage their legacy debt levels through currency devaluation. The
consequent stagnation in their economic growth has been felt throughout the
Eurozone and other European countries and trading partners, including the UK.
By contrast, other developed economies, particularly those with links to the
fast growing Asia Pacific area have begun to show modest signs of economic
growth, as in the US where an increasingly sustained recovery appears
increasingly evident helped also by the 5 percent depreciation in the US dollar
for a large part of 2012. Whether this return to growth will now be sufficient
to pull the rest of the World along a path to growth and allow the fundamentals
to catch up with the markets remains to be seen.
Jonathan Woolf
30 April 2013
Group income statement
For the year ended 31 December 2012
2012 2011
Revenue Capital Total Revenue Capital Total
return return return return
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Investment income 2,486 - 2,486 2,934 - 2,934
(note 2)
Holding gains/
(losses) on
investments at fair
value through
profit or loss - 1,446 1,446 - (7,612) (7,612)
Losses on disposal
of investments at - (1,237) (1,237) - (1,395) (1,395)
fair value through
profit or loss
Expenses (379) (198) (577) (347) (194) (541)
________ ________ ________ ________ ________ ________
Profit/(loss) 2,107 11 2,118 2,587 (9,201) (6,614)
before tax
Tax (3) - (3) (4) - (4)
________ ________ ________ ________ ________ ________
Profit/(loss) for 2,104 11 2,115 2,583 (9,201) (6,618)
the period
________ ________ ________ ________ ________ ________
Earnings per share
Basic - ordinary 7.02p 0.04p 7.06p 8.93p (36.80)p (27.87)p
shares
________ ________ ________ ________ ________ ________
Diluted - ordinary 6.01p 0.03p 6.04p 7.38p (26.29)p (18.91)p
shares
________ ________ ________ ________ ________ ________
The group does not have any income or expense that is not included in the
profit for the period. Accordingly, the 'Profit/(loss) for the period' is also
the 'Total Comprehensive Income for the period' as defined in IAS 1(revised)
and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Group's Income Statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association of
Investment Companies. All items in the above statement derive from continuing
operations.
All profit and total comprehensive income is attributable to the equity holders
of the parent company. There are no minority interests.
Group statement of changes in equity
For the year ended 31 December 2012
Share Capital Retained Total
capital reserve earnings
£ 000 £ 000 £ 000 £ 000
Balance at 31 December 2010 35,000 (3,710) 908 32,198
Changes in equity for 2011
(Loss)/profit for the period - (9,201) 2,583 (6,618)
Ordinary dividend paid (note 4) - - (1,800) (1,800)
Preference dividend paid (note 4) - - (350) (350)
________ ________ ________ ________
Balance at 31 December 2011 35,000 (12,911) 1,341 23,430
Changes in equity for 2012
Profit for the period - 11 2,104 2,115
Ordinary dividend paid (note 4) - - (1,850) (1,850)
Preference dividend paid (note 4) - - (350) (350)
________ ________ ________ ________
Balance at 31 December 2012 35,000 (12,900) 1,245 23,345
________ ________ ________ ________
Registered number: 00433137
Group Balance Sheet
For the year ended 31 December 2012
Group
2012 2011
£ 000 £ 000
Non-current assets
Investments - fair value through profit or loss 21,137 21,618
Current assets
Receivables 1,190 81
Derivatives - fair value through profit or loss 3,204 3,322
Cash and cash equivalents 740 122
__________ __________
5,134 3,525
__________ __________
Total assets 26,271 25,143
__________ __________
Current liabilities
Trade and other payables 1,307 80
Derivatives - fair value through profit or loss 1,619 1,633
__________ __________
(2,926) (1,713)
__________ __________
Total assets less current liabilities 23,345 23,430
__________ __________
Net assets 23,345 23,430
__________ __________
Equity attributable to equity holders
Ordinary share capital 25,000 25,000
Convertible preference share capital 10,000 10,000
Capital reserve (12,900) (12,911)
Retained revenue earnings 1,245 1,341
__________ __________
Total equity 23,345 23,430
__________ __________
Approved: 30 April 2013
Group cash flow statement
For the year ended 31 December 2012
Year ended Year ended
2012 2011
£ 000 £ 000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax 2,118 (6,614)
Adjustments for:
(Gain)/loss on investments (209) 9,007
Scrip dividends (8) (7)
Film income tax deducted at source (3) (4)
Proceeds on disposal of investments at fair 16,255 18,579
value through profit and loss
Purchases of investments at fair value (14,111) (19,756)
through profit and loss
__________ __________
Operating cash flows before movements in 4,042 1,205
working capital
Increase in receivables (3,372) (155)
Increase in payables 1,798 538
__________ __________
Net cash from operating activities before 2,468 1,588
income taxes
__________ __________
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,468 1,588
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on ordinary shares (1,850) (1,800)
Dividends paid on preference shares - (175)
__________ __________
NET CASH USED IN FINANCING ACTIVITIES (1,850) (1,975)
__________ __________
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 618 (387)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 122 509
__________ __________
CASH AND CASH EQUIVALENTS AT END OF YEAR 740 122
__________ __________
Purchases and sales of investments are considered to be operating activities of
the company, given its purpose, rather than investing activities.
1 Basis of preparation and going concern
The financial information set out above contains the financial information of
the company and its subsidiaries (together referred to as the "Group") for the
year ended 31 December 2012. The financial statements have been prepared on the
historical cost basis except for the measurements at fair value of investments,
derivative financial instruments and subsidiaries. The same accounting policies
as those published in the statutory accounts for 31 December 2011 have been
applied.
The information for the year ended 31 December 2012 is an extract from the
statutory accounts to that date. Statutory accounts for 2011, which were
prepared under IFRS as adopted by the EU, have been delivered to the registrar
of companies and those for 2012, prepared under IFRS as adopted by the EU, will
be delivered in due course.
The auditors have reported on the 31 December 2012 year end accounts and their
reports were unqualified and did not include references to any matters to which
the auditors drew attention by way of emphasis without qualifying their reports
and did not contain statements under section 498(2) or (3) of the Companies Act
2006.
The directors, having made enquiries, consider that the Group has adequate
financial resources to enable it to continue in operational existence for the
foreseeable future. Accordingly, the directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the Group's accounts.
2 Income
2012 2011
£ 000 £ 000
Income from investments
UK dividends 1,838 2,119
Overseas dividends 342 506
Scrip and in specie dividends 8 7
Interest on fixed income securities 102 102
Property unit trust income 22 22
Film revenues 179 172
__________ __________
2,491 2,928
__________ __________
Other income
Deposit interest - 1
Other (5) 5
__________ __________
(5) 6
__________ __________
Total income 2,486 2,934
__________ __________
Total income comprises:
Dividends 2,188 2,632
Interest 102 103
Film revenues 179 172
Property income 22 22
(Loss)/gain on foreign exchange (5) 5
__________ __________
2,486 2,934
__________ __________
Income from investments
Listed investments 2,261 2,717
Unlisted investments 231 211
__________ __________
2,492 2,928
__________ __________
Of the £ 2,188,000 (2011 - £2,632,000) dividends received in the group
accounts, £1,571,000 (2011 - £ 2,060,000) related to special and other
dividends received from investee companies that were bought after the dividend
announcement. There was a corresponding capital loss of £1,633,000 (2011 - £
2,183,000), on these investments.
3 Earnings per ordinary share
The calculation of the basic (after deduction of preference dividend) and
diluted earnings per share is based on the following data:
2012 2011
Revenue Capital Total Revenue Capital Total
return return return return
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Earnings:
Basic 1,754 11 1,765 2,233 (9,201) (6,968)
Preference
dividend 350 - 350 350 - 350
__________ __________ __________ __________ __________ __________
Diluted 2,104 11 2,115 2,583 (9,201) (6,618)
__________ __________ __________ __________ __________ __________
Basic revenue, capital and total return per ordinary share is based on the net
revenue, capital and total return for the period after tax and after deduction
of dividends in respect of preference shares and on 25 million (2011: 25
million) ordinary shares in issue.
The diluted revenue, capital and total return is based on the net revenue,
capital and total return for the period after tax and on 35 million (2011: 35
million) ordinary and preference shares in issue.
4 Dividends
2012 2011
£ 000 £ 000
Amounts recognised as distributions to equity
holders in the period:
Dividends on ordinary shares:
Final dividend for the year ended 31 December 2011
of 4.7p (2010:4.5) per share 1,175 1,125
Interim dividend for the year ended 31 December
2012 of 2.7p 675 675
(2011:2.7p) per share
__________ __________
1,850 1,800
__________ __________
Proposed final dividend for the year ended 31
December 2012 of 4.9p (2011:4.7p) per share 1,225 1,175
__________ __________
Dividends on 3.5% cumulative convertible preference
shares:
Preference dividend for the 6 months ended 31
December 2011 of 1.75p (2010:1.75p) per share 175 175
Preference dividend for the 6 months ended 30 June
2012 of 1.75p (2011:1.75p) per share 175 175
__________ __________
350 350
__________ __________
Proposed preference dividend for the 6 months ended
31 December 2012 of 1.75p (2011:1.75p) per share 175 175
__________ __________
The preference dividend for the 6 months ended 31 December 2011 and the
preference dividend for the 6 months ended 30 June 2012 were paid as dividends
in specie.
The proposed final dividend is subject to approval by shareholders at the
Annual General Meeting and has not been included as a liability in these
financial statements in accordance with IFRS.
We have set out below the total dividend payable in respect of the financial
year, which is the basis on which the retention requirements of Sections 1158
and 1159 of the Corporation Tax Act 2010 are considered.
Dividends proposed for the period
2012 2011
£ 000 £ 000
Dividends on ordinary shares:
Interim dividend for the year ended 31 December
2012 of 2.7p (2011:2.7p) per share 675 675
Proposed final dividend for the year ended 31
December 2012 of 4.9p (2011:4.7p) per share 1,225 1,175
__________ __________
1,900 1,850
__________ __________
Dividends on 3.5% cumulative convertible preference
shares:
Preference dividend for the year ended 31 December
2012 of 1.75p (2011:1.75p) per share 175 175
Proposed preference dividend for the year ended 31
December 2012 of 1.75p (2011:1.75p) per share 175 175
__________ __________
350 350
__________ __________
5 Net asset values
Net asset Net assets
value per share attributable
2012 2011 2012 2011
£ £ £ 000 £ 000
Ordinary shares
Undiluted 0.53 0.54 13,345 13,430
Diluted 0.67 0.67 23,345 23,430
The undiluted and diluted net asset values per £1 ordinary share are based on
net assets at the year end and 25 million (undiluted) ordinary and 35 million
(diluted) ordinary and preference shares in issue.
The undiluted net asset value per convertible £1 preference share is the par
value of £1. The diluted net asset value per ordinary share assumes the
conversion of the preference shares to ordinary shares.
Principal risks and uncertainties
The principal risks facing the company relate to its investment activities and
include market risk (other price risk, interest rate risk and currency risk),
liquidity risk and credit risk. The other principal risks to the company are
loss of investment trust status and operational risk. These will be explained
in more detail in the notes to the 2012 Annual Report and Accounts, but remain
unchanged from those published in the 2011 Annual Report and Accounts.
Related party transactions
The company rents its offices from Romulus Films Limited, and is also charged
for its office overheads.
The salaries and pensions of the company's employees, except for the three
non-executive directors, are paid by Remus Films Limited and Romulus Films
Limited and are recharged to the company.
There have been no other related party transactions during the period, which
have materially affected the financial position or performance of the group.
During the period transactions between the company and its subsidiaries have
been eliminated on consolidation.
Capital Structure
The company's capital comprises £35,000,000 (2011 - £35,000,000) being
25,000,000 ordinary shares of £1 (2011 - 25,000,000) and 10,000,000 non-voting
convertible preference shares of £1 each (2011 - 10,000,000). The rights
attaching to the shares will be explained in more detail in the notes to the
2012 Annual Report and Accounts, but remain unchanged from those published in
the 2011 Annual Report and Accounts.
Directors' responsibility statement
The directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. The directors confirm that to
the best of their knowledge the financial statements prepared in accordance
with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and the profit of the company and
the undertakings included in the consolidation taken as a whole and that the
Chairman's Statement, Managing Director's Report and the Directors' report
include a fair review of the information required by rules 4.1.8R to 4.2.11R of
the FSA's Disclosure and Transparency Rules, together with a description of the
principal risks and uncertainties that the company faces.
Annual General Meeting
This year's Annual General Meeting has been convened for Tuesday 18 June 2013
at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.
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