Annual Financial Report

British & American Investment Trust PLC Annual Financial Report for the year ended 31 December 2014 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 29 April 2015 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 2014 2014 2013 (restated) Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Profit/(loss) 2,416 1,703 2,696 (6,222) (3,526) before tax - (713) realised (Loss)/profit before - (3,226) (3,226) - 11,018 11,018 tax - unrealised __________ __________ __________ __________ __________ __________ (Loss)/profit before 2,416 (3,939) (1,523) 2,696 4,796 7,492 tax - total __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 8.48p (15.76)p (7.28)p 9.57p 19.18p 28.75p basic __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 7.06p (11.25)p (4.19)p 7.83p 13.70p 21.53p diluted __________ _________ __________ __________ _________ __________ Net assets 30,895 27,126 __________ __________ Net assets per ordinary share - deducting preference 69p 84p shares at par __________ __________ - diluted 78p 88p __________ __________ Diluted net asset value per ordinary share at 23 April 2015 98p __________ Dividends declared or proposed for the period per ordinary share - interim paid 2.7p 2.7p - final proposed 5.3p 5.1p per preference share 3.5p 3.5p Basic net assets and earnings per share are calculated using a value of par for the preference shares. Consequently, when the net asset value attributed to ordinary shares remains below par the diluted net asset value will show a higher value than the basic net asset value. Chairman's Statement I report our results for the year ended 31 December 2014. Shareholders should note that from this year the group's operations are being reported on as single company accounts under IFRS (International Financial Reporting Standards) and not as previously on a consolidated basis. This follows the introduction of the new reporting standard IFRS 10 which changes the accounting treatment of subsidiaries of investment companies. The implications of this, which are unhelpful for an investment trust group such as ourselves, are explained and commented on in more detail below and throughout these accounts. Most significantly, under the new reporting standard these accounts now only show income received in the parent company and not for the group as a whole, as previously. This change has also required us to restate the prior year results to allow a comparable presentation. Revenue The return on the revenue account before tax amounted to £2.4 million (2013: £ 2.7 million), a decrease of 10 percent. As reported at the interim stage, this reflected the lower level of external dividends sought during the period and their replacement by gains registered within the subsidiary companies and distributed within the group. Gross revenues totalled £2.9 million (2013: £3.0 million). In the previous presentation of our accounts, we were able to show the split in our income between portfolio investments and film, property and other income as received in our subsidiaries but this is unfortunately no longer the case under the new reporting standard, as further explained in the Managing Director's report below. However, because of the importance we attach to these alternative sources of income we show them separately in note 2 to the accounts. This shows that film income of £165,000 (2013: £139,000) and property unit trust income of £24,000 (2013: £22,000) was received in our subsidiary companies. It should be noted for the sake of clarity that this income is not included within the revenue figures noted above. The total return before tax amounted to a loss of £1.5 million (2013: £7.5 million gain), which comprised net revenue of £2.4 million, a realised loss of £0.5 million and an unrealised loss of £3.2 million. The revenue return per ordinary share was 8.5p (2013: 9.6p) on an undiluted basis and 7.1p (2013: 7.8p) on a diluted basis. Net Assets and Performance Net assets at the year end were £27.1 million (2013: £30.9 million), a decrease of 12.2 percent. This compares to decreases in the FTSE 100 and All Share indices of 2.7 percent and 2.1 percent, respectively, over the period. On a total return basis, after adding back dividends paid during the year, our net assets decreased by 4.8 percent compared to a total return on the two indices of between approximately 0.5 percent and 1.0 percent. It is worth noting that over a period of two years our portfolio achieved a total return of 34 percent, compared to a total return of 21 percent by our benchmark indices. This outturn has significantly narrowed the underperformance registered at the half year by approximately 7 percentage points. This is due in part to a recovery in the second half in the sterling value of our largest US investment, Geron Corporation, following a strengthening in the value of the US dollar by 9 percent. Over the year, the value of our investment in Geron has varied significantly in response to a number of very important corporate events which have taken place. As previously reported, the value of this investment had increased substantially at the end of 2013 following the release in the final quarter of that year of very favourable clinical oncology trial results. However, in March of 2014, Geron's share price fell significantly following the imposition of a clinical hold on these trials by the US Federal Department of Health (FDA) pending clarification of certain observed abnormalities. Soon thereafter, in June 2014, this hold was partially lifted (and fully lifted in October 2014). In July 2014, the spin off to shareholders of Geron's important but mothballed regenerative medicine business took place providing additional value to investors as this business was then re-activated and separately quoted with its true value and potential better recognised. Finally, in November 2014, Geron entered into a transformational and very advantageous partnership with Johnson & Johnson, the world's largest pharmaceutical company, to develop its oncology platform for which it will receive milestone payments of almost $1 billion and a share of future royalties. This has therefore been a momentous year for Geron and over that time its share price has moved dramatically, increasing at one point by 250 percent when the Johnson & Johnson partnership was announced, although over the year as a whole the share price has not changed significantly (in US dollar terms). A more detailed account of these developments is given in the Managing director's report below together with views on prospects going forward post the partnership with Johnson & Johnson. More generally, global equity markets remained firm in 2014. As reported at the interim stage, the UK market was steady, trading within a tight range, despite the development of growing political and financial uncertainties worldwide. Equity markets had found continuing support from the high levels of liquidity being provided by central banks in the developed economies. In the second half, however, increasing levels of market volatility were shown as geopolitical concerns began to be taken more seriously and the expectation of the first upward movement in interest rates in the USA and UK would soon occur after an unprecedentedly long period of unchanged and low rates. In the fourth quarter, the US and UK equity markets dipped by 10 percent only to recover swiftly to opening year levels as expectations of the proximity of interest rate rises then receded against a background of slowing economic growth in the USA arising out of the significantly stronger US dollar. Thus, the pattern of markets reacting primarily to expectations of changes in interest rates continued unabated in 2014. The net asset value per ordinary share decreased to 78p (2013: 88p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share decreased to 69p (2013: 84p). Dividend We are pleased to recommend an increased final dividend of 5.3p per ordinary share, which together with the interim dividend makes a total payment for the year of 8.0p (2013: 7.8p) per ordinary share. This represents an increase of 2.6 percent over the previous year's total dividend and a yield of 9.6 percent based on the share price of 83p at the end of the year. The final dividend will be payable on 26 June 2015 to shareholders on the register at 15 May 2015. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. Outlook Equity markets in the UK and USA grew strongly in the first quarter of 2015 by 6 percent and in March exceeded the all time highs registered before the economic crash in 2008. The vast amounts of liquidity pumped into the markets by the central banks of the USA, UK and recently the Eurozone through their quantitative easing programmes have pushed up valuations in both equity and other investment markets as these newly created funds seek a home against a background of historically low and in some cases negative official interest rates. It has to be asked how long this situation can continue as valuations start to be stretched and investment bubbles continue to inflate. In these conditions, any unexpected or even expected shock or change such as a rise in interest rates could lead to a sharp reversal in markets. As noted at the interim stage, we will measure any new investment decisions against the shorter term risks which the current situation poses. Given, however, that the market has continued to rise significantly despite growing uncertainties in the UK arising out of the forthcoming general election and more generally in the US, the Eurozone and globally, we have started to reduce our exposure to the market and sterling by selling down some of our larger and previously core investment holdings in the UK. As at 23 April 2015, our net assets had increased to £34.3 million, an increase of 26.6 percent since the beginning of the calendar year. This increase reflects a rise in the value of our US investments. This is equivalent to 97 pence per share (prior charges deducted at par) and 98 pence per share on a diluted basis. Over the same period the FTSE 100 increased 7.4 percent and the All Share Index increased 7.8 percent. Anthony Townsend 29 April 2015 Managing Director's report 2014 saw the occurrence of a number of notable events both in markets generally and in relation to our own portfolio. As reported at the interim stage, most leading economies, including the UK, finally returned to their pre-recession levels. However, the return to growth had been long and anaemic and economies were still very reliant on the vast levels of liquidity provided by central banks through quantitative easing programmes and the accompanying ultra low interest rates to maintain momentum. By the autumn of 2014, the Federal Reserve had completed its programme of quantitative easing but the softness of the recovery there combined with a strong dollar and continuing weakness globally prompted indications that it was in no hurry to commence raising rates at any time in the near future. Developed countries sought to boost economic growth through both domestic demand and exports through the use of ultra low and in some cases negative official interest rates as a tool to achieve competitive currency devaluation and, in the case of countries such as Switzerland, Germany, Denmark and Norway, as a countermeasure against safe haven deposit inflows. Oil prices fell by almost 50 percent over the year in reaction to muted global demand, the failure of OPEC to control supply and increasing production in the US and Canada coming on stream from fracking and tar sands sources. And although this began to stimulate some activity in retail demand in the US, the deflationary effect both in the US and globally only served to support central banks' determination to continue their liquidity provision operations, culminating in early 2015 with the European Central Bank finally introducing its own programme of quantitative easing in response to deflationary pressures in the Eurozone and continuing economic weakness arising out of debt-related austerity programmes. This combination of circumstances gave rise to a number of effects, most significantly the boom in equity prices which by the turn of the year had reached all time highs in the USA having more than doubled there since 2008 and almost doubled in the UK as investors sought a home for the vast amount of liquidity being created by the central banks in the absence of any meaningful increases in retail bank domestic lending operations. However, because of investors' growing concerns over the many instances of global financial and geopolitical instability, investors at the same time also increased their exposure to the sovereign bonds of safe haven issuers such as the USA, Switzerland and Germany to the extent that short term yields became negative and long term yields remained at all time lows of below 1 percent. In our portfolio, the underperformance reported at the interim stage due to the extreme volatility noted above in our major US investment, Geron Corporation, was reduced as a result of an improvement in the second half in the sterling value of this investment. During the year, the value of this investment both fell and rose over 50 percent for the reasons discussed below, closing the year approximately 30 percent below the year opening price in dollar terms. Excluding this investment, the portfolio achieved a positive return of approximately 2.8 percent, outperforming the bench mark indices. Over a period of two years and including this investment our portfolio achieved a total return of 34 percent, compared to a total return of 21 percent by our benchmark indices. GeronCorporation As mentioned above, Geron experienced a number of very notable events over the year which both boosted and decreased significantly the value of this investment over the period: The previously reported success of its clinical trial results in the treatment of Myelofibrosis, a blood cancer, using its proprietary drug Imetelstat, by its investigators at the Mayo Clinic in the USA had boosted its share price by 250 percent in late 2013 only for it to fall by over 50 percent in March 2014 following the imposition of a clinical hold on these trials by the US Federal Department of Health (FDA) pending clarification of certain observed low grade liver function abnormalities. This hold was partially lifted in June 2014 and then fully lifted in October 2014. Despite this, however, Geron's share price did not return to the higher levels of over $5 prior to the imposition of the clinical hold but remained at approximately 50 percent below this level. In July 2014, Geron spun off its regenerative medicine (stem cell) business to shareholders in a new vehicle called Asterias Biotherapeutics. This important business which had previously represented a major part of Geron's operations and in which Geron was the acknowledged world leader had been inexplicably discontinued by Geron a year earlier. After its distribution to shareholders, including ourselves, the business was reactivated by new management, refinanced and separately listed. Since when, the market value of Asterias and accompanying options has more than doubled, thus creating additional value for Geron shareholders. We are most grateful to our own major shareholder, Romulus Films, who were instrumental in procuring the demerger and its financing. In November 2014, Geron announced a transformational partnership with Johnson & Johnson, the world's largest pharmaceutical company, to develop its Imetelstat oncology platform for which it will receive milestone payments of almost $1 billion and a share of future royalties. This is a very advantageous transaction for Geron as it transfers the development of its ground breaking oncology technology to one of the world's most financially, technically and operationally strong pharmaceutical companies, thereby eliminating many of the risks encountered by small biotech companies seeking to bring a major new and disruptive product to market. Geron's share price rose by 250 percent on the announcement of this transaction as the market recognised its benefits; however, this remains far below the value achieved at the end of 2013 when the initial clinical trial results were revealed and before the Johnson & Johnson partnership was announced. For this reason, we believe that there is scope for significant value appreciation in Geron and we will remain invested until such time as the benefits of the Johnson & Johnson partnership begin to be fully recognised and valued by the market. We will also maintain our investments in Asterias Biotherapeutics and its parent Biotime Inc, both of which have performed well over the last year, as the regenerative medicine business of these two companies develops further in this increasingly important market over the coming years. Outlook The persistently low levels of volatility in equity markets during most of 2014 were puzzling given the array of financial, economic and geopolitical uncertainties which had been getting steadily more acute over the period. Towards the end of 2014 and into 2015 markets finally recognised these uncertainties and began reinvesting in safe haven instruments such as developed country bonds, accepting in some case even negative returns as security against the perceived risks of deflation, long term stagnation and political instability. Nevertheless, equity market investment has continued to be favoured in a bid to find yield, resulting in stretched valuations developing in these markets. In the UK, we have the additional uncertainty of a very unpredictable and potentially politically destabilising general election in May. The prospect of this has already caused markets to show increased volatility with the FTSE 100 rising and falling up to 5 percent a number of times in March and April. Such volatility is only likely to persist as the election approaches and when combined more generally with the record growth seen in most equity markets over the past seven years despite the growing global economic and geopolitical uncertainties, we have as a precaution started to reduce our exposure to the market and sterling by selling down some of our larger and previously core investment holdings in the UK. We will maintain this cautionary stance for the foreseeable future until it is clear whether the various risks alluded to above are mitigated through successful management by central banks and governments of the difficulties and imbalances currently being experienced by economies, markets and countries around the world. International Financial Reporting Standard (IFRS) 10 The introduction in 2014 of the new accounting standard IFRS 10 which affects the accounting treatment of the subsidiaries of investment companies has required us to change the presentation of our accounts from consolidated group accounts to accounts of the parent company only. As a result, we no longer show all the assets and movements within the parent company and its subsidiaries grouped together, but instead we are now required to show only the assets and movements of the parent company plus a fair value investment valuation of the subsidiaries in the parent, without an account of the operations of those subsidiaries. We understand that this change, which we believe is singularly unhelpful for an investment trust group such as ourselves for the reasons given below, was in response to representations made by the private capital industry whose typical structure comprises a group of disparate investment vehicles which they believe is not susceptible to a consolidation approach. Because of a very late and substantial amendment introduced in December 2014 by the International Accounting Standards Board to the precise definitions contained in IFRS 10, we are advised that this now applies to our structure as a group of subsidiary investment companies below an authorised investment trust parent. It is most unfortunate that this late amendment has resulted in our having to apply two different bases of accounting within the same year (our 2014 interim accounts were prepared on a consolidated basis), but more importantly we believe that going forward having to present our accounts on the IFRS and non-consolidated basis is, in our case, very disadvantageous to our shareholders and potential investors, reducing greatly the level of transparency within the group and the visibility of our group's investment performance and potential. For example, as the individual operations of the subsidiary companies are not reported upon in this new presentation, the level of film royalties earned by our film library subsidiary is no longer shown. Nor is the level of property related income received by another subsidiary shown. Instead, a fair value calculation of these assets is made (resulting this year in a write up of the value of the film library by £795,000 as part of the fair value investment valuation by the parent company in its subsidiaries). No reporting of the level or pattern of film or other income in the subsidiaries is made on which shareholders or potential investors could form a view of the quantum, balance, valuation and future income potential of these assets and the group as a whole. Similarly, all other operations of the subsidiary companies whether income or expenditure in nature (ie dividend or non-dividend income, management expenses or interest costs) and their investments are no longer reported upon and remain obscure. We do not believe that this is at all helpful for investors in a listed investment trust seeking to evaluate and understand the existing value and future potential of their investment. For this reason, we have decided to include in a separate note an account of the film and property revenues received by the subsidiaries, both of which are important elements in our group's operations by providing an alternative and steady source of income which we know is of interest to investors and differentiates our group from other investment trusts. Furthermore, we believe that this new presentation of our accounts is likely to add considerable volatility to the reporting of earnings in the years to come. This is because the income of the subsidiaries is no longer reported (as noted above) and consequently, unless the subsidiaries' income is distributed up to the parent during the year, our accounts will no longer show total group income. In previous years we have both distributed such income and not distributed it, depending on circumstances such as the availability of distributable reserves in the various parts of the group, the nature of the income (whether for example income or capital gain) and varying levels of expenditure in any one year. Clearly, it is a disadvantage for investors not to have the visibility of a relatively predictable pattern of group income and by extension an understanding of the distributable reserves potential within the group available for future dividend payments. Income generation and sustainability, portfolio yield and dividend potential are some of the most important metrics which investors use to analyse and evaluate investment trusts and these will be considerably less visible, if measurable at all on a group basis, under the new reporting format. It is a great pity that by the introduction of IFRS 10 in an inflexible way the accounting standards profession has once again failed in our case to address the realities and requirements of all companies to which it seeks to apply its rules. Jonathan Woolf 29 April 2015 Income statement For the year ended 31 December 2014 2014 2013 (restated) Revenue Capital Total Revenue Capital Total return return return return £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 Investment income (note 2,871 - 2,871 3,073 - 3,073 2) Holding (losses)/gains on investments at fair value through profit or loss - (3,226) (3,226) - 11,018 11,018 Losses on disposal of investments at fair - (313) (313) - (6,013) (6,013) value through profit or loss Foreign exchange losses - (147) (147) - - - Expenses (398) (225) (623) (372) (209) (581) ________ ________ ________ ________ ________ ________ (Loss)/profit before (3,911) finance costs and tax 2,473 (1,438) 2,701 4,796 7,497 Finance costs (57) (28) (85) (5) - (5) ________ ________ ________ ________ ________ ________ (Loss)/profit before 2,416 2,696 tax (3,939) (1,523) 4,796 7,492 Tax 54 54 46 - 46 - ________ ________ ________ ________ ________ ________ (Loss)/profit for the 2,470 2,742 period (3,939) (1,469) 4,796 7,538 ________ ________ ________ ________ ________ ________ Earnings per share Basic - ordinary shares 8.48p (15.76)p (7.28)p 9.57p 19.18p 28.75p ________ ________ ________ ________ ________ ________ Diluted - ordinary 7.06p (11.25)p (4.19)p 7.83p 13.70p 21.53p shares ________ ________ ________ ________ ________ ________ The company does not have any income or expense that is not included in the profit for the period. Accordingly, the '(Loss)/profit 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 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 company. Statement of changes in equity For the year ended 31 December 2014 Share Capital Retained Total capital reserve earnings £ 000 £ 000 £ 000 £ 000 Balance at 31 December 2012 - 35,000 (11,151) 1,758 25,607 restated* (note 6(c)) Changes in equity for 2013 - restated* Profit for the period - 2,742 7,538 4,796 Ordinary dividend paid (note 4) - - (1,900) (1,900) Preference dividend paid (note 4) - - (350) (350) ________ ________ ________ ________ Balance at 31 December 2013 - 35,000 (6,355) 2,250 30,895 restated* (note 6(a)) Changes in equity for 2014 (Loss)/profit for the period - (3,939) 2,470 (1,469) Ordinary dividend paid (note 4) - - (1,950) (1,950) Preference dividend paid (note 4) - - (350) (350) ________ ________ ________ ________ Balance at 31 December 2014 35,000 (10,294) 2,420 27,126 ________ ________ ________ ________ * restated - see note 6 Registered number: 00433137 Balance Sheet For the year ended 31 December 2014 2014 2013 2012 (restated*) (restated*) £ 000 £ 000 £ 000 Non-current assets Investments - fair value through profit or 27,334 29,559 18,654 loss Subsidiaries - fair value through profit or 6,499 8,338 4,526 loss __________ __________ __________ 33,833 37,897 23,180 Current assets Receivables 1,406 1,647 2,943 Derivatives - fair value through profit or 2,635 loss 87 395 Cash and cash equivalents 250 225 716 __________ __________ __________ 1,743 2,267 6,294 __________ __________ __________ Total assets 35,576 40,164 29,474 __________ __________ __________ Current liabilities Trade and other payables 1,414 3,690 1,293 Bank loan 2,743 1,448 - __________ __________ __________ (4,157) (5,138) (1,293) __________ __________ __________ Total assets less current liabilities 31,419 35,026 28,181 __________ __________ __________ Non - current liabilities (4,293) (4,131) (2,574) Net assets 27,126 30,895 25,607 __________ __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 25,000 25,000 Convertible preference share capital 10,000 10,000 10,000 Capital reserve (10,294) (6,355) (11,151) Retained revenue earnings 2,420 2,250 1,758 __________ __________ __________ Total equity 27,126 30,895 25,607 __________ __________ __________ * restated - see note 6 Approved: 29 April 2015 Cash flow statement For the year ended 31 December 2014 Year ended Year ended 2014 2013 £ 000 £ 000 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before tax (1,523) 7,492 Adjustments for: Losses/(profits) on investments 3,539 (5,005) Scrip dividends (25) (9) Income tax deducted at source - (83) Proceeds on disposal of investments at fair value through profit and loss 5,866 22,129 Purchases of investments at fair value through profit and loss (4,170) (22,831) Interest paid 85 5 __________ __________ Operating cash flows before movements in working capital 3,772 1,698 Increase in receivables (784) (2,031) (Decrease)/increase in payables (2,277) 428 __________ __________ NET CASH FROM OPERATING ACTIVITIES BEFORE INTEREST 711 95 Interest paid (85) (5) __________ __________ NET CASH FROM OPERATING ACTIVITIES AFTER INTEREST BEFORE TAXATION 626 90 Taxation 54 46 __________ __________ NET CASH FROM OPERATING ACTIVITIES 680 136 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (1,950) (1,900) Dividends paid on preference shares - (175) Bank loan 1,295 1,448 __________ __________ NET CASH USED IN FINANCING ACTIVITIES (655) (627) __________ __________ NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 25 (491) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 225 716 __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR 250 225 __________ __________ 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 for the year ended 31 December 2014. This is the first year that the company has presented its financial statements under IFRS. The last set of annual financial statements was for the year ended 31 December 2013, and the date of transition to IFRS was therefore 1 January 2013. Accordingly, a full reconciliation of the changes is shown in Note 6. 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 group consolidated statutory accounts for 31 December 2013 have been applied in the company statutory accounts for the year ended 31 December 2014. The information for the year ended 31 December 2014 is an extract from the statutory accounts to that date. Statutory group consolidated accounts for 2013, which were prepared under IFRS as adopted by the EU, and included company accounts prepared under UK GAAP, have been delivered to the registrar of companies and company statutory accounts for 2014, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditors have reported on the 31 December 2014 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 company 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 company's accounts. 2 Income 2014 2013 £ 000 £ 000 Income from investments UK dividends 528 2,431 Overseas dividends 42 484 Scrip and in specie dividends 25 9 Dividend from subsidiary 2,151 - Interest on fixed income securities 103 102 __________ __________ 2,849 3,026 __________ __________ Other income 22 47 __________ __________ Total income 2,871 3,073 __________ __________ Total income comprises: Dividends 2,746 2,924 Interest 103 102 Gain on foreign exchange - 46 Other interest 22 1 __________ __________ 2,871 3,073 __________ __________ Income from investments Listed investments 595 2,924 Unlisted investments 2,151 - __________ __________ 2,746 2,924 __________ __________ Of the £2,746,000 (2013 - £2,924,000) dividends received in the company accounts, £nil (2013 - £2,351,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of £nil (2013 - £ 2,442,000), on these investments. Under IFRS 10 the income analysis this year is for the parent company only rather than that of the consolidated group shown in previous years. Thus film revenues of £165,000 (2013 - £138,000) received by the subsidiary British and American Films Limited and property unit trust income of £24,000 (2013 - £ 22,000) received by the subsidiary BritAm Investments Limited are shown separately in this paragraph. 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: 2014 2013 (restated) Revenue Capital Total Revenue Capital Total return return return return £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 Earnings: Basic 2,120 (3,939) (1,819) 2,392 4,796 7,188 Preference dividend 350 - 350 350 - 350 __________ __________ __________ __________ __________ __________ Diluted 2,470 (3,939) (1,469) 2,742 4,796 7,538 __________ __________ __________ __________ __________ __________ 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 (2013: 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 (2013: 35 million) ordinary and preference shares in issue. 4 Dividends 2014 2013 £ 000 £ 000 Amounts recognised as distributions to equity holders in the period: Dividends on ordinary shares: Final dividend for the year ended 31 December 2013 of 5.1p (2012:4.9) per share 1,275 1,225 Interim dividend for the year ended 31 December 2014 of 2.7p 675 675 (2013:2.7p) per share __________ __________ 1,950 1,900 __________ __________ Proposed final dividend for the year ended 31 December 2014 of 5.3p (2013:5.1p) per share 1,325 1,275 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the 6 months ended 31 December 2013 of 1.75p (2012:1.75p) per share 175 175 Preference dividend for the 6 months ended 30 June 2014 of 1.75p (2013:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ Proposed preference dividend for the 6 months ended 31 December 2014 of 1.75p (2013:1.75p) per share 175 175 __________ __________ The preference dividends for the 6 months ended 31 December 2013 and the 6 months ended 30 June 2014 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 Section 1158 of the Corporation Tax Act 2010 are considered. Dividends proposed for the period 2014 2013 £ 000 £ 000 Dividends on ordinary shares: Interim dividend for the year ended 31 December 2014 of 2.7p (2013:2.7p) per share 675 675 Proposed final dividend for the year ended 31 December 2014 of 5.3p (2013:5.1p) per share 1,325 1,275 __________ __________ 2,000 1,950 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the year ended 31 December 2014 of 1.75p (2013:1.75p) per share 175 175 Proposed preference dividend for the year ended 31 December 2014 of 1.75p (2013:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ 5 Net asset values Net assets Net asset attributable value per share restated (restated) restated (restated) 2014 2013 2012 2014 2013 2012 £ £ £ £ 000 £ 000 £ 000 Ordinary shares Undiluted 0.69 0.84 0.62 20,895 17,126 15,607 Diluted 0.78 0.88 0.73 30,895 27,126 25,607 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. 6 Transition to IFRS This is the first year that the company has presented its separate financial statements under IFRS. The last set of annual financial statements was for the year ended 31 December 2013, and the date of transition to IFRS was therefore 1 January 2013. Accordingly, a full reconciliation of the changes is shown below. 6 (a) Restatement of balances for the year ended 31 December 2013 Previously reported Effect of Restated (UK GAAP) transition (IFRS) 31 to 31 December IFRS December 2013 2013 £000 £000 £000 Investments - fair value through profit 29,559 - 29,559 or loss Subsidiaries - fair value through profit or loss (note 1) 7,504 834 8,338 Current assets 2,267 - 2,267 Current liabilities (5,138) - (5,138) __________ __________ Total assets less current liabilities 34,192 35,026 __________ __________ Non - current liabilities (4,131) (4,131) __________ __________ Net assets 30,061 30,895 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 - 25,000 Convertible preference share capital 10,000 - 10,000 Capital reserve (note 1) (7,189) 834 (6,355) Retained revenue earnings 2,250 - 2,250 __________ __________ Total equity 30,061 30,895 __________ __________ Note 1 Investments are designated as held at fair value under IFRS. Previously, under UK GAAP investments in subsidiaries included films rights recorded as an amortised intangible asset. This results in an upward revaluation of £834,000 in investments and an increase in capital reserves. 6 (b) Reconciliation of the Statement of Total Return to the Income Statement for the year ended 31 December 2013 2013 £000 Reported revenue gain under UK GAAP 2,742 Reported capital gain under UK GAAP 4,868 __________ Total return under UK GAAP 7,610 Movement in fair value December 2012 (906) Movement in fair value December 2013 834 __________ Reported total return under IFRS 7,538 __________ 6 (c) Restatement of balances for the year ended 31 December 2012 Previously reported Effect of Restated (UK GAAP) transition (IFRS) 31 to 31 December IFRS December 2012 2012 £000 £000 £000 Investments - fair value through profit 18,654 - 18,654 or loss Subsidiaries - fair value through profit or loss (note 1) 3,620 906 4,526 Current assets 6,294 - 6,294 Current liabilities (1,293) - (1,293) __________ __________ Total assets less current liabilities 27,275 28,181 __________ __________ Non - current liabilities (2,574) - (2,574) __________ __________ Net assets 24,701 25,607 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 - 25,000 Convertible preference share capital 10,000 - 10,000 Capital reserve (note 1) (12,057) 906 (11,151) Retained revenue earnings 1,758 - 1,758 __________ __________ Total equity 24,701 25,607 __________ __________ Note 1 Investments are designated as held at fair value under IFRS. Previously, under UK GAAP investments in subsidiaries included films rights recorded as an amortised intangible asset. This results in an upward revaluation of £906,000 in investments and an increase in capital reserves. 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 2014 Annual Report and Accounts, but remain unchanged from those published in the 2013 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 company. Capital Structure The company's capital comprises £35,000,000 (2013 - £35,000,000) being 25,000,000 ordinary shares of £1 (2013 - 25,000,000) and 10,000,000 non-voting convertible preference shares of £1 each (2013 - 10,000,000). The rights attaching to the shares will be explained in more detail in the notes to the 2014 Annual Report and Accounts, but remain unchanged from those published in the 2013 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 loss of the company 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 Thursday 25 June 2015 at 4.00pm at Wessex House, 1 Chesham Street, London SW1X 8ND.

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