Annual Financial Report

British & American Investment Trust PLC

Annual Financial Report for the year ended 31 December 2016

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: [phone]
	Registered in England
	No.433137
	28 April 2017

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 2016

	2016			2015
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£000	£000	£000	£000	£000	£000
(Loss)/profit before tax – realised	1,474	(2,502)	(1,028)	2,701	(1,219)	1,482
(Loss)/profit before tax – unrealised	–	(4,134)	(4,134)	–	3,925	3,925
	__________	__________	__________	__________	__________	__________
(Loss)/profit before tax – total	1,474	(6,636)	(5,162)	2,701	2,706	5,407
	__________	__________	__________	__________	__________	__________
Earnings per £1 ordinary share – basic	4.63p	(26.55)p	(21.92)p	9.51p	10.83p	20.34p
	__________	__________	__________	__________	__________	__________
Earnings per £1 ordinary share – diluted	4.31p	(18.96)p	(14.65)p	7.80p	7.73p	15.53p
	__________	_________	__________	__________	_________	__________
Net assets			22,682			30,211
			__________			__________
Net assets per ordinary share
– deducting preference    shares at par			51p			81p
			__________			__________
– diluted			65p			86p
			__________			__________
Diluted net asset value per ordinary share at 25 April 2017			67p
			__________
Dividends declared or proposed for the period
per ordinary share
– interim paid			2.7p			2.7p
– final proposed			5.7p			5.5p
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 2016.

Revenue

The return on the revenue account before tax amounted to £1.5 million (2015:  £2.7 million), a decrease of 44 percent. A significant portion of this decline was due to a lower level of dividend receipts from subsidiary companies compared to the previous year, whereas external dividends received by the parent company were slightly higher compared to the previous year.

Gross revenues totalled £2.3 million (2015:  £3.2 million). Film income of £85,000 (2015:  £88,000) and property unit trust income of £15,000 (2015:  £17,000) was received in our subsidiary companies. In accordance with IFRS10, these income streams are not included within the revenue figures noted above.

The total return before tax amounted to a loss of £5.2 million (2015:  £5.4 million gain), which comprised net revenue of £1.5 million, a realised loss of £2.1 million and an unrealised loss of £4.1 million. The revenue return per ordinary share was 4.6p (2015:  9.5p) on an undiluted basis and 4.3p (2015:  7.8p) on a diluted basis.

Net Assets and Performance

Net assets at the year end were £22.7 million (2015:  £30.2 million), a decrease of 24.9 percent. This compares to increases in the FTSE 100 and All Share indices of 14.4 percent and 12.5 percent, respectively, over the period. On a total return basis, after adding back dividends paid during the year, our net assets decreased by 16.6 percent compared to a 19.1 percent increase and a 16.8 percent increase in the FTSE 100 and All Share indices, respectively. This significant underperformance was due to a fall in the value of our largest US investment, Geron Corporation, of almost 60 percent.   This large fall occurred in the early part of 2016 as reported at the interim stage and had followed a significant rise of almost 80 percent at the end of the previous year. Our other two US investments also showed weakness following a substantial fall in the NASDAQ market at the beginning of the year but had recovered some of the declines by year end, unlike Geron which had not. More detailed information on the reasons for these large movements in Geron’s stock price and current prospects are set out in the Managing Director’s report below.

More generally in 2016, the UK and US equity markets had shown meaningful, if somewhat erratic, growth in the first half increasing by approximately 3.7 percent and 2.9 percent respectively in response to looser than expected monetary policy from the central banks as anticipated levels of growth in the USA and China brought forward from the previous year started to be doubted. As a result the expected frequency of US dollar interest rate rises had not occurred which supported equity markets in the first half. This firmness was then rudely interrupted at the end of June by the surprising result of the UK’s Brexit referendum, presaging the UK’s exit from the European Union. This had an immediate impact on the pound sterling which fell 14 percent against the US dollar and the UK equity market which initially fell 3 percent. However, the UK equity market recovered within days as investors realised that the substantial fall in sterling would assist UK exports and those many FTSE companies whose earnings were generated significantly in foreign currencies. The fall in sterling did not, however, reverse and in fact it fell a further 7 percent towards the end of the year to an over 30 year low against the US dollar when the new UK Prime Minister indicated that the exit from the EU was likely to entail exit from the EU single market trading area. The US and other international equity markets similarly fell on the news of Brexit but also recovered relatively quickly to continue their upward movement until the second shock event of the year, namely the unexpected result of the US Presidential election in November. This had a galvanising effect on equity prices worldwide as the fiscally and economically expansionary policies of the incoming Trump administration were seen to be strongly beneficial for US companies and by extension other international markets. The UK and US equity indices rose by a further 5 percent and 8 percent in the final six weeks of the year to end up 14.4 percent and 12.2 percent overall. At the same time, the US dollar, which had continued its appreciation throughout 2016 rose a further 4 percent in its traded weighted basket to a high not seen since 2002.

The net asset value per ordinary share decreased to 65p (2015:  86p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share decreased to 51p (2015: 81p).

Dividend

We are pleased to recommend an increased final dividend of 5.7p per ordinary share, which together with the interim dividend makes a total payment for the year of 8.4p (2015:  8.2p) per ordinary share. This represents an increase of 2.4 percent over the previous year's total dividend and a yield of 8.8 percent based on the share price of 95p at the end of the year. The final dividend will be payable on 29 June 2017 to shareholders on the register at 26 May 2017. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share.

We are pleased to have been named as a ‘Dividend Hero’ by the Association of Investment Companies this year as one of the 20 investment trusts which have maintained a consistent 20 year record of increasing dividends. This is obviously good news for the company and shareholders alike.

Investment Policy

We propose to make a modification to our published investment policy to take into account movements in our portfolio over recent periods.

As shareholders are aware, in recent years the company has invested in certain US quoted companies. These investments were in furtherance of the company's published investment policy in relation to growth. Over time, these investments, particularly in Geron Corporation and latterly in Biotime Inc and Asterias Biotherapeutics (which was spun out of Geron in 2014) have taken on a greater significance within the portfolio both in terms of value and strategic importance as core holdings. These investments accounted for 33.4 percent of assets as at the date of our last published Annual Report to 31/12/2015 and 33.3 percent of assets as at the date of our last Interim Statement to 30/6/2016.

The background to and evolution of our investments in these US companies has been discussed at length in our annual and interim reports over recent years. An update on the current investments in these companies and their prospects is set out more fully in the Managing Director’s report below.

In order to provide investors with a clear understanding of our current portfolio positioning and investment strategy we propose now to add specific mention of US stocks to our published investment strategy, which will be as follows:

"To invest predominantly in investment trusts and other leading UK and US-quoted companies to achieve a balance of income and growth".

A more detailed statement of our investment policy and the proposed changes to it is set out in the Investment policy section in the Business Review of the Annual Report.

This proposal will be submitted for shareholder approval at the forthcoming AGM.

Change of Auditors

Following a review and formal tender process which took place in November last year, we have decided to appoint Hazlewoods LLP as our auditors for the 2017 financial year. We thank Grant Thornton who have been our auditors since 2006 for the diligent work they have done for us over many years.

Outlook

The strong upward movement in global equity prices and the US dollar persisted through into the first quarter of 2017 as the reflationary programme of the incoming Trump administration galvanised the animal spirits of investors which had been absent since the recession of 2008/9. All time record highs were reached by the leading indices in the UK and USA in early March after extended periods of daily gains not seen for many years. This momentum lasted until the end of March when markets began to doubt the administration’s ability to deliver its programme after it failed to persuade a Republican controlled Congress to pass its first measure relating to public healthcare. This serious setback created doubts over the implementation of the other two fundamental areas of the programme which had driven the market forward, namely tax cuts and infrastructure investment. As a result, the almost 7 percent rise in the US market seen up to that point was reduced to 4 percent by quarter end.

When these programme uncertainties in the USA and an avowed protectionist agenda are combined with the prospect of equally important changes of a political nature in Europe (Brexit and multiple European elections with the potential for more populist anti-government results), the recently called and unexpected general election in the UK, it is difficult for investors to know how markets will react over the medium term to these imminent and non-financial drivers. The trends of recent years, involving a slow recovery from recession over a considerable period of time and US dollar strength were set to continue until the surprising events of 2016. However, these events suddenly galvanised markets and would have set a new long term direction for them had not the recently revealed weakness of the Trump administration and a disunited Republican party put this new dynamic for markets in doubt. Like 2016, it would appear that 2017 may have a similar capacity to surprise and wrong foot markets. Consequently we will continue with our current strategy of investing for growth and income from our UK and US equity investments.

As at 25 April 2017, our net assets had increased to £23.6 million, an increase of 3.9 percent since the beginning of the calendar year. This is equivalent to 54 pence per share (prior charges deducted at par) and 67 pence per share on a diluted basis. Over the same period the FTSE 100 increased 1.9 percent and the All Share Index increased 3.1 percent.

Anthony Townsend

28 April 2017

Managing Director's report

Two wholly unexpected and market altering events occurred in 2016: the result of the Brexit referendum in the UK in June and the election of Donald Trump as US president in November.

Prior to these two events, financial markets had been experiencing a softening in the pace of recovery from the recession of earlier years, as reported on at the interim stage. Weakness in commodity prices and particularly oil which reached multi-year lows in the first half of 2016, together with slowing growth in China had sown doubts on the strength of the recovery in the USA and the expected pace of increase in US dollar interest rates over the year. As a result, a return to safety began to be seen with US treasury bonds and the US dollar being favoured again. However, with the prospect of interest rates continuing lower for longer as a result, particularly in the US, liquidity found its way into equity markets, which although sluggish over the first half of the year, remained supported ending up by 3 percent at end June.

The result of the Brexit referendum in June had an immediate and significant effect on both the UK and global markets as its implications and wider ramifications were digested and speculated on by the investment and currency markets. In the UK, the equity market dropped by 3 percent on the day and £ sterling dropped by 14 percent to its lowest level against the US dollar for over 30 years. These reactions in the immediate aftermath were based on the shock of the result and understandable concerns going forward that leaving Europe would place a burden on the UK’s economic prospects for a considerable period of time while the disengagement process was worked through and new economic and trading paradigms were introduced.

While £ sterling did not recover from this large drop for the rest of the year, UK equity markets did recover quite strongly and quickly as it was perceived, certainly in the short term, that the collapse in £ sterling would offer a considerable boost to UK exports and encourage foreign investment into newly devalued UK assets. This effect was particularly evident in the value of FTSE 100 companies which tend to generate a significant proportion of their income in foreign currencies. The FTSE100 index rose by 10 percent in the second half of the year.

The second unexpected event of the year in the USA, the election of Donald Trump, had a similar galvanising effect on the US dollar and equity markets as his expansionary if isolationist policies of stimulating growth through infrastructure investment, cutting taxes and reducing financial regulation boosted the dollar and the US equity market considerably. US banks and corporates would be clear beneficiaries of these policies and the countervailing concerns of new trade barriers, increased budget deficits and government debt, higher interest rates and an unhelpfully stronger dollar were drowned out by the exuberance of the moment which prevailed through to 2017.

As noted in the Chairman’s statement, the significant portfolio underperformance which we reported at the interim stage carried through to the full year. The 60 percent drop in the US dollar price of our largest US investment, Geron Corporation, which had occurred in the early months of 2016 after a sharp rise at the end of 2015 tracked a rise of 11 percent and then fall of 15 percent in the NASDAQ index over the change of year. The strength of the US dollar against a significantly weakened £ sterling in 2016 mitigated to some extent this severe drop in the US dollar value of this investment. Although the NASDAQ recovered during 2016, Geron’s price did not. However the prices of our other two US investments, Biotime and Asterias were able to recover part of the similar declines they experienced at the beginning of 2016 by the year end.  Our UK portfolio investments, being mostly invested in investment trusts, tracked more closely market movements over the year. We also took the opportunity in the second part of the year to sell down a significant proportion of our fixed interest investments which had seen good increases in capital values over recent years as by then market expectations of firming long term interest rates had begun to take hold and were indeed followed up by actual increases.

US Investments

Over recent years, our investments in US biotechnology companies have taken on an increasingly important role in our portfolio. Because these investments now represent a significant proportion of our portfolio (33 percent as at 31 December 2016) and are expected to continue to grow in size as their development cycles progress and attract further value as the technology is validated, we have as noted above decided to modify our published investment policy to include US stocks as a fundamental part of the policy.

Geron Corporation

As we have reported in recent years, our investment in Geron Corporation has grown to become the largest single position in our portfolio. This was further added to when in 2014, Geron’s world-leading regenerative medicine business was spun off into a new listed vehicle, Asterias Biotherapeutics, and we participated in this process. In addition, we have invested in Asterias’ parent company, Biotime Inc, which partnered in the spin-off operation.

The original and ongoing purpose of the investment in these US biotechnology and bio-pharma companies was in furtherance of the capital growth element of our investment strategy. As these companies pass through the multi-year stages in their pre-clinical and clinical testing cycles to final approval and commercialisation, they can produce substantial levels of capital growth of many times their original values. In the case of the three companies we have invested in, Geron, Asterias and Biotime, we believe that the particular areas of oncology and regenerative medicine in which they operate and to which they bring their novel and increasingly validated science and technology will offer ground-breaking remedies to a wide range of important and presently untreatable conditions from which these companies will derive substantial value.

However, the share price volatility of early stage biotechnology stocks can also be very high and prices can move considerably more than even the generally volatile NASDAQ Biotech sector index as eagerly awaited trial result success or failures are announced or anticipated. We have experienced this ourselves to the full in recent years and most notably  2015/6. In Geron’s case, for instance, the share price rose 80 percent at the end of 2015, partly in response to a substantial rise in the NASDAQ at that time, but also because of very promising news confirming efficacy and safety of Immetelstat, its lead drug in two haematological myeloid malignancies, Myelofibrosis (MF) and Myelodysplastic syndrome (MDS). Then, early in 2016, the price fell abruptly by 60 percent, again tracking a fall in the NASDAQ. However, while the NASDAQ recovered during 2016 along with the main market, Geron’s stock price did not, mainly as a result of a lack of any further news during the year on the progress of its clinical trials being run since 2015 by Johnson & Johnson, the world’s largest pharmaceutical company. News is the lifeblood of early stage biotech companies which typically have no income to rely on for support in the market, just the anticipation of progress towards the eventual success of commercialisation. While admittedly no news can sometimes be positively construed in the absence of bad news if the clinical trials are proceeding on their planned course without needing adjustment for efficacy or safety reasons, early stage biotech companies usually try hard to keep investors abreast on trial progress on a regular basis in order to keep market interest in their stocks alive. Unfortunately, during the year Geron management have not been at all proactive in this respect and as a result allowed the market to speculate negatively on the stock in 2016.

Furthermore, in September 2016, Geron’s management issued an emergency announcement over a weekend to say that the lower level dose of Immetelstat in the Johnson & Johnson trial was being discontinued, although the higher level dose, which was always intended to be the level expected to provide efficacy was being continued. As might have been foreseen,  the market took this widely criticised announcement very badly and Geron’s share price has remained marooned at two year lows since then.

More recently, however, a positive trial update was released by Johnson & Johnson earlier this month at a leading US haematology conference confirming good progress of the trials with continued indications of efficacy and the development of plans to take the drug through to the final and important Phase 3 stage which precedes the approval process. Geron’s share price reacted favourably to this good news, increasing by 20 percent on the day.

This illustrates admirably the susceptibility of biotech companies to high levels of volatility in their journeys towards market acceptance and recognition of their true value. It also, however, provides investors such as ourselves with opportunities to capture substantial levels of capital growth in well selected stocks.

This pattern of volatility with potential for significant capital growth is also well demonstrated in the cases of our two other US biotech investments:

Asterias Biotherapeutics

In 2014, Geron spun out its regenerative medicine business into Asterias which was floated in early 2015. The initial stock price of $3.90 grew to over $10 within two months as investors scrambled to buy in to the world-leading regenerative medicine technology of this tightly held company and we realised substantial profits at that time on part of the holding.  Over the subsequent year the stock price drifted down to $4 but we still record a capital return of 20 percent over our investment cost as at the year end. Over that time, the management of Asterias has provided regular and positive updates on the progress of its stem cell technology in its first and world–exclusive spinal cord injury trials in the USA which are on track to offer real hope to quadriplegics who would otherwise be totally paralysed for life. Of the six patients treated in the recent trial, all have regained sufficient movement and sensation to be able to use/feel their hands and arms to a greater or lesser extent, a development which is fundamental to the quality of life of a quadriplegic person. Asterias is also initiating an important oncology trial in lung and breast cancer with Cancer Research UK based on its stem cell technology.

Biotime Inc

Biotime, which is also majority controller of Asterias and therefore itself set to capture the gains Asterias is expected to make, is pursuing a number of clinical trials based on its wide ranging pluripotent stem cell technology, initially in the areas of macular degeneration and facial lipotrophy where it is offering solutions to ailments such as Dry Eye AMD and AIDS related facial disfiguration which have hitherto had no effective treatment with high numbers of sufferers worldwide. The latter treatment if successful will then also be applied to the multi-billion dollar worldwide facial aesthetics market.

Biotime also has a number of other ground-breaking initiatives based on its human genome analysis technology which are likely to provide important medical innovations in the areas of cancer testing, disease taxonomy and e-medicine based on big data analysis (the latter in collaboration with Apple Inc). Biotime has also recently announced the formation of a new subsidiary, AgeX Therapeutics, to capitalise on its proprietary stem cell IP in various areas of age-related disease modification using a newly developed cell renewal technology call iTR (Induced Tissue Regeneration) through which, for instance, diseased heart muscle cells are given a new lease of life through the injection of rejuvenated cells using this process.

Biotime’s stock price has been equally volatile over the years, but for us value accretive with a capital return of 35 percent on our investment cost as at the year end.

Outlook

In the UK, the economic reaction to the Brexit vote has not been as feared by the Bank of England which in the immediate aftermath of the vote had provided considerable levels of liquidity to the market to avoid an anticipated slump in growth. Instead, consumer spending remained strong for the rest of 2016 and into 2017, reflecting a release of animal spirits in the economy at the prospect of leaving the EU. The collapse in sterling also galvanised the export industry and manufacturing which has shown its best growth in 7 years. This performance has also been further boosted by the strongest growth in the UK’s major trading partners in the Eurozone countries for 6 years. While sterling’s weakness is now starting to show through in higher rates of inflation in the UK which has started to impact consumers’ spending patterns, continued firm levels of consumer spending, manufacturing and exports are still expected over the coming period until more detail on the likely terms of the UK’s exit from the EU are made clear.

There is thus now an interim period when growth and financial markets in the UK are expected to remain generally firm; however, within the course of the current year, many factors both domestically and internationally are looming which have the potential to affect this scenario detrimentally, not least the outlook for UK’s departure from the EU and the prospects of it retaining relatively friction free trade with its soon to be erstwhile European partners. The recently announced snap general election in the UK will clearly be a factor in the outcome of this process. There is also the concern surrounding the continued resilience of the Trump reflation effect which has boosted markets in both the US and worldwide to levels which might not be sustainable over the longer term. Added to this are growing geopolitical concerns as the new Trump administration strives to calibrate coherent responses to the many economic and strategic issues which are currently confronting world leaders in many parts of the globe.

Despite these uncertainties for the medium term, markets continue steady at the moment with no particular signals being given that the current long term bull cycle is about to end and with most developed and developing country economies showing renewed levels of growth. Nevertheless, a period of considerably higher volatility can be expected after a number of years when volatility levels have been abnormally subdued, as has already begun to be seen over the last quarter.

Jonathan Woolf

28 April 2017

Income statement

For the year ended 31 December 2016

	2016			2015
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£ 000	£ 000	£ 000	£ 000	£ 000	£ 000
Investment income (note 2)	2,263	-	2,263	3,206	-	3,206
Holding (losses)/gains on investments at fair value through profit or loss		(4,134)	(4,134)		3,925	3,925
Losses on disposal of investments at fair value through profit or loss		(2,081)	(2,081)		(927)	(927)
Foreign exchange losses	(143)	(138)	(281)	(53)	(47)	(100)
Expenses	(596)	(267)	(863)	(417)	(231)	(648)
	________	________	________	________	________	________
(Loss)/profit before finance costs and tax	1,524	(6,620)	(5,096)	2,736	2,720	5,456
Finance costs	(50)	(16)	(66)	(35)	(14)	(49)
	________	________	________	________	________	________
(Loss)/profit before tax	1,474	(6,636)	(5,162)	2,701	2,706	5,407
Tax	33	-	33	28	-	28
	________	________	________	________	________	________
(Loss)/profit for the period	1,507	(6,636)	(5,129)	2,729	2,706	5,435
	________	________	________	________	________	________
Earnings per share
Basic – ordinary shares	4.63p	(26.55)p	(21.92)p	9.51p	10.83p	20.34p
	________	________	________	________	________	________
Diluted – ordinary shares	4.31p	(18.96)p	(14.65)p	7.80p	7.73p	15.53p
	________	________	________	________	________	________

The company does not have any income or expense that is not included in the (loss)/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 2016

		Share capital	Capital reserve	Retained earnings	Total
		£ 000	£ 000	£ 000	£ 000
Balance at 31 December 2014		35,000	(10,294)	2,420	27,126
Changes in equity for 2015
Profit for the period		-	2,706	2,729	5,435
Ordinary dividend paid (note 4)		-	-	(2,000)	(2,000)
Preference dividend paid (note 4)		-	-	(350)	(350)
		________	________	________	________
Balance at 31 December 2015		35,000	(7,588)	2,799	30,211
Changes in equity for 2016
(Loss)/profit for the period		-	(6,636)	1,507	(5,129)
Ordinary dividend paid (note 4)		-	-	(2,050)	(2,050)
Preference dividend paid (note 4)		-	-	(350)	(350)
		________	________	________	________
Balance at 31 December 2016		35,000	(14,224)	1,906	22,682
		________	________	________	________

Registered number: 00433137

Balance Sheet
For the year ended 31 December 2016

		2016	2015
		£ 000	£ 000
Non-current assets
Investments - fair value through profit or loss		23,654	37,497
Subsidiaries - fair value through profit or loss		6,058	6,789
		__________	__________
Current assets		29,712	44,286
Receivables		1,469	1,587
Cash and cash equivalents		423	344
		__________	__________
		1,892	1,931
		__________	__________
Total assets		31,604	46,217
		__________	__________
Current liabilities
Trade and other payables		1,000	9,124
Bank loan		3,490	2,339
		__________	__________
		(4,490)	(11,463)
		__________	__________
Total assets less current liabilities		27,114	34,754
		__________	__________
Non - current liabilities		(4,432)	(4,543)
Net assets		22,682	30,211
		__________	__________
Equity attributable to equity holders
Ordinary share capital		25,000	25,000
Convertible preference share capital		10,000	10,000
Capital reserve		(14,224)	(7,588)
Retained revenue earnings		1,906	2,799
		__________	__________
Total equity		22,682	30,211
		__________	__________

Approved: 28 April 2017

Cash flow statement

For the year ended 31 December 2016

		Year ended 2016	Year ended 2015
		£ 000	£ 000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before tax		(5,162)	5,407
Adjustments for:
Losses/(profits) on investments		6,215	(2,998)
Scrip dividends		(4)	(397)
Proceeds on disposal of investments at fair value through profit and loss		31,918	14,596
Purchases of investments at fair value through profit and loss		(23,689)	(13,349)
Finance costs		66	49
		__________	__________
Operating cash flows before movements in working capital		9,344	3,308
Decrease/(increase) in receivables		141	(181)
Decrease in payables		(8,138)	(258)
		__________	__________
NET CASH FROM OPERATING ACTIVITIES BEFORE INTEREST		1,347	2,869
Interest paid		(52)	(49)
		__________	__________
NET CASH FROM OPERATING ACTIVITIES AFTER INTEREST BEFORE TAXATION		1,295	2,820
Taxation		33	28
		__________	__________
NET CASH FROM OPERATING ACTIVITIES		1,328	2,848
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on ordinary shares		(2,050)	(2,000)
Dividends paid on preference shares		(350)	(350)
Bank loan		1,151	(404)
		__________	__________
NET CASH USED IN FINANCING ACTIVITIES		(1,249)	(2,754)
		__________	__________
NET INCREASE IN CASH AND CASH EQUIVALENTS		79	94
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		344	250
		__________	__________
CASH AND CASH EQUIVALENTS AT END OF YEAR		423	344
		__________	__________

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 2016. The company has prepared its financial statements under IFRS. The financial statements have been prepared on a going concern basis adopting the historical cost convention except for the measurement at fair value of investments, derivative financial instruments and subsidiaries.

The information for the year ended 31 December 2016 is an extract from the statutory accounts to that date. Statutory company accounts for 2015, which were prepared under IFRS as adopted by the EU, have been delivered to the registrar of companies and company statutory accounts for 2016, prepared under IFRS as adopted by the EU, will be delivered in due course.

The auditors have reported on the 31 December 2016 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

					2016	2015
					£ 000	£ 000
Income from investments
UK dividends					1,951	1,725
Overseas dividends					214	348
Scrip and in specie dividends					4	397
Dividend from subsidiary					-	580
Interest on fixed income securities					70	134
					__________	__________
					2,239	3,184
					__________	__________
Other income					24	22
					__________	__________
Total income					2,263	3,206
					__________	__________
Total income comprises:
Dividends					2,169	3,050
Interest					70	134
Other interest					24	22
					__________	__________
					2,263	3,206
					__________	__________
Dividends from investments
Listed investments					2,169	2,470
Unlisted investments					-	580
					__________	__________
					2,169	3,050
					__________	__________

Of the £2,169,000 (2015 – £3,050,000) dividends received, £1,693,000 (2015 – £1,586,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of £1,976,000 (2015 – £869,000), on these investments.

Under IFRS 10 the income analysis is for the parent company only rather than that of the consolidated group. Thus film revenues of £85,000 (2015 – £88,000) received by the subsidiary British and American Films Limited and property unit trust income of £15,000 (2015 – £17,000) 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:

	2016			2015
	Revenue return	Capital return	Total	Revenue return	Capital return	Total
	£ 000	£ 000	£ 000	£ 000	£ 000	£ 000
Earnings:
Basic	1,157	(6,636)	(5,479)	2,379	2,706	5,085
Preference dividend	350	-	350	350	-	350
	__________	__________	__________	__________	__________	__________
Diluted	1,507	(6,636)	(5,129)	2,729	2,706	5,435
	__________	__________	__________	__________	__________	__________

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 (2015: 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 (2015: 35 million) ordinary and preference shares in issue.

4 Dividends

	2016	2015
	£ 000	£ 000
Amounts recognised as distributions to equity holders in the period:
Dividends on ordinary shares:
Final dividend for the year ended 31 December 2015 of 5.5p (2014:5.3) per share	1,375	1,325
Interim dividend for the year ended 31 December 2016 of 2.7p (2015:2.7p) per share	675	675
	__________	__________
	2,050	2,000
	__________	__________
Proposed final dividend for the year ended 31 December 2016 of 5.7p (2015:5.5p) per share	1,425	1,375
	__________	__________
Dividends on 3.5% cumulative convertible preference shares:
Preference dividend for the 6 months ended 31 December 2015 of 1.75p (2014:1.75p) per share	175	175
Preference dividend for the 6 months ended 30 June 2016 of 1.75p (2015:1.75p) per share	175	175
	__________	__________
	350	350
	__________	__________
Proposed preference dividend for the 6 months ended 31 December 2016 of 1.75p (2015:1.75p) per share	175	175
	__________	__________

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
	2016	2015
	£ 000	£ 000
Dividends on ordinary shares:
Interim dividend for the year ended 31 December 2016 of 2.7p (2015:2.7p) per share	675	675
Proposed final dividend for the year ended 31 December 2016 of 5.7p (2015:5.5p) per share	1,425	1,375
	__________	__________
	2,100	2,050
	__________	__________
Dividends on 3.5% cumulative convertible preference shares:
Preference dividend for the year ended 31 December 2016 of 1.75p (2015:1.75p) per share	175	175
Proposed preference dividend for the year ended 31 December 2016 of 1.75p (2015:1.75p) per share	175	175
	__________	__________
	350	350
	__________	__________

5 Net asset values

		Net asset value per share			Net assets attributable
	2016	2015		2016	2015
	£	£		£ 000	£ 000
Ordinary shares
Undiluted	0.51	0.81		12,682	20,211
Diluted	0.65	0.86		22,682	30,211

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 2016 Annual Report and Accounts, but remain unchanged from those published in the 2015 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.

During the year the company entered into a number of investment transactions to sell stock for £163,497 to BritAm Investments Limited.

During the year the company entered into a number of investment transactions with Geminion Investments Limited, a company in which Mr J C Woolf has an interest and is a director. The purpose of these transactions, which were all conducted through a London Stock Exchange broker, was for the company to purchase cum dividend stocks and sell these stocks ex dividend so as to capture the associated dividends as disclosed in Note 2 of the financial statements to generate distributable reserves to achieve the company’s objective to sustain a progressive dividend policy. The aggregate value of these transactions were purchases of £20,788,000 (31 December 2015 – £19,923,000), dividends received of £1,484,000 (31 December 2015 – £1,586,000) and sales of £19,017,000 (31 December 2015 – £18,791,000) giving a net loss of £287,000 (31 December 2015 – £454,000 gain). 

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 (2015 – £35,000,000) being 25,000,000 ordinary shares of £1 (2015 – 25,000,000) and 10,000,000 non-voting convertible preference shares of £1 each (2015 – 10,000,000). The rights attaching to the shares will be explained in more detail in the notes to the 2016 Annual Report and Accounts, but remain unchanged from those published in the 2015 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)/profit 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 Tuesday 27 June 2017 at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.