Final Results

British & American Investment Trust PLC Preliminary Announcement for the year ended 31 December 2005 Registered number: 433137 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 28 April 2006 Financial Highlights For the year ended 31 December 2005 2005 2004 (restated) Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Return before tax - realised 1,759 479 2,238 1,487 457 1,944 Return before tax - unrealised - 4,665 4,665 - 3,459 3,459 __________ __________ __________ __________ __________ __________ Return before tax - total 1,759 5,144 6,903 1,487 3,916 5,403 __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - basic 5.41p 20.57p 25.98p 4.33p 15.66p 19.99p __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - diluted 4.86p 14.70p 19.56p 4.09p 11.19p 15.28p __________ _________ __________ __________ _________ __________ Net assets 42,765 37,869 __________ __________ Net assets per ordinary share - deducting preference shares at par 131p 111p __________ __________ - diluted 122p 108p __________ __________ 134p Diluted net asset value per ordinary share at 21 April 2006 __________ Dividends declared or proposed for the period per ordinary share - interim paid 2.3p 2.1p - final proposed 3.25p 3.1p - special paid 1.0p 0.0p per preference share 3.5p 3.5p Chairman's Statement I am pleased to report our results for the year ended 31 December 2005. As noted in our interim statement, we are now obliged to report our results under the new International Financial Reporting Standards (IFRS). The Association of Investment Trust Companies (AITC) has issued guidance to investment trusts on the presentation of their accounts under IFRS and we are pleased to follow this guidance in our accounts to provide shareholders with the most helpful format possible within the constraints of IFRS. The main differences in the presentation of our accounts this year compared to previous years relate to the profit and loss account and the recognition of dividends declared in the year. Statutory profits or losses now include gains or losses on the capital account, whether realised or unrealised, and dividends are only recognised in the accounts when shareholders' right to receive the dividend has been established. Consequently, the final dividend for the year 2005 proposed in these accounts is not in fact recognised in the accounts, even on an accrued basis, until it is approved by shareholders at the AGM in June of this year. This year's accounts also include a restatement of the prior year's results to conform with IFRS. In my statement, I will continue as before to highlight those results which we believe present the most useful indicators of an investment trust's performance during the year, including revenue returns and dividends paid relating to those returns in the year they were earned. We also show in the accounts the split between realised and unrealised gains and losses to give shareholders a better perspective of the return on investments over time in comparison with movements in the market. Revenue The return on the revenue account before tax amounted to £1.8 million (2004 restated: £1.5 million). Gross income amounted to £2.0 million (2004 restated: £1.9 million), of which £1.6 million (2004 restated: £1.5 million) represented income from investments and £0.4 million (2004 restated: £0.4 million) film, property and other income. The increase in income was, as reported at the interim stage, primarily accounted for by the receipt of special dividends from a number of our investee companies over the period. Total profit before tax, which includes realised and unrealised capital appreciation, amounted to £6.9 million (2004 restated: £5.4 million), reflecting the continued recovery in equity valuations over the period as noted below. The capital element of this total was represented by £0.6 million of realised gains and £4.7 million of unrealised gains. The revenue return per ordinary share was 5.4p (2004 restated: 4.3p) on an undiluted basis and 4.9p (2004 restated: 4.1p) on a diluted basis. Net assets Group net assets were £42.8 million (2004 restated: £37.9 million), an increase of 12.9 percent. Total return for the period, after adding back dividends, was 18.2 percent. This compares to an increase over the same period of 19.7 percent (dividends reinvested) in the FTSE 100 share index and 21.6 percent (dividends reinvested) in the All Share index. The net asset value per ordinary share increased to 122p (2004 restated: 108p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share increased to 131p (2004 restated: 111p). Dividends We are pleased to recommend an increased final dividend of 3.25p per ordinary share, which together with the interim dividend makes a total payment for the year of 5.55p (2004 restated: 5.2p) per ordinary share; this represents an increase of 6.7 percent over the previous year's total dividend The final dividend will be payable on 22 June 2006 to shareholders on the register at 26 May 2006. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. In addition to these regular dividends, we paid an additional special dividend of 1p per share during the year, in recognition of special dividends received during the year. By separating out our special dividend we believe shareholders will find it easier to keep track of our normal interim and final dividends and monitor their progress. Discount and performance I am pleased to note that the reduced discount to NAV at which our shares trade in the market on which I reported last year has continued to be maintained, in line with the general narrowing of discounts which has been seen in the investment trust sector as a whole. In recent months, our shares have traded at discounts in the range of 5 to 8 percent. I can also report that the company has continued to out perform its benchmark in the UK income and growth sector and is positioned in the top quartile of its AITC sector by total return. These results reflect out-performance against benchmark in capital and income over a number of years. We look forward to continuing advances in the current year as equity and other financial markets continue to recover and form a base for future growth. As at 21 April 2006, group net assets had increased to £47.0 million, an increase of 10.0 percent since the beginning of the calendar year. This is equivalent to 148 pence per share (prior charges deducted at par) and 134 pence per share on a diluted basis. Over the same period the FTSE 100 increased 9.1 percent and the All Share Index increased 9.8 percent. Anthony Townsend 28 April 2006 Managing Director's report International Financial Reporting Standards As noted in the Chairman's statement, we have adopted the accounting format suggested by the AITC to allow investment trusts to present their results in the most helpful way possible for shareholders within the constraints of the IFRS. Whilst this has allowed us to present the accounts in a somewhat more accessible way than was the case at the interim stage, there remain nevertheless a number of areas in which the requirements of the IFRS do not sit well with the operations of an investment trust and the communication of its performance to shareholders. These deficiencies were referred to in my report at the interim stage and we have attempted to address them by including where possible in the notes or other parts of the report the information considered necessary to convey a proper understanding of the operations of the company. As a result, however, the statutory accounts themselves - the income statement and balance sheet - which constitute the document of record of the operations of the company, regrettably remain subject to these deficiencies. Without the fuller explanation, which can now only be shown in notes or ancillary parts of the accounts, these statements which present the basic or 'headline' results, remain confusing and in some respects misleading. For example, using the AITC's model format we are able to add in the income statement the split in profits (or losses) between income and capital; however, unrealised capital gains (or losses) are now included as statutory profits (or losses) for the year despite the fact that they have not actually been 'earned' ie realised and might at any time be reversed. At the very least this will add a significant level of uncontrollable volatility to the principal results of the company from year to year and will be of no help to shareholders analysing either the past or possible future direction of the company based on its profits. It is hard to imagine any other circumstance where shareholders are presented with a 'profit' in the income statement on an unsold asset within the company's main business activity which could, at any later stage, be totally reversed or even converted into a loss, in respect of the very same unsold asset in which the earlier 'profit' was reported. It is not surprising that the IFRS has encountered widespread criticism from companies, both large and small, for the lack of clarity, common sense and continuity which accounts produced under IFRS offer to shareholders. As noted above, this criticism can equally and perhaps even more justifiably be levelled in the case of investment trusts. Performance In 2005 UK equity markets experienced a further year of broadly based gains resulting in a cumulative recovery of 65 percent since the lows reached in 2001. As at 31 December, the market had returned to its 2002 levels and, as noted below, by April of this year the FTSE 100 finally broke through the 6000 level last achieved in 2001. As reported at the interim stage, the advances during 2005 were boosted by the out- performance of the oil and natural resources sectors on the back of continuing record prices in these commodities due to supply worries and heavy demand from newly industrialised countries such as China and India. The UK market was also buoyed by substantial levels of corporate activity including buyouts, demergers and takeovers in a number of the leading stocks across a variety of sectors. The trend of private capital funds bidding for listed company assets has been growing during the recent period of downturn in stock prices while companies have been repairing their balance sheets and cashflows but price multiples have remained subdued. The acceleration in this private capital activity and the larger volumes involved has contributed to the strength of the market and the growth in multiples to more normal levels. Our portfolio underperformed the main indices during the year primarily due to some underweighting in the oil and natural gas sectors which out-performed significantly during the period and now form a substantial part of the FTSE 100 at approximately 25 percent. Our slightly higher holdings of cash also contributed to this effect. In the first quarter, however, the portfolio has outperformed the indices, as reported above, by a modest amount. In the US, the leading indices recovered from the fall at mid-year to finish the year in positive territory with a gain of 2 percent. The dull performance of stocks in the USA reflected the continuing programme of monetary tightening by the Federal Reserve towards a level of perceived equilibrium in US dollar rates and general tensions within the economy arising out of the structural imbalances in the fiscal and trade accounts. In the first quarter, equity prices in the UK have continued to advance strongly, rising by over six percent with the FTSE 100 exceeding 6000 for the first time since the multi- year downturn commenced in 2001. This performance marks a continuation of the trends seen in 2005 as described above. While this rate of advance can not be expected to be maintained indefinitely in the current year without price levels out-running improvements in fundamentals, equity markets are generally expected to remain firm over the coming period in the absence of external shocks as corporate profitability continues to grow. Against this background, we will continue to pursue our generalist investment approach, remaining invested in leading stocks with good yield. Jonathan Woolf Consolidated income statement For the year ended 31 December 2005 2005 2004 (restated) Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Income 2,032 - 2,032 1,864 - 1,864 Gains on fair value through profit or loss assets - unrealised - 4,665 4,665 - 3,459 3,459 Realised gains on sales - 618 618 - 457 457 Expenses (273) (139) (412) (377) - (377) ________ ________ ________ ________ ________ ________ Profit before finance costs and tax 1,759 5,144 6,903 1,487 3,916 5,403 ________ ________ ________ ________ ________ ________ Profit before tax 1,759 5,144 6,903 1,487 3,916 5,403 Tax (57) - (57) (55) - (55) ________ ________ ________ ________ ________ ________ Profit for the period 1,702 5,144 6,846 1,432 3,916 5,348 ________ ________ ________ ________ ________ ________ Earnings per share Basic - ordinary shares 5.41p 20.57p 25.98p 4.33p 15.66p 19.99p ________ ________ ________ ________ ________ ________ Diluted - ordinary shares 4.86p 14.70p 19.56p 4.09p 11.19p 15.28p ________ ________ ________ ________ ________ ________ 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 Trust Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests. Consolidated statement of changes in equity For the year ended 31 December 2005 Share Capital Capital Retained Total capital reserve reserve earnings realised unrealised £000 £000 £000 £000 £000 Balance at 31 December 2003 - restated 35,000 14,824 (18,419) 2,741 34,146 (note 5(d)) Changes in equity for 2004 - restated Profit for the period (note 5(b)) - (1,710) 5,626 1,432 5,348 Ordinary dividend paid (note 3) - - - (1,275) (1,275) Preference dividend paid (note 3) - - - (350) (350) ________ ________ ________ ________ ________ Balance at 31 December 2004 carried forward 35,000 13,114 (12,793) 2,548 37,869 - restated (note 5(a)) Changes in equity for 2005 Profit for the period - 2,027 3,117 1,702 6,846 Ordinary dividend paid (note 3) - - - (1,600) (1,600) Preference dividend paid (note 3) - - - (350) (350) ________ ________ ________ ________ ________ Balance at 31 December 2005 carried forward 35,000 15,141 (9,676) 2,300 42,765 ________ ________ ________ ________ ________ restated - see note 5 Consolidated Balance Sheet For the year ended 31 December 2005 Group 2005 2004 (restated) £000 £000 Non-current assets Investments - fair value through profit or loss 42,369 35,610 Current assets Receivables 3,379 187 Cash and cash equivalents 3,263 2,227 __________ __________ 6,642 2,414 __________ __________ Total assets 49,011 38,024 __________ __________ Current liabilities (6,246) (155) __________ __________ Total assets less current liabilities 42,765 37,869 __________ __________ Net assets 42,765 37,869 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 25,000 Convertible preference share capital 10,000 10,000 Capital reserve -realised 15,141 13,114 Capital reserve -unrealised (9,676) (12,793) Retained earnings 2,300 2,548 __________ __________ Total equity 42,765 37,869 __________ __________ restated - see note 5 Approved: 28 April 2006 Consolidated cash flow statement For the year ended 31 December 2005 Year ended Year ended 2005 2004 (restated) £000 £000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 6,903 5,403 Adjustments for: Gains on investments (5,283) (3,916) Scrip dividends (4) (4) Film income tax deducted at source (4) (4) Proceeds on disposal of fair value through profit 6,406 6,765 and loss investments Purchases of fair value through profit and loss (7,552) (5,952) investments __________ __________ Operating cash flows before movements in working 466 2,292 capital Increase in receivables (52) (40) Increase in payables 2,576 19 __________ __________ Net cash from operating activities before income 2,990 2,271 taxes Income taxes paid (4) - __________ __________ NET CASH FROM OPERATING ACTIVITIES 2,986 2,271 __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (1,600) (1,275) Dividends paid on preference shares (350) (350) __________ __________ NET CASH USED IN FINANCING ACTIVITIES (1,950) (1,625) __________ __________ NET INCREASE IN CASH AND CASH EQUIVALENTS 1,036 646 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,227 1,581 __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR 3,263 2,227 __________ __________ 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 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 2005. The financial information is prepared on the historical cost basis, modified to include the revaluation of investments. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2005 or 2004. Statutory accounts for 2004, which were prepared under UK Generally Accepted Accounting Practices ("UK GAAP"), have been delivered to the registrar of companies and those for 2005, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditors have reported on the 31 December 2004 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 237(2) or (3) of the Companies Act 1985. EU law (IAS Regulation EC 1606/2002) requires that the annual financial statements of the Group for the year ended 31 December 2005 be prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the European Union ("adopted IFRS"). This financial information has been prepared in accordance with adopted IFRS at 31 December 2005, the Group's first annual reporting date at which it is required to use adopted IFRS. The impact of the transition to adopted IFRS and the significant accounting policies of the Group, which have altered as result of the adoption of IFRS, were included in the interim financial information for the six month period ended 30 June 2005 which was published on 28 September 2005. 2 Earnings per ordinary share The calculation of the basic and diluted earnings per share is based on the following data: 2005 2004 (restated) Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Earnings: Basic 1,352 5,144 6,496 1,082 3,916 4,998 Preference dividend 350 - 350 350 - 350 __________ __________ __________ __________ __________ __________ Diluted 1,702 5,144 6,846 1,432 3,916 5,348 __________ __________ __________ __________ __________ __________ Basic revenue, capital and total return per ordinary share is based on the net revenue, capital and total return for the period and after deduction of dividends in respect of preference shares and on 25 million (2004: 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 and on 35 million (2004 - 35 million) ordinary and preference shares in issue. 3 Dividends 2005 2004 £000 £000 Amounts recognised as distributions to equity holders in the period: Dividends on ordinary shares: Final dividend for the year ended 31 December 2004 of 3.1p (2003:3.0p) per share 775 750 Interim dividend for the year ended 31 December 2005 of 2.3p (2004:2.1p) per share 575 525 Special dividend for the year ended 31 December 2005 of 1.0p (2004:nil) per share 250 - __________ __________ 1,600 1,275 __________ __________ Proposed final dividend for the year ended 31 December 2005 of 3.25p (2004:3.1p) per share 813 775 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the year ended 31 December 2004 of 1.75p (2003:1.75p) per share 175 175 Preference dividend for the year ended 31 December 2005 of 1.75p (2004:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ Preference dividend payable for the year ended 31 December 2005 of 1.75p (2004:1.75p) 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 also set out below the total dividend payable in respect of the financial year, which is the basis on which the retention requirements of Section 842 Income and Corporation Taxes Act 1988 are considered. 2005 2004 £000 £000 Dividends on ordinary shares: Interim dividend for the year ended 31 December 2005 of 2.3p (2004:2.1p) per share 575 525 Special dividend for the year ended 31 December 2005 of 1.0p (2004:nil) per share 250 - Proposed final dividend for the year ended 31 December 2005 of 3.25p (2004:3.1p) per share 813 775 __________ __________ 1,638 1,300 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the year ended 31 December 2005 of 1.75p (2004:1.75p) per share 175 175 Preference dividend payable for the year ended 31 December 2005 of 1.75p (2004:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ 4 Net asset values Net asset Net assets value per attributable share 2005 2004 2005 2004 £ £ £000 £000 Ordinary shares Undiluted 1.31 1.11 32,765 27,869 Diluted 1.22 1.08 42,765 37,869 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. 5 Transition to IFRS 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 2004, and the date of transition to IFRS was therefore 1 January 2004. Accordingly, a full reconciliation of the changes is shown below. 5(a) Restatement of balances for the year ended 31 December 2004 Previously reported Effect of Restated (UK GAAP) transition to (IFRS) 31 December IFRS 31 December 2004 2004 £000 £000 £000 Investments - fair value through profit or loss 35,663 (53)) 35,610 Current assets 2,414 - 2,414 Current liabilities (1,105)) 950 (155)) __________ __________ Total assets less current liabilities 36,972 37,869 __________ __________ Net assets 36,972 37,869 __________ __________ Equity attributable to equity holders Share capital - ordinary shares 25,000 - 25,000 - preference shares 10,000 - 10,000 Capital reserves - realised 13,114 - 13,114 Capital reserves - unrealised (note 1) (12,740)) (53)) (12,793)) Retained earnings (note 2) 1,598 950 2,548 __________ __________ Total equity 36,972 37,869 __________ __________ Notes 1. Investments are designated as held at fair value under IFRS and are carried at bid prices. Previously, under UK GAAP approximately 77 percent by value were already carried at bid equivalent with the balance being carried at mid prices or cost. This results in a downward revaluation of £53,000 in investments and a decrease in capital reserves. 2. No provision has been made for the final dividend on the ordinary and preference shares for the year ended 31 December 2004 of £950,000. Under IFRS the final dividend is not recognised until approved by shareholders. 5(b) Reconciliation of the Statement of Total Return to the Income Statement for the year ended 31 December 2004 Group 2004 £000 Reported revenue gain under UK GAAP 1,432 Reported capital gain under UK GAAP 3,946 __________ Total return under UK GAAP 5,378 Movement in mid to bid December 2003 23 Movement in mid to bid December 2004 (53)) __________ Reported income under IFRS 5,348 __________ 5(c) Reconciliation of the Cash Flow Statement for the year ended 31 December 2004 Previously reported Effect of Restated (UK GAAP) transition to (IFRS) 31 December IFRS 31 December 2004 2004 £000 £000 £000 Net cash flow from operating activities before and after tax 1,458 813 2,271 Net cash flow on investing activities (note 1) 813 (813)) - Equity dividends paid (note 2) (1,275)) 1,275 - __________ __________ 996 2,271 Net cash used in financing activities (350)) (1,275)) (1,625)) __________ __________ Net change in cash and cash equivalents 646 646 __________ __________ Notes 1. Under IFRS cash flow on purchases and sales of investments which are designated as fair value through profit or loss are considered to be operating activities of the company. Therefore, these cash flows have been reclassified to reflect this. 2. Under IFRS dividends are treated as a finance cost and these have been reclassified to reflect this. 5(d) Restatement of balances for the year ended 31 December 2003 Previously reported Effect of Restated (UK GAAP) transition to (IFRS) 31 December IFRS 31 December 2003 2003 £000 £000 £000 Investments - fair value through profit or loss 32,482 (23)) 32,459 Current assets 1,743 - 1,743 Current liabilities (981)) 925 (56)) __________ __________ Total assets less current liabilities 33,244 34,146 __________ __________ Net assets 33,244 34,146 __________ __________ Equity attributable to equity holders Share capital - ordinary shares 25,000 - 25,000 - preference shares 10,000 - 10,000 Capital reserves - realised 14,824 - 14,824 Capital reserves - unrealised (note 1) (18,396)) (23)) (18,419)) Retained earnings (note 2) 1,816 925 2,741 __________ __________ Total equity 33,244 34,146 __________ __________ Notes 1. Investments are designated as held at fair value under IFRS and are carried at bid prices. Previously, under UK GAAP approximately 76 percent by value were already carried at bid equivalent with the balance being carried at mid prices or cost. This results in a downward revaluation of £23,000 in investments and a decrease in capital reserves. 2. No provision has been made for the final dividend on the ordinary and preference shares for the year ended 31 December 2003 of £925,000. Under IFRS the final dividend is not recognised until approved by shareholders. British & American Investment Trust Plc

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