British & American Investment Trust PLC Annual Financial Report for the year ended 31 December 2012 Registered number: 00433137 Directors Registered office J Anthony V Townsend (Chairman) Wessex House Jonathan C Woolf (Managing Director) 1 Chesham Street Dominic G Dreyfus (Non-executive) London SW1X 8ND Ronald G Paterson (Non-executive) Telephone: 020 7201 3100 Registered in England No.433137 30 April 2013 This is the Annual Financial Report as required to be published under DTR 4 of the UKLA Listing Rules. Financial Highlights For the year ended 31 December 2012 2012 2011 Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Profit/(loss) 2,107 (1,435) 672 2,587 (1,589) 998 before tax - realised Profit/(loss) - 1,446 1,446 - (7,612) (7,612) before tax - unrealised __________ __________ __________ __________ __________ __________ Profit/(loss) 2,107 11 2,118 2,587 (9,201) (6,614) before tax - total __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 7.02p 0.04p 7.06p 8.93p (36.80)p (27.87)p basic __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 6.01p 0.03p 6.04p 7.38p (26.29)p (18.91)p diluted __________ _________ __________ __________ _________ __________ Net assets 23,345 23,430 __________ __________ Net assets per ordinary share - deducting preference 53p 54p shares at par __________ __________ - diluted 67p 67p __________ __________ Diluted net asset value per ordinary share at 26 April 2013 73p __________ Dividends declared or proposed for the period per ordinary share - interim paid 2.7p 2.7p - final proposed 4.9p 4.7p per preference 3.5p 3.5p share Chairman's Statement I report our results for the year ended 31 December 2012. Revenue The return on the revenue account before tax amounted to £2.1 million (2011: £ 2.6 million), a decrease of 19 percent resulting from a decline in gross income to £2.5 million from the level of £2.9 million achieved in the previous year. The level of income received in 2012 was more commensurate with long-run income levels in prior years compared to 2011 which was unusually high due to exceptional amounts of special dividends received in that year. £2.3 million of this amount (2011: £2.7 million) represented income from portfolio investments and £0.2 million (2011: £0.2 million) from film, property and other income. The total return before tax amounted to a gain of £2.1 million (2011: £6.6 million loss), includes net revenue of £2.1 million, a realised loss of £1.2 million and an unrealised gain of £1.4 million. The revenue return per ordinary share was 7.0p (2011: 8.9p) on an undiluted basis and 6.0p (2011: 7.4p) on a diluted basis. Net Assets Group net assets at the year end were £23.3 million (2011: £23.4 million), virtually unchanged from the previous year. This compares to increases in the FTSE 100 and All Share indices of 5.8 percent and 8.2 percent, respectively, over the period. On a total return basis, after adding back dividends paid during the year, group net assets increased by 9.0 percent compared to a total return on the two indices of between 9.1 and 10.5 percent. Total return over the year thus tracked market return over the year, but did not match the outperformance we were able to report at the half year. This was eroded by the significant rise in equity markets generally in the closing months of the year, as discussed in more detail below, while the value of our largest investment, Geron Corporation, remained relatively static over the year. The net asset value per ordinary share remained unchanged at 67p (2011: 67p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share decreased to 53p (2011: 54p). Our share price fluctuated from between 60p and 75p over the year, which represents a trading range generally equal to or in excess of net asset value. This is an improvement to previous years when shares have often traded at significant discounts to NAV and compares favourably to trading discounts generally for investment trusts. It is believed that investors have been attracted by the significantly higher than market yield offered by our stock and our record of tracking the market on a total return basis over the longer term. Dividend We are pleased to recommend an increased final dividend of 4.9p per ordinary share, which together with the interim dividend makes a total payment for the year of 7.6p (2011: 7.4p) per ordinary share. This represents an increase of 2.7 percent over the previous year's total dividend and a yield of 10.3 percent based on the share price of 75p at the end of the year. The final dividend will be payable on 20 June 2013 to shareholders on the register at 31 May 2013. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. GeronCorporation We remain deeply unsatisfied with the management and performance of our major investment, Geron Corporation, although the substantial declines in value which were experienced in the previous year were not repeated in 2013. As already communicated to shareholders, however, we are very pleased by the actions taken by our own major shareholder, Romulus Films Ltd, which has been instrumental in arranging and funding the purchase of Geron's stem cell business by the US listed biotechnology company BioTime Inc in such a way as to benefit Geron shareholders such as ourselves. Once the transaction becomes effective later this year, Geron shareholders will receive directly shares in a new listed and well funded company which will reactivate and develop these important and valuable assets. We will thus maintain our exposure to this ground breaking regenerative medicine business and it is hoped that, particularly with the substantial interest and revived valuations now being shown by the market in stem cell companies throughout the world, we will be able to recoup the significant value lost to us in recent years by the actions of current Geron management in discontinuing this business. Outlook A major revival in equity valuations globally has taken place since the end of 2012, with indices in the USA finally surpassing their all time high levels at the end of the first quarter. Equities in the UK have also been buoyant although prices in European markets have lagged significantly against the background of continued economic decline in many eurozone countries and the prospect of further years of imposed austerity measures. Markets generally took heart from the reduction in perceived long term and possible catastrophic risk represented by the debt crisis in developed markets, particularly in Europe, and the fiscal impasse in the USA. By the end of 2012 both these risks had been averted by actions of the European Central Bank in Europe and a last minute, if temporary, settlement by politicians of the so-called fiscal cliff in the USA. Consequently, for the last few months, market sentiment has been firm and continues to be so. However, many major and potentially systemic risks still remain on the horizon, not least the recent revival of concerns around the Euro and its long term survival as well as a re-run of the US fiscal debates later this year. As a result, we expect that despite the generally firmer tone of the last few months, markets will still display a degree of volatility as expected or unexpected risk events present themselves in a world where sovereign indebtedness remains unfeasibly high, growth is very weak and emergency recovery measures remain in place. Against this background, we maintain our long-term and income generating strategies that are primarily based on equity investment in the UK and USA. As at 26 April 2013, group net assets had increased to £25.6 million, an increase of 9.5 percent since the beginning of the calendar year. This is equivalent to 62 pence per share (prior charges deducted at par) and 73 pence per share on a diluted basis. Over the same period the FTSE 100 increased 9.0 percent and the All Share Index increased 9.6 percent. Anthony Townsend 30 April 2013 Managing Director's report In 2012, the UK equity market moved in a series of waves corresponding to perceived risks in the wider financial markets, particularly worries surrounding developed country sovereign indebtedness and its implications for economic growth and financial market stability. Stocks rose in the first quarter but retraced their gains in the second quarter to end the half year flat. In the second half, however, sentiment firmed noticeably and sustainably after the European Central Bank defused anxieties surrounding highly indebted Eurozone member countries by stating that it would do everything necessary to support the Euro. As a result, by year end UK equities had advanced 15 percent from a low point at the end of May. This rally was more in the nature of relief that the market's worst fears were less likely to be fulfilled, rather than being based on underlying economic fundamentals. Concerns remained until year end that politicians in the US would not resolve the potentially damaging fiscal policy divisions facing Congress. However, after this was resolved, or at least postponed, markets went on to rise strongly into the first quarter of 2013 by a further approximately 10 percent, and more in the US where the indices finally surpassed their all time highs. Performance As noted above, our portfolio lagged its benchmark indices at year end as the equity market rose strongly in the final months of the year. On a total return basis, however, our portfolio performed in line with the benchmark indices. This has been the pattern of recent years. While our income generating strategy has performed satisfactorily, our capital appreciation strategy has not, principally as a result of the significant losses suffered in our major investment Geron Corporation. As a result, capital growth has failed to match the market and we have only tracked but not outperformed the benchmark on a total return basis. GeronCorporation As noted above, steps have been taken by our major shareholder to buy out from Geron Corporation its regenerative medicine business in an effort to re-start this important business for the benefit of Geron's existing shareholders, including ourselves. Geron shareholders will be able to maintain a significant and direct interest in the re-capitalised and re-activated business without having to make any further financial contribution and will be put in a similar position to where they would have been had the business been re-capitalised and funded as part of Geron. We are therefore hopeful that we will be able to recover value lost after the major disappointment and mis-management of these assets over the last two years. Regenerative medicine is considered to be a business whose potential and importance has finally been recognised as evidenced by the substantial market outperformance of companies in this sector over the last year. We hope to share in the great promise which regenerative medicine offers to its owners and patients worldwide in the future. Economic comment Following the recovery in equity prices noted above, markets have now risen to their pre-crash highs in a period of 5 years. This has been a relatively fast recovery by comparison with the other major global financial crashes of previous years (25 years in the case of the Great Depression of 1931 and over 23 years and continuing since the market high in Japan in 1989). It is a testament to the much improved policy responses from governments and central banks on this occasion when vast and exceptional amounts of liquidity were supplied to the markets compared to previous occasions when they were not. However, while equity markets have recovered over the period, economic fundamentals generally have not and many other measures of economic health and outlook (debt levels, fiscal imbalances, central bank balance sheets, international trade, safe-haven investment bubbles, real returns on investment) remain worryingly untackled. The austerity policies introduced by governments to tackle their fiscal imbalances and over-indebtedness together with the natural caution of corporates and the public to invest or spend against this background have hampered efforts to restart growth. When combined with the newly found reluctance of banks to lend arising out of their own losses and newly imposed capital requirements, the prospects of renewed economic growth have in the near term been even more remote. Outlook As policy-makers began to realise in 2012 that this rebalancing could not be tackled solely by austerity, economic policy focus began to switch from debt and crisis management to an emphasis on growth generation by means other than monetary policy, which has included competitive currency devaluation. This has been the natural and in some cases not unwelcomeresult of the crisis-management policies of money creation and ultra-low interest rates exerting downward pressure on currencies. A period of competitive currency devaluation has taken hold in developed economies, particularly in the USA and Japan, to stimulate exports and domestic demand. The combination of these measures has inevitably led to bubbles forming in certain asset classes including property and equities, with investments in safe haven assets such as US treasuries, gold and low-yielding bonds being unwound. As part of this revolve, equity markets rose strongly towards the end of 2012 and in the first quarter of 2013, regaining their all time highs in the US as previously mentioned. However, despite this return to risk in investment markets, European economies have remained locked into negligible or negative growth as the restrictions of a single currency have left over-indebted peripheral eurozone countries unable to manage their legacy debt levels through currency devaluation. The consequent stagnation in their economic growth has been felt throughout the Eurozone and other European countries and trading partners, including the UK. By contrast, other developed economies, particularly those with links to the fast growing Asia Pacific area have begun to show modest signs of economic growth, as in the US where an increasingly sustained recovery appears increasingly evident helped also by the 5 percent depreciation in the US dollar for a large part of 2012. Whether this return to growth will now be sufficient to pull the rest of the World along a path to growth and allow the fundamentals to catch up with the markets remains to be seen. Jonathan Woolf 30 April 2013 Group income statement For the year ended 31 December 2012 2012 2011 Revenue Capital Total Revenue Capital Total return return return return £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 Investment income 2,486 - 2,486 2,934 - 2,934 (note 2) Holding gains/ (losses) on investments at fair value through profit or loss - 1,446 1,446 - (7,612) (7,612) Losses on disposal of investments at - (1,237) (1,237) - (1,395) (1,395) fair value through profit or loss Expenses (379) (198) (577) (347) (194) (541) ________ ________ ________ ________ ________ ________ Profit/(loss) 2,107 11 2,118 2,587 (9,201) (6,614) before tax Tax (3) - (3) (4) - (4) ________ ________ ________ ________ ________ ________ Profit/(loss) for 2,104 11 2,115 2,583 (9,201) (6,618) the period ________ ________ ________ ________ ________ ________ Earnings per share Basic - ordinary 7.02p 0.04p 7.06p 8.93p (36.80)p (27.87)p shares ________ ________ ________ ________ ________ ________ Diluted - ordinary 6.01p 0.03p 6.04p 7.38p (26.29)p (18.91)p shares ________ ________ ________ ________ ________ ________ The group does not have any income or expense that is not included in the profit for the period. Accordingly, the 'Profit/(loss) for the period' is also the 'Total Comprehensive Income for the period' as defined in IAS 1(revised) and no separate Statement of Comprehensive Income has been presented. The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. All profit and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests. Group statement of changes in equity For the year ended 31 December 2012 Share Capital Retained Total capital reserve earnings £ 000 £ 000 £ 000 £ 000 Balance at 31 December 2010 35,000 (3,710) 908 32,198 Changes in equity for 2011 (Loss)/profit for the period - (9,201) 2,583 (6,618) Ordinary dividend paid (note 4) - - (1,800) (1,800) Preference dividend paid (note 4) - - (350) (350) ________ ________ ________ ________ Balance at 31 December 2011 35,000 (12,911) 1,341 23,430 Changes in equity for 2012 Profit for the period - 11 2,104 2,115 Ordinary dividend paid (note 4) - - (1,850) (1,850) Preference dividend paid (note 4) - - (350) (350) ________ ________ ________ ________ Balance at 31 December 2012 35,000 (12,900) 1,245 23,345 ________ ________ ________ ________ Registered number: 00433137 Group Balance Sheet For the year ended 31 December 2012 Group 2012 2011 £ 000 £ 000 Non-current assets Investments - fair value through profit or loss 21,137 21,618 Current assets Receivables 1,190 81 Derivatives - fair value through profit or loss 3,204 3,322 Cash and cash equivalents 740 122 __________ __________ 5,134 3,525 __________ __________ Total assets 26,271 25,143 __________ __________ Current liabilities Trade and other payables 1,307 80 Derivatives - fair value through profit or loss 1,619 1,633 __________ __________ (2,926) (1,713) __________ __________ Total assets less current liabilities 23,345 23,430 __________ __________ Net assets 23,345 23,430 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 25,000 Convertible preference share capital 10,000 10,000 Capital reserve (12,900) (12,911) Retained revenue earnings 1,245 1,341 __________ __________ Total equity 23,345 23,430 __________ __________ Approved: 30 April 2013 Group cash flow statement For the year ended 31 December 2012 Year ended Year ended 2012 2011 £ 000 £ 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax 2,118 (6,614) Adjustments for: (Gain)/loss on investments (209) 9,007 Scrip dividends (8) (7) Film income tax deducted at source (3) (4) Proceeds on disposal of investments at fair 16,255 18,579 value through profit and loss Purchases of investments at fair value (14,111) (19,756) through profit and loss __________ __________ Operating cash flows before movements in 4,042 1,205 working capital Increase in receivables (3,372) (155) Increase in payables 1,798 538 __________ __________ Net cash from operating activities before 2,468 1,588 income taxes __________ __________ NET CASH FLOWS FROM OPERATING ACTIVITIES 2,468 1,588 __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (1,850) (1,800) Dividends paid on preference shares - (175) __________ __________ NET CASH USED IN FINANCING ACTIVITIES (1,850) (1,975) __________ __________ NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 618 (387) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 122 509 __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR 740 122 __________ __________ Purchases and sales of investments are considered to be operating activities of the company, given its purpose, rather than investing activities. 1 Basis of preparation and going concern The financial information set out above contains the financial information of the company and its subsidiaries (together referred to as the "Group") for the year ended 31 December 2012. The financial statements have been prepared on the historical cost basis except for the measurements at fair value of investments, derivative financial instruments and subsidiaries. The same accounting policies as those published in the statutory accounts for 31 December 2011 have been applied. The information for the year ended 31 December 2012 is an extract from the statutory accounts to that date. Statutory accounts for 2011, which were prepared under IFRS as adopted by the EU, have been delivered to the registrar of companies and those for 2012, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditors have reported on the 31 December 2012 year end accounts and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under section 498(2) or (3) of the Companies Act 2006. The directors, having made enquiries, consider that the Group has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Group's accounts. 2 Income 2012 2011 £ 000 £ 000 Income from investments UK dividends 1,838 2,119 Overseas dividends 342 506 Scrip and in specie dividends 8 7 Interest on fixed income securities 102 102 Property unit trust income 22 22 Film revenues 179 172 __________ __________ 2,491 2,928 __________ __________ Other income Deposit interest - 1 Other (5) 5 __________ __________ (5) 6 __________ __________ Total income 2,486 2,934 __________ __________ Total income comprises: Dividends 2,188 2,632 Interest 102 103 Film revenues 179 172 Property income 22 22 (Loss)/gain on foreign exchange (5) 5 __________ __________ 2,486 2,934 __________ __________ Income from investments Listed investments 2,261 2,717 Unlisted investments 231 211 __________ __________ 2,492 2,928 __________ __________ Of the £ 2,188,000 (2011 - £2,632,000) dividends received in the group accounts, £1,571,000 (2011 - £ 2,060,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of £1,633,000 (2011 - £ 2,183,000), on these investments. 3 Earnings per ordinary share The calculation of the basic (after deduction of preference dividend) and diluted earnings per share is based on the following data: 2012 2011 Revenue Capital Total Revenue Capital Total return return return return £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 Earnings: Basic 1,754 11 1,765 2,233 (9,201) (6,968) Preference dividend 350 - 350 350 - 350 __________ __________ __________ __________ __________ __________ Diluted 2,104 11 2,115 2,583 (9,201) (6,618) __________ __________ __________ __________ __________ __________ Basic revenue, capital and total return per ordinary share is based on the net revenue, capital and total return for the period after tax and after deduction of dividends in respect of preference shares and on 25 million (2011: 25 million) ordinary shares in issue. The diluted revenue, capital and total return is based on the net revenue, capital and total return for the period after tax and on 35 million (2011: 35 million) ordinary and preference shares in issue. 4 Dividends 2012 2011 £ 000 £ 000 Amounts recognised as distributions to equity holders in the period: Dividends on ordinary shares: Final dividend for the year ended 31 December 2011 of 4.7p (2010:4.5) per share 1,175 1,125 Interim dividend for the year ended 31 December 2012 of 2.7p 675 675 (2011:2.7p) per share __________ __________ 1,850 1,800 __________ __________ Proposed final dividend for the year ended 31 December 2012 of 4.9p (2011:4.7p) per share 1,225 1,175 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the 6 months ended 31 December 2011 of 1.75p (2010:1.75p) per share 175 175 Preference dividend for the 6 months ended 30 June 2012 of 1.75p (2011:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ Proposed preference dividend for the 6 months ended 31 December 2012 of 1.75p (2011:1.75p) per share 175 175 __________ __________ The preference dividend for the 6 months ended 31 December 2011 and the preference dividend for the 6 months ended 30 June 2012 were paid as dividends in specie. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements in accordance with IFRS. We have set out below the total dividend payable in respect of the financial year, which is the basis on which the retention requirements of Sections 1158 and 1159 of the Corporation Tax Act 2010 are considered. Dividends proposed for the period 2012 2011 £ 000 £ 000 Dividends on ordinary shares: Interim dividend for the year ended 31 December 2012 of 2.7p (2011:2.7p) per share 675 675 Proposed final dividend for the year ended 31 December 2012 of 4.9p (2011:4.7p) per share 1,225 1,175 __________ __________ 1,900 1,850 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the year ended 31 December 2012 of 1.75p (2011:1.75p) per share 175 175 Proposed preference dividend for the year ended 31 December 2012 of 1.75p (2011:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ 5 Net asset values Net asset Net assets value per share attributable 2012 2011 2012 2011 £ £ £ 000 £ 000 Ordinary shares Undiluted 0.53 0.54 13,345 13,430 Diluted 0.67 0.67 23,345 23,430 The undiluted and diluted net asset values per £1 ordinary share are based on net assets at the year end and 25 million (undiluted) ordinary and 35 million (diluted) ordinary and preference shares in issue. The undiluted net asset value per convertible £1 preference share is the par value of £1. The diluted net asset value per ordinary share assumes the conversion of the preference shares to ordinary shares. Principal risks and uncertainties The principal risks facing the company relate to its investment activities and include market risk (other price risk, interest rate risk and currency risk), liquidity risk and credit risk. The other principal risks to the company are loss of investment trust status and operational risk. These will be explained in more detail in the notes to the 2012 Annual Report and Accounts, but remain unchanged from those published in the 2011 Annual Report and Accounts. Related party transactions The company rents its offices from Romulus Films Limited, and is also charged for its office overheads. The salaries and pensions of the company's employees, except for the three non-executive directors, are paid by Remus Films Limited and Romulus Films Limited and are recharged to the company. There have been no other related party transactions during the period, which have materially affected the financial position or performance of the group. During the period transactions between the company and its subsidiaries have been eliminated on consolidation. Capital Structure The company's capital comprises £35,000,000 (2011 - £35,000,000) being 25,000,000 ordinary shares of £1 (2011 - 25,000,000) and 10,000,000 non-voting convertible preference shares of £1 each (2011 - 10,000,000). The rights attaching to the shares will be explained in more detail in the notes to the 2012 Annual Report and Accounts, but remain unchanged from those published in the 2011 Annual Report and Accounts. Directors' responsibility statement The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. The directors confirm that to the best of their knowledge the financial statements prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and the profit of the company and the undertakings included in the consolidation taken as a whole and that the Chairman's Statement, Managing Director's Report and the Directors' report include a fair review of the information required by rules 4.1.8R to 4.2.11R of the FSA's Disclosure and Transparency Rules, together with a description of the principal risks and uncertainties that the company faces. Annual General Meeting This year's Annual General Meeting has been convened for Tuesday 18 June 2013 at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND. END -0- Apr/30/2013 11:56 GMT
BRITISH & AMERICAN INVESTMENT TRUST PLC: Annual Financial Report
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