Annual Financial Report
British & American Investment Trust PLC
Annual Financial Report
for the year ended 31 December 2009
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
29 April 2010
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 2009
2009 2008
Revenue Capital Total Revenue Capital Total
return return return return
£000 £000 £000 £000 £000 £000
Profit before tax - 1,624 (1,122) 502 1,413 (208) 1,205
realised
Profit before tax - - 4,350 4,350 - (10,698) (10,698)
unrealised
__________ __________ __________ __________ __________ __________
Profit before tax - 1,624 3,228 4,852 1,413 (10,906) (9,493)
total
__________ __________ __________ __________ __________ __________
Earnings per £1
ordinary share - 5.07p 12.91p 17.98p 4.21p (43.63)p (39.42)p
basic
__________ __________ __________ __________ __________ __________
Earnings per £1
ordinary share - 4.62p 9.22p 13.84p 4.01p (31.16)p (27.15)p
diluted
__________ _________ __________ __________ _________ __________
Net assets 31,037 28,190
__________ __________
Net assets per
ordinary share
- deducting
preference 84p 73p
shares at par
__________ __________
- diluted 89p 81p
__________ __________
93p
Diluted net asset
value per ordinary
share at 27 April
2010
__________
Dividends declared
or proposed for the
period
per ordinary share
- interim paid 2.7p 2.7p
- final proposed 4.2p 3.9p
per preference 3.5p 3.5p
share
Chairman's Statement
I report our results for the year ended 31 December 2009.
Revenue
The return on the revenue account before tax amounted to £1.6 million (2008: £
1.4 million), an increase of 15 percent. Gross income amounted to £2.0 million
(2008: £1.7 million) and represented a return to income levels achieved in
prior years before the onset of the economic recession. Of this amount, £1.7
million (2008: £1.4 million) represented income from portfolio investments and
£0.3 million (2008: £0.3 million) film, property and other income. The increase
in portfolio income arose from a higher level of special dividends received and
a modest repositioning of the portfolio away from companies experiencing
dividend payment constraints due to the economic climate.
The return before tax, which includes realised and unrealised capital
appreciation, amounted to a gain of £4.9 million (2008: £9.5 million loss)
reflecting a recovery in investment valuations during the year and marking a
positive return after two years of substantial capital losses.
The revenue return per ordinary share was 5.1p (2008: 4.2p) on an undiluted
basis and 4.6p (2008: 4.0p) on a diluted basis.
Net Assets
Group net assets at the year end were £31.0 million (2008: £28.2 million), an
increase of 10.1 percent. This compares to increases in the FTSE 100 and All
Share indices of 22.1 percent and 25.0 percent, respectively, over the period,
reflecting the strong recovery in financial markets after the large declines in
2008 due to the global financial crisis. Our relative under- performance was
due principally to our US investment, Geron Corporation, which rose 19 percent
in US dollar terms but only 6 percent in sterling terms due to a 10 percent
strengthening in sterling against the dollar over the year.
The net asset value per ordinary share increased to 89p (2008: 81p) on a
diluted basis. Deducting prior charges at par, the net asset value per ordinary
share increased to 84p (2008: 73p).
Dividends and 10 year performance record
We are pleased to recommend an increased final dividend of 4.2p per ordinary
share, which together with the interim dividend makes a total payment for the
year of 6.9p (2008: 6.6p) per ordinary share. This represents an increase of
4.5 percent over the previous year's total dividend and a yield of 11.5 percent
based on the share price at the start of the year. The final dividend will be
payable on 24 June 2010 to shareholders on the register at 28 May 2010. A
dividend of 1.75p will be paid to preference shareholders resulting in a total
payment for the year of 3.5p per share.
It continues to be our policy to maintain a progressive and full dividend
payment policy and this has notably been achieved in the last two years when
even leading companies have reduced and in some cases discontinued dividend
payments. As a result, this company continues to be one of the highest dividend
paying investment trusts in its AIC sector or indeed in any sector.
Shareholders have enjoyed significantly higher levels of dividend income than
average market yields (in fact in many years at twice the level of the FTSE 100
yield) while in terms of total return the portfolio has kept pace with its
bench mark indices over the long term.
With the completion of the first decade of the new millennium, it is
appropriate to record that over this ten year period which experienced one
large-scale economic decline and two bear market cycles, the FTSE 100 and All
Share indices declined by 3 percent on a total return basis, while our company
grew by 1 percent on the same basis. It is also interesting to note that, the
market returned 20 percent of its initial value to investors in cash dividends
over the decade, while our company returned over 40 percent.
Outlook
The recovery in global financial markets and economies has continued into 2010
as economic activity and company profits have continued to grow from the low
levels seen in 2008. Although many serious underlying structural problems in
the global and national economies remain which could precipitate a return to
recession, general market sentiment nevertheless remains firm as the two
largest economies, the USA and China, are seen to provide impetus to world
trade and investment. The unprecedented effort by governments to prevent a
collapse of the global financial system has caused a general sense of relief
that the worst is now over, which is supporting markets going forward.
That being said, equities markets have already shown gains of over 60 percent
since the lows of March 2009. The high levels of volatility experienced in both
capital and currency markets are likely to remain as the after shocks of the
financial crisis rumble on and the potentially destabilising fiscal and trade
imbalances in the world economy remain to be addressed.
While it is clear that the general direction of financial markets in the short
to medium term is towards recovery, the big question is whether the recovery
can be maintained; sooner or later governments must begin to remove the large
scale financial stimulus put in place to rescue the banking system and the
process of deleveraging the financial sector and repairing fiscal imbalances
through cutbacks and tax raising will get underway.
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 27 April 2010, group net assets had increased to £32.5 million, an
increase of 4.6 percent since the beginning of the calendar year. This is
equivalent to 90 pence per share (prior charges deducted at par) and 93 pence
per share on a diluted basis. Over the same period the FTSE 100 increased 3.5
percent and the All Share Index increased 4.6 percent.
Anthony Townsend
29 April 2010
Managing Director's report
After the devastation suffered by global financial markets in 2008, 2009 was a
year of recovery following the lows reached in March 2009. The size and speed
of the falls in both markets and the economies of leading countries were of a
magnitude not seen for generations, with markets declining by up to 50 percent
in 18 months and developed nation economies shrinking by over 6 percent in the
same time frame, destroying up to three years of economic growth in the
process.
The recovery since March 2009, at least in financial markets, has been equally
swift and dramatic as fears of a total collapse in the world financial system
receded. The relief this engendered, the emergence of signs late in 2009 that
recessionary forces had abated and growth, albeit modest, in the US and some
European economies all combined to produce a strong turnaround in equities and
primary commodities markets.
In calendar 2009, leading US and UK equities markets grew by 15 percent and 22
percent, respectively. While this growth was broad-based, there was inevitable
movement away from defensive sectors towards cyclical and smaller company
stocks as confidence improved. Even retail and financial stocks showed
improvement and commodities stocks remained firm as sustained growth in China
supported demand for primary commodities. In fact, the steady performance shown
by China and the other Far East and BRIC economies, which had not suffered
similar levels of trauma from the banking crisis, served to maintain a minimum
level of demand internationally when the rest of the world's economies were in
recession. This provided a pathway to eventual recovery when the engines of the
US, Europe and Japan could re-establish global growth. The long-term movement
in economic and geopolitical power from West to East, which has been gathering
momentum in recent years, is now well established following the damage to
Western economies and financial structures caused by the recession and banking
crisis of 2007/2008.
As already noted, the question now remains whether the dramatic turnaround in
financial markets can be sustained into the longer term. There will be many
adjustments which have to be made by governments to address the monetary and
fiscal imbalances built up in an effort to avoid an even deeper global
recession or depression. In addition, high levels of structural indebtedness
must be tackled by governments and individuals in the USA and UK in particular,
either through retrenchment or taxation, either of which will prove a drag on
economic recovery.
In the meantime, markets are already beginning to price in the varied outlook
for different economies over the medium term, through debt market yields and
currency parities. Each of the major currencies, particularly the US dollar and
Euro and also Sterling, have experienced sharp movements over the past 18
months as markets evaluated the longer-term prospects of policy and performance
for the nations in those currency areas.
As reported above, our portfolio also enjoyed a recovery in 2009, although
under-performed the rise in the FTSE 100 and All Share indices over the period
(having out-performed in the previous year). This divergence in performance
over the last two years is due to our major US holding, Geron Corporation, and
the significant decline in Sterling against the US dollar in 2008 (26 percent)
followed by its rise in 2009 (10 percent).
As noted last year, the world recession and credit crisis has squeezed levels
of income generation on all forms of financial and real investment to an
unprecedented extent. While yields on equities may have risen temporarily
during the downturn in markets to reflect the lower capital values, actual
dividend payment levels declined significantly as companies reduced or passed
dividends completely. Entire sectors, for example the banks, which had
historically paid uninterrupted and steadily rising dividends, suddenly
cancelled all payments for an extended period of time. It is pleasing
therefore, that we have been able to continue our progressive policy by paying
an increased dividend again this year. Our group structure, investment policy
and use of special dividends over a number of years allows us to continue to
pay high levels of dividend compared to benchmark indices and peer companies.
Outlook
After a sharp decline of almost 10 percent in the first month of 2010, the UK
equities market resumed the strong upward path seen in 2009 to finish the first
quarter ahead by 6 percent. Whether this can be sustained has already been
questioned above. It is interesting to note that only a further 12 percent of
upward movement is required in the FTSE 100 before the high point recorded in
the second half of 2007 is achieved; that was a time of strong international
growth and bubbles in numerous asset classes, including property, commodities
and financial derivatives. This, together with the rapid growth in equities
markets in 2009, would tend to suggest that further substantial growth must be
limited, particularly given the wide ranging and substantial adjustments in
prospect from governments to liquidity and fiscal policy, as described above.
We anticipate a prolonged period of low growth in major economies and financial
markets, possibly accompanied by high levels of volatility as major financial
policy initiatives are implemented by governments and imbalances are worked
through. We will therefore continue to invest for the long term alongside our
core investments in UK investment trusts. We will seek to identify situations
giving higher levels of capital return and income, while at the same time
looking out for shorter term opportunities in the equity and other markets
arising out of the economic policy adjustments to be implemented over the
coming years.
Jonathan Woolf
29 April 2010
Group income statement
For the year ended 31 December 2009
2009 2008
Revenue Capital Total Revenue Capital Total
return return return return
£000 £000 £000 £000 £000 £000
Investment income (note 2) 1,967 - 1,967 1,743 - 1,743
Holding gains/(losses) on 4,350 4,350
investments at fair value - - (10,698) (10,698)
through profit or loss
Losses on disposal of
investments at fair value - (937) (937) - (35) (35)
through profit or loss
Expenses (343) (185) (528) (330) (173) (503)
________ ________ ________ ________ ________ ________
3,228 4,852
Profit/(loss) before tax 1,624 1,413 (10,906) (9,493)
Tax (5) - (5) (10) - (10)
________ ________ ________ ________ ________ ________
3,228 4,847
Profit/(loss) for the 1,619 1,403 (10,906) (9,503)
period
________ ________ ________ ________ ________ ________
Earnings per share
Basic - ordinary shares 5.07p 12.91p 17.98p 4.21p (43.63)p (39.42)p
________ ________ ________ ________ ________ ________
Diluted - ordinary shares 4.62p 9.22p 13.84p 4.01p (31.16)p (27.15)p
________ ________ ________ ________ ________ ________
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 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 2009
Share Capital Retained Total
capital reserve earnings
£000 £000 £000 £000
Balance at 31 December 2007 35,000 2,871 1,772 39,643
Changes in equity for 2008
Loss for the period - (10,906) 1,403 (9,503)
Ordinary dividend paid (note - - (1,600) (1,600)
4)
Preference dividend paid - - (350) (350)
(note 4)
________ ________ ________ ________
Balance at 31 December 2008 35,000 (8,035) 1,225 28,190
Changes in equity for 2009
Profit for the period - 3,228 1,619 4,847
Ordinary dividend paid (note - - (1,650) (1,650)
4)
Preference dividend paid - - (350) (350)
(note 4)
________ ________ ________ ________
Balance at 31 December 2009
35,000 (4,807) 844 31,037
________ ________ ________ ________
Registered number: 433137
Group Balance Sheet
For the year ended 31 December 2009
Group
2009 2008
£000 £000
Non-current assets
Investments - fair value through profit or 29,385 26,673
loss
Current assets
Receivables 109 307
Derivatives - fair value through profit or 1,335 1,895
loss
Cash and cash equivalents 985 864
__________ __________
2,429 3,066
__________ __________
Total assets 31,814 29,739
__________ __________
Current liabilities
Trade and other payables 62 386
Current tax - 6
Other current liabilities 122 105
Derivatives - fair value through profit or 593 1,052
loss
__________ __________
(777) (1,549)
__________ __________
Total assets less current liabilities 31,037 28,190
__________ __________
Net assets 31,037 28,190
__________ __________
Equity attributable to equity holders
Ordinary share capital 25,000 25,000
Convertible preference share capital 10,000 10,000
Capital reserve (4,807) (8,035)
Retained revenue earnings 844 1,225
__________ __________
Total equity 31,037 28,190
__________ __________
Approved: 29 April 2010
Group cash flow statement
For the year ended 31 December 2009
Year ended Year ended
2009 2008
£000 £000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax 4,852 (9,493)
Adjustments for:
(Gain)/loss on investments (3,413) 10,733
Scrip dividends (6) (23)
Film income tax deducted at source (5) (4)
Proceeds on disposal of investments 17,756 14,935
at fair value through profit and loss
Purchases of investments at fair (16,995) (14,653)
value through profit and loss
__________ __________
Operating cash flows before movements 2,189 1,495
in working capital
Increase in receivables (869) (1,553)
Increase in payables 771 1,070
__________ __________
Net cash from operating activities 2,091 1,012
before income taxes
Income taxes received/(paid) 30 (44)
__________ __________
NET CASH FLOWS FROM OPERATING 2,121 968
ACTIVITIES
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on ordinary shares (1,650) (1,600)
Dividends paid on preference shares (350) (350)
__________ __________
NET CASH USED IN FINANCING ACTIVITIES (2,000) (1,950)
__________ __________
NET INCREASE/(DECREASE) IN CASH AND 121
CASH EQUIVALENTS (982)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 864 1,846
__________ __________
CASH AND CASH EQUIVALENTS AT END OF
YEAR 985 864
__________ __________
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 2009. The financial statements have been prepared on the
historical cost basis except for the measurements at fair value of investments
and derivative financial instruments and the inclusion of a subsidiary at cost.
The same accounting policies as those published in the statutory accounts for
31 December 2008 have been applied.
The information for the year ended 31 December 2009 is an extract from the
statutory accounts to that date. Statutory accounts for 2008, which were
prepared under IFRS as adopted by the EU, have been delivered to the registrar
of companies and those for 2009, prepared under IFRS as adopted by the EU, will
be delivered in due course.
The auditors have reported on the 31 December 2009 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
2009 2008
£000 £000
Income from investments
UK dividends (cash and specie) 1,532 1,197
Overseas dividends 47 13
Scrip dividends 6 5
Interest on fixed income 114 148
securities
Rental income (PID) 31 54
Property unit trust income 23 22
Film revenues 208 215
__________ __________
1,961 1,654
__________ __________
Other income
Deposit interest 4 38
Other 2 51
__________ __________
6 89
__________ __________
Total income 1,967 1,743
__________ __________
Total income comprises:
Dividends 1,616 1,269
Interest 118 186
Film revenues 208 215
Property unit trust income 23 22
Gain/(loss) on foreign exchange 2 51
__________ __________
1,967 1,743
__________ __________
Income from investments
Listed investments 1,706 1,371
Unlisted investments 255 283
__________ __________
1,961 1,654
__________ __________
Of the £1,585,000 (2008 - £1,215,000) dividends received in the group accounts,
£962,000 (2008 - £362,000) related to special and other dividends received from
investee companies that were bought after the dividend announcement. There was
a corresponding capital loss of £1,016,000 (2008 - £357,000), on these
investments.
3 Earnings per ordinary share
The calculation of the basic and diluted earnings per share is based on the
following data:
2009 2008
Revenue Capital Total Revenue Capital Total
return return return return
£000 £000 £000 £000 £000 £000
Earnings:
Basic 1,269 3,228 4,497 1,053 (10,906) (9,853)
Preference
dividend 350 - 350 350 - 350
__________ __________ __________ __________ __________ __________
Diluted 1,619 3,228 4,847 1,403 (10,906) (9,503)
__________ __________ __________ __________ __________ __________
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 (2008: 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 (2008: 35 million)
ordinary and preference shares in issue.
4 Dividends
2009 2008
£000 £000
Amounts recognised as distributions to equity holders
in the period:
Dividends on ordinary shares:
Final dividend for the year ended 31 December 2008 of
3.9p (2007:3.7p) per share 975 925
Interim dividend for the year ended 31 December 2009
of 2.7p 675 675
(2008:2.7p) per share
__________ __________
1,650 1,600
__________ __________
Proposed final dividend for the year ended 31 December
2009 of 4.2p (2008:3.9p) per share 1,050 975
__________ __________
Dividends on 3.5% cumulative convertible preference
shares:
Preference dividend for the 6 months ended 31 December
2008 of 1.75p (2007:1.75p) per share 175 175
Preference dividend for the 6 months ended 30 June
2009 of 1.75p (2008:1.75p) per share 175 175
__________ __________
350 350
__________ __________
Proposed preference dividend for the 6 months ended 31
December 2009 of 1.75p (2008:1.75p) 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 842
Income and Corporation Taxes Act 1988 are considered.
Dividends proposed for the period
2009 2008
£000 £000
Dividends on ordinary shares:
Interim dividend for the year ended 31 December 2009
of 2.7p (2008:2.7p) per share 675 675
Proposed final dividend for the year ended 31 December
2009 of 4.2p (2008:3.9p) per share 1,050 975
__________ __________
1,725 1,650
__________ __________
Dividends on 3.5% cumulative convertible preference
shares:
Preference dividend for the year ended 31 December
2009 of 1.75p (2008:1.75p) per share 175 175
Proposed preference dividend for the year ended 31
December 2009 of 1.75p (2008:1.75p) per share 175 175
__________ __________
350 350
__________ __________
5 Net asset values
Net asset Net assets
value per attributable
share
2009 2008 2009 2008
£ £ £000 £000
Ordinary shares
Undiluted 0.84 0.73 21,037 18,190
Diluted 0.89 0.81 31,037 28,190
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.
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 2009 Annual Report and Accounts, but remain
unchanged from those published in the 2008 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 (2008 - £35,000,000) being
25,000,000 ordinary shares of £1 (2008 - 25,000,000) and 10,000,000 non-voting
convertible preference shares of £1 each (2008 - 10,000,000). The rights
attaching to the shares will be explained in more detail in the notes to the
2009 Annual Report and Accounts, but remain unchanged from those published in
the 2008 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 Friday 18 June 2010 at
12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.
Copies of this Annual Financial Report are available on www.baitgroup.co.uk.
British & American Investment Trust PLC
British & American Investment Trust PLC
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