Annual Financial Report

British & American Investment Trust PLC Annual Financial Report for the year ended 31 December 2013 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 2014 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 2013 2013 2012 Revenue Capital Total Revenue Capital Total return return return return Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Profit/ 2,940 (814) 2,107 (1,435) 672 (loss) (3,754) before tax - realised Profit - 9,745 - before tax 9,745 1,446 1,446 - unrealised __________ __________ __________ __________ __________ __________ Profit 2,940 2,107 before tax 5,991 8,931 11 2,118 - total __________ __________ __________ __________ __________ __________ Earnings per Â£1 10.35p 23.96p 34.31p 7.02p 0.04p 7.06p ordinary share - basic __________ __________ __________ __________ __________ __________ Earnings per Â£1 8.40p 17.12p 25.52p 6.01p 0.03p 6.04p ordinary share - diluted __________ _________ __________ __________ _________ __________ Net assets 23,345 30,024 __________ __________ Net assets per ordinary share - deducting preference 80p 53p shares at par __________ __________ - diluted 86p 67p __________ __________ Diluted net asset value per ordinary share at 22 April 2014 74p __________ Dividends declared or proposed for the period per ordinary share - interim 2.7p 2.7p paid - final 5.1p 4.9p proposed per 3.5p 3.5p preference share Chairman's Statement I report our results for the year ended 31 December 2013. Revenue The return on the revenue account before tax amounted to Â£2.9 million (2012: Â£2.1 million), an increase of 40 percent, resulting from higher levels of both UK and overseas dividends received during the year, including special dividends. Gross revenues totalled Â£3.3 million, of which Â£3.0 million (2012: Â£2.3 million) represented income from portfolio investments and Â£0.3 million (2012: Â£0.2 million) from film, property and other income. The total return before tax amounted to a gain of Â£8.9 million (2012: Â£2.1 million gain), which comprised net revenue of Â£2.9 million, a realised loss of Â£3.5 million and an unrealised gain of Â£9.7 million. The revenue return per ordinary share was 10.4p (2012: 7.0p) on an undiluted basis and 8.4p (2012: 6.0p) on a diluted basis. Net Assets Group net assets at the year end were Â£30.0 million (2012: Â£23.3 million), an increase of 28.6 percent. This compares to increases in the FTSE 100 and All Share indices of 14.4 percent and 16.7 percent, respectively, over the period. On a total return basis, after adding back dividends paid during the year, group net assets increased by 38.2 percent compared to a total return on the two indices of between 18 percent and 20 percent. This substantial outperformance even over what was a very strong year for the indices themselves was the result of a significant recovery in the value of our largest investment, Geron Corporation. As explained in more detail in the Managing Director's report, Geron's share price rose by over 200 percent over the year upon the publication in the final quarter of very favourable clinical trial results. However, in March of this year, Geron's share price retreated significantly following the imposition of a clinical hold on these trials by the US Federal Department of Health (FDA) pending clarification of certain observed, but low level, liver abnormalities. Geron expects to provide this clarification to the FDA as soon as possible. The net asset value per ordinary share increased to 86p (2012: 67p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share increased to 80p (2012: 53p). Reflecting the substantial increase in net asset value over the year, particularly in the final quarter, our share price increased from 77 pence to over 100 pence over the year registering a significant premium to net asset value at year end as investors expected further value creation from the investment in Geron. More generally over the year, the share price had maintained the previous year's pattern of trading at approximately net asset value. Dividend We are pleased to recommend an increased final dividend of 5.1p per ordinary share, which together with the interim dividend makes a total payment for the year of 7.8p (2012: 7.6p) per ordinary share. This represents an increase of 2.6 percent over the previous year's total dividend and a yield of 7.3 percent based on the share price of 107p at the end of the year. The final dividend will be payable on 26 June 2014 to shareholders on the register at 16 May 2014. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. Alternative Investment Fund Managers Directive The Alternative Investment Fund Managers Directive (AIFMD), which creates a European-wide framework for regulating managers of alternative investment funds (AIFs), came into force in July 2013. The AIFMD is intended to reduce systemic risk created by the financial sector and aims to improve regulation, enhance transparency and investor protection, develop a single EU market for AIFs and implement effective mechanisms for micro- and macro- prudential oversight. On 31 January 2014 the company successfully registered under the Alternative Investment Fund Managers Directive as a small registered UK AIFM. Outlook Equity markets in the UK and USA performed strongly over the year, rising by 15 percent and 26 percent, respectively. With the exception of a significant fall back in June caused by concerns arising from changed expectations in the pace of monetary tightening in the USA, the indices rose steadily over the period. In fact, consideration of the likely path of the withdrawal of monetary easing in the USA and elsewhere has dominated most aspects of financial analysis and investment for some time. Therefore, the re-affirmation in the second half of 2013 by both the US Federal Reserve and the Bank of England that levels of monetary easing were likely to remain in place for some time to come, accompanied by low rates of interest, provided a strong impetus for markets to make continued progress. This was despite the underlying inference that such continuing monetary stimulus policies indicated continuing weakness in the respective economies. Nevertheless, while Central Banks remain concerned about the pace of recovery of their economies from the recent recession and allied levels of un-employment, the economies themselves have shown steady growth over the last year, in the USA and the UK in particular, and these trends look likely to continue in the near future. Although a number of long-running financial concerns such as the weak recovery in Europe and a slowing in China's growth remain unresolved and other global political uncertainties have intensified, markets did not seem to be overly concerned by these factors in most of the first quarter until Russia's unexpected occupation of Crimea in March, giving rise to more serious concerns of a global geopolitical nature and their potential effect on global economic outlooks. Against this background, we maintain our long-term and income generating strategies that are primarily based on equity investment in the UK and USA, while reducing exposures where appropriate in view of the somewhat changed international investment environment. As at 22 April 2014, group net assets had decreased to Â£26.0 million, a decrease of 13.7 percent since the beginning of the calendar year. This decrease reflects the fall in the price of Geron Corporation noted above, without which the portfolio would have increased by 4.0 percent. This is equivalent to 64 pence per share (prior charges deducted at par) and 74 pence per share on a diluted basis. Over the same period the FTSE 100 decreased 1.0 percent and the All Share Index decreased 0.7 percent. Anthony Townsend 30 April 2014 Managing Director's report Our portfolio significantly outperformed during the period, even against a strong year for equities. This was due to the substantial recovery in the final quarter in the price of Geron Corporation, our largest investment, which increased from a price of $1.50 at the beginning of the quarter to a price of $4.75 at year end. The reasons for this increase are set out below. Equity markets in the UK and USA rose steadily over the year, with a temporary setback at mid-year as Central Banks continued to indicate that monetary easing measures were likely to remain in place for a considerable period of time and as growth in leading economies, with the exception of the Eurozone, continued to improve to levels which began to be seen as generally sustainable. Although becoming more broadly based, this growth was not at the time being translated into significant growth in employment or inflationary price pressure and hence Central Banks' comfort in maintaining high levels of liquidity in markets. This accommodative stance by the US Federal Reserve also placed considerable downward pressure on the US dollar providing further stimulus to US growth through exports. Against this increasingly firm background supported by continued unprecedented levels of monetary easing, careful and nervous watch was being maintained by investors throughout the year for the first signs that liquidity might start to be withdrawn. For example, a misinterpretation by the market of a communication by the US Federal Reserve on this subject in June, resulted in a reversal in markets of 5 percent which was subsequently reversed upon clarification by the new Federal Reserve Chairman. In the UK, concerns began to arise by the end of the year that the employment target embedded in the medium term guidance policy implemented by the new Bank of England governor would be met far sooner than originally expected, but this was allayed by a re-calibration of the policy to a series of alternative economic indicators. From this, it was evident that leading Central Banks were determined to maintain support for their economies not only through the continued provision of liquidity but also through the forward communication of these policies. And despite concerns arising from the clear signs of return to growth, markets nevertheless followed the lead given by Central Banks and remained firm, surpassing in many cases the historic highs reached in 2007 prior to the multi-year recession of the last five years. Geron In September, Geron Corporation announced extremely favourable clinical trial results in the treatment of Myelofibrosis, a blood cancer, using its proprietary drug Imetelstat, a telomerase inhibitor, by its investigators at the Mayo Clinic in the USA. The trials confirmed that treatment with Imetelstat had resulted in a number of complete remissions in patients with this previously untreatable and ultimately fatal condition. Imetelstat was developed by Geron using its telomerase based technology which was awarded the Nobel prize in 2009. Although the company had discontinued trials of this drug in other solid tumour cancer indications (lung and breast) in prior years, contributing to the significant falls in share price in those years, it maintained its work in liquid tumour indications (blood) which were considered to be more reactive to the actions of the drug. The potential market for a successful blood cancer treatment worldwide is significant, and if Geron's trials in this area are ultimately successful, the value to Geron would be considerable. The 200 percent rise in Geron's share price on the announcement of the success of the early trials last year is indicative of this. In March, the US Federal Drug Administration (FDA), placed another of Geron's blood trials (Essential Thrombocythemia - ET) on clinical hold requesting further information on the reversibility of various low-level liver effects observed in the trials. The FDA allowed the Mayo Clinic Myelofibrosis trial to continue for those patients who had shown positive clinical responses indicating the clear benefit seen in the treatment. As a result, Geron's share price fell considerably, retracing the gains it had made in the previous quarter. Geron has stated it is confident it will be able to address the FDA's concerns but until such time as the clinical hold is lifted, Geron's share price is likely to continue to be weak. Outlook Equity markets have been somewhat more volatile since the beginning of the year as a number of concerns have arisen. There is now less confidence that monetary easing will continue as long as previously expected as economic growth has outperformed expectations and employment levels have risen. By contrast, levels of growth in China have been reduced and the Eurozone continues weak with the possibility of multi-year stagnation in prospect. Markets are also worried by the emergence of possible asset bubbles in certain areas (US equities, real estate and credit in China, UK central London property) and the potential for a correction has increased. In addition, levels of political instability in various emerging growth areas of the world (Brazil, Thailand, Turkey, Russia) have increased together with a general feeling that the progress achieved in emerging from the great recession of 2007/8 might become embroiled in wider events as the confrontational approach of earlier years in world politics begins to reassert itself following Russia's recent military occupation of Crimea. The combination of these events did in fact generate a correction in equity markets around the beginning of the second quarter. As a result, market sentiment and outlook more generally has weakened, certainly for the short term, despite further and possibly reactionary indications from the US Federal Reserve that US$ monetary policy might remain accommodative for longer than the market had previously anticipated. As previously announced, we have initiated a policy of limited gearing while interest rates remain low and the medium term outlook for interest rates remains favourable. We will continue to incur modest levels of gearing to avail ourselves of investment opportunities while rates remain below yields on such investment, while reducing exposures where appropriate in view of the somewhat changed international investment environment and outlook. Jonathan Woolf 30 April 2014 Group income statement For the year ended 31 December 2013 2013 2012 Revenue Capital Total Revenue Capital Total return return return return Â£ 000 Â£ 000 Â£ 000 Â£ 000 Â£ 000 Â£ 000 Investment income (note 3,340 - 3,340 2,486 - 2,486 2) Holding gains on investments at fair value through profit or loss - 9,745 9,745 - 1,446 1,446 Losses on disposal of investments at fair - (3,545) (3,545) - (1,237) (1,237) value through profit or loss Expenses (395) (209) (604) (379) (198) (577) ________ ________ ________ ________ ________ ________ Profit before finance 2,945 2,107 costs and tax 5,991 8,936 11 2,118 Finance costs (5) - (5) - - - ________ ________ ________ ________ ________ ________ Profit before tax 2,940 5,991 8,931 2,107 11 2,118 Tax (2) - (2) (3) - (3) ________ ________ ________ ________ ________ ________ Profit for the period 2,938 5,991 8,929 2,104 11 2,115 ________ ________ ________ ________ ________ ________ Earnings per share Basic - ordinary shares 10.35p 23.96p 34.31p 7.02p 0.04p 7.06p ________ ________ ________ ________ ________ ________ Diluted - ordinary 8.40p 17.12p 25.52p 6.01p 0.03p 6.04p shares ________ ________ ________ ________ ________ ________ The group does not have any income or expense that is not included in the profit for the period. Accordingly, the '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 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 2013 Share Capital Retained Total capital reserve earnings Â£ 000 Â£ 000 Â£ 000 Â£ 000 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 Changes in equity for 2013 Profit for the period - 5,991 2,938 8,929 Ordinary dividend paid (note 4) - - (1,900) (1,900) Preference dividend paid (note 4) - - (350) (350) ________ ________ ________ ________ Balance at 31 December 2013 35,000 (6,909) 1,933 30,024 ________ ________ ________ ________ Registered number: 00433137 Group Balance Sheet For the year ended 31 December 2013 Group 2013 2012 Â£ 000 Â£ 000 Non-current assets Investments - fair value through profit or loss 31,057 21,137 Current assets Receivables 195 1,190 Derivatives - fair value through profit or loss 459 3,204 Cash and cash equivalents 317 740 __________ __________ 971 5,134 __________ __________ Total assets 32,028 26,271 __________ __________ Current liabilities Trade and other payables 287 1,307 Bank loan 1,448 - Derivatives - fair value through profit or loss 269 1,619 __________ __________ (2,004) (2,926) __________ __________ Total assets less current liabilities 30,024 23,345 __________ __________ Net assets 30,024 23,345 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 25,000 Convertible preference share capital 10,000 10,000 Capital reserve (6,909) (12,900) Retained revenue earnings 1,933 1,245 __________ __________ Total equity 30,024 23,345 __________ __________ Approved: 30 April 2014 Group cash flow statement For the year ended 31 December 2013 Year ended Year ended 2013 2012 Â£ 000 Â£ 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 8,936 2,118 Adjustments for: Gain on investments (6,200) (209) Scrip dividends (9) (8) Film income tax deducted at source (85) (3) Proceeds on disposal of investments at fair 29,769 16,255 value through profit and loss Purchases of investments at fair value (31,077) (14,111) through profit and loss __________ __________ Operating cash flows before movements in 1,334 4,042 working capital Increase in receivables (2,472) (3,372) Increase in payables 1,347 1,798 __________ __________ NET CASH FROM OPERATING ACTIVITIES BEFORE INTEREST 209 2,468 Interest paid (5) - __________ __________ NET CASH FROM OPERATING ACTIVITIES AFTER INTEREST 204 2,468 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (1,900) (1,850) Dividends paid on preference shares (175) - Bank loan 1,448 - __________ __________ NET CASH USED IN FINANCING ACTIVITIES (627) (1,850) __________ __________ NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (423) 618 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 740 122 __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR 317 740 __________ __________ 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 2013. 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 2012 have been applied. The information for the year ended 31 December 2013 is an extract from the statutory accounts to that date. Statutory accounts for 2012, which were prepared under IFRS as adopted by the EU, have been delivered to the registrar of companies and those for 2013, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditors have reported on the 31 December 2013 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 2013 2012 Â£ 000 Â£ 000 Income from investments UK dividends 2,436 1,838 Overseas dividends 484 342 Scrip and in specie dividends 9 8 Interest on fixed income securities 102 102 Property unit trust income 22 22 Film revenues 138 179 __________ __________ 3,191 2,491 __________ __________ Other income 149 (5) __________ __________ Total income 3,340 2,486 __________ __________ Total income comprises: Dividends 2,929 2,188 Interest 102 102 Film revenues 138 179 Property income 22 22 Gain/(loss) on foreign exchange 46 (5) Other interest 103 - __________ __________ 3,340 2,486 __________ __________ Income from investments Listed investments 3,012 2,261 Unlisted investments 179 230 __________ __________ 3,191 2,491 __________ __________ Of the Â£2,929,000 (2012 - Â£2,188,000) dividends received in the group accounts, Â£2,351,000 (2012 - Â£1,571,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of Â£2,442,000 (2012 - Â£1,633,000), 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: 2013 2012 Revenue Capital Total Revenue Capital Total return return return return Â£ 000 Â£ 000 Â£ 000 Â£ 000 Â£ 000 Â£ 000 Earnings: Basic 2,588 5,991 8,579 1,754 11 1,765 Preference dividend 350 - 350 350 - 350 __________ __________ __________ __________ __________ __________ Diluted 2,938 5,991 8,929 2,104 11 2,115 __________ __________ __________ __________ __________ __________ 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 (2012: 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 (2012: 35 million) ordinary and preference shares in issue. 4 Dividends 2013 2012 Â£ 000 Â£ 000 Amounts recognised as distributions to equity holders in the period: Dividends on ordinary shares: Final dividend for the year ended 31 December 2012 of 4.9p (2011:4.7) per share 1,225 1,175 Interim dividend for the year ended 31 December 2013 of 2.7p 675 675 (2012:2.7p) per share __________ __________ 1,900 1,850 __________ __________ Proposed final dividend for the year ended 31 December 2013 of 5.1p (2012:4.9p) per share 1,275 1,225 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the 6 months ended 31 December 2012 of 1.75p (2011:1.75p) per share 175 175 Preference dividend for the 6 months ended 30 June 2013 of 1.75p (2012:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ Proposed preference dividend for the 6 months ended 31 December 2013 of 1.75p (2012:1.75p) per share 175 175 __________ __________ The preference dividend for the 6 months ended 31 December 2012 was paid as dividend 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 2013 2012 Â£ 000 Â£ 000 Dividends on ordinary shares: Interim dividend for the year ended 31 December 2013 of 2.7p (2012:2.7p) per share 675 675 Proposed final dividend for the year ended 31 December 2013 of 5.1p (2012:4.9p) per share 1,275 1,225 __________ __________ 1,950 1,900 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the year ended 31 December 2013 of 1.75p (2012:1.75p) per share 175 175 Proposed preference dividend for the year ended 31 December 2013 of 1.75p (2012:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ 5 Net asset values Net asset Net assets value per attributable share 2013 2012 2013 2012 Â£ Â£ Â£ 000 Â£ 000 Ordinary shares Undiluted 0.80 0.53 20,024 13,345 Diluted 0.86 0.67 30,024 23,345 The undiluted and diluted net asset values per Â£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 Â£1 preference share is the par value of Â£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 2013 Annual Report and Accounts, but remain unchanged from those published in the 2012 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 Â£35,000,000 (2012 - Â£35,000,000) being 25,000,000 ordinary shares of Â£1 (2012 - 25,000,000) and 10,000,000 non-voting convertible preference shares of Â£1 each (2012 - 10,000,000). The rights attaching to the shares will be explained in more detail in the notes to the 2013 Annual Report and Accounts, but remain unchanged from those published in the 2012 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 Wednesday 18 June 2014 at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.

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