Final Results

British & American Investment Trust PLC Preliminary Announcement for the year ended 31 December 2007 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 2008 Financial Highlights For the year ended 31 December 2007 2007 2006 Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Return before tax - 1,640 (422) 1,218 1,829 (53) 1,776 realised Return before tax - - (7,278) (7,278) - 5,159 5,159 unrealised __________ __________ __________ __________ __________ __________ Return before tax - 1,640 (7,700) (6,060) 1,829 5,106 6,935 total __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 4.98p (30.80)p (25.82)p 5.85p 20.43p 26.28p basic __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 4.56p (22.00)p (17.44)p 5.18p 14.59p 19.77p diluted __________ _________ __________ __________ _________ __________ Net assets 39,643 47,647 __________ __________ Net assets per ordinary share - deducting preference 119p 151p shares at par __________ __________ - diluted 113p 136p __________ __________ 110p Diluted net asset value per ordinary share at 25 April 2008 __________ Dividends declared or proposed for the period per ordinary share - interim paid 2.7p 2.5p - final proposed 3.7p 3.5p - special paid 0.0p 1.0p per preference 3.5p 3.5p share Chairman's Statement I report our results for the year ended 31 December 2007. Revenue The return on the revenue account before tax amounted to £1.6 million (2006: £ 1.8 million). Gross income amounted to £1.9 million (2006: £2.1 million), of which £1.5 million (2006: £1.7 million) represented income from investments and £0.4 million (2006: £0.4 million) film, property and other income. The slightly lower level of income from investments arose from the lower level of special dividends received compared to the previous year. The return before tax, which includes realised and unrealised capital appreciation, amounted to a loss of £6.1 million (2006: £6.9 million profit) reflecting in part a decline in the value of our US investments and weakness in the US dollar over the year, as discussed below. The capital element of this total was represented by £0.2 million of realised losses and £7.3 million of unrealised losses. This is a disappointing result which is further explained in the Managing Director's Report. The revenue return per ordinary share was 5.0p (2006: 5.8p) on an undiluted basis and 4.6p (2006: 5.2p) on a diluted basis. Net Assets Group net assets at the year end were £39.6 million (2006: £47.6 million), a decrease of 16.8 percent. This compares to increases in the FTSE 100 and All Share indices of 4.5 percent and 2.6 percent, respectively, over the period. On a total return basis, after adding back dividends paid in the year, our portfolio returned a decrease of 12.8 percent. This compares to an increase over the same period of 7.5 percent (dividends reinvested) in the FTSE 100 share index and 5.6 percent (dividends reinvested) in the All Share index. The net asset value per ordinary share decreased to 113p (2006: 136p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share decreased to 119p (2006: 151p). Dividends We are pleased to recommend an increased final dividend of 3.7p per ordinary share, which together with the interim dividend makes a total payment for the year of 6.4p (2006: 6.0p) per ordinary share. This represents an increase of 6.7 percent over the previous year's total dividend, excluding special dividends. The final dividend will be payable on 26 June 2008 to shareholders on the register at 30 May 2008. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. Shares and performance The discount to NAV at which our shares trade in the market widened during the year to approximately 15 percent, continuing the trend reported at the interim stage. Widening discounts have been experienced generally in the investment trust sector as levels of investment and confidence have fallen as a consequence of the unprecedented credit crisis experienced in financial markets in the second half of 2007. As noted above, our performance based on net assets fell significantly behind our benchmarks over the period. A significant contributor to this was the fall in the value of Geron Corporation, our largest US based investment and, to a lesser extent by year end, the value of the dollar against sterling. In the months since the year end, however, a modest recovery in these valuations has been seen, allowing our NAV to recover some ground lost against the benchmarks. The Managing Director gives an overview of Geron Corporation in the investment focus that follows. Outlook With the turmoil in credit markets continuing for longer than perhaps expected despite early and significant intervention by the authorities in the USA, the short term outlook remains decidedly uncertain for almost all forms of investment as confidence even between leading lending institutions remains extremely fragile. It is clear from recent actions that the financial authorities in the USA will take all and any measures necessary to ensure that financial markets stabilise and reopen for normal business; however, until a degree of clarity emerges in the exposures of lending institutions to doubtful debts and investments, financial markets will remain extremely difficult and volatile. This situation could easily continue for the greater part of the current year. Our own equity-focused investment strategy is based on long-term and income generating strategies in the UK and USA in quoted investments with underlying exposures to many world economies. This strategy remains relevant in current conditions and we look forward to the eventual return to normality in financial markets. As at 25 April 2008, group net assets had decreased to £38.5 million, a decrease of 2.8 percent since the beginning of the calendar year. This is equivalent to 114 pence per share (prior charges deducted at par) and 110 pence per share on a diluted basis. Over the same period the FTSE 100 decreased 6.3 percent and the All Share Index decreased 6.3 percent. Anthony Townsend 29 April 2008 Managing Director's report Performance As reported at the interim stage, strong gains in equity returns in the UK and USA were recorded in the first half of 2007 of 6 and 8 percent, respectively. However, growing concerns surrounding the US housing market and the widely-traded structured loan market based thereon began to be foreshadowed at the time through a significant rise in equity market volatility. These fears were finally realised in August when credit markets in the USA and the UK seized up as the extent of banks' exposures to and potential losses on these - and later other - structured investments began to be made known. A serious collapse in market confidence followed, resulting in the UK in the first run on a major retail bank for almost 100 years. This deteriorating situation prompted a series of emergency monetary interventions by the Federal Reserve, the Bank of England and the European Central Bank in the Autumn and into 2008 on a scale and in a fashion not seen before. These measures were designed to restore confidence and provide liquidity to banks and financial institutions which were unwilling to lend to each other. However, what started as a liquidity crisis developed towards the end of the year into a solvency crisis as banks were forced to write down the value of their exposures to these and other structured investments. This provoked the failure of a small number of banks and some hedge funds in the UK, USA and Europe and the central banks sought to restore confidence and prevent further bank failures through large-scale operations in the wholesale financial markets. This included acquiring for cash previously unacceptable assets, underwriting the takeover of some weaker institutions and, in the case of the UK, publicly acquiring one of the largest high street mortgage banks. In addition, some of the most affected banks including the world's largest commercial and investment banks, sought large capital injections from new investors including for the first time sovereign wealth funds. Against this backdrop of disruption in the credit markets in the second half of the year, equity markets in the UK and USA gained by 4.5 percent and 6.4 percent, respectively, for the year as a whole. This growth was provided almost totally by the commodities and oils sectors in the face of significant declines in most other sectors, particularly financials and retailers as the effects of the financial crisis and its subsequent effects on the real economies began to be understood. Given the high weightings of commodities stocks in the leading companies indices and also a noticeable move by investors towards higher capitalisation stocks in times of investment uncertainty, the FTSE 100 index in the UK outperformed the All Share index in 2007 for the first time in over 10 years. Under the circumstances, this overall result in equity markets was unexpectedly firm. The performance of investment funds, however, including investment trusts, significantly lagged the main equity benchmarks for the year with the generalist investment trust index falling by approximately 4 percent as retail investment inflows began to falter. As noted above, our portfolio declined by 16.8 percent, the main contributor to this being a drop in value of Geron Corporation, our largest investment, by 38% in US$ terms and 2% in respect of weakness in the US dollar, giving rise to significant underperformance by the portfolio overall. Since the year end the valuation of Geron has outperformed the benchmark and has allowed our overall portfolio valuation to recover some of the ground lost to the benchmarks in 2007. Outlook Since the year end, the continuing disruption in credit markets has resulted in steep falls in all developed country equity markets. In the first quarter, equity markets in the US and UK fell by approximately 7.6 percent and 12.3 percent, respectively. At the time of writing, transparency in banks' exposures to derivative investment losses has not yet been fully achieved and further rounds of asset value writedowns by leading banks are still expected by the markets. As a result, the major credit markets remain disrupted and equity markets continue to show extreme volatility. Although central banks and particularly the Federal Reserve remain ready to continue an aggressive programme of intervention, many traditional measures such as discount/bank rate reductions are not being fully reflected in the retail credit markets because of the lack of confidence in the interbank market. In addition, further aggressive loosening of monetary policy is constrained by above target and growing levels of inflation. Investors, therefore, both in securities and real assets are finding continuing difficulty in financing their operations and central banks are increasingly relying more on non-traditional avenues to stabilise the market such as opening the discount windows to a wider range of assets and lending institutions. Furthermore, governments, particularly in the UK, also find themselves with fewer alternatives to control events through fiscal intervention because of constraints imposed by the budgetary imbalances which have built up over recent years. Against this background and the lower levels of economic activity expected in the coming year as already seen in the increased numbers of profit warnings from major corporates including non-financials, equity markets are likely to remain uncertain for a considerable period in the current year. With the likely continued reduction in interest rates and other monetary loosening over the coming months, value should return as the disruption to the credit markets subsides and companies can focus again on the medium term. At that time, opportunities to lock in good long-term investment returns should present themselves again. Investment Focus Set out below are brief comments on three of the largest holdings in the portfolio which are considered core holdings: Geron Corporation Inc is a NASDAQ listed bio-medical company based in California and currently represents 15.85 percent of the portfolio. The market capitalisation is US$ 395 million. As an early stage bio-pharmaceutical company with limited current earnings, Geron's share price has been subject to considerable volatility. The 12 and 36 month share price highs have been $9.32 and $11.22, and lows $4.12 and $4.12, respectively, compared to the current price of $5.05. Over a period of 15 years, the company has discovered and patented a new form of science based around embryonic stem cell technology which has the potential to revolutionise the practice of medicine in the coming years, in particular in the areas of oncology and regenerative medicine. Geron's technology covers a broad range of platforms to treat a wide range of conditions including multiple cancer types, spinal cord injury, heart failure, diabetes, Parkinson's disease and HIV. Geron is currently conducting multiple clinical trials in the USA of both its cancer vaccine and inhibition technologies and is expected this year to commence the world's first embryonic stem cell trial for spinal cord injury. In addition, through its ownership of the cloning technology used in the creation of Dolly the sheep, Geron has licensed rights to the procedures involved in the globally important markets of animal reproduction, bio-agribusiness, and other biotechnology sourced products and medicines. Following recent clearance by the FDA in the USA after a multi-year investigation into the safety of foods originated from cloned animals, the market for such products is now expected to commence in earnest and grow substantially. The company's discoveries are protected by a world-wide patent estate and it has already concluded collaborative/licensing agreements with a number of leading international pharmaceutical and biomedical companies and institutions including Merck, Roche, Procter & Gamble, Corning and Edinburgh and Oxford Universities. Stem cell science is still in its infancy and, in the USA in particular, has been subject to a large amount of adverse political pressure from an anti-science administration. This interference has had the effect of holding back the industry in the USA by a considerable number of years but ironically it has also allowed Geron to pursue, develop and patent its discoveries using its own private resources and thereby gain a pre-eminent position in this new market which would have been impossible if the usual supply of public and university funding had been allowed to be applied to this new branch of medicine. Your company remains convinced that Geron is therefore in a unique position to capitalise on what is expected to be a very significant and highly valuable new branch of medical science and we intend to hold this investment until its potential is recognised in its market value. Prudential PLC is one of the largest UK listed life assurance companies operating in the UK and internationally in savings, pension provision and fund management with a market capitalisation of £16 billion. Our investment represents 10.61 percent of the portfolio. The 12 and 36 month share price highs have been 811p and 811p and lows 573p and 463p, respectively, compared to the current price of 700p, yielding 2.6 percent and a P/E of 21.2. Prudential derives 34% of its long-term operating profits in the UK, 25% in the USA and 41% in Asia. In the UK it has £167 billion of funds under management through M&G Investments. Life assurance, pension provision and fund management are recognised to be global growth industries as populations worldwide increase, mature and age. The fast pace of population development in the Far East in particular and the growing shift of global capital away from the West to the East is likely to yield significant growth opportunities for financial service companies in the East and Prudential is well represented in all the major countries of the region including, Hong Kong and China, India, Japan, Korea Malaysia, Singapore and Thailand to take advantage of this. Finally, in addition to the fundamental growth potential of this investment noted above, there remains the possibility that the significant inherited estate in the UK life assurance company may be reattributed between policy holders and shareholders, yielding a substantial windfall bonus to shareholders at some date in the future. RIT Capital Partners plc (`RIT') is a UK listed investment trust investing to deliver long-term capital growth in a widely diversified international portfolio of both quoted and unquoted investments and third party funds. As at 30th September 2007 funds under management totalled £1.9 billion. The current share price premium is 2.8 percent, which compares to an average discount of 5.7 percent for its AIC sector and is an indication of investor esteem placed in this company. The 12 and 36 month share price highs have been £11.98 and £ 11.98, and lows £9.85 and £6.86, respectively, compared to the current price of £11.68 yielding 0.3 percent. RIT has significantly outperformed the AIC international growth sector and its benchmarks of Morgan Stanley Capital International and FTSE All Share indices over 1,3,5 and 10 years and is placed in the top two of its AIC grouping over all periods. As at the last report date, the majority of the portfolio (51%) was invested in quoted investments, 22% in unquoted securities and partnerships, 15% in long equity funds and 8% in government securities, money market funds and property. Individual investments vary widely in terms of their underlying industry, currency, investment type and nationality and together make up a portfolio of widely diversified international holdings which have served to outperform consistently all relevant capital growth indices for many years. Jonathan Woolf 29 April 2008 Consolidated income statement For the year ended 31 December 2007 2007 2006 Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Investment income (note 2) 1,939 - 1,939 2,105 - 2,105 (Losses)/gains on fair value through profit or - (7,278) (7,278) - 5,159 5,159 loss assets - unrealised (Losses)/gains on fair value through profit or - (264) (264) - 97 97 loss assets - realised Expenses (299) (158) (457) (276) (150) (426) ________ ________ ________ ________ ________ ________ (Loss)/profit before tax 1,640 (7,700) (6,060) 1,829 5,106 6,935 Tax (44) - (44) (15) - (15) ________ ________ ________ ________ ________ ________ (Loss)/profit for the 1,596 (7,700) (6,104) 1,814 5,106 6,920 period ________ ________ ________ ________ ________ ________ Earnings per share Basic - ordinary shares 4.98p (30.80)p (25.82)p 5.85p 20.43p 26.28p ________ ________ ________ ________ ________ ________ Diluted - ordinary shares 4.56p (22.00)p (17.44)p 5.18p 14.59p 19.77p ________ ________ ________ ________ ________ ________ 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. Consolidated statement of changes in equity For the year ended 31 December 2007 Share Capital Capital Retained Total capital reserve reserve earnings realised unrealised £000 £000 £000 £000 £000 Balance at 31 December 2005 35,000 15,141 (9,676) 2,300 42,765 Changes in equity for 2006 Profit for the period - 2,013 3,093 1,814 6,920 Ordinary dividend paid (note - - - (1,688) (1,688) 4) Preference dividend paid - - - (350) (350) (note 4) ________ ________ ________ ________ ________ Balance at 31 December 2006 35,000 17,154 (6,583) 2,076 47,647 Changes in equity for 2007 Profit for the period - 1,126 (8,826) 1,596 (6,104) Ordinary dividend paid (note - - - (1,550) (1,550) 4) Preference dividend paid - - - (350) (350) (note 4) ________ ________ ________ ________ ________ Balance at 31 December 2007 35,000 18,280 (15,409) 1,772 39,643 ________ ________ ________ ________ ________ Consolidated Balance Sheet For the year ended 31 December 2007 Group 2007 2006 £000 £000 Non-current assets Investments - fair value through profit or 37,901 45,876 loss Current assets Receivables 1,073 553 Cash and cash equivalents 1,846 1,554 __________ __________ 2,919 2,107 __________ __________ Total assets 40,820 47,983 __________ __________ Current liabilities (1,177) (336) __________ __________ Total assets less current liabilities 39,643 47,647 __________ __________ Net assets 39,643 47,647 __________ __________ Equity attributable to equity holders Ordinary share capital 25,000 25,000 Convertible preference share capital 10,000 10,000 Capital reserve - realised 18,280 17,154 Capital reserve - unrealised (15,409) (6,583) Retained earnings 1,772 2,076 __________ __________ Total equity 39,643 47,647 __________ __________ Approved: 29 April 2008 Consolidated cash flow statement For the year ended 31 December 2007 Year ended Year ended 2007 2006 £000 £000 CASH FLOWS FROM OPERATING ACTIVITIES (Loss)/profit before tax (6,060) 6,935 Adjustments for: Loss/(gain) on investments 7,542 (5,256) Scrip dividends and interest (6) (27) Film income tax deducted at source (3) (4) Proceeds on disposal of investments 13,864 20,510 at fair value through profit and loss Purchases of investments at fair (12,867) (19,452) value through profit and loss __________ __________ Operating cash flows before movements 2,470 2,706 in working capital (Increase)/decrease in receivables (115) 13 Decrease in payables (148) (2,305) __________ __________ Net cash from operating activities 2,207 414 before income taxes Income taxes paid (15) (85) __________ __________ NET CASH FLOWS FROM OPERATING 2,192 329 ACTIVITIES __________ __________ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on ordinary shares (1,550) (1,688) Dividends paid on preference shares (350) (350) __________ __________ NET CASH USED IN FINANCING ACTIVITIES (1,900) (2,038) __________ __________ NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 292 (1,709) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,554 3,263 __________ __________ CASH AND CASH EQUIVALENTS AT END OF YEAR 1,846 1,554 __________ __________ 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 2007. 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 2006 have been applied. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2007 or 2006. Statutory accounts for 2006, which were prepared under IFRS as adopted by the EU, have been delivered to the registrar of companies and those for 2007, prepared under IFRS as adopted by the EU, will be delivered in due course. The auditors have reported on the 31 December 2007 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. 2 Income 2007 2006 £000 £000 Income from investments UK dividends (cash and specie) 1,296 1,590 Overseas dividends 11 11 Scrip dividends 4 4 Interest on fixed income 153 130 securities Rental income (PID) 59 - Property unit trust income 101 100 Film revenues 238 185 __________ __________ 1,862 2,020 __________ __________ Other income Deposit interest 95 101 Other (18) (16) __________ __________ 77 85 __________ __________ Total income 1,939 2,105 __________ __________ Total income comprises: Dividends 1,370 1,605 Interest 248 231 Film revenues 238 185 Property unit trust income 101 100 Loss on foreign exchange (18) (16) __________ __________ 1,939 2,105 __________ __________ Income from investments Listed investments 1,469 1,664 Unlisted investments 393 356 __________ __________ 1,862 2,020 __________ __________ Of the £1,311,000 (2006: £1,605,000) dividends received in the group accounts, £468,000 (2006: £686,000) related to special dividends received from investee companies. There was a corresponding capital loss of £445,000 (2006: £587,000). 3 Earnings per ordinary share The calculation of the basic and diluted earnings per share is based on the following data: 2007 2006 Revenue Capital Total Revenue Capital Total return return return return £000 £000 £000 £000 £000 £000 Earnings: Basic 1,246 (7,700) (6,454) 1,464 5,106 6,570 Preference dividend 350 - 350 350 - 350 __________ __________ __________ __________ __________ __________ Diluted 1,596 (7,700) (6,104) 1,814 5,106 6,920 __________ __________ __________ __________ __________ __________ 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 (2006: 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 (2006: 35 million) ordinary and preference shares in issue. 4 Dividends 2007 2006 £000 £000 Amounts recognised as distributions to equity holders in the period: Dividends on ordinary shares: Final dividend for the year ended 31 December 2006 of 3.5p (2005:3.25p) per share 875 813 Interim dividend for the year ended 31 December 2007 of 2.7p 675 625 (2006:2.5p) per share Special dividend for the year ended 31 December 2007 of 0.0p (2006:1.0p) per share - 250 __________ __________ 1,550 1,688 __________ __________ Proposed final dividend for the year ended 31 December 2007 of 3.7p (2006:3.5p) per share 925 875 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the 6 months ended 31 December 2006 of 1.75p (2005:1.75p) per share 175 175 Preference dividend for the 6 months ended 30 June 2007 of 1.75p (2006:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ Proposed preference dividend for the 6 months ended 31 December 2007 of 1.75p (2006:1.75p) 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. 2007 2006 £000 £000 Dividends on ordinary shares: Interim dividend for the year ended 31 December 2007 of 2.7p (2006:2.5p) per share 675 625 Special dividend for the year ended 31 December 2007 of 0.0p (2006:1.0p) per share - 250 Proposed final dividend for the year ended 31 December 2007 of 3.7p (2006:3.5p) per share 925 875 __________ __________ 1,600 1,750 __________ __________ Dividends on 3.5% cumulative convertible preference shares: Preference dividend for the 6 months ended 30 June 2007 of 1.75p (2006:1.75p) per share 175 175 Proposed preference dividend for the 6 months ended 31 December 2007 of 1.75p (2006:1.75p) per share 175 175 __________ __________ 350 350 __________ __________ 5 Net asset values Net asset Net assets value per attributable share 2007 2006 2007 2006 £ £ £000 £000 Ordinary shares Undiluted 1.19 1.51 29,643 37,647 Diluted 1.13 1.36 39,643 47,647 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. British & American Investment Trust PLC British & American Investment Trust PLC

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