Final Results

RNS Number : 5220C

British Assets Trust PLC

16 November 2009

BRITISH ASSETS TRUST PLC

Date: 16 November 2009

Results for the year ended 30 September 2009

Dividend increase of 3.0 per cent
Share price total return of 15.8 per cent
Net asset value total return of 13.8 per cent compared with a total return of 11.1 per cent from the benchmark index

Chairman's Statement:

The year ended 30 September 2009 was a turbulent period for financial markets around the world. Stockmarkets fell sharply during the first half of the year as concerns continued over the health of the financial sector and the global economy. As economic growth slowed, governments and central banks announced significant stimulus packages in an attempt to halt the decline. This strategy appears to have had some success with evidence of improvement in global economic conditions now appearing. Stockmarkets have reacted positively to this prospect, with returns in the last quarter of the financial year particularly strong.

Against this backdrop, the Company's net asset value total return for the year ended 30 September 2009 was 13.8 per cent. This compares favourably with the total return of 11.1 per cent from the composite benchmark index of 75 per cent FTSE All-Share Index and 25 per cent FTSE World (ex UK) Index. The Company's share price total return for the year was 15.8 per cent, and the debt-adjusted discount at the end of the year was 6.9 per cent, compared to 8.0 per cent on 30 September 2008.

As previously reported, during the year the Board agreed with the Managers that the Company's overseas portfolios would be consolidated into two portfolios, a global developed markets portfolio and a global emerging markets portfolio. This change has meant moving away from regional portfolios based on geographic domicile. The reason for the change is to provide greater focus on the best individual investment opportunities overseas.

It is pleasing to report that, in the first year of adopting this new approach for managing the overseas portfolios, the results have been encouraging, with the net effect of global asset allocation and stock selection contributing positively to the performance for the year. The emerging markets portfolio performed particularly well, in terms of both stock selection and asset allocation. The global developed markets portfolio also outperformed during the year. The UK portfolio underperformed, principally because of higher dividend yielding stocks, upon which the Company is heavily reliant, generally lagging the market. The stockmarket rally was led by cyclical companies, which typically pay lower levels of dividends, and the major banks, most of which are currently not paying dividends.

The corporate bond portfolio contributed positively to performance after a difficult year in 2008. In addition, it continued to be an important contributor to the Revenue Account.

Earnings and Dividends

The Company's revenue earnings for the year were 5.8p per share (2008: 6.2p). Three interim dividends of 1.442p per share were paid during the year and the Board recommends payment of a final dividend of 1.786p per share, payable on 8 January 2010 to shareholders on the register on 11 December 2009. This brings the total dividend for the year to 6.112p per share, representing an increase of 3.0 per cent from the previous year.

During the year, the Revenue Account was affected by dividend cuts by the major UK banks and significantly reduced interest rates on bank deposits. However, it did benefit from good dividend growth in certain sectors, in particular oils, pharmaceuticals and telecoms. It also benefited from the recovery of VAT on management fees and associated interest, as explained in more detail below.

Whilst there are indications that dividend cuts have peaked and that there may be modest dividend growth in the year ahead, it will take time for the Company's income levels to return to those of previous years. In addition, the Company is likely to continue to be adversely affected by very low interest rates on its bank deposits. The Board considers the Company's dividend to be one of its key attractions. The Board has therefore considered carefully the revenue forecast for the forthcoming year, and the size of the Company's revenue reserve, to ensure that the dividend level continues to be sustainable. Following this review, it is the Board's current intention that the three interim dividends for the year ended 30 September 2010 will each be maintained at 1.442p per share. The Board considers it likely that the level of the final dividend will be maintained but will keep the possibility of an increase under review as the year progresses.

Gearing

At 30 September 2009 the Company's level of gearing, net of cash, was 21.0 per cent. This was represented by equity gearing of 5.5 per cent and 15.5 per cent in corporate bonds.

The Company's borrowing facilities comprise a £60 million 6.25 per cent Bond which is due for redemption in 2031 and a £60 million bank revolving credit facility, £27.7 million of which was drawn down at the year end.

Share Buy Backs

The Company purchased 1,500,000 shares for cancellation during the year, for an aggregate consideration of £1.6 million.

The Company will seek to renew its share buy back authority at the Annual General Meeting.

VAT on Management Fees

As previously reported to shareholders, following the European Court of Justice ruling in June 2007 that investment trusts should be regarded as special investment funds, investment management fees paid by the Company are no longer subject to VAT.

During the year, the Managers continued to liaise with HM Revenue & Customs to recover, on the Company's behalf, VAT paid previously on investment management fees. The accounts include a recovery of VAT and associated interest of £2.5 million. Of this amount, £2.3 million was credited to the Revenue Account, providing an enhancement of 0.8p per share to the revenue earnings for the period. The balance was credited to the Capital Reserve.

Board Composition

Having served as a Director since 1974 and as Chairman since 1995, I will retire from the Board at the Company's Annual General Meeting. Dr Christopher Masters, who joined the Board in 1990, will also retire at that time. On behalf of the Board I would like to thank Dr Masters for the significant contribution he has made to the Company during his time as a Director.

As previously announced, Ms Lynn Ruddick, who joined the Board in 2004, will succeed me as Chairman. I have every confidence in her ability to lead the Board in the future.

Outlook

Whilst there are signs that global economic conditions are starting to improve, there remain significant uncertainties over the strength of the recovery. The historically high levels of debt in some developed economies and continuing constraints over the availability of credit are likely to hinder growth for several years to come. In the shorter term, rising unemployment is also likely to weigh on the recovery.

The uncertain outlook could result in volatile financial markets in the year ahead. That said, with monetary policy likely to continue to remain accommodative and, with an improved outlook for corporate earnings, it should be a reasonable period for equities and corporate bonds.

W R E Thomson

Chairman

Income Statement for the Year ended 30 September 2009

		2009	2009	2009
	Notes	Revenue	Capital	Total
		£'000	£'000	£'000


Gains on investments		-	29,773	29,773
Exchange differences		-	(1,344)	(1,344)
Income	3	18,369	-	18,369
Management expenses		1,086	(1,702)	(616)
Other expenses		(879)	-	(879)
		______	______	______
Net return before finance costs & taxation		18,576	26,727	45,303

Finance Costs		(1,136)	(3,410)	(4,546)
		______	______	______
Return on ordinary activities before tax		17,440	23,317	40,757

Tax on ordinary activities		(293)	-	(293)
		______	______	______
Return attributable to shareholders		17,147	23,317	40,464

Return per share	4	5.8p	8.0p	13.8p

The total column of this statement is the Profit and Loss Account of the Company. The supplementary revenue and capital columns are both prepared under guidance published by The Association of Investment Companies.

All revenue and capital items in the above Income Statement derive from continuing operations.

No operations were acquired or discontinued in the year.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above Income Statement.

Income Statement for the Year ended 30 September 2008

	Notes	2008	2008	2008
		Revenue	Capital	Total
		£'000	£'000	£'000


Losses on investments		-	(137,257)	(137,257)
Exchange differences		-	(1,460)	(1,460)
Income	3	21,414	873	22,287
Management expenses		(85)	(39)	(124)
Other expenses		(869)	-	(869)
		______	______	______
Net return before finance costs & taxation		20,460	(137,883)	(117,423)

Finance costs		(1,680)	(4,961)	(6,641)
		______	______	______
Return on ordinary activities before tax		18,780	(142,844)	(124,064)

Tax on ordinary activities		(295)	-	(295)
		______	______	______
Return attributable to shareholders		18,485	(142,844)	(124,359)
		______	______	______

Return per share	4	6.2p	(48.0)p	(41.8)p

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 September 2009

	Called up Share Capital	Capital Redemption Reserve	Capital Reserve	Revenue Reserve	Shareholders' Funds
	£'000	£'000	£'000	£'000	£'000

Opening shareholders' funds	73,153	15,188	209,320	35,855	333,516
Ordinary Shares purchased for cancellation	(375)	375	(1,645)	-	(1,645)
Dividends paid	-	-	-	(17,593)	(17,593)
Return attributable to ordinary shareholders	-	-	23,317	17,147	40,464
Closing shareholders' funds	72,778	15,563	230,992	35,409	354,742

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 September 2008

	Called up Share Capital	Capital Redemption Reserve	Capital Reserve	Revenue Reserve	Shareholders' Funds
	£'000	£'000	£'000	£'000	£'000

Opening shareholders' funds	75,253	13,088	362,771	34,660	485,772
Ordinary Shares purchased for cancellation	(2,100)	2,100	(10,607)	-	(10,607)
Dividends paid	-	-	-	(17,290)	(17,290)
Return attributable to ordinary shareholders	-	-	(142,844)	18,485	(124,359)
Closing shareholders' funds	73,153	15,188	209,320	35,855	333,516

Balance Sheet as at 30 September	2009	2008
	£'000	£'000

Non-current assets

Investments at fair value through profit or loss	429,158	401,838
	________	_______

Current assets

Debtors	3,053	4,263
Cash at bank and on deposit	13,663	17,962
	________	______
	16,716	22,225

Creditors: amounts falling due within one year	(31,711)	(31,152)
	________	_______
Net current liabilities	(14,995)	(8,927)
	________	_______
Total assets less current liabilities	414,163	392,911

Creditors: amounts falling due after more than one year	(59,421)	(59,395)
	________	_______
Net assets	354,742	333,516
	________	_______
Capital and reserves
Called-up share capital	72,778	73,153
Capital redemption reserve	15,563	15,188
Capital reserve	230,992	209,320
Revenue reserve	35,409	35,855
	________	_______
Equity shareholders' funds	354,742	333,516
	________	_______

Net asset value per share	121.9p	114.0p

Cash Flow Statement for the Year Ended 30 September 2009	2009	2008
	£'000	£'000

Operating activities
Investment income received	16,564	20,267
Deposit interest received	214	1,575
Interest on VAT recovered	923	-
Option premium received	-	136
Underwriting commission received	238	88
Management expenses paid	1,624	(1,609)
Other cash payments	(896)	(880)
	______	______
Net cash inflow from operating activities	18,667	19,577
	______	______
Servicing of finance
Interest on 6.625 per cent Bonds 2008	-	(1,987)
Interest on 6.25 per cent Bonds 2031	(3,750)	(3,750)
Interest on revolving advance facility	(839)	(711)
Interest on bank overdraft	-	(26)
	______	______
Net cash outflow from servicing of finance	(4,589)	(6,474)
	______	______
Capital expenditure and financial investment
Purchases of investments	(308,902)	(366,192)
Sales of investments	313,226	383,032
	______	_______
Net cash inflow from capital expenditure and financial investment	4,324	16,840
	______	_______

Equity dividends paid	(17,593)	(17,290)
	_______	_______

Net cash inflow before financing	809	12,653
	_______	_______
Financing
6.625 per cent Bonds 2008 redeemed	-	(60,000)
Revolving advance facility drawn down	-	30,000
Revolving advance facility repaid	(3,781)	-
Ordinary Shares purchased for cancellation	(1,637)	(10,607)
	_______	_______
Net cash outflow from financing	(5,418)	(40,607)
	_______	_______

Decrease in cash	(4,609)	(27,954)
	_______	_______
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the year	(4,609)	(27,954)
6.625 per cent Bonds 2008 redeemed	-	60,000
Revolving advance facility drawn down	-	(30,000)
Revolving advance facility repaid	3,781	-
	_______	_______
Change in net debt resulting from cash flows	(828)	2,046
Currency losses	(1,106)	(1,499)
Increase in 6.625 per cent Bonds 2008 liability	-	(32)
Increase in 6.25 per cent Bonds 2031 liability	(26)	(27)
	_______	_______
Movement in net debt in the period	(1,960)	488
Opening net debt	(71,499)	(71,987)
	_______	_______
Closing net debt	(73,459)	(71,499)
	_______	_______

Principal Risks and Risk Management

The Company's assets consist mainly of listed securities and its principal risks are therefore market-related. The Company is also exposed to currency risk in respect of overseas markets in which it invests. More detailed explanations of these risks and the way which they are managed are contained in note 2.

Other risks faced by the Company include the following:

External - events such as terrorism, protectionism, inflation or deflation, economic recessions and movements in interest rates and exchange rates could affect share prices in particular markets.
Investment and strategic - incorrect strategy, asset allocation, stock selection and the use of gearing could all lead to poor returns for shareholders.
Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. Breach of Section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains.
Operational - failure of the Managers' accounting systems or disruption to the Managers' business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.
Financial - inadequate controls by the Managers or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. Breaching bond and loan covenants or being unable to replace maturing borrowing facilities could lead to a loss of shareholders' confidence and financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting and enforcement of contractual obligations. It also regularly monitors the investment environment and the management of the Company's investment portfolio. Investment risk is spread through holding a wide range of securities in different countries and industrial sectors. The Managers make use of third party risk systems to monitor investment risk and the Board receives quarterly risk reports. The Board applies the principles detailed in the internal control guidance issued by the Financial Reporting Council.

Statement of Directors' Responsibilities in Respect of the Annual Financial Report

In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge, in respect of the Annual Report for the year ended 30 September 2009, of which this statement of results is an extract:

The financial statements have been prepared in accordance with applicable UK Accounting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
The Annual Report includes a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
The Annual Report includes a description of the Company's principal risks and uncertainties; and
The Annual Report includes details of related party transactions that have taken place during the financial year.

On behalf of the Board

W R E Thomson

Director

16 November 2009

Notes

1. The financial statements have been prepared under UK Generally Accepted Accounting Practice (‘UK GAAP’) and in accordance with guidelines set out in the Statement of Recommended Practice (‘SORP’) for investment trust companies and venture capital trusts issued in January 2009 by The Association of Investment Companies, except as disclosed in the following paragraph.

Expenses which are allocated to capital are available to reduce the Company's liability to corporation tax. The SORP recommends that the benefit of that tax relief should be allocated to capital and a corresponding charge made to revenue. This is known as the 'marginal method' of allocating tax relief between capital and revenue. The Company does not adopt the marginal method for two reasons. Firstly, the Company has only one class of share and any allocation of tax relief between capital and revenue would have no impact on shareholders' funds. Secondly, the significant unutilised management expenses and interest carried forward make it unlikely that the Company will be liable to corporation tax in the foreseeable future. Had this allocation been made, the charge to revenue and corresponding credit to capital for the year ended 30 September 2009 would have been £1,862,000 (2008: £1,260,000).

2. Financial instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances, bonds, bank loans, overdrafts and debtors and creditors that arise directly from its operations. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. The Company makes use of borrowings to achieve improved performance in rising markets. The risk of borrowings may be reduced by raising the level of cash balances held.

Listed fixed asset investments held are valued at fair value. For listed securities this is either bid price or the last traded price depending on the convention of the exchange on which the investment is listed. Unquoted investments are valued by the Directors on the basis of all information available to them at the time of valuation. The fair value of the Company's financial assets and liabilities is represented by their carrying value in the Balance Sheet. The fair value of the loans is not materially different from the carrying value in the Balance Sheet.

The main risks that the Company faces arising from its financial instruments are:

(i) market price risk, being the risk that the value of investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or currency rate movements;

(ii) interest rate risk, being the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates;

(iii) credit risk, being the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company;

(iv) liquidity risk, being the risk that the Company may not be able to liquidate its investments quickly enough to meet its ongoing financial commitments; and

(v) foreign currency risk, being the risk that the value of investment holdings, investment purchases, investment sales and income will fluctuate because of movements in currency rates.

Market price risk

The management of market price risk is part of the fund management process and is typical of equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Derivatives may be used from time to time to hedge specific market risk or gain exposure to a specific market.

Interest rate risk

(a) Floating rate

Interest payments are received on cash balances by reference to the bank base rate for the relevant currency for each deposit.

(b) Fixed rate

The Company holds fixed interest investments and has fixed interest liabilities.

The Bonds are denominated in sterling. In the event that the Company decides to repay the bonds before their maturity date the terms of issue may result in a penalty for early repayment.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The carrying amounts of financial assets best represents the maximum credit risk exposure at the balance sheet date.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the diversity of counterparties used.

All the assets of the Company which are traded on a recognised exchange are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports. The Managers have in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis.

The credit risk on liquid funds and derivative financial instruments is controlled because the counterparties are banks with high credit ratings, rated AA or higher, assigned by international credit rating agencies. Bankruptcy or insolvency of such financial institutions may cause the Company's ability to access cash placed on deposit to be delayed, limited or lost.

Liquidity risk

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and expenses as they fall due. Short term flexibility is achieved, where necessary, through the use of overdraft facilities. The Company's liquidity risk is managed on an ongoing basis by the Managers.

Foreign currency risk

The Company invests in overseas securities and holds foreign currency cash balances which give rise to currency risks. In the year to 30 September 2009, the Company entered into US Dollar and Euro foreign currency contracts with a view to partially hedging these currency risks

3. No special dividends were received during the year. Special dividends of £873,000 were received during the previous year and allocated to capital.

4. Return per Ordinary Share is based on a weighted average of 292,587,264 (2008: 297,162,555) Ordinary Shares in issue.

5. The proposed final dividend of 1.786 p per Ordinary Share, will be paid on 8 January 2010 to ordinary shareholders on the register at close of business on 11 December 2009.

The last date for receipt of mandate instructions for those shareholders who wish to join the Dividend Reinvestment Plan is 15 December 2009.

6. The Company had 291,112,282 (2008: 292,612,282) Ordinary Shares in issue as at 30 September 2009.

7. During the year, the Company purchased for cancellation 1,500,000 (2008: 8,400,000) Ordinary Shares with an aggregate nominal value of £375,000 for a total consideration of £1.6 million (2008: £10.6 million) representing 0.5% of the Ordinary Shares in issue at the previous year end.

The Company's geographic exposure as a percentage of ordinary shareholders' funds at 30 September 2009 was as follows (comparative figures are for 30 September 2008).

	2009	2008

UK	70.8	74.8
Global Developed (ex UK)	19.6	36.8
Emerging Markets	15.1	-
Corporate Bonds	15.5	8.9
Gearing	(21.0)	(20.5)
	_____	_____
Total	100.0	100.0
	_____	_____

8. The following table provides a breakdown of the estimated contributions to the total return for the year:

Attribution of Return


	%
Market/benchmark return	11.1
Stock selection
UK equities	-3.9
Overseas equities	0.5
Asset allocation	3.7
Corporate bonds	0.2
Gearing	2.6
Cash/other	-0.1
Share buy backs	-
Expenses (net of VAT related recoveries)	-0.3
	-----
British Assets Trust net asset value total return	13.8
	----

9. This announcement is not the Company’s statutory accounts. The statutory accounts for the year ended 30 September 2008 have been delivered to the Registrar of Companies and have received an audit report which was unqualified and did not contain any emphasis of matter.

The Annual Report for the year ended 30 September 2009 will be sent to shareholders during November 2009 and will be available for inspection at 80 George Street, Edinburgh EH2 3BU, the registered office of the Company, and on the Company's website, www.british-assets.co.uk.