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29 Apr 2010 15:08
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) 1,205realised 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)pbasic __________ __________ __________ __________ __________ __________ Earnings per £1 ordinary share - 4.62p 9.22p 13.84p 4.01p (31.16)p (27.15)pdiluted __________ _________ __________ __________ _________ __________ Net assets 31,037 28,190 __________ __________ Net assets per ordinary share - deducting preference 84p 73pshares 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 3.5pshare 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 Townsend29 April 2010Managing 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 Woolf29 April 2010Group 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: 433137Group 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 26,673loss Current assets Receivables 109 307 Derivatives - fair value through profit or 1,335 1,895loss 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 1,052loss __________ __________ (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 2010Group 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 14,935at 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 1,495in working capital Increase in receivables (869) (1,553) Increase in payables 771 1,070 __________ __________ Net cash from operating activities 2,091 1,012before income taxes Income taxes received/(paid) 30 (44) __________ __________ NET CASH FLOWS FROM OPERATING 2,121 968ACTIVITIES __________ __________ 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 thefollowing 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
BRITISH & AMERICAN INVESTMENT TRUST PLC