British & American Investment Trust PLC
Annual Financial Report
for the year ended 31 December 2016
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
28 April 2017
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 2016
2016 2015
Revenue Capital Total Revenue Capital Total
return return return return
£000 £000 £000 £000 £000 £000
(Loss)/profit before tax - 1,474 (1,028) 2,701 1,482
realised (2,502) (1,219)
(Loss)/profit before tax - - (4,134) (4,134) - 3,925 3,925
unrealised
__________ __________ __________ __________ __________ __________
(Loss)/profit before tax - 1,474 (6,636) (5,162) 2,701 2,706 5,407
total
__________ __________ __________ __________ __________ __________
Earnings per £1 ordinary
share - basic 4.63p (26.55)p (21.92)p 9.51p 10.83p 20.34p
__________ __________ __________ __________ __________ __________
Earnings per £1 ordinary
share - diluted 4.31p (18.96)p (14.65)p 7.80p 7.73p 15.53p
__________ _________ __________ __________ _________ __________
Net assets 22,682 30,211
__________ __________
Net assets per ordinary
share
- deducting preference
shares at par 51p 81p
__________ __________
- diluted 65p 86p
__________ __________
67p
Diluted net asset value
per ordinary share at 25
April 2017
__________
Dividends declared or
proposed for the period
per ordinary share
- interim paid 2.7p 2.7p
- final proposed 5.7p 5.5p
per preference share 3.5p 3.5p
Basic net assets and earnings per share are calculated using a value of par for
the preference shares.
Consequently, when the net asset value attributed to ordinary shares remains
below par the diluted net asset value will show a higher value than the basic
net asset value.
Chairman's Statement
I report our results for the year ended 31 December 2016.
Revenue
The return on the revenue account before tax amounted to £1.5 million (2015: £
2.7 million), a decrease of 44 percent. A significant portion of this decline
was due to a lower level of dividend receipts from subsidiary companies
compared to the previous year, whereas external dividends received by the
parent company were slightly higher compared to the previous year.
Gross revenues totalled £2.3 million (2015: £3.2 million). Film income of £
85,000 (2015: £88,000) and property unit trust income of £15,000 (2015: £
17,000) was received in our subsidiary companies. In accordance with IFRS10,
these income streams are not included within the revenue figures noted above.
The total return before tax amounted to a loss of £5.2 million (2015: £5.4
million gain), which comprised net revenue of £1.5 million, a realised loss of
£2.1 million and an unrealised loss of £4.1 million. The revenue return per
ordinary share was 4.6p (2015: 9.5p) on an undiluted basis and 4.3p (2015:
7.8p) on a diluted basis.
Net Assets and Performance
Net assets at the year end were £22.7 million (2015: £30.2 million), a
decrease of 24.9 percent. This compares to increases in the FTSE 100 and All
Share indices of 14.4 percent and 12.5 percent, respectively, over the period.
On a total return basis, after adding back dividends paid during the year, our
net assets decreased by 16.6 percent compared to a 19.1 percent increase and a
16.8 percent increase in the FTSE 100 and All Share indices, respectively. This
significant underperformance was due to a fall in the value of our largest US
investment, Geron Corporation, of almost 60 percent. This large fall occurred
in the early part of 2016 as reported at the interim stage and had followed a
significant rise of almost 80 percent at the end of the previous year. Our
other two US investments also showed weakness following a substantial fall in
the NASDAQ market at the beginning of the year but had recovered some of the
declines by year end, unlike Geron which had not. More detailed information on
the reasons for these large movements in Geron's stock price and current
prospects are set out in the Managing Director's report below.
More generally in 2016, the UK and US equity markets had shown meaningful, if
somewhat erratic, growth in the first half increasing by approximately 3.7
percent and 2.9 percent respectively in response to looser than expected
monetary policy from the central banks as anticipated levels of growth in the
USA and China brought forward from the previous year started to be doubted. As
a result the expected frequency of US dollar interest rate rises had not
occurred which supported equity markets in the first half. This firmness was
then rudely interrupted at the end of June by the surprising result of the UK's
Brexit referendum, presaging the UK's exit from the European Union. This had an
immediate impact on the pound sterling which fell 14 percent against the US
dollar and the UK equity market which initially fell 3 percent. However, the UK
equity market recovered within days as investors realised that the substantial
fall in sterling would assist UK exports and those many FTSE companies whose
earnings were generated significantly in foreign currencies. The fall in
sterling did not, however, reverse and in fact it fell a further 7 percent
towards the end of the year to an over 30 year low against the US dollar when
the new UK Prime Minister indicated that the exit from the EU was likely to
entail exit from the EU single market trading area. The US and other
international equity markets similarly fell on the news of Brexit but also
recovered relatively quickly to continue their upward movement until the second
shock event of the year, namely the unexpected result of the US Presidential
election in November. This had a galvanising effect on equity prices worldwide
as the fiscally and economically expansionary policies of the incoming Trump
administration were seen to be strongly beneficial for US companies and by
extension other international markets. The UK and US equity indices rose by a
further 5 percent and 8 percent in the final six weeks of the year to end up
14.4 percent and 12.2 percent overall. At the same time, the US dollar, which
had continued its appreciation throughout 2016 rose a further 4 percent in its
traded weighted basket to a high not seen since 2002.
The net asset value per ordinary share decreased to 65p (2015: 86p) on a
diluted basis. Deducting prior charges at par, the net asset value per ordinary
share decreased to 51p (2015: 81p).
Dividend
We are pleased to recommend an increased final dividend of 5.7p per ordinary
share, which together with the interim dividend makes a total payment for the
year of 8.4p (2015: 8.2p) per ordinary share. This represents an increase of
2.4 percent over the previous year's total dividend and a yield of 8.8 percent
based on the share price of 95p at the end of the year. The final dividend will
be payable on 29 June 2017 to shareholders on the register at 26 May 2017. A
dividend of 1.75p will be paid to preference shareholders resulting in a total
payment for the year of 3.5p per share.
We are pleased to have been named as a 'Dividend Hero' by the Association of
Investment Companies this year as one of the 20 investment trusts which have
maintained a consistent 20 year record of increasing dividends. This is
obviously good news for the company and shareholders alike.
Investment Policy
We propose to make a modification to our published investment policy to take
into account movements in our portfolio over recent periods.
As shareholders are aware, in recent years the company has invested in certain
US quoted companies. These investments were in furtherance of the company's
published investment policy in relation to growth. Over time, these
investments, particularly in Geron Corporation and latterly in Biotime Inc and
Asterias Biotherapeutics (which was spun out of Geron in 2014) have taken on a
greater significance within the portfolio both in terms of value and strategic
importance as core holdings. These investments accounted for 33.4 percent of
assets as at the date of our last published Annual Report to 31/12/2015 and
33.3 percent of assets as at the date of our last Interim Statement to 30/6/
2016.
The background to and evolution of our investments in these US companies has
been discussed at length in our annual and interim reports over recent years.
An update on the current investments in these companies and their prospects is
set out more fully in the Managing Director's report below.
In order to provide investors with a clear understanding of our current
portfolio positioning and investment strategy we propose now to add specific
mention of US stocks to our published investment strategy, which will be as
follows:
"To invest predominantly in investment trusts and other leading UK and
US-quoted companies to achieve a balance of income and growth".
A more detailed statement of our investment policy and the proposed changes to
it is set out in the Investment policy section in the Business Review of the
Annual Report.
This proposal will be submitted for shareholder approval at the forthcoming
AGM.
Change of Auditors
Following a review and formal tender process which took place in November last
year, we have decided to appoint Hazlewoods LLP as our auditors for the 2017
financial year. We thank Grant Thornton who have been our auditors since 2006
for the diligent work they have done for us over many years.
Outlook
The strong upward movement in global equity prices and the US dollar persisted
through into the first quarter of 2017 as the reflationary programme of the
incoming Trump administration galvanised the animal spirits of investors which
had been absent since the recession of 2008/9. All time record highs were
reached by the leading indices in the UK and USA in early March after extended
periods of daily gains not seen for many years. This momentum lasted until the
end of March when markets began to doubt the administration's ability to
deliver its programme after it failed to persuade a Republican controlled
Congress to pass its first measure relating to public healthcare. This serious
setback created doubts over the implementation of the other two fundamental
areas of the programme which had driven the market forward, namely tax cuts and
infrastructure investment. As a result, the almost 7 percent rise in the US
market seen up to that point was reduced to 4 percent by quarter end.
When these programme uncertainties in the USA and an avowed protectionist
agenda are combined with the prospect of equally important changes of a
political nature in Europe (Brexit and multiple European elections with the
potential for more populist anti-government results), the recently called and
unexpected general election in the UK, it is difficult for investors to know
how markets will react over the medium term to these imminent and non-financial
drivers. The trends of recent years, involving a slow recovery from recession
over a considerable period of time and US dollar strength were set to continue
until the surprising events of 2016. However, these events suddenly galvanised
markets and would have set a new long term direction for them had not the
recently revealed weakness of the Trump administration and a disunited
Republican party put this new dynamic for markets in doubt. Like 2016, it would
appear that 2017 may have a similar capacity to surprise and wrong foot
markets. Consequently we will continue with our current strategy of investing
for growth and income from our UK and US equity investments.
As at 25 April 2017, our net assets had increased to £23.6 million, an increase
of 3.9 percent since the beginning of the calendar year. This is equivalent to
54 pence per share (prior charges deducted at par) and 67 pence per share on a
diluted basis. Over the same period the FTSE 100 increased 1.9 percent and the
All Share Index increased 3.1 percent.
Anthony Townsend
28 April 2017
Managing Director's report
Two wholly unexpected and market altering events occurred in 2016: the result
of the Brexit referendum in the UK in June and the election of Donald Trump as
US president in November.
Prior to these two events, financial markets had been experiencing a softening
in the pace of recovery from the recession of earlier years, as reported on at
the interim stage. Weakness in commodity prices and particularly oil which
reached multi-year lows in the first half of 2016, together with slowing growth
in China had sown doubts on the strength of the recovery in the USA and the
expected pace of increase in US dollar interest rates over the year. As a
result, a return to safety began to be seen with US treasury bonds and the US
dollar being favoured again. However, with the prospect of interest rates
continuing lower for longer as a result, particularly in the US, liquidity
found its way into equity markets, which although sluggish over the first half
of the year, remained supported ending up by 3 percent at end June.
The result of the Brexit referendum in June had an immediate and significant
effect on both the UK and global markets as its implications and wider
ramifications were digested and speculated on by the investment and currency
markets. In the UK, the equity market dropped by 3 percent on the day and £
sterling dropped by 14 percent to its lowest level against the US dollar for
over 30 years. These reactions in the immediate aftermath were based on the
shock of the result and understandable concerns going forward that leaving
Europe would place a burden on the UK's economic prospects for a considerable
period of time while the disengagement process was worked through and new
economic and trading paradigms were introduced.
While £ sterling did not recover from this large drop for the rest of the year,
UK equity markets did recover quite strongly and quickly as it was perceived,
certainly in the short term, that the collapse in £ sterling would offer a
considerable boost to UK exports and encourage foreign investment into newly
devalued UK assets. This effect was particularly evident in the value of FTSE
100 companies which tend to generate a significant proportion of their income
in foreign currencies. The FTSE100 index rose by 10 percent in the second half
of the year.
The second unexpected event of the year in the USA, the election of Donald
Trump, had a similar galvanising effect on the US dollar and equity markets as
his expansionary if isolationist policies of stimulating growth through
infrastructure investment, cutting taxes and reducing financial regulation
boosted the dollar and the US equity market considerably. US banks and
corporates would be clear beneficiaries of these policies and the
countervailing concerns of new trade barriers, increased budget deficits and
government debt, higher interest rates and an unhelpfully stronger dollar were
drowned out by the exuberance of the moment which prevailed through to 2017.
As noted in the Chairman's statement, the significant portfolio
underperformance which we reported at the interim stage carried through to the
full year. The 60 percent drop in the US dollar price of our largest US
investment, Geron Corporation, which had occurred in the early months of 2016
after a sharp rise at the end of 2015 tracked a rise of 11 percent and then
fall of 15 percent in the NASDAQ index over the change of year. The strength of
the US dollar against a significantly weakened £ sterling in 2016 mitigated to
some extent this severe drop in the US dollar value of this investment.
Although the NASDAQ recovered during 2016, Geron's price did not. However the
prices of our other two US investments, Biotime and Asterias were able to
recover part of the similar declines they experienced at the beginning of 2016
by the year end. Our UK portfolio investments, being mostly invested in
investment trusts, tracked more closely market movements over the year. We also
took the opportunity in the second part of the year to sell down a significant
proportion of our fixed interest investments which had seen good increases in
capital values over recent years as by then market expectations of firming long
term interest rates had begun to take hold and were indeed followed up by
actual increases.
US Investments
Over recent years, our investments in US biotechnology companies have taken on
an increasingly important role in our portfolio. Because these investments now
represent a significant proportion of our portfolio (33 percent as at 31
December 2016) and are expected to continue to grow in size as their
development cycles progress and attract further value as the technology is
validated, we have as noted above decided to modify our published investment
policy to include US stocks as a fundamental part of the policy.
Geron Corporation
As we have reported in recent years, our investment in Geron Corporation has
grown to become the largest single position in our portfolio. This was further
added to when in 2014, Geron's world-leading regenerative medicine business was
spun off into a new listed vehicle, Asterias Biotherapeutics, and we
participated in this process. In addition, we have invested in Asterias' parent
company, Biotime Inc, which partnered in the spin-off operation.
The original and ongoing purpose of the investment in these US biotechnology
and bio-pharma companies was in furtherance of the capital growth element of
our investment strategy. As these companies pass through the multi-year stages
in their pre-clinical and clinical testing cycles to final approval and
commercialisation, they can produce substantial levels of capital growth of
many times their original values. In the case of the three companies we have
invested in, Geron, Asterias and Biotime, we believe that the particular areas
of oncology and regenerative medicine in which they operate and to which they
bring their novel and increasingly validated science and technology will offer
ground-breaking remedies to a wide range of important and presently untreatable
conditions from which these companies will derive substantial value.
However, the share price volatility of early stage biotechnology stocks can
also be very high and prices can move considerably more than even the generally
volatile NASDAQ Biotech sector index as eagerly awaited trial result success or
failures are announced or anticipated. We have experienced this ourselves to
the full in recent years and most notably 2015/6. In Geron's case, for
instance, the share price rose 80 percent at the end of 2015, partly in
response to a substantial rise in the NASDAQ at that time, but also because of
very promising news confirming efficacy and safety of Immetelstat, its lead
drug in two haematological myeloid malignancies, Myelofibrosis (MF) and
Myelodysplastic syndrome (MDS). Then, early in 2016, the price fell abruptly by
60 percent, again tracking a fall in the NASDAQ. However, while the NASDAQ
recovered during 2016 along with the main market, Geron's stock price did not,
mainly as a result of a lack of any further news during the year on the
progress of its clinical trials being run since 2015 by Johnson & Johnson, the
world's largest pharmaceutical company. News is the lifeblood of early stage
biotech companies which typically have no income to rely on for support in the
market, just the anticipation of progress towards the eventual success of
commercialisation. While admittedly no news can sometimes be positively
construed in the absence of bad news if the clinical trials are proceeding on
their planned course without needing adjustment for efficacy or safety reasons,
early stage biotech companies usually try hard to keep investors abreast on
trial progress on a regular basis in order to keep market interest in their
stocks alive. Unfortunately, during the year Geron management have not been at
all proactive in this respect and as a result allowed the market to speculate
negatively on the stock in 2016.
Furthermore, in September 2016, Geron's management issued an emergency
announcement over a weekend to say that the lower level dose of Immetelstat in
the Johnson & Johnson trial was being discontinued, although the higher level
dose, which was always intended to be the level expected to provide efficacy
was being continued. As might have been foreseen, the market took this widely
criticised announcement very badly and Geron's share price has remained
marooned at two year lows since then.
More recently, however, a positive trial update was released by Johnson &
Johnson earlier this month at a leading US haematology conference confirming
good progress of the trials with continued indications of efficacy and the
development of plans to take the drug through to the final and important Phase
3 stage which precedes the approval process. Geron's share price reacted
favourably to this good news, increasing by 20 percent on the day.
This illustrates admirably the susceptibility of biotech companies to high
levels of volatility in their journeys towards market acceptance and
recognition of their true value. It also, however, provides investors such as
ourselves with opportunities to capture substantial levels of capital growth in
well selected stocks.
This pattern of volatility with potential for significant capital growth is
also well demonstrated in the cases of our two other US biotech investments:
Asterias Biotherapeutics
In 2014, Geron spun out its regenerative medicine business into Asterias which
was floated in early 2015. The initial stock price of $3.90 grew to over $10
within two months as investors scrambled to buy in to the world-leading
regenerative medicine technology of this tightly held company and we realised
substantial profits at that time on part of the holding. Over the subsequent
year the stock price drifted down to $4 but we still record a capital return of
20 percent over our investment cost as at the year end. Over that time, the
management of Asterias has provided regular and positive updates on the
progress of its stem cell technology in its first and world-exclusive spinal
cord injury trials in the USA which are on track to offer real hope to
quadriplegics who would otherwise be totally paralysed for life. Of the six
patients treated in the recent trial, all have regained sufficient movement and
sensation to be able to use/feel their hands and arms to a greater or lesser
extent, a development which is fundamental to the quality of life of a
quadriplegic person. Asterias is also initiating an important oncology trial in
lung and breast cancer with Cancer Research UK based on its stem cell
technology.
Biotime Inc
Biotime, which is also majority controller of Asterias and therefore itself set
to capture the gains Asterias is expected to make, is pursuing a number of
clinical trials based on its wide ranging pluripotent stem cell technology,
initially in the areas of macular degeneration and facial lipotrophy where it
is offering solutions to ailments such as Dry Eye AMD and AIDS related facial
disfiguration which have hitherto had no effective treatment with high numbers
of sufferers worldwide. The latter treatment if successful will then also be
applied to the multi-billion dollar worldwide facial aesthetics market.
Biotime also has a number of other ground-breaking initiatives based on its
human genome analysis technology which are likely to provide important medical
innovations in the areas of cancer testing, disease taxonomy and e-medicine
based on big data analysis (the latter in collaboration with Apple Inc).
Biotime has also recently announced the formation of a new subsidiary, AgeX
Therapeutics, to capitalise on its proprietary stem cell IP in various areas of
age-related disease modification using a newly developed cell renewal
technology call iTR (Induced Tissue Regeneration) through which, for instance,
diseased heart muscle cells are given a new lease of life through the injection
of rejuvenated cells using this process.
Biotime's stock price has been equally volatile over the years, but for us
value accretive with a capital return of 35 percent on our investment cost as
at the year end.
Outlook
In the UK, the economic reaction to the Brexit vote has not been as feared by
the Bank of England which in the immediate aftermath of the vote had provided
considerable levels of liquidity to the market to avoid an anticipated slump in
growth. Instead, consumer spending remained strong for the rest of 2016 and
into 2017, reflecting a release of animal spirits in the economy at the
prospect of leaving the EU. The collapse in sterling also galvanised the export
industry and manufacturing which has shown its best growth in 7 years. This
performance has also been further boosted by the strongest growth in the UK's
major trading partners in the Eurozone countries for 6 years. While sterling's
weakness is now starting to show through in higher rates of inflation in the UK
which has started to impact consumers' spending patterns, continued firm levels
of consumer spending, manufacturing and exports are still expected over the
coming period until more detail on the likely terms of the UK's exit from the
EU are made clear.
There is thus now an interim period when growth and financial markets in the UK
are expected to remain generally firm; however, within the course of the
current year, many factors both domestically and internationally are looming
which have the potential to affect this scenario detrimentally, not least the
outlook for UK's departure from the EU and the prospects of it retaining
relatively friction free trade with its soon to be erstwhile European partners.
The recently announced snap general election in the UK will clearly be a factor
in the outcome of this process. There is also the concern surrounding the
continued resilience of the Trump reflation effect which has boosted markets in
both the US and worldwide to levels which might not be sustainable over the
longer term. Added to this are growing geopolitical concerns as the new Trump
administration strives to calibrate coherent responses to the many economic and
strategic issues which are currently confronting world leaders in many parts of
the globe.
Despite these uncertainties for the medium term, markets continue steady at the
moment with no particular signals being given that the current long term bull
cycle is about to end and with most developed and developing country economies
showing renewed levels of growth. Nevertheless, a period of considerably higher
volatility can be expected after a number of years when volatility levels have
been abnormally subdued, as has already begun to be seen over the last quarter.
Jonathan Woolf
28 April 2017
Income statement
For the year ended 31 December 2016
2016 2015
Revenue Capital Total Revenue Capital Total
return return return return
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Investment income (note 2) 2,263 - 2,263 3,206 - 3,206
Holding (losses)/gains on (4,134) (4,134) 3,925 3,925
investments at fair value - -
through profit or loss
Losses on disposal of
investments at fair value - (2,081) (2,081) - (927) (927)
through profit or loss
Foreign exchange losses (143) (138) (281) (53) (47) (100)
Expenses (596) (267) (863) (417) (231) (648)
________ ________ ________ ________ ________ ________
(Loss)/profit before finance 1,524 (6,620) (5,096) 2,736 2,720 5,456
costs and tax
Finance costs (50) (16) (66) (35) (14) (49)
________ ________ ________ ________ ________ ________
(Loss)/profit before tax 1,474 (6,636) (5,162) 2,701 2,706 5,407
Tax 33 - 33 28 - 28
________ ________ ________ ________ ________ ________
(Loss)/profit for the period 1,507 (6,636) (5,129) 2,729 2,706 5,435
________ ________ ________ ________ ________ ________
Earnings per share
Basic - ordinary shares 4.63p (26.55)p (21.92)p 9.51p 10.83p 20.34p
________ ________ ________ ________ ________ ________
Diluted - ordinary shares 4.31p (18.96)p (14.65)p 7.80p 7.73p 15.53p
________ ________ ________ ________ ________ ________
The company does not have any income or expense that is not included in the
(loss)/profit for the period. Accordingly, the '(Loss)/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 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 company.
Statement of changes in equity
For the year ended 31 December 2016
Share Capital Retained Total
capital reserve earnings
£ 000 £ 000 £ 000 £ 000
Balance at 31 December 2014 35,000 (10,294) 2,420 27,126
Changes in equity for 2015
Profit for the period - 2,706 2,729 5,435
Ordinary dividend paid (note 4) - - (2,000) (2,000)
Preference dividend paid (note - - (350) (350)
4)
________ ________ ________ ________
Balance at 31 December 2015 35,000 (7,588) 2,799 30,211
Changes in equity for 2016
(Loss)/profit for the period - (6,636) 1,507 (5,129)
Ordinary dividend paid (note 4) - - (2,050) (2,050)
Preference dividend paid (note - - (350) (350)
4)
________ ________ ________ ________
Balance at 31 December 2016 35,000 (14,224) 1,906 22,682
________ ________ ________ ________
Registered number: 00433137
Balance Sheet
For the year ended 31 December 2016
2016 2015
£ 000 £ 000
Non-current assets
Investments - fair value through 23,654 37,497
profit or loss
Subsidiaries - fair value through 6,058 6,789
profit or loss
__________ __________
29,712 44,286
Current assets
Receivables 1,469 1,587
Cash and cash equivalents 423 344
__________ __________
1,892 1,931
__________ __________
Total assets 31,604 46,217
__________ __________
Current liabilities
Trade and other payables 1,000 9,124
Bank loan 3,490 2,339
__________ __________
(4,490) (11,463)
__________ __________
Total assets less current liabilities 27,114 34,754
__________ __________
Non - current liabilities (4,432) (4,543)
Net assets 22,682 30,211
__________ __________
Equity attributable to equity holders
Ordinary share capital 25,000 25,000
Convertible preference share capital 10,000 10,000
Capital reserve (14,224) (7,588)
Retained revenue earnings 1,906 2,799
__________ __________
Total equity 22,682 30,211
__________ __________
Approved: 28 April 2017
Cash flow statement
For the year ended 31 December 2016
Year ended Year ended
2016 2015
£ 000 £ 000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before tax (5,162) 5,407
Adjustments for:
Losses/(profits) on investments 6,215 (2,998)
Scrip dividends (4) (397)
Proceeds on disposal of investments at fair 31,918 14,596
value through profit and loss
Purchases of investments at fair value through (23,689) (13,349)
profit and loss
Finance costs 66 49
__________ __________
Operating cash flows before movements in working 9,344 3,308
capital
Decrease/(increase) in receivables 141 (181)
Decrease in payables (8,138) (258)
__________ __________
NET CASH FROM OPERATING ACTIVITIES BEFORE 1,347 2,869
INTEREST
Interest paid (52) (49)
__________ __________
NET CASH FROM OPERATING ACTIVITIES AFTER 1,295 2,820
INTEREST BEFORE TAXATION
Taxation 33 28
__________ __________
NET CASH FROM OPERATING ACTIVITIES 1,328 2,848
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid on ordinary shares (2,050) (2,000)
Dividends paid on preference shares (350) (350)
Bank loan 1,151 (404)
__________ __________
NET CASH USED IN FINANCING ACTIVITIES (1,249) (2,754)
__________ __________
NET INCREASE IN CASH AND CASH EQUIVALENTS 79 94
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
344 250
__________ __________
CASH AND CASH EQUIVALENTS AT END OF YEAR
423 344
__________ __________
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 for the year ended 31 December 2016. The company has prepared its
financial statements under IFRS. The financial statements have been prepared on
a going concern basis adopting the historical cost convention except for the
measurement at fair value of investments, derivative financial instruments and
subsidiaries.
The information for the year ended 31 December 2016 is an extract from the
statutory accounts to that date. Statutory company accounts for 2015, which
were prepared under IFRS as adopted by the EU, have been delivered to the
registrar of companies and company statutory accounts for 2016, prepared under
IFRS as adopted by the EU, will be delivered in due course.
The auditors have reported on the 31 December 2016 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 company 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 company's
accounts.
2 Income
2016 2015
£ 000 £ 000
Income from investments
UK dividends 1,951 1,725
Overseas dividends 214 348
Scrip and in specie dividends 4 397
Dividend from subsidiary - 580
Interest on fixed income 70 134
securities
__________ __________
2,239 3,184
__________ __________
Other income 24 22
__________ __________
Total income 2,263 3,206
__________ __________
Total income comprises:
Dividends 2,169 3,050
Interest 70 134
Other interest 24 22
__________ __________
2,263 3,206
__________ __________
Dividends from investments
Listed investments 2,169 2,470
Unlisted investments - 580
__________ __________
2,169 3,050
__________ __________
Of the £2,169,000 (2015 - £3,050,000) dividends received, £1,693,000 (2015 - £
1,586,000) related to special and other dividends received from investee
companies that were bought after the dividend announcement. There was a
corresponding capital loss of £1,976,000 (2015 - £869,000), on these
investments.
Under IFRS 10 the income analysis is for the parent company only rather than
that of the consolidated group. Thus film revenues of £85,000 (2015 - £88,000)
received by the subsidiary British and American Films Limited and property unit
trust income of £15,000 (2015 - £17,000) received by the subsidiary BritAm
Investments Limited are shown separately in this paragraph.
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:
2016 2015
Revenue Capital Total Revenue Capital Total
return return return return
£ 000 £ 000 £ 000 £ 000 £ 000
£ 000
Earnings:
Basic 1,157 (6,636) (5,479) 2,379 2,706 5,085
Preference
dividend 350 - 350 350 - 350
__________ __________ __________ __________ __________ __________
Diluted 1,507 (6,636) (5,129) 2,729 2,706 5,435
__________ __________ __________ __________ __________ __________
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 (2015: 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 (2015: 35
million) ordinary and preference shares in issue.
4 Dividends
2016 2015
£ 000 £ 000
Amounts recognised as distributions to equity
holders in the period:
Dividends on ordinary shares:
Final dividend for the year ended 31 December 2015
of 5.5p (2014:5.3) per share 1,375 1,325
Interim dividend for the year ended 31 December
2016 of 2.7p 675 675
(2015:2.7p) per share
__________ __________
2,050 2,000
__________ __________
Proposed final dividend for the year ended 31
December 2016 of 5.7p (2015:5.5p) per share 1,425 1,375
__________ __________
Dividends on 3.5% cumulative convertible
preference shares:
Preference dividend for the 6 months ended 31
December 2015 of 1.75p (2014:1.75p) per share 175 175
Preference dividend for the 6 months ended 30 June
2016 of 1.75p (2015:1.75p) per share 175 175
__________ __________
350 350
__________ __________
Proposed preference dividend for the 6 months
ended 31 December 2016 of 1.75p (2015:1.75p) per 175 175
share
__________ __________
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 1158 of
the Corporation Tax Act 2010 are considered.
Dividends proposed for the period
2016 2015
£ 000 £ 000
Dividends on ordinary shares:
Interim dividend for the year ended 31 December
2016 of 2.7p (2015:2.7p) per share 675 675
Proposed final dividend for the year ended 31
December 2016 of 5.7p (2015:5.5p) per share 1,425 1,375
__________ __________
2,100 2,050
__________ __________
Dividends on 3.5% cumulative convertible
preference shares:
Preference dividend for the year ended 31 December
2016 of 1.75p (2015:1.75p) per share 175 175
Proposed preference dividend for the year ended 31
December 2016 of 1.75p (2015:1.75p) per share 175 175
__________ __________
350 350
__________ __________
5 Net asset values
Net asset Net assets
value per attributable
share
2016 2015 2016 2015
£ £ £ 000 £ 000
Ordinary shares
Undiluted 0.51 0.81 12,682 20,211
Diluted 0.65 0.86 22,682 30,211
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.
The undiluted net asset value per convertible £1 preference share is the par
value of £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 2016 Annual Report and Accounts, but remain
unchanged from those published in the 2015 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.
During the year the company entered into a number of investment transactions to
sell stock for £163,497 to BritAm Investments Limited.
During the year the company entered into a number of investment transactions
with Geminion Investments Limited, a company in which Mr J C Woolf has an
interest and is a director. The purpose of these transactions, which were all
conducted through a London Stock Exchange broker, was for the company to
purchase cum dividend stocks and sell these stocks ex dividend so as to capture
the associated dividends as disclosed in Note 2 of the financial statements to
generate distributable reserves to achieve the company's objective to sustain a
progressive dividend policy. The aggregate value of these transactions were
purchases of £20,788,000 (31 December 2015 - £19,923,000), dividends received
of £1,484,000 (31 December 2015 - £1,586,000) and sales of £19,017,000 (31
December 2015 - £18,791,000) giving a net loss of £287,000 (31 December 2015 -
£454,000 gain).
There have been no other related party transactions during the period, which
have materially affected the financial position or performance of the company.
Capital Structure
The company's capital comprises £35,000,000 (2015 - £35,000,000) being
25,000,000 ordinary shares of £1 (2015 - 25,000,000) and 10,000,000 non-voting
convertible preference shares of £1 each (2015 - 10,000,000). The rights
attaching to the shares will be explained in more detail in the notes to the
2016 Annual Report and Accounts, but remain unchanged from those published in
the 2015 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 (loss)/profit of the
company 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 Tuesday 27 June 2017
at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.