Annual Report • Dec 31, 2010
Annual Report
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British & American Investment Trust PLC
Report and accounts
31 December 2010
To invest predominantly in investment trusts and other leading UK-quoted companies to achieve a balance of income and growth.
| Name | Sector | % |
|---|---|---|
| Geron Corporation | Biomedical – USA | 24.02 |
| RIT Capital Partners | Investment Trust | 10.48 |
| Prudential | Life Assurance | 10.06 |
| Alliance Trust | Investment Trust | 8.45 |
| Electra Private Equity | Investment Trust | 7.58 |
| Dunedin Income Growth | Investment Trust | 7.12 |
| British Assets Trust | Investment Trust | 6.57 |
| St James's Place International | Unit Trust | 5.14 |
| Scottish American Inv Company | Investment Trust | 3.18 |
| Invesco Income Growth Trust | Investment Trust | 1.88 |
| 84.48 | ||
| Country Exposure | ||
| Country | £m | % |
| UK | 23.8 | 73.9 |
| USA | 8.4 | 26.1 |
Other – –
Total net assets 32.2 100.00
£
Value (dividends reinvested) of £100 invested in
| Launch Date | 1996 |
|---|---|
| Management | Self managed |
| Year/Interim End | 31 December/30 June |
| Capital Structure | 25,000,000 Ordinary Shares |
| of £1 (listed); | |
| 10,000,000 Convertible | |
| Preference Shares | |
| of £1 (unlisted) | |
| Number of Holdings | 52 |
| Net Assets (£m) | 32.2 |
| Yield (excl. special dividend) | 9.86% |
| Dividend Dates | Interim dividend – November |
| Final dividend – June | |
| Share price (p) | 73.0 |
| NAV/share (p) | 92 (diluted) 89 (undiluted) |
| Discount | (20.6)% (18.0)% |
| Total expense ratio | 1.68% |
| Sedol Code | 0065311 |
| ISIN Code | GB000065311 |
| Status | |
| Eligible to be held in an ISA or Savings Scheme. | |
| Contact | |
| British & American Investment Trust PLC | |
| Wessex House | |
| 1 Chesham Street | |
| London SW1X 8ND | |
| Tel: 020 7201 3100 | |
| Fax: 020 7201 3101 | |
| Website: www.baitgroup.co.uk | |
| Registered in England. | Registered number 433137 |
| VAT Reg. No. 241 1621 10 |
Salient Facts
| (source: AIC) | |
|---|---|
ordinary shares
1 year 88.5 3 year 93.9 5 year 93.3
Annual Report and Accounts
for the year ended 31 December 2010
Registered number: 433137
| Page | |
|---|---|
| Directors and officials | 1 |
| Biographical details of directors and investment policy | 2 |
| Chairman's statement | 3 |
| Managing Director's report | 5 |
| Financial highlights | 7 |
| Net asset and dividend growth | 8 |
| Distribution of investments and cash | 9 |
| Group investment portfolio | 10 |
| Five year record | 11 |
| Directors' report | 12 |
| Statement of directors' responsibilities | 19 |
| Independent auditor's report | 20 |
| Group income statement | 22 |
| Statement of changes in equity of the group and the company | 23 |
| Balance sheets of the group and of the company | 24 |
| Group cash flow statement | 25 |
| Notes to the financial statements | 26 |
| Statement of compliance with the Combined Code of Best Practice | 45 |
| Directors' remuneration report | 49 |
| Notice of meeting | 51 |
J Anthony V Townsend (Chairman) Jonathan C Woolf (Managing Director) Dominic G Dreyfus (Non-executive) Ronald G Paterson (Non-executive)
KJ Williams ACA Wessex House 1 Chesham Street London SW1X 8ND
Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA
Lloyds Banking Group plc Business & Corporate Service Centre 49-51 Dean Street Marlow Buckinghamshire SL7 3BP
1 Curzon Street London W1J 5UB
Grant Thornton UK LLP 30 Finsbury Square London EC2P 2YU
| Chairman | |
|---|---|
| J Anthony V Townsend (Age 63) | Chairman of F&C Global Smaller Companies PLC, Finsbury Growth & Income Trust PLC and Milton Worldwide Growth Investment Trust plc. Past chairman of the Association of Investment Companies (2001-2003). Non-executive director of Worldwide Healthcare Trust plc. Appointed 6 October 1999. |
| Managing Director | |
| Jonathan C Woolf (Age 54) | Director of Romulus Films Limited and associated companies, formerly merchant banker with S G Warburg & Co. Ltd. Appointed 14 July 1983. |
| Non Executive | |
| Dominic G Dreyfus (Age 54) | Formerly a director of BCI Soditic Trade Finance Ltd, managing director of Soditic Limited and Membre du Directoire, Warburg Soditic SA, Geneva. Appointed 13 May 1996. |
| Ronald G Paterson (Age 54) | Solicitor, partner in Eversheds LLP. Formerly a partner in Frere Cholmeley Bischoff and Bischoff & Co. A member of the Technical Committee of the Association of Investment Companies. Appointed 1 January 2001. |
The company's policy is to invest predominantly in investment trusts and other leading UK quoted companies to achieve a balance of income and growth. Full details of the company's investment policy are contained in the Business Review on page 12.
The company is a member of the Association of Investment Companies (AIC) and is represented on the AIC Self Managed Investment Trust Committee.
I report our results for the year ended 31 December 2010.
The return on the revenue account before tax amounted to £2.1 million (2009: £1.6 million), an increase of 32 percent. Gross income amounted to £2.5 million (2009: £2.0 million), re-establishing the income levels achieved in the years prior to the global economic recession of 2008/9. £2.2 million of this amount (2009: £1.7 million) represented income from portfolio investments and £0.2 million (2009: £0.3 million) film, property and other income. The increase in portfolio income arose from a growth in dividends paid by core investee companies and a deliberate targeting of investment in higher and special dividend paying companies.
The return before tax, which includes realised and unrealised capital appreciation, amounted to a gain of £3.2 million (2009: £4.9 million gain) reflecting the recovery in investment valuations over the year and marking a second year of positive return after the previous two years of substantial capital losses.
The revenue return per ordinary share was 7.1p (2009: 5.1p) on an undiluted basis and 6.1p (2009: 4.6p) on a diluted basis.
Group net assets at the year end were £32.2 million (2009: £31.0 million), an increase of 3.7 percent. This compares to increases in the FTSE 100 and All Share indices of 9.0 percent and 10.9 percent, respectively, over the period. Although the year end result shows an increase in net assets compared to the decline in net assets reported at the interim stage, our portfolio nevertheless underperformed the benchmarks over the year as a whole, having outperformed at the half year point. This relative reversal was due to the combination of a very strong uplift in markets in the second half (by approximately 20 percent) and a decline in the value of our largest investment, Geron Corporation, in the last month of the year following the announcement of a large equity fundraising at the beginning of December, as explained in more detail below.
As reported at the interim stage, equity and most other financial markets had shown extreme volatility in the first half, with markets in the UK and US moving by a combined (peak to trough) of approximately 15 percent and registering declines of almost 10 percent at mid-year. This volatility was primarily caused by concerns about prospects for sustained growth in the USAand globally. The second half, however, was characterised by an unusually strong and sustained period of growth, with UK equities increasing by 20 percent and establishing 3-year highs. This strength resulted from the decision by the US Federal Reserve to initiate a second round of monetary quantative easing in the US (QE2) to combat the signs of faltering return to growth seen in the first half of 2010.
The share price of our largest US investment, Geron Corporation, fluctuated considerably over the year in response to the announcements of various significant events. Geron's announcement in December of a large equity fundraising at a significant discount to finance an acquisition and provide working capital resulted in a decline in the share price of over 20 percent; this contributed largely to the underperformance of the portfolio as a whole at year end. More details are given in the Managing Director's report which follows.
The net asset value per ordinary share increased to 92p (2009: 89p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share increased to 89p (2009: 84p).
We are pleased to recommend an increased final dividend of 4.5p per ordinary share, which together with the interim dividend makes a total payment for the year of 7.2p (2009: 6.9p) per ordinary share. This represents an increase of 4.3 percent over the previous year's total dividend and a yield of 9.9 percent based on the share price of 73p at the end of the year. The final dividend will be payable on 23 June 2011 to shareholders on the register at 27 May 2011. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share.
HM Treasury's review of the tax and company law rules affecting investment trusts set out in its consultation document in July 2010 has, thanks very largely to painstaking work by our trade association, the Association of Investment Companies (AIC), resulted in sensible and beneficial amendments which will be advantageous to the whole industry. The proposed revisions that appeared particularly to discriminate against smaller trusts such as ourselves have been dropped.
The AIC has also done important work on the Alternative Investment Fund Managers Directive passed into law by the European Parliament last summer. Although there is much detail still to emerge before this Directive takes effect in 2013, it is clear that much of the over-bureaucratic regulation first proposed has been abandoned in favour of more pragmatic measures.
While the high levels of growth in financial markets seen in the second half of 2010 abated in the first quarter of 2011, equity markets nevertheless remained firm at these higher levels. Towards the end of the quarter, however, sentiment began to change as concerns about levels of inflation in developed economies, the high cost of commodities and overheating in developing countries took hold, resulting in expectations that the end of monetary easing and historically low interest rates would be hastened. This combined with the devastating effects of the Japanese earthquake and tsunami in March resulted in a sharp sell-off of equities and higher risk assets during the month and short-term turbulence in currency markets. These events and changes in sentiment have now set the scene for markets to consider the inevitable return over time to more conventional levels of official liquidity, interest rates and corporate growth prospects over the medium term. As a result, and barring any further unforeseen events or natural disasters, we would expect markets to display a less volatile and more subdued level of activity over the coming period.
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 18 April 2011, group net assets had increased to £32.4 million, an increase of 0.6 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 decreased 0.5 percent and the All Share Index decreased 0.5 percent.
Anthony Townsend 26 April 2011
The anticipated re-appraisal of growth prospects for economies and markets after a period of dramatic recovery in 2009 duly arrived in the first quarter of 2010 and a period of high volatilty and uncertainty in financial markets ensued for the rest of the first half. Weak corporate growth, employment, housing and commodities indicators combined with disruption in the currency markets caused by difficulties in the Euro zone all served to destabilise the equity markets with risk appetite waxing and waning with the publication of each economic indicator. As a result, equities markets in the UK and US closed substantially down at the half year by 9 and 6 percent respectively, despite the generally favourable environment for equity investment in terms of interest rates, yields and earnings ratios.
Against this background, fears grew particularly in the USA that the recovery from one of the largest global recessions in 60 years would not run its course, particularly given the still unmet need in developed economies to reduce budget deficits and deleverage the financial and household sectors through spending reductions and higher taxes. As a result, the US Federal Reserve began to make it plain that the then current high levels of monetary easing would not be reduced as expected and that on the contrary a second round of easing was contemplated. This duly occurred formally in November, but its anticipation was sufficient to boost markets significantly and re-establish risk appetite throughout the second half of 2010. As noted above, UK and US equity markets grew by 20 and 18 percent in the second half of 2010, giving rise to full year increases of 10 and 11 percent, respectively.
As noted above, our portfolio outperformed the benchmarks at the half year both in asset value and total return but underperformed at the year end. This was principally due to a large 20 percent fall in the share price of our largest investment Geron Corporation in the final month of the year. This fall followed the announcement and completion of a large and generally unexpected equity fundraising at a 20 percent discount to market price to finance an acquisition and provide working capital. During the year, Geron was able to update the market on two positive developments, namely the lifting of a temporary halt by the Federal Drug Agency in July 2010 on its ground-breaking Phase 1 trial of embryonic stem cell therapy for spinal cord injury and in October the announcement of the first patient being treated, a world first. As a result, Geron's share price had strengthened steadily in the second half of 2010, until the announcement of the fund raising. However, the further announcement in early 2011 of a major change in senior management, including the departure of the long serving Chief Executive was also unexpected and resulted in further weakening of the share price to levels below that of the fund raising in December. Since then, however, the price has recovered somewhat but remains well below pre-fund raising levels. Nevertheless, the modest recovery has allowed our portfolio to outperform slightly in the first quarter of 2011, as noted above, and we remain firmly committed to our large investment in Geron for its significant growth potential in the medium term as it brings to fruition the development of its revolutionary oncology and embryonic stem cell technologies.
When last reporting in August 2010, it was noted that the outlook was very uncertain, poised between continuing recovery or return to recession, depending on governments' policy and monetary response to weakening indicators. In the event, the global stimulus was continued and even increased which had the effect of perpetuating the recovery. As already noted, however, this has led to concerns about growing inflationary pressures in many of the developed economies and price bubbles in commodities and large developing economies such as China. While downside economic risks still exist such as the large structural imbalances in government finances and bank balance sheets, the continuing reluctance of banks to lend, high oil prices and external shocks such as the recent natural disaster in Japan, the expectation now is that monetary and/or fiscal tightening will now proceed this year in most of the developed economies, bringing forward a period of lower growth expectation, increasing interest rates, lower corporate profitability and dull financial market performance. The beginnings of this trend have already been seen in the first increase in interest rates by the European Central Bank since the recession and signs in the UK that consumers have already started to limit significantly their retail consumption in non-essential areas.
We therefore anticipate a period of lower growth in major economies and financial markets. We will continue to invest for the long term alongside our core investments in UK investment trusts, seeking to identify situations giving higher levels of capital return and income.
Jonathan Woolf
26 April 2011
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | |||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Profit before tax – realised | 2,146 | (1,830) | 316 | 1,624 | (1,122) | 502 |
| Profit before tax – unrealised | – | 2,927 | 2,927 | – | 4,350 | 4,350 |
| Profit before tax – total | 2,146 | 1,097 | 3,243 | 1,624 | 3,228 | 4,852 |
| Earnings per £1 ordinary | ||||||
| share – basic | 7.16p | 4.39p | 11.55p | 5.07p | 12.91p | 17.98p |
| Earnings per £1 ordinary | ||||||
| share – diluted | 6.11p | 3.13p | 9.24p | 4.62p | 9.22p | 13.84p |
| Net assets | 32,198 | 31,037 | ||||
| Net assets per ordinary share | ||||||
| – deducting preference |
||||||
| shares at par | 89p | 84p | ||||
| – diluted |
92p | 89p | ||||
| Diluted net asset value per | ||||||
| ordinary share at 18 April 2011 | 93p | |||||
| Dividends declared or proposed for the period | ||||||
| per ordinary share – interim paid | 2.7p | 2.7p | ||||
| – final proposed | 4.5p | 4.2p | ||||
| per preference share | 3.5p | 3.5p |
| At valuation | |||
|---|---|---|---|
| 18 April 2011 | 31 December | 31 December | |
| 2010 | 2009 | ||
| £000 | £000 | £000 | |
| Investment Trusts (equities) | 15,441 | 15,278 | 12,855 |
| Biomedical – USA | 6,871 | 7,419 | 7,589 |
| Life Assurance | 3,101 | 3,239 | 3,259 |
| Unit trusts | 1,780 | 1,751 | 1,601 |
| Software and computer services | 447 | 487 | 332 |
| Other Financial | 166 | 160 | 126 |
| Leisure and hotels | 116 | 127 | 431 |
| Telecommunications | 97 | 93 | 364 |
| Property | 85 | 83 | 283 |
| Electricity | 42 | 37 | 41 |
| Construction | 9 | 32 | 39 |
| Bank retail | 28 | 31 | 100 |
| Biotechnology | 17 | 29 | 91 |
| Oil exploration and production | 31 | 26 | 4 |
| Pharmaceuticals and healthcare | 12 | 17 | 10 |
| Media | 15 | 14 | 10 |
| Overseas | 6 | 7 | 53 |
| Support services | 2 | 2 | – |
| Pubs & Restaurants | – | – | 124 |
| Total quoted equities | 28,266 | 28,832 | 27,312 |
| Property units (unquoted) | 322 | 322 | 395 |
| Fixed Interest stocks (unquoted) | 17 | 17 | 17 |
| Fixed Interest stocks | 893 | 863 | 810 |
| Preference shares | 587 | 583 | 570 |
| Permanent interest bearing | 250 | 264 | 281 |
| Total portfolio | 30,335 | 30,881 | 29,385 |
| Derivatives – traded options | 946 | 945 | 742 |
| Balances at banks and stockbrokers | 899 | 421 | 923 |
| 32,180 | 32,247 | 31,050 |
At 31 December 2010
| Valuation | % of Group | ||
|---|---|---|---|
| Company | Nature of business | £000 | Portfolio |
| Geron Corporation | Biomedical – USA | 7,419 | 24.02* |
| RIT Capital Partners | Investment Trust | 3,237 | 10.48 |
| Prudential | Life Assurance | 3,106 | 10.06 |
| Alliance Trust | Investment Trust | 2,608 | 8.45 |
| Electra Private Equity | Investment Trust | 2,342 | 7.58 |
| Dunedin Income Growth | Investment Trust | 2,200 | 7.12 |
| British Assets Trust | Investment Trust | 2,029 | 6.57 |
| St James's Place International | Unit Trust | 1,586 | 5.14 |
| Scottish American Investment Company | Investment Trust | 982 | 3.18 |
| Invesco Income Growth Trust | Investment Trust | 581 | 1.88 |
| Royal & Sun Alliance Insurance Group | |||
| 7.375% Cum. irred. preference shares £1 | Insurance – Non-Life | 461 | 1.49 |
| F&C Asset Management | |||
| – 6.75% FRN Sub. Bonds 2026 | General financial | 452 | 1.46 |
| Merchants Trust | Investment Trust | 412 | 1.34 |
| Rothschild Continuation Finance | |||
| – 9% Perp. Sub. Gtd. Loan Notes | Financial | 411 | 1.34 |
| Shires Income | Investment Trust | 386 | 1.25 |
| Earthport | Software and computer services | 327 | 1.06 |
| Barclays – 9% PIB Capital Bonds | Banks retail | 241 | 0.78 |
| Second Downing EZT (unquoted) | Enterprise Zone Trust | 179 | 0.58 |
| Jupiter Income Trust | Unit Trust | 166 | 0.54 |
| Emblaze Systems | Software and computer services | 161 | 0.52 |
| 20 Largest investments | 29,286 | 94.84 | |
| Other investments (number of holdings : 32) | 1,595 | 5.16 | |
| Total investments | 30,881 | 100.00 |
* 16.28% held by the company and 7.74% held by subsidiaries
It is the company's stated policy to have an unlimited percentage of its gross assets in other listed investment companies. In accordance with the Listing Rules, the company will restrict any future investments in listed investment companies, which themselves do not have a policy of restricting their investments in other listed investment companies to 15% (or less) of their gross assets, to 10% of its gross assets at the time of the investment. As at 31 December 2010, 19.4% of the company's total assets were invested in the securities of other UK listed investment companies which themselves do not have a policy of restricting their investments to the 15% mentioned above. Of the twenty largest investments shown above, Alliance Trust and RIT Capital Partners fall into this category of investments as they have not specifically announced a policy to restrict their own investments in listed investment companies to no more than 15% of gross assets.
| At 31 December | Equity | Net asset value | ||
|---|---|---|---|---|
| shareholders' | per share | Share price | Discount/(premium) | |
| funds | (diluted) | |||
| £000 | p | p | % | |
| 2006 | 47,647 | 136.1 | 129.0 | 5.2 |
| 2007 | 39,643 | 113.3 | 99.5 | 12.2 |
| 2008 | 28,190 | 80.5 | 60.0 | 25.5 |
| 2009 | 31,037 | 88.7 | 90.0 | (1.5) |
| 2010 | 32,198 | 92.0 | 73.0 | 20.6 |
| Year to | Total | Profit | Earnings | Expense | Dividend |
|---|---|---|---|---|---|
| 31 December | income | after tax | per ordinary | ratio | per ordinary |
| share (diluted) | share (net) | ||||
| £000 | £000 | p | % | p | |
| 2006 | 2,105 | 1,814 | 5.18 | 0.94 | 7.00+ |
| 2007 | 1,939 | 1,596 | 4.56 | 1.05 | 6.40 |
| 2008 | 1,743 | 1,403 | 4.01 | 1.48 | 6.60 |
| 2009 | 1,967 | 1,619 | 4.62 | 1.78 | 6.90 |
| 2010 | 2,489 | 2,139 | 6.11 | 1.68 | 7.20 |
Earnings per ordinary share (diluted) is based on the revenue column of the Profit for the period in the Group income statement and on 35,000,000 ordinary and convertible preference shares in issue.
Expense ratio is based on the ratio of Total expenses to average shareholders' funds.
| Year to | Net asset value | AIC NAV | Share price | AIC Share price | FTSE All Share |
|---|---|---|---|---|---|
| 31 December | total return | Sector return | total return | Sector return | total return |
| 2005 | 100 | 100 | 100 | 100 | 100 |
| 2006 | 116 | 119 | 122 | 121 | 117 |
| 2007 | 102 | 120 | 100 | 116 | 123 |
| 2008 | 81 | 83 | 65 | 86 | 86 |
| 2009 | 92 | 104 | 106 | 107 | 112 |
| 2010 | 99 | 121 | 94 | 133 | 128 |
The directors present their annual report on the affairs of the group together with the financial statements and auditors' report for the year ended 31 December 2010.
The financial statements will be presented for approval at the sixty third Annual General Meeting of the company to be held on Thursday 16 June 2011.
The activities of the company and its subsidiary undertakings during the accounting year were as follows:
| Company | Activities |
|---|---|
| British & American Investment Trust PLC (the 'company') | Investment trust |
| BritAm Investments Limited | Investment holding |
| Second BritAm Investments Limited | Investment holding |
| British & American Films Limited | Film investment company |
The company is an investment company under section 833 of the Companies Act 2006.
The directors consider that the company has, and continues to, conduct its affairs in a manner to enable it to continue to comply with sections 1158 and 1159 of the Corporation Tax Act 2010. It is approved by HM Revenue & Customs as such, which enables it to realise its investments free from taxation on capital gains. Approval is retrospective and provisional and has been received in respect of the financial year to 31 December 2009, subject to any subsequent enquiry by HM Revenue & Customs into the company's tax return. The company has since directed its affairs to enable it to continue to seek approval.
Management and staff are conversant with the requirements of sections 1158 and 1159 of the Corporation Tax Act 2010. The board receives regular reports to monitor the company's compliance with the requirements of the Act. At the year end the company's tax advisers review the section 1158 calculation to be submitted to HMRC.
The future prospects of the company are explained in the Chairman's Statement on pages 3 and 4 and in the Managing Director's Report on pages 5 and 6.
The company's stated investment policy is to invest 'predominantly in investment trusts and other leading UK quoted companies to achieve a balance of income and growth'.
In fulfilling this policy, the company acts as a long-only investment vehicle and in recognition of its status as an authorised investment trust and parent of a group of companies comprising two other investment companies and a film investment company. The company does not utilise gearing in its portfolio but does on occasion make use of derivative instruments to hedge exposures to particular investments or markets.
The company's objective is to achieve a balance to investors of growth in income and capital in order to sustain a progressive dividend policy. The policy of the investment portfolio is predominantly quoted UK investment trusts and other leading companies; other investments include overseas equities, bonds, indirect holdings in UK commercial property and the rights to receive royalties from certain longstanding commercial films.
Investments are self-managed. The portfolio currently consists of a diversified list of around 46 UK quoted companies, 3 UK unquoted holdings and 3 overseas quoted companies.
Historically, investments in other investment trusts have accounted for approximately 50 percent of the total portfolio with the balance being invested in a selection of leading quoted companies to provide opportunities for capital growth and income generation. These other investments have often been concentrated in a small number of companies, typically in the finance, property, insurance and leisure sectors and have individually represented as much as 10 to 15 percent of the portfolio. Currently, these individual exposures are in the US biomedical (23.7%), UK property (0.26%) and UK insurance (11.82%) sectors. Smaller size investments are made in other UK listed companies (currently 20, accounting for 3.27% of the portfolio) and further risk diversification is achieved by investment in fixed income securities (currently 3.66%) and property investments (currently 1.03%).
The implementation of portfolio strategy includes some purchases of investee stocks after the announcement of a dividend and, consequently, some of the revenue income may have a corresponding capital loss, on the subsequent disposal of these investments.
The property portfolio currently consists of an indirect partial interest in 2 commercial properties, situated outside London, through Enterprise Zone Trusts.
The investments in investment trusts are spread over a wide number and variety of trusts including UK, generalist, specialist, income, overseas and split capital trusts in order to respond to the objectives of the stated investment policy. Generally, for the larger of such investments, trusts offering exposure to both the UK and US markets, a discount greater than 5 percent and a yield in excess of the benchmark yield is sought.
Whenever total investment in UK listed investment companies, which have not declared an investment policy to invest less than 15% of their gross assets in other UK listed investment companies, exceeds 10% of gross assets, no further investments in such companies are made until the total investments in such companies returns below 10% of gross assets. Currently these investments amount to 19.9% of group gross assets.
Portfolio performance in capital and income is measured and reported against the FTSE 100 and the benchmark FTSE All Share Indices and relative performance against AIC peer group members is monitored. There is a recognition that at times, particularly when foreign or foreign currency denominated investments form a significant element of the portfolio, a certain degree of performance mismatch to the benchmarks is likely to occur.
The directors consider a number of performance measures to assess the company's success in achieving its objectives.
The key performance indicators (KPIs) used to measure the performance of the company over time are the following established industry measures:
A historical record of these measures is shown on pages 7, 8 and 11.
The board also considers peer group comparative performance.
The review of the business is included in the Chairman's Statement on pages 3 and 4 and Managing Director's Report on pages 5 and 6. Information on movements in the NAV and on investments since the year end is included on pages 7 and 9 respectively.
The discount, in absolute terms and relative to other similar investment trust companies, and the composition of the share register is monitored by the board. While there is no discount target or management policy the board is aware that discount volatility is unwelcome to many shareholders and that share price performance is the measure used by most investors. The board seeks to provide effective communication to existing and potential shareholders and maintain the profile of the company.
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. An explanation of these risks and how they are managed is contained in note 19 to the accounts on pages 40 to 44. The other principal risks to the company are loss of investment trust status, which is explained on page 12 and operational risk. Operational risk is the risk of inadequate or failed processes or systems. The main potential risk relates to systems for holding and administering investments. There is a framework in place to manage this risk which is monitored and reviewed by the board.
The financial highlights for the year under review are as follows: the net asset value per share increased by 3.7% during the year, compared to a increase in the benchmark of 10.9%, ordinary share dividends increased by 4.3% to 7.2p per share and the premium moved from 1.5% to a discount of 20.6% at the year end.
The company has conducted its investment policy so as to remain a qualifying investment under the ISA regulations. It is the intention of the directors to continue to satisfy these regulations.
The directors set out below the results and dividends of the group and the company for the year ended 31 December 2010.
| Group | Company | |||||
|---|---|---|---|---|---|---|
| Revenue Capital Total |
Revenue | Capital | Total | |||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Profit before tax | 2,146 | 1,097 | 3,243 | 1,624 | 3,228 | 4,852 |
| Tax | (7) | – | (7) | (5) | – | (5) |
| Profit after tax | 2,139 | 1,097 | 3,236 | 1,619 | 3,228 | 4,847 |
| Pence per | ||
|---|---|---|
| Dividends | share | £000 |
| Interim per £1 ordinary share (paid 11 November 2010) | 2.7 | 675 |
| 3.5% preference share paid (paid 11 November 2010) | 1.75 | 175 |
| Final per £1 ordinary share – proposed | 4.5 | 1,125 |
| 3.5% preference share (payable 23 June 2011) | 1.75 | 175 |
| 2,150 |
The dividends proposed above will be paid on 23 June 2011 to ordinary shareholders on the register at 27 May 2011 and to 3.5% preference shareholders on the register at 31 December 2010.
The present directors of the company are as set out on page 1. Having served as a director since 1996,1999 and 2001 Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson respectively and, being eligible, retire and offer themselves for re-election. The Board recommends their re-election. At the time of the Annual General Meeting Mr DG Dreyfus will have completed more than 15 years service, Mr JAV Townsend 11 years service and Mr RG Paterson 10 years service as a non-executive director. In making the recommendation, the Board has carefully reviewed the composition of the Board as a whole and borne in mind the need for a proper balance of skills and experience. The Board does not believe that length of service detracts from the independence of a director, particularly in relation to an investment trust, and on that basis considers that Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson remain independent. It is confirmed that, following formal evaluation, the performance of each director continues to be effective and each continues to demonstrate commitment to the role.
The directors during the year ended 31 December 2010 had interests in the shares of the company as follows:
| 2010 | 2009 | ||||
|---|---|---|---|---|---|
| Beneficial | Non-beneficial | Beneficial | Non-beneficial | ||
| Ordinary shares of £1 | |||||
| JC Woolf | 460,812 | 15,771,562 | 460,812 | 15,771,562 | |
| DG Dreyfus | 5,000 | – | 5,000 | – | |
| JAV Townsend | 7,500 | – | 7,500 | – | |
| RG Paterson | 1,000 | – | 1,000 | – | |
Non voting convertible preference shares of £1 each
| JC Woolf | – | 10,000,000 | – | 10,000,000 |
|---|---|---|---|---|
| ---------- | --- | ------------ | --- | ------------ |
Included in the non-beneficial interest in the ordinary shares of £1 each referred to above, are 6,902,812 (27.6%) (2009 – 6,902,812 (27.6%)) ordinary shares held by Romulus Films Ltd, 7,868,750 (31.5%) (2009 – 7,868,750 (31.5%)) ordinary shares held by Remus Films Ltd and 1,000,000 (4.0%) (2009 – 1,000,000 (4.0%)) ordinary shares held by PKL Pictures Limited. Romulus Films Ltd also holds 10,000,000 cumulative convertible preference shares (2009 – 10,000,000). Mediterranean Holdings Ltd has also notified an interest in all the holdings of Romulus Films Ltd and Remus Films Ltd.
Except in the ordinary course of business no director had an interest in any contract in relation to the company's business at any time during the year.
In addition to the directors' interests in shares detailed above, at 26 April 2011 the directors had been notified of the following interests of 3% or more of either class:
| Number of | ||
|---|---|---|
| shares held | ||
| Jupiter Monthly Income Fund Unit Trust | 1,835,000 | 7.3 |
| Lady Lever of Manchester | 1,186,562 | 4.7 |
These interests relate to the ordinary shares of the company.
The company's capital comprises £35,000,000 (2009 – £35,000,000) being 25,000,000 ordinary shares of £1 (2009 – 25,000,000) and 10,000,000 non-voting convertible preference shares of £1 each (2009 – 10,000,000).
The ordinary shares carry a right to receive dividends. Interim dividends are approved by the directors and the proposed final dividend is subject to shareholder approval.
The preference shares have a 3.5% fixed cumulative preferential dividend payable half yearly in equal amounts.
The company's Articles of Association specifies the preference rate of dividend and provides that, if at any dividend date the profits available for distribution are insufficient to pay the ordinary and preference shareholders at the 3.5% rate then the dividend will be paid to all shareholders pari passu.
Further, any arrears of preference dividend cannot be paid in any year unless the ordinary shares have received a 3.5% dividend, on par.
Finally, no dividends on ordinary shares may be paid if there are unpaid arrears of the preference shares dividend.
On a winding up, after meeting the liabilities of the company the surplus assets will be distributed as follows:
The preference shares shall not have any right to vote unless the business of the meeting includes consideration of any resolution for the winding up of the company, purchase by the company of any of its own shares, or a reduction of the capital, or a varying of the rights of the preference shares.
On a show of hands, every ordinary shareholder (or preference shareholder in the situations described in the above paragraph) present in person (or, being a corporation, by a representative) has one vote and upon a poll every shareholder present has one vote for every share, and a proxy has one vote for every share. Information on the deadlines for proxy appointment is shown on page 51.
At any time, during the period from 1 January 2006 to 31 December 2025 (both dates inclusive), and, if published audited annual accounts showing Group shareholders' funds are £50 million or more, preference shareholders have the right to convert all or any of their shares on a one for one basis to new ordinary shares.
The company does not have a buy-back authority and no present intention to seek shareholders' approval for one.
The company's payment policy is to agree terms of payment before business is transacted, to ensure suppliers are aware of their terms and to settle invoices in accordance with them. There were no trade creditors outstanding at the year end (2009 – £nil).
Directors' & officers' liability insurance cover was maintained by the board during the year ended 31 December 2010. It is intended that this policy will continue for the year ended 31 December 2011 and subsequent years.
As at the date of this report, indemnities are in force between the company and each of its directors under which the company has agreed to indemnify each director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his role as a director of the company. The directors are also indemnified against the costs of defending any criminal or civil proceedings or any claim by the company or a regulator as they are incurred provided that where the defence is unsuccessful the director must repay those defence costs to the company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006. A copy of each deed of indemnity is available for inspection at the company's registered office during normal business hours and will be available for inspection at the Annual General Meeting.
The Corporate Governance Statement on pages 45 to 48 (which forms part of this directors' report) and the contents of the directors' report constitutes the statement on the application by the company of the principles of the Combined Code on Corporate Governance, as required by the UK Listing Authority.
So far as the directors are aware, there is no relevant audit information (as defined by section 418(2) of the Companies Act 2006) of which the company's auditors are unaware, and each member has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.
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 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.
A resolution to reappoint Grant Thornton UK LLP as auditors of the group will be proposed at the forthcoming Annual General Meeting.
Jonathan Woolf Managing Director
Wessex House 1 Chesham Street London SW1X 8ND
26 April 2011
The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and parent financial statements for each financial year. Under that law the directors have to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs).
Under section 393 of the Companies Act 2006, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We have audited the financial statements of British &American Investment Trust PLC for the year ended 31 December 2010 which comprise the group income statement, the group statement of changes in equity, the company reconciliation of movements in shareholders' funds, the group and company balance sheet, the group cash flow statement and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities set out on page 19, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.
In our opinion:
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules, we are required to review:
Marcus Swales Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London
26 April 2011
For the year ended 31 December 2010
| 2010 | 2009 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | ||||
| £000 | £000 | £000 | £000 | £000 | £000 | ||
| Investment income | 2 | 2,489 | – | 2,489 | 1,967 | – | 1,967 |
| Holding gains on investments | |||||||
| at fair value through profit or loss | 9 | – | 2,927 | 2,927 | – | 4,350 | 4,350 |
| Losses on disposal of investments | |||||||
| at fair value through profit or loss | 9 | – | (1,641) | (1,641) | – | (937) | (937) |
| Expenses | 3 | (343) | (189) | (532) | (343) | (185) | (528) |
| Profit before tax | 2,146 | 1,097 | 3,243 | 1,624 | 3,228 | 4,852 | |
| Tax | 6 | (7) | – | (7) | (5) | – | (5) |
| Profit for the period | 2,139 | 1,097 | 3,236 | 1,619 | 3,228 | 4,847 | |
| Earnings per share | |||||||
| Basic - ordinary shares | 7 | 7.16p | 4.39p | 11.55p | 5.07p | 12.91p | 17.98p |
| Diluted - ordinary shares | 7 | 6.11p | 3.13p | 9.24p | 4.62p | 9.22p | 13.84p |
The group does not have any income or expense that is not included in the profit for the period. Accordingly, the 'Profit for the period' is also the 'Total Comprehensive Income for the period' as defined in IAS 1(revised) and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.
All profit and total comprehensive income is attributable to the equity holders of the parent company. There are no minority interests.
The notes on pages 26 to 44 form part of these financial statements.
31 December 2010
| Notes | Share | Capital | Retained | Total | |
|---|---|---|---|---|---|
| capital | reserve | earnings | |||
| £000 | £000 | £000 | £000 | ||
| Balance at 31 December 2008 | 35,000 | (7,898) | 1,150 | 28,252 | |
| Changes in equity for 2009 | |||||
| Profit for the period | – | 2,682 | 2,157 | 4,839 | |
| Ordinary dividend paid | 8 | – | – | (1,650) | (1,650) |
| Preference dividend paid | 8 | – | – | (350) | (350) |
| Balance at 31 December 2009 | 35,000 | (5,216) | 1,307 | 31,091 | |
| Changes in equity for 2010 | |||||
| Profit for the period | – | 964 | 2,268 | 3,232 | |
| Ordinary dividend paid | 8 | – | – | (1,725) | (1,725) |
| Preference dividend paid | 8 | – | – | (350) | (350) |
| Balance at 31 December 2010 | 35,000 | (4,252) | 1,500 | 32,248 |
31 December 2010
Registered number: 433137
| Notes | Group | Company | |||
|---|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | ||
| £000 | £000 | £000 | £000 | ||
| Non - current assets | |||||
| Investments - fair value through profit or loss | 9 | 30,881 | 29,385 | 27,950 | 25,897 |
| Investments - subsidiaries | 9 | – | – | 3,583 | 3,655 |
| 30,881 | 29,385 | 31,533 | 29,552 | ||
| Current assets | |||||
| Receivables | 11 | 623 | 109 | 2,256 | 2,287 |
| Derivatives - fair value through profit or loss | 11 | 2,385 | 1,335 | 1,643 | 1,261 |
| Cash and cash equivalents | 509 | 985 | 454 | 931 | |
| 3,517 | 2,429 | 4,353 | 4,479 | ||
| Total assets | 34,398 | 31,814 | 35,886 | 34,031 | |
| Current liabilities | 12 | ||||
| Trade and other payables | 580 | 62 | 579 | 61 | |
| Other current liabilities | 180 | 122 | 441 | 96 | |
| Derivatives - fair value through profit or loss | 1,440 | 593 | – | – | |
| (2,200) | (777) | (1,020) | (157) | ||
| Total assets less current liabilities | 32,198 | 31,037 | 34,866 | 33,874 | |
| Non - current liabilities | 13 | – | – | (2,618) | (2,783) |
| Net assets | 32,198 | 31,037 | 32,248 | 31,091 | |
| Equity attributable to equity holders | |||||
| Ordinary share capital | 14 | 25,000 | 25,000 | 25,000 | 25,000 |
| Convertible preference share capital | 14 | 10,000 | 10,000 | 10,000 | 10,000 |
| Capital reserve | 15 | (3,710) | (4,807) | (4,252) | (5,216) |
| Retained revenue earnings | 15 | 908 | 844 | 1,500 | 1,307 |
| Total equity | 32,198 | 31,037 | 32,248 | 31,091 |
The notes on pages 26 to 44 form part of these financial statements.
Where the respective headings under 'The Large and Medium - sized Companies and Group (Accounts and Reports) Regulations 2008, schedule 1, paragraph 9' for the company balance sheet are different to those under IFRS, the headings are set out in note 20 to the accounts.
The financial statements on pages 22 to 44 were approved by the board of directors on 26 April 2011.
Jonathan Woolf
Managing Director
For the year ended 31 December 2010
| Notes | 2010 | 2009 | |
|---|---|---|---|
| £000 | £000 | ||
| Cash flow from operating activities | |||
| Profit before tax | 3,243 | 4,852 | |
| Adjustment for: | |||
| Gain on investments | (1,286) | (3,413) | |
| Scrip dividends | (167) | (6) | |
| Film income tax deducted at source | (7) | (5) | |
| Proceeds on disposal of investments at fair value | |||
| through profit or loss | 16,500 | 17,756 | |
| Purchases of investments at fair value through | |||
| profit or loss | (15,701) | (16,995) | |
| Operating cash flows before movements | |||
| in working capital | 2,582 | 2,189 | |
| Increase in receivables | (2,770) | (869) | |
| Increase in payables | 1,786 | 771 | |
| Net cash from operating activities | |||
| before income taxes | 1,598 | 2,091 | |
| Income taxes recovered | 1 | 30 | |
| Net cash flows from operating activities | 1,599 | 2,121 | |
| Cash flows from financing activities | |||
| Dividends paid on ordinary shares | 8 | (1,725) | (1,650) |
| Dividends paid on preference shares | 8 | (350) | (350) |
| Net cash used in financing activities | (2,075) | (2,000) | |
| Net (decrease)/increase in cash and cash equivalents | (476) | 121 | |
| Cash and cash equivalents at beginning of year | 985 | 864 | |
| Cash and cash equivalents at end of year | 509 | 985 |
Purchases and sales of investments are considered to be operating activities of the company, given its purpose, rather than investing activities.
31 December 2010
A summary of the principal accounting policies is set out below.
The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the IASB and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect, and to the extent they have been adopted by the European Union at 31 December 2010. The company has elected to prepare its parent company accounts under UK Generally Accepted Accounting Practice (GAAP).
The financial statements have been prepared on the historical cost basis except for the measurement at fair value of investments, derivative financial instruments, and subsidiaries. The same accounting policies as those published in the statutory accounts for 31 December 2009 have been applied.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts revised by the Association of Investment Companies (AIC) in January 2009 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
The group's significant accounting policies are set out below, together with the judgements made by management in applying these policies, which have the most significant effect on the amounts recognised in the financial statements, apart from those involving estimations, which are dealt with separately below. These accounting policies have been applied consistently to all periods presented in these consolidated and parent company financial statements.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment within which the group operates. There are no foreign operations.
These accounting policies are consistently applied across the group entities.
New and updated IFRS's have been reviewed for their impact on the group and no material impact is expected on the financial statements from new and updated IFRS's.
The consolidated financial statements incorporate the financial statements of the company and its subsidiary undertakings made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
No income statement is published for British & American Investment Trust PLC as permitted by section 408 of the Companies Act 2006. The company's profit on ordinary activities after taxation for the year was £3,231,802 (2009 – £4,839,333 profit).
In the company's financial statements, investments in subsidiary undertakings are stated in accordance with the policies outlined under (d) below.
Losses on disposal of investments in the group financial statements are based on historical cost to the group.
In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AIC,
supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the company's status as a UK investment company under section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend.
As the group's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, non-current investments are designated as fair value through profit or loss on initial recognition. The group manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy, and information about the investments is provided internally on this basis to the group's directors.
Investments held at fair value through profit or loss, including derivatives held for trading, are initially recognised at fair value.
All purchases and sales of investments are recognised on the trade date.
After initial recognition, investments, which are designated at fair value through profit or loss, are measured at fair value. Gains or losses on investments designated at fair value through profit or loss are included in profit or loss as a capital item, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices or last traded prices, depending upon the convention of the exchange on which the investment is quoted. Investments in units of unit trusts or shares in OEICs are valued at the closing price released by the relevant investment manager.
Traded stock options are, until disposal, included under current assets or current liabilities, and valued in accordance with the above policy.
In respect of unquoted instruments, or where the market for a financial instrument is not active, fair value is established by using an appropriate valuation technique.
Investments in subsidiary companies are held at the fair value of their underlying assets and liabilities. Where a subsidiary has negative net assets it is included in investments at nil value and a provision made for it on the balance sheet.
Dividend income from investments is recognised as revenue when the shareholders' rights to receive payment has been established, normally the ex-dividend date.
Interest income on fixed interest securities is recognised on a time apportionment basis so as to reflect the effective interest rate of the security.
Property EZT income is recognised on the date the distribution is receivable. Film royalty income is recognised on receipt of royalty statements covering periods ending in the financial year.
When special dividends are received, the underlying circumstances are reviewed on a case by case basis in determining whether the amount is capital or revenue in nature. Amounts recognised as revenue will form part of the company's distribution. Any tax thereon will follow the accounting treatment of the principal amount.
Employer contributions to a defined contribution pension scheme (sponsored by a related party undertaking - see note 17) for staff are charged against revenue, on an accruals basis.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's and company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the income statement is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue column of the income statement, then no tax relief is transferred to the capital column.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Investment trusts which have approval under sections 1158 and 1159 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.
Transactions in currencies other than sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items and non-monetary assets and liabilities that are fair valued and are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Gains and losses arising on retranslation are included in net profit or loss for the period where investments are classified as fair value through profit or loss and presented as revenue or capital as appropriate.
Subject to the parent company's status as a UK investment company under section 833 of the Companies Act 2006, which does not permit net capital returns being distributed by way of dividend, unrealised gains and losses on quoted investments are included in the calculation of reserves available for distribution by way of dividend. However, in the interests of prudence the directors do not consider these unrealised gains to be distributable.
The 3.5% cumulative convertible non-redeemable preference shares issued by the company are classified as equity instruments in accordance with IAS 32 'Financial Instruments - Presentation' and FRS 25 as the company has no contractual obligation to redeem the preference shares for cash or pay preference dividends unless similar dividends are declared to ordinary shareholders.
| 2010 | 2009 | |
|---|---|---|
| Income from investments | £000 | £000 |
| UK dividends | 1,968 | 1,532 |
| Overseas dividends | 10 | 47 |
| Scrip and in specie dividends | 167 | 6 |
| Interest on fixed income securities | 102 | 114 |
| Rental income (Property Income Distribution) | 7 | 31 |
| Property unit trust income | 23 | 23 |
| Film revenues | 188 | 208 |
| 2,465 | 1,961 | |
| Other income | ||
| Deposit interest | 1 | 4 |
| Other | 23 | 2 |
| 24 | 6 | |
| Total income | 2,489 | 1,967 |
| Total income comprises: | ||
| Dividends | 2,145 | 1,585 |
| Interest | 103 | 118 |
| Film revenues | 188 | 208 |
| Property income | 30 | 54 |
| Gain on foreign exchange | 23 | 2 |
| 2,489 | 1,967 | |
| Income from investments: | ||
| Listed investments | 2,238 | 1,706 |
| Unlisted investments | 227 | 255 |
| 2,465 | 1,961 |
Of the £2,145,000 (2009 – £1,585,000) dividends received, £1,525,000 (2009 – £962,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of £1,769,000 (2009 – £1,016,000), on the disposal of these investments.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Staff costs – including executive director (Notes 4 and 5) | 361 | 356 |
| Non-executive directors fees (Note 4) | 44 | 44 |
| Auditors' remuneration: | ||
| Fees payable to the company's auditor for the audit of the company's | ||
| individual financial statements and its consolidated financial statements | 25 | 25 |
| Fees payable to the company's auditor for other services: | ||
| – audit of the financial statements of the company's subsidiaries pursuant to legislation | 5 | 5 |
| – other services relating to taxation | 16 | 17 |
| – all other services | 6 | 6 |
| Other | 57 | 60 |
| Irrecoverable VAT | 18 | 15 |
| 532 | 528 |
The group financial statements are required to comply with regulation 5(1) of Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008.
Directors' remuneration is disclosed in the Directors' remuneration report on page 50.
The directors do not receive any performance related pay or any benefits in kind. None of the directors has any share options and no pension contributions are paid on their behalf. There are no long-term incentive schemes for any directors.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Wages and salaries | 290 | 292 |
| Social security costs | 39 | 34 |
| Pensions and post-retirement benefits | 32 | 30 |
| 361 | 356 | |
The average number of persons (including the executive director) employed during the year was 8 (2009 – 8).
| 2010 | 2009 | |
|---|---|---|
| Number | Number | |
| Investment | 2 | 2 |
| Administration | 6 | 6 |
| 8 | 8 |
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Current tax: | ||||||
| UK corporation tax | (7) | – | (7) | (5) | – | (5) |
| Foreign tax | (7) | – | (7) | (5) | – | (5) |
| Double taxation relief | 7 | – | 7 | 5 | – | 5 |
| (7) | – | (7) | (5) | – | (5) |
Corporation tax is calculated at 21% (2009 – 28%) of the estimated assessable profit for the year.
The charge for the year can be reconciled to the profit per the income statement as follows:
| 2010 | 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| £000 | £000 | £000 | % | £000 | £000 | £000 | % | |
| Total profit before tax | 2,146 | 1,097 | 3,243 | 21 | 1,624 | 3,228 | 4,852 | 28 |
| Tax at the UK corporation tax | ||||||||
| rate of 21% (2009 - 28%) | (451) | (230) | (681) | (455) | (904) | (1,359) | ||
| Tax effect of expenses that are not | ||||||||
| deductible in determining taxable profit | 1 | – | 1 | 1 | – | 1 | ||
| Tax effect of non-taxable | ||||||||
| and scrip dividends | 450 | – | 450 | 444 | – | 444 | ||
| Capital (gains)/losses within subsidiaries | – | (52) | (52) | – | (72) | (72) | ||
| Gains on investments that | ||||||||
| are not taxable | – | 270 | 270 | – | 955 | 955 | ||
| Tax effect of utilisation of tax losses | ||||||||
| not previously recognised | – | 5 | 5 | – | 26 | 26 | ||
| Adjustments arising on the difference between | ||||||||
| taxation and accounting treatment | ||||||||
| of income and expenses | (7) | 7 | – | 5 | (5) | – | ||
| Tax expense and effective tax rate | ||||||||
| for the year | (7) | – | (7) | 0.22 | (5) | – | (5) | 0.10 |
The calculation of the basic and diluted earnings per share is based on the following data:
| 2010 | 2009 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | |||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Earnings: | ||||||
| Basic | 1,789 | 1,097 | 2,886 | 1,269 | 3,228 | 4,497 |
| Preference dividend | 350 | – | 350 | 350 | – | 350 |
| Diluted | 2,139 | 1,097 | 3,236 | 1,619 | 3,228 | 4,847 |
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 (2009 – 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 (2009 – 35 million) ordinary and preference shares in issue.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Amounts recognised as distributions to ordinary shareholders in the period: | ||
| Dividends on ordinary shares: | ||
| Final dividend for the year ended 31 December 2009 | ||
| of 4.2p (2008 – 3.9p) per share | 1,050 | 975 |
| Interim dividend for the year ended 31 December 2010 | ||
| of 2.7p (2009 – 2.7p) per share | 675 | 675 |
| 1,725 | 1,650 | |
| Proposed final dividend for the year ended 31 December 2010 | ||
| of 4.5p (2009 – 4.2p) per share | 1,125 | 1,050 |
| 2010 | 2009 | |
| £000 | £000 | |
| Dividends on 3.5% cumulative convertible preference shares: | ||
| Preference dividend for the 6 months ended 31 December 2009 | ||
| of 1.75p (2008 – 1.75p) per share | 175 | 175 |
| Preference dividend for the 6 months ended 30 June 2010 | ||
| of 1.75p (2009 – 1.75p) per share | 175 | 175 |
| 350 | 350 | |
| Proposed preference dividend for the 6 months ended 31 December 2010 | ||
| of 1.75p (2009 – 1.75p) per share | 175 | 175 |
The proposed final dividend is subject to approval by shareholders at theAnnual General Meeting and has not been included as a liability in these financial statements in accordance with IFRS.
We have set out below the total dividend payable in respect of the financial year, which is the basis on which the retention requirements of sections 1158 and 1159 Corporation Tax Act 2010 are considered.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Dividends on ordinary shares: | ||
| Interim dividend for the year ended 31 December 2010 | ||
| of 2.7p (2009 – 2.7p) per share | 675 | 675 |
| Proposed final dividend for the year ended 31 December 2010 | ||
| of 4.5p (2009 – 4.2p) per share | 1,125 | 1,050 |
| 1,800 | 1,725 | |
| Dividends on 3.5% cumulative convertible preference shares: | ||
| Preference dividend for the year ended 31 December 2010 | ||
| of 1.75p (2009 – 1.75p) per share | 175 | 175 |
| Proposed preference dividend for the year ended 31 December 2010 | ||
| of 1.75p (2009 – 1.75p) per share | 175 | 175 |
| 350 | 350 |
| Group | Company | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| £000 | £000 | £000 | £000 | |
| Investments quoted on a recognised investment | ||||
| exchange | 30,542 | 28,973 | 27,950 | 25,897 |
| Unquoted investments | ||||
| – Subsidiary undertakings (Note 10) | – | – | 3,583 | 3,655 |
| – Property units | 322 | 395 | – | – |
| – Unquoted securities | 17 | 17 | – | – |
| 30,881 | 29,385 | 31,533 | 29,552 |
Film rights are valued, in the group, at £nil (2009 – £nil). The original cost of the film rights held in subsidiary undertakings is £510,000 with total amortisation to date of £460,073.
| Quoted | 2010 | 2009 | |||
|---|---|---|---|---|---|
| Quoted in UK | overseas | Unquoted UK | Total | Total | |
| Group: | £000 | £000 | £000 | £000 | £000 |
| Opening cost | 11,156 | 9,204 | 1,997 | 22,357 | 25,301 |
| Investment holding gains/(losses) | 10,175 | (1,562) | (1,585) | 7,028 | 1,372 |
| Opening fair value at 1 January | 21,331 | 7,642 | 412 | 29,385 | 26,673 |
| Purchases at cost | 13,259 | 4,841 | 13 | 18,113 | 17,267 |
| Sales – proceeds |
(13,058) | (4,919) | – | (17,977) | (18,465) |
| – gains/(losses) on sales Increase/(decrease) in |
(1,597) | 30 | – | (1,567) | (440) |
| investment holding gains/(losses) | 3,181 | (168) | (86) | 2,927 | 4,350 |
| Closing fair value | 23,116 | 7,426 | 339 | 30,881 | 29,385 |
| Closing cost | 9,565 | 9,193 | 1,855 | 20,613 | 22,357 |
| Investment holding gains/(losses) | 13,551 | (1,767) | (1,516) | 10,268 | 7,028 |
| Closing fair value at 31 December | 23,116 | 7,426 | 339 | 30,881 | 29,385 |
| Quoted | 2010 | ||||
| Quoted in UK | overseas | Subsidiaries | Total | ||
| Company: | £000 | £000 | £000 | £000 | |
| Opening cost | 16,213 | 6,399 | 7,094 | 29,706 | |
| Investment holding gains/(losses) | 4,488 | (1,203) | (3,439) | (154) | |
| Opening fair value at 1 January | 20,701 | 5,196 | 3,655 | 29,552 | |
| Purchases at cost | 13,222 | 2,518 | – | 15,740 | |
| Sales – proceeds |
(12,450) | (2,584) | – | (15,034) | |
| – (losses)/gains on sales | (1,577) | 18 | – | (1,559) | |
| Increase/(decrease) in | |||||
| investment holding gains/(losses) | 3,019 | (113) | (72) | 2,834 | |
| Closing fair value | 22,915 | 5,035 | 3,583 | 31,533 | |
| Closing cost | 15,041 | 6,387 | 6,948 | 28,376 | |
| Investment holding gains/(losses) | 7,874 | (1,352) | (3,365) | 3,157 | |
| Closing fair value at 31 December | 22,915 | 5,035 | 3,583 | 31,533 |
Gains/(losses) on investments designated at fair value through profit or loss are net of transaction costs incurred on both the purchase and sale of those assets, in the amount of £37,111 (2009 – £46,202) being £23,263 (2009 – £29,074) on purchases and £13,848 (2009 – £17,128) on sales.
Gains/(losses) on investments
| Group | Group | |
|---|---|---|
| 2010 | 2009 | |
| £000 | £000 | |
| Losses on disposal | (1,880) | (1,750) |
| Losses on disposal recognised in prior years | 313 | 1,306 |
| (1,567) | (444) | |
| Losses on derivatives accounted for as current assets/(liabilities) | (74) | (493) |
| (1,641) | (937) | |
| Investment holding gains in the year | 2,927 | 4,350 |
| 1,286 | 3,413 |
The company has the following subsidiary undertakings:
| Description of | Proportion of nominal value of issued | |||
|---|---|---|---|---|
| Name of undertaking | shares held | shares and voting rights held by: | ||
| Company (%) | Group (%) | |||
| BritAm Investments Limited | Ordinary £1 | 100 | 100 | |
| British and American Films Limited | Ordinary £1 | 0 | 100 | |
| Second BritAm Investments Limited | Ordinary £1 | 100 | 100 |
BritAm Investments Limited and Second BritAm Investments Limited are investment holding companies. British and American Films Limited is a film distribution company.
All of these subsidiary undertakings are included in the consolidation. All are incorporated in Great Britain.
| Group | Company | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| £000 | £000 | £000 | £000 | |
| Sales of investments awaiting settlement | 492 | – | 492 | – |
| Amount owed by subsidiary undertakings | – | – | 1,325 | 1,878 |
| Income tax recoverable | – | 1 | – | 1 |
| Group relief receivable | – | – | 352 | 321 |
| Prepayments and accrued income | 45 | 45 | 45 | 45 |
| Other debtors | 86 | 63 | 42 | 42 |
| Derivatives held at fair value through profit or loss | 2,385 | 1,335 | 1,643 | 1,261 |
| 3,008 | 1,444 | 3,899 | 3,548 |
The directors consider that the carrying amount of other debtors approximates their fair value.
Current assets for the group includes derivative assets of £2,384,715 (2009 - £1,335,253) containing a loss at the year end of £362,275 (2009 - £1,068,494 loss). Current assets for the company includes derivative assets of £1,642,651 (2009 - £1,260,945) containing a loss of £288,467 (2009 - £877,020 loss). These derivatives are a hedge against part of the investment in Geron Corporation.
| Group | Company | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| £000 | £000 | £000 | £000 | |
| Purchases of investments awaiting settlement | 579 | 62 | 579 | 62 |
| Trade payables | 1 | 1 | – | – |
| Other taxes and social security | 4 | 3 | 4 | 3 |
| Other payables | 95 | 55 | 86 | 55 |
| Derivatives held at fair value through profit or loss | 1,440 | 593 | – | – |
| Accruals and deferred income | 50 | 48 | 39 | 37 |
| Amounts owed to group undertakings | – | – | 312 | – |
| Amounts due to related parties | 31 | 15 | – | – |
| 2,200 | 777 | 1,020 | 157 |
The directors consider that the carrying amount of other payables approximates to their fair value. Current liabilities includes derivative liabilities with a fair value of £1,439,738 (2009 - £593,318) for group, containing a gain at the year end of £288,452 (2009 - £391,287 gain).
| Company | ||
|---|---|---|
| 2010 | 2009 | |
| £000 | £000 | |
| Guarantee of subsidiary liability | 2,618 | 2,783 |
The provision is in respect of a guarantee made by the company for liabilities between its wholly owned subsidiaries, Second BritAm Investments Limited, BritAm Investments Limited and British and American Films Limited.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| Authorised: | ||
| 25,000,000 ordinary shares of £1 each | 25,000 | 25,000 |
| 10,000,000 non voting 3.5% cumulative convertible | ||
| non-redeemable preference shares of £1 each | 10,000 | 10,000 |
| Allotted, called-up and fully-paid: | ||
| 25,000,000 ordinary shares of £1 each | 25,000 | 25,000 |
| 10,000,000 non voting 3.5% cumulative convertible | ||
| non-redeemable preference shares of £1 each | 10,000 | 10,000 |
| 35,000 | 35,000 | |
The 3.5% cumulative convertible non-redeemable preference shares issued by the company have been classified as equity instruments in accordance with IAS 32 and FRS 25 - 'Financial Instruments - Presentation'. The directors are of the opinion that due to the fact the company has no contractual obligation to redeem the preference shares for cash or pay preference dividends unless also declaring a dividend to ordinary shareholders, they are correctly classified as equity and do not represent a financial liability.
Details of the rights attached to the preference shares are included in the 'Share Capital' section of the Directors' report on pages 16 and 17.
| Capital | Retained | |
|---|---|---|
| reserve | earnings | |
| £000 | £000 | |
| Group | ||
| 1 January 2010 | (4,807) | 844 |
| Allocation of profit for the year | 1,097 | 2,139 |
| Ordinary and preference dividends paid | – | (2,075) |
| 31 December 2010 | (3,710) | 908 |
| Company | ||
| 1 January 2010 | (5,216) | 1,307 |
| Allocation of profit for the year | 964 | 2,268 |
| Ordinary and preference dividends paid | – | (2,075) |
| 31 December 2010 | (4,252) | 1,500 |
The Capital reserve includes £10,268,000 of investment holding gains (see note 9 on page 35).
| Net asset value per ordinary share | Net assets attributable | |||
|---|---|---|---|---|
| 2010 | 2009 | 2010 | 2009 | |
| £ | £ | £000 | £000 | |
| Ordinary shares | ||||
| Undiluted | 0.89 | 0.84 | 22,198 | 21,037 |
| Diluted | 0.92 | 0.89 | 32,198 | 31,037 |
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 company rents its offices from Romulus Films Limited, and is also charged for its office overheads. During the year the company paid £11,030 (2009 – £11,156) in respect of those services.
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. Amounts charged by these companies in the year to 31 December 2010 were £327,414 (2009 – £321,465) in respect of salary costs and £32,165 (2009 – £30,220) in respect of pensions.
At the year end an amount of £15,391 (2009 – £7,459) was due to both Romulus Films Limited and Remus Films Limited. Romulus Films Limited and Remus Films Limited have significant shareholdings in the company – see page 16.
The group has taken advantage of the exemption from disclosing transactions with subsidiaries, as permitted by FRS8.
A deferred tax asset has not been recognised in respect of temporary timing differences relating to capital losses and accelerated capital allowances on film rights and excess management expenses as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is £645,001 (2009 – £625,559). The asset would be recovered if the company disposed of its investments and made sufficient future taxable profits and chargeable gains.
It is unlikely the parent company will generate sufficient taxable profits in the future as its taxable losses are usually more than offset by the taxable profits generated by subsidiary companies, to recover management expenses of £7,806 (2009 – £7,806) and no deferred tax asset has been recognised in the year or prior years.
The group's financial instruments primarily comprise equity investments, although it also holds convertible stock, loan stock and fixed interest investments, stock derivatives, cash and other items arising from its operations.
The group's investing activities undertaken in pursuit of its investment objective as set out on page 2 involve certain inherent risks.
The main risks arising from the group's financial instruments are market risk (comprising other price risk, interest rate risk, currency risk), liquidity risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The policies have remained unchanged throughout the year.
As an investment trust, the group invests in securities for the long term. The group's stated investment policy is to invest predominantly in investment trusts and other leading UK quoted companies. The group may write options on shares held within the investments portfolio where such options are priced attractively relative to longer term expectations of the relevant share prices.
At the year end written put and call options, which are traded on the Chicago Board Options Exchange, totalled £1,728,190 (2009 – £984,605 ). The fair market value and resulting gain is disclosed in note 12 on page 37.
The group's exposure to other price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the group might suffer through holding positions in the face of unfavourable market price movements. The board has established investment parameters to adequately monitor the investment performance, status of the business and the inherent risk in managing a portfolio of investments. The board receives financial information monthly, meets on four scheduled occasions each year and reviews annually the aforesaid investment parameters. The group's exposure to other changes in market prices at 31 December on its quoted and unquoted investments was:
| 31,826 | 30,127 | |
|---|---|---|
| Derivatives held at fair value | 945 | 742 |
| Investments held at fair value through profit or loss | 30,881 | 29,385 |
| £000 | £000 | |
| 2010 | 2009 |
Details of the group investment portfolio at the year end are shown on page 10.
A 10% increase in group portfolio valuations at 31 December 2010 would result in an increase of £3,183,000 (2009 – £3,013,000) in net asset value and profit for the year. A decrease of 10% would have had an equal but opposite effect.
The majority of the group's financial assets are equity shares 92.2% (2009 – 90.2%) or other investments which pay dividends rather than interest and do not have a maturity date.
Interest bearing investments, including cash deposits, comprise 6.8% of the group's financial assets, of which 5.5% are at fixed rate and 1.3% floating rate.
Interest rate movements may directly affect the fair value of fixed rate securities and the level of interest receivable on floating rate cash deposits. Interest rate movements may also affect the general equity markets and thus indirectly affect the securities value of the group investment portfolio by impacting the value of equity investments. The potential effects of these direct and indirect movements are considered when making investment decisions.
The board regularly reviews the level of investments in cash, floating and fixed income securities and the attendant level of interest receivable.
The interest rate risk profile of the financial assets of the group at 31 December 2010 is shown below.
| 2010 | 2009 | |||
|---|---|---|---|---|
| Fair Value | Maturity | Fair Value | Maturity | |
| £000 | £000 | |||
| Fixed Rate | ||||
| UK fixed interest stock | 469 | 16 years | 419 | 17 years |
| UK notes and bonds | 675 | undated | 672 | undated |
| 1,144 | 1,091 | |||
| Weighted average interest rate (on fair value) | 8.9% | 9.4% |
Cash and cash equivalents comprise bank, broker and money market deposits with a maximum maturity period of one month.
An increase of 0.5% in sterling interest rates at 31 December 2010 would have decreased the fair value of fixed interest securities and hence total net assets by £61,000 (2009 – £58,000). A decrease of 0.5% would have had an equal but opposite effect.
All investments are carried at fair value. Other financial assets and liabilities of the group are held at amounts that approximate to fair value.
The fair value hierarchy as defined in IFRS 7 comprises 3 levels. With the exeption of Unquoted UK investments with a year end market value of £339,000 (2009 – £412,000) which are categorised as Level 3, all other investments £30,542,000 (2009 – £28,912,000) and derivatives assets £2,385,000 (2009 – £1,335,000) and liabilities £1,440,000 (2009 – £593,000) are categorised as Level 1.
Level 1 investments and derivatives are measured by reference to quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 3 investments inputs are not based on observable market data (unobservable inputs).
The values for investments categorised by type are identified on page 9. The movement in Level 3 investments is shown in the Unquoted UK column in note 9 on page 35.
The vast majority 74% (2009 – 72%) of the group's assets and liabilities are in sterling. The foreign currency exposure is almost exclusively in a single investment denominated in US dollars. The board monitors the group's exposure to foreign currencies on a regular basis. The Managing Director assesses the risk of this exposure and its possible effect on the net asset value of the group. Where appropriate, foreign currency contracts may be used to limit the group's exposure to anticipated future adverse changes in exchange rates.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| US dollar | ||
| Investments | 7,425 | 7,642 |
| Cash and cash equivalents | 58 | 280 |
| Derivatives - fair value through profit or loss | 945 | 742 |
| Net exposure | 8,428 | 8,664 |
| Total net assets | 32,198 | 31,037 |
At 31 December 2010, if sterling had strengthened by 5% in relation to the US dollar, with all other variables held constant, total net assets would have decreased by £401,000 (2009 – £413,000). Similarly, a 5% weakening of sterling against the US dollar, with constant other variables, would have increased total net assets by £444,000 (2009 – £456,000).
The group's assets almost entirely comprise listed realisable securities, which can be sold to meet funding requirements as necessary. Short-term flexibility is achieved through the use of surplus cash. The board has set, and regularly monitors, guidelines on limits for both individual holdings and exposure to quoted equities in total (see investment policy on pages 12 and 13). The group considers that its exposure is not significant.
This is the risk of loss to the group arising from the failure of a transactional counterparty to discharge its obligations.
The group manages this risk through the following controls:
The group's principal financial assets are bank balances and cash, other receivables and investments, which represent the group's maximum exposure to credit risk in relation to financial assets.
Cash and cash equivalents comprise bank balances and cash held by the group. The carrying amount of these assets approximates their fair value.
Total exposure to credit risk is not considered to be significant. In summary, the maximum exposure to credit risk at 31 December was:
| 2010 | 2009 | |||
|---|---|---|---|---|
| Balance | Maximum | Balance | Maximum | |
| sheet | exposure | sheet | exposure | |
| £000 | £000 | £000 | £000 | |
| Fixed rate investments | 1,144 | 1,144 | 1,091 | 1,091 |
| Current assets | ||||
| Receivables | 623 | 623 | 109 | 109 |
| Derivatives classified as fair value through profit or loss | 2,385 | 2,385 | 1,335 | 1,335 |
| Cash and cash equivalent | 509 | 509 | 985 | 985 |
| 4,661 | 4,661 | 3,520 | 3,520 |
Fixed rate investments comprise 62.6% which are investment grade with the remaining 37.4% being non-investment grade.
None of the group's financial assets are past their due dates, impaired or secured by collateral or other credit enhancements.
The group's capital management objectives are:
through an appropriate balance of ordinary and non-redeemable preference equity capital.
The group's total capital equity (ordinary and non-redeemable preference share capital and other reserves) at 31 December 2010 was £32,198,000 (2009 – £31,037,000).
The Board monitors and reviews the broad structure of the group's capital on an ongoing basis.
The group's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.
Where the respective headings under IFRS differ from those set out in the Companies Act, the differences are set out below.
Non - current assets Fixed assets Receivables Debtors Cash and cash equivalents Cash at bank and in hand Non - current liabilities Provisions for liabilities and charges Equity attributable to equity holders Capital and reserves Ordinary share capital Called - up share capital Convertible preference share capital Called - up share capital Retained earnings Revenue reserve Total equity Total shareholder's funds
Investments - fair value through profit or loss Investments - fair value through profit or loss Current liabilities Creditors: amounts falling due within one year For the year ended 31 December 2010
The Statement of compliance with the Combined Code of Best Practice, which forms part of the Directors' report (page 18) is set out below. The following paragraphs describe the framework of internal controls in place to ensure that the company complies with the Financial Reporting Council's guidance ('the Turnbull guidance') which forms a part of the Code, and with the obligations of the UKLA's Disclosure and Transparency Rules which require a description of the main features of the internal control and risk management systems in relation to the financial reporting process and preparation of consolidated financial statements.
The board has considered the principles and recommendations of the AIC Code of Corporate Governance ('AIC Code') by reference to the AIC Corporate Governance Guide for Investment Companies ('AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to British & American Investment Trust PLC.
The board considers that reporting against the principles and recommendations of the AIC Code will provide better information to shareholders.
The company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code, except as set out below:
British & American Investment Trust PLC is a self-managed investment company. The company has therefore reported further in respect of these exceptions below.
The board currently consists of four directors, one of whom is the executive Managing Director. The three non-executive directors are all independent, including the Chairman.
There is a formal schedule of matters to be specifically approved by the board and of the division of responsibilities between the Chairman and Managing Director and individual directors may seek independent advice at the expense of the company.
All non-executive directors have a formal letter of appointment and such terms and conditions of appointment of nonexecutive directors are available for inspection at the registered office of the company.
The board has delegated investment management, within clearly defined parameters and dealing limits to the Managing Director, who also has responsibility for the overall management of the business. The board makes all strategic decisions and reviews the performance of the company at board meetings.
As the Chairman is non-executive the board regards him as the Senior Independent Director and no separate Senior Independent Director has been appointed.
There were four board meetings and four audit committee meetings held during the year and the attendance by directors was as follows:
| Board | Audit | |
|---|---|---|
| JAV Townsend | 4/4 | 4/4 |
| DG Dreyfus | 4/4 | 4/4 |
| RG Paterson | 4/4 | 4/4 |
| JC Woolf | 4/4 | 4/4* |
* Not a member of the committee but in attendance by invitation. All the directors attended the Annual General Meeting.
The non-executive directors (Mr JAV Townsend, Mr DG Dreyfus and Mr RG Paterson) are independent and have no other relationships or circumstances which might be perceived to interfere with the exercise of independent judgement. Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson, at the date of the Annual General Meeting, will have served on the board for more than fifteen years, eleven years and ten years respectively from the date of their first election, but given the nature of the company as an investment trust and as permitted under the AIC Code, the board is firmly of the view that Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson can be considered to be independent. In arriving at this conclusion the board considers that long service aids the understanding, judgement, objectivity and independence of directors.
Letters which specify the terms of appointment are issued to new directors. The letters of appointment are available for inspection upon request.
Directors are subject to re-election by shareholders at the first AGM following their appointment and, subsequently, are subject to retirement by rotation over a period of a maximum of three years. Directors are not subject to automatic reappointment. All non-executive directors are appointed for fixed terms of three years. Biographical details of directors are set out on page 2.
The directors recognise that independence is not a function of service or age and that experience is an important attribute within the board. The directors may, therefore, decide to recommend a director with more than nine years service for reelection annually.
The director due to stand for annual re-election at the forthcoming AGM in accordance with the requirements of the AIC Code, and in accordance with the company's Articles of Association, is Mr JAV Townsend. Mr DG Dreyfus and Mr RG Paterson are also due to stand for annual re-election in accordance with the AIC Code.
The board has carefully considered the position of Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson and believes that, following formal evaluation, they continue to be effective and so it would be appropriate for them to be proposed for re-election. As stated previously, in respect of Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson it is the view of the board that long service in no way reduces the independence and objectivity of the directors. Mr DG Dreyfus, Mr JAV Townsend and Mr RG Paterson will stand for re-election annually.
The Chairman is also non-executive chairman of three other investment trusts and a director of a number of other companies. He does not have a full time executive role in any organisation and the board is satisfied that he has sufficient time available to discharge fully his responsibility as Chairman.
The audit committee is a formally constituted committee of the board with defined terms of reference, which include its role and the authority delegated to it by the board, which are available for inspection at the company's registered office. It meets twice yearly and among its specific responsibilities are the review of the company's annual and half yearly results together with supporting documentation. The committee also reviews the internal and financial controls applicable to the company and its custodian, Walker Crips Stockbrokers Limited.
All the non-executive directors are members of the audit committee and its chairman is Mr DG Dreyfus. The audit committee considers Mr Dreyfus as the member of the audit committee having relevant and recent financial experience.
The provision of non-audit services is reviewed separately by the audit committee on a case by case basis, having consideration of the cost effectiveness of the services and the independence and objectivity of the auditors.
The board as a whole fulfils the function of the nomination committee.
The nomination committee oversees a formal review procedure governing the appointment of new directors and evaluates the overall composition of the board from time to time, taking into account the existing balance of skills and knowledge. Its chairman is the Chairman of the board. No new directors were appointed during the year. There are procedures for a new director to receive relevant information on the company together with appropriate induction.
On an annual basis the board formally reviews its performance. The review covers an assessment of how cohesively the board, audit committee and nomination committee work as a whole as well as the performance of the individuals within them.
The Chairman is responsible for performing this review. Mr DG Dreyfus and Mr RG Paterson perform a similar role in respect of the performance of the Chairman. The formal evaluation confirmed that all directors continue to be effective on behalf of the company.
The remuneration of the executive director is decided by the board as a whole (comprising a majority of non-executive directors), rather than a remuneration committee. There is no performance-related element of the executive director's remuneration. The board considers that the interests of the Managing Director, who is himself a shareholder (see page 16), are aligned with those of other shareholders.
Shareholder relations are given high priority by the board. The principal medium of communication with shareholders is through the interim and annual reports. This is supplemented by monthly NAV announcements.
The board largely delegates responsibility for communication with shareholders to the Managing Director and, through feedback, expects to be able to develop an understanding of their views.
Currently, there is a small number of major shareholders, details of which can be found on page 16.
All members of the board are willing to meet with shareholders for the purpose of discussing matters relating to the operation and prospects of the company.
The board welcomes investors to attend the AGM and encourages questions and discussions on issues of concern or areas of uncertainty. All directors expect to be present at the AGM.
The directors' statement of responsibilities in respect of the financial statements is set out on page 19.
The directors are responsible for the effectiveness of the internal control systems for the company, which are designed to ensure that adequate accounting records are maintained, that the financial information on which the business decisions are made and which are issued for publication is reliable, and that the assets of the company are safeguarded. Such a system of internal control is designed to manage rather than eliminate the risks of failure to achieve the company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.
The board recognises its ultimate responsibilities for the company's system of internal controls and for monitoring its effectiveness. The board has established an internal control framework to provide reasonable assurance on the effectiveness of the internal controls operated. The board assesses on an ongoing basis the effectiveness of the internal controls. The board receives regular reports on all aspects of internal control (including financial, operational and compliance control, risk management and relationships with external service providers). Given the size of the business the company does not have a separate internal audit function. This is subject to periodic review.
The board has produced a risk matrix against which the business risks and the effectiveness of the internal controls can be monitored, which is regularly reviewed by the Audit Committee and at other times as necessary. It is believed that an appropriate framework is in place to meet the requirements of the AIC Code and FRC guidance.
Arrangements are in place by which staff of the group may, in confidence, raise concerns under the Public Interest Disclosure Act 1998 about possible improprieties in matters of financial reporting or other matters. If necessary, any member of staff with an honest and reasonable suspicion about possible impropriety may raise the matter directly with the Chairman of the company. Arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action.
In accordance with section 175 of the Companies Act 2006 and the Articles of Association, as amended at the AGM in June 2008, the company has procedures in place for ensuring that the unconflicted directors' powers to authorise conflict situations are operated effectively.
The board confirms that the above procedures have been complied with.
The assets of the company consist mainly of securities that are readily realisable and, accordingly, the company has adequate financial resources to continue its operational existence for the foreseeable future. Therefore, the directors believe that it is appropriate to continue to adopt the going concern basis in preparing the accounts.
As an investment trust the company has no direct impact on social, economic and environmental issues and the company's primary objective is to achieve capital and income growth by investing the company's assets in accordance with the stated investment policy. As such the company does not have any policies to disclose in these areas. All employee contracts are with a related party as disclosed in note 17 and as such the company does not have any formal policies in this area. The non-executive directors review the level of remuneration of the Managing Director and employees annually.
The board has delegated authority to the Managing Director to vote on behalf of the company, in accordance with the company's best interests.
For the year ended 31 December 2010
This report is submitted in accordance with the requirements of sections 420 to 422 of the Companies Act 2006 in respect of the year ended 31 December 2010. An ordinary resolution to approve this report will be put to members at the forthcoming Annual General Meeting, but the directors' remuneration is not conditional upon the resolution being passed.
The board as a whole considers the directors' remuneration. The board has not appointed a committee to consider matters relating to directors' remuneration. The board has not been provided with advice or services by any person in respect of its consideration of directors' remuneration (although the directors expect from time to time to review the fees paid to the boards of directors of other investment companies).
The company's policy is that fees payable to non-executive directors should reflect their expertise, responsibilities and time spent on company matters. In determining the level of non-executive remuneration, market equivalents are considered in comparison to the overall activities and size of the company.
The maximum level of non-executive directors' remuneration is fixed by the company's Articles of Association, amendment to which is by way of an ordinary resolution subject to ratification by shareholders. The current level (effective from 1 January 2003) is that aggregate non-executive directors fees should not exceed £45,000 per annum but a resolution is being proposed at the forthcoming Annual General Meeting to increase it to £75,000 per annum.
The emoluments and benefits of any executive director for his services as such shall be determined by the directors and may be of any description, including membership of any pension or life assurance scheme for employees or their dependants.
The company's policy is to allow executive directors to accept appointments and retain payments from sources outside the company as long as such appointments do not interfere with the performance of their company responsibilities.
The company does not confer any share options, long term incentives or retirement benefits on any director, nor does it make a contribution to any pension scheme on behalf of the directors. The company has not added any performancerelated elements in the remuneration package of executive directors. As noted on page 16 Mr JC Woolf is a significant shareholder in the company. The company also provides directors' liability insurance.
It is intended that this policy will continue for the year ending 31 December 2011 and subsequent years.
The directors' fees payable to RG Paterson were paid to Eversheds LLP. This payment was for services as a director of the company.
Mr JC Woolf has a service contract dated 1 September 1992 with the company. The contract does not have a fixed term, requires 12 months notice of termination, with salary and benefits compensation payable for the unexpired portion on early termination. No other director has a service contract with the company.
The graph below shows the performance of British & American Investment Trust PLC's share price against the FTSE All Share index, in both instances with dividends reinvested, for the five years since 2006. The FTSE All Share is selected because it is the single broad equity market index that most closely matches the company's benchmark.
The following items have been audited.
The following table shows a breakdown of the remuneration of individual directors.
| 2010 | 2009 | |
|---|---|---|
| £000 | £000 | |
| JC Woolf - salary | 54 | 60 |
| JAV Townsend - fees | 18 | 18 |
| DG Dreyfus - fees | 13 | 13 |
| RG Paterson - fees | 13 | 13 |
| Total | 98 | 104 |
The annual fees of the Chairman are £17,500 and the two non-executive directors £12,500.
By order of the board
KJ Williams Secretary 26 April 2011 NOTICE IS HEREBY GIVEN THAT the sixty-third Annual General Meeting of the company will be held at Wessex House, 1 Chesham Street, London SW1X 8ND on Thursday 16 June 2011 at 12.15pm for the following purposes:
KJ Williams Secretary 26 April 2011
Wessex House 1 Chesham Street London SW1X 8NB
Any member of the company entitled to attend and vote at the meeting may appoint another person or persons (whether a member or not) as his/her proxy to attend and to vote instead of him/her provided that if more than one proxy is appointed each proxy must be appointed to exercise the rights attached to a different share or shares. Completion and return of a form of proxy will not preclude a member from attending and voting at the meeting in person, should the member subsequently decide to do so. A form to be used for appointing a proxy or proxies for this meeting to vote on your behalf can be found at page 54 of this document. In order to be valid, any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power or authority, must reach the company at Wessex House, 1 Chesham Street, London SW1X 8ND or by fax to 020 7201 3101, not less than 24 hours (excluding any part of a day which is a non-working day) before the time of the meeting or of any adjournment of the meeting.
Under the company's articles of association only holders of the ordinary shares are entitled to attend and vote at this meeting. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, this entitlement is determined by reference to the company's register of members and only those members entered on the company's register of members at 12.15pm on 14 June 2011 or, if the meeting is adjourned, shareholders entered on the company's register of members at the time which is 48 hours before the time fixed for the adjourned meeting, shall be entitled to attend and vote at the meeting.
As at 26 April 2011, the last practicable day before printing this document, the total number of ordinary shares of £1, carrying one vote each on a poll, in issue was 25,000,000, the total number of cumulative convertible non-voting preference shares of £1, in general carrying no votes at general meetings of the company, in issue was 10,000,000 and the total voting rights in the company were 25,000,000.
A copy of this notice, together with any other information that the company is required to make available on a website in accordance with section 311A of the Companies Act 2006 will be included on the company's website www.baitgroup.co.uk.
Any member attending the meeting is entitled, pursuant to section 319A of the Companies Act 2006 to ask any question relating to the business being dealt with at the meeting. The company will answer any such questions unless (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; or (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the company or the good order of the meeting that the question be answered.
Where members satisfying the thresholds in sections 338 and 338A of the Companies Act 2006 require the company to:
the company must:
A resolution may be properly moved at the annual general meeting unless: (a) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the company's constitution or otherwise); or (b) it is defamatory of any person; or (c) it is frivolous or vexatious.
A matter may be properly included in the business of an annual general meeting unless it is defamatory of any person or is frivolous or vexatious.
A member or members wishing to request the circulation of the resolution and/or the inclusion of a matter must send the request to the company using one of the following methods:
in hard copy form to the company at Wessex House, 1 Chesham Street, London SW1X 8ND marked for the attention of the Company Secretary - the request must be signed by or on behalf of the member(s) making it and accompanied by any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power or authority; or
by fax to 020 7201 3101 marked for the attention of the Company Secretary - the request must be signed by or on behalf of the member(s) making it and accompanied by any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power or authority.
Whichever form of communication is chosen, the request must be received by the company not later than 5 May 2011 and (as appropriate):
Where the company receives requests from a member or members either to (a) give notice of a resolution to be proposed by members at the annual general meeting and/or (b) circulate a matter proposed by members to be included within the business to be dealt with at the annual general meeting, the expenses of giving such notice or circulating such matter must be paid by the member or members submitting the request by depositing with the company not later than 5 May 2011 a sum reasonably sufficient to meet these expenses.
Members satisfying the thresholds in section 527 of the Companies Act 2006 may require the company to publish on its website, a statement setting out any matter that such members propose to raise at the annual general meeting relating to the audit of the company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the annual general meeting. Where the company is required to publish such a statement on its website it may not require the members making the request to pay any expenses incurred by the company in complying with the request, it must forward the statement to the company's auditors no later than the time the statement is made available on the company's website, and the statement may be dealt with as part of the business of the annual general meeting.
A member or members wishing to request publication of such a statement on the company's website must send the request to the company using one of the following methods:
in hard copy form to the company at Wessex House, 1 Chesham Street, London SW1X 8ND marked for the attention of the Company Secretary - the request must be signed by or on behalf of the member(s) making it and accompanied by any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power or authority; or
by fax to 020 7201 3101 marked for the attention of the Company Secretary - the request must be signed by or on behalf of the member(s) making it and accompanied by any form of proxy and power of attorney or other authority under which it is signed, or a notarially certified or office copy of such power or authority.
Whichever form of communication is chosen, the request must either set out the statement in full or, if supporting a statement sent by another member, clearly identify the statement which is being supported, and be received by the company at least one week before the annual general meeting.
The register of directors' interests and copies of the managing director's service agreement and the letters of appointment of non-executive directors will be available for inspection at the registered office of the company during normal business hours from the date of this notice until the conclusion of the Annual General Meeting.
(For use by ordinary shareholders)
| I/We | . | (Please complete in |
|---|---|---|
| BLOCK CAPITALS) |
of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
being (a) member(s) of the above company, hereby appoint the Chairman of the meeting or
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . to be my/our proxy to vote on my/our behalf at the Annual
General Meeting of the company to be held at Wessex House, 1 Chesham Street, London SW1X 8ND
at 12.15 pm on Thursday 16 June 2011 and at any adjournment thereof.
Signed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
| Dated | . 2011. | |
|---|---|---|
Please tick here to indicate that this proxy instruction is in addition
to a previous instruction. Otherwise it will overwrite any previous instruction.
| RESOLUTIONS | For | Against | Vote | Discretionary | |
|---|---|---|---|---|---|
| Withheld | |||||
| 1. | To adopt the report and accounts. | ||||
| 2. | To re-elect Mr JAV Townsend. | ||||
| 3. | To re-elect Mr DG Dreyfus. | ||||
| 4. | To re-elect Mr RG Paterson. | ||||
| 5. | To approve aggregate non-executive directors fees | ||||
| not exceeding £75,000 per annum. | |||||
| 6. | To approve the directors' remuneration report. | ||||
| 7. | To declare a final dividend of 4.5p per £1 ordinary share. | ||||
| 8. | To re-appoint Grant Thornton UK LLP as the company's auditors. | ||||
| 9. | To authorise the directors to determine the remuneration | ||||
| of the auditors. |
| Second fold | ||
|---|---|---|
| British & American Investment Trust PLC Wessex House 1 Chesham Street London SW1X 8ND |
Please affix postage stamp |
First fold |
| Third fold |
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