Annual Report • Dec 31, 2018
Annual Report
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British & American Investment Trust PLC
Report and accounts
31 December 2018
To invest predominantly in investment trusts and other leading UK and US-quoted companies to achieve a balance of income and growth.
| Ten largest security holdings (excluding subsidiaries) | ||||
|---|---|---|---|---|
| Name | Sector | % | ||
| Dunedin Income Growth | Investment Trust | 16.80 | ||
| Geron Corporation (USA) | Biomedical | 14.79 | ||
| Biotime Inc (USA) | Biotechnology | 6.97 | ||
| Merchants Trust | Investment Trust | 6.56 | ||
| Aberdeen Diversified Inc&Growth Investment Trust | 5.73 | |||
| Asterias Biotherapeutics (USA) | Pharmaceuticals | 3.82 | ||
| Invesco Income Growth | Investment Trust | 3.51 | ||
| AgeX (USA) | Biotechnology | 2.03 | ||
| Braemar Shipping Services | Transport | 0.68 | ||
| Electra Private Equity | Investment Trust | 0.29 | ||
| 61.18 | ||||
| Country Exposure | ||||
| Country | £m | % | ||
| UK | 10.1 | 72.1 | ||
| USA | 3.9 | 27.9 | ||
| Total investments | 14.0 | 100.00 | ||
| Value (dividends reinvested) of £100 invested in ordinary |
| £ | |
|---|---|
| 1 year | 76.7 |
| 3 year | 68.3 |
| 5 year | 72.4 |
| 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 | 23 |
| Net Assets (£m) | 7.9 |
| Yield | 18.3% |
| Dividend Dates | Interim dividend – November |
| Final dividend – June | |
| Share price (p) | 47.5 |
| NAV/share (p) | 23 (diluted) |
| Premium | 110.2% (diluted) |
| Ongoing charges | 5.92% |
| 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 00433137 |
Annual Report and Accounts
for the year ended 31 December 2018
Registered number: 00433137
| Page | |
|---|---|
| Directors and officials | 1 |
| Biographical details of directors and investment policy | 2 |
| Strategic report including: | |
| Chairman's statement | 3 |
| Managing Director's report | 6 |
| Financial highlights | 9 |
| Net asset and dividend growth | 10 |
| Distribution of investments and cash | 11 |
| Investment portfolio | 12 |
| Five year record | 13 |
| Business review | 14 |
| Directors' report | 19 |
| Statement of directors' responsibilities | 23 |
| Independent auditor's report | 24 |
| Income statement | 30 |
| Statement of changes in equity | 31 |
| Balance sheet | 32 |
| Cash flow statement | 33 |
| Notes to the financial statements | 34 |
| Statement of Corporate Governance | 55 |
| Directors' remuneration report | 62 |
| Notice of meeting | 67 |
David G Seligman (Chairman) - appointed as Chairman 1 January 2018 Jonathan C Woolf (Managing Director) Dominic G Dreyfus (Non-executive and Chairman of the Audit Committee) Ronald G Paterson (Non-executive) - retired as Director 30 June 2018 Alex Tamlyn (Non-executive) - appointed as Director 1 July 2018
KJ Williams ACA Wessex House 1 Chesham Street London SW1X 8ND
Neville Registrars Limited Neville House Steelpark Road Halesowen B62 8HD
Metro Bank PLC One Southampton Row London WC1B 5HA
5 Broadgate London EC2M 2QS
Auditors Hazlewoods LLP Windsor House Bayshill Road Cheltenham GL50 3AT
| Chairman | |
|---|---|
| David G Seligman (Age 67) | Formerly a director of S.G. Warburg & Co Ltd in corporate finance and private equity advisory. Founder of Seligman Private Equity Select, a private equity fund-of-funds. Appointed as Director 26 September 2017 and as Chairman 1 January 2018. |
| Managing Director | |
| Jonathan C Woolf (Age 62) | 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 62) | Formerly a director of BCI Soditic Trade Finance Ltd, formerly managing director of Soditic Limited and Membre du Directoire, Warburg Soditic SA, Geneva. Appointed 13 May 1996. |
| Ronald G Paterson (Age 62) | Solicitor, partner in Eversheds Sutherland (International) LLP. Formerly a partner in Frere Cholmeley Bischoff and Bischoff & Co. and formerly a member of the Technical Committee of the Association of Investment Companies. Appointed 1 January 2001. Retired 30 June 2018. |
| Alex Tamlyn (Age 53) | Solicitor, partner in DLA Piper UK LLP. Appointed 1 July 2018. |
To invest predominantly in investment trusts and other leading UK and US-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 14.
The company is a member of theAssociation of Investment Companies (AIC) and is represented on theAIC Self-Managed Investment Trust Committee.
The company has been included as a 'Dividend Hero' for 2018 by the Association of Investment Companies for the third year in a list of the 20 investment companies which have increased their dividends for 20 or more years consecutively.
I report our results for the year ended 31 December 2018.
The return on the revenue account before tax amounted to £2.5 million (2017: £2.2 million), an increase of 13 percent. This increase was due to higher levels of dividends received from our subsidiary companies compared to the previous year.
Gross revenues totalled £3.1 million (2017: £2.7 million). In addition, film income of £92,000 (2017: £101,000) and property unit trust income of £14,000 (2017: £15,000) was received in our subsidiary companies. In accordance with IFRS10, these income streams are not included within the revenue figures noted above.
The total return before tax amounted to a loss of £5.1 million (2017: £4.7 million loss), which comprised net revenue of £2.5 million, a realised loss of £2.6 million and an unrealised loss of £4.6 million. The revenue return per ordinary share was 8.7p (2017: 7.6p) on an undiluted basis and 7.2p (2017: 6.4p) on a diluted basis.
Net assets at the year end were £7.9 million (2017: £15.5 million), a decrease of 49.0 percent. This compares to decreases in the FTSE 100 and All Share indices of 12.5 percent and 13.0 percent, respectively, over the period. On a total return basis, after adding back dividends paid during the year, our net assets decreased by 32.9 percent compared to 9.0 percent and 9.5 percent decreases in the FTSE 100 and All Share indices, respectively.
This very poor end of year result followed the strong and market out-performing advance in net asset value which we were able to report at the half year stage of 12.8 percent and was the result of an unexpected setback in late September in the value of our largest US investment, Geron Corporation. Although the value of this investment had risen by 95 percent in the first 6 months of 2018 and by 260 percent towards the end of the third quarter, the very unexpected decision by Johnson and Johnson on 27th September to discontinue its clinical trial collaboration with Geron resulted in a collapse of over 80 percent in Geron's stock price over the fourth quarter, and a fall of 44 percent for the year as a whole. At the time, Johnson and Johnson cited general portfolio reasons for the discontinuation and not any perceived problems with the collaboration or the trials. This drop in Geron's stock price also coincided with a substantial reversal in US equity markets in December of 14 percent, which was the steepest intra-month fall in stock prices since the Great Recession of 2008.
The circumstances surrounding this unfortunate development and the outlook are discussed in greater detail in the managing director's report below. The shock of the unexpected loss of Johnson and Johnson as Geron's collaborator resulted in the immediate and severe market downgrade in Geron's value noted above. However, the efficacy and potential of Geron's haematological cancer treatment, Imetelstat, was nevertheless publicly reconfirmed at the American Society of Haematology (ASH) international conference some two months later in December, since when the value of Geron has recovered significantly. Geron is continuing its plans to initiate Phase 3 clinical trials on its own by mid 2019, having recently added a number of highly regarded and experienced clinical trial executives to its team (including the executive at Johnson and Johnson who had led the collaboration). This should allow the stock price to consolidate its recovery and hopefully regain the price levels seen in mid 2018, particularly since Geron now once again owns 100 percent of the technology having received back Johnson and Johnson's 80 percent share. Since the year end, however, the value of Geron has recovered substantially and has made strong gains of 91 percent, accounting for the substantial improvement in the company's net asset value as at 26 April 2019 shown below.
More generally in 2018, equity markets in the USA and UK made little or no progress overall. In the USA, a substantial fall of 10 percent at the beginning of the year caused by market reaction to erratic policy making in international trade and foreign relations by the White House was gradually reversed over the following months as investors began to expect a moderation in the previously expected course of rising US dollar interest rates for the rest of the year. By mid-year the
market regained its opening year values, which had represented multi-year highs, but from October declined dramatically again by almost 20 percent to the end of the year as the continued war of words between the USA and China on trade policy and damaging trade sanctions between the two countries began to raise investor concerns about the impact on global growth levels going forward. In the UK, the equity market followed the pattern set by the US market to mid-year, then declined steadily to the year end, falling 12.5 percent in the second half. Market performance was completely dominated by the ongoing travails of Brexit and the concomitant movements in sterling. The ongoing lack of progress in negotiations and the inexorable approach of the exit date of end March 2019 heralding a hard and 'no deal' Brexit began to weigh on levels of corporate investment in the UK, unnerving investors. By contrast, however, as sterling weakened in response to these concerns, it provided some support to the market, as large corporates' foreign earnings streams became better valued. The downward trend over this period was therefore punctuated by periods of stabilisation, but the overall decline to the year end was maintained with no progress being made on finding a solution to the most significant political and economic event in the UK's history for generations.
We are pleased to recommend an increased final dividend of 6.0p per ordinary share, which together with the interim dividend makes a total payment for the year of 8.7p (2017: 8.6p) per ordinary share. This represents an increase of 1.2 percent over the previous year's total dividend and a yield of 18.3 percent based on the share price of 47.5p at the end of the year. The final dividend will be payable on 27 June 2019 to shareholders on the register at 24 May 2019. A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share.
We are pleased to have been named as a 'Dividend Hero' by the Association of Investment Companies once again for the third year running as one of the 20 investment trusts which have maintained a consistent 20 year record of increasing dividends.
We have been able to maintain our progressive dividend policy over these years and particularly in recent years through an active programme of targeted investment at opportune times in higher yielding but mainstream investments together with the realisation of capital profits through our group subsidiary companies. When such profits are realised in these companies they can be paid out to our shareholders in dividends, as was the case this past year for example, when we were able to realise profits on part of our holdings in Geron Corporation when its stock price rose substantially over the first three quarters of 2018. However, following the severe decline in Geron's stock price in the last quarter of 2018, the continued availability of profits from this source will be constrained unless the stock price returns to the levels seen in the earlier part of 2018. Without this, it is unlikely that we will be able to maintain our progressive dividend policy going forward.
The multiple economic and political uncertainties which currently present themselves would normally presage deep concerns for investors generally. However, although markets have now been showing considerably higher levels of volatility than in recent years, as already noted, they remain at around historically high levels and do not for the time being appear to show an appetite for a sustained retrenchment into bear market territory. This is likely to be the result of the continued overhang of the unprecedented monetary easing programmes of prior years and more recently some early and possibly politically-motivated policy modulations by the Federal Reserve and other central banks to address the slowdown in global growth which was beginning to be seen in 2018. Time will tell whether such monetary interventions or the forces of politics in fiscal and trade policy will have a greater effect on sustaining current and future levels of economic growth in the world. For the time being, however, and despite the headwinds of trade wars and Brexit, markets appear to have found a level with which they seem to be relatively comfortable.
Against this background, we remain invested in our US biotechnology stocks waiting to capture the gains expected as their programmes advance and reach maturity but we do not expect to add to our other long term investments at this point.
As at 26 April 2019, our net assets had increased to £11.8 million, an increase of 49.3 percent since the beginning of the calendar year due principally to the 91.0 percent increase in the share price of Geron Corporation over this period. This is equivalent to 7.3 pence per share (prior charges deducted at par) and 33.8 pence per share on a diluted basis. Over the same period the FTSE 100 increased 10.4 percent and the All Share Index increased 10.8 percent.
David Seligman
30 April 2019
In 2018, our portfolio value was substantially affected by large positive and negative movements in the stock price of our largest investment, Geron Corporation. At the half year, we were able to report an increase in our NAV of 12.8 percent, outperforming the market by over 20 percent on a total return basis. This was largely due to the 91 percent increase in Geron's stock price over that period. Geron's price then continued to increase to the end of September by a further 80 percent. However, on 27th September Geron's price dropped substantially for the reasons detailed below and the value of our portfolio dropped by over 60 percent in the final quarter, resulting in significant end of year underperformance, as already noted above. This drop in the fourth quarter was exacerbated by a sharp fall in US and UK equity markets generally over the same period of 20 percent and 14 percent, respectively, and particularly in December when the US market experienced its largest one month fall for over ten years. Our other substantial US investments were therefore also affected by this last quarter movement in stock prices, contributing further to the decline in our portfolio valuation.
In the second half of 2018, it seemed as though the ten year bull market in US equities might reassert itself after a more volatile first half which had included at least two instances of technical correction. Despite the political headwinds emanating from the USA already noted above, economic strength and corporate profitability in the USA was persisting, buoyed along by the tax cuts of the previous year. For this reason, the Federal Reserve had mapped out a course of gradually increasing interest rates for 2018 which was generally being well digested by the market. However, as the year developed and progress in resolving the US/China trade dispute remained stalled, real economic consequences began to be shown through lower levels of growth in China, an increased trade deficit in the USA and signs of lower levels of corporate investment. This sapped investor confidence in the fourth quarter resulting in the large market sell-off in the final three months.
At the same time in the UK, no signs of a conclusion to the Brexit process was evident despite the looming approach of the 29th March 2019 exit deadline. Corporates were forced therefore to take contingency measures involving changes to their HQ or operational locations and emergency stock ordering programmes to guard against the disruption to their operations presented by a potential disorderly Brexit. The Government's own contingency preparations also attracted sustained criticism for inadequacies for example arrangements by the NHS to ensure adequate supplies of essential medicines or the availability of additional cross-Channel ferry freight operations. As the atmosphere of uncertainty increased during 2018, it transferred to the investment process generally in the UK, with corporates restraining their investment plans until a higher level of visibility was evident, the residential property market growing at its slowest rate for 6 years, in fact recording negative real annual growth for the first time since 2012, and financial investors showing little appetite for equities. The pound sterling was also under pressure at times when the path of the Brexit negotiations and the associated political dynamic indicated that the chances of a disorderly Brexit were becoming more likely. In the last few weeks, the previous March deadline has been extended by up to a further seven months, and the immediate pressure on corporates and politicians alike has been relieved with the likelihood of a disorderly Brexit now reduced. However, until a majority is able to be found in Parliament on a way forward, the basic questions surrounding the UK's relationship with its main trading partner will remain, prolonging the uncertainties for business and exposing the currently fractured and dysfunctional parliamentary setup.
While these significant political and macro-economic uncertainties persist, our main focus remains on achieving our capital growth objectives through our exposure to our US biotechnology investments and our income objectives through our existing UK fund investments, capturing of special dividends and income received from group subsidiaries.
As reported in detail in this year's interim report, Geron's stock price increased substantially during the first part of 2018 to its highest level for over 10 years, resulting in a fourfold increase in its market capitalisation from \$320 million to over \$1.2 billion. This was a function of favourable clinical trial results news and a strong expectation in the market that Johnson
and Johnson would confirm by the fourth quarter the continuation of their four year collaboration with Geron to take their jointly owned oncology drug, Imetelstat, through the final clinical trial stage and on to approval and marketing. This decision point was to be the catalyst for the payment of future milestones of almost \$1 billion to Geron plus substantial future royalty payments based on the drug's revenues.
Numerous indications of a positive continuation decision in the months leading up to the decision were evident from a number of sources. These included the acceleration by Johnson and Johnson earlier in the year of the decision date, positive interim clinical trial results published in early 2018, inclusion of Imetelstat as Johnson and Johnson's leading oncology drug candidate for approval in 2020 in their corporate review in August 2018, inclusion of Imetelstat on Johnson and Johnson's list of compassionate use drugs, and numerous job postings by Johnson and Johnson worldwide for executives to work on pricing/marketing strategy for its Myelodysplastic Syndrome (MDS) product pipeline (Imetelstat being its only such candidate drug).
The wholly unexpected decision by Johnson and Johnson on 27th September not to continue the collaboration for general portfolio reasons and with no explanation of substance being given at the time not surprisingly resulted in a large-scale sell off of the stock and a precipitous fall in the stock price. Without any confirmation, either from Johnson and Johnson or Geron, of the continued reliability of Imetelstat's previously published results and its continued viability, market confidence in Imetelstat was badly shaken.
Geron's management had felt unable to provide even minimal confirmation of this at the time as the company was subject to an information embargo related to a number of important presentations due to be given at the prestigious American Society of Haematology (ASH) conference some weeks later in early December. They were, however, able to announce that Geron intended to take the MDS trials forward themselves into the already planned Phase 3 phase by mid-2019.
At the ASH conference, the reports by the leading clinical trial investigators on Imetelstat's efficacy in treating patients with MDS and MF were even better than expected, showing never before seen improvements in blood transfusion independence and overall survival in these two diseases. The results showed that Imetelstat outperformed the current standard of care in the selected patient populations who rely on the drugs Jakafi in MF and Revlimid in MDS, which represent multi-billion dollar markets for their owners. Imetelstat was also shown to outperform another new drug in MDS, Luspatercept, for which Celgene is currently completing Phase 3 trials. In early 2019, Celgene which also owns Revlimid received a takeover bid from Bristol-Myers Squibb valued at \$75 billion, indicating the value levels placed on drugs which can stabilise if not cure MDS, an ultimately fatal haematological cancer with a 3 to 5 year life expectancy on currently available drugs.
Geron's stock price remained weak through to the beginning of December awaiting clarity from the ASH presentations, with the stock trading only just above Geron's cash value of \$185 million, thus effectively valuing the Imetelstat platform at close to zero. However, despite the excellent trial results announced at ASH, the value of Geron did not improve materially into the New Year and in fact reached a low around the Christmas week, accounting for the weakness in our portfolio value at the year end. The shock of Johnson and Johnson's unexpected decision and mistrust of management's ability to take the drug forward into the planned Phase 3 trials alone was sufficient to damage confidence in the stock despite it having the funding to do so.
However, in February, Geron began to announce a series of important initiatives to underpin its plans to take Imetelstat forward into the Phase 3 trials this summer. It included the hiring of a number of highly experienced clinical trial executives, including the executive who until last September had led Imetelstat's clinical trials at Johnson and Johnson which had produced such impressive results at ASH in December. A world leading Contract Research Organisation (CRO) was also engaged to manage the regulatory and administrative aspects of the trial.
These moves gave the market some confidence in Geron's ability to deliver on Imetelstat's clear potential by taking the drug through the final trial on to eventual approval and commercialisation. As a result, Geron's stock price has recovered by over 90 percent since the beginning of the year.
Over the past year, our investment in Geron has proved to be even more volatile than usual, in both positive and negative senses. We nevertheless remain committed to this investment in which we continue to expect major upside potential in the near future. Geron now owns 100 percent of Imetelstat again with the 80 percent share previously transferred to Johnson and Johnson being returned to it as a result of the ending of the partnership last year. This being the case, there would seem to be no reason why on valuation grounds the stock price of Geron should not return to at least those levels seen last year when the market was looking forward to positive final Phase 2 trial results, which have since been more than confirmed, and the anticipation of progress into Phase 3 and eventual approval and commercialisation. We also believe that given the circumstances of last year's discontinuation of the collaboration with Johnson and Johnson, the excellent Phase 2 trial results announced since then and the imminent commencement of Phase 3 trials, Geron should present an attractive and valuable target to other major pharmaceutical companies looking to consolidate or establish a position in the treatment of haematologic malignancies by acquiring or partnering with Geron's drug, Imetelstat, which is demonstrating results superior to other drugs currently or expected on the market.
Jonathan Woolf
30 April 2019
For the year ended 31 December 2018
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue return |
Capital return |
Total | Revenue return |
Capital return |
Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Profit/(loss) before tax – realised | 2,489 | (2,991) | (502) | 2,210 | (1,694) | 516 |
| Loss before tax – unrealised | – | (4,644) | (4,644) | – | (5,249) | (5,249) |
| Profit/(loss) before tax – total | 2,489 | (7,635) | (5,146) | 2,210 | (6,943) | (4,733) |
| Earnings per £1 ordinary share – basic |
8.68p | (30.54)p | (21.86)p | 7.58p | (27.77)p | (20.19)p |
| Earnings per £1 ordinary share – diluted |
7.21p | (21.81)p | (14.60)p | 6.41p | (19.84)p | (13.43)p |
| Net assets | 7,919 | 15,534 | ||||
| Net assets per ordinary share | ||||||
| – deducting preference |
||||||
| shares at par | 0p | 22p | ||||
| – diluted |
23p | 44p | ||||
| Diluted net asset value per | ||||||
| ordinary share at 26 April 2019 | 34p | |||||
| Dividends declared or proposed for the period | ||||||
| per ordinary share – interim paid | 2.7p | 2.7p | ||||
| – final proposed | 6.0p | 5.9p | ||||
| per preference share | 3.5p | 3.5p |
Basic net assets and earnings per share are calculated using a value of par for the preference shares. Consequently, when the net asset value attributed to ordinary shares remains below par the diluted net asset value will show a higher value than the basic net asset value.
| At valuation | |||
|---|---|---|---|
| 26 April | 31 December | 31 December | |
| 2019 | 2018 | 2017 | |
| £000 | £000 | £000 | |
| Investment Trusts (equities) | 5,047 | 4,605 | 6,293 |
| Biomedical – USA | 3,630 | 2,069 | 3,503 |
| Biotechnology | 2,549 | 1,295 | 2,500 |
| Pharmaceuticals and healthcare | 71 | 538 | 1,835 |
| Transport | 86 | 93 | 125 |
| Support services | 4 | 39 | 52 |
| Software and computer services | 25 | 33 | 67 |
| Other Financial | 31 | 31 | 40 |
| Media | 23 | 10 | 28 |
| Overseas | 1 | 1 | 1 |
| Unit trusts | – | – | 1,048 |
| Financial services | – | – | 17 |
| Life Assurance | 832 | – | – |
| Travel & Leisure | 321 | – | – |
| Total quoted equities | 12,620 | 8,714 | 15,509 |
| Unquoted - Biotechnology | 1 | – | 5 |
| Unquoted promissory note - Biotechnology | 8 | 8 | 51 |
| Unquoted subsidiaries* | 6,146 | 5,269 | 5,277 |
| 18,775 | 13,991 | 20,842 | |
| Balances at banks and stockbrokers | (742) | 244 | 2,307 |
| 18,033 | 14,235 | 23,149 |
This represents gross assets and therefore excludes bank loans and the guarantee of subsidiary obligations by the parent.
*The majority of the assets of the subsidiaries comprise loans due from the parent company or fellow subsidiaries (£3.4 million, 2017 – £3.8 million) with the balance split approximately between 8% UK quoted investments, 12% overseas quoted investments excluding overseas options treated as creditors, 3% UK commercial property unit trusts and 13% fair value of film rights.
At 31 December 2018
| Valuation | % of | ||
|---|---|---|---|
| Company | Nature of business | £000 | Portfolio |
| Dunedin Income Growth | Investment Trust | 2,350 | 16.80 |
| Geron Corporation (USA) | Biomedical | 2,069 | 14.79 |
| Biotime Inc (USA) | Biotechnology | 975 | 6.97 |
| Merchants Trust | Investment Trust | 918 | 6.56 |
| Aberdeen Diversified Income & Growth Trust | Investment Trust | 801 | 5.73 |
| Asterias Biotherapeutics (USA) | Pharmaceuticals | 535 | 3.82 |
| Invesco Income Growth Trust | Investment Trust | 491 | 3.51 |
| AgeX (USA) | Biotechnology | 284 | 2.03 |
| Braemar Shipping Services | Transport | 93 | 0.68 |
| Electra Private Equity | Investment Trust | 40 | 0.29 |
| Angle | Support services | 36 | 0.26 |
| OncoCyte (USA) | Biotechnology | 33 | 0.23 |
| ADVFN | Other Financial | 31 | 0.22 |
| B.S.D. Crown | Software and computer services | 28 | 0.20 |
| Audioboom Group | Media | 10 | 0.07 |
| Biotime Promissory Note | Biotechnology | 8 | 0.05 |
| Earthport | Software and computer services | 5 | 0.04 |
| Sherborne | Investment Trust | 5 | 0.04 |
| Proteome Sciences | Pharmaceuticals | 3 | 0.02 |
| GenMark Diagnostics | Support services | 3 | 0.02 |
| 20 Largest investments (excluding subsidiaries) | 8,718 | 62.33 | |
| Investment in subsidiaries | 5,269 | 37.64 | |
| Other investments (number of holdings : 3) | 4 | 0.03 | |
| Total investments | 13,991 | 100.00 | |
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 2018, nil% 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.
| At 31 December | Equity | Net asset value | ||
|---|---|---|---|---|
| shareholders' | per share | Share price | Premium | |
| funds | (diluted) | pence | (diluted) | |
| £000 | pence | % | ||
| 2014 | 27,126 | 77.5 | 83.0 | 7.1 |
| 2015 | 30,211 | 86.3 | 95.0 | 10.1 |
| 2016 | 22,682 | 64.8 | 95.0 | 46.6 |
| 2017 | 15,534 | 44.4 | 70.0 | 57.7 |
| 2018 | 7,919 | 22.6 | 47.5 | 110.2 |
| Year to | Total | Profit | Earnings | Ongoing | Dividend |
|---|---|---|---|---|---|
| 31 December | income | after tax | per ordinary | charges | per ordinary |
| share (diluted) | share (net) | ||||
| £000 | £000 | pence | % | pence | |
| 2014 | 2,871 | 2,470 | 7.06 | 2.15 | 8.00 |
| 2015 | 3,206 | 2,729 | 7.80 | 2.26 | 8.20 |
| 2016 | 2,263 | 1,507 | 4.31 | 3.26 | 8.40 |
| 2017 | 2,732 | 2,245 | 6.41 | 4.18 | 8.60 |
| 2018 | 3,056 | 2,520 | 7.21 | 5.92 | 8.70 |
Earnings per ordinary share (diluted) is based on the revenue column of the 'Profit/(loss) for the period' in the Income statement and on 35,000,000 ordinary and convertible preference shares in issue.
Ongoing charges is based on the ratio of Total expenses to average shareholders' funds. The increase in 2018 is due to the decrease in shareholders' funds at the end of the year as the absolute level of Total expenses has decreased.
| 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 |
| 2013 | 100 | 100 | 100 | 100 | 100 |
| 2014 | 100 | 104 | 85 | 104 | 101 |
| 2015 | 122 | 111 | 106 | 109 | 102 |
| 2016 | 103 | 122 | 116 | 117 | 119 |
| 2017 | 80 | 138 | 94 | 131 | 135 |
| 2018 | 49 | 122 | 72 | 120 | 122 |
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 |
All subsidiaries are incorporated in the United Kingdom and have their registered office as that of British & American Investment Trust PLC, which can be found on page 1 of the report.
The company is an investment company under section 833 of the Companies Act 2006.
The company has obtained approval as an investment trust from HM Revenue & Customs for all accounting periods commencing on or after 1 January 2012 and has continued to conduct its affairs in compliance with the ongoing requirements of section 1158 of the Corporation Tax Act 2010.
The future prospects of the company are explained in the Chairman's Statement on pages 3 to 5 and in the Managing Director's Report on pages 6 to 8.
The company's stated investment policy, as approved at the Annual General Meeting held on 27 June 2017, is to invest 'predominantly in investment trusts and other leading UK and US-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 normally utilise gearing in its portfolio but will from time to time be temporarily modestly geared to facilitate re-alignment of the investment portfolio. The company does on occasion make use of derivative instruments to hedge exposures to particular investments or markets. The company 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.
To invest predominantly in investment trusts and other leading UK and US-quoted companies to achieve a balance of income and growth.
The majority of the UK equity element of the portfolio will be invested in listed investment trusts, unit trusts and other collective investment schemes, the balance being invested in other UK listed companies and unquoted investments, the latter subject to a maximum of 5% of the portfolio.
The majority of the US equity element of the portfolio will be invested in listed stocks in the biotechnology, biopharma and pharmaceutical sectors, the balance being invested in listed companies in other sectors.
Fixed interest holdings may be held for yield enhancement purposes and may account for up to 50 percent of the total portfolio if market conditions are considered appropriate.
Risk is managed through diversification of holdings, investment limits set by the board and appropriate financial or other controls relating to the administration of assets.
The company maintains a diversified portfolio of investments, typically comprising around 30 holdings, but without restricting the company from holding a more or less concentrated portfolio from time to time as circumstances require.
The maximum exposure at time of investment to any one entity is 15% of total assets.
Derivative instruments are used in certain circumstances, and with the prior approval of the board, for hedging purposes. Gearing
As a general rule, it is the board's intention that the portfolio should be reasonably fully invested. An investment level of 90% of shareholder funds (net of short term cash held for dividend payments) is regarded as a guideline minimum level, although lower levels of investment may be considered appropriate for a period of time in the event of unusual market conditions.
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 to invest predominantly in investment trusts and other leading UK and US-quoted companies.
Investments are self-managed. The portfolio currently consists of a diversified list of around 14 UK quoted companies, investment in subsidiaries (37.7% of the portfolio), 8 overseas quoted companies,one overseas unquoted holding and one UK unquoted holding.
Historically, investments in other investment trusts have accounted for approximately 50 (currently 32) percent of the total portfolio with the balance being invested in a selection of leading quoted companies and other investments to provide opportunities for capital growth and income generation. Currently, these individual exposures are in the US biomedical (14.5%), biotechnology (9.1%), and pharmaceuticals (3.8%). The other investments have often been concentrated in a small number of companies, typically in the finance, software and computer services, media, transport, support services and have individually represented as much as 2 to 10 percent of the portfolio. Smaller size investments are made in other UK listed companies (currently 8, accounting for 1.5% of the portfolio).
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 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.
The company currently does not hedge against currency fluctuations.
At 31 December 2018 the company's current liabilities included a bank loan of £2,790,000 and trade and other payables of £547,000. At 31 December 2018 the company's gearing was 32.15% (2017 – 13.07%).
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 nil% of company gross assets.
Portfolio performance in capital and income is measured and reported against the benchmark FTSE All Share Index 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 9, 10 and 13.
The board also considers peer group comparative performance.
The review of the business is included in the Chairman's Statement on pages 3 to 5 and Managing Director's Report on pages 6 to 8. Information on movements in the NAV and on investments since the year end is included on pages 9 and 11 respectively.
The discount or premium, 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, gearing risk and credit risk. An explanation of these risks and how they are managed is contained in note 19 to the accounts on pages 50 to 54. The other principal risks to the company are loss of investment trust status 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 twice a year.
The board has carried out a robust assessment of the risks, which include those that would threaten its business model, future performance, solvency and liquidity, and mitigating actions it has taken.
The financial highlights for the year under review are as follows: the net asset value per share assuming conversion of the preference shares decreased by 49.0% on a diluted basis during the year, compared to an decrease in the benchmark (FTSE All Share) of 12.5%, ordinary share dividends increased by 1.2% to 8.7p per share and the premium of the share price over the net asset value per share assuming conversion of the preference shares moved from 57.7% to 110.2% at the year end.
Progress on the negotiations of the UK's withdrawal from the EU under the Article 50 of the Treaty on European Union is being closely monitored and considered by the board as it may have practical consequences for the company.
The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge in order to allow the Board to fulfil its obligations. At 31 December 2018, the Board consisted of four men. The Board's statement on diversity is set out in the Statement of Corporate Governance on page 59.
In accordance with provision C2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the directors have assessed the viability of the company over a period of three years, taking account of the company's current position and the potential impact of the principal risks and uncertainties. The directors believe this period to be appropriate as it reflects the longer term investment strategy of the company in terms of both investment prospect and income growth.
In considering the viability of the company, the directors have conducted a thorough assessment of each of the principal risks and uncertainties and in particular the impact of market risk where a significant fall in global equities markets would adversely impact the value of the investment portfolio. The directors have also considered the company's income and expenses and dividend policy having undertaken a review of revenue projection and its liquidity in the context of the majority of its investments being listed equities which are readily realisable and so capable of being sold to provide funding if required. The company also considered how the forecast income stream and levels of reserves could impact on the company's ability to pay dividends to shareholders over that period in line with its dividend policy.
The directors currently support the continuation of the company and expect that the company will continue to exist for the foreseeable future, at least for the period of the assessment. Based on this assessment, the directors have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the next three year period.
The company, with the support of the Board, takes environmental, social and governance factors and human rights issues into consideration with regard to investment decisions made on behalf of the company.
Details of the company's policy on socially responsible investment can be found under Corporate governance and Stewardship on pages 60 and 61.
The company considers that it does not fall within the scope of the Modern SlaveryAct 2015 and it is not, therefore, obliged to make a slavery and human trafficking statement. The company considers its supply chains, dealing with professional advisers and service providers in the financial services industry, to be low risk.
The number of directors and employees during the year were 11 (2017 – 11).
| 2018 | 2017 | ||||
|---|---|---|---|---|---|
| Male | Female | Male | Female | ||
| Directors (non-executive) | 3 | 0 | 3 | 0 | |
| Directors (executive) | 1 | 0 | 1 | 0 | |
| Employees | 1 | 6 | 1 | 6 |
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.
Shareholders may receive requests for personal information to comply with new legal obligations introduced to reduce tax evasion by a new piece of legislation, The OECD Common Reporting Standard for Automatic Exchange of Financial Account Information ('The Common Reporting Standard'), which came into effect from 1 January 2016. The legislation requires investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. The company will in certain circumstances provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities. All new shareholders, excluding those whose shares are held in CREST, who came on to the share register with effect from 1 January 2018 have been sent a certification form for the purposes of collecting the information. While it is not compulsory that shareholders complete and return these requests we are required by law to make these requests and to report on the responses received.
Please note that only a small number of our shareholders fall into the category where we have to make these requests and only those shareholders will receive the request.
From April 2016 dividend tax credits were replaced by an annual £5,000 tax-free allowance across an individual's entire share portfolio. For dividends paid on or after 6 April 2018 the dividend tax-free allowance of £5,000 is reduced by £3,000 to £2,000. Above this amount, individuals will pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. Our registrars will continue to provide registered shareholders with a confirmation of the dividends paid by British & American Investment Trust PLC and this should be included with any other dividend income received when calculating and reporting total dividend income received. It is the shareholder's responsibility to include all dividend income when calculating tax requirements.
The company currently conducts its affairs so that the Ordinary shares can be recommended by Financial Advisers to ordinary retail investors in accordance with FCA's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future.
The directors have considered the Annual Report and Accounts and believe that taken as a whole it is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's position and performance, business model and strategy.
The Strategic report, which includes pages 3 to 18, was approved by the board and signed on its behalf by:
J C Woolf Director 30 April 2019
The directors present their annual report on the affairs of the company together with the financial statements and auditors' report for the year ended 31 December 2018.
Shareholders should note that, we are presenting single company accounts under IFRS (International Financial Reporting Standards). In accordance with IFRS 10, the group is not permitted to consolidate its subsidiaries and therefore instead of preparing group accounts it prepares a separate financial statement for the parent entity only.
IFRS 10 'Consolidated Financial Statements' became effective from 1 January 2014. Under the initial standard (and also the subsequent revisions) the company is classified as an investment entity and is therefore required to value any investment in a subsidiary at its fair value through profit or loss in accordance with IAS 39 'Financial Instruments: Recognition and Measurement' unless the subsidiary provides services that relate directly to the company's investment activities.
In December 2014 further amendments were made to IFRS 10 such that if a subsidiary is itself an investment entity then it must not be consolidated. We reviewed all the activities of our subsidiaries and their classification as investment entities and concluded that all of the company's subsidiaries should be valued at fair value through profit or loss, and not be consolidated.
The financial statements on pages 30 to 54 therefore comprise the results of the company only.
A review of the company's activities is given in the Strategic Report on pages 3 to 18. This includes the overall strategy of the business of the company and its principal activities, main risks and uncertainties and future prospects.
The financial statements will be presented for approval at the seventy first Annual General Meeting of the company to be held on Wednesday 26 June 2019.
The directors set out below the results and dividends of the company for the year ended 31 December 2018.
| Revenue | Capital | Total | |
|---|---|---|---|
| £000 | £000 | £000 | |
| (Loss)/profit before tax | 2,489 | (7,635) | (5,146) |
| Tax | 31 | – | 31 |
| (Loss)/profit after tax | 2,520 | (7,635) | (5,115) |
| Dividends | Pence per share | £000 | |
| Interim per £1 ordinary share (paid 29 November 2018) | 2.7 | 675 | |
| 3.5% preference share paid (paid 29 November 2018) | 1.75 | 175 | |
| Final per £1 ordinary share (proposed) | 6.0 | 1,500 | |
| 3.5% preference share (payable 27 June 2019) | 1.75 | 175 | |
| 2,525 |
The dividends proposed above will be paid on 27 June 2019 to ordinary shareholders on the register at 24 May 2019 and to 3.5% preference shareholders on the register at 31 December 2018.
The present directors of the company are as set out on page 1. Mr JAV Townsend retired as Chairman of the Board and as a director of the company on 31 December 2017. Mr DG Seligman was appointed as a non-executive director with effect from 26 September 2017 and as Chairman of the Board on 1 January 2018. Mr RG Paterson retired as a director of the company on 30 June 2018. Mr A Tamlyn was appointed as a non-executive director with effect from 1 July 2018. Having served as a director since 1996 Mr DG Dreyfus, being eligible, retires and offers himself for re-election. Mr A Tamlyn is subject to re-election by shareholders at the first AGM following his appointment. The Board recommends their re-election. At the time of the Annual General Meeting Mr DG Dreyfus will have completed more than 23 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 remains independent. It is confirmed that, following formal evaluation, the performance of the director continues to be effective and continues to demonstrate commitment to the role.
The directors during the year ended 31 December 2018 had interests in the shares of the company as follows:
| 2018 | 2017 | |||
|---|---|---|---|---|
| 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 | – |
| DG Seligman (appointed as Chairman 1 January 2018) | – | – | – | – |
| A Tamlyn (appointed as Director 1 July 2018) | – | – | – | – |
| RG Paterson (retired 30 June 2018) | 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%) (2017 – 6,902,812 (27.6%)) ordinary shares held by Romulus Films Ltd, 7,868,750 (31.5%) (2017 – 7,868,750 (31.5%)) ordinary shares held by Remus Films Ltd and 1,000,000 (4.0%) (2017 – 1,000,000 (4.0%)) ordinary shares held by PKL Pictures Limited. Romulus Films Ltd also holds 10,000,000 cumulative convertible preference shares (2017 – 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 30 April 2019 the directors had been notified of the following interests of 3% or more of either class (these interests relate to the ordinary shares of the company):
| Number of | % | Number of | % | |
|---|---|---|---|---|
| shares held | shares held | |||
| 30 April 2019 | 31 December 2018 | |||
| Jupiter Monthly Alternative Income Fund Unit Trust | 1,330,000 | 5.3 | 1,665,000 | 6.7 |
| Lady Lever of Manchester | 1,186,562 | 4.7 | 1,186,562 | 4.7 |
The company's capital comprises £35,000,000 (2017 – £35,000,000) being 25,000,000 ordinary shares of £1 (2017 – 25,000,000) and 10,000,000 non-voting convertible preference shares of £1 each (2017 – 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 67.
At any time, during the period from 1 January 2006 to 31 December 2025 (both dates inclusive), and, if published audited annual accounts showing company 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.
Directors' & officers' liability insurance cover was maintained by the board during the year ended 31 December 2018. It is intended that this policy will continue for the year ended 31 December 2019 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 Directors' remuneration report is set out on pages 62 to 66. An ordinary resolution to approve the report will be put to shareholders at the company's next Annual General Meeting.
The Corporate Governance Statement on pages 55 to 61 (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 UK Corporate Governance Code.
As an investment company the company has no greenhouse gas emissions to report from its operations for the year ended 31 December 2018 (2017 – same) nor does it have responsibility for any other emissions producing sources. The company does not purchase electricity, heat, steam or cooling for its own use. It is located in serviced offices and it would not be practical for the company to obtain this information.
The BriberyAct came into force on 1 July 2011. The company has a zero tolerance policy towards bribery and is committed to carrying out business fairly, honestly and openly.
So far as the directors are aware, there is no relevant audit information (as defined by section 418(3) 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 loss of the company taken as a whole and that the Strategic Report includes a fair review of the information required by rules 4.1.8R to 4.1.11R of the FCA's Disclosure and Transparency Rules.
A resolution to reappoint Hazlewoods LLP as auditors of the company will be proposed at the forthcoming Annual General Meeting.
Jonathan Woolf Managing Director Wessex House
1 Chesham Street London SW1X 8ND 30 April 2019
The directors are responsible for preparing the Strategic Report, the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare a company's financial statements for each financial year. Under that law the directors have chosen to prepare the 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 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 and the Directors' Remuneration Report comply with the Companies Act 2006.
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.
Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report and a Strategic Report that complies with the law and those regulations.
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 company financial statements of British & American Investment Trust PLC (the 'company') for the year ended 31 December 2018, which comprise the statement of financial position, statement of cash flows, statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
• give a true and fair view of the state of the company's affairs as at 31 December 2018 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:
• the disclosures in the annual report that describe the principal risks and explain how they are being managed or mitigated;
• the directors' confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity;
• the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors' identification of any material uncertainties to the company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• whether the directors' statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R (3) is materially inconsistent with our knowledge obtained in the audit; or
• the directors' explanation in the annual report as to how they have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of the assessment, including any related disclosure drawing attention to any necessary qualifications or assumptions.
Our audit approach was based on a thorough understanding of the company's business and is risk-based. The day-to-day management of the company's investment portfolio and the maintenance of the company's accounting records is managed internally, with the custody of its investments outsourced to third-party service providers. Accordingly, our audit work is focused on obtaining an understanding of, and evaluating, internal controls at the company and inspecting records and
documents held by the third-party service providers. We undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment, the effectiveness of controls over individual systems and the management of specific risks.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matters identified as valuation, ownership and existence of investments; valuation of unquoted investments; completeness accuracy of related party transactions disclosure; and investment trust status. Revenue recognition and management override of controls are always deemed risks in any audit. This is not a complete list of all risks identified by our audit.
The company's business is investing predominantly in investments trusts and other leading quoted and unquoted companies to achieve a balance of income and growth. Accordingly, the investment portfolio is a significant, material balance in the financial statements. We therefore identified the valuation, ownership and existence of the investment portfolio as a risk that requires particular audit attention.
Investments in subsidiary companies are held at the fair value of the underlying assets and liabilities. One of the subsidiaries has a long-held investment in film rights for certain classic films. The valuation of the underlying film rights involves significant accounting estimates and the fairvalue is a significant, material balance in determining the fair value of the investment in that company. We therefore
Our audit work included, but was not restricted to:
The company's accounting policy on valuation of investments is shown in note 1(c) to the financial statements and related disclosures are included in note 9. The Audit Committee identified the valuation and ownerships of investments as a significant issue in its report on page 57, where the Committee also described the action that it has taken to address this risk.
Our audit work included, but was not restricted to:
identified the valuation of investment in subsidiaries, including the film rights, as a risk that requires particular audit attention.
As disclosed in Note 17 on pages 48 and 49 in the financial statements, the company enters into various related party transactions to achieve its business objectives. There is a risk that the company might fail to identify and/or disclose related party transactions and balances in the financial statements. We therefore identified the completeness and accuracy of related party transaction disclosure as a significant risk that requires special audit attention.
In order to remain tax exempt the criteria of an investment trust must be met. This includes a 15% limit on retention of revenue income after dividends and revenue expenses and a minimum of 35% of its shares must be publically traded on a recognised stock exchange.
Under ISA 240 there is a presumption that the risk of management override of controls is always present.
reviewing and challenging the basis and reasonableness of the key assumptions, estimates and judgements made by management.
The company's accounting policy on valuation of investments in subsidiaries is shown in note 1(c) to the financial statements and related disclosures are included in note 9. The Audit Committee identified the valuation and ownership of investments as a significant issue in its report on page 57, where the Committee also described the action that it has taken to address this matter.
Our audit work included, but was not restricted to:
The company's disclosures of related party transactions is included in Note 17 to the financial statements.
Our audit work included, but was not restricted to:
The company's consideration of dividends for the purposes of investment trust status are set out in Note 8, page 42.
Our audit work included, but was not restricted to:
The company's accounting policies in respect of material estimates and judgements are set out in note 1(a).
Under ISA 240 there is always a presumed risk that revenue may be misstated due to the improper recognition of revenue. In particular we identified completeness and occurrence of investment income as a risk that requires particular audit attention.
Our audit work included, but was not restricted to:
For income from unquoted investments our audit work included, but was not restricted to:
• Checking the investment income that the company was entitled to during the year directly with the underlying investment entities.
The accounting policy on income, including its recognition, in shown in note 1(d) to the financial statements and the components of that income are included in note 2.
We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified misstatements and in forming our opinion. For the purpose of determining whether the financial statements are free from material misstatement, we define materiality as the magnitude of a misstatement or an omission from the financial statements or related disclosures that would make it probable that the judgement of a reasonable person, relying on the information, would have been changed or influenced by the misstatement or omission. We also determine a level of performance materiality, which we use to determine the extent of testing needed, to reduce to an appropriately low-level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
We established materiality for the financial statements as a whole to be £177,000, which is 1.0% of the value of the company's total assets. For income and expenditure items we determined that misstatements of lesser amounts than materiality for the financial statements as a whole would make it probable that the judgement of a reasonable person, relying on the information would have been changed or influenced by the misstatement or omission. Accordingly, we established materiality for revenue items within the income statement to be £217,000, which is 10% of the company's net return on ordinary activities before taxation, excluding gains on investments at fair value.
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or
• Directors' statement of compliance with the UK Corporate Governance Code – the parts of the directors' statement required under the Listing Rules relating to the company's compliance with the UK Corporate Governance Code containing provisions specified for review by the auditors in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.
In our opinion, based on the work undertaken in the course of the audit:
• the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
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:
• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
Under the Listing Rules we are required to review:
• the parts of the statement on corporate governance relating to the company's compliance with the provisions of the UK Corporate Governance Code specified for review; and
• certain elements of the report to shareholders by the Board on directors' remuneration.
As explained more fully in the directors' responsibilities statement set out on page 23, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditscopeukprivate.This description forms part of our auditor's report.
We were appointed by the Audit Committee on 27 June 2017. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 2 years.
The non-audit services prohibited by the FRC's Ethical Standard were not provided to the company and we remain independent of the company in conducting our audit.
Other than those disclosed in the corporate governance report, we have provided no non-audit services to the Company in the period from 1 January 2018 to 31 December 2018.
Our audit opinion is consistent with the additional report to the audit committee.
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 auditors' 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.
Scott Lawrence Senior Statutory Auditor For and on behalf of Hazlewoods LLP Statutory Auditor Cheltenham 30 April 2019
| 2018 | 2017 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue return |
Capital return |
Total | Revenue return |
Capital return |
Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | ||
| Investment income | 2 | 3,056 | – | 3,056 | 2,732 | – | 2,732 |
| Holding losses on investments | |||||||
| at fair value through profit or loss | 9 | – | (4,644) | (4,644) | – | (5,249) | (5,249) |
| Losses on disposal of investments | |||||||
| at fair value through profit or loss* | 9 | – | (2,647) | (2,647) | – | (1,442) | (1,442) |
| Foreign exchange (losses)/gains | (61) | (62) | (123) | 53 | 53 | 106 | |
| Expenses | 3 | (457) | (237) | (694) | (526) | (272) | (798) |
| Profit/(loss) before finance costs and tax | 2,538 | (7,590) | (5,052) | 2,259 | (6,910) | (4,651) | |
| Finance costs | (49) | (45) | (94) | (49) | (33) | (82) | |
| Profit/(loss) before tax | 2,489 | (7,635) | (5,146) | 2,210 | (6,943) | (4,733) | |
| Tax | 6 | 31 | – | 31 | 35 | – | 35 |
| Profit/(loss) for the year | 2,520 | (7,635) | (5,115) | 2,245 | (6,943) | (4,698) | |
| Earnings per share | |||||||
| Basic - ordinary shares | 7 | 8.68p | (30.54)p | (21.86)p | 7.58p | (27.77)p | (20.19)p |
| Diluted - ordinary shares | 7 | 7.20p | (21.81)p | (14.61)p | 6.41p | (19.84)p | (13.43)p |
The company does not have any income or expense that is not included in the profit/(loss) for the year. Accordingly, the 'Profit/(loss) for the year' is also the 'Total Comprehensive Income for the year' as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the company'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 company.
The notes on pages 34 to 54 form part of these financial statements.
*Losses on disposal of investments at fair value through profit or loss include Losses on sales of £917,000 (2017 – £1,208,000 losses) (note 9) and Losses on provision for liabilities and charges of £1,730,000 (2017 – £234,000 losses) (note 13).
For the year ended 31 December 2018
| Notes | Share capital £000 |
Capital reserve £000 |
Retained earnings £000 |
Total £000 |
|
|---|---|---|---|---|---|
| Balance at 31 December 2016 | 35,000 | (14,224) | 1,906 | 22,682 | |
| Changes in equity for 2017 | |||||
| Profit/(loss) for the period | – | (6,943) | 2,245 | (4,698) | |
| Ordinary dividend paid | 8 | – | – | (2,100) | (2,100) |
| Preference dividend paid | 8 | – | – | (350) | (350) |
| Balance at 31 December 2017 | 35,000 | (21,167) | 1,701 | 15,534 | |
| Changes in equity for 2018 | |||||
| Profit/(loss) for the period | – | (7,635) | 2,520 | (5,115) | |
| Ordinary dividend paid | 8 | – | – | (2,150) | (2,150) |
| Preference dividend paid | 8 | – | – | (350) | (350) |
| Balance at 31 December 2018 | 35,000 | (28,802) | 1,721 | 7,919 |
Balance sheet
31 December 2018 Registered number: 00433137
| Notes | 2018 | 2017 | |
|---|---|---|---|
| £000 | £000 | ||
| Non - current assets | |||
| Investments - fair value through profit or loss | 9 | 8,722 | 15,565 |
| Subsidiaries - fair value through profit or loss | 9 | 5,269 | 5,277 |
| 13,991 | 20,842 | ||
| Current assets | |||
| Receivables | 11 | 3,417 | 2,399 |
| Cash and cash equivalents | 244 | 2,213 | |
| 3,661 | 4,612 | ||
| Total assets | 17,652 | 25,454 | |
| Current liabilities | |||
| Trade and other payables | 12 | 547 | 1,010 |
| Bank loan | 12 | 2,790 | 4,244 |
| (3,337) | (5,254) | ||
| Total assets less current liabilities | 14,315 | 20,200 | |
| Non - current liabilities | 13 | (6,396) | (4,666) |
| Net assets | 7,919 | 15,534 | |
| Equity attributable to equity holders | |||
| Ordinary share capital | 14 | 25,000 | 25,000 |
| Convertible preference share capital | 14 | 10,000 | 10,000 |
| Capital reserve | 15 | (28,802) | (21,167) |
| Retained revenue earnings | 15 | 1,721 | 1,701 |
| Total equity | 7,919 | 15,534 |
The notes on pages 34 to 54 form part of these financial statements.
The financial statements on pages 30 to 54 were approved by the board of directors on 30 April 2019.
Jonathan Woolf Managing Director
For the year ended 31 December 2018
| Notes | 2018 | 2017 | |
|---|---|---|---|
| £000 | £000 | ||
| Cash flow from operating activities | |||
| Loss before tax | (5,146) | (4,733) | |
| Adjustment for: | |||
| Losses on investments | 7,291 | 6,691 | |
| Scrip dividends | (290) | – | |
| Proceeds on disposal of investments at fair value | |||
| through profit or loss | 13,635 | 13,867 | |
| Purchases of investments at fair value through | |||
| profit or loss | (12,335) | (11,570) | |
| Interest paid | 94 | 82 | |
| Operating cash flows before movements | |||
| in working capital | 3,249 | 4,337 | |
| Increase in receivables | (712) | (780) | |
| (Decrease)/increase in payables | (773) | 4 | |
| Net cash from operating activities | |||
| before interest | 1,764 | 3,561 | |
| Interest paid | (90) | (75) | |
| Net cash flows from operating activities | 1,674 | 3,486 | |
| Cash flows from financing activities | |||
| Dividends paid on ordinary shares | 8 | (1,839) | (2,100) |
| Dividends paid on preference shares | 8 | (350) | (350) |
| Bank loan | (1,454) | 754 | |
| Net cash used in financing activities | (3,643) | (1,696) | |
| Net (decrease)/increase in cash | |||
| and cash equivalents | (1,969) | 1,790 | |
| Cash and cash equivalents at beginning of year | 2,213 | 423 | |
| Cash and cash equivalents at end of year | 244 | 2,213 |
Purchases and sales of investments are considered to be operating activities of the company, given its purpose, rather than investing activities.
31 December 2018
A summary of the principal accounting policies is set out below.
The company's 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.
Until 2014 the company published group accounts for British & American Investment Trust PLC Group which were prepared under IFRS. Following an amendment introduced in IFRS 10 in 2014, the group is no longer allowed to consolidate its subsidiaries and therefore instead of preparing group accounts it now prepares separate financial statements for the parent entity only.
The financial statements have been prepared on a going concern basis adopting the historical cost convention except for the measurement at fair value of investments, derivative financial instruments, and subsidiaries.
IFRS 10 Consolidated Financial Statements was introduced and became effective from 1 January 2014. Under IFRS 10, entities that meet the definition of an investment entity shall not consolidate their subsidiaries or apply IFRS 3 when they obtain control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with IAS 39. The criteria which define an investment entity are as follows:
(a) An entity that obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
(b) An entity that commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
(c) An entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.
The directors have concluded that the company qualifies as an investment entity under IFRS 10 meeting all the criteria defined above.
An amendment to IFRS 10 was published in December 2014 which clarifies that, if an investment entity has a subsidiary that provides investment-related services or activities, and it is not itself regarded as an investment entity, it shall consolidate that subsidiary. Having reviewed the activities of the subsidiaries, the directors have concluded that all the subsidiaries under the company are themselves investment entities and accordingly all the subsidiaries within the Group have been valued at fair value through profit or loss.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts revised by the Association of Investment Companies (AIC) in November 2014 and updated in February 2018 with consequential amendments 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 company's other 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 that are dealt with separately below. These accounting policies have been applied consistently to all periods presented in these company financial statements.
These financial statements are presented in pounds sterling being the currency of the primary economic environment within which the company operates. There are no foreign operations.
At the date of authorisation of these financial statements, the following Standards were effective for annual periods beginning on or after 1 January 2019:
IFRS 16 – Leases
IFRS 9 – Financial Instruments
IFRS 17 – Insurance Contracts
The company does not believe that there is a material impact on the financial statements from the adoption of these standards.
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.
As the company'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 company 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 company'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 official quoted market closing 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.
Profit or loss on disposals of investments are recognised as sales proceeds less the opening carrying value or later cost.
Revaluation gains or losses are recognised as being the closing carrying value less the opening carrying value or later costs.
Exchange traded stock options are, until disposal, included under current assets or current liabilities, and valued in accordance with the above fair value policy.
Gains or losses on disposals and revaluation of such options are included in profit or loss as a capital item.
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, determined by the directors, based upon latest dealing prices, net asset values and other information.
Investments of the company in subsidiary companies are held at the fair value of their underlying assets and liabilities.
This includes the valuation of film rights in British and American Films Limited and thus the fair value of its immediate parent BritAm Investments Limited. In determining the fair value of the film rights, estimates are made, including future film revenues, which are estimated by the management. Estimations made have taken into account historical results, current trends and other relevant factors.
Where a subsidiary has negative net assets it is included in investments at nil value and a provision is made for it on the balance sheet where the ultimate parent company has made a guarantee to pay the liabilities if they fall due.
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.
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.
f) Expenses
The interest-bearing bank loan is recorded at the proceeds received. Finance charges are accounted for on an accrual basis in the income statement. Finance charges are primarily charged to revenue unless borrowings have been made specifically to acquire investments and can be identified as such in which case the relevant finance charges are allocated between capital and revenue in accordance with the Board's expected long-term split of returns, in the form of capital gains and income respectively from the relevant investments.
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 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 at fair value through profit or loss and presented as revenue or capital as appropriate.
Distributable reserves comprise revenue earnings and the capital reserve. Gains and losses on disposal of investments, changes in fair value of investments held and capitalised expenses are dealt with in the capital reserve. Unrealised gains and losses on quoted investments are included in the calculation of capital reserves. 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' 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.
The directors are of the opinion that the company is engaged in a single segment of business, being investment business.
| 2 Income | ||
|---|---|---|
| 2018 | 2017 | |
| Income from investments | £000 | £000 |
| UK dividends | 1,180 | 2,260 |
| Overseas dividends | 92 | 44 |
| Scrip and in specie dividends | 290 | – |
| Dividend from subsidiary | 1,445 | 400 |
| Interest on fixed income securities | 1 | 3 |
| 3,008 | 2,707 | |
| Other income | 48 | 25 |
| Total income | 3,056 | 2,732 |
| Total income comprises: | ||
| Dividends | 3,007 | 2,704 |
| Interest | 1 | 3 |
| Other interest | 48 | 25 |
| 3,056 | 2,732 | |
| Income from investments: | ||
| Listed investments | 1,562 | 2,304 |
| Unlisted investments | 1,445 | 400 |
| 3,007 | 2,704 | |
Of the £3,007,000 (2017 – £2,704,000) dividends received, £997,000 (2017 – £1,891,000) related to special and other dividends received from investee companies that were bought after the dividend announcement. There was a corresponding capital loss of £1,007,000 (2017 – £1,949,000), on these investments.
Under IFRS 10 the income analysis is for the parent company only rather than that of the consolidated group. Thus film revenues of £92,000 (2017 – £101,000) received by the subsidiary British and American Films Limited and property unit trust income of £14,000 (2017 – £15,000) received by the subsidiary BritAm Investments Limited are shown separately in this paragraph.
| 3 Administrative expenses | 2018 | 2017 |
|---|---|---|
| £000 | £000 | |
| Staff costs – including executive director (Notes 4 and 5) | 450 | 530 |
| Non-executive directors fees (Note 4) | 57 | 61 |
| Auditors' remuneration: | ||
| audit of the company's financial statements | 29 | 32 |
| audit of the subsidiary's financial statements | 2 | 2 |
| taxation compliance | 5 | 5 |
| other non-audit services | 5 | 5 |
| Other | 128 | 123 |
| Irrecoverable VAT | 18 | 40 |
| 694 | 798 |
Directors' remuneration is disclosed in the Directors' remuneration report on page 62.
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.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Wages and salaries | 349 | 418 |
| Social security costs | 47 | 53 |
| Pensions and post-retirement benefits | 54 | 59 |
| 450 | 530 |
The average number of persons (including the executive director) employed during the year was 8 (2017 – 8).
| 2018 | 2017 | |
|---|---|---|
| Number | Number | |
| Investment | 2 | 2 |
| Administration | 6 | 6 |
| 8 | 8 |
The tax credit for the year is £31,000 (2017 – £35,000 ) being losses surrendered to the company's subsidiaries at 19%. Allowable expenses of the company exceed taxable income.
Corporation tax is calculated at 19% (2017 – 19.25%) of the estimated assessable loss for the year.
Profits of the company's subsidiaries are chargeable to the UK corporation tax at the main rate of 19% (2017 – 19.25%). Therefore part of the excess of management expenses of the company is surrendered as group relief against profits in the subsidiaries at their 19% tax rate.
The credit for the year can be reconciled to the profit per the income statement as follows:
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Total (loss)/profit before tax | 2,489 | (7,635) | (5,146) | 2,210 | (6,943) | (4,733) |
| Tax at the UK corporation tax | ||||||
| rate of 19% (2017 - 19.25%) | (473) | 1,450 | 977 | (425) | 1,336 | 911 |
| Tax effect of non-taxable | ||||||
| and dividends in specie | 571 | – | 571 | 521 | – | 521 |
| Free group relief | (10) | (65) | (75) | (61) | (48) | (109) |
| Losses on investments that | ||||||
| are not taxable | – | (1,385) | (1,385) | – | (1,288) | (1,288) |
| Tax effect of expense not deductible | ||||||
| in determining taxable profit/(loss) | (10) | – | (10) | |||
| Unrelieved tax losses | (47) | – | (47) | – | – | – |
| Tax credit | 31 | – | 31 | 35 | – | 35 |
It is unlikely the company will generate sufficient taxable profits in the future as it normally generates taxable losses which are usually offset by the taxable profits generated by subsidiary companies, to recover cumulative management expenses and non-trade loan relationship deficit which will generate a tax asset of £89,329 (2017 – £47,218) which has not been recognised in the year or prior years.
The calculation of the basic (after deduction of preference dividend) and diluted earnings per share is based on the following data:
| 2018 | 2017 | |||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| return | return | return | return | |||
| £000 | £000 | £000 | £000 | £000 | £000 | |
| Earnings: | ||||||
| Basic | 2,170 | (7,635) | (5,465) | 1,895 | (6,943) | (5,048) |
| Preference dividend | 350 | – | 350 | 350 | – | 350 |
| Diluted | 2,520 | (7,635) | (5,115) | 2,245 | (6,943) | (4,698) |
Basic revenue, capital and total return per ordinary share is based on the net revenue, capital and total return for the period after tax and after deduction of dividends in respect of preference shares and on 25 million (2017 – 25 million) ordinary shares in issue.
The diluted revenue, capital and total return is based on the net revenue, capital and total return for the period after tax and on 35 million (2017 – 35 million) ordinary and preference shares in issue.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Amounts recognised as distributions to ordinary shareholders in the period: | ||
| Dividends on ordinary shares: | ||
| Final dividend for the year ended 31 December 2017 | ||
| of 5.9p (2016 – 5.7p) per share | 1,475 | 1,425 |
| Interim dividend for the year ended 31 December 2018 | ||
| of 2.7p (2017 – 2.7p) per share | 675 | 675 |
| 2,150 | 2,100 | |
| Proposed final dividend for the year ended 31 December 2018 | ||
| of 6.0p (2017 – 5.9p) per share | 1,500 | 1,475 |
| 2018 | 2017 | |
| £000 | £000 | |
| Dividends on 3.5% cumulative convertible preference shares: | ||
| Preference dividend for the 6 months ended 31 December 2017 | ||
| of 1.75p (2016 – 1.75p) per share | 175 | 175 |
| Preference dividend for the 6 months ended 30 June 2018 | ||
| of 1.75p (2017 – 1.75p) per share | 175 | 175 |
| 350 | 350 | |
| Proposed preference dividend for the 6 months ended 31 December 2018 | ||
| of 1.75p (2017 – 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 section 1158 of the Corporation Tax Act 2010 are considered.
Dividends proposed for the period
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Dividends on ordinary shares: | ||
| Interim dividend for the year ended 31 December 2018 | ||
| of 2.7p (2017 – 2.7p) per share | 675 | 675 |
| Proposed final dividend for the year ended 31 December 2018 | ||
| of 6.0p (2017 – 5.9p) per share | 1,500 | 1,475 |
| 2,175 | 2,150 | |
| Dividends on 3.5% cumulative convertible preference shares: | ||
| Preference dividend for the year ended 31 December 2018 | ||
| of 1.75p (2017 – 1.75p) per share | 175 | 175 |
| Proposed preference dividend for the year ended 31 December 2018 | ||
| of 1.75p (2017 – 1.75p) per share | 175 | 175 |
| 350 | 350 | |
| 9 Investments – fair value through profit or loss | ||
| 2018 | 2017 | |
| £000 | £000 | |
| Investments quoted on a recognised investment | ||
| exchange | 8,714 | 15,509 |
| Unquoted investments | ||
| – Subsidiary undertakings (Note 10) | 5,269 | 5,277 |
| – Promissory Note | 8 | 51 |
| – Securities | – | 5 |
| 13,991 | 20,842 | |
BritAm Investment Limited, being the subsidiary of the company, owns 100% of British and American Films Limited. British and American Films Limited owns film rights to four longstanding commercially released films which generate royalty income (see note 2 on page 39). Film rights are valued at fair value £702,294 (2017 – £763,910).
| December 2017 | Quoted | |||
|---|---|---|---|---|
| Quoted in UK | overseas | Unlisted* | Total | |
| £000 | £000 | £000 | £000 | |
| Opening cost | 9,043 | 12,115 | 7,089 | 28,247 |
| Investment holding gains/(losses) | 3,217 | (828) | (924) | 1,465 |
| Opening fair value at 1 January 2017 | 12,260 | 11,287 | 6,165 | 29,712 |
| Purchases at cost | 9,427 | 2,143 | – | 11,570 |
| Transfer | (6) | – | 6 | – |
| Sales – proceeds |
(12,985) | (955) | (43) | (13,983) |
| – losses on sales | (1,095) | (110) | (3) | (1,208) |
| (Decrease)/increase in | ||||
| investment holding (losses)/gains | 80 | (4,543) | (786) | (5,249) |
| Closing fair value | 7,681 | 7,828 | 5,333 | 20,842 |
| Closing cost | 6,502 | 12,946 | 7,047 | 26,495 |
| Investment holding (losses)/gains | 1,179 | (5,118) | (1,714) | (5,653) |
| Closing fair value at 31 December 2017 | 7,681 | 7,828 | 5,333 | 20,842 |
| December 2018 | Quoted | |||
| Quoted in UK | overseas | Unlisted* | Total | |
| £000 | £000 | £000 | £000 | |
| Opening cost | 6,502 | 12,946 | 7,047 | 26,495 |
| Investment holding (losses)/gains | 1,179 | (5,118) | (1,714) | (5,653) |
| Opening fair value at 1 January 2018 | 7,681 | 7,828 | 5,333 | 20,842 |
| Purchases at cost | 11,828 | 795 | – | 12,623 |
| Sales – proceeds |
(13,124) | (744) | (45) | (13,913) |
| – (losses)/gains on sales | (965) | 42 | 6 | (917) |
| Decrease in | ||||
| investment holding (losses)/gains | (605) | (4,022) | (17) | (4,644) |
| Closing fair value | 4,815 | 3,899 | 5,277 | 13,991 |
| Closing cost | 4,023 | 12,804 | 7,003 | 23,830 |
| Investment holding (losses)/gains | 792 | (8,905) | (1,726) | (9,839) |
| Closing fair value at 31 December 2018 | 4,815 | 3,899 | 5,277 | 13,991 |
Purchases of investments include scrip dividends of £290,000 (2017 – £nil).
*Level 3 investments
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 £96,551 (2017 – £83,204) being £84,474 (2017 – £66,453) on purchases and £12,077 (2017 – £16,751) on sales.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| (Losses)/gains on disposal | (628) | 661 |
| Gains on disposal recognised in prior years | (289) | (1,869) |
| (917) | (1,208) | |
| Losses for provision for liabilities and charges | (1,730) | (234) |
| (2,647) | (1,442) | |
| Investment holding losses in the year | (4,644) | (5,249) |
| (7,291) | (6,691) |
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 | – | 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 are incorporated in Great Britain.
The directors have concluded that the company meets the criteria set under IFRS 10. In that:
a) The company obtains funds from more than one investor for the purpose of providing those investors with investment management services;
b) The company commits to its investors that its business purpose is to invest funds solely for return from capital appreciation and investment income; and
c) The company measures and evaluates the performance of substantially all of its investments on a fair value basis.
Under IFRS 10, an entity that meets the definition of an investment entity shall not consolidate its subsidiaries or apply IFRS 3 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with IAS 39.
Details of inter company balances with subsidiaries are included in notes 11 and 12. Details of financial support given to Second BritAm Investments Limited are shown in note 13.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Sales of investments awaiting settlement | – | 94 |
| Amount owed by subsidiary undertakings | 3,357 | 2,244 |
| Prepayments and accrued income | 25 | 26 |
| Other debtors | 35 | 35 |
| 3,417 | 2,399 |
The directors consider that the carrying amount of other debtors approximates to their fair value.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Other taxes and social security | 7 | 9 |
| Other payables | 365 | 36 |
| Amounts due to related parties | 103 | 225 |
| Amounts owed to subsidiary undertakings | – | 696 |
| Accruals and deferred income | 72 | 44 |
| 547 | 1,010 |
The directors consider that the carrying amount of other payables approximates to their fair value.
| 2,790 | 4,244 |
|---|---|
| £000 | £000 |
| 2018 | 2017 |
On 15 May 2013 the company obtained a loan facility from UBS AG for 10,875,000 CHF and at 31 December 2018 the company has drawn down the sterling equivalent of £2,790,000 (2017 – £4,244,000) at an annual rate of 1.25 percent above either the London Inter-Bank Offered Rate or the bank's cost of funds for that period and for the relevant currency. The loan facility does not have a maturity date. At 31 December 2018 investments of fair value of £6,063,003 (2017 – £9,398,305) have been deposited with UBS AG as collateral.
Guarantee of subsidiary liability
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Opening provision | 4,666 | 4,432 |
| Increase in period | 1,730 | 234 |
| Closing provision | 6,396 | 4,666 |
The provision is in respect of a guarantee made by the company for the liabilities of Second BritAm Investments Limited to the company's wholly owned subsidiaries, BritAm Investments Limited and British and American Films Limited. The guarantee is to pay out the liabilities of Second BritAm Investments Limited if they fall due. There is no current intention for these liabilities to be called.
| 2018 | 2017 | |
|---|---|---|
| £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 principal rights attached to the preference shares are any arrears of preference dividend cannot be paid in any year unless the ordinary shares have received a 3.5% dividend, on par and at any time, during the period from 1 January 2006 to 31 December 2025 (both dates inclusive) and, if published, audited annual accounts showing company 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, further details are included in the 'Share Capital' section of the Directors' report on page 21.
| Capital | Retained | |
|---|---|---|
| reserve | earnings | |
| £000 | £000 | |
| 1 January 2017 | (14,224) | 1,906 |
| Allocation of profit/(loss) for the year | (6,943) | 2,245 |
| Ordinary and preference dividends paid | – | (2,450) |
| 31 December 2017 | (21,167) | 1,701 |
| 1 January 2018 | (21,167) | 1,701 |
| Allocation of profit/(loss) for the year | (7,635) | 2,520 |
| Ordinary and preference dividends paid | – | (2,500) |
| 31 December 2018 | (28,802) | 1,721 |
The capital reserve includes £9,839,000 of investment holding losses (2017 – £5,653,000 losses) (see note 9 on page 44).
| Net asset value per ordinary share | Net assets attributable | |||
|---|---|---|---|---|
| 2018 2017 |
2018 2017 |
|||
| £ | £ | £000 | £000 | |
| Ordinary shares | ||||
| Undiluted | – | 0.22 | – | 5,534 |
| Diluted | 0.23 | 0.44 | 7,919 | 15,534 |
The undiluted and diluted net asset values per £1 ordinary share are based on net assets at the year end and 25 million (undiluted) ordinary and 35 million (diluted) ordinary and preference shares in issue.
The undiluted net asset value per convertible £1 preference share is the par value of £1. The diluted net asset value per ordinary share assumes the conversion of the preference shares to ordinary shares.
Romulus Films Limited and Remus Films Limited are companies that have significant shareholdings in the company (see page 20) and of which Mr JC Woolf is a director. There is no ultimate controlling party.
The company rents its offices from Romulus Films Limited, and is also charged for its office overheads. During the year the company paid £33,809 (2017 – £23,765) in respect of those services.
The salaries and pensions of the company's employees, except for the four (2017 – four) non-executive directors and one employee (2017 – one), 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 2018 were £364,118 (2017 – £473,030) in respect of salary costs and £39,650 (2017 – £57,500) in respect of pensions. During the year the company made a recharge of £5,000 (2017 – £5,000) of director's salary to BritAm Investments Limited and £5,000 (2017 – £5,000) to British and American Films Limited.
The compensation of key management personnel has been disclosed in the Directors' remuneration report.
At the year end the amounts of £66,745 (2017 – £27,510) and £35,959 (2017 – £152,646) were due to Romulus Films Limited and Remus Films Limited respectively. At the year end Other payables included amounts of £98,688 and £212,456 due to Romulus Films Limited and Remus Films Limited respectively relating to the interim dividend payable.
During the year BritAm Investments Limited paid dividends of £1,445,000 (2017 – £400,000) to the parent company, British & American Investment Trust PLC.
As disclosed in note 13 on page 47, British & American Investment Trust PLC has guaranteed the liabilities of £6,396,152 (2017 – £4,666,000) of Second BritAm Investments Limited to its fellow subsidiaries if they should fall due.
During the year the company paid interest of £nil (2017 – £5,000) and £3,000 (2017 – £2,000) on the loan due to BritAm Investments Limited and Second BritAm Investments Limited respectively and which are included in the balances at 31 December 2018.
During the year the company received interest of £14,000 (2017 – £16,000) from British and American Films Limited, £1,000 (2017 – £4,000) from Second BritAm Investments Limited and £33,000 (2017 – £5,000) from BritAm Investments Limited.
During the year the company entered into the investment transactions to sell stock for £346,709 (2017 - £nil) to Second BritAm Investments Limited and for £2,472 (2017 - £nil) to BritAm Investments Limited.
During the year the company surrendered group tax relief of £17,000 (2017 – £15,000) to British and American Films Limited and £14,000 (2017 – £20,000) to BritAm Investments Limited. These amounts are included as part of amounts owed by subsidiary undertakings in note 11 on page 46.
At the year end the related party receivables and payables were as follows:
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Name of the related party | ||
| Receivables: | ||
| British and American Films Limited | 629 | 783 |
| British and American Films Limited (Group Relief) | 85 | 68 |
| Second BritAm Investments Limited | 162 | – |
| BritAm Investments Limited | 2,386 | 1,312 |
| BritAm Investments Limited (Group Relief) | 95 | 81 |
| Total | 3,357 | 2,244 |
| Payables: | ||
| Second BritAm Investments Limited | – | 696 |
| Total | – | 696 |
All transactions with subsidiaries were made on an arm's length basis.
A deferred tax asset of £89,329 (2017 – £47,218) has not been recognised in respect of excess management expenses and non-trade loan relationship deficit as there is insufficient evidence that the asset will be recovered. The asset would be recovered if the company made sufficient future taxable profits.
The company's financial instruments primarily comprise equity investments, although it also holds loan stock and fixed interest investments, stock derivatives, cash and other items arising from its operations.
The company'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 company's financial instruments are market risk (comprising other price risk, interest rate risk, currency risk), liquidity risk, gearing 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 company invests in securities for the long term. The company's stated investment policy is to invest predominantly in investment trusts and other leading UK and US-quoted companies to achieve a balance of income and growth. The company 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. This is, in particular, to our largest investment, Geron Corporation, due to the short to mid term volatility in its share price.
The company's exposure to other price risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the company 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 company's exposure to other changes in market prices at 31 December on its quoted and unquoted investments was:
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Investments held at fair value through profit or loss | 13,991 | 20,842 |
| deduct Fixed interest stock, bonds and notes | (8) | (51) |
| deduct Investment in subsidiary companies | (5,269) | (5,277) |
| 8,714 | 15,514 |
Details of the company investment portfolio at the year end are shown on page 12.
A 10% increase in company portfolio valuations at 31 December 2018 would result in an increase of £871,000 (2017 – £1,551,000) 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 company's financial assets are equity shares 98.2% (2017 – 90.2%) or other investments which pay dividends rather than interest and do not have a maturity date.
Financial liabilities consist of bank loans.
Interest bearing investments, including cash deposits, comprise 1.8% of the company's financial assets, of which 0.1% are at fixed rate and 1.7% 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 company's 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 and liabilities of the company at 31 December 2018 is shown below.
| 2018 | 2017 | |||
|---|---|---|---|---|
| Fair Value | Maturity | Fair Value | Maturity | |
| Assets | £000 | £000 | ||
| Fixed Rate | ||||
| US notes and bonds | 8 | <1 year | 51 | 1 year |
| Floating rate | ||||
| Cash | 244 | 2,213 | ||
| Total assets | 252 | 2,264 | ||
| Weighted average interest rate | 0.1% | 0.1% | ||
| (on fair value) | ||||
| Liabilities | ||||
| Bank loan | 2,790 | undated | 4,244 | undated |
| Total liabilities | 2,790 | 4,244 | ||
| Weighted average interest rate | 3.6% | 2.1% |
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 interest rates at 31 December 2018 would have decreased the fair value of fixed interest securities and increased interest payments on bank loan and hence decrease total net assets by £125,000 (2017 – £104,000). 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 are held at amounts that approximate to fair value. The book value of cash at bank and bank loans included in these financial statements approximate to fair value because of their short-term maturity.
The fair value of the subsidiaries is determined to be equal to the net asset values of the subsidiaries at year end plus the uplift in the revaluation of film rights in British and American Films Limited, a subsidiary of BritAm Investments Limited.
The fair value of the film rights have been determined by estimating the present value of the pre-tax film revenues in the next 10 years discounted at a discount rate of 5%. The directors' valuation of British & American Films Limited has been based on pre-tax profits as sufficient group relief exists to mitigate the tax effect. The directors continue to expect that group relief will be allocated in such a way, that this valuation assumption is reasonable.
The sensitivity of the fair value measurement of the subsidiaries to changes in unobservable inputs is not likely to be significant due to the nature of the underlying assets in the subsidiaries. The majority of the assets comprise loans due from the parent company or fellow subsidiaries (£3.6 million) with the balance split between UK quoted investments, overseas quoted investments, UK commercial property unit trusts and fair value of film rights.
At 31 December 2018 the company has drawn down £2,790,000 (sterling equivalent) of its facility limit of 10,875,000 CHF with UBS AG. A Facility Agreement was entered into by the company and UBS AG on 15 May 2013. At 31 December 2018 investments of fair value of £6,063,003 sterling equivalent (2017 – £9,398,305) have been deposited with the UBS AG as collateral. Although this gearing increases the opportunity for gain, it also increases the risk of loss in falling markets.
The fair value hierarchy, as defined in IFRS 13, comprises 3 levels. With the exception of the Biotime Promissory Note with a year end market value of £8,089 (2017 – £50,900), Sarossa Capital PLC (unquoted) £42 (2017 – £5,320) and BritAm Investments Limited and Second BritAm Investments Limited (unquoted subsidiaries) with a year end fair value respectively of £5,268,864 (2017 – £5,276,548) and £nil (2017 – £nil) which are categorised as Level 3 and with the exception of the investments in unit trusts, St James's Place Global Equity £nil (2017 – £771,105) and Jupiter Unit Trust Managers £nil (2017 – £276,988), which are categorised as Level 2 investments, all other investments £8,713,733 (2017 – £14,461,154) 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 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 investments inputs are not based on observable market data (unobservable inputs).
The values for investments categorised by type are identified on page 11. The movement in Level 3 investments is shown in the Unlisted column in note 9 on page 44.
86% (2017 – 77%) of the company's assets and liabilities are in sterling. The foreign currency exposure is almost exclusively in nine (2017 – eight) investments denominated in US dollars. The board monitors the company'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 company. Although the bank facility limit is 10,875,000 CHF in practice the company has only drawn down funds in either sterling, US dollars or EURO.
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| US dollar | ||
| Investments | 3,907 | 7,879 |
| Bank loan | (2,789) | (2,429) |
| Cash | – | 5 |
| EURO | ||
| Bank loan | (1) | (1,815) |
| Net exposure | 1,117 | 3,640 |
| Total net assets | 7,919 | 15,534 |
At 31 December 2018, if sterling had strengthened by 5% in relation to the US dollar and EURO, with all other variables held constant, total net assets would have decreased by £55,000 (2017 – £173,000). Similarly, a 5% weakening of sterling against the US dollar and EURO, with constant other variables, would have increased total net assets by £57,000 (2017 – £192,000).
The majority of the company's assets comprise listed realisable securities, which can be sold to meet funding requirements as necessary. The company has a multi-option loan facility of 10,875,000 CHF with UBS AG (2017 – 10,875,000 CHF) with no maturity date. 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 14 to 16). The company considers that its exposure is not significant. The company has also provided a financial guarantee for its subsidiary Second BritAm Investments Limited. The amounts related to the loan facility and guarantee are set out below:
| 2018 | 2017 | |
|---|---|---|
| £000 | £000 | |
| Loan drawn down | 2,790 | 4,244 |
| Guarantee | 6,396 | 4,666 |
| 9,186 | 8,910 |
This is the risk of loss to the company arising from the failure of a transactional counterparty to discharge its obligations. The company manages this risk through the following controls:
· investment transactions are primarily placed through the company's broker. The credit worthiness of the broker
and other entities is reviewed by the board. Investment transactions are normally done on a delivery versus payment basis such that the company or its custodian bank has ensured that the counterparty has delivered on its obligations before effecting transfer of cash or securities;
The company's principal financial assets are bank, broker and money market balances and cash, other receivables and investments, which represent the company's maximum exposure to credit risk in relation to financial assets.
Cash and cash equivalents comprise bank, broker and money market balances and cash held by the company. 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:
| 2018 | 2017 | |||
|---|---|---|---|---|
| Balance | Maximum | Balance | Maximum | |
| sheet | exposure | sheet | exposure | |
| £000 | £000 | £000 | £000 | |
| Fixed rate investments | 8 | 8 | 51 | 51 |
| Current assets | ||||
| Receivables | 3,417 | 3,417 | 2,399 | 2,399 |
| Cash and cash equivalent | 244 | 244 | 2,213 | 2,213 |
| 3,669 | 3,669 | 4,663 | 4,663 |
Fixed rate investments comprise 100% (2017 – 100%) being non-investment grade.
None of the company's financial assets, are past their due dates, impaired or secured by collateral or other credit enhancements with the exception of investments of £6,063,003 lodged as collateral for a bank loan (see note 12(b) on page 46).
The company's capital management objectives are:
The company's total capital equity (ordinary and non-redeemable preference share capital and other reserves) at 31 December 2018 was £7,919,000 (2017 – £15,534,000).
The Board monitors and reviews the broad structure of the company's capital on an ongoing basis.
The company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. Under the bank facility with UBS AG borrowings may not exceed 10,875,000 CHF (as defined in the facility agreement).
For the year ended 31 December 2018
The Statement of Corporate Governance, which forms part of the Directors' report (page 22) is set out below. The following paragraphs describe the framework of internal controls in place to ensure that the company complies with the 2016 UK Corporate Governance Code which is available on the Financial Reporting Council's website: www.frc.org.uk.
The board has considered the principles and recommendations of the AIC Code of Corporate Governance ('AIC Code') which was re-issued in July 2016. The AIC Code addresses all the principles set out in the UK Corporate Governance Code as well as setting out additional principles and recommendations on issues that are of specific relevance to British & American Investment Trust PLC. The AIC Code is available on the AIC's website: www.theaic.co.uk.
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 the UK Corporate Governance 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. During the year Mr DG Seligman was appointed as Chairman. During the year Mr A Tamlyn was appointed as a non-executive director and Mr RG Paterson retired.
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 | |
|---|---|---|
| DG Seligman | 4/4 | 4/4 |
| DG Dreyfus | 4/4 | 4/4 |
| RG Paterson (retired 30 June 2018) | 3/3 | 3/3 |
| A Tamlyn (appointed 1 July 2018)** | 1/1 | 1/1 |
| JC Woolf | 4/4 | 4/4* |
* Not a member of the committee but in attendance by invitation.
Four directors attended the Annual General Meeting.
**Mr A Tamlyn attended the Annual General Meeting as Director Designate.
The non-executive directors (Mr DG Dreyfus and Mr A Tamlyn) are independent and have no other relationships or circumstances which might be perceived to interfere with the exercise of independent judgement. Mr DG Dreyfus at the date of the Annual General Meeting, will have served on the board for more than twenty three years from the date of his 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 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.
Mr DG Dreyfus is due to stand for annual re-election in accordance with the current AIC Code. 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 company's Articles of Association, is Mr A Tamlyn.
The board has carefully considered the position of Mr DG Dreyfus and believes that, following formal evaluation, he continues to be effective and so it would be appropriate for him to be proposed for re-election. As stated previously, in respect of Mr DG Dreyfus it is the view of the board that long service in no way reduces the independence and objectivity of the director. Mr DG Dreyfus will stand for re-election annually.
The board is satisfied that Mr DG Seligman 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. 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 Committee comprises three non-Executive Directors and is appointed by the Board. It met four times during 2018. The Committee operates within defined terms of reference.
The Committee's main functions are:-
Twice a year the Audit Committee reviews the key risks facing the company. Included in this work are separate reviews for Corporate Strategy, Investment Activity, Published Information, Compliance with Laws and Regulations, Relationship with Service Providers and Financial Activity. In arriving at its judgment of what constitutes a sound system of internal control, the Audit Committee considers the nature and extent of risks which it regards as acceptable for the company to bear within its stated investment objective, the threat of such risks becoming a reality and the company's ability to reduce the incident and impact of such risks. The Audit Committee also considers the company's relationship with third party service providers and sets clear control objectives in respect of the company's relationship with them.
The valuation and ownership of investments is a significant risk factor. The majority of the investments are in quoted securities and market prices are readily available from independent external pricing sources. The investment portfolio is regularly reconciled to custodians' records, where applicable, and that reconciliation is also reviewed by the Auditor. The fair value of the investments in subsidiaries (including film rights) and the assumptions on which the fair values are based are reviewed annually.
The Committee satisfies itself that the company is correct in issuing financial statements on a going concern basis and conducts regular reviews to ensure the company maintains its investment trust status. It reviews the company's accounting treatment of dividends received and makes recommendations to the Board thereon. The Committee keeps abreast of all accounting, tax and regulatory developments including, but not limited to, recent or proposed changes in narrative reporting, the SORP for investment trust companies, Directors' remuneration, the U.S. Foreign Account Tax Compliance Act (FATCA), the Alternative Investment Fund Managers Directive (AIFMD) and the implementation of The Common Reporting Standard.
The Audit Committee ensures that the company has adequate internal control systems to prevent and detect fraud. The company has in place an appropriate "whistle blowing" policy enabling employees to raise any concerns in strict confidence. The Audit Committee keeps under review the need for an internal audit function but has concluded that, given the company's size and scope, there is no need for such a function at the present time.
The Audit Committee regularly meets the Auditor and may challenge any aspect of its work. The Committee is aware of the latest Corporate Governance provisions related to auditor tenure. The Audit Committee ensures that the Auditor has unlimited access to any company record.
Hazlewoods LLP has been the company's auditor since 2017. Rotation of the Audit Partner will take place in accordance with Ethical Standard 3; 'Long Association with the Audit Engagement' of the Auditing Practices Board ('APB').
In accordance with mandatory audit rotation requirements, the committee intends to undertake a further tender process during the year to 31 December 2026.
The fees for audit purposes for the financial year ended 31 December 2018, including audit of the subsidiary's financial statements, were £31,000 (2017 – £34,000).
The Audit Committee has approved and implemented a policy on the engagement of the Auditor to supply non-audit services, taking into account the recommendations of the APB and does not believe there is any impediment to the Auditor's objectivity and independence. All non-audit work to be carried out by the Auditor must be approved by the Audit Committee in advance.
The cost of services provided by the Auditor for the financial year ended 31 December 2018 was £9,284 (2017 – £10,314). These non-audit services are assurance and compliance related and the Committee believes Hazlewoods LLP is best placed to provide them on a cost effective basis.
During the year the Committee reviewed the independence policies and procedures of Hazlewoods LLP including quality assurance procedures. It was considered that those policies and procedures remained fit for purpose.
The Audit Committee has approved year end 31 December 2018 Report and Accounts. It has reviewed the company's internal controls and risk management. After satisfying itself as to the independence of the Auditor, it has recommended that Hazlewoods LLP be appointed for the 2019 financial year.
The board as a whole fulfils the function of the nomination of directors.
The board 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. One new director was appointed during the year. There are procedures for a new director to receive relevant information on the company together with appropriate induction.
In considering new appointments, the need to have a balance of skills, experience, independence, diversity, including gender, and knowledge of the company within the board are taken into account. However the overriding priority is to appoint the most appropriate candidates, regardless of gender or other forms of diversity.
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 A Tamlyn 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 20), 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 20.
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 23.
The directors are responsible for the effectiveness of the risk management and 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 risk management and 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 the UK Corporate Governance Code.
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 next 12 months. 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 for monitoring the corporate governance of investee companies. The board has delegated to the Managing Director responsibility for selecting the portfolio of investments within investment guidelines established by the board and for monitoring the performance and activities of investee companies. On behalf of the company the Managing Director carries out detailed research of investee companies and possible future investee companies through broker and internally generated research. The research includes an evaluation of fundamental details such as financial strength, quality of management, market position and product differentiation. Other aspects of research include an appraisal of social, ethical and environmentally responsible investment policies.
The board has delegated authority to the Managing Director to vote on behalf of the company in accordance with the company's best interests. The primary aim of the use of voting rights is to ensure a satisfactory return from investments.
The company's policy is, where appropriate, to enter into engagement with an investee company in order to communicate its views and allow the investee company an opportunity to respond.
In such circumstances the company would not normally vote against investee company management but would seek, through engagement, to achieve its aim. The company would vote, however, against resolutions it considers would damage its shareholder rights or economic interests.
The company has a procedure in place that where the Managing Director, on behalf of the company, has voted against an investee company resolution it is reported to the Board.
The UK Stewardship Code was implemented by the Financial Reporting Council, on a voluntary basis and was revised in September 2012.
The board considers that it is not appropriate for the company, as a small self-managed investment trust, to formally adopt the UK Stewardship Code.
However, many of the UK Stewardship Code's principles on good practice on engagement with investee companies are used by the company, as described above.
For the year ended 31 December 2018
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 2018. The report comprises a policy report, which is subject to a triennial binding shareholder vote, or sooner if an alteration to policy is proposed, and a remuneration policy implementation report, which is subject to an annual advisory vote.
The remuneration policy was last approved at the AGM held on 27 June 2017. The remuneration policy is set out in the Future Policy Table on page 65.
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. 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 20), are aligned with those of other shareholders.
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).
There have been no changes to the Directors' remuneration policy during the period of this report nor are there any proposals for the foreseeable future.
DG Seligman Chairman 30 April 2019
Annual report on remuneration Directors' remuneration as a single figure (audited)
| Salary and | Salary and | |
|---|---|---|
| fees | fees | |
| 2018 | 2017 | |
| £000 | £000 | |
| JC Woolf - salary | 67 | 63 |
| DG Seligman (Chairman from 1 January 2018) - fees | 22 | 4 |
| JAV Townsend (retired 31 December 2017) - fees | – | 22 |
| DG Dreyfus (Chairman of Audit Committee) - fees | 19 | 19 |
| RG Paterson (retired 30 June 2018) - fees | 8 | 16 |
| A Tamlyn (Director from 1 July 2018) - fees | 8 | – |
| Total | 124 | 124 |
The table above omits other columns because no payments of other types prescribed in the relevant regulations were made.
No other remuneration or compensation was paid or payable by the company during the year to any current or former
The non-executive directors' fees have remained unchanged from 1 January 2016.
| £ | |
|---|---|
| DG Seligman (Chairman from 1 January 2018) - fees 22,000 |
|
| DG Dreyfus (Chairman of Audit Committee) - fees 18,700 |
|
| RG Paterson (retired 30 June 2018) - fees 16,500 |
|
| A Tamlyn (appointed 1 July 2018) - fees 16,500 |
The directors' fees of £8,250 (2017 – £16,500) payable to RG Paterson were paid to Eversheds Sutherland LLP. This payment was for services as a director of 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 ten years since 2008. The FTSE All Share equity market index is used as the company's benchmark.
Managing Director's remuneration table
| Total remuneration | |
|---|---|
| £000 | |
| 2009 | 50 |
| 2010 | 44 |
| 2011 | 47 |
| 2012 | 47 |
| 2013 | 50 |
| 2014 | 53 |
| 2015 | 56 |
| 2016 | 60 |
| 2017 | 63 |
| 2018 | 67 |
| Total | 537 |
The table below shows the percentage change in the remuneration of the Managing Director and the company's employees as a whole between the year 2017 and 2018.
| Percent no bonus paid |
|---|
| 9.07% |
| Shareholder distribution |
| £ |
| 2,100,000 |
| 2,150,000 |
| 50,000 |
| 2.38% |
The directors during the year ended 31 December 2018 had interests in the shares of the company as follows (audited):
| 2018 | 2017 | ||||
|---|---|---|---|---|---|
| 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 | – | |
| DG Seligman (appointed as Chairman 1 January 2018) | – | – | – | – | |
| A Tamlyn (appointed as Director 1 July 2018) | – | – | – | – | |
| RG Paterson (retired 30 June 2018) | 1,000 | – | 1,000 | – | |
| Non-voting convertible preference shares of £1 each | |||||
| JC Woolf | – | 10,000,000 | – | 10,000,000 | |
At the Annual General Meeting held on 27 June 2018, votes cast by proxy and at the meeting in respect of the directors' remuneration were as follows:
| Resolution | Votes | % | Votes | % | Total votes | Votes |
|---|---|---|---|---|---|---|
| For | For | Against | Against | Cast | withheld | |
| To receive and approve | ||||||
| the directors' remuneration report | ||||||
| (excluding policy) | ||||||
| for the year ended 31 December 2017 | 18,959,295 | 100.0 | – | – | 18,959,295 | 3,978 |
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.
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 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 2011) is that aggregate non-executive directors fees should not exceed £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 20 Mr JC Woolf is a significant shareholder in the company. The company also provides directors' liability insurance.
The table below summarises the components of the remuneration of the directors.
| Component | Link to strategy | |
|---|---|---|
| Managing Director | Salary | The annual salary paid is a fixed amount, subject to annual review, and is not related to the portfolio performance. |
| Non-executive Directors | Fees | Fees aim to be competitive with other investment trusts of similar size and complexity. Fees are fixed annual amounts and are reviewed periodically by the board. The Chairman, the Chairman of the Audit Committee and the remaining non-executive director are paid to reflect a market rate of a self-managed investment trust having regard also to the size of the company, expertise, their responsibilities and the time required to be spent to fulfil their responsibilities. |
There is no maximum or minimum applicable to the salary of the Managing Director.
The policy on remuneration of employees generally is to incentivise them for effective performance whilst recognising market equivalents. As such their remuneration packages are structurally different to that of the Managing Director.
The principles the company would apply in setting remuneration for new Board members would be in accordance with the Remuneration Policy, such remuneration being commensurate with existing Board members and their relevant peer group.
Managing Director
| Minimum | In line with expectations | Maximum | |
|---|---|---|---|
| Salary | £67K | £67K | £67K |
| variation. | The Managing Director's salary is a fixed amount not related to performance. There is therefore no minimum or maximum |
| Minimum | In line with expectations | Maximum | |
|---|---|---|---|
| Salary | 100% | 100% | 100% |
The employees were not consulted when setting the Directors' remuneration policy and no remuneration comparison measurement with employees was used.
The company places great importance on communication with its shareholders. The board welcomes investors to attend the AGM and encourages questions and discussions on all aspects of performance and governance, including remuneration issues. The company can confirm that it is aware of negative views being expressed by shareholders in relation to its policy on Directors' remuneration.
It is intended that this policy will continue for the year ending 31 December 2019 and until the Annual General Meeting of the company held in 2020.
The Directors' Remuneration Report 2018 was approved by the Board and signed on its behalf by:
DG Seligman Chairman 30 April 2019
NOTICE IS HEREBY GIVEN THAT the seventy first Annual General Meeting of the company will be held at Wessex House, 1 Chesham Street, London SW1X 8ND on Wednesday 26 June 2019 at 12.15pm for the following purposes:
KJ Williams Secretary 30 April 2019
Wessex House 1 Chesham Street London SW1X 8ND
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 70 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 24 June 2019 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 30 April 2019, 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 15 May 2019 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 15 May 2019 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 Wednesday 26 June 2019 and at any adjournment thereof. | |
Signed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
| Dated . 2019. Please tick here to indicate that this proxy instruction is in addition |
||||
|---|---|---|---|---|
| RESOLUTIONS | For | Against | Vote | Discretionary |
| To adopt the report and accounts. | ||||
| To re-elect Mr DG Dreyfus. | ||||
| To re-elect Mr A Tamlyn. | ||||
| To approve the directors' remuneration report (excluding policy). | ||||
| To declare a final dividend of 6.0p per £1 ordinary share. | ||||
| To appoint Hazlewoods LLP as the company's auditors. | ||||
| To authorise the audit committee to determine the remuneration | ||||
| of the auditors. | ||||
| to a previous instruction. Otherwise it will overwrite any previous instruction. | Withheld |
020 7201 3100 or you may copy this form. Pease indicate with the proxy holder's name the number of securities in relation to which they are authorised to act as your proxy. Please also indicate by ticking the box provided if the proxy instruction is in addition to a previous instruction. All forms must be returned together in the same envelope.
| 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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