REG-British & American: Annual Financial Report
28/04/2023 10:00
British & American Investment Trust PLC
Annual Financial Report for the year ended 31 December 2022
Registered number: 00433137
Directors Registered office
David G Seligman (Chairman) Wessex House
Jonathan C Woolf (Managing Director) 1 Chesham Street
Dominic G Dreyfus (Non-executive and Chairman of the Audit Committee until 7 February 2022) Telephone: 020 7201 3100
Alex Tamlyn (Non-executive, acting Chairman of the Audit Committee until 31 May 2022) Registered in England
Julia Le Blan (Non-executive and Chair of the Audit Committee from 1 June 2022) No.00433137
27 April 2023
This is the Annual Financial Report as required to be published under DTR 4 of
the UKLA Listing Rules.
Financial Highlights
For the year ended 31 December 2022
2022 2021
Revenue return Capital return Total Revenue return Capital return Total
£000 £000 £000 £000 £000 £000
Profit/(loss) before tax – realised 658 (277) 381 978 (810) 168
Profit before tax – unrealised – 579 579 – 1,028 1,028
__________ __________ __________ __________ __________ __________
Profit before tax – total 658 302 960 978 218 1,196
__________ __________ __________ __________ __________ __________
Earnings per £1 ordinary share – basic and diluted 1.30p 1.21p 2.51p 2.66p 0.87p 3.53p
__________ __________ __________ __________ __________ __________
Net assets 7,091 6,727
__________ __________
Net assets per ordinary share
– deducting preference shares at fully diluted net asset value* 20p 19p
__________ __________
– diluted 20p 19p
__________ __________
Diluted net asset value per ordinary share at 21 April 2023 22p
__________
Dividends declared or proposed for the period:
per ordinary share
– interim paid 1.75p 3.5p
– final proposed 0.0p 0.0p
per preference share 1.75p 3.5p
*Basic net assets are calculated using a value of fully diluted net asset value for the preference shares.
Chairman’s Statement
I report our results for the year ended 31 December 2022.
Revenue
The return on the revenue account before tax amounted to £0.7 million (2021:
£1.0 million), a lower level than in the previous year due to a lower level
of dividends received from external investments. A slightly higher level of
dividend income was received from our subsidiary companies derived from gains
realised on our principal US investments for subsequent distribution as
dividends.
Gross revenues totalled £1.2 million (2021: £1.4 million). In addition, film
income of £107,000 (2021: £171,000) and property unit trust income of
£1,000 (2021: £2,000) was received in our subsidiary companies. This
reduction in property income reflected the sale of one of our investments
during the year. In accordance with IFRS10, these income streams are not
included within the revenue figures noted above because consolidated financial
statements are not prepared.
The total return before tax amounted to a profit of £1.0 million (2021: £1.2
million profit), which comprised net revenue of £0.7 million, a realised loss
of £0.3 million and an unrealised gain of £0.6 million. The revenue return
per ordinary share was 1.3p (2021: 2.7p) on an undiluted basis.
Net Assets and Performance
Net assets at the year end were £7.1 million (2021: £6.7 million), an
increase of 5.4 percent after payment of £0.6 million in dividends to
shareholders during the year. This compares to an increase in the FTSE 100
index of 0.9 percent and to a decrease in the UK All Share index of 3.2
percent over the period. On a total return basis, after adding back dividends
paid during the year, our net assets increased by 14.5 percent compared to
increases of 4.7 percent and 0.3 percent in the FTSE 100 and UK All Share
indices, respectively.
In this transitional year reflecting the end of the Covid pandemic disruption
and the initiation of interest rate rise programmes by many central banks, we
significantly out-performed these benchmarks both on a portfolio and a total
return basis while also returning cash via dividends to shareholders at well
above market yields. This was made possible by a significant gain in the value
of our largest US investment (Geron Corporation) particularly in the mid part
of the year in anticipation of important clinical trial results in the early
weeks of 2023. Geron’s share price increased by 140 percent over this four
month period and by 100 percent over the year as a whole in US dollar terms.
In sterling terms, this overall increase was over 120 percent due to the
strength of the US dollar in 2022. This out-performance for the year was
despite a retrenchment of over 40 percent in the value of our other large US
investment, Lineage Cell Therapeutics Inc following gains of 100 percent in
that stock over the previous two years.
More generally, equity markets in the USA and UK saw an overall declining
trend from the higher levels of the previous year which had reflected the
significant bounce-back in markets after the initial shock of the Covid
pandemic. The developing realisation that the extended era of ultra low
interest rates was coming to an end and that a period of steadily and possibly
aggressive interest rates rises was in prospect to challenge strong
inflationary pressures weighed on the markets which traded in a narrow but
declining trend over the year. The US Federal Reserve, having been in the
forefront of these interest rate moves, gave rise to the substantial strength
seen in the US dollar over the year.
With significantly higher levels of interest rates now operating throughout
the developed world and prices having risen at their highest rates for a
generation, economic growth in 2022 has been subdued globally and is not
expected to resume for some time, although the fears of recession,
particularly in the UK and other European countries might not in the event
materialise.
The second major influence in 2022 on global economic activity which
substantially affected equity markets was the war in Ukraine resulting from
Russia’s unprovoked invasion of that country in February last year. This
caused severe disruption to international trade, energy prices and supply,
geopolitical relations and global security with the up-ending of the post-1945
international rules based system and undisguised nuclear threats by Russia.
The unprecedented economical, developmental and social effects of the war have
impacted not only of course Ukraine but all European and many other countries
throughout the World and indeed ultimately and strategically Russia itself.
The introduction of a comprehensive and hard-hitting sanctions regime on
Russia has resulted in a major re-ordering of international financial systems
and flows, the re-calibration of global energy markets and a re-examination of
military and strategic planning not seen since the end of the Cold War over 30
years ago.
Dividend
In 2022, dividends of 1.75 pence per ordinary share and 1.75 pence per
preference share were paid as an interim payment during the year. This
represented a decrease of 50 percent for ordinary shareholders over the
previous year and a yield of approximately 9 percent on the ordinary share
price averaged over a period of 12 months.
It is our intention to pay an interim dividend this year as close as possible
in amount and on a similar timetable to the dividend paid in 2021, as and when
the profitable sales of investments permit. The position regarding these
investments is set out in more detail in the Managing Director’s report
below.
Recent events and outlook
A resolution to the unnecessary and bloody conflict in Ukraine is still not in
sight and the damage to the combatants and the World in general continues.
Against this background, we enter a more dangerous phase as Western and allied
democracies are forced to realign and confront those increasingly assertive
and in some cases nuclear-armed authoritarian nations which are seeking to
challenge a perceived to be weakening West. There can be no doubt that this
new era of insecurity and uncertainty now being played out on the global stage
can have no long term benefits to us or our planet as the risks of global
conflict increase and the implementation of the important and hard-won
provisions of the Global Climate Change Agreements (COP) to protect against
the long-term and damaging effects of global warming are delayed or rolled
back.
All this inevitably introduces a great deal of uncertainty into financial
markets in both the short and medium terms which make the making of long-term
investment decisions particularly difficult. Consequently, we will continue to
limit our activities and major focus to our US biopharma investments which do
not tend to track general market movements and which we believe hold
significant investment promise as they progress ever closer towards
commercialisation of their ground-breaking and valuable technologies.
As at 21 April 2023, our net assets had increased to £7.7 million, an
increase of 8.6 percent since the beginning of the calendar year. This is
equivalent to 22.0 pence per share (prior charges deducted at fully diluted
value) and 22.0 pence per share on a diluted basis. Over the same period the
FTSE 100 increased 6.2 percent and the All Share Index increased 5.5 percent.
David Seligman
27 April 2023
Managing Director's report
In the aftermath of the lengthy Covid pandemic and with the vicious and
globally disruptive war in Ukraine now continuing into a second year, the past
12 months have been characterised by a great deal of uncertainty, flux and
points of pivot in many of the major constituents of global financial and
investment markets.
Starting with interest rates, which are always the prime driver of movements
in markets, levels of economic growth in major world economies, equity and
bond markets, foreign exchange parities, inflation, cost of living, energy
prices and supply, geopolitics and even bank confidence have exhibited large
swings and disruption over the period, finding it extremely difficult to
return to the trends and greater certainties of the pre-Covid era.
At the interim stage last year, we focused comment on the interest rate
programmes being introduced by central banks, increasing rates from their
multi-year lows to confront the rapidly rising levels of inflation. These
inflation rises were initially the result of the unprecedented government
support schemes introduced during the Covid pandemic which had swollen
government debt levels and central bank balance sheets substantially. But
then the war in Ukraine further exacerbated inflation as the resulting
international sanctions regime against Russia disrupted supply chains,
particularly in relation to energy where prices increased dramatically.
However, despite some of the more extreme projections of inflation possibly
rising to levels of 20 percent being put forward by some analysts during the
year, we thought such levels would be unlikely as long as wage settlements did
not embed higher inflation into the system and that a relatively quick return
to more normal levels of inflation could be expected, particularly as the
higher energy costs related to the war began to drop out of the annual
calculation.
In the event, while inflation did reach levels not seen for many decades, the
timely and sustained interest rate rises by central banks, particularly in the
USA, have served to stabilise inflation and the headline rates have now
started to reduce gradually, even though increases in most household cost of
living baskets remain well into double digits, continuing to drive demand for
substantial compensatory wage rises.
At this stage, it remains to be seen whether large wage settlements will embed
inflation levels at above policy levels for the longer term. However, as a
mitigating factor, the huge energy price rises seen last year as a result of
the war in Ukraine, with crude oil rising by 50 percent (following a 100
percent rise in the previous year as the world economy re-awakened from the
Covid pandemic) and natural gas prices rising by up to 300 percent as Russian
gas supplies were cut off, have now receded to substantially below pre-war
prices.
These lower prices will likely result in significant reductions in headline
inflation levels over the next few months. This expectation is also driving
governments, particularly in the UK and Europe, to stand firm and delay the
agreement of above inflation public sector wage settlements despite
significant industrial and public sector unrest until such time as the
inflation background looks more benign. In the meantime and in order to avoid
embedding higher inflation into the system, settlements have focused on
one-off compensatory catch-up payments rather than multi-year increases in
general pay.
In the absence of clarity around inflation and given the uncertainty about the
duration and extent of central bank interest rate increase programmes,
financial markets inevitably performed poorly in 2022 with the post-Covid
recovery stalling and the major equity markets ended the year in negative
territory, as noted in the Chairman’s statement above.
A more significant effect, however, was seen in the bond markets which
suffered their sharpest falls since 2008 as the higher interest rate
environment impacted prices significantly and large-scale government bond
issuance programmes were implemented to repair central bank balance sheets
following their multi-year quantitative easing programmes and to finance
government deficits. These drivers pushed up yields for all issuers,
governmental and corporate alike, and over all maturities.
In the UK in particular, this strain on the government bond market was
exacerbated by the ill-advised but thankfully short-lived policy errors of the
equally short-lived Truss government which in September attempted to introduce
un-costed and unfunded tax reductions at a time of high government debt and
financing needs, leading to meltdown in a particular part of the Gilt market
in relation to pension funds which required fast and significant Bank of
England intervention.
Since that time, bond market volatility and valuation issues derived from
interest rate increases have caused other significant areas of difficulty.
Notably, in relation to confidence in banks, particularly those with certain
vulnerabilities for example a record of poor management or repeated scandals
(such as Credit Suisse in Switzerland) or an underlying portfolio risk
management problem (such as Silicon Valley Bank in the USA). Even though very
large in size and considered solvent and ostensibly operating well within
their regulatory capital requirements, confidence in even these institutions
disappeared quickly over the last few months as deposits were withdrawn by
their customers and their share prices collapsed, precipitating further
deposit withdrawals and ultimately requiring rescues to be engineered by their
respective governments in order to preserve vital confidence in the wider
banking market.
This was a wholly unexpected and worrying development which prompts further
and more specific examination of the workings of banks within today’s much
more dynamic and customer/investor empowered world where deposits can be
withdrawn or switched at the press of a button, even by smaller retail
customers using internet banking apps, or by professional funds taking
advantage of a speculative and self-fulfilling interplay between listed
banks’ stock market values and confidence in their deposit bases.
It appears that, in addition to their loan portfolios, banks must now consider
concentration and quality of risk in their deposit bases, which have proved to
be more volatile and susceptible to adverse publicity than expected, if they
are to avoid the contagion which has been seen in recent months between
falling bank equity prices - likely exacerbated by professional short selling
funds - and deposit withdrawals, leading ultimately to failure or enforced
rescue by the authorities.
Further work is now also being undertaken by governments to re-assess the
strength and coverage of bank capital adequacy rules, which had for instance
been weakened in the USA in the case of banks not considered systemic during
the Trump administration, and was possibly a contributing factor in the
Silicon Valley Bank failure. An examination of the adequacy of state deposit
guarantee schemes is also now being called for in response to the new and
systemic risks to confidence in banks posed by the promulgation of
misinformation via social media and 24 hour reporting.
This recent unexpected vulnerability in the banking sector, taken together
with the undoubted pain which substantially higher rates have brought to
companies, home owners and indeed investors as wages fall in real terms,
mortgage interest payments double and the asset bubbles built up over years of
ultra-low interest rates collapse will now be giving central banks some moment
of reflection in relation to their continued programmes of interest rate rises
and monetary tightening. As reductions in inflation levels become more
evident, central banks will have to balance the risks of keeping inflation
higher for longer with the risks of possible long term damage to their
economies if interest rates are kept too high for too long.
Equity markets have recently begun to sense the approach of a potential pivot
point in interest rates and have shown some resilience since the sell-off in
the fourth quarter of 2022 following the mis-handled UK ‘mini-budget’
which had repercussions in both the bond and equity markets, and despite
moments of uncertainty in the first quarter of 2023 when fears of a more
widespread contagion in banks persisted and temporarily depressed markets.
This equity market resilience has been further supported by the unexpectedly
firm economic performance of leading economies which so far have avoided
expectations of downturns by the end of 2022 and into 2023, remaining flat
instead. In the case of the USA, the economy grew by 2.5 percent in 2022 and
is expected to grow by 3.0 percent in the current year.
In the UK, an expected technical recession in the last quarter of 2022,
particularly in the aftermath of the mis-handled autumn mini-budget, did not
materialise and the government expects recession to be avoided in 2023 with
activity in retail, hospitality and construction continuing to perform better
than expected, despite the recently announced misgivings of the IMF which has
consistently under-estimated UK growth levels in recent years.
The reasons for this unexpected resilience in the UK economy could be partly
the result of the high levels of savings built up during the Covid years when
salaries were still being paid through government support schemes but not
fully utilised due to general inactivity associated with the pandemic
lockdowns. Since then, the sense of relief in the population at the end of the
pandemic has encouraged a burst of spending, particularly in hospitality and
travel, which has so far not been totally restrained by the sharply rising
interest rates and costs of living.
Geron Corporation
As noted in the Chairman’s statement above, the value of our largest US
investment in Geron Corporation increased substantially in 2022, by 120
percent in sterling terms, allowing our portfolio to outperform for the year
as a whole, as the stock price rose strongly in anticipation of important
Phase 3 clinical trial results due in early 2023.
Those results were duly announced on 4th January and were as positive as the
market had been expecting, confirming in a larger patient population the
results of the prior Phase 2 trials which had showed significant and
unprecedented success in the treatment of Myelodysplastic Syndrome (MDS), a
serious haematological cancer disorder with no long-term cure requiring
lifetime and debilitating blood transfusions and leading ultimately to an
early death.
Immediately upon announcement of the news, Geron’s share price rose by 67
percent from $2.40 to $4.00, building on the large gain already registered in
2022 as a whole. During the day, however, the share price steadily declined to
$3.12 on large volume of approximately 120 million shares, being 50 times
normal levels and representing around 30 percent of the total shares
outstanding. It was not until after market close on the same day, however,
that the company announced a previously unexpected and un-flagged secondary
share offering led by a new financier to the company, to be priced on a
book-building basis for new shares representing approximately 20 percent of
the market capitalisation of the company. On the next day, the stock price
decreased further to $2.48 on volume of 40 million shares and after market
close that day, the company announced that the secondary offering of over 90
million shares and warrants, including over-allotment shares, had been priced
at $2.45.
It seems quite extraordinary that price sensitive information of such
importance and of such potentially price negative effect could reasonably have
been withheld and not released at the same time as the good and price positive
news concerning the successful clinical trial results announced at the
beginning of the same day. The withholding of this price sensitive information
during the day’s trading session had the effect of artificially inflating
the stock price in the absence of full publication of relevant information,
leading investors to purchase stock at prices based on incomplete information
and indeed giving those potential investors participating in the
contemporaneous but at that time unannounced secondary issue the opportunity
to short stock ahead of the pricing of the issue and thereby to profit from
the exercise, at the expense of existing investors.
It should be said that such activities, were they to have occurred in the UK,
could well have been in breach of the regulations relating to market abuse and
the Listing Rules of the London Stock Exchange. It is extraordinary and highly
damaging that such activities could be permitted under the rules of any
properly regulated stock exchange interested in protecting the interests of
investors trading on that exchange.
The correct approach would have been for the company either to make a full
announcement of the results and equity financing simultaneously in the normal
way to avoid a false market in its stock or to allow the stock price to find a
new and price-discovered level in the market after the release of the positive
results prior to proceeding with the financing at a later stage. Such
financing could then be based on a properly re-valued stock price. In this
way, the managers of the financing would have been required to do the job they
were paid for of finding new investors in the company at a fair price both to
the company and existing investors given all the circumstances and not to be
able to take advantage of a highly predictable yet false price movement in the
market to the financial detriment of the company and its investors.
Since these events in January, Geron’s stock price fell further below the
secondary issue price by more than 20 percent and to well below its
pre-announcement level. It has also underperformed the Nasdaq and
Biotechnology indices by 35 percent and 45 percent, respectively, over this
short period of 10 weeks. It would appear, therefore, that despite Geron’s
very promising future prospects, as confirmed by the positive trial results
announced in January, investor confidence in the stock has again been badly
shaken by these damaging and investor-unfriendly market operations, which are
similar to those we have had cause to comment upon and criticise many times in
the past. Investor confidence was then further undermined in February when
senior management sold significant numbers of shares upon the expiry of
in-the-money share options under the company’s senior management share
option programme, giving a further poor signal to the market.
It is very disappointing to see that even at times of imminent success,
Geron’s management and by extension its stock price fail to perform in line
with what the company’s long-term investors reasonably deserve and can
justifiably expect. Notwithstanding this market-related disappointment, the
value of Geron’s technology will we believe eventually be properly priced
through a transparent and un-adulterated price discovery process in the market
and will yield superior returns to its long term investors such as
ourselves. We believe this re-rating can be expected within a short time
frame given the end-point now successfully reached by Geron in this particular
clinical trials process, either emanating from a long-overdue corporate action
within the sector or upon gaining the anticipated official approval later this
year of its ground-breaking Imetelstat drug and commencement of commercial
sales, for which the company confirmed it had the necessary funding even
before the recent equity issue.
Short selling
Finally, given its relevance to the major holdings in our portfolio, it is
worth again drawing attention to what can be the very detrimental effects of
shorting on market transparency, corporate well-being and shareholder
interests in specific sectors of the market.
While many consider that shorting provides much needed liquidity to markets,
unless it is properly controlled and understood, which in many instances it
seems not to be, it can also have seriously negative and damaging effects on a
number of vital market sectors.
It will be recalled for instance that at the time of the financial crisis in
2008/9, regulators imposed co-ordinated bans on shorting bank stocks to limit
contagious bank runs and preserve confidence generally in the banking system.
The prescience of this move has been underlined in recent weeks in the case of
the bank failures/rescues described above where the interplay between the
stock prices of listed banks – likely further depressed at the time by
shorting - and the consequential mass withdrawals of their deposits, no doubt
magnified by a ‘rinse and repeat’ effect, played a major part in these
failures.
Shorting can have a similarly detrimental effect on certain other industries
requiring high levels of liquidity based primarily on confidence rather than
underlying financial worth. Biotechnology is such an industry, where
companies rely in their early stages of development on the injection of
considerable amounts of bank or equity finance for long periods of time to
support their multi-year development programmes with no underlying sales,
income or tangible assets during this period to support their valuations and
share prices or to secure their loans. It is therefore essentially financing
based on an albeit calculated hope of future success.
Short sellers know very well that these companies require substantial
injections of funds consistently over a long period of time and they therefore
become an easy target for unscrupulous market operators who are able to sell
down the stock to any desired level because of the lack of any verifiable
value basis, prior to being able to close such positions either sooner or
later via the company’s next new stock issuance at a price lower than that
at which they had previously shorted and at little risk, therefore, to
themselves. The fact that in the majority of cases each new equity issuance in
a series of equity issuances over the years is generally struck at an ever
declining price (a function of the share dilution inherent in the process)
provides validation of this lucrative but pernicious business model for short
sellers.
While it cannot be avoided that biotech and other similar long-development
technology companies are ultimately in the hands of those entities providing
them with finance, the uncontrolled ability of these providers to manipulate
the outcomes of these operations to their own financial advantage and limited
risk but to the disadvantage of the companies and their shareholders is very
damaging to the proper valuation and operation of these important business
going forward and eventually to the market in general. A review of these
practices and their operation in the public markets is therefore urgently
called for.
Jonathan Woolf
27 April 2023
Income statement
For the year ended 31 December 2022
2022 2021
Revenue return Capital return Total Revenue return Capital return Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Investment income (note 2) 1,156 - 1,156 1,439 - 1,439
Holding gains on investments at fair value through profit or loss - 579 579 - 1,028 1,028
Losses on disposal of investments at fair value through profit or loss* - (294) (294) - (585) (585)
Foreign exchange gains/(losses) (40) 277 237 (4) 22 18
Expenses (424) (250) (674) (422) (243) (665)
________ ________ ________ ________ ________ ________
Profit before finance costs and tax 692 312 1,004 1,013 222 1,235
Finance costs (34) (10) (44) (35) (4) (39)
________ ________ ________ ________ ________ ________
Profit before tax 658 302 960 978 218 1,196
Tax 16 - 16 36 - 36
________ ________ ________ ________ ________ ________
Profit for the year 674 302 976 1,014 218 1,232
________ ________ ________ ________ ________ ________
Earnings per share
Basic and diluted - ordinary shares** 1.30p 1.21p 2.51p 2.66p 0.87p 3.53p
________ ________ ________ ________ ________ ________
The company does not have any income or expense that is not included in the
profit/(loss) for the year. Accordingly, the ‘Profit 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 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.
*Losses on disposal of investments at fair value through profit or loss
include Gains on sales of £9,000 (2021 – £270,000 losses) and Losses on
provision for liabilities and charges of £303,000 (2021 – £315,000
losses).
**Calculated in accordance with International Accounting Standard 33
‘Earnings per Share’. Conversion of the preference shares will have an
antidilutive effect. Upon conversion of the preference shares to ordinary
shares the anti-diluted earnings per share would be 1.93p (2021 – 2.90p)
(revenue return).
Statement of changes in equity
For the year ended 31 December 2022
Share capital Capital reserve Retained earnings Total
£ 000 £ 000 £ 000 £ 000
Balance at 31 December 2020 35,000 (28,448) 168 6,720
Changes in equity for 2021
Profit for the period - 218 1,014 1,232
Ordinary dividend paid (note 4) - - (875) (875)
Preference dividend paid (note 4) - - (350) (350)
________ ________ ________ ________
Balance at 31 December 2021 35,000 (28,230) (43) 6,727
Changes in equity for 2022
Profit for the period - 302 674 976
Ordinary dividend paid (note 4) - - (437) (437)
Preference dividend paid (note 4) - - (175) (175)
________ ________ ________ ________
Balance at 31 December 2022 35,000 (27,928) 19 7,091
________ ________ ________ ________
Registered number: 00433137
Balance Sheet
At 31 December 2022
2022 2021
£ 000 £ 000
Non-current assets
Investments - at fair value through profit or loss 5,600 6,124
Investment in subsidiaries - at fair value through profit or loss 7,712 6,707
__________ __________
13,312 12,831
Current assets
Receivables 442 535
Cash and cash equivalents 45 83
__________ __________
487 618
__________ __________
Total assets 13,799 13,449
__________ __________
Current liabilities
Trade and other payables 1,794 2,129
Bank credit facility 1,018 619
__________ __________
(2,812) (2,748)
__________ __________
Total assets less current liabilities 10,987 10,701
__________ __________
Non - current liabilities (3,896) (3,974)
__________ __________
Net assets 7,091 6,727
__________ __________
Equity attributable to equity holders
Ordinary share capital 25,000 25,000
Convertible preference share capital 10,000 10,000
Capital reserve (27,928) (28,230)
Retained revenue earnings 19 (43)
__________ __________
Total equity 7,091 6,727
__________ __________
Approved: 27 April 2023
Cash flow statement
For the year ended 31 December 2022
Year ended 2022 Year ended 2021
£ 000 £ 000
Cash flows from operating activities
Profit before tax 960 1,196
Adjustments for:
Gains on investments (285) (443)
Dividends in specie - (78)
Proceeds on disposal of investments at fair value through profit and loss 548 1,708
Purchases of investments at fair value through profit and loss (441) (1,610)
Finance costs 44 39
__________ __________
Operating cash flows before movements in working capital 826 812
Decrease in receivables 109 551
Decrease in payables (1,351) (549)
__________ __________
Net cash from operating activities before interest (416) 814
Interest paid (21) (7)
__________ __________
Net cash from operating activities (437) 807
Cash flows from financing activities
Dividends paid on ordinary shares - (875)
Dividends paid on preference shares - (175)
__________ __________
Net cash used in financing activities - (1,050)
__________ __________
Net decrease in cash and cash equivalents (437) (243)
Cash and cash equivalents at beginning of year (536) (293)
__________ __________
Cash and cash equivalents at end of year (973) (536)
__________ __________
Purchases and sales of investments are considered to be operating activities
of the company, given its purpose, rather than investing activities. Cash and
cash equivalents at year end shows net movement on the bank facility.
1 Basis of preparation and going concern
The financial information set out above contains the financial information of
the company for the year ended 31 December 2022. The company has prepared its
financial statements under IFRS. The financial statements have been prepared
on a going concern basis adopting the historical cost convention except for
the measurement at fair value of investments, derivative financial instruments
and subsidiaries.
The information for the year ended 31 December 2022 is an extract from the
statutory accounts to that date. Statutory company accounts for 2021, which
were prepared under IFRS as adopted by the UK, have been delivered to the
registrar of companies and company statutory accounts for 2022, prepared under
IFRS as adopted by the UK, will be delivered in due course.
The auditors have reported on the 31 December 2022 year end accounts and their
report was unqualified and did not include references to any matters to which
the auditors drew attention by way of emphasis without qualifying their
reports and did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
The directors, having made enquiries, consider that the company has adequate
financial resources to enable it to continue in operational existence for the
foreseeable future. Accordingly, the directors believe that it is appropriate
to continue to adopt the going concern basis in preparing the company's
accounts.
2 Income
2022 2021
£ 000 £ 000
Income from investments
UK dividends 89 391
Dividend from subsidiary 1,001 907
_________ _________
1,090 1,298
Other income 66 71
Other - 70
_________ __________
Total income 1,156 1,439
_________ __________
Total income comprises:
Dividends 1,090 1,298
Other interest 66 141
_________ __________
1,156 1,439
_________ __________
Dividends from investments
Listed investments 89 391
Unlisted investments 1,001 907
_________ __________
1,090 1,298
_________ __________
During the year the company received a dividend of £1,001,000 (2021 -
£907,000) from a subsidiary which was generated from gains made on the
realisation of investments held by that company. As a result of the receipt of
this dividend a corresponding reduction was recognised in the value of the
investment in the subsidiary company.
Of the £1,090,000 (2021 – £1,298,000) dividends received, £nil (2021 –
£204,000) related to special and other dividends received from investee
companies that were bought after the dividend announcement. There was a
corresponding capital loss of £nil (2021 – £249,000), on these
investments.
During the year the company recognised £317,000 of a foreign exchange gain on
the loan of $3,526,000 to a subsidiary. As a result of this gain, the
corresponding movement was recognised in the value of the investment in the
subsidiary company.
Under IFRS 10 the income analysis is for the parent company only rather than
that of the consolidated group. Thus, film revenues of £107,000 (2021 –
£171,000) received by the subsidiary British & American Films Limited and
property unit trust income of £1,000 (2021 – £2,000) received by the
subsidiary BritAm Investments Limited are shown separately in this
paragraph.
3 Earnings per ordinary share
The calculation of the basic (after deduction of preference dividend) and
diluted earnings per share is based on the following data:
2022 2021
Revenue return Capital return Total Revenue return Capital return Total
£ 000 £ 000 £ 000 £ 000 £ 000 £ 000
Earnings:
Basic and diluted 324 302 626 664 218 882
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 (2021: 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 (2021: 35
million) ordinary and preference shares in issue.
*Calculated in accordance with International Accounting Standard 33
‘Earnings per Share’. Conversion of the preference shares will have an
antidilutive effect. Upon conversion of the preference shares to ordinary
shares the anti-diluted earnings per share would be 1.93p (2021 – 2.90p)
(revenue return).
4 Dividends
2022 2021
£ 000 £ 000
Amounts recognised as distributions to equity holders in the period
Dividends on ordinary shares:
Final dividend for the year ended 31 December 2021 of 0.0p (2020: 0.0p) per share - -
First interim dividend for the year ended 31 December 2022 of 1.75p (2021: 2.7p) per share 437 675
Second interim dividend for the year ended 31 December 2022 of 0.0p (2021: 0.8p) per share - 200
__________ __________
437 875
__________ __________
Proposed final dividend for the year ended 31 December 2022 of 0.0p (2021: 0.0p) per share - -
__________ __________
Dividends on 3.5% cumulative convertible preference shares:
Preference dividend for the 6 months ended 31 December 2021 of 0.00p (2020: 0.00p) per share - -
Preference dividend for the 6 months ended 30 June 2022 of 0.0p (2021: 1.75p) per share - 175
Preference dividend for the 6 months ended 31 December 2022 of 1.75p (2021: 1.75p) per share 175 175
__________ __________
175 350
__________ __________
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
2022 2021
£ 000 £ 000
Dividends on ordinary shares:
First interim dividend for the year ended 31 December 2022 of 1.75p (2021: 2.7p) per share 437 675
Second interim dividend for the year ended 31 December 2022 of 0.0p (2021: 0.8p) per share - 200
Proposed final dividend for the year ended 31 December 2022 of 0.0p (2021: 0.0p) per share - -
__________ __________
437 875
__________ __________
Dividends on 3.5% cumulative convertible preference shares:
Preference dividend for the 6 months ended 30 June 2022 of 0.00p (2021: 1.75p) per share - 175
Preference dividend for the 6 months ended 31 December 2022 of 1.75p (2021: 1.75p) per share 175 175
__________ __________
175 350
__________ __________
The non-payment in December 2019, December 2020 and June 2022 of the dividend
of 1.75 pence per share on the 3.5% cumulative convertible preference shares,
consequent upon the non-payment of a final dividend on the Ordinary shares for
the year ended 31 December 2019, for the year ended 31 December 2020 and for
the period ended 30 June 2022, has resulted in arrears of £525,000 on the
3.5% cumulative convertible preference shares. These arrears will become
payable in the event that the ordinary shares receive, in any financial year,
a dividend on par value in excess of 3.5%.
Interim dividend declared for the year ended 31 December 2022 of 1.75 pence
per ordinary share was paid on 22 December 2022 to shareholders on the
register at 9 December 2022. A preference dividend of 1.75 pence was paid to
preference shareholders on the same date.
5 Net asset values
Net asset value per share
2022 2021
Ordinary shares £ £
Diluted 0.20 0.19
Undiluted 0.20 0.19
Net assets attributable
2022 2021
£ 000 £ 000
Total net assets 7,091 6,727
Less convertible preference shares at fully diluted value (2,026) (1,922)
__________ __________
Net assets attributable to ordinary shareholders 5,065 4,805
__________ __________
The undiluted and diluted net asset values per £1 ordinary share are based on
net assets at the year end and 25 million (undiluted) ordinary and 35 million
(diluted) ordinary and preference shares in issue.
Principal risks and uncertainties
The principal risks facing the company relate to its investment activities and
include market risk (other price risk, interest rate risk and currency risk),
liquidity risk and credit risk. The other principal risks to the company are
loss of investment trust status and operational risk. These will be explained
in more detail in the notes to the 2022 Annual Report and Accounts, but remain
unchanged from those published in the 2021 Annual Report and Accounts.
Related party transactions
The company rents its offices from Romulus Films Limited, and is also charged
for its office overheads.
The salaries and pensions of the company’s employees, except for the
non-executive directors and one employee are paid by Remus Films Limited and
Romulus Films Limited and are recharged to the company.
During the year the company did not enter into any investment transactions
with British & American Films Limited (2021 – £772,000 sale) or BritAm
Investments Limited (2021 – £711,000 purchase).
At 31 December 2022 £4,132,163 (2021 – £4,084,909) was owed by British &
American Films Limited to Romulus Films Limited under an existing loan
agreement.
There have been no other related party transactions during the period, which
have materially affected the financial position or performance of the company.
Capital Structure
The company's capital comprises £35,000,000 (2021 – £35,000,000) being
25,000,000 ordinary shares of £1 (2021 – 25,000,000) and 10,000,000
non-voting convertible preference shares of £1 each (2021 – 10,000,000).
The rights attaching to the shares will be explained in more detail in the
notes to the 2022 Annual Report and Accounts, but remain unchanged from those
published in the 2021 Annual Report and Accounts.
Directors’ responsibility statement
The directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. The directors confirm that to
the best of their knowledge the financial statements prepared in accordance
with the applicable set of accounting standards, give a true and fair view of
the assets, liabilities, financial position and the (loss)/profit of the
company and that the Chairman’s Statement, Managing Director's Report and
the Directors’ report include a fair review of the information required by
rules 4.1.8R to 4.2.11R of the FSA’s Disclosure and Transparency Rules,
together with a description of the principal risks and uncertainties that the
company faces.
Annual General Meeting
This year’s Annual General Meeting has been convened for Thursday 29 June
2023 at 12.15pm at Wessex House, 1 Chesham Street, London SW1X 8ND.
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