REG-British & American: Half-year Report
30/10/2020 12:00
BRITISH & AMERICAN INVESTMENT TRUST PLC
FINANCIAL HIGHLIGHTS
For the six months ended 30 June 2020
Unaudited Unaudited 6 months to 30 June 2019 £’000 Audited Year ended 31 December 2019 £’000
6 months to 30 June
2020 £’000
Revenue
Return before tax 989 356 862
_________ _________ _________
Earnings per £1 ordinary shares – basic (note 5) 3.31p 0.77p 2.26p
_________ _________ _________
Earnings per £1 ordinary shares – diluted (note 5) 2.86p 1.05p 2.61p
_________ _________ _________
Capital
Total equity 7,888 8,243 6,504
_________ _________ _________
Revenue reserve (note 9) 1,112 414 110
_________ _________ _________
Capital reserve (note 9) (28,224) (27,171) (28,606)
_________ _________ _________
Net assets per ordinary share (note 6)
- Basic £0.23 £0.24 £0.19
_________ _________ _________
- Diluted £0.23 £0.24 £0.19
_________ _________ _________
Diluted net assets per ordinary share at 28 October 2020 £0.20
_________
Dividends*
Dividends per ordinary share (note 4) 2.7p 2.7p 2.7p
_________ _________ _________
Dividends per preference share (note 4) 1.75p 1.75p 1.75p
_________ _________ _________
Basic net assets and earnings per share are calculated using a value of fully
diluted net asset value for the preference shares.
*Dividends declared for the period. Dividends shown in the accounts are, by
contrast, dividends paid or approved
in the period.
Copies of this report will be posted to shareholders and be available for
download at the company’s website: www.baitgroup.co.uk.
INVESTMENT PORTFOLIO
As at 30 June 2020
Company Nature of Business Valuation Percentageof portfolio
£’000 %
Geron Corporation (USA) Biomedical 2,925 23.17
Dunedin Income Growth Investment Trust 1,920 15.21
Lineage Cell Therapeutics (USA) Biotechnology 1,053 8.34
Aberdeen Diversified Income & Growth Investment Trust 655 5.19
AgeX (USA) Biotechnology 92 0.73
________ ________
Braemar Shipping Services Transport 56 0.44
B.S.D. Crown Software and computer services 25 0.20
OncoCyte (USA) Biotechnology 23 0.18
ADVFN Other financial 20 0.16
Audioboom Group Media 19 0.15
________ ________
10 Largest investments (excluding subsidiaries) 6,788 53.77
Investment in subsidiaries 5,822 46.11
Other investments (number of holdings: 6) 16 0.12
________ ________
Total investments 12,626 100.00
________ ________
Unaudited Interim Report
As at 30 June 2020
Registered number: 433137
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) London SW1X 8ND
Alex Tamlyn (Non-executive) Telephone: 020 7201 3100
Website: www.baitgroup.co.uk
Chairman’s Statement
I report on our results for the six months to 30 June 2020.
As previously noted in our 2019 annual report, these interim results are
released one month later than usual in accordance with the extended reporting
deadlines introduced by the Financial Conduct Authority (FCA) for listed
companies due to the Coronavirus (COVID-19) pandemic.
Revenue
The profit on the revenue account before tax amounted to £1.0 million (30
June 2019: £0.4 million), an increase of 177.8 percent. This was due to an
increased level of income received from our subsidiary companies.
Gross revenues totalled £1.27 million (2019: £0.6 million) during the
period. In addition, film income of £29,000 (30 June 2019: £31,000) and
property unit trust income of £7,000 (30 June 2019: £7,000) was received in
our subsidiary companies. In accordance with IFRS10, these income streams are
not included within the revenue figures noted above.
A gain of £0.5 million (30 June 2019: £1.8 million gain) was registered on
the capital account before capitalised expenses and foreign exchange
gains/losses, comprising a realised loss of £0.7 million (30 June 2019: £0.2
million loss) and an unrealised gain of £1.2 million (30 June 2019: £1.9
million gain).
Revenue earnings per ordinary share were 3.3 pence on an undiluted basis (30
June 2019: 0.8 pence) and 2.9 pence on a fully diluted basis (30 June 2019:
1.0 pence).
Net Assets and performance
Company net assets were £7.9 million (£6.5 million, at 31 December 2019), an
increase of 21.3 percent. Over the same six month period, the FTSE 100 index
decreased by 18.2 percent and the All Share index decreased by 18.7 percent.
The net asset value per £1 ordinary share was 23 pence on a fully diluted
basis.
This increase in net assets over the period and substantial outperformance
compared to our benchmark indices was primarily the result of gains of 60
percent in the value of our largest US holding, Geron Corporation. As noted
in our annual report at the end of June, this increase reflected the ongoing
recovery in market perception of Geron after a severe reversal in valuation in
2018 following the unexpected withdrawal of its partner Johnson & Johnson.
Since that time, Geron has worked steadily to demonstrate that its clinical
oncology drug programme remains on track with ever improving results. During
the period, a number of positive developments have occurred, including the
announcement of FDA agreement for a second Phase 3 trial (in Myelofibrosis,
MF) to add to its continuing Phase 3 trial (in Myelodysplastic Syndrome, MDS)
and the completion of a $150 million equity fundraising in which leading
biotech sector investment funds took large positions. In addition, leading
market analysts covering Geron have maintained or increased their value
targets for Geron’s share price at many multiples of current value.
The Covid-19 pandemic which struck in the first half of 2020 has wreaked havoc
on the economies, everyday activities and livelihoods of people in most
countries in the world. From an initial epidemic in China in January, the
disease spread quickly to Europe and the USA by the end of the first
quarter. Strict lockdown measures introduced at that point to curtail the
outbreak severely impacted citizens’ daily lives, jobs and the working of
their economies. As a corollary to the lockdowns, governments were forced to
provide unprecedented levels of financial and fiscal support through novel
mechanisms such as guaranteed emergency loans and furlough arrangements to
both corporations and individuals through this period.
The measures proved to be generally effective and by the end of the second
quarter the rapid growth in the infection rate, hospitalisations and deaths
was first stabilised and then reduced to substantially lower levels.
Additionally, many jobs in those industries forced to shut their doors were
kept open through extensive government-supported furlough arrangements.
Most governments had readily accepted that in the trade-off between protecting
citizens, particularly the elderly, from the disease and the economic damage
caused by shutting down everyday activity, protection of citizens was
paramount. As a result, never before seen disruption to economic activity
occurred in the first half of 2020, with GDP falling by 23 percent in the UK
and 35 percent in the USA. The bulk of this fall occurred in the second
quarter coinciding with the severest lockdown period when GDP in the UK fell
by 20 percent and by 30 percent in the USA.
Against this highly uncertain background, equities have unsurprisingly
experienced a very high degree of volatility over the period. In the UK, the
leading index fell by almost 35 percent over 10 days at the end of the first
quarter but by the end of the second quarter had recovered by 23 percent,
resulting in a decline of 18 percent over the first half. A similar drop was
seen in the USA but the recovery in prices was much stronger with the leading
index recovering most of its losses by the half year and even returning
briefly to year opening levels by August.
Equities were already standing at relatively high levels by the end of 2019
following a ten year bull run since the financial crisis of 2008/9 and so it
is somewhat surprising that the shock delivered to the world economic system
by Covid-19 did not result in more retracement by the time the first wave of
the pandemic had passed through the system at the half year, particularly
since the outlook for effective medical treatments or vaccines continues to
remain unsure for the time being. Forces supporting investment in equities
which have been in evidence for some time, including ultra low and in some
cases negative interest rates, quantative easing programmes and highly
accommodative future policy indications from the US Federal Reserve, together
with an absence of interest in other asset classes such as commodities, real
estate, fixed interest securities and even cash have continued to support
equity prices despite the effects of the pandemic.
As noted in my previous statement, our holdings of Geron and other US
biotechnology stocks which do not track general market movements so closely
have allowed us to avoid the more extreme effects of this volatility and have
in fact enabled us in this period to outperform our benchmarks
significantly.
Dividend
We intend to pay an interim dividend of 2.7 pence per ordinary share on 10
December 2020 to shareholders on the register at 20 November 2020. This
represents an unchanged dividend from last year’s interim dividend and a
yield of approximately 9 percent on the ordinary share price averaged over the
period. A preference dividend of 1.75 pence will be paid to preference
shareholders on the same date.
Outlook
The Covid-19 pandemic and the plethora of other major issues, financial,
economic and geopolitical which have been present and growing for some time as
we have reported on previous occasions make any enlightened view on the
outlook for investment over the coming period virtually impossible.
It has become evident that the effects of the pandemic are likely to last
longer than perhaps originally expected as governments grapple with the
realities of exiting the lockdowns without returning to the high levels of
infection and death of the first half of the year.
The dramatic falls in GDP seen in the first half have partially reversed as
countries started to dismantle the severest restrictions and gradually return
towards normalcy. However, the lightened levels of restrictions introduced
in recent months have resulted in new and rapid growth in the infection rate
in many countries and in some areas of the UK have recently necessitated the
re-imposition of increased localised restrictions over an as yet unknown
timeframe. This will inevitably result in a slowing of the recovery in GDP
and, as governments reduce the levels of emergency support, to long term
damage to many sectors of the economy and the permanent loss of jobs. It
seems unavoidable that a significant amount of economic activity will now be
permanently lost.
To counter this and other negative economic trends, governments, central banks
and international agencies such as the IMF continue to push strongly for
continued monetary and fiscal stimulus for an indeterminate period which
should support equity prices through this crisis.
Having trimmed some of our general sterling based investments over the last
two years which we do not expect to replace in the foreseeable future, our
portfolio has become more focused on our US biopharma investments which do not
tend to track general market movements and which we believe hold significant
investment promise as they progress steadily towards commercialisation of
their ground-breaking and valuable technologies.
As at 28 October, company net assets were £7.0 million, a decrease of 10.7
percent since 30 June. This compares with a decrease in the FTSE 100 index of
9.5 percent and a decrease of 7.5 percent in the All Share index over the same
period, and is equivalent to 20.1 pence per share (prior charges deducted at
fully diluted value) and 20.1 pence per share on a fully diluted basis.
David Seligman
30 October 2020
Managing Director’s Report
This time last year I reported that US and UK equity markets had entered one
of the longest periods of uninterrupted growth on record, with the UK market
growing by 105 percent and the US market growing by 275 percent over the
preceding 10 years. While it was noted at the time that numerous and growing
headwinds made it unlikely that such increases would continue uninterrupted,
little was it realised that the catastrophe of the Covid-19 pandemic would
strike in just a few short months, not only halting the growth in equity
markets abruptly in the first quarter of this year but, in the case of the UK,
taking the market back by the end of the quarter to its level of the last
financial crisis in 2008/9, with falls of well over 30 percent. A veritable
‘black swan’ event.
Equity markets quickly rebounded in the second quarter to recover
approximately 50 percent of their falls of the first quarter, as swift and
comprehensive interventions by governments curtailed the uncontrolled growth
of the virus. However, there was a growing realisation over the summer
months that, in the absence of effective treatments or the quick availability
of a new vaccine, the virus would return in a second wave as the initially
severe restrictions were reduced to restart economies and as the winter
approached. The equity market in the UK has therefore weakened again in the
third quarter and has not sustained the recovery of the second quarter.
In the USA, which has followed a somewhat different and much less focussed
policy towards Covid-19, the equity market has continued its recovery back to
almost pre-pandemic levels. This reflects the lesser emphasis on and in some
quarters misplaced scepticism of the dangers of the virus in favour of
maintaining economic activity or personal liberties. In addition, the Federal
Reserve implemented significant additional monetary stimulus through a change
to its inflation targeting policy, switching from a fixed ceiling of 2 percent
to an average target of 2 percent over time. This is designed to allow the
economy to ‘run hotter’. At the same time it has also made unprecedented
long-term commitments to maintain interest rates at their near zero level for
a number of years.
Although the US federal government has not yet been able to agree a
continuation in some form of the financial assistance measures given to
citizens and corporations during the height of the pandemic earlier this year,
which will inevitably lead to lowered levels of growth and increased
joblessness in the USA over the coming period, the actions of the Federal
Reserve to pump large and long term amounts of liquidity into the economy has
supported equity prices over the last few months despite the virus continuing
to take its toll in the USA.
Looking forward, it is generally believed that even if one or more effective
vaccines are approved and become available in early 2021, large scale adoption
of these or other treatments heralding a turning point in the fight against
the virus will not be seen before the end of next year. Thus, sustained return
to normal social and economic activity is unlikely to be seen before 2022.
Consequently, the outlook for economic recovery remains very uncertain for the
medium term. This is compounded by all the other concomitants of this
devastating pandemic, including a permanent loss of economic activity and
likely permanent changes to the way social interaction and business activities
are conducted in the future. In the short term, a significant loss of jobs
and even of whole businesses is anticipated as governments modulate their
hitherto comprehensive financial rescue and stimulus measures in order to
reduce pressure on the public finances.
In these circumstances, it is extremely difficult for investors to know where
sensibly and safely to commit their investment funds over the coming years. A
brief summary of the perceived prospects in the current circumstances for
investment in the various mainstream asset classes is given below as an
illustration of this:
Equities. After the 10 year bull run from 2009 to 2019, which was artificially
prolonged in the latter years by US fiscal and monetary stimulus, equity
valuations were standing at historically high levels before the pandemic
struck. All sectors had risen steadily over this period, giving rise to market
multiples well in excess of long term levels; but certain sectors,
particularly technology, far out-ran the market enjoying increases of many
hundreds and in some cases thousands of percent. This year, for example, the
market value of the five leading US tech companies (known as FAANGs) reached
US$ 4 trillion, representing over 15 percent of the value of the entire S&P
500 index. It is these stocks which have led and sustained the bull run in
equities but which have also contributed to market volatility in the current
year. As another example, Apple Corporation achieved a market value of US$ 2
trillion this year which is in excess of the entire value of all the companies
in the FTSE 100 index.
These companies have of course created much value and innovation over the past
few years. Some have also recently benefitted greatly from changed consumer
habits as a result of the pandemic, as well as from the US administration’s
confrontational international trade policy. However, it is plain that the
elevated valuations of these companies and of equities more generally also
derive from the amount of excess liquidity pumped into the system by central
banks together with the perceived lack of palatable alternative mainstream
investment opportunities available to investors under current circumstances.
There is also the forthcoming US presidential election and should a change of
administration occur, it would be likely particularly to place new pressures
on these FAANG companies in terms of changes to the tax regime and their
operations. While such a change might seem disadvantageous to this particular
sector, on a more general level the likely return to more normal and less
erratic government in the USA would be considerably more conducive to the
successful operation of the economy, as recent reactions of the market seem to
indicate.
Fixed interest. Historically the second most favoured global institutional
investment asset, fixed interest bonds currently generate little or even
negative yield over some maturities and are open to the risk of future
inflationary forces, a real prospect following the large-scale fiscal and
monetary stimulus of recent years and in the current year the response to the
pandemic.
Precious metals. Gold and other precious metals have risen strongly over the
past year, with the gold price increasing by 35 percent this year to reach
historic highs, in response to forces such as US dollar weakness, loosened
monetary policy and geopolitical instability. This asset class generates no
income and the combination of factors supporting the current high levels might
very well not continue into the future. The abundance of liquidity which has
created capital growth in this and similar asset classes will inevitably be
withdrawn as inflationary pressures increase in the years to come, although in
these circumstances gold itself would be likely to benefit from resilience at
some level as a hedge against inflation.
Commodities and real estate. These investments are vulnerable to the large
scale and potentially protracted global slowdown which the pandemic has
caused. More generally, changed ways of living following the pandemic in such
areas as consumption, retail and office life could have a major impact on the
future prospects of commercial real estate investment.
Cash. As the investment of final resort in times of severe investment
uncertainty, cash or cash funds have always provided a refuge when other
investments are considered too risky. However, even cash is no longer an
attractive proposition with near zero interest rates and even negative rates
operating in some leading currencies such as the Swiss Franc, Euro, Japanese
Yen, and potentially in prospect for others. Additionally, the prospect of a
return to inflation, which could even potentially become a government policy
goal to address the fast growing levels of public debt, also compounds the
unattractiveness of cash over the longer term.
Investors have therefore seen no alternative but to continue investing in
equities, despite the currently high multiples, the likely economic
uncertainties ahead and an expected downturn in corporate earnings over the
coming period. Even the traditional income generating advantage of equities
has now come under pressure with the familiar pattern of ever increasing
dividends coming to an end this year and even being reversed. As seen with
some of the UK’s leading stocks, dividends have been cut, cancelled or even
in the case of banks been disallowed by government. This year, for example,
40 percent of FTSE 100 companies cut or cancelled their dividends resulting in
a fall of 50 percent in total dividend income for investors.
For all the above reasons and as previously noted, we have been trimming our
exposure to some of our general sterling-based equity investments and continue
with our focused and long-term strategic investments in US biopharma, which
are not so susceptible to the market forces and policy distortions driving
capital valuations at the moment and from which we hope to capture significant
value as they progress steadily towards commercialisation of their
ground-breaking and valuable technologies. As already noted, this investment
approach has enabled us this year significantly to outperform our benchmarks
and we hope to achieve similar results in the periods to come as this
programme matures.
Jonathan Woolf
30 October 2020
CONDENSED INCOME STATEMENT
Six months ended 30 June 2020
Unaudited Unaudited 6 months to 30 June 2019 Audited Year ended 31 December 2019
6 months to 30 June 2020
Note Revenue Capital Total Revenue return £’000 Capital return £’000 Total £’000 Revenue return £’000 Capital return £’000 Total £’000
return return £’000
£’000 £’000
Investment income 3 1,269 - 1,269 597 - 597 1,243 - 1,243
Holding gains on investments at fair value through profit or loss - 1,207 1,207 - 1,925 1,925 - 1,657 1,657
Losses on disposal of investments at fair value through profit or loss - (747) (747) - (152) (152) - (1,113) (1,113)
Foreign exchange gains/(losses) (52) 53 1 (1) (1) (2) 53 (57) (4)
Expenses (199) (119) (318) (215) (116) (331) (381) (242) (623)
_____ _____ _____ _____ _____ _____ _____ _____ _____
Profit before finance costs and tax 1,018 394 1,412 381 1,656 2,037 915 245 1,160
Finance costs (29) (12) (41) (25) (25) (50) (53) (49) (102)
_____ _____ _____ _____ _____ _____ _____ _____ _____
Profit before tax 989 382 1,371 356 1,631 1,987 862 196 1,058
Taxation 13 - 13 12 - 12 52 - 52
_____ _____ _____ _____ _____ _____ _____ _____ _____
Profit for the period 1,002 382 1,384 368 1,631 1,999 914 196 1,110
_____ _____ _____ _____ _____ _____ _____ _____ _____
Earnings per ordinary share 5
Basic 3.31p 1.53p 4.84p 0.77p 6.52p 7.29p 2.26p 0.78p 3.04p
Diluted 2.86p 1.09p 3.95p 1.05p 4.66p 5.71p 2.61p 0.56p 3.17p
The company does not have any income or expense that is not included in profit
for the period and all items derive from continuing operations. Accordingly,
the ‘Profit for the period’ is also the ‘Total Comprehensive Income for
the period’ as defined in IAS 1(revised) and no separate Statement of
Comprehensive Income has been presented.
The total column of this statement is the company’s Income Statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidelines published by the Association
of Investment Companies.
All profit and total comprehensive income is attributable to the equity
holders of the company.
CONDENSED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2020
Unaudited
Six months ended 30 June 2020
Share Capital Retained Total £’000
capital* reserve earnings
£’000 £’000 £’000
Balance at 31 December 2019 35,000 (28,606) 110 6,504
Profit for the period - 382 1,002 1,384
Ordinary dividend paid - - - -
Preference dividend paid - - - -
________ ________ ________ ________
Balance at 30 June 2020 35,000 (28,224) 1,112 7,888
________ ________ ________ ________
Unaudited Six months ended 30 June 2019
Share capital* £’000 Capital reserve £’000 Retained earnings £’000 Total £’000
Balance at 31 December 2018 35,000 (28,802) 1,721 7,919
Profit for the period - 1,631 368 1,999
Ordinary dividend paid - - (1,500) (1,500)
Preference dividend paid - - (175) (175)
________ ________ ________ ________
Balance at 30 June 2019 35,000 (27,171) 414 8,243
________ ________ ________ ________
Audited Year ended 31 December 2019
Share capital* £’000 Capital reserve £’000 Retained earnings £’000 Total £’000
Balance at 31 December 2018 35,000 (28,802) 1,721 7,919
Profit for the period - 196 914 1,110
Ordinary dividend paid - - (2,175) (2,175)
Preference dividend paid - - (350) (350)
________ ________ ________ ________
Balance at 31 December 2019 35,000 (28,606) 110 6,504
________ ________ ________ ________
*The company’s share capital comprises £35,000,000 (2019 - £35,000,000)
being 25,000,000 ordinary shares of £1 (2019 - 25,000,000) and 10,000,000
non-voting convertible preference shares of £1 each (2019 - 10,000,000).
CONDENSED BALANCE SHEET
As at 30 June 2020
Note Unaudited Unaudited 30 June 2019 £’000 Audited 31 December 2019 £’000
30 June
2020 £’000
Non-current assets
Investments – fair value through profit or loss (note 1) 6,804 9,565 6,704
Subsidiaries – fair value through profit or loss 5,822 5,537 5,335
_________ _________ _________
12,626 15,102 12,039
Current assets
Receivables 1,584 3,543 1,588
Cash and cash equivalents 2,192 232 2,504
_________ _________ _________
3,776 3,775 4,092
_________ _________ _________
Total assets 16,402 18,877 16,131
_________ _________ _________
Current liabilities
Trade and other payables (2,359) (1,593) (3,617)
Bank loan (2,843) (2,772) (2,635)
_________ _________ _________
(5,202) (4,365) (6,252)
_________ _________ _________
Total assets less current liabilities 11,200 14,512 9,879
_________ _________ _________
Non – current liabilities (3,312) (6,269) (3,375)
_________ _________ _________
Net assets 7,888 8,243 6,504
_________ _________ _________
Equity attributable to equity holders
Ordinary share capital 25,000 25,000 25,000
Convertible preference share capital 10,000 10,000 10,000
Capital reserve (28,224) (27,171) (28,606)
Retained revenue earnings 1,112 414 110
_________ _________ _________
Total equity 7,888 8,243 6,504
_________ _________ _________
Net assets per ordinary share – basic 6 £0.23 £0.24 £0.19
_________ _________ _________
Net assets per ordinary share – diluted 6 £0.23 £0.24 £0.19
_________ _________ _________
CONDENSED CASHFLOW STATEMENT
Six months ended 30 June 2020
Unaudited Unaudited 6 months to 30 June 2019 £’000 Audited Year ended 31 December 2019 £’000
6 months to
30 June
2020 £’000
Cash flow from operating activities
Profit before tax 1,371 1,987 1,058
Adjustment for:
Gains on investments (460) (1,739) (544)
Proceeds on disposal of investments at fair value
through profit or loss 1,811 7,459 16,316
Purchases of investments at fair value
through profit or loss (2,226) (7,638) (14,521)
Interest 41 50 102
________ ________ ________
Operating cash flows before movements
in working capital 537 119 2,411
(Increase)/decrease in receivables (213) 567 2,417
Decrease in payables (361) (12) (363)
________ ________ ________
Net cash from operating activities
before interest (37) 674 4,465
Interest paid (23) (50) (97)
________ ________ ________
Net cash flows from operating activities (60) 624 4,368
________ ________ ________
Cash flows from financing activities
Dividends paid on ordinary shares (285) (618) (1,778)
Dividends paid on preference shares (175) - (175)
Bank loan 208 (18) (155)
________ ________ ________
Net cash used in financing activities (252) (636) (2,108)
________ ________ ________
Net (decrease)/increase in cash and cash equivalents (312) (12) 2,260
Cash and cash equivalents at beginning of period 2,504 244 244
________ ________ ________
Cash and cash equivalents at end of period 2,192 232 2,504
________ ________ ________
NOTES TO THE COMPANY’S CONDENSED FINANCIAL STATEMENT
1. Accounting policies
Basis of preparation and statement of compliance
This interim report is prepared in accordance with IAS 34 ‘Interim Financial
Reporting’ and on the basis of the accounting policies set out in the
company’s Annual Report and financial statements at 31 December 2019 with
the exception of the application of new accounting standards.
The company’s condensed financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union, 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.
In accordance with IFRS 10, the group does not consolidate its subsidiaries
and therefore instead of preparing group accounts it prepares separate
financial statements for the parent entity only.
The financial statements have been prepared on the historical cost basis
except for the measurement at fair value of investments, derivative financial
instruments, and subsidiaries. The same accounting policies as those published
in the statutory accounts for 31 December 2019 have been applied.
Significant accounting policies
In order to better reflect the activities of an investment trust company and
in accordance with guidance issued by the Association of Investment Companies
(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 entity’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, listed equities and fixed income securities 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 group is provided internally on this basis to the entity’s key
management personnel.
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 as 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 and 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 Stock Exchange quoted market closing prices or last traded prices,
depending upon the convention of the exchange on which the investment is
quoted at the close of business on the balance sheet date. Investments in
units of unit trusts or shares in OEICs are valued at the closing price
released by the relevant investment manager.
In respect of unquoted investments, or where the market for a financial
instrument is not active, fair value is established by using an appropriate
valuation technique.
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 & 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. These
include 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 entered into a guarantee to pay the liabilities if
they fall due.
Dividend income from investments is recognised as income 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 income
in nature. Amounts recognised as income will form part of the company's
distribution. Any tax thereon will follow the accounting treatment of the
principal amount.
All expenses are accounted for on an accruals basis. Expenses are charged as
revenue items in the income statement except as follows:
– transaction costs which are incurred on the purchase or sale of an
investment designated as fair value through profit or loss are expensed and
included in the capital column of the income statement;
– expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the investments
held can be demonstrated, and accordingly investment management and related
costs have been allocated 50% (2019 – 50%) to revenue and 50% (2019 – 50%)
to capital, in order to reflect the directors' long-term view of the nature of
the expected investment returns of the company.
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.
2. Segmental reporting
The directors are of the opinion that the company is engaged in a single
segment of business, that is investment business, and therefore no segmental
reporting is provided.
3. Income
Unaudited Unaudited 6 months to 30 June 2019 £’000 Audited Year ended 31 December 2019 £’000
6 months
to 30 June
2020
£’000
Income from investments 1,226 568 1,185
Other income 43 29 58
_________ _________ _________
1,269 597 1,243
_______ _______ _______
Of the £160,000 (30 June 2019 – £568,000, 31 December 2019 –
£1,185,000) dividends received from listed investments in the company
accounts, £89,000 (30 June 2019 – £434,000, 31 December 2019 –
£879,000) related to special and other dividends received from investee
companies that were bought after the dividend announcement. There was a
corresponding capital loss of £424,000 (30 June 2019 – £498,000, 31
December 2019 – £1,027,000) 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 £29,000 (30 June 2019
- £31,000, 31 December 2019 - £106,000) received by the subsidiary
British & American Films Limited and property unit trust income of £7,000 (30
June 2019 - £7,000, 31 December 2019 - £14,000) received by the subsidiary
BritAm Investments Limited are shown separately in this paragraph for
information purposes.
4. Proposed dividends
Unaudited 6 months to 30 June 2020 Unaudited 6 months to 30 June 2019 Audited Year ended 31 December 2019
Interim Interim Final
Pence per share £’000 Pence per share £’000 Pence per share £’000
Ordinary shares 2.7 675 2.7 675 - -
Preference shares – fixed 1.75 175 1.75 175 - -
_________ _________ _________
850 850 -
_______ _______ _______
The directors have declared an interim dividend of 2.7p (2019 – 2.7p) per
ordinary share, payable on 10 December 2020 to shareholders registered on 20
November 2020. The shares will be quoted ex–dividend on 19 November 2020.
The dividends on ordinary shares are based on 25,000,000 ordinary £1 shares.
Dividends on preference shares are based on 10,000,000 non-voting 3.5%
convertible preference shares of £1.
The holders of the 3.5% convertible preference shares will be paid a dividend
of £175,000 being 1.75p per share. The payment will be made on the same date
as the dividend to the ordinary shareholders.
The non-payment in December 2019 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, has resulted in arrears of £175,000 on the 3.5% cumulative
convertible preference shares.
Amounts recognised as distributions to ordinary shareholders in the period:
Unaudited 6 months to 30 June 2020 Unaudited 6 months to 30 June 2019 Audited Year ended 31 December 2019
Pence per share £’000 Pence per share £’000 Pence per share £’000
Ordinary shares – final - - 6.0 1,500 6.0 1,500
Ordinary shares – interim - - - - 2.7 675
Preference shares – fixed - - 1.75 175 3.5 350
_________ _________ _________
- 1,675 2,525
_______ _______ _______
5. Earnings per ordinary share
Unaudited Unaudited 6 months to 30 June 2019 £’000 Audited Year ended 31 December 2019 £’000
6 months
to 30 June
2020
£’000
Basic earnings per share
Calculated on the basis of:
Net revenue profit after preference dividends 827 193 564
Net capital gain 382 1,631 196
_________ _________ _________
Net total earnings after preference dividends 1,209 1,824 760
_______ _______ _______
Number’000 Number’000 Number’000
Ordinary shares in issue 25,000 25,000 25,000
_______ _______ _______
Diluted earnings per share
Calculated on the basis of:
Net revenue profit 1,002 368 914
Net capital gain 382 1,631 196
_________ _________ _________
Profit after taxation 1,384 1,999 1,110
_______ _______ _______
Number’000 Number’000 Number’000
Ordinary and preference shares in issue 35,000 35,000 35,000
_______ _______ _______
Diluted earnings per share is calculated taking into account the preference
shares which are convertible to ordinary shares on a one for one basis, under
certain conditions, at any time during the period 1 January 2006 to 31
December 2025 (both dates inclusive).
6. Net asset value attributable to each share
Basic net asset value attributable to each share has been calculated by
reference to 25,000,000 ordinary shares, and company net assets attributable
to shareholders as follows:
Unaudited Unaudited 30 June 2019 £’000 Audited 31 December 2019 £’000
30 June
2020
£’000
Total net assets 7,888 8,243 6,504
Less convertible preference shares at fully diluted value (2,254) (2,355) (1,858)
__________ __________ __________
Net assets attributable to ordinary shareholders 5,634 5,888 4,646
________ ________ ________
Diluted net asset value is calculated on the total net assets in the table
above and on 35,000,000 shares, taking into account the preference shares
which are convertible to ordinary shares on a one for one basis, under certain
conditions, at any time during the period 1 January 2006 to 31 December 2025
(both dates inclusive).
Basic net assets and earnings per share are calculated using a value of fully
diluted net asset value for the preference shares.
7. Non – current liabilities
Guarantee of subsidiary liability Unaudited Unaudited 30 June 2019 £’000 Audited 31 December 2019 £’000
30 June
2020
£’000
Opening provision 3,375 6,396 6,396
Decrease in period (63) (127) (161)
Transfer to allowance for doubtful debt - - (2,860)
__________ __________ __________
Closing provision 3,312 6,269 3,375
________ ________ ________
The provision is in respect of a guarantee made by the company for liabilities
between its wholly owned subsidiaries, Second BritAm Investments Limited,
BritAm Investments Limited and British & 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.
During the year ended 31 December 2019 as part of a transaction to hedge the
company against exchange effects of the foreign currency loan, an amount
corresponding to the $USD value was loaned by British & American Investment
Trust PLC to Second BritAm Investments Limited. As a result of this, and other
related intercompany transactions, £2,860,000 of amounts previously
guaranteed became an asset of the company and the provision brought forward
against this has been transferred to become an allowance against doubtful
debt. During the period to 30 June 2020, an allowance against doubtful debt
has increased by £230,000.
8. Related party transactions
Romulus Films Limited and Remus Films Limited have significant shareholdings
in the company: 6,902,812 (27.6%) ordinary shares held by Romulus Films
Limited and 7,868,750 (31.5%) ordinary shares held by Remus Films Limited).
Romulus Films Limited also holds 10,000,000 cumulative convertible preference
shares.
The company rents its offices from Romulus Films Limited, and is also charged
for its office overheads. During the period the company paid £15,000 (30 June
2019 – £17,000 and 31 December 2019 – £33,000) in respect of those
services.
The salaries and pensions of the company’s employees, except for the three
non-executive directors and one employee, are paid by Remus Films Limited and
Romulus Films Limited and are recharged to the company. Amounts charged by
these companies in the period to 30 June 2020 were £186,000 (30 June 2019 –
£179,000 and 31 December 2019 – £380,000) in respect of salary costs and
£23,000 (30 June 2019 – £23,000 and 31 December 2019 – £41,000) in
respect of pensions.
At the period end an amount of £804,000 (30 June 2019 – £876,000 and 31
December 2019 – £390,000) was due to Romulus Films Limited and £321,000
(30 June 2019 – £560,000 and 31 December 2019 – £154,000) was due to
Remus Films Limited.
During the period subsidiary BritAm Investments Limited paid dividends of
£1,066,000 (30 June 2019 – £nil and 31 December 2019 – £74,000) to the
parent company, British & American Investment Trust PLC.
British & American Investment Trust PLC has guaranteed the liabilities of
£3,312,000 (30 June 2019 – £6,269,000 and 31 December 2019 –
£3,375,000) due from Second BritAm Investments Limited to its fellow
subsidiaries if they should fall due.
During the period the company paid interest of £18,000 (30 June 2019 –
£nil and 31 December 2019 – £5,000) on the loan due to BritAm Investments
Limited.
During the period the company received interest of £13,000 (30 June 2019 –
£8,000 and 31 December 2019 – £20,000) from British & American Films
Limited, £30,000 (30 June 2019 – £2,000 and 31 December 2019 – £17,000)
from Second BritAm Investments Limited and £nil (30 June 2019 – £19,000
and 31 December 2019 – £nil) from BritAm Investments Limited.
During the period the company entered into investment transaction to sell
stock for £456,000 to BritAm Investments Limited (30 June 2019 – £nil and
31 December 2019 – £nil).
All transactions with subsidiaries were made on an arm’s length basis.
9. Retained earnings
The table below shows the movement in the retained earnings analysed between
revenue and capital items.
Capital reserve £’000 Retained earnings £’000
1 January 2020 (28,606) 110
Allocation of profit for the period 382 1,002
Ordinary and preference dividends paid - -
_________ _________
At 30 June 2020 (28,224) 1,112
_______ _______
The capital reserve includes £5,333,000 of investment holding losses (30 June
2019 – £7,255,000 loss, 31 December 2019 – £7,418,000 loss).
10. Financial instruments
Financial instruments carried at fair value
All investments are carried at fair value. Other financial assets and
liabilities of the company 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.
Fair value hierarchy
The table below analyses recurring fair value measurements for financial
assets and financial liabilities.
These fair value measurements are categorised into different levels in the
fair value hierarchy based on the inputs to valuation techniques used. The
different levels are defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the company can access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly:
1. Prices of recent transactions for identical instruments.
2. Valuation techniques using observable market data.
Level 3: Unobservable inputs for the asset or liability.
Financial assets and financial liabilities at fair value through profit or loss at 30 June 2020 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments:
Investments held at fair value through profit or loss 6,803 - 1 6,804
Subsidiary held at fair value through profit or loss - - 5,822 5,822
Total financial assets and liabilities carried at fair value 6,803 - 5,823 12,626
With the exception of the Sarossa Capital, BritAm Investments Limited
(unquoted subsidiary) and Second BritAm Investments Limited (unquoted
subsidiary), which are categorised as Level 3, all other investments are
categorised as Level 1.
Fair Value Assets in Level 3
The following table shows the reconciliation from the opening balances to the
closing balances for fair value measurement in Level 3 of the fair value
hierarchy.
Level 3
£’000
Opening fair value at 1 January 2020 5,336
Purchases -
Sales proceeds -
Gains on sales -
Investment holding gains 487
Closing fair value at 30 June 2020 5,823
Subsidiaries
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 & 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.
There have been no transfers between levels of the fair value hierarchy during
the period. Transfers between levels of fair value hierarchy are deemed to
have occurred at the date of the event or change in circumstances that caused
the transfer.
11. Financial information
The financial information contained in this report does not constitute
statutory accounts as defined in Section 435 of the Companies Act 2006. The
financial information for the period ended 30 June 2020 and 30 June 2019 have
not been audited by the Company’s Auditor pursuant to the Auditing Practices
Board guidance. The information for the year to 31 December 2019 has been
extracted from the latest published Annual Report and Financial Statements,
which have been lodged with the Registrar of Companies, contained an
unqualified auditors’ report and did not contain a statement required under
Section 498(2) or (3) of the Companies Act 2006.
DIRECTORS’ STATEMENT
Principal risks and uncertainties
The principal risks and uncertainties faced by the company continue to be as
described in the previous annual accounts. Further information on each of
these areas, together with the risks associated with the company's financial
instruments are shown in the Directors' Report and notes to the financial
statements within the Annual Report and Accounts for the year ended 31
December 2019.
The Chairman’s Statement and Managing Director’s report include commentary
on the main factors affecting the investment portfolio during the period and
the outlook for the remainder of the year.
Directors’ Responsibilities Statement
The Directors are responsible for preparing the half-yearly report in
accordance with applicable law and regulations. The Directors confirm that to
the best of their knowledge the interim financial statements, within the
half-yearly report, have been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The Directors are required to prepare the financial
statements on the going concern basis unless it is inappropriate to presume
that the company will continue in business. The Directors further confirm that
the Chairman’s Statement and Managing Director's Report includes a fair
review of the information required by 4.2.7R and 4.2.8R of the FCA’s
Disclosure and Transparency Rules.
The Directors of the company are listed in the section preceding the
Chairman’s Statement.
The half-yearly report was approved by the Board on 30 October 2020 and the
above responsibility statement was signed on its behalf by:
Jonathan C Woolf
Managing Director
Independent review report to the members of British & American Investment
Trust PLC
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report of British & American
Investment Trust PLC for the six months ended 30 June 2020 which comprises the
Condensed Income Statement, the Condensed Statement of Changes in Equity, the
Condensed Balance Sheet, the Condensed Cashflow Statement and related Notes to
the Company results. We have read the other information contained in the
half-yearly financial report being the Financial Highlights, the Chairman's
Statement, the Managing Director's Report, the Investment Portfolio and the
Directors' Statement, and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the company are
prepared in accordance with International Financial Reporting Standards as
adopted by the European Union. The condensed set of financial statements
included in this half-yearly financial report has been prepared in accordance
with International Accounting Standard 34, 'Interim Financial Reporting', as
adopted by the European Union.
Our responsibility
Our responsibility is to express a conclusion on the condensed set of
financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 is not prepared, in all
material respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and the
Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Use of our report
This report is made solely to the company, in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim
Financial Information performed by the Independent Auditor of the Entity'
issued by the Auditing Practices Board. Our review work has been undertaken so
that we might state to the company those matters we are required to state to
it in an independent review 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 for our review work, for this report, or for the
conclusion we have formed.
HAZLEWOODS LLP
AUDITOR
Cheltenham
30 October 2020
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