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. |
|
|
|
|
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|
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.