British & American Investment Trust PLC. Report and accounts

Transcription

1 British & American Investment Trust PLC Report and accounts 31 December 2005

2 British & American Investment Trust PLC Annual Report and Accounts for the year ended 31 December 2005 Registered number:

3 Contents Page Directors and officials 1 Biographical details of directors and investment policy 2 Notice of meeting 3 Chairman s statement 4 Managing Director s report 6 Financial highlights 8 Net asset and dividend growth 9 Distribution of investments and cash 10 Group investment portfolio 11 Directors report 12 Statement of directors responsibilities 16 Independent auditors report 17 Consolidated income statement 19 Statement of changes in equity of the group and the company 20 Balance sheets of the group and of the company 21 Consolidated cash flow statement 22 Notes to the financial statements 23 Statement of compliance with the Combined Code of Best Practice 46 Directors remuneration report 50 BRITISH & AMERICAN INVESTMENT TRUST PLC

4 Directors and officials Directors J Anthony V Townsend (Chairman) Jonathan C Woolf (Managing Director) Dominic G Dreyfus (Non-executive) Ronald G Paterson (Non-executive) Secretary and registered office KJ Williams ACA Wessex House 1 Chesham Street London SW1X 8ND Registrars Capita IRG Plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Lloyds TSB plc Business & Corporate Service Centre Dean Street Marlow Buckinghamshire SL7 3BP UBS AG 1 Curzon Street London W1J 5UB Stockbrokers Walker, Crips, Weddle, Beck plc Sophia House 76/80 City Road London EC1Y 2BJ Auditors RSM Robson Rhodes LLP 30 Finsbury Square London EC2P 2YU BRITISH & AMERICAN INVESTMENT TRUST PLC 1

5 Biographical details of directors and investment policy Chairman J Anthony V Townsend (Age 58) Managing Director Jonathan C Woolf (Age 49) Non Executive Dominic G Dreyfus (Age 49) Ronald G Paterson (Age 49) Chairman of iimia Investment Trust plc and The Ukraine Opportunities Trust PLC. Past chairman of the Association of Investment Trust Companies ( ). Nonexecutive director of BRIT Insurance Holdings PLC, F&C Smaller Companies PLC and four Finsbury investment trusts. Director of Romulus Films Limited and associated companies, formerly merchant banker with S G Warburg & Co. Ltd. Formerly a director of BCI Soditic Trade Finance Ltd, managing director of Soditic Limited and Membre du Directoire, Warburg Soditic SA, Geneva. Solicitor, partner in Eversheds LLP. Formerly a partner in Frere Cholmeley Bischoff and Bischoff & Co. A member of the Technical Committee of the Association of Investment Trust Companies. Investment policy The company s policy is to invest predominantly in investment trusts and other leading UK quoted companies to achieve a balance of income and growth. AITC The company is a member of the Association of Investment Trust Companies. 2 BRITISH & AMERICAN INVESTMENT TRUST PLC

6 Notice of meeting NOTICE IS HEREBY GIVEN THAT the fifty-eighth Annual General Meeting of the company will be held at Wessex House, 1 Chesham Street, London SW1X 8ND on Thursday 15 June 2006 at 12.15pm for the following purposes: 1 To receive and consider the directors' report and group accounts for the year ended 31 December 2005 and the report of the auditors thereon. 2 To re-elect Mr DG Dreyfus as a director. 3 To re-elect Mr RG Paterson as a director. 4 To approve the directors remuneration report. 5 To declare a final dividend of 3.25p per 1 ordinary share. 6 To appoint RSM Robson Rhodes LLP as auditors of the company until the conclusion of the next general meeting at which accounts of the company are presented. 7 To authorise the directors to approve the remuneration of the auditors. By order of the board KJ Williams Secretary 2 May 2006 Wessex House 1 Chesham Street London SW1X 8NB Notes: Any member of the company entitled to attend and vote at the meeting may appoint another person (whether a member or not) as his/her proxy to attend and, on a poll, to vote instead of him/her. Under the company s articles of association only holders of the ordinary shares are entitled to attend and vote at this meeting. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the company s register of members not later than 12.15pm on 13 June 2006 or, if the meeting is adjourned, shareholders entered on the company s register of members not later than 48 hours before the time fixed for the adjourned meeting, shall be entitled to attend and vote at the meeting. The register of directors interests and copies of the managing director s service agreement will be available for inspection at the registered office of the company during normal business hours from the date of this notice until the conclusion of the Annual General Meeting. BRITISH & AMERICAN INVESTMENT TRUST PLC 3

7 Chairman s statement I am pleased to report our results for the year ended 31 December As noted in our interim statement, we are now obliged to report our results under the new International Financial Reporting Standards (IFRS). The Association of Investment Trust Companies (AITC) has issued guidance to investment trusts on the presentation of their accounts under IFRS and we are pleased to follow this guidance in our accounts to provide shareholders with the most helpful format possible within the constraints of IFRS. The main differences in the presentation of our accounts this year compared to previous years relate to the profit and loss account and the recognition of dividends declared in the year. As more fully explained at note 1(k) to the accounts on page 26, statutory profits or losses now include gains or losses on the capital account, whether realised or unrealised, and dividends are only recognised in the accounts when shareholders' right to receive the dividend has been established. Consequently, the final dividend for the year 2005 proposed in these accounts is not in fact recognised in the accounts, even on an accrued basis, until it is approved by shareholders at the AGM in June of this year. This year's accounts also include a restatement of the prior year's results to conform with IFRS. In my statement, I will continue as before to highlight those results which we believe present the most useful indicators of an investment trust's performance during the year, including revenue returns and dividends paid relating to those returns in the year they were earned. We also show in the accounts the split between realised and unrealised gains and losses to give shareholders a better perspective of the return on investments over time in comparison with movements in the market. Revenue The return on the revenue account before tax amounted to 1.8 million (2004 restated: 1.5 million). Gross income amounted to 2.0 million (2004 restated: 1.9 million), of which 1.6 million (2004 restated: 1.5 million) represented income from investments and 0.4 million (2004 restated: 0.4 million) film, property and other income. The increase in income was, as reported at the interim stage, primarily accounted for by the receipt of special dividends from a number of our investee companies over the period. Total profit before tax, which includes realised and unrealised capital appreciation, amounted to 6.9 million (2004 restated: 5.4 million), reflecting the continued recovery in equity valuations over the period as noted below. The capital element of this total was represented by 0.6 million of realised gains and 4.7 million of unrealised gains. The revenue return per ordinary share was 5.4p (2004 restated: 4.3p) on an undiluted basis and 4.9p (2004 restated: 4.1p) on a diluted basis. Net Assets Group net assets were 42.8 million (2004 restated: 37.9 million), an increase of 12.9 percent. Total return for the period, after adding back dividends, was 18.2 percent. This compares to an increase over the same period of 19.7 percent (dividends reinvested) in the FTSE 100 share index and 21.6 percent (dividends reinvested) in the All Share index. The net asset value per ordinary share (NAV) increased to 122p (2004 restated: 108p) on a diluted basis. Deducting prior charges at par, the net asset value per ordinary share increased to 131p (2004 restated: 111p). 4 BRITISH & AMERICAN INVESTMENT TRUST PLC

8 Chairman s statement (continued) Dividends We are pleased to recommend an increased final dividend of 3.25p per ordinary share, which together with the interim dividend makes a total payment for the year of 5.55p (2004 restated: 5.2p) per ordinary share; this represents an increase of 6.7 percent over the previous year's total dividend. The final dividend will be payable on 22 June 2006 to shareholders on the register at 26 May A dividend of 1.75p will be paid to preference shareholders resulting in a total payment for the year of 3.5p per share. In addition to these regular dividends, we paid an additional special dividend of 1p per share during the year, in recognition of special dividends received during the year. By separating out our special dividend we believe shareholders will find it easier to keep track of our normal interim and final dividends and monitor their progress. Discount and performance I am pleased to note that the reduced discount to NAV at which our shares trade in the market on which I reported last year has continued to be maintained, in line with the general narrowing of discounts which has been seen in the investment trust sector as a whole. In recent months, our shares have traded at discounts in the range of 5 to 8 percent. I can also report that the company has continued to out perform its benchmark in the UK income and growth sector and is positioned in the top quartile of its AITC sector by total return. These results reflect out-performance against benchmark in capital and income over a number of years, as is evident from the graphs on page 9. We look forward to continuing advances in the current year as equity and other financial markets continue to recover and form a base for future growth. As at 21 April 2006, group net assets had increased to 47.0 million, an increase of 10.0 percent since the beginning of the calendar year. This is equivalent to 148 pence per share (prior charges deducted at par) and 134 pence per share on a diluted basis. Over the same period the FTSE 100 increased 9.1 percent and the All Share Index increased 9.8 percent. Anthony Townsend 2 May 2006 BRITISH & AMERICAN INVESTMENT TRUST PLC 5

9 Managing Director's Report International Financial Reporting Standards As noted in the Chairman's statement, we have adopted the accounting format suggested by the AITC to allow investment trusts to present their results in the most helpful way possible for shareholders within the constraints of the IFRS. Whilst this has allowed us to present the accounts in a somewhat more accessible way than was the case at the interim stage, there remain nevertheless a number of areas in which the requirements of the IFRS do not sit well with the operations of an investment trust and the communication of its performance to shareholders. These deficiencies were referred to in my report at the interim stage and we have attempted to address them by including where possible in the notes or other parts of the report the information considered necessary to convey a proper understanding of the operations of the company. As a result, however, the statutory accounts themselves - the income statement and balance sheet - which constitute the document of record of the operations of the company, regrettably remain subject to these deficiencies. Without the fuller explanation, which can now only be shown in notes or ancillary parts of the accounts, these statements which present the basic or 'headline' results, remain confusing and in some respects misleading. For example, using the AITC's model format we are able to add in the income statement the split in profits (or losses) between income and capital; however, unrealised capital gains (or losses) are now included as statutory profits (or losses) for the year despite the fact that they have not actually been 'earned' ie realised and might at any time be reversed. At the very least this will add a significant level of uncontrollable volatility to the principal results of the company from year to year and will be of no help to shareholders analysing either the past or possible future direction of the company based on its profits. It is hard to imagine any other circumstance where shareholders are presented with a 'profit' in the income statement on an unsold asset within the company's main business activity which could, at any later stage, be totally reversed or even converted into a loss, in respect of the very same unsold asset in which the earlier 'profit' was reported. It is not surprising that the IFRS has encountered widespread criticism from companies, both large and small, for the lack of clarity, common sense and continuity which accounts produced under IFRS offer to shareholders. As noted above, this criticism can equally and perhaps even more justifiably be levelled in the case of investment trusts. Performance In 2005 UK equity markets experienced a further year of broadly based gains resulting in a cumulative recovery of 65 percent since the lows reached in As at 31 December, the market had returned to its 2002 levels and, as noted below, by April of this year the FTSE 100 finally broke through the 6000 level last achieved in As reported at the interim stage, the advances during 2005 were boosted by the out-performance of the oil and natural resources sectors on the back of continuing record prices in these commodities due to supply worries and heavy demand from newly industrialised countries such as China and India. The UK market was also buoyed by substantial levels of corporate activity including buyouts, demergers and takeovers in a number of the leading stocks across a variety of sectors. The trend of private capital funds bidding for listed company assets has been growing during the recent period of downturn in stock prices while companies have been repairing their balance sheets and cashflows but price multiples have remained subdued. The acceleration in this private capital activity and the larger volumes involved has contributed to the strength of the market and the growth in multiples to more normal levels. 6 BRITISH & AMERICAN INVESTMENT TRUST PLC

10 Managing Director's Report (continued) Our portfolio underperformed the main indices during the year primarily due to some underweighting in the oil and natural gas sectors which out-performed significantly during the period and now form a substantial part of the FTSE 100 at approximately 25 percent. Our slightly higher holdings of cash also contributed to this effect. In the first quarter, however, the portfolio has outperformed the indices, as reported above, by a modest amount. In the US, the leading indices recovered from the fall at mid-year to finish the year in positive territory with a gain of 2 percent. The dull performance of stocks in the USA reflected the continuing programme of monetary tightening by the Federal Reserve towards a level of perceived equilibrium in US dollar rates and general tensions within the economy arising out of the structural imbalances in the fiscal and trade accounts. In the first quarter, equity prices in the UK have continued to advance strongly, rising by over six percent with the FTSE 100 exceeding 6000 for the first time since the multi-year downturn commenced in This performance marks a continuation of the trends seen in 2005 as described above. While this rate of advance can not be expected to be maintained indefinitely in the current year without price levels out-running improvements in fundamentals, equity markets are generally expected to remain firm over the coming period in the absence of external shocks as corporate profitability continues to grow. Against this background, we will continue to pursue our generalist investment approach, remaining invested in leading stocks with good yield. Jonathan Woolf BRITISH & AMERICAN INVESTMENT TRUST PLC 7

11 Financial highlights For the year ended 31 December (restated) Revenue Capital Total Revenue Capital Total return return return return Profit before tax realised 1, ,238 1, ,944 Profit before tax unrealised 4,665 4,665 3,459 3,459 Profit before tax total 1,759 5,144 6,903 1,487 3,916 5,403 Earnings per 1 ordinary share basic 5.41p 20.57p 25.98p 4.33p 15.66p 19.99p Earnings per 1 ordinary share diluted 4.86p 14.70p 19.56p 4.09p 11.19p 15.28p Net assets 42,765 37,869 Net assets per ordinary share deducting preference shares at par 131p 111p diluted 122p 108p Diluted net asset value per ordinary share at 21 April p Dividends declared or proposed for the period per ordinary share interim paid 2.3p 2.1p final proposed 3.25p 3.1p special paid 1.0p 0.0p per preference share 3.5p 3.5p 8 BRITISH & AMERICAN INVESTMENT TRUST PLC

12 Net asset and dividend growth Net Asset Values (dividends reinvested) 5 Year Summary 2001=100 (December 2004 restated for IFRS, no other prior periods restated) Percent Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Net Asset Value per Share Sep-02 Nov-02 Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 FT All Share Index Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Net Dividends per ordinary share 10 Year record and proposed 2005 Pence per share (net) Interim Final Special bonus Special BRITISH & AMERICAN INVESTMENT TRUST PLC 9

13 Distribution of investments and cash The distribution of investments and cash balances is as follows: At valuation 21 April December 31 December (restated) Investment Trusts (equities) 18,723 17,273 17,446 Property 5,438 4,903 4,853 Life Assurance 5,433 4,536 3,731 Biomedical USA 4,806 3, Retailers General 139 2,972 Unit trusts 1,640 1,511 1,168 Banks retail 1,326 1, Media 1,095 1, Leisure and hotels ,057 Software and computer services Telecommunications Breweries, pubs and restaurants Information technologies Other Financial Chemicals Biotechnology Multi Utilities Pharmaceuticals and healthcare Support Service 16 Transport 111 Retailers food 54 Gas Distribution 24 Engineering 14 Total equities 41,152 38,921 32,187 Fixed Interest stocks Preference shares Permanent interest bearing Convertible loan stocks Property units 1,570 1,570 1,570 Total portfolio 44,613 42,369 35,610 Balances at banks and stockbrokers 1,956 3,177 2,183 46,569 45,546 37, BRITISH & AMERICAN INVESTMENT TRUST PLC

14 Group investment portfolio At 31 December 2005 Valuation % of Company Nature of business 000 Portfolio Liberty International Holdings Property 4, Prudential Corporation Life Assurance 4, Geron Corporation Biomedical USA 3, Electra Investment Trust Investment Trust 2, RIT Capital Partners Ordinary Investment Trust 2, The Alliance Trust Ordinary Investment Trust 2, GUS Ordinary* Retailers General 2, Dunedin Income Growth Investment Trust 2, British Assets Trust Investment Trust 2, St James s Place International Unit Trust Unit Trust 1, Matrix Chatham Maritime EZT Enterprise Zone Trust 1, Lloyds TSB Bank Retail 1, Scottish & American Investment Co. Investment Trust Shires Income Investment Trust Invesco Income Growth Trust Investment Trust British Sky Broadcasting Group Media Rothschild Continuation Finance Loan Notes Debentures and Loan Stocks Royal & Sun Alliance Insurance Group plc Preference shares Witan Investment Trust Investment Trust Merchants Trust Investment Trust Largest investments 36, Other investments (number of holdings : 76) 6, Total investments 42, * An amount is shown in creditors representing an obligation of a subsidiary company to deliver this stock after the year end. Holdings in other investment companies It is the company s stated policy to have an unlimited percentage of its gross assets in other listed investment companies. In accordance with Listing Rule 21, the company will restrict any future investments in listed investment companies which themselves do not have a policy of restricting their investments in other listed investment companies to 15% (or less) of their gross assets. As at 31 December 2005, 14.5% of the company s total assets were invested in the securities of other UK listed investment companies which themselves do not have a policy of restricting their investments to the 15% mentioned above. Of the twenty largest investments shown above, The Alliance Trust and RIT Capital Partners fall into this category of investments as they have not specifically announced a policy to restrict their own investments to no more than 15% of gross assets. BRITISH & AMERICAN INVESTMENT TRUST PLC 11

15 Directors report For the year ended 31 December 2005 Directors report The directors present their annual report on the affairs of the group together with the accounts and auditors report for the year ended 31 December Financial statements The financial statements will be presented for approval at the fifty-eighth Annual General Meeting of the company to be held on Thursday 15 June Future prospects The future prospects of the company are explained in the Chairman s Statement on pages 4 and 5 and in the Managing Director s Report on pages 6 and 7. Business review The activities of the company and its subsidiary undertakings during the accounting year were as follows: Company British & American Investment Trust PLC BritAm Investments Limited Second BritAm Investments Limited British & American Films Limited Activities Investment trust Investment holding Investment holding Film investment company The review of the business is included in the Chairman s Statement on pages 4 and 5 and Managing Director s Report on pages 6 and 7. Information on movements on investments since the year end is included on page 10. The company is registered as an investment company under s266 of the Companies Act The directors consider that the company has conducted its affairs in a manner to enable it to continue to comply with s842 of the Income and Corporation Taxes Act It is approved by HM Revenue & Customs as such, which enables it to realise its investments free from taxation on capital gains. Approval is retrospective and has been received in respect of the financial year to 31 December The company has since directed its affairs to enable it to continue to seek approval. Personal Equity Plans/ISAs The company has conducted its investment policy so as to remain a qualifying investment under the ISA and Personal Equity Plan regulations. It is the intention of the directors to continue to satisfy these regulations. 12 BRITISH & AMERICAN INVESTMENT TRUST PLC

16 Directors report (continued) Results and dividends of the group for the year The directors set out below the results and dividends of the group for the year ended 31 December Revenue Capital Total Profit before tax 1,759 5,144 6,903 Tax (57) (57) Profit after tax 1,702 5,144 6,846 Pence per Dividends share 000 Interim per 1 ordinary share (paid 17 November 2005) % preference share paid (paid 17 November 2005) Special per 1 ordinary share for the year ended 31 December 2005 of 1.0p (2004 nil) (paid 15 December 2005) Final per 1 ordinary share proposed % preference share (payable 22 June 2006) ,988 The dividends proposed above will be paid on 22 June 2006 to ordinary shareholders on the register at 26 May 2006 and to 3.5% preference shareholders on the register at 31 December Directors and their interests The present directors of the company are as set out on page 1. The directors retiring by rotation are Mr DG Dreyfus and Mr RG Paterson who, being eligible, offer themselves for re-election. The Board recommends Mr DG Dreyfus and Mr RG Paterson s re-election. At the time of the Annual General Meeting Mr DG Dreyfus will have completed more than 10 years service as a non-executive director. In making the recommendation, the Board has carefully reviewed the composition of the Board as a whole and borne in mind the need for a proper balance of skills and experience. The Board does not believe that length of service detracts from the independence of a director, particularly in relation to an investment trust, and on that basis considers that Mr DG Dreyfus remains independent. It is confirmed that, following formal evaluation, the performance of each director continues to be effective and each continues to demonstrate commitment to the role. Mr JC Woolf is employed under an employment agreement which requires twelve months notice of termination. Mr Dreyfus, Mr Townsend and Mr Paterson do not have contracts of service with the company. No director has served for more than three years without offering himself for re-election. BRITISH & AMERICAN INVESTMENT TRUST PLC 13

17 Directors report (continued) The directors during the year ended 31 December 2005 had interests in the shares of the company as follows: Beneficial Non-beneficial Beneficial Non-beneficial Ordinary shares of 1 JC Woolf 1,380,812 14,851,562 1,380,812 14,851,562 DG Dreyfus 5,000 5,000 JAV Townsend 7,500 7,500 RG Paterson 1,000 1,000 Non voting convertible preference shares of 1 each JC Woolf 10,000,000 10,000,000 Included in the non-beneficial interest in the ordinary shares of 1 each referred to above, are 6,902,812 (27.6%) (2004 6,902,812 (27.6%)) ordinary shares held by Romulus Films Ltd, 7,868,750 (31.5%) (2004 7,868,750 (31.5%)) ordinary shares held by Remus Films Ltd and 80,000 (0.32%) ( ,000 (0.32%)) ordinary shares held by PKL Pictures Limited. Romulus Films Ltd also holds 10,000,000 cumulative convertible preference shares ( ,000,000). Mediterranean Holdings Ltd has also notified an interest in all the holdings of Romulus Films Ltd and Remus Films Ltd. Except in the ordinary course of business no director had an interest in any contract in relation to the company's business at any time during the year. Other information In addition to the directors interests in shares detailed above, at 2 May 2006 the directors had been notified of the following interests of 3% or more of either class: Number of % shares held Apollo Fund plc 750, Jupiter Monthly Income Fund Unit Trust 750, Unwin Investments Limited 1,146, These interests relate to the ordinary shares of the company. Creditor Payment Policy The company s payment policy is to agree terms of payment before business is transacted, to ensure suppliers are aware of their terms and to settle invoices in accordance with them. Financial Instruments The financial instruments employed by the group primarily comprise equity investments, although it also holds convertible stock, loan stock and fixed interest investments, stock derivatives, cash and other items arising from its operations. Further details of the risk management objectives and policies relating to the use of financial instruments can be found in note 19 to the financial statements on pages 39 and BRITISH & AMERICAN INVESTMENT TRUST PLC

18 Directors report (continued) Statement of compliance with the combined code of best practice The section Statement of Compliance with the Combined Code of Best Practice on pages 46 to 49 and the contents of the directors report constitutes the statement on the application by the company of the principles of the Combined Code on Corporate Governance, as required by the UK Listing Authority. Auditors On 19 December 2005 Deloitte & Touche LLP resigned as auditors to the company and RSM Robson Rhodes LLP were appointed. RSM Robson Rhodes LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Approved by the board of directors and signed on behalf of the board Jonathan Woolf Managing Director Wessex House 1 Chesham Street London SW1X 8ND 2 May 2006 BRITISH & AMERICAN INVESTMENT TRUST PLC 15

19 Statement of Directors' responsibilities in respect of the Annual Report and accounts The directors are responsible for preparing the Annual Report and the group and parent company financial statements, in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards. The group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The parent company financial statements are required by law to give a true and fair view of the state of affairs of the parent company. In preparing each of the group and parent company financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; for the group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU, subject to any material departures disclosed and explained in these financial statements; for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in these financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Act 1985 and Article 4 of the IAS Regulation. They are also responsible for the system of internal control, for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and the Corporate Governance Statement that comply with that law and those regulations. 16 BRITISH & AMERICAN INVESTMENT TRUST PLC

20 Independent auditors report INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF BRITISH & AMERICAN INVESTMENT TRUST PLC We have audited the group and parent company financial statements ( the financial statements ) on pages 19 to 45. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors' Remuneration Report that is described as having been audited. This report is made solely to the company's shareholders, as a body, in accordance with Section 235 of the Companies Act Our audit work has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company financial statements and the Directors' Remuneration Report in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors' Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and whether, in addition, the group financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the company's compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report, and consider whether it is consistent with the audited group financial statements. The other information comprises only the Directors' Report, the unaudited part of the Directors' Remuneration Report, the Chairman's Statement, the Managing Director's Report and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. BRITISH & AMERICAN INVESTMENT TRUST PLC 17

21 Independent auditors report (continued) Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors' Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors' Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors' Remuneration Report to be audited. Opinion In our opinion: the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of affairs of the group as at 31 December 2005 and of its profit for the year then ended; the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of affairs of the parent company as at 31 December 2005; and the parent company financial statements and the part of the Directors' Remuneration Report to be audited have been properly prepared in accordance with the Companies Act RSM Robson Rhodes LLP Chartered Accountants and Registered Auditors London, England 2 May BRITISH & AMERICAN INVESTMENT TRUST PLC

22 Consolidated income statement For the year ended 31 December (restated*) Notes Revenue Capital Total Revenue Capital Total return return return return Income 2 2,032 2,032 1,864 1,864 Gains on investments at fair value through profit or loss - unrealised 9,12 4,665 4,665 3,459 3,459 Realised gains on sales Expenses 3 (273) (139) (412) (377) (377) Profit before finance costs and tax 1,759 5,144 6,903 1,487 3,916 5,403 Profit before tax 1,759 5,144 6,903 1,487 3,916 5,403 Tax 6 (57) (57) (55) (55) Profit for the period 1,702 5,144 6,846 1,432 3,916 5,348 Earnings per share Basic - ordinary shares p 20.57p 25.98p 4.33p 15.66p 19.99p Diluted - ordinary shares p 14.70p 19.56p 4.09p 11.19p 15.28p * restated - see note 21 on pages 41 to 45. The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under guidance published by the Association of Investment Trust Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity holders of the parent company. There are no minority interests. The notes on pages 23 to 45 form part of these financial statements. BRITISH & AMERICAN INVESTMENT TRUST PLC 19

23 Statement of changes in equity 31 December 2005 Group Share Capital Capital Retained Total capital reserve reserve earnings realised unrealised Balance at 31 December 2003 restated* (note 21(d)) 35,000 14,824 (18,419) 2,741 34,146 Changes in equity for 2004 restated* Profit for the period (note 21(b)) (1,710) 5,626 1,432 5,348 Ordinary dividend paid (note 7) (1,275) (1,275) Preference dividend paid (note 7) (350) (350) Balance at 31 December 2004 restated* (note 21(a)) 35,000 13,114 (12,793) 2,548 37,869 Changes in equity for 2005 Profit for the period 2,027 3,117 1,702 6,846 Ordinary dividend paid (note 7) (1,600) (1,600) Preference dividend paid (note 7) (350) (350) Balance at 31 December ,000 15,141 (9,676) 2,300 42,765 Company Share Capital Capital Retained Total capital reserve reserve earnings realised unrealised Balance at 31 December 2003 restated* (note 21(d)) 35,000 2,612 (4,352) ,228 Changes in equity for 2004 restated* Profit for the period (note 21(b)) (2,384) 6,079 1,650 5,345 Ordinary dividend paid (note 7) (1,275) (1,275) Preference dividend paid (note 7) (350) (350) Balance at 31 December 2004 restated* (21(a)) 35, , ,948 Changes in equity for 2005 Profit for the period (879) 5,578 2,141 6,840 Ordinary dividend paid (note 7) (1,600) (1,600) Preference dividend paid (note 7) (350) (350) Balance at 31 December ,000 (651) 7,305 1,184 42,838 * restated - see note 21 on pages 41 to BRITISH & AMERICAN INVESTMENT TRUST PLC

24 Consolidated balance sheet 31 December 2005 Notes Group Company (restated*) (restated*) Non - current assets Investments - fair value through profit or loss 9 42,369 35,610 45,442 38,498 Current assets Receivables 11 3, Cash and cash equivalents 11 3,263 2,227 2,756 1,343 6,642 2,414 3,359 1,757 Total assets 49,011 38,024 48,801 40,255 Current liabilities 12 (6,246) (155) (3,067) (125) Total assets less current liabilities 42,765 37,869 45,734 40,130 Non - current liabilities Provisions for liabilities and charges 13 (2,896) (2,182) Net assets 42,765 37,869 42,838 37,948 Equity attributable to equity holders Ordinary share capital 14 25,000 25,000 25,000 25,000 Convertible preference share capital 14 10,000 10,000 10,000 10,000 Capital reserve - realised 15 15,141 13,114 (651) 228 Capital reserve - unrealised 15 (9,676) (12,793) 7,305 1,727 Retained earnings 15 2,300 2,548 1, Total equity 42,765 37,869 42,838 37,948 * restated - see note 21 on pages 41 to 45 The notes on pages 23 to 45 form part of these financial statements Where the respective headings under Companies Act 1985 schedule 4 part 1 for the company balance sheet are different to those under IFRS, the respective headings are set out in note 20 to the accounts. The financial statements on pages 19 to 51 were approved by the board of directors on 2 May Jonathan Woolf Managing Director BRITISH & AMERICAN INVESTMENT TRUST PLC 21

25 Consolidated cash flow statement For the year ended 31 December 2005 Notes (restated) Cash flow from operating activities Profit before tax 6,903 5,403 Adjustment for: Gains on investments (5,283) (3,916) Scrip dividends (4) (4) Film income tax deducted at source (4) (4) Proceeds on disposal of fair value through profit and loss investments 6,406 6,765 Purchases of fair value through profit and loss investments (7,552) (5,952) Operating cash flows before movements in working capital 466 2,292 Increase in receivables (52) (40) Increase in payables 2, Net cash from operating activities before income taxes 2,990 2,271 Income taxes paid (4) Net cash from operating activities 2,986 2,271 Cash flows from financing activities Dividends paid on ordinary shares 7 (1,600) (1,275) Dividends paid on preference shares 7 (350) (350) Net cash used in financing activities (1,950) (1,625) Net increase in cash and cash equivalents 1, Cash and cash equivalents at beginning of year 2,227 1,581 Cash and cash equivalents at end of year 3,263 2,227 Purchases and sales of investments are considered to be operating activities of the company, given its purpose, rather than investing activities. 22 BRITISH & AMERICAN INVESTMENT TRUST PLC

26 Notes to the financial statements 31 December Accounting policies A summary of the principal accounting policies is set out below. a) Basis of preparation and statement of compliance In accordance with European Union (EU) regulations, these financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as adopted for use in the EU effective at 31 December The company has elected to prepare its parent company accounts under UK Generally Accepted Accounting Practices (GAAP). These are the group's first consolidated financial statements prepared in accordance with adopted IFRS. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the group is provided in note 21. The financial statements have been prepared on the historical cost basis except where IFRS require an alternative treatment. The principal variations from the historical cost basis relate to financial instruments (IAS 32 and 39). Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts revised by the Association of Investment Trust Companies (AITC) in December 2005 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The group's significant accounting policies are set out below, together with the judgements made by management in applying these policies, which have the most significant effect on the amounts recognised in the financial statements, apart from those involving estimations, which are dealt with separately below. These accounting policies have been applied consistently to all periods presented in these consolidated financial statements and in preparing an opening IFRS balance sheet at 1 January 2004 for the purposes of the transition to IFRS. These financial statements are presented in pounds sterling because that is the currency of the primary economic currency within which the group operates. There are no foreign operations. These accounting policies have been applied consistently by group entities. b) Basis of consolidation The consolidated financial statements incorporate the financial statements of the company and its subsidiary undertakings made up to 31 December each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. All intra-group transactions, balances, income and expenses are eliminated on consolidation. No income statement is published for British & American Investment Trust PLC as provided by s230 of the Companies Act The company s profit on ordinary activities after taxation for the year was 6,841,227 (2004 restated 5,343,522). BRITISH & AMERICAN INVESTMENT TRUST PLC 23

27 Notes to the financial statements (continued) 1 Accounting policies (continued) In the company s financial statements, investments in subsidiary undertakings are stated in accordance with the policies outlined under (d) below. Realised gains on sales of investments in the group financial statements are based on historical cost to the group and on brought forward market value. c) Presentation of income statement In order better to reflect the activities of an investment trust company and in accordance with guidance issued by the AITC, supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. In accordance with the company's status as a UK investment company under section 266 of the Companies Act 1985, net capital returns may not be distributed by way of dividend. d) Valuation of investments Investments held at fair value through profit or loss are initially recognised at fair value. Investments are classified as either fair value through profit or loss or available-for-sale. 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 entity 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. 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 as at fair value through profit or loss are included in net profit or loss as a capital item, and material transaction costs on acquisition or disposal of investments are expensed and included in the capital column of the income statement. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid 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 instruments, or where the market for a financial instrument is not active, fair value is established by using an appropriate valuation technique. Where no reliable fair value can be estimated for such unquoted equity instruments, they are carried at cost, subject to any provision for impairment. Investments in subsidiary companies are held at directors valuation. All purchases and sales of investments are recognised on the trade date i.e. the date that the group commits to purchase or sell an asset. e) Income Dividend income from investments is recognised as income when the shareholders rights to receive payment has been established, normally the ex-dividend date. 24 BRITISH & AMERICAN INVESTMENT TRUST PLC

28 Notes to the financial statements (continued) 1 Accounting policies (continued) Interest income on fixed interest securities is recognised on a time apportionment basis so as to reflect the effective interest rate of the security. Property unit trust income is recognised on the date the distribution is receivable. Film royalty income is recognised on receipt of royalty statements covering periods ending in the financial year. When special dividends are received, the underlying circumstances are reviewed on a case by case basis in determining whether the amount is capital or 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. f) Expenses All expenses are accounted for on an accruals basis. Expenses are charged as revenue items in the income statement except as follows: - material 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% ( %) to revenue and 50% ( nil%) to capital, in order to reflect the directors' long-term view of the nature of the expected investment returns of the company. g) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the income statement is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the income statement, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval under section 842 Income and Corporation Taxes Act 1988 are not liable for taxation on capital gains. BRITISH & AMERICAN INVESTMENT TRUST PLC 25