Final Results
Hansa Trust PLC
09 June 2005
HANSA TRUST PLC
Preliminary Announcement of Results
for the year ended 31 March 2005
Hansa Trust PLC announces its Preliminary Results for the year ended 31 March
2005
Financial Highlights Year ended Year ended
31 March 2005 31 March 2004
(unaudited) (audited)
Net Asset Value - Total Return 37.7% 60.0%
Capital return per equity share 151.2p 156.2p
Revenue return per equity share 9.6p 6.2p
Net asset value per equity share 578.4p 426.8p
Total dividend per equity share for the year 9.25p 6.0p
Total income (£000's) 3,611 2,751
Revenue before taxation (£000's) 2,305 1,489
• Final dividend 5.75p per share
• NAV - Total Return was 37.7% compared with 6.7% in the Company's
Performance Benchmark.
The following are attached:
• Chairman's Statement
• Consolidated Statement of Total Return
• Balance Sheet for the Group and Company
• Consolidated Cash Flow Statement
• Reconciliation of Operating Results to Net Cash Flow from operating
Activities
• Reconciliation of Net Cash Flow Movement to Movement in (Debt)/Net Funds
• Notes
For further information please contact:
Peter Gardner Hansa Capital Partners LLP 020 7647 5750
CHAIRMAN'S STATEMENT
RESULTS FOR THE YEAR
NAV: +35.5 % to 578.4p per Ordinary and 'A' non-voting Ordinary share.
Dividends: +54.2 % to 9.25p per Ordinary and 'A' non-voting Ordinary
share.
It is with great pleasure that, on the occasion of my first statement to you as
Chairman of your Company, I can report to you an excellent set of results. The
net asset value of the shares rose after the payment of a dividend of 9.5p per
share by 151.6p or 35.5% to 578.4p. Virtually all cylinders of the portfolio
were firing well and, although our investment in Ocean Wilsons was responsible
for 51.2p of the increase, the rest of the portfolio contributing on a broad
base.
Investors make investments to make money; we are not aware that we have any
shareholders who don't mind losing money providing that we beat some equity
index. It is for that reason that we adopted an absolute return benchmark (the
return on 5 year gilt edged securities +2%), a yardstick of a relatively risk
free return plus a premium and one that, as the long-term figures below show,
equity benchmarks don't always beat. Last year the Benchmark returned 6.7%, the
FTSE All-Share Index returned 16.0%. As a board we do not look over our
shoulder at what other trusts are doing, preferring to concentrate on the job in
hand, making money for you. However we have to be conscious of what returns
others are achieving, as investors become shareholders in Hansa Trust in part
because they believe we will do better than others. Over the last one, three
and five years our returns have indeed been rather better than most comparable
investment trusts.
It is also pleasing to be able to recommend to shareholders - for approval at
the Annual General Meeting - a final dividend of 5.75p per share bringing the
total for the year to 9.25p, 54.2% up on last year. Our net income rose by
54.8% to £2.3 million, benefiting particularly from our investments in Lloyd's
insurance companies and in utility companies which, are declaring excellent
profits and dividends to their shareholders. Your Board of Directors is mindful
of the growing importance of dividend income as a consequence of the Country's
demographics. The dividends paid to you will vary from year to year according to
the nature of the portfolio during the year but we would expect them to grow
over the longer term.
LONGER TERM PERFORMANCE:
3 Years NAV Total return +63.1%, Benchmark +21.0%, FTSE All-Share Index - 3.9%
5 Years NAV Total return +38.8%, Benchmark +36.3%, FTSE All-Share Index - 21.0%
Investing in equities is a long-term business. The nature of equities is that
their prices are volatile, rising and falling with the cycles in companies'
profits and dividends and with the ebb and flow of investors' expectations. In
any given year there can be no certainty that equities will provide positive
returns but that is usually compensated for by better returns over the
long-term. It is important therefore that we judge our returns on a long-term
basis and that is exactly the approach the independent directors took in their
recent annual assessment of Hansa Capital's management of the Company. We quite
understand that it will not be possible to achieve good absolute returns for
shareholders every year - nor to do better than our benchmark - nor to do better
than the market or our competitors. But if we cannot do so over five or ten
years then we should not be in business.
As you can see from the numbers above, the returns over the last three (+236.4p
per share) and five years (+133.4p per share) have been excellent. Long-term
returns can be large, short term ones seldom are. Our return over the last three
years from Ocean Wilsons demonstrates this very well, with 99.8p per share being
added to the net asset value. Furthermore not only has good stock selection
contributed to these returns but strategic investing has played an important
part too. Our commitments to the Insurance and Oil & Energy sectors, for
instance, have contributed 31.4p and 45.5p per share over three years
respectively. I am sure shareholders will join me in congratulating William
Salomon and his colleagues on these returns.
CHAIRMAN'S STATEMENT
(continued)
During the year, the independent non-executive directors carried out their
annual evaluation of the Manager. We had absolutely no difficulty in concluding
that it was very much in shareholders' interest that the Manager should remain
in situ. I would like to point out that this conclusion was not reached on the
basis of the years' results but rather on the high quality and commitment of the
team to the management of all aspects of the Company's business and on the basis
of the five year returns for shareholders. As I mentioned earlier, short term
returns are ephemeral and we will certainly have years when returns are not so
good. We will not use short term returns as the basis for evaluations in the
future either.
SHAREHOLDER BASE AND THE DISCOUNT
Ordinary shares: 2.1% (18.0% - 2004); 'A' Ordinary shares: 5.5% (18.8% - 2004)
Your Board and Manager have been frustrated in the past by the level of the
discount at which the shares sell to their underlying net asset value. A year
ago the discounts were 18.0% and 18.8% on the ordinary and 'A' ordinary shares
respectively. It did not seem to reflect the Company's track record. We have
given the matter much thought over the last year; we have spoken to
shareholders, analysts and investment bankers. Various views were expounded,
including our not communicating enough with the City, the lack of liquidity in
our shares and our dual capital structure.
So during the year we have stepped up our communications with investors and
their advisors. On 8th March 2005 4m of the Company's 'A' non-voting Ordinary
shares were placed at 509.25p, equivalent to a discount of 12.25%. This
represents 25% of the share class and had a value of £20.37m. The shares came
primarily from British Empire Securities and General Trust plc which sold 3.5m
shares, reducing its holding to 2.5m shares, and were placed with the clients of
eleven institutions and clients of private client brokers. We welcome these new
shareholders to the share register, and hope that the enlarged shareholder base
will ultimately provide greater liquidity in the shares. That will benefit all
shareholders. By the year end the discounts on the ordinary and 'A' ordinary
shares had declined to 2.1% and 5.5% respectively.
The matter of having two classes of shares, one of which is non-voting has been
raised as an issue concerning general investor interest and hence the discount.
However it should be noted that both types of share rank parri pasu in all
respects, save voting rights. As a board of directors it is not an issue within
our control; it is rather one for the ordinary shareholders. We believe that
the majority of ordinary shareholders would not agree to a change in these
arrangements and we do understand why. In this day and age of short-term
expectations and mindless box-ticking by bureaucratically managed investment
houses, consultants and trade bodies, it is not easy to manage portfolios on a
genuinely long-term basis. The Board of Directors understands that the
long-term approach - which has produced good returns - would be threatened by
exposure to such influences and quite understands why the ordinary shareholders
would want to resist it.
ANNUAL GENERAL MEETING
The AGM will be held at 11.30am on Thursday 28 July at the Radisson Edwardian
Mayfair Hotel, Stratton Street, London (Green Park tube station). We do urge
all shareholders who are able to attend to join us for the occasion. It is the
one opportunity that you have collectively to meet the Board and Management, ask
questions that concern you and make any comments and criticisms that you may
have. Furthermore you have the benefit of doing it in front of your fellow
shareholders - so that they can hear what you have to say and in turn you have
the chance to listen to what they have to say. Most important of all we have
the chance to listen and learn from you. Please come and join us.
INVESTMENT VEHICLES, INVESTMENT TRUSTS AND HANSA TRUST
William Salomon has explained at previous AGMs to shareholders, investors and
others interested in Hansa Trust that we try to provide something special for
shareholders that they could not otherwise easily achieve for themselves. We
believe that good returns come from patient investing, from backing companies
whose managements are, as John Alexander puts it, co-proprietors with us, from
seeking investments that offer something special and from identifying areas of
the market that offer exceptional returns that others, for some or other reason,
are ignoring. It is the approach that has served Warren Buffett so well over
the last 40 or so years. We do not believe that there is some God-given reason
that equities generally will automatically provide good returns and in
particular we do not believe that equity indexed portfolios will provide the
returns that are required of them in the next few years. We are in an era of
low nominal returns and furthermore one in which equities as a class will not
necessarily provide the best returns.
CHAIRMAN'S STATEMENT
(continued)
Key to successful investing and earning good returns is commitment, imagination,
courage and a good and experienced team. Modern portfolio management is beset
by bureaucracy and fear of underperforming an often irrelevant index. Jose
Mourinho the manager of championship winner Chelsea remarked that he is not
frightened of making mistakes - nothing ventured, nothing gained. Not only are
investors frightened of risk but they are now beset with rules and regulations
which seek to discourage taking risks. Modern corporate governance prioritises
the formalities of best practice and thus subordinates achievement to the
formation of the process; substance to form, individual initiative to committee
management and experience to training. It is no way to encourage the emergence
in Britain of the Berkshire Hathaway's or Microsoft's of tomorrow.
Investment trusts generally are threatened by these things and are in danger of
making the same mistakes that have done such disservice to many pensioners in
Britain. Indeed boards of trusts are being actively encouraged to direct their
companies much as trustees in the past have directed their pension funds, to
such bad effect. The best managers are being diverted to hedge funds where they
can make more money for themselves or to unit trusts where the fund management
houses can make more money for their shareholders. Some of the best performing
investment trusts are those with experienced and committed managers, who have
large personal shareholdings in the trusts that they manage. It is enormously
important to all shareholders that the Salomon family has an interest in over 2
million shares of the Company and that William is personally committed to its
success, in addition colleagues working with William hold a further 31,000
shares. It is also enormously important that he should have a talented,
committed and experienced team around him; he has.
THE ASSOCIATION OF INVESTMENT TRUST COMPANIES ('AITC')
Your Company is a member of the AITC and I am privileged to be serving a two
year term as its chairman. Not only is the Association working on some
important issues that will affect your Company - challenging the imposition of
VAT on management fees, working on the Treasury's investigation of the
regulation of investment trusts and seeking a lower rate of tax on income earned
from bonds, for example - but it provides a good service for its members in many
ways. We have an active relationship with our trade association and find that
it helps us in managing and directing your Company's affairs. Many of the
AITC's achievements in recent times have been of great benefit to the industry
including Hansa Trust.
OUTLOOK
It is difficult to say anything particularly original about the outlook for the
UK economy or stock market that hasn't been said over and over again by all
sorts of erudite commentators in the City and in the media. Market views tend
to be rather lemming like - all headed off in the same direction which is all
too often towards some cliff or other. It is not that they are necessarily
wrong but rather that they tend to be well discounted in share prices. At the
moment for example, investors are worried about the twin deficits in the United
States; so the US Dollar has been weak. China is gobbling up more and more oil,
so oil and gas stocks are strong. Interest rates are rising in many places, so
bank shares are generally weak. And so on. It would seem reasonable to suppose
that the growth of the major economies of the world is likely to slow down in
the next eighteen months or so as highly indebted consumers or governments are
unable to provide the stimulus to economies that they have in the past year or
two. Higher interest charges, fuel bills and in some cases taxes will have to be
paid for. So - for the moment at least - markets are cautious. It is all very
logical.
However - in anything other than the short term - these matters are not of the
utmost importance to our own outlook and prospects. Unless there is a further
and significant extension to the bear market which started with this new
millennium - which we do not see - then our prospects will be determined by our
own ability to invest in areas and in companies which will prosper in the low
growth and low return investment environment that we are now in.
Notwithstanding the further damage that this government - recently re-elected
for a third term - and the Brussels bureaucrats can do to the structure of the
economy with their imposition of ever growing mountains of red tape, pages of
regulations and corporate tax burdens, the outlook for the UK still remains
bright enough for there to be plenty of opportunities for rewarding investment.
It is up to us to find them. My non-executive and independent board room
colleagues have every confidence that William and his colleagues will do just
that.
Alex Hammond Chambers
Chairman
CONSOLIDATED STATEMENT OF TOTAL RETURN
incorporating the revenue account for the year ended 31 March
Revenue Capital Total Revenue Capital Total
2005 2005 2005 2004 2004 2004
£000 £000 £000 £000 £000 £000
Gains on investments - 36,287 36,287 - 37,493 37,493
Exchange gains/(losses) on
currency balances - 3 3 - (6) (6)
Income 3,611 - 3,611 2,751 - 2,751
Investment management fee (770) - (770) (573) - (573)
Other Expenses (465) - (465) (520) - (520)
Net return before finance costs
and taxation 2,376 36,290 38,666 1,658 37,487 39,145
Interest payable and similar
charges (71) - (71) (169) - (169)
Return on ordinary activities
before taxation 2,305 36,290 38,595 1,489 37,487 38,976
Taxation on ordinary activities - - - - - -
Return on ordinary activities
after taxation 2,305 36,290 38,595 1,489 37,487 38,976
Dividends on Ordinary and 'A'
ordinary shares (equity) (2,220) - (2,220) (1,440) - (1,440)
Transfer to reserves 85 36,290 36,375 49 37,487 37,536
Return per Ordinary and 'A'
Ordinary share before dividend 9.6p 151.2p 160.8p 6.2p 156.2p 162.4p
The revenue column of this statement is the profit and loss account of the
Group.
All revenue and capital items in the above statement derive from continuing
operations.
BALANCE SHEET OF THE GROUP AND COMPANY
as at 31 March
Group Group Company Company
2005 2004 2005 2004
£000 £000 £000 £000
Fixed assets - investments
Shares in Group undertaking - - 430 376
Other investments 142,631 105,551 142,631 105,551
142,631 105,551 143,061 105,927
Current assets
Debtors 492 212 492 212
Investments 208 123 - -
Cash at bank 84 57 79 52
784 392 571 264
Creditors
Amounts falling due within one year (4,600) (3,503) (4,817) (3,751)
Net current liabilities (3,816) (3,111) (4,246) (3,487)
Net assets 138,815 102,440 138,815 102,440
Capital and reserves
Called up share capital 1,200 1,200 1,200 1,200
Capital redemption reserve 300 300 300 300
Capital reserve - realised 98,047 77,042 98,047 77,042
Capital reserve - unrealised 37,348 22,063 37,775 22,436
Revenue reserve 1,920 1,835 1,493 1,462
Total equity shareholders' funds 138,815 102,440 138,815 102,440
Net asset value per Ordinary share 578.4p 426.8p 578.4p 426.8p
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 March
2005 2004
£000 £000
Net cash inflow from operating activities 1,970 1,631
Servicing of finance
Interest paid (71) (171)
Net cash outflow from servicing of finance (71) (171)
Taxation - -
Financial investment
Purchase of investments (42,253) (31,079)
Sale of investments 40,826 36,121
Net cash (outflow)/inflow from financial (1,427) 5,042
investment
Equity dividends paid (1,848) (960)
(1,848) (960)
Financing
Drawdown/(Repayment) of loans 1,400 (5,530)
Increase in cash 24 12
RECONCILIATION OF OPERATING RESULTS TO NET CASH FLOW FROM OPERATING ACTIVITIES
2005 2004
£000 £000
Net revenue return before finance costs and taxation 2,376 1,658
Decrease in prepayments and accrued income (280) (120)
(Increase)/decrease in current asset investments (85) 3
(Decrease)/increase in other creditors and accruals (41) 90
Net cash inflow from operating activities 1,970 1,631
RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN DEBT
2005 2004
£000 £000
Increase in cash 24 12
Cash (outflow)/inflow from loans (drawn)/repaid (1,400) 5,530
Movement in net funds resulting from cashflows (1,376) 5,542
Exchange gains/(losses) 3 (6)
Movement in net funds in the year (1,373) 5,536
Net debt at start of year (1,578) (7,114)
Net debt at end of year (2,951) (1,578)
Represented by:
At 31 March Exchange At 31 March
2004 Cashflow Movements 2005
£000 £000 £000 £000
Cash at bank 57 24 3 84
Short-term bank loans (1,635) (1,400) - (3,035)
(1,578) (1,376) 3 (2,951)
Notes:
1. This Preliminary Announcement is not the Company's statutory accounts.
It has been agreed by the auditors and is an abridged version of the
Company's full draft accounts, which have not yet been approved, audited or
filed with the Registrar of Companies.
2. Statutory accounts for the 12 months ended 31 March 2004 have been
delivered to the Registrar of Companies and received an audit report which
was unqualified and did not contain statements under Section 237 (2) and
(3) of the Companies Act 1985.
Hansa Capital Partners LLP - Company Secretary
9 June 2005
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