Interim Management Statement

RNS Number : 4643Q

Hansa Trust PLC

03 August 2010

 



HANSA TRUST PLC

INTERIM MANAGEMENT STATEMENT (UNAUDITED)

This interim management statement covers the period from 1 April 2010 to 30 June 2010. It has been produced for the sole purpose of providing information to the Company's shareholders in accordance with the requriements of the UK Listing Authority's Disclosure and Transparency Rules.

The Directors are not aware of any significant events or transactions, which have occurred between 30 June 2010 and the date of publication of this statement, which have had a material impact on the financial position of the Company.

INVESTMENT MANAGER'S COMMENTS

Background

Global equity markets have had a difficult first half to the calendar year. It has been a tale of two quarters as equities and commodities made a strong start to the year before faltering in April when the Eurozone sovereign debt crisis broke. During Q1 of the Trust's financial year the net asset value per share (including income) fell by 6.5% compared with a rise of 1.4% in the benchmark and a fall of 11.6% in the FTSE All-Share Index. Risk aversion came to the fore in May and June and market sentiment remains fragile as European banks have yet to come clean over bad loans and may struggle to refinance short-term debt. Although the US recovery is modest by historical standards, especially given the authorities' strong and effective macroeconomic response, it has proved to be stronger than had earlier been expected. The adoption of austerity measures in Europe and the UK came as more recent economic data in the US deteriorated, with the US housing market struggling following the removal of tax credits, and as signs that economic activity in China, which boosted the world economy in 2009, is slowing. Western fiscal stimuli and China's credit surge are now in full reverse mode, and the ongoing loss of momentum in the pace of recovery has been reflected in a slowing of corporate profits upgrade momentum and more talk of the threat of  a "double-dip" recession in some countries, as well as the growing threat of deflation.

The global economy has undergone a structural transformation that has shifted the world's economic centre of gravity away from the developed world and towards the emerging economies. Economic growth has been most visible in Asia, driven by the strong performance of China and India, but it has by no means been confined to that continent. Witness Brazil's robust recovery from the global downturn with first-quarter GDP growth of 9%, and interest rates nearly four percentage points above the average inflation rate, in contrast to the West, where interest rates have been kept artificially low and growth is only stuttering along.

Portfolio Activity

During the quarter a new investment of £5.0m was made in Weir Group, and three follow-on investments totalling £3.3m were made in BG Group, SSL International and Experian, all companies with global operations, overseas earnings and growing exposure to emerging markets. Delta, a global manufacturer was acquired, realising proceeds of £1.9m. There was a commitment drawdown to DV4 of £0.3m. Bank borrowings amounted to £8.1m at quarter end, representing gearing of 4.0%.

Sector Weighting and Performance

Sector	Portfolio weighting at 30 June 2010	3 Months performance to 30 June 2010
	%	%
Strategic	41.4	(1.7)
Smaller cap/AIM	15.5	(7.2)
Natural resources	15.3	(19.0)
Property	9.4	(6.7)
Large cap	11.4	(10.4)
Utilities	4.8	2.9
Insurance	3.3	20.9
Mid cap	4.2	(8.7)
Investment trusts	2.5	(3.2)
Hedge	-	(96.9)
Bank loans / Cash funds	(7.8)	(0.3)

Emerging markets and Overseas Earners make up three-quarters of the Trust's assets, led by the strategic holding in Ocean Wilsons Holdings (-1.7%) which in turn represents 41.4% of the Trust's assets at the end of the first quarter. Wilson Sons Ltd (58.25% owned by Ocean Wilsons Holdings Ltd) reported that first-quarter revenues were up 17.2% compared with Q1 2009, with revenue growth in all major segments, led by offshore at 32.8%. The company continues to procure final approvals in respect of the "Wilson Sons UltraTug Offshore" joint venture, created to maximize fleet expansion opportunities for offshore vessels supporting oil & gas exploration and production activities. Wilson Sons manages its own shipyards for tugboats and Platform Supply Vessels, and is ready to play Brazil's growing oil market. It's towage business has a 54% market share and the largest fleet in Brazil (67 tugboats), providing towage services in all of Brazil's principal ports. Petrobas's 3rd plan for fleet renewal calls for 195 support vessels to be supplied between 2009-2020, of which 13 have already been placed for bids, with Wilson Sons winning 2 for a 15% market share.

BG Group (-11.2%) has confirmed the seventh consecutive successful well on the Tupi accumulation in the Santos Basin, extending the presence of light oil. BP (-48.8%) has agreed to set up a US$20bn Claims Fund over the next three and a half years and has cancelled its 2010 dividend, but will consider resumption of dividends in 2011. In order to boost its cash resources BP will implement a significant reduction in capital expenditure and will be looking to dispose of US$10bn of assets over the next 12 months. A new containment system is being installed to collect all the leaking oil, until such a time that the two relief wells manage to kill the original well completely. Cairn Energy (-0.5%) announced Greenland government approval for the first two wells in the planned 4 well 2010 programme, paving the way for drilling to commence in early July. Adjusted Q1 earnings from Royal Dutch Shell (-8.7%) comfortably beat expectations, helped by higher oil prices, improved production volumes and lower costs. Melrose Resources (-6.7%) has engaged advisers to divest its US assets to deploy the proceeds in paying down debt, with any balance put to its capex programme. Miners have won a major victory in the fight over tax reform in Australia, and the super tax will only apply to iron ore and coal, all of which is good news for BHP Billiton (-22.4%). HSBC's (-7.0%) IMS stated that the performance in Q1 2010 was very good, substantially driven by lower impairment charges, whilst also contrasting the prospects for the emerging compared with developed economies: "in developed markets, the risks of double-dip recession and stagnation haven't gone away. In contrast, recovery in emerging markets looks secure". GlaxoSmithKline's (-8.4%) Q1 results were in line with forecasts and it continues to strengthen its presence in the high-growth emerging markets. Wolseley (-15.9%) said its Q3 outcome represents a strong period of profit growth against the background of a significant cost reduction programme. Experian's (-9.8%) final figures exceeded expectations and a key feature was the delivery of cash, which has encouraged the company to improve its distribution to shareholders via dividends and introduce a US$300m share buyback. As well as announcing it has allowed Apollo (which has submitted a revised indicative offer of 1,075p per share) to conduct due diligence, BRIT Insurance (+20.9%) announced a strong set of interim results. There was a recommended cash offer for SSL International (-0.6%) by Reckitt Benckiser at 1,171 pence per share. Weir Group (-9.1%) is a global manufacturer and supplier of engineering products and services, with 60% of its sales going in to the aftermarket and an objective to double profits by 2014 and hopefully sooner. The cash offer for Delta (-0.2%) by Valmont Group was declared wholly unconditional. Andor Technology (+41.7%) delivered another strong performance during the first half of the year, and a cash conversion rate of 152%. Qinetiq (-12.6%) reported an in-line set of full year results, and a balance sheet that was stronger than expected. Cape (-12.4%) announced that the results for the year to December 2010 will be ahead of expectations, while the bid pipeline is robust. NCC Group (+6.5%) announced good final figures and has now produced six earnings CAGR of 22% and dividend 34%.

Elsewhere Lloyds Banking Group's (-14.5%) IMS stated that in the first quarter of 2010 the Group returned to profitability on a combined business basis due mainly to a significant slowing of impairments in the wholesale business, while costs continue to be well controlled. Hargreaves Services (-14.8%) ended merger discussions with UK Coal, and in a pre close update revealed that trading was in line with overall expectations. EAGA(-20.2%) confirmed trading for the year to the end of May was in line with expectations, while Straight (+2.8%) announced that as a result of the continued progress being made throughout the Group, the Board is confident that its expectations for the full year will be met, and the same goes for Morson (-2.0%). Goals Soccer Centres (-9.6%) AGM statement stated that both trading and new site activity remain in line with expectations. Galliford Try's (-1.6%) IMS confirmed that they are on course to achieve their land buying targets and generate the long term growth that their recent land investment demands. On the property front foreign investors accounted for 60% of central London deals in the last quarter. Great Portland Estates (-6.1%) announced good figures and has started to deliver one of London's most exciting development programmes, whilst also having the benefit of one of the lowest gearing levels of all listed property companies. Hansteen (-13.0%) made its first acquisition in the UK and other domestic deals are being considered. Utility stocks have proved to be a safe haven in these unsettled times. Scottish & Southern Energy's (+1.6%) figures matched expectations, while Centrica (+4.0%) issued a Q1 trading update saying that it has performed well in the year-to-date.

Outlook

The indications are that activity across the world generally continues to improve, and the global economy is forecast by the IMF to grow at 4.6% this year and 4.5% next with strong performances not just from China and India, but also from the US and Japan. A recovery in corporate profitability is leading the way, and the profits outlook remains upbeat. When profits rise, business investment, employment and consumer spending tend to follow. Even if the economic recovery in the West is muted or stuttering, equities can offer attractive earnings growth, especially earnings growth driven by higher end-customer demand as opposed to cost-cutting, as well as excess cash flow, something that bonds cannot. According to Morgan Stanley, UK companies (excluding the financial sector) have cash of more than £140bn which is a good sign for future dividends, share buy-backs and M&A activity. US and emerging market companies are likely to target companies within the euro area, particularly those with a global footprint or those whose core operations are concentrated in the stronger eurozone economies. The Trust has seen M&A interest in DELTA, BRIT Insurance and CAPE.

Although a growth relapse is likely in the West, a "double-dip" recession is unlikely, as recoveries usually gather momentum with the passing of time. Stuttering growth may be the new normal for sometime yet. Economists at Morgan Stanley have coined a great phrase to describe what we could be living through over the next few years: GRIM - Growth Really Is Mediocre. In other words, a recovery is likely to be moderate and uneven in pace. That is in stark contrast to the former NICE years: Non-Inflationary Consistent Expansion.

KEY INFORMATION

Significant Holdings - either those more than 5% of Gross Assets (inc.Income) or Top Ten Holdings (%):

Ocean Wilsons Holdings	41.4
BG Group	4.0
BRIT Insurance	3.3
BHP Billiton	2.9
Hargreaves Services	2.8
HSBC Holdings	2.7
Centrica	2.5
Herald Investment Trust	2.5
NCC Group	2.5
SSL International	2.4
Total	67.0
No. of Holdings	57

Analysis of Assets (£m):

Total Investments	209.4
Net current assets/(liabs)	(0.7)
Total assets	208.7
Short-term borrowing	(8.1)
YTD revenue / (loss)	0.3
Net assets (ex Income)	201.0
Gearing	4.0%
Net Cash	0.0

There are no Listed Investment Company holdings where the investee company has a policy that does not limit them to investing less than 15% of gross assets in other listed Investment Companies and there are no material changes to the most recent price and Net Asset Value(%):

Share Price on £100 (£):	Ordinary	'A' Ordinary
1 Year	108.6	112.3
3 Years	64.2	68.9
5 Years	117.3	122.6
10 Years	183.6	204.3

Performance Statistics (%):	Fin.YTD	1 Yr	3 Yrs	5 Yrs	10 Yrs
Net Asset Value (#)	(6.6)	14.3	(23.0)	36.6	95.8
Total Return on Net Asset Value(#)	(6.6)	17.5	(17.7)	49.7	129.5
Benchmark	1.4	6.0	19.7	33.2	69.6
Share Price - Ordinary	(6.4)	8.6	(35.8)	17.3	83.6
Total Return on Ordinary Shs (#)	(6.4)	12.2	(30.7)	29.9	119.3
Share Price - 'A' Ordinary	(5.3)	12.3	(31.1)	22.6	104.3
Total Return on 'A'Ordinary Shs(#)	(5.3)	16.0	(25.5)	36.2	145.4
FTSE All-Share Index	(12.6)	17.1	(25.3)	(0.7)	(16.1)
Total Return on FTSE All-Share (#)	(11.6)	21.7	(15.1)	21.1	21.7

Market Data	Share Price (p)	NAV (p) (#)	(Discount) /  Premium (%)	Gross Yield (%)
Ordinary	711.50	837.39	(15.0)	3.5
'A' Ordinary	710.00	837.39	(15.2)	3.5

FSA - Standardised Performance Information

12 mths Period (Bid to Bid)	2005Q2 to 2006Q2	2006Q2 to 2007Q2	2007Q2 to 2008Q2	2008Q2 to 2009Q2	2009Q2 to 2010Q2
Total Return %age - Ord	23.09	47.91	(24.27)	(22.29)	8.53
Total Return %age - A.Ord	24.78	43.55	(20.39)	(23.78)	11.20

Fund Details

Fund Manager:	John Alexander of Hansa Capital Partners LLP
Launch Date:	1912 (name changed to Hansa Trust in October 2001)
Investor Sector:	UK Growth
Capital Structure:	8,000,000 Ordinary shares of 5p
	16,000,000 'A' non voting Ordinary shares of 5p
Year End:	31st March
Dividend:	Final - ex date June, payment date August
	Interim - ex date and payment date December
Directors:	R.A. Hammond-Chambers, Chairman
	W.H. Salomon, Lord Borwick,
	Prof. G.E. Wood
Ownership	Board of Directors and connected parties own or are interested in 52.5% of the Ordinary shares.
Managers:	Hansa Capital Partners LLP - authorised and regulated by the Financial Services Authority (FSA)
Management Fee:	Maximum of 1.00%  per annum (payable by the Trust)
Benchmark:	3 year rolling average composite of 5 year Govt.Bond Yield (with interest being re-invested semi-annually) + 2% from 1 April 2003
Investment Goals, Policy and Benchmark	To achieve growth of shareholder value Hansa Trust PLC invests in a portfolio of special situations, where individual holdings or specific sectors may constitute a significant proportion of the portfolio or that of the equity of the companies concerned.  This investment approach may produce returns which are not replicated by movements in any market indices.  Performance is measured against an absolute benchmark derived from the three-year average rolling rate of return of the five year government bond with interest being re-invested semi-annually, plus 2 percent.  Investments are intended to add value over the medium to longer term through a non-market correlated, conviction based investment style.
FSA Investment Restriction:	It is the stated policy of the Board not to limit investments in Investment Companies to less than 15% of gross assets as detailed in the FSA Listing Rules Chapter 21.20 (i)

#  NOTES:-

Net Asset Value per share is calculated in accordance with the guidelines of the Association of Investment Companies (AIC) in that income received by the company in the period since the last annual accounts is included. With effect from 1 June 2008 Net Asset Values and returns have been restated on a cum income basis in accordance with a change in the AIC guidelines. Hansa Trust PLC is a member of the Association of Investment Companies.

Total Returns on Net Asset Value and Shares has been sourced from unaudited internal management information and from the Close WINS Investment Trusts database, and assumes that all dividends are re-invested.

Other than Standardised Performance Information prices quoted are mid price and performance returns are mid to mid.

Risk warning The information provided here has been issued by Hansa Capital Partners LLP, which is regulated by the Financial Services Authority.  Share and performance information has been compiled by Hansa Capital Partners LLP. Past performance is not necessarily a guide to future performance as market and exchange rate movements may cause the value of shares and income from them to fall as well as rise, and an investor may not get back the amount invested.  Investment Trust share prices may not fully reflect underlying net asset values. The spread on Investment Trusts typically averages 1-2% each way on the mid-market price (the price halfway between the bid and offer prices).  However, investors wishing to invest in Hansa Trust 'A' shares should note that the market for these shares is at times quite illiquid which leads to a large spread between the buying and the selling prices, the bid to offer spread.  For example, for the 'A' shares, as at 31 December 2009 the bid to offer spread was 3.40%*.            *Source:  Bloomberg

 

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