Annual Financial Report

RNS Number : 3109J

Hansa Trust PLC

10 June 2014

 



HANSA TRUST PLC

Preliminary Announcement of Unaudited Results

for the year ended 31 March 2014

Hansa Trust PLC announces its Preliminary Results for the year ended 31 March 2014.

Financial Highlights	Year ended 31 March 2014 (unaudited)	Year ended 31 March 2013
Net Asset Value - Total Return	12.3%	-1.7%
Performance Benchmark	3.3%	3.8%
Capital return per equity share	114.1p	-36.7p
Revenue return per share	17.0p	16.1p
Net asset value per share	1,197.5p	1,082.9p
Total dividend per equity share for the year	16.0p	15.0p
Total income (£000's)	6,739	6,193
Revenue before taxation (£000's)	4,072	3,886

The following are attached:

·          Chairman's Report to Shareholders

·          Group Income Statement

·          Statement of Changes in Equity - Group and Company

·          Balance Sheet for the Group and Company

·          Cash Flow Statement

·          Notes

As well as announcing the final dividend for the year ended 31 March 2014, the Company also announces, as part of its new dividend policy, the advance notification of the two interim dividends for its financial year ending 31 March 2015. Barring unforeseen circumstances, the Company expects to pay two interim dividends of 8.0p each. The first interim dividend will be paid in November 2014 and the second will be paid in May 2015.

For further information, please contact:

Stephen Thomas                       Hansa Capital Partners LLP                  020 7647 5750

Chairman's Report to the Shareholders

ALEX HAMMOND-CHAMBERS

Chairman

The new strategic course we have embarked upon will give rise to a more focused portfolio - focused on the areas we particularly like - and should produce good returns in the years to come.

The last three years have not produced the level of returns we would have expected and, having given much thought to a number of comments made to the Board of Directors at both annual general meetings and through individual correspondence, we have spent the last year or so giving careful consideration to the investment proposition that Hansa Trust provides for its shareholders and offers to other investors.

We ended that process on Tuesday 22 April 2014 with an announcement (see within our new website: www.hansatrust.com) of something of a new approach to the investment strategy designed to fulfil our investment objective of growth of shareholder value and of a more clearly defined dividend policy.  I say "something of" because I don't want to represent the changes as being of a revolutionary nature (changing the whole basis of our portfolio) but rather an evolutionary nature whereby we seek to achieve that growth of shareholder value in a more interesting way.

The thinking process behind these developments started with an AIC conference held back in December 2012 on the subject of the Retail Distribution Review (now commonly referred to as "RDR") and attended by Peter Gardner of Hansa Capital Partners and myself.  What was clear to us was that RDR provided the prospect of a much wider investor audience for investment trust company shares but that it also intensified the competition for "investment products".  We needed to think hard about our own investment proposition to make sure we had a part to play in the post RDR world.  And so we embarked on that thought process.

Hansa Trust is an unusual investment trust - on a number of counts - and one of those counts is that we aim to provide an investment proposition that individual investors cannot easily replicate for themselves.  While much of our portfolio fulfilled that characteristic, we had about a quarter of it invested in large UK quoted companies - companies whose shares are an important component of the portfolio of many other investment trusts, unit trusts and open-ended investment companies ("OEICs").  We had those investments in part because they were somewhat defensive in nature and in part because they provided exposure to the growth of economies in other parts of the world.  The main thrust of the change is to achieve that overseas exposure through a portfolio of dedicated investment funds, many of which are not available for investment by the man in the street.  So, as the Portfolio Manager's review, which follows this statement  notes, our portfolio structure will trend towards circa 25% in each of strategic investments (our indirect exposure to Ocean Wilson's Brazilian subsidiary Wilson Sons), UK companies, core funds and eclectic and diversifying funds (which includes our indirect exposure to Ocean Wilsons Investments, DV3 and DV4).

Such a change may well have an effect on the dividend income we earn from the portfolio.  As the underlying companies in our portfolio make progress over the years, we would expect our own dividend income to grow - not necessarily in each and every year but over time.  However, some of that extra income will be generated within some of the funds in which we invest but will not necessarily flow through to Hansa Trust's own income account.  As a consequence we decided that it was appropriate that this progress should be reflected in our dividend payments and that we should therefore have a progressive dividend policy.  So, in future and barring unforeseen circumstances, we expect to announce the year's dividends to be paid as two equal interim dividends - one in November and the other in May.  From time to time there may be one-off circumstances, which give rise to an exceptional level of income, in which case we would declare a final dividend to be approved by shareholders at the forthcoming AGM.

Shareholder and Investor Communications

As part of our RDR strategic thinking process, we recognised that having an attractive investment proposition was not good enough if it was not known and understood in the market place.  We have not always received complimentary comments on our website and monthly fact sheets and we recognised that they presented the facts without telling the story.  We also understood that, post RDR, there would be an increasing number of DIY investors, those who did their own research, made their own decisions and used platform services to administer their investments.

So we have redesigned our website (www.hansatrust.com) so that it is more user friendly and better at telling the story behind the investment portfolio, which shareholders are invested in.  We have outlined some of the principles, which guide our policies and which determine our portfolio management disciplines.  Following that we have redesigned the monthly fact sheet which can be found on the website.

This annual report is also a new look communication - in part because we wished it to be a better annual report and in part because certain changes of order were prescribed by the Financial Reporting Council ("FRC"), In practice, although the design and layout is rather different, the content and information does not differ greatly from that of previous years because the Company was already fulfilling the majority of the disclosure requirements.  Hopefully it will continue to provide a good understanding about what Hansa Trust is all about and how it is doing.

Fulfilling Hansa Trust's Goal:

It has, rather ironically, become the practice of many investment trust company chairmen/chairwomen - in making their annual statements to shareholders - to emphasise the relative performance of the net asset value over the past year against a benchmark despite the fact that the stated objective of their investments trusts is often long-term (absolute) capital appreciation or total return.

However we thought that it made sense for the Chairman, on behalf of the Board of Directors, to account to shareholders for the performance against the Company's stated objective, which in our case is:

"To achieve longer-term growth of shareholder value, Hansa Trust invests in a portfolio of special situations … Investments are intended to add value over the medium to longer-term …"

So I will report to you on the returns of the past five years (the length of time we regard as longer-term).  The Portfolio Manager's Report, however, will report to shareholders on the returns of the past year and all of the investment matters relevant to the past year's results.  We believe there is certain logic to this in that the Board's responsibilities include the longer-term fulfilment of its Company objectives and that the Portfolio Manager's responsibilities encompass the day to day investment operations of the Company.

Over the past five years, the returns are shown in the table below:

	31 March 2014	31 March 2009	Capital Return	Total Return
Net Asset Value	1,197.56p	635.00p	+85.8%	+97.2%*
Benchmark				+22.9%
Share prices Ord	879.25p	510.00p	+72.4%	+86.6%*
Share prices "A" Ord	877.50p	500.00p	+75.5%	+90.0%*
FTSE All- share Index	3,555.59	1,984.17	+79.2%	+118.0%

* Includes dividends of 72.5p per share paid in respect of the last five years.

It has to be said that it could not have been a much more favourable period over which to report longer-term returns with the UK stock market hitting a bottom in March 2009 (having fallen by circa 49% from a peak in the middle of 2007).  So a rise of 97% or circa 19% per annum in the net asset value over the five years represents a good return - most especially in an era of ultra low interest rates.  It is considerably better than that of our benchmark but in such circumstances it should be.

The increases in the prices of our two shares (ordinary and "A" ordinary) have also produced good returns (11.5% and 12% pa annum), if not quite as good because the discount to the net asset value rose over the period from 19.7% to 25.5% (ordinary shares) and from 21.3% to 25.6% ("A" ordinary shares).  There were a number of reasons for the lack of interest in our shares, which we judge to have caused the discount to drift out but perhaps the most important of them was the Brazilian factor as investors globally lowered their appetite for investing there.  With circa 35% of the net asset value invested in Ocean Wilsons, that sentiment undoubtedly affected the attraction of Hansa Trusts' shares.

Having said that - our holding in Ocean Wilsons contributed 270p of the 545p rise in the net asset value over the period with our holdings in NCC group (+50p per Hansa Trust share), Andor Technology (+33p), Galliford Try (+31½ p) and Herald Investment Trust (+30p) all making important contributions.  There were (as there always will be) detractors from the returns and our holdings in Ark Therapeutic (-10p), Cairn Energy (-10p), EAGA (-9p), Premier Foods (-5p) and Petroceltic (-4p) all detracted from our returns.

Thank You

On behalf of all of us shareholders, I would like to thank those at Hansa Capital Partners, our Portfolio Manager for these achievements.  But over and above that I would like to pay tribute to the team for the huge workload of the past year.  The team has been joined by Alec Letchfield, who has been appointed Hansa Capital Partner's Chief Investment Officer and by Stephen Thomas, who has taken over secretarial duties from Peter Gardner, who has retired from Hansa Capital Partners.  I would like to pay a particular tribute to Peter, who has served both the Company and the Board of Directors tirelessly and selflessly over many years and guided us through a veritable nettle field of regulatory weeds.  We will miss him but wish him well.

Not only have we undertaken the changes I have already referred to but we have also incorporated a lot of new regulation, which has become mandatory during the year.  The EU's Alternative Investment Fund Manager Directive ("AIFMD") has now become UK law and placed a significant burden and costs on the investment trust industry, including on your Company.  The FRC's restructuring of how it wishes to see annual reports presented and FATCA requirement imposed on us by the United States are another two of the unending tsunami of new rules and regulations that we have to deal with on what seems like a permanent basis.

The Annual General Meeting:  21 July at the Washington Hotel in Curzon Street in London.

The 2014 Annual General Meeting will take place at the Washington Hotel in Curzon Street in London (Green Park is the nearest tube station) at 11.30am.  It is the most important occasion of the year for your Board of Directors, giving us the chance to meet with shareholders and listen to the comments and questions that you put to us.  They are of immense value and have played a particular part in forming our thinking over the past year. 

This year, amongst the normal resolutions which will be put to shareholders, is one that seeks shareholders approval to change the Company's Memorandum and Articles of Association one part of which is to allow the Company to pay dividends out of capital profits.  As explained earlier, this is an important part of our investment strategy for the future.

We will also be seeking approval for the payment of a final dividend of 11.0 p per share, which when added to the interim (paid in November 2013) of 5p per share, brings a total of 16.0 p per share for the year.  In respect of the year just started and ending on 31 March 2015 we propose to pay two interim dividends - each of 8.0p per share - in November 2014 and May 2015 - totalling 16.0p per share in respect of the year as a whole.

At last year's AGM there were a number of questions put to the meeting, including:

What actions was the Board taking to promote the Company?

The activities of the past year - culminating in the redirection of part of the portfolio, in redesigning the annual report, the Company's web site and fact sheet and in working with Edison and Morningstar to facilitate coverage of Hansa Trust to the investing community are all part of addressing the issue of having an appropriate investment proposition and promoting it in the market place.

Could the Board consider reviewing the website which appears staid and old fashioned?

As above - we have done that.  We hope you find it much more informative and interesting.  We would appreciate any thoughts you have on it.

Should the cost of running the Company be allocated between income and capital, thereby increasing the amount available for dividends?

As stated earlier in this statement, we have refined our dividend policy so that, with shareholders approval to altering the Company's articles accordingly, we can pay dividends to shareholders out of capital profits as well as from income profits.

Can the Board consider ways and means by which greater clarity of the underlying investment in Ocean Wilsons could be shown?

While it is necessary to report our holding in Ocean Wilsons as one investment (worth circa £103 million or 430p per Hansa Trust share), we have broken it down into its two underlying components - showing our indirect investment in Wilson Sons (worth £70 million) and the underlying Ocean Wilsons Investment portfolio  (worth £33 million).

There is a lot of information available about Ocean Wilsons from the company itself and from its website.  We do not seek to duplicate that information nor express an opinion on its prospects.  The Portfolio Manager's Report goes into some detail on recent developments there.  We, the Directors, remain of the view that Wilson Sons has excellent management and exciting prospects in the next few years from which we would expect Hansa trust's shareholders to benefit in time.

Could the Portfolio Manager in future cover some of those investments, which have not been successful, explaining why?

He will.

Could the Book cost of the investments be shown in the annual report?

We do not regard reporting the book cost of an investment as an important piece of information.  The share price does not know what we paid for our holding and it does not affect its prospects.  Focus on the book cost can prove to be a distraction, affecting one's view of the investment.  The prospects of any holding can only be considered in the light of its current value, not past values.

Over and above these specific questions there are regular questions that arise at annual general meetings and at other times - including questions about managing the discount and about having two classes of shares.  In each and every annual report as well as in individual communications we make it clear that we do not attempt to manipulate the share price in an attempt to manage the discount.  That does not mean that it is wrong for other investment trusts to do so, rather that we believe that it is wrong for us.  I have cited a number of reasons for not doing so - particularly in last year's annual report but I would add that an active buy back policy would mean that we would have to have a different, much more liquid portfolio.  The integrity of the portfolio is not to be compromised by the need for liquidity - or put another way - the portfolio comes first.  That closed-ended characteristic of investment trust companies is one of their great advantages over open-ended funds in the management of less liquid, special situation portfolios.

I am personally asked from time to time as to whether the company's shares would be more attractive to investors generally if we had just one class of share.  It is certainly the case that it would make them more attractive to some investors but not necessarily all.  It is my own view that the two class share structure that we have and the ownership of the different classes helps protect the Company from the huge pressures of short-termism that abound amongst the investing community today.  It enables us to be genuine longer-term investors, which we are.  To those shareholders, like myself and like others such as my independent board colleagues, this is one of the attractions of Hansa Trust's shares; it will be to those other investors more concerned with longer-term returns than short-term trading profits.  We will never be able to appeal to everyone, rather just to those who understand and want to invest in what we are doing.

Longer-term Prospects:

Each year I emphasise that our longer-term prospects depend largely on ourselves and that the shorter-term prospects are too difficult to call. This year is no different from the past - despite the new developments in our investment strategy which I outlined earlier and which are recounted in some detail in the Portfolio Manager's Report.

Not a lot has changed in respect of the external investment environment in the last year. Economic recovery is slowly happening - with an emphasis on "slowly". Large scale money printing (aka "quantitative easing") and ultra-low interest rates continue to provide liquidity in the financial market place in an attempt to ease the debt repayment process and to finance continuing and large scale government deficits. It is a risky and unprecedented monetary strategy which may ease the pain of post financial crisis adjustment but not necessarily address the root causes of debt accumulation in the first place. The risk is generally regarded as one likely to trigger serious inflation at some point in the future but inflation has yet to emerge. This may be because of the powerful deflationary forces at work in some parts of the world. We will see but, in the meantime, printing money has proved to be good for the prices of many asset classes - most especially of equities. So - notwithstanding the risks inherent in printing money and in international confrontations - more of the same seems to be on the cards for the immediate future.

For Hansa Trust shareholders, however, our prospects primarily lie with our own investment management and the new strategic course we have embarked upon. What has changed? Well, we have reduced our rather general international exposure through investment in large companies (in holdings in companies such as HSBC, Royal Dutch Shell, GlaxoSmithkline) and with the proceeds made some rather more focused international investments in certain funds (which are reported upon in the Portfolio Manager's Report). Not only does this give us a more focused portfolio - focused on those areas of investment that we particularly like - but it also provides exposure to many investments that our individual shareholders are unlikely to be able to make for themselves. It makes Hansa Trust the special situations investment trust company that we hope - and indeed believe - will produce good returns for shareholders in the years to come.

Alex Hammond-Chambers
Chairman

Group Income Statement (unaudited)

For the year ended 31 March 2014

		Revenue 2014 £'000	Capital 2014 £'000	Total 2014 £'000	Revenue 2013 £'000	Capital 2013 £'000	Total 2013 £'000
Gains/(losses) on investments held at fair value		-	27,406	27,406	-	(8,809)	(8,809)
Exchange losses on currency balances		-	(23)	(23)	-	-	-
Investment income		6,739	-	6,739	6,193	-	6,193
		6,739	27,383	34,122	6,193	(8,809)	(2,616)
Investment management fees		(1,727)	-	(1,727)	(1,512)	-	(1,512)
Other expenses		(905)	-	(905)	(753)	-	(753)
		(2,632)	-	(2,632)	(2,265)	-	(2,265)
Profit/(loss) before finance costs and taxation		4,107	27,383	31,490	3,928	(8,809)	(4,881)
Finance costs		(31)	-	(31)	(42)	-	(42)
Profit/(loss) before taxation		4,076	27,383	31,459	3,886	(8,809)	(4,923)
Taxation		(4)	-	(4)	(16)	-	(16)
Profit/(loss) for the period		4,072	27,383	31,455	3,870	(8,809)	(4,939)
Return per Ordinary and 'A' non-voting Ordinary share		17.0p	114.1p	131.1p	16.1p	(36.7)p	(20.6)p

The Company does not have any income or expense that is not included in the Profit/(Loss) for the year. Accordingly the "Profit/(Loss) 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 Group's Income Statement, prepared in accordance with IFRS. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

The accompanying notes are an integral part of this statement.

Statement of Changes in Equity - Group (unaudited)

For the year ended31 March 2014

		Share capital 2014 £'000	Capital redemption reserve 2014 £'000	Retained earnings 2014 £'000	Total 2014 £'000	Share capital 2013 £'000	Capital redemption reserve 2013 £'000	Retained earnings 2013 £'000	Total 2013 £'000
Net assets at 1 April		1,200	300	258,408	259,908	1,200	300	266,707	268,207
Gains/(losses) for the year		-	-	31,455	31,455	-	-	(4,939)	(4,939)
Dividends		-	-	(3,950)	(3,950)	-	-	(3,360)	(3,360)
Net assets at 31 March		1,200	300	285,913	287,413	1,200	300	258,408	259,908

Statement of Changes in Equity - Company (unaudited)

For the year ended31 March 2014

		Share capital 2014 £'000	Capital redemption reserve 2014 £'000	Retained earnings 2014 £'000	Total 2014 £'000	Share capital 2013 £'000	Capital redemption reserve 2013 £'000	Retained earnings 2013 £'000	Total 2013 £'000
Net assets at 1 April		1,200	300	258,408	259,908	1,200	300	266,707	268,207
Gains/(losses) for the year		-	-	31,455	31,455	-	-	(4,939)	(4,939)
Dividends		-	-	(3,950)	(3,950)	-	-	(3,360)	(3,360)
Net assets at 31 March		1,200	300	285,913	287,413	1,200	300	258,408	259,908

The accompanying notes are an integral part of this statement.

Balance Sheet of the Group and Company (unaudited)

as at 31 March 2014

		Group 2014 £'000	Group 2013 £'000	Company 2014 £'000	Company 2013 £'000
Non-current assets
Investment in subsidiary at fair value through profit or loss		-	-	630	631
Investments held at fair value through profit or loss		283,089	262,403	283,089	262,403
		283,089	262,403	283,719	263,034
Current assets
Trade and other receivables		3,673	439	3,673	439
Cash and cash equivalents		13,250	126	13,250	126
		16,923	565	16,923	565
Current liabilities
Trade and other payables		(12,599)	(3,060)	(13,229)	(3,691)
Net current Assets / (Liabilities)		4,324	(2,495)	3,694	(3,126)
Net assets		287,413	259,908	287,413	259,908
Capital and reserves
Called up share capital		1,200	1,200	1,200	1,200
Capital redemption reserve		300	300	300	300
Retained earnings		285,913	258,408	285,913	258,408
Total equity shareholders' funds		287,413	259,908	287,413	259,908
Net asset value per Ordinary and 'A' non-voting Ordinary share		1,197.5p	1,082.9p	1,197.5p	1,082.9p

The accompanying notes are an integral part of this statement.

Cash Flow Statement (unaudited)

For the year ended31 March 2014

		Group 2014 £'000	Group 2013 £'000	Company 2014 £'000	Company 2013 £'000
Cash flows from operating activities
Gain/(loss) before finance costs and taxation		31,490	(4,881)	31,490	(4,881)
Adjustments for:
Realised (gains)/losses on investments		(131)	2,121	(131)	2,121
Unrealised (gains)/losses on investments		(27,275)	6,688	(27,274)	6,689
Effect of foreign exchange rate changes		23	-	23	-
Decrease/(increase) in trade and other receivables		(3,234)	(145)	(3,234)	(145)
Increase in trade and other payables		21	22	20	21
Taxes paid		(4)	(16)	(4)	(16)
Purchase of non‑current investments		(8,273)	(1,319)	(8,273)	(1,319)
Sale of non‑current investments		27,311	1,051	27,311	1,051
Net cash inflow from operating activities		19,928	3,521	19,928	3,521
Cash flows from financing activities
Interest paid on bank loans		(31)	(42)	(31)	(42)
Dividends paid		(3,950)	(3,360)	(3,950)	(3,360)
Repayment of loans		(2,800)	(130)	(2,800)	(130)
Net cash outflow from financing activities		(6,781)	(3,532)	(6,781)	(3,532)
Increase/(decrease) in cash and cash equivalents		13,147	(11)	13,147	(11)
Cash and cash equivalents at 1 April		126	137	126	137
Effect of foreign exchange rate changes		(23)	-	(23)	-
Cash and cash equivalents at end of period		13,250	126	13,250	126

The accompanying notes are an integral part of this statement.

Notes

INCOME

	Revenue		Revenue
	2014		2013
	£000		£000
Income from quoted investments
Dividends	3,442		3,436
Overseas dividends	3,121		2,686
Property income distributions	175		71
	6,738		6,193
Other operating income
Interest receivable on AAA rated money market funds	1		-
Total income	6,739		6,193

DIVIDENDS PROPOSED AND PAID

The Board are proposing a final dividend of 11.0p per share

	Revenue		Revenue
	2014		2013
	£000		£000
Amounts recognised as distributions to equity holders in the year:
Interim dividends paid for 2014: 5.0p (2013: 3.5p)	1,200		840
Proposed final dividend for 2014: 11.0p  (2013: 11.5p)	2,640		2,760
	3,840		3,600

Set out above are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of s1158 CTA 2010 are considered. The Company's revenue available for distribution by way of dividend for the year is £4,073,000 (2013: £3,870,000).

Notes:

1.     This Preliminary Announcement is not the Group's statutory accounts. It is an abridged version of the Group's full draft accounts for the year ended 31 March 2014, which have not yet been approved, audited or filed with the Registrar of Companies.

2.     The full draft accounts for the year ended 31 March 2014 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and using the same accounting policies as those in the last published annual accounts, being those to 31 March 2013.

3.     Statutory accounts for the 12 months ended 31 March 2013 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matter to which the auditors drew attention without qualifying the report, and did not contain statements under Section 498 of the Companies Act 2006.

Hansa Capital Partners LLP - Company Secretary

10 June 2014

 

END

 

 

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