Preliminary Final Accounts
Hansa Trust PLC
15 June 2006
HANSA TRUST PLC
Preliminary Announcement of Results
for the year ended 31 March 2006
Hansa Trust PLC announces its Preliminary Results for the year ended 31 March
2006
Financial Highlights Year ended Restated
31 March 2006 Year ended
(unaudited) 31 March 2005
(audited)
Net Asset Value - Total Return 42.4% 37.7%
Performance Benchmark 6.6% 6.7%
Capital return per equity share 233.2p 151.2p
Revenue return per equity share 10.8p 9.6p
Net asset value per equity share 818.2p 583.5p
Total dividend per equity share for the year 9.75p 9.25p
Total income (£000's) 4,261 3,611
Revenue before taxation (£000's) 2,618 2,305
A final dividend of 6.25p per share (amounting to £1,500,000) is to be proposed
on 3 August 2006 at the Annual General Meeting.
Ex-dividend date: 21 June 2006
Record date: 23 June 2006
Payment date: 11 August 2006
The following are attached:
• Chairman's Statement
• Group Income Statement
• Statement of Changes in Equity-Group and Company
• Balance Sheet for the Group and Company
• Cash Flow Statement
• Notes
For further information please contact:
Peter Gardner Hansa Capital Partners LLP 020 7647 5750
CHAIRMAN'S STATEMENT
RESULTS FOR THE YEAR:
NAV: +40.2% to 818.2p per Ordinary and 'A' non-voting Ordinary share
Dividend: +5.4% to 9.75p per Ordinary and 'A' non-voting Ordinary share
It is most pleasing to be able to report to you that the Company enjoyed another
excellent year. The net asset value per share, the City jargon for which is the
'NAV', rose by 40.2% or 234.7p per share, a return which more than fulfils our
objective of making money for you, the shareholders. As you know we have a
benchmark which reflects that objective - the return on a 5 year government bond
+ 2% - and it returned 6.6%. The nature of such a low risk absolute return
benchmark is that it tends to provide low but steady returns over the years; the
nature of equities is that the returns earned from them are much more volatile -
so that some years our NAV returns will exceed those of the benchmark handsomely
- as they did last year - and some years they will fall well short. Over longer
time periods however, we expect there will be much less divergence.
While making you money is what we are in business for, there are certain other
objectives for which we strive. Obviously making more money than a risk free
investment is the most important (hence our absolute benchmark); however we are
also conscious of the need to do better than both our competition and the market
as a whole over the longer term. Last year we did produce higher NAV returns
than other investment trust companies in our peer group and than the stock
market as a whole - the FTSE All-share index rose by 24.0%.
The returns from the portfolio were once again led by our holding in Ocean
Wilsons, which added 72.1p per share to the NAV. There were other important
contributors, shown in the table below and only 15 of the 86 holdings held
during the year failed to contribute to the portfolio returns. Of the different
sectors we are invested in, our exposure to natural resources, which includes
oil and gas, made the biggest difference, adding 77.8p per share. It was a good
all round performance from our Manager - Hansa Capital Partners LLP - and on
behalf of shareholders I would like to extend our gratitude and congratulations
to William Salomon, John Alexander and their colleagues for these results.
DIVIDEND:
+5.4% to 9.75p per Ordinary and 'A' non-voting Ordinary share.
After last year's considerable rise in our own net income available for
dividends - it rose by 54.8% to £2.3 million - we have managed to achieve
another increase, albeit a smaller one: net income has risen by 12.2% to £2.6
million. The Board of Directors is recommending to shareholders a final dividend
of 6.25p per Ordinary and 'A' Ordinary share, which, if approved at the Annual
General Meeting, will be paid on 3 August 2006. It makes the total for the year
9.75p per share, a rise of 5.4%.
The return figures above do not take into account the extra returns earned from
dividends paid to shareholders. Adding back the proposed dividend would result
in a total NAV return for the year of 46.8%, whilst that of the stock market was
31.5%.
CHAIRMAN'S STATEMENT
(continued)
LONGER TERM PERFORMANCE:
3 Years: NAV total return: +213.0% Benchmark: +20.1% FTSE All-Share Index +96.0%
5 Years: NAV total return: +110.2% Benchmark: +35.1% FTSE All-Share Index +34.5%
Given the volatile nature of equities the Board of Directors regards the five
year returns earned for shareholders as the most important against which to make
judgements about the Manager's performance. As the numbers above show, the
returns have been quite excellent and as the table below shows, they have been
earned substantially from our holding in Ocean Wilsons and also from a range of
other investments, including - highlighted below - our commitment to natural
resources.
1 Year 3 years 5 Years
Total increase in NAV 235p 398p 542p
Top 5 Contributors
Ocean Wilsons 72p 170p 165p
Cairn Energy 20p 44p 44p
Glenmorangie - 28p 31p
Resolution Trust 25p 28p 28p
Hunting Group 16p 27p 22p
Victoria Oil and Gas 9p - -
Natural Resources +78p +135p +119p
It would be quite wrong to be carried away by the success that the numbers
illustrate. First of all there have been - of course - some investment failures;
there are in any portfolio, even ones producing high returns. Investments in,
for instance, Goshawk Insurance, Ramco Energy, Felix Resources and Trafficmaster
detracted from the returns that were earned. Secondly the last three years have
been very good for equity investors, the post technology bubble bear market
having bottomed in the first quarter of 2003. As I say later, we do not expect
such market returns to be earned in the next three years.
Shareholders will not be surprised to learn that the Board's annual assessment
of the Manager found no difficulty in concluding that it was very much in
Shareholders' interest that it remains in situ.
SHARE PRICE PERFORMANCE:
Ordinary shares: +49.7% to 847.5p Premium to NAV: 3.6%
'A' non-voting Ordinary shares: +49.7% to 818.0p Premium to NAV: 0.0%
A year ago I mentioned that we had taken a number of steps to help reduce the
discount at which both classes of shares had sold, including better
communication with investors and helping our largest 'A' non-voting Ordinary
shareholder dispose of part of its holding, thereby increasing the liquidity in
the 'A' Shares. It helped to reduce the discount in the year. However the single
best way to achieve a good rating for a company's shares is to produce good
returns for its shareholders. The continued good performance of Hansa Trust has,
I believe, brought it to the attention of a lot of investors, some of whom have
subsequently become shareholders. I would like to welcome them to our
shareholder base.
CHAIRMAN'S STATEMENT
(continued)
By the end of this past year the discount had turned into a premium with the
result that actual returns shareholders experienced were even greater than those
earned from the portfolio. The Ordinary shares rose by 49.7% to 847.5p and the
'A' non-voting Ordinary shares by 49.7% to 818.0p. The table below shows how the
total return for shareholders came about:
Attribution of return Ordinary shares 'A' non-voting Ordinary shares
Change in NAV +234.7p +41.5% +234.7p +43.0%
Change in Discount +46.6p +8.2% +36.6p +6.7%
Dividends +9.5p +1.7% +9.5p +1.7%
Total Shareholders' Return +290.8p +51.4% +280.8p +51.4%
Once again I would caution shareholders not to expect similar returns in the
future for all the reasons given above and would add to these reasons the fact
that investment trust premia and discounts are volatile and a narrowing of a
premium or widening of a discount would detract from future shareholders'
returns.
INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')
As many shareholders will be aware, most of quoted corporate Britain has to use
a new set of accounting standards drawn up by the International Accounting
Standards Board. In an effort to ensure common accounting standards around the
world - a laudable goal - it has produced a set of standards that not only
ensure common standards from one country to the next but also common standards
from one industry to the next. The one-size-fits-all approach to standards means
that - for instance - mining, life assurance and biotechnology companies must
adopt the same standards. That surely is nonsensical.
In respect of investment trust companies, which includes your Company, there are
two changes of significance to go along with a myriad of other new standards,
reflected in the large increase in notes to the accounts: (i) the final dividend
cannot be included as a liability in the balance sheet, thereby increasing the
NAV we report to you; (ii) the price of the underlying shares in the portfolio
is now taken as the bid price (the price market makers will offer to a seller of
shares), decreasing the reported NAV. The table below illustrates the effect of
these two changes on last years NAV:
2005
NAV using old standards 578.4p
Effect of excluding final dividend 5.7p
Effect of valuing portfolio at bid prices (0.6p)
NAV using new standards 583.5p
STRATEGIC AND UNQUOTED INVESTMENTS (27.2% of NAV):
Ocean Wilsons (22.5%), Cathedral Capital (2.8%), DV3 (1.9%)
As I mentioned last year and as William Salomon mentions on those occasions when
he is talking to shareholders and investors, we try to provide something special
for shareholders which they could not otherwise easily achieve for themselves.
There are, believe it or not, more funds and investment companies in the world
than there are quoted operating companies. Funds have become a bit of a
commodity business. To continue to quote from last year's statement, we invest
in the belief that good returns come from patient investing, from seeking
investments that offer something special and from identifying areas of the
market that others, for some reason, are ignoring.
Finding special investments is not easy - they don't grow on trees and we don't
make them very often. When we do, they are sometimes unquoted and they will
usually take time to produce the good returns we expect of them; they require
patient investing. Furthermore I believe our involvement with them adds to the
prospects of the companies concerned. Your Board of Directors meets with the
management of these companies every year.
CHAIRMAN'S STATEMENT
(continued)
The largest strategic investment we have is in Ocean Wilsons, in which we have
£44.3 million invested. It has been a long standing and highly successful
investment. The company's main business involves the provision of port services
in Brazil. Over the last five years its turnover has grown from circa $128
million to a recently reported $285 million; its pre-tax profits from circa $8
million to $50 million and its dividend from 8.9c to 20c per share. We believe
that the outlook for Brazil - and particularly its exports, to which the company
is singularly exposed - is excellent and that, although there are all sorts of
financial variables which result in some volatility in its reported numbers, the
company should continue to do very well. Importantly we believe the company to
have very good management.
Our other two strategic investments are Cathedral Capital, an unquoted Lloyds
underwriter, which has done well and which we believe will continue to do well.
It too has, we believe, good management and we have already recorded some -
albeit unrealised - profit from our investment. DV3 is a property company whose
is advised by Jamie Ritblat; although we have not yet taken any appreciation
into our valuation, DV3 has made some profitable investments. John comments on
both these companies in his excellent report, which I encourage you to read.
THE BUSINESS REVIEW: Risks and key performance indicators
As a consequence of the Modernisation Directive from the European Union,
companies listed on the London Stock Exchange are required to produce a Business
Review within the Annual Report. In the simplest of terms it is required to
provide a fair review of the business and a description of its principle risks
and uncertainties, an analysis of its development and performance and those key
performance indicators that give guidance as to its performance.
At our annual strategic board meeting - when we consider longer-term issues
concerning the prospects for the Company - we discussed the requirements of the
Business Review, including what risks the long-term shareholders of Hansa Trust
PLC assumed and what were the relevant measurement yardsticks against which we
judged the returns we earned for shareholders (the key performance indicators -
or 'KPIs' as they are known).
The details of the risks and KPIs that we deduced were appropriate to the
Company are outlined in the Directors' Report on pages 15 to 16. We looked at
risks from the point of view of the long-term shareholder, the principle one
being that over the long-term (which we determined was five years) he/she did
not make a return from his/her investment in the Company. The key performance
indicator, against which we compare shareholders' share price and dividend
returns, is our benchmark, which is in essence a proxy for the return from a
risk free, five year investment. Other KPIs include the NAV returns against
those of the benchmark, against our peer group average returns and against the
market (the FTSE All-Share Index) and the total expense ratio as a proportion of
the returns that shareholders have received. The numbers are computed on a one,
three, five and ten year basis - five years being the better time period over
which to judge the progress of the Company.
We also had a long discussion on the risks that shareholders assume in their
investment in the Company. We divided them into those external risks over which
we have no control or influence, but which can be mitigated through sensible
portfolio diversification and those internal risks over which we have a measure
of control; we divided these into the risks of portfolio and balance sheet
mismanagement and of administrative mismanagement. Part of our governance
involves a review every board meeting and a major annual review of these risks
(complying with Turnbull). Again the risks are outlined in the Directors Report.
It should be noted that we do not regard net asset value volatility or
variations between our holdings and those of an equity index as risks that a
long-term shareholder assumes in the pursuit of long term returns.
I should point out that our investment in Ocean Wilsons is large both in
absolute terms (£44.3m) and as a proportion of shareholders' equity (22.5%).
Shareholders should recognise that if anything of a severe and untoward nature
were to happen to this company, it could result in a significant reduction in
the NAV and share price. However it is an investment that the Board pays close
attention to and it should be pointed out that the risks associated with it are
very different from those of the other companies represented in the portfolio.
The company itself has recently undertaken a thorough review of its business and
prospects and determined that its future holds a lot of promise - a view with
which we concur. As a consequence the Board believes that the risk involved in
the investment is worthwhile.
CHAIRMAN'S STATEMENT
(continued)
OUTLOOK: Short-term cautious; long-term bullish.
Despite the ups and downs of the stock markets - in this and other countries -
the economies of the world continue to grow to a greater or lesser extent,
driven by those of the United States and China. However the base of global
economic growth is broadening out with the economies of Japan and India both
contributing and even Germany's economy is showing some sign of life. Despite
the concerns and actions of the anti-globalisationists, the global economy
continues towards becoming one place for the production of goods and services.
Large multinational companies can now fulfil their roles as producers, carrying
out the various functions of production wherever in the world it makes most
sense to do so. Eastern Asia with its excellent work and savings ethics, its
high standards of education and its competitiveness is setting the standards for
the rest of the world; the rest of us are following with varying degrees of
enthusiasm and success. Providing that this globalisation is not threatened by
protectionism - a very real and dangerous threat and one that we recognise as a
risk for our shareholders - it offers the prospect of excellent growth of
company profits and dividends around the world. It is the long-term bullish
case.
The shorter-term however is, as always, a lot more difficult to assess. The last
three years have been good years for economies, for companies - corporate
balance sheets world wide are strong - and for investors. The world has been
swimming in a sea of easy money and nearly all classes of investment have done
well. Nothing so highlights the level of economic prosperity as the huge rise in
the prices of all sorts of commodities, most importantly of oil and natural gas.
However it brings with it the prospect of re-emerging inflation. Indeed, fuelled
by easy money and massive debt creation, there has been considerable asset price
inflation - houses, property generally, stocks and shares, art and perhaps
significantly gold - and there must be concern that this has to feed into
general consumer price inflation. As I write this statement the noises coming
from most central banks around the world suggest that interest rates must rise
yet further and your Board thinks they may well do so. Indeed in recent weeks,
stockmarkets have been nervous about this very prospect, resulting in
considerable falls in share prices around the world. Central banks have a very
tricky task - that of heading off rising inflation on the one hand and not
precipitating a severe recession on the other. It will not be easy and it is the
reason for injecting a note of caution into the short-term outlook.
However, in anything other than the shorter-term, our own prospects are largely
in our own hands. If we continue to invest in well managed companies with good
growth prospects whose shares sell at reasonable values, we should be able to
produce good returns in the next five years. William and John have done it
before and we have every confidence they will again. You can follow the progress
of the Company from the monthly published fact sheets which are available on our
website www.hansagrp.com.
ANNUAL GENERAL MEETING
The AGM will be held at 11.30am on 3 August 2006 at the Washington Hotel, Curzon
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 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.
Alex Hammond-Chambers
Chairman
GROUP INCOME STATEMENT
For the year ended 31 March
Revenue Capital Total Revenue Capital Total
2006 2006 2006 2005 2005 2005
£000 £000 £000 £000 £000 £000
Gains on investments - 55,973 55,973 - 36,283 36,283
Exchange
(losses)/gains on
currency balances - (12) (12) - 3 3
Investment income 4,261 - 4,261 3,611 - 3,611
------ ------ ------ ------ ------ ------
4,261 55,961 60,222 3,611 36,286 39,897
Investment
management (1,034) - (1,034) (770) - (770)
fee
Other expenses (539) - (539) (465) - (465)
------ ------ ------ ------ ------ ------
(1,573) - (1,573) (1,235) - (1,235)
------ ------ ------ ------ ------ ------
Profit before
finance 2,688 55,961 58,649 2,376 36,286 38,662
costs and taxation
Finance costs (70) - (70) (71) - (71)
------ ------ ------ ------ ------ ------
Profit before 2,618 55,961 58,579 2,305 36,286 38,591
taxation
Taxation (31) - (31) - - -
------ ------ ------ ------ ------ ------
Profit for the year 2,587 55,961 58,548 2,305 36,286 38,591
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Return per Ordinary 10.8p 233.2p 244.0p 9.6p 151.2 p 160.8p
and 'A' non-voting
Ordinary share ------ ------ ------ ------ ------ ------
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 Trust Companies.
The 2005 comparatives have been restated to accord with IFRS, as disclosed
within the Interim Report for the six months ended 30 September 2005.
All revenue and capital items in the above statement derive from continuing
operations.
STATEMENT OF CHANGES IN EQUITY - GROUP
For the year ended 31 March
Share Capital Retained Total Share Capital Retained Total
Capital redemption earnings Capital redemption earnings
reserve reserve
2006 2006 2006 2006 2005 2005 2005 2005
£000 £000 £000 £000 £000 £000 £000 £000
Net assets
at 1,200 300 137,315 138,815 1,200 300 100,940 102,440
1 April
Restatement
adjustments - - 1,232 1,232 - - 864 864
------ ------- ------ ------ ------ ------- ------ ------
1,200 300 138,547 140,047 1,200 300 101,804 103,304
Profit for
the - - 58,548 58,548 - - 38,591 38,591
year
Dividends - - (2,220) (2,220) - - (1,848) (1,848)
paid
------ ------- ------ ------ ------ ------- ------ ------
Net assets
at 1,200 300 194,875 196,375 1,200 300 138,547 140,047
31 March ------ ------- ------ ------ ------ ------- ------ ------
The 2005 comparatives have been restated to accord with IFRS, as disclosed
within the Interim Report for the six months ended 30 September 2005.
STATEMENT OF CHANGES IN EQUITY - COMPANY
For the year ended 31 March
Share Capital Retained Total Share Capital Retained Total
Capital redemption earnings Capital redemption earnings
reserve reserve
2006 2006 2006 2006 2005 2005 2005 2005
£000 £000 £000 £000 £000 £000 £000 £000
Net assets
at 1,200 300 137,315 138,815 1,200 300 100,940 102,440
1 April
Restatement
adjustments - - 1,232 1,232 - - 864 864
------ ------- ------ ------ ------ ------- ------ ------
1,200 300 138,547 140,047 1,200 300 101,804 103,304
Profit for
the - - 58,548 58,548 - - 38,591 38,591
year
Dividends - - (2,220) (2,220) - - (1,848) (1,848)
paid
------ ------- ------ ------ ------ ------- ------ ------
Net assets
at 1,200 300 194,875 196,375 1,200 300 138,547 140,047
31 March ------ ------- ------ ------ ------ ------- ------ ------
The 2005 comparatives have been restated to accord with IFRS, as disclosed
within the Interim Report for the six months ended 30 September 2005.
BALANCE SHEET OF THE GROUP AND COMPANY
as at 31 March
Group Group Company Company
2006 2005 2006 2005
£000 £000 £000 £000
Non-current investments
Shares in Group undertaking - - 643 430
Investments held at fair value
through profit and loss 202,099 142,483 202,099 142,483
-------- -------- ------- --------
202,099 142,483 202,742 142,913
-------- -------- ------- --------
Current assets
Other receivables 930 492 930 492
Investments held by dealing
subsidiary - 208 - -
Cash and cash equivalents 241 84 212 79
-------- -------- ------- --------
1,171 784 1,142 571
Current liabilities
Other payables falling due
within (6,895) (3,220) (7,509) (3,437)
one year
-------- -------- ------- --------
Net current liabilities (5,724) (2,436) (6,367) (2,866)
-------- -------- ------- --------
Net assets 196,375 140,047 196,375 140,047
-------- -------- ------- --------
Capital and reserves
Called up share capital 1,200 1,200 1,200 1,200
Capital redemption reserve 300 300 300 300
Retained earnings 194,875 138,547 194,875 138,547
-------- -------- ------- --------
Total equity shareholders' 196,375 140,047 196,375 140,047
funds -------- -------- ------- --------
Net asset value per Ordinary
and 18 818.2p 583.5p 818.2p 583.5p
'A' non-voting Ordinary share -------- -------- ------- --------
The 2005 comparatives have been restated to accord with IFRS, as disclosed
within the Interim Report for the six months ended 30 September 2005.
CASH FLOW STATEMENT
for the year ended 31 March
Group Group Company Company
2006 2005 2006 2005
£000 £000 £000 £000
Cash flows from operating activities
Profit before finance costs &
taxation 58,649 38,662 58,649 38,662
Adjustments for:
Realised gains on investments (13,705) (21,002) (13,705) (21,002)
Unrealised gains on investments (42,268) (15,281) (42,481) (15,335)
Effect of foreign exchange rate
changes 12 (3) 12 (3)
Interest paid (1) (1) (1) (1)
Decrease in current asset
investments (255) (35) - -
Increase/(decrease) in prepayments
and accrued income 146 (280) 146 (280)
Decrease/(increase) in other
creditors and accruals 110 (41) 507 (72)
Taxes paid (31) - (31) -
Purchase of non-current
investments (53,066) (42,303) (53,066) (42,253)
Sale of non-current investments 49,302 40,826 48,839 40,826
------ ------- -------- --------
Net cash (outflow)/inflow from
operating activities (1,107) 542 (1,131) 542
------ ------- -------- --------
Cash flows from financing activities
Interest paid on bank loans (69) (70) (69) (70)
Dividends paid (2,220) (1,848) (2,220) (1,848)
Drawdown of loans 3,565 1,400 3,565 1,400
------ ------- -------- --------
Net cash inflow/(outflow) from
financing activities 1,276 (518) 1,276 (518)
------ ------- -------- --------
Increase in cash and cash
equivalents 169 24 145 24
Cash and cash equivalent at 1
April 84 57 79 52
Effect of foreign exchange rate
changes (12) 3 (12) 3
------ ------- -------- --------
Cash and cash equivalents at 31
March 241 84 212 79
------ ------- -------- --------
The 2005 comparatives have been restated to accord with IFRS, as disclosed
within the Interim Report for the six months ended 30 September 2005.
Notes:
1. This Preliminary Announcement is not the Company's statutory accounts.
It is an abridged version of the Company's full draft accounts for the year
ended 31 March 2006, which have not yet been approved, audited or filed with the
Registrar of Companies.
2. Statutory accounts for the 12 months ended 31 March 2005 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
15 June 2006
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