Semi Annual Report Robeco N.V.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General information                                   2

Report of the management board            3

Balance sheet                                                7

Profit and loss account                               7

Cash-flow summary                                   7

Notes                                                             8

Other data                                                   12

Spread of net assets                                   13

 

Coolsingel 120

Postbus 973

NL-3000 AZ Rotterdam

Tel.: +31 - 10 - 224 1 224

Fax: +31 - 10 - 411 52 88

Internet: www.robeco.com

 

Paulus C. van den Hoek

Gilles Izeboud RA

Johan Kremers (until 21 April 2005)

Philip Lambert (as of 21 April 2005)

Dirk P.M. Verbeek

 

Mark R. Glazener

Volker Wytzes

 

The prospectus is available at the offices of the company and via www.robeco.com.

 

 

 

 

 

An old English stock-market adage is 'the market is climbing a wall of worry' and there were plenty of things to worry about in the first few months of 2005. There were concerns about rises in commodity and oil prices, a rate hike in the United States, low growth in Europe, the return of deflation in Japan, the rating downgrade of General Motors and Ford and there were concerns about growth in China. But stock prices climbed this wall of worry and helped by the advance of the US dollar against the euro, the MSCI World Index rose 11.8% in euros.

Once again, most growth occurred in the United States and China. US consumers were a little discouraged by rising oil prices and higher interest rates, but they continued spending. Business confidence, however, did decrease slowly but surely. Producers faced higher wage costs, lower productivity and increasing commodity prices. The expected earnings growth decreased rapidly but growth in China remained at its usual high level and the trade surplus increased further. One detail, which is worthy of note here, is that China has become a net exporter of steel for the first time this year. Huge capital expenditure in the past few years has considerably increased production capacity so the Western steel industry had better be prepared for the worst.

The old world markets of Europe and Japan are lagging. It was a particularly tough period for Europe, with difficult political situations in the European Union and in Europe's core countries Germany, France and Italy. Europe's joint monetary policy also had its limitations. While the low growth in Germany calls for a rate cut, this same rate cut may cause the Irish economy to overheat. It is however all a matter of give and take. Still, European equities outperformed their US counterparts because they are still cheaper. Japanese equities lagged but this country may well turn out to be the surprise of the second half of the year. Wages are increasing, consumer spending is positive and Japanese businesses are gradually discovering that shareholders like high dividends.

 

It is expected that the second half of 2005 will on the whole be worse than the first half. US growth will slow down as US consumers finally curb their spending. Earnings growth will decline, as the increase in commodity prices and wage costs (the latter only in the US) may lead to lower margins. But the situation will not be really bad as, however you look at it, valuations are reasonable and what is the alternative? A savings account that offers 2.5% interest? A government bond that offers 3% interest? Or a corporate bond that offers 3.5%?

 

 

In the first half of 2005, the share price of Robeco rose from EUR 21.62 to EUR 24.13. Assuming reinvestment of the dividend of EUR 0.40 per share distributed in May 2005, this is an investment result of 13.6%*. Based on net asset value, which rose from EUR 21.74 to EUR 24.06, the investment result was 12.7%. The fund's benchmark, the MSCI World Index, rose 11.8% over the same period. The fund outperformed its benchmark. Sound stock selection in the various sectors was the driving force behind this performance. The regional allocation resulting from this stock selection also made a positive contribution. In the first half of the year the decision to take an underweight position in North America and Japan and to concentrate the portfolio in Europe turned out to be a good one. The sector allocation made a slightly negative contribution. The overweight position in the health-care sector contributed positively, but was offset by the underweight positions in energy and utilities. Energy rose as much as 21.6% as a result of which even a small underweight had major consequences. Currency-related decisions also contributed slightly negatively as we did not have enough dollars at the beginning of the year when the currency started to strengthen against the euro.

Stock selection within the consumer-discretionary, consumer-staples, materials and energy sectors was good. The fund Robeco aims to realize a stable performance relative to the benchmark. The fund's performance therefore does not come from a limited number of stocks, but from a broad selection. We would nevertheless like to single out some stocks which realized an above-average performance. Valero Energy had a return of as much as 75% due to excellent refinery margins and rising oil prices. CVS, a US drugstore chain, rose 29% on the back of good earnings which were partly due to a takeover. DR Horton, a US home builder, rose 25%. Contrary to market expectations, the rise in house prices and sales of new homes continued.

 

During the first half of 2005 the emphasis was on defensive sectors. The fund had an overweight position in the health-care, consumer-staples and telecommunication sectors, an underweight position in the information-technology and materials sectors and a slightly underweight position in the energy sector.

 

Within the energy sector, the interest in Shell T&T was changed for Royal Dutch. The Shell T&T stock traded at a considerable premium to the Royal Dutch stock, but after the merger between the two in July, this premium will disappear.

Within the materials sector we maintained our position in commodities (BHP Billiton), but we sold our positions in manufacturing industry (aluminum maker Alcan and steel maker Arcelor). The costs of commodities (ore) used in steel production are rocketing, while China is producing so much steel that there is now overcapacity.

Industrials is a very mixed sector. Emphasis within the portfolio is on late-cyclical companies such as Republic Services, a firm active in waste processing.

In the consumer-discretionary sector we increased our position in Esprit, a company which is highly successful in Germany and which has proved that it is possible to achieve good results by gaining market share even in a country where consumer spending is declining. The company is also growing rapidly in the Far East.

Within the consumer-staples sector a position was taken in Japan Tobacco, a company with a lot of potential for cost cutting. The fund's entire position in Coca-Cola was sold as there is little growth in the carbonated soft drinks market.

Within the health-care sector the portfolio emphasis remained on services (Wellpoint, Medco Health Solutions) and suppliers (Baxter and Medtronic, the latter is a new addition to the portfolio).

Medtronic has a broad product portfolio ranging from diabetes pumps to pacemakers. Positions in Smith & Nephew (orthopedic aids) and Guidant (takeover bid by Johnson&Johnson) were sold.

The fund's position in banks was increased by taking positions in several banks based on the periphery of Europe and America. Examples include National Bank of Greece, Allied Irish Bank and National Bank of Canada. These banks are characterized by their higher growth potential and modest valuations. In the financial-services sector we sold credit-card companies: the Japan-based company Credit Saison and Capital One from the US. Creditworthy consumers pay their debts while the bad debtors remain which impoverishes the quality of the loans portfolio.

In the information-technology sector the fund purchased Nokia, a company that has launched new, attractive models and is regaining market share. Within information technology the emphasis is on the well-known names, such as Intel, Texas Instruments, Microsoft and Oracle, which now have modest valuations.

Within telecom we are no longer active in Southern Europe having sold positions in Telecom Italia and Telefónica. We expect the regulators to become more strict in these countries. The UK already has a very strict regulator and this is reflected in the low valuation of BT, a stock that we have bought.

The utilities sector has become too expensive, which was the reason for our underweight position.

 

Rotterdam, 29 July 2005

 

The management board

Mark R. Glazener

Volker Wytzes

 

EUR x million

EUR x million

indirect method, EUR x million

 

Robeco N.V. (hereafter also referred to as 'the fund') is a Dutch investment company with a variable capital within the meaning of article 28 of the 1969 Dutch Corporate Income Tax Act [Wet op de Vennootschapsbelasting 1969]. This means that no corporate-income tax is due, providing that the fund makes its profit available for distribution to shareholders in the form of dividend within eight months of the close of the financial year and satisfies any other relevant regulations. The fund holds a license from the AFM [the Netherlands Authority for the Financial Markets] under the Dutch Investment Institutions Supervision Act ['Wtb', Wet toezicht beleggingsinstellingen]. Since 26 April 2002, Robeco N.V. is subject to the EC directive containing rules for Undertakings for Collective Investment in Transferable Securities (UCITS). Under the terms of the Dutch Investment Institutions Supervision Act ['Wtb', Wet toezicht beleggingsinstellingen], Robeco N.V. was granted a license as of the same date by the AFM [the Netherlands Authority for the Financial Markets], permitting trade of its shares in other EC member states.

The semiannual financial statements have been drawn up in conformity with the models provided by Dutch legislature for annual financial statements, taking into accounr the regulations that apply to semiannual reports. In certain areas descriptions have been used which better express the nature of the items and relate better to the characteristics of an investment company.

Robeco N.V. is an open-end investment company, meaning that, barring exceptional circumstances, Robeco N.V. issues and repurchases its shares on a daily basis via the intermediary at prices approximating net asset value. Robeco Investment Consulting B.V. functions as the intermediary between Robeco N.V. and investors for the issuance and repurchase of shares, as a result of which Robeco N.V. issues and repurchases its shares at net asset value. The abovementioned margin between the net asset value and the bid and offer prices, and the associated costs, are for the account and risk of the intermediary. The intermediary will distribute any positive results, calculated on a cumulative basis, to the funds on a quarterly basis. Distribution will be in proportion to each fund's positive contribution to the intermediary's result. A buffer is maintained to cover any future losses.

 

The administration has been outsourced to Robeco Nederland B.V., a 100% subsidiary of Robeco Groep N.V. These costs are covered by the service fee. Agreements have been made with the aforementioned party relating to the provision of information and performance standards.

The accounting principles for the valuation of assets and liabilities and determination of the result are unchanged, and as such are in accordance with the annual financial statements. Amounts are expressed in millions of euros.

 

Robeco N.V. is affiliated to the entities belonging to Robeco Groep N.V. The affiliation with Robeco Groep N.V. is the result of the possibility of having decisive control or a substantial influence on the fund's business policy. Robeco Groep N.V. belongs to the Rabobank Group. The management structure of Robeco Groep N.V., in which significant authority is allocated to its independent supervisory board, is such that Rabobank does not have a meaningful say in or influence on the fund's business policy. Robeco Groep N.V. pursues an independent investment policy on behalf of its affiliated investment companies, taking into account the interests of the investors involved. Besides services of other market parties, Robeco N.V. also uses the services of one or more of these affiliated entities including transactions relating to securities, treasury, derivatives,

custody, securities lending, and sale and purchase of its own shares, fund administration services, as well as management activities. Transactions are executed at market rates.

Various independent research institutions/third parties provide services to the company to support its decision-making process. Part of the commissions paid to brokers is used to pay for these services (so-called soft-dollar arrangements). The size of these items is not significant. There were no hard commissions during the reporting period.

 

Transactions in financial instruments may lead to the fund being subject to the risks described below or to the fund transferring these risks to another party.

Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in exchange rates. Interest-rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market rates. Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, caused by factors that exclusively apply to the individual instrument or its issuer or caused by factors that affect all instruments traded in the market.

The fund minimizes the risks by investing mainly in large and well-known companies and by making a balanced selection with regard to distribution across regions, sectors, individual stocks and currencies.

Credit risk is the risk that the counterparty of a financial instrument will no longer meet its obligations, as a result of which the fund will suffer a financial loss. The fund minimizes this risk by trading exclusively with reputable counterparties. Wherever it is customary in the market, the fund will demand and obtain collateral.

Liquidity risk is the risk that the fund is not able to obtain the financial means required to meet the obligations arising from financial instruments. The fund minimizes this risk by mainly investing in financial instruments that are tradable on a daily basis.

 

The report of the management board, the balance sheet, the notes to the balance sheet and the spread of net assets, which includes the geographic distribution of the investments, the net currency position and distribution over sectors, give an insight into the actual risks at balance-sheet date.

 

Managing risk is a part of the investment process as a whole and with the help of advanced systems, the risks outlined above are limited, measured and monitored on the basis of fixed risk measures.

Investing implies that positions are taken. As it is possible to use various (derivative) instruments to construct an identical position, the selection of derivatives is subordinate to the positioning of a portfolio. In our published information, attention is given primarily to the overall position, and secondarily to the nature and volume of the financial instruments employed.

 

The market value of derivatives is reported in the Balance sheet under Financial investments. Liabilities and receivables and the value of the derivatives' underlying instruments are not included in the Balance sheet. If applicable, they are explained under the heading Commitments not shown in the balance sheet.

At balance sheet date, shares to the amount of EUR 0.6 billion (EUR 1.5 billion at the end of last year) had been lent. To cover the risk of non-restitution, adequate collateral was demanded and obtained; this collateral is not included in the Balance sheet.

Includes balances in current accounts and time deposits.

 

 

The company's authorized share capital amounts to EUR 800 million, divided into 800,000,000 ordinary shares with a nominal value of EUR 1 each. As of 30 June 2005 the number of shares outstanding was 270,059,747. Net asset value per share amounted to EUR 24.06. In May 2005 the company distributed dividend to the amount of EUR 0.40 per share.

 

Futures contracts purchased at balance-sheet date represent an increase in assets invested of JPY 23 billion; futures contracts sold represent a decrease in assets invested of EUR 161 million. The forward-exchange transactions current at closing date represent purchases of AUD 29 million, CAD 321 million, GBP 84 million, USD 73 million and JPY 11,720 million, against sales of CHF 285 million and EUR 306 million. Futures contracts and forward-exchange transactions are included in the Spread of net assets at the end of this report. Unrealized results of these transactions at closing date are included in the Profit and loss account.

 

The total expense ratio expresses the costs charged to the fund during the reporting period as a percentage of the average assets entrusted during the reporting period. The total expense ratio as shown does not include transaction costs. The total expense ratio was 0.56% during the reporting period. With the exception of costs relating to investments and taxes, the management costs relate to all the fund's costs and all costs resulting from the management of the fund. The service fee covers administration, the costs of the external auditor, other external advisers, regulators, costs relating to reports required by law, such as the annual and semiannual reports, and the costs relating to the meetings of shareholders. Other costs mainly relate to the custody fee charged by third parties for the custody of the fund's securities portfolio and bank charges. For the period 1 July 2004 through 30 June 2005, the total expense ratio is 1.05%, and for the period 1 July 2003 through 30 June 2004 it is 0.85%.

Management costs relate exclusively to the management fee of 1.00% per year charged by Robeco Nederland B.V. The service fee amounts to 0.12% per year and covers formal and operational costs. For assets exceeding EUR 1 billion the service fee is 0.10%; for assets exceeding EUR 5 billion the service fee is 0.08%. The management fee and service fee are calculated on a daily basis, based on the average assets entrusted.

This includes custody costs and bank charges.

Robeco N.V. does not charge a performance fee.

Brokerage costs and exchange fees relating to investment transactions are discounted in the cost price or the sales value of the investments. These costs and fees are charged to the result.

This is the turnover ratio of the investments against the average assets entrusted and this is a measure of the incurred transaction costs resulting from the portfolio policy pursued and the ensuing investment transactions. In the calculation method that is used the amount of turnover is determined by the sum of purchases and sales of investments less the sum of issuance and repurchase of own shares. If the outcome is negative, the turnover ratio

is 0. The turnover ratio is determined by expressing the amount of turnover as a percentage of the average assets entrusted. The turnover ratio over the reporting period was 43% against 18% over the period 1 January through 30 June 2004. Since 1 January 2005, the fund is no longer managed by one single person, but by a team of four fund managers. Each team member focuses on specific sectors. Within the sectors, stock selection is adjusted to the views of the new team members. As a result, this led to a one-off higher turnover. Furthermore, the number of names in the portfolio was reduced, which may lead to a slightly higher turnover in the longer term. The investment horizon remains 3 to 5 years, with a turnover of 25% on a semiannual basis.

 

Part of the transaction volume over the reporting period relates to transactions with affiliated parties. The table below shows the various types of transactions where this was the case.

 

 

Robeco Securities Lending B.V. is the intermediary for all Robeco N.V.'s securities-lending transactions. As compensation for its services Robeco Securities Lending B.V. receives a fee of 40% of the gross return on the securities-lending transactions.

Rotterdam, 29 July 2005

 

The management board

 

The ordinary shares of Robeco N.V. are listed on the Official Market of Euronext Amsterdam Stock Market N.V. In addition, Robeco N.V. has a stock-exchange quotation in Paris, Brussels, Luxembourg, London, Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, Vienna and Zurich.

Statement in conformity with article 21, paragraph 2, sections b and c, of the Dutch Investment Institutions Supervision Decree ['Btb', Besluit toezicht beleggingsinstellingen].

The company knows of only one party to be considered a major investor within the meaning of the Btb, namely Stichting Aandelen-Rekeningen Robeco-Groep. During the period under review, no transactions as referred to in article 21, paragraph 2, section c, of the Btb took place.

No external audit has been conducted.