Half-year Report

RNS Number : 3250I

Hansa Investment Company Limited

01 December 2022

 

Chairman's Report

Dear Shareholder

Shareholder returns

The past six months to 30 September 2022 have shown a decrease in net asset value ("NAV") from 319.1p per share to 295.6p per share. The discounts on both of our share classes have widened during the last six months, from 37.8% to 38.4 % for the Ordinary shares and from 39.5% to 41.3 % for the 'A' non-voting Ordinary shares. This mirrors a trend seen across the whole UK Investment Trust sector, as markets have reacted in a volatile manner to the rapidly shifting economic outlook. More detail on these and the longer-term performance can be found within our Portfolio Manager's detailed review of markets and portfolio performance in his Report.

Our Portfolio Manager, Alec Letchfield and his team at Hansa Capital Partners LLP ("the Portfolio Manager"), continue to shape the portfolio, with adjustments made in recognition of the changing economic landscape; all within the context of our longer-term investment horizon. Alec and his team have increased our exposure to metals, mining and energy during the year-to-date within the Thematic silo; asset classes which were out of favour until recently, which have now come into sharp focus given energy uncertainty and the environmental challenges facing the world. Alec and his team have also allocated further capital to their diversifying strategy during the last 12 months. This is to remove an element of volatility and to provide the portfolio with a return stream less correlated with equity markets. I note the diversifying silo within the portfolio has produced a pleasing gain (in the context of current markets) of 2.7% in sterling terms over the past six months and 5.5% over the past 12 months. Alec and his team have been successful in identifying a number of strong managers and funds in this area with highlights noted in his Portfolio Manager's Report. Their thoughtful and diversified approach has produced an overall return on the managed portfolio of -4.7% in sterling terms in a difficult and volatile environment. Core Regional and Thematic strategies fell 6.3% and 8.2% respectively, compared to a 7.2% fall in the global equity index.

Alec Letchfield and his team continue to monitor our investments very carefully and retain a defensive element to the strategy until more clarity appears about the outcomes of the present problems. He has been particularly underweight in UK investments which has assisted performance.

Ocean Wilsons Holdings Limited

Our strategic holding in Ocean Wilsons Holdings Limited ("Ocean Wilsons", "OWHL") consists of two parts: an investment in the Brazilian maritime and port operator Wilson Sons Limited ("Wilson Sons"), equating to approximately 2/3 of the value of Ocean Wilsons, as well as an investment portfolio making up the balance. Wilson Sons continues to perform with stable financial returns in a market segment where logistics and international trade remains challenging. It is pleasing to see the performance of Wilson Sons, which is assisted by the long- anticipated strengthening of the Brazilian Real against the Pound. I note the Brazilian presidential election has resulted in a very close result, returning Luiz Inácio Lula da Silva ("Lula") as President of Brazil for a third term albeit there were initial fears that the previous president, Jair Bolsonaro, would not cede power. It is encouraging to note that Jair Bolsonaro has now conceded the election by accepting the transmission process and that Lula will be constrained by the make up of Congress to pursue irresponsible fiscal measures.

The Ocean Wilsons investment portfolio has similarities to our own portfolio including a selection of defensive assets. However, it also has a significant element of private equity. Whilst the portfolio has reduced in value from $313m at the end of April to $297m at the end of June, this is in part due to dividend payments.

Discount Management

Discounts across the investment trust spectrum have widened as markets have become increasingly jittery. We have not been immune despite the less volatile results. The discount remains a source of frustration to the Board, but we continue to believe buy-backs are not in the Company's long-term interest, as this would increase ownership concentration to Ocean Wilsons, given that any buy-back of shares would need to be funded from the Company's pool of liquid assets. Instead, we believe transparent and clear communications on the portfolio; that strategic investment activity will deliver broader understanding and interest, expand the shareholder base, improve liquidity, and eventually positively impact the discount. To this end, we have embarked on a programme of refreshing communications across all platforms, including the Company's website, Annual and Half-Year Financial Reports and factsheets. We hope these ongoing changes will be well received.

The Board continues to work with our marketing partner. The initial focus is to refresh the Company's image including its website, factsheets, Annual and Half-Year Reports. Those of you who have followed our Company for a number of years will have noticed the 'new look' of the Company's Half-Year Report. This will be followed shortly by our new website. In future, our marketing partner and our research broker will be considering how we can further expand our shareholder base, making the Company better known in the market, in particular within the active "self-select" investor community.

Prospects

I mentioned in the most recent Annual Report the investment challenges when there are so many moving parts in the financial world.

Although the majority of economic forecasters suggest we may be getting near the inflationary peak in this cycle, there seems to be a notable dispersion of opinion as to how quickly a decline may take place. The Federal Reserve, European Central Bank and Bank of England all recognise they have been slow to react to this inflationary cycle and seem determined to crush it now. It will be interesting to measure the strength of their determination when the inevitable pain creates political difficulties for incumbents. My own view remains that recessions are inevitable in the US, UK and Continental Europe and unless interest rates reach heights not presently anticipated, a meaningful fall in inflation rates is unlikely. Their depth should be cushioned by the continuing loose monetary policy in Japan and inevitable easing of monetary policy in China.

I mentioned in the Annual Report in June that equity markets still had some way to fall. This has duly come to pass and it is difficult to see a final bottoming out process until there is more clarity on the depth of the forthcoming corporate earnings recession, the peaking of inflation, the end of quantitative tightening and a sense that the present conflict in Ukraine is moving towards some sort of resolution.

The coming winter will sadly be very damaging for Europe, as industry may be badly affected and all environmental plans postponed due to the increase in coal and oil consumption. The worst outcomes may be avoided by above average winter temperatures and the consequential decline in seasonal energy consumption, particularly gas, with the main storage facilities presently being completely full.

Corporate governance

Senior Independent Director

I am pleased to report the Board has appointed Nadya Wells as Hansa Investment Company's Senior Independent Director to assist and give guidance to the Chairman.

ESG Matters

With ever-growing global concerns and developments surrounding matters such has climate change, social inequalities and ethical corporate strategy and governance, the Board believes there is a communal duty for meaningful and effective action to be taken and are committed to doing so.

It is the Board's belief that responsible investing and a well-run sustainable business model aids in generating superior long-term returns and our Portfolio Manager shares these beliefs. As long-term investors, the Portfolio Manager has a natural desire to be a responsible investor and good corporate citizen. It is likely that such businesses and investors are likely to generate superior long-term returns and, furthermore, consideration of such issues is an important element to potential risks. The Portfolio Manager does not operate an exclusionary policy, as it is not believed that excluding whole sectors or countries is a sustainable, or reasonable approach to its investment activities. Each fund manager or company is assessed as an individual, taking into account the sector and country within which it operates and its direction of travel in ESG enhancements.

You will have seen over the last two years that the Portfolio Manager has been developing its own Responsible Investing framework and, more recently, working closely with the UN Principles for Responsible Investing Initiative ("UNPRI") considering the requirements of the investor initiative, in particular considering its impact on a portfolio such as ours. If you are not familiar with the initiative, the UNPRI encourages investors to use responsible investment to enhance returns and better manage risks, but does not operate for its own profit; it engages with global policymakers, but is not associated with any government; and is supported by, but not part of, the United Nations. It consists of six principles that all signatories must agree with:-

1.  Incorporate ESG issues into investment analysis and decision-making processes.

2.  Be active owners and incorporate ESG issues into ownership policies and practices.

3.  Seek appropriate disclosure on ESG issues by the entities invested in.

4.  Promote acceptance and implementation of the Principles within the investment industry.

5.  Work together to enhance effectiveness in implementing the Principles.

6.  Each report on activities and progress towards implementing the Principles.

The Manager has kept the Board closely informed at each stage and the Board has been supportive of its proposals. Therefore, I am pleased to report that our Portfolio Manager is now a confirmed signatory to the UNPRI initiative and I look forward to seeing how this develops.

Shareholder presentation

Following the release of this Half-Year Report, we are planning to hold a shareholder information presentation. Given the success of the virtual meetings in recent years, we intend to keep holding these events online to enable broad participation. More details will be published on our website and via RNS.

Finally, may I wish you all seasonal good wishes and much good health and prosperity for 2023.

Jonathan Davie

Chairman

1 December 2022

Half-Year Management Report

The Directors present their Report and Condensed Financial Statements for the period to 30 September 2022.

The Board's objectives

The Board's primary objective is to achieve growth of shareholders' value over the medium to long-term.

The Board

Your Board consists of the following persons, each of whom brings certain individual and complementary skills and experience to the Board's workings:

Jonathan Davie (Chairman of the Board and Management Engagement Committee); Richard Lightowler (Chairman of the Audit Committee); Simona Heidempergher (Chairman of the Remuneration Committee); William Salomon; and Nadya Wells (Chairman of the Nomination Committee and Senior Independent Director).

Individual profiles for each member of the Board can be found in the Company's Annual Report each year and on our website.

Business Review for the period to 30 September 2022

The Business Review includes a discussion of important events which occurred within the period to 30 September 2022 and is covered in the Chairman's Report to the Shareholders and the Portfolio Manager's Report.

Hansa Investment Company Limited ("HICL", "the Company")is a Bermudan company formed in June 2019 to take on the business of Hansa Trust Ltd ("Hansa Trust"). As a company, HICL has limited financial history, only having taken on the business of Hansa Trust in August 2019. Therefore, when discussing the medium and longer-term financial performance of the Company and its portfolio, the Board will continue to incorporate the financial performance from Hansa Trust, as well as HICL where relevant. Hansa Trust was liquidated in November 2021.

Key risks for the financial year to 31 March 2023

The key risks and uncertainties relating to the period ended 30 September 2022 and for the year ending 31 March 2023 are materially the same as those reported in the Annual Report for the Company for the year ended 31 March 2022. The Board, with the Portfolio Manager, continues to focus on the likely future economic impacts of the developing geopolitical tensions and inflationary pressures currently shaping the global markets. 

Going Concern basis of accounting for the period to 30 September 2022

The Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Half-Year Financial Statements. The Directors do not know of any material uncertainties to the Company's ability to continue to adopt this approach over a period of at least 12 months from the date of approval of these Financial Statements.

The Directors will include a Long-Term Viability Statement in each Annual Report.

Related party transactions

During the period, Hansa Capital Partners LLP charged portfolio management fees and company secretarial fees to the Company, amounting to £1,481,000 excluding VAT (six months to 30 September 2021: £1,601,000; year to 31 March 2022: £3,177,000). Amounts outstanding at 30 September 2022 were £231,000 (30 September 2021: £261,000; 31 March 2022: £236,000).

The Board's responsibilities

The Board is charged by the shareholders with responsibility for oversight of the affairs of the Company. It involves the stewardship of the Company's assets and liabilities and the pursuit of growth of shareholder value. These responsibilities remain unchanged from those detailed in the last Annual Report.

The Directors confirm to the best of their knowledge that:

The condensed set of Financial Statements contained within the Half-Year Financial Report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' and on a going concern basis.

This Half-Year Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.

The above Half-Year Management Report, including the Statement of the Board's Responsibilities, was approved by the Board on 1 December 2022 and was signed on its behalf by:

Jonathan Davie

Chairman

1 December 2022

Portfolio Manager's Report

How high? How low? How bad?

Market backdrop

Having ebbed and flowed, the first half of the financial year saw market bearishness reach a crescendo. Initially, in a classic head-fake, investors started to believe the US Federal Reserve would tone down some of its hawkish rhetoric on interest rates. In the belief that rates were high enough to start bringing inflation down, investors were increasingly of the view they could start to think about interest rates falling again. With it we saw both a rally in stock markets and a rotation back into some of the longer duration names and out
of value.

The chair of the Federal Reserve, Jay Powell, had a different view and, at the annual Jackson Hole symposium, quickly put investors back into their box. Having only a short-while back argued that inflation was transitory, he now views rate rises as open-ended and doesn't even want to discuss

when and where they might pause until inflation is back to target. This wasn't just rhetoric but also backed up by action. Over the half the US increased rates by 2.75%, the ECB by 1.25% and the Bank of England by 1.5%.

Reinforcing this stance, inflation proceeded to reach levels last seen in the 70s/80s, hitting 8.3%, 9.1% and 9.9% in the US, Europe and the UK respectively. Rather counter-intuitively, however, many of the underlying constituents of inflation softened during the period. Oil prices fell from $100/barrel to $79, container shipping prices fell by 50% and many metal prices fell over the period. 

Rounding off this turbulent backdrop, geopolitics also remained challenging. Confounding the belief that Russian success in Ukraine was inevitable, the Ukrainian armed forces delivered a spectacular counteroffensive. Russia, on its part, conducted several sham referenda in an effort to legitimise the invasion. China was relatively quiet ahead of its 20th Communist Party congress in October, albeit President Xi remained steadfast in his efforts to maintain a zero COVID policy. Perhaps the most surprising geopolitical shock came from the UK. In what was a dream for the pundits the new Prime Minister, Liz Truss, and Chancellor, Kwasi Kwarteng, delivered an unorthodox mini-budget, increasing spending and cutting taxes at a time when inflation was rampant and debt levels high. Markets subsequently dealt the pair bloody noses by forcing up gilt yields and crushing sterling, leading to an embarrassing about-turn in policy and headlines such as 'Not so Great Britain'! The fallout ultimately led to Truss dismissing Kwarteng and then resigning herself.  Subsequently Rishi Sunak was elected to lead the Conservative party and hence became the new Prime Minister.  Hopefully he will prove to be a more stable pair of hands.

Unsurprisingly investors were less than impressed by these events, sending markets on a roller coaster ride over the half. World equities fell 7.2%, US equities declined 6.7% and Europe lost 9.0% taking their performances over 12 months to -4.1%, -0.1% and -9.0% respectively. Frontier markets were generally slightly better, while emerging markets also struggled. Ex-Asia emerging markets fell 6.2% for the half, LATAM declined by 4.4% while frontier markets fell 4.8%.

Bonds were also weak, albeit again with significant variation across the board. Global treasuries fell by 1.0% which, perhaps surprisingly, was less than the high yield market which rose by 2.1%. Emerging market debt fell by 14.3% and convertibles by 0.7%. Standouts amongst the group however were UK government bonds which fell 19.3% in the half and 25.4% for index-linked bonds, as sterling fell 15.0% against the dollar. So much for the defensive characteristics of sovereign bonds!

Amongst the alternative asset classes, despite still being up for the year, commodities were mixed over the half, with copper down 15.1% and oil down by 6.4% (WTI). In contrast, hedge funds, having been in the doldrums for many years, are enjoying life more in the current environment with positive returns across several different strategies.

Finally, the all-important US dollar continued to strengthen. Through a blend of the Federal Reserve being ahead of many other central banks in raising rates and removing liquidity and the defensive nature of the dollar, investors have been retreating to the dollar as a safe haven. On a Purchasing Power Parity basis the dollar is now looking very expensive, which has important implications for many other assets which are often valued in dollars. Unfortunately, whilst currencies typically return to their fair values over the long-term, they can remain mispriced for a protracted period of time. 

How high? How low? How bad? 

There really can be no doubt now that we are in the midst of a bear market. The key question however is how deep is the bear market likely to be and over what period? This, we believe, is a function of three key factors: How high do rates and inflation rise? How low do economies fall? How bad does the geopolitical situation become? These are not necessarily mutually exclusive questions but intertwined in many cases and, depending on how they pan out, will have important implications for the nature and severity of the downturn.

1. How high do rates and inflation rise?

We would start by nuancing this question. Whilst inflation is currently at nosebleed levels it is our belief that this will not remain the case over the longer term. Undoubtedly there are some circumstances that may lead to inflation being higher for longer and we see some kind of repeat of the 1970s, but our expectation is that inflation will start to fall over the coming months and we are not facing a protracted period of high single digit/low double-digit inflation. Instead our key concern is where do inflation and interest rates end up in the medium to longer term and what are the market implications of this?

There are two schools of thought here. The first, perhaps the status quo perspective, is that with the Fed having pivoted from viewing inflation as transitory and with Powell having a Volcker moment, he will raise rates to whatever level is required to bring inflation back to its 2% target level and ultimately return markets to how they were previously, i.e. a return to when markets were supported by copious amounts of liquidity, the Fed Put is reinstated and long-duration stocks can continue to thrive again. Indeed there are some who are starting to wonder if the outcome of the Fed's renewed vigour in combating inflation is deflationary. Inflation measures are typically backward looking and fail to capture the fact that a number of important inflationary drivers are already heading south. As highlighted earlier, commodity prices have come back sharply over recent weeks, supply chains have eased in a number of important areas and soon the higher rates and bond yields will start to dampen the important housing market, all of which are deflationary in nature. It is not inconceivable then that having been late to appreciate inflation was more ingrained than originally thought, the Fed is again behind the curve and will let the inflationary pendulum swing too far in the other direction.

The alternative view however is that the new norm for inflation and rates is higher than we have become used to in recent years with the days of zero rates now past. As discussed in prior House Views, underlying this shift are a variety of structural and philosophical factors as to how best economies should be managed and resources allocated. Globalisation, which for many years was deemed as the optimal way to produce goods at ever lower prices and which was instrumental in the rise of China and emerging markets more generally, is now in reverse. Security of supply and a desire to control one's own destiny rather than leave one's economy exposed to weaknesses elsewhere in the supply chain are now seen as more important than ever lower prices. Similarly, having lived in a backdrop which favoured rising corporate profitability over labour remuneration, this now seems to be in reverse. With unemployment rates remaining historically low and many choosing to exit the labour force post-COVID, we have started to see significant wage increases and widespread strikes as trade unions flex their muscles again after many years of inactivity. The net effect of all of this is that inflation doesn't return to the sub-2% levels it has experienced over recent years and instead the neutral rate for inflation and interest rates is above 4%/5%. The key question of course is just how high is this new neutral rate?

The implications for markets are likely to be very different under these two scenarios and potentially profoundly so. The first scenario of a return to 2% inflation and low rates is broadly a positive one for world stock markets. Yes, there may well be a meaningful recession and a corresponding impact on stock markets if the Fed is overzealous in its efforts to return us back to a low rate/low inflation world, but if successful this is probably a price worth paying for the beneficial impact such an environment has on global asset prices over the longer term.

The second scenario however, of sustainably higher inflation and interest rates, is much harder to gauge and potentially has dramatic ramifications for many asset prices. Your experienced investment team has seen these scenarios before, navigating double digit inflation and interest rates in the past and we see no reason why economies and stock markets cannot ultimately cope with these new levels. The challenge, however, is that many people in markets haven't operated under such conditions and many areas of the economy have adjusted such that they assumed the current backdrop of zero rates and low volatility would last into perpetuity. Take the housing market for example. It is perhaps of little surprise that house prices have been so robust in many economies, when the cost of servicing mortgages was next to zero in most cases. This encouraged homeowners to take out ever higher mortgages, as they leveraged up to buy bigger homes in the belief such actions boosted their wealth with little risk. The prospect then of a variable rate mortgage or a two-year fixed mortgage coming to maturity and shifting from historically low levels to 6% plus will result in a dramatic change in monthly mortgage payments. Coming at a time when many households are already struggling with higher utility and fuel bills this will likely have major consequences for spending patterns and household wealth.

The excesses are, however, unlikely to be restricted to the housing market. It seems likely many areas of the economy and assets will have been boosted by this era of free money. Cryptocurrencies are probably the posterchild for these excesses, albeit we suspect that whilst there will be some notable casualties they remain an asset class for mainly young investors and not a source of wider contagion. Areas we would be more concerned about would include private equity, which for years has ridden a wave of abundant liquidity and low rates. Through leveraging up deals at almost zero cost (and risk as the balance of power shifted from the lender to the PE firm) PE firms have been able to gobble up assets, make outsized returns and then often sell them onto one another at the end of the process. With PE returns barely changed this year, at a time when public sector returns have collapsed, one has to wonder if this is the next shoe to drop and what are the wider implications for associated areas of the market.

It is likely then that the use of ever lower rates and abundant liquidity runs much deeper than commonly assumed and, for this reason, if the neutral rate winds up higher than anticipated the ramifications are likely to be more painful, as economies go cold turkey and investors learn to live under this new backdrop. We will come back to this subject in more detail in subsequent House Views.

2. How low do economies fall?

To date it's been all about rates and inflation. Increasingly, however, we see the narrative switching to the impact of the higher rate environment on the broader economy and company profitability. 

So far the economic and corporate impact has been relatively muted. Whilst the US did exhibit two consecutive quarters of mildly negative economic growth, the National Bureau of Economic Research deemed the US not to have entered recession based on a broader basket of factors. Indeed certain important areas of the economy, notably unemployment, remain remarkably resilient, highlighting the strength of economies, especially that of the US. 

Similarly, corporate sector earnings have again been robust this year all things considered. Company earnings are forecast to grow 7.0% in 2022 with US corporate margins expected to be 13.3%. This compares to 9.0% growth and 12.8% margins forecast at the beginning of the year.

This however is, to a large degree, looking in the rear-view mirror. With central banks having put up rates sharply already and with the Fed seemingly prepared to sacrifice the economy in its desire to maintain control over inflation, it seems an inevitability that economies will start to slow as the year progresses. The lead indicators would seem to agree with this view. The US ISM New Orders Index went from being expansionary to contractionary, falling from 53.8 to 47.1. Similarly, in China export orders are weak and shipping rates between China and the US have collapsed in recent months.

The key question again is not will economies fall, but rather just how far will they fall in the months ahead? Unfortunately the answer to this is very much dependent on just how exuberant central bankers will be in their desire to stymie higher inflation. Whilst only time will tell, fortunately there are a couple of mitigating factors.

First, whilst we worry about the prospect of moving back to a higher neutral position in interest rates and inflation, the US and to a lesser extent European economies are in relatively robust health going into the downturn. Having been badly burnt during the Global Financial Crisis both regions set about rebuilding their banking systems (albeit with the US being far more successful at this than Europe) and personal balance sheets with rising savings levels and deleveraging of the housing markets (but notably not the UK housing market). With the banking, consumer and housing sectors normally playing central roles within any downturn, it is therefore helpful that they are starting from relatively robust positions this time around all things considered.

The second point to consider is at what point do central bankers come off the brake in their desire to dampen inflation. Ultimately, whilst the Fed is currently laser focused on inflation, it should not be forgotten that it has a dual mandate to maximise employment as well as to control inflation. Indeed, whilst central bankers are currently keen to demonstrate their inflation-busting credibility, it seems likely that this will be tested if unemployment rises sharply in the process; rising prices are not the key worry for someone who no longer has a job. Combined with political pressure, with the independence of central banks being somewhat diminished over the past couple of years, it seems likely there will be a point where the current Volker-like characteristics start to waver.

Hence,whilst we see weakness in growth becoming the centre of the conversation in the months ahead, we do see some mitigating factors that will hopefully prevent a repeat of the Global Financial Crisis. Certainly we see the all-important US economy as being in more robust shape than many others in view of past efforts to shore up the banking sector and consumer balance sheet and being largely energy self-sufficient.

3. How bad does the geopolitical situation become?

Having for many years lived in a world of relative geopolitical stability this is rapidly being turned on its head. The Russian invasion of Ukraine and China's decision to adopt a different model as to how it deals with COVID and a heavy-handed approach to the regulation of the consumer internet and education sectors, are all indicative of how the geopolitical landscape is evolving in a different direction. Previously the view in the West was that other, often non-capitalist, economies would gravitate towards this over time. It was seen as only a matter of time before China, Russia and emerging markets more generally morphed from their current models to this new framework.

Recent events however have shown that this view was misguided. China never intended to adopt the US model, but instead wanted elements of the free-market approach but within a one-party, centrally driven economy. Similarly Russia is embarking on a process of attempting to turn back time on the disbandment of the old Soviet Union in an effort to 'make Russia great again'. Rather than unifying the world, the fissures between East and West have become greater than ever and there is a growing divide with the US global hegemony likely to become increasingly challenged as the rise of China marches on.

Managing this from an investment perspective is challenging. Under the old framework, leaders and central bankers could be relied upon to act rationally according to the accepted rules of play. Now though, decisions are being made that often go contrary to this framework. National boundaries are no longer being respected and the threat from nuclear weapons has reared its ugly head again. Increasingly we need to add an additional risk premium when considering investments into these less stabile regimes and thought must be given to the worst-case scenario coming to fruition and the implications this may have for economies and stock markets.

Positioning portfolios 

Investing in stock markets for much of the current cycle really was very monotonal in style. An environment of low interest rates both inflated risk assets such as equities, but also drove longer duration stocks such as technology higher. Really all one had to do was invest in technology companies and specifically the US stock market given its dominance in this area.

The past year however has turned this all on its head. Higher inflation and the resultant increase in interest rates has been the catalyst for both a bear market in equities and bonds. Value has surged at the expense of growth and commodities have come in from the cold.

So what now? Well first one must retain a certain intellectual flexibility as the current environment unfolds. In reality one can never truly predict how central bankers will react to the current economic backdrop, or the actions of unconventional leaders such as Putin or Xi, and instead it will be necessary to adapt as the economic outlook, the policy response and the geopolitical situation develop.

Diversification and balance within a portfolio will be key. Never has it been so important as now to hold a wide spread of assets to help protect portfolios from the different permutations of outcomes and some of the more dire geopolitical outcomes. Holding a mixture of quality, value and growth seems appropriate as we learn what the new neutral interest rate and inflation rates are and the depth and length of the coming economic decline.

At this stage we see it as a little premature to dive back into risk assets such as equities. Valuations are starting to look far more interesting, with the US stock market back to its recent historical average and Europe and emerging markets arguably looking cheap by past standards. We worry in the near term however that earnings are yet to adjust to the coming downturn and this winter may well be challenging for Europe, as higher energy and utility bills weigh on both consumers and corporates. For the time being we continue to favour the US in light of its relative economic robustness and being largely energy self-sufficient. Whilst it wouldn't classically be the time to invest in emerging markets in the face of a recession, dollar strength and declining corporate profitability, we do wonder if the region is in practice in a more robust position having not gorged themselves on the copious amounts of free money like the West. Increasingly we are inclined to take a contrarian view here. Equally Japan is looking very cheap with the yen extremely oversold at current levels. A shift to a more rationale monetary policy would likely lead to a sharp reversal in Japan's fortunes.

Sovereign bonds are also beginning to look interesting again. Clearly in a backdrop of rising inflation and higher rates, bonds were deeply unattractive, especially in light of their low starting yields. Now, however, with yields being higher and inflation potentially peaking and, most importantly, with economic growth coming under pressure, defensive assets such as government bonds will likely become more attractive again. Investors should be mindful however that governments need to maintain credibility in their policy measures and debt management, as was illustrated by the recent debacle in the UK, and we would still be wary of corporate bonds with default levels still historically low and many companies taking (excessive) advantage of the cheap funding.

Finally, absolute return hedge funds such as trend following, systematic and macro funds are also now viable investments. For years the combination of low interest rates (they couldn't earn a decent return on their cash positions), low volatility and high fees meant they delivered muted returns at best and certainly looked poor when compared to risk assets such as equities. Now, however, with interest rates higher, abundant volatility and opportunity, they are looking a viable asset class again and add an important diversifying element to portfolios at a time when diversification is key.

Conclusion

In many ways what we are currently facing is a classic, old-school bear market. Central bankers, as they normally do, let economies run too hot, inflation jumped and now they are having to ramp interest rates up and remove excess liquidity from markets. We fully expect them to pivot too far in the opposite direction and a recession to be the end result. The resultant bear markets are typically meaningful, albeit usually not as severe or protracted as structural bear markets such as we saw during the Global Financial Crisis.

There are, however, a couple of nuances that make us pause. The first is that it increasingly looks like we are seeing the end of the zero-rate and inflation-less world we have lived in for many years now. It's not a given, and it is possible that Jay Powell and central bankers globally will do whatever it takes, regardless of the impact on global economies, to put inflation back into its box. However, with a number of the structural drivers behind the zero-rate world now in reverse, the probability it is ending now is meaningful. The second is that we have gone from a period of relative geopolitical stability to one where geopolitics can no longer be ignored when making investment decisions. Most notably countries seem to be aligning into different groups both economically and, in some cases, from a war footing.

It's not all doom and gloom however. Mitigating factors include the fact that we are working our way through the process. Valuations have adjusted for both equities and bonds and whilst we might not quite be there just yet (especially as profitability falls as growth slows), we are starting to see value in a number of cases. Also, many of the important sectors of the global economy are actually in relatively good health, primarily due to the pain they went through during the Global Financial Crisis.
So often problems within these sectors shift the bear market from cyclical to structural when they are in less robust health. In particular, we would note the strength of the banking sectors, the consumer in the US and the housing markets in both the US and Europe.

Managing periods of regime change, as we appear to be going through at present, is challenging. Predicting the actions of central bankers, who will be key to the process, is fraught with difficulty and the unintended consequences of years of free money will be hard to predict with certainty, at least at the outset. Almost certainly this will lead to more volatility in global assets and the potential for meaningful drawdowns. Core to our response to this new environment is greater diversification. No longer is it right to be purely positioned towards growth and instead a balance of value and growth is required, along with geographic diversification and the use of hedge funds. We will start to run our slide rule over bonds, having been bearish for some time now, and we are fortunate that diversification runs central to the Company's approach.

Portfolio Review and Activity

With market volatility continuing during the first half of the financial year, your Company produced a return of -6.9% and a -10.1% return over the last 12 months. Both returns are ahead of a traditional 60:40 equities and bonds portfolio, which would have returned -12.1% and -11.7% over the same periods, respectively. Ocean Wilsons declined 14.2% during the half, whilst the rest of the portfolio fell 4.7%. With significant sterling weakness during the half, the MSCI ACWI NR Index declined 7.2% in sterling, leaving it down 4.0% over 12 months. Bonds have suffered, as high inflation and rising central bank rates have pushed yields higher and the FTSE UK Gilts All Stocks TR Index was down 19.3% over the financial year-to-date, taking its decline over the past 12 months to a steep -23.3%. The UK CPI, meanwhile, rose another 5.7% this half and is up 10.1% over the past 12 months. The Company's NAV per share fell from 319.1p at the end of March to 295.6p at the end of September, with 1.6p per share being paid out as a dividend during the half.

Core and Thematic Funds

The Core Regional silo fell 6.3% in the first half of the financial year, while the Thematic silo declined 8.2%, with both results being comparable to the 7.2% fall of the global equity index. Over the past 12 months the returns have been -13.5% for the Core Regional silo and -14.3% for the Thematic silo.

There were strong returns for several of the holdings within the Core Regional silo over the half, with many of the North American holdings performing well on a relative basis. Findlay Park American fell 2.0% this half, ahead of the US index, as the fund has shown again its tendency to outperform in difficult markets. Among Findlay Park's top contributors this half were CoStar, Amazon and Keysight, which had all been added to early in the half and have since reported solid earnings growth.

Pershing Square Holdings had a weaker half with a loss of 9.9%, although its holdings in restaurant groups Chipotle Mexican and Restaurant Brands (which owns leading brands including Burger King, Tim Hortons and Popeyes) held up well as sales growth has been returning post-COVID.

The two Japan funds, Indus Japan Long Only and Goodhart Partners: Hanjo declined 2.8% and 3.4%, respectively, and over the past 12 months are now down 17.5% and 16.5%. Within the Indus fund, the largest contributors over the half included the pharmaceutical and medical equipment company Daiichi Sankyo and the electro-optical component supplier Hoya. The global developed funds both had stronger halves. Egerton Long-Short Fund was up a strong 3.3% as it benefited from a long position in First Citizens BancShares and from some short positions in materials and information technology companies. BlackRock Strategic Equity Fund fell 2.2%, partly as a result of currency moves, but also benefiting from short positions in industrial cyclical and defensive names, with the manager highlighting short positions in a UK food delivery company and a CRM cloud company. As the half went on the manager de-risked the short book by exiting positions in profitless technology businesses, and by late August the fund was running at a net exposure level of -7%.

The emerging and frontier market holdings have been more of a mixed bag so far this financial year, although the NTAsian Discovery continued its period of good performance, rising 6.4% to be up a strong 11.4% over the last twelve months. The KLS Corinium Emerging Markets fund declined 3.6% to be down 7.0% since it was purchased last December while the iShares Core MSCI Emerging Markets ETF was down 7.5%. The frontier market position in BlackRock Frontiers Investment Trust gained 1.1% and is up 8.1% over the past year.

Most of the holdings within the Thematic bucket made gains, although the technology holding had a difficult start to the financial year, with GAM Star Disruptive Growth being down 17.0%. The positions in the energy and commodity sectors produced mixed performance this half, with iShares MSCI World Energy ETF up 8.9% while the iShares MSCI World Metals and Mining Producers ETF declined 18.9%. Healthcare positions performed well, notably RA Capital International Healthcare Fund that gained 16.0%, leaving it down 12.6% for the past twelve months. The Polar Global Insurance Fund, which was bought in May, also made gains, being up 6.3% since purchase.

Diversifying Funds

The diversifying holdings have continued to do their job, which is to dampen volatility and provide the portfolio with a return stream that shows lower correlation to the equity market. During the half, the Diversifying silo produced a strong gain of 2.7%, taking its return for the past twelve months to 5.5%, in a period when both equity and bond indices have suffered significant declines.

The trend-following CTA funds have been among the strongest performers recently, and the Schroder GAIA BlueTrend continued to be so this half with a gain of 19.0% taking it to be up an excellent 32.3% over the past twelve months. The GAM Systematic Core Macro also had a good half, up 7.6%, takings its return to 6.7% over the past year. Global Event Partners has been solid this year declining just 1.0% gain this half leaving it up 1.9% over the past twelve months. It benefited during the period from a number of mergers closing, and its position in the NortonLifeLock/Avast merger contributed to performance as it was provisionally approved by the UK regulators. Keynes Systematic Absolute Return Fund has continued to be a strong performer, with its relative value strategies contributing more than its directional strategies this half. The Keynes fund rose 11.4% this half to leave it up 14.3% over the past year.

Both macro trading funds continue to produce steady returns, with MKP Opportunity being up 4.8% this half, while Hudson Bay was up 1.6%. For the past year, the MKP fund has produced a strong 9.8%, while Hudson Bay has risen 1.6%.

There were strong returns from some of the diversifying holdings in the fixed income space, although there were also some losses as yields and credit spreads widened. Brevan Howard Absolute Return Government Bond Fund delivered a pleasing 1.8% despite the volatility in government bonds and BioPharma Credit made a strong 10.9%, helped by exposure to the strengthening US dollar. The BioPharma Credit portfolio is 89% invested in senior secured loans, of which 75% are floating rate which provides some protection against rising yields. It was announced after the half-end that Pfizer had completed its acquisition of GBT, which led to BioPharma receiving $175m including $43m in accrued income, prepayment and make-whole fees, realising an IRR on the investment of 27.6%. During the half the Vanguard US Government Bond Index Fund fell 8.6%, leaving it down 13.7% for the past year. The other significant decline was registered by Selwood Liquid Credit Strategy which fell 14.8% and is down 16.3% for the last 12 months, as credit default swaps continued to widen.

Global Equities

The portfolio returned -0.5% over the half, with the biggest positive contributors being Interactive Brokers, EXOR and CVS Health. The biggest detractors were CK Hutchison, Coats and Grupo Catalana Occidente.

It was another volatile half for global equity markets as they attempt to come to terms with meaningful interest rate rises for the first time in many years. The extremely low rates of the past decade have had many unintended consequences, but most relevant to our direct equity holdings has been the misallocation of capital. When the cost of capital drops close to zero companies find worthwhile projects to invest in and investors are prone to speculation, we are seeing the results of this with bubbles deflating everywhere from Chinese property to NFTs.

However, where there is speculation there is often opportunity. Historically when industries are heading toward the lows of the cycle, investor interest diminishes, business investment declines, firms consolidate and businesses exit either through choice or bankruptcy. This decline in supply eventually leads to higher returns for the survivors. The low interest rates we have seen have not only caused bubbles but the reach for yield also led investors to support companies that would normally have gone bankrupt, by allowing them to refinance their debt at ever lower rates. This has caused the capital cycle to become elongated, but we believe that the end of "free money" will lead to capital destruction, thereby leading to the survivors earning higher returns. 

We believe the portfolio is well positioned as a significant portion of our holdings are in this stage of their cycle. These are mostly found in "old economy" companies investors have ignored for years because they were not high growth tech companies. It intuitively makes sense that if the market values the company below its asset value, they believe any investment made will destroy value. We believe the market is not factoring in the capital cycle and the higher returns our companies will earn in the future. Our positioning is demonstrated by the fact 39% of the portfolio currently trades below book value and the whole portfolio trades on 1.1x book value.

The clearest examples of this are in the mining and energy sectors, where years of underinvestment are finally showing up in higher prices in the underlying commodities, benefiting our holdings in Glencore and Subsea 7.

It is similar for our insurance holdings, where the past few years have seen excess capital leave the reinsurance market where Arch Capital operates, which has led to considerably better pricing for those that remain.

Other holdings are in the earlier stages of the cycle, such as Orion Engineered Carbons. The carbon black industry has been forced to spend hundreds of millions to upgrade plants to comply with new EPA guidelines which led to several facilities being permanently shut down. This supply reduction has been exacerbated by the invasion of Ukraine, as 40% of Europe's carbon black came from Russia. We believe Orion will use this opportunity to lock in long-term customer agreements, rather than gouge their customers on price, which will strengthen the business for years to come. This capacity to focus on the long-term gains rather than destroy relationships for a short-term benefit is an attribute we look for across all our companies and management teams.

The only addition was a small additional purchase of CTT Correios de Portugal following a decline in the share price. A portion of CK Hutchinson was sold to finance this.

Ocean Wilsons Holdings

The operating business continues to deliver resilient financial results despite the difficult worldwide trade environment and logistical bottlenecks. It is hoped that this challenging scenario could show some signs of improvement in the latter half of the year, depending on the resolution of port closures in China. Towage revenues are increasing and in May the shipyard delivered WS Centaurus, the most powerful tugboat in Brazil and the first of a series of six, 80-ton bollard pull tugboats that will join the fleet over the next two years. These tugboats benefit from increased hydrodynamic efficiency, which allows a reduction of up to 14% in greenhouse gases compared to previous technology. The Ocean Wilsons Holdings' share price fell 14.2% for the first half of the financial year. The share price represents a discount to the look-through NAV of 55.5%, based on the market value of the Wilson Sons' shares, together with the latest valuation of the investment portfolio. The shares of Wilson Sons underwent a six-for-one share split in May.

The investment portfolio shares many characteristics with the portfolio held directly within HICL, with a preference for funds with clearly-defined strategies run by managers with skin in the game. The portfolio has declined in recent months as markets have fallen, although by significantly less than broad equity indices. The valuation declined to $296.9m at the end of June 2022, down from $312.9m at the end of April 2022 and from $351.8m at the end of December 2021. Dividends of $5m, in two equal tranches, have been paid out from the portfolio since April 2022, with the first payment in May and the second at the end of July. The portfolio's private assets investments have contributed significantly to performance in recent years and these have so far held up well through the market falls, although a lag would be expected between private and public assets. Meanwhile, the defensive part of the portfolio continues to
be resilient.

The second quarter (calendar year) results for Wilson Sons (released in August) showed revenues increasing, but earnings for the first six months of the year were 2.2% lower than the prior year, on account of higher costs. However, in US dollar terms the earnings number was 4.0% higher than last year. Towage results remained robust thanks to higher average revenue per manoeuvre as the proportion of lower-priced containership calls fell. Container terminal operating volumes continue to be impacted by the limited availability of empty containers and worldwide logistics bottlenecks, although cabotage volumes increased at both ports during the quarter. Despite the pressures on volumes, revenues remained resilient because of increased warehousing revenues, partly because of longer dwell times for both imports and exports.

Alec Letchfield

Hansa Capital Partners LLP

October 2022

The Portfolio

As at 30 September 2022

Investments	Fair value £000	% of net assets
Core regional funds
Findlay Park American Fund	28,148	7.9
iShares Core S&P 500 UCITS ETF	22,894	6.5
Select Equity Offshore Ltd	19,080	5.4
iShares Core MSCI Europe UCITS ETF	14,291	4.0
BlackRock Strategic Hedge Fund	13,615	3.8
Schroder ISF Asian Total Return	10,682	3.0
Pershing Square Holdings Ltd	8,858	2.5
Indus Japan Long-Only Fund	6,825	1.9
Egerton Long-Short Fund Ltd	6,740	1.9
Goodhart Partners: Hanjo Fund	6,223	1.8
KLS Corinium Emerging Markets Equity Fund	5,102	1.4
NTAsian Discovery Fund	4,257	1.2
iShares Core EM IMI UCITS ETF	3,988	1.1
BlackRock Frontiers Investment Trust PLC	3,418	1.0
	154,121	43.5
Strategic
Wilson Sons (through our holding in Ocean Wilsons Holdings Limited)1	44,697	12.6
Ocean Wilsons (Investments) Limited (through the holding in Ocean Wilsons Holdings Limited)1	31,061	8.8
	75,758	21.4
Global equities
Interactive Brokers Group Inc	4,128	1.2
Exor NV	3,156	0.9
Arch Capital Group Ltd	2,703	0.8
CVS Health Corp	2,649	0.7
Subsea 7	2,595	0.7
Orion Engineered Carbons SA	2,510	0.7
CK Hutchison	2,397	0.7
Dollar General	2,159	0.6
Grupo Catalana Occidente SA	2,134	0.6
Glencore PLC	1,721	0.5
Coats Group PLC	1,232	0.4
Viaset Inc	1,177	0.3
CTT Correios de Portugal	806	0.2
	29,367	8.3
Diversifying
Global Event Partners Ltd	10,466	3.0
DV4 Ltd2	9,555	2.7
Hudson Bay International Fund Ltd	5,025	1.4
Schroder GAIA BlueTrend	3,517	1.0
MKP Opportunity Offshore Ltd	3,345	0.9
GAM Systematic Core Macro (Cayman) Fund	3,230	0.9
Keynes Systematic Absolute Return Fund	2,809	0.8
Apollo Total Return Fund	2,378	0.7
Prana Absolute Return Fund	2,122	0.6
Selwood AM - Liquid Credit Strategy	1,962	0.6
Brevan Howard Absolute Return Government Bond Fund	1,781	0.5
BioPharma Credit PLC	1,523	0.4
Vanguard US Government Bond Index Fund	1,458	0.4
Lazard Convertible Global	722	0.2
	49,893	14.1
Thematic assets
GAM Star Fund PLC - Disruptive Growth	11,579	3.3
Polar Capital Global Insurance Fund	6,593	1.8
Impax Environmental Markets Fund	4,491	1.3
Worldwide Healthcare Trust PLC	3,226	0.9
RA Capital International Healthcare Fund	2,697	0.8
iShares MSCI World Energy Sector UCITS ETF	2,149	0.6
BB Biotech AG	2,032	0.6
iShares MSCI Global Markets & Mining Producers ETF	1,612	0.4
	34,379	9.7
Total investments	343,518	96.9
Net current assets	11,187	3.2
Net assets	354,705	100.0

1  Hansa Investment Company Limited owns 9,352,770 shares in Ocean Wilsons Holdings Limited ("OWHL"). The two subsidiaries of OWHL, Wilson Sons and Ocean Wilsons (Investments) Limited ("OWIL"), are shown separately above. The fair value of the Company's holding in OWHL has been apportioned across the two subsidiaries in the ratio of the latest reported NAV of OWIL, that being the NAV of OWIL shown per the 30 June 2022 OWHL quarterly update, to the market value of OWHL's holding in Wilson Sons, that being the bid share price of Wilson Sons multiplied by the number of shares held by OWHL at 30 September 2022.

2  DV4 Ltd is an unlisted Private Equity holding. As such, its value is estimated as described in Note 1(k) to the Statutory Financial Statements and is listed as a Level 3 Asset in note 20 of the Statutory Financial Statements 31 March 2022. All other valuations are either derived from information supplied by listed sources, or from pricing information supplied by third party fund managers. 

Financial Statements

Income Statement

For the six months ended 30 September 2022

		(Unaudited) Six months ended 30 September 2022			(Unaudited) Six months ended 30 September 2021			(Audited) Year ended 31 March 2022
	Note	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Total £000
(Losses)/gains on investments held at fair value through profit or loss	9	-	(30,520)	(30,520)	-	29,472	29,472	-	17,065	17,065
Foreign exchange gains		-	346	346	-	6	6	-	80	80
Investment income	2	6,003	-	6,003	5,157	-	5,157	5,904	-	5,904
		6,003	(30,174)	(24,171)	5,157	29,478	34,635	5,904	17,145	23,049
Portfolio management fees	3	(1,406)	-	(1,406)	(1,519)	-	(1,519)	(3,010)	-	(3,010)
Other expenses	4	(659)	-	(659)	(662)	-	(662)	(1,227)	-	(1,227)
		(2,065)	-	(2,065)	(2,181)	-	(2,181)	(4,237)	-	(4,237)
Income/(losses) before finance costs		3,938	(30,174)	(26,236)	2,976	29,478	32,454	1,667	17,145	18,812
Finance costs	5	(1)	-	(1)	-	-	-	-	-	-
Income/(losses) for the period		3,937	(30,174)	(26,237)	2,976	29,478	32,454	1,667	17,145	18,812
Return per Ordinary and 'A' non-voting Ordinary share	7	3.3p	(25.2)p	(21.9)p	2.5p	24.5p	27.0p	1.4p	14.3p	15.7p

The Company does not have any income or expense not included in the Profit for the period. Accordingly the "Income/(losses) for the period" is also the "Total Comprehensive Income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.

The total column of this Statement represents the Income Statement, prepared in accordance with IAS 34. 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. 

Balance Sheet

As at 30 September 2022

	Note	(Unaudited) 30 September 2022 £000	(Unaudited) 30 September 2021 £000	(Audited) Year ended 31 March 2022 £000
Non-current assets
Investments held at fair value through profit or loss	9	343,518	392,377	379,986
		343,518	392,377	379,986
Current assets
Trade and other receivables	11	93	17	201
Cash and cash equivalents	12	11,406	6,450	3,043
		11,499	6,467	3,244
Current liabilities
Trade and other payables	13	(312)	(420)	(368)
Net current assets		11,187	6,047	2,876
Net assets		354,705	398,424	382,862
Capital and reserves
Called up share capital	14	1,200	1,200	1,200
Contributed surplus	15	323,799	325,719	324,759
Retained earnings	16	29,706	71,505	56,903
Total equity shareholders' funds		354,705	398,424	382,862
Net asset value per Ordinary and 'A' non-voting Ordinary share	17	295.6p	332.0p	319.1p

Statement of Changes in Equity

For the six months ended 30 September 2022 (unaudited)	Note	Share capital £000	Contributed surplus reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2022		1,200	324,759	56,903	382,862
Losses for the period		-	-	(26,237)	(26,237)
Dividends	6	-	(960)	(960)	(1,920)
Net assets at 30 September 2022		1,200	323,799	29,706	354,705

For the six months ended 30 September 2021 (unaudited)	Note	Share capital £000	Contributed surplus reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2021		1,200	326,019	40,671	367,890
Profit for the period		-	-	32,454	32,454
Dividends	7	-	(300)	(1,620)	(1,920)
Net assets at 30 September 2021		1,200	325,719	71,505	398,424

For the year ended 31 March 2022 (audited)	Note	Share capital £000	Contributed surplus reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2021		1,200	326,019	40,671	367,890
Profit for the year		-	-	18,812	18,812
Dividends	6	-	(1,260)	(2,580)	(3,840)
Net assets at 31 March 2022		1,200	324,759	56,903	382,862

Cash Flow Statement

For the six months ended 30 September 2022

	Note	(Unaudited) Six months ended 30 September 2022 £000	(Unaudited) Six months ended 30 September 2021 £000	(Audited) Year ended 31 March 2022 £000
Cash flows from operating activities
(Loss)/profit before finance costs		(26,236)	32,454	18,812
Adjustments for:
Realised gains on investments	9	(1,646)	(1,601)	(5,440)
Unrealised losses/(gains) on investments	9	32,166	(27,871)	(11,625)
Foreign exchange		(346)	(6)	(80)
Decrease/(increase) in trade and other receivables	11	108	160	(24)
(Decrease)/increase in trade and other payables	13	(56)	32	(20)
Purchase of non-current investments		(49,695)	(3,894)	(30,840)
Sale of non-current investments		55,643	6,257	33,187
Net cash inflow from operating activities		9,938	5,531	3,970
Cash flows from financing activities
Interest paid on bank loans		(1)	-	-
Dividends paid	6	(1,920)	(1,920)	(3,840)
Net cash outflow from financing activities		(1,921)	(1,920)	(3,840)
Increase in cash and cash equivalents		8,017	3,611	130
Cash and cash equivalents at start of period		3,043	2,833	2,833
Foreign exchange		346	6	80
Cash and cash equivalents at end of period	12	11,406	6,450	3,043

Notes to the Financial Statements

1  Accounting policies

(a)  Basis of preparation

  The Financial Statements of the Company have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and with International Accounting Standard 34 ("IAS 34"), 'Interim Financial Reporting', as adopted by the European Union ("EU"). The Half-Year Financial Statements should be read in conjunction with the Company's Annual Report for the year ended 31 March 2022, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the EU. IFRS means standards and interpretations issued (or adopted) by the International Accounting Standards Board (IASB) (they comprise: IFRS, International Accounting Standards ("IAS") and Interpretations developed by the IFRS Interpretations Committee or the former Standing Interpretations Committee ("SIC")) or IFRS that have been adopted in the relevant jurisdiction.

  These Financial Statements are presented in sterling because that is the currency of the primary economic environment in which the Company operates.

  The Financial Statements have been prepared on an historical cost and going concern basis and also in line with the Board's analysis of the impact of COVID-19 on the Company except for the valuation of investments. The Financial Statements have also been prepared in accordance with the AIC Statement of Recommended Practice ("SORP") for investment trusts, issued by the AIC in July 2022, to the extent that the SORP does not conflict with IFRS. The principal accounting policies adopted are set out below.

(b)  Basis of non-consolidation

  IFRS 10 stipulates that subsidiaries and associates of Investment Entities are not consolidated but, rather, stated at fair value unless the conditions for certain exemptions from this treatment are met. Hansa Investment Company Limited meets all three characteristics of an Investment Entity as described by IFRS 10. The Company had one, 100% owned, subsidiary, Hansa Trust Ltd. The Company became the 100% owner of Hansa Trust's shares as part of the Scheme of Arrangement on 29 August 2019. On 9 November 2021, Hansa Trust Ltd was dissolved and removed from the Register of Companies held at UK Companies House.

(c)  Presentation of Income Statement

  In order to better reflect the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature, has been presented alongside the Income Statement.

(d)  Non-current investments

  As the Company's business is investing in financial assets, with a view to profiting from their total return in the form of income received and increases in fair value, investments are classified at fair value through profit or loss on initial recognition in accordance with IFRS 9. The Company manages and evaluates the performance of these investments on a fair value basis, in accordance with its investment strategy and information about the investments is provided on this basis to the Board of Directors.

  Investments are recognised and de-recognised on the trade date. For listed investments fair value is deemed to be bid market prices, or closing prices for stocks sourced from a regulated exchange such as the London Stock Exchange and Euronext.

  Fund investments are stated at fair value through profit or loss as determined by using the most recent available valuation. In some cases, this will be by reference to the most recent valuation statement or price estimate supplied by the fund's manager. In other cases, values may be available through the fund being listed on an exchange or via pricing sources such as Bloomberg.

  Private equity Investments are stated at fair value through profit or loss as determined by using various valuation techniques, in accordance with the International Private Equity and Venture Capital Valuation Guidelines. In the absence of a valuation at the balance sheet date, additional procedures to determine the reasonableness of the fair value estimate for inclusion in the Financial Statements may be used. These could include direct enquiries of the manager of the investment to understand, amongst others, the valuation process and techniques used, external experts used in the valuation process and updated details of underlying portfolio. In addition, the Company can obtain external independent valuation data and compare this to historic valuation movements of the asset. Further, recent arms-length market transactions between knowledgeable and willing parties where available might also be considered.

  Unrealised gains and losses, arising from changes in fair value, are included in net profit or loss for the period as a capital item in the Income Statement and are ultimately recognised in the Capital Reserves.

(e)  Cash and cash equivalents

  Cash and cash equivalents comprise cash at bank, short-term deposits and cash funds with an original maturity of three months or less and are subject to an insignificant risk of changes in capital value.

(f)  Investment Income and return of capital

  Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. Dividends and Real Estate Investment Trusts' ("REIT") income are all stated net of withholding tax. In many cases, Bermudan companies cannot recover foreign incurred taxes withheld on dividends and capital transactions. As a result, any such taxes incurred will be charged as an expense and included here.

  When an investee company returns capital to the Company, the amount received is treated as a reduction in the book cost of that investment and is classified as sale proceeds.

(g)  Expenses

  All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement except expenses which are incidental to the acquisition or disposal of an investment, which are included in gains on investments held at fair value through profit or loss in the Income Statement.

(h)  Taxation

  Under current Bermudan law, the Company is not required to pay taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Bermuda government exempting it from all local income, withholding and capital gains taxes being imposed and will be exempted from such taxes until 31 March 2035.

(i)  Foreign Currencies

  Transactions denominated in foreign currencies are recorded in the local currency, at the actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rate of exchange prevailing at the balance sheet date. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.

(j)  Retained Earnings

  Contributed surplus

  The following are credited or charged to this reserve via the capital column of the Income Statement:

gains and losses on the disposal of investments;

exchange differences of a capital nature;

expenses charged to the capital column of the Income Statement in accordance with the above accounting policies; and

increases and decreases in the valuation of investments held at the balance sheet date.

  Revenue Reserves

  The following are credited or charged to this reserve via the revenue column of the Income Statement:

net revenue recognised in the revenue column of the Income Statement.

(k)  Significant Judgements and Estimates

  The key significant estimate to report, concerns the Company's valuation of its holding in DV4 Ltd. DV4 is valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2022. The most recent valuation statement was received on 16 September 2022 stating the value of the Company's holding as at 31 March 2022. In the absence of a valuation for 30 September 2022 from DV4, the Company performed additional procedures to determine the reasonableness of the fair value estimate for inclusion in the Financial Statements. Direct enquiries of the manager of DV4 were made in July 2022 to understand, amongst others, valuation process and techniques used, external experts used in the valuation process and updated details of underlying property portfolio. It has been confirmed by DV4's manager that the valuation procedures discussed in July 2022 are still the same used now. In addition, the Company has compared the historic valuation movements of DV4 to the FTSE350 Real Estate Index. Based on the information obtained and additional analysis performed the Company is satisfied that DV4 is carried in these Financial Statements at an amount that represents its best estimate of fair value at 30 September 2022. It is believed the value of DV4 as at 30 September 2022 will not be materially different, but this valuation is based on historic valuations by DV4, does not have a readily available third party comparator and, as such, is an estimate. There are no significant judgements.

(l)  Operating Segments

  The Company considers it has one operating segment for the purposes of IFRS8.

(m)  Capital Loss

  The loss for period to 30 September 2022 of £30.52m is a general loss due to market conditions, rather than relating to the specific impairment of one or more assets.

2  Income

	(Unaudited) Six months ended 30 September 2022 £000	(Unaudited) Six months ended 30 September 2021 £000	(Audited) Year ended 31 March 2022 £000
Income from quoted investments
Dividends	6,003	5,157	5,904
Total income	6,003	5,157	5,904

3  Dividends paid

	(Unaudited) Six months ended 30 September 2022 £000	(Unaudited) Six months ended 30 September 2021 £000	(Audited) Year ended 31 March 2022 £000
Fourth interim dividend for 2022 (paid 27 May 2022): 0.8p (2021: 0.8p)	960	960	960
First interim dividend for 2023 (paid 26 August 2022): 0.8p (2022: 0.8p)	960	960	960
Second Interim dividend for 2022 (paid 26 November 2021): 0.8p	-	-	960
Third Interim dividend for 2022 (paid 28 February 2022): 0.8p	-	-	960
Total income	1,920	1,920	3,840

Where there has been no revenue available for distribution by way of dividend for the year, dividends have been paid from contributed surplus which is permitted by Bermudan company law.

Note: The second interim dividend payable for the period ended 31 March 2023 was announced on 11 October 2022. The payment totalling 0.8p per share (£0.96m) was paid on 25 November 2022.

4  Return per shares

The returns stated below are based on 120,000,000 shares, being the weighted average number of shares in issue during the period.

	Revenue		Capital		Total
	£000	Pence per share	£000	Pence per share	£000	Pence per share
Six months ended 30 September 2022 (Unaudited)	3,937	3.3p	(30,174)	(25.2p)	(26,237)	(21.9p)
Six months ended 30 September 2021 (Unaudited)	2,976	2.5p	29,478	24.5p	32,454	27.0p
Year ended 31 March 2022 (Audited)	1,667	1.4p	17,145	14.3p	18,812	15.7p

5  Financial information

The financial information for the six months ended 30 September 2022 was approved by a committee of the Board of Directors on
1 December 2022.

6  Net asset value per share

The NAV per share is based on the net assets attributable to equity shareholders of £354,705,000 (30 September 2021: £398,424,000; 31 March 2022 £382,862,000) and on 120,000,000 shares being the number of shares in issue at the period ends.

7  Commitments and contingencies

The Company has no outstanding commitments as at 30 September 2022 (30 September 2021: £nil; 31 March 2022: £nil).

8  Principal risks and uncertainties

The principal financial and related risks faced by the Company fall into the following broad categories - External and Internal. External risks to shareholders and to their returns are those that can severely influence the investment environment within which the Company operates: including government policies, taxation, economic recession, declining corporate profitability, rising inflation and interest rates and excessive stock market speculation. Internal and operational risks to shareholders and to their returns are: portfolio (stock and sector selection and concentration), balance sheet (gearing) and/or administrative mismanagement.

A review of the current period and the outlook for the Company can be found in the Chairman's Report and in the Portfolio Manager's Review.

Information on each of these areas is given in the Strategic Report within the Annual Report for the year ended 31 March 2022. In the view of the Board these principal risks and uncertainties are applicable to the remaining six months of the financial year as they were to the six months under review.

9  Fair value hierarchy

IFRS 13 'Fair Value Measurement' requires an entity to classify fair value measurements, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3: inputs for the asset or liability not based on observable market data (unobservable inputs).

The financial assets and liabilities measured at fair value in the Balance Sheet are grouped into the fair value hierarchy, as detailed below:

30 September 2022 (unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	138,909	-	-	138,909
Unquoted equities	-	2,122	9,555	11,677
Fund investments	36,799	156,133	-	192,932
Fair Value	175,708	158,255	9,555	343,518

30 September 2021 (unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	144,579	-	-	144,579
Unquoted equities	-	-	8,870	8,870
Fund investments	14,537	224,391	-	238,928
Fair Value	159,116	224,391	8,870	392,377

31 March 2022 (audited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	136,771	-	-	136,771
Unquoted equities	-	-	8,917	8,917
Fund investments	27,328	206,970	-	234,298
Fair Value	164,099	206,970	8,917	379,986

There have been no transfers during the period between levels.

The Company's policy is to recognise transfers into and out of the different fair value hierarchy levels at the date of the event or change in circumstances that caused the transfer to occur.

A reconciliation of fair value measurements in Level 3 is set out in the following table:

	(Unaudited) 30 September 2022 equity investments £000	(Unaudited) 30 September 2021 equity investments £000	(Audited) 31 March 2022 equity investments £000
Opening Balance	8,917	11,234	11,234
Liquidation of Hansa Trust Ltd*	-	(3,179)	(3,179)
Capital Distribution	-	-	(648)
Total Gains included in gains on investments in the Income Statement:
on assets held at period end	638	815	1,510
Closing Balance	9,555	8,870	8,917

*The Intercompany loan was repaid as part of the Strike-Off process. In the prior year-end the remaining value of Hansa Trust Ltd was transferred to HICL via a capital reduction process.

As at 30 September 2022, the investment in DV4 Ltd has been classified as Level 3. The investments in DV4 has been valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2022. The most recent valuation statement was received on 16 September 2022, with an estimated NAV based on the unaudited capital statement of DV4 as at 31 March 2022. If the value of the unquoted Level 3 equity investments were to increase or decrease by 10%, while all other variables had remained constant, the return and net assets attributable to shareholders for the period ended 30 September 2022 would have increased or decreased by £956,000 respectively.

Investor Information

Company information

The Company currently manages its affairs so as to be a qualifying investment company for ISA purposes, for both the Ordinary and 'A' non-voting Ordinary shares. It is the present intention that the Company will conduct its affairs so as to continue to qualify for ISA products. In addition, the Company currently conducts its affairs so shares issued by Hansa Investment Company Limited can be recommended by independent financial advisers to ordinary retail investors, in accordance with the Financial Conduct Authority's ("FCA") rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products, because they are excluded securities as defined in the FCA Handbook Glossary. Finally, Hansa Investment Company Limited is registered as a Reporting Financial Institution with the US IRS for FATCA purposes.

Capital structure

The Company has 40,000,000 Ordinary shares of 1p each and 80,000,000 'A' non-voting Ordinary shares of 1p each in issue. The Ordinary shareholders are entitled to one vote per Ordinary share held. The 'A' non-voting Ordinary shares do not entitle the holders to vote or receive notice of meetings, but in all other respects they have the same rights as the Company's Ordinary shares.

Secretary and registered office

Conyers Corporate Services (Bermuda) Limited

Clarendon House

2 Church Street PO Box HM666

Hamilton HM CX Bermuda

BOARD OF DIRECTORS

Jonathan Davie (Chairman)

Simona Heidempergher

Richard Lightowler

William Salomon

Nadya Wells

Investor disclosure

AIFMD

Hansa Investment Company Limited's AIFMD Investor Disclosure document can be found on its website. The document is a regulatory requirement and summarises key features of the Company for investors.

Packaged Retail and Insurance ‑ based Investment Products ("PRIIPs")

The Company's AIFM, Hanseatic Asset Management LBG, is responsible for applying the product governance rules defined under the MiFID II legislation on behalf of Hansa Investment Company Limited. Therefore, the AIFM is deemed to be the 'Manufacturer' of Hansa Investment Company's two share classes. Under MiFID II, the Manufacturer must make available Key Information Documents ("KIDs") for investors to review if they so wish ahead of any purchase of the Company's shares.

Links to these documents can be found on the Company's website: www.hansaicl.com.

Service providers

Independent Auditor

PricewaterhouseCoopers LTD

Solicitors - Bermuda

Conyers Dill & Pearman Limited

Solicitors - UK

Dentons UK and Middle East LLP

Custodian

Banque Lombard Odier & Cie SA

Stockbroker

Winterflood Investment Trusts

Administrator

Maitland Administration Services Limited

Alternative Investment Fund Manager

Hanseatic Asset Management LBG

Financial calendar

Company year end

31 March

Annual Report sent to shareholders

June

Annual General Meeting

July/August

Announcement of half-year results

November

Half-year Report sent to shareholders

December

Interim dividend payments

August, November, February and May

Share price listings

The price of your shares can be found on our website. In addition, share price information for Ordinary shares / 'A' non-voting Ordinary shares can be found via the following codes:

ISIN

BMG428941162 / BMG428941089

SEDOL

BKLFC18 / BKLFC07

Reuters

HAN.L / HANA.L

Bloomberg

HAN LN / HANA LN

TIDM

HAN / HANA

Legal Entity Identifier

213800RS2PWJXS2QDF66

Further information about Hansa Investment Company Limited, including monthly fact sheets, stock exchange announcements and shareholder presentations, can be found on the Company's website: www.hansaicl.com

Please contact the Portfolio Manager, as below, if you have any queries concerning the Company's investments or performance.

Portfolio Manager and additional administrative services provider

Hansa Capital Partners LLP

50 Curzon Street

London W1J 7UW

Telephone: [phone]

Email: [e-mail]

Website: www.hansagrp.com

Please contact the Registrars, as below, if you have a query about a certificated holding in the Company's shares.

Registrar

Link Market Services (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey

GY2 4LH

Email: [e-mail]

www.linkassetservices.com

If you do not have internet access you can call the Shareholder Support Centre on [phone]. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate.

The Registrars are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales.

Register for updates

To receive the latest news and views on the Company, please register at https://www.hansaicl.com

Glossary of Terms

Association of Investment Companies ("AIC")

The Association of Investment Companies is the UK trade association for closed-ended investment companies (www.theaic.co.uk). Despite the Company not being UK domiciled, the Company is UK listed and operates in most ways in a similar manner to a UK Investment Trust. Therefore, the Company follows the AIC Code of Corporate Governance and the Board considers that the AIC's guidance on issues facing the industry remains very relevant to the operations of the Company.

Alternative Investment Fund Managers Directive
("AIFMD")

The AIFMD is a regulatory framework for alternative investment fund managers ("AIFMs"), including managers of hedge funds, private equity firms and investment trusts. Its scope is broad and, with a few exceptions, covers the management, administration and marketing of alternative investment funds ("AIFs"). Its focus is on regulating the AIFM rather than the AIFs.

Annual Dividend / Dividend

The amount paid by the Company to shareholders in dividends (cash or otherwise) relating to a specific financial year of the Company. The Company's dividend policy is to announce its expected level of dividend payment at the start of each financial year. Barring unforeseen circumstances, the Company then expects to make four interim dividend payments each year - at the end of August, November and February during that financial year and at the end of May following the end of the financial year.

Bid Price

The price at which you can sell shares determined by supply
and demand.

Capital Structure

The stocks and shares that make up a company's capital i.e. the amount of ordinary and preference shares, debentures and unsecured loan stock etc. which are in issue.

Closed ‑ ended

A company with a fixed number of shares in issue.

Depositary/Custodian

A financial institution acting as a holder of securities for safekeeping.

Discount

When the share price is lower than the NAV, it is referred to as trading at a discount. The discount is expressed as a percentage of the NAV.

Expense Ratio

An expense ratio is determined through an annual calculation, where the operating expenses are divided by the average NAV. Note there is also a description of an additional PRIIPs KID Ongoing Charges Ratio explained in the 31 March 2022
Annual Report.

Five Year Rolling NAV Return (per annum)

The rate at which, compounded for five years, will equal the five year NAV total return to end March, assuming dividends are always reinvested at pay date.

Five Year NAV and Share Price Total Return

Rebased from 0% at the start of the five year period, this is the rate at which the Company's NAV and share prices would have returned at any period from that starting point, assuming dividends are always reinvested at pay date. The Company will continue to quote results from its predecessor, Hansa Trust Ltd,

as part of that reporting so shareholders can see the longer-term performance of the portfolio.

Gearing

Gearing refers to the level of borrowing related to equity capital.

Hedging

Strategy used to reduce risk of loss from movements in interest rates, equity markets, share prices or currency rates.

Issued Share Capital

Issued share capital is the total number of shares subscribed to by the shareholders.

Key Information Document ("KID")

This is a document of a form stipulated under the PRIIPs Regulations. It provides basic, pre-contractual, information about the Company and its share classes in a simple and accessible manner. It is not marketing material. The UK regulatory authorities have introduced legislation from 1 January 2023 to amend some of the disclosures in the KID for UK shareholders. The Company's AIFM will be producing both UK KIDs and European KIDs going forward.

Key Performance Indicators ("KPIs")

A set of quantifiable measures a company uses to gauge its performance over time. These metrics are used to determine a company's progress in achieving its strategic and operational goals and also to compare a company's finances and performance against other businesses within its industry. In the case of historic information, the KPIs will be compared against data of both the Company and, prior to the Company's formation, from Hansa Trust Ltd.

Market Capitalisation

The market value of a company's shares in issue. This figure is found by taking the stock price and multiplying it by the total number of shares outstanding.

Mid Price

The average of the Bid and Offer Prices of a particular
traded share.

Net Asset Value ("NAV")

The value of the total assets minus liabilities of a company.

Net Asset Value Total Return

See Total Return.

Offer Price

The price at which you can buy shares determined by supply
and demand.

Ordinary Shares

Shares representing equity ownership in a company allowing investors to receive dividends. Ordinary shareholders have the pro-rata right to a company's residual profits. In other words, they are entitled to receive dividends if any are available after payments to financial lenders and dividends on any preferred shares are paid. They are also entitled to their share of the residual economic value of the company should the business unwind.

Hansa Investment Company Limited has two classes of Ordinary shares - the Ordinary shares (40 million shares) and the 'A' non-voting Ordinary shares (80 million shares). Both have the same financial interest in the underlying assets of the Company and receive the same dividend per share, but differ only in that only the former shares have voting rights, whereas the latter do not. They trade separately on the London Stock Exchange, nominally giving rise to different share prices at any given time.

Premium

When the share price is higher than the NAV it is referred to as trading at a premium. The premium is expressed as a percentage of the NAV.

Packaged Retail and Insurance ‑ based Investment Product ("PRIIP")

Packaged retail investment and insurance-based products ("PRIIPs") make up a broad category of financial assets that are regularly provided to consumers in the European Union. The term PRIIPs, created by the European Commission to regulate the underlying market, is defined as any product manufactured by the financial services industry, to provide investment opportunities to retail investors, where the amount repayable is subject to fluctuation because of exposure to reference values, or the performance of underlying assets not directly purchased by the retail investor. See also Key Information Document ("KID").

Shareholders' Funds/Equity Shareholders' Funds

This value equates to the NAV of the Company. See NAV.

Spread

The difference between the Bid and Ask price.

Tradable Instrument Display Mnemonics ("TIDM")

A short, unique code used to identify UK-listed shares. The TIDM code is unique to each class of share and to each company. It allows the user to ensure they are referring to the right share. Previously known as EPIC.

Total Return

When measuring performance, the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realised over a given period of time.

Total Return - Shareholder

The Total Return to a shareholder is a measure of the performance of the company's share price over time. It combines share price appreciation/depreciation and dividends paid to show the total return to the shareholder expressed as an annualised percentage. In the case of historic information, the Total Return will include data against data of both the Company and, prior to the Company's formation, from Hansa Trust Ltd.

 

END

 

 

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