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Hansa Investment Co (HAN)

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Wednesday 24 June, 2020

Hansa Investment Co

Period End Report

RNS Number : 9835Q
Hansa Investment Company Limited
24 June 2020
 

Hansa , investing to create long-term growth

Period End Report

For the Period Ended

31 March 2020



Welcome

I'm pleased to present the first Period-End Report for Hansa Investment Company Ltd ("the Company", "HICL") to the shareholders.

2019 and the start of 2020 have been extremely busy. HICL was incorporated in Bermuda and was listed in the London Stock Exchange on the 29 August 2019, following the transfer of business from Hansa Trust PLC ("Hansa Trust"). Latterly, and as I write this to you, we find ourselves in unprecedented times with the world in a struggle against a virus that has claimed the lives of hundreds of thousands of people globally and rocked economies and financial systems to their cores.

Despite the corporate changes during the year, the Investment Policy and underlying portfolio remained largely unchanged and continued to be managed by our Portfolio Manager, Hansa Capital Partners LLP ("HCP"). Alec Letchfield understandably has focused his piece on the impact the virus has had on markets and on our portfolio, as well as considering where events might go from here. You can read his update later in this Report.

Our Interim Report in September 2019 included a good deal of information on the Scheme of Redomiciliation. This Period-End Report will repeat elements of that information for those readers who might have missed it.

You will also note some administrative changes: as part of the Scheme of Redomiciliation, our new Company issued five shares for every one Hansa Trust share. This has led to changes in the quoted NAV per share, market share price of each class of share and dividends per share when they are announced. The Company also pays quarterly dividends rather than semi-annual. As a newly formed company, HICL has no historical performance. To give shareholders a more meaningful representation of the performance of the portfolio since 1 April 2019, we have also included a non-statutory, pro-forma unaudited set of Financial Statements incorporating the performance of Hansa Trust as relevant, as well as the required statutory Financial Statements since HICL's inception. I would encourage you to look at both the statutory Financial Statements as well as the non-statutory, pro-forma, Financial Statements included in this Report. Together they paint a more meaningful picture of performance for the year and also comparable historical information. Our Board has also undergone a change with three new Directors. Biographies of our Directors can be found on the Company's website (www.hansaicl.com) and within this Report.

I wish you and your families well during these challenging times.

Yours sincerely

 

THIS DOCUMENT IS IMPORTANT and if you are a holder of Ordinary shares it requires your immediate attention. If you are in doubt as to the action you should take or the contents of this document, you should seek advice from an independent financial advisor, authorised if in the UK under the Financial Services and Markets Act 2000, or other appropriately authorised financial advisor if outside of the UK. If you have sold or transferred your Ordinary shares in the Company, you should send this document, immediately to the purchaser or transferee; or to the stockbroker, bank or other agent through whom the sale or transfer was effected for onward transmission as soon as practicable.

COMPANY REGISTRATION AND NUMBER: The Company is registered in Bermuda under company number 54752.



 

Chairman's Report to the Shareholders

JONATHAN DAVIE

Chairman

Introduction

This is my first Period-End Report to shareholders since becoming Chairman of Hansa Investment Company Ltd ("the Company", "HICL") on 29 August 2019 and it comes at a very challenging time for all of us, due to the Coronavirus pandemic. I am pleased to be able to say all your Directors and the many people who support the Company with various services are presently fit and well.

You will hopefully all be aware that the business successfully redomiciled to Bermuda in August 2019, following the substantial vote in favour of our proposals in July 2019 which culminated in the formation of HICL. That said, the Investment Objective, Policy and Strategy, as well as the key service providers, most notably our Portfolio Manager, remain unchanged. The Company continues to seek to achieve its investment objective of growing the Company over the medium to long-term by primarily investing in third-party funds and global equities.

As a result of the redomicile and formation of a new Company; when past performance of the business is referenced, the Board considers the performance of the Company to be combined with the relevant history from its predecessor, Hansa Trust. As such, this, and future Reports, will reference the combined performance of, and comparisons between, Hansa Trust & HICL and portfolio performances, with notes, where relevant, explaining how the data has been derived. Pro-forma financial information is provided in the Financial Statements at the back of this document to reflect this combined and historical performance.

Shareholder Returns

The past six months since the Interim Report has shown a decline in the Net Asset Value ("NAV") of 48.3p per share, from 278.5p per share to 230.2p per share as at 31 March 2020. Similarly, over the past 12 months since 1 April 2019, NAV has declined 50.9p per share from 281.1p per share. During the past six months, the discount has increased from 32.0% to 43.1% for the Ordinary shares and from 32.8% to 41.2% for the "A" Ordinary shares over the same period. This compares with an increase in the discount from 30.5% to 43.1% for the Ordinary share and from 30.6% to 41.2% for the "A" Ordinary shares over the 12 month period.

There have been two drivers to the fall in NAV. Firstly, Ocean Wilson Holdings Ltd ("OWHL") and, secondly, Covid-19. The fall in the NAV for the 12 months to 31 March 2020 was 16.9% (Total Return), principally caused by the 42.1% fall in the price of OWHL which reflected the fall in the Wilson Sons share price from R$37.1 to R$28.4 over the 12 month period, combined with a 25% fall in the value of the Real against the US Dollar. The NAV decline of 7.4% in the portfolio ex Ocean Wilson is similar to the fall of 7.0% in the MSCI All Country World Index (GBP).

This is a disappointing result for the period. Many investment companies with a March year-end will be reporting results heavily impacted by Covid-19. I am pleased to say our NAV has recovered by 13.3% (Total Return) as at the date of 19 June 2020 and the Directors continue to see long-term value in OWHL. Indeed, some of your Directors have increased their holdings in your Company in the past six months. I bought a further 25,000 Ordinary share and 100,000 "A" Ordinary shares in the period and William Salomon also added 380,000 Ordinary shares and 20,000 "A" Ordinary shares. Simona Heidempergher has also made an initial investment of 6,400 "A" Ordinary shares.

Prospects

I mentioned in my Interim Report the perverse effects that Quantitative Easing ("QE") had had on investment decisions and the deferment of recessionary forces. Well, the Coronavirus pandemic has certainly brought QE back into the forefront of the battle, to reduce the number of businesses going under during the lockdown and ensure that citizens still have access to some income and the ability to feed their families. The timing of the end of this pandemic is impossible to predict, hence making it particularly challenging for making investment decisions. As Yogi Berra once said "it ain't over till it's over''! However, it is already clear the only possible end to the present unsustainable situation will be when a suitable vaccine is discovered and a significant majority of the population has been inoculated. It is of course possible the pandemic will evaporate when "herding'' has succeeded in infecting about 60% of the population with the virus, or the lockdown has succeeded in banishing it. History tells us that without a suitable vaccine it will revisit us at least once more, probably during the winter months. It is also disappointing to see a "beggar thy neighbour'' attitude and lack of a coordinated international effort by governments to meet the challenge head on. I am also fearful in particular of how the relationship between China and the West develops as we come out of this crisis. The National People's Congress declaration of new security plans for Hong Kong in defiance of the 1997 "One Country Two Systems'' agreement with the UK does not bode well for the future.

This, combined with an inevitable decline in global trade, the still to be felt effects of Brexit, the sharp decline in the oil price, the possibility of more countries adopting negative interest rates, the uncertainty of the direction of inflation or deflation and the spectre of climate change hovering over us all makes this a very challenging time for investment managers.

Choppy waters remain but the Board is confident that our Manager can navigate these and work towards achieving our investment objectives. Indeed, since the 31 March the fund is up 12.9% to £312.0m as at 19 June 2020, having also paid out a £960k dividend in May 2020.

Changes to the Board

In my first statement to you in the Interim Report, I noted that a number of corporate changes had occurred. Given this is the first Period-End of the Company, I should like to repeat elements of that Statement and start by thanking my fellow Directors at Hansa Trust for their years of dedicated service to the company. Their wisdom and insights brought much value to all shareholders. I should also like to take this opportunity to thank Mr Teideman, who has retired having been a consultant to Hansa Trust. Mr Teideman was also a director of Hansa Trust for 12 years between 1991 and 2003 and then, more recently, a consultant to the audit committee.

I should like to welcome and introduce our new Directors:

Richard Lightowler, who is a resident of Bermuda and a retired KPMG Partner, is taking over from me as Chairman of the Audit Committee. He has extensive experience in risk and corporate governance and significant transaction experience including redomiciliations.

Simona Heidempergher, who has extensive experience as an executive and non-executive director in a range of companies, including listed companies, investment funds and research organisations, across multiple jurisdictions. Simona is a director of, among other entities, TR European Growth Trust and Henderson Asset Management Investment Trust - both listed on the London Stock Exchange.

Nadya Wells has 25 years' experience in emerging and frontier markets as a long-term investor and corporate governance specialist. She spent 13 years as portfolio manager with the Capital Group, investing in Global Emerging Markets and prior to that five years with INVESCO Asset Management Limited investing in public and private equity managing a closed ended fund.

The Directors have overall responsibility for and oversight of the Company's activities. The Directors are responsible for determining its investment objective, policy and strategy, reviewing the investment activity and performance and the control and supervision of the Portfolio Manager.

The biographies of the Directors can be found later on in the report as well as on the Company's website.

SCHEME OF REDOMICILIATION

I include below a brief summary of the project.

In 2018 the board of Hansa Trust began to formally consider redomiciling to an alternative jurisdiction, as a result of increasing concerns over the political climate in the UK and the instability and uncertainty this created for Hansa Trust. Hansa Trust's globally diversified assets, very few of which were UK-based, enabled the opportunity to redomicile without significantly impacting the existing structure or anticipated performance of the business as a whole.

After due consideration of a number of potential jurisdictions, Bermuda was deemed by the Hansa Trust board as the most appropriate jurisdiction, in order to mirror the existing investment strategy, portfolio and capital structure, without any material impact on returns. A proposal to this effect ("the Scheme") was duly put to shareholders by the board of Hansa Trust on 29 July 2019 and was passed by shareholders of both share classes, who voted in significant numbers and overwhelmingly in favour of the Scheme.

The Scheme was sanctioned by the Court on 27 August 2019. Following this, Hansa Trust successfully redomiciled its business to Bermuda pursuant to the Scheme as of 29 August 2019, whereupon shareholders in Hansa Trust became shareholders in Hansa Investment Company Limited, a new Bermudan registered company.

On 29 August 2019, pursuant to the Scheme, the issued share capital of Hansa Trust was de-listed and cancelled. New shares were re-issued by the Company at that time and, on 29 August 2019, 40,000,000 Ordinary shares of one pence each ("Ordinary shares") were admitted to listing on the premium segment of the Official List and 80,000,000 'A' Ordinary shares of one pence each (" 'A' Ordinary shares") were admitted to listing on the standard segment of the Official List and in respect of each class, were admitted to trading on the Main Market of the London Stock Exchange.

Ordinary Shareholders and 'A' Ordinary Shareholders in Hansa Trust at close of business on 28 August 2019 will have received five Ordinary shares or 'A' Ordinary shares respectively in Hansa Investment Company Limited in exchange for each existing share held.

For more information please see the Company's prospectus https://www.hansaicl.com/~/media/Files/H/Hansa-Investment-Company-Limited/documents/hansa-investment-company-ltd-prospectus.pdf

Following 29 August 2019, all day-to-day business operations of Hansa Trust terminated and all ongoing operations are within HICL. Many of the service providers that worked for Hansa Trust have been retained by the Company although there have been some changes. The current key suppliers are summarised later in the report.

The Board has estimated the total cost of the project to research and deliver the redomiciliation of the business to be c £2.1m (equivalent to 17.8 p per share or 0.78% of 31 March 2020 NAV). This cost has been incurred over two financial years - initially by Hansa Trust during its 2018/19 financial year followed by Hansa Trust and HICL during the financial year 2019/20.

Environmental, social and Corporate Governance ("ESG") Matters

ESG considerations will play an increasingly important part in the decision making processes of funds and their Managers the world over.

As a Board, we have asked our Manager to review their ESG processes and report back in due course. We are of the view that good returns and well run sustainable business models will go hand in hand.

Further, we are cognisant that, as part of the redomicile of the business to Bermuda, and in a normal, non-Covid-19, year there will be a substantial increase in Director travel to attend Board meetings in Bermuda. Therefore, as a matter of policy, the Board has elected to offset the carbon impact specifically of travel on behalf of the business. This is detailed more fully in the Organisation and Objectives section of the report.

Company Auditor

As previously announced, the Board of the Company have appointed PricewaterhouseCoopers Ltd of Bermuda ("PwC") to audit the Company.

On behalf of the Board, I extend our well wishes to you, our shareholders, and your families during these unprecedented times.

Jonathan Davie
Chairman
24 June 2020

I would draw shareholders' attention to the Glossary of Terms which can be found at the end of this Period-End Report. I hope it is helpful in understanding a business, ever more complicated by regulation and jargon.



 

The Board of Directors

The Directors who served the Company during the period to 31 March 2020 are:

Jonathan Davie

(Chairman)

Jonathan became a Director and Chairman of the Company in June 2019. He remains a Director of Hansa Trust PLC whilst it is run down, joining that board in January 2013. He is also a partner of First Avenue Partners, an alternatives advisory boutique.

Jonathan qualified as a Chartered Accountant and then joined George M. Hill and Co. and became an authorised dealer on the London Stock Exchange. The firm was acquired by Wedd Durlacher Mordaunt and Co. where Jonathan became a partner in 1975. He was the senior dealing partner of the firm on acquisition by Barclays Bank to form BZW in 1986.

Jonathan developed BZW's Fixed Income business prior to becoming chief executive of the Global Equities Business in 1991. In 1996 he became deputy chairman of BZW and then vice chairman of Credit Suisse First Boston in 1998 on their acquisition of most of BZW's businesses. He focused on the development of Credit Suisse's Middle Eastern business. He retired from Credit Suisse in February 2007.


Meetings attended

Total Period Meetings

Strategic

1

1

Board

2

2

Audit Committee

1

1

 

Richard Lightowler

(Audit Committee Chairman)

Richard became a Director of the Company in June 2019. Richard has 25 years' experience in public accounting and recently retired as partner of KPMG in Bermuda after 19 years in that role. He was head of the KPMG Insurance Group in Bermuda for 14 years, a member of the firm's Global Insurance Leadership Team and Global Lead Partner for large international insurance groups listed on the New York and London Stock Exchanges.

Richard has significant regulatory experience, advising the Bermuda Monetary Authority and working with clients regulated by the PRA, FRC and FCA as well as other international regulators. He has a continuing role advising the Bermuda Monetary Authority on regulatory matters. He also has extensive experience in risk and corporate governance and significant transaction experience including redomiciliations. Richard is based in Bermuda. Richard also holds directorships with Geneva Re and Oakley Capital.


Meetings attended

Total Period Meetings

Strategic

1

1

Board

2

2

Audit Committee

1

1

 

Simona Heidempergher

 

Simona became a Director of the Company in June 2019. Simona has extensive experience as an executive and non-executive director in a range of companies, including listed companies, investment funds and research organisations, across multiple jurisdictions.

For the past 17 years, she has been director of Merifin Capital, an established European privately owned investment company. Prior to this she had roles as a research associate at Heidrick & Struggles, a leading executive-level search and leadership consultancy firm and as project coordinator at Ambrosetti Group, an Italian consulting company. Currently, Simona is the lead independent non-executive director of Aquafil SpA where she is Chairman of the audit and risk committee and a member of the remuneration committee. Alongside this, Simona is a member of the Board of Directors of the Stramongate Group, a Luxembourg public company, TR European Growth Trust, a Henderson Asset Management Investment Trust listed on the London Stock Exchange and FBK Fondazione Bruno Kessler, a research organisation.


Meetings attended

Total Period Meetings

Strategic

1

1

Board

2

2

Audit Committee

1

1

 

William Salomon

 

William became a Director of the Company in June 2019. He remains a Director of Hansa Trust PLC whilst it is run down, joining that board in 1999 and has a significant, long standing, investment in the Company.

William's experience in investments and finance is important to the Board in developing and monitoring investments in special investment themes and in the Company's strategic investment through Ocean Wilsons Holdings Limited in Wilson Sons.

William is the senior partner of Hansa Capital Partners LLP ("Hansa Capital Partners"), the Portfolio Manager and Additional Administrative Services Provider, deputy chairman of Ocean Wilsons Holdings Limited and its listed subsidiary Wilson Sons Limited. He is also a shareholder representative on the investment advisory committee for DV4 Ltd ("DV4") and Chairman of ScotGems PLC investment trust. William was formerly the vice chairman of Close Asset Management Limited and chairman of the merchant bank Rea Brothers PLC.


Meetings attended

Total Period Meetings

Strategic

1

1

Board

2

2

Audit Committee

1

1

 

Nadya Wells

 


Meetings attended

Total Period Meetings

Strategic

1

1

Board

2

2

Audit Committee

1

1

 

Note:

1)  On incorporation on 21 June 2019, the Company was set up with two initial Directors, Dawn Griffiths and Christopher Garrod. Both served from incorporation until 26 June 2019 when, at the Company's first Board meeting, the current Board members were appointed.

2) As part of the incorporation of the Company, a number of set-up meetings occurred involving, at different times during the process, the initial Directors, or combinations of one or more of the current Directors. These meetings have not been listed above as they are not recurring operational meetings.

3) Dividend policy is set by the Board as a whole. At the time of announcement of a quarterly dividend, if such announcement did not coincide with a scheduled meeting of the Board, a committee of the Board meets to consider the financial information required before such an announcement can be officially released. These meetings are not listed above..

 



 

The Board

Board members are selected based on their individual and complementary skills and experience and their ability to commit sufficient time to drive the Company's success. All Directors will retire at each AGM and offer themselves for consideration for reelection. The Board recommends the reappointment of each of the Directors, based on their continuing contribution to the Company and its shareholders.

The Board is charged by the shareholders with the responsibility for looking after the affairs of the Company. It involves the stewardship of the Company's assets and liabilities and the pursuit of growth of shareholder value in accordance with the investment objective. These responsibilities are discharged in many ways and are explained below.

INVESTMENT OBJECTIVE AND POLICY, STRATEGY

The Company objective is to grow the net assets of the Company over the medium to long-term by investing in a diversified and multi-strategy portfolio.

The Company will seek to achieve its investment objective by investing in third-party funds, global equities and other international financial securities. The Company may invest in quoted and unquoted securities. The Company's portfolio will typically comprise at least 30 investments.

The Company holds a strategic position in the share capital of OWHL which represents the Company's largest holding. The Company will not make further investments into OWHL.

The Company has no set maximum or minimum exposures to any asset class, geography or sector and will seek to achieve an appropriate spread of risk by investing in a diversified global portfolio of securities and other assets.

INVESTMENT STRATEGY

The Portfolio Manager, engaged by and acting on behalf of the Company, seeks to build a multi-strategy portfolio by seeking investments across four key investment categories, in addition to its strategic investment in OWHL:

Core - investments, typically through third-party funds, that the Company can expect to hold throughout the economic cycle;

Thematic - investments, typically through third-party funds, that reflect key investment themes which the Portfolio Manager believes will generate excess returns;

Diversifying Assets - investments, typically through thirdparty funds and directly, that creates asset diversification within the portfolio; and

Global Equities - a diversified portfolio of global equities identified by the Portfolio Manager as having long term growth potential.

While the proportion of the portfolio represented by each of these categories will vary over time, the Board establishes parameters for the Portfolio Manager based on its view of the global investment markets. At the Period-End, the Board had set the following guidelines for each category as a percentage of the portfolio (including the strategic investment in OWHL):

Core: 0-45%

Thematic: 0-25%

Diversifying Assets: 0-40%

Global Equities: 0-40%

Following the Period-End, at its May meeting, the Board increased the upper limit of the Core silo to 50%. All other limits remain unchanged.

The Portfolio Manager has a strong focus on seeking undervalued investments and those not readily available to the general public. The Company's size and flexible structure also enables it to invest in unconventional investments, which often cannot be accommodated by more traditional, larger fund managers, typically less flexible in their approach. These investments range from those sectors benefiting from structurally higher growth, such as technology, to assets which the Company believes stand on unwarranted discounts to their intrinsic value, including other listed investments companies..

Investment Monitoring AND KEY PERFORMANCE INDICATORS

The Company believes this investment strategy may produce returns not replicated by movements in any market index. Furthermore, the Board considers that the use of a single benchmark will not always offer Shareholders the relevance and the clarity needed with regard to the performance of the Company.

The Board's primary goal is for the Company to generate returns for Shareholders and so will compare the Company's performance against that of a safe return from an appropriate Government bond - for this the Board has elected to follow the FTSE Gilts All Stocks TR Index (Bloomberg: FTFIBGT). The Board's second goal is for the Company to achieve returns that are higher than inflation and use the UK's CPI (Bloomberg: UKRPCHVJ) as the KPI for comparison. Finally, the Board compares the Company's returns with those of its: (i) peer group; and (ii) an appropriate index - for which the Board has elected to follow the performance in GBP of the MSCI All Country World Index excluding Frontier Markets (Bloomberg: NDUEACWF).

POLICY ON BOARD COMPOSITION

Appointments to the Board are made on merit and against objective criteria, in accordance with the AIC Corporate Governance Code. The Board considers it is of paramount importance to shareholders that, after consideration of the skills and experience needed by the Board, candidates are chosen on the basis of merit only and that there should be no discrimination in the choice of Directors for any reason.

Long Term Performance

TEN YEAR COMPANY PERFORMANCE STATISTICS

Year ended 31 March 

Shareholders' Funds

Net Asset Value per share - Ordinary and 'A' Ordinary

Annual
Dividends

Ordinary

 

'A' Ordinary

Ordinary

 

'A' Ordinary

2020

£276.3m

230.2p

3.2p

130.9p

135.5p

43.1%

41.2%

2019

£337.3m

281.1p

3.2p

195.5p

195.0p

30.5%

30.6%

2018

£323.1m

269.3p

3.2p

198.5p

195.5p

26.3%

27.4%

2017

£307.5m

256.3p

3.2p

173.3p

169.6p

32.4%

33.8%

2016

£255.6m

213.0p

3.2p

146.0p

145.1p

31.5%

31.9%

2015

£273.3m

227.8p

3.2p

172.0p

165.5p

24.5%

27.3%

2014

£287.4m

239.5p

3.2p

175.9p

175.5p

26.6%

26.7%

2013

£259.9m

216.6p

3.0p

166.8p

163.0p

23.0%

24.7%

2012

£268.2m

223.5p

2.8p

181.0p

178.3p

19.0%

20.2%

2011

£264.1m

220.1p

0.7p

194.2p

190.5p

11.8%

13.5%

2010

£215.0m

179.2p

5.0p

151.0p

147.0p

15.7%

18.0%

 

The table includes information relating to HICL and historic information relating to Hansa Trust PLC. The year ended 31 March 2020 notes HICL information. The historic year ends 2019-2010 all relate to Hansa Trust PLC. So that data is consistent and comparable, the historic data in columns "Net Asset Value per Share", "Annual Dividends" and "Share Price (Bid)" have been restated to reflect that there are five times as many shares in issue in each share class of HICL as there were in Hansa Trust PLC.

 

To 31 March 2020 

1 year

3 years

5 years

10 years

Share Price Total Return





 Ordinary shares (%)

(31.6)%

(20.3)%

(16.5)%

1.7%


'A' nonvoting Ordinary shares (%)

(29.0)%

(15.6)%

(10.0)%

8.5%

 

To 31 March 2020 

1 year

3 years

5 years

10 years

Net Asset Value Total Return Performance

 Net Asset Value (%)

(16.9)%

(6.7)%

8.0%

44.5%

 



 

Organisation and Objectives

This section explains how the Board has organised the Company and seeks to deliver its objectives.

BOARD COMMITTEES

The Directors consider that, in order to fulfil their responsibilities as the Directors of the Company, they should all be members of every sub-committee where possible.

Audit Committee

The Audit Committee, which meets at least twice a year, consists of all independent Directors of the Board. Richard Lightowler is the Chairman of the Audit Committee.

The AIC Code of Corporate Governance ("the AIC Code") indicates that all independent Directors can be members of the Audit Committee. The Board is of the opinion that, particularly as the Company has relatively few directors, shareholders benefit from the views of all Directors. Therefore, Jonathan Davie, as Chairman of the Company, is also a member of this Committee. The Board further acknowledges that the Code states all Committee members should be independent. Therefore, William Salomon is not a member of the Committee.

Nomination Committee

The independent members of the Board fulfil the function of the Nomination Committee. The Committee is chaired by Nadya Wells. Appointments are made on merit and against objective criteria in accordance with the AIC Code. The Board considers it is of paramount importance to shareholders that, after consideration of the skills and experience needed by the Board, candidates are chosen on the basis of merit only and that there should be no discrimination in the choice of directors for any reason. The Board has determined that all Directors will retire and offer themselves for re-election each year at the AGM and this policy includes any Directors appointed during the year.

Management Engagement Committee

The independent members of the Board fulfil the function of the Management Engagement Committee. The Committee is chaired by Jonathan Davie. The level of management fees, level of service provided and the performance of the Portfolio Manager are reviewed on a regular basis to ensure these remain competitive and in the best interests of shareholders. The Board, after the annual recommendation of this Committee, considers the engagement of the Portfolio Manager to be in the best interests of the shareholders.

Remuneration Committee

The independent members of the Board fulfil the function of the Remuneration Committee. The Committee is chaired by Simona Heidempergher. The level of Directors' fees is monitored annually and will be formally reviewed every three years, in the light of their duties and also relative to other comparable companies.

Requirements of s172 UK Companies Act

In line with disclosures of its UK investment company peers, the Board intends to describe how it has met the requirements of s172 of the UK Companies Act as applicable to your Company. This includes an explanation of how the Board has sought to promote the Company for the benefit of its members, how it has taken into account the likely long-term consequences of decisions and how it fosters relationships with stakeholders. The Board has identified the Company's shareholders and its main service providers as its key stakeholders.

SHAREHOLDER INTERACTION & PROMOTING THE COMPANY

The shareholder base is a mixture of retail investors, wealth managers, asset managers and private clients across both classes of the Company's shares. The Board monitors the changes in each shareholder base at its quarterly Board meetings. The Company communicates through publication of Year-end and Interim Financial Statements, through detailed quarterly and monthly factsheets as well as through the Company's website. The Company will also hold a UK based shareholder meeting with presentations by the Board and key service providers to keep shareholders informed.

The Board seeks to understand the opinions of a wide variety of shareholders. This was of particular importance during the 2019 redomiciliation project whereby the views of a significant number of shareholders were solicited as the project progressed and comments were reflected where the Board felt it appropriate. The Company maintains a dedicated email address for shareholders to contact the Board ([email protected]).

The Board aims to provide transparency and clarity to investors and to promote demand for the Company's shares, creating a positive impact on the discount.

Promotion of the Company is also part of the discount policy, the purpose of which is to encourage outside demand for the Company's shares and thereby reduce any discount at which the shares sell in relation to the NAV.

The Company has the following initiatives and activities:

Recognising the growing number of retail investors, we continue to develop the Period-End and Interim Reports, the monthly and quarterly factsheet and the website to make them more interesting and easier to use.

Edison Research produces written research on the Company, its investments and its progress. Edison also facilitates wider access to IFA and investor platforms. Such research is distributed to many thousands of investors.

Edison also facilitates an ongoing program of outreach meetings between the Portfolio Manager and existing and potential investors.

The remit of Winterflood Securities, as the Company's corporate stockbroker, is to assist in proactively promoting the Company and enhancing its market coverage.

In addition to Edison and Winterflood Securities initiatives, our Portfolio Manager, Hansa Capital Partners, is increasing the numbers of presentations to existing and potential investors.

We are working with Link Asset Services, the Company's Registrars, and Orient Capital, the Company's Register Analyst, to improve our understanding of our shareholder base and to proactively contact key shareholder groups to promote interest.

Long-Term impact of decisions

The Board believes that consideration of environmental, social and governance ("ESG") factors will play an increasingly important part in the decision making processes of funds and their managers the world over. As a Board, we have asked our Manager to review its ESG processes and report back to the Board in due course. We are of the view that good returns and well run sustainable business models will go hand in hand.

SERVICE PROVIDERS

Service Provider Policy

The Board consists entirely of non-executive Directors; it delegates the day to day implementation of its policies to third party service providers. The Board has contractually delegated to external organisations the management of the investment portfolio, the custodial services which include safeguarding of the assets and the day to day accounting and company secretarial requirements. Each of these contracts is only entered into after proper consideration of the quality and cost of services, which are regularly reviewed and monitored either by the Board or its Committees. The Board recognises it is these key service providers and, importantly, their staff who are critical to the success and smooth running of your Company.

The Board, in seeking to engage organisations which can provide the relevant levels of experience and expertise at an acceptable cost, carries out the following activities:

Monitors third party suppliers, performance and costs

  The Board, at its regular meetings, reviews reports prepared by both the Portfolio Manager and the Administrator, which enable it to monitor the performance and costs of the third party suppliers to the Company. The Additional Administrative Services Provider ("AASP") has an ongoing dialogue with each supplier to monitor its processes and systems and feedback any concerns that might be arising. In addition, a Director will seek to meet with key suppliers once a year (or more frequently as is necessary).

Monitors Portfolio Manager performance

  The Board reviews reports prepared by the Portfolio Manager at its regular meetings, which enables it to monitor the investment risks and returns. The Portfolio Manager attends each Board meeting to provide an update on Investment Performance and enable the Directors to actively question the risks and investment performance within the portfolio.

Determines investment strategy, guidelines and restrictions

  The Board determines the investment strategy in conjunction with the Portfolio Manager. The strategy is monitored regularly and refinements are made to it as required, with formal review at the Board's annual strategy meeting.

  The Board issues formal investment guidelines and restrictions, compliance with these is reported by the Portfolio Manager's compliance officer on a regular basis and is also monitored independently by the Administrator and Alternative Investment Fund Manager ("AIFM").

Determines gearing levels and capital preservation through the use of hedging instruments

  The Board, taking account of advice from the Portfolio Manager, determines the maximum level of borrowings the Company will undertake at the time of borrowing. Details of the borrowing limits can be found later in the report.

The key service provider relationship to the Company is Hansa Capital Partners as the Portfolio Manager and Additional Administrative Services Provider to the Company.

THE PROVIDERS

Portfolio Manager & Additional Administrative Services Provider

Hansa Capital Partners LLP ("HCP") is the Portfolio Manager for the Company. It is responsible for all assets in the portfolio other than the Company's investment in OWHL. The Board is in regular contact with the investment management team at HCP which is led by Alec Letchfield. Additionally, Alec Letchfield is invited to quarterly meetings of the Board to formally present portfolio updates and discuss market trends. The Portfolio Manager's detailed review of the year can be found further on in the report.

HCP charges an investment management fee at an annual rate of 1% of the net assets of the Company (after any borrowings) but, after deducting the value of the investment in OWHL, on which no fee is payable. Hanseatic Asset Management LBG, a company connected to Hansa Capital Partners LLP and which is also the AIFM, separately charges an investment management fee to the investment subsidiary of OWHL.

The terms of the portfolio management agreement permit either party to terminate the agreement by giving to the other not less than 12 months' notice, or such shorter period as is mutually acceptable. There is no agreement between the Company and the Portfolio Manager concerning compensation in respect to the termination of the agreement. In its annual assessment of the Portfolio Manager, the Board concluded that, because of the skills and experience of the management team it is in the best interest of shareholders that the Portfolio Manager remains in place under the present terms. Details of the fees paid to the Portfolio Manager can be found in Note 3 of the accounts.

HCP also acts as the Additional Administrative Services Provider ("AASP") to the Company. This role ensures a number of the day to day processes for the Company are carried out as well as providing oversight of, and a liaison between, a number of the Company's service providers and the Company itself. HCP is paid £115,000 per annum for this service. HCP is not the Company Secretary - see below.

Auditor

The Company's Auditor is PricewaterhouseCoopers Ltd ("PwC"), a Bermudan registered firm. The Board have developed a strong working relationship during the Auditor's first year with the Company and have been happy with the rigour and challenge offered. The reappointment of PwC as Auditor to the Company will be proposed at the forthcoming AGM.

Auditor independence rules restrict the amount and type of non-audit related work that can be performed by a company's auditor. Any non-audit related work must be pre-approved by the Board. Currently, PwC provides only audit services to the Company (Details in Note 4 of the accounts).

Company Secretary

The Company engages Conyers Corporate Services (Bermuda) Ltd ("Conyers") as its Company Secretary. During the period to 31 March 2020, the Company Secretary has charged £17,647 for the period ended 31 March 2020.

Alternative Investment Fund Manager

As a Bermudan resident, the Company is defined as a non EU Alternative Investment Fund ("AIF") under the EU's Alternative Investment Fund Manager's Directive ("AIFMD"). As such, the Company and the AIFM are only subject to the AIFMD rules in a limited way - specifically in relation to marketing of the Company's shares in the EU. The Company appointed Hanseatic Asset Management LGB, with effect from 29 August 2019, to act as its AIFM with responsibilities for the Portfolio Management and Risk Management. The AIFM has sub-contracted to Hansa Capital Partners LLP the provision of Portfolio Management services. The AIFM does not charge a direct fee for its services although it does recharge any third party fees incurred.

Administrator

The Company engages Maitland Administration Services Limited as its Administrator. The Administrator has charged £81,653 for the period ended 31 March 2020.

Custodian

The Company has engaged Banque Lombard Odier & Cie SA ("Lombard Odier") as the Company's Custodian. During the period to 31 March 2020, Lombard Odier charged £78,806 for the Custodial service.

KEY PERFORMANCE INDICATORS and other measures

The Board, regularly and at least quarterly, reviews the returns and the performance of the Company, including an analysis using the KPIs listed below.

The Board considers that the use of a single benchmark will not always offer shareholders the relevance and the clarity needed with regard to the performance of their Company against its investment objective. The overall assessment of the performance of the Company with reference to the KPIs is given by the Chairman is his report above.

Returns are compared with a number of measures including the return of a government bond, using the 10 year UK Gilt Return (FTSE All Stocks Gilts Total Return Index); to the rate of inflation (real returns are important to shareholders) and with those of our peer group and appropriate indices for different elements of the portfolio.

Additionally, whilst not specifically KPIs, the cost of managing the Company is monitored against the NAV (the ratio between costs and NAV is also known as the 'ongoing charges percentage per annum ratio'); and the discount/premium the shares sell at in relation to the NAV are likewise monitored.

The Board of Directors monitors the returns made in absolute (firstly) and relative (secondly) terms against the KPIs established. The comparisons are made over 1, 3, 5 and 10 year time horizons.

 

i) Shareholders - Total Returns

To 31 March 2020 

1 year

3 years

5 years

10 years

Share Price Total Return





 Ordinary shares

(31.6)%

(20.3)%

(16.5)%

1.7%


'A' nonvoting Ordinary shares

(29.0)%

(15.6)%

(10.0)%

8.5%

 

ii) Company - Total Returns

These comparisons are used to determine the effectiveness of the Investment Strategy and of the Portfolio Management. The KPIs below should also be noted.

To 31 March 2020 

1 year

3 years

5 years

10 years

NAV

(16.9)%

(6.7)%

8.0%

44.5%

Relative comparison





Peer group average

(13.5)%

(6.7)%

10.3%

62.9%

 

* See website for peer group members

iii) Discount/Premium

A comparison is made between the (discount)/premium of the Company's two classes of shares, those of the Company's peer group and of the AIC average.

To 31 March 2020 

1 year average

3 years average

5 years average

10 years average

Ordinary shares (%)

(33.5)

(29.2)

(29.3)

(25.4)

'A' non-voting Ordinary shares (%)

(33.5)

(30.8)

(30.9)

(26.9)

Peer group (%)

(7.4)

(7.5)

(7.4)

(7.4)

AIC (%)

(6.4)




 

Note: AIC only produces AIC average for 1 year.

During the period, the Board considered the following Investment Companies to be HICL's Peers (noted with their AIC Sector):

Artemis Alpha Trust (UK All Companies)

AVI Global Trust (Global)

Caledonia (Global)

Capital Gearing (Flexible)

Fidelity Special Values (UK All Companies)

Henderson Opportunities (UK All Companies)

Henderson Alternative Strategies (Flexible)

RIT Capital Partners (Flexible)

Ruffer Investment Co (Flexible)

Witan (Global)

iv) Expense ratios

To 31 March 2020 

1 year

3 years

5 years

10 years

Ongoing annual charges (%)

1.1

1.2

1.1

1.0

 

To comply with the Packaged Retail and Insurance-based Investment Products Regulation ("PRIIP"), the Company has issued a PRIIP's Key Information Document ("KID") for each of its two share classes. In the PRIIPs, KID regulations are very prescriptive as to how costs are calculated and presented. In particular, as well as the costs of the Company itself noted above, the PRIIPs calculation also incorporates the costs of the directly held fund investment vehicles themselves, but not those for directly held equities. Based upon the financial results for the year to 31 March 2020, the PRIIPs KID cost ratio is 1.82% per annum.

v) Key Performance Indicators

The following are the KPIs the Board uses to assess the returns of elements of the portfolio and of the Company as a whole.

 

To 31 March 2020 

1 year

3 years

5 years

10 years

FTSE UK Gilts All Stocks
TR Index

9.9%

14.5%

26.1%

77.3%

UK CPI Inflation

1.5%

6.0%

8.9%

22.4%

MSCI ACWI NR (GBP)

(7.0)%

5.8%

37.8%

116.9%

 

LIMITS

Investment Guidelines

The Portfolio Manager, on behalf of the Company, seeks to build a multi-strategy portfolio by seeking investments across four key investment categories under its mandate:

Core - investments, typically through third-party funds, that the Company can expect to hold throughout the cycle;

Thematic - investments, typically through third-party funds, that reflect key investment themes which the Portfolio Manager believes will generate excess returns;

Diversifying Assets - investments, typically through thirdparty funds and directly, that creates asset diversification within the portfolio;

Global Equities - a diversified portfolio of global equities identified by the Portfolio Manager as having long-term growth potential.

While the proportion of the portfolio represented by each of these categories will vary over time, the Board may set parameters for the Portfolio Manager based on its view of the global investment markets. At the current time, the Board has set the following guidelines for each category as a percentage of the portfolio value (including the strategic investment in OWHL):

Core: 0-45%

Thematic: 0-25%

Diversifying Assets: 0-40%

Global Equities: 0-40%

The above limits were in place throughout the period. Subsequent to the period end, but prior to the date of signing of this Report, the upper limit for Core assets was increased to 50%.

Borrowing Limits

The Board believes shareholders' returns may be enhanced if the Company borrows money at appropriate times for the purpose of investment. The Company has an unsecured lending facility through its Custodian, Lombard Odier. The Board have agreed to a nominal maximum loan of £30m, subject to there being sufficient value and diversity within the portfolio to meet the lender's borrowing requirements. The Portfolio Manager is able to utilise that facility as required up to the upper limit available.

PRINCIPAL RISKS

The Board reviews the principal risks from the perspective of the long-term shareholders, the main risk being that over the longterm (which we determine to be greater than five years) they do not make a return from their investment in the Company. The Board considers and monitors the principal risks facing the Company, including those that would threaten its business model, future returns, solvency and liquidity. The Board considers the risks the Company, and therefore shareholders, face can be divided into external and internal risks.

External risks

External risks to shareholders and their returns are those that can severely influence the investment environment within which the Company operates. These risks include anti-business government policies, protracted economic recession, declining corporate profitability, increased taxation, high unemployment and high, uncontrolled, inflation. The impact of such an environment could lead to sharp rises in interest rates and a decline in equity and bond markets. Deflation is also a source of concern in some countries, but unless deflation accelerated sharply it is not thought to be a significant impediment to growth. However, it may lead to negative interest rates which could damage the banking system's profitability and the levels of savings available for investment. At their Board meetings and at the annual strategy meeting, the Directors and the Management consider long-term risks that concern them, including:

Instability - political and economic - particularly associated with Brazil.

Economic, currency and equity declines.

Societal and structural changes, regardless of source/reason but quite possibly triggered by Covid-19, that potentially impact the Company's investment strategy and its ability to generate growth over the medium to longterm.

The growth of global debt.

It should be stressed these are the external risks which most concern the Directors and the Management, not forecasts of future events. The mitigation of these risks is achieved by sensible stock and sector diversification and adherence to the Board's investment restrictions and guidelines.

Internal Risks

Internal and operational risks to shareholders and their returns are:

portfolio (stock and sector selection and concentration),

balance sheet (gearing),

administrative mismanagement. In respect of the risks associated with administration, changes to the current taxation environment of Bermuda.

The Board also considers the risks to the Company's two share prices, apart from those mentioned above, which includes the risk of higher discounts. The Board monitors the discount and seeks to identify the drivers and manage through transparent communication and shareholder engagement. However, given the Company's stated objective of increasing shareholder value over the long-term, the Board does not consider shortterm NAV or share price volatility to be a risk to longterm shareholders.

Details of how the principal risks arising from financial instruments (as determined by the Financial Reporting Council) are managed, have been summarised in Note 20 of the Financial Statements.

Covid-19

The Board focuses on events that damage economies and which may, as a result, impact the Company's ability to make a return for shareholders over the medium to long-term. From its recognition as a growing issue by the World Health Organisation in early 2020, Covid-19 continues to disrupt economies across the globe. At this stage it is unclear as to the longer term impact of the disease on both broader economies, corporate profitability and potential company defaults. We are however comforted by the extent and speed of both government and central bank actions which hopefully will help counterbalance the impacts of the disease and enable stock markets to look through to more normalised market conditions.

That said, this report is being delivered at a time when the future is very uncertain, with a wide range of possible outcomes. In its report, the Portfolio Manager comprehensively explains both the portfolio performance in the last quarter, when the impact of the virus compared to previous pandemics became clearer, as well as its views for the future.

However, it is also worth considering some of the more structural elements of the Company and its service providers at this time of uncertainty:

Gearing: Whilst the Company has access to a loan facility, that facility is relatively modest compared to the Company's size and remains largely unused. As a result, regardless of the severe valuation reductions experienced in the final quarter ended 31 March 2020, the Company is not forced to sell assets to manage debt covenants.

Discount management: The Company has stated previously that, whilst it has the ability to buy back shares, it does not believe doing so is an effective, long-term, method to reduce the discount for the benefit of all shareholders. With the market sell-off and the widening of discounts across the industry, the Company's discount management policy has the benefit of not forcing the sales of assets to raise cash to adhere to a discount management mechanism by facilitating share buy backs. Additionally, the repurchase of the Company's shares would further concentrate our OWHL exposure and, therefore, our exposure to Brazilian risk.

Dividend: The Company announced in May its expected dividend level and schedule for the year 2020/21 which involved leaving the level and timing of dividends unchanged from the previous period. Barring unforeseen circumstances, the Board expects to continue to follow that guidance regardless of the amount of income raised from dividends received in any given period.

Liquidity of the portfolio: Cash requirements are monitored closely. If lower dividend income was to lead to a short-term cashflow requirement, such as for expenses or dividend payments, the Company could meet that requirement through a combination of sales of liquid assets or use of the Company's loan facility for a short time. A significant proportion of the portfolio (circa 90%) has daily or weekly liquidity. Underlying investments are largely in publicly traded investments.

Key service providers: The Board is pleased to report that all the Company's key service providers have executed their business continuity plans successfully and that, at the time of writing, the day to day business of operating the Company has transitioned quite seamlessly to a working-from-home environment for these service providers Additionally, during lockdown, the Board continues to meet but makes use of videoconferencing facilities rather than meeting face to face.

The Board is confident the Company is securely positioned despite these unprecedented times and equipped to navigate through as the future becomes clearer.

DIVIDEND POLICY AND DIVIDEND PAYMENTS

Dividend Policy

The Board's dividend policy is to pay four similar interim dividends each year. The Board will declare the rate of the four dividends at the beginning of the financial year in question. The Board anticipates dividends to be paid in August, during the financial year, followed by November and February with the fourth being paid in the May following the end of the financial year. The Company expects the dividends to grow over time reflecting the longer term returns of the portfolio. If circumstances are such that the level of cash income generated by the portfolio is insufficient to meet the dividend commitment, the shortfall may be made up from the Company's reserves. Under certain one off circumstances an extra and final dividend may be proposed at the Company's Annual General Meeting.

During the Company's first Period-End, due to the timing of the Scheme of Arrangement, the Company paid its first and second interim dividends at the same time in November 2019. The Company paid the third quarter dividend in February 2020 and the fourth dividend, as expected, following the Period-End in May 2020.

Dividend Payments

The dividends paid are as follows:



2020
£000

Ordinary and 'A' non-voting Ordinary shares



First and Second interim paid 1.6p (November 2019) per share


1,920

Third interim paid 0.8p (February 2020) per share


960

Fourth interim paid 0.8p (May 2020) per share


960

Total dividends


3,840

 

The Board is not proposing a final dividend per Ordinary and 'A' non-voting Ordinary share classes.

Discount Policy

The discount policy of HICL is to encourage the demand for the shares, by ensuring it has an investment policy that is attractive to investors and which is likely to produce above average returns over the long-term and then to promote the Company and its prospects, so as to encourage the demand for its shares and to deliver clear and transparent reporting through regular shareholder communications.

The Board does not believe it can manage the discount in the short-term through a share buy-back policy. Furthermore, the Board does not believe buying in its own shares is in the best long-term interest of shareholders because:

it reduces the number of shares outstanding and therefore the liquidity of the shares in the market place; less liquidity may cause a rise in the discount;

it means a liquid portfolio needs to be maintained, compromising the ability to have a portfolio of special situations; the maintenance of the long-term investment policy and its portfolio takes precedence over the short-term discount policy;

the holding in OWHL would represent an even greater percentage of the portfolio and buying back shares would raise the relative exposure to Brazil, which the Board does not wish to do; and

buying back shares treats the symptoms of the problem of lack of demand, not the cause.

Insurance

The Company through its Bye-Laws has indemnified its Directors and Officers to the fullest extent permissible by law. During the year the Company also purchased and maintained liability insurance for its Directors and Officers.

Going Concern

The Company's business activities, together with the factors likely to affect its future development, performance and position, including its financial position, are set out in the Chairman's Report to the Shareholders, the Portfolio Manager's Report and other elements of the Strategic Report. Additionally, given the unprecedented times we are living through, a section specifically considering Covid-19 has been added later on in the report, following the risk analysis.

After due consideration of the Balance Sheet, activities of the Company, estimated liabilities for the next 12 months and having made appropriate enquiries, the Directors have concluded the Company has adequate resources to continue in operational existence for the foreseeable future. Assets of the Company consist of securities, the majority of which are traded on recognised stock exchanges, or open ended funds run by established managers. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Longer-Term Viability Statement

In addition to the Statement of Going Concern, the Directors are also required to make a statement concerning the longerterm viability of the Company. As stated previously in the wider Strategic Report, the Directors consider 12 months to be a relatively short time frame when considering performance and look to the longerterm for both the performance and risks associated with the Company. The Directors consider a period of five years to be a more representative period which aligns to the Portfolio Manager's longer-term horizon. This period is sufficiently long to manage short-term market volatility and allow longer-term performance to work through. The Board continually monitors the Investment Strategy and Investment Guidelines issued to the Portfolio Manager and AIFM and directs those entities to target long-term capital preservation. Further, whilst the Board has sanctioned the use of gearing, the facility available to the Portfolio Manager is relatively small compared to the NAV of the Company. Finally, a number of the more significant costs in each financial year are contracted to be calculated, on the basis of the underlying NAV of the Company. As such, in a period of negative portfolio performance, the cost base should also fall.

Barring unforeseen circumstances and taking account of the Company's current position including the recent effects of the Covid-19 pandemic, the principal risks, the longer-term strategy for the portfolio including a diversified and liquid asset base and the lack of gearing, the Directors confirm they have a reasonable expectation that the Group will continue to operate and meet its liabilities as they fall due for the next five years. Whilst there is currently a great deal of uncertainty from Covid-19, there will be new opportunities arising from changes to people's lives and it is important we identify those emerging trends for the long-term growth of the portfolio.

Streamlined Energy & Carbon Reporting ("SECR") and Greenhouse Gas Emissions ("GGE")

Hansa Investment Company Ltd has no direct greenhouse gas emissions to report from the day to day operations of its business. However, as noted in the Chairman's Report to the Shareholders, as a result of the Scheme of Redomicilation, the attendance of Directors at meetings of the Board in Bermuda will increase travel related carbon emissions. The Board has assessed the emissions associated with these trips to be "Scope 3 Indirect Emissions" for the purposes of the SECR. The Board has further estimated the emissions associated with the flights to be in the region of 102 tonnes of CO2 (inclusive of the radiative effect of high altitude aircraft emissions and contrails) for the period ended 31 March 2020. The Board has assessed that the Company does not have other Indirect Emissions to report, as all other emissions will be associated with the operations of service providers and be reported by them if appropriate.

As a result of the above flights, the Company has sought to offset their carbon emissions by partnering with an environmental group who specifically operate carbon offset projects. During the period to 31 March 2020, the Company partnered with Greenfleet Australia - a not-for-profit group which plants and maintains native forestry in Australia.

Social, Community, Human Rights, Employee Responsibilities Policy

The Company does not have any employees. The Company has no direct social, community or human rights impact. Its principal responsibility to shareholders is to ensure the investment portfolio is properly invested and managed.



 

Portfolio Manager's Report

The Day(s) the Earth Stood Still

Market backdrop

There are decades where nothing happens and there are weeks where decades happens - this is what we saw with the outbreak of the coronavirus. Hence having seen a fairly benign first nine months of the year, with a backdrop of improving in economic growth and the US Federal Reserve cutting interest rates, markets were thrown into turmoil in March as the full extent of the impact of coronavirus became apparent.

Initially markets were complacent. Whilst the first death from COVID-19 had been reported in China as early as January 2020, the prevailing view at the start of the year was that this would follow a similar pattern as prior epidemics, such as SARS and Ebola. These were seen as problems that primarily impacted emerging rather than developed markets and the death tolls, whilst always a tragedy, were low. Consequently most investors treated the situation as an event risk which are normally short and sharp with stock markets quickly recovering to historic highs.

The realisation that COVID-19 was quite different from previous viruses set off a domino effect. Governments, having initially tried to keep economies open to shore up economic growth, came to realise that whilst coronavirus may not be as fatal as SARS, its contagion rates were much higher. Belatedly they limited travel, closed borders and ultimately locked economies down, realising that if healthcare systems were not to be overwhelmed, they needed to slow the pace of infection. As a result we now have the unprecedented situation whereby 95% of world economies have effectively come to a full-stop.

The impact on stock markets has been equally dramatic. Having seen the peak in markets as recently as the 12 February, markets fell sharply as they priced in the full extent of the damage COVID-19 was having on individuals, corporates and the broader economy. It wasn't so much the extent of the falls (although even these have been large), but rather the speed and volatility of the declines. We have seen three consecutive days of +/-9% moves in the S&P 500, the first time that has happened since 1929 and one week saw an 18% rally, the strongest rise since 1933. From the peak in markets in February to their respective troughs in March the US, World, European and Asian stock markets fell by 26.9%, 25.8%, 28.5% and 21.5%, taking the 12 month numbers to 3.9%, 7.0%, 11.4% and 7.9% respectively.

Outside of blue-chip government bonds, bond markets have been equally hard hit, at least initially. Credit markets in particular have been under intense pressure as the global shutdown has weighed on company balance sheets and, particularly in the high yield space, raised the prospect of a significant rise in defaults from current low levels. Sectors such as airlines saw their spreads widen by 1440 basis points with similar carnage in the energy sector. As discussed below, more recently government plans to purchase various credits has seen a sharp reversal in some of these moves.

Within the commodity space the oil markets have suffered from the twin challenges of a price war between two of the largest producers, Saudi Arabia and Russia, combined with a precipitous and dramatic decline in demand. To the end of March WTI has fallen by 64.3% over the past 12 months and as we write we have the unprecedented situation whereby prices in the US have become negative for the first time in history. With storage capacity running out producers have been forced to pay buyers to take oil off their hands.

Intra-market life is equally unusual. Normally those sectors that led the market on the way up tend to be the ones that lead the market on the way down. Hence one would have expected growth and technology to be the worst affected as markets sold-off in March and value, which has been a laggard for many years, to demonstrate relative out-performance. In fact the opposite has been the case. Any company that can demonstrate growth in the current environment, combined with an acceleration of many of the tech trends seen in recent years, has resulted in these companies being winners. In contrast with many value companies possessing weak balance sheets, and greater cyclicality, their performance has deteriorated further.

At its worst point the price discovery mechanism of stock markets ceased to function normally, as liquidity became the determining factor resulting in normal relationships between asset classes breaking down and certain markets such as ETFs failing.

The coming months

Unlike more conventional economic downturns, which tend to snowball progressively over a period of time, the current situation has seen growth spectacularly fall off a cliff. Whilst there are wide variations across sectors, a number of industries have simply ceased to trade. Travel, high street retailers and restaurants, for example, have seen profitability crushed and only those with strong balance sheets will survive. It is likely many industries and smaller companies will need government intervention to ensure survival.

The net impact will be a sharp fall in Q2 GDP. Whilst akin to pinning the tail on the donkey, some brokers are already forecasting US Q2 GDP falling by in excess of 30% on an annualised basis. For 2020 as a whole early indications are for US GDP to fall by over 6% and Europe by 9%. From an employment perspective the situation is equally severe. At the beginning of April, US jobless claims had risen to 16.9m due to the effects of the lockdown. Adding these to the existing unemployed gives an unemployment rate of 14.7% and it is entirely possible this will exceed 20% in the near-term.

The impact on corporate earnings is less clear. As is often the case analysts have been slow to adjust their earnings forecasts, instead waiting for guidance from company management in the coming reporting seasons. Certainly the forecasts in the market place are far too high and will be cut sharply in the coming months.

GDP growth


Real GDP Growth

Percent Change yoy

2018

2019

 2020

2021

2022


GS

GS

Bloomberg Consensus

GS

GS

USA

2.9

2.3

(6.2)

1.2

5.5

3.5

Japan

0.3

0.7

(3.1)

(0.8)

1.1

0.9

Euro Area

1.9

1.2

(9.0)

(0.1)

7.8

4.1

 Germany

1.5

0.6

(8.8)

0.1

8.9

3.6

 France

1.7

1.3

(7.4)

(0.4)

6.4

4.1

 Italy

0.7

0.3

(11.6)

(2.0)

7.9

4.4

 Spain

2.4

2.0

(9.7)

1.3

8.5

5.4

UK

1.3

1.4

(7.5)

0.4

7.3

4.2

China

6.6

6.1

3.0

4.0

8.5

5.0








Advanced Economies

2.3

1.8

(5.9)

0.7

5.7

3.3

Emerging Markets

5.0

4.2

1.5

3.3

6.6

4.9

World

3.7

3.1

(1.8)

2.5

6.2

4.2








 

Source: Goldman Sachs

Recognising the unprecedented nature of the current situation and the damage being done to both companies and individuals, central banks and governments have been quick to step in to offer support. Central banks started by cutting interest rates, with the US Federal Reserve cutting to zero and the Bank of England to 0.1%. Similarly on the Quantitative Easing front the Fed and the Bank of England have re-joined the European Central Bank and the Bank of Japan in restarting their QE programmes. Whilst we have long been of the view that such measures have had an increasingly limited impact on economies, we suspect central banks are most concerned with the health of financial markets and injecting liquidity into the system. It is at times such as these where maintaining the normal operation of markets is the primary concern and economic growth secondary.

Part of the central bank package included the Fed announcing it would purchase corporate bonds in addition to government bonds. Initially they discussed purchasing $200bn of mortgage bonds, but this has been followed by plans to buy investment grade credit, including 'fallen angels', and limited purchases of high yield ETFs. This mutualisation of debt has seen bonds rally sharply off the bottom and spreads tighten significantly.

Governments were slower to react to the unfolding crisis but have been getting up to speed quickly. The US announced a $2.6 trillion fiscal stimulus, which is both in excess of 10% of GDP and nearly double anything seen over the past 100 years. To get a feel for the scale of these packages, the flagship programme Coronavirus Aid, Relief and Economic Security ("CARES") Act is more than twice the size of the American Recovery and Reinvestment Act post the Global Financial Crisis ("GFC"). Other countries have announced similar measures including state loan guarantees, support for employees being furloughed and even helicopter money. It is estimated that the global stimulus (monetary, fiscal and liquidity) has now totalled approximately 11% of global GDP.

Whilst still early days we suspect that, although the impact on corporate profitability and household balance sheets will undoubtedly be severe, these measures have probably averted a depression and meltdown of the financial system.

The exit process

Over the next few months markets will undergo a discovery process. As the company reporting season gets underway we will have a better feel as to how different companies and sectors have fared. These will likely fit into three broad groups: (1)Those companies that have seen their trading impacted but have the necessary balance sheet strength and access to bond markets or loans to weather the storm; (2)Those companies who are potential winners such as the on-line and technology companies, with the move to a tech enabled economy likely to be accelerated by current events; and (3)The casualties represented by companies with poor balance sheets and an inability to access additional capital to tide them over, resulting in liquidity events. At this stage it is difficult to gauge the split between the three different groups but we suspect the current bounce in markets may well prove to be a bear market rally, as investors fully digest the damage caused by the current lockdown.

Whilst this discovery process will be an important part of the markets' return to health it is not, in our view, the most important factor. Our sense is that most investors have written off the rest of 2020, treating it as a nine month gap in economic growth and corporate profitability. Instead the much more important element is the nature and shape of the exit process. Initially investors thought any recovery would be V-shaped with the ending of the lockdown period resulting in companies and individuals returning to normality rapidly. Increasingly though it has become apparent there are other, less optimistic, scenarios that are equally possible.

If we look at the SARS epidemic one of its features was a number of false peaks in infection rates. On a number of occasions the authorities thought they had the disease under control only to see it flare up again. The jury is out with respect to coronavirus. China, if the data is to be believed, seems to be managing the exit process well but the evidence from other countries such as South Korea is less positive. Importantly, China has two factors in its favour; being able to closely monitor the movements of its population and ensuring near full compliance if the authorities decide to lockdown certain areas again. In contrast the populations of western economies are likely to be less compliant in the longer-term and for many poorer nations prolonged periods of lockdown will likely lead to a greater danger of death through starvation, rather than coronavirus, with many living on a hand to mouth basis.

Hence we think there is a real danger that the lockdown will come to an end in the next couple of months, only for infection rates to rise again resulting in the need for further lockdowns. Perhaps more worryingly, we could see a number of permutations to this, with the rate of infection easing over the summer months only to rise again in the colder winter period.

Key to the different scenarios will be whether or not populations form a herd immunity to the disease and the development of vaccines or therapeutic treatments that improve the recovery process and mortality rates. We won't go into this in depth, apart from to say that developing vaccines is difficult (they still haven't developed one for SARS) and takes time. In reality at this point we simply can't say with any certainty as to how these factors play out or, indeed, whether or not the disease mutates and people can be re infected.

The really important point however is this - the longer the lockdown persists the greater the scarring to economies, individuals and companies. If the current situation continues to the end of the year or longer, the greater the number of companies and individuals who will come under pressure and the more anaemic the subsequent recovery will be. Already we suspect there will be certain companies and industries which will never recover with the impairment permanent.

Structural changes

Most recessions and bear markets are cyclical in nature. That is, in a normal cycle excesses build up in the system which are purged through the recessionary process and eventually life returns to normality. It is possible this won't be the case post COVID-19 with it fundamentally changing the way in which we live. Whilst still early days we are already seeing tentative signs of permanent changes in a number of different areas:

The Demise of Globalisation.   Globalisation already looked to have peaked before the advent of COVID-19. Donald Trump had waged war on those countries producing cheap imports, arguing that they damaged the domestic workforce and local industries. Recent events are likely to reinforce this view with globalisation creating supply chains that are overly dependent on other nations and fall down when one link in the chain fails. Further, it is likely that certain key industries will be repatriated with the shortages created by the virus leading to countries withholding key products for their own needs at the expense of others.

The Nationalisation of Industries. The complete shutdown in trading in a number of industries and the inability to gain access to funding may well require governments to step in to ensure their survival. Whereas much of this funding may come in the form of government backed loans, it is possible governments may end up owning some sectors and companies should they ultimately be unable to repay the loans. Already we are seeing governments instructing banks to lend to those companies in need and cut their dividends, effectively requiring them to perform a social service and becoming utility-like in nature.

The Collapse of the European Project. Successful economic unions require the mutualisation of debt and for stronger nations to support the weaker nations. With some countries such as Italy and Spain more exposed to the virus than others it is likely they will require support from the stronger member states. To date this has not been forthcoming, with the populations of member states such as Germany and the Netherlands unwilling to fund their weaker neighbours. Further, trust, another key feature of a successful union, has been lacking with certain countries proven to be bad actors withholding key medical supplies from other member states. One suspects a number of key members will be questioning the benefit of the union when the dust settles.

Ballooning National Debt Levels. The unprecedented actions of both central banks and governments, whilst arguably necessary to ensure the continued functioning of the global financial system, will lead to a massive increase in government debt levels and central bank balance sheets. Comparisons are already being made with war time funding with the budget deficit in the US expected to hit 19% of GDP this year, comparable to 1944 and 1945 (it hit 30% in 1943). The question of course is how do we reduce this in the future? Here the jury is out. Some argue the debt taken on now will need to be paid off by future generations. We take a more sanguine view. Often countries can grow their way out of debt, just as they did post the Second World War. Alternatively, provided the debt is internalised and interest rates remain low it is possible to sustain high debt levels, as Japan and Italy have done, for many years.

Behavioural Changes. This may take a variety of different forms. Some believe there will be social changes, with people putting health above that of maximising money. Others argue it will accelerate the trend towards home working and reduce the need to travel, with communication systems and the Cloud being well and truly stress-tested in recent weeks. The degree to which companies have managed to operate remotely wouldn't have been possible as little as five years back.

This list could go on further with questions on the structure of the ETF market, the prospect of a sharp rise in litigation as companies and individuals default on contracts and so on.

Conclusion

Unlike in conventional cyclical downturns and bear markets, where we have a playbook as to how they develop over time, we really have very few terms of reference as to how the current situation evolves. Because of this the coming months will be key as to how the current situation resolves itself. With nearly 95% of global economies shut-down when the virus was at its most rampant, clearly the impact on economic growth and company profitability will be severe. Equally despite government and central bank interventions it is also possible that we will see a sharp rise in defaults potentially necessitating government bail outs.

Offsetting this though are some quite powerful drivers. One of the features of markets in the current cycle has been the persistent use of central bank liquidity. Whilst the impact of this on economies has been debatable, its impact on stock markets and asset prices generally has been overwhelming. Further, the combination of high levels of liquidity and zero interest rates has served to make many assets, and equities in particular, look very cheap when compared to bond prices. Hence although arguably not especially cheap in their own right, equities have benefited from the fact that there really is no alternative. It is for these reasons that we maintained our pro-equity position within the portfolio when many were panicking.

Therefore we see a tug-of-war at present between extremely poor short term news flow versus some powerful liquidity drivers and a willingness for investors to look through the near term challenges. We suspect the situation will wax and wane throughout this year but certainly at present, with many investors holding large amounts of cash, the pain trade of rising markets is winning the battle.

From a positioning perspective, we have been fortunate in that we favour those managers who possess a quality bias and focus on companies with strong fundamentals. This will hopefully not only enable their companies to survive in the midst of the storm, but also to prosper as we come out the other side. Perhaps the biggest risk is that if we have seen the bottom in economies then it is possible that more cyclical, value focused companies would offer the most leverage as we exit the process. We suspect that in general our managers are not positioned for this, with instead a bias towards growth and quality.

In our defensive silo we have focused on those hedge funds and bond funds we believe to be both defensive and uncorrelated to the wider economy and equity markets. In practice this is much harder than it sounds, with normal relationships and correlations often breaking down in periods of peak stress as the illiquidity that typically occurs in the depths of a crisis results in most assets falling, leaving few places to hide. However, so far we have been pleasantly surprised by the performance of our defensive silo. On the whole our managers have performed as expected with a number of notably strong performers. A couple of our credit managers have performed less well than we would have hoped, as spreads widened to post GFC levels, but ultimately we believe these to be mark-to-market losses as opposed to permanent impairments of capital.

Ultimately we count ourselves fortunate to be long-term investors with permanent capital. This should enable us to weather the storm and hopefully take advantage of any pockets of irrationality as we move through this crisis.

Portfolio Review and Activity

Given the impact of COVID-19 on markets your Company has returned -16.9% for the financial year on an NAV total return basis with most of the decline occurring in the final quarter of the year. The key performance indicators for the financial year were -7.0% for the MSCI ACWI NR Index, 9.9% for the FTSE UK Gilts All Stocks TR Index, and 1.5% for UK CPI. The main detractor from performance this year has been Ocean Wilsons Holdings with the investment silos generally performing well versus broader markets as highlighted below. Excluding the Ocean Wilson Holdings position, the fund fell by just 7.4%. The Company's net asset value per share decreased from 281.1 pence at the end of March 2019 to 230.2 pence at the end of March 2020. Post the year-end your company has rebounded by 13.3% (total return), with the NAV rising to 260.0 pence as at 19 June 2020.

Core and Thematic Funds

Over the financial year the Core Regional and Thematic silos have outperformed world stock markets with the Core Regional silo down 4.6% while the Thematic silo was up 1.8%.

In the Core Regional silo BlackRock European Hedge Fund was a standout performer returning 19.7% over the year. This fund takes both long and short positions, although it is normally net long, which gave it the ability to weather the market volatility seen in the final quarter of the year. The fund enjoyed a strong month in January 2020, with almost all areas of the portfolio contributing to the positive return. A position in Lonza, a Swiss chemicals company, was the top performer boosted by better than expected sales and profit. Positions in Mastercard and S&P Global also performed well. In March during the market sell-off the fund's short positions were the largest positive contributors compensating for declines in the majority of the long positions, although the long book outperformed the market. The speed with which the manager reduced gross exposure in March was key to maintaining a strong overall return for the fund. Adelphi European Select Equity fell with broader markets in the final quarter of the financial year, taking the annual return to -0.3%, but was still significantly ahead of the MSCI Europe index which was down 11.4%.

The US market has also endured an extremely difficult end to the financial year but Pershing Square Holdings managed to end the year up 13.8%. This manager became very concerned about the spread of COVID-19 in China early in the final quarter and so bought credit default swaps (CDS) on various investment grade and high yield indices, as protection for the portfolio. The manager closed out the positions in March, making a significant profit, and reinvested the proceeds into several core holdings in the portfolio such as Berkshire Hathaway, Hilton, Restaurant Brands and repurchasing Starbucks at far more attractive valuations. Findlay Park American was down 0.7% for the year after to a difficult final quarter but was still ahead of the S&P 500 index thanks to its quality bias. Vulcan Value Equity and Select Equity were down 6.0% and 9.2% respectively, again due to significant declines in the final quarter.

Although the Chinese market was one of the better performers, as the country started to lift its lockdown restrictions, other emerging and frontier markets were particularly badly hit during the final quarter of the year, and several of the portfolio's holdings there were significant detractors. NTAsian Discovery fell by 35.3% over the year as it suffered from poor performance in South East Asian markets and its smaller cap bias. The two frontier market focused holdings, SR Global Frontier Markets and BlackRock Frontiers Investment Trust , fell by 15.8% and 34.6%, respectively, over the year. The BlackRock trust experienced some very large falls among its holdings, particularly in the financial and energy sectors, and its largest position PT Astra, an Indonesian motorcycle and auto company, declined by over 50%.

In the Thematic silo the technology and healthcare sectors outperformed the rest of the market. GAM Star Disruptive Growth (formerly GAM Star Technology) performed well returning 8.0% over the year. The technology sector has been boosted by strong performance from software companies and those that supply services used for remote working. The fund's largest positions in Microsoft and Amazon have both been largely unaffected by the market slowdown at the end of the year with Amazon in particular seeing a surge in demand for online shopping as consumers are unable to leave their homes. Worldwide Healthcare also performed strongly, up 7.8%, but BB Biotech has endured a more difficult year, down 16.4%. With additional demand for many healthcare services and hope of a biotechnological solution to COVID-19 many of Worldwide Healthcare's holdings held slightly firmer than others during the final quarter drawdown. However BB Biotech has struggled as investors moved into large cap biotech companies throughout the year creating a volatile environment in the smaller cap space which the manager made the decision to solely focus on in 2018.

Diversifying Funds

The Diversifying silo produced a positive return of 2.9% for the financial year, an encouraging outcome given the turmoil in wider markets. The holdings in this silo are designed to show lower correlation to the equity market.

Schroder GAIA BlueTrend was one of the stronger contributors over the year returning 18.0%. This systematic fund follows a momentum driven approach which has proven to be more successful during the market selloff as the momentum factor has significantly outperformed the value factor. The portfolio's other systematic fund, GAM Systematic Core Macro , follows an approach that has a 50:50 split between momentum and value which led it to small increase of 2.9% over the year. It seems that BlueTrend performs more strongly in choppy, fast changing markets while GAM outperforms in more benign, upwards trending markets. We therefore believe that a blend of the two strategies offers an attractive systematic exposure.

Another strong performer in the diversifying silo was Vanguard US Government Bond Index which returned 11.3% over the year. Investors flocked to buy assets considered to be safe as equity markets collapsed in early March. This behaviour is to be expected in market drawdowns and hence US Treasuries remain a core part of the diversifying silo. Hudson Bay also performed well this year returning 7.8% with the fund again demonstrating its resilience when equity markets struggle.

Global Event Partners had a more difficult year, down 7.1%, with the fund's equity market exposure in the final quarter of the financial year accounting for most of the decline. The manager has not seen any mergers or acquisitions break down as a result of the market drawdown and so is generally optimistic that performance should pick up when economies start to re-open. The fund was cautiously positioned coming into the year with plenty of hedges covering the downside but these were insufficient to mitigate such a large market decline. CZ Absolute Alpha also struggled this year producing a negative return of -5.9% with all of the decline occurring in the final quarter of the financial year.

Global Equities

The direct equity portion of the portfolio was down 16.6% over the course of the year, with its biggest positive contributors being Hansteen , Dollar Genera l and Nexon . The biggest detractors were Orion Engineered Carbons , TripAdvisor and Hyve Group .

The year was progressing well for our holdings until the fears around COVID-19 hit the market. We would normally expect to outperform the market during drawdowns, as we have done in previous negative quarters. However, business models that would normally be recession resistant such as Hyve's conference and exhibition business, and C&C's pub and restaurant distribution business suddenly went from operating normally to generating no revenue as a result of lockdown orders.

Despite owning businesses at discounts to their intrinsic value this margin of safety failed to offer any protection in the rapid market sell-off. The stocks that were trading cheaper than the market going into this period of volatility fared even worse than the market, compounding the previous three years of underperformance for "value" stocks.

So what is there to be positive about?

We are excited by the prospect of long term returns now available from our current holdings, which are trading at close to 50% of intrinsic value. Such a discount suggests that there is over 100% upside from today's levels to what we believe these businesses are worth. Additionally, their intrinsic values should continue to improve.

For the purposes of better explaining why we are so excited about the valuation discount, we have split the portfolio into three: Beneficiaries - those businesses that have benefited in some way from the impact of the virus; Unaffected long term - those that will be unaffected in the long term; and, Threatened - those which are directly threatened by recent developments.

Beneficiaries - 26% of the portfolio

Our largest holding, Interactive Brokers has seen account growth jump to record levels over the past couple of months. Whilst they are negatively impacted by 0% interest rates in the short term, the new clients create huge future earnings power. Other businesses in this category are Hilton Food , Nexon and Dollar General .

Unaffected long term - 65%

This is where the vast majority of the companies reside. Some will have short term hits to earnings, but we believe there is a very low chance of permanent impairment of capital. Exor for example, has seen a decline in the value of its Fiat and CNHI holdings, but it is in the process of selling its reinsurance business which should deliver an extra €32 a share in net cash by year end. That can be used to buy other businesses. In fact, at the end of the most recent quarter they announced a $200m investment into the ride hailing company Via which they agreed with very attractive terms given the current lack of strategic venture investors.

Threatened - 9%

Hyve , C&C and TripAdvisor all have businesses that will be directly impacted. Hyve is the most exposed as its conference and exhibitions will all need to be postponed or cancelled. This creates a short term cash flow problem as people are reticent to book events that may not occur if lockdowns and social distancing continue. The stock fell 80% over the quarter as it became apparent that lockdowns would essentially stop all business activity. There are a number of scenarios where the business is worth multiples of the current share price, and as such, we believe the risk reward of holding the shares remains compelling. They may have to raise some equity in order to get through this period, which would lead to a portion of the value being permanently impaired, but even in that scenario the valuation remains persuasive.

We have thoroughly reviewed our holdings and believe that the vast majority of the businesses will come out stronger, with no permanent capital impairment, and we have been adding to several of these. During the quarter we increased our positions in Interactive Brokers , Orion Engineered Carbons , Iridium , TripAdvisor , Hyve Group , Howard Hughes , C&C , CK Hutchison , Exor and CVS . We also initiated a new position in the Japanese games maker Nexon . In order to fund these we sold our positions in Bayer and  Nutrien .

In times like these, investors naturally become much more focused on the short term which makes sense given that humans are conditioned to focus on the most immediate threats. However, in financial markets, making decisions based on short term expectations can lead to poor outcomes over the longer term. We remain focused on what we think these businesses will look like in 3-5 years. Whilst some of our businesses will face a short term impact on profits, we strongly believe that their value is in the cash flows they can produce over their lifetimes, not the extrapolation of the next quarter's cash flow. Whilst the impact of COVID-19 on the portfolio has been painful in the short term, for the majority of our holdings in this silo it should have minimal impact on long term intrinsic values. We do not know if this will be reflected in valuations in the next week, month or quarter but we are excited about the long term positioning of the global equity silo.

Ocean Wilsons Holdings

Prior to the global coronavirus crisis, the Brazilian economy was slowly continuing its recovery following a multi-year recession between 2014 and 2016. In the fourth quarter of 2019 it expanded by 0.5%, which meant that it had grown 1.1% over the year. However, the impact of the pandemic is now beginning to be felt, although it is too early to properly understand its magnitude or duration. It will, however, have a negative effect on foreign trade and container imports, and so the business of Wilsons Sons is likely to be significantly affected. At the same time, the sharp decline in the oil price will hamper the oil service business, which was already facing weak demand and is now likely to be compounded by reduced investment by the international oil majors. Wilson Sons has established a technical crisis committee to manage the company's response to the pandemic, and has been implementing various measures as appropriate since January. The company has taken a precautionary approach in order to increase its cash position and preserve financial flexibility. At the end of March, cash equivalents and short-term investments amounted to $96.8m and in the first quarter the company signed financing agreements totalling US$24.6m (denominated in Brazilian Real) to reinforce short-term liquidity.

Following the end of the quarter, the first quarter results were released for Wilson Sons. These were little impacted by the effects of COVID-19, but expectations for the second quarter are lower. In May, operational numbers show that over the first five months of the year, container terminal volumes are down 0.9% on last year and towage manoeuvres are down 4.5%. For the first quarter, there was a 3.3% decrease in EBITDA in dollar terms ($36.1m vs $37.3m in 2019), although this was 14.4% higher in R$ terms. Earnings fell mainly as a result of decreases in logistics and offshore support base results.

Container terminal revenues declined as Brazil's economic growth remained sluggish, although cost reductions mitigated some of the losses. The Rio Grande terminal reported weaker volumes, and was affected by cancellations caused by the Chinese New Year as well as the Coronavirus outbreak. However, the Salvador terminal reported a 12.4% increase in operating volumes, with strong performance from transhipments and imports, with a big rise in solar panel imports for the development of photovoltaic power plants. The civil works to extend its principal quay were 95% complete at the end of March. When extended, the 800m quay will facilitate access for bigger ships to the port and to the largest economy in the north-east of Brazil.

The towage division has been exposed to a reduction in iron ore exports and a very competitive environment affecting volumes. However, revenues were up 4.1% in the first quarter as overall prices improved, despite weaker volumes. The oil services division continues to explore alternative revenue streams for its off-hire vessels and base areas. The company remains focused on increasing cash flow and improving capacity utilisation across its businesses in order to maximise shareholder value.

The Ocean Wilsons Investment subsidiary was valued at $285.3m at the end of December 2019, which represented an increase of $26.4m (10.2%) from the valuation at the end of December 2018 ($258.9m), and a further $4.75m in dividends was also paid out from the portfolio during this time. The portfolio continues to be biased towards equities, both public and private, reflecting its long-term nature, but also includes some assets which display lower correlation to equity markets.

The Ocean Wilsons Holdings share price fell by 42.1%, or 39.4% on a total return basis, over the last twelve months which takes account of the 53.9 pence dividend that was paid to the Company in June 2019. The share price represents a discount to the look-through NAV of 43.1%, based on the market value of the Wilson Sons shares together with the latest valuation of the investment portfolio.

 

Alec Letchfield
May 2020 .



 

Portfolio Statement

 

Investments 

Fair value
£000

Percentage of
Net Assets

Core Regional Funds



Findlay Park American Fund

18,799

6.8

Vulcan Value Equity Fund

12,706

4.6

Select Equity Offshore Ltd

12,143

4.4

BlackRock European Hedge

11,011

4.0

Goodhart Partners: Hanjo Fund

10,808

3.9

Adelphi European Select Equity Fund

9,556

3.4

Schroder ISF Asian Total Return

6,632

2.4

Indus Japan Long Only Fund

6,129

2.2

Egerton Long-Short Fund Ltd

5,496

2.0

Pershing Square Holdings Ltd

4,848

1.8

Prince Street Institutional Offshore Ltd

3,623

1.3

BlackRock Frontiers Investment Trust PLC

2,234

0.8

SR Global Fund Inc. Frontier Markets

2,051

0.7

NTAsian Discovery Fund

1,916

0.7

Vanguard FTSE Developed Europe ex UK Equity Index Fund

1,608

0.6

Total Core Regional Funds 

109,560

39.6

Strategic



Wilson Sons (through the holding in Ocean Wilsons Holdings) *

34,105

12.3

Ocean Wilsons Investments Limited (through the holding in Ocean Wilsons Holdings) *

26,688

9.7

Total Strategic 

60,793

22.0

Global Equities



Interactive Brokers Group Inc

4,434

1.6

Berkshire Hathaway Inc

3,568

1.3

Exor NV

3,306

1.2

Iridium Communications Inc

3,023

1.1

Alphabet Inc

2,999

1.1

CK Hutchison

2,903

1.1

CVS Health Corp

2,871

1.0

Dollar General

2,740

1.0

Samsung Electronics Co Ltd

2,657

1.0

Nexon Co. Ltd

2,097

0.8

Orange

2,068

0.7

Hilton Food Group PLC

1,869

0.7

C&C Group PLC

1,792

0.6

White Mountains Insurance Group Ltd

1,460

0.5

TripAdvisor Inc

1,199

0.4

Orion Engineered Carbons SA

1,182

0.4

Howard Hughes Corp

882

0.3

Subsea 7

818

0.3

Hyve Group

646

0.2

Total Global Equities 

42,514

15.3

Diversifying



DV4 Ltd **

9,276

3.4

Global Event Partners Ltd

7,557

2.7

Hudson Bay International Fund Ltd

3,852

1.4

Vanguard US Govt Bond Index Fund

2,984

1.1

MKP Opportunity Offshore Ltd

2,921

1.1

Selwood AM ‐ Liquid Credit Strategy

2,488

0.9

Keynes Systematic Absolute Return Fund

2,216

0.8

Apollo Total Return Fund

2,095

0.8

BioPharma Credit PLC

1,297

0.5

CZ Absolute Alpha UCITS Fund

1,218

0.4

GAM Systematic Core Macro (Cayman) Fund

1,022

0.4

Schroder GAIA BlueTrend

842

0.3

Total Diversifying 

37,768

13.8

Thematic Assets



GAM Star Technology Fund

15,197

5.5

Impax Environment Markets Fund

2,808

1.0

BB Biotech AG

2,771

1.0

Worldwide Healthcare Trust PLC

1,853

0.7

Total Thematic 

22,629

8.2

Total Investments 

273,264

98.9

Net Current Assets 

3,035

1.1

Net Assets 

276,299

100.0

 

 

 

Note:

* Hansa Investment Company Ltd owns 9,352,770 shares in Ocean Wilsons Holdings Limited ("OWHL"). In order to better reflect Hansa Investment Company's exposure to different market silos, the two subsidiaries of OWHL, Wilson Sons and Ocean Wilsons (Investments) Ltd ("OWIL"), are shown separately above. The fair value of Hansa Investment 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 31 December 2019 OWHL Financial Statements, 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 31 March 2020.

** DV4 Ltd is an unlisted Private Equity holding. As such, its value is estimated as a Level 3 Asset in Note 21. All other valuations are either derived from information supplied by listed sources or from pricing information supplied by third party fund managers.

 



 

Shareholder Profile and Engagement

 

 

Capital Structure

The Company has 40,000,000 Ordinary shares of 1p (1/3 of the total capital) and 80,000,000 'A' non-voting Ordinary shares of 1p (2/3 of the total capital) 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.

Shareholder Profile

The Company's shares owned at 31 March 2020 are as follows:


Ordinary shares


'A' nonvoting Ordinary shares


Institutional & Wealth Managers

16,207,959

40.52%

 

74,493,575

93.12%

Directors

11,010,745

27.53%

2,165,500

2.71%

Private Individuals

12,731,005

31.83%

2,836,406

3.55%

Other

50,291

0.13%

504,519

0.63%


40,000,000


80,000,000


 

Substantial Shareholders

As at 31 March 2020, the Directors were aware of the interests (opposite) in the Ordinary shares of the Company, which exceeded 3% of the voting issued share capital of that class.

The following information is disclosed in accordance with the DTR 7.2.6 of the FCA Disclosure Guidance and Transparency Rules.

The Company's capital structure and voting rights are summarised above and in Note 15 of the Financial Statements.

The giving of powers to issue or buy back the Company's shares requires an appropriate resolution to be passed by shareholders. Proposals for the renewal of the Board's powers to buy back shares are set out in the Notice of the Annual General Meeting later on in the report.

There are: no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; no agreements which the Company is party to that affect its control following a takeover bid; and no agreements between the Company and its Directors concerning compensation for loss of office. Notwithstanding the foregoing, the Company may require any holder of shares to transfer some or all of its shares (or otherwise refuse to register any transfer of shares) to avoid the Company, if the Company were a company which was resident for tax purposes in the United Kingdom, being regarded as a "close company" as defined in s.414 of the UK Income and Corporation Taxes Act 1988, to another person whose holding of such shares, in the sole and conclusive determination of the Board, would not cause the Company to be a close company. Additionally, the Company's Bye Laws provide for the voting rights of Ordinary shares to be automatically reallocated to other shareholders to prevent the Company becoming a close company. The reallocation mechanism operates where a transfer of shares or other change in the interests of holders of shares occurs and would cause the Company to become a close company. In these circumstances, the voting rights attaching to the affected shares are reallocated by enhancing the voting rights of the smallest registered shareholders on a temporary basis pending the operation of the compulsory transfer provisions referred to above.


No. of voting shares

% of voting shares

Nomolas Ltd

10,347,125

25.9%

Victualia Limited Partnership

10,347,125

25.9%

 

These holdings are correct as of 31 March 2020 and have not changed as at the signing date of these Financial Statements.

William Salomon is interested in 10,347,125 of the shares held by Victualia Limited Partnership, representing 25.9% of the voting share capital. In addition, William Salomon has further interests in the Company's shares; the total interest is detailed in the Directors' Interests section below.

As at 24 June 2020, the date of signing of the Period-End Financial Statements, there have been no disclosures to the Company of changes of interests under DTR 5.

BOARD AND MANAGEMENT SHAREHOLDINGS

Directors and Directors' Interests

The present members of the Board are shown earlier on in the report.

The Board's policy is that all Directors retire annually. All Directors being eligible, at the forthcoming Annual General Meeting, will retire and seek re-election in accordance with the Board's policy. The contracts of employment between the Company and each of the Directors do not allow for any compensation payment in the event of loss of office.

The interests of Directors and their connected parties in the Company at 31 March 2020 are shown below:


Ordinary shares
of 1p each

'A' nonvoting
Ordinary shares
of 1p each

Nature of interest


2020

%

2020

%


W Salomon

10,959,345

27.40%

1,935,500

2.42%

Beneficial

J Davie

45,000

0.11%

230,000

0.29%

Beneficial

S Heidempergher

6,400

0.02%

0

0.00%

Beneficial

Total

11,010,745

27.53%

2,165,500

2.71%

Beneficial

 

As at 24 June 2020, the date of signing the Period-End Financial Statements, there were no changes to report to the Directors' holdings other than Mr Salomon's holdings had increased to 11,119,345 Ordinary and 2,045,500 'A' non-voting Ordinary shares.

William Salomon is the senior partner of Hansa Capital Partners LLP. Fees payable to Hansa Capital Partners LLP amounted to £1,490,188 (including Portfolio Management and AASP functions). The fees outstanding at the year-end amounted to £396,880. During the year, no rights to subscribe for the shares of the Company were granted to, or exercised by Directors, their spouses or infant children.

PORTFOLIO MANAGER'S INTERESTS

As at 24 June 2020, the date of signing of this Period-End Report, the management and staff of the Portfolio Manager's group, excluding the holding of William Salomon, shown above, were interested in approximately 10.3m shares in the Company - a mixture of Ordinary and 'A' non-voting Ordinary shares.

Notice Period for General Meetings

The Company's ByeLaws permit the Company's general meetings (other than AGMs) may be held on 14 days' notice. Accordingly, Special Resolution 11 will propose that the period of notice for general meetings of the Company (other than AGMs) shall not be less than 14 days' notice.

ANNUAL GENERAL MEETING

The Company's Notice of Annual General Meeting is included in this Report.

Authority to repurchase 'A' non-voting Ordinary shares

A resolution will be proposed at the forthcoming AGM, seeking shareholder approval for the renewal of the authority for the Company to repurchase its own 'A' non-voting Ordinary shares. The Board believes the ability of the Company to repurchase its own 'A' non-voting Ordinary shares in the market could potentially benefit all equity shareholders of the Company in the long-term. The repurchase of 'A' non-voting Ordinary shares at a discount to the underlying NAV would enhance the NAV per share of the remaining equity shares.

The Company's Bye-Laws are drafted in such a way that the Company may from time to time purchase and cancel its own shares. However, the Company requires that shareholders' approval to repurchase shares be sought. At the AGM the Company will therefore seek the authority to purchase up to 11,992,000 'A' non-voting Ordinary shares (representing 14.99% of the Company's issued 'A' non-voting Ordinary share capital, the maximum permitted under the FCA Listing Rules), at a price not less than 1p per share (the nominal value of each share) and not more than 5% above the average of the middle-market quotations for the five business days preceding the day of purchase or, where a series of transactions have taken place the higher of the last independent trade and current highest independent bid on the trading venue where the purchase(s) will be carried out. The authority being sought, the full text of which can be found in the Notice of Meeting, will last until the date of the next AGM.

The Company is seeking authority to use its realised capital reserve to allow repurchase of shares in the market. The decision as to whether the Company repurchases any shares will be at the absolute discretion of the Board. Any shares purchased will be cancelled.

The Directors consider that all the resolutions to be proposed at the forthcoming AGM as set out in the Notice of AGM In this report, are in the best interests of shareholders as a whole and unanimously recommend all shareholders to vote in favour. Guidance on how to vote at the AGM can also be found in the notes to the Notice of AGM in this report.

If the Board considers a significant proportion of votes have been cast against a resolution at the AGM, the Company will explain, when announcing the results of voting, what action it intends to take to understand the reasons behind the results of the vote.

Approval of the Directors

The Directors consider the Period-End Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

24 June 2020



 

Report of the Directors

The Directors have chosen to report on some of those items within the body of the Strategic Report, while others remain within the Report of the Directors.

ITEMS INCLUDED WITHIN THE STRATEGIC REPORT

The following items are listed within the Strategic Report:

Statement of the existence of qualifying indemnity provisions for Directors.

Dividend policy and payments made during the year are summarised in the Organisation & Objectives section.

Names of Directors, at any time in the year - see earlier in the report for the Directors' details and attendance at Company meetings.

Greenhouse Gas Emissions.

Policy on Board Composition.

Stakeholder Engagement - While the Company has no employees, suppliers or customers, the Directors give regular consideration to the need to foster the Company's business relationships with its stakeholders, in particular with shareholders and service providers. The effect of this consideration upon the principal decisions taken by the Company during the financial year is set out in further detail in the Strategic Report later on in this report.

ITEMS REPORTED WITHIN THE DIRECTORS' REPORT

Disclosure to the Auditor of Relevant Audit Information

The Directors confirm that, so far as they are aware, having made such enquiries and having taken such steps as they consider they reasonably ought, they have provided the Auditor with all the information necessary for it to be able to prepare its report. In doing so each Director has made himself aware of any information relevant to the audit and established that the Company's Auditor is aware of that information. The Directors are not aware of any information relevant to the audit of which the Company's Auditor is unaware.

Capital Structure

The Company's Capital Structure is described in the "Investor Information Section".

Corporate Governance Report

The Corporate Governance Report, including the Financial Risk Management Review of the Company, is included later in this document.

Future Developments and Post Balance Sheet Events

The Board notes that, as a result of the worldwide market reaction to the Covid-19 pandemic during February and March 2020, the portfolio experienced a swift and shortterm reduction at that time. Since the balance sheet date of 31 March 2020, the value of the portfolio has increased markedly. As at the 19 June 2020, being the most recent value available at the time of signing of this Report, the total value of the Company is £312.0m This is 12.9% higher than at the 31 March 2020 balance sheet date, having also paid out a £960k dividend in May 2020.

APPROVAL OF THE DIRECTORS

The Directors consider the Period-End Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. Further details demonstrating the Company's performance, business model and strategy have been included within the Strategic Report in this document.

For and on behalf of the Board

24 June 2020



 

Corporate Governance Report

CORPORATE GOVERNANCE CODE

Internal Controls

The UK Corporate Governance Code ("UK Code") (issued July 2018 Code for accounting periods beginning on or after 1 January 2019), which can be found on the website of the Financial Reporting Council ("FRC") (www.frc.org.uk), requires the Directors of UK listed companies to review the effectiveness of the Company's risk management and system of internal controls on an annual basis. The Directors recognise the importance of sound corporate governance, robust risk management processes and effective systems of internal controls. They review the effectiveness of these on at least an annual basis. The Directors, through the procedures outlined below, keep the system of risk management and internal controls under review. The Board has identified risk management controls in the key areas of business objectives, accounting, compliance, operations and secretarial as areas to be included in the extended review.

The Board recognises its ultimate responsibility for the Company's system of risk management and internal controls and for monitoring their effectiveness. In order to perform this responsibility the Board receives regular reports on all aspects of risk management and internal control from the Company's service providers (including financial, operational and compliance controls, risk management and relationships with other service providers); the Board will instigate necessary action in response to any significant failings or weaknesses identified by these reports. However, it must be noted this system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Financial Reporting

The Board has a responsibility to present a fair, balanced and understandable assessment of annual, halfyear and other price sensitive public reports and reports to regulators, as well as to provide information required to be presented by statutory requirements. To ensure this responsibility is fulfilled, all such reports are reviewed and approved by the Board prior to their issue.

The Board confirms there have been no specific events since 31 March 2020, of which the Board is aware, which would have a material impact on the Company. However, the Board also notes that, as a result of the worldwide market reaction to the Covid-19 pandemic during February and March 2020, the portfolio experienced a swift and short-term reduction at that time. Since the balance sheet date of 31 March 2020, the value of the portfolio has increased markedly. As at the 19 June 2020, being the most recent value available at the time of signing of this Report, the total value of the Company is £312.0m. This is 12.9% higher than at the 31 March 2020 balance sheet date, having also paid out a £960k dividend in May 2020.

COMPLIANCE WITH THE PROVISIONS OF THE UK CORPORATE GOVERNANCE CODE

The Board of Hansa Investment Company Ltd has considered the Principles and Provisions of the AIC Code. The AIC Code addresses the Principles and Provisions set out in the UK Code, as well as setting out additional Provisions on issues that are of specific relevance to the Company.

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the FRC in the UK, provides more relevant information to shareholders.

The Company has complied with the Principles and Provisions of the AIC Code.

The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

ASSOCIATION OF INVESTMENT COMPANIES CODE

The AIC Code has 17 principles. The Principles are listed below together with the Board's response as to how it seeks to meet the Principle's recommendation:

Board Leadership and Purpose

successful company is led by an effective board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society.

  The Board is formed of five Directors with a complementary mix of skills and experience to lead the Company. Two Directors served on the board of the Company's predecessor, Hansa Trust PLC, whilst three Directors are newly appointed to HICL. All have significant and relevant experience. All Directors are focused on generating long-term value for shareholders and there is significant share ownership in the Company's shares amongst the Directors. .

The board should establish the company's purpose, values and strategy, and satisfy itself that these and its culture are aligned. All directors must act with integrity, lead by example and promote the desired culture.

  The Board believes that the Company's purpose, values and strategy are clear: to create longterm growth of shareholder value. The Board sets the standard for openness and professionalism that the Company's key service providers follow. In particular, there is regular interaction between the Board and the Company's Portfolio Manager and also AASP for day to day liaison with other service providers.

The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed.

  The Board receives regular and detailed reports from the Portfolio Manager regarding investment performance as well as market trends and views on risks. The Board has set a number of KPIs against which the performance of elements of the portfolio can be considered. The Board receive regular risk and compliance reporting.

In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties.

  The Board considers its stakeholders to be its shareholders and its key suppliers. It actively engages with shareholders via an annual meeting, quarterly factsheets, website communication and annual investor day, with feedback also received through outreach programmes such as Edison, as well as direct one-to-one correspondence. The Board engages with other key suppliers through the operations of its AASP on a day to day basis, as well as via an annual meeting with each or more frequently if an issue arises.

Principle E is omitted by the AIC Code.

Division of Responsibilities

The chair leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.

  The Chairman is Jonathan Davie who joined Hansa Trust PLC as a Director in January 2013 - also serving as Chair of its Audit Committee. The Chairman promotes and encourages active participation from all Directors at Board meetings. Further, whilst adhering to membership guidelines, sub-committees also seek to include as many Directors as possible to ensure a broad range of views. All Directors receive regular monthly and quarterly information prepared by the Portfolio Manager and Administrator, as well as portfolio performance presentations from the Portfolio Manager.

The board should consist of an appropriate combination of directors (and, in particular, independent non-executive directors) such that no one individual or small group of individuals dominates the board's decision making.

  The Board consists of five Directors. All have financial backgrounds but each also brings individual specialisms and experience that are complimentary. Their biographies are noted earlier in this document. Four Directors are deemed independent. The fifth, William Salomon, is the Senior Partner of the Company's Portfolio Manager and, therefore, is deemed non-independent. All Directors are non-executive. All Directors are actively involved in decisions and committees unless conflicts exist which preclude this. Therefore, Mr Salomon does not participate in the evaluation of the performance of the Portfolio Manager due to his role as Senior Partner of that firm. Nor does he participate in decisions regarding the Company's largest asset (by value) OWHL, due to him being a Director of that company. Finally, Mr Salomon is not a member of the Audit Committee due to his non-independent status although he does attend meetings of that Committee.

Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive challenge, strategic guidance, offer specialist advice and hold third party service providers to account.

  The Directors consider that they have sufficient time to meet their responsibilities. A formal timetable exists for the Board meetings and sub-committees. In considering appointments and potential conflicts of interests the Board considers the available time each Director has to commit to the Company. The Portfolio Manager and AASP report to scheduled Board meetings, giving the Directors the opportunity to challenge performance, raise issues and offer guidance.

The board, supported by the company secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently.

  The Company Secretary and AASP support the Board in identifying and monitoring all governance matters. Additionally, Directors are able to consult external professional advisors to assist them in the performance of their duties as and when required. Board reporting and materials are refined on an ongoing basis.

Composition, succession and evaluation

Appointments to the board should be subject to a formal, rigorous and transparent procedure, and an effective succession plan should be maintained. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.

  The Board has appointed a Nominations Committee chaired by Nadya Wells. The Committee meets annually to give full and ongoing consideration to succession planning. Ahead of any appointment, the Committee is tasked with evaluating the skills required of a candidate to ensure the Board retains the range of skills required. The Company believes a diverse Board brings many benefits and, as such, there is no restriction placed on Board membership.

The board and its committees should have a combination of skills, experience and knowledge. Consideration should be given to the length of service of the board as a whole and membership regularly refreshed.

  The Directors have a broad range of backgrounds including Investment Management, finance and banking as well as operational experience. Biographies of all Directors are shown earlier in this document. As noted in J above, the Nominations Committee is tasked with maintaining a broad range of skills and experiences at times of succession.

Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively.

  The Nominations Committee is responsible for the ongoing consideration of Board composition and to identify any skills gap - now or in the future. The Nomination Committee considers Board effectiveness at least annually.

Audit, risk and internal control

The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of external audit functions and satisfy itself on the integrity of financial and narrative statements.

  The Board has specifically delegated the appointment and monitoring of the Company's external Auditor to its Audit Committee. The Company's Auditor was formally appointed in November 2019. The tender process was led by the Chairman of the Audit Committee. To ensure independence, the Company's Auditor does not provide other services to the Company. The Company rigorously follows policy and procedure to ensure effectiveness of the external audit and integrity of financial reporting.

The board should present a fair, balanced and understandable assessment of the company's position and prospects.

  The Board considers and approves all relevant shareholder communications. The Period-End report is reviewed by the Board to ensure it presents a fair and balanced view including commentary on going concern and long-term viability. The Audit Committee considers the fairness of the Financial Statements before recommending them to the Board for approval.

The board should establish procedures to manage risk, oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives.

  Principal risks are identified by the Board and risk appetite established against these risks. Day to day risk management is undertaken by the Portfolio Manager and AASP within the parameters established by the Board. The Board meets with the Portfolio Manager at each scheduled Board meeting where there is opportunity to discuss particular aspects of the portfolio and associated risks. Operational risk and compliance reporting are also regularly discussed by the Board.

Remuneration

Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success.

  The remuneration of Directors is overseen by the Remuneration Committee, chaired by Simona Heidempergher. The Directors each receive a fixed annual fee and do not receive any additional element based on performance of the Company. Additionally, Directors offer themselves annually for re-election at the Company's AGM.

A formal and transparent procedure for developing policy on remuneration should be established. No director should be involved in deciding their own remuneration outcome.

  The Directors' Remuneration Report notes that each Director is paid a fixed fee representative of their roles and additional responsibilities on the Board. This fee level is reviewed by the Remuneration Committee making use of external evidence before being recommended to the wider Board.

Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking account of company and individual performance, and wider circumstances.

  The Directors' Remuneration Report notes that each Director is paid a fixed fee representative of their roles and additional responsibilities on the Board. There are no additional performance-related elements to any Director's remuneration.

COMPLIANCE WITH THE FINANCIAL CONDUCT AUTHORITY UKLA LISTING RULES

The Directors are responsible for ensuring that:

Adequate accounting records are kept, that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements are consistent with the requirements under the UK Companies Act 2006.

The assets of the Company are safeguarded; and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Report of the Directors and other information included in the Period-End Report is prepared in accordance with Company Law in the UK. The Directors are also responsible for ensuring the Period-End Report includes information required by the Listing Rules of the FCA.

The Company has effective internal control systems, designed to ensure that adequate accounting records are maintained; and that financial information on which the business decisions are made, which is issued for publication, is reliable. Such a system of internal control can provide only reasonable, but not absolute, assurance against material misstatement or loss.

The Company Financial Statements for each financial year are prepared in accordance with IFRS, as adopted by the EU. The Directors must not approve the Financial Statements unless they are satisfied they give a true and fair view of the state of affairs and profit or loss of the Company for that period.

In preparing these Financial Statements, the Directors are required to:

select suitable accounting policies and apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether they have been prepared in accordance with IFRS as adopted by the EU; and

prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume the Company will continue in business.

Under the FCA UKLA Listing Rules and the UK Code, the Board is responsible for:

Disclosing how it has applied the principles and complied with the provisions of the AIC Code and, thereby, the UK Code, or where not, to explain the reasons for divergence.

Reviewing the effectiveness of the Company's systems of risk management and internal controls.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website: www.HansaICL.com. Visitors to the website need to be aware that legislation governing the preparation and dissemination of the Financial Statements may differ from legislation in their own jurisdictions.

RESPONSIBILITY STATEMENT

The Directors confirm that to the best of their knowledge:

The Financial Statements, prepared in accordance with applicable international accounting standards and present fairly, in all material respects, the financial position of Hansa Investment Company Ltd.

The Strategic Report, including the Chairman's Report to the Shareholders and the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties it faces.

The Directors consider the Period-End Report and Financial Statements, taken as a whole, are fair, balanced and understandable. Further detail demonstrating the Company's performance, business model and strategy has been included within the Strategic Report.

For and on behalf of the Board

24 June2020



 

Audit Committee Report

 

The Audit Committee comprises solely independent directors, as required by the AIC Code and endorsed by the FRC. It is chaired by Richard Lightowler. Given the size of the Board, and the range of experience they bring, all non-committee Directors are invited to attend the Audit Committee meetings. However, only the independent member Directors are able to vote. Recommendations of the Audit Committee are brought before the whole Board for discussion and ratification.

The terms of reference of the Committee are determined by the Committee and approved by the Board and include, but are not restricted to, the following:

To consider and make a recommendation to the Board as to the appointment of the external Auditor, tendering of the external audit, approval of the annual audit fee and any questions relating to the resignation or dismissal of the Auditor.

To determine with the external Auditor the nature and scope of the audit.

To review and monitor the independence of the external Auditor including pre-approval, of any, non-audit services to the Company.

To consider the performance of the Auditor.

To review the Half-Year and Period-End Financial Reports before submission to the Board, focusing particularly on:

any changes in accounting policies and practices;

major judgemental areas;

significant adjustments resulting from the audit;

the going concern assumption;

compliance with Accounting Standards and Governance Codes;

compliance with FCA Listing Rules and legal requirements; and

valuation of unquoted investments.

To discuss issues and matters arising from the annual audit with the Auditor.

To review the Auditor's audit findings and responses to it, including holding an executive session with the Auditor.

To review and monitor the effectiveness of the Company's Internal Control and Risk framework prior to endorsement by the Board.

To review service providers' AAF 01/06 or ISAE 3402 reports.

During the period the Audit Committee ran a tender process, led by the Audit Committee Chairman, to appoint the Company's Auditor. This robust process considered the skills, competencies and experience of each tendering firm, and resulted in the appointment of PricewaterhouseCoopers Bermuda Ltd as the Company's Independent Auditor.

In discharging its duties and, in particular, matters relating to the approval of the Period-End Report, Half-Year Report and the review of the Company's internal controls, the Committee considers reports and presentations made by the Company's Auditor, Administrator, Company Secretary, Additional Administrative Services Provider (including those of its Compliance Officer) and Legal Advisers.

In its review of the Financial Statements, the Committee pays particular attention to the ownership of assets, the valuations of the portfolio, recognition of income and areas of significant judgement. In this regard we receive regular reporting from the Manager and reports on the effectiveness of internal controls in these areas. In addition the Committee understand and discuss the Auditor's scope of work in these areas.

With regard to the ownership of assets, the Company's Custodian and Administrator have confirmed the ownership of all assets to the Audit Committee's satisfaction. With regard to the valuations, the Audit Committee notes that 67% of the portfolio by value is held in assets that are listed on an exchange, hence forming the basis of the valuation. Further, of the remaining 33% unquoted fund investments, the majority primarily hold traded securities. Valuations for these funds are supplied by third party managers. The Audit Committee recognises that the 42% of the total portfolio are Level 1 and 53% are Level 2 securities. The Committee is satisfied with the valuation process. With regard to revenue recognition, the Audit Committee reviewed the external Auditor's approach to the audit prior to the commencement of the audit. The results of the audit in this area were discussed with the external Auditor and there were no significant issues arising in relation to the recognition of revenue.

The Audit Committee considers the potential need for an internal audit function on an annual basis, recognising the FRC guidance on proportionality. The Audit Committee considers internal compliance testing at the Administrator and Portfolio Manager to be sufficiently independent and robust to negate the need for a standalone internal audit function.

The Committee is authorised by the Board to investigate any activity within its terms of reference, to seek any information it requires from any officer or service provider to the Company, to obtain outside legal or other independent professional advice and to secure the attendance of third parties with relevant experience and expertise if it considers this necessary.

The Chairman of the Audit Committee formally reports to the Board following each Audit Committee meeting and on other occasions as requested by the Board.

A separate evaluation of Committee members is not conducted. Rather, their suitability and effectiveness is considered as part of the annual Board evaluation process which is described within the Corporate Governance Report further on in this document.

The Audit Committee, having considered its responsibilities and its reporting to the Board, confirms it is not aware of any matter which it should bring to the attention of either the Board or the Auditor and considers the Period-End Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

The Audit Committee considers the external Auditor's independence, objectivity and the cost effectiveness of the audit process through a process of feedback from the Company advisors, including the Company Secretary, AASP and Portfolio Manager. The Committee also meet with the Auditor in executive session to discuss the Period-End Report, the work the Auditor has carried out and any matters raised. The current audit partner is Scott Watson-Brown who has led the audit.

The level of non-audit services provided to the Company by the Auditor is monitored, as is the Auditor's objectivity in providing such services, to ensure that the independence of the audit team from the Company is not compromised. No non-audit services are provided by PricewaterhouseCoopers Ltd to the Company. Further information on fees paid to the Auditor is contained in "Other Expenses" within Note 4 of the Financial Statements.

For and on behalf of the Audit Committee.

24 June 2020

 



 

Directors' Remuneration Report

 

The Board produces a separate report on the Directors' Remuneration and, by approving it, confirms its accuracy. There are elements of the Directors' Remuneration Report that are subject to audit as disclosures in accordance with "IAS 24 - Related Party Disclosures" which have been presented here. These are labelled as "audited", with the Auditor's report included in this document.

Ordinary resolutions for the approval of this Report will be put to shareholders at the forthcoming AGM.

ANNUAL STATEMENT

The Company has five non-executive Directors. The Board has appointed a Remuneration Committee. The Chairman of this Committee is Simona Heidempergher who has signed this statement on behalf of the Board.

This is the first year of the Company's operation. Each Director was appointed during June 2019 following the creation of the Company. Going forward, each Director will present themselves for annual re-election at the Company's AGM.

POLICY ON DIRECTORS' REMUNERATION

The Board's policy is that the remuneration of non-executive Directors should include a basic pay level and should reflect the experience of the Board as a whole, be appropriate for the work carried out and the responsibilities, financial and reputational risks undertaken, including additional remuneration for any roles in addition to the responsibilities of the non-executive director role - for example, the chairman. The remuneration does not include a performance related element and Directors do not receive bonuses, share options, pensions or long-term incentive schemes. The total remuneration of the Board will be kept within the limits set out in the Company's Bye-Laws, as amended from time to time.

The fees for the non-executive Directors are within the limits (maximum total fee of $350,000) as set out in the Company's Bye-Laws. The maximum is set as a USD amount. The equivalent is £282,258 if translated at the applicable rate on 31 March 2020.

DIRECTORS' SERVICE CONTRACTS

It is the Board's policy that every Director has a service contract. None of the service contracts is for a fixed term. The terms of appointment provide that a Director shall retire and be subject to re-election at the first AGM after appointment. The Board has decided each Director will retire annually at the AGM and seek re-election as appropriate. The terms also provide that either party may give three months' notice. In certain circumstances a Director may be removed without notice and compensation will not be due on leaving office. There are no agreements between the Company and its Directors concerning compensation for loss of office.

FUTURE POLICY TABLE

All of the Directors are non-executive, whose only remuneration is a fee. The implementation of the above policy could give rise to the following increase in fees:


Current
total fee
£000

Potential future
total fee
£000


Nonexecutive Director fees

144*

282**


 

* This fee represents a part year from incorporation to 31 March 2020. For information, annual current Director fees are noted in the table below.

** This amount is the current upper limit of remuneration of $350,000, converted at the exchange rate to GBP on 31 March 2020.

POLICY FOR NOTICE PERIODS

The current Directors' service contracts stipulate three months' written notice to be given by either the Director or the Company to terminate the services of a Director. The Board consider this is sufficient notice to ensure an orderly hand over between the parties.

SHAREHOLDERS' VIEWS ON REMUNERATION POLICY

The formal views of unconnected shareholders have not been sought in the preparation of this policy.

EMPLOYEES

The Company does not have any employees, only nonexecutive Directors.

ANNUAL REPORT ON REMUNERATION

Directors' Emoluments (Audited)

The Company does not have any employees, only nonexecutive Directors who receive only a basic fee, plus repayment of expenses incurred in the course of performing their duties. Therefore, the use of the detailed remuneration table, as prescribed in the legislation, is not appropriate here. A condensed table showing the information relevant to the Directors' remuneration is shown in its place.

The Directors who received fees during the year received the following emoluments in the form of fees. For clarity, these amounts are quoted in the currency as per their service contract. Additionally, given the Company has not existed for a full 12 month period, their current annual fee is also quoted as well as a conversion to Sterling where required. This conversion has been made at the relevant exchange rate on 31 March 2020:


2020
Fee
£000

2020
Total
£000

Annual
Fee
$000

Annual
Fee in GBP
£000

Jonathan Davie (Chairman)

33

33

70

57

Richard Lightowler

37

37

60

48

Simona Heidempergher

31

31

50

40

William Salomon

12

12

25

20

Nadya Wells

31

31

50

40


144

144

255

205

 

The Company also pays the expenses of the Directors to attend the Board meetings.

DIRECTORS' INTERESTS (AUDITED)

Directors must seek permission from the Chairman before trading in shares, taking note of any Closed Periods. Other than that, there are no specific rules on Directors' shareholdings.

The interests of Directors and their connected parties in the Company at 31 March 2020 are shown below.

 


Ordinary
shares of
1p each

'A' nonvoting Ordinary
shares of 1p each

Nature
of interest



2020


2020


Jonathan Davie


45,000


230,000

Beneficial

William Salomon


10,959,345


1,935,500

Beneficial

Simona Heidempergher

6,400


-

Beneficial

 

As at 24 June 2020, the date of signing of these Period-End Financial Statements, there were no changes to report to the Directors' holdings other than Mr Salomon's holdings had increased to 11,119,345 Ordinary and 2,045,500 'A' non-voting Ordinary shares.

William Salomon is the senior partner of Hansa Capital Partners LLP. Fees payable to Hansa Capital Partners LLP amounted to £1,490,188. The fees outstanding at the year end amounted to £396,880. During the year, no rights to subscribe to the shares of the Company were granted to, or exercised by Directors, their spouses or infant children.

DIRECTORS' ATTENDANCE

The Directors meet as a Board on a quarterly basis and at other times as necessary and the table below sets out the number of operational meetings and the attendance at them by each Director.


Strategic

Board

Audit
Committee

Number of meetings held

1

2

1

Number of meetings attended:



Jonathan Davie (Chairman)

1

2

1

Richard Lightowler

1

2

1

Simona Heidempergher

1

2

1

William Salomon

1

2

1

Nadya Wells

1

2

1

 

1) On incorporation on 21 June 2019, the Company was set up with two initial Directors, Dawn Griffiths and Christopher Garrod. Both served from incorporation until 26 June 2019 when, at the Company's first Board meeting, the current board members were appointed.

2) As part of the incorporation of the Company, a number of set-up meetings occurred involving, at different times during the process, the initial Directors, or combinations of one or more of the current Directors. These meetings have not been listed above as they are not recurring operational meetings.

3) Dividend policy is set by the Board as a whole. At the time of announcement of a quarterly dividend, if such announcement did not coincide with a scheduled meeting of the Board, a committee of the Board meets to consider the financial information required before such an announcement can be officially released. These meetings are not listed above.

STATEMENT OF VOTING AT THE AGM

The Directors' Remuneration Report will be presented at the Company's first AGM in due course for approval by shareholders.

On behalf of the Board, I confirm that the above Report on Directors' Remuneration summarises, as applicable, for the year ended 31 March 2020:

(a)  the major decisions on Directors' remuneration;

(b)  any substantial changes relating to Directors' remuneration made during the year; and

(c) the context in which those changes occurred and decisions have been taken.

For and on behalf of the Board

Chairman of the Remuneration Committee

24 June 2020



 

Independent Auditor 's Report to the Board of Directors and Shareholders of Hansa Investment Company Ltd.

Report on the audit of the financial statements

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Hansa Investment Company Ltd. (the Company) as at 31 March 2020, and its financial performance and its cash flows for the period 21 June 2019 to 31 March 2020 in accordance with International Financial Reporting Standards as adopted by the European Union.

What we have audited
Hansa Investment Company Ltd.'s financial statements, included In this document, comprise:

the income statement for the period 21 June 2019 to 31 March 2020;

the balance sheet as at 31 March 2020;

the statement of changes in equity for the period 21 June 2019 to 31 March 2020;

the cash flow statement for the period 21 June 2019 to 31 March 2020; and

the notes to the financial statements, which include significant accounting policies.

Certain required disclosures have been presented elsewhere in the Period End Report and Accounts (the "Period End Report"), rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the ethical requirements of the Chartered Professional Accountants of Bermuda Rules of Professional Conduct (CPA Bermuda Rules) that are relevant to our audit of the financial statements in Bermuda. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the ethical requirements of the CPA Bermuda Rules.

Materiality

Our audit approach

Overview

Overall materiality: £2,763,000 based on 1% of net assets.

Audit scope

In addition to determining materiality, we also assessed, amongst other factors, the following in designing our audit:

  -  the risk of material misstatement in the financial statements

  -  significant accounting estimates

  -  the risk of management override of internal controls

Key audit matters

Valuation and existence of investments

Accuracy, occurrence and completeness of investment income

Consideration of impacts of COVID-19

 

 

Audit scope

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the financial statements as a whole.

Overall materiality

£2,763,000

How we determined it

1% of net assets.

Rationale for the materiality benchmark applied

We applied this benchmark, which is generally accepted auditing practice for investment company audits.

 

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £138,000 as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter

How our audit addressed the key audit matter

Valuation and existence of investments

Refer to notes 1(d) and 10 to the financial statements for disclosures of related accounting policies and balances.

The investment portfolio at the period end comprised listed investments valued at £183 million (67%) and unlisted investments valued at £90 million (33%). We focused on the existence of both listed and unlisted investments, as listed investments comprise the majority of the investments balance and unlisted investments are, individually and in aggregate, material to the financial statements. We focused on the valuation of listed investments because listed investments represent the principal element of the net asset value as disclosed on the Balance Sheet in the financial statements. We also focused on the valuation of the unlisted investments as the valuation of these investments is material to the net asset value.

We tested the existence of the investment portfolio by agreeing the holdings for investments to an independent custodian confirmation. No differences were identified by our testing which required reporting to those charged with governance.

Listed investments We tested the valuation of the listed equity investments by agreeing the prices used in the valuation to independent third-party sources. No misstatements were identified by our testing which required reporting to those charged with governance.

Unlisted investments We understood and evaluated the controls around the pricing of unlisted investments including the final approval of the valuation by the Manager and the Board. We assessed the approach used by the Manager in valuing these investments, which comprised obtaining the most recent valuation provided by the fund administrator for each investment at the period end.

We obtained a direct confirmation of the investments held and the price from each fund administrator. We used these two key inputs to recalculate the valuation applied by management. This recalculation was performed for 100% of the unlisted investments.

We obtained an understanding of the underlying methodology applied to each unlisted investment through review of their most recently available audited financial statements to evaluate whether it was based on fair value.

Based on the procedures detailed above, no misstatements were identified which required reporting to those charged with governance.

Accuracy, occurrence and completeness of investment income

Refer to notes 1(f) and 2 to the financial statements for disclosures of related accounting policies and balances.

We focused on the accuracy, occurrence and completeness of dividend income recognition as incomplete or inaccurate income could have a material impact on the Company's net asset value and dividend cover. We also focused on the accounting policy for income recognition and its presentation in the Income Statement as set out in the requirements of The Association of Investment Companies Statement of Recommended Practice (the "AIC SORP") as incorrect application could indicate a misstatement in income recognition.

 

We assessed the accounting policy for dividend income recognition for compliance with accounting standards and the AIC SORP and performed testing to evaluate whether income had been accounted for in accordance with this stated accounting policy. We found that the accounting policies implemented were in accordance with accounting standards and the AIC SORP, and that income has been accounted for in accordance with the stated accounting policy.

We tested the accuracy of dividend receipts by agreeing the dividend rates from investments to independent market data. No misstatements were identified which required reporting to those charged with governance.

To test for completeness, we tested, for a sample of investment holdings in the portfolio, that all dividends declared in the market by investment holdings had been recorded. We tested occurrence by testing that all dividends recorded in the period had been declared in the market by investment holdings, and we traced a sample of dividends received to bank statements. Our testing did not identify any misstatements which required reporting to those charged with governance.

We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Income Statement in line with the requirements set out in the AIC SORP by determining reasons behind dividend distributions. Our procedures did not identify any misstatements which required reporting to those charged with governance.

Consideration of impacts of COVID-19

Refer to notes 1(a) and 24 to the financial statements which disclose the basis of preparation of the financial statements and the impact of the COVID-19 pandemic.

From a small number of cases of an unknown virus in 2019, the COVID-19 viral infection has become a global pandemic. It has caused disruption to supply chains and travel, slowed global growth and caused volatility in global markets and in exchange rates during the first quarter of 2020 and to date.

The coronavirus impacted global capital markets significantly in March 2020. The Company's net assets were £276.3m at 31 March 2020.

The Directors have prepared the financial statements of the Company on a going concern basis, and believe this assumption remains appropriate. This conclusion is based on the assessment that, notwithstanding the significant market uncertainties, they are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and that the Company and its key third party service providers have in place appropriate business continuity plans and will be able to maintain service levels through the coronavirus pandemic.

We evaluated the Directors' assessment of the impact of the COVID-19 pandemic on the Company by:

Evaluating management's assessment of operational impacts, considering their consistency with other available information and our understanding of the business and assessing the potential impact on the financial statements.

Testing the impact of COVID-19 on the valuation of sampled investments.

We obtained and evaluated the Directors' going concern assessment which reflects conditions up to the point of approval of the Period End Report.

We obtained evidence to support the key assumptions and forecasts driving the Directors' assessment. This included reviewing the Directors' assessment of the Company's financial position and forecasts, their assessment of liquidity as well as their review of the operational resilience of the Company and oversight of key third party service providers.

Having performed the above, we satisfied ourselves that, even though COVID-19 could negatively impact the Company's results and cash flows, management's use of the going concern basis of accounting was appropriate.

We assessed the disclosures presented in the Period End Report in relation to COVID-19 by:

Reading the other information, including the Principal Risks and Viability Statement set out in the Strategic Report, and assessing its consistency with the financial statements and the evidence we obtained in our audit.

Our conclusions relating to other information are set out in the 'Other information' section of our report.

 

Other information

Management is responsible for the other information. The other information comprises the Period End Report (but does not include the financial statements and our auditor's report thereon).

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

UK Corporate Governance Code

We have nothing to report in respect of our responsibility to report when the Directors' statement relating to the Company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules of the FCA, for review by the auditors. 

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Scott Watson-Brown.

 

PricewaterhouseCoopers Ltd
Hamilton, Bermuda

24 June 2020



 

Income Statement

For the period 21 June 2019 to 31 March 2020






21 June to
31 March 2020





Notes

Revenue
£000

Capital
£000

Total
£000

Losses on investments held at fair value through profit or loss


10

-

(50,965)

(50,965)

Exchange losses on currency balances





-

(104)

(104)

Investment income




2

1,364

-

1,364






1,364

(51,069)

(49,705)

Portfolio management fees




3

(1,441)

-

(1,441)

Other expenses




4

(1,488)

-

(1,488)






(2,929)

-

(2,929)

Losses before finance costs and taxation



(1,565)

(51,069)

(52,634)

Finance costs




5

(1)

-

(1)

Losses before taxation





(1,566)

(51,069)

(52,635)

Taxation




6

(205)

-

(205)

Losses for the period





(1,771)

(51,069)

(52,840)

Return per Ordinary and 'A' non-voting Ordinary share


8

(1.5p)

(42.6p)

(44.1p)


 

The Company does not have any income or expense not included in the above statement. Accordingly, the "Loss 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 Company's Income Statement, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital return columns are both prepared under guidance published by the AIC.

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

The accompanying notes further on in this report are an integral part of this Statement.



 

Balance Sheet

As at 31 March 2020



Notes

2020
£000

Non-current assets




Investments in subsidiary at fair value through profit or loss^


9

3,179

Investments held at fair value through profit or loss


10

273,264




276,443

Current assets




Trade and other receivables


12

2,503

Cash and cash equivalents


13

1,066




3,569

Current liabilities




Trade and other payables


14

(3,713)

Net current liabilities



(144)

Net assets 



276,299

Capital and reserves




Called up share capital


15

1,200

Contributed surplus


16

327,939

Retained earnings


17

(52,840)

Total equity shareholders' funds



276,299

Net asset value per Ordinary and 'A' non-voting Ordinary share


18

230.2p


 

The Financial Statements of Hansa Investment Company Limited, registered in Bermuda under company number 54752, set out in this document were approved by the Board of Directors on 24 June 2020 and were signed on its behalf by

Chairman



 

Statement of Changes in Equity

For the period 21 June 2019 to 31 March 2020






Notes

Share capital
2020
£000

Capital redemption reserve
2020
£000

Retained earnings
2020
£000

Total
2020
£000

As at 21 June 2019






-

-

-

-

Issue of share capital 29 August 2019



15

1,200

-

-

1,200

Transfer of assets from Hansa Trust



16

-

330,819

-

330,819

Losses for the period






-

-

(52,840)

(52,840)

Dividends





7

-

(2,880)

-

(2,880)

Net assets at 31 March 2020






1,200

327,939

(52,840)

276,299


 

 

 

 

 



 

Cash Flow Statement

For the period 21 June 2019 to 31 March 2020



Notes

2020
£000

Cash flows from operating activities




Losses before finance costs and taxation*



(52,634)

Adjustments for:




 Realised gains on investments


10

(644)

 Unrealised losses on investments


10

51,609

 Effect of foreign exchange rate changes



104

Increase in trade and other receivables


12

(2,503)

Increase in trade and other payables


14

534

Taxes paid


6

(205)

 Purchase of non-current investments



(17,059)

 Sale of non-current investments



22,980

Net cash inflow from operating activities



2,182

Cash flows from financing activities




 Interest paid on bank loans


5

(1)

 Inter-Company Loan with Hansa Trust PLC



1,869

 Dividends paid


7

(2,880)

Net cash outflow from financing activities



(1,012)

Increase in cash and cash equivalents



1,170

Cash and cash equivalents at 21 June



-

Effect of foreign exchange rate changes



(104)

Cash and cash equivalents at end of period


13

1,066


 

*Includes dividends received of £1,042,000 and interest received of £1,000.



 

Notes to the Financial Statements

1 ACCOUNTING POLICIES

Hansa Investment Company Limited is a company limited by shares, registered and domiciled in Bermuda with its registered office shown later in this report. The principal activity of the company is set out in the strategic report within this document.

Basis of preparation

The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the European Union.

These Financial Statements are presented in Sterling because that is the currency of the primary economic environment in which the Company operates and its location of listing.

The Financial Statements have been prepared on an historical cost and going concern basis in line with the assertion of the Board, 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 October 2019, to the extent that the SORP does not conflict with IFRS. The principal accounting policies adopted are set out below.

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 Ltd meets all three characteristics of an Investment Entity as described by IFRS 10. The Company has one, 100% owned, subsidiary Hansa Trust PLC. The Company became the 100% owner of Hansa Trust's shares as part of the Scheme of Arrangement on 29 August 2019. Once the legal title of the portfolio investments are transferred to the Company, it is the intention for Hansa Trust to be dissolved.

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.

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 derecognised on the trade date. For assets whose shares are traded on an exchange fair value is deemed to be bid market prices, or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange's electronic trading service, covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 constituents, along with some other securities.

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 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, 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. The investment in the Company's subsidiary undertaking is stated at fair value.

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.

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.

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. UK dividends, overseas dividends and Real Estate Investment Trusts' ("REIT") income are all stated gross.

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.

Expenses

All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement except as follows:

  (i) 
expenses which are incidental to the acquisition or disposal of an investment are charged to the capital column of the Income Statement; and

  (ii) 
expenses are charged to the capital reserves, via the capital column of the Income Statement, where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax, as well as withholding taxes incurred.

Bermuda does not impute a Corporate tax for revenue or capital profits in the Company itself and, therefore, this will be £nil. 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.

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 period end are reported at the rate of exchange prevailing at the period end. Any gain or losses arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or losses in the capital or revenue column of the Income Statement, depending on whether the gain or losses is of a capital or revenue nature respectively.

Retained Earnings

Capital Reserves - Other

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; and

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

Capital Reserves - Investment Holding Gains/(Losses)

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

increases and decreases in the valuation of investments held at the period end.

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.

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 31 March 2020. The most recent valuation statement was received on 14 April 2020 stating the value of the Company's holding as at 31 December 2019. The Company has considered the impact of the rapid spread of Covid-19, the associated financial downturn and its potential impact on asset values. In the absence of a valuation for 31 March, 2020 from DV4, the Company performed additional procedures to determine the reasonableness of the fair value estimate for inclusion in the financial statements, These included direct enquiries of the Manager of DV4 to understand, amongst others, valuation process and techniques used, external experts used in the valuation process and updated details of underlying property portfolio. In addition, the Company has obtained external independent valuation data and compared the historic valuation movements of DV4 to that data. Based on the information obtained and additional analysis performed the Company is satisfied that DV4 is carried in these financial statements at amount that represents its best estimate of fair value at 31 March 2020.

Adoption of new and revised standards

The following amendments to standards effective this period, being relevant and applicable to the Company, have been adopted, although they have no impact on the Financial Statements:

IFRS 16 'Leases' specifies accounting for leases and removes the distinction between operating and finance leases. This standard is not applicable to the Company as it has no leases.

For the financial period under review, the Company has applied the following interpretation:

IFRIC 23 'Uncertainty over Income Tax' provides guidance on uncertain income tax treatments and specifies that an entity must consider whether it is probable that the relevant tax authority will accept each tax treatment or group of tax treatments, that it plans to use in its income tax filing. Where deemed to be more than probable, uncertain tax positions should be disclosed in the financial statements of the company.

There is no material impact on the Company in relation to the adoption of this standard.

Intercompany loan

The intercompany loan is recognised at cost, being the fair value of the consideration receivable. The amounts falling due for repayment within one year are included under current liabilities in the Balance Sheet.

2 INCOME



Revenue

21 June 2019 to 31 March 2020

£000

Income from quoted investments



Dividends


1,363

Other income



Interest receivable on AAA rated money market funds


1

Total income 


1,364


 

3 PORTFOLIO MANAGEMENT FEE



Revenue

21 June 2019 to 31 March 2020

£000

Portfolio management fee


1,441

Total management fee


1,441


 

Note: Details of the Portfolio Management Agreement are disclosed in the Strategic Report - Service Providers, earlier on in this document.

4 OTHER EXPENSES 



Revenue

21 June 2019 to 31 March 2020

£000

Administration fees


82

Directors' remuneration


144

Auditor's remuneration for:



- audit of the Company's Period-End Report


55

Printing fees


15

Marketing


39

Registrar's fees


119

Banking charges


2

Secretarial services


85

Travel expenses


74

Legal fees - redomicile project


381

Broker fees


15

Stock Exchange listing fees


247

Safe custody fees


99

Other


131



1,488


 

5 FINANCE COSTS


Interest payable


1



1


 

6 TAXATION

Taxation on Ordinary Activities





Revenue

21 June 2019 to 31 March 2020
£000

Capital
21 June 2019 to 31 March 2020
£000

Total
21 June 2019 to 31 March 2020
£000

Irrecoverable foreign withholding tax on dividends




205

-

205





205

-

205


 

 

7 DIVIDENDS PAID 


Amounts recognised as distributed to shareholders in the period 21 June 2019 to 31 March 2020
are as follows:


First and Second interim dividend for 2020 (paid 29 November 2020): 1.6p


1,920

Third interim dividend for 2020 (paid 28 February 2020): 0.8p


960



2,880


 

Set out below are the total dividends paid and proposed in respect of the current financial period. There is no revenue available for distribution by way of dividend for the period and, therefore, dividends have been paid from capital reserves, specifically contributed surplus which is permitted by Bermudan company law.



21 June 2019 to 31 March 2020

£000

First and second interim dividend for 2020 (paid 29 November 2019): 1.6p


1,920

Third interim dividend for 2020 (paid 28 February 2020): 0.8p


960

Fourth interim dividend for 2020 (payable 29 May 2020): 0.8p


960



3,840


 

The Board has announced four interim dividends, each of 0.8p per Ordinary and 'A' non-voting Ordinary share, relating to the period ended 31 March 2020. No final dividend is proposed for the period ended 31 March 2020.

8 RETURN ON ORDINARY SHARES (EQUITY)





Revenue
21 June 2019 to 31 March 2020

Capital
21 June 2019 to 31 March 2020

Total
21 June 2019 to 31 March 2020

Returns per share




(1.5)p

(42.6)p

(44.1)p


 

Returns

Revenue return per share is based on the revenue attributable to equity shareholders of £(1,771,000).

Capital return per share is based on the capital losses attributable to equity shareholders of £(51,069,000).

Total return per share is based on the combination of revenue and capital returns attributable to equity shareholders, amounting to net losses of (£52,840,000).

Both revenue and capital return are based on 40,000,000 Ordinary shares and 80,000,000 'A' non-voting Ordinary shares, in issue throughout the period.

9 INVESTMENTS IN SUBSIDIARY AT FAIR VALUE THROUGH PROFIT OR LOSS

As at 31 March 2020, the Company owns 100% of the ordinary share capital and voting rights of Hansa Trust PLC, formerly an investment trust, registered and operating in England. The fair value at 31 March 2020 was £3,179,000. As at 31 March 2020, Hansa Trust PLC was no longer trading and was not beneficially entitled to any investments except for an intercompany loan. The intercompany loan was originally created as part of the Scheme of Redomiciliation in August 2019 to reflect the transfer of the beneficial title of the portfolio from Hansa Trust PLC to the Company. Subsequently, Hansa Trust PLC has made three distributions to the Company. In each case, these have been treated as a return of capital by the Company. Therefore, the dividends received during the period have been recognised by the reduction of the Investment in Subsidiary in the Balance Sheet and a corresponding reduction in the intercompany loan. The dividends each significantly reduced the intercompany loan balance between Hansa Trust PLC and Hansa Investment Company Ltd. There remains a relatively small intercompany balance between the two entities. It is anticipated that the remaining intercompany balance, along with the share capital and other reserves of Hansa Trust PLC will be cancelled when Hansa Trust PLC is, ultimately, put into liquidation.

10 INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS 




Listed
£000

Unquoted
£000

2020
Total
£000

Movements in the period:






Purchases at cost



242,798

104,411

347,209

 Sales - proceeds



(17,279)

(5,701)

(22,980)

 Losses on investments



(42,116)

(8,849)

(50,965)

Valuation as at 31 March 2020



183,403

89,861

273,264

Cost



225,985

98,888

324,873

Investment holding losses



(42,582)

(9,027)

(51,609)




183,403

89,861

273,264


 



2020
£000

Gains on sales


644

Movement in investment holding losses


(51,609)

Losses on investments held at fair value through profit or loss


(50,965)


 

Transaction costs

During the period expenses were incurred in acquiring and disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:



2020
£000

Purchases


15

Sales


15



30


 

11 SIGNIFICANT HOLDING

The Company's holdings of 10% or more of any class of shares in investment companies and 20% or more of any class of shares in non-investment companies as at 31 March 2020 are detailed below:





Exc. Minority Interest


Country of
incorporation
or registration

Class of
capital

% of
class
held

Latest
available
accounts

Total
capital and
reserves

Profit
after
tax for
the period

Ocean Wilsons Holdings Limited

Bermuda

Ordinary

26.5

31.12.19

$569,793,000

$46,852,000








 

Ocean Wilsons Holdings Limited is included as part of the investment portfolio in accordance with IAS 28 - Investment in Associates. Hansa Investment Company Limited received no dividend in respect of its holding during the period.

12 TRADE AND OTHER RECEIVABLES



2020
£000

Prepayments and accrued income


83

Investments pending settlement


2,420



2,503


 

 

13 CASH AND CASH EQUIVALENTS 



2020
£000

Cash at bank


1,066



1,066


 

14 TRADE AND OTHER PAYABLES



2020
£000

Inter Company Loan


3,179

Other creditors and accruals


534



3,713


 

15 CALLED UP SHARE CAPITAL



2020
£000

40,000,000 Ordinary shares of 1p


400

80,000,000 'A' non-voting Ordinary shares of 1p


800



1,200


 

The 'A' non-voting Ordinary shares do not entitle the holders to receive notices or to vote, either in person or by proxy, at any general meeting of the Company, but in all other respects rank pari passu with the Ordinary shares of the Company.

16 CONTRIBUTED SURPLUS



2020
£000

Opening balance at 21 June 2019


-

Transfer of assets from Hansa Trust


330,819

Dividend paid


(2,880)

Balance at 31 March


327,939


 

17 RETAINED EARNINGS



 Reserves






Revenue



2020
£000

Capital - Other


2020
£000

Capital - Investment
holding
profits
2020
£000

Total
retained
earnings

2020
£000

Opening balance at 21 June 2019





-

-

-

-

(Loss)/Profit for the period





(1,771)

540

(51,609)

(52,840)

Closing balance at 31 March 2020





(1,771)

540

(51,609)

(52,840)










 

18 NET ASSET VALUE 



2020

NAV per Ordinary and 'A' non-voting Ordinary share


230.2p


 

The NAV per Ordinary and 'A' non-voting Ordinary share is based on the net assets attributable to equity shareholders of £276,299,000 and on 40,000,000 Ordinary shares and 80,000,000 'A' non-voting Ordinary shares in issue at 31 March 2020.

19 COMMITMENTS AND CONTINGENCIES

The Company has no outstanding commitments as at 31 March 2020.

20 FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS

The Company's financial instruments comprise securities, cash balances, debtors and creditors. These assets are classified in the following measurement categories:

those to be measured subsequently at fair value through profit or loss; and

those to be measured at amortised cost.

The financial assets held at amortised cost include trade and other receivables, cash and cash equivalents.

Risk Objectives and Policies

The objective of the Company is to achieve growth of shareholder value commensurate with the risks taken, bearing in mind that the protection of long-term shareholder value is paramount. The policy of the Board is to provide a framework within which the Portfolio Manager can operate and deliver the objectives of the Company. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company's net assets and/or a reduction of the profits available for dividends.

These risks include those identified by the accounting standard IFRS 7, being market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Directors' approach to the management of these is set out below. The Board, in conjunction with the Portfolio Manager and Company Secretary, oversees the Company's risk management..

Risks Associated with Financial Instruments

Foreign currency risk

Foreign currency risks arise in two distinct areas which affect the valuation of the investment portfolio. 1) the direct exposure where an investment is denominated and paid for in a currency other than Sterling; and 2) the indirect exposure where an investment has substantial non-Sterling underlying investment and/or cash flows. The Company does not normally hedge against foreign currency movements affecting the value of the investment portfolio, but takes account of this risk when making investment decisions. Some of the fund investments into which the Company invests will, in part or in whole, hedge some of their underlying currency risk, but this will be known at the time of investment and will form part of the investment decision. In those cases, the hedging will not remove the exposure to the underlying country or market sector. The Portfolio Manager monitors the effect of foreign currency fluctuations through the pricing of the investments by the various markets.





Direct
foreign
currency
risk
2020
£000

No direct
foreign
currency
risk
2020
£000

Total
2020
£000

Investments




98,846

174,418

273,264

Other receivables including prepayments




24

2,479

2,503

Cash at bank




-

1,066

1,066

Current liabilities




-

(534)

(534)





98,870

177,429

276,299


 

Note: Direct foreign currency risk includes direct exposure to USD and Euro currencies.

Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on the Company's variable rate borrowings.

The Company has banking facilities amounting to £30m which are available for the Portfolio Manager to use in purchasing investments; the costs of which are based on the prevailing LIBOR rate, plus an agreed margin. The Company does not normally hedge against interest rate movements affecting the value of the investment portfolio, but takes account of this risk when an investment is made utilising the facility. The level of banking facilities used is monitored by both the Board and the Portfolio Manager on a regular basis. The impact on the returns and net assets of the Company for every 1% change in interest rates, based on the amount drawn down at the period end under the facility, would be £nil. The level of banking facilities utilised at 31 March 2020 was £nil.

Interest rate changes usually impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economic conditions as well as market sentiment, all of which are very difficult to predict with any certainty. The Company has floating rate financial assets, consisting of bank balances and cash funds that have received average rates of interest during the period of 0.0% on bank balances.





Cash flow
interest
rate risk
2020
£000

No
interest
rate risk
2020
£000

Total
2020
£000

Investments




-

273,264

273,264

Other receivables including prepayments




-

2,503

2,503

Cash at bank




1,066

-

1,066

Current liabilities




-

(534)

(534)





1,066

275,233

276,299


 

Other price risk

By the nature of its activities, the Company's investments are exposed to market price fluctuations. NAV is calculated and reported daily to the London Stock Exchange. The Portfolio Manager and the Board monitor the portfolio valuation on a regular basis and consideration is given to hedging the portfolio against large market movements. This has been particularly true in the final few months of the period due to Covid-19 where market prices were volatile and also in some cases fell significantly and over a short period of time. The Board has included comment on Covid-19 in the Strategic Report. The Board has also disclosed the price movements of assets subsequent to the Balance Sheet date in Note 24 which, in aggregate, showed significant increases.

The Company's investment in Ocean Wilsons is large both in absolute terms, £60.8m as valued at 31 March 2020 and as a proportion of the NAV, 22.0%. Shareholders should be aware that if anything of a severe and untoward nature were to happen to this company, it could result in a significant impact on the NAV and share price. However, it should also be noted that the exposure of Hansa Investment Company Limited to the currency, country and market based risk exposure of Ocean Wilsons is, to an extent, mitigated by the diverse nature of the two investments within Ocean Wilsons. Wilson Sons, corresponding to 56.1% of Ocean Wilsons' NAV, has a direct exposure to the Brazilian economy, whereas Ocean Wilsons Investments is not exposed to Brazil and corresponds to the other 43.9%. It is an investment the Board pays close attention to and it should be pointed out that the risks associated with it are very different from those of the other companies represented in the portfolio. The Board itself regularly undertakes a thorough review of its business and prospects and has determined that its future holds a lot of promise. As a consequence the Board believes the risk involved in the investment is worthwhile.

The performance of the portfolio as a whole is not designed to correlate with that of any market index. Should the portfolio of the Company, as detailed earlier on, rise or fall in value by 10% from the period end valuation, the effect on the Company's profit and equity would be an equal rise or fall of £27.6m.

Credit Risk

The Company only transacts with regulated institutions on normal market terms, which are trade date plus one to three days in the case of equities. Fund investment settlement periods will vary from fund to fund and are defined by the individual managers. The levels of amounts outstanding from brokers and fund managers are regularly reviewed by the Portfolio Manager. The duration of credit risk associated with the investment transactions is the period between the date the transaction took place, the trade date, the date the stock and cash were transferred and the settlement date. The level of risk during the period is the difference between the value of the original transaction and its replacement with a new transaction. The amounts due to/(from) brokers at 31 March 2020 are shown in Note 12 and Note 14 of the Financial Statements.

The Company's maximum exposure to credit risk on cash is £1.1m and on cash funds is £nil. Surplus cash is on deposit with the Depositary/Custodian.

Liquidity Risk

The liquidity risk to the Company is that it is unable to meet its obligations as they fall due, as a result of a lack of available cash and an inability to dispose of investments in a timely manner. A substantial proportion of the Company's portfolio is held in liquid quoted investments; however, there is a large holding in Ocean Wilsons of 22.0%, unquoted equity investments of 3.4% and investments into open-ended investment funds with varying liquidity terms of 53.4%.

The Portfolio Manager takes into consideration the liquidity of each investment when purchasing and selling, in order to maximise the returns to shareholders, by placing suitable transaction levels into the market. Special consideration is given to investments representing more than 5% of the investee company. A detailed list of the investments, split by silo, held at 31 March 2020 is shown earlier on in this document. This can be used broadly to ascertain the levels of liquidity within the portfolio, although liquidity will vary with each investment - particularly the funds.

Capital Management

The Company considers its capital to be its issued share capital and reserves and whilst the Company has access to loan facilities it is not considered or used as core capital, but primarily to meet the cash timing requirements of opportunistic investment strategies and thereby enhance shareholder returns. The Board regularly monitors its share discount policy and the level of discounts and whilst it has the option to repurchase shares, it considers the best means of attaining a good rating for the shares is to concentrate on good shareholder returns.

However, the Board believes the ability of the Company to repurchase its own 'A' non-voting Ordinary shares in the market may potentially enable it to benefit all equity shareholders of the Company. The repurchase of 'A' non-voting Ordinary shares, at a discount to the underlying NAV, would enhance the NAV per share of the remaining equity shares and might also enable the Company to address more effectively any imbalance between supply and demand for the Company's 'A' non-voting Ordinary shares.

21 FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES 

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 assets 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 statement of financial position, grouped into the fair value hierarchy and valued in accordance with the accounting policies in Note 1, are detailed below:

31 March 2020 

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

Financial assets at fair value through profit or loss





Quoted equities

116,310

-

-

116,310

Unquoted equities

-

-

9,276

9,276

Fund investments

-

147,678

-

147,678

Investment In subsidiary

-

-

3,179

3,179

Net fair value

116,310

147,678

12,455

276,443


 

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

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



2020
Equity
investments
£000

Opening Balance


-

Transferred from Level 1


-

Purchases (Capital Drawdown)


9,276

Purchase of Hansa Trust PLC


332,019

Sales (Capital Distribution)


(328,840)

Total gains or losses included in gains on investments in the Income Statement:



 - on assets sold


-

 - on assets held at period end


-

Closing Balance


12,455




 

As at 31 March 2020, the investment in DV4 has been classified as Level 3. The investment 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 31 March 2020. The most recent valuation statement was received on 14 April 2020. The Company has considered the impact of the rapid spread of Covid-19, the associated financial downturn and its potential impact on asset values. In the absence of a valuation for 31 March, 2020 from DV4, the Company performed additional procedures to determine the reasonableness of the fair value estimate for inclusion in the financial statements, These included direct enquiries of the Manager of DV4 to understand, amongst others, valuation process and techniques used, external experts used in the valuation process and updated details of underlying property portfolio. In addition, the Company has obtained external independent valuation data and compared the historic valuation movements of DV4 to that data. Based on the information obtained and additional analysis performed the Company is satisfied that DV4 is carried in these financial statements at amount that represents its best estimate of fair value at March 31, 2020. If the value of the investment was to increase or decrease by 10%, while all other variables remained constant, the return and net assets attributable to shareholders for the period ended 31 March 2020 would have increased or decreased by £928,000. The Board considers 10% to be a potential movement between valuation periods borne out by historic valuation trends. However, this does not preclude the valuation moving a greater amount than 10% in the future. The subsidiary has been valued taking into account the latest assets and liabilities remaining In Hansa Trust PLC.

22 RELATED PARTIES & TRANSACTIONS WITH THE PORTFOLIO MANAGER 

William Salomon is a Director of the Company and Senior Partner of the Company's Portfolio Manager. Details of the relationship between the Company and Hansa Capital Partners LLP, including amounts paid during the period and owing at 31 March 2020, are disclosed in the Strategic Report - Shareholder Profile and Engagement and in Note 3 of the Financial Statements. Details of the relationship between the Company and the Directors, including amounts paid during the period to 31 March 2020, are disclosed in this document within the Strategic Report - The Board and also in the Directors' Remuneration Report.

23 CONTROLLING PARTIES

At 31 March 2020 Victualia Limited Partnership and Nomolas Ltd each held 25.9% of the issued Ordinary shares. Additional information is disclosed earlier on in the Strategic Report - Substantial Shareholders section.

24 POST BALANCE SHEET EVENTS

The Board notes that, as a result of the worldwide market reaction to the Covid-19 pandemic during February and March 2020, the portfolio experienced a swift and short-term reduction at that time. Since the balance sheet date of 31 March 2020, the value of the portfolio has increased markedly. As at the 19 June 2020, being the most recent value available at the time of signing of this Report, the total value of the Company is £312.0m. This is 12.9% higher than at the 31 March 2020 balance sheet date, having also paid out a £960k dividend in May 2020.



 

Introduction to the Pro-Forma Financial Statements

For the 12 months ended 31 March 2020

Note of explanation:

During the twelve month period ended 31 March 2020, the Scheme to re-domicile the business of HICL's predecessor, Hansa Trust, via a Scheme of Arrangement was brought to shareholders for their consideration. At a series of shareholder votes on 29 July 2019, the Scheme received strong support from shareholders which, following Court approval, resulted in the transfer of the business (all assets and liabilities) on 29 August 2019 from Hansa Trust to HICL (HICL having been incorporated on 21 June 2019). At the same time, the shares of Hansa Trust were de-listed and cancelled before being reissued to HICL. HICL then issued new shares to the former Hansa Trust shareholders with the same two share classes being retained, but with five HICL shares being issued for every one share of Hansa Trust that had been cancelled.

From the perspective of an ongoing shareholder, whilst there are a number of legal, jurisdictional and Board changes as a result of the Scheme, the key facets of the business remain unchanged. The investment strategy and policy remain unchanged.

HICL was incorporated on 21 June 2019 for the sole purpose of continuing the business of Hansa Trust. As a result, International Accounting Standards require that the financial statements for HICL present only the results of HICL from the date of incorporation (21 June 2019) to the Period-End (31 March 2020). The Board believes it is more meaningful to present to shareholders the results of operations of Hansa Trust and HICL on a pro-forma combined basis for the 12 month period from 1 April 2019 to 31 March 2020. Therefore, in addition to the required Interim Financial Statements, the Board also presents a number of relevant pro-forma statements that amalgamate Hansa Trust and HICL, on a pro-forma basis, and are shown as "Hansa Investment Company Ltd Group". The pro-forma financial statements seek to paint a fuller picture of the performance of the business since 1 April 2019, regardless of which legal entity that business sat in at a point in time. Similarly, the Board presents the results of Hansa Trust for the 12 months to 31 March 2019 as relevant comparative periods.

 



 

Pro-Forma Income Statement (Unaudited) for the combined Hansa Trust PLC and Hansa Investment Company Ltd Group

For the year ended 31 March 2020



Year ended

31 March 2020

Year ended

31 March 2019



Hansa Trust
1 April 2019 to 31 March 2020
£000

Hansa Investment Company
21 June 2019 to 31 March 2020
£000

Combined

Group
Total
£000

Hansa Trust
Total
£000

(Losses)/gains on investments held at fair value through profit or loss

(7,004)

(50,965)

(57,969)

15,845

Exchange gains/(losses) on currency balances


8

(104)

(96)

37

Investment income


6,044

1,364

7,408

6,669



(952)

(49,705)

(50,657)

22,551

Portfolio management fees


(1,000)

(1,441)

(2,441)

(2,335)

Other expenses


(1,378)

(1,488)

(2,866)

(2,041)



(2,378)

(2,929)

(5,307)

(4,376)

(Losses)/profit before finance costs and taxation


(3,330)

(52,634)

(55,964)

18,175

Finance costs


-

(1)

(1)

-

(Losses)/profit before taxation


(3,330)

(52,635)

(55,965)

 18,175

Taxation


(81)

(205)

(286)

(86)

(Losses)/profit for the year


(3,411)

(52,840)

(56,251)

 18,089

Return per Ordinary and 'A' nonvoting Ordinary share


(2.8)p

(44.1)p

(46.9)p

 15.1p

 



 

Pro-Forma Balance Sheet (Unaudited) for the combined Hansa Trust PLC and Hansa Investment Company Ltd Group

as at 31 March 2020

 

 

 


Combined Group
31 March
2020
£000

Hansa Trust
31 March
2019
£000

Non-current assets




Investments held at fair value through profit or loss


273,264

335,162

Investment in subsidiary at fair value through profit or loss


-

629



273,264

335,791

Current assets


 


Trade and other receivables


2,503

1,118

Cash and cash equivalents


1,066

2,474



3,569

3,592





Current liabilities




Trade and other payables


(534)

(2,033)

Net current assets


3,035

1,559





Net assets


276,299

337,350





Capital and reserves




Called up share capital


1,200

1,200

Capital redemption reserve


-

300

Contributed surplus reserve


327,939

-

Retained earnings


(52,840)

335,850

Total equity shareholders' funds


276,299

337,350





Net asset value per Ordinary and 'A' non-voting Ordinary share


230.2p

281.1p

 



 

Pro-Forma Statement of Changes in Equity (Unaudited) for the combined Hansa Trust PLC and Hansa Investment Company Ltd

For the year ended 31 March 2020

 

 

Share capital
£000

Capital redemption reserve
£000

Contributed
surplus
reserve
£000

Retained earnings
£000

Total
£000

Net assets at 1 April 2019

1,200

300

-

335,850

337,350

Hansa Trust losses for year

-

-

-

(3,411)

(3,411)

Dividends paid by Hansa Trust PLC

-

-

-

(1,920)

(1,920)

Capital reorganisation as part of the scheme

-

(300)

330,819

(330,519)

-

Hansa Investment Company Ltd losses for the year

-

-

-

(52,840)

(52,840)

Dividends paid by Hansa Investment Company Limited

-

-

(2,880)

-

(2,880)

Net assets at 31 March 2020

1,200

-

327,939

(52,840)

276,299

 

 

Pro-Forma Statement of Changes in Equity (Unaudited, Hansa Trust PLC only)

For the year ended 31 March 2019


Share capital
£000

Capital redemption reserve
£000

Retained earnings
£000

Total
£000

As at 1 April 2018

1,200

300

321,601

323,101

Gains for the year

-

-

18,089

18,089

Dividends

-

-

(3,840)

(3,840)

As at 31 March 2019

1,200

300

335,850

337,350

 



 

Pro-Forma Cash Flow Statement (Unaudited) for the combined Hansa Trust PLC and Hansa Investment Company Ltd

For the year ended 31 March 2020

 

 


Combined Group
31 March
2020
£000

Hansa Trust 31 March
2019
£000

Cash flows from operating activities




(Losses)/gains before finance costs and taxation


(55,964)

18,175

Adjustments for:




 Realised (gains) on investments


(3,051)

(718)

 Unrealised losses/(gains) on investments


61,020

(15,127)

 Effect of foreign exchange rate changes


96

(37)

Increase in trade and other receivables


(1,385)

(1,063)

(Decrease)/increase in trade and other payables


(1,499)

1,026

Taxes paid


(286)

(86)

 Purchase of non-current investments


(29,984)

(34,598)

 Sale of non-current investments


34,542

37,603

Net cash inflow from operating activities


3,489

5,175

Cash flows from financing activities




 Interest paid on bank loans


(1)

-

 Dividends paid


(4,800)

(3,840)

Net cash outflow from financing activities


(4,801)

(3,840)

(Decrease)/increase in cash and cash equivalents


(1,312)

1,335

Cash and cash equivalents at 1 April


2,474

1,102

Effect of foreign exchange rate changes


(96)

37

Cash and cash equivalents at end of year


1,066

2,474

 



 

Notes to the Condensed Pro-Forma Financial Statements (Unaudited)

1 ACCOUNTING POLICIES

(a)  Basis of preparation

The Pro-Forma Financial Statements of the Company have been prepared under the historical cost convention, except for the measurement at fair value of investments, and primarily using the principles of International Financial Reporting Standards ("IFRS") as adopted by the European Union, with the following significant departures:

Hansa Investment Company Ltd and, as of the implementation of the Scheme on 29 August 2019, its 100% subsidiary Hansa Trust PLC together are referred to as the "Group" or "Combined Group" for the purposes of the Pro-Forma Financial Statements. Under IFRS 10 'Consolidated Financial Statements', from 29 August 2019 onwards, Hansa Investment Company Limited ('HICL') meets the definition of an investment entity and as such any subsidiaries, namely Hansa Trust PLC, are accounted for at fair value through profit or loss in accordance with IFRS 9 ' Financial Instruments'. These Pro-Forma Financial Statements have been prepared assuming that any subsidiaries are consolidated, rather than accounted for at fair value. Prior to 29 August 2019, Hansa Trust was a standalone entity - itself deemed to be an investment entity.

A consequence of the consolidation of subsidiaries is that these Pro-Forma Financial Statements are Consolidated Financial Statements and therefore contain comparative and historical information which encompasses the whole Group. Practically, comparative and historical information is derived from Hansa Trust.

The Group has not presented Consolidated Income Statement in accordance with the Guidance Issued by the Association of Investment Companies with respect to the allocation between Income and Capital. Income and Capital columns have been combined for each consolidated entity to simplify the presentation of the statement itself.

EPS / NAV per share for comparable numbers brought forward from Hansa Trust have been restated to reflect the new number of Hansa Investment Company Ltd shares in issue. EPS and NAV per share throughout the Interim Report reflect the number of Hansa Investment Company Ltd shares in issue.

The Directors have adopted the proposed departures as they believe the results of the Pro-Forma Financial Statements better enable shareholders to understand the elements of the value of the Company at the year end as well as compare to prior years.

These Pro-Forma Financial Statements are presented in Sterling, the currency of the primary economic environment in which the Company operates.

2 INCOME



Hansa Trust 1 April 2019 to 31 March 2020
£000

Hansa Investment Company
21 June 2019 to 31 March 2020
£000

Combined Group
Total
 000

Hansa Trust Year ended 31 March
2019
£000

Income from quoted investments






Dividends


6,040

1,363

7,403

6,662

Other income






Interest receivable on AAA rated money market funds


4

1

5

7

Total income


6,044

1,364

7,408

6,669

 

3 PORTFOLIO MANAGEMENT FEE



Hansa Trust 1 April 2019 to 31 March 2020
£000

Hansa Investment Company
21 June 2019 to 31 March 2020
£000

Combined Group
Total
 000

Hansa Trust Year ended 31 March
2019
£000

Portfolio management fee


1,000

1,441

2,441

2,335

Total management fee


1,000

1,441

2,441

2,335

 

 

 

4 OTHER EXPENSES



Hansa Trust 1 April 2019 to 31 March 2020
£000

Hansa Investment Company
21 June 2019 to 31 March 2020
£000

Combined Group
Total
 000

Hansa Trust Year ended 31 March
2019
£000

Administration fees


57

82

139

135

AIFM


54

-

54

131

Directors' remuneration


58

144

202

141

Auditor's remuneration for:






- audit of the Company's Period-End Report


44

55

99

48

Fees payable to the Auditor for other services:






Printing fees


32

15

47

36

Marketing


64

39

103

102

Registrar's fees


12

119

131

58

Banking charges


62

2

64

152

Secretarial services


61

85

146

150

Travel expenses


14

74

88

27

Legal fees - redomicile project


734

381

1,115

-

Broker fees


19

15

34

42

Stock Exchange listing fees


36

247

283

13

Safe custody fees


49

99

148

118

Other


82

131

213

888

Total other expenses


1,378

1,488

2,866

2,041

 

5 DIVIDENDS PAID & DECLARED



(Unaudited) Combined Group
Year ended
31 March

2020
£000

(Audited) Hansa Trust Year ended 31 March
2019
£000

Second interim dividend for Hansa Trust 2019 (paid May 2019): 1.6p (2018: 1.6p)


1,920

1,920

First interim dividend for 2020 (paid November 2019): 0.8p (2019: 1.6p)


960

1,920

Second interim dividend for 2020 (paid November 2019): 0.8p


960

-

Third interim dividend for 2020 (paid February 2020):0.8p


960

-

Fourth interim dividend for 2020 (payable May 2020): 0.8p


960

-



5,760

3,840

 

6 RETURN PER SHARES

The returns stated below are based on 120,000,000 shares, being the number of shares in issue at the end of the period for HICL, with the comparable having been re-based to this number of shares (Hansa Trust had 24,000,000 shares in issue) for comparison purposes.


Hansa Trust
1 April 2019 to
31 March 2020

HICL
21 June 2019 to
31 March 2020

Combined Group

  £000

Pence per share

£000

Pence per share

£000

Pence per share

Year ended 31 March 2020

(3,411)

(2.8)

(52,840)

(44.1)

(56,251)

(46.9)

Year ended 31 March 2019

18,089

15.1

-

-

18,089

15.1

 

7 FINANCIAL INFORMATION

The year-end pro-forma financial information was approved by a committee of the Board of Directors on 23 June 2020.

8 NET ASSET VALUE PER SHARE

The NAV per share is based on the net assets attributable to equity shareholders of £276,299,000 (31 March 2019: £337,350,000) and on 120,000,000 shares, being the number of shares in issue at the year-end for HICL.

9 COMMITMENTS AND CONTINGENCIES

The Company has no outstanding commitments as at 31 March 2020. (Hansa Trust: 31 March 2019: £nil).

10 FAIR VALUE HIERARCHY

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 (ie as prices) or indirectly (ie 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 Statement of Financial Position are grouped into the fair value hierarchy, are detailed below:

31 March 2020 (Combined Group)

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

Financial assets at fair value through profit or loss





Quoted equities

116,310

-

-

116,310

Unquoted equities

-

-

9,276

9,276

Fund investments

-

147,678

-

147,678

Net fair value

116,310

147,678

9,276

273,264

 

31 March 2019 (Hansa Trust)

Level 1
£000

Level 2
£000

Level 3
£000

Total
£000

Financial assets at fair value through profit or loss





Quoted equities

171,501

-

-

171,501

Unquoted equities

-

-

9,764

9,764

Fund investments

3,109

150,788

-

153,897

Investment in subsidiary

-

-

629

629

Net fair value

174,610

150,788

10,393

335,791

 

There have been no transfers during the year 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. For the purposes of these pro-forma accounts, transfers of assets from Hansa Trust to HICL have not been deemed to represent a sale/purchase:



(Unaudited) Combined Group
March 2020
Equity investments £000

(Audited) Hansa Trust March 2019
Equity investments £000

Opening Balance


10,393

12,412

Transferred from Level 1:


-

-

Purchases (Capital Distribution)


-

-

Sales (Capital Distribution)


(2,254)

(2,432)

Total gains or losses included in gains on investments in the Income Statement:




- on assets sold


-

22

- on assets held at year end


1,137

391

Closing Balance


9,276

10,393

 



 

Notice of the Annual General Meeting

 

NOTICE IS HEREBY GIVEN that the annual general meeting of the Members of the Company will be held at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda on 22 July 2020 at 1:15 p.m. (Bermuda time) for the following purposes:

Agenda

To appoint a chairperson of the meeting.

To confirm notice.

To receive and consider the audited Financial Statements and the Reports of the Directors and Auditor for the period ended 31 March 2020.

To re-elect Jonathan Davie (a biography and Board endorsement can be found earlier on in the report) as a Director of the Company.

To re-elect Richard Lightowler (a biography and Board endorsement can be found earlier on in the report) as a Director of the Company.

To re-elect Nadya Wells (a biography and Board endorsement can be found earlier on in the report) as a Director of the Company.

To re-elect William Salomon (a biography and Board endorsement can be found earlier on in the report) as a Director of the Company.

To re-elect Simona Heidempergher (a biography and Board endorsement can be found earlier on in the report) as a Director of the Company.

To approve the Directors' Remuneration Report.

To approve the Company's Dividend Policy as can be found on earlier on in the Annual Report.

To appoint PricewaterhouseCoopers Ltd as Auditor of the Company and to authorise the Directors to determine the remuneration of the Auditor.

Approval to repurchase up to 14.99% of the 'A' nonvoting Ordinary shares of 1p each in the issued shares capital of the Company (the "Shares").

  THAT the Company be and hereby is unconditionally authorised to make market purchases up to an aggregate of 11,992,000  shares at a price (exclusive of expenses) which is:

  a)  not less than 1p per share; and

  b) 
not more than the higher of: i) 5% above the average of the middle-market quotations (as derived from and calculated by reference to the Daily Official List of the London Stock Exchange) for 'A' non-voting Ordinary shares of 1p each in the five business days immediately preceding the day on which the share is purchased; and ii) the higher of the last independent trade and the then current highest independent bid.

  AND

  THAT the approval conferred by this resolution shall expire on the date of the next AGM (except in relation to the purchase of shares, the contract for which was concluded before such date and which might be executed wholly or partly after such date) unless the authority is renewed or revoked at any other general meeting prior to such time.

Dated: 24 June 2020

Shane Reynolds
For and on behalf of
Conyers Corporate Services (Bermuda) Limited
Secretary

Notes for Shareholders

1  Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001 (as amended), only those members registered in the register of members of the Company 48 hours before the Annual General Meeting (i.e. by close of business UK time on 17 July 2020) (or if the Meeting is adjourned, in the register of members of the Company 48 hours before the date and time of the adjourned meeting) (the "Meeting") shall be entitled to attend or vote at the Meeting in respect of the number of shares registered in their respective names at that time. Changes to entries on the register of members after that time will be disregarded in determining the rights of any person to attend or vote at the Meeting.

2  Registered members of the Company may vote at the Meeting (whether by show of hands or poll) in person or by proxy or corporate representative. A member may appoint one or more persons as his proxy to attend and vote at the Meeting on his behalf. A proxy need not be a member. Where more than one proxy is appointed the instrument of proxy must specify the number of shares each proxy is entitled to vote.

3  The appointment of a proxy will not affect the right of a member to attend and vote in person at the Meeting or adjourned meeting. A member that is a corporation may appoint a representative to attend and vote on its behalf at the Meeting by delivering evidence of such appointment to the Company's registrar no later than 48 hours before the time fixed for the Meeting (i.e. by 9:15am UK time on 20 July 2020) or any adjourned meeting.

4  In order to be valid, the proxy appointment (together with any power of attorney or other authority (if any) under which it is signed, or a notarised certified copy of that authority) must be returned by one of the following methods, in each case so as to arrive no later than 9:15am UK time on 20 July 2020 or, in the case of an adjourned meeting, not less than 48 hours before the time appointed for holding such adjourned meeting (ignoring for these purposes non-working days) or (in the case of a poll taken otherwise than at or on the same day as the Meeting or adjourned meeting) for the taking of the poll at which it is to be used:

  a) 
via www.signalshares.com by logging on and selecting the 'Proxy Voting' link. If you have not previously registered for electronic communications, you will first be asked to register as a new user, for which you will require your investor code (IVC), (which can be found on your share certificate), family name and postcode (if resident in the UK);

  b) 
in hard copy form by post, by courier or by hand to the company's registrars, Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4TU.

  If you need help with voting online or need to request a proxy form, please contact our Registrars, Link Asset Services, on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. We are open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales. Alternatively, you can email Link at [email protected] via www.signalshares.com by logging on and selecting the 'Proxy Voting' link. If you have not previously registered for electronic communications, you will first be asked to register as a new user, for which you will require your investor code (IVC), which can be found on your share certificate, family name and postcode (if resident in the UK).

Notes for Depositary Interest Holders

1  You will not receive a form of direction for the Annual General Meeting in the post. Depositary Interests may be voted through the CREST Proxy Voting Service in accordance with the procedures set out in the CREST manual.

  In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications and must contain the information required for such instruction, as described in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent ID RA10 by 9:15am UK time on 20 July 2020. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST, in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

2  In the case of Depositary Interest Holders, a form of direction may be requested and completed in order to instruct Link Market Services Trustees Limited, the Depositary, to vote on the holder's behalf at the Meeting by proxy or, if the Meeting is adjourned, at the adjourned meeting. Requests for a hard copy should be sent to Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4TU (telephone number: 0871 664 0300 or 0371 664 0300).

3  To be effective, a valid form of direction (and any power of attorney or other authority under which it is signed) must be received electronically or delivered to Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3 4TU by no later by 9:15am UK time on 17 July 2020) or 72 hours before any adjourned Meeting.

4  The Depositary will appoint the Chairman of the meeting as its proxy to cast your votes. The Chairman may also vote or abstain from voting as he or she thinks fit on any other business (including amendments to resolutions) which may properly come before the meeting.

5  The 'Vote Withheld' option is provided to enable you to abstain from voting on the resolutions. However, it should be noted that a 'Vote Withheld' is not a vote in law and will not be counted in the calculation of the proportion of the votes 'For' and 'Against' a resolution.

6  Depositary Interest holders wishing to attend the meeting should contact the Depositary at Link Market Services Trustees Limited, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU or by email by using [email protected] by no later than by 9:15am UK time on 17 July 2020.

All Holders

1  The quorum for the Annual General Meeting shall be two or more shareholders present in person or by proxy. If within two hours from the time appointed for the meeting a quorum is not present, the meeting shall be adjourned to the next business day at the same time and place or to such other time and place as the Directors may determine, and if a quorum is not present at any such adjourned meeting, the meeting shall be dissolved.

2  As of 24 June 2020 the Company's total number of shares in issue is 40,000,000 Ordinary shares of 1p each and 80,000,000 'A' nonvoting Ordinary shares of 1p each in issue. The Ordinary shareholders are entitled to one vote per Ordinary share held. The 'A' nonvoting 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.

3  A copy of this notice and other information can be found at https://www.hansaicl.com/shareholder-information/financial-and-investment-reporting/year-2020.aspx#2020



 

Investor 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 Ltd can be recommended by independent financial advisers to ordinary retail investors, in accordance with the Financial Conduct Authority's ("FCA") rules in relation to nonmainstream 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 nonmainstream investment products, because they are excluded securities defined in the FCA Handbook Glossary. Finally, Hansa Investment Company is registered as a Reporting Financial Institution with the US IRS for FATCA purposes.

Investor   Disclosure

AIFMD

Hansa Investment Company'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. It can be viewed at: www.hansaicl.com/shareholder-information/regulatory-information.aspx

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 Ltd. 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 also be found on the Company's website for good measure: www.hansaicl.com/shareholder-information/regulatory-information.aspx

 

Capital Structure

The Company has 40,000,000 Ordinary shares of 1p each and 80,000,000 'A' nonvoting Ordinary shares of 1p each in issue. The Ordinary shareholders are entitled to one vote per Ordinary share held. The 'A' nonvoting 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.

Contact Details

Website: www.hansaicl.com

Company Secretary (and Company's Registered Office)
Conyers Corporate Services (Bermuda) Limited
Clarendon House, 2 Church Street
PO Box HM666, Hamilton HM CX
Bermuda
Phone: +1 441 279 5373
Website: www.conyers.com

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

Website: www.hansagrp.com

The Company's website includes the following:

- Share Price Data Reports

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

Link Asset Services,

The Registry,
34 Beckenham Road,

Beckenham,
Kent BR3 4TU

If you do not have internet access you can call the Shareholder Support Centre on 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate.

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

Email: [email protected]
www.linkassetservices.com

Share Price Listings

The price of your shares can be found on our website and in the Financial Times under the heading 'Investment Companies'.

In addition, share price information can be found under the following:

ISIN  Code

'A' non-voting Ordinary shares  BMG428941089

SEDOL

'A' non-voting Ordinary shares  BKLFC07

Reuters

'A' non-voting Ordinary shares  HANA.L

Bloomberg

'A' non-voting Ordinary shares  HANA LN

TIDM

'A' non-voting Ordinary shares  HANA

Legal Entity Identifier: 213800RS2PWJXSZQDF66

Useful Internet Addresses

Association of Investment Companies  www.theaic.co.uk

London Stock Exchange  www.londonstockexchange.com

TrustNet  www.trustnet.com

Interactive Investor www.iii.co.uk

Morningstar  www.morningstar.com

Edison  www.edisongroup.com

Financial Calendar

Interim dividend payments  August, November, February & May



 

Company Information

Registered in Bermuda company number: 54752

BOARD OF DIRECTORS

Nadya Wells

SECRETARY AND REGISTERED OFFICE

Bermuda

PORTFOLIO MANAGER AND ADDITIONAL ADMINISTRATIVE SERVICES PROVIDER

London W1J 7UW

AUDITOR

Bermuda

SOLICITORS

London EC4M 7WS

REGISTRAR

Guernsey
GY2 4LH

CUSTODIAN

Switzerland

STOCKBROKER

London EC4R 2GA

ADMINISTRATOR

CM1 3BY

ALTERNATIVE INVESTMENT FUND MANAGER

GY1 1WD



 

Glossary of Terms

Association of Investment Companies ("AIC")

The Association of Investment Companies is the UK trade association for closed-ended investment companies. It represented Hansa Trust. 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 AIF.

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 KIDs.

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. As part of the calculation of this measure, the Company will continue to use and quote results from its predecessor, Hansa Trust PLC, 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 Performance Indicators ("KPIs")

A set of quantifiable measures that 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 from Hansa Trust PLC.

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 the 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 prorata 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 Ltd has two classes of Ordinary share. The Ordinary (40m shares) and the 'A' non-voting Ordinary shares (80m shares). Both have the same financial interest in the underlying assets of the Company and receive the same dividend, 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.

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. In the case of historic information, the Total Return will include data from Hansa Trust PLC.

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.

VIX Index

The VIX, or the CBOE Volatility Index, is a widely used measure of the implied volatility of the stock market, based on S&P 500 index options. It is calculated and published by the Chicago Board Options Exchange.

 



 

Hansa Investment Company Ltd

Clarendon House

2 Church Street

PO Box HM666

Hamilton HM CX

Bermuda

 

T :  +44 (0) 207 647 5750

E :  [email protected]

 

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www.hansaicl.com


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