REG - Hansa Investment Co - Interim Report
Hansa, investing to create
long-term growth
Interim Report
Period Ended
30 September 2019
2019
Welcome
I'm pleased to present the first Interim Report for Hansa Investment Company Ltd ("the Company", "HICL") to the shareholders.
The last six months has, corporately, been extremely busy, culminating in the business of Hansa Trust PLC ("Hansa Trust") being transferred to Hansa Investment Company Ltd - a newly formed, Bermudan entity - on 29 August 2019.
Despite these corporate changes, the Investment Policy and underlying portfolio remains unchanged and continues to be managed by our Portfolio Manager, Hansa Capital Partners. You can read their update later in this Report.
However, you may have noted some administrative changes. Firstly, as part of the Scheme of Redomiciliation, our new company issued five shares for every one Hansa Trust share you previously held. 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. Henceforth, we will also be paying quarterly dividends. As a newly formed company, HICL has no historical performance, therefore, to give shareholders a more meaningful representation of the performance of the business since 1 April 2019, we have also included a non-statutory, pro-forma set of financial statements, as well as the required statutory Financial Statements. I would encourage you to look at the non-statutory, pro-forma Financial Statements at the end of the Report. Our Board has also undergone a change with three new directors. Biographies of our new directors can be found on the Company's website (www.hansaicl.com).
Finally, by the time this Report is published, you will no doubt have noted that the combined first and second quarterly interim dividends, totalling 1.6p per share for the year to 31 March 2020 were paid on 29 November 2019.
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 Report to shareholders having become Chairman of Hansa Investment Company Ltd ("the Company", "HICL") on 29 August 2019. You will hopefully all be aware that the business has now successfully redomiciled to Bermuda following the substantial vote in favour of our proposals in July. 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 by investing in third-party funds, global equities and other international financial securities.
As a result of the redomicile to a new company, when past performance of the business is referenced, the Board considers the performance of the Company to be consolidated 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 without making reference to which legal entity generated those returns.
For reference, I have included a summary later in this Statement.
Shareholder Returns
Following in the footsteps of my predecessor, Alex Hammond-Chambers, I plan to continue to make a few comments on "investing to create long-term growth", which is our mantra and set out on the front cover of this Report.
The past six months have shown a small decline in Net Asset Value ("NAV'') from 281.1p to 278.5p, whilst the discount has gone from 30.5% to 32.0% for the Ordinary Shares and from 30.6% to 32.8% for the ''A" Ordinary Shares.
A significant factor in the short-term decline in NAV, and likely in the widening of our discount, is the news in July that Ocean Wilsons Holdings' subsidiary, Wilson Sons, was calling a halt to its evaluation of strategic alternatives for its container terminal and logistics assets, with the decision not to engage in any transaction at this time. The share price of Ocean Wilsons declined from 1,120p on 31 March 2019 to 890p on 30 September 2019. Whilst some will see it as disappointing that the review didn't end in a transaction, we are also aware of how turbulent the economy in Brazil has been in recent years. The fact the board of Wilson Sons was considering options is a strong sign of their desire to do what is best for their business.
Over the longer-term, HICL continues to see positive growth with Total Returns on NAV of 23.8% over five years and 83.1% over 10 years. As you will see from the Portfolio Manager's Report, our portfolio remains significantly equity biased.
We remain cognisant that the discount remains stubbornly high on both our share classes. We continue to work with Edison to get our message 'out-there' and drive further demand for the Company's shares which, we believe, continues to be the best way to achieve long-term reduction in the discount for the benefit of all shareholders. Our policy on share buybacks remains unchanged, we do not believe they achieve the aim of reducing the long-term discount but, rather, just make the portfolio more concentrated for remaining shareholders. Additionally, over the course of shareholder consultations regarding the domicile of the business, we received some feedback that increasing the number of shares in circulation might help widen the shareholder base. We decided to issue five Hansa Investment Company shares for every one Hansa Trust share cancelled, to draw the share price per share from circa £9 to circa £1.80. We will see in due course whether that has a beneficial effect on investors' appetite.
Prospects
As Yogi Berra said "the future ain't what it used to be". We now seem to live in a world when investors own bonds for the capital gains - there is little or no income in relation to the risks taken - and own equities for the yield! Quantitative Easing ("QE") continues to be extended by Central Banks, thereby allowing "zombie" companies to continue in business, distorting the marketplace. The ultimate wisdom of QE will not be judged for many years. Its effect to date has been to defer a major recession, allowing debt, particularly Government debt, to balloon, thereby allowing asset values to rise for the benefit of the few and increase the attraction of populism. The continuing talks between the USA and China appear to be yielding little, although one cannot but think something will have to be resolved in the coming months, as markets start to look towards the impact of the 2020 election. Brexit grinds on, seemingly without end and the security risks in the Middle East and North Korea will not go away in the near future. Some real signs of an upturn in global production is much needed.
Alec Letchfield, CIO of our Portfolio Manager, and his colleagues cautiously continue to search for good managers and stock selection with diversification.
Changes to the Board
I should like to 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 also retired from being a consultant to Hansa Trust. Mr Teideman was 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 the Chairman of the Audit Committee. He also 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.
I have no doubt that they will add a lot of value to the Board.
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 on the Company's website: https://www.hansaicl.com/about-us/board-of-directors
SCHEME OF RE-DOMICILIATION
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 recent 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 are 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, as of 29 August 2019, Hansa Trust successfully redomiciled its business to Bermuda pursuant to the Scheme, 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, with the business operations of Hansa Trust terminated, all ongoing operations were within the Company. Many of the service providers that worked to Hansa Trust have been retained by the Company although there have been some changes.
Of note to the shareholders was that Hansa Trust was required to change its auditor due to the auditor rotation rules. The shareholders voted to accept the board's recommendation of appointing PricewaterhouseCoopers LLP ("PwC UK") to be the new auditor. The Board of the Company have decided to appoint PricewaterhouseCoopers Ltd of Bermuda ("PwC") to audit the Company.
I look forward to keeping you updated through future Statements as this new chapter in our long history develops.
Jonathan Davie
Chairman
12 December 2019Interim Management Report
The Directors present their Report and Condensed Financial Statements for the period to 30 September 2019.
THE BOARD'S OBJECTIVES
The Board's primary objective is to achieve growth of shareholders' value over the medium to long‑term.
THE BOARD
Your Board consists of the following persons, each of whom brings certain individual and complementary skills and experience to the Board's workings:
Jonathan Davie (Chairman of the Board), Richard Lightowler (Chairman of the Audit Committee), Simona Heidempergher, William Salomon and Nadya Wells.
Individual profiles for each member of the Board can be found in the Company's Annual Report each year and on our website.
BUSINESS REVIEW FOR THE PERIOD TO 30 SEPTEMBER 2019
The business review, which includes an indication of important events which have occurred within the period to 30 September 2019, is covered in the Chairman's Report to the Shareholders and the Portfolio Manager's Report.
That said, to reiterate, Hansa Investment Company Ltd is a newly formed Bermudan company set up to take on the business of Hansa Trust. Therefore, as a company, HICL has very little direct financial history only having taken on the business of Hansa Trust circa five weeks before the period end. As a result, the Board present two sets of financial reports for shareholders review. Firstly, there is a HICL-specific set of financial reports covering the period 21 June (date of incorporation) to 30 September. However, of greater use, the Board includes a Pro-Forma set of accounts amalgamating the financial performance of Hansa Trust for the period 1 April 2019 to 29 August 2019 with the results of HICL for the period 21 June to 30 September. The Board has prepared these to enable shareholders to make meaningful comparisons between these Pro-Forma accounts and comparables from Hansa Trust for previous periods.
KEY RISKS FOR THE FINANCIAL YEAR TO 31 MARCH 2020
The key risks and uncertainties relating to the period ended 30 September 2019 and for the year ended 31 March 2020 are materially the same as those reported in the Annual Report for Hansa Trust for the year to 31 March 2019.
GOING CONCERN BASIS OF ACCOUNTING FOR THE FINANCIAL YEAR TO 31 MARCH 2020
The Directors consider it appropriate to adopt the going concern basis of accounting in preparing these Interim Financial Statements. The Directors do not know of any material uncertainties to the Company's ability to continue to adopt this approach over a period of at least 12 months from the date of approval of these Financial Statements.
The Directors will include a Long-Term Viability Statement in each Annual Report.
RELATED PARTY TRANSACTIONS
During the period, Hansa Capital Partners LLP charged portfolio management fees and company secretarial fees to the Company, amounting to £1,289,000 excluding VAT (six months to 30 September 2018: £1,265,000, year to 31 March 2019: £2,460,000). Amounts outstanding at 30 September 2019 were £237,000 (30 September 2018: £211,000, 31 March 2019: £208,000).
Following the implementation of the Scheme of Arrangement on 29 August 2019, Hansa Trust became a 100% subsidiary of the Company. As part of the Scheme, to effect the transfer the assets from Hansa Trust to HICL, Hansa Trust has declared three interim dividends between 29 August and the date of signing of these financial statements. The first interim dividend was for Hansa Trust's period ending 27 August 2019. The dividend totalling £3.84m was declared and paid on 25 September 2019. The second interim dividend, as part of the Scheme and the transfer of the business and accumulated reserves from Hansa Trust to the Company, of £190m was declared on 30 September. Both these dividends are reflected in the Financial Statements for the Company as at 30 September 2019. Subsequent to 30 September 2019, but prior to the date of signing of these accounts, Hansa Trust declared a third interim dividend, from Retained Earnings relating to Realised Profits of £135m on 8 November 2019. The payment of the second and third interim dividends each significantly reduced the intercompany loan balance between Hansa Trust and Hansa Investment Company Ltd.
THE BOARD'S RESPONSIBILITIES
The Board is charged by the shareholders with 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'. These responsibilities remain unchanged from those detailed in the last Hansa Trust Annual Report.
The Directors confirm to the best of their knowledge that:
The statutory condensed set of Financial Statements contained within the Interim Financial Report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' and on a going concern basis.
This Interim Management Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FCA's Disclosure and Transparency Rules.
The above Interim Management Report, including the Responsibility Statement, was approved by the Board on 12 December 2019 and was signed on its behalf by:
Jonathan Davie
Chairman
12 December 2019Warning flags?
Market backdrop
Global equity markets paused for breath towards the end of the company's half year at the end of September 2019, taking the total return for the period to 9.5%. Whilst suggesting greater stability, the backdrop remained anything but with a maelstrom of economic, policy and political uncertainty.
Rather counterintuitively, despite markets shifting from the view that recession was imminent at the start of the year, global growth continued to weaken through the half especially within the manufacturing sector. Underlying this weakness is the ongoing trade war between China and the US, which has coincided with a soft patch in Chinese growth. Although the impact on the US is less, being a more consumer driven economy, even here sentiment and investment plans are starting to deteriorate suggesting that its affect may be greater than first thought. In response to this slowing growth we saw further cuts in US interest rates and a number of policy measures implemented in China to mitigate the slowdown.
A casualty of this trade war has been Europe, especially Germany. With exports central to the German economy, particularly to China, Germany stands on the edge of recession. The European Central Bank has instigated a further round of monetary easing albeit, as discussed below, our view is that monetary policy is increasingly reaching the limits of its effectiveness and may actually be doing damage to the broader economy.
The geo-political backdrop is little better. Donald Trump, via Twitter, is waging war on multiple fronts. In addition to comments on China, Trump holds Iran responsible for the recent attacks on the oilfields in Saudi Arabia and is embroiled in numerous spats with the Democratic candidates as they prepare for next year's presidential election. This has coincided with the initiation of an impeachment inquiry into him. Outside of the US the UK's efforts to leave the European Union took a further knock with the Supreme Court ruling that Boris Johnson's decision to prorogue parliament was unlawful. With the departure date again deferred at the end of October the outcome looks uncertain and the possibility of a policy mistake is high.
Relating this back to markets, whilst the overall equity market performance was strong for the half this largely reflected the strength of the US market, which rose by 11.6% over the period. Other markets were more challenged. Emerging markets, reflecting their sensitivity to the trade war, lagged with a return of 1.8%, with China down some -3.3% and India 0.8%. Europe continued to underperform, rising 8.5% in H1, and the UK lagged at 4.0%.
Bond markets performed somewhat better. The combination of their defensive nature and interest rate cuts in both Europe and the US saw stronger prices across the board. Despite a significant proportion of global government bonds yielding less than zero, yields continue to fall, boosting the returns of US Treasuries which rose by 11.5%, while global investment grade was up 11.2% and UK index-linked bonds were up 9.8%.
Commodities experienced more contrasting fortunes. Gold, being a more defensive asset class, typically performing better when interest rates are low and falling, rose by 20.5%. Oil prices, despite strengthening in September following the attack on the Saudi field, actually fell for the half as a whole, reflecting lower global demand due to the softening economic backdrop.
Warning flags?
Normally we dedicate the second half of our Hansa House View to a particular theme. This time we thought we would do something different and mull over a number of key issues currently challenging markets. Largely these are standalone in nature with a notable exception, they all tend to be mean reverting and are often features of market tops. The issues we will cover are:
Inverted yield curves: Precursor to recession?
Value vs growth: Will value investing reassert itself?
Peak margins: A mean reverting factor?
Peak valuations: Time to sell?
Inverted yield curves: Precursor to recession?
One of the best predictors of recession historically has been that of an inverted yield curve. With the shorter end of the bond yield curve higher than the longer end, rather than the more normal upward sloping curve, the market is effectively indicating that future growth rates will be poor. Its success rate as a signal has been exceptional. Indeed if we look back over the last 60 years we find that the US yield curve has inverted prior to seven recessions.
So why then with the curve inverting earlier this year are we not running for the hills (and are we in danger of falling into the age old trap of believing it will be different this time)?
Well, first-off, on closer inspection we find that whilst the predictive power of an inverted yield curve may be good, its timing is less precise. Often the lag between the point of inversion and recession is a number of years, with three of the last ten instances not seeing a recession within two years. With the final stages of a bull market typically generating some of the strongest returns in a cycle, exiting equities at the point of inversion can prove extremely expensive.
Perhaps even more important in our eyes, and why we think the messaging power of the yield curve is currently diminished, is just how exceptional the interest rate and yield curve backdrop currently is. In more normal times using the yield curve to predict recession is entirely logical. Typically towards the end of a stock market and economic cycle animal spirits are running high, capacity within the system is tight and inflation is starting to rear its ugly head. Central banks are then forced to step in, ratcheting up interest rates, pushing the short end of the curve upwards. Unfortunately central bankers tend to overshoot, raising rates too aggressively which catalyses the next recession. Bond markets, being predictive in nature, anticipate this course of events forcing the long end of the yield curve down as the short end rises. Hence the inverted yield curve and why it has been an excellent predictor of a looming recession.
This time round things couldn't be more different. Post the Global Financial Crisis central banks were forced to step in and introduce exceptional monetary measures to counteract a potential collapse in the global banking system and economic depression. To a large degree these policy measures worked, saving the banking system (although the European banking system is still not out of the woods) and boosting economies. Unfortunately, like an addict, the system has become hooked on this medicine of ever lower rates and greater liquidity, to the point where its effectiveness is deteriorating. Our view is that the point has been reached where it is not a question of the supply of liquidity but rather an absence of demand for liquidity. Whether interest rates are 0.5%, 0% or, indeed, negative has limited impact on a company's or consumer's desire to borrow. Rather it is a question of subdued confidence that is preventing economies from achieving more normal levels of growth. Hence although the curve is inverted it is not due to short rates being high but rather long rates being exceptionally low.
Furthermore, it increasingly looks like this diet of ever lower rates may even be killing the patient. Unlike in more normal monetary conditions when higher interest rates lead to poor companies failing and capital being reallocated towards more efficient enterprises, the current low/negative rate environment has enabled these zombie companies to survive and stymied the normal, healthy Darwinian function of markets. This distorted backdrop has also impacted the banking sector, which is key to a healthy economy with inverted yield curves hindering the natural carry present from borrowing at cheaper short rates and lending at higher long rates.
Hence, we would argue that whilst certainly not ignoring the fact the yield curve is inverted, we would be less confident of its effectiveness as a messaging tool given the distortions present within the system. Indeed, we would go on to argue that now is the time to stop relying solely on monetary easing and instead look to other measures such as fiscal policy to take up the baton on kick-starting global economies from their current malaise.
Value vs growth: Will value investing reassert itself?
Through time one of the most successful investment strategies has been value investing. Reflecting investors' behavioural biases, the success of value investing lies in the ability to buy companies below their intrinsic value. Where companies have been oversold investors have wrongly extrapolated bad news ad infinitum. Extolled by such investment legends as Warren Buffett and Benjamin Graham, value investing has long proved its worth.
This cycle however has been characterised by growth outperforming value and significantly so in many cases. In the US the outperformance gap has been 96% and in Europe it has been even greater at 119%.
We believe there are two factors behind this underperformance of value versus growth. Firstly, it is due to the success of growth. Technology, which dominates the growth sector, has benefitted from many nascent technologies combining to create a network effect as companies such as Amazon utilised the internet to dominate retailing in a winner-takes-all strategy. This has been reinforced by capital being readily available to fund this growth and investors being prepared to value these future cash flows much more highly, as they applied lower discount rates to profits that are often not expected to occur for a number of years.
The second factor reflects the structural challenges faced by many value companies and sectors. The flip side to the success of the technology sector is that many incumbents have failed to adapt to the new competitive environment, sticking with business models that are increasingly outdated and expensive to maintain. Retailers have persisted with high street stores as shoppers shift to online shopping, banks maintain their costly branch networks in the face of online banking and the oil & gas sector has failed to shift rapidly enough from carbon fuels as consumers move to more sustainable forms of energy.
Naturally this raises the question as to when the tide will turn back in value's favour with many commentators arguing it is a question of when, not if, value reasserts itself. The problem we have is when we look at the fundamentals it is harder to make this argument with conviction. When assessing the outlook for many of the big growth names such as Microsoft, Apple and Facebook we find many of them look fairly valued versus their growth prospects. Potentially a radical shift in the regulation or taxation of some of the big tech names could be a catalyst for lower returns, but for now many appear to have created natural monopolies.
Likewise when we look at the constituents of the value sector they appear to be dominated by a number of ex-growth industries. As highlighted above, banks, retailers and oil & gas sectors dominate the value index and it is hard to make strong investment cases for many of these, certainly at current interest rates. Our view is there will come a time when value comes back into favour, since the behavioural characteristics of humans inevitably lead to sectors and companies becoming oversold, but it may not be for some time and it will probably be linked to a shift from the current low interest rate environment.
Peak margins: A mean reverting factor?
Another feature of the current cycle is that of persistently high margins, especially in the US. This is both unusual, they are supposed to be mean reverting and central to whether stock markets are expensive or not, with any reversion to more normal margins likely to make the overall stock market look very expensive.
Conventional theory suggests when an industry or company generates super-normal margins and returns, capital is sucked in, competition increases and, in the process, margins and future returns are both reduced. So what has broken down this time round? Well, partly it is again linked to the rise of technology and partly due to regulation.
As discussed earlier, technology companies have pursued a winner-takes-all strategy facilitated by the shift to a digitalised, online world. Helped by the flood of capital from venture capitalists, companies such as Amazon and Google have rapidly created natural monopolies with persistently high margins that are difficult to disrupt.
Historically such power would have attracted the watchful eye of a regulator who would have either forced them to divest key assets or prevented any acquisitions which reinforced their dominance. However, now we find that regulators, who were set up to regulate a bricks and mortar world, are struggling to adapt to monopolies created in an online world. Importantly, a key test for most regulators is whether or not the consumer has been disadvantaged. Mostly this is not the case, with new technologies typically reducing the price paid by the consumer, albeit it has become increasingly apparent that the consumer may be being disadvantaged in other ways as was illustrated by the recent data scandal involving Facebook selling its data to Cambridge Analytica. At the same time regulators appear to be more amenable to mergers in some sectors of the economy that result in the combined firms having more pricing power.
Increasingly however there are signs that the situation may be changing. Both politicians and regulators have become more vocal on the excessive power tech companies have gathered, with some such as Democratic candidate, Elizabeth Warren, making the break-up of the tech sector central to their campaign policies.
Peak valuations: Time to sell?
A natural question to ask oneself at this point in what looks to be an increasingly protracted investment cycle is just how expensive are markets? Clearly there are pockets of what look to be excessively high valuations both at the sector and country level, with the US for example trading above most other countries.
Again though on closer inspection the picture is more nuanced. Prima facie the US looks fully valued rather than excessively valued unless, as discussed above, margins do revert to historic levels. Outside of the US many markets, such as Europe, Asia and Japan, look to be much more attractively valued standing significantly below historical peak valuations. If, however, we adjust for growth rates and by sector we find a very different picture. Then it is possible to argue the US doesn't look anywhere near as expensive and regions such as Europe are less attractive due to their lack of exposure to technology, instead being dominated by sectors and industries that are ex-growth and cyclical.
Overall, we wouldn't make the argument that valuations have reached levels we would regard as dangerous. Furthermore, if we compare across asset classes then equities arguably look attractive. In particular conventional bond/equity ratios suggest equities look extremely good value, albeit we would suggest this is more a case of bonds looking expensive rather than equities looking cheap. Nonetheless, it does support the view that if you aren't investing in equities there is very little else where one can invest one's money apart from cash which comes with significant opportunity costs over the long-term, particularly given current negative rates!
Summary
The current cycle is clearly an unusual one. Many relationships that persisted in the past, such as value outperforming growth and the reversion of peak margins, appear to have broken down. Underlying this change has been a blend of ultra-low interest rates, driven by central banks distorting markets and the rise of technology. Clearly this begs the question as to whether it really is different this time or just a matter of time before there is a reversion to the mean. Our view is whilst such situations rarely last forever - normal investor behavioural excesses invariably kick in at some point - we think it is unlikely there will be a persistent rotation until the factors which drove this change, i.e. low interest rates and technological disruption, experience a reversal be it through higher rates, inflation, taxation or regulation.
Relating this back to our Company we have remained relatively pro-risk. We previously introduced a modest allocation to more defensive investments which we will add to when the time is right.
Portfolio Review and Activity
Your Company has returned -0.4% for the first half of the year and -0.5% over the past 12 months on an NAV total return basis. The key performance indicators for the last 12 months were 7.6% for the MSCI ACWI NR Index, 13.4% for the FTSE UK Gilts All Stocks TR Index and 1.8% for UK CPI. The main detractor from performance this half has been Ocean Wilsons Holdings. The net asset value per share decreased from 281.1p (as Hansa Trust, but NAV quoted per number of HICL shares) at the end of March 2019 to 278.5p at the end of September 2019.
Core and Thematic Funds
The Core Regional and Thematic silos both enjoyed comparatively stronger halves returning 9.1% and 7.2% respectively. Over the past 12 months the Core Regional silo was up 7.1% and the Thematic silo up 5.7%.
In the Core Regional silo, the Fund's US and Japanese holdings were the largest contributors to the return over the half. Vulcan Value Equity was a top contributor, returning 13.3% over the half. The majority of the return came early and late in the half, either side of a broad market decline seen in August as the US yield curve inverted. Two of the fund's larger positions, Qorvo and NVIDIA, followed this trend being up over the course of the half but experiencing significant volatility during it. Qorvo announced a deal to supply Lockheed Martin with radar technology for the US military. Another large holding, Skyworks Solutions, suffered in August when it was feared the US may cancel waivers for companies that supply chips to Huawei but benefitted later in the half from the shift towards 5G technology and ended up flat over the half. Other strong performers were Findlay Park American, Select Equity and Pershing Square Holdings which were up 12.0%, 11.9% and 19.6% respectively over the period.
The Japanese funds in the Core Regional silo, Indus Japan Long Only (up 10.4%), and Goodhart Partners: Hanjo (up 12.1%), enjoyed stronger halves. There was a rotation from growth into value stocks in September, driven by the inversion of the US yield curve which increased concerns that the global economy is slowing. This drove the positive performance after a difficult August fuelled by increasing US/China tension and continued protests in Hong Kong. Emerging and frontier market holdings such as BlackRock Frontiers Investment Trust (up 1.0%), and Prince Street Institutional (up 3.7%) continued to lag, mainly due to concerns over further escalation of the US/China trade war.
GAM Star Technology Fund continued to be one of the top contributors in the Thematic bucket, returning 10.8% over the half as the technology sector performed well. One of the strongest performers was Seagate Technology, a data storage company. Seagate began to re-engage with investors, holding its first investor day in four years and it appears to have a technological advantage over competitors in the high capacity storage space. The healthcare and biotechnology sectors struggled over the half with BB Biotech down 8.2%. The biotech industry has been hit by fears that the sector will come under political scrutiny during the US presidential election, as candidates on both sides are proposing legislation that will target their drug pricing power.
Diversifying Funds
The Diversifying silo ended the half with a positive return of 6.7% taking the return over the last 12 months to 7.8%. The holdings in this silo are designed to show lower correlation to the equity market.
Schroder GAIA BlueTrend was one of the bigger contributors over the half returning 12.2%. The fund benefitted from the escalation in the US/China trade war and increased Brexit uncertainty in August, with its fixed income positions making significant gains as yields fell. This was on top of strong performance in July, again due to fixed income positions benefitting from the Fed's cut to its policy rate. Another of the stronger performers was DV4 which returned 12.0% over the half. This evergreen property development fund returned a significant amount of capital to investors earlier this year after disposing of several properties. Other strong performers this half were GAM Systematic Core Macro and Keynes Dynamic Beta Strategy which were up 7.0% and 11.5%, respectively.
The macro trading funds lagged the rest of the Diversifying silo during the half with Hudson Bay and MKP Opportunity down 1.3% and up 3.6%, respectively. MKP was short US equity and long US duration going into September, meaning the bounce in the equity market caught the manager by surprise leading to a poor return. Hudson Bay performed well at the start of the half but suffered in a similar fashion to MKP when the US equity market improved in September.
Global Equities
The global portfolio returned 7.3% in the half, with the biggest contributors being Dollar General, Alphabet and CVS. The largest detractors were TripAdvisor, CK Hutchison and KT Corp.
We opined about the underperformance of value versus growth in the third quarter of 2018 and very little has changed over the past year. Despite a brief period when value outperformed during the selloff in the fourth quarter of 2018, growth stocks have remained in their ascendancy.
The full story is, however, not as simple as that. The real winners over the past 12 months have been low volatility stocks. If we look at the US where we have the best data, the Invesco S&P 500 Low Volatility ETF has trumped the S&P by 15% over the past 12 months, returning 19% in dollar terms.
The desire for certainty has led to investors and institutions purchasing these low volatility businesses. Low volatility businesses can be great investments, as investors frequently under appreciate their steady cash flows. However, if we dig deeper into this Low Volatility ETF we see that 50% of its assets are in just two sectors; Utilities and Real Estate, both highly correlated interest rate sensitive sectors. If we look at the five year growth rate of free cash flow ("FCF") and compare that to the S&P Index, the "low volatility" companies have grown at 8% a year, versus 12% for those in the S&P. Using return on invested capital ("ROIC") as a proxy for quality shows that the "low volatility" businesses earn a ROIC of 8.5%, so for every dollar they invest in the business they earn 8.5c per year, whilst that number is a considerably better 12.7% for the S&P 500. With the Low Volatility ETF containing slower growing and lower quality businesses we would expect it to trade at a lower valuation, yet it trades at a 35% valuation premium to the S&P! Whilst this is just one ETF it tells the story of the whole market in 2019, where we believe many participants are overpaying for certainty at the expense of everything else.
We describe these sorts of investments as low uncertainty but high risk propositions, whereas we are finding opportunities in the high uncertainty low risk categories. We are currently positioned in good businesses where the outlook is less easy to predict or where a temporary problem obfuscates the positive long-term outlook. The low risk element is borne from the fact we are able to purchase them at such wide margins of safety to their intrinsic value. This plays to our advantage of viewing risk as a permanent impairment of our capital, as opposed to price volatility.
We added to a number of these such names during the half including CVS, Orion Engineered Carbons, CK Hutchison, Subsea 7, Exor and Hyve Group (formerly ITE). As a group these companies trade at an average 41% discount to our intrinsic value calculations, implying they have on average 70% upside. Whilst each is a good underlying business, they are under appreciated and mispriced for different reasons. They each have high quality aligned management teams with an average of 20% insider ownership, 12% annual FCF growth over the past 5 years and trade with a 10% free cash flow yield. In order to fund these purchases we sold our position in KT Corp.
Ocean Wilsons Holdings
A stronger first half of the financial year saw the Brazilian equity market grow by 2.3%, exceeding market expectations. This followed a disappointing financial year in 2018, when Brazilian equities fell by 4.2%. The Brazilian president, Jair Bolsonaro, has faced international criticism for his response to fires in the Amazon rainforest which has slowed progress on his domestic agenda. However, a crucial pension reform has passed the first steps to becoming law with it now only pending a vote in the Senate, that is thought to be a formality. This reform is crucial to combat a large deficit in the public pension system and an aging Brazilian population.
The process of assessing the future of the Wilson Sons container terminals and logistics assets concluded in July 2019. This was part of an evaluation of strategic alternatives carried out by the OWHL management. The OWHL Board decided they would not engage in any transaction at this time.
The second quarter results for Wilson Sons, which were released in August, showed an 8.7% decline in earnings compared to the same quarter of 2018. The container terminals division struggled with earnings down 16.3% due to lower transhipment, reduced warehousing revenues and currency devaluation although overall volumes were 2.9% higher. The Rio Grande terminal achieved a productivity record of 217 movements per hour in May 2019. The Salvador terminal saw volumes increase 13.4% with exports, cabotage and transhipment all increasing volumes. Civil works are continuing on the expansion of the Salvador terminal. The work will see the principal quay extended from 377 metres to 800 metres, enough to allow the simultaneous berthing of two super-post-Panamax ships.
The towage and ship agency endured another difficult quarter experiencing an 8.3% decline in revenues largely due to a temporary decline in iron ore exports and a very competitive market environment. Despite this, revenue per manoeuvre was up slightly during the quarter. Demand continued to be weak in the offshore oil and gas services business with the expectation that this will continue for at least the next year. Revenues were down 4.9% in the second quarter as days in operation decreased by 10.1%. As at the end of June 2019, 16 of the 23 vessels were under contract with three new multi‑year contracts signed this year.
The Ocean Wilsons Investments Ltd ("OWIL") subsidiary was valued at $278.4m at the end of June 2019, which represented an increase of $19.5m (7.5%) from the valuation at the end of December 2018, although dividends of $4.75m were 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 21.5% during the half, or 17.8% on a total return basis. Over the last 12 months the share price has fallen by 14.4%, or by 10.3% on a total return basis, which takes account of the 53.9p dividend paid to the Company in June 2019. The share price represents a discount to the look-through NAV of 36% at the end of September, based on the market value of the Wilson Sons shares together with the latest valuation of the investment portfolio.
Alec Letchfield
October 2019Portfolio Statement
as at 30 September 2019
Investments
Fair value
£000Percentage of
Net AssetsCore Regional Funds
Findlay Park American Fund
21,199
6.3
Vulcan Value Equity Fund
15,319
4.6
Select Equity Offshore, Ltd
14,967
4.5
Goodhart Partners: Hanjo Fund
12,557
3.8
Adelphi European Select Equity Fund
10,415
3.1
BlackRock European Hedge Fund
9,829
2.9
Schroder ISF Asian Total Return
7,620
2.3
Indus Japan Long Only Fund
6,977
2.1
Pershing Square Holdings Ltd
5,158
1.5
Egerton Long-Short Fund Ltd
4,578
1.4
Prince Street Institutional Offshore Ltd
4,571
1.4
BlackRock Frontiers Investment Trust
3,553
1.1
LF Odey Absolute Return Fund
3,255
1.0
NT Asian Discovery Fund
2,975
0.8
Selwood AM Credit Fund
2,648
0.8
SR Global Fund Inc. Frontier Markets
2,524
0.7
Vanguard FTSE Developd Europe ex UK Equity Index Fund
1,931
0.6
Total Core Regional Funds
130,076
38.9
Strategic
Wilson Sons (through our holding in Ocean Wilsons Holdings)*
45,116
13.5
Ocean Wilson (Investments) Limited (through our holding in Ocean Wilsons Holdings)*
38,124
11.4
Total Strategic
83,240
24.9
Global Equities
EXOR NV
4,107
1.2
Berkshire Hathaway Inc
4,084
1.2
Interactive Brokers Group Inc
3,743
1.1
CK Hutchison
3,651
1.1
White Mountains Insurance Group Ltd
3,237
1.0
Alphabet Inc
3,170
1.0
Iridium Communications Inc
2,936
0.9
Dollar General Corp
2,902
0.9
Howard Hughes Corp
2,892
0.9
CVS Health Corp
2,763
0.8
C&C Group
2,754
0.8
Hansteen holding PLC
2,743
0.8
Samsung Electronics Co Ltd
2,680
0.8
Orange
2,674
0.8
Hyve Group PLC
2,354
0.7
7 other investments
12,650
3.8
Total Global Equities
59,340
17.8
Diversifying
DV4 Ltd **
9,340
2.8
Global Event Partners Ltd
8,487
2.5
Hudson Bay International Fund Ltd
3,695
1.1
MKP Opportunity Offshore, Ltd
2,911
0.9
Vanguard US Govt Bond Index Fund
2,797
0.8
Keynes Dynamic Beta Strategy Fund
2,354
0.7
Apollo Total Return Fund
2,276
0.7
Biopharma Credit Plc
1,505
0.5
CZ Capital Absolute Aplpha UCITS Fund
1,330
0.4
GAM Systematic Core Macro Fund
1,032
0.3
Schroder GAIA BlueTrend
801
0.2
DV3 Ltd**
0
0.0
Total Diversifying
36,528
10.9
Thematic
GAM Star
15,591
4.7
BB Biotech AG
3,173
0.9
SPDR MSCI World Financials UCITS ETF
3,508
1.1
Worldwide Healthcare Trust Plc Ordinary
1,683
0.5
Total Thematic
23,955
7.2
Total Investments
333,139
99.7
Net Current Assets
1,040
0.3
Net Assets
334,179
100.0
*The Company owns 9,352,770 shares in Ocean Wilsons Holdings Limited ("OWHL"). In order to better reflect the 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 the Company's holding in OWHL has been apportioned across the two subsidiaries in the ratio of the latest reported NAV of OWIL, that being the NAV of OWIL shown per the 30 June 2019 OWHL accounts, to the market value of OWHL's holding in Wilson Sons, that being the bid share price of Wilson Sons multiplied by the number of shares held by OWHL at 30 September 2019.
**DV3 Ltd and DV4 Ltd are unlisted Private Equity holdings. As such, its value is estimated as described in Note 1(k) to the statutory Financial Statement and Note 1(b) to the pro-forma Financial Statement and they are listed as a Level 3 Asset in Note 9 of the Statutory and Note 8 of the Pro-forma financial statements. All other valuations are either derived from information supplied by listed sources, or from pricing information supplied by third party fund managers.
Financial Statements
Introduction to the Financial Statements
For the six months ended 30 September 2019
Note of explanation:
During the six month period ended 30 September 2019, 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 the Interim Report for HICL present only the results of HICL from the date of incorporation (21 June 2019) to the period end (30 September 2019). 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 six-month period from 1 April 2019 to 30 September 2019. 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 belonged to at the time. Similarly, the Board presents the results of Hansa Trust for the six months to 30 September 2018 and the 12 months to 31 March 2019 as relevant comparative periods.
Condensed Income Statement
For the period 21 June 2019 to 30 September 2019
(Unaudited)
21 June to
30 September 2019
Revenue
£000Capital
£000Total
£000Gains on investments held at fair value through profit or loss
-
2,989
2,989
Exchange gains on currency balances
-
-
-
Investment income
158
-
158
158
2,989
3,147
Investment management fees
(227)
-
(227)
Other expenses
(750)
-
(750)
(977)
-
(977)
Profit before finance costs and taxation
(819)
2,989
2,170
Finance costs
(1)
-
(1)
Profit before taxation
(820)
2,989
2,169
Taxation
(9)
-
(9)
Profit for the period
(829)
2,989
2,160
Return per Ordinary and 'A' non‑voting Ordinary share
(0.7)p
2.5p
1.8p
The Company does not have any income or expense that is not included in the Profit for the period. Accordingly the "Profit for the period" is also the "Total Comprehensive Income for the period", as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented.
The total column of this statement represents the Income Statement, prepared in accordance with IAS 34. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in the above Statement derive from continuing operations.
Condensed Balance Sheet
as at 30 September 2019
(Unaudited)
30 September
2019
£000Non‑current assets
Investments held at fair value through profit or loss
333,139
Investments in subsidiary at fair value through profit or loss^
138,179
471,318
Current assets
Trade and other receivables
116
Cash and cash equivalents
1,330
1,446
Current liabilities
Trade and other payables
(406)
Net current assets
1,040
Inter Company Loan^
(138,179)
Net current assets
334,179
Capital and reserves
Called up share capital
1,200
Contributed Surplus
330,819
Retained earnings
2,160
Total equity shareholders' funds
334,179
Net asset value per Ordinary and 'A' non‑voting Ordinary share
278.5p
^This represents Hansa Investment Company's investment in Hansa Trust and its associated intercompany loan at fair value.
Condensed Statement of Changes in Equity
For the period 21 June to 30 September 2019
(Unaudited)
Share capital
£000Contributed Surplus reserve
£000Retained earnings
£000Total
£000Net assets at 21 June 2019
-
-
-
-
Issue of share capital 29 August 2019
1,200
-
-
1,200
Transfer of assets from Hansa Trust
-
330,819
-
330,819
Gains for the period
-
-
2,160
2,160
Net assets at 30 September 2019
1,200
330,819
2,160
334,179
Condensed Cash Flow Statement
For the period 21 June to 30 September 2019
(Unaudited)
21 June to 30 September
2019
£000Cash flows from operating activities
Gain before finance costs and taxation
2,170
Adjustments for:
Realised (gains) on investments
-
Unrealised (gains) on investments
(2,989)
Effect of foreign exchange rate changes
-
(Increase) in trade and other receivables
(116)
Increase in trade and other payables
363
Taxes paid
(9)
Purchase of non-current investments
(330,150)
Sale of non-current investments
-
Net cash (outflow) from operating activities
(330,731)
Cash flows from financing activities
Interest paid on bank loans
(1)
Drawdown of loan
43
Inter-Company Loan with Hansa Trust
332,019
Net cash inflow from financing activities
332,061
Increase in cash and cash equivalents
1,330
Cash and cash equivalents at end of period
1,330
Notes to the Condensed Financial Statements
1 ACCOUNTING POLICIES
(a) 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 except for the valuation of investments and 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.
(b) Basis of non-consolidation
IFRS 10 stipulates that subsidiaries and associates of Investment Entities are not consolidated but, rather, stated at fair value unless the conditions for certain exemptions from this treatment are met. Hansa Investment Company 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.
(c) Presentation of Income Statement
In order to better reflect the activities of an investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Income Statement between items of a revenue and capital nature, has been presented alongside the Income Statement. The Company's byelaws allow net capital returns to be distributed by way of dividend, in addition to revenue returns.
(d) Non-current investments
As the Company's business is investing in financial assets, with a view to profiting from their total return in the form of income received and increases in fair value, investments are classified at fair value through profit or loss on initial recognition in accordance with IFRS 9. The Company manages and evaluates the performance of these investments on a fair value basis, in accordance with its investment strategy and information about the investments is provided on this basis to the Board of Directors.
Investments are recognised and de-recognised on the trade date. For listed investments fair value is deemed to be bid market prices, or closing prices for 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.
Unquoted 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. These include using recent arms-length market transactions between knowledgeable and willing parties where available. 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.
1 ACCOUNTING POLICIES (CONTINUED)
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank, short-term deposits and cash funds with an original maturity of three months or less and are subject to an insignificant risk of changes in capital value.
(f) Investment Income and return of capital
Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. Dividends and Real Estate Investment Trusts' ("REIT") income are all stated 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.
(g) 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.
(h) 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 going forward. 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.
(i) Foreign Currencies
Transactions denominated in foreign currencies are recorded in the local currency, at the actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.
(j) Reserves
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 year 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.
1 ACCOUNTING POLICIES (CONTINUED)
(k) Significant Judgements and Estimates
The key significant estimate to report, concerns the Company's valuation of its holding in DV4 Ltd. DV4 is valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2019. The most recent valuation statement was received on 27 August 2019 stating the value of the Company's holding as at 30 June 2019. The most recent distribution was received on 30 May 2019. It is believed the value of DV4 as at 30 September 2019 will not be materially different but this valuation is based on historic valuations by DV4, does not have a readily available third party comparator and, as such, is an estimate. There are no significant judgements.
2 INCOME
(Unaudited)
21 June to
30 September 2019
£000
Income from quoted investments
UK dividends
3
International and other dividends
155
158
Other income
Interest receivable on AAA rated money market funds
-
Total income
158
3 DIVIDENDS PAID
(Unaudited)
21 June to
30 September 2019
£000
First and Second interim dividends for period ending March 2020
-
Unclaimed dividends refunded
-
-
Note: The combined first and second interim dividends payable for the period ended 31 March 2020 were announced on 15 October 2019. The payment totalling 1.6p per share (£1.92m) were paid on 29 November 2019.
4 RETURN PER SHARES
The returns stated below are based on 120,000,000 shares, being the weighted average number of shares in issue during the period.
Revenue
Capital
Total
£000
Pence per share
£000
Pence per share
£000
Pence per share
21 June to 30 September 2019 (Unaudited)
(829)
(0.7)
2,989
2.5
2,160
1.8
5 FINANCIAL INFORMATION
The financial information from the date of incorporation (21 June 2019) to the period end (30 September 2019) was approved by a committee of the Board of Directors on 12 December 2019.
6 NET ASSET VALUE PER SHARE
The NAV per share is based on the net assets attributable to equity shareholders of £334,179,000 and on 120,000,000 shares, being the number of shares in issue at the period ends.
7 COMMITMENTS AND CONTINGENCIES
The Company has no outstanding commitments as at 30 September 2019.
8 PRINCIPAL RISKS AND UNCERTAINTIES
The principal financial and related risks faced by the Company fall into the following broad categories - External and Internal. External risks to shareholders and to their returns are those that can severely influence the investment environment within which the Company operates: including government policies, taxation, economic recession, declining corporate profitability, rising inflation and interest rates and excessive stock market speculation. Internal and operational risks to shareholders and to their returns are: portfolio (stock and sector selection and concentration), balance sheet (gearing), and/or administrative mismanagement.
A review of the current period and the outlook for the Company can be found in the Chairman's Report to the Shareholders and in the Portfolio Manager's Review.
More Information on each of these areas will be given in the Strategic Report within the Annual Report and Accounts for the period ended 31 March 2020. In the view of the Board these principal risks and uncertainties are applicable to the remaining six months of the financial year as they were to the period since inception under review.
9 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, as detailed below:
30 September 2019 (Unaudited)
Level 1
£000Level 2
£000Level 3
£000Total
£000Financial assets at fair value through profit or loss
Quoted equities
157,652
-
-
157,652
Unquoted equities
-
-
9,340
9,340
Fund investments
3,508
162,639
-
166,147
Investment in subsidiary
-
-
138,179
138,179
Net fair value
161,160
162,639
147,519
471,318
There have been no transfers during the period between levels.
The Company's policy is to recognise transfers into and out of the different fair value hierarchy levels at the date of the event or change in circumstances that caused the transfer to occur.
9 FAIR VALUE HIERARCHY (CONTINUED)
A reconciliation of fair value measurements in Level 3 is set out in the following table:
(Unaudited) 30 September 2019
Equity
investments
£000Opening Balance
-
Transferred from Level 1:
-
Purchases (Capital Drawdown)
9,340
Purchase of Hansa Trust PLC
332,019
Distributions received from Hansa Trust PLC
(193,840)
Sales (Capital Distribution)
-
Total gains or losses included in gains on investments in the Income Statement:
- on assets sold
-
- on assets held at year end
-
Closing Balance
147,519
As at 30 September 2019, the investment in DV4 Ltd has been classified as Level 3. The investment in DV4 has been valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2019. The most recent valuation statement was received on 27 August 2019, with an estimated NAV based on the unaudited capital statement of DV4 as at 30 June 2019 as amended for a distribution received from DV4 Ltd on 30 May 2019. If the value of the unquoted Level 3 equity investments were to increase or decrease by 10%, while all other variables had remained constant, the return and net assets attributable to shareholders for the period ended 30 September 2019 would have increased or decreased by £933,997 respectively. Additionally, the investment in the Company's subsidiary at 30 September is also shown as a Level 3 asset.
10 POST BALANCE SHEET EVENTS: DIVIDENDS RECEIVED FROM SUBSIDIARY ENTITY
Following the implementation of the Scheme of Arrangement on 29 August 2019, Hansa Trust PLC became a 100% subsidiary of the Company. As part of the Scheme, to effect the transfer the assets from Hansa Trust to HICL, Hansa Trust PLC has declared three interim dividends between 29 August and the date of signing of these financial statements. The first interim dividend was for Hansa Trust PLC's period ending 27 August 2019. The dividend totalling £3.84m was declared and paid on 25 September 2019. The second interim dividend, as part of the Scheme and the transfer of the business and accumulated reserves from Hansa Trust PLC to the Company, of £190m was declared on 30 September. Both of these dividends are reflected in the financial statements for the Company as at 30 September 2019. Subsequent to the 30 September, but prior to the date of signing of these accounts, Hansa Trust declared a third interim dividend from Retained Earnings relating to Realised Profits of £135m on 8 November 2019.
The dividends received by the Company from Hansa Trust have each been recognised as a return on capital because the revenue had been earned in Hansa Trust prior to the acquisition of Hansa Trust by the Company at the implementation of the Scheme. 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. Similarly, this treatment will also apply to the dividend declared by Hansa Trust in November - noted above as a post balance sheet event.
The payment of the second and third interim dividends each significantly reduced the intercompany loan balance between Hansa Trust PLC and Hansa Investment Company Ltd. Following the third intercompany dividend, 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.
PRO-FORMA FINANCIAL STATEMENTS
Condensed Pro-Forma Income Statement for the combined Hansa Investment Company Ltd Group
For the six months ended 30 September 2019 (Unaudited)
(Unaudited)
Six months ended
30 September 2019(Unaudited)
Six months ended
30 September 2018(Audited)
Year ended
31 March 2019
Hansa Trust
1/4 to 30/9
£000Hansa Investment Company
21/6 to 30/9
£000Combined
Total
£000Hansa Trust
Total
£000Hansa Trust
Total
£000(Losses)/gains on investments held at fair value through profit or loss
(7,004)
2,989
(4,015)
14,433
15,845
Exchange gains on currency balances
8
-
8
27
37
Investment income
6,044
158
6,202
5,879
6,669
(952)
3,147
2,195
20,339
22,551
Investment management fees
(1,000)
(227)
(1,227)
(1,202)
(2,335)
Other expenses
(1,378)
(750)
(2,128)
(702)
(2,041)
(2,378)
(977)
(3,355)
(1,904)
(4,376)
(Loss)/profit before finance costs and taxation
(3,330)
2,170
(1,160)
18,435
18,175
Finance costs
-
(1)
(1)
-
-
(Loss)/profit before taxation
(3,330)
2,169
(1,161)
18,435
18,175
Taxation
(81)
(9)
(90)
(49)
(86)
(Loss)/profit for the period
(3,411)
2,160
(1,251)
18,386
18,089
Return per Ordinary and 'A' non‑voting Ordinary share
(2.8)p
1.8p
(1.0)p
15.3p
15.1p
The Group does not have any income or expense that is not included in the Profit/(Loss) for the period. Accordingly the "Profit/(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.
Separate revenue and capital return columns are not shown above to aid the reader and avoid unnecessary complexity.
Condensed Pro-Forma Balance Sheet for the combined Hansa Investment Company Ltd Group
as at 30 September 2019 (Unaudited)
(Unaudited)
Combined Group 30 September
2019
£000(Unaudited)
Hansa Trust 30 September
2018
£000(Audited)
Hansa Trust 31 March
2019
£000Non‑current assets
Investments held at fair value through profit or loss
333,139
330,379
335,162
Investment in subsidiary at fair value through profit or loss
-
629
629
333,139
331,008
335,791
Current assets
Trade and other receivables
116
2,424
1,118
Cash and cash equivalents
1,330
7,130
2,474
1,446
9,554
3,592
Current liabilities
Trade and other payables
(406)
(995)
(2,033)
Net current assets
1,040
8,559
1,559
Net assets
334,179
339,567
337,350
Capital and reserves
Called up share capital
1,200
1,200
1,200
Capital redemption reserve
-
300
300
Contributed surplus reserve
330,819
-
-
Retained earnings
2,160
338,067
335,850
Total equity shareholders' funds
334,179
339,567
337,350
Net asset value per Ordinary and 'A' non‑voting Ordinary share
278.5p
283.0p
281.1p
Condensed Pro-Forma Statement of Changes in Equity for the combined Hansa Investment Company Ltd Group
For the six months ended 30 September 2019 (Unaudited)
Share capital
£000Capital redemption reserve
£000Contributed
surplus
reserve
£000Retained earnings
£000Total
£000Net assets at 1 April 2019
1,200
300
-
335,850
337,350
Losses for period
-
-
-
(3,411)
(3,411)
Dividends
-
-
-
(1,920)
(1,920)
Net Assets 28 August 2019
1,200
300
-
330,519
332,019
Capital reorganisation as part of the Scheme
-
(300)
330,819
(330,519)
-
Gains for the period
-
-
-
2,160
2,160
Net assets at 30 September 2019
1,200
-
330,819
2,160
334,179
Condensed Pro-Forma Statement of Changes in Equity for the combined Hansa Investment Company Ltd Group
For the six months ended 30 September 2018 (Unaudited)
Share capital
£000Capital redemption reserve
£000Retained earnings
£000Total
£000Net assets at 1 April 2018
1,200
300
321,601
323,101
Gains for the period
-
-
18,386
18,386
Dividends
-
-
(1,920)
(1,920)
Net assets at 30 September 2018
1,200
300
338,067
339,567
Condensed Pro-Forma Statement of Changes in Equity for the combined Hansa Investment Company Ltd Group
For the year ended 31 March 2019 (Audited)
Share capital
£000Capital redemption reserve
£000Retained earnings
£000Total
£000Net assets at 1 April 2018
1,200
300
321,601
323,101
Gains for the year
-
-
18,089
18,089
Dividends
-
-
(3,840)
(3,840)
Net assets at 31 March 2019
1,200
300
335,850
337,350
Condensed Pro-Forma Cash Flow Statement for the combined Hansa Investment Company Ltd Group
For the six months ended 30 September 2019 (Unaudited)
(Unaudited)
Combined Group 30 September
2019
£000(Unaudited)
Hansa Trust 30 September
2018
£000(Audited)
Hansa Trust 31 March
2019
£000Cash flows from operating activities
(Losses)/gains before finance costs and taxation *
(1,160)
18,435
18,175
Adjustments for:
Realised (gains) on investments
(2,407)
(1,407)
(718)
Unrealised losses/(gains) on investments
6,422
(13,026)
(15,127)
Effect of foreign exchange rate changes
(8)
(27)
(37)
Decrease/(increase) in trade and other receivables
1,002
(2,369)
(1,063)
(Decrease)/increase in trade and other payables
(1,670)
(12)
1,026
Taxes paid
(90)
(49)
(86)
Purchase of non-current investments
(12,925)
(17,201)
(34,598)
Sale of non-current investments
11,562
23,577
37,603
Net cash inflow from operating activities
726
7,921
5,175
Cash flows from financing activities
Interest paid on bank loans
(1)
-
-
Dividends paid
(1,920)
(1,920)
(3,840)
Drawdown of loan
43
-
-
Net cash inflow/(outflow) from financing activities
(1,878)
(1,920)
(3,840)
(Decrease)/increase in cash and cash equivalents
(1,152)
6,001
1,335
Cash and cash equivalents at 1 April
2,474
1,102
1,102
Effect of foreign exchange rate changes
8
27
37
Cash and cash equivalents at end of period/year
1,330
7,130
2,474
*includes dividends received of £5,979,000 (6 months ended 30 September 2018: £5,806,000, Year ended 31 March 2019: £6,516,000) and interest received of £4,000 (6 months ended 30 September 2018: £1,000, Year ended 31 March 2019: £7,000).
Notes to the Condensed Pro-Forma Financial Statements
1 ACCOUNTING POLICIES
(a) Basis of preparation
The Pro-Forma Financial Statements of the Group have been prepared under the historical cost convention, except for the measurement at fair value of investments, and primarily in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, with the following departures;
Hansa Investment Company Ltd ("HICL") 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, 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 PLC.
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 HICL 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 period end, as well as compare to prior periods.
These Pro-Forma Financial Statements are presented in Sterling, the currency of the primary economic environment in which the Company is listed.
(b) Significant judgements and estimates
The key significant estimate to report, concerns the Group's valuation of its holding in DV4 Ltd ("DV4"). DV4 is valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2019. The most recent valuation statement was received on 27 August 2019 stating the value of the Company's holding as at 30 June 2019. The most recent distribution was received on 30 May 2019. It is believed the value of DV4 as at 30 September 2019 will not be materially different, as adjusted for the distribution, but this valuation is based on historic valuations by DV4, does not have a readily available third party comparator and, as such, is an estimate. There are no significant judgements.
2 INCOME
(Unaudited)
Hansa Trust 1 April to 30 September
£000(Unaudited)
Hansa Investment Company
21 June to 30 September
£000(Unaudited) Combined Group
Total
£000(Unaudited)
Hansa Trust
Six months ended 30 September
2018
£000(Audited)
Hansa Trust Year ended 31 March
2019
£000Income from quoted investments
UK dividends
143
3
146
366
688
International and other dividends
5,761
155
5,916
5,379
5,756
Property income distributions
136
-
136
132
218
6,040
158
6,198
5,877
6,662
Other income
Interest receivable on AAA rated money market funds
4
-
4
2
7
Total income
6,044
158
6,202
5,879
6,669
3 DIVIDENDS PAID & DECLARED
(Unaudited) Combined Group Six months ended 30 September 2019
£000(Unaudited) Hansa Trust Six months ended 30 September
2018
£000(Audited) Hansa Trust Year ended 31 March
2019
£000Second interim dividend for Hansa Trust 2019 (paid May 2019): 1.6p (2018: 1.6p)
1,920
1,920
1,920
First interim dividend for 2019 (paid November 2018): 1.6p (2018: 1.6p)
-
-
1,920
1,920
1,920
3,840
Note: The first interim dividend for 2019 payable by HICL, payable in November 2019, will be 1.6p per share.
4 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 comparables 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 to 30 SeptemberHansa Investment Company
21 June to 30 SeptemberCombined Group
£000
Pence per share
£000
Pence per share
£000
Pence per share
Six months ended 30 September 2019 (Unaudited)
(3,411)
(2.8)
2,160
1.8
(1,251)
(1.0)
Six months ended 30 September 2018 (Unaudited)
18,386
15.3
-
-
18,386
15.3
Year ended 31 March 2019 (Audited)
18,089
15.1
-
-
18,089
15.1
5 FINANCIAL INFORMATION
The Half Year pro-forma financial information was approved by a committee of the Board of Directors on 12 December 2019.
6 NET ASSET VALUE PER SHARE
The NAV per share is based on the net assets attributable to equity shareholders of £334,179,000 (Hansa Trust: 30 September 2018: £339,567,000; 31 March 2019: £337,350,000) and on 120,000,000 shares, being the number of shares in issue at the period end for HICL.
7 COMMITMENTS AND CONTINGENCIES
The Company has no outstanding commitments as at 30 September 2019. (Hansa Trust: 30 September 2018: £nil; 31 March 2019: £nil).
8 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).
8 FAIR VALUE HIERARCHY (CONTINUED)
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:
30 September 2019 (Combined Group) (Unaudited)
Level 1
£000Level 2
£000Level 3
£000Total
£000Financial assets at fair value through profit or loss
Quoted equities
157,652
-
-
157,652
Unquoted equities
-
-
9,340
9,340
Fund investments
3,508
162,639
-
166,147
Net fair value
161,160
162,639
9,340
333,139
30 September 2018 (Hansa Trust) (Unaudited)
Level 1
£000Level 2
£000Level 3
£000Total
£000Financial assets at fair value through profit or loss
Quoted equities
164,500
-
-
164,500
Unquoted equities
-
-
10,620
10,620
Fund investments
8,707
146,552
-
155,259
Investment in subsidiary
-
-
629
629
Net fair value
173,207
146,552
11,249
331,008
31 March 2019 (Hansa Trust) (Audited)
Level 1
£000Level 2
£000Level 3
£000Total
£000Financial 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 period between levels.
The Group'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.
8 FAIR VALUE HIERARCHY (CONTINUED)
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 September 2019
Equity investments £000(Unaudited) Hansa Trust September 2018
Equity investments £000(Audited) Hansa Trust March 2019
Equity investments £000Opening Balance
10,393
12,412
12,412
Transferred from Level 1:
-
-
-
Sales (Capital Distribution)
(2,254)
(1,496)
(2,432)
Total gains or losses included in gains on investments in the Income Statement:
- on assets sold
-
22
22
- on assets held at year end
1,201
311
391
Closing Balance
9,340
11,249
10,393
As at 30 September 2019, the investment in DV4 Ltd has been classified as Level 3. The investment in DV4 has been valued using the most recent estimated NAV as advised to the Group by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2019. The most recent valuation statement was received on 27 August 2019, with an estimated NAV based on the unaudited capital statement of DV4 as at 30 June 2019 as amended for a distribution received from DV4 Ltd on 30 May 2019. If the value of the unquoted Level 3 equity investments were to increase or decrease by 10%, while all other variables had remained constant, the return and net assets attributable to shareholders for the period ended 30 September 2019 would have increased or decreased by £933,997 respectively.
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 non‑mainstream investment products and intends to continue to do so for the foreseeable future. The shares are excluded from the FCA's restrictions which apply to non‑mainstream investment products, because they are excluded securities 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' non‑voting Ordinary shares of 1p each in issue. The Ordinary shareholders are entitled to one vote per Ordinary share held. The 'A' non‑voting Ordinary shares do not entitle the holders to vote or receive notice of meetings, but in all other respects they have the same rights as the Company's Ordinary shares.
Contact Details
Email: hiclenquiry@hansacap.com
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.
Portfolio Manager
Hansa Capital Partners LLP
50 Curzon Street,
London W1J 7UW
Telephone: +44 (0) 207 647 5750
Email: hiclenquiry@hansacap.com
Website: www.hansagrp.com
The Company's website includes the following:
- Monthly Fact Sheets
- Stock Exchange Announcements
- Details of the Board Statements
- Annual and Interim Reports
- 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 Market Services (Guernsey) Limited
Mont Crevelt House, Bulwer Avenue
St. Sampson, Guernsey GY2 4LH
(If you do not have internet access you can call the Shareholder Support Centre on 0871 664 0300 if calling from the UK (calls cost 12p per minute plus your phone company's access charge) or +44 371 664 0300 if not calling from the UK (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: enquiries@linkgroup.co.uk
www.linkassetservices.comShare 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
Ordinary shares BMG428941162
'A' non-voting Ordinary shares BMG428941089
SEDOL
Ordinary shares BKLFC18
'A' non-voting Ordinary shares BKLFC07
Reuters
Ordinary shares HAN.L
'A' non-voting Ordinary shares HANA.L
Bloomberg
Ordinary shares HAN LN
'A' non-voting Ordinary shares HANA LN
TIDM
Ordinary shares HAN
'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
Company year end 31 March
Annual Report sent to shareholders June
Annual General Meeting July
Announcement of Half Year results November
Interim Report sent to shareholders December
Interim dividend payments
August, November, February & MayCompany Information
Registered in Bermuda company number: 54752
BOARD OF DIRECTORS
Jonathan Davie (Chairman)
Simona Heidempergher
Richard Lightowler
William Salomon
Nadya Wells
SECRETARY AND REGISTERED OFFICE
Conyers Corporate Services (Bermuda) Limited
Clarendon House
2 Church Street
PO Box HM666
Hamilton HM CX
Bermuda
PORTFOLIO MANAGER and Additional administrative services provider
Hansa Capital Partners LLP
50 Curzon Street
London W1J 7UW
AUDITOR
PricewaterhouseCoopers LTD
Washington House
4th Floor, 16 Church Street,
Hamilton HM11,
Bermuda
SOLICITORS
Dentons
1 Fleet Place
London EC4M 7RA
REGISTRAR
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
CUSTODIAN
Banque Lombard Odier & Cie SA
11 Rue de la Corraterie
1204 Geneva
Switzerland
STOCKBROKER
Winterflood Investment Trusts
The Atrium Building
Cannon Bridge
25 Dowgate Hill
London EC4R 2GA
ADMINISTRATOR
Maitland Administration Services Limited
Springfield Lodge
Colchester Road
Chelmsford
Essex CM2 5PW
ALTERNATIVE INVESTMENT FUND MANAGER
Hanseatic Asset Management LBG
Tudor House
Le Bordage
St Peter Port
Guernsey
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 the Board considers that the AIC's guidance is still 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. UK Investment Trusts are required to distribute a minimum amount each year based upon a minimum allowed level of retention of revenue income. 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. The Company will continue to 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.
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 pro‑rata right to a company's residual profits. In other words, they are entitled to receive dividends if any are available after payments to financial lenders and dividends on any preferred shares are paid. They are also entitled to their share of the residual economic value of the company should the business unwind.
Hansa Investment Company 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.
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 : hiclenquiry@hansacap.com
Visit us at
www.hansaicl.com
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR FFLFSDFUSEIE
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AnnouncementREG - Hansa Investment Co Hansa Invest-HANA - Net Asset Value(s)
AnnouncementREG - Hansa Investment Co Hansa Invest-HANA - Net Asset Value(s)
AnnouncementREG - Hansa Investment Co Hansa Invest-HANA - Net Asset Value(s)
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