Hansa Investment Co Hansa Investment Co Hansa Invest-HANA - Annual Financial Report
26/06/2023 16:41
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RNS Number : 9462D Hansa Investment Company Limited 26 June 2023
Chairman's report
Dear Shareholder
Introduction
I am pleased to present the refreshed format of our Annual Report, which is
intended to give additional information and clarity.
Shareholder returns
Our Portfolio Manager, Alec Letchfield and his team at Hansa Capital Partners
LLP ("HCP", "Hansa Capital Partners", "PM") have performed robustly on a
relative basis in a very difficult market. The portfolio he manages - the
Company's investment portfolio, excluding the holding in Ocean Wilsons
Holdings Limited ("OWHL", "Ocean Wilsons") - achieved a gross time-weighted
negative return of -1.1% in the past year (2021/22: gross time-weighted
positive return of 1.1%). Our investment in OWHL generated a gross
time-weighted negative return of -5.17% (2021/22: gross time-weighted positive
return of 24.7%). Collectively, the entire Hansa Investment Company Limited
("HICL", "the Company") portfolio generated a gross time-weighted negative
return of -2.0% for the 12 months ended 31 March 2023 (2021/22: gross
time-weighted positive return 6.2%).
For the year ended 31 March 2023, the Net Asset Value ("NAV") Total Return has
declined by 3.1%, reducing from 319.1p per share to 305.8p per share, whilst
also returning 3.2p per share in dividends. Regrettably, consistent with much
of the Investment Trust sector, during the past 12 months there has been an
increase in the discount from 37.8% to 43.1% for the Ordinary shares and from
39.5% to 44.2% for the 'A' Ordinary shares. More detail on our results and the
longer-term performance can be found further on, as well as in our Portfolio
Manager's detailed review of markets and portfolio performance in his Report.
Prospects
I noted in my annual Chairman's Statement last year that I could not remember
a more challenging time to be forecasting events with so many moving parts. I
am not sure any of the clouds of uncertainty have disappeared, other than more
clarity on the future sourcing of energy for Europe and positive signs on the
future decline of inflationary pressures. A decline in job openings and easing
of wage increases are beginning to become apparent in the US.
The levels of confusion can probably be best illustrated by several major
investment bank's strategists' disagreeing as to whether either a recession is
coming due to higher interest rates and additional quantitative tightening to
defeat inflationary forces or, conversely, whether there
will be a major decline in rates due to a banking crisis and a collapse in
inflation creating a great new bull market!
At the time of writing, investor sentiment to both fixed income securities and
equities seems to be holding up better than I had expected. However, to my
mind, many obstacles still stand in the way of a substantial improvement in
valuations.
These obstacles include the smaller US regional and local state banks which
are overexposed to commercial lending and battling with their larger banking
competitors and the Fed for deposits. I see the overabundance of office
property in many parts of the world, partially created by the post Covid "work
from home" activity, as a serious vulnerability for some banks struggling to
improve net interest margins, an improvement which historically would be a
given in a rising interest environment. They have not been helped by the
obliteration of Contingent Convertible bonds from the Credit Suisse debacle,
which will increase their cost of funding either through future bond issues or
equity raises.
The overall net effects on the banking system should be de minimis - whilst
creating a tightening of lending standards. I have been surprised that the
signs of an oncoming recession have not become clearer, particularly with the
shrinkage of the money supply. It is apparent that the generosity of
government handouts as a result of the Covid pandemic were, in the round, so
large that many recipients are still benefiting from this largesse and
spending it quite slowly. This has deferred any recession and will probably
slow the deceleration of inflation, with obvious consequences for the timing
and speed of any future decline in interest rates.
Strategy
Alec Letchfield and his team, supported by the Board, have continued to take
an increasingly defensive position during the year which has helped our
overall performance. We do not hold any direct crypto type assets or real
estate assets, other than our long-held investment in DV4. The Board, in
consultation with Alec Letchfield, has decided to commence investing into a
portfolio of illiquid alternative assets, primarily in Private Equity. We
believe that, over time, this will differentiate HICL's investment portfolio
and give shareholders exposure to an asset class and underlying investments
they could not easily gain exposure to directly.
The long-term nature of Private Equity also fits well with our own long-term
investment horizons. Our Portfolio Manager has significant experience
investing in Alternative Assets and we are positive about this new
development. By its nature, the Private Equity portfolio will take a number of
years to mature. The plan is to build this illiquid segment over a period of
time, to a level of around 10% of HICL's portfolio. Further details are set
out in the Portfolio Manager's Report.
The Discount
Your Board is aware that the Company's discount to NAV for both share classes
is in excess of 40%. The Board has listened to shareholder feedback and
discusses this topic at Board meetings to consider what appropriate steps it
could take up to help reduce the discount over the medium and long term.
The Board has considered a share buy-back policy but does not consider this
would have a significant effect on the discount, at which the shares trade.
In the opinion of the Board:
it reduces the number of shares outstanding and therefore the liquidity of the
shares in the marketplace; reduced liquidity may, in fact, cause a rise in the
discount;
· it means a liquid investment portfolio needs to be maintained,
compromising the ability to have a portfolio of special situations; the
maintenance of the long-term investment policy and its portfolio takes
precedence over the short‑term discount policy; and
· the holding in OWHL would represent an even greater percentage of
the portfolio and buying back shares would raise the relative exposure to
Brazil, which the Board does not wish to do, giving preference to the return
generation potential and benefits of diversification generated by the
investment portfolio.
The primary objective of the Company is to generate a good economic return
over the medium to long-term and create a compelling investment proposition
for private investors, enabling them to gain access to investments not
otherwise readily available. This, in due course, should increase demand for
the Company's shares. Each Investment Trust must consider its own particular
circumstances and objectives in assessing what is in the best interests at any
particular point in time for the Company and its shareholders. Your Board
continues to focus on the construction of a portfolio to create long-term
value and it is in the light of this that it has decided to build an
allocation to Private Equity.
We aim to promote the Company and its prospects through clear and transparent
reporting to encourage demand for shares, particularly amongst private
shareholders, thereby widening the shareholder base. With this in mind, we are
revamping our website. We have refreshed this Annual Report and our regular
communication with shareholders. We continue to work with Edison to produce
appropriate marketing research reports and assist the Portfolio Manager in
meeting with appropriate professionals. We will hold a hybrid meeting with
shareholders in person and by video conference in London on 27 September this
year.
The Board has also considered whether the stubborn level of discount reflects
a lack of understanding of the quality and liquidity of the portfolio and,
therefore, the integrity of the NAV. It may be helpful to consider:
· 47.6% of the value of the portfolio at year end was derived from
securities which are tradeable on an Exchange and as such, their value is
based upon their respective market listed share prices. This includes the
holding in Ocean Wilsons (traded on the London Stock Exchange) which accounts
for 22.8% of the portfolio.
· 46.2% of the value of the portfolio at year end was derived from
third party fund vehicles, whose value is based on prices received directly
from the funds themselves, the price at which HICL's units could be sold for
at that point in time.
· 3.7% was held in cash at the year end.
· Only 2.5% was held in illiquid vehicles (DV4, an evergreen
holding).
Of the above, 91.3% of the total NAV has a pricing frequency of at least
monthly, with 73.6% being daily or multiple times a day. Further, even if the
Strategic holding in OWHL were considered illiquid, 68.5% of the total
portfolio can be exited within a month, with 50.8% being daily. For these
reasons, the Board considers that the values of the diverse investment
portfolio are robust and do not reflect 'stale' values in a period of market
volatility.
Dividends
Your Board has decided to continue with its existing dividend policy, which is
to pay four similar interim dividends at the rate of 3.2p until it is fully
covered by net revenue income and then increase it in line with any increase
in the net revenue income of the Company. Currently the income generated by
the portfolio is insufficient to meet this dividend commitment and the
shortfall is made up from the Company's reserves. In principle, your Board
does not believe it to be in the Company's best interests to use capital as a
source from which to pay dividends.
Liquidity and investor base
The Board continues to work with our broker and Alec Letchfield to promulgate
the HICL's story and investment opportunity. We are also continuing to enhance
transparent and timely communication.
Investment in Ocean Wilsons Holdings Limited
The Board continues to focus on the investment in Ocean Wilsons. Ocean Wilsons
itself has two assets. An investment portfolio, held through its subsidiary
Ocean Wilsons (Investments) Limited and a circa 56% holding in their main
asset Wilson Sons Holdings Brasil SA ("Wilson Sons"), an established and
respected Brazilian shipping and maritime business. Encouragingly, Wilson Sons
performed well in 2022 in Brazilian Real terms with a 6.2% increase in revenue
and a 9.3% uplift in EBITDA. All this despite the continuing challenges of
global supply chain bottlenecks in the early part of the year. During the year
to 31 December 2022, the investment portfolio returned -13.8%, which was
better than the MSCI ACWI & Frontier Markets Index which, in US$ terms was
-18.4% for the same period.
The Board notes that, on 12 June 2023, OWHL announced it was undertaking a
strategic review involving its investment in Wilson Sons and that it will
consider all potential strategic options. The Board will follow the process
with interest but notes from OWHL's announcement that it is currently at an
early stage with no certainty as to its outcome.
Share classes
The current position of Ordinary and 'A' Ordinary share classes remains
unchanged as the majority of Ordinary shareholders have informed the Board
they do not wish to alter the present structure at this time.
Environmental, Social and Corporate Governance ("ESG") matters
As I mentioned in my Report in the Half-Year accounts, our Portfolio Manager
is now a signatory to the UNPRI initiative.
The Board continues to offset the carbon created by flights to Bermuda for
meetings. The amount offset in the past year is 237 tonnes (2022 - 198
tonnes). Further, during the year, the Board sought an environmental cause
that has relevance to Bermuda, our country of domicile. Amongst many worthy
organisations, we discovered the Blue Marine Foundation, an environmental
charity dedicated to restoring the ocean to health by addressing overfishing,
one of the world's biggest environmental problems. See more further on in the
report.
Annual General Meeting ("AGM") and Amendment to Bye-Laws
At the back of these Financial Statements, you will find a notice regarding
our upcoming AGM to be held on 27 July 2023 in Bermuda. Within the notice you
will find several resolutions that are presented annually. Additionally, you
will note a one-off change the Company is proposing to its Bye-Laws requiring
shareholders to supply, if requested, information relating to their tax
residency. Globally tax authorities and government agencies require financial
institutions, including investment companies, to collect and report certain
tax information in relation to their shareholders. In principle, this should
only affect a very small number of our shareholders who are personally on our
share register - approximately 142 shareholders holding less than 1% of our
share capital. Failure by those shareholders to supply the required
information, will cause the Company to submit incomplete returns, with the
consequent risk of penalties or censure by the authorities. The proposed
Bye-Law changes enable the Company to take the necessary measures in relation
to those few shareholders who refuse to provide the information required, so
as to enable the Company to satisfy its reporting requirements.
Please see further on for more detail on the proposed changes and the more
detailed reasoning behind the proposals.
Company Auditor
As at the Company's most recent AGM in August 2022, PricewaterhouseCoopers Ltd
of Bermuda ("PwC") were appointed to audit the Company.
On behalf of the Board, I should like to extend our best wishes to you, our
shareholders.
Jonathan Davie
Chairman
26 June 2023
Long-term performance
Ten year company performance statistics
Year ended 31 March Shareholders' Funds Net Asset Value per share - Annual Ordinary 'A' Ordinary Ordinary 'A' Ordinary
Ordinary and
'A' Ordinary dividends
2023 £367.0m 305.8p 3.2p 174.0p 170.5p 43.1% 44.2%
2022 £382.9m 319.1p 3.2p 198.5p 193.0p 37.8% 39.5%
2021 £367.9m 306.6p 3.2p 198.0p 198.5p 35.4% 35.3%
2020 £276.3m 230.2p 3.2p 130.9p 135.5p 43.1% 41.2%
2019 £337.3m 281.1p 3.2p 195.5p 195.0p 30.5% 30.6%
2018 £323.1m 269.3p 3.2p 198.5p 195.5p 26.3% 27.4%
2017 £307.5m 256.3p 3.2p 173.3p 169.6p 32.4% 33.8%
2016 £255.6m 213.0p 3.2p 146.0p 145.1p 31.5% 31.9%
2015 £273.3m 227.8p 3.2p 172.0p 165.5p 24.5% 27.3%
2014 £287.4m 239.5p 3.2p 175.9p 175.5p 26.6% 26.7%
2013 £259.9m 216.6p 3.0p 166.8p 163.0p 23.0% 24.7%
The table includes information relating to HICL and historic information
relating to Hansa Trust. The years ended 2020-2023 notes HICL information. The
historic year ends 2013-2019 all relate to Hansa Trust. So that data is
consistent and comparable, the historic data in columns "Net Asset Value per
Share", "Annual Dividends" and "Share Price (Mid)" have been restated to
reflect that, as part of the redomicile of the business of Hansa Trust to HICL
in August 2019, HICL issued five times as many shares in each share class of
HICL as there were in Hansa Trust.
The Company's KPIs can be found further on in the Report.
To 31 March 2023 1 year 3 years 5 years 10 years
Total Return (%)
Ordinary shares (10.8%) 39.9% (4.3%) 25.5%
'A' non‑voting Ordinary shares (10.1%) 32.4% (4.7%) 26.1%
NAV (3.1%) 37.2% 20.4% 60.7%
Portfolio Manager's report
The domino effect
Year in review
Initially, the financial year to end March 2023 looked to be a rather middling
year. Not great, with growth expected to slow and inflation above average
albeit peaking in the middle of the year, but equally not disastrous.
Something like a -/+10% year was our rough and ready view as we entered the
year.
This view however was quickly overtaken by events. Russia's decision to invade
Ukraine in February 2022 had set-off a domino effect unleashing a series of
increasingly negative events and serving to push markets into a downward
spiral. Initially, energy and commodity prices spiked with Ukraine and Russia
being key producers of many global commodities. This added fuel to the already
hot inflationary fire meaning that inflation, rather than falling from around
the middle of the year as many expected, spiked to levels last seen in the
70's. Central bankers, having almost universally been in the camp that
inflation was transitory, were forced to do an about-turn and acknowledge that
inflation was increasingly structural in nature and necessitated both faster
and larger rate rises. From an environment where rates were effectively
anchored to zero and 25bp moves were deemed significant, we rapidly moved to a
backdrop where central bankers were racing to outdo one another in an effort
to look tough on inflation.
The next domino to fall was that of geopolitical stability. The war in Ukraine
saw a line being drawn between the West and the BRIC countries. The West
backed the sovereignty of Ukraine providing weaponry and financial support
while the BRIC countries aligned with Russia in the belief that the sphere of
influence of countries such as Russia and China extended beyond their national
borders. Whereas previously countries such as the US and China adopted a
'frenemies' approach to one another, they are now far more open with their
hostility and, in particular, the desire of the US to stymie China's march to
global economic dominance.
China also surprised on the downside. 2022 had been expected to be the year
where it exited its zero-covid policy, providing a much-needed boost to global
growth at a time when the developed economies were slowing. However, unlike
the West, which balanced the impacts of COVID in terms of deaths and reopening
economies, China continued to adopt a far tougher approach in the belief that
deaths should be minimised even at the expense of their economy. At the end of
the year it finally relented albeit not until there was civil unrest with the
population rebelling against the severity of the lockdowns.
The domino that is yet to properly fall however is that of global growth. With
many arguing that growth would start to fall sharply in the face of these
challenges and given the extent of rate rises, growth has remained relatively
resilient. In particular, employment has been remarkably stable much to the
disappointment of central banks given its impact on wage inflation.
March 2023 saw a further surprise for investors as a mini banking crisis took
hold in the US, beginning with a little-known bank called Silicon Valley Bank
(SVB). SVB was in fact an essential part of the venture capital industry in
the US, providing services ranging from a home for deposits to loans and
credit facilities. Unfortunately the bank's business model unwound quickly
when interest rates moved upwards, impacting its portfolio of bonds despite
its policy of treating them as hold-to-maturity rather than marked-to-market.
When depositors began withdrawing their cash, forcing the bonds to be realised
at their current value, the model unwound quickly.
While the US Federal Deposit Insurance Corporation, whose role is to maintain
stability and public confidence in the financial system, stepped in to
backstop all depositors and found a buyer for the profitable parts of the
bank, markets were already identifying other banks with similarly risky
business models. This led to Signature Bank also being placed under the
control of the FDIC, while the share price of First Republic Bank collapsed
and was subsequently acquired by J.P. Morgan.
However, the woes of the US regional banks, whilst a worrying development,
paled into insignificance compared to the trouble that Credit Suisse was in,
given its much greater importance to the financial system. The Swiss
government was therefore forced to intervene to ensure its quick sale to rival
bank UBS. Although there were many questions asked about the mechanics of this
transaction, the swift action of regulatory authorities on both sides of the
Atlantic seemed, at least for now, to contain this crisis.
While the financial sector has been one of the worst performing parts of the
equity market in the first quarter of 2023, markets were generally up for the
quarter despite their falls in March. Fixed income markets have seen very
volatile moves lately as yields moved up in February amid concerns of faster
rate rises, only to fall swiftly in March as the trouble in the banking sector
meant these were overtaken by worries about a wider slowdown in economic
growth. However, these lower bond yields served to boost longer duration mega
cap technology names that have been viewed somewhat as bond-proxies in recent
years.
Relating this back to markets, we can see that the first quarter of the
financial year, which was at the epicentre of the bad news flow, saw the worst
falls, with global equities down some 14% at their trough. The second quarter
began with a recovery that made back this loss before falling again in late
summer. In the third and fourth quarters markets edged themselves higher
albeit with setbacks along the way as investors started to anticipate a peak
in inflation and were even looking to a point when interest rates could start
to fall again. Overall, in sterling terms, global stock markets fell by 1.5%
over the past twelve months which perhaps belies the severity of events as we
passed through the year.
At the country level the most interesting factor to note was the
underperformance of the US market, as the UK, Europe and Japan markets
outperformed for the first time in many years. Over the year the US was down
3.3%, a little worse than the MSCI World Index, while the UK was up 5.5%,
Europe was even stronger up 7.9% and Japan was just positive with a gain of
0.8%. Europe's relative strength is somewhat surprising given that it sits on
the doorstep of the Russian-Ukrainian conflict and is most exposed to any
energy shortages due to Russian oil and gas sanctions, although the mild
winter experienced in Europe helped in this regard. The China market was a
rollercoaster, being down 24% by end October but made this all back to end the
year up 1.4%. Brazil was a poor performer being down 13.5% while India
declined 6.5%.
At the core of this year's events however has been the bond market. Following
years of zero interest rates and falling inflation, the bolt of inflation and
the resultant rise in interest rates meant that bonds failed in their duty to
offer defensive returns when equity markets were falling. Global Treasuries
fell by 3.4%, which would have been more were it not for sterling weakness,
while UK government bonds were down by as much as 16.3%. As a consequence the
classic 60:40 portfolio of global equities and UK gilts, the mainstay of the
private investor, was down by 7.4% over the year, which is likely to come as a
shock to many when their annual portfolio valuations start to come through.
Amongst the alternative asset classes, there were heavy declines in energy
prices as WTI oil, which had reached a high for the year in June at nearly
$124 per barrel, ended the year below $80, while natural gas was another big
faller. Metals such as iron and copper showed declines, while gold increased
from $1,475/oz to nearly $1,900/oz. The broad commodity index declined 6.9%
over the year. Hedge funds were on the whole somewhat better than equities,
with the broad HFRI index up 4.2%, albeit macro and systematic funds struggled
in the first quarter of 2023 having performed well prior to then.
The outlook for 2023
The current rally in markets is worth exploring, not least to determine if we
are now past the peak in bad news and whether 2023 offers better prospects for
investors.
Two factors seem to be exciting markets. First, the belief that we have seen
the peak of inflation with the current double-digit levels expected to fall as
we move into the first half of 2023. We have some sympathy with this view. A
number of the more cyclical factors which have been driving inflation higher
are indeed rolling over sharply with oil prices down from a peak of
$124/barrel to $80/barrel now and container shipping prices down 80% to $2,120
now. With the mild autumn helping Europe rebuild its energy reserves, and
hopefully mitigating its dependence on Russian oil, combined with the base
effect as current high prices fall out the back end, this bodes well for the
year ahead and with it a potential peaking of interest rates (and indeed
central banks may even start to cut rates later in 2023).
The second factor exciting markets has been China relaxing its zero-COVID
policy. Following a period of widespread civil unrest throughout China and
with the Chinese economy weakening, showing growth of just 3% in the first
nine months of 2022 versus a 5.5% target for the year as a whole, President Xi
is relenting on a number of his measures (presumably recognising that civil
unrest and the danger that the population are pushed back into poverty are two
key factors that dictatorships fear the most). The challenge now is the speed
with which China returns to some kind of normality. In particular, China has
to contend with a relatively high number of older people who are yet to be
fully vaccinated, a vaccine that is less effective than those being used in
the West, and a healthcare system that is unlikely to be able to cope with
mass outbreaks, especially in its more rural regions. At this stage markets
seem to be anticipating that the exit path will follow that of the West which,
whilst a stop-start process, ultimately led to a return to normality. The fear
in China's case however is that the outbreaks may be much more severe,
especially as they have failed to build up any herd immunity as was the case
in the West. Perversely such an outcome may lead to further unrest as the
population views it as yet another example of the leadership's mismanagement
of the crisis.
Combined with lower valuations in many markets (but certainly not all) it is
perhaps unsurprising that markets, being forward looking discounting
mechanisms, are trying to look through some of the more negative news flow to
a point where the outlook is more positive.
So where do we stand? Well, we advocate some caution. We are yet to see a
weakening of the economy or corporate earnings despite the events discussed
above. Whilst the picture is a mixed one, many important economic indicators
are still well into expansionary territory. GDP growth for the world is
expected to come in at 2.7% in 2023, the US some 0.8% and Europe 0.3%. Whilst
it is indeed possible that economies such as Europe are already in recession,
with important metrics such as the ISM Services PMI measure coming in at 56.5
many areas are still very much in expansionary territory. Perhaps most
worryingly, employment figures remain very strong in a number of key markets,
hardly the stuff of recession. It's a similar picture in corporate earnings
which again, whilst showing pockets of weakness, feels as though the worst is
still to come.
The second area where we would exercise some caution is that of inflation.
Whilst it is encouraging that some of the more cyclical factors appear to be
rolling over, and indeed we believe that the narrative for the coming months
will be about inflation falling from currently extended levels, we worry that
some of the more structural factors will be more persistent and challenging to
eliminate. In particular, wage inflation, with unemployment at historically
low levels, will likely be stickier and harder to remove, especially with
trade unions flexing their muscles again.
This combination of stronger than expected growth together with stickier
inflation is likely to make it harder for central banks to cut rates. In all
probability rates will stay higher for longer and under a worst-case scenario
they may even have to push up to higher than anticipated levels to eliminate
inflation from the system, even if this comes at the cost of a deeper, more
protracted recession. Such an outcome is likely to lead to markets retreating
sharply and even going much lower than the previous trough depending on the
severity of the downturn. Even without this bad outcome, historically it is
very unusual for markets to bottom and start the recovery process without
being deeper into recession and the fuller impact on corporate earnings being
felt.
It seems likely then that markets face a period of both push and pull as the
bulls and bears wax and wane depending on news flow. It is certainly possible
that the current rally has legs as we start the year with news flow dominated
by inflation coming off its highs and global growth bolstered by the Chinese
unlocking process. However, if, as seems likely, there is a growing
realisation that inflation is stickier than many believe to be the case then
this strength is likely to be short-lived. Indeed it may well be a case of bad
news being good news (at least for stock markets) as weaker growth shows that
central bank policy measures are working, and they can indeed take their foot
off the brake. In contrast stronger growth, and with it stickier inflation, is
likely to lead to central banks being more hawkish, forcing up rates even
higher, and ultimately driving economies into a much deeper recession. Hence,
at this stage, we feel little need to lean into the current market strength.
A new paradigm?
Whilst the coming months are likely to be dominated by the events discussed
above, we fear that the real challenges that markets face are yet to come and
will be more structural in nature. Although inflation is likely to fall from
the current extremes, the real question is where does it settle in the medium
to longer-term and what level of interest rate does this imply? We are not
particularly worried by the more cyclical short-term factors influencing
inflation which will undoubtedly drop out sooner or later, but we do worry
that there is a regime shift taking place due to more deep-rooted inflationary
factors. Globalisation, as noted in the past, now looks to be firmly in
reverse as governments worry about security of supply more than its cost. As
highlighted by recent news that TSMC is investing $40bn in building a new
fabrication unit in the US, rather than in Taiwan or China, no longer are
governments obsessed with achieving the cheapest prices for consumers but
instead avoiding hostile nations holding their supply chains to ransom.
Compounded by the higher labour costs in China, it feels very much like we are
in the sunset of globalisation.
Similarly, the lack of investment into many commodities as capital markets got
ahead of themselves in their desire to be seen to be green has meant that the
supply of many essential commodities will struggle to meet demand in the years
ahead. With commodities key components of inflation, again this makes
inflation look stickier than has been the case in the past.
Finally, we now appear to be in a period of structurally much tighter labour
markets. It is unclear at this point the degree to which this is a post-COVID
anomaly that will ultimately normalise as COVID recedes into history, or if it
is more persistent in nature. Certainly it feels more structural with COVID
encouraging many older people to bring forward their retirement, changing
labour migration patterns and increasing competition for cheap labour in areas
such as internet logistics which all serve to force up wage levels. For many
years now commentators have been calling for a reversal in the trend towards
corporate profits growing at the expense of the labour force and it is
possible that this day has now arrived. Sticky wage inflation is much more
worrying to central banks as it tends to be harder to eliminate once it
becomes ingrained in the system.
Hence the days of zero, or even negative inflation, seem long gone and with it
the prospect of returning to a low interest rate environment. Instead it is
likely that inflation settles at higher levels - the key will be how much
higher - and as a result we will enter a higher interest rate environment
where quantitative tightening replaces quantitative easing. This is incredibly
important for stock markets. Recent years have been dominated by an abundance
of liquidity. This drove exceptional returns from bond markets as yields
trended to zero, but also buoyed risk asset classes such as equities. Through
a combination of excess cash in the financial system needing to find a home
and with central banks able to throw liquidity at markets during periods of
distress without the fear of creating inflation, we have experienced a golden
period in stock markets over the last couple of decades. Instead, if higher
inflation and interest rates are more persistent it seems likely that stock
markets will be somewhat lower and cycles shorter especially given that the
'Fed Put' will no longer be an option in many cases.
The second structural change that we would highlight is in the geopolitical
backdrop. In recent years, geopolitics was of little real concern for
investors. The US hegemony prevailed, with the US adopting the ultimate market
friendly economic model with developing economies expected to trend towards
this model and ultimately were of little relevance from a market context in
view of their small size.
Now however, this period of geopolitical stability appears to be changing. The
developing markets are growing in economic power such that by 2050 the top
five global economies are predicted to include China, India and Indonesia with
the US being displaced by China as the most important economic nation. This
growing strength is encouraging many of the developing countries to flex their
muscles and, perhaps most worryingly, increasingly countries are aligning
between the two sides with the East no longer prepared to be dictated to by
the US.
Hence having historically been able to largely ignore geopolitics, at least
from an investment context, it is now becoming harder and harder to ignore.
Instead we must factor into our thought process how the geopolitical landscape
evolves and the risks that this may present. As highlighted in 2022 by
Russia's invasion of Ukraine, the behaviour of many developing markets can be
at best unpredictable and, at worst, extremely disruptive to world stock
markets.
Positioning
So how do we position portfolios for the coming year and the period ahead?
Well, without sounding trite, with some difficulty!
As detailed previously, whilst we see good reason for equities to continue to
move higher in the near-term we are not overly inclined to chase this rally as
we see challenges developing in the form of recession, stickier inflation and
rates staying higher for longer. Instead, the main debate we have internally
is whether we should be using this strength to sell into and if we should take
a more negative tilt. Largely this will be dependent on whether or not
existing rate cuts are successful in their goal of dampening inflation and the
more cyclical inflationary elements working their way out of the system. It
certainly seems that the market has got ahead of itself and if history is
anything to go by, the falls experienced to date would be consistent with a
soft-landing rather than the 35% or so decline for a typical cyclical bear
market.
This changing backdrop has also led to a number of important intra-market
changes. No longer is it a question of being purely focused on longer duration
growth names. Instead, with interest rates unlikely to trend back to zero in
the near-term, holding a blend of value, quality and growth seems more
appropriate. Higher rates typically favour companies who generate more of
their earnings in the near term and, if recession is around the corner, then
quality companies with more predictable earning streams will likely command a
premium. That's not to say we are anti-growth technology companies! They may
well be part of the solution if companies seek to increase their productivity
in the face of wage price pressure, but the more egregious valuations of
recent times are unlikely to return any time soon. However these technology
companies are likely to be under more pressure to become profitable rather
than continually burning cash in the pursuit of market share growth.
Perhaps the area of most interest is the bond market. For a number of years
now we have largely ignored the sector, viewing yields as too low and the risk
from higher inflation and rates as too high. Instead we have favoured equities
which represented a more attractive risk return. Given the jump in yields that
we have seen over the past year however, and with inflation now at cyclically
high levels, parts of the bond market are starting to become more interesting
again. Yields are now higher than equities in many parts of the bond market
meaning we are increasingly shifting from TINA (There Is No Alternative to
equities) to TARA (There Are Reasonable Alternatives). That's not to say
however that we would be diving in with both feet, and in particular we worry
that the high yield market still fails to reflect the dangers from rising
default rates if recession starts to take hold, but nonetheless we are
beginning to evaluate positions in areas such as shorter duration high quality
investment grade credit.
Similarly the outlook for some sectors of the hedge fund space is again
looking structurally much more attractive. An environment characterised by
greater volatility, the need to be more tactical, and higher interest rates is
exactly the kind of backdrop that macro and multi-strategy hedge funds thrive
in. Equally, CTA funds, which trade price momentum rather than being
fundamentally driven, again typically do much better in today's fast markets.
After a period of more lacklustre returns, where many have struggled to
justify their fees, this has reinforced the case for having macro and more
systematic funds within a diversified multi-asset class portfolios especially
with bonds failing in
this role. We have significant exposure to both these areas.
Another area of potential change is that of the US dollar. Whilst by no means
arguing that the role of the US dollar as the global reserve currency is under
threat - with no real alternative to the liquidity and the stability of the
fiscal and monetary backdrop provided by the US - the combination of US
interest rates being raised earlier and more aggressively than other countries
and the valuation of the dollar looking expensive, it is bringing us closer to
the point where dollar strength is replaced by dollar weakness. With interest
rates likely to turn earlier in the US compared to many other countries, and
as the safety premium awarded to the dollar erodes, we would see investors
moving out of the dollar and favouring other, non-dollar assets. In particular
we would highlight emerging markets which typically do much better in a weaker
dollar environment, especially in light of their more attractive current
valuations.
Conclusion
The challenge facing markets and policy makers in the coming months will be
untangling the drivers of inflation and growth in terms of which factors are
cyclical and which are more structural in nature. Initially it looks like the
more cyclical factors will hold sway which will likely support stock markets
as inflation falls and investors try to look through the cycle to a point
where interest rates start to turn and a new cycle begins. Whilst
acknowledging this potential strength, we are inclined to sit tight, viewing
markets as having got ahead of themselves and ignoring the looming economic
and corporate sector weakness and the pressure on valuations that this will
bring.
The more difficult question is whether we should be actively selling into this
strength and taking a more cautious position within portfolios. To a large
degree this depends on whether any economic downturn proves worse than
commonly anticipated, i.e. a hard landing as opposed to a soft landing or,
even more worryingly, that economies and inflation remain more resilient than
central bankers are comfortable with and they are forced into driving
economies much lower to bring inflation back to acceptable levels.
Overlaying this is a growing sense that we may be nearing some broader
paradigm shift. We do not say this lightly as paradigm shifts are rare and
whilst being wonderful headline makers, are generally not great for fund
managers' careers. Nonetheless, it feels that having lived through decades of
diminishing inflation and interest rates and copious liquidity, we are
entering one where liquidity is harder to come by and central banks can no
longer ride to the rescue at points of market distress. Such a backdrop likely
implies a period of lower returns, less protracted and shorter cycles and, as
detailed above, greater balance in portfolios between different asset classes
and a combination of value, growth and quality, something we feel well placed
to offer our investors given our broad, multi-asset approach.
Portfolio review and activity
During what was a volatile year for global markets, your Company produced a
commendable return of -3.1% on an NAV total return basis for the financial
year. High inflation, and the interest rate increases that they implied, were
significant concerns for investors throughout the year, although as time went
on there were increasing fears of an economic slowdown, and finally a mini
banking crisis that began in California and led to the downfall of Credit
Suisse, precipitating a flight to safety. Of the three key performance
indicators, two are negative over twelve months, with the MSCI ACWI NR Index
(GBP) being down 1.5% and the FTSE UK Gilts All Stocks TR Index being down a
steep 16.3%. Hence performance compared very favourably with the classic 60:40
equity/bond balanced portfolio which was down 7.5%. With inflation having been
high over this period, the UK CPI has gained 9.2%. Although the position in
Ocean Wilsons Holdings detracted with a loss of 5.2% for the year, we believe
its investment portfolio offers very useful diversification benefits, and we
note signs of improving sentiment towards Brazil which should be supportive of
its Wilson Sons position, which will also be helped by increasing global trade
as China continues its reopening post covid.
The Company's net asset value per share was 305.8 pence at the end of March
2023, down from 319.1 pence at the end of March 2022, while 3.2 pence per
share has been paid out in dividends during the year.
Core and Thematic Funds
For the financial year the Core Regional silo declined 4.0% while the Thematic
silo was down 8.7%.
Europe as a region has been stronger lately, and this has aided some of the
portfolio's holdings. Schroders Global Recovery, first purchased in October
2022, has significant exposure to Europe, as well as the UK and Japan, while
being underweight the US. The fund gained 7.0% in the final quarter of the
financial year, leaving it up 13.7% since purchase. Companies which have
performed well for it include Continental AG, the tyre company, and UniCredit,
the Italian bank, which had a very strong quarter despite the turmoil in the
wider financial sector. Elsewhere, the portfolio's passive holding in iShares
Core MSCI Europe returned 9.4% for the year.
After a long period of leading performance in the portfolio, the North
American holdings have been a little weaker versus other regions this year.
Select Equity declined 9.4% and Pershing Square Holdings was down 4.3%.
Pleasingly, the portfolio's largest holding outside Ocean Wilsons Holdings,
Findlay Park American's decline of just 0.4% is ahead of the North American
index. Findlay Park has been actively pivoting the fund further away from mega
cap companies towards more midcap companies (the majority of holdings added in
the last two years have been in the $3-50bn range, including West
Pharmaceuticals and United Rentals) where they are finding better
opportunities and more attractive valuations. Beutel Goodman US Value was
purchased in November 2022 to provide exposure to large cap value stocks. The
fund is managed by a dedicated value investment team that has stuck admirably
to their investment philosophy during a long period when markets have
generally been dominated by growth companies. It registered a small decline of
0.6% during the final quarter of the financial year, as value stocks lagged,
and its return since it was purchased in the portfolio has been -3.4%.
In Japan, the Indus Japan Long Only made gains over the year, being up 2.2%,
with positions such as Renesas Electronics and Food & Life Companies being
top contributors. Goodhart Partners: Hanjo Fund, which has a smaller cap
focus, was down 0.3% for the year.
Emerging and frontier markets generally lagged developed markets over the
year, but there were some relatively stronger performers in this part of the
portfolio. NTAsian Discovery gained 1.7% for the year. Its top holding is BFI
Finance, a consumer financing company in Indonesia, that has contributed
positively over the last year. The manager likes its connection to the growing
GDP per capita in the country and it is benefiting from digitalising its
operations. Vietnam remains a significant exposure for the fund, although this
detracted over the course of the year. BlackRock Frontiers Investment Trust
has delivered positive returns, with a rise of 4.4% over the last quarter
taking it to a return of 7.2% for the year, aided by some of its holdings in
the Middle East which were buoyed by elevated oil prices, although these have
come off more recently.
The thematic holdings have experienced mixed performance over the last year.
Energy exposure through iShares MSCI World Energy Sector ETF has been a strong
contributor, gaining 12.7%, although it fell back 5.3% in the last quarter.
GAM Star Disruptive Growth has fallen 20.3% over the year, as the technology
sector declined after many years of leading market gains, although it bounced
7.7% in the final quarter. Healthcare returns were mixed, with RA Capital
International Healthcare being the best performing over the year with a rise
of 13.6%, while Worldwide Healthcare Trust declined 3.7% and BB Biotech fell
14.7%. In May 2022 the position in SPDR MSCI World Financials ETF was switched
into the Polar Capital Global Insurance Fund, which has since outperformed and
fared much better than the broad financials sector in the fallout from Silicon
Valley Bank's failure. The Polar Insurance Fund is up 11.0% since purchase.
We recently agreed with the Board to introduce an allocation to private equity
within the portfolio. This will provide access to investments that are not
contained in the public markets, while benefiting from private equity's
long-term nature that fits well with the Company's investment horizon. We have
significant experience of investing with some of the world's best private
equity firms, ranging from large blue-chip names to lesser-known specialist
managers. A fully developed private equity programme will take many years to
construct, but some early commitments have already been made. These include
commitments to invest in funds managed by Khosla and GGV, two leading Silicon
Valley venture capital groups that are very difficult to access. While recent
events surrounding Silicon Valley Bank, combined with falling technology
valuations have been difficult for the venture capital space, it is hoped that
this could work well for funds beginning to invest money into the space now. A
further commitment has been made to TA Associates XV, the next flagship fund
from the leading US growth private equity firm, which has an excellent track
record of investing across technology, healthcare and services sectors.
Diversifying Funds
The diversifying holdings have continued to provide an attractive alternative
source of returns whilst dampening volatility and displaying low correlations
to the equity market. They delivered a gain of 0.8% in the last twelve months,
which is a very positive result in an environment of falling equity markets,
and far ahead of the steep losses in the bond markets, where the UK gilt index
fell 16.3%.
The two macro funds have again delivered steady returns this financial year,
with Hudson Bay International rising 3.7% and MKP Opportunity up 4.5%. Some of
the strongest performance over the year has come from within the fixed income
part of the portfolio, although generally within more niche strategies as
sovereign bonds have declined. BioPharma Credit has been particularly strong,
delivering a 13.6% return for the year. A significant portion of this total
return is derived from income, with the company continuing to meet its 7%
annual dividend target. Selwood Liquid Credit Strategy benefited from a good
final quarter, gaining 7.9%, to bring it to a return of 7.2% for the financial
year.
Keynes Dynamic Beta Strategy pulled back in the last quarter, with a decline
of 2.1% as its directional models detracted in both equities and bonds, but
delivered a return of 7.1% for the year. Schroder BlueTrend suffered similarly
in the last quarter with a decline of 12.8% that leaves it down 2.4% for the
year, but the other CTA fund, GAM Systematic Core Macro, was less affected and
remains up 4.1% for the year, partly thanks to its diversified, non-trend
models.
Global Equities
The global equity silo returned 18.0% over the past year, with the biggest
contributors being Orion Engineered Carbons, Interactive Brokers and Arch
Capital. The biggest detractors were CTT, CVS and ViaSat.
Over the past year, our value investing approach has allowed us to avoid the
general declines in the equity markets. However, in the preceding year, our
risk-averse style struggled to keep up, which is not surprising. Our real
challenge is to achieve satisfactory results during tough times, although it
is impractical to accurately determine or anticipate when these times might
occur. The cost of doing that can be to not keep pace with bull markets and if
that means not buying over-valued stocks just to maintain relative performance
to a benchmark, that is a price we are willing to pay.
Our process is focused on bottom-up stock picking, rather than regional or
sector selection, and we are pleased to report that this approach has been the
primary driver of our returns. When we wrote to you three years ago, we were
optimistic about the long-term prospects of our global equity portfolio due to
its 50% discount to its intrinsic value. Although the discount has narrowed to
35% since then, we still believe that the portfolio offers a substantial
margin of safety.
Continuing our earlier discussion on banking, it's worth noting that our
direct equity portfolio has a 40% weighting in the financial sector based on
the Global Industry Classification Standard (GICS). However, we do not have
any exposure to banks. Instead, we have invested in brokers, insurers, and an
industrial holding company. Our largest position, Interactive Brokers (IBKR),
suffered a 7% decline from March 8th to the end of the quarter, as the market
sold off all financial stocks indiscriminately. However, the banking situation
has left IBKR in a much stronger position, as it has showcased its financial
strength to potential customers. Unlike its peers, IBKR offers the best
interest rates on customer deposits, currently at 4.33% on USD balances
compared to Charles Schwab's 0.45%, so is unlikely to see customers move their
deposits. Additionally, it invests its cash in short-duration treasuries,
which stood at 24 days at the end of March, a stark contrast to the
asset-liability mismatch at other financial institutions. While the sell-side
analysts have been frustrated with the conservative approach to the balance
sheet in the past, over the long term it pays off to be invested alongside an
owner-operator where the chairman and staff hold over 75% of the shares. Their
long-term focus is summed up by the chairman in response to an analyst asking
them about their balance sheet in January, well before the banking crisis made
headlines. "It is a risk we cannot take because if you're right, we'll
actually make extra money. But if we're wrong, we can lose a fortune because
as rates go up, we have to raise the rate that we pay to our clients. And we
don't want to be a situation where we are lent out on the long end and we're
borrowing on the short term from our customers. So, we can get creamed that
way, and we will not do that."
The relative strength of IBKR has been acknowledged, evidenced by a 31% drop
in its peer, Schwab, over the same period. Moving forward, customers may
re-evaluate the financial strength of their broker, resulting in a potential
uptick in the pace of client wins, especially from Registered Investment
Advisers. In addition, further client growth is anticipated to come from large
international institutions that white label the IBKR platform. IBKR has
already secured two significant customers who are expected to begin
transferring their clients later in the year.
We believe it is quite possible that IBKR earns over $6 a share by 2025, which
would be a 14% EPS CAGR from 2022. This conservative estimate is less than the
19% earnings CAGR they have achieved since our initial purchase in 2017 and
represents a forward multiple of just 13x P/E.
During the year we initiated a new position in Bergman & Beving, added to
our positions in Coats, CTT, Grupo Catalana Occidente and ViaSat and reduced
our positions in CK Hutchison, CVS, Dollar General, EXOR, Interactive Brokers
and Subsea 7.
Ocean Wilsons Holdings
As the largest integrated provider of port and maritime logistics in Brazil,
we believe the Ocean Wilsons' subsidiary, Wilson Sons, is well-placed to
perform in the coming years. The business has a strong competitive position,
being the leading provider of towage services in Brazil with the largest and
most modern fleet, as well as operating major container terminals in the north
and south of the country: Rio Grande and Salvador. In recent times the company
has seen several challenges, including political upheaval in Brazil and the
disruption stemming from covid that significantly impacted global trade and
hurt the energy sector that is an important part of the company's demand.
However, there are now signs that these factors are improving, which should be
positive for the company going forward.
Recent results have begun to evidence this improvement, with earnings for 2022
being 6.2% higher than in 2021. There were still shortages of empty containers
during the year stemming from global logistics bottlenecks, which particularly
affected the terminal at Rio Grande, but this has started to improve in 2023,
with volumes up 5.2% year-on-year for the first two months. Demand for
offshore energy-linked services is improving, with vessel turnarounds in the
offshore support bases increasing over 30% compared to 2021 and operating days
rising by over 20%. Two new support base contracts were signed in the last
quarter of 2022, while three platform supply vessels began operating under new
four-year contracts with Petrobras.
The investment portfolio shares many characteristics with the portfolio held
directly within Hansa Investment Company, with a preference for funds with
clearly-defined strategies run by managers with skin in the game. The most
recent portfolio report for the year 2022 shows encouraging relative
performance, albeit with losses given the challenging market conditions. There
was a decline over the calendar year of 13.8%, which was significantly ahead
of the global equity and bond indices. Performance was helped by thematic
exposures to energy and commodities, as well as the private market investments
which have demonstrated resilience. Private equity holdings now make up 39.1%
of the investment portfolio, and many of the funds returned significant
capital during the year. Some of the largest private equity positions include
venture capital funds of funds managed by Stepstone, US buyout funds managed
by KKR and a financials-focused fund managed by Reverence Capital. The
December 2022 portfolio valuation of $293.8m was down from $328.2m at the end
of March 2022. During 2022 dividends of $5m, in two equal tranches, were paid
out from the portfolio in May and July.
Alec Letchfield
Chief Investment Officer
April 2023
The portfolio
As at 31 March 2023
Investments Fair value % of net
£000 assets
Core regional funds
Findlay Park American Fund 24,514 6.7
iShares Core S&P 500 UCITS ETF 21,360 5.8
Select Equity Offshore Ltd 18,385 5.0
BlackRock Strategic Equity Hedge Fund 13,917 3.8
Schroder ISF Asian Total Return 10,598 2.9
Pershing Square Holdings Ltd 9,333 2.5
iShares Core MSCI Europe UCITS ETF 8,331 2.3
BA Beutel Goodman US Value Fund 7,966 2.2
Schroder ISF Global Recovery 7,942 2.2
Indus Japan Long-Only Fund 7,178 1.9
Egerton Long-Short Fund Ltd 6,653 1.8
Goodhart Partners: Hanjo Fund 6,422 1.8
KLS Corinium Emerging Markets Equity Fund 4,846 1.3
iShares Core EM IMI UCITS ETF 4,117 1.1
NTAsian Discovery Fund 4,071 1.1
BlackRock Frontiers Investment Trust PLC 3,539 1.0
159,172 43.4
Strategic
Ocean Wilsons Holdings Limited(1) 83,707 22.8
Wilson Sons 51,564 14.0
Ocean Wilsons (Investments) Limited 32,143 8.8
83,707 22.8
Diversifying
Global Event Partners Ltd 10,328 2.8
DV4 Ltd(2) 9,132 2.5
Hudson Bay International Fund Ltd 5,126 1.4
MKP Opportunity Offshore Ltd 3,336 0.9
GAM Systematic Core Macro (Cayman) Fund 3,122 0.8
Schroder GAIA BlueTrend 2,884 0.8
Keynes Dynamic Beta Strategy (Offshore) Fund Limited 2,660 0.7
Selwood AM - Liquid Credit Strategy 2,468 0.7
Apollo Total Return Fund 2,415 0.7
Prana Absolute Return Fund 1,939 0.5
Brevan Howard Absolute Return Government Bond Fund 1,731 0.5
Vanguard US Government Bond Index Fund 1,502 0.4
BioPharma Credit PLC 1,415 0.4
Lazard Convertible Global 715 0.2
48,773 13.3
Global equities
Interactive Brokers Group Inc 4,478 1.2
Orion Engineered Carbons SA 4,434 1.2
Arch Capital Group Ltd 3,640 1.0
Subsea 7 3,120 0.8
Grupo Catalana Occidente SA 3,063 0.8
Exor NV 2,770 0.8
Coats Group PLC 2,524 0.7
CK Hutchison 2,432 0.7
Glencore PLC 1,672 0.5
Dollar General 1,473 0.4
Viaset Inc 1,466 0.4
Bergman & Beving 1,407 0.4
CTT Correios de Portugal 1,080 0.3
CVS Health Corp 481 0.1
34,040 9.3
Thematic assets
Polar Capital Insurance Fund 6,883 1.9
GAM Star Fund PLC - Disruptive Growth 5,548 1.5
Impax Environmental Markets Fund 3,570 1.0
Worldwide Healthcare Trust PLC 3,031 0.8
RA Capital International Healthcare Fund 2,643 0.7
iShares MSCI World Energy Sector UCITS ETF 2,184 0.6
BB Biotech AG 1,877 0.5
iShares MSCI Global Markets & Mining Producers ETF 1,834 0.5
27,570 7.5
Total investments 353,262 96.3
Net current assets 13,703 3.7
Net assets 366,965 100.0
(1) Hansa Investment Company Limited owns 9,352,770 shares in Ocean
Wilsons Holdings Limited ("OWHL"). OWHL operates through two assets: Wilson
Sons S.A. and Ocean Wilsons Investments Ltd ("OWIL). These are shown
separately above. The fair value of the Company's holding in OWHL has been
apportioned across the two assets in the ratio of the latest reported NAV of
OWIL, that being the NAV of OWIL shown per 31 December 2022 OWHL quarterly
update, to the market value of OWHL's holding in Wilson Sons, that being the
bid share price of Wilson Sons multiplied by the number of shares held by OWHL
at 31 March 2023.
(2 ) DV4 Ltd is an unlisted Private Equity holding. As such, its value is
estimated as a Level 3 Asset in note 19. All other valuations are either
derived from information supplied by listed sources, or from pricing
information supplied by third party fund managers.
Strategic Review
Investment objective, strategy and performance
Investment objective policy
The Company objective is to grow the net assets of the Company over the medium
to long-term by investing in a diversified and multi-strategy portfolio.
The Company seeks to achieve its investment objective by investing in
third-party funds, global equities and other international financial
securities. The Company may invest in quoted and unquoted securities.
The Company currently holds a strategic position in the share capital of OWHL.
The Company will not make further investments into OWHL.
The Company has no set maximum or minimum exposures to any asset class,
geography or sector and will seek to achieve an appropriate spread of risk by
investing in a diversified global portfolio of securities and other assets.
Investment strategy
The Portfolio Manager, engaged by and acting on behalf of the Company, seeks
to build a multi-strategy portfolio by selecting investments across four key
investment categories, in addition to the strategic investment in OWHL:
Core - investments, typically through third-party funds, that the Company can
expect to hold throughout the economic cycle.
Thematic - investments, typically through third-party funds, that reflect key
investment themes the Portfolio Manager believes will generate excess returns.
Diversifying Assets - investments, typically through third‑party funds and
directly, that create asset diversification within the portfolio.
Global Equities - a diversified portfolio of global equities identified by the
Portfolio Manager as having long-term growth potential.
Although the Company has no set maximum or minimum exposures to any asset
class, geography or sector, the Board establishes set guidelines which the
Portfolio Manager adheres to. These can be adjusted by the Board. While the
proportion of the portfolio represented by each of these categories will vary
over time, the Board establishes parameters for the Portfolio Manager, based
on its view of the global investment environment. The Board has set the
following guidelines for each category as a percentage of the portfolio
(including the strategic investment in OWHL):
Core: 0-50%
Thematic: 0-25%
Diversifying Assets: 0-40%
Global Equities: 0-40%
The Portfolio Manager has a strong focus on identifying investments with
excellent fundamentals, taking a long-term approach to investing, good
alignment and not seeking to replicate a benchmark. These investments range
from those sectors benefiting from structurally higher growth, such as
technology, to assets which the Company believes stand on unwarranted
discounts to their intrinsic value.
During the year, following discussions between the Portfolio Manager and the
Board considering ways to develop the portfolio further in the medium to
long-term, HCP has been approved to introduce an allocation to Private Equity
and Venture Capital within the Portfolio. This will be a multi-year programme
to develop access to investments that are not available in public markets. The
Portfolio Manager has significant experience investing in Private Equity and
Venture Capital. The Board believes this new exposure will be seen as very
attractive by existing and potential future shareholders. The long-term nature
of private equity is aligned with the long-term investment horizon of the
Company.
Borrowing limits
The Board considers whether returns may be enhanced if the Company introduces
leverage at appropriate times. The Company has an unsecured lending facility
through its Custodian, Banque Lombard Odier & Cie SA ("Lombard Odier"), in
the amount of £30m, subject to there being sufficient value and diversity
within the portfolio to meet the lender's borrowing requirements. The
Portfolio Manager is able to utilise this facility as required up to the upper
limit available. No amounts have been drawn from this facility during the
year.
Investment monitoring and key performance indicators ("KPIs")
The investment strategy is designed for capital appreciation over the
long-term achieved through diversified multi-asset class allocation. Returns
are not replicated by movements in any single market index. Furthermore, the
Board considers that the use of a single benchmark will not always offer
shareholders the relevance and the clarity needed to measure the performance
of the Company.
The Board's primary goal is for the Company to generate long-term returns for
shareholders and so we compare the Company's performance against that of a
safe return from an appropriate government bond - for this the Board has
elected to follow the FTSE Gilts All Stocks TR Index (Bloomberg: FTFIBGT). The
Board's second goal is for the Company to achieve returns that are higher than
inflation and use the UK's CPI (Bloomberg: UKRPCHVJ) as the KPI for
comparison. Finally, the Board compares the Company's returns with those of an
appropriate equity index - for which the Board has elected to follow the
performance in GBP of the MSCI All Country World Index excluding Frontier
Markets (Bloomberg: NDUEACWF). In discussions between the Board and the
Portfolio Manager, returns are compared with a number of measures, including
the return of a government bond, using the 10 year UK Gilt Return (FTSE All
Stocks Gilts Total Return Index); to the rate of inflation (real returns are
important to shareholders) and with those of appropriate indices for different
elements of the portfolio.
The Board regularly, and at least quarterly, reviews the returns and the
performance of the Company with the Portfolio Manager, including an analysis
using the KPIs.
Additionally, whilst not specifically KPIs, the cost of managing the Company
is monitored against the NAV (the ratio between costs and NAV is also known as
the 'ongoing charges percentage per annum ratio'); and the discount/premium
the shares sell at in relation to the NAV are likewise monitored.
The Board of Directors monitors the returns made in absolute (firstly) and
relative (secondly) terms against the KPIs established. The comparisons are
made over 1, 3, 5 and 10 year time horizons.
i) Shareholders and company - total returns
To 31 March 2023 1 year 3 years 5 years 10 years
Share price total return
Ordinary shares (10.8%) 39.9% (4.3%) 25.5%
'A' non voting Ordinary shares (10.1%) 32.4% (4.7%) 26.1%
Portfolio NAV (3.1%) 37.2% 20.4% 60.7%
ii) Discount/premium
A comparison is made between the (discount)/premium of the Company's two
classes of shares and of the AIC average.
To 31 March 2023 1 year 3 years 5 years 10 years
average
average
average
average
Share price total return
Ordinary shares (40.0%) (36.7%) (33.7%) (30.4%)
'A' non voting Ordinary shares (41.0%) (36.8%) (34.5%) (31.5%)
AIC (%) (10.7%)
Note: AIC only produces an AIC average for one year.
Whilst there are investment trusts that exhibit one or more similarities to
the Company, the Board does not consider the Company to have any direct peers.
iii) Key performance indicators
The following are the KPIs the Board uses to assess the returns of elements of
the portfolio and of the Company as a whole.
To 31 March 2023 1 year 3 years 5 years 1 year
NAV Total Return (3.1%) 37.2% 20.4% 60.7%
NAV Total Return (Ex OWHL) (2.7%) 29.8% 24.9% 73.2%
FTSE UK Gilts All Stocks TR Index (16.3%) (24.9%) (14.4%) 5.1%
UK CPI Inflation 10.1% 18.7% 22.8% 31.4%
MSCI ACWI NR (GBP) (1.5%) 54.1% 58.7% 167.1%
iv) Expense ratios
To 31 March 2023 1 year 3 years 5 years 1 year
Ongoing annual charges (%) 1.2 1.1 1.1 1.1
To comply with the Packaged Retail and Insurance-based Investment Products
Regulation ("PRIIP"), the Company has issued a PRIIP's Key Information
Document ("KID") for each of its two share classes. In the PRIIP, KID
regulations are very prescriptive as to how costs are calculated and
presented. In particular, in addition to the costs of the Company itself noted
above, the PRIIP calculation also incorporates the costs of the directly held
fund investment vehicles themselves, but not those for directly held equities.
Based upon the financial results for the year to 31 March 2023, the PRIIP KID
cost ratio is 1.81% per annum.
Shareholder profile
Capital structure
The Company has 40,000,000 Ordinary shares of 1p (1/3 of the total capital)
and 80,000,000 'A' non-voting Ordinary shares of 1p (2/3 of the total capital)
each in issue. The Ordinary shareholders are entitled to one vote per Ordinary
share held. The 'A' non-voting Ordinary shares do not entitle the holders to
vote or receive notice of meetings, but in all other respects they have the
same rights as the Company's Ordinary shares. See also Note 13 in the Notes to
the Financial Statements.
Shareholder profile
The Company's shares owned at 31 March 2023 are as follows:
Ordinary shares 'A' non‑voting ordinary shares
Institutional and wealth managers 16,021,382 40.05% 72,715,872 90.90%
Directors 11,220,745 28.05% 3,817,123 4.77%
Private individuals 12,591,202 31.48% 3,467,005 4.33%
Other 166,671 0.42% 0 0.00%
40,000,000 80,000,000
Substantial shareholders
As at 31 March 2023, the Directors were aware of the following interests in
the Ordinary shares of the Company, which exceeded 3% of the voting issued
share capital of that class.
No. of voting shares % of voting shares
Nomolas Ltd 10,347,125 25.9%
Victualia Limited Partnership 10,347,125 25.9%
Sky Hill Limited 1,690,000 4.23%
These holdings are correct as of 31 March 2023 and have not changed as at the
signing date of these Financial Statements.
Hansa Investment Company traces its origins back to 1912 when the Alto Paranà
Development Company was launched to develop forestry in Brazil. Having become
an investment trust company in the late-1940s, the Company became closely
associated with the Salomon Family, initially through Sir Walter Salomon,
whose family trusts became substantial shareholders. The late-1950s also saw
the acquisition of a significant shareholding of Ocean Wilsons Holdings
Limited through the issuance of the 'A' non-voting Ordinary shares by the
Company's predecessor, Hansa Trust. Over the following decades, the Salomon
family helped to build the publicly-owned and independently run investment
company we know today, with its focus on delivering reliable long-term asset
growth for shareholders.
The wider Salomon family remain significant investors in the Company. William
Salomon, Sir Walter's son, a director of HICL and Senior Partner of the
Company's Portfolio Manager, is interested in 10,347,125 of the shares held by
Victualia Limited Partnership, representing 25.9% of the voting share capital.
In addition, William Salomon has further interests in the Company's shares;
the total interest is detailed in the Directors' Interests section. Other
members of the wider Salomon family, who are also descendants of Sir Walter,
are interested in a further 12m shares in the Company.
Restrictions associated within the share classes
The giving of powers to issue or buy back the Company's shares requires an
appropriate resolution to be passed by shareholders. Proposals for the renewal
of the Board's powers to buy back shares are set out in the Notice of the
Annual General Meeting.
There are: no restrictions concerning the transfer of securities in the
Company; no agreements between holders of securities regarding their transfer
known to the Company; and no agreements between the Company and its Directors
concerning compensation for loss of office. Notwithstanding the foregoing, the
Company can require any holder of the Ordinary voting shares to transfer some
or all of its shares (or otherwise refuse to register any transfer of shares)
to avoid the Company, if the Company were a company which was resident for tax
purposes in the UK, being regarded as a "close company" as defined in s.414 of
the UK Income and Corporation Taxes Act 1988, to another person whose holding
of such shares, in the sole and conclusive determination of the Board, would
not cause the Company to be a close company. Additionally, the Company's
Bye‑Laws provide for the voting rights of Ordinary shares to be
automatically reallocated to other shareholders to prevent the Company
becoming a close company. At the forthcoming AGM, the Company is proposing a
one-off change to its Bye-Laws requiring shareholders to supply, if requested,
information relating to their tax residency. Globally tax authorities and
government agencies require financial institutions, including investment
companies, to collect and report certain tax information in relation to their
shareholders. In principle, this should only affect a very small number of our
shareholders who are personally on our share register - approximately 142
shareholders holding less than 1% of our share capital. Failure by those
shareholders to supply the required information, will cause the Company to
submit incomplete returns, with the consequent risk of penalties or censure by
the authorities. The proposed Bye-Law changes enable the Company to take the
necessary measures in relation to those few shareholders who refuse to provide
the information required so as to enable the Company to satisfy its reporting
requirements.
As at 26 June 2023, the date of signing of the Annual Financial Statements,
there have been no disclosures to the Company of changes of interests under
DTR 5.
Board and management shareholdings
Directors' Interests
The interests of Directors and their connected parties in the Company at 31
March 2023 are shown below:
Ordinary shares 'A' non‑voting ordinary shares Nature of
of 1p each of 1p each interest
W Salomon 11,169,345 27.92% 3,587,123 4.48% Beneficial
J Davie 45,000 0.11% 230,000 0.29% Beneficial
S Heidempergher 6,400 0.02% - - Beneficial
Total 11,220,745 28.05% 3,817,123 4.77%
As at 26 June 2023, the date of signing the Annual Financial Statements, there
were no changes to report to the Directors' holdings.
William Salomon is the senior partner of Hansa Capital Partners LLP. Fees
payable to Hansa Capital Partners LLP amounted to £2,824,000 (including
Portfolio Management and Additional Administrative Services Provider ("AASP")
functions). The fees outstanding at the year end amounted to £240,793. During
the year, no rights to subscribe for the shares of the Company were granted
to, or exercised by Directors, their spouses or infant children.
Portfolio manager's interests
As at 26 June 2023, the date of signing of this Annual Report, the management
and staff of the wider Portfolio Manager's group (Hanseatic Asset Management
LBG, an Investment Manager and AIFM located and regulated in Guernsey),
excluding the holding of William Salomon, shown above, were interested in
circa 10.3m shares in the Company - a mixture of Ordinary and 'A' non-voting
Ordinary shares.
Requirements of Section 172 UK Companies Act
As required by the AIC Code, the Board describes below how it has met the
requirements of Section 172 of the UK Companies Act, as applicable to the
Company. This includes an explanation of how the Board has sought to promote
the Company for the benefit of its members, how it has taken into account the
likely long-term consequences of decisions and how it fosters relationships
with stakeholders. The Company is an investment company with an appointed
Portfolio Manager. As a result, it has no direct employees or customers. The
Board has identified the Company's shareholders, its Portfolio Manager (as
well as the Additional Administrative Services Provider, "AASP"), its other
key service providers as its key stakeholders.
Stakeholder Interaction
Shareholders The shareholder base is a mixture of private investors, wealth managers and
asset managers across both classes of the Company's shares. The Board monitors
changes in the shareholder base at its Board meetings. The Company
communicates through the publication of Annual and Half-Year Financial
Statements, through detailed quarterly and monthly factsheets, as well as
through the Company's website. The Company also holds periodic shareholder
presentations incorporating presentations by the Board and key service
providers to keep shareholders informed.
The Board seeks to understand the opinions of a wide variety of shareholders.
The Company maintains a dedicated email address for shareholders to contact
the Board (HICLenquiry@hansacap.com) and shareholder correspondence and
feedback is a regular item of discussion at Board meetings.
The Company continues to meet shareholders and other interested parties
facilitated by its broker, as well as through direct contact. The Portfolio
Manager also runs an outreach programme in conjunction with an investor
relations specialist.
Investors are also kept informed through paid-for editorial pieces and
discussion with media organisations. As a result of the Covid pandemic, the
Board used online shareholder presentations to enable shareholders to meet
with the Board and Portfolio Manager. Whilst the Board believes there is still
a place for face-to-face shareholder updates, the strong attendance at the
online events encourages the Board that these online events will remain a
feature of the Company's shareholder outreach. The next shareholder event is
planned for 27 September 2023 as a hybrid online and physical meeting.
Portfolio Manager and AASP The Board's main working relationship is with the staff of HCP as the
Portfolio Manager and the AASP. HCP is responsible for the Company's portfolio
management (including asset allocation, stock and sector selection in
accordance with guidelines established by the Board). It is also responsible
for administrative and operational functions including day-to-day oversight of
the other key service providers (Administrators, Custodians, Registrar and
Company Secretarial). Successful management of shareholders' assets by the
Portfolio Manager is crucial to enable the Company to deliver its investment
strategy and meet its objective. The AASP also assists with the preparation of
the Annual and Half-Year Financial Statements as well as Factsheets and
website updates. The Board works closely with the AASP to approve disclosures
made via these publications.
Other key service providers Key service providers are the Company's Administrator (Maitland Administration
Services Limited), Custodian (Lombard Odier) and Registrar (Link Market
Services (Guernsey) Limited). Whilst the Board looks to the Portfolio Manager
and the AASP to keep a day-to-day oversight of these providers, they are
contracted directly to the Company. As such, the Board retains ultimate
responsibility for their roles. The AASP reports regularly on operational
matters. The Board seeks to visit each provider at least annually for a
face-to-face meeting to discuss service levels, operations and future
developments.
The Company is in the process of changing its Registrar. From late-September
2023, Computershare will replace Link as the Company's Registrar. New contact
details will be made available on the Company's website at that time. The new
Registrar will hold all the historic information currently retained by Link.
Main areas of engagement
Key area Topic Engagement and outcomes
Investment strategy and ESG matters The Investment Strategy incorporates appropriate ESG considerations. For The Board has engaged with the Portfolio Manager and encouraged them to
clarity, the Company does not purport to be a "Green" fund. However, through develop a responsible investment policy. The Board notes that the Hanseatic
its ESG disclosures and reporting the actions of its Portfolio Manager, it Group, of which the Portfolio Manager is a member, has become a signatory to
seeks to give clarity to the processes around assessing the Environmental, the UNPRI during the financial year. The Board wholeheartedly supports this
Social and/or Governance aspects to its investment decisions and ongoing policy. See further on in the report for further information.
monitoring.
Discount management and share buybacks It is a great frustration to the Board that the discount has not tightened The Board is mindful of, and regularly considers, the share price compared to
over the past year. It is also noted that there has been general widening of the NAV and related discount. The Board is of the view that providing
investment trust spreads due to market volatility and declining retail transparency and clarity to investors, as well as promoting demand for the
participation in the markets. Company's shares, should create a positive impact on the discount for the
medium to longer-term. To this end, the Board has redeveloped the Company's
website, its Annual and Half-Year Financial Statements and its factsheets and
quarterly reviews. The Board continues to develop the Company's branding and
communications strategy with shareholders and potential shareholders alike.
The aim is to enhance and broaden the understanding of the Company, with the
ultimate objective of widening the shareholder base and deepening the market
for shares.
The primary objective of the company is to generate a good economic return
over the medium to long-term and create a compelling investment proposition
for private investors enabling them to gain access to investments that are not
readily available. This in due course should increase demand for the company's
shares. Each investment trust must consider its own particular circumstances
and objectives in assessing what is in the best interests at any particular
point in time for the company and its shareholders. Your Board continues to
focus on the construction of a portfolio to create long-term value and it is
in the light of this that it decided to build an allocation to Private Equity.
The Board has considered a share buy-back policy but does not consider that
this would have a significant effect on the discount, at which the shares
trade. In the opinion of the board:
it reduces the number of shares outstanding and therefore the liquidity of the
shares in the marketplace; reduced liquidity may, in fact, cause a rise in the
discount;
it means a liquid investment portfolio needs to be maintained, compromising
the ability to have a portfolio of special situations; the maintenance of the
long-term investment policy and its portfolio takes precedence over the
short‑term discount policy; and
the holding in OWHL would represent an even greater percentage of the
portfolio and buying back shares would raise the relative exposure to Brazil,
which the Board does not wish to do, giving preference to the return
generation potential and benefits of diversification generated by the
investment portfolio.
Capital structure The Company has two separate share classes, both of which are traded on the The current position of Ordinary and 'A' Ordinary share classes remains
LSE. The Ordinary shareholders are entitled to one vote per Ordinary share unchanged as the majority of Ordinary shareholders have informed the Board
held. The 'A' non-voting Ordinary shares do not entitle the holders to vote or that they do not wish to alter the present structure at the present time.
receive notice of meetings, but in all other respects they have the same
rights as the Company's Ordinary shares. Consideration has been given to
whether the two share classes could be merged in some way.
Dividends The Board continues to support maintaining the dividend at 3.2p until it is The portfolio held by the Company is currently constructed for long-term
fully covered by net income. At that time it plans to increase it in line with capital appreciation rather than income generation. As a result, the income
any increase in the net income of the Company. generated by the portfolio is insufficient to meet this dividend commitment
and the shortfall is made up from the Company's reserves. In principle, your
Board does not believe it to be in the Company's best interests to use capital
as a source from which to pay dividends.
Maintaining levels of service from service providers The Company does not have direct employees. Rather, its operations are The independent members of the Board annually review the performance of the
conducted by several key service providers. The Company enters into Portfolio Manager. Additionally, the day-to-day performance of other key
service-level agreements with each provider. The Board oversees these services service providers (Administrator, Custodian and Registrar) are monitored by
to ensure that best practice is followed and that the Company is receiving a the AASP on behalf of the Board. In addition, there is an annual review of
comprehensive service and value for money. service providers' annual Controls Audit Reports. Members of the Board also
visit each key service provider annually to review performance and understand
any changes in their businesses.
Notice period for general meetings
The Company's Bye‑Laws permit that the Company's general meetings (other
than AGMs) may be held on 14 days' notice.
Annual general meeting
The Company's Notice of Annual General Meeting is included in this Report.
Authority to repurchase 'A' non-voting Ordinary shares
A resolution will be proposed at the forthcoming AGM, seeking shareholder
approval for the renewal of the authority for the Company to repurchase its
own 'A' non-voting Ordinary shares. The Board believes the ability of the
Company to repurchase its own 'A' non-voting Ordinary shares in the market
could potentially benefit all equity shareholders of the Company in the
long-term.
The Company's Bye-Laws are drafted in such a way that the Company may from
time to time purchase and cancel its own shares. However, the Company requires
that shareholders' approval to repurchase shares be sought. At the AGM the
Company will therefore seek the authority to purchase up to 11,992,000 'A'
non-voting Ordinary shares (representing 14.99% of the Company's issued 'A'
non-voting Ordinary share capital, the maximum permitted under the FCA Listing
Rules), at a price not less than 1p per share (the nominal value of each
share) and not more than 5% above the average of the middle‑market
quotations for the five business days preceding the day of purchase or, where
a series of transactions have taken place the higher of the last independent
trade and current highest independent bid on the trading venue where the
purchase(s) will be carried out. The authority being sought, the full text of
which can be found in the Notice of Meeting, will last until the date of the
next AGM.
The Company is seeking authority to use its realised capital reserve to allow
repurchase of shares in the market. The decision as to whether the Company
repurchases any shares will be at the absolute discretion of the Board. Any
shares purchased will be cancelled.
The Directors consider that all the resolutions to be proposed at the
forthcoming AGM, as set out in the Notice of AGM, are in the best interests of
shareholders as a whole and unanimously recommend all shareholders to vote in
favour. Guidance on how to vote at the AGM can be found in the notes to the
Notice of AGM.
If the Board considers a significant proportion of votes have been cast
against a resolution at the AGM, the Company will explain, when announcing the
results of voting, what action it intends to take to understand the reasons
behind the results of the vote.
Bye-Laws
The Company seeks shareholder approval to adopt new Bye-Laws (the "New
Bye-Laws") in order to update the Company's current Bye-Laws (the "Existing
Bye-Laws"). The resolution will be proposed as a special resolution.
Requirement for certain shareholders to supply information for tax
authorities, governments and regulatory reporting purposes
The proposed amendments are being introduced in the New Bye-Laws primarily to:
· enable the Company to meet its reporting obligations under the
Foreign Account Tax Compliance Act ('FATCA'), the Common Reporting Standard or
any similar law or regulation, by introducing an obligation for shareholders
to provide the required FATCA or Common Reporting Standard information within
a reasonable timeframe, or to provide for the mandatory sale of shares if the
required information is not provided;
· provide the Company with more flexibility in dealing with
untraced shareholders; and
· increase the maximum annual remuneration of the Directors to
US$600,000 per annum. Thus, it is proposed to amend Bye-Law 44.1(a) to replace
the text "not exceed US$400,000 per annum" with "not exceed US$600,000 per
annum". Further details are given in the Directors' Remuneration Report.
In more detail, the key proposed changes are as follows:
a) Obligation to provide information to the Company
The FATCA rules which require certain non-US financial institutions
to report information about shareholders and other "account holders" are
underpinned by a special US withholding tax, which applies to both the income
and gross proceeds of sale derived from US investments. To avoid the
withholding tax, a financial institution must comply with its FATCA due
diligence and reporting obligations, whether imposed under a direct agreement
between the financial institution and the IRS, or under the domestic law of
the jurisdiction in which the financial institution is established. In
addition, the financial institution may be subject to financial penalties
under its domestic law if it fails to comply with the relevant due diligence
and reporting obligations. In order to meet its reporting obligations under
FATCA, the Common Reporting Standard, or any similar law or regulation, the
Company must collect and provide certain information on its shareholders.
Where the Company's shareholders fail to provide the required information
("Non-Responders"), the Company's reporting is deficient, and the Company may
be subject to negative intervention from the authorities in Bermuda, including
finding itself subject to financial penalties. There are a number of
shareholders whose whereabouts are not known or do not respond to requests for
information. In order to resolve this, the Company requires a mechanism to
obtain the required information or remove the Non-Responders from the
Company's register of members. A new Bye-Law has therefore been introduced to
enable the Company to provide for the mandatory sale of shares of any
shareholder that fails to provide the required FATCA or Common Reporting
Standard information within a reasonable timeframe following a formal request
from and due process being followed by the Company.
b) Untraceable Shareholders
The Company is also taking this opportunity to consider its dealings
with Untraceable Shareholders. In line with what other companies are doing,
the Company is seeking to reduce the current period to determine a shareholder
untraceable to six years. This proposal is to help the Company manage the
shareholder register in connection with its reporting obligations under FATCA,
the Common Reporting Standard, or any similar law or regulation and also more
generally to remove longstanding untraced shareholders and where appropriate,
require a compulsory transfer of shares, all having followed due process to
trace shareholders. These Proposals should enable the Company to provide an
accurate account of the shareholder information of the Company, by removing
untraced shareholders including shareholders who may have passed away and
shareholders who have consistently failed to respond to the Company's requests
for information.
A summary of the principal amendments being introduced in the New Bye-Laws
which the Board considers will be of most interest to shareholders is set out
in the AGM Notice.
Principal risks
The Company has risk management processes in place which enables the Board to
identify, assess and manage the principal risks faced by the Company.
Consistent with the AIC Code and UK Corporate Governance Code, these risks are
considered to have the potential to threaten the Company's business model,
future performance/returns, solvency, liquidity, reputation, or regulatory
status. An integral part of this process is the maintenance and ongoing
evaluation of the Company's Risk Assessment & Controls ("RAC") Matrix,
which identifies both the risks and associated controls operating within the
Company and relevant third-party service providers. To ensure emerging risks
are assessed on an ongoing basis, the Board reviews the RAC Matrix at each
Board meeting, considering HICL's current and future anticipated risk
environment. The Board also receives updates at each meeting from the
Portfolio Manager and the AASP on operational risk matters. Additionally, as
part of the risk management processes, the Company also annually reviews the
Custodian, Administrator and Registrar assurance reports of their internal
controls (e.g. AAF 01/06, AAF 01/20, ISAE 3402). The impact of any exceptions
are considered by the Board.
Consideration of the Company's principal risks and uncertainties, is made in
the context of the Company's stated objective of generating superior, but
sustainable, long‑term growth in shareholder value. The main risk being that
over the long-term (determined as greater than five years), shareholders do
not make a return from investing in the Company. The Company's closed‑ended
fund structure is also considered to be in alignment with its stated
objective, especially within extremely volatile market conditions. This is due
to the portfolio not having to be managed and maintained to manage potential
significant redemptions or short-term liquidity needs as open-ended funds
would. Additionally, the closed-ended structure can take advantage of less
liquid market opportunities as part of Its portfolio holdings.
The principal risks and uncertainties identified and associated controls in
place to manage these risks are described below:
Principal risks - external Controls to mitigate risks
Market risk - long-term company share performance The Board:
Market risk includes interest rate, currency, equity, credit, inflation, · has appointed an appropriate PM whose performance for the Company
concentration, liquidity and macro geopolitical risks. is reviewed and challenged on a quarterly basis;
· has set investment guidelines and restrictions, which are
reported against by the PM on a monthly basis;
· operates an asset allocation model, which is regularly reviewed
and discussed with the PM; and
· monitors and discusses portfolio construct and performance
quarterly.
Performance risk, share price, liquidity and discount monitoring The Board:
Low market trading volumes of Company shares and the discount to the NAV · regularly reviews the share price, discount level and portfolio
becoming inherent in the share price. performance;
· maintains periodic oversight on shareholder-base;
· actively seeks feedback both directly from shareholders and
indirectly through the Company's Broker or specific outreach programmes
involving the Portfolio Manager;
· has the ability to buy-back non-voting shares of the Company; and
· initiates strategies to reduce discount over the medium term.
Tax, accounting, legal and The Board:
regulatory risks · obtains regular updates and advice from relevant professional
advisers;
Adverse outcomes resulting from legislative changes to tax, legal and
regulatory requirements. Adverse outcomes from not meeting ESG expectations. · maintains oversight and receives regular reporting on the
legislative and regulatory changes, which impact HICL, as monitored by the PM;
· maintains the Company's membership with the Association of
Investment Companies;
· has adopted the PM's responsible investing policy;
· has set explicit expectations on the integration of ESG
considerations within the investment process;
· continues to develop ESG disclosures in compliance with reporting
regulations; and
· receives documented confirmation of the PM's adherence to
relevant regulatory requirements and emerging sanction risks.
Reputational risk The Company:
Negative behaviours, publications or market sentiment impacting the reputation · requires the annual selection of Board members, all of whom must
of the Company. have a commitment to governance;
· has direct oversight of PM;
· communicates with investors and the public in a clear and
transparent manner; and
· has set pre-approval procedures for accuracy and reliability of
such information.
Principal risks - INTERNAL Controls to mitigate risks
Operational risk · Pre-approval processes are in place prior to the publication of
any financial information.
Risks associated with process, system and control failures including those
associated with the Company's third-party service providers. · Identification and certification of key controls by AASP
compliance team.
· Due diligence is undertaken prior to appointing all service
Operational areas considered includes Liquidity, Safeguarding of Assets and providers. Regular performance reviews of third-party providers are made and,
Reliability of Financial Reporting. where relevant, the Company annually requests independent service provider
assurance reports on the operating effectiveness of their internal controls.
· An overdraft facility provides a contingency for any short-term
liquidity shortfall. A pre-approval payment process is in place as part of an
overall cash management process.
· An independent Custodian is appointed to safeguard the Company's
assets. This Custodian is bound by regulatory and legal contractual
obligations and liabilities. Regular reconciliations are undertaken to ensure
accuracy of records.
Gearing/balance sheet risk · A maximum limit on the overdraft facility is in place.
Risk of over-gearing the balance sheet and creating financial stress on the · Any increase in overdraft or credit facility requires Board
Company. pre-approval.
Insurance
The Company through its Bye-Laws has indemnified its Directors and Officers to
the fullest extent permissible by law. During the year the Company also
purchased and maintained liability insurance for its Directors and Officers.
Going concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position, including its financial
position, are set out in the Chairman's Statement and the Portfolio Manager's
Report within this Annual Report.
After due consideration of the Balance Sheet, estimated liabilities for the 12
months following the signing of this Report and having made appropriate
enquiries, the Directors have concluded the Company is a going concern and has
adequate resources to continue in operational existence for at least 12
months. Assets of the Company consist of securities, the majority of which are
traded on recognised stock exchanges, or open‑ended funds run by established
managers. The Financial Statements are prepared on a going concern basis.
Longer-term viability statement
In addition to the Statement of Going Concern, the Directors are also required
to make a statement concerning the longer‑term viability of the Company. The
Directors consider 12 months to be a relatively short time frame when
considering performance and look to the longer‑term for both the performance
and risks associated with the Company. The Directors consider a period of five
years to be a more representative period, which aligns with the Portfolio
Manager's longer-term horizon. This period is sufficiently long to manage
short-term market volatility and allow longer-term performance to work
through. The Board continually monitors the Investment Strategy and Investment
Guidelines issued to the Portfolio Manager and directs the Portfolio Manager
to target long-term capital preservation. Further, whilst the Board has
sanctioned the use of gearing, the facility available to the Portfolio Manager
is relatively small compared to the NAV of the Company. Finally, a number of
the more significant costs in each financial year are contracted to be
calculated on the basis of the underlying NAV of the Company. As such, in a
period of negative portfolio performance, the cost base should also fall.
Barring unforeseen circumstances and taking account of the Company's current
position, the principal risks, the longer-term strategy for the portfolio,
including a diversified and liquid asset base and the lack of gearing, the
Directors confirm they have a reasonable expectation that the Company will
continue to operate and meet its liabilities as they fall due for the next
five years.
Governance
The Board of Directors
The Directors who served the Company during the year to 31 March 2023 are:
Jonathan Davie
Chairman
Jonathan became Chairman of Hansa Investment Company in June 2019. He was a
director of Hansa Trust from January 2013 until its liquidation in November
2021. He is also a partner of First Avenue Partners, an alternatives advisory
boutique.
Jonathan qualified as a Chartered Accountant and then joined George M. Hill
and Co. and became an authorised dealer on the London Stock Exchange. The firm
was acquired by Wedd Durlacher Mordaunt and Co. where Jonathan became a
partner in 1975. He was the senior dealing partner of the firm on its
acquisition by Barclays Bank to form BZW in 1986.
Jonathan developed BZW's Fixed Income business prior to becoming chief
executive of the Global Equities Business in 1991. In 1996 he became deputy
chairman of BZW and then vice chairman of Credit Suisse First Boston ("CSFB")
in 1998 on their acquisition of most of BZW's businesses. He focused on the
development of CSFB's Middle Eastern business. He retired from CSFB in
February 2007.
Simona Heidempergher
Remuneration Committee Chair
Simona became a Director of the Company in June 2019. Simona has extensive
experience as an executive and non-executive director in a range of companies,
including listed companies, investment funds and research organisations,
across multiple jurisdictions.
For the past 20 years, she has been a director of Merifin Capital, an
established European privately owned investment company. Prior to this she had
roles as VP Investments at CDB Web tech, a listed investment vehicle, and as
research associate at Heidrick & Struggles, a leading executive-level
search and leadership consultancy firm and as project coordinator at
Ambrosetti Group, an Italian consulting company. Currently, Simona is the
chair of the board of directors of the Stramongate Group, a Luxembourg public
company, director of The European Smaller Companies Trust, a Janus Henderson
Asset Management Investment Trust listed on the London Stock Exchange and
director of Industrie Saleri Italo S.p.A. an Italian private company in the
automotive supplier sector.
Richard Lightowler
Audit Committee Chairman
Richard became a Director of the Company in June 2019. Richard has 26 years'
experience in public accounting being partner of KPMG in Bermuda for 19 years.
He was head of the KPMG Insurance Group in Bermuda for 15 years, a member of
the firm's Global Insurance Leadership Team and Global Lead Partner for a
number of large international insurance groups listed on the New York and
London Stock Exchanges.
Richard has significant regulatory experience, previously advising the Bermuda
Monetary Authority and working with clients regulated by the PRA, FRC and FCA,
as well as other international regulators. He also has extensive experience in
risk and corporate governance and significant transaction experience. Richard
is based in Bermuda. Richard also holds non-executive directorships with Aspen
Insurance Holdings, Geneva Re and Oakley Capital Investments.
William Salomon
William became a Director of the Company in June 2019. He was a Director of
Hansa Trust from 1999 until its liquidation in November 2021. He has a
significant, long standing, investment in the Company.
William's experience in investments and finance is important to the Board in
developing and monitoring investments in special investment themes and in the
Company's strategic investment through Ocean Wilsons Holdings Limited in
Wilson Sons.
William is the senior partner of Hansa Capital Partners LLP, the Portfolio
Manager and Additional Administrative Services Provider, deputy chairman of
Ocean Wilsons Holdings Limited and a director of its Brazilian listed
subsidiary Wilson Sons Holdings Brasil S.A.. He is also a shareholder
representative on the investment advisory committee for DV4 Ltd ("DV4").
William was formerly the vice chairman of Close Asset Management Limited and
chairman of the merchant bank Rea Brothers PLC.
Nadya Wells
Nominations Committee Chair and Senior Independent Director
Nadya became a Director of the Company in June 2019. Nadya has 28 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 those five
years with INVESCO Asset Management Limited, investing in public and private
equity managing a closed ended fund. She started her career in management
consultancy with Ernst & Young.
She holds a non-executive directorship at Baring Emerging EMEA Opportunities
plc where she is senior independent director. Nadya is an independent
non-executive director on the boards of various Luxembourg SICAVs managed by
large global asset managers. She also works in academia conducting research
and consulting in the public and private sector on financing in Global Health.
She holds an MBA from INSEAD, France.
Board members are selected based on their individual and complementary skills
and experience and their ability to commit sufficient time to drive the
Company's success. All Directors will retire at each AGM and offer themselves
for consideration for re‑election.
The Board recommends the re‑appointment of each of the Directors, based on
their continuing contribution to the Company and its shareholders. The service
contracts between the Company and each of the Directors do not allow for any
compensation payment in the event of loss of office.
Organisation and objectives
This section explains how the Board has organised the Company and seeks to
deliver its objectives.
Board committees and roles
The Directors consider that, in order to fulfil their responsibilities as the
Directors of the Company, they should all be members of every sub-committee
where possible. Where a Director cannot be a member of a committee, they
should attend the meetings unless a conflict exists and it would be
inappropriate for them to be present.
Audit Committee
Richard Lightowler is the Chairman of the Audit Committee. The Audit Committee
consists of all independent Directors of the Board. The Audit Committee exists
to assist the Board in the financial and narrative reporting of information
relating to the Company, the review of the Internal Controls and Risk
Management systems, the oversight of the Company's annual audit and in the
liaison with, and assessment of, the Company's external Auditor
PricewaterhouseCoopers Ltd. The Committee meets at least twice a year - timed
to review the Annual and Half-Year Financial Statements prior to their
approval and release.
The AIC Code of Corporate Governance ("the AIC Code") indicates that all
independent Directors can be members of the Audit Committee including, if
agreed by the Board, the Chairman of the Board. The Board is of the opinion
that, particularly as the Company has relatively few Directors, shareholders
benefit from the views of all Directors. Therefore, Jonathan Davie, as
Chairman of the Company, is also a member of this Committee. The Board further
acknowledges that the AIC Code states all Committee members should be
independent. Therefore, William Salomon is not a member of the Committee
although attends as a non-member. The Committee reports its recommendations to
the Board for final approval.
The Audit Committee Report can be found further ahead in the report.
Nomination Committee
The Committee is chaired by Nadya Wells. All independent members of the Board
are members of the Nomination Committee. William Salomon attends the Committee
but is not a member.
The Committee reviews the structure, size and composition (including the
skills, knowledge and experience) of the Board and makes recommendations to
the Board with regard to any changes, as necessary. It also considers
succession planning of directors, taking into account tenure and performance
of board members as well as challenges and opportunities facing the Company,
and what skills and expertise are, therefore, needed on the Board in the
future. If a skills-gap or pending vacancy is identified, the Committee is
responsible for identifying and nominating candidates to fill Board vacancies
as and when they arise.
The Nomination Committee Report can be found further ahead in the report.
Management Engagement Committee
The Committee is chaired by Jonathan Davie. All independent members of the
Board are members of the Management Engagement Committee. The Committee has
two primary roles. Firstly, to review the functional and operational
performance of the Portfolio Manager with the Company's investment policy.
Secondly, to review annually the performance of any other key service
providers to the Company.
The level of management fees, level of service provided and the performance of
the Portfolio Manager are reviewed on a regular basis to ensure these remain
competitive and in the best interests of shareholders. The Board, after the
annual recommendation of this Committee, considers whether the engagement of
the Portfolio Manager is in the best interests of the shareholders. The
Committee members also carry out periodic visits to the key service providers
as well as seeking feedback on the performance of other service providers from
the Portfolio Manager in its capacity as Additional Administrative Service
Provider.
The Committee reports its recommendations to the Board for final approval.
Remuneration Committee
The Committee is chaired by Simona Heidempergher. All independent members of
the Board are members of the Remuneration Committee. William Salomon attends
the Committee but is not a member. The Committee is responsible for the broad
policy for the remuneration of the Company's Chairman and non-executive
Directors pursuant to the Company's Bye-Laws. The Committee takes into account
all factors which it deems necessary. When setting the remuneration policy for
Directors, the Committee reviews remuneration trends across the wider
industry, including the use of external independent surveys, and considers the
ongoing appropriateness and relevance of the remuneration policy. The level of
directors' fees should be set at a level which attracts and retains high
calibre candidates. Fees are monitored against external benchmarks taking
specific note of each Director's duties, time commitments to properly fulfil
all obligations and duties and also relative to other comparable companies in
comparable currencies. No Director sets their own individual remuneration.
The Committee reports its recommendations to the Board for final approval.
The Directors' Remuneration Report can be found further ahead in the report.
Senior Independent Director ("SID")
During the Company's financial year, Nadya Wells was appointed to act as the
Company's Senior Independent Director. The SID acts as a sounding board for
the Chairman as well as to serve as an intermediary between the Chairman and
the views of the other Directors, shareholders, other key stakeholders and the
Company's Portfolio Manager when necessary.
Long-term impact of decisions - ESG matters
In the natural positive progression of HCP's commitment to further integrating
ESG and climate relevant considerations within its investment process, the
Hanseatic Group, of which HCP is a member, has become a signatory of the
United Nations supported Principles for Responsible Investment ("UNPRI").
With ever-growing global concerns and developments surrounding matters such
has climate change, social inequalities and ethical corporate strategy and
governance, the Board believes there is a communal duty for meaningful and
effective action to be taken and are committed to doing so. It is the Board's
belief that responsible investing and a well‑run sustainable business model
aids in generating superior long‑term returns.
The Board is responsible for the Company's ESG policy. In 2020, the Board
adopted the Portfolio Manager's Responsible Investment Policy, which is
applied to all Company investments in funds and companies, in both public and
private markets. In line with the evolving nature of ESG's integration within
financial services, the PM continues to review and develop their policy of
responsible investing within their investment process. This involves ensuring
environmental, social and governance factors are integrated throughout the
investment management process, including within the due diligence,
decision-making and investment monitoring processes.
As long-term investors, HCP has a natural desire to be a responsible investor
and a good corporate citizen. HCP's approach begins by communicating its
expectations to fund and company investments that they should take ESG issues
seriously, clearly report on them, be responsible owners and to continuously
show positive indicators of aspiring to do the right thing.
HCP does not operate an exclusionary policy, as excluding whole sectors or
countries is not a sustainable, or reasonable approach to its investment
activities. Each fund manager or company is assessed as an individual, taking
into account the sector and country within which they operate and their
direction of travel in ESG enhancements.
HCP seeks to ensure that all investee managers and companies are thinking
longer term and that they are also thinking about their longer-term impacts
across the spectrum of their business. This certainly includes the negatives -
such as understanding how companies are lowering their carbon emissions,
ensuring they are not using forced or child labour in their supply chains,
taking care not to deplete natural resources, or be involved in deforestation.
But it also includes the positive impacts, for example, knowing if a company
is taking advantage of the opportunities it may have from climate change by
developing greener energies, recycling used clothing, or designing
biodegradable fabrics. HCP's involvement with the managers and companies is
ongoing and pushes them to manage the risks and take advantage of the
opportunities in a tailored and considered manner. A manner that reaps
longer-term benefits for the Company, as well as the environment and the
greater society.
Fund investments
HCP seeks to invest in funds who are responsible owners of their investee
companies, have specific consideration as to how their investee companies
manage their ESG responsibilities and seek to engage with those company
boards, if they are failing in their duties. Where a manager is not living up
to these standards, HCP will first seek to engage the management team and
encourage improvement. If the managers engagement is weak, or if the
communicated concerns are not sufficiently addressed and their positive
commitment to do so is not apparent, HCP's ultimate action would be to reduce
current investment, exit, or not invest in the first place. Whilst HCP does
not seek to exclude fund managers that invest in sectors such as energy or
countries such as China, it would, however, expect such managers to properly
articulate how they operate in such areas and manage the potential ESG
considerations. HCP's investment philosophy favours those fund managers who
are typically long-term in their approach and seeks to invest in high-quality,
well-managed companies that are often higher-returning. As a result, although
we do not set limits, there is a natural bias away from these companies and
sectors that score less well on ESG metrics.
Company investments
When considering direct equity investments HCP seeks to ensure that company
management teams are responsible custodians of their businesses, report
clearly on ESG metrics and seek to improve on those areas in which they are
lagging.
Taskforce on Climate-Related Financial Disclosures
As a closed-ended investment company, HICL is exempt from the annual reporting
requirement to publish statements in line with the Taskforce on
Climate-Related Disclosures' ("TCFD") framework of recommendations and
recommended disclosures. However, considering the Board and the PM's approach
to responsible investing and the Company's core investment objective to
generate superior, but sustainable, medium to long-term growth in shareholder
value, we have elected to provide relevant information on our approach to the
TCFD recommendations.
Governance
Strong corporate governance practices are intrinsic to how the Board operates.
The Board oversees a long-term and sustainable approach to business strategy
of the Company. This in part is done by adopting a Responsible Investment
Policy, which aims to integrate sustainability, climate-related risks and
opportunities, social responsibility and strong governance into the Company's
investment process. This is consistent with HCP's approach to its ESG
assessment of fund managers and company investments.
Risk Management
Climate-related risks within the Company's investments are identified,
assessed and managed by HCP as the Portfolio Manager. As part of the portfolio
risk management and monitoring process, HCP's combines long-term and
purpose-driven engagement with underlying fund managers and companies, active
voting and setting a clear escalation framework. This approach aims to
identify and address climate‑related issues and minimise systemic risks that
may impact the assets within the portfolio. Engagement can take several forms,
including regular and ad hoc meetings with management, formal written
correspondence, or the Portfolio Manager participating in relevant shareholder
votes for current investments.
Strategy
The Company's strategic objective is to grow its net assets over the medium to
long-term by investing in a diversified and multi-strategy portfolio. In line
with this objective, the Board are responsible for pursuing the growth of
shareholder value. Responsible investment and the integration of ESG risks and
opportunities within the investment process is aligned with the Company's
values and heritage. HCP becoming a signatory to UNPRI is part of our overall
strategy.
Metrics and targets
In relation to the Portfolio Manager's investment process, a more holistic
approach is taken by assessing an investment by their intent and direction of
travel, rather than purely by specific targeted metrics. The ESG assessment of
a fund manager or company will involve HCP developing a view by utilising
their published ESG reporting, the information received through the due
diligence and engagement processes and other external research. The Company
has no material information to report in relation to metrics and targets.
Ocean Wilsons Holdings Limited
OWHL has two investments - Ocean Wilsons Investments Ltd, an investment
portfolio and a holding in Wilson Sons Holdings Brasil S.A., a Brazilian
maritime business. From an ESG standpoint, our Portfolio Manager is also the
investment advisor to the Ocean Wilsons Investments' portfolio. The Board
understands that our Portfolio Manager is engaging with Ocean Wilsons
Investments' board on their Responsible Investing Policy. As a Board we
receive periodic updates from Wilson Sons, an operating business with several
thousand employees, regarding their business including issues relevant to ESG
considerations. Wilsons Sons is listed on the Novo Mercado ("New Market") B3
listed segment and is a member of the Carbon Disclosure Project which, in
partnership with companies and governments, aims to build a truly sustainable
economy, by measuring and understanding the environmental impact. In 2022,
Wilson Sons achieved a grade B performance in the climate change questionnaire
for the maritime transportation segment. This was an improvement from the
grade C performance achieved in 2021, making Wilson Sons in line with 44% of
companies in the maritime sector that publicly disclose their data to CDP.
Wilson Sons continues to be proud of their focused approach to health &
safety, staff wellbeing and the preservation of the environment and
communities they operate in. This continued focus was awarded through the
"Great Place to Work" certification, which is a standard of excellence for
work environments, and have been ranked in the top quintile of the S&P
Global 2022 Corporate Sustainability Assessment. As in many heavy industries,
there is a focus on safety and improving working practices to minimise staff
injuries. To this end, Wilson Sons has a non-negotiable commitment to ensuring
the health and safety conditions of all employees, customers and third parties
at their facilities. Their commitment to maintaining an increasingly safe
working environment is reflected by their continuous trend of reduction in
lost-time injuries, which in 2022 was reduced to a frequency rate of 0.45
incidents per one million hours worked. This rate exceeds the world-class
benchmark. Additionally, the reduction of Greenhouse Gas emissions remain a
focus for Wilson Sons, who achieved a 5% reduction in their total emissions in
2022, achieved through the adoption of state-of-the-art technologies such as
replacing diesel equipment with electrically powered alternatives at their
container ports. Additionally, the company has maintained Its commitment to
proactively publish its Greenhouse Gas Emissions Inventory ("GHG") in the
public emissions registry, a platform managed by the Brazilian GHG Protocol
Programme. In 2022, Wilson Sons maintained their gold seal by the programme.
Further information can be seen in their 2022 Sustainability Report, published
on their website.
Carbon offset and charitable support
Each year, there are a number of flights for individual Directors to attend
Board meetings in Bermuda. Therefore, the Board has elected to offset the
carbon impact of its travel on behalf of the business though a relationship
with Greenfleet Australia (www.greenfleet.com.au). This year, circa 237 tonnes
of carbon dioxide has been offset. Greenfleet Australia runs a tree planting
offset programme.
Additionally, during the year the Board looked for an environmental cause to
sponsor that has direct relevance to Bermuda, our country of domicile. Given
its island status, Bermudians are more aware than most of the marine
environment. Marine life is under threat from climate change, acidification of
the sea, pollution and invasive species. But these threats are compounded by
overfishing, which strips the ocean of life, and so reduces its capacity to
produce oxygen, absorb carbon dioxide and regulate the climate. It's estimated
that almost 94% of commercial fish stocks are fully or overexploited and 90%
of large, predatory fish are gone. Overfishing therefore represents a major
threat for the food security of millions and could have devastating
consequences for Earth's climate if these ecosystems fail. Amongst many worthy
organisations, we discovered the Blue Marine Foundation, an environmental
charity dedicated to restoring the ocean to health by addressing overfishing
and supporting marine conservation projects. The ocean is the world's largest
carbon sink: by combating overfishing and the associated impact on the wider
marine environment, Blue Marine aims to help life in the ocean perform its
vital function of stabilising the Earth's climate. By partnering with Blue
Marine, the Company supports their work around the world ultimately benefiting
us all and, in particular, maritime communities like Bermuda. The Company has
committed to a charitable gift of £10,000 per annum towards Blue Marine's
work.
Streamlined Energy and Carbon Reporting ("SECR") and Greenhouse Gas Emissions
("GGE")
The Company has no direct greenhouse gas emissions to report from the
day-to-day operations of its business. However, as noted above, the attendance
of Directors at Board meetings in Bermuda means travel related carbon
emissions which are "Scope 3 Indirect Emissions" for the purposes of the SECR.
The Board has further estimated the emissions associated with the flights to
be in the region of 237 tonnes of CO2 in any 'normal' year.
Social, community, human rights, employee responsibilities policy
The Company does not have any employees. The Company has no direct social,
community or human rights impact. Its principal responsibility to shareholders
is to ensure the investment portfolio is properly invested and managed.
Service providers
Service Provider Policy
The Company has no employees and operates through third party service
providers. The Board has contractually delegated to external organisations the
management of the investment portfolio, the custodial services which include
safeguarding of the assets and the day-to-day accounting and company
secretarial requirements. Each of these contracts is only entered into after
proper consideration of the quality and cost of services, which are regularly
reviewed and monitored.
The key service provider relationship to the Company is Hansa Capital Partners
as the Portfolio Manager and Additional Administrative Services Provider
("AASP") to the Company.
The Board carries out the following activities as part of its oversight of
third party service providers:
Monitors performance, costs and commitment to a successfully implemented
controls environment
The Board, at its regular meetings, reviews reports prepared by both the
Portfolio Manager and the Administrator, which enable it to monitor the
performance and costs of the third-party suppliers to the Company. The
Additional Administrative Services Provider has an ongoing dialogue with each
provider to monitor their processes and systems and, in addition, members of
the Board meet with key providers at least annually to discuss performance.
Monitors Portfolio Manager performance
The Board reviews reports prepared by the Portfolio Manager at its regular
meetings, which enables it to monitor the investment performance, risks and
returns. The Portfolio Manager attends each Board meeting where there is an
active dialogue on performance, process, risks and opportunities and
governance matters.
The Board identifies key controls and regularly monitors them through
compliance reports on control effectiveness.
Determines investment strategy, guidelines and restrictions
The Board determines the investment strategy in conjunction with the Portfolio
Manager. The strategy is monitored regularly with adjustments made as
required.
The Board issues formal investment guidelines and restrictions; compliance
with these is reported by the Portfolio Manager's compliance officer quarterly
and is also monitored independently by the Administrator.
Determines gearing levels and capital preservation through the use of hedging
instruments
The Board, taking account of advice from the Portfolio Manager, determines the
maximum level of borrowings the Company will undertake. The Company will not
invest in derivatives for speculative gain, but may use derivatives for
efficient portfolio management and hedging purposes.
The providers
Portfolio Manager & Additional Administrative Services Provider
Hansa Capital Partners LLP is the Portfolio Manager for the Company. It is
responsible for all assets in the portfolio, other than the Company's
investment in OWHL. The Board is in regular contact with the investment
management team at HCP which is led by Alec Letchfield. Additionally, Alec
Letchfield is invited to quarterly meetings of the Board to formally present
portfolio updates and discuss market trends. The Portfolio Manager's detailed
review of the year can be found earlier in the report.
HCP charges a portfolio management fee at an annual rate of 1% of the net
assets of the Company (after any borrowings), after deducting the value of the
investment in OWHL, on which no fee is payable. The Portfolio Manager has
charged £2,824,000 for the year ended 31 March 2023 (year ended 31 March
2022: £3,010,000). Hanseatic Asset Management LBG, a company connected to
Hansa Capital Partners and which is also the AIFM, separately charges an
investment management fee to the investment subsidiary of OWHL.
The terms of the Portfolio Management Agreement permit either party to
terminate the agreement by giving to the other not less than 12 months'
notice, or such shorter period as is mutually acceptable. There is no
agreement between the Company and the Portfolio Manager concerning
compensation in respect to the termination of the agreement. In its annual
assessment of the Portfolio Manager, the Board concluded that, because of the
skills and experience of the management team it is in the best interest of
shareholders that the Portfolio Manager remains in place under the present
terms. Details of the fees paid to the Portfolio Manager can be found in Note
3 to the Financial Statements.
HCP also acts as the AASP to the Company. This role ensures a number of the
day-to-day processes for the Company are carried out, as well as providing
oversight of, and a liaison between, a number of the Company's service
providers and the Company itself. HCP is paid £115,000 per annum for this
service (year ended 31 March 2022: £115,000).
Auditor
The Company's Auditor is PricewaterhouseCoopers Ltd, a Bermudan registered
firm. The Board is satisfied with the quality of work performed by PwC. The
reappointment of PwC as Auditor to the Company will be proposed at the
forthcoming AGM.
Auditor independence rules restrict the amount and type of non-audit related
work that can be performed by a company's Auditor. Any non-audit related work
must be pre-approved by the Board. PwC did not provide any non-audit services
in the year.
Company Secretary
The Company has engaged Conyers Corporate Services (Bermuda) Ltd ("Conyers")
as its Company Secretary. During the year to 31 March 2023, Conyers has
charged £38,275 (year ended 31 March 2022: £32,713).
Alternative Investment Fund Manager
As a Bermudan resident, the Company is defined as a UK Alternative Investment
Fund ("AIF") under the UK Alternative Investment Fund Manager's Directive ("UK
AIFMD"). As such, the Company and the AIFM are subject to a more limited set
of UK AIFMD requirements, which are largely in relation to marketing the
Company's shares into the UK. The Company appointed Hanseatic Asset Management
LBG, with effect from 29 August 2019, to act as its AIFM, with
responsibilities for the Portfolio Management and Risk Management functions.
The AIFM has delegated the provision of Portfolio Management services to Hansa
Capital Partners LLP but remains responsible for the Risk Management function.
The AIFM does not charge a direct fee for its services, although it does
recharge any third-party fees incurred.
Administrator
The Company has engaged Maitland Administration Services Limited as its
Administrator. The Administrator has charged £149,722 for the year ended 31
March 2023 (year ended 31 March 2022: £155,289). On 9 January 2023 Apex Group
Ltd announced the completion of its acquisition of the fund services and
third-party management company businesses of Maitland International Holdings
plc, which includes our Administrator.
Custodian
The Company has engaged Banque Lombard Odier & Cie SA as the Company's
Custodian. During the year to 31 March 2023, Lombard Odier charged £180,335
for the custodial service (year ended 31 March 2022: £184,868).
Registrar
The Company's Registrar is Link Market Services (Guernsey) Limited ("Link").
The Registrar has charged £91,728 for the year ended 31 March 2023 (year
ended 31 March 2022: £89,001). During the year, following a review of
services received by the Company's Management Engagement Committee, it has
been decided to change registrar. From 25 September 2023, the Company's new
Registrar will be Computershare Investor Services (Bermuda) Limited
("Computershare"). The Directors thank Link for their work with the Company
and its predecessor, Hansa Trust, and look forward to working with
Computershare.
Report of the Directors
The Directors have chosen to report on some items within the body of the
Strategic or Governance Reports, while others remain within the Report of the
Directors.
Items included within Strategic or Governance reports
The following items are listed within the Strategic or Governance Reports:
· Statement of the existence of qualifying indemnity provisions for
Directors.
· Dividend policy and payments made during the year.
· Names of Directors, at any time in the year and the Directors'
details and attendance at Company meetings.
· Streamlined Energy & Carbon Reporting and Greenhouse Gas
Emissions.
· Stakeholder Engagement - while the Company has no employees,
suppliers or customers, the Directors give regular consideration to the need
to foster the Company's business relationships with its stakeholders, in
particular with shareholders and service providers. The effect of this
consideration upon the principal decisions taken by the Company during the
financial year is set out in further detail in the Strategic Report.
Items reported within the Directors' Report
Disclosure to the Auditor of Relevant Audit Information
The Directors confirm that, so far as they are aware, having made such
enquiries and having taken such steps as they consider they reasonably ought,
they have provided the Auditor with all the information necessary for it to be
able to prepare its Report. In doing so each Director has made themself aware
of any information relevant to the audit and established that the Company's
Auditor is aware of that information. The Directors are not aware of any
information relevant to the audit of which the Company's Auditor is unaware.
Board composition and diversity
The Board recognises and is supportive of the new FCA Listing Rules (LR
9.8.6R(9)) which aim to improve transparency on the diversity of company
boards and executive management teams and was implemented for accounting
periods starting on or after 1 April 2022. Accordingly, boards are required to
annually report on whether the specific three FCA targets have been met, and
if they have not been met, the reasons why. These three targets are:
(i) at least 40% of the individuals on its board of directors are women;
(ii) at least one of the following senior positions (Chair CEO, Senior
Independent Director, CFO) on its board of directors is held by a woman; and
(iii) at least one individual on its board of directors is from a minority
ethnic background;
The tables below set out the gender and ethnic diversity composition of the
Board as at 31 March 2023. The Board is pleased to report that it is compliant
with each of the three FCA targets. Two of the five Directors are women (40%),
one of whom holds the senior position of SID, and one of the five Directors is
from a minority ethnic background. There have been no changes made to the
composition of the Board, or the roles the Directors have been appointed,
between the year end and approval of this Annual Report.
As per LR 9.8.6R(10), numerical data is disclosed in the tables below, which
shows the Company's compliance with these three FCA targets.
Gender Diversity Number of Percentage Number of
Board of the senior
members Board positions
on the
Board(1)
Men 3 60% 2
Women 2 40% 1
Other - - -
Not specified/prefer not to say - - -
Ethnic Diversity Number of Percentage Number of
Board of the senior
members Board positions
on the
Board(1)
White British or other White (including minority-white groups) 4 80% 2
Mixed/Multiple Ethnic Groups 1 20% 1
Asian/Asian British - - -
Black/African/Caribbean/Black British - - -
Other ethnic group, including Arab - - -
Not specified/ prefer not to say - - -
(1) Note, the format and information supplied in the above tables are as
prescribed by the FCA's Listing Rules. HICL is an externally managed
closed-ended investment company and as such does not have any employees or
appoint executive board positions. Accordingly, the senior board positions
which the Company defines as applicable are Chairman, Audit Committee Chairman
and SID.
This data was provided by the individual Directors, at the request of the
Committee, asking them to indicate how the Company should categorise their
ethnic background for the purposes of the FCA requirements of Board
diversity.
Capital Structure
The Company's Capital Structure is described in the "Shareholder Profile and
Engagement" section.
Corporate Governance Report
The Corporate Governance Report, including the Financial Risk Management
Review of the Company, is included in this Report.
Future Developments and Post Balance Sheet Events
On 12 June 2023, OWHL announced it was undertaking a strategic review
involving its investment in Wilson Sons and the Board notes from the
announcement that it is currently at an early stage with no certainties as to
the outcome.
Approval of the Directors
The Directors consider the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy. Further details demonstrating the Company's
performance, business model and strategy have been included within the
Strategic Report.
For and on behalf of the Board
Jonathan Davie
Chairman
26 June 2023
Corporate Governance Report
Corporate governance code
Internal Controls
The UK Corporate Governance Code ("UK Code"), requires the directors of UK
listed companies to review the effectiveness of the company's risk management
and system of internal controls on an annual basis. The Board is committed to
sound corporate governance, robust risk management processes and effective
systems of internal controls. The Board reviews and considers the
effectiveness of internal controls regularly and review exception reporting at
least quarterly. The Directors, through the procedures outlined below, keep
the system of risk management and internal controls under review.
The Board recognises its ultimate responsibility for the Company's system of
risk management and internal controls and for monitoring their effectiveness.
In order to perform this responsibility the Board receives regular reports on
all aspects of risk management and internal control from the Company's service
providers (including financial, operational and compliance controls, risk
management and relationships with other service providers); the Board will
instigate necessary action in response to any significant failings or
weaknesses identified by these reports.
Financial Reporting
The Board has a responsibility to present a fair, balanced and understandable
assessment of annual, half‑year and other price sensitive public reports and
reports to regulators, as well as to provide information required to be
presented by statutory requirements. To ensure this responsibility is
fulfilled, all such reports are reviewed and approved by the Board prior to
their issue.
The Board confirms there have been no specific events since 31 March 2023, of
which the Board is aware, which would have a material impact on the Company.
Compliance with the provisions of the UK Corporate Governance Code
The Board of Hansa Investment Company has considered the Principles and
Provisions of the AIC Code. The AIC Code addresses the Principles and
Provisions set out in the UK Code, as well as setting out additional
Provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the FRC in the UK, provides more
relevant information to shareholders.
The Company has complied with the Principles and Provisions of the AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment companies.
Association of Investment Companies Code
The AIC Code has 17 principles. The Company sets out below how it has complied
with the Principles and Provisions:
Board Leadership and Purpose
A successful company is led by an effective board, whose role is to promote
the long-term sustainable success of the company, generating value for
shareholders and contributing to wider society.
The Board is formed of five Directors with a complementary mix of skills and
experience to lead the Company. Two Directors served on the board of the
Company's predecessor, Hansa Trust, whilst three Directors were appointed at
the formation of HICL. All have significant and relevant experience. All
Directors are focused on generating long‑term value for shareholders and
there is significant share ownership in the Company's shares amongst the
Directors. The Board engages at least quarterly with its Portfolio Manager
challenging performance, process, risk, cost and strategy.
The board should establish the company's purpose, values and strategy, and
satisfy itself that these and its culture are aligned. All directors must act
with integrity, lead by example and promote the desired culture.
The Board believes that the Company's purpose, values and strategy are clear:
to create long‑term growth of shareholder value. The Board fosters a culture
that is open to new ideas and is able to influence its service providers
through effective challenge and regular robust review of performance. The
Board sets the standard for openness and professionalism that the Company's
key service providers follow. In particular, there is regular interaction
between the Board and the Company's Portfolio Manager and also the AASP for
day to day liaison with other service providers.
The board should ensure that the necessary resources are in place for the
company to meet its objectives and measure performance against them. The board
should also establish a framework of prudent and effective controls, which
enable risk to be assessed and managed.
The Board, through the work of its Committees and regular Board meetings
ensures regular measurement against the Company's objectives. The adequacy and
effectiveness of internal controls is considered at each Board meeting.
In order for the company to meet its responsibilities to shareholders and
stakeholders, the board should ensure effective engagement with, and encourage
participation from, these parties.
The Board considers its stakeholders to be its shareholders and its key
service providers. The Board is committed to transparent reporting in all its
communications. It actively engages with shareholders via an annual general
meeting, periodic shareholder presentations, the next of which will be held on
27 September 2023, quarterly factsheets, website communication and with
feedback also received through outreach programmes by the Company's broker and
Portfolio Manager, as well as direct one-to-one correspondence. The Board
engages with other key service providers through the operations of its AASP on
a day to day basis, as well as via at least one annual meeting with each to
ensure accountability and value-added performance. The Board has also
established the role of Senior Independent Director. The SID acts as a
sounding board for the Chairman as well as to serve as an intermediary between
the Chairman and the views of the other Directors, shareholders, other key
stakeholders and the Company's Portfolio Manager when necessary.
Principle E is omitted by the AIC Code.
Division of Responsibilities
The chair leads the board and is responsible for its overall effectiveness in
directing the company. They should demonstrate objective judgement throughout
their tenure and promote a culture of openness and debate. In addition, the
chair facilitates constructive board relations and the effective contribution
of all non-executive directors, and ensures that directors receive accurate,
timely and clear information.
The Chairman is Jonathan Davie. The Chairman promotes and encourages active
participation from all Directors at Board meetings. Further, whilst adhering
to membership guidelines, sub‑committees also seek to include as many
Directors as possible to ensure a broad range of views. All Directors receive
regular monthly and quarterly information prepared by the Portfolio Manager
and Administrator, as well as portfolio performance presentations from the
Portfolio Manager.
The board should consist of an appropriate combination of directors (and, in
particular, independent non-executive directors) such that no one individual
or small group of individuals dominates the board's decision making.
The Board consists of five Directors. All have a financial background but each
also brings individual specialisms and experience that are complimentary.
Their biographies are noted earlier on in the Report. Four Directors are
deemed independent. The fifth, William Salomon, is the Senior Partner of the
Company's Portfolio Manager and, therefore, is deemed non-independent. All
Directors are actively involved in decisions and committees unless conflicts
exist which preclude this. Accordingly, Mr Salomon does not participate in the
evaluation of the performance of the Portfolio Manager due to his role as
senior partner of that firm. Nor does he participate in decisions regarding
the Company's largest asset (by value) OWHL, due to him being a director of
that company. Finally, Mr Salomon is not a member of the Audit, Nominations or
Remuneration Committees due to his non-independent status, although he does
attend meetings of those Committees. The culture of open and honest
communication and forthright discussion means no individual or small group
dominate decision making.
Non-executive directors should have sufficient time to meet their board
responsibilities. They should provide constructive challenge, strategic
guidance, offer specialist advice and hold third party service providers to
account.
The Directors confirm they have sufficient time to meet their
responsibilities. Directors consult with the Company before accepting other
appointments, to confirm capacity to do so and that no conflict exists. In
considering appointments and potential conflicts of interests the Board
considers the available time each Director has to commit to the Company. A
formal calendar exists for the Board meetings and sub-committees. Ad-hoc
meetings may be arranged without advance materials for time-sensitive matters.
The Portfolio Manager and AASP report to scheduled Board meetings, giving the
Directors the opportunity to challenge performance, raise issues and offer
guidance.
The board, supported by the company secretary, should ensure that it has the
policies, processes, information, time and resources it needs in order to
function effectively and efficiently.
The Company Secretary and AASP support the Board in identifying and monitoring
all governance matters. Additionally, Directors are able to consult external
professional advisors to assist them in the performance of their duties as and
when required. Board reporting and materials are refined on an ongoing basis.
Composition, succession and evaluation
Appointments to the board should be subject to a formal, rigorous and
transparent procedure, and an effective succession plan should be maintained.
Both appointments and succession plans should be based on merit and objective
criteria and, within this context, should promote diversity of gender, social
and ethnic backgrounds, cognitive and personal strengths.
The Board has appointed a Nominations Committee chaired by Nadya Wells. The
Nominations Committee conducts a formal due diligence process on all
appointments and considers annually the continued suitability and performance
of directors. The Company believes a diverse Board brings many benefits and,
as such, there is no restriction placed on Board membership. Inclusivity,
diversity, variety of experience and personal strengths are all incorporated
in the decision making for director selection and succession planning.
The board and its committees should have a combination of skills, experience
and knowledge. Consideration should be given to the length of service of the
board as a whole and membership regularly refreshed.
The Directors have a broad range of backgrounds including investment
management, finance and banking as well as operational experience. Biographies
of all Directors are shown earlier on in the Report. Each director retires and
is subject to re-election at the AGM. The decision to propose directors for
Nomination at the AGM is made by the Nomination Committee. The Nominations
Committee is tasked with maintaining a broad range of skills and experiences
at times of succession.
Annual evaluation of the board should consider its composition, diversity and
how effectively members work together to achieve objectives. Individual
evaluation should demonstrate whether each director continues to contribute
effectively.
The Nominations Committee is responsible for the ongoing consideration of
Board composition and to identify any skills gap, now or in the future. The
Nomination Committee considers Board effectiveness annually.
Audit, risk and internal control
The board should establish formal and transparent policies and procedures to
ensure the independence and effectiveness of external audit functions and
satisfy itself on the integrity of financial and narrative statements.
The Board has specifically delegated the appointment and monitoring of the
Company's external Auditor to its Audit Committee. The Company's Auditor was
formally appointed in November 2019. The tender process was led by the
Chairman of the Audit Committee. The Audit Committee considers the
independence and effectiveness of the external Auditor at least annually. The
Company's Auditor does not provide other services to the Company. The Company
rigorously follows policy and procedure to ensure effectiveness of the
external audit and integrity of financial reporting. Refer also to the Audit
Committee Report.
The board should present a fair, balanced and understandable assessment of the
company's position and prospects.
The Board considers and approves all relevant shareholder communications. The
Annual and Half-Year Reports are reviewed by the Board to ensure they present
a fair and balanced view including commentary on going concern and long-term
viability. The Audit Committee considers the fairness of the Financial
Statements before recommending them to the Board for approval.
The Annual and Half-Year Reports provide fair, balanced and understandable
commentary on the Company's performance and prospects.
The board should establish procedures to manage risk, oversee the internal
control framework, and determine the nature and extent of the principal risks
the company is willing to take in order to achieve its long-term strategic
objectives.
Principal risks are identified by the Board and risk appetite established
against these risks. Day to day risk management is undertaken by the Portfolio
Manager and AASP within the parameters established by the Board. The Board
meets with the Portfolio Manager at each scheduled Board meeting where there
is opportunity to discuss particular aspects of the portfolio and associated
risks. Operational risk and compliance reporting are also regularly discussed
by the Board. Emerging risks are monitored and incorporated into the risk
appetite framework as they arise.
Remuneration
Remuneration policies and practices should be designed to support strategy and
promote long-term sustainable success.
The remuneration of Directors is overseen by the Remuneration Committee,
chaired by Simona Heidempergher. The Directors each receive a fixed annual fee
and do not receive any additional element based on performance of the Company.
Additionally, Directors offer themselves annually for re-election at the
Company's AGM.
A formal and transparent procedure for developing policy on remuneration
should be established. No director should be involved in deciding their own
remuneration outcome.
The Directors' Remuneration Report notes that each Director is paid a fixed
fee representative of their roles and additional responsibilities on the
Board. This fee level is reviewed by the Remuneration Committee annually
considering performance, time commitments and market conditions.
Recommendations are made to the Board for approval. Further detail is provided
in the Remuneration Committee Report.
Directors should exercise independent judgement and discretion when
authorising remuneration outcomes, taking account of company and individual
performance, and wider circumstances.
Performance, individual contribution and market conditions are all considered
when setting directors' fees.
Compliance with The Financial Conduct Authority Listing Rules
The Directors are responsible for ensuring that:
· Adequate accounting records are kept, that are sufficient to show
and explain the Company's transactions and disclose with reasonable accuracy
at any time the financial position of the Company and enable them to ensure
that the Financial Statements are consistent with the relevant requirements
under the UK Companies Act 2006.
· The assets of the Company are safeguarded; and for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
· The Report of the Directors and other information included in the
Annual Report is prepared in accordance with Company Law in the UK. The
Directors are also responsible for ensuring the Annual Report includes
information required by the Listing Rules of the FCA.
· The Company has effective internal control systems, designed to
ensure that adequate accounting records are maintained; and that financial
information on which the business decisions are made, which is issued for
publication, is reliable. Such a system of internal control can provide only
reasonable, but not absolute, assurance against material misstatement or loss.
· The Company Financial Statements for each financial year are
prepared in accordance with International Financial Reporting Standards
("IFRS"). IFRS means standards and interpretations issued (or adopted) by the
International Accounting Standards Board ("IASB"). The Directors must not
approve the Financial Statements unless they are satisfied they give a true
and fair view of the state of affairs and profit or loss of the Company for
that period.
In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with
International Financial Reporting Standards; and
· prepare the Financial Statements on the going concern basis,
unless it is inappropriate to presume the Company will continue in business.
Under the FCA Listing Rules and the UK Code, the Board is responsible for:
· disclosing how it has applied the principles and complied with
the provisions of the AIC Code and, thereby, the UK Code, or where not, to
explain the reasons for divergence.
· reviewing the effectiveness of the Company's systems of risk
management and internal controls.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website:
www.HansaICL.com. Visitors to the website need to be aware that legislation
governing the preparation and dissemination of the Financial Statements may
differ from legislation in their own jurisdictions.
Responsibility statement
The Directors confirm that:
· The Financial Statements are prepared in accordance with
applicable international accounting standards and present fairly, in all
material respects, the financial position of Hansa Investment Company.
· The Strategic Report, including the Chairman's Statement and the
Report of the Directors includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties it faces.
The Directors consider the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable. Further commentary demonstrating
the Company's performance, business model and strategy has been included
within the Annual Report.
For and on behalf of the Board
Jonathan Davie
26 June 2023
Audit Committee Report
The Audit Committee comprises solely independent Directors, as required by the
AIC Code and endorsed by the FRC. It is chaired by Richard Lightowler. Given
the size of the Board and the range of experience they bring, all
non-committee Directors are invited to attend the Audit Committee meetings.
However, only the independent member Directors are able to vote.
Recommendations of the Audit Committee are brought before the whole Board for
discussion and ratification.
The Audit Committee ensures fair, balanced and understandable reporting of
Company results.
The principal roles of the Audit Committee are to ensure that:
· the integrity of financial reporting within the Annual and
Half-Year Reports taken as a whole are fair, balanced and understandable and
provide information necessary for shareholders to assess the Company's
performance, business model and strategy;
· the independence, objectivity and effectiveness of the external
Auditor is maintained and monitored. The Committee also reviews the external
Auditor performance in terms of quality and value;
· the financial reporting internal controls system of the Company
are adequate and effective.
Financial Reporting and Internal Controls
In discharging its duties and, in particular, matters relating to the approval
of the Annual Report, Half-Year Report and the review of the Company's
internal controls, the Committee considers reports and presentations made by
the Company's Auditor, Administrator, Company Secretary, Additional
Administrative Services Provider (including those of its Compliance Officer)
and Legal Advisers.
In its review of the Financial Statements, the Committee pays particular
attention to the ownership of assets, the valuations of the portfolio and
recognition of income. In this regard we receive regular reporting from the
Portfolio Manager and AASP, including reports on the effectiveness of internal
controls in these areas. In addition, the Committee discusses with, and
receives reports from, the Auditor on the nature and scope of work performed
on valuation and ownership of assets and on income recognition.
The Company's Custodian confirms title of all assets in its custody. In its
consideration of valuations, the Committee notes that 75% of the Investment
portfolio by value is held in assets that are either traded or listed on an
exchange or are cash. Further, of the remaining 25% unquoted fund investments,
the majority primarily hold traded securities. Valuations for these funds are
supplied by third party managers. The Audit Committee recognises that 57% of
the total portfolio assets are Level 1 and 40% are Level 2 securities. Given
the significant level of externally valued assets, the Committee is satisfied
with the valuation process. There is very limited management judgement in
determining valuations. Revenue recognition does not involve significant
judgement or the use of estimates.
The Audit Committee also considers the potential need for an internal audit
function on an annual basis, recognising the FRC guidance on proportionality.
The Audit Committee considers internal compliance testing at the Administrator
and Portfolio Manager to be sufficiently independent and robust to negate the
need for a standalone internal audit function.
No material control weaknesses or incidents of potential fraud were
identified. The Company's service providers implement clear whistleblowing,
anti-bribery and corruption policies. The Company received direct reporting
from service providers on internal controls and audit reports on their
internal controls.
The Committee is authorised by the Board to investigate any activity within
its terms of reference, to seek any information it requires from any officer
or service provider to the Company, to obtain outside legal or other
independent professional advice and to secure the attendance of third parties
with relevant experience and expertise if it considers this necessary.
The Chairman of the Audit Committee formally reports to the Board following
each Audit Committee meeting and on other occasions as requested by the Board.
The Audit Committee confirmed to the Board that the Annual Report, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy.
Audit: Independence and quality
The Audit Committee considers the external Auditor's independence,
objectivity, scope of work engagement team experience, compliance with
relevant ethical and professional standards and overall quality of service
through a process of feedback from the Company advisors, including the AASP,
the Portfolio Manager and direct discussion with the Auditor. The Committee
also meets with the Auditor in an executive session at least annually. The
current audit partner is Scott Watson‑Brown who has led the audit since the
Company's inception in June 2019 and the appointment of PricewaterhouseCoopers
Ltd as its Auditor.
Auditors' remuneration and terms of engagement are approved by the Audit
Committee. Any non-audit services must be pre-approved by the Audit Committee
to ensure objectivity and independence of the audit is not compromised. No
non‑audit services are provided by PricewaterhouseCoopers Ltd to the
Company. Further information on fees paid to the Auditor is contained in
"Other Expenses" within Note 4 of the Financial Statements.
For and on behalf of the Audit Committee.
Richard Lightowler
Audit Committee Chairman
26 June 2023
Directors' Remuneration Report
Annual statement
The Company has five non-executive Directors. The Board has appointed a
Remuneration Committee. The Chairman of this Committee is Simona
Heidempergher. All independent members of the Board are members of the
Remuneration Committee. William Salomon attends the Committee but is not a
member.
Each Director was initially appointed during June 2019 following the creation
of the Company. Each Director presents themselves for annual re-election at
the Company's AGM.
Policy on Directors' remuneration
The Board's policy is that the remuneration of non-executive Directors should
be a fixed-fee only. This fee should reflect the experience of each director,
time commitment required to fulfil the role, market conditions, financial and
reputational risks undertaken and additional responsibilities. The
remuneration does not include a performance related element and Directors do
not receive bonuses, share options, pensions or long-term incentive schemes.
The aggregate remuneration of the Board will be kept within the limits set out
in the Company's Bye-Laws, as amended from time to time.
In assessing current and future levels of director compensation, the
Remuneration Committee seeks external comparative information, such as the use
of independent external surveys. This includes the fees paid by other similar
companies (both industry and jurisdiction), seeking input from recruitment
specialists familiar with the external market, assessing the time commitment
for each of the Directors in their appointed roles and considering the
responsibilities their roles bring. The increasing demands being placed on all
NEDs by shareholders, regulators and markets are also factored.
The fees for the non-executive Directors are within the limits (maximum total
fee of $400,000) as set out in the Company's Bye-Laws. The maximum is set as a
USD amount. The equivalent is £325,203 if translated at the applicable rate
on 31 March 2023. The Board has reviewed the current maximum annual fee for
director remuneration and will seek shareholder approval to increase this to
$600,000 per annum (£487,804 if translated at the applicable rate on 31 March
2023) at the upcoming AGM. The increase is for two reasons:
· During the year, the Remuneration Committee has assessed, and
increased, Director remuneration for the first time since the Company's
formation in June 2019. Considering the criteria noted above, the Committee
increased director remuneration to the annual equivalent of $375,000
(£304,870 if translated at the applicable rate on 31 March 2023) effective 1
October 2022. This is broken out by Director in the remuneration table below.
· Subsequent to the change in the current level of remuneration,
the increased limit is sought to allow sufficient headroom over the current
fees payable to existing directors to appoint another director if required,
including as part of board succession planning, as well as allow capacity to
permit future remuneration reviews in the coming years.
Directors' service contracts
It is the Board's policy that every Director has a service contract. None of
the service contracts is for a fixed term. The terms of appointment provide
that a Director shall retire and be subject to re-election at the first AGM
after appointment. The Board has decided each Director will retire annually at
the AGM and seek re-election as appropriate. The terms also provide that
either party may give three months' notice. In certain circumstances a
Director may be removed without notice and compensation will not be due on
leaving office. There are no agreements between the Company and its Directors
concerning compensation for loss of office.
Policy for notice periods
The current Directors' service contracts stipulate three months' written
notice to be given by either the Director or the Company to terminate the
services of a Director. The Board consider this is sufficient notice to ensure
an orderly hand over between the parties.
Shareholders' views on remuneration policy
The formal views of unconnected shareholders have not been sought in the
preparation of this policy.
Employees
The Company does not have any employees, only non‑executive Directors.
Annual report on remuneration
Directors' Emoluments (Audited)
The Company does not have any employees, only non‑executive Directors who
receive only a basic fee, plus repayment of expenses incurred in the course of
performing their duties. Therefore, the use of the detailed remuneration
table, as prescribed in the legislation, is not appropriate here. A condensed
table showing the information relevant to the Directors' remuneration is shown
in its place.
The Directors who received fees during the year received the following
emoluments in the form of fees. For clarity, these amounts are quoted in the
currency as per their service contract. The Director's remuneration is set in
USD, as is common for most Bermudan companies. The following table notes the
Directors current annual fee as at 31 March 2023. It also notes their fee, in
USD, for the current and prior financial years. For each financial year, the
equivalent Sterling fee is shown converted at the relevant year-end exchange
rate respectively:
2023 2023 2022 2022
fee fee fee fee
$000 £000 $000 £000
Jonathan Davie (Chairman) 85 72 70 53
Simona Heidempergher 65 55 50 38
Richard Lightowler 75 63 60 46
William Salomon(3) 25 21 25 19
Nadya Wells 65 55 50 38
315 266 255 194
The annual fee paid to each Director, in USD, was reviewed, as noted above,
and increased from their previous amount effective 1 October 2022. Prior to
that date, their fees remained unchanged from the date of their appointments
in June 2019. The above table compares the current year to prior year fees in
USD versus Sterling. Approximately 1/3 of the increase in the Sterling
equivalent is due to the movement in the USD/Sterling exchange rate between
the two periods.
The Company also pays the expenses of the Directors to attend the Board
meetings. Directors' travel costs incurred during the year were £141,000
(2022: £48,000).
Statement of shareholder voting
Votes in respect of the resolution to approve the Directors' Remuneration
Report at the Company's AGM in August 2022 were cast as follows:
No. of % of
shares votes
voted cast
Votes cast in favour 22,335,068 99.55
Votes cast against 100,000 0.45
Total votes cast 22,435,068 100.00
Votes withheld 0
Directors' interests (audited)
Directors must seek permission from the Chairman before trading in shares,
taking note of any Closed Periods. Other than that, there are no specific
rules on Directors' shareholdings.
The interests of Directors and their connected parties in the Company at 31
March 2023 are shown below:
Ordinary shares 'A' non‑voting ordinary shares Nature of
of 1p each of 1p each interest
2023 2022 2023 2022
Jonathan Davie 45,000 45,000 230,000 230,000 Beneficial
William Salomon 11,169,345 11,169,345 3,587,123 3,508,723 Beneficial
Simona Heidempergher 6,400 6,400 - - Beneficial
As at 26 June 2023, the date of signing of these Annual Financial Statements,
there were no changes to report to the Directors' holdings.
William Salomon is the senior partner of Hansa Capital Partners LLP. Fees
payable to Hansa Capital Partners LLP amounted to £2,824,000 (including
Portfolio Management and AASP functions). The fees outstanding at the year end
amounted to £240,793. During the year, no rights to subscribe for the shares
of the Company were granted to, or exercised by Directors, their spouses or
infant children.
Directors' attendance
The Directors meet as a Board on a quarterly basis and at other times as
necessary and the table below sets out the number of operational meetings and
the attendance at them by each Director.
Board(1) Strategy Audit Remuneration Committee Nomination Management Engagement Committee
Committee
Day Committee
Number of Meetings 13 1 2 2 2 2
Jonathan Davie 8 1 2 2 1 2
Simona Heidempergher 12 1 2 2 2 2
Richard Lightowler 10 - 2 2 - 2
William Salomon(2) 8 1 2 2 2 2
Nadya Wells 8 1 2 2 2 2
(1) "Board" includes full meetings of the Board, of which there were five held
during the year, as well as periodic 'other' meetings and Board calls to
consider and approve operational requirements for the Company, such as
quarterly dividends. These 'other' meetings are arranged as and when required
and require the meeting to be quorate but not necessarily attended by all
Directors.
(2) William Salomon is deemed to not be independent. Therefore, he attends as
an observer of the Audit and Remuneration Committees but is not a committee
member. Further, he attends the Management Engagement Committee when the
majority of Service Providers are discussed but exempts himself when the
performance of the Portfolio Manager is discussed due to his position as its
Senior Partner.
On behalf of the Board, I confirm that the above Report on Directors'
Remuneration summarises, as applicable, for the year ended 31 March 2023:
(a) the major decisions on Directors' remuneration;
(b) any substantial changes relating to Directors' remuneration made during
the year; and
(c) the context in which those changes occurred and decisions have been
taken.
An Ordinary resolution for the approval of this Report will be put to
shareholders at the forthcoming AGM.
For and on behalf of the Board
Simona Heidempergher
Chairman of the Remuneration Committee
26 June 2023
Nominations Committee Report
The Committee is chaired by Nadya Wells. All independent members of the Board
are members of the Nomination Committee. William Salomon attends the Committee
but is not a member.
Role
The Committee reviews the structure, size and composition (including the
skills, knowledge and experience) of the Board and makes recommendations to
the Board with regard to any changes, as necessary. It also considers
succession planning of directors, taking into account tenure and performance
of board members as well as challenges and opportunities facing the Company,
and what skills and expertise are, therefore, needed on the Board in the
future. If a skills-gap or pending vacancy is identified, the Committee is
responsible for identifying and nominating candidates to fill Board vacancies
as and when they arise.
Appointments are made after consideration of the skills and experience needed
by the Board and against objective criteria in accordance with the AIC Code.
The Board considers it is of paramount importance to shareholders that, after
consideration of the skills and experience needed by the Board, candidates are
chosen on the basis of their contribution to the Company's needs and that
there should be no discrimination in the choice of Directors for any reason.
The Nominations Committee pays due regard to the final rules published by the
Financial Conduct Authority in April 2022 in respect of diversity and
inclusion on company boards and executive management. The Company believes a
diverse Board brings many benefits and, as such, there is no restriction
placed on Board membership. Selection and appointment will continue to be
based on merit and against a skills matrix to ensure the overall composition
of the Board has an appropriate balance of knowledge and experience, whilst
remaining cognisant of the relevant geographic and diversity considerations.
The Board has determined that all Directors will retire and offer themselves
for re-election each year at the AGM and this policy includes any Directors
appointed during the year. The Committee reports its recommendations to the
Board for final approval.
Activities during the year
The Nomination Committee has met twice during the year. The Committee has
developed a Skills Matrix to summarise the knowledge, skills, experience and
overall competence of each Director. This included anonymised feedback from
the other Board members as well as feedback from each individual Director
themselves. The Skills Matrix considers a wide range of relevant factors when
assessing individual and collective competence including knowledge, skills,
experience, diversity, geographic considerations, other time and business
commitments, as well as their overall performance and contribution during the
period in relation to their specific role. Following its review, and in line
with the small size, structure and nature of the Company, the Committee
concluded that each Director continued to contribute as required, and the
Board continued to operate effectively.
The current Directors were all originally appointed in June 2019. There have
been no resignations during the year and all Board members have indicated
their desire to stand for re-election at the forthcoming AGM. Following the
annual review of Board Skills, the Nomination Committee is supportive of
re-appointing the Directors to the Board within the 2023 AGM.
While the Nomination Committee did not recommend the appointment of new
Directors within the Company's financial year, during the year, the Committee
decided to appoint a Senior Independent Director ("SID"). The role of the SID
is to act as a sounding board for the Chairman, as well as to serve as an
intermediary between the Chairman and the views of the other Directors,
Shareholders, other key stakeholders and the Company's Portfolio Manager if
necessary. Nadya Wells offered to take on this additional responsibility and
was appointed to act as the Company's Senior Independent Director ("SID").
Succession planning
No new appointments to the Board are proposed at this time. As part of the
Skills Matrix utilised to evaluate Board composition, the Board notes the
number of years each Director has served and their expected date of
retirement. While the Board does not consider the length of tenure to have a
direct negative correlation to the Directors' performance and contribution,
the Nomination Committee remains cognisant of the AIC recommendations and
therefore still considers this element as part of its overall succession
planning.
For and on behalf of the Board
Nadya Wells
Chairman of the Nomination Committee
26 June 2023
Financial Statements
Independent auditor's report
To the Board of Directors and Shareholders of Hansa Investment Company Limited
Report on the audit of the financial statements
Our opinion
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Hansa Investment Company Limited (the
Company) as at 31 March 2023, and its financial performance and its cash flows
for the year then ended in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB).
What we have audited
The Company's financial statements comprise:
· the balance sheet as at 31 March 2023;
· the income statement for the year then ended;
· the statement of changes in equity for the year then ended;
· the cash flow statement for the year then ended; and
· the notes to the financial statements, which include significant
accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the Annual
Report, rather than in the notes to the financial statements. These are
cross-referenced from the financial statements and are identified as audited.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(ISAs). Our responsibilities under those standards are further described in
the Auditor's responsibilities for the audit of the financial statements
section of our report.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the International Code of
Ethics for Professional Accountants (including International Independence
Standards) issued by the International Ethics Standards Board for Accountants
(IESBA Code) and the ethical requirements of the Chartered Professional
Accountants of Bermuda Rules of Professional Conduct (CPA Bermuda Rules) that
are relevant to our audit of the financial statements in Bermuda. We have
fulfilled our other ethical responsibilities in accordance with the IESBA Code
and the ethical requirements of the CPA Bermuda Rules.
Our audit approach
Overview
Materiality Overall materiality: £3,669,000 based on approximately 1% of net assets.
Audit scope In addition to determining materiality, amongst other factors, the following
were assessed in designing our audit:
· the risk of material misstatement in the financial statements
· significant accounting estimates
· the risk of management override of internal controls
Key audit matters · Valuation and existence of investments
· Accuracy, occurrence and completeness of investment income
Audit scope
As part of designing our audit, the risks of material misstatement in the
financial statements, were assessed and materiality was determined. In
particular, consideration was given to where management made subjective
judgements; for example, in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits, the risk of management override of
internal controls was addressed, including, among other matters, consideration
of whether there was evidence of bias that represented a risk of material
misstatement due to fraud.
The scope of our audit was tailored in order to perform sufficient work to
enable us to provide an opinion on the financial statements as a whole, taking
into account the structure of the Company, the accounting processes and
controls, and the industry in which the Company operates.
Materiality
The scope of our audit was influenced by our application of materiality. An
audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement. Misstatements may arise due to
fraud or error. They are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Based on our professional judgement, certain quantitative thresholds for
materiality were determined, including the overall materiality for the
financial statements as a whole as set out in the table below. These, together
with qualitative considerations, helped to determine the scope of our audit
and the nature, timing and extent of our audit procedures and to evaluate the
effect of misstatements, both individually and in aggregate, on the financial
statements as a whole.
Overall materiality £3,669,000
How we determined it Approximately 1% of net assets
Rationale for the materiality benchmark applied This benchmark was applied as a generally accepted audit practice for
investment company audits.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £183,000, as well as misstatements below
that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
Key AUDIT MATTER How our audit addressed the key audit matter
Valuation and existence of investments Listed equity investments: We tested the existence of the listed investment
portfolio by agreeing the holdings for investments to an independent custodian
Refer to notes 1(c) and 8 to the financial statements for disclosures of confirmation.
related accounting policies and balances.
We tested the valuation of the listed investments by agreeing the prices used
The investment portfolio at the year end was comprised of listed equity in the valuation to independent third-party sources.
investments valued at £264 million (75%) and unquoted investments valued at
£90 million (25%). Unquoted investments: We understood and evaluated the controls around the
pricing of unquoted investments including the final approval of the valuation
by the Manager and the Board.
We focused on the existence of both listed and unquoted investments, as listed
investments comprise the majority of the investments balance and unquoted
investments are, individually and in aggregate, material to the financial · We obtained direct confirmation of the existence of investments
statements. held and the price from each fund administrator. We used these two key inputs
to recalculate the valuation applied by management. This recalculation was
performed for 100% of the unquoted investments.
We focused on the valuation of listed equity investments because listed · We obtained an understanding of the underlying methodology
investments represent the principal element of the net asset value as applied to each unquoted investment through review of their most recently
disclosed on the Balance Sheet in the financial statements. We also focused on available audited financial statements to evaluate whether it was based on
the valuation of the unquoted investments as the valuation of these fair value.
investments is material to the Company.
Based on the procedures detailed above, no misstatements were identified which
required reporting to those charged with governance.
Accuracy, occurrence and completeness of investment income We assessed the accounting policy for investment income recognition for
compliance with accounting standards and the AIC SORP and performed testing to
Refer to notes 1(e) and 2 to the financial statements for disclosures of evaluate whether income had been accounted for in accordance with this stated
related accounting policies and balances. accounting policy. We found that the accounting policies implemented were in
accordance with accounting standards and the AIC SORP, and that income has
been accounted for in accordance with the stated accounting policy.
Investment income consists of dividend income of £6.9 million. As part of our
procedures, we focused on the accuracy, occurrence and completeness of
investment income recognition as incomplete or inaccurate income could have a We tested the accuracy of dividend receipts by agreeing the dividend rates
material impact on the Company's net asset value and dividend cover. We also from investments to independent market data.
focused on the accounting policy for income recognition along with its
allocation and presentation in the Income Statement as set out in the
requirements of The Association of Investment Companies Statement of
Recommended Practice (the "AIC SORP") as incorrect application could indicate To test for completeness, we tested, for a sample of investment holdings in
a misstatement in income recognition. the portfolio, that all dividends declared in the market by investment
holdings had been recorded. We tested occurrence by confirming that all
dividends recorded in the period had been declared in the market by investment
holdings, and we traced a sample of dividends received to bank statements.
We also tested the allocation and presentation of investment income between
the revenue and capital return columns of the Income Statement in line with
the requirements set out in the AIC SORP by determining reasons behind
dividend distributions.
Based on the procedures detailed above we did not identify any misstatements
which required reporting to those charged with governance
Other information
Management is responsible for the other information. The other information
comprises the Annual Report (but does not include the financial statements and
our auditor's report thereon).
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information identified above and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
UK Corporate Governance Code
We have nothing to report in respect of our responsibility to report when the
Directors' statement relating to the Company's compliance with the Code does
not properly disclose a departure from a relevant provision of the Code
specified, under the Listing Rules of the FCA, for review by the auditors.
Responsibilities of management and those charged with governance for the
financial statements
Management is responsible for the preparation and fair presentation of the
financial statements in accordance with International Financial Reporting
Standards (IFRSs) as issued by the International Accounting Standards Board
(IASB) and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing
the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless management either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's
financial reporting process.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment
and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
· Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw
attention in our auditor's report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor's report. However, future events or conditions may cause the Company
to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to
eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the financial
statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our
report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's
report is Scott Watson-Brown.
PricewaterhouseCoopers Ltd.
Chartered Professional Accountants
Hamilton, Bermuda
26 June 2023
Income Statement
For the year ended 31 March 2023
Year ended Year ended
31 March
31 March
2023
2022
Note Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
(Losses)/gains on investments held at fair value through profit or loss 8 - (14,924) (14,924) - 17,065 17,065
Foreign exchange gains - 327 327 - 80 80
Investment income 2 6,892 - 6,892 5,904 - 5,904
6,892 (14,597) (7,705) 5,904 17,145 23,049
Portfolio management fees 3 (2,824) - (2,824) (3,010) - (3,010)
Other expenses 4 (1,527) - (1,527) (1,227) - (1,227)
(4,351) - (4,351) (4,237) - (4,237)
Income/(losses) before finance costs 2,541 (14,597) (12,056) 1,667 17,145 18,812
Finance costs 5 (1) - (1) - - -
Income/(losses) for the period 2,540 (14,597) (12,057) 1,667 17,145 18,812
Return per Ordinary and 'A' non-voting Ordinary share 7 2.1p (12.2)p (10.1)p 1.4p 14.3p 15.7p
The Company does not have any income or expense not included in the above
Statement. Accordingly the "Income/(losses) for the Year" is also the "Total
Comprehensive Income/(losses) for the Year", 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 International Financial Reporting Standards as issued by
the International Accounting Standards Board ("IASB").
All revenue and capital items in the above Statement derive from continuing
operations.
The accompanying notes are an integral part of this Statement.
Balance Sheet
As at 31 March 2023
Note 31 March 31 March
2023
2022
£000 £000
Non-current assets
Investments held at fair value through profit or loss 8 353,262 379,986
353,262 379,986
Current assets
Trade and other receivables 10 128 201
Cash and cash equivalents 11 13,987 3,043
14,115 3,244
Current liabilities
Trade and other payables 12 (412) (368)
Net current assets 13,703 2,876
Net assets 366,965 382,862
Capital and reserves
Called up share capital 13 1,200 1,200
Contributed surplus 14 323,799 324,759
Retained earnings 15 41,966 56,903
Total equity shareholders' funds 366,965 382,862
Net asset value per Ordinary and 'A' non-voting Ordinary share 16 305.8p 319.1p
The Financial Statements of Hansa Investment Company Limited, registered in
Bermuda under company number 54752, were approved by the Board of Directors on
26 June 2023 and were signed on its behalf
by
Jonathan Davie
Chairman
The accompanying notes are an integral part of this Statement.
Statement of Changes in Equity
For the year ended 31 March 2023 Note Share Contributed Retained Total
capital surplus earnings £000
reserve
£000
£000
£000
Net assets at 1 April 2022 1,200 324,759 56,903 382,862
Losses for the period - - (12,057) (12,057)
Dividends 6 - (960) (2,880) (3,840)
Net assets at 31 March 2023 1,200 323,799 41,966 366,965
For the year ended 31 March 2022 Note Share Contributed Retained Total
capital surplus earnings £000
reserve
£000
£000
£000
Net assets at 1 April 2021 1,200 326,019 40,671 367,890
Profit for the year - - 18,812 18,812
Dividends 6 - (1,260) (2,580) (3,840)
Net assets at 31 March 2022 1,200 324,759 56,903 382,862
The accompanying notes are an integral part of this Statement.
Cash Flow Statement
For the year ended 31 March 2023
Note Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Cash flows from operating activities before finance costs for the year
(Loss)/income* (12,056) 18,812
Adjustments for:
Realised gains on investments 8 (5,571) (5,440)
Unrealised losses/(gains) on investments 8 20,495 (11,625)
Foreign exchange (327) (80)
Decrease/(increase) in trade and other receivables 10 73 (24)
Increase/(decrease) in trade and other payables 12 44 (20)
Purchase of non-current investments (78,568) (30,840)
Sale of non-current investments 90,368 33,187
Net cash inflow from operating activities 14,458 3,970
Cash flows from financing activities
Interest paid (1) -
Dividends paid 6 (3,840) (3,840)
Net cash outflow from financing activities (3,841) (3,840)
Increase in cash and cash equivalents 10,617 130
Cash and cash equivalents at start of period 3,043 2,833
Effect of foreign exchange rate changes 327 80
Cash and cash equivalents at end of year 11 13,987 3,043
*Includes dividends received of £6,810,000 (2022: £5,918,000) and interest
received of nil (2022: nil)
The accompanying notes are an integral part of this Statement.
Notes to the Financial Statements
1 Accounting policies
Hansa Investment Company Limited is a company limited by shares,
registered and domiciled in Bermuda with its registered office shown further
on in the report. The principal activity of the Company is as an investment
vehicle.
(a) Basis of preparation
The Financial Statements of the Company have been prepared in
accordance with International Financial Reporting Standards. IFRS means
standards and interpretations issued (or adopted) by the International
Accounting Standards Board (they comprise: International Financial Reporting
Standards, International Accounting Standards ("IAS") and Interpretations
developed by the IFRS Interpretations Committee or the former Standing
Interpretations Committee ("SIC")).
These Financial Statements are presented in sterling because that
is the currency of the primary economic environment in which the Company
operates.
The Financial Statements have been prepared on an historical cost
and going concern basis in line with the assertion of the Board. The Financial
Statements have also been prepared in accordance with the AIC Statement of
Recommended Practice ("SORP") for investment trusts, issued by the AIC in July
2022, to the extent that the SORP does not conflict with IFRS. The principal
accounting policies adopted are set out below.
(b) 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.
(c) 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 which is considered to
be fair value at the Balance Sheet date. In some cases, this will be by
reference to the most recent valuation statement supplied by the fund's
manager. In other cases, values may be available through the fund being listed
on an exchange or via pricing sources such as Bloomberg.
Private equity investments are stated at fair value through profit
or loss as determined by using various valuation techniques, in accordance
with the International Private Equity and Venture Capital Valuation
Guidelines. In the absence of a valuation at the balance sheet date,
additional procedures to determine the reasonableness of the fair value
estimate for inclusion in the financial statements may be used. These could
include direct enquiries of the manager of the investment to understand,
amongst others, the valuation process and techniques used, external experts
used in the valuation process and updated details of underlying portfolio. In
addition, the Company can obtain external independent valuation data and
compare this to historic valuation movements of the asset. Further, recent
arms-length market transactions between knowledgeable and willing parties
where available might also be considered.
Unrealised gains and losses, arising from changes in fair value,
are included in net profit or loss for the period as a capital item in the
Income Statement and are ultimately recognised in the Capital Reserves.
(d) 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.
(e) Investment Income and return of capital
Dividends receivable on equity shares are recognised on the
ex-dividend date. Where no ex-dividend date is quoted, dividends are
recognised when the Company's right to receive payment is established.
Dividends and Real Estate Investment Trusts' ("REIT") income are all stated
net of withholding tax. In many cases, Bermudan companies cannot recover
foreign incurred taxes withheld on dividends and capital transactions. As a
result, any such taxes incurred will be charged as an expense and included
here.
When an investee company returns capital to the Company, the amount
received is treated as a reduction in the book cost of that investment and is
classified as sale proceeds.
(f) Expenses
All expenses are accounted for on an accruals basis. Expenses are
charged through the revenue column of the Income Statement except expenses
which are incidental to the acquisition or disposal of an investment are
charged to the capital column of the Income
Statement.
(g) Taxation
Under current Bermuda law, the Company is not required to pay taxes
in Bermuda on either income or capital gains. The Company has received an
undertaking from the Bermuda government exempting it from all local income,
withholding and capital gains taxes being imposed and will be exempted from
such taxes until 31 March 2035.
(h) Foreign Currencies
Transactions denominated in foreign currencies are recorded in the
local currency, at the actual exchange rates as at the date of the
transaction. Assets and liabilities denominated in foreign currencies at the
balance sheet date are reported at the rate of exchange prevailing at the
balance sheet date. Any gain or loss arising from a change in exchange rates,
subsequent to the date of the transaction, is included as an exchange gain or
loss in the capital or revenue column of the Income Statement, depending on
whether the gain or loss is of a capital or revenue nature respectively.
(i) Retained Earnings
Contributed surplus
The following are credited or charged to this reserve via the
capital column of the Income Statement:
gains and losses on the disposal of investments;
exchange differences of a capital nature;
expenses charged to the capital column of the Income Statement in accordance
with the above accounting policies; and
increases and decreases in the valuation of investments held at the balance
sheet date.
Revenue Reserves
The following are credited or charged to this reserve via the
revenue column of the Income Statement:
net revenue recognised in the revenue column of the Income Statement.
Under Bermudan Company Law, Retained earnings and Contributed
Surplus Reserve are both distributable.
(j) Significant Judgements and Estimates
The key significant estimate to report, concerns the Company's
valuation of its holding in DV4 Ltd. DV4 is valued using the most recent
estimated NAV as advised to the Company by DV4, adjusted for any further
drawdowns, distributions or redemptions between the valuation date and 31
March 2023. The most recent valuation statement was received on 21 March 2023
stating the value of the Company's holding as at 31 December 2022. In the
absence of a valuation for 31 March 2023 from DV4, the Company performed
additional procedures to determine the reasonableness of the fair value
estimate for inclusion in the Financial Statements. Direct enquiries of the
manager of DV4 were made to understand, amongst others, valuation process and
techniques used, external experts used in the valuation process and updated
details of underlying property portfolio. It has been confirmed with DV4's
manager that the valuation procedures discussed in the prior year are still
the same used now. In addition, the Company has compared the historic
valuation movements of DV4 to the FTSE350 Real Estate Index. Based on the
information obtained and additional analysis performed the Company is
satisfied that DV4 is carried in these Financial Statements at an amount that
represents its best estimate of fair value at 31 March 2023. It is believed
the value of DV4 as at 31 March 2023 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.
(k) Adoption of new and revised standards
At the date of authorisation of these Financial Statements the
following standards and amendments to standards, which have not been applied
in these Financial Statements, were in issue, but not yet effective:
Amendments to IAS1 'Classification of liabilities as current or non-current'
(effective for accounting periods beginning on or after 1 January
2023).
IFRS 17, 'Insurance contracts' (effective for accounting periods beginning on
or after 1 January 2023).
Amendments to IAS 8 'Definition of Accounting Estimates' (effective for
accounting periods on or after 1 January 2023)
Amendments to IAS 1 and IFRS Practice Statement 2 'Disclosure of Accounting
Policies' (effective for accounting periods on or after 1 January 2023).
Amendments to IAS 12 'Deferred Tax related to Assets and Liabilities arising
from a Single Transaction' (effective for accounting periods on or after 1
January 2023).
The Company does not believe that there will be a material impact
on the financial statements or the amounts reported from the adoption of these
standards.
In the current financial period the Company has applied to the
following amendments to standards:
Minor amendments to IAS 16, 37 and 41 and IFRS 4, 7, 9, and 16 (effective for
annual periods beginning on or after 1st January 2022).
There is no material impact on the Financial Statements or the
amounts reported from the adoption of these amendments to the standards.
(l) Operating Segments
The Company considers it has one operating segment for the purposes
of IFRS8.
2 Investment income
Revenue Revenue
Year ended
Year ended
31 March 31 March
Revenue Revenue
2023
2022
£000
£000
Income from quoted investments
Dividends 6,892 5,904
Total income 6,892 5,904
3 Portfolio management fee
Revenue Revenue
Year ended
Year ended
31 March 31 March
2023 2022
£000 £000
Portfolio management fee 2,824 3,010
Total management fee 2,824 3,010
4 Other expenses
Revenue Revenue
Year ended
Year ended
31 March 31 March
2023 2022
£000 £000
Administration fees 150 155
Directors' remuneration 262 188
Auditor's remuneration for:
- audit of the Company's Annual Accounts 68 76
Printing fees 36 30
Directors' liability insurance 67 69
Marketing 140 127
Registrar's fees 93 82
Banking charges 38 15
Secretarial services 153 167
Travel expenses 217 80
Broker fees 25 26
Stock Exchange listing fees 50 46
Safe custody fees 180 185
Management fee rebate from GAM (28) (138)
Other 76 119
Total other expenses 1,527 1,227
5 Finance costs
Revenue Revenue
Year ended
Year ended
31 March 31 March
2023 2022
£000 £000
Interest payable 1 -
Total finance costs 1 -
6 Dividends paid
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Amounts recognised as distributed to shareholders in the year are as follows:
Fourth interim dividend for 2022 (paid 27 May 2022): 0.8p (2021: 0.8p) 960 960
First interim dividend for 2023 (paid 26 August 2022): 0.8p (2022: 0.8p) 960 960
Second Interim dividend for 2023 (paid 25 November 2022): 0.8p (2022: 0.8p) 960 960
Third Interim dividend for 2023 (paid 24 February 2023): 0.8p (2022:0.8p) 960 960
Total dividends paid 3,840 3,840
Set out below are the total dividends paid and proposed in respect of the
current financial year. Where there has been no revenue available for
distribution by way of dividend for the year, dividends have been paid from
capital reserves, specifically contributed surplus which is permitted by
Bermudan company law.
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
First interim dividend for 2023 (paid 26 August 2022): 0.8p (2022: 0.8p) 960 960
Second Interim dividend for 2023 (paid 25 November 2022): 0.8p (2022: 0.8p) 960 960
Third Interim dividend for 2023 (paid 24 February 2023): 0.8p (2022:0.8p) 960 960
Fourth interim dividend for 2023 (payable 26 May 2023):0.8p 2022 (0.8p) 960 960
Total dividends paid & proposed 3,840 3,840
The Board has announced four interim dividends, each of 0.8p per Ordinary and
'A' non-voting Ordinary share, relating to the year ended 31 March 2023. No
final dividend is proposed for the year ended 31 March
2023.
.
7 Return on ordinary shares (equity)
Revenue Capital Total Revenue Capital Total
year ended year ended year ended year ended year ended year ended
31 March 31 March 31 March 31 March 31 March 31 March
2023 2023 2023 2022 2022 2022
Returns per share 2.1p (12.2)p (10.1)p 1.4p 14.3p 15.7p
Returns
Revenue return per share is based on the revenue attributable to equity
shareholders of £2,540,000 (2022: £1,667,000).
Capital return per share is based on the capital loss attributable to equity
shareholders of £14,597,000 (2022: profit of £17,145,000).
Total return per share is based on a combination of revenue and capital
returns attributable to equity shareholders, amounting to net loss of
£12,057,000 (2022: profit of 18,812,000).
Both revenue and capital return are based on 40,000,000 Ordinary shares and
80,000,000 'A' non-voting Ordinary shares, in issue throughout the year.
8 Investments held at fair value through profit or loss
Listed Unquoted 2023 2022
£000 £000 Total Total
£000 £000
Cost at 1 April 250,660 74,267 324,927 321,834
Investment holding gains at 1 April 39,611 15,448 55,059 43,434
Valuation as at 1 April 290,271 89,715 379,986 365,268
Movements in the year:
Purchases at cost 72,138 6,430 78,568 30,840
Sales - proceeds (84,501) (5,867) (90,368) (33,187)
Movement in investment holding (losses)/gains (13,948) (976) (14,924) 17,065
Valuation as at 31 March 263,960 89,302 353,262 379,986
Cost as at 31 March 242,560 76,138 318,698 324,927
Investment holding gains 21,400 13,164 34,564 55,059
Valuation as at 31 March 263,960 89,302 353,262 379,986
2023 2022
£000 £000
Gains on sales 5,571 5,440
Movement in investment holding (losses)/gains (20,495) 11,625
(Losses)/gains on investments held at fair value through profit or loss (14,924) 17,065
Transaction costs
During the year expenses were incurred in acquiring and disposing of
investments classified as fair value through profit or loss.
These have been expensed through capital and are included within gains on
investments in the Income Statement. The total costs were as follows:
2023 2022
£000 £000
Purchases 38 14
Sales 18 23
56 37
9 Significant holdings
The Company's holdings of 10% or more of any class of shares in investment
companies and 20% or more of any class of shares in non-investment companies
as at 31 March 2023 are detailed below:
Exc. Minority Interest
Country of incorporation or Class of Capital % Latest Total Profit after tax for the period
registration
of class
available accounts
capital and reserves
held
Ocean Wilsons Holdings Limited Bermuda Ordinary 26.5 31.12.2022 $554,608,000 ($18,675,000)
Ocean Wilsons Holdings Limited is included as part of the investment portfolio
in accordance with IAS 28 - Investment in Associates.
10 Trade and other receivables
The Company applies the IFRS 9 simplified approach to measuring expected
credit losses, which uses a lifetime expected loss allowance for all trade
receivables and contract assets.
2023 2022
£000 £000
Prepayments and accrued income 128 201
128 201
11 Cash and cash equivalents
2023 2022
£000 £000
Cash at bank 13,987 3,043
13,987 3,043
12 Trade and other payables
2023 2022
£000 £000
Other creditors and accruals 412 368
412 368
13 Called up share capital
2023 2022
£000 £000
40,000,000 Ordinary shares of 1p 400 400
80,000,000 'A' non-voting Ordinary shares of 1p 800 800
1,200 1,200
The 'A' non-voting Ordinary shares do not entitle the holders to receive
notices or to vote, either in person or by proxy, at any general meeting of
the Company, but in all other respects rank pari passu with the Ordinary
shares of the
Company.
14 Contributed surplus
2023 2022
£000 £000
Opening balance at 1 April 324,759 326,019
Dividend paid (960) (1,260)
Closing balance at 31 March 323,799 324,759
15 Retained earnings
Revenue Capital - other Capital - investment holding Reserves Revenue Capital - other Capital - investment holding Reserves
2023 2023 profit 2022 2022 profit
£000 £000 2023 £000 £000 2022
£000 Total £000 Total
retained earnings retained earnings
2023 2022
£000 £000
Opening balance at 1 April (2,024) 3,868 55,059 56,903 (1,111) (1,652) 43,434 40,671
Profit/(loss) for the year 2,540 5,898 (20,495) (12,057) 1,667 5,520 11,625 18,812
Dividend paid (2,880) - - (2,880) (2,580) - - (2,580)
Closing balance at 31 March (2,364) 9,766 34,564 41,966 (2,024) 3,868 55,059 56,903
16 Net asset value
2023 2022
£000 £000
NAV per Ordinary and 'A' non-voting Ordinary share 305.8p 319.1p
The NAV per Ordinary and 'A' non-voting Ordinary share is based on the net
assets attributable to equity shareholders of £366,965,000 (2022:
£382,862,000) and on 40,000,000 Ordinary shares (2022: 40,000,000) and
80,000,000 'A' non-voting Ordinary shares (2022: 80,000,000) in issue at 31
March 2023.
17 Commitments and contingencies
The Company has made two commitments during the year to Private Equity
vehicles totalling $2.4m as at the year end (2022: £nil). As at the year end,
no amount has been drawn against either of those commitments.
18 Financial instruments and associated risks
The Company's financial instruments comprise securities, cash balances,
debtors and creditors. These assets are classified in the following
measurement categories:
those to be measured subsequently at fair value through profit or loss; and
those to be measured at amortised cost.
The financial assets held at amortised cost include trade and other
receivables, cash and cash equivalents.
Risk Objectives and Policies
The objective of the Company is to achieve growth of shareholder value
commensurate with the risks taken, bearing in mind that the protection of
long-term shareholder value is paramount. The policy of the Board is to
provide a framework within which the Portfolio Manager can operate and deliver
the objectives of the Company. In pursuing its investment objective, the
Company is exposed to a variety of risks that could result in either a
reduction in the Company's net assets and/or a reduction of the profits
available for dividends.
These risks include those identified by the accounting standard IFRS 7, being
market risk (comprising currency risk, interest rate risk and other price
risk), liquidity risk and credit risk. The Directors' approach to the
management of these is set out below. The Board, in conjunction with the
Portfolio Manager and Company Secretary, oversees the Company's risk
management.
Foreign currency risk
Foreign currency risks arise in two distinct areas which affect the valuation
of the investment portfolio. 1) the direct exposure where an investment is
denominated and paid for in a currency other than Sterling; and 2) the
indirect exposure where an investment has substantial non-Sterling underlying
investment and/or cash flows. The Company does not normally hedge against
foreign currency movements affecting the value of the investment portfolio,
but takes account of this risk when making investment decisions. Some of the
fund investments into which the Company invests will, in part or in whole,
hedge some of their underlying currency risk, but this will be known at the
time of investment and will form part of the investment decision. In those
cases, the hedging will not remove the exposure to the underlying country or
market sector. The Portfolio Manager monitors the effect of foreign currency
fluctuations through the pricing of the investments by the various markets.
Direct No direct Total Direct No direct Total
foreign foreign 2023 foreign foreign 2022
currency risk currency risk £000 currency risk currency risk £000
2023 2023 2022 2022
£000 £000 £000 £000
Investments 115,139 238,123 353,262 115,858 264,128 379,986
Other receivables including prepayments 72 56 128 29 172 201
Cash at bank - 13,987 13,987 24 3,019 3,043
Current liabilities - (412) (412) - (368) (368)
115,211 251,754 366,965 115,911 266,951 382,862
Note: Direct foreign currency risk includes direct exposure to USD and Euro
currencies.
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit/loss for the
year and the shareholders' funds in regard to the Company's financial assets
and financial liabilities. It assumes a 10% depreciation of Sterling against
foreign currencies at 31 March 2023 and 31 March 2022. These percentages have
been determined based on the average market volatility in exchange rates in
the previous 12 months. The sensitivity analysis is based on the Company's
monetary foreign currency financial instruments held at each balance sheet
date.
If sterling had weakened by 10% against the currencies shown, this would have US$ Euro Other US$ Euro Other
had the following effect on the Company:
2023 2023 2023 2022 2022 2022
£000 £000 £000 £000 £000 £000
Income statement - profit/(loss) 918 (328) (204) 785 (331) (191)
Equity shareholders funds 9,228 692 1,601 8,536 1,453 1,600
10,146 364 1,397 9,321 1,122 1,409
Note: Other includes exposure to foreign currencies excluding US dollar and
Euro.
A 10% strengthening of Sterling against the above currencies would result in
an equal and opposite effect on the above amounts.
Interest rate risk
Interest rate movements may affect the level of income receivable on cash
deposits and the interest payable on the Company's variable rate borrowings.
The Company has banking facilities amounting to £30m (2022: £30m) which are
available for the Portfolio Manager to use in purchasing investments; the
costs of which are based on the prevailing interest rate, plus an agreed
margin. The Company does not normally hedge against interest rate movements
affecting the value of the investment portfolio, but takes account of this
risk when an investment is made utilising the facility. The level of banking
facilities used is monitored by both the Board and the Portfolio Manager on a
regular basis. The impact on the returns and net assets of the Company for
every 1% change in interest rates, based on the amount drawn down at the
Year-End under the facility, would be £nil (2022: £nil). The level of
banking facilities utilised at 31 March 2023 was £1,000 (2022: £nil).
Interest rate changes usually impact equity prices. The level and direction of
change in equity prices is subject to prevailing local and world economic
conditions as well as market sentiment, all of which are very difficult to
predict with any certainty. The Company has floating rate financial assets,
consisting of bank balances and cash funds that have received average rates of
interest during the year of 0% on bank balances.
Cash flow No Total Cash flow No Total
interest interest 2023 interest interest 2022
rate risk rate risk £000 rate risk rate risk £000
2023 2023 2022 2022
£000 £000 £000 £000
Investments - 353,262 353,262 - 379,986 379,986
Other receivables including prepayments - 128 128 - 201 201
Cash at bank 13,987 - 13,987 3,043 - 3,043
Current liabilities - (412) (412) - (368) (368)
13,987 352,978 366,965 3,043 379,819 382,862
Other price risk
By the nature of its activities, the Company's investments are exposed to
market price fluctuations. NAV is calculated and reported daily to the London
Stock Exchange. The Portfolio Manager and the Board monitor the portfolio
valuation on a regular basis and consideration is given to hedging the
portfolio against large market movements.
The Company's investment in Ocean Wilsons is large both in absolute terms,
£83.7m as valued at 31 March 2023 (2022: £93.5m) and as a proportion of the
NAV, 22.8% (2022: 24.4%). Shareholders should be aware that if anything of a
severe and untoward nature were to happen to this company, it could result in
a significant impact on the NAV and share price. However, it should also be
noted that the exposure of Hansa Investment Company to the currency, country
and market- based risk exposure of Ocean Wilsons is, to an extent, mitigated
by the diverse nature of the two investments within Ocean Wilsons. Wilson
Sons, corresponding to 61.6% of Ocean Wilsons' NAV, has a direct exposure to
the Brazilian economy, whereas Ocean Wilsons Investments has a diverse
Investment portfolio and corresponds to the other 38.4%. It is an investment
the Board pays close attention to and it should be pointed out that the risks
associated with it are very different from those of the other companies
represented in the portfolio. The Board itself regularly undertakes a thorough
review of its business and prospects and has determined that its future holds
a lot of promise. As a consequence the Board believes the risk involved in the
investment is worthwhile.
The performance of the portfolio as a whole is not designed to correlate with
that of any market index. Should the portfolio of the Company, as detailed in
the statement earlier on in the report, rise or fall in value by 10% from the
year end valuation, the effect on the Company's profit and equity would be an
equal rise or fall of £35.3m (2022: £38.0m).
Credit risk
The Company only transacts with regulated institutions on normal market terms,
which are trade date plus one to three days in the case of equities. Fund
investment settlement periods will vary from fund to fund and are defined by
the individual managers. The levels of amounts outstanding from brokers and
fund managers are regularly reviewed by the Portfolio Manager. The duration of
credit risk associated with the investment transactions is the period between
the date the transaction took place, the trade date, the date the stock and
cash were transferred and the settlement date. The level of risk during the
period is the difference between the value of the original transaction and its
replacement with a new transaction. The amounts due to/(from) brokers at 31
March 2023 are shown in Note 10 and Note 12.
The Company's maximum exposure to credit risk on cash is £14.0m (2022:
£3.0m) and on cash funds is £nil (2022: £nil). Surplus cash is on deposit
with the Depositary/Custodian.
Liquidity risk
The liquidity risk to the Company is that it is unable to meet its obligations
as they fall due, as a result of a lack of available cash and an inability to
dispose of investments in a timely manner. A substantial proportion of the
Company's portfolio is held in liquid quoted investments; however, there is a
large, Strategic, holding in Ocean Wilsons of 22.8% (2022: 24.4%), unquoted
equity investments of 2.6% (2022: 2.3%) and investments into open-ended
investment funds with varying liquidity terms of 58.6% (2022: 61.7%).
The Portfolio Manager takes into consideration the liquidity of each
investment when purchasing and selling, in order to maximise the returns to
shareholders, by placing suitable transaction levels into the market. Special
consideration is given to investments representing more than 5% of the
investee company. A detailed list of the investments, split by silo, held at
31 March 2023 is shown in the Portfolio Statement earlier on in the report.
This can be used broadly to ascertain the levels of liquidity within the
portfolio, although liquidity will vary with each investment - particularly
the funds.
Capital management
The Company considers its capital to be its issued share capital and reserves
and whilst the Company has access to loan facilities it is not considered or
used as core capital, but primarily to meet the cash timing requirements of
opportunistic investment strategies and thereby enhance shareholder returns.
The Board regularly monitors its share discount policy and the level of
discounts and whilst it has the option to repurchase shares, it considers the
best means of attaining a good rating for the shares is to concentrate on good
shareholder returns.
However, the Board believes the ability of the Company to repurchase its own
'A' non-voting Ordinary shares in the market may potentially enable it to
benefit all equity shareholders of the Company. The repurchase of 'A'
non-voting Ordinary shares, at a discount to the underlying NAV, would enhance
the NAV per share of the remaining equity shares and might also enable the
Company to address more effectively any imbalance between supply and demand
for the Company's 'A' non-voting Ordinary shares.
19 Fair value hierarchy and financial liabilities
IFRS 13 'Fair Value Measurement' requires an entity to classify fair value
measurements, using a fair value hierarchy that reflects the significance of
the inputs used in making the measurements. The fair value hierarchy has the
following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability not based on observable market data
(unobservable inputs).
The financial assets and liabilities, measured at fair value, in the Statement
of Financial Position, grouped into the fair value hierarchy and valued in
accordance with the accounting policies in Note 1, are detailed below:
31 March 2023 Level 1 Level 2 Level 3 Total
£000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 136,942 - - 136,942
Unquoted equities - - 9,132 9,132
Fund investments 37,826 169,362 - 207,188
Fair Value 174,768 169,362 9,132 353,262
31 March 2022 Level 1 Level 2 Level 3 Total
£000 £000 £000 £000
Financial assets at fair value through profit or loss
Quoted equities 136,771 - - 136,771
Unquoted equities - - 8,917 8,917
Fund investments 27,328 206,970 - 234,298
Fair Value 164,099 206,970 8,917 379,986
The Company's policy is to recognise transfers into and out of the different
fair value hierarchy levels at the date of the event or change in
circumstances that caused the transfer to occur.
A reconciliation of fair value measurements in Level 3 is set out in the
following table:
31 March 31 March
2023 2022
equity equity
investments investments
£000 £000
Opening Balance 8,917 11,234
Dissolution of Hansa Trust - (3,179)
Sales (Capital Distribution) - (648)
Total gains or losses included in gains on investments in the Income
Statement:
on assets held at year end 215 1,510
Closing Balance 9,132 8,917
Note: Hansa Trust Limited was dissolved on 9 November 2021. As a result, the
remaining equity investment was cancelled at this time as well as the
Intercompany loan balance with the subsidiary of the same value. More
information can be found in the prior year accounts.
As at 31 March 2023, the investment in DV4 has been classified as Level 3.
This is because the investment has been valued using the most recent estimated
NAV as advised to the Company by DV4, adjusted for any further drawdowns,
distributions or redemptions between the valuation date and 31 March 2023. The
most recent valuation statement was received on 21 March 2023 and relates to
the DV4 portfolio at 31 December 2022. Additionally, the underlying assets of
DV4 are all Real Estate in nature and, as such, there is not a readily
comparable market of identical assets for valuation purposes. In the absence
of a valuation for 31 March 2023 from DV4, the Company performed additional
procedures to determine the reasonableness of the fair value estimate for
inclusion in the Financial Statements. Direct enquiries of the manager of DV4
were made to understand, amongst others, valuation process and techniques
used, external experts used in the valuation process and updated details of
underlying property portfolio. In addition, the Company has obtained external
independent valuation data and compared the historic valuation movements of
DV4 to that data. It has been confirmed with DV4's manager that the valuation
procedures discussed in the prior year are still the same used now. In
addition, the Company has compared the historic valuation movements of DV4 to
the FTSE350 Real Estate Index. Based on the information obtained and
additional analysis performed the Company is satisfied that DV4 is carried in
these Financial Statements at an amount that represents its best estimate of
fair value at 31 March 2023. It is believed the value of DV4 as at 31 March
2023 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. If the value of the investment was to increase
or decrease by 10%, while all other variables remained constant, the return
and net assets attributable to shareholders for the year ended 31 March 2023
would have increased or decreased by £913,000 (2022: £892,000). The Board
considers 10% to be a potential movement between valuation periods borne out
by historic valuation trends. However, this does not preclude the valuation
moving a greater amount than 10% in the future. In the prior year, the
subsidiary was valued taking into account the latest assets and liabilities
remaining In Hansa Trust.
20 Related parties and transactions with the portfolio manager
William Salomon is a Director of the Company and Senior Partner of the
Company's Portfolio Manager. Details of the relationship between the Company
and Hansa Capital Partners LLP, including amounts paid during the year and
owing at 31 March 2023, are disclosed in the Governance Section - Service
Providers, and in Note 3 of the Financial Statements. Details of the
relationship between the Company and the Directors, including amounts paid
during the period to 31 March 2023, are disclosed in the Governance Section -
The Board, and also in the Directors' Remuneration Report.
21 Controlling parties
At 31 March 2023 Victualia Limited Partnership and Nomolas Ltd each held 25.9%
of the issued Ordinary shares. Additional information is disclosed in the
Strategic Review - Substantial Shareholders.
22 Post balance sheet events
There are no significant events that have occurred after the end of the
reporting year to the date of this report which require disclosure.
Additional
Information
Notice of the Annual General Meeting
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the Members of the
Company will be held at Clarendon House, 2 Church Street, Hamilton, HM 11,
Bermuda on Thursday 27 July 2023 at 9:00 a.m. (Bermuda time) for the following
purposes:
Agenda
1. To appoint a chairperson of the meeting.
2. To confirm notice.
Resolutions
3. To receive and consider the audited Financial Statements and the
Reports of the Directors and Auditor for the year ended 31 March 2023.
4. To re-elect Jonathan Davie (a biography and Board endorsement can be
found earlier on in the report) as a Director of the Company.
5. To re-elect Richard Lightowler (a biography and Board endorsement can
be found earlier on in the report) as a Director of the Company.
6. To re-elect Nadya Wells (a biography and Board endorsement can be found
earlier on in the report) as a Director of the Company.
7. To re-elect William Salomon (a biography and Board endorsement can be
found earlier on in the report) as a Director of the Company.
8. To re-elect Simona Heidempergher (a biography and Board endorsement can
be found earlier on in the report) as a Director of the Company.
9. To approve the Directors' Remuneration Report.
10. To approve the Directors' Remuneration Policy and authorise the Board to
determine the remuneration of the Directors.
11. To approve the Company's Dividend Policy as can be found earlier on in the
Annual Report.
12. To appoint PricewaterhouseCoopers Ltd as Auditor of the Company and to
authorise the Directors to determine the remuneration of the Auditor.
13. Approval to repurchase up to 14.99% of the 'A' non‑voting Ordinary
shares of 1p each in the issued shares capital of the Company (the "Shares").
THAT the Company be and hereby is unconditionally authorised to make market
purchases up to an aggregate of 11,992,000 shares at a price (exclusive of
expenses) which is:
not less than 1p per share; and
not more than the higher of: i) 5% above the average of the
middle-market quotations (as derived from and calculated by reference to the
Daily Official List of the London Stock Exchange) for 'A' non-voting Ordinary
shares of 1p each in the five business days immediately preceding the day on
which the share is purchased; and ii) the higher of the last independent trade
and the then current highest independent bid.
AND
THAT the approval conferred by this resolution shall expire on the date of the
next AGM (except in relation to the purchase of shares, the contract for which
was concluded before such date and which might be executed wholly or partly
after such date) unless the authority is renewed or revoked at any other
general meeting prior to such time.
14. Special Resolution
Approval to adopt new Bye-Laws (the 'New Bye-Laws') in order to
update the Company's current Bye-Laws (the 'Existing Bye-Laws').
Summary of proposed amendments to the bye-laws
Set out below is a summary of the principal amendments which will be made to
the Company's Existing Bye-Laws through the adoption of the New Bye-Laws
proposed at the AGM if approved by shareholders.
This summary is intended only to highlight the principal amendments which are
likely to be of interest to shareholders. It is not intended to be
comprehensive and cannot be relied upon to identify amendments or issues which
may be of interest to all shareholders. This summary is not a substitute for
reviewing the full terms of the New Bye-Laws which will be available for
inspection at the Company's registered office, [also being the venue of the
AGM] and also at the registered office of Hansa Capital Partners LLP being 50
Curzon Street, London, England, W1J 7UW, in each case from the date of the AGM
Notice until the close of the AGM. The new Bye-Laws will also be available for
inspection at the venue of the AGM from 15 minutes before and during the AGM
and on the Company website
https://www.hansaicl.com/shareholder-information/regulatory-information.aspx
1.1 - Interpretation
A definition of "Common Reporting Standard" has been included. This is used in
Bye-Law 83 (Obligation to provide information to the Company).
A definition of "FATCA" has been included. This is used in Bye-Law 83
(Obligation to provide information to the Company).
A definition of "Hansa Trust" has been included. This is used in Bye-Law 15.4
(Untraced Shareholders).
A definition of "US Tax Code" has been included. This is used in Bye-Law
83.1.3 (Obligation to provide information to the Company).
15.1 (a) - Untraced Shareholders
Bye-law 15 sets out the current provisions in relation to Untraceable
Shareholders and adopts the historic provisions of the articles of association
of Hansa Trust plc which were incorporated into the Company's Bye-laws. Under
Bye-law 15, the Company is entitled to sell shares held by any shareholders
that remain untraceable for a period of 12 years. Shareholders are held to be
untraceable if they have failed to claim any dividends within the 12-year
period. In line with what other companies are doing, we are seeking to reduce
the current 12-year period to six years to help the Company tidy up the
shareholder register in connection with its reporting obligations under FATCA,
the Common Reporting Standard or any relevant law or regulation and also more
generally to remove longstanding untraced shareholders, having followed due
process.
The language has been updated to include a reference to distributions in
respect of the shares that have become payable.
Language has been included to note that the Company will be entitled to sell
shares held by Untraceable shareholders if the shareholder has been
uncontactable for a period of two calendar years within the six-year period
(being the last two calendar years of the six year period).
15.1 (b) - Untraced Shareholders
The language that referred to the Company's method of circulating an
advertisement in national newspapers in order to notify Untraced Shareholders
that their shares are to be sold has been amended to reflect the Company's
more direct approach to notification including sending a notice to a
shareholder's last known address and showing that reasonable efforts have been
made to trace a shareholder,
such as engaging a professional asset reunification company.
These changes reflect current practice of third party registrar service
providers.
Language has been included to note that where the Company has no record of the
address of a shareholder, the Company is not required to send a notice but
must demonstrate that reasonable efforts have been used to trace the
shareholder including, if necessary, appointing a professional asset
reunification company.
15.1 (c) - Untraced Shareholders
The language has been updated to reflect the changes to Bye-Law 15.1(a)
relating to the six-year period for Untraced Shareholders and the notice
requirements relating to Untraced Shareholders noted in Bye-Law 15.1(b).
15.2 - Untraced Shareholders
The language has been updated to reflect the six-year period for Untraced
Period noted in Bye-Law 15.1(a).
15.3 - Untraced Shareholders
Language has been included to note that the net proceeds of sale of shares of
untraced shareholder shall be forfeited and will belong to the Company.
Language relating to the obligation of the Company to account to the Untraced
Shareholders for an amount equal to such proceeds has been removed to
correspond with the addition noted above.
These changes are to enable the Company to comply with its reporting
obligations under FATCA, the Common Reporting Standard or any relevant law or
regulation.
15.4 - Untraced Shareholders
Given the long term nature of some of the untraced shareholders in comparison
to the relatively recent re- domiciliation of the investment company to
Bermuda in 2019, this Bye-Law has been included to provide the Board with
discretion to include, in the calculation of the six-year period for Untraced
Shareholders, the time the Untraced Shareholder held shares in Hansa Trust,
being the long standing predecessor to the Company.
19.3 - Method of Payment
This Bye-Law has been updated to clarify that the period for which dividends
of unclaimed shares are to be forfeited from the date when payment became due
is six-years rather than 12-years to correspond with Bye-Law 15.1.(a).
44.1 - Directors Fees
This Bye-Law has been updated to increase the current upper annual limit of
Directors' remuneration from $400,000 to $600,000 as explained in the
Directors' Remuneration Report.
81.2 - Definition applicable to Bye-Laws 82, 83 and 84
This Bye-Law has been updated to include definitions of "Information" in terms
of Bye-Law 83.1, "Relevant Laws" in terms of Bye-Law 83.1.1.
83.1 - Obligations to provide information to the Company
A new Bye-Law 83.1 has been included to provide that the Company may serve a
written notice on any holder to request that any information, representations,
certificates, waivers, documents or forms relating to the holder is provided
to the Company. This has been included to provide the Company with the ability
to satisfy the requirements under FATCA, the Common Reporting Standard or any
relevant laws or regulations of any jurisdiction or territory to which the
Company is subject.
The inclusion of this Bye-Law will provide the Company with the ability to
require shareholders to co-operate in respect of the exchange of information
to comply with the Company's international tax reporting obligations.
83.2 - Obligations to provide information to the Company
A new Bye-Law 83.2 has been included to provide that the Company is entitled
to hold and process the information noted above, and to disclose any
information as required to the relevant government division or department and
to any person or entity in order to comply with the relevant laws or
regulations and for the purposes of carrying out the business of the Company.
83.3 - Obligations to provide information to the Company
A new Bye-Law 83.3 has been included to provide that where any holder of the
Company fails to provide the requested information within the period set out
in Bye-Law 83.1, being 30 days, then the Company will issue a further notice
with a specified period of 21 days, failing which if the Company receives no
response, they shall be entitled to sell or transfer the holder's shares.
83.4 - Obligations to provide information to the Company
A new Bye-Law 83.4 has been included to provide that, if the requirements in
Bye-Laws 83.3.1 or 83.3.2 noted above are not satisfied, then the holder will
have been deemed to have agreed to the sale and transfer of their shares.
83.5 - Obligations to provide information to the Company
A new Bye-Law 83.5 has been included to provide that the holder shall execute
any documents, opinions, instruments, and certificates as requested by the
Company in order for the Company to exercise their rights and entitlements
under Bye-Law 83.
83.6 - Obligations to provide information to the Company
A new Bye-Law 83.6 has been included to provide that the inclusion of new
Bye-Law 83 in the Company Articles will not restrict the Company from
withholding or deducting any taxes or other sums required to be withheld or
deducted by the Company in accordance with FATCA, the Common Reporting
Standard or any relevant law or regulation.
83.7 - Obligations to provide information to the Company
The inclusion of a new Bye-Law 83.7 provides that where any monies received by
the Company become subject to any tax deductions, the Company is not required
to compensate or make good the holders, and the holders will receive no credit
or refund in relation to the deduction.
83.8 - Obligations to provide information to the Company
In order for the Company to comply with reporting obligations under FATCA, the
Common Reporting Standard or any relevant law or regulation, a new Bye-Law
83.8 provides that if the holder undergoes any material change which effects
their status, the holder must immediately notify the Company so that the
relevant records can be updated.
For and on behalf of Conyers Corporate Services (Bermuda) Limited
Vida Kam
Secretary
26 June 2023
Notes for Shareholders
1 Pursuant to Regulation 41 of the Uncertificated Securities Regulations
2001 (as amended), only those members registered in the register of members of
the Company 48 hours before the Annual General Meeting (i.e. by close of
business UK time on 25 July 2023) (or if the Meeting is adjourned, in the
register of members of the Company 48 hours before the date and time of the
adjourned meeting) (the "Meeting") shall be entitled to attend or vote at the
Meeting in respect of the number of shares registered in their respective
names at that time. Changes to entries on the register of members after that
time will be disregarded in determining the rights of any person to attend or
vote at the Meeting.
2 Registered members of the Company may vote at the Meeting (whether by
show of hands or poll) in person or by proxy or corporate representative. A
member may appoint one or more persons as his proxy to attend and vote at the
Meeting on his behalf. A proxy need not be a member. Where more than one proxy
is appointed the instrument of proxy must specify the number of shares each
proxy is entitled to vote.
3 The appointment of a proxy will not affect the right of a member to
attend and vote in person at the Meeting or adjourned meeting. A member that
is a corporation may appoint a representative to attend and vote on its behalf
at the Meeting by delivering evidence of such appointment to the Company's
registrar no later than 48 hours before the time fixed for the Meeting (i.e.
by 1:00pm UK time on 25 July 2023) or any adjourned meeting.
4 In order to be valid, the proxy appointment (together with any power
of attorney or other authority (if any) under which it is signed, or a
notarised certified copy of that authority) must be returned by one of the
following methods, in each case so as to arrive no later than 1:00pm UK time
on 25 July 2023 or, in the case of an adjourned meeting, not less than 48
hours before the time appointed for holding such adjourned meeting (ignoring
for these purposes non-working days) or (in the case of a poll taken otherwise
than at or on the same day as the Meeting or adjourned meeting) for the taking
of the poll at which it is to be used: via www.signalshares.com by logging on
and selecting the 'Proxy Voting' link. If you have not previously registered
for electronic communications, you will first be asked to register as a new
user, for which you will require your investor code ("IVC"), (which can be
found on your share certificate), family name and postcode (if resident in the
UK); or
in hard copy form by post, by courier or by hand to the Company's
Registrars, Link Group, PXS 1, Central Square, 29 Wellington Street, Leeds,
LS1 4DL.
If you need help with voting online or need to request a proxy
form, please contact our Registrars, Link Group, on 0371 664 0300. Calls are
charged at the standard geographic rate and will vary by provider. Calls
outside the UK will be charged at the applicable international rate. They are
open between 09:00 - 17:30, Monday to Friday excluding public holidays in
England and Wales. Alternatively, you can email Link at
shareholderenquiries@linkgroup.co.uk.
Notes for Depositary Interest Holders
1 You will not receive a form of direction for the Annual General
Meeting in the post. Depositary Interests may be voted through the CREST Proxy
Voting Service in accordance with the procedures set out in the CREST manual.
In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with Euroclear UK
& Ireland Limited's specifications and must contain the information
required for such instruction, as described in the CREST Manual (available via
www.euroclear.com/CREST). The message, regardless of whether it constitutes
the appointment of a proxy or is an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to
be received by the issuer's agent ID RA10 by 1:00pm UK time on 24 July 2023.
For this purpose, the time of receipt will be taken to be the time (as
determined by the time stamp applied to the message by the CREST Application
Host) from which the issuer's agent is able to retrieve the message by enquiry
to CREST, in the manner prescribed by CREST. After this time any change of
instructions to proxies appointed through CREST should be communicated to the
appointee through other means. CREST members and, where applicable, their
CREST sponsors, or voting service providers should note that Euroclear UK
& Ireland Limited does not make available special procedures in CREST for
any particular message. Normal system timings and limitations will, therefore,
apply in relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the CREST member
is a CREST personal member, or sponsored member, or has appointed a voting
service provider, to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a
message is transmitted by means of the CREST system by any particular time. In
this connection, CREST members and, where applicable, their CREST sponsors or
voting system providers are referred, in particular, to those sections of the
CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
2 In the case of Depositary Interest Holders, a form of direction may be
requested and completed in order to instruct Link Market Services Trustees
Limited, the Depositary, to vote on the holder's behalf at the Meeting by
proxy or, if the Meeting is adjourned, at the adjourned meeting. Requests for
a hard copy should be sent Link Group, PXS 1, Central Square, 29 Wellington
Street, Leeds, LS1 4DL (telephone number: 0371 664 0300).
3 To be effective, a valid form of direction (and any power of attorney
or other authority under which it is signed) must be received electronically
or delivered to Link Group, PXS 1, Central Square, 29 Wellington Street,
Leeds, LS1 4DL by no later by 1:00pm UK time on 24 July 2023 or 72 hours
before any adjourned Meeting.
4 The Depositary will appoint the Chairman of the meeting as its proxy
to cast your votes. The Chairman may also vote or abstain from voting as he or
she thinks fit on any other business (including amendments to resolutions)
which may properly come before the meeting.
5 The 'Vote Withheld' option is provided to enable you to abstain from
voting on the resolutions. However, it should be noted that a 'Vote Withheld'
is not a vote in law and will not be counted in the calculation of the
proportion of the votes 'For' and 'Against' a resolution.
6 Depositary Interest holders wishing to attend the meeting should
contact the Depositary at Link Group, PXS 1, Central Square, 29 Wellington
Street, Leeds, LS1 4DL or by email by using nominee.enquiries@linkgroup.co.uk
by no later than by 1:00pm UK time on 24 July 2023.
All holders
1 The quorum for the Annual General Meeting shall be two or more
shareholders present in person or by proxy. If within two hours from the time
appointed for the meeting a quorum is not present, the meeting shall be
adjourned to the next business day at the same time and place or to such other
time and place as the Directors may determine, and if a quorum is not present
at any such adjourned meeting, the meeting shall be dissolved.
2 As of 26 June 2023 the Company's total number of shares in issue is
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.
3 A copy of this notice and other information can be found at
https://www.hansaicl.com/shareholder-information/financial-and-investment-reporting/year-2023.aspx#2023
Investor information
Company information
The Company currently manages its affairs so as to be a qualifying investment
company for ISA purposes, for both the Ordinary and 'A' non-voting Ordinary
shares. It is the present intention that the Company will conduct its affairs
so as to continue to qualify for ISA products. In addition, the Company
currently conducts its affairs so shares issued by Hansa Investment Company
Limited can be recommended by independent financial advisers to ordinary
retail investors, in accordance with the Financial Conduct Authority's ("FCA")
rules in relation to non-mainstream investment products and intends to
continue to do so for the foreseeable future. The shares are excluded from the
FCA's restrictions which apply to non-mainstream investment products, because
they are excluded securities as defined in the FCA Handbook Glossary. Finally,
Hansa Investment Company Limited is registered as a Reporting Financial
Institution with the US IRS for FATCA purposes.
Capital structure
The Company has 40,000,000 Ordinary shares of 1p each and 80,000,000 'A'
non-voting Ordinary shares of 1p each in issue. The Ordinary shareholders are
entitled to one vote per Ordinary share held. The 'A' non-voting Ordinary
shares do not entitle the holders to vote or receive notice of meetings, but
in all other respects they have the same rights as the Company's Ordinary
shares.
Secretary and registered office
Conyers Corporate Services (Bermuda) Limited
Clarendon House
2 Church Street PO Box HM666
Hamilton HM CX Bermuda
Investor disclosure
AIFMD
Hansa Investment Company Limited's AIFMD Investor Disclosure document can be
found on its website. The document is a regulatory requirement and summarises
key features of the Company for investors.
Packaged Retail and Insurance‑based Investment Products ("PRIIPs")
The Company's AIFM, Hanseatic Asset Management LBG, is responsible for
applying the product governance rules defined under the MiFID II legislation
on behalf of Hansa Investment Company Limited. Therefore, the AIFM is deemed
to be the 'Manufacturer' of Hansa Investment Company's two share classes.
Under MiFID II, the Manufacturer must make available Key Information Documents
("KIDs") for investors to review if they so wish ahead of any purchase of the
Company's shares.
Links to these documents can be found on the Company's website:
www.hansaicl.com.
Service providers
Independent Auditor
PricewaterhouseCoopers Ltd
Solicitors - Bermuda
Conyers Dill & Pearman Limited
Solicitors - UK
Dentons UK and Middle East LLP
Custodian
Banque Lombard Odier & Cie SA
Stockbroker
Winterflood Investment Trusts
Administrator
Maitland Administration Services Limited
Alternative Investment Fund Manager
Hanseatic Asset Management LBG
Financial calendar
Company year end
31 March
Annual Report sent to shareholders
June
Annual General Meeting
July/August
Announcement of half-year results
November
Half-year Report sent to shareholders
December
Interim dividend payments
August, November, February and May
Share price listings
The price of your shares can be found on our website. In addition, share price
information for Ordinary shares / 'A' non-voting Ordinary shares can be found
via the following codes:
ISIN
BMG428941162 / BMG428941089
SEDOL
BKLFC18 / BKLFC07
Reuters
HAN.L / HANA.L
Bloomberg
HAN LN / HANA LN
TIDM
HAN / HANA
Legal Entity Identifier
213800RS2PWJXS2QDF66
Further information about Hansa Investment Company Limited, including monthly
fact sheets, stock exchange announcements and shareholder presentations, can
be found on the Company's website: www.hansaicl.com
Please contact the Portfolio Manager, as below, if you have any queries
concerning the Company's investments or performance.
Portfolio Manager and additional administrative services provider
Hansa Capital Partners LLP
50 Curzon Street
London
W1J 7UW
Telephone: +44 (0) 207 647 5750
Email: hiclenquiry@hansacap.com
Website: www.hansagrp.com
Please contact the Registrars, as below, if you have a query about a
certificated holding in the Company's shares.
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St. Sampson
Guernsey
GY2 4LH
Email: enquiries@linkgroup.co.uk
Website: www.linkassetservices.com
If you do not have internet access you can call the Shareholder Support Centre
on +44 (0) 371 664 0300. Calls are charged at the standard geographic rate and
will vary by provider. Calls outside the UK will be charged at the applicable
international rate.
The Registrars are open between 09:00 - 17:30, Monday to Friday excluding
public holidays in England and Wales.
Register for updates
To receive the latest news and views on the Company, please register at
www.hansaicl.com
Glossary of terms
Association of Investment Companies ("AIC")
The Association of Investment Companies is the UK trade association for
closed-ended investment companies (www.theaic.co.uk). Despite the Company not
being UK domiciled, the Company is UK listed and operates in most ways in a
similar manner to a UK Investment Trust. Therefore, the Company follows the
AIC Code of Corporate Governance and the Board considers that the AIC's
guidance on issues facing the industry remains very relevant to the operations
of the Company.
Alternative Investment Fund Managers Directive
("AIFMD")
The AIFMD is a regulatory framework for alternative investment fund managers
("AIFMs"), including managers of hedge funds, private equity firms and
investment trusts. Its scope is broad and, with a few exceptions, covers the
management, administration and marketing of alternative investment funds
("AIFs"). Its focus is on regulating the AIFM rather than the AIFs.
Annual Dividend / Dividend
The amount paid by the Company to shareholders in dividends (cash or
otherwise) relating to a specific financial year of the Company. The Company's
dividend policy is to announce its expected level of dividend payment at the
start of each financial year. Barring unforeseen circumstances, the Company
then expects to make four interim dividend payments each year - at the end of
August, November and February during that financial year and at the end of May
following the end of the financial year.
Bid Price
The price at which you can sell shares determined by supply
and demand.
Capital Structure
The stocks and shares that make up a company's capital i.e. the amount of
ordinary and preference shares, debentures and unsecured loan stock etc. which
are in issue.
Closed‑ended
A company with a fixed number of shares in issue.
Depositary/Custodian
A financial institution acting as a holder of securities for safekeeping.
Discount
When the share price is lower than the NAV, it is referred to as trading at a
discount. The discount is expressed as a percentage of the NAV.
Expense Ratio
An expense ratio is determined through an annual calculation, where the
operating expenses are divided by the average NAV. Note there is also a
description of an additional PRIIPs KID Ongoing Charges Ratio explained in the
31 March 2022
Annual Report.
Five Year Rolling NAV Return (per annum)
The rate at which, compounded for five years, will equal the five year NAV
total return to end March, assuming dividends are always reinvested at pay
date.
Five Year NAV and Share Price Total Return
Rebased from 0% at the start of the five year period, this is the rate at
which the Company's NAV and share prices would have returned at any period
from that starting point, assuming dividends are always reinvested at pay
date. The Company will continue to quote results from its predecessor, Hansa
Trust Ltd,
as part of that reporting so shareholders can see the longer-term performance
of the portfolio.
Gearing
Gearing refers to the level of borrowing related to equity capital.
Hedging
Strategy used to reduce risk of loss from movements in interest rates, equity
markets, share prices or currency rates.
Issued Share Capital
Issued share capital is the total number of shares subscribed to by the
shareholders.
Key Information Document ("KID")
This is a document of a form stipulated under the PRIIPs Regulations. It
provides basic, pre-contractual, information about the Company and its share
classes in a simple and accessible manner. It is not marketing material. The
UK regulatory authorities have introduced legislation from 1 January 2023 to
amend some of the disclosures in the KID for UK shareholders. The Company's
AIFM will be producing both UK KIDs and European KIDs going forward.
Key Performance Indicators ("KPIs")
A set of quantifiable measures a company uses to gauge its performance over
time. These metrics are used to determine a company's progress in achieving
its strategic and operational goals and also to compare a company's finances
and performance against other businesses within its industry. In the case of
historic information, the KPIs will be compared against data of both the
Company and, prior to the Company's formation, from Hansa Trust Ltd.
Market Capitalisation
The market value of a company's shares in issue. This figure is found by
taking the stock price and multiplying it by the total number of shares
outstanding.
Mid Price
The average of the Bid and Offer Prices of a particular
traded share.
Net Asset Value ("NAV")
The value of the total assets minus liabilities of a company.
Net Asset Value Total Return
See Total Return.
Offer Price
The price at which you can buy shares determined by supply
and demand.
Ordinary Shares
Shares representing equity ownership in a company allowing investors to
receive dividends. Ordinary shareholders have the pro-rata right to a
company's residual profits. In other words, they are entitled to receive
dividends if any are available after payments to financial lenders and
dividends on any preferred shares are paid. They are also entitled to their
share of the residual economic value of the company should the business
unwind.
Hansa Investment Company Limited has two classes of Ordinary shares - the
Ordinary shares (40 million shares) and the 'A' non-voting Ordinary shares (80
million shares). Both have the same financial interest in the underlying
assets of the Company and receive the same dividend per share, but differ only
in that only the former shares have voting rights, whereas the latter do not.
They trade separately on the London Stock Exchange, nominally giving rise to
different share prices at any given time.
Premium
When the share price is higher than the NAV it is referred to as trading at a
premium. The premium is expressed as a percentage of the NAV.
Packaged Retail and Insurance‑based Investment Product ("PRIIP")
Packaged retail investment and insurance-based products ("PRIIPs") make up a
broad category of financial assets that are regularly provided to consumers in
the European Union. The term PRIIPs, created by the European Commission to
regulate the underlying market, is defined as any product manufactured by the
financial services industry, to provide investment opportunities to retail
investors, where the amount repayable is subject to fluctuation because of
exposure to reference values, or the performance of underlying assets not
directly purchased by the retail investor. See also Key Information Document
("KID").
Shareholders' Funds/Equity Shareholders' Funds
This value equates to the NAV of the Company. See NAV.
Spread
The difference between the Bid and Ask price.
Tradable Instrument Display Mnemonics ("TIDM")
A short, unique code used to identify UK-listed shares. The TIDM code is
unique to each class of share and to each company. It allows the user to
ensure they are referring to the right share. Previously known as EPIC.
Total Return
When measuring performance, the actual rate of return of an investment or a
pool of investments over a given evaluation period. Total return includes
interest, capital gains, dividends and distributions realised over a given
period of time.
Total Return - Shareholder
The Total Return to a shareholder is a measure of the performance of the
company's share price over time. It combines share price
appreciation/depreciation and dividends paid to show the total return to the
shareholder expressed as an annualised percentage. In the case of historic
information, the Total Return will include data against data of both the
Company and, prior to the Company's formation, from Hansa Trust Ltd.
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