Hansa Investment Company Limited
Annual Report: Year ended 31 March 2024
Chairman’s report
Dear Shareholder
Shareholder Returns
It is very pleasing to report an increase of 14.6% over the year in the value of Hansa Investment Company Limited’s (“Hansa”, “the Company”, HICL) investment portfolio. Our Portfolio Manager, Alec Letchfield and his team at Hansa Capital Partners LLP (HCP, “Hansa Capital Partners”, “PM”, “the Manager”) have performed well in a very challenging market. Additionally, after a period of underperformance, it is very gratifying to report an increase of 55.3% in the value of our holding in Ocean Wilsons Holdings Limited (OWHL, “Ocean Wilsons”). Overall, the net asset value increased from 305.8p to 378.8p as at 31 March 2024, generating a 23.9% increase in the portfolio. The shareholders also received dividends totalling 3.2p per share during the period, implying a total NAV return of 25.1% for the year.
The Ordinary share price has increased from 174.0p to 210.0p, whilst the ‘A’ Ordinary shares increased from 170.5p to 204.0p. Regrettably the discount on the Ordinary shares increased from 43.1% to 44.6% and the ‘A’ Ordinary shares increased from 44.2% to 46.1%.
More details about our results and performance can be found further on and also in our Portfolio Manager’s detailed review of markets and portfolio performance in his Report.
Strategy
As memories of near-zero inflation and interest rates recede, the debate in markets has moved to where the natural rate of interest settles, with markets anticipating it to be approximately 2.5%, whilst leading economists such as Larry Summers lean towards the number being 4.5%. I prefer the latter view as if inflation gets back to 2% then a real rate of 2.5% is not unusual or unreasonable, particularly with the backdrop of voracious and increasing government debt requirements in all parts of the world.
Alec Letchfield and his team at Hansa Capital Partners, supported by the Board continue to look for opportunities to broaden and diversify the portfolio. This has been most notable with an increasing investment in Japan. Our commitment to Private Markets continues to grow as planned, with our strategy to continue to commit approximately £10m each year to this sector.
As a consequence of our recent rolling commitment to an annual investment in Private Equity and Venture Capital opportunities, the Board has decided to include this as one of the four key investment categories. Consequently, the Core and Thematic categories have been combined.
Ocean Wilsons Holdings Limited
As you will recall Ocean Wilsons announced on 12 June 2023 that it was undertaking a strategic review involving its investment in Wilson Sons and that all strategic options were being considered. A further announcement on 15 November 2023 confirmed that a number of indicative non-binding offers had been received, but the process remains ongoing. Recent results have been very encouraging, with an excellent performance by both Wilson Sons and the investment portfolio, which is continuing to demonstrate strong resilience. The Board awaits further updates, as I am sure do all other shareholders. It needs to be borne in mind that as stated by Ocean Wilsons, there can be no certainty as to the outcome of its deliberations and decisions.
Your Board remains vigilant on this very important matter for all our shareholders and continues to review and update potential strategic options.
Prospects
Stock markets have had a particularly good run in the second half of our financial year. Pleasingly, this has continued into May.
Whilst I have been correct on interest rates being higher for longer than the market participants anticipated and the oil price remaining firm, I have completely underestimated the continuing high levels of liquidity in markets, the sudden arrival of AI and the reasonably dovish comments from the Fed about progress towards their 2% inflation target.
As has been pointed out by some leading financial commentators, the relentless increase in outstanding US debt will probably become a serious problem at some point. This, of course, does not only apply to the US. What is particularly troubling is the fact there seems no determination to take any action on this. If anything, the opposite is true, with increasing amounts of debt being issued to bribe voters and special interest groups. I can only assume this will continue to reduce, to some degree, the speed of the decline in inflation and interest rates. It will be interesting to see if Chairman Powell starts to make any comments on this issue.
The recent increase in the price of gold is begging the question of whether it is signalling problems ahead, or just catching up with global events of both an economic and political nature. The ominous increase in the price of oil together with events in Ukraine and the Middle East will need to be monitored carefully.
On a more positive note, it is encouraging to find Europe getting through the recent winter with little stress on gas prices or its supply. In fact, stocks of gas seem to indicate a lowering of demand next year due to present storage reserves.
Discount Management
The Board is disappointed and frustrated that the discount has widened during a period of good investment performance. Our present policy of not intervening to try to reduce the discount will remain in place until we have learned about the outcome of Ocean Wilsons deliberations on the options open to Wilson Sons. At that time the Board will carry out a thorough review of its present discount management policies.
Dividends
The Board has decided to continue with its existing dividend policy of paying quarterly interim payments of 0.8p per share, being an annual total of 3.2p per share. The present plan will continue until such time as the dividend is fully covered by net revenue. It will then increase in line with any improvement in the net revenue of the Company. Currently the income generated by the portfolio is insufficient to meet this dividend commitment, with the shortfall being made up by drawing from Hansa’s reserves. In principle, the Board does not believe it to be in the Company’s best interests to use capital as a source from which to pay dividends. As I mentioned in my Half-Year Report, our dividend policy will be reviewed after the Ocean Wilsons board have completed their deliberations on the strategic options open to the holding in Wilson Sons Limited.
Company Bye-laws
As you may recall, one of the resolutions passed at Hansa’s Annual General Meeting on 27 July 2023 was to ensure that all shareholders, if so requested, supply information relating to their tax residency. We have engaged Computershare to work with Hansa’s management team to try to find and engage shareholders who have not yet responded to requests for information. I am pleased to report that some progress is being made on this issue, although much work remains to be done. I will keep shareholders updated on progress.
Shareholder Event
As you may recall, we held an event at the Mayfair Hotel in London on 27 September 2023. The presentation was live streamed via our website for those who could not attend in person.
It is our intention to hold a similar meeting on 25 September 2024 which will include presentations from myself, William Salomon and Alec Letchfield and the opportunity for attendees, whether in person or online, to ask questions.
ESG Matters
The Board remains responsible for the Company’s ESG policy. In 2020, the Board adopted our Manager’s Responsible Investing Policy. HCP continues to develop and refine its policy in line with the evolving nature of ESG’s integration within financial services. As previously reported in 2022, the Hanseatic Group, of which our Manager is a part, became signatories to the UN PRI, a UN-supported network of investors works to promote sustainable investment. I am pleased to be able to report that they have recently received a positive response to their first annual submission.
Key Performance Indicators (KPIs)
The Board has completed its annual review of our investment KPIs and decided to maintain our previous investment stance. However, I should like to direct you further on where we have added further colour to our decision to review investment performance versus a range of KPIs as opposed to a single benchmark.
Board composition
Nadya Wells has chosen not to stand for re-election as a Director of the Company at the AGM as a result of additional professional commitments that she intends to take on. The Board is starting the process of identifying a director to join the Board in Nadya’s place.
Following Nadya’s decision to not stand for re-election, with effect from 14 June 2024, the Board has appointed Simona Heidempergher to chair the Nomination Committee in addition to her continuing role as Chair of the Remuneration Committee.
I should like to take this opportunity to thank Nadya for her excellent and valuable contributions to the business of the Company and the Board over the period since the Company was formed in 2019 and the whole Board wishes her well in her future roles.
Annual General Meeting (AGM) and Amendment to Bye-laws
At the end of these Financial Statements, you will find a notice regarding our upcoming AGM, to be held on 2 August 2024 in Bermuda. Within the notice you will find several resolutions that are presented annually. Additionally, you will note a further resolution to adopt new Bye-laws, which is to effect two changes to the Company Bye-laws.
First, in line with developments in market and industry practice and to enable the Company to promote efficient, cost effective and modern methods of engagement with shareholders, the Company is proposing an update to Bye-law 19 which allows the Board to determine how dividends are paid to Members in the most efficient manner.
The Board intends to stop paying cash dividends by cheque and move toward payment of all dividends to Members by inter-bank transfer and electronic means.
Secondly, as you may recall, one of the resolutions passed at the Company’s AGM on 27 July 2023 was to ensure that all shareholders, if so requested, supply information relating to their tax residency. To assist the existing process, the Company is proposing an update to Bye-law 83, 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. 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. This proposed update to Bye-law 83 is intended to encourage action from those few shareholders who fail to provide the information required by withholding the payment of dividends to any non-responding shareholders, until such time as the required information is received, so as to enable the Company to satisfy its reporting requirements. We have also engaged Computershare to work with us to try to find and engage shareholders who have not yet responded to requests for information. I am pleased to report that some progress is being made on this issue, although much work remains to be done. I will keep shareholders updated on progress.
Please see further down for more detail on the proposed changes and the more detailed reasoning behind the proposals.
I should like to thank my fellow Board members, as well as Alec Letchfield and his team at Hansa Capital Partners, for their dedicated hard work during this past year. We appreciate the support of our shareholders, for whom we are all constantly seeking to deliver value over the longer-term. I believe the Company is in a very good position to do this, whatever the markets and global economies may have in store for us in the future.
Jonathan Davie
Chairman
14 June 2024