Half-year Report

RNS Number : 1077J

Hansa Trust PLC

30 November 2018

 

Hansa, investing to create

long-term growth

Half Year Report

Six Months Ended

30 September 2018

Welcome

I'm pleased to present our Half Year Report to the shareholders. The last six months has continued to see further growth of shareholder value in a world with increasing uncertainties and tensions - particularly in the world of politics. I trust you will find our thoughts on the current market and our prospects (both short and longer-term) interesting.

The Company held a well-attended AGM in July 2018. As in previous years, for those of you who could not attend, I have noted a couple of the points discussed at the AGM in my Report to the Shareholders beginning on page 2.

Finally, by the time this Report is published, you will no doubt have noted that the first interim dividend of 8.0p per share for the year to 31 March 2019 was paid on 30 November 2018.

Yours sincerely

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

COMPANY REGISTRATION AND NUMBER: The Company is registered in England & Wales under company number 00126107.

 

Chairman's Report to the Shareholders

Long-Term Shareholder Returns

Shareholders will be familiar with my Reports which address the long-term returns that have been achieved - reflecting the investment objective of Hansa Trust, summarised on the front cover: "investing to create long-term growth". The Board of Directors is accountable to shareholders for fulfilling that objective, which is why my Reports focus on long-term returns. Alec Letchfield's Report which follows this Report addresses the shorter-term returns.

The past five years have seen the MSCI All Country World Index (in GBP) ("MSCI") return 87.2%, the FTSE All Stocks Gilt Index return 25.0% and the UK Consumer Price Index (inflation) rise by 7.6%. These are the three Key Performance Indicators ("KPIs") we use as comparators to assess Hansa Trust's own returns.

By contrast, our Net Asset Value ("NAV") total return has returned 40.2%. The comparisons are not wholly reasonable, because the portfolio changes we made were made just over four years ago. The next annual report (for the year ending the 31 March 2019) will mark the fifth anniversary of the beginning of those portfolio changes, so we will be able to assess the five year progress made since the changes began. It might be worth noting, however, that the returns of the MSCI are heavily influenced by the performance of American stock markets, which in turn have been heavily influenced by America's tech stocks and shares generally and those of the FAANGs (Facebook, Apple, Amazon, Netflix and Google (Alphabet)) in particular .

5 Year NAV Performance to 30 Sept 2018

	Sep-13	Sep-18
Net Asset Value	1,077.8p	1,414.9p	31.3%
Net Asset Value (Total Return)	(Total divs paid 80p)		40.2%

Net Asset Value per HT Share

	Rest of Portfolio	OWHL	Total NAV
September 2013	707.6p	370.2p	1,077.8p
September 2018	1,013.5p	401.4p	1,414.9p
Change	+305.9p	+31.2p	+337.1p
	+43.2%	+8.4%	+31.3%

In fact equity markets have recovered slowly but relentlessly (the tortoise largely, but the hare more recently) since our year end in March 2009 (when equity markets generally bottomed out after the great financial crisis of the two previous years). It can be said that this bull market is long-in-the-tooth but there don't seem to be any obvious economic reasons for a severe equity market set back at the moment. However, bear markets can be set off by other than economic causes (a financial catastrophe somewhere, for example) and there are plenty of uncertainties around (see my comments on Prospects at the end of this Report). But long-term opportunities abound!

Slowly but surely the discounts at which our two classes of shares sell have been coming down from levels above 30%. There are still uncertainties surrounding the prospects for Brazil, although hopefully confidence in the country will recover with its new president and government. A return in confidence there would, we believe, help achieve lower NAV discounts for the price of our shares.

5 Year SHARE PRICE Performance to 30 Sept 2018

	Sep-13	Sep-18
Ordinary Share Price	734.0p	967.50p	34.2%
Ordinary Share Price (total return)	(Total divs paid 80.0p)		46.9%
Discount: Ordinary Share	-26.0%	-24.4%
'A' Ordinary Share Price	779.00p	1,010.00p	29.7%
'A' Ordinary Share Price (total return)	(Total divs paid 80.0p)		42.2%
Discount: 'A' Ordinary Share	-27.7%	-28.6%

As you know, our discount policy focuses on creating demand for our shares through the combination of having an unusual and interesting portfolio, competitive returns and telling the story, in order to create that extra demand for the two classes of shares, which should gradually reduce the two discounts. In particular we continue to work with Edison in telling the story.

The Annual General Meeting

The Annual General Meeting for the year ending 31 March 2018 was held on 27 July 2018 at the Washington Mayfair Hotel.

All the formal resolutions put to shareholders were passed. Following the formal part of the meeting, I made a few comments on some of the issues shareholders had raised in the past, noting the discussions of the Board. I then introduced the three speakers who were to make presentations: Rob Murphy of Edison, the investor relations firm we engage to help us in telling the Hansa story to the investment community, William Salomon, who spoke about Brazil and our investment in Ocean Wilsons Holdings Ltd ("Ocean Wilsons", "OWHL") and, finally, Alec Letchfield who talked about the construction, progress and future prospects of the portfolio (given his assessment of political, economic and financial conditions).

There were two questions of note from shareholders to report to you:

Question: Was the double discount of Hansa's share prices (its own and the underlying discount of the Ocean Wilsons' share price) a concern in telling the Hansa story to investors (asked of Rob Murphy)?

Answer: Generally no, other than it made Hansa Trust's shares that much more attractive.

Question: Given the great success of the share prices of the FAANG group of companies, why wasn't there a greater investment in them within the portfolio?

Answer: Given the great volatility in their share prices and the uncertainty within any "tech" investment, the portfolio tends to gain exposure to such companies through the funds it invests in and the expertise that their management brings to them. Alec Letchfield highlighted the investment in the GAM Star Tech Fund as a successful holding within the portfolio.

The meeting ended with one-on-one discussions between shareholders, the Board and management regarding any issues of concern.

Prospects

Such is the level of uncertainty - political, commercial and financial - that I am tempted to ask: "who knows?" Politics is the most important determinant of long-term economic prosperity and yet democratic countries all over the world are experiencing electoral challenge, no more so than in the UK, faced with the uncertainties of Brexit and of an unstable parliament. The maverick that is President Trump has everyone in guessing mode. All over the European Union there is challenge to the authority of the European Commission. It seems that political stability is best found in non-democratic countries, with China being perhaps the best example.

In that respect, the recent result of the general election in Brazil, a country with notoriously unpredictable politics, provides some (qualified) hope that some of the necessary reforms will pass and that there will be a generally enterprise-friendly government. That would be good for us.

Commerce is faced with an unprecedented pace of change brought about by the IT revolution. Companies all over the world now have disruptive, even destructive (in the case of cyber-crime), challenges to deal with - just to survive. IT laggards face extinction.

The world of finance is faced with the prospect of higher interest rates being imposed on record levels of debt. The world has a vulnerable balance sheet.

So, how to deal with it? Three disciplines are particularly important:

·   backing political governance that recognises private enterprise is vital to the future economic health and prosperity of a country;

·   backing the very best management in making equity selections, in our case of companies and funds; despite the apparently benign business conditions of the moment, managements need to have their long-term wits about them in such unpredictable times;

·   ensure robust finances (sovereign and corporate).

In these respects our Investment Manager lays great stress in selecting investments for the Company. It is why we can be reasonably confident of our investment portfolio producing good long-term returns even if, in between, there are some bumpy patches lying ahead of us.

Additionally, as you may have seen in our recent market announcement, given the political and economic uncertainty in the UK and following an initial consultation with shareholders, the Board is giving consideration to re-domiciling the Company to an alternative jurisdiction.

No decisions have been made at this time. The Board will continue to consult with shareholders and will make a further announcement in due course.

Alex Hammond‑Chambers
Chairman
29 November 2018

Half Year Management Report

The Directors present their Report and Condensed Financial Statements for the six months to 30 September 2018.

THE BOARD'S OBJECTIVES

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

THE BOARD

Your Board consists of the following persons, each of whom brings certain individual and complementary skills and experience to the Board's workings. Individual profiles for each member of the Board can be found in the Company's Annual Report each year and on our website.

Alex Hammond‑Chambers (Chairman of the Board), Jonathan Davie (Chairman of the Audit Committee), Raymond Oxford, William Salomon and Geoffrey Wood.

BUSINESS REVIEW FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

The business review, which includes an indication of important events which have occurred within the six months to 30 September 2018, is covered in the Chairman's Report to the Shareholders and the Portfolio Manager's Report.

KEY RISKS FOR THE FINANCIAL YEAR TO 31 MARCH 2019

The key risks and uncertainties relating to the six months ended 30 September 2018 and for the year to 31 March 2019 are covered in the Chairman's Report to the Shareholders, the Portfolio Manager's Report and also within the Notes to the Financial Statements.

GOING CONCERN BASIS OF ACCOUNTING FOR THE FINANCIAL YEAR TO 31 MARCH 2019

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

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

RELATED PARTY TRANSACTIONS

During the period, Hansa Capital Partners LLP charged portfolio management fees and company secretarial fees to the Company, amounting to £1,265,000 excluding VAT (6 months to 30 September 2017: £1,152,000, year to 31 March 2018: £2,344,000). Amounts outstanding at 30 September 2018 were £211,000 (30 September 2017: £191,000, 31 March 2018: £200,000).

THE BOARD'S RESPONSIBILITIES

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

The Directors confirm to the best of their knowledge that:

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

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

The above Half Year Management Report, including the Responsibility Statement, was approved by the Board on 29 November 2018 and was signed on its behalf by:

Alex Hammond‑Chambers
Chairman
29 November 2018

 

PORTFOLIO MANAGER'S REPORT

Are we nearing a turning point?

Market backdrop

They say a picture is worth a thousand words and we particularly like the one depicted in Chart 1 below. Highlighting the difference a year can make in stock markets; the lighter bars illustrate just how strong performance was in 2017 and the darker bars the more challenging performance experienced so far this year.

Underlying this performance, 2017 really was a case of everything coming good at the same time. Economic growth improved in both developing and developed markets. This in turn fed through to better corporate profitability, with analysts revising up their forecasts for the first time in many years (something that has been conspicuously absent in the current stock market cycle). Geopolitical issues were clearly rumbling on in the background, with speculation that we would see more populist governments being elected in a number of European countries. These, however, ultimately failed to materialise and whilst President Trump seemed content to talk tough on China, little was seen in the way of action (at least in 2017). The net result was strong performance across equity markets, with both developed and developing markets rising, and across the asset class spectrum with bonds, equities and commodities performing well.

In contrast, 2018 has seen something of a perfect storm albeit with a twist. Unlike 2017, this year has been characterised by weaker than expected economic growth in much of the world, with the one notable exception being the US. Unusually, and many would argue imprudently, the US administration decided to cut taxes at a late stage in the cycle and in the process boosted both economic and corporate growth at a time when the rest of the world was slowing. The geopolitical picture has deteriorated with the election of a populist, anti-EU, coalition government in Italy and the seemingly unflappable Angela Merkel has struggled to control her power base in Germany. Brexit, to be blunt, looks like a slow motion train crash. Trump has also flip-flopped from waging war on North Korea to holding the first summit between a US and North Korean leader. At the same time he has antagonised old allies by waging trade wars with Canada, Europe and Mexico, as well as with China. All of this, perhaps unsurprisingly, has seen global stock markets fall with the exception of the US. Perversely, in light of the large weighting of the US in the MSCI World Index, this has driven up the overall index despite weakness exhibited elsewhere. We think this represents a challenging backdrop for many global fund managers who are typically underweight the US in light of its higher valuation and more mature stock market cycle.

Market outlook

For the past 18 months or so we have painted a picture of a maturing business and stock market cycle and have described our readiness to start shifting assets from riskier investments to safer assets. Although markets have had their setbacks during this time, it has generally proved correct to maintain exposure to equities. The question now is for how long will this remain the case?

We will start by making the case for why it is right to become more defensive and then we'll put forward some counter‑arguments. Many commentators have pointed to the increasing maturity of the current cycle, which is now the longest in recent stock market history. As we have noted many times in the past, stock markets don't die of old age but, by definition, the longer the cycle the more likely that we are near an end point.

The counter-argument to this relates to the depth of the preceding Global Financial Crisis and the unusual nature of the subsequent recovery. Looking at past cycles the common feature is that the magnitude of a downturn is typically mirrored in the rebound as markets recover. Hence with the Global Financial Crisis representing one of the largest market setbacks in the past century an extended recovery would not be unusual. Furthermore, the current recovery has been notable by its lack of strength with many global economies barely above their pre-GFC economic peaks. Indeed, unless we expect the world to become like Japan (which we don't!), it would be unusual if the recovery didn't carry on for longer.

More worrying is the decline in economic growth. As mentioned above, we have gone from a picture of growth being in fine fettle, to one where it has started to slip outside of the US. Our retort though is that it would be unusual if it didn't slow at some point. Economic growth is always noisy and naturally waxes and wanes throughout a cycle. We believed much of the weakness experienced in the first half of the year was temporary and recent economic data would appear to vindicate this.

There are, however, a couple of nuances. Firstly, Emerging Markets ("EM") do appear to be showing more persistent weakness. Partly this is a function of what is going on in China. China typically operates to its own cycle, dictated by whether government policy is expansionary or contractionary. Currently economic growth in China is slowing, as policy is tightened following a period of expansion. There have been some tentative signs that the authorities are looking to ease again but the jury is out as to the effectiveness of this, given the current trade war between the US and China. Compounding this, it is unclear at this stage just how significant the current trade war will be for the broader region and the strength of the US Dollar has started to put pressure on many EM companies who have borrowed in US Dollars in recent years. We are still of the view that this is a wobble rather than the start of something more sinister, but certainly we are watching events unfold carefully to see if that view is wrong.

The second point relates to US growth. Undoubtedly US growth has been the standout area of strength globally. However, as hinted at above, pump-priming growth is a questionable thing to do at a mature point in the cycle. It removes one of the policy options when economies start to slow and is likely to accelerate the pace with which the Federal Reserve raises interest rates to head off inflation. At some point we would also expect the benefits of this policy to annualise out of analyst forecasts, potentially leading to disappointment.

To summarise on growth, we do not see the normal factors in play that would lead to a recession in the near-term, despite the mature age of the recovery. That is not to say that the picture is rosy across the board. Clearly growth is patchy with the US robust, Europe rather lacklustre and EM okay but declining. Also whilst we would expect US growth to fall back from its current extended level this does not mean it will become contractionary and act as the catalyst for a bear market (at least for now).

Another area we watch closely is that of interest rates and bond yield curves. Whilst markets invariably do something different to one's core forecasts, at this point we see the current cycle ultimately ending in a fairly conventional fashion. Interest rates start to rise as economies grow, capacity becomes tight and inflation starts to take grip. A tipping point is then reached whereby higher rates impact both corporates and consumers and, in the process, slow growth, catalyse a recession and cause a bear market.

This process is already underway in the US and UK with both countries raising their base rates. The question though is at what point do interest rates start to bite and impact growth? There is much debate on this neutral rate of interest, albeit it is undoubtedly lower than it was in prior cycles. As we write we have seen some developments on this front. The US Federal Reserve appears to be shifting from being accommodative in its policy actions to having a bias towards tighter rates. At the same time the 10 year US Treasury yield has started to move up. Hence we have some slightly contradictory messages. On the one hand higher bond yields are bearish for equities, with equities ultimately being priced off the risk-free rate. On the other, this rise in 10 year yields is indicative of an improving growth picture and has led to a modest steepening in yield curves - typically an inverting curve is a precursor to a recession and bear market. Again, without sounding blasé, we do not see US treasury yields at just above 3% as being sufficient to kill off the equity bull market (and in fact remain very accommodative at current levels), but clearly if they keep moving up we would have to re-evaluate our view.

Something that is harder to assess, but equally important, is exuberance and excess. Peaks in markets go hand-in-hand with increases in animal spirits and here we see only tentative signs that these are picking up. Bitcoin demonstrated many of the characteristics of a bubble earlier in the year, as its price rose exponentially and retail investors flooded in, but there was little fundamental support. In practice, however, crypto currencies probably lack the size to be of any real danger to the wider financial system. This bubble appears to have now burst with Bitcoin prices collapsing from their peak above $18,000 in December 2017 to around $6,600 now.

A sector that does have the capacity to cause more systemic damage is banking. Banks have an uncanny habit of finding the next black hole, typically allowing their lending standards to decline as markets peak, dabbling in complex instruments in which they have little experience and introducing leverage at just the wrong time in the cycle! Even here though the normal signs that one would look for do not appear to be in place. Post the GFC, banks have tightened their lending standards considerably, ring-fenced many of their retail businesses and leverage is significantly lower than it was historically.

Whilst we do not see any problems in the banks at this stage, the financial system is a little like plumbing, with water normally leaking out somewhere. One suspects that it will be corporate debt this time around. The ease with which corporates have been able to issue debt in a zero interest rate world has almost certainly led to some excesses and shored up those zombie companies that should have died off long ago. We're sure that, as rates shift higher and quantitative easing turns to quantitative tightening, some of these companies will be found to have been swimming with no clothes on. They normally are.

Portfolio Review and Activity

Your Company's NAV increased by 5.7% for the financial year to date. Excluding OWHL it is up 10.0% for the first half of the year, with the value of the holding in OWHL down 3.7% over the same period. The KPIs for this half are 12.8% for the MSCI ACWI NR Index, -1.6% for the FTSE UK Gilts All Stocks TR Index and 1.5% for the UK CPI. The performance this half has held up well given that global markets have continued to be volatile. The Trust's NAV per share increased over the half, from 1,346p at the end of March 2018 to 1,415p at the end of September 2018. This compares to a level of 1,345p at the end of September 2017.

Core and Thematic Funds

In the first half of the year the Core Regional bucket had a 8.6% return, while the Thematic bucket had a return of 15.9%. This half, emerging and frontier markets continued to underperform developed markets, with holdings in those areas being the main detractors.

In the Core Regional bucket, the largest contributor (in GBP terms) to the performance was again the holding in Findlay Park American Fund which closed the half up 16.7%. The performance of this fund was largely driven by its holdings in the technology sector, namely Microsoft, as well as American Express and Berkshire Hathaway continuing to perform well. Another US focused fund, Select Equity, was the second largest contributor, ending the half up 19.7%. This small-mid cap fund's largest holding, life science equipment supplier Perkin Elmer, performed particularly well off the back of strong quarterly results announced in August. Other good performers include the technology company Gartner and the insurer Cincinnati Financial, both large holdings for the fund.

The holding in Adelphi European Select Equity Fund performed well this half, returning 9.5%. This European fund performed particularly well against its benchmark of the MSCI Europe TR Index in August, led largely by positive stock selection in the consumer discretionary and health care sectors. Adidas and Almirall were names that performed well in these sectors, as did Worldpay in the technology sector.

As previously mentioned, the emerging and frontiers holdings, such as Prince Street Institutional (down 7.2%), SR Global Fund Frontier Markets (down 10.8%) and BlackRock Frontiers Investment Trust (down 11.8%), continued to be the main detractors. This was largely due to contagion fears of the weakness in Turkey and Argentina spreading to other emerging markets and concerns over the impact of the US‑China trade war.

GAM Star Technology Fund was the largest contributor in the Thematic bucket, returning 17.7% over the half, as the technology sector continued to perform well. Its largest holdings in Microsoft, Alphabet and Visa all reporting strong results, with Visa performing particularly well this year with strong revenue, payment volume and processed transactions growth. Another strong performer in this bucket was the Worldwide Healthcare Trust which was up 20.9% for the half. This was due, in part, to several of its pharmaceutical company holdings beating their sales performance targets in the US in the second quarter of the year.

Diversifying Funds

The Diversifying segment ended this half with a positive return of 2.1%. The holdings in this segment of the portfolio are designed to show lower correlation to the equity market, so it is expected that they will lag behind the equity market when it is strong, such as in this half.

The strongest performer in this segment of the portfolio was DV4 Ltd, a property development vehicle managed by Delancey, the value of which was up 2.6% in the half. DV4 made several disposals during the half, including the sale of a site in west London known as The Kensington, all of which have produced healthy returns. Hudson Bay International Fund was also a positive contributor, up 12.2% in the half, as was the JLP Credit Opportunity Fund, up 9.3%. These are both US Dollar denominated funds so a large part of their performance will be down to the continued strength of the US Dollar. We have been gradually reducing the position in JLP Credit over the last couple of years, as we feel high yield debt has been getting increasingly expensive and the position was fully exited at the half's end. Schroder GAIA BlueTrend and GAM Systematic Core Macro funds both had disappointing halves, their NAVs declining 5.3% and 5.2% respectively. The continued market volatility has meant these trend-following CTAs have struggled, with both reporting significant losses on FX and commodity positions in July, before recovering slightly later in the half.

Global equities

It is a generally accepted truth that the stock market adores certainty and abhors uncertainty. This is why businesses with a loyal customer base or long-term contracts tend to trade at premiums to the market. There are, however, points in a business's life cycle when the future prospects appear less clear and this can result in premiums associated with quality, which had been relatively entrenched, being eroded or lost altogether. As investors with a preference for buying companies with margins of safety, this presents us with opportunities.

The market has become increasingly certain that "new world" technology businesses will dominate the future, and, on this basis, has ascribed them large valuation premiums. This approach has led to a market of "haves" and "have nots", which can be crudely seen in the differential of performance between value and growth stocks over the past 12 months; the MSCI World Growth Index is up 20.5% whilst the MSCI World Value Index has returned just 8.0%.

Unsurprisingly, we are finding more compelling investment opportunities in the latter group, where in some cases, the market is pricing in a continuation of recent negative trends in perpetuity. As a result of this, we have been more active than normal over the half. We have added to our positions in Bayer, Exor, Berkshire Hathaway, Interactive Brokers, Technicolor and TripAdvisor, and we have initiated new positions in KT Corp and C&C. Informa, CBRE and Liberty Global have been sold.

Take C&C, an Irish beverage company best known for making Bulmers, Magners and Tennent's. It has suffered from material uncertainty over its future prospects, following three years of declining sales and a challenging operating environment, which has seen them face falling alcohol consumption, an increase in the availability of competing products (from home and abroad), unfavourable weather conditions and consolidation of the UK pub sector. It also made a misguided US acquisition. All this was largely priced into the stock at the end of the first quarter; over five years, its price had declined by almost 40%, leaving it 75% behind the sector average and 110% behind the World Index.

In our view, it has been abandoned by growth investors just as it approaches a potential inflection point in volumes and improving earnings, thanks to a rather shrewd, opportunistic acquisition. The purchase of the alcohol distribution business from the bankrupt retailer, Conviviality has the potential to be transformational; diversifying the earnings stream into a steadier, albeit lower margin business. C&C paid only £1 for the business, taking on £102m of debt, which equates to less than 4x EV/EBITDA; arguably a bargain. Whilst the acquisition could increase the uncertainty further over the next 12 months, it should be very accretive to the bottom line and it offers potential revenue synergies over the longer-term.

There are also potential catalysts in its core brands (Bulmers, Magners and Tennent's) which could lead to some long‑awaited organic growth. Tennent's returned to growth last year and the introduction of minimum unit pricing should lead to higher unit margins this year. In England, Magners growth accelerated in the second half of last year after the distribution agreement with AB InBev ramped up and we expect this momentum to continue. The weather can also have an impact, and after two below par summers, we would expect this summer to have been positive for the Bulmers cider brand in particular.

The stock is trading on a PE of just 11x. We believe within two years it could be earning 35c a share in net income and 33c in free cash flow. This implies a forward PE of 9.4x and a free cash flow yield of 10% at the current price of €3.30. If it returned to its historic 30% discount to the sector it would trade at €5.40.

This has the potential to be "heads we win, tails we don't lose much" situation; if the stock does not re-rate or return to growth, we should be paid the 4.5% dividend yield for waiting for the activist investors which currently hold a quarter of the shares to encourage management to realise the value of the business.

Looking at the equity portfolio over the half, the largest contributors to performance were Iridium Communications, Berkshire Hathaway and CVS Health, whilst Coca-Cola Bottlers Japan, Interactive Brokers and Bayer were the biggest detractors.

Ocean Wilsons Holdings

OWHL's holding in Wilson Sons continues to face a challenging economic environment in Brazil, but the firm has put itself in a position to reap the rewards of its $1bn investment plan over the last ten years. The Brazilian political environment remains uncertain, with the second round of the Chairman's presidential election due to take place at the end of October, although markets have taken positively the strong showing of Jair Bolsonaro in the first round. On 16 July 2018 the board of Wilson Sons announced it had initiated a process of assessing the future of the company's container terminals and logistics assets. This process is part of the evaluation of strategic alternatives that the management is carrying out, which may include divestment of such assets, as well as attracting strategic partners. The board has emphasised that no formal decision has yet been taken with respect to any of the alternatives, and there is no certainty that a transaction will occur.

The second quarter results for Wilson Sons, which were released in August, showed the negative impact of the nationwide truck drivers' strike protesting against high fuel prices, as well as the effect of the weakening currency which adversely impacted container terminals revenues. Earnings fell by 18.1% to $36.6m in the second quarter compared to the same period the year before. Operating volumes in the terminals' business fell as a result of the truck drivers' strike, although Rio Grande inland navigation flows increased significantly, denoting the efficiency and safety of the route.

Results in the towage division suffered from the very competitive environment, affecting volumes and pricing and revenues were down 20% from the prior year. However, the division was awarded a $48.3m financing priority by the Merchant Marine Fund to be used for the repair and maintenance of 35 tugboats over the next two years, a first step to contracting with a financial agent. The company has been able to partially mitigate weakened offshore vessel demand through alternative vessel solutions. For example, in July the offshore joint venture commenced two contracts for shallow‑water diving support services and one for oil spill recovery services.

The Ocean Wilsons Investment subsidiary was valued at $272.5m at the end of June 2018, which represented a decrease of $2.2m (0.8%) from the valuation at the end of December 2017 ($274.7m), although dividends of $4.75m were also paid out from the portfolio during this time. The portfolio continues to be biased towards equities, both public and private, reflecting its long-term nature, but also includes some assets which display lower correlation to equity markets.

The Ocean Wilsons Holdings' share price was more volatile than usual over the half, most likely on account of the announcement in July from the Board of Wilson Sons, but at the end of the half the share price was up 2.5% over the three month period. Over the past 12 months the share price has declined 5.0%, but on a total return basis its return has been -0.6%, taking account of the 51.7p dividend paid to the Trust in June. The share price represents a discount to the look-through NAV of 30.4%, based on the market value of the Wilson Sons shares, together with the latest valuation of the investment portfolio.

Summary

Clearly the current picture for global stock markets is a mixed one. We are of the view, however, that this is a normal situation for a maturing stock market cycle and whilst the best days are almost certainly behind us, that does not mean that more modest returns cannot be achieved, albeit with more volatility. This view is supported by current valuations. These are undoubtedly above their historic averages but are not at previous peaks. Pinpointing peaks in valuations is nigh on impossible, but what we can say is that if a bear market were to start at current valuation levels it is likely to be a modest one. More likely valuations move higher as in previous cycles before we move into a bear market.

There is also the question of what else do you do with your money. As highlighted previously, whilst equity valuations are getting fuller, bond valuations are even more expensive by historic standards, even in the US following the recent uplift in yields. So yes, we acknowledge that the next move is almost certainly more defensive, we just don't think we're there quite yet.

Alec Letchfield

October 2018

Portfolio Statement

as at 30 September 2018

Investments	Fair value £000	Percentage of Net Assets
Core Regional Funds
Findlay Park American Fund	18,409	5.4
Vulcan Value Equity Fund	14,083	4.1
Select Equity Offshore, Ltd	13,123	3.9
Goodhart Partners: Hanjo Fund	11,959	3.5
Indus Japan Long Only Fund	9,690	2.8
Adelphi European Select Equity Fund	9,582	2.8
Schroder ISF Asian Total Return	7,247	2.1
BlackRock European Hedge Fund	5,641	1.7
iShares EURO STOXX Mid UCITS ETF	5,377	1.6
Prince Street Institutional Offshore Ltd	4,646	1.4
Pershing Square Holdings Ltd	3,860	1.1
Blackrock Frontiers Investment Trust PLC	3,741	1.1
Vanguard FTSE Developed Europe ex UK Equity Index Fund	3,663	1.1
LF Odey Absolute Return Fund	3,589	1.1
NT Asian Discovery Fund	2,933	0.9
SR Global Fund Inc. Frontier Markets	2,528	0.7
Egerton Long - Short Fund Limited	537	0.2
Total Core Regional Funds	120,608	35.5
Strategic
Wilson Sons (through our holding in Ocean Wilsons Holdings)*	58,571	17.3
Ocean Wilson (Investments) Limited (through our holding in Ocean Wilsons Holdings)*	37,763	11.1
Total Strategic	96,334	28.4
Global Equities
Berkshire Hathaway Inc	3,973	1.2
Interactive Brokers Group Inc	3,648	1.1
Hansteen Holdings PLC	3,453	1.0
EXOR NV	3,344	1.0
Alphabet Inc	3,240	0.9
White Mountains Insurance Group Ltd	3,229	0.9
KT Corp ADR	3,189	0.9
CK Hutchison	3,182	0.9
Hilton Food Group PLC	3,133	0.9
Samsung Electronics Co Ltd	2,613	0.8
Iridium Communications Inc	2,582	0.8
Orion Engineered Carbons SA	2,581	0.8
Orange	2,569	0.8
TripAdvisor Inc	2,506	0.7
Bayer AG	2,348	0.7
9 other investments	13,129	3.9
Total Global Equities	58,719	17.3
Diversifying
DV4 Ltd **	10,620	3.1
Global Event Partners Ltd	7,931	2.3
Hudson Bay International Fund Ltd	2,987	0.9
MKP Opportunity Offshore, Ltd	2,767	0.8
BNY Mellon Absolute Return Bond Fund	2,237	0.7
Keynes Dynamic Beta Strategy Fund	1,997	0.6
Pareturn Gladwyne Absolute Credit UCITS	1,641	0.5
CZ Absolute Alpha UCITS Fund	1,310	0.4
GAM Systematic Core Macro Fund	1,282	0.4
Schroder GAIA BlueTrend	1,066	0.3
Total Diversifying	33,838	10.0
Thematic
GAM Star Fund PLC - Technology	15,704	4.6
SPDR MSCI World Financials UCITS ETF	3,330	1.0
Worldwide Healthcare Trust PLC	1,846	0.5
Total Thematic	20,880	6.1
Total Investments	330,379	97.3
Net Current Assets	9,188	2.7
Net Assets	339,567	100.0

*Hansa Trust owns 9,352,770 shares in Ocean Wilsons Holdings Limited ("OWHL"). In order to reflect Hansa Trust's exposure to different market silos better, our interests in the two subsidiaries of OWHL, Wilson Sons and Ocean Wilsons (Investments) Ltd ("OWIL"), are shown separately above. The fair value of Hansa Trust's holding in OWHL has been apportioned across the two subsidiaries in the ratio of the latest reported NAV of OWIL, that being the NAV of OWIL shown per the 30 June 2018 OWHL accounts, to the market value of OWHL's holding in Wilson Sons, that being the bid share price of Wilson Sons multiplied by the number of shares held by OWHL at 30 September 2018.

**DV4 Ltd is an unlisted Private Equity holding. As such, its value is estimated as described in Note 1(b) to the Financial Statement and is listed as a Level 3 Asset in Note 9. All other valuations are either derived from information supplied by listed sources, or from pricing information supplied by third party fund managers.

 

Financial Statements

Condensed Income Statement

For the six months ended 30 September 2018

	(Unaudited) Six months ended 30 September 2018			(Unaudited) Six months ended 30 September 2017			(Audited) Year ended 31 March 2018
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Revenue £000	Revenue £000	Capital £000	Total £000
Gains on investments held at fair value through profit or loss	-	14,433	14,433	-	13,333	13,333	-	16,825	16,825
Exchange gains on currency balances	-	27	27	-	81	81	-	92	92
Investment income	5,879	-	5,879	5,605	-	5,605	6,062	-	6,062
	5,879	14,460	20,339	5,605	13,414	19,019	6,062	16,917	22,979
Investment management fees	(1,202)	-	(1,202)	(1,102)	-	(1,102)	(2,238)	-	(2,238)
Other expenses	(702)	-	(702)	(606)	-	(606)	(1,253)	-	(1,253)
	(1,904)	-	(1,904)	(1,708)	-	(1,708)	(3,491)	-	(3,491)
Profit before finance costs and taxation	3,975	14,460	18,435	3,897	13,414	17,311	2,571	16,917	19,488
Finance costs	-	-	-	-	-	-	-	-	-
Profit before taxation	3,975	14,460	18,435	3,897	13,414	17,311	2,571	16,917	19,488
Taxation	(49)	-	(49)	(20)	-	(20)	(38)	-	(38)
Profit for the period	3,926	14,460	18,386	3,877	13,414	17,291	2,533	16,917	19,450
Return per Ordinary and 'A' non‑voting Ordinary share	16.4p	60.3p	76.7p	16.1p	55.9p	72.0p	10.6p	70.5p	81.1p

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

The total column of this statement represents the Income Statement, prepared in accordance with IAS 34. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

 

Condensed Balance Sheet

as at 30 September 2018

	(Unaudited) 30 September 2018 £000	(Unaudited) 30 September 2017 £000	(Audited) 31 March 2018 £000
Non‑current assets
Investment in subsidiary at fair value through profit or loss	629	629	629
Investments held at fair value through profit or loss	330,379	320,736	322,322
	331,008	321,365	322,951
Current assets
Trade and other receivables	2,424	2,138	55
Cash and cash equivalents	7,130	771	1,102
	9,554	2,909	1,157
Current liabilities
Trade and other payables	(995)	(1,423)	(1,007)
Net current assets	8,559	1,486	150
Net assets	339,567	322,851	323,101
Capital and reserves
Called up share capital	1,200	1,200	1,200
Capital redemption reserve	300	300	300
Retained earnings	338,067	321,351	321,601
Total equity shareholders' funds	339,567	322,851	323,101
Net asset value per Ordinary and 'A' non‑voting Ordinary share	1,414.9p	1,345.2p	1,346.3p

 

Condensed Statement of Changes in Equity

For the six months ended 30 September 2018

(Unaudited)

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2018	1,200	300	321,601	323,101
Gains for the period	-	-	18,386	18,386
Dividends	-	-	(1,920)	(1,920)
Net assets at 30 September 2018	1,200	300	338,067	339,567

Condensed Statement of Changes in Equity

For the six months ended 30 September 2017

(Unaudited)

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2017	1,200	300	305,980	307,480
Gains for the period	-	-	17,291	17,291
Dividends	-	-	(1,920)	(1,920)
Net assets at 30 September 2017	1,200	300	321,351	322,851

Condensed Statement of Changes in Equity

For the year ended 31 March 2018

(Audited)

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2017	1,200	300	305,980	307,480
Gains for the year	-	-	19,450	19,450
Dividends	-	-	(3,829)	(3,829)
Net assets at 31 March 2018	1,200	300	321,601	323,101

 

Condensed Cash Flow Statement

For the six months ended 30 September 2018

	(Unaudited) Six months ended 30 September 2018 £000	(Unaudited) Six months ended 30 September 2017 £000	(Audited) Year ended 31 March 2018 £000
Cash flows from operating activities
Gain before finance costs and taxation *	18,435	17,311	19,488
Adjustments for:
Realised gains on investments	(1,407)	(7,089)	(12,670)
Unrealised gains on investments	(13,026)	(6,244)	(4,155)
Effect of foreign exchange rate changes	(27)	(81)	(92)
(Increase)/decrease in trade and other receivables	(2,369)	1,385	4,051
(Decrease)/increase in trade and other payables	(12)	1	22
Taxes paid	(49)	(20)	(38)
Purchase of non‑current investments	(17,201)	(47,715)	(59,284)
Sale of non‑current investments	23,577	41,003	53,458
Net cash inflow/(outflow) from operating activities	7,921	(1,449)	780
Cash flows from financing activities
Interest paid on bank loans	-	-	-
Dividends paid	(1,920)	(1,920)	(3,829)
Net cash outflow from financing activities	(1,920)	(1,920)	(3,829)
Increase/(decrease) in cash and cash equivalents	6,001	(3,369)	(3,049)
Cash and cash equivalents at 1 April	1,102	4,059	4,059
Effect of foreign exchange rate changes	27	81	92
Cash and cash equivalents at end of period/year	7,130	771	1,102

*includes dividends received of £5,806,000 (6 months ended 30 September 2017: £5,495,000, Year ended 31 March 2018: £6,080,000) and interest received of £1,000 (6 months ended 30 September 2017: £3,000, Year ended 31 March 2018: £5,000).

Notes to the Condensed Financial Statements

	(Unaudited) Six months ended 30 September 2018			(Unaudited) Six months ended 30 September 2017			(Audited) Year ended 31 March 2018
	Revenue £000	Capital £000	Total £000	Revenue £000	Capital £000	Revenue £000	Revenue £000	Capital £000	Total £000
Gains on investments held at fair value through profit or loss	-	14,433	14,433	-	13,333	13,333	-	16,825	16,825
Exchange gains on currency balances	-	27	27	-	81	81	-	92	92
Investment income	5,879	-	5,879	5,605	-	5,605	6,062	-	6,062
	5,879	14,460	20,339	5,605	13,414	19,019	6,062	16,917	22,979
Investment management fees	(1,202)	-	(1,202)	(1,102)	-	(1,102)	(2,238)	-	(2,238)
Other expenses	(702)	-	(702)	(606)	-	(606)	(1,253)	-	(1,253)
	(1,904)	-	(1,904)	(1,708)	-	(1,708)	(3,491)	-	(3,491)
Profit before finance costs and taxation	3,975	14,460	18,435	3,897	13,414	17,311	2,571	16,917	19,488
Finance costs	-	-	-	-	-	-	-	-	-
Profit before taxation	3,975	14,460	18,435	3,897	13,414	17,311	2,571	16,917	19,488
Taxation	(49)	-	(49)	(20)	-	(20)	(38)	-	(38)
Profit for the period	3,926	14,460	18,386	3,877	13,414	17,291	2,533	16,917	19,450
Return per Ordinary and 'A' non‑voting Ordinary share	16.4p	60.3p	76.7p	16.1p	55.9p	72.0p	10.6p	70.5p	81.1p

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

The total column of this statement represents the Income Statement, prepared in accordance with IAS 34. The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.

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

	(Unaudited) 30 September 2018 £000	(Unaudited) 30 September 2017 £000	(Audited) 31 March 2018 £000
Non‑current assets
Investment in subsidiary at fair value through profit or loss	629	629	629
Investments held at fair value through profit or loss	330,379	320,736	322,322
	331,008	321,365	322,951
Current assets
Trade and other receivables	2,424	2,138	55
Cash and cash equivalents	7,130	771	1,102
	9,554	2,909	1,157
Current liabilities
Trade and other payables	(995)	(1,423)	(1,007)
Net current assets	8,559	1,486	150
Net assets	339,567	322,851	323,101
Capital and reserves
Called up share capital	1,200	1,200	1,200
Capital redemption reserve	300	300	300
Retained earnings	338,067	321,351	321,601
Total equity shareholders' funds	339,567	322,851	323,101
Net asset value per Ordinary and 'A' non‑voting Ordinary share	1,414.9p	1,345.2p	1,346.3p

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2018	1,200	300	321,601	323,101
Gains for the period	-	-	18,386	18,386
Dividends	-	-	(1,920)	(1,920)
Net assets at 30 September 2018	1,200	300	338,067	339,567

Condensed Statement of Changes in Equity

For the six months ended 30 September 2017

(Unaudited)

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2017	1,200	300	305,980	307,480
Gains for the period	-	-	17,291	17,291
Dividends	-	-	(1,920)	(1,920)
Net assets at 30 September 2017	1,200	300	321,351	322,851

Condensed Statement of Changes in Equity

For the year ended 31 March 2018

(Audited)

	Share capital £000	Capital redemption reserve £000	Retained earnings £000	Total £000
Net assets at 1 April 2017	1,200	300	305,980	307,480
Gains for the year	-	-	19,450	19,450
Dividends	-	-	(3,829)	(3,829)
Net assets at 31 March 2018	1,200	300	321,601	323,101

Condensed Statement of Changes in Equity

	(Unaudited) Six months ended 30 September 2018 £000	(Unaudited) Six months ended 30 September 2017 £000	(Audited) Year ended 31 March 2018 £000
Cash flows from operating activities
Gain before finance costs and taxation *	18,435	17,311	19,488
Adjustments for:
Realised gains on investments	(1,407)	(7,089)	(12,670)
Unrealised gains on investments	(13,026)	(6,244)	(4,155)
Effect of foreign exchange rate changes	(27)	(81)	(92)
(Increase)/decrease in trade and other receivables	(2,369)	1,385	4,051
(Decrease)/increase in trade and other payables	(12)	1	22
Taxes paid	(49)	(20)	(38)
Purchase of non‑current investments	(17,201)	(47,715)	(59,284)
Sale of non‑current investments	23,577	41,003	53,458
Net cash inflow/(outflow) from operating activities	7,921	(1,449)	780
Cash flows from financing activities
Interest paid on bank loans	-	-	-
Dividends paid	(1,920)	(1,920)	(3,829)
Net cash outflow from financing activities	(1,920)	(1,920)	(3,829)
Increase/(decrease) in cash and cash equivalents	6,001	(3,369)	(3,049)
Cash and cash equivalents at 1 April	1,102	4,059	4,059
Effect of foreign exchange rate changes	27	81	92
Cash and cash equivalents at end of period/year	7,130	771	1,102

*includes dividends received of £5,806,000 (6 months ended 30 September 2017: £5,495,000, Year ended 31 March 2018: £6,080,000) and interest received of £1,000 (6 months ended 30 September 2017: £3,000, Year ended 31 March 2018: £5,000).

 

Notes to the Condensed Financial Statements

 1     ACCOUNTING POLICIES

(a)    Basis of preparation

The Financial Statements of the Company have been prepared under the historical cost convention, except for the measurement at fair value of investments, and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The Half Year Financial Statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and are consistent with the basis of the accounting policies set out in the Company's Annual Report and Accounts at 31 March 2018.

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

(b)    Significant judgements and estimates

The key significant estimate to report, concerns the Company's valuation of its holding in DV4 Ltd. DV4 is valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2018. The most recent valuation statement was received on 24 September 2018 stating the value of the Company's holding as at 30 June 2018. The most recent distribution was received on 16 August 2018. It is believed the value of DV4 as at 30 September 2018 will not be materially different, as adjusted for the distribution, but this valuation is based on historic valuations by DV4, does not have a readily available third party comparator and, as such, is an estimate. There are no significant judgements.

2      INCOME

	(Unaudited) Six months ended 30 September 2018 £000	(Unaudited) Six months ended 30 September 2017 £000	(Audited) Year ended 31 March 2018 £000
Income from quoted investments
UK dividends	366	460	653
Overseas and other dividends	5,379	4,842	5,105
Property income distributions	132	300	300
	5,877	5,602	6,058
Other income
Interest receivable on AAA rated money market funds	2	3	4
Total income	5,879	5,605	6,062

3      DIVIDENDS PAID

	(Unaudited) Six months ended 30 September 2018 £000	(Unaudited) Six months ended 30 September 2017 £000	(Audited) Year ended 31 March 2018 £000
Second interim dividend for 2018 (paid May 2018): 8.0p (2017: 8.0p)	1,920	1,920	1,920
First interim dividend for 2018 (paid November 2017): 8.0p (2017: 8.0p)	-	-	1,920
Unclaimed dividends refunded	-	-	(11)
	1,920	1,920	3,829

Note: The first interim dividend for 2019, payable in November 2018 will be 8.0p per share (2018, paid November 2017: 8.0p).

 

 4     RETURN PER SHARES

The returns stated below are based on 24,000,000 shares, being the weighted average number of shares in issue during the period.

	Revenue		Capital		Total
£000		Pence per share	£000	Pence per share	£000	Pence per share
Six months ended 30 September 2018 (Unaudited)	3,926	16.4	14,460	60.3	18,386	76.7
Six months ended 30 September 2017 (Unaudited)	3,877	16.1	13,414	55.9	17,291	72.0
Year ended 31 March 2018 (Audited)	2,533	10.6	16,917	70.5	19,450	81.1

5      FINANCIAL INFORMATION

The financial information contained in this Half Year Report is not that of the Company's statutory accounts as defined in section 434-436 of the Companies Act 2006. The financial information for the six months ended 30 September 2018 and 30 September 2017, has not been audited or reviewed by the Auditor and has been prepared in accordance with accounting policies consistent with those set out in the Annual Report and Accounts for the year ended 31 March 2018.

The statutory accounts for the financial year ended 31 March 2018 have been delivered to the Registrar of Companies and received an Audit Report which was unqualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2), (3) and (4) of the Companies Act 2006.

The Half Year financial information was approved by a committee of the Board of Directors on 22 November 2018.

6      NET ASSET VALUE PER SHARE

The NAV per share is based on the net assets attributable to equity shareholders of £339,567,000 (30 September 2017: £322,851,000; 31 March 2018: £323,101,000) and on 24,000,000 shares, being the number of shares in issue at the period ends.

7      COMMITMENTS AND CONTINGENCIES

The Company has no outstanding commitments as at 30 September 2018. (30 September 2017: £nil; 31 March 2018: £nil).

8      PRINCIPAL RISKS AND UNCERTAINTIES

The principal financial and related risks faced by the Company fall into the following broad categories - External and Internal. External risks to shareholders and to their returns are those that can severely influence the investment environment within which the Company operates: including government policies, taxation, economic recession, declining corporate profitability, rising inflation and interest rates and excessive stock market speculation. Internal and operational risks to shareholders and to their returns are: portfolio (stock and sector selection and concentration), balance sheet (gearing), and/or administrative mismanagement. In respect of the risks associated with administration, the loss of Approved Investment Trust status under s.1158 CTA 2010 would have the greatest impact.

A review of the half year and the outlook for the Company can be found in the Chairman's Report to the Shareholders and in the Portfolio Manager's Review.

Information on each of these areas is given in the Strategic Report within the Annual Report and Accounts for the year ended 31 March 2018. In the view of the Board these principal risks and uncertainties are applicable to the remaining six months of the financial year as they were to the six months under review.

 

9      FAIR VALUE HIERARCHY

Fair Value Hierarchy

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

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

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

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

The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy, are detailed below:

30 September 2018 (Unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	164,500	-	-	164,500
Unquoted equities	-	-	10,620	10,620
Fund investments	8,707	146,552	-	155,259
Investment in subsidiary	-	-	629	629
Net fair value	173,207	146,552	11,249	331,008

30 September 2017 (Unaudited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	163,760	-	-	163,760
Unquoted equities	-	-	11,854	11,854
Fund investments	8,326	136,796	-	145,122
Investment in subsidiary	-	-	629	629
Net fair value	172,086	136,796	12,483	321,365

31 March 2018 (Audited)	Level 1 £000	Level 2 £000	Level 3 £000	Total £000
Financial assets at fair value through profit or loss
Quoted equities	162,060	-	-	162,060
Unquoted equities	-	-	11,783	11,783
Fund investments	8,335	140,144	-	148,479
Investment in subsidiary	-	-	629	629
Net fair value	170,395	140,144	12,412	322,951

There have been no transfers during the period between levels.

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

9   FAIR VALUE HIERARCHY (CONTINUED)

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

	(Unaudited) September 2018 Equity investments £000	(Unaudited) September 2017 Equity investments £000	(Audited) March 2018 Equity investments £000
Opening Balance	12,412	12,489	12,489
Transferred from Level 1:	-	-	-
Purchases (Capital Drawdown)	-	-	-
Sales (Capital Distribution)	(1,496)	-	-
Total gains or losses included in gains on investments in the Income Statement:
- on assets sold	22	-	-
- on assets held at year end	311	(6)	(77)
Closing Balance	11,249	12,483	12,412

As at 30 September 2018, the investment in DV4 Ltd has been classified as Level 3. The investment in DV4 has been valued using the most recent estimated NAV as advised to the Company by DV4, adjusted for any further drawdowns, distributions or redemptions between the valuation date and 30 September 2018. The most recent valuation statement was received on 24 September 2018, with an estimated NAV based on the unaudited capital statement of DV4 as at 30 June 2018 as amended for a distribution received from DV4 Ltd on 16 August 2018. If the value of the unquoted Level 3 equity investments were to increase or decrease by 10%, while all other variables had remained constant, the return and net assets attributable to shareholders for the period ended 30 September 2018 would have increased or decreased by £1,061,966 respectively.

 

Investor Information

The Company currently manages its affairs so as to be a qualifying investment trust 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 Trust PLC 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 shares in an investment trust. Finally, Hansa Trust is registered as a Reporting Financial Institution with the US IRS for FATCA purposes.

Investor Disclosure

AIFMD

The Company's AIFM, Maitland Institutional Services Limited, hosts a Hansa Trust Investor Disclosure document on its website. The document is a regulatory requirement and summarises key features of the Company for investors. It can be viewed at: 
https://www.maitlandgroup.com/wp-content/uploads/2017/08/Hansa-Investor-Disclosure-Document-2018-updated.pdf

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

The Company's AIFM, Maitland Institutional Services Limited, is responsible for applying the product governance rules defined under the MiFID II legislation on behalf of Hansa Trust PLC. Therefore, the AIFM is deemed to be the 'Manufacturer' of Hansa Trust'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. Maitland have done this as required. The PRIIPs KIDs can be found on their website: https://www.maitlandgroup.com/investment-data/hansa-trust-plc/ and links to these documents can also be found on the Company's website for good measure: https://www.hansatrust.com/shareholder-information/regulatory-information.aspx

Capital Structure

The Company has 8,000,000 Ordinary shares of 5p each and 16,000,000 'A' non‑voting Ordinary shares of 5p each in issue. The Ordinary shareholders are entitled to one vote per Ordinary share held. The 'A' non‑voting Ordinary shares do not entitle the holders to vote or receive notice of meetings, but in all other respects they have the same rights as the Company's Ordinary shares.

Contact Details

Hansa Trust PLC

50 Curzon Street, London W1J 7UW

Telephone: [phone]

Email: [e-mail]

Website: www.hansatrust.com

The Company's website includes the following:

- Monthly Fact Sheets

- Stock Exchange Announcements

- Details of the Board Statements

- Annual and Half Year Reports

- Share Price Data Reports

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

Hansa Capital Partners LLP

50 Curzon Street

London W1J 7UW

Telephone: [phone]

Email: [e-mail]

Website: www.hansagrp.com

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

Link Asset Service

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

Telephone: [phone]
(Calls cost 12p per minute plus your phone company's access charge. If you are outside the United Kingdom, please call [phone]. Calls outside the United Kingdom will be charged at the applicable international rate. We are open between 9.00 am - 5.30 pm, Monday to Friday excluding public holidays in England and Wales.)
Email: [e-mail]
www.linkassetservices.com

Share Price Listings

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

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

ISIN                                                       Code

Ordinary shares                                  GB0007879728

'A' non-voting Ordinary shares        GB0007879835

SEDOL

Ordinary shares                                  787972

'A' non-voting Ordinary shares        787983

Reuters

Ordinary shares                                  HAN.L

'A' non-voting Ordinary shares        HANA.L

Bloomberg

Ordinary shares                                  HAN LN

'A' non-voting Ordinary shares        HANA LN

TIDM

Ordinary shares                                  HAN

'A' non‑voting Ordinary shares       HANA

Legal Entity Identifier: 213800AIF87JWGLA1L74

Useful Internet Addresses

Association of Investment Companies           www.theaic.co.uk

London Stock Exchange    www.londonstockexchange.com

TrustNet  www.trustnet.com

Interactive Investor              www.iii.co.uk

Morningstar          www.morningstar.com

Edison     www.edisongroup.com

Financial Calendar

Company year end                                           31 March

Annual Report sent to shareholders              June

Annual General Meeting                                  July

Announcement of Half Year results               November

Half Year Report sent to shareholders          December

Interim dividend payments                              November & May

 

Company Information

Registered in England & Wales number: 00126107

BOARD OF DIRECTORS

Alex Hammond‑Chambers (Chairman)

Jonathan Davie

Raymond Oxford

William Salomon

Geoffrey Wood

SECRETARY AND REGISTERED OFFICE

Hansa Capital Partners LLP

50 Curzon Street

London W1J 7UW

PORTFOLIO MANAGER

Hansa Capital Partners LLP

50 Curzon Street

London W1J 7UW

AUDITOR

Grant Thornton UK LLP

30 Finsbury Square

London EC2P 2YU

SOLICITORS

Dentons

1 Fleet Place

London EC4M 7RA

REGISTRAR

Link Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

DEPOSITARY

BNP Paribas Securities Services

10 Harewood Avenue

London NW1 6AA

STOCKBROKER

Winterflood Investment Trusts

The Atrium Building

Cannon Bridge

25 Dowgate Hill

London EC4R 2GA

ADMINISTRATOR

Maitland Administration Services Limited

Springfield Lodge

Colchester Road

Chelmsford

Essex CM2 5PW

ALTERNATIVE INVESTMENT FUND MANAGER

Maitland Institutional Services Limited

Springfield Lodge

Colchester Road

Chelmsford

Essex CM2 5PW
 

Glossary of Terms

AIC

The Association of Investment Companies ("AIC") is the UK trade association for closed-ended investment companies.

Alternative Investment Fund Managers Directive ("AIFMD")

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

Annual Dividend / Dividend

The amount paid by the Company to shareholders in dividends (cash or otherwise) relating to a specific financial year of the Company. UK Investment Trusts are required to distribute a minimum amount each year based upon a minimum allowed level of retention of revenue income. The Company's dividend policy is to announce its expected level of dividend payment at the start of each financial year. Barring unforeseen circumstances, the Company then expects to make two interim dividend payments each year - the first at the end of November during that financial year and the second 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 trust'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 Net Asset Value, it is referred to as trading at a discount. The discount is expressed as a percentage of the Net Asset Value.

Expense Ratio

An expense ratio is determined through an annual calculation, where the operating expenses are divided by the average NAV. Note there is also a description of an additional PRIIPs KIDs Ongoing Changes Ratio explained on page 13 of the most recent 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.

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.

Investment Trust

An Investment Trust is a company that is a form of collective investment vehicle. The company is a closed-end fund and is constituted as a public limited company that is listed on a Stock Exchange. In the UK, Investment Trusts that meet the approval criteria from HMRC benefit from certain beneficial tax allowances - most notably not paying tax on Capital Gains. Their taxation status is governed by s.1158 of the Corporate Tax Act 2010.

Issued Share Capital

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

Key Performance Indicators ("KPIs")

A set of quantifiable measures that a company uses to gauge its performance over time. These metrics are used to determine a company's progress in achieving its strategic and operational goals and also to compare a company's finances and performance against other businesses within its industry.

Market Capitalisation

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

Mid Price

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

Net Asset Value / NAV

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

Net Asset Value Total Return

See Total Return.

Offer Price

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

Ordinary Shares

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

Hansa Trust has two classes of Ordinary share. The Ordinary (8m shares) and the 'A' non-voting Ordinary shares (16m shares). Both have the same financial interest in the underlying assets of the Company, and receive the same dividend, but differ only in that only the former shares have voting rights, whereas the latter do not. They trade separately on the London Stock Exchange, nominally giving rise to different share prices at any given time.

Premium

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

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 that is 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.

Public Limited Company ("PLC")

A Public Limited Company in the UK is a company limited by shares with an authorised share capital of over £50,000.

Shareholders' Funds/Equity Shareholders' Funds

This value equates to the Net Asset Value of the Company. See Net Asset Value.

Spread

The difference between the Bid and Ask price.

TIDM

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 that they are referring to the right share. Previously known as EPIC.

Total Return

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

Total Return - Shareholder

The Total Return to a shareholder is a measure of the performance of the company's share price over time. It combines share price appreciation/depreciation and dividends paid to show the total return to the shareholder expressed as an annualised percentage.

VIX Index

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

Hansa Trust PLC

50 Curzon Street

London

W1J 7UW

T  :           [phone]

F  :           [phone]

E                                                                         :   [e-mail]

Visit us at

www.hansatrust.com/

Condensed Statement of Changes in Equity

 

END

 

 

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