Annual Financial Report

RNS Number : 3914J

Hansa Trust PLC

30 June 2011

 



HANSA TRUST PLC

Announcement of Annual Financial Report

for the year ended 31 March 2011

Hansa Trust PLC announces its Annual Financial Report for the year ended 31 March 2011

This document is compiled from extracts from the Company's Annual Financial Report but does not form the full Report. A full copy of the Company's Annual Financial Report can be found on the Company's website at www.hansatrust.com

Financial Highlights	Year ended 31 March 2011 (unaudited)	Year ended 31 March 2010 (audited)
Net Asset Value - Total Return	23.3%	48.0%
Performance Benchmark	5.3%	6.2%
Capital return per equity share	204.6p	272.9p
Revenue return per share	3.5p	27.4p
Net asset value per share	1,100.5p	895.9p
Total dividend per equity share for the year	3.5p	25.0p
Total income (£000's)	3,009	8,370
Revenue before taxation (£000's)	836	6,584

The following are attached:

·              Chairman's Statement

·              Report of the Directors

·              Corporate Governance

·              Statement of Directors' Responsibilities

·              Group Income Statement

·              Statement of Changes in Equity-Group and Company

·              Balance Sheet for the Group and Company

·              Cash Flow Statement

·              Notes to the Financial Statements

For further information please contact:

Peter Gardner                Hansa Capital Partners LLP                    020 7647 5750

Chairman's Statement

2010-2011: Stock Market Recovery continues, currency crises abound

This last year has seen a continuation of the recovery of stock markets from their low points in March 2009 - following the severe battering they had taken in the wake of the 2007/08 financial crisis. The crisis caused liquidity in many markets to implode - not only stock markets but also commodity, banking, money and other markets. In all probability, central banks had little option but to flood markets with money to re-liquify the economic and financial systems, which might otherwise have ground to a halt with very severe consequences. But there will be costs down the line - some of which can be anticipated, others of which are not. In any event the reliquification has been very good for stock markets: money drives markets. However, it is not just money sloshing around that has driven these markets. Companies have done an excellent job of cutting costs and preparing themselves for difficult times. So we have witnessed lots of money chasing good profit performances with the excellent returns tabled below.

Stock market Index Changes (in £s) during two years (31 March 2009 to 2011)

(in £s:)	2009/2010	2010/2011	2009/2011
Australia	+72.9%	+7.4%	+85.7%
Brazil	+107.9%	+1.5%	+111.0%
Canada	+62.3%	+15.7%	+87.8%
China	+23.8%	-7.1%	+15.0%
France	+36.3%	-0.4%	+35.8%
Germany	+45.1%	+13.6%	+64.8%
Japan	+36.6%	-6.2%	+28.1%
UK	+46.7%	+5.4%	+54.6%
USA	+39.1%	+7.2%	+49.1%

However, the period has also been one of considerable turmoil in currency markets. Given that a number of nations had to put their national balance sheets on the line to bail out their errant banking industries, while others have found that their national debts have become too big to manage, it is not surprising that there have indeed been currency crises. The Euro took quite a hammering in the spring and early summer of 2010 as the confidence in the national finances of the PIIGS, as they have become affectionately known, broke down. It has subsequently recovered. However, the real story of the currency markets over these last two years has been the steady decline of the US Dollar against most major currencies (including the Euro). The table below shows the decline in the US Dollar against major currencies.

The US$	2009/2010	2010/2011	2009/2011
Sterling £	-5.7%	-6.0%	-11.4%
Euro Ä	-1.8%	-4.6%	-6.3%
Japanese Yen	-4.7%	-10.6%	-14.8%
Chinese Yuan	-0.1%	-3.9%	-4.0%
Brazilian Real	-22.4%	-8.2%	-28.8%
Australian $	-25.7%	-10.8%	-33.7%
Canadian $	-18.4%	-4.6%	-22.2%

Source: OANDA web site

The steady decline of the US Dollar is a cause for concern, albeit there is no Dollar crisis. Indeed there remains a lot of confidence in it - most especially when there are global problems (the uprisings in North Africa and in the Middle East for instance) - but the fact is that the combination of loose money and huge trade deficits creates more sellers than buyers. The US Dollar price of gold has risen by circa 60% over these two years. That just about says it all.

While our portfolio is invested entirely in the shares of UK listed companies, we have an international perspective when managing money, in part because there is a considerable degree of correlation between the movements of stock markets around the world and in part because over 60% of the sales and profits earned by UK listed companies is earned overseas. An understanding of international trends sets the scene for managing and understanding our investment portfolio.

THE YEAR'S RESULTS

NAV: +22.8% to 1,100.5p per share
Benchmark: + 5.3%

Following last year's big recovery (the net asset value per share ("NAV") rose 41%), I am able to report that the NAV rose a further 22.8% this year, ending the year at 1,100.5p per Ordinary and "A" Ordinary share. I do each year remind shareholders - who I am sure do not need reminding - that it is our purpose to make money for you. It is for that reason we have the benchmark we do - one which compares our returns with that of a low risk, absolute return fixed interest government bond. Last year the benchmark returned 5.3%; that compares with a NAV return (including the reinvestment of dividends paid) of 23.3%.

Although not our benchmark, we do keep an eye on the performance of the market as a whole, using the FTSE All-share Index as a proxy for it. The Index rose by 5.4% and on a total return basis by 9.4%, so we had the satisfaction of doing rather better than it. We will not always do so and - to repeat - the portfolio is not managed to do so.

Once again our holding in Ocean Wilsons (more of which below) was the main contributor to the gains made over the year. Of the 204.6p gain in the NAV, our holding in Ocean Wilsons made 90.6p; but there were some other excellent contributors, the next four being from our holdings in Cape (+18.4p), Kofax (+15.0p), BG Group (+14.7p) and Andor Technology (+14.0p). There really were only two losses of any significance - one coming from our holding in BP (-6.9p; that story is very well aired!) and the other from EAGA (-9.1p; the holding has now been sold). As always, John Alexander provides an excellent and detailed account of the activities in the portfolio during the year in his manager's report, backed up with commentary on what has happened in the wider world and what our prospects are.

Two of the characteristics that the investment trust sector is inclined to boast about - and quite rightly so in my view - are the long-term investment approach that closed end portfolio management allows and the relatively low cost of managing investment trusts. The best way to gauge the time horizons of the management of a portfolio is to look at the portfolio turnover - how long on average are holdings held for. High portfolio turnover is normally an indication of short-termism: in our case, our portfolio turnover last year amounted to 17.8% of the average total assets during the year. I should add that our capital structure also protects us from market pressures to produce short-term performance and that our benchmark protects us from the pressure to produce positive relative returns often at the expense of absolute returns (the latter being our goal).

The costs of running the Company were low, our total expense ratio was 0.9% of the average shareholder's equity during the year. One of the reasons for the low number is that Hansa Capital, our Manager, does not charge a fee for the holding in Ocean Wilsons, which saves shareholders around £1 million each year. We are always a little cautious about boasting about low expense ratios. A low expense ratio that produces rotten returns is actually money badly spent. What my independent director colleagues and I feel is that what we have spent to earn the returns we and all other shareholders, have enjoyed, has proven to be very good value for money.

OCEAN WILSONS

Value of Holding: +25.4% at £106.2m.

The value of our holding in Ocean Wilsons has once again made an excellent contribution to our own returns. Again, John's commentary provides a good review of its progress.

We should remember that Ocean Wilsons (market capitalisation: £401.3m) business now consists of:-

1.    its 58% owned subsidiary, Wilson Sons Ltd which is involved in maritime services in Brazil. The value of that holding at our year end amounted to $698m; and

2.    a portfolio of investments with a market value of circa $260m at our year end.

To repeat what I said last year: it is not our policy to trade in and out of our holding in Ocean Wilsons and one of the reasons for achieving the quotation for Wilson Sons shares three years ago, realising some cash from its investment in it, was to make Ocean Wilsons a geographically more diversified company. John's commentary provides some figures. So, although our holding of 26.5% of Ocean Wilsons accounts for 40% of our net asset value, as mentioned above, the commitment to any one country or to any single investment is much less.

DIVIDEND

3.50p per share

In the year to 31 March 2010, we earned rather more than we would usually expect owing to the timing of the payment of some of our dividends. We did not have the benefit of those dividends this year, so that the comparison of our income suffers twice - once for not receiving them and the second time because they were received twice the year before. So it is that our income from investment fell from £8.4 million to £3.0 million.

As a consequence the net income available to pay dividends has also declined - from £6.6m to £0.8m or 3.49p per share. As an interim dividend of 3.50p per share has already been paid, the Board are not declaring a final dividend.

Over the past two years, the total dividends declared have amounted to 28.5p per share. I would hope - but certainly not promise - that our dividend payments will become more normal this year - more in line with what we have been able to pay in prior years.

SHARE PRICE PERFORMANCE

Ordinary shares:	+25.1% to 951p per share;	Discount to NAV: 13.6%
"A" Ordinary shares:	+24.0% to 930p per "A" share;	Discount to NAV: 15.5%

With a small improvement in the discount at which both classes of shares sell in relation to their underlying net asset value, the rise in the price of our shares did a little better than the NAV itself:

•      the Ordinary shares ended March 2011 at 951p, selling at a discount 13.6%. An interim dividend of 3.5p was paid, providing a total return of 25.6% for the year (see table overleaf);

•      the 'A' Ordinary shares ended March 2011 at 930p, selling on a discount of 15.5%; the payment of the interim dividend meant that the total return of the 'A' Ordinary shares for the year amounted to 24.4%;

The table overleaf provides an attribution of shareholders' return over the course of the year - after taking into consideration the dividends paid during the course of the year, amounting to 3.5p per share.

Attribution of Shareholder Returns	Ordinary Shares		"A" Ordinary Shares
Share price change due to change in NAV	+174.0p	+22.9%	+171.8p	+22.9%
Share price change due to change in discount	+17.0p	+2.2%	+8.2p	+1.1%
Dividends paid during the year	+3.5p	+0.5%	+3.5p	+0.5%
Shareholders' Total Return	+194.5p	+25.6%	+183.5p	+24.4%

It has to be said that the discount at the year end our shares are selling at in relation to the underlying net asset value is somewhat higher than the average for investment trusts generally and for our peer group, the AIC's UK Growth. We do take powers to buy back shares and will do so if the circumstances make it particularly attractive to do so. But, we do not seek to manage the share price over the short-term with buy back programmes, content in the knowledge that over the long term the share price return will not be materially different from the net asset value return.

LONG TERM NAV RETURNS

5 Years: NAV: +34.6%;              Benchmark: +31.7%;                                   FTSE All-Share Index: +0.6%
NAV: +47.2% (including reinvestment of dividends)
Ordinary share price:                 +12.2% (including dividends +21.4%)
'A' Ordinary share price:            +13.7% (including dividends +22.5%)

We always stress the importance of long-term returns in these statements and we regard five years as an appropriate time over which to judge those returns. As the figures above show, the net asset value has risen by 34.6% since our 2006 year end; and, on a total return basis, by 47.2%. It is not a huge return - amounting to circa 6% per annum, 8% p.a. total return - but it is positive and it is a little bit better than our benchmark (+31.7% or 5.7% p.a.). It is certainly better than the stock market as measured by the FTSE All-Share Index.

Last year we showed how the five year rolling returns have worked out over the last ten years and we have reproduced the chart. It illustrates that, by and large and with the exception of one period, the five year per annum returns have been satisfactory - some very good periods, others not quite as good but, in nine out of the ten periods, money has been made for shareholders.

Five Year NAV Returns (pa) 2002 to 2011 - Chart not included

Some shareholders do, from time to time, ask the question: How have you done if you exclude the holding in Ocean Wilsons. It is a very reasonable question to ask and I am happy to report that the answer is satisfactory. The table below sets out those returns:

NAV (ex Ocean Wilsons Holdings) over:	NAV	FTSE All-Share Index
Over 1 Year	+21.3%	+5.4%
Over 3 Years	+6.2%	+4.8%
Over 5 Years	+3.9%	+0.6%
Over 10 Years	+59.2%	+13.2%

Each year it falls upon the shoulders of the independent directors to assess the performance of our Manager and to report to shareholders that we have done so. Obviously, the absolute and relative returns are satisfactory. But the assessment is broader based than a mere inspection of the numbers. Hansa Capital are diligent and efficient in carrying out their duties and very conscious of the needs of their client - you, the shareholders. We, the independent directors, had no trouble in concluding that it is very much in the interest of shareholders that Hansa Capital remain in situ as the Company's managers.

Our affairs are in good hands. It is appropriate for us, on behalf of all shareholders, to thank William Salomon, John Alexander, Peter Gardner and all their colleagues at Hansa Capital for all that they do for us and the returns they have earned for us over the years. Thank you.

ANNUAL GENERAL MEETING

2 August 2011 at 11.30am at the Washington Hotel, Curzon Street.

The Annual General Meeting will be held at the Washington Hotel, Curzon Street, London (Green Park tube station, see map on page 53) at 11.30am on Tuesday 2 August 2011. Your attendance is important to us because it gives us, the Directors and Management, the chance to hear your views, concerns and suggestions. Do please come and join us. As he always does, John will give his usual presentation of the events of the past year and the prospects for the current one. Following the formal AGM you will have the chance to meet the Directors and the Management and discuss any aspect of the Company's business - should you wish to do so.

OUTLOOK

John's Outlook, which ends his Investment Manager's Report, provides an excellent run through of the issues and the dilemmas facing the economies of the world, companies' sales, profits and dividends and thence stock markets themselves. He concludes that we are recovering from the financial crisis but that there will be pauses in the rate of recovery; getting there will require patience. The big issue that neither he nor anyone else can answer at this stage is where do we go to on the way to "there".

All major crises bring about change. The 2007/8 financial crisis has brought about many changes but questions hang in the air: are they the right changes? Are we not just papering over the root causes of the crisis with more rules and regulations, designed to treat the symptoms rather than eliminate the causes? Changing the structure of regulation, designing new banking structures to protect depositors from bad banking practices, having almost zero interest rates, pumping money into the economy and many other policy initiatives - all are designed to protect us from the consequences of poor economic behaviour inherent in living - persistently - beyond our means.

The City - and indeed the broader financial community - finds itself in a dilemma when considering quite what the fiscal and monetary policies that have been adopted to deal with the crisis will bring about. On the whole it believes - in part because it wants to believe - that we will get ourselves out of the economic and financial mess we are still embroiled in through gentle inflation, slow but sure economic growth and corporate prosperity. It may happen but it is unlikely. There are other scenarios and they include on the one hand inflation erupting out of control and on the other protracted deflation - much as Japan has suffered in the last 20 years. Given that we have no certain knowledge which of these three - or any other - scenarios will come to pass, we have to adopt an open mind. Arie de Geus, head of Shell Oil's Strategic Planning Group and a leader in the development of scenario planning, taught that strategists who focus on a single path of future events tend to filter out news that does not fit their view of the world. Companies with a single strategy or plan are "virtually blind" to new information.

Every year - at the turn of the year - your Board and Management have a strategy meeting to think about the longer-term future and about risk. This year we started questioning ourselves of the basic reasons that lie behind the financial mess we are in. It is not an easy question to answer in a sentence but perhaps the most fundamental cause for the problems is the culture and obsession with short-term gratification - or short-termism as it is usually referred to. It has and continues to determine how we behave. An understanding of why it has all come about gives one a chance - outside maybe - of understanding what might happen going forward.

I believe that the single most important casualty of our short-termism is our country's level of savings. Short-termism encourages consumption today at the expense of saving for consumption tomorrow; but there are also other biases against saving, including our tax system, our current level of interest rates, our welfare state dependency culture and inflation. Given that we have got used to getting richer from rising house prices and stock markets, it all adds up to - "why bother to save?" So - as a gross generalisation - we don't; rather we live beyond our means and we rely on Government to do for us what personal savings would otherwise do. The truth of the matter is that we cannot enjoy long-term economic prosperity without an adequate level of savings. We not only need savings to invest in our future but we now need savings to repay our debts.

The purpose of these comments is to proffer the view that the basic cause for the financial mess we are in - living beyond our means and not saving enough - has not been addressed in any of the policy initiatives. Rather they have been and continue to be about relieving the symptoms in a desperate attempt to put off the consequences of profligacy. Quantitative Easing does not constitute a policy to deal with our financial imbalances; new rules and regulations merely encourage more but different regulatory arbitrage; near zero rates of interest punish savers, subsidise borrowers and finance reckless speculation; stakeholders in banks want lower risks but institutional investors continue to demand higher returns; bad debts (including and importantly bank and sovereign debts) are rolled forward rather than recognised. And so on. None of these policies provides the fundamental changes that a crisis should provoke and which should lead on to better times.

So, while we are enjoying a lull in the storm, we should continue to expect the volatility that has characterised stock markets over the last ten or so years and is inherent in uncertainty. We can expect more of the same policies without knowing quite what their ultimate consequences will be. Excessive Quantitative Easing suggests inflation and, if wages don't keep pace, considerable political unrest. On the other hand, if individuals, faced with static income but higher household bills, higher inflation, higher taxes and debt repayments, decide to draw in their financial horns, then we could well face protracted deflation.

While all of the above sounds rather gloomy, I think it is sensible to be realistic about the future and not to close one's mind to any outturn. But for all of us, as shareholders of Hansa Trust, our own prospects ultimately depend on how well we invest. That involves, in part understanding the external environment and in part backing well-managed companies over the long haul. John has made the point that the corporate world is - by and large - in good financial health. That at least provides us with the opportunity to find the right companies for the times and to continue to make money for you. I am confident we will.

Signature

Alex Hammond-Chambers
Chairman              24 June 2011

Report of the Directors

The Directors present their Report and Financial Statements for the year ended 31 March 2011.

THE BOARD'S OBJECTIVES

The Board is charged by the shareholders with the responsibility for looking after the affairs of the Company. It involves the 'STEWARDSHIP' of the Company's assets and liabilities and 'THE PURSUIT OF GROWTH OF SHAREHOLDER VALUE'. These responsibilities are discharged in many ways and are detailed below.

THE BOARD

The Directors who served in the year to 31 March 2011 are set out below. Each of them brings certain individual and complementary skills and experience to the Board's workings, as summarised below and have dedicated their time to the Company to ensure its success. All Directors resign at each Annual General Meeting and offer themselves for re-election. The Board endorses the re-appointment of each of the Directors based on their continuing contribution to the Company and its shareholders.

The Company's Articles of Association include a general power for the Directors to authorise any matter which would or might constitute or give rise to a breach of the duty of a director under s.175 of the Companies Act 2006. Procedures have been established for the disclosure of any such conflicts and also for the consideration and authorisation of these conflicts by the Board, where relevant.

Mr Hammond-Chambers (Chairman)

Alex's career has been involved with portfolio management and investment trusts, from which he brings - inter alia - experience and understanding of investment policies, strategies, stock selection and risk management. Born in 1942, he joined the Board in 2002. He worked for Ivory & Sime for 27 years as an investment trust manager and then as executive chairman before retiring as chairman in 1991. He is chairman and a director of a number of other investment companies. He has served as a chairman of the Association of Investment Companies and as a governor of the NASD (NASDAQ).

Lord Borwick

Jamie's business life has been involved with the automotive industry particularly and manufacturing generally, as well as involvement with the property sector. He brings his experience of Midlands industry and property to the Board's stewardship. Born in 1955, he joined the Board in 1984. He is chairman of Music Software Ltd, which is developing teaching software, and a trustee of the British Lung Foundation and several other charities. He is also a partner of Federated Investments LLP and an investor in property in the UK.

Mr Salomon

William's career in investment banking and management has involved working on and understanding corporate strategies. His own skills and experience are important to the Board in developing and monitoring investment in special investment themes and in strategic investments. Born in 1957, both a German and British citizen, he joined the Board in 1999. He is the senior partner of Hansa Capital Partners LLP (the Investment Manager and Company Secretary), chairman of New India Investment Trust PLC, deputy chairman of Ocean Wilsons Holdings Limited and its listed subsidiary Wilson Sons Limited.

Professor Wood

Geoffrey has great knowledge of economics generally and monetary and fiscal policy issues specifically. His skills and experience are important to the Board, particularly in understanding the effect of such policy issues on the markets. Born in 1945, he joined the Board in 1997. He is Professor of Economics at Cass Business School, in the City of London, and a visiting Professorial Fellow at the Centre for Commercial Law at Queen Mary and Westfield College of London University. He has been visiting Professor at the University of South Carolina and at the National Bureau for Economic Research at Harvard. In addition he is and has been an adviser to a number of Central Banks and City of London financial firms.

BUSINESS REVIEW

A review of the performance and development of the business, including an analysis using the KPIs listed below, is given in the Chairman's Statement on pages 4 to 9. There have been no important events since 31 March 2011, which the Board are aware of, which would have a material impact on the Company.

Investment Policy

The investment policy adopted by the Board is to invest in a portfolio of quoted and unquoted special situations, with the objective of achieving growth of shareholder value.

By the very nature of special situation investments, the opportunity to invest in them will arise at any time and often not for long periods. Sometimes a number of opportunities may arise at the same time, so any single investment may, on occasion, constitute a significant proportion of the portfolio or of that of the company concerned. The Investment Manager is charged by the Board with implementing the investment policy under its supervision and guidance. It is important for the Investment Manager to be able to vary any investment at any time in order either to protect shareholders' funds and/or to optimise shareholders' returns.

Portfolio Limits

The Board of Directors has set a limit of 15% of the portfolio of the Company that can be invested in any one company, the limit applying at the time of the acquisition of the holding, coincidently as required by s.1158 Corporation Tax Act 2010 (formerly s.842 Income and Corporation Tax Act 1988). The Board has not set a limit on the market value of an investment held in any company, which can therefore rise above 15%. The Board has not set a limit on the number or value of unquoted investments which can be held in the portfolio; nor has it set a limit on the number of companies it can invest in, however it would usually invest in at least 30 companies.

Likewise, the Board has set a limit of 30% of the value of the portfolio that can be invested into any one sector or theme at the time the investment is made, but has not set a formal limit on the market value that can be held in any one sector or theme. For the avoidance of doubt the Board, working with the Manager and other advisers, determines what constitutes a sector or theme. Again, although the Board has not set either a floor or a ceiling on the number of sectors invested in, it is expected that it would usually exceed four.

The investment policy enables the Investment Manager to invest worldwide, in either UK or foreign quoted or unquoted companies. The Board does not believe it is practical to impose limits on the geographical allocation of assets because, with the globalisation of businesses, it is an almost impossible task to monitor. While fully aware of the impact of geopolitical influences on the outcome of investment returns the Board, in conjunction with the Investment Manager, regularly reviews each investment on its individual merits. There is no geographical constraint on where and how much may be invested in any one country or currency.

Borrowing Limits

The Board believes shareholders' returns will be enhanced if the Company borrows money at appropriate times for the purpose of investment. While the Constitution allows the Company to borrow up to 3.5 times shareholders' funds, the amount that can be borrowed at any time is normally subject to a constraint imposed in the lender's borrowing covenants. The Board will normally set an informal borrowing limit of approximately one half of the lender's covenanted constraint at the time the borrowings are made, allowing plenty of capacity for the value of the portfolio to fall without having to sell investments to conform with those covenants. However, in extreme circumstances, such as when it is believed to be the bottom of a bear market, the Board may well borrow up to the full amount the lender's covenant allows.

Hedging Limits

The Investment Manager, in consultation with the Board, may from time to time put in place a hedging strategy in order to mitigate some of the stock market risks of the portfolio. It is not the intention of the Board to have in place a hedging strategy which would eliminate all adverse effects to shareholders' funds caused by a fall in general market prices, nor to protect the short-term value of the portfolio. Rather the aim would be to realise, in circumstances of a severe and sudden fall in stock markets, a sum of money which can be used to take advantage of the fall and to purchase investments at prices which may add very good long-term value. No limit has been set on the proportion of the portfolio that might be hedged.

Results and Dividends

The results attributable to shareholders for the year and the transfer to reserves are shown on page 36.

The dividends paid and proposed are as follows:

	2011		2010
	£000		£000
Ordinary and 'A' non-voting Ordinary shares
Interims paid of 3.5p (2010: 25.0p) per share	840		6,000
Final proposed nil (2010 nil) per share	-		-
Total dividends	840		6,000

The Board is not proposing a final dividend.

Key Performance Indicators

The Board reviewed the risks from the point of view of the long-term shareholder, the principal one being that over the long-term (which we determined was five years) they do not make a return from their investment in the Company. The key performance indicator ('KPI'), against which the Board compared shareholders' share price and dividend returns, is the benchmark, which is in essence a proxy for the return from a five year investment plus 2%. Other KPIs include the net asset value returns against those of the benchmark, against the Company's peer group average returns, against the market (the FTSE All-Share Index) and the total expense ratio in relation to the returns shareholders have received. The numbers are computed on a one, three, five and ten year basis - five years being the better time period over which to judge the progress of the Company.

i) Shareholder - Total Returns

A comparison is made between the 'Total Return' of each class of shares to that of the three-year average rolling rate of return of a five year UK Government bond, plus 2% with interest re-invested semi-annually (the Company's benchmark). This comparison illustrates how shareholders' returns compared with the returns of the benchmark.

To 31 March 2011	1 year	3 years	5 years	10 years
Share Price
Ordinary shares	25.7%	25.1%	24.1%	131.9%
'A' non-voting Ordinary shares	24.4%	23.3%	26.0%	186.3%
Company's benchmark	5.3%	18.2%	31.7%	66.6%

ii) Company - Total Returns

These comparisons are used to determine the effectiveness of the investment strategy and of the Investment Manager.

To 31 March 2011	1 year	3 years	5 years	10 years
Net Asset Value	23.3%	27.1	47.2%	211.6%
Absolute comparison
Company's benchmark	5.3%	18.2%	31.7%	66.6%
Relative comparison
FTSE All-Share Index	9.4%	18.7%	22.5%	64.8%
Peer Group Average	13.4%	18.8%	18.8%	101.4%

iii) Discount/(Premium)

A comparison is made between the discounts/(premiums) of the Company's two classes of shares and those of the Company's Peer Group and of the AIC Average.

	2011	2008	2006	2001
Discount
Ordinary shares	13.6%	11.3%	(3.6%)	18.4%
'A' non-voting Ordinary shares	15.5%	11.8%	0.0%	5.8%
Peer Group Average	8.6%	9.1%	6.6%	10.0%
AIC Average	8.7%	8.6%	6.9%	9.0%

iv) Expense ratios

A comparison is made between the level of expenses (administrative and management) of the Company and the net asset returns (both annualised) in order to assess the value for money shareholders receive.

To 31 March 2011	1 year	3 years	5 years	10 years
Total expense ratio per annum	0.9%	1.0%	0.9%	1.0%
NAV Total Return	6.3%	18.2%	31.7%	66.6%

Risks

The Board considers the risks shareholders face can be divided into external and internal risks.

External risks to shareholders and their returns are those that can severely influence the investment environment within which the Company operates: including government policies, economic recession, declining corporate profitability, rising inflation and interest rates and excessive stock market speculation. At the annual strategy meeting, the Directors and Management highlighted certain risks that concerned them, including:

A large rise in either long or short-term interest rates.

A collapse of Sterling.

•      Currency instability, in particular the disintegration of the Euro.

•      Uncertainty of outcome of recovery policies (particularly inflation or deflation), given they amount to an experiment.

•      Aftershocks to the financial crisis, particularly in the continental European banking system.

Unquantifiable risks in China.

•      Risk of political paralysis stemming from the coalition Government.

Terrorism and international conflict.

Regulatory change, particularly from the EU.

It should be stressed that these are the risks which most concern the Directors and Management, not forecasts of future events.

The management of these risks is achieved by sensible stock and sector diversification, the use of investment restrictions and guidelines and monthly reporting to the Board of the Company's adherence to these restrictions and guidelines.

Internal risks to shareholders and their returns are: portfolio (stock and sector selection and concentration), balance sheet (gearing), and/or administrative mis-management. In particular the Board has identified the exposure to Ocean Wilsons Holdings Limited as a notably large single investment risk. In respect to the risks associated with administration, continuing compliance with s.1158 CTA 2010 would have the greatest impact if it ceased to be complied with by the Company. The portfolio is continuously monitored by the Manager to ensure the Company is compliant with the key aspects of s.1158; any discrepancies are reported to the Board in the Manager's monthly compliance report.

The mitigation of these risks is achieved by the Board performing regular reviews of all service providers and monthly reviews of s.1158 compliance.

The Board considers the risks to the Company's two share prices, apart from those mentioned above, include the level of discount or premium. The Board monitors the discount/premium and may take action when appropriate. However, given the Company's stated objective of increasing shareholder value over the medium to long-term, the Board does not consider short-term net asset value or share price volatility to be a material risk to long-term shareholders.

Details of how the principal risks arising from financial instruments (as determined by the accounting standards board) are managed, have been summarised in Note 21 on pages 47 to 50.

THE PURSUIT OF GROWTH OF SHAREHOLDER VALUE

In pursuit of shareholder value, the Board:

•      Contracts out the administration and management of the Company

The Board, in contracting out the administration and management of the Company, seeks to engage organisations which can provide the relevant levels of experience and expertise at an acceptable cost.

•      Monitors third party suppliers, performance and costs

The Board, at its regular meetings, reviews reports prepared by both the Manager and the Administrator which enables it to monitor the performance and costs of the third party suppliers to the Company.

•      Monitors investment performance and risks

The Board reviews reports prepared by the Manager at its regular meetings, which enables it to monitor the investment performance and risks.

•      Determines investment strategy, guidelines and restrictions

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

The Board issues formal investment guidelines and restrictions; compliance with these are reported by the Manager's compliance officer on a regular basis.

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

The Board, taking account of advice from the Manager, determines the maximum level of borrowings that the Company will undertake at the time of borrowing. The Company has entered into a short-term loan facility with the ING Bank NV; currently the maximum level of the facility is £30m. The Board has approved the utilisation of hedging instruments in order to provide the portfolio with a limited degree of protection from extreme market declines.

•      Monitors the share discount

The Board regularly monitors the level of discount and, whilst it has the option to repurchase shares, it considers that the best means of attaining a good rating for the shares is to concentrate on increasing shareholder returns.

•      Determines the level of dividends payable to shareholders

The Board's policy is to distribute to shareholders the majority of the Company's income by way of dividends.

SERVICE PROVIDERS

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

Investment Manager

Hansa Capital Partners LLP charges an investment management fee at an annual rate of 1% of the net assets of the Company (after any borrowings), but after deducting the value of the investment in Ocean Wilsons Holdings Limited on which no fee is payable. Hanseatic Asset Management LBG a company connected to Hansa Captial Partners LLP, separately charges an investment management fee to the investment subsidiary of Ocean Wilsons Holdings Limited. The terms of the investment 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 Investment Manager concerning compensation in respect to the termination of the agreement. In its annual assessment of the Investment Manager, the Board has concluded that, because of the calibre and commitment of the whole management team to the Company and the excellent long-term returns to shareholders it has produced, it is in the best interest of shareholders that the Manager remains in place under the present terms.

Auditor

The Auditor, Grant Thornton UK LLP has expressed its willingness to continue to act as Auditor to the Company and a resolution to re-appoint Grant Thornton UK LLP as Auditor to the Company will be proposed at the forthcoming Annual General Meeting.

All non-audit work carried out by the Auditors is approved by the Board, in advance, to ensure that auditors objectivity and independence is safeguarded. (Details in Note 4 on page 42.)

Company Secretary

Secretarial services were provided by Hansa Capital Partners LLP at an annual rate of £100,000, excluding VAT (2010: £100,000).

Administrator

The Company engages BNP Paribas Services UK Limited as its Administrators.

CAPITAL STRUCTURE

The Company has 8,000,000 Ordinary shares of 5p 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.

Substantial Shareholders

As at 31 March 2010 and 13 June 2011 the Directors were aware of the interests on page 16 in the Ordinary shares of the Company, which exceeded 3% of the voting issued share capital of that class.

The following information is disclosed in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and DTR 7.2.6 of the FSA Disclosure and Transparency Rules:

•      The Company's capital structure and voting rights are summarised above and in note 16 on page 46.

•      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 in the Notice of the Annual General Meeting on page 54.

•      There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities, no agreements between holders of securities regarding their transfer known to the Company and no agreements which the Company is party to that might affect its control following a takeover bid.

	No. of voting shares	% of voting shares
Nicholas B. Dill, Jr. & Codan Trust Company Limited	4,138,850	51.7

Of the shares held by Nicholas B. Dill, Jr & Codan Trust Company Limited, Mr Salomon is interested in 2,069,425 and Mrs Townsend is interested in 2,069,425, each holding representing 25.9% of the voting share capital. In addition, Mr Salomon has further interests in the Company's shares; the total interest is detailed in the Directors' Interests section on page 16.

BOARD STATEMENTS AND DISCLOSURES

In accordance with the Companies Act 2006 and Financial Services Authority UKLA Listing Rules, the Board is required to make the following statements and disclosures to shareholders:

Directors' Interests

The present members of the Board are shown on page 10, all of whom retired at the last Annual General Meeting and were duly re-elected. The Board's policy is that it is appropriate for all members to retire annually at the AGM and therefore Mr Hammond-Chambers, Lord Borwick, Mr Salomon and Professor Wood will retire again and offer themselves for re-election at the forthcoming AGM. The interests of Directors and their connected parties in the Company at 31 March 2011 are shown below:

	Ordinary shares of 5p each		'A' non-voting Ordinary shares of 5p each		Nature of interest
	2011	2010	2011	2010
Mr Hammond-Chambers	500	500	7,600	7,600	Beneficial
Lord Borwick	24,678	24,678	16,376	16,376	Beneficial
Mr Salomon	2,113,219	2,113,219	98,700	98,700	Beneficial
Professor Wood	5,500	5,500	7,100	7,000	Beneficial

Mr Salomon is the senior partner of Hansa Capital Partners LLP. Fees payable to Hansa Capital Partners LLP amounted to £1,485,948 (2010: £1,264,413). The fees outstanding at the year-end amounted to £272,758 (2010: £110,829). During the year, no rights to subscribe were granted to, or exercised by Directors, their spouses or infant children.

Fixed Asset Investments

The market value of the Group's investments at 31 March 2011 was £266,435,000 (2010: £216,309,000). Taking these investments at this valuation, the net assets attributable to each Ordinary and 'A' non-voting Ordinary share amounted to 1,100.5p at 31 March 2011 (2010: 895.9p).

Creditors' Payment Policy

While the Company does not follow a formal code, it is the Company's continuing policy to pay amounts due to creditors as and when they become due. At 31 March 2011 the number of creditor days were £Nil (2010: £Nil). Payments relating to investment transactions are made in accordance with the settlement practices of the relevant exchange. At 31 March 2011 outstanding trade creditors amounted to £65,576 (2010: £Nil).

Directors' and Officers' Indemnity and Liability Insurance

The Company through its Articles 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, Investment Manager's Review and Business Review. After due consideration of the balance sheet and activities of the Company and having made appropriate enquiries, the Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future as the assets of the Group consist of securities, the majority of which are traded on recognised stock exchanges. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Status and Activities

During the year under review the Company has operated as an investment company, under Section 833 of the Companies Act 2006 and in compliance with Section 1158 CTA 2010. The Company has received approval as an investment trust for the year ended 31 March 2010. The Directors are of the opinion that the Company has subsequently directed its affairs so as to enable it to continue to obtain HMRC approval as such. There has been no significant change in the activities of the Company and its subsidiary (the 'Group') during the year and the Directors anticipate the Group will continue to operate in the same manner during the current year.

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 their report. In doing so each Director has made himself aware of any information relevant to the audit and established that the Company's Auditor is aware of that information. The Directors are not aware of any information relevant to the audit of which the Company's Auditor is unaware.

Social, Community, Employee Responsibilities and Environmental Policy

The Company does not have any employees. As an investment trust, the Company has no direct social, community, or environmental responsibilities. Its principal responsibility to shareholders is to ensure the investment portfolio is properly invested and managed.

Corporate Governance

The Corporate Governance Statement on pages 18 to 21 forms part of this Report of the Directors.

ANNUAL GENERAL MEETING

Special resolutions relating to the following items will be proposed at the forthcoming AGM:

(a) Authority to re-purchase '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 re-purchase its own 'A' non-voting Ordinary shares. The Board believes the ability of the Company to re-purchase its own 'A' non-voting Ordinary shares in the market will potentially benefit all equity shareholders of the Company. The re-purchase of 'A' non-voting Ordinary shares at a discount to the underlying net asset value will enhance NAV per share of the remaining equity shares and it may also enable the Company to address more effectively any imbalance between supply and demand for the Company's 'A' non-voting Ordinary shares.

The Company's Articles are drafted in such a way that the Company may from time to time purchase and cancel its own shares. However, company law requires that shareholders' approval to re-purchase shares be sought. At the AGM the Company will therefore seek the authority to purchase up to 2,398,400 'A' non-voting Ordinary shares (representing 14.99% of the Company's issued 'A' non-voting Ordinary share capital, the maximum permitted under the Listing Rules of the Financial Services Authority), at a price not less than 5p 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. The authority being sought, the full text of which can be found in Resolution 9 in the Notice of Meeting, will last until the date of the next AGM.

It is proposed that the Company uses its realised capital reserve to re-purchase shares in the market. The decision as to whether the Company re-purchases any shares will be at the absolute discretion of the Board. Any shares purchased will be cancelled. The Directors consider that the creation of a facility to re-purchase the Company's own 'A' non-voting Ordinary shares is in the interests of shareholders as a whole and unanimously recommend all shareholders to vote in favour by ticking the appropriate boxes on the enclosed form of proxy. The proxy form should be returned to the Company's Registrar as soon as possible, but in any event so as to arrive no later than 48 hours before the time of the AGM.

(b) That the Company adopt new Articles of Association

A special resolution will be proposed at the Annual General meeting to adopt new articles of association (the "New Articles") of the Company to reflect certain recent changes to UK company law, including those required to comply with the Companies (Shareholders' Rights) Regulations 2009 (the "Shareholders' Regulations").

Copies of the proposed New Articles detailing changes to the existing memorandum and articles of association are available from the Company Secretary and will be on display at the registered office of the Company during normal business hours on any weekday (English public holidays excepted). They will also be available for inspection by any person attending the Annual General Meeting.

The principal proposed changes to the existing memorandum and articles of association will be as follows:

1. Memorandum of Association

From 1 October 2009 the memorandum of association of a company must only contain a statement that the original subscribers wish to form a company, agree to be members of the company and accept at least one share each in the company. The provisions previously contained in the Company's memorandum of association are deemed to form part of the articles of association.

The provisions of the existing memorandum of association will be included in the New Articles with the exception of information about the authorised share capital of the company (see item 2 below) and the objects clause formerly contained in the memorandum which will be removed because the Company is no longer required to set out its objects and its objects will be accordingly unrestricted.

2. Authorised share capital

It is no longer necessary for a company to have an authorised share capital and references to authorised share capital will be removed.

3. Redemption of redeemable shares

The Directors will be able to determine the terms, conditions and manner of redemption of any redeemable shares which are to be issued by the Company. However, the terms of redemption must be determined prior to the issue of shares.

4. Consolidation and sub-division of shares

There is now no requirement for a company to be authorised under the articles to consolidate or sub-divide its shares.

5. Reduction and re-purchase of share capital

The Company no longer needs authorisation in its articles to reduce its share capital or purchase or redeem its own shares or to pass an ordinary resolution to consolidate or sub-divide its shares and reference to these activities will be removed.

6. General

Any other changes to the proposed New Articles have been made to conform to the Companies Act 2006.

By order of the Board

Hansa Capital Partners LLP

Secretary

24 June 2011

Corporate Governance Statement

This statement forms part of the Report of the Directors.

Internal Controls

The Combined Code requires the Directors to review the effectiveness of the Company's system of internal controls on an annual basis. The Directors, through the procedures outlined below, keep the system of internal controls under review. The Board has identified risk management controls in the key areas of business objectives, accounting, compliance, operations and secretarial as areas for the extended review.

The Board recognises its ultimate responsibility for the Company's system of internal controls and for monitoring its effectiveness. In order to perform this responsibility the Board receives regular reports on all aspects of 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 authorise necessary action in response to any significant failings or weaknesses identified by these reports. However, it must be noted that this system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material mis-statement or loss.

Financial Reporting

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

Compliance with the provisions of the Combined Code

The Board has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in Section 1 of the Combined Code, as well as setting out additional principles and recommendations on issues of specific relevance to Hansa Trust PLC. The Board confirms it follows the Combined Code, except for those areas which the AIC Guide identifies as being irrelevant in a non-self-managed investment company: namely the role of the Chief Executive, Executive Director's remuneration and the need for an internal audit function.

The Board confirms, with the exception of the composition of the Audit Committee as detailed on page 21 and the existence of a Senior Independent Director, that it has in all respects followed the AIC Code in meeting its obligations under the Listing Rules and the Combined Code. The AIC Code can be found on The AIC website at www.theaic.co.uk.

The AIC Code has 21 principles, the vast majority of which the Board has been following for many years. However, modern corporate governance requires boards not only govern their companies sensibly and responsibly, but that they are seen to do so. Hence there is a requirement to follow a check list of principles, which in our case is drawn from the AIC Code. They include:

The Board

The Chairman should be independent

Mr Hammond-Chambers has been assessed by the Board to be independent.

•      A majority of the Board should be independent of the Manager

All of the Directors are subject to an annual independence review and with the exception of Mr Salomon, who is a partner in the Investment Manager, all are adjudged to be independent and to have performed their duties in an independent manner.

•      Directors should be elected for a fixed term of no more than three years. Nomination for re-election should not be assumed but be based on disclosed procedures

All Directors resign at each AGM and where appropriate offer themselves for re-election.

•      There should be full disclosure of information about the Board

A brief biography of each member of the Board can be found on page 10. The Company Chairman does chair the Audit and Remuneration Committees as the Company considers he is the most appropriately qualified person on the Committees to fulfil these roles.

•      The Board should have a policy on tenure which is disclosed in the Annual Report

The Board has determined that neither age nor length of service necessarily compromise independence, rather that experience and knowledge gained in service normally strengthen independent performance. All Directors have contracts for services, details of which are contained in the Directors' Remuneration Report on page 32.

•      The Board should aim to have a balance of skills and experience, ages and length of service

The Board regularly reviews its requirements to direct the affairs of the Company. Where and when appropriate, individuals are identified who would strengthen the Board and put forward as candidates for board membership.

•      The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual Directors

The Board undertakes a formal written evaluation every three years. The other years the Board, at its strategy meeting, carries out an evaluation of the independence of each Director by means of a written response from each Director on his fellow Directors, the progress of the actions resulting from the previous reviews and of any new ideas for improving the returns to shareholders through improving the effectiveness of the Board. The Chairman is evaluated by Mr Salomon on behalf of the Board.

•      Directors' remuneration should reflect their duties and responsibilities and the value of their time spent

The level of Directors' fees is reviewed on a regular basis in light of the Directors' duties and responsibilities and the value of the time committed to the interests of the Company; note is taken of fees paid by other comparable companies.

•      The Independent Directors should take a lead in the appointment of new Directors and the process should be disclosed in the Annual Report

The identification and appointment of a new board member is a matter for the whole Board. The Chairman would take the lead in all of the processes leading to the appointment of a new Director.

•      Directors should be offered relevant training and induction

When a new Director is appointed, he or she attends an induction seminar held by the Company Secretary and the Chairman. Directors are also provided on a regular basis with industry, regulatory and investment updates. Directors regularly participate in industry seminars and training courses where appropriate.

Board meetings and the relationship with the Manager:

•      Boards and Managers should operate in a supportive, co-operative and open environment

The Board is primarily responsible for the running of the Company and maintains specific duties and responsibilities. Where the Board has delegated certain duties to the Investment Manager, the Board and the Manager operate in an environment of mutual trust and respect, both at formal Board meetings and during the year when ad-hoc communications are instigated by either party.

•      The primary focus at regular Board meetings should be the review of the investment performance and associated matters such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues

At the regular Board meetings, discussions are held and reports and papers are reviewed, all of which cover the above mentioned aspects.

•      Boards should give sufficient attention to overall strategy

The Board holds an annual strategy meeting with the Manager to discuss the Company's future investment and corporate strategies.

•      The Board should regularly review both the performance of and contractual arrangements with the Manager

The Board formally reviews the performance of the Manager each quarter, at which Board meeting the Manager presents a written report. At the annual review of the Manager all aspects of its service to the Board are reviewed, particularly the long-term returns to shareholders and the terms and conditions of its contract.

•      The Board should agree policies with the Manager covering key operational issues

Within the agreement, service levels are defined between the Manager and the Company. In addition the Board determines certain investment restrictions and guidelines for the Manager, on which the Manager reports monthly.

•      Boards should monitor the level of share price discount or premium (if any) and, if desirable, take action to reduce it

The Board continually monitors the levels of discount or premium and comments on it at its regular meetings. The Board also seeks authority to purchase up to 14.99% of the Company's 'A' non-voting Ordinary shares at the Company's AGM.

•      The Board should monitor and evaluate the other service providers

The Board, through its Audit Committee, receives independent reports from the auditors of the main service providers; these reports are called either AAF 01/06 or SAS 70 reports.

Shareholder Communication

•      The Board should regularly monitor the shareholder profile of the Company and put in place a system for canvassing shareholder views and for communicating the Board's views to shareholders

The Board reviews the shareholder profile at its regular meetings. The Company, through the Manager, has regular contact with its institutional shareholders. The Board supports the principle that the AGM should be used to communicate with all shareholders and promotes its website to them. The Company Secretary regularly receives and handles communications from shareholders. These communications are received by letter, email or telephone. Any matter requiring the Board's attention is referred to it for action.

•      The Board should normally take responsibility for, and have a direct involvement in, the content of communications regarding major corporate issues even if the Manager is asked to act as spokesman

The Board is responsible for all major corporate issues and as such would have a direct involvement in both the issue and the content of its communications.

•      The Board should ensure shareholders are provided with sufficient information for them to understand the risk reward balance to which they are exposed by holding the shares

The Board, through the issuance of the Annual and Half Yearly Reports, Interim Management Statements and Monthly Fact Sheets, aims to ensure both shareholders and prospective shareholders are made fully aware of the investment aims and benchmark of the Company, the types of investments the Company is likely to enter into, the disposition of those investments in the portfolio, the gearing of the Company and the period over which its performance should be judged.

UK Stewardship Code

The aim of the Stewardship Code, which was published by the Financial Reporting Council in July 2010, is to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities.

The seven principles of the Code are that institutional investors should:

•      Publicly disclose their policy on how they will discharge their stewardship responsibilities;

•      Have and publicly disclose a robust policy on managing conflicts of interest in relation to stewardship;

Monitor their investee companies;

•      Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value;

•      Be willing to act collectively with other investors where appropriate;

•      Have a clear policy on voting and disclosure of voting activity; and

Report periodically on their stewardship and voting activities.

Discharging stewardship responsibilities

The Company has delegated to its Investment Manager, Hansa Capital Partners LLP, the day to day operations of the Company's policy which is as follows:

To operate a due diligence process when considering any investment. The process includes a number of key factors in the establishment of whether an investment is suitable for its portfolio and will include the following:

•      Competent management.

•      Likelihood of offering an acceptable return for the risk undertaken.

•      Financial and structural soundness.

•      Regular reporting.

•      Sound business plans.

•      Compliance with current governance and regulatory requirements.

Full details of which can be found on the Investment Manager's website www.hansagrp.com.

The Investment Manager will engage the Board on controversial matters arising from the operations of the policy.

BOARD COMMITTEES

The Directors consider that in order for them to fulfill their responsibilities as Directors of the Company, all members of the Board should be members of all sub-committees, except where there is a conflict of interest.

Details of the Directors' attendance at Board, Strategy and Audit Committee meetings are in the Directors' Remuneration Report on page 32.

Audit Committee

The Board does not consider the establishment of an internal audit function appropriate for the size and complexity of the organisation. The Audit Committee consists of all four Directors and is assisted by Mr Teideman, a former director whose skills and experience strengthen the Committee. The Committee is chaired by Mr Hammond-Chambers. The Smith Report's guidance to the Combined Code emphasises the need for 'Audit Committee arrangements to be proportionate to the task'. With such a small Board, it was deemed both proportionate and practical to involve all Directors in its workings, even though Mr Salomon is not regarded as being independent.

The Company's Audit Committee meets representatives of the Investment Manager and its Compliance Officer, who report as to the proper conduct of business in accordance with the regulatory environment in which both the Company and the Investment Manager operate. The Company's Auditor also attends this Committee and reports on its work procedures, the quality and effectiveness of the Company's accounting records and its findings in relation to the Company's statutory audit. The responsibilities of the Audit Committee include reviewing the internal controls, the financial reporting process, the valuation of the unquoted investments, the management contract, the statutory audit and the Auditor's appointment, remuneration and independence (no non-audit services are provided by the Auditor). The Board has issued the Committee with Terms of Reference which are available from the Company Secretary at the registered address of the Company.

Following careful consideration of the independence, experience and value for money of the current Auditor, the Audit Committee has recommended that the Board re-appoint Grant Thornton UK LLP as Auditor to the Company.

Nomination Committee

The Board as a whole fulfils the function of the Nomination Committee. The Company's Articles of Association require newly appointed Directors to submit themselves for election by shareholders at the next AGM after appointment and that they will be subject to re-election at intervals of no more than three years. However, the Board has determined that all Directors will retire and offer themselves for re-election each year at the AGM.

Management Engagement Committee

The Board, with the exception of Mr Salomon, fulfills the function of this Committee. The level of management fees, level of service provided and the performance of the Manager, are reviewed on a regular basis to ensure that these remain competitive and in the best interests of shareholders.

Remuneration Committee

The Board as a whole fulfils the function of a Remuneration Committee and considers that the specific appointment of such a committee is not appropriate for an investment trust company. The level of Directors' fees is reviewed on a regular basis in the light of their duties and also relative to other comparable companies.

Statement of Directors' Responsibilities

In discharging its responsibilities of stewardship the Board is governed by the Companies Acts and the Financial Services Authority UKLA Listing Rules.

Under UK Company Law 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 comply with the 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 Directors' Report 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 Financial Services Authority.

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

•      The Group Financial Statements for each financial year are prepared in accordance with IFRS, as adopted by the EU and have elected to prepare Company financial statements on the same basis. Under Company Law directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company and group that period. In preparing these financial statements the Directors are required to:

         select suitable accounting policies and apply them consistently;

         make judgements and estimates that are reasonable and prudent;

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

        prepare the financial statements on the going concern basis, unless it is inappropriate to presume the Company and Group will continue in business.

Under the Financial Services Authority, UKLA Listing Rules - Combined Code the Board is responsible for:

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

•      Reviewing the effectiveness of the Company's system of internal controls.

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

Responsibility Statement

The Directors confirm that to the best of their knowledge:

•      The financial statements, prepared in accordance with applicable international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the Company.

•      The Chairman's Statement and Directors' Report include a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties they face.

For and on behalf of the Board

Alex Hammond-Chambers

Chairman

24 June 2011

Group Income Statement

		Revenue	Capital	Total	Revenue	Capital	Total
		2011	2011	2011	2010	2010	2010
	Notes	£000	£000	£000	£000	£000	£000
Gains on investments	11	-	49,127	49,127	-	66,232	66,232
Loss on derivatives		-	(16)	(16)	-	(744)	(744)
Exchange losses on currency		-	(4)	(4)	-	-	-
balances
Investment income	2	3,009	-	3,009	8,370	-	8,370
		3,009	49,107	52,116	8,370	65,488	73,858
Investment Management fee	3	(1,386)	-	(1,386)	(1,264)	-	(1,264)
Write back of prior years' VAT		51	-	51	97	-	97
Other expenses	4	(724)	-	(724)	(618)	-	(618)
		(2,059)	-	(2,059)	(1,785)	-	(1,785)
Profit before finance costs
and taxation		950	49,107	50,057	6,585	65,488	72,073
Finance costs	5	(114)	-	(114)	(1)	-	(1)
Profit before taxation		836	49,107	49,943	6,584	65,488	72,072
Taxation	6	(4)	-	(4)	(4)	-	(4)
Profit for the year		832	49,107	49,939	6,580	65,488	72,068
Return per Ordinary and 'A'
non-voting Ordinary share	8	3.5p	204.6p	208.1p	27.4p	272.9p	300.3p

The Company does not have any income or expense that is not included in the profit for the year. Accordingly the "Profit for the year" is also the "Total comprehensive income 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 Group's Income Statement, prepared in accordance with IFRS. 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.

The accompanying notes are an integral part of this statement.

Statement of Changes in Equity - Group

			Capital				Capital
		Share	redemption	Retained		Share	redemption	Retained
		capital	reserve	earnings	Total	capital	reserve	earnings	Total
		2011	2011	2011	2011	2010	2010	2010	2010
	Note	£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 1 April		1,200	300	213,514	215,014	1,200	300	150,906	152,406
Profit for the year		-	-	49,939	49,939	-	-	72,068	72,068
Dividends	7	-	-	(840)	(840)	-	-	(9,460)	(9,460)
Net assets at 31 March		1,200	300	262,613	264,113	1,200	300	213,514	215,014

Statement of Changes in Equity - Company

for the year ended 31 March 2011

			Capital				Capital
		Share	redemption	Retained		Share	redemption	Retained
		capital	reserve	earnings	Total	capital	reserve	earnings	Total
		2011	2011	2011	2011	2010	2010	2010	2010
	Note	£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 1 April		1,200	300	213,514	215,014	1,200	300	150,906	152,406
Profit for the year		-	-	49,939	49,939	-	-	72,068	72,068
Dividends	7	-	-	(840)	(840)	-	-	(9,460)	(9,460)
Net assets at 31 March		1,200	300	262,613	264,113	1,200	300	213,514	215,014

The accompanying notes are an integral part of this statement.

Balance Sheet of the Group and Company

		Group	Group	Company	Company
		2011	2010	2011	2010
	Notes	£000	£000	£000	£000
Non-current investments
Investment in subsidiary	10	-	-	633	634
Investments at fair value through
profit or loss	11	266,435	216,309	266,435	216,309
		266,435	216,309	267,068	216,943
Current assets
Trade and other receivables	13	281	631	281	631
Cash and cash equivalents	14	8,295	1,824	8,295	1,824
		8,576	2,455	8,576	2,455
Current liabilities
Trade and other payables	15	(10,898)	(3,750)	(11,531)	(4,384)
Net current liabilities		(2,322)	(1,295)	(2,955)	(1,929)
Net assets		264,113	215,014	264,113	215,014
Capital and reserves
Called up share capital	16	1,200	1,200	1,200	1,200
Capital redemption reserve	17	300	300	300	300
Retained earnings	18	262,613	213,514	262,613	213,514
Total equity shareholders' funds		264,113	215,014	264,113	215,014
Net asset value per Ordinary and 'A' non-voting Ordinary share	19	1,100.5p	895.9p	1,100.5p	895.9p

The Financial Statements on pages 35 to 52 were approved by the Board of Directors on 24 June 2011 and were signed on its behalf by:

Signature

Alex Hammond-Chambers
Chairman

The accompanying notes are an integral part of this statement.

Cash Flow Statement

		2011	2010	2011	2010
	Notes	£000	£000	£000	£000
Cash flows from operating activities
Gain before finance costs and taxation		50,057	72,073	50,057	72,073
Adjustments for:
Realised (gains)/losses on investments	11	(3,689)	1,704	(3,689)	1,704
Unrealised gains on investments	11	(45,438)	(67,936)	(45,437)	(67,935)
Effect of foreign exchange rate changes		(4)	-	(4)	-
Decrease in trade and other receivables	13	350	519	350	519
Increase in trade and other payables	15	182	27	181	26
Taxes paid		(4)	(4)	(4)	(4)
Purchase of non-current investments		(24,688)	(16,075)	(24,688)	(16,075)
Sale of non-current investments		23,755	5,025	23,755	5,025
Net cash inflow/(outflow) from operating activities		521	(4,667)	521	(4,667)
Cash flows from financing activities
Interest paid on bank loans		(114)	(1)	(114)	(1)
Dividends paid		(840)	(9,460)	(840)	(9,460)
Drawdown of loans		6,900	3,500	6,900	3,500
Net cash inflow/(outflow) from financing activities	5,946	(5,961)	5,946	(5,961)
Increase/(decrease) in cash and cash equivalents		6,467	(10,628)	6,467	(10,628)
Cash and cash equivalents at 1 April		1,824	12,452	1,824	12,452
Effect of foreign exchange rate changes		4	-	4	-
Cash and cash equivalents at 31 March	14	8,295	1,824	8,295	1,824

Notes to the Financial Statements

1.   ACCOUNTING POLICIES

The financial statements of the Group and Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the European Union. New and changed standards in place, but not yet effective, have been reviewed and the Board do not consider they will have a material effect on the financial statements.

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. As permitted by Section 408 of the Companies Act 2006, an income statement for the Company has not been presented in the financial statements.

(a)   Basis of preparation

The financial statements have been prepared on an historical cost basis, except for the valuation of investments and derivatives at fair value. The principal accounting policies adopted are set out below. Where presentational guidance, set out in the Statement of Recommended Practice ("SORP") for investment trusts issued by the Association of Investment Companies ("AIC") in January 2009 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

(b)  Basis of Consolidation

The Financial Statements comprise the accounts of the Company and its subsidiary undertaking made up to 31 March 2011. In the Company's Financial Statements the investment in its subsidiary undertaking is stated at fair value. All accounting policies are applied consistently throughout the Group.

(c)   Presentation of income statement

In order to better reflect the activities of an investment trust 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. In accordance with the Company's status as a UK investment company under section 833 of the Companies Act 2006, net capital returns may not be distributed by way of dividend. Additionally, the net revenue is the measure the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in s.1158 CTA 2010.

(d)   Non-current investments

As the Company's business is investing in financial assets, with a view to profiting from their total return in the form of income received and increases in fair value, investments are designated as fair value through profit or loss on initial recognition in accordance with IAS 39. 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 electronic trading service covering most of the market including all FTSE 100 constituents and most liquid FTSE 250 constituents along with some other securities.

Unquoted investments are stated at fair value through profit or loss as determined by using various valuation techniques, in accordance with the International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines. These include using recent arms length market transactions between knowledgeable and willing parties where available.

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.

(e)   Derivative Financial Instruments

Over the counter derivative options are measured at fair value as valued by the issuing broker at bid-market price.

(f)    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.

(g)   Investment Income

Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company's right to receive payment is established. UK dividends are stated net of related tax credits, while overseas dividends and REIT income is stated gross.

Underwriting commission is recognised in the revenue column of the Income Statement insofar as it relates to shares not required to be taken up. Where a proportion of the shares underwritten are required to be taken up, the same proportion of the commission received is recognised in the capital column of the Income Statement, with the balance taken to the revenue column.

(h)   Expenses

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

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

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

(i)    Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Income Statement because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.

In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Income Statement is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Income Statement, then no tax relief is transferred to the capital return column.

Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval under s.1158 CTA 2010 are not liable for taxation on capital gains.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity or other comprehensive income.

(j)    Foreign Currencies

Transactions denominated in foreign currencies are recorded in the local currency, at the actual exchange rates as at the date of the transaction. Assets and liabilities denominated in foreign currencies at the year end are reported at the rate of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates, subsequent to the date of the transaction, is included as an exchange gain or loss in the capital or revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature respectively.

(k)   Reserves

Capital reserves - Other

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

-     gains and losses on the disposal of investments;

-     exchange differences of a capital nature; and

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

Capital reserves - Investment Holding Gains

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

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

Revenue Reserves

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

-  
net revenue recognised in the revenue column of the Income Statement.

2.   INCOME

	Revenue	Revenue
	2011	2010
	£000	£000
Income from quoted investments
Dividends	2,353	3,446
Overseas dividends	649	4,869
	3,002	8,315
Other operating income
Interest receivable on AAA rated money market funds	2	24
Other interest receivable	5	31
	7	55
Total income	3,009	8,370
Total income comprises:
Dividends	3,002	8,315
Interest	7	55
	3,009	8,370

3.   INVESTMENT MANAGEMENT FEE

	Revenue	Revenue
	2011	2010
	£000	£000
Periodic fees	1,386	1,264
	1,386	1,264

Details of the Management Agreement are disclosed in the Report of the Directors on pages 15 and 16.

4.   OTHER EXPENSES

	Revenue	Revenue
	2011	2010
	£000	£000
Secretarial services	118	116
Directors' remuneration	88	88
Auditor's remuneration for the audit of the Group and Company	26	26
Auditor's remuneration for the review of the Half Yearly Report	3	3
Administration fees	111	109
Production and distribution of Annual and Half Yearly Report	23	21
Registrar's fees	38	33
Bank fees and charges	138	125
Marketing	17	3
Other	162	94
	724	618

5.   FINANCE COSTS

	Revenue	Revenue
	2011	2010
	£000	£000
Interest payable	114	1
	114	1

6.   TAXATION

      (a)   Taxation Charge on Ordinary Activities

	Revenue	Revenue
	2011	2010
	£000	£000
UK corporation tax @ 28%	-	-
Irrecoverable foreign tax	4	4
	4	4

        (b)  Factors affecting tax charge for period

        Approved investment trusts are exempt from tax on capital gains made by the Trust.

The tax charge for the period is lower than the standard rate of corporation tax in the UK of 28% (2010: 28%). The differences are explained below:

	2011	2010
	£000	£000
Total gain before taxation	49,943	72,072
Gain multiplied by standard rate of corporation tax	13,984	20,180
Effects of:
Non-taxable UK capital gains	(13,750)	(18,336)
Non-taxable UK stock dividends	-	(9)
Non-taxable UK investment income	(831)	(1,732)
Excess administration expenses unused/(used)	557	(68)
Income taxable in different years	40	(35)
Irrecoverable foreign tax	4	4
Current tax charge	4	4

        (c)   Provision for deferred taxation

There is no requirement to make a provision for deferred taxation in the current or prior accounting period.

        (d)  Factors that may affect future tax charges

The Company has not recognised a deferred tax asset of £2,073,000 (2010: £1,786,000), arising as a result of having unutilised management expenses and loan relationship deficits. The expenses will only be utilised, to the extent that there is sufficient future taxable income, or if the tax treatment of the capital gains made by the Company or the Company's investment profile changes. The subsidiary has tax losses which will only be recoverable to the extent that there are sufficient future taxable profits.

7.   DIVIDENDS PAID

	Revenue	Revenue
	2011	2010
	£000	£000
Amounts recognised as distributions to equity holders in the year:
Final dividend for 2010: nil (2009: 14.5p)	-	3,480
Interim dividends for 2011: 3.5p (2010: 25.0p)	840	6,000
Unclaimed dividends refunded	-	(20)
	840	9,460

We set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of s.1158 CTA 2010 are considered. The Company's revenue available for distribution by way of dividend for the year is £832,000 (2010: £6,580,000).

	Revenue	Revenue
	2011	2010
	£000	£000
Interim dividends for 2011: 3.5p (2010: 25.0p)	840	6,000
	840	6,000

The Board are not proposing a final dividend.

8.   RETURN ON ORDINARY SHARES (EQUITY)

	Revenue	Capital	Total	Revenue	Capital	Total
	2011	2011	2011	2010	2010	2010
Returns per share	3.5p	204.6p	208.1p	27.4p	272.9p	300.3p

Returns

Revenue return per share is based on the revenue attributable to equity shareholders of £832,000 (2010: £6,580,000).

Capital return per share is based on the capital gain attributable to equity shareholders of £49,107,000 (2010: £65,488,000).

Total return per share is based on the combination of revenue and capital returns attributable to equity shareholders, amounting to a net gain of £49,939,000 (2010: £72,068,000).

Both revenue and capital return are based on: 8,000,000 Ordinary shares (2010: 8,000,000) and 16,000,000 'A' non‑voting Ordinary shares (2010: 16,000,000), in issue throughout the year.

9.   PROFIT OF THE COMPANY ATTRIBUTABLE TO SHAREHOLDERS

The gain for the year after taxation dealt with in the accounts of the Company is £49,939,000 (2010: £72,068,000).

10. INVESTMENT IN SUBSIDIARY

The Company owns 100% of the ordinary share capital and voting rights of Consolidated Investment Funds Limited, an investment dealing company, registered and operating in England.

11.  INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

				Group and	Group and
				Company	Company
		AIM &		2011	2010
	Listed	OFEX	Unquoted	Total	Total
	£000	£000	£000	£000	£000
Cost at 1 April 2010	105,130	60,741	3,085	168,956	159,789
Investment holding gains/(losses) at 1 April 2010	71,062	(23,822)	113	47,353	(20,762)
Valuation at 1 April 2010	176,192	36,919	3,198	216,309	139,027
Movements in the year:
Changes in listing	(1,569)	1,569	-	-	-
Purchases at cost	21,439	2,130	1,185	24,754	16,075
Sales - proceeds	(21,714)	(1,678)	(363)	(23,755)	(5,025)
- Gains/(losses) on sales	6,315	(2,854)	228	3,689	(1,704)
Movement in investment holding gains/(losses)	34,822	10,710	(94)	45,438	67,936
Valuation as at 31 March 2011	215,485	46,796	4,154	266,435	216,309
Cost	109,601	59,908	4,135	173,644	168,956
Investment holding gains/(losses)	105,884	(13,112)	19	92,791	47,353
	215,485	46,796	4,154	266,435	216,309

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:

	Group and Company
	2011	2010
	£000	£000
Purchases	123	59
Sales	12	13
	135	72

12.  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 are detailed below:

					Exc. Minority Interest
				Latest		Profit
	Country of		% of	available	Total	after
	incorporation	Class of	class	audited	capital and	tax for
Non-investment company	or registration	capital	held	accounts	reserves	the year
					US$000	US$000
Ocean Wilsons Holdings Limited	Bermuda	Ordinary	26.4	31.12.10	535,092	56,879

The above is included as part of the investments portfolio in accordance with IAS 28 - Investment in Associates.

The Company has material holdings in the following companies which represent more than 3% of any class of equity share capital:

Company	Class of capital	% of class held
Straight Plc	Ordinary	9.4
Polastar Plc	Ordinary	8.2
Altitude Group Plc	Ordinary	6.5
Hephaestus Holdings Plc	Ordinary	6.1
Andor Technology Ltd	Ordinary	5.4
Work Group Plc	Ordinary	5.0
Leadcom Integrated Solutions Plc	Ordinary	4.6
Acertec Plc	Ordinary	4.4
Goals Soccer Centres Plc	Ordinary	4.3
Superglass Holdings Plc	Ordinary	4.1
Morson Group Plc	Ordinary	3.9
Helesi Plc	Ordinary	3.8
Hargreaves Services Plc	Ordinary	3.7
NCC Group Plc	Ordinary	3.7
All Leisure Plc	Ordinary	3.6
Media Square Plc	Ordinary	3.6
Engel East Europe NV	Ordinary	3.1
CAP-XX Ltd	Ordinary	3.1
Ark Therapeutics Group Plc	Ordinary	3.1

13.  OTHER RECEIVABLES

	Group	Group	Company	Company
	2011	2010	2011	2010
	£000	£000	£000	£000
Derivatives at fair value held for trading	-	16	-	16
Prepayments and accrued income	245	581	245	581
Recoverable domestic tax	36	34	36	34
	281	631	281	631

14.  CASH AND CASH EQUIVALENTS

	Group	Group	Company	Company
	2011	2010	2011	2010
	£000	£000	£000	£000
Cash funds	8,177	1,856	8,177	1,856
Cash at bank	118	(32)	118	(32)
	8,295	1,824	8,295	1,824

15. CURRENT LIABILITIES

	Group	Group	Company	Company
	2011	2010	2011	2010
	£000	£000	£000	£000
Bank loans and overdrafts	10,400	3,500	10,400	3,500
Due to subsidiary undertaking	-	-	633	638
Other creditors and accruals	498	250	498	246
	10,898	3,750	11,531	4,384

Details of the bank loan can be found in Note 21.

16.  SHARE CAPITAL

	Company	Company
	2011	2010
	£000	£000
Issued and fully paid
8,000,000 Ordinary shares of 5p	400	400
16,000,000 'A' non-voting Ordinary shares of 5p	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.

17.  CAPITAL REDEMPTION RESERVE

	Group and Company
	2011	2010
	£000	£000
Balances at 31 March	300	300

18.  RETAINED EARNINGS

	Capital Reserves			Capital Reserves
			Investment			Investment
			holding			holding
						(Losses)/
	Revenue	Other	Gains	Revenue	Other	Gains
	2011	2011	2011	2010	2010	2010
Group	£000	£000	£000	£000	£000	£000
Opening balance at 1 April	3,076	163,085	47,353	5,956	165,712	(20,762)
Profit/(loss) for the year	832	3,669	45,438	6,580	(2,627)	68,115
Dividend paid	(840)	-	-	(9,460)	-	-
Closing balance at 31 March	3,068	166,754	92,791	3,076	163,085	47,353

	Capital Reserves			Capital Reserves
			Investment			Investment
						(Losses)/
	Revenue	Other	Gains	Revenue	Other	Gains
	2011	2011	2011	2010	2010	2010
Company	£000	£000	£000	£000	£000	£000
Opening balance at 1 April	2,445	163,085	47,984	5,324	165,712	(20,130)
Profit/(loss) for the year	833	3,669	45,437	6,581	(2,627)	68,114
Dividend paid	(840)	-	-	(9,460)	-	-
Closing balance at 31 March	2,438	166,754	93,421	2,445	163,085	47,984

Note: Only Revenue reserves are distributable, by way of dividends.

19.  NET ASSET VALUE

	2011	2010
Net asset value per Ordinary and 'A' non-voting Ordinary share	1,100.5p	895.9p

The net asset value per Ordinary and 'A' non-voting Ordinary share is based on the net assets attributable to equity shareholders of £264,113,000 (2010: £215,014,000) and on 8,000,000 Ordinary shares (2010: 8,000,000) and 16,000,000 'A' non-voting Ordinary shares (2010: 16,000,000), in issue at 31 March 2011.

20. COMMITMENTS AND CONTINGENCIES

The Company has entered into a commitment agreement with DV3 Ltd, an unquoted property investment company. The commitment was for £807,438 and has been extended for a further one year until 30 March 2012. The amount outstanding at 31 March 2011 was £327,438 (2010: £327,438).

The Company has entered into a further commitment agreement with DV4 Ltd, also an unquoted property investment company. The commitment was for £10m for a period of five years from 7 March 2008 and the amount outstanding at 31 March 2011 was £6,194,325 (2010: £7,379,011).

In relation to the recovery of VAT following HMRC's acceptance of the European Court of Justice Judgment, the Company has received a further £51,000 during the year from its Administrators. The Board does not now expect to recover any further amounts. However, if the result of an action being brought against HMRC by others is successful, further amounts may become due from HMRC.

21.  FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS

Background 

The Company's financial instruments comprise securities, cash balances, debtors and creditors arising directly from its operations. All financial assets and liabilities are either carried in the Balance Sheet at their fair value, or the Balance Sheet amount is a reasonable approximation of fair value. The risks that the Group as a whole is exposed to, are the same as those for the Company and are covered below.

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 Investment 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 IFRS7, being market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk and the Directors' approach to the management of them are set out below. The Board, in conjunction with the Investment Manager and Company Secretary, oversee the Company's risk management.

The objectives, policies and processes for managing the risks and the methods used to measure them are set out below; these have not changed from the previous accounting period.

Risks Associated with Financial Instruments:

Foreign currency risk

Foreign currency risks arise in two distinct areas which affect the valuation of the investment portfolio. 1) where an investment is denominated and paid for in a currency other than Sterling; and 2) where an investment has substantial non-sterling 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. The Investment Manager monitors the effect of foreign currency fluctuations through the pricing of the investments by the various markets. The level of investments denominated in foreign currencies held by the Company at 31 March 2011 is 1.8% of the portfolio (2010: 2.3%) and therefore the portfolio valuation is not materially sensitive to direct foreign currency fluctuations.

	Direct	No direct		Direct	No direct
	foreign	foreign		foreign	foreign
	currency	currency	Total	currency	currency	Total
	risk	risk		risk	risk
	2011	2011	2011	2010	2010	2010
	£000	£000	£000	£000	£000	£000
Investments	4,736	261,699	266,435	4,861	211,448	216,309
Other receivables excluding prepayments	-	265	265	-	617	617
Cash funds	-	8,177	8,177	-	1,856	1,856
Cash at bank	-	118	118	-	(32)	(32)
Current liabilities	-	(498)	(498)	-	(250)	(250)
Bank loan	-	(10,400)	(10,400)	-	(3,500)	(3,500)
	4,736	259,361	264,097	4,861	210,139	215,000

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 (2010: £30m) which are available for the Investment Manager to use in purchasing investments, the costs of which are base rate plus a 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 Investment 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 £104,000 (2010: £35,000). The level of banking facilities utilised at 31 March 2011 was £10.4m (2010: £3.5m).

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 0.0% on bank balances and 0.1% on cash funds.

	Cash flow	No		Cash flow	No
	interest	interest		interest	interest
	rate risk	rate risk	Total	rate risk	rate risk	Total
	2011	2011	2011	2010	2010	2010
	£000	£000	£000	£000	£000	£000
Investments	-	266,435	266,435	-	216,309	216,309
Other receivables excluding prepayments	-	265	265	-	617	617
Cash funds	8,177	-	8,177	1,856	-	1,856
Cash at bank	118	-	118	(32)	-	(32)
Current liabilities	-	(498)	(498)	-	(250)	(250)
Bank loan	(10,400)	-	(10,400)	(3,500)	-	(3,500)
	(2,105)	266,202	264,097	(1,676)	216,676	215,000

Other price risk

By the nature of its activities, the Company's investments are exposed to market price fluctuations. Net asset values are calculated and reported daily to the London Stock Exchange. The Investment 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, £106.2m (2010: £84.6m) and as a proportion of the net asset value, 40.2% (2010: 39.3%). 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 reduction in the NAV and share price. However, 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 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 on page 31, rise or fall in value by 10% from the year end valuation, the effect on the Group profit and equity would be an equal rise or fall of £26.6m (2010: £21.6m). The Company gearing, which is currently at 3.9% (2010: 1.6%), would increase to 4.4% (2010: 1.8%) should the Company's portfolio fall in value by 10%.

Derivatives

The Investment Manager may only use derivative instruments in order to mitigate the market risk to the portfolio.

Credit Risk

The Company only transacts with regulated institutions on normal market terms, which are trade date plus one to three days. The levels of amounts outstanding from brokers are regularly reviewed by the Investment 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 are 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 2011 are shown in Note 13.

The Company's maximum exposure to credit risk on OTC options and cash funds is £8,295,000 (2010: £1,824,000). Amounts receivable in relation to options open at the year-end amounted to £nil (2010: £16,000). The related credit risk is managed by purchasing the options from a regulated institution. Surplus cash is placed in AAA-rated cash funds.

Liquidity Risk

The liquidity risk to the Company is that it is unable to meet its obligations as they fall due, due to a lack of available cash and an inability to dispose of investments in a timely manner. A substantial proportion of the Company's portfolio is held in liquid quoted investments; however there is a large holding in Ocean Wilsons Holdings Ltd of 40.2% (2010: 39.1%), and other holdings in AIM and unquoted investments of 19.1% (2010: 18.5%).

The Investment 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 that represent more than 5% of the investee company. A detailed list of the top 30 investments held at 31 March 2011 is shown on page 31, together with a summary table detailing the markets on which the investments are quoted. This can be used broadly to ascertain the levels of liquidity within the portfolio, although liquidity will vary with each investment.

The Company's financial liabilities at 31 March 2011 consist of a short-term bank loan amounting to £10.4m (2010: £3.5m) that bears interest based on the prevailing LIBOR rate plus an agreed margin. This loan is part of a total revolving credit facility with ING Bank NV of £30m (2010: £30m). The facility is a committed facility repayable on or before 11 February 2012 and subject to a covenant requirement of a minimum adjusted net asset value of £80m. The Company has undrawn loans from this facility of £19.6m (2010: £26.5m). The Company holds this facility for use at short notice for its investment activities. If fully drawn the loan would form 11.3% (2010: 13.9%) of the current value of the investment portfolio.

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 re-purchase shares, it considers that 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 re-purchase its own 'A' non-voting Ordinary shares in the market may potentially enable it to benefit all equity shareholders of the Company. The re-purchase of 'A' non-voting Ordinary shares at a discount to the underlying net asset value would enhance the net asset value per share of the remaining equity shares and it might also enable the Company to address more effectively any imbalance between supply and demand for the Company's 'A' non-voting Ordinary shares.

22. FAIR VALUE HIERARCHY

IFRS 7 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

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

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

-     Level 3: inputs for the asset or liability that are 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 valued in accordance with the accounting policies in Note 1 are detailed below:

31 March 2011

	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Quoted equities	262,280	-	-	262,280
Unquoted equities	-	-	4,788	4,788
Net fair value	262,280	-	4,788	267,068
31 March 2010
	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Financial assets at fair value through profit or loss
Quoted equities	213,111	-	-	213,111
Unquoted equities		22	3,832	3,832
Derivatives	-	22	-	22
Total	213,111	22	3,832	216,965
Financial liabilities at fair value through profit or loss
Derivatives	-	(6)	-	(6)
Net fair value	213,111	16	3,832	216,959

There have been no transfers during the year between levels 1 and 2. A reconciliation of fair value measurements in Level 3 is set out in the following table.

	2011	2010
	Equity	Equity
	investments	investments
	£000	£000
Opening Balance	3,832	2,791
Purchases	1,185	890
Sales	(363)	-
Total gains or losses included in gains on investments in the income statement:
- on assets sold	227	-
- on assets held at year end	(93)	151
Closing Balance	4,788	3,832

23.       RELATED PARTIES

Details of the relationship between the Company and Hansa Capital Partners LLP, including amounts paid during the year and owing at 31 March 2011, are disclosed in the Report of the Directors pages 15 and 16 and in Note 3 above.

24.       CONTROLLING PARTIES

At 31 March 2011 Nicholas B. Dill, Jr and Codan Trust Company Limited held 51.7% of the issued Ordinary shares. Additional information is disclosed in the Report of the Directors, "Substantial Shareholders" on page 15 and 16.

 

END

 

 

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