Annual Report and Accounts

RNS Number : 2273Y

Hansa Trust PLC

03 July 2008

 

HANSA TRUST PLC

Announcement of Annual Financial Report

for the year ended 31 March 2008

Hansa Trust PLC announces its Annual Financial Report for the year ended 31 March 2008.

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.hansgrp.com 

Financial Highlights	Year ended 31 March 2008 (unaudited)	Year ended 31 March 2007 (audited)
Net Asset Value - Total Return	(10.5%)	28.4%
Performance Benchmark	6.8%	6.7%
Capital return per equity share	(116.2p)	218.2p
Revenue return per equity share	13.8p	12.8p
Net asset value per equity share	924.5p	1,039.4p
Total dividend per equity share for the year	13.0p	12.5p
Total income (£000's)	5,541	5,215
Revenue before taxation (£000's)	3,448	3,116

A final dividend of 9.5p per share (amounting to £2,280,000) is to be proposed on 31 July 2008 at the Annual General Meeting.

Ex-dividend date: 25 June 2008

Record date: 27 June 2008

Payment date: 11 August 2008

The following are included:

• Chairman's Statement

• Report of the Directors

• 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

THE YEAR'S RESULTS:

NAV: -11.1% to 924.5p per share

The year ended 31 March 2008 proved to be a rather frustrating year. It was of course dominated by the news of events in the banking industry as the credit crisis unfolded, starting with the debacle in America's sub-prime mortgage market. However sub prime mortgages are really only the beginning and the credit crisis is now spreading to many other corners of the banking business. It was a year to avoid investing in the shares of banks - which we by and large did; as measured by the FTSE Bank Index, banks lost their shareholders circa 22% of their investment. It was, however, a year to be invested in the shares of mining companies, which returned c.38% and in oil & gas shares which returned c.9%. We largely missed out on the mining sector but we did have exposure to the oil & gas sector. The rest of the market, weighed down by evermore depressing news, lost c.12.5%. John Alexander provides his usual comprehensive Investment Manager's Report, which goes into the activity within and returns from the portfolio during the year.

Our own net asset value declined 11.1%, falling from 1,039.4p to 924.5 per share. That compares with a return from our fixed interest benchmark of 6.8% and a loss from the FTSE All-Share Index of 10.8%. Shareholders will remember we use a fixed interest benchmark rather than a relative performance one, because our primary goal is to make money - after all that is why shareholders invest in Hansa Trust's shares. Of course we also aim to do better than the market - we were a little behind it last year - and than those investment trusts in our peer group - we were about in line with its average. It was not a great year but, given the circumstances, not a disaster either.

The one area we did not do too well in was that of our investment in smaller companies. It was not that the underlying companies traded poorly but rather that the shares of smaller companies tend to perform rather poorly in the circumstances of a credit crisis and the threat of a domestic recession. 

The top five contributors to our performance came from our holdings in Resolution PLC, BG Group, Christian Salvesen, Foseco and DV 3 returning c.£9.0m but their contribution was more than offset by our holdings in certain smaller companies, including our top five detractors: Ark Therapeutics, Wolseley, Acertec, Galliford Try and Engel East Europe, losing us c. £12.4m. As William Salomon has remarked, 'smallcap stocks become private equity in a bear market'. But providing they are well managed and financially sound there is no reason to suppose the holdings won't ultimately prove profitable.

DIVIDEND

+4.0% to 13.0p per share

Shareholders are aware that the Company is run to earn capital gains over the long-term. The income generated by the portfolio in any one year will depend on its make up in that year. We aim to pay out most of what is earned but the payout will of course be higher or lower depending on the results. This year the net income amounted to 13.8p per share (v 12.8p in 2006/7) and as a consequence the Board is recommending a final dividend of 9.5p per share to be paid on 11 August 2008, making a total of 13.0p in respect of the year as a whole (v 12.5p in 2006/7) being £3.12m.

SHARE PRICE PERFORMANCE

Ordinary shares:	-27.0% to 820p per share		Discount to NAV: 11.3%
'A' Ordinary shares	-20.3% to 815p per 'A' share		Discount to NAV: 11.8%

The performance of our shares was decidedly disappointing with the decline in the net asset value being accompanied by a return to a discount for the ordinary shares and a higher discount for the 'A' Ordinary shares. When the Plan Manager terminated arrangements and most of the holdings were switched to Alliance Trust, a number of share sales were precipitated. The discounts widened to levels of just under 20% at one stage but I am pleased to say they have reverted to the industry average of around 10% at present. Over the longer term, given good shareholder returns, I would expect the discount to narrow from these levels.

The table below provides a breakdown of shareholders' total return over the course of the year:

Attribution of Shareholders' Total Return

	Ordinary shares	'A' Ordinary shares
Change in the NAV	-114.9p	-114.9p
Change in the premium/discount	-188.1p	-92.6p
Dividends	+13.0p	+13.0p
Shareholders' Total Return	-290p (-25.8%)	-194.5p (-19.0%)

LONG-TERM TOTAL RETURNS:

5 Years: NAV: +259.6%;   Benchmark: +33.7%;   FTSE A-S Index +102.4%

We state - ad nauseam I am afraid - that the goal of the Company is to earn above average returns over the long-term. Put another way that means making money for shareholders. It is why we have a fixed interest benchmark, being one that compares the amount of money we make with a reasonably safe alternative and therefore being relevant to our goal. We do not 'play portfolio betting games' against stock markets indices.

Your Board has determined that five years is the time span over which it judges the long-term results and I am pleased to be able to report that they remain excellent. It is a testament to William, John and their colleagues' investing skills generally and to their ability to take long-term views when investing - so key to outstanding long-term returns.

Shareholders will not be surprised to learn the independent directors have concluded it is very much in your interests that Hansa Capital remains engaged as the Company's Manager. It isn't just the excellent long-term returns - important though they undoubtedly are - it is also the excellent management and administration of the Company's affairs generally that persuades us we are in good hands.

OCEAN WILSONS HOLDINGS LTD:

An important year of change

Shareholders will be well aware of the enormous success stemming from our holding of 26.4% of the share capital of Ocean Wilsons, a Bermuda based company with two basic interests:

•    Its holding in Wilson Sons Ltd, a company that is one of the largest operators of port, towage and maritime logistics in Brazil; and

•    Through Ocean Wilson Investments, a portfolio of investments in quoted and unquoted shares of companies and funds spread throughout the world.

In last year's report we highlighted the history of the holding which has been held without change since it was first acquired in 1959 at a cost of circa £2.5m. It was, I reported, a classic example of the huge rewards that accrue to patient investors in sound, well managed companies (the much admired but little followed Warren Buffett approach). The value of our holding at the end of our year was £73.0m - down 2.5% from a year ago but up massively over the last five years. The table below illustrates the history of the holding over the five year period.

	OWHL	Valuation of	Per Cent	Valuation per	Year on
Year	Share	holding of	Shareholders	Ord & 'A'	Year
Ending	Price	OWHL shares	Funds	Ord Share	Change
		9,352,770		24,000,000
31-Mar-08	780.0p	£72,951,606	32.9%	304.0p	-2.5%
31-Mar-07	800.0p	£74,822,160	30.0%	311.8p	+69.0%
31-Mar-06	473.3p	£44,261,984	22.5%	184.4p	+58.3%
31-Mar-05	299.0p	£27,964,782	20.0%	116.5p	+68.5%
31-Mar-04	177.5p	£16,601,167	16.2%	69.2p	+177.3%
31-Mar-03	64.0p	£5,985,773	9.2%	24.9p

The wonderful increase in the value of our holding stems mainly from the success of Wilson Sons and its operations in Brazil. It is a well managed company and has enjoyed the benefits of the growth of Brazil's trade (particularly with China) and the emergence of Brazil's oil and gas industry. Indeed there have been some huge offshore discoveries made recently, promising an even rosier future for it. The table below provides a record of revenues and operating profits for Wilsons Sons, demonstrating the progress made by the company during the past five years:

31 December	2007	2006	% change	2002	% change
	(US$ m)	(US$ m)		(US$ m)
Revenues	404.0	334.2	+20.9%	120.5	+235.2%
Operating Profit	85.6	72.6	17.9%	32.9	159.9%

The table below shows where those $404m of revenues earned in 2007 came from:

31 December	2007	2006	% change
	(US$ m)	(US$ m)
Port Terminals	149.0	127.4	+17.0%
Towage	146.8	118.8	+23.6%
Logistics	69.1	49.3	+40.2%
Other	39.1	38.7	+1.0%
Total Revenues	404.0	334.2	+20.9%

The financial nature of such maritime activities is that they involve lots of contracts set at different rates and different times with different currencies involved. It can make the reporting of the finances complex and the results volatile but the progress has been real. 2007 was another good year during which, importantly, it embarked on a significant expansion, increasing its capital investment in new facilities and thereby setting the platform for yet more growth; the prospects for Brazil generally, for its trade particularly and for Wilson Sons specifically remain most promising.

A single holding accounting for a third of shareholders' funds can be regarded as rather risky and indeed is so. But the Board of Directors has always viewed the holding in Ocean Wilsons as a diversification in its own right - diversifying away from the London Stock Market on which the rest of its portfolio holdings is quoted and which carries the risks of political, economic and commercial Britain. Investment in Brazil, of course, carries its own risks but they, like Brazil's opportunities, are quite different from those of Britain. Brazil's investment risks, it can be argued, are rather greater than those of Britain (certainly history would suggest so) but by the same token the opportunities are also much greater.

In any event and mindful of the opportunities that emerging economies generally offer the investor, Ocean Wilsons made a significant move to diversify its own risk base in 2007. In April 2007 it established a listing for the shares of Wilson Sons on the Brazilian and Luxembourg stock exchanges by divesting itself of 18.7 million shares in its subsidiary, raising just over US$200m in the process. Wilson Sons then issued a further 11.0 million shares in May 2007 raising circa US$120m to help finance the expansion plans referred to above. Ocean Wilsons now holds 58.25% of the share capital of Wilson Sons.

Ocean Wilsons' board of directors has subsequently determined that the proceeds of the sale should be used to bolster the investment portfolio which forms the other segment of its business, Ocean Wilson Investments Ltd.

They have decided that - and I quote: 'to increase the scale and breadth of that company's investments and expand the remit to include alternative investment classes, including illiquid securities with a particular emphasis on emerging markets'. So it is that the large holding in Ocean Wilsons has been diversified. We are often asked whether we shouldn't top slice the holding from time to time but the fact is that our interests would not necessarily be best served by doing so; I do not anticipate the Board of Directors authorising any change in the holding.

The balance sheet of Ocean Wilsons at its year end (31 December 2007) was quite different from that of a year earlier. Now the majority of the Ocean Wilsons shareholders' funds are accounted for by Ocean Wilson Investments and a minority by Wilson Sons, as the table below shows.

31 December	2007		2006
	(US$ m)		(US$ m)
Wilson Sons
Assets	575.4		326.9
Liabilities	253.8		181.9
Minority Interest	134.3		3.8
Net Interest	187.3	39.1%	141.2	63.6%
Ocean Wilson Invest
Assets	299.3		82.8
Liabilities	7.8		2.2
Net Interest	291.5	60.9%	80.6	36.4%
Total Shareholder's Funds	478.8	100.0%	221.8	100.0%

Indeed at 31 March I have estimated that Hansa Trust's indirect interest in Wilson Sons was worth circa £62m and in Ocean Wilson Investments circa £40m, leaving our own valuation selling at a discount of circa 28.4% to the underlying value of Ocean Wilsons itself.

31 March 2008

Underlying Value of Hansa Trust's 26.4% of holding in:

	Wilson Sons		£62.0m
	Ocean Wilson Investments		£40.0m
Total Underlying Value in Ocean Wilsons Holdings			£102.0m
Valuation of Hansa Trust's holding in Ocean Wilsons Holdings			£73.0m

I appreciate that my report on Ocean Wilsons is rather longer than usual but I thought it worthwhile given the significant changes that the company has undertaken.

ANNUAL GENERAL MEETING

31 July 2007 at 11.30am at the Washington Hotel, Curzon Street, London

Please, please come and join us for the AGM, which will be held at the Washington Hotel, Curzon Street, London (Green Park tube station, see map on page 59) at 11.30am on Thursday 31 July 2007. Your attendance is important to us because it gives us, the Directors and Management, the chance to hear your views, concerns and suggestions. So I do urge as many shareholders as possible to join us for the occasion at which Mr John Alexander will give his presentation of the events of the past year and the prospects for the current one. Following the formal AGM shareholders will have the chance to meet the Directors and the Management should you wish to do so.

The Annual Report which you will be asked to adopt as the first of the AGM's resolutions, contains three matters which I would like to draw to your attention. First of all, following the successful case brought by the Association of Investment Companies and JPMorgan Claverhouse against Her Majesty's Revenue and Customs ('HMRC') in the European Court of Justice, investment trusts no longer have to pay VAT on the management fee, a saving of circa £280,000 each year; furthermore we are able to claim back VAT paid in the past which in our case will amount to at least £674,000. You will notice a credit has been made in the Group Income Statement for that amount and it is possible there will be more to come.

Secondly, the new Stock Exchange Listing Rules, under the heading of Chapter 15, have determined, amongst other things, that there should be a formal statement of Hansa Trust's investment policy. You will find this laid out on pages 18 & 19. Shareholders will be aware that material changes to the investment policy can only be made with your formal consent in general meeting.

And finally, laid out on pages 55 - 58, under note 21 to the accounts is the statement required of us in compliance with IFRS 7. It is a standard we met last year and deals with the matter of those risks that the standard requires of us, being those of market price, currency, interest rate, credit and liquidity. I mention this because these are not the main risks you face as shareholders but rather they are some of the symptoms of those risks which we lay out on page 15 of the Report of the Directors. As I emphasised earlier in this statement, the holding in the shares of Ocean Wilsons, representing about one third of shareholders' funds is a particularly big individual risk (even much mitigated as it now is).

OUTLOOK

Short-term cautious, long-term bullish

The heading above - short-term cautious, long-term bullish - is precisely the same as last year. The first part of it has proved to be perceptive even though we had little inkling of the size of problems to come. That there were excesses of dishonesty, ambition and greed at work in the banking industry, most especially the investment banking sector, was there for all to see. It should not have been difficult to realise such behaviour would come back to haunt us all and so it has proved. Billion and billions of Dollars, Pounds, Euros and Yen have been wiped out as banks - and others - have had both to write down and to write off bad loans and bad investments. A leading economic and stock market consultant makes the point that there are two types of bubbles - ones which result in excess capital expenditure on productive facilities but which provide capacity for good economic growth for years to come (the railroads in the nineteenth century, for instance) and others, which result in the destruction of capital through excess lending on overvalued, even flawed, assets - often property (Japan in the 1980s, for instance). There is no doubt that this time around it is the latter kind of bubble that has just burst. Managing the consequences is going to be very difficult, for central banks are torn between the threats of deflation from contracting banking capacity on the one hand and inflation on the other.

But the picture is actually both more complicated and less pessimistic than that. It seems highly likely that we are in the midst of a generational change in the world order; much as the baton of world economic and political leadership passed from Great Britain to the United States of America 100 years ago, so it is now in all probability being passed on to China. The national cornerstones that helped the USA - and to a greater or lesser extent Europe and Japan - to the prosperity it now enjoys are not working properly: democracy is failing to produce sound and effective leadership, free speech in the hands of the media is delivering negativism and pessimism, the law favours compensation for mishaps and vengeance rather than justice and finally religious discipline has given way to anything-goes atheism, provoking crime and social disorder. It is the sort of decline that has been repeated throughout history.

In investment terms it amounts to a huge transfer of earning power and to a redistribution of wealth. The era of cheap commodities combining with cheap labour to produce cheap goods and services for the economically emerged world (the USA etc, accounting for one sixth of the world's population) is on its way out. Many of those former third world countries, which include China, India, Brazil and Russia with their emerging economies, now want the living standards the emerged economies enjoy. They (with their populations accounting for over half of that of the world) are prepared to work hard to achieve prosperity for today and to save enough to invest in prosperity for tomorrow. But there are not enough resources to go around - for the moment at least - to satisfy those ambitions so the emerged economies are going to have to make do with less if the emerging economies are to have more. Understanding how that process will unfold will be the key to investment success over the next several years.

It will happen - is happening - through rising global inflation and major realignments of exchange rates. With their high rates of savings and strong work ethic, the emerging economies will be able to acquire commodities and other goods and services that the emerged economies will find increasingly difficult to afford. It will not, however, happen overnight nor will it be a smooth transition. The emerged economies will seek to protect their life styles, provoking the risks of protectionism and even war. China for its part is almost certainly growing too fast at the moment and will have to cut back the rate of its development or the problems of water shortages, pollution, congestion and inflation will cause the very social unrest that the economic development is supposed to allay. So the process and the progress will be uneven.

The changing world order is a challenge for investors for although its outcome is certain, its course is uncertain. It is - in part at least - why the board of directors of Ocean Wilsons decided to keep investing in the emerging world. It offers enormous opportunities for investment but not without risk. With good foresight and sound portfolio management, both of which Hansa Trust has, there is the real prospect of earning excellent returns in the future by reading the tea leaves right and by playing them long. It is the second half of the heading above: long-term bullish.

Signature

Alex Hammond-Chambers

Chairman

REPORT OF THE DIRECTORS

for the year ended 31 March 2008

The Directors present their Report and Financial Statements for the year ended 31 March 2008.

THE BOARD'S OBJECTIVES

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

THE BOARD

Your Board consists of the following, each of whom brings certain individual and complementary skills and experience to the Board's workings, as summarised below.

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, retiring as chairman in 1991. He is chairman of three investment trust companies and a director of two others, as well as a number of other investment companies. He has served as a chairman of the Association of Investment Trust 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 industry and property to the Board's stewardship. Born in 1955, he joined the Board in 1984. He is chairman of Modec Limited which makes battery powered vans and of route2mobility Limited which finances wheelchairs and scooters as part of the Motability Scheme. He is also a partner of Federated Investments LLP and an investor in property in the UK and Florida.

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, 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.

THE BOARD'S RESPONSBILITIES

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.

STEWARDSHIP

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:

•           proper accounting records are kept, which 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 1985.

 

•           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. The Company and Group Financial Statements are required by law and IFRS as adopted by the EU to present fairly the financial position of the Company and the Group and the performance of the Group for that period. In preparing these financial statements the Directors are required to:

 

•           select suitable accounting policies and apply them consistently;

 

•           make judgements and estimates that are reasonable and prudent;

 

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

 

•           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.

 

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, keeps 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 external 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. 

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 the 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 17, that it has in all respects followed the AIC Code in meeting its obligations under the Listing Rules and the Combined Code.

The AIC Guide has 21 principles, the vast majority of which the Board of the Company 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 Guide. They include:

The Board

•           The Chairman should be independent

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

 

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

With the exception of Mr Salomon, who is employed by the Manager, all the other board members are considered to be independent. Both Professor Wood and Lord Borwick, who have served as Directors of the Company for more than nine years, have been assessed as independent by virtue of their personal characteristics, their experience, their financial independence and their directorial performance.

 

•           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 Annual General Meeting and where appropriate offer themselves for re-election.

 

•           There should be full disclosure of information about the Board

            A biography of each member of the Board can be found on page 10.

 

•           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 38.

 

•           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 evaluation every three years. The other years the Board, at its strategy meeting, carries out an evaluation of the independence of each Director, 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 relative to other comparable companies and in the light of the Directors’ duties and responsibilities and the value of the time committed to the interests of the Company.

 

•           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 and Manager operate in an environment of mutual trust and respect both, at the 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, including and 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 between the Manager and the Company, service levels are defined. In addition the Board determines certain investment restrictions and guidelines for the Manager, on which it reports on a monthly basis.

 

•           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 and premium and comments on it at its regular meetings.

 

•           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 FRAG 21 or AAF 01/06 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 Annual General Meeting 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 contents 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 Report, Half Yearly Report, Interim Management Statements and Monthly Fact Sheet 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.

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 enable 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 at the regular meetings and refinements made to it as required, with formal review at the Board’s annual strategy meeting.

 

The Board issues formal investment guidelines and restrictions and 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, acting on advice from the Manager, determines the maximum level of borrowings the Company will undertake at the time of borrowing. The Company has entered into a short-term loan facility with the ING Barings Bank; 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 re-purchase 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 and timing of dividends payable to shareholders

The Board’s policy is to distribute to shareholders the majority of the Company’s income by way of an interim dividend, normally paid in December each year and a final dividend paid as soon as is practically possible following the approval by shareholders at the Company’s Annual General Meeting.

 

BUSINESS REVIEW, RISKS AND KEY PERFORMANCE INDICATORS

The 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.

Risks

The Board considers that the risks the 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, include economic recession, declining corporate profitability, rising inflation and interest rates and excessive stockmarket speculation. At the annual strategy meeting, the Directors and Management highlighted certain risks that concerned them, including:

•           an economic recession in some or all parts of the G7 countries;

 

•           rising inflation caused in part by commodity shortages, particularly oil and food;

 

•           high, even rising interest rates to counter inflation;

 

•           incompetent government, particularly in the UK;

 

•           the bad debt crisis spreading to areas other than housing, including consumer credit, hedge and private equity funds;

 

•           falling corporate profits consequent upon weak sales and inflating costs;

 

•           a sharp slowdown in the economic growth in China and India;

 

•           the Brazilian risks, whether political, economic or financial.

 

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

The mitigation of these risks is achieved by sensible stock and sector diversification and 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.842 ICTA 1988 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.842, with any discrepancies being reported to the Board.

The mitigation of these risks is achieved by the Board performing regular reviews of all service providers and monthly reviews of s.842 ICTA compliance.

The Board considers the risks to the Company's two share prices, apart from those mentioned above, to 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 are managed, have been summarised in Note 21 on Pages 55 and 58.

Key Performance Indicators ('KPI')

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) he/she did not make a return from his/her investment in the Company. The key performance indicator, 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 risk free, five year investment. Other KPIs include the net asset value returns against those of the benchmark, against the Company's peer group average returns and 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.

	2008	2005	2003	1998
	(1 year)	(3 years)	(5 years)	(10 years)
Share Price
Ordinary shares	(26.08%)	50.54%	309.48%	243.00%
'A' non-voting Ordinary shares	(19.26%)	55.29%	302.35%	279.62%
Company's benchmark	6.78%	20.06%	33.65%	73.53%

ii) Company - Total Returns

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

	2008	2005	2003	1998
	(1 year)	(3 years)	(5 years)	(10 years)
Net Asset Value	(10.54%)	63.61%	259.55%	234.80%
Absolute comparison
Company's Benchmark	6.78%	20.06%	33.65%	73.53%
Relative comparison
FTSE All-Share Index	(7.43%)	32.69%	102.36%	46.82%
Peer Group Average	(16.4%)	40.0%	161.5%	99.1%

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.

	2008	2005	2003	1998
	(1 year)	(3 years)	(5 years)	(10 years)
Share Price
Ordinary shares	11.3%	2.1%	20.5%	10.9%
'A' non-voting Ordinary shares	11.8%	5.5%	19.4%	19.3%
Peer Group Average	8.7%	8.9%	12.8%	10.1%
AIC IC Average	9.1%	8.3%	7.9%	6.3%

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 that Shareholders receive.

	2008	2005	2003	1998
	(1 year)	(3 years)	(5 years)	(10 years)
Total expense ratio per annum	0.80%	0.85%	0.92%	1.00%
NAV Total Return per annum	(10.54%)	21.20%	51.91%	23.48%

BOARD POLICIES

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.

The Board's Committees and the main service provider contracts are detailed below and any additional requirements which the Board is required to carry out in fulfilment of its obligations under the Companies Acts or Listing Rules.

Details of the Directors' attendance at Board, Strategy and Audit Committee meetings are in the Directors' Remuneration Report on page 38.

BOARD COMMITTEES

Audit Committee

The Directors consider that all members of the Board should be members of the Audit Committee in order for them to fulfil their responsibilities as Directors of the Company and so 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 Auditors also attend this Committee and report on their work procedures, the quality and effectiveness of the Company's accounting records and their findings in relation to the Company's statutory audit. The responsibilities of the Audit Committee include review of internal financial controls, accounting policies, financial statements, management contract, Auditors' appointment and remuneration (no non-audit services are provided by the Auditors) and the valuation of the unquoted investments. The Board has issued the Committee with Terms of Reference which are available from the Company Secretary at the registered address of 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 Annual General Meeting 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 Annual General Meeting. 

Management Engagement Committee

The Board, with the exception of Mr Salomon, fulfils 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.

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.

SERVICE PROVIDERS

Investment Manager

Hansa Capital Partners LLP charged an investment management fee at an annual rate of 1% of the net assets of the Company, (after any borrowings) but after deducting the investment in Ocean Wilsons Holdings Limited on which no fee is payable. 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 that is mutually acceptable. The investment management fee outstanding at the year end amounted to £125,857 excluding VAT (2007: £101,336). In its annual assessment, 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 remain in situ.

Auditors

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

Company Secretary

Secretarial services were provided by Hansa Capital Partners LLP at an annual rate of £100,000, excluding VAT (2007: £40,000).

Administrator

The Company has appointed BNP Paribas Services UK Limited as its Administrators.

BOARD STATEMENTS AND DISCLOSURES

In accordance with the Companies Acts and Financial Services Authority UKLA Listing Rules the Board is required to make various statements and disclosures to shareholders. They are:

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 that any single investment in one 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. The Board believes it is in the best long-term interests of shareholders for investing to be responsive to prevailing market conditions and sentiment. 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 into any one company the limit applying at the time of the acquisition of the holding (co-incidently as required by Section 842 of the Income and Corporation Taxes Act). 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 that shareholders' returns will be enhanced if the Company borrows money at appropriate times for the purpose of investment. While the Memorandum and Articles of Association allow 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 lenders' borrowing covenants. The Board will normally set an informal borrowing limit of approximately one half of the lenders' 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 believes 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 is 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 42.

The dividends paid and proposed are as follows:

	2008	2007
	£000	£000
Ordinary and 'A' non-voting Ordinary shares
Interim paid of 3.5p (2007: 3.5p) per share	840	840
Final proposed of 9.5p (2007 paid: 9.0p) per share	2,280	2,160
Total dividends	3,120	3,000

The final dividend will, if approved, be paid on 11 August 2008 to Ordinary and 'A' non-voting Ordinary shareholders registered at the close of business on 27 June 2008.

Publication of Financial Statements on a website

The Financial Statements are made available on the Hanseatic Group website www.hansagrp.com. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of the website, and accordingly, the Directors and the Auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website. Visitors to the website need to be aware that the legislation in the UK governing the preparation and dissemination of the Financial Statements may differ from legislation in their jurisdiction.

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 families in the Company at 31 March 2008 are shown below:

	Ordinary shares of  5p each		'A' non- voting Ordinary shares of 5p each		Nature of interest
	2008	2007	2008	2007
Mr Hammond-Chambers	500	500	7,600	7,600	Beneficial
Lord Borwick	24,678	2,200	16,376	-	Beneficial
Mr Salomon	2,113,219	2,113,219	98,700	98,700	Beneficial
Professor Wood	5,500	1,000	7,000	9,700	Beneficial

Mr Salomon is senior partner of Hansa Capital Partners LLP. Fees payable (inclusive of VAT for periods up to 30 September 2007) to Hansa Capital Partners LLP, amounted to £1,836,690 (2007: £1,307,737). 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 2008 was £235,366 (2007: £243,641,000). Taking these investments at this valuation, the net assets attributable to each Ordinary and 'A' non-voting Ordinary share amounted to 924.5p at 31 March 2008 (2007: 1,039.4p).

Substantial Shareholders

As at 31 March 2008 and 16 June 2008 the Directors were aware of the following interests in the Ordinary shares of the Company which exceeded 3% of the voting issued share capital of that class:

	No. of	% of
	voting shares	voting shares
Nicholas B. Dill, Jr. & Codan Trust Company Limited (note)	4,096,350	51.20
HBOS plc	265,000	3.33

Note: Of the shares held by Nicholas B. Dill, Jr & Codan Trust Company Limited, Mr W H Salomon is interested in 2,048,175 and Mrs J A V Townsend is interested in 2,048,175, each holding representing 25.60% of the voting share capital. In addition, Mr W H Salomon has further interests in the Company's shares, the total interest is detailed in the paragraph Directors' Interests above.

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. Payments relating to investment transactions are made in accordance with the settlement practices of the relevant exchange. At 31 March 2008 outstanding trade creditors amounted to £Nil (2007: £Nil). 

Capital Structure

The structure of the company's capital is described in Note 16 on page 53.

Directors' and Officers' Liability Insurance 

During the year the Company purchased and maintained liability insurance for its Directors and Officers.

Going Concern 

The Directors, having made relevant enquiries, are satisfied it is appropriate to prepare financial statements on a going concern basis as the net assets of the Group consist of securities, the majority of which are traded on recognised stock exchanges.

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 842 of the Income and Corporation Taxes Act 1988. The Company has received approval as an investment trust for the year ended 31 March 2007. 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 that 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 Auditors with all the information necessary for them 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 Auditors are aware of that information. The Directors are not aware there is any information relevant to the audit of which the Company's Auditors are unaware.

Responsibility Statement

The Board confirms that to the best of its 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 of the Group and the Company.

•    The Chairmans's Statement and Directors' Report includes 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.

ANNUAL GENERAL MEETING

Special resolutions relating to the following items will be proposed at the forthcoming Annual General Meeting: 

(a) Authority to re-purchase 'A' non-voting Ordinary shares 

A resolution will be proposed at the forthcoming Annual General Meeting, 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 that 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 ('NAV') 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 Annual General Meeting 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 Annual General Meeting. 

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 Annual General Meeting.

(b) Revision to the Company's Articles of Association

On 25 April 2007 the Company adopted new Articles in order to try to ensure the Company continues to maintain approval from HMRC as an investment trust for the purposes of section 842 of the Income and Corporation Taxes Act 1988 ('ICTA') and hence to be exempt from paying tax on its capital gains by not becoming a close company by providing that if the Board becomes aware that any Ordinary shares are or may be owned in circumstances which cause or could cause the Company to become a close company, it may serve a notice requiring some or all of those shares to be transferred to another person and for the voting rights attached to those Ordinary shares to be suspended until the required transfer takes place.

These new Articles also took advantage of changes to the laws relating to the Company's ability to give indemnities to its Directors and others.

At the time the above amendments were made, the Board advised further changes would be proposed in due course after the remaining provisions of the Companies Act 2006 ('the 2006 Act') had come into effect. Whilst not all of the remaining provisions of the 2006 Act have come into effect, the Board is proposing to make amendments to the Articles in order to bring them in line with the changes that have been introduced to date and/or will be introduced by October 2008. Accordingly, a special resolution will be put to the Annual General Meeting to be held on 31 July 2008. Details of the changes are set out in the notes to the Notice of Annual General meeting pages 60 to 62. It should be noted that further changes may be required in due course.

By order of the Board 

Hansa Capital Partners LLP 

Secretary 

26 June 2008

GROUP INCOME STATEMENT

For the year ended 31 March 2008

		Revenue	Capital	Total	Revenue	Capital	Total
		2008	2008	2008	2007	2007	2007
		£000	£000	£000	£000	£000	£000
(Losses)/gains on investments		-	(28,112)	(28,112)	-	52,403	52,403
Gain/(loss) on derivative		-	221	221	-	(20)	(20)
Exchange losses on currency balances		-	(1)	(1)	-	(10)	(10)
Investment income		5,541	-	5,541	5,215	-	5,215
		5,541	(27,892)	(22,351)	5,215	52,373	57,588
Investment management fee		(1,838)	-	(1,838)	(1,312)	-	(1,312)
Write back of prior years' VAT		674	-	674	-	-	-
Other expenses		(729)	-	(729)	(561)	-	(561)
		(1,893)	-	(1,893)	(1,873)	-	(1,873)
Profit/(loss) before finance costs and taxation		3,648	(27,892)	(24,244)	3,342	52,373	55,715
Finance costs		(200)	-	(200)	(226)	-	(226)
Profit/(loss) before taxation		3,448	(27,892)	(24,444)	3,116	52,373	55,489
Taxation		(144)	-	(144)	(58)	-	(58)
Profit /(loss) for the year		3,304	(27,892)	(24,588)	3,058	52,373	55,431
Return per Ordinary and 'A' non-voting Ordinary share		13.8p	(116.2p)	(102.4p)	12.8p	218.2p	231.0p

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.

STATEMENT OF CHANGES IN EQUITY - GROUP

For the year ended 31 March 2008

		Share	Capital	Retained	Total	Share	Capital	Retained	Total
		Capital	redemption	earnings		Capital	redemption	earnings
			reserve				reserve
		2008	2008	2008	2008	2007	2007	2007	2007
		£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 1 April		1,200	300	247,966	249,466	1,200	300	194,875	196,375
(Loss)/profit for the year		-	-	(24,588)	(24,588)	-	-	55,431	55,431
Dividends paid		-	-	(3,000)	(3,000)	-	-	(2,340)	(2,340)
Net assets at 31 March		1,200	300	220,378	221,878	1,200	300	247,966	249,466

STATEMENT OF CHANGES IN EQUITY - COMPANY

For the year ended 31 March 2008

		Share	Capital	Retained	Total	Share	Capital	Retained	Total
		Capital	redemption	earnings		Capital	redemption	earnings
			reserve				reserve
		2008	2008	2008	2008	2007	2007	2007	2007
		£000	£000	£000	£000	£000	£000	£000	£000
Net assets at 1 April		1,200	300	247,966	249,466	1,200	300	194,875	196,375
(Loss)/profit for the year		-	-	(24,588)	(24,588)	-	-	55,431	55,431
Dividends paid		-	-	(3,000)	(3,000)	-	-	(2,340)	(2,340)
Net assets at 31 March		1,200	300	220,378	221,878	1,200	300	247,966	249,466

BALANCE SHEET OF THE GROUP AND COMPANY

as at 31 March 2008

Group			Group	Company	Company
2008			2007	2008	2007
		£000	£000	£000	£000
Non-current investments
Shares in Group undertaking		-	-	637	638
Investments held at fair value through profit and loss		235,366	243,641	235,366	243,641
		235,366	243,641	236,003	244,279
Current assets
Trade and other receivables		2,398	737	2,398	737
Cash and cash equivalents		251	6,091	251	6,091
		2,649	6,828	2,649	6,828
Current liabilities
Trade and other payables		(16,137)	(1,003)	(16,774)	(1,641)
Net current (liabilities) / assets		(13,488)	5,825	(14,125)	5,187
Net assets		221,878	249,466	221,878	249,466
Capital and reserves
Called up share capital		1,200	1,200	1,200	1,200
Capital redemption reserve		300	300	300	300
Retained earnings		220,378	247,966	220,378	247,966
Total equity shareholders' funds		221,878	249,466	221,878	249,466
Net asset value per Ordinary and 'A' non-voting Ordinary share		924.5p	1,039.4p	924.5p	1,039.4p

CASH FLOW STATEMENT

for the year ended 31 March 2008

		Group	Group	Company	Company
		2008	2007	2008	2007
		£000	£000	£000	£000
Cash flows from operating activities
(Loss)/profit before finance costs & taxation		(24,244)	55,715	(24,244)	55,715
Adjustments for:
Realised gains on investments		(6,646)	(32,063)	(6,646)	(32,063)
Unrealised losses/(gains) on investments		34,758	(20,340)	34,759	(20,335)
Effect of foreign exchange rate changes		1	10	1	10
Interest paid		-	-	-	-
Decrease in current asset investments		-	-	-	-
(Increase)/decrease in trade and other receivables		(1,661)	(391)	(1,661)	(391)
Increase in trade and other payables		42	-	41	24
Taxes paid		(144)	(58)	(144)	(58)
Purchase of non-current investments		(42,801)	(65,752)	(42,801)	(65,752)
Sale of non-current investments		22,256	77,905	22,256	77,905
Net cash (outflow)/inflow from operating activities		(18,439)	15,026	(18,439)	15,055
Cash flows from financing activities
Interest paid on bank loans		(200)	(226)	(200)	(226)
Dividends paid		(3,000)	(2,340)	(3,000)	(2,340)
(Repayment)/ drawdown of loans		15,800	(6,600)	15,800	(6,600)
Net cash inflow/(outflow) from financing activities		12,600	(9,166)	12,600	(9,166)
(Decrease)/increase in cash and cash equivalents		(5,839)	5,860	(5,839)	5,889
Cash and cash equivalent at 1 April		6,091	241	6,091	212
Effect of foreign exchange rate changes		(1)	(10)	(1)	(10)
Cash and cash equivalents at 31 March		251	6,091	251	6,091

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.  

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 230 of the Companies Act 1985, 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 2003 (and revised in December 2005) 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 2008. 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 reflect better 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 that the Directors believe to be appropriate in assessing the Company's compliance with certain requirements set out in section 842 of the Income and Corporation Taxes Act 1988.

(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 increases in fair value, investments are designated as fair value through profit and 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 daily by the issuing broker at mid-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.  

(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; 

(ii)    Expenses are charged to the realised capital reserve, 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 that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval under Section 842 ICTA 1988 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 that are 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.

(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. Monetary 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 - Realised 

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

• gains and losses on the realisation of investments; 

• realised exchange differences of a capital nature;

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

Capital reserves - Unrealised 

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; 

• unrealised exchange differences of a capital nature.

• unrealised gains from quoted investments used in share buy-backs.

2. INCOME
	Revenue		Revenue
	2008		2007
	£000		£000
Income from listed investments
Dividends	3,840		3,562
Overseas dividends	1,564		1,391
	5,404		4,953
Other operating income
Net dealing profit of the subsidiary	-		-
Placement and underwriting income	25		4
Interest receivable on AAA rated money market funds	108		205
Other interest receivable	4		53
	137		262
Total income	5,541		5,215
Total income comprises:
Dividends	5,404		4,953
Interest	112		258
Other income	25		4
	5,541		5,215

3. INVESTMENT MANAGEMENT FEE
	Revenue		Revenue
	2008		2007
	£000		£000
Periodic fees	1,682		1,117
VAT incurred thereon	156		195
	1,838		1,312
Details of the management agreement are disclosed in the Report of the Directors on page 18.

4. OTHER EXPENSES	Revenue		Revenue
	2008		2007
	£000		£000
Secretarial services	117		47
Directors' remuneration	88		62
Auditors' remuneration for the audit of the Group and Company	24		29
Auditors' remuneration for the review of the Half Yearly Report	2		2
Administration fees	126		113
Production and distribution of Annual and Half Yearly Reports	43		35
Registrar's fees	40		28
Bank charges	58		40
Marketing	71		74
Savings scheme	75		50
Other	85		81
	729		561

5. FINANCE COSTS	Revenue		Revenue
	2008		2007
	£000		£000
Interest payable	200		226
	200		226

6. TAXATION
	Revenue		Revenue
(a) Taxation Charge on Ordinary Activities	2008		2007
	£000		£000
UK corporation tax @ 30%	-		-
Irrecoverable foreign tax	144		58
	144		58

 (b) Factors affecting Tax Charge for Period

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

The tax charge for the period is lower than the standard rate of corporation tax in the UK of 30% (2007: 30%). The differences are explained below:

	2008		2007
	£000		£000
Total (Loss)/profit before taxation	(24,444)		55,489
(Loss)/profit multiplied by standard rate of corporation tax	(7,333)		16,647
Effects of:
Non taxable UK capital losses/(gains)	8,367		(15,712)
Non taxable UK investment income	(1,152)		(1,068)
Excess administration expenses unused Irrecoverable foreign tax	95 144		118 58
Disallowed expenses	23		15
Current tax charge	144		58

(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 £1,577,000 (2007: £1,424,000), arising as a result of having unutilised management expenses and loan relationship deficits. In addition there are unrecognised deferred tax assets of £7,000 (2007: £7,000) relating to the subsidiary's unutilised tax losses. 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 revenues. 

7. DIVIDENDS PAID

	Revenue		Revenue
	2008		2007
	£000		£000
Amounts recognised as distributions to equity holders in the year:
Final dividend for 2007: 9.0p (2006: 6.25p)	2,160		1,500
Interim dividend for 2008: 3.5p (2007: 3.5p)	840		840
	3,000		2,340

The proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

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 Section 842 of the Income and Corporation Taxes Act 1988 are considered. The Company's revenue available for distribution by way of dividend for the year is £3,305,000 (2007: £3,063,000).

	2008		2007
	£000		£000
Interim dividend for 2008: 3.5p (2007 3.5p)	840		840
Proposed final dividend for 2008: 9.5p (2007: 9.0p)	2,280		2,160
	3,120		3,000

8. RETURN ON ORDINARY SHARES (EQUITY) 

	Revenue	Capital	Total	Revenue	Capital	Total
	2008	2008	2008	2007	2007	2007
Returns per share	13.8p	(116.2p)	(102.4p)	12.8p	218.2p	231.0p

Returns

Revenue  

Revenue return per share is based on the revenue attributable to equity shareholders of £3,304,000 (2007: £3,058,000).

Capital 

Capital return per share is based on the capital loss attributable to equity shareholders of £27,892,000 (2007: £52,373,000 profit).

Total

Return per share is based on the combination of revenue returns and capital losses attributable to equity shareholders amounting to a net loss of £24,588,000 (2007: £55,431,000 profit).

Both revenue and capital return are based on: 8,000,000 Ordinary shares (2007: 8,000,000) and 16,000,000 'A' non-voting Ordinary shares (2007: 16,000,000), in issue throughout the year.

9. PROFIT OF THE COMPANY ATTRIBUTABLE TO SHAREHOLDERS

The loss for the year after taxation dealt with in the accounts of the Company is £24,588,000 (2007: £55,431,000 profit).

10. SHARE IN GROUP UNDERTAKING 

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

	2008		2007
	£000		£000
Cost at 1 April 2007	3		3
Unrealised appreciation at 1 April 2007	635		640
Valuation at 1 April 2007	638		643
Movements in unrealised appreciation	(1)		(5)
Valuation as at 31 March 2008	637		638
Cost at 31 March 2008	3		3
Unrealised appreciation	634		635
	637		638

11. INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT AND LOSS

	Group and Company
			AIM &				2008
	Listed		OFEX		Unquoted		Total
	£000		£000		£000		£000
Cost at 1 April 2007	98,384		44,234		1,215		143,833
Unrealised appreciation at 1 April 2007	91,239		6,777		1,792		99,808
Valuation at 1 April 2007	189,623		51,011		3,007		243,641
Movements in the year:
Changes in listing	-		-		-		-
Purchases at cost	27,145		13,327		1,621		42,093
Sales - proceeds	(14,037)		(6,847)		(1,372)		(22,256)
- realised gains on sales	2,832		3,814		-		6,646
Movement in unrealised appreciation	(15,095)		(20,232)		569		(34,758)
Valuation as at 31 March 2008	190,468		41,073		3,825		235,366
Cost at 31 March 2008	114,324		54,528		1,464		170,316
Unrealised appreciation at 31 March 2008	76,144		(13,455)		2,361		65,050
	190,468		41,073		3,825		235,366

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
	2008				2007
	£000				£000
Purchases	194				275
Sales	14				140
	208				415

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: 

				Latest		Profit
	Country of		% of	available	Aggregate	for the year
	incorporation	Class of	class	audited	capital and	after minority
Non-investment company	or registration	capital	held	accounts	reserves	interests
					$000	$000
Ocean Wilsons Holdings Limited	Bermuda	Ordinary	26.4	31.12.07	613,058	258,065

The above is included as part of the investment 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		9.36
Dowliss Plc	Ordinary		6.54
Robotic Technology Plc	Ordinary		6.06
Work Group Plc	Ordinary		4.90
Helesi Plc	Ordinary		4.60
Acertec Plc	Ordinary		4.38
Cap-XX Plc	Ordinary		4.32
Andor Technology Plc	Ordinary		4.22
Media Square	Ordinary		4.01
Morson Group Plc	Ordinary		3.86
Hargreaves Services Plc	Ordinary		3.81
NCC Group Plc	Ordinary		3.73
Engel East Europe NV	Ordinary		3.13
Ramco Energy	Ordinary		3.08

13. OTHER RECEIVABLES

	Group		Group		Company		Company
	2008		2007		2008		2007
	£000		£000		£000		£000
Amount due from broker	-		-		-		-
Derivatives at fair value	1,103		80		1,103		80
Prepayments and accrued income	1,285		591		1,285		591
Recoverable overseas tax	10		66		10		66
	2,398		737		2,398		737

14. CURRENT ASSET INVESTMENTS

	Group		Group		Company		Company
	2008		2007		2008		2007
	£000		£000		£000		£000
Cash funds	251		4,667		251		4,667
Cash at bank	-		1,424		-		1,424
	251		6,091		251		6,091

15. CURRENT LIABILITIES

	Group		Group		Company		Company
	2008		2007		2008		2007
	£000		£000		£000		£000
Bank loans and overdrafts	15,800		-		15,800		-
Amount due to broker	-		708		-		708
Due to subsidiary undertaking	-		-		640		640
Other creditors and accruals	337		295		334		293
	16,137		1,003		16,774		1,641

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

16. SHARE CAPITAL

	Company		Company
	2008		2007
	£000		£000
Authorised
300,000 7.5% Cumulative preference shares of £1	-		300
8,000,000 Ordinary shares of 5p	400		400
16,000,000 'A' non-voting Ordinary shares of 5p	800		800
	1,200		1,500
Allotted, called up 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
	2008		2007
	£000		£000
Balances at 31 March 2008 and 31 March 2007	300		300

18. RETAINED EARNINGS 

		Realised	Unrealised		Realised	Unrealised
	Revenue	Capital	Capital	Revenue	Capital	Capital
	2008	2008	2008	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Group
Opening balance at 1 April	4,385	143,773	99,808	3,667	111,740	79,468
Profit for the year	3,304	6,866	(34,758)	3,058	32,033	20,340
Dividend paid	(3,000)	-	-	(2,340)	-	-
Closing balance at 31 March	4,689	150,639	65,050	4,385	143,773	99,808

	Realised	Unrealised		Realised	Unrealised
	Revenue	Capital	Capital	Revenue	Capital	Capital
	2007	2007	2007	2006	2006	2006
	£000	£000	£000	£000	£000	£000
Company
Opening balance at 1 April	3,750	143,773	100,443	3,027	111,740	80,108
Profit for the year	3,305	6,866	(34,759)	3,063	32,033	20,335
Dividend paid	(3,000)	-	-	(2,340)	-	-
Closing balance at 31 March	4,055	150,639	65,684	3,750	143,773	100,443

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

19. NET ASSET VALUE

	2008		2007
Net asset value per Ordinary and 'A' non-voting Ordinary share	924.5p		1,039.4p

The net asset value per Ordinary and 'A' non-voting Ordinary share is based on the net assets attributable to equity shareholders of £221,878,000 (2007: £249,466,000) and on 8,000,000 Ordinary shares (2007: 8,000,000) and 16,000,000 'A' non-voting Ordinary shares (2007: 16,000,000), in issue at 31 March 2008.

20. COMMITMENTS AND CONTINGENCIES 

The Company has entered into a commitment agreement with DV3 Limited, an unquoted property investment company. The commitment was for £4 million for a period of four years from 30 March 2004. At the completion of this four year period on 30 March 2008 £807,398 (2007: £1,127,873) of this commitment remained undrawn. However the commitment agreement allows DV3 to draw this amount during a further three year period following the original commitment period. At 31 March 2008 the amount drawn down less amounts received under the agreement was £40 (2007: £1,050,954).

During the year the Company entered into a further commitment agreement with DV4 Limited, also an unquoted property investment company. The commitment was for £10 million for a period of 5 years from 7 March 2008 and the amount outstanidng at 31 March 2008 was £8,699,704.

Following the HMRC acceptance of the ruling of the European Court of Justice judgement that investment management fees paid by investment trust companies should be exempt from Value Added Tax ('VAT'), the Company has sought to reclaim amounts from the three investment managers who charged VAT on their investment management fees during the reclaim period, totalling circa £1.1m.

Each investment manager will or has applied to the HMRC for a reclaim of the VAT it paid to HMRC in respect of VAT rendered on their fees. These reclaims will be the subject of individual negotiations between the individual investment manager and the HMRC and, for a number of reasons, are most likely to produce a lesser amount than that paid by the Company.

Each investment manager is at different points in the reclaiming process; however, at this stage, the Board is confident of recovering at least £674,000 from the investment managers and as a consequence, the sum has been recognised in the Group Income Statement. With respect to the remaining balance paid by the Company, the Board is confident that more will be recovered but is uncertain at this point how much.

21. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS

Background 

The Company's financial instruments comprise securities, cash balances and 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.

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 IFRS 7, 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, 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 Group 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 is 2.8% of the portfolio (2007: 2.7%) and therefore the portfolio valuation is not materially sensitive to foreign currency fluctuations. 

	Direct foreign currency risk	No direct foreign currency risk		Direct	No direct foreign currency risk
			Total	Foreign currency risk		Total
	2008	2008	2008	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Investments	6,634	228,732	235,366	6,695	243,946	243,641
Other receivables excluding prepayments	-	2,381	2,381	-	726	726
Current asset investments	-	251	251	-	4,667	4,667
Cash and cash equivalents	-	-	-		1,424	1,424
Current liabilities	-	(337)	(337)	-	(1,003)	(1,003)
Bank loan & Overdraft	-	(15,800)	(15,800)	-	-	-
	6,634	215,227	221,861	6,695	242,760	249,455

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 £30 million which are available for the Investment Manager to use in purchasing investments, the costs of which are base rate plus a margin. The Group 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 year end facility would be £158,000. The level of banking facilities utilised at 31 March 2008 was £15.8m (2007: £nil).

Interest rate changes will always impact equity prices. The level and direction of change in equity prices is subject to prevailing local and world economics 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 3% on bank balances and 5% on cash funds.

	Cashflow	No		Cashflow	No
	interest	interest		interest	interest
	rate risk	rate risk	Total	rate risk	rate risk	Total
	2008	2008	2008	2007	2007	2007
	£000	£000	£000	£000	£000	£000
Investments	-	235,366	235,366	-	243,641	243,641
Other receivables excluding prepayments	-	2,381	2,381	-	726	726
Investments	251	-	251	4,667	-	4,667
Cash and cash equivalents	-	-	-	1,424	-	1,424
Current liabilities	-	(337)	(337)	-	(1,003)	(1,003)
Bank loan & overdrafts	(15,800)	-	(15,800)	-	-	-
	(15,549)	237,410	221,861	6,091	243,364	249,455

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 (£72.9m) and as a proportion of the portfolio (31.0%). Shareholders should recognise 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 that 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 has recently undertaken a thorough review of its business and prospects and determined that its future holds a lot of promise. As a consequence the Board believes that 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 London Stock Exchange Index. Should the portfolio of the Company, as detailed on p.18, rise or fall in value by 10% the effect on the Group profit and equity would be an equal rise or fall of £23.5m. The Group gearing, which is currently at 6.8% would increase to 7.5% should the Company's portfolio fall in value by 10%. The impact of the Company's derivative strategies, which are detailed below, would not materially affect the value of the portflolio following a 10% fall in its value.

Derivatives

The Investment Manager may only use derivative instruments in order to mitigate the market risk to the portfolio. At the year end there were four OTC Put Spread FTSE 100 Index options open as detailed below. These provide a limited degree of protection from a fall in the value of the FTSE 100 Index of between 10% and 20% from their individual reference levels or between the Upper and Lower Strike Prices below.

				Fair Value  as at 31 March 2008
Index	Notional Value	Upper Strike Price	Lower Strike Price		Expiry Date
FTSE 100	£12,206,500	5,782.05	5,139.60	£352,769	23 June 2008
FTSE 100 FTSE 100 FTSE 100	£9,930,250 £9,009,000 £8,200,310	5,692.50 5,670.00 5,391.00	5,060.00 5,040.00 4,792.00	£284,998 £263,964 £200,908	22 Sept 2008 1 Dec 2008 19 Feb 2009
				£1,102,639

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 and 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 2008 are shown in Note 13.

The Company is exposed to credit risk on OTC options. Amounts receivable in relation to options open at the year end amounted to £1,102,639 (2007: £79,730). The related credit risk is managed by purchasing the options from a regulated institution.

Liquidity Risk

The liquidity risk to the Company is that it is uanble to meet its obligations as they fall due, due to a lack of available cash and an inability to dispose of investment in a timely manner. The majority of the Company's portfolio is held in liquid quoted investments; however there is a large holding in Ocean Wilsons Holdings Ltd of 31.0% and 17.5% in other holdings in AIM and unquoted investments.

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 investments held at 31 March 2008 is shown on Page 37, 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 Group's financial liabilities at 31 March 2008 consist of short-term bank loans amounting to £15.8m (2007: £nil) that would bear interest based on the prevailing LIBOR rate plus an agreed margin.

 The Company has a total revolving credit facility with ING Barings Plc of £30m. The facility is a £30m committed facility repayable on or before 11 February 2011 and subject to a covenant requirement of a minimum adjusted net asset value of £80m. The Group has un-drawn loans from this facility of £14.2m (2007: £20m). The Company holds this facility for use at short notice for its investment activities. If fully drawn the loan would form 12.7% of the current value of the investment portfolio.

Capital Management

The Company considers its capital to be its issued share capital and reserves. 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 that 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. 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 2008 are disclosed in the Report of the Directors page 18 and in Note 3 above. 

23. CONTROLLING PARTIES 

At 31 March 2008 Nicholas B. Dill, Jr and Codan Trust Company Limited held 51.20% of the issued Ordinary shares. Additional information is disclosed in the Report of the Directors, 'Substantial Shareholders' on page 20.

 

END

 

 

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