Interim Results

RNS Number : 4520J

Hansa Trust PLC

03 December 2008

 



HANSA TRUST PLC

HALF-YEARLY REPORT For the six months to 30 september 2008

Key Information

INVESTMENT POLICY AND BENCHMARK

To achieve growth of shareholder value, Hansa Trust PLC invests in a portfolio of special situations, where individual holdings or specific sectors may constitute a significant proportion of the portfolio or that of the equity of the companies concerned. This investment approach may produce returns which are not replicated by movements in any market index. Performance is measured against an absolute benchmark derived from the three-year average rolling rate of return of a five year UK government bond, plus two percent with interest being re-invested semi-annually. Investments are intended to add value over the medium to longer term through a non-market correlated, conviction based investment style.

STATISTICS

	30 September 2008	31 March 2008	% change
Shareholders' Funds	£195.9m	£221.9m	(11.7)
Borrowings	-	-	-
Dividends - ߛInterim	3.50p	3.50p	-
Final	TBA	9.50p	-
Net Asset Value per
Ordinary share	816.4p	924.5p	(11.7)
'A' non-voting Ordinary share	816.4p	924.5p	(11.7)
Performance Benchmark			3.4
Share Price
Ordinary shares	755.0p	820.0p	(7.9)
'A' non-voting Ordinary shares	747.5p	815.0p	(8.3)
FTSE All-Share Index	2,484	2,927	(15.1)
Discount
Ordinary shares	7.5%	11.3%	-
'A' non-voting Ordinary shares	8.4%	11.8%	-
Total Return
Ordinary Shares	(6.9%)	(26.1%)	-
'A' non-voting Ordinary shares	(7.2%)	(19.3%)	-
FTSE All-Share Index	(13.3%)	(7.4%)	-

CAPITAL STRUCTURE

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

INTERIM DIVIDEND

The Board is declaring an unchanged interim dividend of 3.5p per share payable on both Ordinary and 'A' non-voting Ordinary shares amounting to £840,000. The dividend will be paid on 19 December 2008 to shareholders on the register of members on 5 December 2008.

CHAIRMAN'S STATEMENT

THE FINANCIAL CRISIS

The financial crisis that is unfolding before our very eyes took a very serious turn for the worse in the middle of September and has gone on getting worse as it finally dawned on everyone that the financial and economic situation was fraught with a lot of danger. John Alexander, our portfolio manager, has written a very good anthology of events and I am not going to add to it. I would, however, encourage shareholders to read it; it is quite long but the story is indeed a long one and it gives the reader a good understanding of the nature of this financial crisis. The only comment I would add is that it is truly extraordinary how many people in authority - who should have known better - were in denial of the possibility of such a crisis occurring given that the tea leaves were there for all to see. Very few remain in denial any longer!

THE HALF YEAR RESULTS

NAV	Ord sh: 816.4p	'A' Ord sh: 816.4p
Share Price	Ord sh: 755.0p	'A' Ord sh: 747.5p
Discount	Ord sh: 7.5%	'A' Ord sh: 8.4%

The torrid time experienced by investors was reflected in our own returns; the net asset value of both classes of shares declined by 11.7% to 816.4p. Our own benchmark, which shareholders will remember is based on the fixed interest returns of gilt edge securities, returned 3.4%; because it is our job to make money for shareholders, its return is the one we aim to beat but of course over the long-term. We keep an eye on the returns of the stock market as a whole, following in particular the FTSE All-share Index which happened to fall by 15.1%. The figures in the information table on page 2 show the total returns which reflect the effect of income received on the various returns.

The share prices of the two classes of shares fared a little better with the ordinary shares declining by 7.9% to 755p (where the discount was 7.5%) and the 'A' ordinary shares falling by 8.3% (discount: 8.4%). In these volatile stock markets the discounts of most investment trust companies have been jumping up and down as can be seen from the quite large discount that opened up during October (see below).

Because so much has happened since, I think I should bring shareholders up to date with the net asset value as of the date of writing this statement. As at the time of writing the net asset value had fallen a further 21.9% to 637.3p per ordinary and 'A' ordinary share; the price of the ordinary shares had declined 29.1% to 535.0p (discount: 16.1%) while that of the 'A' ordinary shares had declined by 30.4% to 520.0p (discount: 18.4%). The stock market declined a further 19.6%. These figures reflect the truly horrendous nature of stock markets since the end of September.

I would like to add a comment about share prices and thence net asset values at times like these. In very severe bear markets, particularly at the tail end of them, share prices tumble a long way without a lot of selling volume. The falls tend to be indiscriminate whatever the financial soundness and prospects for the individual companies concerned. Indeed the share prices of good companies can be particularly severely affected because those funds that need to sell to meet redemptions or other commitments find that their good shares are the only ones that can be sold. One of the main causes of the latest declines is the liquidation of many hedge funds which have to meet debt repayment obligations and redemptions.

PROSPECTS

John has written about the outlook and all the issues that affect the course of the economy and thence the stock market over the next year or two. He has made the point that the economic consequences of the financial crisis are very difficult to assess at this point in time, will be severe and will take some time to work themselves through. The stock market and its performance will move from having to cope with a financial crisis to reacting - in all probability - to a recession, quite possibly a global recession. That economic environment will determine the level of corporate profits and importantly dividends; the stock market, in turn, will have to adjust to a new level of price earnings ratios and dividend yields.

There are a number of scenarios that could evolve from today's financial crisis ranging from one extreme, a deflationary depression to another extreme an inflationary recession. The market place - individuals and companies - will sort out its own problems in time but the unknown ingredient in all of this is the actions of the government; it has the ability to make things somewhat better or considerably worse. In this respect it is difficult to have a lot of confidence given the quite extraordinary incompetence of this government generally - and of Gordon Brown's chancellorship in particular - ever since it took office in 1997. He has portrayed himself as a conservative Chancellor when, in fact, he spent money like a drunken sailor; given that the credit crisis has been caused by excessive spending by both the government and by consumers, both financed with debt, it is difficult to believe that his policy of spending our way out of the crisis will work. It frankly lacks any intellectual or practical credibility, and as George Osborne correctly observed, is likely to lead to yet further declines in the international value of pound sterling. The solution has to centre on raising the level of savings in the Country and recapitalising the banks with sound management and sensible, workable regulation.

He seems to have decided to micro manage the economy issuing dictats about who will do what when - even to the point of dictating that Lloyds TSB and HBOS should merge; putting two crippled banks together does not make one strong bank. It all brings back the nightmarish spectre of a command economy run by incompetents. His governance could well be the difference between a slow but orderly return to normality and something rather worse. That is an important unknown.

Setting that aside, the extent of the bear market to date is undoubtedly beginning to create good investment opportunities when viewed on a long-term basis. It is important to point out that share prices could well fall further - even from these low levels. But crisis is always a conjunction of danger and opportunity and opportunities there undoubtedly will be - maybe already are. As I always point out - ultimately our prospects depend on ourselves. If we can identify the right companies that are well managed, that have sound finances and are profitable enough to pay good dividends - and I am sure we will - then I can see good returns being made - but I must re-emphasise 'on a long term basis'.

Alex Hammond-Chambers
Chairman
20 November 2008

INTERIM MANAGEMENT REPORT

The Directors present their Report and Condensed Financial Statements for the six months ended 30 September 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 persons each of whom brings certain individual and complementary skills and experience to the Board's workings. Individual profiles for each member of the Board can be found in the Company's Annual Report and at our website.

Mr Hammond-Chambers - (Chairman)    Mr Salomon
Lord Borwick            Professor Wood

BUSINESS REVIEW FOR THE FINANCIAL YEAR TO DATE

The business review for the financial year to date is covered in the Chairman's Statement and the Investment Manager's Report.

KEY RISKS FOR THE FINANCIAL YEAR TO 31 MARCH 2009

The key risks and uncertainties relating to the six months ending 30 September 2008 and for the six months to 31 March 2009 are covered in the Chairman's Statement and the Investment Manager's Report.

RELATED PARTY TRANSACTIONS

During the period Hansa Capital Partners LLP charged investment management fees and company secretarial fees to the Company amounting to £780,000 (2007: £932,000). Amounts outstanding at 30 September 2008 were £118,000 (2007: £151,000).

THE BOARD'S RESPONSIBILITIES

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'. Except for the items detailed below these responsibilities remain unchanged from those detailed in the last Annual Report.

The Directors confirm to the best of their knowledge that:

•    the condensed set of financial statements contained within the half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'; and

•    the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The above Interim Management Report including the Responsibility Statement was approved by the Board on 20 November and was signed on its behalf by:

Alex Hammond-Chambers
Chairman
20 November 2008

  Investment Manager's Report

The investment manager presents its report for the six months ended 30 September 2008.

BACKGROUND 

The credit crisis was caused by financial innovation (and greed), and irresponsible lending, borrowing and spending by banks, governments, companies and consumers across the world. Excess leverage and a mispricing of risk is at the root of the problem, following a massive growth in leverage in the US and UK and elsewhere over the past 25 years, against a background of falling inflation and declining interest rates, with much of this imprudent borrowing being undertaken outside the normal banking system, creating a host of asset bubbles in its wake. There was more debt, credit and leverage in the world economy by 2007, both absolutely and relatively to the size of the Western economy, than there has been at any time ever before. Most countries in Europe saw their banks expand enormously relative to the size of GDP, and the size of government debt. US banking system liabilities are around 200% of US government debt. In Ireland, Belgium, Spain and the United Kingdom they are 600% to 1000%. The mispricing of risk on a colossal scale was encouraged by the perception that modern democratic governments would always bail-out markets and financial institutions. The unwinding of all this leverage is likely to be a long run, painful and continuing process of dealing with the excesses of the past, because what we now need is less overall credit in the system.

The process of recapitalisation is now well underway in the banking system, but bank balance sheets are shrinking in terms of size and risk, as banks withdraw a significant portion of the outstanding debt they have extended, in order to avoid the destruction of their capital bases, thereby losing their capacity to finance growth and in effect taking money out of the financial system. Banks have a good understanding of their own potential funding requirements arising from foreclosure on collateral they hold on loans extended to the shadow banking system as well as the normal banking system. UK consumers have borrowed over £1.4 trillion, exceeding the entire UK GDP of £1.25 trillion, and are struggling to meet the interest payments as other household costs soar. Households are being forced to deleverage because indebted households will no longer have adequate or cheap access to credit, particularly housing-related credit, to fund the gap between income and consumption. Default rates of companies purchased by private equity could soar in the next year due to the virtual shutdown in the securitisation markets and increasing expectations of a sharp global slowdown, and a savage fall in corporate earnings as operational gearing works on the downside. Then there are the quoted companies, which leveraged up their balance sheets to mimic and possibly escape the clutches of private equity, many of which will be forced to re-equitise as borrowing covenants come under pressure. The biggest addicts of the borrow-and-spend drug were western governments, who were borrowing more and spending more than ever before, while simultaneously reaping all the taxes collected from the boom without setting aside a single penny for the future. The public finances look truly horrendous even before the impact of the UK bank rescue operation. The new problem for the government is a collapse in revenue growth, with excise duties, stamp duties, national insurance and corporation tax all particularly weak. This is in addition to the existing problems of their inability to control their spending either in total or in how productively it was spent. In reality the government has no scope to cut taxes and provide a fiscal stimulus to the economy but it seems determined to do so.

It is remarkable just how quickly investor sentiment has moved from worrying about stagflation in the face of soaring commodity prices and slowing growth up to August, to disinflation, against the recent background of tumbling commodity prices, rising unemployment, falling real wages and a more marked slowdown in global growth, to deflation, as the great de-leveraging and credit market sclerosis causes a downward spiral in asset prices and threatens a severe and prolonged recession, and at worst depression. Only six months ago received wisdom was that UK base rates would have to rise to 7% in an attempt to choke off inflation. That same received wisdom is now suggesting rates will fall to possibly as low as 2% to try and limit the economic impact of the downturn.

OVERALL PERFORMANCE

During the six months under review, the capital and revenue returns per Ordinary and 'A' non-voting Ordinary shares amounted to -98.6p. The share prices of the Ordinary and 'A' non-voting Ordinary shares fell by 7.9% and 8.3% respectively, as both classes of share traded at a narrower discount to their net asset value. This compares with a rise of 3.4% in the company's benchmark and a fall of 13.3% in the FTSE All-Share over the period. The two largest contributors were Resolution +5.5p, where we received the 720p per share cash offer just after our year end, and Hargreaves +5.3%. We ended the half year with £13.7m of cash representing 7.0% of total assets, so we did not amplify our losses through the use of gearing.

SECTOR WEIGHTING AND PERFORMANCE

	Sector Value	Sector Weighting	Six months' Performance
	at 30 September 2008	at 30 September 2008	to 30 September 2008
Sector	£000	%	%
Strategic	61,728	31.5	(13.7)
Smaller Cap/Aim	37,582	19.2	(15.5)
Natural Resources	26,332	13.4	(7.7)
Large Cap	16,665	8.5	(8.6)
Property	14,494	7.4	(19.7)
Cash Funds	13,515	6.9	+4.2
Utilities	9,633	4.9	+5.9
Insurance	5,336	2.7	(21.0)
Mid Cap	4,737	2.4	(12.7)
Investment Trusts	3,662	1.9	(5.3)
Hedge	1,523	0.8	+85.1
Other Net Assets	724	0.4	-

STRATEGIC (Sector Performance: -13.7% Sector Weighting: 31.5%)

On the 30 April 2007, Ocean Wilsons Holdings Limited successfully floated Wilson Sons, the holding company of its Brazilian business. The flotation involved the sale of 18.7 million shares by Ocean Wilsons, resulting in net proceeds to the Company of approximately US$205.6m. Following the flotation, Ocean Wilsons retained a 58.25% holding in Wilson Sons. Due to the current uncertainty in the equity markets Ocean Wilsons Holdings Ltd put out an announcement on 9th October stating, 'The interim report showed the investment portfolio holding an investment of US$36.5m in the Lehman Brothers Liquidity Fund plc. The Group liquidated this investment in August 2008 and transferred the proceeds to JP Morgan USD liquidity fund'. At 30th September the investment portfolio held the following liquidity funds (and investments), Goldman Sachs Plc liquid reserves fund (US$42,150,722), JP Morgan USD liquidity fund (US$36,670,545) and Morgan Stanley Funds Plc USD liquidity fund (US$40,885,087). Liquidity funds holdings of US$119,706,364 equates to US$3.39 per share.

For the six months to 30 June 2008, Wilson Sons reported strong earnings, and the company is determined to take advantage of its main growth drivers of financial health, and opportunities arising from increased trade flows, stable macroeconomic fundamentals in Brazil and a booming oil and gas industry. Wilson Sons intends to expand its shipyard in Guaruja, which will allow the company to take advantage of opportunities in the offshore oil and gas and towage industries. The expanded shipyard will provide additional capacity to build new platform supply vessels and anchor handlers, compete in the new Petrobas public tenders, and explore opportunities arising in the spot market for oil supply vessels. On 3 October, Wilson Sons completed its 250-meter berth expansion at Tecon Rio Grande Container Terminal, which will enable more ships to berth simultaneously at the terminal, facilitating an increase in container movement at the port. Originally planned for 2012, the project was completed four years in advance. The challenge the company now faces is to implement its strategy to expand capacity at its Tecon Salvador terminal and improve its equipment and infrastructure, so as to take advantage of market growth prospects in the north-eastern region of Brazil. The company intends to deliver at least one new tugboat and one platform supply vessel by the end of the year, and it expects to deliver a further two platform supply vessels by 2010. As part of its tugboat fleet renewal programme, the company intends to build more powerful tugboats to attend higher deadweight vessels and improve margins, while also offering alternative solutions for the support of oil platform offloading activities. The management are set to assess new terminal projects, both in Brazil and within South America. The logistics business is seeking to broaden its portfolio of clients, improve margins and accelerate growth.

SMALLER CAP/AIM (Sector Performance: -15.5% Sector Weighting: 19.2%)

Small caps suffer the problems of illiquidity at the best of times, and in these types of stock market conditions, they become effectively unquoteds with the prices being set by very small trades at the margin. NCC Group's (+14.6%) Interim Management Statement covering the period from June to October states that overall performance continues to be in line with management's expectations. NCC's core Escrow division is highly defensive in uncertain times, with organic revenue growth of 16.4% and overall revenue growth of 29% including the acquisition of Escrow Europe. Delta (+16.6%) enjoyed a good first half with significantly improved operating profit and cash flow, increased its interim dividend by 19% and took the important step forward with respect to the Delta Pension Plan. Camco International (+36.1%) sold its US landfill gas business for US$19.1m, significantly above the US$11.3m paid for it eight months ago, as well as announcing the sale of a part of its carbon portfolio. Straight (-36.1%), Europe's leading supplier of recycling containers, gave a profits warning, saying that while the core trade business was ahead by 11%, the consumer business, which is largely being discontinued, was down 46%, while cash balances stood at £2.8m. The trade business in environmental container solutions is in excellent shape. Helesi (-16.3%), the Greece and UK based waste management products manufacturer and services supplier saw revenue grow by 46%, and the group has revenue visibility of over 85% of the year's expected total, while the €83m investment programme is on schedule. EAGA's (-24.4%) Interim Management Statement reports that trading has been in line with expectations. Market drivers continue to be strong and following the uplift to Warm Front and CERT funding in September Eaga has 90% visibility for forecast 2009 revenue and 80% visibility for 2010. The statement also refers to Eaga's strong net cash position. Superglass (-73.7%), one of the UK's leading manufacturers of glass mineral fibre insulation products issued a profits warning in July, and then in September confirmed that profit for the year ended August will be in line with current market expectations, but cannot be certain that current market expectations for 2009 will be achieved.

The independent directors of Andor (+68.8%) have announced that they are currently in discussions with a third party regarding a possible offer for the whole of the issued share capital of the company. All Leisure Group (-19.2%) with its unique destination led cruising model, met the Board's expectation of a profitable first half despite increased fuel and start up costs, with half year cash balances of £30.2m, while stating that 95% of this year's forecasted revenues had been achieved. An interim dividend of 2.44p was paid, in line with expectations. The company will be a big beneficiary of falling oil prices over the last three months. Ark Therapeutics Group (-26.5%) announced the initial data from Study 904, its pivotal Phase-111 study on Cerepro, its treatment for brain tumours. While the data did show a significant effect in combination with temozolomide, the data at this time did not show a significant positive impact of Cerepro Alone. CAP-XX (-13.0%) announced the signing of a formal contract with Murata Manufacturing Corporation of Japan to jointly develop and supply high performance super capacitors for mobile handsets and other peak power-hungry, space-constrained portable applications. CAP-XX has now received the initial payment under the terms of the licence agreement, and will receive a further three stage payments over the next six months which will enable the Group to have sufficient working capital to satisfy its requirements for the foreseeable future. Roughly two-thirds of Cape's (-6.6%) business is focused on the demand for energy and petrochemicals. The shares have been affected by the de-rating of the oil services sector over the last few months, and also by specific concerns relating to debt levels. There is no market cap covenant and the Group is comfortably trading within its four key covenants, enjoys long term contracts with its customers and is generating cash. Goal Soccer Centres (-30.4%), the operator of 29 five-a-side football centres in the UK, saw off the first half with 20% earnings growth and an openings programme that is moving ahead rapidly. Hargreaves Services (+25.0%), a leading supplier of products and services to the energy, mineral and waste sectors announced a good set of final figures, positive cash generation, a strong order book and forward revenue visibility. Morson Group (-27.6%), the UK's leading provider of technical engineering personnel and project design solutions, announced a good set of interim figures, while raising the dividend. Work Group (-66.3%) will remain profitable in both 2008 and 2009, has cash on the balance sheet, and will remain highly cash generative.

NATURAL RESOURCES (Sector Performance: -7.7% Sector Weighting: 13.4%)

In July, crude oil for New York delivery traded at more than US$146 a barrel, and three months later it had more than halved. A global slowdown has seen demand for oil fall in September by 8.9% compared with the same period last year while the Opec supply cut of 1.5mmbd from the current 28.8mmbd production ceiling has done nothing to stall the oil price decline. Meanwhile year on year production performance is patchy across the sector with only ENI (-9.9%) and BG Group (-12.5%) generating volume growth. Dividend yields are very attractive at current share levels in the large integrated oil majors like BP (-7.1%) and Shell (-4.9%), and the sector has the balance sheet strength to bridge a period of weaker operating conditions, as current dividend policies are probably set with US$60-US$70 oil in mind, and the sector could live with US$50 oil for years before facing really hard choices over dividends versus investment. BP's Q3 results were well ahead of consensus with the annual dividend now implying a yield of 8.2%. E & P production was better than expected while the downstream businesses benefited from stronger refining, trading and marketing performances. BG and Queensland Gas have announced that they have agreed a recommended all cash offer by BG for all the issued share capital of QGC, valuing QGC at AUD$5.6bn, helping to satisfy BG's appetite for Australian coal seam gas, after losing out to Conoco for Origin, a much bigger prize. Thirty years ago, the big international oil companies held sway over three-quarters of global reserves and four-fifths of production. Now they control about six per cent of oil reserves and a quarter of production.

Mounting concerns over a global slump and consequent reduction in demand for raw materials and manufactured goods triggered a sell-off on commodity exchanges and in mining stocks. Rio Tinto warned that China, the world's biggest consumer of steel, coal, aluminium, copper and seaborne iron ore had started to show signs of a slowdown. BHP Billiton (-14.5%) said Chinese growth had 'softened' during the three months ended September when issuing its quarterly production review, but reiterated its confidence that China and other emerging economies will drive strong longer term demand. Vale reported November demand for ore had fallen 'off a cliff' due to high Chinese iron ore inventories. Miners have gone from a heavy pro-growth bias to one where capacity is being shuttered in and capex plans deferred, so the credit crunch is 'undermining' supply as well as demand. Witness the 88% collapse in the Baltic Dry Index since May 2008, where the biggest single factor dragging down the index is the slump in the Chinese steel market, where output collapsed 9% year on year in August. The Chinese government said that its gross domestic product growth had fallen from 10.1% to 9%, blaming the world economic slowdown for curtailing demand for Chinese exports. When demand returns to stronger levels, driven by structural trends, the global mining industry may well be in an even worse position with regards to supply than it was in 2003, before the latest mining boom began, which could push commodity prices correspondingly higher.

LARGE CAP (Sector Performance: -8.6% Sector Weighting: 8.5%)

GlaxoSmithKline's (+16.5%) Q3 results beat expectations, driven by favourable currency movements and a stronger than expected performance from all key products, despite the tough operating environment for the sector in general and ongoing concerns regarding the off-patent challenge, which is hitting the company particularly hard right now. The news that the dividend payout was increased from 13p to 14p was well received, especially in the context of income pressure across the wider market. The company has postponed plans to buy back shares next year to keep cash available for acquisitions that are becoming available at attractive valuations, while the far-reaching restructuring programme continues and remains on track to deliver £350m of annualised cost savings. Disappointment that Wolseley's (-19.7%) strategic review of Stock, its US business, has not led to more radical action, has to be contrasted with the fact that Wolseley remains confident it will not breach its banking covenants. Stock will be downsized rather than sold or closed, and the 30% reduction in branches will result in losses being below US$200m, some US$100m below management run rate of losses ex-this action, for a cash cost of US$20m.

Lloyds TSB (-47.5%) revised the terms for the acquisition of HBOS, while raising £5.5bn of new capital. £4.5bn will be raised through the issue of ordinary shares at 173.5p each, underwritten by HM Treasury, who will also subscribe for £1.0bn of preference shares with an annual coupon of 12%. Under the terms of the preference shares, the enlarged group will be precluded from paying a cash dividend on its ordinary shares whilst any of the preference shares remain outstanding. HBOS is raising £8.5bn through ordinary shares and £3bn through preference shares. The shares will be placed with the government and then all HBOS investors will have the opportunity to purchase the new shares at the price of 113.6p. If neither Lloyds TSB nor HBOS shareholders participate in the claw back, 43.5% of the combined entity will be owned by HM Treasury. Under this deal Lloyds-HBOS would be the UK's biggest provider of current accounts and mortgages, creating synergies with a present value of around £7bn. HSBC (+12.3%) announced that it had further strengthened the capital base of its UK subsidiary, HSBC Bank plc, through an equity injection of £750m, funded from the Group's own resources. HSBC has no plans to utilise the UK government's recapitalisation initiative, because with a tier one capital ratio of 8.8% and a loan to deposit ratio of 90% as at 30 June 2008, the Group remains one of the most strongly capitalised and liquid banks in the world. A pattern in previous downturns has been that the bottom for banks is often reached some time before the bottom for the economy. In a true depression, though, such as that of Japan in the 1990's, all such bets are off.

PROPERTY (Sector Performance: -19.7% Sector Weighting: 7.4%)

Commercial property news remains resolutely gloomy. CBRE's September UK Monthly Index reported a 2.8% fall in property capital values, which is the largest monthly fall in 2008, leaving capital values 22% lower than the January 2007 peak according to IPD. Commercial property lending represents 12% of UK bank's lending portfolios, up from a figure of 4% at the bottom of the cycle, and banks are largely unwilling to increase their exposure to the sector. The two principal concerns are that further falls in value could lead to a breach of capital covenants and that dividends might have to be cut as a result of increasing vacancy levels. However, amidst all the gloom and lack of dealing activity in the commercial property sector it should not be forgotten that property is essentially an income stream and with current average dividend yields of 4.6%, the sector is starting to look interesting.

Hammerson's (-10.6%) figures confirmed that their retail and office portfolios are of the highest quality, and that prime properties let on long leases to occupiers with strong covenants are showing greater resilience than secondary assets. Great Portland Estates (-36.1%) invests in and develops freehold properties with a focus on the office market in central London, with 80% of its portfolio in the West End. The management is confident in the quality of its assets in undersupplied locations, highlighting the strong occupational markets and solid demand. Hansteen (-14.5%), the pan European property investment company is cautious in its view of further acquisitions in Europe and is husbanding its resources to take advantage of significant opportunities from distressed sellers, particularly in the UK. Although the occupancy market in Continental Europe remains robust and yields still far exceed the cost of money, given the shortage of bank finance worldwide there may well be outward pressure on yields in the second half of 2008. No new acquisitions or disposals have been made by DV3 (unquoted), and the investment period has now come to an end, which effectively means that all undrawn commitments fall away save for follow-on commitments in existing investments. A recent highlight has been the exchange of contracts with the Crown Estate to re-gear the head lease at 240 Regent Street, representing a significant enhancement to the fund's investment. DV4 (unquoted) financial statements for the period ending 31st March 2008 are the first audited financial statements produced since the fund held its first closing in June 2007, and cover a period of limited investment activity in a falling property market. The net result of this activity is that the fund is currently 13% drawn down with 87% of total commitments (i.e. £929m) available for investment over the drawdown period, which expires in March 2013. The management remain cautious and have adopted a policy of disciplined self restraint, taking the view that rents will continue to fall in the near term, although they are witnessing signs of stress and distress in some corporates and lenders which in time could produce some attractive investment opportunities for the fund.

CASH FUNDS (Sector Performance: +4.2% Sector Weighting: 6.9%)

Clients of Morgan Stanley withdrew a total of US$46bn from money market accounts in September, forcing the investment ban to buy US$23bn of assets from the funds to keep them afloat, highlighting just how jittery investors became as capital markets came under extreme pressure at the end of September. One old and well-established fund, Reserve Primary Fund, was forced to write off US$785m of Lehman debt, causing the fund's asset value to fall below the US$1-a-share mark, or 'break the buck', triggering a run on other funds.

UTILITIES (Sector Performance: +5.9% Sector Weighting: 4.9%)

The threat of a surprise windfall tax on Britain's utility companies appears to have been dismissed by the Prime Minister and Chancellor, despite mounting pressure from some MP's and trade unions, which have accused energy firms of profiteering and contributing to a rise in the number of households in 'fuel poverty'. An unforeseen tax would destabilise the market at a time when energy firms are undertaking heavy capital investment programmes in a drive to bolster infrastructure and meet tightening environmental targets. Earlier in the year, the big six energy suppliers including Centrica (+8.6%) and Scottish and Southern (+4.6%) agreed to triple aid to help combat fuel poverty. Fitch, the rating agency, has highlighted the poor performance of UK energy suppliers between 2006 and 2007. Operating profit at the big six fell on average by 20%, capex increased by 15% and capex as a proportion of operating income rose from 53% to 76%. Debt-to-equity gearing rose from 50% to 60%, highlighting the extent to which the companies rely on debt funding to support capex.

INSURANCE (Sector Performance: -21.0% Sector Weighting: 2.7%)

Brit Insurance Holdings (-21.0%) has one of the largest exposures in the sector to potential sub-prime claims but has recently stated that claims development had been in line with expectations. We expect BRIT to maintain its base dividend of 15.0p for the year, which provides an attractive and sustainable yield. BRIT sees a more positive outlook for rates than some months ago, driven by recent large investment and hurricane losses across the industry. The ongoing turmoil in capital markets has hit investment returns, partly due to the requirement to mark-to-market, which is causing the sector to report significant unrealised losses. Hurricane Ike is also developing into a serious loss. The combination of higher claims, poor investment returns and the fallout from AIG is causing rates to harden across the industry, whilst also impacting capacity.

MID CAP (Sector Performance: -12.7% Sector Weighting: 2.4%)

SSL International (0.0%) reported a strong H1 2009 trading statement, confirming that it remains in a position of strength through tapping into new geographic markets, continued innovation as well as a significant reduction in its cost base over the last few years. Premier Food's (-31.4%) shares have lost value as the food producer has been hit by concerns over its high debt, a legacy of the acquisitions of RHM and the Irish operations of Campbell's, as well as rising food costs, which have now subsided. The company recently confirmed that Q3 trading is in line with expectations, helped by a strong September, and expects to meet its financial covenants at December 2008. Premier has also confirmed that it is actively examining ways of reducing its debt burden, which may involve various forms of capital injection. Galliford Try (-29.9%) maintained its 3.0p dividend for the year, reflecting its strengths in affordable housing, construction and the careful management of debt levels, adopting a policy of aggressive selling of houses early on, instead of protecting margins. Cash generation has been and remains a key focus. The company continues to operate significantly within the headroom and covenants of its banking facility, which does not mature until 2012.

INVESTMENT TRUSTS (Sector Performance: -5.3% Sector Weighting: 1.9%)

On average, in 2000-2002 negative statements from technology companies followed a positive one within the preceding two months, so it can be dangerous to rely too heavily on management guidance because things can change very quickly, and it was rare for a technology company to survive the last downturn without a warning at some point. The UK offers a limited way to gain exposure to the technology sector since it represents only 2.6% of global TMT market capitalisation, compared with a figure of 53.4% for the US. Herald Investment Trust (-5.5%) is well spread over a large number of holdings across the world, with over 85% of the portfolio in companies generating profits. The sector has already seen quite a lot of consolidation and we would expect this to accelerate in a downturn.

HEDGE (Sector Performance: +85.1% Sector Weighting: 0.8%)

During the six months, two contracts were closed with a profit of £355k and a further contract entered into at a cost of £200k, leaving three contracts maturing in December 2008, February 2009 and May 2009. These contracts give protection between FTSE 100 levels of 4,792 and 5,670. The FTSE 100 closed on 30 September at 4,902 creating further gains of £582k giving a total return of £937k or 85%.

OUTLOOK

September saw the credit crisis turn to crisissimo (the word 'crisis' comes from the Greek for 'turning point') as the pace of distressed selling, deleveraging and the dash for cash stepped up several gears. A full-scale global credit contraction raged leading to complete sclerosis in money markets, as banks lacked the willingness or confidence to lend to one another. A single week in October saw falls of a fifth or more in markets from Japan to North America, following hedge fund redemptions, steep losses in the leveraged loan market related to Icelandic banks, and fears about whether US$450bn of credit default swaps taken out to insure Lehman bonds would settle. These are extraordinary times, reflecting the accelerating speed at which the great de-leveraging or debt liquidation process is unravelling, in which declining asset values, debt reduction, and asset sales reinforce one another in a deflationary spiral. Banks have four problems. First, most countries in Europe saw their banks expand enormously relative to the size of GDP, and the size of government debt, so put simply banks have lent too much money and need to shrink their balance sheets. Second, many of them borrowed too much short-term money to invest in long-term illiquid assets, and they are now short of liquidity and funding with the closure of the wholesale money markets. Third, assets have increased because assets that were previously hidden have been uncovered and brought back on to bank balance sheets, as deals in transit got stuck with the banks when the markets closed down and as collateralised loans to leveraged investors were called in. Fourth, write-down's of the value of these long-term assets and growing arrears on loan repayments have left them undercapitalised (impaired bank capital), preventing them from lending to good/profitable borrowers, while reinforcing the fear of insolvency and counterparty risk. Meanwhile uncertainty about the outlook for the global economy and policymaker's speed and ability to address these underlying problems caused unprecedented volatile conditions to continue in all equity centres, particularly as the daily flow of economic news showed the contagion leaping from Wall Street to Main Street.

The heart of the problem is insufficient and shrinking equity capital (and too much debt capital) supporting the assets in the banking system, so liquidity schemes that leave all the credit risk with the banks are not the solution. Certainly the Irish Government's decision to guarantee 100% of deposits in the Republic's six banks in order to re-establish the confidence of depositors helped to deal with the liquidity crisis, as did the passing of a revised $700bn Troubled Asset Relief Programme in the US. However, the TARP was a bad loan purchase initiative rather than an equity injection initiative and it did not deal with the need for banks to raise more capital as well as being light on any details on auction mechanics, timing or toxic asset pricing. The government-brokered purchase of HBOS by Lloyd's TSB failed to bring any new capital to the party at the outset. Today's crisis is not one of confidence or liquidity, but of banking solvency.

The face of global banking has changed beyond recognition in the past five weeks. It is quite breathtaking. The US government took control of twin mortgage giants Fannie Mae and Freddie Mac by putting them under 'conservatorship', wiping out preferred and common shareholders, causing a shutdown in preferred stock markets and other sources of capital for under-capitalised banks. Lehman Brothers was allowed to go bankrupt, the largest bankruptcy in history at US$700bn in assets, wiping out shareholders. The Federal Reserve provided the troubled insurance giant AIG with US$85bn worth of funding in exchange for an estimated 80% stake. Goldman Sachs and Morgan Stanley were forced to switch their status to bank holding companies, giving them access to the Federal Reserve primary credit facility, and enabling them to raise more funds by opening commercial banks, while signalling the end of the model of the highly leveraged universal investment/'bulge bracket' investment bank. Under their new mainstream status, Goldman and Morgan will be subject to tighter regulation, consigning the highly profitable leveraged trading positions of the boom years to the history books. Capital markets judged the bulge bracket universal investment bank model as being no longer fit for purpose. Financial Darwinism at its most succinct. The Federal Reserve orchestrated the rescues of Wachovia and Washington Mutual, where shareholders pretty well lost the lot. The US Treasury has been seen to re-write and change the rules in an arbitrary and random fashion, saving some, letting others 'go'. Elsewhere there has been a spate of state-inspired takeovers/ nationalisations or part-nationalisations in the UK (Bradford & Bingley), the Benelux (Fortis Bank, the former giant of the Low Countries), Iceland (Glitnir, Landsbanki and Kaupthing) and Germany (Hypo Real Estate). The key change in approach in some of these transactions is that existing shareholders were diluted, but importantly, not wiped out.

Gordon Brown's initial rescue package involved the government putting £25bn into banks directly as equity stakes, with the possibility of £25bn more. It also took on some risk by guaranteeing £250bn of new interbank loans and offered a further £200bn through the Bank of England's special liquidity scheme. This plan looked like enough to stabilise things initially, but it did not deal with the underlying problems of falling asset prices, impaired bank capital, rising unemployment, bankruptcies and recession. In a dramatic new move RBS, Lloyds TSB and HBOS will get £37bn from the Treasury and shareholders of all three banks will end up minorities if they do not participate in this more aggressive recapitalisation programme. This £37bn capital commitment by the government will make the three banks part of the public sector and the government will appoint representatives to the board. The US Treasury and European Governments have followed Brown's lead in the recapitalisation of their banks, thereby providing co-ordinated and bold actions to deal with a global problem. The US is injecting US$250bn of capital in to its banks, including preferred equity stakes in nine strategic banks, including Goldman Sachs, JP Morgan, Morgan Stanley, Citigroup and Bank of America, along with a three-year guarantee of bank-to-bank lending. These nine institutions account for some US$10 trillion of assets, around two-thirds of the total held by US banks. European Governments are putting up £1.3 trillion to protect the Continent's banks. All the major western economies have now adopted two major plans. First, to re-capitalise their banks, so that banks have a much bigger cushion to absorb past losses on toxic loans as well as the new losses they will suffer as economies slow. Second, guaranteeing medium-term borrowing so that banks do not have to rely on overnight money that has to be repaid the next day. 'The machinery to restore our financial system has now been provided' (Franklin Delano Roosevelt. 1933).

A sustainable bottoming-out/recovery probably needs to see the following fall in to place. First, the banks re-building their balance sheets and deleveraging, a process which is well under way. This will involve a partial nationalisation/state recapitalisation of the banking system in many of the major countries. Second, households boosting their savings rate by going in to savings mode in order to pay for yesterday's unearned consumption, a process that has scarcely begun. Historically, multi-year declines in real home prices have encouraged households to cut expenditure and increase their saving rate, resulting in a meaningful decline in real consumption. Third, a conviction that house prices have hit bottom in the US and UK, which they patently have not when looking at the inventory to sales ratio in the US and the pressures on householders' income and the reduction of availability of mortgage finance in the UK, although the US correction is further advanced than our own. Fourth, co-ordinated global monetary easing, where the first emergency move has just taken place. This is not about reigniting another credit boom, but more about generating a positively sloped yield curve on government bonds, which will help banks recapitalise themselves as they can borrow at the short end, lend to governments at longer maturities and pocket the spread. Fifth, all that remains now is the need to revisit the accounting regulations that force banks to mark their assets to a dysfunctional market price, rather than to maturity.

Looking ahead it will be next to impossible for the banking sector to find a new business opportunity as large, as profitable, as unregulated and as greedy as 'structured products' or credit securitisation of subprime mortgages/ collateralised debt obligations (CDOs)/structured investment vehicles (SIVs)/mortgage backed securities (MBSs), involving the creation of a whole shadow banking system. It is going to be a case of regulation up, returns down, less complexity, more transparency. The problems have manifestly proved to be global ones, and the concept of 'decoupling', where developing countries could shrug off a slowdown in the developed world, has largely been consigned to the bin. The UK is particularly exposed to the aftermath of the credit squeeze. It has heavily overvalued housing, the most indebted consumers in the world and an economy that is very reliant on financial services. We could be looking at a world economy that is facing a lengthy recession followed by a number of years of sluggish below-trend growth. In turn this creates excess supply capacity that creates significant disinflationary pressures. Historically, past credit crises have been followed by a dramatic drop in domestic core CPI inflation even in the face of aggressive monetary and fiscal easing and often dramatic currency depreciation. The financial crisis is now well underway, but the economic crisis has only just started. Consumer confidence has been severely shaken by the simultaneous decline in both real estate and financial asset values, at a time when unemployment is accelerating. People ask if there is light at the end of the tunnel. One suspects that we have only just entered the tunnel on 'Main Street', where corporate earnings will come under immense pressure, and where we will see rising unemployment, bankruptcies and recession, although we could be well down it on 'Wall Street', given the magnitude of stock market falls and the determination of governments around the world to implement measures to get their banks back in to business. The stock market cycle moves from optimism through excitement to euphoria before turning down via anxiety, denial, fear, desperation, panic and capitulation. We have now moved much closer to acceptance and we could be seventy percent of the way through the process of seeing the market discount a severe GDP and profits recession, although earnings forecasts are still far too high. However, we may not have reached the point of utter revulsion, so although a bottom to the market could be in sight, the March 2003 lows could still be tested. Only when the point of utter revulsion is reached can investors look out at a new dawn of hope.

Fiscal and monetary policies are under strain in the US and UK, with the prospect of high near-term inflation and massive public spending. Governments risk causing a double-dip outlook, in which expenditures abort the initial downturn but produce a further contraction as they are forced to tighten fiscal and monetary policies further down the line, and after a General Election in the UK. In the end the only solution may be for governments to inflate their way out of this massive overhang of debt by printing money, or 'monetising' the debt, as financial stabilisation measures are likely to blow out budget deficits in many countries. At that point the purchasing power of cash erodes, while equities provide a hedge against inflation. The depth and duration of the global recession are unknown and investors are attempting to establish what represents 'fair value'. The problem is that an asset is only worth what someone is prepared to pay for it, not what it is 'intrinsically' worth. When many have borrowed too much and are preoccupied mainly to unwind their leverage/pay off their debts, prices can fall well below 'fair value', and stay low for a long time as the great deleveraging rages. Declines are being exacerbated by hedge funds and mutual funds, which are selling off assets as they deleverage, while also raising cash in preparation for withdrawals by retail and wholesale customers, a tide of redemptions that is also hitting money market funds. Interestingly, Calpers in the US has become a seller of equities to meet cash calls from private equity and real estate funds. Insurance companies, while not overleveraged, present another problem, not least if the value of their investments fell below capital adequacy rules or if they are downgraded by ratings agencies, which would undermine their liquidity. The pace of financial deleveraging is now accelerating in the world of currency carry trades, namely borrowing cheaply where interest rates are low, for example Japan, and lending where they are high, for example Australia. Yen strength is linked to deleveraging and global risk aversion, as market participants close their yen financed carry trades and Japanese investors pull money home. What began as a leverage crisis and a credit crunch has turned into a full blown insolvency crisis, as wave after wave of selling forces prices lower in a deleveraging spiral. Patience may prove to be a virtue in a credit-scarce world, as the cleansing process that will be the consequence of this continuing cycle of debt liquidation rolls on.

Hansa Capital Partners LLP

20 November 2008

  Investment Portfolio

at 30 September 2008

	Fair Value		Percentage of
	£000		investments
Strategic
Ocean Wilsons Holdings Ltd	61,728		31.5
	61,728		31.5
Small Caps/Aim
Hargreaves Services Plc	6,300		3.2
NCC Group Plc	4,734		2.4
EAGA Plc	3,770		1.9
Ark Therapeutics Group Plc	3,652		1.9
Cape Industries Plc	2,803		1.4
Goals Soccer Centres Plc	2,575		1.3
All Leisure Plc	2,400		1.2
Morson Group Plc	1,890		1.0
Helesi Plc	1,629		0.9
Camco International Ltd	1,338		0.7
Delta Plc	1,068		0.6
Andor Technology Plc	1,037		0.5
Other Investments: (14 holdings)	4,386		2.2
	37,582		19.2
Natural Resources
BG Group Plc	7,091		3.6
BP Plc	4,640		2.4
Eni S.p.a	4,421		2.3
BHP Billiton Plc	4,218		2.2
Melrose Resources Plc	3,198		1.6
Royal Dutch Shell Plc	2,267		1.1
Ramco Energy Plc	497		0.2
	26,332		13.4
Large Cap
HSBC Holdings Plc	5,631		2.9
Glaxosmithkline Plc	4,844		2.5
Lloyds TSB Group Plc	2,718		1.4
Wolseley Plc	1,875		0.9
Experian Group Ltd	1,597		0.8
	16,665		8.5

  Investment Portfolio (CONTINUED)

at 30 September 2008

	Fair Value		Percentage of
	£000		investments
Property
Hammerson Plc	4,612		2.4
Hansteen Holdings Plc	2,865		1.5
Great Portland Estates Plc	2,668		1.4
DV3 Ltd #	2,663		1.3
DV4 Ltd #	1,136		0.6
Engel East Europe NV	550		0.2
	14,494		7.4
Utilities
Scottish and Southern Energy Plc	5,708		2.9
Centrica Plc	3,925		2.0
	9,633		4.9
Insurance
Brit Insurance Holdings Plc	5,336		2.7
	5,336		2.7
Mid Cap
SSL International Plc	2,129		1.1
Qinetiq Group	1,034		0.5
Galliford Try Plc	1,013		0.5
Premier Foods Plc	561		0.3
	4,737		2.4
Investment Trusts
Herald Investment Trust Plc	3,662		1.9
	3,662		1.9
Total Investments	180,169		91.9
Cash Funds	13,515		6.9
Hedging Instruments	1,523		0.8
Other Net Assets	724		0.4
Net Assets	195,931		100.0

Marketable securities are valued at the bid price

# Unquoted

  Condensed group income statement

for the six months ended 30 September 2008

			(Unaudited)			(Unaudited)			(Audited)
			Six months ended			Six months ended			Year ended
			30 September 2008			30 September 2007			31 March 2008
	Revenue	Capital	Total	Revenue	Capital	Total	Revenue	Capital	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000
Loss on investments	-	(28,475)	(28,475)	-	(846)	(846)	-	(28,112)	(28,112)
Gain on derivative	-	977	977	-	-	-	-	221	221
Exchange gains/(loss) on
currency balances	-	1	1	-	-	-	-	(1)	(1)
Investment income
(see note 2)	5,115	-	5,115	3,427	-	3,427	5,541	-	5,541
	5,115	(27,497)	(22,382)	3,427	(846)	2,581	5,541	(27,892)	(22,351)
Investment management
fees	(730)	-	(730)	(1,045)	-	(1,045)	(1,838)	-	(1,838)
Write back of prior years'
VAT	-	-	-	-	-	-	674	-	674
Other operating expenses	(358)	-	(358)	(361)	-	(361)	(729)	-	(729)
	(1,088)	-	(1,088)	(1,406)	-	(1,406)	(1,893)	-	(1,893)
Profit/(Loss) before finance
costs and taxation	4,027	(27,497)	(23,470)	2,021	(846)	1,175	3,648	(27,892)	(24,244)
Finance costs	(113)	-	(113)	(1)	-	(1)	(200)	-	(200)
Profit/(Loss) before taxation	3,914	(27,497)	(23,583)	2,020	(846)	1,174	3,448	(27,892)	(24,444)
Taxation	(84)	-­	(84)	(38)	-	(38)	(144)	-	(144)
Profit/(Loss) for the period	3,830	(27,497)	(23,667)	1,982	(846)	1,136	3,304	(27,892)	(24,588)
Return per Ordinary and 'A'
non-voting Ordinary share
(see note 3)	16.0p	(114.6p)	(98.6p)	8.3p	(3.5p)	4.8p	13.8p	(116.2p)	(102.4p)

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

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

The Statement above is regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

  Condensed Statement of Changes in Equity

for the six months ended 30 September 2008

(Unaudited)

		Capital
		redemption	Retained
	Share Capital	reserve	Earnings	Total
	£000	£000	£000	£000
Net assets at 1 April 2008	1,200	300	220,378	221,878
Loss for the period	-	-	(23,667)	(23,667)
Dividends paid	-	-	(2,280)	(2,280)
Balance at 30 September 2008	1,200	300	194,431	195,931

Condensed Statement of Changes in Equity

for the six months ended 30 September 2007

(Unaudited)

		Capital
		redemption	Retained
	Share Capital	reserve	Earnings	Total
	£000	£000	£000	£000
Net assets at 1 April 2007	1,200	300	247,966	249,466
Profit for the period	-	-	1,136	1,136
Dividends paid	-	-	(2,160)	(2,160)
Balance at 30 September 2007	1,200	300	246,942	248,442

Condensed Statement of Changes in Equity

for the year ended 31 March 2008

(Audited)

		Capital
		redemption	Retained
	Share Capital	reserve	Earnings	Total
	£000	£000	£000	£000
Net assets at 1 April 2007	1,200	300	247,966	249,466
Loss for the year	-	-	(24,588)	(24,588)
Dividends paid	-	-	(3,000)	(3,000)
Balance at 31 March 2008	1,200	300	220,378	221,878

The Statements above are regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

  Condensed Group Balance Sheet

as at 30 September 2008

	(Unaudited)	(Unaudited)	(Audited)
	30 September	30 September	31 March
	2008	2007	2008
	£000	£000	£000
Non-current investments
Investments held at fair value through profit and loss	180,169	251,946	235,366
Current Assets
Trade and other receivables	2,323	574	2,398
Cash and cash equivalents	13,736	25	251
	16,059	599	2,649
Current Liabilities
Trade and other payables falling due within one year	(297)	(4,103)	(16,137)
Net current assets/(liabilities)	15,762	(3,504)	(13,488)
Net assets	195,931	248,442	221,878
Equity
Called up share capital	1,200	1,200	1,200
Capital redemption reserve	300	300	300
Retained earnings	194,431	246,942	220,378
Total equity shareholders' funds	195,931	248,442	221,878
Net asset value per Ordinary and
'A' non-voting Ordinary share (see note 5)	816.4p	1,035.2p	924.5p

The Statement above are regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

  Condensed Group Cash Flow Statement

for the six months ended 30 September 2008

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30 September	30 September	31 March
	2008	2007	2008
	£000	£000	£000
(Loss)/Profit before finance costs and taxation	(23,470)	1,175	(24,244)
Adjustments for:
Realised gain on investments	(13,181)	(5,158)	(6,646)
Unrealised loss on investments	41,656	6,004	34,758
Effect of foreign exchange rate changes	(1)	-	1
Decrease/(increase) in trade and other receivables	75	82	(1,661)
(Decrease)/increase in trade and other payables	(40)	2,349	42
Taxes paid	(84)	(38)	(144)
Purchase of non-current investments	(3,960)	(24,479)	(42,801)
Sale of non-current investments	30,682	15,409	22,256
Net cash inflow/(outflow) from operating activities	31,677	(4,656)	(18,439)
Cash flows from financing activities
Interest paid on bank loans	(113)	-	(200)
Dividends paid	(2,280)	(2,160)	(3,000)
(Repayment)/drawdown of loans	(15,800)	750	15,800
Net cash (outflow)/inflow from financing activities	(18,193)	(1,410)	12,600
Increase/(Decrease) in cash and cash equivalents	13,484	(6,066)	(5,839)
Cash and cash equivalent at 1 April	251	6,091	6,091
Effect of foreign exchange rate changes	1	-	(1)
Cash and cash equivalents at end of period	13,736	25	251

The Statement above is regarded as being in a condensed form due to the fact that no explanatory notes are available as would be the case in the Annual Report.

  Notes to the Condensed Financial Statements

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ('IFRS'). These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. 

(a)    Basis of preparation 

This half-yearly report is prepared in accordance with IAS 34 and on the basis of the accounting policies set out in the group and company's Annual Report and Accounts at 31 March 2008.

The financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial assets. 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) 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 and with pronouncements on interim reporting issued by the Accounting Standards Board.

(b)    Basis of Consolidation 

The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings made up to 30 September 2008.

(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 

Investments are recognised and de-recognised on the trade date where a purchase or sale is under a contract whose terms require delivery within the timeframe established by the market concerned. For listed investments, this 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 and 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. Over the counter options are valued daily by the issuing broker.

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)    Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and short term deposits with an original maturity of three months or less.

(f)    Investment Income 

Dividends receivable on equity shares are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Group's right to receive payment is established. Dividends and interest on investments in unlisted shares and securities are recognised when they become receivable. Dividends are stated net of related tax credits.

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

(g)    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)    Material expenses which are incidental to the acquisition of an investment are taken to the realised capital reserves via the capital column of the Income Statement; 

(ii)    Expenses which are incidental to the disposal of investments are deducted from the sale proceeds via the capital column of the Income Statement;

(iii)    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.

(h)    Taxation 

The tax expenses represent 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. Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the balance sheet date measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered probable that there will be suitable profits from which the future reversal of the underlying temporary differences can be deducted. Temporary differences are differences arising between the Company's taxable profits and its results as stated in the accounts, which are capable of reversal in one or more subsequent periods.

Due to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided for deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

(i)    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 period end are reported at the rate of exchange prevailing at the period 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.

(j)    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. 

  2.    INVESTMENT INCOME

	(Unaudited)	(Unaudited)	(Audited)
	Six months ended	Six months ended	Year ended
	30 September	30 September	31 March
	2008	2007	2008
	£000	£000	£000
Income from listed investments
Dividends	2,415	1,897	3,840
Overseas dividends	2,399	1,425	1,564
	4,814	3,322	5,404
Other operating income
Placement and underwriting income	-	-	25
Interest receivable AAA rated money
market funds	300	102	108
Interest receivable	1	3	4
	301	105	137
Total income	5,115	3,427	5,541
Total income comprises:
Dividends	4,814	3,322	5,404
Interest	301	105	112
Other income	-	-	25
	5,115	3,427	5,541

3.    RETURNS PER SHARE

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

		Revenue		Capital		Total
		Pence		Pence		Pence
Period	£000	per share	£000	per share	£000	per share
Six months ended 30 September 2008	3,830	16.0	(27,497)	(114.6)	(23,667)	(98.6)
Six months ended 30 September 2007	1,982	8.3	(846)	(3.5)	(1,136)	4.8
Year ended 31 March 2008	3,304	13.8	(27,892)	(116.2)	(24,588)	(102.4)

4.    FINANCIAL INFORMATION

The financial information contained in this half-yearly report is not the Company's statutory accounts. The financial information for the six months ended 30 September 2008 and 30 September 2007 is not for a financial year, has not been audited or reviewed by the auditors and has been prepared in accordance with accounting policies consistent with those set out in the Annual Report and Accounts for the year ended 31 March 2008.

The statutory accounts for the financial year ended 31 March 2008 have been delivered to the Registrar of Companies and received an audit report which was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain statements under section 237(2) and (3) of the Companies Act 1985.

The half-yearly financial information was approved by the Board of Directors on 20 November 2008.

5.    NET ASSET VALUE PER SHARE 

The Net Asset Value per share is based on the net assets attributable to equity shareholders of £195,931,000 (six months ended 30 September 2007: £248,442,000; year ended 31 March 2008: £221,878,000) and on 24,000,000 shares, being the number of shares in issue at the period ends.

6.    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 £807,438 of this commitment remained undrawn. However the commitment allows DV3 to draw this amount during a further three year period following the original commitment period. At 30 September 2008 £807,438 of this amount remained undrawn. At 30 September 2008 the amount drawn down less amounts received under the agreement was £40 (31 March 2008: £40).

The Company has a further commitment agreement with DV4 Limited, also an unquoted property investment company. The commitment is for £10 million for a period of 5 years from 7 March 2008 and the amount outstanding at 30 September 2008 was £8,699,704 (31 March 2008: £8,699,704).

  Investor Information

The Company currently manages its affairs so as to be a qualifying investment trust for ISA purposes. As a result, under current UK legislation, the Ordinary and 'A' non-voting Ordinary shares qualify for investment in the stocks and shares component of a non-CAT Standard ISA up to the full annual subscription limit. It is the present intention that the Company will conduct its affairs so as to continue to qualify for ISA products.

CONTACT DETAILS

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

Hansa Capital Partners LLP

50 Curzon Street

London W1J 7UW 

Telephone: [phone] 

www.hansagrp.com 

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

Capita Registrars 

The Registry 

Northern House

Woodsome Park 

Fenay Bridge 

Huddersfield

West Yorkshire HD8 0LA

Telephone: [phone]

Email: [e-mail]

www.capitaregistrars.com 

WEB SITE ADDRESS AND CONTENTS

The Company's website, www.hansatrust.com contains information on the Company and includes the following:

Monthly Fact Sheets

Quarterly Interim Statements

Annual and Half-yearly Reports 

Stock Exchange Announcements

Details of the Board and Investment Manager

Share Price Data

SHARE PRICE LISTINGS 

The price of your shares can be found in the Financial Times under the heading Investment Companies. 

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

ISIN No    Code

Ordinary Shares    GB0007879728

'A' non-voting Ordinary shares    GB0007879835

Sedol No

Ordinary Shares    0787972

'A' non-voting Ordinary shares    0787983

Reuters 

Ordinary shares    HAN.L

'A' non-voting Ordinary shares    HANA.L 

Bloomberg 

Ordinary shares    HAN LN 

'A' non-voting Ordinary shares    HANA LN 

SEAQ 

Ordinary shares    HAN 

'A' non-voting Ordinary shares    HANA 

USEFUL INTERNET ADDRESSES 

The Association of 
Investment Companies     www.theaic.co.uk 

London Stock 
Exchange     www.londonstockexchange.com

TrustNet    www.trustnet.com

Interactive     www.iii.co.uk

FINANCIAL CALENDAR 

Company year end    31 March 

Preliminary full year results announced     June 

Annual Report sent to shareholders    July 

Annual General Meeting held    August

Final Dividend payment    August

Announcement of half-yearly results    November 

Half-yearly Report sent to shareholders     1 December

Interim Dividend payment    19 December 

  Total Return Performance Graphs

NET ASSET VALUE
	6 months	1 year	3 years	5 years	10 years
Net Asset Value	(10.80%)	(20.14%)	22.85%	144.09%	268.29%
Benchmark	3.37%	6.74%	19.97%	33.24%	71.62%

SHARE PRICE
	6 months	1 year	3 years	5 years	10 years
Ordinary Share	(6.87%)	(24.45%)	18.74%	178.00%	280.37%
'A' non-voting Ordinary Share	(7.22%)	(25.41%)	19.21%	176.40%	318.86%
FTSE All-Share	(13.26%)	(21.94%)	1.08%	47.24%	48.56%

The returns in the above tables have assumed that the dividends paid by the Company have been re-invested on the payment date, at the prevailing Net Asset Value and Share Price.

Past Performance is not a guide to future performance. Source: Internal Management Information

 

END

 

 

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