CHAIRMAN’S STATEMENT

The Group profit before tax for the year ended 30 June 2007 was £5,427,232 (eighteen months to 30 June 2006 was £12,018,986). The Group’s net assets at 30 June 2007 under IFRS were £85,511,984 or 793.5 pence per stock unit (2006: £71,970,463 or 668.0 pence per stock unit).

The Board has declared a first and only interim dividend of 13.2p per stock unit for the full year ended 30 June 2007, with the dividend paid on 25 October 2007 to Members registered on the books of the Company at the close of business on 5 October 2007.

“Rock of Ages, cleft for me, let me hide myself in thee”.

Sadly, neither the spiritual solace once so confidently proclaimed from Britain’s pulpits in Cathedrals and Chapels, nor the solidity and security of the Banking system, seem sufficient today to provide shelter from the financial storms confronting Western economies. Weighed down by the leaden lump of unrestrained government spending, individual indebtedness and excess consumption, personal and governmental profligacy threaten the very foundations of our financial system: an assault ameliorated and deferred, but not deterred, by easing of interest rates, initially in the United States.

The sale to Liggett Group by Jesse Boot of the company he had built with such prescience and persistence over the previous 40 years, hugely enhancing and endowing Nottingham in the process even if unrecognised by its Castle museum, preceded the 1929 stock market crash. It remained for his son Lord Trent to re-purchase it with the help of British financiers. There are disturbing similarities to be seen in its recent sale to its deputy chairman and KKR, where the banks have been unable to offload the bonds issued to finance the deal; more recently we have witnessed the collapse of the Qatari-backed bid for Sainsbury’s, where the pension fund was thankfully defended by the eponymous and formerly executive-family: these are potent portents that a Rubicon may have been crossed in the ability to finance substantial deals on one hand, and the more mundane buy-to-let housing deals on the other. Stories of very substantial write-downs on recently built new apartments abound, echoing those of abandoned houses and streets within the United States: all bodes badly for property prices and the banks that have provided finance.

The first 12 months of results following the transition to AIM (as opposed to the preceding 18 month period), whilst not reaching the heady heights ascended previously, mingled with markets reaching their pinnacle in June and early July. This was before the iceberg of sub-prime, promulgated by the purveyors of mortgages to the NINJA market (No Income No Job), holed the supposedly impregnable ship of the financial sector. Property stocks had already begun to buckle under the weight of potential over-supply and increased borrowing costs: hence holdings such as Daejan fell from the inflated level reached on admittance to the FTSE 250 heights to a price at which they, amongst others, sell at a deep discount to assets.

We took the opportunity of converting some of our Greene King loan notes, issued on the takeover of Hardys and Hanson, into Lowland Investment Trust and British Portfolio Trust eschewing the certainty of fixed interest and repayable loan notes for the vagaries of the equity market: a sector that, whatever the short-term doubts, has hugely out-performed the fixed interest sector.

The accounts refer in more detail to the IFRS and UK GAAP treatments of appreciation. Credit is due to Steven McKeane for dealing with the thorny problem of ‘impaired value’ and the complex calculations required for valuing stocks that have fallen in price for a sustained period of time: we use six months as a guide.

This is also symptomatic of the complexities of modern accounting standards, of which ‘mark to market’ or ‘mark to model’ are perhaps the most seditious and dangerous. The caution that once prevailed within the portfolio of marking at lower of ‘market or cost’ has been supplanted by marking at market; thus exposing portfolio values to the greater volatility seemingly establishing itself today. More dangerous still is a practice utilised by some hedge funds for their portfolio valuations, which is termed ‘mark to model’ where a potentially self-administered theoretical valuation is applied, especially in the U.S. to funds whose value may be highly questionable, not to mention negligible. The removal of ‘pre-emption’ is now proposed, transferring power from current to future shareholders; over and above that, MIFID with its ‘Day of the Triffids’ connotation is another bureaucratic imposition spreading despair and frustration in the Financial community, with no apparent gain.

Another questionable requirement is the need to account for dividends on declaration as opposed to receipt – a measure whose wisdom has been challenged by Northern Rock’s cancellation of its previously declared dividend. This recalls the catastrophic collapse of Burmah Oil in 1974, and its bailout by the Government. At least there the embedded value of its holding in BP shares provided significant salve for the taxpayers’ wounds. No such Aladdin’s Cave is apparent in Northern Rock: perhaps only Pandora’s Box.

We are reminded of events 40 years ago, when dissuaded by wiser and more experienced counsel, from seeking a higher yield from an advertised deposit taker by the adage that, ‘higher interest implies higher risk’; sadly a neighbour’s dividend cash was swallowed when the firm in question went bust; just as the Hebrides Council, years later and not privy to the City gossip which might have forewarned it, lost its rate payers’ money in BCCI. That lesson is still being learnt as First Quantum, which excels in its mining of copper and coping with the intricacies of Africa, placed funds on advice from its bankers’ HSBC, with Coventree in Canada, along with other mining firms, only to find its ability to repay called into question in the sub-prime debacle. The dire results from Merrill Lynch show how far the mighty have fallen, in the pursuit of those extra points of interest: a folly perpetuated by our present Prime Minister and his Treasury cohorts when selling our Gold at US $ 250 per ounce, partly because it had no yield.

The preservation of capital in the face of the grotesque imbalance in the financial sector, both government and private, has now become the principal challenge confronting us: this at a time when government spending is running amok, disarray over levels of depositor protection is every day apparent and the Governor of the Bank of England considers himself restrained from covert action by a European directive, which is subsequently attributed to an imposition by the Treasury. The folly of the division of supervisory and regulatory roles is now fully exposed. As we watch the Lifeboat tossing amongst the tumultuous waves, we realise that the Chancellor is no Grace, nor is he the Special One. We are not heartened by the prospect of being led by politicians from either main party lacking evident practical experience in business or finance.

In the case of Europe, the refusal of our current Prime Minister to consider a referendum of a new (or old) Treaty means the EC will continue with its increasingly confrontational and Statist policies, devoid of entrepreneurial inspiration, such as the malign attack on Microsoft, which almost single-handedly has transformed the way in which world business operates. The imbedded deficits in France, the debt levels of Spain, the fractured society of government-less Belgium, dubious financial practices and levels of local subsidy, combined with the soaring level of the Euro, not to mention dismal demographics and a declining birth rate amongst the original population, threaten the very structure of the European Union and as such, are symptoms and part of a quagmire best avoided.

Meanwhile our own Government threatens the stability of the United Kingdom by its unannounced, uninvited and unapproved-by-the-electorate level of immigration: indiscriminate between the cognoscenti and contributors from riff-raff from sundry sections of the globe, many with no historical allegiance or connection to Britain. Their entry seems to be expedited or ignored, whilst the departure of British citizens from its airports is subjected to almost unbearable intrusion and inconvenience, with its adverse effects on business. The threat to stability has been highlighted in areas such as Cambridge; age-old balances and checks within our indigenous population are undone, and the faith and self-assurance of our society is assailed, whilst the Health Service and Housing are burdened with its insatiable demands, and an exorbitant level of tax is exacted on those citizens too compliant or too immobile to avoid its clutches. Housing, education, health and our landscape are increasingly confronted with dereliction and their provision denied to British tax-payers; the Armed Forces, already cut to the bone, under-equipped and stretched to breaking point, are to be reduced further, if reports regarding the Navy are to be believed; even centuries’ old Village Schools, such as Lydbury North’s, face closure by a Shropshire Council hell-bent on cutting its peripheries, ignoring excellence and creating ever larger and more inaccessible monolithic structures; those great pinnacles of education, Oxford and Cambridge are accused of elitism, the crime to which they should be most assiduously aspiring.

The release of Foot and Mouth virus from a government-owned laboratory is a consequence of the chronic malaise and incompetence that has permeated the hitherto sound structures of the British Government where the diversion or reduction of resources often for political ends is increasingly visible: especially in the immigration service, where the absence of any checks at most airports is only too apparent, and has left our society open to corruption, disease and criminality. Seldom since the time of Moses has a government perpetrated pestilence on its own land and people on such a scale: animals slaughtered either from infection or the consequent export ban, and individuals falling in their thousands as a result of hospital-acquired infection.

Piling Ossa on Pelion, our by-ways are festooned with speed cameras, the tarmac coruscated with humps, and an ever-dafter array of requirements under Health and Safety imposed, such as the absurd HIPS, 150 Year Flood Test for Reservoirs, No Smoking Notices in Churches. All point to the extension of Government beyond Representation and Protection. All these measures, however laughable and absurd in themselves, involve an ever-rising cost of compliance, whilst the vibrant economies pursue production, profit and development with astonishing speed, as evident by the predominantly overseas-purchasers of prime London property.

Perhaps one of the few benefits of a slowing economy may be that the newly-resurgent St. Paul’s, recently unwrapped to reveal and revel in its gleaming glory, and the City skyline itself, may at least temporarily be saved from Shards of Glass and other inappropriate intrusions: the ruin of Wren averted by a Northern Wreck.

The guff of responsibility for Global-warming and other Malthusian-like scares move us inexorably into a fully-compliant, eco-friendly, fully-insulated, multi-cultural, sexually uncertain, smoke-free, carbon-neutral cocoon; blinded to the economic, competitive and cultural destruction of our Society. The Classical simplicity and Georgian serenity, so evident in cities such as Liverpool and Edinburgh, is replaced by ugliness and pretence, such as plastic windows, and the soul of the nation left scarred as it panders to a phantasmagoria of practices and faiths.

Confronted by immediate financial uncertainty, the growth of the Brazilian, Russian, Indian and Chinese (BRIC) economies remains crucial to the continuing strength of metal markets. Whilst the shambles of the sell off in August led to substantial declines in mining shares the underlying metals themselves only fell modestly. At the time of writing most shares have more than made up for those falls, underpinned by new highs in Gold and the upward ascent of Copper, Lead, Oil and Wheat.

Troy Resources’ new CEO has been greeted by the return of the share price towards its old highs, amidst promising developments at its new Brazilian gold mine. Smelter problems at International Ferro Metals reduced its share price from its recent highs, and the continuing impasse with its gold mining permit in Sulawesi has restrained Archipelago.

Nighthawk has excelled with its United States’ exploration successes, and Egdon’s Portland Gas storage scheme awaits the planners’ decision. Whilst British sportsmen in Rowing and Rugby have relinquished their titles, we retain our faith for future triumphs in these and many others in our mining portfolio whilst continually monitoring new mines and regions. We believe that along with Gold, the mining market will take up and compensate for the reduced growth we anticipate in the British market although such favourites as James Halstead continue to astound and exceed expectations. Many others remain and thrive at the core of the portfolio, such as Young’s with their impressive array of attractive pubs, Fullers and Wadworths, even if the near term outlook is significantly less favourable than a year ago.

Outlook

We are soundly positioned for an uncertain future accompanied by siren voices predicting a slow-down; the housing imbroglio in the United States and the unknown identity of the next President of the United States promise extra interest in 2008 and 2009; as does the leadership and attitude of Russia and the belligerence of Iran. The profligacy of a spendthrift nation allied to the power of the printing press has inundated the emerging economies with prodigious quantities of dollars; supplying Sovereign Wealth Funds with almost limitless firepower, and reasserting the Sage of Omaha’s warning two years ago about the threat of Foreigners buying the Farm, and its political implications: the only assets able to absorb them are the purchase of major U.S. corporations, or just possibly and eventually, Gold itself.

Our Gold holdings we believe will come to the fore, along with many ships in the mining sector, whilst we would expect our high quality portfolio of leading small capitalisation companies to continue to flourish.

We are as always grateful to the team at Cheval Place where Steven McKeane quietly transforms into figures an array of questions thrown at him; Abbie calmly copes with a plethora of trades and Vicky grapples with the latest mobile and computer technologies with good grace and a smile.

I am equally indebted to my co-Directors, brokers and advisers, whose sage advice collectively places your Company in such a powerful position for all new challenges.

C. Robin Woodbine Parish 9 November 2007