The Company complied throughout the financial year with the code provisions set out in Section 1 of the June 2006 FRC Combined Code on Corporate Governance, except that with effect from 8th December 2005, no member of the Audit Committee is considered to have recent and relevant financial experience as required under code provision C.3.1.

The Board
The Board discusses and makes decisions relating to, but not limited to, strategy, executive performance and retention, remuneration and succession, financial performance, development opportunities, investment portfolio acquisitions and disposals, corporate reputation and communication, internal control and risk management and the Board’s own effectiveness. It delegates certain defined tasks and responsibilities both to its various Committees, which report to the Board, and to individual Executive Directors.

The Board, which met 11 times during the year, currently consists of the five Non-executive Directors, each of whom is considered to be independent, and three Executive Directors. One of the Board meetings was specifically reserved to consider corporate strategy and two were held to consider the Placing.

All Directors have access to the services of the Company Secretary and may seek independent professional advice, as necessary, at the Company’s expense and subject to the consent of the Chairman. Upon election, or re-election, Non-executives are invited to serve for three-year fixed terms. Their terms of appointment are available from the Company Secretary. Directors may receive appropriate training on introduction and whilst in office. W Grant remained as the Senior Independent Director until his stepping down as a Director on 11th May 2006, whereupon he was replaced in the role by P V S Manduca.

The Chairman and the Non-executive Directors met on one occasion during the year with no Executive Directors in attendance. In addition, the Senior Independent Director also met on one occasion with the Non-executive Directors, without the Chairman or Executive Directors present, to consider inter alia the appraisal of the Chairman’s performance.

The Board has undertaken a performance evaluation of the Board itself, each of its Committees and of its individual Directors. This was conducted by questionnaire co-ordinated by the Company Secretary. The overall conclusions were considered by the Board and areas of significance have been addressed. The Non-executive Directors, led by the Senior Independent Director separately considered the performance evaluation of the Chairman, taking account of the views of the Executive Directors.

The Board has established a number of Standing Committees:

Details of the Non-executive Director service contracts are detailed in note (i) of the Remuneration report.

Audit Committee
The Audit Committee is responsible, inter alia, for recommending the appointment of the external auditors, the Group’s accounting policies, and monitors the treatment of areas of major judgement in the Group's financial statements. Furthermore, it acts as a conduit between the Board and the external auditors.

As a minimum, the Audit Committee meets three times during each financial period; of which one meeting is to determine the terms of engagement, proposed programme and fees payable to the auditors for the annual audit. The other meetings take place prior to the issue of the preliminary full-year results and interim results, in order to consider any significant issues arising from the audit and review processes.

Following a thorough market testing of three major firms of accountants, Ernst & Young LLP was selected by the Audit Committee as the new auditor in place of Deloitte & Touche LLP, which had audited the Company since 1993. The appointment of Ernst & Young LLP was subsequently ratified by the Board. A further meeting of the Audit Committee was held during the year to consider the technical issues associated with IFRS.

Apart from conducting the annual audit, Ernst & Young LLP was also engaged during the year to conduct a review of the interim results to 30th June 2006. Due to the limited scope of these additional activities, and not being engaged in providing tax advisory, compliance or planning services, the auditors’ objectivity and independence is not considered to be impaired.

In forming its opinion of the independence, objectivity and effectiveness of the external auditors, the Audit Committee takes into account the safeguards operating within Ernst & Young LLP. Regard is given to the nature of remuneration received for other services provided by Ernst & Young LLP to the Company and, inter alia, confirmation is sought from them that the fee payable for the annual audit is adequate to enable them to fulfil their obligations in accordance with the scope of the audit.

Nomination Committee
The Nomination Committee’s principal role is to evaluate the structure, size and composition of the Board, preparing a succession plan for the appointment of members, both Executive and Non-executive, which is then fulfilled through an effective search, interview and evaluation process.

The Nomination Committee did not meet during the year. However, at a meeting held in February 2007, the principal issues were the appointment of David Jenkins as a Non-executive Director and acknowledgment of the stepping down of Roy Dantzic, as Chairman.

Relations with shareholders
The Executive Directors have regular dialogue with institutional shareholders. The Company has notified the 20 principal institutional shareholders that the Chairman, the Senior Independent Director or any of the Non-executive Directors are available at any time to meet with them. The Company’s Annual General Meeting provides an opportunity to respond to shareholders’ appropriate questions. Directors are introduced to shareholders at the Annual General Meeting, including the identification of Non-executives and Committee Chairmen.

Internal control
The Directors acknowledge their responsibility for the Group’s system of internal control and for reviewing its effectiveness. The risk review process 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 misstatement or loss.

The Board has conducted a thorough risk assessment of the business, identifying risks, their potential impact, likelihood of occurrence, controls and mitigating actions, together with early warning systems and further actions which need to be implemented.

The regular process of identifying, evaluating and managing significant risks has been delegated by the Board to a Risk Committee, consisting of M H Marx as Chairman, C J Barwick, M S Weiner and two Executives, R C McCubbine and C Christofi. R C McCubbine replaced R H Pearse on the Committee on 20th June 2006. The Committee meets quarterly during the year to ensure that the risk control procedures are further embedded within the culture of the Company. The minutes of the Committee’s deliberations are reviewed by the Board.

A ‘whistleblowing policy’ has been prepared and issued to all staff in the Group, outlining arrangements by which they may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

The Board has adopted a schedule of matters reserved for its decision, which includes the level of individual transactions which are approved by the Board and those which may be delegated. The roles and remit of the Chairman, Chief Executive and the Executive Directors are set out in writing and agreed by the Board.

The Board, following a recommendation from the Audit Committee, has considered the need for an internal audit function, but has resolved that, due to the size of the Company and the risk review process evident through the Risk Committee, this cannot be justified at present. The Board will review this decision next year.

The Board has conducted a review of the effectiveness of the system of internal control for the year ended 31st December 2006 and to the date of this report and considers that there is an ongoing process for identifying, evaluating and managing the Group’s significant risks including financial, operational and compliance controls and a risk management system, that it has been in place for the year ended 31st December 2006 and up to the date of approval of these financial statements, that it is regularly reviewed by the Board and that it accords with the Financial Reporting Council Internal Control Revised Guidance for Directors on the Combined Code dated October 2005.

Going concern
The Directors, having made enquiries, have a reasonable expectation that the Company and the Group have adequate resources to continue in operation for the foreseeable future, and that it is appropriate to adopt the going concern basis in preparing the financial statements. This statement also forms part of the Review of operations.

Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements
The Directors are responsible for preparing the Annual Report, including the Directors’ report, and the Group and Parent Company financial statements in accordance with applicable United Kingdom law and regulations.

The Directors are required to prepare Group financial statements for each financial year in accordance with International Financial Reporting Standards as adopted by the European Union, which present fairly the financial position of the Group and the financial performance and cash flows of the Group for that period. In preparing those Group financial statements, the Directors are required to:

 
The following table identifies the attendance of the Directors at the meetings of the Board and the Audit, Nomination and Remuneration Committees held during 2006:
         
  Board Audit
Committee		 Nomination
Committee		 Remuneration
Committee
Number of meetings 11 5 0 5
R M Dantzic 10   0  
M H Marx 11   0  
C J Barwick 11      
P J Willis 11      
M S Weiner 11      
W Grant – resigned 11th May 2006 4     2
P V S Manduca 10 5 0  
M S Soames 11     5
V M Mitchell 10 5   4

Under United Kingdom company law the Directors have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), which are required by law to give a true and fair view of the state of affairs of the Parent Company and of the profit or loss of the Parent Company for that period. In preparing the Parent Company financial statements, the Directors are required to:

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the Companies Act 1985 and Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the system of internal control and for the prevention and detection of fraud and other irregularities.

By order of the Board
S A Lanes
Secretary
30th March 2007