CHIEF EXECUTIVE'S REVIEW

Although we continue to formally report the results of the four divisions separately, with the sale of Ergotron complete and the announcement of our intention to demerge GKN Automotive and GKN Powder Metallurgy, we have started to refer to them from their post Demerger perspective of two distinct segments - Aerospace/Melrose and Automotive/DemergerCo. 

In the Aerospace segment, the restructuring projects continue at pace. As described in June's Capital Markets Event, the business is realigning around profitable, differentiated programmes and is executing this strategy well. The restructuring process is expected to be materially complete next year. 

In the intended Demerger group, both GKN Automotive and GKN Powder Metallurgy enjoyed good commercial progress. GKN Automotive secured significant electric vehicle ('EV') programme awards, while GKN Powder Metallurgy launched its e-motors magnets strategy, a major milestone in its EV transition strategy, that is gathering good momentum.

All businesses in the Group faced significant inflationary pressures during the Period but have all been successful in their recovery strategies, underlining their quality. In addition to their strong cash management, there was selected investment of c.£200 million in working capital to support growth, plant rationalisations and address supply chain pressures. We also continue to invest heavily in all their sustainable technology roadmaps, which will put them at the forefront of their industries and provide benefits for years to come.

Further details are set out in the segment reviews below.

AEROSPACE/MELROSE SEGMENT

GKN Aerospace first half update

GKN Aerospace made good progress during the first half and continued to execute against its improvement plan presented during the Capital Markets Event in June. During the Period, like-for-like revenue was up 11% versus 2021, and there remains a further c.35% upside to reach 2019 volume levels,[2] while adjusted operating margins improved 1.5 percentage points to 4.9%. This has been achieved in the face of testing macro-economic conditions, notably recent global supply chain challenges, although deliveries remain on schedule, and inflationary pressures.

In the first half, new leadership was brought into the Defence business, with a strategy to refocus the business from build-to-print to higher quality design-to-build activity. Defence demand has remained positive and the closure of the St Louis plant is in progress. Elsewhere, Engines has good revenue momentum and Civil Airframes is ramping up production to meet higher OEM build rates, particularly for narrowbody aircraft.

Having acted swiftly to adjust to the impact of the global pandemic, GKN Aerospace is now driving further improvements to unlock its full potential, with all required major restructuring projects to reach the stated 14%+ margin target now underway. During the first half, additional restructuring plans were announced to rationalise its US and European footprint, bringing the total number of sites globally from 38 today down to 33 by the end of 2023. One US site was sold during the Period and the remaining improvements are progressing to plan and will be largely completed in the coming 18 months.

During the Period, GKN Aerospace also continued to push the boundaries of sustainable technology development. The Engines business confirmed its place as a technology demonstration partner in both the CFM RISE engine programme and the next-generation Pratt & Whitney GTF programme, whilst continuing its strong progress on both H2GEAR and H2JET hydrogen propulsion development programmes. On the structures side, GKN Aerospace delivered the latest ground-breaking 18-metre wing spar demonstrator for the Airbus 'Wing of Tomorrow' programme, while in the area of zero emissions flight, it also reached an important milestone in its partnership with electric aircraft manufacturer Vertical Aerospace, by delivering the wiring system for the VX4 all-electric aircraft from its UK Global Technology Centre in Bristol.

GKN Aerospace Outlook

We expect revenue growth to continue in line with the market recovery in the second half of 2022 and beyond, driven by the ramp up in narrowbody deliveries and strong demand from key Defence platforms. The business is highly confident of addressing emerging supply chain constraints and continuing to fully recover inflationary pressures. All the business improvement initiatives remain on track to deliver the upgraded margin target of 14%+ on a fully recovered market.

AUTOMOTIVE/DEMERGERCO SEGMENT

GKN Automotive first half update

COVID-related lockdowns in China and semi-conductor shortages contributed to continued sector volatility and a 1.2% decline in global light-vehicle production in the first half compared to 2021. Europe experienced a significant year on year decline in production of 11.9%, whilst in contrast China and the Americas saw an increase in production volumes of 1.3% and 3.8% respectively.

Inflation recovery enabled GKN Automotive to maintain its first half revenue, despite volumes being down 3% broadly in line with the global market. Whilst revenue was flat compared to the first half of 2021, it was a positive improving trend against the second half of 2021, with strong underlying demand and a further c.15% recovery to come to return to 2019 levels.[3] In parallel, the business significantly expanded its order pipeline during the Period, securing approximately £2.6 billion of lifetime revenue in new business bookings (19% ahead of the same period last year). Over half of these bookings[4] are on electrified platforms (Battery Electric Vehicles ('BEV') or Full Hybrid ('FH')), further demonstrating the competitiveness of GKN Automotive's portfolio as electrification of the industry accelerates.

Despite experiencing multiple inflationary headwinds across labour, energy, logistics and raw materials in the first half, the business remains on track to fully recover all of these in the second half through customer agreements, continuous operational improvement and the proactive management of its cost base. This short time lag has meant first half operating margin declined by 2.3 percentage points compared to the first half of 2021, but is expected to recover to plan by the end of the year. Throughout the Period, GKN Automotive has also continued to execute significant improvements that have reshaped its cost base, further strengthening its resilience. All projects to achieve its margin target on market recovery are due to complete this year, with a potential pipeline of additional projects providing opportunities for ongoing margin expansion meaning it is well positioned for the proposed Demerger.

One of this year's most notable eDrive achievements has been the development of GKN Automotive's next-generation inverter, offering OEMs highly advanced 800V electric vehicle technology. Aside from efficiency and light-weighting improvements, 800V technology enables faster charging times, increased battery size, and improved performance for future electric vehicles. GKN Automotive is also collaborating on the development of a circular supply chain for recycled rare-earth magnets as a partner in the SCREAM (Secure Critical Rare Earth Magnets for UK) project. The reuse of rare earth magnets in future electric motors will enable GKN Automotive to improve product sustainability by reducing embedded emissions and the use of raw materials, as well as lowering production costs.

GKN Automotive Outlook

Looking ahead, there are signs that volatility in global light vehicle production is beginning to ease. For GKN Automotive, the second half will be focused on operational agility and efficiency, inflation mitigation and the ongoing growth of the electrified vehicle portfolio. We do expect a stronger second half performance benefiting from full inflation recovery, including the £30 million delayed from the first half.

GKN Powder Metallurgy first half update

Good inflation recovery offset ongoing automotive sector volatility in the first half of 2022, which resulted in revenue only slightly down by 1% on 9% lower volumes compared to the same period last year. This reflects the exiting of low margin business, but otherwise follows the wider automotive industry impacted by COVID lockdowns and supply chain issues. However, like GKN Automotive, this reflects a positive revenue momentum from the second half of 2021.

The impact of inflation on the business has been fully mitigated by a combination of pass-through agreements (primarily on the cost of commodities, notably metal scrap, copper, nickel and molybdenum), operational improvements, and one-off base price adjustments with customers. Adjusted operating profit margin of 10.5% was ahead of the full year 2021, demonstrating the benefits of reorganisation actions and the divestment of the non-core low margin structural plant in the US last year. All projects required to achieve their stated margin target of 14% are due to complete this year.

During the Period a new additive manufacturing facility was opened in Auburn Hills, US, contributing to a 42% revenue growth for the additive business and enabling it to increase its presence and to serve the local global automotive manufacturers. The additive business was also awarded parts with GM for the Cadillac Celestiq in both polymers and metals, a significant endorsement of its capabilities.

GKN Powder Metallurgy's EV transition strategy gained good momentum during the first half.  Recently, the business announced its roadmap to expand share in BEVs, by entering into production of permanent magnets for the European and North American markets, and there are advanced commercial discussions ongoing with several key customers in line with its stated margin target. The well-established global footprint, demand for local supply, and the strong capabilities to serve the automotive industry with metal powders and parts, as well as a firm commitment to sustainability, strongly positions GKN Powder Metallurgy for success.

In parallel, the business has been successful in leveraging its existing capabilities, and leading technology, to secure significant wins on EV platforms in its core competencies for components on differential gears and clutches, that are expected to enjoy substantial volume increases in coming years. Similar to GKN Automotive, this gives confidence that in addition to the exciting opportunities in new segments like e-motor magnets, there will be upside from the EV transition for GKN Powder Metallurgy's core business.

GKN Powder Metallurgy Outlook

Supply chain issues and automotive sector volatility are expected to continue into the second half, but as in Automotive, there are emerging signals that these will ease towards the end of the year. The business is highly focused on continuing the good momentum in its EV transition strategy, both seeking to secure new segments such as e-motor magnets, as well as developing promising EV opportunities through existing capabilities.

GKN Hydrogen Trading and Outlook

Now a standalone business under Melrose ownership, but intended to form part of the Demerger group, GKN Hydrogen has a dedicated executive team providing greater focus on its route to market. The first half saw good progression on the roll out of the pilot programmes and the wider commercialisation plan.  The business remains on track with its strategy, with a growing pipeline of interest and the outlook is encouraging.

Simon Peckham

Chief Executive

8 September 2022

FINANCE DIRECTOR'S REVIEW

During the six months ended 30 June 2022 ("the Period"), contracts were exchanged for the disposal of the Ergotron business, previously held within the Other Industrial division.  Consistent with this, Ergotron has been shown as held for sale in the Balance Sheet at the Period end and is classified as a discontinued operation in these Condensed Interim Financial Statements.  Ergotron was disposed on 6 July 2022.

The continuing operations now consist of three businesses acquired with GKN in 2018: Aerospace; Automotive; and Powder Metallurgy, along with the recently formed GKN Hydrogen business shown within the Other Industrial division.  Each of these businesses are on track to fully recover inflationary headwinds in the year and remain committed to achieving previously stated adjusted operating margin targets when end markets recover. 

MELROSE GROUP RESULTS - CONTINUING OPERATIONS

Statutory results:

The statutory IFRS results are shown on the face of the Income Statement and show revenue of £3,594 million (2021: £3,431 million), an operating loss of £317 million (2021: £156 million) and a loss before tax of £358 million (2021: £275 million).  The diluted earnings per share ("EPS"), calculated using the weighted average number of shares in issue during the Period of 4,366 million (2021: 4,860 million), were a loss of 6.3 pence (2021: loss of 3.4 pence).

Adjusted results:

The adjusted results are also shown on the face of the Income Statement.  They are adjusted to include the Group's share of revenue and operating profit from certain investments in which the Group does not hold full control, equity accounted investments ("EAIs"), and to exclude certain items which are significant in size or volatility or by nature are non-trading or non-recurring, or are items released to the Income Statement that were previously a fair value item booked on an acquisition.  It is the Group's accounting policy to exclude these items from the adjusted results, which are used as an Alternative Performance Measure ("APM") as described by the European Securities and Markets Authority ("ESMA").  APMs used by the Group are defined in the glossary to the Condensed Interim Financial Statements.

The Melrose Board considers the adjusted results to be an important measure used to monitor how the businesses are performing as they achieve consistency and comparability between reporting periods when all businesses are held for the complete reporting period.

The adjusted results for the Period show revenue of £3,878 million (2021: £3,719 million), an operating profit of £171 million (2021: £196 million) and a profit before tax of £128 million (2021: £114 million).  Adjusted diluted EPS, calculated using the weighted average number of shares in issue in the Period of 4,366 million (2021: 4,860 million), were 2.2 pence (2021: 1.8 pence).

Tables summarising the statutory results and adjusted results by reportable segment are shown in note 3 of the Condensed Interim Financial Statements.

RECONCILIATION OF STATUTORY RESULTS TO ADJUSTED RESULTS

The following tables reconcile the Group statutory revenue and statutory operating loss to adjusted revenue and adjusted operating profit:

Adjusting item:

Adjusted revenue includes revenue from EAIs, the largest of which is a 50% interest in Shanghai GKN HUAYU Driveline Systems Co Limited ("SDS"), within the Automotive segment. During the Period, the Group generated £284 million of revenue from EAIs (2021: £288 million), which is not included in the statutory results but is shown within adjusted revenue so as not to distort the adjusted operating margins reported in the businesses when the adjusted operating profit from these EAIs is included.

Adjusting items to statutory operating loss are consistent with prior periods and include:

The amortisation charge on intangible assets acquired in business combinations of £223 million (2021: £218 million), which is excluded from adjusted results due to its non-trading nature and to enable comparison with companies that grow organically.  However, where intangible assets are trading in nature, such as computer software and development costs, the amortisation is not excluded from adjusted results.

Where hedge accounting is not applied, movements in the fair value of derivative financial instruments (primarily forward foreign currency exchange contracts), along with foreign exchange movements on the associated financial assets and liabilities, entered into within the businesses to mitigate the potential volatility of future cash flows on long-term foreign currency customer and supplier contracts. This totalled a charge of £154 million (2021: £44 million) in the Period and is shown as an adjusting item because of its volatility and size.

Costs associated with restructuring projects in the Period totalling £82 million (2021: £85 million).  These are shown as adjusting items due to their size and non-trading nature and these included:

A write down of assets of £20 million (2021: £nil), recognised as a result of exiting any direct trading links with Russian operations as a consequence of the conflict in Ukraine.  The asset write downs are predominantly within the Automotive division and are shown as an adjusting item because of their non-trading nature and size.

Other net adjusting items of £9 million (2021: £5 million), consistent with prior periods, the largest of which is an adjustment of £14 million (2021: £15 million) to gross up the post-tax profits of EAIs to be consistent with the adjusted operating profits of subsidiaries within the Group.

PROPOSED DEMERGER OF GKN AUTOMOTIVE, GKN POWDER METALLURGY & GKN HYDROGEN

The proposed strategy, discussed in more detail in the Chairman's Statement and Chief Executive's Review, will separate the GKN Automotive, GKN Powder Metallurgy and GKN Hydrogen businesses from the Melrose Group to form DemergerCo. The following table shows how the adjusted results of the continuing businesses for the Period, pre Melrose central costs, would have been split had the Demerger already happened:

The performances of each of the businesses, along with further details of the proposed demerger, are discussed in the Chairman's Statement and Chief Executive's Review.

TAX - CONTINUING OPERATIONS

The statutory results for the Period show a tax credit of £86 million (2021: £109 million), arising on a statutory loss before tax of £358 million (2021: £275 million).  The Group Income Statement current underlying adjusted tax rate is approximately 22% (2021: 23%). During the Period, the continuing businesses paid tax of £53 million (2021: £36 million).

ASSETS HELD FOR SALE

On 3 June 2022, the Group entered into an agreement to sell the last remaining Nortek business, Ergotron, to funds managed by The Sterling Group for total proceeds of £519 million and this transaction completed on 6 July 2022.  As such, Ergotron was classified as held for sale at 30 June 2022 and shown as a discontinued operation in all periods throughout the Condensed Interim Financial Statements.

The Nortek group was acquired on 31 August 2016 for an enterprise value of £2.2 billion, funded by £1.6 billion of equity and £0.6 billion of debt.  Having sold the Nortek Air Management and Nortek Control businesses last year, this successfully concludes the ownership cycle of Nortek and means the Group has again more than doubled the equity invested, achieving an IRR of 17%.

Discontinued businesses included £132 million of revenue and a statutory operating loss of £80 million after remeasuring Ergotron as held for sale in the Period.

SHARE BUYBACK AND NUMBER OF SHARES IN ISSUE

Following the agreed sale of Ergotron, the Group commenced a share buyback programme on 9 June 2022 to make market purchases of existing ordinary shares in issue in the capital of the Company. In line with the Group's strategy, the purpose of the programme was to distribute £500 million of capital to shareholders in the most suitable way following the agreed disposal of Ergotron.

The programme ended on 1 August 2022, with 318 million ordinary shares purchased at an average price per share of 157 pence.  These ordinary shares have been cancelled and the number of ordinary shares in issue has reduced by 7.3%, from 4,372 million to 4,054 million.  The weighted average number of shares used for earnings per share in calculations in these Condensed Interim Financial Statements was 4,366 million and for the full year will be 4,218 million.

CASH GENERATION AND MANAGEMENT

Robust cash management initiatives continue to be run in each of the businesses within the Group.

Free cash flow in the Period was an outflow of £104 million (2021: inflow of £131 million), after restructuring spend of £53 million (2021: £92 million), resulting in an adjusted free cash outflow of £51 million (2021: inflow of £223 million). 

An analysis of the free cash flow is shown in the table below:

The continuing businesses incurred a net working capital outflow in the Period of £195 million (2021: inflow of £8 million). The working capital cash performance of the Group is usually stronger in the second half of the year than the first because of the seasonality trends of the businesses, but this was further emphasised in the Period by the businesses selectively investing in working capital because of the impact of global supply chain disruption along with the expected growth in the second half of the year. This is expected to partially unwind as supply constraints ease and end markets recover in the second half.

Net capital expenditure in the continuing businesses in the Period was £79 million (2021: £104 million), with gross capital expenditure of £109 million, net of proceeds from disposal of properties of £30 million. This gross capital expenditure represented 0.6x (2021: 0.6x) depreciation of owned assets. Restructuring spend within the businesses was £53 million (2021: £92 million).

In the continuing Group, net interest paid in the Period was £42 million (2021: £73 million), net tax payments were £53 million (2021: £36 million) and ongoing contributions to defined benefit pension schemes were £11 million (2021: £12 million). 

The movement in net debt (as defined in the glossary to the Condensed Interim Financial Statements) is summarised as follows:

Group net debt at 30 June 2022, translated at closing exchange rates (being US $1.22 and €1.16), was £1,294 million (31 December 2021: £950 million; £1,017 million using exchange rates at 30 June 2022).

The movement in net debt during the Period included a free cash outflow of £104 million, a dividend paid to shareholders of £44 million, £119 million spent buying back shares in the market and spend on acquisition and disposal related activities of £10 million.

For bank covenant purposes the Group's net debt is calculated at average exchange rates for the previous twelve months, to better align the calculation with the currency rates used to calculate profits, and was £1,230 million.

The Group net debt leverage on this basis at 30 June 2022 was 1.8x EBITDA (31 December 2021: 1.3x EBITDA). Excluding the share buyback payments of £119 million, which were made before the receipt of Ergotron proceeds, leverage would have been 1.6x EBITDA, below the Melrose normal leverage of 2.0x to 2.5x EBITDA.

PROVISIONS

Total provisions at 30 June 2022 were £683 million (31 December 2021: £701 million).

The following table details the movement in provisions in the Period:

The net charge to the Income Statement in the Period of £68 million, included £74 million from restructuring activities and a release of £7 million relating to certain items previously recorded as a fair value item on acquisition. These two items are both shown as adjusting items and included in the adjusting items section discussed earlier in this review.  Net provision movements relating to property, environmental & litigation, warranty and long-term incentive arrangements were not material in the Period.

During the Period, £75 million of cash was spent against provisions with £53 million relating to restructuring activities.  In addition, £17 million was utilised against loss-making contract provisions.

The Other category of £6 million includes foreign exchange movements of £33 million, partly offset by the transfer of provisions on businesses disposed or held for sale of £23 million and the favourable net impact of discounting on certain provisions of £4 million.

PENSIONS AND POST-EMPLOYMENT OBLIGATIONS

Melrose operates a number of defined benefit pension schemes and retiree medical plans across the Group, accounted for using IAS 19 Revised: "Employee Benefits". 

The values of the Group plans were updated at 30 June 2022 by independent actuaries to reflect the latest key assumptions and are summarised as follows:

At 30 June 2022, total plan assets of Melrose Group's defined benefit pension plans were £2,372 million (31 December 2021: £3,010 million) and total plan liabilities were £2,594 million (31 December 2021: £3,471 million), a net deficit of £222 million (31 December 2021: £461 million).

The most significant pension plans remaining in the Group are the GKN UK Group Pension Schemes (Numbers 1 - 4), two of which are allocated to the Aerospace division and two to the Automotive division.  At 30 June 2022, in total these four pension plans had aggregate gross assets of £2,146 million (31 December 2021: £2,754 million), gross liabilities of £1,854 million (31 December 2021: £2,575 million) and a net surplus of £292 million (31 December 2021: £179 million), split 62% of the surplus held within Aerospace and 38% within Automotive.  These GKN schemes are closed to new members and to the accrual of future benefits for current members.

The largest deficits within the other pension schemes in the Group relate to German GKN pension plans which provide benefits dependent on final salary and service, and which are generally unfunded and closed to new members.  At 30 June 2022, these plans had a net deficit of £400 million (31 December 2021: £530 million).

A summary of the assumptions used are shown in note 12 to the Condensed Interim Financial Statements.

FINANCIAL RISKS AND UNCERTAINTIES

The principal financial risks and uncertainties faced by the Group include: liquidity risk; finance cost risk; exchange rate risk; contract and warranty risk; and commodity cost risk and are explained in detail on pages 37 to 39 of the 2021 Annual Report, a copy of which is available on the Company's website, www.melrosePLC.net.

Further explanations and details of the strategic risk profile of the Group, which includes non-financial risk, are set out on pages 42 to 49 of the 2021 Annual Report.

EXCHANGE RATES USED IN THE PERIOD

Exchange rates used for currencies most relevant to the Group in the Period were:

The following table shows an indication of a full year impact of a 10 percent strengthening of the major currencies, if they were to strengthen in isolation against all other currencies, on the re-translation of adjusted operating profit into Sterling:

In the first half of the year, the Group incurred a 4% translational foreign exchange gain compared to the same period last year.

The impact from transactional foreign exchange exposures is not material in the short-term due to hedge coverage being approximately 90%.

The Group utilises its multi-currency banking facility and cross-currency swaps, where relevant, to maintain an appropriate mix of debt in US Dollars, Euros and Sterling.  The hedge of having debt drawn in US Dollars and Euros protects against some of the Balance Sheet and banking covenant foreign exchange translation risk. A 10 percent strengthening in either the US Dollar or Euro would have had the following impact on debt as at 30 June 2022:

LIQUIDITY RISK MANAGEMENT

The Group's net debt position at 30 June 2022 was £1,294 million (31 December 2021: £950 million). 

The Group's committed bank facilities include a multi-currency denominated term loan and a multi-currency denominated revolving credit facility that mature in June 2024:

As at 30 June 2022, the term loan was fully drawn and there was £0.1 billion of drawings on the multi-currency committed revolving credit facility. Applying the exchange rates at 30 June 2022, the headroom equated to approximately £3.1 billion (31 December 2021: £3.0 billion applying the exchange rates at that date).

In addition to the headroom on the multi-currency committed revolving credit facility, cash, deposits and marketable securities, net of overdrafts, in the Group amounted to £223 million at 30 June 2022 (31 December 2021: £468 million).

The Group also holds capital market borrowings as at 30 June 2022 consisting of:

The committed bank funding has two financial covenants, being a net debt to adjusted EBITDA covenant and an interest cover covenant, both of which are tested half-yearly in June and December.

The Group net debt to adjusted EBITDA covenant test level is set at 4.0x at 30 June 2022, 3.75x at 31 December 2022 and 3.5x for 30 June 2023 and onwards.  At 30 June 2022 the Group net debt leverage was 1.8x, affording comfortable headroom.

The interest cover test is set at 3.25x at 30 June 2022 and 4.0x from 31 December 2022 onwards.  As at 30 June 2022, the Group interest cover was 11.1x, again showing comfortable headroom compared to the covenant test.

FINANCE COST RISK MANAGEMENT

The policy of the Board is to fix approximately 70% of the interest rate exposure of the Group.

At 30 June 2022, the weighted average cost of the instruments used to fix the cost of LIBOR on the Group's committed bank facility was c.2.2% and the bank margin on the Group's committed bank facility is currently 1%.

The Group also holds cross-currency swaps associated with the short-term fixed rate capital market borrowings, described earlier in this review, with a weighted average income statement cost of c.3.4% per annum.

The combined average Income Statement cost of the Group's debt for the year ending 31 December 2022 is expected to be approximately 3.8% (31 December 2021: 3.4%) before the amortisation of the bank arrangement fees and approximately 4.5% (31 December 2021: 4.1%) including this amortisation charge.

GOING CONCERN

As part of their consideration of going concern, the Directors have reviewed the Group's future cash forecasts and profit projections, which are based on market and internal data and recent past experience.

The Group has modelled a reasonably possible downside scenario against future cash forecasts and for this reasonably possible downside scenario, the Group has sufficient headroom to avoid breaching any of its financial covenants and would not require any additional sources of financing throughout the forecast period.

The macroeconomic environment remains uncertain and volatile and the impacts of political conflict and unrest on trading conditions and supply chain constraints could be more prolonged or severe than that which the Directors have considered in this reasonably possible downside scenario.

However, the Group's current committed bank facility headroom, its access to liquidity, and the sensible levels of bank covenants in place with lending banks, allow the Directors to consider it appropriate that the Group can manage its business risks successfully and adopt a going concern basis in preparing these Condensed Interim Financial Statements.

Geoffrey Martin

Group Finance Director

8 September 2022

CAUTIONARY STATEMENT

This announcement contains forward-looking statements.  These statements are made in good faith based on the information available up to the time of the approval of this announcement, and should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.  Accordingly, readers are cautioned not to place undue reliance on any such forward-looking statements.  Subject to compliance with applicable laws and regulations, the Company does not undertake any obligation to update any forward- looking statement to reflect events or circumstances after the date of this announcement.  

This announcement has been prepared solely to provide information to shareholders to assess the Company's strategies and the potential for those strategies to succeed, and neither the Company nor its directors accept any liability to any other person save as would arise under English law.

NO OFFER OF SECURITIES

Nothing in this announcement constitutes an offer of securities for sale in the U.S.  Securities may not be sold in the U.S. absent registration or an exemption from registration.

RESPONSIBILITY STATEMENT

We confirm to the best of our knowledge:

a)   the condensed financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the UK;

b)   the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and

c)   the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board