Interim Results

3rd Sep 2008 07:00



HYDRO INTERNATIONAL plc 

Interim results for the six months to 30 June 2008

Key performance Indicators

	6 months  ended 30 June 2008	6 months  ended 30 June 2007
Statutory:
Revenue	£14.9m	£11.0m
Profit before tax	£1.0m	£0.8m
Basic earnings per share	4.93p	4.52p
Non-Statutory:
Adjusted profit before tax*	£1.1m	£0.7m
Adjusted basic earnings per share*	5.39p	3.82p
Adjusted operating margin*	7.7%	6.5%
Cash and cash equivalents	£3.7m	£2.9m
Closing order book	£10.1m	£10.8m

* excluding exceptional other operating income and amortisation of acquisition related intangible assets

For further information, please contact:

Stephen Hides (Chief executive)

Tony Hollox (Finance director)

Hydro International plc Tel: +44 (0)12 7587 8371

Julian Blunt

KBC Peel Hunt Ltd (Nominated Adviser & Broker) Tel: +44 (0)20 7418 8990

Interim Management Report to the members of Hydro International plc

Hydro International offers innovative products based on advanced vortex and complementary technologies, providing economical solutions to control the quantity and improve the quality of stormwater run off, combined sewer overflows and municipal wastewater.

The Group operates in three main geographical markets: UK, Europe and North America, but has a worldwide presence through a network of licensees and distributors. 

Hydro's position in the US market was strengthened during the period with the acquisition of Eutek Systems, Inc., one of the company's main competitors in the supply of grit removal technology to the US Wastewater market. The acquisition of Eutek was made for an initial cash consideration of $8.5 million. Additional consideration of 5% of revenues generated from Eutek products will be payable for the 5 year period from 1 May 2008 to 30 April 2013. This additional consideration is capped at $5.0 million.

Group results

Total Group revenue increased by 35% on the six months ended 30 June 2007 to £14.9m (2007: £11.0m). Within this figure £1.3m relates to the performance of Eutek Systems, Inc., which was acquired on 5 May 2008. Excluding the impact of the Eutek Systems, Inc. acquisition the Group achieved an underlying growth in revenue of 24%. The majority of this increase was achieved in the UK and US Wastewater businesses, with projects secured in late 2007 converting to sale in the period.

Group operating profit for the six months ended 30 June 2008 was up 27% at £1.0m (2007: £0.8m). Excluding the impact of the Eutek Systems, Inc. acquisition (and £0.1m of exceptional other operating income included in operating profit for the period ended 30 June 2007) the operating profit was £0.9m (2007: £0.7m), 32% ahead of the first six months of last financial year.

Net assets increased over the six month period by 5% to £8.3m (31 December 2007: £7.9m). This increase in net assets is attributable to the profitable trading period less the final dividend paid in respect of the year ended 31 December 2007.

The main movements in the balance sheet relate to the impact of the acquisition of Eutek Systems, Inc. on 5 May 2008. As a consequence of the acquisition goodwill and new intangible assets totalling £5.5m have been added, funded initially by £3.5m of external debt provided by the Group's bankers. The Group expects to release cash held in operating companies to start making repayments of debt over the second half of the year. In addition, the Group continues to have at its disposal sufficient undrawn committed borrowing facilities at competitive rates offering an effective reserve fund.

Net cash outflow from operating activities for the six months ended 30 June 2008 was £0.5m, compared to a net cash inflow of £0.5m for the comparative period in 2007. The change in cash generation over the last six months has been caused by the timing of payments to suppliers on large wastewater contracts in the UK and significantly increased corporation tax payments (in relation to the year ended 31 December 2007 and also payments on account in relation to 2008) on the profits of the Group's US operations.

Review of operations

The UK remains Hydro's biggest single market in both revenue and profit terms. The downturn in the economy has led to a decline in general activity in the construction sector over the past six months. This slowdown has been most pronounced in the private housing sector with several large developers making well publicised cuts in their businesses. No significant impact of this deterioration has been felt in Hydro's UK Stormwater business which demonstrated growth in orders, revenue and profit over the period. This is in part a reflection of the diversification within the business through exposure to commercial and public sector development, for example, in May 2008, Hydro was awarded a £1.6m contract to supply Hydro-Brake® Flow Controls as part of the £50 million White Cart Flood Prevention Scheme for Glasgow City Council.

The spending patterns of the UK water companies slowed in the second quarter of 2008 at a time when activity should be reaching a peak under the fourth asset management programme. This slowdown was felt across the industry as the water companies assessed their budgets and capital spending programs as a result of tightening global credit conditions. Although this has caused a number of significant projects to be delayed, project flow is expected to improve in the second half year.

The slowing US economy, tight credit conditions and the associated decline in the housing sector have not as yet impacted the performance of the US Stormwater business which has also achieved growth in orders and revenue over the period. Hydro's aim is to build its share of the US stormwater market by extending the regulatory approval of products across the US, developing more channels to market and investing in marketing communications to further raise the profile of Hydro in the US. These measures are expected to counter any adverse effects associated with a slowdown in the general US economy.

In the US wastewater market, which is principally driven by public funding, business activity levels remain strong and have been significantly augmented by the acquisition of Eutek Systems, Inc.

As reported in the 2007 Annual Report and Accounts the second half of 2007 saw a marked reduction in private housing related construction activity in Ireland. This effect continues into 2008 and is not expected to recover significantly in the remainder of the year. The Irish business has been refocused to pursue opportunities created by national plans to improve municipal water and sewerage infrastructure.

Long-term strategy and business objectives

Hydro has a four point plan to achieve sustained growth and create shareholder value:

Continuing focus on maintaining or growing market position in core markets

Geographic expansion into new markets

Emphasis on product development to maintain competitive advantage

Acquisition of complementary businesses or intellectual property

In the first six months of the current financial year, we have made significant progress in line with this strategy including:

the acquisition of Eutek Systems, Inc. which included intellectual property

new distribution agreements in Malaysia and Belgium, and 

continued internal development of intellectual property.

Key performance indicators

In addition to the statutory revenue and profit measures we monitor our performance in implementing our strategy with reference to progress in the key performance indicators listed on page 1.

Segmental results for the six months ended 30 June 2008

A summary of the key financial results by segment as used by management are disclosed in note 2 to the condensed financial statements.

Dividend and dividend policy

In line with current policy no interim dividend has been proposed or approved by the Board in this period or in the period ended 30 June 2007.

Related party transactions

There have been no material changes in the related party transactions described in the last annual report.

Principal risks and uncertainties

The principal risks and uncertainties which could affect the Group for the remainder of the financial year remain those detailed on page 22 of the Annual Report 2007, a copy of which is available at www.hydro-international.biz. In addition, the Outlook section of this Interim Management Report provides a commentary concerning the remainder of the financial year.

Outlook

Although the Board expects business conditions in the Group's markets to remain challenging, we remain optimistic that further progress can be made in the balance of the financial year by maintaining focus on the Group's strategic plan.

In the UK Stormwater market the increasing government priority being given to flood alleviation, in the aftermath of the 2007 flooding and the subsequent report prepared by Sir Michael Pitt, is expected to drive more public projects similar to the White Cart project in Glasgow. The government's response to the Pitt Review is the upcoming Floods and Water Bill which is due out to consultation during 2009. Hydro is uniquely positioned to offer products capable of providing solutions to these large scale projects. As reported in the Annual Report 2007 the UK continues to make progress towards the implementation of the EU Water Framework Directive. This is expected to create a longer term business opportunity for stormwater quality improvement products of the type that Hydro already market successfully in the United States, Australia, New Zealand and South Korea. Whilst this is not expected to contribute significantly to 2008 revenues the opportunities are growing and prospects for future periods are strong.

In the US, where Hydro has historically had a lower profile and market presence, there is a concerted focus on building our share of the market through a wider platform of regulatory product approvals and enhanced routes to market, supported by a comprehensive programme of awareness building.

The Group's US wastewater business in the first half year has received a significant boost from the acquisition of Eutek Systems, Inc. Early trading levels in the Eutek business have been very pleasing and the integration of Eutek into the Hydro Group is well advanced. The combination of Eutek's products with Hydro's own vortex based product portfolio has given the US wastewater business a strong position in the market from which to build further momentum.

The Board remains confident that Hydro is positioned to deliver further growth in the second half of 2008, despite current global economic conditions.

Stephen Hides

Chief Executive Officer

2 September 2008

Directors' responsibility statement

We confirm that to the best of our knowledge the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting'

By order of the Board,

Stephen Hides Tony Hollox

Chief Executive Officer Finance Director

2 September 2008 2 September 2008  Hydro International plc

Condensed Group Income Statement unaudited

for the six months ended 30 June 2008

Continuing operations	Note	6 months ended 30 June 2008 £000	6 months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Revenue		14,949	11,047	25,958
Cost of sales		(9,443)	(6,959)	(16,273)
Gross profit		5,506	4,088	9,685
Administrative expenses		(4,462)	(3,365)	(7,411)
Exceptional other operating income	(3)	-	100	100
Operating profit before exceptional other operating income and amortisation of acquired intangibles		1,149	723	2,274
Exceptional other operating income		-	100	100
Amortisation of acquired intangibles		(105)	-	-
Operating profit		1,044	823	2,374
Finance (cost)/revenue	(4)	(1)	13	174
Profit before tax		1,043	836	2,548
Tax	(5)	(341)	(197)	(784)
Profit for the period from continuing operations		702	639	1,764
Basic earnings per ordinary share Diluted earnings per ordinary share	(6)   (6)	4.93p   4.89p	4.52p   4.47p	12.47p   12.36p

  Hydro International plc

Condensed Group Statement of Recognised Income and Expense unaudited

for the six months ended 30 June 2008

	6 months ended 30 June 2008 £000	6 months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Profit for the period Exchange differences on translation of foreign operations	702  34	639 (10)	1,764 31
Total recognised income and expense	736	629	1,795

Condensed Group Statement of Changes in Equity unaudited

for the six months ended 30 June 2008

	6 months ended 30 June 2008 £000	6 months ended 30 June 2007 £000	Year ended 31 December 2007 £000
Opening shareholders' funds Total recognised income and expense Dividend Proceeds from issue of new shares Fair value of share options granted	7,924   736 (399)  16 4	6,425   629 (325) 8 -	6,425   1,795 (325) 26 3
Net increase in shareholders' funds	357	312	1,499
Closing shareholders' funds	8,281	6,737	7,924

Hydro International plc

Condensed Group Balance Sheet unaudited

30 June 2008

	30 June 2008 £000	30 June 2007 £000	31 December 2007 £000
ASSETS Non-current assets Intangible assets - Goodwill Intangible assets - Other Property, plant and equipment	4,588 2,361 1,913	1,399 186 2,046	1,399  226 1,930
Deferred tax assets	136	21	73
Trade receivables	329	121	163
	9,327	3,773	3,791
Current assets Inventories Trade receivables Other receivables Cash and cash equivalents Deferred tax assets Derivative financial assets	658 10,479 346 3,678 139 1	597 7,572 232 2,856 - -	794 7,043 218 4,848 - 50
	15,301	11,257	12,953
TOTAL ASSETS	24,628	15,030	16,744
LIABILITIES
Current liabilities
Trade and other payables	(10,258)	(7,260)	(7,899)
Current tax payable	(565)	(345)	(728)
Deferred tax liability	(184)	-	(26)
Borrowings	(129)	(28)	-
Obligations under finance leases	(2)	(4)	(4)
Derivative financial liabilities	-	(38)	-
	(11,138)	(7,675)	(8,657)
Non-current liabilities
Trade and other payables	(912)	(2)	-
Deferred tax liability	(934)	(202)	(163)
Borrowings	(3,363)	(412)	-
Obligations under finance leases	-	(2)	-
	(5,209)	(618)	(163)
TOTAL LIABILITIES	(16,347)	(8,293)	(8,820)
NET ASSETS	8,281	6,737	7,924
EQUITY Share capital Share premium account Foreign currency translation reserve Retained earnings	712 966 (1) 6,604	707 938 (76) 5,168	710 953 (35) 6,296
TOTAL EQUITY	8,281	6,737	7,924

Hydro International plc

Condensed Group Cash Flow Statement unaudited

for the six months ended 30 June 2008

	30 June 2008	30 June 2007	31 December 2007
	£000	£000	£000
Cash generated from operations	100	777	3,478
Interest paid	(73)	(41)	(25)
Corporation tax paid	(523)	(194)	(450)
Net cash generated from operating activities	(496)	542	3,003
Cash flows from investing activities
Purchases of property, plant and equipment	(90)	(55)	(124)
Proceeds from sale of property, plant and equipment	13	-	-
Purchases of patents and trademarks	(30)	(16)	(47)
Purchase of software assets	-	(5)	(49)
Expenditure on product development	(1)	(5)	(18)
Interest received Cash acquired with subsidiary	72 283	54 -	199 -
Acquisition of subsidiary	(3,162)	-	-
Net cash used in investing activities	(2,915)	(27)	(39)
Cash flows from financing activities
Proceeds from the issue of shares to shareholders	16	8	26
Repayment of borrowings	(860)	(20)	(465)
Finance lease capital payments	(2)	(6)	(8)
Dividends paid to shareholders	(399)	(325)	(325)
New bank loans raised	3,492	-	-
Net cash generated from financing activities	2,247	(343)	(772)
Net (decrease)/increase in cash and bank overdrafts	(1,164)	172	2,192
Cash and bank overdrafts at the beginning of the period	4,848	2,677	2,677
Exchange (losses)/gains on cash and bank overdrafts	(6)	7	(21)
Cash and bank overdrafts at the end of the period	3,678	2,856	4,848

Hydro International plc

Reconciliation of profit to net cash flow from operating activities unaudited

for the six months ended 30 June 2008

	30 June 2008	30 June 2007	31 December 2007
	£000	£000	£000
Profit for the period	702	639	1,764
Finance costs	1	(13)	(174)
Corporation tax expense	341	197	784
Depreciation	97	113	286
Amortisation of intangibles	184	74	136
Decrease/(increase) in inventories and work in progress	218	(259)	(456)
(Increase) in trade and other receivables	(1,596)	(1,230)	(728)
Increase in trade and other payables	164	1,230	1,867
(Decrease)/increase in deferred tax asset	(27)	-	40
Increase/(decrease) in deferred tax liability	21	26	(41)
(Profit) on sales of fixed assets	(5)	-	-
Net cash generated from operations	100	777	3,478

Hydro International plc

Notes to the Interim Announcement unaudited

for the six months ended 30 June 2008

1. Basis of preparation

The Condensed Interim Financial Statements were approved by the directors on 2 September 2008.

The Condensed Interim Financial Statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.

The financial information for the six month period ended 30 June 2008 and 2007 has not been audited by the Group's auditors and does not constitute accounts within the meaning of s240 of the Companies Act 1985. The financial information for the year ended 31 December 2007 is an abridged version of the Group's accounts which received an unqualified auditors' report and did not contain a statement under s237(2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies.

The same accounting policies, presentation and methods of computation are followed in these condensed financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2007. Accounting policies on business combinations and acquired intangible assets are now required due to the acquisition during the period. The following accounting policies have been adopted during the period.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued operations, which are recognised and measured at fair value less costs to sell.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Acquired intangibles

Acquired intangibles comprise order backlog, sales representative network, developed technology and trademarks, purchased as part of acquisitions of businesses and are capitalised separately from goodwill, and amortised over their estimated economic lives on a straight line basis. Acquired intangibles are stated at cost less accumulated amortisation and, where appropriate, provision for impairment in value or estimated loss on disposal. The economic lives of intangibles are estimated as follows:

Order backlog 0.5 years

Sales representative network 5 years

Developed technology 15 years

Trademarks 15 years

2. Segmental analysis of results

The primary format used for segmental reporting is by business segment as this reflects the internal management structure and reporting of the Group. Segment results, assets and liabilities include only items directly attributable to a segment. 

Business segments

The Group comprises the following business segments:

Stormwater

The control of stormwater flows and the removal of trash, oil and sediment from these flows, largely for application in the existing urban environment and for new residential and commercial development.

Water and wastewater treatment

The full range of treatment products for screening, grit removal, primary, secondary and tertiary treatment, for application in the municipal and regulated water industry.

Geographic segments

Hydro International has a worldwide presence in both business segments through its subsidiary selling offices and through an agency network.

Analysis by business segment

	6 months to 30 June 2008	6 months to 30 June 2007	Year ended 31 December 2007
	£000	£000	£000
Segment revenue
Stormwater	7,168	6,289	13,883
Water and wastewater	7,781	4,758	12,075
Consolidated	14,949	11,047	25,958
Segment operating profit (excluding exceptional other operating income and amortisation of acquisition related intangible assets)
Stormwater	945	740	2,000
Water and wastewater	722	164	1,010
Group costs	(518)	(181)	(736)
Consolidated	1,149	723	2,274
Exceptional other operating income	-	100	100
Amortisation of acquisition related intangible assets	(105)	-	-
Net finance (cost)/revenue	(1)	13	174
Taxation	(341)	(197)	(784)
Profit after tax	702	639	1,764

	6 months to 30 June 2008	6 months to 30 June 2007	Year ended 31 December 2007
	£000	£000	£000
Assets
Stormwater	7,371	6,813	6,446
Water and wastewater	14,191	5,839	7,511
Group and unallocated	11,750	7,071	7,971
Eliminations	(8,684)	(4,693)	(5,184)
Total	24,628	15,030	16,744
Liabilities
Stormwater	3,222	2,889	2,405
Water and wastewater	13,631	6,488	7,477
Group and unallocated	8,178	3,609	4,122
Eliminations	(8,684)	(4,693)	(5,184)
Total	16,347	8,293	8,820
Capital expenditure
Stormwater	4	8	14
Water and wastewater	64	1	36
Group and unallocated	53	72	188
Total	121	81	238
Depreciation and amortisation
Stormwater	26	28	50
Water and wastewater	130	31	110
Group and unallocated	125	128	262
Total	281	187	422

Items have been classed as unallocated when it is not possible to identify to which segment they should be allocated, it was considered this gave a truer representation than allocating the items on a relevant basis.

Analysis by geographical segment

	6 months to 30 June 2008	6 months to 30 June 2007	Year ended 31 December 2007
	£000	£000	£000
Revenue by destination
UK	10,562	8,263	19,027
Europe	263	685	1,316
North America	3,602	1,700	4,776
Rest of the world	522	399	839
Total	14,949	11,047	25,958
Revenue by origin
UK	10,848	8,458	19,492
Europe	389	634	1,027
North America	3,712	1,955	5,439
Total	14,949	11,047	25,958
Profit/(loss) before tax by origin
UK	604	651	1,734
Europe	14	90	108
North America	425	95	706
Total	1,043	836	2,548
Net assets by origin
UK	6,681	5,925	6,649
Europe	437	348	396
North America	1,163	464	879
Total	8,281	6,737	7,924

3. Exceptional other operating income

The exceptional other operating income received during the six months ended 30 June 2007 was one off licence fee income.

4. Net finance (cost)/revenue

	6 months ended	6 months ended	Year ended  31 December
	30 June 2008	30 June 2007	2007
	£000	£000	£000
Bank deposit interest receivable	66	54	137
Other interest receivable	6	-	-
Derivative financial instruments	-	-	62
Finance revenue	72	54	199
On bank loans and overdrafts	(25)	(15)	(24)
On finance leases and hire purchase contracts Derivative financial instruments	- (48)	- (26)	(1) -
Finance costs	(73)	(41)	(25)
Net finance (cost)/revenue	(1)	13	174

 

 

5. Income tax charge

 Interim period income tax is accrued based on the estimated average annual effective income tax rate of 33 per cent (6 months ended 30 June 2007: 24 per cent).

6. Earnings per share

  Earnings per ordinary share are based on profit on ordinary activities after taxation, divided by a weighted average of 14,228,405 (2007 - 14,126,859) shares in issue during the period. The  diluted  earnings per share are calculated after the inclusion of share options and the weighted  average of ordinary shares used in the calculation is 14,342,748 (2007 - 14,282,394).

 

7. Borrowings

During the period, the Group obtained a 5 year bank loan in the amount of £2 million ($4 million), the loan bears an interest rate of 1.250% over US LIBOR, and is repayable in 9 equal half-yearly instalments. It also obtained a 10 year mortgage of £1.5 million ($3 million), the mortgage bears an interest rate of 1.125% over US LIBOR and is repayable in 38 equal quarterly instalments. These loans were obtained to finance the acquisition of Eutek Systems, Inc.

 

8. Acquisition of subsidiary

On 5 May 2008, the Group acquired 100 per cent of the issued share capital of Eutek Systems, Inc. for an initial cash consideration of £4.1 million. This transaction has been accounted for using the purchase method of accounting.

The net assets acquired in the transaction, and the goodwill arising, are as follows:

		Acquiree's carrying amount before combination	Provisional  fair value adjustments	Fair value
Net assets acquired:
	Property, plant and equipment	46	-	46
	Deferred tax asset	43	131	174
	Inventories	82	-	82
	Trade and other receivables	2,421	(287)	2,134
	Bank and cash balances	283	-	283
	Trade and other payables	(1,920)	(50)	(1,970)
	Deferred tax liability	(30)	-	(30)
		925	(206)	719
Goodwill arising on acquisition				3,189
Intangibles arising on acquisition				2,288
Deferred tax liability				(877)
Total consideration				5,319

Satisfied by:
	Cash			4,022
	Directly attributable costs			154
	Deferred consideration			1,049
	Working capital adjustment payable			94
				5,319

Net cash outflow arising on acquisition:
	Cash consideration			(3,162)
	Repayment of loan			(860)
				(4,022)
	Cash and cash equivalents acquired			283
				(3,739)

The goodwill arising on the acquisition of Eutek, Systems Inc. is attributable to the anticipated profitability of the distribution of the Group's products in the new markets and the anticipated future operating synergies from the combination.

The deferred consideration is calculated as the net present value of future payments to the previous shareholders of Eutek Systems, Inc. This additional consideration, which is calculated based on 5% of revenues generated from Eutek products, will be payable for the 5 year period from 1 May 2008 to 30 April 2013 and is capped at $5.0 million.

Eutek Systems, Inc. contributed £1,255,803 revenue and £195,832 to the Group's profit before tax for the period between the date of acquisition and the balance sheet date. It is impractical to calculate what the group revenues and group profit for the period would have been if the acquisition of Eutek Systems, Inc. had been completed on the first day of the period. 

9. Interim results

Copies of the interim results will be distributed to shareholders and made available to the general public at the Company's registered office, and on the company's website at www.hydro-international.biz. 

INDEPENDENT REVIEW REPORT TO HYDRO INTERNATIONAL PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the condensed group income statement, the condensed group balance sheet, the condensed group statement of changes in equity, the condensed group statement of recognised income and expense, the condensed group cash flow statement and related notes 1 to 9. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Deloitte & Touche LLP

Chartered Accountants, registered auditors 

Bristol, United Kingdom

2 September 2008

ENDIR UUUBRWKRKRAR

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