A.b.engineering Regulatory News (ASBE)

Company Number: 00110663

ASSOCIATED BRITISH ENGINEERING PLC

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 MARCH 2011

ASSOCIATED BRITISH ENGINEERING PLC

REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2011

The Directors' report on pages 3 to 6 and the Directors' Remuneration report on pages 46 and 47 have each been drawn up in accordance with the requirements of English law and liability in respect thereof is also governed by English law. In particular, the responsibility of the directors for these reports is owed solely to Associated British Engineering plc.

The directors submit to the members their Report and Accounts for the group for the year ended 31 March 2011. Pages 1 to 6 and 42 to 48, including the Financial Highlights, Chairman's Statement, Directors' Report, Corporate Governance report, Directors' Remuneration report and the Directors, Registered Office and Advisers page form parts of the Report of the Directors.

ASSOCIATED BRITISH ENGINEERING PLC

FINANCIAL HIGHLIGHTS

ASSOCIATED BRITISH ENGINEERING PLC

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 31 MARCH 2011

At the operating level the group had another successful year with operating profit rising from £649,000 to £842,000. This increase was entirely due to the very creditable performance by the group's only operating subsidiary British Polar Engines Ltd (BPE) that produced increased sales from £3.37m to £4.10m in the financial period to 31st March 2011. I would however continue to caution shareholders that the BPE business is by its nature volatile and subject to the vagaries' of the offshore oil drilling market and world demand generally.

The continued good performance of BPE and taking cognizance of the improvement in the Group's overall results, the Board considered it was time to address the anomaly in the accounts with regard to the company's capital structure and in particular the two classes of preference shares in issue.

Your Board is currently considering how best to deal with the preference shares in order to provide the Company with a capital structure which enables future corporate transactions to be considered.

The improvement in operating profit has been counteracted by the charge recognised in respect of the preference shares. The continued improvement in the Group's results has led to a re-measurement of the preference shares and dividend arrears, in accordance with IFRS.

These liabilities have been measured by applying an appropriate discount rate to the contractual amount resulting in a carrying value of £467,000. This amount has been recognised as a finance expense in the income statement.

However, this value does not reflect the actual contractual liability to the preference shareholders of £1,280,000. This is shown in the proforma statement of net assets at note 24, which in the Board's view is the true value of the preference shares and dividends due.

The IAS 19 Pension Valuation has resulted in a significant decrease in the pension deficit for BPE, which is also a positive outcome.

As commented above, the BPE Pension Fund shows an actuarial deficit of £1,852,000 at 31 March 2011 (£2,227,000 at 31 March 2010).

The Board continues to keep central costs at a low level and maintains the quest to identify a suitable corporate transaction to take the Group forward.

D A H Brown

Chairman

29 June 2011

ASSOCIATED BRITISH ENGINEERING PLC

DIRECTORS' REPORT

FOR THE YEAR ENDED 31 MARCH 2011

The directors submit their report and audited accounts for the year ended 31 March 2011.

PRINCIPAL ACTIVITIES

During the year the Company has acted as a parent undertaking for a subsidiary engaged in diesel and related engineering activities. Details of the trading subsidiary are set out in note 23.

BUSINESS REVIEW AND PRINCIPAL RISKS FACING THE BUSINESS

A review of the business and of events during the year is contained in the Chairman's Statement.

The Group's only operating business is through its subsidiary British Polar Engines Limited ("BPE"). Business activity in the sector in which BPE operates has in recent years been buoyed by sales to the oil services business as a result of high demand in the oil services support industry.

The outlook for BPE continues to be uncertain and the company is exposed to both volatile pricing and periodic cyclical downturns. A glance at the record of the trading results over the last decade demonstrates both revenue and operating profit increasing and declining according to the cycle of the oil sector. The Group's stream of income fluctuates from period to period as the Group's principal activity is in connection with the purchase and manufacture of spare engine parts and associated services. Therefore ongoing custom cannot be measured reliably and is cyclical by nature.

The economic downturn generally, and in our area of operation specifically, will impact almost immediately on the income and performance of the Group. In response to this the Directors aim to keep abreast of the economic climate and business strategy will be continually reviewed and updated to deal with changes. At worst, a sharp decline in the oil service sector could result in the Group making a loss though early identification of the trend will mitigate the quantum.

Further consideration of risks and uncertainties that face the Group and Company is contained in note 19 to the Group financial statements.

KEY PERFORMANCE INDICATORS

The Group uses various indicators to monitor its progress. Sales, service and production are continually monitored against set monthly budgets to compare and improve upon gross profit and operating profit margins. Budgets are set on a monthly and annual basis but the directors have not enhanced the disclosures in this regard as one key transaction stalling could have a significant impact on the feasibility of the budget meaning that such disclosures are not considered useful to users of the accounts.

The Group reviews the Pension Fund liability, the key assumptions underpinning the actuarial valuation and the minimum funding requirement on a continual basis. The key assumptions underpinning the actuarial valuation are reviewed and compared with industry norms; there were no notable variances from the prior year.

There is nothing to report on environmental, employee, social and community matters or essential contractual or other arrangements.

RESULTS AND DIVIDENDS

The Group profit after tax and excluding the impact of revaluing its preference shares and dividend arrears amounted to £467,000 (2010: £494,000). The directors do not recommend a dividend on the ordinary shares for the year (2010: nil per ordinary share).

CORPORATE GOVERNANCE

Details of corporate governance which is part of this report for the year to 31 March 2011 are disclosed in the corporate governance report.

ASSOCIATED BRITISH ENGINEERING PLC

DIRECTORS' REPORT (continued)

FOR THE YEAR ENDED 31 MARCH 2011

DIRECTORS

The names of the directors who served during any part of the period from 1 April 2010 to 31 March 2011 are:

Biographical details of the directors are set out on page 48.

All the directors served throughout the year.

In accordance with the articles of association Mr S J Cockburn retires by rotation and, being eligible, offers himself for re-election.

SUBSTANTIAL HOLDINGS

As at 23 June 2011 the Company had been notified of the following substantial interests, in excess of 3%, in the issued ordinary share capital of the Company:

BENEFICIAL INTERESTS IN SIGNIFICANT CONTRACTS

None of the directors had a material interest in any contract of significance to which the Company or any of its subsidiaries was party during the year.

BENEFICIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY

The beneficial interests of the directors, their spouses and children (if any), in the share capital of the Company according to the register kept by the Company as at 1 April 2010 and 31 March 2011 were as follows:

At the relevant dates Mr S J Cockburn had a non-beneficial interest in 46,296 ordinary shares and 32,000 7 per cent cumulative preference shares.

ASSOCIATED BRITISH ENGINEERING PLC

DIRECTORS' REPORT (continued)

FOR THE YEAR ENDED 31 MARCH 2011

No director had any interest in the shares of any subsidiary. No share options were held by any of the directors at 31 March 2011 or 31 March 2010.

Since 31 March 2011 and up to and including 23 June 2011 there have been no changes in the directors' interests in the share capital of the Company.

CREDITOR PAYMENT POLICY

The Company's current policy concerning the payment of the majority of its trade creditors is to follow the Better Payment Practice Code co-ordinated by the Better Payment Practice Group. For other suppliers the Company's policy is to:

(a) Settle the terms of payment with those suppliers when agreeing the terms of each transaction;

(b) Ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and

(c) Pay in accordance with its contractual and other legal obligations.

Wherever possible the subsidiary follows the same policy. The average number of days which the Company took to pay creditors was 30 days (2010: 30 days).

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group uses various financial instruments and these include cash, equity investments, preference shares and various others, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations.

The structure of the group and company's capital, at nominal value, is as follows:

The Group's preference shares have been valued at amortised cost using the effective interest rate method, reflecting conditions existing at the balance sheet date. This valuation has resulted in the preference shares being recognised at the following values:

Further details of the policies adopted by the Group in respect of the financial risk management are included within note 19 to the Group financial statements.

CHARITABLE AND POLITICAL DONATIONS

The Group made no political or charitable donations during the year (2010: £nil).

ASSOCIATED BRITISH ENGINEERING PLC

DIRECTORS' REPORT (continued)

FOR THE YEAR ENDED 31 MARCH 2011

DISABLED PERSONS

It is the Group's policy to give sympathetic consideration to the recruitment, continuing employment, training, career development and promotion of disabled persons.

AUDITOR

Grant Thornton UK LLP have expressed willingness to continue in office. In accordance with section 489 (4) of the Companies Act 2006, a resolution to reappoint Grant Thornton UK LLP will be proposed at the Annual General Meeting.

By order of the Board

For and on behalf of haysmacintyre Company Secretaries Limited

Company Secretary

29 June 2011

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF

ASSOCIATED BRITISH ENGINEERING PLC

We have audited the group financial statements of Associated British Engineering plc for the year ended 31 March 2011 which comprise the group accounting policies, the group income statement, the group statement of comprehensive income, the group balance sheet, the group statement of changes in equity, the group cash flow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's 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 and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities set out on page 42, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the group financial statements:

§ give a true and fair view of the state of the group's affairs as at 31 March 2011 and of its result for the year then ended;

§ have been properly prepared in accordance with IFRSs as adopted by the European Union; and

§ have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the group financial statements are prepared is consistent with the group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

§ certain disclosures of directors' remuneration specified by law are not made; or

§ we have not received all the information and explanations we require for our audit.

Under the Listing Rules, we are required to review:

§ the directors' statement, set out on page 44, in relation to going concern; and

§ the part of the Corporate Governance Statement relating to the company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and

§ certain elements of the report to shareholders by the Board on directors' remuneration.

Other matter

We have reported separately on the parent company financial statements of Associated British Engineering plc for the year ended 31 March 2011 and on the information in the Directors' Remuneration Report that is described as having been audited.

Tracey James

Senior Statutory Auditor

for and on behalf of Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Oxford

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES

FOR THE YEAR ENDED 31 MARCH 2011

BASIS OF PREPARATION

The company is incorporated in the United Kingdom under the Companies Act 2006.

These Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The policies set out below have been consistently applied to all the years presented.

The consolidated financial statements have been prepared using accounting policies specified by those IFRSs that are in effect at the end of the reporting period (31 March 2011) or which have been adopted early.

NEWLY ISSUED ACCOUNTING STANDARDS

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

·; Improvements to IFRSs (amendments effective 1 July 2010)

·; IFRS 9 Financial Instruments (effective from 1 January 2013).

·; IAS 24 (Revised 2010) Related Party Disclosures (effective 1 January 2011)

·; IAS 12 Income Taxes (effective 1 January 2012)

·; IAS 34 Interim Finance Reporting (Revised 2010) (effective 1 Januarys 2011)

·; IFRIC 19 Extinguishing Financial Liabilities With Equity Instruments (effective 1 July 2010)

·; The remaining standards in issue but not yet effective are not deemed to have a material impact on the group

The directors anticipate that the adoption of the above Standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

The directors are currently assessing the impact of the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

·; IFRIC 14 Minimum Funding Requirements (Amendment) (effective 1 January 2011)

GOING CONCERN

The financial statements have been prepared on the going concern basis. There have been no changes to accounting policies in the year. The most notable accounting event has been the decrease in the pension scheme deficit based on this year's actuarial forecast and mentioned in the Chairman's Statement. The Directors have agreed a revised schedule of the contributions to eliminate the deficit on the ABE Pension Fund over thirteen years starting from the year ended 31 March 2010. Based on the group's budgets and cash forecasts, the board considers that the group has sufficient resources to meet all necessary outgoings and to enable it to continue in operational existence for the foreseeable future.

BASIS OF CONSOLIDATION

The Group financial statements incorporate the financial statements of Associated British Engineering plc and its subsidiary undertakings to 31 March each year. All inter-company balances and transactions have been eliminated in full. The Group financial statements include the results of subsidiaries acquired or disposed of during the year from or to the effective date of acquisition or disposal.

REVENUE RECOGNITION

Revenue is measured at the fair value of the consideration receivable by the Group for goods supplied and services provided, excluding value added tax and trade discounts. Revenue from the sale of spare parts is recognised when the goods are dispatched or, if under a bill and hold arrangement, when they are available for despatch to a specific customer. Revenue from the sale of engines is recognised in accordance with the performance of contractual terms and specifically when the engines have been satisfactorily tested in accordance with contractual terms. Revenue from servicing and repair work is recognised when the work is completed.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES (continued)

FOR THE YEAR ENDED 31 MARCH 2011

ACCOUNTING ESTIMATES AND JUDGEMENTS

Management are required, in accordance with IFRS, to exercise judgement and to make estimates and assumptions regarding the application of accounting policies and the resulting effect on reported amounts of assets, liabilities, income and expenses. These estimates and assumptions are based on historical experience and a review of current conditions prevailing at the time but actual results may differ from these estimates. Any such revision is recognised in the financial statements in the period in which the change in circumstance is detected.

Accounting Judgements

The key areas where management have exercised judgement in the year, and the thought processes undertaken, are as follows:

Pension Scheme

The Directors are in regular contact with the Trustees of the pension scheme, in connection with three keys areas where judgement is exercised; the assumptions underpinning the actuarial valuation, continued negotiations regarding the pension scheme and in relation to the payment plan. The Directors then assess the relevant estimates and assumptions made to ensure that all statutory obligations are met, where possible.

In evaluating the assumptions underpinning the actuarial valuation the Directors have sought the professional advice of a firm of actuaries who prepare the valuation according to certain industry standards and norms. During the year under review an actuarial gain of £413,000 (2010: £815,000 loss) was recognised in the group accounts.

The assumptions underpinning the actuarial valuation are disclosed further in note 17 to the Group financial statements.

Preference shares

The Group is funded by a combination of equity and debt instruments, the latter representing 555,000 7% £1 cumulative preference shares and 157,395 8% £1 cumulative redeemable preference shares, with a total nominal value £712,395.

International Financial Reporting Standards require these instruments to be carried at amortised cost using the effective interest rate method and have an amortised cost of £265,000. The Directors have made estimates in relation to the expected future profitability of the group, the effect of actuarial movements relating to the pension scheme, and receipt of dividends from subsidiary companies in arriving at amortised cost of the preference share capital. Similar estimates have been made when discounting the cash flows relating to the dividend arrears of £568,000 to £202,000.

The Directors considered the value of the preference shares and related dividends to be £nil at 31 March 2010, this was due to the lack of a track record of profitability within the group. The Directors have revised their opinion at 31 March 2011 and having considered the prospects and recent improvements in the profitability of the group consider there to be reduced uncertainty regarding the timing of the expected repayment of these instruments.

Deferred tax

Please refer to Taxation Policy below and note 20.

Accounting Estimates

The accounting estimate having an impact on carrying amounts of assets and liabilities in the reporting period is as follows:

Inventories

Inventories held by the Group consist of raw material (mainly components), work in progress (manufactured engine parts) and finished goods (both purchased and manufactured engine parts). A specific provision is made, on a 100% basis, for all stock lines that are obsolete or slow moving for periods in excess of four years. A general provision is made of 5%, 12.5%, 25% and 50% over all stock lines that have not moved for one, two, three and four years respectively.

The inventory provision at the year end amounted to £1,957,000 (2010: £1,909,000). The gross value of inventories at the year end is £3,216,000 (2010: £3,325,000).

The directors review their assumptions and accounting estimates, along with the accounting policies adopted in preparing these financial statements, on a regular basis and recognise any change in the period in which circumstances vary.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES (continued)

FOR THE YEAR ENDED 31 MARCH 2011

INVENTORIES AND IMPAIRMENT OF INVENTORIES

Inventories of raw materials, work in progress and finished goods are valued at the lower of cost and net realisable value. Work in progress and finished goods include an appropriate allocation of overheads.

Cost is on a first in, first out basis. Net realisable value is the estimated selling price in the normal course of business, less estimated costs of completion and provision is made for obsolete, slow moving and defective inventories.

LEASED ASSETS

Leases of property and plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Assets held under finance leases are capitalised at lease inception at the lower of the asset's fair value and the present value of the minimum lease payments. Obligations related to finance leases, net of finance charges in respect of future periods, are included as appropriate within borrowings. The interest element of the finance cost is charged to the income statement over the life of the lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant or equipment is depreciated on the same basis as owned plant and equipment or over the life of the lease, if shorter.

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Operating lease rentals (net of any related lease incentives) are charged against profit on a straight line basis over the period of the lease.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less depreciation and any impairment in value. Freehold land is not depreciated. Depreciation is calculated to write down the cost of all property, plant and equipment less its residual value by annual instalments over their expected useful lives on the following bases:

Freehold buildings 5 per cent

Plant and machinery 7½- 33⅓ per cent

These useful lives and residual values are reviewed in each financial period.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised as income.

The carrying values of property, plant and machinery are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amounts.

TAXATION

The tax expense represents 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 net profit as reported in the income statement because it excludes items of income or expense 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 substantively enacted by the balance sheet date.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES (continued)

FOR THE YEAR ENDED 31 MARCH 2011

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

FOREIGN CURRENCIES

Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the exchange rates ruling at the balance sheet date. All exchange differences are dealt with through the income statement.

RETIREMENT BENEFIT COSTS

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised outside profit or loss and presented in the group statement of comprehensive income.

Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to cumulative unrecognised past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

The Group has recognised the actuarial losses and gains immediately within the Statement of Comprehensive Income in accordance with the provisions stated within IAS 19 'Employee benefits'.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short term deposits with a maturity of three months or less which are subject to an insignificant risk of changes in value.

FINANCIAL INSTRUMENTS

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are included in the income statement. Finance costs are calculated so as to produce a constant rate of charge on the outstanding liability.

Where none of the contractual terms of share capital meet the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.

Further analysis of the Group's financial instruments, and the relevant exposure to risks and uncertainties, is stated in note 19 below and the various classifications of financial assets and liabilities are identified and explained.

Trade and other receivables

Trade and other receivables are originally recognised at fair value. Subsequent measurement is at amortised cost using the effective interest rate method. A provision against trade receivables is made when there is objective evidence that the group will not be able to collect all amounts due to it in accordance with the original terms of those receivables. The total of bad and doubtful debts at the year end was £3,000 (2010: £21,000). Trade receivables and cash and cash equivalents are classified as loans and receivables.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES (continued)

FOR THE YEAR ENDED 31 MARCH 2011

Trade and other payables

Trade and other payables are originally recognised at fair value, net of transaction costs. Subsequent measurement is at amortised cost using the effective interest rate method.

Investments in securities

Investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, with all transaction costs being written off to the income statement as incurred.

Investments are classified as held for trading and are measured at subsequent reporting dates at fair value. Gains and losses arising from changes in fair value of held for trading financial assets are included in the net profit or loss for the period. At the year end an adjustment of £17,000 (decrease) was made to align the investments in securities with their fair value.

Cumulative preference shares

Cumulative preference shares are measured subsequent to initial recognition at amortised cost using the effective interest rate method. Where the group revises its estimates of cash payments, the carrying amount of the financial liability is adjusted to reflect actual and revised estimated cash flows. The group recalculates the carrying amount by computing the present value of the estimated future cash flows at the financial instruments' original effective interest rate. The adjustment is recognised as income or expense in the income statement. Refer to Note 15 for further details.

SHARE BASED PAYMENTS AND SHARE OPTIONS

Former employees of the Group have received remuneration in the form of share based payment transactions, whereby employees render services in exchange for rights over shares ('equity settled transactions'). The cost of these transactions is measured by reference to their fair value at the date at which the options are granted. The fair value is determined by using the Black-Scholes Option pricing model. There has been no charge recognised with respect to the share options as all those in issue fall outside the scope of IFRS 2, having been granted before November 2002.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

At each balance sheet date the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years.

SEGMENTAL REPORTING

IFRS 8 "Operating segments" was adopted in the previous year by the Group during the year ended 31 March 2010. The standard requires financial information is to be disclosed in the financial statements in the same format in which it is disclosed to the chief operating decision-maker. The chief decision-maker has been identified as the Board, at which level strategic decisions are made.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP ACCOUNTING POLICIES (continued)

FOR THE YEAR ENDED 31 MARCH 2011

EQUITY AND RESERVES

Share capital represents the nominal value of shares that have been issued except for the preference shares classified as debt.

Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.

Retained earnings include all current and prior period retained profits and losses.

Other reserves relate to movements not classified in any of the reserves detailed above.

All transactions with owners of the parent are recorded separately within equity.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2011

GROUP STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2011

All activities are classified as continuing.

The accounting policies on pages 8 to 13 and the notes on pages 18 to 31 form part of these accounts.

ASSOCIATED BRITISH ENGINEERING PLC Company Number: 00110663

GROUP BALANCE SHEET

31 MARCH 2011

The financial statements were approved and authorised for issue by the Board of Directors on 29 June 2011 and were signed below on its behalf by:

C Weinberg

Director

The accounting policies on pages 8 to 13 and the notes on pages 18 to 31 form part of these accounts.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 MARCH 2011

The accounting policies on pages 8 to 13 and the notes on pages 18 to 31 form part of these accounts.

ASSOCIATED BRITISH ENGINEERING PLC

GROUP CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 MARCH 2011

See note 21 for details of cash not available for use.

The accounting policies on pages 8 to 13 and the notes on pages 18 to 31 form part of these accounts.

ASSOCIATED BRITISH ENGINEERING PLC

NOTES TO THE ACCOUNTS - GROUP

FOR THE YEAR ENDED 31 MARCH 2011

1. SEGMENTAL REPORTING

All of the above revenue arises from diesel and related engineering activities and originates in the United Kingdom.

In the year ended 31 March 2011 and 31 March 2010 all of the assets held by the group were located in the United Kingdom and all capital expenditure was incurred within the United Kingdom.

Operating segments

The following segment information has been prepared in accordance with IFRS 8, "Operating Segments", which defines requirements for the disclosure of financial information of an entity's operating segments.

The Board consider the Group on an individual company basis. Reports by individual companies are used by the chief decision-maker in the Group. Significant operating segments are Associated British Engineering Plc and British Polar Engines Limited.

The Group's operations are located in the United Kingdom. Any transactions between business units are on normal commercial terms and conditions.

British Polar Engines Limited's activities consist of the manufacture and supply of diesel engines and spare parts for diesel engines together with associated repair work.

Associated British Engineering Plc is the group holding company.

ASSOCIATED BRITISH ENGINEERING PLC

NOTES TO THE ACCOUNTS - GROUP (continued)

FOR THE YEAR ENDED 31 MARCH 2011

1. SEGMENTAL REPORTING (continued)

There were three customers who each contributed more than 10% of the total group revenue for the year ended 31 March 2011 (2010: one customer).

ASSOCIATED BRITISH ENGINEERING PLC

NOTES TO THE ACCOUNTS - GROUP (continued)

FOR THE YEAR ENDED 31 MARCH 2011

Directors received emoluments of £31,000 (2010: £35,000). Further details can be found on page 46.

The group made no pension contributions in respect of group directors during the year ended 31 March 2011 or 31 March 2010.

See note 15 for details of the preference shares and associated dividends.

ASSOCIATED BRITISH ENGINEERING PLC

NOTES TO THE ACCOUNTS - GROUP (continued)

FOR THE YEAR ENDED 31 MARCH 2011

The tax assessed for the period is different from the standard rate of corporation tax in the UK of 28% (2010: 21%). The differences are explained as follows:

The group has trading losses of approximately £1.2 million (2010: £1.2 million), surplus ACT of approximately £879,000 (2010: £895,000) and capital losses of £9.2 million (2010: £9.2 million). These are available to set against future taxable profits, taxation liabilities and capital gains respectively. The trading losses are available to be used against future profits arising from the same trade within Associated British Engineering plc. These amounts are subject to agreement with Her Majesty's Revenue and Customs.

The calculation of earnings per ordinary share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

The share options in issue are non- dilutive as the average exercise price was greater than the average price of the company's shares during the year

.ASSOCIATED BRITISH ENGINEERING PLC

NOTES TO THE ACCOUNTS - GROUP (continued)

FOR THE YEAR ENDED 31 MARCH 2011