IDH.L Regulatory News (IDH)

 26 November 2012

Immunodiagnostic Systems Holdings PLC

Interim Results - 30 September 2012

Immunodiagnostic Systems Holdings PLC ("IDS" or '"the Company" or the "Group"), a leading producer of diagnostic testing kits and automated systems for the clinical and research markets, announces its unaudited interim results for the six month period to 30 September 2012.

Financial Summary:

·; Revenue decreased 10% at constant exchange rates

§ Automated revenues (IDS-iSYS), 39% of revenues, increased by 4% to £9.2m (2011: £8.9m)

§ Revenues from manual testing decreased by 17% to £14.6m (2011: £18.4m)

·; Revenue decreased 13% at actual exchange rates to £23.8m (2011: £27.3m)

·; Gross margin increased to 76.4% (2011: 75.8%)

·; Pre-tax profit decreased 26% to £6.3m (2011: £8.4m)

·; Exceptional income relating to bad debt recovery of £1.5m (2011: £nil)

·; Pre-tax profit before exceptional income £4.8m (2011: £8.4m)

·; Diluted earnings per share decreased 25% to 16.4p (2011: 22.0p)

·; Net cash £10.4m (31 March 2012: £6.9m)

Operational Summary:

·; Patrik Dahlen appointed Chief Executive

·; Three automated assay launches in period

·; 41 IDS-iSYS reagent systems placed* in USA & Europe in H1 2012 (H1 2011 47)

·; IDS-iSYS reagent systems placed increased 23% in period from 31 March 2012

*Net of returns

Patrik Dahlen, Chief Executive Officer, IDS commented:

"During the first half IDS increased its gross margin and remained strongly cash generative despite the expected pressure on revenues from the competitive vitamin D market. We have made progress in transferring our customers from manual to automated assays and are seeing an encouraging response to the three new assays launched in the period.

"We continue to expect full year revenues in the range of £48m to £50m and with costs under control we are comfortable with current market expectations for the full year. Overall, we believe that we have the technology, the strategy and balance sheet to cement our position as a leading developer of specialist assays in small to medium niche markets."

Contacts:

Notes to Editors

About Immunodiagnostic Systems Holdings PLC

The Group operates in the in-vitro diagnostics ("IVD") market by designing, manufacturing and selling immunoassay kits as well as its automated analyser, the IDS-iSYS System. The IDS product range is used to measure or detect particular substances within a sample, thus aiding the diagnosis or monitoring of a disease or providing information for research studies.

Chief Executive's Statement

Overview

In previous years the Group enjoyed a growing revenue stream dominated by vitamin D assay sales, a reflection of the growth seen in the vitamin D testing market as a whole. It is now well-reported, that while originally considered a niche, specialist assay, these growing testing volumes increasingly attracted the attention of the major in-vitro diagnostics players. This reporting period is the first time in which the full impact of competition from all these players can be seen, as all now have automated vitamin D assays on the market and the test is available on the major workhorse laboratory testing systems. This intensely competitive landscape has unsurprisingly resulted in pricing pressure in this segment which has now been exacerbated somewhat by a muting in the market volume growth of vitamin D testing.

The Group continues to aggressively defend its position in the vitamin D segment by a number of measures. These include leveraging its reputation of best-in-class quality and reliability, securing customers by negotiating attractive extended contracts and upselling new assays to customers that have historically been vitamin D assay only.

Within the Group there has been has a long-standing internal programme of new assay identification, development and commercialisation aimed at revenue diversification. This has resulted in the successful launch of a number of tests over the past few years, particularly automated tests for the IDS-iSYS system. As discussed below in the strategy update, this programme of innovation will continue and the Board is confident that it will ultimately be a significant driver of growth in the medium to longer-term.

Strategy

Over the last few years, the Group has become a trusted producer of diagnostic testing kits for the clinical and research markets. The Group designs, manufactures and sells immunoassay kits, which are used to measure or detect particular substances within a sample, aiding the diagnosis or monitoring of a disease or providing information for research studies.

Following the appointment of Patrik Dahlen as CEO in July 2012, the Board has undertaken a strategic review with the aim of cementing the Group's position as a leading developer of specialist assays in small to medium niche markets where it can compete most effectively. To do this, the Group will pursue three core pathways:

·; Increase its appeal to customers by developing new specialist assays

·; Expand its geographic reach with judicious entry into high growth markets

·; Develop a next generation IDS-iSYS system with a smaller footprint

1. Increase its appeal to customers by developing new specialist assays to broaden menu

The Group has a strong reputation amongst clinicians for its assay quality, reliability and the ease of use of its IDS-iSYS system. The Group's strategy is to build on this by expanding its range of assays. In particular, it is seeking to become a global leader in the areas of kidney disease, hypertension, bone and cartilage and human growth. These are all niche areas where the IDS-iSYS system enables the conversion to an automated format with associated improvements in workflow.

In the six months ended 30 September 2012, the Group has made good progress in broadening its product range - launching three new assays in Renin, Aldosterone and 1,25 Vitamin D. These launches have been well received. We also see increased interest in our growth panel, particularly in IGF-I, and currently we have more than 20 evaluations ongoing across all of these new products.

The Group will drive the growth of recently launched assays and invest in the development of new assays within its core specialist areas. We expect further launches in the years ahead, including assays currently available in Europe moving into the USA upon FDA clearance.

In addition to internal product development, acquisitions and partnerships are expected to form an important part of the Group's strategy. IDS is strengthening its marketing to drive adoption of the new assays with a particular focus on building a leadership position with both clinicians and Key Opinion Leaders ("KOLs"). The Board believes that as well as driving sales, this will help future product development as the Group will improve its ability to respond to these customers' needs.

2. Expand geographic reach with judicious entry into high growth markets

The Group's principal markets have historically been the USA and Europe which together represent 77% of Group revenue for the six months ended 30 September 2012. The Group has direct sales and marketing operations in these territories (excluding Spain and Italy) and it sells through third-party distributors in other territories.

Marketing support will be enhanced in key geographic markets, particularly the USA, and will be aiming to expand the number of territories where the Group will market directly. This will include expanding in North Africa, Eastern Europe and in the longer term, Central America.

In the last few months, the Group's international expansion has continued through its distribution network and the IDS-iSYS is now being introduced into the Middle East and India. In addition, IDS is seeking to capitalise on opportunities for the IDS-iSYS system in higher growth emerging markets, including China, by partnering with local market leaders with appropriate automation expertise. Preparations for entry into other key markets where there are profitable commercial opportunities are ongoing.

3. Develop next generation IDS-iSYS system

The ease of use and reliability of the IDS-iSYS system has been a driving force behind the conversion of customers from manual to automatic diagnostic testing. Development of a next generation IDS-iSYS system with comparable performance on a reduced footprint has now commenced.

The smaller instrument aims to increase penetration into new customer segments where the current model has not yet gained acceptance. In particular, the Board believes based on customer feedback, that a smaller, more cost-effective instrument will be attractive to smaller laboratories where space is at a premium and budgets are constrained. It is intended that the new system will open up export markets where testing volumes have been insufficient to justify the current level of investment required.

In addition, the IDS-iSYS mark II will be more useful in larger laboratories as a specialist complement to general-purpose competitor systems as it will be fully connectable to laboratory track systems and therefore able to improve operational workflow efficiency.

The IDS-iSYS mark II will also open up new opportunities for collaboration with industry players in adjacent non-competitive market segments. Development work commenced in October 2012 and it is expected that the timescale for completion of the European system will be in the first half of 2015.

Delivering the Strategy

The Group's execution capabilities will be enhanced through a combination of selective recruitment, extended collaboration with KOLs and a broader range of commercial partnerships. Investment in facilities and people will continue to ensure that it maintains its reputation as a leader in its fields of activity.

Overall, the Board believes that the Group has the requisite skills, technology and financial strength to build on its core expertise. Pathways have been set in motion to broaden product offerings, enter new geographic regions and develop the next generation of instrument and assays. The Board looks forward to driving business forward in the coming months.

Financial review

Revenue

During the six month period, like for like revenue (excluding the impact of foreign exchange movements) decreased by 10.4% with unaudited revenues for the six months ended 30 September 2012 at £23.8m (2011: £27.3m). The revenue reported includes an adverse £0.7m impact of exchange differences between the two periods as well as the challenging vitamin D environment as discussed above. The following revenue comparisons in this statement are reported at constant exchange rates.

IDS-iSYS revenues grew by 3.6% over the prior period and this growth was 9.4% if the one off effect of a license fee of £0.4m received in the prior period was excluded. Manual revenues declined, as expected, by 17.2%, reflecting the continuing competitive environment of this market place and the transition of certain laboratories from manual to automated testing.

A total of 41 IDS-iSYS instruments have been sold or placed to reagent rental IDS end user customers during the period, net of returns, representing an increase of 23% over the installed base as at 31 March 2012. As announced in the trading update at the time of the Company's AGM on 14 September 2012 the Board has recently reviewed the criterion that is used to both classify instrument placements and also to define a live system. This has resulted in the opening position being restated and the following placements and sales during the period are set out below -

Average revenue per instrument from the Group's reagent rental accounts was £76,000 per annum (calculated on a rolling 12 month basis) and in line with expectations (31 March 2012: £84,000). The decline is due primarily to pricing pressure of the vitamin D market and increasing emphasis on medium sized laboratories placements.

The volume of IDS-iSYS system placements with reagent rental IDS end user customers reported for the last two financial years has averaged 80 systems per year and it is expected to be at a similar level in the current financial year.

Revenue by sales territory

The Group's USA revenue declined 15.4% at constant exchange rates in the six months to 30 September 2012 compared to the prior period and is driven by manual revenue reducing by 31.7%. Part of this decline was substituted with automated (iSYS) revenue as it increased by 26.5% in the same period. The USA had an increase in vitamin D automated testing competition in the second half of 2011 as a number of larger diagnostic companies introduced their vitamin D assays to the USA market and these results reflect the impact of that increased competitiveness. Whilst this set of results reflects the first period of full competition on vitamin D, we are seeing encouraging sales progress with other automated assays, in particular, the Group's growth assay (IGF-I).

In Europe, the decline in revenue at constant exchange rates of 12.3% includes the effect of the one off license sale of £0.4m in the six months to 30 September 2011. A second similar step down in revenue of £0.4m also occurred due to the Group entering into a short-term contract for automated test kit supplies in France in the prior period that is no longer running in the 2012. Removing the impact of these two issues means that the adjusted decline in revenue in Europe is 5.2% again driven by declining manual revenue, particularly in France. The Group is also experiencing IDS-iSYS placement returns in France due to ongoing consolidation in the private sector resulting from Government de-regulation. In contrast, the German market saw 18.9% revenue growth at constant exchange rates in the period driven by strong momentum on the new assays. The impact on the product revenue from the issues described above is set out below:

Revenue by product group

Operating costs

Operating costs are being carefully managed and remain in line with our expectations for the full year. Importantly, the Group has continued to be strongly cash generative from its operating activities during the six months ended 30 September 2012.

The prior period has been restated for two prior period adjustments (PPA) that were made at 31 March 2012 and are described below. These PPA's have had the effect of decreasing the prior period operating costs by £0.8m. During the second half of the year ended 31 March 2012 the Board also made a number of changes in accounting estimates which were applied prospectively. These changes in estimates do not result in a restatement of the comparative information provided for the six months ended 30 September 2011. However to assist the user of the accounts in comparing the Group's period on period results, the following table has been prepared to show what the effect of the changes in estimates would have been on the six months ended 30 September 2011 had they been implemented prior to the interim reporting date. The effect on the prior year income statement is set out in full in Note 3.

The Group's total expenses comprise -

*Excluding exceptional income from bad debt provision movement

Escalon receivable

In December 2008 the Group disposed of its non-core Haematology Division to BHH a subsidiary of Escalon Medical Corporation (EMC) as it was considered a non-core business operation. The sale agreement incorporated deferred consideration of €3.2m due from the purchaser, BHH, and guaranteed by its ultimate parent company EMC. BHH later went into administration and in May 2012 EMC indicated that it would have financial difficulties if it had to meet the guaranteed amount and as a consequence the Group provided in full against the outstanding receivable at 31 March 2012.

Following the sale of EMC's clinical diagnostic business to ERBA on 4 October 2012 for $6.5m a settlement was reached with EMC for it to pay the Group €1.9m as full and final settlement of the amount due. The cash was received in October 2012 and the bad debt provision equivalent in value to the cash receipt was released in the income statement for the six month period ended 30 September 2012.

Profit before tax

The Group's profit before tax on a statutory basis decreased by 26% to £6.3m (2011: £8.4m). The current period includes an exceptional credit of £1.5m in connection with the movement on a bad debt provision originally set aside at 31 March 2012 following uncertainty over the recovery of deferred consideration that was due following the sale of a business division in 2008.

The prior period has been restated for two prior period adjustments which have had the effect of increasing profit before tax by £0.7m. The Group also changed a number of its accounting estimates in the second half of prior financial year which impacted the reported operating costs of the business. These changes in estimates were made in March 2012 and are applied prospectively so did not affect the profit before tax for the period ended 30 September 2011.

Taxation

The Group's effective tax rate is a blend of corporation tax rates ranging from 25% in Denmark through to 40% in the USA combined with dedicated R&D tax credit schemes in the UK and France. The Group's effective tax rate for the current period is based on an estimate of the rate for the full financial year and is 24% (2011: 22%).

Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Adjusted earnings per share is calculated using profit after tax adjusted to exclude the after tax effect of charges for non-recurring costs and changes in accounting estimates.

Diluted earnings per share are 16.4p (2011: 22.0p).

Balance Sheet

The Group's shareholders' funds at 30 September 2012 were £73.6m (2011: £78.5m). The lack of growth in shareholders' funds reflects a number of non-cash accounting adjustments that were made during the year ended 31 March 2012 which the Board believe will assist in a better understanding of the Group's financial results going forward. The underlying intellectual property that the Group possesses through patents, know-how and its own testing instrument remains strong and this is reflected in the positive cash flows.

Cash flow

The Group continues to generate strong positive cash flows from its operating activities resulting in closing cash of £10.4m (31 March 2012: Net cash £6.9m). This cash generation has continued since the end of the period both from operating activities and the one off receipt of £1.5m in relation to the BHH receivable settlement such that the Group's cash balance as at 19 November 2012 is £13.1m

Prior period adjustments

Walloon Government grants

The Group acquired the whole of the share capital of Immunodiagnostic Systems SA (formerly Biocode Hycel SA) on 31 August 2007. Prior to the acquisition this subsidiary undertaking had received grants from the Walloon Regional Government towards the development of certain automated immunoassays ("the products"). The terms of grant agreements provide for future repayment of the grant received in the event that the products are being commercialised. It was determined in the second half of the financial year ended 31 March 2012 that the Walloon Regional Government had been notified of the intended commercialisation of a small number of products in the financial year ended 31 March 2010, at which point the grant became repayable in its entirety. As a result of this event the grant must be recognised as a liability in accordance with IAS 20. As the event giving rise to the repayment obligation occurred in the financial year ended 31 March 2010, the recognition of the liability, which had previously been disclosed as a contingent liability, has been treated as a prior period adjustment at 31 March 2012.

Remuneration bonus payments

A review of management performance bonus agreements was carried out in the second half of the financial year ended 31 March 2012. These bonuses had previously been treated as discretionary, and therefore recognised in profit or loss in the period in which they were paid. The review has concluded that in the majority of cases, the terms of the agreements were such as to justify that the bonus should have been accrued in accordance with IAS 19. This change has been applied retrospectively by way of a prior period adjustment at 31 March 2012.

Capital management

The Board's objective is to maintain a balance sheet that is efficient in terms of providing long term returns to shareholders whilst at the same time safeguards the Group's financial position through variable economic cycles. As at the 30 September 2012, the Group had cash of £10.4m (31 March 2012: Net cash of £6.9m). The Group's cash was further increased after the 30 September 2012 when it received £1.5m in settlement for the BHH deferred consideration receivable. Given this cash position the Board considers that its capital management objective is being achieved.

Management changes

In additional to the appointment of Patrik Dahlen as Chief Executive Officer, Barry Hextall will become interim finance director on Gerard Murray's departure on 30 November 2012. The search for a permanent replacement for the finance director is ongoing. Roger Duggan left the Company on 14 September 2012, Patrik Dahlen has assumed responsibility for business development.

Outlook

During the first half the Group increased its gross margin and remained strongly cash generative despite the expected pressure on revenues from the competitive vitamin D market. Progress has been made in transferring our customers from manual to automated assays and the Group has received an encouraging response to the three new assays launched in the period.

The Board continues to expect full year revenues in the range of £48 to £50m and with costs under control are comfortable with current market expectations for the full year. Overall, we believe that we have the technology, the strategy and balance sheet to cement our position as a leading developer of specialist assays in small to medium niche markets.

Patrik Dahlen

Chief Executive Officer

Unaudited consolidated interim income statement

For the six month period to 30 September 2012

Unaudited interim statement of other comprehensive income

For the six month period to 30 September 2012

Unaudited consolidated interim balance sheet

Unaudited consolidated interim cash flow statement

For the six month period to 30 September 2012

Unaudited consolidated statement of changes in equity

Notes to the Interim Financial Statements

For the six month period to 30 September 2012

1 Basis of preparation

The condensed financial statements for the six months ended 30 September 2012 have been prepared in accordance with IAS 34, 'Interim Financial Reporting', as adopted by the European Union. They do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 March 2012. The condensed financial information has been prepared using the same accounting policies and methods of computation used to prepare the Group's Annual Report for the year ended 31 March 2012 that are described on pages 45 to 52 of that report which can be found on the Group's website at www.idsplc.com. The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union.

The following new standards or interpretations are mandatory for the first time for the financial year ending 31 March 2013:

·; IFRS 1 First-Time Adoption of International Financial Reporting Standards (Amendment) - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters. This amendment is not expected to have any effect on the financial statements of the Group.

·; IFRS 7 Financial Instruments: Disclosures (Amendment). This amendment relates to disclosures about rights of set-off of financial instruments and is not expected to have any material impact on the financial statements of the Group.

·; IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets. This amendment relates to the treatment of deferred tax on investment properties and non-depreciable assets and is not expected to have any effect on the financial statements of the Group.

None of the above standards and interpretations had a material effect on the half year results.

The financial information for the six months ended 30 September 2012 and the comparative financial information for the six months ended 30 September 2011 have not been audited, but have been reviewed by the auditors. The comparative financial information for the year ended 31 March 2012 has been extracted from the 2012 Annual Report and Accounts. The financial information contained in this interim report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006 and does not reflect all of the information contained in the Group's Annual Report and financial statements. The annual financial statements for the year ended 31 March 2012, which were approved by the Board of Directors on 22 June 2012, received an unqualified audit report, did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 and have been filed with the Registrar of Companies.

2 Prior period adjustment

Walloon Regional Government grants

The Group acquired the whole of the share capital of Immunodiagnostic Systems SA (formerly Biocode Hycel SA) on 31 August 2007. Prior to the acquisition this subsidiary undertaking had received grants from the Walloon Regional Government towards the development of certain automated immunoassays ("the products"). As described in the Group's Annual Report for the year ended 31 March 2012 the Group made a prior period adjustment as at 31 March 2012 to recognise that the terms of the grant agreements provided for future repayment of the grant received.

The consolidated income statement for the six months ended 30 September 2011 and the consolidated balance sheet as at 30 September 2011 have been restated accordingly. The effect has been to decrease the profit before tax for the period by £45,000, the retained earnings for the period by £29,000 and the net assets as at 30 September 2011 by £979,000.

Bonus payments

Following a review of the Group's performance bonus agreements as at 31 March 2012 it was concluded that the terms of the agreements were such that the bonuses payable should have been accrued by the Group in accordance with IAS 19 instead of recognised when the cost was incurred. This change in policy to an accruals basis was applied retrospectively by way of a prior period adjustment in the financial statements for the year ended 31 March 2012.

The consolidated income statement for the six months ended 30 September 2011 and the consolidated balance sheet as at 30 September 2011 have been restated accordingly. The effect has been to increase the profit before tax for the period by £768,000 and the retained earnings for the period by £568,000. There has been no effect on the net assets as at 30 September 2011.

3 Prior period changes in accounting estimates

During the second half of the year ended 31 March 2012 the Board made a number of changes in accounting estimate which were applied prospectively. These changes in estimate do not result in a restatement of the comparative information provided for the six months ended 30 September 2011. However, to assist the user of the accounts in comparing our period on period results, the following pro-forma consolidated income statement has been prepared to show what the effect of the changes in estimates would have been on that period had they been applied prior to the interim reporting date.

The changes in estimates are detailed on page 19 of the Group's Annual Report for the year ended 31 March 2012, and relate to changes in accounting estimates and non-recurring items. Changes in accounting estimates, being stock provisions and changes in amortisation periods, have led to an increase of £192,000 in cost of sales and an increase of £1,380,000 in administrative expenses. Non-recurring items, being retirement of development costs and initial recognition of accruals for have led to an increase of £104,000 in distribution costs and an increase of £364,000 in administrative expenses.

4 Revenue and segmental information

For management purposes, the Group is currently organised into three operating regions: direct sales operations in the USA, Europe (excluding Spain, Italy and Portugal) and distributor sales operations in the Rest of the World. These regions are the basis on which the Group reports its segment information. The main activity of the Group is the manufacturing and distributing of medical diagnostic products. Inter-segment sales are priced based on the market selling price for the individual item obtainable by the purchasing segment, reduced by a margin equivalent to the gross margin that would be expected to have been achieved by purchasing the item on the local wholesale market.

5 Movement on exceptional provision for doubtful debt

This relates to deferred consideration due from Escalon Medical Corporation ("EMC") in respect of the sale of the haematology activities of IDS France SA in 2008. In the financial statements for the year ended 31 March 2012, a provision of €3.2m was made after EMC indicated that it would have difficulty settling this obligation. In October 2012, immediately following the sale by EMC of one of its trading divisions an amount of €1.9m was received by the Group in full and settlement of the debt. Consequently the doubtful debt provision was reduced by this amount in the interim financial statements for the period ended 30 September 2012.

6 Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two classes of dilutive potential ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period and the contingently issuable shares under the Group's share option scheme. At 30 September 2012, the performance criteria for the vesting of the awards under the option scheme had been met and consequently the shares in question are included in the diluted EPS calculation.

The calculations of earnings per share are based on the following profits and numbers of shares.

The calculation of the adjusted earnings per share has been calculated by adjusting the profit as reported for the after-tax effects of the items disclosed separately on the face of the income statement.

7 Taxation

Taxation for the six months ended 30 September 2012 is based on the effective rates of taxation in each jurisdiction which are estimated to apply for the year ended 31 March 2013.

8 Provisions

9 Interim results

These results were approved by the Board of Directors on Friday 23 November 2012. Copies of this interim report will be available to the public from the Group's registered office and www.idsplc.com.

Independent review report to the Immunodiagnostic Systems Holdings 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 September 2012 which comprises the Consolidated Interim Income Statement, Consolidated Interim Statement of Comprehensive Income, Consolidated Interim Balance Sheet, Consolidated Interim Cash Flow Statement, Consolidated Statement of Changes in Equity and the 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 guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our 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 International Accounting Standards 34, "Interim Financial Reporting", as adopted by the European Union.

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 2410 (UK and Ireland), '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 enquiries, 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 September 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

Ernst & Young LLP

Newcastle upon Tyne

23 November 2012