Review of Operations

• Chairman's Statement
• Chief Executive's Review
• Financial Review
• Statement of Directors' Responsibilities
• Principal Risks and Uncertainties

Introduction

The challenging market conditions that we saw in the second half of 2008 continued into the first half of 2009, with weak demand across all major regions. Nevertheless, on a reported basis, sales for the first six months of 2009 increased by 4% to £371.5 million compared with £358.5 million in the prior year period. This included a 7% contribution from acquisitions and beneficial effects from currency of 17%. On a constant currency organic basis, sales declined by 20%. Notwithstanding the reduction in volume, pricing was sustained and like-for-like gross margins, before the impact of transactional hedging contracts, improved.

Operating profit* declined by 57% to £20.0 million (H1 2008: £46.4 million) as a result of the sales decline and a one-off charge of £7 million in the first half for post-acquisition integration costs and restructuring activities, partially offset by overhead cost savings of £24 million. On a constant currency basis, operating profit declined by 63%. Operating margins were 5.4%, compared with 13.0% in the prior year period. Profit before tax decreased by 66% to £14.3 million (2008: £42.6 million). The lower operating profit resulted in earnings per share decreasing by 65% from 26.6 pence to 9.4 pence. The effective tax rate was 24.0% (FY 2008: 23.7%).

Cash conversion in the period was strong, with 164% of operating profit converted to operating cash, driven by a continued focus on rigorous working capital management and reduced capital expenditure. Nonetheless, net debt at the end of the period increased to £179.1 million, compared with £162.1 million at the end of December 2008, following the acquisition of Lochard in February.

The company has sufficient assured liquidity and remains well within its banking covenants. In light of the strong financial position and the Board’s confidence in the company’s future, the interim dividend is maintained at 6.4p (2008: 6.4p). The dividend will be paid on 13 November 2009 to shareholders on the register at the close of business on 23 October 2009.

Outlook

After a challenging first half, visibility of customer demand remains limited. However, we expect to see an improving performance in the second half resulting from the benefits of the restructuring and post-acquisition integration actions, a continuation of recent market trends, and contributions from new products. We have a good strategic and financial position, the planned restructuring and acquisition integration actions are on track, and we remain confident that we are well placed for a more sustained recovery when our markets return to growth.

Chairman

* Unless otherwise stated, figures for operating profit, profit before tax and earnings per share are adjusted measures - for explanation of adjusted figures and reconciliation to the statutory reported figures see Note 2.