Babcock International Group PLC ('the Company') - Annual Report and Financial Statements and AGM Documents

Copies of each of the following documents have today been posted or otherwise made available to shareholders and copies have been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.morningstar.co.uk/uk/NSM:

1. Annual Report and Financial Statements for the year ended 31 March 2021

2. Notice of Annual General Meeting to be held on 22 September 2021

Copies of the above documents are also available on Babcock International Group PLC's website, www.babcockinternational.com.

Jack Borrett

Group Company Secretary and General Counsel

Babcock International Group PLC

18 August 2021

Compliance with Disclosure and Transparency Rule 6.3.5 ("DTR 6.3.5") - Extract from the Annual Report and Financial Statements 2021

The information set out below is extracted from the Company's Annual Report and Financial Statements 2021 (page references are to pages in the Annual Report and Financial Statements) and should be read in conjunction with the Company's Full Year Results 2021 announcement issued on 30 July 2021. Both documents can be found at www.babcockinternational.com and together constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the Company's Annual Report and Financial Statements 2021 in full.

Principal and emerging risks, risk mitigation and controls

The Board confirms that it has carried out a robust assessment of the principal and emerging risks facing the Group and has identified the risks and uncertainties that it currently considers to be of greatest significance to Babcock which are described overleaf from pages 87 to 95. These risks have the potential to materially and adversely affect Babcock's business, the delivery of its strategy and/or its financial results, condition or prospects.

The risk process was enhanced during the period with

·      a new Group Risk Management Framework, which provides guidance to the sectors to assist them with identifying key external and internal drivers and risk influencers;

·      the assigning of a Group Executive Committee member as a sponsor for each principal risk;

·      the introduction of a new expanded risk register for each business unit, sector and Group function to improve the granularity and detail on each risk; and

·      the introduction of a dedicated quarterly review of the principal and emerging risks by the Group Executive Committee.

For each risk there is a short description of the Company's view of the possible impact of the risk on the Group were it to occur, and the mitigation in place to manage the risk (which should be read in conjunction with the information opposite and overleaf about our risk management approach and general controls). The Board has identified these principal risks, having reviewed the Group's risk register, a process that combines a bottom-up review, starting at business unit level, with challenge and review by senior management, as well as a top-down strategic review by Group management. These reviews include emerging risks, which are "new" risks that may challenge the Group in the future. They may begin to evolve rapidly or simply not materialise.

Principal risks, risk mitigation and controls

Existing markets

Probability: High Impact: High

We rely heavily on winning and retaining large contracts with a relatively limited number of major customers, whether in the UK or overseas, many of whom are (directly or indirectly) owned or controlled by government (national or local) and/or are (wholly or partly) publicly funded.

Potential impact

Major customers, such as our single biggest customer, the UK Ministry of Defence (MOD), have significant bargaining power and can exert pressure to change, amend or even cancel programmes and contracts. As many of our major customers are government owned or publicly funded, they are affected by political and public spending decisions. For example, the MOD has published its Integrated Strategic Review, which sets the UK Government's national security and international policy objectives to 2025. Another example may be the UK's exit from the EU, the consequences of which remain difficult to predict, as UK companies may not be able to bid on EU programmes or have to trade on different terms as a non-EU member or experience difficulties holding operating licences.

Whilst customer policy changes or spending constraints can potentially offer more outsourcing opportunities for us to pursue, they can also be a risk in that they could lead to changes in customer outsourcing strategy and spend, which could include:

·      reductions in the number, frequency, size, scope, profitability and/or duration of future contract opportunities

·      in the case of existing contracts, early termination, non-extension or non-renewal or lower contract spend than anticipated and pressure to renegotiate contract terms in the customer's favour

·      favouring the retention or return of in-house service provision, either generally or in the sectors in which we operate

·      favouring of small or medium-sized suppliers or adopting a more transactional rather than a co-operative, partnering approach to customer/supplier relationships

·      imposing new or extra eligibility requirements as a condition of doing business with the customer that we may not be able readily to comply with, or that might involve significant extra costs, thereby impacting the profitability of doing business with them.

A significant number of our contracts with the MOD are subject to the Single Source Contract Regulations (SSCR), which are administered by the Single Source Regulations Office (SSRO). The SSRO sets the baseline profit rate for single source contracts let by the MOD on an annual basis. These regulations and their implementation are subject to review by the UK Government, which could lead to lower returns for industry.

Mitigation

Our focus on the aerospace, defence and security markets, together with our geographical spread, provides a degree of portfolio diversification. We are in ongoing dialogue with our key customers in order to understand their requirements, objectives and constraints, so that we can remain as aligned with them as possible. We continue to monitor expenditure changes in our markets in order to allow us to make the appropriate adjustments. We maintain a public listing as we believe it is an important factor in winning and retaining our business position, particularly with government customers.

We have a clear business strategy to target a large bid pipeline, both in the UK and internationally. We tender bids for contracts we consider have an alignment with the Group strategy and where we believe we stand a realistic chance of success due to, for example, customer understanding, domain knowledge or technical expertise, both in the UK and overseas. We maintain a dialogue with our customers to understand their intentions regarding their pipeline.

Following the COVID-19 outbreak, we have continued to work closely with our customers in order to understand their priorities in response to the pandemic. All our businesses have implemented the necessary plans in consultation with our key customers to continue to deliver on our contracts where possible. The Board will continue to monitor the impact and disruption caused by COVID-19 and will continue to implement a range of measures to mitigate the operational, financial and commercial impacts as they emerge.

The Group remains in dialogue with the SSRO and MOD regarding future planned changes to the SSCR.

Contract and project performance

Probability: High Impact: High

We operate large contracts, which often require us to price for the long term and for risk transfer. Our contracts can include fixed prices.

Potential impact

We seek to win and operate long-term high-value contracts for the provision of complex and integrated services to our customers. This has a number of key risks.

There are usually only a relatively limited number of customers in each of our market sectors and our market sectors can be highly competitive. Because of their strong market power, our customers can require bidders to accept a substantial transfer of risk from the customer to the supplier. For example, it is not unusual in defence and aerospace markets that the contracts that we tender for may impose strict conditions and clauses, including unlimited liabilities, termination without cause and strict performance conditions, which, if not complied with, may trigger compensation for the customer.

If we (or our supply chain) underestimate or under-price actual risk exposure or the cost of performance, or if, during the contract, cost inflation diverges from revenue inflation, or if unforeseen additional costs are incurred, for example, due to the UK's exit from the EU or COVID-19, this could adversely affect our future profitability, cash generation and growth. For example, mobilisation of the contract may be difficult, or the transitioning from mobilisation to business as usual may not be effective. We may not deliver the contractual requirements due to ineffective contract management, cost or quality control or the failure to manage our supply chain. These may lead to contract overruns or unfulfilled contractual obligations, especially if the contract is fixed price. COVID-19 may increase the likelihood of each of these key risks arising as it makes our operations less efficient or effective. Failure to deliver contractual requirements may result in the imposition of penalties, the need to devote additional resource to deliver the contract, the early termination of the contract with the imposition of damages, or reputational damage, which may cause strain on the customer relationship, undermining not only the current contract, but also future contracts.

Long-term contracts often have changes, or updates, to scope. If we do not properly manage contract changes, we may incur additional costs or failure to deliver our contractual requirements, which may reduce overall profitability or lead to penalties or contract termination.

Mitigation

We have formal and rigorous reviews and gating processes at key stages of each material bid to reduce the risk of underestimating risks and costs and to ensure that we target limited bid resources at opportunities where we consider that we have the best prospects of winning or retaining business. Group policies and procedures continue to set a commercial, financial and legal framework for all bids.

Contractual performance is continuously under review (at a business unit, sector and/or senior Group executive level as appropriate) with a view to highlighting at an early stage risks to delivery and profitability. Where we identify poor performance, the business will implement a remediation plan. These reviews also consider the performance of our supply chain. In the current circumstances, the reviews consider the impact of COVID-19. We also regularly review project costs to complete to ensure accuracy of the financial profile of the contract.

New markets

Probability: Medium Impact: High

We seek new markets and contracts for our services both with existing and new customers, whether in territories where we are already established or in territories where we are not.

Potential impact

We may not be successful in securing those new opportunities for a number of reasons, including: customer funding constraints; our services not being relevant due to the non-acceptance of our business model by customers; our failure to anticipate future market requirements or future changes in technology; our failure to find the appropriate quantity and quality of resource; our bid strategy failing to align with the customer's strategy; or increased competition in our markets. In addition, COVID-19 or the UK's departure from the EU or other geopolitical development may give rise to economic nationalism and a reluctance from international customers to award contracts to a non-domestic company. A lack of success in exporting the Group's business model outside the UK and our current core markets could adversely affect the growth prospects and strategic development of the Group. Failure to convert our bidding pipeline into contracts may put pricing pressure on the remaining pipeline.

Mitigation

We aim to target our resources in those new markets where we believe our services are relevant and we believe we have a good chance of being awarded the opportunity. As appropriate, we aim to invest in innovation and people to prepare for new ways of working or delivering our services. We maintain ongoing dialogue with our customers in order to understand their requirements and their budgets.

Financial resilience

Probability: High Impact: High

The Group is exposed to a number of financial risks, some of which are of a macroeconomic nature (for example, foreign currency, interest rates) and some of which are more specific to the Group (for example, liquidity and credit risks).

Potential impact

A lack of financial resilience may hinder us in being able to raise debt funding to invest in the securing of existing or future business. The weakness also may cause our existing banks to increase the cost of our funding. If our debt is denominated in a currency other than Sterling, movements in exchange rates may make that debt more costly when we repay it. Customers and/or suppliers may question our long-term sustainability if we have a weak balance sheet. This may tighten the terms of business that they are prepared to contract with us on. Credit rating agencies may downgrade our rating, which would increase our cost of borrowing. Certain pension scheme financial thresholds may be triggered, requiring further resource to be allocated to the schemes. We could face capital allocation constraints and be left with reduced capital to invest in the business to meet all our obligations or to pay a dividend.

Mitigation

The alignment of the Group portfolio has triggered a programme of potential disposals. We expect to raise £400 million in the next 12 months which will contribute towards the strengthening of the balance sheet. We have already secured an additional debt facility of £300 million to provide additional liquidity and a temporary relaxing of financial covenants. We are proactive in our dealings with credit rating agencies and lenders. The Board reviews the financial position of the Group on a monthly basis against the Board approved three- year plan.

Business interruption

Probability: Medium Impact: High

Failure to withstand the impact of an event or a combination of events may significantly disrupt all or a substantial part of the Group's business.

Potential impact

A range of events, for example, extreme weather, natural hazards (such as floods or earthquakes), political events, financial insolvency of a critical supplier, scarcity of materials, loss of data, fire or infectious disease could cause business interruption. The consequences of these events could have an adverse impact on our people, our facilities, our supply chains, or our ability to meet our contractual obligations. The COVID-19 pandemic is an example of such an event. The pandemic has had a significant impact on our business and the markets that we serve over the financial year 2021. For our customers, the pandemic may reduce their current or future budgets or cause them to deploy their budgets in different ways, changing our markets. For our employees, the pandemic has changed the ways that we work. These measures may create inefficiencies in some of our businesses. The pandemic may also affect our suppliers and lead to failures in the supply chain, which may adversely affect our ability to deliver our programmes. An outbreak of another contagious disease or a new variant of the COVID-19 may still have an adverse effect on the Company's business, financial condition and prospects.

Mitigation

Throughout the pandemic, we have looked to prioritise the key programmes of our customers to demonstrate the mission critical nature of our services. For employees, our priority has been their wellbeing and safety. We have adapted working practices and facilities, including social distancing, PPE requirements, improved cleaning regimes and increased remote working, to seek to keep our people safe and well throughout this crisis. We continue to manage the situation closely and follow Government and health authority advice to help prevent the spread of the virus. For general business continuity, we have in place IT disaster recovery and business continuity processes. We also maintain relevant and appropriate insurance.

Operational resilience

Probability: High Impact: High

We are undertaking multiple change programmes with the introduction of a new strategy, a new operating model to restructure the shape of the Group, and a new people strategy, as well as undertaking the alignment of both the business portfolio and our property portfolio.

Potential impact

All these programmes are underway concurrently, in addition to the delivery of the Group's services to its customers. This may put pressure on management bandwidth to oversee all the change programmes, as well as the regular running of the business. This could lead to an elevated risk of mistakes or missed opportunities.

If we fail to deliver the change programmes, we will not be able to achieve our strategic goals as set out on page 16. Failure to deliver the change programmes would undermine the confidence of key stakeholders in our future growth and plans.

Mitigation

Management is experienced in delivering programmes of this nature. There is regular monitoring of progress across all the programmes to ensure that they remain on track, along with regular dialogue with customers at senior level to ensure that delivery of our contracts is in no way compromised. The Board receives a monthly report with a status update of the key change programmes.

Health, safety and environmental

Probability: Medium Impact: High

Our operations entail the potential risk of significant harm to people, property or the environment, wherever we operate across the world.

Potential impact

Parts of our business (for example, our nuclear operations) involve working in potentially hazardous operations or environments, which we must manage and control to minimise the risk of injury or damage. Others, for example, our aerial emergency services operations, involve an inherent degree of risk that is compounded by the nature of the services provided (firefighting, search and rescue, air ambulance and emergency services) or the environments in which they operate (low-altitude flying in adverse weather, terrain or operational conditions).

Serious accidents can have a major impact on the lives of those directly involved and on their families, friends, colleagues and community, as can serious environmental incidents. These accidents may arise from inadequate hazard control or training or management supervision; the failure to implement changes or learning from previous accidents; poor safety leadership and culture; equipment failure; or human or organisation factors.

If we cause or contribute to an incident because of failings on our part, or because as a matter of law we are strictly liable without fault, we may be liable for substantial damages claims, not all of which may be insured, as well as potentially to criminal proceedings, which could result in substantial penalties. We could also suffer contract penalties due to an inability to deliver the contract or a loss of productivity.

Such incidents (which may have a high public profile given the nature of our operations) may also seriously damage our reputation or our brand (whether justified or not), which could lead to a significant loss of business or future business opportunities.

An incident may also disrupt our business if it prevents our employees from working.

Mitigation

Our goal is for everyone to go "Home Safe Every Day". Accordingly, health, safety and environmental performance receives close and continuous attention and oversight from the senior management team.

We have specific health, safety and environmental governance structures in place as well as education and training programmes for staff. Sector safety leadership teams and the Corporate Safety Leadership Team (CSTL) oversee the implementation of policy, strategy and initiatives across all our businesses.

The Board receives reviews of health and safety performance.

Nuclear risks: We hold indemnities given to us by the UK Nuclear Decommissioning Authority and the UK MOD, to protect against risk of liability for injury or damage caused by nuclear contamination or incidents, but a reputational risk as a result of any serious incident would remain.

In respect of the current COVID-19 pandemic, we have taken a number of measures across the Group. Our first priority is the safety of our employees. Our employees deliver essential services on which our customers and the wider community rely. The continuation of these services is key. We have reviewed our methods of working across the Group to institute the appropriate protective measures, including issuing new work guidelines, asking employees to work from home where they can, changing shift schedules, instituting infection control at work sites and ordering the wearing of protective equipment.

We believe we have appropriate insurance cover against civil liability exposures.

Regulatory and compliance burden

Probability: Low Impact: High

Our businesses are subject to the laws, regulations and restrictions of the many jurisdictions in which they operate.

Potential impact

The laws and regulations that we are subject to include anti-bribery laws, import and export controls, tax, procurement rules, human rights and data protection regulations.

Failure to maintain compliance with applicable requirements could result in: fines and criminal prosecution; the removal of a licence to operate; reputational damage; cost of rectification; debarment from bidding; loss of access to markets; and, the loss of substantial business streams (and possible damages claims) and opportunities for future business.

If an applicable law or regulation changes, it may cause us substantial expenditure in order to comply, which may not be recoverable (either fully or at all) under customer contracts.

Compliance with some regulatory requirements is a precondition for being able to carry on a business activity at all. For example, our Aviation business is subject to a high degree of regulation relating to aircraft airworthiness and certification, as well as regulations relating to ownership and control requirements. Regulation (EC) No.1008/2008 (the Regulation) requires all air operators in the EU to be majority-owned and controlled by European Economic Area nationals.

Given the nature of our customers and the markets in which we operate, as well as the services that we provide, we believe that our reputation, not only in terms of delivery but also in terms of behaviour, is a fundamental business asset. Failings or misconduct (perceived or real) in dealing with a customer or in providing services to them or on their behalf could substantially damage our reputation with that customer or more generally.

Mitigation

We maintain internal policies and procedures in order to ensure that the Group complies with all applicable laws and regulations. We also have suitably qualified and experienced employees and/or expert external advisors to advise and assist on regulatory compliance. We have management systems involving competent personnel with clear accountabilities for operational regulatory compliance.

In order to address the requirements of the Regulation, we have restructured the operations of the relevant operations so that a new sub-group, which is majority owned and controlled by an EU-based holding company holds those parts of the business that fall under the Regulation . The Board believes that this current structure satisfies the nationality requirements of the Regulation. However, as the ultimate decision to grant or revoke a licence rests with the EU aviation authorities, there can be no guarantee that this continues to be the case.

Senior management at Group and sector level are keenly aware of reputational risks, which can come from many sources. Our Code of Conduct, together with our Ethics policy, sets out the clear expectations that we have of our employees. We seek to reinforce these values with all employees through a number of different processes, for example, our training. We encourage all our employees to use our whistleblowing reporting lines where they see evidence of behaviour, which is not in keeping with our values. The Board monitors and reviews all reports and their investigations.

People

Probability: Medium Impact: Medium

We operate in many specialised engineering and technical domains, which require appropriate skills and experience.

Potential impact

Our business delivery and future growth depend on our ability to recruit, develop and retain experienced highly skilled employees (such as suitably qualified and experienced engineers, technicians, pilots and other specialist skills groups).

Competition for the personnel we need is intense and is likely to remain so for the future. This may be exacerbated by nationality restrictions, which may prevent us from accessing talent from the EU or worldwide. This poses risks in both recruiting and retaining such staff.

If we have insufficient qualified and experienced employees, this could impair our service delivery to customers or our ability to pursue new business, with consequent risks to our financial results, growth, strategy and reputation and the risk of contract claims.

The cost of recruiting or retaining the suitably qualified and experienced employees we need might increase significantly depending on market conditions. This could affect our contract profitability.

Mitigation

We undertake workforce and succession planning to identify skill gaps and to form plans to address them. We have programmes to develop our employees so that they have the right skills and experience.

We are developing a new people strategy, led by the Group's first Chief Human Resources Officer. This strategy will establish a common approach across the Group. The new approach includes a new 'agile' way of working, a review of the rewards and remuneration structure and improved people management.

Pensions

Probability: High Impact: High

The Group has significant defined benefit pension schemes in the UK, which provide for a specified level of pension benefits to scheme members.

Potential impact

Member and employer contributions paid into pension scheme funds and the investment returns made in those funds over time have to meet the cost of the defined benefit obligations.

The level of our contributions is based on various assumptions, which are subject to change, such as life expectancy of members, gilt yields, investment returns, inflation, and regulatory changes. Based on the assumptions used at any time, there is always a risk of a significant shortfall in the schemes' assets below the calculated cost of the pension obligations. For example, pension liabilities can increase due to rising life expectancy, higher than expected inflation rates in the future and lower interest rates.

If the assets in the pension schemes are judged insufficient to meet pension liabilities or if our balance sheet strength does not meet the pension trustee expectations, we may be required to make increased contributions and/or lump sum cash payments into the schemes or provide additional security from the Group. Trustee's perspectives may be influenced by toughening stances taken by the UK Pension Regulator. This may reduce the cash available to meet the Group's other obligations or business needs, and may restrict the future growth of the business.

When accounting for our defined benefit schemes, we have to use corporate bond-related discount rates to value the pension liabilities. Variations in bond yields and inflationary expectations can materially affect the pensions charge in our income statement from year to year as well as the value of the net difference between the pension assets and liabilities shown on our balance sheet.

Accounting standard rules governing the measurement of pension liabilities can lead to significant accounting volatility from year to year due to the need to take account of macroeconomic circumstances beyond the control of the Company. Actuarial valuations used for funding are not calculated on the same basis as IFRS accounting standards. This means the future cash contributions are difficult to derive from the Group's IFRS balance sheet.

There is a risk that future accounting, regulatory and legislative changes may also adversely impact pension valuations, both accounting and funding, and, hence, costs and cash for the Group.

Mitigation

Group senior management undertakes continuous strategic monitoring and evaluation of the assets and liabilities of the pension scheme. Management aims to increase its engagement with the scheme trustee chairs and with the pension regulator.

Pension liability increases are mitigated by the pension scheme having investment strategies that hedge against interest rate and inflation risk and using longevity swaps to limit exposure to increasing life expectancy. Trustees use professional advisors to assist in the hedging of risks.

IT and security

Probability: Medium Impact: High

Our ability to deliver secure IT and other information assurance systems to maintain the confidentiality of sensitive information is a key factor for our customers.

Potential impact

We hold data that is confidential and needs to be secure against a background of increasing cyber threat. Despite controls designed to protect such information, there can be no guarantee that security measures will be sufficient to prevent security breaches or cyber attacks being successful in their attempts to penetrate our network security and misappropriate confidential information or otherwise cause harm to the Group, for example through denial of service. In addition, failure to invest in our IT infrastructure, for example, in legacy systems, may also create a weakness that may lead to a breach. The risk of loss of information or data by other means is also a risk that cannot be eliminated.

A breach or compromise of IT system security or physical security at a physical site could lead to loss of reputation, loss of business advantage, disruptions in business operations and inability to meet contractual obligations, significant data breaches or losses could also lead to litigation and fines for breach of applicable regulations such as data protection laws. This could have an adverse effect on the Group's operations and its ability to win future contracts, which may affect our overall financial condition.

Mitigation

We have made and will continue to make significant investment in enhancing IT security and security awareness generally. We seek to assure our data security through a multi-layered approach that provides a hardened environment, including robust physical security arrangements and data resilience strategies. We have formal security and information-assurance governance structures in place to oversee and manage cyber-security and similar risks. We conduct comprehensive internal and external testing of potential vulnerabilities.

The Group maintains business continuity plans that cover a range of scenarios (including loss of access to IT). We regularly test the plans that relate to IT.

Acquisitions and disposals

Probability: Medium Impact: High

We have built our core strengths organically and through acquisition. Decisions to acquire companies, as well as the process of their acquisition and integration, are complex, time consuming and expensive. If we believe that a business is not 'core', we may decide to sell that business.

Potential impact

As we are not currently seeking acquisition opportunities, we may not identify potentially value- or skill-enhancing transactions and miss an opportunity to grow shareholder value.

Where we have acquired companies, we may not realise the financial benefits of the acquisition as expected, due to poor integration or to acquisition business cases relying on market conditions or other business assumptions that subsequently do not materialise, challenging the logic of the acquisition decision. Before making any future acquisition, we will learn the lessons from the Avincis acquisition.

Those companies that we consider as non-core and therefore disposal candidates, may become distracted or demotivated or lose key employees, which may lead to poor performance whilst also undermining their value to their customers and a potential buyer.

A key assumption in the strengthening of our balance sheet is the planned disposals which should raise a minimum of £400 million.
Disposal timing and price are not within the full control of the Group. There could be a lack of market interest or a delay in the planned processes, which may make disposals harder to complete. Some countries are increasing government oversight of disposals in sectors deemed of national importance (for example, the UK National Security and Investment Bill). Such oversight could add delay or even block a planned disposal.

Mitigation

Our focus is currently on operational execution, rather than acquisitions, with the possible exceptions of 'bolt-on' acquisitions.

We will work to enhance our acquisition and integration capability so that we are ready at the appropriate time in the future.

We will clearly communicate our disposal strategy and put in place the appropriate transaction resource to prioritise the disposals.

Related party transactions

(a) The following related parties either sell to or receive services from the Group. Loans to joint ventures and associates are detailed in note 17.

All transactions noted above arise in the normal course of business.

(b)        Defined benefit pension schemes.
Please refer to note 29 for transactions with the Group defined benefit pension schemes.

(c)        Key management compensation is shown in note 9.

(d)        Transactions in employee benefits trusts are shown in note 29.

Directors' responsibility statement

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). Additionally, the Financial Conduct Authority's Disclosure Guidance and Transparency Rules require the Directors to prepare the Group financial statements in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies to the European Union.

Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

·      make judgements and accounting estimates that are reasonable and prudent; and

·      prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

Each of the Directors, being each Director who is in office at the date of the Directors' report is approved and whose names and functions are listed below, confirm that, to the best of their knowledge:

·      the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union give a true and fair view of the assets, liabilities, financial position and loss of the Group;

·      the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      the Strategic Report and the Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

·      so far as the Director is aware, there is no relevant audit information of which the Group's and the Company's auditors are unaware; and

·      they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's and the Company's auditors are aware of that information.

In addition, each of the Directors listed below considers that the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and Company's position, performance, business model and strategy.