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Zirax plc

 ('Zirax' or the 'Company')

Interim Results for the six months to 30 June 2009

Zirax, the AIM quoted speciality chemical company focused on the development, production and sale of oilfield process chemicals and de-icing solutions, announces its interim results for the six months to 30 June 2009.

Highlights

Highlights for the second largest supplier of calcium chloride pellets globally and the leading supplier in the Eastern Hemisphere include:

Financial Performance

• Sales volumes increased by 36%, driven by demand for de-icing products following a harsher Russian winter 

• However, total revenues reduced to $14.6m (2008: $15.1m) due to a 38% fall in the value of the Russian Rouble against the US Dollar 

• Operating profit $ nil (2008: loss $0.3m)

• Pre-tax loss $1.2m (2008: loss $0.1m) 

• Oilfield process chemical revenues decreased to $9.5 m (2008: $12.8m)

• De-icing solutions revenues increased to $3.7m (2008: $0.9m) 

Operating Highlights

• Negotiations progressing to agree a new supply and licensing agreement at Rosignano, having received the original advance payment of €2.2m back from Solvay (including interest of €0.2m)

• Successfully replaced our largest borrowing facility of $2.8m, after it came up for renewal, by agreeing a new facility with an existing lender

• Existing lenders remain supportive of the Company and its strategy 

• Introduced two new complimentary products, Acid ExtrOil and Acid Blend, targeting the enhanced oil recovery market

• Seventh consecutive award of Moscow de-icing contract

Fenlon Dunphy, CEO commented: 

'Most importantly demand for Zirax products remains strong. We have not been able to take full advantage of this as a combination of factors, including the delay of the Rosignano plant coming fully on line and the 38% fall in the Russian Rouble against the US Dollar have all impacted profitability. In the short term these factors will have a negative impact on the Group's trading performance, however there are significant opportunities for Zirax to exploit both the oilfield and de-icing markets.'

Enquiries:

Zirax	Fenlon Dunphy, CEO	T: +44 (0)20 7868 1694
Hanson Westhouse Limited	Tim Metcalfe	T: +44 (0)20 7601 6100
	Martin Davison
Cardew Group	Tim Robertson	T: +44 (0)20 7930 0777
	David Roach
	Daniela Cormano

  

Interim Review

Introduction

Zirax, the speciality chemical company focused on the development, production and sale of oilfield process chemicals and de-icing solutions recorded an underlying sales volume increase of 36% in the first six months of 2009. However, the majority of our sales are transacted in Russian Roubles, the average value of which has weakened by 38% against the US Dollar between the first six months of 2008 and the same period in 2009. This meant an overall decrease in sales value of 3% for the first six months of 2009 compared to the same period in 2008. If foreign exchange rates had remained consistent with 2008, then 2009 would have shown a sales value increase of 32%. 

In May we announced that we had initiated with Solvay a process to renegotiate the existing supply and licensing agreements at the Rosignano plant in Italy. We believe that the outcome will enable us to continue with our strategy of expanding the business internationally and meet continued customer demand for our premium grade products. Renegotiations are progressing well and we currently anticipate capacity coming back online in early 2010. 

For the financial reporting year 2008, the Board decided to adopt a prudent stance in relation to a financial institution in Russia, and made an exceptional provision of $3.0m against cash deposits where we believed there to be a greatly increased credit risk and access to the cash deposits had been restricted. We have not changed this position and we are still negotiating to reach a solution with the financial institution.

General uncertainty remains in the Russian banking sector, but as in other parts of the world, there are signs of improvement. We reported in June, at the time of our Preliminary results, that the business is dependent on the continued support of its lenders, as technically some or all of the borrowings and facilities could become immediately repayable due to possible material changes in the Group's financial position. We are pleased to say that our lenders have remained supportive. It is still possible that we may still need to renew or replace facilities as they fall due during the next year, but we are confident that either existing lenders will renew or that new lenders can be found. In this respect we have already successfully replaced our largest borrowing facility of $2.8m, after it came up for renewal in September, by agreeing a new facility with an existing lender.

Financial Review

Total revenues for the six months to 30 June 2009 decreased 3% from the equivalent period in 2008 to $14.6m. Last winter signalled a return to harsher weather conditions and increased the demand for our de-icing products; as a result, sales of our high performance de-icing products increased to $3.7m, compared with $0.9m in 2008. Zirax's oilfield process chemicals segment of the business delivered sales of $9.5m, a reduction of 25% compared to the same period last year. This value reduction was primarily as a result of the weakened Russian Rouble, but also to a lesser extent as more product was directed towards the de-icing segment. The remaining industrial sector accounted for $1.3m of revenue, a small decrease from $1.4m in 2008.

The world economy still undoubtedly has difficult times ahead and it is hard for anyone to predict the immediate economic future. Zirax predominantly operates and sells in Russia where the official inflation forecast for 2009 is a minimum of 13%, but where many independent analysts forecast it is likely to be much higher. The Russian Rouble has come under significant pressure, losing 38% of its average value against the US Dollar between the first six months of 2008 and the same period in 2009. Zirax's cost of sales increased from $7.9m in 2008 to $8.2m in 2009. Distribution, sales and marketing expenses decreased to $3.9m compared with $4.7m in 2008, whilst General and Administrative expenses also decreased to $2.4m in 2009 compared with $2.8m in 2008. 

Overall the Group broke even at the operating profit level for the period, compared with a loss of $0.3m in 2008, and loss before tax was $1.2m compared with a loss of $0.1m in 2008. The significant movement between operating profit and loss before tax was driven by a $0.9m loss on foreign exchange.

Despite the loss before tax for the period, there is a tax charge of $0.2m as a result of profits arising in Russia.

Investment in fixed assets of $0.7m in the first half of 2009 primarily relates to the continued investment in our Volgograd plant and facility.

Cash and cash equivalents increased from $4.4m at 31 December 2008 to $6.2m at 30 June 2009. Cash used in operating activities was $1.3m, with the Group making a net cash investment in assets of $0.3m and raising net cash proceeds from bank funding of $2.7m. Any surplus funds are invested, but we do not undertake speculative treasury transactions.

Basic EPS was a loss of 0.77 cents, compared with a loss of 0.35 cents in 2008. In line with the Board's stated strategy no dividend will be payable for the period. It remains the Board's view that the business is in a growth stage and, as such, it needs to maintain cash to fund its development.

Operating Review

Despite challenging conditions in the global economy and the impact of external factors on our business, Zirax's underlying sales volume performance remained strong. 2009, as in the previous year, continues to be a difficult one for the business and the wider world economy. Our cost base for existing product has increased in these harder times and our margins have tightened.

The lack of full supply of product from Rosignano, Italy remains a frustration, but the renegotiations with Solvay are progressing well and we currently anticipate capacity coming back online in early 2010. As a result, Zirax has incurred extra distribution and administration costs, relating primarily to ensuring certain key customers continue to be supplied from our Volgograd facility. 

We have introduced two new complimentary products in this period, Acid ExtrOil and Acid Blend, both of which are targeted at the enhanced oil recovery market. We see our future growth in this sector coming from supplying higher margin complimentary products and there are further product launches planned for the near future. Sales of Acid ExtrOil and Acid Blend are modest at this stage, but we look forward to developing and integrating both as part of a specialist suite of products we offer to meet the specific needs and requirements of new and existing clients within the oil and gas sector.

As a result of the harder 2008/09 winter season the demands from the de-icing segment were significantly higher than in the previous comparable period and consequently revenues in this segment increased to $3.7m, compared to $0.9m in 2008. This meant less product was available to the oilfield chemicals sector, which saw revenues drop from $12.8m to $9.5m. But, as explained above, a more substantial element of this drop also resulted from the foreign exchange weakness. Once again, across all segments, we sold all available product during the period. 

For the upcoming 2009/10 winter season, we have secured for the seventh consecutive year the tenders to supply the City of Moscow with 20,000 MT of calcium chloride based de-icers, representing $4.0m in revenues. 

Outlook

The extraordinary economic events of 2008 still effect 2009 and continue to make it difficult for Zirax. We remain frustrated by the delay of product supply from Rosignano, but are confident that we can, with Solvay, resolve the technical issues at the plant. Our cost base has been directly affected by the economic crisis. The volatility in distribution rates is a particular challenge for our business as they make up approximately 25% of our overall cost base. Looking ahead, we expect costs associated with manufacturing and distribution to remain high; as we cannot simply pass on these increased costs in our selling price, we are focused on adapting our business model to operate in this environment. We continue to diversify our target markets and we will seek to source product as close to our end market as possible.

We have established a good base in terms of our customers and increasingly our geographic reach; we have also gained a reputation for quality. Volume and underlying value of revenues have continued to increase year on year. We are now seeking to build on these positive aspects by searching out higher margin products to offer our customers a wider solution to meet their needs. 

Despite current difficulties, we have strengthened our reputation in the marketplace for quality and service. Not only do our customers demand more of our products, but they also seek and actively encourage us to source additional product for them. We are therefore confident that the Company will recover from this very challenging period, and be able to deliver significant shareholder value.

Fenlon Dunphy

Chief Executive Officer

  Independent Review Report to Zirax Plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2009 which comprises the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and explanatory notes 1 to 6.

We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the AIM Rule 18. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with AIM Rule 18.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. It is the responsibility of the directors to ensure that the condensed set of financial statements included in this half-yearly report have been prepared on a basis consistent with that which will be adopted in the Group's annual financial statements.

Our responsibility

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

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making 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.

Basis for qualified conclusion

The Independent Auditors' Report in respect of the financial statements of the group for the year ended 31 December 2008 disclaimed an opinion as a result of limited evidence being available to them in respect of the following matters (as reproduced from the 2008 Group audit report):

• As set out in note 13 to the financial statements, a provision having been made against an amount receivable from a financial institution in Russia of RR87m ($2,961,000) held with them on demand. The auditors were unable to obtain sufficient appropriate evidence as to the recoverability of this amount.

• As set out in note 23 to the financial statements, an amount of RR104m ($3,540,000) held with a related party bank. No provision had been made against this amount and the auditors were unable to obtain sufficient appropriate evidence as to the recoverability of this amount.

Nothing has come to our attention during our review of the condensed set of financial statements for the 6 months ended 30 June 2009 to indicate that there has been any significant change to the matters referred to above. As described in note 1 to the condensed financial statements, exchange rate movements lead to the relevant balances expressed in the Group's presentation currency at 30 June 2009 to be $2,780,000 and $3,324,000 respectively. Note 5 and note 7 to the condensed financial statements provides further information on this related party balance of $3,324,000.

Qualified conclusion

Except for the matters referred to above, 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 report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with the requirements of the AIM rules.

Emphasis of matter 

In forming our conclusion on the condensed set of financial statements, we have considered the adequacy of the disclosure made in note 1 of the financial statements concerning the group's ability to continue as a going concern. The conditions explained in note 1 indicate the existence of a material uncertainty which may cast significant doubt about the group's ability to continue as a going concern. The condensed set of financial statements do not include the adjustments that would result if the group was unable to continue as a going concern.

Nexia Smith & Williamson	25 Moorgate
Statutory Auditor	London
Chartered Accountants	EC2R 6AY

24th September 2009

  Consolidated Income Statement 

For the Six Months Ended 30 June 2009

    

		Notes		Six months to 30 June 2009		Six months to 30 June 2008		Year to 31 December 2008
				Reviewed		Reviewed		Audited
				$'000		$'000		$'000
Revenue		2		14,577		15,065		33,923
Cost of sales				(8,225)		(7,887)		(18,796)
				----------		----------		----------
Gross profit				6,352		7,178		15,127
Distribution expenses				(3,924)		(4,687)		(9,815)
General and administrative expenses				(2,426)		(2,757)		(9,093)
				----------		----------		----------
Operating profit/(loss)		2		2		(266)		(3,781)
Operating (loss)/profit before exceptional item				2		(266)		(820)
Exceptional impairment of cash and cash equivalents				-		-		(2,961)
Operating profit/(loss)		2		2		(266)		(3,781)
Interest receivable				142		267		471
Interest payable and similar charges				(423)		(290)		(586)
Net foreign exchange (loss)/gain				(900)		171		1,618
				----------		----------		----------
Net finance (costs)/income				(1,181)		148		1,503
Loss before taxation				(1,179)		(118)		(2,278)
Taxation		4		(155)		(484)		(1,140)
				----------		----------		----------
Loss for the period				(1,334)		(602)		(3,418)
				----------		----------		----------
Earnings per share expressed in US cents per share:
Basic		3		(0.77)		(0.35)		(1.98)
				----------		----------		----------
Diluted		3		(0.77)		(0.35)		(1.98)
				======		======		======

  Consolidated Statement of Comprehensive Income

For the Six Months Ended 30 June 2009

				Six months to 30 June 2009		Six months to 30 June 2008		Year to 31 December 2008
				Reviewed		Reviewed		Audited
				$'000		$'000		$'000
Loss for the period				(1,334)		(602)		(3,418)
				----------		----------		----------
Other comprehensive income:
Effect of exchange rates				(135)		1,222		(5,850)
				----------		----------		----------
Total comprehensive income for the period				(1,469)		620		(9,268)
				======		======		======

  Consolidated Balance Sheet

At 30 June 2009

				30 June 2009				30 June 2008				31 December 2008
				Reviewed				Reviewed				Audited
				$'000				$'000				$'000
Non-current assets
Property, plant and equipment				9,960				12,621				10,440
Intangible assets				1,288				1,189				1,327
Trade and other receivables				-				6,414				3,117
Deferred income tax assets				-				211				46
				----------				----------				----------
Total non-current assets				11,248				20,435				14,930
				----------				----------				----------
Current assets
Inventories				4,926				5,445				4,141
Trade and other receivables				6,110				6,015				5,632
Cash and cash equivalents				6,231				8,928				4,367
				----------				----------				----------
Total current assets				17,267				20,388				14,140
				----------				----------				----------
Current liabilities
Short-term borrowings				6,738				2,496				3,562
Current tax liabilities				136				271				222
Trade and other payables				1,972				6,712				4,125
				----------				----------				----------
Total current liabilities				8,846				9,479				7,909
				----------				----------				----------
Net current assets				8,421				10,909				6,231
				----------				----------				----------
Non-current liabilities
Long-term borrowings				652				1,024				692
Deferred income tax liabilities				4				-				-
				----------				----------				----------
Total non-current liabilities				656				1,024				692
				----------				----------				----------
Net assets				19,013				30,320				20,469
				======				======				======
Shareholders' equity
Share capital				2,965				2,965				2,965
Share premium				11,194				11,194				11,194
Other reserves				343				7,500				465
Profit and loss account				4,511				8,661				5,845
				----------				----------				----------
Total shareholders' equity				19,013				30,320				20,469
				======				======				======

  Consolidated Statement of Cash Flows 

For the Six Months Ended 30 June 2009

				Six months to 30 June 2009		Six months to 30 June 2008		Year to  31 December 2008
				Reviewed		Reviewed		Audited
				$'000		$'000		$'000
Cash flows from operating activities
(Loss)/profit before taxation				(1,179)		(118)		(2,278)
Adjustments for:
Depreciation of property, plant and equipment				613		623		1,211
Amortisation of intangible assets				11		11		27
Share options expense and write-offs				13		60		97
Interest receivable				(142)		(267)		(471)
Interest payable and similar charges				423		290		586
				----------		----------		----------
Profit and loss before working capital changes				(261)		599		(828)
Decrease in trade and other receivables				2,275		7,003		4,070
Increase in inventories				(907)		(1,697)		(1,380)
(Decrease)/increase in trade and other payables				(2,014)		(719)		1,484
(Decrease)/increase in taxes payable				(77)		81		36
				----------		----------		----------
Cash (used in)/from operations				(984)		5,267		3,382
Income taxes paid				(276)		(1,401)		(1,726)
				----------		----------		----------
Net cash (used in)/from operating activities				(1,260)		3,866		1,656
Net cash (used in)/from operating activities before exceptional item				(1,260)		3,866		4,617
Exceptional impairment of cash and cash equivalents				-		-		(2,961)
Net cash (used in)/from operating activities				(1,260)		3,866		1,656
				----------		----------		----------
Cash flows from investing activities:
Interest received				394		184		355
Purchase of property, plant and equipment				(712)		(753)		(1,736)
Purchase of intangible assets				-		(126)		(179)
Acquisition of subsidiary				(25)		(457)		(464)
				----------		----------		----------
Net cash used in investing activities				(343)		(1,152)		(2,024)
				----------		----------		----------
Cash flows from financing activities:
Proceeds from borrowings				3,161		2,556		16,082
Repayment of borrowings				(49)		(4,358)		(18,165)
Interest paid				(420)		(271)		(543)
				----------		----------		----------
Net cash from/(used in) financing activities				2,692		(2,073)		(2,626)
				----------		----------		----------
Net increase/(decrease) in cash and cash equivalents				1,089		641		(2,994)
Cash and cash equivalents at beginning of the period				3,703		8,154		8,154
				----------		----------		----------
Effect of exchange rate changes				794		133		(1,457)
Cash and cash equivalents at end of the period				5,586		8,928		3,703
				----------		----------		----------

Cash and cash equivalents at the end of the period include overdrafts of $645,000 (30 June 2008 : $nil,

 31 December 2008 : $664,000).

Consolidated Statement of Changes in Equity

For the Six Months Ended 30 June 2009

		Share		Share		Other		Profit and		Total
		capital		premium		reserves		loss account		equity
		$'000		$'000		$'000		$'000		$'000
Period ended 30 June 2008
Total comprehensive income for the period		-		-		1,222		(602)		620
Share options credit		-		-		60		-		60
Balance at 1 January 2008		2,965		11,194		6,218		9,263		29,640
		-------		---------		-------		-------		---------
Balance at 30 June 2008		2,965		11,194		7,500		8,661		30,320
		-------		---------		-------		-------		---------
Period ended 30 June 2009
Total comprehensive income for the period		-		-		(135)		(1,334)		(1,469)
Share options credit		-		-		13		-		13
Balance at 1 January 2009		2,965		11,194		465		5,845		20,469
		-------		---------		-------		-------		---------
Balance at 30 June 2009		2,965		11,194		343		4,511		19,013
		====		=====		====		====		=====

  

1.    Basis of preparation

Accounting Policies

The interim financial information in this report has been prepared using accounting policies consistent with IFRS as adopted by the European Union. IFRS is subject to amendment and interpretation by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) and there is an ongoing process of review and endorsement by the European Commission. The financial information has been prepared on the basis of IFRS that the Directors expect to be adopted by the European Union and applicable as at 31 December 2009.  

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2008. The presentation of the primary financial statements has been modified in order to comply with IAS 1 (revised). However the revised standard has no impact on the reported results or financial position of the Group. The Group has adopted IFRS 8 'Operating Segments' but this has not had an impact on the basis of segmentation. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

Non-statutory accounts

The financial information for the 6 months ended 30 June 2009 and 30 June 2008 is unaudited.  The financial information for the year ended 31 December 2008 set out in this interim report does not constitute the Group's statutory accounts for that period. The statutory accounts for the year ended 31 December 2008 have been delivered to the Registrar of Companies. The auditors reported the following matters on those accounts:

• a disclaimer on the view given by the financial statements, due to the possibleeffect on the Group financial statements of a limitation in evidence in respect of:

-    a provision having been made against an amount receivable from a financial institution in 
     Russia of RR87m (30 June 2009: $2,780,000; 31 December 2008: $2,961,000) held with 
     them on demand where the auditors had been unable to obtain sufficient appropriate 
     evidence regarding the recoverability of this amount and the need for the provision; and

-    an amount of RR104m (30 June 2009: $3,324,000; 31 December 2008: $3,540,000) 
     held with a related party bank against which no provision had been made and where the 
     auditors had been unable to obtain sufficient appropriate evidence as to the 
     recoverability of this amount.

• a statement under both s237(2) and s237(3) of the Companies Act 1985 as due to the limitation in evidence described above, the auditors had not obtained all the information and explanations that they considered necessary for the purposes of their audit and they were unable to determine whether proper accounting records had been maintained in respect of Zirax LLC, an overseas subsidiary company.

• an emphasis of matter regarding the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern.  

Going concern

The directors have prepared forecasts for the business for the period to September 2010. These forecasts reflect the best estimate the directors can make concerning the performance of the underlying business which remains cash generative over the year as a whole. In preparing these forecasts, the directors have identified that it is possible the Group may need to renew or replace existing borrowings after they expire, and the possibility exists that they will not be renewed by the Group's lenders nor that alternative lenders can be found. This gives rise to a material uncertainty which may cast significant doubt upon the ability of the Group to continue as a going concern.

Having carefully considered this uncertainty, the directors believe that based on the Group's underlying financial performance to date and financial performance shown by the Group's forecasts, there is a reasonable expectation that the Group will be able to agree new borrowings and banking facilities when the existing facilities expire. This view was supported by the repayment in early September of $2.8m of borrowings that had reached the end of their term, which were successfully replaced with borrowings from an alternate lender.

As a result of these considerations, the directors have a reasonable expectation that the Group can meet it's liabilities as they fall due for the foreseeable future. On this basis they believe that it is appropriate to prepare the interim financial statements on a going concern basis. The interim financial statements do not include any adjustment to intangible or tangible assets, the reclassification of long-term liabilities or provision for further liabilities that may be required should the going concern basis of accounting not be appropriate.

2.    Segment information

The Group is managed around three groups of product and services offerings: Oilfield Process Chemicals, De-icing Solutions and Industrial Chemicals. Oilfield process chemicals include all products and services aimed at providing enhanced processing capabilities offered to the Oil and Gas industry. De-icing Solutions include all products and services aimed at providing a de-icing function for Government and municipal entities, businesses and consumers. All other customer groups are covered by Industrial Chemicals with the most significant customer group being the paper industry.

The segment results for the period ended 30 June 2009 are as follows:

	Oilfield Process Chemicals	De-icing Solutions	Industrial Chemicals	Total
	$'000	$'000	$'000	$'000
Revenue	9,542	3,743	1,292	14,577
Segment profit/(loss)	2,411	602	332	3,345
Non customer specific distribution costs and overheads				(3,343)
				---------
Operating Profit				2
				=====

The segment results for the period ended 30 June 2008 were as follows:

	Oilfield Process Chemicals	De-icing Solutions	Industrial Chemicals	Total
	$'000	$'000	$'000	$'000
Revenue	12,791	865	1,409	15,065
Segment profit/(loss)	2,910	216	366	3,492
Non customer specific distribution costs and overheads				(3,758)
				---------
Operating Profit				(266)
				=====

3.    Earnings per share (EPS)

	Six months to 30 June 2009	Six months to 30 June 2008
(Loss)/profit for the period ($'000)	(1,334)	(602)
	---------	---------
Number of shares - weighted average
Basic ('000)	172,321	172,321
Basic earnings per share (cents)	(0.77)	(0.35)
	----------	----------
Number of shares - weighted average
Diluted ('000)	172,321	172,321
Diluted earnings per share (cents)	(0.77)	(0.35)
	----------	----------

4.    Taxation

Despite the loss before tax for the six months ended 30 June 2009, there is a current tax charge of $155,000 as a result of profit earned in Russia. 

5.    Balances and transactions with related parties

    (i)    Balances with related parties:

    

Balance sheet caption	Relationship	Six months ended 30 June 2009	Six months ended 30 June 2008
		$'000	$'000
Trade receivable from and
prepayments to:
OAO Kaustik	Under common control	1,044	30
		----------	----------
		1,044	30
		======	======
Cash and cash equivalents:
Inkarobank (*)	Under common control	3,327	4,463
		======	======
Trade payables to:
OAO Plastcard	Under common control	-	71
OAO Kaustik	Under common control	10	636
OOO European Chemical	Under common control	-	4
		----------	----------
		10	711
		======	======
Short-term borrowings:
Inkarobank	Under common control	-	639
		======	======

* Of this balance, $3,324,000 was temporarily deposited in another bank between 25 June 2009 and 2 July 2009 as described in Note 7 and accordingly as at 30 June 2009 was not deposited at Inkarobank. Since the change in deposit institution was temporary, the directors believe no material change in the status of the amount as described in Note 1 has occurred as at 30 June 2009. 

 

(ii)    Transactions with related parties:

    

Income statement caption	Relationship	Six months ended  30 June 2009	Six months ended  30 June 2008
		$'000	$'000
Revenue from transactions with:
OAO Kaustik	Under common control	55	104
		----------	----------
		55	104
		======	======
Inventory purchases:
OAO Kaustik	Under common control	4,376	4,361
OOO Evroles	Under common control	-	182
OOO European Chemical	Under common control	9	-
OOO VTC	Under common control	248	-
		----------	----------
		4,633	4,543
		======	======
Production services purchases:
OAO Kaustik	Under common control	-	294
		======	======
Interest income:
Incarobank	Under common control	127	181
		======	======
Interest expense:
Incarobank	Under common control	-	128
		======	======

6.    Exchange rates

    Exchange rates for the US dollar during the period were:

        

	Average rate to   30 June 2009	Average rate to   30 June 2008	Average rate to  31 December 2008	Closing rate  at  30 June 2009	Closing rate  at  30 June 2008	Closing rate at  31 December 2008
USD 1 - GBP	0.6696	0.5043	0.5390	0.6053	0.5011	0.6906
USD 1 - RR	33.0679	23.8924	24.8736	31.2904	23.4573	29.3804

7.    Subsequent events

On 25 June 2009, the $3,324,000 deposited at Inkarobank was temporarily deposited in another bank. On 2 July 2009 the deposit was returned to Inkarobank and converted into promissory notes which can be redeemed on notice to Inkarobank not before 28 June 2010. As a result, the Group ceased to hold cash or cash equivalents of $3,324,000 and commenced to hold the promissory notes referred to above. Subsequently, on 23 September 2009, the promissory notes were converted into a 3 month cash deposit.

ENDIR KGGZLKDNGLZM