Gulf Keystone Petroleum Ltd. 2017 Half Year Results Announcement (0976R)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Gulf Keystone Petroleum Ltd	LSE:GKP	London	Ordinary Share	BMG4209G2077	COM SHS USD1.00 (DI)

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RNS Number : 0976R

Gulf Keystone Petroleum Ltd.

19 September 2017

Gulf Keystone Petroleum Ltd. (LSE: GKP)

("Gulf Keystone", "GKP" or "the Company")

2017 Half Year Results Announcement

Gulf Keystone Petroleum, a leading independent operator and producer in the Kurdistan Region of Iraq ("Kurdistan" or "Kurdistan Region"), today announces its results for the half year ended 30 June 2017.

Highlights to 30 June 2017 and post reporting period

Operational

-- Gulf Keystone's operations in the Kurdistan Region remained safe and secure throughout H1 2017 with plant uptime at PF-1 and PF-2 of over 99% with no lost-time incidents.

   --      Shaikan achieved average daily production of 36,664 bopd. 
   --      Cumulative production from Shaikan has now exceeded 40 million barrels. 
   --      In March 2017, Shaikan-8 ("SH-8") was brought back on-stream.

-- In April 2017, ERC Equipoise verified remaining gross Shaikan 2P reserves of 615 MMstb, as at 31 December 2016.

-- With gross production of c.35,350 bopd in Q3 2017 so far, gross production guidance for 2017 remains at 32,000-38,000 bopd.

   --      Operational strategy for investment into Shaikan has been matured throughout 2017.

Financial

   --      Cash flow positive through H1 2017.

-- The Group has continued to receive regular payments from the Ministry of Natural Resources ("the MNR") of $15 million gross ($12 million net to GKP) with cash receipts of $84 million net to GKP year to date.

   --      Continued cost control with gross operating costs per barrel of $3/bbl (H1 2016:$4/bbl). 
   --      Profit after tax of $0.7 million (H1 2016 (as restated): loss after tax of $232.6 million).

-- As at 30 June 2017, the Group estimates an unrecognised revenue receivable of $33 million net to GKP with regards to unpaid export sales (December 2016: $25 million) and $76 million net to GKP for the past costs associated with the Shaikan Government Participation Option (December 2016: $71 million).

   --      Cash balance at 30 June 2017 of $118.8 million against $100 million debt principal. 
   --      Cash balance at 18 September of $133.8 million.

-- April 2017, decision taken to pay Reinstated Notes coupon of $5.1 million at 10% interest rate. The decision regarding the October 2017 coupon will be communicated to the market in due course.

Outlook

-- The Company is progressing in its ongoing discussions with the MNR regarding commercial and contractual conditions, in particular those around regular payments conforming to the Shaikan Production Sharing Contract ("PSC") and crude marketing arrangements.

-- GKP is preparing to make further investments to maintain plateau production at the nameplate capacity of 40,000 bopd with a view to increasing to 55,000 bopd, and beyond, subject to MOL and MNR approvals, a regular payment cycle from the MNR and a commercially acceptable investment environment.

Jón Ferrier, Gulf Keystone's Chief Executive Officer, said:

"The first half of the year was a period of solid operational delivery, which has seen the Shaikan field continue to perform in line with expectations.

The Company continues its dialogue with the MNR with the objective of achieving contractual and commercial clarity. Whilst continuing to maintain a rigorous and disciplined approach to its cost base, Gulf Keystone remains cash flow positive and well placed to continue to invest in increasing production from Shaikan."

Enquiries:

 
 Gulf Keystone Petroleum:     +44 (0) 20 7514 1400 
 Jón Ferrier, CEO 
 Sami Zouari, CFO 
 
 Celicourt Communications:    +44(0) 20 7520 9266 
 Mark Antelme 
  Jimmy Lea

or visit: www.gulfkeystone.com

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Notes to Editors:

-- Gulf Keystone Petroleum Ltd. (LSE: GKP) is a leading independent operator and producer in the Kurdistan Region of Iraq and the operator of the Shaikan field with current production capacity of 40,000 barrels of oil per day

   --      Further information on Gulf Keystone is available on its website www.gulfkeystone.com

Disclaimer

This announcement contains certain forward-looking statements that are subject to the risks and uncertainties associated with the oil & gas exploration and production business. These statements are made by the Company and its Directors in good faith based on the information available to them up to the time of their approval of this announcement but such statements should be treated with caution due to inherent risks and uncertainties, including both economic and business factors and/or factors beyond the Company's control or within the Company's control where, for example, the Company decides on a change of plan or strategy. This announcement has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. This announcement should not be relied on by any other party or for any other purpose.

Chairman and CEO Statement

The first half of the year has been a period of solid operational delivery, which has seen the Shaikan field continue to perform in line with expectations. This has been against a backdrop which, despite some more positive developments, such as the recently announced defeat of Daesh in nearby Mosul, remains challenging. The oil price has continued to be somewhat volatile and was most recently adversely impacted by both US shale production and questions over OPEC's influence over pricing. However, now in the region of $50 per barrel, the price of crude has continued to show some signs of recovery from the lows of 2016. These macro factors are highly relevant as they have been part of the turbulence that has buffeted Gulf Keystone's recent past and, frustratingly, continue to overlay some uncertainty with regards to our future.

We are pleased to report first half average gross daily production of 36,664 bopd and c.35,350 bopd in Q3 2017 so far, as well as confirming that we remain on track to meet our guidance for the full year for average gross daily production of between 32,000-38,000 bopd.

Compared to the second half of 2016, which saw the completion of the Company's balance sheet restructuring and the associated high number of market disclosures, this reporting period has been more a time of quiet delivery. In April, the Company was pleased to announce that ERC Equipoise verified gross Shaikan 2P reserves of 615 million barrels of oil (as at 31 December 2016), which reaffirms Shaikan's prominent position in the Kurdistan Region.

The negotiations around the amendment to the Shaikan PSC have continued throughout the period and beyond. Whilst progress is being made, the Board recognises that these discussions are taking time to conclude. The lack of commercial visibility is a hindrance and prevents us from progressing our preferred strategic direction of further investing in Shaikan, in order to increase production. However, the Board notes the recent positive developments regarding the commercial terms agreed between the Ministry of Natural Resources ("the MNR") and other international producers and draws comfort from this positive momentum. The ongoing geo-political uncertainty of the region is clearly one factor to impact these negotiations. The Board will continue to keep progress around the amendment to the Shaikan PSC under close scrutiny.

The MNR has continued to pay Gulf Keystone for its Shaikan crude oil sales, however the recent payment delays have been disappointing. Whilst recognising that a conventional payment cycle in accordance with the Shaikan PSC is yet to be fully established, the Company has now received 20 payments since September 2015. During the reporting period, and post period end, a total of $84 million net has been paid to Gulf Keystone.

As you will read in the Chief Financial Officer's report, Gulf Keystone's balance sheet remains healthy with a cash balance as at 18 September 2017 of $133.8 million. Whilst continuing to maintain a rigorous and disciplined approach to its cost base, Gulf Keystone remains cash flow positive and well placed to invest in increasing production from Shaikan, once the required commercial framework exists for that to happen.

The safety of Gulf Keystone personnel, contractors, partners and those living close to our operations remains our utmost priority and this most important goal was achieved throughout the period. There is no room for complacency and training and education remain central to our HSSE policy implementation.

Shaikan remains a stable and predictable asset which is set to produce for many decades to come. The Board believes that Gulf Keystone has a strong stand-alone future, working with its partners to continue to increase production and therefore create value for all stakeholders. However, the Board also recognises its fiduciary duty to consider approaches from interested parties.

We would again like to thank those working in the field and in our offices in both Erbil and London, as well as our partner, MOL, and our partner and host, the Kurdistan Regional Government ("KRG") and the MNR. In addition, we would like to thank our shareholders for their ongoing support and patience.

Keith Lough

Chairman

Jón Ferrier

Chief Executive Officer

Operations Review

The six months ended 30 June 2017 saw the Shaikan field continue to perform well, and predictably. Shaikan achieved an average daily production of 36,664 barrels of oil per day during the period. Cumulative production from Shaikan has now exceeded 40 million barrels. This is a significant milestone and highlights the field's now established and stable production. During the period, ERC Equipoise estimated gross Shaikan's 2P remaining reserves of 615 MMstb (as at 31 December 2016). This not only puts Shaikan in the top class of producing assets, but also highlights that, despite operational progress enjoyed to date, Shaikan's long life as a producing field has only just begun.

With such milestones, Gulf Keystone's knowledge of the reservoir continues to improve. The encouraging trend is that as production increases the reservoir continues to perform well. Pressure data gathered from downhole gauges which were installed in each well were recovered in April. Furthermore we recently completed a detailed characterisation study of the reservoir fracturing which is a key parameter that affects our future predictions of field performance. Both the pressure data and the reservoir fracture study were in line with previous forecasts of performance from the Upper Jurassic Reservoir (from where most of the oil is produced) and have helped to underpin the Company's confidence in its understanding of Shaikan's subsurface geology.

In March, the SH-8 well was successfully brought back on-stream. This followed a temporary shut in due to an amount of drilling fluids being lost into the reservoir and being produced back from the well. Since production from SH-8 recommenced, the well has continued to produce at a rate of approximately 1,800 bopd. With only traces of drilling fluids showing since its return to production, it is likely that the drilling fluids have drained away from SH-8 and we are very pleased to have been able to keep the well on production. As part of our investment programme however we are looking at facilities improvements that could allow us to clean-up wells such as SH-8 more quickly and reduce the associated production deferrals.

During the period the Company was made aware of a change in the export route for Shaikan crude as the MNR announced that it would commence exporting all Shaikan crude production via trucks to Turkey, as opposed to the previous export route of Shaikan crude being injected into the Kirkuk-Ceyhan export pipeline at Fishkhabour. This was part of the MNR's overall crude export strategy and saw no change in economic terms to the Company, which continues to receive a fixed payment of gross $15 million per month for sales of Shaikan crude. The Company is continuing its discussions with the MNR regarding commercial and contractual conditions.

Throughout the period, and subsequently, a focus has been on the operational strategy for investment into Shaikan. This is in order to maintain production at the 40,000 bopd capacity level, and then to expand production to 55,000 bopd and to subsequent medium term production targets beyond that. The development of these plans has been matured throughout 2017 and remains one of the key workstreams of the operations team. This focus of effort is designed to ensure that as soon as the commercial framework is agreed with the MNR and our partner MOL, the necessary investment can be made and the operational plan executed as quickly as possible.

With production operations continuing to run well, Gulf Keystone remains on track to meet full year gross production guidance of between 32,000 - 38,000 bopd.

HSSE

The safety of those working with us and of the communities living close to our operations remains our number one priority. During the first half of the year, with plant availability of more than 99%, there were zero Lost-time Incidents reported and zero vehicle accidents. Our safety performance ranks well amongst peers in the international oil & gas industry. However, whilst the safety culture remains strong, there is no room for complacency. This was brought home with two recordable safety incidents during the period and one High Potential near-miss Incident. We continue to invest time and resource in training to ensure safe working practices.

Stuart Catterall

Chief Operating Officer

Financial Review

Summary of key financial highlights

 
                                                       Six months 
                                                            ended 
                                                          30 June 
                                        Six months           2016 
                                             ended     Unaudited/ 
                                           30 June    As restated 
                                              2017          (note 
                                         Unaudited            16) 
-------------------------------------  -----------  ------------- 
 
 Gross average production (bopd)(1)         36,664         33,000 
-------------------------------------  -----------  ------------- 
 
 Revenue                                      78.3          102.1 
    Cash receipts assured ($m)(1)             72.0           52.9 
    Offset of payables to the MNR 
     ($m)(1)                                   6.3           49.2 
-------------------------------------  -----------  ------------- 
 
 Underlying gross field cash 
  operating costs per bbl ($/bbl)(1)             3              4 
-------------------------------------  -----------  ------------- 
 
 Profit from operations ($m)                   6.3           14.0 
-------------------------------------  -----------  ------------- 
 
 Finance costs ($m)                          (5.9)         (35.7) 
-------------------------------------  -----------  ------------- 
 
 Impairment expense ($m)                         -        (215.7) 
-------------------------------------  -----------  ------------- 
 
 Profit/ (loss) after tax ($m)                 0.7        (232.6) 
-------------------------------------  -----------  ------------- 
 
 Basic earnings /(loss) per 
  share (cents)                               0.29     (2,413.78) 
-------------------------------------  -----------  ------------- 
 
 Net increase in cash and cash 
  equivalents                                 25.7           31.3 
-------------------------------------  -----------  ------------- 
 
 Additions to oil and gas properties 
  ($m)                                         4.1            3.8 
-------------------------------------  -----------  ------------- 
 
 Net debt ($m)(1)                            (2.0)        (500.3) 
-------------------------------------  -----------  -------------

(1) Gross average production, revenue categories, underlying gross field cash operating costs per bbl and net debt are non-IFRS measures and are explained later in this section.

Revenue and production

Gross liftings for the period were 6.7 million barrels (H1 2016: 6.0 million barrels). Shaikan oil was trucked to Fishkhabour for injection into the export pipeline until February 2017. At the end of February, the MNR began exporting all Shaikan crude production via trucks to Turkey, an arrangement that still stands. While this temporary route is in place, the MNR has confirmed that the economic benefit to the Group will remain unchanged and that they intend to take full responsibility for any additional transportation costs.

During the period, the Group received five payments of $12 million net from the MNR for oil sales, three of the payments related to 2016 oil sales. As at 30 June 2017, the Group recognised four months of revenue receivables of $48 million (H1 2016: $12.5 million) on its balance sheet in relation to liftings from March to June 2017.

Due to continued uncertainty relating to the payment mechanism for sales to the export market, the Group recognises its revenues when the cash receipt is assured (see note 4). Based on this, revenues recognised in the six month period to 30 June 2017 amounted to $78.3 million (H1 2016: $102.1 million) including $72.0 million (H1 2016: $52.9 million) for assured receipts and $6.3 million (H1 2016: $49.2 million) recognised by offsetting payables to the MNR against amounts due for previously unrecognised revenue. Unrecognised revenue arrears at 30 June 2017 are estimated at $33 million (H1 2016: $28 million).

The Group's production is sold under its oil export arrangements with the KRG at a field-specific quality discount to the price

of Brent crude oil and after transportation costs. The Group continues to assume Shaikan quality discount at $14.7/bbl and transportation costs at $5.2/bbl. Based on these assumptions, the realised price for 2017 export sales is estimated at $32/bbl (H1 2016: $20/bbl). This remains subject to audit and reconciliation, and the establishment of a retroactive quality bank for Kurdistan crude oil.

Operating costs, depreciation and expenses

Underlying cash operating costs (defined in the non-IFRS measures section), amounted to $14.1 million or $3/bbl on a gross field basis (H1 2016: $16.0 million; $4/bbl). The decrease in operating costs per barrel is a result of the disciplined management of operating costs and stable production and liftings achieved in 2017.

DD&A charges on production and development assets amounted to $41.1 million (H1 2016: $39.9 million), the increase being attributed to the increase in production volumes.

General and administrative expenses during the period were $9.7 million (H1 2016: $15.7 million). The decrease has been generated through efforts to further increase efficiencies and reduce costs and the absence of professional costs associated with restructuring.

Impairment of property plant and equipment

Management carried out an impairment review of the Group's oil and gas assets as at 30 June 2017 with no impairment identified as at 30 June 2017. The impairment expense in H1 2016 resulted from the change in accounting policy for oil and gas assets from full costs to successful efforts (note 16) and the relinquishment of the Sheikh Adi block in March 2016.

Finance costs

Finance costs of $5.9 million (H1 2016: $35.7 million) mainly consist of the interest payment in respect of the Reinstated Notes in H1 2017 and Convertible Bonds and Guaranteed Bonds in H1 2016 (note 6).

Taxation

Substantially all of the Group's operations are in Kurdistan. No tax charge has been recognised for operations in Kurdistan as, under the terms of the Shaikan PSC, the KRG will settle Iraq tax obligations out of its share of profit oil. The Group's subsidiary presence in the UK gave rise to the tax credit for the period of $0.04 million (H1 2016: charge of $0.3 million).

Cash flow

Net cash generated in operating activities was $30.1 million (H1 2016: $46.9 million). The decrease is due to lower cash receipts for revenue, repayment of certain trade and other payables and the payment of $5.1 million interest (H1 2016: $nil) on the Reinstated Notes.

Capital expenditure for the period amounted to $4.4 million (H1 2016: $15.7 million), leading to the net overall increase in cash and cash equivalents during the period of $25.7 million (H1 2016: $31.3 million increase).

Cash and cash equivalents totalled $118.8 million at 30 June 2017 (30 June 2016: $74.7 million; FY 2016: $92.9 million). Cash and cash equivalents at 18 September 2017 amounted to $133.8 million.

Corporate Activities

Second Shaikan PSC Amendment

The Group continues to work towards the execution of the Second Shaikan PSC Amendment implementing the terms of the agreement signed by the MNR and Gulf Keystone Petroleum International Limited ("GKPI") on 16 March 2016 (the "Bilateral Agreement"). For the avoidance of doubt, MOL was not party to the Bilateral Agreement. The Bilateral Agreement, inter alia, records the MNR's approval to reduce the Group's capacity building charge from 40% to 30% of profit petroleum, and the MNR's approval of the 2010 assignment to GKPI of the 5% participating interest in the Shaikan PSC from Texas Keystone International Limited. It also documents the MNR and GKPI's intention to implement the Third Party Participation Option so that a 7.5% participating interest in the Shaikan PSC in aggregate shall be allocated in favour of GKPI and MOL pro rata to their respective participating interests and a 7.5% carried interest in the Shaikan PSC shall be allocated to the MNR. In addition, the MNR and GKPI stated their intention to recognise the allocation to the MNR of the Shaikan Government Participation Option in the Shaikan PSC with effect from 1 August 2012 (subject to the satisfaction of certain conditions, including the payment by the MNR of associated past costs attributable to the Shaikan Government Participation Option).

Completion of the Ber Bahr block relinquishment

Algerian assets

The Group continues its work on an orderly exit from its Algerian interests.

Financial outlook

The Group will work to sustain its strong liquidity position and continue its efforts to manage costs prudently whilst maintaining safe and secure operations. We have successfully reduced our operating costs in H1 2017 to $3/bbl from $4/bbl in H1 2016. Our operating costs guidance for the year has been revised downwards to $3-$3.5/bbl from $4/bbl communicated in the 2016 Annual report and accounts. We are ready to invest in the Shaikan asset, subject to achieving satisfactory clarity on a number of commercial and contractual conditions with the MNR (as discussed in the Corporate Activities section).

Sami Zouari

Chief Financial Officer

Non-IFRS measures

The Group uses certain measures to assess the financial performance of its business. Some of these measures are termed "non-IFRS measures" because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS. These non-IFRS measures include financial measures such as revenue categories and net debt and non-financial measures such as underlying gross field cash operating costs per bbl and gross average production (bopd).

The Group uses such measures to measure operating performance and liquidity, in presentations to the Board and as a basis for strategic planning and forecasting, as well as monitoring certain aspects of its operating cash flow and liquidity. The Directors believe that these and similar measures are used widely by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity.

The non-IFRS measures may not be comparable to other similarly titled measures used by other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Group's operating results as reported under IFRS. An explanation of the relevance of each of the non-IFRS measures and a description of how they are calculated is set out below. Additionally, a reconciliation of the non-IFRS measures to the most directly comparable measures calculated and presented in accordance with IFRS and a discussion of their limitations is set out below, where applicable. The Group does not regard these non-IFRS measures as a substitute for, or superior to, the equivalent measures calculated and presented in accordance with IFRS or those calculated using financial measures that are calculated in accordance with IFRS.

Revenue categories

The Group's revenue recognition policy is detailed in note 2. The Group recognises revenues once the receipt of cash is assured as well as once it incurs costs payable to the MNR that can be offset against unrecognised revenue arrears.

Underlying gross field cash operating costs per bbl

Underlying gross field cash operating costs per bbl is defined as gross operating costs which, in comparison with cost of sales, exclude depletion and amortisation of oil and gas assets, capacity building charge, production bonuses, oil stock movements and certain other cost of sales. Underlying gross field cash operating costs per bbl is not a measurement of performance under IFRS and prospective investors should not consider underlying cash operating costs as an alternative to cost of sales (as determined in accordance with IFRS) as a measure of the Group's underlying cash operating costs or any other measures of performance under IFRS.

The Directors believe that underlying gross field cash operating costs per bbl is a useful indicator of the operating costs incurred to produce oil from the Shaikan field.

Net debt

Net debt is defined as current and non-current borrowings plus unamortised arrangement fees and the equity component of convertible bonds less cash and cash equivalents. The Directors believe that net debt is a useful indicator of the Group's indebtedness, financial flexibility and capital structure because it indicates the level of borrowings after taking account of unamortised arrangement fees and the equity component of any convertible bonds (which represent amounts that the Group is required to repay to its lenders) and cash and cash equivalents within the Group's business that could be utilised to pay down the outstanding borrowings.

 
                                      Six months   Six months 
                                           ended        ended 
                                         30 June      30 June 
                                            2017         2016 
                                       Unaudited    Unaudited 
-----------------------------------  -----------  ----------- 
 
 Current Borrowings(1)                         -      (239.8) 
-----------------------------------  -----------  ----------- 
 Non-current borrowings(1)                (99.3)      (314.3) 
-----------------------------------  -----------  ----------- 
 Unamortised arrangement fees, PIK 
  interest and equity component of 
  convertible bonds (2)                   (21.5)       (20.9) 
-----------------------------------  -----------  ----------- 
 Add: cash and cash equivalents            118.8         74.7 
-----------------------------------  -----------  ----------- 
 
 Net debt                                  (2.0)      (500.3) 
-----------------------------------  -----------  -----------

(1) Includes Reinstated Notes in H1 2017 and Guaranteed Notes and Convertible Bonds in H1 2016.

(2) Unamortised arrangement fees are incurred on creation or amendment of borrowing facilities. They are capitalised as incurred, set against the associated liability, and amortised over the life of the borrowing facility to which they relate.

Under the terms of the Reinstated Notes, the Group has the option to defer its interest payments until the maturity of the Reinstated Notes in Payment in Kind ("PIK") at 13% or pay in cash at 10% until 18 October 2018 (note 13). The net debt calculation assumes PIK option is elected for the next three interest payments. The interest payment method will be reassessed prior to each interest payment date.

On initial recognition the Convertible Bonds were measured at fair value and included as a component of equity.

Principal risks and uncertainties

The Board determines and reviews the key risks for the Group on a regular basis. The principal risks and how the Group seeks to mitigate them, at half year are consistent with those detailed in the management of principal risks and uncertainties section of the 2016 Annual Report and Accounts. The summary is listed below:

 
 Strategic               HSSE and CSR             Operational      Financial 
----------------------  -----------------------  ---------------  --------------- 
 Political,              HSSE risks               Field delivery   Liquidity 
  social and                                       risks            and funding 
  economic instability                                              capability 
----------------------  -----------------------  ---------------  --------------- 
 Disputes regarding      Gas flaring              Reserves         Export payment 
  title or exploration                                              mechanism 
  and production 
  rights 
----------------------  -----------------------  ---------------  --------------- 
 Business conduct        Security                                  Commodity 
  and anti-bribery                                                  prices 
----------------------  -----------------------  ---------------  --------------- 
 Export route            Corporate 
  availability            social responsibility 
                          risks 
----------------------  -----------------------  ---------------  --------------- 
 Stakeholder 
  expectation 
----------------------  -----------------------  ---------------  ---------------

Responsibility statement

The Directors confirm that to the best of their knowledge:

(a) the condensed set of financial statements, which has been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the assets, liabilities, financial position and loss of the Group as a whole as required by DTR 4.2.4R;

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months of the year and a description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board

Sami Zouari

Chief Financial Officer

18 September 2017

Independent Review Report to Gulf Keystone Petroleum Limited

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 June 2017 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 17. 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 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. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review 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 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 the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

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 (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 inquiries, 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 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 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

London, United Kingdom

18 September 2017

Condensed Consolidated Income Statement