annual report 2005

SLR Holdings Limited Annual Report and Accounts 2005

solutions for today’s environment

PAGE : 02

SLR is a dynamic and fast-growing environmental consultancy with a network of offices in the UK and USA and an inter-

national client base. It provides advice and support on a wide range of strategic and site specific environmental issues to

a diverse and growing base of business, regulatory and governmental clients. SLR specialises in the energy, waste man-

agement, planning & development, industrial, mining & minerals and financial & professional sectors.

SLR Holdings Limited

PAGE : 03 Highlights

PAGE : 04 Chairman’s Statement

PAGE : 06 Chief Executive’s Review

PAGE : 08 Energy

PAGE : 10 Waste Management

PAGE : 12 Planning & Development

PAGE : 14 Industry

PAGE : 16 Mining & Minerals

PAGE : 18 Financial & Professional

PAGE : 20 Board of Directors

PAGE : 23 Report of the Directors

PAGE : 27 Report of the Independent Auditors

PAGE : 28 Financial Statements

PAGE : 32 Notes to the Financial Statements

Annual Report and Accounts 2005

More than 7 years

5 to 7 years

3 to 5 years

1 - 3 years

New for 2005

53%

9%

18%

12%

8%

PAGE : 03

Highlights

During the year, SLR has:

• achieved its 10th consecutive year of double digitrevenue growth which has more than doubled SLR’s size in the last five years;

• maintained EBITA growth and profit margins which are amongst the best in the sector;

• sustained a high level of repeat revenue; over 50% of 2005 revenue came from clients of more than seven years standing;

• achieved strong growth across all the sectorsin which it specialises;

• maintained its substantial investment in people, geographic expansion and service extensions;

• positioned itself in significant growth and regulatory-driven markets where global spend on environmental consultancy services are growing at c.15% per annum; and

• developed its leading reputation and profile in its specialist sectors, thus positioning it well to benefit from the growth in its markets.

Revenue Growth 1996 - 2005

EBITA Growth 1996 - 2005

Revenue by Length of Client Relationship

Following my appointment as Chairman in October 2004, I am delighted to have

joined a strong, profitable business with an excellent reputation across diverse

sectors, which is well positioned to take advantage of the clear opportunities

presented by its markets.

SLR is a leading environmental consultancy providing advice and supporting services for the development

of environmental policy and practice, and the planning, design, permitting, impact assessment,

management, auditing and remediation of assets. It has a broadly spread business in terms of both the

geographical areas and market sectors it addresses, including the energy, waste management, planning &

development, industry, mining & minerals and financial & professional sectors. It has a large, diverse base

of private and public sector clients including ConocoPhillips, GE Wind Power, Biffa, Waste Recycling Group,

Crest Nicholson, Prologis, Honda, Hanson, Imerys, Lloyds TSB, Montagu Private Equity, Defra and the

Municipality of Anchorage, with the largest client representing less than 8% of the Group’s revenue.

This report represents the first results since, on 3 September 2004, ISIS Equity Partners (“ISIS”) invested £4.85

million as part of a transaction which, including senior debt facilities from Lloyds TSB, provided the Group with

£10 million in new funding. As part of that transaction, SLR Holdings Limited acquired SLR Group Limited and

its subsidiary undertakings (“the acquisition”).

The 2005 results show a strong Group financial and operational performance, reflecting growing demand for

all of SLR’s services.

Group Results

The statutory results for the Group are reported for the period from the acquisition on 3 September 2004

to the Group’s period end, 28 October 2005. Prior year audited figures are not available. However, for ease

of comparison, we provide below results for the year ended 28 October 2005 and like for like comparisons

based on the management accounts for the year ended 29 October 2004.

Group revenue in 2005 increased by 26% to £18.7 million from £14.9 million. Profit before interest, tax and

goodwill amortisation increased by 42% to £3.5 million in 2005 from £2.5 million, representing a margin of

18.7% on total revenues (2004: 16.8%).

This strong performance from the Group builds upon its long term track record of consistent growth; average

annual growth in revenue over the last three years has been 23% and average growth in profit before interest,

tax and goodwill amortisation has been 50% (based on management accounts in all prior years).

Chairman’s Statement

PAGE : 04


Dividends

The Directors are paying a dividend of 13.22p per A1 ordinary share and a dividend

of 2.07p per B ordinary share for the full year.

Balance Sheet and Cash Flow

Net assets at the year end stood at £10.4 million.

With strong cash conversion from operating profit, the net cash inflow from

operating activities was £3.8 million.

The year end balance sheet includes, within intangible fixed assets, “goodwill”

with a cost of £14.3 million which arose upon the acquisition on 3 September 2004.

The goodwill is being amortised over the Directors’ estimate of its useful economic

life, being twenty years.

Our People

SLR has a complete and well-balanced Board, representing a wealth of both

industry and corporate experience which will prove invaluable as we take the

business to its next stage of development.

Our staff will always be the Group’s most important asset and I would like to take

the opportunity to thank them for the tremendous efforts they have made during

the year to achieve such a strong performance and to afford us an industry

leading reputation.

Summary

2005 was a year of excellent progress for the Group, building on its already strong

growth track record. We have continued to invest in developing our team, geographic

presence and range of services as well as in the technology to support this expansion.

With a clear strategy in place, and a strong team to deliver it, we are very well

positioned to take the Company to its next stage of development.

John Crabtree

Chairman

Date : 22nd May 2006

PAGE : 05

PAGE : 06

Chief Executive’s Review

In 2005, SLR achieved its 10th consecutive year of double digit growth.

During the period the profit margin, already among the best in the sector,

was significantly increased.

Particularly pleasing was the consistency of the performance across all of our offices and business areas,

which I believe distinguishes the Group from most, if not all, of its competitors in the environmental

sector. The new offices in Cardiff, Portland, Salt Lake City and Richmond made excellent progress

during 2005 and are expected to make a significant contribution to both growth and profit in 2006.

The continued success of the Group is a combination of our underlying strategy and the strength of the

sectors in which we operate.

Strategy

The Group has a clear strategy focused on providing high quality consultancy services to clients

with whom it develops and retains long term relationships. The strategy is based on organic growth,

augmented by the selective acquisition of high calibre companies to strengthen and extend our technical

and geographic coverage.

Development is targeted towards sectors which are attractive, not only due to high growth potential but

which are also sufficiently specialist to allow the Group to establish leading market positions either in terms

of market share or technical expertise. These sectors include energy, waste management, planning &

development, industry, mining & minerals, and financial & professional. Our achievements during the year and

the potential for further growth in these markets are presented in more detail below.

In line with our focus on delivering added value to our clients’ businesses, whilst maximising our

own opportunities, we operate as a single team deploying the appropriate resources to meet clients’

requirements globally and we employ a highly experienced staff, with 60% of our employees having

at least 10 years experience.

Measures of the success of this strategy are revenue and profit growth among the best in the environmental

consultancy sector, combined with exceptionally high client satisfaction ratings and client retention; over 50%

of the Group’s 2005 revenue derived from clients with whom the Group has worked for 7 years or more.


PAGE : 07

Sector Sales Analysis 2005

Market Overview

The environmental consultancy sector has been growing rapidly since the 1970s.

Current estimates suggest that the market is valued at approximately £1.2 billion,

in the UK alone, and it continues to grow unabated.

The market is driven by:

• a high volume of new legislation and regulations;

• the high cost of natural resources driving development spending on new assets

and environmental remediation of existing assets;

• Kyoto and security of supply issues increasing the move to local and sustainable

energy sources;

• the introduction of financial penalties for non-compliance;

• an increased awareness of the reputational issues, responsibilities and liabilities

facing both private and public sector institutions; and

• a lack of resources within those public and private sector institutions to address

this complex and highly specialist area.

All of these factors are widely anticipated to be present for the foreseeable future,

providing an excellent platform for the sustained growth of both the overall

environmental market and SLR.

Operating Review

During the financial year, we have made substantial investment in the

development of the Group. We have grown staff numbers from 186 on 30 October

2004 to 234 on 28 October 2005, since when we have grown the number to 260.

The additional staff have strengthened our capability across all disciplines.

We have further expanded our existing offices and opened new offices in Cardiff

(Wales), Portland (Oregon), Richmond (Virginia) and Salt Lake City (Utah). In 2006,

we plan to open offices in Cambridge, Farnborough, Leeds, Maidstone and

waste management

energy

mining & minerals

planning & development

industry

financial & professional

38%

19%

14%

13%

7%9%

Manchester, both to extend our geographic coverage and to make SLR an even

more attractive employer to quality technical staff already residing in those areas.

The Group’s capability in process engineering was strengthened, with the acquisition

in April 2005 of the trade and assets of Waste Management Engineering Limited,

and we expanded our offering to developers by launching a master planning

service. The opening of the Portland office has allowed the recruitment of several

senior staff with extensive experience in the wood products manufacturing sector,

a major industry in the Pacific Northwest, Scandinavia and the Far East.

Significant investment was also made in IT infrastructure, upgrading our

management and accounting systems to a web-based system capable of handling

a company with several thousand employees; additional CRM and proposal

packages will be rolled out in 2006.

The UK has continued to be our largest market, representing approximately 80% of

Group revenue for the 2005 financial year, whilst we have significantly grown revenues

from both the US, which now represents approximately 15% of Group revenue, and

from Europe, which now represents approximately 5% of Group revenue.

The Group has seen strong growth in demand across its wide range of services

to the energy, waste management, planning & development, industry, mining &

minerals, and financial & professional sectors.

We have, therefore, seen a strong performance across all areas, whilst high metal

prices on the world markets have lead to a particularly strong performance in the

mining sector during 2005, in which we have seen substantial growth from

a relatively low base.


During the period, the Group further

developed its already significant presence in

the renewable energy sector, including wind

power and hydropower, having advised clients

on the development of over 1000 megawatts

of generating capacity.

Energy

PAGE : 08


Its pre-eminent position in waste management has provided excellent opportunities

in biomass, energy from waste (EfW) and anaerobic digestion including a

groundbreaking project for Western Isles Council. The Group has also been working

with British Nuclear Energy on the decommissioning of the Chapel Cross nuclear site.

In addition, its long term clients in the oil sector, which include Alyeska Pipeline

Service Company (APSC), BP, ConocoPhillips, and ChevronTexaco, have provided a

good flow of projects. Of particular significance is the preparation of oil discharge

prevention and contingency plans (commonly referred to as the "C-plan") for major

oil producers in Alaska and providing a range of environmental services to APSC in

Anchorage, Alaska for the November 2006 renewal and strategic reconfiguration of

the Trans-Alaskan Pipeline. We believe these documents to be the most

comprehensive of their type ever produced in Alaska, and probably worldwide,

putting SLR at the cutting edge of such permitting work for the oil sector.

The energy sector is likely to be attractive for a number of years to come with the

decline of natural gas supplies in the UK, the high oil price, and uncertainty or

insecurity in supply from Russia and Africa. The commitment to meet Kyoto targets

on greenhouse gas emissions, combined with the earlier than expected decline in

North Sea production, has placed yet more emphasis on renewable energy.

The UK government is targeting 20% of all UK energy to come from renewable sources

in the next 10 years, with £20 billion of investment in the sector. The UK government

has also announced that both nuclear power and EfW are back on the agenda.

In addition, the formation of the Nuclear Decommissioning Authority in 2005 will

drive the decommissioning of the major UK sites.

In combination, the issues above amount to a “new” market in the UK alone

approaching £100 billion, with the bulk of the spending in the next 15 years. The nature

of both the development of new resources and decommissioning of old ones will

inevitably place significant emphasis on environmental protection. As a result, a

substantive proportion of the spending will be on environmental consultancy and

related services.

In the oil sector, the high oil price is driving both further development and a renewed

emphasis on the remediation of historic contamination. In Alaska, the worldwide

shortage of natural gas is making the construction of a new gas pipeline, from the

North Slope to Canada, increasingly likely and our presence in Alaska means we are

well placed in this region.

With its well established service offering and blue chip reference clients, SLR is ideally

positioned to develop further business in all areas of the energy sector.

The UK government is targeting 20% of all UK energy to come

from renewable sources in the next 10 years, with £20 billion of

investment in the sector.

In 2005 alone, SLR advised clients of renewable power projects

with a combined generating capacity of 1000MW, enough power

to supply over half a million homes. One example of our work

in the renewable power sector is Stroupster Wind Farm.

Between 2004 and 2006, SLR project managed preparation

of an Environmental Impact Assessment for the Stroupster Wind

Farm development in Caithness, Scotland. The assessment

addressed all potential environmental issues including landscape

and visual amenity, ecology, hydrology, hydrogeology, soils, noise,

archaeology, traffic and transport, and socio-economic effects.

The application for the Stroupster development has been

submitted, and is due to come to Public Inquiry in 2006.

Development of renewable power projects with 1000MW capacity

PAGE : 09


PAGE : 10

Waste Management SLR is the leading consultant to the private waste management sector

in the UK and continues to expand its offering to national and local

government on waste strategy and procurement.

Of particular note was a review, undertaken for The Chartered Institute

of Wastes Management (CIWM), of the progress of Europe in meeting

the Landfill Directive targets. This review is likely to have a considerable

influence on the UK’s waste strategy over the next decade. We also

designed and are currently commissioning the first anaerobic digestion

plant for municipal waste in the UK, for Western Isles Council. This is

an example of SLR spearheading the introduction of new technologies

to allow the UK and Europe to meet the stringent targets identified in

the next 10 years.


The commissioning of SLR during 2005, by the Municipality

of Anchorage, to undertake monitoring and remediation works

on one of the City’s municipal waste landfill sites was the first

significant breakthrough into the US solid waste market.

The waste sector in the UK alone is worth £7 billion a year

with the main growth driver being the Landfill Directive, which

among other things sets targets for the diversion of

biodegradable municipal wastes from landfill, prevents co-

disposal of hazardous wastes, and imposes rigorous landfill

engineering standards. The diversion targets extend to 2020,

and it is estimated that compliance with them will require the

construction of some 2,500 new waste handling and treatment

facilities, ranging from small recycling centres to regional EfW

plants. In addition, every landfill site in the UK requires

re-permitting by the end of 2007.

Early targets, in 2006, are relatively easily met by the recycling

of green waste and kerbside separation of paper and plastics.

The later targets in 2009 and 2016 require fundamental changes

in the way the UK manages its waste, and implementation of

those changes will be progressive over the next 10 years.

The Group is exceptionally well placed to exploit the planning,

permitting, design and development of these facilities in a

programme which is regulatory driven and, therefore, almost

insensitive to the economic climate.

The European Union Landfill Directive set the following targets for the reduction

of biodegradable municipal waste going to landfills across European Member States:

– 75% by 16 July 2006;

– 50% by 16 July 2009; and

– 35% by 16 July 2016.

These targets are calculated as a percentage of the total amount of biodegradable

municipal waste produced in 1995 and are to be achieved mainly by means of recycling,

composting, biogas production or materials/energy recovery. For the UK these targets

have all been extended by four years.

In 2005, SLR Consulting Limited completed a pan-European study on behalf of the

Chartered Institution of Wastes Management (CIWM) of the progress of Europe in

meeting the Landfill Directive targets. The study, which began in September 2005 with

visits to nine countries, focuses upon Municipal Solid Waste (MSW) and draws upon

data gathered in interviews with key personnel from central and regional public

authorities, regulatory agencies and from industry.

The resultant report makes a series of recommendations for the development of policy,

planning and funding mechanisms to deliver waste infrastructure across the UK. These

recommendations have underpinned the Department for Environment, Food and Rural

Affairs’ (Defra’s) review of Waste Strategy 2000 issued for consultation in February 2006,

thus having considerable influence on the UK’s waste strategy over the next decade.

Study for the Chartered Institution of Wastes Management:Lessons Learned from Europe in meeting the Landfill Directive targets

PAGE : 11

Planning& Development

PAGE : 12

We have continued our long term relationships with both

commercial and residential development companies such as

Akeler, Barratt Developments, Crest Nicholson, First London,

Peel Holdings, Persimmon and Prologis, whilst developing a

considerable number of new high profile clients including Inland

Homes, George Wimpey, Taylor Woodrow and Tayross Homes.

In the development sector, we more than doubled the client

base in 2005.

The sector remains buoyant with aggressive government

targets for the construction of one million new homes in

the UK by 2016, augmented by major developments such

as the 2012 Olympics.

Since the introduction of the Environmental Protection Act 1990,

the environmental consultancies in the UK have been expecting

substantial growth in work from developers, but it was only in

2005 that all the elements of legislation and guidance were

finally put in place. In particular, planning guidance in the form

of PPS 23, introduced in November 2004, has led to planning

authorities taking a more rigorous and consistent approach

to potentially contaminated development land. The introduction

of environmental screening to virtually all private property

transactions in the last couple of years has also raised the profile.

Our own discussions with developers and funding institutions

confirm that potential environmental issues and liabilities have

become a material consideration in all deals involving property.

2005 also saw more aggressive application of EU legislation

on the protection of endangered species such as the Dartford

Warbler, which has major implications for development,

particularly in the south of England.

The combination of recovering commercial property prices,

government housing targets and increasing environmental

planning guidance is expected to result in increased demand

for all of our planning and environmental impact assessment

services both in 2006 and thereafter. Given SLR’s track record

in retaining and successfully expanding the range of services

used by developers, the number of new clients in 2005 is

particularly encouraging, underpinning the Group’s future

growth prospects in this sector.


During the period we have built upon our well established planning & development practice

with an increasing number of high profile projects such as the redevelopment of Highbury,

the Arsenal football ground, and assisting with the 2012 London Olympic bid.


Arsenal Football Club will be moving to its brand new stadium for the beginning of the 2006/07 football

season. Its former home at Highbury is to be redeveloped, principally for residential use. Construction of

the Highbury Square development is due to commence in the autumn of 2006, with the creation of just over

700 residential units in four principal phases. The overall development is due to be completed by 2009,

and will include retail outlets, a medical centre, a children’s nursery and a gymnasium.

In 2005, SLR Consulting Limited prepared a detailed waste management strategy for the proposed

development as part of the planning process. Since then, SLR has been retained to advise on the design

and implementation of all aspects of waste handling, storage, treatment and disposal. The aim has been

to provide a waste management scheme that is truly sustainable, reflecting accepted good practice and

thereby delivering a scheme that is both environmentally and commercially sustainable.

Highbury Square is a prestigious development and it is, therefore, essential that this is reflected in the way

in which key environmental issues are addressed in terms of both construction and management. SLR has

played an important role in delivering a waste management system that will contribute to this overall aim.

The redevelopment of Arsenal’s Highbury Stadium

PAGE : 13

PAGE : 14

Industry For a company of its size, SLR has always had a significant

client base among blue chip manufacturing companies.

Long term clients include Ashland, BAE Systems, Honda,

Huntsman Tioxide, Muller and Northwest Airlines.

Particularly pleasing in 2005 was the development of international projects for

US industry clients. For example, we undertook pan-European due diligence for

JELD-WEN, one of the largest manufacturers of doors and windows in the world and

a project for Seattle-based Crowley Maritime involving environmental assessment,

structural surveys, a planning compliance review and a lease review of a UK site

on their behalf.

Analysis of the client base at the end of 2005 shows that over 50% of the clients

were new, including household names such as Alaska Airlines, Ideal Standard, Nissan,

Pfizer and United Biscuits.

An increasing awareness of environmental issues as well as the commercial and

reputational benefits of managing environmental risk are generating substantially

more consultancy work.

In the UK, some penalties have been imposed for environmental

liabilities under recent legislation and many anticipate that

these penalties may progress in much the same direction as in

the US – where, in 2004, the US Environmental Protection

Agency required polluters to pay $4.5 billion in injunctive relief

for environmental cleanup. This is encouraging an increasing

number of companies to proactively audit, manage and address

their environmental liabilities.



PAGE : 15

Ashland UK, a division of Fortune 500 company Ashland Inc., is a leading supplier

of speciality chemicals for use in diverse industries. Its Midlands-based plant

manufactures pressure sensitive adhesives and polymers for use in aerospace, optical,

automotive, electrical and other applications. The casting products plant manufactures

foundry binder products and associated industrial chemicals. These products are

supplied to industry throughout Europe.

SLR provides a wide range of environmental services to Ashland that have helped

it to operate and maintain its plant in line with the highest applicable environmental

standards and systems. These include services to support Ashland’s environmental,

accident and incident risk management; the measurement and assessment of omissions,

noise and odour; the assessment of Best Available Techniques; as well as a variety of

Pollution Prevention and Control (PPC) projects that have included the preparation

of a full planning application for a new reactor to produce its phenolic products.

SLR has developed a close working relationship with Ashland, gaining in depth

understanding of its requirements and working with it on ongoing

environmental programmes.

This relationship has enabled SLR to provide straightforward advice, continuity

and seamless control of all major issues to ensure the efficient management and

control of its plant as well as ongoing compliance with the latest developments in

UK environmental legislation. With SLR’s assistance, Ashland is able to implement

systems which not only make business sense but are also in line with its

commitment to the highest environmental and regulatory performance standards.

Ashland UK – SLR provides Ongoing Support to Leading Supplier of Speciality Chemicals

PAGE : 16


Work undertaken in this sector more than doubled in 2005,

with revenues growing to £2.5 million driven by a strong

performance in both the UK and North America.

SLR has excellent technical capability in environmental aspects

of the mining and minerals sector. In the UK, the Company

has been a leading consultant to the minerals industry for

several years, working with most of the leading mineral

operators. The move towards outsourcing by all of the major

players has produced significant opportunities for consultants

and we have taken full advantage of this trend.

Mining & Minerals


In late 2004, we added a mineral valuation team to the Group. The valuation team

has been highly successful and has secured a number of major contracts including

those with Biffa, Hanson, Imerys, Lafarge, and Steetley. We believe that the

Group’s full service offering combining environmental, planning, structural and

valuation services is highly attractive to our client base and a key point of

differentiation from many of SLR’s competitors.

For a number of years the Group undertook only periodic work for the mining

industry, as low commodity prices dampened development in the sector. In 2005,

however, the rapidly developing economies of India and China increased demand

and pushed up prices.

In 2005, we achieved a substantial level of fees for mining related consultancy in

areas as diverse as Alaska and Zambia. The largest single project was the proposed

Pebble Mine in Alaska, which is believed to be the largest copper-gold deposit in

North America.

To date, we have largely used our existing technical resources to service this

growing market, but 2006 will see a focus on hiring additional high calibre staff,

particularly in the area of acid mine drainage, in line with increasing demand.

Whilst the minerals sector is not particularly buoyant in itself, the combined trends

of market consolidation and outsourcing are expected to produce ongoing growth

for SLR. In addition, all of the operators are looking to exploit their extensive land

holdings for development and SLR’s capability in both the minerals and

development sectors positions it well to provide consultancy advice as these

opportunities evolve.

Whilst mining is subject to the vagaries of the world economy and its effect on the

commodity markets, the underlying growth of the Asian economies should provide

optimism. The recent increase in prices, with gold having broken the $500/oz.

barrier and platinum over $1000/oz., also provides encouragement.

We believe mining offers good short to medium term growth prospects for the

Group and that there is plenty of opportunity for us to continue to increase our

workload in this sector.

Northern Dynasty Mines Ltd, (NDM) a Vancouver, British

Columbia, based mining company is seeking to develop

The Pebble Deposit, a large copper-gold porphyry deposit

located in Southwest Alaska approximately 175 miles from

Anchorage. NDM is proposing to develop an open pit mine

and milling operation that would produce gold, copper,

molybdenum and silver. The inferred resource is estimated

to contain 26.5 million ounces of gold and 16.5 billion pounds

of copper with lesser amounts of molybdenum and silver.

SLR is providing a range of environmental consulting services,

including the completion of hydrogeological investigations

and background trace element studies in preparation of an

environmental impact statement (EIS) and a state permit

application. Field work has included the collection and analysis

of water, soil, vegetation samples and the installation and

sampling of over 150 groundwater monitoring wells in an area

exceeding 260 km2. Information that is gathered through this

field work effort is being used to develop a comprehensive

understanding of site conditions at the proposed mine site and

adjacent areas.

Working closely with NDM, SLR is collating the information

to establish baseline conditions and developing an analytical

database necessary to support the preparation of the EIS and

permitting documents.

Northern Dynasty Minerals Ltd’s development of The Pebble Deposit, Alaska

PAGE : 17

Financial& Professional

Notable among the projects in 2005 was the environmental

due diligence for Montagu Private Equity’s investment in the

£200 million management buyout of Cory Environmental from

Excel. SLR also works directly for a number of the major banks,

including Clydesdale, Lloyds TSB and Natwest, and equally

importantly, has had reports accepted for lending purposes

by all of the major clearing banks in the UK and Ireland.

SLR is also increasingly providing specialist environmental

consultancy services to other consulting firms. We have a

longstanding relationship with Buro Happold, one of the UK’s

leading structural engineers, Halcrow and Land Use Consultants,

as well as a raft of smaller firms. As environmental issues

become more critical and complex, this trend is expected

to continue, and unlike many of the larger multidisciplinary

architectural and engineering practices SLR is not seen as

a competitor to such businesses.

In recognition of the potential of this market, considerable

efforts have been made in raising SLR’s profile with private

equity firms and financial advisors. This initiative has been

extremely well received and is expected to produce

significantly more work in the sector in 2006.

As we are mindful that this is a cyclical and, therefore,

less predictable market, we intend to ensure that we do not

become over-reliant upon it. However, we are confident

that it will continue to represent strong opportunities for

the Group in 2006.


SLR provides environmental due diligence services to private

equity companies and the banking sector. The work includes

both vendor and acquirer due diligence and includes the

assessment of property liabilities and the impact of new

environmental and carbon emission legislation on businesses.

For example, SLR has provided environmental due diligence

services to Montagu Private Equity (Montagu) for the last 5 years.

In the financial year 2005, SLR undertook due diligence for the

£200 million management buyout of Cory Environmental (Cory),

one of the UK's leading recycling and waste management

companies. This involved SLR assessing historic environmental

issues across Cory’s 30 locations in the UK and predicting the

effects of new legislation on the business going forward.

SLR’s sector expertise and knowledge of existing and developing

environmental regulation helped Montagu gain the comfort it

needed to proceed with investing in a company well placed to

exploit those legislative changes.

Environmental Due Diligence for £200 million MBO of Cory Environmental

PAGE : 18

The buoyant market in mergers and acquisitions over the last 2 years and in particular the

increase in private equity transactions is driving growth in the environmental due diligence

market. In 2005, SLR’s revenue in this market sector grew by over 60%.


PAGE : 19

Summary

SLR continued to build upon its strong track record of revenue and profit

growth in 2005. This growth was consistent across all of the Group’s operations.

Underpinning this growth are the increasing public, regulatory and financial

pressures on government and the private sector to reduce environmental impact

at global, national and local level.

The combination of a buoyant, regulatory-driven market and SLR’s strong

management team and reputation creates substantial opportunities to develop

the Group across all of its areas of expertise.

David Richards

Chief Executive



The SLR Holdings Limited Board is made up of seven directors,

comprising four executive directors and three non-executive

directors. Two of the non-executive directors are independent,

with the third nominated by ISIS Equity Partners.

PAGE : 20

Board of Directors

PAGE : 21

John Crabtree (55) – Non Executive Chairman

John joined as Non Executive Chairman of SLR Holdings Limited in October 2004. He was formerly the senior partner at Birmingham-based corporate law firm Wragge & Co,

where he led the growth of the practice from a turnover of £15.7 million to a £77.8 million turnover, international business with 110 partners. John retired as senior partner in 2003

but retains a non-executive role.

John is also non-executive Chairman of Metalrax Group plc, Claimar Care Group plc and Birmingham Hippodrome Theatre Trust. He is also a Director of Advantage West

Midlands, Warwick Racecourse Company Ltd, a non-executive Director of Staffline Recruitment Group plc and Vice President of the Birmingham Chamber of Commerce.

David Richards (47) - Chief Executive

David is the Chief Executive of SLR Holdings Limited and Chairman of SLR Consulting Limited and SLR International Corporation, with overall responsibility for the management

of the Group. Having established the Company in 1994, he has led the management team responsible for developing the Group into one of the fastest growing and most

profitable environmental consultancies in the UK.

Prior to joining SLR, David was a Senior Manager with Golder Associates, a major international environmental consultant, where he was responsible for the management

of the environmental group in the UK and played a key role in its European operations.

Neil Penhall (41) - Executive Director

Neil has been Managing Director of SLR Consulting Limited since 2001 and is also an Executive Director of SLR Holdings Limited. Neil has direct responsibility for the day to day

operation of the UK consulting business and the development and growth of the Company.

Prior to joining SLR in 1995, Neil was a Principal Consultant responsible for the waste management group of US owned Rust Environmental. He previously worked for

Dames and Moore International (which has now become URS, the largest global engineering design firm).

Kevin Rattue (47) - Executive Director

Kevin Rattue is the President of SLR International Corp, responsible for the U.S. operations, as well as an Executive Director of SLR Holdings Limited. Prior to joining SLR in 2000,

Kevin was the Chief Operating Officer of SECOR International, a $100m turnover international environmental consultancy with its head office in Seattle.

Kevin has 25 years of experience with environmental consultancies and oil companies and holds an MBA from the University of Birmingham. He also serves as a Director

of the British-American Business Council (Pacific Northwest).

Alan Sheppard (42) - Executive Director

Alan is an Executive Director of SLR Holdings Limited. Having joined in 1994, he has overall responsibility for the Energy and the Financial & Professional business areas.

He has over 20 years of consulting experience, primarily in contaminated land and geotechnical engineering, in the UK and Canada having previously founded and managed

SEACOR, one of Canada’s leading environmental consultancies. Alan has extensive experience, including managing the assessment and remediation of over 1500 petroleum

facilities; supporting property transactions, planning applications and regulator liaison throughout the UK and Canada; and acting as an expert witness on such matters.

Liz Jones (31) - Non Executive Director

Liz joined as a Non-Executive Director of SLR Holdings Limited at the time of ISIS Equity Partners’ investment in SLR. She is responsible for one of the ‘new investments’

teams within ISIS Equity Partners in London, which undertakes investments in growing businesses such as SLR.

Liz joined ISIS in 2001 from Barclays plc where she spent six years including the latter four within Barclays Ventures where she completed eight private equity investments

across a number of industry sectors.

Nish Malde (47) - Non Executive Director

Nish joined in December 2002 as a Non-Executive Director to assist the Board with strategy and corporate governance.

He was formerly Group Financial Director and Company Secretary of Country & Metropolitan PLC (“C&M”), between 1998 and 2005, where he was instrumental in the Group’s

flotation on the main market of the London Stock Exchange in December 1999. During his time at C&M he was responsible for the Group’s finances, investor relations and

provided close management support to the CEO. The Group grew from a market capitalisation of £7m to £75m upon its disposal in April 2005. He was recently appointed

to the board of AIM listed company, Billam PLC, and is also a director of property development company, Inland PLC.

Prior to C&M, Nish qualified in 1985 as a chartered accountant with KPMG, specialising in advising owner managed businesses, before setting up a consultancy firm advising

an extensive range of corporates.

PAGE : 22


Report of the directors for the period ended 28 October 2005

PAGE : 23

Principal activities

The principal activity of the Company is that of a holding company for the

SLR group of companies, which provide environmental consultancy services

from offices in the UK and US.

Trading review and future developments

The results for the period are set out on page 28 and the financial position

is set out on page 29. Further information on the review of the business and

the directors’ expectation of the development of the Group’s activities for the

coming year are given in the Chairman’s statement and Chief Executive’s review

on pages 4 to 19.

Dividends

During the period an interim dividend of £71,250 was paid on the Company’s A1

ordinary shares. In accordance with the Company’s Articles of Association, final

dividends of £71,250 on the Company’s A1 ordinary shares and £62,713 on the

Company’s B ordinary shares are payable.

Shareholder Structure

ISIS 29.99%

Directors and senior management 65.09%

Other employees 4.92%

The directors present their report together with the

financial statements for the period ended 28 October 2005.

On 3 September 2004 the Company purchased SLR Group

Limited and its subsidiary undertakings. These financial

statements represent the results of the Company from

incorporation, and of the Group from the date of acquisition.


PAGE : 24

Directors and their interests

A list of the present directors of the Group is given on page 21.

The directors of the Company during the period, together with their interest in its share

capital were as follows:

B ordinary shares of £0.01 each

28 October 20 May2005 2004*

D G Richards (appointed 3 September 2004) 4 1 1 ,220 -

A J Sheppard (appointed 3 September 2004) 329,978 -

K G Rattue (appointed 3 September 2004) 8 3 ,1 3 5 -

N C Penhall (appointed 3 September 2004) 284,302 -

N Malde (appointed 2 August 2004)** 8,120 100

J Crabtree (appointed 15 October 2004) 23,058 -

E Jones (appointed 29 April 2005) - -

K R Whittle (appointed 3 September 2004,

resigned 29 April 2005) - -

At 28 October 2005, E Jones had an interest in 36 of the Company’s A1 ordinary shares

and 7 of the Company’s A2 ordinary shares.

* or date of appointment, if later

** N Malde held 1 ordinary £1 share at the date of his appointment as a director

of the Company. On 3 September 2004, this was redesignated and subdivided into

100 B ordinary shares of £0.01 each.

At 28 October 2005, third party indemnity provision for the benefit of the Company’s

directors was in force.

Share options over the Company’s B ordinary shares have been granted to directors

under the Company’s Unapproved Share Option Scheme, as detailed below:

Option Options granted Options outstanding Exercise Exercise Holder in period at period end price period

K Rattue 24,000 18,000 65p November 2004 - November 2007

During the period ended 28 October 2005, K Rattue exercised 6,000 options

at 65p per share.

Charitable and Political Donations

Charitable contributions totalling £8,277 were made during 2005 to the British Red

Cross (UK Disasters Emergency Committee), the US Red Cross, CLIC Sargent (Caring For

Children With Cancer) and Cancer Research. No political donations were made during

the financial period.

Directors' responsibilities

Company law requires the directors to prepare financial statements for each financial

period which give a true and fair view of the state of affairs of the Group and Company

and of the profit or loss of the Group for that period. In preparing those financial

statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and 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 will continue in business.

The directors are responsible for keeping proper accounting records which disclose with

reasonable accuracy at any time the financial position of the Company and to enable

them to ensure that the financial statements comply with the Companies Act 1985.

They are also responsible for safeguarding the assets of the Group and hence for taking

reasonable steps for the prevention and detection of fraud and other irregularities.

Auditors

BDO Stoy Hayward LLP, who were appointed as first auditors of the Company

by the directors, have expressed their willingness to continue in office and a resolution

to re-appoint them will be proposed at the annual general meeting.

Corporate Governance

SLR has had a strong system of governance in place throughout its existence.

The Board believes that current standards are commensurate with the nature and size

of the Company, and consistent with listed companies of a similar size. The Board

continues to review corporate governance issues in the light of current best practice

and seeks continual improvement.


PAGE : 25

Board Composition and Operation

The Board is made up of 4 executive directors and 3 non-executive directors.

The executive directors are:

David Richards (Chief Executive)

Neil Penhall (Managing Director of SLR Consulting Limited)

Kevin Rattue (President of SLR International Corp.)

Alan Sheppard (Director)

The non-executive directors are:

John Crabtree (Independent Chairman)

Nish Malde (Independent Director)

Liz Jones (ISIS Equity Partners nominated Director)

The Board meets regularly and where appropriate operates in a manner consistent

with the recommendations of the Combined Code on Corporate Governance.

The Audit, Remuneration and Nomination committees are formed, in each case, of two

non-executive directors to undertake their responsibilities in a manner consistent with

the recommendations of the Combined Code.

Operating Structure

A key element of the Group’s success is the clarity and efficiency of its management

structure and the quality of its management and accounting systems. The Group has

two operating companies; SLR Consulting Limited in the UK and SLR International Corp.

in the US. Each operate seven offices which are also profit centres for budgeting and

accounting purposes.

The Group operates central accounting and HR functions in the UK and the US, which

both report to the Group board.

Employment Policies

The Group’s business is based on attracting, retaining and motivating staff of the highest

technical quality, who are also commercial in their approach and committed to the

strategy and growth of the Group. The Board recognises that the retention and

motivation of existing employees and the attraction of new high calibre employees is

critical in a professional services company. As such, the Group uses a range of dedicated

and sophisticated methods to achieve this, including professional training and

development, a flexible approach to working hours and practices, and a wide range of

staff incentives incorporating government approved ownership schemes.

Career Development and Professional Training

The Group is committed to strong organic growth which provides clear opportunities

for staff to develop their careers within the Group. The Group also supports

professional development and has programmes in place to help employees achieve

Chartered status (or equivalent) in their chosen profession.

Employee Incentivisation

As well as providing staff with industry standard employment packages in terms of

salary and other benefits, the Group runs a discretionary bonus scheme to which all

staff are eligible. The Group also has a share option scheme and is creating an Employee

Benefit Trust to provide ownership to key employees. The employee ownership scheme

is considered by the Board to have been very successful in retaining key employees who

are delivering significant shareholder value.

Internal Control and Risk Management

The Group has always sought to minimise risk in all aspects of its operation. Primary

risks and risk mitigation measures are briefly considered below.

Strategic risks are limited in the Group’s business. It has a focussed strategy, closely

aligned with its capabilities and is operating in a rapidly growing market sector. The

Board is mindful of the risk of a failed or aborted acquisition and is not contemplating

any major changes which could damage the business. The environmental sector is

largely regulatory driven, so the business has a low exposure to political or general

economic risk. The most significant risk is one of reputation and the Group works hard

to mitigate this risk by hiring high quality staff, and applying appropriate quality

management procedures. The nature of the environmental sector tends to attract staff

with high ethical standards. This is reinforced by the Group ethos and procedures. The

overall strategic risk and associated ethical risk are considered low.

The management has a track record of successful leadership and has considerable

strength and depth. The Group has a fast growing and highly motivated professional

staff, many of whom have significant shareholdings in the Group. Risks associated with

both management and key staff are considered low.

The Group has a broadly spread business in terms of sector, geography and client base.

The rapidly growing marketplace provides good opportunities to expand brand

recognition. In terms of suppliers, the Group makes limited use of subcontractors, all

of whom are subject to a strict approval process. Overall market risk, from either clients

or suppliers, is considered low.

The Group takes health and safety issues extremely seriously and has all appropriate

procedures in place. The Group normally undertakes work under its Standard

Conditions of Engagement which have recently been reviewed by its legal advisers.

Where this is not the case, all non-standard contracts are reviewed by a Director and

referred to the Group’s legal advisors where appropriate. The Group has a professional

HR team who work with the Group’s legal advisors to minimise risks associated with

employment law. Notwithstanding the above, certain sectors of the Group’s business,

such as development clients, can be litigious, and there is always some risk with

employees. The overall legal and compliance risk is considered low to moderate.


PAGE : 26

Internal Control and Risk Management (continued)

Financial risks mainly centre around the leveraged nature of the business, although the

level of profitability and the strong cash flow are considered to make this a moderate

to low risk. The Group has a robust accounting function which minimises systemic risk.

The US accounting group is small and, therefore, there is some risk as it is difficult fully

to separate functions and avoid self checking. The Board is aware of this and

appropriate steps will be taken as the Group grows. Overall the financial risks are

considered low to moderate.

Overall the Board considers that risk management within the business is well managed,

although the Board continues to monitor the risk profile as the Group develops.

Corporate Social Responsibility

The Board is committed to operating the Group in a socially and environmentally

responsible manner and ensures that appropriate policies are in place to achieve that.

The responsibility for ensuring compliance is delegated to the Board’s Executive

Directors, and by their nature to every employee in their dealings with their colleagues,

clients and the public at large.

The Group has existing policies covering Business Ethics, Environmental Standards,

Equal Opportunities, Family Support, Charitable Contributions, and Health and Safety.

These are subject to regular review, are amended and updated as appropriate and are

as follows:

Business Ethics

SLR expects all staff to behave in a professional manner at all times, maintaining the

highest standards of integrity, honesty and conduct, as well as obeying all applicable

laws. The Group works for many clients in the same business areas and encourages

employees to assess and report conflicts of interest, either personal or corporate,

so these can be avoided or resolved to the satisfaction of all parties.

Environmental Standards

As a leading international environmental consultancy, SLR is committed to improving

its environmental performance. Although, by its nature, it is not a business with

substantial direct environmental impact, the Group and its employees continually

seek to minimise that environmental impact in a manner consistent with a growing

company with its main activities focussed on reducing the environmental impact

of its clients. Examples of the practical aspects of the environmental policy are the

consistent review of the Group’s vehicles to drive a sustained reduction in CO2

emissions (whilst also encouraging the use of public transport where possible), reuse

and recycling of the waste stream where possible, and minimising heat and power

usage in offices. The Group is currently evaluating the use of video conferencing

as a way of reducing the number of journeys between its offices.

Equal Opportunities

SLR is a people business and is committed to supporting all of its employees. We afford

equal opportunities to all employees and potential employees regardless of race, creed,

colour, nationality, sex or disability. We apply employment policies which are fair,

equitable and consistent with the skills and abilities of our employees and the needs

of the business. SLR will not perpetuate or condone any discriminatory act or attitude

in the conduct of our business with the public or our employees and any acts of racial

or sexual discrimination are regarded as disciplinary offences.

Family Support

The Group also recognises the importance of work/life balance in the wellbeing of its

employees. It has developed a series of “family friendly” policies, and has encouraged

part time working and job share, where these are consistent with the needs of the

individual and the Group.

Charitable Policy

The Group and its employees support charities at local and national level, and

employees are encouraged to support local communities.

Health and Safety

The Group is committed to achieving and maintaining high standards of health and

safety within the organisation. The Group board is responsible for health and safety

within the Group and for ensuring that safety remains a priority and an integral part

of its activities. The companies within the Group have appropriate general Health

and Safety policies, with specific Health and Safety plans and risk assessments being

developed for particular activities or sites. In certain instances, particularly in the oil

industry, the Group’s employees are inducted into our clients’ policies and

procedures. Where this is the case, and the policies are deemed reasonable and

appropriate, the Group requires its employees to conform to those procedures.

By order of the Board

J M Green

Secretary



PAGE : 27

Basis of audit opinion

We conducted our audit in accordance with United Kingdom Auditing Standards issued

by the Auditing Practices Board. An audit includes examination, on a test basis, of

evidence relevant to the amounts and disclosures in the financial statements. It also

includes an assessment of the significant estimates and judgements made by the

directors in the preparation of the financial statements, and of whether the accounting

policies are appropriate to the Group’s circumstances, consistently applied and

adequately disclosed.

We planned and performed our audit so as to obtain all the information and

explanations which we considered necessary in order to provide us with sufficient

evidence to give reasonable assurance that the financial statements are free from

material misstatement, whether caused by fraud or other irregularity or error. In forming

our opinion we also evaluated the overall adequacy of the presentation of information

in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs

of the Group and the Company as at 28 October 2005 and of the profit of the Group

for the period then ended and have been properly prepared in accordance with the

Companies Act 1985.

BDO STOY HAYWARD LLP

Chartered Accountants and Registered Auditors

London


To the shareholders of SLR Holdings Limited

We have audited the financial statements of SLR Holdings

Limited for the period ended 28 October 2005 on pages

28 to 40 which have been prepared under the accounting

policies set out on pages 32 to 33.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the annual report and the financial

statements in accordance with applicable law and United Kingdom Accounting

Standards are set out in the Statement of Directors' Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant

legal and regulatory requirements and United Kingdom Auditing Standards.

We report to you our opinion as to whether the financial statements give a true

and fair view and are properly prepared in accordance with the Companies Act 1985.

We also report to you if, in our opinion, the Directors' Report is not consistent with

the financial statements, if the Company has not kept proper accounting records,

if we have not received all the information and explanations we require for our audit,

or if information specified by law regarding directors' remuneration and transactions

with the Company and other members of the Group is not disclosed.

We read other information contained in the annual report and consider whether it is

consistent with the audited financial statements. The other information comprises only

the Highlights, the Chairman’s Statement, Chief Executive’s Review and the Report of the

Directors. We consider the implications for our report if we become aware of any

apparent misstatements or material inconsistencies with the financial statements.

Our responsibilities do not extend to any other information.

Our report has been prepared pursuant to the requirements of the Companies Act

1985 and for no other purpose. No person is entitled to rely on this report unless

such a person is a person entitled to rely upon this report by virtue of and for the

purpose of the Companies Act 1985 or has been expressly authorised to do so by our

prior written consent. Save as above, we do not accept responsibility for this report

to any other person or for any other purpose and we hereby expressly disclaim any

and all such liability.

Report of the independent auditors

PAGE : 28


Note £

Turnover 2 21 , 57 1 ,876

Cost of sales (10,944,707)

Gross profit 10,627,169

Administrative expenses (7,794,296)

Operating profit before goodwill amortisation 3,679,080

Goodwill amortisation (846,207)

Operating profit 5 2 ,832 ,873

Interest receivable 55,592

Interest payable and similar charges 6 (798,280)

Profit on ordinary activities before taxation 2,090,1 8 5

Taxation on profit from ordinary activities 7 (863,665)

Profit on ordinary activities after taxation 1,226,520

Dividends (including non-equity) 8 (205,213)

Retained profit for the period 18 1 ,021 ,307

All amounts shown relate to continuing activities.

Consolidated statement of total recognised gains and losses for the period ended 28 October 2005

£

Profit for the financial period 1 ,021,307

Currency translation differences on net investments 7,764

Total recognised gains and losses for the financial period 1,029,07 1

The notes on pages 32 to 40 form part of these financial statements

Consolidated profit and loss account for the period ended 28 October 2005

PAGE : 29

Note £ £

Fixed assets

Tangible assets 10 608,9 1 7

Intangible assets 11 1 3 ,555 ,102

1 4 ,1 6 4 ,019

Current assets

Stocks 13 1 1 ,802

Debtors 14 5 , 5 1 1 ,452

Cash at bank and in hand 2 ,555,428

8,078,682

Creditors: amounts falling duewithin one year 15 (5,409,562)

Net current assets 2 ,669,120

Total assets less current liabilities 1 6 ,833 ,1 3 9

Creditors: amounts falling dueafter more than one year 16 (6 ,467,373)

Net Assets 10,365,766

Capital and reserves

Called up share capital 17 43 ,3 14

Share premium account 18 2 ,7 7 7,738

Merger reserve 18 6 , 5 1 5 ,643

Profit and loss account 18 1,029,071

Shareholders’ funds 10,365,766

The financial statements were approved by the Board on 22nd May 2006

D G Richards

Director


Consolidated balance sheet at 28 October 2005

PAGE : 30

Note £ £

Fixed assets

Investments 12 10,888,818

Current assets

Debtors 14 1 , 339,192

Cash at bank and in hand 2,282, 3 5 1

3 , 62 1 ,543

Creditors: amounts falling duewithin one year 15 ( 5 , 32 1 ,621)

Net current liabilities (1,700,078)

Total assets less current liabilities 9,188 ,740

Creditors: amounts falling dueafter more than one year 16 (6 ,367,688)

Net Assets 2 ,821 ,052

Capital and reserves

Called up share capital 17 43 ,3 14

Share premium account 18 2 ,7 7 7,738

Profit and loss account 18 -

Shareholders’ funds 2 , 8 2 1 ,052

The financial statements were approved by the Board on 22nd May 2006

D G Richards

Director



Company balance sheet at 28 October 2005

PAGE : 31

Note £ £

Net cash inflow from operating activities 22 3 ,787,485

Returns on investments and servicing of finance

Interest received 55,592

Interest paid (5 1 8 ,388)

Interest element of finance lease rental payments (13,128)

Non equity dividends paid (7 1 ,250)

Net cash outflow from returns oninvestments and servicing of finance (547,174 )

Taxation

UK corporation tax paid ( 5 1 1 ,6 1 1)

Capital expenditure and financial investment

Purchase of tangible fixed assets (459,515)

Sale of tangible fixed assets 1 4 , 1 2 1

(445,394)

Acquisitions and disposals

Purchase of trade and net assets (68,128)

Purchase of subsidiary undertakings (10, 367,463)

Bank balances acquired with subsidiary undertakings 1 ,008,1 8 3

( 9 ,427,408)

Cash outflow before use of liquid resources and financing ( 7 , 144,102)

Financing

Share capital issued 2 , 82 1 ,052

Loans advanced in the period 7,954,146

Loan repayments in the period (991 ,198)

Capital element of finance lease rental payments (84,470)

9,699,530

Increase in cash 23,24 2 ,555,428


Consolidated cash flow statement for the period ended 28 October 2005

PAGE : 32

1 Accounting policies

The financial statements have been prepared under the historical cost convention

and are in accordance with applicable accounting standards. The following principal

accounting policies have been applied:

Basis of consolidation

The consolidated financial statements incorporate the results of SLR Holdings

Limited and all of its subsidiary undertakings as at 28 October 2005 using the

acquisition method of accounting. The results of subsidiary undertakings are

included from the date of acquisition.

Goodwill

Goodwill arising on an acquisition of a subsidiary undertaking is the difference

between the fair value of the consideration paid and the fair value of the assets

and liabilities acquired. It is capitalised and amortised through the profit and loss

account over the directors’ estimate of its useful economic life. Impairment tests

on the carrying value of goodwill are undertaken:

• at the end of the first full period following acquisition;

• in other periods if events or changes in circumstances

indicate that the carrying value may not be recoverable.

Goodwill arising on the acquisition of a company’s trade and assets is the difference

between the fair value of the consideration paid and the fair value of the assets

acquired. It is capitalised and amortised through the profit and loss account over

the directors’ estimate of its useful economic life.

Turnover

Turnover represents the amounts (excluding VAT) derived from the provision

of work for clients during the period.

Services provided to clients during the period, which at the balance sheet date

have not been billed, have been recognised as turnover in accordance with Financial

Reporting Standard 5 ‘Reporting the substance of transactions’: Application Note G

‘Revenue Recognition’. Turnover recognised in this manner is based on an

assessment of the fair value of the services provided at the balance sheet date

as a proportion of the total value of the engagement. Provision is made against

unbilled amounts on those engagements where the right to receive payment is

contingent on factors outside the control of the Company. Unbilled revenue

is included in accrued income.

Investments

Investments held as fixed assets are stated at cost less any provision for impairment

in value.

Notes forming part of the financial statements for the period ended 28 October 2005


PAGE : 33

Foreign currency

Foreign currency transactions of individual companies are translated at the

rates ruling when they occurred. Foreign currency monetary assets and liabilities

are translated at the rates ruling at the balance sheet dates. Any differences are

taken to the profit and loss account.

The results of overseas operations are translated at the average rates of

exchange during the period and their balance sheets translated into sterling

at the rates of exchange ruling on the balance sheet date. Exchange differences

which arise from translation of the opening net assets and results of foreign

subsidiary undertakings and from translating the profit and loss account at

average rate are taken to reserves.

Pension costs

Contributions to the Group’s defined contribution pension schemes are charged

to the profit and loss account in the period in which they become payable.

2 Turnover

Turnover is wholly attributable to the principal activity of the Group and arises

in the following geographic markets:

£

United Kingdom 1 7,498,006

United States 3 , 188,537

Europe 885,333

2 1 , 5 7 1,876

3 Employees

Staff costs consist of: £

Wages and salaries 8 ,227,573

Social security costs 893,1 59

Other pension costs 329,7 5 1

9,450,483

The average number of employees, including directors, during the period was 222.

Stocks

Stocks are valued at the lower of cost and net realisable value. Cost is based

on the cost of purchase on a first in, first out basis. Net realisable value is based

on estimated selling price less additional costs to completion and disposal.

Long term contracts are assessed on a contract by contract basis and are reflected

in the profit and loss account by recording turnover and related costs as contract

activity progresses. Where the outcome of each long term contract can be assessed

with reasonable certainty before its conclusion, the attributable profit is recognised

in the profit and loss account as the difference between the reported turnover and

related costs for that contract.

Depreciation

Depreciation is provided to write off the cost less estimated residual values,

of all fixed assets, evenly over their expected useful lives. It is calculated at the

following rates:

Plant and machinery - 20% - 33% per annum

Fixtures and fittings - 15% - 33% per annum

Motor vehicles - 33% per annum

Computer equipment - 33% per annum

Deferred taxation

Deferred tax balances are recognised in respect of all timing differences that have

originated but not reversed by the balance sheet date except that the recognition

of deferred tax assets is limited to the extent that the Company anticipates to make

sufficient taxable profits in the future to absorb the reversal of the underlying timing

differences. Deferred tax balances are not discounted.

Leased assets

Where assets are financed by leasing agreements that give rights approximating

to ownership ('finance leases'), the assets are treated as if they had been purchased

outright. The amount capitalised is the present value of the minimum lease payments

payable during the lease term. The corresponding leasing commitments are shown as

amounts payable to the lessor. Depreciation on the relevant assets is charged to the

profit and loss account.

Lease payments are analysed between capital and interest components so that

the interest element of the payment is charged to the profit and loss account over the

period of the lease and represents a constant proportion of the balance of capital

repayments outstanding. The capital part reduces the amounts payable to the lessor.

All other leases are treated as operating leases. Their annual rentals are charged to the

profit and loss account on a straight-line basis over the term of the lease.

PAGE : 34



4 Directors

Directors' emoluments consist of:

£

Fees and remuneration for management services 446,787

Payments to defined contribution pension scheme 21 ,434

468,221

Emoluments of the highest paid director:

£

Emoluments 1 1 9,8 1 1

Pension 2,345

During the period, the highest paid director exercised 6,000 share options.

There were 4 directors in the Group’s defined contribution pension schemes

during the period.

5 Operating profit

This has been arrived at after charging/(crediting):

£

Depreciation – owned assets 334,369

– leased assets 25,476

Amortisation 846,207

Hire of plant and machinery - operating leases 294,864

Hire of other assets - operating leases 450,496

Auditors’ remuneration – audit services

(Company £8,250) 46,091

– non audit services 36 ,609

Profit on sale of fixed assets (5 , 530)

6 Interest payable and similar charges

£

Bank loans and overdrafts 475 ,106

Other loans 3 1 9,375

Foreign exchange differences (10,509)

Hire purchase and finance leases 1 3 ,126

Other interest 1 ,182

798,280

7 Taxation on profit from ordinary activities

Current tax

£

UK corporation tax on profits of the period 861 ,943

Overseas tax 1 ,722

863,665

The tax assessed for the period is higher than the standard rate of corporation tax

in the UK. The differences are explained below:

£

Profit on ordinary activities before tax 2 ,090,184

Tax on profit on ordinary activities at the standard rateof corporation tax in the UK of 30% 62 7,055

Effects of:Non taxable income (14 ,351)

Expenses not deductible for tax purposes 66,960

Goodwill on consolidation 250,821

Depreciation for the period in excess of capital allowances 4 ,045

Losses utilised (5 7,405)

Other items (13 ,460)

Current tax charge for period 863,665

A deferred tax asset of approximately £114,000 has not been recognised on losses

of the Company’s overseas subsidiary, which can only be offset against taxable profits

generated in the entity concerned, as there is currently insufficient evidence that this

deferred tax asset would be recoverable.

8 Dividends

£

Equity shares B ordinary payable – 2.07p per share 62 ,7 13

Non equity shares A1 ordinary paid – 6.61p per share 7 1 ,250

A1 ordinary payable – 6.61p per share 7 1 ,250

205,213

PAGE : 35

9 Profit for the financial period

The Company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented its own profit and loss account in these

financial statements. The Group profit for the period includes a profit after tax and before dividends of £205,213 dealt with in the financial statements of the parent company.

10 Tangible assets

Plant and Fixtures Motor ComputerGroup machinery and fittings vehicles equipment Total

£ £ £ £ £

Cost

Acquired with subsidiaries 87,888 229,926 96,683 832,640 1 , 247,1 37

Additions 80,016 27,790 - 462,3 18 570,1 2 4

Disposals (9,735) (26,322) (23 ,838) (1 , 47 1) (61 ,366)

Exchange differences 1 1 6 970 - 641 1,727

At 28 October 2005 158,285 232,364 72,845 1 ,294,128 1 ,757,622

Depreciation

Acquired with subsidiaries 64,005 1 3 9,269 61,388 575,249 839,9 1 1

Provided for the period 34,790 52,764 28,546 243,745 359,845

Disposals (9 ,600) (22 ,944) (1 9,865) (366) (52 ,775)

Exchange differences 510 408 - 806 1 ,724

At 28 October 2005 89,705 169,497 70,069 819,434 1 , 148,705

Net book value

At 28 October 2005 68,580 62,867 2 ,776 474,694 608,917

Assets held under finance leases and hire purchase contracts:

Net book value

At 28 October 2005 45,489 1 ,1 7 5 - 26,901 73,565

11 Intangible assets

Goodwill on PurchasedGroup consolidation goodwill Total

£ £ £

Cost

Acquired with subsidiaries - 9,998 9,998

Additions 14,332,626 68,128 1 4 , 400,754

At 28 October 2005 14,332,626 78,126 1 4 , 410,752

Amortisation

Acquired with subsidiaries - 9,443 9,443

Provided for the period 836,069 10,138 846,207

At 28 October 2005 836,069 19,581 855,650

Net book value

At 28 October 2005 13,496,557 58,545 13,555,102

PAGE : 36

11 Intangible assets (continued)

The goodwill arising on consolidation relates to the acquisition of SLR Group Limited

and its subsidiary undertakings on 3 September 2004. The goodwill is being amortised

over the directors’ best estimate of its useful economic life, being twenty years.

On 29 April 2005, a subsidiary undertaking, SLR Group Limited, purchased the trade

and assets of Waste Management Engineering Limited. The purchased goodwill is

being amortised over the directors’ best estimate of its useful economic life, being

three years.



12 Fixed asset investments

Shares in Group

Company undertakings

£

Cost and net book value

Additions and at 28 October 2005 10,888,818

Subsidiary undertakings

The principal undertakings in which the Company’s interest at the period end is 20% or more are as follows:

Country of Class of Proportion of Natureincorporation share capital share capital of

Name or registration held held business

SLR Group Limited England and Wales Ordinary 100% Holding company

SLR Consulting Limited England and Wales Ordinary 100% Environmental consultants

SLR International Corporation USA Ordinary 100% Environmentalconsultants

Details of other subsidiary undertakings, the investments in which are held

by SLR Group Limited and SLR Intermediate Holding Company Limited,

are contained in those companies’ financial statements

13 Stocks

Group £

Work in progress 1 1 ,802

14 Debtors

Group Company

£ £

Trade debtors 4 , 76 1 ,956 -

Amounts owed by

Group undertakings - 1,069,303

Other debtors 27 7,594 252 ,696

Prepayments and accrued income 353,243 1 7,193

Amounts recoverable on contracts 1 1 8 ,659 -

5 , 5 1 1,452 1 , 339,192

All amounts shown under debtors fall due for payment within one year.

PAGE : 37

Maturity of debt:

Bank Loan FinanceGroup loans stock leases

£ £ £

Within one year 1 ,272 ,937 - 50,757

In more than one year but not more than two years 1 ,272 ,937 - 3 2 ,138

In more than two years but not more than five years 2,660,958 1,969,3 3 3 10 ,652

After five years - 52 1 ,3 5 5 -

5,206,832 2,490,688 93,547

Bank Loan FinanceCompany loans stock leases

£ £ £

Within one year 1 ,236,000 - -

In more than one year but not more than two years 1 ,236,000 - -

In more than two years but not more than five years 2 ,64 1 ,000 1,969,333 -

After five years - 52 1 ,355 -

5 , 1 1 3 ,000 2 ,490,688 -

15 Creditors: amounts falling due within one year

Group Company

£ £

Bank loans (secured) 1 ,272 ,937 1 ,236,000

Trade creditors 1 ,897,687 23,243

Amounts owed to

Group undertakings - 3 ,649,923

Taxation and social security 7 1 3 , 1 1 6 -

Corporation tax 287,658 -

Obligations under finance leases

and hire purchase contracts 50,757 -

Other creditors 1 ,390 1 ,390

Proposed dividends 1 3 3 ,962 1 3 3 ,962

Accruals 1 ,052,055 27 7,103

5 ,409,562 5 , 3 2 1 ,62 1

16 Creditors: amounts falling due after more than one year

Group Company

£ £

Bank loans (secured) 3 ,933 ,895 3 ,877,000

Fixed rate loan stock 2010 (secured) 1 ,969,333 1 ,969,3 3 3

5% unsecured loan stock 52 1 ,355 521 ,355

Obligations under finance leasesand hire purchase contracts 42 ,790 -

6 ,467,373 6 ,367,688

The bank loans are secured by a fixed and floating charge over the assets of the

Company, together with an assignment of certain Keyman policies.

The fixed rate loan stock is secured by a fixed and floating charge over the assets

of the Company and certain of its subsidiary undertakings.

The 5% unsecured loan stock has no fixed repayment date, but cannot be repaid

prior to repayment of the fixed rate loan stock 2010.


PAGE : 38


17 Share capital

Authorised

Number £

Non-equity

A1 ordinary shares of £0.01 each 1 ,077,840 1 0 ,779

Equity

A2 ordinary shares of £0.01 each 324,253 3 ,243

B ordinary shares of £0.01 each 3 ,758,7 3 1 3 7,587

5 , 160,824 5 1 ,609

Allotted, called up and fully paidNumber £

Non-equity

A1 ordinary shares of £0.01 each 1 ,077,840 10,779

Equity

A2 ordinary shares of £0.01 each 2 2 1 ,037 2 ,210

B ordinary shares of £0.01 each 3,032 , 6 1 1 30,325

4 , 3 3 1 ,488 43 ,3 14

The Company was incorporated with an authorised share capital of £100, comprising

100 ordinary shares of £1 each. 1 ordinary £1 share was issued on incorporation.

On 3 September 2004, the following events took place:

- a written resolution was passed to sub-divide and redesignate the issued and unissued

share capital of 100 ordinary shares of £1 each to 10,000 B ordinary shares of 1p each;

- the nominal share capital was increased by £51,508 through the creation of 1,402,093

A ordinary shares of 1p each (comprising 1,077,840 A1 ordinary shares of 1p each and

324,253 A2 ordinary shares at 1p each) and 3,748,731 B ordinary shares of 1p each;

- 1,077,840 A1 ordinary shares were issued at £2.19 each and 221,037 A2 ordinary shares

were issued at £2.19 each; and

- 2,983,080 ‘B’ ordinary shares of 1p each were issued at par as part of the

consideration for SLR Group Limited and its subsidiary undertakings.

During the period an additional 49,431 B ordinary shares were issued for a total

consideration of £32,130.

The holders of the A1 ordinary shares are entitled to a cumulative preferential dividend,

as specified in the Company’s Articles of Association, except that they are not entitled

to such dividend if and to the extent that the payment in respect of any financial year

exceeds 50% of the total amount of profit available for distribution for that year.

The holders of the B ordinary shares are entitled to a cumulative dividend, for each

of the financial years of the Company ending 31 October 2005, 31 October 2006 and

31 October 2007, equivalent to 14% of the Net Profit (as defined in the Company’s

Articles of Association), up to a maximum in any one financial year of £140,000.

The holders of the B ordinary shares are also entitled to serve notice on the Company

that they wish to convert these shares into an equal number of Deferred shares. The

holders of the Deferred shares are not entitled to attend or vote at any general meeting

of the Company, or participate in any profits or assets of the Company.

On a share sale, where the ordinary share value is less than the amount which results

from a value per ordinary share of £2.19 and, save as set out in the first proviso below,

on a return of assets on liquidation or capital reduction or otherwise, the ordinary share

value or assets of the Company remaining after the payment of its liabilities shall be

applied as follows:

(i) first, in paying to the holders of the A1 ordinary shares of £0.01 each, the issue price

per A1 ordinary share, together with any arrears of the cumulative preferential dividend,

or return of capital plus a premium of 45p per A1 ordinary share;

(ii) second, in paying to the holders of the B ordinary shares the issue price per B

ordinary share together with any arrears of the cumulative dividend;

(iii) and the balance of such value or assets shall be distributed amongst the holders of

the A ordinary shares and B ordinary shares pari passu, provided that once the holders

of these shares have received the sum of £1,000,000 per share, the holders of Deferred

shares shall be entitled to a payment of £1 per Deferred share, with the balance being

distributed amongst the holders of the A ordinary and B ordinary shares pari passu

In the event that on a return of assets on liquidation or capital reduction or otherwise

the amount payable to the holders of the A ordinary shares would result in a payment

of £2.19 or more per A ordinary share, the provisions of (i) and (ii) above will not apply.

Additionally, on a return of assets on liquidation or capital reduction or otherwise, the

amount payable to the holders of the A ordinary shares shall not exceed 50% of the

assets of the Company available for distribution.

Warrants

The Company has issued warrants to subscribe for up to 103,216 A2 ordinary shares

at a price of £0.01 per share. Any warrants not exercised by the time of the earlier of

(i) a share sale or listing and (ii) 1 May 2015 will lapse.

Share options

At 28 October 2005, the following share options were outstanding:

Options Exercise Exercise outstanding price period

EMI share November 2004 - option scheme

233,700 65pNovember 2009

Unapproved share November 2004 -

option scheme120,520 65p

November 2009

PAGE : 39

During the period the Company granted 242,200 options under the EMI share

option scheme and 151,120 options under the unapproved share option scheme.

26,600 options were exercised at 65p per share under the Company’s unapproved

share option scheme and 12,500 options lapsed during the period.

18 Reserves

Share Profitpremium Merger and lossaccount reserve account

Group £ £ £

Share capital issued in the period 2 ,7 7 7,738 6 , 5 1 5 ,643 -

Retained profit for the period - - 1 ,02 1 ,307

Exchange differences - - 7,764

At 28 October 2005 2 ,7 7 7,738 6 , 5 1 5 ,643 1 ,029,071

Share Profitpremium and lossaccount account

Company £ £

Share capital issued in the period 2 ,7 7 7,738 -

Retained profit for the period - -

At 28 October 2005 2 ,7 7 7,738 -

19 Reconciliation of movements in shareholders’ funds

Group Company£ £

Profit for the period 1 , 226,520 205,2 13

Dividends (205,213) (205,2 1 3)

1 ,021 ,307 -

Share capital issued in the period 9, 336,695 2 ,82 1 ,052

Exchange differences 7,764 -

Closing shareholders’ funds 10 , 365,766 2 ,82 1 ,052

Shareholders’ funds includes amounts attributable to non-equity shareholders

of £2 ,364,997.

20 Commitments under operating leases

As at 28 October 2005, the Group had annual commitments under non-cancellable

operating leases as set out below:

Group Land and buildings Other

£ £

Operating leases which expire:

Within one year 44,166 61 ,879

In two to five years 1 2 1 ,733 3 1 2 ,916

Over five years 1 1 2 ,4 15 -

278,3 14 374 ,795

21 Pensions

The Group operates defined contribution pension schemes. The assets of the Schemes

are held in independently administered funds. The pension cost charge represents

contributions payable by the Group to the funds. At 28 October 2005 there were

no outstanding contributions payable to the funds.

22 Reconciliation of operating profit to net cash inflowfrom operating activities

£

Operating profit 2 ,849,1 5 3

Amortisation 829,927

Depreciation 359,845

Loan arrangement fees 37,333

Profit on the sale of fixed assets (5 ,530)

Exchange differences 7,76 1

Decrease in stocks 72,954

Increase in debtors (1 , 473,455)

Increase in creditors 1 , 109,497

Net cash inflow from operating activities 3 ,787,485

23 Reconciliation of net cash inflow to movement in net debt

£ £

Increase in cash in the period 2 ,555 ,428

Cash inflow from increase in debt and

lease financing (6 ,878,478)

Change in net debt resulting from cash flows (4 , 323 ,050)

New finance leases and loan stock (63 1 ,964)

Debt acquired with subsidiary undertakings (243,292)

Loan arrangement fees (37,333)

Closing net debt (5 ,235 ,639)


PAGE : 40


24 Analysis of net debt

Other AtCash non-cash 28 October

Acquisitions flow changes 2005£ £ £ £

Cash in hand and at bank - 2,555 ,428 - 2 ,555 ,428

Debt due within one year ( 175 ,884) 991 ,198 (2,088,251 ) ( 1 ,272,937)

Debt due after one year - ( 7,954,146) 1 ,529,563 (6,424,583)

Obligations under financeleases and hire purchasecontracts (67 ,408) 84 ,470 (1 1 0,609) (93 ,547)

Total (243,292) (4 , 323 ,050) (669,297) (5 ,235 ,639)

Other non-cash changes of £669,297 represent new finance lease and hire purchase

agreements entered into during the period, loan arrangement fees and loan stock issued.

25 Acquisitions

On 3 September 2004, the Company acquired SLR Group Limited and its subsidiary

undertakings. The book value of the assets and liabilities acquired (which was equivalent

to their fair value), together with the purchase consideration and goodwill arising were

as follows:

£

Fixed assets

Tangible fixed assets 407,228

Purchased goodwill 555

Current assets

Work in progress 84 ,755

Debtors 4 ,037,996

Cash at bank and in hand 1 ,008,183

Total assets 5 ,538 ,7 17

Creditors (2 ,223,590)

Bank loans ( 175 ,884)

Hire purchase obligations (67,408)

Net assets 3 ,07 1 ,835

Consideration:

Settled by shares at fair value 6 , 5 1 5 ,643

Settled by cash 10 , 367,463

Loan stock 52 1 ,355

1 7,404,461

Net assets acquired ( 3 ,07 1 ,835)

Goodwill arising on consolidation 14 ,332 ,626

The results of SLR Group Limited and its subsidiaries for the period from

1 November 2003 to 3 September 2004 were as follows:

£

Turnover 1 1 ,690,440

Operating profit 1 , 543,709

Profit on ordinary activities before taxation 1 , 525,232

Taxation on profit from ordinary activities 285,320

Profit on ordinary activities after taxation 1 ,239,912

The profit on ordinary activities after taxation for SLR Group Limited and its subsidiary

undertakings for the year ended 31 October 2003 was as follows:

£

Profit on ordinary activities after taxation 1 , 4 1 5 ,818

26 Contingent liabilities and guarantees

The Company has guaranteed the bank borrowings of its subsidiary undertakings,

SLR Group Limited, SLR Intermediate Holding Company Limited and SLR Consulting

Limited. Total bank borrowings subject to the guarantee amounted to £Nil at

28 October 2005.

C Printed on Recycled Silk: 50% recycled British waste. Using 100% genuine printed waste in the recycling process, means that we are helping reduce the pressure on UK landfill sites. The wood from non-recycled pulps used, comes from PEFC and FSC certified forests.

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