For immediate release

Circassia Pharmaceuticals plc

Annual report and accounts for the year ended 31 December 2016 and Notice of 2017 Annual General Meeting

28 April 2017

Circassia Pharmaceuticals plc announces that the following documents have today been posted or otherwise made available to shareholders:

·      The Company's Annual report and accounts for the year ended 31 December 2016

·      Notice of the Company's 2017 Annual General Meeting

·      Form of Proxy for the Annual General Meeting

In accordance with Listing Rule 9.6.1 copies of each of these documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm.

The Annual report and accounts for the year ended 31 December 2016 and Notice of 2017 Annual General Meeting are available on the Company's website: www.circassia.com.

The Annual General Meeting will be held at 9.30 am on Friday 26 May 2017 at the Company's offices: Northbrook House, Robert Robinson Avenue, Oxford, OX4 4GA.

In accordance with DTR 6.3.5 the appendices below contain as unedited text extracted from the 2016 Annual report and accounts, principal risks, the Directors' responsibility statement and the independent auditor's report to the members of the Company.  Any references to page numbers in the extract refer to those in the Annual report and accounts.  Circassia Pharmaceuticals plc's preliminary results announcement issued on 25 April 2017 contained a condensed set of financial statements, the Chairman's statement, an operating review and financial review.

Appendix 1 - Risks and risk management

The principal risks relating to Circassia Pharmaceuticals plc and its Group are set out on pages 36 to 41 of the Annual report and accounts, and the following is extracted in full and unedited form.

Commercial success

The Group's competitors - many of whom have considerably greater financial and human resources - may develop safer or more effective products or be able to compete more effectively in the markets targeted by the Group. New companies may enter these markets and novel products and technologies may become available which are more commercially successful than those being developed by the Group.

During H1 2017 the Group will commence its collaboration with AstraZeneca to sell the long-acting muscarinic antagonist (LAMA), Tudorza® in the United States and will share in the profits from those sales. There are currently two other LAMA products marketed in the United States, namely Spiriva® (sold by Boehringer Ingelheim) and Incruse® (sold by GSK). A third product Seebri® is expected to be

launched in the United States by Sunovion in 2017. Tudorza® will compete directly with all these products. In addition, the Group may not be able to sell its products profitably if reimbursement from third party payers such as private health insurers and government health authorities is restricted or not available because for example it proves difficult to build a strong enough economic case based on the burden of illness and population impact. Third party payers are increasingly attempting to curtail healthcare costs by challenging the prices that are charged for pharmaceutical products and denying or limiting coverage and the level of reimbursement. Moreover, even if the products can be sold profitably, they may not be accepted by patients and the medical community.

The Group's NIOX MINO® and NIOX VERO® devices compete in Europe with products made by Bedfont Limited and Medisoft. Neither of these competing products are currently available in the US. Two other companies, Bosch Healthcare Solutions GmbH (in Germany) and Spirosure Inc. (in the United States) have also announced they have developed and intend to commercialise devices to measure exhaled nitric oxide although neither of these products has yet been launched. In China, a competing product is supplied to the market by Sunvou Medical. Outside the US, UK and Germany the Group relies on distributors to sell its NIOX® devices and such relationships must be carefully managed in order to ensure the services provided are of a sufficiently high quality and an appropriate level of resources is applied by the distributor to the marketing of the devices. The successful commercialisation of the Group's fluticasone propionate product will, when launched, be largely dependent upon its partner Mylan which has the exclusive rights to sell the product in most major markets. Moreover, this product and certain other drug products being developed by the Group for treatment of asthma, such as its fluticasone / salmeterol combination product Seriveo®, are generic products and so will compete with the innovator products as well as potentially generics from other third parties. Factors that may undermine the Group's efforts to commercialise its products include: the inability to train and retain effective sales and marketing personnel; a failure to persuade prescribers to prescribe products; and higher costs of marketing and promotion than are anticipated by the Group.

Mitigating activities

The Group has developed an initial Promotional Plan for Tudorza® and will keep this under review with its partner AstraZeneca. The intention is to focus promotional efforts on higher volume prescribers and promote Tudorza® as the primary product in the majority of health care professional (HCP) calls. A dedicated team will also concentrate on selling the product to larger public and private institutions under fixed term contracts. With regard to its NIOX® franchise, the Group continues to apply increasing resources to sales of the device. By the end of 2016 there were approximately 100 sales representatives selling NIOX® in the United States, representing approximately a fourfold increase in the course of the year. A direct sales team has also been assembled in the UK, alongside the existing commercial teams in China and Germany. Distributor markets are now more closely managed following the appointment of an experienced Director of Distributor Management. With respect to the Respiratory franchise, the Group's agreement with Mylan contains provisions which offer remedies in the event that insufficient diligence is applied to the marketing of its Flixotide substitute. A joint steering committee oversees this project.

Compliance with healthcare regulations

The Group must comply with complex regulations in relation to the marketing of its device products (and in the future will need to comply with such regulations in relation to its drug products). These regulations are strictly enforced. Failure by the Group (or its commercial partners) to comply with the US False Claims Act, Anti- Kickback Statute and the US Foreign and Corrupt Practices Act and regulations relating to data privacy (amongst others) and similar legislation in countries outside the US may result in criminal and civil proceedings against the Group.

Mitigating activities

The Group has an internal Compliance function which is headed by its VP, Global Compliance Officer. The Global Compliance Officer reports to the General Counsel but also has a direct reporting line to the Chair of the Audit and Risk Committee. A Compliance Committee has been formed to oversee activities in this area and this met throughout 2016 on a quarterly basis. The Compliance function works with a network of external advisers in the relevant territories to ensure the local regulations are comprehended and that strategies are in place to support products in development as well as those already approved and sold. Robust processes are in place to ensure that sales compliance requirements are met and any failures or allegations of failure are swiftly investigated. This includes training of employees, ride-alongs with sales representatives, due diligence on distributors and suppliers prior to contracting with them, and audits of distributors and suppliers.

Regulatory approvals

The Group may not obtain regulatory approval for those of its products which are in development. Even where products are approved, subsequent regulatory difficulties may arise, or the conditions relating to the approval may be more onerous or restrictive than the Group expects, or existing approvals might be withdrawn. The pharmaceutical industry is highly regulated. Regulatory authorities across the world enforce a range of laws and regulations which govern the testing, approval, manufacturing, labelling and marketing of pharmaceutical products. Stringent standards are imposed which relate to the quality, safety and efficacy of these products. These requirements are a major determinant of whether it is commercially feasible to develop a drug substance or medical device given the time, expertise, and expense which must be invested. Moreover, approval in one territory offers no guarantee that regulatory approval will be obtained in any other territory. In order to obtain regulatory approval for the Group's products, it will be necessary to successfully complete supporting clinical studies. Clinical studies are typically expensive, complex and time-consuming, and have uncertain outcomes. Conditions in which clinical studies are conducted differ, and results achieved in one set of conditions could be different from the results achieved in different conditions or with different subject populations. Regulatory authorities or institutional review boards may suspend or terminate clinical studies at any time if the subjects participating in such studies are being exposed to unacceptable health risks or may require additional studies to be performed. Difficulties or delays in the enrolment of subjects could result in significant delays in the completion of those studies and even in their abandonment. The Group already holds regulatory approvals for its NIOX MINO® and NIOX VERO® devices in certain key countries such as the United States, Japan, China, and Germany but approvals are still pending for the VERO® in a number of other countries. Delays or complications in any of these regulatory applications could adversely affect the Group's business. The Group also has an exclusive licence to commercialise Duaklir® in the United States. This product is not yet approved, and is undergoing two clinical trials (AMPLIFY and ACHIEVE), both managed by AstraZeneca, in order to support a filing for a New Drug Application to the FDA. The results of AMPLIFY are expected in H2 2017 and the results of ACHIEVE are expected in H1 2017. If either or both of these studies fail to achieve their endpoints then there is a risk that the product might not be approved by the FDA.

Also, the product Tudorza® which will be promoted by the Group in 2017 as part of its collaboration with AstraZeneca is currently the subject of a cardiovascular safety study (ASCENT), managed by AstraZeneca, the results of which are anticipated before the end of 2017. If the ASCENT study shows that there is a safety signal associated with Tudorza® then that would lead to discussions with the FDA, one possible outcome of which could be that the product would require a black box warning or even be withdrawn from the market. The Group is currently carrying out clinical trials for a number of respiratory products. The lead respiratory programmes seek to develop substitutes for Seretide® and Spiriva®. However, there can be no guarantee that these trials will meet their endpoints or that the products will ultimately be approved. The Group relies on third party sub-contractors and service providers for the execution of most aspects of its development programmes. Failure of these third parties to provide services of a suitable quality within acceptable timeframes - for example due to technical reasons or bankruptcy of the provider - may cause the failure or delay of these development programmes. Even where approval is obtained, regulatory authorities may still impose significant restrictions on the indicated uses or marketing of a product or impose costly, ongoing requirements for post-marketing surveillance or post-approval studies, or may even withdraw the approval if new concerns over safety and efficacy arise.

Mitigating activities

The Group manages its regulatory risk by employing highly experienced clinical managers and regulatory affairs professionals who, where appropriate, will commission advice from external advisers and consult with the regulatory authorities on the design of the Group's pre-clinical and clinical programmes. These in-house experts ensure that high quality protocols and other documentation are submitted during the regulatory process, and that well-reputed contract research organisations with global capabilities are retained to manage the trials. The clinical studies which are taking place with Tudorza® and Duaklir® are being managed by AstraZeneca which is a global leader in the development of respiratory drugs.

Unforeseen side effects

Unforeseen side effects may result from the use of the Group's products or product candidates.

There is a risk of adverse reactions with all drugs and there is a risk that the malfunction of a medical diagnostic may have an adverse impact on patients. If any of the Group's products are found to cause adverse reactions or unacceptable side effects or risk of misdiagnosis, then product development may be delayed, additional expenses may be incurred if further studies or product development work are required, and, in extreme circumstances, it may prove necessary to suspend or terminate development. This may occur even after regulatory approval has been obtained, in which case additional trials may be required or the approval may be suspended or withdrawn or additional safety warnings may have to be included on the label.

Adverse events or unforeseen side effects or device malfunction may also potentially lead to product liability claims being raised against the Group as the developer of the products and sponsor of the relevant clinical trials.

Mitigating activities

The Group conducts extensive pre-clinical and clinical trials which test for and identify adverse side effects of its internally developed novel drug candidates. Its medical diagnostic products are subject to rigorous testing procedures. A robust pharmacovigilance plan is in place to ensure any safety issues are identified and reported. Insurance is in place to cover product liability claims which may arise during the conduct of clinical trials or sales of the Group's NIOX MINO®and NIOX VERO® products and sales of Tudorza®. AstraZeneca will administer the global safety database for Tudorza®.

Supply Chain

The Group relies on third parties for the supply of key materials and services. Problems at these contractors, such as technical issues, contamination, and regulatory actions may lead to delays or even loss of supply or inadequate supply of these materials and services either prior to launch or thereafter. Some materials may only be available from one source, as is currently the case for the NIOX MINO® and NIOX VERO® devices and the sensors contained in those devices, and regulatory requirements may make substitution costly and time-consuming.

The supply chain for Tudorza® will continue to be controlled by AstraZeneca at least until the Group is able to exercise its option to acquire the full rights to the product and AstraZeneca will remain the sole source of supply for this product and for Duaklir® if approved.

Mitigating activities

Audits of sub-contractors are routinely conducted according to procedures set out in the Group's Quality system. Dual sourcing is being investigated where this is practicable. Manufacturing sites are well established FDA-approved facilities. AstraZeneca has an established global supply chain in place for Tudorza® and at the point when the Group is able to acquire the full rights to the product an arms'-length supply agreement will be in place.

Research and development risks

The Group may not be successful in its efforts to build a pipeline of respiratory products. This would have a material impact on the long-term success of the business. Failure of programmes could result from lack of internal resources or capabilities, or from not obtaining the desired pre-clinical and clinical results.

In addition, the Group is dependent upon external collaborators for the development of its NIOX® devices. The Group relies upon its collaborations with Panasonic Healthcare Co., Ltd for the development of the devices themselves and upon IT Dr. Gambert GmbH for the development of the sensors contained in those devices.

Research and Development activities associated with Tudorza® and Duaklir® will continue to be led by AstraZeneca, although the Group will have input through the steering committees which have been formed to govern the collaboration.

Mitigating activities

The Group has recruited highly experienced R&D executives. Projects are closely monitored against goals and regularly reported to the Senior Management Team and the Board, and external resources are retained where this is deemed appropriate.

The development collaborations with Panasonic and AstraZeneca are managed by steering committees which include representatives from the Group. In addition, the Group will seek, through business development activity, to identify opportunities which would expand and diversify its portfolio.

Intellectual property, know how, and trade secrets

The Group may be subject to challenges relating to the validity of its patents. If these challenges are successful then the Group may be exposed to generic competition. Currently there is an opposition pending against a patent owned by the Group namely a process patent in its particle engineering portfolio (the 'SAX' patent). This patent does not cover products which are currently marketed or which the Group expects to market in the near future.

The Group could also be sued for infringement of third party patent rights. If these actions are successful then it would have to pay substantial damages and potentially remove its products from the market. Such litigation, particularly in the US, involves significant costs and uncertainties.

It is possible that the Group will not be able to secure intellectual property protection, or sufficient protection, in relation to products which are acquired or in development. Similarly, a failure by the Group to maintain or renew key patents would lead to the loss of such protection. In both cases the potential of the Group to earn revenue from its products could be compromised as it would be less difficult for third parties to copy the products.

The Group may rely upon know how and trade secrets to protect its products and maintain a competitive advantage. This may be especially important where patent protection is limited or lacking. Conversely, the Group may be subject to claims that its employees or agents have wrongfully used or disclosed the confidential information of third parties which could lead to damages or injunctions which affect particular products.

The Group licenses certain intellectual property rights from third parties. The rights which are licensed to the Group as part of the collaboration with AstraZeneca relating to Tudorza® and Duaklir® fall within this category. If the Group fails to comply with its obligations under these licence agreements it may enable the other party to terminate the agreement. This could impair the Group's freedom to operate and potentially lead to third parties preventing it from selling certain of its products.

Mitigating activities

Important products are covered by more than one patent family and attacks on patents are defended using expert external patent attorneys and lawyers. A robust system is in place which ensures patents are renewed on time. Third party patent filings are monitored to ensure the Group continues to have freedom to operate and oppositions are filed where this is considered expedient. Confidential information (both of the Group and belonging to third parties) is protected through use of confidential disclosure agreements with third parties, and suitable provisions relating to confidentiality and intellectual property exist in the Group's employment contracts. Licences are monitored for compliance with their terms.

Organisational capabilities and capacity

The Group may be unable to successfully implement its plans for growth if it does not attract and retain employees with the requisite capabilities and experience, in appropriate numbers. The Group depends on the skills and experience of its current management team and employees, and is generally subject to competition for, and may fail to retain, skilled personnel.

Existing employees, investigators, consultants and commercial partners may engage in misconduct or improper activities, including non-compliance with regulatory standards and laws.

Where the Group acquires complementary technologies, products, or businesses it may not be able to integrate those acquisitions effectively or realise their expected benefits.

The Group may be vulnerable to disruption and damage as a result of failures of its computer systems.

Mitigating activities

The Group has budgeted for substantial growth in headcount over the next three years. Remuneration packages are competitive, and incentive plans based on the contingent award of shares, are in place to attract, motivate and retain staff. Disciplinary and whistleblowing policies exist to address misconduct by employees and officers, and committee structures have been established with the Contract Research Organisations instructed by the Group, to monitor and manage the conduct of the Group's clinical trials.

To address IT and cyber risks, a disaster recovery plan has been developed. Data is backed up daily on off-site servers and the Group operates from a number of physically separate sites. In addition, the Group maintains up to date anti-virus, anti-malware and anti-spyware software.

Free float

The UK Listing Authority requires listing issuers to maintain at least 25% free float in their listed shares. At 20 April 2017 the Company had a free float of approximately 16%. If the level of free float cannot be increased to 25% then the UKLA can require the Company to cancel its listing on the premium segment of the Official List. This might adversely affect the ability of new and existing shareholders to buy Ordinary shares and of holders to sell them.

Mitigating activities

The Company has obtained a derogation from the UKLA in respect of the Free Float requirement for a period of 12 months from 17 March 2017. During this period the Company will: (i) discuss with Shareholders who own more than 5% of the issue share capital of the Company whether any of their holdings can be disaggregated because decisions are being taken by independent investment managers within that Shareholder's organisation; and (ii) discuss with such Shareholders the prospect of reducing their holding below 5%.

Financial operations

The Group has incurred significant losses since the inception of its various businesses and anticipates that it will continue to do so for some time due to the high level of expenditure required to develop its NIOX® business, its respiratory pipeline, and to promote Tudorza® and launch Duaklir®.

Foreign exchange fluctuations may adversely affect the Group's results and financial condition. The Group records its transactions and prepares its financial statements in pounds sterling, but a significant proportion of its expenditure is in US dollars, Swedish krona, or Euros.

Adverse decisions of regulators, including tax authorities, or changes in tax treaties, laws, or the interpretation of those laws, could reduce or eliminate research and development tax credits which the Group, and its joint venture Adiga Life Sciences Inc. currently receives in the United Kingdom and Canada respectively.

Mitigating activities

The Group has prepared a detailed forecast for the next 10 years and, if it achieves its objectives, this shows that the current business plan is sufficient to take the Group through to profitability. Forward purchases of foreign currencies are made when exchange rates are favourable to provide for expenditure in those currencies. Markets are constantly monitored and an external commentary is provided by Investec on a daily basis. If tax credits are lost in the future then action would be taken to reduce discretionary expenditure in order to ensure there remained sufficient cash to support the business through to profitability.

Brexit

At the referendum which was held on 23 June 2016, the UK voted to leave the EU. The Group faces a range of risks associated with this decision. For example, the vote to leave the EU may lead to changes in the regulatory system by which medical devices and pharmaceutical products are approved for use.

The Group's NIOX® product is currently CE marked in accordance with European regulations and it is possible that this registration will need to be changed in some way once the UK has left the EU, to permit sales of the device to continue across Europe. The Group will also seek marketing authorisations in respect of its respiratory pipeline products in the future, and the optimal regulatory pathway for the approval of these products after Brexit cannot yet be determined.

Brexit may also result in restrictions on the movement of people which make it harder for the Group to attract the talent it needs to support the business.

The general economic uncertainty created by the process may also make it harder to enter into strategic partnerships with European companies.

The announcement of Brexit also caused a significant depreciation in the value of sterling and may lead to further foreign exchange volatility. This may affect the Group as indicated in the more general risk relating to Financial Operations set out above.

Mitigating activities

The Group continues to monitor developments relating to Brexit and receives updates from its legal and regulatory advisers on a frequent basis. The Group does already have an established subsidiary in Sweden (Circassia AB) and Germany (Circassia AG) and so will still have a corporate presence in the EU even after Brexit comes into effect. The risks relating to currency volatility are mitigated through the actions described above under the Financial Operations risk.

Appendix 2 - Directors' responsibility statement

The following statement is extracted from page 78 of the Annual report and accounts.  This statement relates solely to the Annual report and accounts and is not connected to the extracted information set out in this announcement.

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

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements on the same basis.

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

·       properly select and consistently apply accounting policies;

·       make prudent and reasonable accounting estimates and judgements;

·       state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

·       make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and Directors Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and for taking reasonable steps to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

We confirm that to the best of our knowledge:

·                 the financial statements, prepared in accordance with IFRS as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

·                 the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties which they face; and

·                 the Annual report and the financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for Shareholders to assess the Group's position, performance, business model and strategy.

The Directors' report, including those sections of the Annual report which are referred to in it, has been approved by the Board and is signed on its behalf by:

Julien Cotta

Director

25 April 2017

Appendix 3 - Independent Auditors' report to the members of Circassia Pharmaceuticals plc

The Independent Auditors' report to the members of Circassia Pharmaceuticals plc is set out on pages 79 to 83 of the Annual report and accounts, and the following is extracted in full and unedited form.

Report on the financial statements

Our opinion

In our opinion:

--Circassia Pharmaceuticals Plc's group financial statements and parent company financial statements (the "financial statements") give a true and fair view of the state of the group's and of the parent company's affairs as at 31 December 2016 and of the group's loss and the group's and the parent company's cash flows for the year then ended;

-   the group financial statements have been properly prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union;

-   the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

-   the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation.

What we have audited

The financial statements, included within the Annual report and accounts (the "Annual Report"), comprise:

--      the Consolidated and parent company statements of financial position as at 31 December 2016;

-   the Consolidated statement of comprehensive income for the year then ended;

-   the Consolidated and parent company statement of cash flows for the year then ended;

-   the Consolidated and parent company statements of changes in equity for the year then ended; and

-   the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006, and applicable law.

Our audit approach

Overview

-   Overall group materiality: £3.25 million which represents 5% of loss before tax and exceptional items

-   Impact of CatSPIRE results on the carrying value of assets and recording costs

-   Impairment of goodwill and intangibles

The scope of our audit and our areas of focus

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)").

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.

In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as "areas of focus" in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the group, the accounting processes and controls, and the industry in which the group operates.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £162,000 (2015: £36,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern

Under the Listing Rules we are required to review the directors' statement, set out on page 77, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors' statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.

As noted in the directors' statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the group and parent company have adequate resources to remain in operation, and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the group's and parent company's ability to continue as a going concern.

Other required reporting

Consistency of other information and compliance with applicable requirements

Companies Act 2006 reporting

In our opinion, based on the work undertaken in the course of the audit:

-- the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

-- the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

In addition, in light of the knowledge and understanding of the group, the parent company and their environment obtained in the course of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors' Report. We have nothing to report in this respect.

ISAs (UK & Ireland) reporting

Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

The directors' assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group

Adequacy of accounting records and information and explanations received

Under the Companies Act 2006 we are required to report to you if, in our opinion:

·      we have not received all the information and explanations we require for our audit; or

·      adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·      the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors' remuneration

Directors' remuneration report - Companies Act 2006 opinion

In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.

Other Companies Act 2006 reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statement

Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions of the Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Statement of Directors' Responsibilities set out on page 78, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).

Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the parent company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

·      whether the accounting policies are appropriate to the group's and the parent company's circumstances and have been consistently applied and adequately disclosed;

·      the reasonableness of significant accounting estimates made by the directors; and

·      the overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions.

We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors' Report, we consider whether those reports include the disclosures required by applicable

legal requirements.

Simon Ormiston (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Cambridge

25 April 2017