Trading Update

Trading for the year-to-date has been sound, with a positive sales performance being delivered by each of our principal operations - Devro, Coria and Cutisin. The more stable underlying trading pattern of 2003 has been maintained in 2004 with many of our key markets recording improvements over prior year. While there have been some difficulties created by collagen sourcing and reformulation issues arising from the single case of BSE in the US in late 2003, underlying operating performance has still been generally solid. The strength of sterling is beginning to have some adverse impact on group profits but this is expected to be limited in its effect.

Our investment programme to improve and increase manufacturing capacity in the Czech Republic has now commenced. Good progress is being made on this major expansion of our facilities at Cutisin.

Our new product development programme continues to make satisfactory progress, and initial signs are encouraging for the fast-dissolving thin edible film which is currently targeted at the breath freshener market. We are now moving to upgrade our basic development and test facility, located in Moodiesburn, to a larger pilot production unit, based in Hamilton, near Glasgow. While this transfer is well advanced, with production expected to commence during the third quarter, we still do not anticipate that this product will contribute significantly to the group's performance in 2004. We continue to believe, however, that it will be of greater commercial significance in 2005.

We remain committed to improving our market position through improving our products and processes and investment in our technology. As a result, the prospects for the business, as reflected in the current order book and longer-term market outlook, continue to be encouraging. The Directors therefore continue to view the company's future with confidence and optimism.

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