HOLLIS INDUSTRIES PLC                      [Page 1]

DIRECTORS' REPORT

The Directors submit their report and the group accounts of Hollis Industries plc for the eighteen months ended 30 June 1990 (the comparative period was the seven months ended 31 December 1988). These periods are referred to as the period or 1990 and 1988 respectively in these accounts.

RESULTS AND DIVIDENDS

The loss for the period is shown in the Group profit and loss account on page 5.

The arrears of 'A' preference dividends as at 31 December 1988 were paid in June 1989.

The Directors do not recommend a payment of final dividend.

PRINCIPAL ACTIVITIES

The Group's principal activity during the period was engineering.

REVIEW OF THE BUSINESS AND FUTURE DEVELOPMENTS

The trading position of the core businesses of Lock International plc ("Lock"), Multiphase Systems plc ("Multiphase") and Petroleum Seals & Systems Limited ("PSS") were satisfactory despite the effects of foreign exchange rates on their export business. All operating companies showed gains in manufacturing productivity. At Lock some operational difficulties have been experienced. However, a new management team, plus the strengthening of both the research and development and financial areas has taken place. The Group maintained its excellent labour relations records with the workforce and trade unions.

Progress was made in the area of new product development; the Multiphase Pump Project has maintained its technological lead over competitors and Multiphase has now the only two commercial orders placed in the world. The Foreign Body Detectors of Lock, bulk density monitoring equipment and a new design of metal detector were available commercially during 1989.

Hollicell, a division of Hollis Bros Limited, and Stothart & Pitt plc were disposed of in January and February 1989 respectively. Floform Limited was disposed of on 12 December 1989. The combined proceeds from these three disposals were £23.8m.

The Directors believe the future prospects of the remaining trading companies are reasonable in a difficult short-term economic environment.

BASIS OF PREPARATION OF ACCOUNTS

The accounts have been prepared on a going concern basis as the Group is being supported by its intermediate holding company, Mirror Group plc, who has given security for certain borrowings and together with other related companies, has indicated that they will not seek repayment of amounts due to them in preference to the claims of other creditors.

The intermediate holding company, Mirror Group plc, has undertaken to provide such additional financial support as may be necessary to meet the Company's liabilities as they fall due. This additional financial support specifically excludes any liabilities to the Group's principal bankers which are covered by separate contracts.

Accordingly, the Directors consider that the going concern basis for the preparation of the accounts is appropriate.

GOODWILL                      [Page 2]

Following the Company's acquisition by Pergamon Group plc and taking account of current marketing conditions and the decline in the Group trading results, the Directors have reassessed the carrying value of goodwill. As a result, a provision against the balance of goodwill, after disposals during the period, has been made and this provision has been treated as an extraordinary item.

FIXED ASSETS

The changes in fixed assets during the period are summarised in notes 13 and 14 of the accounts.

DISABLED EMPLOYEES

The Group gives every consideration to applications for employment from disabled persons where the requirements of the job may be adequately covered by a handicapped or disabled person.

With regard to existing employees and those who have become disabled during the year, the Group has continued to examine ways and means of providing continuing employment under normal terms and conditions, and to provide training and career development and promotion wherever appropriate.

EMPLOYEE INVOLVEMENT

During the period the policy of providing employees with information about the Group has continued and employees have also been encouraged to present their suggestions and views on the Group's performance. Meetings are held between local management and employees to allow a free flow of information and ideas.

POLITICAL AND CHARITABLE CONTRIBUTIONS

The Group made no political contributions in either period. Charitable contributions totalled £268 (1988: £nil).

DIRECTORS

The Directors of the company during the period, were as follows:—

G Robinson MP (Chairman)
M B Stoney
H A StephensAppointed 23 January 1990
C S RobinsonResigned 23 January 1990
M D Bridge	Resigned 23 January 1990
C J A ColbeckResigned 23 January 1990
K E Garner	Resigned 23 January 1990
R Hockley	Resigned 23 January 1990
J HowardResigned 2 March 1989
Mrs E Robinson	Resigned 23 January 1990
W A Swann	Resigned 23 January 1990

No director, at the period end, had any interest in the share capital or debentures of any Group company.

SUBSTANTIAL SHAREHOLDERS                      [Page 3]

On 30 June 1990 Pergamon AGB plc held all the cumulative redeemable convertible 'A' preference shares of £1 each and all the non-convertible cumulative redeemable 9.1% 'B' preference shares of £1 each.

From 23 January 1990, Pergamon Group plc has owned all the ordinary shares of 10p each, all the convertible deferred shares of 10p each and the senior agent share of £1. As a result, 100% of the Company's share capital is now held within the Maxwell Foundation Group of companies.

CLOSE COMPANY

The Company is a close company within the provisions of the Income and Corporation Taxes Act 1988, as amended.

AUDITORS

The auditors, Arthur Young, merged their practice with Ernst & Whinney in the period and now practice as Ernst & Young. Ernst & Young resigned as auditors during the period following the purchase of the Company by Pergamon Group plc. Coopers & Lybrand were appointed to fill the casual vacancy arising.

Coopers & Lybrand have merged their practice with Deloitte Haskins & Sells and now practice in the name of Coopers & Lybrand Deloitte. They have, accordingly, signed their audit report in their new name.

In accordance with the provisions of Sections 384 and 385 of the Companies Act 1985, resolutions will be proposed at the Annual General Meeting to reappoint Coopers & Lybrand Deloitte as the Company's auditors and to authorise the directors to fix their remuneration.

By order of the Board	Headington Hill Hall
	Oxford
	OX3 0BW

R G Codrington

Secretary

24 January 1991

REPORT OF THE AUDITORS TO THE MEMBERS OF  [Page 4]

HOLLIS INDUSTRIES PLC

We have audited the financial statements on pages 5 to 30 in accordance with Auditing Standards, except that the scope of our work was limited by the matter referred to below.

In our opinion, the system of accounting was unsatisfactory during the period and certain records of income and expenditure necessary for the purpose of our audit were not maintained by the Company and two of its subsidiaries, Hollis Bros Limited and Multiphase Systems plc. In our opinion, in this respect, proper accounting records have not been kept and we have been unable to obtain all the information and explanations we considered necessary for the purpose of our audit. However, in our opinion, following the acquisition of the Company by Pergamon Group plc on 23 January 1990, the accounting records are being properly maintained.

Because of the significance of the matter referred to in the preceding paragraph, we are unable to form an opinion as to whether the profit and loss account and the statement of source and application of funds, together with the associated disclosures required by the Companies Act 1985, give a true and fair view of the Group's loss and source and application of funds for the period from 1 January 1989 to 30 June 1990.

In our opinion the balance sheets give a true and fair view of the state of affairs of the Company and the Group at 30 June 1990 and in all other respects the financial statements have been properly prepared in accordance with the Companies Act 1985.

Coopers & Lybrand Deloitte
Chartered Accountants
London
24 January 1991

No analysis of 1988 operating profit is available.