Afcons Infrastructure Ltd Management Discussions

GLOBAL ECONOMY: OVERVIEW

The world economy continues to experience headwinds due to the protracted effects of the overlapping negative shocks of the pandemic, war in Ukraine, and the sharp tightening of monetary policy to contain high inflation. Inflation had reached multidecade highs in many countries due to a number of factors including energy prices, supply chain disruptions and commodity price spikes. Central banks responded with aggressive monetary tightening to curb inflation and anchor inflation expectations. However, the rapid rise in interest rates has exposed vulnerabilities within certain segments of financial systems in advanced economies. Certain institutions that have relied on the continuation of low interest rates in previous years are now facing significant strain. The recent bank failures in the United States have prompted investors and depositors to divert their funds away from the institutions perceived as vulnerable. Consequently, policymakers, particularly in advanced economies, face complex dilemmas as they seek to address persistent inflation, sustain economic growth, and maintain financial stability.

Inflation rates have experienced a decline, although they still remain elevated, especially in the United approximately twice as high as pre-2021 levels. According to the IMF, it is anticipated that inflation will only converge with targets by 2026 indicating that high interest rates are expected to persist for a longer period. Global debt levels, which have significantly risen during the

Covid-19 pandemic, continue to hover at record highs. The recent tightening of monetary policy has substantially increased borrowing costs, raising concerns about debt sustainability, particularly in emerging economies. The substantial debt levels pose a risk to the global economy as they could potentially trigger a financial crisis if interest rates sharply rise or if there is a significant economic slowdown.

The initial shock to commodity prices during the onset of the war in Ukraine is gradually reducing; however, prices continue to remain high due to the prolonged nature of the conflict and expectations of limited global supply. The decrease in commodity prices has played a significant role in the decline of inflation, but maintaining lower prices relies on avoiding any additional adverse shocks. Furthermore, the reopening of China following extended periods of lockdown can have a notable impact on commodity prices, given Chinas status as a major producer and exporter of commodities. This could potentially drive prices even higher and intensify inflationary pressures.

The global economy stands at a crossroads, brimming with uncertainty as it navigates the persistent forces that have shaped its course throughout 2022 and are expected to extend their influenceinto the unfolding year of 2023. There are also concerns about financial in advanced economies. The International Monetary Fund estimates a global output growth rate of 3.4% in 2022, projecting a slightly tempered expansion of 2.8% for the year 2023, only to rise once again to a hopeful 3% in the year 2024. Within this landscape of growth and change, the economies of advanced nations face a distinctive challenge. Their output growth is projected to witness a decline from the relatively robust 2.7% in 2022 to a more modest 1.3% in 2023. This divergence is a consequence of their heightened exposure to the adverse shocks reverberating throughout the global economic terrain. On the other hand, Emerging Markets and Developing Economies are poised to fare comparatively better. These dynamic economies are estimated to grow by 4.0% in 2022 and growth rate is projected to be resilient at 3.9% in 2023 with a promising ascent to 4.2% in the year 2024.

In the midst of the uncertainties and challenges, there is also room for optimism regarding global economic growth. Despite the headwinds and varying performance across different economies, the projections indicate a positive trajectory for the world as a whole. Relatively stronger growth rates anticipated in Emerging Markets and Developing Economies underscore the dynamism and opportunities present in these regions. While challenges remain, this positive outlook offers hope for a revitalized global economy, fostering stability, prosperity, and shared progress in the years to come.

INDIAN ECONOMY: OVERVIEW

As per the National Statistical Office (NSO), the Indian economy has achieved an estimated real GDP growth of 7.2% in the fiscal year

2022-23. This growth rate is notable amidst the strong global headwinds. India is expected to be the fastest growing major economy. As per RBI, the growth momentum can be attributed to several factors such as a sustained recovery in discretionary spending, particularly in contact intensive services, restoration of consumer confidence, increased spending during the festival season following two years of

COVID-19 induced isolation and the governments emphasis on capital expenditure. Indian economy, like many other global economies, also experienced a surge in inflation during FY 2022 23, due to impact of overlapping global supply shocks and pass-through of higher input costs.

The Reserve Bank of India (RBI) has projected a growth rate of 6.5% for India in the ongoing fiscal year 2023 24. Despite facing challenges arising from a subdued global economic outlook and potential international risks, the Indian economy is expected to navigate quite smooth.

This positive outlook is supported by a resilient domestic macroeconomic environment, stable financial conditions, a consistent reform agenda, and emerging growth opportunities from shifts in the global geo-economic landscape. Indian economy is projected to continue its growth path due to softer global commodity and food prices, sustained government focus on capital expenditure, increasing optimism among businesses and consumers, and a rise in credit growth. Risks related to inflation have moderated in recent times and are anticipated to remain within a normal range.

UNION BUDGET FY 2023 – 24

The Government of India has consistently emphasized Infrastructure spending in its recent budgets, and this commitment continues in the current union budget. Capital expenditure has been steeply increased for the third year in a row. The allocation for capex has risen by 33%, reaching a total of approximately ~ 10 Lakh Crores, which accounts for around 3.3% of GDP. This total outlay is nearly three times the amount allocated in FY2019-20. In addition to the direct capital investment by the Central government, provisions have been made for the creation of capital assets through Grants-in-aid to states. The Effective capital expenditure of the central government is budgeted at around

13.7 Lakh Crores, equivalent to approximately 4.5% of the GDP. Furthermore, the Union government has extended its support to state governments for capital investment by providing a 50-year interest-free loan to states for an additional year. This measure aims to stimulate infrastructure investment and encourage states to implement complementary policy actions. The budget has allocated a significantly enhanced outlay of 1.3 Lakh Crores for this purpose.

Infrastructure and Investment forms one of the seven priorities of current budget FY 2023 – 24. Investments in infrastructure is primarily based on the multiplier effect on growth and employment. Central government focus on Infrastructure investment is geared towards growth potential and job creation, crowd-in private investments, and provide cushion against global headwinds. Budget also emphasized on the significance of logistics. 75,000 Crores of investments are planned in building 100 critical transport infrastructure projects, for last and first mile connectivity for ports, coal, steel, fertilizer, and food grains. Regional connectivity is another focus areas where government has made several announcements. Budget has also provisioned for Infrastructure Finance Secretariat to enhance opportunities for private investment in infrastructure that will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure, and power.

Contracts disputes and arbitration has been a perennial issue plaguing the construction sector in India. Multiple measures have been introduced over last several years in this area. In this years budget government has proposed for a voluntary settlement scheme with standardized terms for the arbitral awards which are under jurisdiction. This will be area of interest for construction industry in India. With all this, this is an area where there is significant improvement possible from the government side.

INDIAN CONSTRUCTION INDUSTRY: STRUCTURE AND DEVELOPMENT

Construction sector plays a pivotal role in Indias economic development, contributing significantly to employment generation, infrastructure growth and overall GDP growth. As per the provisional estimates of The National Statistical Office (NSO), Ministry of Statistics and

Programme Implementation (MoSPI), Construction industry has ~ 8.4% share in overall Gross Value Added (GVA) for FY 2022 – 23. Construction sector is 2^nd, after agriculture, in providing employment in India. Construction sector grew 10% to 12.4 Lakh Crores as per NSO estimates.

The infrastructure industry in India is expected to see a positive outlook in FY2023-24 and offers immense growth potential. Continued government support, policy reforms and private sector participation are expected to drive infrastructure development. The government has announced a number of initiatives to boost infrastructure development, including the National Infrastructure Pipeline (NIP), the

National Monetisation Plan (NMP), and the Gati Shakti Master Plan. These initiatives are expected to attract significant investment in the infrastructure sector, which will lead to increased construction activity and job creation.

ROADS

Over the last several years, there has been a strong performance in terms of highway construction in the country. Road construction is one of the key focus areas of central and state governments. In FY 2022-23, 10,331 km of highways were constructed. The pace of construction was more or less in line with the year before that as 10,457 km of highways were constructed in FY 2021-22. Road construction was impacted due to elevated commodity prices as well as prolonged monsoon in some parts of the country in the first half of FY23. This construction was 17% short of the governments target of constructing 12,500 km highways in last fiscal year.

Execution activity is expected to grow in current fiscal year FY2023 24 with focus on project completion. Indias highway construction is projected to accelerate this fiscal year, setting a record for the highest-ever road length built in a year. The Ministry of Road Transport and

Highways (MoRTH) has internally set a goal to construct at least 45 km of highways a day this year. NHAI has set a target of awarding

6,036 km of highway and constructing 5,060 km of highways in current financial year. EPC will continue to remain the mainstay of the highway project awarding, expected to account for ~70-75% of awards in FY2023-24. BOT project award has remained less than 5% over last several years and is expected to be in the same range in current fiscal.

Keeping in line with its infrastructure push, Government has allocated highest ever outlay for the highways sector under Budget FY 2023 – 24 to 2.7 Lakh Crores, approximately 70,000 Crores higher, a jump of 35% compared to previous years budget. Out of the total budgeted outlay in current year, National Highways Authority of India (NHAI) has been allocated a record 1.6 Lakh Crores as a part of MoRTHs capital expenditure plan for FY 2023 – 24, a 21% increase over previous year. Budget estimates NHAI to raise 10,000 Crores from monetisation of several completed highway stretches.

Road transport and highways is expected to play a crucial role in infrastructure development with nearly 27% of the total capital expenditure earmarked for the sector. Over last several years, MoRTH has been spending almost all of the funds allocated to it. Since 2018-19 onwards, Road Ministry has spent more than the amount allocated to it at the budget stage except in FY 2019-20. Between FY 2012-13 to FY 2022-23, amount allocated to MoRTH increased by 21% while the actual expenditure has risen by 25%.

RAILWAYS

Union Budget FY 2022 – 23 allocated a record 2.6 Lakh Crores for capital expenditure on Indian Railways, a significant 1 Lakh Crores higher than the previous year. Over past few years, there has been steady increase in share of capital expenditure in total expenditure for Indian Railway, reaching 50%+ share in recent budget. Railways constructed new lines at the rate of 12 km per day and is expected to increase to 16 km per day in this fiscal year. Railways plans to spend in excess of 30,000 on construction of new lines in current year and additional 30,000 Crores on doubling rail lines. Capex in railways is planned to be spent on key projects including launch of planned 500

Vande Bharat Express trains, achieving 100% electrification.

Redevelopment of major railways stations across India is one of the ambitious plans undertaken by the Indian Railways. Projects are targeted to be awarded on the Engineering, Procurement and Construction (EPC) basis rather than the PPP model. The development will integrate various modes of transport with railway station viz. metro, bus, and will also integrate both sides of city with station. In addition to the redevelopment of major railway stations, a new policy for modernization of stations named Amrit Bharat Station Scheme has been conceptualized in Dec 2022. This scheme envisages development of stations on a continual basis with a long-term vision. It involves preparation of Master Plans and their implementation in phases to improve the amenities at the stations such as improvement of station access, circulating areas, waiting halls, toilets, lift/escalators as necessary, cleanliness, free Wi-Fi, kiosks for local products through schemes like ‘One Station One Product, better passenger information systems, Executive Lounges, nominated spaces for business meetings, landscaping etc. keeping in view the necessity at each station. Scheme plans to take-up 1,275 railway stations for upgradation/ modernization in the country including border areas.

METRO RAIL

Metro Rail has witnessed significant growth and development in various cities across India. Rapid urbanization, environmental challenges and aspirations for better transport solutions has contributed towards continued rise in metro rail construction. More than 800 km of metro lines are operational in 20 cities in the country and 980 km of the metro network is in under various stages of development in 27 cities. Metro network is projected to cross 1,700 km by 2025 as per Ministry of Housing and Urban Affairs. A total of 23,000 Crores was allocated to metro projects under budget FY 2023 – 24.

Different modes of metro rail are under various stages of conception/ development based on the city population. Metro Lite is one such transit solution targeted for Tier 2/3 cities. This system which can be constructed at a cost of about 40% of high-capacity metro system is more viable and sustainable due to less capital, operation and maintenance costs. Four Metro Lite projects are under various stages of implementation at Gorakhpur, Delhi, Jammu, Sri Nagar. Metro Neo is another suitable alternative for smaller cities. Metro Neo is a rubber-tyred electric coach powered by overhead system running on a road slab with an exclusive right of way. It is estimated to be developed at a cost of 25% of conventional metro system. Metro Neo projects for Nashik and Dehradun are at various stages of appraisal.

MARINE & INDUSTRIAL

Indias maritime sector comprises of 12 major (owned and managed by central government), 200+ non-major ports (owned and managed by state governments) and several private ports situated along its 7,500 km long coastline and a 14,500 km of vast network of potentially navigable waterways. About 95% of Indias trade by volume and 65% by value is done through maritime transport facilitated by ports. Indian government has prepared the draft Indian Ports Bill 2022 to repeal and replace the existing The Indian Ports Act, 1908, which is more than 110 years old. Primary objectives of the proposed bill are to promote integrated planning between states, centre-states, address lacunae in the dispute resolution framework amongst other things. The bill aims to centralize the administration of minor ports that are currently managed by state governments.

Development of inland waterways has also picked up pace in recent times. 111 waterways including the 5 previously notified National

Waterways (NWs) over 24 states have been declared as National Waterways. An action plan has been formulated for NWs that were found viable for cargo and passenger movement. India is planning to invest over 35,000 Crores by 2047 to create a network of waterways in the country.

HYDRO & UNDERGROUND

India ranks globally amongst the largest installed capacity of the hydropower. India has more than 100 hydropower plants above 25 MW and nine pumped storage stations. Pump Storage Projects (PSP) can play a key role in achieving Indias target to reduce the emission intensity of its GDP by 45% by 2030, get to 50% of installed capacity from non-fossil fuel sources by 2030 and achieve net zero carbon emissions by 2070. Pump Storage Projects (PSP) are clean, time tested and have large capacity, huge domestic potential and minimal impact on the environment in their vicinity. Central Electricity Authority of India estimates on-river pumped storage potential of 103 GW in India. Huge off-river pumped storage potential is also available in the country. There are 8 PSP projects of 4.7 GW under operation, 4 projects of 2.8 GW under construction and 24 projects of 26 GW have been allocated by states which are under various stages of development.

WATER

Ministry of Jal Shakti has been allocated 97,000 Crores under union budget FY 2023 – 24, 13% higher than the previous year. Department of Drinking Water and Sanitation, which aims to ensure that every citizen has access to clean drinking water and sanitation facilities, has been assigned 77,000 Crores in this years budget. Jal Jeevan Mission, one of the major schemes under the Drinking Water and Sanitation department, is Indian Governments ambitious plan to provide safe and adequate drinking water through individual household tap connections by 2024 to all households in rural India. The Department of Water Resources, River Development, and Ganga Rejuvenation, which aims to achieve poverty reduction, environmental sustenance, and sustainable economic development, through integrated water management, has been allocated a budget of 20,000 Crores.

OIL & GAS

India is the Worlds 3^rd largest consumer of oil and Asias 2^nd largest refiner. Country is planning to double its oil refining capacity to 450-500 million tonnes by 2030. Economic growth in the company is closely related to its energy demand and oil and gas segment is projected to increase and expected to be conducive for investment. India is planning to more than double its exploration area of oil and gas to 0.5 million sq. km by 2025 and to 1 million sq. km by 2030 with a view to increase domestic output. This is in line with the overall objective of reducing Indias dependence on oil imports.

LNG imports in India account for about one-fourth of total gas demand and are expected to grow significantly going ahead. India is also the Worlds fourth-largest importer of LNG. The Ministry of Petroleum and Natural Gas aims to increase the countrys LNG re-gasification capacity to 70 MTPA by 2030 and 100 MTPA by 2040. Natural Gas is crucial energy source for India and government is planning to increase its share in total energy mix from 6% (Jul 22) to 15% by 2030.

GLOBAL CONSTRUCTION INDUSTRY

The global construction industry is expected to significantly increase its growth rate in 2023 compared to previous year. As per Fitch

Solutions, Global construction industry is forecasted to grow by 2.1% in 2023, compared to estimated growth rate of 0.7% in 2022. Growth is anticipated to accelerate with average growth rate of ~ 3% over next decade. Construction industry faces several headwinds posed by the prevailing economic environment. Due to anticipated high interest rates and existing high debt levels resulting from Covid-19 measures, governments will face significant debt servicing costs, which will in turn limit their capacity for fiscal intervention in the infrastructure sector.

Energy costs are expected to remain elevated and place excessive pressure on construction activity in the form of high raw material costs and increased cost of energy consumption in projects. Transportation Infrastructure is expected to account for most of infrastructure investment, with multimodal connectivity being the primary sub-sector across most countries.

There will be a significant variation in construction industry growth across various regions. North American region is expected to see a decrease in construction activity due to high interest rates. Project award could get delayed due to rise in interest rate. Construction activity in the European region is also expected to be relatively low due to high energy costs and interest rates. However, most European countries are expected to make significant investments in the Oil and Gas industry, particularly in LNG terminals and pipelines as part of their continuing efforts to achieve energy security. Latin Americas construction industry is expected to be affected by the tightening monetary policies across the region following the widespread rate increase in 2022. Political risks also weigh on the infrastructure investment activities in the region. Construction sector in

Mexico and Columbia is expected to outperform in the region supported by base effects, planned rising investments.

Asias construction industry is expected to grow, although at a slightly low level compared to years before the Covid-19 pandemic, dampened by weaker growth in Mainland Chinas construction industry. Reduction in long term housing demand and maturing infrastructure segment will weigh on long-term growth in the construction sector in China. Emerging markets in the region viz. Indonesia, Vietnam, Philippines,

Bangladesh are expected to witness significant growth in their respective construction sector as governments are likely to ensure significant investments to reduceinfrastructuredeficitsintheregion.

Construction activity in the Middle East and North Africa region will remain largely unaffected by slowing global growth in 2023, as higher revenue for the regions energy exporters will lead authorities to seek to frontload higher capital spending. Infrastructure development remains a key component of economic diversification efforts across Saudi Arabia, Kuwait and other Gulf Cooperation Council markets, therefore authorities will seek to use this greater liquidity to accelerate project development where feasible.

Sub-Saharan Africas construction industry is expected to outperform all the other regions in terms of growth, although it has the smallest construction industry in the world. East and West African regions will predominantly drive growth in the region. Transport, Energy and commercial building projects will constitute bulk of the construction activity in Sub Saharan Africa. Southern Africas construction sector is expected to underperform mainly due to low economic growth and gaps in power generation in South Africa due to which adequate investments in infrastructure development may not be possible. Some countries in Africa are reeling under the long-drawn debt restructuring process while some countries are facing debt distress. Resolving these issues quickly will be crucial to support planned investment in infrastructure in the region.

Source: Fitch Solutions

BUSINESS OVERVIEW

Afcons bagged new projects worth 7,922 Crores in FY 2022–23. Pending order book position of company as on 31^st March 2023 stands at

30,406 Crores.

Construction sector in India continued to perform and contribute significantly to Indias economic growth. On the back of healthy order books and robust execution, construction companies delivered strong performance. Construction industry as a whole has been facing headwinds in terms of surge in prices of key inputs, particularly steel and crude oil. Relaxation in bidding norms has resulted in increased competitive intensity in several sectors, especially domestic roads and elevated metros. Internationalization strategy of Afcons continues to bore fruits with strong opportunities in East and West Africa along with select neighbouring countries. New projects were bagged in several countries viz. Tanzania, Gabon, Liberia, Ivory Coast. Afcons has been widely recognized in various international platforms. As per the latest ENR (Engineering News-Record, USA) 2022 Rankings, Afcons is the 7^th largest international Marine and Ports Contractor in the World. Afcons is also ranked as the 16^th largest international Bridges Contractor in the world, 40^th largest international Transportation Contractor and 21^st in Transmission Lines & Aqueducts in the world.

Afcons focus on knowledge management has been appreciated and recognized at global levels. For the seventh year in a row, the company won the Most Innovative and Knowledge Enterprise (MIKE) award at Global, Asia and India levels.

RISK AND CONCERNS A. Global Events

Protracted Russia Ukraine war.

Increasing energy and commodities prices further stoking inflation. Failure to stabilize price increase trajectories can severely impact profitability margins. Volatile energy prices concern in tandem with rapid and sustained inflation, and food supply issues poses a risk of cost-of-living crisis.

Rising interest rates on account of hawkish stand of central banks to curb rising prices can deter economic growth.

Prolonged economic downturn across countries can severely hamper business opportunities and cause contagion risks.

Significant overhang of debt restructuring / sovereign debt default. The global debt distress can cause economic instability in pockets / regions.

Flight of capital from developing countries.

Diversion of funds from infrastructure projects towards prioritized segment like social infrastructure, health infrastructure.

Implementation of protectionist policies and waning of globalization can impact international trade and raise artificial barriers.

B. Domestic Events

Rapid increase in inflation levels, especially in the key input materials such as steel, cement, can impact profitability of contractors.

Continued uncertainty regarding subdued global growth and financial instability can likely affect economic growth outlook of the country.

Lower than average monsoon can result in drought like conditions, lower agriculture output and stoke inflation fear.

RBI may take a hawkish stance to keep the inflation in check by raising policy rates and thereby increasing the interest costs for businesses.

Sluggish investment, resulting in wide gap between willingness to invest and actual projects being implemented on the ground, poses as a headwind to domestic growth.

Continued aversion by banks and financial institutions for lending towards EPC companies.

Non-release of blocked up funds with government clients on account of arbitration.

Unjust contractual conditions set by clients.

General elections in the coming year can pose a risk on policy continuity and political stability.

Shortage of skilled and semi-skilled labour at construction sites due to large scale labour migration. In the short to medium term margins can fall with a rise in labour costs.

Foreign currency exchange risk on account of volatility in currency fluctuations.

OUTLOOK

There is a strong positive outlook for the construction business, both in India and select targeted international markets. Domestically, strong focus of governments, both at the central and state levels, on the infrastructure development will continue to provide interesting opportunities on the home front. Sustained domestic demand provides a solid foundation for business growth to the company. On the international front, exciting project opportunities have been earmarked in carefully selected target countries. Afcons internationalization has been significantly beneficial to the organization and the company will further sharpen its focus on overseas endeavours. Although certain

African countries have faced challenges stemming from debt distress, signs of improvement have emerged.

FY 2023 FY 2027.Afcons hasdevised its long-term strategyplan Vision2027,chartinggrowthplansforthenextfivefinancial The company has steadily begun its journey towards its future targets and is confident of achieving its vision.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACIES

The Company is maintaining an effective system of internal control for facilitating accurate, reliable and speedy compilation of financial information, safeguarding the assets and interests of the Company and ensuring compliance with all laws and regulations. The internal control system is managed through continuous internal audit by external professionals who conduct audits of Project sites of the Company throughout the year to test the adequacy of the internal systems and suggest continual improvements. All significant audit observations and follow up actions are reported to the Audit Committee along with Internal Audit reports and management responses/replies thereon. Operational control exists through well laid out system of checks and balances and hierarchy of reporting from site level to central management groups to the senior management and the Directors.

HUMAN RESOURCES DEVELOPMENT

The Company continues to excel in the field of Human Capital management with unique practices in the Infrastructure Industry. The Company strives to achieve the highest levels of employee engagement with multiple focused initiatives towards effective training and development of employees at various levels. There is strong drive on organization and people development. The healthy status of the Companys human capital is evident from the trend analysis of achievement, higher productivity with stable employee numbers and low attrition rate vis-a-vis industry competitors. Our HR policy derives its mission statement from the Company and focuses on:

Transnational Presence: The Afcons family presently comprises employees from 20+ nationalities at our projects in more than 13 countries. We believe in equal opportunity and gender equality. We strive to be an equal opportunity employer and at present, Afcons employs more than 110 local women in overseas projects which is a rarity in the infrastructure industry.

Innovation: We are fully equipped for the next level of Human Capital requirement with the digitisation of all processes in an employee lifecycle, starting from recruitment to separation.

Value Creation: We strive to align employees with the strategy & goals of the organization. With a unique employee engagement initiative, employees are enlightened about the strategic direction of the organization and aligned with the organizations DNA.

Stakeholders: Afcons and Afconians proactively and selflessly participate in community engagement activities. Many initiatives have been taken to boost employee morale & engagement like monthly project magazine – Anubandh and Wall-Of-Unity at all projects. We boast of a healthy organic follower base (more than 500,000) on social media platforms like LinkedIn and YouTube due to a meaningful and enriching experience.

We continue to aspire to provide employees a professional, congenial, and safe work environment with opportunities for personal growth and development. We aspire to innovate and become a strong and positive influence offering a wholesome experience to everyone in the Afcons family. Continuous performance in projects is testament to the significance of‘The Afcons Way which includes our values viz. Deep dive, Excellence, Collaboration, Ethics & Integrity, and Embrace Challenge.

CAUTIONARY STATEMENT

The statement in Management Discussions and Analysis describing the Companys operations and expectations are "forward looking statements". Actual results may differ owing to environmental dynamics.