25th May 2006 07:01
Sondex PLC25 May 2006 Sondex plc("Sondex" or the "Company") Preliminary Audited results for the year ended 28 February 2006 Financial Highlights • Revenue up 62% to £51.4 million (2005 - £31.7 million) • Operating profit up 76% to £9.7 million (2005 - £5.5 million) • Fully diluted earnings per share increased to 9.0p (2005 - 6.5p) • Adjusted diluted* earnings per share increased to 12.7p (2005 - 9.2p) • Operating cash increased to £6.4 million inflow (2005 - £0.8 million outflow) Operational Highlights • Acquisition of Applied Electronic Systems • Strong organic like-for-like growth (sales up 42%) • Significant investment in R & D, operations and facilities • Customer base increased by 48% * Pre amortisation of acquired intangible assets, pro-forma tax charge. NOTE: 2005 figures restated under International Financial Reporting Standards(IFRS) Iain Paterson, Chairman of Sondex, commented: "This has been a step change year for Sondex. These excellent results reflectthe strength of our original business as well as the measures taken to reshapethe enlarged group following our recent acquisitions. "Sondex enters the new financial year with confidence. The current order bookis strong as operators are continuing to seek innovative ways to optimiseultimate recovery from maturing fields. We believe that Sondex is well placedto deliver further growth." 25 May 2006 For further information, please contact: Sondex Tel: 0125 286 2200 Martin Perry (Chief Executive) Chris Wilks (Finance Director) College Hill Tel: 020 7457 2020 Nick Elwes / Ben Brewerton Chairman's statement Your company has had a highly successful year, during which we have continued toincrease our market share. While we have been helped by the buoyant marketconditions resulting from consistently high commodity prices, much of ourprogress is of our own making. Our marketing drive, broader operating base,increased range of products and significant improvements in our supply chainmanagement have all contributed to the excellent operating and financialresults. We are well placed to build on this success and I am confident that we cancontinue to grow, both organically through the expansion of our core businesses,and through appropriate acquisitions. Results Revenues rose 62 per cent to £51.4 million while operating profit increased by76 per cent to £9.7 million. Profits, after tax and financing costs, rose to£5.1 million as against £3.3 million, an increase of 54 per cent. Earnings pershare, adjusted for amortisation of acquired intangible assets and a pro-formatax charge, were 12.7 p, up 38 per cent on the previous year. The net margin onturnover improved to 24.3 per cent (23.7 per cent in 2005). These results areprepared under International Financial Reporting Standards and comparativefigures for 2005 are restated accordingly. These results reflect the success of our original business and the measures thathave been taken to reshape the enlarged group following the acquisition andsuccessful integration of Computer Sonics Systems Inc ("CSS") in 2003, GeolinkInternational Limited in 2004, and Applied Electronic Systems Inc ("AES") inDecember 2005. Dividend The Board is proposing a final dividend of 1.4p per share (1.3p in 2005), givinga total for the year of 2.1p per share (1.95p in 2005). The increase of 8 percent reflects both the performance and the growth prospects of the Group. Review of the period On 14 December 2005 the Board announced the acquisition of Applied ElectronicSystems Inc ("AES"), a USA-based company providing oilwell logging and piperecovery equipment, for a maximum consideration of $14 million (£7.9 million).The specialist technology, which is designed, manufactured and supplied by AES,is used within oil wells during both drilling and production operations and, assuch, complements the Group's wireline product range. Since the acquisitionthere have been highly encouraging increased sales volumes within AES, mostnotably in North America. Whereas the Group saw little more than two months' trading contribution from AESin the financial year under review it did benefit from the first full year,against 8 months in the previous period, of contribution from Geolink. Thissubsidiary is making an increasingly significant contribution to the Group'srevenue and profitability. It has also added considerable momentum to theGroup's operations in terms of both the product range and broadened customerbase. The Group invested £4.7 million in research and development of new products asagainst £3.6 million in 2005. This level of spending represented 9.1 per centof revenues, underlining the importance the Group places on growing the businessorganically as well as through targeted acquisitions. Sales, Marketing, Customer Support and Administrative expenses rose during theyear, to £12.5 million (£7.1 million in 2005), reflecting the integration ofnewly acquired companies, an investment to improve supply chain managementsignificantly, and a big expansion of production and customer support capacity,both in the UK and overseas. The establishment of new Wireline productionassembly facilities at Yateley, Hampshire, has already proved to be a soundinvestment. It is especially pleasing to report that during the year the Group traded withan additional 120 customers. This represents a 48 per cent increase in ourcustomer base from 250 to 370 customers. Of this growth, 68 new customers can beattributed to the acquisition of AES. The remainder is as a result of ourbroadened operating base, with the opening of new international sales andservice centres, and to the new management structure which is strengthening boththe marketing and delivery performance. Management and staff During the year the Group appointed a Managing Director of the Wirelinedivision, transferred from our Canadian business, who together with the ManagingDirector of Geolink are responsible for their respective divisional profit &loss accounts. The responsibilities for sales and customer support are sharedbetween a newly appointed director of sales for Eastern Hemisphere and ourCorporate Vice President for the Americas. As announced in February 2006, due to reorganisation into a divisionalstructure, Peter Collins, a Director since May 2003, left the company andresigned as a Director on 23 May 2006. He made an important contribution to thedevelopment of the Group and we wish him well in his new endeavours. Our staff, both in the established businesses and the recently acquired, haveshown considerable commitment and performance which is directly reflected in theGroup results. This is particularly commendable given the challenges presentedby our growth and change. On behalf of your Board I should like to thank allpersonnel for their excellent work during the past year. Outlook We have entered the new financial year with continuing optimism and confidence. Market indicators remain favourable as oil and gas operators continue to turn tosophisticated technologies and instruments such as ours to optimise ultimaterecovery from maturing fields. Sondex has earned recognition as being a leadingsupplier of downhole technology to the international oil and gas industry. Our customer base is growing and our order book remains strong. Importantly, wenow have the management structure, increased manufacturing capability and broadgeographical presence to take advantage of the business opportunities andproduct enhancing acquisitions in all of the world's major oil and gaslocations. Against this background, I am confident that Sondex will again deliver stronggrowth in the coming year. Iain PatersonChairman Operating Review Industry overview During the past year the oil and gas industry has been characterised bycontinued high demand, supply constraints, geo-political uncertainties andconsequent sustained strong commodity prices. Producers and service companieshave put renewed emphasis on reservoir management in an effort to maximiseproduction and raise ultimate recovery performance from mature reservoirs. Atthe same time, new exploration and appraisal techniques are identifyingcommercial reservoirs that might once have been overlooked or disregarded. The growth in the downhole oilfield technology sector has reflected thesetrends. It is estimated that the global service sector currently served bySondex grew by 19 per cent in 2005 to $8.3 billion. Sondex has established asignificant presence and reputation as a supplier to this sector and it clearlyprovides Sondex with ample opportunity for further growth and deeperpenetration. The steps taken in the past three years have put the Group in a good position totake advantage of these opportunities. Sondex has broadened its range oftechnologies through its own research and development achievements and throughthe acquisitions of CSS, Geolink and AES, which are all companies withcomplementary aims and products. The management and staff of these companieshave fitted in well. The enlargement of the Group has brought many new marketing opportunities. Eachof the acquired companies brought with it established relationships that havebeen cemented and developed across both the Wireline and Drilling Divisions. The Group has invested in expanded manufacturing facilities in Hampshire in theUK as well as in Calgary, Canada and through acquisition in Louisiana, USA. Thesize and scope of the research and development facilities have also beensubstantially increased. During the past three years Sondex has also extended its geographical reach.Operating centres have been established in Europe, the USA, Canada, Venezuela,Russia, China, Australia and the United Arab Emirates in the Middle East. Allof these centres are making important contributions, of which the businessgenerated in the Americas, and Russia has been especially noteworthy. Sales and customer support The developments over recent years lie behind the excellent sales figures for2006. Group sales totalled £51.4 million in the year ended 28 February 2006. This wasa 62 per cent increase on the previous year (£31.7 million). Exports accountedfor approximately 91 per cent of the Group's revenues in 2006. During the year the Group traded with an additional 120 customers, increasingour customer base by 48%. A notable feature of the Group's development inrecent years has been the way the Group has been able to lessen its dependencyon a few very large customers. For instance, in 2003-4 the four largestcustomers each accounted for approximately 10 per cent of revenues whereas in2005-6 ten customers provided only 35 per cent of revenues. Important new customers have been added in South America, Russia and the MiddleEast. The Group's customers continue to be the international, regional andlocal service companies providing solutions for oil and gas producersworld-wide. The company made big advances in its supply chain management during the yearunder review. Steps taken included: * Increased in-house production capacity. The transfer of the WirelineDivision's final product assembly from Bramshill, Hampshire, to new facilitiesat nearby Yateley doubled in-house production capacity to 13,786 square feet.Production capacity in Calgary, Canada, has also been significantly increasedenabling more manufacturing to be brought in-house and Drilling Divisionoperations to be added to the traditional Wireline capability. In Aberdeen,Geolink is currently in the process of expanding its manufacturing by some10,000 square feet. The acquisition of Applied Electronic Systems has alsobrought the benefit of a purpose built 25,000 sq ft facility in Lafayette,Louisiana. * Improved supplier capability. Throughout the year initiatives have beentaken to increase the calibre of sub-contractors by working with the establishedbase and introducing new suppliers with incremental skills and capacity. Theincreased volumes have allowed better management, scheduling and capacityplanning within the supply chain. * Increased maintenance and repair capability. During the year the Groupexpanded its international customer support centres in the Middle East andChina. In Houston and Venezuela the drilling and wireline capabilities wereamalgamated in order to provide a speedier and more direct service to the usersof Sondex's technology. Wireline Division Sales within the Wireline Division rose 65 per cent in the 2006 financial year.Revenues totalled £35.3 million as against £21.4 million in 2005 with consistentgross margins. During the year the division added 92 new customers, of which 68can be attributed to the acquisition of AES with the balance including some thatresulted from introductions and referrals from the Drilling Division's Geolinkteam. A major success for the division was the introduction of the UltraWire versionof the established Multi-finger Imaging Tool ("MIT") which is combinable with afull range of other logging tools, thus improving the efficiency of theinspection process in mature oil and gas wells. The high-value equipment hasattracted much interest and acclaim throughout the industry and it is alreadyhaving a positive impact on the division's sales. The MIT has been used in significant operations in both China and Russia. InChina the technology was used in a multi well programme where it demonstratedthat the UltraWire(TM) digital communications system used in conjunction with the full range of Sondex sensors would give significant cost-saving and qualityimprovement. The MIT was used to measure accurately the internal dimensions ofoil wells while a Magnetic Thickness Tool ("MTT"), utilising 'Remote Field EddyCurrent' techniques was deployed to detect corrosion or other possible damage tothe outside of the well casing. In October, the division announced that it had won an important contract, valuedat $2.5 million, from a major Russian gas producer. Wireline equipment,including MTT and MIT, is being used to inspect the condition of older wells aspart of a programme of remedial work to increase production. UltraWire(TM) isbeing deployed to transmit data on the internal dimensions of the wells,together with the thickness of well casing and production. China and Russia are emerging as major growth areas for the Sondex Group.Another growth area with the potential for becoming an important market for theGroup is India. In July the first major shipment of wireline production loggingequipment, worth more than £1 million, was delivered to Oil and Natural GasCorporation ("ONGC") for operations in India. In September the Group announced that Wireline Division's advanced DownholeElectric Cutting Tool ("DECT") had been used successfully to release a casingpacker in the Otter Field, north-east of Shetland, operated by TOTAL E&P UK PLC.The field is one of the remotest oil developments in the North Sea. The DECT, developed by Sondex, was used to cut and release the hydraulicretrievable pump packer at a depth of 1,978 metres and with a well deviation of60 degrees. The operation was conducted from the Stena Spey drilling rig. Thetool is an intelligent system that enables precise and controlled cutting actionto part pipe without the use of dangerous chemicals and explosives - thetraditional way of severing tubing below the surface. The DECT, together withthe Free Point Indicator, part of the product range from AES, will form thebasis of a new pipe recovery product line. Drilling Division Revenues from the Drilling Division in the 12 months ended 28 February 2006totalled £16.2 million as against the £10.3 million in the eight monthsfollowing Geolink's acquisition in 2004. On a like-for-like basis the increasewas 16 per cent. The division added 28 new customers in the 12 months to February 2006, many as aresult of marketing efforts in regions not previously pursued by Geolink. Thedivision has benefited from sales opportunities that have arisen from the newinternational bases that have become established by the Group. A notableexample being in the Middle East where an established Wireline customer starteda new business based on Geolink product which has shown excellent early success. Geolink has made strong progress in Canada and Central America as well as WestAfrica while good repeat business has been secured in Russia and China. During the year the division released for sale its Pressure During Drillingsensor. The instrument, compatible with Geolink's Orienteermeasurement-while-drilling ("MWD") and surface systems, has subsequently beenused successfully in Canadian and Mexican field operations. The sensor is amodular unit that measures annular and drill pipe pressures during drillingoperations. The sensor equipment provides data that allows the driller and MWDengineer to respond quickly to pressure variations such as cuttings loading inthe annulus, water flows and well "kicks" thus improving safety and efficiencyof drilling. The TRIM resistivity tool, released in 2004, has continued to gain significantmarket acclaim. During the year 18 systems were shipped, generating revenues inexcess of £1.9 million. TRIM is a method of detecting electrical resistance ofthe rocks and the fluids contained in them during the drilling of the well.Such information enables the directional driller to ensure that the well stayswithin the oil or gas reservoir and thus maximises the potential production. In Canada TRIM has been successfully introduced using a memory variant. Thissignificantly reduces the non-productive time of a drilling rig. In Russia thetool is being used primarily in mature fields where old wells are beingre-drilled to recover remaining oil. The division has strengthened its international reach by establishing a fullservice and repair centre for drilling equipment in Canada, the Middle East andVenezuela. Geolink gained ISO 9001:2000 Quality Standard certification during the year,recognition that is likely to open new doors to international businessopportunities given that the standard is seen by many companies worldwide asbeing an essential requirement for business. Geolink's accreditation builds onSondex's commitment to quality, the Wireline operations having receivedrecognition in 1999. Acquisition of Applied Electronic Systems As announced on 14 December 2005, the Group has acquired Applied ElectronicSystems ("AES"), a company based in Louisiana USA offering a complementary rangeof equipment which fits well with the Wireline Division's other technologies.Sondex paid $11.5 million for the business, and a further $1.5 million for thefreehold premises, with an additional sum up to $1 million subject to theachievement of revenue of not less than $8.5 million for the 2006 financialyear. The funding for the acquisition was through an increased banking facilityof £6 million and through the issue of 775,662 new ordinary shares to thevendors. These shares are restricted from sale for one year. The Group is delighted with the way AES and its staff have performed sincemid-December. The company's integration into Sondex has gone well and there hasbeen a noticeable increase in sales volumes since the acquisition. AES meets the acquisition criteria of enhancing current product lines,increasing market reach and supporting the financial growth and reputation ofthe Group. AES, which is strongly cash generative, has 80 per cent of itsbusiness in the USA with distribution facilities throughout the land markets inNorth America. Its products include the market leading 'free-point indicator'which is a wireline tool run during the drilling operations should the drillpipe become stuck in the well. Once the 'free-point' is established the drillpipe is released or cut in order that drilling operations can be resumed. Inthis respect the tool is complementary to Sondex's successful Downhole ElectricCutting Tool ("DECT"). Other equipment sold by AES include casing collarlocators and running equipment which are being integrated to form an additionalrange of cased hole logging tools. Research and Development Investment in research and development activity during the financial yeartotalled £4.7 million, representing 9.1 per cent of turnover (£3.6 million and11.3 per cent respectively in 2005). Focused R&D continues to be regarded as aprincipal engine for sustained organic growth and the Group remains committed toinvesting about 10 per cent of its turnover on this important activity. In the year ended 2006 about 40 per cent of R&D investment went towardsextending product lines to add functionality, incremental sales and increasedbarriers to potential competitors; 33 per cent was spent on maintaining andimproving existing products; and the remaining 27 per cent went towards thedevelopment of new product lines for step change growth. The Magnetic ThicknessTool and the Downhole Electric Cutting tool are among the important instrumentsthat have recently emerged from the new product line R&D programme. The R&D activities across the Group employ 70 personnel involved in sensor,software, electronic and mechanical design. They are based in Hampshire,Aberdeen, Calgary and Louisiana. In November the Department of Trade and Industry's Innovation Group announced ithad awarded a £198,000 Government grant to Sondex and its research partner BetaR&D for the development of a new power source for downhole instrumentation. Thegrant, made under the Innovation Group's technology development programme, isbeing used to help develop rechargeable, high temperature battery technology.The new battery is being designed to provide a cost-effective, robust andreliable alternative to the lithium batteries that are currently used for memorytools by downhole operators within the oil and gas industry. It is anticipatedthat a prototype battery will be available for trials in mid 2007. A feature of the Group's R&D programme is the involvement of service companyclients and oil and gas corporations in collaborative projects. Both a leadingenergy company and a major oil service group are working with Sondex on thedevelopment of a novel harmonic well test production logging ("WTPL") tool.Such an instrument would have considerable commercial potential, providingoperators with a cost-effective means of assessing current and future oilreserves in maturing oil and gas fields. Well test production logging is amethod by which an assessment of the production capability of an oil or gasreservoir can be made from within a producing well without interruptingproduction or deploying costly equipment. The Group's people During the financial year ended 2006 a number of senior appointments were madeto reflect better the matrix management structure. Roy Martin was appointedSales and Marketing Director for the Eastern Hemisphere and Raymond Garciacontinued as Corporate Vice President for the Western Hemisphere. They eachhead the marketing, sales and customer support operations in their respectiveregions, embracing the full range of the Group's wireline and drillingtechnologies. At the same time, Lane Roberts was appointed as Managing Directorof the Wireline Division and Ali Macrae was confirmed as Managing Director ofthe Drilling Division. Each is responsible for the respective division's profitand loss accounts. These four executives are members of the Group's ExecutiveCommittee that also includes the executive directors, Martin Perry, Chris Wilksand William Stuart-Bruges. At the end of the financial year the Group employed a total workforce of 373.These included the 41 engineering staff who joined as a result of the AESacquisition. There is confidence that these employees will adapt and integrateinto the Sondex Group as well as those who joined with Geolink and CSS.Transfers between locations and divisions have already taken place and thistrend is being encouraged in order to enhance personal development and culturaldiversity. Staff have adapted well to the changes that continued growth brings to thebusiness. Management and staff hold approximately 9 per cent of the shares in Sondex. TheGroup operates an approved Save As You Earn scheme for all UK-based staff andgrants continue to be made under the share option scheme. The Board believesthat broad-based staff equity participation should be encouraged. Health and safety Given the Group's emphasis on achieving the highest health and safety standards,it is pleasing to note that once again there was no serious incident or accidentin the past year. A programme of training and health and safety awareness initiatives wasmaintained throughout the year. Health and safety performance was monitoredunder established management procedures and reviewed closely at each Board andExecutive meeting. Risk assessments were conducted internally and byindependent consultants to ensure that best practice was being followed. Summary Sondex has made notable progress in the year under review. The Group's salesgrowth has outperformed the market through the dedication, enthusiasm and sheerhard work of everyone within the Group. Sondex has established a valued rangeof downhole technologies including a number of tools recognised as marketleaders or "industry standard". A broadened international base has opened upvital new markets which, in turn, have led to a further significant increase inour customer base. The Group's financial and management platforms are strong. The Board remainsconfident in the strategy of pursuing growth through organic development, backedby a strong R&D programme, and appropriate acquisitions. In summary, Sondex isin well placed to take advantage of opportunities and market conditions in thefuture. Martin PerryChief Executive Financial Review Overview The Group's turnover was £51.4 million in the year ended 28 February 2006, anincrease of 62% on the previous year (£31.7 million). Without the impact of theAES acquisition on 14 December 2005 the increase in turnover would have been 58per cent. The Group's operating profit before amortisation of intangible assetswas £12.5 million in 2006 (£7.5 million in 2005) representing a net margin onturnover of 24.3 per cent (23.7 per cent in 2005). The Group's operating profit was £9.7 million (£5.5 million in 2005). Thisoperating profit was achieved in spite of a 30 per cent increase in research anddevelopment expenditure from £3.6 million to £4.7 million and other investmentsin fixed costs, such as the new office and workshop complex at Yateley,Hampshire and expansion overseas as well as Health and Safety management. Currency and interest rate risk In common with previous years (and oil industry norms) the Group continues tomake a majority of its sales in US Dollars. In the year ended 28 February 200672 per cent of the Group's revenue was made in US Dollars (2005 - 86 per cent).Only 17 per cent of the Group's costs are incurred in US Dollars (2005 - 17 percent) and in order to provide a partial hedge against exchange rate movements,the Group's bank debt is denominated in US Dollars. There remains an excess ofUS Dollar generation greater than that required to fund the Group's US Dollarcosts and service the Group's bank debt and it remains the Group's policy toemploy exchange rate instruments such as forward contracts and capped ratecontracts to provide some further protection to earnings. The US Dollar has strengthened in the 12 months ended 28 February 2006 and whilethis has benefited the Sterling value of trading it has caused the forwardcontracts which were put in place to hedge the foreign exchange rate at thebeginning of the financial year to be out of money. This has resulted in aforeign exchange loss to be recognised in the income statement for the yearended 28 February 2006 of £0.6 million. No such contracts were held at the yearend. The Group continues to partially hedge the interest rate risk with a mixture ofinterest rate swaps providing a fixed Dollar base interest rate of 3.77 per centper annum and interest rate caps providing protection in the event that the baseinterest rate increases beyond 3.77 per cent per annum. At the end of theperiod 35 per cent of the bank borrowing was hedged against interest rateincreases using these instruments. Taxation The group's tax rate for the year ended 28 February 2006 was 32 per cent (2005 -29 per cent). The relatively high rate of taxation applied to the profits of the USA andCanadian subsidiaries is offset by the availability of enhanced taxation reliefsfor the Group's expenditure on research and development. The establishment of an increasing number of overseas subsidiaries exposes theGroup to local taxes at various rates, and the structure of the Group is keptunder review with the aim of achieving an overall balance in rates of taxationapplied. Dividend An interim dividend of 0.7p per share (2005 - 0.65p) was paid on 26 January2006. A final dividend of 1.4p per share (2005 - 1.3p) payable on 7 July 2006to shareholders on the register at 2 June 2006 is now proposed. This would givea total of 2.1p per share for the year (2005 - 1.95p per share), an 8% increase. Cashflow A key feature of the year was the cash inflow generated from operatingactivities, which at £6.4 million represented a significant improvement from theoperating cash outflow of £0.8 million during the previous year. The Group wasable to absorb into this operating cash inflow a continued build in inventoryreflecting the continued strong demand for products, particularly in theWireline market. During the year an incremental loan, in the sum of £6 million, was drawn down topart-fund the acquisition of AES. Subsequently, that and the pre-existing loanswere consolidated into a single term loan, and the existing working capitalfacilities were replaced by a Multi-Option Facility in the sum of £11 million. The loan and the Multi-Option Facility are both secured by a fixed and floatingcharge over the assets of the group. The loan is due for repayment in 36 months from 13 December 2005, subject to anannual refreshment of the rolling 36 month term. Funds drawn down under theMulti-Option Facility are due for repayment at the earliest in May 2007, subjectto an annual review. Interest on the loan and the Multi-Option Facility is charged quarterly, atrates between 1.45% and 1.7% per annum above LIBOR. At 28 February 2006, the group had drawn down £5,251,000 against theMulti-Option Facility of £11 million, leaving £5,749,000 available at that datefor the funding of future operating activities. There are no restrictions onthe use of these funds. Debt management The Group's gearing ratio rose from 41 per cent in the year ended 28 February2005 to 47 per cent in 2006 reflecting the extension of the banking facilitiesduring Q4 to facilitate the acquisition of AES. Other liquidity measures suchas the quick ratio, interest cover and dividend cover ratios remain comfortable. International Financial Reporting Standards The results for the year ended 28 February 2006 are presented solely underInternational Financial Reporting Standards (IFRS). The detailed accountingpolicies that the Group adopted upon conversion to IFRS and their major impacton the Group's results for the year ended 28 February 2005 are detailed in theGroup's transition statement which was released on 23 November 2005 and which isavailable on the Group's website. In summary the principal changes of accountingpolicy involve: • The capitalisation of qualifying development expenditure incurred in the Group's research and development programmes; this is in accordance with IAS 38; • The cessation of amortisation of goodwill, to be replaced by the amortisation, over lives considerably shorter than that of goodwill, of specific intangible fixed assets identified in acquisition; this is in accordance with IFRS 3; • The extension of the charge for share-based remuneration, introduced by IFRS 2; and • The wider scope of the charge to deferred taxation, under IAS 12. Christopher WilksFinance Director Consolidated income statementfor year ended 28 February 2006 Note 2006 2005 Total Total £000 £000 Revenue 1 51,449 31,713Cost of sales (22,341) (14,159) _______ ________Gross profit 29,108 17,554 Other operating income 136 178Research and development expense 2 (4,249) (3,134)Sales, marketing and customer support expenses (5,952) (3,283)Administration expenses excluding amortisation of acquired intangible assets (6,551) (3,786) _______ ________ Operating profit before amortisation of acquired intangible assets 12,492 7,529 Amortisation of acquired intangible assets (2,803) (2,026) _______ _______ Operating profit 1 9,689 5,503 Financial income 450 207Financial costs (2,653) (1,061) _______ ________ Profit before taxation 7,486 4,649 Taxation 3 (2,398) (1,347) _______ ________ Profit attributable to shareholders 5,088 3,302 Dividends paid 4 (1,106) (830) Earnings per share on profit attributable to shareholders - Basic 5 9.3p 6.7p- Diluted 5 9.0p 6.5p- Adjusted basic 5 13.2p 9.3p- Adjusted diluted 5 12.7p 9.5p Consolidated balance sheetat 28 February 2006 Note 2006 2005 £000 £000Non-current assetsGoodwill 42,757 37,965Other intangible assets 17,590 17,757Property, plant and equipment 5,535 4,895Financial assets - derivatives 111 -Investments 42 137 _________ _________ 66,035 60,754 _________ _________ Current assetsInventories 14,796 8,014Trade and other receivables 24,759 18,954Cash and cash equivalents 2,099 - _________ _________ 41,654 26,968 _________ _________ Current liabilitiesFinancial liabilities - borrowings (5,395) (5,367)Trade and other payables (9,798) (6,694)Current tax (3,599) (984) _________ _________ (18,792) (13,045) _________ _________ Non-current liabilitiesFinancial liabilities - borrowings (25,142) (16,544)Financial liabilities - derivatives (32) -Deferred tax liabilities (3,801) (4,919) _________ _________ (28,975) (21,463) _________ _________Net assets 59,922 53,214Shareholders' equityShare capital 5,585 5,501Share premium 42,565 41,019Other reserves 5,739 4,861Retained earnings 6,033 1,833 _________ _________ Total equity 59,922 53,214 Approved by the Board Martin PerryChief Executive24 May 2006 Consolidated statement of changes to equityfor year ended 28 February 2006 Note 2006 2005 £000 £000 Total equity at start of period 53,214 26,045 Profit for the period attributable to shareholders 5,088 3,302 Items of income and expense recognised directly in equity:Net foreign exchange differences 90 47Deferred tax on items not recognised in the income statement 218 194 _________ _________ 308 241 _________ _________Total income and expense for the year 5,396 3,543 Transactions with equity holders:Dividends paid (1,106) (830)Shares issued (net of expenses) 1,630 23,994Share based payments 788 462 Effect of implementing IAS 39 - - _________ _________ 59,922 53,214 Consolidated cash flow statementfor year ended 28 February 2006 Note 2006 2005 £000 £000Cash flows from operating activitiesOperating profit before amortisation of acquired intangibles 12,492 7,529Depreciation of property, plant and equipment 1,268 607Amortisation of capitalised development expenditure 1,052 725Amortisation of other intangible assets 154 -Charge for share based payment 788 462(Increase) in trade and other receivables (5,190) (5,498)(Increase) in inventories (5,868) (2,456)Increase / (Decrease) in trade and other payables 2,996 (213) _________ _________ Cash generated from operations 7,692 1,156 Income tax (paid) (1,258) (1,907) _________ _________ Net cash inflow / (outflow) from operating activities 6,434 (751) _________ _________ Cash flows from investing activitiesDividends received - 12Interest received 339 182Acquisition of subsidiaries (6,094) (33,095)Capital expenditure (2,301) (1,621)Development expenditure (1,471) (1,171)Proceeds from the sale of property, plant and equipment 790 466 _________ _________ Net cash used in investing activities (8,737) (35,227) _________ _________ Cash flows from financing activitiesProceeds from the issue of share capital - 25,124Loans received 5,729 13,000Repayment of loans (3,494) (2,900)Interest paid (2,015) (1,343)Dividends paid (1,106) (830) _________ _________ Net cash from financing activities (886) 33,051 _________ _________ Net decrease in cash and cash equivalents (3,189) (2,927) Cash and cash equivalents at the beginning of the period (1,410) 2,044Cash acquired with acquisition of subsidiaries 116 -Net effect of exchange rate changes 1,187 (527) _________ _________ Cash and cash equivalents at the end of the period (3,296) (1,410) Notes to the Preliminary Announcement For the year ended 28 February 2006 1. Turnover and segmental analysis Primary reporting format - business segments Wireline Division Drilling Division Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000RevenueExternal sales 35,276 21,388 16,173 10,325 - - 51,449 31,713Inter-segment sales - - - - - - - - ______ ______ ______ _____ ______ ______ _______ _______ Segment revenue 35,276 21,388 16,173 10,325 - - 51,449 31,713 ResultSegment result before 10,928 4,476 4,323 3,880 - - 15,251 8,356amortisation ofacquired intangibleassetsAmortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026)acquired intangibleassets Segment result 10,819 4,376 1,629 1,954 - - 12,448 6,330 Unallocated expenses (2,759) (827) _______ _______ Operating profit 9,689 5,503Financial income 450 207Financial costs (2,653) (1,061) _______ _______ Profit before taxation 7,486 4,649Taxation (2,398) (1,347) _______ _______ Profit attributable to 5,088 3,302shareholders Notes (continued) Wireline Division Drilling Division Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000Assets and liabilities Segment assets 68,399 50,538 39,290 37,184 - - 107,689 87,722Unallocated assets - - - - - - - - ______ ______ ______ ______ ______ ______ _______ _______ Total assets 68,399 50,538 39,290 37,184 - - 107,689 87,722 Segment liabilities (6,879) (2,709) (2,919) (3,985) - - (9,798) (6,694)Unallocated - - - - - - (37,969) (27,814)liabilities ______ ______ ______ ______ ______ ______ _______ _______ Total liabilities (6,879) (2,709) (2,919) (3,985) - - (47,767) (34,508) Other informationCapital expenditure (1,524) (1,507) (777) (114) - - (2,301) (1,621)Depreciation (479) (352) (88) (110) - - (567) (462)Amortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026)acquired intangibleassetsMovements in (612) (107) (89) (38) - - (701) (145)impairmentprovisions Secondary reporting format - geographic segments Sales by destination 2006 2005 £000 £000 USA and South America 13,103 7,406Canada 6,781 4,363Europe 7,509 4,646Middle East 7,334 4,611China 3,718 5,192Russia and former Soviet Union 4,840 3,259Africa 3,024 891Rest of the world 5,140 1,345 ______ ______ 51,449 31,713 Notes (continued) Total assets by location 2006 2005 £000 £000 Europe 89,864 83,425USA 6,864 802Canada 6,914 2,929Middle East 4,047 566 _______ ______Total 107,689 87,722 Capital expenditure by location 2006 2005 £000 £000 Europe 2,004 1,285USA 7 7Canada 188 136Middle East 102 193 _______ ______Total 2,301 1,621 2. Research and development expenditure The charge in respect of research and development expense is analysedbelow: 2006 2005 £000 £000Expenditure in the period (4,668) (3,580)Development costs capitalised 1,471 1,171Amortisation of capitalised development costs (1,052) (725) __________ __________Total research and development expense (4,249) (3,134) __________ __________ Notes (continued) 3. Taxation 2006 2005 £000 £000Current tax expense Current year - UK tax charge 2,337 923Current year - overseas tax charge 1,738 447 __________ ___________ 4,075 1,370 __________ ___________Adjustments in respect of prior years - UK 5 (29)Adjustments in respect of prior years - Overseas (207) - __________ ___________ (202) (29) __________ ___________ 3,873 1,341 __________ ___________ Deferred tax (credit) /expenseOrigination and reversal of temporary differences (1,534) 6Adjustments in respect of prior years 59 - __________ ___________ (1,475) 6 ___________ ___________ Total taxation expense recognised in the income statement 2,398 1,347 4. Dividends 2006 2005 2005 £000 Dividend £000 Dividend per share per share p pEquity dividends on ordinary sharesFebruary 2004 final dividend 472 1.20February 2005 interim dividend 358 0.65February 2005 final dividend 715 1.30 -February 2006 interim dividend 391 0.70 - ___________ __________ Total recognised 1,106 830 Notes (continued) 5. Earnings per share 2006 2005Basic earnings per shareBasic undiluted (pence) 9.32 6.69Basic diluted (pence) 9.00 6.53 £'000 £'000 Profit attributable to shareholders 5,088 3,302 Weighted average number of shares (thousands)Undiluted 54,578 49,340Dilutive share options 3,012 2,069Market price adjustment to dilutive share options (1,091) (866) ________ __________ Diluted 56,499 50,543 Adjusted earnings per shareAdjusted diluted (pence) 12.7 9.2Adjusted basic (pence) 13.2 9.5 Adjusted earnings per share is presented on the following basis: £'000 £'000 Profit attributable to shareholders (£'000) 5,088 3,302Add: amortisation of acquired intangible assets 2,803 2,026Less: adjustment to taxation (689) (656) ________ __________ Adjusted earnings 7,202 4,672 Diluted weighted average number of shares 56,499 50,543 The adjustment to taxation brings the charge to taxation to 30% of profit before amortisation and tax. 6. Basis of preparation The financial information for the years ended 28 February 2006 and 28 February2005 contained in this preliminary announcement was approved by the Board on 24May 2006. This announcement does not constitute statutory accounts of theCompany within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 28 February 2005 have been delivered tothe Registrar of Companies. Statutory accounts for the year ended 28 February2006 will be delivered to the Registrar of Companies following the Company'sAnnual General Meeting. The auditors have reported on both these sets of accounts. Their reports werenot qualified and did not contain a statement under section 237(2) or (3) of theCompanies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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