31st May 2006 07:02
Expro International Group PLC31 May 2006 EXPRO INTERNATIONAL GROUP PLC ("Expro" or "the group") Preliminary results for the year ended 31 March 2006 Expro International Group PLC, the oilfield services company, today announcespreliminary results for the year ended 31 March 2006. Year ended Year ended Increase 31 March 31 March (%) 2006 2005 Revenue £300.7m £211.3m 42%Operating profit £34.1m £12.5mHeadline operating profit (a) £34.1m £19.0m 79%Headline operating margin (a) 11.3% 9.0%Profit after tax £18.4m £3.1mContinuing EPS* 25.5p 4.7pHeadline EPS* (b) 25.5p 13.5p 89%Underlying EPS* (c) 27.1p 14.6p 86%Net cash from operating activities £58.4m £32.8mFree cash flow (d) £10.4m £4.0mDividends per share 10.9p 10.9pNet bank borrowings (e) £17.1m £53.7m * All references to earnings per share (EPS) are calculated by reference to the basic number of shares (a) Based on continuing operations before special items, as extracted from the consolidated income statement (b) Based on continuing operations before special items, as calculated under note 12 (c) Based on continuing and discontinued operations, before special items and the amortisation of intangible assets which arise from acquisitions, as calculated under note 12 (d) As calculated in the financial review (e) Bank loans of £62.7m (2005: £58.7m) less cash of £45.6m (2005: £5.0m), as extracted from the consolidated balance sheet • Results above current market expectations • Our strategy, boosted by strong market conditions, continued to deliver financial performance • Strong operational leverage • Record levels of investment in capex and product development • Strong cash flow • Dividend maintained Commenting on the results, Graeme Coutts, Chief Executive, said, "I am delightedto announce excellent results that are ahead of current market expectations. Ourperformance this year reflects the benefits of our focused strategy, boosted bythe continued strengthening of the market. Strong organic revenue growth andhigh operational leverage continue to fund investments for the future, offsetadverse currency movements and provide sustained earnings growth. Despite recordlevels of investment, the group's cash flow remains strong." - Ends - For further information please contact: Expro International Group PLC On 31 May 2006: 020 7067 0700Graeme Coutts, Chief Executive Thereafter: 0118 959 1341Michael Speakman, Finance Director Weber Shandwick Square Mile 020 7067 0730James Chandler / Rachel Taylor / Stephanie Badjonat An analyst meeting will be held at 09.30 this morning at the offices of Weber Shandwick Square Mile, Fox Court, 14 Gray's Inn Road, London, WC1X 8WS EXPRO INTERNATIONAL GROUP PLC ("Expro" or "the group") Final results for the year ended 31 March 2006 Chairman's and Chief Executive's Statement Throughout the first half of 2005, the results from the implementation ofExpro's growth strategy began to deliver strong financial performance. Themomentum witnessed in the first half of the financial year has continued,assisted by ever improving market conditions. The well publicised increase inglobal demand for energy has placed heavy pressure on supply, supporting highoil and gas prices. Strong industry momentum has been established, dominated bythese conditions. The combination of elevated commodity prices and a positiveoutlook for global energy demand has resulted in a stable investment environmentfor oil and gas operators. These market conditions have led to strong demand forthe products and services provided to the global oil and gas industry bycompanies such as Expro. As a late cycle upstream services provider, Expro iswell positioned to benefit from the increased customer spend, which is forecastto remain at elevated levels for several years to come. Our customers areheavily focused on maximising cash flows from their producing assets,aggressively developing new producing fields and adding replacement reservesthrough increased exploration. All of these activities play to Expro'stechnology strengths. Trading in the second half of the year continued to gain momentum in strongmarket conditions. The strategy published 30 months ago has positioned the groupto take advantage of current market conditions, resulting in a record orderbacklog, an outstanding technology position and profitable progress in all ouroperating areas. In addition, the second half saw our exit from the permanentmonitoring business through the sale of our 50% holding in the QuantX jointventure to Baker Hughes Inc. Given the increase in activity around the group over the prior year, our safetyperformance has been excellent. We have seen further improvement in our keyperformance indicators ("KPI's"), which we believe make Expro "best in class"for safety performance. The group's worldwide performance over the last fiveyears has been recognised by Expro being named as winner of RoSPA's Oil and Gasand Water Industry Sector Award for 2006, beating off strong competition frommajor players in the oil, gas and utilities sectors. Expro has a significant amount of US dollar revenues which create a materialexposure to the effects of currency movements when translating into the group'sfunctional currency, sterling. The year on year effect of currency movements hasbeen smaller than previous years as the value of the US dollar has beenconsistent for a sustained 24 month period. In trading terms, turnover increased to £300.7m, compared to £211.3m in theprior year representing growth of 42%. Headline operating profit increased to£34.1m, a 79% increase over the prior year result of £19.0m. Headline operatingmargin at 11.3% is well ahead of prior year's 9.0% and, despite record levels ofre-investment, free cash flow was positive at £10.4m. Net cash was furtherenhanced by the proceeds of a very well supported cash placing of shares andpayment received from Baker Hughes Inc. in consideration for the group's shareof QuantX. Dividend statement The Board is recommending maintaining the final dividend of 7.1p per ordinaryshare, bringing the total dividend for the year to 10.9p, unchanged from lastyear. This recommendation reflects the Board's continued confidence in thegroup's future performance. The dividend will be paid on 31 July 2006 to shareholders on the register on 30June 2006. Board changes After 24 years of service, Colin Ainger, Executive Corporate DevelopmentDirector, will retire from the group at the Annual General Meeting on 6 July2006. His position on the Board will be taken by John McAlister who joins Exproas Executive Group General Counsel in June 2006. The Board wishes to welcomeJohn to Expro, where his blend of skills will bring additional value to theExecutive team, and wish Colin well in his retirement, following his years ofoutstanding service. Group strategy Implementation of the group's strategy published by management late in 2003 hasled to greatly improved performance and outlook for Expro. The initial strategicobjective was aimed at setting new growth targets for the business. The resultsto date are very encouraging. There were three key areas identified for strategic focus. Firstly, managementwere required to re-engineer a loss-making Americas business. Secondly, a fargreater degree of client interaction was required which led to additionalinvestment in people, professional training and a fully integrated sales networkto improve the overall efficiency of Expro's customer care capability. Finally,the importance of technology development was emphasised and appropriatelyresourced. Technology enhancement took shape in two ways, firstly throughorganic projects such as the Joint Industry Partnership ("JIP") for riglessintervention, and secondly through the identification and acquisition ofsynergistic growth technologies. To support the strategy in rapidly improving market conditions, several keystructural and organisational changes were made. Additional management with theappropriate specialisation were introduced to manage distinct aspects of Expro'sbusiness. Emphasis was placed on separating the geographically dependent CasedHole Services ("CHS") and Surface and Environmental Systems ("SES") from theproject driven Subsurface Systems ("SSS") and Production Solutions business. Expro is now structured and managed under two distinct segments - Regionalbusinesses and Global businesses. Regional businesses comprise the technologies and services which arepredominantly local, infrastructure dependent and driven by client operatingexpenditure. This encompasses our previously reported CHS business stream andour well testing offerings. Global businesses comprise those products and services which are driven byglobal customer capital expenditure and where Expro is a leading technology provider. They are, in the main, highly technically differentiated and require strongproject management skills. This encompasses our previously reported SSS businessstream, including Subsea Safety Tools ("SST") and our market leading globalsubsurface brand of Tronic-Matre, as well as our Production Solutions business,the latter previously reported under SES. These key structural and management changes allowed specialisation anddifferentiation to support the sales, contractual and technology strategies.Overall the results to date are encouraging with record order backlogsestablished in the period. Business segment overview As previously described, Expro now operates in two distinct segments. Regional businesses Through our Regional businesses, we offer our clients a wide range of wellperformance technologies for the maintenance of existing wells and theinstallation of new producing wells. Steady progress has been made in the FormerSoviet Union ("FSU"), existing contracts have been extended and the client baseincreased during the year. The market for the Regional businesses is driven by acombination of client capital expenditure for new well construction, andoperating expenditure for existing wells. Virtually all wells require cased holeproducts and services throughout their economic life. Our technology offeringvaries according to geography. In the majority of our locations, we provideservices closely aligned to our client's operating expenditure. Our Regionalbusinesses deliver a high degree of stable and relatively predictable earnings,this is particularly true of mature provinces such as the North Sea, a marketwhich continues to offer us opportunity. In this area we have increased ourmarket share and increased the contractual opportunity base to introduce newhigh value technologies such as our Cableless Telemetry System ("CaTS TM")wireless well products. We continue to invest in additional high value technologies to enhance ourearnings capability through our fixed global infrastructure and extensive clientcontract base. Further development of the Down Hole Video product line, bothtechnically and geographically, is an excellent example of this. Global businesses Our Global businesses primarily consist of our Production Solutions business,which provides Early Production Facilities ("EPF's"), along with SST's and theleading global subsurface brand of Tronic-Matre. Our Production Solutions business provides and operates small plant, topsideprocessing equipment for temporary, semi-permanent and occasionally permanentfield development. This business is seeing the benefit of a sustained high oilprice, late cycle deepwater field developments and a need to increase appraisaltesting. All of this has been assisted by our improved organisational structureand sales efforts. Increasingly, customers see our small, fast-track production solutions as aviable way to gain early cash flow from major projects, as well as increasingtheir reservoir knowledge and reserves position. Our reputation in this segmentis very strong. Early in the year we assisted Exxon Neftegaz Ltd ("ENL") toachieve first production from their Sakhalin Island development on schedule. TheChayvo project has given Expro the opportunity to display exceptional value inthe harshest of environments. This flagship contract will continue throughoutmost of the 2006 calendar year. Tronic-Matre and our SST business have been the largest beneficiaries of theincreased late cycle activity. Momentum in this segment has continued at a pace.Our market leading products are all closely aligned to our client's deep watercapital expenditure. These late cycle businesses are dependent on sanctionedprojects which are operationally underway. Although cyclical in nature, marketconditions for our subsurface business remain favourable. These conditions,combined with our organisational focus, have continued to drive positivemomentum, producing strong performance and outlook. Geographic segment overview Expro provides products and services to global markets through an extensivenetwork of operational areas. These geographic operating areas are managed andreport within four distinct regional groupings. Europe/Former Soviet Union ("Europe/FSU") Europe/FSU performance in the year, particularly in the UK North Sea, has beenoutstanding. The characteristics of this ageing oil and gas province continue toprovide the type of market opportunity ideally suited to Expro, where we provideour most comprehensive offering of technologies. Demand for our cased holeproducts has been especially high. These technologies form the basis ofproduction enhancement for all wells, particularly those in heavy decline. Weenjoyed the benefit of the market share gains made in the prior year, mainlyfrom the pan-European contract for Shell. An equally compelling market driver ina late cycle offshore province is subsea tie-back activity. This is an industryrecognised technique to access numerous stranded pockets of hydrocarbons in acost effective manner. These subsea wells, when connected back to the NorthSea's ageing fixed infrastructure, provide additional cash for operators forrelatively small investment. In this area, Expro provides market leadingproducts and services. Our subsea safety tools are required to provide safeoperational connectivity between the drilling rig and subsea wellhead. Oursurface well test spreads are also in high demand, handling, processing anddisposing of hydrocarbons from new subsea wells. Overall the North Sea,including Norway, continues to offer good prospects for Expro. Africa/Middle East ("Africa/ME") Africa/ME was separated out as a managed region for the first time during theyear. A key focus for management has been to establish operational areas ofcritical mass. This has been achieved in Africa. Performance in the year hasbeen very good, particularly given the challenges of setting up extensiveoperating capability to serve the deep water subsea field developments off theWest African continental shelf. The region also covers operations in NorthAfrica, particularly in Libya and Algeria, down the West African coast, where weprovide Production Solutions facilities and deep water technologies offshoreNigeria, and on to the deep water developments off Mauritania, Angola and SouthAfrica. This region has the largest portion of Expro's order backlog.Significant contracts have been performed for numerous customers including bp,Total and Woodside. Asia Asia was also separated out as part of the restructuring exercise performed bymanagement during the period. Formerly managed as a single region together withAfrica, the separation was necessary to cater for the growth characteristics ofboth regions. In this region we have multiple operating countries but the mainfocus of our strategy is to capture high value projects, such as Chayvo onSakhalin Island, and create key operational hubs where critical mass can beestablished, such as Australia. Performance in the period has been good. Theabsolute highlight has to be the aforementioned Chayvo production facility,installed and operational on schedule for ENL in the difficult environment ofSakhalin Island. This achievement was recognised by our customer in their 2005highlights. Asia remains an interesting and challenging region for Expro.Enquiry levels for subsea activity have risen, indicative of the changing natureof this market. Americas The Americas region has been subject to an ongoing strategic re-engineeringexercise which commenced in the year to March 2004. The challenge has been toestablish stronger market positions for Expro, reducing our historic dependenceon lower tier land and Gulf of Mexico shelf markets, in favour of higher margin,technology based positions such as the deep water Gulf of Mexico. During theyear, the continuing implementation of this strategy delivered positive results.Significant market share has been established in the rapidly developing deepwater Gulf of Mexico, and several high value orders have been taken forspecialist subsea tools from customers with extensive deep water programmes,such as Chevron and BHP. The Americas also benefited from stable marketconditions and good demand for our cased hole services products throughout theregion. Of note has to be the renewed interest in some of our unique cased holeperforating technologies, which are particularly well suited to operations inareas such as the Barnett Shale in Texas. Our employees Expro has established a reputation within the upstream services industry as anemployer of choice. The ability to attract and retain quality staff will have ahigh degree of influence over the success of our strategy in these strong marketconditions. Our ability to deliver our strategy, and to continue to develop thebusiness, is greatly assisted by the professional attitude and performance ofour employees. Over the period, Expro has added approximately 300 staff, many ofthem graduates and trainees. The Board wishes to place on record its recognitionof the achievements and contribution made by all employees to the safe andsuccessful implementation of our strategy. Outlook The general outlook for the oil and gas services sector remains very positive,driven by client confidence and stable commodity prices, resulting in a stronguplift in client capital and operational spend. As a late cycle player, Expro isenjoying the benefit of these market conditions. This positive environment isproviding good impetus to Expro's strategy, resulting in a positive tradingoutlook. Key markets such as the United Kingdom Continental Shelf ("UKCS") haveperformed well for the group and offer continued good prospects. West Africa anda revitalised Americas business are poised to provide further growth.Recruitment and retention of personnel, together with resource and costmanagement are particularly challenging issues given the buoyant nature of theglobal industry. We remain focused on our strategy, including the further development of ourcustomer care capability and, very importantly, the development of our futuretechnology portfolio. Encouraged by our customers and early results, investmentlevels in the latter will increase as we strive for technical breakthroughs.Globally, our levels of tendering and enquiry remain high, in part driven byenhanced client interaction. Our order book and market outlook are sufficientlyrobust to give us confidence that we remain well set to continue to deliver ourstrategic goals. Dr Chris Fay, CBE Graeme Coutts 30 May 2006Chairman Chief Executive Officer OPERATIONS REVIEW Expro's operations are centred in four geographic regions. The Europe/FSUregion, headquartered in Aberdeen, covers the UKCS, Norway, Continental Europeand FSU, including Western Russia. The Africa/Middle East region, managed fromits hub in Dubai, covers North Africa, West Africa and the Middle East. The Asiaregion, also based in Dubai, covers South East Asia, China and Australia. TheAmericas region spans North and South America, with headquarters in Houston. Thegroup operates in fifty countries worldwide. In addition to the Regional businesses the group operates a number of BusinessUnits that rely on the regional infrastructure for operations support. TheSubsea Business Unit, based in Aberdeen, provides subsea intervention equipmentused to access subsea wells for completion, testing and maintenance. TheProduction Solutions Business Unit, with offices in Reading and Houston,supplies and operates fast track production facilities to establish earlyproduction from proven fields. The Tronic-Matre Business Unit provides aspecialist range of subsea electrical connectors and sensors. Performance The year has seen a significant improvement in activity, partly due to increasedinvestment by operators both in field development and well operations, partlydue to the impact of Expro's development strategy and partly from the benefitsof the established infrastructure. The number of recorded manhours has increasedby 17% on the prior year. Against this background, Expro has bettered its HSEtargets for the year and delivered a "best in class" HSE performance. Regional businesses Europe/FSU regional revenue was £77.1m, up 29% on the prior year. Higher oilprices saw a build up in well maintenance activity during the year, as operatorsstrived to optimise production. At the same time, the market experienced anupturn in development and exploration activity in the North Sea. Limitedavailability of personnel and equipment saw improved pricing and margins despiteunderlying cost pressures. This was the first full year of the Shellpan-European wireline and well testing contracts, under which Expro performswell operations across all of Shell's European activities. In the FSU, thecontract to provide multiple services on the Karachaganak field was extended fora further two years with two one year options, at enhanced rates. The group wasalso successful in expanding its client base in the FSU with campaigns forCaspian Oil & Gas, Uralsk Oil & Gas and Maersk Oil & Gas. Increased activityusing under balanced drilling technology in the Netherlands boosted income. Inthe North Sea, the use of Slickline Perforating ("SLP") technology together withinnovative StimGun(R) products provided cost effective solutions to operatorskeen to optimise production. Africa regional revenue was £32.9m, up 44% on the prior year. A slow start tothe year in North Africa was offset by some notable contract awards in thesecond half of the year and a pick up in activity. Recent awards includedcontracts for bp, Repsol, Total and Woodside. The application of multiphasemetering technology and Expro's proprietary GOLD system, delivering laboratorystandard Pressure Volume Temperature ("PVT") analysis in the field, is providingclients in North Africa, and elsewhere, with valuable fluid data on site. Theprovision of well testing and cased hole services on a number of major WestCoast deepwater projects accounted for the majority of the increase in activity.A successful campaign for Woodside on their Chinguetti field offshore Mauritaniawas completed during the year, with the prospect of further work in the area inthe future. The start up of testing and cased hole operations for Amerada Hessoffshore Equatorial Guinea expanded Expro's presence in this all important WestAfrica region. Major contracts were awarded in Angola during the year, for thesupply of clean up and testing services on deepwater Blocks 18 and 31 for bp,and on Blocks 17 and 32 for Total. Expro's capability offshore Angola hasincreased significantly during the year. This was achieved against a backgroundof increasing supply chain pressures within the industry. These contracts arefurther evidence of Expro's strong position in the all important deep water WestAfrica market. Offshore Cote d'Ivoire, Expro combined its Drill Stem Testing("DST") and Tubing Conveyed Perforating ("TCP") expertise to provide CNR with aseamless testing capability on its Espoir field. This was the first time thatthis expertise had been applied to a major contract outside the United States. Asia regional revenue was £24.9m, up 16% on the prior year. Cased hole servicesactivity was up by over a third in Australia as operators increased wellmaintenance activity both onshore and offshore. A similar picture emerged inThailand, where the continuing well services contract with Chevron saw activityincrease by almost 40%. Work continued through the year on a major integratedservices contract with PetroVietnam in the Cuu Long basin. This contractutilised Expro's proprietary Tubing Conveyed Sampling system that enablesoperators to retrieve fluid samples whilst testing rather than with a separatewireline deployed sampler, saving time. Americas regional revenue was £34.6m, up 26% on the prior year. Income wasboosted by the acquisition early in the year of Downhole Video Inc. ("DHVI").This provided a valuable addition to Expro's portfolio of wireline deployedtools. Despite the worst hurricane season on record in the Gulf of Mexico, TCPactivity was up 18% on the prior year and activity increased noticeably in thefinal quarter. This was in part due to increased market activity and in part dueto increased market share. The EXCAPE(R) perforating technology was successfullydeployed in high rate horizontal wells in the Barnett Shale in Central Texas,opening up a new area for this technology. As a result, EXCAPE(R) activity wasup 23% on the prior year. Despite a slow take up of the technology, downholetractor operations in Canada recorded combined runs of 200,000 metres in extremewell conditions with no lost time. Other notable technical achievements were thedevelopment of a combined video and production logging tool to identify fluidentry into wells and the use of PowerPerf TM propellant to provide enhancedperforating services. Global businesses Subsea Business Unit revenue was £39.1m, up 49% on the prior year. In the NorthSea, a significant increase in the number of subsea well interventions and wellclean-ups saw equipment utilisation at record levels. This was reflected inimproved pricing. It was a similar picture in the Gulf of Mexico with a 37%increase in the number of interventions, to record levels. In addition toconventional intervention equipment, the year saw the successful deployment ofthe latest generation of high pressure electro hydraulically operated tools onEni's K2 development. Work continued during the year on the development of thenext generation of high pressure tools for Chevron's deepwater Tahitidevelopment in the Gulf of Mexico. This is the largest single subsea contractever placed with Expro and represents state of the art subsea interventiontechnology, confirming Expro's position as market leader in this field. Duringthe year, equipment was delivered for use on bp's Block 18 development offshoreAngola, on Chevron's Lobito Tomboco development also offshore Angola and onNorsk Hydro's Ormen Lange project offshore Norway. Production Solutions Business Unit revenue was £39.9m, up 115% on the prioryear. This was despite the early shut down of the Ardmore Field in the North Seawhere Expro was providing and operating production facilities on the jack upbased production facility. The equipment was decommissioned and is currentlybeing redeployed to other projects. The most significant achievement during theyear was the successful start up of the interim production facility for ENL onthe Chayvo Field, Sakhalin Island, Eastern Russia. This enabled ENL to commenceoil and gas production from the giant Sakhalin-1 development, on time and onbudget. Income in South East Asia was boosted by the start up of the Nang Nuandevelopment, with Expro providing and operating the production facilitiesonboard the FPSO. A number of smaller onshore early production facilities werealso commissioned during the year in Indonesia. In China, sales of productionand testing equipment reached record levels. Work started during the year on theconstruction of a barge mounted production facility for Chevron Nigeria Ltd. Thefacility is due to be completed in the next financial year and will be used toincrease Chevron's production from the Delta Region. Tronic-Matre Business Unit revenue was £39.4m, up 48% on the prior year. Withthe acquisition of Matre at the end of the previous financial year, the businessadded pressure and temperature sensors to its product range, enablingTronic-Matre to offer integrated sensor and connector packages for installationon subsea wells. Income was also boosted by an increasing number of orders forhigh voltage subsea power connectors, a technology where Tronic has establisheditself as a market leader. After a record year in 2005, orders for subseaequipment continued to increase as more and more subsea development projectswere approved. This is directly reflected in Tronic's order book. Continuedinvestment in both facilities and personnel during the year has ensured thatTronic-Matre can meet the demand, delivering high quality products on time, forprojects across the globe. Development of enhanced subsea connectors for ultrahigh voltage power supply and for fibre-optic cables has continued, ensuringthat Tronic-Matre remains at the forefront of subsea connector technology. Finally the Fluid Analysis Centre and Ecodrill manpower business, which fallwithin the Global businesses segment, also showed significant growth on theprior year. Mike MartindaleChief Operating Officer FINANCIAL REVIEW Trading performance The market conditions for Expro's products and services have continued tostrengthen throughout the year, magnifying the financial impact of the strategicinitiatives that have been put in place. All businesses have performed well,with a good balance between the Regional and Global businesses. A very strongperformance in the UK Continental Shelf was typical of most of the operatingexpenditure driven Regional businesses, which all performed well year on year.The commencement of the operational phase of ENL's Chayvo EPF at Sakhalin,together with strong growth from Tronic-Matre and Subsea Safety Tools, providedan equally strong performance from the capital expenditure driven Globalbusinesses. Overall revenue at £300.7m was 42% higher than the prior year, with a biastowards the second half of the year as a result of new projects coming on streamlater in the year. The resultant headline operating profit at £34.1m was 79%higher than the prior year and produced a headline operating margin of 11.3%, upfrom 9.0%. While Expro has a significant amount of US dollar revenues, the year on yeareffect of currency movements has been smaller than previous years, as the valueof the US dollar relative to sterling, has been consistent for a sustained 24month period. Acquisitions and disposals On 11 April 2005, Expro acquired Downhole Video International Inc. (DHVI), a USbased supplier of downhole video services. DHVI provide high quality visualimages from within the well and are the market leaders in this technology. Ithas become an integral service within our Regional businesses and globalisationof the DHVI service offering is well underway. In August 2005 our partner in the QuantX joint venture, Baker Hughes Inc.,elected to exercise its right to acquire the business outright. Theconsideration of £15.8m is based on a predetermined formula and the transactionwas completed on 31 October 2005. This has led to a significant pre-tax gain of£11.5m and a corresponding tax charge of £1.8m. Interest The net finance costs in the year of £4.6m were higher than the prior year(£3.6m), primarily as a result of higher rates of interest on bank loans. Netinterest includes imputed charges of £1.4m (£1.1m) in respect of pension schemesand finance leases. The group has a five year interest rate swap with a notionalcapital value of £12m and rate of 5.62%, and a five year interest rate cap at6.25% on a notional capital value of $40m, both maturing on 15 May 2007. Taxation The group tax charge of £11.2m represents an effective tax rate of 37.9%. Theeffective rate reflects the group's broad geographic spread of profits,unrecoverable losses in certain territories, a variety of imputed and higherrate overseas tax regimes and non-deductible items. Tax continues to be a keypriority for the group, particularly the careful management of the long-termunderlying tax rate. Closure of tax positions throughout the group's operatingterritories also remains a priority. Earnings per share Headline earnings per share, which is based on continuing operations beforespecial items, was 25.5p for the full year, an increase of 89% on the prioryear. Underlying earnings per share, which is based on continuing anddiscontinued operations before special items, but excludes the amortisationarising from acquisitions, are 27.1p which represents an 86% increase on theprior year. These increases reflect the impact of higher sales volume leveragingthe relatively high operational gearing of the group. Dividends The Board is recommending that the final dividend of 7.1p per ordinary share ismaintained, bringing the total dividend for the year to 10.9p, which isunchanged from last year. This recommendation reflects the Board's continuedconfidence in the group's future performance. Equity Total equity increased by £56.4m to £109.6m. The increase comprises tradeprofits in the year of £18.8m, the net gain on the sale of QuantX of £9.7m,£5.3m of favourable exchange movements, a £4.5m gain arising from reductions inthe pension deficit, share capital issued of £26.5m less dividends paid of £8m,together with other minor movements. Cash flow Net cash flow from operations for the year was £58.4m, funding both the group'sinvestment requirements and commitments in terms of tax, financing anddividends. Despite the record levels of capital investment, outlined below, freecash flow was £10.4m, representing an improvement of £6.4m on the prior year andin excess of the £8.0m required to fund the dividend. 2006 2005 £m £m Net cash from operating activities 58.4 32.8Interest received 0.6 0.4Proceeds on disposal of property, plant and equipment 0.8 0.2Purchases of property, plant and equipment (49.3) (29.1)Purchases of intangible assets (0.1) (0.3)--------------------------------------------------------------------------------Free cash flow 10.4 4.0Dividends paid (8.0) (7.2)Dividend cover 130% 56%-------------------------------------------------------------------------------- Capital investment Capital investment at £51.5m (in cash terms, £49.4m) was a record spend for thegroup and includes investments in several material projects namely the ChayvoEPF project, the Tahiti SST and the Dibi EPF project, together with ourexpansion in Angola, following two major contract awards. Research and development Expenditure on research and development also increased to record levels,continuing the focus on deep water subsea developments, and increasingly on thedevelopment of the Rigless AX-S TM intervention system. Net bank borrowings On 2 June 2005 the company raised £25.9m from the proceeds of a very wellsupported cash box placing that was initiated to refinance the earlieracquisitions of RMI (Matre) and DHVI. In October 2005, the company received£15.3m from Baker Hughes for the group's remaining share of QuantX. These twoevents were largely responsible for the reduction in net bank borrowings to£17.1m at the end of the year. At 31 March 2006, 74% of the group's grossborrowings were denominated in US Dollars. Total bank borrowings are well withinthe group's facility, thereby providing headroom for both organic and someacquisitive growth. Financial risks The group's principal financial instruments, other than derivatives, comprisebank loans, finance leases, and cash. The main purpose of these financialinstruments is to manage the group's funding and liquidity requirements.Exposure to liquidity, credit and market price risk arises as a result of theday-to-day business activities of the group and the financing of thoseactivities. Derivative financial instruments are used to hedge exposures tofluctuations in interest rates and foreign exchange rates. Treasury activitiesare governed by policies and procedures approved by the Board and establishedcontrols are in place covering all financial instruments. All transactions infinancial instruments are undertaken to manage the risks arising from underlyingbusiness activities and not for speculative purposes. Further information on the principal financial risks facing the group and theapproaches taken to mitigate them, are set out in the financial statements,specifically notes 19, 21 and 23. Mitigating the group's exposure to currency risk continues to be a key priority.The group's currency exposure arises in two principal forms, transactional andtranslational. Transactional exposure is minimised because, as far as possible, operatingentities transact in the same currency as their functional currency. Where thisis not possible, the group enters into forward currency contracts. During theyear ended 31 March 2006, forward contracts with a nominal value of US$93mmatured with an average US Dollar/Sterling settlement exchange rate of 1.82.This compared to the average US Dollar/Sterling rate used in translating theincome statement of US$ 1.77. At the year end the group has outstandingcontracts of US$ 38m at an average US Dollar/Sterling settlement rate of 1.77.This compares to the exchange rate at 31 March 2006 of US$1.74/£1 and a budgetedexchange rate for the year ending 31 March 2007 of US$1.80/£1. Translational exposure impacts the group's revenues, profits and its net assets,to the extent that these are in overseas businesses with functional currenciesother than sterling. 47% of the group's revenues are denominated in US Dollars,with 38% in Sterling and 15% in other currencies. The group's policy of naturalhedging partially mitigates the impact of currency movements in terms ofprofits, cash and net assets. In addition, the group also has foreign currencyloans, principally US Dollars, which mitigate its exposure to foreign currencydenominated net assets. Pensions The group's pension scheme deficit reduced to £19.3m from the prior year deficitof £23.9m, a reduction of £4.6m, arising from improved returns on the underlyingscheme assets, offset by an increase in the scheme liabilities. The actuarial valuation carried out for funding purposes on 5 April 2005projected that the scheme was in deficit at £6.9m against an IAS 19 deficit of£23.9m at 31 March 2005, a difference of £17.0m. Michael J SpeakmanGroup Finance Director CONSOLIDATED INCOME STATEMENTYear ended 31 March 2006 Note 2006 2006 2006 2005 2005 2005 £'000 £'000 £'000 £'000 £'000 £'000 Headline Special Total Headline Special Total items (c) items (c) Continuing operations Revenue 3,4 300,727 - 300,727 211,273 - 211,273Cost of sales (255,251) - (255,251) (184,553) - (184,553) --------- ------ --------- -------- ------ ---------Gross profit 45,476 - 45,476 26,720 - 26,720 Administrative expenses (11,360) - (11,360) (7,702) (6,517) (14,219) --------- ------ --------- --------- ------- ---------Operating profit/(loss) 4,5 34,116 - 34,116 19,018 (6,517) 12,501Comprising: ------------------------------------------------------------Headline operating profit (a) 34,116 - 34,116 19,018 - 19,018Goodwill impairment - - - - (4,971) (4,971)Inventory impairment - - - - (1,546) (1,546) -------- ------ -------- -------- ------- ------- 34,116 - 34,116 19,018 (6,517) 12,501 ------------------------------------------------------------ Post tax profit from joint ventures 6 - - - 1,300 738 2,038Comprising: ------------------------------------------------------------Headline post tax profit (b) - - - 1,300 - 1,300Goodwill impairment - - - - (726) (726)Release of contract provision - - - - 1,464 1,464 -------- ------ -------- -------- ------- -------- - - - 1,300 738 2,038 ------------------------------------------------------------ Operating profit/(loss) including joint ventures 34,116 - 34,116 20,318 (5,779) 14,539 Investment income 8 3,855 - 3,855 3,055 - 3,055Finance costs 9 (8,409) - (8,409) (6,643) - (6,643) -------- ------- -------- -------- ------- -------- Net finance costs (4,554) - (4,554) (3,588) - (3,588) Profit/(loss) before tax 29,562 - 29,562 16,730 (5,779) 10,951 Tax 10 (11,204) - (11,204) (7,829) - (7,829) -------- ------- -------- -------- ------- --------Profit/(loss) after tax 18,358 - 18,358 8,901 (5,779) 3,122 Discontinued operationsPost tax profit from joint ventures 6 441 - 441 658 - 658Post tax gain from disposal of joint ventures 6 - 9,661 9,661 - - - -------- ------- -------- -------- ------- --------Profit/(loss) for the year 18,799 9,661 28,460 9,559 (5,779) 3,780 ======== ======= ======== ======== ======= ========Attributable to:Equity holders of the parent 18,750 9,661 28,411 9,558 (5,779) 3,779Minority interest 49 - 49 1 - 1 -------- ------- -------- -------- ------- -------- 18,799 9,661 28,460 9,559 (5,779) 3,780 ======== ======= ======== ======== ======= ========Earnings per shareFrom continuing operations Basic 12 25.5p 25.5p 13.5p 4.7p ======== ======== ======== ========Diluted 12 25.1p 25.1p 13.3p 4.7p ======== ======== ======== ======== (a) Headline operating profit is before special items. (b) Headline post tax profit in respect of joint ventures is before special items. (c) Special items comprise significant impairments, gains on disposal of discontinued operations and, in the case of joint ventures, the release of a contract provision. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEYear ended 31 March 2006 Note 2006 2005 £'000 £'000 Loss on cash flow hedges (2,951) - Exchange differences on translation of foreign operations 5,672 (1,963) Actuarial gains/(losses) on defined benefit pension schemes 31 4,451 (7,847) Tax on items taken directly to equity 567 2,789 ------- -------Net income recognised directly in equity 7,739 (7,021) Transfers Transferred to profit and loss on disposal of joint venture foreign operations 6 (365) - Transferred to profit and loss on maturity of cash flow hedges 1,815 - Profit for the year 28,460 3,780 ------- -------Total recognised income and expense for the year 37,649 (3,241) ======= ======= Attributable to:Equity holders of the parent 37,600 (3,242)Minority interest 49 1 ------- ------- 37,649 (3,241) ======= ======= Effects of changes in accounting policyAttributable to:Equity holders of the parent 547 -Minority interest - - ------- ------- 547 - ======= ======= The effects of changes in accounting policy arise from the adoption of IAS 32and IAS 39 with effect from 1 April 2005. As explained in note 2, the prior yearcomparatives have not been restated for this change in accounting policy. CONSOLIDATED BALANCE SHEETAt 31 March 2006 Note 2006 2005 £'000 £'000 Non-current assetsGoodwill 14 20,511 18,166Intangible assets 15 9,221 7,119Property, plant and equipment 16 95,423 72,426Investment in joint ventures 6 - 3,242Deferred tax assets 22 6,365 3,470 -------- ------- 131,520 104,423Current assetsInventories 17 19,237 15,213Trade and other receivables 19 95,577 74,789Cash 45,642 5,009 -------- ------- 160,456 95,011 -------- -------Total assets 291,976 199,434 -------- -------Current liabilitiesTrade and other payables 20 (73,159) (45,290)Current tax liabilities (12,549) (6,625)Finance leases 24 (768) (478)Derivative financial instruments 23 (295) -Provisions 25 (188) (349) -------- ------- (86,959) (52,742)Non-current liabilitiesBank loans 21 (62,699) (58,715)Retirement benefit obligation 31 (19,348) (23,882)Deferred tax liabilities 22 (2,428) (1,629)Finance leases 24 (7,972) (6,496)Derivative financial instruments 23 (138) -Provisions 25 (2,882) (2,780) -------- ------- (95,467) (93,502) -------- -------Total liabilities (182,426) (146,244) -------- -------Net assets 109,550 53,190 ======== =======EquityShare capital 26 7,328 6,646Share premium account 27 570 929Hedging and translation reserve 27 3,099 (1,963)Own shares 27 (352) (407)Equity reserve 27 1,032 417Retained earnings 27 97,841 47,535 -------- -------Equity attributable to equity holders of the parent 109,518 53,157Minority interest 27 32 33 -------- -------Total equity 109,550 53,190 ======== ======= The financial statements were approved by the board of directors and authorisedfor issue on 30 May 2006. They were signed on its behalf by: G Coutts Director30 May 2006 CONSOLIDATED CASHFLOW STATEMENTYear ended 31 March 2006 Note 2006 2005 £'000 £'000 Operating profit 34,116 12,501 Adjustments for:Depreciation of property, plant and equipment 16 30,445 18,991Loss on disposal of property, plant and equipment 1,771 1,123Amortisation of intangible assets 15 1,469 1,300Goodwill impairment 14 - 4,971Intangible asset impairment 15 718 -Inventory impairment - 1,546Share-based payments 30 615 417Retirement benefit charge 251 229 -------- --------Operating cash flows before movements in working capital 69,385 41,078 (Increase)/decrease in inventories (2,611) 1,124(Increase) in receivables (21,263) (180)Increase/(decrease) in payables 25,589 (506) -------- --------Cash generated by operations 71,100 41,516 Income taxes paid (9,209) (5,752)Interest paid (3,534) (2,978) -------- --------Net cash from operating activities 58,357 32,786 -------- --------Investing activities Interest received 614 407Purchases of property, plant and equipment (49,288) (29,080)Proceeds on disposal of property, plant and equipment 846 181Purchases of intangible assets (100) (317)Net cash outflow on acquisition of subsidiary 28 (6,075) (5,868)Proceeds on disposal of joint ventures 6 15,319 -Proceeds on disposal of joint ventures in prior year 6 4,797 -Net repayment of loans from joint ventures - 33Payment of deferred consideration 25 (334) (59) -------- --------Net cash used in investing activities (34,221) (34,703) -------- --------Financing activities Issue of share capital 27 25,555 959Purchase of own shares 27 - (400)Dividends paid 11 (7,956) (7,204)Repayments of finance leases (1,305) (992) -------- --------Net cash from/(used in) financing activities 16,294 (7,637) -------- --------Net increase/(decrease) in cash 40,430 (9,554) Cash at beginning of year 5,009 14,563 Effect of foreign exchange rate changes 203 - -------- --------Cash at end of year 45,642 5,009 ======== ======== This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Engage Xr