26th May 2005 07:03
Sondex PLC26 May 2005 Sondex plc('Sondex' or the 'Company') Preliminary Audited Results for the year ended 28 February 2005 Financial Highlights • Turnover up 81% to £31.7million (2004 - £17.5million) • Operating profit before amortisation of intangibles rose 46% to £7.7million • Operating profit rose 46% to £5.1 million • Basic earnings per share 4.7p (2004 - 0.4p) • Adjusted earnings per share 10.1p (2004 - 4.0p) • Full year proposed dividend increased by 8% to 1.95p (2004 - 1.80p) Operational Highlights • Acquisition and integration of Geolink • 95% of sales overseas • Significant investment in R&D and new production facility in Hampshire • Further technology acquisition and significant new product releases • Good market conditions and strong order book Iain Paterson, Chairman of Sondex, commented: "This has been a pivotal year for Sondex demonstrating considerable growth. Wehave successfully integrated Geolink, our largest acquisition to date, whileinvesting in R&D, marketing, management and opening a new production facility.This gives us a strong platform from which to deliver continued growth. "The current order book is strong, reflecting the good market conditions, and weare confident that we will achieve further successes in the coming year." 26 May 2005 For further information, please contact: Sondex Tel: 0118 932 6755Martin Perry (Chief Executive)Chris Wilks (Finance Director) College Hill Tel: 020 7457 2020Nick ElwesBen Brewerton Chairman's statement The past year has seen your Company make significant progress. With our globaloperating base and expanded suite of products, we are now well set to takefurther advantage of the promising market conditions. Results Revenues grew 81 per cent to £31.7 million and operating profit increased by 46per cent to £5.1 million. Earnings, after tax and financing costs, rose to £2.3million from £0.1 million. This represented earnings per share of 4.7p, anincrease of 4.3p on the previous year (0.4p in 2004). Adding back amortisationcharges, adjusted earnings per share were 10.1p (4.0p in 2004 on the samebasis). These pleasing results were achieved despite the weak Dollar. They reflect boththe success of our on-going business and the steps that have been taken toreshape the enlarged group, following the acquisitions of Computer SonicsSystems Inc. (CSS) in December 2003 and Geolink International Limited in June2004. Dividend The Board is proposing a final dividend for the year of 1.3p per share,amounting to a total of 1.95p for the year. This increase in the total dividendof 8.3 per cent reflects both the performance during the year and the Group'sgrowth prospects. Review of the period During the financial year Sondex acquired Geolink for £29.5 million havingsuccessfully raised net proceeds of £19.8 million through a Placing and OpenOffer at 160p per share. Additionally, the Company invested £3.1 million inresearch and development of new products (as against £2.0 million in theprevious year), representing approximately 9.8 per cent of revenues.Administrative expenses rose during the year, to £13.4 million (£7.1 million in2004), reflecting the integration of Geolink and a full year of CSS as well asthe measures put in place to provide the management teams and structure forcontinuing growth. Both Geolink and CSS are adding considerable momentum to group operations interms of the widened product portfolio, broadened customer base (39 newcustomers representing 20 per cent increase during the year) and depth ofmanagement and operational experience. The core wireline business has shownunderlying volume growth of 32 per cent compared to the previous year. The Group has now reorganised its operating structure into two divisions:Wireline and Drilling. The continued expansion of the international salesoffices has allowed both divisions to accelerate their regional sales growth.Increased production capacity and new offices have been established in Hampshiresince the year end. Operating profits before amortisation of goodwill increased by 46 per cent; thepast year, however, has seen a 7 per cent reduction in operating margin(operating profit before amortisation of goodwill expressed as a percentage ofturnover), which reflects the weak US Dollar, particularly during a period ofbusy trading, and an increase in administrative expenses. More than threequarters of the Group's sales are priced in US Dollars and the negative impactof the weak Dollar reduced revenues and operating profit by approximately £1.8million. Staff On behalf of your Board I should like to thank all staff for their commitmentand excellent performance during the past year. For many it has been a period ofchange and transition and the Board is indebted to them for the enthusiasm withwhich they have risen to these new challenges. Outlook The Company has invested further in a solid platform from which to grow. We haveexpanded our range of technologies, increased our customer base and geographicalreach and reinforced our management structures. Our order book remains healthy,reflecting increasing demand for our products. Market conditions also give reason for optimism. The oil and gas industry, facedwith tightness in the supply-demand balance and continuing rising energy demand,is increasingly turning to sophisticated technologies and products such as oursto improve production and optimise ultimate recovery from mature fields. In thepast year the Group has been successful in establishing closer relationshipswith leading oil and gas producers as well as the main service companies thatare at the forefront of this drive towards greater production efficiency. The Sondex Group is established as a leading independent supplier of downholetechnology to the oil and gas industry. We remain firmly focused on growing ourcore business - organically, through a combination of new technology, regionalexpansion and customer service, and through appropriate acquisitions. I amconfident that Sondex will continue to make further progress in the coming year. Iain PatersonChairman Operating Review Industry overview The past year has seen oil prices remain consistently high, emphasising thetightness in the supply and demand balance. These conditions are generallyexpected to persist, providing confidence for those companies deliveringservices and equipment to oil and gas operators. Latest International Energy Agency (IEA) projections suggest that the recentgrowth in demand for hydrocarbons will be sustained in 2005, led by China andAsia in general. The IEA forecasts that investments in the upstream oil and gassectors will amount to about $4 trillion between now and 2030. Significantly,the IEA sees the bulk of this upstream investment being needed simply tomaintain production capacity at current levels. Thus the focus of Exploration & Production companies has shifted away fromexploration and reserve accumulation and more towards meeting demand throughproduction and optimum reservoir management. Upstream oil and gas companies aredemanding technologies and services that increase the ultimate recovery ofreservoirs and extend the life of producing assets. Sondex, with its suite oftools specifically designed for this purpose, is well placed to benefit fromthis shift of focus. There has also been a geographical shift of emphasis. China and states of theformer Soviet Union - most notably Russia - have assumed greater importance foroilfield service providers. These countries, which have a large and growinginfluence on the world's energy supply balance, are increasingly seeking westerntechnologies to improve the efficiency of their production. In recent yearsthere has been a consolidation of service companies in these countries, as wellas a trend towards accepting strategic investment and joint ventures involvingwestern service companies. Sondex has strengthened its operations in these twocountries to take advantage of these growing opportunities. Another discernible trend of significance to Sondex is the way in which oilcompanies in a number of producing regions - such as the Far East, Middle Eastand West Africa - have come under pressure to award service contracts to local,indigenous, companies. Sondex, as the leading independent supplier of specialisttools to the upstream industry in its sector, has already established stronglinks with a number of these local service companies in the regions mentioned. Structure As a result of the acquisition of Geolink the Group has reorganised itsoperating structure with the establishment of the Wireline Division, embracingthe products and brand names of Sondex and CSS, and the Drilling Division,incorporating the interests and brand identities of Geolink. The WirelineDivision represented 67 per cent of Group revenues in the year ended 28 February2005. The Drilling Division, which has been part of the Group for 8 months,accounted for the remainder. The Group has established a matrix structure of product support anddistribution, with centres of excellence in Hampshire and Calgary for thedevelopment and support of Wireline products and in Aberdeen for Drilling.Product lines from both divisions are marketed with local support through anetwork of international offices. During the year the Sondex management team has been enhanced with the team fromGeolink and a number of additional key appointments in marketing, finance andquality control. Individual Managing Directors for the two divisions have beenappointed, each carrying profit and loss responsibility for their division. Wireline Division Sales within the Wireline Division increased 22 per cent year on year, withgross margins holding up at 58 per cent despite the pressure from a weak USDollar. Significant new sales were made in China and Iran. The integration ofCSS in Canada has been completed and this has also been an area of good growth.During the year the Wireline Division added 24 new customers, many of these theresult of focused marketing efforts in regions where new international bases arebecoming established. The wireline tools designed, manufactured and marketed by Sondex are used by allof the major international service companies, a number of the national oilcompanies that run their own services and a broad range of smaller, regionallyor nationally based service providers. The market for services performed using wireline tools is valued at $4 billionannually (excluding Russia & China) and 10 per cent of this total is estimatedto be capital purchases of the equipment required to run the services. Sondex,with its broadening range of technology, operates within this equipment supplymarket. The range of wireline equipment supplied includes a broad range of individualinstruments for production logging, well inspection, and mechanical services. Sondex's production logging tools, which accounted for approximately 40 per centof sales within the Wireline Division (49 per cent in 2004), enable operators tounderstand reservoir properties better and as a result increase ultimaterecovery potential by analysing the flow characteristics of any oil, gas orinjection well. Measurements such as flow rate, temperature, pressure, fluidcapacitance and density are recorded in-situ within the well. During the year the Group was able to announce a number of developments in itsproduction logging capabilities. The high temperature, high pressure Hadeslogging string has been used in some of the most challenging conditions in morethan 50 wells in the North Sea, the Gulf of Mexico and Iran. Sondex has re-branded its range of tools used for inspecting the integrity andstructure of oil wells under the 'Well Integrity Platform' banner. This productrange includes tools for in-situ measurement and detection of corrosion or shapedeformation using measurement fingers, ultrasonic and magnetic techniques. Theproduct range has been greatly enhanced by the addition of the cement bondlogging tools, developed by CSS in Canada, which additionally inspect theintegrity of the cemented seal between the metal of the well and the reservoirformation. Since the acquisition of CSS, the cement bond logging tools have been bothenhanced in their capabilities and made fully compatible with other Sondex wellintegrity tools. As a result the cement bond logging tools can be operatedsimultaneously and in combination with all other Sondex equipment. The Magnetic Thickness Tool, launched in 2004, has also had a strongintroduction to commercial application. So far it has been used in more than 70wells in Canada, the USA and South America. Furthermore, a new generation of theMulti Finger Imaging Tool has also been launched delivering improvedcapabilities. The Sondex downhole tractor system, a relatively new method for deployingequipment in highly deviated or horizontal wells, is steadily attractingcustomers away from the established, generally more expensive andtime-consuming, coiled tubing deployment method. During the year under reviewthe tractor system was used more than 200 times, most notably in Norway, SouthEast Asia, Africa and Canada. In order to promote the technology and stimulatedemand Sondex Wireline has continued its policy of renting tractor systems. Ofthe 42 Sondex tractors deployed worldwide, 21 are still owned directly by thecompany. Revenue growth during the year was disappointing in this product area,however, early indications from the new financial year suggest that theinvestment in increasing assets and additional marketing will give improvedreturns for the tractor product this year. The Downhole Electric Cutting Tool (DECT), introduced in 2003, was usedsuccessfully in field operations in six countries during the past year. Theproduct provides an environmentally friendly and controllable alternative tousing explosives or chemical cutters where it is essential to cut and retrievedrill pipe or production tubing. The Group is confident that there is aconsiderable worldwide market for the tool, given its ease of use and its clearsafety and environmental advantages. One of the most significant developments during the year was the completion ofthe integration of all wireline products on to UltraLink telemetry, the highspeed Sondex data transmission system. This system, capable of running up to 64tools simultaneously, can support the use of 2000 sensors with data beingtransmitted at rates selected by the operator. The use of UltraLink telemetry inthis way not only reduces the number of logging runs required, thus saving lostproduction time and expense, but also enables operators to employ varyingcombinations of complex multi-sensor tools. UltraLink is becoming established asa de-facto standard, with existing customers upgrading their equipment to thisoperating system, and major operators such as Halliburton adopting it foruniversal use. Looking to the future, Sondex Wireline has launched its UltraWire compensatedneutron logging (CNL) tool after successful client testing. Neutron tools areused downhole to identify formation porosity and in combination with othermeasurements, hydrocarbon content. The Sondex CNL will be used to 'see' throughmetal casing, to provide formation evaluation data that may not have beenrecorded when the well was originally drilled, and to identify movements inhydrocarbon concentrations. The data will be of particular value in optimisingrecovery from older wells which might otherwise be abandoned with reserves stillin place. Drilling Division Following its acquisition in June 2004, Geolink has been successfully integratedinto the Group, bringing with it the added dimension and enhanced opportunitiesforeseen in last year's annual report. The company, which is retaining its ownrespected identity, is established as a leading supplier of Measurement WhileDrilling (MWD) and Logging While Drilling (LWD) systems, capable of beingoperated in the most demanding of downhole drilling environments. Many of theexisting or potential customers for Geolink are the same as those for the SondexWireline products. MWD systems provide the directional driller with real-time precise informationon the position and direction of the drill bit during the drilling process. Thusa new well can be positioned exactly as required in order to produce mosteffectively. This directional drilling is particularly important whenpositioning wells in mature fields or when 'side-tracking' to reach additionalor stranded reserves. LWD tools give further information regarding theformation being drilled, data that helps with identifying the rock type andhydrocarbon content as well as the positioning of the well. Geolink customers have traditionally also been the smaller independent servicecompanies or operators of the equipment, most notably the directional drillingcompanies. National oil companies with their own service operations also featureamong Geolink's customers. The global market size for MWD and LWD services is valued at $3.5 billion and aswith wireline, 10 per cent of this sum is believed to be spent on capitalpurchases of equipment. During the 8 months since the acquisition of Geolink revenues totalled £10.3million; on a pro-rata basis this was 28 per cent higher than the previous year.A significant portion of this increase came from sales through the Sondexoperations in Canada as well as good repeat business in Russia and China.Fifteen new customers were secured by Geolink during this period. Geolink's TRIM resistivity tool, which is a relatively new but potentiallygame-changing measurement device, has undergone further commercial andexperimental trials and is becoming established as a reliable technique foridentifying hydrocarbons while drilling. A new pressure-during-drilling sensorhas also undergone successful field trials and new Windows-based operatingsoftware has been completed. The complete range of Geolink technology is now being marketed through theSondex network of sales and support centres and we are confident that this willgenerate further growth. At the same time Sondex Wireline is seeing the benefitsof entering markets penetrated by Geolink. The Group has accelerated Geolink'sresearch and development as well as its marketing efforts. Regional and customer activity Exports accounted for approximately 95 per cent of the Group's revenue in 2005with sales being generated in most of the key oil and gas producing areas of theworld. During the financial year, new sales and supply centres were opened inBeijing, China, and Krasnodar, Russia. The Group now has strong internationalrepresentation covering nine centres, all of them promoting and supporting theproducts of the Wireline and Drilling Divisions. Three of the centres -Bramshill in Hampshire, Aberdeen in Scotland, and Calgary in Canada have productdevelopment and manufacturing facilities. 39 new customers were added by the Group during the year and none were lost. Theactive customer base is now some 250 companies. During 2004-5 the Group alsobecame less dependent on any single outlet; whereas in 2003-4 the four largestcustomers each accounted for approximately 10 per cent of revenues, last year 9customers provided 40 per cent of revenues, with the largest (Halliburton)accounting for 7 per cent of the total. Customers continue to be the fullyinternational, regional and local service companies as well as those oil and gascompanies who operate their own equipment. We are encouraged by the close ties that have been forged between the Group anda number of the established customers with regards to the development ofspecific technologies. Research and Development Research and Development is accorded a high priority within the Group; indeed,it is one of principal engines for sustained organic growth and the high marginsthat we have been able to achieve. In the financial year 2004-5 the Groupinvested £3.1 million on research and development activity, representing 9.8 percent of turnover (£2.0 million and 11.4 per cent, respectively, in 2004). Research and Development funds are spent on maintaining and improving existingproducts (27 per cent), extending product lines to add functionality,incremental sales to existing customers and to increase barriers to potentialcompetitors (50 per cent), and for novel development of new product lines forstep change growth (23 per cent). Returns from individual projects will varyenormously but Sondex aims to make contingent returns on a new development ofover 100 per cent within 3 years. The R&D departments across Sondex now have 60 personnel involved in sensor,software, electronic and mechanical design; they are based in Hampshire,Aberdeen and Calgary. In addition to working on the in-house projects funded bySondex, they are also involved with collaborative development projects with anumber of our larger service company clients and with oil & gas companies. Theinvolvement in our R & D activities of companies directly involved inhydrocarbon exploration and production is a welcome and growing trend. Not onlydoes it help to focus our effort and provide an increased profile for theresulting new products but it also helps to cement a closer working relationshipwith some of our most important customers. In the summer of 2004 the Group signed an agreement to develop a downholetelemetry tool exclusively for Halliburton. Sondex Wireline is to develop,supply and license the technology for use with Haliburton's family of pulsedneutron tools. This development is proceeding well, the new instrument willprovide an enhanced telemetry interface for tool-to-surface communication andoffer improved compatibility with a range of Sondex products, includingproduction logging sensors and radial bond tools. In July 2004 it was announced that the Group had forged an alliance with TuckerEnergy to jointly develop an advanced acoustic tool for use in new and existingwells. The development work for this tool is being undertaken primarily at theCalgary facilities where the first prototypes units have been assembled. Sondex is working with a leading international energy group and a major oilservice company on the development of a novel WTPL harmonic well testmethodology (acquired during the year from Geo Energy s.a.). Sondex has agreedto take over the entire responsibility for this project with the intention ofaccelerating the commercial release of the technology. WTPL is a method by whichan assessment of the production capability of an oil or gas reservoir can bemade from within a producing well without interrupting production or deployingcostly equipment. This will enable an operator to assess, in a cost effectivemanner, the current and future oil reserves in maturing oil and gas fields. Additionally, since the year end, in March 2005 the Group announced that it hadsigned an agreement with Beta Research & Development, which has pioneeredrechargeable high temperature battery technology. Sondex has exclusive rights tothis advanced battery technology for use in the downhole oil, gas, water andgeothermal industries. It is anticipated that the battery, based on existingautomotive 'Zebra Cell' technology, will provide a cost effective, robust andreliable alternative to the lithium batteries that are currently used for memorytools by downhole operators. The Group believes that there is a strong marketfor this technology, which will complement the product ranges of both theWireline and Drilling Divisions. During the past year, the Group has also continued to work with Statoil andother major oil companies on the further development of the Downhole ElectricCutting Tool (DECT). New Facility In line with the Group's policy of investing for further growth, the Boardannounced in March that it had signed a lease on an additional facility inYateley, Hampshire, close to the company's existing head office and technicalcentre at Bramshill. The new building houses the Wireline Division's final product assembly, doublingits in-house production capacity. The Group's corporate functions have also beentransferred to Yateley. The Bramshill facilities are being retained as the Group's research anddevelopment centre for the majority of wireline products. R & D operations forsonic products continue to be based in Calgary while those for drilling productsremain in Aberdeen. Our people A pleasing aspect of the year ended 2005 has been the way that management andstaff have responded to the challenges of change and growth. It is due to theirskills, dedication and flexibility that Sondex has been able to continue to makeprogress. Staff at both Geolink and CSS have blended well with the original wireline teamsand the cultures of the various locations are now very similar. Some transfersbetween locations and divisions have already taken place and this trend will beencouraged in order to enhance personal development and cultural diversity. Management and staff hold approximately 10 per cent of the shares in Sondex.Your Board believes in broad-based staff equity participation. An approved SaveAs You Earn scheme was introduced during the year for all UK-based staff, aswell as a continuation of grants under the share option scheme. Health and safety The Group is committed to achieving the highest standards in terms of health andsafety and environmental protection and we are pleased to report that no seriousincident or accident occurred in the past year. A rolling programme of initiatives aims to sustain awareness and the need forproactive management of health and safety risks. Health and safety performanceis monitored under established management procedures and reviewed closely ateach Board and Executive meeting. Risk assessments are conducted to ensure bestpractice is followed and independent consultants are retained to train managersin the conduct of these risk assessments. Summary The year under review has been successful and important for Sondex in a numberof respects. We have successfully integrated into the business two significantacquisitions while increasing the sales, customers and geographical reach forour home-grown technologies. We will continue to follow these twin routes togrowth - organic development and selective acquisitions. In this respect we areencouraged by the technologies that we have under development. We remain alertto appropriate acquisitions where there is an opportunity of addingcomplementary product lines. Given our sound financial base, our strengthenedmanagement team and our broad range of proven and effective technologies, wehave a solid platform on which to grow in the future. We remain well placed toexploit the strong market conditions that persist. Martin PerryChief Executive Financial Review Overview The Group's turnover was £31.7 million in the year ended 28 February 2005, anincrease of 81 per cent on the previous year (£17.5 million). Without theimpact of the Geolink acquisition the increase in turnover would have been 22per cent. The Group's operating profit before cost of flotation andamortisation of intangible assets was £7.4 million in 2005 (2004 - £5.3million), representing a net margin on turnover of 23.3 per cent (2004 - 30.2per cent). The Group's operating profit was £5.1 million in 2005 (2004: £3.5million). This operating profit was achieved in spite of a 55 per cent increasein research and development expenditure from £2.0 million to £3.1 million and afurther depreciation in the Sterling value of Dollar sales recorded during theyear. Other investments in fixed costs, such as sales and marketing resourcesand Group infrastructure such as Health and Safety management, also contributedto this reduction in net margin in the year ended 28 February 2005 compared toprior years. 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 200586 per cent of the Group's revenue was made in US Dollars (2004 - 79 per cent).Only 17 per cent of the Group's costs are incurred in US Dollars (2004 - 16 percent) and in order to provide a partial hedge against exchange rate movementsthe 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. Nevertheless, theGroup's revenue was adversely affected by £1.78 million (particularly as itcoincided with a period of busy trading) compared to the previous year due tothe weakness of the US Dollar. Correspondingly, operating profit was adverselyaffected by £1.78 million and earnings per share would have been 2.5 pencehigher at 7.2 pence per share had the exchange rate remained constant comparedwith the year ended 29 February 2004. 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 31 per cent of the bank borrowing is hedged against interest rateincreases using these instruments. Taxation The Group's underlying tax rate after adding back amortisation of goodwill forthe year ended 28 February 2005 was 27 per cent (2004 - 36 per cent). Therelatively high rate of taxation applied to the profits of the USA and Canadiansubsidiaries has been offset by the availability of enhanced taxation reliefsfor the Group's expenditure on research and development in both the existingbusiness and in Geolink. 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, aiming to achieve an overall balance in rates of taxation applied. Dividend An interim dividend of 0.65p per share (2004 - 0.6p) was paid on 15 December2004. A final dividend of 1.3p per share (2004 - 1.2p) payable on 29 July 2005to shareholders on the register at 1 July 2005 is now proposed. This would givea total of 1.95p per share for the year (2004 - 1.8p). Cashflow A key feature of the results in the year ended 28 February 2005 was theincreased cash absorption of the business. In particular, the absorption ofcash generated from trading profits into working capital was primarily a resultof strong trading in the last quarter of the year, the majority of which wasstill represented in debtors at the year end and therefore showing an unusualabsorption of cash. The continuing strong demand, particularly from theWireline market through the year end and beyond has caused significant "rampingup" of manufacturing volumes which also manifests itself as a working capitalabsorption. In June 2004, the Group raised £19.9 million by issuing shares at £1.60 by wayof a Placing and Open Offer and borrowed a further £13 million in order to fundthe acquisition of Geolink International Limited and its subsidiaries. The netcash outflow of this acquisition was £25.3 million. Over £2.9million of capital payments were made in the period (2004 - £17.5million) to reduce the long term bank debt. Also of note during the year ended28 February 2005, the Group made the first significant corporation tax payments;previously interest deductions and other structural issues had contained the taxpayments. Debt management The Group's gearing ratio decreased slightly from 48 per cent in the year ended29 February 2004 to 41 per cent in 2005 reflecting to a certain extent the debtreduction payments made. Other liquidity measures such as the quick ratio,interest cover and dividend cover ratios remain satisfactory. International Financial Reporting Standards The results reported here are presented under UK GAAP. Note 1 to the accountssets out the accounting policies adopted which have remained consistent withprior years. The Company and the Group are adopting International Financial ReportingStandards ("IFRS") with effect from 1 March 2005. The Group has allocatedspecific accounting resources to assist with the transition to IFRS. This meansthat the interim results to 31 August 2005 will be issued in accordance withthose standards. Christopher WilksFinance Director Group profit and loss accountFor the year ended 28 February 2005 2005 2004 £000 £000 NoteTurnoverContinuing operations:ongoing 21,388 17,524acquisitions - Geolink 10,325 -Group Turnover 1 31,713 17,524Cost of sales (13,270) (7,002) Gross profit 18,443 10,522Administrative expenses (13,390) (7,056)Operating profitContinuing operations:ongoing 2,292 3,466acquisitions - Geolink 2,761 - Group operating profit 5,053 3,466 Operating profit before cost of flotation and amortisationof intangible assets 7,401 5,294Cost of flotation - (597)Amortisation of intangible assets (2,348) (1,231)Operating profit 5,053 3,466Dividends receivable 12 -Interest receivable - bank interest 194 92Interest payable and similar charges (1,060) (2,635)Profit on ordinary activities before taxation 4,199 923Tax on profit on ordinary activities (1,876) (774)Profit on ordinary activities after taxation 2,323 149Dividends payable 2 (1,073) (708)Profit/(Loss) retained for the financial year 1,250 (559) Earnings per share - basic 3 4.7p 0.4p - diluted 3 4.5p 0.4p - adjusted basic 3 10.1p 4.0p - adjusted diluted 3 9.6p 3.9p Group statement of total recognised gains and lossesFor the year ended 28 February 2005 2005 2004 £000 £000Profit for the financial year attributable to members of the parent company 2,323 149Exchange difference on retranslation of net assets of subsidiary undertaking 47 (8)Total recognised gains and losses relating to the year 2,370 141 Group balance sheetAs at 28 February 2005 2005 2004 £000 £000 Fixed assetsIntangible assets 47,683 21,653Tangible assets 4,895 1,843Investments 137 154 52,715 23,650 Current assetsStock 8,014 4,197Debtors 19,181 9,988Cash at bank and in hand - 2,044 27,195 16,229 Creditors: amounts falling due within one year (13,554) (5,384) Net current assets 13,641 10,845 Total assets less current liabilities 66,356 34,495 Creditors: amounts falling due after more than one year (16,544) (10,250) Provisions for liabilities and charges (154) (95) 49,658 24,150 Capital and ReservesCalled up share capital 5,501 3,934Share premium account 41,019 22,476Capital redemption reserve 326 326Shares held by ESOP Trust (50) (50)Other reserves 4,101 -Profit and loss account (1,239) (2,536) Shareholders' funds - equity interests 49,658 24,150 Group statement of cash flowsFor the year ended 28 February 2005 2005 2004 Notes £000 £000 Net cash (outflow)/inflow from operating activities 4(a) (1,637) 819Returns on investments and servicing of financeDividends received 12 -Interest received 194 -Interest paid (1,343) (3,703)Issue costs on long-term loans (335) - (1,472) (3,703)TaxationCorporation tax paid (1,832) (156) (1,832) (156)Capital expenditure and financial investmentPayments to acquire intangible fixed assets (217) (32)Payments to acquire tangible fixed assets (1,398) (1,165)Payments to acquire investments - -Receipts from sales of tangible fixed assets 466 526 (1,149) (671) Equity dividends paid (830) (236) (830) (236)Acquisitions and disposalsPurchase of subsidiary undertaking (25,333) (1,271)Net overdraft acquired with subsidiary undertaking (1,181) (34) (26,514) (1,305)Net cash outflow before financing (33,434) (5,252) FinancingIssue of ordinary share capital 20,989 25,362Issue costs of new shares (1,109) -New long-term loans 13,000 -Repayment of long-term loans (2,900) (17,507) 29,980 7,855(Decrease)/increase in cash (3,454) 2,603 Notes to the Preliminary AnnouncementFor the year ended 28 February 2005 1. Turnover and segmental analysis Turnover Year ended Year ended 28 February 29 February 2005 2004 Turnover by destination £000 £000 USA 5,219 4,999Canada 4,363 646South America 2,187 528Europe 4,646 4,257Middle East 4,611 2,964Russia 3,259 593China 5,192 983Rest of World 2,236 2,554 31,713 17,524 Turnover by division Wireline 21,388 17,524Drilling 10,325 - 31,713 17,524 Turnover by origin UK 26,587 16,574USA 610 295Canada 4,245 655Middle East 271 - 31,713 17,524 Group Operating Profit Operating profit by division Wireline 2,292 3,466Drilling 2,761 - 5,053 3,466 Operating profit by origin £000 £000 UK 3,890 3,762US 260 (376)Canada 877 119Middle East 26 (39) 5,053 3,466 Net assets by division At At 28 February 2005 29 February 2004 £000 £000 Wireline 47,116 24,150Drilling 2,542 - 49,658 24,150 Net assets by origin At At 28 February 2005 29 February 2004 £000 £000UK 48,438 23,255US 565 440Canada 708 411Middle East (53) 44 49,658 24,150 2. Dividends and other appropriations 2005 2004 £000 £000Dividends: Equity dividends on ordinary shares: interim paid 0.65p 358 - final proposed 1.3p 715 - interim paid 0.6p - 236 final proposed 1.2p - 472 1,073 708 3. Earnings per share Basic and diluted earnings per share The basic and diluted earnings per share has been calculated by dividing theprofit after taxation for the period by the weighted average number of shares inexistence for the period. Shares held by the Employee Benefit Trust, including shares over which optionshave been granted to directors and staff have been excluded from the weightedaverage number of shares for the purposed of calculation of the Basic EPS. 2005 2004 '000 '000 Net earnings £2,323 £149 Basic weighted average number of shares 49,340 39,166Basic Earnings per share 4.7p 0.4p Diluted weighted average number of shares 52,191 41,157Diluted earnings/(loss) per share 4.5p 0.4p Adjusted earnings per share The adjusted earnings per share has been calculated by dividing the profitbefore amortisation of goodwill and bank arrangement fees (after taxation) forthe period by the weighted average number of shares in existence for the period. 2005 2004 '000 '000 Profit after tax £2,323 £149Add: amortisation of goodwill £2,348 £1,231Add: amortisation of bank arrangement fees £345 £206 Adjusted net earnings £5,016 £1,586 Basic weighted average number of shares 49,340 39,166Adjusted basic earnings per share 10.1p 4.0p Diluted weighted average number of shares 52,191 41,157Adjusted diluted earnings per share 9.6p 3.9p 4. Notes to the statement of cash flows (a) Net cash (outflow)/inflow from operating activities Year ended Year ended 28 February 29 February 2005 2004 £000 £000 Operating profit 5,053 3,466 Depreciation of tangible fixed assets 606 225 Amortisation of intangible fixed assets 2,348 1,231 Performance Share Plan charge 217 -Decrease/(increase) in stocks (2,456) 210 (Increase) in operating debtors and prepayments (5,498) (4,536) (Decrease)/increase in operating creditors and accruals (1,907) 156 Increase in other provisions - 67 (1,637) 819 (b) Reconciliation of net debt Year ended 28 Year ended 29 February 2005 February 2004 £000 £000 (Decrease)/increase in cash in the period (3,454) 2,603Cash outflow/(inflow) from decrease/(increase) in debt financing (10,100) 17,507Change in net debt arising from cash flows (13,554) 20,110Loans acquired with subsidiaries - (435)Amortisation of arrangement fees (345) (206)Translation difference 1,551 1,369Movement in the period (12,348) 20,838Net debt at beginning of period (9,563) (30,401)Net debt at end of period (21,911) (9,563) (c) Analysis of net debt At Other At 1 March Cash Exchange Non-cash 28 February 2004 Flow Differences Movements 2005 £000 £000 £000 £000 £000Cash 2,044 (2,044) - - -Overdraft - (1,410) - - (1,410) 2,044 (3,454) - - (1,410)Term loans (11,607) (10,100) 1,551 (345) (20,501)Total (9,563) (13,554) 1,551 (345) (21,911) 5. Basis of preparation The Board approved the preliminary announcement on 25 May 2005. The financialinformation contained in this preliminary announcement does not comprisestatutory accounts within the meaning of section 240 of the Companies Act. Theresults for the year to 28 February 2005 are derived from audited accounts forthat period. The results for the year ended 29 February 2004 are derived fromthe audited accounts of Sondex plc which have been filed with the Registrar ofCompanies with an unqualified auditors' report. The statutory accounts for theyear ended 28 February 2005 have been prepared on the basis of the accountingpolicies set out in the statutory accounts for the year ended 29 February 2004except for the adoption of UITF 38 "Accounting for ESOP Trusts". This change inaccounting policy had no impact on the results for the current or prior year.Shareholders' funds for the prior year were reduced by £50,000. The statutoryaccounts for the year ended 28 February 2005 will be delivered to the Registrarof Companies in due course together with an unqualified auditors' report. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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