14th Dec 2005 07:01
Sondex PLC14 December 2005 Wednesday 14th December 2005 Sondex plc('Sondex' or the 'Company') Interim results for the six months ended 31 August 2005 Sondex plc, a leading international oilfield technology supplier, announcesinterim results and the acquisition of Applied Electronic Systems Inc. ("AES")for a maximum consideration of $14 million. A separate announcement has beenissued this morning giving full details of the acquisition. Financial Highlights • Revenue up 93% to £18.8 million (2004 - £9.7 million) • R&D expenditure up to £2.6 million (2004 - £1.5 million) • Operating profit before financing costs and amortisation up to £2.4 million (2004 - £0.44 million) • Adjusted diluted* earnings per share increased to 1.2p (2004 - loss of 0.4p) • Dividend increased by 8% to 0.7p (2004 - 0.65p) Operational Highlights • Wireline Division revenues increased by 59% • Drilling Division pro-rata revenues up 28% • New Drilling and Wireline technologies commercialised • Good market conditions with record order intake Acquisition of Applied Electronic Systems Inc. • $14 million acquisition of US based AES • Complementary wireline tool technology * Pre amortisation of acquired intangible assets, pro-forma tax charge Note: 2004 figures restated under International Financial Reporting Standards(IFRS) Iain Paterson, Chairman of Sondex, commented: "The Group has made progress in the first half having increased productioncapacity, introduced new products and secured breakthrough contracts inimportant new territories. The underlying high demand for hydrocarbons willsupport demand for our products in the foreseeable future as is reflected by ourstrong order book. In accordance with our strategy, I am delighted to announce the acquisition ofApplied Electronic Systems, which will add significantly to our Wirelinebusiness. Sondex enjoys a stronger second half than first half and the Board is confidentof a successful outcome for the full year." For further information, please contact: Sondex Tel: 0125 286 2200Martin Perry (Chief Executive)Chris Wilks (Finance Director) College Hill Tel: 020 7457 2020Ben Brewerton / Nick Elwes Interim statement Introduction The Group made further significant advances in the six months to 31 August 2005.Increased capacity, the introduction of new products and a reinforcedmarketing effort enabled the company to take advantage of the strong marketconditions. At the end of August the order book and order intake were at recordlevels; this has continued in the past three months. The establishment of two distinct operating divisions - Wireline and Drilling -has proved to be a success with each providing marketing opportunities for theother. The Wireline Division achieved organic like-for-like revenue growth of 59per cent while the Drilling Division made a significant contribution to theGroup, and increased revenues by 28 per cent over the previous period(pro-rated) with particularly strong sales in Canada and Central America. The move to a new Wireline product assembly facility at Yateley, Hampshire, isalso proving beneficial. It has substantially increased the assembly, testingand inspection capability at a time of high demand. Investment has also beenmade elsewhere in the supply chain in order to meet current and anticipateddemand. While some one-off start up costs were incurred, these improvementsposition the Wireline business well for future volume increases. Continuing the company's strategy of expansion by acquisition as well as byorganic growth, Sondex has announced the $14 million acquisition of Louisiana,USA based Applied Electronic Systems, Inc ("AES") which is a complementarysupplier of Wireline products with a similar customer base as the existingbusiness. Further details of the AES acquisition are set out below. Results Results for the six months to 31 August 2005 are presented under InternationalFinancial Reporting Standards and comparative figures for 2004 are restatedaccordingly. In the six months to 31 August 2005, turnover increased by 93 percent to £18.8 million compared with £9.7 million in the corresponding half yearin 2004. Research and development expenditure in the period was increased by 81per cent to £2.6 million and sales & administrative expenses were up by 52.6 percent to £5.1 million, reflecting increased investment in global sales and marketing and group infrastructure development at Yateley. The Group achieved an operating profit before financing costs and amortisationof £2.4 million for the period against a first half operating profit of £0.44million in 2004. The smaller improvement at the after-tax level reflectsincreases in taxation, amortisation and interest; the impact of these chargeshas historically been less over the full year in line with greater volume in thesecond half. First half diluted earnings per share, adjusted for amortisationon acquired intangible assets and a pro-forma tax charge, were increased to 1.2pence, from a loss of 0.4 pence per share reported for the first half 2004. Interim Dividend The Board has declared an interim dividend of 0.7 pence per ordinary share (0.65pence in the first half of the previous year) to reflect both the performance ofthe Group and its growth prospects. The dividend will be payable on 26 January2006 to those shareholders on the register of members at the close of businesson 23 December 2005. Operations The Group has continued to make strong progress in terms of sales, geographicalexpansion, increased customer base and range of equipment on offer. The value of sales grew by 93 per cent in the first half of 2005 while orderintake was up by over 270 per cent compared with the corresponding period in 2004. Order intake continues to run at record levels and important new customershave been added in South America and Russia. Exports continue to account for 95 per cent of Group sales. Order intake in the first half was especially strong in China, the Middle East,Central America and Canada. However, sales to the US market were somewhat heldback by the hurricanes passing through the Gulf of Mexico. Wireline The Wireline Division achieved sales growth of 59 per cent in the first half.This increase was attributable to the expansion of business with existingcustomers, the addition of new customers - some coming through collaborativemarketing initiatives with Geolink - and the introduction of new technologies. One of the most significant wireline developments in the first half was theintroduction of the UltraWire(TM) version of the established Multi-fingerImaging Tool ("MIT") that can improve the efficiency of the inspection processin mature oil and gas wells. This high-value equipment has attracted muchinterest throughout the industry and is expected to have a positive impact onthe Wireline Division's sales and margins in the second half. The MIT was first used commercially in China as part of a five-well programme.This operation was important for a number of reasons. It demonstrated that theUltraWire(TM) digital communication system could be used with the full range ofSondex sensors. The MIT was used to measure accurately the internal dimensionsof the oil well while a Metal Thickness Tool - launched in 2004 - used analternating magnetic wave to detect corrosion or other damage to the outside ofcasing. The Chinese logging company was a new customer for Sondex and thecontract underlined the importance of the Chinese oil and gas market. Russia is regarded as another key market and in October the Group announced thatit had won an important contract, valued at around $2.5 million, from a majorRussian gas producer. The order, the first significant contract for the WirelineDivision in the region, builds on the presence and growing reputation of Geolinkdrilling products. India, with its growing requirement for oil and gas, also has the potential tobecome an important market for the Group. In July the first major shipment ofWireline production logging equipment, worth more than £1 million, was deliveredto India for ONGC operations. The Downhole Electric Cutting Tool ("DECT"), introduced in 2003, continued tomake progress. The equipment was used successfully by a Sondex customer torecover a casing packer in the Otter Field, one of the remotest in the NorthSea, on behalf of TOTAL E&P UK PLC. The operation to cut and release thehydraulic retrievable pump packer was conducted from the Stena Spey drilling rigat a depth of 1,978 metres and with a well deviation of 60 degrees. The DECT isan intelligent system that enables precise and controlled cutting action to partpipe without the use of dangerous chemicals and explosives. Drilling The Drilling Division made a significant contribution to group revenues in theperiod with sales growth of 28 per cent in the first half of the financial yearcompared with the same period last year. Of particular note was the salesperformance in West Africa, Canada and Central America. During the first half, the Drilling Division released for sale its PressureDuring Drilling sensor. Several field operations were conducted in Canada and asignificant order was received for a programme of work in Mexico. The sensor,which is compatible with Geolink's Orienteer measurement-while-drilling ("MWD")and surface systems, is a modular unit that measures annular and drill pipepressures during drilling operations. The sensor equipment provides data thatallows the driller and MWD engineer to respond quickly to pressure variationssuch as cuttings loading in the annulus, water flows and well "kicks". The TRIM resistivity tool, initially released in 2004, has gained commercialacceptance, with eight systems shipped during the first six months of thecurrent financial year compared with only two during the previous year. Thisaccounted for revenues in excess of £1 million. TRIM is a method of detectingthe electrical resistance of the rocks and the fluids contained within themduring the drilling of the well. Such information enables the directionaldriller to ensure that the well stays within the oil or gas reservoir and thusmaximises the potential production. In Canada this tool has been successfullyintroduced using a memory variant, which significantly reduces non-productivedrilling rig time. In Russia the resistivity tools are primarily used by localcompanies to compete with the major international service companies in the 're-entry' market, where older wells are being re-drilled to recover remainingoil. During the first half of this year the Division has established a full serviceand repair centre for the drilling equipment in the Sondex facility in Calgary,Canada, and has relocated the Houston-based drilling operation to the Wirelinefacility. This increased support in Calgary, in particular, has allowed newcustomers to be added. The Division has also recently relocated a regionalmanager to the Group's operational base in Dubai in the United Arab Emirates. New Facility The Board announced in March that, in line with its policy of investing forgrowth, it had signed a lease on an additional facility in Yateley, Hampshire.The new building accommodates the Wireline Division's final product assembly aswell as the Group's corporate functions. The transfer of operations from nearby Bramshill was achieved without anyinterruption to production and the doubling of in-house capacity has been fullyjustified by the continued growth in demand. Given that the manufacture ofequipment is largely outsourced, larger subcontract manufacturers, who can keeppace with supply demands while maintaining the exacting standards and tolerancesrequired for downhole precision instruments, have been engaged. The Bramshill facilities are retained as the Group's research and developmentcentre for the majority of wireline products. R&D operations for sonic productscontinue to be based in Calgary while those for drilling products remain atGeolink's Aberdeen facilities. Research and Development Investment in research and development activity totalled £2.6 million in thefirst half of 2005, representing about 14 per cent of the Group's turnover. Thestrong R&D programme has resulted in the commercialisation of a number ofimportant new products such as the Magnetic Thickness Tool and the DownholeElectric Cutting Tool previously mentioned. These and other instruments arecontributing to the organic development of the Group. In November it was announced that the Group and its research partner Beta R&Dhad secured a £198,000 Government grant for the development of a new powersource for downhole instrumentation. The financial grant was made by theDepartment of Trade and Industry's Innovation Group under its technologydevelopment programme. Shared equally by Sondex and Beta R&D, the money will beused to help develop rechargeable, high temperature battery technology. The newbattery is being designed to provide a cost effective, robust and reliablealternative to the lithium batteries that are currently used for memory tools bydownhole operators within the oil and gas industry. The R&D team has also commenced work on the recently won project to develop anovel well test production logging ("WTPL") tool in association with a leadingenergy corporation and a major oil service group. The technology hasconsiderable commercial potential. Well test production logging is a method bywhich an assessment of the production capability of an oil or gas reservoir canbe made from within a producing well without interrupting production ordeploying costly equipment. WTPL will thus enable an operator to assess in acost effective manner the current and future oil reserves in maturing oil andgas fields. Acquisition of AES In line with the previously stated strategy, Sondex has continued to pursuesuitable acquisitions which will enhance the current product lines, increasemarket reach and support the financial growth and reputation of the existinggroup. Sondex today, separately, announced the acquisition of AppliedElectronic Systems Inc. ("AES") AES is based in Louisiana, USA and offers a complementary range of equipmentwhich fits well with the current Wireline division. AES generated revenues of$5.5 million in the nine months ended 30 September 2005 and EBIT of $2.2 millionin the same period. AES, which has been established for 20 years, has beengrowing revenues in recent years (2002-2005) at a compound annual growth rate of15 per cent. The business is strongly cash generative. Sondex has paid $11.5 million for the business, and a further $1.5 million forthe freehold of the business premises, with an additional up to $1 millionsubject to the achievement of revenue of not less than $8.5 million for the 2006financial year. The funding for this acquisition is through an increased bankingfacility of £7 million and through the issue of 775,662 new ordinary shares tothe vendors, which will be restricted from sale for one year. The up to $1million additional consideration will satisfied through the issue of newordinary shares to the vendors at the prevailing share price should theperformance target be met. AES boasts the market leading 'free-point indicator' which is a wireline toolrun during the drilling operation should the drill pipe become stuck in thewell. Once the 'free-point' is established the drill pipe is released or cut by,for example, the Sondex Downhole Electric Cutting Tool in order that drillingoperations can resume. Other equipment sold by AES includes Casing CollarLocators and running equipment which will be integrated to form the basis of anadditional cased hole logging range of tools. AES, which has 80 per cent of its business in the USA, has distributionfacilities throughout the land markets in North America which will bringincreased access to these markets for existing Sondex Wireline products. Inturn, the Sondex international offices will be used to exploit the strongreputation of AES products world-wide. Sondex will be able to introduce newproduct designs to the AES team and AES offers enhanced in-house manufacturingcapability from a purpose built 25,000 sq ft facility in Lafayette, Louisiana where around 40 engineering and support staff are employed. Following the successful acquisitions of Computer Sonics Systems and Geolink,the Directors believe that Sondex has a good record of integration andperformance from acquisitions and continues to review strategic optionsselectively in related areas of oilfield technology. New Banking Facility The Group has taken advantage of the acquisition of AES to refresh its existingdebt structure. Accordingly, a new debt structure has been implemented, the keyfeatures of which are noted below: • Term debt of £27.3 million • Revolving working capital facility of £11 million; • Debt servicing comprising interest-only payments The Group's existing debt of £20.3 million has been increased by £7 million topart fund the acquisition of AES. This facility has been structured as arolling 3 year "evergreen" facility and the interest margin over LIBOR isbetween 1.45 per cent and 1.7 per cent depending on the ratio of EBITDA to totaldebt. No capital repayments are made on the debt during the three year rollingperiod and the facility is reviewed every year to consider the extension of therolling period. The result is that the Group has increased its debt funding to accommodate theacquisition of AES, but the total annual cashflow associated with servicing thedebt will reduce from £4.6 million to less than £2.5 million. Management and Staff During the first half of 2005 there was a further strengthening of themanagement team with Lane Roberts, formerly managing director of the Sondex/Computer Sonics Systems operations in Canada, being appointed managing directorof the Wireline Division. There has also been significant recruitment to theGroup's management teams for production and financial operations as well as tothe international sales and marketing teams. Sondex currently has more than 300 employees. Staff turn-over remains low andall staff deserve praise for their excellent efforts and resilience through aperiod of on-going change where many challenges, both technical and logistical,need to be overcome on a daily basis. Financial Commentary The results for the six months ended 31 August 2005 are the first to bepresented solely under IFRS. The detailed accounting policies that the Group hasadopted upon conversion to IFRS, and their impact on the Group's results for theyear ended 28 February 2005, are detailed in the Group's transition statementwhich was released on 23 November 2005 and which is available on the Group'swebsite. In summary, the principal changes of accounting policy 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 acquisitions; this is in accordance with IFRS 3; • The extension of the charge for share-based remuneration, introduced by IFRS 2; • The wider scope of the charge to deferred taxation, under IAS 12. Additionally, and for the first time in the balance sheet at 31 August 2005, thegroup has valued foreign exchange and interest rate hedging instruments at theclosing balance sheet rates, resulting in an incremental charge to the incomestatement of £0.2 million. The income statements for prior periods have notbeen restated to adopt this change earlier. The level of working capital employed by the Group has increased consistent witha growth in revenues during the period. At the end of August 2005, inventorieswere £2.5 million greater than the position at the year end. This increase,expressed as a proportion of revenue in the period, was consistent with 2005.The increase in inventories is necessary in order to support the strong secondhalf deliveries. Trade debtors increased by only £0.6 million during theperiod, despite the strongly increased trading volume. This is evidence of theresults of recent debtor management initiatives starting to bear fruit andoffers promise of further reductions in debtor days. The US Dollar has strengthened considerably throughout the six months ended 31August 2005 and whilst this has benefited the Sterling value of trading it hascaused the forward contracts which were put in place to hedge the foreignexchange rate at the beginning of the financial year to be out of the money.This has resulted in a foreign exchange loss to be recognised in the incomestatement for the six months ended 31 August 2005 of £0.3 million. The Group's Earnings Per Share ("EPS") ratios have been re-presented under IFRS.Both the basic calculation and an adjusted basis calculation result inincreases of EPS stated under IFRS, compared with equivalent calculations underUK GAAP. This is mainly because capitalisation of R&D and non-amortisation ofgoodwill more than compensates for the greater charge for share based incentiveprogrammes, deferred tax charges and amortisation of acquired intangible assets. In accordance with past practice an adjusted EPS calculation has been presented.The adjustments made have been to add back to earnings the amortisation ofacquired intangible assets and to replace the actual tax charge with a pro-formatax charge of 30 per cent in order to reduce the volatility which can arise outof the deferred tax provisions of IFRS. Outlook Sondex continues to develop the business in order to take advantage of thepositive oil industry environment and the long term demand for increasinghydrocarbon production from ageing reserves. Growth is being achieved throughcontinuing to broaden the range of products on offer and by increasinginternational marketing reach - especially in areas such as China, Russia, Indiaand Central America. The Drilling and Wireline Divisions are achieving successin their own spheres of operations while helping each other to capture a biggershare of the market for technical downhole equipment. The Group is improvingand extending its technology both through on-going research and developmentprogrammes and through targeted acquisitions. Given these strengths, and thetalent and commitment of the staff, the Board is confident of further success inthe current financial year and beyond. Iain PatersonChairman Martin PerryChief Executive 14 December 2005 Consolidated income statementFor the six months ended 31 August 2005 Unaudited Unaudited Unaudited half year half year year ended 31 Aug 05 31 Aug 28 Feb 05 04 Note £'000 £'000 £'000 Revenue 2 18,783 9,711 31,713Cost of sales (9,111) (4,785) (14,159) 9,672 4,926 17,554Gross profit 51.5% 50.7% 55.4% Other operating income - 103 178Research and development expenses 3 (2,174) (1,236) (3,134)Sales, Marketing & Customer support expenses (2,652) (1,371) (3,283)Administration expenses (2,470) (1,984) (3,786) Operating profit before financing costs and 2,376 438 7,529amortisation Amortisation of acquired intangible assets (1,445) (529) (2,026)Financial income 173 21 207Financial costs (1,584) (724) (1,061) (Loss)/profit before taxation (480) (794) 4,649 Taxation 4 (271) 37 (1,347) (Loss)/profit attributable to shareholders (751) (757) 3,302 Dividends 5 (715) (472) (830) Retained (Loss)/profit (1,466) (1,229) 2,472 Earnings per share 6Basic (1.4) p (1.8) p 6.7 pDiluted (1.3) p (1.7) p 6.5 pAdjusted diluted 1.2 p (0.4) p 9.2 p Consolidated balance sheetAt 31 August 2005 Unaudited Unaudited Unaudited half year half year year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000 Non current assetsGoodwill 38,100 38,533 37,965Other intangible assets 16,807 18,231 17,757Property plant & equipment 4,966 5,034 4,895Investments in associates 112 131 137Deferred tax assets - 419 - 59,985 62,348 60,754 Current assetsInventories 10,479 6,834 8,014Trade & other receivables 19,548 14,055 18,954Financial assets - derivatives 45 - -Cash & cash equivalents (4,456) 2,638 (1,410) 25,616 23,527 25,558 Current liabilitiesFinancial liabilities - borrowings (3,950) (1,357) (3,957)Financial liabilities - derivatives (249) - -Trade & other payables (6,850) (6,122) (6,627)Current tax (1,556) (1,520) (984) (12,605) (8,999) (11,568) Non-current liabilitiesFinancial liabilities - borrowings (16,020) (22,629) (16,544)Deferred tax liabilities (4,643) (5,106) (4,919)Provisions (67) (67) (67) (20,730) (27,802) (21,530) Net assets 52,266 49,074 53,214 Shareholders' equityShare capital 5,504 5,501 5,501Share premium 41,020 44,903 41,019Other reserves 5,273 646 4,861Retained earnings 469 (1,976) 1,833 Total equity 52,266 49,074 53,214 Consolidated statement of changes to equityFor the six months ended 31 August 2005 Unaudited Unaudited Unaudited half year half year year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000 Total equity at start of period 53,214 26,045 26,045 Shares issued (net of expenses) 4 23,994 23,994 (Loss)/profit for the period attributable to (751) (757) 3,302shareholdersCharge for share based payments 365 172 462Net foreign exchange differences 11 6 47Deferred tax on items not recognised in the income 138 86 194statement Dividends paid (715) (472) (830) Total equity at end of period 52,266 49,074 53,214 Consolidated cash flow statementFor the six months ended 31 August 2005 Unaudited Unaudited Unaudited half year half year year ended 31 Aug 05 31 Aug 28 Feb 05 04 £'000 £'000 £'000 Cash flows from operating activitiesOperating profit before financing costs and amortisation 2,376 438 7,529Depreciation of property, plant and equipment 295 397 607Amortisation of capitalised development expenditure 424 290 725Charge for share based payment 366 173 462Increase in debtors (656) (993) (5,498)Increase in inventories (2,464) (1,276) (2,456)Increase/(decrease) in creditors 286 (341) (213)Tax (paid)/received 117 (122) (1,907)Net cash from operating activities 744 (1,434) (751) Cash flows from investing activitiesDividends received - - 12Interest received 173 21 182Acquisition of subsidiaries - (33,276) (33,095)Purchase of property, plant and equipment (418) (893) (1,621)Purchase of investments (20) - -Development expenditure capitalised (868) (501) (1,171)Proceeds from the sale of property, plant and equipment - - 466Net cash used in investing activities (1,133) (34,649) (35,227) Cash flows from financing activitiesInterest paid (940) (540) (1,343)Proceeds from the issue of share capital 4 25,124 25,124Loan capital received - 13,000 13,000Repayment of loans (2,287) (940) (2,900)Dividends paid (715) (472) (830)Net cash used in financing activities (3,938) 36,172 33,051 Net increase/(decrease) in cash and cash equivalents (4,327) 89 (2,927) Cash and cash equivalents at the beginning of the period (1,410) 2,044 2,044 Effect of exchange rate changes 1,281 505 (527) Cash and cash equivalents at the end of the period (4,456) 2,638 (1,410) 1. Basis of preparation The interim financial information for the six months ended 31 August 2005 hasbeen reviewed by the auditors in accordance with APB Bulletin 1999/4, but hasnot been audited and it does not constitute statutory accounts within themeaning of Section 240 of the Companies' Act 1985. The financial statements for the year ending 28 February 2006 will be the firstfor the group to be prepared under International Financial Reporting Standards("IFRS"). On 23 November 2005 the group published a Transition Statement,summarising the impact of the transition to IFRS. This included an overview ofthe impact on the financial results for the year ended 28 February 2005, set outreconciliations of certain key financial information for the year ended 28February 2005 and presented the accounting policies and transitional exemptionsadopted in the transition to IFRS and which will be adopted in the first fullfinancial statements to be prepared under IFRS. The Transition Statement isavailable on the Investor Relations page of the group's website, www.sondex.com.The accounting policies applied assume that all existing standards in issue fromthe IASB will be fully enforced by the European Union. These are subject toongoing amendment by the IASB and subsequent endorsement by the European Unionand therefore are subject to possible change. The interim financial information for the six months ended 31 August 2005,including the comparative figures for the six months ended 31 August 2004 andthe year ended 28 February 2005, has been prepared under the historical costconvention and the accounting policies and exemptions presented in the IFRSTransition Statement of 23 November 2005. The comparative figures for the year ended 28 February 2005 are not the group'sstatutory accounts for that financial year. Those accounts, which were preparedunder UK GAAP, have been audited and delivered to the Registrar of Companies.The report of the auditors thereon was unqualified and did not containstatements under Section 237 (2) or (3) of the Companies' Act 1985. Thecomparative figures for the year ended 28 February 2005 are those that werepresented in the IFRS Transitional Statement, ie conversion from audited UK GAAPto IFRS. 2. Segmental analysis Unaudited half Unaudited Unaudited year year half year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000Turnover by destinationUSA 3,857 2,728 5,219Canada 2,221 615 4,363South America 1,942 603 2,187UK 1,021 563 1,568Rest of Europe 1,766 1,101 3,078Middle East 2,441 1,583 4,611China 989 1,153 5,192Russia 1,801 481 3,259Rest of World 2,745 884 2,236 18,783 9,711 31,713 The group regards its primary segmentalisation as being divisional for thepurpose of future financial statements under IFRS. However, the Drillingdivision was acquired on 30 June 2004 and the comparative numbers for theDrilling division for the periods shown above would therefore not berepresentative. The group has accordingly presented segmental analysis bygeography in these interim financial statements. 3. Research & development expenditure The charge in respect of research & development comprisesa blend of expenditure and capitalisation, which is analysed below: Unaudited half Unaudited Unaudited year year half year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000 Expenditure in the period (2,618) (1,447) (3,580)Development costs capitalised 868 501 1,171Amortisation of capitalised development costs (424) (290) (725) Charge in income statement (2,174) (1,236) (3,134) 4. Taxation Unaudited half Unaudited half Unaudited year year year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000Current taxUK corporation tax (89) - (894)Foreign tax (320) (315) (447) (409) (315) (1,341) Deferred tax 138 352 (6) Total charge (271) 37 (1,347) An adjustment relating to deferred tax has been made to the provisional IFRSfigures included in the Transition to International Financial ReportingStandards statement, as a result of a change in interpretation of theinteraction between IAS 12 "Income taxes" and IFRS 3 "Business Combinations. 5. Dividends Unaudited half Unaudited half Unaudited year year year ended 31 Aug 05 31 Aug 04 28 Feb 05 £'000 £'000 £'000 February 2004 final dividend - 472 472Dividend per share (pence) - 1.20 1.20 February 2005 interim dividend - - 358Dividend per share (pence) - - 0.65 February 2005 final dividend 715 - -Dividend per share (pence) 1.30 - - Total recognised 715 472 830 The directors are proposing an interim dividend of 0.7 pence per share, to bepaid on 26 January 2006 This has not been accrued in the balance sheet at 31August 2005. 6. Earnings per share Basic and diluted earnings per share The basic earnings per share has beencalculated by dividing the profit or lossfor the period by the weighted averagenumber of shares in issue for the period. Unaudited half Unaudited half Unaudited year year year ended 31 Aug 05 31 Aug 04 28 Feb 05 Basic undiluted (pence) (1.4) (1.8) 6.7 Basic diluted (pence) (1.3) (1.7) 6.5 (Loss)/profit attributable to shareholders (751) (757) 3,302(£'000) Weighted average number of shares (thousand)Undiluted 54,539 42,775 49,340Diluted 56,044 43,561 50,543 Adjusted diluted earnings per share £'000 £'000 £'000 (Loss)/profit attributable to shareholders (751) (757) 3,302Add: amortisation of acquired intangible assets 1,445 529 2,026Add: adjustment to taxation (19) 44 (656) Adjusted earnings 675 (186) 4,673 Diluted weighted average number of shares 56,044 43,561 50,543(thousands) Adjusted diluted earnings per 1.2 (0.4) 9.2share The adjustment to taxation brings the charge to taxation to 30% of profit beforeamortisation and tax. INDEPENDENT REVIEW REPORT TO SONDEX PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 August 2005 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,Consolidated Statement of Changes in Equity, and the related notes 1 to 6. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. This interim report has been prepared in accordance with the requirementsof IFRS 1, "First Time Adoption of International Financial Reporting Standards"relevant to interim reports. The accounting policies are consistent with those that the directors intend touse in the next financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies have been applied. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 August 2005. Ernst & Young LLPReading13 December 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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