Final Results
Sondex PLC
26 May 2004
Sondex plc
('Sondex' or the 'Company')
Maiden Preliminary Audited Results for the year ended 29 February 2004
Sondex, the oilfield technology company which floated on the Main Market of the
London Stock Exchange in June last year, today announces its maiden preliminary
audited results for the year ended 29 February 2004.
Financial Highlights
• Turnover up 21% to £17.5 million (2003: £14.5 million)
• Operating profit up 18% to £5.3 million * (2003: £4.5 million)
• Profit after taxation of £0.l million (2003: loss of £0.7 million)
• Proforma earnings per share up by 36% to 9.4p (2003: 6.9p)
• Basic earnings per share of 0.4p (2003: loss per share of 4.5p)
• Recommended Final dividend of 1.2 pence per share
• Increased R&D spend of £2 million (2003: £1.5 million)
Operational Highlights
• Successful listing on the London Stock Exchange
• Highly complementary acquisition completed in Canada of
Computer Sonics Systems which is already exceeding initial expectations
• Continuation of regional expansion with two new offices in the UAE and
Beijing
• Proposed acquisition, announced today, of Geolink International Limited
for £31.5 million
* before exceptional items and amortisation of goodwill and intangible assets
Iain Paterson, Chairman of Sondex, commented:
"I am delighted to announce an excellent set of maiden results for Sondex. The
year has seen the Company make continued progress on all fronts. We have
increased our market share and geographic reach and have developed new products
through our investment in R & D.
Our successful flotation last year has enabled us to build a solid platform for
the future. The proposed acquisition of Geolink announced today will further
enhance our unique position in the oilfield technology market."
26 May 2004
For further information, please contact:
Sondex Tel: 0118 932 6755
Martin Perry , Chief Executive
Chris Wilks, Finance Director
College Hill Tel: 020 7457 2020
James Henderson
Nick Elwes
Chairman's Statement
The past twelve months have seen a transformation in the organisation and
business stature of your Company. The flotation on the main market of the
London Stock Exchange, ongoing organic activity and growth by acquisition have
moved us into the next stage of our development as a public company.
Results
Our revenues grew to £17.5 million, an increase of 21 per cent. and earnings
before amortisation of goodwill, one-off flotation costs and taking into account
the gain from realized exchange gains increased by 31 per cent. over the prior
period to £5.9 million representing earnings per share of 9.4p per share on a
diluted pro-forma basis. During the year the Group invested £2 million on
Research and Development of new products (compared to £1.5 million in the
previous year) representing approximately 11.4 per cent of revenues. After
amortisation of goodwill and float costs, our operating profit increased by 2
per cent. to £3.5 million. Our profit after tax was £0.1 million compared to a
loss of £0.7 million for 2003.
Dividend
Reflecting these results, the Board is proposing a final dividend for the year
of 1.2p per share, amounting to a total of 1.8p for the year.
Review of the period
Following a number of years of growth financed by a private equity structure,
the Company floated on the main market of the London Stock Exchange on 12 June
2003, raising approximately £25 million of new funds. This allowed us to
de-gear a highly leveraged structure thereby, facilitating our on-going growth.
Apart from the paying down of debt, the proceeds from the flotation have been
used in part for increasing the development of new tools and solutions, the
growth of rental assets in the business, facilities improvements and also for
the acquisition of Computer Sonics Systems Inc ("CSS") in Calgary, Canada, for a
cash consideration of £1.4 million. CSS is already exceeding initial
expectations and we are delighted to be able to report a positive contribution
of £0.7 million in revenue and £0.1 million in operating profits from CSS in the
two month post acquisition period.
CSS brings us a new and complementary product line that can be incrementally
sold to the same international customer base and also provides a stepping-stone
into the Canadian market. The acquisition has been integrated well, with a
number of cross company transfers and joint development initiatives already
established.
In addition to Canada, further geographic expansion took place through new sales
offices and support centres being established in the UAE, to support increasing
activity in the Middle East and, shortly after the year-end, in Beijing from
which significant new business has already been developed in China. These new
locations add to our current international operations in Houston, Texas and
Perth, Australia.
Acquisition of Geolink International Limited ("Geolink")
Pursuing our strategy of expansion within the downhole technology supply
business of the oil and gas service sector, we have today announced the proposed
acquisition of Geolink for £31.5 million in cash and new Sondex shares upon
completion. The acquisition of Geolink is subject to shareholder approval and
is to be financed by a new £13 million debt facility, the issue of new Sondex
shares to the vendors in the amount of approximately £4.1 million and by a
Placing and Open Offer of new Sondex shares, which we have also announced today.
Geolink is a privately owned business supplying the oil service sector with
equipment for Measurement While Drilling and Logging While Drilling, markets
similar to the wireline logging market in which we currently operate. Geolink,
like Sondex, is an international business and the equipment it sells is used to
increase ultimate recovery from known oil and gas reservoirs. Their offices are
located in Aberdeen, Houston and Venezuela. Operating profits excluding goodwill
amortisation and non-recurring directors' remuneration for Geolink for the 10
month period ended 29 February 2004 were £3.9 million. Further details of the
proposed acquisition and the Placing and Open Offer are available in the
Prospectus issued today.
Geolink has a strong reputation within its marketplace. This acquisition of a
complementary product range provides a good technical fit of downhole
technologies. We believe the acquisition, which on a pro forma basis is
earnings enhancing, will give us increased market share and position. In
particular, we will be able to cross-sell both companies' products to their
respective customers and there will be the potential to develop additional
customers for Geolink's technology through our existing international offices.
Furthermore, we expect enhanced product development by having access to combined
technology and research and development activities of both companies.
Staff
I should like, on behalf of your Board, to thank all our staff for their
outstanding efforts during the year. They have been key to positioning the
business well for the opportunities that lie ahead.
Outlook
The acquisition of Geolink will, following the approval of shareholders, add a
new dimension to the Group, bringing enhanced opportunities for both companies
and provide a platform for further expansion. Due to their very similar nature,
we expect that the successful and timely integration of the two businesses can
be achieved in an harmonious and accretive manner.
World increases in demand for energy are driving the hydrocarbon industry to
focus on the efficient production of all identified oil and gas reservoirs,
while finance disciplines demand an accurate description of reserves.
Technology supplied by our expanded Group should assist in satisfying these
demands.
Trading since the year-end has been in line with our expectations with positive
current market and customer indications. The actual order book and pending
order list provide confidence in continuing underlying growth.
We intend to continue to expand through investment in organic product
development and growth, and through a considered and focused acquisition
strategy with the aim of bringing together a platform of technology that can be
made available to the service sector of the oil and gas industry. I believe
that the enlarged Sondex Group can look forward to sustainable growth in the
current financial year.
Iain Paterson
Chairman
OPERATING REVIEW
Industry conditions
A year of high oil prices has given an underlying stability to the oil and gas
industry which has created confidence throughout the sector. The spending levels
from the oil and gas operators on services have, however, not entirely reflected
the high oil price. Activity levels within the service sector which represents
Sondex customers, have been steady throughout the world, with some recent
increases in the United States land markets. Canada has seen record levels of
drilling for both oil and gas.
Projects in the deep water Gulf of Mexico market continued to be slow; this has
had quite some impact on the international service companies and hence their own
capital expenditure. Venezuela, normally a buoyant market for service companies
has also been slow due to political instability in the country.
China has seen some significant consolidation of its service companies; these
service companies are generally owned by and associated with particular
oilfields within the country. They have recognised the need for western
technology in order to improve the efficiency of their production. The Chinese
are also increasingly expanding their operations internationally.
The Russian market has seen the most significant changes over the last year, and
this trend is expected to continue. With the major international oil and gas
companies investing in the region, the service sector is also in the process of
change. One of the major service companies, Schlumberger, has made a strategic
investment in a well established Russian service company giving them a strong
presence. It is believed the other international service companies will also be
looking for expansion routes into the territory. Equally, the Russian service
companies themselves are consolidating and, as in China, they are recognising
that western technology is needed to assist with a modernisation programme.
Significant for Sondex is the pressure on oil companies in a number of regions
such as the Far East, the Middle East and West Africa to award service contracts
to local companies. This trend has encouraged a number of new companies to be
established in these regions, many of whom have, or have the potential to,
become Sondex customers.
During the year there has been an increasing realisation of the importance of
accurately identifying and analysing reserves of oil and gas. It is also clearly
recognised that cost-effective extraction of the remaining reserves from
reservoirs which have been in production for a number of years will be essential
for the future of the industry.
Health, safety and the environment
The oil and gas industry has for many years given health and safety standards
and environmental protection policies an extremely high profile. Sondex sets
out to match the standards of the best in the industry.
No serious incidents or accidents have occurred during the last year and a
number of initiatives have been taken across the Group in order to improve our
systems and environment and reduce the likelihood of a health and safety
incident.
It is the Group's policy to be proactive in preventing personal injury and work
related damage to the health of staff, and members of the public and outside
organisations coming into contact with the Group and its products. Independent
consultants were retained during the year to conduct a health and safety audit
and train managers in the conduct of risk assessments; these risk assessments
are conducted on an ongoing basis as part of continuing efforts to maximise
employee awareness of health and safety. Health and safety performance is
monitored by established management processes and reviewed closely at each Board
meeting.
Flotation and management
The flotation of Sondex in June 2003 was the most significant corporate event
during the last year and has allowed us to progress a number of strategic
initiatives.
Management and staff continue to hold approximately 16 per cent of the shares in
Sondex and none of the Directors have sold any shares on or since the flotation.
We believe in the broad share and equity participation which provides a medium
and long term reward and incentive. We also believe this helps to align the
interests of staff, management and shareholders. An additional share scheme -
an approved Save As You Earn scheme - is proposed to be introduced this year.
We welcomed the recruitment of Peter Collins to the Board of Directors in May
2003, joining as Operations Director. He brings with him a wealth of industry
experience and specific knowledge and is proving to be a valuable addition to
our Board. He has taken responsibility for improving systems and controls as
well as making improvements in manufacturing efficiency and quality.
Additionally he has been instrumental in managing the post acquisition
integration of CSS into the Sondex Group.
An executive management team has been established for regular operational
management of the business. There has been strong retention of staff who,
through their flexibility and dedication, have made a significant contribution
to the on-going growth of the business.
Products
Production Logging
Production Logging, the principal product line for Sondex representing 49 per
cent. of the Group revenues in 2004 (2003 - 42 per cent.), analyses the flow
characteristics of any oil, gas or injection well enabling a better
understanding of reservoir properties and ultimate recovery potential.
Measurements such as flow rate, temperature, pressure, fluid capacitance and
density are recorded in situ within the well.
Influencing the growth of this product line are the increasing number of new
clients, who typically start with Production Logging and subsequently migrate to
other business areas; and, secondly, the overall market focus on gathering
better data in order to qualify reserves and manage ageing reservoirs.
A new high temperature (500 deg F) and high pressure (20,000 psi) production
logging string ("HADES") was released during the year, and the migration of
customers to the new Sondex standard 'Ultrawire' telemetry has continued.
Casing Inspection
Sondex Casing Inspection products use multi-finger callipers and ultrasonic or
magnetic devices to detect corrosion or damage to the metal pipe which forms the
casing or tubing inside an oil or gas well.
The Magnetic Thickness Tool was launched commercially during this year and has
had an excellent debut in Canada where it has succeeded in meeting the
requirements of the Alberta Energy and Utilities Board for regulatory work
involving casing inspection logs in oil and gas wells.
CBL
The product line acquired with the company acquisition of Computer Sonics
Systems Inc.("CSS") in Canada is used for inspecting the integrity of the cement
which seals the metal casing to the rock formations (Cement Bond Logging).
CSS has a market niche in Radial and Slim Cement Bond Logging tools which give a
full analysis of the cement integrity. CSS has an established position as a
supplier to independent service companies in North America. Sondex can add to
and assist with sales opportunities outside North America and CSS has the
potential to assist the Sondex sales effort in the USA and Canada. Some sales
have already resulted from these cross selling opportunities.
Tractor
Tractors represent a relatively new method for the oil and gas industry of
deploying equipment in highly deviated or horizontal wells; they can be used to
replace the expensive and time consuming deployment method using Coiled Tubing.
In Norway, usually an early adopter of new technology, tractors have become
established, but the uptake elsewhere in the world has been sporadic.
During this year, Schlumberger, a customer of Sondex but also the major customer
of our principal competitor in the tractor market has introduced its own tractor
product for its own use. Schlumberger, as market leader in the service sector
should assist in the development of the market although, clearly, some market
share could be lost. Overall, however, we believe that the effect of the
increased market size should outweigh the potential effect of reduced market
share.
In order to best develop the market and stimulate demand, we have been promoting
the rental of tractors where we share in some form of activity-based revenue.
This business model has involved increasing rental asset expenditure, but should
ultimately provide greater returns.
Cutter
The Downhole Electric Cutting Tool (DECT) has been launched during the last
year, with revenue earning tools now on field trial. The product provides an
environmentally friendly and controllable alternative to using explosives or
chemical cutters in wells for cutting and retrieving drill pipe or production
tubing.
Sets of equipment are currently deployed in Algeria, Aberdeen and Alaska with
the major service providers.
Further sizes and variations of the product are being developed, some with the
assistance of major oil company sponsorship.
Regional and customer activity
Turnover derived from outside the UK represented 95 per cent. of 2004 Group
revenue (2003 - 83 per cent.), with sales spread broadly across the oil and gas
producing areas of the world.
New sales and support centres have been added in the Middle East in the duty
free area of Jebel Ali and, to support China, in Beijing. The acquisition of CSS
adds an R&D, manufacturing and sales / customer support facility in Calgary,
Canada.
The customer base for Sondex has remained stable with the large international
service companies continuing to feature amongst our largest customers, together
making up 41 per cent. of sales. The national oil companies running their own
services also feature and a number of the smaller regional customers continue to
expand their activities. Particularly pleasing was the 21 new customers added
during 2004 and historically this has resulted in continuing sales opportunities
in future periods.
Research and development
We consider the Group R&D programme to be a fundamental reason for the
continuing high margins and revenue growth rates that we are able to sustain.
Historically, the Group has sought to maintain R&D expenditure at or in excess
of 10 per cent. of turnover and 2004 was no exception where we spent
approximately £2 million on R&D effort, representing 11.4 per cent. of turnover.
We received sponsorship of certain projects from oil and gas companies
amounting to £0.3 million. We welcome the involvement of oil and gas companies
in the R&D programme because we believe it helps to focus the effort and provide
an increased profile to the new products which result.
The R&D team comprised 33 people across the Group at the year end with
particular expertise in sensor, electronic, mechanical or software, with overall
project management from a team of industry experienced professionals.
Current new development projects include the permeability formation evaluation
tool with sponsorship from the European Union, further extensions to the Cutter
range with sponsorship from major oil companies, and several extensions to and
integrations of the existing product ranges.
CSS
Computer Sonics Systems, now known as Sondex CSS, was acquired in December 2003
for £1.4 million (including deferred consideration of £175,000). In the year
prior to acquisition the business had annualised sales of £2.2 million and
operating profits of £292,000.
The business of CSS employs 40 staff across the disciplines of R&D, Production
and Sales & Marketing. These disciplines are similar in all important respects
to those in the Sondex Group.
Lane Roberts who has many years experience in the oil and gas industry with
major service companies holding key technology focused roles has been appointed
to be the new General Manager of CSS. The founder of CSS remains as a consultant
to the business assisting in some technical projects.
Post acquisition integration of CSS into the Sondex Group has been successful
with some product manufacture transferred to Canada and joint developments in
progress. This has also provided the opportunity for staff development and some
staff transfers are underway.
In summary
The last year has been one of positive change for Sondex with the stated
objectives of changing corporate structure and growth both organically and by
acquisition being achieved. Results in-line with our expectations have been
delivered. The management team has grown in strength, and we believe is well
positioned to take both the current business of Sondex and the proposed
acquisition of Geolink forward to another level.
Martin Perry
Chief Executive
Financial Review
Overview
The Group's operating profit before flotation costs and amortisation of goodwill
was £5.3 million in 2004 (2003 - £4.5 million), representing a net margin on
turnover of 30.2 per cent. (2003 - 31.3 per cent.). This operating profit
increase of 17 per cent. was achieved despite an increase in R&D expenditure
from £1.5 million to £2.0 million (an increase of 35 per cent.) and a
depreciation in the Sterling value of Dollar sales achieved during the year.
After taking into account the exchange rate gain realised on maturity of a
foreign exchange rate hedging instrument (discussed further below) the earnings
were £5.9 million before flotation costs and goodwill amortisation.
Currency and interest rate risk
The US dollar dominated nature of the oil industry results in a majority of the
Sondex turnover arising in US Dollars. During the financial year ended 29
February 2004, 79 per cent of the turnover was made in US Dollars and only 16
per cent. of the Group's costs were in the same currency. In order to hedge the
effect of currency fluctuations a number of mechanisms have been employed. In
particular, the long term bank debt has been denominated in US Dollars and the
excess Dollar generation over that required to service the bank interest and
capital repayments is hedged with specific zero premium option contracts.
During a year when the US dollar started the year at a rate of near $1.60 to
Sterling and ended at over $1.85, these hedging mechanisms have proved to
effective and have resulted in credits to interest in the profit and loss
account of £2.0m (2003 - £0.2m) of which £1.4 million related to unrealised
gains on the US Dollar loans and £0.6 million from realised gains on option
contracts. The Group intends to continue to hedge its foreign exchange
exposures using an appropriate mix of dollar denominated funding debt and
hedging instruments. The Group has followed best practice in accounting for
gains on currency hedging instruments in interest.
The term loan interest rate is based on the US Dollar market and a swap
instrument has been employed to fix the Dollar base interest rate payable.
Taxation
The Group's tax charge of £774,000 arises in the main from the Group's UK based
activities (including the benefit of foreign exchange rate hedging) and Canadian
based activities. The effective Canadian tax rate of 39 per cent. compared with
the UK rate of 30 per cent. results in the effective overall rate in the
accounts of 36 per cent. (excluding goodwill amortisation). It is expected that
as the Dubai office based in the duty and tax free zone of Jebel Ali increases
its activity this should favourably affect the overall Group average corporation
tax rate.
Earnings per share
The basic and diluted Earnings Per Share ("EPS") figures are presented but
because the flotation happened during the year, materially changing the capital
structure of the Group, pro-forma basic and diluted EPS figures are also
presented to aid understanding. The adjustments to Earnings to arrive at the
pro-forma position is to add back the flotation costs charged to the profit and
loss account, add back the amortisation of goodwill charge and to provide a net
interest charge which would have arisen for the year, had the post flotation
debt structure existed for the entire year. A pro-forma standard tax charge of
30 per cent. is also applied. The resulting diluted pro-forma EPS of 9.4p (2003
- 6.9p) per share reflects a strong trading performance underpinned by effective
foreign exchange hedging.
Dividend
An interim dividend of 0.6p (2003 - Nil) per share was paid on 17 December 2003.
A final dividend of 1.2p per share payable on 5 July 2004 to shareholders on
the register at 4 June 2004 is now proposed, giving a total of 1.8p per share
for the year.
Cashflow
The Group's underlying trading cashflow has been strong throughout the year.
The high volume of last quarter shipments which traditionally arises in the
Wireline business and which was particularly acute this year resulted in trade
debtors at the year end which appears to absorb in excess of £4 million of our
trading cashflow. As this working capital position unwinds through the first
quarter of 2004-05 the cash balances will be similarly benefited. Additionally,
we believe that the average age of debtors can be improved upon and a number of
initiatives are underway to achieve this.
The strength of demand for the Placing in June 2003, resulted in additional
funds being raised compared to that used for the repayment of bank debt. The
residue of this after purchasing Computer Sonics Systems Inc, increasing the
programme of investment in rental assets and the working capital movement
referred to above is carried in cash at the year end. The Group's committed
working capital facility of £4 million remained undrawn during the period.
Debt management
The flotation provided the opportunity to reduce the Group's gearing. Much of
the previous debt structures were long term and structural and arose from the
secondary Management Buy Out completed in October 2002. The post flotation debt
takes the form of a bank term loan with an interest margin charged at 2.09 per
cent. (with a favourable ratchet reducing the margin as the profitability
covenant exceeds certain levels) and quarterly interest and capital repayments.
As has been described above the interest rate risk has been hedged and the term
loan is used to in part to hedge the foreign exchange trading risk by
denominating the debt in US Dollars. The level of debt now carried in the Group
allows greater investment in the business and the gearing ratio and pro-forma
interest cover ratios at the year end are 47 per cent and 7.8 times (pro-forma
earnings before interest and tax divided by pro-forma interest payable),
respectively.
International Financial Reporting Standards ("IFRS")
The Group is preparing for the adoption of IFRS in 2005. This includes a
detailed comparison of the Group's existing accounting policies with IFRS and an
evaluation of the impact on the financial statements in terms of presentation
and reported performance.
Christopher Wilks
Finance Director
Group Profit and Loss Account
for the year ended 29 February 2004
2004 2003
Note £000 £000
Turnover
Continuing operations:
ongoing 16,868 14,464
acquisitions - Computer Sonics Systems Inc 656 -
Group Turnover 1 17,524 14,464
Cost of sales (7,002) (5,792)
Gross profit 10,522 8,672
Administrative expenses (7,056) (5,273)
Operating profit
Continuing operations:
ongoing 3,347 3,399
acquisitions - Computer Sonics Systems Inc 119 -
Group operating profit 3,466 3,399
Operating profit before cost of flotation and amortisation of 5,294 4,532
intangible assets
Cost of flotation (597) -
Amortisation of intangible assets (1,231) (1,133)
Operating profit 3,466 3,399
Net interest payable and similar charges 2 (2,543) (3,768)
Profit/(loss) on ordinary activities before taxation 923 (369)
Tax on profit on ordinary activities 3 (774) (333)
Profit/(loss) on ordinary activities after taxation 149 (702)
Dividends 4 (708) -
Loss retained for the financial year (559) (702)
Earnings per share - basic 5 0.4p (4.5p)
- diluted 0.4p (4.5p)
Proforma Earnings per - basic 9.7p 7.2p
share
- diluted 9.4p 6.9p
Group statement of total recognised gains and losses
For the year ended 29 February 2004
2004 2003
£000 £000
Profit/(loss) for the financial year attributable to members of the parent
company 149 (702)
Exchange difference on retranslation of net assets of subsidiary undertaking (8) -
Total recognised gains and losses relating to the year 141 (702)
Group Balance Sheet
as at 29 February 2004
2004 2003
£000 £000
Fixed assets
Intangible assets 21,653 21,623
Tangible assets 1,843 1,225
Investments 204 162
23,700 23,010
Current assets
Stock 4,197 3,715
Debtors 9,988 5,213
Cash at bank and in hand 2,044 37
16,229 8,965
Creditors: amounts falling due within one year (5,384) (4,551)
Net current assets 10,845 4,414
Total assets less current liabilities 34,545 27,424
Creditors: amounts falling due after more than one year (10,250) (27,999)
Provisions for liabilities and charges (95) (20)
24,200 (595)
Capital and Reserves
Called up share capital 3,934 1,374
Share premium 22,476 -
Capital redemption reserve 326 -
Profit and loss account (2,536) (1,969)
Shareholders' funds 24,200 (595)
Equity shareholders' funds 24,200 (1,029)
Non-equity shareholders' funds - 434
24,200 (595)
Group Statement of Cash Flows
for the year ended 29 February 2004
2004 2003
Note £000 £000
Net cash inflow from operating activities 6 819 4,459
Returns on investments and servicing of finance
Interest received - 439
Interest paid (3,703) (3,345)
Issue costs on long-term loans - (1,085)
(3,703) (3,991)
Taxation
Corporation tax paid (156) (144)
(156) (144)
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (32) -
Payments to acquire tangible fixed assets (1,165) (146)
Payments to acquire investments - (16)
Receipts from sales of tangible fixed assets 526 -
(671) (162)
Equity dividends paid (236) -
(236) -
Acquisitions and disposals
Purchase of subsidiary undertaking (1,271) (5,907)
Net overdraft acquired with subsidiary undertaking (34) -
(1,305) (5,907)
Net cash outflow before financing (5,252) (5,745)
Financing
Issue of ordinary share capital 25,362 588
New long-term loans - 30,066
Repayment of long-term loans (17,507) (23,606)
7,855 7,048
Increase in cash 2,603 1,303
Notes to the Preliminary Announcement
For the year ended 29 February 2004
1. Turnover and segmental analysis
Turnover
2004 2003
£000 £000
Turnover by destination
North America 5,645 2,595
South America 528 1,274
Europe 4,257 4,733
Middle East 2,964 1,132
Asia Pacific 1,211 2,496
Rest of World 1,936 1,206
China 983 1,028
17,524 14,464
Turnover by origin
UK 16,797 14,427
Inter-segment (223) (290)
UK Third Party 16,574 14,137
US 1,034 639
Inter-segment (739) (312)
US Third Party 295 327
Canada 705 -
Inter-segment (50) -
Canada Third Party 655 -
17,524 14,464
Profit
Segment operating profit/(loss):
UK 3,762 3,118
US (376) 281
Canada 119 -
Middle East (39) -
3,466 3,399
Net Assets At At
Net assets/(liabilities) by segment 29 February 28 February
2004 2003
£000 £000
UK 23,305 (872)
US 440 277
Canada 411 -
Middle East 44 -
24,200 (595)
2. Net Interest payable and similar charges
2004 2003
£000 £000
Interest received (92) (439)
Bank loans and overdrafts 949 1,274
Other loans 291 2,311
Loss on settlement of loans and loan notes 3,184 789
Amortisation of bank arrangement fees 206 59
Exchange differences - realised (626) -
- unrealised (1,369) (226)
2,543 3,768
3. Taxation
(a) Analysis of charge in the year
2004 2003
£000 £000
UK corporation tax:
UK corporation tax on profits for the year 509 -
Adjustments in respect of previous periods 68 26
Overseas tax
Foreign tax on current year 205 287
Adjustments in respect of previous periods 11 -
Current taxation (b) 793 313
Deferred taxation (19) 20
774 333
3. Taxation (continued)
(b) Factors affecting the tax charge
The tax assessed for the year is higher than the standard rate of corporation
tax in the UK of 30 per cent. The differences are explained below:
2004 2003
£000 £000
Profit/(loss) on ordinary activities before tax 923 (369)
Profit/(loss) on ordinary activities before tax multiplied by
weighted average rate of corporate tax 30 per cent. (2003: 30 per cent.) 277 (111)
Effects of:
Expenses not deductible for tax purposes (primarily goodwill
amortisation) 398 368
Capital allowances in excess of depreciation (30) (8)
Short term timing differences (9) (163)
Adjustments in respect of prior years 79 26
Higher tax rates on overseas earnings 78 201
Current tax charge for the year 793 313
(c) Factors that may affect future tax charges
There are unrelieved UK non trading tax losses carried forward of £618,000
(2003: £667,000). These have not been recognised as it is not sufficiently
certain that there will be suitable future profits against which to set them.
4. Dividends and other appropriations
2004 2003
£000 £000
Dividends:
Equity dividends on ordinary shares:
interim paid 0.6p 236 -
final proposed 1.2p 472 -
708 -
5. Earnings Per Share
Basic and diluted earnings per share
The basic and diluted earnings' per share have been calculated by dividing the
profit after taxation for the period by the weighted average number of shares in
existence for the period.
Shares held by the Employee Benefit Trust, including shares over which options
have been granted to directors and staff have been excluded from the weighted
average number of shares for the purpose of calculation of the Basic EPS.
2004 2003
'000 '000
Net Earnings/(loss) £149 £(702)
Basic weighted average number of shares 39,166 15,509
Basic Earnings/(loss) per share 0.4p (4.50)p
Diluted weighted average number of shares 40,409 15,509
Diluted earnings/(loss) per share 0.4p (4.50)p
Pro forma EPS
Pro forma earnings per share is presented because the directors believe it
provides a fairer reflection of the Group's underlying performance,
incorporating the effects of the flotation on capital structure, and
amortisation of goodwill and intangible assets.
The pro forma earnings per share reflects on a pro forma basis the full impact
of the flotation of the company on the earnings per share. This includes both
the repayment of long-term debt and the pro forma effect of new shares issued by
the Company on flotation.
2004 2003
£'000 £'000
Operating profit as reported 3,466 3,399
Cost of flotation 597 -
Amortisation of goodwill and intangible assets 1,231 1,133
Operating profit before amortisation of goodwill
and intangible assets and cost of flotation 5,294 4,532
Realised foreign exchange gain 626 -
Pro forma interest charge (i) (756) (756)
Pro forma net interest receivable (ii) 150 150
Proforma tax charge (iii) (1,594) (1,178)
Pro forma net earnings 3,720 2,748
'000 '000
Pro forma basic number of shares (iv) 38,273 38,024
Pro forma diluted number of shares (iv) 39,516 40,013
Pro forma basic earnings per share 9.7p 7.2p
Pro forma fully diluted earnings per share 9.4p 6.9p
i. Immediately following flotation the debt outstanding was $25 million.
The pro forma charge is based on an effective rate of 4.8 per cent. and takes
into account the repayment schedule.
ii. Pro forma net interest receivable has been calculated based on imputed
interest receivable on the net cash proceeds of the flotation (£6 million) on
the basis of the net funds being placed on a mix of overnight and weekly
deposits at an average rate of 2.8 per cent., after deducting the cost of non
utilisation of the working capital facility.
iii. Pro forma tax charge is calculated based on an effective rate of 30
per cent.
iv. Weighted average number of shares
Pro forma basic number of shares is calculated based on the number of shares
immediately following flotation being in place at the start of the period and
adjusted to account for the exercise of options as they occurred in the period.
Pro forma diluted number of shares is calculated based on all outstanding
options having a dilutive effect.
6. Notes to the statement of cash flows
a) Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£000 £000
Operating profit 3,466 3,399
Depreciation of tangible fixed assets 225 232
Amortisation of intangible fixed assets 1,231 1,133
Decrease/(increase) in stocks 210 (310)
Increase/(decrease) in operating debtors and prepayments (4,536) 377
Increase in operating creditors and accruals 156 (372)
Increase in other provisions 67 -
Exchange gain (42) -
819 4,459
b) Analysis of net debt
At Other At
1 March Cash Exchange Non-cash 29 February
2003 Flow Differences Movements 2004
£000 £000 £000 £000 £000
Cash 37 2,007 - - 2,044
Overdraft (596) 596 - - -
(559) 2,603 - - 2,044
Term loans (29,842) 17,507 1,369 (641) (11,607)
Total (30,401) 20,110 1,369 (641) (9,563)
7. Basis of preparation
The Board approved the preliminary announcement on 26 May 2004. The financial
information contained in this preliminary announcement does not comprise
statutory accounts within the meaning of section 240 of the Companies Act. The
results for the year to 29 February 2004 are derived from audited accounts for
that period. The results for the year ended 28 February 2003 are derived from
the audited accounts of Sondex Group Limited which have been filed with the
Registrar of Companies with an unqualified auditors' report. Sondex Group
Limited was incorporated on 10 September 2002. The comparatives for the Group
are presented on a pro forma basis as if the Group had been in existence
throughout the comparative period. The statutory accounts for the year ended 29
February 2004 have been prepared on the basis of the accounting policies set out
in the statutory accounts for the year ended 28 February 2003 and will be
delivered to the Registrar of Companies in due course together with an
unqualified auditors' report.
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