Final Results
Sondex PLC
25 May 2006
Sondex plc
("Sondex" or the "Company")
Preliminary Audited results for the year ended 28 February 2006
Financial Highlights
• Revenue up 62% to £51.4 million (2005 - £31.7 million)
• Operating profit up 76% to £9.7 million (2005 - £5.5 million)
• Fully diluted earnings per share increased to 9.0p (2005 - 6.5p)
• Adjusted diluted* earnings per share increased to 12.7p (2005 - 9.2p)
• Operating cash increased to £6.4 million inflow (2005 - £0.8 million
outflow)
Operational Highlights
• Acquisition of Applied Electronic Systems
• Strong organic like-for-like growth (sales up 42%)
• Significant investment in R & D, operations and facilities
• Customer base increased by 48%
* Pre amortisation of acquired intangible assets, pro-forma tax charge.
NOTE: 2005 figures restated under International Financial Reporting Standards
(IFRS)
Iain Paterson, Chairman of Sondex, commented:
"This has been a step change year for Sondex. These excellent results reflect
the strength of our original business as well as the measures taken to reshape
the enlarged group following our recent acquisitions.
"Sondex enters the new financial year with confidence. The current order book
is strong as operators are continuing to seek innovative ways to optimise
ultimate recovery from maturing fields. We believe that Sondex is well placed
to deliver further growth."
25 May 2006
For further information, please contact:
Sondex Tel: 0125 286 2200
Martin Perry (Chief Executive)
Chris Wilks (Finance Director)
College Hill Tel: 020 7457 2020
Nick Elwes / Ben Brewerton
Chairman's statement
Your company has had a highly successful year, during which we have continued to
increase our market share. While we have been helped by the buoyant market
conditions resulting from consistently high commodity prices, much of our
progress is of our own making. Our marketing drive, broader operating base,
increased range of products and significant improvements in our supply chain
management have all contributed to the excellent operating and financial
results.
We are well placed to build on this success and I am confident that we can
continue to grow, both organically through the expansion of our core businesses,
and through appropriate acquisitions.
Results
Revenues rose 62 per cent to £51.4 million while operating profit increased by
76 per cent to £9.7 million. Profits, after tax and financing costs, rose to
£5.1 million as against £3.3 million, an increase of 54 per cent. Earnings per
share, adjusted for amortisation of acquired intangible assets and a pro-forma
tax charge, were 12.7 p, up 38 per cent on the previous year. The net margin on
turnover improved to 24.3 per cent (23.7 per cent in 2005). These results are
prepared under International Financial Reporting Standards and comparative
figures for 2005 are restated accordingly.
These results reflect the success of our original business and the measures that
have been taken to reshape the enlarged group following the acquisition and
successful integration of Computer Sonics Systems Inc ("CSS") in 2003, Geolink
International Limited in 2004, and Applied Electronic Systems Inc ("AES") in
December 2005.
Dividend
The Board is proposing a final dividend of 1.4p per share (1.3p in 2005), giving
a total for the year of 2.1p per share (1.95p in 2005). The increase of 8 per
cent reflects both the performance and the growth prospects of the Group.
Review of the period
On 14 December 2005 the Board announced the acquisition of Applied Electronic
Systems Inc ("AES"), a USA-based company providing oilwell logging and pipe
recovery equipment, for a maximum consideration of $14 million (£7.9 million).
The specialist technology, which is designed, manufactured and supplied by AES,
is used within oil wells during both drilling and production operations and, as
such, complements the Group's wireline product range. Since the acquisition
there have been highly encouraging increased sales volumes within AES, most
notably in North America.
Whereas the Group saw little more than two months' trading contribution from AES
in the financial year under review it did benefit from the first full year,
against 8 months in the previous period, of contribution from Geolink. This
subsidiary is making an increasingly significant contribution to the Group's
revenue and profitability. It has also added considerable momentum to the
Group's operations in terms of both the product range and broadened customer
base.
The Group invested £4.7 million in research and development of new products as
against £3.6 million in 2005. This level of spending represented 9.1 per cent
of revenues, underlining the importance the Group places on growing the business
organically as well as through targeted acquisitions.
Sales, Marketing, Customer Support and Administrative expenses rose during the
year, to £12.5 million (£7.1 million in 2005), reflecting the integration of
newly acquired companies, an investment to improve supply chain management
significantly, and a big expansion of production and customer support capacity,
both in the UK and overseas. The establishment of new Wireline production
assembly facilities at Yateley, Hampshire, has already proved to be a sound
investment.
It is especially pleasing to report that during the year the Group traded with
an additional 120 customers. This represents a 48 per cent increase in our
customer base from 250 to 370 customers. Of this growth, 68 new customers can be
attributed to the acquisition of AES. The remainder is as a result of our
broadened operating base, with the opening of new international sales and
service centres, and to the new management structure which is strengthening both
the marketing and delivery performance.
Management and staff
During the year the Group appointed a Managing Director of the Wireline
division, transferred from our Canadian business, who together with the Managing
Director of Geolink are responsible for their respective divisional profit &
loss accounts. The responsibilities for sales and customer support are shared
between a newly appointed director of sales for Eastern Hemisphere and our
Corporate Vice President for the Americas.
As announced in February 2006, due to reorganisation into a divisional
structure, Peter Collins, a Director since May 2003, left the company and
resigned as a Director on 23 May 2006. He made an important contribution to the
development of the Group and we wish him well in his new endeavours.
Our staff, both in the established businesses and the recently acquired, have
shown considerable commitment and performance which is directly reflected in the
Group results. This is particularly commendable given the challenges presented
by our growth and change. On behalf of your Board I should like to thank all
personnel for their excellent work during the past year.
Outlook
We have entered the new financial year with continuing optimism and confidence.
Market indicators remain favourable as oil and gas operators continue to turn to
sophisticated technologies and instruments such as ours to optimise ultimate
recovery from maturing fields. Sondex has earned recognition as being a leading
supplier of downhole technology to the international oil and gas industry.
Our customer base is growing and our order book remains strong. Importantly, we
now have the management structure, increased manufacturing capability and broad
geographical presence to take advantage of the business opportunities and
product enhancing acquisitions in all of the world's major oil and gas
locations.
Against this background, I am confident that Sondex will again deliver strong
growth in the coming year.
Iain Paterson
Chairman
Operating Review
Industry overview
During the past year the oil and gas industry has been characterised by
continued high demand, supply constraints, geo-political uncertainties and
consequent sustained strong commodity prices. Producers and service companies
have put renewed emphasis on reservoir management in an effort to maximise
production and raise ultimate recovery performance from mature reservoirs. At
the same time, new exploration and appraisal techniques are identifying
commercial reservoirs that might once have been overlooked or disregarded.
The growth in the downhole oilfield technology sector has reflected these
trends. It is estimated that the global service sector currently served by
Sondex grew by 19 per cent in 2005 to $8.3 billion. Sondex has established a
significant presence and reputation as a supplier to this sector and it clearly
provides Sondex with ample opportunity for further growth and deeper
penetration.
The steps taken in the past three years have put the Group in a good position to
take advantage of these opportunities. Sondex has broadened its range of
technologies through its own research and development achievements and through
the acquisitions of CSS, Geolink and AES, which are all companies with
complementary aims and products. The management and staff of these companies
have fitted in well.
The enlargement of the Group has brought many new marketing opportunities. Each
of the acquired companies brought with it established relationships that have
been cemented and developed across both the Wireline and Drilling Divisions.
The Group has invested in expanded manufacturing facilities in Hampshire in the
UK as well as in Calgary, Canada and through acquisition in Louisiana, USA. The
size and scope of the research and development facilities have also been
substantially increased.
During the past three years Sondex has also extended its geographical reach.
Operating centres have been established in Europe, the USA, Canada, Venezuela,
Russia, China, Australia and the United Arab Emirates in the Middle East. All
of these centres are making important contributions, of which the business
generated in the Americas, and Russia has been especially noteworthy.
Sales and customer support
The developments over recent years lie behind the excellent sales figures for
2006.
Group sales totalled £51.4 million in the year ended 28 February 2006. This was
a 62 per cent increase on the previous year (£31.7 million). Exports accounted
for approximately 91 per cent of the Group's revenues in 2006.
During the year the Group traded with an additional 120 customers, increasing
our customer base by 48%. A notable feature of the Group's development in
recent years has been the way the Group has been able to lessen its dependency
on a few very large customers. For instance, in 2003-4 the four largest
customers each accounted for approximately 10 per cent of revenues whereas in
2005-6 ten customers provided only 35 per cent of revenues.
Important new customers have been added in South America, Russia and the Middle
East. The Group's customers continue to be the international, regional and
local service companies providing solutions for oil and gas producers
world-wide.
The company made big advances in its supply chain management during the year
under review. Steps taken included:
* Increased in-house production capacity. The transfer of the Wireline
Division's final product assembly from Bramshill, Hampshire, to new facilities
at nearby Yateley doubled in-house production capacity to 13,786 square feet.
Production capacity in Calgary, Canada, has also been significantly increased
enabling more manufacturing to be brought in-house and Drilling Division
operations to be added to the traditional Wireline capability. In Aberdeen,
Geolink is currently in the process of expanding its manufacturing by some
10,000 square feet. The acquisition of Applied Electronic Systems has also
brought the benefit of a purpose built 25,000 sq ft facility in Lafayette,
Louisiana.
* Improved supplier capability. Throughout the year initiatives have been
taken to increase the calibre of sub-contractors by working with the established
base and introducing new suppliers with incremental skills and capacity. The
increased volumes have allowed better management, scheduling and capacity
planning within the supply chain.
* Increased maintenance and repair capability. During the year the Group
expanded its international customer support centres in the Middle East and
China. In Houston and Venezuela the drilling and wireline capabilities were
amalgamated in order to provide a speedier and more direct service to the users
of Sondex's technology.
Wireline Division
Sales within the Wireline Division rose 65 per cent in the 2006 financial year.
Revenues totalled £35.3 million as against £21.4 million in 2005 with consistent
gross margins. During the year the division added 92 new customers, of which 68
can be attributed to the acquisition of AES with the balance including some that
resulted from introductions and referrals from the Drilling Division's Geolink
team.
A major success for the division was the introduction of the UltraWire version
of the established Multi-finger Imaging Tool ("MIT") which is combinable with a
full range of other logging tools, thus improving the efficiency of the
inspection process in mature oil and gas wells. The high-value equipment has
attracted much interest and acclaim throughout the industry and it is already
having a positive impact on the division's sales.
The MIT has been used in significant operations in both China and Russia. In
China the technology was used in a multi well programme where it demonstrated
that the UltraWire(TM) digital communications system used in conjunction with
the full range of Sondex sensors would give significant cost-saving and quality
improvement. The MIT was used to measure accurately the internal dimensions of
oil wells while a Magnetic Thickness Tool ("MTT"), utilising 'Remote Field Eddy
Current' techniques was deployed to detect corrosion or other possible damage to
the outside of the well casing.
In October, the division announced that it had won an important contract, valued
at $2.5 million, from a major Russian gas producer. Wireline equipment,
including MTT and MIT, is being used to inspect the condition of older wells as
part of a programme of remedial work to increase production. UltraWire(TM) is
being deployed to transmit data on the internal dimensions of the wells,
together with the thickness of well casing and production.
China and Russia are emerging as major growth areas for the Sondex Group.
Another growth area with the potential for becoming an important market for the
Group is India. In July the first major shipment of wireline production logging
equipment, worth more than £1 million, was delivered to Oil and Natural Gas
Corporation ("ONGC") for operations in India.
In September the Group announced that Wireline Division's advanced Downhole
Electric Cutting Tool ("DECT") had been used successfully to release a casing
packer in the Otter Field, north-east of Shetland, operated by TOTAL E&P UK PLC.
The field is one of the remotest oil developments in the North Sea.
The DECT, developed by Sondex, was used to cut and release the hydraulic
retrievable pump packer at a depth of 1,978 metres and with a well deviation of
60 degrees. The operation was conducted from the Stena Spey drilling rig. The
tool is an intelligent system that enables precise and controlled cutting action
to part pipe without the use of dangerous chemicals and explosives - the
traditional way of severing tubing below the surface. The DECT, together with
the Free Point Indicator, part of the product range from AES, will form the
basis of a new pipe recovery product line.
Drilling Division
Revenues from the Drilling Division in the 12 months ended 28 February 2006
totalled £16.2 million as against the £10.3 million in the eight months
following Geolink's acquisition in 2004. On a like-for-like basis the increase
was 16 per cent.
The division added 28 new customers in the 12 months to February 2006, many as a
result of marketing efforts in regions not previously pursued by Geolink. The
division has benefited from sales opportunities that have arisen from the new
international bases that have become established by the Group. A notable
example being in the Middle East where an established Wireline customer started
a new business based on Geolink product which has shown excellent early success.
Geolink has made strong progress in Canada and Central America as well as West
Africa while good repeat business has been secured in Russia and China.
During the year the division released for sale its Pressure During Drilling
sensor. The instrument, compatible with Geolink's Orienteer
measurement-while-drilling ("MWD") and surface systems, has subsequently been
used successfully in Canadian and Mexican field operations. The sensor is a
modular unit that measures annular and drill pipe pressures during drilling
operations. The sensor equipment provides data that allows the driller and MWD
engineer to respond quickly to pressure variations such as cuttings loading in
the annulus, water flows and well "kicks" thus improving safety and efficiency
of drilling.
The TRIM resistivity tool, released in 2004, has continued to gain significant
market acclaim. During the year 18 systems were shipped, generating revenues in
excess of £1.9 million. TRIM is a method of detecting electrical resistance of
the rocks and the fluids contained in them during the drilling of the well.
Such information enables the directional driller to ensure that the well stays
within the oil or gas reservoir and thus maximises the potential production.
In Canada TRIM has been successfully introduced using a memory variant. This
significantly reduces the non-productive time of a drilling rig. In Russia the
tool is being used primarily in mature fields where old wells are being
re-drilled to recover remaining oil.
The division has strengthened its international reach by establishing a full
service and repair centre for drilling equipment in Canada, the Middle East and
Venezuela.
Geolink gained ISO 9001:2000 Quality Standard certification during the year,
recognition that is likely to open new doors to international business
opportunities given that the standard is seen by many companies worldwide as
being an essential requirement for business. Geolink's accreditation builds on
Sondex's commitment to quality, the Wireline operations having received
recognition in 1999.
Acquisition of Applied Electronic Systems
As announced on 14 December 2005, the Group has acquired Applied Electronic
Systems ("AES"), a company based in Louisiana USA offering a complementary range
of equipment which fits well with the Wireline Division's other technologies.
Sondex paid $11.5 million for the business, and a further $1.5 million for the
freehold premises, with an additional sum up to $1 million subject to the
achievement of revenue of not less than $8.5 million for the 2006 financial
year. The funding for the acquisition was through an increased banking facility
of £6 million and through the issue of 775,662 new ordinary shares to the
vendors. These shares are restricted from sale for one year.
The Group is delighted with the way AES and its staff have performed since
mid-December. The company's integration into Sondex has gone well and there has
been a noticeable increase in sales volumes since the acquisition.
AES meets the acquisition criteria of enhancing current product lines,
increasing market reach and supporting the financial growth and reputation of
the Group. AES, which is strongly cash generative, has 80 per cent of its
business in the USA with distribution facilities throughout the land markets in
North America. Its products include the market leading 'free-point indicator'
which is a wireline tool run during the drilling operations should the drill
pipe become stuck in the well. Once the 'free-point' is established the drill
pipe is released or cut in order that drilling operations can be resumed. In
this respect the tool is complementary to Sondex's successful Downhole Electric
Cutting Tool ("DECT"). Other equipment sold by AES include casing collar
locators and running equipment which are being integrated to form an additional
range of cased hole logging tools.
Research and Development
Investment in research and development activity during the financial year
totalled £4.7 million, representing 9.1 per cent of turnover (£3.6 million and
11.3 per cent respectively in 2005). Focused R&D continues to be regarded as a
principal engine for sustained organic growth and the Group remains committed to
investing about 10 per cent of its turnover on this important activity.
In the year ended 2006 about 40 per cent of R&D investment went towards
extending product lines to add functionality, incremental sales and increased
barriers to potential competitors; 33 per cent was spent on maintaining and
improving existing products; and the remaining 27 per cent went towards the
development of new product lines for step change growth. The Magnetic Thickness
Tool and the Downhole Electric Cutting tool are among the important instruments
that have recently emerged from the new product line R&D programme.
The R&D activities across the Group employ 70 personnel involved in sensor,
software, electronic and mechanical design. They are based in Hampshire,
Aberdeen, Calgary and Louisiana.
In November the Department of Trade and Industry's Innovation Group announced it
had awarded a £198,000 Government grant to Sondex and its research partner Beta
R&D for the development of a new power source for downhole instrumentation. The
grant, made under the Innovation Group's technology development programme, is
being used to help develop rechargeable, high temperature battery technology.
The new battery is being designed to provide a cost-effective, robust and
reliable alternative to the lithium batteries that are currently used for memory
tools by downhole operators within the oil and gas industry. It is anticipated
that a prototype battery will be available for trials in mid 2007.
A feature of the Group's R&D programme is the involvement of service company
clients and oil and gas corporations in collaborative projects. Both a leading
energy company and a major oil service group are working with Sondex on the
development of a novel harmonic well test production logging ("WTPL") tool.
Such an instrument would have considerable commercial potential, providing
operators with a cost-effective means of assessing current and future oil
reserves in maturing oil and gas fields. Well test production logging is a
method by which an assessment of the production capability of an oil or gas
reservoir can be made from within a producing well without interrupting
production or deploying costly equipment.
The Group's people
During the financial year ended 2006 a number of senior appointments were made
to reflect better the matrix management structure. Roy Martin was appointed
Sales and Marketing Director for the Eastern Hemisphere and Raymond Garcia
continued as Corporate Vice President for the Western Hemisphere. They each
head the marketing, sales and customer support operations in their respective
regions, embracing the full range of the Group's wireline and drilling
technologies. At the same time, Lane Roberts was appointed as Managing Director
of the Wireline Division and Ali Macrae was confirmed as Managing Director of
the Drilling Division. Each is responsible for the respective division's profit
and loss accounts. These four executives are members of the Group's Executive
Committee that also includes the executive directors, Martin Perry, Chris Wilks
and William Stuart-Bruges.
At the end of the financial year the Group employed a total workforce of 373.
These included the 41 engineering staff who joined as a result of the AES
acquisition. There is confidence that these employees will adapt and integrate
into the Sondex Group as well as those who joined with Geolink and CSS.
Transfers between locations and divisions have already taken place and this
trend is being encouraged in order to enhance personal development and cultural
diversity.
Staff have adapted well to the changes that continued growth brings to the
business.
Management and staff hold approximately 9 per cent of the shares in Sondex. The
Group operates an approved Save As You Earn scheme for all UK-based staff and
grants continue to be made under the share option scheme. The Board believes
that broad-based staff equity participation should be encouraged.
Health and safety
Given the Group's emphasis on achieving the highest health and safety standards,
it is pleasing to note that once again there was no serious incident or accident
in the past year.
A programme of training and health and safety awareness initiatives was
maintained throughout the year. Health and safety performance was monitored
under established management procedures and reviewed closely at each Board and
Executive meeting. Risk assessments were conducted internally and by
independent consultants to ensure that best practice was being followed.
Summary
Sondex has made notable progress in the year under review. The Group's sales
growth has outperformed the market through the dedication, enthusiasm and sheer
hard work of everyone within the Group. Sondex has established a valued range
of downhole technologies including a number of tools recognised as market
leaders or "industry standard". A broadened international base has opened up
vital new markets which, in turn, have led to a further significant increase in
our customer base.
The Group's financial and management platforms are strong. The Board remains
confident in the strategy of pursuing growth through organic development, backed
by a strong R&D programme, and appropriate acquisitions. In summary, Sondex is
in well placed to take advantage of opportunities and market conditions in the
future.
Martin Perry
Chief Executive
Financial Review
Overview
The Group's turnover was £51.4 million in the year ended 28 February 2006, an
increase of 62% on the previous year (£31.7 million). Without the impact of the
AES acquisition on 14 December 2005 the increase in turnover would have been 58
per cent. The Group's operating profit before amortisation of intangible assets
was £12.5 million in 2006 (£7.5 million in 2005) representing a net margin on
turnover of 24.3 per cent (23.7 per cent in 2005).
The Group's operating profit was £9.7 million (£5.5 million in 2005). This
operating profit was achieved in spite of a 30 per cent increase in research and
development expenditure from £3.6 million to £4.7 million and other investments
in fixed costs, such as the new office and workshop complex at Yateley,
Hampshire and expansion overseas as well as Health and Safety management.
Currency and interest rate risk
In common with previous years (and oil industry norms) the Group continues to
make a majority of its sales in US Dollars. In the year ended 28 February 2006
72 per cent of the Group's revenue was made in US Dollars (2005 - 86 per cent).
Only 17 per cent of the Group's costs are incurred in US Dollars (2005 - 17 per
cent) and in order to provide a partial hedge against exchange rate movements,
the Group's bank debt is denominated in US Dollars. There remains an excess of
US Dollar generation greater than that required to fund the Group's US Dollar
costs and service the Group's bank debt and it remains the Group's policy to
employ exchange rate instruments such as forward contracts and capped rate
contracts to provide some further protection to earnings.
The US Dollar has strengthened in the 12 months ended 28 February 2006 and while
this has benefited the Sterling value of trading it has caused the forward
contracts which were put in place to hedge the foreign exchange rate at the
beginning of the financial year to be out of money. This has resulted in a
foreign exchange loss to be recognised in the income statement for the year
ended 28 February 2006 of £0.6 million. No such contracts were held at the year
end.
The Group continues to partially hedge the interest rate risk with a mixture of
interest rate swaps providing a fixed Dollar base interest rate of 3.77 per cent
per annum and interest rate caps providing protection in the event that the base
interest rate increases beyond 3.77 per cent per annum. At the end of the
period 35 per cent of the bank borrowing was hedged against interest rate
increases using these instruments.
Taxation
The group's tax rate for the year ended 28 February 2006 was 32 per cent (2005 -
29 per cent).
The relatively high rate of taxation applied to the profits of the USA and
Canadian subsidiaries is offset by the availability of enhanced taxation reliefs
for the Group's expenditure on research and development.
The establishment of an increasing number of overseas subsidiaries exposes the
Group to local taxes at various rates, and the structure of the Group is kept
under review with the aim of achieving an overall balance in rates of taxation
applied.
Dividend
An interim dividend of 0.7p per share (2005 - 0.65p) was paid on 26 January
2006. A final dividend of 1.4p per share (2005 - 1.3p) payable on 7 July 2006
to shareholders on the register at 2 June 2006 is now proposed. This would give
a total of 2.1p per share for the year (2005 - 1.95p per share), an 8% increase.
Cashflow
A key feature of the year was the cash inflow generated from operating
activities, which at £6.4 million represented a significant improvement from the
operating cash outflow of £0.8 million during the previous year. The Group was
able to absorb into this operating cash inflow a continued build in inventory
reflecting the continued strong demand for products, particularly in the
Wireline market.
During the year an incremental loan, in the sum of £6 million, was drawn down to
part-fund the acquisition of AES. Subsequently, that and the pre-existing loans
were consolidated into a single term loan, and the existing working capital
facilities were replaced by a Multi-Option Facility in the sum of £11 million.
The loan and the Multi-Option Facility are both secured by a fixed and floating
charge over the assets of the group.
The loan is due for repayment in 36 months from 13 December 2005, subject to an
annual refreshment of the rolling 36 month term. Funds drawn down under the
Multi-Option Facility are due for repayment at the earliest in May 2007, subject
to an annual review.
Interest on the loan and the Multi-Option Facility is charged quarterly, at
rates between 1.45% and 1.7% per annum above LIBOR.
At 28 February 2006, the group had drawn down £5,251,000 against the
Multi-Option Facility of £11 million, leaving £5,749,000 available at that date
for the funding of future operating activities. There are no restrictions on
the use of these funds.
Debt management
The Group's gearing ratio rose from 41 per cent in the year ended 28 February
2005 to 47 per cent in 2006 reflecting the extension of the banking facilities
during Q4 to facilitate the acquisition of AES. Other liquidity measures such
as the quick ratio, interest cover and dividend cover ratios remain comfortable.
International Financial Reporting Standards
The results for the year ended 28 February 2006 are presented solely under
International Financial Reporting Standards (IFRS). The detailed accounting
policies that the Group adopted upon conversion to IFRS and their major impact
on the Group's results for the year ended 28 February 2005 are detailed in the
Group's transition statement which was released on 23 November 2005 and which is
available on the Group's website. 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 acquisition; this is in
accordance with IFRS 3;
• The extension of the charge for share-based remuneration, introduced by
IFRS 2; and
• The wider scope of the charge to deferred taxation, under IAS 12.
Christopher Wilks
Finance Director
Consolidated income statement
for year ended 28 February 2006
Note 2006 2005
Total Total
£000 £000
Revenue 1 51,449 31,713
Cost of sales (22,341) (14,159)
_______ ________
Gross profit
29,108 17,554
Other operating income
136 178
Research and development expense 2 (4,249) (3,134)
Sales, marketing and customer support expenses (5,952) (3,283)
Administration expenses excluding amortisation of acquired intangible assets (6,551) (3,786)
_______ ________
Operating profit before amortisation of acquired intangible assets 12,492 7,529
Amortisation of acquired intangible assets (2,803) (2,026)
_______ _______
Operating profit 1 9,689 5,503
Financial income 450 207
Financial costs (2,653) (1,061)
_______ ________
Profit before taxation 7,486 4,649
Taxation 3 (2,398) (1,347)
_______ ________
Profit attributable to shareholders 5,088 3,302
Dividends paid 4 (1,106) (830)
Earnings per share on profit attributable to shareholders
- Basic 5 9.3p 6.7p
- Diluted 5 9.0p 6.5p
- Adjusted basic 5 13.2p 9.3p
- Adjusted diluted 5 12.7p 9.5p
Consolidated balance sheet
at 28 February 2006
Note 2006 2005
£000 £000
Non-current assets
Goodwill 42,757 37,965
Other intangible assets 17,590 17,757
Property, plant and equipment 5,535 4,895
Financial assets - derivatives 111 -
Investments 42 137
_________ _________
66,035 60,754
_________ _________
Current assets
Inventories 14,796 8,014
Trade and other receivables 24,759 18,954
Cash and cash equivalents 2,099 -
_________ _________
41,654 26,968
_________ _________
Current liabilities
Financial liabilities - borrowings (5,395) (5,367)
Trade and other payables (9,798) (6,694)
Current tax (3,599) (984)
_________ _________
(18,792) (13,045)
_________ _________
Non-current liabilities
Financial liabilities - borrowings (25,142) (16,544)
Financial liabilities - derivatives (32) -
Deferred tax liabilities (3,801) (4,919)
_________ _________
(28,975) (21,463)
_________ _________
Net assets
59,922 53,214
Shareholders' equity
Share capital 5,585 5,501
Share premium 42,565 41,019
Other reserves 5,739 4,861
Retained earnings 6,033 1,833
_________ _________
Total equity 59,922 53,214
Approved by the Board
Martin Perry
Chief Executive
24 May 2006
Consolidated statement of changes to equity
for year ended 28 February 2006
Note 2006 2005
£000 £000
Total equity at start of period 53,214 26,045
Profit for the period attributable to shareholders 5,088 3,302
Items of income and expense recognised directly in equity:
Net foreign exchange differences 90 47
Deferred tax on items not recognised in the income statement 218 194
_________ _________
308 241
_________ _________
Total income and expense for the year 5,396 3,543
Transactions with equity holders:
Dividends paid (1,106) (830)
Shares issued (net of expenses) 1,630 23,994
Share based payments 788 462
Effect of implementing IAS 39 - -
_________ _________
59,922 53,214
Consolidated cash flow statement
for year ended 28 February 2006
Note 2006 2005
£000 £000
Cash flows from operating activities
Operating profit before amortisation of acquired intangibles 12,492 7,529
Depreciation of property, plant and equipment 1,268 607
Amortisation of capitalised development expenditure 1,052 725
Amortisation of other intangible assets 154 -
Charge for share based payment 788 462
(Increase) in trade and other receivables (5,190) (5,498)
(Increase) in inventories (5,868) (2,456)
Increase / (Decrease) in trade and other payables 2,996 (213)
_________ _________
Cash generated from operations 7,692 1,156
Income tax (paid) (1,258) (1,907)
_________ _________
Net cash inflow / (outflow) from operating activities 6,434 (751)
_________ _________
Cash flows from investing activities
Dividends received - 12
Interest received 339 182
Acquisition of subsidiaries (6,094) (33,095)
Capital expenditure (2,301) (1,621)
Development expenditure (1,471) (1,171)
Proceeds from the sale of property, plant and equipment 790 466
_________ _________
Net cash used in investing activities (8,737) (35,227)
_________ _________
Cash flows from financing activities
Proceeds from the issue of share capital - 25,124
Loans received 5,729 13,000
Repayment of loans (3,494) (2,900)
Interest paid (2,015) (1,343)
Dividends paid (1,106) (830)
_________ _________
Net cash from financing activities (886) 33,051
_________ _________
Net decrease in cash and cash equivalents (3,189) (2,927)
Cash and cash equivalents at the beginning of the period (1,410) 2,044
Cash acquired with acquisition of subsidiaries 116 -
Net effect of exchange rate changes 1,187 (527)
_________ _________
Cash and cash equivalents at the end of the period (3,296) (1,410)
Notes to the Preliminary Announcement
For the year ended 28 February 2006
1. Turnover and segmental analysis
Primary reporting format - business segments
Wireline Division Drilling Division Eliminations Consolidated
2006 2005 2006 2005 2006 2005 2006 2005
£000 £000 £000 £000 £000 £000 £000 £000
Revenue
External sales 35,276 21,388 16,173 10,325 - - 51,449 31,713
Inter-segment sales - - - - - - - -
______ ______ ______ _____ ______ ______ _______ _______
Segment revenue 35,276 21,388 16,173 10,325 - - 51,449 31,713
Result
Segment result before 10,928 4,476 4,323 3,880 - - 15,251 8,356
amortisation of
acquired intangible
assets
Amortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026)
acquired intangible
assets
Segment result 10,819 4,376 1,629 1,954 - - 12,448 6,330
Unallocated expenses (2,759) (827)
_______ _______
Operating profit 9,689 5,503
Financial income 450 207
Financial costs (2,653) (1,061)
_______ _______
Profit before taxation 7,486 4,649
Taxation (2,398) (1,347)
_______ _______
Profit attributable to 5,088 3,302
shareholders
Notes (continued)
Wireline Division Drilling Division Eliminations Consolidated
2006 2005 2006 2005 2006 2005 2006 2005
£000 £000 £000 £000 £000 £000 £000 £000
Assets and liabilities
Segment assets 68,399 50,538 39,290 37,184 - - 107,689 87,722
Unallocated assets - - - - - - - -
______ ______ ______ ______ ______ ______ _______ _______
Total assets 68,399 50,538 39,290 37,184 - - 107,689 87,722
Segment liabilities (6,879) (2,709) (2,919) (3,985) - - (9,798) (6,694)
Unallocated - - - - - - (37,969) (27,814)
liabilities
______ ______ ______ ______ ______ ______ _______ _______
Total liabilities (6,879) (2,709) (2,919) (3,985) - - (47,767) (34,508)
Other information
Capital expenditure (1,524) (1,507) (777) (114) - - (2,301) (1,621)
Depreciation (479) (352) (88) (110) - - (567) (462)
Amortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026)
acquired intangible
assets
Movements in (612) (107) (89) (38) - - (701) (145)
impairment
provisions
Secondary reporting format - geographic segments
Sales by destination
2006 2005
£000 £000
USA and South America 13,103 7,406
Canada 6,781 4,363
Europe 7,509 4,646
Middle East 7,334 4,611
China 3,718 5,192
Russia and former Soviet Union 4,840 3,259
Africa 3,024 891
Rest of the world 5,140 1,345
______ ______
51,449 31,713
Notes (continued)
Total assets by location
2006 2005
£000 £000
Europe 89,864 83,425
USA 6,864 802
Canada 6,914 2,929
Middle East 4,047 566
_______ ______
Total 107,689 87,722
Capital expenditure by location
2006 2005
£000 £000
Europe 2,004 1,285
USA 7 7
Canada 188 136
Middle East 102 193
_______ ______
Total 2,301 1,621
2. Research and development expenditure
The charge in respect of research and development expense is analysed
below:
2006 2005
£000 £000
Expenditure in the period (4,668) (3,580)
Development costs capitalised 1,471 1,171
Amortisation of capitalised development costs (1,052) (725)
__________ __________
Total research and development expense (4,249) (3,134)
__________ __________
Notes (continued)
3. Taxation
2006 2005
£000 £000
Current tax expense
Current year - UK tax charge 2,337 923
Current year - overseas tax charge 1,738 447
__________ ___________
4,075 1,370
__________ ___________
Adjustments in respect of prior years - UK 5 (29)
Adjustments in respect of prior years - Overseas (207) -
__________ ___________
(202) (29)
__________ ___________
3,873 1,341
__________ ___________
Deferred tax (credit) /expense
Origination and reversal of temporary differences (1,534) 6
Adjustments in respect of prior years 59 -
__________ ___________
(1,475) 6
___________ ___________
Total taxation expense recognised in the income statement 2,398 1,347
4. Dividends
2006 2005 2005
£000 Dividend £000 Dividend
per share per share
p p
Equity dividends on ordinary shares
February 2004 final dividend 472 1.20
February 2005 interim dividend 358 0.65
February 2005 final dividend 715 1.30 -
February 2006 interim dividend 391 0.70 -
___________ __________
Total recognised 1,106 830
Notes (continued)
5. Earnings per share
2006 2005
Basic earnings per share
Basic undiluted (pence) 9.32 6.69
Basic diluted (pence) 9.00 6.53
£'000 £'000
Profit attributable to shareholders 5,088 3,302
Weighted average number of shares (thousands)
Undiluted 54,578 49,340
Dilutive share options 3,012 2,069
Market price adjustment to dilutive share options (1,091) (866)
________ __________
Diluted 56,499 50,543
Adjusted earnings per share
Adjusted diluted (pence) 12.7 9.2
Adjusted basic (pence) 13.2 9.5
Adjusted earnings per share is presented on the following basis: £'000 £'000
Profit attributable to shareholders (£'000) 5,088 3,302
Add: amortisation of acquired intangible assets 2,803 2,026
Less: adjustment to taxation (689) (656)
________ __________
Adjusted earnings 7,202 4,672
Diluted weighted average number of shares 56,499 50,543
The adjustment to taxation brings the charge to taxation to 30% of profit before
amortisation and tax.
6. Basis of preparation
The financial information for the years ended 28 February 2006 and 28 February
2005 contained in this preliminary announcement was approved by the Board on 24
May 2006. This announcement does not constitute statutory accounts of the
Company within the meaning of section 240 of the Companies Act 1985.
Statutory accounts for the year ended 28 February 2005 have been delivered to
the Registrar of Companies. Statutory accounts for the year ended 28 February
2006 will be delivered to the Registrar of Companies following the Company's
Annual General Meeting.
The auditors have reported on both these sets of accounts. Their reports were
not qualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
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