Interim Results
Sondex PLC
06 November 2003
Sondex plc
('Sondex' or the 'Company')
Interim Results for the six months ended 31 August 2003
Sondex, a British oilfield technology company which floated on the Main Market
in June this year, today announces its interim results for the six months ended
31 August 2003.
Highlights
• Turnover £ 7.4 million up 26 per cent *
• Order intake £ 8.2 million up 19 per cent *
• Operating profit £2.7 million** up 13 per cent *
• R&D expenditure £0.9 million up 34 per cent *
• Interim dividend 0.6 pence per share
• New Regional office established in Middle East
• Successful field trials completed for two new products
* compared with the same (unaudited) period last year
** before exceptional items, amortisation of goodwill and R&D expenditure
Iain Paterson, Chairman of Sondex, commented:
"These results demonstrate the continued growth of Sondex's business, which is
in line with the Board's expectations. Turnover and order intake increased
compared with the same period last year, showing strong underlying product
growth. Operating profit excluding goodwill and exceptional items introduced by
the flotation has also increased against the backdrop of significantly increased
research and development expenditure and internal investment. The flotation in
June this year has strengthened the balance sheet and as a consequence we are
well positioned to exploit a number of growth opportunities."
6 November 2003
For further information, please contact:
Sondex Tel: 0118 932 6755
Martin Perry (Chief Executive)
College Hill Tel: 020 7457 2020
James Henderson
Phil Wilson-Brown
Chairman and Chief Executive's Review
We are pleased to announce that, following a successful flotation on the Main
Market on 12th June this year, Sondex has continued to grow whilst maintaining
good margins.
The underlying business, represented by revenue and order intake, is up 26 per
cent and 19 per cent respectively over the same period last year. Significant
investments have been made during this period in research and development as
well as in the platform required to deliver ongoing growth. Operating profit
growth in the period was a 5 per cent increase over the comparable period last
year (20 per cent at constant exchange rates), reflecting the significantly
increased investments in the period. Sondex has historically experienced
stronger revenues in the second half of the year, which should result in
operating margins consistent with previous years.
During the period, advances have been made with a number of product
introductions. Most notably, the downhole inspection product line has been
enhanced through the first successful field trials of a Magnetic Thickness Tool
(RFEC) which have been completed in Canada and the prototype Downhole Electric
Cutting Tool (DECT) sponsored by a consortium of oil companies has completed
further successful trials in Algeria. In addition, Schlumberger has confirmed
its acceptance and commercialisation of the specially adapted Sondex Multifinger
Imaging Tool.
The business continues to export some 84 per cent of sales. In the period being
reported on, a recovery from the down-turn last year in North America has been
experienced and some strong sales into the Middle East have resulted from a new
contract in Iran for the National Iranian Oil Company. Other new customers
include TPG in Russia, Geofyzica Krakow in Poland and Falcon in Oman.
Traditionally strong relationships with existing customers have been maintained.
A feature of our business is the high percentage of business with repeat
customers.
As announced on 20th October 2003, a new regional office has been established in
the UAE to support sales throughout the Middle East allowing closer support for
customers in the region and a further improvement in sales.
Following the flotation and a number of organisational changes, staff retention
and commitment has remained excellent. The Board would like to thank all staff
for their hard work and dedication throughout the period.
Further financial information
Of the £27 million raised at the flotation, £18.5 million was used to repay debt
and the redemption premia associated with the previous capital structure. £2.5
million was used to cover the costs of the flotation and associated fees,
leaving an additional £6 million available to the business. To date, some of the
additional cash has been used in increasing the rental stock, and to cover the
additional investments in R&D and establishment of the new regional office in
the UAE. The balance remains on the balance sheet principally for use in '
bolt-on' acquisitions, a number of which are currently being pursued. Because
cash has existed on the balance sheet since flotation, the working capital
facility of £4 million has not been utilised.
With the new debt and equity structure, significant savings are being made
through reduced interest and cash payments. On a pro-forma basis, the cost of
servicing debt in this period would have been £378,000 compared with £1,461,000
in the same period last year.
Exceptional items booked during the period include float costs and repayment of
the redemption premia associated with paying down the debt incurred to fund the
management buy-out of the business in October 2002. After these items and tax, a
loss of £3.2m has been recorded. On a pro-forma basis however, using a nominal
tax charge of 30 per cent and interest based on the post flotation capital
structure, the retained earnings would be £536,000. Prepared on a similar basis
the pro-forma operating profits before amortisation of goodwill are £1.8 million
and before R&D costs are £2.7 million.
Some 70% of Sondex sales are in U.S. Dollars. Had exchange rates remained
constant from last year, Sondex would have seen an additional £250,000 of gross
margin during the period. Hedging of the cash exposure of foreign exchange rates
has been implemented. In part a natural hedge exists as the bank debt is
denominated in Dollars; the servicing of this, the funding of the US office and
component purchases from the USA are provided from Dollar cash generation. The
remaining exposure has been hedged using option contracts, which provides a
ceiling rate of $1.6 to the pound for the expected surplus Dollar generation to
May 2004.
Earnings per share have been calculated on a statutory basis and on a pro-forma
basis and fully diluted basis. The proforma bases are prepared to provide an
analysis of underlying performance.
Interim Dividend
Reflecting the intention to pursue a progressive dividend policy appropriate to
a growth, yet cash generative business, the Board has declared an interim
dividend of 0.6 pence per ordinary share. The dividend is payable on 17th
December 2003 to those shareholders on the register of members at the close of
business on 14th November 2003.
Outlook
The continuing focus on maximising reserves recovery from existing oil and gas
fields is a key driver for the ongoing need for technology such as that produced
by Sondex. As a result, despite a period of global uncertainty and disruption
to the oil and gas industry during the Iraq war, our business has continued to
perform very well. The Board notes that following this period of market
uncertainty, industry analysts are now forecasting the sector to enter a stable
period with sustained oil prices and hence stable operating conditions for
Sondex customers that largely operate within the oilfield service sector.
We are actively pursuing a number of acquisitions of companies which have
parallel and complementary product lines. We are also evaluating opportunities
to acquire some additional intellectual property for further development and
commercialisation.
Our current financial year is following the normal pattern of seasonal demand
which means a significant proportion of forecast sales is received in the final
two months. The current order book, which represents approximately eight weeks
of sales, is strong reflecting good demand levels from customers.
Considering the current position and market indicators we continue to anticipate
a successful outcome for the year.
Iain Paterson Chairman
Martin Perry Chief Executive
6 November 2003
Group Profit and Loss Account
Consolidated Accounts for the six months to 31 August 2003
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-03 31-Aug-02 28-Feb-03
Notes £'000 £'000 £'000
Turnover 2 7,374 5,839 14,464
Cost of sales (3,172) (2,406) (5,792)
Gross profit 4,202 3,433 8,672
Administrative expenses (3,626) (2,306) (5,273)
Operating profit 576 1,127 3,399
Operating profit before amortisation, R&D and flotation 2,704 2,386 6,020
costs
Research and development costs (930) (692) (1,488)
Amortisation of goodwill and intangible assets (715) (567) (1,133)
Cost of flotation 3 (483) -
-
Operating profit 576 1,127 3,399
Interest payable and similar charges:
Net bank interest (204) (585) (835)
Loan and other interest (829) (876) (2,933)
Redemption premia 3 (3,434) - -
Loss on ordinary activities before taxation (3,891) (334) (369)
Tax on loss on ordinary activities 4 660 (167) (333)
Loss for the period (3,231) (501) (702)
Dividend 5 (233)
Retained earnings (3,464) (501) (702)
Basic and diluted loss per share 6 (11.0)p (3.0)p (4.5)p
Proforma basic earnings per share* 6 2.7p - 7.2p
Proforma diluted earnings per share* 6 2.6p - 6.9p
Group Balance Sheet
Consolidated Accounts as at 31 August 2003
Unaudited Unaudited Audited
Half Year Half Year Year
Ended
31-Aug-03 31-Aug-02 28-Feb-03
Notes £'000 £'000 £'000
Fixed assets
Intangible assets 20,921 16,237 21,623
Tangible assets 1,494 1,523 1,225
Investments 162 146 162
22,577 17,906 23,010
Current assets
Stock 3,070 3,752 3,715
Debtors 7,215 3,584 5,213
Cash at bank and in hand 4,493 1,781 37
14,778 9,117 8,965
Creditors: amounts falling due within one year (3,530) (4,628) (4,551)
Net current assets 11,248 4,489 4,414
Total assets less current liabilities 33,825 22,395 27,424
Creditors: amounts falling due outside one year (12,917) (24,923) (27,999)
Provisions for liabilities and charges
Deferred taxation - - (20)
20,908 (2,528) (595)
Capital and reserves
Called up share capital 3,888 171 1,374
Deferred share capital 7 326 - -
Share premium 22,127 1,465 -
P&L brought forward (1,969) (3,663) (3,663)
P&L movement for the year (3,464) (501) 1,694
Shareholders' funds 20,908 (2,528) (595)
Group Cash Flow
Consolidated Accounts for the six months to 31 August 2003 Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-03 31-Aug-02 28-Feb-03
£'000 £'000 £'000
Net cash inflow from operating activities 645 2,961 4,459
Returns on investment and servicing of finance
Net interest paid (1,003) (1,461) (2,906)
Issue costs on new long term loans (1,085)
(1,003) (1,461) (3,991)
Taxation
Corporation tax paid - (130) (144)
- (130) (144)
Capital expenditure and financial investment
Payments to acquire intangible fixed assets (514) (433) -
Payments to acquire tangible fixed assets (15) - (146)
Payment to acquire investments - - (16)
(529) (433) (162)
Acquisitions and disposals
Purchase of subsidiary undertaking - - (5,907)
- - (5,907)
Net cashflow before financing (887) 937 (5,745)
Financing
Issue of ordinary share capital 27,140 - 588
Costs of flotation (2,656) - -
Repayment of redemption premia (3,434) - -
New long term loans - - 30,066
Repayment of long term loans (15,111) (183) (23,606)
5,939 (183) 7,048
Increase in cash 5,052 754 1,303
Group Cash Flow
Consolidated Accounts for the six months to 31 August 2003 Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-03 31-Aug-02 28-Feb-03
£'000 £'000 £'000
Operating profit 1,058 1,127 3,399
Depreciation 246 221 232
Amortisation of intangible assets 716 567 1,133
(Increase)/decrease in debtors (1,341) 2,005 377
Decrease/(increase) in stocks 645 (348) (310)
Decrease in creditors (679) (611) (372)
Net cashflow from operating activities 645 2,961 4,459
Analysis of net debt At At
01-Mar Cash Exchange 31-Aug
2003 Flow Differences 2003
£'000 £'000 £'000 £'000
Cash at bank and in hand 37 4,456 - 4,493
Bank overdraft (596) 596 - -
(559) 5,052 - 4,493
Loans and loan notes (29,842) 15,111 (29) (14,760)
(30,401) 20,163 (29) (10,267)
Notes to the Interim Report
1) Basis of preparation
The interim financial information for the six months ended 31 August 2003 has
not been audited and does not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. It has been prepared on the basis of
the accounting policies set out in the Group's 2003 statutory accounts as set
out in the listing particulars prepared for the purposes of the admission of
Sondex plc to the Official List of the UK Listing Authority and the London Stock
Exchange's market for listed securities.
2) Segmental analysis
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-03 31-Aug-02 28-Feb-03
£'000 £'000 £'000
Turnover by geographical area
North America 2,197 1,498 2,683
South America 233 563 1,274
UK 1,184 868 2,377
Rest of Europe 924 1,140 2,359
Middle East 1,337 445 938
Australia and SE 595 557 2,399
Asia
Rest of World 904 758 2,434
7,374 5,839 14,464
3) Flotation costs and use of proceeds
£000's
Cash raised from the public offering 27,000
Costs of the offering
Charged to profit and loss account (483)
Charged to the share premium account (2,173)
Long term debt repaid (15,111)
Redemption premia paid (3,434)
5,799
4) Taxation
The tax credit arises on the first half loss and is expected to reverse in the
second half on the basis of the anticipated full year results.
5) Dividends
An interim dividend of 0.6p per share (2002: Nil) has been declared and will be
paid on 17th December 2003 to members on the shareholders register at the close
of business on 14th November 2003.
6) Earnings per share
Basic and diluted earnings per share
The Basic loss per share has been calculated by dividing the loss for the period
after exceptional costs and taxation credit 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 purposes of calculation of the Basic EPS.
The loss and weighted average number of ordinary shares for the purpose of
calculating the diluted earnings per ordinary share are identical to those used
for the basic earnings per ordinary share, as the exercise of share options
would have the effect of reducing the loss per ordinary share and is therefore
not dilutive.
Unaudited Unaudited Audited
Half Year Half Year Year Ended
31-Aug-03 31-Aug-02 28-Feb-03
'000 '000 '000
Basic and diluted EPS
Net earnings/(loss) £(3,231) £(501) £(702)
Weighted average number of 29,445 16,972 15,509
shares
Loss per share (11.0)p (3.0)p (4.5)p
Proforma EPS
Proforma 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. No interim
proforma comparatives are presented for the period ended 31 August 2002 as the
Directors believe that they would be misleading.
The proforma earnings per share reflects on a proforma 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 proforma effect of new
shares issued by the Company on flotation.
Unaudited Unaudited
Half year Year ended
31-Aug-03 28-Feb-03
£'000 £'000
Operating profit as reported 576 3,399
Cost of flotation 483 -
Amortisation of goodwill and intangible assets 715 1,133
Operating profit before amortisation of goodwill and 1,774 4,532
intangible assets and cost of flotation
Proforma interest charge (i) (378) (756)
Proforma net interest receivable (ii) 75 150
Proforma tax charge (iii) (441) (1,178)
Proforma net earnings 1,030 2,748
'000 '000
Proforma basic number of shares (iv) 38,037 38,024
Proforma diluted number of shares (iv) 39,965 40,013
Proforma basic earnings per share 2.7p 7.2p
Proforma fully diluted earnings per share 2.6p 6.9p
i. Immediately following flotation
the debt outstanding was $25 million. The Proforma charge is based on an
effective rate of 4.8% and takes into account the repayment schedule.
ii. Proforma 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%,
after deducting the cost of non utilisation of the working capital facility.
iii. Proforma tax charge is calculated
based on the effective rate of 30%.
iv. Weighted average number of shares
Proforma 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.
Proforma diluted number of shares is calculated based on all outstanding options
having a dilutive effect.
7). Deferred shares
The deferred shares were created when the warrants arising on the October 2002
management buy-out to Bridegpoint Capital Limited and Resurgam Holdings Limited
were exercised. The number of deferred shares is equal to the number of new
shares created under the warrant exercises by the deferral of shares held by
management and staff.
These deferred shares were subsequently repurchased by the Company and cancelled
after the period end for an aggregate price of £1.
Report on the interim results:
INDEPENDENT REVIEW REPORT TO SONDEX PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 August 2003 which comprises the Consolidated Profit and
Loss Account, Consolidated Balance Sheet, Consolidated Cash Flow Statement, and
the related notes 1 to 7. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements of
material inconsistencies with the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by the law, we do not
accept 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, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
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 Board
for use in the United Kingdom. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data, and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied, unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards 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 that
should be made to the financial information as presented for the six months
ended 31 August 2003.
Ernst & Young LLP
Reading
5 November 2003
Members of the public may obtain copies of the Interim Report and Listing
Particulars from the companies registered office:
Sondex
Ford Lane
Bramshill
Hook
Hampshire.
RG27 0RH
--------------------------
* Unaudited
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