Interim Results
Sondex PLC
14 December 2005
Wednesday 14th December 2005
Sondex plc
('Sondex' or the 'Company')
Interim results for the six months ended 31 August 2005
Sondex plc, a leading international oilfield technology supplier, announces
interim results and the acquisition of Applied Electronic Systems Inc. ("AES")
for a maximum consideration of $14 million. A separate announcement has been
issued this morning giving full details of the acquisition.
Financial Highlights
• Revenue up 93% to £18.8 million (2004 - £9.7 million)
• R&D expenditure up to £2.6 million (2004 - £1.5 million)
• Operating profit before financing costs and amortisation up to £2.4
million (2004 - £0.44 million)
• Adjusted diluted* earnings per share increased to 1.2p (2004 - loss of
0.4p)
• Dividend increased by 8% to 0.7p (2004 - 0.65p)
Operational Highlights
• Wireline Division revenues increased by 59%
• Drilling Division pro-rata revenues up 28%
• New Drilling and Wireline technologies commercialised
• Good market conditions with record order intake
Acquisition of Applied Electronic Systems Inc.
• $14 million acquisition of US based AES
• Complementary wireline tool technology
* Pre amortisation of acquired intangible assets, pro-forma tax charge
Note: 2004 figures restated under International Financial Reporting Standards
(IFRS)
Iain Paterson, Chairman of Sondex, commented:
"The Group has made progress in the first half having increased production
capacity, introduced new products and secured breakthrough contracts in
important new territories. The underlying high demand for hydrocarbons will
support demand for our products in the foreseeable future as is reflected by our
strong order book.
In accordance with our strategy, I am delighted to announce the acquisition of
Applied Electronic Systems, which will add significantly to our Wireline
business.
Sondex enjoys a stronger second half than first half and the Board is confident
of a successful outcome for the full year."
For further information, please contact:
Sondex Tel: 0125 286 2200
Martin Perry (Chief Executive)
Chris Wilks (Finance Director)
College Hill Tel: 020 7457 2020
Ben Brewerton / Nick Elwes
Interim statement
Introduction
The Group made further significant advances in the six months to 31 August 2005.
Increased capacity, the introduction of new products and a reinforced
marketing effort enabled the company to take advantage of the strong market
conditions. At the end of August the order book and order intake were at record
levels; this has continued in the past three months.
The establishment of two distinct operating divisions - Wireline and Drilling -
has proved to be a success with each providing marketing opportunities for the
other. The Wireline Division achieved organic like-for-like revenue growth of 59
per cent while the Drilling Division made a significant contribution to the
Group, and increased revenues by 28 per cent over the previous period
(pro-rated) with particularly strong sales in Canada and Central America.
The move to a new Wireline product assembly facility at Yateley, Hampshire, is
also proving beneficial. It has substantially increased the assembly, testing
and inspection capability at a time of high demand. Investment has also been
made elsewhere in the supply chain in order to meet current and anticipated
demand. While some one-off start up costs were incurred, these improvements
position the Wireline business well for future volume increases.
Continuing the company's strategy of expansion by acquisition as well as by
organic growth, Sondex has announced the $14 million acquisition of Louisiana,
USA based Applied Electronic Systems, Inc ("AES") which is a complementary
supplier of Wireline products with a similar customer base as the existing
business. Further details of the AES acquisition are set out below.
Results
Results for the six months to 31 August 2005 are presented under International
Financial Reporting Standards and comparative figures for 2004 are restated
accordingly. In the six months to 31 August 2005, turnover increased by 93 per
cent to £18.8 million compared with £9.7 million in the corresponding half year
in 2004. Research and development expenditure in the period was increased by 81
per cent to £2.6 million and sales & administrative expenses were up by 52.6 per
cent to £5.1 million, reflecting increased investment in global sales and
marketing and group infrastructure development at Yateley.
The Group achieved an operating profit before financing costs and amortisation
of £2.4 million for the period against a first half operating profit of £0.44
million in 2004. The smaller improvement at the after-tax level reflects
increases in taxation, amortisation and interest; the impact of these charges
has historically been less over the full year in line with greater volume in the
second half. First half diluted earnings per share, adjusted for amortisation
on acquired intangible assets and a pro-forma tax charge, were increased to 1.2
pence, from a loss of 0.4 pence per share reported for the first half 2004.
Interim Dividend
The Board has declared an interim dividend of 0.7 pence per ordinary share (0.65
pence in the first half of the previous year) to reflect both the performance of
the Group and its growth prospects. The dividend will be payable on 26 January
2006 to those shareholders on the register of members at the close of business
on 23 December 2005.
Operations
The Group has continued to make strong progress in terms of sales, geographical
expansion, increased customer base and range of equipment on offer.
The value of sales grew by 93 per cent in the first half of 2005 while order
intake was up by over 270 per cent compared with the corresponding period in
2004. Order intake continues to run at record levels and important new customers
have been added in South America and Russia. Exports continue to account for 95
per cent of Group sales.
Order intake in the first half was especially strong in China, the Middle East,
Central America and Canada. However, sales to the US market were somewhat held
back by the hurricanes passing through the Gulf of Mexico.
Wireline
The Wireline Division achieved sales growth of 59 per cent in the first half.
This increase was attributable to the expansion of business with existing
customers, the addition of new customers - some coming through collaborative
marketing initiatives with Geolink - and the introduction of new technologies.
One of the most significant wireline developments in the first half was the
introduction of the UltraWire(TM) version of the established Multi-finger
Imaging Tool ("MIT") that can improve the efficiency of the inspection process
in mature oil and gas wells. This high-value equipment has attracted much
interest throughout the industry and is expected to have a positive impact on
the Wireline Division's sales and margins in the second half.
The MIT was first used commercially in China as part of a five-well programme.
This operation was important for a number of reasons. It demonstrated that the
UltraWire(TM) digital communication system could be used with the full range of
Sondex sensors. The MIT was used to measure accurately the internal dimensions
of the oil well while a Metal Thickness Tool - launched in 2004 - used an
alternating magnetic wave to detect corrosion or other damage to the outside of
casing. The Chinese logging company was a new customer for Sondex and the
contract underlined the importance of the Chinese oil and gas market.
Russia is regarded as another key market and in October the Group announced that
it had won an important contract, valued at around $2.5 million, from a major
Russian gas producer. The order, the first significant contract for the Wireline
Division in the region, builds on the presence and growing reputation of Geolink
drilling products.
India, with its growing requirement for oil and gas, also has the potential to
become an important market for the Group. In July the first major shipment of
Wireline production logging equipment, worth more than £1 million, was delivered
to India for ONGC operations.
The Downhole Electric Cutting Tool ("DECT"), introduced in 2003, continued to
make progress. The equipment was used successfully by a Sondex customer to
recover a casing packer in the Otter Field, one of the remotest in the North
Sea, on behalf of TOTAL E&P UK PLC. The operation to cut and release the
hydraulic retrievable pump packer was conducted from the Stena Spey drilling rig
at a depth of 1,978 metres and with a well deviation of 60 degrees. The DECT is
an intelligent system that enables precise and controlled cutting action to part
pipe without the use of dangerous chemicals and explosives.
Drilling
The Drilling Division made a significant contribution to group revenues in the
period with sales growth of 28 per cent in the first half of the financial year
compared with the same period last year. Of particular note was the sales
performance in West Africa, Canada and Central America.
During the first half, the Drilling Division released for sale its Pressure
During Drilling sensor. Several field operations were conducted in Canada and a
significant order was received for a programme of work in Mexico. The sensor,
which is compatible with Geolink's Orienteer measurement-while-drilling ("MWD")
and surface systems, is a modular unit that measures annular and drill 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".
The TRIM resistivity tool, initially released in 2004, has gained commercial
acceptance, with eight systems shipped during the first six months of the
current financial year compared with only two during the previous year. This
accounted for revenues in excess of £1 million. TRIM is a method of detecting
the electrical resistance of the rocks and the fluids contained within 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 this tool has been successfully
introduced using a memory variant, which significantly reduces non-productive
drilling rig time. In Russia the resistivity tools are primarily used by local
companies to compete with the major international service companies in the '
re-entry' market, where older wells are being re-drilled to recover remaining
oil.
During the first half of this year the Division has established a full service
and repair centre for the drilling equipment in the Sondex facility in Calgary,
Canada, and has relocated the Houston-based drilling operation to the Wireline
facility. This increased support in Calgary, in particular, has allowed new
customers to be added. The Division has also recently relocated a regional
manager to the Group's operational base in Dubai in the United Arab Emirates.
New Facility
The Board announced in March that, in line with its policy of investing for
growth, it had signed a lease on an additional facility in Yateley, Hampshire.
The new building accommodates the Wireline Division's final product assembly as
well as the Group's corporate functions.
The transfer of operations from nearby Bramshill was achieved without any
interruption to production and the doubling of in-house capacity has been fully
justified by the continued growth in demand. Given that the manufacture of
equipment is largely outsourced, larger subcontract manufacturers, who can keep
pace with supply demands while maintaining the exacting standards and tolerances
required for downhole precision instruments, have been engaged.
The Bramshill facilities are retained as the Group's research and development
centre for the majority of wireline products. R&D operations for sonic products
continue to be based in Calgary while those for drilling products remain at
Geolink's Aberdeen facilities.
Research and Development
Investment in research and development activity totalled £2.6 million in the
first half of 2005, representing about 14 per cent of the Group's turnover. The
strong R&D programme has resulted in the commercialisation of a number of
important new products such as the Magnetic Thickness Tool and the Downhole
Electric Cutting Tool previously mentioned. These and other instruments are
contributing to the organic development of the Group.
In November it was announced that the Group and its research partner Beta R&D
had secured a £198,000 Government grant for the development of a new power
source for downhole instrumentation. The financial grant was made by the
Department of Trade and Industry's Innovation Group under its technology
development programme. Shared equally by Sondex and Beta R&D, the money will be
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.
The R&D team has also commenced work on the recently won project to develop a
novel well test production logging ("WTPL") tool in association with a leading
energy corporation and a major oil service group. The technology has
considerable commercial potential. 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. WTPL will thus enable an operator to assess in a
cost effective manner the current and future oil reserves in maturing oil and
gas fields.
Acquisition of AES
In line with the previously stated strategy, Sondex has continued to pursue
suitable acquisitions which will enhance the current product lines, increase
market reach and support the financial growth and reputation of the existing
group. Sondex today, separately, announced the acquisition of Applied
Electronic Systems Inc. ("AES")
AES is based in Louisiana, USA and offers a complementary range of equipment
which fits well with the current Wireline division. AES generated revenues of
$5.5 million in the nine months ended 30 September 2005 and EBIT of $2.2 million
in the same period. AES, which has been established for 20 years, has been
growing revenues in recent years (2002-2005) at a compound annual growth rate of
15 per cent. The business is strongly cash generative.
Sondex has paid $11.5 million for the business, and a further $1.5 million for
the freehold of the business premises, with an additional 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 this acquisition is through an increased banking
facility of £7 million and through the issue of 775,662 new ordinary shares to
the vendors, which will be restricted from sale for one year. The up to $1
million additional consideration will satisfied through the issue of new
ordinary shares to the vendors at the prevailing share price should the
performance target be met.
AES boasts the market leading 'free-point indicator' which is a wireline tool
run during the drilling operation should the drill pipe become stuck in the
well. Once the 'free-point' is established the drill pipe is released or cut by,
for example, the Sondex Downhole Electric Cutting Tool in order that drilling
operations can resume. Other equipment sold by AES includes Casing Collar
Locators and running equipment which will be integrated to form the basis of an
additional cased hole logging range of tools.
AES, which has 80 per cent of its business in the USA, has distribution
facilities throughout the land markets in North America which will bring
increased access to these markets for existing Sondex Wireline products. In
turn, the Sondex international offices will be used to exploit the strong
reputation of AES products world-wide. Sondex will be able to introduce new
product designs to the AES team and AES offers enhanced in-house manufacturing
capability from a purpose built 25,000 sq ft facility in Lafayette, Louisiana
where around 40 engineering and support staff are employed.
Following the successful acquisitions of Computer Sonics Systems and Geolink,
the Directors believe that Sondex has a good record of integration and
performance from acquisitions and continues to review strategic options
selectively in related areas of oilfield technology.
New Banking Facility
The Group has taken advantage of the acquisition of AES to refresh its existing
debt structure. Accordingly, a new debt structure has been implemented, the key
features of which are noted below:
• Term debt of £27.3 million
• Revolving working capital facility of £11 million;
• Debt servicing comprising interest-only payments
The Group's existing debt of £20.3 million has been increased by £7 million to
part fund the acquisition of AES. This facility has been structured as a
rolling 3 year "evergreen" facility and the interest margin over LIBOR is
between 1.45 per cent and 1.7 per cent depending on the ratio of EBITDA to total
debt. No capital repayments are made on the debt during the three year rolling
period and the facility is reviewed every year to consider the extension of the
rolling period.
The result is that the Group has increased its debt funding to accommodate the
acquisition of AES, but the total annual cashflow associated with servicing the
debt will reduce from £4.6 million to less than £2.5 million.
Management and Staff
During the first half of 2005 there was a further strengthening of the
management team with Lane Roberts, formerly managing director of the Sondex/
Computer Sonics Systems operations in Canada, being appointed managing director
of the Wireline Division. There has also been significant recruitment to the
Group's management teams for production and financial operations as well as to
the international sales and marketing teams.
Sondex currently has more than 300 employees. Staff turn-over remains low and
all staff deserve praise for their excellent efforts and resilience through a
period of on-going change where many challenges, both technical and logistical,
need to be overcome on a daily basis.
Financial Commentary
The results for the six months ended 31 August 2005 are the first to be
presented solely under IFRS. The detailed accounting policies that the Group has
adopted upon conversion to IFRS, and their 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 acquisitions; this is in
accordance with IFRS 3;
• The extension of the charge for share-based remuneration, introduced by
IFRS 2;
• The wider scope of the charge to deferred taxation, under IAS 12.
Additionally, and for the first time in the balance sheet at 31 August 2005, the
group has valued foreign exchange and interest rate hedging instruments at the
closing balance sheet rates, resulting in an incremental charge to the income
statement of £0.2 million. The income statements for prior periods have not
been restated to adopt this change earlier.
The level of working capital employed by the Group has increased consistent with
a growth in revenues during the period. At the end of August 2005, inventories
were £2.5 million greater than the position at the year end. This increase,
expressed as a proportion of revenue in the period, was consistent with 2005.
The increase in inventories is necessary in order to support the strong second
half deliveries. Trade debtors increased by only £0.6 million during the
period, despite the strongly increased trading volume. This is evidence of the
results of recent debtor management initiatives starting to bear fruit and
offers promise of further reductions in debtor days.
The US Dollar has strengthened considerably throughout the six months ended 31
August 2005 and whilst 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 the money.
This has resulted in a foreign exchange loss to be recognised in the income
statement for the six months ended 31 August 2005 of £0.3 million.
The Group's Earnings Per Share ("EPS") ratios have been re-presented under IFRS.
Both the basic calculation and an adjusted basis calculation result in
increases of EPS stated under IFRS, compared with equivalent calculations under
UK GAAP. This is mainly because capitalisation of R&D and non-amortisation of
goodwill more than compensates for the greater charge for share based incentive
programmes, deferred tax charges and amortisation of acquired intangible assets.
In accordance with past practice an adjusted EPS calculation has been presented.
The adjustments made have been to add back to earnings the amortisation of
acquired intangible assets and to replace the actual tax charge with a pro-forma
tax charge of 30 per cent in order to reduce the volatility which can arise out
of the deferred tax provisions of IFRS.
Outlook
Sondex continues to develop the business in order to take advantage of the
positive oil industry environment and the long term demand for increasing
hydrocarbon production from ageing reserves. Growth is being achieved through
continuing to broaden the range of products on offer and by increasing
international marketing reach - especially in areas such as China, Russia, India
and Central America. The Drilling and Wireline Divisions are achieving success
in their own spheres of operations while helping each other to capture a bigger
share of the market for technical downhole equipment. The Group is improving
and extending its technology both through on-going research and development
programmes and through targeted acquisitions. Given these strengths, and the
talent and commitment of the staff, the Board is confident of further success in
the current financial year and beyond.
Iain Paterson
Chairman
Martin Perry
Chief Executive
14 December 2005
Consolidated income statement
For the six months ended 31 August 2005
Unaudited Unaudited Unaudited
half year half year year ended
31 Aug 05 31 Aug 28 Feb 05
04
Note £'000 £'000 £'000
Revenue 2 18,783 9,711 31,713
Cost of sales (9,111) (4,785) (14,159)
9,672 4,926 17,554
Gross profit 51.5% 50.7% 55.4%
Other operating income - 103 178
Research and development expenses 3 (2,174) (1,236) (3,134)
Sales, Marketing & Customer support expenses (2,652) (1,371) (3,283)
Administration expenses (2,470) (1,984) (3,786)
Operating profit before financing costs and 2,376 438 7,529
amortisation
Amortisation of acquired intangible assets (1,445) (529) (2,026)
Financial income 173 21 207
Financial costs (1,584) (724) (1,061)
(Loss)/profit before taxation (480) (794) 4,649
Taxation 4 (271) 37 (1,347)
(Loss)/profit attributable to shareholders (751) (757) 3,302
Dividends 5 (715) (472) (830)
Retained (Loss)/profit (1,466) (1,229) 2,472
Earnings per share 6
Basic (1.4) p (1.8) p 6.7 p
Diluted (1.3) p (1.7) p 6.5 p
Adjusted diluted 1.2 p (0.4) p 9.2 p
Consolidated balance sheet
At 31 August 2005
Unaudited Unaudited Unaudited
half year half year year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
Non current assets
Goodwill 38,100 38,533 37,965
Other intangible assets 16,807 18,231 17,757
Property plant & equipment 4,966 5,034 4,895
Investments in associates 112 131 137
Deferred tax assets - 419 -
59,985 62,348 60,754
Current assets
Inventories 10,479 6,834 8,014
Trade & other receivables 19,548 14,055 18,954
Financial assets - derivatives 45 - -
Cash & cash equivalents (4,456) 2,638 (1,410)
25,616 23,527 25,558
Current liabilities
Financial liabilities - borrowings (3,950) (1,357) (3,957)
Financial liabilities - derivatives (249) - -
Trade & other payables (6,850) (6,122) (6,627)
Current tax (1,556) (1,520) (984)
(12,605) (8,999) (11,568)
Non-current liabilities
Financial liabilities - borrowings (16,020) (22,629) (16,544)
Deferred tax liabilities (4,643) (5,106) (4,919)
Provisions (67) (67) (67)
(20,730) (27,802) (21,530)
Net assets 52,266 49,074 53,214
Shareholders' equity
Share capital 5,504 5,501 5,501
Share premium 41,020 44,903 41,019
Other reserves 5,273 646 4,861
Retained earnings 469 (1,976) 1,833
Total equity 52,266 49,074 53,214
Consolidated statement of changes to equity
For the six months ended 31 August 2005
Unaudited Unaudited Unaudited
half year half year year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
Total equity at start of period 53,214 26,045 26,045
Shares issued (net of expenses) 4 23,994 23,994
(Loss)/profit for the period attributable to (751) (757) 3,302
shareholders
Charge for share based payments 365 172 462
Net foreign exchange differences 11 6 47
Deferred tax on items not recognised in the income 138 86 194
statement
Dividends paid (715) (472) (830)
Total equity at end of period 52,266 49,074 53,214
Consolidated cash flow statement
For the six months ended 31 August 2005
Unaudited Unaudited Unaudited
half year half year year ended
31 Aug 05 31 Aug 28 Feb 05
04
£'000 £'000 £'000
Cash flows from operating activities
Operating profit before financing costs and amortisation 2,376 438 7,529
Depreciation of property, plant and equipment 295 397 607
Amortisation of capitalised development expenditure 424 290 725
Charge for share based payment 366 173 462
Increase in debtors (656) (993) (5,498)
Increase in inventories (2,464) (1,276) (2,456)
Increase/(decrease) in creditors 286 (341) (213)
Tax (paid)/received 117 (122) (1,907)
Net cash from operating activities 744 (1,434) (751)
Cash flows from investing activities
Dividends received - - 12
Interest received 173 21 182
Acquisition of subsidiaries - (33,276) (33,095)
Purchase of property, plant and equipment (418) (893) (1,621)
Purchase of investments (20) - -
Development expenditure capitalised (868) (501) (1,171)
Proceeds from the sale of property, plant and equipment - - 466
Net cash used in investing activities (1,133) (34,649) (35,227)
Cash flows from financing activities
Interest paid (940) (540) (1,343)
Proceeds from the issue of share capital 4 25,124 25,124
Loan capital received - 13,000 13,000
Repayment of loans (2,287) (940) (2,900)
Dividends paid (715) (472) (830)
Net cash used in financing activities (3,938) 36,172 33,051
Net increase/(decrease) in cash and cash equivalents (4,327) 89 (2,927)
Cash and cash equivalents at the beginning of the period (1,410) 2,044 2,044
Effect of exchange rate changes 1,281 505 (527)
Cash and cash equivalents at the end of the period (4,456) 2,638 (1,410)
1. Basis of preparation
The interim financial information for the six months ended 31 August 2005 has
been reviewed by the auditors in accordance with APB Bulletin 1999/4, but has
not been audited and it does not constitute statutory accounts within the
meaning of Section 240 of the Companies' Act 1985.
The financial statements for the year ending 28 February 2006 will be the first
for the group to be prepared under International Financial Reporting Standards
("IFRS"). On 23 November 2005 the group published a Transition Statement,
summarising the impact of the transition to IFRS. This included an overview of
the impact on the financial results for the year ended 28 February 2005, set out
reconciliations of certain key financial information for the year ended 28
February 2005 and presented the accounting policies and transitional exemptions
adopted in the transition to IFRS and which will be adopted in the first full
financial statements to be prepared under IFRS. The Transition Statement is
available on the Investor Relations page of the group's website, www.sondex.com.
The accounting policies applied assume that all existing standards in issue from
the IASB will be fully enforced by the European Union. These are subject to
ongoing amendment by the IASB and subsequent endorsement by the European Union
and therefore are subject to possible change.
The interim financial information for the six months ended 31 August 2005,
including the comparative figures for the six months ended 31 August 2004 and
the year ended 28 February 2005, has been prepared under the historical cost
convention and the accounting policies and exemptions presented in the IFRS
Transition Statement of 23 November 2005.
The comparative figures for the year ended 28 February 2005 are not the group's
statutory accounts for that financial year. Those accounts, which were prepared
under UK GAAP, have been audited and delivered to the Registrar of Companies.
The report of the auditors thereon was unqualified and did not contain
statements under Section 237 (2) or (3) of the Companies' Act 1985. The
comparative figures for the year ended 28 February 2005 are those that were
presented in the IFRS Transitional Statement, ie conversion from audited UK GAAP
to IFRS.
2. Segmental analysis
Unaudited half Unaudited Unaudited year
year half year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
Turnover by destination
USA 3,857 2,728 5,219
Canada 2,221 615 4,363
South America 1,942 603 2,187
UK 1,021 563 1,568
Rest of Europe 1,766 1,101 3,078
Middle East 2,441 1,583 4,611
China 989 1,153 5,192
Russia 1,801 481 3,259
Rest of World 2,745 884 2,236
18,783 9,711 31,713
The group regards its primary segmentalisation as being divisional for the
purpose of future financial statements under IFRS. However, the Drilling
division was acquired on 30 June 2004 and the comparative numbers for the
Drilling division for the periods shown above would therefore not be
representative. The group has accordingly presented segmental analysis by
geography in these interim financial statements.
3. Research & development expenditure
The charge in respect of research & development comprises
a blend of expenditure and capitalisation, which is analysed below:
Unaudited half Unaudited Unaudited year
year half year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
Expenditure in the period (2,618) (1,447) (3,580)
Development costs capitalised 868 501 1,171
Amortisation of capitalised development costs (424) (290) (725)
Charge in income statement (2,174) (1,236) (3,134)
4. Taxation
Unaudited half Unaudited half Unaudited
year year year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
Current tax
UK corporation tax (89) - (894)
Foreign tax (320) (315) (447)
(409) (315) (1,341)
Deferred tax 138 352 (6)
Total charge (271) 37 (1,347)
An adjustment relating to deferred tax has been made to the provisional IFRS
figures included in the Transition to International Financial Reporting
Standards statement, as a result of a change in interpretation of the
interaction between IAS 12 "Income taxes" and IFRS 3 "Business Combinations.
5. Dividends
Unaudited half Unaudited half Unaudited
year year year ended
31 Aug 05 31 Aug 04 28 Feb 05
£'000 £'000 £'000
February 2004 final dividend - 472 472
Dividend per share (pence) - 1.20 1.20
February 2005 interim dividend - - 358
Dividend per share (pence) - - 0.65
February 2005 final dividend 715 - -
Dividend per share (pence) 1.30 - -
Total recognised 715 472 830
The directors are proposing an interim dividend of 0.7 pence per share, to be
paid on 26 January 2006 This has not been accrued in the balance sheet at 31
August 2005.
6. Earnings per share
Basic and diluted earnings per share
The basic earnings per share has been
calculated by dividing the profit or loss
for the period by the weighted average
number of shares in issue for the period.
Unaudited half Unaudited half Unaudited
year year year ended
31 Aug 05 31 Aug 04 28 Feb 05
Basic undiluted (pence) (1.4) (1.8) 6.7
Basic diluted (pence) (1.3) (1.7) 6.5
(Loss)/profit attributable to shareholders (751) (757) 3,302
(£'000)
Weighted average number of shares (thousand)
Undiluted 54,539 42,775 49,340
Diluted 56,044 43,561 50,543
Adjusted diluted earnings per share
£'000 £'000 £'000
(Loss)/profit attributable to shareholders (751) (757) 3,302
Add: amortisation of acquired intangible assets 1,445 529 2,026
Add: adjustment to taxation (19) 44 (656)
Adjusted earnings 675 (186) 4,673
Diluted weighted average number of shares 56,044 43,561 50,543
(thousands)
Adjusted diluted earnings per 1.2 (0.4) 9.2
share
The adjustment to taxation brings the charge to taxation to 30% of profit before
amortisation and tax.
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 2005 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Changes in Equity, and the related notes 1 to 6. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or 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 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.
As disclosed in note 1, the next annual financial statements of the group will
be prepared in accordance with those IFRSs adopted for use by the European
Union. This interim report has been prepared in accordance with the requirements
of IFRS 1, "First Time Adoption of International Financial Reporting Standards"
relevant to interim reports.
The accounting policies are consistent with those that the directors intend to
use in the next financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices 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 have been applied. 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 International Standards on Auditing (UK and
Ireland) 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 2005.
Ernst & Young LLP
Reading
13 December 2005
This information is provided by RNS
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