Final Results

Velosi Limited 16 April 2007 Velosi Limited ('Velosi' or 'the Group') Preliminary Results For the year ended 31 December 2006 Highlights Velosi the provider of quality assurance, quality control and asset integrity services to the international oil and gas industry is pleased to announce its maiden preliminary full year results for 2006. • Turnover increased by 117% to US$70.2 million (2005: US$32.5 million) • Profit before tax rose by 119% to US$8.0 million (2005: $3.6 million) • Basic earnings per share of US$0.298 • Successful admission to AIM, raising £10 million before expenses • Final dividend of 1 US cent per share • Three acquisitions were announced during the year expanding the Group's geographic reach • Service offering expanded through organic growth, acquisitions and joint ventures John Hogan, Chairman, commented: 'I am pleased to report our maiden full-year results following our admission to AIM in August 2006. We generated significant increases in turnover and profit before tax of 117% and 119% respectively, primarily driven by the significant growth of our operations in Africa and the Middle East. We have won several new contracts since the year-end and we continue to implement our growth strategy of expanding our geographical reach and service offering. The outlook for 2007 is positive, with continuing high levels of investment in global oil and gas infrastructure creating strong demand for our services.' For further information, please contact: Velosi Dr Nabil Abdul Jalil 020 7930 0777 Joe Vincent Strand Partners James Harris 020 7409 3494 Warren Pearce Charles Stanley Mark Taylor 020 7739 8200 Freddy Crossley Cardew Group Tim Robertson 020 7930 0777 / 07900 927 650 Eden Mendel 020 7930 0777 / 07887 676 603 Emma Consett 020 7930 0777 / 07971 468 308 CHAIRMAN'S STATEMENT I am delighted to announce the maiden preliminary results for the Group following our admission to AIM in August 2006. For the year ended 31 December 2006, Velosi has delivered an excellent set of results. The continuing strength of oil and gas prices in the period under review led to an increase in the already high levels of investment in oil and gas infrastructure, and this has consequently driven growth across the Group. In addition, major oil and gas multinationals have increased their investment in safety and maintenance measures to further reduce the risks of accidents and leakages, and resulting adverse publicity, such as that which occurred during 2006. This has created an increase in demand for our services. Results Sales revenue increased 117% to US$70.1m (2005: US$32.3m) and profit before tax increased by 119% to US$8.0m. (2005: US$3.6m). Underlying operating profit before interest and taxation increased by 114% to US$7.6m (2005: US$3.6m). Profit after tax and minority interests increased by 107% to US$6.0m (2005: US$2.9m). Basic earnings per share after minority interests were 29.8 cents and fully diluted earnings per share after minority interests were 27.0 cents. On the basis that the Group was quoted on AIM for the full period of 2006, the basic earnings per share after minority interests were 15.7 cents. Cash generated from operating activities was US$0.6 million for 2006, compared to US$0.5 million in 2005. The increase was mainly due to an operating profit of US$8.0 million and an increase in trade and other payables of US$5.7 million, which was offset by an increase in trade and other receivables of US$12.9 million. Proceeds from the flotation were used to repay loans from Velosi Malaysia amounting to US$4.1 million, and also used to pay down factoring facilities in Nigeria, which at 31 December 2006, amounted to US$0.3 million. At 31 December 2006, cash and cash equivalents for the Group were US$11.9 million and the Group had no long-term bank borrowings. Dividend The Board is pleased to announce the Group's maiden dividend of 1 cent (0.5 pence) per share. This is a result of the Board's confidence in the Group's operating cash flows. The Board intends to continue paying dividends in the future while maintaining a suitable level of dividend cover and retaining the majority of earnings to fund the development of the Group's business. Subject to shareholder approval at the annual general meeting, the dividend will be paid on Wednesday 4 July 2007 to shareholders on the register on Friday 15 June 2007. Review of Operations During the year, the Group grew its service offering both organically and through acquisition. We have added to our range of services and have packaged some existing services together in order to create an increasingly competitive product offering. The Group has also developed in-house capabilities in rig inspection, commissioning and infra-red thermography and we have increased our investment in training to further our expertise in risk-based, reliability-centred inspection, and other asset integrity management techniques. Three acquisitions were announced during the year to 31 December 2006. In August 2006, the Group completed the acquisition of a 51% majority stake in QA Management Services Pty Ltd ('QAM'), an Australia-based quality assurance inspection company for AUS$612,000 (US$477,360). In December 2006, the Group announced the acquisitions of 51% majority stakes in both Steel Test (Pty) Ltd ('Steel Test') and Plant Design Engineers Sdn Bhd ('PDE') for an aggregate consideration of US$2,879,000. A common challenge among all companies operating in the oil and gas industry is that of attracting and retaining high-calibre individuals and providing top-level training. We are successfully addressing this challenge through our decentralized structure, which enables Velosi to recruit local experts who have extensive regional and technical knowledge. Additional training is provided by the Group as necessary. Our experience is that offering local experts employment in their own country significantly improves our retention of high-calibre talent. On behalf of the Board, I would like to take this opportunity to thank all of our employees worldwide for their dedication and continued hard work. Outlook Investment in oil and gas infrastructure remains high and your Board believes that there is no indication of a slow down. On the contrary, events in 2006 appear to have fuelled international awareness of the importance of quality assurance and quality control in the oil and gas sector. Velosi is well positioned to exploit this continued investment through its expanding geographical reach and service offerings and will continue to implement its strategy of growing organically and through acquisition. Our development of new inspection systems and tools, additional services garnered through our local partnerships and acquisitions, and our expanding geographical reach, position the Group favourably to take advantage of the large number of new oil and gas projects requiring quality assurance and quality control services. Since the year-end, the Group has secured a number of contract wins, as further described in the Operations Review, that demonstrate the success of this strategy. The Board is therefore confident of the future prospects of the Group and that Velosi will continue to grow and to generate excellent returns during the forthcoming year. John Hogan Chairman 13 April 2007 OPERATIONS REVIEW During the period under review, the Group continued to pursue its strategy of entering new geographical markets, growing market share in existing markets and expanding through joint ventures and acquisitions. To better reflect the Group's global reach and strategic focus on expanding its areas of operations we are reporting the results by region rather than by business division as we did for the 2006 Interim results. For continuity however, a summary of our business divisional results is provided at the end of this review. All geographic regions experienced increased activity during 2006. Notable growth in turnover was experienced in emerging markets where the Group had, in previous years, invested in marketing and operational infrastructure. For example West Africa and Asia/Australia grew at 192% and 185% respectively. Turnover in the Middle East region grew at 92% with significant increases in workloads from national oil and gas companies particularly in Qatar and Kuwait. Similarly in the US, turnover increased 85% due to heightened activity amongst the US oil and gas multi-nationals. Turnover in the UK/Europe region grew at 59% during 2006. West Africa (Turnover: US$24.7 million; Contribution to Group sales: 35.2%) Operations in Nigeria have grown rapidly as the Group continues to consolidate its position by offering source inspections and project verification services to the major oil and gas multi-national corporations in this region. Our office in Lagos, Nigeria, established in 2004, now functions as a fully-fledged operations centre supporting our contract commitments in the region. The Group is involved in major projects including the construction of a gas to liquid processing facility in Escravos, Nigeria, and in the development of the Agbami oil and gas field in the central Niger delta, offshore Nigeria. To further expand operations in West Africa, Velosi Angola Lda was incorporated in late 2006 and the Group is currently in the process of incorporating a subsidiary in Ghana. Activities in this region are expected to commence in the first half of 2007. South Africa (Turnover: US$0.5 million; Contribution to Group sales: 0.7%) Velosi entered this market in December 2006 with its acquisition of a 51% majority stake in Steel Test (Pty) Ltd, a South African-based company which specialises in tube inspection, a technique used extensively during plant and equipment maintenance. Steel Test is a market leader in the region and has built a dominant position in the power generating industry. By leveraging Velosi's global coverage, the acquisition carries with it the potential for Velosi to open up new markets in the power generation industry worldwide. Since completion of the acquisition, Steel Test has been awarded the contract for the inspection of the Tutuka Power Station in South Africa. The contract runs for a period of 19 months and covers the inspection of five condensers. In addition, it was announced that Steel Test has secured new contracts with Sirte Oil Company, one of the principal companies operating under the National Oil Corporation of Libya, and with SGS SA, a multinational inspection company, for the inspection of a fertilizer plant in Pakistan. Middle East (Turnover: US$21.6 million; Contribution to Group sales: 30.8%) The Group continues to diversify Velosi's range of services in the Middle East with the addition of specialist non-destructive testing, CCTV inspection, rig inspection and Asset Integrity Management services. Through this diversification the customer base is being expanded, particularly among the oil and gas supporting players such as Tekfen Construction, Medgulf Construction, Abu Dhabi Oil Refinery Co, and Petrofac. Our business units in Kuwait and Qatar have secured several long-term contracts with Kuwait Oil, Qatar Petroleum and RasGas Co. Ltd. In addition, a term contract with Petroleum Development Oman, covering a range of quality assurance, pipeline and facilities inspection, and source inspection and expediting services, is currently underway. In March 2006, Velosi was awarded a five-year contract by Kuwait Gulf Oil to provide a range of project verification services for the exploration and production of the Al-khafji field, jointly developed by Kuwait Gulf Oil and Saudi Aramco. The contract provides quality management and construction, and quality supervision for the installation of new, and the refurbishment of existing, oil and gas facilities both onshore and offshore, which has helped Velosi to firmly establish its presence in the Middle East. It is hoped that the activity in Kuwait will act as a springboard from which Velosi can expand into other countries in the region such as Saudi Arabia. In Qatar, Velosi secured a term contract with RasGas, a major gas producer, to provide construction site inspection for major plant expansions. Velosi also secured two contracts with Qatar Petroleum for a range of services required for onshore and offshore oil and gas field development and for source inspection. US (Turnover: US$13.8 million; Contribution to Group sales: 19.6%) The Group continues to target the global operations of the US oil and gas multi-nationals based in Houston. Velosi America secured new Master Service Agreements with Nabors Industries, and J. R. McDermott, and a Quality Assurance Standing Agreement with Chevron USA, through which a range of services are being provided to their operations world-wide in countries such as the U.S, Middle East and Russia (Sakhalin Island). During 2006, Velosi America also expanded its service offerings to include rig inspection, and we are currently providing this service to Nabors Drilling International. UK and Europe (Turnover: US$5.8 million; Contribution to Group sales: 8.3%) During the period under review, revenue increased by 58.7%. The high activity in this region for 2006 resulted in an increase in staff training for specialist inspection services for lifting equipment, thermography and rig inspection. The strong demand for new services in this region has generated the funding for the development of new inspection tracking systems and tools that can be used throughout the Group. Shell Exploration and Production in the UK, Nederlandse Aardolie Maatschappij (NAM) in the Netherlands, Norske Shell in Norway and Enterprise Oil Ireland have recently combined to form one European company, Shell EP Europe. In January 2007, in a competitive bid process Velosi was awarded an exclusive contract with Shell EP Europe, which became effective on 1 January 2007. The contract covers work stemming from all four of these Shell operations for source inspection and expediting of procured products. This contract will add further impetus to revenue growth in this region over the next three years. Velosi was previously awarded a contract in May 2003 with Shell UK Exploration and Production covering work for the main Shell operating centre in Aberdeen. This contract expired on 31 December 2006, with those services now being included in this new contract. In the latter half of 2006, Velosi incorporated an 80% subsidiary, Velosi International Italy, in Milan. Start-up operations have commenced and this unit will spearhead the Group's entry into a new market among Italian manufacturers for letter of credit inspection. Velosi International Italy signed an agreement in March 2007 with CONFAPI, the trade association for small and medium-sized businesses in the industrial sector. Under the terms of the agreement, Velosi Italy will act as CONFAPI's inspection agency verifying letters of credit from CONFAPI member companies requiring loans. This arrangement is renewable at the end of the three-year agreement period. CONFAPI represents more than 50,000 businesses throughout Italy across sectors such as manufacturing, chemicals and food among others. CONFAPI works with all of the major Italian banks and credit institutions. The agreement presents Velosi Italy with a unique opportunity for rapid in-depth penetration of the Italian credit services market and will serve to diversify Velosi's service offering in Italy. Asia and Australia (Turnover: US$3.5 million; Contribution to Group sales: 5.0%) With the completion of our 51% acquisition of QAM in August 2006, the Group has gained a strong foot-hold in the oil and gas sector in Australia. QAM has also allowed the Group to diversify its business outside that of the oil and gas sector and, consequently, Velosi is now offering services to Australian mining companies both domestically and internationally. QAM finalised a contract with Sinclair Knight Merz to provide inspection services to a copper mine in Chile, and has also been successful in securing contracts for third party inspection services for Dairi Prima Minerals in Indonesia and for the Ravensthorpe nickel mine in Australia. In Asia, while Velosi Brunei, a 50% associate company, experienced a decrease in activity due to a drop in fabrication and construction work in Brunei, Malaysia, Singapore and India all experienced an increase in activity. In December 2006, Velosi acquired a 51% majority stake in a Malaysia-based company, PDE. PDE provides 3-D laser scanning of oil and gas facilities to create virtual models from which maintenance and modification design blueprints can be accurately developed. Through this acquisition, the Group can now apply state-of-the-art technology to facilities inspection. In addition, PDE provides a foundation for Velosi to develop its engineering design capability. Since the completion of the acquisition, Velosi announced that PDE was awarded a seven-month contract by BP West Java Ltd for the provision of laser scan services at the BP West Java Rehabilitation Project. Russia and Central Asia In late 2005, the Group established Velosi Russia and Velosi Kazakhstan. During the period under review, these offices have built their marketing and business infrastructures and have undergone audits to obtain the necessary registrations from Government Ministries. Subsequent to the year-end, Velosi Kazakhstan finalised the registration of its office in Atyrau and will be submitting pre-qualifications to major oil and gas companies operating in Central Asia. Similarly, Velosi Russia is pre-qualifying for additional work in Sakhalin Island. Velosi America is also active on Sakhalin Island where it is providing services to ExxonMobil. Business Divisions summary The services offered by Velosi are grouped into four business divisions: Quality Enhancement, Project Verification, Certification and Engineering Support Divisions. Quality Enhancement Division Our Quality Enhancement Division provides maintenance-related and vendor inspection services. This division generated US$27.8 million (2005: $16.1 million) or 39.6% (2005: 49.9%) of revenue. New contracts were awarded by Shell EP Europe, Qatar Petroleum, Total and Techsen, increasing activity within the division. Furthermore our development of new services, notably in the risk-based and other asset management based inspection areas, have widened our service offering. During the year under review the Quality Enhancement Division expanded its geographic reach to Australia and South Africa with the completion of our respective acquisitions of QAM, in August 2006, and Steel Test, in December 2006. Project Verification Division The Group's Project Verification Division, which provides verification services during the construction of plant and facilities, generated US$38.5 million (2005: $8.6 million) or 54.8% (2005: 26.7%) of revenue. We continue to experience a high level of demand in this division from our West African operations, due to work with Mobil Producing Nigeria and Chevron, both of which are undertaking major oil and gas development projects in this region. Recent contract awards from RasGas, Qatar Petroleum and Master Service/QA Standing Agreements secured in the US are expected to add further growth in this division. Certification Division Velosi is accredited by international technical authorities to certify plants and equipment such as pressure equipment, conveying equipment, heavy lifting equipment, and boilers as being compliant with strict statutory requirements. This division generated US$2.7 million (2005: $4.6 million) or 3.9% (2005: 14.2%) of revenue. The lower contribution from this division in the period under review than the corresponding period in 2005 is due to the completion of our Russian Certification Services contract with Exxon in the period. In September 2006, we announced a new joint venture with Rina, the Italian marine classification provider. The new 50:50 joint venture company, called RINA-V, provides offshore project certification to oil and gas companies, and to the offshore industry, and will significantly add to the capabilities and business opportunities for the Group going forward. Engineering Support Division The Group provides engineering support to its clients through recruitment and placements of specialised technical personnel. This division generated US$1.2 million (2005: $3.0 million) or 1.7% (2005: 9.2%) of revenue. This division currently services many of the major oil and gas companies. FINANCIAL REVIEW Financial Highlights Year ended 2006 2005 Change 31 December US$'000 US$'000 % Revenue 70,209 32,343 117 Operating profit 7,619 3,564 114 Profit before tax 7,976 3,644 119 Profit after tax and minority interests 5,970 2,886 107 Earnings per share US$0.3 n/a Shareholders' funds 26,257 1,249 2,003 Overview The Company's financial statements for the year ended 31 December 2006 have been prepared under the International Financial Reporting Standards (IFRS). The maiden preliminary results for the Group, for the year ended 31 December 2006, demonstrated a strong performance with record sales and profits. Turnover increased 117% to US$70.2 million (2005: US$32.3 million). This growth was principally driven by operations in Africa and the Middle East, where turnover increased 192% and 92% respectively. Profit from ordinary activities before tax for the period was up 119% from US$3.6 million in 2005 to US$8.0 million. The Group recorded an increase of 108% in profit after tax and of the US$6.9 million (2005: US$ 3.3 million), US$0.9 million was attributable to minority shareholders of the Group (2005: US$0.4 million). The effective tax rate for the Group for the year ended 31 December 2006 was 14% (2005: 9%) and the tax charge was US$1.1 million (2005: US$0.3 million). The effective tax rate for the Group is directly correlated with the contributions from the different regions and their varying tax rates. For the period under review, the Group had a greater contribution from higher tax jurisdiction countries, which resulted in the increased tax rate from 2005. This trend is expected to be broadly the same in 2007. In August 2006, the Group listed on AIM and successfully raised £10 million (approximately US$19.5 million) through the issuance of 11,111,111 shares at 90 pence each. Proceeds from the listing were used to repay existing loans, provide working capital, provide financing for acquisitions and planned expansions into new regions. During the year, the Group made three acquisitions funded largely out of the proceeds from the flotation. In August 2006 the Group completed the acquisition of QAM and, since the year-end, completed the acquisitions of Steel Test and PDE, which were announced to shareholders on 15 December 2006. Cash outflow for the Group from these investing activities was US$2.1 million (2005: US$0.2 million). Cash generated from operating activities was US$0.6 million for 2006, compared to US$0.5 million in 2005. The increase was mainly due to an operating profit of US$8.0 million and increase in trade and other payables of US$5.7 million, which was offset by an increase in trade and other receivables of US$12.9 million. Proceeds from the flotation were used to repay loans from Velosi Malaysia amounting to US$4.1 million, and also used to pay down factoring facilities in Nigeria, which as at 31 December 2006 amounted to US$0.3 million. At 31 December 2006, cash and cash equivalents for the Group were US$11.9 million and the Group had no long-term bank borrowings. Fixed overhead costs for the period amounted to US$9.0 million (2005: US$5.1 million), with the increase largely attributable to the opening of offices in Italy, Kazakhstan, Russia, Angola, and South Africa. The Group's senior management responsible for marketing and administration was also strengthened during the period in order to support the increasing size and needs of the Group. Profits attributable to minority interests were US$0.9m (2005: US$0.4m). This increase was mainly a result of the stronger performance of the Group's part-owned subsidiaries in Velosi Certification W.L.L (Qatar) in the Middle East and Velosi Superintendend Nigeria Ltd and Steel Test (Pty) Ltd in Africa Basic earnings per share after minority interests were 29.8 cents (2005: 120 cents) and fully diluted earnings per share after minority interests were 27.0 cents (2005: 120 cents). Calculated on the basis that the Group was quoted on AIM for the full period of 2006, the basic earnings per share amounted to 15.7 cents. As at 31 December 2006, the Group had net assets of 69 cents per share. The Board is declaring a maiden dividend of 1 cent per share which will be paid in sterling converted at the prevailing exchange rate at the time of payment. Subject to shareholder approval at the annual general meeting, the dividend will be paid on Wednesday 4 July 2007 to shareholders on the register on Friday 15 June 2007. The notes to the financial statements form an integral part of these financial statements. VELOSI LIMITED AUDITED CONSOLIDATED INCOME STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2006 Proforma 2006 2005 USD '000 USD '000 Continuing operations Revenue 70,209 32,343 Cost of sales (54,227) (24,103) -------- -------- Gross profit 15,982 8,240 -------- -------- Other operating income 591 414 Administrative expenses (8,954) (5,090) -------- -------- Operating profit 7,619 3,564 Finance costs (141) (147) Share of profit of associated companies 498 227 -------- -------- Profit on ordinary activities before tax 7,976 3,644 Income tax expense (1,106) (341) -------- -------- Profit on ordinary activities after tax 6,870 3,303 -------- -------- Minority interest (900) (417) Profit from continuing operations and attributable to equity holders 5,970 2,886 ======== ======== Basic earnings per share based on the issued share capital 29.8c 120c as at 31 December 2006 -------- -------- Diluted earnings per share based on the issued share capital 27.0c 120c as at 31 December 2006 -------- -------- VELOSI LIMITED AUDITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 Proforma 2006 2005 USD'000 USD'000 Assets Non-current assets Goodwill on acquisition 2,114 960 Property, plant and equipment 3,187 1,350 Investment in associated companies 732 631 Deferred tax assets 76 - -------- --------- 6,109 2,941 -------- --------- Current assets Cash and cash equivalents 12,170 2,300 Inventories 999 529 Trade and other receivables 24,349 10,973 Amount due from related parties 1,310 453 Amount due from associated companies 425 280 Tax recoverable 14 - -------- --------- 39,267 14,535 -------- --------- Total assets 45,376 17,476 ======== ========= Equity and liabilities Current liabilities Trade and other payables 14,365 8,048 Amount due to related parties 204 3,591 Amount due to associated companies 271 - Bank and other borrowings 252 1,066 Current tax liabilities 1,106 116 Hire purchase liabilities 91 3 -------- --------- 16,289 12,824 -------- --------- Non-current liabilities Deferred tax liabilities 93 1 Amount due to related parties - 2,517 Provision for employees end of service benefits 112 95 Hire purchase liabilities 81 13 Other non-current liabilities 37 7 -------- --------- 323 2,633 -------- --------- Total liabilities 16,612 15,457 -------- --------- Proforma 2006 2005 USD'000 USD'000 Capital and reserves Share capital 763 - Share premium 18,128 - Share options 89 - Warrants 47 - Revaluation reserve 287 287 Statutory reserve 90 82 Voluntary reserve 24 4 Exchange reserve 11 - Retained profit 6,818 876 -------- --------- 26,257 1,249 Minority Interest 2,507 770 -------- --------- Total equity 28,764 2,019 -------- --------- Total equity and liabilities 45,376 17,476 ======== ========= VELOSI LIMITED AUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED 31 DECEMBER 2006 2006 Proforma 2005 USD'000 USD'000 Cash flows from operating activities Profit for the year 7,976 3,644 Adjustments for: Depreciation 329 213 (Gain) / Loss on disposal of property, plant and equipment (24) 4 Negative goodwill written off (16) - Allowance for doubtful debts 1,160 181 Allowance for doubtful debt written back (128) - Bad debts written off 63 - Provision for retirement benefit 41 - Retirement benefit paid (25) - Share of profit in associated companies (498) (227) Interest expense 141 147 Interest income (119) (2) Unrealised foreign exchange gain (222) - -------- -------- Operating cash flows before movements in working capital 8,678 3,960 -------- -------- (Increase)/decrease inventories (470) 70 Increase in receivables (12,875) (4,434) Increase in payables 5,704 1,248 -------- -------- Cash generated from operations 1,037 844 Interest paid (141) (147) Tax paid (322) (213) -------- -------- Net cash from operating activities 574 484 -------- -------- Cash flows from investing activities Acquisition of property, plant and equipment (817) (180) Receipts from sale of property, plant and equipment 42 - Acquisition of new subsidiary companies, net of cash (1,755) (18) Acquisition of new associated companies, net of cash (10) - Incorporation of new subsidiary companies (10) - Repayment from / (Advance to) associate co 125 (62) Dividend income from associated company 194 79 Interest received 119 2 -------- -------- Net cash used in investing activities (2,112) (179) -------- -------- Cash flows from financing activities Proceeds from issue of shares 20,102 - Listing expenses paid (1,164) - Proceeds from issue of share options 89 - Repayments of hire purchase liabilities (70) - Repayment to related parties (6,762) (140) Repayment to directors (98) (70) -------- -------- Net cash from financing activities 12,097 (210) -------- -------- 2006 Proforma 2005 USD'000 USD'000 -------- -------- Net increase in cash and cash equivalents 10,559 95 Foreign exchange translation differences 125 - Cash and cash equivalents at the beginning of the year 1,234 1,139 -------- -------- Cash and cash equivalents at the end of the year 11,918 1,234 ======== ======== Cash and cash equivalents comprise: Current assets - Cash and cash equivalents 12,170 2,300 Current liabilities - Bank overdraft (252) (1,066) -------- -------- 11,918 1,234 ======== ======== VELOSI LIMITED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE PERIOD ENDED 31 DECEMBER 2006 Group -------------------------------------------------- Share Share Minority capital Premium Reserves Total Interest Total USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 Balance at 1 January 2006 - - 1,249 1,249 770 2,019 Exchange reserve arising on translation of financial statements of overseas subsidiaries - - 11 11 - 11 Share allotment 763 18,128 - 18,891 - 18,891 Profit for the year - - 5,970 5,970 900 6,870 Acquisition of Subsidiary 837 837 Issue of share options 89 89 89 Issue of warrants 47 47 47 -------- ------- ------- ------- ------- -------- Balance at 31 December 2006 763 18,128 7,366 26,257 2,507 28,764 ======== ======= ======= ======= ======= ======== Group Share Share Minority capital Premium Reserves Total Interest Total USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 Balance at 1 January 2005 (Proforma) - - (1,637) (1,637) 179 (1,458) Profit for the year - 2,886 2,886 417 3,303 Acquisition of Subsidiary 174 174 -------- ------- ------- ------- ------- -------- Balance at 31 December 2005 (Proforma) - - 1,249 1,249 770 2,019 ======== ======= ======= ======= ======= ======== VELOSI LIMITED PRELIMINARY RESULTS ANNOUNCEMENT - NOTES 1. Business of Velosi Limited Velosi Limited was incorporated in Jersey on 28 March 2006. Between 24th April and 10th May 2006, the Company acquired its interest in its subsidiary and associated undertakings such that the Company is now the holding company for the Group. The principal activity of the Group is the provision of quality assurance and control, general inspection, corrosion and monitoring and manpower supply services to the oil and gas industry. 2. Basis of preparation and significant accounting policies Velosi Limited was incorporated in Jersey on 28 March 2006. Since this date, the Company acquired its interests in its subsidiary and associated undertakings such that the Company is now the holding company for the Group. The financial information has been prepared under the historical cost convention, and this is the first year that financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRS). The accounting policies are consistent with those disclosed in the Company's AIM Admission Document. The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are dealt with in the consolidated income statement from or up to their effective dates of acquisition or disposal respectively. The consolidated financial information is presented in US Dollars because the Group is expected to transact more of its business in US Dollars than any other currency. The Consolidated Financial Information on the Group has been prepared for each of the periods ending 31 December 2005 and 31 December 2006 on the basis of a Group reconstruction applying Merger Accounting principles as though the current Group structure had been in place throughout this period. All inter-company transactions and balances within the group are eliminated on consolidation. Control is normally evidenced when the Company, or a company which it controls, owns more than 50% of the voting rights of a company's share capital. 3. Earnings per share The basic and diluted earnings per share is calculated by reference to the earnings attributable to ordinary shareholders divided by the number of shares in issue as at 31 December 2006, as follows: Year ended Year ended 31 December 31 December 2006 2005 USD'000 USD'000 Profit after taxation and minority interest 5,970 2,886 --------- --------- Weighted average number of shares for the purpose of calculating basic earnings per share 20,031,708 2,410,068 Effect of dilutive potential ordinary shares Share Options 1,636,708 - Warrants 476,749 - --------- --------- Weighted average number of shares for the purpose of calculating diluted earnings per share 22,145,165 2,410,068 --------- --------- Basic earnings per share based on the issued share capital as at 31 December 2006 29.8c 120c --------- --------- Diluted earnings per share based on the issued share capital as at 31 December 2006 27.0c 120c --------- --------- Prior to the IPO on 21st August, there were less shares in issue, which leads to a relatively large earnings per share figure being shown for the periods prior to the IPO. As a result these figures are not directly comparable. 4. Dividends The Directors proposed to recommend a final dividend of USD0.01 per ordinary share to shareholders in respect of the financial year ending 31 December 2006. 5. Taxation on profit from ordinary activities Group Group 2006 2005 USD'000 USD'000 UK corporation tax UK corporation tax in respect of year 1 - Foreign tax Overseas tax payable 1,128 315 -------- -------- Total current tax 1,129 315 Deferred tax Movement in deferred tax position (80) - -------- -------- Taxation on profit from ordinary activities 1,049 315 Add: Share of taxation of associated companies 57 26 -------- -------- 1,106 341 ======== ======== The tax assessed on the profit for the year is lower than the standard rate of corporation tax in the UK of 30% (2005: 30%). The differences are reconciled below: Group Group 2006 2005 USD'000 USD'000 Profit on ordinary activities before taxation (excluding share of results of associated companies) 7,478 3,417 ======== ======== Profit on ordinary activities at the standard rate of corporation tax in the UK 2,243 1,025 Tax effects of: Difference in tax rates of foreign countries (439) (14) Expenses not deductible for tax purposes 478 47 Tax redemption and rebates - - Utilisation of tax losses (142) (8) Utilisation of capital allowance (120) - Deferred tax liabilities/(assets) not recognized - (2) Non-taxable income (950) (732) Others (21) (1) -------- -------- 1,049 315 Add: Share of taxation of associated companies 57 26 -------- -------- 1,106 341 ======== ======== 6. Post Balance Sheet Events Subsequent to the year end, Velosi Industries Sdn Bhd, a subsidiary of the Company, acquired 51 per cent of the issued share capital of Plant Design Engineering Sdn Bhd, pursuant to an agreement dated 13 December 2006, for a total purchase consideration of MYR4.0million (USD1.09million), out of which MYR3.2 million was paid in cash and the remaining to be paid by way of issuance of 117,683 new ordinary shares of US$0.02 each in the share capital of the Company. Segmental reporting The directors consider that the Group's activities represent a single class of business. The analysis of the Group's turnover, profit before tax and minority interests, assets, liabilities, additions to plant, property and equipment and depreciation by geographical origin of customers is set out below: 2006 2005 USD'000 USD'000 Turnover United Kingdom 5,841 3,680 Middle East 21,609 11,235 United States of America 13,772 7,465 Africa 25,467 8,730 Asia 3,002 1,233 Others 518 - -------- -------- 70,209 32,343 ======== ======== Gross Profit United Kingdom 1,913 1,142 Middle East 5,890 2,912 United States of America 3,244 2,382 Africa 3,283 981 Asia 1,452 823 Others 200 - -------- -------- 15,982 8,240 ======== ======== Carrying amount of assets United Kingdom 10,586 2,372 Middle East 11,629 6,231 United States of America 5,538 1,747 Africa 11,146 4,088 Asia 5,846 3,038 Others 631 - -------- -------- 45,376 17,476 ======== ======== Liabilities United Kingdom 2,222 2,385 Middle East 3,994 5,584 United States of America 2,123 1,567 Africa 6,846 2,963 Asia 1,141 2,958 Others 286 - -------- -------- 16,612 15,457 ======== ======== Additions to plant, property & equipment United Kingdom 47 65 Middle East 657 63 United States of America 8 2 Africa 9 6 Asia 185 360 Others 4 - -------- -------- 910 496 ======== ======== Depreciation United Kingdom 21 51 Middle East 135 74 United States of America 4 6 Africa 22 - Asia 139 82 Others 8 - -------- -------- 329 213 ======== ======== 8. Nature of financial information The financial information set out above does not represent statutory financial statements for Velosi Limited or for any of the entities comprising the Velosi Group. The Company is not required to prepare or file statutory financial statements in the UK and has not done so. These preliminary results will be available on the Company's website www.velosi.com. Further copies can be obtained from the registered office at 44 Esplande, St Helier, Jersey, JE4 8PM. This information is provided by RNS The company news service from the London Stock Exchange

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Velosi Ltd. (VELO)
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