Final Results

RNS Number : 1434K

Velosi Limited

14 April 2010

 



Velosi Limited

("VELOSI", "the Group" or "the Company")

Preliminary Results

for the year ended 31 December 2009

VELOSI, the AIM quoted provider of Testing, Inspection and Certification services to major national and multinational oil and gas companies, is pleased to announce its preliminary unaudited results for the year ended 31 December 2009.

HIGHLIGHTS IN 2009

Strong Financial Performance

·     Revenue was steady at US$183.6 million (2008: US$182.1 million).

·     Operating profit up 2.7% to US$14.8 million (2008: US$14.4 million)

·     Profit on ordinary activities before tax up 13.0% to US$16.8 million (2008: US$14.9 million)

·     Profit after tax and non-controlling interests was US$10.4 million (2008: US$9.3 million)

·     EPS up 5.1% to 22.8 cents per share (2008: 21.7 cents per share)

·     Cash flow generated from operations of US$10.7 million (2008: US$13.2 million)

·     Net cash reserves of US$19.7 million maintaining a strong financial position

·     Final dividend proposed of 1.5 cents per share (2008: 1.0 cent per share)

Operational Achievements

·     Strong forward order book providing excellent visibility on future revenues

·     Controlled investment in the Group's global infrastructure

·     Opened new offices in Papua New Guinea, Pakistan, Brazil, Thailand and China

John Hogan, Chairman, commented:

"To report a 13.0% increase in profitability, during a year when market conditions have been extremely challenging, is a very creditable performance. Reported revenue for the Group was stable in 2009 when compared to last year. However, excluding Nigeria which had to operate under exceptional circumstances, revenues actually increased by approximately 6.8%.   This was achieved in a year in which oil prices dropped to around US$40 per barrel, resulting in many oil and gas companies reducing their expenditure.

Looking ahead, we are seeing signs of recovery in activity alongside a higher and more stable oil price, with specific regions and countries experiencing an increase in investment in oil and gas infrastructure projects, although the overall mood in the industry remains cautious. VELOSI has a strong order book which provides good visibility on future income and while we do not anticipate significantly improved market conditions, we expect to deliver a positive performance in 2010."

For further information, please contact:

VELOSI	Dr Nabil Abdul Jalil Dan Ooi	020 7930 0777
Strand Hanson	James Harris Richard Tulloch	020 7409 3494
Charles Stanley	Mark Taylor	020 7149 6000
Cardew Group	Tim Robertson Catherine Maitland	020 7930 0777

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that VELOSI has achieved another good trading performance. The Group increased profits before tax by 13.0% to US$16.8 million, continued to expand through new office openings and secured a wide range of new contracts. This was a particularly creditable performance given the slowdown in investment by the oil and gas majors during 2009.  While across the market overall expenditure on asset integrity services dipped, our revenue levels remained constant helped by our investment in new projects in specific 'hot spots' around the globe and by the industry's need to maintain existing oil and gas projects. Excluding income from Nigeria, where exceptional circumstances reduced our operating ability, revenues actually increased by approximately 6.8%.

Over the last 18 months, in anticipation of a more challenging market environment, we have focused on ensuring the Company operates at maximum efficiency and has sufficient cash reserves to comfortably support the business. As a result of actions taken, our operating margin increased to 8.1% (2008: 7.9%), being a key driver behind the increase in Group profitability, and net cash reserves at the year end were US$19.7 million, placing the Company in a strong financial position.

With a presence in 36 countries, VELOSI offers a global service to the oil and gas majors, providing an extensive range of Testing, Inspection and Certification services. Our current order book provides visibility for approximately 60% of 2010 consensus forecast revenues, which is a strong position to be in at this stage of the year.

Financial Performance

VELOSI's global reach ensured the Company was able to offset the challenging market conditions and generate revenues of US$183.6 million (2008: US$182.1 million). Higher margin contracts and cost saving initiatives enabled the Company to improve profit margins and deliver a 13.0% increase in profits before tax to US$16.8 million (2008: US$14.9 million). This was an excellent result in a difficult market.

Basic earnings per share after minority interests increased by 5.1% to 22.8 cents, compared to 21.7 cents in the previous year, while fully diluted earnings per share after minority interests based on the weighted average issued share capital as at 31 December 2009 was 22.3 cents, compared to 19.6 cents in the previous year.

At 31 December 2009, the Group had net cash reserves of US$19.7 million inclusive of cash placed as margin for bank guarantees, currently classified as other debtors (2008: US$17.6 million). Conserving the Group's balance sheet strength is a key part of our strategy as it provides the flexibility to comfortably fund the Group's trading activities and take advantage of any opportunities that may result from the more challenging market environment.

Dividend

The Board has decided to adopt a more progressive dividend policy as a result of the continued improvement in the trading performance and cash generation of the Group since its IPO in 2006.  The Board is therefore recommending a final dividend of 1.5 cents per share (2008: 1.0 cent per share), an increase of 50% over the prior year.  Subject to shareholders' approval at the Annual General Meeting, the dividend will be paid on 30 July 2010 to shareholders on the register on 2 July 2010.

Strategy

VELOSI currently operates in 36 countries, up from 20 countries in 2006 when the Company was admitted to AIM. Revenue has also increased substantially in that period from US$70.2 million in 2006 to US$183.6 million in 2009. We have now entered a more challenging market environment and we have amended our strategy to reflect this, whilst not losing sight of our core objective which is to be the leading provider of Testing, Inspection and Certification services to major national and multinational oil and gas companies.

In 2008, we restructured the business to accommodate the increased size of the Group. A new management structure was introduced creating regional manager roles, reporting directly to the Chief Executive Officer, who respectively control the Group's principal geographic areas of activity being: Africa, Australasia, Europe, the Middle East, and America. This had a positive impact in 2009, enhancing our ability to deliver 'one-stop shop' solutions to our international clients, often under framework agreements. An example would be Velosi (B) Sdn Bhd in Brunei, where, together with our joint venture partner, we are contracted to perform QC Surveillance, Specialised Non Destructive Testing, Asset Integrity, and Corrosion Monitoring and Maintenance Inspection.

During 2009, we continued to expand our global presence opening new offices in Papua New Guinea, Pakistan, Brazil, Thailand and China. Typically it takes between 12 to 24 months for new offices to make a positive contribution. Our strategy for opening new offices is a combination of ensuring that we have a good geographic coverage of the key areas together with accelerating office openings in current 'hot spots' or areas of growth. An example of this is the recent opening of our Kazakhstan office in response to the substantial increase in oil and gas investment in Kazakhstan during 2009.

During 2009, VELOSI also won a number of important contracts. Of particular note Velosi Europe Limited ("Velosi Europe") won a significant five-year contract with Eskom, the South African state-owned electricity provider, and Velosi America LLC ("Velosi America")  won a Global Manpower services contract with a multi-national oil and gas company, giving VELOSI preferred supplier status, along with six others.

We will continue to enter new geographic markets, growing market share in existing markets, and expanding the Group's service offerings.  We are at the same time mindful that the current environment may provide 'value' opportunities with the potential to generate above average returns, and the Company's strong financial position should enable it to consider such opportunities. In line with this strategy, the Company was pleased to announce on 9 February 2010 that it had acquired from Velosi Malaysia Sdn Bhd the VELOSI trading name in Malaysia.

Appreciation

On behalf of the Board, I wish to extend my thanks to all our employees worldwide for their commitment, hard work and perseverance throughout 2009, which enabled us to achieve these creditable results.

Outlook

VELOSI has demonstrated its ability to continue to grow the business despite facing challenging conditions. We believe this reflects well on the strength of the Company's reputation for excellence in its fields of expertise and the foundations it has carefully built to manage a global business.

The market environment remains challenging, with our clients seeking to control expenditure on new projects and trimming costs on existing projects. Nonetheless,  there are several 'hot spots' of activity in Brazil, Australia, Kazakhstan, and West Africa where investment in projects remains high and where we are well positioned to take advantage of this activity.

The Company's strong order book currently accounts for approximately 60% of 2010 consensus forecast revenues representing excellent forward visibility. We have net cash reserves of US$19.7 million, ensuring we are in a strong financial position to fund operating activities and, if a suitable opportunity arises, to fund acquisitions. We will continue to focus on streamlining our operations to ensure we maximise returns to shareholders, whilst also continuing our policy of controlled investment in the Group's global infrastructure.

Trading in the first three months of 2010 is in line with management expectations and we therefore look forward to delivering a positive outcome for the current year.

John Hogan

Chairman

14 April 2010

OPERATIONAL REVIEW

Operational Highlights

Europe

·     BP Norge AS contract, the Group's first contract in Norway, remains the largest contributor to European revenue

·     Substantial five-year contract win with South African state-owned electricity provider Eskom

·     Inspection Consultancy services contract with Saipem expected to contribute strongly for the duration of the three year contract

Australasia

·     Two-year contracts win with Total E&P Indonesia

·     Numerous contract wins in India

·     Registered and opened first office in China

Middle East

·     Largest contributor to Group revenues

·     Saudi office won two-year contract from SBG

·     Lifting Equipment services established in all offices

·     Extension of VELOSI's Worldwide Inspection contracts with Qatar Petroleum, Ras Gas, and Qatar Gas

·     Two-year contract win from STG, the Russian EPC company responsible for the pipeline project for Dolphin

·     Three-year contract win from Abu Dhabi Port Authority for Vendor Inspection services

Americas

·     Significant contract win with a multi-national oil and gas company

·     Expansion of ExxonMobil's requirements

·     Certification contract win with National Oilwell Varco (NOV) Norway AS

Africa

·     Long-term contracts in place with CABGOC in Angola, BOST in Ghana, and Chevron in Nigeria

·     Velosi Nigeria legal proceedings concluded - well placed for significant growth

·     Nigeria and Angola offer strong growth opportunities

Overview

2009 has been a year of growth for VELOSI despite the challenging market conditions. During 2009, we continued to win a number of significant contracts and expanded our presence in geographic regions where oil and gas investment has increased, such as Central Asia, South America, and Africa. Trading for the first three months of the current financial year has been in line with our expectations.

Despite the cautious outlook of our major clients, new builds and project-related services are still taking centre stage in the Group's activities, which is a reflection of the continuous investment in infrastructure within the oil and gas industry.

Europe

Revenue: US$52.5 million (2008: US$52.0 million), Contribution to Group Revenues: 25.0% (2008: 25.7%) 

European revenues grew by 192.2% in 2008, and as a result the 2009 performance is measured against very strong comparables. Nevertheless this was a robust performance, and the contribution to Group revenues remained broadly level. The largest contributor was the BP Norge AS contract, the Group's first contract with BP in Europe and in Norway, which increased its manpower requirements during the year.  

VELOSI was awarded a substantial new five-year Professional Services contract with Eskom, the South African state-owned electricity provider. The contract was won by Velosi Europe in a 50:50 partnership with Khum MK Investments to provide Quality and Inspection services for Eskom's new build power plant program. Capital spend on this program is expected to be in excess of US$30 billion and the fees for inspection should be in the region of 3%. The Quality and Inspection services work will be spread out amongst eight competing inspection authorities. Eskom provides 95% of South Africa's electricity.

Also of significance, VELOSI was awarded preferred supplier status via UTT logistics bv to Saipem, a subsidiary of the Italian oil and gas company ENI, and on Total's OML58 upgrade project, which is expected to contribute significantly to revenue and profit until 2011. VELOSI was also awarded a one-year rolling contract with KJVG to provide Inspection services for the downstream EPCM on the multibillion Gorgon LNG project, and its first Pipemill Surveillance contract in Kazakhstan for the Uralsk Pipeline with KazStroyService, which strategically places VELOSI for Pipeline Inspection services in Kazakhstan.

While VELOSI won a number of significant contracts during the period, the reduction in activity caused by the economic downturn allowed VELOSI to prepare for a number of major projects expected to receive funding during 2010. As a result there is an increase in projected work throughout 2010 that VELOSI is well positioned to take advantage of. A new office was opened in Warsaw, Poland, in March 2010, and offices located in Dusseldorf, Germany; Prague, Czech Republic; and Kolnes, Norway are due to be opened in 2010.

Australasia

Revenue: US$34.5 million (2008: US$36.3 million), Contribution to Group Revenues: 16.5% (2008: 17.9%).

Despite the challenging market environment in 2009, Australasia recorded a commendable revenue of US$34.5 million, and won a number of new contracts across the region in the period.

PT Java Velosi Mandiri won two two-year contracts with Total E&P Indonesia for the provision of Rope Access Inspection, and Engineering Support services respectively.

In India, Velosi Certification Services (India) Pvt. Ltd. ("Velosi India") was awarded its first long-term contract with ONGC for Third Party Inspection services for all surface facilities and pipelines, during all phases of the project over the next four years. Velosi India was also awarded a contract by GAIL for Project Management and Consultancy, Construction Supervision and QA/QC for Phase I and II of the Chainsa Jhajjar Spurlines. In addition, Velosi India was awarded the Third Party Quality Surveillance contract by HPCL-Mittal Pipelines for its 1,050 kilometre crude oil Mundra Bhatinda Pipeline Projects.

Post year-end, Velosi India was awarded the Third Party Inspection of MHN- Process Platform and Living Quarters Project, MHN- Process Gas Compressor Project of ONGC, and Third Party Inspection ("TPI") and QA for Propane, Butane and LPG terminals for IPPL (Indian Oil Petronas Private Limited) at Ennore, Tamil Nadu.

The Pakistan Branch of Velosi Asset Integrity Ltd won milestone contracts in 2009/2010, which included the selection of VELOSI as the TPI agent for over 3,100 CNG stations and more than 1,500 pipelines across Pakistan by the Oil & Gas Regulatory Authority ("OGRA") of Pakistan; and implementation of a Maintenance Optimisation Project for ENI Pakistan.

In Brunei, VELOSI, together with its local joint venture partner QAF Oilfields Services, completed full mobilisation for its three-year contract with Brunei Shell Petroleum for QC Surveillance, Specialised NDT, Asset Integrity, Corrosion Monitoring and Maintenance Inspection. A total of 155 personnel were deployed with two-thirds of the work force being locals, reflecting the success of VELOSI's training and recruitment of those locals for projects.

QA Management Services Pty Ltd ("QAM-Velosi") increased its revenue by approximately 7.0% to US$4.25 million.  Major contracts awarded with EOS for inspection of equipment include the Woodside North Rankin 2 Project, PSN for the Esso Kipper Tuna Projects, Adelaide Desalination Plant, Worley Parsons for the Karara Iron Ore Project, Apache and Clough for the Devils Creek Project. During the year QAM-Velosi became one of the two preferred inspection providers for Chevron and commenced work on the Gorgon Project, estimated to be valued at US$7.0 million over the next two years.

Velosi Project Management Limited ("VPML"), in conjunction with Velosi Malaysia Sdn Bhd, completed a US$2.1 million contract with MISC Berhad for the Pre-Commissioning and Commissioning for a Floating Storage and Offloading Vessel, and an approximate US$1.1 million Project Management Consultancy contract with Malaysia Marine Heavy Engineering (MMHE), the largest yard in the region involving Engineering, Procurement, Pre-Construction, Yard Evaluation, CAPEX Analyses and Risk Engineering for a prestigious Semi-Submersible Floating Production System Project. These two contracts mark important milestones for VPML which was established in 2008.

K2 International Limited, Velosi's 65% owned subsidiary, was awarded a three year contract with Samsung Heavy Industries Co Ltd ("SHI") estimated to be worth in excess of USD20 million over three years.

VELOSI registered and opened its first office in China, and commenced operations in Shanghai in November 2009. New offices have also opened in Papua New Guinea, Thailand, and Myanmar.

Middle East

Revenue: US$72.9 million (2008: US$63.0 million), Contribution to Group Revenues: 34.8% (2008: 31.1%).

VELOSI has experienced growth across the Middle East, despite the global market difficulties, with this region being the largest contributor to Group revenues. New services, such as Lifting Equipment services and NDT, have been established across the region and made available to clients. Our Middle Eastern offices have also developed their training function to offer training to clients, and we have entered into an agreement with TWI UK to sell their training courses to clients.

The Abu Dhabi office also won contracts from ADCO and GASCO for TPI  at site and worldwide . The Saudi office has been awarded projects for Aramco under their General Inspection services contract. The Qatar office has also won the Management Certification contract for Qatar Gas and extended the contract for Ras Gas and Qatar Gas.  The Oman office has seen its PDO contract extended, with PDO using VELOSI exclusively for their projects.

Americas

Revenue: US$19.2 million (2008: US$22.4 million), Contribution to Group Revenues: 9.2% (2008: 11.1%) 

Velosi America won a significant Global Services contract with a multi-national oil and gas company in the latter half of 2009. VELOSI was one of seven qualified global vendors selected in a competitive bid process to provide manpower services. Our relationship with ExxonMobil also continued to grow with the assignment of additional VELOSI personnel to their operations in Angola and Nigeria.

In a competitive environment, VELOSI made good progress in broadening our visibility with a number of established clients and developed several new relationships. Highlights include: Chevron, Plus Petrol, Anadarko, Schlumberger, Tullow Oil, Alstom, TransCanada Pipeline and SOFEC. Several global Master Service Agreements (MSAs) were renewed, with ConocoPhillips, Zachary Construction, CB&I, Enersul, J. Ray McDermott and Salym.

Our contract with National Oilwell Varco (NOV) Norway AS is particularly significant, as it involves a substantial amount of Certification work, a service which VELOSI has been working hard to develop in this region in 2009. In addition, we continue to work with NOV elsewhere, supplying comprehensive certification services for Submersible Mobile Offshore Drilling Rigs being delivered to Gazflot, a subsidiary of Russia's largest company Gazprom. The division also signed several new contracts with companies working on Fluor's Taneco Refinery in Tatarstan, Russia.

Africa

Revenue: US$28.7 million (2008: US$27.4 million), Contribution to Group Revenues: 13.7% (2008: 13.5%) 

In a difficult year globally, Africa's long-term contracts with CABGOC in Angola, BOST in Ghana, and Chevron in Nigeria helped maintain some momentum and enhance its prospects for 2010. We expect 2010 to be a very busy year for the sub-Equatorial African region, on account of both existing work and the potential for expansion in various countries in the region. Nigeria and Angola continue to offer the best growth opportunities.

Ghana

The BOST contract in Ghana has continued through the first quarter and progress has been made at both Accra Plains Depot (APD) and at Akosombo.Elsewhere in Ghana, the fledgling oil industry is picking up momentum and this offers potential opportunities with companies such as Tullow Oil, Modec, Technip, Baker Hughes, Schlumberger and others.

Nigeria

Legal proceedings following the death of our Nigerian partner in September 2007 have hampered VELOSI's ability to conduct business and grow in Nigeria.  These proceedings were satisfactorily settled in 2009 and Velosi Superintendend Nigeria Limited ("VSNL") is now well positioned to regain its position as one of the foremost service providers to the oil and gas industry in the country. VSNL believes 2010 will be a year of growth. VSNL will continue to provide personnel to the Escravos Project for Chevron, and sees the opportunity to resume working for both ExxonMobil and Shell.

In addition to the provision of personnel, VSNL intends to offer and sell more group services into Nigeria during the course of the year. We have received requests for Rope Access work to be provided by our subsidiary K2; Specialised NDT in the form of Long Range Ultrasonics (LRUT) to be provided by Steel Test (Proprietary) Ltd, also a subsidiary; and Tank Floor Testing services for Total was successfully completed by Kurtec Inspection Services Sdn Bhd.

Angola

The global economic slowdown prompted a reduction in project spending by CABGOC (a Chevron/Sonangol Joint Venture) in Angola. Velosi Angola LDA has now managed to return to the levels of activity achieved prior to the reduction due to a successful Angolanisation programme.

VELOSI also sees opportunities with companies such as BP, Total, ExxonMobil and others that will be pursued in the course of the year.

Central Asia

Revenue: US$1.8 million (2008: US$1.3 million), Contribution to Group Revenues: 0.8% (2008: 0.7%)

Our Russian & Kazakh Certification services division secured several new contracts from companies working on Exxon Neftgas Limited's offshore Arktun-Dagi project near Sakhalin Island during 2009.

FINANCIAL REVIEW

Overview

The Company's consolidated financial statements for the year ended 31 December 2009 have been prepared under International Financial Reporting Standards (IFRS).

Notwithstanding the challenging market in 2009, the Group's financial condition remained relatively stable. For the year ended 31 December 2009, the Group's operating profit was US$14.8 million, an increase of 2.7% from last year (2008: US$14.4 million). The Group's cash reserves remained strong with cash flow from operations of US$10.7 million (2008: US$13.2 million). Net cash flow from operating activities was US$6.9 million (2008: US$9.9 million). Revenue was US$183.6 million (2008: US$182.1 million). However, factoring out the significant reduction in revenue contribution from Nigeria of US$2.2 million (2008: US$12.2 million), the Group's revenue grew to US$181.4 million, an increase of approximately 6.8% from US$169.9 million in 2008. The growth in revenue was principally driven by operations in Central Asia and the Middle East, where revenue increased 31.6% and 15.8% respectively. During the year, the Middle East was the largest contributing region to Group revenue, contributing 34.8% to total revenues, followed by Europe and Australasia, contributing 25.0% and 16.5% respectively.

Profit from ordinary activities before tax for the year was up 13.0% from US$14.9 million in 2008, to US$16.8 million. Again, if factoring out Nigeria's loss from ordinary activities of US$2.5 million (2008: Profit of US$0.3 million), the Group's profit from ordinary activities before tax would have been US$19.3 million (2008: US$14.6 million). This reflects an increase of 32.5%. The Group recorded an increase of 11.1% in profit after tax, and of the US$12.9 million (2008: US$11.7 million), US$2.5 million was attributable to minority shareholders of the Group (2008: US$2.3 million).

Taxation

The effective tax rate for the Group for the year ended 31 December 2009 was 23% (2008: 22%) and the tax charge was US$3.8 million (2008: US$3.2 million). The effective tax rate for the Group is directly correlated with the contributions from the different countries in which we trade and their varying tax rates.

Share Capital

During the year share capital increased by US$48,000 due to the 2,424,291 new ordinary shares of US$0.02 each that were issued to the shareholders of K2 Specialist Services Pte Ltd ("K2") on 15 May 2009. This was pursuant to an agreement dated 19 October 2007 between K2 and Velosi Industries Sdn Bhd following the satisfaction of the entire profit guarantee of SGD4,000,000 (approximately £1.34 million) aggregate profit after tax and minority interests, set for the stipulated guarantee period and based on achievement of performance targets by K2 for the financial year ended 31 December 2008.

Cash Flow

Net cash inflow from operating activities was lower at US$6.9 million compared toUS$9.9 million in 2008. This was mainly due to the reduction in payables which was partially offset by the improvement in debtors' days.

Cash outflow for the Group from investing activities was US$3.8 million (2008: Outflow US$3.1 million). A significant portion of the cash outflow was for the acquisition of shares in Velosi Superintendend Nigeria Limited in concluding the legal proceedings for the same.

Cash outflow from financing activities was US$3.4 million, compared to a cash inflow of US$7.7 million in 2008, caused mainly by the increase in the amount owing by a related party.

Administrative Expenses

Administrative expenses for the year reduced to US$31.3 million (2008: US$32.1 million). This reflected the effectiveness of various streamlining efforts taken Group-wide to reduce administrative expenses during 2009.

Profit Attributable to Minority Interests

Profits attributable to minority interests were US$2.5 million (2008: US$2.3 million).  This was largely attributed to the stronger performance of the Group's part-owned subsidiaries including PSC Europe SRL and Intec (UK) Limited in Europe; Velosi Certification W.L.L (Qatar) in the Middle East; Velosi Angola LDA and Steel Test (Proprietary) Ltd in Africa; and Velosi Project Management Limited in Australasia.

Earnings Per Share and Dividends

Basic earnings per share after minority interests based on the weighted average issued share capital as at 31 December 2009 were 22.8 cents (2008: 21.7 cents), and fully diluted earnings per share after minority interest based on the weighted average issued share capital as at 31 December 2009 were 22.3 cents (2008: 19.6 cents). As at 31 December 2009, the Group had net assets of US$1.63 per share.

As stated in the Chairman's Statement, the Board is proposing a final dividend of 1.5 cents per share (2008: 1.0 cent per share). The dividend will be paid, subject to shareholder approval at the Annual General Meeting, on Friday 30 July 2010, to shareholders on the register on Friday 2 July 2010, in sterling converted at the prevailing exchange rate.

GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2009

							2009		2008
					Notes		US$’000		US$’000
							(unaudited)		(audited)
Continuing operations
Revenue					2		183,563		182,072
Cost of sales							(138,675)		(136,509)
Gross profit							44,888		45,563
Other operating income							1,141		883
Administrative expenses							(31,250)		(32,057)
Operating profit							14,779		14,389
Finance costs							(291)		(533)
Share of profit of associated companies							2,308		1,006
Profit on ordinary activities before tax							16,796		14,862
Income tax expense  expense					3		(3,848)		(3,208)
Profit for the year							12,948		11,654
Other comprehensive income:
Exchange differences on translating foreign 0peration							1,298			(2,828)
Other comprehensive income for the year net of tax							1,298			(2,828)
Total comprehensive income for the year							14,246			8,826
Profit attributable to:
Owners of the parent							10,446			9,306
Non - controlling interest							2,502			2,348
							12,948			11,654
Total comprehensive income attributable to:
Owners of the parent							11,342		7,205
Non - controlling interest							2,904		1,621
							14,246		8,826
Earnings per ordinary share
Basic earnings per share					4		22.8c		21.7c
Diluted earnings per share					4		22.3c		19.6c

GROUP STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2009
					2009		2008
				Notes	US$'000		US$'000
					(unaudited)		(audited)
Assets
Non-current assets
Goodwill				5	8,772		8,307
Other intangible assets				5	1,470		1,744
Property, plant and equipment					9,565		8,261
Investment in associated companies					2,713		1,338
Deferred tax assets				6	95		400
					22,615		20,050
Current assets
Inventories					1,241		2,271
Trade and other receivables					62,528		61,668
Amount due from a related party					2,234		1,057
Amount due from associated companies					2,205		1,127
Tax recoverable					159		126
Cash and cash equivalents					20,078		20,641
					88,445		86,890
Total assets					111,060		106,940
Equity and liabilities
Capital and reserves
Share capital				7	935		887
Share premium					33,790		32,422
Share based payment reserves					1,028		755
Revaluation reserve					-		287
Translation reserve					(1,268)		(2,164)
Retained earnings					32,055		22,875
Total equity attributable to equity holders					66,540		55,062
Non-controlling interest					9,721		7,293
Total equity					76,261		62,355

GROUP STATEMENT OF FINANCIAL POSITION (continued)
AS AT 31 DECEMBER 2009
		2009		2008
	Notes	US$'000		US$'000
		(unaudited)		(audited)
Current liabilities
Trade and other payables		25,215		33,447
Amount due to a related party		56		142
Amount due to associated companies		261		16
Bank and other borrowings		2,316		2,923
Current tax liabilities		2,308		2,421
Hire purchase liabilities		661		658
Deferred consideration	8	1,287		2,673
		32,104		42,280
Non-current liabilities
Deferred tax liabilities	6	79		37
Provision for employees end of service benefits		1,030		818
Bank and other borrowings		295		343
Hire purchase liabilities		995		933
Other non-current liabilities		296		174
		2,695		2,305
Total liabilities		34,799		44,585
Total equity and liabilities		111,060		106,940

	GROUP STATEMENT OF CASH FLOW
	FOR THE YEAR ENDED 31 DECEMBER 2009
					2009 US$'000				2008       US$'000
					(unaudited)				(audited)
	Cash flows from operating activities
	Profit on ordinary activities for the year				16,796				14,862
	Adjustments for:
	Depreciation				2,581				1,707
	Loss / (gain) on disposal of property, plant and equipment				54				(120)
	Property, plant and equipment written off				67				37
	Amortisation of intangible assets				340				331
	Impairment in other investments				-				9
	Allowance for doubtful debts				2,170				3,568
	Allowance for doubtful debts written back				(210)				(8)
	Bad debts written off				117				211
	Provision for retirement benefit				239				744
	Retirement benefit paid				(27)				(137)
	Share of profit in associated companies				(2,308)				(1,006)
	Interest expense				291				533
	Interest income				(106)				(244)
	Foreign exchange loss on operating activities				216				485
	Issue of share options				319				330
	Operating cash flows before movements in working capital				20,539				21,302
	Decrease / (increase) in inventories				1,031				(1,216)
	Increase in receivables				(3,153)				(16,349)
	(Decrease) / increase in payables				(7,761)				9,494
	Cash generated from operations				10,656				13,231
	Interest paid				(291)				(533)
	Tax paid				(3,424)				(2,770)
	Net cash from operating activities				6,941				9,928
	Cash flows from investing activities
	Acquisition of property, plant and equipment				(3,765)				(2,687)
	Receipts from sale of property, plant and equipment				1,054				448
	Acquisition of new subsidiary companies, net of cash				-				(1,168)
	Acquisition of shares in existing subsidiary companies				(1,086)				-
	Acquisition of new associated companies				(51)				-
	Advance to associated companies				(834)				(358)
	Dividend income from an associated company				777				414
	Interest received				106				244
	Net cash used in investing activities				(3,799)				(3,107)
GROUP STATEMENT OF CASH FLOW (continued)
FOR THE YEAR ENDED 31 DECEMBER 2009
				2009 US$'000				2008 US$'000
				(unaudited)				(audited)
Cash flows from financing activities
Proceeds from issue of shares				-				8,660
Share issue expenses				(58)				(445)
Repayments of term loans				(80)				(132)
Repayments of hire purchase liabilities				(754)				(251)
(Repayments to) / advance from a related party				(1,263)				437
(Repayments to) / advance from directors				(348)				109
Dividend paid to shareholders of Velosi Limited				(468)				(435)
Dividend paid to minority shareholders of subsidiary companies				(476)				(208)
Net cash (used in) / from financing activities				(3,447)				7,735
Net (decrease) / increase in cash and cash equivalents				(305)				14,556
Foreign exchange translation differences				317				(876)
Cash and cash equivalents at the beginning of the year				17,791				4,111
Cash and cash equivalents at the end of the year				17,803				17,791
Cash and cash equivalents comprise:
Current assets - Cash and cash equivalents				20,078				20,641
Current liabilities - Bank overdraft				(2,275)				(2,850)
				17,803				17,791

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009
Group	Share Capital US$'000		Share premium US$'000		Reserves US$'000		Total US$'000		Non controlling interest US$'000		Total US$'000
(Unaudited)
Balance at 1 January 2009	887		32,422		21,753		55,062		7,293		62,355
Exchange reserve arising on translation of financial statements of overseas subsidiaries	-		-		896		896		402		1,298
Profit for the year	-		-		10,446		10,446		2,502		12,948
Total comprehensive income for the year	-		-		11,342		11,342		2,904		14,246
Share allotment	48		1,379		-		1,427		-		1,427
Share issue costs	-		(58)		-		(58)		-		(58)
Acquisition of subsidiary	-		-		(1,085)		(1,085)		-		(1,085)
Issue of share options	-		-		320		320		-		320
Expiry of warrants	-		47		(47)		-		-		-
Dividend paid (note 11)	-		-		(468)		(468)		(476)		(944)
Balance at 31 December 2009	935		33,790		31,815		66,540		9,721		76,261

(Audited)

Balance at 1 January 2008	787		21,310		14,653		36,750		5,729		42,479
Exchange reserve arising on translation of financial statements of overseas subsidiaries	-		-		(2,101)		(2,101)		(727)		(2,828)
Profit for the year	-		-		9,306		9,306		2,348		11,654
Total comprehensive income for the year	-		-		7,205		7,205		1,621		8,826
Share allotment	100		11,112		-		11,212		-		11,212
Acquisition of subsidiary	-		-		-		-		151		151
Issue of share options	-		-		330		330		-		330
Dividend paid (note 11)	-		-		(435)		(435)		(208)		(643)
Balance at 31 December 2008	887		32,422		21,753		55,062		7,293		62,355

VELOSI LIMITED

PRELIMINARY RESULTS ANNOUNCEMENT

1.         Basis of preparation

The financial information set out in this preliminary results announcement does not constitute the Group's financial statements for the year ended 31 December 2009.

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSand IFRIC interpretations) ("IFRS") and with effective, or issued and early adopted as at the date of the statement.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, it does not include sufficient information to comply with IFRS.

The auditors have yet to sign their report on the 2009 financial statements. The financial statements for the year ended 31 December 2009 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement, and will be delivered to the Companies Registry following the Company's Annual General Meeting. Whilst the auditors have not yet reported on the financial statements for the year ended 31 December 2009, they anticipate issuing an unqualified report.

The financial information for the year ended 31 December 2008 is derived from the financial statements for that year. The auditors have reported on the 2008 financial statements, their report was unqualified.

The financial information set out in this announcement was approved by the board on 14 April 2010.

2.         Segmental reporting

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009.  IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker as defined in IFRS 8, in order to allocate resources to the segment and to assess its performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity's "system of internal financial reporting to key management personnel" serving only as the starting point for the identification of such segments.

The business of Velosi consists of one business area, provision of Testing, Inspection and Certification  services to major national and multinational oil and gas companies. Since 2008, the business of Velosi has been re-restructured to accommodate the increased size of the Group. A new management structure was introduced creating regional manager roles, reporting directly to the Chief Executive Officer, who respectively control the Group's principal geographic areas of activity. The Group's business activities are split into six regions - Europe, Middle East, Americas, Africa, Australasia and Central Asia. These regions are the basis on which information is reported to the Group Board. The segment result is the measure used for the purposes of resource allocation, assessment of performance and decision making.

All other segments primarily comprise income and expenses relating to the Group's administrative functions. Interest income and interest expense are not allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Group. Accordingly, this information is not separately reported to the Board for each reportable segment.

The adoption of IFRS 8 has not changed the analysis of the Group's results and performance significantly. Comparative information has been presented in order to comply with the requirement of this standard. The accounting policies applied in preparing the management information for each of the reportable segments are the same as the Group's accounting policies described in note 2. Inter-company balances and transactions between the reportable segments are eliminated to arrive at the figures in the consolidated accounts.

 

	Europe US$’000	Middle East  US$’000	Americas US$’000	Africa US$’000	Australasia US$’000	Central Asia US$’000	Others US$’000	Adjustments US$’000	Consolidated US$’000
2009 – (unaudited)
Turnover	52,486	72,901	19,233	28,694	34,503	1,750	-	(26,004)	183,563
Gross profit	7,486	14,159	3,770	5,406	11,424	1,271	-	1,372	44,888
Profit before tax	2,204	6,254	323	653	3,970	793	1,649	950	16,796
Share of profit of associates								2,084
Segment assets	23,789	47,944	10,100	18,076	36,475	1,140	38,261	(64,725)	111,060
Segment liabilities	20,271	26,403	8,964	16,208	23,040	677	2,037	(62,801)	34,799
2008 – (audited)
Turnover	51,959	62,961	22,403	27,415	36,329	1,330	-	(20,325)	182,072
Gross profit	8,902	11,792	4,047	5,404	12,419	634	-	2,365	45,563
Profit / (loss) before tax	1,745	5,346	159	583	5,439	291	(176)	1,475	14,862
Share of profit of associates								892
Segment assets	20,189	40,459	12,634	23,567	32,003	1,218	34,740	(57,870)	106,940
Segment liabilities	18,208	23,819	11,684	20,652	22,305	1,257	1,380	(54,720)	44,585

3.          Income tax expense

		Group 2009	Group    2008
		US$'000	US$'000
		(unaudited)	(audited)
Foreign tax
Overseas tax payable		3,240	3,446
Total current tax		3,240	3,446
Deferred tax
Movement in deferred tax position		384	(352)
Taxation on profit from ordinary activities		3,624	3,094
Add: Share of taxation of associated companies		224	114
		3,848	3,208

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits for the consolidated entities as follows:

		Group 2009	Group    2008
		US$'000	US$'000
		(unaudited)	(audited)
Profit on ordinary activities before taxation (excluding share of results of associated companies)		16,796	14,862
Profit on ordinary activities at 13.69% (2008: 14.28%)		2,299	2,122
Tax effects of:
Difference in tax rates of foreign countries		547	1,045
Effect of reduction in tax rate		4	6
Expenses not deductible for tax purposes		309	76
Tax redemption and rebates		(234)	(39)
Utilisation of tax losses		-	12
Utilisation of capital allowance		(5)	(60)
Deferred tax assets not recognised		257	103
Non-taxable income		(87)	(25)
Adjustment on prior year current and deferred tax		582	12
Others		268	(14)
Effect of taxation of associated companies		(92)	(30)
		3,848	3,208

The applicable tax expense of the Group is derived from the consolidation of all Group companies' applicable tax based on their respective domestic tax rates.

The applicable tax rate of the Group has decreased from 14.28% to 13.69% mainly due to the higher proportion of income contributed by the lower tax jurisdiction countries.

4.         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, as follows:

	Year ended 31 December 2009 US$'000 (unaudited)	Year ended 31 December 2008 US$'000 (audited)
Profit after taxation and minority interest	10,446	9,306
Weighted average number of shares for the purpose of calculating basic earnings per share Effect of dilutive potential ordinary shares Deferred consideration	Number 45,875,857 963,612	Number   42,809,629 4,463,847
Weighted average number of shares for the purpose of calculating diluted earnings per share	46,839,469	47,273,476
Basic earnings per share based on the weighted average issued share capital as at 31 December	22.8c	21.7c
Diluted earnings per share based on the weighted average issued share capital as at 31 December	22.3c	19.6c

5.         Goodwill and other intangible assets

	Goodwill	Other intangible assets - customer  lists		Total 2009		Total 2008
	US$'000	US$'000		US$'000		US$'000
	(unaudited)	(audited)		(unaudited)		(audited)
At 1 January	8,307		1,744		10,051		9,003
Foreign exchange translation difference	465		66		531		(1,136)
Acquisition of subsidiary companies	-		-		-		2,515
Amortisation	-		(340)		(340)		(331)
At 31 December	8,772		1,470		10,242		10,051

	Goodwill	Other intangible assets - customer  lists	Total 2008	Total 2007
	US$'000	US$'000	US$'000	US$'000
	(audited)	(audited)	(audited)	(audited)
At 1 January	7,341	1,662	9,003	2,114
Foreign exchange translation difference	(1,012)	(124)	(1,136)	157
Acquisition of subsidiary companies	1,978	537	2,515	6,812
Realisation on disposal of shares in subsidiary company	-	-	-	(5)
Amortisation	-	(331)	(331)	(75)
At 31 December	8,307	1,744	10,051	9,003

6.       Deferred tax assets

			Group 2009	Group    2008
			US$'000	US$'000
			(unaudited)	(audited)
Unutilised tax losses			29	26
Accelerated capital allowances			(29)	21
Provision for impairment			4	317
Others			12	(1)
Deferred tax assets			16	363
Deferred taxation movements are:
Opening balance			363	64
Foreign exchange translation difference			37	(53)
Transfer from income statements			(384)	352
Closing balance			16	363

7.         Share capital

           (a) Share capital                                                                                                       

			2009 US$'000 (unaudited)	2008 US$'000 (audited)
Authorised:
4,400,000,000 (2008: 4,400,000,000) Ordinary shares of US$0.02 each			88,000	88,000
Issued:
46,765,871 (2008: 44,341,580) Ordinary shares of US$0.02 each			935	887

(b) Share issued during the year

	Note	Issue value per share		Shares	Share capital	Share premium
		GBP	US$		US$'000	US$'000
At 1 January 2009				44,341,580	887	32,422
Share issued on 15 May 2009	(i)	0.39	0.59	2,424,291	48	1,379
Share issue costs				-	-	(58)
Expiry of warrant				-	-	47
				46,765,871	935	33,790

(i) On 15 May 2009, 2,424,291 new ordinary shares were issued to the former shareholders of K2 Specialist Services Pte Ltd ("K2"), pursuant to an agreement dated 19 October 2007 between K2 and Velosi Industries Sdn Bhd, following the satisfaction of the entire profit guarantee of SGD4,000,000 (approximately £1.34 million) aggregate profit after tax and minority interests, set for the stipulated guarantee period and based on achievement of performance targets by K2 for the financial year ended 31 December 2008.

(c) Share options
			Number of shares		Weighted average exercise price per share		Weighted average remaining contractual life (years)
	Balance at 1 January 2009 - exercisable		2,067,708		103p		1.816
	Options granted in the year- exercisable		1,360,000		65.5p		2.42
	Balance at 31 December 2009 - exercisable (unaudited)		3,427,708		87.92p		2.06
	Balance at 31 December 2008 - exercisable		2,067,708		103p		1.816

The fair value of the share options granted has been calculated using the Black-Scholes option-pricing model individually applied to each option granted.   The inputs into the model were as follows:

			Issued on 19 May 2009
Share price			66.5p
Exercise price			65.5p
Expected volatility			58.2%
Expected life			3 years
Risk free rate			5%

The expected volatility represents management's best estimate of volatility given the lack of historical information available regarding share price volatility.

(d) Warrants
				Number of shares		Weighted average exercise price per share
Balance at 1 January 2009- exercisable				476,749		90p
Warrants granted in the year- exercisable				-
Warrants expired in the year				(476,749)
Balance at 31 December 2009 (unaudited)				-		-
Balance at 31 December 2008 - exercisable				476,749		90p

The fair value of the warrants granted was calculated using the Black-Scholes option-pricing model individually applied to each warrant granted. The inputs into the model were as follows:

			Issued on 21 October 2006
Share price			128p
Exercise price			150p
Expected volatility			35%
Expected life			0 years
Risk free rate			5%

8.         Deferred consideration      

	PSC Italy	K2	Total
	US$'000	US$'000	US$'000
Deferred contingent consideration
Outstanding as at 1 January 2009	1,269	1,404	2,673
Foreign exchange translation difference	18	24	42
Consideration settled in the year	-	(1,428)	(1,428)
Outstanding as at 31 December 2009 (unaudited)	1,287	-	1,287

The provisional deferred consideration consists of cash and shares.

On 15 May 2009, 2,424,291 new ordinary shares were issued to shareholders of K2 Specialist Services Pte Ltd ("K2"), pursuant to an agreement dated 19 October 2007 between K2 and Velosi Industries Sdn Bhd, following the satisfaction of the entire profit guarantee of SGD4,000,000 (approximately £1.34 million) aggregate profit after tax and minority interests, set for the stipulated guarantee period and based on achievement of performance targets by K2 for the financial year ended 31 December 2008.

9.         Commitments under operating leases

The following are the annual commitments under non-cancellable operating leases:

	2009			2008
		Land and buildings			Land and buildings
		US$'000			US$'000
		(unaudited)			(audited)
Operating leases which expire:
Within one year		472			600
In two to five years		125			439
Over five years		127			-
		724			1,039

The contingent rent payable is determined by multiplying the monthly charge by the number of months left until the maturity of the service / lease agreement. For one of the tenancies, there is an option for the subsidiary to extend the term of the agreement on a yearly basis, by giving at least 2 months notice and to enjoy the same rate unless the owner of the land increases the rate. However, if notice is given, the landlord may increase the monthly rate by 10% after the two years term has expired.

For another tenancy, there is an option for the subsidiary to renew the term of the agreement for another 3 years. The monthly rental is subject to revision from time to time in accordance with the rental rate imposed by Housing Development Board of the landlord. There are no restrictions imposed by lease arrangements such as those concerning dividends, additional debt, and further leasing.

10.      Contingent liabilities

			Group 2009	Group 2008
			US$'000	US$'000
			(unaudited)	(audited)
Letter of guarantee			-	819
Performance bond guarantee			2,285	107

11.       Dividends

The Directors propose a final dividend of US$0.015 per ordinary share to shareholders in respect of the financial year ended 31 December 2009 (2008: US$0.01).

12.       Post balance sheet events

Pursuant to an agreement dated 9 February 2010, Velosi Limited acquired the Velosi trading name in Malaysia for a purchase consideration of up to RM23,333,333 (approximately US$6.803 million). This amount is to be paid by way of issuance of new Velosi shares to be issued in three tranches with the initial consideration of RM7,933,333 (approximately US$2.313 million) to be settled by the issue of 1,618,677 consideration shares on 15 February 2010. Subject to the achievement of certain performance criteria towards end of 3rd quarter of 2011, a further RM7,933,333 (approximately US$2.313 million) consideration shares will be issued. In addition, the remaining balance will be issued upon achievement of the guaranteed income by end of 30 June 2012.

13.       Nature of financial information

These preliminary results will be available on the Company's website www.velosi.com. Further copies can be obtained from the registered office at 28-34 Hill Street, St Helier, Jersey, JE4 5TF.

 

END

 

 

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