Final Results - Part 2

Expro International Group PLC 31 May 2006 NOTES TO THE CONSOLIDATED ACCOUNTS Year ended 31 March 2006 1. General information Expro International Group PLC is a company incorporated in England and Wales under the Companies Act 1985 and is domiciled in the United Kingdom. The nature of the group's operations and its principal activities are set out in note 4 and within the directors' report. The financial information set out above does not constitute the Company's statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts of the Company for the year ended 31 March 2005 have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statements under Section 237(2) or (3) of the Companies Act 1985. The auditors' report for the year ended 31 March 2006 is unqualified and does not contain any statements under Section 237(2) or (3) of the Companies Act 1985. These accounts have been prepared in accordance with the accounting policies set out below. The statutory accounts for the year ended 31 March 2006 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement, and will be delivered to the Registrar of Companies following the Company's annual general meeting. At the date of authorisation of these financial statements, the group had not adopted the amendment to IAS 39 relating to cash flow hedge accounting of forecast intragroup transactions. In accordance with the transitional provisions of this amendment, the group will not adopt this standard until 1 April 2006. The directors anticipate that the adoption of this amendment will have no material impact on the financial statements of the group. In addition, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective: IFRS 7 Financial instruments: Disclosures; and the related amendment to IAS 1 on capital disclosures IFRIC 4 Determining whether an Arrangement contains a Lease The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the group except for additional disclosures on capital and financial instruments when the relevant standards come into effect for periods commencing on or after 1 January 2007. 2. Significant accounting policies Basis of preparation The consolidated financial information has been prepared under the historical cost convention, except for the revaluation of certain financial instruments, in accordance with International Financial Reporting Standards ("IFRS") and the Companies Act 1985 as applicable to companies reporting under IFRS. The financial statements have been prepared in accordance with IFRS adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The group adopted IFRS with a transition date of 1 April 2004, with the exception of IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement which have been applied prospectively from 1 April 2005. The figures for the year ended 31 March 2005 which were previously reported in accordance with UK GAAP have been restated to comply with IFRS. IFRS 1 First-time Adoption of IFRS allows certain exemptions from the retrospective application of IFRS prior to 1 April 2004. Where these exemptions have been used, they are explained under the relevant headings below. Basis of consolidation The consolidated financial information includes the results, cash flows and assets and liabilities of Expro International Group PLC (the company) and the enterprises under its control (its subsidiaries). Control is defined as the ability to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. Minority interests represent the portion of profit or loss and net assets in subsidiaries that are not held by the group and are presented separately within equity in the consolidated balance sheet. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal. Adjustments are made, where necessary, to the financial statements of subsidiaries to bring their accounting policies into line with group policies. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. The group has elected not to apply IFRS 3 Business Combinations to business combinations that took place before 1 April 2004. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of trade discounts, VAT and other sales related taxes. With the exception of goods sold under construction contracts, sales of goods are normally recognised when goods are delivered and title has passed. Research and development Expenditure on research activities is charged as an expense in the period in which it is incurred. Development costs which are expected to generate probable future economic benefits would be capitalised in accordance with IAS 38 Intangible Assets and amortised on a straight-line basis over their useful economic lives. All other development expenditure is charged to the income statement. Construction contracts Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date. Stage of completion is determined by reference to the extent to which obligations identified at the commencement of the contract are considered to have been met. These obligations may be contractual or non-contractual. Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent that it is probable that contract costs incurred will be recovered. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense. Share-based payments The group has applied the requirements of IFRS 2 Share-based Payment. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 which had not vested as of 1 January 2005. The group operates a number of equity-settled share-based payment schemes under which shares are issued to certain employees. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight- line basis over the vesting period. For schemes with only market based performance conditions, those conditions are taken into account in arriving at the fair value at the grant date. Accordingly, no subsequent adjustment to the amortised fair value is made for achievement or otherwise of those conditions. For schemes that include non-market based conditions or no conditions, a "true- up" model is applied to the expense at each reporting date based on the expected number of shares that will eventually vest. Fair value is measured by use of a "random walk" stochastic model which takes into account exercise price, share price at date of grant, expected life, expected volatility of the share price, risk free interest rate and the expected dividend yield. Goodwill Goodwill represents the excess of the cost of acquisition over the group's interest in the fair value of the identifiable assets and liabilities of the acquiree. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is tested annually for impairment with any impairment being charged to the income statement as it arises. For the purpose of impairment testing, goodwill is allocated to each of the group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount, the impairment loss is first allocated to reduce the carrying amount of any goodwill allocated to the unit. Any remainder is then allocated to the assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, associate or joint venture operation, the attributable amount of goodwill is included in the determination of the gain on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Intangible assets Intangible assets, which include patents, licences and capitalised software expenditure, are stated at cost less accumulated amortisation and impairment losses. Amortisation is provided on a straight-line basis over the useful life of the asset as follows: Patents and licences - between 1 and 35 years Trade names - between 10 and 15 years Customer relationships and contracts - between 5 and 15 years Other - between 1 and 10 years Intangible assets arising from a business combination whose fair value can be reliably measured are separated from goodwill and amortised on a straight line basis over their useful economic lives. Provision is made for any impairment. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Interests in joint ventures A joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity that is subject to joint control. Joint control is defined as when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The group reports its interests in joint ventures using the equity method. Property, plant and equipment Property, plant and equipment are shown at historical cost, net of accumulated depreciation and any provision for impairment. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected useful life as follows: Property - leasehold - between 15 and 30 years - freehold - 50 years Plant and equipment - between 3 and 12 years Assets in the course of construction are shown at historical cost less any provision for impairment. Depreciation on these assets commences when they are placed in service. Assets attributable to specific projects are depreciated over the useful life of the relevant project. Assets held under finance leases are depreciated over their expected useful lives on the same basis as equivalent owned assets or, where shorter, over the term of the relevant lease. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and where applicable, direct labour costs and overheads that have been incurred in bringing the inventories to their current location and condition. Cost is calculated using the average cost method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Cash Cash comprises cash-in-hand and bank overdrafts, where there is right of set off. Bank overdrafts are presented as current liabilities to the extent that there is no right of offset with cash balances. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. Assets held under finance leases are recognised as assets at the lower of their fair value and the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as finance leases. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement. Taxation The tax expense represents the sum of the current tax payable and deferred tax. The current tax payable is based on the taxable profit for the year. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are regarded as recoverable and therefore recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from non- deductible goodwill, from the initial recognition of goodwill, or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiary undertakings and jointly controlled entities except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis. Retirement benefits The group provides pensions to its employees and directors through defined benefit and defined contribution pension schemes. The schemes are wholly funded and their assets are held independently by trustees. Payments to defined contribution benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. For defined benefit pension schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date. The group has applied the provisions of IAS 19 and its amendment of December 2004 in full. Subsequently actuarial gains and losses are recognised in full in the period in which they occur. These gains and losses are not shown in the income statement but instead are recognised in the statement of recognised income and expense. Past service cost is recognised immediately to the extent that the benefits are already vested, or is otherwise amortised on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds in future contributions to the plan. In accordance with the provisions of IAS 19 Employee Benefits all cumulative actuarial gains and losses on the group's defined benefit pension schemes have been recognised in equity on the date of transition. Foreign currencies In preparing the financial statements of the individual companies that comprise the group, transactions in currencies other than the entity's functional currency are recorded at the rates of exchange prevailing on the date of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value is determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On consolidation, income statements of foreign operations are translated into sterling at monthly average rates which approximate to the actual rate for the relevant accounting periods. Assets and liabilities are translated at exchange rates ruling at the balance sheet date. Exchange differences on all balances, except foreign currency loans accounted for as net investment hedges, are taken to the income statement. Exchange differences arising on consolidation of the net investments in overseas subsidiaries and joint ventures together with those on foreign currency loans accounted for as net investment hedges, are taken to equity. An intragroup monetary item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the group's net investment in the foreign operation. Exchange differences arising on a monetary item that forms part of the group's net investment in a foreign operation is recognised in a separate component of equity. On disposal of foreign operations, the cumulative amount of exchange differences previously recognised directly in equity for that foreign operation are to be transferred to the income statement as part of the profit or loss on disposal. As permitted by IFRS 1, the group has reset these cumulative translation differences to zero on the transition to IFRS. Financial instruments As permitted by IFRS 1, the group has elected to apply IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement prospectively from 1 April 2005. As a result, the relevant comparative information for the year ended 31 March 2005 does not reflect the impact of these standards and is accounted for in accordance with UK GAAP. The adoption of IAS 32 and IAS 39 represents a change in accounting policy and in accordance with the transitional provisions of IFRS 1 the balance sheet at 31 March 2005 has not been restated. Trade receivables Trade receivables are measured at initial recognition at fair value, and subsequently measured at amortised cost. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis to the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost. Equity instruments Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments and hedge accounting The group's activities expose it to the financial risks of changes in foreign currency exchange rates and interest rates. The group uses derivative financial instruments, principally forward foreign currency contracts and interest rate swaps and caps, to reduce its exposure to exchange rate and interest rate movements. The group does not enter into derivatives for speculative or trading purposes. The use of financial derivatives is governed by the group's policies approved by the Board of Directors, which provides written principles on the use of financial derivatives. Under IFRS derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. Provided that conditions specified by IAS 39 are met, a derivative financial instrument can be designated as a hedging instrument and hedge accounting can be applied. When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent that the hedge is effective, changes in the fair value of the hedging instrument are recognised directly in equity rather than in the income statement. Any ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted transaction resulted in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects profit or loss. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. Hedge accounting is discontinued when the hedging instrument expires, is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the group's accounting policies, management necessarily makes judgements and estimates that have a significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could result in a significant impact on the financial statements. The most critical of these are: Useful economic lives of property, plant and equipment In order to carry out the group's operations, it is necessary for it to hold significant amounts of property, plant and equipment. At 31 March 2006, the carrying value of property, plant and equipment was Â£95.4m (2005: Â£72.4m). These assets are depreciated in accordance with the policy outlined within this note. Management reviews the appropriateness of assets' useful economic lives at least annually and assesses any changes which could affect prospective depreciation rates and asset carrying values. Management believe that its approach to assessing useful economic lives, and in particular its assessment of whether assets are attributable to specific projects, is prudent. Goodwill and intangible asset impairments The group is comprised of a number of products and services which arise from internal development expenditure or through the acquisition of specific businesses. Management necessarily applies its judgement in allocating assets that do not generate independent cash flows to appropriate cash-generating units (CGUs), and also in estimating the timing and value of underlying cash flows within the value in use calculation. Subsequent changes to the CGU allocation or to the timing of asset cash flows could impact the respective assets. Taxation The group's operations have wide geographical coverage, resulting in differing taxation regimes depending on the location in which those activities take place. The effective rate reflects this broad geographic spread of profits, unrecoverable losses in certain territories, a variety of imputed and higher rate overseas tax regimes and non-deductible items. Accounting provision must be made for taxation liabilities before tax returns are filed, and review or audit of these returns by the local taxation authorities can take place several years later. Management makes provision for taxation liabilities on what it believes to be a fair and reasonable calculation of the probable liability, which includes recognition of deferred tax assets or liabilities on temporary differences between accounting and taxable profit. Changes in the underlying assumptions regarding the reversal of these differences, or in the tax regime where the differences arise, could result in significant changes in the carrying value of tax assets or liabilities. 3. Revenue An analysis of the group's revenue is as follows: 2006 2005 Â£'000 Â£'000 Rendering of services 251,176 172,706 Sale of goods 39,432 30,722 Revenue from construction contracts 10,119 7,845 -------- ------- 300,727 211,273 Investment income (see note 8) 3,855 3,055 -------- ------- 304,582 214,328 ======== ======= 4. Business and geographical segments For management purposes, the group is organised into two operating divisions - Regional businesses and Global businesses. These divisions are the basis on which the group reports its primary segment information. Principal activities are as follows: Regional businesses provide services which are primarily driven by customer operating expenditure. Customer requirements are often for a short period of time, and delivery is made through, and supported by, the group's locally established infrastructure. Global businesses provide products and services which are primarily driven by customer capital expenditure. These products and services, which are often based upon bespoke engineering or technology based solutions, are delivered remotely over a long term and are typically for offshore projects. Segment information about these businesses is presented below. Regional Global Total Regional Global Total businesses businesses businesses businesses 2006 2006 2006 2005 2005 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Continuing operations Segment revenue External revenue 169,482 131,245 300,727 131,603 79,670 211,273 ------- ------- ------- ------- ------- ------- Segment result Headline segment profit (a) 19,369 26,107 45,476 10,791 15,929 26,720 Goodwill impairment - - - (4,657) (314) (4,971) Inventory impairment - - - (1,546) - (1,546) ------- ------- ------- ------- ------- ------- Segment operating profit 19,369 26,107 45,476 4,588 15,615 20,203 Unallocated corporate expenses (11,360) (7,702) -------- ------- Operating profit 34,116 12,501 ======== ======= Joint ventures, which are equity accounted for, are all attributable to the Global businesses segment. (a) Headline segment profit is before special items. Special items include significant impairments and gains on disposal of discontinued operations. 4. Business and geographical segments (continued) Regional Global Regional Global businesses businesses Unallocated Total businesses businesses Unallocated Total 2006 2006 2006 2006 2005 2005 2005 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Other information Capital additions 20,032 35,497 2,655 58,184 6,192 29,432 899 36,523 Depreciation and amortisation 8,225 20,201 3,488 31,914 7,604 7,352 5,335 20,291 Impairment losses 718 - - 718 6,056 461 - 6,517 Balance sheet Assets Segment assets 137,600 98,260 56,116 291,976 105,129 77,517 13,546 196,192 Joint ventures - - - - - 3,242 - 3,242 ------- ------- ------- ------- ------- ------- ------- ------- Total assets 137,600 98,260 56,116 291,976 105,129 80,759 13,546 199,434 ------- ------- ------- ------- ------- ------- ------- ------- Liabilities Segment liabil- ities (46,559) (31,613) (104,254) (182,426) (33,222) (16,799) (96,223) (146,244) ------- -------- -------- --------- -------- -------- -------- --------- Total net assets 91,041 66,647 (48,138) 109,550 71,907 63,960 (82,677) 53,190 ======= ======= ======== ======= ======== ======== ======== ========= Geographical segments The group's operations are analysed between Europe FSU (a), Africa Middle East, Asia (b) and Americas. The following table provides an analysis of the group's sales by geographical market: 2006 2005 Â£'000 Â£'000 Europe FSU (a) 130,792 101,441 Africa Middle East 62,269 41,630 Asia (b) 59,179 30,935 Americas 48,487 37,267 ------- ------- 300,727 211,273 ======= ======= The following is an analysis of the carrying amount of segment assets, and additions to goodwill, property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located: Carrying value of Non-current asset assets additions 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Europe FSU (a) 95,259 113,508 9,586 12,624 Africa Middle East 55,636 31,255 18,832 2,430 Asia (b) 33,775 36,258 9,291 17,215 Americas 51,190 4,867 17,820 3,355 Unallocated 56,116 13,546 2,655 899 ------- ------- ------- ------- 291,976 199,434 58,184 36,523 ======= ======= ======= ======= (a) Former Soviet Union (b) Sakhalin Island is included within Asia for segmental reporting purposes. 5. Operating profit/(loss) Operating profit/(loss) has been arrived at after charging/(crediting): 2006 2005 Â£'000 Â£'000 Net foreign exchange losses/(gains) 610 (3,348) Research and development 2,408 1,535 Amortisation of purchased intangible assets 734 1,197 Amortisation of intangible assets arising from acquisitions 735 103 Depreciation of property, plant and equipment 30,445 18,991 Goodwill impairment (see note 14) - 4,971 Intangible asset impairment (see note 15) 718 - Inventory impairment - 1,546 Cost of inventories 46,571 35,198 Staff costs (see note 7) 87,774 67,827 Auditors' remuneration for audit services (see below) 252 241 ======= ======= Amounts payable to Deloitte & Touche LLP and their associates by the company and its UK subsidiary undertakings in respect of non-audit services were Â£237,000 (2005: Â£232,000). A more detailed analysis of auditors' remuneration on a worldwide basis is provided below. 2006 2005 Â£'000 Â£'000 Statutory audit 252 241 ---- ---- Further assurance services 105 14 Tax compliance services 39 101 Tax advisory services 93 117 ---- ---- Total non-audit services 237 232 ---- ---- 489 473 ==== ==== A description of the work of the audit committee is set out in the corporate governance statement and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors. 6. Joint ventures On 31 October 2005 the group disposed of its 50% holding of the ordinary share capital in the following companies; QuantX Wellbore Instrumentation Limited, QuantX Wellbore Instrumentation LLC and QuantX Wellbore Instrumentation (International) Limited, including the subsidiaries of QuantX Wellbore Instrumentation Limited, Blenheim Technology Group Limited and Plus Design Limited, which carried out all of the group's permanent monitoring operations. 31 October 31 March 2005 2005 Â£'000 Â£'000 Share of assets Non-current assets 1,763 1,768 Current assets 6,777 3,680 ----- ----- 8,540 5,448 ----- ----- Share of liabilities Current liabilities (4,778) (2,206) ------- ------- Share of net assets 3,762 3,242 Disposal (3,762) ======= ------- - ======= Post tax gain from disposal of joint ventures Cash consideration received in the current year 15,319 Payable due to acquirer (996) Contribution by acquirer to pension deficit (see note 31) 1,465 ------ Net consideration 15,788 Less share of net assets (3,762) Foreign exchange transferred from translation reserve (365) Costs of disposal (200) ------ Gain on disposal of joint ventures 11,461 Tax (1,800) ------- Post tax gain from disposal of joint ventures 9,661 ======= As joint ventures are equity accounted for, there are no cash flows attributable to the operating, investing and financing activities of discontinued operations. Post tax profit from joint ventures 2006 2005 2005 Â£'000 Â£'000 Â£'000 Discontinuing Continuing Discontinuing Share of revenue 7,765 3,125 8,879 Share of costs (7,062) (1,087) (7,874) Share of tax (262) - (347) ------- ------- ------- Share of post tax profit 441 2,038 658 ======= ======= ======= All activities of the joint ventures were attributable to the Global businesses segment. During the prior year, the group held a joint venture interest in Expro Swire Production Limited. This interest was disposed of on 31 March 2005. The results were not treated as discontinued as the sale of the joint venture did not represent the discontinuance of a separate major line of business nor a withdrawal from a geographical location. The balance of consideration due in respect of this disposal, which amounted to Â£4,797,000, was received on 3 May 2005. 7. Staff costs The average monthly number of employees (including executive directors) was: 2006 2005 Number Number Operational 2,205 1,864 Administrative 90 90 ------ ------ 2,295 1,954 ====== ====== 2006 2005 Â£'000 Â£'000 Their aggregate remuneration comprised: Wages and salaries 76,901 58,942 Social security costs 6,446 5,116 Other pension costs 4,427 3,769 ------ ------ 87,774 67,827 ====== ====== The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate: 2006 2005 Â£'000 Â£'000 Short-term employee benefits 1,661 1,196 Post-employment benefits 144 102 Share-based payments 424 276 ------ ------ 2,229 1,574 ====== ====== The numbers of directors who are members of the group's retirement benefit schemes are set out below: 2006 2005 Number Number Defined benefit scheme 3 3 Defined contribution scheme 1 1 ----- ----- 4 4 ===== ===== 8. Investment income 2006 2005 Â£'000 Â£'000 Interest on bank deposits 623 407 Expected return on defined benefit plan assets 3,232 2,648 ----- ----- 3,855 3,055 ===== ===== 9. Finance costs 2006 2005 Â£'000 Â£'000 Interest on bank overdrafts and loans 3,534 2,759 Interest on finance leases 663 601 Finance cost on retirement benefit obligation 3,977 3,127 Unwinding of discount on provisions 137 156 Fair value losses on interest rate swap and cap 98 - ----- ----- Total finance costs 8,409 6,643 ===== ===== 10. Tax 2006 2005 Â£'000 Â£'000 Current tax: UK corporation tax 1,638 2,527 Foreign tax 11,821 5,451 ------ ------ 13,459 7,978 Deferred tax (note 22): ------ ------ Current year (1,739) (514) Prior year (516) 365 ------ ------ (2,255) (149) ------ ------ 11,204 7,829 ====== ====== UK corporation tax is calculated at 30% (2005: 30%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as follows: 2006 2005 Â£'000 Â£'000 Profit before tax 29,562 10,951 ====== ====== Tax at the UK corporation tax rate of 30% (2005: 30%) 8,869 3,285 Tax effect of expenses that are not deductible in determining taxable profit 728 1,936 Tax effect of utilisation of tax losses not previously recognised (1,677) (375) Tax effect of non-utilisation of tax losses 2,274 1,746 Effect of different tax rates of subsidiaries operating in other jurisdictions 1,341 825 Adjustments to prior year provisions (290) 400 Other (41) 12 ------ ------ Tax expense and effective tax rate for the year 11,204 7,829 ====== ====== 11. Dividends 2006 2005 Â£'000 Â£'000 Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 March 2005 of 7.1p per share (2004: 7.1p per share) 5,182 4,692 Interim dividend for the year ended 31 March 2006 of 3.8p per share (2005: 3.8p per share) 2,774 2,512 ----- ----- 7,956 7,204 ===== ===== Proposed final dividend for the year ended 31 March 2006 of 7.1p per share (2005: 7.1p per share) 5,203 4,706 ===== ===== The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 12. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 2006 2005 Â£'000 Â£'000 Earnings Profit for the year 28,460 3,780 Less minority interest (49) (1) ------ ------ Earnings attributable to equity holders of the parent - continuing and discontinued 28,411 3,779 Less discontinued operations (10,102) (658) ------ ------ Earnings for the purpose of basic earnings per share - continuing 18,309 3,121 Special items Goodwill impairment - 5,697 Inventory impairment - 1,546 Release of contract provision - (1,464) ------ ------ Earnings for the purpose of headline earnings per share 18,309 8,900 Amortisation of intangible assets arising from acquisitions 735 103 Post tax profit from discontinued joint venture operations 441 658 ------ ------ Earnings for the purpose of underlying earnings per share 19,485 9,661 ====== ====== Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 71,791,774 66,110,613 Effect of dilutive potential ordinary shares: Share options 1,160,665 617,745 ---------- -------- Weighted average number of ordinary shares for the purposes of diluted earnings per share 72,952,439 66,728,358 ========== ========== Earnings per share From continuing operations Basic 25.5p 4.7p ===== ===== Diluted 25.1p 4.7p ===== ===== From continuing and discontinued operations Basic 39.6p 5.7p ===== ===== Diluted 38.9p 5.7p ===== ===== From discontinued operations Basic 14.1p 1.0p ===== ===== Diluted 13.8p 1.0p ===== ===== Headline Basic 25.5p 13.5p ===== ===== Diluted 25.1p 13.3p ===== ===== Underlying Basic 27.1p 14.6p ===== ===== Diluted 26.7p 14.5p ===== ===== Headline earnings per share are based on profit from continuing operations before special items. Special items comprise significant impairments, gains on disposal of discontinued operations and, in the case of joint ventures, the release of a contract provision. Underlying earnings per share are based on profit from continuing and discontinued operations before special items and the amortisation of intangible assets which arise from acquisitions. 13. Subsidiaries A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given in note 38 to the company's separate financial statements. 14. Goodwill Â£'000 Cost At 1 April 2004 19,988 Acquisition of subsidiary 3,275 Exchange differences (58) ------- At 1 April 2005 23,205 Acquisition of subsidiary 2,260 Exchange differences 415 ------- At 31 March 2006 25,880 ------- Accumulated impairment losses At 1 April 2004 - Impairment 4,971 Exchange differences 68 ------- At 1 April 2005 5,039 Impairment - Exchange differences 330 ------- At 31 March 2006 5,369 ------- Carrying amount At 31 March 2006 20,511 ======= At 31 March 2005 18,166 ======= Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. No individual CGU is considered significant in comparison with the total carrying value of goodwill. Before recognition of impairment losses the carrying amount of goodwill, which is comprised of several CGUs, had been allocated as follows: 2006 2005 Â£'000 Â£'000 Regional businesses 15,744 13,070 Global businesses 10,136 10,135 ------ ------ 25,880 23,205 ====== ====== The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the year. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The group prepares cash flow forecasts derived from the most recent financial forecasts for the next two years and extrapolates cash flows for the following three years based on an estimated growth rate of 3%. This rate does not exceed the average long-term growth rate for the relevant markets. A pre-tax discount rate of 13.5% is used. No impairment of goodwill is required for the year ended 31 March 2006. An impairment charge of Â£4,971,000 was made in the year ended 31 March 2005 of which Â£4,000,000 related to the impairment against the carrying value of goodwill of Tripoint Inc. which was acquired on 1 February 2000. 15. Intangible assets Patents and Customer licences relationships Trade names Other Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Cost At 1 April 2004 4,466 - - 2,226 6,692 Additions 281 - - 36 317 Acquisition of subsidiary - 1,623 571 1,195 3,389 Disposals (240) - - - (240) Exchange differences (59) - - (59) ------ ------ ------ ------ ------ At 1 April 2005 4,448 1,623 571 3,457 10,099 Additions 100 - - - 100 Acquisition of subsidiary 2,191 632 850 - 3,673 Disposals - - - (1,136) (1,136) Exchange differences 335 111 88 43 577 ------ ------ ------ ------ ------ At 31 March 2006 7,074 2,366 1,509 2,364 13,313 ------ ------ ------ ------ ------ Amortisation At 1 April 2004 487 - - 1,286 1,773 Charge for the year 578 27 6 689 1,300 Disposals (89) - - - (89) Exchange differences (4) - - - (4) ------ ------ ------ ------ ------ At 1 April 2005 972 27 6 1,975 2,980 Charge for the year 787 212 107 363 1,469 Disposals - - - (1,136) (1,136) Impairment 718 - - - 718 Exchange differences 44 5 3 9 61 ------ ------ ------ ------ ------ At 31 March 2006 2,521 244 116 1,211 4,092 ------ ------ ------ ------ ------ Carrying amount At 31 March 2006 4,553 2,122 1,393 1,153 9,221 ====== ====== ====== ====== ====== At 31 March 2005 3,476 1,596 565 1,482 7,119 ====== ====== ====== ====== ====== An impairment charge of Â£718,000 was made during the year ended 31 March 2006 (2005: Â£nil) in respect of patents. 16. Property, plant and equipment Assets in Land and Plant and the course of buildings equipment construction Total Â£'000 Â£'000 Â£'000 Â£'000 Cost At 1 April 2004 7,711 150,907 - 158,618 Additions - 13,412 16,045 29,457 Acquisition of subsidiary - 85 - 85 Exchange differences (54) (1,558) (206) (1,818) Disposals - (5,765) - (5,765) ------ ------- ------- ------- At 1 April 2005 7,657 157,081 15,839 180,577 Additions 1,839 23,349 26,237 51,425 Transfers - 21,999 (21,999) - Acquisition of subsidiary - 726 - 726 Exchange differences 140 7,125 615 7,880 Disposals - (11,507) - (11,507) ------ ------- ------- ------- At 31 March 2006 9,636 198,773 20,692 229,101 ------ ------- ------- ------- Accumulated depreciation At 1 April 2004 1,297 93,770 - 95,067 Charge for the year 500 18,491 - 18,991 Exchange differences (6) (1,289) - (1,295) Disposals - (4,612) - (4,612) ------ ------- ------- ------- At 1 April 2005 1,791 106,360 - 108,151 Charge for the year 625 29,820 - 30,445 Exchange differences (28) 4,000 - 3,972 Disposals - (8,890) - (8,890) ------ ------- ------- ------- At 31 March 2006 2,388 131,290 - 133,678 ------ ------- ------- ------- Carrying amount At 31 March 2006 7,248 67,483 20,692 95,423 ====== ======= ======= ======= At 31 March 2005 5,866 50,721 15,839 72,426 ====== ======= ======= ======= The carrying amount of the group's land and buildings and plant and equipment in respect of assets held under finance leases is as follows: 2006 2005 Â£'000 Â£'000 Land and buildings 7,196 5,921 Plant and equipment 580 272 ------ ------ 7,776 6,193 ====== ====== At 31 March 2006, the group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to Â£17.9m (2005: Â£4.0m). 17. Inventories 2006 2005 Â£'000 Â£'000 Raw materials 3,948 3,258 Consumables 12,930 10,905 Work-in-progress 2,359 1,050 ------ ------ 19,237 15,213 ====== ====== 18. Construction contracts 2006 2005 Â£'000 Â£'000 Contracts in progress at balance sheet date: Amounts due from contract customers included in trade and other receivables 3,587 3,930 Amounts due to contract customers included in trade and other payables (704) (297) ------ ------ 2,883 3,633 ====== ====== Contract costs incurred plus recognised profits less recognised losses to date 17,699 12,793 Less: progress billings (14,816) (9,160) ------ ------ 2,883 3,633 ====== ====== No customer retentions or advances existed in the current or prior year. Trade receivables arising from construction contracts are all due for settlement within one year. 19. Trade and other receivables 2006 2005 Â£'000 Â£'000 Trade receivables 65,412 54,563 Impairment provision (2,663) (2,176) ------ ------ 62,749 52,387 Accrued income 25,294 8,649 Prepayments 3,800 2,870 Receivables from joint ventures - 1,685 Receivable due from disposal of joint ventures - 4,797 Other receivables 3,734 4,401 ------ ------ 95,577 74,789 ====== ====== At 31 March 2006 and 31 March 2005 there were no significant risk weighted concentrations of credit risk with exposure spread over a large number of customers and counter-parties. 20. Trade and other payables 2006 2005 Â£'000 Â£'000 Trade payables 21,483 15,325 Accruals 34,461 20,899 Deferred income 9,925 2,495 Payables to joint ventures - 1,801 Other tax and social security 2,069 1,327 Payable due to acquirer of joint ventures (see note 6) 996 - Other payables 4,225 3,443 ------ ------ 73,159 45,290 ====== ====== 21. Bank loans 2006 2005 Â£'000 Â£'000 Bank loans 62,699 58,715 ====== ====== The bank loans are repayable as follows: In the second year 22,392 20,173 In the third year 4,651 964 In the fourth year 6,718 4,336 In the fifth year 8,268 6,263 After five years 20,670 26,979 ------ ------ Included in non-current liabilities 62,699 58,715 ====== ====== Analysis of bank loans by currency and average 2006 2006 2005 2005 interest rates paid: Â£000 % Â£000 % US Dollars 46,109 5.5 42,747 3.5 Canadian Dollars 4,935 4.0 4,365 4.0 Euros 6,954 3.8 6,883 3.8 Australian Dollars 4,701 7.2 4,720 6.9 ------ ------ 62,699 58,715 ====== ====== Weighted average interest rates paid: 2006 2005 % % Bank loans 5.3 3.8 The group operates a prudent approach to liquidity management using a mixture of long-term and short-term debt together with cash to meet its liabilities when they fall due. The group's core funding is provided by a Â£115m multi-currency facility comprising a Â£45m term loan facility, a Â£25m revolving credit facility and a Â£45m bank overdraft facility. All borrowings and overdrafts are arranged at floating interest rates and expose the group to cash flow interest rate risk. The fair value of the group's borrowings is nominal value, as mark to market differences would be minimal given frequency of resets. The bank overdraft is drawn under the group's Â£45m multi-option bank overdraft, foreign exchange and bonding facility. This facility carries an interest rate of 1% above LIBOR and is renewable on an annual basis with the next renewal taking place on 30 June 2006. The overdraft facility was not in use on either of the balance sheet dates. The bank loans comprise drawings under the group's Â£25m three year, multi-currency revolving credit facility carrying an interest rate of 1.4% above LIBOR, and under the group's Â£45m multi-currency term loan facility carrying an interest rate of 1.75% above LIBOR. The loans re-price at a frequency of between one and six months. The outstanding amount under the revolving credit facility is repayable on 30 June 2007, and the outstanding amount under the term loan facility is repayable in annual instalments over the period 30 June 2007 to 30 June 2011. These facilities are secured by fixed and floating charges over the assets of the group. At 31 March 2006 the group had Â£52m of committed borrowing facilities available. The loans are collectively a designated net investment hedge against the group's overseas subsidiaries. Foreign exchange movements in the fair value of the loans are recognised directly in equity, offset against foreign exchange movements in the net investment. 22. Deferred tax The following are the major deferred tax liabilities and assets recognised by the group and movements thereon during the current and previous years. Accelerated Retirement tax Tax benefit depreciation losses obligations Other Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2004 (3,341) 2,338 4,559 (3,404) 152 Credit/(charge) to income 2,447 (1,319) - (979) 149 Credit to equity - - 2,438 351 2,789 Other (1,162) (1,162) Exchange differences - (79) - (8) (87) ------ ------ ------ ------ ------ At 1 April 2005 (894) 940 6,997 (5,202) 1,841 Credit/(charge) to income 2,116 (1,018) 65 1,092 2,255 Credit/(charge) to equity - - (1,381) 1,948 567 Other - - - (877) (877) Exchange differences 73 78 - - 151 ------ ------ ------ ------ ------ At 31 March 2006 1,295 - 5,681 (3,039) 3,937 ====== ====== ====== ====== ====== Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis of the deferred tax balances for financial reporting purposes: 2006 2005 Â£'000 Â£'000 Deferred tax assets 6,365 3,470 Deferred tax liabilities (2,428) (1,629) ------ ------ 3,937 1,841 ====== ====== At the balance sheet date, the group has unused tax losses of Â£1.1m (2005: Â£5.4m) available for offset against future profits. A deferred tax asset has not been recognised in respect of such losses due to the unpredictability of future profit streams (2005: deferred tax asset Â£1.1m). These losses will expire in 2025. 23. Derivative financial instruments As permitted by IFRS 1, the group has elected to apply IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement prospectively from 1 April 2005. As a result, the relevant comparative information for the year ended 31 March 2005 does not reflect the impact of these standards and is accounted for in accordance with UK GAAP. Had IAS32 and IAS39 been adopted for the year ended 31 March 2005 and the balance sheet been restated as at that date, a net financial asset of Â£534,000 and an associated net deferred tax asset of Â£13,000 would have been recognised. Currency derivatives The group utilises currency derivatives to hedge significant future transactions and cash flows. In particular the group enters into forward foreign currency contracts, which are designated hedging instruments, based upon highly probable forecast foreign currency cash flows to minimise currency exposures that arise on sales denominated in foreign currencies, predominantly US Dollars. The total notional amount of outstanding forward foreign exchange contracts that are in place at the balance sheet date is set out below: 2006 Â£'000 US Dollar denominated forward currency sale contracts 21,479 ====== These arrangements are designed to address exchange exposures in the year ended 31 March 2007 and are renewed on a revolving basis as required. The contracts in place at the balance sheet date have a maturity of six months or less from the balance sheet date. At 31 March 2006 the fair value of the group's forward foreign exchange contracts designated as cash flow hedging instruments is a liability of Â£295,000. These amounts are based on market values of equivalent instruments and the fair values are included within current liabilities. Interest rate derivatives The group's policy on interest rate risk is designed to limit the group's exposure to fluctuating interest rates. The borrowings as at 31 March 2006 are floating rate bank borrowings which bear interest fixed for periods between 1 and 6 months based upon LIBOR and as such are subject to cash flow interest rate risk. Interest rate swap The group has a five year interest rate swap expiring on 15 May 2007 for Â£12m at a fixed rate of 5.62%. Interest payable or receivable under the swap during the year is the difference between three month LIBOR and the fixed swap rate of 5.62%. This amount has been included in finance charges. The fair value of the swap is a liability of Â£138,000. This amount is based on the market value of the instrument at the balance sheet date. This swap is not a designated hedging instrument and as such it is accounted for as at fair value through profit and loss. Interest rate cap The group has a five year US Dollar interest rate cap for $40m at 6.25% expiring on 15 May 2007. At the balance sheet, the cap had no fair value. The cap is not a designated hedging instrument and as such it is accounted for as at fair value through profit and loss. Comparative disclosures previously published This is the first year that the group has applied IAS 32 and IAS 39. Comparative data prepared under UK GAAP FRS 13 Financial Instruments for 2005 has been reproduced from the 2005 Annual Report. The analysis is set out more fully below: Accounting policy The group uses forward foreign exchange contracts and interest rate swaps and caps to reduce exposure to foreign exchange and interest rate risk. The group does not hold or issue derivative financial instruments for speculative purposes. For a forward exchange contract to be treated as a hedge, the instrument must be related to actual foreign currency assets or liabilities or to a probable commitment. It must involve the same currency or similar currencies as the hedged item and must also reduce the risk of foreign currency exchange movements on the group's operations. Gains and losses arising on these contracts are deferred and recognised in the profit and loss account, or as adjustments to the carrying amount of assets, only when the hedged transaction has itself been reflected in the group's financial statements. For an interest rate swap to be treated as a hedge the instrument must be related to actual assets or liabilities and must change the nature of the interest rate by converting a variable rate to a fixed rate. Interest differentials under these swaps are recognised by adjusting net interest payable over the periods of the contracts. If an instrument ceases to be accounted for as a hedge the instrument is marked to market and any resultant profit or loss recognised at that time. Derivatives and other financial instruments The group has a significant operating cash inflow in Sterling and US Dollars, and to a lesser extent, Euros, Canadian and Australian Dollars. To minimise currency risk, the group takes out US Dollar forward foreign exchange contracts based upon forecast foreign currency net cash flows. In addition, during the year, the group utilised an interest rate cap and a 'fixed for floating' interest rate swap to hedge interest rate risk associated with floating interest rates. The group does not utilise any financial derivatives for speculative purposes. The numerical disclosures in this note deal with financial assets and financial liabilities as defined in FRS 13. Certain financial assets, such as investments in subsidiary companies and employers' obligations to employees under employee share option and employee share schemes, are excluded from the scope of these disclosures. As permitted by FRS 13, short term debtors and creditors have been excluded from the disclosures, other than currency disclosures. Interest rate profile The group does not hold any financial assets other than short term debtors and cash in current bank accounts. Short term debtors are non-interest bearing and cash in current bank accounts receive interest based on LIBOR. The group's financial liabilities other than short term creditors are as follows: Fixed rate Floating rate Total 2005 2005 2005 Â£'000 Â£'000 Â£'000 US Dollar borrowings 12,000 30,747 42,747 Canadian Dollar borrowings - 4,365 4,365 Euro borrowings - 6,883 6,883 Australian Dollar borrowings - 4,720 4,720 ------ ------ ------ 12,000 46,715 58,715 ====== ====== ====== At 31 March 2005 the group has a five year interest rate swap expiring on 15 May 2007 for Â£12m at a fixed rate of 5.62% which constitutes the weighted average rates for fixed rate borrowings at 31 March 2005. In addition, at 31 March 2005 the group had a five year US Dollar interest rate cap for $40m at 6.25% also expiring on 15 May 2007. The remaining borrowings as at 31 March 2005 are bank borrowings which bear interest fixed for periods between 1 and 6 months based upon LIBOR Currency exposure The table below shows the group's currency exposures which are those transactional exposures that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and monetary liabilities of the group that are not denominated in the operating currency of the operating unit involved. As at 31 March 2005 these exposures were as follows: Functional currency of group operation 2005 Sterling US Dollar Other Total Â£'000 Â£'000 Â£'000 Â£'000 Sterling* - 18 352 370 US Dollar* 529 - 764 1,293 Canadian Dollar* (5) (24) (93) (122) Euro* (630) (142) - (772) ----- ----- ----- ----- Total (106) (148) 1,023 769 ===== ===== ===== ===== *Net foreign currency monetary assets/(liabilities) The amounts shown in the table above take into account the effect of any forward contracts entered into to mitigate the effect of currency exposures. As at 31 March 2005 the group also held open US Dollar forward currency contracts that had been taken out to hedge expected future foreign currency sales in the 12 months from 31 March 2005 with a net maturity value of Â£33m (2004: Â£30m). Borrowing facilities The group's total borrowing facility is a Â£115m multi-currency facility comprising a Â£45m term loan facility, Â£45m revolving credit facility and a Â£25m bank overdraft, foreign exchange and bonding facility. As at 31 March 2005 the group had Â£54m (2004: Â£60m) undrawn committed borrowing facilities expiring in more than one year in respect of which all conditions precedent had been met. Fair values The group does not hold any financial assets other than short term debtors and cash in current bank accounts. The group's financial liabilities comprise short term creditors, bank loans, overdrafts, forward foreign currency contracts, an interest rate swap and an interest rate cap. Short term debtors and creditors that arise directly from the group's operations have been excluded from the disclosures contained in this note. A comparison of book values and fair values of the group's financial assets and liabilities other than short term debtors and creditors as at 31 March 2005 is as follows; 2005 Book Fair value value restated restated Â£'000 Â£'000 Primary financial instruments held or issued to finance the group's operations Borrowings (58,715) (58,715) Financial assets 5,009 5,009 Derivative financial instruments held to manage the interest rate and currency profile Interest rate swap (11) (158) Interest rate cap 195 13 Forward US Dollar currency contracts - 1,022 The fair values of the interest rate swap, cap and the forward foreign currency contracts have been determined by reference to prices available from the markets on which the instruments involved are traded. All other financial instruments are at variable interest rates and the difference between the carrying amount and the fair value is not material. Gains and losses on hedges The group enters into forward foreign currency contracts to mitigate currency exposures that arise on sales denominated in foreign currencies, predominantly US Dollars. It also utilises interest rate swaps and caps to manage its interest rate profile. Changes in the fair value of forward currency contracts are not recognised in the financial statements until the exposure that is being hedged is itself recognised. An analysis of these unrecognised gains and losses is as follows: 2005 Gains Losses Net Â£'000 Â£'000 Â£'000 Unrecognised net gains on hedges at the start of the year 3,374 (476) 2,898 Net gains arising in previous years, recognised in the current year (3,374) 201 (3,173) ------ ------ ------ Net losses arising before current year that were not recognised in the current year - (275) (275) Net gains arising in current year that were not recognised in the current year 1,022 (54) 968 ------ ------ ------ Unrecognised net gains on hedges at the end of the year 1,022 (329) 693 ------ ------ ------ Of which: Net gains expected to be recognised in the year ending 31 March 2006 1,022 (179) 843 ------ ------ ------ Net losses expected to be recognised in the year ending 31 March 2007 or later - (150) (150) ------ ------ ------ 24. Finance leases Minimum Future Present Minimum Future Present lease finance value of lease finance value of payments charges lease payments charges lease payments payments 2006 2006 2006 2005 2005 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Within one year 1,435 (667) 768 1,045 (567) 478 In the second to fifth years inclusive 4,795 (2,080) 2,715 4,068 (2,122) 1,946 After five years 6,503 (1,246) 5,257 5,747 (1,197) 4,550 ------ ------ ------ ------ ------ ------ 12,733 (3,993) 8,740 10,860 (3,886) 6,974 ------ ------ ------ ------ ------ ------ Included in current liabilities 768 478 Included in non-current liabilities 7,972 6,496 ------ ------ 8,740 6,974 ====== ====== The average lease term is 9 years. For the year ended 31 March 2006, the average effective borrowing rate was 9.6% (2005: 9.6%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The fair value of the group's lease obligations approximates to their carrying amount. For certain properties, lease payments increase in line with market rental rates. 25. Provisions Deferred acquisition consideration Â£'000 At 1 April 2005 3,129 Payment (334) Movement in valuation 49 Unwinding of discount on provisions 137 Exchange difference 89 ------- At 31 March 2006 3,070 ======= Included in current liabilities 188 Included in non-current liabilities 2,882 ------- 3,070 ======= The deferred consideration provision is in respect of estimated sales related deferred payments due on acquisitions made in prior years. Payments are based on the number of units sold or on percentage of revenue, with forecast sales calculated using management's best estimates. The provision is due to be utilised by 2018. 26. Share capital Ordinary share capital Allotted, called up and Authorised fully paid Â£'000 Â£'000 At 1 April 2004 8,100 6,615 Employee share option schemes - options exercised - 31 ------ ------- At 31 March 2005 8,100 6,646 Increase in authorised share capital 1,900 - Employee share option schemes - options exercised - 18 Shares issued - 664 ------ ------- At 31 March 2006 10,000 7,328 ====== ======= The Company has one class of ordinary shares which carry no right to fixed income. On 2 June 2005, 6,640,000 new ordinary shares of 10 pence each were placed at a price of 390 pence per share. The share issue was credited as fully paid and ranked pari passu in all respects with the group's existing ordinary shares. The premium arising on this share issue was credited against the merger reserve and subsequently credited to retained earnings. Costs of Â£947,434, which arose from the issue, were set against the share premium account. 27. Statement of changes in equity Share Share Merger Hedging Translation Own Equity Retained Minority capital premium reserve reserve reserve shares reserve earnings Interest Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2004 6,615 61,674 - - - (7) - (5,451) 32 62,863 Recognised income and expense - - - - (1,963) - - (1,279) 1 (3,241) Dividends paid - - - - - - - (7,204) - (7,204) Issue of share capital 31 928 - - - - - - - 959 Purchase of own shares - - - - - (400) - - - (400) Share-based payments - - - - - - 417 - - 417 Deferred tax taken directly to equity - - - - - - - (204) - (204) Transfers - (61,673) - - - - - 61,673 - - ------- ------- ------- ------ ------ ------ ------ ------- ------ ------ At 31 March 2005 6,646 929 - - (1,963) (407) 417 47,535 33 53,190 ======= ======= ======= ====== ====== ====== ====== ======= ====== ====== Share Share Merger Hedging Translation Own Equity Retained Minority capital premium reserve reserve reserve shares reserve earnings Interest Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2005 6,646 929 - - (1,963) (407) 417 47,535 33 53,190 Adoption of IAS 32 and 39 - - - 826 - - - (279) - 547 Recognised income and expense - - - (1,071) 5,307 - - 33,364 49 37,649 Dividends paid - - - - - - - (7,956) - (7,956) Issue of share capital 682 (359) 25,232 - - - - - - 25,555 Share-based payments - - - - - - 615 - - 615 Minority interest on acquisition - - - - - - - - 33 33 Acquisition of minority interest - - - - - - - - (83) (83) Transfers - - (25,232) - - 55 - 25,177 - - ------ ------ -------- ------ ------ ----- ----- ------ ----- ----- At 31 March 2006 7,328 570 - (245) 3,344 (352) 1,032 97,841 32 109,550 ------ ------ -------- ------ ------ ----- ----- ------ ----- ----- Share premium On 24 March 2005 Â£61,673,000 of the share premium account was cancelled. Corresponding amounts have been transferred to retained earnings. Own shares The own shares reserve represents the cost of 160,926 shares (2005: 180,234 shares) in Expro International Group PLC purchased in the market and held by Expro International Group PLC Employee Benefit Trust to satisfy options under the group's share options schemes. Equity reserve The equity reserve represents the cost to the group of operating a number of share based compensation plans involving options for ordinary shares in the group. Full details of these plans are given in note 30. 28. Acquisition of subsidiary On 11 April 2005 the group acquired Downhole Video International ("DHVI") which is the market leading supplier to the oil and gas industry of downhole video services. The acquisition comprised a 100% interest in Downhole Video International Inc. (registered in the USA) and its subsidiary companies, Downhole Video Canada Inc. (registered in Canada), Downhole Video International Limited (registered in the British Virgin Islands) and in Downhole Video Far East Pty Limited (registered in Singapore). Book Fair value Fair value adjustments value Â£'000 Â£'000 Â£'000 Property, plant and equipment 726 - 726 Intangible assets 62 3,611 3,673 Inventories 207 - 207 Trade and other receivables 1,130 - 1,130 Cash 281 - 281 Trade and other payables (429) - (429) Deferred tax liabilities - (1,351) (1,351) Finance leases (141) - (141) ------ ------ ------ 1,836 2,260 4,096 Goodwill 2,260 ------ Total consideration 6,356 ====== Satisfied by: Cash 6,279 Directly attributable costs 77 ------ 6,356 ====== Net cash outflow arising on acquisition: Cash consideration 6,356 Cash acquired (281) ------ 6,075 ====== The most significant factor contributing towards goodwill was the value attributed to the acquired workforce. The acquisition has been accounted for with an effective date of 1 April 2005 and therefore revenue disclosed in the income statement includes the results of DHVI for the full year. DHVI contributed Â£6,035,000 to revenue and Â£877,000 to the group's profit before tax for the current year. 29. Operating lease arrangements The group as lessee 2006 2005 Â£'000 Â£'000 Minimum lease payments under operating leases 5,051 4,843 ------- ------ At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: 2006 2005 Â£'000 Â£'000 Within one year 4,165 3,135 In the second to fifth years inclusive 4,688 4,834 After five years 4,071 3,044 ------ ------ 12,924 11,013 ------ ------ Operating lease payments represent rentals payable by the group for property, plant and equipment. Lease payments increase in line with market rental rates for certain properties. 30. Share-based payments Equity settled share option plans Included within wages and salaries in note 7 is an expense arising from share-based payment transactions of Â£615,014 (2005: Â£416,913) all of which relates to equity settled share-based payments. Details of each of the employee share plans in place are given below and where applicable in the remuneration report. Below is a summary of the schemes in place during the year: a) Executive share option scheme The group operates an executive share option scheme under which awards of share options are made to selected individuals (directors and senior managers) based on the achievement of an EPS growth target set at the Retail Price Index plus a margin and established at the date of grant. The EPS growth is calculated for a continuous three year period during the normal exercise period. When the EPS growth is met the options vest and can be excercised within ten years of the grant date. b) Performance share plan Under the 2003 and 2004 awards, selected individuals (directors and senior managers) receive an award of shares based on the growth in the Total Shareholder Return (TSR) for the group over a three year performance period when compared to growth in TSR of FTSE mid 250 companies, provided that the Remuneration Committee are satisfied that the underlying financial performance of the company has improved on a sustainable basis over the period. To the extent that any options vest, they will ordinarily remain exercisable up to 10 years from the date of grant and are settled in equity once exercised. Under the 2005 award, which was restricted to executive directors, an award may be made, provided a non-market-based performance condition of specified EPS growth is achieved over a three year performance period. To the extent that any options vest, they will ordinarily remain exercisable up to 10 years from the date of grant and are settled in equity once exercised. c) Sharesave scheme Under the schemes, which are open to all employees of eligible group companies, employees are granted share options at a discount to the open market value at the date of grant. The employees enter into a savings plan for a three year period after which they have a choice of exercising their option or withdrawing saved funds. No conditions other than continued employment are attached to the grant. d) Share matching plan Under the scheme, selected individuals (directors and senior managers) may invest a portion of their annual cash bonus in the company's shares at open market price. Based on the amount invested, the group will award free matching shares after a three year vesting period equivalent to the amount invested at the grant date share price, grossed up for tax. No conditions other than continued employment are attached to the grant. a) Executive share option scheme No expense has been recognised in the income statement in the current or the previous year, in accordance with the transitional provisions of IFRS 1. The following table illustrates the number and weighted average exercise price of, and movements in, share awards during the year under this plan: 2006 2006 2005 2005 Number Weighted Number Weighted outstanding average outstanding average exercise exercise price price (Â£) (Â£) At 1 April 1,573,038 4.23 1,959,504 4.10 Forfeited (75,295) 4.38 (249,859) 4.10 Exercised (158,556) 3.61 (136,607) 2.65 --------- ----- --------- ------ At 31 March 1,339,187 4.29 1,573,038 4.23 ========= ===== ========= ====== Range of exercise prices for the share options (pence per share): Number Weighted Weighted Number Weighted outstanding average average exercisable average remaining exercise exercise contract price price life (Â£) (Â£) (years) 2006 Â£2.75 - Â£3.74 221,400 3.3 3.20 221,400 3.20 Â£3.75 - Â£4.74 619,602 5.6 4.05 198,673 3.85 Â£4.75 - Â£5.74 498,185 4.2 5.07 187,237 5.10 --------- ----- ----- ------- ----- 1,339,187 4.7 4.29 607,310 4.00 ========= ===== ===== ======= ===== 2005 Â£2.75 - Â£3.74 318,137 4.3 3.20 318,137 3.20 Â£3.75 - Â£4.74 709,956 6.5 4.04 267,239 3.85 Â£4.75 - Â£5.74 544,945 5.1 5.07 216,908 5.10 --------- ----- ----- ------- ----- 1,573,038 5.6 4.23 802,284 3.93 ========= ===== ===== ======= ===== b) Performance share plan 2003 To the extent that any options vest, they will ordinarily remain exercisable up to 10 years from the date of grant and are settled in equity once exercised. Options were granted over 137,217 ordinary shares on 28 June 2005 and, subject to the performance measurement targets being attained, will be exercisable on 28 June 2008 at an exercise price of Â£1 per participant. The weighted average fair value of each share option granted is Â£4.29 per share (2005: Â£4.23). The expense recognised in the income statement in the year from the share option plan is Â£297,529 (2005: Â£286,294). The following table illustrates the number and weighted average exercise price of, and movements in, share awards during the year under this plan: 2006 2005 Number Number outstanding outstanding At 1 April 388,952 256,940 Awarded 137,217 177,346 Forfeited (2,589) (45,334) ------- -------- At 31 March 523,580 388,952 ======= ======== The performance share plan options have not yet vested Number Weighted Number outstanding average exercisable remaining contract life (years) 2006 523,580 1.1 - ======== ==== ==== 2005 388,952 1.8 - ======== ==== ==== c) Sharesave Options were granted over 241,056 ordinary shares on 8 August 2005, which will ordinarily be exercisable at an exercise price of 380.0p during the period 1 October 2008 to 31 March 2009. The weighted average fair value of each share option granted is 177.0p (2005: 111.0p). The expense recognised in the income statement in the year from the share option plan is Â£260,946 (2005: Â£130,318). The following table illustrates the number and weighted average exercise price of, and movements in, share awards during the year under this plan: 2006 2006 2005 2005 Number Weighted Number Weighted outstanding average out- average exercise standing exercise price price (Â£) (Â£) At 1 April 739,492 2.46 498,189 3.33 Awarded 241,056 3.80 581,664 2.19 Forfeited (212,240) 3.07 (159,593) 3.18 Exercised (36,621) 3.33 (180,768) 3.33 -------- ----- -------- ----- At 31 March 731,687 2.68 739,492 2.46 ======== ===== ======== ===== Range of exercise prices for the share options: Number Weighted Weighted Number Weighted outstanding average average exercisable average remaining exercise exercise contract price price life (Â£) (Â£) (years) 2006 Â£1.75 - Â£2.74 507,077 1.9 2.19 - - Â£3.75 - Â£4.74 224,610 3.0 3.80 - - -------- ---- ----- ----- ----- 731,687 2.2 2.68 - - ======== ==== ===== ===== ===== 2005 Â£1.75 - Â£2.74 561,184 2.9 2.19 - - Â£2.75 - Â£3.74 178,308 0.2 3.33 178,308 3.33 -------- ---- ----- ----- ----- 739,492 2.2 2.46 178,308 3.33 ======== ==== ===== ===== ===== d) Share matching plan 58,048 ordinary shares were matched by the group on 30 June 2005, which will ordinarily be exercisable on 13 July 2006. The weighted average fair value of each share is 405.3p. The expense recognised in the income statement in the year from the share option plan is Â£56,539 (2005: Â£nil). The following table illustrates the number of, and movements in, share awards during the year under this plan: 2006 2005 Number Number outstanding outstanding At 1 April - - Awarded 58,048 - Forfeited (1,151) - Expired - - Exercised - - ------- ------ At 31 March 56,897 - ======= ====== As this is a share matching plan there is no weighted average exercise price: Number Weighted Weighted Number Weighted outstanding average average exercisable average remaining exercise exercise contract price price life (Â£) (Â£) (years) 2006 56,897 2.3 - - - ====== ===== ===== ===== ===== 2005 - - - - - ====== ===== ===== ===== ===== Assumptions The following table shows the assumptions used to value the equity settled options granted in the above schemes: PSP SMP Sharesave Grant year 2003 2004 2005 2005 2005 Dividend yield (%) 3.43% 3.82% 2.37% 3.82% 3.63% Expected volatility (%) 40% 40% 40% 40% 40% Risk free interest rate (%) - - - 5.02% 5.02% Expected life of option (years) 3.00 3.00 3.00 3.00 3.25 Share price at grant (pence) 317.5p 285.0p 460.0p 453.5p 300.0p Exercise price (pence) Nil Nil Nil Nil 219.0p The group uses historical volatility figures as an input into the valuation model. For each new grant, the historical volatility is considered for a period in line with the expected life of the options granted. The expected life used in the calculations has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. 31. Retirement benefit schemes The group operates a number of pension schemes consisting of the main scheme for UK based employees and several smaller schemes for overseas employees. All of the schemes are wholly funded and the assets of the schemes are held separately from those of the group. Main scheme The main scheme comprises two parts: a) a defined benefit scheme, which from 1 October 1999 was closed to new joiners. The contributions to the scheme are determined by a qualified independent actuary on the basis of regular valuations. The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at 6 April 2005. b) a defined contribution scheme was opened upon the closure of the defined benefit scheme, to new joiners. Employee contributions are matched by an employer contribution up to a ceiling of 5% of basic salary. The pension cost charge for the year of the group's defined contribution schemes amounted to Â£1,501,000 (2005: Â£1,184,000). Other schemes The group operates defined benefit and insured defined benefit arrangements in Holland and Norway. The assets of insured schemes are insurance contracts which guarantee the pensions secured to date and an annual valuation of the scheme amends the contribution rate each year. Defined benefit schemes The major assumptions used to calculate the defined benefit scheme liabilities under IAS19 Employment benefits were: 2006 2005 % % Key assumptions used: Discount rate 5.0 5.5 Expected return on scheme assets 6.6 6.7 Expected rate of salary increases 3.9 3.9 Future pension increases 2.9 2.9 31. Retirement benefit schemes (continued) The expected long term return on cash is based on cash deposit rates available at the balance sheet date. The expected return on bonds is determined by reference to UK long dated gilt and bond yields at the balance sheet date. The expected rate of return on equities and property have been determined by setting an appropriate risk premium above gilt/bond yields having regard to market conditions at the balance sheet date. Amounts recognised in the income statement in respect of these defined benefit schemes are as follows: 2006 2005 Â£'000 Â£'000 Current service cost (2,999) (2,235) Interest cost (3,977) (3,127) Expected return on scheme assets 3,232 2,648 Curtailments 73 - ------- ------- (3,671) (2,714) ======= ======= Of the current service cost for the year, Â£1,560,000 (2005: Â£1,155,000) has been included in cost of sales and Â£1,439,000 (2005: Â£1,080,000) has been included in administrative expenses. Actuarial gains and losses have been reported in the statement of recognised income and expense. The cumulative amount of actuarial gains and losses recognised in the statement of recognised income and expense is Â£3,396,000 (2005: Â£7,847,000). The actual return on scheme assets was Â£13,211,000 (2005: Â£4,956,000). The estimated amount of contributions expected to be paid to the scheme during the year ended 31 March 2007 is Â£3,784,000. The amount included in the balance sheet arising from the group's obligations in respect of its defined retirement benefit schemes is as follows: 2006 2005 Â£'000 Â£'000 Present value of defined benefit obligations (84,210) (69,697) Fair value of scheme assets 64,862 45,815 ------- ------- Deficit recognised in the balance sheet under non-current liabilities (19,348) (23,882) ======= ======= Movements in the present value of defined benefit obligations in the current year were as follows: 2006 2005 Â£'000 Â£'000 At 1 April (69,697) (54,989) Service cost (2,999) (2,235) Interest cost (3,977) (3,127) Contributions from scheme members (897) (919) Actuarial gains and losses (5,500) (10,142) Exchange difference (77) (63) Benefits paid 977 1,417 Settlement - 361 Liability assumed on disposal of joint venture (1,147) - Liability assumed on business combination (966) - Curtailments 73 - ------- ------- At 31 March (84,210) (69,697) ======= ======= Movements in the fair value of scheme assets in the current year were as follows: 2006 2005 Â£'000 Â£'000 At 1 April 45,815 38,916 Expected return on scheme assets 3,232 2,648 Actual less expected return on scheme assets 9,979 2,308 Exchange difference 49 50 Contributions from the sponsoring companies 2,790 2,657 Contributions from scheme members 897 919 Benefits paid (977) (1,338) Settlements - (345) Assets assumed on disposal of joint venture 1,179 - Contribution by acquirer on disposal of joint venture 1,465 - Assets assumed on business combination 433 - ------- ------- At 31 March 64,862 45,815 ------- ------- The analysis of the scheme assets and the expected rate of return at the balance sheet date was as follows: Expected return Fair value of asset Percentage of scheme 2006 2005 2006 2005 2006 2005 % % Â£'000 Â£'000 % % Equity instruments 7.0 7.0 51,971 37,424 80.0 82.0 Debt instruments 5.0 5.5 7,417 4,063 11.0 9.0 Property 7.0 7.0 585 406 1.0 1.0 Other assets 4.4 4.7 4,889 3,922 8.0 8.0 ------ ------ 64,862 45,815 ====== ====== The fair value of other assets as at 31 March 2006 includes Â£1,465,000 of cash due from the acquirer of the joint venture which was received after the balance sheet date. The history of experience adjustments is as follows: IFRS IFRS UK GAAP UK GAAP 2006 2005 2004 2003 Â£'000 Â£'000 Â£'000 Â£'000 Present value of defined benefit obligations (84,210) (69,697) (55,607) (47,744) ------- ------- ------- ------ Fair value of scheme assets 64,862 45,815 39,674 29,571 ------- ------- ------- ------ Deficit in the scheme (19,348) (23,882) (15,933) (18,173) ------- ------- ------- ------ Experience adjustments on scheme liabilities 3,655 (1,050) (387) 1,208 ------- ------- ------- ------ Percentage of scheme liabilities 4% 2% 1% 3% ------- ------- ------- ------ Experience adjustments on scheme assets 9,979 2,308 5,201 (10,437) ------- ------- ------- ------ Percentage of scheme liabilities 15% 5% 13% 35% ------- ------- ------- ------ The amounts disclosed for 2004 and earlier periods are stated on the basis of UK GAAP because it is not practicable to restate amounts for periods prior to the date of transition to IFRS. The principal differences between UK GAAP and IFRS are explained in note 34 to the accounts which provides an explanation of the transition to IFRS. 32. Events after the balance sheet date There were no subsequent events between the balance sheet date and the date the financial statements were authorised for issue that require disclosure. 33. Related party transactions Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Trading transactions During the year, group companies entered into transactions with joint ventures who are not members of the group. The group disposed of its remaining interest in joint ventures on the 31 October 2005, and prior to this date had transactions with joint ventures as follows: Goods and Goods and Amounts owing Amounts owing services provided services provided from related to related to related party by related party party party 2006 2005 2006 2005 2006 2005 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 QuantX Wellbore Instrumentation Limited 434 296 22 - - 550 - 147 QuantX Wellbore Instrumentation LLC 229 160 - - - 987 - 1,516 QuantX Wellbore Instrumentation (International) Limited 323 773 343 107 - 148 - 138 Expro Swire Production Limited - - - - - - - - ----- ----- ----- ----- ----- ----- ----- ----- 986 1,229 365 107 - 1,685 - 1,801 ===== ===== ===== ===== ===== ===== ===== ===== The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Directors' transactions In the year ended 31 March 2006, the group incurred charges of Â£93,600 (2005 - Â£88,650), in respect of services provided by a company in which G F Coutts held 25.0% of the share capital and was a director. These charges were based on normal commercial terms. At 31 March 2006, the amount outstanding to the company was Â£nil (2005: Â£nil).The company ceased to provide services to the group on 22 February 2006. Between 1 April 2004 and 31 December 2004, Tuscan Energy (Scotland) Limited ("TES") was a related party of the group due to Dr C Fay's position as Chairman of Tuscan Energy Group Limited, the controlling holding company of TES. During this period, the group provided TES with Â£3.3m of services which were contracted under normal commercial terms. At 31 December 2004 TES ceased to be a related party of the group. 34. Explanation of transition to IFRS This is the first year that the company has presented its financial statements under IFRS. The last financial statements under UK GAAP were for the year ended 31 March 2005 and the date of transition to IFRS was therefore 1 April 2004. First-time adoption exemptions applied The requirements for the first time adoption of IFRS are set out in IFRS 1 First Time Adoption of International Financial Reporting Standards. In general, IFRS 1 requires that accounting policies be adopted that are compliant with IFRS and that these policies be applied retrospectively to all periods presented. However, under IFRS 1, a number of exemptions are permitted to be taken in preparing the balance sheet as at the date of transition to IFRS on 1 April 2004. These exemptions are explained below: â€¢ The group has elected not to apply IFRS 3 Business Combinations to business combinations that took place before 1 April 2004; â€¢ The group has elected to set the foreign currency translation reserve to zero at 1 April 2004. Any gain or loss on disposal of foreign operations will include only those cumulative translation differences arising after that date; â€¢ The group has elected not to apply the provisions of IFRS 2 Share-based Payment to options and awards that were granted on or before 7 November 2002 or which had not vested by 1 January 2005; â€¢ The group has taken advantage of the exemption to apply IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement from 1 April 2005 only. As a result no adjustment to the 2005 UK GAAP financial statements was required; and â€¢ In accordance with the provisions of IAS 19 Employee Benefits all cumulative actuarial gains and losses on the group's defined benefit pension schemes have been recognised in equity in the transition date balance sheet. Significant adjustments a) Goodwill amortisation IFRS 3 Business Combinations requires that goodwill is not amortised but instead is subject to an impairment review annually or when there are indications that the carrying value may not be recoverable. The group has elected not to apply IFRS 3 Business Combinations to business combinations that took place before 1 April 2004. b) Intangible assets Business combinations since the date of transition have been accounted for in accordance with IFRS 3 Business Combinations with intangible assets recognised and amortised over their useful economic lives where they are separable or arise from a contractual or legal right. IAS 12 Income Taxes requires provision for the effects of deferred tax arising on intangible assets resulting from business combinations. The deferred tax asset or liability is matched by a corresponding adjustment to the goodwill arising on these business combinations. Matre Instruments AS was acquired by the group in February 2005 giving rise to goodwill on acquisition of Â£5,703,000 under UK GAAP. In applying IFRS 3 the group has reclassified intangible assets arising on acquisition of Â£3,389,000 out of goodwill, representing the values placed on the Matre trade name, customer relationships, library of technical information and other intangible assets. Amortisation charged on these intangible assets during the two month period from acquisition to 31 March 2005 was Â£103,000. c) Property, plant and equipment IAS 17 Leases requires separate consideration of the land and building elements of leases in determining whether the arrangement is a finance lease or an operating lease. Buildings deemed to be held under finance leases are required to be shown within property, plant and equipment with a corresponding liability recorded within finance leases. The buildings are then depreciated and the relevant lease payments are allocated between capital repayment and a finance charge element. Arrangements concerning the group's leased property have been reviewed in light of the specific requirements of IAS 17 resulting in certain of these leases requiring classification under IFRS as finance leases. Following the review, property leases with a value of Â£6,414,000 as at 1 April 2004 were recognised under property, plant and equipment with a corresponding liability of Â£7,009,000 recognised under finance leases. d) Share-based payments IFRS 2 Share-based Payments requires that the expense incurred for equity instruments granted is recognised in the financial statements at their fair value measured at the date of grant and that the expense is recognised over the vesting period of the instrument. IAS 12 Income Taxes requires provision for the effects of share-based payments beyond the tax charge recognised in the income statement. The amount of deferred tax is required to be calculated based upon the number of share options outstanding at the balance sheet date by reference to the difference between the grant price and the market value of the shares at that date. Changes to the amount of deferred tax in excess of the charge reported in the income statement are recognised in equity. The charge recognised for share-based payments under UK GAAP for the year ended 31 March 2005 was Â£491,000. This amount, along with the related tax effect of Â£147,000 recognised in the period, has been reversed under IFRS. The IFRS 2 charge for the year ended 31 March 2005 was Â£417,000 with a tax effect of Â£125,000. At 31 March 2005 a deferred tax asset of Â£476,000 was recognised in the balance sheet. In accordance with IAS 12, Â£351,000 of this amount was recognised in equity with the balance shown as an adjustment to the tax charge within the income statement for that period. e) Employee benefits Under UK GAAP, the group accounted for post-employment benefits under SSAP 24 Accounting for Pension Costs, whereby the cost of providing defined benefit pensions was charged against operating profit on a systematic basis with surpluses and deficits arising being amortised over the expected average remaining service lives of participating employees. Additional transitional disclosures required under FRS 17 Retirement Benefits based on the valuation methods required by the standard were also provided. IAS 19 Employee Benefits takes a similar approach to that of FRS 17, in that it requires the actuarial surplus or deficit relating to defined benefit post- employment schemes to be directly recognised at fair value on the group's balance sheet. IAS 19 allows the effects of any movements in the surpluses or deficits to be immediately recognised in equity. IAS 19 requires that the service cost element of pensions and other post- employment benefits be recognised separately from the financing elements within the income statement. The financing charge represents the net impact of the unwinding of the discount on the schemes' liabilities in the current year and the expected return on the schemes' assets. The deficit on the group's defined benefit pension schemes is recognised on the balance sheet under IAS 19, along with the resulting deferred tax asset. The balances at the date of transition to IFRS and at 31 March 2005 are as follows: 31 March 2005 1 April 2004 Â£'000 Â£'000 Pension scheme deficit (23,882) (16,073) ====== ====== Deferred tax asset 6,997 4,559 ====== ====== f) Deferred tax IAS 12 Income Taxes requires that deferred taxation should be provided on all temporary differences and not just timing differences as required under UK GAAP. The main areas in which accounting for deferred tax differs under IFRS are set out below. i) Temporary differences arising on business combinations The increase in the difference between the carrying value of non-current assets and the tax base as a result of fair value adjustments to business combinations is not considered to be a timing difference under current UK GAAP, but is regarded as a temporary difference under IFRS. An adjustment is therefore required to reflect the increase in the deferred tax liability at the date of transition to IFRS. The resulting deferred tax liability changes at subsequent balance sheet dates due to the amortisation or impairment of the underlying non-current asset. ii) Pensions and post-employment benefits Under UK GAAP an asset or liability in respect of a post-employment benefit scheme was recognised to the extent that the timing of payments differed from the reported charge or credit for the period. IAS19 requires the deficit or surplus arising on a post-employment benefit scheme to be reflected on a company's balance sheet. This deficit or surplus is a temporary difference and results in the recognition of a deferred tax liability or asset under IAS12. iii) Unremitted earnings of foreign subsidiaries Under UK GAAP, deferred tax is recognised on unremitted earnings of a foreign subsidiary to the extent that, at the balance sheet date, dividends have been accrued as receivable, or there is a binding agreement in place with the subsidiary to distribute past earnings. Under IFRS, deferred tax must be provided for in respect of all such earnings except where the parent company controls the flow of dividends and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for unused tax losses and other deductible temporary differences where it is probable that future taxable profit will utilise the tax losses and credits. At 31 March 2005 a deferred tax asset of Â£1,040,000 was reported in the UK GAAP balance sheet. The IFRS balance sheet at that date includes a deferred tax asset of Â£3,470,000 and a deferred tax liability of Â£1,629,000. Deferred tax adjustments arising on the transition to IFRS have been offset only to the extent that this offset is permitted under IAS12. h) Proposed dividends Under UK GAAP, the group recognised a liability for dividends that were proposed in respect of a prior accounting period, even if formal authorisation of the dividend did not take place until after the year end. In accordance with IAS 10 Events After the Balance Sheet Date, dividends declared after the balance sheet date are not recognised as a liability in the financial statements, as there is no present obligation to pay the dividends at the balance sheet date. Net assets and equity have been increased to reflect the reversal of the accrual for proposed ordinary dividends which had not been declared at the balance sheet dates, as follows: 31 March 2005 1 April 2004 Â£'000 Â£'000 Adjustment to net assets on reversal of proposed dividend 4,706 - Recognition of prior period dividend in subsequent period (4,692) 4,692 ------ ------ 14 4,692 ====== ====== i) Cumulative foreign translation differences Under UK GAAP, the cumulative foreign currency translation differences arising on retranslation of the group's net investment in foreign operations into sterling were recognised in reserves. Foreign exchange differences arising on the translation of foreign currency borrowings, to the extent that they hedged the group's net investment in these foreign operations, were also recognised in reserves. Under IAS 21, The Effects of Changes in Foreign Exchange Rates, cumulative foreign currency translation differences are required to be recognised as a separate component of equity and should be taken into account in calculating the gain or loss on the disposal of a foreign operation. As permitted under IFRS 1 the group has elected to deem cumulative translation differences to be Â£nil on 1 April 2004. The cumulative amount of these foreign currency translation differences are shown in reserves at subsequent balance sheet dates. Reconciliation of profit for the year ended 31 March 2005 2005 Note Â£'000 Profit for the year under UK GAAP 4,437 a) Goodwill amortisation 1,180 b) Intangible assets (143) c) Property, plant and equipment (155) d) Share based payments 52 e) Employee benefits (438) f) Deferred tax (1,153) ------- Profit for the year under IFRS 3,780 ======= 34. Explanation of transition to IFRS (continued) Reconciliation of income statement for the year ended 31March 2005 Effect of transition UK GAAP IFRS to IFRS Â£'000 Â£'000 Â£'000 Continuing operations Revenue 211,273 - 211,273 Cost of sales (180,859) (3,694) (184,553) --------- ------ -------- Gross profit 30,414 (3,694) 26,720 Administrative expenses (19,293) 5,074 (14,219) --------- ------ -------- Operating profit 11,121 1,380 12,501 --------------------------------------- Comprising: Headline operating profit 17,009 2,009 19,018 Goodwill impairment (4,342) (629) (4,971) Inventory impairment (1,546) - (1,546) --------- ------ -------- Operating profit 11,121 1,380 12,501 --------------------------------------- Post tax profit from joint ventures 2,007 31 2,038 --------------------------------------- Comprising: Headline profit 543 757 1,300 Goodwill impairment - (726) (726) Release of contract provision 1,464 - 1,464 --------- ------ -------- Post tax profit from joint ventures 2,007 31 2,038 --------------------------------------- Operating profit including joint ventures 13,128 1,411 14,539 Investment income 407 2,648 3,055 Finance costs (3,081) (3,562) (6,643) --------- ------ -------- Net finance cost (2,674) (914) (3,588) Profit before tax 10,454 497 10,951 Tax (7,175) (654) (7,829) --------- ------ -------- Profit for the year from continuing operations 3,279 (157) 3,122 Discontinued operations Post tax profit from joint ventures 1,158 (500) 658 --------- ------ -------- Profit for the year 4,437 (657) 3,780 ========= ====== ======== Attributable to: Equity holders of the parent 4,436 (657) 3,779 Minority interest 1 - 1 --------- ------ -------- 4,437 (657) 3,780 ========= ====== ======== Cash flow statement The transition from previous GAAP to IFRS has no effect upon the cash flows generated by the group. The IFRS cash flow statement is presented in a different format from that required by previous GAAP, with cash flows split into three categories. Reconciliation of equity at 31 March 2005 (last UK GAAP financial statements) and 1 April 2004 (date of transition to IFRS) 31 March 2005 1 April 2004 Note UK GAAP Transition IFRS UK GAAP Transition IFRS (Â£'000) (Â£'000) (Â£'000) (Â£'000) (Â£'000) (Â£'000) Non-current assets a) Goodwill 18,757 (591) 18,166 19,327 661 19,988 b) Intangible assets 3,477 3,642 7,119 6,810 (1,891) 4,919 c) Property, plant and equipment 66,862 5,564 72,426 58,077 5,474 63,551 Investment in joint ventures 3,344 (102) 3,242 7,241 9 7,250 f) Deferred tax assets 1,040 2,430 3,470 2,338 698 3,036 ------- ------- ------ ------ ------ ------- 93,480 10,943 104,423 93,793 4,951 98,744 Current assets Inventories 15,213 - 15,213 16,296 - 16,296 Trade and other receivables 74,789 - 74,789 67,227 - 67,227 Cash 5,009 - 5,009 14,563 - 14,563 ------- ------- ------ ------ ------ ------- 95,011 - 95,011 98,086 - 98,086 ------- ------- ------ ------ ------ ------- Total assets 188,491 10,943 199,434 191,879 4,951 196,830 ------- ------- ------ ------ ------ ------- Current liabilities h) Trade and other payables (49,382) 4,092 (45,290) (45,105) 4,311 (40,794) e) Retirement benefit obligation - - - (347) 347 - Current tax liabilities (6,478) (147) (6,625) (4,827) - (4,827) c) Finance leases (119) (359) (478) - (314) (314) Provisions (349) - (349) (59) - (59) ------- ------- ------ ------ ------ ------- (56,328) 3,586 (52,742) (50,338) 4,344 (45,994) Non-current liabilities Bank loans (58,715) - (58,715) (59,407) - (59,407) e) Retirement benefit obligation - (23,882) (23,882) - (16,073) (16,073) f) Deferred tax liabilities - (1,629) (1,629) (2,223) (661) (2,884) c) Finance leases (153) (6,343) (6,496) - (6,695) (6,695) Provisions (2,780) - (2,780) (5,745) 2,831 (2,914) ------- ------- ------ ------ ------ ------- (61,648) (31,854) (93,502) (67,375) (20,598) (87,973) Total liabilities (117,976) (28,268) (146,244) (117,713) (16,254) (133,967) ------- ------- ------ ------ ------ ------- Net assets 70,515 (17,325) 53,190 74,166 (11,303) 62,863 ======= ======= ====== ====== ====== ======= Equity Share capital 6,646 - 6,646 6,615 - 6,615 Share premium account 929 - 929 61,674 - 61,674 i) Hedging and translation reserve - (1,963) (1,963) - - - Own shares (407) - (407) (7) - (7) d) Equity reserve - 417 417 - - - Retained earnings 63,314 (15,779) 47,535 5,852 (11,303) (5,451) Minority interest 33 - 33 32 - 32 ------- ------- ------ ------ ------ ------- Total equity 70,515 (17,325) 53,190 74,166 (11,303) 62,863 ======= ======= ====== ====== ====== ======= Adjustments have been identified in relation to acquisitions which occurred prior to the transition date which should have been reflected in the opening transition date balance sheet previously published on 15 November 2005. As a result the transition date balance sheet has been updated to reduce goodwill and deferred tax liabilities by Â£1.17m and to reduce intangible assets and deferred consideration by Â£2.83m. COMPANY BALANCE SHEET Year ended 31 March 2006 Note 2006 2005 Â£'000 Â£'000 (restated) Fixed assets Investment in subsidiaries 38 57,795 57,795 Amounts owed by subsidiary undertakings 54,411 30,398 -------- ------- 112,206 88,193 Current assets Cash 31 29 Creditors: Amounts falling due within one year 39 (483) (328) -------- ------- Net current assets (452) (299) Creditors: Amounts falling due after more than one year Amounts owed to subsidiary undertakings (11,828) (7,108) -------- ------- Net assets 99,926 80,786 ======== ======= Capital and reserves Called-up share capital 40 7,328 6,646 Share premium account 40 570 929 Own shares 40 (352) (407) Equity reserve 40 1,032 417 Profit and loss account 40 91,348 73,201 -------- ------- Shareholders' funds 99,926 80,786 ======== ======= The financial statements were approved by the board of directors and authorised for issue on 30 May 2006. They were signed on its behalf by: G Coutts Director 30 May 2006 35. Significant accounting policies Basis of accounting The separate financial statements of the company are prepared under the historical cost convention and in accordance with United Kingdom applicable accounting standards. The separate financial statements of the company are presented as required by the Companies Act 1985. Changes in accounting policies The company has adopted FRS 21 Events after the balance sheet date and FRS 20 Share-based payment. This adoption represents a change in accounting policy and comparatives have been restated accordingly. Note 40 details the effects of these changes. Investments Fixed asset investments are shown at cost less provision for impairment. Employee share schemes The company operates a number of equity-settled share-based payment schemes under which shares are issued to certain group employees. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period. For schemes with only market based performance conditions, those conditions are taken into account in arriving at the fair value at the grant date. Accordingly no subsequent adjustment to the amortised fair value is made for achievement or otherwise of those conditions. For schemes that include non-market based conditions or no conditions, a "true-up" model is applied to the expense at each reporting date based on the expected number of shares that will eventually vest. Fair value is measured by use of a "random walk" stochastic model which takes into account exercise price, share price at date of grant, expected life, expected volatility of the share price, risk free interest rate and the expected dividend yield. The company has applied the requirements of FRS 20 Share-based Payment. In accordance with the transitional provisions of FRS 20 the standard has been applied to all grants of equity instruments after 7 November 2002 which had not vested as of 1 January 2005. Related party transactions The Company has taken advantage of the exemptions conferred by FRS 8 Related parties, not to disclose such transactions, as the Company accounts are presented together with the consolidated accounts. 36. Profit for the year As permitted by the exemption in Section 230 of the Companies Act 1985 the company has not presented its own profit and loss account. After dividends of Â£7,956,000 (2005: Â£7,204,000) the loss for the year was Â£7,030,000 (2005: Â£3,330,000) The auditors' remuneration for audit services to the company was Â£30,000 (2005: Â£30,000). 37. Cash flow The company has not prepared a cash flow statement in accordance with the exemptions available to it under FRS 1 Cash flow statements. 38. Subsidiaries A list of the significant investments at 31 March 2006 is set out below: Place of Name of subsidiary incorporation ownership (or registration) and operation Expro Algerie EURL Algeria Expro Group Australia Pty Limited Australia EGIS Australia Pty Limited Australia Oilserv Australia Pty Limited Australia Expro do Brasil International Representacoes Limitada Brazil Expro (B) Sdn. Bhd. (a) Brunei Expro Group Canada Inc. Canada DHV Canada Inc. Canada Expro Oil & Gas Service Company (Tianjin) Limited China Expro Gulf Limited Cyprus Expro Overseas Limited Cyprus Exploration and Production Services (Holdings) Limited * England and Wales Travelrevise Services Limited England and Wales Exploration and Production Services (North Sea) Limited England and Wales Ecodrill Ventures Limited England and Wales Expro North Sea Limited England and Wales Expro Group Integrated Services Limited England and Wales Tronic Limited England and Wales Expro Eurasia Limited England and Wales Expro International Limited Guernsey PT Expro Indonesia (b) Indonesia Expro Italia Srl Italy Exprotech (Malaysia) Sdn. Bhd. (c) Malaysia Expro International B.V. Netherlands Expro International Services B.V. Netherlands Ecodrill Nigeria Limited (d) Nigeria Exprotech Nigeria Limited Nigeria Matre Instruments AS Norway Expro Overseas Inc. Panama Keltoil Inc. Panama Exprotech (Singapore) Pte Limited Singapore DHV Far East Pty Limited (Singapore) Singapore Expro Trinidad Limited Trinidad Expro Americas Holdings USA Expro Americas Inc. USA Surface Production Systems Inc. USA DHV International Inc. USA * Direct holding, all other entities are subsidiaries via indirect holdings. All of the above companies have the same year end and are 100% wholly owned subsidiaries with the exception of; (a) Expro (B) Sdn.Bhd - 60% holding (b) PT Expro Indonesia - 95% holding (c) Exprotech (Malaysia) Sdn. Bhd - 29% holding (d) Ecodrill Nigeria Limited - 60% holding All of the companies are involved in the provision of specialised exploration and production services to the international oil and gas industry. With the exception of Expro North Sea Limited, which operates in the UK Continental Shelf region and Norway, and Expro Gulf Limited, Expro Overseas Limited and Expro Overseas Inc., which operate on a global basis, each of the remaining companies operates within its country of incorporation. 39. Creditors: Amounts falling due within one year 2006 2005 Â£'000 Â£'000 Bank overdraft 249 - Accruals 234 328 ----- ------ 483 328 ===== ====== 40. Called up share capital and reconciliation of movements in Shareholders' funds Ordinary Share Merger Own Equity Profit Total share Premium Reserve shares reserve and loss capital account Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2005 6,646 929 - (407) - 68,912 76,080 FRS 20 prior year adjustment - - - - 417 (417) - FRS 21 prior year adjustment - - - - - 4,706 4,706 ------ ------ ------ ----- ------ ------ ----- At 1 April 2005 as restated 6,646 929 - (407) 417 73,201 80,786 Profit for the year - - - - - 926 926 Issue of share capital 682 (359) 25,232 - - - 25,555 Dividends paid - - - - - (7,956) (7,956) Share-based payments - - - - 615 - 615 Transfers - - (25,232) 55 - 25,177 - ------ ------ ------ ----- ------ ------ ----- At 31 March 2006 7,328 570 - (352) 1,032 91,348 99,926 ====== ====== ====== ===== ====== ====== ===== The authorised share capital is set out in note 26 along with details of share capital issued and transactions in respect of the merger reserve. Prior year adjustments and the impact of new standards The adoption of FRS 20 has no impact on shareholders' funds. The adoption of FRS 21 has resulted in an increase in shareholders' funds of Â£4,706,000 at 1 April 2005 due to the reversal of dividends proposed at 31 March 2005. This information is provided by RNS The company news service from the London Stock Exchange

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