Final Results - Year Ended 31 March 2000

Expro International Group PLC 7 June 2000 A resilient performance Preliminary results for the year ending 31 March 2000 Expro International Group PLC, the oil field services company, today announces preliminary results for the year ended 31 March 2000. Highlights * An important year for the development of the group with the introduction of new technologies and significant acquisitions, totalling £33 million * Oil price volatility has impacted the sector but Expro has delivered a resilient top quartile performance by focusing on technology, geographic spread and stable development/production segments * Turnover reduced 12% to £136m (1999: £153.0m) * Cost savings delivered from reorganisation - £2.5m per annum * Pre-tax profits at £14.9m (1999: £20.1m) * Pre-goodwill earnings per share at 17.3p (1999: 24.0p pre- goodwill and exceptionals) * Total dividend for the year unchanged at 9.8p * High level of current enquiries Commenting on these results, John Dawson, Chief Executive, said: 'Against a harsh market background in which we have seen client capital expenditure reduced by 25%, Expro has delivered a resilient performance. At the same time, we have continued to position the company for growth. The recent key acquisitions have expanded our service range in new value-added technologies and increased our critical mass in the important US and Asia Pacific markets. Our R&D programmes continue to deliver market leading products, particularly those applicable to hostile deepwater environments. 'We are currently experiencing early signs of recovery in the service sector. We expect to see turnover more heavily weighted towards the second half of the year, as client capital spending begins to pick up into 2001, which Expro is well positioned to benefit from.' Announcement of two further acquisitions We are pleased to announce the acquisitions, for an aggregate consideration of £6.6m, of Production Testers International ('PTI') and Surface Production Systems Inc. ('SPS'). The PTI acquisition gives us an extensive inventory of production related equipment in Asia and established relationships in Indonesia. SPS Inc is an engineering consultancy based in the US. These acquisitions are key to expanding our presence in the small and marginal field production market. For further information: Expro International Group PLC On 7th June only: 020 7253 2252 John Dawson, Chief Executive Thereafter: 01189 591341 Eric Woolley, Group Finance Director Ludgate Communications 020 7253 2252 Robin Hepburn Roya Nasser Chairman's and Chief Executive's Statement Introduction The last year was dominated by the impact of significant fluctuations in the price of crude oil. With Brent Crude having reached a twenty five year low, in real terms, of $10 a barrel in February, 1999, prices subsequently saw a strong recovery averaging $18 a barrel in the first half and $25 in the second half of our financial year. Naturally, such material oil price fluctuations resulted in significant uncertainty among our client base. This led to a reduction in client capital expenditure programmes, of the order of 25% from the prior year. Expro's turnover, particularly that related to client capital spending, reached a low in the first half of the year when it was down 15% on the previous six months and started to improve modestly in the second half, up 6% on the prior period. Against this harsh market background, Expro has demonstrated that its focus on providing differentiated services which assist its customers in reducing finding, operating and development costs enables it to deliver strong performance, relative to both US and European oilfield service companies, throughout the oil price cycle. Results Last year overall turnover reduced by 12% to £136m (1999 - £153m). Gross margins remained unchanged, reflecting the added- value nature of our services and products. As the business is highly operationally geared, the reduction in turnover resulted in pre-tax profits falling 26% on the prior year to £14.9m (1999 - £20.1m). Pre-goodwill earning per share at 17.3p were down 28% on prior year, pre-goodwill and exceptionals (1999- 24p). Dividend The Board is recommending a final dividend of 6.4p per ordinary share. This will be payable on 31st July 2000, to shareholders on the register at 7th July 2000. The resulting full year dividend of 9.8p is unchanged on last year. Business Overview Last year, we made considerable progress in executing our strategy. We are now well placed to deliver material growth, both through organic and acquisition opportunities. Expro now comprises three integrated business segments, providing products and services used by clients to: * enhance production (Cased Hole Services); * reduce field development and operating costs (Subsurface Systems); and * enhance field economics through the provision of temporary or permanent production systems (Surface and Environmental Systems). These niche services and products are distributed globally through four operating regions: Europe, Africa/Former Soviet Union, Asia Pacific and the Americas. We are now active in over 40 countries. To optimise performance we have consolidated the UK/Norway region with Continental Europe to form a single European region. Taking advantage of both our strong market position and balance sheet, we have acquired four businesses for a total of £33m in the last five months. These acquisitions have substantially increased our presence in the important US and Asia Pacific markets, at the same time as expanding our range of Cased Hole Services and broadening our Surface and Environmental capability. We expect to see the benefits of this starting to come through in the year ending March 2001. We also remain committed to maintaining our reputation for technological leadership in our niche markets. The Subsurface business has recently launched three new products: Aquaphase, a tool enabling the operator to monitor the onset of water breakthrough with considerably improved accuracy; Tronic Digitron, an enhanced reliability electrical connector for subsurface control and monitoring systems; ELSA, a well completion and clean-up system for very hostile deepwater applications. The key developments of the Group during the last year are summarised in more detail below: Cased Hole Services: In this segment, we provide the services and products to manage wells throughout their life, to ensure that production is maximised. Our capability in this area is demonstrated by our success in winning the integrated well engineering and project management contract for Shell's Northern Business Unit covering nine installations in the East Shetland basin, accounting for 10% of UK oil production. We will seek to increase market share by providing new value added services through our global infrastructure. This is being achieved by a combination of our development programme, to provide new specialist tooling such as the Exothermal sampling system and the Gold mobile sample analysis system and through acquisitions. The acquisition of Tripoint Inc. and Kinley Corporation, both headquartered in Houston, enhance the range of Cased Hole products and services available to the group whilst also building a significant presence in the strategically important North American market. Tripoint provides well completion and perforating systems including market-leading products such as Power*Perf TM, Stim Gun TM and Excape TM. These tools have been developed by a consortium of oil service companies and Marathon Oil; Tripoint have certain exclusive licences on these technologies. Kinley is a specialist in monitoring downhole corrosion in producing wells. The company has over 150 tool sets worldwide and has recently completed trials of a new digital data caliper system which will be launched later this year. Subsurface Systems: This business is focused on the provision of highly specialised products which are central to the successful development of remote subsea wells, particularly those in hostile environments. Growth in the number of subsea wells is set to double over the next three years; the hotspots being Gulf of Mexico, Brazil, West Africa and UK/Norway, where Expro is well represented. We are looking to further enhance this segment by developing additional tooling such as landing strings, tree interfaces, flowline data provision and marine intervention services to provide access for maintenance of these deepwater wells. This generates the opportunity to provide life of field services. ELSA, the well completion and stimulation system, has been supplied to Statoil for use primarily on their Asgard development. Expro's ability to perform bespoke engineering and to integrate its technologies is demonstrated by the award of intervention and well monitoring systems for Shell's deepwater development, Malampaya, in the Philippines. In the important area of multi-well management, Expro is at the forefront of data capture and control technology linked to new completion hardware. We are now able to provide the complete data management and control architecture as well as specialist multi-flow measurement tooling. Harvest the digital address system, which allows real time data interrogation in multi-well/zone producers, led to the award of well monitoring contracts for BP Amoco Marlin and Texaco Captain, two of Expro's largest data contracts. Tronic successfully developed the first high pressure horizontal penetrator which led to the award of the instrumentation feed through for the Amerada Hess Conger project in the Gulf of Mexico. Surface and Environmental Systems: Our focus in this segment is in the processing of produced well fluids at the surface. This is either through the provision of temporary facilities for data measurement and well clean-up during maintenance, or the provision of permanent production facilities for marginal or small fields. Protection of the environment is paramount in these operations and our development programmes continue to evolve new products such as the 'clean enclosed burner' which enables gas flaring in environmentally sensitive locations. Expro is also studying ways of removing the need to produce hydrocarbons to surface during the field evaluation stage. The technology for the handling of solids from oil and gas wells, developed by the group for its Under Balanced Drilling systems, has been successfully applied to production operations in Conoco / Chevron's Britannia field in the North Sea. The acquisition in May 2000 of the assets and business of Production Testers International ('PTI') in Asia Pacific and Surface Production Systems Inc. ('SPS') a US engineering consultancy, will provide Expro with the capability to materially expand its position in the growing market for permanent production facilities. Outlook Looking to the future, we are currently experiencing early signs of a recovery in the service sector as our clients strive to grow their production assets and to enhance their existing production capability. As with last year, we expect to see turnover more heavily weighted towards the second half of the year, as client capital spending begins to pick up into 2001. Whilst the market has been challenging for all service providers, Expro has demonstrated that it has a sustainable business model to continue to develop as a global niche player. It is against this backdrop that we feel very well placed to continue the long-term growth of the company. ............... .................. Dr Chris Fay John Dawson Chairman Chief Executive Officer Operations Review Cased Hole Services This business, which is largely related to maintenance and enhancement of existing production, was not affected materially by the downturn; turnover reduced only marginally to £47m. In the higher cost area of the UK North Sea there was some pressure from customers to reduce costs, which we have balanced against the benefits of increased market share and activity levels. In the rest of Europe, our activities in the Netherlands were disrupted by the continuing reorganisation of NAM. This is anticipated to be completed by the end of the calendar year, after which we are expecting an increase in well servicing requirements. In Africa/Former Soviet Union the key area of opportunity lies in Libya and Algeria. We are providing the complete service range amongst a diversified blue chip customer group such as BHP, Repsol, Sonatrach, Veba, Wintershall and Zueitina. In Asia Pacific, our business performed well, with modest declines in activity principally related to Shell Brunei as the contract becomes indiginised. Our acquisition of PTI, with its established relationships in Indonesia, will benefit the group's penetration of this important geographic market, as it starts to recover. For much of the year our cased hole activities in the Americas were confined to Venezuela. However, the Tripoint and Kinley acquisitions shift our centre of gravity to the buoyant markets in the Gulf of Mexico and onshore US and Canada which are benefiting from the upsurge in US domestic gas demand. Subsurface Systems This business is dependent on client field development programmes which are heavily capex driven, and, as such it was the segment most affected by the downturn, with income reduced 19% to £37.8m. The major shortfalls in new business were in Norway and, to a lesser degree, the UK. However, we continued to experience significant growth in the Africa and Americas markets, driven by major projects such as Elf's Girassol development in Angola, Chevron's Typhoon project in the Gulf of Mexico and the Terra Nova project offshore Canada. Generally, the subsea and permanent monitoring activities which provide bespoke systems are subject to lead times of several months and are less affected by short-term fluctuations in the oil price. However, Tronic, as a supplier of components has an order cycle of a matter of weeks. As a result, Tronic's turnover suffered most, with a decline of 32%. Expro possesses a number of market leading technologies in this area, maintained by our ongoing development programmes. This helps to ensure that we can continue to provide clients with the bespoke solutions which play a major role in enabling them to exploit new fields in a cost efficient manner. Enquiry levels for all activities are currently very high and an improvement in business is expected towards the second half of the year. Surface and Environmental Systems This segment responded well to the industry down cycle. The focus on the relatively stable production phase activities was increased and they now account for half the segment's business. This response resulted in only a relatively modest decline in turnover of 12% to £50.9m. The main markets affected were in the UK and Netherlands, but continued good progress was made in Africa. The acquisitions of PTI and SPS considerably enhance the Group's position in the market for the provision of permanent production systems. Of immediate focus will be opportunities in Asia Pacific, as this market starts to turn round. Consolidated Profit and Loss Account For the year ended 31 March 2000 2000 1999 Note £'000 £'000 Turnover: Existing operations 132,771 153,490 Acquisitions 6 2,923 - ------- ------- Continuing operations 2 135,694 153,490 Cost of Sales (108,820) (119,212) ------- ------- Gross Profit 26,874 34,278 ======= ======= Other operating expenses Goodwill amortisation (713) (493) Exceptional charge - (1,028) Other administrative expenses (7,004) (8,292) ------- ------- Total administrative expenses (7,717) (9,813) Distribution expenses (2,173) (2,074) ------- ------- Total operating expenses (9,890) (11,887) ------- ------- Operating profit: Existing operations 16,447 22,391 Acquisitions 6 537 - ------- ------- Continuing operations 16,984 22,391 Finance charges (net) (2,130) (2,280) ------- ------- Profit on ordinary activities before taxation 14,854 20,111 Tax on profit on ordinary activities 3 (4,530) (6,134) ------- ------- Profit on ordinary activities after taxation 10,324 13,977 Minority equity interests (2) 11 ------- ------- Profit for the financial year 10,322 13,988 Dividends paid and proposed 4 (6,278) (6,260) ------- ------- Retained profit for the year 4,044 7,728 ======= ======= Earnings per ordinary share 5 Basic 16.1p 22.0p Diluted 16.1p 21.9p Basic before goodwill amortisation and exceptional charges 17.3p 24.0p Consolidated Balance Sheet 31 March 2000 31 March 31 March 2000 1999 Note £'000 £'000 Fixed assets Patents 529 398 Goodwill 28,682 10,824 Tangible assets 64,436 63,868 Investments 39 1 ------- ------- 93,686 75,091 ------- ------- Current assets Stocks and work in progress 8,277 4,132 Debtors 50,011 50,171 Cash at bank and in hand 6,725 2,241 ------- ------- 65,013 56,544 Creditors: Amounts falling due within one year (55,652) (50,286) ------- ------- Net current assets 9,361 6,258 ======= ======= Total assets less current liabilities 103,047 81,349 Creditors: Amounts falling due after more than one year (34,584) (17,441) Provisions for liabilities and charges (3,266) (2,765) ------- ------- Net assets 65,197 61,143 ======= ======= Capital and reserves Called-up share capital 6,407 6,394 Share premium account 7 53,793 53,599 Capital reserve 7 24 24 Profit and loss account 7 4,986 1,113 ------- ------- Shareholders' funds, being equity interests 65,210 61,130 Minority interest (13) 13 ------- ------- Total capital and reserves 65,197 61,143 ======= ======= Consolidated Cash Flow Statement For the year ended 31 March 2000 31 March 31 March 2000 1999 Note £'000 £'000 Net cash inflow from operating activities 8 22,818 38,896 ------- ------- Returns on investments and servicing of finance Interest received 137 155 Interest paid (2,311) (2,216) Dividends paid to minority shareholder of subsidiary undertaking (28) (86) ------- ------- Net cash outflow for returns on investments and servicing of finance (2,202) (2,147) ------- ------- Taxation (4,124) (7,136) ------- ------- Capital expenditure and financial investment Purchase of intangible fixed assets (157) (420) Purchase of tangible fixed assets (10,374) (26,696) Purchase of trade investments (32) - Sales of plant and machinery 79 265 ------- ------- Net cash outflow for capital expenditure and financial investment (10,484) (26,851) ------- ------- Acquisition of subsidiary undertakings (13,980) (4,648) Equity dividends paid (6,265) (5,858) ------- ------- Cash outflow before financing (14,237) (7,744) ------- ------- Financing Issue of shares 207 14,990 Increase/ (decrease) in debt 9,699 (2,997) ------- ------- 9,906 11,993 ------- ------- ------- ------- (Decrease) /increase in cash in the year (4,331) 4,249 ------- ------- Notes to the preliminary results 1.The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 1999 and 2000 but is derived from these accounts. Statutory accounts for the financial year ended 31 March 1999 have been delivered to the Registrar of Companies, whereas those for the financial year ended 31 March 2000 will be delivered to the Registrar of Companies following the company's next Annual General Meeting. The auditors have reported on the statutory accounts for both financial years; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2.Analysis of turnover Surface & Cased Hole Subsurface Environmental Services Systems Systems Total 2000 1999 2000 1999 2000 1999 2000 1999 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Europe 26,918 30,030 20,182 33,103 20,191 29,539 67,291 92,672 Africa / FSU 6,676 7,272 6,288 5,032 23,558 20,184 36,522 32,488 Asia Pacific 8,007 9,260 2,726 2,792 5,504 6,381 16,237 18,433 Americas 5,394 2,388 8,644 5,894 1,606 1,615 15,644 9,897 ------ ------ ------ ------ ------ ------ ------ ------ 46,995 48,950 37,840 46,821 50,859 57,719 135,694 153,490 ====== ====== ====== ====== ====== ====== ======= ======= 3.Taxation The taxation charge is based on the profit for the year and comprises: 2000 1999 £'000 £'000 Corporation tax at 30% (1999 - 31%) 1,221 2,259 Overseas taxation 2,870 2,876 Deferred taxation 439 999 ------ ------ 4,530 6,134 ====== ====== 4.Dividends 2000 1999 £'000 £'000 Dividend paid on 31 January 2000 of 3.4p (1999 - 3.4p) per ordinary share 2,173 2,168 Proposed final dividend of 6.4p (1999 - 6.4p) per ordinary share 4,105 4,092 ------ ------ 6,278 6,260 ====== ====== 5.Earnings per ordinary share Basic earnings per ordinary share are based on the group's profit on ordinary activities after taxation and on the weighted average number of 63,914,328 ordinary shares in issue and ranking for dividend during the year (1999: 63,451,407). Diluted earnings per share are based upon the group's profit on ordinary activities after taxation and on a weighted average of ordinary shares diluted by 69,672 shares (1999: 137,927) in respect of an executive share scheme and 226,258 shares (1999: 273,507) in respect of an employee share scheme, resulting in a diluted weighted average number of shares of 64,210,258 (1999: 63,862,841). Basic earnings per share before goodwill amortisation and reorganisation costs are calculated by adjusting earnings for goodwill amortisation of £713,000 (1999: £493,000) and exceptional reorganisation costs of £Nil (1999: £1,028,000) 6.Acquisitions On 1 February 2000, a group subsidiary company acquired 100% of the issued share capital, business and net assets of Canadian Completion Services Limited, a company incorporated in Canada and a wholly owned subsidiary of Tripoint Inc. Also on 1 February 2000 a group subsidiary company acquired 100% of the issued share capital, the business and net assets of Tripoint Inc., a company incorporated in the U.S.A. The total fair value of the consideration including costs for these acquisitions was US$20,065,000 (£12,389,000) and the fair value and book value of the net liabilities acquired was US$5,427,000 (£3,351,000) generating goodwill of US$25,492,000 (£15,740,000). Consideration and costs were settled by cash of US$18,065,000 (£11,154,000) and deferred consideration of US$2,000,000 (£1,235,000), payable in annual installments over the next two years contingent upon the performance over this period being in excess of pre-set targets. On 1 March 2000, a group subsidiary company acquired 100% of the issued share capital, business and net assets of the Kinley Corporation, a company incorporated in the U.S.A. The total fair value of the consideration including costs was US$7,582,000 (£4,755,000) and the fair value and book value of the net assets acquired was US$2,863,000 (£1,795,000), generating goodwill of US$4,719,000 (£2,959,000). Consideration and costs were settled by cash of US$4,582,000 (£2,873,000) and deferred consideration of US$3,000,000 (£1,881,000) payable in annual installments up to 2005 contingent upon the continued employment of a key director over this period. The goodwill generated by the above acquisitions has been capitalised and is being amortised over 20 years. Subsequent to the year end group companies acquired 100% of the issued share capital, business and net assets of Surface Production Systems Inc. a company incorporated in the U.S.A. and the Asia Pacific business and assets of Production Testers International Limited for a combined consideration of £6,600,000. 7.Reserves Share Capital Profit premium reserve and loss account account £'000 £'000 £'000 Group Beginning of year 53,599 24 1,113 Share issues 194 - - Loss on foreign currency translation - - (171) Retained profit for the year - - 4,044 ------ ------ ------ End of year 53,793 24 4,986 ====== ====== ====== 8.Cash flow information 2000 1999 £'000 £'000 Reconciliation of operating profit to net operating cash inflow Operating profit 16,984 22,391 Depreciation and amortisation 12,788 10,507 Profit on sale of tangible fixed assets (17) (208) (Increase) in stocks and work-in-progress (1,985) (567) Decrease in debtors 3,084 5,343 (Decrease)/increase in creditors and provisions (8,036) 1,430 ------- ------- Net cash inflow from operating activities 22,818 38,896 ======= ======= Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash in the year (4,331) 4,249 Cash flow from (increase)/decrease in net debt (9,699) 2,997 ------- ------- (Increase)/decrease in net debt resulting from cash flows (14,030) 7,246 Translation difference (21) (288) Loans and finance leases acquired with subsidiary undertakings (6,190) (1,256) Loan notes issued in connection with acquisitions - (9,542) ------- ------- Movement in net debt in the year (20,241) (3,840) Net debt at beginning of year (27,031)(23,191) ------- ------- Net debt at end of year (47,272)(27,031) ======= ======= Analysis of net debt Other Beginning non- End of of year Cash Acquisitions cash year flow changes £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand 2,241 4,484 - - 6,725 Bank overdrafts (5,397) (8,815) - - (14,212) Debt due within 1 year (6,242) 5,740 (6,190) (300) (6,992) Debt due after 1 year (17,374) (15,603) - 279 (32,698) Finance leases (259) 164 - - (95) ------- ------- ------- ------ ------- (27,031) (14,030) (6,190) (21) (47,272) ======= ======= ======= ====== =======

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