Interim Results

Expro International Group PLC 03 December 2003 For Immediate Release 3 December 2003 EXPRO INTERNATIONAL GROUP PLC ("Expro" or "the group") Interim results for the six months ending 30 September 2003 Expro International Group PLC, the oil field services company, today announces interim results for the six months ending 30 September 2003. Unaudited Unaudited Audited Six months Six months Year ended ended 30 ended 30 31 March September 2003 September 2002 2003 Turnover* £97.6m £111.4m £209.2m Operating profit* £6.9m £14.1m £22.4m EBITDA** before exceptional items £17.1m £24.2m £43.4m EBITDA margin*** 17.5% 21.7% 20.7% Profit on ordinary activities before taxation £5.6m £11.8m £34.4m Pre-tax profits before goodwill amortisation and exceptional items**** £6.7m £12.8m £20.0m Basic EPS 4.7p 12.3p 37.8p Basic EPS before goodwill amortisation and exceptional items 6.5p 13.8p 22.1p * Group and share of joint ventures, as extracted from the profit and loss account. ** Represented by operating profit for the group of £5,877,000 (six months ended 30 September 2002 £13,819,000; year ended 31 March 2003 £21,660,000), plus group goodwill amortisation and depreciation of £9,472,000 (six months ended 30 September 2002 £9,377,000; year ended 31 March 2003 £19,933,000) and EBITDA from the joint ventures of £1,709,000 (six months ended 30 September 2002 £976,000; year ended 31 March 2003 £1,763,000). *** EBITDA** before exceptional items expressed against turnover*. **** Represented by operating profit for the group and share of joint ventures of £6,883,000 (six months ended 30 September 2002 £14,129,000; year ended 31 March 2003 £22,382,000), plus goodwill amortisation of £1,144,000 (six months ended 30 September 2002 £1,242,000; year ended 31 March 2003 £2,388,000) less finance charges of £1,312,000 (six months ended 30 September 2002 £2,615,000; year ended 31 March 2003 £4,794,000). • A challenging period for the group with generally weak trading conditions particularly in the Americas and Asia Pacific • These trading conditions have continued since the period end and as indicated in the trading update in November, we currently anticipate that the second half will not see an improvement on the first half • Management has taken decisive action to reposition the group for growth in the major markets. The benefits are expected to become evident in the year to 31 March 2005 • Interim dividend maintained and, in the absence of unforeseen circumstances the Board will recommend the payment of a maintained final dividend for the year to 31 March 2004 Commenting on these results, Graeme Coutts, Chief Executive, said: "The management is clear about the challenges it faces. We have critically reviewed our strategic direction with regards to geographic structure, technology and sales and marketing, with an aggressive implementation plan underway. The changes being put in place will provide a strong platform from which to respond to these challenges and to profitably grow the business through the cycle." - Ends - For further information please contact: Expro International Group PLC On 3 December: 020 7067 0700 Graeme Coutts, Chief Executive Thereafter: 01189 591 341 Colin Ainger, Interim Finance Director Weber Shandwick Square Mile 020 7067 0700 Tim Jackaman, Mike Kirk, Rachel Taylor An analyst meeting will be held at 09.30 this morning at the offices of Weber Shandwick Square Mile, Fox Court, 14 Gray's Inn Road, London, WC1X 8WS EXPRO INTERNATIONAL GROUP PLC ("Expro" or "the group") Interim results for the six months ended 30 September 2003 Chairman's & Chief Executive's Statement Further to our pre-close trading statement on 29 September 2003, and as we updated the market on 18 November 2003, generally weak trading conditions in the Americas and Asia Pacific continued, and provided a tough background from which to implement the important changes underway in the business. Relative to the same period last year, revenues of the group and share of joint ventures for the first half were reduced by 12%, broadly in line with management's expectations. Given our high operational gearing created by what is essentially a fixed operating cost base, the impact of reduced turnover on operating profit is amplified. However, as is highlighted in more detail below, we are making important changes to our operating structure which are designed to focus our cost base on large markets with significant growth potential. With continued adverse market conditions in the Americas expected to continue during the second half, we currently anticipate that the second half will not see an improvement on the first half results. Dividend The group's dividend policy remains focused on rewarding shareholders at an earnings and cash cover that is prudent and consistent with the long term earnings profile of the business. On this basis the board is proposing to pay a maintained interim dividend of 3.8p per share. This will be payable on 30 January 2004 to shareholders on the register at 30 December 2003. In the absence of unforeseen circumstances, the Board will recommend the payment of a maintained final dividend for the year ended 31 March 2004. Tax Position The effective tax rate for the group for the year is likely to be higher than anticipated at 43.4%, up from 30.4% (effective current tax rate for the prior year 33%). This rate has arisen from changes to Expro's geographic mix of business and gives a fair guide as to the likely full year rate for the group. The magnitude of the change is influenced not only by the different geographic tax rates, but also the leveraged input of non deductible items (such as goodwill amortisation) at lower profitability. Overview Cased Hole Services remains a relatively resilient part of the group's portfolio. Turnover in this segment was virtually unchanged from the same period last year at £41.3m. This reflects the continued demand for our well performance technologies. Highlights for the period include growth in the UK continental shelf where EGIS, our integrated well management arm, increased market share, primarily with Shell, and further reinforced our position in the changing North Sea market. In China, an increasingly important market, we successfully introduced our well perforating technology for CNOOC in their ongoing Bohai Bay development. However, in the shallow water US Gulf of Mexico market, we have been impacted by continued low levels of capital spend from our clients relating to new wells. This is in line with many other service providers in this market. Subsurface Systems, our deepwater field development business, was down some 34% in turnover for the group and share of joint ventures to £20.8m, compared to the same period in the prior year. This was partly due to the loss of income from our former permanent monitoring business; the 50% retained is now reported in the QuantX joint venture. The main fall was related to Tronic, our connector business, reflecting the impact of phasing in global deepwater developments with revenues tied to the procurement phase of field development hardware. Tronic continues to enjoy an outstanding industry position both in market share terms and in technological leadership. Demand for our deepwater subsea safety tools varied by geographic market. In the UKCS and Norway, income grew despite a generally poor industry outlook, confirming our strong position in the mid-water segment. However, in the ultra deepwater markets of West Africa and the Gulf of Mexico, where we recognised we had a technology shortfall, activity was slower. We have since been actively introducing our new generation systems with great success. The recently completed Conoco Magnolia project and the subsequent follow-on campaign for Pioneer Natural Resources, both in the Gulf of Mexico, have given us rapid client acceptance for our latest technology in this important market segment. In our Surface and Environmental business, where we provide production solutions, well clean-up and reservoir characterisation services, turnover of the group and share of joint ventures reduced by 7% to £35.4m, compared to the same period last year. This partly reflected the conclusion of two major projects included in the prior year, the first being Shell's highly successful Malampaya project in Asia, and the second was the Gaggiano field development in Italy. On a positive note both the UKCS and Americas showed progress. The recent commencement of operations for Tuscan on the Ardmore field in the North Sea, and the start of our field development contract for BHP in Trinidad will benefit the second half of this year. Significantly, enquiry levels for our marginal field development capability have recovered after a slow period, indicating increased confidence and renewed interest within our clients. Strategic direction Expro has an international reputation for quality and service. Our global operating footprint allows us to perform our activities throughout most of the hydrocarbon regions of the world. However, this widespread capability leads to a relatively high cost base from which we aim to generate increasing returns by delivering revenue growth. With this as a key objective, we have critically reviewed our strategic direction in the following three areas with aggressive implementation already underway, to ensure that we are able to leverage the maximum capability from our assets. Geographic restructuring: Close examination of Expro's geographic structure has highlighted the opportunity to realign our efforts towards large markets with material growth prospects. Consequently, in October 2003 we made significant structural adjustments to enable Expro to address markets in the Former Soviet Union (FSU) and the Middle East (ME). This was achieved with minimal disruption and negligible cost by focusing available management capacity through the restructuring of existing geographic regions. First, our European region, with over 1,000 employees, will now extend its considerable capabilities to developing the emerging FSU market. The new Europe/ FSU region will assist our clients in establishing their positions within this technology hungry market, as well as focus on the wider North Sea opportunities arising from the changing client base. Both areas share common requirements for field rejuvenation where we have continually demonstrated the ability to deliver value to our clients. Secondly, in recognition of the potential of the changing Middle East market, we will significantly increase our focus in this area while adding our relatively fragmented Asia business to create an Africa/Asia/ME region under a single management structure. Finally, the strategically important Americas region, based in Houston, is set to benefit from our efforts to reduce our dependence on the shallow Gulf of Mexico market through a combination of new technology and market focus. We believe that the shallow offshore market will continue to be subdued, so we have re-engineered our portfolio with the introduction, and exploitation, of our advanced cased hole perforation technology EXcapeTM. This unique system is aimed at the mass land markets where it is rapidly gaining acceptance as a leading technique for the development of gas wells in hard rock areas. We believe there is significant market potential for this new product. We continue to participate in the highly influential deepwater Gulf of Mexico where clients view local performance as a key requirement for acceptance on their global deepwater projects. The successful introduction of our ultra deepwater Electro-hydraulic tools has allowed us to access projects previously beyond our technical capability. This will assist us in other key ultra deepwater markets such as West Africa. Technology introduction: Expro has always enjoyed a reputation for introducing high value technology. The aforementioned EXcapeTM and our ultra deepwater subsea tools are current examples which have further applications beyond the domestic United States. Maintaining our technological leadership will be key to improving margins within the business. A recently agreed Joint Industry Project between Expro, bp and ChevronTexaco to fully determine the feasibility of our unique Rigless subsea well intervention system is evidence of our continued industry leading position. This system has the theoretical capability to transform the economics of deepwater field developments. This joint funded project will determine capability, economics and time to market. Expro will continue to focus its expertise and efforts on technology development which delivers significant value to our clients, providing us with a sustainable growth profile and competitive advantage within our chosen markets. Effective Sales and Marketing remain key to the successful exploitation of our product portfolio. Dynamic sales and focused marketing are not to be underestimated in our sector. In this area we are already making positive changes to better address the needs of our clients. The introduction of a global client intelligence system, tracking and transferring knowledge through the group, has been introduced under the direction of our first Sales Director. The benefit to our operating regions will follow as we populate the system and enable increased knowledge transfer across the group. Outlook The management remain focused on enhancing the position of the group for the longer term. In particular, the group's larger clients are now more focused on well activities following a relatively inactive period dominated by political uncertainty, mergers and consolidation. In the North Sea, the new breed of independents is becoming increasingly active, requiring assistance and offering a very broad scope of opportunity for Expro. These changes to our markets demand changes to our approach and position in the industry. The management is clear about the challenges it faces. We have critically reviewed our strategic direction with regards to geographic structure, technology and sales and marketing, with an aggressive implementation plan underway. The changes being put in place will provide a strong platform from which to respond to these challenges and to profitably grow the business through the cycle. Dr Chris Fay, CBE Graeme Coutts Chairman Chief Executive Officer 2 December 2003 Group Profit and Loss Account for the six months ended 30 September 2003 Unaudited Unaudited Six months Six months Audited ended 30 ended 30 Year ended 31 September September March 2003 2002 2003 Note £000's £000's £000's Turnover: Group and share of joint ventures 97,556 111,416 209,232 Less: share of joint ventures (6,367) (2,987) (5,743) -------- -------- -------- Group turnover 2 91,189 108,429 203,489 -------- -------- -------- Operating profit before goodwill amortisation 8,027 15,371 24,770 Goodwill amortisation (1,144) (1,242) (2,388) -------- -------- -------- Operating profit 6,883 14,129 22,382 Operating profit: Group 5,877 13,819 21,660 Share of joint ventures 1,006 310 722 -------- -------- -------- Total 6,883 14,129 22,382 Exceptional gain on partial sale of interest in business on formation of joint venture 6a - - 16,550 Exceptional loss on termination of discontinued operations 6b - (472) (489) Less: prior year provision 6b - 718 735 -------- -------- -------- Profit on ordinary activities before finance charges 6,883 14,375 39,178 Finance charges (net) (1,312) (2,615) (4,794) -------- -------- -------- Profit on ordinary activities before tax 5,571 11,760 34,384 Tax on profit on ordinary activities 3 (2,418) (3,627) (9,390) -------- -------- -------- Profit on ordinary activities after tax 3,153 8,133 24,994 Minority equity interests (17) (45) (20) -------- -------- -------- Profit for the period 3,136 8,088 24,974 Dividends paid and proposed 4 (2,511) (2,514) (7,210) -------- -------- -------- Retained profit for the period 625 5,574 17,764 -------- -------- -------- Earnings per ordinary share: Basic 5 4.7p 12.3p 37.8p Diluted 5 4.7p 12.2p 37.7p Basic before goodwill amortisation and exceptional items 5 6.5p 13.8p 22.1p Total recognised gains and losses for the six months ended 30 September 2003 comprise the profit for the period of £3,136,000 and a net loss of £1,375,000 on foreign currency translation and overseas borrowings (six months ended 30 September 2002 loss of £3,123,000; year ended 31 March 2003 loss of £2,784,000). Group Balance Sheet at 30 September 2003 Unaudited Unaudited Audited 30 September 30 September 31 March 2003 2002 2003 £000's £000's £000's Intangible fixed assets and goodwill 36,897 40,215 39,114 Tangible fixed assets and investments 71,295 74,908 71,842 Investments in joint ventures: - share of gross assets 18,970 12,875 12,474 - share of gross liabilities (14,140) (10,478) (8,392) - goodwill 863 963 932 --------- --------- --------- 5,693 3,360 5,014 --------- --------- --------- Fixed assets 113,885 118,483 115,970 --------- --------- --------- Stocks and work-in-progress 11,316 11,818 10,392 Debtors - due within one year 74,047 68,751 61,402 - due after one year - 8,775 8,775 Cash at bank and in hand 16,082 4,514 28,104 --------- --------- --------- Current assets 101,445 93,858 108,673 Creditors due within one year (50,103) (46,020) (52,314) --------- --------- --------- Net current assets 51,342 47,838 56,359 --------- --------- --------- Total assets less current liabilities 165,227 166,321 172,329 Creditors due after more than one year (64,846) (77,585) (70,844) Provisions for liabilities and charges (2,668) (2,827) (3,039) --------- --------- --------- Net assets 97,713 85,909 98,446 --------- --------- --------- Called-up share capital 6,615 6,613 6,615 Share premium account and capital reserve 61,674 61,643 61,674 Profit and loss account 29,384 17,605 30,134 --------- --------- --------- Shareholders' funds being equity interests 97,673 85,861 98,423 Minority equity interests 40 48 23 --------- --------- --------- Total capital and reserves 97,713 85,909 98,446 --------- --------- --------- Group Cash Flow Statement for the six months ended 30 September 2003 Unaudited Unaudited Six months Six months ended ended Audited 30 September 30 September 31 March 2003 2002 2003 Note £000's £000's £000's Net cash inflow from operating activities 7 11,831 23,257 53,129 Finance charges (net) (1,692) (3,044) (5,352) Taxation (5,440) (3,368) (6,993) Capital expenditure and financial investment (8,021) (8,841) (12,874) Acquisitions and disposals - - 18,979 Equity dividends paid (4,700) (4,685) (7,197) --------- --------- -------- Net cash (outflow)/inflow before financing (8,022) 3,319 39,692 Financing (4,000) 1,867 (5,320) --------- --------- -------- (Decrease)/increase in cash in the period (12,022) 5,186 34,372 --------- --------- -------- Notes to the Interim Results 1. The results for the six months to 30 September 2003 and the comparative results for the six months to 30 September 2002 have not been audited by the company's auditors or reviewed in accordance with APB Bulletin 1999/4. They have been prepared on a basis consistent with the accounting policies set out in the statutory accounts for the year ended 31 March 2003. The comparative figures for the year ended 31 March 2003 do not constitute statutory accounts for the purpose of Section 240 of the Companies Act 1985 and have been extracted from the company's published accounts, a copy of which has been delivered to the Registrar of Companies and on which an unqualified audit report has been made by the auditors under Section 235 of the Companies Act 1985. 2. Segmental Information Unaudited Unaudited Audited Six months Six months Year ended ended 30 ended 30 31 March September 2003 September 2002 2003 Business Stream £000's £000's £000's Cased Hole Services 41,307 41,493 77,614 Subsurface Systems 17,569 31,642 56,786 Surface & Environmental Systems 32,313 35,294 69,089 ----------- ---------- -------- Group turnover 91,189 108,429 203,489 Subsurface Systems joint ventures 3,261 - - Surface & Environmental Systems joint ventures 3,106 2,987 5,743 ----------- ---------- -------- Total turnover 97,556 111,416 209,232 ----------- ---------- -------- Unaudited Unaudited Audited Six months Six months Year ended ended 30 ended 30 31 March September 2003 September 2002 2003 Geographical area £000's £000's £000's Europe/FSUa 42,953 50,650 88,121 ----------- ---------- -------- Africa/MEb 23,504 24,885 50,604 Asia Pacific 10,663 13,102 25,975 ----------- ---------- -------- Africa/Asia/MEb 34,167 37,987 76,579 ----------- ---------- -------- Americas 20,436 22,779 44,532 ----------- ---------- -------- Total turnover 97,556 111,416 209,232 Share of joint ventures (6,367) (2,987) (5,743) ----------- ---------- -------- Group turnover 91,189 108,429 203,489 ----------- ---------- -------- a FSU - Former Soviet Union b ME - Middle East The geographical segments have been revised from those presented in the audited financial statements for the year ended 31 March 2003 as a result of the geographic repositioning of the group as explained in the Chairman's and Chief Executive's statement. 3. Tax on profit on ordinary activities Tax on profits on ordinary activities has been calculated based on an estimated weighted average tax rate for the year ended 31 March 2004 and includes foreign tax of £1,934,000 (six months ended 30 September 2002 £3,193,000; year ended 31 March 2003 £8,384,000). The weighted average tax charge for the period on profit on ordinary activities is 43.4%. This is compared to the weighted average standard rate of UK and foreign tax of 28.9% with the difference largely attributable to expenses not deductible for tax purposes and the impact of unrelieved foreign losses in locations where the future utilisation of those losses is not sufficiently certain as to justify their recognition. Tax on profits on ordinary activities includes tax on profits of joint ventures of £42,000 (six months ended 30 September 2002 £nil; year ended 31 March 2003 £nil) 4. Dividends paid and proposed An interim dividend of 3.8 pence per ordinary share is declared for payment on 30 January 2004 (six months ended 30 September 2002, 3.8p; year ended 31 March 2003, 10.9p). 5. Earnings per ordinary share The calculations of earnings per share are based on the following profits and numbers of shares. Unaudited Unaudited Audited Six months Six months Year ended ended 30 ended 30 31 March September 2003 September 2002 2003 £'000s £'000s £000's Profit for the period for Basic and Diluted earnings per share 3,136 8,088 24,974 Goodwill amortisation 1,144 1,242 2,388 Exceptional gain after tax on partial sale of interest in business on formation of joint venture - - (12,514) Exceptional gain on discontinued operations - (246) (246) ----------- ---------- -------- Earnings before goodwill and exceptional items 4,280 9,084 14,602 ----------- ---------- -------- Number of Number of Number of shares shares shares 30 September 30 September 31 March 2003 2002 2003 Weighted average number of shares ranking for dividend used for Basic earnings per share 66,075,394 65,994,894 66,034,624 Dilutive effect of share options: - Executive Share Scheme 24,628 34,633 88,222 - Employee Share Scheme - 161,613 41,254 ---------- ---------- ---------- Weighted average number of shares used for Diluted earnings per share 66,100,022 66,191,140 66,164,100 ---------- ---------- ---------- The directors believe that the presentation of basic earnings per share before goodwill amortisation and exceptional items assists with understanding the underlying performance of the group. 6. Exceptional items a. Exceptional gain on partial sale of interest in business on formation of joint venture During the prior year the group transferred its permanent monitoring business into a newly formed joint venture enterprise, QuantX Wellbore Instrumentation comprising three joint venture companies. In consideration for a 50% holding in the joint venture companies, Baker Hughes Inc. paid the group £18,979,000 cash which resulted in a realised exceptional gain before tax of £16,550,000. Tax on the exceptional gain was £4,036,000. As a result of this transaction, the group and Baker Hughes Inc. each hold 50% in each of the joint venture companies. At any time after 31 March 2004, the group has the option to sell to Baker Hughes Inc., and Baker Hughes Inc. has the option to purchase from the group, all of the group's remaining equity interests in the joint venture companies at a price based on the adjusted earnings for the year immediately prior to the exercise of the option. b. Exceptional profit/(loss) on termination of discontinued operations During the prior year the group completed the closure of its cased hole services business in Venezuela with the final charges and associated provisions recorded resulting in an exceptional profit from the release of excess provisions. 7. Cash flow information Reconciliation of operating profit to net operating cash inflow Unaudited Unaudited Audited Six months Six months Year ended ended 30 ended 30 31 March September 2003 September 2002 2003 £000's £000's £000's Operating profit 5,877 13,819 21,660 Depreciation and amortisation 9,472 9,377 19,933 (Profit)/loss on sale of tangible fixed assets (28) 21 133 (Increase)/decrease in stocks and work-in-progress (924) 255 (437) (Increase)/decrease in debtors (3,940) 6,889 15,809 Increase/(decrease) in creditors and provisions 1,374 (7,193) (4,058) Exceptional cash inflow related to termination of discontinued operations (note 6b) - 89 89 ----------- ---------- -------- Net cash inflow from operating activities 11,831 23,257 53,129 ----------- ---------- -------- Analysis of net debt Other Unaudited Audited non-cash 30 September 1 April 2003 Cash flow changes 2003 £000's £000's £000's £000's Cash at bank and in hand 28,104 (12,022) - 16,082 Debt due after one year (70,528) 4,000 1,983 (64,545) --------- -------- -------- --------- (42,424) (8,022) 1,983 (48,463) --------- -------- -------- --------- Other non-cash changes represent foreign exchange revaluations of foreign currency loans. This information is provided by RNS The company news service from the London Stock Exchange

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