Final Results

Hunting PLC 28 February 2008 28 February 2008 HUNTING PLC Preliminary results For the year ended 31 December 2007 Hunting PLC ('Hunting', the 'Group' or the 'Company'), the international energy services company, today announces its preliminary results for the year ended 31 December 2007. • Revenue £1,949.5m (2006: £1,810.4m) +8% • Profit from operations £98.5m (2006: £86.3m) +14% • Profit before tax and exceptional items £93.0m (2006: £85.8m) +8% • Profit before tax £90.7m (2006: £80.8m) +12% • Basic earnings per share 44.0p per share (2006: 37.6p) +17% • Total Ordinary dividend per share 8.25p (2006: 7.5p) +10% Commenting on the outlook for the Group, Dennis Proctor, Hunting's Chief Executive, said: 'The Company sees heightened oil and gas activity for the foreseeable future and is uniquely positioned to serve the global market of nationals and oil majors and provide sustained growth. With a strong balance sheet, a tested strategy and dedicated employees, Hunting PLC will continue delivering excellent value to its shareholders.' For further information, please contact: Hunting PLC 020 7321 0123 Dennis Proctor, Chief Executive Dennis Clark, Finance Director Hogarth Partnership Limited 020 7357 9477 Andrew Jaques Anthony Arthur Notes to Editors: Hunting PLC is an international oil services company providing support solutions to the world's largest oil and gas companies. Chairman's Statement I am pleased to report the Company's third consecutive year of record results. Profit before taxation in 2007 was £90.7m (2006 - £80.8m), a 12% increase. The Company continues to be focused on North America with increasing contributions from the international arena. The energy markets we serve are volatile, but your Company has performed well, increasing its pre-tax profits despite sterling (our reporting currency) strengthening significantly against the US and Canadian dollars in which we mainly trade. Two significant international trends from the last few years have come increasingly to the fore. Hydrocarbon resources have become harder to find and deliver to consumers. The world's oil and gas reserves, once mainly in the hands of the major international oil companies, are now substantially controlled by state-owned national oil companies. Both of these trends play to the Company's strengths. Deeper and higher pressure reserves require disproportionately large quantities of our highly engineered upstream products, while national oil companies often require more from the oil service industry than do the oil majors. Gibson Energy, the Company's midstream services operation was once again busy and successful in the very active Western Canadian scene, producing similar results to last year. Even more attention is being paid by the company to the increasing proportion of hydrocarbon production deriving from conventional heavy oil and from the huge Athabasca tar sands reserves. The key performers in 2007 were the Truck Transportation operation (with the largest crude oil fleet in Western Canada) and the Terminals and Pipelines operation. Although the Marketing Division found that very high oil price levels and volatility impacted on some of its trading opportunities, it remained highly profitable. Hunting Energy Services concentrates on the upstream side of the oil industry, providing sophisticated equipment mainly for below-ground applications. It produced profits more than 36% above last year, thanks to excellent markets and efficient production, especially in US Manufacturing, in the North Sea and in South-East Asia. Capital expenditure increased substantially to meet continued high demand and to replace equipment which has been working flat-out for some years. A number of smaller acquisitions were also made. Basic earnings per share were 44.0p, an increase of 17% on the previous year. We are recommending a final dividend of 5.7p per share, giving a total of 8.25p for the year, a 10% increase. We intend to appoint a new Finance Director, Peter Rose CA, with effect from the Company's Annual General Meeting. Peter has been with us since July 1997, initially as Group Financial Controller and also as Company Secretary since August 2004. There are no other matters relating to the appointment of Peter Rose that need to be disclosed pursuant to Listing Rule 9.6.13. The current Finance Director, Dennis Clark, has been in the post since the formation of Hunting PLC in 1989. He originally joined the Group in 1972 and has had a distinguished career, culminating in his active involvement in the remarkable growth of the past few years. I would like to extend my gratitude and that of the rest of the Board and of his colleagues for Dennis's outstanding achievements. This has been a fine year for your Company. Although the world economic outlook is cloudier than in recent years, it seems certain that hydrocarbon demand and the need for our products and services will continue to be strong. I expect the Company to continue to perform well. I thank our staff for their hard work and dedication during another successful year. Richard Hunting Chairman Business Review Chief Executive's Review Energy and the demand for it continues to dominate the global media and the political arena. This demand has enabled your Company to once again report double digit percentage growth for 2007. Fears of a contraction in global energy demand due to a potential recession appear to be overblown in light of the rapid industrialisation occurring in the developing world. Drilling for oil and natural gas in the United States reached a twenty-two year high in 2007, while producers expanded their search for new reserves in the ageing onshore basins and the Gulf of Mexico. Global activity also continues to expand due to ever growing price increases of oil and gas. Further commitments of capital for heavy oil expansion in Canada were announced throughout the year. Prior year investments by Hunting PLC for new capacity and new operational locations within these arenas further assisted gains in 2007. On a constant US dollar currency basis, pre-tax profits for the Company grew 18% on a 17% revenue growth, reflecting a significant margin improvement from price increases, equipment utilisation and manpower efficiencies. In anticipation of future growth, capital expenditure grew 14% to £62.0m and gearing rose from 33% to 45%. Exploration budgets for the oil and gas companies worldwide are expected to increase by 11% in 2008 thereby supporting this larger use of capital. Free cashflow was £17.4m in the year (2006 - £57.8m). The oil and gas industry can be viewed as 'worlds apart.' For the US and Canada, 80% of drilling activity is comprised of natural gas wells. Internationally, the majority of the activity is directed toward oil. The North American rig count declined in Canada, primarily as a result of higher costs for shallow well exploration and production. However, the Company does not provide products and services for shallow well applications, but instead focuses on more complex, technology driven, deeper applications. For petroleum and the international arena, unrelenting demand growth is constantly running up against weak supply gains. In spite of record upstream investment, production growth continues to disappoint, primarily in the non-OPEC regions. As a result, any capacity gains will be from the national oil companies and OPEC, while currently world surplus production capacity remains extremely thin. High oil prices will continue to fund the non-conventional projects such as Canadian oil sands and deep water activity. While alternative energy has equal print space to global hydrocarbons, subsidies are required for any meaningful expansion. Accordingly, the Company sees heightened oil and gas activity for the foreseeable future. Business Developments Capital expenditure increased to £62.0m (2006 - £54.2m) of which £30.6m was new business expansion and £31.4m on replacement capital. A further £30.2m was spent on acquisitions in the year. Gibson Energy invested £23.7m with £16.5m for new business and £7.2m on replacement capital. Truck Transportation invested £3.6m on replacement trailers and £6.2m for the acquisition of Boychuk, an independent trucking company operating in Alberta and British Columbia. An acquisition of £2.5m for Rev Fluids benefited Moose Jaws Well Site Fluid Division. A further £25.1m was spent for a TOPS pipeline and rail spur upgrades. At Canwest Propane, Western and Del's Propane companies were acquired for £4.1m. In addition, the acquisition of MP Energy in Eastern Canada for £8.8m occurred in the second half of 2007, which increased volumes in wholesale distribution. Hunting Energy Services invested £36.5m in capital expenditure during 2007 of which £7.0m was for exploration and production expenditure. The balance of £29.5m included expenditure of £8.3m for additional facilities in Casper, Wyoming and new tools and spare parts for Performance mud motor equipment. In the US manufacturing facilities, spending on the oil country tubular goods finishing facility in Houston, deep water accessory manufacturing facility in Houma, Louisiana and the expansion of the Lafayette, Louisiana facility totalled £3.0m for the year. Additional equipment in Asia, Aberdeen and Holland totalled approximately £2.0m. Hunting Oryx was acquired in October for £8.6m. Hunting Oryx is a distributor of non-magnetic drill collars. Health, Safety and the Environment Gibson Energy's lost time incident record was 26% below the Alberta Provincial average in 2007. Gibson was also recognised for its commitment to Health, Safety and the Environment as a recipient of the 2007 Certificate of Recognition (COR), an industry health and safety standard, with a score at the 90% level. Gibson and its affiliates received the following awards related to Health, Safety and Environment of their employees and community in which they operate. 1. Work Safe Alberta 2006 Best Performer Award. 2. Leader status in the EnviroVista, Environmental Leadership Program, awarded to Gibson's 'Bulk Petroleum Storage and Transfers Facility' in Hardisty by the Minister for Alberta Environment. 3. Chemical Shipper's Safety Award - awarded to the Moose Jaw Refinery by the Canadian Pacific Railway for demonstrating excellence in transportation safety. 4. CNR Safe Handling - awarded to the Moose Jaw Refinery and Gibson's Edmonton Terminal by the Canadian National Railway as part of the 'Partners in Responsible Care Gold Award'. Hunting Energy Services' US manufacturing operations incurred a total of twenty-six recordable accidents which reduced by 20% from 2006. Approximately 50% of the incidents were by inexperienced workers with less than one year's employment at Hunting. Hunting's incident rate of 2.69 remains far below the Bureau of Labour Statistics industry average of approximately 7.5. The European facilities' accident statistics were once again below the level of the industry average in engineering and manufacturing. Therefore, the Company applied for their sixth consecutive National Safety Award by the British Safety Council and retained the Five Star rating for the tenth consecutive year. No environmental issues occurred in the year and all of Hunting Energy Services' primary manufacturing facilities are ISO 14001 Environmental Management System certified. Our goals remain simply put - no accidents, no harm to people and no damage to the environment. Outlook Oil accounts for more than 95% of transportation energy, and transportation is an economic necessity. There are no easy energy substitutes. In addition, the soaring oil use throughout the developing world will challenge the oil and gas industry's ability to meet future demand. Some experts' view of an annual 4% average depletion rate for existing fields is often rebutted with a level of 8%, thus posing a further obstacle to supply growth. At current commodity price levels, oil and gas producers are once again increasing their investment to boost reserves and production capabilities. The 11% investment growth will place additional pressure on the existing and over stretched manpower resources, but will continue to provide excellent growth opportunities for the oil service industry. Technology has played a very important role in finding hydrocarbons. However, technology has enabled producers to extract the hydrocarbons faster and more completely, but often at the expense of a reservoir's longevity. Future production, often at greater well depths, or deeper and larger mining operations, will require further technology improvements. In the Canadian heavy oil fields, volume increases will place an increased strain on midstream delivery and storage assets. No abatement of investment growth is foreseen to bring these known and secure volumes of oil to markets in the US. Hunting PLC is uniquely positioned to capitalise on the above scenario. Quality, mature assets and record spend on new assets, whether on trucks, storage or refinery capacity in Canada or manufacturing facility expansion throughout the world will provide sustained growth. Operating Review Income Statement 2007 2006 Increase £m £m Revenue 1,949.5 1,810.4 +8% ------- ------- EBITDA 127.8 119.6 +7% Depreciation and amortisation (27.0) (28.3) ------- ------- Profit from operations excluding exceptional 100.8 91.3 +10% items Net interest charge (10.0) (8.1) Share of associates 2.2 2.6 ------- ------- Profit before tax and exceptional charges 93.0 85.8 +8% Exceptional charges (2.3) (5.0) ------- ------- Profit before tax 90.7 80.8 +12% Taxation (28.2) (28.6) ------- ------- Profit after tax 62.5 52.2 ------- ------- Earnings per share - pence 44.0 37.6 +17% Average exchange rates to sterling US Dollar 2.00 1.84 Canadian Dollar 2.15 2.09 Euro 1.46 1.47 Average number of employees 2,782 2,572 The Group reports through a divisional structure arranged into the following business segments: Segmental Results 2007 2006 Profit from Profit from Revenue Operations Revenue Operations £m £m Margin £m £m Margin Gibson Energy Marketing 1,219.4 3.3 0.3% 1,160.0 7.7 0.7% Truck 110.6 12.2 11% 103.8 9.6 9% Transportation Terminals and 29.6 15.2 51% 19.6 12.4 63% Pipelines Propane Distribution and Marketing 96.6 4.5 5% 53.1 3.4 6% Moose Jaw 94.6 13.2 14% 92.5 14.2 15% Refinery ----- ------- ------ ------- 1,550.8 48.4 3% 1,429.0 47.3 3% ----- ------- ------ ------- Hunting Energy Services Well Completion 207.5 34.9 17% 188.4 24.9 13% Well 72.8 8.4 12% 73.5 8.8 12% Construction Exploration and 11.7 4.5 38% 10.0 2.0 20% Production Hunting Energy 22.5 2.6 12% 16.0 1.2 8% France ----- ------- ------ ------- 314.5 50.4 16% 287.9 36.9 13% ----- ------- ------ ------- Other operating 84.2 2.0 2% 93.5 7.1 8% divisions ----- ------- ------ ------- Group 1,949.5 100.8 5% 1,810.4 91.3 5% ----- ------ Exceptional (2.3) (5.0) charges ------- ------- Group profit from operations 98.5 86.3 ------- ------- The Company's technology investments will further its earnings growth from well cost savings to completion and production improvements. Its market share strength in Truck Transportation in Canada; proprietary tubular connections; global manufacturing capacity; and crude oil tanker brokering will provide further margin enhancement. The respective synergistic assets of Gibson Energy and Hunting Energy will continue to maximise profit from each barrel of crude oil and each operator purchase order. Hunting's five year compounded annual growth rate of 41% is exceptional. With a strong balance sheet, a tested strategy and 2,782 dedicated employees, Hunting PLC will continue delivering excellent value to its shareholders. Gibson Energy For Canada, crude oil remained the dominant commodity for increased activity in 2007, while natural gas well completions experienced a 25% decline. 2007 was a year of extreme volatility for crude oil price markets which experienced a large year on year gain in West Texas intermediate posting from US$54.35 to US$91.74/ barrel. This was offset by an even larger increase in heavy/sour differentials for Canadian crude oil from the $16/barrel range to over $40/barrel at year end. This factor combined with the reversal in future contracts from contango (increasing future prices) to backwardation (decreasing future prices) has made trading unpredictable. Accordingly provisions were recorded in the fourth quarter from mark to market derivatives which are regularly placed to protect physical volumes traded into the future. The extraordinarily wide differential for the heavy oil prices in December actually devalued inventories as West Texas intermediate prices increased. This movement caused the results for Moose Jaw Refinery and the Marketing group to end the year at levels near 2006. As a result, year on year operating profits for Gibson Energy were £48.4m (2006 - £47.3m). Marketing activities comprise the buying, selling and blending of crude oil, diluent, natural gas and well site fluids across North America. The price risk on volumes purchased and inventories is managed through publicly traded commodity instruments. Gibson remains one of Canada's largest independent crude oil marketing companies dealing with all of the major, intermediate and smaller Canadian producing companies and income trusts. It is focused on the physical buying and selling of hydrocarbon products utilising proprietary risk management techniques and strong customer relationships to minimise risk and optimise profitability. Marketing accounted for 6.8% of Gibson's profit from operations. While trading margins from marketing were robust during most of the year, volatile movement in differentials had an impact in the fourth quarter. In addition, extraordinary gains from the Suncor oil sands coker fire in 2006 were not repeated, as diluent was not in historical short supply. Blending volumes, however, at the eleven custom terminals were near expectations, but margins were lower than in 2006. Further, the Edmonton North terminal began the year positively with good results through mid-year, but suffered negatively from wide differentials and lower inventory values in October and December. Truck Transportation operates a fleet of 1,180 trailers and 660 tractors that move in excess of 93 million barrels of oil equivalent per year across Western Canada and the Northwestern United States. Truck Transportation accounted for 25.2% of Gibson's profit from operations - a 27% profit improvement over 2006. It is the largest crude oil truck hauler in Western Canada. The large scale of its fleet operations allows Gibson to carry out logistically complex and high margin jobs regardless of the volume or destination. A strong focus on health, safety and environmental performance is maintained, given the fact that these combined units travel approximately 143,000 miles per day. Terminals and Pipelines operations incorporate an infrastructure of over 270 miles of pipelines and eleven terminals with a storage capacity exceeding 2.3 million barrels. These assets provide tariff based pipeline services and fee based storage and terminaling services for crude oil and diluent products. The custom terminals capture the spreads between high and low quality crude oil through its blending, terminaling and transportation service offerings. This division accounted for 31.4% of Gibson Energy's profit from operations, a 23% year on year improvement. Volumes from Suncor's Fort McMurray operations steadily increased throughout the year as did overall heavy crude volumes. The Hardisty Terminal Frac Plant is capable of processing approximately 5,000 barrels per day of NGL into butane, propane and other by-products. Propane Distribution and Marketing includes the operations of Canwest Propane Limited, the second largest Canadian retail distributor of propane, utilising a fleet of over 200 fully equipped delivery and service trucks and operating through forty-eight strategically located branch offices and storage facilities across Western Canada and the Northwest US. Volumes almost doubled in 2007 to 480 million litres and represented 9.3% of Gibson's operating profits - a 32% increase. Moose Jaw Refinery processes approximately 3.9 million barrels of heavy crude each year into A Grade asphaltic and lighter distillate products including road asphalt, roofing flux and well site fluids. These products are shipped via rail cars and trucks from Moose Jaw Refinery to markets in the US and Western Canada. The facility produced 1,400 barrels per day for the paving industry, 3,500 barrels per day for roofing flux in the housing industry, 1,700 barrels per day for well site fluids in the exploration and production industry, and 3,900 barrels per day for TOPS utilised in heavy oil blending throughout the year. Hunting Energy Services Hunting Energy Services recorded profit from operations of £50.4m versus £36.9m in 2006 - a 37% increase. At the year end, there were 1,476 employees under four business platforms; Well Construction, Well Completion, Exploration and Production and Hunting Energy France. Well Construction and Well Completion, through generic growth of its global footprint, an expansion of its product offerings and new technology, benefited from the excellent market conditions. Hunting's Exploration and Production and Hunting Energy France both had year on year improvements from higher margins and exploration successes. The Well Construction platform provides products and services used by customers for the drilling phase of oil and gas wells along with associated equipment used by the underground construction industry for telecommunication infrastructure build out. The oil and gas activity is focused on drilling depths of 10,000 feet and deeper, typically in high temperature, high pressure applications. The trenchless business focuses on supplying drill rods and ancillary tools to manufacturers and dealers for underground utility installations. Technology is the key asset to the products within this division, including premium connections for oil country tubular goods, mud motors and non-magnetic drill collars. These products are processed and/or manufactured at Hunting Energy's 15 facilities strategically located throughout the world. These facilities operated on a six day, 24 hour basis throughout most of the year. The Well Completion platform provides products and services used by customers for the completion and intervention phases of oil and gas wells. Its customer base includes the major oil and gas operators as well as the major OEM service companies. This platform reported record revenue and profits driven by newer technologies, additional capacity and higher margins. Expansion of the wireline/ slickline division included Houston and Southeast Asia and proprietary products such as Clear Run have been expanded into North America. The 79 patented products within the Well Construction and Well Completion divisions are key to Hunting Energy's success. These unique technologies enable oil and gas operators to: 1. Complete wells faster with high speed mud motors. 2. Make-up tubulars faster with redundant sealing for high pressure applications. 3. Have connections capable of extreme yield strength for the deepest of well completions. 4. Use environmentally safe thread compounds for threaded products on tubulars and accessories. 5. Intervene in existing wells through a unique and easy to repair 'clam' blow out preventor for wireline applications. These and many others will lower operator costs and provide pricing leverage. Hunting Energy France comprises the Group's French based businesses which provide petrochemical equipment to the French and international energy and associated industries. The 2007 result was a significant increase over 2006 following a strong level of activity. Interpec in particular benefited from a strong order back log for China and the Middle East. Roforge commissioned a building extension in July which improves manufacturing efficiency and will provide for future growth of the company. Setmat and Larco jointly have successfully secured orders for the metering of bio fuel truck loading terminals. Exploration and Production includes the Group's oil and gas exploration and production activities in the Southern US and offshore Gulf of Mexico. The Group takes minority non-operating equity holdings and currently participates in over seventy oil and gas production facilities. Markedly higher prices for oil and stable prices for natural gas, in conjunction with increased production levels, contributed to a successful year for the Texas based Exploration and Production division. On a Net Equivalent Barrel ('NEB') basis, production was up 20% compared to 2006 as a result of successful drilling in the shallow waters of the Gulf of Mexico and onshore Texas and Louisiana. The company participated in the drilling of 16 wells with 8 successes - 5 gas, 1 oil and gas, 2 oil. Full year output of 457,000 NEB was enhanced primarily by higher natural gas production as a result of new wells. Profit from operations increased 125% as compared to 2006. Year-end reserves of oil and gas on an SEC basis were 2.2m NEB compared with 2.3m NEB at the end of the previous year. Hunting Specialized Products is a US based business supplying products and services for the trenchless rehabilitation of pipelines. Revenues increased over 11% on the previous year as a result of the recently launched structural rehabilitation products; PolySpray and HydraWrap. Investment in product and service development was maintained to support the product development. Other Operating Divisions E. A. Gibson Shipbrokers is an international London based shipbroker engaged in the transportation of crude oil and other petroleum products, liquefied natural and petroleum gas and other related services. Despite a weaker US dollar to sterling exchange rate, Gibson's revenues remained strong. Challenging trading conditions for Tankers were offset by improved results from Gas and Specialised Tankers and in particular by the strong performance of the Dry Cargo and Sale & Purchase Departments which achieved increases of over 70% and 40% respectively. Further expansion is expected during the year in the Far East to take advantage of identified opportunities. Field Aviation Canada modifies, repairs and overhauls regional aircraft for international customers from Canadian facilities in Toronto and Calgary. The Toronto Modification Center had a number of excellent projects that were successfully completed during the year, including US Customs and Australian Coastwatch aircraft. However, delays in the delivery of three Swedish Coast Guard aircraft affected results. Customer acceptance of these aircraft is now in progress with departure planned for April 2008. Production capability for the next 18 months is already presold with strong profits expected for 2008 and 2009. The Calgary Maintenance, Repair and Overhaul Facility made its highest profit for many years, even though the strength of the Canadian versus the US dollar increased competition for commercial heavy maintenance work in North America. The manufacturing facility was reorganised in the year to address the expected growth over the coming two years. Current production deliveries extend into 2009. Performance Measures A number of performance measures are used to compare the development, underlying business performance and position of the Group and its business segments. These are used collectively and periodically reviewed to ensure they remain appropriate and meaningful monitors of the Group's performance. • Earnings before interest, tax, depreciation and amortisation ('EBITDA'). • Profit before taxation ('PBT'). • Return on capital employed ('ROCE') - measures the profit before interest expressed as a percentage of the capital employed. Capital employed is the average of the aggregate of total equity and the net debt at the start and end of the financial period. Also used as a benchmark for target acquisitions or capital expenditure proposals. • Earnings per share ('EPS'). • Free cash flow. • Health and Safety arrangements within the Group are monitored through regular reporting to the Board. Each of these performance measures are commented upon within the tables contained in the Annual Report. Indicators of future Group performance closely monitored by management include: • Drilling rig activity. • Oil and gas commodity prices. • Order book/backlog. Finance Director's Review Results Overview Another strong year with revenues and margins at record levels. Revenue was £1,949.5m (2006 - £1,810.4m) with profit from operations up 14% at £98.5m (2006 - £86.3m). This was achieved, even though both the US and Canadian dollars weakened against sterling. Profit before tax recorded a 12% increase at £90.7m (2006 - £80.8m). If the 2007 results had been translated using 2006 rates the profit before tax would have been £4.1m higher. The results include a £2.3m exceptional charge relating to the disposal of our former Italian company, Aero Sekur. Net Finance Costs Net finance costs increased to £10.0m (2006 - £8.1m) following acquisitions, the increase in capital expenditure and higher levels of working capital. Interest cover was 10 times. Exchange Rates 2007 2006 Average Year End Average Year End US Dollar 2.00 1.99 1.84 1.96 Canadian Dollar 2.15 1.96 2.09 2.28 Rates quoted to sterling Earnings Per Share Basic earnings per share increased by 17% from 37.6p in 2006 to 44.0p in 2007. The average number of shares used in calculating the earnings per share in 2007 was 130.4m compared to 128.9m in 2006. Taxation The tax charge for 2007 was £28.2m (2006 - £28.6m) which reflects an effective rate of 31.1% (2006 - 35.4%). The lower rate than in previous years is primarily a result of a significant reduction in Canadian Federal Tax effective December 2007. Balance Sheet 2007 2006 £m £m Total assets 920.2 735.3 Total liabilities (608.3) (523.8) ------ ------- Net assets 311.9 211.5 ------ ------- Net debt 139.2 69.3 Gearing ratio 45% 33% Net Assets Net assets at 31 December 2007 increased by 47% and include the result of a property revaluation which added £66.2m to property, plant and equipment at the year end and the retained result for the year of £62.5m. Capital expenditure and acquisitions together with high commodity prices contributed to the 25% increase in total assets year on year. Property Revaluation Group properties were revalued at 31 December 2007 giving rise to an uplift of £66.2m in Group property values. The resultant after tax increase to the Group revaluation reserve was £51.0m. The increase is principally due to the strong economic conditions driving property values in Alberta, Canada. Net Debt Net debt increased to £139.2m (2006 - £69.3m). Gearing increased from 33% at the end of 2006 to 45% at 31 December 2007. Pensions The Group continues to account for pensions in accordance with IAS 19 and at the end of the year the net surplus on the Group's balance sheet was £24.1m (2006 - £27.7m) of which £25.2m (2006 - £30.1m) related to the UK defined benefit scheme which was closed to new entrants in 2002. An additional cash contribution of £5.6m was paid to the UK defined benefit scheme in January 2007 to fund the forecast cost on a buyout basis. Liquidity, Resources and Capital Expenditure 2007 2006 £m £m Cash from Operations 78.2 104.5 Tax Paid (20.0) (11.2) Replacement Capital Expenditure (31.4) (27.4) Interest (9.4) (8.1) ----- ----- Free Cash Flow 17.4 57.8 Acquisitions (30.8) (1.0) Growth Capital Expenditure (30.6) (26.8) Dividends (10.1) (8.2) Foreign exchange (11.9) 10.3 Other Movements (3.9) (4.4) ----- ----- (Increase) Decrease in Net Debt (69.9) 27.7 ----- ----- Free cash flow, defined as profit from operations adjusted for working capital, tax, replacement capital expenditure and interest, generated during the year, was £17.4m compared to £57.8m in 2006. Total capital expenditure was £62.0m (2006 - £54.2m) and included £23.7m in Gibson Energy and £36.5m (2006 - £31.3m) in Hunting Energy Services which includes £7.0m (2006 - £10.2m) related to Exploration and Production. A further £30.2m was spent on acquisitions in the year (£30.8m cash was paid during the year). Liquidity and Funding The Group has sufficient credit facilities to meet its anticipated funding requirements over the short and medium term. These facilities, which total £269.6m, include committed bank facilities of £172.5m, US$70m (£35.2m) Private Placement Notes which mature in 2012 and uncommitted facilities of £61.9m. The committed bank facilities include a £125m five year multi-currency borrowing facility expiring in September 2010. Dennis Proctor Dennis Clark Chief Executive Finance Director Consolidated Income Statement For the Year ended 31 December 2007 2007 2006 Notes £m £m Revenue 2 1,949.5 1,810.4 Cost of sales (1,772.6) (1,639.8) ------ ------ Gross profit 176.9 170.6 Other operating income 5.0 7.5 Operating expenses* (83.4) (91.8) ------ ------ Profit from operations 2 98.5 86.3 Interest income 9.8 8.3 Interest expense and similar charges (19.8) (16.4) Share of post-tax profits in associates 2 2.2 2.6 ------ ------ Profit before tax 90.7 80.8 Taxation 3 (28.2) (28.6) ------ ------ Profit for the year 62.5 52.2 ------ ------ Attributable to: Shareholders of the parent 57.4 48.4 Minority interests 5.1 3.8 ------ ------ 62.5 52.2 ------ ------ Earnings per share Basic earnings per 25p ordinary share 4 44.0p 37.6p Diluted earnings per 25p ordinary share 4 42.3p 35.7p Dividend declared per share - interim 5 2.55p 2.3p Dividend declared per share - final 5 5.70p 5.2p The profit for the year arises from the Group's continuing operations. *Operating expenses include exceptional charges of £2.3m (2006 - £5.0m). Consolidated Statement of Recognised Income and Expense For the Year ended 31 December 2007 Group 2007 2006 £m £m Profit for the year 62.5 52.2 ----- ----- Exchange adjustments net of tax 16.4 (15.8) Revaluation of property, plant and equipment net of tax 51.6 - Fair value gains and losses net of tax: - gains originating on cash flow hedges - 0.4 - (gains) transferred to income statement on disposal of cash flow hedges (0.2) - Actuarial (losses) gains on defined benefit pension schemes (12.5) 2.6 - taxation 3.8 (0.6) Impairment of revalued assets sold during the year, net of tax (1.0) - ----- ----- Net income (expense) recognised directly in equity 58.1 (13.4) ----- ----- Total recognised income and expense for the year 120.6 38.8 ----- ----- Attributable to: Shareholders' equity 115.4 35.4 Minority interests 5.2 3.4 ----- ----- 120.6 38.8 ----- ----- Consolidated Balance Sheet At 31 December 2007 2007 2006 £m £m ASSETS Non-current assets Property, plant and equipment - at cost 158.0 146.5 Property, plant and equipment - at valuation 163.0 48.1 Goodwill 72.4 53.0 Other intangible assets 13.9 4.0 Interests in associates 10.5 8.0 Available for sale financial assets 0.2 0.2 Retirement benefit assets 25.2 30.1 Trade and other receivables 2.8 2.8 Deferred tax assets 7.1 12.4 ------ ------ 453.1 305.1 ------ ------ Current assets Inventories 142.1 120.0 Trade and other receivables 244.3 191.1 Investments 0.9 0.6 Cash and cash equivalents 79.8 118.5 ------ ------ 467.1 430.2 ------ ------ LIABILITIES Current liabilities Trade and other payables 262.1 226.6 Current tax liabilities 7.1 8.8 Borrowings 89.2 108.5 Provisions 4.5 4.2 ------ ------ 362.9 348.1 ------ ------ Net current assets 104.2 82.1 ------ ------ Non-current liabilities Borrowings 130.7 79.9 Deferred tax liabilities 98.1 76.3 Retirement benefit obligations 1.1 2.4 Other payables 0.1 1.9 Provisions 15.4 15.2 ------ ------ 245.4 175.7 ------ ------ Net assets 311.9 211.5 ------ ------ Shareholders' equity Share capital 32.9 32.8 Share premium 87.2 85.6 Other reserves 73.3 5.6 Retained earnings 107.5 79.8 ------ ------ 300.9 203.8 Minority interests 11.0 7.7 ------ ------ Total equity 311.9 211.5 ------ ------ Consolidated Cash Flow Statement For the Year 31 December 2007 Group 2007 2006 £m £m Operating activities Profit (loss) from operations 98.5 86.3 Exceptional charges 2.3 5.0 Depreciation and amortisation 27.0 28.3 Profit on disposal of investments (0.2) - Loss on disposal of property, plant and equipment 2.6 2.9 Increase in inventories (20.1) (25.3) Increase in receivables (37.3) (11.9) Increase in payables 12.6 25.0 Taxation paid (20.0) (11.2) UK pension scheme contribution (5.6) (5.6) Other non-cash flow items (1.6) (0.2) ------ ------ Net cash inflow from operating activities 58.2 93.3 ------ ------ Investing activities Dividends received from associates 0.1 0.2 Purchase of subsidiaries (30.7) (1.0) Cash acquired with subsidiaries 0.8 0.1 Disposal of a subsidiary 1.1 - Net bank overdrafts disposed of with subsidiary 3.3 - Closure of a subsidiary - (1.0) Purchase of associates (0.3) (0.2) Loans to associates - (0.6) Loans from associates 0.5 2.9 Proceeds from disposal of investments 0.2 - Proceeds from disposal of property, plant and equipment 2.9 1.1 Purchase of property, plant and equipment (62.0) (54.2) Purchase of intangible assets (0.3) (0.7) ------ ------ Net cash outflow from investing activities (84.4) (53.4) ------ ------ Financing activities Interest received 6.7 6.4 Interest paid (16.1) (14.5) Equity dividends paid (10.1) (8.2) Minority interest dividend paid (1.9) (0.9) Share capital issued 0.1 3.3 Purchase of Treasury shares (18.2) (12.4) Disposal of Treasury shares 4.2 4.0 Proceeds from new borrowings 76.0 11.9 Repayment of borrowings (12.4) (14.6) Purchase of deposits (0.3) (0.6) Capital element of finance leases (0.2) (0.6) ------ ------ Net cash inflow (outflow) from financing activities 27.8 (26.2) ------ ------ Net inflow in cash and cash equivalents 1.6 13.7 Cash and cash equivalents at beginning of year 16.9 4.5 Effect of foreign exchange rate changes 1.2 (1.3) ------ ------ Cash and cash equivalents at the end of the year 19.7 16.9 ------ ------ ------ ------ Cash and cash equivalents and bank overdrafts at the end of the year comprise: Cash and cash equivalents 79.8 118.5 Bank overdrafts included in borrowings (60.1) (101.6) ------ ------ 19.7 16.9 ------ ------ Notes 1. BASIS OF ACCOUNTING The financial information contained in this report has been prepared under the historical cost convention as modified by the revaluation of certain property, plant and equipment, available for sale investments, financial assets and financial liabilities held for trading. It has been prepared in accordance with the Companies Act 1985 and those IFRS standards as adopted by the European Union and IFRIC interpretations which are effective as at 31 December 2007. Notes 2. SEGMENTAL REPORTING Business segments Results from operations Year ended 31 December 2007 Total Inter- gross segmental Total Profit from revenue revenue revenue operations £m £m £m £m Gibson Energy Marketing 1,407.1 (187.7) 1,219.4 3.3 Truck Transportation 121.5 (10.9) 110.6 12.2 Terminals and Pipelines 295.2 (265.6) 29.6 15.2 Propane Distribution and Marketing 102.2 (5.6) 96.6 4.5 Moose Jaw Refinery 150.2 (55.6) 94.6 13.2 ------- --------- -------- ------- 2,076.2 (525.4) 1,550.8 48.4 ------- --------- -------- ------- Hunting Energy Services Well Completion 226.2 (18.7) 207.5 34.9 Well Construction 78.8 (6.0) 72.8 8.4 Exploration and Production 11.7 - 11.7 4.5 Hunting Energy France 22.5 - 22.5 2.6 ------- --------- -------- ------- 339.2 (24.7) 314.5 50.4 ------- --------- -------- ------- Other operating divisions 84.2 - 84.2 (0.3) ------- --------- -------- ------- Total 2,499.6 (550.1) 1,949.5 98.5 ------- --------- -------- ------- Year ended 31 December 2006 Total Inter- gross segmental Total Profit from revenue revenue revenue operations £m £m £m £m Gibson Energy Marketing 1,354.0 (194.0) 1,160.0 7.7 Truck Transportation 113.1 (9.3) 103.8 9.6 Terminals and Pipelines 292.1 (272.5) 19.6 12.4 Propane Distribution and Marketing 53.1 - 53.1 3.4 Moose Jaw Refinery 167.4 (74.9) 92.5 14.2 ------- -------- -------- ------- 1,979.7 (550.7) 1,429.0 47.3 ------- -------- -------- ------- Hunting Energy Services Well Completion 213.4 (25.0) 188.4 24.9 Well Construction 80.6 (7.1) 73.5 8.8 Exploration and Production 10.0 - 10.0 2.0 Hunting Energy France 16.0 - 16.0 1.2 ------- -------- -------- ------- 320.0 (32.1) 287.9 36.9 ------- -------- -------- ------- Other operating divisions 93.5 - 93.5 7.1 ------- -------- -------- ------- Total 2,393.2 (582.8) 1,810.4 91.3 ------- -------- -------- Exceptional charges not apportioned to business segments (5.0) ------- Profit from operations 86.3 ------- Notes 2. SEGMENTAL REPORTING (continued) Inter-segmental revenues are priced on an arms-length basis. Costs incurred centrally are apportioned to the operating units on the basis of the time attributed to those operations by senior executives. The exceptional charges during 2006 related to the discontinuance of operations and were not therefore apportionable to the business segments shown above. The share of post-tax profits in associates is derived from the following business segments: 2007 2006 £m £m Hunting Energy Services - Well Completion 0.9 1.1 Central 1.3 1.5 -------- -------- 2.2 2.6 -------- -------- Business segments Assets and liabilities 2007 2006 Segment Segment Segment Segment assets liabilities assets liabilities £m £m £m £m Gibson Energy Marketing 130.1 88.2 130.6 75.6 Truck Transportation 73.1 10.4 41.4 12.3 Terminals and Pipelines 111.6 9.2 56.7 3.9 Propane Distribution and Marketing 91.6 42.7 33.3 9.3 Moose Jaw Refinery 72.3 9.6 31.2 8.8 ------ ------- ------ ------ 478.7 160.1 293.2 109.9 ------ ------- ------ ------ Hunting Energy Services Well Completion 143.6 51.7 113.5 58.0 Well Construction 93.5 12.9 75.9 13.1 Exploration and Production 31.1 1.4 28.9 1.3 Hunting Energy France 15.7 6.8 10.6 4.8 ------ ------- ------ ------ 283.9 72.8 228.9 77.2 ------ ------- ------ ------ Other operating divisions 29.8 21.7 38.5 26.7 ------ ------- ------ ------ Interests in associates Gibson Energy - Propane Distribution and Marketing 0.3 - 0.2 - Hunting Energy Services - Well Completion 4.4 - 3.3 - Central 5.8 - 4.5 - ------ ------- ------ ------ 10.5 - 8.0 - ------ ------- ------ ------ Total segment assets and liabilities 802.9 254.6 568.6 213.8 Unallocated assets and liabilities: - current and deferred taxes 7.1 105.2 12.4 85.1 - retirement benefit assets 25.2 - 30.1 - - net debt 80.7 219.9 119.1 188.4 - central assets and liabilities 6.0 30.3 5.3 36.7 - elimination of inter-segmental balances (1.7) (1.7) (0.2) (0.2) ------ ------- ------ ------ Total assets and liabilities 920.2 608.3 735.3 523.8 ------ ------- ------ ------ Segment assets comprise property, plant and equipment, intangibles, goodwill, inventories and receivables. Assets owned centrally and employed by a segment are allocated to that segment. Segment liabilities comprise trade payables, provisions and other operating liabilities. Notes 3. TAXATION The tax charged to the income statement arises as follows: 2007 2006 £m £m UK 9.8 5.7 Non-UK 18.4 22.9 -------- ------- 28.2 28.6 -------- ------- 4. EARNINGS PER SHARE Basic and diluted earnings per share are calculated as follows: 2007 2006 Weighted Weighted average Earnings average Earnings number of per number of per Ordinary Ordinary Ordinary Ordinary Earnings shares share Earnings shares share £m millions pence £m millions pence Profit attributable to shareholders of the parent and for basic EPS 57.4 130.4 44.0 48.4 128.9 37.6 Effect of dilutive shares Options - 4.7 - 6.4 Long term incentive - 0.4 - 0.5 plans ------ ------- ------ ------ Diluted EPS Adjusted earnings 57.4 135.5 42.3 48.4 135.8 35.7 ------ ------- ------ ------ 5. DIVIDENDS PAID 2007 2006 Pence Pence per share £m per share £m Group and Company Ordinary dividends: 2007 interim paid 2.55 3.3 - - 2006 final paid 5.20 6.8 - - 2006 interim paid - - 2.3 3.0 2005 final paid - - 4.0 5.2 ------ ----- ------ ----- Total dividends paid 7.75 10.1 6.3 8.2 ------ ----- ------ ----- The Directors recommend a final Ordinary dividend of 5.7p per share (2006 - 5.2p per share) payable on 1 July 2008 to shareholders on the register at 30 May 2008. 6. The above figures have been extracted from the Group's full financial statements for the year ended 31 December 2007, which will be delivered to the Registrar of Companies. Those financial statements carry an unqualified audit opinion. They have been prepared in accordance with the Companies Act 1985 and International Financial Reporting Standards as adopted by the European Union. The accounting policies are set out in those financial statements. These extracts do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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