Final Results

Sondex PLC 25 May 2006 Sondex plc ("Sondex" or the "Company") Preliminary Audited results for the year ended 28 February 2006 Financial Highlights • Revenue up 62% to £51.4 million (2005 - £31.7 million) • Operating profit up 76% to £9.7 million (2005 - £5.5 million) • Fully diluted earnings per share increased to 9.0p (2005 - 6.5p) • Adjusted diluted* earnings per share increased to 12.7p (2005 - 9.2p) • Operating cash increased to £6.4 million inflow (2005 - £0.8 million outflow) Operational Highlights • Acquisition of Applied Electronic Systems • Strong organic like-for-like growth (sales up 42%) • Significant investment in R & D, operations and facilities • Customer base increased by 48% * Pre amortisation of acquired intangible assets, pro-forma tax charge. NOTE: 2005 figures restated under International Financial Reporting Standards (IFRS) Iain Paterson, Chairman of Sondex, commented: "This has been a step change year for Sondex. These excellent results reflect the strength of our original business as well as the measures taken to reshape the enlarged group following our recent acquisitions. "Sondex enters the new financial year with confidence. The current order book is strong as operators are continuing to seek innovative ways to optimise ultimate recovery from maturing fields. We believe that Sondex is well placed to deliver further growth." 25 May 2006 For further information, please contact: Sondex Tel: 0125 286 2200 Martin Perry (Chief Executive) Chris Wilks (Finance Director) College Hill Tel: 020 7457 2020 Nick Elwes / Ben Brewerton Chairman's statement Your company has had a highly successful year, during which we have continued to increase our market share. While we have been helped by the buoyant market conditions resulting from consistently high commodity prices, much of our progress is of our own making. Our marketing drive, broader operating base, increased range of products and significant improvements in our supply chain management have all contributed to the excellent operating and financial results. We are well placed to build on this success and I am confident that we can continue to grow, both organically through the expansion of our core businesses, and through appropriate acquisitions. Results Revenues rose 62 per cent to £51.4 million while operating profit increased by 76 per cent to £9.7 million. Profits, after tax and financing costs, rose to £5.1 million as against £3.3 million, an increase of 54 per cent. Earnings per share, adjusted for amortisation of acquired intangible assets and a pro-forma tax charge, were 12.7 p, up 38 per cent on the previous year. The net margin on turnover improved to 24.3 per cent (23.7 per cent in 2005). These results are prepared under International Financial Reporting Standards and comparative figures for 2005 are restated accordingly. These results reflect the success of our original business and the measures that have been taken to reshape the enlarged group following the acquisition and successful integration of Computer Sonics Systems Inc ("CSS") in 2003, Geolink International Limited in 2004, and Applied Electronic Systems Inc ("AES") in December 2005. Dividend The Board is proposing a final dividend of 1.4p per share (1.3p in 2005), giving a total for the year of 2.1p per share (1.95p in 2005). The increase of 8 per cent reflects both the performance and the growth prospects of the Group. Review of the period On 14 December 2005 the Board announced the acquisition of Applied Electronic Systems Inc ("AES"), a USA-based company providing oilwell logging and pipe recovery equipment, for a maximum consideration of $14 million (£7.9 million). The specialist technology, which is designed, manufactured and supplied by AES, is used within oil wells during both drilling and production operations and, as such, complements the Group's wireline product range. Since the acquisition there have been highly encouraging increased sales volumes within AES, most notably in North America. Whereas the Group saw little more than two months' trading contribution from AES in the financial year under review it did benefit from the first full year, against 8 months in the previous period, of contribution from Geolink. This subsidiary is making an increasingly significant contribution to the Group's revenue and profitability. It has also added considerable momentum to the Group's operations in terms of both the product range and broadened customer base. The Group invested £4.7 million in research and development of new products as against £3.6 million in 2005. This level of spending represented 9.1 per cent of revenues, underlining the importance the Group places on growing the business organically as well as through targeted acquisitions. Sales, Marketing, Customer Support and Administrative expenses rose during the year, to £12.5 million (£7.1 million in 2005), reflecting the integration of newly acquired companies, an investment to improve supply chain management significantly, and a big expansion of production and customer support capacity, both in the UK and overseas. The establishment of new Wireline production assembly facilities at Yateley, Hampshire, has already proved to be a sound investment. It is especially pleasing to report that during the year the Group traded with an additional 120 customers. This represents a 48 per cent increase in our customer base from 250 to 370 customers. Of this growth, 68 new customers can be attributed to the acquisition of AES. The remainder is as a result of our broadened operating base, with the opening of new international sales and service centres, and to the new management structure which is strengthening both the marketing and delivery performance. Management and staff During the year the Group appointed a Managing Director of the Wireline division, transferred from our Canadian business, who together with the Managing Director of Geolink are responsible for their respective divisional profit & loss accounts. The responsibilities for sales and customer support are shared between a newly appointed director of sales for Eastern Hemisphere and our Corporate Vice President for the Americas. As announced in February 2006, due to reorganisation into a divisional structure, Peter Collins, a Director since May 2003, left the company and resigned as a Director on 23 May 2006. He made an important contribution to the development of the Group and we wish him well in his new endeavours. Our staff, both in the established businesses and the recently acquired, have shown considerable commitment and performance which is directly reflected in the Group results. This is particularly commendable given the challenges presented by our growth and change. On behalf of your Board I should like to thank all personnel for their excellent work during the past year. Outlook We have entered the new financial year with continuing optimism and confidence. Market indicators remain favourable as oil and gas operators continue to turn to sophisticated technologies and instruments such as ours to optimise ultimate recovery from maturing fields. Sondex has earned recognition as being a leading supplier of downhole technology to the international oil and gas industry. Our customer base is growing and our order book remains strong. Importantly, we now have the management structure, increased manufacturing capability and broad geographical presence to take advantage of the business opportunities and product enhancing acquisitions in all of the world's major oil and gas locations. Against this background, I am confident that Sondex will again deliver strong growth in the coming year. Iain Paterson Chairman Operating Review Industry overview During the past year the oil and gas industry has been characterised by continued high demand, supply constraints, geo-political uncertainties and consequent sustained strong commodity prices. Producers and service companies have put renewed emphasis on reservoir management in an effort to maximise production and raise ultimate recovery performance from mature reservoirs. At the same time, new exploration and appraisal techniques are identifying commercial reservoirs that might once have been overlooked or disregarded. The growth in the downhole oilfield technology sector has reflected these trends. It is estimated that the global service sector currently served by Sondex grew by 19 per cent in 2005 to $8.3 billion. Sondex has established a significant presence and reputation as a supplier to this sector and it clearly provides Sondex with ample opportunity for further growth and deeper penetration. The steps taken in the past three years have put the Group in a good position to take advantage of these opportunities. Sondex has broadened its range of technologies through its own research and development achievements and through the acquisitions of CSS, Geolink and AES, which are all companies with complementary aims and products. The management and staff of these companies have fitted in well. The enlargement of the Group has brought many new marketing opportunities. Each of the acquired companies brought with it established relationships that have been cemented and developed across both the Wireline and Drilling Divisions. The Group has invested in expanded manufacturing facilities in Hampshire in the UK as well as in Calgary, Canada and through acquisition in Louisiana, USA. The size and scope of the research and development facilities have also been substantially increased. During the past three years Sondex has also extended its geographical reach. Operating centres have been established in Europe, the USA, Canada, Venezuela, Russia, China, Australia and the United Arab Emirates in the Middle East. All of these centres are making important contributions, of which the business generated in the Americas, and Russia has been especially noteworthy. Sales and customer support The developments over recent years lie behind the excellent sales figures for 2006. Group sales totalled £51.4 million in the year ended 28 February 2006. This was a 62 per cent increase on the previous year (£31.7 million). Exports accounted for approximately 91 per cent of the Group's revenues in 2006. During the year the Group traded with an additional 120 customers, increasing our customer base by 48%. A notable feature of the Group's development in recent years has been the way the Group has been able to lessen its dependency on a few very large customers. For instance, in 2003-4 the four largest customers each accounted for approximately 10 per cent of revenues whereas in 2005-6 ten customers provided only 35 per cent of revenues. Important new customers have been added in South America, Russia and the Middle East. The Group's customers continue to be the international, regional and local service companies providing solutions for oil and gas producers world-wide. The company made big advances in its supply chain management during the year under review. Steps taken included: * Increased in-house production capacity. The transfer of the Wireline Division's final product assembly from Bramshill, Hampshire, to new facilities at nearby Yateley doubled in-house production capacity to 13,786 square feet. Production capacity in Calgary, Canada, has also been significantly increased enabling more manufacturing to be brought in-house and Drilling Division operations to be added to the traditional Wireline capability. In Aberdeen, Geolink is currently in the process of expanding its manufacturing by some 10,000 square feet. The acquisition of Applied Electronic Systems has also brought the benefit of a purpose built 25,000 sq ft facility in Lafayette, Louisiana. * Improved supplier capability. Throughout the year initiatives have been taken to increase the calibre of sub-contractors by working with the established base and introducing new suppliers with incremental skills and capacity. The increased volumes have allowed better management, scheduling and capacity planning within the supply chain. * Increased maintenance and repair capability. During the year the Group expanded its international customer support centres in the Middle East and China. In Houston and Venezuela the drilling and wireline capabilities were amalgamated in order to provide a speedier and more direct service to the users of Sondex's technology. Wireline Division Sales within the Wireline Division rose 65 per cent in the 2006 financial year. Revenues totalled £35.3 million as against £21.4 million in 2005 with consistent gross margins. During the year the division added 92 new customers, of which 68 can be attributed to the acquisition of AES with the balance including some that resulted from introductions and referrals from the Drilling Division's Geolink team. A major success for the division was the introduction of the UltraWire version of the established Multi-finger Imaging Tool ("MIT") which is combinable with a full range of other logging tools, thus improving the efficiency of the inspection process in mature oil and gas wells. The high-value equipment has attracted much interest and acclaim throughout the industry and it is already having a positive impact on the division's sales. The MIT has been used in significant operations in both China and Russia. In China the technology was used in a multi well programme where it demonstrated that the UltraWire(TM) digital communications system used in conjunction with the full range of Sondex sensors would give significant cost-saving and quality improvement. The MIT was used to measure accurately the internal dimensions of oil wells while a Magnetic Thickness Tool ("MTT"), utilising 'Remote Field Eddy Current' techniques was deployed to detect corrosion or other possible damage to the outside of the well casing. In October, the division announced that it had won an important contract, valued at $2.5 million, from a major Russian gas producer. Wireline equipment, including MTT and MIT, is being used to inspect the condition of older wells as part of a programme of remedial work to increase production. UltraWire(TM) is being deployed to transmit data on the internal dimensions of the wells, together with the thickness of well casing and production. China and Russia are emerging as major growth areas for the Sondex Group. Another growth area with the potential for becoming an important market for the Group is India. In July the first major shipment of wireline production logging equipment, worth more than £1 million, was delivered to Oil and Natural Gas Corporation ("ONGC") for operations in India. In September the Group announced that Wireline Division's advanced Downhole Electric Cutting Tool ("DECT") had been used successfully to release a casing packer in the Otter Field, north-east of Shetland, operated by TOTAL E&P UK PLC. The field is one of the remotest oil developments in the North Sea. The DECT, developed by Sondex, was used to cut and release the hydraulic retrievable pump packer at a depth of 1,978 metres and with a well deviation of 60 degrees. The operation was conducted from the Stena Spey drilling rig. The tool is an intelligent system that enables precise and controlled cutting action to part pipe without the use of dangerous chemicals and explosives - the traditional way of severing tubing below the surface. The DECT, together with the Free Point Indicator, part of the product range from AES, will form the basis of a new pipe recovery product line. Drilling Division Revenues from the Drilling Division in the 12 months ended 28 February 2006 totalled £16.2 million as against the £10.3 million in the eight months following Geolink's acquisition in 2004. On a like-for-like basis the increase was 16 per cent. The division added 28 new customers in the 12 months to February 2006, many as a result of marketing efforts in regions not previously pursued by Geolink. The division has benefited from sales opportunities that have arisen from the new international bases that have become established by the Group. A notable example being in the Middle East where an established Wireline customer started a new business based on Geolink product which has shown excellent early success. Geolink has made strong progress in Canada and Central America as well as West Africa while good repeat business has been secured in Russia and China. During the year the division released for sale its Pressure During Drilling sensor. The instrument, compatible with Geolink's Orienteer measurement-while-drilling ("MWD") and surface systems, has subsequently been used successfully in Canadian and Mexican field operations. The sensor is a modular unit that measures annular and drill pipe pressures during drilling operations. The sensor equipment provides data that allows the driller and MWD engineer to respond quickly to pressure variations such as cuttings loading in the annulus, water flows and well "kicks" thus improving safety and efficiency of drilling. The TRIM resistivity tool, released in 2004, has continued to gain significant market acclaim. During the year 18 systems were shipped, generating revenues in excess of £1.9 million. TRIM is a method of detecting electrical resistance of the rocks and the fluids contained in them during the drilling of the well. Such information enables the directional driller to ensure that the well stays within the oil or gas reservoir and thus maximises the potential production. In Canada TRIM has been successfully introduced using a memory variant. This significantly reduces the non-productive time of a drilling rig. In Russia the tool is being used primarily in mature fields where old wells are being re-drilled to recover remaining oil. The division has strengthened its international reach by establishing a full service and repair centre for drilling equipment in Canada, the Middle East and Venezuela. Geolink gained ISO 9001:2000 Quality Standard certification during the year, recognition that is likely to open new doors to international business opportunities given that the standard is seen by many companies worldwide as being an essential requirement for business. Geolink's accreditation builds on Sondex's commitment to quality, the Wireline operations having received recognition in 1999. Acquisition of Applied Electronic Systems As announced on 14 December 2005, the Group has acquired Applied Electronic Systems ("AES"), a company based in Louisiana USA offering a complementary range of equipment which fits well with the Wireline Division's other technologies. Sondex paid $11.5 million for the business, and a further $1.5 million for the freehold premises, with an additional sum up to $1 million subject to the achievement of revenue of not less than $8.5 million for the 2006 financial year. The funding for the acquisition was through an increased banking facility of £6 million and through the issue of 775,662 new ordinary shares to the vendors. These shares are restricted from sale for one year. The Group is delighted with the way AES and its staff have performed since mid-December. The company's integration into Sondex has gone well and there has been a noticeable increase in sales volumes since the acquisition. AES meets the acquisition criteria of enhancing current product lines, increasing market reach and supporting the financial growth and reputation of the Group. AES, which is strongly cash generative, has 80 per cent of its business in the USA with distribution facilities throughout the land markets in North America. Its products include the market leading 'free-point indicator' which is a wireline tool run during the drilling operations should the drill pipe become stuck in the well. Once the 'free-point' is established the drill pipe is released or cut in order that drilling operations can be resumed. In this respect the tool is complementary to Sondex's successful Downhole Electric Cutting Tool ("DECT"). Other equipment sold by AES include casing collar locators and running equipment which are being integrated to form an additional range of cased hole logging tools. Research and Development Investment in research and development activity during the financial year totalled £4.7 million, representing 9.1 per cent of turnover (£3.6 million and 11.3 per cent respectively in 2005). Focused R&D continues to be regarded as a principal engine for sustained organic growth and the Group remains committed to investing about 10 per cent of its turnover on this important activity. In the year ended 2006 about 40 per cent of R&D investment went towards extending product lines to add functionality, incremental sales and increased barriers to potential competitors; 33 per cent was spent on maintaining and improving existing products; and the remaining 27 per cent went towards the development of new product lines for step change growth. The Magnetic Thickness Tool and the Downhole Electric Cutting tool are among the important instruments that have recently emerged from the new product line R&D programme. The R&D activities across the Group employ 70 personnel involved in sensor, software, electronic and mechanical design. They are based in Hampshire, Aberdeen, Calgary and Louisiana. In November the Department of Trade and Industry's Innovation Group announced it had awarded a £198,000 Government grant to Sondex and its research partner Beta R&D for the development of a new power source for downhole instrumentation. The grant, made under the Innovation Group's technology development programme, is being used to help develop rechargeable, high temperature battery technology. The new battery is being designed to provide a cost-effective, robust and reliable alternative to the lithium batteries that are currently used for memory tools by downhole operators within the oil and gas industry. It is anticipated that a prototype battery will be available for trials in mid 2007. A feature of the Group's R&D programme is the involvement of service company clients and oil and gas corporations in collaborative projects. Both a leading energy company and a major oil service group are working with Sondex on the development of a novel harmonic well test production logging ("WTPL") tool. Such an instrument would have considerable commercial potential, providing operators with a cost-effective means of assessing current and future oil reserves in maturing oil and gas fields. Well test production logging is a method by which an assessment of the production capability of an oil or gas reservoir can be made from within a producing well without interrupting production or deploying costly equipment. The Group's people During the financial year ended 2006 a number of senior appointments were made to reflect better the matrix management structure. Roy Martin was appointed Sales and Marketing Director for the Eastern Hemisphere and Raymond Garcia continued as Corporate Vice President for the Western Hemisphere. They each head the marketing, sales and customer support operations in their respective regions, embracing the full range of the Group's wireline and drilling technologies. At the same time, Lane Roberts was appointed as Managing Director of the Wireline Division and Ali Macrae was confirmed as Managing Director of the Drilling Division. Each is responsible for the respective division's profit and loss accounts. These four executives are members of the Group's Executive Committee that also includes the executive directors, Martin Perry, Chris Wilks and William Stuart-Bruges. At the end of the financial year the Group employed a total workforce of 373. These included the 41 engineering staff who joined as a result of the AES acquisition. There is confidence that these employees will adapt and integrate into the Sondex Group as well as those who joined with Geolink and CSS. Transfers between locations and divisions have already taken place and this trend is being encouraged in order to enhance personal development and cultural diversity. Staff have adapted well to the changes that continued growth brings to the business. Management and staff hold approximately 9 per cent of the shares in Sondex. The Group operates an approved Save As You Earn scheme for all UK-based staff and grants continue to be made under the share option scheme. The Board believes that broad-based staff equity participation should be encouraged. Health and safety Given the Group's emphasis on achieving the highest health and safety standards, it is pleasing to note that once again there was no serious incident or accident in the past year. A programme of training and health and safety awareness initiatives was maintained throughout the year. Health and safety performance was monitored under established management procedures and reviewed closely at each Board and Executive meeting. Risk assessments were conducted internally and by independent consultants to ensure that best practice was being followed. Summary Sondex has made notable progress in the year under review. The Group's sales growth has outperformed the market through the dedication, enthusiasm and sheer hard work of everyone within the Group. Sondex has established a valued range of downhole technologies including a number of tools recognised as market leaders or "industry standard". A broadened international base has opened up vital new markets which, in turn, have led to a further significant increase in our customer base. The Group's financial and management platforms are strong. The Board remains confident in the strategy of pursuing growth through organic development, backed by a strong R&D programme, and appropriate acquisitions. In summary, Sondex is in well placed to take advantage of opportunities and market conditions in the future. Martin Perry Chief Executive Financial Review Overview The Group's turnover was £51.4 million in the year ended 28 February 2006, an increase of 62% on the previous year (£31.7 million). Without the impact of the AES acquisition on 14 December 2005 the increase in turnover would have been 58 per cent. The Group's operating profit before amortisation of intangible assets was £12.5 million in 2006 (£7.5 million in 2005) representing a net margin on turnover of 24.3 per cent (23.7 per cent in 2005). The Group's operating profit was £9.7 million (£5.5 million in 2005). This operating profit was achieved in spite of a 30 per cent increase in research and development expenditure from £3.6 million to £4.7 million and other investments in fixed costs, such as the new office and workshop complex at Yateley, Hampshire and expansion overseas as well as Health and Safety management. Currency and interest rate risk In common with previous years (and oil industry norms) the Group continues to make a majority of its sales in US Dollars. In the year ended 28 February 2006 72 per cent of the Group's revenue was made in US Dollars (2005 - 86 per cent). Only 17 per cent of the Group's costs are incurred in US Dollars (2005 - 17 per cent) and in order to provide a partial hedge against exchange rate movements, the Group's bank debt is denominated in US Dollars. There remains an excess of US Dollar generation greater than that required to fund the Group's US Dollar costs and service the Group's bank debt and it remains the Group's policy to employ exchange rate instruments such as forward contracts and capped rate contracts to provide some further protection to earnings. The US Dollar has strengthened in the 12 months ended 28 February 2006 and while this has benefited the Sterling value of trading it has caused the forward contracts which were put in place to hedge the foreign exchange rate at the beginning of the financial year to be out of money. This has resulted in a foreign exchange loss to be recognised in the income statement for the year ended 28 February 2006 of £0.6 million. No such contracts were held at the year end. The Group continues to partially hedge the interest rate risk with a mixture of interest rate swaps providing a fixed Dollar base interest rate of 3.77 per cent per annum and interest rate caps providing protection in the event that the base interest rate increases beyond 3.77 per cent per annum. At the end of the period 35 per cent of the bank borrowing was hedged against interest rate increases using these instruments. Taxation The group's tax rate for the year ended 28 February 2006 was 32 per cent (2005 - 29 per cent). The relatively high rate of taxation applied to the profits of the USA and Canadian subsidiaries is offset by the availability of enhanced taxation reliefs for the Group's expenditure on research and development. The establishment of an increasing number of overseas subsidiaries exposes the Group to local taxes at various rates, and the structure of the Group is kept under review with the aim of achieving an overall balance in rates of taxation applied. Dividend An interim dividend of 0.7p per share (2005 - 0.65p) was paid on 26 January 2006. A final dividend of 1.4p per share (2005 - 1.3p) payable on 7 July 2006 to shareholders on the register at 2 June 2006 is now proposed. This would give a total of 2.1p per share for the year (2005 - 1.95p per share), an 8% increase. Cashflow A key feature of the year was the cash inflow generated from operating activities, which at £6.4 million represented a significant improvement from the operating cash outflow of £0.8 million during the previous year. The Group was able to absorb into this operating cash inflow a continued build in inventory reflecting the continued strong demand for products, particularly in the Wireline market. During the year an incremental loan, in the sum of £6 million, was drawn down to part-fund the acquisition of AES. Subsequently, that and the pre-existing loans were consolidated into a single term loan, and the existing working capital facilities were replaced by a Multi-Option Facility in the sum of £11 million. The loan and the Multi-Option Facility are both secured by a fixed and floating charge over the assets of the group. The loan is due for repayment in 36 months from 13 December 2005, subject to an annual refreshment of the rolling 36 month term. Funds drawn down under the Multi-Option Facility are due for repayment at the earliest in May 2007, subject to an annual review. Interest on the loan and the Multi-Option Facility is charged quarterly, at rates between 1.45% and 1.7% per annum above LIBOR. At 28 February 2006, the group had drawn down £5,251,000 against the Multi-Option Facility of £11 million, leaving £5,749,000 available at that date for the funding of future operating activities. There are no restrictions on the use of these funds. Debt management The Group's gearing ratio rose from 41 per cent in the year ended 28 February 2005 to 47 per cent in 2006 reflecting the extension of the banking facilities during Q4 to facilitate the acquisition of AES. Other liquidity measures such as the quick ratio, interest cover and dividend cover ratios remain comfortable. International Financial Reporting Standards The results for the year ended 28 February 2006 are presented solely under International Financial Reporting Standards (IFRS). The detailed accounting policies that the Group adopted upon conversion to IFRS and their major impact on the Group's results for the year ended 28 February 2005 are detailed in the Group's transition statement which was released on 23 November 2005 and which is available on the Group's website. In summary the principal changes of accounting policy involve: • The capitalisation of qualifying development expenditure incurred in the Group's research and development programmes; this is in accordance with IAS 38; • The cessation of amortisation of goodwill, to be replaced by the amortisation, over lives considerably shorter than that of goodwill, of specific intangible fixed assets identified in acquisition; this is in accordance with IFRS 3; • The extension of the charge for share-based remuneration, introduced by IFRS 2; and • The wider scope of the charge to deferred taxation, under IAS 12. Christopher Wilks Finance Director Consolidated income statement for year ended 28 February 2006 Note 2006 2005 Total Total £000 £000 Revenue 1 51,449 31,713 Cost of sales (22,341) (14,159) _______ ________ Gross profit 29,108 17,554 Other operating income 136 178 Research and development expense 2 (4,249) (3,134) Sales, marketing and customer support expenses (5,952) (3,283) Administration expenses excluding amortisation of acquired intangible assets (6,551) (3,786) _______ ________ Operating profit before amortisation of acquired intangible assets 12,492 7,529 Amortisation of acquired intangible assets (2,803) (2,026) _______ _______ Operating profit 1 9,689 5,503 Financial income 450 207 Financial costs (2,653) (1,061) _______ ________ Profit before taxation 7,486 4,649 Taxation 3 (2,398) (1,347) _______ ________ Profit attributable to shareholders 5,088 3,302 Dividends paid 4 (1,106) (830) Earnings per share on profit attributable to shareholders - Basic 5 9.3p 6.7p - Diluted 5 9.0p 6.5p - Adjusted basic 5 13.2p 9.3p - Adjusted diluted 5 12.7p 9.5p Consolidated balance sheet at 28 February 2006 Note 2006 2005 £000 £000 Non-current assets Goodwill 42,757 37,965 Other intangible assets 17,590 17,757 Property, plant and equipment 5,535 4,895 Financial assets - derivatives 111 - Investments 42 137 _________ _________ 66,035 60,754 _________ _________ Current assets Inventories 14,796 8,014 Trade and other receivables 24,759 18,954 Cash and cash equivalents 2,099 - _________ _________ 41,654 26,968 _________ _________ Current liabilities Financial liabilities - borrowings (5,395) (5,367) Trade and other payables (9,798) (6,694) Current tax (3,599) (984) _________ _________ (18,792) (13,045) _________ _________ Non-current liabilities Financial liabilities - borrowings (25,142) (16,544) Financial liabilities - derivatives (32) - Deferred tax liabilities (3,801) (4,919) _________ _________ (28,975) (21,463) _________ _________ Net assets 59,922 53,214 Shareholders' equity Share capital 5,585 5,501 Share premium 42,565 41,019 Other reserves 5,739 4,861 Retained earnings 6,033 1,833 _________ _________ Total equity 59,922 53,214 Approved by the Board Martin Perry Chief Executive 24 May 2006 Consolidated statement of changes to equity for year ended 28 February 2006 Note 2006 2005 £000 £000 Total equity at start of period 53,214 26,045 Profit for the period attributable to shareholders 5,088 3,302 Items of income and expense recognised directly in equity: Net foreign exchange differences 90 47 Deferred tax on items not recognised in the income statement 218 194 _________ _________ 308 241 _________ _________ Total income and expense for the year 5,396 3,543 Transactions with equity holders: Dividends paid (1,106) (830) Shares issued (net of expenses) 1,630 23,994 Share based payments 788 462 Effect of implementing IAS 39 - - _________ _________ 59,922 53,214 Consolidated cash flow statement for year ended 28 February 2006 Note 2006 2005 £000 £000 Cash flows from operating activities Operating profit before amortisation of acquired intangibles 12,492 7,529 Depreciation of property, plant and equipment 1,268 607 Amortisation of capitalised development expenditure 1,052 725 Amortisation of other intangible assets 154 - Charge for share based payment 788 462 (Increase) in trade and other receivables (5,190) (5,498) (Increase) in inventories (5,868) (2,456) Increase / (Decrease) in trade and other payables 2,996 (213) _________ _________ Cash generated from operations 7,692 1,156 Income tax (paid) (1,258) (1,907) _________ _________ Net cash inflow / (outflow) from operating activities 6,434 (751) _________ _________ Cash flows from investing activities Dividends received - 12 Interest received 339 182 Acquisition of subsidiaries (6,094) (33,095) Capital expenditure (2,301) (1,621) Development expenditure (1,471) (1,171) Proceeds from the sale of property, plant and equipment 790 466 _________ _________ Net cash used in investing activities (8,737) (35,227) _________ _________ Cash flows from financing activities Proceeds from the issue of share capital - 25,124 Loans received 5,729 13,000 Repayment of loans (3,494) (2,900) Interest paid (2,015) (1,343) Dividends paid (1,106) (830) _________ _________ Net cash from financing activities (886) 33,051 _________ _________ Net decrease in cash and cash equivalents (3,189) (2,927) Cash and cash equivalents at the beginning of the period (1,410) 2,044 Cash acquired with acquisition of subsidiaries 116 - Net effect of exchange rate changes 1,187 (527) _________ _________ Cash and cash equivalents at the end of the period (3,296) (1,410) Notes to the Preliminary Announcement For the year ended 28 February 2006 1. Turnover and segmental analysis Primary reporting format - business segments Wireline Division Drilling Division Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 Revenue External sales 35,276 21,388 16,173 10,325 - - 51,449 31,713 Inter-segment sales - - - - - - - - ______ ______ ______ _____ ______ ______ _______ _______ Segment revenue 35,276 21,388 16,173 10,325 - - 51,449 31,713 Result Segment result before 10,928 4,476 4,323 3,880 - - 15,251 8,356 amortisation of acquired intangible assets Amortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026) acquired intangible assets Segment result 10,819 4,376 1,629 1,954 - - 12,448 6,330 Unallocated expenses (2,759) (827) _______ _______ Operating profit 9,689 5,503 Financial income 450 207 Financial costs (2,653) (1,061) _______ _______ Profit before taxation 7,486 4,649 Taxation (2,398) (1,347) _______ _______ Profit attributable to 5,088 3,302 shareholders Notes (continued) Wireline Division Drilling Division Eliminations Consolidated 2006 2005 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000 £000 £000 Assets and liabilities Segment assets 68,399 50,538 39,290 37,184 - - 107,689 87,722 Unallocated assets - - - - - - - - ______ ______ ______ ______ ______ ______ _______ _______ Total assets 68,399 50,538 39,290 37,184 - - 107,689 87,722 Segment liabilities (6,879) (2,709) (2,919) (3,985) - - (9,798) (6,694) Unallocated - - - - - - (37,969) (27,814) liabilities ______ ______ ______ ______ ______ ______ _______ _______ Total liabilities (6,879) (2,709) (2,919) (3,985) - - (47,767) (34,508) Other information Capital expenditure (1,524) (1,507) (777) (114) - - (2,301) (1,621) Depreciation (479) (352) (88) (110) - - (567) (462) Amortisation of (109) (100) (2,694) (1,926) - - (2,803) (2,026) acquired intangible assets Movements in (612) (107) (89) (38) - - (701) (145) impairment provisions Secondary reporting format - geographic segments Sales by destination 2006 2005 £000 £000 USA and South America 13,103 7,406 Canada 6,781 4,363 Europe 7,509 4,646 Middle East 7,334 4,611 China 3,718 5,192 Russia and former Soviet Union 4,840 3,259 Africa 3,024 891 Rest of the world 5,140 1,345 ______ ______ 51,449 31,713 Notes (continued) Total assets by location 2006 2005 £000 £000 Europe 89,864 83,425 USA 6,864 802 Canada 6,914 2,929 Middle East 4,047 566 _______ ______ Total 107,689 87,722 Capital expenditure by location 2006 2005 £000 £000 Europe 2,004 1,285 USA 7 7 Canada 188 136 Middle East 102 193 _______ ______ Total 2,301 1,621 2. Research and development expenditure The charge in respect of research and development expense is analysed below: 2006 2005 £000 £000 Expenditure in the period (4,668) (3,580) Development costs capitalised 1,471 1,171 Amortisation of capitalised development costs (1,052) (725) __________ __________ Total research and development expense (4,249) (3,134) __________ __________ Notes (continued) 3. Taxation 2006 2005 £000 £000 Current tax expense Current year - UK tax charge 2,337 923 Current year - overseas tax charge 1,738 447 __________ ___________ 4,075 1,370 __________ ___________ Adjustments in respect of prior years - UK 5 (29) Adjustments in respect of prior years - Overseas (207) - __________ ___________ (202) (29) __________ ___________ 3,873 1,341 __________ ___________ Deferred tax (credit) /expense Origination and reversal of temporary differences (1,534) 6 Adjustments in respect of prior years 59 - __________ ___________ (1,475) 6 ___________ ___________ Total taxation expense recognised in the income statement 2,398 1,347 4. Dividends 2006 2005 2005 £000 Dividend £000 Dividend per share per share p p Equity dividends on ordinary shares February 2004 final dividend 472 1.20 February 2005 interim dividend 358 0.65 February 2005 final dividend 715 1.30 - February 2006 interim dividend 391 0.70 - ___________ __________ Total recognised 1,106 830 Notes (continued) 5. Earnings per share 2006 2005 Basic earnings per share Basic undiluted (pence) 9.32 6.69 Basic diluted (pence) 9.00 6.53 £'000 £'000 Profit attributable to shareholders 5,088 3,302 Weighted average number of shares (thousands) Undiluted 54,578 49,340 Dilutive share options 3,012 2,069 Market price adjustment to dilutive share options (1,091) (866) ________ __________ Diluted 56,499 50,543 Adjusted earnings per share Adjusted diluted (pence) 12.7 9.2 Adjusted basic (pence) 13.2 9.5 Adjusted earnings per share is presented on the following basis: £'000 £'000 Profit attributable to shareholders (£'000) 5,088 3,302 Add: amortisation of acquired intangible assets 2,803 2,026 Less: adjustment to taxation (689) (656) ________ __________ Adjusted earnings 7,202 4,672 Diluted weighted average number of shares 56,499 50,543 The adjustment to taxation brings the charge to taxation to 30% of profit before amortisation and tax. 6. Basis of preparation The financial information for the years ended 28 February 2006 and 28 February 2005 contained in this preliminary announcement was approved by the Board on 24 May 2006. This announcement does not constitute statutory accounts of the Company within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 28 February 2005 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 28 February 2006 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on both these sets of accounts. Their reports were not qualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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