Final Results

Sondex PLC 26 May 2005 Sondex plc ('Sondex' or the 'Company') Preliminary Audited Results for the year ended 28 February 2005 Financial Highlights • Turnover up 81% to £31.7million (2004 - £17.5million) • Operating profit before amortisation of intangibles rose 46% to £7.7million • Operating profit rose 46% to £5.1 million • Basic earnings per share 4.7p (2004 - 0.4p) • Adjusted earnings per share 10.1p (2004 - 4.0p) • Full year proposed dividend increased by 8% to 1.95p (2004 - 1.80p) Operational Highlights • Acquisition and integration of Geolink • 95% of sales overseas • Significant investment in R&D and new production facility in Hampshire • Further technology acquisition and significant new product releases • Good market conditions and strong order book Iain Paterson, Chairman of Sondex, commented: "This has been a pivotal year for Sondex demonstrating considerable growth. We have successfully integrated Geolink, our largest acquisition to date, while investing in R&D, marketing, management and opening a new production facility. This gives us a strong platform from which to deliver continued growth. "The current order book is strong, reflecting the good market conditions, and we are confident that we will achieve further successes in the coming year." 26 May 2005 For further information, please contact: Sondex Tel: 0118 932 6755 Martin Perry (Chief Executive) Chris Wilks (Finance Director) College Hill Tel: 020 7457 2020 Nick Elwes Ben Brewerton Chairman's statement The past year has seen your Company make significant progress. With our global operating base and expanded suite of products, we are now well set to take further advantage of the promising market conditions. Results Revenues grew 81 per cent to £31.7 million and operating profit increased by 46 per cent to £5.1 million. Earnings, after tax and financing costs, rose to £2.3 million from £0.1 million. This represented earnings per share of 4.7p, an increase of 4.3p on the previous year (0.4p in 2004). Adding back amortisation charges, adjusted earnings per share were 10.1p (4.0p in 2004 on the same basis). These pleasing results were achieved despite the weak Dollar. They reflect both the success of our on-going business and the steps that have been taken to reshape the enlarged group, following the acquisitions of Computer Sonics Systems Inc. (CSS) in December 2003 and Geolink International Limited in June 2004. Dividend The Board is proposing a final dividend for the year of 1.3p per share, amounting to a total of 1.95p for the year. This increase in the total dividend of 8.3 per cent reflects both the performance during the year and the Group's growth prospects. Review of the period During the financial year Sondex acquired Geolink for £29.5 million having successfully raised net proceeds of £19.8 million through a Placing and Open Offer at 160p per share. Additionally, the Company invested £3.1 million in research and development of new products (as against £2.0 million in the previous year), representing approximately 9.8 per cent of revenues. Administrative expenses rose during the year, to £13.4 million (£7.1 million in 2004), reflecting the integration of Geolink and a full year of CSS as well as the measures put in place to provide the management teams and structure for continuing growth. Both Geolink and CSS are adding considerable momentum to group operations in terms of the widened product portfolio, broadened customer base (39 new customers representing 20 per cent increase during the year) and depth of management and operational experience. The core wireline business has shown underlying volume growth of 32 per cent compared to the previous year. The Group has now reorganised its operating structure into two divisions: Wireline and Drilling. The continued expansion of the international sales offices has allowed both divisions to accelerate their regional sales growth. Increased production capacity and new offices have been established in Hampshire since the year end. Operating profits before amortisation of goodwill increased by 46 per cent; the past year, however, has seen a 7 per cent reduction in operating margin (operating profit before amortisation of goodwill expressed as a percentage of turnover), which reflects the weak US Dollar, particularly during a period of busy trading, and an increase in administrative expenses. More than three quarters of the Group's sales are priced in US Dollars and the negative impact of the weak Dollar reduced revenues and operating profit by approximately £1.8 million. Staff On behalf of your Board I should like to thank all staff for their commitment and excellent performance during the past year. For many it has been a period of change and transition and the Board is indebted to them for the enthusiasm with which they have risen to these new challenges. Outlook The Company has invested further in a solid platform from which to grow. We have expanded our range of technologies, increased our customer base and geographical reach and reinforced our management structures. Our order book remains healthy, reflecting increasing demand for our products. Market conditions also give reason for optimism. The oil and gas industry, faced with tightness in the supply-demand balance and continuing rising energy demand, is increasingly turning to sophisticated technologies and products such as ours to improve production and optimise ultimate recovery from mature fields. In the past year the Group has been successful in establishing closer relationships with leading oil and gas producers as well as the main service companies that are at the forefront of this drive towards greater production efficiency. The Sondex Group is established as a leading independent supplier of downhole technology to the oil and gas industry. We remain firmly focused on growing our core business - organically, through a combination of new technology, regional expansion and customer service, and through appropriate acquisitions. I am confident that Sondex will continue to make further progress in the coming year. Iain Paterson Chairman Operating Review Industry overview The past year has seen oil prices remain consistently high, emphasising the tightness in the supply and demand balance. These conditions are generally expected to persist, providing confidence for those companies delivering services and equipment to oil and gas operators. Latest International Energy Agency (IEA) projections suggest that the recent growth in demand for hydrocarbons will be sustained in 2005, led by China and Asia in general. The IEA forecasts that investments in the upstream oil and gas sectors will amount to about $4 trillion between now and 2030. Significantly, the IEA sees the bulk of this upstream investment being needed simply to maintain production capacity at current levels. Thus the focus of Exploration & Production companies has shifted away from exploration and reserve accumulation and more towards meeting demand through production and optimum reservoir management. Upstream oil and gas companies are demanding technologies and services that increase the ultimate recovery of reservoirs and extend the life of producing assets. Sondex, with its suite of tools specifically designed for this purpose, is well placed to benefit from this shift of focus. There has also been a geographical shift of emphasis. China and states of the former Soviet Union - most notably Russia - have assumed greater importance for oilfield service providers. These countries, which have a large and growing influence on the world's energy supply balance, are increasingly seeking western technologies to improve the efficiency of their production. In recent years there has been a consolidation of service companies in these countries, as well as a trend towards accepting strategic investment and joint ventures involving western service companies. Sondex has strengthened its operations in these two countries to take advantage of these growing opportunities. Another discernible trend of significance to Sondex is the way in which oil companies in a number of producing regions - such as the Far East, Middle East and West Africa - have come under pressure to award service contracts to local, indigenous, companies. Sondex, as the leading independent supplier of specialist tools to the upstream industry in its sector, has already established strong links with a number of these local service companies in the regions mentioned. Structure As a result of the acquisition of Geolink the Group has reorganised its operating structure with the establishment of the Wireline Division, embracing the products and brand names of Sondex and CSS, and the Drilling Division, incorporating the interests and brand identities of Geolink. The Wireline Division represented 67 per cent of Group revenues in the year ended 28 February 2005. The Drilling Division, which has been part of the Group for 8 months, accounted for the remainder. The Group has established a matrix structure of product support and distribution, with centres of excellence in Hampshire and Calgary for the development and support of Wireline products and in Aberdeen for Drilling. Product lines from both divisions are marketed with local support through a network of international offices. During the year the Sondex management team has been enhanced with the team from Geolink and a number of additional key appointments in marketing, finance and quality control. Individual Managing Directors for the two divisions have been appointed, each carrying profit and loss responsibility for their division. Wireline Division Sales within the Wireline Division increased 22 per cent year on year, with gross margins holding up at 58 per cent despite the pressure from a weak US Dollar. Significant new sales were made in China and Iran. The integration of CSS in Canada has been completed and this has also been an area of good growth. During the year the Wireline Division added 24 new customers, many of these the result of focused marketing efforts in regions where new international bases are becoming established. The wireline tools designed, manufactured and marketed by Sondex are used by all of the major international service companies, a number of the national oil companies that run their own services and a broad range of smaller, regionally or nationally based service providers. The market for services performed using wireline tools is valued at $4 billion annually (excluding Russia & China) and 10 per cent of this total is estimated to be capital purchases of the equipment required to run the services. Sondex, with its broadening range of technology, operates within this equipment supply market. The range of wireline equipment supplied includes a broad range of individual instruments for production logging, well inspection, and mechanical services. Sondex's production logging tools, which accounted for approximately 40 per cent of sales within the Wireline Division (49 per cent in 2004), enable operators to understand reservoir properties better and as a result increase ultimate recovery potential by analysing the flow characteristics of any oil, gas or injection well. Measurements such as flow rate, temperature, pressure, fluid capacitance and density are recorded in-situ within the well. During the year the Group was able to announce a number of developments in its production logging capabilities. The high temperature, high pressure Hades logging string has been used in some of the most challenging conditions in more than 50 wells in the North Sea, the Gulf of Mexico and Iran. Sondex has re-branded its range of tools used for inspecting the integrity and structure of oil wells under the 'Well Integrity Platform' banner. This product range includes tools for in-situ measurement and detection of corrosion or shape deformation using measurement fingers, ultrasonic and magnetic techniques. The product range has been greatly enhanced by the addition of the cement bond logging tools, developed by CSS in Canada, which additionally inspect the integrity of the cemented seal between the metal of the well and the reservoir formation. Since the acquisition of CSS, the cement bond logging tools have been both enhanced in their capabilities and made fully compatible with other Sondex well integrity tools. As a result the cement bond logging tools can be operated simultaneously and in combination with all other Sondex equipment. The Magnetic Thickness Tool, launched in 2004, has also had a strong introduction to commercial application. So far it has been used in more than 70 wells in Canada, the USA and South America. Furthermore, a new generation of the Multi Finger Imaging Tool has also been launched delivering improved capabilities. The Sondex downhole tractor system, a relatively new method for deploying equipment in highly deviated or horizontal wells, is steadily attracting customers away from the established, generally more expensive and time-consuming, coiled tubing deployment method. During the year under review the tractor system was used more than 200 times, most notably in Norway, South East Asia, Africa and Canada. In order to promote the technology and stimulate demand Sondex Wireline has continued its policy of renting tractor systems. Of the 42 Sondex tractors deployed worldwide, 21 are still owned directly by the company. Revenue growth during the year was disappointing in this product area, however, early indications from the new financial year suggest that the investment in increasing assets and additional marketing will give improved returns for the tractor product this year. The Downhole Electric Cutting Tool (DECT), introduced in 2003, was used successfully in field operations in six countries during the past year. The product provides an environmentally friendly and controllable alternative to using explosives or chemical cutters where it is essential to cut and retrieve drill pipe or production tubing. The Group is confident that there is a considerable worldwide market for the tool, given its ease of use and its clear safety and environmental advantages. One of the most significant developments during the year was the completion of the integration of all wireline products on to UltraLink telemetry, the high speed Sondex data transmission system. This system, capable of running up to 64 tools simultaneously, can support the use of 2000 sensors with data being transmitted at rates selected by the operator. The use of UltraLink telemetry in this way not only reduces the number of logging runs required, thus saving lost production time and expense, but also enables operators to employ varying combinations of complex multi-sensor tools. UltraLink is becoming established as a de-facto standard, with existing customers upgrading their equipment to this operating system, and major operators such as Halliburton adopting it for universal use. Looking to the future, Sondex Wireline has launched its UltraWire compensated neutron logging (CNL) tool after successful client testing. Neutron tools are used downhole to identify formation porosity and in combination with other measurements, hydrocarbon content. The Sondex CNL will be used to 'see' through metal casing, to provide formation evaluation data that may not have been recorded when the well was originally drilled, and to identify movements in hydrocarbon concentrations. The data will be of particular value in optimising recovery from older wells which might otherwise be abandoned with reserves still in place. Drilling Division Following its acquisition in June 2004, Geolink has been successfully integrated into the Group, bringing with it the added dimension and enhanced opportunities foreseen in last year's annual report. The company, which is retaining its own respected identity, is established as a leading supplier of Measurement While Drilling (MWD) and Logging While Drilling (LWD) systems, capable of being operated in the most demanding of downhole drilling environments. Many of the existing or potential customers for Geolink are the same as those for the Sondex Wireline products. MWD systems provide the directional driller with real-time precise information on the position and direction of the drill bit during the drilling process. Thus a new well can be positioned exactly as required in order to produce most effectively. This directional drilling is particularly important when positioning wells in mature fields or when 'side-tracking' to reach additional or stranded reserves. LWD tools give further information regarding the formation being drilled, data that helps with identifying the rock type and hydrocarbon content as well as the positioning of the well. Geolink customers have traditionally also been the smaller independent service companies or operators of the equipment, most notably the directional drilling companies. National oil companies with their own service operations also feature among Geolink's customers. The global market size for MWD and LWD services is valued at $3.5 billion and as with wireline, 10 per cent of this sum is believed to be spent on capital purchases of equipment. During the 8 months since the acquisition of Geolink revenues totalled £10.3 million; on a pro-rata basis this was 28 per cent higher than the previous year. A significant portion of this increase came from sales through the Sondex operations in Canada as well as good repeat business in Russia and China. Fifteen new customers were secured by Geolink during this period. Geolink's TRIM resistivity tool, which is a relatively new but potentially game-changing measurement device, has undergone further commercial and experimental trials and is becoming established as a reliable technique for identifying hydrocarbons while drilling. A new pressure-during-drilling sensor has also undergone successful field trials and new Windows-based operating software has been completed. The complete range of Geolink technology is now being marketed through the Sondex network of sales and support centres and we are confident that this will generate further growth. At the same time Sondex Wireline is seeing the benefits of entering markets penetrated by Geolink. The Group has accelerated Geolink's research and development as well as its marketing efforts. Regional and customer activity Exports accounted for approximately 95 per cent of the Group's revenue in 2005 with sales being generated in most of the key oil and gas producing areas of the world. During the financial year, new sales and supply centres were opened in Beijing, China, and Krasnodar, Russia. The Group now has strong international representation covering nine centres, all of them promoting and supporting the products of the Wireline and Drilling Divisions. Three of the centres - Bramshill in Hampshire, Aberdeen in Scotland, and Calgary in Canada have product development and manufacturing facilities. 39 new customers were added by the Group during the year and none were lost. The active customer base is now some 250 companies. During 2004-5 the Group also became less dependent on any single outlet; whereas in 2003-4 the four largest customers each accounted for approximately 10 per cent of revenues, last year 9 customers provided 40 per cent of revenues, with the largest (Halliburton) accounting for 7 per cent of the total. Customers continue to be the fully international, regional and local service companies as well as those oil and gas companies who operate their own equipment. We are encouraged by the close ties that have been forged between the Group and a number of the established customers with regards to the development of specific technologies. Research and Development Research and Development is accorded a high priority within the Group; indeed, it is one of principal engines for sustained organic growth and the high margins that we have been able to achieve. In the financial year 2004-5 the Group invested £3.1 million on research and development activity, representing 9.8 per cent of turnover (£2.0 million and 11.4 per cent, respectively, in 2004). Research and Development funds are spent on maintaining and improving existing products (27 per cent), extending product lines to add functionality, incremental sales to existing customers and to increase barriers to potential competitors (50 per cent), and for novel development of new product lines for step change growth (23 per cent). Returns from individual projects will vary enormously but Sondex aims to make contingent returns on a new development of over 100 per cent within 3 years. The R&D departments across Sondex now have 60 personnel involved in sensor, software, electronic and mechanical design; they are based in Hampshire, Aberdeen and Calgary. In addition to working on the in-house projects funded by Sondex, they are also involved with collaborative development projects with a number of our larger service company clients and with oil & gas companies. The involvement in our R & D activities of companies directly involved in hydrocarbon exploration and production is a welcome and growing trend. Not only does it help to focus our effort and provide an increased profile for the resulting new products but it also helps to cement a closer working relationship with some of our most important customers. In the summer of 2004 the Group signed an agreement to develop a downhole telemetry tool exclusively for Halliburton. Sondex Wireline is to develop, supply and license the technology for use with Haliburton's family of pulsed neutron tools. This development is proceeding well, the new instrument will provide an enhanced telemetry interface for tool-to-surface communication and offer improved compatibility with a range of Sondex products, including production logging sensors and radial bond tools. In July 2004 it was announced that the Group had forged an alliance with Tucker Energy to jointly develop an advanced acoustic tool for use in new and existing wells. The development work for this tool is being undertaken primarily at the Calgary facilities where the first prototypes units have been assembled. Sondex is working with a leading international energy group and a major oil service company on the development of a novel WTPL harmonic well test methodology (acquired during the year from Geo Energy s.a.). Sondex has agreed to take over the entire responsibility for this project with the intention of accelerating the commercial release of the technology. WTPL 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. This will enable an operator to assess, in a cost effective manner, the current and future oil reserves in maturing oil and gas fields. Additionally, since the year end, in March 2005 the Group announced that it had signed an agreement with Beta Research & Development, which has pioneered rechargeable high temperature battery technology. Sondex has exclusive rights to this advanced battery technology for use in the downhole oil, gas, water and geothermal industries. It is anticipated that the battery, based on existing automotive 'Zebra Cell' technology, will provide a cost effective, robust and reliable alternative to the lithium batteries that are currently used for memory tools by downhole operators. The Group believes that there is a strong market for this technology, which will complement the product ranges of both the Wireline and Drilling Divisions. During the past year, the Group has also continued to work with Statoil and other major oil companies on the further development of the Downhole Electric Cutting Tool (DECT). New Facility In line with the Group's policy of investing for further growth, the Board announced in March that it had signed a lease on an additional facility in Yateley, Hampshire, close to the company's existing head office and technical centre at Bramshill. The new building houses the Wireline Division's final product assembly, doubling its in-house production capacity. The Group's corporate functions have also been transferred to Yateley. The Bramshill facilities are being retained as the Group's research and development centre for the majority of wireline products. R & D operations for sonic products continue to be based in Calgary while those for drilling products remain in Aberdeen. Our people A pleasing aspect of the year ended 2005 has been the way that management and staff have responded to the challenges of change and growth. It is due to their skills, dedication and flexibility that Sondex has been able to continue to make progress. Staff at both Geolink and CSS have blended well with the original wireline teams and the cultures of the various locations are now very similar. Some transfers between locations and divisions have already taken place and this trend will be encouraged in order to enhance personal development and cultural diversity. Management and staff hold approximately 10 per cent of the shares in Sondex. Your Board believes in broad-based staff equity participation. An approved Save As You Earn scheme was introduced during the year for all UK-based staff, as well as a continuation of grants under the share option scheme. Health and safety The Group is committed to achieving the highest standards in terms of health and safety and environmental protection and we are pleased to report that no serious incident or accident occurred in the past year. A rolling programme of initiatives aims to sustain awareness and the need for proactive management of health and safety risks. Health and safety performance is monitored under established management procedures and reviewed closely at each Board and Executive meeting. Risk assessments are conducted to ensure best practice is followed and independent consultants are retained to train managers in the conduct of these risk assessments. Summary The year under review has been successful and important for Sondex in a number of respects. We have successfully integrated into the business two significant acquisitions while increasing the sales, customers and geographical reach for our home-grown technologies. We will continue to follow these twin routes to growth - organic development and selective acquisitions. In this respect we are encouraged by the technologies that we have under development. We remain alert to appropriate acquisitions where there is an opportunity of adding complementary product lines. Given our sound financial base, our strengthened management team and our broad range of proven and effective technologies, we have a solid platform on which to grow in the future. We remain well placed to exploit the strong market conditions that persist. Martin Perry Chief Executive Financial Review Overview The Group's turnover was £31.7 million in the year ended 28 February 2005, an increase of 81 per cent on the previous year (£17.5 million). Without the impact of the Geolink acquisition the increase in turnover would have been 22 per cent. The Group's operating profit before cost of flotation and amortisation of intangible assets was £7.4 million in 2005 (2004 - £5.3 million), representing a net margin on turnover of 23.3 per cent (2004 - 30.2 per cent). The Group's operating profit was £5.1 million in 2005 (2004: £3.5 million). This operating profit was achieved in spite of a 55 per cent increase in research and development expenditure from £2.0 million to £3.1 million and a further depreciation in the Sterling value of Dollar sales recorded during the year. Other investments in fixed costs, such as sales and marketing resources and Group infrastructure such as Health and Safety management, also contributed to this reduction in net margin in the year ended 28 February 2005 compared to prior years. 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 2005 86 per cent of the Group's revenue was made in US Dollars (2004 - 79 per cent). Only 17 per cent of the Group's costs are incurred in US Dollars (2004 - 16 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. Nevertheless, the Group's revenue was adversely affected by £1.78 million (particularly as it coincided with a period of busy trading) compared to the previous year due to the weakness of the US Dollar. Correspondingly, operating profit was adversely affected by £1.78 million and earnings per share would have been 2.5 pence higher at 7.2 pence per share had the exchange rate remained constant compared with the year ended 29 February 2004. 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 31 per cent of the bank borrowing is hedged against interest rate increases using these instruments. Taxation The Group's underlying tax rate after adding back amortisation of goodwill for the year ended 28 February 2005 was 27 per cent (2004 - 36 per cent). The relatively high rate of taxation applied to the profits of the USA and Canadian subsidiaries has been offset by the availability of enhanced taxation reliefs for the Group's expenditure on research and development in both the existing business and in Geolink. 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, aiming to achieve an overall balance in rates of taxation applied. Dividend An interim dividend of 0.65p per share (2004 - 0.6p) was paid on 15 December 2004. A final dividend of 1.3p per share (2004 - 1.2p) payable on 29 July 2005 to shareholders on the register at 1 July 2005 is now proposed. This would give a total of 1.95p per share for the year (2004 - 1.8p). Cashflow A key feature of the results in the year ended 28 February 2005 was the increased cash absorption of the business. In particular, the absorption of cash generated from trading profits into working capital was primarily a result of strong trading in the last quarter of the year, the majority of which was still represented in debtors at the year end and therefore showing an unusual absorption of cash. The continuing strong demand, particularly from the Wireline market through the year end and beyond has caused significant "ramping up" of manufacturing volumes which also manifests itself as a working capital absorption. In June 2004, the Group raised £19.9 million by issuing shares at £1.60 by way of a Placing and Open Offer and borrowed a further £13 million in order to fund the acquisition of Geolink International Limited and its subsidiaries. The net cash outflow of this acquisition was £25.3 million. Over £2.9million of capital payments were made in the period (2004 - £17.5 million) to reduce the long term bank debt. Also of note during the year ended 28 February 2005, the Group made the first significant corporation tax payments; previously interest deductions and other structural issues had contained the tax payments. Debt management The Group's gearing ratio decreased slightly from 48 per cent in the year ended 29 February 2004 to 41 per cent in 2005 reflecting to a certain extent the debt reduction payments made. Other liquidity measures such as the quick ratio, interest cover and dividend cover ratios remain satisfactory. International Financial Reporting Standards The results reported here are presented under UK GAAP. Note 1 to the accounts sets out the accounting policies adopted which have remained consistent with prior years. The Company and the Group are adopting International Financial Reporting Standards ("IFRS") with effect from 1 March 2005. The Group has allocated specific accounting resources to assist with the transition to IFRS. This means that the interim results to 31 August 2005 will be issued in accordance with those standards. Christopher Wilks Finance Director Group profit and loss account For the year ended 28 February 2005 2005 2004 £000 £000 Note Turnover Continuing operations: ongoing 21,388 17,524 acquisitions - Geolink 10,325 - Group Turnover 1 31,713 17,524 Cost of sales (13,270) (7,002) Gross profit 18,443 10,522 Administrative expenses (13,390) (7,056) Operating profit Continuing operations: ongoing 2,292 3,466 acquisitions - Geolink 2,761 - Group operating profit 5,053 3,466 Operating profit before cost of flotation and amortisation of intangible assets 7,401 5,294 Cost of flotation - (597) Amortisation of intangible assets (2,348) (1,231) Operating profit 5,053 3,466 Dividends receivable 12 - Interest receivable - bank interest 194 92 Interest payable and similar charges (1,060) (2,635) Profit on ordinary activities before taxation 4,199 923 Tax on profit on ordinary activities (1,876) (774) Profit on ordinary activities after taxation 2,323 149 Dividends payable 2 (1,073) (708) Profit/(Loss) retained for the financial year 1,250 (559) Earnings per share - basic 3 4.7p 0.4p - diluted 3 4.5p 0.4p - adjusted basic 3 10.1p 4.0p - adjusted diluted 3 9.6p 3.9p Group statement of total recognised gains and losses For the year ended 28 February 2005 2005 2004 £000 £000 Profit for the financial year attributable to members of the parent company 2,323 149 Exchange difference on retranslation of net assets of subsidiary undertaking 47 (8) Total recognised gains and losses relating to the year 2,370 141 Group balance sheet As at 28 February 2005 2005 2004 £000 £000 Fixed assets Intangible assets 47,683 21,653 Tangible assets 4,895 1,843 Investments 137 154 52,715 23,650 Current assets Stock 8,014 4,197 Debtors 19,181 9,988 Cash at bank and in hand - 2,044 27,195 16,229 Creditors: amounts falling due within one year (13,554) (5,384) Net current assets 13,641 10,845 Total assets less current liabilities 66,356 34,495 Creditors: amounts falling due after more than one year (16,544) (10,250) Provisions for liabilities and charges (154) (95) 49,658 24,150 Capital and Reserves Called up share capital 5,501 3,934 Share premium account 41,019 22,476 Capital redemption reserve 326 326 Shares held by ESOP Trust (50) (50) Other reserves 4,101 - Profit and loss account (1,239) (2,536) Shareholders' funds - equity interests 49,658 24,150 Group statement of cash flows For the year ended 28 February 2005 2005 2004 Notes £000 £000 Net cash (outflow)/inflow from operating activities 4(a) (1,637) 819 Returns on investments and servicing of finance Dividends received 12 - Interest received 194 - Interest paid (1,343) (3,703) Issue costs on long-term loans (335) - (1,472) (3,703) Taxation Corporation tax paid (1,832) (156) (1,832) (156) Capital expenditure and financial investment Payments to acquire intangible fixed assets (217) (32) Payments to acquire tangible fixed assets (1,398) (1,165) Payments to acquire investments - - Receipts from sales of tangible fixed assets 466 526 (1,149) (671) Equity dividends paid (830) (236) (830) (236) Acquisitions and disposals Purchase of subsidiary undertaking (25,333) (1,271) Net overdraft acquired with subsidiary undertaking (1,181) (34) (26,514) (1,305) Net cash outflow before financing (33,434) (5,252) Financing Issue of ordinary share capital 20,989 25,362 Issue costs of new shares (1,109) - New long-term loans 13,000 - Repayment of long-term loans (2,900) (17,507) 29,980 7,855 (Decrease)/increase in cash (3,454) 2,603 Notes to the Preliminary Announcement For the year ended 28 February 2005 1. Turnover and segmental analysis Turnover Year ended Year ended 28 February 29 February 2005 2004 Turnover by destination £000 £000 USA 5,219 4,999 Canada 4,363 646 South America 2,187 528 Europe 4,646 4,257 Middle East 4,611 2,964 Russia 3,259 593 China 5,192 983 Rest of World 2,236 2,554 31,713 17,524 Turnover by division Wireline 21,388 17,524 Drilling 10,325 - 31,713 17,524 Turnover by origin UK 26,587 16,574 USA 610 295 Canada 4,245 655 Middle East 271 - 31,713 17,524 Group Operating Profit Operating profit by division Wireline 2,292 3,466 Drilling 2,761 - 5,053 3,466 Operating profit by origin £000 £000 UK 3,890 3,762 US 260 (376) Canada 877 119 Middle East 26 (39) 5,053 3,466 Net assets by division At At 28 February 2005 29 February 2004 £000 £000 Wireline 47,116 24,150 Drilling 2,542 - 49,658 24,150 Net assets by origin At At 28 February 2005 29 February 2004 £000 £000 UK 48,438 23,255 US 565 440 Canada 708 411 Middle East (53) 44 49,658 24,150 2. Dividends and other appropriations 2005 2004 £000 £000 Dividends: Equity dividends on ordinary shares: interim paid 0.65p 358 - final proposed 1.3p 715 - interim paid 0.6p - 236 final proposed 1.2p - 472 1,073 708 3. Earnings per share Basic and diluted earnings per share The basic and diluted earnings per share has been calculated by dividing the profit after taxation for the period by the weighted average number of shares in existence for the period. Shares held by the Employee Benefit Trust, including shares over which options have been granted to directors and staff have been excluded from the weighted average number of shares for the purposed of calculation of the Basic EPS. 2005 2004 '000 '000 Net earnings £2,323 £149 Basic weighted average number of shares 49,340 39,166 Basic Earnings per share 4.7p 0.4p Diluted weighted average number of shares 52,191 41,157 Diluted earnings/(loss) per share 4.5p 0.4p Adjusted earnings per share The adjusted earnings per share has been calculated by dividing the profit before amortisation of goodwill and bank arrangement fees (after taxation) for the period by the weighted average number of shares in existence for the period. 2005 2004 '000 '000 Profit after tax £2,323 £149 Add: amortisation of goodwill £2,348 £1,231 Add: amortisation of bank arrangement fees £345 £206 Adjusted net earnings £5,016 £1,586 Basic weighted average number of shares 49,340 39,166 Adjusted basic earnings per share 10.1p 4.0p Diluted weighted average number of shares 52,191 41,157 Adjusted diluted earnings per share 9.6p 3.9p 4. Notes to the statement of cash flows (a) Net cash (outflow)/inflow from operating activities Year ended Year ended 28 February 29 February 2005 2004 £000 £000 Operating profit 5,053 3,466 Depreciation of tangible fixed assets 606 225 Amortisation of intangible fixed assets 2,348 1,231 Performance Share Plan charge 217 - Decrease/(increase) in stocks (2,456) 210 (Increase) in operating debtors and prepayments (5,498) (4,536) (Decrease)/increase in operating creditors and accruals (1,907) 156 Increase in other provisions - 67 (1,637) 819 (b) Reconciliation of net debt Year ended 28 Year ended 29 February 2005 February 2004 £000 £000 (Decrease)/increase in cash in the period (3,454) 2,603 Cash outflow/(inflow) from decrease/(increase) in debt financing (10,100) 17,507 Change in net debt arising from cash flows (13,554) 20,110 Loans acquired with subsidiaries - (435) Amortisation of arrangement fees (345) (206) Translation difference 1,551 1,369 Movement in the period (12,348) 20,838 Net debt at beginning of period (9,563) (30,401) Net debt at end of period (21,911) (9,563) (c) Analysis of net debt At Other At 1 March Cash Exchange Non-cash 28 February 2004 Flow Differences Movements 2005 £000 £000 £000 £000 £000 Cash 2,044 (2,044) - - - Overdraft - (1,410) - - (1,410) 2,044 (3,454) - - (1,410) Term loans (11,607) (10,100) 1,551 (345) (20,501) Total (9,563) (13,554) 1,551 (345) (21,911) 5. Basis of preparation The Board approved the preliminary announcement on 25 May 2005. The financial information contained in this preliminary announcement does not comprise statutory accounts within the meaning of section 240 of the Companies Act. The results for the year to 28 February 2005 are derived from audited accounts for that period. The results for the year ended 29 February 2004 are derived from the audited accounts of Sondex plc which have been filed with the Registrar of Companies with an unqualified auditors' report. The statutory accounts for the year ended 28 February 2005 have been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 29 February 2004 except for the adoption of UITF 38 "Accounting for ESOP Trusts". This change in accounting policy had no impact on the results for the current or prior year. Shareholders' funds for the prior year were reduced by £50,000. The statutory accounts for the year ended 28 February 2005 will be delivered to the Registrar of Companies in due course together with an unqualified auditors' report. This information is provided by RNS The company news service from the London Stock Exchange

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