Interim Results
Sondex PLC
08 November 2006
Sondex plc
("Sondex" or the "Company")
Interim results for the six months ended 31 August 2006
Financial highlights
Revenues up 63 per cent to £30.6 million (2005 - £18.8 million)
R & D expenditure up 20 per cent to £3.1 million (2005 - £2.6 million) - 10 per
cent of revenue
Operating profit of £5.2 million (2005 - £0.9 million)
Profit after tax £2.2 million (2005 - Loss of £0.75 million)
Adjusted diluted * earnings per share increased to 7.1p (2005 - 1.2p)
Dividend increased by 8 per cent to 0.76p (2005 - 0.7p)
Operational highlights
Acquisition of the trade and assets of Bluestar Tools
Strong organic year on year growth (revenue up 38 per cent)
Organic year on year Wireline Division revenues up by 27 per cent
Organic year on year Drilling Division revenues up by 60 per cent
Order book at all time high
* pre-amortisation of acquired intangible assets, pro-forma tax charge.
Iain Paterson Chairman of Sondex commented:
"The Company has made significant changes to the business in the last 12 months,
carrying out the stated strategy of adding product lines to existing divisions
both by continued investment in internal development and through acquisitions.
The period under review shows continued organic growth and evidence that the
acquisitions are showing significant returns.
The continuing international marketing effort enabled us to take advantage of
the on going strong market conditions. The order book remains at an all time
high and consequently the Board is confident of a successful outcome for the
financial year."
8 November 2006
For further information, please contact:
Sondex Tel: 01252 862 200
Martin Perry (Chief Executive)
Chris Wilks (Finance Director)
Investec Tel: 020 7597 5970
James Grace / Patrick Robb
College Hill Tel: 020 7457 2020
Nick Elwes / Paddy Blewer
www.sondex.com
Interim statement
Introduction
The Company has made further significant advances in the six months to 31 August
2006. Increased market penetration, the introduction of new products and
ongoing marketing efforts enabled the Company to take advantage of the strong
industry conditions. At the end of August the Company's order book was at
record levels and order intake remains strong.
The Company's Wireline and Drilling Divisions, combined with building the
Eastern and Western Hemisphere sales organisations, have continued to provide
each other with opportunities for growth. Organic year on year revenue growth
was achieved by the Wireline Division of 27 per cent and 60 per cent in the
Drilling Division. Sales grew particularly strongly for Drilling products in
North America, reflecting the expansion opportunities that became increasingly
available as the Group increased its overall market presence.
The acquisition of Applied Electronic Systems Inc. ("AES") in December last year
has enhanced the Wireline product portfolio and sales have been ahead of
expectations at the end of the first half. Additionally and in line with the
Company's strategy of adding complementary products to existing Divisions, the
Company announced in July the acquisition of the trade and assets of Bluestar
Tools Inc. ("Bluestar") based in Calgary, Canada for a maximum consideration of
£11 million. Bluestar is now known as Sondex Drilling Tools and complements
the technology offering from the Drilling Division.
Since the period end, the Company has completed the acquisition of Ultima Labs
Inc. ("Ultima"), a technology company which brings additional drilling products
and broad engineering experience to the Group. Additionally a take-over bid was
launched for Innicor Subsurface Technologies Inc. ("Innicor"), a Canadian based
company focused on sub-surface completions technology. Innicor is listed on the
Toronto Stock Exchange (Symbol: IST CN). A separate announcement has been
released today regarding this bid, which is no longer recommended by the Sondex
Board.
The Company was awarded the Queen's Award for Innovation for 2006 for the
category of international trade.
Results
In the six months to 31 August 2006, revenue, including that generated from AES,
increased by 63 per cent to £30.6 million compared with £18.8 million in the
corresponding half year in 2005. Research and development expenditure in the
period was increased by 20 per cent to £3.1 million and sales, marketing,
customer support and administrative expenses were up by 22 per cent to £6.3
million, reflecting increased investment in global sales and marketing and group
infrastructure development at the Company's headquarters.
The Company achieved an operating profit before financing costs and amortisation
of £7.3 million for the period against a first half operating profit of £2.4
million in 2005. Profit after tax was £2.2 million compared with a loss after
taxation of £0.75 million in the first six months of 2005. First half diluted
earnings per share, adjusted for amortisation on acquired intangible assets and
a pro-forma tax charge, were increased to 7.1p compared with 1.2p reported in
the first half 2005.
Interim Dividend
The Board has declared an interim dividend of 0.76 pence per ordinary share (0.7
pence in the first half of the previous year), an 8% increase on the previous
year reflecting both the performance of the Company and its growth prospects.
The dividend will be payable on 15 December 2006 to those shareholders on the
register of members at the close of business on 10 November 2006.
Operations
The Company has continued to make strong progress in terms of sales,
geographical expansion, increased customer base and range of equipment.
The value of sales, including that generated from AES, grew by 63 per cent in
the first half of 2006 while order intake was in excess of 40 per cent greater
than the corresponding period in 2005. Exports continue to account for
approximately 90 per cent of Group sales. During the same period the Company's
Operating Profit increased from less than £1 million to in excess of £5 million.
New Regional Managers have been appointed in China, where the Drilling and
Wireline operations are now merged together, and in the Middle East where, from
the duty free zone of Jebel Ali, operations throughout the Middle East, India,
North Africa and the former Soviet Union are managed.
Order intake in the first half was especially strong in China, Central America
and Canada.
Wireline
The Wireline Division achieved organic year on year sales growth of 27 per cent
in the first half. This notable increase was attributable to the expansion of
business with existing customers, the addition of new customers - some coming
through collaborative marketing initiatives with the Drilling Division - and the
introduction of new technologies. With the inclusion of AES in the first half
results for the first time the sales growth was 57 per cent.
AES products are now being stocked and actively marketed through the Sondex
Middle Eastern operations where a number of sales have been made, and conversely
the Lafeyette, Louisiana head quarters of AES has made some significant sales of
traditional Sondex Wireline equipment. A General Manager of AES has been
recruited and is in place.
A development programme, initiated last year, to produce an entirely new product
line within the Wireline Division is progressing well. An agreement has been
made with a strategic partner in North America who has committed to engineering
sponsorship and early field support in order to commercialise these products.
Drilling
The Drilling Division made a significant contribution to Group revenues in the
period with organic year on year sales growth of 60 per cent in the first half
of the financial year compared with the same period last year. Of particular
note was the sales performance in Canada, where sales of Drilling products have
increased from less than £1 million for the period ending 31 August 2005 to
approximately £3.4 million for the period ending 31 August 2006.
A new technology has been developed since the formation of the Drilling
Division, enabling efficient transmission of data from below ground to the
surface during drilling, using Electro Magnetic methods. This has completed
field trials and is entering the commercial phase. This product has excellent
potential in North America, and in particular in regions producing coal bed
methane.
The addition of Bluestar tools and, subsequent to the period end, Ultima Labs,
has added a new generation of product lines to the Drilling Division. The
complementary products and technologies will enable the Drilling Division to
extend its market penetration into the, typically, land-based vertical drilling
markets as well to increase formation evaluation capability.
Research and development
Investment in research and development activity totalled £3.1 million in the
first half of 2006, continuing to represent about 10 per cent of the Company's
revenue.
Further product line enhancements and additional products have been released in
both the Wireline and Drilling Divisions. A production logging tool to assist
with three-phase flow analysis and an advanced Electro Magnetic telemetry system
for Measurement and Logging While Drilling are close to commercialisation.
Investment in product lines which will potentially open up new markets in both
Wireline and Drilling has also continued. Good progress is being made.
Acquisition of Bluestar Tools Inc.
The Company announced on 18 July the acquisition of the trade and assets of
Bluestar Tools, based in Calgary, Canada. Bluestar is a fast growing supplier
of specialist technology and equipment used in drilling oil and gas wells which
is used to reduce drilling time and improve productivity. Bluestar supplies a
range of Measurement and Logging While Drilling tools which are complementary to
the existing Drilling Division and includes tools to assist, when desired, in
keeping wells vertical and straight during drilling.
Sondex has paid £2.7 million for the trade and assets of the business, and a
further £3.6 million in shares with an additional £4.8 million payable provided
certain conditions are met. The funding for this acquisition has been through
an increased banking facility of £6.7 million.
Management and Staff
During the first half of 2006 the Company has continued to invest in the
business and has recruited the necessary skills across all functions as required
to ensure that the business continues to grow with the necessary infrastructure
to optimise and support that growth.
With the Bluestar team the Company currently has more than 450 employees. Staff
turn-over remains low and all staff deserve praise for their excellent efforts
in continuing to respond to increased demands and on-going change.
Financial commentary
The Company is presenting its interim results for the six months ended 31 August
2006 with comparative information for the six months to 31 August 2005. These
interim results are prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the EU.
The level of working capital employed by the Company has increased to support
the growth in revenues in the period. At the end of August 2006, inventories
stood at £16.0 million, an increase of 52 per cent on August 2005, and trade
receivables stood at £23.8 million, increased by 22 per cent compared to August
2005, but showing a fall since the year end reflecting actions taken to ensure
sustained success in credit control. The increase in inventories also reflects
the manufacturing activity to support the on-going business growth.
Trade payables have increased by 32 per cent, reflecting the increased trade
activity whilst maintaining the Company's policy of prompt payment of its
suppliers.
The US$ has strengthened considerably throughout the six months ended 31 August
2006. Our continued policy to achieve a natural hedge through denominating our
bank loan in US$ has helped to mitigate the impact of the strengthening US$, so
that the foreign exchange loss recognised in the income statement for the six
months ended 31 August 2006 is £0.2 million.
In accordance with past practice an adjusted earnings per share calculation has
been presented. The adjustments made have been to add back to earnings the
amortisation of acquired intangible assets and to replace the actual tax charge
with a pro-forma tax charge of 30 per cent in order to reduce the volatility
which can arise out of the deferred tax provisions of IFRS.
Acquisition of Ultima Labs Inc.
On 29 September 2006 the Company announced that it had acquired Ultima Labs
Inc., a private Houston based technology development company with a range of IP
and products related to Logging While Drilling ("LWD") and Wireline applications
for the oilfield service industry, for a consideration of up to US$9.225 million
(£4.855 million), including sales related earn-out.
Outlook
The Company continues to develop the business in order to take advantage of the
positive oil industry environment and the long term demand for increasing
hydrocarbon production from ageing reserves. Growth is being achieved through
continuing to broaden the range of products on offer and by increasing
international marketing reach - especially in areas such as China, Russia,
Northern and Central America - organically and also through selective
acquisitions.
The Drilling and Wireline Divisions are achieving success in their own spheres
of operations while helping each other to capture a bigger share of the market
for technical downhole equipment. The Company is improving and extending its
technology both through on-going research and development programmes and through
targeted acquisitions. Given these strengths, and the talent and commitment of
the staff, the Board is confident of further success in the current financial
year and beyond.
Iain Paterson
Chairman
Martin Perry
Chief Executive
8 November 2006
Consolidated income statement
For the six months ended 31 August 2006
Unaudited Unaudited Audited year
half year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
Note £'000 £'000 £'000
Revenue 2 30,592 18,783 51,449
Cost of sales (14,426) (9,111) (22,341)
16,166 9,672 29,108
Gross profit 52.8% 51.5% 56.6%
Other operating income - - 136
Research and development expenses 3 (2,612) (2,174) (4,249)
Sales, marketing & customer support expenses (3,202) (2,652) (5,952)
Administration expenses excluding amortisation of (3,059) (2,470) (6,551)
acquired intangible assets
Operating profit before amortisation of acquired 7,293 2,376 12,492
intangible assets
Amortisation of acquired intangible assets (2,117) (1,445) (2,803)
Operating Profit 5,176 931 9,689
Financial income 257 173 450
Financial costs (1,764) (1,584) (2,653)
Profit / (loss) before taxation 3,669 (480) 7,486
Taxation 4 (1,460) (271) (2,398)
Profit / (loss) attributable to shareholders 2,209 (751) 5,088
Dividends 5 (798) (715) (1,106)
Earnings per share 6
Basic 4.0 p (1.4) p 9.3 p
Diluted 3.8 p (1.3) p 9.0 p
Adjusted diluted 7.1 p 1.2 p 12.7 p
Consolidated balance sheet
At 31 August 2006
Unaudited Unaudited Audited year
half year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
£'000 £'000 £'000
Non current assets
Goodwill 43,108 38,100 42,757
Other intangible assets 25,611 16,807 17,590
Property plant & equipment 7,224 4,966 5,535
Financial assets - derivatives 85 45 111
Investments in associates 108 112 42
76,136 60,030 66,035
Current assets
Inventories 15,980 10,479 14,796
Trade & other receivables 23,813 19,548 24,759
Cash & cash equivalents 3,310 (4,456) 2,099
43,103 25,571 41,654
Current liabilities
Financial liabilities - borrowings (4,644) (3,950) (5,395)
Trade & other payables (9,073) (6,850) (9,798)
Current tax (2,379) (1,556) (3,599)
(16,096) (12,356) (18,792)
Non-current liabilities
Financial liabilities - borrowings (29,809) (16,020) (25,142)
Financial liabilities - derivatives - (249) (32)
Deferred tax liabilities (3,639) (4,643) (3,801)
Long Term Liabilities (6,485) - -
Provisions - (67) -
(39,933) (20,979) (28,975)
Net assets 63,210 52,266 59,922
Shareholders' equity
Share capital 5,668 5,504 5,585
Share premium 42,625 41,020 42,565
Other reserves 7,306 5,273 5,739
Retained earnings 7,611 469 6,033
Total equity 63,210 52,266 59,922
Consolidated statement of changes to equity
For the six months ended 31 August 2006
Unaudited Unaudited Audited
half year half year year ended
31 Aug 06 31 Aug 05 28 Feb 06
£'000 £'000 £'000
Total equity at start of period 59,922 53,214 53,214
Profit / (Loss) for the period attributable to 2,209 (751) 5,088
shareholders
Items of income and expense recognised directly in
equity
Net foreign exchange differences (635) 11 90
Deferred tax on items not recognised in the income 167 138 218
statement
(468) 149 308
Total income and expense for the year 1,741 (602) 5,396
Transactions with equity holders
Dividends paid (798) (715) (1,106)
Shares issued (net of expenses) 143 4 1,630
Shares to be issued (deferred consideration) 1,729 - -
Share based payments 473 365 788
Total equity at end of period 63,210 52,266 59,922
Consolidated cash flow statement
For the six months ended 31 August 2006
Unaudited half Unaudited Audited year
year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
£'000 £'000 £'000
Cash flows from operating activities
Operating profit before amortisation of acquired 7,293 2,376 12,492
intangible assets
Depreciation of property, plant and equipment 464 295 1,268
Amortisation of capitalised development expenditure 765 424 1,052
Amortisation of other intangible assets 40 - 154
Charge for share based payment 473 366 788
(Increase)/decrease in trade and other receivables 1,319 (656) (5,190)
(Increase)/decrease in inventories (1,799) (2,464) (5,868)
Increase/(decrease) in trade and other payables (1,251) 286 2,996
Cash generated from operations 7,304 627 7,692
Tax (paid)/received (2,903) 117 (1,258)
Net cash from operating activities 4,401 744 6,434
Cash flows from investing activities
Interest received 257 173 339
Acquisition of trade and assets / subsidiaries (2,724) - (6,094)
Purchase of property, plant and equipment (1,262) (418) (2,301)
Purchase of investments - (20) -
Development expenditure (1,299) (868) (1,471)
Proceeds from the sale of property, plant and equipment 231 - 790
Net cash used in investing activities (4,797) (1,133) (8,737)
Cash flows from financing activities
Interest paid (1,326) (940) (2,015)
Proceeds from the issue of share capital 143 4 -
Loan capital received 6,745 - 5,729
Repayment of loans - (2,287) (3,494)
Dividends paid (798) (715) (1,106))
Net cash used in financing activities 4,764 (3,938) (886)
Net increase/(decrease) in cash and cash equivalents 4,368 (4,327) (3,189)
Cash and cash equivalents at the beginning of the period (3,296) (1,410) (1,410)
Cash acquired with acquisition of subsidiaries - - 116
Effect of exchange rate changes (2,406) 1,281 1,187
Cash and cash equivalents at the end of the period (1,334) (4,456) (3,296)
NOTES TO THE INTERIM REPORT
Basis of preparation
The interim financial information for the six months ended 31 August 2006 has
been reviewed by the auditors in accordance with APB Bulletin 1999/4, but has
not been audited and it does not constitute statutory accounts within the
meaning of Section 240 of the Companies' Act 1985.
The financial information for the year ended 28 February 2006 is based on the
statutory accounts for the financial year ended 28 February 2006. Those
accounts, upon which the auditors issued an unqualified opinion, have been
delivered to the registrar of companies.
The interim financial information for the six months ended 31 August 2006,
including the comparative figures for the six months ended 31 August 2005 and
the year ended 28 February 2006, has been prepared under the historical cost
convention and on the basis of the accounting policies and exemptions presented
in the full annual accounts for the Group for the year ended 28 February 2006.
Segmental analysis
Primary reporting format - business segments
The following tables present revenue and result information regarding the
Group's business segments for the half years ended 31 August 2006 and 31 August
2005 and for the year ended 28 February 2006.
Wire- Dril- Elimin- Consol-
line ling ations idated
Unau- Unau- Aud- Unau- Unau- Aud- Unau- Unau- Aud- Unau- Unau- Aud-
dited dited ited dited dited ited dited dited ited dited dited ited
half half Year half half Year half half Year half half Year
Year Year end Year Year end Year Year end Year Year end
31 Aug 31 Aug 28 Feb 31 Aug 31 Aug 28 Feb 31 Aug 31 Aug 28 Feb 31 Aug 31 Aug 28 Feb
06 05 06 06 05 06 06 05 06 06 05 06
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
External 19,998 12,749 35,276 10,594 6,034 16,173 - - - 30,592 18,783 51,449
sales
Inter-segment - - - - - - - - - - - -
revenue
Segment 19,998 12,749 35,276 10,594 6,034 16,173 - - - 30,592 18,783 51,449
Revenue
Result
Segment 5,254 1,960 10,928 3,121 1,082 4,323 - - - 8,375 3,042 15,251
result before
amortisation
of acquired
intangible
assets
Amortisation (262) - (109) (1,855) (1,445) (2,694) - - - (2,117) (1,445) (2,803)
of acquired
intangible
assets
Segment 4,992 1,960 10,819 1,266 (363) 1,629 - - - 6,258 1,597 12,448
result
Unallocated (1,082) (666) (2,759)
expenses
Operating 5,176 931 9,689
profit
Financial 257 173 450
income
Financial (1,764) (1,584) (2,653)
costs
Profit before 3,669 (480) 7,486
taxation
Taxation (1,460) (271) (2,398)
Profit
attributable
to 2,209 (751) 5,088
shareholders
Secondary reporting format - geographic segments
Unaudited Unaudited Audited year
half year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
Sales by destination £'000 £'000 £'000
USA and South America 9,018 5,799 13,103
Canada 6,376 2,221 6,781
Europe 6,622 2,787 7,509
Middle East 1,099 2,441 7,334
China 4,840 989 3,718
Russia 759 1,801 4,840
Africa 612 1,832 3,024
Rest of World 1,266 913 5,140
Total 30,592 18,783 51,449
3. Research & development expenditure
The charge in respect of research & development is analysed below:
Unaudited Unaudited Audited year
half year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
£'000 £'000 £'000
Expenditure in the period (3,146) (2,618) (4,668)
Development costs capitalised 1,299 868 1,471
Amortisation of capitalised development costs (765) (424) (1,052)
Charge in income statement (2,612) (2,174) (4,249)
4. Taxation
Unaudited Unaudited Audited
half year half year year ended
31 Aug 06 31 Aug 05 28 Feb 06
£'000 £'000 £'000
Current tax expense
Current year - UK tax charge 520 89 2,337
Current year - overseas tax charge 1,099 320 1,738
1,619 409 4,075
Adjustments in respect of prior years - UK - - 5
Adjustments in respect of prior years - Overseas - - (207)
- - (202)
Deferred tax (credit) /expense
Origination and reversal of temporary differences (159) (138) (1,534)
Adjustments in respect of prior year - - 59
(159) (138) (1,475)
Total taxation expense recognised in the income statement 1,460 271 2,398
5. Dividends
Unaudited Unaudited Audited year
half year half year ended
31 Aug 06 31 Aug 05 28 Feb 06
Dividend Dividend Dividend
per share per share per share
£'000 Pence £'000 Pence £'000 Pence
Equity dividends on ordinary
shares:
February 2005 final dividend - - 715 1.3 715 1.3
February 2006 interim dividend - - - - 391 0.7
February 2006 final dividend 798 1.4 - - - -
Total recognised 798 - 715 - 1,106 -
The directors are proposing an
interim dividend of 0.76 pence per
share, to be paid on 15 December
2006
This has not been accrued in the
balance sheet at 31 August 2006.
6. Earnings per share
Unaudited half Unaudited Audited
year half year year ended
31 Aug 06 31 Aug 05 28 Feb 06
Basic earnings per share
Basic undiluted (pence) 4.0 (1.4) 9.3
Basic diluted (pence) 3.8 (1.3) 9.0
£'000 £'000 £'000
Profit attributable to shareholders 2,209 (751) 5,088
Weighted average number of shares (thousands)
Undiluted 55,423 54,539 54,578
Dilutive share options 3,368 2,798 3,012
Market price adjustment to dilutive share options (1,396) (1,293) (1,091)
Diluted 57,395 56,044 56,499
Adjusted earnings per share
Adjusted diluted (pence) 7.1 1.2 12.7
Adjusted basic (pence) 7.3 1.2 13.2
£'000 £'000 £'000
Adjusted earnings per share is presented on the
following basis:
Profit attributable to shareholders 2,209 (751) 5,088
Add: amortisation of acquired intangible assets 2,117 1,445 2,803
Less: adjustment to taxation (276) (19) (689)
Adjusted earnings 4,050 675 7,202
Diluted weighted average number of shares 57,395 56,044 56,499
The adjustment to taxation brings the charge to taxation to 30 per cent of
profit before amortisation and tax.
Post Balance Sheet Events
Acquisition of Innicor Subsurface Technologies Inc ("Innicor")
On 12 October 2006 the Company announced that it had made a formal offer to
acquire all of the common shares of Innicor for C$3.75 cash for each common
share.
Innicor designs, manufactures and sells subsurface equipment utilised in the
completions and work-over of oil and gas wells.
The proposed acquisition is subject to the approval of shareholders at an
Extraordinary General Meeting to be held on 16 November 2006. The board of
directors of Sondex has determined to amend its recommendation and now strongly
advises that shareholders vote against all the resolutions to be proposed at the
extraordinary general meeting on 16 November 2006.
In the event that the acquisition is not approved at the Extraordinary General
Meeting the associated costs incurred would be about £1.5 million.
In order to finance the proposed acquisition, if approved, the Company proposes
to raise approximately £40 million (net of expenses of the Innicor offer and the
New Issue) by the issue of 15,679,803 New Ordinary Shares at 280 pence per
share.
Acquisition of Ultima Labs Inc ("Ultima")
On 29 September 2006 the Company announced the acquisition of Ultima Labs Inc ("
Ultima Labs"), a private Houston based technology development company with a
range of IP and products related to Logging While Drilling ("LWD") and Wireline
applications for the oilfield service industry, for a consideration of up to
US$9.225 million (£4.855 million), including sales related earn-out.
INDEPENDENT REVIEW REPORT TO SONDEX PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 August 2006 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow Statement,
Consolidated Statement of Changes in Equity, and the related notes 1 to 7. We
have read the other information contained in the interim report and considered
whether it contains any apparent misstatements or material inconsistencies with
the financial information.
This report is made solely to the company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 August 2006.
Ernst & Young LLP
Reading
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