Interim Results

Velosi Limited 24 September 2007 Velosi Limited ('Velosi' or 'the Group') Interim Results For the six month period ended 30 June 2007 HIGHLIGHTS Velosi, a provider of asset integrity and HSE services to a number of major national and multinational oil and gas companies, is pleased to announce its interim results for the six months ended 30 June 2007. • Turnover increased 68% to US$48.4 million (2006: US$28.8 million) • Profit before tax up 53% to US$5.5 million (2006: US$3.6 million) • Basic earnings per share of 9.3 cents • Completion of two acquisitions, expanded the service offering and geographic reach of the Group • Growth in turnover experienced across all geographic regions • Significant contract wins since the year end John Hogan, Chairman, commented: 'I am pleased to report another excellent set of results by the Group, with turnover and profit before tax increasing 68% and 53% respectively. Operations in Africa and Australasia primarily drove this growth. During the period under review we won several significant contracts as a result of the continued expansion of our service offering and increased the Group's geographical spread. These contracts have helped to build and develop the Group's relationships with a number of key clients. Continuing to implement the Group's expansion strategy, and with a number of new contracts having been signed since the period end, the outlook for the remainder of the year and going forward looks positive.' For further information, please contact: Velosi Dr Nabil Abdul Jalil 020 7930 0777 Joe Vincent Strand Partners James Harris 020 7409 3494 Warren Pearce Charles Stanley Securities Mark Taylor 020 7149 6000 Freddy Crossley Cardew Group Tim Robertson 020 7930 0777 / 07900 927 650 Emma Consett 020 7930 0777 / 07971 468 308 CHAIRMAN'S STATEMENT It has now been a full year since our listing on AIM in August 2006 and I am delighted to announce another excellent set of interim results for the Group for the six months ended 30 June 2007. During the period under review, investment in long-term global oil and gas infrastructure remained at the high levels experienced during 2006. Additionally, the continued strength of the oil price and the high profile equipment and infrastructure failures during 2006 have continued to drive demand for the Group's services. Consequently, the Group has experienced another strong period of growth in all its key markets. Financial Review Overview The Group's financial statements for the period ended 30 June 2007 have been prepared under International Financial Reporting Standards (IFRS). These results demonstrate another strong performance by the Group. Turnover increased 68% to US$48.4 million (2006: US$28.8 million). Profit from ordinary activities before tax for the period was up 53% from US$3.6 million in 2006 to US$5.5 million, and we recorded an increase of 51% in profit after tax. This growth in turnover and profit was principally driven by operations in Africa, and Australasia where we had previously invested in marketing and operational infrastructure. The effective tax rate for the Group for the half year was 16% (2006: 15%) and the tax charge was US$0.9 million (2006: US$0.6 million). The effective tax rate for the Group is directly correlated with the contributions from the different regions and their varying tax rates. Profits attributable to minority interests for the period were US$1.0m (2006: US$0.3m). This increase was attributable to the increased profit from Velosi Certification W.L.L, Qatar and Velosi Superintendend Nigeria Ltd as well as the profit from Steel Test (Pty) Ltd ('Steel Test'), a new subsidiary. For the six months ended 30 June 2007, basic earnings per share after minority interests were 9.3 cents and fully diluted earnings per share after minority interests were 8.7 cents. At 30 June 2007, cash and cash equivalents for the Group were US$8.2 million (2006: US$1.2 million) and we had long-term bank borrowings of US$0.8 million (2006: Nil), which included a term loan to finance an office purchased by Velosi Europe in Reading, UK. In March 2007, we completed the acquisitions of Steel Test and Plant Design Engineers Sdn Bhd ('PDE'), which were announced to shareholders on 15 December 2006. Cash outflow for the Group from investing activities, for the six months ended 30 June 2007, was US$2.7 million (2006: Cash inflow US$0.4 million). Additionally on 3 April 2007, a total of 117,683 and 74,752 new ordinary shares were issued in lieu of part payment for the acquisition of 51% of PDE and 51% of Steel Test respectively. Dividend The Board does not propose to pay an interim dividend, however, the Board does intend, subject to the availability of distributable reserves, to recommend a final dividend to shareholders in respect of the financial year ending 31 December 2007. The Board intends to continue paying dividends in the future while maintaining a suitable level of dividend cover and retaining the majority of earnings to fund the development of the Group's business. Operational Review Velosi continues to pursue its strategy of entering new geographic markets, growing market share in existing markets and expanding through joint ventures and acquisitions. The Group now operates through 4 principal offices in the USA, the UK, Malaysia and the UAE, and has operational or representative offices in a further 36 countries worldwide. Over the course of the six months under review our new asset integrity management service offering was established when Velosi Abu Dhabi secured a maiden US$1m contract with Takreer Ruwais refinery in Abu Dhabi. We continue to develop our asset integrity management services globally and our recent contract win with BP Indonesia is evidence of this. In March 2007, we completed the acquisitions of PDE and Steel Test which have both added to our range of services and provided the Group with the opportunity to enter new markets. It is anticipated that the financial benefits of these investments will begin to be felt during the second half of the current financial year. Growth was experienced across all geographic regions during the period under review. The most notable growth was in the Australasia region, which saw turnover increase 212%. Turnover in Africa grew 82%, the Middle East 57%, the US region 46% and Europe 26%. In terms of turnover Africa remained the largest contributor accounting for 37.4% of Group revenue. The Middle East contributed 29.5%, the US region 16.3%, Australasia 9.4% and Europe 7.4%. Africa Operations in Africa, continue to grow rapidly, primarily driven by additional demand for our services from Mobil Producing Nigeria as well as from contributions from a new contract secured with Shell Petroleum Development Company of Nigeria Ltd ('Shell Nigeria'). This is a six month interim contract, awarded in March 2007, for quality control and inspection services. Following the award of a contract by Gulf of Suez Petroleum, a division of BP, in April 2007 we are now acting as a full service supplier in Egypt, for the first time. In late 2006, Velosi Angola Lda was incorporated and during the period under review Velosi Ghana Ltd was incorporated in order to further expand operations in West Africa. In both countries marketing has commenced and bids have been submitted for potential contracts. Middle East The Group continues to diversify its range of services in the Middle East, which in turn has helped to expand the Group's client base within the region. This growth was due to contributions from contracts won during 2006 with Kuwait Gulf Oil and RasGas for a range of project verification services and construction site inspections respectively. US The increased turnover in the US region was largely a result of additional demand from Chevron for our project verification services. Since the period end, an ExxonMobil global services contract for manpower supply and inspection services commenced, and so too a global master services agreement with Conoco Philips to supply inspection / expediting services and manpower supply to its operations globally. UK and Europe The increase in turnover in the UK and Europe region was mainly driven by contributions from an exclusive contract with Shell EP Europe, and an increase in demand for our Certification Services. The Shell EP contract, which was awarded in January 2007, covers work stemming from all four Shell operations in Europe for source inspection and expediting of procured products. This contract is expected to have a significant positive impact on revenue growth in this region over the next three years. CONFAPI, the trade association for small and medium-sized businesses in the industrial sector in Italy, signed an agreement with Velosi International Italy in March 2007. This agreement presents a unique opportunity for rapid in-depth penetration of the Italian credit services market and is serving to diversify Velosi's service offering in Italy. Since the period end, Thames Water awarded Velosi a European contract covering the inspection of lifting equipment and pressure vessels, and Technimont, an international engineering contractor for process and industrial plants, entered into a master agreement with Velosi International Italy to provide inspection and expediting services. Australasia The significant increase in turnover in the Australasia region from 2006 to 2007 for the six months ended 30 June was largely due to previous investment by the Group in marketing and operational infrastructure. Notable revenue growth was achieved particularly in Singapore and Indonesia. Additionally, for the six months ended 30 June 2007, the acquisition of QAM Australia has had a c onsiderable positive impact on revenue. Since the period end, BP Indonesia awarded Velosi a four year technical services contract for integrity management and documentation for onshore and offshore assets. This contract follows two earlier awards by BP Indonesia for inspection services and laser scanning for as-built blueprints, both of which are currently in progress. The award of the contract followed a competitive tender process and is worth US$4.7million. Russia and Other During the period under review, operations were established in Russia and we began bidding for contracts in Kazakhstan. Employees A distinct problem facing all companies operating in the oil and gas industry is the shortage of high-calibre individuals. The Group invests heavily in its people in order to ensure it attracts and retains such individuals, and in order to provide necessary top-level training. The Group continues to focus on recruiting local experts who have extensive regional and technical knowledge. On behalf of the Board, I would like to take this opportunity to thank all of our employees worldwide for their dedication and continued hard work. The Board of Velosi is also extremely sad to report that Richard Ogunmakin, General Manager of Velosi Nigeria was fatally wounded on Monday 10 September 2007. Richard was a highly talented, successful and generous individual who made many friends throughout the Company. He will be sincerely missed by all his colleagues and the Board together with all the employees of the Company extend their deepest sympathies to Richard's family. Our Regional Marketing Manager, Mr Rankin and Regional Finance Controller Mr Pillay have assumed responsibility for Velosi Nigeria. The existing contract negotiations are continuing as planned and we are hopeful of appointing a new General Manager shortly. Outlook Market conditions continue to remain positive for the Group. The continued high investment in oil and gas infrastructure shows no signs of slowing. Today, there is heightened awareness amongst the major oil and gas multinationals of the necessity and importance of investment in safety and maintenance measures in order to reduce the risk of accidents and leakages, and resulting adverse publicity. By adopting the strategy of expanding our service offering and increasing our global presence, the Group's reputation and ability to deliver globally continues to develop. During the period under review new offices were established in Angola, Ghana, Russia and Kazakhstan. With this continued office expansion, our position to take advantage of the large number of new oil and gas projects requiring quality assurance and quality control services across the globe becomes ever more favourable. The Group now operates through 4 principal offices in the USA, the UK, Malaysia and the UAE, and has operational or representative offices in a further 36 countries worldwide. The contribution from the acquisition of QAM Australia has been significant and we anticipate further contributions to come through from our two latest acquisitions in Malaysia and South Africa. The Group will continue to grow organically and through acquisition, looking at opportunities as they present themselves. Since the beginning of the current financial year the Group secured a number of contracts and has significantly expanded its relationships with key multinationals. The award of two further contracts by Shell in Europe and Nigeria, and by BP Indonesia, clearly demonstrates the confidence of our clients in our ability to deliver cost effective solutions on a global basis. We continue to focus on building and developing client relationships, notably the key multinationals. The second half of the year has begun positively with no apparent indication of a slow down in oil and gas infrastructure investment. Consequently, the Board is confident the Group will continue to grow and generate excellent returns for shareholders. This confidence is underpinned by the high number of contract wins during the period, our increased global presence and the success of our acquisition strategy and our belief that there are further similar opportunities available. John Hogan Chairman 24 September 2007 The notes to the financial statements form an integral part of these financial statements. VELOSI LIMITED Consolidated Income Statement For the six months ended 30 June 2007 Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Revenue 48,427 28,794 70,209 Cost of sales (36,295) (22,081) (54,227) ________ ________ ________ Gross profit 12,132 6,713 15,982 Other operating income 257 180 591 Administrative expenses (7,234) (3,442) (8,954) ________ ________ ________ Operating profit 5,155 3,451 7,619 Finance costs (26) (120) (141) Share of profit of associated companies 333 262 498 ________ ________ ________ Profit on ordinary activities before tax 5,462 3,593 7,976 Income tax expense (888) (554) (1,106) ________ ________ ________ Profit on ordinary activities after tax 4,574 3,039 6,870 Minority interests (1,014) (304) (900) ________ ________ ________ Profit from continuing operations and attributable to equity holders 3,560 2,735 5,970 ________ ________ ________ Number Number Number Weighted average number of shares for the purpose of calculating basic earnings per share 38,235,053 1,631,580 20,031,708 Weighted average number of shares for the purpose of calculating diluted earnings per share 40,779,510 1,631,580 22,145,165 Earnings per ordinary share Basic earnings per share 9.3 cents 167.6 cents 29.8 cents Diluted earnings per share 8.7 cents 167.6 cents 27.0 cents VELOSI LIMITED Consolidated Balance Sheet As at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Assets Non-Current Assets Goodwill on acquisition 3,729 960 2,114 Property, plant and equipment 5,284 1,816 3,187 Investment in associated companies 1,033 881 732 Deferred tax assets 76 - 76 ________ ________ ________ 10,122 3,657 6,109 ________ ________ ________ Current Assets Cash and cash equivalents 8,200 2,040 12,170 Inventories 2,755 2,604 999 Trade and other receivables 33,523 17,241 26,084 Tax recoverable 50 - 14 ________ ________ ________ 44,528 21,885 39,267 ________ ________ _______ ________ ________ _______ Total Assets 54,650 25,542 45,376 ________ ________ ________ Equity and Liabilities Current Liabilities Trade and other payables 18,172 16,935 14,840 Bank and other borrowings 148 828 343 Current tax liabilities 1,673 - 1,106 ________ ________ ________ 19,993 17,763 16,289 ________ ________ _______ Non-Current Liabilities Deferred tax liabilities 11 - 93 Bank and other borrowings 804 - 81 Other non-current liabilities 187 2,703 149 ________ ________ ________ 1,002 2,703 323 ________ ________ _______ ________ ________ ________ Total Liabilities 20,995 20,466 16,612 ________ ________ ________ VELOSI LIMITED Consolidated Balance Sheet As at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Capital and Reserves Share capital 767 100 763 Share premium 18,499 - 18,128 Share option 212 - 89 Share warrants 47 - 47 Reserves 412 290 412 Retained profit 9,995 3,611 6,818 ________ ________ ________ 29,932 4,001 26,257 Minority Interests 3,723 1,075 2,507 ________ ________ ________ Total equity attributable to equity holders 33,655 5,076 28,764 ________ ________ ________ ________ ________ ________ Total equity and liabilities 54,650 25,542 45,376 ________ ________ ________ VELOSI LIMITED Consolidated Cash Flow Statement For the six months ended 30 June 2007 Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Net cash (used in) / from operating activities (1,058) (540) 574 Cash flows from investing activities Acquisition of property, plant and equipment (1,835) (508) (817) Receipts from sale of property, plant and equipment 13 - 42 Acquisition of new subsidiary companies, net of cash (943) (13) (1,755) Acquisition of new associated companies, net of cash - - (10) Incorporation of new subsidiary companies (1) - (10) Proceeds from proposed issue of shares to minority shareholders - 840 - (Advance to) / Repayment from associated company (93) 30 125 Dividend income from associated company - - 194 Interest received 116 1 119 ________ ________ ________ Net cash (used in) / from investing activities (2,743) 350 (2,112) ________ ________ ________ VELOSI LIMITED Consolidated Cash Flow Statement For the six months ended 30 June 2007 Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Cash flows from financing activities Proceeds from issue of shares 499 - 20,102 Share issue costs - - (1,164) Proceeds from issue of share options - - 89 Net borrowings 297 - (70) Repayment to related parties (643) (180) (6,762) Advance from / (Repayment to) directors 313 348 (98) Dividend paid to shareholders (383) - - ________ ________ ________ Net cash from financing activities 83 168 12,097 ________ ________ ________ Net (decrease) / increase in cash and cash equivalents (3,718) (22) 10,559 Foreign exchange translation differences - - 125 Cash and cash equivalents at the beginning of the period / year 11,918 1,234 1,234 ________ ________ ________ Cash and cash equivalents at the end of the period / year 8,200 1,212 11,918 ________ ________ ________ Cash and cash equivalents comprise: Current assets - Cash and cash equivalents 8,200 2,040 12,170 Current liabilities - Bank overdraft - (828) (252) ________ ________ ________ 8,200 1,212 11,918 ________ ________ ________ VELOSI LIMITED Consolidated Statement of Changes in Equity For the six months ended 30 June 2007 30 June 30 June 31 December 2007 2006 2006 USD'000 USD'000 USD'000 (unaudited) (unaudited) (audited) Opening shareholders' equity 26,257 1,249 1,249 Exchange reserve arising on translation of financial statements of overseas subsidiaries - (83) 11 Share allotment 4 100 18,891 Profit for the period 4,574 3,039 6,870 Issue of share options 123 - 89 Issue of warrants - - 47 Share premium 371 - - Minority interest (1,014) (304) (900) Dividend paid (383) - - ________ ________ ________ Closing shareholders' equity 29,932 4,001 26,257 ________ ________ ________ VELOSI LIMITED INTERIM ANNOUNCEMENT - NOTES 1. Business of Velosi Limited Velosi Limited was incorporated in Jersey on 28 March 2006. The principal activity of the Group is the provision of asset integrity and HSE services to the oil and gas industry. 2. Basis of preparation The Group's interim financial statements comprise of the consolidated balance sheet as of 30 June 2007 and related income statement, consolidated cash flow statement and related notes for the six months then ended of Velosi Limited. These have been prepared under the historical cost convention, an with applicable International Financial Reporting Standards (IFRS). The accounting policies are consistent with those adopted in the Company's annual financial statements for the period ended 31 December 2006. The interim statements are unaudited and do not constitute statutory accounts. The results for the year ended 31 December 2006 do not constitute statutory accounts and have been extracted from the group's published accounts for that year, which contain an unqualified Audit Report. The Group has chosen not to adopt IAS 34, 'Interim financial statements', in preparing its 2007 interim statements. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest US$ '000 except where otherwise indicated. The Interim Report for the six months ended 30 June 2007 was approved by the Directors on 21 September 2007. 3. Increase in paid up capital On 3 April 2007, 117,683 and 74,752 new ordinary shares were issued in lieu of part payment for the acquisition of 51 per cent of Plant Design Engineers Sdn Bhd and 51 per cent of Steel Test (Pty) Ltd respectively. As at 27 June 2007, a total of 431,000 share options were issued under an employee share option scheme. 4. Earnings per share The basic and diluted earnings per share is calculated by reference to the earnings attributable to ordinary shareholders divided by the number of shares in issue as at 30 June 2007, as follows: Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 USD'000 USD'000 USD'000 Profit after taxation and minority interest 3,560 2,735 5,970 --------- --------- ------------ Number Number Number Weighted average number of shares for the purpose of calculating basic earnings per share 38,235,053 1,631,580 20,031,708 --------- --------- ------------ Effect of dilutive potential ordinary shares: Share Options 2,067,708 - 1,636,708 --------- --------- ------------ Warrants 476,749 - 476,749 --------- --------- ------------ Weighted average number of shares for the purpose of calculating diluted earnings per share 40,779,510 1,631,580 22,145,165 --------- --------- ------------ Earnings per ordinary share Basic earnings per share 9.3 cents 167.6 cents 29.8 cents --------- --------- ------------ Diluted earnings per share 8.7 cents 167.6 cents 27.0 cents --------- --------- ------------ 5. Dividends A final dividend of 1 cent per share in respect of the financial year ended 31 December 2006 was paid on 16 July 2007. The Directors do not propose to pay an interim dividend. The Directors do intend, subject to the availability of distributable reserves, to recommend a final dividend to shareholders in respect of the financial year ending 31 December 2007. 6. Segmental Reporting A geographical analysis of the turnover and profit before tax in the period is given below: Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 USD'000 USD'000 USD'000 Turnover Europe 3,596 2,850 5,841 Middle East 14,283 9,124 21,609 United States of America 7,874 5,396 13,772 Africa 18,130 9,967 25,467 Asia 3,904 1,457 3,002 Others 640 - 518 ------------ ------------ ------------ 48,427 28,794 70,209 ============ ============ ============ Gross Profit Europe 1,041 1,181 1,913 Middle East 3,799 2,398 5,890 United States of America 1,942 1,303 3,244 Africa 3,107 1,121 3,283 Asia 1,994 710 1,452 Others 244 - 200 ------------ ------------ ------------ 12,127 6,713 15,982 ============ ============ ============ These interim results will be available on the Company's website www.velosi.com. Further copies can be obtained from the registered office at Walker House, PO Box 72, 28-34 Hill Street, St Helier, Jersey JE4 8PN Channel Islands. This information is provided by RNS The company news service from the London Stock Exchange

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