TIDMSOGP
RNS Number : 3008S
Sovereign Oilfield Group plc
15 May 2009
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| FOR IMMEDIATE RELEASE | 15 MAY 2009 |
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| Ref: 0906 | |
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SOVEREIGN OILFIELD GROUP Plc
("Sovereign" or "the Company" or "the Group")
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2008
Sovereign Oilfield Group Plc (AIM: SOGP), the Aberdeen-based diversified
oilfield services group, is today pleased to announce its preliminary results
for the year ended 31 March 2008.
Financial Highlights:
+------------------------------------+------------------------------------+
| * Turnover up 83% at GBP94.6m | (2007 - GBP51.5m) |
+------------------------------------+------------------------------------+
| * EBITDA up 67% at GBP5.0m | (2007 - GBP3.0m) |
+------------------------------------+------------------------------------+
| * Operating Profit GBP2.8m | (2007 - GBP2.8m) |
+------------------------------------+------------------------------------+
| * Loss before tax GBP1.9m | (2007 - profit GBP1.8m) |
+------------------------------------+------------------------------------+
| * Adjusted EPS loss per share | (2007 - EPS 8.64p ) |
| 14.48p | |
+------------------------------------+------------------------------------+
All of the above numbers are pre-exceptional items.
Operational Highlights
Graham Burgess, Chief Executive Officer of Sovereign, said:
"2008 was another year of growth as the Company integrated acquisitions and
turnover grew 83% to GBP94.6m during the year with a small operating profit
before finance costs and exceptional items.
Fabrication again delivered on plan while more than doubling turnover through
acquisition and organic growth. Drilling profitability was dragged down by DDS
but the Drilling Division otherwise made progress.
Debt finance costs increased during the year and loan terms hardened, so further
acquisition plans were dropped and the Board moved to refinance the debt.
This long process was ultimately successful in early 2009 with loan terms that
significantly lower cost and improve cash flow such that the Board remain
confident about the Group's prospects".
Further information:
Sovereign Oilfield Group Plc Tel: 01224 261900
Graham Burgess, Chief Executive Officer
Julie Cowie, Finance Director
Buchanan Communications Tel: 0207 466 5000
Tim Thompson/Catherine Breen
Charles Stanley Securities - Nominated Advisor Tel: 0207 149 6000
Mark Taylor/Freddy Crossley
About Sovereign Oilfield Group Plc
Sovereign, which joined AIM in September 2005, was formed in October 2003, by Dr
Peter Felter and Mr Graham Burgess, for the specific purpose of developing an
oilfield service company focused on:
* The provision of engineering, fabrication and drilling services and personnel to
oil and gas companies and contractors in the UK and internationally
* The promotion of new 'high tech' IP and technologies for enhancing oil and gas
drilling and production.
Executive Chairman's Statement
2008 was another year of growth for Sovereign with turnover growing to GBP94.6m
(2007: GBP51.5m) as a result of the full year contributions from our
acquisitions. Profit performance for the period, after taking into account the
corporate overhead and impairment charges, was disappointing with a loss after
taxation of GBP7.4m in 2008 (2007: profit after taxation of GBP1.0m).
The year started on a buoyant note. The Fabrication Division performed well
showing sales growth during 2007 with some slowdown in early 2008. All companies
made profits with the exception of our start up venture, OIL Middle East LLC in
Abu Dhabi, which incurred a loss of GBP0.7m.
Our Drilling Division, although again showing sales growth, had a more difficult
time with our most challenging business DDS, failing to fulfil its potential.
The continued under-performance of DDS led to the Board taking the decision to
start marketing DDS for sale in October 2007. The business was finally sold in
March 2009.
In line with our previously stated objectives the Company had arranged to make
three further acquisitions, while continuing to integrate the earlier
acquisitions. This would have formed part of a process to create three
substantial divisions in the Group. Due to funding difficulties and the
concurrent global economic situation, the Company pulled out of these
transactions.
Since the significant acquisition activity in the first four months of 2007 we
have focussed on organic growth, increased integration and efficiency, and cost
cutting. In addition, the Group has pursued refinancing in the very challenging
business climate we have experienced since October 2007.
Following a strategic review we plan to dispose of certain non-core assets in
the months to come.
In the light of our overall performance, the Board are not recommending the
payment of an ordinary dividend.
As a result of impairments and write-offs, our Balance Sheet net assets have
been reduced to a level which is less than half our share capital. Under the
Companies Act, we are required to call a shareholders' meeting advising members
of this position and to consider what course of action needs to be taken.
Accordingly, we will send out notice of a General Meeting to be held in June
2009 in due course.
Since our shares were suspended from AIM in September 2008, the Board has been
working tirelessly in a very difficult market to secure longer term working
capital facilities to remove uncertainties surrounding the Group's ability to
meet their day to day funding requirements going forward.I am please to report
that, with co-operation from our existing Lenders, we have now secured the
necessary facilities and are satisfied it is appropriate for our financial
statements to be prepared on a going concern basis. Both our 2008 Annual
Accounts and the 2008 Interim Report have today been published and as a
result the Board expects the restoration of the Company's Ordinary Shares to
trading on AIM shortly, pending posting of the 2008 annual report to
Shareholders.
We appreciate the support and loyalty we have received from shareholders during
this difficult period and hope for your continued loyalty. We recognise this
has also been challenging for our suppliers and customers and we appreciate
their continuity of business.
Your Directors have confidence that steps taken in 2008 and early 2009 will
establish a stronger platform for the Group's future growth and profitability.
Despite the extra pressures on our Executive Directors and staff at all levels
over the last few months, they have remained highly focussed and professional
and deserve special mention and thanks.
I would also like to thank Dr Graham Dixon, who stepped down from the Board at
the last AGM, for his reflective incisive contributions to the Board and the
Company since listing, and wish him well for the future.
Review of Operations
Throughout 2008, the oil and gas industry experienced sustained growth driven by
strong oil and gas prices and continued high demand. As a result the services
provided by our companies have generally experienced strong growth and high
levels of activity.
Our clients are oil and gas and engineering companies who develop new oil and
gas fields including many previously uneconomic smaller oil and gas fields, as
well as rehabilitating older fields and adjoining facilities. These activities
require the fabrication and manufacturing skills and services, drilling
equipment and personnel that Sovereign supplies to the oil and gas industry.
It is expected that field development, particularly those adjacent to existing
facilities and production maintenance and enhancement activities, will continue
regardless of the recent decline in the oil price. Experience of past slowdowns
suggests that oil and gas companies move to maintain or enhance production, at
the expense of exploration. Indeed the large oil and gas companies have almost
all recently confirmed increased annual budgets for 2009 and therefore we expect
the same pattern to emerge this time as well.
It is also apparent that the key costs pushing up the marginal cost of field
development, particularly offshore, and thus limiting the development of even
more new fields, were the cost of drilling rigs, particularly offshore rigs, and
the cost of offshore subsea support vessels. Both are now undergoing
significant price corrections which will reduce the marginal development cost
from the recent circa $55 per barrel to circa $20 - $25 per barrel, making
development sensible at a $50 per barrel oil price, and therefore we expect our
market to improve as 2009 progresses.
To put the Group in a good position to continue to take advantage of these
opportunities, Sovereign, in 2007, extended its range of fabrication services
through the acquisition of Forfab Limited, a speciality tank, vessel and
pressure vessel manufacturer, Labtech Services Limited ("Labtech") and Vertec
Engineering Limited ("Vertec"), including Vertec's subsidiary Cooltime
Engineering Services Limited ("Cooltime"), cabin and HVAC facility
manufacturers. The Group also opened a fabrication facility in Abu Dhabi
through subsidiary OIL Engineering Middle East LLC ("OIL ME"), and continued
developing its dimensional survey business Sovereign Dimensional Survey Limited
("SDS"). These acquisitions and developments strengthened and broadened our
capabilities substantially.
Sovereign has also broadened its drilling services with the acquisition of RDT
Precision Engineers Limited ("RDT") in February 2007. RDT is a business
based in Glasgow, Scotland, which manufactures precision components for subsea
well heads and production 'trees' using computer controlled lathes and multi
axis milling machines.
Each of the four acquired companies brought with it established relationships
that have introduced new clients to Sovereign and our subsidiary companies,
although the customer bases of our Group companies continue to have only limited
overlap.
At May 2009, the Group has operating and sales offices in the UK, France, Dubai,
Abu Dhabi and Russia, giving Sovereign significant geographical reach.
Our subsidiary companies are organised into two Divisions - Sovereign
Fabrication Services Limited (the Fabrication Division) and Sovereign Oilfield
Services Limited (the Drilling Division). At May 2009 these comprised:
* Sovereign Fabrication Services Limited includes Caledonian Petroleum Services
Limited ("CPS"), OIL Engineering Limited ("OIL"), Forfab Limited ("Forfab"),
Labtech Services Limited ("Labtech"), Vertec Engineering Limited ("Vertec"),
Cooltime Engineering Services Limited ("Cooltime"), Sovereign Dimensional Survey
Limited ("SDS") and OIL Engineering Middle East LLC ("OIL ME") in Abu Dhabi.
* Sovereign Oilfield Services Limited includes Prodrill Engineering Limited
("Prodrill"), Serco SA ("Serco") in France, MaxWell Downhole Technology Limited
("MaxWell") and RDT Precision Engineers Limited ("RDT").
Diamant Drilling Services SA ("DDS") of Belgium was sold in March 2009;
Sovereign Fishing and Remedial Services LLC ("SFRS") of Abu Dhabi is in the
process of being closed down.
SALES
Through both acquisition and organically, the Group has experienced significant
growth with Group sales for the year ended 31 March 2008 increasing 83% to
GBP94.6m (2007: GBP51.5m).
Sovereign Fabrication Services Limited accounted for GBP68.6m (2007: GBP30.2m)
of this turnover with Sovereign Oilfield Services Limited accounting for
GBP26.0m (2007: GBP21.3m).
The Group's diverse range of customers continue to be the international (e.g.
Total) and national (e.g. Dubai Petroleum) oil and gas companies, the major
(e.g. Wood Group) and smaller oilfield engineering companies and other oilfield
specialised service companies (e.g. FMC) to whom we supply our products and
services over a wide geographical area and with whom we have good repeat
business.
The Group continued to take advantage of its supply chain management during the
year by maximising intra-group co-operation.
Review of Subsidiaries
Sovereign Fabrication Services Limited
Turnover across the Fabrication Division has increased significantly on last
year through a combination of organic growth and acquisition.
Turnover for the year increased to GBP68.6m (2007: GBP30.2m). This comprised:
* CPS, turnover of GBP14.3m for the year (2007: GBP11.6m)
* OIL, turnover of GBP11.7m (2007: GBP14.7m)
* Forfab, turnover of GBP19.2m (2 months in 2007: GBP2.4m)
* Labtech, whose 11 month turnover was GBP11.8m (2007: GBPnil)**
* Vertec, whose 11 month turnover was GBP6.5m (2007: GBPnil)**
* Cooltime, whose 11 month turnover was GBP1.5m (2007: GBPnil)**
* SDS, turnover of GBP2.6m (6 months in 2007: GBP1.5m)
* OIL Engineering Middle East LLC, whose 11 month turnover was GBP1.0m (2007:
GBPnil)
** Labtech, Vertec and Cooltime were acquired in April 2007 and OIL Engineering
Middle East LLC commenced trading in May 2007.
EBITDA for the Fabrication Division for the period was GBP7.1m.
Labtech was acquired in April 2007 and specialises in the design, engineering
and manufacture of onshore and offshore cabins (for engineering, laboratory and
accommodation use), containers, and tool baskets. Labtech employs approximately
130 people in its own 18,000 sq. ft. facility and a leased 12,000 sq. ft.
facility.
Vertec, including its subsidiary Cooltime, was also acquired in April 2007.
Vertec specialises in the design, engineering and manufacture of onshore and
offshore cabins and containers. Cooltime specialises in heating, ventilating
and air conditioning systems and refrigeration units. Vertec and Cooltime
employ approximately 70 people in 22,000 sq. ft. leased facilities in Aberdeen.
The client bases of Labtech and Vertec have little overlap.
OIL ME, Sovereign's Abu Dhabi fabrication business, which was registered in
October 2006, has completed preparation of its 100,000 sq. ft. Abu Dhabi
quayside facilities with installation of enhanced electrical power, beam cranes
and building modifications. OIL ME was awarded its first contract in May 2007
and was officially opened for business in June 2007, commencing trading with a
high level of enquiries.
We believe that the Fabrication Division will continue to grow during the coming
year in the UK and internationally.
Sovereign Oilfield Services Limited (the Drilling Division)
Turnover for the year increased to GBP26.0m (2007: GBP21.3m). This comprised:
* Prodrill, turnover increase to GBP11.6m (2007: GBP10.9m)
* DDS, turnover of GBP6.8m (2007: GBP7.0m)
* SFRS, turnover of GBP1.1m (2007: GBPnil)
* Serco, turnover increased to GBP2.4m (2007: GBP1.8m)
* MaxWell, turnover of GBP0.6m (2007: GBP1.2m)
* RDT, turnover of GBP3.5m (1 month in 2007: GBP0.4m)
EBITDA for the Drilling Division for the period was GBP0.9m before exceptional
items.
DDS, whose turnover was down, produces and sells performance fixed cutter drill
bits into its markets and although a comparatively small player with an
estimated 1.1% of the world market, DDS has an average 6.5% market share in its
main markets - Algeria, Indonesia, Venezuela and the UK, with slightly higher
market shares in Libya and Pakistan and a growing share of the Saudi Arabian
market. DDS however continued to make losses and in October 2007, the Board
decided to put DDS up for sale. Although initially receiving only limited
interest, DDS was subsequently sold in March 2009 to Logan Oil Tools Inc.
MaxWell, which specialises in the design, manufacture and servicing of high-tech
MWD and LWD tools utilising mud-pulse and electromagnetic transmission
technology, had an agreed deferral of sales to Smith International mid-year,
resulting in a decline in turnover and a resultant small loss for the year.
Sales resumed in February 2008 and continued through to 2009.
Serco SA, our oilfield fishing and tool rental business based in Pau, France,
completed the commercialisation of its own Whipstock (a tool for deflecting the
drill bit when drilling a new well out of the side of an existing well) and this
has now been run successfully for a number of oil companies internationally.
Review and Outlook
While the Company was integrating the acquisitions of Spring 2007, the Group
breached its covenants and new banking arrangements were put in place by the
Group's Lenders as part of a standstill agreement at 31 March 2008. The Group
incurred a one-off fee of GBP500,000 for breaching its covenants, had access to
the undrawn GBP22m of its GBP50m loan facility withdrawn and had quarterly
increasing ratcheted interest rates imposed.
Your Board, having already put DDS up for sale in late 2007, was keen to find
lower cost debt from alternative lenders, and so from November 2007 considered
many mechanisms for refinancing and debt reduction.
In May 2008, freehold buildings held by two subsidiaries were sold for GBP3.9m
cash. The buildings were leased back on a ten year extendable lease. Of the
proceeds, GBP2.9m were used to pay down senior loan facilities.
Through the last fifteen months the Group has assisted a series of UK based
banks to present full re-financing proposals to their credit committees in
progressively more difficult debt markets.
Subsequent to negotiations with a number of new Lenders, in April 2009,
Sovereign's current Lender group proposed revised terms, subject to certain
conditions.
The new terms agreed provide for a waiver of all outstanding defaults until 31
May 2010, a reduction in margin payable on both senior and mezzanine facilities
and a revised covenant package. No restructuring or arrangement fees are
payable.
The conditions subsequent included the disposal of Vertec and certain Labtech
assets, and the Group was pleased to issue an announcement on 11 May 2009 that
it had signed an agreement for the sale of the shares of Vertec and certain
rental assets owned by Labtech for GBP5.45m in cash, subject to shareholder
approval. All proceeds will be used to pay down existing debt levels.
A general meeting is due to be held on 27 May 2009 to ratify this transaction.
The Directors unanimously recommend Shareholders to vote in favour of the
Resolutions as the Directors intend to do in respect of their beneficial
shareholdings amounting to 10,084,900 Ordinary Shares representing 58.24 percent
of the issued Ordinary Shares.
The Board believe the strength of the businesses and the Group, which have
performed well under harsh financial conditions and high interest charges of
over the last 18 months, is evident.
With new funding in place and the proactive support of Lenders going forward,
the Board believes that the prospects for the Group are excellent.
Graham Burgess DATE
Executive Chairman
Financial review
The second half of 2008 was a period of significant challenge for the Group.
With the global financial markets deteriorating the Group faced increased
difficulties in its negotiations with both existing Lenders and new Lenders
regarding a longer term re-structuring of the Group's debt facilities.
Operational Performance
The outturn for Group for the year ended 31 March 2008 did not meet expectation,
primarily due to the performance of the Drilling Division, although the
Fabrication Division did see a drop off in turnover towards the end of the 2007
and in the first quarter of 2008 due to market conditions.
Turnover for the second half of the year was GBP48.6m, resulting in a total for
the year of GBP94.6m (2007: GBP51.5m). The Fabrication Division accounted for
GBP68.6m (73%), the Drilling Division GBP26.0m (27%).
New acquisitions (namely Forfab, RDT, Labtech and Vertec) contributed GBP39.8m
of this improvement. Turnover from the existing fabrication companies was
GBP29.7m, an increase of GBP1.9m; GBP1.0m accruing from our new operations in
the Middle East.
Turnover relating to the Drilling Division was also up GBP1.4m, mainly due to
new fishing tool operations in the Middle East, which contributed GBP1.0m, and
Prodrill GBP0.6m.
The gross profit margin for the Group (pre-exceptional items) for the year was
26.6% (2007: 28.3%), the decrease mainly attributable to the change in the mix
of goods and services provided - with the lower margin Fabrication Division now
accounting for 73% of turnover, up from 59% the previous year. The gross profit
margin for the Fabrication Division was 25.6% (2007: 27.2%) and the Drilling
Division 29.3% (2007: 30.8%). The reduction in gross margin of the Fabrication
Division is due to the growth of CPS and the acquisition of Forfab which have
lower margins than other businesses within the Division.
EBITDA for the Group pre-exceptional items was GBP5.0m, (2007: GBP3.0m), with
Fabrication contributing GBP7.1m (2007: GBP3.6m) and Drilling GBP0.9m (2007:
GBP1.5m) and corporate overheads of GBP3.0m (2007: GBP1.9m).
The increase in corporate overhead reflects the enlarged organisation including
staff costs, travel costs and professional fees.
Whilst there was an increase in headcount, with four additional accountants as a
result of the acquisition of Forfab, RDT, Labtech and Vertec, and the
appointment of a senior manager to expand the fishing business, part of the
increase in staff costs was due to a re-organisation of the Group with the
promotion of the former managing director of CPS to Chief Operating Officer of
the Fabrication Division.
The start up of operations of OIL ME and SFRS in Abu Dhabi also brought
additional travel costs, with frequent visits by senior management to Abu Dhabi
initially until local management was appointed.
Professional fees increased by 22% to GBP0.5m due an increase in audit fees and
legal fees again due to the increased size and complexity of the Group.
Operating profit before exceptional items is GBP2.8m (2007: GBP2.8m).
Exceptional Items
Exceptional items before tax for the year to 31 March 2008 amount to GBP5.6m.
Of this amount GBP2.6m relates to an impairment write down in relation to DDS.
In principle, an asset is impaired when an entity is unable to recover the
asset's balance sheet carrying value either through using it or selling it. The
ongoing losses of DDS and disposal of the business subsequent to year-end at a
value substantially below the book value of its assets, which is discussed more
fully in the funding section below, are indicators of impairment.Following a
detailed review we have written down the full amount of the goodwill attributed
to the acquisition of DDS GBP0.7m, and part of the value of inventory and
receivables GBP1.9m.
In addition to the above, as highlighted in the Interim Report, an exceptional
finance charge of GBP0.5m was incurred as a result of renegotiation of our
banking covenants in November 2007.
At that time the terms of the original banking facilities were substantially
modified. The modification was accounted for as an extinguishment of the
original facility, resulting in an exceptional loss of GBP2.4m.
Abortive deal costs, relocation costs and a severance arrangement account for
the balance of the exceptional charge.
Operating profit after exceptional items is GBP0.1m (2007: GBP2.7m).
The net loss, pre-exceptional items, for the 12 months to 31 March 2008 was
GBP2,467,321 compared to a net profit of GBP1,453,155 for the corresponding
period last year. The basic loss per share was 14.48 pence (2007 earnings per
share: 8.64 pence).
Post-exceptional items the net loss was GBP7,433,872 (2007: profit GBP1,019,551)
and basic loss per share was 43.46 pence (2007 earnings per share: 6.01 pence).
In addition to the exceptional items the larger loss for this period is mainly
due to an increased interest charge as a result of increased borrowings and an
increased cost of finance.
Funding
The Group started the year with net debt of GBP16.2m. During the first six
months of 2007/8 net debt increased to GBP29.9m following the acquisition of
Labtech and Vertec, the total acquisition cost of which was GBP8.1m, in addition
to the increased working capital requirements of the enlarged Group. At 31 March
2008 the net debt was GBP32.8m, of which cash and short-term deposits were
GBP1.4m (2007: GBP4.7m).
Subsequent to the year end, with a rising cost of our funding against a backdrop
of the continuing under performance of the Drilling Division and deterioration
in market conditions, we reduced capital expenditure, opting to enter into
operating leases for new machinery. We also took steps to reduce corporate
overheads whilst additional long-term financing was being sought.
The Group commenced refinancing activities in May 2008. However this took much
longer than anticipated, largely due to the unprecedented global financial
downturn. Pending the conclusion of our refinancing the Directors delayed the
publication of the Annual Report and Accounts which led to a suspension of the
trading of our shares on AIM on 26 September 2008.
On 21 November 2008 we secured additional working capital facilities from a
number of our existing Lenders at rates equivalent to current senior debt which
enabled us to address short-term liquidity issues.
On 7 April 2009, the Group obtained consent for the company's date for
suspension from AIM to be extended. This extension was conditional on, amongst
other things, our bankers confirming the provision of new funding facilities for
the Company.
The restructure of the existing debt, which has now been completed by the Group,
removes both short and medium-term financing concerns. The Directors believe we
have sufficient funds for the foreseeable future. The current financing opens
the way for the resumption of the implementation of the Group's operational
plans for the existing businesses.
Following the publication of our audited results for the year ended 31 March
2008 and the unaudited Interim Results for the 6 months ended 30 September 2008
the Board expects the restoration of the Company's Ordinary Shares to trading on
AIM in the near future. In addition to the restructuring of the debt, the Group
has been actively engaged in divesting of non-core businesses and assets.
In March 2009, the Group announced the sale of DDS, which was consistently loss
making, to Logan Oil Tools Inc for consideration of up to approximately
EUR527,000. Further in May 2009, the Group sold Vertec Engineering Limited and
the assets of Labtech's hire fleet to Offshore Containers Holdings Limited for
GBP5.45m. The disposal of Vertec and Labtech's hire fleet are subject to
shareholder approval.
These funds will be used to reduce debt.
The latter half of this period was a difficult one for the Company, but
demonstrated the capability of the Board to act decisively in the face of
adverse market conditions and place the Group in a much better position to face
continuing challenging market conditions.
Julie Cowie DATE
Group Finance Director
AUTHORISATION OF FINANCIAL STATEMENTS AND STATEMENT OF COMPLIANCE WITH IFRS
The financial statements of Sovereign Oilfield Group Plc and its subsidiaries
(the "Group") for the year ended 31 March 2008 were authorised by the Board of
Directors on 15 May 2009 and the balance sheet was signed on the Board's behalf
by Graham Burgess and Julie Cowie. Sovereign Oilfield Group Plc is a public
limited company incorporated and domiciled in Scotland. The company's Ordinary
Shares are traded on AiM on the London Stock Exchange.
The Group's financial statements have been prepared in accordance with
international Financial Reporting Standard's (IFRS) as adopted by the European
Union as they apply to the financial statements of the Group for the year ended
31 March 2008.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The Directors have prepared the financial statements on the going concern basis
which assumes that the Company will continue in operational existence for the
foreseeable future.
The Company and the Group meet their day to day working capital requirements and
medium-term funding requirements through banking facilities. At 31 March 2008
the Group owed GBP3.2m to its Lenders and was in breach of its banking
covenants. As at that date the Group had obtained a standstill from its Lenders
in the form of an amendment and waiver letter regarding the defaults at 31 March
2008.Subsequent to the year end, as disclosed in Note 28, the Group has agreed
to an amendment of terms in respect of debt facilities in place at
31 March 2008.
The new banking terms agreed (subject to the conditions below) provide for a
waiver of all outstanding defaults and a standstill regarding the repayment of
debt until 31 May 2010 and the resumption of the normal debt repayment profile
thereafter, a reduction in margin payable on both senior and mezzanine
facilities and a revised covenant package.
The revised covenant package incorporates financial covenants with regard to
quarterly revenue and EBITDA. The failure of these covenant tests renders the
entire facilities repayable on demand at the option of the Lenders.
The Directors have prepared trading and cash flow forecasts for a period in
excess of one year from the date of approval of these financial statements which
project that covenant tests will be met and facility limits will not be exceeded
over the duration of the forecasts. The forecasts prepared make assumptions
about the Group's ability to sustain its business model and the Directors have
been actively monitoring the trading position in relation to the continued
volatility in the financial markets. The forecasts also assume an element of
cost reduction, particularly with regard to corporate overhead.
The Group's business model has been subject to independent analysis, and
sensitivities conducted to flex the assumptions to assess the robustness of the
model.
As part of the revised banking terms and conditions subsequent to the
refinancing, the Group agreed to the disposal of one of its subsidiaries Vertec
Engineering Limited and to dispose of certain assets of Labtech Services
Limited.
Although the proposed terms are fully valid and binding, if this condition is
not fulfilled prior to end May 2009 the revised terms will become invalid.
The Group was pleased to issue an announcement on 11 May 2009 stating that we
concluded the sale of these businesses, subject to shareholder approval. A
general meeting is due to be held on 27 May 2009 to ratify this transaction,
which requires a majority vote. The Directors intend to vote in favour of the
resolutions, amounting to 10,084,900 Ordinary Shares representing 58.24 percent
of the issued Ordinary Shares. John Graham Burgess and Dr Peter Gjedboe Felter
have provided irrevocable undertakings to vote in favour of the Resolutions,
their combined shareholding amounting to 56.895 percent of the issued Ordinary
Shares, which will result in the resolution being carried.
Taking in to account the above, until the shareholder vote has been conducted
an uncertainty exists as to whether the Group will meet the conditions under
which new facilities have been agreed. The Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future and have therefore concluded
that it is appropriate to adopt the going concern basis in preparing these
financial statements.
TRANSITION TO IFRS
For all periods up to and including the year ended 31 March 2007, Sovereign
Oilfield Group Plc prepared its financial statements in accordance with United
Kingdom generally accepted accounting practice (UK GAAP).These financial
statements, for the year ended 31 March 2008, are the first the Group is
required to prepare in accordance with international Financial Reporting
Standards (iFRS) as adopted by the European Union (EU).
Accordingly, the Group has prepared financial statements which comply with iFRS
applicable for periods beginning on or after 1 April 2006 and the significant
accounting policies meeting those requirements are described below.
In preparing these financial statements, the Group has started from an opening
balance sheet as at 1 April 2006, the Group's date of transition to IFRS, and
made those changes in accounting policies and other restatements required by
IFRS 1 for the first-time adoption of IFRS. in addition, the Group identified
some adjustments as part of this process that do not arise from a GAAP
difference and have therefore been classified as UK GAAP adjustments, rather
than IFRS GAAP reclassifications or remeasurements. the principal adjustments
made by the Group in restating its UK GAAP balance sheet as at 1 April 2006 and
its previously published UK GAAP financial statements for the year ended 31
March 2007 are set out in Note 30.
Exemptions applied
IFRS 1 allows first-time adopters certain exemptions from the general
requirement to apply IFRS as effective for March 2008 year ends retrospectively.
the Group has taken the following exemptions:
* To apply IFRS 3 "Business combinations" prospectively from 1 April 2006.
Financial information pertaining to acquisitions, disposal and restructuring
occurring before 1 April 2006 has not been restated;
* To deem cumulative translation differences to be zero as at 1 April 2006; and
* Not to restate fair value adjustments and goodwill denominated in foreign
currencies at the date of transition.
SiGNiFicANt AccOuNtiNG POLiciES
The Group's key accounting policies adopted in the preparation of the
consolidated financial statements are set out below. These policies have been
consistently applied to all the periods presented, unless otherwise stated.
The Group's financial statements are presented in GBPSterling and all values are
rounded to the nearest GBP0.1 million pounds (GBPm) except where otherwise
indicated.
KEY SOuRcES OF EStiMAtiON uNcERtAiNtY
The key source of estimation uncertainty that has a significant risk of causing
material adjustment to the carrying amounts of assets and liabilities within the
next financial year is the measurement and impairment of goodwill. Changes in
assumptions underlying the carrying value of certain Group assets could result
in impairment. The carrying value of goodwill at 31 March 2008 is GBP11.8m
(Note 12).
Sovereign completes a review of its goodwill annually, or more frequently where
the circumstances require to assess whether those carrying values can be
supported by the net present value of future cash flows derived from such
assets. This review examines the continued appropriateness of the assumptions
in respect of highly uncertain matters upon which the carrying values of certain
of the Group's assets are based. this includes an assessment of discount rates
and long-term growth rates, future technological developments and the timing and
quantum of future capital expenditure as well as several factors which may
affect revenue and profitability identified within other risk factors in this
section such as intensifying competition, pricing pressures, regulatory changes
and the timing for introducing new products or services. Due to the Group's
substantial carrying value of goodwill under IFRS, the revision of any of these
assumptions to reflect current or anticipated changes in operations or the
financial condition of the Group could lead to an impairment in the carrying
value of certain assets in the Group. Whilst impairment does not impact
reported cash flows, it does result in a non-cash charge in the consolidated
income Statement and thus no assurance can be given that any future impairments
would not affect the company's reported distributable reserves and therefore its
ability to make distributions to its shareholders or repurchase its shares.
BASiS OF cONSOLiDAtiON
The Group financial statements consolidate the financial statements of the
company and its subsidiary undertakings made up to 31 March 2008.
The profits and losses of subsidiary undertakings are consolidated from the date
of acquisition, being the date on which the Group obtains control, and continue
to be consolidated until the date that such control ceases Control comprises the
power to govern the financial and operating policies of the investee so as to
obtain benefit from its activities and is achieved through direct or indirect
ownership of voting rights; currently exercisable or convertible potential
voting rights; or by way of contractual agreement. The financial statements of
subsidiaries used in the preparation of the consolidated financial statements
are prepared for the same reporting year as the parent company and are based on
consistent accounting policies. All inter-company balances and transactions,
including unrealised profits arising from them, are eliminated.
FOREiGN cuRRENcY tRANSLAtiON
The Group's consolidated financial statements are presented in GBPsterling,
which is the Group's functional currency. That is the currency of the primary
economic environment which the Group operates. Each entity in the Group
determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded in the relevant
entities' functional currency by applying the spot exchange rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are re-translated at the functional currency rate ruling at the
balance sheet date. All differences are taken to the income statement, except
for differences on monetary assets and liabilities that form part of the Group's
net investment in a foreign operation. These are taken directly to equity until
the disposal of the net investment, at which time they are recognised in profit
or loss.
The assets and liabilities of foreign operations are translated into sterling at
the rate of exchange ruling at the balance sheet date. Income and expenses are
translated at weighted average exchange rates for the year. The resulting
exchange differences are taken directly to a separate component of equity. On
disposal of a foreign entity, the deferred cumulative amount recognised in
equity relating to that particular foreign operation is recognised in the income
statement.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions.
GOODWiLL
Business combinations on or after 1 April 2006 are accounted for under IFRS 3
using the purchase method. Any excess of the cost of the business combination
over the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities is recognised in the balance sheet as
goodwill and is not amortised. To the extent that the net fair value of the
acquired entity's identifiable assets, liabilities and contingent liabilities is
greater than the cost of the investment, a gain is recognised immediately in the
income statement. Goodwill recognised as an asset as at 31 March 2006 is
recorded at its carrying amount under UK GAAP and is not amortised. Any
goodwill arising on acquisition of equity accounted entities is included within
the cost of those entities. After initial recognition, goodwill is stated at
cost less any accumulated impairment losses, with the carrying value being
reviewed for impairment, at least annually and whenever events or changes in
circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill is allocated to the related
cash-generating units monitored by management, usually at business segment level
or statutory company level as the case may be. Where the recoverable amount of
the cash-generating unit is less than its carrying amount, including goodwill,
an impairment loss is recognised in the income statement.
The carrying amount of goodwill allocated to a cash-generating unit is taken
into account when determining the gain or loss on disposal of the unit, or of an
operation within it.
iNtANGiBLE FixED ASSEtS
Intangible assets acquired separately from a business are carried initially at
cost. An intangible asset acquired as part of a business combination is
recognised outside goodwill if the asset is separable or arises from contractual
or other legal rights and its fair value can be measured reliably. Expenditure
on internally developed intangible assets, excluding development costs, is taken
to the income statement in the year in which it is incurred. Expenditure
relating to clearly defined and identifiable development projects is recognised
as an intangible asset only after all the following criteria are met:
* The project's technical feasibility and commercial viability can be
demonstrated;
* The availability of adequate technical and financial resources and an intention
to complete the project have been confirmed; and
* The correlation between development costs and future revenues has been
established.
Following initial recognition, the historic cost model is applied, with
intangible assets being carried at cost less accumulated amortisation and
accumulated impairment losses. Intangible assets with a finite life have no
residual value and are amortised on a straight line basis over their expected
useful lives with charges included in administrative expenses, as follows:
* Patents, licences and trademarks - over the duration of the legal agreement;
* Development expenditure - dependent on the nature of the project but typically 3
years; and
* Customers contracts and relationships - up to 5 years.
The carrying value of intangible assets is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be
recoverable. in addition, the carrying value of capitalised development
expenditure is reviewed for impairment annually before being brought into use.
PROPERtY, PLANt AND EQuiPMENt
Property, plant and equipment and other tangible assets are stated at cost less
accumulated depreciation and accumulated impairment losses. Cost comprises the
aggregate amount paid and the fair value of any other consideration given to
acquire the asset and includes costs directly attributable to making the asset
capable of operating as intended.
Depreciation is provided at the following annual rates in order to write off
each asset to its residual value over its estimated useful life or if held under
a finance lease, over the lease term, whichever is the shorter.
Freehold2% on cost
Leasehold propertyover the term of the lease
Leasehold improvementsover the term of the lease
Plant and machinery 25% to 33% on cost
Office equipment10% to 50% on cost
Motor vehicles20% to 25% on cost
No depreciation is charged on freehold land.
The carrying values of tangible fixed assets are reviewed for impairment if
events or changes in circumstances indicate the carrying value may not be
recoverable, and are written down immediately to their recoverable amount.
Useful lives and residual values are reviewed annually and where adjustments are
required these are made prospectively.
LEASiNG AND HiRE PuRcHASE cOMMitMENtS
Assets held under finance leases, which transfer to the Group substantially all
the risks and benefits incidental to ownership of the leased item, are
capitalised at the inception of the lease, with a corresponding liability being
recognised for the lower of the fair value of the leased asset and the present
value of the minimum lease payments. Lease payments are apportioned between the
reduction of the lease liability and finance charges in the income statement so
as to achieve a constant rate of interest on the remaining balance of the
liability. Assets held under finance leases are depreciated over the shorter of
the estimated useful life of the asset and the lease term.
Leases where the lessor retains a significant portion of the risks and benefits
of ownership of the assets are classified as operating leases and rentals
payable are charged in the income statement on a straight line basis over the
lease term.
iMPAiRMENt OF ASSEtS
The Group assesses at each reporting date whether there is an indication that an
asset may be impaired. If any such indication exists, or when annual impairment
testing for an asset is required, the Group makes an estimate of the asset's
recoverable amount. An asset's recoverable amount is the higher of an asset's
or cash-generating unit's fair value less costs to sell and its value in use and
is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of
assets. Where the carrying amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Impairment losses on continuing operations are recognised in the income
statement in those expense categories consistent with the function of the
impaired asset.
An assessment is made at each reporting date as to whether there is any
indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the recoverable amount is
estimated. A previously recognised impairment loss is reversed only if there
has been a change in the estimates used to determine the asset's recoverable
amount since the last impairment loss was recognised. If that is the case the
carrying amount of the asset is increased to its recoverable amount. The
increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss unless the
asset is carried at revalued amount, in which case the reversal is treated as a
revaluation increase. After such a reversal the depreciation charge is adjusted
in future periods to allocate the asset's revised carrying amount, less any
residual value, on a systematic basis over its remaining useful life.
PROviSiONS FOR LiABiLitiES
A provision is recognised when the Group has a legal or constructive obligation
as a result of a past event, it is probable that an outflow of economic benefits
will be required to settle the obligation and a reliable estimate of the
obligation can be made.
If the effect is material, expected future cash flows are discounted using a
current pre-tax rate that reflects, where appropriate, the risks specific to the
liability.
Where the Group expects some or all of a provision to be reimbursed, for example
under an insurance policy, the reimbursement is recognised as a separate asset
but only when recovery is virtually certain. The expense relating to any
provision is presented in the income statement net of any reimbursement. Where
discounting is used, the increase in the provision due to unwinding of the
discount is recognised as a finance cost.
iNvENtORiES
Inventories are stated at the lower of cost and net realisable value. Cost
includes all costs incurred in bringing each product to its present location and
condition, as follows:
* Raw materials, consumables and goods for resale - purchase cost on a first-in,
first-out basis
* Work in progress and finished goods - cost of direct materials and labour plus
attributable overheads based on a normal level of activity
Net realisable value is based on estimated selling price less any further costs
expected to be incurred to completion and disposal.
tRADE AND OtHER REcEivABLES
Trade receivables are recognised and carried at the lower of their original
invoiced value and recoverable amount. Where the time value of money is
material, receivables are carried at amortised cost. Provision is made when
there is objective evidence that the Group will not be able to recover balances
in full. Balances are written off when the probability of recovery is assessed
as being remote.
cASH AND cASH EQuivALENtS
Cash and short-term deposits in the balance sheet comprise cash at banks and in
hand and short-term deposits with an original maturity of three months or less.
For the purpose of the consolidated cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts.
iNcOME tAxES
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities, based on tax rates and laws
that are enacted or substantively enacted by the balance sheet date.
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
financial statements, with the following exceptions:
* Where the temporary difference arises from the initial recognition of goodwill
or of an asset or liability in a transaction that is not a business combination
that at the time of the transaction affects neither accounting nor taxable
profit or loss;
* In respect of taxable temporary differences associated with investments in
subsidiaries, associates and joint ventures, where the timing of the reversal of
the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future; and
* Deferred income tax assets are recognised only to the extent that it is probable
that taxable profits will be available against which the deductible temporary
differences, carried forward tax credits or tax losses can be utilised.
Deferred tax is measured on a non-discounted basis at the tax rates that are
expected to apply in the periods in which the timing differences are expected to
reverse, based on tax rates and laws that have been enacted or substantively
enacted by the balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that
are credited or charged to equity. Otherwise income tax is recognised in the
income statement.
iNtERESt-BEARiNG LOANS AND BORROWiNGS
Obligations for loans and borrowings are recognised when the Group becomes party
to the related contracts and are measured initially at the fair value of the
consideration received less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective interest method.
Gains and losses arising on the repurchase, settlement or otherwise cancellation
of liabilities are recognised respectively in finance revenue and finance cost.
FiNANciAL ASSEtS
Financial assets within the scope of IAS 39 are classified as financial assets
at fair value through profit or loss, receivables or as derivatives designated
as hedging instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial assets at initial recognition.
Financial assets are recognised initially at fair value.
The Group's financial assets include cash and short-term deposits, trade and
other receivables and derivative financial instruments.
Financial assets at fair value through profit or loss include derivative
financial instruments entered into by the Group that do not meet the hedge
accounting criteria as defined by IAS 39. Financial assets at fair value
through profit and loss are carried in the balance sheet at fair value with
gains and losses recognised in the income Statement.
DEREcOGNitiON OF FiNANciAL ASSEtS AND LiABiLitiES
A financial asset or liability is generally derecognised when the contract that
gives rise to it is settled, sold, cancelled or expires.
Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or terms of an existing liability are
substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability,
such that the difference in the respective carrying amounts together with any
costs or fees incurred are recognised in profit or loss.
REvENuE REcOGNitiON
Revenue is recognised to the extent that the Group obtains the right to
consideration in exchange for its performance. Revenue is measured at the fair
value of the consideration received, excluding discounts, rebates, VAt and other
sales taxes or duty.
The following criteria must also be met before revenue is recognised:
Sale of goods
Revenue from the sale of goods is recognised when the significant risks and
rewards of ownership of the goods have passed to the buyer, usually on despatch
of the goods. Rendering of services and construction contracts Revenue from the
sales of services and revenue from construction contracts is recognised by
reference to the stage of completion. The stage of completion of a contract is
determined by reference to the proportion that contract costs incurred for work
performed to date bear to the estimated total contract costs. Where the time
taken to complete a construction contract extends over different accounting
periods, revenue is recognised by reference to the stage of completion of the
contract activity at the balance sheet date where the outcome can be measured
reliably, otherwise it is recognised to the extent costs are incurred. Losses
on contracts are recognised in the period where such losses become probable.
Interest income
Revenue is recognised as interest accrues using the effective interest method.
Rental income
Revenue from the rental of equipment is recognised on a straight-line basis over
the period of the rental contract.
GOvERNMENt GRANtS
Government grants are recognised when it is reasonable to expect that the grants
will be received and that all related conditions will be met, usually on
submission of a valid claim for payment.
Government grants in respect of capital expenditure are credited to a deferred
income account and are released to profit over the expected useful lives of the
relevant assets by equal annual instalments. Grants of a revenue nature are
credited to income so as to match them with the expenditure to which they relate
PENSiON
The Group operates a defined contribution pension scheme. Contributions to the
scheme are recognised in the income Statement in the period in which they become
payable.
ExcEPtiONAL itEMS
Exceptional items are those items which, by virtue of their size or incidence,
are presented separately in the Income Statement to enable a full understanding
of the Group's financial performance.
SHARE-BASED iNcENtivES
The cost of equity-settled share based payments to employees is measured by
reference to the fair value at the date at which they are granted and is
recognised as an expense over the vesting period, which ends on the date on
which the relevant become fully entitled to the award. Fair value is measured
by a Black-Scholes pricing model. In valuing equity-settled transactions, no
account is taken of any vesting conditions, other than conditions linked to the
price of the shares of the company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which are treated
as vesting irrespective of whether or not the market condition is satisfied,
provided that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and management's
best estimate of the achievement or otherwise of non-market conditions and of
the number of equity instruments that will ultimately vest or in the case of an
instrument subject to a market condition, be treated as vesting as described
above. The movement in cumulative expense since the previous balance sheet date
is recognised in the income Statement, with a corresponding entry in equity.
NEW STANDARDS AND INTERPRETATIONS NOT APPLIED
The International Accounting Standards Board and the International Financial
Reporting Interpretations Committee ("IFRIC") have issued the following
standards and interpretations with effect dates as below:
+----------------------------------------+-------------------------------------------+
| IAS/IFRS Standards | Effective date |
+----------------------------------------+-------------------------------------------+
| IFRS 8 | 1 January 2009 |
+----------------------------------------+-------------------------------------------+
| Operation segments | |
+----------------------------------------+-------------------------------------------+
| Amendments IAS 1 | 1 January 2009 |
+----------------------------------------+-------------------------------------------+
| Presentation of financial statements | |
+----------------------------------------+-------------------------------------------+
| Amendments to IFRS 2 | 1 January 2009 |
+----------------------------------------+-------------------------------------------+
| Share-base payment: vesting conditions | |
+----------------------------------------+-------------------------------------------+
| and cancellations | |
+----------------------------------------+-------------------------------------------+
| Amendments to IAS 32 and IAS 1 | 1 January 2009 |
+----------------------------------------+-------------------------------------------+
| Puttable financial instruments | |
+----------------------------------------+-------------------------------------------+
| and obligations arising on liquidation | |
| | |
+----------------------------------------+-------------------------------------------+
| IFRS 3R | 1 July 2009 |
+----------------------------------------+-------------------------------------------+
| Business combinations | |
+----------------------------------------+-------------------------------------------+
| Amendments IAS 27 | 1 July 2009 |
+----------------------------------------+-------------------------------------------+
| Consolidated and separate financial | |
+----------------------------------------+-------------------------------------------+
| statements | |
+----------------------------------------+-------------------------------------------+
+----------------------------------------+-------------------------------------------+
| Interpretations | Effective date |
+----------------------------------------+-------------------------------------------+
| IFRIC 12 | 1 January 2008 |
+----------------------------------------+-------------------------------------------+
| Service concession arrangements | |
+----------------------------------------+-------------------------------------------+
| IFRIC 14 | 1 January 2008 |
+----------------------------------------+-------------------------------------------+
| IAS 19 - The limit on a defined | |
| benefit | |
+----------------------------------------+-------------------------------------------+
| asset, minimum funding requirements | |
+----------------------------------------+-------------------------------------------+
| and their interaction | |
+----------------------------------------+-------------------------------------------+
| IFRIC 13 | 1 July 2008 |
+----------------------------------------+-------------------------------------------+
| Customer loyalty programmes | |
+----------------------------------------+-------------------------------------------+
The Directors do not anticipate that the adoption of these standards or
interpretations will have a material impact on the Group's accounts in the
period of initial application.
Group Income Statement
For the Year Ended 31 March 2008
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| | Note | Before | Exceptional | Total | Before | Exceptional | Total |
| | | exceptional | items | 2008 | exceptional | items | 2007 |
| | | items | 2008 | GBPm | items | 2007 | GBPm |
| | | 2008 | GBPm | | 2007 | GBPm | |
| | | GBPm | | | GBPm | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| REVENUE | 1 | 94.6 | - | 94.6 | 51.5 | - | 51.5 |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Cost of sales | 5 | (69.4) | (1.6) | (71.0) | (36.9) | - | (36.9) |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| GROSS PROFIT | | 25.2 | (1.6) | 23.6 | 14.6 | - | 14.6 |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Administrative expenses | 5 | (22.6) | (1.1) | (23.7) | (11.8) | (0.1) | (11.9) |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Other operating income | | 0.2 | - | 0.2 | - | - | - |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| GROUP OPERATING PROFIT | 3,5 | 2.8 | (2.7) | 0.1 | 2.8 | (0.1) | 2.7 |
| FROM CONTINUING OPERATIONS | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Finance revenue | 7 | 0.2 | - | 0.2 | 0.1 | - | 0.1 |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Finance costs | 8 | (4.9) | (2.9) | (7.8) | (1.2) | (0.3) | (1.5) |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| | | (4.7) | (2.9) | (7.6) | (1.1) | (0.3) | (1.4) |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| (LOSS) / PROFIT FROM | | (1.9) | (5.6) | (7.5) | 1.7 | (0.4) | 1.3 |
| CONTINUING OPERATIONS | | | | | | | |
| BEFORE TAXATION | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| Tax income / (expense) | 9 | (0.6) | (0.7) | 0.1 | (0.3) | - | (0.3) |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| (LOSS) / PROFIT FOR THE | | (2.5) | (4.9) | (7.4) | 1.4 | (0.4) | 1.0 |
| YEAR ATTRIBUTABLE TO | | | | | | | |
| EQUITY HOLDERS OF THE | | | | | | | |
| PARENT | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| (LOSS) / EARNINGS PER SHARE | 10 | | | | | | |
| (PENCE) | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| BASIC, FOR (LOSS) / PROFIT | | | | | | | |
| FOR THE PERIOD ATTRIBUTABLE | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| TO ORDINARY EQUITY HOLDERS | | - | - | (43.46) | - | - | 6.01 |
| OF THE PARENT | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| DILUTED, FOR (LOSS) / | | | | | | | |
| PROFIT FOR THE PERIOD | | | | | | | |
| ATTRIBUTABLE | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| TO ORDINARY EQUITY HOLDERS | | - | - | (43.46) | - | - | 5.83 |
| OF THE PARENT | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| ADJUSTED (LOSS) / EARNINGS | 10 | | | | | | |
| PER SHARE (PENCE): | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| BASIC, FOR (LOSS) / PROFIT | | | | | | | |
| FOR THE PERIOD ATTRIBUTABLE | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| TO ORDINARY EQUITY HOLDERS | | - | - | (14.48) | - | - | 8.64 |
| OF THE PARENT | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| DILUTED, FOR (LOSS) / | | | | | | | |
| PROFIT FOR THE PERIOD | | | | | | | |
| ATTRIBUTABLE | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
| TO ORDINARY EQUITY HOLDERS | | - | - | (14.48) | - | - | 8.38 |
| OF THE PARENT | | | | | | | |
+-----------------------------+------+-------------+-------------+---------+-------------+-------------+--------+
Group Statement of Recognised Income and Expense
For the Year Ended 31 March 2008
+------------------------------------------------------+--------+-------------+-------------+
| | Note | | 2007 |
| | | 2008 | GBPm |
| | | GBPm | |
+------------------------------------------------------+--------+-------------+-------------+
| INCOME AND EXPENSE RECOGNISED DIRECTLY IN EQUITY | | | |
+------------------------------------------------------+--------+-------------+-------------+
| Exchange differences on retranslation of foreign | 26 | 0.8 | (0.1) |
| operations | | | |
+------------------------------------------------------+--------+-------------+-------------+
| NET INCOME / (EXPENSE) RECOGNISED DIRECTLY IN EQUITY | | 0.8 | (0.1) |
+------------------------------------------------------+--------+-------------+-------------+
| (LOSS) / PROFIT FOR THE YEAR | | (7.4) | 1.0 |
+------------------------------------------------------+--------+-------------+-------------+
| TOTAL RECOGNISED INCOME AND EXPENSE FOR THE YEAR | | (6.6) | 0.9 |
+------------------------------------------------------+--------+-------------+-------------+
| | | | |
+------------------------------------------------------+--------+-------------+-------------+
| ATTRIBUTABLE TO: | | | |
+------------------------------------------------------+--------+-------------+-------------+
| Equity holders of the parent | | (6.6) | 0.9 |
+------------------------------------------------------+--------+-------------+-------------+
| Minority interest | | - | - |
+------------------------------------------------------+--------+-------------+-------------+
| | | (6.6) | 0.9 |
+------------------------------------------------------+--------+-------------+-------------+
GROUP Balance Sheet
AS AT 31 March 2008
+---------------------------------------------------+--------+-------------+-------------+
| | Note | 2008 | 2007 |
| | | GBPm | GBPm |
+---------------------------------------------------+--------+-------------+-------------+
| NON-CURRENT ASSETS | | | |
+---------------------------------------------------+--------+-------------+-------------+
| Property, plant and equipment | 11 | 14.2 | 8.7 |
+---------------------------------------------------+--------+-------------+-------------+
| Intangible assets | 12 | 14.2 | 10.1 |
+---------------------------------------------------+--------+-------------+-------------+
| Financial assets | 13 | 0.1 | 0.1 |
+---------------------------------------------------+--------+-------------+-------------+
| Deferred tax asset | 9(e) | - | 0.3 |
+---------------------------------------------------+--------+-------------+-------------+
| | | 28.5 | 19.2 |
+---------------------------------------------------+--------+-------------+-------------+
| CURRENT ASSETS | | | |
+---------------------------------------------------+--------+-------------+-------------+
| Trade and other receivables | 16 | 25.7 | 18.6 |
+---------------------------------------------------+--------+-------------+-------------+
| Inventories | 17 | 6.2 | 5.1 |
+---------------------------------------------------+--------+-------------+-------------+
| Cash and short-term deposits | 18 | 1.4 | 4.7 |
+---------------------------------------------------+--------+-------------+-------------+
| | | 33.3 | 28.4 |
+---------------------------------------------------+--------+-------------+-------------+
| TOTAL ASSETS | | 61.8 | 47.6 |
+---------------------------------------------------+--------+-------------+-------------+
| CURRENT LIABILITIES | | | |
+---------------------------------------------------+--------+-------------+-------------+
| Trade and other payables | 19 | 19.7 | 14.5 |
+---------------------------------------------------+--------+-------------+-------------+
| Interest-bearing loans and borrowings | 20 | 33.2 | 0.2 |
+---------------------------------------------------+--------+-------------+-------------+
| Income tax payable | | 0.2 | 0.8 |
+---------------------------------------------------+--------+-------------+-------------+
| | | 53.1 | 15.5 |
+---------------------------------------------------+--------+-------------+-------------+
| NON-CURRENT LIABILITIES | | | |
+---------------------------------------------------+--------+-------------+-------------+
| Interest-bearing loans and borrowings | 20 | 1.0 | 18.0 |
+---------------------------------------------------+--------+-------------+-------------+
| Deferred tax liabilities | 9(e) | 2.4 | 1.7 |
+---------------------------------------------------+--------+-------------+-------------+
| Provisions | 22 | 0.1 | 0.1 |
+---------------------------------------------------+--------+-------------+-------------+
| | | 3.5 | 19.8 |
+---------------------------------------------------+--------+-------------+-------------+
| TOTAL LIABILITIES | | 56.6 | 35.3 |
+---------------------------------------------------+--------+-------------+-------------+
| NET ASSETS | | 5.2 | 12.3 |
+---------------------------------------------------+--------+-------------+-------------+
| CAPITAL AND RESERVES | | | |
+---------------------------------------------------+--------+-------------+-------------+
| Equity share capital | 24, 26 | 11.7 | 10.7 |
+---------------------------------------------------+--------+-------------+-------------+
| Treasury shares | 24, 26 | (0.3) | - |
+---------------------------------------------------+--------+-------------+-------------+
| Other equity | 26 | - | 0.9 |
+---------------------------------------------------+--------+-------------+-------------+
| Currency translation | 26 | 0.7 | (0.1) |
+---------------------------------------------------+--------+-------------+-------------+
| Retained earning | 26 | (6.9) | 0.8 |
+---------------------------------------------------+--------+-------------+-------------+
| TOTAL EQUITY | | 5.2 | 12.3 |
+---------------------------------------------------+--------+-------------+-------------+
Approved by the Board on 15 May 2009
Mr Burgess
Miss Cowie
Directors
Group Cash Flow Statement
For the Year Ended 31 March 2008
+------------------------------------------------------+------+--------------+------------+
| |Note | 2008 | 2007 |
| | | GBPm | GBPm |
+------------------------------------------------------+------+--------------+------------+
| | | | |
+------------------------------------------------------+------+--------------+------------+
| OPERATING ACTIVITIES | | | |
+------------------------------------------------------+------+--------------+------------+
| (Loss) / profit for the year | | (7.4) | 1.0 |
+------------------------------------------------------+------+--------------+------------+
| Adjustments to reconcile profit for the year to net | | | |
| cash flow | | | |
+------------------------------------------------------+------+--------------+------------+
| from operating activities: | | | |
+------------------------------------------------------+------+--------------+------------+
| Tax on continuing operations | | (0.1) | 0.3 |
+------------------------------------------------------+------+--------------+------------+
| Net finance costs | | 7.6 | 1.4 |
+------------------------------------------------------+------+--------------+------------+
| Depreciation and impairment of property, plant and | | 1.5 | 0.5 |
| equipment | | | |
+------------------------------------------------------+------+--------------+------------+
| Amortisation and impairment of intangible assets | | 1.4 | (0.4) |
+------------------------------------------------------+------+--------------+------------+
| Share-based payments | | 0.1 | - |
+------------------------------------------------------+------+--------------+------------+
| Non-cash compensation received | | (0.3) | - |
+------------------------------------------------------+------+--------------+------------+
| Decrease in inventories | | 0.7 | - |
+------------------------------------------------------+------+--------------+------------+
| (Increase) in trade and other receivables | | (1.9) | (4.3) |
+------------------------------------------------------+------+--------------+------------+
| Increase / (decrease) in trade and other payables | | 1.0 | (1.4) |
+------------------------------------------------------+------+--------------+------------+
| Cash generated from operations | | 2.6 | (2.9) |
+------------------------------------------------------+------+--------------+------------+
| Income taxes paid | | (1.1) | (1.0) |
+------------------------------------------------------+------+--------------+------------+
| NET CASH FLOW FROM OPERATING ACTIVITIES | | 1.5 | (3.9) |
+------------------------------------------------------+------+--------------+------------+
| INVESTING ACTIVITIES | | | |
+------------------------------------------------------+------+--------------+------------+
| Sale of property, plant and equipment | | 0.8 | 0.1 |
+------------------------------------------------------+------+--------------+------------+
| Outflow on acquisition of subsidiary undertakings | | (8.3) | (5.5) |
+------------------------------------------------------+------+--------------+------------+
| Payments to acquire property, plant and equipment | | (4.1) | (1.6) |
+------------------------------------------------------+------+--------------+------------+
| Payments to acquire intangible assets | | (0.3) | (0.3) |
+------------------------------------------------------+------+--------------+------------+
| NET CASH FLOW FROM INVESTING ACTIVITIES | | (11.9) | (7.3) |
+------------------------------------------------------+------+--------------+------------+
| FINANCING ACTIVITIES | | | |
+------------------------------------------------------+------+--------------+------------+
| Purchase of own shares | | (0.3) | - |
+------------------------------------------------------+------+--------------+------------+
| Interest paid | | (3.2) | (1.1) |
+------------------------------------------------------+------+--------------+------------+
| Proceeds from share issues | | - | 1.3 |
+------------------------------------------------------+------+--------------+------------+
| Refinancing costs | | (0.4) | - |
+------------------------------------------------------+------+--------------+------------+
| Repayment of factored debt | | (0.9) | - |
+------------------------------------------------------+------+--------------+------------+
| New borrowings | | 14.5 | 25.8 |
+------------------------------------------------------+------+--------------+------------+
| Payments to acquire borrowings | | - | (2.8) |
+------------------------------------------------------+------+--------------+------------+
| Repayment of borrowings | | (2.4) | (9.6) |
+------------------------------------------------------+------+--------------+------------+
| New finance leases and hire purchase contracts | | 0.2 | 0.3 |
+------------------------------------------------------+------+--------------+------------+
| Repayment of capital element of finance leases and | | (0.3) | (0.2) |
| hire purchase contracts | | | |
+------------------------------------------------------+------+--------------+------------+
| NET CASH FLOW FROM FINANCING ACTIVITIES | | 7.2 | 13.7 |
+------------------------------------------------------+------+--------------+------------+
| (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS | | (3.2) | 2.5 |
+------------------------------------------------------+------+--------------+------------+
| Effect of exchange rates on cash and cash | | - | (0.1) |
| equivalents | | | |
+------------------------------------------------------+------+--------------+------------+
| Cash and cash equivalents at 1 April | | 4.6 | 2.2 |
+------------------------------------------------------+------+--------------+------------+
| CASH AND CASH EQUIVALENTS AT 31 MARCH | 18 | 1.4 | 4.6 |
+------------------------------------------------------+------+--------------+------------+
NOTES TO THE ACCOUNTS
1. REVENUE
Revenue recognised in the income statement is analysed as follows:
+---------------------------------------------------+------------+-------+------------+-------+
| | Continuing | 2008 | Continuing | 2007 |
| | operations | Total | operations | Total |
+---------------------------------------------------+------------+-------+------------+-------+
| | GBPm | GBPm | GBPm | GBPm |
+---------------------------------------------------+------------+-------+------------+-------+
| Sale of goods | 43.3 | 43.3 | 28.5 | 28.5 |
+---------------------------------------------------+------------+-------+------------+-------+
| Rendering of services | 14.1 | 14.1 | 12.3 | 12.3 |
+---------------------------------------------------+------------+-------+------------+-------+
| Construction contracts | 37.2 | 37.2 | 10.7 | 10.7 |
+---------------------------------------------------+------------+-------+------------+-------+
| | 94.6 | 94.6 | 51.5 | 51.5 |
+---------------------------------------------------+------------+-------+------------+-------+
| Finance revenue | 0.2 | 0.2 | 0.1 | 0.1 |
+---------------------------------------------------+------------+-------+------------+-------+
| | 94.8 | 94.8 | 51.6 | 51.6 |
+---------------------------------------------------+------------+-------+------------+-------+
No revenue was derived from exchanges of goods or services (2007: GBPnil).
2. SEGMENTAL INFORMATION
The primary segment reporting format is determined to be business segments as
the Group's risks and rate of return are affected predominantly by differences
in the products and services provided. Secondary segment information is
reported geographically.The operating businesses are organised and managed
separately according to the nature of the products and services provided, with
each segment representing a strategic business unit that offers different
products and serves different markets.
The drilling segment sells and rents out drilling equipment and provides
contract personnel for the oil and gas industry.
The fabrication segment sells fabrication and manufacturing services for the oil
and gas industry.
The Group's geographical segments are based on the location of the Group's
assets.Sales to external customers disclosed in geographical segments are based
on the geographical location of its customers.
Primary reporting format - business segments
The following tables present revenue and profit and certain asset and liability
information regarding the Group's business segments for the years ended 31 March
2008 and 2007.
+----------------------------+---------------+---------------+---------------+----------+
| | | |
| | Continuing operations | |
+----------------------------+-----------------------------------------------+----------+
| | Drilling | Fabrication | Corporate | Total |
+----------------------------+---------------+---------------+---------------+----------+
| Year ended 31 March 2008 | GBPm | GBPm | GBPm | GBPm |
+----------------------------+---------------+---------------+---------------+----------+
| Revenue | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Sales from external | 26.0 | 68.6 | - | 94.6 |
| customers | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Segment revenue | 26.0 | 68.6 | - | 94.6 |
+----------------------------+---------------+---------------+---------------+----------+
| Results | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Segment result | (1.8) | 6.2 | - | 4.4 |
+----------------------------+---------------+---------------+---------------+----------+
| Unallocated expenses | - | - | (4.3) | (4.3) |
+----------------------------+---------------+---------------+---------------+----------+
| operating (loss) / profit | (1.8) | 6.2 | (4.3) | 0.1 |
+----------------------------+---------------+---------------+---------------+----------+
| Net finance costs | - | - | - | (7.6) |
+----------------------------+---------------+---------------+---------------+----------+
| Loss before taxation | - | - | - | ( 7.5) |
+----------------------------+---------------+---------------+---------------+----------+
| Tax income | - | - | - | 0.1 |
+----------------------------+---------------+---------------+---------------+----------+
| Loss for the year | - | - | - | (7.4) |
+----------------------------+---------------+---------------+---------------+----------+
| | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Assets and liabilities | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Segment assets | 21.5 | 36.1 | - | 57.6 |
+----------------------------+---------------+---------------+---------------+----------+
| Unallocated assets | - | - | 4.2 | 4.2 |
+----------------------------+---------------+---------------+---------------+----------+
| Total assets | 21.5 | 36.1 | 4.2 | 61.8 |
+----------------------------+---------------+---------------+---------------+----------+
| | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Segment liabilities | 7.6 | 12.1 | - | 19.7 |
+----------------------------+---------------+---------------+---------------+----------+
| Unallocated liabilities | - | - | 36.9 | 36.9 |
+----------------------------+---------------+---------------+---------------+----------+
| Total liabilities | 7.6 | 12.1 | 36.9 | 56.6 |
+----------------------------+---------------+---------------+---------------+----------+
| | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Other segment information | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Capital expenditure: | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Property, plant and | 2.5 | 4.8 | 0.2 | 7.5 |
| equipment | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Intangible assets | 0.3 | 5.2 | - | 5.5 |
+----------------------------+---------------+---------------+---------------+----------+
| Depreciation | 0.6 | 0.8 | 0.1 | 1.5 |
+----------------------------+---------------+---------------+---------------+----------+
| Amortisation | 0.1 | - | 0.6 | 0.7 |
+----------------------------+---------------+---------------+---------------+----------+
| Share-based payment | - | - | 0.1 | 0.1 |
| expense | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Impairment losses | 0.7 | - | - | 0.7 |
| recognised | | | | |
+----------------------------+---------------+---------------+---------------+----------+
| Write-off of inventories | 1.6 | - | - | 1.6 |
+----------------------------+---------------+---------------+---------------+----------+
| Impairment of receivables | 0.3 | 0.2 | - | 0.5 |
+----------------------------+---------------+---------------+---------------+----------+
Unallocated assets and liabilities comprise certain property, plant and
equipment, interest-bearing loans and borrowings and taxation.
Unallocated expenses are principally corporate overheads including staff costs,
travel costs and professional fees.
+---------------------------+---------------+---------------+---------------+----------+
| | Continuing Operations | |
+---------------------------+-----------------------------------------------+----------+
| | Drilling | Fabrication | Corporate | Total |
+---------------------------+---------------+---------------+---------------+----------+
| Year ended 31 March 2007 | GBPm | GBPm | GBPm | GBPm |
+---------------------------+---------------+---------------+---------------+----------+
| Revenue | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Sales from external | 21.3 | 30.2 | - | 51.5 |
| customers | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Segment revenue | 21.3 | 30.2 | - | 51.5 |
+---------------------------+---------------+---------------+---------------+----------+
| | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Results | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Segment result | 0.6 | 3.3 | - | 3.9 |
+---------------------------+---------------+---------------+---------------+----------+
| Unallocated expenses | - | - | (1.2) | (1.2) |
+---------------------------+---------------+---------------+---------------+----------+
| operating profit / (loss) | 0.6 | 3.3 | (1.2) | 2.7 |
+---------------------------+---------------+---------------+---------------+----------+
| Net finance costs | - | - | - | ( 1.4) |
+---------------------------+---------------+---------------+---------------+----------+
| Profit before taxation | - | - | - | 1.3 |
+---------------------------+---------------+---------------+---------------+----------+
| Tax expense | - | - | - | ( 0.3) |
+---------------------------+---------------+---------------+---------------+----------+
| Profit for the year | - | - | - | 1.0 |
+---------------------------+---------------+---------------+---------------+----------+
| | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Assets and liabilities | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Segment asset | 21.4 | 22.2 | - | 43.6 |
+---------------------------+---------------+---------------+---------------+----------+
| Unallocated assets | - | - | 4.0 | 4.0 |
+---------------------------+---------------+---------------+---------------+----------+
| Total assets | 21.4 | 22.2 | 4.0 | 47.6 |
+---------------------------+---------------+---------------+---------------+----------+
| | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Segment liabilities | 6.6 | 9.2 | - | 15.8 |
+---------------------------+---------------+---------------+---------------+----------+
| Unallocated liabilities | - | - | 19.5 | 19.5 |
+---------------------------+---------------+---------------+---------------+----------+
| Total liabilities | 6.6 | 9.2 | 19.5 | 35.3 |
+---------------------------+---------------+---------------+---------------+----------+
| | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Other segment information | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Capital expenditure: | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Property, plant and | 1.6 | 2.8 | 0.5 | 4.9 |
| equipment | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Intangible assets | 1.8 | 0.8 | 0.1 | 2.7 |
+---------------------------+---------------+---------------+---------------+----------+
| Depreciation | 0.2 | 0.2 | 0.1 | 0.5 |
+---------------------------+---------------+---------------+---------------+----------+
| Amortisation | 0.1 | - | - | 0.1 |
+---------------------------+---------------+---------------+---------------+----------+
| Share-based payment | - | - | 0.1 | 0.1 |
| expense | | | | |
+---------------------------+---------------+---------------+---------------+----------+
| Write-off of inventories | 0.1 | - | - | 0.1 |
+---------------------------+---------------+---------------+---------------+----------+
| Impairment of receivables | 0.1 | - | - | 0.1 |
+---------------------------+---------------+---------------+---------------+----------+
Secondary reporting format - geographical segments
The following tables present revenue, expenditure and certain asset information
regarding the Group's geographical segments for the years ended 31 March 2008
and 2007.
+--------------------------------+---------+---------+---------+---------+---------+
| | UK and | Africa | Middle | Rest of | Total |
| | Europe | | East | the | |
| | | | | World | |
+--------------------------------+---------+---------+---------+---------+---------+
| Year ended 31 March 2008 | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------------------------------+---------+---------+---------+---------+---------+
| Revenue | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Sales to external customers | 75.5 | 6.2 | 6.0 | 6.9 | 94.6 |
| and revenue from continuing | | | | | |
| operations | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Revenue from continuing | 75.5 | 6.2 | 6.0 | 6.9 | 94.6 |
| operations | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Other segment information | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Segment assets | 50.5 | 1.6 | 5.1 | 4.6 | 61.8 |
+--------------------------------+---------+---------+---------+---------+---------+
| Total assets | 50.5 | 1.6 | 5.1 | 4.6 | 61.8 |
+--------------------------------+---------+---------+---------+---------+---------+
| | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Capital expenditure | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Property, plant and equipment | 6.0 | - | 1.3 | 0.2 | 7.5 |
+--------------------------------+---------+---------+---------+---------+---------+
| Intangible assets | 5.5 | - | - | - | 5.5 |
+--------------------------------+---------+---------+---------+---------+---------+
+--------------------------------+---------+---------+---------+---------+---------+
| | UK and | Africa | Middle | Rest of | Total |
| | Europe | | East | the | |
| | | | | World | |
+--------------------------------+---------+---------+---------+---------+---------+
| Year ended 31 March 2007 | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------------------------------+---------+---------+---------+---------+---------+
| Revenue | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Sales to external customers | 38.4 | 5.1 | 2.4 | 5.6 | 51.5 |
+--------------------------------+---------+---------+---------+---------+---------+
| Revenue from continuing | 38.4 | 5.1 | 2.4 | 5.6 | 51.5 |
| operations | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Other segment information | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Segment assets | 39.0 | 2.0 | 1.9 | 4.7 | 47.6 |
+--------------------------------+---------+---------+---------+---------+---------+
| Total assets | 39.0 | 2.0 | 1.9 | 4.7 | 47.6 |
+--------------------------------+---------+---------+---------+---------+---------+
| | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Capital expenditure | | | | | |
+--------------------------------+---------+---------+---------+---------+---------+
| Property, plant and equipment | 4.2 | - | 0.7 | - | 4.9 |
+--------------------------------+---------+---------+---------+---------+---------+
| Intangible assets | 2.7 | - | - | - | 2.7 |
+--------------------------------+---------+---------+---------+---------+---------+
3. GROUP OPERATING PROFIT
This is stated after charging:
+------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+------------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+------------------------------------------------------------+----------+----------+
| | | |
+------------------------------------------------------------+----------+----------+
| Research and development costs written off | - | - |
+------------------------------------------------------------+----------+----------+
| Amortisation of deferred development costs | 0.1 | 0.1 |
+------------------------------------------------------------+----------+----------+
| Total research and development costs | 0.1 | 0.1 |
+------------------------------------------------------------+----------+----------+
| Depreciation of property, plant and equipment | 1.5 | 0.5 |
+------------------------------------------------------------+----------+----------+
| Amortisation of intangible assets | 0.7 | 0.1 |
+------------------------------------------------------------+----------+----------+
| Total depreciation and amortisation expense | 2.2 | 0.6 |
+------------------------------------------------------------+----------+----------+
| Net foreign currency differences | (0.1) | (0.1) |
+------------------------------------------------------------+----------+----------+
| Cost of inventories recognised as an expense (included in | | |
| cost of sales) | | |
+------------------------------------------------------------+----------+----------+
| including: write-down of inventories to net realisable | 1.6 | 0.1 |
| value | | |
+------------------------------------------------------------+----------+----------+
| Operating lease payments - minimum lease payments | 1.0 | 0.7 |
+------------------------------------------------------------+----------+----------+
| Government grants | - | - |
+------------------------------------------------------------+----------+----------+
| Increase in provision for impairment of trade receivables | 0.5 | 0.1 |
| recognised in administrative expenses | | |
+------------------------------------------------------------+----------+----------+
4. Auditors' Remuneration
The group paid the following amounts to its auditors in respect of the audit of
the financial statements and for other services provided to the Group.
+-------------------+----------------------------------------+---------+----------+
| | 2008 | 2007 |
+------------------------------------------------------------+---------+----------+
| | GBP000 | GBP000 |
+------------------------------------------------------------+---------+----------+
| Audit of the Group financial statements | 162.7 | 68.0 |
+------------------------------------------------------------+---------+----------+
| Other fees to | -auditing the accounts of subsidiaries | 152.2 | 61.0 |
| auditors | paid to Group auditors | | |
+-------------------+----------------------------------------+---------+----------+
| | - auditing the accounts of | 5.4 | 4.0 |
| | subsidiaries paid to other auditors | | |
+-------------------+----------------------------------------+---------+----------+
| | - other services pursuant to | 4.0 | - |
| | legislation | | |
+-------------------+----------------------------------------+---------+----------+
| | - other services relating to taxation | 9.0 | 14.0 |
+-------------------+----------------------------------------+---------+----------+
| | - corporate finance fees | 45.0 | 30.0 |
+-------------------+----------------------------------------+---------+----------+
| | 215.6 | 109.0 |
+-------------------+----------------------------------------+---------+----------+
5. EXCEPTIONAL ITEMS
+----------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+----------+----------+
| Recognised in arriving at operating profit from | | |
| continuing operations: | | |
+----------------------------------------------------------+----------+----------+
| Relocation costs | 0.2 | 0.1 |
+----------------------------------------------------------+----------+----------+
| Abortive deal costs | 0.2 | - |
+----------------------------------------------------------+----------+----------+
| Severance of employment arrangement (Note 24) | (0.3) | - |
+----------------------------------------------------------+----------+----------+
| Impairment of goodwill of DDS (Note 12) | 0.7 | - |
+----------------------------------------------------------+----------+----------+
| Impairment of trade receivables of DDS | 0.3 | - |
+----------------------------------------------------------+----------+----------+
| Write-down of inventories of DDS | 1.6 | - |
+----------------------------------------------------------+----------+----------+
| | 2.7 | 0.1 |
+----------------------------------------------------------+----------+----------+
| Recognised below operating profit: | | |
+----------------------------------------------------------+----------+----------+
| Costs incurred in re-financing (Note 8) | - | 0.3 |
+----------------------------------------------------------+----------+----------+
| Covenant breach (Note 8) | 0.5 | - |
+----------------------------------------------------------+----------+----------+
| Write-down of arrangement fees (Note 20) | 2.4 | - |
+----------------------------------------------------------+----------+----------+
| | 2.9 | 0.3 |
+----------------------------------------------------------+----------+----------+
Relocation costs relate principally to the transfer of RDT to new
premises.Abortive deal costs relate to costs incurred in evaluating potential
acquisitions which were not completed.
The tax effect of the exceptional items is 28% of the gross value with the
exception of the DDS impairments and write-downs, the abortive deal costs and
the covenant breach which have no tax impact.
6. STAFF COSTS
Staff costs including Executive Directors
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+----------+
| Wages and salaries | 24.0 | 13.6 |
+----------------------------------------------------------+-----------+----------+
| Social security costs | 3.0 | 1.4 |
+----------------------------------------------------------+-----------+----------+
| Other pension costs | 0.4 | 0.2 |
+----------------------------------------------------------+-----------+----------+
| | 27.4 | 15.2 |
+----------------------------------------------------------+-----------+----------+
The average monthly number of employees during the year
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | No | No |
+----------------------------------------------------------+-----------+----------+
| Management | 44 | 20 |
+----------------------------------------------------------+-----------+----------+
| Production and technical | 560 | 247 |
+----------------------------------------------------------+-----------+----------+
| Administration and sales | 158 | 72 |
+----------------------------------------------------------+-----------+----------+
| | 762 | 339 |
+----------------------------------------------------------+-----------+----------+
Details of Director's emoluments, in aggregate and by Director, together with
details of pension entitlements, share options held and bonus payments, are
shown in the table headed Directors' Remuneration in the Remuneration Report on
page 21.
Pension costs
The Group operates a defined contribution scheme. The assets of the scheme are
held separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by the Group to the
fund and amounted to GBP0.4m (2007: GBP0.2m). At 31 March 2008 contributions
amounting to GBP0.1m (2007: GBPnil) were payable to the fund and are included in
creditors.
7. FINANCE REVENUE
+----------------------------------------------------------------+---------+---------+
| | 2008 | 2007 |
+----------------------------------------------------------------+---------+---------+
| | GBPm | GBPm |
+----------------------------------------------------------------+---------+---------+
| Bank interest receivable | 0.2 | 0.1 |
+----------------------------------------------------------------+---------+---------+
| Total interest income for financial assets not at fair value | 0.2 | 0.1 |
| through profit and loss | | |
+----------------------------------------------------------------+---------+---------+
| Fair value adjustment on loan hedged by an interest rate swap | - | - |
+----------------------------------------------------------------+---------+---------+
| Total finance revenue | 0.2 | 0.1 |
+----------------------------------------------------------------+---------+---------+
8. FINANCE COSTS
+----------------------------------------------------------------+---------+---------+
| | 2008 | 2007 |
+----------------------------------------------------------------+---------+---------+
| | GBPm | GBPm |
+----------------------------------------------------------------+---------+---------+
| Bank loans and overdrafts | 4.2 | 1.2 |
+----------------------------------------------------------------+---------+---------+
| Total interest expense for financial liabilities not at | 4.2 | 1.2 |
| fair value through profit and loss | | |
+----------------------------------------------------------------+---------+---------+
| Finance charges payable under finance leases and hire | 0.1 | - |
| purchase contracts | | |
+----------------------------------------------------------------+---------+---------+
| Refinancing costs amortised | 0.6 | - |
+----------------------------------------------------------------+---------+---------+
| Exceptional refinancing costs | - | 0.3 |
+----------------------------------------------------------------+---------+---------+
| Exceptional covenant breach costs | 0.5 | - |
+----------------------------------------------------------------+---------+---------+
| Exceptional write-down of arrangement fees (Note 20) | 2.4 | - |
+----------------------------------------------------------------+---------+---------+
| Total finance costs | 7.8 | 1.5 |
+----------------------------------------------------------------+---------+---------+
A one-off exceptional charge of GBP0.3m was incurred in 2007 in early settlement
charges relating to previous banking facilities.
A one-off exceptional charge of GBP0.5m was incurred in 2008 following the
breach of banking covenants and a further GBP2.4m on the new terms of banking
facilities (Note 20).
9. TAXATION
(a) Tax on profit on ordinary activities
Tax charged in the Income Statement
+----------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+----------+----------+
| CURRENT INCOME TAX: | | |
+----------------------------------------------------------+----------+----------+
| UK corporation tax - continuing operations | 0.1 | 0.6 |
+----------------------------------------------------------+----------+----------+
| Double taxation relief | - | (0.1) |
+----------------------------------------------------------+----------+----------+
| | 0.1 | 0.5 |
+----------------------------------------------------------+----------+----------+
| Foreign tax | 0.1 | 0.1 |
+----------------------------------------------------------+----------+----------+
| Current income tax charge | 0.2 | 0.6 |
+----------------------------------------------------------+----------+----------+
| Amounts overprovided in previous years | (0.3) | - |
+----------------------------------------------------------+----------+----------+
| Total current income tax | (0.1) | 0.6 |
+----------------------------------------------------------+----------+----------+
| | | |
+----------------------------------------------------------+----------+----------+
| DEFERRED TAX: | | |
+----------------------------------------------------------+----------+----------+
| Origination and reversal of temporary differences | (0.3) | - |
+----------------------------------------------------------+----------+----------+
| Impairment of deferred tax asset | 0.3 | - |
+----------------------------------------------------------+----------+----------+
| Utilisation of prior year losses | - | (0.3) |
+----------------------------------------------------------+----------+----------+
| TOTAL DEFERRED TAX | - | (0.3) |
+----------------------------------------------------------+----------+----------+
| TAX (CREDIT) / CHARGE IN THE INCOME STATEMENT | (0.1) | 0.3 |
+----------------------------------------------------------+----------+----------+
| | | |
+----------------------------------------------------------+----------+----------+
| THE TAX (credit) / CHARGE IN THE INCOME STATEMENT IS | | |
| DISCLOSED AS FOLLOWS: | | |
+----------------------------------------------------------+----------+----------+
| Income tax (income) / expense on continuing operations | (0.1) | 0.3 |
+----------------------------------------------------------+----------+----------+
(b) Reconciliation of the total tax charge
The tax rate in the Income Statement for the year is higher than the standard
rate of corporation tax in the UK of 30% (2007: 30%). The differences are
reconciled below:
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+----------+
| (Loss) / profit from continuing operations before | (7.5) | 1.3 |
| taxation | | |
+----------------------------------------------------------+-----------+----------+
| Accounting (loss) / profit before income tax | (7.5) | 1.3 |
+----------------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------------+-----------+----------+
| Accounting (loss) / profit multiplied by the UK standard | (2.3) | 0.4 |
| rate of corporation tax of 30% (2007: 30%) | | |
+----------------------------------------------------------+-----------+----------+
| Expenses not deductible for tax purposes and income not | 0.8 | (0.1) |
| taxable | | |
+----------------------------------------------------------+-----------+----------+
| Higher taxes on overseas earnings | 0.1 | - |
+----------------------------------------------------------+-----------+----------+
| Tax losses not relieved in UK carried forward | 0.1 | 0.3 |
+----------------------------------------------------------+-----------+----------+
| Unrecognised tax losses | 1.2 | - |
+----------------------------------------------------------+-----------+----------+
| Tax overprovided in previous years | (0.3) | - |
+----------------------------------------------------------+-----------+----------+
| Impairment / (recognition) of deferred tax asset | 0.3 | (0.3) |
+----------------------------------------------------------+-----------+----------+
| Effect of deferred tax rate change | - | - |
+----------------------------------------------------------+-----------+----------+
| TOTAL TAX (INCOME) / EXPENSE REPORTED IN THE INCOME | (0.1) | 0.3 |
| STATEMENT | | |
+----------------------------------------------------------+-----------+----------+
(c) Unrecognised tax losses
The Group has tax losses which arose in Belgium of EUR3.7m (2007: EUR2.6 m) that are
available indefinitely for offset against future taxable profits of the
companies in which the losses arose. Deferred assets have not been recognised in
respect of these losses as they may not be used to offset taxable profits
elsewhere in the Group and they have arisen in subsidiaries that have been
loss-making for some time. In March 2009 DDS SA was sold without relief for
offset of losses.
The Group has tax losses which arose in Abu Dhabi of GBP1.0m. Deferred tax
assets have not been recognised in respect of these losses as they may not be
used to offset taxable profits elsewhere in the Group.
The Group has tax losses of GBP1.4m arising in the UK available for offset
against future taxable profits. Deferred tax assets have not been recognised in
respect of these losses as their recovery is not deemed sufficiently probable.
(d) Change in Corporation Tax rate
The UK Corporation Tax rate will decrease from 30% to 28% from 1 April 2008.
The deferred tax balance has been adjusted in the current year to reflect this
change.
(e) Deferred tax
The deferred tax included in the Balance Sheet is as follows:
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+----------+
| Deferred tax liability | | |
+----------------------------------------------------------+-----------+----------+
| Accelerated capital allowances | (0.5) | (0.3) |
+----------------------------------------------------------+-----------+----------+
| Acquisition fair value adjustments | (1.9) | (1.4) |
+----------------------------------------------------------+-----------+----------+
| | (2.4) | (1.7) |
+----------------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------------+-----------+----------+
| Deferred tax asset | | |
+----------------------------------------------------------+-----------+----------+
| Tax losses carried forward | - | 0.3 |
+----------------------------------------------------------+-----------+----------+
| | - | 0.3 |
+----------------------------------------------------------+-----------+----------+
| Disclosed on the Balance Sheet | | |
+----------------------------------------------------------+-----------+----------+
| Deferred tax asset | - | 0.3 |
+----------------------------------------------------------+-----------+----------+
| Deferred tax liability | (2.4) | (1.7) |
+----------------------------------------------------------+-----------+----------+
| | (2.4) | (1.4) |
+----------------------------------------------------------+-----------+----------+
| | | |
+----------------------------------------------------------+-----------+----------+
| Deferred tax in the Income Statement | | |
+----------------------------------------------------------+-----------+----------+
| Accelerated capital allowances | (0.3) | - |
+----------------------------------------------------------+-----------+----------+
| Tax losses carried forward | - | (0.3) |
+----------------------------------------------------------+-----------+----------+
| Impairment of deferred tax assets | 0.3 | - |
+----------------------------------------------------------+-----------+----------+
| | - | (0.3) |
+----------------------------------------------------------+-----------+----------+
10. (LOSS) / EARNINGS PER ORDINARY SHARE
Basic (loss) / earnings per share amounts are calculated by dividing (loss) /
profit for the year attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the year.
Diluted (loss) / earnings per share amounts are calculated by dividing the
(loss) / profit attributable to ordinary equity holders of the parent by the
weighted average number of Ordinary Shares outstanding during the year plus the
weighted average number of Ordinary Shares that would be issued on the
conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.
The following reflects income and share data used in the basic and diluted
earnings per share computations:
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+----------+
| (Loss) / profit for the year from continuing operations | (7.4) | 1.0 |
+----------------------------------------------------------+-----------+----------+
| Diluted (loss) / profit attributable to equity holders | (7.4) | 1.0 |
| of the parent | | |
+----------------------------------------------------------+-----------+----------+
+----------------------------------------------------------+-----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+----------+
| Basic weighted average number of Shares | 17.1 | 16.5 |
+----------------------------------------------------------+-----------+----------+
| Dilutive potential Ordinary Shares: | | |
+----------------------------------------------------------+-----------+----------+
| Deferred consideration | - | 0.5 |
+----------------------------------------------------------+-----------+----------+
| Diluted weighted average number of Shares | 17.1 | 17.0 |
+----------------------------------------------------------+-----------+----------+
There have been no other transactions involving Ordinary Shares or potential
Ordinary Shares between the reporting date and the date of completion of these
financial statements.
(Loss) / earnings per share from continuing operations before exceptional items
The Group presents as exceptional items on the face of the Income Statement,
those material items of income and expense which, because of the nature and
expected frequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the elements of
financial performance in the year, so as to facilitate comparison with prior
periods and to assess better trends in financial performance.
To this end, basic and diluted (loss) / earnings from continuing operations per
share is also presented on this basis and using the weighted average number of
Ordinary Shares for both basic and diluted amounts as per the table above. The
amounts for earnings per share from continuing operations before exceptional
items are as follows:
+----------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+-----------+
| Basic (loss) / earnings per share from continuing | (43.46) | 6.01 |
| operations (pence) | | |
+----------------------------------------------------------+-----------+-----------+
| Diluted (loss) / earnings per share from continuing | (43.46) | 5.83 |
| operations (pence) | | |
+----------------------------------------------------------+-----------+-----------+
Net (loss) / profit from continuing operations before exceptional items and
attributable to equity holders of the parent is derived as follows:
+----------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+----------------------------------------------------------+-----------+-----------+
| | GBPm | GBPm |
+----------------------------------------------------------+-----------+-----------+
| (Loss) / profit attributable to equity holders of the | (7.4) | 1.0 |
| parent - continuing operations | | |
+----------------------------------------------------------+-----------+-----------+
| Exceptional items after tax - attributable to equity | 4.9 | 0.4 |
| holders of the parent | | |
+----------------------------------------------------------+-----------+-----------+
| Diluted (loss) / profit from continuing operations | (2.5) | 1.4 |
| before exceptional items attributable to equity holders | | |
| of the parent | | |
+----------------------------------------------------------+-----------+-----------+
11. PROPERTY, PLANT AND EQUIPMENT
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| | Land and | Leasehold | Leasehold | Plant | Other | Total |
| | buildings | land and | improvements | and | | |
| | | buildings | | machinery | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| COST OR VALUATION: | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| At 1 April 2006 | 2.4 | 0.4 | 0.2 | 1.7 | 0.5 | 5.2 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Foreign currency adjustment | - | - | - | - | - | - |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Additions | 0.3 | - | 0.1 | 1.1 | 0.3 | 1.8 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Acquisition of subsidiaries | 1.4 | - | - | 1.7 | - | 3.1 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Disposals | - | - | - | - | (0.1) | (0.1) |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| At 31 March 2007 and 1 April | 4.1 | 0.4 | 0.3 | 4.5 | 0.7 | 10.0 |
| 2007 | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Foreign currency adjustment | - | 0.1 | 0.1 | 0.1 | 0.1 | 0.4 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Additions | - | 0.1 | 1.3 | 1.9 | 0.9 | 4.2 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Acquisition of subsidiaries | 2.0 | - | 0.1 | 0.9 | 0.3 | 3.3 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Disposals | - | - | - | (0.1) | (0.9) | (1.0) |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| AT 31 MARCH 2008 | 6.1 | 0.6 | 1.8 | 7.3 | 1.1 | 16.9 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| DEPRECIATION AND IMPAIRMENT: | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| At 1 April 2006 | - | - | - | 0.6 | 0.2 | 0.8 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Foreign currency adjustment | - | - | - | - | - | - |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Charged during the year | 0.1 | - | - | 0.3 | 0.1 | 0.5 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Disposals | - | - | - | - | - | - |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| At 31 March 2007 and 1 April | 0.1 | - | - | 0.9 | 0.3 | 1.3 |
| 2007 | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Foreign currency adjustment | - | - | - | 0.2 | - | 0.2 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Charged during the year | 0.1 | 0.1 | 0.1 | 0.9 | 0.3 | 1.5 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| Disposals | - | - | - | (0.1) | (0.2) | (0.3) |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| AT 31 MARCH 2008 | 0.2 | 0.1 | 0.1 | 1.9 | 0.4 | 2.7 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| NET BOOK VALUE AT 31 MARCH 2008 | 5.9 | 0.5 | 1.7 | 5.4 | 0.7 | 14.2 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| | | | | | | |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
| NET BOOK VALUE AT 31 MARCH 2007 | 4.0 | 0.4 | 0.3 | 3.6 | 0.4 | 8.7 |
+---------------------------------+-----------+-----------+--------------+-----------+-------+----------+
Assets held under finance leases
The carrying value of plant and equipment held under finance leases and hire
purchase contracts at 31 March 2008 was GBP971,575 (2007: GBP549,865). Outwith
acquisitions of subsidiaries, additions during the year include GBP250,188
(2007: GBP183,238) of plant and equipment held under finance leases and hire
purchase contracts.
The carrying value of leasehold property held under finance leases and hire
purchases contracts at 31 March 2008 was GBP415,714 (2007: GBP399,678).
Additions during the year include GBPnil (2007: GBPnil) of leasehold property
held under finance leases and hire purchase contracts. Leased assets under hire
purchase contracts are pledged as security for the related finance lease and
hire purchase liabilities.
12. INTANGIBLE ASSETS AND IMPAIRMENT TESTING OF GOODWILL
+----------------------------------+-------------+-------------+---------------+-------------+
| | Development | Goodwill | Customer | Total |
| | costs and | | contracts and | |
| | patents | | relationships | |
+----------------------------------+-------------+-------------+---------------+-------------+
| | GBPm | GBPm | GBPm | GBPm |
+----------------------------------+-------------+-------------+---------------+-------------+
| COST | | | | |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 1 April 2006 | 0.4 | 8.3 | - | 8.7 |
+----------------------------------+-------------+-------------+---------------+-------------+
| Additions - internal development | 0.3 | - | - | 0.3 |
+----------------------------------+-------------+-------------+---------------+-------------+
| Deferred tax asset adjustment | - | (0.3) | - | (0.3) |
+----------------------------------+-------------+-------------+---------------+-------------+
| Acquisition of subsidiary | - | 0.8 | 1.6 | 2.4 |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 31 March 2007 and 1 April | 0.7 | 8.8 | 1.6 | 11.1 |
| 2007 | | | | |
+----------------------------------+-------------+-------------+---------------+-------------+
| Additions - internal development | 0.3 | - | - | 0.3 |
+----------------------------------+-------------+-------------+---------------+-------------+
| Acquisition of subsidiary | - | 4.4 | 0.8 | 5.2 |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 31 March 2008 | 1.0 | 13.2 | 2.4 | 16.6 |
+----------------------------------+-------------+-------------+---------------+-------------+
| DEPRECIATION AND IMPAIRMENT | | | | |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 1 April 2006 | 0.2 | 0.7 | - | 0.9 |
+----------------------------------+-------------+-------------+---------------+-------------+
| Amortisation during the year | - | - | 0.1 | 0.1 |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 31 March 2007 and 1 April | 0.2 | 0.7 | 0.1 | 1.0 |
| 2007 | | | | |
+----------------------------------+-------------+-------------+---------------+-------------+
| Amortisation during the year | 0.1 | - | 0.6 | 0.7 |
+----------------------------------+-------------+-------------+---------------+-------------+
| Impairment loss | - | 0.7 | - | 0.7 |
+----------------------------------+-------------+-------------+---------------+-------------+
| At 31 March 2008 | 0.3 | 1.4 | 0.7 | 2.4 |
+----------------------------------+-------------+-------------+---------------+-------------+
| NET BOOK VALUE AT 31 MARCH 2008 | 0.7 | 11.8 | 1.7 | 14.2 |
+----------------------------------+-------------+-------------+---------------+-------------+
| NET BOOK VALUE AT 31 MARCH 2007 | 0.5 | 8.1 | 1.5 | 10.1 |
+----------------------------------+-------------+-------------+---------------+-------------+
Development costs are amortised over their useful life of 3 years.
Customer contracts and relationships were acquired through business
combinations. These intangible assets are measured using the cost model at
GBP1.7m (2007: GBP1.5m) and have a five year useful life.
As from 1 April 2006, the date of transition to IFRS, goodwill was no longer
amortised but is now subject to annual impairment testing.
Impairment testing of goodwill
Goodwill acquired through business combinations has been allocated to
cash-generating units which are generally individual companies within the Group.
The significant carrying values of goodwill at 31 March 2008 are set out in the
table below. The amount allocated to "Others" is not considered significant in
comparison to the total carrying amount of goodwill.
+---------------------------------------------------+------------------------------+
| | GBPm |
+---------------------------------------------------+------------------------------+
| Labtech Holdings | 3.6 |
+---------------------------------------------------+------------------------------+
| Vertec (including Cooltime) | 0.7 |
+---------------------------------------------------+------------------------------+
| OIL | 3.5 |
+---------------------------------------------------+------------------------------+
| MaxWell | 2.5 |
+---------------------------------------------------+------------------------------+
| Forfab | 0.8 |
+---------------------------------------------------+------------------------------+
| Others | 0.7 |
+---------------------------------------------------+------------------------------+
| | 11.8 |
+---------------------------------------------------+------------------------------+
The Group tests goodwill annually for impairment, or more frequently if there
are indications it might be impaired.
DDS Cash Generating Unit
The company was sold subsequent to the year-end in March 2009. Accordingly, the
recoverable amount has been determined based on its fair value less costs to
sell. The goodwill associated with this company of GBP0.7m has been written off
in full in the financial year. Operating losses of GBP2.1m incurred in 2008/9
prior to the company's disposal will be included in the consolidated results for
the 2008/9 financial year.
MaxWell Cash Generating Unit
The recoverable amount for MaxWell has been determined using actual cash flows
for 2008/9 and cash flow projections from financial budgets approved by senior
management for the 2009/10 financial year. The pre-tax discount rate applied to
the cash flow projections is 12.5% and cash flows beyond 2009/10 are
extrapolated for two years using a 6% growth rate and for the following two
years using a 5% growth rate.
MaxWell was profitable and cash generative in 2006/7 following its acquisition
in March 2006. Over the following two financial years, the company has focused
on broadening its range of down-hole tools by developing new and related
products. That process has taken longer than anticipated but is substantially
complete by May 2009. The results of the company for 2007/8 and 2008/9 reflect
the focus on this development phase with the company making a loss before tax of
GBP0.2m in both 2007/8 and 2008/9. The projections for 2009/10 show significant
profitability and cash flow generation from 2009/10 onwards. The achievement of
these projections is most sensitive to the assumptions on sales of the company's
three principal ranges of tools, only one of which has generated significant
sales to date. The remaining two ranges of tools, which account for
approximately 50% of the projected sales, require the completion of ongoing
assembly and the conversion of enquiries and quotes into firm orders at the
anticipated margins. The projections for 2009/10 include sales of GBP3.7m.
The Directors recognise the inherent uncertainty in forecasting sales for
products which have just been developed or whose assembly is nearing completion,
however, they consider the projections to be reasonable based on discussions
with potential customers during the development phase and the general level of
interest in these products demonstrated by high levels of enquiries. If other
factors remained unchanged and there were to be a shortfall in projected sales
of in excess of 40%, it is likely that the goodwill associated with MaxWell
would be impaired. The forecast cash flows of the company exceed the carrying
value of goodwill by GBP2.1m and, in the event of a shortfall in projected
sales, the Directors could cut costs within the business.
Labtech, Vertec, OIL and Forfab Cash Generating Units
The recoverable amounts for each of these companies have been determined using
actual cash flows for 2008/9 and cash flow projections from financial budgets
approved by senior management for the 2009/10 financial year. The pre-tax
discount rate applied to the cash flow projections is 12.5% and cash flows
beyond 2011/12 are extrapolated for two years using a 2% growth rate.
The main assumptions used in the value in use calculations relate to selling
prices, sales volumes and margins. The market demand projections contain both
volume and pricing assumptions but generally the pricing and margin assumptions
assume growth in line with inflation.
In assessing the value in use of these companies, management have considered the
potential impact of reasonably possible changes in the main assumptions used and
believe that there are no such changes that would cause the carrying value of
the units to exceed their recoverable amounts.
13. FINANCIAL ASSETS
+---------------------------------------------------------------------+-------+-------+
| | 2008 | 2007 |
| | GBPm | GBPm |
+---------------------------------------------------------------------+-------+-------+
| Interest rate cap | 0.1 | 0.1 |
+---------------------------------------------------------------------+-------+-------+
| | 0.1 | 0.1 |
+---------------------------------------------------------------------+-------+-------+
On 12 March 2007, the Group entered into an interest rate hedge on 50% of the
borrowing facility, i.e. GBP25.0m. 6 months LIBOR interest rates are capped at
7%. The effective date of the hedge is 19 July 2007. The agreement terminates
on 19 January 2012.
The fair value of the interest hedge as at 31 March 2008 is GBP37,058 (2007:
GBP48,000).
14. INVESTMENTS
Details of the investments in which the Group holds 20% or more of the nominal
value of any class of share capital, all of which is Ordinary Shares, are as
follows:
+------------------------------------+----------+--------+------------------------+---------------+
| | Proportion of | | |
| |voting rights and | | |
| | share held | | |
+------------------------------------+-------------------+------------------------+---------------+
| | Group | Parent | | Country of |
| | | | | incorporation |
+------------------------------------+----------+--------+------------------------+---------------+
| Name of company | % | % | Nature of Business | or |
| | | | | registration |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Oilfield Services | 100% | 100% | Intermediate holding | Scotland |
| Limited | | | company | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Fabrication Services | 100% | 100% | Intermediate holding | Scotland |
| Limited | | | company | |
+------------------------------------+----------+--------+------------------------+---------------+
| (formely OIL Corporate Limited) | | | | |
+------------------------------------+----------+--------+------------------------+---------------+
| MaxWell Downhole Technology | 100% | 100% | Manufacturing & supply | Scotland |
| Limited | | | of | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | down-hole directional | |
| | | | survey | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | tools for oil & gas | |
| | | | industry | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Oilfield Services Middle | 100% | - | Dormant company | Bahrain |
| East (SPC) *** | | | | |
+------------------------------------+----------+--------+------------------------+---------------+
| Serco SA *** | 100% | - | Fishing & down-hole | France |
| | | | tool rental | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | and manufacturer | |
+------------------------------------+----------+--------+------------------------+---------------+
| OIL Engineering Limited *** | 100% | - | General fabrication | Scotland |
| | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Prodrill Engineering Limited *** | 100% | - | Placement of | England |
| | | | engineering | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | personnel to oil & gas | |
| | | | industry | |
+------------------------------------+----------+--------+------------------------+---------------+
| I-Sub Drilling Systems Limited *** | 100% | - | Manufacturing and | Scotland |
| | | | supply | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | of down-hole tools | |
+------------------------------------+----------+--------+------------------------+---------------+
| Diamant Drilling Services SA *** | 100% | - | Designs & manufactures | Belgium |
| | | | fixed | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | cutter drill bits for | |
| | | | oil & gas industry | |
+------------------------------------+----------+--------+------------------------+---------------+
| Diamant Drilling Services Limited | 100% | - | Sale of drill bits | Scotland |
| *** | | | | |
+------------------------------------+----------+--------+------------------------+---------------+
| Diamant Drilling Services de | 100% | - | Sale of drill bits and | Venezuela |
| Venezuela SA *** | | | other services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Caledonian Petroleum Services | 100% | - | General fabrication | Scotland |
| Limited *** | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Diamant Drilling Services | 100% | - | Dormant company | British |
| International SA *** | | | | Virgin |
| | | | | Islands |
+------------------------------------+----------+--------+------------------------+---------------+
| OIL Engineering Middle East LLC | 49% | - | General fabrication | Abu Dhabi |
| *** | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Dimensional Survey | 100% | - | Dimensional surveyors | Scotland |
| Limited *** | | | to oil & | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | gas industry | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Fishing and Remedial | 100% | - | Fishing & down-hole | Scotland |
| Services Limited *** | | | tool rental | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | and manufacturer | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Fishing and Remedial | 49% | - | Fishing & down-hole | Abu Dhabi |
| Services LLC *** | | | tool rental | |
+------------------------------------+----------+--------+------------------------+---------------+
| | | | and manufacturer | |
+------------------------------------+----------+--------+------------------------+---------------+
| Forfab Limited | 100% | - | General fabrication | Scotland |
| | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Findgolden Limited | 100% | - | Intermediate holding | Scotland |
| | | | company | |
+------------------------------------+----------+--------+------------------------+---------------+
| RDT Precision Engineers Limited | 100% | - | Tool manufacturer for | Scotland |
| *** | | | oil & gas industry | |
+------------------------------------+----------+--------+------------------------+---------------+
| Roller Precision Products Limited | 100% | - | Dormant company | Scotland |
| *** | | | | |
+------------------------------------+----------+--------+------------------------+---------------+
| Sovereign Energprom | 100% | - | Dormant company | Russia |
+------------------------------------+----------+--------+------------------------+---------------+
| Labtech Holdings Limited | 100% | - | Intermediate holding | Scotland |
| | | | company | |
+------------------------------------+----------+--------+------------------------+---------------+
| Cairngorm Holdings Limited | 100% | - | Property holding | Scotland |
| | | | company | |
+------------------------------------+----------+--------+------------------------+---------------+
| Labtech Services Limited | 100% | - | General fabrication | Scotland |
| | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Vertec Engineering Limited | 100% | - | General fabrication | Scotland |
| | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
| Cooltime Engineering Services | 100% | - | General fabrication | Scotland |
| Limited | | | services | |
+------------------------------------+----------+--------+------------------------+---------------+
*** Held through subsidiary undertakings.
MaxWell Downhole Technology Limited
During the year further consideration of GBP90,584 was paid as a result of the
finalisation of the contingent consideration.
Sovereign Energprom
During the year, Sovereign Energprom was formed and is 100% owned by a Group
company.
Forfab Limited
During the year further professional fees relating to the acquisition of
GBP47,870 were paid.
RDT Precision Engineers Limited
During the year further professional fees relating to the acquisition of
GBP15,512 were paid.
Labtech Holding Company Limited and subsidiaries
On 18 April 2007, 100% of the issued share capital of Labtech Holding Company
Limited was acquired with a cash consideration of GBP3.6m, along with loan notes
of GBP2.4m, of which GBP1.8m was redeemable in November 2007, and GBP0.6m in
April 2008. Agreement was subsequently reached to redeem the loan notes in
October 2007. The amount of goodwill arising of GBP3.6m was capitalised.
Vertec Engineering Limited and Cooltime Engineering Services Limited
On 18 April 2007, 100% of the issued share capital of Vertec Engineering Limited
and its subsidiary Cooltime Engineering Services Limited was acquired with a
cash consideration of GBP1.9m. The amount of goodwill arising of GBP0.7m was
capitalised.
15. BUSINESS COMBINATIONS
Acquisition of Labtech Holding Company Limited
On 18 April 2007, the Group acquired 100% of the issued share capital of Labtech
Holding Company Limited and subsidiaries ("Labtech Holdings"), an unlisted group
of companies based in Scotland specialising in the design, engineering and
manufacture of onshore and offshore cabins, containers, baskets, air
conditioning and refrigeration units. The acquisition has been accounted for
using the purchase method of accounting. The financial statements include the
results of Labtech for the eleven and a half month period from the acquisition
date. Book and fair values of the net assets at the date of acquisition were as
follows:
+------------------------------------------------------+--------------+--------------+
| | Book | Fair value |
| | value | to Group |
+------------------------------------------------------+--------------+--------------+
| | GBPm | GBPm |
+------------------------------------------------------+--------------+--------------+
| Property, plant and equipment | 2.6 | 2.6 |
+------------------------------------------------------+--------------+--------------+
| Intangible assets | - | 0.4 |
+------------------------------------------------------+--------------+--------------+
| Trade receivables | 2.4 | 2.4 |
+------------------------------------------------------+--------------+--------------+
| Inventories | 1.0 | 1.0 |
+------------------------------------------------------+--------------+--------------+
| | 6.0 | 6.4 |
+------------------------------------------------------+--------------+--------------+
| Trade payables | (2.4) | (2.5) |
+------------------------------------------------------+--------------+--------------+
| Deferred tax liabilities | (0.1) | (0.7) |
+------------------------------------------------------+--------------+--------------+
| Interest-bearing loans and borrowings | (0.2) | (0.2) |
+------------------------------------------------------+--------------+--------------+
| Income tax payable | (0.4) | (0.4) |
+------------------------------------------------------+--------------+--------------+
| | (3.1) | (3.8) |
+------------------------------------------------------+--------------+--------------+
| NET ASSETS | 2.9 | 2.6 |
+------------------------------------------------------+--------------+--------------+
| Goodwill arising on acquisition | | 3.6 |
+------------------------------------------------------+--------------+--------------+
| Total acquisition cost | | 6.2 |
+------------------------------------------------------+--------------+--------------+
The total acquisition cost of GBP6.2m comprised GBP6.0m consideration and
GBP0.2m acquisition costs. The consideration consisted of a cash payment of
GBP3.6m and loan notes of GBP2.4m, of which GBP1.8m was redeemable in November
2007, and GBP0.6m in April 2008. Agreement was subsequently reached with the
vendors that both tranches of loan notes would be redeemable prior to the dates
above. The actual date of redemption was 24 October 2007.
+--------------------------------------------------------------------+--------------+
| Cash flow on acquisition | |
+--------------------------------------------------------------------+--------------+
| Net cash acquired with the Company | - |
+--------------------------------------------------------------------+--------------+
| Cash paid | 6.2 |
+--------------------------------------------------------------------+--------------+
| Net cash outflow | 6.2 |
+--------------------------------------------------------------------+--------------+
From the date of acquisition to 31 March 2008, Labtech has contributed GBP1.2m
to the net profit of the Group and revenue of GBP11.8m.
Included in the GBP3.6m of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the expected value of
synergies and assembled workforce.
Acquisition of Vertec Engineering Limited and its subsidiary
On 18 April 2007, the Group acquired 100% of the issued share capital of Vertec
Engineering Limited and its subsidiary, Cooltime Engineering Service Limited,
("Cooltime") an unlisted group of companies based in Scotland specialising in
the design, engineering and manufacture of onshore and offshore cabins,
containers, baskets, air conditioning and refrigeration units. The acquisition
has been accounted for using the purchase method of accounting. The financial
statements include the results of Vertec and Cooltime for the eleven and a half
month period from the acquisition date. The fair value of the identifiable
assets and liabilities of Vertec and Cooltime as at the date of acquisition were
as follows:
+----------------------------------------------------------+------------+------------+
| | Book | Fair value |
+----------------------------------------------------------+------------+------------+
| | value | to Group |
+----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+----------------------------------------------------------+------------+------------+
| Property, plant and equipment | 0.7 | 0.7 |
+----------------------------------------------------------+------------+------------+
| Intangible assets | - | 0.4 |
+----------------------------------------------------------+------------+------------+
| Trade receivables | 1.6 | 1.6 |
+----------------------------------------------------------+------------+------------+
| Inventories | 0.7 | 0.7 |
+----------------------------------------------------------+------------+------------+
| | 3.0 | 3.4 |
+----------------------------------------------------------+------------+------------+
| Trade payables | (1.4) | (1.4) |
+----------------------------------------------------------+------------+------------+
| Deferred tax liabilities | - | (0.3) |
+----------------------------------------------------------+------------+------------+
| Bank overdraft | (0.1) | (0.1) |
+----------------------------------------------------------+------------+------------+
| Interest-bearing loans and borrowings | (0.3) | (0.3) |
+----------------------------------------------------------+------------+------------+
| Income tax payable | (0.1) | (0.1) |
+----------------------------------------------------------+------------+------------+
| | (1.9) | (2.2) |
+----------------------------------------------------------+------------+------------+
| NET ASSETS | 1.1 | 1.2 |
+----------------------------------------------------------+------------+------------+
| Goodwill arising on acquisition | | 0.7 |
+----------------------------------------------------------+------------+------------+
| Total acquisition cost | | 1.9 |
+----------------------------------------------------------+------------+------------+
The consideration for Vertec was GBP1.9m, satisfied by a payment in cash.
+----------------------------------------------------------------------+-------------+
| Cash flow on acquisition | |
+----------------------------------------------------------------------+-------------+
| Net cash acquired with the Company | (0.1) |
+----------------------------------------------------------------------+-------------+
| Cash paid | 1.9 |
+----------------------------------------------------------------------+-------------+
| Net cash outflow | 1.8 |
+----------------------------------------------------------------------+-------------+
From the date of acquisition to 31 March 2008, Vertec and Cooltime have
contributed GBP0.2m to the net profit of the Group and revenue of GBP7.8m.
Included in the GBP0.7m of goodwill recognised above are certain intangible
assets that cannot be individually separated and reliably measured from the
acquiree due to their nature. These items include the expected value of
synergies and assembled workforce.
Forfab Limited
On 22 January 2007, 100% of the issued share capital of Forfab Limited was
acquired with shares of GBP48,850 and cash consideration of GBP4.9m, including
legal fees. The amount of goodwill arising of GBP0.8m was capitalised.
+----------------------------------------------------------+------------+------------+
| | Book | Fair |
+----------------------------------------------------------+------------+------------+
| | value | value |
+----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+----------------------------------------------------------+------------+------------+
| Property, plant and equipment | 1.3 | 1.6 |
+----------------------------------------------------------+------------+------------+
| Stock | 0.9 | 0.9 |
+----------------------------------------------------------+------------+------------+
| Debtors | 4.8 | 4.8 |
+----------------------------------------------------------+------------+------------+
| Cash | 0.7 | 0.7 |
+----------------------------------------------------------+------------+------------+
| Creditors | (3.6) | (3.6) |
+----------------------------------------------------------+------------+------------+
| Provisions for liabilities and charges | (0.2) | (0.3) |
+----------------------------------------------------------+------------+------------+
| NET ASSETS | 3.9 | 4.1 |
+----------------------------------------------------------+------------+------------+
| Goodwill arising on acquisitions | | 0.8 |
+----------------------------------------------------------+------------+------------+
| CONSIDERATION | | 4.9 |
+----------------------------------------------------------+------------+------------+
The freehold property was fair valued following a professional valuation on
acquisition.
Findgolden Limited
On 28 February 2007, 100% of the issued share capital of Findgolden Limited and
its trading subsidiary RDT Precision Engineers Limited and the dormant company
Roller Precision Products Limited was acquired for a cash consideration of
GBP2.4m, including legal fees. The amount of negative goodwill arising of
GBP0.8m was credited to the Income Statement.
+----------------------------------------------------------+------------+------------+
| | Book | Fair |
+----------------------------------------------------------+------------+------------+
| | value | value |
+----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+----------------------------------------------------------+------------+------------+
| Property, plant and equipment | 1.1 | 1.5 |
+----------------------------------------------------------+------------+------------+
| Intangible assets | - | 1.6 |
+----------------------------------------------------------+------------+------------+
| Stock | 0.2 | 0.2 |
+----------------------------------------------------------+------------+------------+
| Debtors | 0.5 | 0.5 |
+----------------------------------------------------------+------------+------------+
| Cash | 1.1 | 1.1 |
+----------------------------------------------------------+------------+------------+
| Creditors | (0.7) | (0.7) |
+----------------------------------------------------------+------------+------------+
| Provisions for liabilities and charges | (0.2) | (0.8) |
+----------------------------------------------------------+------------+------------+
| Loans and finance leases | (0.2) | (0.2) |
+----------------------------------------------------------+------------+------------+
| NET ASSETS | 1.8 | 3.2 |
+----------------------------------------------------------+------------+------------+
| Negative goodwill arising on acquisitions | | (0.8) |
+----------------------------------------------------------+------------+------------+
| CONSIDERATION | | 2.4 |
+----------------------------------------------------------+------------+------------+
The freehold property was fair valued following a professional evaluation on
acquisition.
16. TRADE AND OTHER RECEIVABLES
+------------------------------------------------------------------+--------+--------+
| | 2008 | 2007 |
+------------------------------------------------------------------+--------+--------+
| | GBPm | GBPm |
+------------------------------------------------------------------+--------+--------+
| Trade receivables | 18.1 | 15.0 |
+------------------------------------------------------------------+--------+--------+
| Other debtors and prepayments | 1.6 | 0.9 |
+------------------------------------------------------------------+--------+--------+
| Income taxes recoverable | 0.4 | - |
+------------------------------------------------------------------+--------+--------+
| Other taxes recoverable | 0.4 | 0.7 |
+------------------------------------------------------------------+--------+--------+
| Accrued income | 5.2 | 2.0 |
+------------------------------------------------------------------+--------+--------+
| | 25.7 | 18.6 |
+------------------------------------------------------------------+--------+--------+
Trade receivables are denominated in the following currencies:
+------------------------------------------------------------------+--------+--------+
| | 2008 | 2007 |
+------------------------------------------------------------------+--------+--------+
| | GBPm | GBPm |
+------------------------------------------------------------------+--------+--------+
| Sterling | 14.7 | 12.1 |
+------------------------------------------------------------------+--------+--------+
| Euro | 1.2 | 1.7 |
+------------------------------------------------------------------+--------+--------+
| US dollar | 1.8 | 1.2 |
+------------------------------------------------------------------+--------+--------+
| Other currencies | 0.4 | - |
+------------------------------------------------------------------+--------+--------+
| | 18.1 | 15.0 |
+------------------------------------------------------------------+--------+--------+
Trade receivables are non-interest bearing and are generally on 30-90 day terms
and are shown net of a provision for impairment. As at 31 March 2008, trade
receivables of GBP0.5m (2007: GBPnil) were impaired and fully provided for.
Movements in the provision for impairment of receivables were as follows:
+------------------------------------------------------------------+--------+--------+
| | 2008 | 2007 |
+------------------------------------------------------------------+--------+--------+
| | GBPm | GBPm |
+------------------------------------------------------------------+--------+--------+
| At 1 April | - | - |
+------------------------------------------------------------------+--------+--------+
| Charge for the year | 0.5 | - |
+------------------------------------------------------------------+--------+--------+
| At 31 March | 0.5 | - |
+------------------------------------------------------------------+--------+--------+
As at 31 March, the analysis of trade receivables that were past due but not
impaired is as follows:
+--------+-------+------------+------------+------------+------------+------------+------------+
| | | | Past due but not impaired | | |
+--------+-------+------------+--------------------------------------+------------+------------+
| | Total | Neither | <30 days | 30-60 days | 60-90 days | 90-120 | >120 days |
| | | past due | | | | days | |
| | | nor | | | | | |
| | | impaired | | | | | |
+--------+-------+------------+------------+------------+------------+------------+------------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------+-------+------------+------------+------------+------------+------------+------------+
| 2008 | 18.1 | 8.0 | 5.8 | 2.4 | 0.8 | 0.6 | 0.5 |
+--------+-------+------------+------------+------------+------------+------------+------------+
| 2007 | 15.0 | 9.1 | 3.3 | 1.0 | 1.1 | 0.5 | - |
+--------+-------+------------+------------+------------+------------+------------+------------+
17. INVENTORIES
+-----------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+-----------------------------------------------------------+------------+------------+
| Raw materials and consumables | 2.0 | 0.8 |
+-----------------------------------------------------------+------------+------------+
| Work in progress | 2.7 | 2.8 |
+-----------------------------------------------------------+------------+------------+
| Finished goods and goods for resale | 1.5 | 1.5 |
+-----------------------------------------------------------+------------+------------+
| | 6.2 | 5.1 |
+-----------------------------------------------------------+------------+------------+
The difference between purchase price or production cost of stocks and their
replacement cost is not material.
18. CASH AND SHORT-TERM DEPOSITS
+-----------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+-----------------------------------------------------------+------------+------------+
| Cash at bank in hand | 1.4 | 2.6 |
+-----------------------------------------------------------+------------+------------+
| Short-term deposits | - | 2.1 |
+-----------------------------------------------------------+------------+------------+
| | 1.4 | 4.7 |
+-----------------------------------------------------------+------------+------------+
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three
months depending on the immediate cash requirements of the Group, and earn
interest at the respective short-term deposit rates. The fair value of cash and
cash equivalents is considered to be the same as their carrying value.
For the purpose of the consolidated cash flow statement, cash and cash
equivalents comprise the following at 31 March:
+-----------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+-----------------------------------------------------------+------------+------------+
| Cash at bank and in hand | 1.4 | 2.6 |
+-----------------------------------------------------------+------------+------------+
| Short-term deposits | - | 2.1 |
+-----------------------------------------------------------+------------+------------+
| Bank overdrafts | - | (0.1) |
+-----------------------------------------------------------+------------+------------+
| | 1.4 | 4.6 |
+-----------------------------------------------------------+------------+------------+
19. TRADE AND OTHER PAYABLES
+-----------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+-----------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+-----------------------------------------------------------+------------+------------+
| Trade payables | 15.4 | 9.9 |
+-----------------------------------------------------------+------------+------------+
| Other payables | 3.3 | 4.2 |
+-----------------------------------------------------------+------------+------------+
| Interest payable | 1.0 | 0.4 |
+-----------------------------------------------------------+------------+------------+
| | 19.7 | 14.5 |
+-----------------------------------------------------------+------------+------------+
20. INTEREST-BEARING LOANS AND BORROWINGS
+------------------------------------------------------------+------------+------------+
| | 2008 | 2007 |
+------------------------------------------------------------+------------+------------+
| | GBPm | GBPm |
+------------------------------------------------------------+------------+------------+
| CURRENT | | |
+------------------------------------------------------------+------------+------------+
| Bank overdrafts | - | 0.1 |
+------------------------------------------------------------+------------+------------+
| Current obligations under finance leases and hire purchase | 0.3 | 0.1 |
| contracts (Note 21) | | |
+------------------------------------------------------------+------------+------------+
| Current instalments due on bank loans | 32.9 | - |
+------------------------------------------------------------+------------+------------+
| | 33.2 | 0.2 |
+------------------------------------------------------------+------------+------------+
+------------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+------------------------------------------------------------+-----------+-----------+
| | GBPm | GBPm |
+------------------------------------------------------------+-----------+-----------+
| NON-CURRENT | | |
+------------------------------------------------------------+-----------+-----------+
| Non-current obligations under finance leases and hire | 1.0 | 0.7 |
| purchase contracts (Note 21) | | |
+------------------------------------------------------------+-----------+-----------+
| Non-current instalments due on bank loans | - | 17.3 |
+------------------------------------------------------------+-----------+-----------+
| | 1.0 | 18.0 |
+------------------------------------------------------------+-----------+-----------+
The bank overdrafts and loans are secured by a floating charge over certain of
the Group's assets and pledges over the shares of the parent company and its
subsidiaries.
The Group breached its banking covenants during the year and new banking
arrangements were put in place by the Group's Lenders as part of a standstill
agreement at 31 March 2008. The disclosures and classification of the company's
bank loans are based on the contractual position at 31 March 2008.
Under the standstill agreement the terms of the facility were substantially
modified. This is on the basis that the present value of the cash flows under
the new facility, discounted using the original effective interest rate, were at
least 10% different to the discounted present value of the facility being
replaced. Accordingly, the transaction has been accounted for as an
extinguishment of the old facility, resulting in an exceptional loss of GBP2.4m
being recorded within Finance Costs in the Income Statement. This represents the
difference between the book value of the old facility and the fair value of the
new facility, the majority of the difference arising due to the substantial
arrangement fees associated with the original facility.
The Group incurred a one-off charge of GBP0.5m for breaching its banking
covenants which was expensed in full during the year. The Group has reclassified
repayments of principal from Non-current to Current on the basis that the
Company's Lenders are in position to serve the Company with a notice to repay
the bank loans on demand. No such notices have been served and the Group has
waivers in place for the breaches which occurred during the year. The loans are
due for repayment in January 2012.
The Group has senior facilities of GBP17.4m and mezzanine facilities of
GBP14.6m. The senior facilities bear interest at six-month LIBOR plus 3.5% to
8.5% (2007: LIBOR plus 3.5%) whilst the mezzanine facilities bear interest at
six-month LIBOR plus 6% to 11% (2007: LIBOR plus 6%), plus a payment in kind of
6% (2007: 6%). The payment in kind is not payable until January 2012 and
GBP0.9m is included for the payment in kind in current instalments due on bank
loans. Commitment fees of 0.625% were payable on undrawn facilities until these
facilities were withdrawn. At 31 March 2008, the Group no longer has undrawn
facilities available to it (2007: GBP30.0m). The Group's borrowings are floating
rate and the effective interest rate is six-month LIBOR plus 13.1%.
Subsequent to the year-end, the Group has agreed revised banking terms with its
Lenders which are set out in Note 28.
21. OBLIGATIONS UNDER LEASES AND HIRE PURCHASE CONTRACTS
The Group uses finance leases and hire purchase contracts to acquire plant and
machinery. These leases have terms of renewal but no purchase options and
escalation clauses. Renewals are at the option of the lessee. Future minimum
lease payments under finance leases and hire purchase contracts are as follows:
+------------------------------------------------------------+-----------+---+---+---+
| | 2008 | 2007 |
+------------------------------------------------------------+---------------+-------+
| | GBPm | GBPm |
+------------------------------------------------------------+---------------+-------+
| Future minimum payments due: | | |
+------------------------------------------------------------+---------------+-------+
| Not later than one year | 0.4 | 0.1 |
+------------------------------------------------------------+---------------+-------+
| After one year but not more than five years | 0.6 | 0.8 |
+------------------------------------------------------------+---------------+-------+
| After five years | 1.5 | - |
+------------------------------------------------------------+---------------+-------+
| | 2.5 | 0.9 |
+------------------------------------------------------------+---------------+-------+
| Less finance charges allocated to future payments | (1.2) | (0.1) |
+------------------------------------------------------------+---------------+-------+
| Present value of minimum lease payments | 1.3 | 0.8 |
+------------------------------------------------------------+---------------+-------+
| The present value of minimum lease payments is analysed as | | |
| follows: | | |
+------------------------------------------------------------+-----------+-------+
| Not later than one year | 0.3 | 0.1 |
+------------------------------------------------------------+-----------+-------+
| After one year but not more than two years | 0.1 | 0.3 |
+------------------------------------------------------------+-----------+-------+
| After two years but not more than five years | 0.3 | 0.4 |
+------------------------------------------------------------+-----------+-------+
| After five years | 0.6 | - |
+------------------------------------------------------------+-----------+-------+
| | 1.3 | 0.8 |
+------------------------------------------------------------+-----------+---+---+---+
Operating lease agreements where the Group is lessee
The Group has entered into commercial leases on certain properties, motor
vehicles and items of machinery. These leases have an average duration of
between 1 and 5 years. Only the property lease agreements contain an option for
renewal, with such options being exercisable before the expiry of the lease term
at rentals based on market prices at the time of exercise. There are no
restrictions placed upon the lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases are as
follows:
+------------------------------------------------------------+-----------+-----------+
| | 2008 | 2007 |
+------------------------------------------------------------+-----------+-----------+
| | GBPm | GBPm |
+------------------------------------------------------------+-----------+-----------+
| Not later than one year | 0.2 | - |
+------------------------------------------------------------+-----------+-----------+
| After one year but not more than five years | 0.9 | 0.3 |
+------------------------------------------------------------+-----------+-----------+
| After five years | - | 0.7 |
+------------------------------------------------------------+-----------+-----------+
| | 1.1 | 1.0 |
+------------------------------------------------------------+-----------+-----------+
22. PROVISIONS
+-------------------------------------------------------------------+---------------+
| | Dilapidations |
| | on Leasehold |
| | buildings |
+-------------------------------------------------------------------+---------------+
| | GBPm |
+-------------------------------------------------------------------+---------------+
| AT 1 APRIL 2007 | |
+-------------------------------------------------------------------+---------------+
| Current | - |
+-------------------------------------------------------------------+---------------+
| Non-current | 0.1 |
+-------------------------------------------------------------------+---------------+
| | 0.1 |
+-------------------------------------------------------------------+---------------+
| Arising during the year | - |
+-------------------------------------------------------------------+---------------+
| AT 31 MARCH 2008 | 0.1 |
+-------------------------------------------------------------------+---------------+
| Analysed as: | |
+-------------------------------------------------------------------+---------------+
| Current | - |
+-------------------------------------------------------------------+---------------+
| Non-current | 0.1 |
+-------------------------------------------------------------------+---------------+
| | 0.1 |
+-------------------------------------------------------------------+---------------+
The dilapidations are expected to be payable in 2012.
23. FINANCIAL INSTRUMENTS
The Group's principal financial liabilities comprise bank loans and trade and
other payables. The main purpose of these financial liabilities is to raise
finance for the Group's operations. The Group has trade and other receivables
and cash and short-term deposits which arise directly from its operations.
The Group is exposed to interest rate risk, credit risk, foreign currency risk
and liquidity risk.
The Group's Board of Directors oversees the management of these risks. It
reviews and agrees policies for managing each of these risks which are
summarised below.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in market interest rates.
The Group's exposure to the risk of changes in market interest rates relates
primarily to the Group's bank loans with floating interest rates.
The Group has managed its risk by entering into an interest rate hedge which
caps six month LIBOR at 7%.
The following table sets out the carrying amount, by maturity of the Group's
financial instruments that are exposed to interest rate risk:
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
| | Within | 1-2 | 2-3 | 3-4 | 4-5 | More | Total |
| | 1 year | years | years | years | years | than 5 | |
| | | | | | | years | |
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
| Year ended 31 March 2008 | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
| Fixed rate | | | | | | | |
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
| Obligations under | (0.3) | (0.1) | (0.1) | (0.1) | (0.1) | (0.6) | (1.3) |
| finance leases and hire | | | | | | | |
| purchase contracts | | | | | | | |
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
| | (0.3) | (0.1) | (0.1) | (0.1) | (0.1) | (0.6) | (1.3) |
+--------------------------+---------+--------+----------+--------+---------+---------+-------+
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | Within | 1-2 | 2-3 | 3-4 | 4-5 | More | Total |
| | 1 year | years | years | years | years | than 5 | |
| | | | | | | years | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Floating rate | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Cash | 1.4 | - | - | - | - | - | 1.4 |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Bank loan | (32.9) | - | - | - | - | - | (32.9) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | (31.5) | - | - | - | - | - | (31.5) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | Within | 1-2 | 2-3 | 3-4 | 4-5 | More | Total |
| | 1 year | years | years | years | years | than 5 | |
| | | | | | | years | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Year ended 31 March | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
| 2007 | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Fixed rate | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Obligations under | (0.1) | (0.3) | (0.2) | (0.1) | (0.1) | - | (0.8) |
| finance leases and | | | | | | | |
| hire purchase | | | | | | | |
| contracts | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | (0.1) | (0.3) | (0.2) | (0.1) | (0.1) | - | (0.8) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | Within | 1-2 | 2-3 | 3-4 | 4-5 | More | Total |
| | 1 year | years | years | years | years | than 5 | |
| | | | | | | years | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Floating rate | | | | | | | |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Cash | 2.6 | - | - | - | - | - | 2.6 |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Short-term deposits | 2.1 | - | - | - | - | - | 2.1 |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Bank overdrafts | (0.1) | - | - | - | - | - | (0.1) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| Bank loan | - | - | - | - | (17.3) | - | (17.3) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
| | 4.6 | - | - | - | (17.3) | - | (12.7) |
+------------------------+--------+--------+--------+--------+--------+--------+--------+
Interest on financial instruments classified as floating rate is repriced at
intervals of less than one year. Interest on financial instruments classified
as fixed rate is fixed until the maturity of the instrument. The other
financial instruments of the Group that are not included in the above tables are
non-interest bearing and are therefore not subject to interest rate risk.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change
in interest rates, with all other variables held constant, of the Group's profit
before tax (through impact on floating rate borrowings). The impact on the
Group's equity is the same, subject to the tax at 28%.
The 2008 analysis below reflects a larger reasonably possible change in interest
rates than in 2007, due to increased volatility in the financial markets:
+------------------------------------------------------+--------------+--------------+
| | Increase / | Effect on |
| | (decrease) | profit |
| | in basis | before tax |
| | points | GBPm |
+------------------------------------------------------+--------------+--------------+
| 2008 | | |
+------------------------------------------------------+--------------+--------------+
| Sterling | 20 | (0.3) |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Sterling | (20) | 0.7 |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| 2007 | | |
+------------------------------------------------------+--------------+--------------+
| Sterling | 10 | (0.2) |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| Sterling | (10) | 0.2 |
+------------------------------------------------------+--------------+--------------+
Credit risk
There are no significant concentrations of credit risk within the Group unless
otherwise disclosed. The maximum credit risk exposure relating to financial
assets is represented the carrying value of GBP19.5m as at the Balance Sheet
date.
The Group has established procedures to minimise the risk of default by trade
debtors including detailed credit checks undertaken before a customer is
accepted. Historically, these procedures have proved effective in minimising
the level of impaired and past due debtors.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
financial instrument will fluctuate because of changes in foreign exchange
rates. The Group's exposure to the risk of changes in foreign exchange rates
relates primarily to the Group's operating activities (when revenue or expense
are denominated in a difference currency from the Group's functional currency)
and the Group's net investments in foreign subsidiaries.
The Group manages it foreign currency risk by insuring that sales, revenues and
costs are matched as far as possible. The Group's principal exposures arise in
overseas' subsidiaries with functional currencies of Euros where there are US$
sales not matched by US$ costs. There is also an exposure in the translation of
the results of the Euro denominated subsidiaries into the group's functional
currency.
The following table demonstrates the sensitivity to a reasonably possible change
the US dollar and Euro exchange rates with all other variables held constant, of
the Group's profit before tax (due to changes in the fair value of monetary
assets and liabilities).
+------------------------------------------------------+--------------+--------------+
| | Increase | Effect on |
| | | profit |
+------------------------------------------------------+--------------+--------------+
| | in | before tax |
+------------------------------------------------------+--------------+--------------+
| | basis points | GBPm |
+------------------------------------------------------+--------------+--------------+
| 2008 | | |
+------------------------------------------------------+--------------+--------------+
| US dollar | 10 | 0.3 |
+------------------------------------------------------+--------------+--------------+
| Euro | 10 | (0.6) |
+------------------------------------------------------+--------------+--------------+
| | | |
+------------------------------------------------------+--------------+--------------+
| 2007 | | |
+------------------------------------------------------+--------------+--------------+
| US dollar | 10 | (0.3) |
+------------------------------------------------------+--------------+--------------+
| Euro | 10 | (0.3) |
+------------------------------------------------------+--------------+--------------+
A decrease of 10 basis points would have an equal and opposite effect.
Liquidity Risk
The Group monitors its liquidity risk to a shortage of funds using actual data,
forecasts and models against which sensitivities are tested. The Group's
objective is to achieve a balance between continuity of funding and flexibility
through bank loans, finance leases and hire purchase contracts. The Group meets
its day to day working capital and medium-term funding requirements through
banking facilities. The Group secured new funding, including acquisition
finance, in January 2007. The terms on which that funding was secured included
covenants with which the Group was required to comply relating to earnings, cash
flows, interest cover and leverage. Due to the performance of the Drilling
Division, particularly DDS, the Group breached these covenants during the year
and a standstill agreement and bank waivers were secured which included revised
banking terms (Note 20). The Group has been working closely with its Lenders
during 2008 and 2009 to secure new long-term facilities and signed new
agreements with its Lenders subsequent to the year-end (Note 28). The new terms
provide for a waiver of all outstanding defaults until 31 May 2010, a reduction
in margin payable and a revised covenant package. The revised covenant package
incorporates financial covenants with regard to quarterly revenue and earnings
before interest, tax, depreciation and amortisation. The failure of the covenant
tests renders the entire facilities repayable on demand of the option of the
Lenders.
The table below summarises the maturity profile of the Group's financial
liabilities at 31 March 2008 and 2007 based on contractual undiscounted
payments. Interest rates on variable loans have been based on six-month LIBOR
at the Balance Sheet date.
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| | On demand | Less than | 3-12 | 1-5 | Total |
| | | 3 months | months | years | |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Year ended 31 March 2008 | GBPm | GBPm | GBPm | GBPm | GBPm |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Interest-bearing loans and | 32.9 | 1.0 | 3.8 | 22.1 | 59.8 |
| borrowings | | | | | |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Trade and other payables | 3.0 | 10.5 | 5.2 | - | 18.7 |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| | 35.9 | 11.5 | 9.0 | 22.1 | 78.5 |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| | On demand | Less than | 3-12 | 1-5 | Total |
| | | 3 months | months | years | |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Year ended 31 March 2007 | GBPm | GBPm | GBPm | GBPm | GBPm |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Interest-bearing loans and | - | 0.5 | 1.6 | 28.7 | 30.8 |
| borrowings | | | | | |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| Trade and other payables | 2.2 | 10.9 | 2.4 | - | 15.5 |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
| | 2.2 | 11.5 | 4.0 | 28.7 | 46.3 |
+----------------------------+-----------+-----------+-----------+-----------+-----------+
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of carrying amounts and fair values of
all of the Group's financial instruments.
+----------------------------------+------------+------------+------------+------------+
| | Book value | Fair value |
+----------------------------------+-------------------------+-------------------------+
| | 2008 | 2007 | 2008 | 2007 |
+----------------------------------+------------+------------+------------+------------+
| | GBPm | GBPm | GBPm | GBPm |
+----------------------------------+------------+------------+------------+------------+
| FINANCIAL ASSETS | | | | |
+----------------------------------+------------+------------+------------+------------+
| Cash and short-term deposits | 1.4 | 4.7 | 1.4 | 4.7 |
+----------------------------------+------------+------------+------------+------------+
| Derivative financial instruments | 0.1 | 0.1 | 0.1 | 0.1 |
+----------------------------------+------------+------------+------------+------------+
| | | | | |
+----------------------------------+------------+------------+------------+------------+
| FINANCIAL LIABILITIES | | | | |
+----------------------------------+------------+------------+------------+------------+
| Bank overdraft | - | (0.1) | | (0.1) |
+----------------------------------+------------+------------+------------+------------+
| Interest-bearing loans and | | | | |
| borrowings: | | | | |
+----------------------------------+------------+------------+------------+------------+
| Finance lease and hire purchase | (1.3) | (0.8) | (1.3) | (0.8) |
| obligations | | | | |
+----------------------------------+------------+------------+------------+------------+
| Floating rate borrowings | (32.9) | (17.3) | (32.9) | (17.3) |
+----------------------------------+------------+------------+------------+------------+
The fair value of derivative instruments is determined using quoted prices.
The carrying value of interest-bearing loans and borrowings are assumed to
approximate their fair value given that they are floating rate and terms were
signed shortly before the 2008 and 2007 year-ends. The carrying values of trade
receivables less impairment and trade payables are assumed to approximate their
fair value.
24. AUTHORISED AND ISSUED SHARE CAPITAL
+-----------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+-----------------------------------------------------+---------------+---------------+
| | No. of shares | No. of shares |
+-----------------------------------------------------+---------------+---------------+
| AUTHORISED | | |
+-----------------------------------------------------+---------------+---------------+
| Ordinary Shares of 1 pence each | 40,000,000 | 40,000,000 |
+-----------------------------------------------------+---------------+---------------+
| | 40,000,000 | 40,000,000 |
+-----------------------------------------------------+---------------+---------------+
+-----------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+-----------------------------------------------------+---------------+---------------+
| | GBP | No. |
+-----------------------------------------------------+---------------+---------------+
| ALLOTTED, CALLED UP AND FULLY PAID | | |
+-----------------------------------------------------+---------------+---------------+
| Ordinary Shares of 1 pence each: | | |
+-----------------------------------------------------+---------------+---------------+
| At 1 April | 17,046,211 | 16,263,830 |
+-----------------------------------------------------+---------------+---------------+
| Issued on refinancing agreement | - | 611,157 |
+-----------------------------------------------------+---------------+---------------+
| Issued as deferred consideration | - | 148,236 |
+-----------------------------------------------------+---------------+---------------+
| Issued on acquisition of subsidiary | 587,010 | 22,988 |
+-----------------------------------------------------+---------------+---------------+
| Purchased for cancellation | (317,917) | - |
+-----------------------------------------------------+---------------+---------------+
| At 31 March | 17,315,304 | 17,046,211 |
+-----------------------------------------------------+---------------+---------------+
On 21 September 2007, 317,917 shares of 1 pence representing 1.9% of the issued
share capital were purchased for cancellation at a price of 87 pence per share
at a total cost of GBP305,817 including professional fees.
On 17 October 2007, 587,010 Ordinary Shares of 1 pence were issued to the
vendors of MaxWell Downhole Technology Limited as contingent consideration.
On 28 February 2008, 454,456 Ordinary Shares of 1 pence were transferred to the
Company as part of a severance arrangement whereby an employee agreed to pay
GBP250,000 to be satisfied by the transfer of these shares. The shares are held
by the company as Treasury shares.
25. SHARE-BASED PAYMENTS
Employee share-option plan
The Employees are granted options at the discretion of the Board of Directors.
The options will vest if the employee remains in service for a period of two
years from the date of grant. The exercise price of the options is equal to the
estimated market price of shares on the date of grant. The contractual life of
the options is 10 years and there are no cash settlement alternatives.
The expense recognised for share-based payments in respect of employee services
received during the year to 31 March 2008 is GBP84,344 (2007: GBP116,425).
The following table illustrates the number and weighted average exercise prices
(WAEP) of, and movements in, share options during the year.
+--------------------------------------------+-----------+----------+-----------+----------+
| | 2008 | 2008 | 2007 | 2007 |
+--------------------------------------------+-----------+----------+-----------+----------+
| | No. | WAEP | No. | WAEP |
+--------------------------------------------+-----------+----------+-----------+----------+
| Outstanding as at 1 April | 610,000 | GBP1.90 | 400,000 | GBP1.63 |
+--------------------------------------------+-----------+----------+-----------+----------+
| Granted during the year | 15,000 | GBP1.91 | 315,000 | GBP2.07 |
+--------------------------------------------+-----------+----------+-----------+----------+
| Expired during the year | (121,000) | GBP1.74 | (105,000) | GBP1.40 |
+--------------------------------------------+-----------+----------+-----------+----------+
| Outstanding as at 31 March | 504,000 | GBP1.93 | 610,000 | GBP1.90 |
+--------------------------------------------+-----------+----------+-----------+----------+
| Exercisable at 31 March | 240,000 | GBP1.79 | - | - |
+--------------------------------------------+-----------+----------+-----------+----------+
For the share options outstanding as at 31 March 2008, the weighted average
remaining contractual life is 8.29 years (2007: 9.24 years).
The weighted average fair value of options granted during the year was GBP0.73
(2007: GBP0.81). The range of exercisable prices for options outstanding at the
end of the year was GBP1.40 - GBP2.28 (2007: GBP1.40 - GBP2.28).
The fair value of equity-settled share options granted is estimated as at the
date of grant using a Black-Scholes model, taking into account the terms and
conditions upon which the options were granted. The following table lists the
inputs to the model used for the years ended 31 March 2008 and 31 March 2007.
+----------------------------------------------------------------+----------+----------+
| | 2008 | 2007 |
+----------------------------------------------------------------+----------+----------+
| Dividend yield (%) | - | - |
+----------------------------------------------------------------+----------+----------+
| Expected share price volatility (%) | 31.8 | 31.9 |
+----------------------------------------------------------------+----------+----------+
| Risk-free interest rate (%) | 4.4 | 4.4 |
+----------------------------------------------------------------+----------+----------+
| Expected life of option (years) | 5 | 5 |
+----------------------------------------------------------------+----------+----------+
| Weighted average share price (GBP) | 1.85 | 1.90 |
+----------------------------------------------------------------+----------+----------+
The expected life of the options is based on historical data and is not
necessarily indicative of exercise patterns that may occur. The expected
volatility reflects the assumptions that the historical volatility is indicative
of future trends, which may also not necessarily be the actual outcome.
No other features of options grant were incorporated into the measurement of
fair value.
26. STATEMENT OF CHANGES IN EQUITY
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| | Equity | Treasury | Other | Currency | Retained | Shareholder | Minority | Total |
| | share | share | equity | translation | earnings | equity | interests | equity |
| | capital | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| At 1 April 2006 | 9.0 | - | 1.0 | - | (0.3) | 9.7 | 0.1 | 9.8 |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Total recognised | - | - | - | (0.1) | 1.0 | 0.9 | - | 0.9 |
| income and expense | | | | | | | | |
| for the year | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Share-based payment | - | - | - | - | 0.1 | 0.1 | - | 0.1 |
| reserve credit | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Shares issued on | 0.4 | - | (0.1) | - | - | 0.3 | (0.1) | 0.2 |
| acquisition | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Shares issued for | 1.3 | - | - | - | - | 1.3 | - | 1.3 |
| cash | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| At 31 March 2007 and | 10.7 | - | 0.9 | (0.1) | 0.8 | 12.3 | - | 12.3 |
| | | | | | | | | |
| 1 April 2007 | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Total recognised | - | - | - | 0.8 | (7.4) | (6.6) | - | (6.6) |
| income and expense | | | | | | | | |
| for the year | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Shares issued on | 1.0 | - | (0.9) | - | - | 0.1 | - | 0.1 |
| acquisition | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Purchase of Treasury | - | (0.3) | - | - | - | (0.3) | - | (0.3) |
| shares | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Share buyback | - | - | - | - | (0.3) | (0.3) | - | (0.3) |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| Share-based payment | - | - | - | - | - | - | - | - |
| reserve credit | | | | | | | | |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
| At 31 March 2008 | 11.7 | (0.3) | - | 0.7 | (6.9) | 5.2 | - | 5.2 |
+----------------------+---------+----------+--------+-------------+----------+-------------+-----------+--------+
EQUITY SHARE CAPITAL
The balance classified as share capital includes the total net proceeds (both
nominal value of GBP0.2m and share premium of GBP11.5m) on issue of the
Company's equity share capital, comprising 1 pence Ordinary Shares.
FOREIGN CURRENCY TRANSLATION RESERVE
The foreign currency translation reserve is used to record exchange differences
arising from the translation of the financial statements of foreign
subsidiaries. It is also used to record the effect of hedging net investments
in foreign operations.
27. ADDITIONAL CASH FLOW INFORMATION
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| | 1 | Cash | Debt on | Exchange | Non-cash | 31 March |
| | April | | | | | |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| | 2007 | flow | acquisition | differences | movements | 2008 |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| ANALYSIS OF GROUP NET DEBT | | | | | | |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| Cash and cash equivalents | 4.6 | (3.2) | - | - | - | 1.4 |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| Loans | (20.0) | (12.1) | - | - | (0.8) | (32.9) |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| Finance leases | (0.8) | (0.1) | (0.5) | 0.1 | - | (1.3) |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
| | (16.2) | (15.4) | (0.5) | 0.1 | (0.8) | (32.8) |
+-----------------------------+---------+---------+-------------+-------------+-----------+----------+
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| | 1 | Cash | Debt on | Exchange | Non-cash | 31 |
| | April | | | | | March |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| | 2006 | flow | acquisition | differences | movements | 2007 |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| | GBPm | GBPm | GBPm | GBPm | GBPm | GBPm |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| ANALYSIS OF GROUP NET DEBT | | | | | | |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| Cash and cash equivalents | 2.2 | 2.4 | - | - | - | 4.6 |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| Loans | (3.6) | (16.3) | - | - | (0.1) | (20.0) |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| Finance leases | (0.5) | 0.2 | (0.2) | - | (0.3) | (0.8) |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
| | (1.9) | (13.7) | (0.2) | - | (0.4) | (16.2) |
+----------------------------+--------+---------+-------------+-------------+-----------+---------+
NON-CASH MOVEMENTS
Non-cash movements include GBP0.8m representing non-cash interest in the form of
payments in kind (Note 20).
28. POST BALANCE SHEET EVENT
Restructuring of Financing Arrangements
At 31 March 2008, the Group obtained a standstill from its Lenders in the form
of an amendment and waiver letter regarding defaults at 31 March 2008. Contained
within the letter were amendments to the terms of the Senior Facility Agreement
and the Mezzanine Facility Agreement with reference to the ratcheting of
interest margins from 3.5% to 8.5% on the senior facility and from 6% to 11% on
the mezzanine facility over a period of time. In addition, the Company was
required to pay a fee equal to 1% of the aggregate commitments, being
GBP500,000. Conditions relating to the disposal of DDS were also included.
Existing financial covenants were revised as part of the amendment and waiver
letter, such covenants including tests around interest cover, senior leverage,
leverage and capital expenditure.
Given the circumstances at the Balance Sheet date, bank loans were classified as
current in accordance with IAS 1, and arrangement fees of GBP2.4m written off in
accordance with IAS 39 as the terms of the existing facility were deemed to be
substantially modified.
Subsequent to the year end, prior to the date of issue of the financial
statements, the Group has agreed to an amendment of terms in respect of credit
facilities in place at 31 March 2008. The new terms agreed provide for a waiver
of all outstanding defaults until 31 May 2010, a reduction in margin payable on
both senior and mezzanine facilities and a revised covenant package. No
restructuring or arrangement fees are payable with regard to the negotiation of
new commercial terms.
Under the new terms, for the period from 1 June 2009 to 31 March 2010 the senior
facilities will bear interest at LIBOR plus 4%, whilst the mezzanine facilities
will bear interest at a payment in kind of 6.5%. For the period from 1 April
2010 to 31 March 2011 the senior facilities will bear interest at LIBOR plus 5%,
whilst the mezzanine facilities will bear interest at LIBOR plus 6.5%, plus a
payment in kind of 3.5%.
We estimate that the revised terms which cover the period to 31 March 2011, will
result in net savings in finance costs of GBP3.4m.
The revised covenant package incorporates financial covenants with regard to
quarterly revenue and EBITDA which the Board believe are acceptable.
As part of the conditions subsequent, the Group agreed to the disposal of Vertec
and certain Labtech assets. The Group was pleased to issue an announcement on 11
May 2009 that we agreed the sale of the shares of Vertec and the assets of
Labtech's hire fleet for GBP5.45m, subject to shareholder approval. A general
meeting is due to be held on 27 May 2009 to ratify this transaction. The
Directors unanimously recommend Shareholders vote in favour of the Resolutions
as the Directors intend to do in respect of their beneficial shareholdings
amounting to 10,084,900 Ordinary Shares representing 58.24 percent of the issued
Ordinary Shares. All proceeds will be used to pay down existing debt.
The gross assets of Labtech and Vertec were GBP1.2m and GBP2.0m as at 31 March
2008 and the operating profit was approximately GBP0.8m and GBP0.1m
respectively.
Further disposals are contemplated and shareholders will be informed at the
appropriate time.
As part of the negotiation of new terms with the Existing Lending Consortium the
Board of Directors revisited its strategic plan and reviewed in depth its
business model, particularly with regard to expectations of future growth. In
particular, we looked at the Group's ability to sustain its business model and
have been actively monitoring our position in relation to the continued
volatility in the financial markets, including The Group's exposure to liquidity
risk.
The Group's business models have been subject to independent analysis, and
sensitivities conducted to flex assumptions to identify how robust the models
outputs are in practice. Further, we have taken into consideration the impact of
recent events on our relationships with third parties such as customers and
suppliers.
As noted in the Financial Directors Review on page 10 and 11 and in the
Accounting Policies on pages 25 to 31, the Group has conducted tests in
accordance with IAS 36 "Impairment of Assets" and these have been taken into
account when making best estimates of future cash flows.
The Directors are satisfied that, based on the model outputs, the Group has
sufficient headroom between cash requirements and facilities available to it as
agreed by the Lending Consortium and therefore concluded that, at the date of
signing the financial statements, the business is a going concern.
Disposal of Diamant Drilling Services SA
In March 2009, the Group announced the sale of DDS, which was consistently loss
making, to Logan Oil Tools Inc for consideration of up to approximately
EUR527,000. The consideration of up to EUR250,000 cash will be paid in 3 months from
the date of disposal and a further contribution of up to EUR277,000, dependent on
certain performance criteria, will become due within 6 months following
completion. At the Balance Sheet date the recoverable amount has been determined
on its fair value less costs to sell. The goodwill associated with this company
of GBP0.7m has been written off in full. Operating losses of GBP2.1m incurred in
the financial year 2008/9 prior to the company's disposal will be included in
the consolidated results for the 2008/9 financial year.
The gross assets of DDS were GBP2.3m as at 31 March 2008 and the operating loss
was approximately GBP0.3m.
Sale and Leaseback of Property
In May 2008, freehold buildings held by two subsidiaries were sold for GBP3.9m
cash. The buildings were leased back on a ten year extendable lease. The net
book value of the disposal was GBP2.8m resulting in a potential tax charge of
GBP0.4m. Of the proceeds, GBP2.9m were used to pay down Senior loan facilities.
29. CONTINGENT LIABILITIES
Proceedings have been initiated by a formed employee against DDS alleging unfair
termination of employment. The outcome of this case cannot be determined with
reasonable certainty. However in the directors' opinion the case against DDS has
no merit and the possibility of a transfer of economic benefits in settlement is
remote.
Proceedings have been initiated by a former consultancy agent against Serco SA
alleging unfair termination of consultancy agreement and breach of contract. The
outcome of this case cannot be determined with reasonable certainty. However in
the directors' opinion the case against Serco SA has no merit and the
possibility of a transfer of economic benefits in settlement is remote.
30. TRANSITION TO IFRS
For all periods up to and including the year ended 31 March 2007, the Group
prepared its financial statements in accordance with United Kingdom generally
accepted accounting practice (UK GAAP). These financial statements, for the
year ended 31 March 2008, are the first the Group is required to prepare in
accordance with International Financial Reporting Standards (IFRS) as adopted by
the European Union (EU).
Accordingly, the Group has prepared financial statements which comply with
IFRS applicable for periods beginning on or after 1 April 2006 and the
significant accounting policies meeting those requirements are described in the
Basis of Preparation and Accounting Policies.
In preparing these financial statements, the Group has started from an opening
Balance Sheet as at 1 April 2006, the Group's date of transition to IFRS, and
made those changes in accounting policies and other restatements required by
IFRS 1 for the first-time adoption of IFRS. In addition, the Group identified
some adjustments as part of this process that do not arise from a GAAP
difference and have therefore been classified as UK GAAP adjustments, rather
than IFRS reclassifications or remeasurements. As such, this Note explains the
principal adjustments made by the Group in restating its UK GAAP Balance Sheet
as at 1 April 2006 and its previously published UK GAAP financial statements for
the year ended 31 March 2007.
Exemptions applied
The general principle that should be applied on first-time adoption of IFRS is
that standards in force at the first reporting date should be applied
retrospectively. However, IFRS 1 ("First Time Adoption of International
Financial Reporting Standards") contains a number of exemptions which companies
are permitted to apply. Sovereign has elected:
* To apply IFRS 3 "Business Combinations" prospectively from 1 April 2006.
Financial information pertaining to acquisitions, disposal and restructuring
occurring before 1 April 2006 has not been restated.
* That cumulative currency translation differences for all foreign operations are
deemed to be zero as at 1 April 2006.
* Not to restate fair value adjustments and goodwill denominated in foreign
currencies at the date of transition.
The difference resulting from the transition to IFRS are summarised in the
following tables:
+------------------------------------------+--------------+--------------+--------------+
| | UK GAAP | Effect of | |
+------------------------------------------+--------------+--------------+--------------+
| | in IFRS | transition | |
+------------------------------------------+--------------+--------------+--------------+
| Group reconciliation of profit and loss | format | to IFRS | IFRS |
| for the | | | |
+------------------------------------------+--------------+--------------+--------------+
| period ended 31 March 2007 | GBPm | GBPm | GBPm |
+------------------------------------------+--------------+--------------+--------------+
| Continuing operations | | | |
+------------------------------------------+--------------+--------------+--------------+
| Sale of goods | 36.4 | - | 36.4 |
+------------------------------------------+--------------+--------------+--------------+
| Rendering of services | 12.3 | - | 12.3 |
+------------------------------------------+--------------+--------------+--------------+
| Acquired operations | | | |
+------------------------------------------+--------------+--------------+--------------+
| Forfab Limited | 2.4 | - | 2.4 |
+------------------------------------------+--------------+--------------+--------------+
| RDT Precision Engineers Limited | 0.4 | - | 0.4 |
+------------------------------------------+--------------+--------------+--------------+
| Revenue | 51.5 | - | 51.5 |
+------------------------------------------+--------------+--------------+--------------+
| Cost of sales | (36.9) | - | (36.9) |
+------------------------------------------+--------------+--------------+--------------+
| Gross profit | 14.6 | - | 14.6 |
+------------------------------------------+--------------+--------------+--------------+
| Administrative expenses (i), (ii), (iii) | (13.1) | 1.2 | (11.9) |
+------------------------------------------+--------------+--------------+--------------+
| | 1.5 | 1.2 | 2.7 |
+------------------------------------------+--------------+--------------+--------------+
| Group operating profit | | | |
+------------------------------------------+--------------+--------------+--------------+
| Continuing operations | 1.3 | - | 1.3 |
+------------------------------------------+--------------+--------------+--------------+
| Acquired operations | | | |
+------------------------------------------+--------------+--------------+--------------+
| Forfab Limited | 0.1 | - | 0.1 |
+------------------------------------------+--------------+--------------+--------------+
| RDT Precision Engineers Limited | 0.1 | - | 0.1 |
+------------------------------------------+--------------+--------------+--------------+
| | 1.5 | 1.2 | 2.7 |
+------------------------------------------+--------------+--------------+--------------+
| Finance revenue | 0.1 | - | 0.1 |
+------------------------------------------+--------------+--------------+--------------+
| Finance costs | (1.5) | - | (1.5) |
+------------------------------------------+--------------+--------------+--------------+
| Profit from continuing operations before | 0.1 | 1.2 | 1.3 |
| taxation | | | |
+------------------------------------------+--------------+--------------+--------------+
| Tax expense | (0.3) | - | (0.3) |
+------------------------------------------+--------------+--------------+--------------+
| Profit for the year | (0.2) | 1.2 | 1.0 |
+------------------------------------------+--------------+--------------+--------------+
(i) Goodwill: Goodwill is subject to impairment testing under IFRS rather than
the amortisation rules applied under UK GAAP. The impact of the reversal of the
UK GAAP amortisation is to increase profit for the period by GBP0.7m. Further,
negative goodwill of GBP0.8m was recognised in the Income Statement during the
period.
(ii) Intangible assets: IFRS requires intangible assets, where meeting the
IFRS definition and where fair value can be reliably measured, to be recognised
separately from goodwill. A value of GBP1.6m, subsumed in goodwill at the date
of acquisition of RDT Precision Engineers Limited, has been attributed to
intangible assets. Amortisation of GBP31,683 has been recognised in the period.
(iii) Deferred Tax: IFRS requires a charge to the Income Statement and
reduction in goodwill where a potential deferred tax asset not recognised in the
fair value exercise at the date of acquisition is recognised in a subsequent
period. The impact of this adjustment is a charge to Administrative expenses of
GBP0.3m and reduction in goodwill of GBP0.3m.
+------------------------------------------+--------------+--------------+--------------+
| | UK GAAP | Effect of | |
+------------------------------------------+--------------+--------------+--------------+
| | in IFRS | transition | |
+------------------------------------------+--------------+--------------+--------------+
| Group reconciliation of equity | format | to IFRS | IFRS |
+------------------------------------------+--------------+--------------+--------------+
| as at 1 April 2006 | GBPm | GBPm | GBPm |
+------------------------------------------+--------------+--------------+--------------+
| Non-current assets | | | |
+------------------------------------------+--------------+--------------+--------------+
| Property, plant and equipment | 4.4 | - | 4.4 |
+------------------------------------------+--------------+--------------+--------------+
| Intangible assets (i) | 7.8 | 0.9 | 8.7 |
+------------------------------------------+--------------+--------------+--------------+
| | 12.2 | 0.9 | 13.1 |
+------------------------------------------+--------------+--------------+--------------+
| Current assets | | | |
+------------------------------------------+--------------+--------------+--------------+
| Trade and other receivables | 8.3 | (0.4) | 7.9 |
+------------------------------------------+--------------+--------------+--------------+
| Prepayments | 0.7 | - | 0.7 |
+------------------------------------------+--------------+--------------+--------------+
| Inventories | 4.0 | - | 4.0 |
+------------------------------------------+--------------+--------------+--------------+
| Cash and short-term deposits | 2.2 | - | 2.2 |
+------------------------------------------+--------------+--------------+--------------+
| | 15.2 | (0.4) | 14.8 |
+------------------------------------------+--------------+--------------+--------------+
| Total assets | 27.4 | 0.5 | 27.9 |
+------------------------------------------+--------------+--------------+--------------+
| Current liabilities | | | |
+------------------------------------------+--------------+--------------+--------------+
| Trade and other payables (i), (iii) | 11.5 | 0.5 | 12.0 |
+------------------------------------------+--------------+--------------+--------------+
| Interest-bearing loans and borrowings | 0.6 | - | 0.6 |
+------------------------------------------+--------------+--------------+--------------+
| Income tax payable | 0.6 | - | 0.6 |
+------------------------------------------+--------------+--------------+--------------+
| | 12.7 | 0.5 | 13.2 |
+------------------------------------------+--------------+--------------+--------------+
| Non-current liabilities | | | |
+------------------------------------------+--------------+--------------+--------------+
| Other payables (iii) | 1.0 | - | 1.0 |
+------------------------------------------+--------------+--------------+--------------+
| Interest-bearing loans and borrowings | 3.1 | - | 3.1 |
+------------------------------------------+--------------+--------------+--------------+
| Provisions | 0.1 | - | 0.1 |
+------------------------------------------+--------------+--------------+--------------+
| Deferred tax liability | - | 0.7 | 0.7 |
+------------------------------------------+--------------+--------------+--------------+
| | 4.2 | 0.7 | 4.9 |
+------------------------------------------+--------------+--------------+--------------+
| Total liabilities | 16.9 | 1.2 | 18.1 |
+------------------------------------------+--------------+--------------+--------------+
| Net assets | 10.5 | (0.7) | 9.8 |
+------------------------------------------+--------------+--------------+--------------+
| Capital and reserves | | | |
+------------------------------------------+--------------+--------------+--------------+
| Equity share capital | 0.2 | - | 0.2 |
+------------------------------------------+--------------+--------------+--------------+
| Share premium | 8.8 | - | 8.8 |
+------------------------------------------+--------------+--------------+--------------+
| Retained earnings (ii) | 0.4 | (0.7) | (0.3) |
+------------------------------------------+--------------+--------------+--------------+
| Other reserves (iii) | 1.0 | - | 1.0 |
+------------------------------------------+--------------+--------------+--------------+
| | 10.4 | (0.7) | 9.7 |
+------------------------------------------+--------------+--------------+--------------+
| Minority interests | 0.1 | - | 0.1 |
+------------------------------------------+--------------+--------------+--------------+
| Total equity | 10.5 | (0.7) | 9.8 |
+------------------------------------------+--------------+--------------+--------------+
(i) Prior year adjustments: These adjustments reflect restatements made to
goodwill, trade and other receivables and trade and other payables during 2007
in respect of earlier periods. Under IFRS these would have been retrospectively
included in the period to which the adjustment relates. These were accounting
errors relating to DDS, increasing goodwill by GBP0.9m, reducing trade debtors
by GBP0.4m and increasing trade creditors by GBP0.5m.
(ii) Deferred taxation: Under IFRS a provision for deferred taxation must be
made in respect of the difference between the carrying value and tax base of
land and buildings and other intangible assets acquired through a business
combination.This is recorded against retained earnings at 1 April 2006.
(iii) Contingent consideration: Contingent consideration of GBP1.0m on the
acquisition of Maxwell Downhole Technology Limited was settled in shares
subsequent to the year ended 31 March 2006 and has been reclassfied from other
payables to equity (other reserves).
+-----------------------------------------+--------------+--------------+--------------+
| | UK GAAP | Effect of | |
+-----------------------------------------+--------------+--------------+--------------+
| | in IFRS | transition | |
+-----------------------------------------+--------------+--------------+--------------+
| Unaudited Reconciliation of Equity and | format | to IFRS | IFRS |
| Net Assets | | | |
+-----------------------------------------+--------------+--------------+--------------+
| At 31 March 2007 | GBPm | GBPm | GBPm |
+-----------------------------------------+--------------+--------------+--------------+
| Non-current assets | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Property, plant and equipment | 8.7 | - | 8.7 |
+-----------------------------------------+--------------+--------------+--------------+
| Intangible assets (i), (ii) | 8.2 | 1.9 | 10.1 |
+-----------------------------------------+--------------+--------------+--------------+
| Financial assets (iii) | - | 0.1 | 0.1 |
+-----------------------------------------+--------------+--------------+--------------+
| Deferred tax asset (iv) | 0.3 | - | 0.3 |
+-----------------------------------------+--------------+--------------+--------------+
| | 17.2 | 2.0 | 19.2 |
+-----------------------------------------+--------------+--------------+--------------+
| CURRENT ASSETS | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Trade and other receivables | 18.6 | - | 18.6 |
+-----------------------------------------+--------------+--------------+--------------+
| Inventories | 5.1 | - | 5.1 |
+-----------------------------------------+--------------+--------------+--------------+
| Cash and short-term deposits | 4.7 | - | 4.7 |
+-----------------------------------------+--------------+--------------+--------------+
| | 28.4 | - | 28.4 |
+-----------------------------------------+--------------+--------------+--------------+
| TOTAL ASSETS | 45.6 | 2.0 | 47.6 |
+-----------------------------------------+--------------+--------------+--------------+
| Current liabilities | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Trade and other payables (v) | 14.7 | - | 14.7 |
+-----------------------------------------+--------------+--------------+--------------+
| Income tax payable | 0.8 | - | 0.8 |
+-----------------------------------------+--------------+--------------+--------------+
| | 15.5 | - | 15.5 |
+-----------------------------------------+--------------+--------------+--------------+
| Non-current liabilities | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Interest-bearing loans and borrowings | 18.0 | - | 18.0 |
+-----------------------------------------+--------------+--------------+--------------+
| Provisions | 0.1 | - | 0.1 |
+-----------------------------------------+--------------+--------------+--------------+
| Deferred tax liabilities | 0.3 | 1.4 | 1.7 |
+-----------------------------------------+--------------+--------------+--------------+
| | 18.4 | 1.4 | 19.8 |
+-----------------------------------------+--------------+--------------+--------------+
| Total liabilities | 33.9 | 1.4 | 35.3 |
+-----------------------------------------+--------------+--------------+--------------+
| NET ASSETS | 11.7 | 0.6 | 12.3 |
+-----------------------------------------+--------------+--------------+--------------+
| Capital and reserves | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Equity share capital | 0.2 | - | 0.2 |
+-----------------------------------------+--------------+--------------+--------------+
| Share premium | 10.5 | - | 10.5 |
+-----------------------------------------+--------------+--------------+--------------+
| Retained earnings (i), (iii), (iv), | 0.1 | 0.6 | 0.7 |
| (vi) | | | |
+-----------------------------------------+--------------+--------------+--------------+
| Other reserves (v) | 0.9 | - | 0.9 |
+-----------------------------------------+--------------+--------------+--------------+
| Total equity | 11.7 | 0.6 | 12.3 |
+-----------------------------------------+--------------+--------------+--------------+
(i) Goodwill: Goodwill is subject to impairment testing under IFRS, rather
than the amortisation rules applied under UK GAAP. The impact of the reversal of
the UK GAAP amortisation is an increase in net assets of GBP0.7m. This is
recorded against retained earnings at 31 March 2007. Further, negaitve goodwill
of GBP0.8m was recognised in the Income Statement during the period. This is
recorded against retained earnings.
(ii) Other intangible assets: A value of GBP1.6m, converted at the date of
acquisition of RDT Precision Engineers Ltd, in February 2007, which was subsumed
under goodwill under UK GAAP has been attributed to other intangible assets.
Amortisation of GBP31,683 has been recognised in the Income Statement in the
period.
(iii) Financial assets: The Group uses interest rate caps to hedge its risk
associated with interest rate fluctuations. Under IFRS these interest rate caps
are recognised at fair value on the Balance Sheet on the date on which the
contract was entered into and are subsequently re-measured at fair value, with
the associated charge in value reported in profit or loss. At 31 March the fair
value of this financial asset was GBP0.1m. This is recorded against retained
earnings.
(iv) Deferred taxation: Under IFRS a provision for deferred taxation must be
made in respect of the difference between the carrying value and tax base of
land and buildings and other intangible assets acquired through a business
combination. On the acquisition of RDT Precision Engineers Ltd, in February
2007, a further GBP0.9m was recognised in respect of deferred taxation. This is
recorded against retained earnings.
(v) Contingent consideration: Contingent consideration on the acquisition of
Maxwell Downhole Technology Limited was settled in shares subsequent to the year
ended 31 March 2007 and has been reclassfied from other payables to equity
(other reserves). This is considered to be a UK GAAP adjustment.
(vi) Deferred Tax: IFRS requires a charge to the Income Statement as reduction
in goodwill where a potential deferred tax asset not recognised in the fair
value exercise at the date of acquisition is recognised in a subsequent period.
The impact of this adjustment is a charge to administrative expenses GBP0.3m and
a reduction in goodwill of GBP0.3m.
Company Accounting Policies
The parent Company financial statements of Sovereign Oilfield Group Plc (the
"Company") are presented as required by the Companies Act 1985 and were approved
for issue on 15 May 2009.The financial statements are prepared in accordance
with applicable accounting standards
Accounting convention
The financial statements are prepared under the historical cost convention.
Tangible fixed assets
Property, plant and machinery and other tangible assets are stated at cost less
accumulated depreciation and accumulated impairment losses. Such cost includes
costs directly attributable to making the asset capable of operating as
intended.
Depreciation is provided at the following annual rates in order to write off
each asset over its estimated useful life.
Office equipment - 10% to 50% on cost.
The carrying values of tangible fixed assets are reviewed for impairment when
events or changes in circumstances indicate the carrying value may not be
recoverable.
Investments
Investments held as fixed assets are stated at cost less provision for any
permanent diminution in value.
Revenue recognition
Revenue is recognised to the extent that the company obtains the right to
consideration in exchange for its performance.
Revenue from services are recognised in the accounting period in which the
services are rendered.
Revenue is measured at the fair value of the consideration received, excluding
discounts, rebates, VAT and other sales taxes or duty.
Deferred taxation
Deferred tax is provided in respect of all timing differences that have
originated but not reversed at the Balance Sheet date where transaction or
events have occurred at that date that will result in an obligation to pay more,
or a right to pay less or to receive more, tax, with the following exceptions:
* A deferred tax asset is regarded as recoverable and therefore only recognised
when, on the basis of all available evidence, it can be regarded as more likely
than not that there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be deducted.
* Deferred tax is measured on a non-discounted basis at the tax rates that are
expected to apply in the periods in which the timing differences are expected to
reverse based on tax rates and laws that have been enacted or substantively
enacted by the Balance Sheet date.
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into
sterling at the rates of exchange ruling at the Balance Sheet date.
Transactions in foreign currencies are translated into sterling at the rate of
exchange ruling at the date of transaction. Exchange differences are taken into
account in arriving at the operating result.
Leasing and hire purchase commitments
Assets obtained under hire purchase contracts or finance leases are capitalised
in the Balance Sheet. Those held under hire purchase contracts are depreciated
over their estimated useful lives. Those held under finance lease are
depreciated over their estimated useful lives or the lease term, whichever is
the shorter. The interest element of those obligations is charged to the profit
and loss account over the relevant period. The capital element of the future
payments is treated as a liability.
Rentals paid under operating leases are charged to the profit and loss account
over the term of the lease.
Interest-bearing loans and borrowings
All interest-bearing loans and borrowings are initially recognised as net
proceeds. After initial recognition debt is increased by the finance cost in
respect of the reporting period and reduced by payments made in respect of the
debts of the period.
Finance costs of debt are allocated over the term of the debt at a constant rate
on the carrying amount.
Pension
The Company operates a defined contribution pension scheme. Contributions
payable for the period are charged to the profit and loss account.
Related party transactions
The Company has taken advantage of the exemption provided by FRS 8 not to
disclose transactions between Group companies that have been eliminated on
consolidation.
COMPANY BALANCE SHEET
AS AT 31 MARCH 2008
+------------------------------------------------+-----------+-------------+-------------+
| | | 2008 | 2007 |
+------------------------------------------------+-----------+-------------+-------------+
| | Note | GBP000 | GBP000 |
+------------------------------------------------+-----------+-------------+-------------+
| FIXED ASSETS | | | |
+------------------------------------------------+-----------+-------------+-------------+
| Intangible assets | | - | - |
+------------------------------------------------+-----------+-------------+-------------+
| Tangible assets | 4 | 0.1 | 0.1 |
+------------------------------------------------+-----------+-------------+-------------+
| Investments | 5 | 5.0 | 7.1 |
+------------------------------------------------+-----------+-------------+-------------+
| TOTAL FIXED ASSETS | | 5.1 | 7.2 |
+------------------------------------------------+-----------+-------------+-------------+
| CURRENT ASSETS | | | |
+------------------------------------------------+-----------+-------------+-------------+
| Debtors | 6 | 31.4 | 20.9 |
+------------------------------------------------+-----------+-------------+-------------+
| Cash and short-term deposits | | 0.3 | 0.5 |
+------------------------------------------------+-----------+-------------+-------------+
| TOTAL CURRENT ASSETS | | 31.7 | 21.4 |
+------------------------------------------------+-----------+-------------+-------------+
| Creditors: amounts falling due within one year | 7 | (34.7) | (1.7) |
+------------------------------------------------+-----------+-------------+-------------+
| NET CURRENT (LIABILITIES) / ASSETS | | (3.0) | 19.7 |
+------------------------------------------------+-----------+-------------+-------------+
| TOTAL ASSETS LESS CURRENT LIABILITIES | | 2.1 | 26.9 |
+------------------------------------------------+-----------+-------------+-------------+
| Creditors: amounts falling due after one year | 8 | - | (17.3) |
+------------------------------------------------+-----------+-------------+-------------+
| Provision for liabilities and charges | | - | - |
+------------------------------------------------+-----------+-------------+-------------+
| NET ASSETS | | 2.1 | 9.6 |
+------------------------------------------------+-----------+-------------+-------------+
| CAPITAL AND RESERVES | | | |
+------------------------------------------------+-----------+-------------+-------------+
| Share capital | 13 | 0.2 | 0.2 |
+------------------------------------------------+-----------+-------------+-------------+
| Reserve for own shares | 13 | 11.5 | 10.5 |
+------------------------------------------------+-----------+-------------+-------------+
| Share premium account | 13 | (0.3) | - |
+------------------------------------------------+-----------+-------------+-------------+
| Profit and loss account | 13 | (9.3) | (1.1) |
+------------------------------------------------+-----------+-------------+-------------+
| TOTAL EQUITY SHAREHOLDERS' FUNDS | | 2.1 | 9.6 |
+------------------------------------------------+-----------+-------------+-------------+
Approved by the Board on 15 May 2009
Mr Burgess
Miss Cowie
Directors
1. BASIS OF PREPARATION
The Directors have prepared the financial statements on the going concern basis
which assumes that the Company will continue in operational existence for the
foreseeable future.
The Company and the Group meet their day to day working capital requirements and
medium-term funding requirements through banking facilities. At 31 March 2008
the Group owed GBP32.9m to its Lenders and was in breach of its banking
covenants. As at that date the Group had obtained a standstill from its Lenders
in the form of an amendment and waiver letter regarding the defaults at 31 March
2008.Subsequent to the year end, as disclosed in Note 28, the Group has agreed
to an amendment of terms in respect of debt facilities in place at
31 March 2008.
The new banking terms agreed (subject to the conditions below) provide for a
waiver of all outstanding defaults and a standstill regarding the repayment of
debt until 31 May 2010 and the resumption of the normal debt repayment profile
thereafter, a reduction in margin payable on both senior and mezzanine
facilities and a revised covenant package.
The revised covenant package incorporates financial covenants with regard to
quarterly revenue and EBITDA. The failure of these covenant tests renders the
entire facilities repayable on demand at the option of the Lenders.
The Directors have prepared trading and cash flow forecasts for a period in
excess of one year from the date of approval of these financial statements which
project that covenant tests will be met and facility limits will not be exceeded
over the duration of the forecasts. The forecasts prepared make assumptions
about the Group's ability to sustain its business model and the Directors have
been actively monitoring the trading position in relation to the continued
volatility in the financial markets. The forecasts also assume an element of
cost reduction, particularly with regard to corporate overhead.
The Group's business model has been subject to independent analysis, and
sensitivities conducted to flex the assumptions to assess the robustness of the
model.
As part of the revised banking terms and conditions subsequent to the
refinancing, the Group agreed to the disposal of one of its subsidiaries Vertec
Engineering Limited and to dispose of certain assets of Labtech Services
Limited.
Although the proposed terms are fully valid and binding, if this condition is
not fulfilled prior to end May 2009 the revised terms will become invalid.
The Group was pleased to issue an announcement on 11 May 2009 stating that we
concluded the sale of these businesses, subject to shareholder approval. A
general meeting is due to be held on 27 May 2009 to ratify this transaction,
which requires a majority vote. The Directors intend to vote in favour of the
resolutions, amounting to 10,084,900 Ordinary Shares representing 58.24 percent
of the issued Ordinary Shares. John Graham Burgess and Dr Peter Gjedboe Felter
have provided irrevocable undertakings to vote in favour of the Resolutions,
their combined shareholding amounting to 56.895 percent of the issued Ordinary
Shares, which will result in the resolution being carried.
Taking in to account the above, until the shareholder vote has been conducted
an uncertainty exists as to whether the Group will meet the conditions under
which new facilities have been agreed. The Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future and have therefore concluded
that it is appropriate to adopt the going concern basis in preparing these
financial statements.
2. LOSSES ATTRIBUTABLE TO SOVEREIGN OILFIELD GROUP PLC
The loss for the year dealt within the accounts of Sovereign Oilfield Group Plc
was GBP7.9m (2007: GBP0.9m).As provided by Section 230 of the Companies Act
1985, no profit and loss account is presented in respect of Sovereign Oilfield
Group Plc.
3. EMPLOYEE COSTS
+-----------------------------------------------------------+-------------+-------------+
| | 2008 | 2007 |
+-----------------------------------------------------------+-------------+-------------+
| | GBPm | GBPm |
+-----------------------------------------------------------+-------------+-------------+
| Staff costs, including Executive Directors: | | |
+-----------------------------------------------------------+-------------+-------------+
| Wages and salaries | 0.9 | - |
+-----------------------------------------------------------+-------------+-------------+
| Social security costs | 0.1 | - |
+-----------------------------------------------------------+-------------+-------------+
| Pension costs | 0.1 | - |
+-----------------------------------------------------------+-------------+-------------+
| | 1.1 | - |
+-----------------------------------------------------------+-------------+-------------+
| Average number of employees during the year: | | |
+-----------------------------------------------------------+-------------+-------------+
| Management | 3 | - |
+-----------------------------------------------------------+-------------+-------------+
| Administration and sales | 21 | - |
+-----------------------------------------------------------+-------------+-------------+
| | 24 | - |
+-----------------------------------------------------------+-------------+-------------+
Details of directors' emoluments, in aggregate and by director, together with
details of pension entitlements, share options held and bonus payments, are
shown in the Remuneration Report on page 21.
PENSION COSTS
The Group operates a defined contribution scheme. The assets of the scheme are
held separately from those of the Group in an independently administered fund.
The pension cost charge represents contributions payable by the Company to the
fund and amounted to GBP63,573 (2007: GBPnil).
4. TANGIBLE ASSETS
+-----------------------------------------------------------+-------------+-------------+
| | Office | Total |
| | equipment | |
| | and motor | |
| | vehicles | |
+-----------------------------------------------------------+-------------+-------------+
| | GBP m | GBP m |
+-----------------------------------------------------------+-------------+-------------+
| Cost | | |
+-----------------------------------------------------------+-------------+-------------+
| At 1 April 2007 | 0.1 | 0.1 |
+-----------------------------------------------------------+-------------+-------------+
| Additions | - | - |
+-----------------------------------------------------------+-------------+-------------+
| At 31 March 2008 | 0.1 | 0.1 |
+-----------------------------------------------------------+-------------+-------------+
| Amortisation and depreciation | | |
+-----------------------------------------------------------+-------------+-------------+
| At 1 April 2007 | - | - |
+-----------------------------------------------------------+-------------+-------------+
| Charge for the year | - | - |
+-----------------------------------------------------------+-------------+-------------+
| At 31 March 2008 | - | - |
+-----------------------------------------------------------+-------------+-------------+
| Net book value at 31 March 2008 | 0.1 | 0.1 |
+-----------------------------------------------------------+-------------+-------------+
| Net book value at 1 April 2007 | 0.1 | 0.1 |
+-----------------------------------------------------------+-------------+-------------+
5. INVESTMENTS
Details of the investments in which the Company holds 20% or more of the nominal
value of any class of share capital are as follows:
+--------------------------+---------------+-------+--------+-----+------------------+-----+
| | Proportion of voting rights | Country of |
| | and shares held | |
+--------------------------+--------------------------------+------------------------------+
| Name of company | Holding | % | Nature of | incorporation or |
| | | | Business | registration |
+--------------------------+---------------+-------+--------------+------------------+
| Sovereign Oilfield | Ordinary | 100% | Intermediate | Scotland |
| Services Limited | Shares | | holding | |
| | | | company | |
+--------------------------+---------------+-------+--------------+------------------+
| Sovereign Fabrication | Ordinary | 100% | Intermediate | Scotland |
| Services Limited | Shares | | holding | |
| (formely OIL Corporate | | | company | |
| Limited) | | | | |
+--------------------------+---------------+-------+--------+-----+------------------+-----+
As part of a re-organisation the investment held in MaxWell Downhole Technology
Limited was transferred to Sovereign Oilfield Services Limited at original
investment value of GBP2.1m.
Details of subsidiary undertakings held by the companies above are set out in
Note 14 on page 51.
6. DEBTORS
+--------------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+--------------------------------------------------------+---------------+---------------+
| | GBPm | GBPm |
+--------------------------------------------------------+---------------+---------------+
| Trade debtors | - | - |
+--------------------------------------------------------+---------------+---------------+
| Amounts owed by subsidiary undertakings | 31.1 | 20.7 |
+--------------------------------------------------------+---------------+---------------+
| Other debtors | 0.2 | 0.2 |
+--------------------------------------------------------+---------------+---------------+
| Deferred tax assets | 0.1 | - |
+--------------------------------------------------------+---------------+---------------+
| | 31.4 | 20.9 |
+--------------------------------------------------------+---------------+---------------+
7. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
+--------------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+--------------------------------------------------------+---------------+---------------+
| | GBPm | GBPm |
+--------------------------------------------------------+---------------+---------------+
| Bank loans | 32.8 | - |
+--------------------------------------------------------+---------------+---------------+
| Trade creditors | 0.3 | 0.2 |
+--------------------------------------------------------+---------------+---------------+
| Contingent consideration on acquisition of | - | 0.9 |
| subsidiaries | | |
+--------------------------------------------------------+---------------+---------------+
| Amounts owed to subsidiary undertakings | 0.1 | - |
+--------------------------------------------------------+---------------+---------------+
| Other taxes and social security costs | 0.1 | 0.1 |
+--------------------------------------------------------+---------------+---------------+
| Accruals | 1.4 | 0.5 |
+--------------------------------------------------------+---------------+---------------+
| | 34.7 | 1.7 |
+--------------------------------------------------------+---------------+---------------+
8. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
+--------------------------------------------------------+---------------+---------------+
| | 2008 | 2007 |
+--------------------------------------------------------+---------------+---------------+
| | GBPm | GBPm |
+--------------------------------------------------------+---------------+---------------+
| Bank loans and overdrafts | - | 20.0 |
+--------------------------------------------------------+---------------+---------------+
| Issue costs | - | (2.7) |
+--------------------------------------------------------+---------------+---------------+
9. BORROWINGS
+--------------------------------------------------------+---------------+---------------+
| | 2007 | 2007 |
+--------------------------------------------------------+---------------+---------------+
| | GBPm | GBPm |
+--------------------------------------------------------+---------------+---------------+
| Amounts falling due within one year: | | |
+--------------------------------------------------------+---------------+---------------+
| Bank loans | 32.8 | - |
+--------------------------------------------------------+---------------+---------------+
| Other loans | - | - |
+--------------------------------------------------------+---------------+---------------+
| Amounts falling due after one year: | | |
+--------------------------------------------------------+---------------+---------------+
| Bank loans | - | 20.0 |
+--------------------------------------------------------+---------------+---------------+
| Other loans | - | - |
+--------------------------------------------------------+---------------+---------------+
| Total borrowings | 32.8 | 20.0 |
+--------------------------------------------------------+---------------+---------------+
| Cash: | | |
+--------------------------------------------------------+---------------+---------------+
| Cash at bank and in hand | - | 0.1 |
+--------------------------------------------------------+---------------+---------------+
| Short-term deposits | 0.3 | 0.4 |
+--------------------------------------------------------+---------------+---------------+
| Total cash | 0.3 | 0.5 |
+--------------------------------------------------------+---------------+---------------+
| Net borrowings | 32.5 | 19.5 |
+--------------------------------------------------------+---------------+---------------+
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three
months depending on the immediate cash requirements of the Company and Group,
and earn interest at the respective short-term deposit rates. The fair value of
cash and cash equivalents is considered to be the same as their carrying value.
At 31 March 2008, the Company had available GBPnil (2007: GBP30.0m) of undrawn
committed borrowing facilities in respect of which all conditions precedent had
been met.
+--------------------------------------------------------+--------------+--------------+
| | Company | Company |
+--------------------------------------------------------+--------------+--------------+
| | 2008 | 2007 |
+--------------------------------------------------------+--------------+--------------+
| | GBPm | GBPm |
+--------------------------------------------------------+--------------+--------------+
| Bank loans analysed by maturity | | |
+--------------------------------------------------------+--------------+--------------+
| Amounts falling due: | | |
+--------------------------------------------------------+--------------+--------------+
| Within one year | 32.8 | - |
+--------------------------------------------------------+--------------+--------------+
| In more than one year, but not more than two years | - | - |
+--------------------------------------------------------+--------------+--------------+
| In more than two years, but not more than five years | - | 20.0 |
+--------------------------------------------------------+--------------+--------------+
| In over five years | - | - |
+--------------------------------------------------------+--------------+--------------+
| | 32.8 | 20.0 |
+--------------------------------------------------------+--------------+--------------+
The bank loans are secured over properties and on fixed and floating charges,
deeds of pledge over shares and debentures over companies in the Group.
10. FINANCIAL INSTRUMENTS
An outline of the objectives, policies and strategies pursued by the Group and
Company in relation to financial instruments is set out in the Financial Review
on page 17 to 19 and Note 23, pages 59 to 62.
11. AUTHORISED AND ISSUED SHARE CAPITAL
See Note 24, page 62 for details of the share capital of the Company.
12 SHARE-BASED PAYMENTS
See Note 25, page 63 for details of the share based payments for the Company.
13 SHARE CAPITAL AND RESERVES
+------------------------------------------+--------+---------+---------+----------+----------+
| | | Share | Share | Treasury | Profit |
| | | capital | premium | shares | and loss |
| | | | account | | account |
+------------------------------------------+--------+---------+---------+----------+----------+
| | Note | GBPm | GBPm | GBPm | GBPm |
+------------------------------------------+--------+---------+---------+----------+----------+
| At 1 April 2007 | | 0.2 | 10.5 | - | (1.1) |
+------------------------------------------+--------+---------+---------+----------+----------+
| Shares issued | 21 | - | 1.0 | - | - |
+------------------------------------------+--------+---------+---------+----------+----------+
| Share buy back | | - | - | - | (0.3) |
+------------------------------------------+--------+---------+---------+----------+----------+
| Treasury shares | | - | - | (0.3) | - |
+------------------------------------------+--------+---------+---------+----------+----------+
| Retained loss for the period | | - | - | - | (7.9) |
+------------------------------------------+--------+---------+---------+----------+----------+
| At 31 March 2008 | | 0.2 | 11.5 | (0.3) | (9.3) |
+------------------------------------------+--------+---------+---------+----------+----------+
14. POST BALANCE SHEET EVENTS
Restructuring of Financing Arrangements
At 31 March 2008 the Company and Group obtained a standstill from its Lenders in
the form of an amendment and waiver letter regarding defaults at 31 March 2008.
Contained within the letter were amendments to the terms of the Senior Facility
Agreement and the Mezzanine Facility Agreement with reference to the ratcheting
of interest margins from 3.5% to 8.5% on the senior facility and from 6% to 11%
on the mezzanine facility over a period of time. In addition, the Company was
required to pay a fee equal to 1% of the aggregate commitments, being
GBP500,000. Conditions relating to the disposal of DDS were also included.
Existing financial covenants were revised as part of the amendment and waiver
letter, such covenants including tests around interest cover, senior leverage,
leverage and capital expenditure.
Given the circumstances at the Balance Sheet date, bank loans were classified as
current and arrangement fees of GBP2.4m written off as the terms of the existing
facility were deemed to be substantially modified.
Subsequent to the year end, prior to the date of issue of the financial
statements, the Company and Group have agreed to an amendment of terms in
respect of credit facilities in place at 31 March 2008. The new terms agreed
provide for a waiver of all outstanding defaults until 31 May 2010, a reduction
in margin payable on both senior and mezzanine facilities and a revised covenant
package. No restructuring or arrangement fees are payable with regard to the
negotiation of new commercial terms.
Under the new terms, for the period from 1 June 2009 to 31 March 2010 the senior
facilities will bear interest at LIBOR plus 4%, whilst the mezzanine facilities
will bear interest at a payment in kind of 6.5%. For the period from 1 April
2010 to 31 March 2011 the senior facilities will bear interest at LIBOR plus 5%,
whilst the mezzanine facilities will bear interest at LIBOR plus 6.5%, plus a
payment in kind of 3.5%.
We estimate that the revised terms which cover the period to 31 March 2011, will
result in net savings in finance costs of GBP3.4m.
The revised covenant package incorporates financial covenants with regard to
quarterly revenue and EBITDA which the Board believe are acceptable.
As part of the conditions subsequent, the Group agreed to the disposal of Vertec
and certain Labtech assets. The Group was pleased to issue an announcement on 11
May 2009 that we agreed the sale of the shares of Vertec and the assets of
Labtech's hire fleet for GBP5.45m, subject to shareholder approval. A general
meeting is due to be held on 27 May 2009 to ratify this transaction. The
Directors unanimously recommend Shareholders vote in favour of the Resolutions
as the Directors intend to do in respect of their beneficial shareholdings
amounting to 10,084,900 Ordinary Shares representing 58.24 percent of the issued
Ordinary Shares. All proceeds will be used to pay down existing debt.
The gross assets of Labtech and Vertec were GBP1.2m and GBP2.0m as at 31 March
2008 and the operating profit was approximately GBP0.8m and GBP0.1m
respectively.
Further disposals are contemplated and shareholders will be informed at the
appropriate time.
As part of the negotiation of new terms with the Existing Lending Consortium the
Board of Directors revisited its strategic plan and reviewed in depth its
business model, particularly with regard to expectations of future growth. In
particular, we looked at the Company and Group's ability to sustain its business
model and have been actively monitoring our position in relation to the
continued volatility in the financial markets, including The Group's exposure to
liquidity risk.
The Group's business models have been subject to independent analysis, and
sensitivities conducted to flex assumptions to identify how robust the models
outputs are in practice. Further, we have taken into consideration the impact of
recent events on our relationships with third parties such as customers and
suppliers.
As noted in the Financial Directors Review on page 10 and 11 and in the
Accounting Policies on pages 25 to 31, the Group has conducted tests in
accordance with IAS 36 "Impairment of Assets" and these have been taken into
account when making best estimates of future cash flows.
The Directors are satisfied that, based on the model outputs, the Company as
part of the Group has sufficient headroom between cash requirements and
facilities available to it as agreed by the Lending Consortium and therefore
concluded that, at the date of signing the financial statements, the business is
a going concern.
Disposal of Diamant Drilling Services SA
In March 2009, the Group announced the sale of DDS, which was consistently loss
making, to Logan Oil Tools Inc for consideration of up to approximately
EUR527,000. The consideration of up to EUR250,000 cash will be paid in 3 months from
the date of disposal and a further contribution of up to EUR277,000, dependent on
certain performance criteria, will become due within 6 months following
completion. At the Balance Sheet date the recoverable amount has been determined
on its fair value less costs to sell. The goodwill associated with this company
of GBP0.7m has been written off in full. Operating losses of GBP2.1m incurred in
the financial year 2008/9 prior to the company's disposal will be included in
the consolidated results for the 2008/9 financial year.
The gross assets of DDS were GBP2.3m as at 31 March 2008 and the operating loss
was approximately GBP0.3m.
Sale and Leaseback of Property
In May 2008, freehold buildings held by two subsidiaries were sold for GBP3.9m
cash. The buildings were leased back on a ten year extendable lease. The net
book value of the disposal was GBP2.8m resulting in a potential tax charge of
GBP0.4m. Of the proceeds, GBP2.9m were used to pay down senior loan facilities.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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