TIDMRSI
RNS Number : 7330V
Rock Solid Images plc
18 January 2012
Rock Solid Images plc
Trading Update and Preliminary Results for the year ended 31
August 2011
Rock Solid Images plc (AIM: RSI) has made a promising start to
2012 and is pleased with the growth it is seeing in its order book.
The Company has recently announced a series of contract awards in
its integration of seismic, CSEM and well data (WISE) and reservoir
characterisation (WSS) business lines.
Highlights since the Company's year-end in August 2011
include:
-- Project awards and other new contracts across all business
lines so far this financial year total GBP2.9 million with the
revenues expected to be recognised before 31 August 2012;
-- Continued sales of a 79 well multi-client rock physics study
in the Barents Sea and commencement of a 61 well multi-client rock
physics study in mid-Norway;
-- Commencement of a strategic review to consider the options
available to RSI and its WSS and WISE operating division; and
-- Cash balance of GBP0.9 million at 31 December 2011.
RSI also presents its Preliminary Results for the 12 months
ended 31 August 2011.
Highlights for the year include:
-- Completion of the disposal of loss making marine CSEM acquisition business in November 2010;
-- Re-focus of remaining business on geophysical data processing
and interpretation, with particular emphasis on the geophysical
characterization of un-conventional shale plays and on WISE
integration of seismic, well log and EM information; and
-- Change of name to Rock Solid Images plc and re-branding of trading entity to RSI.
In November 2010, the marine CSEM acquisition business was
divested to new owners. This removed a huge financial burden from
the business and resulted in a substantial reduction in losses for
2011 to GBP2.4 million compared to GBP17.1 million reported from
the previous financial year.
Despite the sale of the EM acquisition business, revenues
increased slightly over the previous year from GBP3.6 million to
GBP4.0 million in the year to 31 August 2011.
The Company is now focused on high-end seismic and non-seismic
data processing, analysis and integration to provide clients with
quantitative information on which exploration, appraisal and
development decisions can be based. The Company has invested in
people and technology and is poised for both revenue and value
growth.
Peter Reilly, Rock Solid Images Non Executive Chairman said:
"The key to your Company's future success is increasing sales,
developing efficient processing and interpretation teams and
exploiting the best integrated software. We have been directing
investment into all these areas. Your Company is now well
positioned to leverage our technology and expertise in a number of
high-growth areas such as un-conventional shale gas development and
the emerging use of combined seismic and EM data to de-risk
deep-water offshore wells. The announcement of recent contract
awards shows that the RSI team is very much engaged in building the
business and pursuing commercial opportunities."
CONTACT:
Richard Cooper - Chief Executive Officer +1 713 723 2566
Bob Auckland - Chief Financial Officer +44 (0) 7919 490911
Peter Reilly - Non Executive Chairman +44 (0) 7881 920542
FoxDavies Capital (Nominated Advisor and Broker) +44 (0) 203 463 5000
Simon Leathers
www.rocksolidimages.com
Chairman's statement
Dear Shareholder,
The financial year to 31 August 2011 was one of momentous change
for your Company. The coming year is one in which we will
demonstrate that the remaining business can be profitable and
deliver real shareholder value.
The disposal of the marine CSEM survey business (OHM Limited)
was completed on 2 November 2010 and that disposal relieved the
Company of a financial burden that might otherwise have dragged it
into insolvency. In February 2011, shareholders approved a change
of the Company's name from Offshore Hydrocarbon Mapping plc to Rock
Solid Images plc ("RSI") a name that more accurately reflects our
business as a supplier of geophysical de-risking products and
services to the upstream oil and gas industry.
The disposal left a geophysical consultancy business with a
backbone of sophisticated geophysical software and experienced
personnel. However, further investment in software and systems was
required, to not only repair the damage of capital starvation in
the previous four years, but to get the Company back into a
leadership position of providing products and services for
reservoir characterisation.
With that investment underway and some further refinement of our
offering, we now have two complimentary and parallel business
streams (WISE and WSS) focused on providing premium geologic and
geophysical interpretation services and techniques in areas where
we believe RSI can add value to our clients' oil and gas assets.
(Descriptions of the WISE and WSS product lines are included in the
CEO's Report).
As drilling gets ever more expensive, oil and gas companies need
to mitigate their risk of failure as much as possible through
gaining the best picture possible of rock properties before
drilling, and RSI can help in that process.
The key to your Company's future success is increasing sales,
developing efficient processing and interpretation teams and
exploiting the best integrated software. We have been directing
investment into all these areas. Your Company now has sales and
production teams with the experience to bring in and handle
increased business. Recently announced contract awards and a
heavily over-subscribed shale seminar provided by RSI for industry
professionals are evidence that our message is getting through to
our target market.
Now that we have emerged from the difficult OHM years, the
executive management team, led by CEO Richard Cooper has put
together a very credible geophysical service offering for clients.
RSI today has significant underlying IP value and a robust scalable
business model.
Disappointingly, despite the significant progress made since
November 2010, our share price appears to be completely
disconnected from the current and future potential of the business.
The difficult capital markets, has meant that raising equity funds
to build on that progress and take the Company forward at speed did
not appear to management to be palatable option. For these reasons,
the Board decided to explore the strategic options available to RSI
and accordingly on 9 November 2011 announced the appointment of
Simmons & Co International Limited to assist us in that review.
When completed, the strategic review may result in proposals to
stay as we are, restructure, sell part or sell all of the Company.
This process will continue into the first quarter of calendar year
2012 and I look forward to reporting on the results in due course.
In the meantime, as can be seen from recent contract awards, the
RSI team is very much engaged and pursuing commercial
opportunities.
I would like to thank the staff, management team and my fellow
directors for their efforts on behalf of the Company during the
last year. I would also like to thank our existing and new
investors who supported our various fundraisings. Together we have
solved the problems of the past; it is now up to RSI to drive the
business forward and demonstrate it is worthy of your continued
support.
The Independent Auditor's Report has been qualified in one
respect, resulting from a disagreement between the Board of RSI and
the Independent Auditor over the discount rate to be used in
calculating anticipated future discounted cash flows for the
purposes of the impairment calculation. The Company used a discount
rate of 22% as it has done in previous years and no impairment is
required under that calculation. However, this year, despite the
business being far more robust than in previous years, the
Independent Auditor has proposed, based partly on the low share
price, a discount rate between 30% and 31%, which would require an
impairment. The Board is unanimous that a discount rate of between
30% and 31% is inappropriate and therefore has not made an
impairment.
In note 2 to the accounts the Directors explain the reasons why
it continues to be appropriate to prepare the financial statements
on a going concern basis and in note 3 they explain in more detail
why no impairment provision is necessary in spite of the low share
price.
Peter Reilly
Non-executive Chairman
CEO's Report
Introduction
2011 has seen another year of change for your Company.
During the last financial year, we set in progress a major
re-structuring and re-alignment of our business. This process
started in 2010 and continued throughout 2011. The main consequence
of this re-structuring was the sale of our marine CSEM acquisition
business, OHM Limited, to a Norwegian syndicate. This transaction
provided several key benefits including, most importantly, the
removal of our exposure to the capital-intensive marine geophysical
data acquisition market.
We successfully completed the sale of OHM Limited in November
2010. However, an important part of this transaction was the
transfer of the electro-magnetic (EM) data processing and
interpretation technology to our Company from OHM Limited prior to
the sale. By retaining this valuable capability we have been able
to add this to our existing seismic and well-based technology, and
create a business uniquely capable of integrating seismic, well and
CSEM data to help our clients better identify and characterise
their reservoirs.
Re-branding
Following the sale of OHM Limited, we decided to re-brand our
trading company and the UK public company. This was an obvious
move; it made little sense for the public entity to remain as
"Offshore Hydrocarbon Mapping plc" but trade as Rock Solid Images,
especially given that the OHM brand had been sold with OHM
Limited.
Therefore, in February 2011, we changed the name of the public
company to "Rock Solid Images plc". At the same time, we re-branded
the trading company from "Rock Solid Images" to "RSI", and
developed a new logo and image, together with a new website.
The re-branding has been extremely successful; we have
simplified and standardised our look and feel to the market and our
clients, and removed a source of considerable confusion that
resulted from a mixture of the original OHM and Rock Solid Images
brands that had persisted for several years.
A marketing campaign was planned around our new brand and has
been executed throughout the year, adopting themes that included
RSI as "Rock Solid Inversion", "Rock Solid Integrity" and "Rock
Solid Innovation".
Fundraising activities
During the 2011 financial year, we raised approximately GBP5.9
million of funds through the following activities:
October/November 2010
-- GBP0.1 million through the sale of OHM Limited and OHM
Surveys Sdn Bhd (our former Malaysian subsidiary);
-- GBP2.0 million of equity subscribed to by several major existing shareholders; and
-- GBP1.9 million in advance payment of WISE services to be
rendered to OHM Limited and/or its successors.
June 2011
-- GBP1.9 million of equity through new and existing investors.
A new RSI
The original Rock Solid Images was a specialist in the
integration and use of seismic and well data for reservoir
characterisation. We have now added technology and expertise in EM
processing and interpretation under this overall integration
framework and created a Company uniquely capable of developing
quantitative geophysical models of oil and gas reservoirs both
onshore and offshore.
We remain passionate believers in the power of data integration.
Though seismic will always be the tool of choice for exploration
and exploitation, the careful addition of non-seismic data such as
wells and EM information, can add value to existing or new seismic
and can still further reduce interpretation risk.
We are active in all aspects of reservoir characterisation, but
three areas are worthy of specific mention:
Un-conventional reservoirs
There is huge interest in exploiting the hydrocarbon potential
of un-conventional reservoirs such as shales and tight gas sands.
Nowhere is this more evident than in North America, where we have
seen an enormous surge of activity all over the continental USA
from the Marcellus shales in the upper north-eastern states to the
Barnett shales of Texas. Your Company has been active in these
markets, and has developed specific and sophisticated tools and
workflows designed to help engineers unlock the potential of these
important new sources of hydrocarbon.
Offshore deep-water reservoirs
Your Company remains active in helping our clients better
characterise deep-water reservoirs to help plan exploration and
appraisal wells. We have been particularly successful in attracting
a strong client-base of companies exploring in West Africa, and
this expertise is opening up new markets in similar deep-water
offshore basins such as the conjugate margin on the eastern
seaboard of the Americas.
WISE - seismic and EM integration
Our expertise in seismic, well and EM data processing and
interpretation is unique in the upstream market. Although the
demand for EM has not grown at the pace predicted several years
ago, the technology is finding a firmer footing in the industry,
with a number of companies commissioning still larger CSEM surveys.
These companies, and those who already have an existing database of
CSEM and seismic data, are all existing and potential customers for
RSI.
Research & Development
Throughout 2011 we have focused our R&D program on
exploiting the trends we see developing in our market. Examples of
this include:
-- More and more we see drilling and reservoir engineers as our
clients and the ultimate end-users of geophysical data as we push
our technology downstream from exploration to exploitation. Your
Company has responded to the needs of engineers by reducing cycle
time and concentrating on delivering reservoir and engineering
properties in-depth and clearly presenting the uncertainties;
-- The development of novel integration methods to combine the
structural and stratigraphic resolving power of seismic data with
the sensitivity to fluid presence and change available from CSEM
resistivity data; and
-- The unification of processing and interpretation workflows
and tools, such as the deployment of a sophisticated pre-stack
seismic processing and interpretation platform at RSI.
Market and organisation alignment
Your Company's technology base is wide, with applications
covering a broad range of oil and gas exploration and exploitation
activities both on-shore and offshore.
However, at the highest level, our market is split between those
customers who use EM data routinely and those who do not. EM data
is a relatively new technology in the oil and gas industry, with a
more limited range of application compared to seismic. Although
acceptance of the method is growing, there are a relatively few
number of active and committed users of the technology, largely
confined to the major IOC's (International Oil Companies) and the
NOC's (National Oil Companies).
Given this, we have re-structured your Company along two major
business lines, with a high-level product manager responsible for
each. These business lines are:
WISE products and services
The focus of this part of the Company will be exclusively on the
use of CSEM and MT data for oil and gas exploration and
exploitation, and the integration of these data with seismic and
well information. We are pursuing several parallel sources of
revenue in this area, including:
-- Processing and re-processing of new and existing CSEM/MT
data. As we are independent of EM acquisition contractors, we can
provide clients with a unique and un-biased opinion of the
potential of EM prior to data acquisition, and can help un-lock the
value of these data once acquired; and
-- Development of a next-generation EM processing and
interpretation system. We have launched an industry consortium
designed to direct and fund the building of an integrated
commercial software environment for processing, interpretation and
integration of EM data. We believe the availability of commercial
grade software for EM data analysis is vital to the growth of the
EM market and your Company intends to remain at the forefront of
this effort.
WSS - Well and Seismic products and services
This is, in effect, RSI's traditional well and seismic reservoir
characterisation offering. For the coming year, in addition to
continuing our efforts in the deep-water arena, we will be
focussing this area of your Company very specifically on developing
the market for the un-conventional reservoirs of the shale plays
and tight gas sands located onshore US and elsewhere around the
world. We believe we have a significant technology lead in this
area, having developed a number of tools and workflows, and plan to
exploit this lead for the benefit of our clients and shareholders
over the coming twelve months.
We are already seeing positive results of this new strategy with
two recently awarded WISE data integration projects: one for a
major NOC to re-interpret legacy seismic and CSEM data for prospect
evaluation, and one for a West Africa operator to perform
processing, interpretation and integration of data behind new CSEM
acquisition. Similarly we have recently been awarded several
proof-of-concept projects for the characterisation of shale
reservoirs which involve the combination of seismic, micro-seismic,
well and production data designed to provide drilling and reservoir
engineers a suite of 3D mechanical properties to aid in
well-placement.
In addition to this new broad business focus, we will be
expanding our geographic reach by opening a branch office in
Bogota, Colombia. We have identified Colombia as being an ideal
base for the development of a South American market for RSI, with
an initial focus on WSS products and services both in Colombia
itself, but also in Peru. We have hired an experienced manager and
are currently recruiting technical staff to be based in Bogota. In
addition we will be using this office to help provide additional
sales support throughout South America and in Mexico.
Financial review
Group revenues increased from GBP3.6 million in 2010 to GBP4.0
million in the year to 31 August 2011. This 11% increase, although
encouraging, came about from mixed performances in the Group's
underlying businesses.
WISE revenues of GBP0.9 million in the year to 31 August 2011
were similar to the GBP0.8 million reported for 2010. This was a
disappointing outcome caused largely by the shortage of CSEM
surveys undertaken by OHM Limited with the consequence of low
processing and interpretation revenues for RSI. As referred to
above, the Company's sales effort has been redirected in order to
generate better commercial returns for the Company's EM
technologies.
Revenues from our WSS division increased from GBP2.8 million in
2010 to GBP3.1 million in the year to 31 August 2011. Revenues from
the emerging un-conventional reservoirs market were encouraging and
a good base is being built for growth in the financial year to 31
August 2012.
The cost of sales in the year to 31 August 2011 was GBP2.4
million which was very similar to 2010 (GBP2.4 million). The
resulting gross profit from operations in 2011 was GBP1.6 million
(41% of revenues) compared to a gross profit of GBP1.2 million (34%
of revenues) in 2010. Looking forward, margins should continue to
improve when revenues increase because the Company's productive
cost base is largely fixed in the short term.
Administrative expenses increased to GBP4.4 million in the year
to 31 August 2011 compared to GBP3.2 million in 2010 reflecting the
increased investment in sales & marketing and software
development activities. The software being developed should improve
the efficiency of data processing and interpretation work further
improving margins in the years to come. Administrative expenses
also include the costs of the Company's board, its listing on AiM
and corporate governance obligations.
The Group successfully completed a further round of equity
fundraising in November 2010, which contributed a gross cash amount
of GBP2.0 million less GBP118,000 of expenses. The Group also
received GBP1.9 million from OHM Limited when it prepaid for WISE
processing and interpretation services. Of the GBP1.9 million
prepayment received, GBP1.5 million remains to be utilised and is
repayable to OHM Limited on 30 June 2012 if not applied by
then.
The Group also raised GBP1.9 million of additional equity less
GBP145,000 of expenses in June 2011.
The year to 31 August 2011 saw a reduced loss of GBP2.4 million
from that reported the previous year (2010: GBP17.1 million loss).
At the period end the Group had cash on hand of GBP1.7 million and
no third party borrowings. This compares with a bank balance of
GBP3.4 million at the end of August 2010 (also no third party
borrowings).
Trading outlook
The 2012 financial year is looking promising with the award of
several large projects for both our WSS and WISE product lines. Our
revenue backlog is much healthier and visibility of the opportunity
pipeline is significantly better than at this stage last year.
We are seeing growing interest in our new funded R&D
project, designed to deliver a next generation EM processing and
interpretation system, which is anticipated to commence early in
2012 subject to industry funding.
We forecast steady growth in our traditional offshore reservoir
characterisation market (WSS), but more rapid growth in revenues
from and our offering to the un-conventional reservoir market (also
WSS) and, particularly, our WISE business line.
I'd like to thank our shareholders, both old and new, for their
continued support. RSI has been through some challenging times, but
has emerged as a strong and capable business, focussed on
delivering substantial value to all stakeholders.
Richard Cooper
Chief Executive Officer
Rock Solid Images plc
Consolidated Group Statement of Comprehensive Income
For the year ended 31 August 2011
Note
2011 2010
Restated
GBP'000 GBP'000
Revenue 3,991 3,633
Cost of sales 2,355 2,397
-------------------- -----------
Gross profit 1,636 1,236
Administrative expenses (4,432) (3,245)
Impairment provisions 5, 13 - (2,200)
Group operating loss 5 (2,796) (4,209)
Finance income 8 1 2
Finance costs 9 (27) (65)
-------------------- -----------
Loss before taxation (2,822) (4,272)
Income tax credit 10 121 76
-------------------- -----------
Loss for the year on continuing operations (2,701) (4,196)
Profit/(loss) on discontinued operations 265 (12,922)
Loss attributable to equity holders
of the parent
-------------------- -----------
30 (2,436) (17,118)
Other comprehensive income:
Exchange differences on retranslation
of foreign operations (705) 875
-------------------- -----------
Other comprehensive income and expense
for the year, net of tax (705) 875
-------------------- -----------
Total comprehensive income for the
year attributable to equity holders
of the parent company (3,141) (16,243)
-------------------- -----------
Earnings per share
Loss per ordinary share (total)
Basic 11 (2.10)p (22.41)p
Diluted 11 (2.10)p (22.41)p
Loss per ordinary share (continuing
operations)
Basic 11 (2.33)p (5.49)p
Diluted 11 (2.33)p (5.49)p
-------------------- -----------
Rock Solid Images plc
Consolidated Group Balance Sheet
At 31 August 2011
Note 2011 2010
GBP'000 GBP'000
Assets
Non-current assets
Goodwill 13 10,571 11,124
--------- -----------
Intangible assets - software 14 2,289 2,430
- patents and trademarks 14 797 852
- consortium fees 14 114 143
--------- -----------
3,200 3,425
Plant and equipment 15 1,033 667
--------- -----------
14,804 15,216
Current assets
Inventories - 487
Trade and other receivables 901 2,365
Cash and cash equivalents 1,719 3,443
Total assets
--------- -----------
2,620 6,295
--------- -----------
17 17,424 21,511
18
19
--------- -----------
Liabilities
Current liabilities
Trade and other payables 2,342 5,529
Borrowings - 973
Finance leases 36 34
--------- -----------
20 2,378 6,536
22
24
Non current liabilities
Borrowings - 324
Deferred tax liabilities 476 710
Finance leases 23 63
--------- -----------
22 499 1,097
23
24
--------- -----------
Total liabilities 2,877 7,633
--------- -----------
Net assets 14,547 13,878
--------- -----------
Shareholders' equity
Share capital 1,581 905
Share premium - 44,103
Share based payments reserve 295 1,443
Merger reserve 5,355 5,355
Retained earnings 4,300 (41,649)
Cumulative translation reserve 3,016 3,721
Total shareholders' equity
--------- -----------
26 14,547 13,878
--------- -----------
The financial statements were approved by the Board of Directors
and authorised for issue on 16 January 2012 and are
signed on its behalf by:
P A Reilly R I Auckland
Director Director
Rock Solid Images plc
Consolidated Group Cashflow Statement
For the year ended 31 August 2011
Note 2011 2010
Restated
GBP'000 GBP'000
Cash flow from operating activities
Loss for the year (2,436) (17,118)
Adjustments for:
Depreciation of tangible fixed assets 15 524 1,840
Amortisation of intangible fixed assets 14 577 1,066
Share based payments charge 28 177 121
Gain on disposal of discontinued operations 30 (1,171) -
Loss on disposal of plant and equipment - 172
Impairment provisions 5 - 6,749
Charge on conversion of vessel charter commitments 5 - 2,140
Income tax credit 10 (121) (137)
Finance income 8 (1) (3)
----------
Operating cash flows before changes in working capital (2,451) (5,170)
Decrease in inventories - 120
Increase in trade and other receivables (306) (1,616)
Increase in trade and other payables 2,459 2,325
Cash absorbed by operations
---------- -----------
(298) (4,341)
Foreign taxes paid 10 - 137
---------- -----------
Net cash used in operating activities (298) (4,204)
(466) (115)
(45) (56)
(934) (232)
- 25
(1,933) -
1 3
---------- -----------
Cash flow from investing activities (3,377) (375)
Payments to acquire software
Payments to acquire patents and trademarks 14
Purchase of computer and office equipment 14
Proceeds from sale of plant and equipment 15
Net cash disposed of on discontinued operations
Interest received 30
Net cash used in investing activities 8
3,896 5,947
(263) (181)
(1,297) 1,297
(38) (26)
---------- -----------
Cash flow from financing activities 2,298 7,037
Proceeds from issue of ordinary share capital
Share issue costs
Borrowings (repaid)/received 26
Finance lease obligations 26
Net cash from financing activities 22
---------- -----------
Net (decrease)/increase in cash and cash equivalents (1,377) 2,458
---------- -----------
Opening cash and cash equivalents 3,443 1,043
Effect of foreign exchange rate changes (347) (58)
---------- -----------
Closing cash and cash equivalents 19 1,719 3,443
---------- ---- -----------
The comparatives are restated for consistency of
presentation
Rock Solid Images plc
Consolidated Group Statement of Changes in Equity
For the year ended 31 August 2011
Attributable to equity holders of the parent company
Share Share Share based Merger Retained Translation Total
capital premium payments reserve earnings reserve Equity
reserve Restated Restated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 September
2009 434 36,668 1,322 5,355 (24,531) 2,844 22,092
Total
comprehensive
income for
the
year - - - - (17,118) 875 (16,243)
Share based
payments - - 121 - - - 121
Other
adjustments - - - - - 2 2
Share issues 471 7,435 - - - - 7,906
Balance at 31
August 2010 905 44,103 1,443 5,355 (41,649) 3,721 13,878
Total
comprehensive
income for
the
year - - - - (2,436) (705) (3,141)
Transfer on
disposal
of
discontinued
operations - - (1,325) - 1,325 - -
Share issues 676 2,957 - - - - 3,633
Cancellation
of
share premium
account
(refer
to page 10) - (47,060) - - 47,060 - -
Share based
payments - - 177 - - - 177
Balance at 31
August 2011 1,581 - 295 5,355 4,300 3,016 14,547
--------- ---------- ---------- --------- ---------- ------------- --------------
The charge to the share based payments reserve represents the
fair value of the shares to be awarded under the Group's Share
Option Plans and Share Award and Annual Bonus Plans calculated in
accordance with IFRS 2. Corresponding amounts are included in the
loss for the relevant periods with the consequence that the Group's
accounting for share based payments has no net impact on total
equity. During the year share based payment amounts relating to
discontinued operations were transferred to retained earnings
following the disposal of OHM Limited.
The merger reserve represents the excess of the fair value of
the shares issued over their nominal value which is recorded when
shares are issued in exchange for shares to effect an investment in
an undertaking.
Other reserves represent the credit entry relating to share
based payment charges on the implementation of IFRIC 11. This
impacts the Company only.
Retained earnings represent gains and losses recognised in the
Consolidated Group Statement of Comprehensive Income that are not
required to be presented in any of the other components of equity
as presented. No dividends were declared in any period
disclosed.
The translation reserve comprises gains and losses arising on
the translation of the net assets of overseas operations.
Capital reduction - cancellation of the share premium
account
Following the approval of its shareholders at a general meeting
on 27 June 2011, the Company made a successful application to the
High Court of Justice in England and Wales on 20 July 2011 for a
capital reduction. This capital reduction involved the cancellation
of the share premium account totalling GBP47,060,000 creating
realised profits which were applied in eliminating the deficit in
the retained earnings balance of the Company's balance sheet. The
Company intends to use the remainder of the credit arising from the
capital reduction to pay dividends when authorised to do so by its
shareholders.
Rock Solid Images plc
Notes to the Preliminary Results for the year to 31 August
2011
1 General information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 August 2011 or
2010, but is derived from those accounts. Statutory accounts for
the years ended 31 August 2011 and 31 August 2010 have been
reported on by the Independent Auditors. The Independent Auditors'
Report on the Annual Report and Financial Statements for 2010 was
unqualified and did not contain a statement under 237(2) or 237(3)
of the Companies Act 1985. The Independent Auditors' Report on the
Annual Report and Financial Statements for 2011 was qualified in
one respect, resulting from a disagreement between the Board of RSI
and the Independent Auditor over the discount rate to be used in
calculating anticipated future discounted cash flows for the
purposes of the impairment calculation. The Independent Auditors'
Report did not draw attention to any matters by way of emphasis,
and did not contain a statement under 498(2) or 498(3) of the
Companies Act 2006. Statutory accounts for the year ended 31 August
2009 have been filed with the Registrar of Companies. The statutory
accounts for the year ended 31 August 2010 will be delivered to the
Registrar following the Company's annual general meeting.
Accounts for the year ending 31 August 2011 will be dispatched
to shareholders during January 2012 and will shortly be available
on the Company's website, www.rocksolidimages.com. The AGM will
take place at 11.00am on 24 February 2012 at the offices of Fox
Davies Capital Limited, 1 Tudor Street, London EC4Y OAH.
Rock Solid Images plc is a company registered in England and
Wales.
2 Significant accounting policies
Basis of preparation
The financial statements have been prepared under the historical
cost convention, in accordance with IFRS (International Financial
Reporting Standards) as endorsed for use in the European Union and
also in accordance with those parts of the Companies Act 2006 that
remain applicable to companies who report under IFRS.
Going concern assumption
The Group has reported a loss attributable to equity holders of
the parent company for 2011 of GBP2,436,000 (2010: Loss of
GBP17,118,000).
The Directors are committed to returning the Group to
profitability and have completed during the financial year, or are
in the process of completing, a number of initiatives which should
lead to a financial and operational turnaround of the Group:
-- The disposal of the marine CSEM survey business was completed
on 2 November 2010 removing a heavy financial burden and allowing
management to refocus on the continuing business;
-- The restructuring of the organisation along two major
business lines (WISE and WSS), with a high-level product manager
responsible for each;
-- Significantly increasing the investment in the Group's sales
force and sales and marketing processes resulting in a substantial
and measurable increase in sales pipeline and backlog during the
first six months of the financial year;
-- The rebranding of the Group to RSI including a revamped website;
-- Investment of over GBP1.4 million in software and computer
hardware during the financial year, improving the Group's
production capacity and technological leadership; and
-- The successful canvassing of leading oil companies regarding
the financing of a joint industry project (JIP) for the development
of a next generation software suite for the conditioning,
interpretation and integration of seismic, well log and CSEM/MT
data. This funding should be in place by the third quarter of the
financial year.
These initiatives materially improve the Group's operational
position and financial outlook although, like any other business,
it relies on an inflow of orders from its clients to continue to be
able to generate cash flows. In this respect the Directors are
optimistic that adequate WSS and WISE revenues will be generated in
the winter and spring months and the sales backlog and pipeline
gives very encouraging visibility.
It is acknowledged that, depending on the timing of the
anticipated increased sales and revenue inflow and the JIP inflow,
additional funding may be required during the second half of the
financial year and this is currently being addressed by the Board.
In particular it may be necessary to finance the repayment of any
remaining balance on the WISE services prepayment on 30 June 2012.
At 31 August 2011 this balance stood at GBP1,542,000 and is
included in other creditors in note 20.
The Directors believe that there are reasonable prospects that
any necessary additional funding from shareholders will be
successfully concluded in the second half of the financial year.
They believe that the Group has generated a strong sales backlog
position and has put in place the capacity to handle this growth in
revenues. The Group should also be moving towards profitability in
the third quarter of the financial year. However, any failure to
successfully conclude a further funding arrangement, which for the
reasons set out above is not currently anticipated, would result in
some uncertainty over the Group's ability to continue as a going
concern.
Taking all the above into account, the Directors believe that it
continues to be appropriate to prepare the Annual Report and
financial statements on a going concern basis.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 August each year. Control is
achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain
benefits from its activities. The results of subsidiaries acquired
in the year are included in the Consolidated Group Statement of
Comprehensive Income from the effective date of acquisition. Where
necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with
those used by the Group. All intra-group transactions, balances,
income and expenses are eliminated on consolidation.
Business combinations and goodwill
Goodwill represents the excess of the cost of a business
combination over, in the case of business combinations completed
prior to 1 September 2009, the Group's interest in the fair value
of identifiable assets, liabilities and contingent liabilities
acquired and, in the case of business combinations completed on or
after 1 September 2009, the total acquisition date fair value of
the identifiable assets, liabilities and contingent liabilities
acquired.
For business combinations completed prior to 1 September 2009,
cost comprises the fair value of assets given, liabilities assumed
and equity instruments issued, plus any direct costs of
acquisition. Changes in the estimated value of contingent
consideration arising on business combinations completed by this
date are treated as an adjustment to cost and, in consequence,
result in a change in the carrying value of goodwill.
For business combinations completed on or after 1 September
2009, cost would comprise the fair value of assets given,
liabilities assumed and equity instruments issued, plus the amount
of any non-controlling interests in the acquiree plus, if the
business combination is achieved in stages, the fair value of the
existing equity interest in the acquiree. Contingent consideration
is included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through profit or loss. For
business combinations completed on or after 1 September 2009,
direct costs of acquisition are recognised immediately as an
expense.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the Consolidated
Group Statement of Comprehensive Income. Where the fair value of
identifiable assets, liabilities and contingent liabilities exceed
the fair value of consideration paid, the excess is credited in
full to the Consolidated Group Statement of Comprehensive Income on
the acquisition date.
For the purpose of impairment testing, goodwill is allocated to
each of the Group's cash-generating units expected to benefit from
the synergies of the combination. Cash generating units to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the
unit.
An impairment loss recognised for goodwill is not reversed in a
subsequent period.
On disposal of a subsidiary the attributable amount of goodwill
is included in the determination of the profit or loss on
disposal.
Revenue recognition
Revenue represents sales in respect of the provision of oil
exploration and production services to external clients at invoiced
amounts less value added tax or local taxes on sales. Revenue is
recognised in line with the performance of these services by
applying the percentage stage of completion to the contract value.
Included within revenue are amounts in respect of data modelling,
data interpretation and data library services, industry research
consortium fees and software sold to external clients. Reimbursable
expenses billed to clients are also included in revenue.
Research and development
Expenditure on pure and applied research is charged as an
expense in the year in which it is incurred. Development costs
which are expected to generate probable future economic benefits
are capitalised in accordance with IAS 38 "Intangible Assets" and
amortised on a straight line basis over their useful economic
lives. All other development expenditure is charged to the
Consolidated Group Statement of Comprehensive Income.
Under IAS 38, an internally-generated intangible asset arising
from the Groups' product development is recognised only if all of
the following conditions are met:
-- the technical feasibility of completing the intangible asset
so that it will be available for sale,
-- its intention to complete the intangible asset,
-- its ability to use or sell the intangible asset,
-- it is probable that the asset created will generate future economic benefits,
-- the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset, and
-- the development cost of the asset can be measured reliably.
Interest receivable
Interest income is recognised on an accruals basis under the
effective interest method and is recognised within finance income
in the Consolidated Group Statement of Comprehensive Income.
Financial instruments
Financial assets and financial liabilities are recognised in the
Group or Company Balance Sheet when the Group or Company becomes a
party to the contractual provisions of the instrument.
Trade receivables
Trade receivables are measured at fair value with appropriate
allowances for estimated irrecoverable amounts recognised in the
Consolidated Group Statement of Comprehensive Income. All amounts
are subsequently valued at amortised cost using the effective
interest method.
Cash and cash equivalents
Cash and cash equivalents have original maturity of three months
or less from acquisition and comprise cash in hand and demand
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value.
Bank borrowings
Interest-bearing loans and overdrafts are initially recognised
at fair value and subsequently at amortised cost. Finance charges,
including premiums payable on settlement or redemption and direct
issue costs, are accounted for on an accruals basis in the
Consolidated Group Statement of Comprehensive Income using the
effective interest method and are added to the carrying amount of
the instrument to the extent that they are not settled in the
period in which they arise.
Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
arise principally through the provision of goods and services to
customers (e.g. trade receivables), but also incorporate other
types of contractual monetary asset. They are initially recognised
at fair value plus transaction costs that are directly attributable
to their acquisition or issue, and are subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts due under
the terms receivable, the amount of such a provision being the
difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired
receivable. For trade receivables, which are reported net, such
provisions are recorded in a separate allowance account with the
loss being recognised within administrative expenses in the
Consolidated Group Statement of Comprehensive Income. On
confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the
associated provision.
From time to time, the Group elects to renegotiate the terms of
trade receivables due from customers with which it has previously
had a good trading history. Such renegotiations will lead to
changes in the timing of payments rather than changes to the
amounts owed and, in consequence, the new expected cash flows are
discounted at the original effective interest rate and any
resulting difference to the carrying value is recognised in the
Consolidated Group Statement of Comprehensive Income (operating
profit).
The Group's loans and receivables comprise trade and other
receivables and cash and cash equivalents in the Consolidated Group
Balance Sheet.
Loans made from the parent company to its subsidiaries are
initially recognised at fair value and are subsequently stated at
amortised cost using the effective interest method. Where the fair
value of such loans is less than the loan amount the difference is
treated as an increase in the investment in that subsidiary.
Trade payables
Trade payables are initially measured at fair value. All amounts
are subsequently valued at amortised cost using the effective
interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
Leasing
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all the risk and rewards of
ownership to the lessee. All the other leases are classified as
operating leases.
Assets held under finance leases are recognised as assets of the
Group at their fair value or, if lower, at the present value of the
minimum lease payments, each determined at the inception of the
lease. The corresponding liability to the lessor is included in the
Balance Sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease
obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are charged
directly against income.
Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the relevant lease.
Foreign currencies
In preparing the financial statements of the individual
companies that comprise the Group, transactions in currencies other
than the entity's functional currency are recorded at the rates of
exchange prevailing on the date of the transactions. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items carried at
fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
is determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
On consolidation, the results of overseas operations are
translated into sterling at rates approximating to those ruling
when the transactions took place. All assets and liabilities of
overseas operations, including goodwill arising on acquisition of
those operations, are translated at the rate ruling at the
reporting date. Exchange differences arising on translating the
opening net assets and the results of overseas operations are
recognised in other comprehensive income and accumulated in the
translation reserve.
An intra-group monetary item for which settlement is neither
planned nor likely in the foreseeable future is, in substance, a
part of the Group's net investment in the foreign operation.
Exchange differences arising on a monetary item that forms part of
the Group's net investment in a foreign operation are recognised in
a separate component of equity in the accumulated translation
reserve.
Investments
The parent company's investments in subsidiary undertakings are
stated at cost less any impairment provisions.
Depreciation
Depreciation is provided to write off the cost, less estimated
residual values, of all tangible fixed assets, except for assets in
the course of construction, over their expected useful lives. It is
calculated at the following rates:
Plant and equipment - 12.5% to 66.7% straight line
Computer equipment - 20% to 50% straight line
Office equipment - 14.3% to 66.7% straight line
Impairment of fixed assets
Impairment reviews of fixed assets are carried out on each
cash-generating unit identified in accordance with IAS 36
"Impairment of Assets". The need for any fixed asset impairment
write-down is assessed by comparison of the carrying value of the
asset against the higher of the fair value less costs to sell and
value in use. Any such impairment arising is recognised in the
Consolidated Group Statement of Comprehensive Income as
impairment.
Where there has been a charge for impairment in an earlier
period that charge will be reversed in a later period where there
has been a change in circumstances to the extent that the
discounted future net cash flows are higher than the net book value
at the time. In reversing impairment losses, the carrying amount of
the asset will be increased to the lower of its original carrying
value or the carrying value that would have been determined (net of
depreciation or amortisation) had no impairment loss been
recognised in prior periods.
Intangible assets
Patents and trademarks
Costs of obtaining patents are capitalised and amortised on a
straight line basis over their useful life from the date they are
awarded which ranges from ten to seventeen years.
Software developed internally
Software developed internally is capitalised and amortised on a
straight line basis over its useful life which ranges from two to
ten years.
Consortium fees
Recurring fees from research consortia are fair valued on
acquisition, capitalised and amortised on a straight line basis
over their useful lives which ranges from five to ten years.
Multi client data library
The cost of collecting and processing electromagnetic and
seismic data for onward licensing to clients on a non-exclusive
basis is capitalised and held in the Balance Sheet as an intangible
asset. The carrying cost of the electromagnetic data is held on an
identified prospect basis with the costs being reduced as sales
occur or, if insufficient sales are realised, amortised on a
straight line basis over a period of three years starting in the
first month of the next half year following completion of the data
library product. The carrying cost of well data is amortised on a
straight line basis over a period of five years. All sales of
information from the library attract a cost based on regular review
of operating margins.
Stocks and long term contracts
Stocks of spare parts and consumables are carried at the lower
of cost or net realisable value.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. The Group's liability for current tax is calculated using
rates that have been enacted or substantively enacted by the
balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profits, and is accounted for using the
balance sheet liability method.
Deferred tax liabilities are generally recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that
affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investment in subsidiaries except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that have been
enacted or substantively enacted by the end of the reporting period
which are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or
credited in the Consolidated Group Statement of Comprehensive
Income, except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net
basis.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are
charged as an expense as they fall due. The Group has no defined
benefit retirement schemes.
Share-based payments
The Group operates a number of equity settled share-based
payment schemes under which shares are issued to certain employees.
The fair value determined at the grant date of the equity-settled
share-based payment is expensed on a straight-line basis over the
vesting period. For schemes with only market based performance
conditions, those conditions are taken into account in arriving at
the fair value at grant date. Accordingly, no subsequent adjustment
to the amortised fair value is made for achievement or otherwise of
those conditions. For schemes that include non-market based
conditions or no conditions, a "true-up" model is applied to the
expense at each reporting date based on the expected number of
shares that will eventually vest.
Group and treasury share transactions
Through its share award and share option schemes the Company
allows its subsidiary undertakings to remunerate their employees
with shares that the Company has issued. The Company accounts for
these share based payments as a capital contribution to the
subsidiary undertaking including the fair value of this capital
contribution as an addition to its investment in the subsidiary
undertaking
3 Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the year.
Although these estimates are based on management's best knowledge
of the amount, event or actions, actual results ultimately may
differ from those estimates. Significant judgements and estimates
in these financial statements have been made in a number of areas
and an explanation of key uncertainties or assumptions used by
management in accounting for these items is explained, where
material, in the following paragraphs and in the relevant
notes.
Assets held for sale and discontinued operations
At the General Meeting held on 1 November 2010 the members of
the Company approved a number of resolutions which included the
sale of the entire issued share capital of OHM Limited and OHM
Surveys Sdn Bhd for a total consideration of $150,000 (GBP94,000).
These disposals were completed on 2 November 2010. As a consequence
of these disposals the Group recognised impairment provisions
totalling approximately GBP4.4 million in its consolidated accounts
to 31 August 2010 and the Company recognised impairment provisions
totalling approximately GBP24.7 million in its own accounts to 31
August 2010.
The Group determined that while management was committed to the
sale of OHM Limited and OHM Surveys Sdn Bhd, before 31 August 2010,
the disposals were not considered highly probable at that balance
sheet date. The Company had not entered into legally binding
contracts at the balance sheet date and at that time the disposals
still required a number of shareholder approvals. Consequently, the
Group did not classify these two companies as a disposal group at
31 August 2010 and thus its results were not disclosed as
discontinued operations. However, following completion of these
transactions on 2 November 2010, the trading results of OHM Limited
and OHM Surveys Sdn Bhd between 1 September 2010 and 2 November
2010 are reflected as a discontinued operation in the accounts to
31 August 2011.
Impairment of goodwill, tangible and intangible assets
The Group is required to test, on an annual basis, whether
goodwill and other intangible assets and intangible assets with
indefinite lives have suffered any impairment. At each reporting
date where there are indicators of impairment tangible assets are
also tested for impairment. In this test the net book value of the
cash-generating unit is compared with the associated expected
discounted future cash flows over a five year period. If the net
book value is higher, then the difference is written off to the
Consolidated Group Statement of Comprehensive Income as impairment.
The recoverable amount is determined based on "value in use"
calculations.
One indication of impairment is the Company's share price and
the resulting total market capitalisation. At 31 August 2011 the
Company's closing mid-market share price was 3.50 pence which gives
the Company a market capitalisation of approximately GBP5.5
million, which is significantly lower than the total shareholders'
equity at the same date of approximately GBP14.5 million.The
directors, while disappointed with this low share price despite the
significant progress made by the Company since November 2010,
believe that it is disconnected from the current and future
potential of the business. However, the Board of Directors
recognise that the low share price means that a review for
impairment should be undertaken.
The use of the "value in use" method requires the estimation of
future cash flows and the choice of a discount rate in order to
calculate the present value of the net cash flows. Discounted
future net cash flows for IAS 36 purposes are calculated using a
pre tax discount rate of 22% (2010: 22%). The Directors believe
that this discount rate includes a suitable allowance for the risk
and uncertainty inherent in forecasting cash flows. The Directors
determine forecasted revenues and costs for each cash-generating
unit over a five year period based on a combination of historical
experience and projected growth rates for the WISE and WSS segments
which are corroborated by external sources and sales pipeline,
wherever possible.
The Directors have carefully reviewed the Group's latest order
book and sales pipeline which gives them comfort that the revenues
planned for the financial year ending on 31 August 2012 are
achievable. Recent investment made in the business and its market
positioning (as explained in both the Chairman's Statement and CEO
Report) should lead to significant levels of growth into 2013,
2014, 2015 and 2016. However, as with any forecast, there is bound
to be a degree of uncertainty which increases the further into the
future forecasts are made. The markets may not grow as predicted
and the Group's share of these markets may not follow the
Directors' plans for any number of reasons. A further analysis of
the principal risks and uncertainties facing the Group is set out
on page 8.
The Directors have determined that the Group has two largely
independent cash-generating units, the Well-driven Integration of
Seismic and Electromagnetics business (WISE), and the Well and
Surface Seismic interpretation business (WSS). These
cash-generating units correspond to the Group's business segments
and further information describing these is set out in note 4.
The WISE market is forecast to grow by between 25% and 30% pa.
(2010: between 25% and 30% pa.) over the next five years with the
Group's share of this market increasing from approximately 15%
(2010:15%) to approximately 50% (2010: 50%). The Group's WISE
revenues are forecast to increase by between 50% and 60% pa over
this period (2010: between 50% and 60%). Assumptions relating to
the high growth of the WISE market are based on projections made by
the Directors and reflect the relatively small level of revenues
and low market penetration in the financial year to 31 August 2011.
High growth levels are also supported by the increasing rate of
adoption of EM technology by oil companies, particularly national
oil companies and the Company's position in the market as the only
independent integrator of EM, seismic and well data.
The WSS market is forecast to grow by between 5% and 10% pa
(2010: between 5% and 10% pa) over the next five years with the
Group's share of this market increasing from approximately 5%
(2010: 5%) to between 10% and 15% (2010: between 10% and 15%). The
Group's WSS revenues are therefore forecast to increase by
approximately 40% pa (2010: 40% pa) over this period reflecting the
Group's new focus on the South American market and the fledgling
market for geophysical services to oil companies investing in
un-conventional reservoirs. The Company is developing a technical
leadership position in the market for consulting on un-conventional
reservoirs.
The calculation of the value in use for each cash-generating
unit is most sensitive to assumptions for:
(a) the forecast rate of growth of the Group's revenues in the
WISE and WSS markets over the next five years;
(b) The growth in the market for hydrocarbon potential of
un-conventional reservoirs such as shales and tight gas sands;
and
(c) the discount rate used.
The Directors consider the value attributable to net cash flows
generated from the WISE and WSS businesses to be higher than the
current carrying value of goodwill, tangible and intangible assets
and consequently no impairment adjustment is required. However,
attention is drawn to the risks and uncertainties in arriving at
this conclusion.
Useful lives of intangible assets and property, plant and
equipment
Intangible assets and property, plant and equipment are
amortised or depreciated over their useful lives. Useful lives are
based on the management's estimates of the period over which the
assets will generate revenue, which are periodically reviewed for
continued appropriateness. Changes to estimates can result in
significant variations in the carrying value and amounts charged to
the Consolidated Income Statement in specific periods. More details
including carrying values are included in notes 14 and 15.
Share based payments
The Group has two types of equity-settled share-based
remuneration schemes for employees. Employee services received, and
corresponding credit to reserves, are measured by reference to the
fair value of the equity instruments at the date of grant,
excluding the impact of any non-market vesting conditions. The fair
value of share options and awards is estimated by using valuation
models, such as Monte Carlo and Cox, Ross & Rubinstein
binomial, on the date of grant based on certain assumptions. Those
assumptions are described in note 28 and include, among others, the
dividend growth rate, expected volatility, estimated number of
employees leaving, expected life of the options and number expected
to vest. More details are disclosed in note 28.
4 Business segments
IFRS 8 defines operating segments as components of an entity
about which separate financial information is evaluated by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance. The chief operating
decision maker has been identified as the Chief Executive Officer
("CEO").
At 31 August 2011 the Group is organised into two reportable
business segments - Well-driven Integration of Seismic and
Electromagnetics (WISE) business and the Well and Surface Seismic
(WSS) business. At 31 August 2010 there was a third business
segment - Controlled Source Electromagnetic (CSEM) acquisition and
primary data processing services which was disposed of on 2
November 2010.
The CEO considers the performance of the operating segments
based on revenue, gross profit contribution, overheads and a
measure of Earnings before Interest, Taxation, Depreciation and
Amortisation (EBITDA). He also reviews performance, investment and
asset allocations by segments and in geographical regions.
Well-driven Integration of Seismic and Electromagnetics
(WISE)
The value of geophysical data and interpretations derived from
them is significantly increased when different data types are
integrated to utilise the strengths of each. The Group's WISE
interpretation approaches use available seismic, CSEM and well log
data to add value to interpretations at all stages of the oil field
life cycle, by providing quantitative measurements of rock and
fluid properties.
The directors view the WISE product range and focus as being
critical to the future success of the Group and are allocating
resources to this business segment and monitoring performance
accordingly.
Well and Surface Seismic (WSS)
The directors believe that RSI is the industry leader in the
integration of fundamental rock physics with well data and surface
seismic in order to interpret geophysical signatures in terms of
reservoir properties. Careful integration of these data can lead to
quantitative measurements of rock and fluid properties such as
porosity and hydrocarbon saturation.
Corporate costs
Costs relating to the Company's board, its listing on AiM and
corporate governance obligations are categorised as 'Corporate'
costs. These costs are not easily attributable to either of the
individual business segments but are allocated 25% to the WISE
segment and 75% to the WSS segment.
Segmental information
The following tables present revenue, profit and loss, and
certain asset and liability information regarding the Group's
business segments for the years ended 31 August 2011 and 2010. The
comparatives are restated for consistency of presentation.
2011 WISE WSS Corporate Total
costs
2011 2011 2011 2011
GBP'000 GBP'000 GBP'000 GBP'000
Continuing operations
External revenue 853 3,138 - 3,991
Cost of sales (738) (1,617) - (2,355)
--------- --------- ----------- ---------
Segment gross profit 115 1,521 - 1,636
13% 48% 41%
Administrative expenses (1,145) (1,741) (1,546) (4,432)
Reclassification (corporate
costs) (386) (1,160) 1,546 -
Segment operating loss (1,416) (1,380) - (2,796)
Add back depreciation
and amortisation 427 536 - 963
Segment EBITDA (989) (844) - (1,833)
2010 WISE WSS Corporate Total
costs
2010 2010 2010 2010
Restated Restated Restated Restated
GBP'000 GBP'000 GBP'000 GBP'000
Continuing operations
External revenue 849 2,784 - 3,633
Cost of sales (608) (1,789) - (2,397)
Segment gross profit 241 995 - 1,236
28% 36% 34%
Administrative expenses (606) (1,130) (1,509) (3,245)
Reclassification (corporate
costs) (377) (1,132) 1,509
Impairment provisions (500) (1,700) - (2,200)
Segment operating loss (1,242) (2,967) - (4,209)
Add back depreciation
and amortisation 272 590 862
Add back impairment provisions 500 1,700 - 2,200
Segment EBITDA (470) (677) - (1,147)
----------- ----------- ----------- -----------
WISE WSS Total
2011 2011 2011
GBP'000 GBP'000 GBP'000
Net capital investment
during 2011
Capital additions - software 353 113 466
- patents and trademarks 45 - 45
- tangible fixed assets 703 231 934
--------- --------- ---------
1,101 344 1,445
Depreciation and amortisation
charges (427) (536) (963)
--------- --------- ---------
674 (192) 482
--------- --------- ---------
WISE WSS Total
2011 2011 2011
GBP'000 GBP'000 GBP'000
Balance sheet at 31 August
2011
Segment assets 3,728 13,696 17,424
Segment liabilities (1,806) (1,071) (2,877)
--------- --------- ---------
Total net assets 1,922 12,625 14,547
--------- --------- ---------
WISE WSS Total
2010 2010 2010
Restated Restated Restated
GBP'000 GBP'000 GBP'000
Net capital investment
during 2010
Capital additions - software 31 84 115
- patents and trademarks 56 - 56
- tangible fixed assets 14 236 250
----------- ----------- -----------
101 320 421
Depreciation and amortisation
charges (272) (590) (862)
----------- ----------- -----------
(171) (270) (441)
----------- ----------- -----------
WISE WSS CSEM Total
2010 2010 2010 Restated 2010
Restated Restated Restated
GBP'000 GBP'000 GBP'000 GBP'000
Balance sheet at 31 August
2010
Segment assets 3,831 13,109 4,571 21,511
Segment liabilities (662) (2,147) (4,824) (7,633)
----------- ----------- --------------- -----------
Total net assets 3,169 10,962 (253) 13,878
----------- ----------- --------------- -----------
Geographical information
The Group's operations are analysed between Europe, Africa, the
Americas and Asia Pacific. The following table provides analysis of
the Group's revenue by location of the contracted activity:
Revenue
2011 2010
Restated
GBP'000 GBP'000
892 696
1,654 2,002
818 545
627 390
--------- -----------
Europe
Africa
Americas
Asia Pacific 3,991 3,633
--------- -----------
Included under Europe are Group revenues where the contracted
activity is in the United Kingdom totalling GBP169,000 (2010:
GBP68,000).
The following table is an analysis of the carrying amount of
total assets, and additions to the property, plant and machinery
and intangible assets, analysed by the location in which the assets
are located:
Total assets Capital expenditure
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
2,372 5,160 95 113
- - - -
15,052 14,798 1,350 323
- 66 - -
- 1,487 - 81
--------- --------- --------- ---------
Europe
Africa
Americas
Asia Pacific
Unallocated - including
plant and machinery on
vessels 17,424 21,511 1,445 517
--------- --------- --------- ---------
The total assets included under Europe include GBP1,322,000 of
cash and cash equivalents (2010: GBP3,213,000) and other assets of
GBP1,050,000 (2010: GBP1,947,000) located in the United
Kingdom.
The capital expenditure included under Europe relates to capital
expenditure in the United Kingdom.
Major clients
The Group had two different clients (2010: one) who accounted
for more than 10% of the Group's external revenue during the year
as shown below:
Major clients
2011 2010
Restated
GBP'000 GBP'000
Client A 1,099 183
Client B 427 57
Client C - 534
Other clients accounting
for less than 10% of
the Group's external
revenues 2,465 2,859
--------- -----------
Total revenue 3,991 3,633
--------- -----------
The revenue from Clients A-C is attributable to the WSS business
segments. The names of these clients are confidential to the
business.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Rock Solid (LSE:RSI)
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