Interim Results
24 Diciembre 2009 - 1:01AM
UK Regulatory
TIDMSOGP
RNS Number : 6771E
Sovereign Oilfield Group plc
24 December 2009
+---------------------------------------+---------------------------------------+
| FOR IMMEDIATE RELEASE | 24 December 2009 |
+---------------------------------------+---------------------------------------+
SOVEREIGN OILFIELD GROUP Plc
("Sovereign" or "the Company" or "the Group")
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009
Sovereign Oilfield Group Plc ("Sovereign" or "the Group"), the Aberdeen-based
diversified oilfield services group, has announced its unaudited financial
results for the six month period to
30 September 2009.
Financial Highlights
+------------------------+----------------+---------------+
| | 2009 | 2008 |
| | | |
+------------------------+----------------+---------------+
| * Turnover | GBP28.2m | GBP30.8m |
+------------------------+----------------+---------------+
| * EBITDA* | GBP0.5m | GBP1.0m |
+------------------------+----------------+---------------+
| * Operating | GBP(0.1)m | GBP0.8m |
| (loss)/profit** | | |
+------------------------+----------------+---------------+
| * (Loss) before tax# | GBP(1.6)m | GBP(2.3)m |
+------------------------+----------------+---------------+
| * Loss per share | (9.52)p | (6.91)p |
+------------------------+----------------+---------------+
* * excluding exceptional items of GBP(0.4)m (2008: GBP(0.4)m)
* ** excluding exceptional items of GBP(1.7)m (2008: GBP0.5m)
* # excluding exceptional items of GBP(1.7)m (2008: GBP0.5m)
Chief Executive's Statement
The period to 30 September 2009 was a difficult trading period for the Group.
Sovereign continued with it refinancing negotiations during the period and on 3
July 2009 the Group agreed to an amendment of terms in respect of credit
facilities in place at 31 March 2009. The new terms agreed for a standstill of
all outstanding defaults until 31 May 2010, a reduction in margin payable on
both senior and mezzanine facilities and a revised covenant package.
Sovereign continued with its strategy to refocus the Group as a fabrication
business. In line with this strategy Sovereign has disposed of Diamant Drilling
Services SA, Vertec Engineering Limited and the cabin rental business of Labtech
Services Limited, Prodrill Engineering Limited, four properties, and some of the
assets of Sovereign Fishing and Remedial Services. In September 2009, the Board
resolved to discontinue the activities of Fingolden Limited and its trading
subsidiary RDT precision Engineers Limited, Maxwell Downhole Technology Limited
and Sovereign Fishing and Remedial Services, as a result of these companies
being consistently loss making. Additionally, the Board has committed to a plan
to sell Serco S.A, with proceeds of such disposal being used to repay the
Company's existing debt. The contribution of these companies to the results for
the six months ended 30 September 2009 have been classified as discontinued
operations.
The remaining trading subsidiary companies are focussed on providing fabrication
services and include Caledonian Petroleum Services Limited, OIL Engineering
Limited, Forfab Limited, Labtech Services Limited, Cooltime Engineering Services
Limited, Sovereign Dimensional Survey Limited and OIL Engineering Middle East
LLC in Abu Dhabi.
Financial Review
Revenue from continuing operations was GBP28.2 million (2008: GBP30.8 million)
and gross profit was GBP6.8 million (2008: GBP7.4 million). Gross margins
remained stable at 24.1% (2008: 24.0%). Earnings before interest, depreciation,
amortisation and exceptional items was GBP0.5 million (2008: GBP1.0 million).
Group operating Group operating loss before exceptional items was GBP0.1 million
(2008: profit GBP0.8 million). Exceptional items of GBP1.7 million relating were
incurred in the period, which comprised GBP1.8 million relating to impairment of
leasehold improvements of OIL Middle East LLC, GBP0.4 million relating to
refinancing and restructuring costs, GBP0.1 million relating to severance
arrangements and a profit of GBP0.6 million on the sale and leaseback of
property.
Finance costs of GBP1.5 million were incurred in the period (2008: GBP2.6
million) and the loss before taxation for the period was GBP3.3 million (2008:
Loss GBP1.8 million).
The basic and diluted loss per share was 9.52 pence per share (2008: 6.91 pence
per share).
Refinancing update
On 3 July 2009 the Group agreed to an amendment of terms in respect of credit
facilities in place at
31 March 2009. The new terms agreed for a standstill of all outstanding defaults
until 31 May 2010, a reduction in margin payable on both senior and mezzanine
facilities and a revised covenant package.
Under the new terms, for the period 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 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%.
The Board estimates that the revised terms which cover the period to 31 March
2011, will result in net savings in finance costs of GBP3.4 million.
The revised covenant package incorporates financial covenants with regard to
quarterly revenue and EBITDA which the Board believed were acceptable. The Group
met its covenants for the quarter 30 June 2009 but breached its banking
covenants for the quarter to 30 September 2009 as a result of the continued poor
trading performance of the Drilling Division.As a result of the covenant breach
at 30 September 2009 the Group has reclassified repayments of the principal from
non-current to current liabilities on the basis that the Company's lenders were
in a position at the period end to serve the Company with a notice to repay the
bank loans on demand. No such notices were served during the period or
subsequent to the period end. The loans were due for repayment in January 2012.
The Company is in dialogue with the Lenders regarding the covenant breaches and
the Board provided revised financial forecasts which are presently being
reviewed by our Lender Group.
One of the options being considered by the Lender Group and the Board is a debt
for equity swap, which would be dilutive to current shareholders but would
reduce debt and increase the capital base of the Group. Whilst these
negotiations are not complete, the lending syndicate provided additional
short-term funding of GBP0.8 million on 27 November 2009.
Board Changes
There have been several recent changes to the Board of Sovereign.
On 1 December 2009 Graham Burgess resigned as Chairman and Chief Executive and
Julie Cowie resigned as Group Finance Director.
On 17 December 2009 Stuart Pearson resigned as a Non-Executive Director and John
Strachan and Gary Robinson joined the Board on that date.John Strachan has been
appointed the Group Chief Executive.
Chris McGeehan, formally the Fabrication Division Operations Director has agreed
to remain a Non-Executive Director alongside the Groups other Non-Executive
Director, Sheikh Sabah Ali Fahed Al Salem Al Sabah.
Outlook
The Board is continuing to pursue further strategic disposals to focus the Group
as a fabrication business and have resolved to discontinue or dispose of all
companies within the Drilling Division.
The Board are also continuing its cost reduction plan, particularly with regard
to corporate overhead, with a view to a reduction in overall borrowing to a
level that can be satisfactorily serviced by a smaller Group. The economic
climate has resulted in slower progress being made than anticipated but the
Board are confident that they can complete this disposal and cost reduction
programme before the financial year end.
Despite continuing difficult market conditions, the fabrication division has
maintained revenues and continues to trade profitability and generate positive
cashflow. We are encouraged by the level of enquiries generated from our
customer base.
The Board will up date shareholders on its current negotiations with its bankers
in due course.
John Strachan
Chief Executive
24 December 2009
Condensed Group Income Statement
For the six months ended 30 September 2009
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| | Unaudited Interim September 2009 | Unaudited | Audited |
| | | Interim | Full |
| | | September | Year |
| | | 2008 | March |
| | | | 2009 |
| | | | |
+--------------------------------+------------------------------------------+-----------+---------+
| | | Continued | Exceptional | Total | | |
| | | Operations | Items | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| |Note | GBPm | GBPm | GBPm | GBPm | GBPm |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Revenue | 2 | 28.2 | - | 28.2 | 30.8 | 59.6 |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Cost of sales | | (21.4) | - | (21.4) | (23.4) | (46.2) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Gross profit | | 6.8 | - | 6.8 | 7.4 | 13.4 |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Administrative expenses | | (6.9) | (2.3) | (9.2) | (7.1) | (15.2) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Other expenses | | - | - | - | (0.4) | (0.1) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Other operating income | | - | - | - | - | - |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Group trading loss | | (0.1) | (2.3) | (2.4) | (0.1) | (1.9) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Gain on disposal on sale of | | - | 0.6 | 0.6 | 0.9 | 0.9 |
| property, plant and equipment | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Group operating profit / | 2 | (0.1) | (1.7) | (1.8) | 0.8 | (1.0) |
| (loss) | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Finance revenue | | - | - | - | - | - |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Finance costs | | (1.5) | - | (1.5) | (2.6) | (6.1) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| | | (1.5) | - | (1.5) | (2.6) | (6.1) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Loss before taxation | | (1.6) | (1.7) | (3.3) | (1.8) | (7.1) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Tax credit | 5 | - | 0.2 | 0.2 | 0.3 | 0.6 |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Loss for the financial period | | (1.6) | (1.5) | (3.1) | (1.5) | (6.5) |
| attributable to equity holders | | | | | | |
| of the parent | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Loss for the year from | | - | - | (2.6) | (1.3) | (6.6) |
| discontinued operations | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| | | (1.6) | (1.5) | (5.7) | (2.8) | (13.1) |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Loss per share (pence) | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Basic, for loss for the period | 6 | | | (9.52) | (6.91) | (71.60) |
| attributable to ordinary | | | | | | |
| equity holders of the parent | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
| Diluted, for loss for the | 6 | | | (9.52) | (6.91) | (71.60) |
| period attributable to | | | | | | |
| ordinary equity holders of the | | | | | | |
| parent | | | | | | |
+--------------------------------+------+------------+-------------+--------+-----------+---------+
Condensed Group Statement of Recognised Income and Expense
For the six months ended 30 September 2009
+-----------------------------------+--------------+--------------+--------------+
| | Unaudited | Unaudited | Audited |
| | Interim | Interim | Full Year |
| | September | September | March |
| | 2009 | 2008 | 2009 |
+-----------------------------------+--------------+--------------+--------------+
| | GBPm | GBPm | GBPm |
+-----------------------------------+--------------+--------------+--------------+
| Income and expense recognised | | | |
| directly in equity | | | |
+-----------------------------------+--------------+--------------+--------------+
| Exchange differences on | (0.6) | 1.2 | 1.5 |
| retranslation of foreign | | | |
| operations | | | |
+-----------------------------------+--------------+--------------+--------------+
| Net income and expense recognised | (0.6) | 1.2 | 1.5 |
| directly in equity | | | |
+-----------------------------------+--------------+--------------+--------------+
| Loss for the period | (5.7) | (2.8) | (13.1) |
+-----------------------------------+--------------+--------------+--------------+
| Total recognised income and | (6.3) | (1.6) | (11.6) |
| expense for the period | | | |
+-----------------------------------+--------------+--------------+--------------+
| Attributable to: | | | |
+-----------------------------------+--------------+--------------+--------------+
| Equity holders of the parent | (6.3) | (1.6) | (11.6) |
+-----------------------------------+--------------+--------------+--------------+
| | (6.3) | (1.6) | (11.6) |
+-----------------------------------+--------------+--------------+--------------+
Condensed Group Balance Sheet
As at 30 September 2009
+------------------------------------+---------+------------+------------+----------+
| | | Unaudited | Unaudited | Audited |
| | | Interim | Interim | Full |
| | | September | September | Year |
| | | 2009 | 2008 | March |
| | | | | 2009 |
+------------------------------------+---------+------------+------------+----------+
| | Note | GBPm | GBPm | GBPm |
+------------------------------------+---------+------------+------------+----------+
| Assets | | | | |
+------------------------------------+---------+------------+------------+----------+
| Non-current assets | | | | |
+------------------------------------+---------+------------+------------+----------+
| Property, plant and equipment | 7 | 2.4 | 11.3 | 8.1 |
+------------------------------------+---------+------------+------------+----------+
| Intangible assets | | 8.2 | 13.9 | 9.4 |
+------------------------------------+---------+------------+------------+----------+
| Financial assets | | - | 0.1 | - |
+------------------------------------+---------+------------+------------+----------+
| | | 10.6 | 25.3 | 17.5 |
+------------------------------------+---------+------------+------------+----------+
| Current assets | | | | |
+------------------------------------+---------+------------+------------+----------+
| Trade and other receivables | | 14.3 | 23.7 | 20.5 |
+------------------------------------+---------+------------+------------+----------+
| Inventories | | 1.9 | 5.6 | 4.1 |
+------------------------------------+---------+------------+------------+----------+
| Cash and short-term deposits | | 1.8 | 0.7 | 1.1 |
+------------------------------------+---------+------------+------------+----------+
| | | 18.0 | 30.0 | 25.7 |
+------------------------------------+---------+------------+------------+----------+
| Assets of discontinued operations | | 3.2 | 5.5 | 5.2 |
| and held for sale | | | | |
+------------------------------------+---------+------------+------------+----------+
| Total assets | | 31.8 | 60.8 | 48.4 |
+------------------------------------+---------+------------+------------+----------+
| | | | | |
+------------------------------------+---------+------------+------------+----------+
| Current liabilities | | | | |
+------------------------------------+---------+------------+------------+----------+
| Trade and other payables | | 12.6 | 21.4 | 17.9 |
+------------------------------------+---------+------------+------------+----------+
| Interest-bearing loans and other | 8 | 28.6 | 30.7 | 33.5 |
| borrowings | | | | |
+------------------------------------+---------+------------+------------+----------+
| Income tax payable | | - | - | 0.2 |
+------------------------------------+---------+------------+------------+----------+
| Liabilities directly associated | | 2.6 | 3.6 | 1.6 |
| with assets classified as held for | | | | |
| sale | | | | |
+------------------------------------+---------+------------+------------+----------+
| | | 43.8 | 55.7 | 53.2 |
+------------------------------------+---------+------------+------------+----------+
| | | | | |
+------------------------------------+---------+------------+------------+----------+
| Non-current liabilities | | | | |
+------------------------------------+---------+------------+------------+----------+
| Interest-bearing loans and other | 8 | 0.1 | 0.3 | 0.1 |
| borrowings | | | | |
+------------------------------------+---------+------------+------------+----------+
| Deferred tax liabilities | | - | 1.6 | 1.4 |
+------------------------------------+---------+------------+------------+----------+
| Provisions | | 0.6 | 0.1 | 0.1 |
+------------------------------------+---------+------------+------------+----------+
| | | 0.7 | 2.0 | 1.6 |
+------------------------------------+---------+------------+------------+----------+
| Liabilities of discontinued | | - | - | - |
| operations | | | | |
+------------------------------------+---------+------------+------------+----------+
| Total liabilities | | 44.5 | 57.7 | 54.8 |
+------------------------------------+---------+------------+------------+----------+
| Net assets / (liabilities) | | (12.7) | 3.1 | (6.4) |
+------------------------------------+---------+------------+------------+----------+
| | | | | |
+------------------------------------+---------+------------+------------+----------+
| Capital and Reserves | | | | |
+------------------------------------+---------+------------+------------+----------+
| Equity share capital | | 11.7 | 11.7 | 11.7 |
+------------------------------------+---------+------------+------------+----------+
| Treasury shares | | (0.3) | (0.3) | (0.3) |
+------------------------------------+---------+------------+------------+----------+
| Currency translation | | 1.6 | 1.2 | 2.2 |
+------------------------------------+---------+------------+------------+----------+
| Other reserves | | - | 0.2 | - |
+------------------------------------+---------+------------+------------+----------+
| Retained earnings | | (25.7) | (9.7) | (20.0) |
+------------------------------------+---------+------------+------------+----------+
| Total Equity | | (12.7) | 3.1 | (6.4) |
+------------------------------------+---------+------------+------------+----------+
Condensed Group Cashflow Statement
For the six months ended 30 September 2009
+------------------------------------------+------+------------+------------+-------------+
| | | Unaudited | Unaudited | Audited |
| | | Interim | Interim | Full |
| | | September | September | Year |
| | | 2009 | 2008 | March |
| | | | | 2009 |
+------------------------------------------+------+------------+------------+-------------+
| | | GBPm | GBPm | GBPm |
+------------------------------------------+------+------------+------------+-------------+
| Operating activities | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Loss for the period | | (5.7) | (2.8) | (13.1) |
+------------------------------------------+------+------------+------------+-------------+
| Adjustments to reconcile loss for the | | | | |
| period to net cashflow from operating | | | | |
| activities | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Tax on continuing operations | | (0.2) | (0.4) | (0.5) |
+------------------------------------------+------+------------+------------+-------------+
| Net finance costs | | 1.5 | 2.7 | 6.1 |
+------------------------------------------+------+------------+------------+-------------+
| Gain/ (loss) on disposal of discontinued | | (2.8) | - | 1.4 |
| operations | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Gain on disposal of property, plant and | | (0.4) | (1.0) | (1.1) |
| equipment | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Depreciation and impairment of property, | | 4.3 | 0.8 | 1.9 |
| plant and equipment | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Amortisation and impairment of | | 0.5 | 0.3 | 4.0 |
| intangible assets | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Share-based payments | | - | - | 0.1 |
+------------------------------------------+------+------------+------------+-------------+
| Exchange differences on interest-bearing | | (0.1) | - | 0.5 |
| loans | | | | |
+------------------------------------------+------+------------+------------+-------------+
| (Increase) / decrease in inventories | | 1.2 | (1.0) | 0.3 |
+------------------------------------------+------+------------+------------+-------------+
| (Increase) / decrease in trade and other | | 2.6 | (1.4) | 0.2 |
| receivables | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Increase / (decrease) in trade and other | | (1.1) | 4.4 | 4.5 |
| payables | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Cash generated from operations | | (0.2) | 1.6 | 4.3 |
+------------------------------------------+------+------------+------------+-------------+
| Income taxes paid | | (0.1) | - | (0.2) |
+------------------------------------------+------+------------+------------+-------------+
| Net cashflow from operating activities | | (0.3) | 1.6 | 4.1 |
+------------------------------------------+------+------------+------------+-------------+
| Investing activities | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Sale of property, plant and equipment | | 2.7 | 4.7 | 4.8 |
+------------------------------------------+------+------------+------------+-------------+
| Outflow on acquisition of subsidiary | | 5.1 | - | - |
| undertakings | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Payments to acquire property, plant and | | (0.1) | (2.1) | (2.3) |
| equipment | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Payments to acquire intangible assets | | - | (0.1) | (0.1) |
+------------------------------------------+------+------------+------------+-------------+
| Net cashflow from investing activities | | 7.7 | 2.5 | 2.4 |
+------------------------------------------+------+------------+------------+-------------+
| Financing activities | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Purchase of own shares | | - | - | - |
+------------------------------------------+------+------------+------------+-------------+
| Interest paid | | (1.4) | (2.0) | (4.8) |
+------------------------------------------+------+------------+------------+-------------+
| Refinancing costs | | - | - | (0.7) |
+------------------------------------------+------+------------+------------+-------------+
| New borrowings | | - | - | 2.0 |
+------------------------------------------+------+------------+------------+-------------+
| Repayments of borrowings | | (5.3) | (2.9) | (2.9) |
+------------------------------------------+------+------------+------------+-------------+
| Repayment of capital element of finance | | (0.1) | (0.2) | (0.4) |
| leases and hire purchase contracts | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Net cashflow from financing activities | | (6.8) | (5.1) | (6.8) |
+------------------------------------------+------+------------+------------+-------------+
| Increase /(decrease) in cash and cash | | 0.6 | (1.0) | (0.3) |
| equivalents | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Effect of exchange rates on cash and | | 0.1 | 0.3 | - |
| cash equivalents | | | | |
+------------------------------------------+------+------------+------------+-------------+
| Opening cash and cash equivalents | | 1.1 | 1.4 | 1.4 |
+------------------------------------------+------+------------+------------+-------------+
| Closing cash and cash equivalents | | 1.8 | 0.7 | 1.1 |
+------------------------------------------+------+------------+------------+-------------+
Notes to the Financial Statements
1. Accounting policies for the six months ended 30 September 2009
Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union as they
apply to the financial statements of the Group for the period ended 30 September
2009.
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 30 September
2009 the Group owed GBP28.6m to its Lenders and was in breach of its banking
covenants.
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 cashflow forecasts for a period in
excess of one year from the date of approval of these financial statements.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 disposal of non-profit generating business units in the
Drilling segment and an element of cost reduction, particularly with regard to
corporate overhead.
The Company is in dialogue with the Lenders regarding the covenant breach and
what actions they will take, and whilst these discussions have not yet concluded
the Directors are confident of achieving a positive outcome.
In the view of the Directors, the combination of the circumstances described
above represents a material uncertainty that may cast doubt upon the Company and
the Group's ability to continue as a going concern. However, having considered
this uncertainty, 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. The
financial statements do not include the adjustments that would result if the
Company were unable to continue as a going concern.
The Group has chosen not to adopt IAS 34 Interim Financial Statements, and
therefore this information is not wholly compliant with IFRS. The accounting
policies are consistent with those of the annual financial statements for the
year ended 31 March 2009.
New standards, amendments to standards and interpretations, which are applicable
for the financial year ending 31 March 2010, have had no impact on the
accounting policies.
Taxes on income in the interim periods are accrued using the tax rate that would
be applicable to expected total annual earnings.
The comparative figures for the year ended 31 March 2009 do not constitute
statutory financial statements for the purpose of section 240 of the Companies
Act 1985. They have been extracted from the Company's published accounts. The
Report of the Auditors on those accounts was unqualified and did not contain a
statement under either section 237(2) or (3) of the Companies Act 1985. These
financial statements should be read in conjunction with the 2009 financial
statements.
Net current liabilities
At 30 September 2009 the Company had net current liabilities, excluding
discontinued operations, of GBP12.1m. This was due to the reclassification of
the entire amount of interest-bearing loans and other borrowings of GBP28.6m
being classified as current on the basis that the Company's Lenders were in a
position to serve the Company notice to repay the bank loans on demand at 30
September 2009. Had it not been for such classification, the Company would have
had net current assets, excluding discontinued operations of GBP15.9m.
2. Segmental reporting
Primary segment - business segments
Drilling Services - selling or renting drilling equipment and contracting
personnel for the oil and gas industry.
Fabrication Services - selling fabrication and manufacturing services for the
oil and gas industry.
Corporate and other - Sovereign head office and other non-trading company costs.
Segment results
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| | Drilling | Fabrication | Corporate | Total | Discontinued | Total |
| | GBPm | GBPm | / other | GBPm | Operations | GBPm |
| | | | GBPm | | GBPm | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| At 30 September | | | | | | |
| 2009 | | | | | | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Revenue | - | 28.2 | - | 28.2 | 7.4 | 35.6 |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Operating (loss) | - | (0.3) | (1.5) | (1.8) | (5.8) | (7.6) |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| At 30 September | | | | | | |
| 2008 | | | | | | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Revenue | - | 30.8 | - | 30.8 | 16.9 | 47.7 |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Operating profit | - | 3.0 | (2.2) | 0.8 | (1.3) | (0.5) |
| / (loss) | | | | | | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| At 31 March 2009 | | | | | | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Revenue | - | 59.6 | - | 59.6 | 36.9 | 96.5 |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
| Operating profit | - | 2.9 | (7.6) | (4.7) | (1.8) | (6.5) |
| / (loss) | | | | | | |
+-------------------+----------+-------------+-----------+----------+--------------+--------+
3. Exceptional Items
+---------------------------------------------------------------+-------------+
| | Unaudited |
| | Interim |
| | September |
| | 2009 |
| | GBPm |
+---------------------------------------------------------------+-------------+
| Severance of employment arrangement | 0.1 |
+---------------------------------------------------------------+-------------+
| Refinancing and restructuring costs | 0.4 |
+---------------------------------------------------------------+-------------+
| Profit on sale and leaseback of property | (0.6) |
+---------------------------------------------------------------+-------------+
| Impairment of leasehold improvements of OIL Middle East | 1.8 |
+---------------------------------------------------------------+-------------+
| | 1.7 |
+---------------------------------------------------------------+-------------+
The tax effect of the exceptional items is calculated at a rate of 28% on the
capital gain on the property. No tax credit arises on abortive deal costs.
Deferred tax credits arise on sale of property, impairment of goodwill and
impairment of other intangible assets.
4. Discontinued operations
Vertec Engineering Limited
On 11 May 2009, the Group entered into a conditional sale agreement to dispose
of Vertec Engineering Limited, and the cabin rental fleet of Labtech Services
Limited. The disposal was effected in order to generate cashflow to repay
existing debt. The disposals which was effective 31 March 2009, was completed on
4 June 2009, on which date control of Vertec Engineering Limted passed to the
acquirer.
Prodrill Engineering Limited
On 14 September 2009, the Group entered into a sale agreement to dispose of
Prodrill Engineering Limited. The disposal was effected in order to generate
cashflow to repay existing debt. The disposal which was effective 31 July 2009,
was completed on 15 September 2009, on which date control of Prodrill
Engineering Limited passed to the acquirer.
Fingolden Limited
In September 2009, the Board resolved to discontinue the activities of
Findgolden Limited and its trading subsidiary RDT Precision Engineers Limited.
The decision was effected due to the companies being consistently loss-making.
Maxwell Downhole Technology Limited
The Board resolved to discontinue the activities of Maxwell Downhole Technology
Limited. The decision was effected due to the company being consistently
loss-making.
Sovereign Fishing and Remedial Services
The Board resolved to discontinue the activities of Sovereign Fishing and
Remedial Services. The decision was effected due to the companies being
consistently loss-making.
Serco
The Board has committed to a plan to sell Serco and has initiated actions to
locate a buyer. The disposal is being effected in order to generate cashflow to
repay existing debt.
The results of the discontinued operations which have been included in the Group
Income Statement were as follows:
+-----------------------------------------------+-----------+-----------+----------+
| | Unaudited | Unaudited | Audited |
| | Interim | Interim | Full |
| | September | September | Year |
| | 2009 | 2008 | March |
| | GBPm | GBPm | 2009 |
| | | | GBPm |
+-----------------------------------------------+-----------+-----------+----------+
| | | | |
+-----------------------------------------------+-----------+-----------+----------+
| Revenue | 7.4 | 16.9 | 36.9 |
+-----------------------------------------------+-----------+-----------+----------+
| Expenses | (13.2) | (18.2) | (42.1) |
+-----------------------------------------------+-----------+-----------+----------+
| Loss before tax | (5.8) | (1.3) | (5.2) |
+-----------------------------------------------+-----------+-----------+----------+
| Attributable tax expenses | - | - | - |
+-----------------------------------------------+-----------+-----------+----------+
| | (5.8) | (1.3) | (5.2) |
+-----------------------------------------------+-----------+-----------+----------+
| Profit / (loss) on disposal of discontinued | 2.8 | - | (1.4) |
| operations | | | |
+-----------------------------------------------+-----------+-----------+----------+
| Attributable tax expense | 0.4 | - | - |
+-----------------------------------------------+-----------+-----------+----------+
| Net loss attributable to discontinued | (2.6) | (1.3) | (6.6) |
| activities | | | |
+-----------------------------------------------+-----------+-----------+----------+
The major classes of assets and liabilities comprising the operations classified
as held for sale are as follows:
+------------------------------------------------------------------+-----------+
| | Unaudited |
| | Interim |
| | September |
| | 2009 |
+------------------------------------------------------------------+-----------+
| | GBPm |
+------------------------------------------------------------------+-----------+
| Property, plant and equipment | 1.1 |
+------------------------------------------------------------------+-----------+
| Intangible assets | - |
+------------------------------------------------------------------+-----------+
| Trade and other receivables | 1.2 |
+------------------------------------------------------------------+-----------+
| Inventories | 0.9 |
+------------------------------------------------------------------+-----------+
| Total assets classified as held for sale | 3.2 |
+------------------------------------------------------------------+-----------+
| | |
+------------------------------------------------------------------+-----------+
| Trade and other payables | 2.1 |
+------------------------------------------------------------------+-----------+
| Interest-bearing loans and borrowings | 0.1 |
+------------------------------------------------------------------+-----------+
| Income tax payable | 0.4 |
+------------------------------------------------------------------+-----------+
| Total liabilities associated with assets classified as held for | 2.6 |
| sale | |
+------------------------------------------------------------------+-----------+
| | |
+------------------------------------------------------------------+-----------+
| Net assets of disposal groups | 0.6 |
+------------------------------------------------------------------+-----------+
5. Income tax expense
The current income tax credit is GBP0.2m (2008: GBPnil). There is a tax charge
of GBP0.1m relating to capital gains on the property disposals and a subsequent
release of provision for deferred tax liabilities of GBP0.3m. No provision has
been made for tax losses incurred in the period.
6. (Loss) per ordinary share
Basic (loss) per share amounts are calculated by dividing (loss) for the period
attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the year.
Diluted (loss) per share amounts are calculated by dividing the (loss) for the
period 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
(loss) per share computations:
+----------------------------------------------+------------+------------+------------+
| | Six months | Six months | Year ended |
| | ended 30 | ended 30 | 31 March |
| | September | September | 2009 |
| | 2009 | 2008 | Audited |
| | Unaudited | Unaudited | GBPm |
| | GBPm | GBPm | |
+----------------------------------------------+------------+------------+------------+
| Loss for the period from continuing | (3.1) | (1.5) | (6.5) |
| operations | | | |
+----------------------------------------------+------------+------------+------------+
| Loss for the year from discontinued | (2.6) | (1.3) | (6.6) |
| operations | | | |
+----------------------------------------------+------------+------------+------------+
| Basic and diluted profit attributable to | (5.7) | (2.8) | (13.1) |
| equity holders of the parent | | | |
+----------------------------------------------+------------+------------+------------+
+---------------------------------------------+------------+------------+------------+
| | Six months | Six months | Year ended |
| | ended 30 | ended 30 | 31 March |
| | September | September | 2009 |
| | 2009 | 2008 | Audited |
| | Unaudited | Unaudited | GBPm |
| | GBPm | GBPm | |
+---------------------------------------------+------------+------------+------------+
| Basic weighted average number of Shares | 16.9 | 16.9 | 16.9 |
+---------------------------------------------+------------+------------+------------+
| Diluted weighted average number of Shares | 16.9 | 16.9 | 16.9 |
+---------------------------------------------+------------+------------+------------+
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.
7. Property, plant and equipment
Capital expenditure during the period amounted to GBP0.1m (2008: GBP2.1m) and
property sold on a leaseback arrangement netted a gain of GBP1.5m (2008:
GBP1.0m).
8. Interest-bearing loans and borrowings
The bank 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.
On 3 July 2009 the Group agreed to an amendment of terms in respect of credit
facilities in place at
31 March 2009. The new terms agreed for a standstill 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
were payable with regard to the negotiation of new commercial terms.
Under the new terms, for the period 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 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 believed were acceptable.
The Group met its covenants for the quarter 30 June 2009 but breached its
banking covenants for the quarter to 30 September 2009. The disclosures and
classification of the Company's bank loans are based on the contractual position
at 30 September 2009. Post this date the Company continued in dialogue with its
Lenders.
The Group has reclassified repayments of the principal from Non-current to
Current on the basis that the Company's Lenders were in a position at the period
end to serve the Company with a notice to repay the bank loans on demand. No
such notices were served during the period or subsequent to the period end. The
loans were due for repayment in January 2012.
During the period the Group repaid GBP5.3m of senior facilities from the
proceeds of the sale of Vertec Engineering Limited and Prodrill Engineering
Limited and the sale of property.
9. This interim statement will be available on the Company's website
www.sovereign-oil.eu.
Further information:
Sovereign Oilfield Group Plc Tel: 01224 261900
John Robert Strachan, Group CEO
Buchanan Communications Tel: 0207 466 5000
Tim Thompson/Catherine Breen
Charles Stanley Securities - Nominated Advisor Tel: 0207 149 6000
Mark Taylor/Freddy Crossley
This information is provided by RNS
The company news service from the London Stock Exchange
END
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