TIDMOHM
RNS Number : 5334C
Offshore Hydrocarbon Mapping PLC
16 November 2009
Offshore Hydrocarbon Mapping plc
(the 'Company' or 'OHM' or "OHM Group")
Preliminary Results to 31 August 2009
Offshore Hydrocarbon Mapping plc presents its preliminary results for the year
ended 31 August 2009.
Over the past year, the OHM Group has delivered consistent and reliable results
to our customers in a number of key areas including:
* West Africa and Latin America Conjugate Margins: Much improved reservoir images
which have contributed to our customer's remarkable drilling successes in these
very active areas.
* North Sea: Integrated seismic and CSEM data-sets which provide valuable
information on both lithology and fluid content within these complex reservoir
plays.
* North America Shale Plays: New well-driven rock-physics models which provide a
step-change improvement in seismic attribute interpretation and sweet-spot
identification.
Separately, the Company has today announced the award by the Bureau of
Geophysical Prospecting in China, of a $2.5 million CSEM survey contract,
offshore Equatorial Guinea.
After fruitful negotiations with the owner of the Group's CSEM vessels OHM
Express and OHM Leader, most of the future charter liabilities for these
vessels, amounting to approximately GBP27 million, have since the balance sheet
date, been exchanged for equity in Offshore Hydrocarbon Mapping plc and a
revised "pay as when used" agreement.
Group revenues amounted to GBP9.2 million in the year to 31 August 2009. This
compares to GBP17.7 million in 2007 and GBP10.8 million in 2008. Much of this
decline was due to an approximate 45% drop in OHM's CSEM marine acquisition
market to GBP4.4 million; this percentage decline is more or less in line with a
similar reduction seen in the proprietary marine seismic acquisition market and
reflects low utilisation of our two dedicated vessels.
The gross loss from operations was GBP3.0 million compared to a gross loss in
2008 of GBP2.3 million. Cash on hand at the balance sheet date of GBP1.0 million
was enhanced by GBP2.5 million (net of expenses) in September 2009 following a
placing of new ordinary shares.
Commenting on the results Chairman, Dave Pratt, said:
"Your Company has navigated an extremely difficult year resulting largely from
profound changes that have taken place in the world economy and I am very
pleased to say that although we are not out of the woods yet, the future is
looking substantially more promising as confidence returns to both the financial
and commodities markets, and as the Group begins to benefit from actions taken
to reduce its fixed costs and liabilities.
OHM's leading position in the integration of electromagnetic and acoustic
measurements is delivering spectacular improvements in our ability to detect,
appraise and monitor subsurface hydrocarbon accumulations which we believe will
place us at the forefront of this vital part of the oil service industry in
years to come."
Contacts:
+-------------------------------------+-------------------------------------+
| Offshore Hydrocarbon Mapping plc | www.ohmrsi.com |
+-------------------------------------+-------------------------------------+
| Richard Cooper - Chief Executive | 0870 429 6581 |
| Officer | |
+-------------------------------------+-------------------------------------+
| Bob Auckland - Finance Director | 0870 429 6581 |
+-------------------------------------+-------------------------------------+
| | |
+-------------------------------------+-------------------------------------+
| KBC Peel Hunt (Broker and NOMAD) | 020 7418 8900 |
+-------------------------------------+-------------------------------------+
| Julian Blunt | |
| David Anderson | |
+-------------------------------------+-------------------------------------+
| | |
+-------------------------------------+-------------------------------------+
| Aquila Financial Ltd (PR) | |
+-------------------------------------+-------------------------------------+
| Peter Reilly | 0118 979 4100 |
+-------------------------------------+-------------------------------------+
| | |
+-------------------------------------+-------------------------------------+
Chairman's statement
Your Company has navigated an extremely difficult year resulting largely from
profound changes that have taken place in the world economy and I am very
pleased to say that although we are not out of the woods yet, the future is
looking substantially more promising as confidence returns to both the financial
and commodities markets, and as the Group begins to benefit from actions taken
to reduce its fixed costs and liabilities.
We entered this fiscal year with oil prices at around $120 per barrel, very
close to their record highs. By the end of our first half year, the oil price
had plummeted to $40 per barrel, with a resultant significant reduction in our
clients' cash inflows. At the same time banks have reduced their lending,
further reducing the funding available to our clients. Our clients' response to
these events has been to cut their expenditures wherever they can, resulting in
significant declines in exploration and production expenditures. Some seismic
companies have reported activity drops of over 50% in this period. As oil
companies often commit work programs years ahead as part of their bids for
concessions, such cuts become preferentially focused on expenditures on newer
technology which has not formed part of these bids.
Given this environment, it is unsurprising that a significant number of CSEM
acquisition programs that we had expected to win have been postponed or
cancelled with a resulting decline in our CSEM revenues. It is therefore
commendable that, in this difficult landscape, that we have attained significant
growth in our seismic inversion product line, and in our WISE product line which
delivers new insights into the subsurface properties of the earth through the
advanced integration of seismic and CSEM data.
More recently, the oil price has recovered from its lows to trade in a range
within about ten percent of $70 per barrel. Should we maintain some price
stability around or above this level, it is reasonable to expect that there will
be a recovery in activity. Achieving such stability will be very dependent on a
sustained recovery in the global economic environment, and although there seems
to be some promise of this, it is far from clear that we are in the midst of a
dependable recovery.
Responding to this uncertain outlook, and a draining of your Company's financial
reserves in our recent disappointing year, the management team have reviewed the
Group's strategy and taken the following action to reduce the Group's fixed
costs and to add cash to the balance sheet:
* Significant cuts were regrettably made to the Group's headcount and capital
spending was significantly reduced.
* After fruitful negotiations with the owner of the Group's CSEM vessels OHM
Express and OHM Leader, most of the future charter liabilities for these
vessels, amounting to approximately GBP27 million, have since the balance sheet
date, been exchanged for equity in Offshore Hydrocarbon Mapping plc and a
revised "pay as when used" agreement.
* At the same time, the Group has raised additional funds of GBP2.5 million
through a placing with a number of the Group's key shareholders.
These measures place the Group in a much better position to weather the
uncertainty ahead while having a sound foundation for growth to respond to
improvements in demand that will result from more stable and favourable oil
prices. However, I would draw your attention to the statement on the going
concern assumption in note 2 where the directors explain the reasons why it
continues to be appropriate to prepare the financial statements on a going
concern basis.
The long term fundamentals for the geophysical industry remain indubitably
positive. Consensus forecasts show that output from currently producing oil
fields will halve over the next 20 years. Over the same period of time, it is
expected that demand for oil and gas will increase driven mainly by growth in
developing economies. The resulting shortfall will, in some part, be met by
bringing existing discoveries that are not yet in production online, and by
replacing some oil consumption with natural gas. However, a very large part of
the resulting shortfall will have to be met by discovering new oilfields and by
increasing the amount of oil we recover from our existing fields and
discoveries.
Both these challenges require geophysical technology to deliver ever better
images and measurements of our subterranean reservoirs and this will drive
market demand for advanced geophysical services. OHM's leading position in the
integration of electromagnetic and acoustic measurements is delivering
spectacular improvements in our ability to detect, appraise and monitor
subsurface hydrocarbon accumulations which we believe will place us at the
forefront of this vital part of the oil service industry in years to come.
Your Board of directors has seen a number of changes in the year.
Richard Cooper, who entered the Group when we purchased Rock Solid Images,
rapidly became a key member of the Executive Management team. Richard possesses
a clear vision for the Group's technologies and a profound understanding of the
challenges that will be faced in bringing them to market. Throughout his career
he has demonstrated strong leadership qualities and a passion for success and I
am delighted that he has agreed to succeed me as Chief Executive Officer.
Steve Ludlow, one of our non executive directors, has retired from the Board to
concentrate on developing his new business activities in the United States.
Steve brought immense experience of the geophysical industry and his wise
counsel and insightful questioning contributed significantly to the Board's
effectiveness. We are extremely grateful for Steve's hard work and input and
wish him the best in his endeavours.
We have been extremely fortunate to be able to recruit Alan Faichney to replace
Steve as a non executive director. Alan is a mathematics graduate of St.
Andrews University who began his career in the Aerospace industry and later
joined the oil exploration industry where he held key technical and strategic
roles in product and market development. Alan held the positions of Managing
Director of Concept Systems Limited and Senior Vice President of Ion Geophysical
Inc. Alan is highly experienced in software development and provision of
technical services to industry and his understanding of the issues surrounding
technology adoption will be of great assistance to OHM as we strive to further
integrate our CSEM and Rock Physics analysis packages.
There is still significant uncertainty around the global economy which will
continue to pose a threat to the levels of expenditure that our clients are able
to make but we are structurally better prepared to respond to a wide range of
market demand. We look forward to the challenges of fiscal year 2010 bolstered
by optimism that our strategy of investing in the integration of seismic and
CSEM is building significant competitive advantage for the Group. Our optimism
is supported by a growing order book across our business lines.
David Pratt
Chairman
Chief Executive Officer's Report
Introduction
Offshore Hydrocarbon Mapping plc (OHM) was founded in 2002 to commercialise
controlled source electromagnetic (CSEM) survey techniques within the oil and
gas industries and the Company was subsequently floated on the London AIM market
in 2004. CSEM is a non invasive technology that helps oil and gas companies
identify and define hydrocarbon reservoirs in a marine environment.
OHM took a significant step forward in technology through the acquisition of the
Houston, Texas based company Rock Solid Images (RSI) in August of 2007. RSI
provides products and services for seismic reservoir characterisation and also
delivers the essential seismic and well-based framework within which an
integrated CSEM interpretation can be performed.
We believe the value of CSEM to our customers is greatly increased when combined
with seismic and well data, and this combination opens up interesting new
markets for CSEM in areas of reservoir appraisal and monitoring, in addition to
exploration, which OHM is well positioned to take advantage of.
Operating activity in 2009
Over the past year, the OHM Group has delivered consistent and reliable results
to our customers in a number of key areas including:
* West Africa and Latin America Conjugate Margins: Much improved reservoir images
which have contributed to our customer's remarkable drilling successes in these
very active areas.
* North Sea: Integrated seismic and CSEM data-sets which provide valuable
information on both lithology and fluid content within these complex reservoir
plays.
* North America Shale Plays: New well-driven rock-physics models which provide a
step-change improvement in seismic attribute interpretation and sweet-spot
identification.
Despite the economic and market adoption challenges we faced during the period,
we continued to make progress on a number of fronts. We introduced our WISE
(integrated seismic and CSEM) product line at the beginning of 2009. WISE stands
for "Well-driven Integration of Seismic and Electromagnetics" and lies at the
heart of our strategy going forward. We performed three successful WISE
appraisal surveys in the North Sea during FY2009 and have further surveys in
backlog for the 2010 financial year. In addition, we have delivered a number of
WISE reprocessing projects to customers during the course of the year;
reprocessing of CSEM data of earlier vintage acquired by both ourselves and our
competitors provides a growing income stream to the Group.
OHM is not a pure-play CSEM company. Expertise in seismic and well technology is
essential in order to reduce the risk associated with CSEM data interpretation.
In addition, we also undertake project work involving only seismic and well
data; this is the traditional domain of our Rock Solid Images subsidiary. RSI
has developed a significant reputation for supplying high-quality seismic
inversion data to companies exploring in West African countries such as Ghana,
Equatorial Guinea and Cote D'Ivoire; we have become the vendor of choice for
many operators in this active exploration and development area. In addition, RSI
is pursuing an aggressive strategy to commercialise seismic and rock-physics
technology to exploit unconventional gas deposits in North America, normally
associated with the large shale plays such as the Barnett, Haynesville and
Marcellus.
The oil industry adopts new technology at a slow rate relative to other
technology markets such as telecommunications and biotechnology. CSEM technology
was introduced commercially in 2002 and has yet to reach maturity. Of course,
this is positive in the sense that our long term growth potential remains
intact, but it is necessary to continue our R&D investment in CSEM through good
times and bad and I'm pleased to report that OHM has managed to maintain its
long term growth plans.
To better understand the market potential, management invested considerable time
analysing how CSEM data has been used within our industry. It became apparent
that in addition to the exploration market there are significant opportunities
for the application of CSEM within the promising new areas of the appraisal and
monitoring market.
The global economic environment during 2008 and 2009 has been well documented
elsewhere and I will not dwell on it, suffice to say that the combined impact of
the reduction in commodity prices and capital restrictions slowed oil and gas
company spending and, at such times, discretionary spending on new technologies,
such as CSEM, suffered.
The main effect seen by OHM was further slowing of activity in our marine CSEM
acquisition market. OHM, like its competitors, had invested in a sophisticated
range of acquisition technology, which included long-term fixed-rate charters
for our two, state-of-the-art vessels, the OHM Leader and the OHM Express. This
investment was predicated on growth of the CSEM market that did not in fact take
place owing to the issues discussed above. The combination of a large and
fixed-rate cash burn with a small and volatile revenue stream resulted in
inevitable concerns as to whether the Company had sufficient cash reserves to
maintain its technology portfolio and be ready and able to position ourselves
for the inevitable upturn.
In response to this, the Company implemented a number of cost-cutting measures
in February of 2009, including declaring approximately 40 employee positions
redundant, and a renegotiation of our OHM leader and OHM Express vessel charters
to a "pay as you use" plan for the remainder of calendar year 2009.
In September of 2009 (the start of our 2010 financial year), OHM was able to
successfully convert most of it's future vessel charter commitments to equity
and at the same time raise additional working capital from key shareholders. Our
new relationship with our vessel owners (the Seatrans Group) allows us to use
the OHM Leader and/or OHM Express in a "pay as you use" mode which gives the
Company considerable flexibility in preparing tenders and developing
multi-client projects.
Safety and the environment
OHM conducts operations offshore, often in hostile and remote conditions. In
order to control the risks associated with this activity, the Company has
developed a comprehensive safety and environmental management system. This
system is regularly reviewed and updated for new circumstances and to capture
our increasing experience and emerging best practice. Ownership of this system
lies not just with the Company and its management but with the operational
personnel whose experience and knowledge are vitally important in the
development and maintenance of safe working regimes.
It is a testament to the dedication and professionalism of all our staff that we
have, for the eighth successive year, achieved our goal of conducting our
operations without significant injury, lost time incidents, or accidental damage
to our environment.
Research and development
Despite a challenging financial environment, we have managed to maintain and, in
some areas, increase our R&D investment. There remains a considerable need to
continue to develop and improve CSEM imaging and inversion algorithms in order
to accommodate an increasingly broad range of CSEM applications. In addition, as
we further develop the integration of seismic and CSEM, so we are constantly
improving the underlying science, algorithms, software and workflows that drive
this process. OHM has always been a pioneer in this field and we intend to
remain at the forefront of this endeavour.
Our specific R&D focus for 2009 has been on consolidation and integration.
Several initiatives are worthy of further mention:
We maintain two very active industry sponsored consortia. These are industry
funded research projects designed to develop real-world solutions to problems
identified by our customers as requiring a more advanced approach than is
currently available within the industry. Our Lithology and Fluid Prediction
(LFP) project has approximately 18 oil-company sponsors and is developing
improved rock-physics based modelling and inversion technology. The companion
WISE product has five industry sponsors and also has a strong rock-physics focus
with particular emphasis on advanced processing and integration of CSEM data.
OHM maintains membership in several key academic consortia which provide a
further source of expertise and know-how. In addition to our own research staff,
we have a network of world-renowned industry consultants who are engaged to
undertake work on behalf of our WISE and LFP consortia and to more generally
help advance the science of CSEM and seismic inversion including Arthur Cheng,
Gary Mavko, Martin Sinha, Tury Taner and Sven Treitel.
Intellectual property
OHM's growing portfolio of intellectual property rights now stands at 58 granted
patents with 75 applications pending. OHM's intellectual property strategy is to
seek patent protection for instrumentation, processes and applications that
improve the effectiveness of CSEM and associated techniques.
Financial review
Group revenues deteriorated further in 2009 and amounted to a disappointing
GBP9.2 million. This compares to GBP17.7 million in 2007 and GBP10.8 million in
2008. Much of this decline was due to an approximate 45% drop in OHM's CSEM
marine acquisition market to GBP4.4 million; this percentage decline is more or
less in line with a similar reduction seen in the proprietary marine seismic
acquisition market and reflects low utilisation of our two dedicated vessels.
Revenues from our Rock Solid Images division increased 40% over 2008 to GBP3.8
million driven by increased business development in West Africa and a favourable
dollar to pound exchange rate. We are also pleased to report that our fledgling
WISE CSEM/seismic integration product line grew from effectively zero in 2008 to
contribute just under GBP1.0 million in 2009.
Cost of sales declined slightly compared to 2008 to GBP12.2 million which was
not in proportion to the decline in revenues because of the largely fixed cost
nature of the Group's vessel charter capacity. The resulting gross loss from
operations was therefore GBP3.0 million compared to a gross loss in 2008 of
GBP2.3 million.
Following changes made to our cost base (including the 44% reduction in the
Group's headcount to 69 employees at the balance sheet date) and stringent cost
control measures, overheads were reduced from GBP7.2 million in 2008 to GBP5.8
million (which included an exceptional redundancy charge of GBP116,000 and
impairment provisions of GBP670,000).
The Group's cash balance at 31st August 2009 stood at GBP1.0 million, down from
GBP8.2 million at the end of August 2008.
(Note that the Group successfully completed a further round of fund-raising
early in September 2009 which contributed an additional gross cash amount of
GBP2.6 million less GBP100,000 of expenses.)
Trading outlook
Although we will continue to operate in the exploration sector, we have placed
increasing R&D and sales and marketing emphasis on the appraisal and monitoring
markets which we believe will provide a substantial return on investment over
the coming years. OHM is well positioned to operate in these new areas since we
have the seismic and well technology available to us through our Rock Solid
Images subsidiary.
We are seeing increased bid activity in the marine CSEM acquisition market.
Several of the larger multinational oil and gas companies are now routinely
using CSEM surveying in conjunction with seismic methods. This gives us some
confidence that the technology is becoming more mainstream and that we are
moving up the adoption curve. The associated stabilising of the oil price and
steady improvements in the capital markets too will help increase both budgeted
and discretionary spending.
The total number of CSEM crews available to service the worldwide CSEM market
has also declined by approximately half since a year ago. This should mean a
move from an over-supply to a tighter market for CSEM crews and thus utilisation
levels improving for all suppliers, especially OHM.
Rock Solid Images continues to win contracts and grow its client base and this
is expected to continue especially as more companies recognise the benefits of
the integrated CSEM and rock physics offering.
We believe 2009 was a watershed year for OHM. Despite a challenging environment,
we have managed to retain our key personnel, maintain our core technology and
deliver exceptional value to our customers. We believe we are well positioned to
take advantage of the upturn in the CSEM and seismic market which is developing
over the coming years.
Richard Cooper
Chief Executive Officer
Offshore Hydrocarbon Mapping plc
Consolidated Group Income Statement
For the year ended 31 August 2009
+----------------------------------------+----------+--------------+----+------------+
| | | 2009 | | 2008 |
| | | GBP'000 | | GBP'000 |
+----------------------------------------+----------+ +----+ +
| | | | | |
+----------------------------------------+----------+--------------+--------------+------------+
| Revenue | | 9,227 | | 10,795 |
+----------------------------------------+----------+--------------+----+------------+
| Cost of sales | | 12,238 | | 13,046 |
+----------------------------------------+----------+--------------+----+------------+
| Gross loss | | (3,011) | | (2,251) |
+----------------------------------------+----------+--------------+----+------------+
| Administrative expenses | | 5,770 | | 7,253 |
+----------------------------------------+----------+--------------+----+------------+
| Group operating loss | | (8,781) | | (9,504) |
+----------------------------------------+----------+--------------+----+------------+
| Finance income | | 81 | | 777 |
| Finance costs | | (11) | | (17) |
+----------------------------------------+----------+--------------+----+------------+
| Loss before taxation | | (8,711) | | (8,744) |
+----------------------------------------+----------+--------------+----+------------+
| Income tax expense | | (121) | | 47 |
+----------------------------------------+----------+--------------+----+------------+
| Loss for the period | | (8,832) | | (8,697) |
+----------------------------------------+----------+--------------+----+------------+
| Loss per ordinary share | | (20.41)p | | (20.17)p |
| Basic | | (20.41)p | | (20.17)p |
| Diluted | | | | |
+----------------------------------------+----------+--------------+----+------------+
Offshore Hydrocarbon Mapping plc
Consolidated Group Balance Sheet
At 31 August 2009
+-----------------------------------------------+-----------+-------------+------+-----------+
| | | 2009 | | 2008 |
+-----------------------------------------------+-----------+-------------+------+-----------+
| | | GBP'000 | | GBP'000 |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Assets | | | | |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Non-current assets | | | | |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Goodwill | | 12,636 | | 11,414 |
+-----------------------------------------------+-----------+-------------+------+-----------+
| | | | | |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Intangible assets - multi client data library | | 2,679 | | 3,560 |
| - software | | 2,575 | | 2,349 |
| - patent costs | | 1,101 | | 981 |
| - consortium fees | | 153 | | 154 |
+ + +-------------+ +-----------+
| | | 6,508 | | 7,044 |
+-----------------------------------------------+-----------+-----------------------------------------------+------+-----------+
| Plant and machinery | | 4,283 | | 5,029 |
+ + +-------------+ +-----------+
| | | 23,427 | | 23,487 |
+-----------------------------------------------+-----------+-----------------------------------------------+------+-----------+
| Current assets | | 607 | | 745 |
| Inventories | | 749 | | 3,919 |
| Trade and other receivables | | 1,043 | | 8,222 |
| Cash and cash equivalents | | | | |
| Total assets | | | | |
+ + +-------------+ +-----------+
| | | 2,399 | | 12,886 |
+ + +-----------------------------------------------+ +-----------+
| | | 25,826 | | 36,373 |
+-----------------------------------------------+-----------+-----------------------------------------------+------+-----------+
| Liabilities | | 2,941 | | 6,345 |
| Current liabilities | | 48 | | 102 |
| Trade and other payables | | 9 | | 42 |
| Current tax liabilities | | | | |
| Finance leases | | | | |
+ + +-------------+ +-----------+
| | | 2,998 | | 6,489 |
+-----------------------------------------------+-----------+-----------------------------------------------+------+-----------+
| Non current liabilities | | 736 | | 724 |
| Deferred tax liabilities | | - | | 8 |
| Finance leases | | | | |
+ + +-------------+ +-----------+
| | | 736 | | 732 |
+-----------------------------------------------+-----------+-----------------------------------------------+------+-----------+
| Total liabilities | | 3,734 | | 7,221 |
| | | | | |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Net assets | | 22,092 | | 29,152 |
+-----------------------------------------------+-----------+-------------+------+-----------+
| Shareholders' equity | | 434 | | 432 |
| Share capital | | 36,668 | | 36,668 |
| Share premium | | 1,322 | | 1,107 |
| Share based payments reserve | | 5,355 | | 5,355 |
| Merger reserve | | (24,531) | | (15,699) |
| Retained earnings | | 2,844 | | 1,289 |
| Cumulative translation reserve | | | | |
| Total shareholders' equity | | | | |
+ + +-------------+ +-----------+
| | | 22,092 | | 29,152 |
+-----------------------------------------------+-----------+-------------+------+-----------+
The financial statements were approved by the board of directors and authorised
for issue on 16 November 2009 and are signed on its behalf by:
D C N Pratt R I Auckland
Director Director
+-------+-------+-------+-------+--------+--------+-------+-------+--------+-------+-------+
| Offshore Hydrocarbon Mapping | | | 2009 | | 2008 |
| plc | | | | | |
| Consolidated Group Cashflow | | | | | |
| Statement | | | | | |
| For the year ended 31 August | | | | | |
| 2009 | | | | | |
| | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| | | | GBP'000 | | GBP'000 |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Cash flow from operating | | | (8,711) | | (8,744) |
| activities | | | 947 | | 1,339 |
| Loss before taxation | | | 1,345 | | 1,023 |
| Adjustments for: | | | 215 | | 259 |
| Depreciation of tangible | | | 53 | | 1,903 |
| fixed assets | | | 35 | | 30 |
| Amortisation of intangible | | | (81) | | (777) |
| fixed assets | | | | | |
| Share based payments charge | | | | | |
| Intangible asset transfer | | | | | |
| from balance sheet | | | | | |
| Loss on disposal of plant and | | | | | |
| equipment | | | | | |
| Finance income | | | | | |
| Operating cash flows before | | | | | |
| changes in working capital | | | | | |
+ + + +---------------+ +---------------+
| | | | (6,197) | | (4,967) |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Decrease/(increase) in | | | 138 | | (111) |
| inventories | | | 3,170 | | 763 |
| Decrease in trade and other | | | (3,577) | | 1,150 |
| receivables | | | | | |
| (Decrease)/increase in trade | | | | | |
| and other payables | | | | | |
| Cash absorbed by operations | | | | | |
+ + + +---------------+ +---------------+
| | | | (6,466) | | (3,165) |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Foreign taxes paid | | | - | | (29) |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Net cash used in operating | | | (6,466) | | (3,194) |
| activities | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Cash flow from investing | | | (59) | | (3,861) |
| activities | | | (294) | | (284) |
| Payments to acquire multi | | | (124) | | (229) |
| client data library | | | (200) | | (3,892) |
| Payments to acquire software | | | 11 | | - |
| Payments to acquire patents | | | - | | (20) |
| Purchase of plant and | | | 81 | | 777 |
| equipment | | | (585) | | (7,509) |
| Proceeds from sale of plant | | | | | |
| and equipment | | | | | |
| Net cash outflow on | | | | | |
| acquisition of subsidiary | | | | | |
| Interest received | | | | | |
| Net cash used in investing | | | | | |
| activities | | | | | |
+ + + +---------------+ +---------------+
| | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Cash flow from financing | | | 2 | | 226 |
| activities | | | - | | (89) |
| Proceeds from issue of | | | (41) | | (66) |
| ordinary share capital | | | - | | (97) |
| Line of credit | | | | | |
| Finance lease obligation | | | | | |
| Other adjustments | | | | | |
| Net cash used in financing | | | | | |
| activities | | | | | |
+ + + +---------------+ +---------------+
| | | | (39) | | (26) |
| | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Net decrease in cash and cash | | | (7,090) | | (10,729) |
| equivalents | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Opening cash and cash | | | 8,222 | | 18,968 |
| equivalents | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Effect of foreign exchange | | | (89) | | (17) |
| rate changes | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| Closing cash and cash | | | 1,043 | | 8,222 |
| equivalents | | | | | |
+-------------------------------+--------+--------+---------------+--------+---------------+
| | | | | | |
+-------+-------+-------+-------+--------+--------+-------+-------+--------+-------+-------+
Offshore Hydrocarbon Mapping plc
Statement of Changes in Equity
For the year ended 31 August 2009
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+---------+-+-+-+-+-+-+---------+
| Group | | | | Attributable to equity holders of the parent company |
+----------------------+--+---------+--+------------------------------------------------------------------------------------+
| | Share | Share | Share | Merger | Retained | Translation | Total |
| | capital | premium | based | reserve | earnings | reserve | equity |
| | | | payments | | | | |
| | | | reserve | | | | |
+----------------------+------------+------------+------------+------------+-------------+------------------+---------------+
| | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| At 1 September 2007 | | 426 | | 36,447 | | 848 | | 5,355 | | (6,905) | | (214) | | 35,957 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Foreign currency | | - | | - | | - | | - | | - | | 1,503 | | 1,503 |
| translation | | | | | | | | | | | | | | |
| difference arising | | | | | | | | | | | | | | |
| on consolidation of | | | | | | | | | | | | | | |
| subsidiaries | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+---------+---------+-----------+
| Loss for the year | | - | | - | | - | | - | | (8,697) | | - | | (8,697) |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+---------+---------+-----------+
| Total recognised | | - | | - | | - | | - | | (8,697) | | 1,503 | | (7,194) |
| income and expense | | | | | | | | | | | | | | |
| for the year | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Share based payments | | - | | - | | 259 | | - | | - | | - | | 259 |
| | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Other adjustments | | - | | - | | - | | - | | (97) | | - | | (97) |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Share placing | | 6 | | 221 | | - | | - | | - | | - | | 227 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| At 31 August 2008 | | 432 | | 36,668 | | 1,107 | | 5,355 | | (15,699) | | 1,289 | | 29,152 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Foreign currency | | - | | - | | - | | - | | - | | 1,555 | | 1,555 |
| translation | | | | | | | | | | | | | | |
| difference arising | | | | | | | | | | | | | | |
| on consolidation of | | | | | | | | | | | | | | |
| subsidiaries | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-------------+-------+---------+
| Loss for the year | | - | | - | | - | | - | | (8,832) | | - | | (8,832) |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-------------+-------+---------+
| Total recognised | | - | | - | | - | | - | | (8,832) | | 1,555 | | (7,277) |
| income and expense | | | | | | | | | | | | | | |
| for the year | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Share based payments | | - | | - | | 215 | | - | | - | | - | | 215 |
| | | | | | | | | | | | | | | |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| Share issue | | 2 | | - | | - | | - | | - | | - | | 2 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+-----------+-----+-------------+
| At 31 August 2009 | | 434 | | 36,668 | | 1,322 | | 5,355 | | (24,531) | | 2,844 | | 22,092 |
+----------------------+--+---------+--+---------+--+---------+--+---------+--+----------+--+---------+-+-+-+-+-+-+---------+
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. Corresponding amounts are included in the loss for the
relevant periods with the consequence that the Company's accounting for share
based payments has no net impact on total equity.
The share based payments reserve comprises the credit entry relating to share
based charges included in the Income Statement and calculated in accordance with
IFRS 2.
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 comprise net gains and losses recognised in the Income
Statement. The translation reserve comprises gains and losses arising on the
translation of the net assets of overseas operations.
Notes to the Preliminary Results
1 General information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 August 2009 or 2008, but is derived
from those accounts.
Statutory accounts for the years ended 31 August
2009 and 31 August 2008 have been reported on by the Independent Auditors.
The Independent Auditors' Report on the Annual Report and Financial
Statements for 2008 was unqualified and did not contain a statement under 237(2)
or 237(3) of the Companies Act 1985. The report did contain an emphasis of
matter paragraph regarding going concern.
The Independent Auditors'
Report on the Annual Report and Financial Statements for 2009 was unqualified,
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 2008 have been filed with the Registrar of
Companies. The statutory accounts for the year ended 31 August 2009 will be
delivered to the Registrar following the Company's annual general meeting.
Accounts for the year ending 31 August 2009 will be dispatched to shareholders
during November 2009 and will shortly be available on the Company's website,
www.ohmrsi.com. The AGM will take place at 2.00pm on 15 January 2010 at the
offices of KBC Peel Hunt Ltd, 111 Old Broad Street, London, EC2N 1PH.
Offshore Hydrocarbon Mapping plc is a company registered in England and Wales.
The nature of the Group's operations and its principal activities are set out in
the Directors' Report.
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
In the 2008 Annual Report, the directors outlined a number of initiatives that
they were considering to improve the viability of the Group given the difficult
trading environment that it was experiencing. Coupled with plans for cost
reductions, these measures were:
* Sub charter of one of the Group's dedicated vessels for a period of at least 12
months;
* Spot sub charter of one of the Group's dedicated vessels for shorter periods
between CSEM contracts;
* The issue of a number of ordinary shares of one pence each to existing
shareholders;
* A reorganisation of the OHM group resulting in the sale for cash of some parts
of the existing Group;
* A sale of the entire Group.
Since that statement:
* A review of the Group's cost structure was completed in March 2009 resulting in
significant reductions in the Group's fixed costs with a number of staff, at all
levels in the Group, being made redundant. As a consequence of this, on an
annualised basis, Group fixed costs were reduced by approximately GBP13 million.
* In August 2009 the Group announced an agreement with the owner of its two
chartered CSEM vessels for the conversion of the day rate contracts for the
vessels to a "pay as used" and revenue sharing contract. These amendments
superseded the temporary "pay as used" arrangements which had been due to expire
at the end of the calendar year. The contract amendments, which were executed in
September 2009, reduced the Group's future financial commitments by
approximately $45 million (GBP27 million) (the cash value of the future minimum
financial commitment reduced from approximately $53 million (GBP32 million) to
approximately $8 million (GBP5 million) over the life of the charters).
* In September 2009 the Group successfully raised GBP2.6 million through a placing
of 12,023,572 new ordinary shares at a price of 21.52 pence per share.
The benefits of both the charter reorganisations and the cost cutting program
were not fully realised in the 2009 financial year and the Group has reported a
loss before taxation of GBP8,711,000 in the period ended on 31 August 2009. This
follows a loss before taxation of GBP8,744,000 reported in the previous year to
31 August 2008. The Group's cash balance at 31 August 2009, before receipt of
funds from the fundraising, was GBP1,043,000 (2008: GBP8,222,000).
The changes made since the last annual report materially improve the Group's
financial position. Like any other business, the Group relies on an inflow of
profitable orders from its clients to generate cash flows. In this respect the
directors are optimistic that adequate CSEM and WISE related revenues will be
generated during the 2010 financial year, whilst the seismic data inversion
(WSS) order book remains strong and continues to give encouraging visibility.
With demand for CSEM marine survey work picking up (as evidenced by the
increasing level of enquiries and tender activity), the directors see strong
indications for an improvement in demand in 2010. Should this demand recovery
not result in a flow of profitable orders, additional funding may yet be
required by the Group. The directors are therefore continuing to consider a
number of funding options, should such a course of action become necessary.
After making enquiries, the directors believe that there are reasonable
prospects that order backlog and the resulting revenues will increase
significantly in 2010 compared to 2009, leading to stronger operational cash
flows, providing a satisfactory level of confidence to the Board in respect of
trading in the year ahead. The directors have a reasonable expectation that both
the Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Annual Report and financial statements.
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 2009 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 Income Statement 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
The acquisition of subsidiaries is accounted for using the purchase method. The
cost of the acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree, plus
any costs directly attributable to the business combination. The acquiree's
identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 are recognised at their fair value at
the acquisition date, except for non-current assets (or disposal groups) that
are classified as held for resale in accordance with IFRS 5 "Non Current Assets
Held for Sale and Discontinued Operations", which are recognised and measured at
fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured
at cost, being the excess of the cost of the business combination over the
Groups' interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities recognised. If, after reassessment, the Group's
interest exceeds the cost of the business combination, the excess is recognised
immediately in the Income Statement.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the Group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Goodwill is
initially recognised as an asset at cost and is subsequently measured at cost
less any accumulated impairment losses. Goodwill which is recognised as an asset
is reviewed for impairment at least annually. Any impairment is recognised
immediately in the Income Statement and is not subsequently reversed.
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 services
to external customers at invoiced amounts less value added tax or local taxes on
sales. Revenue is recognised in line with the performance of these services, to
the extent that the performance entitles the Group to receive consideration in
line with the terms of the service contracts under which the Group operates.
Included within revenue are amounts in respect of data acquisition offshore,
data modelling and data interpretation services provided to external customers.
Reimbursable expenses billed to customers are included in revenue.
Interest receivable
Interest income is recognised on an accruals basis under the effective interest
method and is recognised within finance income in the Income Statement.
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 Income Statement.
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.
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 Income Statement. 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 Income Statement 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. The Group does not capitalise any
interest with respect to borrowings.
Loans and receivables
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, income statements of foreign operations are translated into
sterling at monthly average rates which approximate to the actual rate for the
relevant accounting periods. Assets and liabilities are translated at exchange
rates ruling at the balance sheet date. Exchange differences on all balances,
except foreign currency loans accounted for as net investment hedges, are taken
to the Income Statement. Exchange differences arising on consolidation of the
net investments in overseas subsidiaries, together with those on foreign
currency loans accounted for as net investment hedges, are taken to
equity.
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.
Investments
The parent company's investments in subsidiary undertakings are stated at cost.
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 machinery - 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 realisable value and value in use. Any
such impairment arising is recognised in the Income Statement 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 lows 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
Patent costs
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.
Long-term contracts are assessed on a contract by contract basis and are
reflected in the Income Statement by recording revenue and related costs as
contract activity progresses. Where the outcome of each long-term contract can
be assessed with reasonable certainty before its conclusion, the attributable
profit is recognised in the Income Statement as the difference between the
reported revenue and related costs for that contract. As soon as a contract is
expected to be loss making overall, all future contract losses are provided for
in the period.
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 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 Income Statement, 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.
Impairment of goodwill, tangible and intangible assets
The Group is required to test, on an annual basis, whether goodwill and other
tangible and intangible assets have suffered any impairment. At each reporting
date where there are indicators of impairment, the net book value of the
cash-generating unit is compared with the associated expected discounted future
cash flows. If the net book value is higher, then the difference is written off
to the Income Statement as impairment. The recoverable amount is determined
based on "value in use" calculations.
The Group has determined that it has two largely independent cash-generating
units, the controlled source electromagnetic business (CSEM), and the well and
surface seismic interpretation business (WSS). These cash-generating units
correspond broadly to the Group's business segments and further information
describing these is set out in note 4.
The use of this "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 post tax discount rate of 17.5% (2008:17.5%). The Group
determines 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 CSEM and WSS segments which are corroborated by external
sources.
Impairment of goodwill, tangible and intangible assets (continued)
The CSEM market is forecast to grow by between 40% and 50% pa (2008: between 15%
and 20% pa) over the next five years with the Group's share of this market
remaining between 10% and 20% (2008: between 10% and 20%). The Group's CSEM
revenues are forecast to increase by between 40% and 50% pa (2008: between 25%
and 40%) over this period. This increased rate of growth in CSEM market size and
the Group's forecast revenues is due to the lower base level caused by the CSEM
downturn in the later part of 2008 and in 2009. Assumptions relating to the
growth of the CSEM market are based on projections made by independent analysts.
The WSS market is forecast to grow by between 10% and 15% pa (2008: between 10
and 15% pa) over the next five years with the Group's share of this market
increasing from approximately 10% (2008: under 5%) to between 10% and 25% (2008:
between 7% and 10%). The Group's WSS revenues are therefore forecast to increase
by between 30% and 40% pa (2008: between 25% and 50% pa) over this period.
The calculation of the value in use for each cash-generating unit is most
sensitive to assumptions for:
(a) the forecast growth in the size of the CSEM market over the next five years;
(b) the Group's share of the CSEM and WSS markets over this period;
[c) the gross profit margins achieved by the CSEM and WSS cash-generating units;
and
(d) the discount rate used.
The Board considers the value attributable to net cash flows generated from the
CSEM and WSS businesses to be higher than the current carrying value of
goodwill, tangible and intangible assets and consequently no impairment
adjustment is required.
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 that 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.
Share based payments
The Group has two types of equity-settled share-based remuneration schemes for
employees. Employee services received, and corresponding increase in equity,
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 include, among others, the
dividend growth rate, expected volatility, estimated number of employees
leaving, expected life of the options and number expected to vest.
4 Business and geographical segments
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns which are different
from those of other business segments. At 31 August 2009 and 31 August 2008 the
Group is organised into three reportable business segments - Controlled Source
ElectroMagnetic (CSEM) business, Well-driven Integration of Seismic and
Electromagnetics (WISE) business and the Well and Surface Seismic (WSS)
business.
Controlled Source ElectroMagnetic (CSEM)
OHM provides offshore CSEM acquisition and data processing services. CSEM
surveying can detect the presence of resistive features in the earth which when
carefully interpreted can provide evidence for and information on hydrocarbon
accumulations prior to drilling. The Group has not divided financial
information for its CSEM activities into further different segments as it offers
only one CSEM surveying product range to its clients, who are international and
state owned oil and gas companies
The risk and profitability of the Group's operations is similar in different
geographical regions of the world. Most of the Group's plant and machinery is
deployed on survey vessels and, as the CSEM surveys are executed worldwide with
equipment often being relocated to meet capacity requirements, the Group is not
able to allocate these assets specifically to any geographical region.
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 Group's subsidiary Rock Solid Images (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.
The following tables present revenue, profit and loss, and certain asset and
liability information regarding the Group's three business segments for the
years ended 31 August 2009 and 2008.
Primary reporting format - business segments
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| | | | CSEM | | WISE | | WSS | | Total |
+------------------------------+------+-------+---------+--+---------+--+---------+---+---------+
| | | | | | 2009 | | 2009 | | 2009 | | 2009 |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| | | | | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Continuing operations | | | | | 4,486 | | 972 | | 3,769 | | 9,227 |
| revenue | | | | | | | | | | | |
| External revenue | | | | | | | | | | | |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Segment gross (loss)/ profit | | | | | (5,216) | | 573 | | 1,632 | | (3,011) |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Administrative expenses | | | | | (2,654) | | (429) | | (2,687) | | (5,770) |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Segment operating | | | | | (7,870) | | 144 | | (1,055) | | (8,781) |
| (loss)/profit | | | | | | | | | | | |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Finance income | | | | | 61 | | 13 | | 7 | | 81 |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Finance costs | | | | | (13) | | (1) | | 3 | | (11) |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Segment (loss)/profit before | | | | | (7,822) | | 156 | | (1,045) | | (8,711) |
| taxation | | | | | | | | | | | |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Income tax expense | | | | | (197) | | - | | 76 | | (121) |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| Segment (loss)/profit for | | | | | (8,019) | | 156 | | (969) | | (8,832) |
| the year | | | | | | | | | | | |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
| | | | | | | | | | | | |
+------------------------------+--+---+--+----+---------+--+---------+--+---------+---+---------+
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| | | | CSEM | | WISE | | WSS | | Total |
+------------------------------+-------+-------+------------+--+------------+--+------------+--+----------+
| | | | | | 2008 | | 2008 | | 2008 | | 2008 |
| | | | | | (restated) | | (restated) | | (restated) | | |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| | | | | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Continuing operations | | | | | 8,087 | | 37 | | 2,671 | | 10,795 |
| revenue | | | | | | | | | | | |
| External revenue | | | | | | | | | | | |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Segment gross (loss)/ profit | | | | | (2,950) | | 37 | | 662 | | (2,251) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Administrative expenses | | | | | (4,787) | | (194) | | (2,272) | | (7,253) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Segment operating loss | | | | | (7,737) | | (157) | | (1,610) | | (9,504) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Finance income | | | | | 777 | | - | | - | | 777 |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Finance costs | | | | | (9) | | - | | (8) | | (17) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Segment loss before taxation | | | | | (6,969) | | (157) | | (1,618) | | (8,744) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Income tax expense | | | | | (29) | | - | | 76 | | 47 |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| Segment loss for the year | | | | | (6,998) | | (157) | | (1,542) | | (8,697) |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
| | | | | | | | | | | | |
+------------------------------+--+----+--+----+------------+--+------------+--+------------+--+----------+
+------------------------------+----+--------+------------------------------+--------+----------+----------+--+---------+--+---------+------------------------------+--+----------+
| | | | | CSEM | | WISE | | WSS | | Total |
+-----------------------------------+--------+------------------------------+-------------------+----------+--+---------+--+----------------------------------------+--+----------+
| | | | | | 2009 | | 2009 | | 2009 | | 2009 |
+-----------------------------------+--------+------------------------------+--------+----------+----------+--+---------+--+----------------------------------------+--+----------+
| | | | | | GBP'000 | | GBP'000 | GBP'000 | | GBP'000 |
+-----------------------------------+--------+------------------------------+--------+----------+----------+--+---------+-------------------------------------------+--+----------+
| Net capital investment during | | | | | - | | - | | - | | - |
| 2009 | | | | | 59 | | - | | - | | 59 |
| Capital additions - goodwill | | | | | 138 | | 5 | | 151 | | 294 |
| - multi client data library | | | | | 119 | | - | | 5 | | 124 |
| - software | | | | | - | | - | | - | | - |
| - patent costs | | | | | 82 | | 24 | | 94 | | 200 |
| - consortium fees | | | | | | | | | | | |
| - tangible fixed assets | | | | | | | | | | | |
| Depreciation and amortisation | | | | | | | | | | | |
| charges | | | | | | | | | | | |
| | | | | | | | | | | | |
+ + +------------------------------+ +----------+----------+ +---------+ +----------------------------------------+ +----------+
| | | | | | 398 | | 29 | | 250 | | 677 |
| | | | | | (1,098) | | (39) | | (1,155) | | (2,292) |
+ + +------------------------------+ +----------+----------+ +---------+ +----------------------------------------+ +----------+
| | | | | | (700) | | (10) | | (905) | | (1,615) |
+-----------------------------------+--------+------------------------------+--------+----------+----------+--+---------+--+----------------------------------------+--+----------+
| Balance sheet | | | | | 8,754 | | 3,316 | | 13,756 | | 25,826 |
| Segment assets | | | | | (2,181) | | (342) | | (1,211) | | (3,734) |
| Segment liabilities | | | | | | | | | | | |
| Total net assets | | | | | | | | | | | |
+ + +------------------------------+ +----------+----------+ +---------+ +---------+ +----------+
| | | | | | 6,573 | | 2,974 | | 12,545 | | 22,092 |
+------------------------------+----+--------+------------------------------+--------+----------+----------+--+---------+--+---------+------------------------------+--+----------+
+------------------------------+----+--------+------------------------------+--------+--------+------------+--+------------+--+------------+--+---------+
| | | | | CSEM | | WISE | | WSS | | Total |
+-----------------------------------+--------+------------------------------+-----------------+------------+--+------------+--+------------+--+---------+
| | | | | | 2008 | | 2008 | | 2008 | | 2008 |
+-----------------------------------+--------+------------------------------+--------+--------+------------+--+------------+--+------------+--+---------+
| | | | | | (restated) | | (restated) | | (restated) | | |
+-----------------------------------+--------+------------------------------+--------+--------+------------+--+------------+--+------------+--+---------+
| | | | | | GBP'000 | | GBP'000 | GBP'000 | | GBP'000 |
+-----------------------------------+--------+------------------------------+--------+--------+------------+--+------------+---------------+--+---------+
| Net capital investment during | | | | | - | | | | - | | - |
| 2008 | | | | | 3,861 | | - | | - | | 3,861 |
| Capital additions - goodwill | | | | | 212 | | - | | 72 | | 284 |
| - multi client data library | | | | | 192 | | - | | 37 | | 229 |
| - software | | | | | - | | - | | - | | - |
| - patent costs | | | | | 3,760 | | - | | 127 | | 3,892 |
| - consortium fees | | | | | | | 5 | | | | |
| - tangible fixed assets | | | | | | | | | | | |
| Depreciation and amortisation | | | | | | | | | | | |
| charges | | | | | | | | | | | |
| | | | | | | | | | | | |
+ + +------------------------------+ +--------+------------+ +------------+ +------------+ +---------+
| | | | | | 8,025 | | 5 | | 236 | | 8,266 |
| | | | | | (1,778) | | (2) | | (582) | | (2,362) |
| | | | | | | | | | | | |
+ + +------------------------------+ +--------+------------+ +------------+ +------------+ +---------+
| | | | | | 6,247 | | 3 | | (346) | | 5,904 |
+-----------------------------------+--------+------------------------------+--------+--------+------------+--+------------+--+------------+--+---------+
| Balance sheet | | | | | 20,096 | | 3,167 | | 13,110 | | 36,373 |
| Segment assets | | | | | (2,790) | | (131) | | (4,300) | | (7,221) |
| Segment liabilities | | | | | | | | | | | |
| Total net assets | | | | | | | | | | | |
+ + +------------------------------+ +--------+------------+ +------------+ +------------+ +---------+
| | | | | | 17,306 | | 3,036 | | 8,810 | | 29,152 |
+------------------------------+----+--------+------------------------------+--------+--------+------------+--+------------+--+------------+--+---------+
Secondary reporting format - geographical segments
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 |
+---------------------------------+-------------------------+--------------------------------------------------------------+
| | | 2009 | | 2008 |
+---------------------------------+-------------------------+---------------------------------+--+-------------------------+
| | | GBP'000 | | GBP'000 |
+---------------------------------+-------------------------+---------------------------------+--+-------------------------+
| Europe | | 4,776 | | 7,680 |
| Africa | | 915 | | 680 |
| Americas | | 2,970 | | 1,204 |
| Asia Pacific | | 566 | | 1,231 |
+ + +---------------------------------+ +-------------------------+
| | | 9,227 | | 10,795 |
+---------------------------------+-------------------------+---------------------------------+--+-------------------------+
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 |
+----------------------------------------+---------+----------------------------------------------------------------+----------------------+
| | | 2009 | | 2008 | | 2009 | | 2008 |
+----------------------------------------+---------+----------------------------------------+--------+---------+----+---------+--+---------+
| | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
+----------------------------------------+---------+----------------------------------------+--------+---------+----+---------+--+---------+
| Europe | | 6,961 | | 17,693 | | 412 | | 4,310 |
| Africa | | - | | - | | - | | - |
| Americas | | 16,298 | | 15,976 | | 243 | | 383 |
| Asia Pacific | | 152 | | 159 | | 9 | | 20 |
| Unallocated - including plant and | | 2,415 | | 2,545 | | 13 | | 3,553 |
| machinery on vessels | | | | | | | | |
+ + +----------------------------------------+ +---------+ +---------+ +---------+
| | | 25,826 | | 36,373 | | 677 | | 8,266 |
+----------------------------------------+---------+----------------------------------------+--------+---------+----+---------+--+---------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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