(VELO.L) Velosi Ltd Buy/Sell

Profit before tax US$7.9m US$7.2m 10.4
Earnings per share 11.2c 10.4c 8.2

John Hogan, Chairman, commented:

"Velosi has again delivered a good set of results despite the more challenging market environment. Based on historic trading patterns, revenues tend to be stronger in the second half of the year and this, together with the excellent visibility provided by contracted revenues, gives us confidence that we will achieve a good result for the current year. Despite the weakening commercial environment, the Company's strong underlying operating performance has allowed us to strengthen our financial position. As a result the Company has a strong balance sheet with net cash of $19.7 million, remains cash generative and continues to increase both revenues and profitability."

For further information, please contact:

Velosi Dr Nabil Abdul Jalil 020 7930 0777
Dan Ooi
Strand Partners James Harris 020 7409 3494
Charles Stanley Securities Mark Taylor 020 7149 6000
Freddy Crossley
Cardew Group Tim Robertson 020 7930 0777
Shan Shan Willenbrock
Catherine Maitland

CHAIRMAN'S STATEMENT

I am very pleased to report on what has been a strong period of growth for the business. In the first six months of 2009 the Company has increased revenues and profits before tax by 15.4% and 10.4% respectively. This is a particularly satisfying performance as we have been able to simultaneously continue to win new contracts whilst also increasing our cash generation and cash reserves thus creating a financially secure base for the business going forward. Revenue growth has come from our excellent track record of renewing and extending existing contracts and continuing to add new contracts.

The partial recovery in oil prices is a positive factor but it is less a function of demand and more a result of reduction in supply and the value of the US dollar, and therefore has not translated into an increase in investment in oil and gas projects. In fact there has been a slowdown in investment, versus historic levels, however, Group revenues have continued to increase as the slowdown has been offset primarily by new income generated as a result of new office openings. The Company's focus is to continue to exploit its position as a one stop shop for the major oil and gas companies.

Financial Performance

Our ability to retain and win new contracts resulted in turnover increasing by 15.4% to US$89.2 million (2008: US$77.3 million). Profit from ordinary activities before tax for the period was up 10.4% to US$7.9 million (2008: US$7.2 million), and profit after tax also increased, from US$6.0 million in 2008 to US$6.4 million.

The effective tax rate for the Group for the half year was 19.2% (2008: 16.2%). The effective tax rate for the Group reflects the contributions from the different regions and their varying tax rates.

Profits attributable to minority interests for the period were US$1.3 million (2008: US$1.6 million).

Basic earnings per share after minority interests increased to 11.2 cents (2008: 10.4 cents) and fully diluted earnings per share after minority interests were 11.0 cents (2008: 9.4 cents).

Velosi's cash position remains strong. At 30 June 2009, cash and cash equivalents for the Group were US$20.1 million (2008: US$10.7 million). Gearing levels remain low with short-term bank borrowings amounting to US$2.8 million (2008: US$5.6 million) and long-term bank borrowings amounting to US$1.5 million (2008: US$1.5 million).

Dividend

As previously stated the Board does not propose to pay an interim dividend. The Board does however intend, subject to the availability of distributable reserves and a satisfactory performance in the second half of the year, to recommend a final dividend to shareholders in respect of the financial year ending 31 December 2009.

Operational Review

During 2009 Velosi has continued to develop the business across its chosen geographic regions, in particular we focused on key areas of continued oil and gas investment such as Central Asia, South America and Africa. Our strategy to overlay our core inspection work with higher margin services such as asset integrity management services, project management consultancy, hotwork enclosures and sub sea services has been successful as individual offices are increasingly extending the scope of services to each client.

Asia & Australasia

Turnover: US$13.5 million (2008: US$14.1 million), Contribution to Group Sales: 15% (2008: 18%)

Revenues from Asia and Australasia remained broadly level, however, we expect revenues to increase in the second half as the offtake for the Samsung Heavy Industries contract was initially slow but has since come on track. Velosi India has also made good progress with a series of new contract wins with ONGC, GAIL, Bharat Petroleum and GSPL worth approximately US$6.0 million. In addition, the PPL contract has been expanded to include the assembly and installation of a further 5 derricks. As a result we expect to see an uplift in contribution from this region in the second half of the financial year.

Europe

Turnover: US$18.5 million (2008: US$19.6 million), Contribution to Group Sales: 21 % (2008: 25%)

European revenues in 2008 grew significantly and therefore this first half performance is against very strong comparables. The largest contributor to Europe has been the BP Norge AS contract, providing inspection consultancy services in fabrication sites in Norway, the United Kingdom, and Holland amongst other European countries, which marked the Group's first contract in Norway. The Saipem contract in Italy was deferred slightly to the fourth quarter of 2009 but is still expected to contribute strongly over the duration of the contract.

Middle East

Turnover: US$33.8 million (2008: US$26.8 million), Contribution to Group Sales: 38% (2008: 35%)

The Middle East region produced a strong contribution, building on a good result in 2008. A combination of the new offices opened in the previous year with a succession of new contract wins has consolidated Velosi's leading position in this region. The 5 year Saudi Aramco contract which began in the second half of 2008 is an important part of our overall success. In addition, Petroleum Development Oman has extended its QA/QC contract for the third time, which covers third party inspection services and is worth approximately US$30 million over 4 years. Velosi Certification Services LLC also secured a 5 year worldwide vendor inspection and site construction inspection contract in onshore and offshore locations with ADGAS worth in excess of US$ 10 million.

Africa

Turnover: US$15.2 million (2008: US$8.7 million), Contribution to Group Sales: 17% (2008: 11%)

The first half of 2009 saw revenues increase to US$15.2 million.. The Group was pleased to see the trading performance recover which was due to good contributions from across the Group's areas of operation in Africa including; Ghana, Angola, South Africa and Egypt

On April 16 2009 we were awarded a substantial new 5 year contract with the South African state owned electricity provider Eskom. The contract has been won in a 50:50 partnership with Khum MK Investments to provide Quality and Inspection services for Eskom's new build power plant program. Capital spend on this program is expected to be in excess of US$30 billion and the fees for inspection should be in the region of 1-3%. The Quality and Inspection services work will be spread out amongst eight competing inspection authorities.

Americas and Former Soviet Union (FSU)

Turnover: US$8.3 million (2008: US$8.1 million), Contribution to Group Sales: 9% (2008: 10%)

Americas and FSU traded broadly in line with the previous year, has significant strategic importance and continues to make a useful contribution to the overall Group. We remain confident of our ability to increase revenues by focusing on developing inspection services and securing long term contracts. With existing clients including: UOP (Honeywell) Inco Australia, Gulf Interstate Engineering, CB&I, GE Vetco Gray, Enersul, J. Ray McDermott, and KBR - there is a very solid base on which to develop.

We have been working hard in 2009 to develop the Russian and Kazakhstan certification work for companies in Canada, and a gradual increase of orders from Canadian companies is expected towards the end of 2009.

Employees

On behalf of the Board, I would like to take this opportunity to thank all of our employees worldwide for their dedication and continued hard work.

Outlook

Following a period of rapid expansion, the Group has, over the last 12 months, consolidated its position creating a stable platform to continue to grow and generate further value for shareholders. Cashflow and cash reserves have increased significantly providing the Group with greater flexibility and security.

While oil prices have improved from the lows of around $40 per barrel, this increase is more a function of the curbing of supply and the value of the US$, and is not, in our opinion, an indication of increasing demand. We therefore view the current market as challenging and we are working to mitigate the slowdown in investment and the natural tendency for clients in this market to become more price sensitive. Having said that, in recent years the Group has expanded substantially and now operates from 36 countries with 5 principal offices, up from 27 countries with 4 principal offices in 2006. The new offices opened are contributing strongly and this increased volume is principally the reason behind our ability to continue to grow revenues in this environment. Together with our now global presence, which provides a natural hedge against being overly exposed to any one region, we are specifically targeting those geographic regions where the oil and gas majors are continuing to invest such as Kazakhstan, West Africa, Australia and Brazil. Underpinning this strategic approach is our ongoing focus on ensuring the business operates on a cost efficient basis thereby maintaining our strong financial base.

We are pleased with our trading performance for the first half of 2009 and with the first three months of the second half nearly completed, together with our visibility on future revenues, we are confident that we are trading in line with expectations for the full year. Looking ahead, our order book remains strong and we believe we are achieving our aims of delivering a truly global service offering, providing a range of increasingly diverse and higher margin services.

John Hogan

Chairman

Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2009

Six months ended Six months ended Year ended
30 June 2009 30 June 2008 31 December 2008
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Note
Revenue 7 89,187 77,306 182,072
Cost of sales (67,832) (58,232) (136,509)

Gross profit 21,355 19,074 45,563
Other operating income 735 28 883
Administrative expenses (14,921) (12,083) (32,057)

Operating profit 7,169 7,019 14,389
Finance costs (117) (269) (533)
Share of profit of associated 865 418 1,006

companies

Profit on ordinary activities 7,917 7,168 14,862

before tax
Income tax expense 3 (1,520) (1,160) (3,208)

Profit for the period 6,397 6,008 11,654

Other comprehensive income:

Exchange differences on 785 - (2,828)

translating foreign operation

Other comprehensive income for 785 - (2,828)

the period net of tax

________ ________ ________
Total comprehensive income for 7,182 6,008 8,826

the period
________ ________ ________

Profit attributable to:
Owners of the parent 5,057 4,410 9,306
Non - continuing interest 1,340 1,598 2,348
________ ________ ________
6,397 6,008 11,654
________ ________ ________

Total comprehensive income attributable to:
Owners of the parent 5,537 4,410 7,205
Non - continuing interest 1,645 1,598 1,621
________ ________ ________
7,182 6,008 8,826
________ ________ ________
Basic earnings per share 5 11.2 cents 10.4 cents 21.7 cents
Diluted earnings per share 5 11.0 cents 9.4 cents 19.6 cents

Consolidated Statement of Financial Position

As at 30 June 2009

30 June 30 June 31 December

US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Note

Assets

Non-current assets

Goodwill 8,646 7,341 8,307
Other intangible assets 8 1,598 1,549 1,744
Property, plant and 11 9,314 7,325 8,261

equipment
Investment in associated 12 1,364 1,247 1,338

companies
Other investments - 9 -
Deferred tax assets 450 42 400

21,372 17,513 20,050

Current assets

Cash and cash equivalents 22,445 15,881 20,641
Inventories 4,080 4,610 2,271
Trade and other receivables 60,322 54,626 63,852
Tax recoverable 85 450 126

86,932 75,567 86,890

Non-current asset held for - 900 -

sale
________ ________ _______
Total assets 108,304 93,980 106,940
________ ________ ________

Equity and liabilities

Capital and reserves

Share capital 935 869 887
Share premium 33,801 30,226 32,422
Translation reserve (1,685) (63) (2,164)
Retained earnings 29,135 19,291 23,917

Total equity attributable to 62,186 50,323 55,062

equity holders
Minority interest 8,803 7,241 7,293

Total equity 70,989 57,564 62,355

Consolidated Statement of Financial Position

As at 30 June 2009

30 June 30 June 31 December

US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Note

Current liabilities

Trade and other payables 28,166 22,359 33,605
Bank and other borrowings 14 2,824 5,577 3,581
Current tax liabilities 2,493 2,592 2,421
Deferred consideration 9 1,260 3,984 2,673

34,743 34,512 42,280

Non-current liabilities

Deferred tax liabilities 36 20 37
Bank and other borrowings 14 1,531 1,549 1,276
Other non-current 1,005 335 992

liabilities

2,572 1,904 2,305

Total liabilities 37,315 36,416 44,585

________ ________ _______
Total equity and liabilities 108,304 93,980 106,940
________ ________ ________

VELOSI LIMITED

Consolidated Statement of Cash Flow

For the six months ended 30 June 2009

Six months ended Six months ended Year ended
30 June 2009 30 June 2008 31 December 2008
US$'000 US$'000 US$'000
(unaudited) (unaudited) (audited)
Net cash from / (used in) 4,538 (513) 9,928

operating activities
________ ________ ________

Cash flows from investing activities
Acquisition of property, plant (1,338) (1,310) (2,687)

and equipment
Receipts from sale of 11 128 448

property, plant and equipment
Acquisition of new subsidiary - - (1,168)

companies, net of cash
(Advance to) / repayment from (738) 228 (358)

associated companies
Dividend income from 777 - 414

associated company
Interest received 31 140 244
________ ________ ________
Net cash used in investing (1,257) (814) (3,107)

activities
________ ________ ________

Cash flows from financing activities
Proceeds from issue of shares - 8,660 8,660
Share issue expenses - (391) (445)
Net borrowings (374) 216 (383)
(Repayment to) / advance from (101) (402) 437

related party
(Repayment to) / advance from (367) (54) 109

directors
Dividend paid to shareholders - - (435)
Dividend paid to minority (135) (86) (208)

shareholders of subsidiary companies
________ ________ ________
Net cash (used in) / from (977) 7,943 7,735

financing activities
________ ________ ________
Net increase in cash and cash 2,304 6,616 14,556

equivalents
Foreign exchange translation 50 - (876)

differences
Cash and cash equivalents at 17,791 4,111 4,111

the beginning of the period
________ ________ ________
Cash and cash equivalents at 20,145 10,727 17,791

the end of the period
________ ________ ________

Cash and cash equivalents comprise:
Current assets - Cash and cash 22,445 15,881 20,641

equivalents
Current liabilities - Bank (2,300) (5,154) (2,850)

overdraft
________ ________ ________
20,145 10,727 17,791
________ ________ ________

VELOSI LIMITED

Consolidated Statement of Changes in Equity

For the six months ended 30 June 2009

Unaudited Share capital Share premium Reserves Total Minority interest Total equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2008 787 21,310 14,653 36,750 5,729 42,479
Share allotment 82 8,916 - 8,998 - 8,998
Total comprehensive income - - 4,410 4,410 1,598 6,008
Issue of share options - - 165 165 - 165
Dividend paid - - - - (86) (86)
________ ________ ________ _______ _______ ________
Balance at 30 June 2008 869 30,226 19,228 50,323 7,241 57,564
________ ________ ________ _______ _______ ________

Balance at 1 July 2008 869 30,226 19,228 50,323 7,241 57,564
Share allotment 18 2,196 - 2,214 - 2,214
Total comprehensive income - - 2,795 2,795 23 2,818
Acquisition of subsidiary - - - - 151 151
Issue of share options - - 165 165 - 165
Dividend paid - - (435) (435) (122) (557)
________ ________ ________ _______ _______ ________
Balance at 31 December 2008 887 32,422 21,753 55,062 7,293 62,355
________ ________ ________ _______ _______ ________
Balance at 1 January 2009 887 32,422 21,753 55,062 7,293 62,355
Share allotment 48 1,379 - 1,427 - 1,427
Total comprehensive income - - 5,537 5,537 1,645 7,182
Issue of share options - - 160 160 - 160
Dividend paid - - - - (135) (135)
________ ________ ________ _______ _______ ________
Balance at 30 June 2009 935 33,801 27,450 62,186 8,803 70,989
________ ________ ________ _______ _______ ________

1. General information

Velosi Limited was incorporated in Jersey on 28 March 2006. The principal activity of the Company is investment holding. The principal activities of the Group are provision of asset integrity management and health, safety, and environment (HSE) services, which cover quality assurance and quality control services. This includes certification, project verification, quality enhancement and engineering support services.
2. Basis of preparation and significant accounting policies

The interim condensed consolidated statement is unaudited and does not constitute statutory financial statements. The interim condensed consolidated statement incorporated the results of the Velosi Group for the period from 1 January 2009 to 30 June 2009. The results for the year ended 31 December 2008 have been extracted from the statutory financial statements' for Velosi Limited for the year ended 31 December 2008 which are prepared under International Financial Reporting Standards (''IFRS''). The interim report should be read in conjunction with the annual financial statement for the year ended 31 December 2008.

The accounting policies, presentation and methods of computation have been followed in these unaudited financial statements as were applied in the preparation of the Group's annual financial statements for the year ended 31 December 2008, except for the impact of the adoption of the Standards and Interpretations described below:-

IFRS 8 Operating Segments (effective for annual periods beginning on or after 1 January 2009)

IFRS 8 is a disclosure Standard that has resulted in a redesignation of the Group's reportable segments (see note 7), but has had no impact on the reported results or financial position of the Group.

IAS 1 (revised 2007) Presentation of Financial Statements (effective for annual periods beginning on or after 1 January 2009)

The revised Standard has introduced a number of terminology changes (including revised titles for the condensed financial statements) and has resulted in a number of changes in presentation and disclosure. However, the revised standard has had no impact on the reported results or financial position of the Group.

The consolidated financial statements are presented in US Dollars ("US$") and all values are rounded to the nearest US$ '000 except where otherwise indicated.

The Interim Report for the six months ended 30 June 2009 was approved by the Directors on 16 September 2009.
3. Income tax expense

Six months Six months Year ended31 December 2008US$'000
ended30 June ended30 June
2009US$'000 2008US$'000
(unaudited) (unaudited) (audited)

Foreign tax:
Overseas tax payable 1,499 1,163 3,446
Total current tax 1,499 1,163 3,446

Deferred tax:
Movement in deferred tax (51) (42) (352)

position
Taxation on profit from 1,448 1,121 3,094

ordinary activities
Add: Share of taxation of 72 39 114
associated companies
1,520 1,160 3,208

Interim period income tax is accrued based on the estimated average annual effective income tax rate of 19% (Interim period 2008: 16%).
4. Share capital

(a) Share capital (unaudited)
2009US$'000 2008US$'000

Authorised:
4,400,000,000 (2008: 4,400,000,000) Ordinary shares 88,000 88,000

of US$0.02 each Issued:
46,765,871 (2008: 44,341,580) Ordinary shares of 935 887

US$0.02 each

(b) Share issued during the period (unaudited)

Issue value per share Shares Share Share
capital premium
GBP US$ US$'000 US$'000

At 1 January 2009 44,341,580 887 32,422
Shares issued on 15 May 2009 0.39 0.59 2,424,291 48 1,379
46,765,871 935 33,801

On 15 May 2009, 2,424,291 new ordinary shares were issued to shareholders of K2 Specialist Services Pte Ltd ("K2"), pursuant to an agreement dated 19 October 2007 between K2 and Velosi Industries Sdn Bhd, following the satisfaction of the entire profit guarantee of SGD4,000,000 (approximately £1.34 million) aggregate profit after tax and minority interests, set for the stipulated guarantee period.

5. Earnings per share

The basic and diluted earnings per share is calculated by reference to the earnings attributable to ordinary shareholders divided by the number of shares in issue as at 30 June 2009, as follows:

Six months ended30 Six months Year ended31
June 2009USD'000 ended30 June December 2008USD'000
2008USD'000
(unaudited) (unaudited) (audited)

Profit after taxation and 5,057 4,410 9,306

minority interest
Number Number Number

Weighted average number of 44,971,092 42,419,424 42,809,629

shares for the purpose of calculating basic earnings per share Effect of dilutive potential ordinary shares:
Share options - 2,067,708 -
Warrants - 476,749 -
Deferred consideration 834,575 1,853,193 4,463,847
Weighted average number of 45,805,667 46,817,074 47,273,476

shares for the purpose of calculating diluted earnings per share Earnings per ordinary share
Basic earnings per share 11.2 cents 10.4 cents 21.7 cents
Diluted earnings per share 11.0 cents 9.4 cents 19.6 cents
6. Dividends

A final dividend of US$435,000 (representing 1 cent per share) in respect of the financial year ended 31 December 2008 was paid on 31 July 2009.

The Directors do not propose to pay an interim dividend. The Directors do intend, subject to the availability of distributable reserves, to recommend a final dividend to shareholders in respect of the financial year ending 31 December 2009.
7. Segmental reporting

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker as defined in IFRS 8, in order to allocate resources to the segment and to assess its performance. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity's "system of internal financial reporting to key management personel" serving only as the starting point for the identification of such segments. As a result, following the adoption of IFRS 8, the identification of the Group's reportable segments has changed.

Europe Middle East Americas Africa Australasia Central Asia Others Adjustment Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000

Turnover 23,666 35,749 9,663 15,086 14,105 487 - (9,569) 89,187
Gross profit 3,796 7,197 1,734 1,430 4,689 292 - 2,217 21,355
Profit / (loss) before tax 1,036 4,489 145 (552) 1,276 75 (600) 2,048 7,917

Adjustments listed above relate to the following:
Share of profit of associates, net of taxation 793 793
Segment assets 24,062 42,500 11,914 20,718 31,861 552 36,684 (59,987) 108,304
Segment liabilities 21,082 21,426 10,869 18,240 21,011 560 2,338 (58,211) 37,315

Turnover 21,205 27,766 10,609 9,307 13,122 - 2,128 (6,831) 77,306
Gross profit 3,327 6,265 1,918 1,881 4,375 - 939 369 19,074
Profit / (loss) before tax 1,100 3,748 274 421 1,892 - (766) 499 7,168

Adjustments listed above relate to the following:
Share of profit of associates, net of taxation 379 379
Segment assets 18,540 31,963 11,914 16,340 27,242 - 33,946 (45,965) 93,980
Segment liabilities 16,435 16,812 10,816 13,157 20,104 - 2,550 (43,458) 36,416

8. Other intangible assets

30 June 30 June 31 December2008USD'000
2009 USD'000 2008 USD'000
(unaudited) (unaudited) (audited)

At 1 January 1,744 1,662 1,662
Foreign exchange translation 23 - (124)

difference
Acquisition of subsidiary - - 537

companies
Amortisation (169) (113) (331)
1,598 1,549 1,744

Acquired intangible assets which consist of customer lists acquired are valued at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the expected useful life ranging from 5 and 10 years.
9. Deferred consideration

30 June 30 June 31 December2008USD'000
2009USD'000 2008USD'000
(unaudited) (unaudited) (audited)

At 1 January 2,673 4,477 4,477
Foreign exchange translation 15 - (312)

difference
Acquisition of subsidiary - - 1,269

companies
Consideration settled (1,428) (493) (2,761)
1,260 3,984 2,673

The provisional deferred consideration consists of cash and shares.
10. Seasonality

The Group's business operations are not seasonal.
11. Property, plant and equipment

During the period, the Group acquired new plant and machinery at a cost of US$1,761,000 (2008: US$1,350,000). The Group also disposed of plant and machinery with net book value of US$11,000 (2008: US$128,000).
12. Investment in associated companies

Investment in associated companies has increased as a result of the share of net profit of associated companies, foreign exchange translation difference and dividend from associated companies.
13. Related party transactions

The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year:

Sales to related Purchases from Rental received and
parties related parties receivable from related
parties
US$'000 US$'000 US$'000

Related parties
Velosi (M) Sdn Bhd 2009 1,349 34 -
2008 1,447 101 31

Associated companies
Velosi LLC 2009 819 17 -

Term and conditions of transactions with related parties

The above transactions were entered into in the normal course of business and were carried out on an arms-length basis.

Amount due from related party

The amount due from related party included under current assets represents unsecured interest free advances repayable on demand. The related party is Velosi (M) Sdn Bhd. Included in trade and other receivables is an amount of US$1.247 million (2007: US$0.391 million) pledged as security for bank guarantee facilities.
14. Bank and other borrowings

30 June 30 June 31 December 2008
2009 2008 US$'000
US$'000 US$'000
(unaudited) (unaudited) (audited)

Current
Bank overdrafts 2,300 5,154 2,850
Bank loan 76 128 73
Hire purchase 448 295 658
2,824 5,577 3,581

Non-current
Bank loan 356 1,069 343
Hire purchase 1,175 480 933
1,531 1,549 1,276

4,355 7,126 4,857

These interim results will be available on the Company's website www.velosi.com. Further copies can be obtained from the registered office at Walker House, PO Box 72, 28-34 Hill Street, St Helier, Jersey JE4 8PN Channel Islands.

This information is provided by RNS The company news service from the London Stock Exchange

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