"Since the year end, we have satisfied the final payments in connection with the acquisition of Serco SA in France and we are currently undertaking a review and reorganization of that business with a view to expanding its capabilities both in the down-hole tools market and in the provision of oilfield fishing services.
"We have made the further payments relating to the acquisition of Oil Corporate Ltd, with the final payment being due at the end of this month, and we are now expanding and reorganizing this business via the incorporation of Oil Engineering Middle East LLC in Abu Dhabi and the closure of Oil Dimensional Surveys Inc in the USA. We now intend to grow the dimensional survey business under the Sovereign brand, incorporating Sovereign Dimensional Survey Ltd to be based in Aberdeen.
"The Board is continuing to explore the possibility of establishing a fabrication facility in Abu Dhabi that would act as a hub for all Sovereign's services in the Middle East. We believe that such a facility would attract significant new business locally given the undoubted demand in the region for North Sea-quality fabrication and maintenance services.
"While continuing our expansion of core oilfield services on an international scale, we have also invested heavily in management and management systems to ensure scalability as the Group expands. The Board also continues to seek earnings-enhancing acquisitions across all of our divisions. To assist our expansion, we are pleased to have recently extended our credit facilities with Barclays Bank plc, where we have a corporate facility of £8.1million.
"All divisions are trading in line with expectations, other than Diamant Drilling Services ("DDS") which has not achieved the sales volumes and profitability anticipated during the period to end July. On the other hand the order book is currently at its highest level since we acquired DDS and in tests and trials, DDS continues to achieve exceptional product performance and has recently had several record drill runs in Algeria and the Middle East.
"Since March we have strengthened and streamlined the management of DDS to reflect its increasing sales volumes and expanded geographical reach and are also committed to improving DDS's manufacturing and office facilities in Belgium over the next 12 months. The Board is confident that sales will continue to grow, particularly in the Middle East in the near future and remains confident that DDS's trading performance will improve during the second half of the year.
"The Board, remains confident of the Group's trading performance for the year. However the trading performance of DDS to date, one-off costs relating to Caledonian Petroleum Services Limited move to large new premises, one-off costs related to the OIL acquisition and the cost of re-banking the business, are expected to have an adverse impact on the Board's expectations of the Group's financial performance for the first half of the year.
"The Board remains confident of the long term prospects for Sovereign and, while our rapid growth puts high demands on management, I believe we have both the quality of personnel and the necessary corporate ambition across the Group to fulfill our strategic goals."
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