Final results for the year ended 31 March 2018

RNS Number : 1625R

Enteq Upstream PLC

13 June 2018

 

Enteq Upstream plc

("Enteq", the "Company" or the "Group")

Final results for the year ended 31 March 2018

AIM traded Enteq Upstream plc, the oil and gas drilling technology company, today announces its financial results for the year ended 31 March 2018.

Key features

·    Return to positive EBITDA

·    North American market stabilised at new oil price and rig count

·    Re-built production capacity

·    Investment in new technologies

·    Maintained cash reserves for future investment

Financial metrics         

                                                                                            Years ended 31 March:                                                            

	2018	2017
·    Revenue	$6.5m	$4.8m
·    Adjusted EBITDA1	$0.2m	$(0.5)m
·    Loss before tax	$0.6m	$1.1m
·    Adjusted loss per share2	0.8 cents	1.7 cents
·    Loss per share	1.0 cents	2.0 cents
·    Cash balance	$15.5m	$15.3m

Outlook

·    Core market of USA land drilling expected to remain near current levels

·    International markets show further promise although cash constrained

·    Enteq market share maintained or improved

·    New products, technologies and partnerships will increase available market

Martin Perry, CEO of Enteq Upstream plc, commented:

"Enteq has managed the business through difficult market conditions.  Cash has been preserved, there has been a return to profitability and strategic investment has been maintained.

Core competencies are in place, technical differentiation is being improved and market share maintained.  The business is poised for growth opportunities."

 

For further information, please contact:

Enteq Upstream plc                                                             [phone]

Martin Perry, Chief Executive Officer

David Steel, Finance Director

Investec Bank plc (Nomad and Broker)                          [phone]

Chris Treneman, Patrick Robb, David Anderson

¹ Adjusted EBITDA is reported profit before tax adjusted for interest, depreciation, amortisation, foreign exchange movements, Performance Share Plan charges and exceptional items.

² Adjusted loss per share is reported loss per share adjusted for amortisation, foreign exchange movements and exceptional items,

 

Chairman's Statement

Review of the Year

This year's financial results have been encouraging.  Revenue has increased and, importantly, there has been a return to profitability at the EBITDA level.  Cash reserves during the year have increased once again even though investment in Engineering, Product Development and increases in the rental fleet have continued.  This has been achieved as a result of prudent and decisive management initiatives taken throughout the down-turn and which have continued into this current period.

The global oil and gas market has found a new, more stable, level of activity during the year.  Following a number of years of turbulence, with a dropping oil price and unpredictable rig utilisation creating difficulties for the entire sector, a year of relative stability has allowed for some more organised and rational planning.

Enteq remains heavily dependent on the North American directional oil drilling market but has established further in-roads into the markets in the Far East and Middle East.  The rig count in North America is now approximately 1,000, up from 840 in April 2017 and 420 in April 2016, but still significantly below the 2,000 plus in 2014.

Enteq's electronic and sensor equipment is sold as a capital, re-useable, asset and consequently it was feared that some significant over capacity would remain in the market even during a recovery period.  However, through a pro-active scheme of upgrading and replacing older equipment, Enteq has effectively re-established a secure customer base.

Several technical advances were made during the year.  Utilising a grant received from Innovate UK, a funding body of the UK government, Enteq has made good progress in the development of an innovative inclination sensor which will be applicable to both existing and new markets.  Patents have been filed in relation to a novel power and data communication system for Logging While Drilling and IP with potential for improving "in-well" data transmission rates has been purchased.

During the year, the electronic and sensor manufacturing was successfully relocated from leased premises in California to a newly re-furbished facility within the existing Enteq freehold site in Houston.  As Enteq's US customer base is largely within the greater Houston area, this move improves both support and repair responsiveness as well as enhancing the critical mass at the Houston operations, where headcount is now growing again.

The core staff have remained very loyal to Enteq during a difficult few years and the Board thanks them for their support.

Prospects

The recent oil price stability has allowed greater certainty to be placed on medium-term planning throughout the industry.  North American drilling is again delivering good returns from shale producing oil.  Outside North America there are increasingly more initiatives to exploit shale-based oil and gas and also further investment in conventional drilling and production.

Enteq is well positioned with both their current and evolving technologies to support all new drilling opportunities.

Iain Paterson

Chairman
 

Chief Executive's Operating and Strategic Review

Market Overview

Enteq supplies Measurement While Drilling (MWD) equipment to the oil and gas industry world-wide to enable directional drilling.

Directional drilling is carried out by oilfield service companies who either purchase equipment from third parties such as Enteq or develop the equipment themselves.  Measurement While Drilling equipment is used on every rig which drills directional wells.

A sharp reduction in the price of crude oil in 2015 gave rise to an uncertain period in the market for the last 3 years, however, coming in to 2018, the price of oil has stabilised and the key market indicator of the North American rig count has continued to increase to the current level in excess of 1,000 compared to 840 in April 2017 and 420 in April 2016.  However, this remains significantly below the 2,000 plus level of 2014.  Although activity levels have improved, the pricing in the market generally remains under pressure with margins for operators, service companies (Enteq customers) and suppliers continuing to be squeezed.

The directional drilling market is divided between the 'major' service companies who are vertically integrated using their own equipment, and the 'independents' who need to acquire equipment, such as the Measurement While Drilling equipment provided by Enteq, from third parties. Enteq supplies a competitive solution with an excellent record of reliability and also offers good financial terms on rental and purchase options. Enteq has maintained good relationships with the independent service companies and maintained market share.

Outside North America, Enteq equipment continues to prove its capability in China, Russia, Saudi Arabia, Oman and Indonesia. Despite local competition, Enteq has significant further opportunities.

Product development

Enteq has invested further in its core disciplines within engineering and software development. 

New development and patent applications related to Logging While Drilling connectivity have been progressed, a purchase of IP related to a potential new downhole communication has been completed, and the funded programme of development of additional sensors for potential Geothermal wells is on-track.

Sales & Marketing

Regular contact is maintained with the customer base from the Group's operational hub in Houston and by the Chief Operations Officer in North America. International opportunities and sales are generated from the UK office and by a representative in China. Business development trips are made as and when required. 

Future strategic direction

Enteq is operating a strong, profitable, cash generative business in a sector which is in recovery, is sustainable long term, and is expected to grow. Enteq has a strong balance sheet, and also has the ability to raise further funds, should incremental opportunities be available. Through investment in technology, both in-house and through partnerships, the market being addressed can be enlarged. The current customer base, and therefore market share, remains strong. Additional growth outside North America is expected.

Conclusion

Enteq has managed the business through difficult market conditions.  Cash has been preserved, there has been a return to profitability and strategic investment has been maintained.

Core competencies are in place, technical differentiation is being improved and market share maintained.  The business is poised for growth opportunities.

Martin Perry

Chief Executive Officer

 

Financial Review

Income Statement

Year to 31 March:	2018	2017
	$ million	$ million
Revenue	6.5	4.8
Cost of Sales	(2.2)	(1.7)
Gross profit	4.3	3.1
Overheads	(4.1)	(3.6)
Adjusted EBITDA	0.2	(0.5)
Depreciation & amortisation	(0.8)	(0.5)
Other charges	(0.1)	(0.2)
Ongoing operating loss	(0.7)	(1.2)
Other exceptional items	(0.1)	-
Interest	0.2	0.1
Loss before tax	(0.6)	(1.1)
Tax	-	(0.1)
Loss after tax	(0.6)	(1.2)

The improvement in the results for the year ended 31 March 2018 arise from the stabilization of the North American market.   The price of a barrel of West Texas Intermediate ("WTI") has risen from $49 at the start of April 2017 to $65 as at 31 March 2018; in addition, the price has not dropped below $55 since mid-November 2017.   This price progression has resulted in the North American rig count rising from approximately 840 at the start of the financial year to just over 1,000 at the end.   As Enteq's revenue is derived from both rigs being added to customers' fleets and on-going replacement of equipment during rig operation, the North American derived turnover rose from $3.4m to this year's $6.0m.   Internationally, the market continues to be both cashflow constrained and subject to the uncertain timing of big ticket projects.   Enteq's international revenue is down from $1.4m to $0.5m.

The full year gross margin was 67%, up on the 65% of the previous year.   This is primarily due to the increasing level of rental revenue as a result in the investment in the rental fleet (up from 10% of revenue in the year to 31 March 2017 to 15% of revenue this year).

Total overheads, at $4.1m, were up $0.5m on last year's figure.  This reflected the increased costs in the second half of the year, primarily due to:

·      the increase in non-production and development costs of expanding the engineering and mechanical component teams, including recruitment costs;

·      the increase in activity related general overheads, such as subsistence and travel; and

·      the "ramp up" costs associated with setting up the new electronic component production facility at South Houston (the leased Santa Clara facility being closed in Mid-March 2018).

Note that the actual relocation cost of the electronic component production move of $0.1m is shown within the exceptional items.

The combined depreciation and amortisation charge was up due to the deprecation charge relating to the rental fleet increasing from $0.2m last year to $0.6m this year.  This reflects the carrying value of the rental fleet growing from $0.5m as at 31 March 2017 to $2.1m at the end of this year.

The "Other charges" included in the ongoing operating loss for the year primarily relate to the non-cash charge associated with the Performance Share Plan.

Statement of Financial Position

Enteq's net assets at the year-end comprised of the following items:

As at 31 March:	2018 $million	2017 $million
Other intangible assets	1.2	0.6
Property, plant & equipment	2.3	2.3
Rental fleet	2.1	0.5
Net working capital	2.5	5.0
Cash	15.5	15.3
Net assets	23.6	23.7

The "Other intangible assets" represent the value of the on-going R&D work, carried out by the engineering team, capitalised to date, less the amortisation relating to the products fully commercialised (primarily software releases).

The net book value of property, plant & equipment has remained at $2.3m due to the increase of $0.1m relating to the investment in constructing the new electronic component facility at South Houston being offset by a similar depreciation charge.

The increase in the net book value of the rental fleet reflects the number of kits rising from 6, as at 1 April 2017, to 14 at the year-end combined with the increasing value of components included in the new kits.

The $2.5m decrease in net working capital is due to the management's focus on the cash impact of this item.  During the year there was a reduction in trade debtors ($1.6m) and increase in trade creditors and accruals ($0.9m).

Cash flows

Year to 31 March:	2018 $ million	2017 $ million
Adjusted EBITDA	0.2	(0.5)
Change in net working capital	2.6	1.2
Operational cash generated	2.8	0.7
Investment in R&D	(0.7)	(0.4)
Investment in rental fleet	(2.2)	(0.4)
CAPEX	(0.2)	-
Equipment disposal proceeds	0.1	-
Interest and share issues	0.4	0.3
Net cash movement	0.2	0.2
Opening cash balances	15.3	15.1
Closing cash balances	15.5	15.3

The increase in R&D spend reflects the expansion of the engineering team during the second half of the year plus the legal fees regarding filing patent applications in order to protect intellectual property being created.

The robustness of the balance sheet enabled Enteq to expand its customer base by continuing to offer rental terms, with the number of kits rising from 6 as at 1 April 2017 to 14 at the year end.

The CAPEX relates to the cost of constructing the new electronic component facility at the South Houston site. 

Financial Capital Management

Enteq's financial position continues to be robust.  Enteq had no bank borrowings or other debt and had a closing cash position of $15.5m as at 31 March 2018.

Enteq monitors its cash balances daily and operates under treasury policies and procedures which are set by the Board.

The financial statements are presented in US dollars as the Company's primary economic environment, in which it operates and generates cash flows, is one of US dollars. Apart from its UK based overhead costs, substantially all other transactions are transacted in US dollars.

Enteq is subject to the foreign exchange rate fluctuations to the extent that it holds non-US Dollar cash deposits. These GBP denominated holdings are now approximately 1% of total cash holdings, down from last year's 6% due to timing differences in converting USD to GBP.  

Annual Report and Accounts

The 2018 Annual Report and Accounts has today been sent to shareholders and is available on the Company's website, www.enteq.com. 

Annual General Meeting

The Company's Annual General Meeting will be held on 26 September 2018 at 12.00 noon at the offices of Investec Bank plc, 30 Gresham Street, London EC2V 7QP.  

Copies of these documents can also be obtained during normal business hours at the registered office of the company:

The Courtyard

High Street

Ascot

Berks SL5 7HP

David Steel

Finance Director

 

Enteq Upstream Plc
Consolidated Income Statement
		Year to 31 March 2018			Year to 31 March 2017
	Notes	$ 000's	$ 000's	$ 000's	$ 000's
		Ongoing operations	Exceptional items	Total	Total
Revenue	2	6,460	-	6,460	4,762
Cost of Sales		(2,141)	-	(2,141)	(1,661)
Gross Profit		4,319	-	4,319	3,101
Administrative expenses before amortisation		(4,994)	-	(4,994)	(4,235)
Amortisation of acquired intangibles	6	(92)	-	(92)	(68)
Other exceptional items	3	-	(57)	(57)	(54)
Foreign exchange profit on operating activities		48	-	48	(8)
Total Administrative expenses		(5,038)	(57)	(5,095)	(4,365)
Operating loss		(719)	(57)	(776)	(1,264)
Finance income		175	-	175	127
Loss before tax		(544)	(57)	(601)	(1,137)
Tax expense	4	(3)	-	(3)	(48)
Loss for the period		(547)	(57)	(604)	(1,185)
Loss attributable to:
Owners of the parent		(547)	(57)	(604)	(1,185)
Loss per share (in US cents):	5
Basic				(1.0)	(2.0)
Diluted				(1.0)	(2.0)
Adjusted loss per share (in US cents):	5
Basic				(0.8)	(1.7)
Diluted				(0.8)	(1.7)

 

Enteq Upstream Plc

Consolidated Statement of Comprehensive Income	Year to 31 March 2018	Year to 31 March 2017
	$ 000's	$ 000's
Loss for the year	(604)	(1,185)
Other comprehensive income for the year:
Items that will not be reclassified subsequently to profit and loss	-	-
Items that will be reclassified subsequently to profit and loss	-	-
Total comprehensive income for the period	(604)	(1,185)
Total comprehensive income attributable to:
Owners of the parent	(604)	(1,185)

 

Enteq Upstream Plc
Consolidated Statement of Financial Position
					As at 31 March 2018	As at 31 March 2017
			Notes		$ 000's	$ 000's
	Assets
	Non-current
	Goodwill		6a		-	-
	Intangible assets		6b		1,222	645
	Property, plant and equipment				4,503	2,858
	Trade and other receivables				238	-
	Non-current assets				5,963	3,503
	Current
	Trade and other receivables				2,104	3,924
	Inventories				3,302	3,366
	Cash and cash equivalents				15,501	15,335
	Current assets				20,907	22,625
	Total assets				26,870	26,128
	Equity and liabilities
	Equity
	Share capital				982	963
	Share premium				91,031	90,718
	Share based payment reserve				910	806
	Retained earnings				(69,351)	(68,747)
	Total equity				23,572	23,740
	Liabilities
	Current
	Trade and other payables				3,298	2,388
	Total liabilities				3,298	2,388
	Total equity and liabilities				26,870	26,128

 

Enteq Upstream Plc

Consolidated Statement of Changes in Equity

				Share
	Called up			based
	share	Retained	Share	payment	Total
	capital	earnings	premium	reserve	equity
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
Issue of share capital	19	-	313	-	332
Share based payment charge	-	-	-	104	104
Transactions with owners	19	-	313	104	436
Loss for the year	-	(604)	-	-	(604)
Other comprehensive income for the year	-	-	-	-	-
Total comprehensive income	-	(604)	-	-	(604)
Total movement	19	(604)	313	104	(168)
As at 1 April 2017	963	(68,747)	90,718	806	23,740
As at 31 March 2018	982	(69,351)	91,031	910	23,572
	Called up			based
	share	Retained	Share	payment	Total
	capital	earnings	premium	reserve	equity
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
Issue of share capital	13	-	160	-	173
Share based payment charge	-	-	-	257	257
Transactions with owners	13	-	160	257	430
Loss for the year	-	(1,185)	-	-	(1,185)
Other comprehensive income for the year	-	-	-	-	-
Total comprehensive income	-	(1,185)	-	-	(1,185)
Total movement	13	(1,185)	160	257	(755)
As at 1 April 2016	950	(67,562)	90,558	549	24,495
As at 31 March 2017	963	(68,747)	90,718	806	23,740

 

Enteq Upstream Plc

Consolidated Statement of Cash Flows

	Year to 31 March 2018	Year to 31 March 2017
	$ 000's	$ 000's
Cash flows from operating activities
Loss for the year	(604)	(1,185)
Tax charge	3	48
Net finance income	(175)	(127)
(Gain)/loss on disposal of fixed assets	(82)	25
Share-based payment non-cash charges	104	257
Foreign exchange difference	(48)	8
Depreciation and Amortisation charges	853	494
	51	(480)
Interest received	175	127
Tax paid	(1)	(4)
Decrease in inventory	64	440
Decrease/(increase) in trade and other receivables	1,582	(498)
Increase in trade and other payables	910	910
Net cash from operating activities	2,781	495
Investing activities
Purchase of tangible fixed assets	(236)	-
Increase in rental fleet assets	(2,222)	-
Disposal proceeds of tangible fixed assets	133	-
Purchase of intangible fixed assets	(670)	(446)
Net cash from investing activities	(2,995)	(446)
Financing activities
Share issue	332	173
Net cash from financing activities	332	173
Increase in cash and cash equivalents	118	222
Non-cash movements - foreign exchange	48	(8)
Cash and cash equivalents at beginning of period	15,335	15,121
Cash and cash equivalents at end of period	15,501	15,335

 

Enteq Upstream plc

1.     BASIS OF PREPARATION

The results for the year ended 31 March 2018 have been prepared using the accounting policies and methods of computation consistent with those used in the Group's annual report for the year ended 31 March 2017.   The results have also been presented and prepared in a form consistent with that which will be adopted in the Group's annual report for the year ended 31 March 2018 and in accordance with the recognition and measurement requirements of the International Financial Reporting Standards as adopted by the European Union.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2018 and the year ended 31 March 2017, but is derived from those accounts.   Statutory accounts for 2017 have been delivered to Companies House.  Those for the year ended 31 March 2018 will be delivered following the Company's Annual General Meeting on 26 September 2018.

The financial information has been extracted from the Group's Annual Report for the year ended 31 March 2018.   The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006. The Group intends to publish its 2018 Annual Report and Accounts in June 2018.

2.     SEGMENTAL REPORTING

For management purposes, the Group is currently organised into a single business unit, the Drilling Tools

division, which is currently based solely in the USA.

The principal activities of the Drilling Tools division are the design, manufacture and selling of specialised parts and products for Directional Drilling and Measurement While Drilling operations for use in the energy exploration and services sector of the Oil and Gas industry.

At present, there is only one operating segment and the information presented to the board is consistent with

the consolidated income statement and the consolidated statement of financial position.   A key measurement used by the board is Adjusted EBITDA.  This reconciliation is included in note 6, below.

The revenues, net assets and non-current assets of the Group can be analysed by geographic location (post-consolidation adjustments) as follows:

Revenues

	31 March 2018	31 March 2017
	USD 000's	USD 000's
North America	6,017	3,325
Rest of the world	443	1,437
Total Group revenue	6,460	4,762

Net Assets

	31 March 2018	31 March 2017
	USD 000's	USD 000's
Europe (UK)	13,673	13,985
United States	9,899	9,755
Total Group net assets	23,572	23,740

Non-current Assets

	31 March 2018	31 March 2017
	USD 000's	USD 000's
Europe (UK)	-	-
United States	5,958	3,503
Total Group non-current assets	5,958	3,503

All of the Group's revenue arises from the sale and rental of specialised parts and products for Directional Drilling and Measurement While Drilling operations.

The Group had 3 customers that contributed in excess of 10% of the Group's total sales for the year (2017: 4). These customers contributed $1,371k, $927k and $881k. (2017: $1,222k, $1,030k, $853k and $513k). No revenue relates to customers based in the UK (2017: none).

3.     PROFIT AND LOSS ANALYSIS

The following analysis illustrates the performance of the Group's activities, and reconciles the Group's loss for the period, as shown in the consolidated income statement, to adjusted earnings and adjusted EBITDA.

Adjusted earnings and adjusted EBITDA are presented to provide a better indication of overall financial performance and to reflect how the business is managed and measured on a day-to-day basis.

	31 March 2018	31 March 2017
	USD 000's	USD 000's
Loss attributable to ordinary shareholders	(604)	(1,185)
Other exceptional items	57	54
Amortisation of acquired intangible assets	92	68
Foreign exchange movements	(48)	8
Adjusted earnings	(503)	(1,055)
Depreciation charge	760	426
Finance income	(175)	(127)
Performance Share Plan charge	138	252
Tax charge (note 4)	3	48
Adjusted EBITDA	223	(456)

The other exceptional items result from non-recurring costs.  The total can be analysed as follows:

	31 March 2018	31 March 2017
	USD 000's	USD 000's
Severance payments and other plant closure costs	143	43
Gain on sale of fixed assets	(82)	-
Other	(4)	11
Total exceptional items	57	54

4.     INCOME TAX

      Analysis of tax expense

No liability to UK corporation tax arose on ordinary activities for the period.

Factors affecting the tax charge

The tax assessed for the period is different from the standard rate of corporation tax in the UK. The difference is explained below:

	31 March 2018	31 March 2017
	USD 000's	USD 000's
Loss on ordinary activities before tax	(601)	(1,137)
Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2017: 20%):	(114)	(227)
Effects of:
Items not subject to corporation tax	170	99
Tax losses to carry forward	(56)	128
Texas State Franchise Tax	3	48
Total income tax	3	48

There has been no deferred taxation recognised in these financial statements due to the uncertainty surrounding the timing of the recovery of these amounts. The total losses available to the Group in the relevant tax jurisdictions are as follows: UK $1.7m; United States $15.9m (2017: UK $2.6m; United States $14.1m). There were no significant deferred tax liabilities.

5.     EARNINGS PER SHARE AND DIVIDENDS

Basic earnings per share

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders for the year of $604k (31 March 2017: loss of $1,185k) by the weighted average number of ordinary shares in issue during the year of 61,616k (31 March 2017: 60,351k).

Adjusted earnings per share

Adjusted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders, excluding exceptional items, amortisation of intangible assets and foreign exchange profits or losses for the year of a loss of $503k (31 March 2017: loss of $1,055k), by the weighted average number of ordinary shares in issue during the year of 61,616k (31 March 2017: 60,351k).

As the Group is loss making, any potential ordinary shares have the effect of being anti-dilutive.   Therefore, the diluted EPS is the same as the basic EPS.  As the year end share price is below the weighted average option price of all the options issued, the adjusted diluted EPS is the same as adjusted EPS.

The adjusted diluted earnings per share information are considered to provide a fairer representation of the Group's trading performance. A reconciliation between basic earnings and adjusted earnings is shown below.

March 2018:   EPS	Earnings	Weighted average number of shares	Per-share amount
	USD 000's	000's	US cents
Loss attributable to ordinary shareholders	(604)	61,616	(1.0)
Exceptional items	57
Amortisation of acquired intangible assets	92
Foreign exchange movements	(48)
Adjusted loss attributable to ordinary shareholders	(503)	61,616	(0.8)

March 2017:  EPS	Earnings	Weighted average number of shares	Per-share amount
	USD 000's	000's	US cents
Loss attributable to ordinary shareholders	(1,185)	60,351	(2.0)
Exceptional items	54
Amortisation of acquired intangible assets	68
Foreign exchange movements	8
Adjusted loss attributable to ordinary shareholders	(1,055)	60,351	(1.7)

During the year Enteq Upstream Plc did not pay any dividends (2017: nil).

6.     INTANGIBLE ASSETS

a)     Goodwill

		USD 000's
Cost:
As at 1 April 2017 and as at 31 March 2018		19,619
Impairment:
As at 1 April 2017 and as at 31 March 2018		19,619
Net Book Value:
As at 1 April 2017 and as at 31 March 2018		-

b)     Other Intangible Assets

	Developed technology	IPR&D technology	Brand names	Customer relationships	Non- compete agreements	Total
	USD 000's	USD 000's	USD 000's	USD 000's	USD 000's	USD 000's
Cost:
As at 1 April 2017	12,676	7,495	1,240	20,586	5,931	47,928
Capitalised in period	-	669	-	-	-	6769
As at 31 March 2018	12,676	8,164	1,240	20,586	5,931	48,597
Amortisation/Impairment:
As at 1 April 2017	12,418	7,108	1,240	20,586	5,931	47,283
Charge for the year	92	-	-	-	-	92
As at 31 March 2018	12,510	7,108	1,240	20,586	5,931	47,375
Net Book Value:
As at 1 April 2017	258	387	-	-	-	645
As at 31 March 2018	165	1,057	-	-	-	1,222

	Developed technology	IPR&D technology	Brand names	Customer relationships	Non- compete agreements	Total
	USD 000's	USD 000's	USD 000's	USD 000's	USD 000's	USD 000's
Cost:
As at 1 April 2016	12,500	7,225	1,240	20,586	5,931	47,482
Transfers	176	(176)	-	-	-	-
Capitalised in period	-	446	-	-	-	446
As at 31 March 2017	12,676	7,495	1,240	20,586	5,931	47,928
Amortisation/Impairment:
As at 1 April 2016	12,350	7,108	1,240	20,586	5,931	47,215
Charge for the year	68	-	-	-	-	68
As at 31 March 2017	12,418	7,108	1,240	20,586	5,931	47,283
Net Book Value:
As at 1 April 2016	150	117	-	-	-	267
As at 31 March 2017	258	387	-	-	-	645

The main categories of Intangible Assets are as follows:

Developed technology:

This is technology which is currently commercialised and embedded within the current product offering.

IPR&D technology:

This is technology which is in the final stages of field testing, has demonstrable commercial value and is expected to be launched within the next 12 months.

Brand names:

The value associated with the various trading names used within the Group.

Customer relationships:

The value associated with the on-going trading relationships with the key customers acquired.

Non-compete agreements:

The value associated with the agreements signed by the Vendors of the acquired businesses not to compete in the markets of the businesses acquired.

Goodwill and Impairment

The Group tests goodwill and other intangible assets annually for impairment. The impairment test carried out on the balances as at 31 March 2018 indicated that there was no impairment of the full carrying value of both goodwill and intangible assets. 

There is deemed to be just one cash generating unit ("CGU") within the Company. In previous years there were deemed to be two, but from a financial & operational perspective both US locations are now being run as one unit.

The recoverable amount of the CGU is determined from value in use calculations.  The key assumptions for the value in use calculations are those regarding the future revenues, discount rates, growth rates and expected changes to selling prices and direct costs during the period.   Management estimates discount rates using pre-tax rates that reflect current market assessment of the time value of money and the risks specific to the CGU.  The growth rates are based on management forecasts for the five years to March 2021.  Cash flow forecasts are prepared from the most recent financial plans approved by the Board.

The forecasts assume annual growth rates between 1% and 20% until 2023 and 3% thereafter in the long term.   These long-term growth rates do not exceed the long-term average growth rates for the industry as a whole.

The pre-tax rate used to discount cash flow forecasts is 13.6% (2017: 13.5%).  Management have based this rate on the following factors: a Risk Free Rate of 3.2%; a levered equity beta of 1.5; a market risk premium of 5.5%; a small cap premium of 3.8% and an implied cost of debt of 4.5%.

Intangible assets

The intangible assets acquired during the year represent their fair value at the date of acquisition.

Amortisation

All categories of intangible assets, apart from the Goodwill and the IPR&D technology, are being amortised over their respective useful lives, on a straight-line basis.   The remaining amortisation period of the intangible assets is between 10 and 46 months.

7.     GOING CONCERN

After considering the current financial projections of the Group and taking into account the cash needs of the business and availability of funds, the Directors have a reasonable expectation that the group has adequate resources to continue its operations for the foreseeable future.  For this reason, they continue to adopt a "going concern" basis in preparing the Annual Report.

8.     RESPONSIBILITY STATEMENT OF THE DIRECTORS

To the best of the knowledge of the Directors (whose names and functions are set out below), the preliminary announcement has been prepared using accounting policies and methods of computation consistent with those used in the Group's annual report for the year ended 31 March 2017 and adopted for the financial year ended 31 March 2018, gives a true and fair view of the assets, liabilities, financial position and profit for the Company and the undertakings included in the consolidation taken as a whole; and

Pursuant to Disclosure and Transparency Rules, Chapter 4, the Directors' Report of the Company's annual report will include a fair review of the development and performance of the business taken, together with a description of the principal risks and uncertainties faced by the business.

Executive Directors

Martin Perry                                              Chief Executive Officer

David Steel                                                Finance Director                       

Non-Executive Directors

Iain Paterson                                             Chairman                    

Robin Pinchbeck      

 

END

 

 

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