Half-year Report

RNS Number : 5087W

Enteq Upstream PLC

15 November 2017

 

Enteq Upstream plc

Interim results for the six months ended 30 September 2017

AIM traded Enteq Upstream plc ("Enteq", the "Company" or the "Group"), the oil & gas drilling technology company, today announces its interim results for the six months ended 30 September 2017.

Key Features

·          Improved conditions in the North American market have enabled stabilised revenues

·          Breakeven adjusted EBITDA and cashflow in the first half year

·          Cash balance, at 30 September 2017, of US$15.3m (US$15.2m in September 2016)

Financial Metrics

		Six months to:
		30 Sept 2017 US$m			30 Sept 2016 US$m
·    Revenue			2.5		0.7
·    Consolidated adjusted EBITDA1			-		0.7 loss
·    Loss before tax			0.3		1.0
·    Adjusted earnings per share (cents)2			0.6 loss		1.5 loss
·    Cash			15.3		15.2

Outlook

·    The USA land drilling market is expected to remain at the current levels despite pressure to reduce production.

·    The North American gas reserves remain a potential upside to drilling activity.

·    Legacy equipment should be retired from the market, leaving room for new equipment sales.

·    New technology, from both Enteq and other providers, should continue to improve efficiencies in oil production.

·    Enteq pursuing further projects outside North America.

Martin Perry, CEO of Enteq Upstream plc, commented:

"Enteq has weathered the storm of severely reduced drilling activity globally over the last two years and is now entering a more stable market with a low-cost base, preserved cash balances and a strong technology platform from which to build.  Uncertainty does remain and caution will continue to be exercised.   However, Enteq has a solid customer base, a proven technology platform and a strong balance sheet, all of which will enable Enteq to take maximum advantage of future 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 earnings per share is reported profit per share adjusted for foreign exchange movements, amortisation, performance share plan charges and exceptional items.

Interim Report

CHAIRMAN & CHIEF EXECUTIVE OFFICER'S REPORT

Market conditions

Enteq Upstream, a supplier of Measurement While Drilling equipment to oil and gas directional drilling service companies primarily operating in North America, is directly affected by the oil price, the number of drilling rigs and existing inventories of equipment.

During this reporting period, April to September 2017, the rig count in the USA has stabilised at around 900 (approximately 500 in September 2016), and the price for West Texas Intermediate crude ("WTI") has remained broadly between $45 and $50 per barrel during the last 12 months.  These factors have created a more stable environment for the Enteq customers to operate within.  Despite some remaining inventories of legacy equipment, customers have begun to renew and refresh/upgrade their equipment.  A small number of new market entrants, and therefore new customers for Enteq, are also emerging.

Enteq has maintained good relationships with all the customer base and is, therefore, well positioned to take advantage of new activity.  Whilst still in the early stages, a cautious revival of activity has been seen.

International markets, outside USA, remain slow with oil companies reluctant to invest in new projects and drilling services companies (Enteq's potential customers) restricted by cash flows for new investment. Despite this, a number of new projects are under discussion which are increasing Enteq's market share.

Enteq continues to control costs and cash expenditure whilst also reviewing opportunities for suitable investments in order to be well positioned for any further activity growth.

Key Features

·          Improved conditions in the North American market have enabled stabilised revenues

·          Breakeven adjusted EBITDA and cashflow in the first half year

·          Cash balance, at 30 September 2017, of US$15.3m (US$15.2m in September 2016)

Operations

Enteq has continued to see demand for its electronic and sensor equipment range which has historically been manufactured in rented premises in Santa Clara, California.  The majority of Enteq customers, however, are based around the Houston, Texas area, where Enteq owns a five acre, 30,000sq ft. facility with spare capacity.   In order to improve customer accessibility and to create a single hub for the business, Enteq is in the process of transferring the Santa Clara production into Houston.   Sufficient inventories of California manufactured products are being assembled in order to negate any potential transitional slow down, with a full transfer planned for the end of the current fiscal year (March 2018).   This consolidation will result in both operating cost reductions and production efficiencies, as well as the "softer" marketing and communication benefits.

An application for two new patents continues to progress, and the initial build of the prototype technology related to these is in process. 

A UK government sponsored project is under way with the first milestones achieved and grant payments received.  The total grant available, over the two-year period to April 2019, is approximately $0.5m.

From the UK Head Office, International Business Development continues. Initial wells have been successfully drilled in Saudi Arabia supported by Enteq engineers.   Further repeat business in Russia and China is anticipated with further projects elsewhere also being pursued.

Outlook

·    The USA land drilling market is expected to remain at the current levels despite pressure to reduce production.

·    The North American gas reserves remain a potential upside to drilling activity.

·    Legacy equipment should be retired from the market leaving room for new equipment sales.

·    New technology, from both Enteq and other providers, should continue to improve efficiencies in oil production.

·    Enteq is pursuing further projects outside North America.

·    The Oil & Gas directional drilling industry has a sustainable long term future

Overview of results

For the six-month period to 30 September 2017, Enteq reports revenue of US$ 2.5m and post-tax loss of US$ 0.3m.  Both these are an improvement on the same period last year (September 2016: revenue of US$ 0.7m and a loss of US$ 1.0m).   Furthermore, there is an improvement in the adjusted EBITDA from the September 2016 loss of US$ 0.7m to a virtual breakeven in the six months to 30 September 2017.  A reconciliation between the reported loss and the adjusted EBITDA is shown in note 5 to the Financial Statements.

The gross margin improved from 54% in the six months to 30 September 2016 to 70% in this reporting period (year to 31 March 2017: 65%).  This is due to an increasing percentage of sales coming from the higher margin electronic component and rental businesses.

The overheads have been further reduced.   In the six months to 30 September 2017, (the reported administrative expenses before amortisation, less depreciation and PSP charges) were US$ 1.7m.   This is a reduction on the run rate due to management's continued vigilance on cost management, the full year to 31 March 2017 being US$ 3.6m.

Cash balance and cashflow

As at 30 September 2017 the Group had a cash balance of US$ 15.3m, the same figure as at 31 March 2017, but up US$ 0.1m on the US$ 15.2m reported at 30 September 2016.  The half year cash breakeven can be analysed as follows:

	US$m
Adjusted EBITDA	-
Net reduction in operational working capital	0.7
Increase in the rental fleet	(0.4)
Operational cashflow	0.3
R&D expenditure	(0.3)
Net cash movement	-
Cash balances as at 1 April 2017	15.3
Cash balances as at 30 September 2017	15.3

Prospects

The North American market for land oil drilling appears to be stabilising at a level of around 900 rigs and this will form a new platform for Enteq to re-establish its regular market presence.  Enteq continues to develop new technologies to increase drilling efficiencies further.  This should lead to greater market penetration both in North America and beyond.  External influences such as global political and economic pressure remain unpredictable.   However, Enteq has a solid customer base, a proven technology platform and a strong balance sheet, all of which will enable Enteq to take maximum advantage of future growth opportunities.

Martin Perry                                                    Iain Paterson

Chief Executive                                              Chairman

Enteq Upstream plc

14 November 2017

Enteq Upstream plc
Condensed Consolidated Income Statement
			Six months to 30 September 2017	Six months to 30 September 2016	Year to 31 March 2017
			Unaudited	Unaudited	Audited
	Notes		US$ 000's	US$ 000's	US$ 000's
Revenue			2,506	745	4,762
Cost of Sales			(754)	(342)	(1,661)
Gross Profit			1,752	403	3,101
Administrative expenses before amortisation			(2,161)	(1,368)	(4,235)
Amortisation of acquired intangibles	9b		(46)	(32)	(68)
Other exceptional items			23	(31)	(54)
Foreign exchange (loss)/gain on operating activities			40	(33)	(8)
Total Administrative expenses			(2,144)	(1,464)	(4,365)
Operating loss			(392)	(1,061)	(1,264)
Finance income			77	64	127
Loss before tax			(315)	(997)	(1,137)
Tax expense	8		(3)	(30)	(48)
Loss for the period	5		(318)	(1,027)	(1,185)
Loss attributable to:
Owners of the parent			(318)	(1,027)	(1,185)
Earnings/loss per share (in US cents):	7
Basic			(0.5)	(1.7)	(2.0)
Diluted			(0.5)	(1.7)	(2.0)
Adjusted earnings per share (in US cents):	7
Basic			(0.6)	(1.5)	(1.7)
Diluted			(0.6)	(1.5)	(1.7)

Condensed Consolidated Statement of Comprehensive Income
		Six months to 30 September 2017	Six months to 30 September 2016	Year to 31 March 2017
		Unaudited	Unaudited	Audited
		US$ 000's	US$ 000's	US$ 000's
Loss for the period			(1,027)	(1,185)
Other comprehensive income for the period:
Items that will not be reclassified subsequently to profit or loss		-	-	-
Items that will be reclassified subsequently to profit or loss		-	-	-
Total comprehensive income for the period		(318)	(1,027)	(1,185)
Total comprehensive income attributable to:
Owners of the parent		(318)	(1,027)	(1,185)

Enteq Upstream plc
Condensed Statement of Financial Position
		30 September 2017		30 September 2016		31 March 2017
		Unaudited		Unaudited		Audited
	Notes	US$ 000's		US$ 000's		US$ 000's
Assets
Non-current
Goodwill	9a	-		-		-
Intangible assets	9b	890		364		645
Property, plant and equipment		3,052		2,960		2,858
Non-current assets		3,942		3,324		3,503
Current
Trade and other receivables		2,714		1,609		3,924
Inventories		3,358		4,489		3,366
Cash and cash equivalents		15,330		15,206		15,335
Current assets		21,402		21,304		22,625
Total assets		25,344		24,628		26,128
Equity and liabilities
Equity
Share capital	10	978		961		963
Share premium		90,953		90,681		90,718
Share based payment reserve		943		659		806
Retained earnings		(69,065)		(68,589)		(68,747)
Total equity		23,809		23,712		23,740
Liabilities
Current
Trade and other payables		1,535		916		2,388
Total equity and liabilities		25,344		24,628		26,128
Enteq Upstream plc
Condensed Consolidated Statement of Changes in Equity Six months to 30 September 2017
					Share
		Called up	Profit		based
		share	and loss	Share	payment		Total
		capital	account	premium	reserve		equity
		US$ 000's	US$ 000's	US$ 000's	US$ 000's		US$ 000's
Issue of share capital		15	-	235	-		250
Share based payment charge		-	-	-	137		137
Transactions with owners		15	-	235	137		387
Loss for the period		-	(318)	-	-		(318)
Total comprehensive income		-	(318)	-	-		(318)
Movement in period:		15	(318)	235	137		69
As at 1 April 2017 (audited)		963	(68,747)	90,718	806		23,740
As at 30 September 2017 (unaudited)		978	(69,065)	90,953	943		23,809
Six months to 30 September 2016
		Called up	Profit		based
		share	and loss	Share	payment		Total
		capital	account	premium	reserve		equity
		US$ 000's	US$ 000's	US$ 000's	US$ 000's		US$ 000's
e capital		11	-	123	-		134
Share based payment charge		-	-	-	110		110
Transactions with owners		11	-	123	110		244
Loss for the period		-	(1,027)	-	-		(1,027)
Total comprehensive income		-	(1,027)	-	-		(1,027)
Movement in period:		11	(1,027)	123	110		(783)
As at 1 April 2016 (audited)		950	(67,562)	90,558	549		24,495
As at 30 September 2016 (unaudited)		961	(68,589)	90,681	659		23,713

Enteq Upstream plc Condensed Consolidated Statement of Cash flows
	Six months to 30 September 2017	Six months to 30 September 2016	Year to 31 March 2017
	Unaudited	Unaudited	Audited
	US$ 000's	US$ 000's	US$ 000's
Cash flows from operating activities
Loss for the period	(318)	(1,027)	(1,185)
Tax charge	3	30	48
Net finance income	(77)	(64)	(127)
(Gain)/loss on disposal of fixed assets	(22)	-	25
Share-based payment non-cash charges	137	111	257
Impact of foreign exchange movement	(40)	33	8
Depreciation and Amortisation charges	324	230	494
	7	(687)	(480)
Interest received	81	64	127
Tax paid	-	(30)	(4)
(Increase)/decrease in inventory	(470)	(532)	440
Decrease/(increase) in trade and other receivables	1,211	1,824	(498)
(Decrease)/increase in trade and other payables	(852)	(437)	910
Net cash from operating activities	(23)	202	495
Investing activities
Purchase of tangible fixed assets	(2)	-	-
Disposal proceeds of tangible fixed assets	22	-	-
Purchase of intangible fixed assets	(291)	(129)	(446)
Net cash from investing activities	(271)	(129)	(446)
Financing activities
Share issue	249	55	173
Net cash from financing activities	249	55	173
Increase/(decrease) in cash and cash equivalents	(45)	128	222
Non-cash movements - foreign exchange	40	(33)	(8)
Cash and cash equivalents at beginning of period	15,335	15,121	15,121
Cash and cash equivalents at end of period	15,330	15,216	15,335

ENTEQ UPSTREAM PLC

NOTES TO THE FINANCIAL STATEMENTS

For the six months to 30 September 2017

1.     Reporting entity

Enteq Upstream plc ("the Company") is a public limited company incorporated and domiciled in England and Wales (registration number 07590845).  The Company's registered address is The Courtyard, High Street, Ascot, Berkshire, SL5 7HP.

The Company's ordinary shares are traded on the AIM market of The London Stock Exchange. 

Both the Company and its subsidiaries (together referred to as the "Group") are focused on the provision of specialist products and technologies to the upstream oil and gas services market.

2.     General information and basis of preparation

The information for the period ended 30 September 2017 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for the period ended 31 March 2017 has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

The Group's consolidated interim financial statements are presented in US Dollars (US$), which is also the functional currency of the parent company. These condensed consolidated interim financial statements (the interim financial statements) have been approved for issue by the Board of directors on 15 November 2017.

This half-yearly financial report has not been audited, and has not been formally reviewed by auditors under the Auditing Practices Board guidance in ISRE 2410.

3.     Accounting policies

The interim financial statements have been prepared on the basis of the accounting policies and methods of computation applicable for the period ended 31 March 2017. These accounting policies are consistent with those applied in the preparation of the accounts for the period ended 31 March 2017.

4.      Estimates

When preparing the interim financial statements, management undertakes a number of judgements, estimates and assumptions about recognition and measurement of assets, liabilities, income and expenses. The actual results may differ from the judgements, estimates and assumptions made by management, and will seldom equal the estimated results. The judgements, estimates and assumptions applied in the interim financial statements, including the key sources of estimation uncertainty were the same as those applied in the Group's last annual financial statements for the year ended 31 March 2017.

5.     Adjusted earnings and adjusted EBITDA

The following analysis illustrates the performance of the Group's activities, and reconciles the Group's loss, as shown in the condensed consolidated interim income statement, to adjusted earnings.  Adjusted earnings is presented to provide a better indication of overall financial performance and to reflect how the business is managed and measured on a day-today basis.  Adjusted earnings before interest, taxation, depreciation and amortisation ("adjusted EBITDA") is also presented as it is a key performance indicator used by management.

	Six months to 30 September 2017	Six months to 30 September 2016	Year to 31 March 2017
	US$ 000's	US$ 000's	US$ 000's
	Unaudited	Unaudited	Audited
Loss for the period	(318)	(1,027)	(1,185)
Other exceptional items	(22)	32	54
Amortisation of acquired intangible assets	46	31	68
Foreign exchange movements	(40)	33	8
Adjusted earnings	(334)	(931)	(1,055)
Depreciation charge	277	199	426
Finance income	(77)	(64)	(127)
PSP charge	146	106	252
Tax charge	3	30	48
Adjusted EBITDA	15	(660)	(456)

6.     Segmental Reporting

For management purposes, the Group is currently organised into a single business unit, the Drilling Division, which is based, operationally, solely in the USA.

The principal activities of the Drilling Division are the design, manufacture and selling of specialised products and technologies for Directional Drilling and Measurement While Drilling operations used 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.

The net assets of the Group by geographic location (post-consolidation adjustments) are as follows:

Net Assets	30 September 2017	30 September 2016	31 March  2017
	US$ 000's	US$ 000's	US$ 000's
	Unaudited	Unaudited	Audited
Europe (UK)	14,560	14,531	13,985
United States	9,249	9,181	9,755
Total Net Assets	23,809	23,712	23,740

The net assets in Europe (UK) are represented, primarily, by cash balances denominated in US$.

7.     Earnings Per Share

Basic earnings per share

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders for the six months of US$ 317,600 (September 2016: loss of US$ 1,027,000) by the weighted average number of ordinary shares in issue during the period of 61,306,734 (September 2016: 60,080,608).

Adjusted earnings per share

Adjusted earnings per share is calculated by dividing the adjusted earnings loss for the six months of US$ 334,200 (September 2016: loss of US$ 931,000), by the weighted average number of ordinary shares in issue during the period of 61,306,734 (September 2016: 60,080,608).

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 in Note 5.

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 share price, as at 30 September 2017, was below the weighted average option price of all the options issued, the adjusted diluted EPS the same as adjusted EPS.

8.     Income Tax

A liability of $3,000 arose in the US on ordinary activities for the six months under review.  There was no UK tax liability for the same period.

9.     Intangible Fixed Assets

a)     Goodwill

	US$ 000's
Cost:
As at 30 September 2017 and 1 April 2017	19,619
Impairment:
As at 30 September 2017 and 1 April 2017	(19,619)
Net Book Value:
As at 30 September 2017 and 1 April 2017	-

9.             Intangible Fixed Assets (cont.)

b)    Other Intangible Fixed Assets

	Developed technology	IPR&D technology	Brand names	Customer relationships	Non- compete agreements	Total
	US$ 000's	US$ 000's	US$ 000's	US$ 000's	US$ 000's	US$ 000's
Cost:
As at 1 April 2017	12,676	7,495	1,240	20,586	5,931	47,928
Transfers
Capitalised in period	-	291	-	-	-	291
As at 30 September 2017	12,676	7,786	1,240	20,586	5,931	48,219
Amortisation:
As at 1 April 2017	(12,418)	(7,108)	(1,240)	(20,586)	(5,931)	(47,283)
Charge for the period	(46)	-	-	-	-	(46)
As at 30 September 2017	(12,464)	(7,108)	(1,240)	(20,586)	(5,931)	(47,329)
Net Book Value:
As at 1 April 2017	258	387	-	-	-	645
As at 30 September 2017	212	678	-	-	-	890

The main categories of Intangible Fixed 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 XXT trading name 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.

10.  Share capital

Share capital as at 30 September 2017 amounted to US$ 978,000 (31 March 2017: US$ 963,000 and 30 September 2016: US$ 961,000).

11.  Going concern

The Directors have carried out a review of the Group's financial position and cash flow forecasts for the next 12 months by way of a review of whether the Group satisfies the going concern tests. These have been based on a comprehensive review of revenue, expenditure and cash flows, taking into account specific business risks and the current economic environment. With regards to the Group's financial position, it had cash and cash equivalents at 30 September 2017 of US$ 15.3 million.

Having taken the above into consideration the Directors have reached a conclusion that the Group is well placed to manage its business risks in the current economic environment. Accordingly, they continue to adopt the going concern basis in preparing the Interim Condensed Financial Statements.

12.  Principal risks and uncertainties

Further detail concerning the principal risks affecting the business activities of the Group is detailed on pages 11 and 12 of the Annual Report and Accounts for the period ended 31 March 2017.  Consideration has been given to whether there have been any changes to the risks and uncertainties previously reported.  None have been identified.

13.  Events after the balance sheet date

There have been no material events subsequent to the end of the interim reporting period ended 30 September 2017.

14.  Copies of the interim results

Copies of the interim results can be obtained from the Group's registered office at The Courtyard, High Street, Ascot, Berkshire, SL5 7HP and are available from the Group's website at www.enteq.com.

 

END

 

 

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