Getech has now released its interim results for the year ending 2016.
Revenues decreased by £331K when compared to the first half of last year and after cost of sales were up, the gross profit declined by £1.2M. There was a £71K favourable movement in exchange adjustments but depreciation and amortisation was up £155K and other admin costs increased by £84K to give an operating loss that was £1.4M worse than last time. Finance costs were up modestly but the tax charge fell by £16K which meant that the loss for the six month period was £704K, a detrimental movement of £1.4M year on year.
When compared to the end point of last year, total assets declined by £3.2M to £14.4M, driven by a £2M fall in cash and a £1.6M decrease in receivables, partially offset by a £288K growth in intangible assets and a £165K increase in inventories. Total liabilities also declined during the period due to a £1.7M decrease in payables, a £166K fall in current tax liabilities and a £132K reduction in borrowings. The end result is a net tangible asset level of £3.6M, a decline of £1.5M over the past six months.
Before movements in working capital, cash losses showed a £1.3M detrimental swing to £488K. There was a modest cash inflow through working capital due to a reduction in receivables but tax payments increased by £930K to give a net cash outflow from operations of £431K, a detrimental movement of £2.9M year on year. There was no capex on fixed tangible assets but the group spent £459K on development costs and £576K on acquisitions to give a cash outflow of £1.5M before financing. They then repaid £132K of borrowings and spent £572K on dividends to give a cash outflow for the period of £2.2M and a cash level of £2.7M at the end of the half.
During the period the group continued to be adversely affected by the difficult market conditions. After the significant decline in the oil price in the second half of 2014, it fell further during 2015 which resulted in a considerable tightening of exploration budgets by the group’s clients and these budgets continued to be affected throughout the first half of this year. In light of the challenging market conditions, the group has significantly lowered its cost base through a range of measures including cutting marketing costs and reducing staff costs through reduced working hours and job losses. As a result, the month on month cost base will be down by more than 20% from its peak during the period.
The programme of integration with ERCL has continued, including a number of joint projects, and the directors are confident that it will continue to be a major asset for the group. The group have stated that they will continue to seek complementary acquisitions with have minimal impact on cash and risk but will present an upside once the market recovers.
The group entered the second half of the year with a substantial pipeline of sales opportunities. A number of new sales, including the signature and delivery of a data license valued at $720K led to a record February for sales and income and the board have also announced that they have signed a $1M new contract which includes parts of Globe and two regional reports, the global depth to basement study and their multi-satellite project, most of which will be delivered in H2. The board are also optimistic that a number of other opportunities which either did not complete in the first half of the year or have been generated recently will complete in H2.
Although the oil price has increased by nearly 50% since in low point in January 2016, there is still considerable uncertainty as to the timing of a stronger recovery and this continues to affect the availability of client budgets in 2016. The board remain confident about longer term prospects, however.
The group is not proposing an interim dividend and they have a net cash position of £1.8M.
Overall then, this has been a tough period for the group. They have swung to a loss, net assets declined and there was a cash outflow at the operating level. The low oil price continues to put client budgets under pressure but February seems to have been strong for the group with a large contract signed for delivery in H2. It is difficult to determine whether this is a one-off or the start of a recovery but I am veering towards the former as going forward, there remains considerable pressure on client budgets. This company is looking a bit more interesting at this share price but I am not sure the time is right yet to jump in. I will keep it on watch.
On the 9th June the group released a trading update covering the year ending July. After their successful Q3, the market has remained very depressed and a number of potential sales for Q4 have now either been deferred or cancelled. As a result, the company is trading below current market expectations, albeit the board expect to generate a pre-tax profit for the year.
The oil price has shown signs of strengthening but this is unlikely to have an immediate impact on purchasing behaviour. If it shows that the price rises are sustainable, however, they anticipate that demand for their products will convert from a wish to buy to actual purchases when budgets are available.
On the 14th June the group announced the acquisition of Exprodat Consulting, a company specialising in the provision of geographical information systems software and services to the oil and gas industry. GIS systems are used as part of the work at all stages from exploration through to production and virtually all clients use the ArcGIS software platform provided by ESRI. Prior to the current downturn the business generated a pre-tax profit of £107K but in 2015 they are expected to report a loss of £109K. The directors believe that the enlarged group will deliver a number of synergies, both in relation to internal group performance and in term of the products and services provided to clients.
A cash payment equal to the value by which the net assets exceed £500K is payable in two instalments with £250K immediately on completion and the balance in January 2017. The group is also issuing 4,666,667 new shares to the current owners of Exprodat which means that they will end up owning more than 12% of the enlarged group! The aggregate potential consideration is expected to be £1.8M.
Overall, the trade update is disappointing and I am disappointed that some 12% of the company is being given away for such a modest acquisition. There is nothing here to tempt me to buy.
On the 3rd August the group announced the appointment of Jonathan Copus as CEO with immediate effect. Jonathan has previously worked as an exploration geologist at Shell, as an exploration & production sell-side equity analyst for Investec and Deutsche Bank and most recently as CFO at Salamander Energy which was acquired by Ophir in 2015.
On the 7th October the group announced that Paul Carey was leaving the group as Sales and Marketing director. The current Marketing Director, Jules Cullen will step up to succeed Paul.