Getech has now released their final results for the year ending 2017.

It seems a little point comparing most of this as it’s not like for like but gross profit increased by £1.2M but the group incurred an operating loss, which represented a £1.4M detrimental shift on last year, although it should be noted that there was no positive fair value adjustment, which brought in £845K last time, and restructuring costs increased by £461K, so without these there would have only been a £100K detrimental movement. Finance costs remained broadly similar but the tax income increase by £235K to give a loss for the year of £40K, a detrimental movement of £1.1M year on year.

When compared to the end point of last year, total assets declined by £2M, driven by a £947K decrease in trade receivables, a £395K fall in cash, a £395K decline in work in progress and a £246K decrease in the value of data holdings, partially offset by a £660K growth in development costs. Total liabilities also declined during the period due to a £948K decline in accruals and deferred income, a £607K fall in other payables and a £266K decline in borrowings. The end result was a net tangible asset level of £5.6M, a decline of £213K year on year.

Before movements in working capital, cash profits increased by £104K to £593K. There was a cash inflow from working capital and a £793K positive swing to a cash receipt from tax to give a net cash from operations of £1.6M, an improvement of £1.9M year on year. The group spent £1.2M on development costs and £500K on acquisitions along with £54K on other capex to give a cash outflow of £92K before financing. The group also repaid £266K in loans and paid out £34K of interest which meant the cash outflow for the year was £392K and the cash level at the year-end was £2.4M.

Within the tax credit of £653K. They received corporation tax relief of £410K against their R&D work, a prior year and foreign tax credit of £123K and deferred tax adjustments of a £120K credit.

During the period, the products division, on a pro-rata basis saw a gross profit of £3.1M, a growth of £520K year on year. The year saw an upswing in the products division. The group have worked to refresh their data holdings and expand them to include seismic, well and other technical data. They are particularly focused on doing this in regions where they can see clear commercial catalysts that will drive buying interest from customers.

In the year the group were appointed as the Gravity and Magnetic data release agent by Ireland and South Africa, as well as the devolved government of the Faroe Islands. They accessed new gravity and magnetic data in Papua New Guinea, Colombia and Bolivia, and they continued their rolling programme of data reprocessing, through which they have enhanced the value of their data holdings. In parallel they extended the footprint of their Multi Sat data product to cover prospective areas that include East Africa’s lakes, and signed data brokerage agreements with companies including Sander Geophysics (gravity and magnetic data), Canesis (seismic and well data) and US Land Grid (well data). In Sierra Leone they assembled a high value suite of seismic and well data, which under a revenue sharing agreement with the government they are offering for license as part of the country’s fourth offshore licensing round.

In the year the group grew the potential single sale gross value of their data holdings by $20M and net revenue from data sales is beginning to rise a consequence. Coupled with their advanced gravity and magnetic processing techniques and interpretation expertise, their data holdings also continue to underpin the Globe and Regional Reports information products.

In July they completed Globe’s second three year build phase, which was achieved in budget and on schedule and customer feedback has been positive. With this phase now complete, they have moved the commercial model to an annual release cycle. Work on Globe 2018 started in August and remains on track for release in July.

The sector downturn continues to provide a challenging market for the Regional Reports but the group are exploring new ways for customers to access their value. The group first developed their geospatial software as a solution to increasing the efficiency of well planning in coal bed methane products. In collaboration with a major US player, the product has been extended to support onshore shale oil and shale gas operations. They have since broadened the user base and customers are using the software to reduce well development costs and simplify reserves management.

During the year all three software products were enhanced to include a range of new customer-requested functionality and upgraded to include support for Esri’s latest releases. With the re-subscription rate exceeding 95% for the second year in a row, the install base also grew, driven by new customer wins and existing customers deploying the software more widely within their organisations.

On a pro-rata basis the Services division made a gross profit of £155K, a decline of £526K when compared to last year. Within the Services division, on a combined basis, the gross margin was reduced from 24% to just 7%. In geoscience consulting, the reduced oil rice and oil company customer budgets have combined to intensify competition. The group are using their technical expertise to broaden their activities into new sectors. In Mozambique they signed an agreement with the water ministry to use their skills to unlock value in well data that agencies can use to improve their success rate in locating sources of drinking water. During the year a pilot study was commercialised and they are examining ways to expand this work.

The power of this approach is also demonstrated by the group’s history of assisting governments and national oil companies with license rounds, data management, capacity building and advisory services. During the year the group worked for the governments of Lebanon, Mozambique, Namibia, Ras al Khaimah, Sao Tome and Sierra Leone. In Sierra Leone they have worked in partnership with the petroleum directorate since 2016, a project initially funded by the World Bank. During the year this broadened into a multi-year contract to promote the country as a key area for exploration investment. This, along with other government advisory work enables the group to access a rich portfolio of technical data, which they then license on behalf of the government.

During the year the group won a mandate to define and deliver a multi-faceted spatial data strategy for the UK Oil and Gas Authority who then commissioned the group’s Gravity and Magnetics team to complete technical service work over the South Western approaches area of the UK continental shelf. In the period the OGA also purchased their proprietary Multi Sat gravity product which is now being used to encourage investment in under explored areas of the North Sea.

The Geospatial Services business was used on a broad range of engagements to standardise and improve daily workflows such as site inspection and operational surveillance. Their projects include work for NCOC, the partnership operating in Kashagan, one of the world’s largest and most logistically complex oil developments, where they have created a web-based mapping platform to assist in oil spill response, pipeline integrity, vessel tracking and ice monitoring in and around the Caspian Sea. The team were also engaged by oil companies to help build their own geospatial capabilities through the delivery of training courses in Europe, the US and Australia.

During the year they worked in partnership with Esri UK on contracts in the water and transportation industries. They also matured and expanded their geospatial software services footprint in the nuclear space and won their first contract in energy infrastructure – North Connect, a JV laying a cable to connect the power systems of Scotland and Norway, engaging them to design a portal for map and app solutions that facilitate date and information sharing. In each of these new sectors, the group’s investment was rewarded in the year by winning follow on work.

During the year the group has reduced headcount by 27% and both Dr. Paul Carey and Paul Markwick left the board. Andrew Darbyshire joined as CFO and Chris Jepps joined as COO. Huw Edwards is stepping down.

There were a number of one-off costs during the year. The group launched a restructuring programme that resulted in one-off costs of £487K. Following management’s review of inventories, it was considered appropriate to impair the carrying value of a number of reports and studies and the total value of the impairment is £461K.

Going forward, the group’s customers’ attitude to capital spending is currently balanced between spot oil prices, which have rallied strongly since July, and longer dated crude prices which continue to trade between $55 and $60 per barrel. Alongside this, industry costs have fallen dramatically, making the investment environment more attractive than a year ago.

The group have begun the year by backing their growth ambitions with targeted operational, sales and marketing investment. The board don’t anticipate significant upward pressure on costs and they expect tax credits of a similar level to last year. A similar pro-rata sales performance to this year would generate cash inflow of around £500K and each 10% increase in revenue would broadly translate into a £600K increase in free cash flow.

It remains early in the year but the sales pipeline has the potential to exceed this year’s levels. This reflects Q1 upturn in data sales for frontier regions, and continued growth in the user base for their frontier regions, and continued growth in the user base for their software and information products. Further leverage comes from the growth in the breadth, quality and value of the data that they can license. One route to market for this data is the fourth Sierra Leone licencing round where they have worked with the petroleum directorate to assemble a package of seismic, well and value added data to support potential investors in their assessment of the region’s prospectivity. A single licensing of this dataset has the potential to be a disclosable event for the group.

Whilst general geoscience consulting remains tough, the board take encouragement from an increase in demand for their specialisms with the gravity and magnetic team beginning the year with a full programme of work. The geospacial services also continue to diversify their sources of revenue

At the end of the year the group had a net cash position of £1.8M. Going forward, with cash costs and revenue broadly in balance, no historic M&A commitments and a pipeline of potentially material product and service opportunities, the cash flow has leverage for growth. The group is loss making so there is no PE ratio and there are no dividends. In addition, I could find now forecast for this company.

On the 26th March the group announced that director Peter Stephens purchased 250,000 shares at a value of £66K. He now owns 1,888,500 shares.

Overall then, this has been another difficult period for the group with losses and net assets falling. Without the one-off items, however, profits would have been similar to last year and the operating cash flow improved, although there was no free cash generated. The products divisions seems to be performing well with an expanded remit of work. The services division is faring less well, with more competition in the market.

The New Year seems to have started quite well but without any forecasts it is difficult to value the company and I feel I have to sit on the sidelines.

On the 10th April the group released a trading update. Q1 revenues were in line with the same quarter last year but within the mix they have seen an increase in sales of data and information products for frontier areas, increased demand for product training and they have a strong list of new customers trialling their software. The market for geoscience services remains challenging but their geospatial, gravity and magnetics service teams have built a healthy programme of billable work. The group have taken steps to rationalise their footprint with the Henley and London service operations combining in Q3.

The sales pipeline for 2018 is larger and more diverse than last year and they are engaged in a series of potentially material date, information product and software campaigns. These have the potential to deliver revenue above 2017 levels. By combining this with lower cash costs, the cash flow has significant leverage for growth and a similar pro rata sales performance to last year will generate a cash inflow of around £500K with each 10% increase in revenue broadly translating to a £600K increase in free cash flow.

This all sounds potentially interesting but there seems little concrete evidence of progress yet. One to watch but I am staying out for now I think.