Getech has now released their interim results for the year ending 2018.
Revenues decreased by £176K when compared to the first half of the year but cost of sales also reduced to give a gross profit that was broadly flat. Depreciation and amortisation down £40K and exchange losses lessened by £53K but other admin costs were up £221K to give an operating loss £123K worse than last time. Finance costs reduced slightly and tax income increased by £59K to give a loss for the period of £280K, an increase of £53K year on year.
When compared to the end point of last year, total assets declined by £261K driven by a £515K decrease in cash and a £301K fall in current tax assets partially offset by a £405K growth in receivables and a £116K increase in intangible assets. Total liabilities also decreased during the period as a £130K increase in payables was more than offset by a £145K decline in borrowings. The end result was a net tangible asset level of £5.2M, a decline of £353K over the past six months.
Before movements in working capital cash profits reduced by £216K to record a cash loss. There was also a cash outflow from working capital but tax income increased by £36K to give a net cash from operations of £76K, a decline of £220K year on year. The group spent £420K on development costs and £25K on capex so there was a cash outflow of £369K before investing activities. They also repaid £145K of loans to give a cash outflow of £523K in the period and a cash level of £1.9M at the period-end.
Total sales closed in the first half rose 39% to £4.3M. This was driven by a significant increase in the number of customers purchasing multi-year subscriptions to the group’s products and software. The environment for oil and gas investment remaining challenging, particularly in relation to exploration expenditure. First half revenues were a little below those of last year but the £1.4M balance strengthens the group’s pipeline of recurring revenue. There was a $900K data sale that missed the period-end date but has now closed.
During the period demand for gravity and magnetic data was good and they added new data to their portfolio on the Irish Atlantic Margin. They also updated their global depth to basement product and completed enhancements of Colombian data. Demand for G&M data has continued despite oil price uncertainty but the broader budget constraints of their customers have lengthened the sale cycle. This creates financial volatility in their internal budgets which they are working to mitigate by growing their sources of recurring revenue.
Within Information Products, Globe 2018 was completed on time and in budget and delivered to customers in July. The product’s content and functionality has been expanded to include innovative new heat flow and palaeo-surface geology modules, and variety of interactive analytic capabilities have been added. These upgrades drawn on geoscience, G&M and software development expertise from across the group. Their customers have responded well to Globe’s repositioning with the majority signing multi-year contracts in the period.
During the period the group enhanced their software products to include a range of new customer-requested functionality and upgraded them to include support for Esri’s latest 10.6 release. In the period three exploration analyst customers took the strategic decision to significantly scale back their exploration activities. This impacted revenue but a significant proportion of this was offset by a new global customer for Exploration Analyst. Several regional and global software customers also upgraded to multi-year licenses and they expanded their exposure to onshore production operations by doubling the number of Unconventional Analyst license holders.
In Geospatial Services they won an additional support contract from a super-major. The transferable nature of their geospatial skills enables them to diversify revenues and in the period they undertook contracts in the environmental, utilities and maritime sectors.
To improve the profitability of their Geoscience Services they are repositioning this offering around the delivery of projects that integrate complex geoscience and geospatial insights. By taking steps in the period to consolidate their Henley and London activities into a single location, they anticipate that greater collaboration between the geoscience and geospatial teams will further support their efforts to transform what they do.
The group are promoting Sierra Leone’s fourth licencing round. This round enables them to broker potentially high value portfolio of seismic and well data to prospective investors. The dialogue around these data will continue through the recently announced industry consultation period.
The group enters the second half with a robust sales pipeline. The purchasing power of exploration and new venture teams remains constrained by budgets set in 2017 but the board are optimistic that as their customers gear up for their 2019 work programmes this will generate new demand for their value added offering.
Since this point of last year, oil prices have risen around 75%. With industry costs at a cyclical low and against budgets set a year or more previous, the increased oil price has transformed the cash generation of the group’s customers. The oil and gas sector has used this cash flow to repair balance sheets. There has also been a rise in production-focused M&A but despite falling rates of reserve replacement there has not yet been a sector-wide return to exploration.
The upstream investment environment for the group’s products therefore remains volatile but they expect 2019 budgets to set a clearer and more positive path. Evidence for this comes from their customers’ renewing investment in their tools and people which in H1 resulted in an increase in total sales through multi-year commitments.
In the second half the group are investing in further releases of their software, they have started work on the next release of Globe and are actively refreshing their data holdings. They are rationalising their office locations and using their products and geoscience-geospatial skills to reshape their services.
The group are following up leads in new geographies – the Middle East and Asia of note, exploring ways to expand access to their data products and solutions, and working to grow their software footprint in onshore US production.
At the period-end the group had a net cash position of £1.4M compared to £800K at the end of the first half of last year. Having considered the continued volatility of the oil and gas investment environment the board decided that it was not appropriate to pay a dividend at this time. At the current share price the shares are trading on a frankly ridiculous PE ratio of 88. I can find no forecasts.
Overall then this has been a poor period for the group. Losses worsened, net assets declined and the operating cash flow deteriorated with no free cash being generated. This seems to be due to the lumpy nature of the orders and sales closed actually increased with a robust pipeline in evidence. This seem to be improving as the constrained budgets of the group’s customers improve and oil prices increase. I feel like we have been here before though and without any forecasts it is very difficult to value so until I see some evidence that the group is actually making a profit I think I will steer clear for now.
On the 3rd January the group announced the sale of an integrated suite of geology, gravity and magnetic data and knowledge products. The sale, made to a global oil and gas company, will generate gross income of $3.2M, the majority of which will be recognised in 2018. On this basis, they expect 2018 revenue to exceed that in 2017 by at least 10%. The sale also adds recurring revenue to 2019 via a new customer subscription to the Globe product.
Falling oil prices and forex volatility combined in Q4 to create a challenging environment. Against this backdrop, the sales cycle lengthened but they were able to work with their customers to match their products to their most pressing needs.
On the 27th March the group released a trading update covering the year. In the first half the group extended its pipeline of multi-year subscriptions to its information products and software which expended their recurring revenue. The fragility of global growth was highlighted in Q4, however, with a decline in the oil price to a low of $50 per barrel which is thought to have lengthened and complicated the sales cycle. Despite this the group ended the year with a significant sale of data and products which also added a new customer top Globe.
Group revenue is expected to rise by 11% with product sales remaining the key engine for growth, increasing by 24%. In services, despite growth in gravity and magnetics and geospatial solutions, the geoscience service market remains challenging.
Updates were delivered to their Global Depth to Basement product and they launched Tectonics Online, a new cloud-based platform through which customers can access the group’s plate-modelling expertise. Their Data Assistant and Exploration Analyst software were both upgraded to ArcGIS Pro and an Unconventionals Analyst upgrade is scheduled for the spring.
In Services, utilisation grew for the group’s Gravity and Magnetic team and the Geospatial team won a new support contract with a supermajor and expanded its work in the energy infrastructure space to include sub-sea power cabling and terrestrial pipeline projects. Both teams delivered revenue and profit growth but at the divisional level this was offset by a fall in Geoscience Service revenue.
To address the losses in Geoscience Services, in the second half the group restructured this team and in October they merged their London and Henley offices. The total cost of this restructuring was £200K and it is expected to deliver a forward annualised fixed cost saving of £500K. The team is now fully aligned with the group’s activities and they are awaiting award decisions on several potentially significant new projects.
Cash profits are expected to total £1.2M compared to £600K last year and EBITDA is expected to also be £1.2M, an increase of £300K. Cash held at the end of the year totalled £1.4M, a decrease of £1M dye to the timings of sales and a large receivables balance. During the year the group placed their Leeds office on the market for sale. There have been numerous viewings but in the run up to Brexit, property investment has slowed.
So far in 2019, crude prices have strengthened and the breadth of Q1 new sales activity has been greater than in recent years. Balancing this, the lengthening of the sales cycle that emerged in Q4 has persisted into 2019 and the board believe that customers are cautious over the early release of their exploration and new business budgets.