Getech has now released their interim results for the year ending 2018, although the figures are for twelve months.
Revenues increased by £639K when compared to the prior year but cost of sales were up £717K to give a gross profit £78K lower. Depreciation and amortisation grew by £128K, forex gains were £50K lower and there was no fair value adjustment, which brought in £845K last time. All of this meant, that there was an operating loss of £130K, a deterioration of £823K year on year. Finance costs were broadly the same but tax income fell by £110K to give a profit for the year of £154K, a decline of £1.1M year on year.
When compared to the end point of last year, total decreased by £1.3M, driven by a £1.1M fall in cash, and a £275K decline in receivables, partially offset by a £316K growth in other intangible assets. Total liabilities also fell during the period due to a £1.5M decline in payables. The end results was a net tangible asset level of £5.7M, a decline of £126K year on year.
Before movements in working capital, cash profits increased by £203K to £692K. There was a cash outflow from working capital but after tax receipts increased by £847K there was a net cash flow from operations of £513K, a growth of £798K year on year. This did not cover the £916K spent on development costs with £23K being spent on fixed assets. The group also spent £500K on acquisitions to give a cash outflow of £924K before financing. They also repaid £145K of borrowings which meant there was a cash outflow of £1.1M in the period and a cash level of £1.7M at the period-end.
The year presented a more buoyant market for the products division. Sales of the gravity and magnetic data sets were strong and in December the Globe’s customer base was strengthened when a supermajor signed up to the product. In July, Globe Phase Two was completed on time and on cost. Customer feedback has been strong and through a new programme of training and practical support, they are seeing their userbase expand as the product becomes more central to their customers daily workflow. Work on Globe 2018 started in August.
The three core extensions of the software products, which provide petroleum-focused extensions to Esri’s ArcGIS Desktop application, were enhanced to include a range of new customer-requested functionality and upgraded to include support for Esri’s latest 10.5.1 release. The re-subscription rate across all the software products maintained 2016 levels at above 95% and their install-base grew further, driven by new sales and by customers with Global Licenses deploying the software more widely within their organisations.
As the number of redundancies across the upstream industry has increased, and with exploration budgets remaining constrained, competition within the geoscience consulting space has intensified. As a result, the market conditions for these activities remained challenging. This was partially offset by their GIS service offering, which continued to benefit from a range of long term oil and gas relationships and an ability to open doors to new opportunities. During the year the group worked for the governments of Lebanon, Mozambique, Namibia, Ras al Khaimah and Sierra Leone.
In Sierra Leone they have been working with the petroleum directorate since 2016, a programme initially funded by the World Bank. During the year this relationship broadened into a long-term partnership through which they will work together to promote Sierra Leone as a key area for exploration investments. This and similar programmes of government advisory work enabled the group to broker a good portfolio of seismic and well data.
They also won a mandate to define and deliver a multi-faceted spatial data strategy for the UK Oil and Gas Authority who then commissioned Getech’s gravity and mechanics team to complete technical service work over the SW Approaches area of the UK continental shelf. In the period, the OGA also purchased their Multi Sat gravity product which is now being used to encourage investment in under explored areas of the region.
Their GIS services group has been used across a broad range of engagements. They worked on spatial data projects that included creating a web-based mapping platform to assist oil spill response, pipeline engineering, vessel tracking and ice monitoring in and around the Caspian Sea. The team was also engaged designing delivery improvements to Globe and their Regional Reports products and conducted a variety of public and private training courses in Europe, the US and Australia.
Away from oil and gas, their GIS skills continue to see opportunities across a range of new sectors. They worked in partnership with Esri UK on contracts in the water and transportation industries, and they have matures and expanded their GIS software services footprint in the nuclear space. In each of these new sectors, their investment of time and resource has been rewarded by winning follow-on work.
The group continue to look for new opportunities where they can apply their geoscience skills to new areas. During the year they worked for customers in the nuclear, water and transportation sectors. Although revenue contribution is currently small, their delivery has won follow-on work in each new sector.
There were a number of one-off items this and last year. During the year the group launched a restructuring programme that resulted in one-off costs of £451K compared to £26K in the prior year. Last year, there was a reversal of the charge to the fair value of the provision related to an acquisition that was done to reflect market conditions, which was not repeated. Also, at the period-end, there were unforeseen payment delays which resulted in £985K of cash not being collected until after the reporting period which had a significant effect on cash flows.
A review of the group’s fiscal efficiency was completed in the period and this resulted in refunds from tax overpaid in the US and an improved tax credit position against their R&D expenditure. Most of these cash benefits were received during the first six months of the reporting period.
In June 2016 the group completed the acquisition of Exprodat, a global geospatial software and services business. During the year the business’ revenue contribution was in part offset by a challenging Geoscience Services market and a slowdown in sales of their regional reports product. In response, the underlying cost base has been reduced by 32% due to a reduction in headcount and reduced use of contractors.
In August 2016, the group appointed a new CEO, Dr. Jonathan Copus. On his arrival he initiated a review to assess the group’s financial, operational and commercial positioning and the organisational change that followed has repositioned staff and their skills around more clearly defined product and service divisions.
After the period-end, the group has seen a continuation of 2017’s buoyant market for data, and they have a strong pipeline of pre-funded work, at the core of which are subscriptions to Globe 2018. In October the government of Sierra Leone launched its fourth offshore petroleum licensing round. The group will support this by using their products and service expertise to fast track insight into the prospectivity of the region. This will be done through a series of technical studies married with an ongoing programme of technical support, technology transfer and counterpart training to the petroleum directorate. In return, they access the ability to exclusively broker a rich portfolio of high-value seismic and well data.
Elsewhere the group have signed an agreement with the Mozambique Water Ministry to deliver geochemical data on Esri’s ArcGIS Platform to help locate new drinking water wells. A pilot study has been commercialised and they are examining ways to expand the footprint of their work.
At the current share price the shares are trading on a PE ratio of 62.7 and there are no forecasts that I can fine. There is currently no dividend being paid.
Overall then it has been a bit of a mixed year for the group. Profits fell but without last year’s £845K adjustment and this year’s £451K of restructuring costs, profits would have improved. Net tangible assets declined but the operating cash flow increased. It should be pointed out that this was only positive due to the tax rebate and it is unclear as to how much of this will be repeated going forward. There was no free cash, but the group would have been broadly free-cash neutral had the payment delays not taken place.
The market seems a little bit more healthy and there seems to be some investment now in the oil and gas industry, although times are still hard. There is a new CEO, who should add impetus and if some of the new markets could gain traction that would be a boost for the group. As things stand, however, there is little cash being generated here and there are no forecasts available so I find it hard to justify and investment. The share does look interesting should the oil and gas market continue to improve, however.
On the 20th December the group announced that director Peter Stephens acquired 100,000 shares at a value of £24.6K. After the transaction he owns 1,638,500 shares.
On the 5th February the group released a trading update covering the 17 months to the end of December. Products remained a key area of growth with a pro-rate increase in revenue of 24%. Within the Services division, the geoscience services market remained challenging but work completed in the year has laid the foundation for a number of 2018 sales opportunities such as the recently launched fourth Sierra Leone licensing round.
Actions taken earlier in the period reduced the group’s like for like cost base by 32% and before product investments and restructuring costs the group delivered a 17 month net operating cash flow of £2.1M compared to a £300K cash outflow in 2016. Restructuring costs totalled £500K, all outstanding cash payments were settled and a further £300K of debt was repaid. Cash balanced at the period-end totalled £2.4M, flat on the figure reported at the end of September but below the opening cash balance of £2.8M. Management decided to write-down inventories totalling £500K that had built up on the balance sheet through the sector downturn.
The group have entered 2018 with a full and diverse pipeline of opportunities to which their cash profitability is strongly leveraged, whatever that means!