GETECH Group plc Final Results (2883E)

TIDMGTC

RNS Number : 2883E

GETECH Group plc

03 November 2015

Getech Group plc

("Getech" or the "Company")

Final Results

for the 12 months ended 31 July 2015

GETECH, the oil services business specialising in the provision of exploration data and petroleum systems studies and evaluations, announces its Preliminary Results for the year ended 31 July 2015.

Operational highlights

 
 --   Significant increase in income and profit 
       during a year in which the global oil and 
       gas market suffered badly 
 --   Acquisition of ERCL in April 2015 
 --   Largest ever contract with Sonangol for 
       $5m 
 --   Two other contracts with national oil companies, 
       one of which generated income in the year 
 

Financial highlights

 
 --   Revenue GBP8,639k (up 32% from GBP6,593k) 
       and profits GBP1,992k (up 99% from GBP1,001k) 
 --   Proposed final dividend for the year ended 
       July 2015 of 1.74p giving full year dividend 
       for the year ended July 2015 of 2.20p (2014: 
       2.20p) 
 --   Cash level GBP4,727k at 31 July 2015 
 

Enquiries:

 
Getech Group plc    Tel: [phone] 
 Raymond Wolfson, 
 Chief Executive 
WH Ireland Limited  Tel: [phone] 
 Katy Mitchell 
 

Chairman's statement

I am pleased to make my fifth report as Chairman of the Company, on the tenth full year results since its admission to AIM, of Getech Group plc and its subsidiary companies ("Getech" or "the Group"), for the year ended 31 July 2015. Getech is a geoscience services business specialising in the provision of data, studies and services to the oil, gas and mining exploration sectors.

Results

I report a Group profit before tax of GBP1,992,236 (2014: GBP1,000,816) after interest receivable of GBP13,554 (2014: GBP32,914) on revenue of GBP8,638,588 (2014: GBP6,592,798). The post-tax profit was GBP1,812,996 (2014: GBP1,575,228) giving earnings per share of 5.77p (2014: 5.21p). These are a strong set of results and demonstrate the continued growth of the Company.

Dividends

Getech is proposing a final dividend of 1.74p per share in respect of the year to 31 July 2015 (2014: 1.76p) in addition to the interim dividend of 0.46p per share announced in March 2015. The final dividend will be paid on 17 December to shareholders on the register of members on 20 November.

Business review

For the exploration and production (E&P) sector, the financial year 2014-15 has proved to be even more challenging than the previous financial year. The reduction in exploration expenditure we had observed in 2013-14 has been followed by a very significant drop in the oil price in the last year. This oil price drop has led to significant reductions in capital expenditure across the whole E&P sector, and major redundancy rounds in many companies. The reductions in capital expenditure affect exploration spend most quickly and most dramatically. A wide range of service companies have been severely impacted, both in terms of income and profits, with a number going bankrupt and consolidation taking place across the sector.

Against this very difficult backdrop, Getech has performed well in the last financial year. The Company has doubled its profits and increased revenue by 32%. Under the challenging circumstances affecting the sector, these are extremely strong figures and stand out relative to the rest of the sector.

The acquisition of ERCL in April 2015 contributed to our growth in the year. This Henley-based consultancy provides services which are very complementary to the existing Getech offering. In particular, the expertise in seismic data and in planning and delivering field developments, significantly broadens the services we can provide. Further, the consideration paid, through a mixture of cash which was partly funded through new bank debt, shares, and contingent payments, reduced the up-front payment and aligns the key ERCL staff to the success of the combined Group.

Outlook

There is clearly ongoing uncertainty in relation to the oil price although most analysts are suggesting a 'lower for longer' scenario with a key theme being that companies need to be 'fit for $50'. The industry has already responded by reducing the cost profile. For example, seismic and rig rates are substantially lower than one year ago which should encourage companies to continue exploration. In the medium term, as has happened in previous cycles, the oil price will presumably increase due to supply constraints caused by the reduced investment we have witnessed in the last year. However, there remains considerable uncertainty about the timescale for the recovery of the oil price.

At the same time, the deep cuts to staffing in many companies, including the international oil companies (IOCs) and large US independents, mean that their capability to undertake exploration is severely curtailed. This provides a real opportunity for Getech to provide focused, high quality advice to these companies and the last year has demonstrated that, even in challenging times for the sector, we can continue to develop a robust business. Nevertheless, in the short-term there remains considerable uncertainty about the state of the market and its impact on our trading and accordingly we believe the year ahead will be trading substantially below current market expectations. In this context we will seek to mitigate the immediate effects of the lower oil price while at the same time pursuing attractive opportunities as and when they are available to grow our business in the medium to long term.

There are four areas where we continue to believe we have a strong foundation for maintaining profitability and growing our business in the longer term.

Firstly, our Globe framework, which entered its second phase in August 2014, has seen continued support from the larger E&P companies. They clearly see the value of Getech's support in improving their exploration performance. Globe continues to provide an environment which encourages increased interaction with our clients, which is essential to the longer-term benefits in terms of focused consultancy work.

Secondly, we have seen continued demand for proprietary projects, where we can leverage the ERCL acquisition to provide a broader range of advice. The ERCL acquisition provides capability in seismic interpretation, well planning, field development and asset management, which mitigates to some extent the effect of low oil price on large-scale exploration.

Thirdly, our relationships with a number of national oil companies and governments, which are generally less susceptible to oil price fluctuations, provide a degree of robustness. Our ongoing relationship with Sonangol and ERCL's experience in managing licence rounds demonstrate our strengths in these areas.

Fourthly, our strong knowledge base and financial robustness allow us to look at new opportunities. We are in the process of developing new business streams, which build on our core strengths and which we hope will be major revenue generators in the medium term. Following the successful completion of the ERCL acquisition, we are also actively looking at further acquisition opportunities, which will grow our core areas of expertise.

Finally, I would like to say how pleased I am to continue to be involved with the Company and to thank the staff and my fellow Directors for all their hard work and dedication. I am also very pleased to welcome the ERCL staff based in Henley, who are a great addition to the Getech team. The whole organisation has shown great fortitude and delivered great results in challenging circumstances.

Dr Stuart Paton

Non-executive Chairman

Operating review

I report that in our tenth year as a public quoted company, Getech Group plc ("Getech" or "the Group") returned a pre-tax profit of GBP1,992,236 (2014: GBP1,000,816) for the year ended 31 July 2015.

Business setting

We reported that the previous year to July 2014 was difficult for the E&P sector. The year to July 2015 has seen a significant drop in oil prices, and subsequent major job losses in both oil companies and service companies. The high seismic and drilling costs, and poor exploration success that had affected the sector in the prior year were exacerbated by the oil price, which fell from over $100 at the start of August 2014 to below $50 by early January 2015. Although the oil price recovered slightly for a brief period in the first quarter of 2015, it subsequently fell again and has since remained close to or below $50. There remains considerable uncertainty as to when the oil price will significantly increase.

Business activities

The strategy to increase our resilience against market volatility has underpinned the performance in the current year. This comprised two main elements: significant longer-term contracts to generate increased forward visibility of income; and a focus on relationships with national oil companies, which tend to react less to changes in the oil market.

In September we announced our largest ever contract, which was $5m of consultancy work for Sonangol, the Angolan national oil company. This involved generating structural and related interpretation for all the Angolan basins. The project has been completed to schedule, and as indicated in the announcement in September 2014, the majority of the income was recognised within the year to July 2015.

We also announced in November a further umbrella contract with a major national oil company, and in December announced the first order under this contract amounting to GBP400k.

In April 2015, we announced that we had successfully passed through the tender process with a further major national oil company, under which we are one of three qualified bidders for a three year programme comprising several basin work packages per year, each of which we believe would be significant.

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We have continued the Globe development programme during the year. While we continue to enhance the data content, our Globe clients have been particularly pleased by the software that we have developed to improve the user experience. Globe continues to be our global exploration database and is actively used to add value to new sub-global products and proprietary contracts. It is essential that Globe is built with a balance between primary data (i.e. data measurements) and interpreted data. Our staff continue to build the interpretations but we have also added two significant third party data-sets - a well data-set comprising more than a million North American wells, and a seismic data-set which covers a number of areas of interest across the world. These help to provide the important assurance to Globe clients that our work is controlled by independent data.

In March 2015, we announced the agreement to acquire ERCL, which is a consultancy company based in Henley-on-Thames. ERCL is highly complementary to Getech both in terms of its skill-sets and in terms of its position in client exploration workflows. Getech has historically been known for gravity and magnetic data, and for geological work at global and regional scale. ERCL has a range of geoscientists of various disciplines, but has a particularly strong seismic interpretation team, which had previously been a gap in Getech's resources. ERCL typically operates at a smaller geographical scale and at stages in client workflows which are later than the Getech focus. With some clients, they also directly plan the drilling programmes. This means that Getech is now able to offer a significantly broader coverage of client workflows. In addition, ERCL works closely with governments and national oil companies providing, amongst other things, strategic and advisory services.

ERCL was formed in January 2014 by merger of the businesses of two existing companies, and in its first year of trading it delivered income of GBP3.8m with profit before tax of approximately GBP1.2m. The reaction from our clients to this acquisition has been very positive, particularly as regards the strategic synergies.

The ERCL acquisition also fits with our strategy of long-term relationships with national governments, with ERCL recognised for its experience in licence round management.

In prior years one of our main constraints was the inability to recruit experienced staff. However, with the market conditions during the year we have been able to recruit a number of key staff. This, combined with the resources in ERCL, has enabled us to significantly extend our capabilities and credibility into new areas of working.

The future

While the previous two years have been very difficult for the oil and gas market in general, we enter the new year with increased net assets and with increased cash. This gives us a firm foundation from which we can continue to execute a long-term growth strategy.

We have continued to enhance Globe as an exploration data-set and to increasingly realise the value from it in a number ways. We anticipate that the work in the current three year development period will continue to add to its intrinsic value as well as increasingly enabling us to realise value directly through its use at a variety of scales and in a range of product types.

In line with the existing strategy, we aim to increase the level of business with national oil companies (NOCs). We recently recruited an extremely experienced International Business Development Manager whose role is renewing and establishing relationships with a range of NOCs and governments, as well as seeking new government data-sets that may become available for use in Globe. The acquisition of ERCL further strengthened this strategy through their existing links and reputation with a number of governments and NOCs.

We acquired ERCL as part of our growth strategy. It not only adds new skills and income streams, but also a number of synergies. We can now offer a more comprehensive service to our current clients, extending into later stages of the exploration workflow. There are real opportunities to cross-sell to existing clients, and to provide more efficient overall marketing and sales for both companies. ERCL is based in Henley-on-Thames, which is very close to London and many companies working in the oil and gas sector. While Leeds has been a very successful location, it is outside the mainstream areas of the industry and ERCL brings an established base in proximity to large parts of the UK oil and gas industry.

Finally, while the market is at best uncertain, we are still regularly engaged with our clients and have a number of significant sales proposals awaiting approval. Client budgets are clearly under significant pressure, but even where there is little current money there has still been a willingness to consider proposals for inclusion in 2016 budgets. While there remains significant uncertainty about the short term and we cannot predict how the market will develop during 2016, we remain convinced that our products and staff are well regarded and satisfy a clear industry need. As such, whilst we anticipate a slow start to 2016, we remain confident about the long-term prospects for the extended Getech Group.

Raymond Wolfson

Chief Executive Officer

Consolidated statement of comprehensive income

For the year ended 31 July 2015

 
                                             2015          2014 
                                              GBP           GBP 
-----------------------------------  ------------  ------------ 
 Revenue                                8,638,588     6,592,798 
 Cost of sales                        (3,001,898)   (2,126,433) 
-----------------------------------  ------------  ------------ 
 Gross profit                           5,636,690     4,466,365 
 Administrative costs                 (3,649,666)   (3,497,841) 
-----------------------------------  ------------  ------------ 
 Operating profit                       1,987,024       968,524 
 Finance income                            13,554        32,914 
 Finance costs                            (8,342)         (622) 
-----------------------------------  ------------  ------------ 
 Profit before tax                      1,992,236     1,000,816 
 Income tax (expense)/credit            (179,240)       574,412 
-----------------------------------  ------------  ------------ 
 Profit for the year attributable 
  to owners of the Parent               1,812,996     1,575,228 
 Other comprehensive income 
 Items that may be reclassified subsequently 
  to profit or loss: 
 Currency translation differences 
  on translation of foreign 
  operations                               19,807      (95,030) 
-----------------------------------  ------------  ------------ 
 Total comprehensive income 
  for the year attributable 
  to owners of the Parent               1,832,803     1,480,198 
-----------------------------------  ------------  ------------ 
 Earnings per share 
 Basic earnings per 
  share                                     5.77p         5.21p 
-----------------------------------  ------------  ------------ 
 Diluted earnings per 
  share                                     5.61p         4.95p 
-----------------------------------  ------------  ------------ 
 

All activities relate to continuing operations.

Consolidated statement of financial position

As at 31 July 2015

Company registration number 2891368

 
                                        2015          2014 
                                         GBP           GBP 
-------------------------------  -----------  ------------ 
 Assets 
 Non-current assets 
 Property, plant and 
  equipment                        2,852,508     2,747,916 
 Goodwill                          3,131,538             - 
 Intangible assets                 2,046,499       513,476 
 Deferred tax assets                 159,127       311,644 
-----------------------------    -----------  ------------ 
                                   8,189,672     3,573,036 
-------------------------------  -----------  ------------ 
 Current assets 
 Inventories                         292,005       180,092 
 Trade and other receivables       4,235,047     2,850,538 
 Current tax assets                  117,522       812,767 
 Cash and cash equivalents         4,726,734     3,422,594 
-----------------------------    -----------  ------------ 
                                   9,371,308     7,265,991 
--------------------------------------------  ------------ 
 Total assets                     17,560,980    10,839,027 
-------------------------------  -----------  ------------ 
 Liabilities 
 Current liabilities 
 Borrowings                          266,132             - 
 Trade and other payables          4,628,221     2,707,710 
 Current tax liabilities             395,155             - 
-----------------------------    -----------  ------------ 
                                   5,289,508     2,707,710 
--------------------------------------------  ------------ 
 Non-current liabilities 
 Borrowings                          765,665             - 
 Trade and other payables            979,785             - 
 Deferred tax liabilities            319,062       321,452 
-----------------------------    -----------  ------------ 
                                   2,064,512       321,452 
--------------------------------------------  ------------ 
 Total liabilities                 7,354,020     3,029,162 
-------------------------------  -----------  ------------ 
 Net assets                       10,206,960     7,809,865 
-------------------------------  -----------  ------------ 
 Equity 
 Equity attributable to owners of the Parent 
 Share capital                        81,824        75,790 
 Share premium account             4,195,918     3,012,960 
 Capital redemption reserve                6             6 
 Share option reserve                155,492       125,948 
 Currency translation reserve      (110,950)     (130,757) 

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 Retained earnings                 5,884,670     4,725,918 
-------------------------------  -----------  ------------ 
 Total equity                     10,206,960     7,809,865 
-------------------------------  -----------  ------------ 
 

The financial statements were approved by the Board of Directors on 3 November 2015.

Dr Stuart Paton

Director

Consolidated statement of cash flows

For the year ended 31 July 2015

 
                                               2015         2014 
                                                GBP          GBP 
-------------------------------------  ------------  ----------- 
 Cash flows from operating activities 
 Profit before tax                        1,992,236    1,000,816 
 Share-based payment charge                  58,912       21,186 
 Depreciation and amortisation 
  charges                                   366,268      239,704 
 Impairment of intangible assets            298,110            - 
 Fair value adjustments                   (303,887)            - 
 Finance income                            (13,554)     (32,914) 
 Finance costs                                8,342          622 
 Exchange adjustments                      (59,058)       44,686 
 Increase in inventories                  (111,913)     (14,092) 
 Decrease/(increase) in trade 
  and other receivables                     202,006    (727,154) 
 Increase/(decrease) in trade 
  and other payables                        483,349    (833,048) 
-------------------------------------  ------------  ----------- 
 Cash generated/(used in) from 
  operations                              2,920,811    (300,194) 
 Income taxes paid                          456,650    (180,226) 
-------------------------------------  ------------  ----------- 
 Net cash generated/(used in) 
  from operating activities               3,377,461    (480,420) 
-------------------------------------  ------------  ----------- 
 Cash flows from investing activities 
 Purchase of property, 
  plant and equipment                     (258,856)    (106,897) 
 Purchase of intangible assets            (128,090)            - 
 Development costs capitalised            (976,831)     (82,867) 
 Acquisition costs, net of              (1,130,619)            - 
  cash received 
 Funds transferred into fixed-term 
  deposits                                        -      500,000 
 Interest received                           13,554       32,914 
-------------------------------------  ------------  ----------- 
 Net cash (used in)/generated 
  from investing activities             (2,480,842)      343,150 
-------------------------------------  ------------  ----------- 
 Cash flows from financing activities 
 Proceeds from issue of share 
  capital                                    24,495       20,339 
 New term loan                            1,100,000            - 
 Repayment of long-term borrowings         (68,203)    (119,048) 
 Equity dividends paid                    (683,610)    (616,538) 
 Interest paid                              (8,342)        (622) 
-------------------------------------  ------------  ----------- 
 Net cash generated from/(used 
  in) financing activities                  364,340    (715,869) 
-------------------------------------  ------------  ----------- 
 Net increase/(decrease) in 
  cash and cash equivalents               1,260,959    (853,139) 
 Cash and cash equivalents 
  at beginning of year                    3,422,594    4,357,927 
 Exchange adjustments to cash 
  and cash equivalents at beginning 
  of year                                    43,181     (82,194) 
-------------------------------------  ------------  ----------- 
 Cash and cash equivalents 
  at end of year                          4,726,734    3,422,594 
-------------------------------------  ------------  ----------- 
 

Consolidated statement of changes in equity

For the year ended 31 July 2015

 
                                Share      Merger      Capital      Share      Currency 
                    Share     premium      relief   redemption     option   translation    Retained 
                  capital     account     reserve      reserve    reserve       reserve    earnings        Total 
                      GBP         GBP         GBP          GBP        GBP           GBP         GBP          GBP 
-------------------------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 At 1 
  August 
  2013             75,319   2,993,092           -            6    122,717      (35,727)   3,749,273    6,904,680 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Dividends              -           -           -            -          -             -   (616,538)    (616,538) 
 Issue 
  of capital 
  under 
  share--based 
  payment 
  options             471      19,868           -            -   (17,955)             -      17,955       20,339 
 Share-based 
  payment 
  charge                -           -           -            -     21,186             -           -       21,186 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Transactions 
  with 
  owners              471      19,868           -            -      3,231             -   (598,583)    (575,013) 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Profit 
  for the 
  year                  -           -           -            -          -             -   1,575,228    1,575,228 
 Other comprehensive income 
 Currency 
  translation 
  differences           -           -           -            -          -      (95,030)           -     (95,030) 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Total 
  comprehensive 
  income 
  for the 
  year                  -           -           -            -          -      (95,030)   1,575,228    1,480,198 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 At 31 
  July 
  2014             75,790   3,012,960           -            6    125,948     (130,757)   4,725,918    7,809,865 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Dividends              -           -           -            -          -             -   (683,612)    (683,612) 
 Issue 
  of capital 
  under 
  share--based 
  payment 
  options             592      23,903           -            -   (29,368)             -      29,368       24,495 
 Share-based 
  payment 
  charge                -           -           -            -     58,912             -           -       58,912 
 Issue 
  of share 
  capital           5,442           -   1,159,055            -          -             -           -    1,164,497 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Transactions 
  with 
  owners            6,034      23,903   1,159,055            -     29,544             -   (654,244)      564,294 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Profit 
  for the 
  year                  -           -           -            -          -             -   1,812,996    1,812,996 
 Other comprehensive income 
 Currency 
  translation 
  differences           -           -           -            -          -        19,807           -       19,807 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 Total 
  comprehensive 
  income 
  for the 
  year                  -           -           -            -          -        19,807   1,812,996    1,846,506 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 At 31 
  July 
  2015             81,824   3,036,863   1,159,055            6    155,492     (110,950)   5,884,670   10,206,960 
----------------  -------  ----------  ----------  -----------  ---------  ------------  ----------  ----------- 
 

Notes to the consolidated financial statements

For the year ended 31 July 2015

Nature of operations

The principal activity of Getech Group plc and its subsidiary companies Geophysical Exploration Technology Inc. and ERCL Limited (collectively "Getech" or "the Group") is the provision of gravity and magnetic data, services and geological studies to the petroleum and mining industries to assist in their exploration activities.

General information

Getech Group plc is the Group's ultimate Parent Company ("the Parent Company"). It is incorporated in England and Wales and domiciled in England (CRN: 2891368). The address of its registered office is Convention House, St Mary's Street, Leeds LS9 7DP. Its principal place of business is Kitson House, Elmete Hall, Elmete Lane, Leeds LS8 2LJ. Getech Group plc shares are admitted to trading on the London Stock Exchange's AIM.

Basis of preparation

These consolidated financial statements ("the financial statements") have been prepared in accordance with International Financial Reporting Standards (IFRS) in issue as adopted by the European Union. IFRS include interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

The financial statements have been prepared under the historical cost convention.

The Directors have instituted regular reviews of trading and cash flow forecasts and have considered the sensitivity of these forecasts to different assumptions about future income and costs. With the sound cash levels and continued prospects for profitable trading, the Directors are fully satisfied that the Group is a going concern and will be able to continue trading for the foreseeable future.

Financial information

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