REG - Enteq Technologies - Interim Results
16/11/2022 07:00
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RNS Number : 5220G Enteq Technologies PLC 16 November 2022
Enteq Technologies plc
("Enteq", the "Company" or the "Group")
Interim results for the six months ended 30 September 2022
and
IMC Investor Presentation
Enteq Technologies plc (AIM: NTQ.L) the energy services technology and
equipment supplier, today announces its interim results for the six months
ended 30 September 2022.
Key Highlights
· Measurement While Drilling revenues in H1 were significantly up on this
time last year due to North American activity, albeit at lower margins due to
share of third-party equipment sales.
· International sales were limited due to lagging international market
recovery and ongoing China shut-downs.
· The SABER engineering project has progressed with the initial fleet of
the latest design of SABER tools being built. The complementary MegaHop
technology development has been launched.
· All initial testing of SABER has achieved the objectives with encouraging
results. Active drilling in hard-rock environment has been scheduled at an
independent test-site in Norway and customer trials arranged.
· Investment in SABER has continued using existing balance sheet
resources to progress into the final engineering phase and SABER tool-build,
resulting in a cash position of US$1.8m at the end of the period rising to
US$2.5m as at the date of this announcement.
Financial metrics
Six months ended 30 September:
2022 2021
US$m US$m
· Revenue 4.9 2.3
· Adjusted EBITDA* 0.1 (0.6)
· Post tax loss for the period 0.8 1.2
· Loss per share (cents) 1.1 1.8
· Cash balance 1.8 5.3
Andrew Law, CEO of Enteq Technologies plc, commented:
"Enteq continues to adapt to the changing global and industry dynamics by
focusing on the higher margin potential in the significantly larger
(>US$2bn) growth market of Rotary Steerable Drilling where SABER can offer
a differentiated and cost-effective alternative. Progress continues with the
build and test of the SABER system. Resources from the existing balance sheet
are being used to support bringing SABER to commercialisation."
Investor Presentation
Please note that Andrew Law and David Steel, Chief Financial Officer, will be
providing a live presentation relating to these results via the Investor Meet
Company platform on 22 November 2022 at 10:30am GMT.
The presentation is open to all existing and potential shareholders. Questions
can be submitted pre-event via the Investor Meet Company dashboard up until
9.00am the day before the meeting or at any time during the live presentation.
Investors can sign up to Investor Meet Company for free and attend this
presentation via
www.investormeetcompany.com/enteq-upstream-plc/register-investor
(http://www.investormeetcompany.com/enteq-upstream-plc/register-investor) .
Investors who already follow Enteq on the Investor Meet Company platform will
automatically be invited.
For further information, please contact:
Enteq Technologies
plc
+44 (0)1494 618739
www.enteq.com (http://www.enteq.com)
Andrew Law, Chief Executive Officer
David Steel, Chief Financial Officer
finnCap Ltd (NOMAD and Broker)
+44 (0)20 7220 0500
Ed Frisby, Fergus Sullivan (Corporate Finance)
Andrew Burdis, Barney Hayward (ECM)
(*)Adjusted EBITDA is reported profit before tax adjusted for interest,
depreciation, amortisation, foreign exchange movements, performance share plan
charges and exceptional items - see note 5
Interim Report
CHAIRMAN & CHIEF EXECUTIVE OFFICER'S REPORT
Overview
Enteq supplies and develops drilling and measurement technology for the
worldwide oil and gas, geothermal and methane capture directional drilling
markets. Enteq provides equipment through rental or purchase, enabling
independent and regional directional drilling companies to operate as an
alternative to major integrated service companies. Directional drilling
encompasses Rotary Steerable Systems ("RSS") and Measurement While Drilling
("MWD").
As a step change to the original MWD business, Enteq is commercialising the
SABER (Steer At-Bit Enteq Rotary) RSS Tool, a truly disruptive and unique
alternative to both conventional RSS and traditional directional drilling.
SABER can allow Enteq to access a considerably larger addressable market with
notably fewer active competitors compared to those in the MWD market. The
SABER Tool is an evolution of the intellectual property developed, proven in
concept and successfully tested downhole by Shell. Enteq has the exclusive
worldwide licence to the intellectual property and is now progressing through
the field-trial programme ahead of commercialisation.
Enteq's MWD business has an established reputation for reliability both in
North America, where operations using Enteq equipment are regularly being
carried out on a significant number of rigs, and in key international areas
and in geothermal operations.
Financial performance
The key driver of the half year revenue of US$4.9m has been the steady
increase in North American drilling activity, a continuation of the recovery
seen through the whole of the previous financial year. This recovery has been
a function of the relative stability in the price of a barrel of West Texas
Intermediate ("WTI"), despite a weakening during the month of September
itself. The average price of WTI in the period under review was US$101, moving
from US$104 on 1 April to US$80 at the period end. This stability, at a
relatively high price, resulted in the North American onshore active drilling
rig count rising by 14%; from 673 on 1 April to 765 at the end of September.
As expected, the international markets have been slower to respond to this
price stability. The proportion of international revenue, at 3% in this
reporting period, continues the recent trend with the international revenue of
the second half of the previous financial year at 9%, down from the 28% seen
in the first half year.
The reported gross margin of 28% in the first half of this year compares to
35% in the six months to 31 March 2022 and 37% in the equivalent period to 30
September 2021. This reduction is due to a lower proportion of sales coming
from the high margin rental revenue stream (down from 23% in the first half
year to 30 September 2021 to only 7% in this reporting period) combined with a
higher proportion coming from the electronic component product line (up from
46% to 53% in same periods) within which an increasing number of third party,
lower margin, items were sold.
In the six months ended 30 September 2022, administrative expenses before
amortisation, depreciation and long-term incentive scheme charges were
US$1.3m. This is down from both the US$1.4m in the equivalent period to 30
September 2021 and the US$1.8m in the six months to 31 March 2022, reflecting
the continuing focus on cost control measures.
The adjusted EBITDA profit in the period was US$0.1m, a pleasing improvement
over the US$0.6m loss in the equivalent period last year. The primary reason
for the improvement was the uplift in revenue and associated gross margin. A
reconciliation between the reported loss and the adjusted EBITDA profit is
shown in note 5 to the Financial Statements below.
Cash balance and cashflow
On 30 September 2022, the Group had a cash balance of US$1.8m down US$3.0m on
the US$4.8m reported as at 31 March 2022. As at the date of this announcement
the cash balance was US$2.5m.
The half year cash movement can be analysed as follows:
US$m
Adjusted EBITDA profit 0.1
Change in trade and other receivables (1.9)
Change in trade and other payables (0.2)
Change in inventory 0.4
Operational cashflow (1.6)
Increase in the rental fleet (0.3)
R&D expenditure (1.1)
Net cash movement (3.0)
Cash balances as at 1 April 2022 4.8
Cash balances as at 30 September 2022 1.8
The increase in trade receivables relates to strong revenues towards the end
of the period with the outstanding balances being collectable in future
months. The R&D expenditure was primarily relating to the SABER Rotary
Steerable System development program. Management expects that the future cash
balances are sufficient to complete SABER's field-testing phase and to bring
it to a successful commercial launch.
Operations
Enteq's dedicated SABER technology and manufacturing centre is now fully
operational, having opened in February 2022. This facility is located close to
Cheltenham, UK, one of the global centres of expertise for Rotary Steerable
Systems with access to specialised engineering and machining firms.
The engineering, manufacturing and distribution functions related to the MWD
division continues to operate from the Enteq owned facility in Houston,
Texas.
SABER field-testing is the priority for progression to the commercialisation
phase. The SABER project has continued to progress according to the
development plan, with the improved latest design of SABER entering the
downhole-readiness phase for active drilling testing. This latest improved,
simplified and ruggedised design is an outcome of the successful initial
downhole passive testing, followed by an accelerated production and assembly
programme to deliver downhole-ready tools. Extensive testing at surface has
both re-validated this unique concept and refined the design. Active downhole
drilling field-testing has been booked at a test site Norway, with follow-up
active downhole drilling planned with selected customer test partners keen to
continue the move into the commercialisation phase.
In line with the direction of the industry, chiefly the growth market
opportunity for Rotary Steerable Systems, the Company strategy has been
aligned with ensuring the technical and commercial success of SABER. A
concerted effort is in place to utilise the assets on the balance sheet to
provide financial resources for SABER commercialisation and build-up of the
rental fleet. Following initial active drilling testing, the focus will be on
pre-production design improvements and building-up the SABER rental-fleet as
rapidly as possible, subject to any supply chain constraints, to support
deployment into the selected initial regions.
To support SABER, there is a disciplined strategy to concentrate the MWD
business on cash-generative commercial deals. As the MWD market is becoming
increasingly commoditised, the decision has been taken to focus on providing
customers with differentiated technologies with the potential to enhance SABER
deployment to customers. For example, our recent introduction of our
MegaHop(1) technology can allow communication from SABER to customers'
existing equipment.
Organisation
The MWD division has personnel operating from Houston and the SABER division
has personnel operating from Houston and Cheltenham.
Outlook
The underlying macro-fundamentals for RSS show that the market and RSS usage
is increasing and that this market is in need of additional competition.
Extensive and continued industry engagement by Enteq, including recent
attendance at the ADIPEC global trade show, has confirmed there is a high
level of potential demand for SABER in each of the key geographies where Enteq
operates. In particular, this potentially disruptive technology has a strong
product-market fit having the potential for lower cost of operation as well as
reduced risk.
Andrew
Law
Martin Perry
Chief
Executive
Chairman
Enteq Technologies plc
15 November 2022
(1)
www.enteq.com/news-media/2022/09/enteq-technologies-launches-real-time-communications-solution-for-rss-and-mwd-operations
(http://www.enteq.com/news-media/2022/09/enteq-technologies-launches-real-time-communications-solution-for-rss-and-mwd-operations)
Enteq Technologies plc
Condensed Consolidated Income Statement
Six months to 30 September 2022 Six months to 30 September 2021 Year to
31 March 2022
Unaudited Unaudited Audited
Notes US$ 000's US$ 000's US$ 000's
Revenue 4,912 2,318 7,306
Cost of Sales (3,518) (1,457) (4,677)
Gross Profit 1,394 861 2,629
Administrative expenses before amortisation (1,866) (1,877) (3,185)
Amortisation of acquired intangibles 10 (241) (170) (199)
Other exceptional items 6 (25) (16) (7)
Foreign exchange loss on operating activities (34) (10) (40)
Total Administrative expenses (2,166) (2,073) (3,431)
Operating loss (772) (1,212) (802)
Finance income 6 7 16
Loss before tax (766) (1,205) (786)
Tax expense 9 - - -
Loss for the period 5 (766) (1,205) (786)
Loss attributable to:
Owners of the parent (766) (1,205) (786)
Loss per share (in US cents): 8
Basic (1.1) (1.8) (1.1)
Diluted (1.1) (1.8) (1.1)
Enteq Technologies plc
Condensed Statement of Financial Position
30 September 2022 30 September 2021 31 March 2022
Unaudited Unaudited Audited
Notes US$ 000's US$ 000's US$ 000's
Non-current assets
Intangible assets 10 5,051 2,517 4,143
Property, plant and equipment 2,142 2,201 2,506
Rental fleet 98 851 -
Trade and other receivables greater than one year 54 66 -
Non-current assets 7,345 5,635 6,649
Current assets
Trade and other receivables 5,342 2,649 3,537
Inventories 2,006 2,856 2,410
Cash and cash equivalents 319 5,335 3,296
Bank deposits 1,500 - 1,500
Current assets 9,167 10,840 10,743
Total assets 16,512 16,475 17,392
Equity and liabilities
Equity
Share capital 11 1,081 1,070 1,072
Share premium 92,038 91,884 91,919
Share based payment reserve 410 315 432
Retained earnings (78,660) (78,312) (77,894)
Total equity 14,869 14,957 15,529
Current Liabilities
Trade and other payables 1,643 1,518 1,863
Total equity and liabilities 16,512 16,475 17,392
Enteq Technologies plc
Condensed Consolidated Statement of Changes in Equity
Six months to 30 September 2022
Share
Called up Profit based
share and loss Share payment Total
capital account premium reserve Equity
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
Issue of share capital 9 - 119 - 128
Share based payment charge - - - (22) (22)
Transactions with owners 9 - 119 (22) 106
Loss for the period - (766) - - (766)
Total comprehensive income (766) - - (766)
Movement in period: 9 (766) 119 (22) (660)
As at 1 April 2022 (audited) 1,072 (77,894) 91,919 432 15,529
As at 30 September 2022 (unaudited) 1,081 (78,660) 92,038 410 14,869
Six months to 30 September 2021
Share
Called up Profit based
share and loss Share payment Total
capital account premium reserve Equity
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
Issue of share capital 14 - 95 - 109
Transfer between reserves - 217 - (217) -
Share based payment charge - - - 77 77
Transactions with owners 14 217 95 (140) 186
Loss for the period - (1,205) - - (1,205)
Total comprehensive income - (1,205) - - (1,205)
Movement in period: 14 (988) 95 (140) (1,019)
As at 1 April 2021 (audited) 1,056 (77,324) 91,789 455 15,976
As at 30 September 2021 (unaudited) 1,070 (78,312) 91,884 315 14,957
Enteq Technologies plc
Condensed Consolidated Statement of Cash flows
Six months to Six months to Year to
30 September 2022 30 September 2021 31 March 2022
Unaudited Unaudited Audited
US$ 000's US$ 000's US$ 000's
Cash flows from operating activities:
Loss for the period (766) (1,205) (787)
Gain on disposal of fixed assets - (20) (16)
Net finance income (6) (7) (30)
Share-based payment non-cash charges (22) 75 194
Impact of foreign exchange movement (34) (10) (40)
Depreciation, amortisation and exceptional charges 784 525 840
(44) (642) 161
(Increase)/decrease in inventory 404 34 478
Decrease/(increase) in trade and other receivables (1,859) (143) (964)
(Decrease)/increase in trade and other payables (219) (26) 320
Increase in rental fleet assets (256) (1,128) (817)
Net cash from operating activities (1,974) (1,905) (822)
Investing activities
Purchase of tangible fixed assets (22) (6) (58)
Disposal proceeds of tangible fixed assets - 20 30
Purchase of intangible fixed assets (1,148) (959) (2,614)
Funds placed on interest bearing deposit - - (1,500)
Interest received 6 7 16
Net cash from investing activities (1,164) (938) (4,126)
Financing activities
Share issue 127 109 145
Net cash from financing activities 127 109 145
Increase/(decrease) in cash and cash equivalents (3,011) (2,734) (4,803)
Non-cash movements - foreign exchange 34 10 40
Cash and cash equivalents at beginning of period 3,296 8,059 8,059
Cash and cash equivalents at end of period 319 5,335 3,296
Cash and cash equivalents at end of period 319 5,335 3,296
Funds placed on interest bearing deposit 1,500 - 1,500
1,819 5,335 4,796
ENTEQ TECHNOLOGIES PLC
NOTES TO THE FINANCIAL STATEMENTS
For the six months to 30 September 2022
1. Reporting entity
The Company is a public limited company incorporated and domiciled in England
and Wales (registration number 07590845). The Company's registered address is
The Courtyard, High Street, Ascot, Berkshire, SL5 7HP.
The Company's ordinary shares are traded on the AIM market of The London Stock
Exchange.
Both the Company and its subsidiaries (together referred to as the "Group")
provide equipment to energy service companies for use in the hydrocarbon and
geothermal extraction sectors.
2. General information and basis of preparation
The information for the period ended 30 September 2022 does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. A copy
of the statutory accounts for the period ended 31 March 2022 has been
delivered to the Registrar of Companies. The auditors have reported on these
accounts; their reports were unqualified, but did draw attention to the
uncertainty regarding the carrying value of the inventory by way of emphasis
without qualifying their report and did not contain statements under s498(2)
or (3) Companies Act 2006.
The annual financial statements of the Group are prepared in accordance with
IFRS as adopted by the European Union. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 'Interim Financial
Reporting', as adopted by the European Union.
The Group's consolidated interim financial statements are presented in US
Dollars (US$), which is also the functional currency of the parent company.
These condensed consolidated interim financial statements (the interim
financial statements) have been approved for issue by the Board of directors
on 15 November 2022.
This half-yearly financial report has not been audited and has not been
formally reviewed by auditors under the Auditing Practices Board guidance in
ISRE 2410.
3. Accounting policies
The interim financial statements have been prepared on the basis of the
accounting policies and methods of computation applicable for the period ended
31 March 2022. These accounting policies are consistent with those applied in
the preparation of the accounts for the period ended 31 March 2022.
4. Estimates
When preparing the interim financial statements, management undertakes a
number of judgements, estimates and assumptions about recognition and
measurement of assets, liabilities, income and expenses. The actual results
may differ from the judgements, estimates and assumptions made by management,
and will seldom equal the estimated results. The judgements, estimates and
assumptions applied in the interim financial statements, including the key
sources of estimation uncertainty were the same as those applied in the
Group's last annual financial statements for the year ended 31 March 2022.
5. Adjusted earnings and adjusted EBITDA
The following analysis illustrates the performance of the Group's activities,
and reconciles the Group's loss, as shown in the condensed consolidated
interim income statement, to adjusted earnings. Adjusted earnings are
presented to provide a better indication of overall financial performance and
to reflect how the business is managed and measured on a day-today basis.
Adjusted earnings before interest, taxation, depreciation and amortisation
("adjusted EBITDA") is also presented as it is a key performance indicator
used by management.
Six months to 30 September 2022 Six months to 30 September 2021 Year to 31 March 2022
US$ 000's US$ 000's US$ 000's
Unaudited Unaudited Audited
Loss attributable to ordinary shareholders (766) (1,205) (787)
Exceptional items 25 16 7
Amortisation of acquired intangible assets 240 170 199
Foreign exchange movements 34 10 40
Adjusted earnings (467) (1,009) (541)
Depreciation charge 543 355 643
Finance income (6) (7) (16)
PSP credit/(charge) (49) 100 220
Other 34 - -
Adjusted EBITDA 55 (561) 306
6. Exceptional items
The exceptional items can be analysed as follows:
Six months to 30 September 2022 Six months to 30 September 2021 Year to 31 March 2022
US$ 000's US$ 000's US$ 000's
Unaudited Unaudited Audited
Severance payments 20 38 37
Loss/(gain) on sale of fixed assets 5 (20) (30)
Other - (2) -
Exceptional items 25 16 7
7. Segmental Reporting
For management purposes, the Group is currently organised into a single
business unit, the Drilling Division, which is based, operationally, primarily
in the USA but with a technology centre based in the UK.
The principal activities of the Drilling Division are the design, manufacture
and selling of specialised products and technologies for Directional Drilling
and Measurement While Drilling operations used in the energy exploration and
services sector of the oil and gas industry.
At present, there is only one operating segment and the information presented
to the Board is consistent with the consolidated income statement and the
consolidated statement of financial position.
The net assets of the Group by geographic location (post-consolidation
adjustments) are as follows:
Net Assets 30 September 2022 30 September 2021 31 March 2022
US$ 000's US$ 000's US$ 000's
Unaudited Unaudited Audited
Europe (UK) 1,282 4,512 3,649
United States 13,587 10,445 11,880
Total Net Assets 14,869 14,957 15,529
The net assets in Europe (UK) are represented, primarily, by cash balances
denominated in US$.
8. Earnings Per Share
Basic earnings per share
Basic earnings per share is calculated by dividing the loss attributable to
ordinary shareholders for the six months of US$766,000 (September 2021: loss
of US$1,205,000) by the weighted average number of ordinary shares in issue
during the period of 69,247,129 (September 2021: 68,415,563).
9. Income Tax
No tax liability arose on ordinary activities for the six months under
review.
10. Intangible Fixed Assets
Other Intangible Fixed Assets
Developed technology IPR&D technology Brand names
Total
US$ 000's US$ 000's US$ 000's US$ 000's
Cost:
As at 1 April 2022 13,237 15,267 1,240 29,744
Capitalised in period 212 937 - 1,149
As at 30 September 2022 13,449 16,204 1,240 30,893
Amortisation:
As at 1 April 2022 13,041 11,320 1,240 25,601
Charge for the period 241 - - 241
As at 30 September 2022 13,282 11,320 1,240 25,842
Net Book Value:
As at 1 April 2022 196 3,947 - 4,143
As at 30 September 2022 167 4,884 - 5,051
The main categories of Intangible Fixed Assets are as follows:
Developed technology:
This is technology which is currently commercialised and embedded within the
current product offering.
IPR&D technology:
This is technology, which is in the final stages of field testing, has
demonstrable commercial value and is expected to be launched in the
foreseeable future.
Brand names:
The value associated with various trading names used within the Group.
Customer relationships:
The value associated with the on-going trading relationships with the key
customers acquired.
11. Share capital
Share capital as at 30 September 2022 amounted to US$1,081,000 (31 March 2022:
US$1,072,000 and 30 September 2021: US$1,070,000).
12. Going concern
The Directors have carried out a review of the Group's financial position and
cash flow forecasts for the next 12 months by way of a review of whether the
Group satisfies the going concern tests. These have been based on a
comprehensive review of revenue, expenditure and cash flows, taking into
account specific business risks and the current economic environment. With
regards to the Group's financial position, it had cash and cash equivalents at
30 September 2022 of US$1.8 million.
Having taken the above into consideration the Directors have reached a
conclusion that the Group is well placed to manage its business risks in the
current economic environment. Accordingly, they continue to adopt the going
concern basis in preparing the Interim Condensed Financial Statements.
13. Principal risks and uncertainties
Further detail concerning the principal risks affecting the business
activities of the Group is detailed on pages 11 to 13 of the Annual Report and
Accounts for the period ended 31 March 2022. Consideration has been given to
whether there have been any changes to the risks and uncertainties previously
reported. None have been identified.
14. Events after the balance sheet date
There have been no material events subsequent to the end of the interim
reporting period ended 30 September 2022.
15. Copies of the interim results
Copies of the interim results are available from the Group's website at
www.enteq.com.
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