Enteq Technologies plc (LON:NTQ), the energy services technology supplier, has announced its final results for the year ended 31 March 2022.
Key features
· Total revenue up from $5.1m to $7.3m due to strengthening North American market, offsetting reduced activity in China:
o North America revenue up from $1.9m to $6.2m
o International revenue down from $3.2m to $1.1m
· Adjusted EBITDA2 up from $0.1m to $0.3m
· Gross profit margin down from 53% to 36% due to change in product mix from new strategic distribution partnerships
· Administrative expenses before amortisation reduced from $3.9m to $3.2m:
o Underlying overheads1 reduced from $2.6m to $2.3m
o Depreciation on rental fleet down from $0.9m to $0.5m
o Depreciation on other fixed assets steady at $0.2m
· Loss attributable to shareholders reduced from $1.1m to $0.8m
· The SABER project has progressed well:
o Key test objectives achieved
o Extensive industry and customer engagement has demonstrated market potential
Financial metrics
Years ended 31 March ($m):
| 2022 | 2021 | |
| · Revenue | 7.3 | 5.1 |
| · Gross profit margin | 36% | 53% |
| · Underlying overheads1 | 2.3 | 2.6 |
| · Adjusted EBITDA2 | 0.3 | 0.1 |
| · Exceptional items | – | 0.1 |
| · Total post tax loss | 0.8 | 1.1 |
| · Post tax loss per share (cents) | 1.1 | 1.7 |
| · Cash balance3 | 4.8 | 8.1 |
| · Investment in engineering projects | 2.7 | 1.6 |
Outlook
· Continued US rig count growth gives optimism regarding US market
· Focus on international opportunities as markets recover
· Ongoing investment in the development and deployment of new market-led technologies
· Emphasis on maintaining a strong balance sheet
Andrew Law, CEO of Enteq Technologies plc, commented:
“Enteq has continued investment in the SABER RSS project development, resulting in an enhanced, simplified design with a wider range of operation and a low cost to operate. Sustained testing has confirmed the system has performed to the design criteria and met all requirements to date, thereby further reducing technical risk. Extensive industry engagement with existing and new customers both internationally and across North America, has confirmed that SABER is on-track to meeting the market requirements.
Enteq’s core MWD business has benefitted from the continued growth in the US market, new customers in the US, new customers internationally and from access to selected technology distribution agreements. Additionally, the core existing customer base will be the initial target market for SABER.
As with the core MWD technology, SABER has applications in geothermal and methane capture operations as well as conventional oil and gas, giving the Board grounds for optimism for the short, medium and long term outlook.”
1 The reconciliation between Underlying overheads and Administrative expenses before amortisation is follows:
Year to 31 March 2022 Year to 31 March 2021
$m $m
Total underlying overheads 2.3 2.6
Depreciation – fixed assets 0.2 0.2
Depreciation – rental fleet 0.5 0.9
PSP Share charge 0.2 0.2
Administrative expenses before amortisation (including bad debt charge) 3.2 3.9
2 The reconciliation between Loss attributable to shareholders and Adjusted EBITDA is follows:
Year to 31 March 2022 Year to 31 March 2021
$m $m
Loss attributable to shareholders (0.8) (1.1)
Exceptional items – 0.1
Amortisation 0.2 –
Depreciation – fixed assets 0.2 0.2
Depreciation – rental fleet 0.5 0.9
PSP Share charge 0.2 0.2
Interest – (0.1)
Adjusted EBITDA 0.3 0.1
Both the above alternative performance measures are shown as the Board consider these to be key to the management of the business as a whole.
3 The cash balance includes:
Year to 31 March 2022 Year to 31 March 2021
$m $m
Cash and cash equivalents 3.3 8.1
Bank deposits 1.5 –
Cash balance 4.8 8.1
Combined Chief Executive and Chairman’s report
Review of the Year
This year has been one of capturing North American market recovery coupled with a concentrated effort on the SABER development project.
In North America, Enteq has expanded the offering of innovative solutions to customers through a number of exclusive distributor agreements that were signed during the year. These agreements cover technologies such as improved signal detection; MEMS (micro-electro-mechanical systems) directional sensors; gamma logging and depth tracking.
To capture North American market growth, a VP of sales for the MWD division was recruited as a replacement for a vacant senior operational post.
The improving market conditions seen throughout the year resulted in an increasing demand for equipment. The contracts have been predominantly sale compared to rental, with the proportion of revenue from the rental fleet this year at 13% compared to the 23% seen in the year to 31 March 2021 (44% in the year to 31 March 2020). As at 31 March 2022 there were 3 kits on rental .
The international market showed signs of recovery during the latter part of the financial year, lagging the US recovery as expected. International revenue was $1.1m this financial year, with $0.6m from two new customers and entry into two new geographical markets. The market slowdown in China inevitably drove the reduction in this year’s international revenue, compared to $3.2m in the year to 31 March 2021 .
The SABER development project has progressed during the year with the most important milestone being that the tool has demonstrated that this novel method of steering can generate ample steering forces during flow loop tests. Extensive customer and industry engagement about the SABER project confirmed there is a high degree of appetite for this technology. SABER remains on-track for commercialisation during 2022, with existing resources in place to complete the remaining phase of the development project.
Overall year-on-year a further $0.3m was removed from overheads through a focus of incremental cost savings rather than major reduction programs.
Staff
There was a total of 16 employees at the end of the year, up from the 15 at the previous year end. The Board would like to recognise the on-going loyalty, dedication and support of the staff as Enteq continues with its excellent reputation for the reliability of equipment and commitment to customer support.
Prospects
Enteq has continued investment in the SABER RSS project development, resulting in an enhanced, simplified design with a wider range of operation and a low cost to operate. Sustained testing has confirmed the system has performed to the design criteria and met all requirements to date, thereby further reducing technical risk. Extensive industry engagement with existing and new customers both internationally and across North America, has confirmed that SABER is on-track to meeting the market requirements.
Enteq’s core MWD business has benefitted from the continued growth in the US market, new customers in the US, new customers internationally and from access to selected technology distribution agreements. Additionally, the core existing customer base will be the initial target market for SABER.
As with the core MWD technology, SABER has applications in geothermal and methane capture operations as well as conventional oil and gas, giving the Board grounds for optimism for the short, medium and long term outlook.
Financial Review
This review contains pro-forma statements which are different in presentation to the statutory format shown on the following pages.
Income Statement
| Year to 31 March: | 2022 | 2021 |
| $ million | $ million | |
| Revenue | 7.3 | 5.1 |
| Cost of Sales | (4.7) | (2.4) |
| Gross profit | 2.6 | 2.7 |
| Overheads | (2.3) | (2.6) |
| Adjusted EBITDA | 0.3 | 0.1 |
| Depreciation & amortisation | (0.8) | (1.1) |
| Other charges | (0.3) | (0.1) |
| Ongoing operating loss | (0.8) | (1.1) |
| Exceptional items | – | (0.1) |
| Operating Loss | (0.8) | (1.2) |
| Interest | – | 0.1 |
| Loss before tax | (0.8) | (1.1) |
| Tax | – | – |
| Loss after tax | (0.8) | (1.1) |
The North American market saw a dramatic improvement during the year with the rig count rising from 430 as at 31 March 2021 to 673 as at 31 March 2022, an increase of 243 (57%). The majority of this increase was seen in the second half of the financial year when 145 rigs were added which represented 60% of the full year additional rigs. This improvement was directly related to the price of a barrel of WTI which rose from $61 at 31 March 2021 to $104 at the end of March 2022, an increase of 71%. Again, the majority of this increase was seen in the second half of the financial year when WTI rose from $72, representing a 52% increase in this six month period. The impact of the above was that North American revenue rose to US$6.2m this year from $1.9m last year. The international market appeared to take longer to recover from the COVID impact with international revenue at $1.1m down from the $3.2m reported last year. As previously mentioned, pleasingly, US$0.6m of this revenue came from two new customers based in geographical markets where Enteq had not sold before.
The full year gross margin was 36%, down from last year’s 53%, due to an increasing proportion of revenue coming from the integration of third-party components into the total product range.
Total underlying overheads, at $2.3m, was down $0.3m on last year’s figure. This reflected the concentration on reducing all levels of overheads were possible without impacting the level of customer support given.
The combined depreciation and amortisation charge was significantly down on the previous year due to the reduced level of rental income this financial year. This reflected the market dynamics whereby customers were more inclined to buy rather than rent due to their increased level of activity.
The “Other charges” shown above relate, primarily, to the non-cash cost associated with the Performance Share Plan.
Statement of Financial Position
Enteq’s net assets at the financial year-end comprised of the following items:
| As at 31 March: | 2022$million | 2021$million |
| Intangible assets | 4.1 | 1.7 |
| Property, plant & equipment | 2.2 | 2.3 |
| Rental fleet | 0.3 | – |
| Net working capital | 4.1 | 3.9 |
| Cash balance | 4.8 | 8.1 |
| Net assets | 15.5 | 16.0 |
Both the closing balance and the increase in the year in the intangible assets relate to the on-going spend on all the engineering projects, predominately the SABER rotary steerable system.
The net book value of property, plant & equipment at $2.2m is $0.1m down primarily due to the depreciation charge as only minimal additions were made during the year.
The net book value of the rental fleet reflects the 3 kits on hire at the end of the year, whereas there were only a small number of components on hire as at March 2021.
The net working capital of $4.1m has increased $0.2m during the year. This is primarily due to an increase in debtors ($1.0m) being countered by an increase in creditors ($0.4m) and a decrease of inventory ($0.5m). All these movements relate to the impact of the higher level of trading seen in the last quarter of the financial year.
Cash flows
Overall, the Group saw a net cash outflow of $3.3m (2021: $2.1m) reducing the Group’s closing cash balance as at 31 March 2022 to $4.8m. The majority of this reduction ($2.7m) related to the on-going investment in the engineering projects, primarily the SABER tool.
| Year to 31 March: | 2022$ million | 2021$ million |
| Adjusted EBITDA | 0.3 | 0.1 |
| Change in net operational working capital | (0.2) | (0.9) |
| Operational cash generated | 0.1 | (0.8) |
| Net investment in rental fleet | (0.8) | – |
| Investment in engineering projects | (2.7) | (1.6) |
| Investment in fixed assets | (0.1) | – |
| Interest and share issues | 0.2 | 0.3 |
| Disposal of fixed assets | – | 0.5 |
| Severance and transaction costs | – | (0.5) |
| Net cash movement | (3.3) | (2.1) |
| Opening cash balances | 8.1 | 10.2 |
| Closing cash balances | 4.8 | 8.1 |
Financial Capital Management
Enteq’s financial position continues to be robust. Enteq had no bank borrowings, or other debt, and had a closing cash position of $4.8m as at 31 March 2022. In addition, the Company has in place an undrawn $1m overdraft facility, offering additional flexibility should an accelerated introduction to the marketplace of SABER RSS be appropriate in future.
Enteq monitors its cash balances daily and operates under treasury policies and procedures which are set by the Board.
The financial statements are presented in US dollars as the Company’s primary economic environment, in which it operates and generates cash flows, is one of US dollars. Apart from its UK based overhead costs, substantially all other transactions are transacted in US dollars.
Enteq is subject to foreign exchange rate fluctuations to the extent that it holds non-US Dollar cash deposits. The year-end GBP denominated holdings are approximately 5% of total cash holdings, up from the 3% of last year’s balance.
Annual Report and Accounts
The 2022 Annual Report and Accounts, together with the notice of Annual General Meeting, have today been sent to shareholders and are available on the Company’s website, www.enteq.com.
Annual General Meeting
The Company’s Annual General Meeting will be held on 21 September 2022 at 12:00 noon at the offices of finnCap, 1 Bartholomew Close, London, EC1A 7BL.
David Steel
CFO & Company Secretary, Enteq Technologies
