GETECH GROUP PLC — Earnings Release 2015

Nov 3, 2015

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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 £8,639k (up 32% from £6,593k) and profits £1,992k (up 99% from £1,001k)
•	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 £4,727k at 31 July 2015

Enquiries:

Getech Group plc Raymond Wolfson, Chief Executive	Tel:  0113 322 2200
WH Ireland Limited Katy Mitchell	Tel:  0161 832 2174

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 £1,992,236 (2014: £1,000,816) after interest receivable of £13,554 (2014: £32,914) on revenue of £8,638,588 (2014: £6,592,798). The post-tax profit was £1,812,996 (2014: £1,575,228) 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 £1,992,236 (2014: £1,000,816) 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 £400k.

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.

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 £3.8m with profit before tax of approximately £1.2m. 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
		£	£
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
		£	£
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)
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
		£	£
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 cash received		(1,130,619)	-
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
£		£	£	£	£	£	£	£
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

The financial information set out above, which was approved by the Board on 2 November 2015, is derived from the full Group accounts for the year ended 31 July 2015 and does not constitute the statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group accounts on which the auditors have given an unqualified report, which does not contain a statement under section 498(2) or (3) of the Companies Act 2006 in respect of the accounts for 2015, will be delivered to the Registrar of Companies in due course.

The statutory accounts for the year ended 31 July 2014 which have been delivered to the Registrar of Companies, contained an unqualified audit report and did not include a statement under s498(2) or s498(3) of the Companies Act 2006.

Dividends

2015		2014
£		£
Paid during the year
Final dividend in respect of the year ended 31 July 2014 at 1.76p per share (2013: 1.60p)	534,015	482,125
Interim dividend at 0.46p per share (2014: 0.44p)	149,597	134,413
683,612		616,538
Proposed after the year end (not recognised as a liability)
Final dividend in respect of the year ended 31 July 2015 at 1.74p per share (2014: 1.76p)	572,386	533,565

The proposed final dividend per share for the year ended 31 July 2015 is subject to approval by shareholders at the Annual General Meeting on 8 December 2015.

Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of the Ordinary Shares in issue in the year.

2015		2014
Profit attributable to equity holders of the Group	£1,812,996	£1,575,228
Weighted average number of Ordinary Shares in issue	31,416,845	30,249,212
Basic earnings per share	5.77p	5.21p
Diluted earnings per share	5.61p	4.95p

Diluted earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of the Ordinary Shares which would be in issue if all the options granted, other than those which are anti-dilutive, were exercised. The addition to the weighted number of the Ordinary Shares used in the calculation of diluted earnings per share for the year ended 31 July 2015 is 1,510,171 (2014: 1,560,109).

Notice of Annual General Meeting

The Annual Report and Accounts, and notice convening the Annual General Meeting of the Company will be posted to shareholders on 12 November 2015 and will be available from the Company's website www.getech.com, from that date. The Annual General Meeting of Getech Group plc ("the Company") will be held at Kitson House, Elmete Hall, Elmete Lane, Leeds LS8 2LJ on 8 December 2015 at 12 noon.

This information is provided by RNS

The company news service from the London Stock Exchange

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