Final Results and Investor Presentation

RNS Number : 4358R

Enteq Technologies PLC

06 July 2022

 

Enteq Technologies plc

("Enteq" or the "Company" or the "Group")

Final results for the year ended 31 March 2022

and

 IMC Investor Presentation

Enteq (AIM: NTQ.L), the energy services technology supplier, today announces 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."

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 8th July 2022 at 10:30am BST.

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 the following link:

https://www.investormeetcompany.com/enteq-technologies-plc/register-investor

Investors who already follow Enteq on the Investor Meet Company platform will automatically be invited.

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

For further information, please contact:

Enteq Technologies plc  [phone]

                                www.enteq.com

Andrew Law, Chief Executive Officer

David Steel, Chief Financial Officer

finnCap Ltd (NOMAD and Broker)  [phone]

Ed Frisby, Emily Watts, Tim Harper (Corporate Finance)

Andrew Burdis, Barney Hayward (ECM)

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 Plc
Consolidated Income Statement
		Year to 31 March 2022	Year to 31 March 2021
	Notes	$ 000's	$ 000's
Revenue	2	7,306	5,078
Cost of Sales		(4,678)	(2,367)
Gross Profit		2,629	2,711
Administrative expenses before amortisation		(3,185)	(3,851)
Bad debt provision charge to income statement		-	(56)
Amortisation of acquired intangibles	6	(199)	(19)
Other exceptional items	3	(7)	(85)
Foreign exchange profit on operating activities		(40)	78
Total Administrative expenses		(3,431)	(3,933)
Operating loss		(802)	(1,222)
Finance income		16	67
Loss before tax		(787)	(1,155)
Tax	4	-	46
Loss for the period		(787)	(1,109)
Loss attributable to:
Owners of the parent		(787)	(1,109)
Loss per share (in US cents):	5
Basic		(1.1)	(1.7)
Diluted		(1.1)	(1.7)

There are no other items requiring disclosure as comprehensive income.

Enteq Technologies Plc
Consolidated Statement of Financial Position
					As at 31  March 2022	As at 31  March 2021
			Notes		$ 000's	$ 000's
	Assets
	Non-current
	Intangible assets		6		4,143	1,728
	Property, plant and equipment				2,506	2,272
	Trade and other receivables				-	168
	Non-current assets				6,649	4,168
	Current
	Trade and other receivables				3,537	2,405
	Inventories				2,410	2,888
	Cash and cash equivalents				3,296	8,059
	Bank deposits				1,500	-
	Current assets				10,743	13,352
	Total assets				17,392	17,520
	Equity and liabilities
	Equity
	Share capital				1,072	1,056
	Share premium				91,919	91,789
	Share based payment reserve				432	455
	Retained earnings				(77,894)	(77,324)
	Total equity				15,529	15,976
	Liabilities
	Current
	Trade and other payables				1,863	1,544
	Total liabilities				1,863	1,544
	Total equity and liabilities				17,392	17,520

Enteq Technologies Plc

Consolidated Statement of Changes in Equity

				Share
	Called up			based
	share	Retained	Share	payment	Total
	capital	earnings	premium	reserve	equity
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
As at 1 April 2021	1,056	(77,324)	91,789	455	15,976
Issue of share capital	16	-	130	-	146
Transfers between reserves	-	217	-	(217)	-
Share based payment charge	-	-	-	194	194
Transactions with owners	16	217	130	(23)	340
Loss for the year	-	(787)	-	-	(787)
Other comprehensive income for the year	-	-	-	-	-
Total comprehensive income	-	(787)	-	-	(787)
Total movement	16	(570)	130	(23)	(447)
As at 31 March 2022	1,072	(77,894)	91,919	432	15,529
As at 1 April 2020	1,027	(76,943)	91,579	1,048	16,711
Issue of share capital	29	-	210	-	239
Transfers between reserves	-	728	-	(728)	-
Share based payment charge	-	-	-	135	135
Transactions with owners	29	728	210	(593)	374
Loss for the year	-	(1,109)	-	-	(1,109)
Other comprehensive income for the year	-	-	-	-	-
Total comprehensive income	-	(1,109)	-	-	(1,109)
Total movement	29	(381)	210	(593)	(735)
As at 31 March 2021	1,056	(77,324)	91,789	455	15,976

Enteq Technologies Plc

Consolidated Statement of Cash Flows

	Year to 31 March 2022	Year to 31 March 2021
	$ 000's	$ 000's
Cash flows from operating activities
Loss for the year	(787)	(1,109)
Net finance income	(16)	(67)
Gain on disposal of fixed assets	(30)	(455)
Share-based payment non-cash items	194	135
Foreign exchange charge	(40)	78
Depreciation and Amortisation charges	840	1,130
	161	(288)
Tax received	-	46
Decrease in inventory	478	222
(Increase)/decrease in trade and other receivables	(964)	(554)
Decrease in trade and other payables	320	(820)
Increase in rental fleet assets	(817)	(17)
Net cash from operating activities	(822)	(1,411)
Investing activities
Purchase of Property Plant and Equipment	(58)	(29)
Disposal proceeds of tangible fixed assets	30	511
Increase in intangible fixed assets	(2,614)	(1,423)
Funds placed on interest bearing deposit	(1,500)	-
Interest received	16	67
Net cash from investing activities	(4,126)	(874)
Financing activities
Share issue	145	239
Net cash from financing activities	145	239
Decrease in cash and cash equivalents	(4,803)	(2,046)
Non-cash movements - foreign exchange	40	(78)
Cash and cash equivalents at beginning of period	8,059	10,183
Cash and cash equivalents at end of period	3,296	8,059

1.  BASIS OF PREPARATION

The results for the year ended 31 March 2022 have been prepared using the accounting policies and methods of computation consistent with those used in the Group's annual report for the year ended 31 March 2021.  The results have also been presented and prepared in a form consistent with that which will be adopted in the Group's annual report for the year ended 31 March 2022 and in accordance with the recognition and measurement requirements of the International Financial Reporting Standards as adopted by the European Union.

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 March 2022 and the year ended 31 March 2021, but is derived from those accounts.  Statutory accounts for 2021 have been delivered to Companies House.  Those for the year ended 31 March 2022 will be delivered following the Company's Annual General Meeting on 21 September 2022.

The financial information has been extracted from the Group's Annual Report for the year ended 31 March 2022.  The auditors have reported on these accounts; their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006. The Group published its 2022 Annual Report and Accounts on 6 July 2022.

2.  SEGMENTAL REPORTING

For management purposes, the Group is currently organised into a single business unit, the Drilling Tools division, which is currently based solely in the USA.

The principal activities of the group is the design, manufacture and selling of specialised parts and products for Directional Drilling and Measurement While Drilling operations for use in the energy exploration and services sector. Revenue is only generated by the selling activity.

At present, there is only one operating segment and the information presented to the board is consistent with the consolidated profit and loss statement and the consolidated statement of financial position. 

The revenues, net assets and non-current assets of the Group can be analysed by geographic location (post-consolidation adjustments) as follows:

Revenues

	31 March 2022	31 March 2021
	$ 000's	$ 000's
United States of  America	6,201	1,939
Central Asia	396	-
Australasia	243	-
China	187	2,735
Europe	51	323
Rest of the world	228	81
Total Group revenue	7,306	5,078

	31 March 2022	31 March 2021
	$ 000's	$ 000's
Contracts with customers	6,364	3,930
Operating lease income	942	1,148
Total Group revenue	7,306	5,078

Net Assets

	31 March 2022	31 March 2021
	$ 000's	$ 000's
Europe (UK)	3,649	6,674
United States	11,880	9,302
Total Group net assets	15,529	15,976

Non-current Assets

	31 March 2022	31 March 2021
	$ 000's	$ 000's
Europe (UK)	-	-
United States	6,649	4,168
Total Group non-current assets	6,649	4,168

All of the Group's revenue arises from the sale and rental of specialised parts and products for Directional Drilling and Measurement While Drilling operations.  The Group had 2 customers that contributed in excess of 10% of the Group's total sales for the year (2021: 3). These customers contributed $4,0868k and $1,014k respectively. (2021: $ 2,088k, $1,020k and $572k). No revenue relates to customers based in the UK (2021: none).

3.  EXCEPTIONAL ITEMS

The exceptional items can be analysed as follows:

	31 March 2022	31 March 2021
	$ 000's	$ 000's
Severance payments and other plant closure costs	37	397
Gain on sale of fixed assets	(30)	(455)
Aborted project costs incurred	-	147
Other	-	(4)
Total exceptional items	7	85

4.  INCOME TAX

  Analysis of tax expense

No liability to UK corporation tax arose on ordinary activities for the period.

Factors affecting the tax charge

The tax assessed for the period is different from the standard rate of corporation tax in the UK. The difference is explained below:

	31 March 2022	31 March 2021
	$ 000's	$ 000's
Loss on ordinary activities before tax	(787)	(1,109)
Loss on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2021: 19%):	(149)	(211)
Effects of:
Items not subject to corporation tax	(31)	136
Tax losses to carry forward	181	75
R&D tax credit	-	46
Total income tax	-	46

There has been no deferred taxation recognised in these financial statements due to the uncertainty surrounding the timing of the recovery of these amounts. The total losses available to the Group in the relevant tax jurisdictions are as follows: UK $0.5m; United States $22.2m (2021: UK $1.4m; United States $20.3m). There were no significant deferred tax liabilities. These tax losses have no expiry date. 

5.  EARNINGS PER SHARE AND DIVIDENDS

Basic earnings per share

Basic earnings per share is calculated by dividing the loss attributable to ordinary shareholders for the year of $787k (31 March 2021: loss of $1,109k) by the weighted average number of ordinary shares in issue during the year of 68,604k (31 March 2021: 67,065k).

As the Group is loss making, any potential ordinary shares have the effect of being anti-dilutive.  Therefore, the diluted EPS is the same as the basic EPS.  As the year end share price is below the weighted average option price of all the options issued, the adjusted diluted EPS is the same as adjusted EPS.

The number of outstanding share options, including senior managers, that are not included in the above figures are as follows:

	31 March 2022	31 March 2021
	000's	000's
EMI plan	233	398
PSP plan	3,670	3,825
Total	3,903	4,223

March 2022:  EPS	Earnings	Weighted average number of shares	Per-share amount
	$ 000's	000's	US cents
Loss attributable to ordinary shareholders	(787)	68,604	(1.1)
March 2021:  EPS	Earnings	Weighted average number of shares	Per-share amount
	$ 000's	000's	US cents
Loss attributable to ordinary shareholders	(1,109)	67,065	(1.7)

During the year Enteq Technologies Plc did not pay any dividends (2021: nil).

6.  INTANGIBLE ASSETS

  Other Intangible Assets

	Developed technology	IPR&D technology	Brand names	Customer relationships	Total
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
	Developed technology	IPR&D technology	Brand names	Customer relationships	Total
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
Cost:
As at 1 April 2021	12,842	13,048	1,240	20,586	47,716
Transfers	275	(275)	-	-	-
Disposal	-	-	-	(20,586)	(20,586)
Capitalised in period	120	2,494	-	-	2,614
As at 31 March 2022	13,237	15,267	1,240	-	29,744
Amortisation/Impairment:
As at 1 April 2021	12,842	11,320	1,240	20,586	45,988
Disposal	-	-	-	(20,586)	(20,586)
Charge for the year	199	-	-	-	199
As at 31 March 2022	13,041	11,320	1,240	-	25,601
Net Book Value:
As at 1 April 2021	-	1,728	-	-	1,728
As at 31 March 2022	196	3,947	-	-	4,143
	Developed technology	IPR&D technology	Brand names	Customer relationships	Total
	$ 000's	$ 000's	$ 000's	$ 000's	$ 000's
Cost:
As at 1 April 2020	12,823	11,454	1,240	20,586	46,103
Capitalised in period	19	1,594	-	-	1,613
As at 31 March 2021	12,842	13,048	1,240	20,586	47,716
Amortisation/Impairment:
As at 1 April 2020	12,823	11,320	1,240	20,586	45,969
Charge for the year	19	-	-	-	19
As at 31 March 2021	12,842	11,320	1,240	20,586	45,988
Net Book Value:
As at 1 April 2020	-	134	-	-	134
As at 31 March 2021	-	1,728	-	-	1,728

The main categories of Intangible 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 within the foreseeable future.

Brand names:

The value associated with the various trading names used within the Group.

Customer relationships:

The value associated with the on-going trading relationships with the key customers acquired.

Impairment

Due to the volatility seen in the price of oil seen since the start of March 2020, all intangible assets were assessed as to their future commercial viability. 

There are now considered to be two cash generating units ("CGU") - see the accounting policy note on page 48.

The recoverable amount of each CGU is determined from value in use calculations both where the asset is currently in use or will be in the future.  The key assumptions for the value in use calculations are those regarding the future revenues, discount rates, growth rates and expected changes to selling prices and direct costs during the period.  Management estimates discount rates using pre-tax rates that reflect current market assessment of the time value of money and the risks specific to the CGU.  The growth rates are based on management forecasts for the five years to March 2026.  Cash flow forecasts are prepared from the most recent financial plans approved by the Board.

Currently the SABER project is in the development phase and has not generated any revenue. On the assumption that the SABER project is launched successfully, the longer-term forecast assumes annual growth rates between 5% and 3%. The impairment test  assumes annual growth rates of 123% in the year to March 2023, 103% in the year to March 2024, 85% in the year to March 2025, 10% in the years to March 2026, and March 2027, followed by 3% thereafter. The high growth rates are due to the introduction of the SABER product line in the years under review. 

The pre-tax rate used to discount both cash flow forecasts is 13.4% (2021: 12.8%).  Management have based this rate on the following factors: a Risk Free Rate of 2.9%; a levered equity beta of 1.5; a market risk premium of 5.5%; a small cap premium of 3.8% and an implied cost of debt of 4.5%.

Intangible assets

The intangible assets acquired during the year comprise both externally procured services from specialist suppliers, which is shown at the purchase cost, and internally generated costs which is shown at the cash cost of the items acquired, primarily payroll related costs.

Amortisation

All categories of intangible assets, apart from the IPR&D technology, are being amortised over their respective useful lives, on a straight-line basis. The rotary steerable project will have its useful life assessed once the field trials have been completed which will give a better estimate of the usefulness of this asset.

7.  RESPONSIBILITY STATEMENT OF THE DIRECTORS

To the best of the knowledge of the Directors (whose names and functions are set out below), the final results announcement has been prepared using accounting policies and methods of computation consistent with those used in the Group's annual report for the year ended 31 March 2021 and adopted for the financial year ended 31 March 2022, gives a true and fair view of the assets, liabilities, financial position and profits and losses for the Company and the undertakings included in the consolidation taken as a whole.

Executive Directors

Andrew Law  Chief Executive Officer

David Steel  Chief Financial Officer 

Non-Executive Directors

Martin Perry  Chairman

Iain Paterson 

Neil Hartley

 

END

 

 

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