ENTEQ UPSTREAM PLC
ANNUAL REPORT
FOR THE YEAR TO 31 MARCH 2018
REGISTERED NUMBER: 07590845 (England and Wales)
Enteq Upstream Plc
Contents
Operational Highlights, Financial Metrics and Outlook
Company Information
Strategic Report:
Chairman’s Statement
Chief Executive’s Operating and Strategic Review
Financial Review
Page
2
3
4
5
8
Review of Principal Risks and Uncertainties
11
Corporate Governance:
Corporate Social Responsibility
Report of the Directors
Remuneration Committee Report
Corporate Governance Report
Financial Statements:
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
13
15
18
22
25
33
34
35
36
37
Notes to the Consolidated Financial Statements
38
Company Statement of Financial Position
Company Statement of Changes in Equity
Company Statement of Cash Flows
Notes to the Company Financial Statements
62
63
64
65
1
Operational Highlights, Financial Metrics and Outlook
Enteq Upstream Plc
Key features
• Return to positive EBITDA
• North American market stabilised at new oil price and rig count
• Re-built production capacity
•
Investment in new technologies
• Maintained cash reserves for future investment
Financial metrics
Years ended 31 March:
• Revenue
• Adjusted EBITDA1
• Loss before tax
• Adjusted loss per share2
• Loss per share
• Cash balance
2018
$6.5m
$0.2m
$0.6m
0.8 cents
1.0 cents
$15.5m
2017
$4.8m
$(0.5)m
$1.1m
1.7 cents
2.0 cents
$15.3m
Outlook
• Core market of USA land drilling expected to remain near current levels
•
International markets show further promise although cash constrained
• Enteq market share maintained or improved
• New products, technologies and partnerships will increase available market
1 Adjusted EBITDA is reported profit before tax adjusted for interest, depreciation, amortisation, foreign exchange movements, Performance Share
Plan charges and exceptional items.
2 Adjusted loss per share is reported loss per share adjusted for amortisation, foreign exchange movements and exceptional items,
2
Enteq Upstream Plc
Company Information
For the year to 31 March 2018
DIRECTORS:
Chairman
Iain Paterson
Chairman of the Board, Chairman of Nomination Committee
Executive Directors
Martin Perry
David Steel
Non-Executive Director
Chief Executive Officer
Finance Director
Robin Pinchbeck
Chairman, Remuneration and Audit Committees
SECRETARY
David Steel
REGISTERED OFFICE
The Courtyard
High Street
Ascot
Berkshire
SL5 7HP
REGISTERED NUMBER
07590845 (England and Wales)
AUDITORS
Grant Thornton UK LLP
Registered Auditors
1020 Eskdale Road
Winnersh
Wokingham
RG41 5TS
NOMINATED ADVISER & BROKER
Investec Bank plc
2 Gresham Street
London
EC2V 7QP
LEGAL ADVISORS
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place
78 Cannon Street
London
EC4N 6AF
REGISTRARS
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
3
Strategic Report
The above starts with the Chairman’s statement and continues to the end of the Principal Risks and Uncertainties.
Enteq Upstream Plc
Chairman’s Statement
Review of the Year
This year’s financial results have been encouraging. Revenue has increased and, importantly, there has been a return
to profitability at the EBITDA level. Cash reserves during the year have increased once again even though
investment in Engineering, Product Development and increases in the rental fleet have continued. This has been
achieved as a result of prudent and decisive management initiatives taken throughout the down-turn and which have
continued into this current period.
The global oil and gas market has found a new, more stable, level of activity during the year. Following a number
of years of turbulence, with a dropping oil price and unpredictable rig utilisation creating difficulties for the entire
sector, a year of relative stability has allowed for some more organised and rational planning.
Enteq remains heavily dependent on the North American directional oil drilling market but has established further
in-roads into the markets in the Far East and Middle East. The rig count in North America is now approximately
1,000, up from 840 in April 2017 and 420 in April 2016, but still significantly below the 2,000 plus in 2014.
Enteq’s electronic and sensor equipment is sold as a capital, re-useable, asset and consequently it was feared that
some significant over capacity would remain in the market even during a recovery period. However, through a pro-
active scheme of upgrading and replacing older equipment, Enteq has effectively re-established a secure customer
base.
Several technical advances were made during the year. Utilising a grant received from Innovate UK, a funding body
of the UK government, Enteq has made good progress in the development of an innovative inclination sensor which
will be applicable to both existing and new markets. Patents have been filed in relation to a novel power and data
communication system for Logging While Drilling and IP with potential for improving “in-well” data transmission
rates has been purchased.
During the year, the electronic and sensor manufacturing was successfully relocated from leased premises in
California to a newly re-furbished facility within the existing Enteq freehold site in Houston. As Enteq’s US
customer base is largely within the greater Houston area, this move improves both support and repair responsiveness
as well as enhancing the critical mass at the Houston operations, where headcount is now growing again.
The core staff have remained very loyal to Enteq during a difficult few years and the Board thanks them for their
support.
Prospects
The recent oil price stability has allowed greater certainty to be placed on medium-term planning throughout the
industry. North American drilling is again delivering good returns from shale producing oil. Outside North America
there are increasingly more initiatives to exploit shale-based oil and gas and also further investment in conventional
drilling and production.
Enteq is well positioned with both their current and evolving technologies to support all new drilling opportunities.
Iain Paterson
Chairman
4
Enteq Upstream Plc
Chief Executive’s Operating and Strategic Review
Introduction
Enteq has completed a further year of tight cost and cash control whilst endeavouring to take advantage of a
recovering market. The financial results have been pleasing, with a return to positive EBITDA and further increases
in cash reserves. Market share has been maintained or increased in North America and further international progress
has been achieved. Investment has continued in technology and product development as well as increasing the rental
assets. Operational rationalisation has continued with further efficiencies and enhanced customer support capability.
Strategy & Business Model
Enteq supplies Measurement While Drilling (MWD) equipment to the oil and gas industry world-wide to enable
directional drilling.
Directional drilling is carried out by oilfield service companies who either purchase equipment from third parties
such as Enteq or develop the equipment themselves. Measurement While Drilling equipment is used on every rig
which drills directional wells.
A sharp reduction in the price of crude oil in 2015 gave rise to an uncertain period in the market for the last 3 years,
however, coming in to 2018, the price of oil has stabilised and the key market indicator of the North American rig
count has continued to increase to the current level in excess of 1,000 compared to 840 in April 2017 and 420 in
April 2016. However, this remains significantly below the 2,000 plus level of 2014. Although activity levels have
improved, the pricing in the market generally remains under pressure with margins for operators, service companies
(Enteq customers) and suppliers continuing to be squeezed.
The directional drilling market is divided between the ‘major’ service companies who are vertically integrated using
their own equipment, and the ‘independents’ who need to acquire equipment, such as the Measurement While
Drilling equipment provided by Enteq, from third parties. Enteq supplies a competitive solution with an excellent
record of reliability and also offers good financial terms on rental and purchase options. Enteq has maintained good
relationships with the independent service companies and maintained market share.
Outside North America, Enteq equipment continues to prove its capability in China, Russia, Saudi Arabia, Oman
and Indonesia. Despite local competition, Enteq has significant further opportunities.
Reporting & performance indicators
A set of Key Performance Indicators are in place. These are reported weekly to senior management who review,
initiate action where required and follow-up. The following Key Performance Indicators are used:
Financial:
• Sales, gross profit margin, adjusted EBITDA, order intake and backlog, accounts receivable ageing,
inventory levels, rental fleet numbers and capital expenditure.
Other performance measures:
• Headcount, production hours worked, number of reportable Health and Safety Executive (“HSE”)
incidents.
Key market indicators regularly monitored by management and Board of Directors include: Global Rig Count, North
American Rig Count, West Texas Intermediate (“WTI”) Oil Price and Henry Hub Natural Gas Price.
5
Enteq Upstream Plc
Product development
Enteq has invested further in its core disciplines within engineering and software development.
New development and patent applications related to Logging While Drilling connectivity have been progressed, a
purchase of IP related to a potential new downhole communication has been completed, and the funded programme
of development of additional sensors for potential Geothermal wells is on-track.
People
Following a harsh downsizing of the business, Enteq is now re-building a team based around the crucial core team
that remained through the industry down-turn. Group headcount has increased from the skeleton crew of 19 last year
(US: 14, UK: 5) to 33 at the end of March 2018 (US: 26, UK: 7).
Facilities
Enteq has completed further consolidation of operating locations by transferring the electronic / sensor
manufacturing capabilities from leased premises in Santa Clara, California to re-furbished, owned, state of the art,
facilities in Houston, Texas. The transition was achieved with the full co-operation of all staff, a number taking up
the option of a transfer to Houston, without any disruption to production or quality control. The 5-acre South
Houston facility, owned by Enteq, now contains all the Enteq product line and is able to demonstrate to customers
the full company capabilities.
For international business development, senior finance and management Enteq also operates from a rented office in
Amersham, UK.
Sales & Marketing
Regular contact is maintained with the customer base from the Group’s operational hub in Houston and by the Chief
Operations Officer in North America. International opportunities and sales are generated from the UK office and by
a representative in China. Business development trips are made as and when required.
Future strategic direction
Enteq is operating a strong, profitable, cash generative business in a sector which is in recovery, is sustainable long
term, and is expected to grow. Enteq has a strong balance sheet, and also has the ability to raise further funds, should
incremental opportunities be available. Through investment in technology, both in-house and through partnerships,
the market being addressed can be enlarged. The current customer base, and therefore market share, remains strong.
Additional growth outside North America is expected.
Governance
Enteq is committed to maintaining high standards of Corporate Governance. As an AIM traded Company, Enteq is
not obliged to follow, and therefore has not adopted, the UK Corporate Governance Code (April 2016). However,
we seek to comply with its provisions where we consider them to be relevant to the company. More details are
given on page 24.
6
Enteq Upstream Plc
Conclusion
Enteq has managed the business through difficult market conditions. Cash has been preserved, there has been a
return to profitability and strategic investment has been maintained.
Core competencies are in place, technical differentiation is being improved and market share maintained. The
business is poised for growth opportunities.
Martin Perry
Chief Executive Officer
12 June 2018
7
Enteq Upstream Plc
Financial Review
Income Statement
Year to 31 March:
Revenue
Cost of Sales
Gross profit
Overheads
Adjusted EBITDA
Depreciation & amortisation
Other charges
Ongoing operating loss
Other exceptional items
Interest
Loss before tax
Tax
Loss after tax
2018
2017
$ million
$ million
6.5
(2.2)
4.3
(4.1)
0.2
(0.8)
(0.1)
(0.7)
(0.1)
0.2
(0.6)
-
(0.6)
4.8
(1.7)
3.1
(3.6)
(0.5)
(0.5)
(0.2)
(1.2)
-
0.1
(1.1)
(0.1)
(1.2)
The improvement in the results for the year ended 31 March 2018 arise from the stabilization of the North American
market. The price of a barrel of West Texas Intermediate (“WTI”) has risen from $49 at the start of April 2017 to
$65 as at 31 March 2018; in addition, the price has not dropped below $55 since mid-November 2017. This price
progression has resulted in the North American rig count rising from approximately 840 at the start of the financial
year to just over 1,000 at the end. As Enteq’s revenue is derived from both rigs being added to customers’ fleets and
on-going replacement of equipment during rig operation, the North American derived turnover rose from $3.4m to
this year’s $6.0m. Internationally, the market continues to be both cashflow constrained and subject to the uncertain
timing of big ticket projects. Enteq’s international revenue is down from $1.4m to $0.5m.
The full year gross margin was 67%, up on the 65% of the previous year. This is primarily due to the increasing level
of rental revenue as a result in the investment in the rental fleet (up from 10% of revenue in the year to 31 March 2017
to 15% of revenue this year).
Total overheads, at $4.1m, were up $0.5m on last year’s figure. This reflected the increased costs in the second half
of the year, primarily due to:
•
•
•
the increase in non-production and development costs of expanding the engineering and mechanical
component teams, including recruitment costs;
the increase in activity related general overheads, such as subsistence and travel; and
the “ramp up” costs associated with setting up the new electronic component production facility at South
Houston (the leased Santa Clara facility being closed in Mid-March 2018).
Note that the actual relocation cost of the electronic component production move of $0.1m is shown within the
exceptional items.
The combined depreciation and amortisation charge was up due to the deprecation charge relating to the rental fleet
increasing from $0.2m last year to $0.6m this year. This reflects the carrying value of the rental fleet growing from
$0.5m as at 31 March 2017 to $2.1m at the end of this year.
The “Other charges” included in the ongoing operating loss for the year primarily relate to the non-cash charge
associated with the Performance Share Plan.
8
Enteq Upstream Plc
Statement of Financial Position
Enteq’s net assets at the year-end comprised of the following items:
As at 31 March:
Other intangible assets
Property, plant & equipment
Rental fleet
Net working capital
Cash
Net assets
2018
2017
$million
$million
1.2
2.3
2.1
2.5
15.5
23.6
0.6
2.3
0.5
5.0
15.3
23.7
The “Other intangible assets” represent the value of the on-going R&D work, carried out by the engineering team,
capitalised to date, less the amortisation relating to the products fully commercialised (primarily software releases).
The net book value of property, plant & equipment has remained at $2.3m due to the increase of $0.1m relating to the
investment in constructing the new electronic component facility at South Houston being offset by a similar
depreciation charge.
The increase in the net book value of the rental fleet reflects the number of kits rising from 6, as at 1 April 2017, to
14 at the year-end combined with the increasing value of components included in the new kits.
The $2.5m decrease in net working capital is due to the management’s focus on the cash impact of this item. During
the year there was a reduction in trade debtors ($1.6m) and increase in trade creditors and accruals ($0.9m).
Cash flows
Year to 31 March:
Adjusted EBITDA
Change in net working capital
Operational cash generated
Investment in R&D
Investment in rental fleet
CAPEX
Equipment disposal proceeds
Interest and share issues
Net cash movement
Opening cash balances
Closing cash balances
9
2018
2017
$ million
$ million
0.2
2.6
2.8
(0.7)
(2.2)
(0.2)
0.1
0.4
0.2
15.3
15.5
(0.5)
1.2
0.7
(0.4)
(0.4)
-
-
0.3
0.2
15.1
15.3
Enteq Upstream Plc
The increase in R&D spend reflects the expansion of the engineering team during the second half of the year plus the
legal fees regarding filing patent applications in order to protect intellectual property being created.
The robustness of the balance sheet enabled Enteq to expand its customer base by continuing to offer rental terms,
with the number of kits rising from 6 as at 1 April 2017 to 14 at the year end.
The CAPEX relates to the cost of constructing the new electronic component facility at the South Houston site.
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 $15.5m as at 31 March 2018.
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 the foreign exchange rate fluctuations to the extent that it holds non-US Dollar cash deposits. These
GBP denominated holdings are now approximately 1% of total cash holdings, down from last year’s 6% due to timing
differences in converting USD to GBP.
Annual General Meeting
The Company’s Annual General Meeting will be held on 26 September 2018 at 12.00 noon at the offices of Investec
Bank plc, 30 Gresham Street, London EC2V 7QP.
David Steel
Finance Director
12 June 2018
10
Enteq Upstream Plc
Review of Principal Risks and Uncertainties
The Board is responsible for the Group's risk management and during the year has undertaken a systematic review
of the key risks and uncertainties which face the Group. The Board establishes the framework for risk management
across the Group. It seeks to embed risk management and to facilitate the implementation of risk management
measures throughout the Group’s businesses. The Board refines its view of risks on an on-going basis and as the
Group’s businesses enter new markets and develop new products.
The Directors believe the following risks to be the most significant for the Group. The mitigating activities described
below will help to reduce the likelihood or impact of each risk occurring, although the Board recognises that it will
not be possible to eliminate these risks entirely. The risks listed do not necessarily comprise all those relating to the
Group’s operations, or with an investment in the Group.
If any of the following risks were to materialise, the Group's businesses, financial condition, results or future
operations could be materially adversely affected.
INDUSTRY SPECIFIC RISKS
Fluctuations in oil and gas prices
Short-term fluctuations in oil and gas prices may lead to uncertainty in the oil and gas industry which can lead to
reduced investment in equipment by the Group’s customers. In addition, a longer term fall in oil and gas prices could
reduce levels of cash flow in the industry which could in turn lead to the reduction or deferral of expenditure in the
reach and recovery market.
Although not under the Board’s control, the Board actively monitors key energy commodity prices and other
industry parameters and if appropriate, acts expeditiously to manage costs and working capital as necessary.
Economic fluctuations in territories where the Group’s products are used
Economic fluctuations in territories where the Group’s products are used create uncertainty and discourage
investment. The Group’s products are used by service companies, which may deploy its equipment and services in
territories outside their national markets. Fluctuations in such territories could reduce the market size for the Group’s
products.
Management and the Board, using their experience and judgment, monitor political and economic developments as
appropriate in order to minimise, where possible, the impact of such adverse events on the Group. Further, the
Group’s strategy of diversifying its customers, product lines and geographic markets helps to mitigate these risks.
RISKS RELATING TO THE GROUP'S STRATEGY
Acquisition opportunities
The Board continues to adopt a cautious approach to acquisition opportunities. The Board continues to monitor
and assess potential earning enhancing acquisitions.
GROUP SPECIFIC RISKS
Dependence on key personnel
The future success of the Group is substantially dependent on the continued services and continuing contributions
of its Directors and key employees. The loss of the services of any of its Directors or other key employees could
have a material adverse effect on the Group.
The Board believes dependence on key personnel is an acceptable risk. However, the Board periodically reviews
the capability and availability of the necessary skills to manage the Group and will seek suitable replacements or
additions where appropriate.
With the increase in staff numbers during the year, this risk has decreased. The Board continues to balance this risk
with the requirement to keep overhead spend constantly under review.
11
Enteq Upstream Plc
Dependence on key customers
The Group is dependent on a relatively small number of key customers and the size of any individual order
may be substantial. The timing of these orders may materially impact on the Group results. The loss of business
due to any North America based customer going out of business has decreased during the year due to the
stabilization of the oil price and rising rig count numbers.
As well as active management of key customer relationships, the Group’s strategy also involves broadening
the customer base especially outside North America, providing mitigation against such dependence.
Cash balances
The level of the Group’s cash balance gives the Board significant comfort as to the future viability of the Group.
The majority of cash is held in deposit accounts in USD.
NON-SPECIFIC RISK FACTORS
Health, Safety & Environment
Safety is one of our core priorities. The Group is subject to a number of Health, Safety & Environment (“HSE”)
laws and regulations that affect its operations, facilities and products in each of the jurisdictions in which it
operates. The Group is committed to operating in compliance with all HSE laws and regulations relating to its
products, operations and business activities. However, there is a risk that it may have to incur unforeseen
expenditures to cover HSE liabilities, to maintain compliance with current or future HSE laws and regulations
or to undertake any necessary remedy.
The Board closely monitors safety reporting and HSE compliance both at each monthly meeting and during
visits to the Group’s businesses. The group has the appropriate insurance policies in place to cover any actions
brought against related to breaches in health and safety.
Infringement upon intellectual property rights
Patents and/or Know-How owned by the Group may be challenged by third parties and may not be enforceable
in certain parts of the world. In addition, agreements concerning intellectual property rights entered into by the
Group could be terminated and may have an adverse effect upon the Group’s business.
Where appropriate the Group protects the validity of its intellectual property via thorough patent and trademark
applications and will robustly defend any claims against it, if appropriate.
Business Interruption
Business interruption may occur as a result of a number of events, which are either within or outside the
Group’s control. These include: the failure or unavailability of operational and IT infrastructure; delay or
interruptions in the availability of products or services provided by third-party suppliers and natural disasters
such as earthquake, flooding and storms.
Mitigation is achieved by having a business continuity plan, relevant insurances and managing dependence on
key supplier relationships.
Threats to Cyber security
A compromise of the Group’s IT systems could cause significant disruption in production, shipments and cash
collection and lead to financial, intellectual property or commercially sensitive data losses.
The Group is mindful of the risk of cyber-attacks and breaches of cyber security. The company maintains
appropriate controls (such as IT system password protection, managing user access and privileges, malware
protection and network security) and compliance with relevant data protection regulations.
The Strategic Report set out on pages 4 to 12 was approved by the Board of Directors on 12 June and signed
on its behalf by:
Martin Perry
Chief Executive Officer
12 June 2018
12
Corporate Social Responsibility
Enteq Upstream Plc
Enteq is committed to developing relationships with its key stakeholders – employees, shareholders, customers,
suppliers and communities within the areas we operate. This report describes the policies and responsibilities which
Enteq has adopted to ensure that it is and remains a responsible global corporate citizen.
Our commitment to shareholders, employees and other key stakeholders is to create a sustainable organisation,
capable of delivering long-term positive returns and providing stability to our employees.
The Group has implemented key policies in respect of:
• Anti-bribery and Corruption
• Embargo compliance
• Data protection and privacy
• Corporate ethics & standards code of conduct, including employee ‘speak up’ policy
In addition, the Group has implemented procedures to ensure that it:
communicates appropriately with shareholders and employees;
•
• meets all health, safety and environmental legislative requirements; and
• meets the highest standards of business ethics in all its dealings, including strict compliance with both UK
and US legislation introduced to prevent bribery
Investor Communications
Communicating with the Company’s shareholders is of key importance to the Directors. We do so by press releases,
issued via the London Stock Exchange and institutional investor presentations. The Chief Executive and Finance
Director meet with major shareholders at least twice a year, following the announcement of the Group’s half and
full year results.
Employees
We continue to recognise that our employees are our most valuable asset. Both senior and local management have
ensured that all staff are kept informed of the changes to our trading patterns and fully explained the reasons behind
the actions taken during the year. As at 31 March 2018, the Group had 33 employees (2017: 19).
Health and Safety
The Group is committed to achieving and maintaining the highest standards of safety for its employees, customers,
suppliers and the public. Enteq aims for best practice and employs rigorous health and safety practices.
Health and Safety policies include:
• Regular audit and maintenance reviews of facilities, equipment, practices and procedures to ensure
compliance with prevailing standards and legislation and a safe environment for all those who work within
and around our facilities.
• Seeking accreditation and alignment with internationally recognised Quality Assurance standards.
• Monitoring and reporting to each Board meeting.
• Appropriate training and education of all staff.
The Group’s target is to achieve zero recordable incidents. Each local business is required to develop tailored policies
to reflect its daily business. These incorporate the Group’s approach to putting safety first and, at a minimum, to
comply with local regulatory requirements.
During the year, there were no fatalities across the Group’s operations with no reportable incidents (2017: nil).
13
Enteq Upstream Plc
Environment
The Group is committed to the protection of the environment and developing manufacturing processes and
procedures which ensure that any adverse effects on the environment are kept to a practicable minimum. We take
the view that sustainable development is in the interests of all our stakeholders and include environmental issues in
our planning and decision-making.
The Group’s environmental policy is to look for opportunities and adopt practices that create a safer and cleaner
environment. We are particularly sensitive to the challenges for the industry in which we operate.
Key aspects of our environmental policies include:
• Keeping any adverse effects on the environment to a practicable minimum.
• Encouraging the reduction of waste and emissions and promoting awareness of recycled materials and use
of renewable resources.
• Encouraging employees to pay special regard to environmental issues and requirements in the communities
in which the Group operates.
Incorporating health, safety and environment considerations into the design of new facilities.
•
Business Ethics
The Group’s Directors and employees promote the highest standards of honesty and integrity in the way it goes
about its business, recognising that the Group’s reputation is of critical importance in the industry in which we
operate.
Through the Group’s Code of Conduct and compliance with the UK Bribery Act and the US Foreign and Corrupt
Practices Act, the Group has policies and controls in place detailing procedures on how the Group interacts with
customers, suppliers and governments around the world. These include a Global Gift and Entertainment Guideline
which codifies the standards and conduct which we set for our employees’ interactions with customers, suppliers
and other external parties.
David Steel
Company Secretary
12 June 2018
14
Report of the Directors
For the year to 31 March 2018
Enteq Upstream Plc
The directors present their report with the financial statements of the Group and the Company for the year to
31 March 2018.
DIRECTORS
The directors holding office at the year end are as follows:
Chief Executive Officer
Martin Perry
Martin Perry (56), formerly CEO of Sondex plc. Martin entered the oil industry in 1984, initially as a field engineer
after gaining an engineering degree at Exeter University. Martin then worked in the IT and Data Communications
industry, before leading the Management Buy Out at Sondex. Following the acquisition of Sondex by GE in 2007,
Martin was appointed CEO of GE’s Oilfield Technologies Division and subsequently served as Non-Executive
Chairman of 3 private equity-backed businesses.
Finance Director
David Steel
David Steel (57), is a Chartered Accountant who qualified in KPMG’s London office. David has held senior
finance positions in a wide variety of industries including international trade exhibitions and aerospace
manufacturing. Prior to joining Enteq he was Deputy Finance Director of a global provider of geoprediction tools
to the upstream oil and gas industry.
Non-Executive Chairman
Iain Paterson
Iain Paterson (71), formerly Chairman of Sondex plc and ITE Group plc, Non-Executive Director of Hunting plc,
Paladin Resources plc, MOL NyRt and of the Advisory Board of the Oman Oil Company, Iain has over 45 years’
experience in the oil industry. He held senior management positions at BP and was a main Board director of
Enterprise Oil plc. Iain also chairs the Company's Nomination Committee.
Non-Executive Director
Robin Pinchbeck
Robin Pinchbeck (65), formerly Executive Director at Petrofac Limited, where he founded and led the Operations
Services division, from 2002 until IPO in 2005. His earlier career included senior management roles at BP plc.
Former non-executive directorships include IGas plc, Sparrows Offshore Group Limited (Chairman), Sondex and
EnQuest plc. Robin chairs both the Company's Audit and Remuneration Committees.
No director requires re-election at the forthcoming Annual General Meeting.
Dividends
No dividends will be distributed for the year ended 31 March 2018 (year ended 31 March 2017: nil).
Changes in the Group during the Financial Year
There were no changes during the current financial year.
Post Balance Sheet Events
There were no post balance sheet events.
Research and Development
The Company maintains it commitment to research and development through the activities undertaken by the
Engineering team, now based in the South Houston location.
Risks and uncertainties
A review of the key risks and uncertainties affecting the Group is set out on pages 11 and 12. The Group’s exposure
to key financial risks is set out in note 25 to the financial statements.
Directors’ and Officers’ Liability Insurance
The Company maintains insurance against certain liabilities, which could arise from a negligent act or a breach of
duty by its Directors and Officers in the discharge of their duties. This is a qualifying third party indemnity
provision, which was in force throughout the financial year.
15
Enteq Upstream Plc
Annual General Meeting
The Annual General Meeting of the Company will take place on 26 September, 2018 at 30 Gresham Street,
London EC2V 7QP commencing at 12.00 noon. At the meeting, as well as routine matters, members will be asked
to receive the Report of the Directors and Accounts and to approve the auditors and their remuneration. Further
details of the resolutions are set out in the letter concerning the Annual General Meeting, which accompanies the
Notice of the Annual General Meeting.
Powers of the Directors
Subject to the Company’s Articles of Association, UK legislation and any directions prescribed by resolution of
the Company in general meeting, the business of the Company is managed by the Board. The Directors have been
authorised to allot and issue Ordinary shares and to make market purchases of the Company’s Ordinary shares.
These powers are exercised under authority of resolutions of the Company as adopted at incorporation.
Share Capital
The Company’s issued share capital comprises Ordinary shares of 1p each and Incentive shares of £1 each. As
at 31 March 2018, there were 62,137,656 Ordinary shares and 50,000 Incentive shares in issue. The movements
in share capital during the year are set out in note 18.
Voting Rights and Restrictions on Transfer of Shares
On a show of hands at a general meeting of the Company, every holder of Ordinary shares present in person or by
proxy, and entitled to vote, has one vote, and, on a poll, every member present in person or by proxy and entitled
to vote has one vote for every Ordinary share held. The holders of the Incentive shares have no rights to vote or
receive dividends. Further details regarding voting at the Annual General Meeting can be found in the notes to
the Notice of the Annual General Meeting. None of the Ordinary shares carry any special rights with regard to
control of the Company. Proxy appointments and voting instructions must be received by the Company’s
Registrars not later than 48 hours before a general meeting.
A shareholder can lose his entitlement to vote at a general meeting where that shareholder has been served with a
disclosure notice and has failed to provide the Company with information concerning interests in those shares.
Shareholder’s rights to transfer shares are subject to the Company’s Articles of Association.
Substantial Interests
As at the latest practicable date prior to publication of this report, pursuant to the Disclosure and Transparency
Directive, issued by the Financial Conduct Authority, the major shareholders (over 4%) of the Company were as
follows:
Shareholder
Number of Ordinary
shares held
Percentage of issued
Ordinary Shares
Hargreave Hale
Allianz Global Investors
Soros Fund Mgt
Enteq Upstream plc Directors & Related Parties
City Financial
Mr P R Evershed
Hargreaves Lansdown Asset Mgt
6,355,000
5,620,000
5,227,420
5,040,257
3,900,341
3,115,000
3,020,714
10.2
9.0
8.4
8.1
6.3
5.0
4.9
Political Donations
During the year the Company made no political donations.
Registrar
The address and contact details of Computershare, the Company’s Registrar, are listed at the front of this report.
Computershare is the Company’s single alternative inspection location, whereby individuals can inspect the
register of members. Individual shareholders may view their personal shareholder information online, through the
www.computershare.co.uk website.
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a general meeting of
shareholders. Where class rights are varied, such amendments must be approved by the members of each class of
share separately.
16
Enteq Upstream Plc
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Strategic Report, the Report of the Directors and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors have prepared the Group financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union and have elected to prepare the parent Company financial statements
in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting
Standard 101 – 'The Reduced Disclosure Framework' (FRS 101) and applicable laws including the Companies
Act 2006. Under Company law the directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of
the Company and Group for that period. In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRS/UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company
and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Statement as to Disclosure of Information to Auditors
The directors confirm that, in so far as each of the directors is aware, there is no relevant audit information of
which the Company’s auditors are unaware, and each director has taken all the steps that he ought to have taken
as a director in order to make himself aware of any relevant audit information and to establish that the Company’s
auditors are aware of that information.
The directors are responsible for the maintenance and integrity of the corporate and financial information included
on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Going Concern
The Group has significant cash resources and is now operating in a stabilised market, especially in North America.
As a consequence the directors believe that the Group is well placed to manage its business risks successfully.
Accordingly, the Directors have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future and consequently have adopted the going concern basis of
accounting in preparing these financial statements.
Auditors
Grant Thornton UK LLP will be proposed for reappointment at the forth coming Annual General Meeting in
accordance with Section 489(4) of the Companies Act 2006.
Signed on behalf of the Board
David Steel
Company Secretary
12 June 2018
17
Enteq Upstream Plc
Remuneration Committee Report
For the year to 31 March 2018
Introduction
The Company is AIM-listed and therefore is not legally required to set out its remuneration policy but it is doing so on
a voluntary basis. To the extent that such principles are relevant to the current circumstances of the Company, the
provisions of inter alia the Directors' Remuneration Report Regulations 2008 and the UK Corporate Governance Code
(April 2016) are taken into account. As required by AIM Rule 19, the Company has disclosed the remuneration received
by its directors during the financial period.
Remuneration Committee
The Remuneration Committee is responsible for determining the remuneration of the chairman and the executive
directors, including setting competitive salaries, annual performance targets and participation in the Company’s
executive share-based incentive plans. The Committee also takes account of the remuneration policy for the Group’s
senior executives.
Remuneration policy
The Company's remuneration policy aims to encourage a performance-based culture, attract and retain high calibre
executive directors and align executive directors' and shareholders' interests. In determining such policy the
Remuneration Committee takes into account all factors which it deems necessary, including the Company's wider pay
structures. The objective of the policy is to ensure that executive management are provided with appropriate incentives
to encourage enhanced long-term performance and are, in a fair and responsible manner, rewarded for their individual
contributions to the success of the Company.
The remuneration policy of the Company has a number of principal components:
Salary and benefits
Basic salaries are determined by the Remuneration Committee bearing in mind the salaries paid in AIM-listed and other
same-sector companies. Executive directors also receive taxable benefits including life insurance policies and
healthcare.
The Remuneration Committee has considered the requirements of the UK Corporate Governance Code (April 2016) to
set an upper limit for executive pay levels. However, the committee also recognises the need to attract and incentivise
management and therefore does not believe it is appropriate to set such limits at this stage of the Group's development,
although the appropriateness of all incentive packages are considered by the Committee. Any bonus will be subject to
Remuneration Committee approval. The Remuneration Committee will continue to monitor this policy.
Annual Bonus Plan
The annual grant of bonuses is conditional upon the achievement of targets by reference to agreed financial performance
measures. The scheme is applicable to all executive directors. For the financial year ended 31 March 2018, the targets
related equally to the group achieving an underlying adjusted EBITDA in line with the previously, Board approved,
budget and positive cash generation during the year. Both financial targets were achieved and thus, the Remuneration
Committee decided to pay the full amount as provided under the scheme.
Long-term Incentive and Share Option plans
The Company believes that employee share ownership strengthens the link between their personal interests and those
of the shareholders. Consequently, the Company has put in place a Share Option Plan. All Group employees participate
in the Plan, except for members of the Board and two senior executives. David Steel still holds some shares from his
time as an employee. The executive directors (Martin Perry and David Steel) plus two senior executives are incentivised
via the PSP scheme (see below).
On 17 September 2014, the Company introduced a Performance Share Plan (“PSP”) for the Executive Directors and
other key senior executives. The Remuneration Committee were given the power to grant awards at the nominal value
of the shares, but the exercise of which is subject to certain performance conditions. Such awards will lapse if not
exercised within 10 years of grant. The participants in this Plan are no longer eligible for awards under the Share
Option Plan or other Long-term Incentive Plan. The details of the grants awarded under all incentive plans, to date, are
shown in a table on page 20.
18
Enteq Upstream Plc
Directors' service contracts
All executive directors are employed under service contracts. The services of all executive directors may be terminated
by the provision of a maximum of 12 months' notice by the Company and the individual. Services of Non-Executive
directors may be terminated by the provision of a maximum of 3 months' notice by the Company and the individual.
Directors’ remuneration
The information contained within the Directors' Remuneration section of this report has been audited.
The annual remuneration rates of the directors in office during the year ended 31 March 2018 were as follows (all
salaries denominated in £ Sterling have been converted to US dollars):
Annual
Salaries,
Fees, Bonus
and Benefits
31/03/2018 a
Actual
amounts
paid during
the year to
31/03/2018 b
Annual
Salaries,
Fees, Bonus
and Benefits
31/03/2017 a
Actual
amounts paid
during the
year to
31/03/2017b
USDk
USDk
USDk
USDk
555
-
333
888
42
42
-
84
972
324
-
202
526
42
42
-
84
610
419
245
259
923
39
39
33
111
1,034
276
144
159
579
22
22
49
93
672
Martin Perry
Raymond Garcia (up to 13 September 2016)
David Steel
Total - Executive
Iain Paterson
Robin Pinchbeck
Neil Warner (up to 13 September 2016)
Total – Non executive
Total
Notes:
a
b
includes share based payments and bonuses awards to be paid in following year
includes bonus payments relating to the previous year
Martin Perry and David Steel received no increase in their salaries in the year to 31 March 2018 and have not received
any increases since they were appointed to the Board.
From 1st February 2015, elements of the Board’s remuneration were agreed to be settled in shares rather than cash.
The following elements of Board members’ compensation relate to balances settled in shares:
31 March
2018
Issued
during year
USDk
128
-
57
185
42
42
-
84
269
31 March
2017
Issued
during year
USDk
70
36
14
120
22
22
32
76
196
Martin Perry
Raymond Garcia
David Steel
Total - Executive
Iain Paterson
Robin Pinchbeck
Neil Warner
Total – Non executive
Total
19
Enteq Upstream Plc
Interests in share options, Incentive shares and PSP options
Number of
Share Options
at 31/3/18 and
31/3/17
Number of
Incentive Shares
at 31/3/18 and
31/3/17
Martin Perry
David Steel:
Total
-
40,000
50,000
120,000
210,000
30,000
-
-
-
30,000
Option
Price
(p)
-
63.0
62.0
48.6
Vesting dates
June 2016
February 2017
July 2017
January 2017
Given the share price at the date of signing of the financial statements, there is no value in any of the share options
that are currently vested.
Number of
PSP Options
at 31/3/18
Number of
PSP Options
at 31/3/17
-
-
460,526
157,895
457,692
230,769
540,000
270,000
538,462
147,692
460,526
157,895
457,692
230,769
-
-
Vesting dates
March 2017 (lapsed)
March 2017 (lapsed)
June 2018
June 2018
June 2019
June 2019
June 2020
June 2020
Martin Perry
David Steel
Martin Perry
David Steel
Martin Perry
David Steel
Martin Perry
David Steel
Total
2,116,882
1,993,036
The performance conditions for each of the PSP awards are as follows:
Vesting Date:
June 2018
June 2019
June 2020
Proportion awarded for compound annual growth rate of:
30% or greater
10%
Less than 10%
Note: Award pro- rated if growth between 10% and 30%
Proportion awarded for adjusted EBITDA:
Weighting:
Start point:
Maximum of range achieved
Minimum of range achieved
TSR (share price) growth
Adjusted EBITDA
TSR (share price) growth
Adjusted EBITDA range
100%
33%
0%
n/a
n/a
100%
-%
16p
-
100%
33%
0%
n/a
n/a
100%
-%
13p
-
n/a
n/a
n/a
100%
33%
n/a
100%
n/a
$1.5m
to $3.7m
The total amount to be expensed over the vesting period of all the above options is determined by reference to the fair
value at the date of granting and the number of awards that are expected to vest.
20
Enteq Upstream Plc
Interests in warrants
There were no interests held by directors or persons connected to the directors in warrants over shares in Enteq Upstream
Plc at 31 March 2018.
Highest paid director
The Companies Act 2006 requires certain disclosures about remuneration of the highest paid director taking into account
emoluments, gains in exercise of share options and amounts receivable under long-term incentive schemes. Details of
this remuneration are set out in note 7.
Robin Pinchbeck
Chairman of the Remuneration Committee
12 June 2018
21
Enteq Upstream Plc
Corporate Governance Report
This report for shareholders sets out Enteq Upstream PLC’s approach to Corporate Governance. We have reported
on our Corporate Governance arrangements by drawing upon best practice available, including those aspects of
the UK Corporate Governance Code (April 2016) we consider to be relevant to the company. More details are
given on page 24.
Board Composition
The Board of Enteq Upstream PLC is responsible for determining strategic direction and reviewing management
and operational performance. Operational performance is delegated to the Executive Directors, who meet regularly
to review the performance of and prospects for the business. The composition of the Board is set out below.
Board
Audit
committee
Remuneration
committee
Nomination
committee
Martin Perry
David Steel
Iain Paterson
Robin Pinchbeck Non-Executive Director Member
Chief Executive Officer Member
Member
Finance Director
Non-Executive Director Chairman Member
Chairman
-
-
-
-
Member
Chairman
Member
-
Chairman
Member
In the year under review the Board formally met on 8 scheduled occasions, with additional meetings and
conference calls held as deemed necessary.
The division of responsibilities between Iain Paterson, Chairman, and Martin Perry, CEO, has been clearly
established by way of written role statements, which have been prepared by the Board. The Chairman's main
responsibilities are to lead the Board, liaising as necessary with the CEO on developments between meetings of
the Board, and to ensure the CEO and his executive management team have appropriate objectives and that their
performances against those objectives are reviewed. The CEO is responsible to the Board for the executive
management of the Group and for liaising with the Chairman and keeping him informed on all matters.
Board Evaluation
Between the year end and the date of signing these accounts a Board evaluation was carried out by both the Non-
Executive and Executive Directors. The Board was regarded as effective and possessed sufficient skills and
experience to enable it to discharge its responsibilities appropriately. The evaluation further confirms the Board’s
belief that the Board balance and the composition of each main Board Committee is appropriate. In reviewing the
Board it was concluded that the skills and experience the Executive Directors bring to the Board are
complementary to each other and those of the Non-Executive Directors.
Board Committees
The Board has three main committees to which it delegates responsibility and authority.
Audit Committee
The Audit Committee comprises solely of Non-Executive Directors of the Company. Whilst no members of the
committee have direct, recent financial experience they are considered to have the necessary skills to fulfil their
duties based on their knowledge of, and experience of working in, our core market. Financial advice is available
externally as and when they require it. The committee has met twice during the year under review.
22
Enteq Upstream Plc
Responsibilities
The responsibilities of the Audit Committee include to:
• monitor and review reports from the Executive Directors, including the Group’s financial statements and
Stock Exchange announcements;
review reports from the Group’s external auditors;
• monitor and review the Group’s systems of internal control;
•
• monitor any corporate governance and accounting developments;
• monitor the Group’s bribery act compliance procedures;
•
•
• monitor and approve engagements of the external auditor to provide non-audit services to the Group; and
review the external auditor’s independence and effectiveness of the audit process and assess the level and
•
quality of service in relation to fees paid.
consider and recommend to the Board the reappointment of the external auditor;
agree the scope and fees of the external audit;
External audit
The external auditors’ full year report includes a statement on their independence, their ability to remain objective
and to undertake an effective audit. The committee considers and assesses this independence statement on behalf
of the Board taking into account the level of fees paid particularly for non-audit services. The committee considers
the effectiveness of the audit by reviewing and taking account of Financial Reporting Council reports on the
auditors; input from executive management; consideration of responses to questions from the audit committee and
the audit findings reported to the committee.
Grant Thornton UK LLP have been the Group’s auditor since incorporation. The Audit Committee is satisfied
with their effectiveness and their independence and has, to date, not considered it necessary to require an
independent tender process.
The committee closely monitors fees paid to the auditors in respect of non-audit services, which are analysed
within note 9. In 2018, fees for non-audit services totalled $28k in comparison to audit fees of $73k. The scope
and extent of non-audit work undertaken by the external auditor is monitored by, and, above certain thresholds,
requires prior approval from the committee to ensure that the provision of such services does not impair their
independence or objectivity.
Internal audit
To date, the Board has not considered it necessary or cost effective to employ a separate internal audit team. The
senior finance team carries out reviews on an on-going basis. These reviews are available to the Committee and
encompass the identification of the key business, financial, compliance and operational risks facing each operating
location, together with an assessment of the controls in place for managing and mitigating these risks. The
committee will continue to monitor the need for a separate internal audit function.
Remuneration Committee
The Remuneration Committee comprises solely of Non-Executive Directors of the Company and is responsible
for reviewing remuneration arrangements for the Board and other senior employees of the Group and for providing
general guidance on aspects of remuneration policy for the Group. The committee met twice during the year under
review.
Nomination Committee
The Nomination Committee is responsible for reviewing and recommending executive and Non-Executive Board
appointments for the Group. The committee has not met during the year under review.
Prior to the appointment of a Director, the Nomination Committee undertakes an evaluation of the Board’s
requirements to ensure the balance of skill and experience is maintained to fulfil the Group’s strategy. When
considering appointments due consideration is also given to the diversity of the Board to ensure there is an
appropriate mix of experience and skill to enable the Board to operate as effectively as possible.
In accordance with the Corporate Governance Code's guidance for non-FTSE 350 companies on the re-election of
directors and the articles of association of the Company, all directors are subject to re-election at the first annual
general meeting after their appointment, and to re-election thereafter on a triennial basis.
23
Enteq Upstream Plc
Internal Controls
The Board acknowledges its responsibility for the Group’s system of internal control, for reviewing its
effectiveness and for compliance with relevant legislation. The internal control system, which has been in place
throughout the year under review, is structured to allow the Board to identify, evaluate and manage the significant
risks to which the Group is exposed. The system comprises the following elements:
• Management Structure – within operational parameters set by the Board, management is delegated to the
Executive Directors. The Executive Directors meet and communicate regularly with the Board to ensure a
thorough and consistent flow of information about the business.
• Reporting and Consolidation – the Group receives detailed financial information from subsidiaries, which
take the form of monthly management accounts, annual budgets and forecast projections. The Group also
monitors and reviews new UK Listing Rules, Disclosure and Transparency Rules, accounting standards,
interpretations and amendments and legislation and other statutory requirements. Subsidiary reporting entities
are supported by instruction from the Group. Data is subject to review and assessment by management through
the monitoring of key performance ratios and comparison to targets and budgets. The content and format of
reporting is kept under review and periodically amended to ensure appropriate information is available.
• Strategic Planning and Budgeting – strategic plans and budgets containing comprehensive financial
projections are formally presented to the Board for consideration and form the basis for monitoring
performance.
• Legislative Compliance and Codes of Conduct – the Group has and is implementing procedures to ensure it
meets its legislative and other responsibilities. The Group has implemented formal procedures including the
publication of bribery and corruption policies and guidelines on interacting with customers, suppliers and
agents, as well as policies for gifts, entertainment and hospitality.
As an AIM listed company, Enteq Upstream PLC has not adopted the UK Corporate Governance Code. However,
we seek to comply with its provisions where we consider them to be relevant to the company. In particular, while
this is not an exhaustive list, we wish to draw attention to the following areas where Enteq Upstream PLC does
not follow the Code:
• No member of the Audit Committee has direct, recent financial experience. As such the Group was not
compliant with provision C.3.1;
• For the reasons identified in the Remuneration Committee Report above the Remuneration Committee has
not set upper limits on executive remuneration levels. As such the Group was not compliant with the
provisions in schedule A; and
• There is currently only one non-executive director other than the non-executive Chairman.
David Steel
Company Secretary
12 June 2018
24
Enteq Upstream Plc
Independent auditor’s report to the members of Enteq Upstream plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Enteq Upstream plc (the ‘company’) and its subsidiaries
(together, the ‘group’) for the year ended 31 March 2018, which comprise the consolidated income
statement, the consolidated statement of comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the consolidated statement of cash flows, the
company statement of financial position, the company statement of changes in equity, the company
statement of cash flows, and the related notes, including summaries of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the group financial
statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the
company financial statements is applicable law and United Kingdom Accounting Standards, including
Financial Reporting Standard 101 ‘Reduced Disclosures Framework’ (‘United Kingdom Generally
Accepted Accounting Practice’).
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the
company’s affairs as at 31 March 2018 and of the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as
adopted by the European Union;
• the company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report. We are independent of the group and the company
in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
25
Enteq Upstream Plc
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to
report to you where:
•
•
the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial statements any identified material uncertainties that
may cast significant doubt about the group’s or the company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the date when the financial
statements are authorised for issue.
Overview of our audit approach
• Group materiality was $269,000, which represents 1% of the
group's total gross assets
• Key audit matters were identified as
- Unbilled or unpaid revenues may not have occurred, and
associated debtors may not be recoverable
• We performed full scope audit procedures on the financial
statements of Enteq Upstream plc, the UK holding
company, and on the financial information of Enteq
Upstream Inc, the US trading company.
Key audit matters
The graph below depicts the audit risks identified and their relative significance based on the extent of the
financial statement impact and the extent of management judgement.
Key audit matters
High
Impact on the financial
statements
Low
Low
Extent of management judgement
High
26
Enteq Upstream Plc
Key audit matters
• Other audit risks identified
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters included those that had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
27
Enteq Upstream Plc
Key Audit Matter
How the matter was addressed in
the audit
Unbilled or unpaid revenues may not
have occurred, and associated debtors
may not be recoverable
The lower oil prices seen in recent years
have made cash conservation a priority for
all business in the industry. Businesses can
be slow to pay, and some lack funds
altogether.
At the same time, Enteq is looking to expand
its customer base, and so is working with
new customers in unfamiliar territories,
which can create judgments around the
recoverability of debtor balances.
or
We therefore identified the recognition of
unbilled
and
revenues,
unpaid
resulting debtor
the
recoverability of
balances as a significant risk, and as one of
the most significant assessed risks of
material misstatement.
Our audit work included, but was not restricted to:
• Selecting a statistical sample of the revenue
invoices unpaid at the year-end, and agreeing
details to
-
customer sales orders and proof of
despatch for sale of goods, or
-
signed contracts for rental agreements,
to demonstrate the validity of both the revenue
recognition and the debtor;
• Analysing all non-trivial debtors over 90 days
old with management, and identifying higher-
risk debtors based on invoice date, amount, and
customer location;
• Obtaining management’s assessment of these
debtors, and corroborating it with reference to
correspondence and payment patterns; and
• Assessing management’s ability to estimate the
bad debt provision based on historic receipts
against previous provisions.
The group's accounting policies on revenues and
debtors are set out in note 4, on pages 40 and 43
respectively, and related disclosures are shown in
note 15 on page 54.
Key observations
The audit work described above provided
reasonable assurance over
the occurrence of
unbilled and unpaid revenues, and the recoverability
of associated debtors.
Where we identified balances for further discussion,
it was clear management had already considered
their recoverability, and could provide evidence to
support their judgments.
After considering the likely timing of future
receipts, management reclassified a portion of
debtors to be due in more than one year.
28
Enteq Upstream Plc
We have determined that there are no key audit matters in respect of the company to communicate in our
report.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use
materiality in determining the nature, timing and extent of our audit work and in evaluating the results of
that work.
Materiality was determined as follows:
Materiality measure
Financial statements
as a whole
Group
$269,000, which is 1% of the
Group’s total gross assets. Gross
assets is considered the most
appropriate benchmark, given the
key audit matter in relation to
unpaid revenues, and because
cash makes up more than 50% of
gross assets, which is a key metric
for investors.
Materiality for the current year is
higher than the level that we
determined for the year ended 31
March 2017 due to the increase in
the group’s gross assets.
Company
$148,000, which is 1% of the
Company’s
assets,
excluding intercompany debtors.
As required, this is less than the
group’s materiality.
gross
appropriate
Gross assets is considered the
most
benchmark
because cash makes up more than
50% of gross assets and is a key
figure for investors.
Materiality for the current year is
lower than the level that we
determined for the year ended 31
March 2017 due to the exclusion
of intercompany debtors balances
this year.
Performance
materiality used to
drive the extent of
our testing
Specific materiality
$202,000, which is 75% of
financial statement materiality.
$111,000, which is 75% of
financial statement materiality.
We determined a lower level of
specific materiality for certain
directors’
areas,
remuneration and related party
transactions.
such
as
We determined a lower level of
specific materiality for certain
directors’
areas,
remuneration and related party
transactions.
such
as
Communication
of
misstatements to the
audit committee
Amounts above $13,450 and
that
misstatements
below
threshold
in our view,
warrant reporting on qualitative
grounds.
that,
Amounts above $7,400 as well as
that
any misstatements below
threshold
in our view,
that,
warrant reporting on qualitative
grounds.
29
Enteq Upstream Plc
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance
for potential uncorrected misstatements.
Overall materiality - group
Overall materiality - company
25%
75%
Tolerance for
potential
uncorrected
misstatements
Performance
materiality
25%
75%
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group's business, its
environment and risk profile and in particular included:
• A full-scope audit approach to both Enteq Upstream plc, the UK holding company, and Enteq
Upstream Inc, the US trading company;
• An analytical audit approach to Jeteq Drilling Limited, which is currently dormant;
• Attendance at the stock count in Houston (US);
• Performing process walkthroughs and documenting the controls covering all of the Key Audit
Matters and other risks shown in the graph above;
• On-site visits to the sites in Amersham (UK) and Houston (US); and
• Re-performing the group consolidation, to check management’s formulae and ensure the group
financial statements are consistent with the audited subsidiary figures.
All of the group’s revenues arose within Enteq Upstream Inc, the US trading company. 100% of group
revenues were included in the population for our revenue sample.
Other information
The directors are responsible for the other information. The other information comprises the information included
in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
30
Enteq Upstream Plc
Our opinion on other matters prescribed by the Companies Act 2006 is
unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the directors’ report for the financial year
for which the financial statements are prepared is consistent with the financial statements;
and
the strategic report and the directors’ report have been prepared in accordance with
applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the company and its environment obtained in
the course of the audit, we have not identified material misstatements in the strategic report or the directors’
report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
•
adequate accounting records have not been kept by the company, or returns adequate for our audit have not
been received from branches not visited by us; or
•
the company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are
responsible for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the group or the company or to
cease operations, or have no realistic alternative but to do so.
31
Enteq Upstream Plc
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud
or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Mark Bishop FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Reading
12 June 2018
32
Enteq Upstream Plc
Consolidated Income Statement
Year to 31 March 2018
Year to 31
March 2017
Notes
$ 000's
$ 000's
$ 000's
$ 000's
Enteq Upstream Plc
Ongoing
operations
Exceptional
items
Revenue
Cost of Sales
Gross Profit
Administrative expenses before amortisation
Amortisation of acquired intangibles
Other exceptional items
Foreign exchange profit on operating activities
Total Administrative expenses
Operating loss
Finance income
Loss before tax
Tax expense
Loss for the period
Loss attributable to:
Owners of the parent
5
9
9
6
8
10
6,460
(2,141)
4,319
(4,994)
(92)
-
48
(5,038)
(719)
175
(544)
(3)
(547)
Total
6,460
Total
4,762
(2,141)
(1,661)
4,319
3,101
(4,994)
(92)
(57)
48
(4,235)
(68)
(54)
(8)
-
-
-
-
-
(57)
-
(57)
(5,095)
(4,365)
(57)
(776)
(1,264)
-
175
127
(57)
(601)
(1,137)
-
(3)
(48)
(57)
(604)
(1,185)
(547)
(57)
(604)
(1,185)
Loss per share (in US cents):
Basic
Diluted
Adjusted loss per share (in US cents):
Basic
Diluted
11
11
(1.0)
(1.0)
(0.8)
(0.8)
(2.0)
(2.0)
(1.7)
(1.7)
33
Enteq Upstream Plc
Enteq Upstream Plc
Consolidated Statement of Comprehensive Income
Loss for the year
Other comprehensive income for the year:
Items that will not be reclassified subsequently to profit and loss
Items that will be reclassified subsequently to profit and loss
Total comprehensive income for the period
Total comprehensive income attributable to:
Owners of the parent
Year to 31
March 2018
Year to 31
March 2017
$ 000's
(604)
-
-
(604)
$ 000's
(1,185)
-
-
(1,185)
(604)
(1,185)
34
Enteq Upstream Plc
Consolidated Statement of Financial Position
Enteq Upstream Plc
Assets
Non-current
Goodwill
Intangible assets
Property, plant and equipment
Trade and other receivables
Non-current assets
Current
Trade and other receivables
Inventories
Cash and cash equivalents
Current assets
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Share based payment reserve
Retained earnings
Total equity
Liabilities
Current
Trade and other payables
Total liabilities
Total equity and liabilities
Notes
12a
12b
13
15
15
16
17
18
18
19
As at 31 March
2018
$ 000's
As at 31 March
2017
$ 000's
-
1,222
4,503
238
5,963
2,104
3,302
15,501
20,907
26,870
-
645
2,858
-
3,503
3,924
3,366
15,335
22,625
26,128
982
91,031
910
(69,351)
963
90,718
806
(68,747)
23,572
23,740
3,298
3,298
2,388
2,388
26,870
26,128
The financial statements were authorised for issue and approved by the Board of Directors on 12 June 2018 and were
signed on its behalf by:
David Steel
Director
35
Enteq Upstream Plc
Consolidated Statement of Changes in Equity
Enteq Upstream Plc
Issue of share capital
Share based payment charge
Transactions with owners
Loss for the year
Other comprehensive income for the year
Total comprehensive income
Total movement
As at 1 April 2017
As at 31 March 2018
Issue of share capital
Share based payment charge
Transactions with owners
Loss for the year
Other comprehensive income for the year
Total comprehensive income
Total movement
As at 1 April 2016
As at 31 March 2017
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
Share
based
payment
reserve
$ 000's
19
-
19
-
-
-
-
-
-
(604)
-
(604)
313
-
313
-
-
-
19
963
982
(604)
(68,747)
(69,351)
313
90,718
91,031
-
104
104
-
-
-
104
806
910
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
based
payment
reserve
$ 000's
13
-
13
-
-
-
13
950
963
-
-
-
(1,185)
-
(1,185)
(1,185)
(67,562)
(68,747)
160
-
160
-
-
-
160
90,558
90,718
-
257
257
-
-
-
257
549
806
Total
equity
$ 000's
332
104
436
(604)
-
(604)
(168)
23,740
23,572
Total
equity
$ 000's
173
257
430
(1,185)
-
(1,185)
(755)
24,495
23,740
36
Enteq Upstream Plc
Consolidated Statement of Cash Flows
Enteq Upstream Plc
Cash flows from operating activities
Loss for the year
Tax charge
Net finance income
(Gain)/loss on disposal of fixed assets
Share-based payment non-cash charges
Foreign exchange difference
Depreciation and Amortisation charges
Interest received
Tax paid
Decrease in inventory
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Net cash from operating activities
Investing activities
Purchase of tangible fixed assets
Increase in rental fleet assets
Disposal proceeds of tangible fixed assets
Purchase of intangible fixed assets
Net cash from investing activities
Financing activities
Share issue
Net cash from financing activities
Increase in cash and cash equivalents
Non-cash movements - foreign exchange
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year to 31 March
2018
Year to 31 March
2017
$ 000's
$ 000's
(604)
3
(175)
(82)
104
(48)
853
51
175
(1)
64
1,582
910
2,781
(236)
(2,222)
133
(670)
(2,995)
332
332
118
48
15,335
15,501
(1,185)
48
(127)
25
257
8
494
(480)
127
(4)
440
(498)
910
495
-
-
-
(446)
(446)
173
173
222
(8)
15,121
15,335
37
Enteq Upstream Plc
Notes to the Consolidated Financial Statements
For the year to 31 March 2018
1.
2.
NATURE OF OPERATIONS
The principal activity of Enteq Upstream Plc and its subsidiaries is that of acquiring, consolidating and operating
companies providing specialist reach and recovery products and technologies to the upstream oil and gas services
market.
GENERAL INFORMATION AND STATEMENT OF COMPLIANCE WITH IFRS
Enteq Upstream Plc, the Group’s ultimate parent Company, is a limited liability Company incorporated and
domiciled in England and Wales. Its registered office is The Courtyard, High Street, Ascot, Berkshire, SL5 7HP.
Enteq’s shares are listed on the Alternative Investment Market of the London Stock Exchange. The consolidated
financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards as adopted by the EU.
3. STANDARDS, AMENDMENTS AND INTERPRETATIONS OF ACCOUNTING POLICIES
Standards, amendments and interpretations to existing standards that are not yet effective and have not been
adopted early by the Group
At the date of authorisation of these financial statements, certain new standards, amendments and interpretations
to existing standards have been published by the IASB but are not yet effective, and have not been adopted early
by the Group. Management anticipates that all of the relevant pronouncements will be adopted in the Group’s
accounting policies for the first period beginning after the effective date of the pronouncement. Information on
new standards, amendments and interpretations that are expected to be relevant to the Group’s financial statements
is provided below. Certain other new standards and interpretations have been issued but are not expected to have
a material impact on the Group’s financial statements. These are:
•
•
•
IFRS 9 ‘Financial Instruments’ (2014)
The new standard changes the classification and measurement of financial assets and
introduces a new ‘expected credit loss’ model for the impairment of financial assets. It also
provides new guidance on the application of hedge accounting. IFRS 9 is effective for annual
reporting periods beginning on or after 1 January 2018. The classification and measurement
of the Group’s financial assets will need to be reviewed based on the new criteria.
IFRS 15 ‘Revenue from Contracts with Customers’
This standard presents new requirements for the recognition of revenue, replacing IAS 18
‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations. The
new standard establishes a control-based revenue recognition model and provides additional
guidance in many areas not covered in detail under existing IFRSs, including how to account
for arrangements with multiple performance obligations, variable pricing, customer refund
rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for
annual reporting periods beginning on or after 1 January 2018. Management do not expect it
to have a significant impact on revenue recognition.
IFRS 16 'Leases'
On 13 January 2017, the IASB released IFRS 16 'Leases', completing its long-running project
on lease accounting. IFRS 16 will require lessees to account for leases 'on-balance sheet' by
recognising a 'right-of-use' asset and a lease liability. IFRS 16 is effective for annual
reporting periods beginning on or after 1 January 2019. This may lead to assets being
recognised on the balance sheet for rented office space. Management do not expect any
changes to the treatment of revenue from rental kits.
38
Enteq Upstream Plc
4. ACCOUNTING POLICIES
Overall considerations
The consolidated financial statements have been prepared using the significant accounting policies and
measurement bases summarised below.
Basis of consolidation
The Group financial statements consolidate those of the parent Company and all of its subsidiaries as of 31 March
2018. Subsidiaries are all entities over which the Group has the power to control the financial and operating
policies. The Group obtains and exercises control through more than half of the voting rights. All subsidiaries have
a reporting date of 31 March 2018.
All transactions and balances between Group companies are eliminated on consolidation, including unrealised
gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are
reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts
reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with
the accounting policies adopted by the Group.
The board regularly reviews the Group's resources to ensure they are sufficient to continue trading for the
foreseeable future. It is therefore considered appropriate to use the going concern basis to compile these financial
statements. The main requirement is for sufficient financial resources to maintain the overhead required to fulfil
the pipeline of business.
The Group has significant cash resources which will enable it to trade through these conditions. As a consequence
the directors believe that the Group is well placed to manage its business risks successfully. Accordingly, the
Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence
for the foreseeable future and consequently have adopted the going concern basis of accounting in preparing these
financial statements.
Companies included in the consolidation:
Name
Enteq Upstream USA Inc.
Country of
incorporation
United States of America
Nature of business
Holding
Manufacturer of down hole drilling
equipment
100%
The financial statements of subsidiaries are included in the consolidated financial statements from the date at which
control commences to the date that control ceases. There are no non-conforming accounting policies in any of the
subsidiaries.
Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred
by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets
transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any
asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of
whether they have been previously recognised in the acquiree’s financial statements prior to the acquisition. Assets
acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated
after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value
of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c)
acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of
identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess
amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
Where the consideration for the business combination includes contingent consideration management assess the
expected future liability based on the available information at the time of the acquisition, taking into account the
expected probability of achieving the relevant conditions and milestones. The expected liability is discounted to its
present value and unwound over the life of the liability, with the impact of the unwinding included in finance costs
over the life of the contingency. At each reporting date management re-estimates the total consideration expected
39
Enteq Upstream Plc
to be paid. Where, during the first 12 months following the acquisition, a change in the estimated contingent
consideration arises as a result of changes in underlying assumptions which should have been identified at the time
of the acquisition, the acquisition accounting is adjusted to reflect this. All other changes are reflected in profit or
loss for the period.
Basis of preparation
The financial statements have been prepared on the going concern basis under the historical cost convention, with
the exception of contingent consideration which is carried at fair value.
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 share placings, substantially all other
transactions are likely to be transacted in US dollars. The majority of the Company’s subsidiaries’ activities and
transactions therewith are expected to be in US dollars. The Parent Company’s functional currency is US dollars.
Foreign currencies
All companies in the Group have a functional currency of US dollars.
Foreign currency transactions are translated into the functional currency of the respective Group entity, using the
exchange rates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the
settlement of such transactions and from the re-measurement of monetary items denominated in foreign currency
at year-end exchange rates are recognised in profit or loss. The exchange rate used at the year-end is £1:$1.40 (31
March 2017 £1:$1.25). Non-monetary items are not retranslated at year-end and are measured at historical cost
(translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value
which are translated using the exchange rates at the date when fair value was determined.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker. The chief operating decision maker has been identified as the executive members of the Board, at
which level strategic decisions are made.
Revenue
Revenue is measured as the fair value of the consideration received or receivable for the provision of goods or
services in the ordinary course of business, taking into account trade discounts and volume rebates, and is stated
net of sales taxes. Revenue is recognised when it is probable that the economic benefits associated with a
transaction will flow to the Group and the amount of revenue can be reliably measured.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been
transferred to the customer, which is normally on delivery of the products or collection by the customer, following
approval of the product by the customer.
Revenue from rentals paid under operating leases is recognised in the profit and loss account on a straight line basis
over the period of the lease.
Government grants
Enteq has partnered with Imperial College London and the Chinese Institute of Petroleum Beijing to deliver smart
technologies for the optimal drilling, completion, design and management of wells including geothermal wells.
This project is funded by a grant from Innovate UK.
Grant income is netted off against the related expenses in the statement of comprehensive income. It is recognised
as necessary to match it with the related costs, for which it is intended to compensate, on a systematic basis. It is
recognised only when there is reasonable assurance that (a) there is full compliance with any conditions attached
to the grant and (b) the grant will be received.
Interest
Interest income and expenses are reported on an accrual basis using the effective interest method.
Operating expenses
Operating expenses are recognised in profit or loss upon utilisation of the service. Expenditure for warranties is
recognised and charged against the associated provision when the related revenue is recognised.
40
Enteq Upstream Plc
Exceptional items
Exceptional items are items of income and expenditure that, in the judgement of management, should be disclosed
separately on the basis that they are material, either by their nature or their size, to an understanding of our financial
performance and distort the comparability of our financial performance between periods.
Exceptional items relate to such categories as impairment charges, change to contingent consideration, and
severance costs.
Intangible Assets and Goodwill
a) Goodwill
Goodwill represents amounts arising on the acquisition of trade and related assets and liabilities.
Goodwill on acquisitions comprises the excess of the fair value of the consideration transferred over the net of the
acquisition date amounts of the identifiable assets acquired and liabilities assumed.
Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and
is not amortised but is tested annually for impairment.
b) Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and
impairment.
c) Research and Development Expenditure
Research expenditure is recognised as an expense when it is incurred. Development expenditure is recognised as an
expense except that expenditure incurred on development projects is capitalised as long-term assets to the extent
that such expenditure is expected to generate future economic benefits. Development expenditure is capitalised if,
and only if the Group can demonstrate all of the following:-
•
•
•
•
•
•
its ability to measure reliably the expenditure attributable to the asset under development;
the product or process is technically and commercially feasible;
its future economic benefits are probable;
its ability to use or sell the developed asset;
the availability of adequate technical, financial and other resources to complete the asset under
development; and
its intention to complete the intangible asset and use or sell.
Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses, if
any. Development expenditure initially recognised as an expense is not recognised as assets in the subsequent period.
Development expenditure is amortised on a straight-line method over the useful lives of each product from when
the products are ready for sale or use. In the event that the expected future economic benefits are no longer probable
of being recovered, the development expenditure is written down to its recoverable amount.
Subsequent measurement
All intangible assets (other than Goodwill), including capitalised internally developed software, are accounted for
using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful
lives, as these assets are considered finite. Residual values and useful lives are reviewed at each reporting date. In
addition, they are subject to impairment testing as described below.
Amortisation
Amortisation is charged to overheads, within total administrative expenses, in the income statement on a straight
line basis over the estimated useful lives of the intangible assets unless such lives are indefinite. Other intangible
assets are amortised from the date they are available for use. The estimated useful lives are determined separately
for each acquisition and fall within the following ranges:
Brand names
Customer relationships
Developed Technology
Non-compete agreement
5 – 20 years
11 – 13 years
4 – 7 years
5 years
41
Enteq Upstream Plc
Impairment testing of goodwill, other intangible assets and property, plant and equipment
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent
cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are
tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit
from synergies of the related business combination and represent the lowest level within the Group at which
management monitors goodwill.
There is deemed to be just one cash generating unit (“CGU”) within the Company. In previous years there were
deemed to be two, but from a financial & operational perspective both US locations are now being run as one unit.
Cash-generating units to which goodwill has been allocated are tested for impairment at least annually. All other
individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount
exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in use. To determine
the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines
a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment
testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the
effects of future reorganisations and asset enhancements. Discount factors are determined individually for each
cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-
specific risks factors. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill
allocated to that cash-generating unit. Any remaining impairment loss is charged pro rata to the other assets in the
cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an
impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-
generating unit’s recoverable amount exceeds its carrying amount, but only to the extent that this does not exceed
the original carrying value, had no impairment been recorded.
Property, plant and equipment
Tangible Property, Plant & Equipment are stated at cost, net of depreciation and any provision for impairment.
Depreciation is included within administrative expenses for all tangible assets at rates calculated to write off the
cost, less estimated residual value of each asset on a straight-line basis over useful economic life, as follows:
Land
Leasehold improvements
Buildings
Production equipment
Other equipment
Rental assets
Not depreciated
Over life of lease, or useful economic life, if shorter
35 years
4 to 7 years
3 to 7 years
Over the life of the asset, up to a maximum of 2 years
Management review the useful economic life and residual values of all assets on an annual basis.
Leased assets
Leases where the third-party lessor retains substantially all the risks and rewards of ownership are classified as
operating leases. Rentals payable under operating leases are charged to the consolidated statement of
comprehensive income on a straight-line basis over the period of the lease. Associated costs, such as maintenance
and insurance, are expensed as incurred. Lease incentives received are recognised in the statement of
comprehensive income on a straight-line basis as an integral part of the total lease expense. Leases where
substantially all the risks and rewards of ownership are transferred to the Group are classified as finance leases.
Financial instruments
Recognition, initial measurement and derecognition
Financial assets and liabilities are recognised on the Group’s Statement of Financial Position when the Group
becomes a party to the contractual provisions of the instrument. Financial assets are recognised initially at fair
value plus transaction costs. Financial liabilities are recorded initially at fair value net of transaction costs. Financial
assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the
financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is
extinguished, discharged, cancelled or expires.
All financial assets are subject to review for impairment at least at each reporting date to identify whether there is
any objective evidence that a financial asset or a Group of financial assets is impaired. Different criteria to
42
Enteq Upstream Plc
determine impairment are applied for each category of financial assets, which are described below. All income and
expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance
income or other financial items, except for impairment of trade receivables which is presented within other total
administrative expenses.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. After initial recognition, these are measured at amortised cost using the effective interest
method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The
Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.
Individually significant receivables are considered for impairment when they are past due or when other objective
evidence is received that a specific counterparty will default. Receivables that are not considered to be individually
impaired are reviewed for impairment in Groups, which are determined by reference to the industry and region of
a counterparty and other shared credit risk characteristics. The impairment loss estimate is then based on recent
historical counterparty default rates for each identified Group.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost, for inventory items that involve significant
manufacturing time, includes all expenses directly attributable to the manufacturing process as well as suitable
portions of related production overheads, based on normal operating capacity. The cost of inventory that do not
incur significant levels of manufacturing time are held at material cost only. Costs of ordinarily interchangeable
items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the
ordinary course of business less any applicable selling expenses.
Taxation
The charge for current income tax is based on the results for the period as adjusted for items that are non-assessable
or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the Statement of
Financial Position date.
Deferred income tax is the income tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation
of taxable profit and is accounted for using the Statement of Financial Position liability method. Deferred income
tax is provided in full and is recognised on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred income tax liabilities are generally recognised on all taxable temporary differences and deferred tax assets
are recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference
arises from goodwill (or any discount on acquisition) or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting
profit. Deferred income tax is measured on an undiscounted basis at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised, based on tax rates and laws enacted or substantively
enacted at the balance sheet date. Deferred income tax is charged or credited in the income statement, except when
it relates to items charged or credited directly to equity or other comprehensive income, in which case the deferred
tax is also dealt with in equity or other comprehensive income. Deferred income tax liabilities are recognised on
taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred income tax assets and liabilities are offset when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly
liquid investments that are readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Trade and other payables
Trade and other payables are not interest-bearing and are recognised initially at fair value. Subsequently they are
carried at amortised cost.
43
Enteq Upstream Plc
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Equity, reserves and dividend payments
Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums
received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from
share premium, net of any related income tax benefits.
Retained earnings include all current and prior period retained profits. All transactions with owners of the parent
are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other
liabilities when the dividends have been approved in a general meeting prior to the reporting date.
Share based payment reserve
Represents the total accumulated share based payment charge less any amounts transferred following the issue of
the relevant shares.
Pensions and short-term employee benefits
Pensions
The Group does not operate its own pension scheme but makes contributions to an individual’s personal
pension scheme, where appropriate.
Share based payments
All employees receive remuneration in the form of share-based payment transactions, whereby they render services
in exchange for rights over shares under the Enterprise Management Incentive Plan option scheme. The executive
directors and other senior managers receive remuneration in the form of share-based payment transactions, whereby
they render services in exchange for rights over shares under the Performance Share Plan. Both these schemes
have options that vest three years after the date of grant. The total amount to be expensed over the vesting period
of the options is determined by reference to the fair value at the date of granting and the number of awards that are
expected to vest. The fair value is based upon a Black-Scholes model taking into account different scenarios for
the possible outcomes of the Company's investment activities, using management's best estimates of these likely
outcomes. The total expense is based upon initial conditions and will crystallise smoothly over the vesting period
without reassessment of the initial fair value. The charge is annually reassessed, based on the total number of
options expected to vest. In addition, where there are changes to the terms of any agreements, the fair value is
reassessed at that time. The movement in cumulative expense is recognised in the profit and loss, with a
corresponding entry to the share-based payment reserve.
On 17 September 2014, the Company introduced a Performance Share Plan (“PSP”) for the Executive Directors
and other key senior managers. The awards at the nominal value of the shares, but the exercise of which is subject
to certain performance conditions.
Incentive Shares
The Incentive Shares do not carry any voting or dividend rights and are not transferable. The amounts subscribed
for the Incentive Shares have been recognised as a current liability on the Statement of Financial Position as they
become repayable if the Executive Directors leave office.
Provisions, contingent assets and contingent liabilities
Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group
has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of economic
resources will be required from the Group and amounts can be estimated reliably. Timing or amount of the outflow
may still be uncertain. Provisions are not recognised for future operating losses. Provisions are measured at the
estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the
reporting date, including the risks and uncertainties associated with the present obligation. Where there are a
number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. Provisions are discounted to their present values, where the time
value of money is material. Any reimbursement that the Group can be virtually certain to collect from a third party
with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of
the related provision. In those cases where the possible outflow of economic resources as a result of present
obligations is considered improbable or remote, no liability is recognised.
44
Enteq Upstream Plc
Critical accounting estimates and judgements
The preparation of the financial statements in conforming with adopted IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of assets,
liabilities, income, expenses and contingent liabilities. These will seldom equal the related actual results and
adjustments will consequently be necessary. Estimates are continually evaluated based on experience, consultation
with experts and reasonable expectations of future events.
Accounting estimates and judgements are applied in determining the carrying amounts of the following significant
assets and liabilities:
Share premium
Acquired
intangibles and
goodwill
Functional
currency of the
parent
The costs that have been offset against the share premium are deemed to be
wholly and exclusively for the issue of shares. The directors have reviewed
all costs in relation to the share issue and those that did not fully relate to the
share issue have been recognised as an expense in the administrative
expenses.
The Group uses the present value of future cash flows to determine implied
fair value of the intangible assets arising on acquisition and hence in
determining the residual goodwill. In calculating the implied fair value,
significant management judgement is required in forecasting relevant cash
flows considering factors such as long-term growth rates, future margins,
timing and quantum of future replacement capital expenditure, future tax rates
and the selection of discount rates to reflect the risks involved. If alternative
management judgements were adopted then different recognition and
impairment outcomes could result.
Management shall ensure that no reasonably possible change in any of the
key assumptions would cause the carrying value of any CGU to materially
exceed its recoverable amount.
Management have considered a number of factors in order to determine the
functional currency of the parent Company. After due consideration,
management are of the opinion that this is US dollars. Whilst the Company is
based in the UK, a number of key indicators have lead management to reach
this judgement. This includes, but is not limited, to the following key factors:
key strategic decisions, including those in relation to assessing acquisition on
an on-going basis and reviews of historical financial information, are made
based on information denominated in US$; Company has funded its overseas
subsidiary in a loan denominated in US$. Management also note that the
Company's strategy is to invest in services aligned to the oil and gas industry,
an industry which trades principally in US$.
Share based payment
and incentive share
costs
The share based payment costs and the incentive share costs have both been
calculated based on different scenarios for the possible outcomes of the
Group's investment activities using a Black-Scholes model. The total expense
is based upon initial conditions and will crystallise smoothly over the vesting
period of three and four years.
Impairment of
intangible assets
An impairment test is carried out annually and involves a significant level of
judgement regarding factors such as future growth rates. Senior management
base this judgement on the best available industry and market data at that point
in time. The critical judgements and estimates are set out in note 12. As the
Group strategy unfolds, these assumptions may change. Any significant
downward variance in the assumptions may result in an impairment.
Recoverability of
trade debtors
Management carries out monthly reviews regarding the recoverability of
balances owed by customers. Where there is concern regarding the
recoverability of all or an element of a customer’s outstanding balance, an
appropriate bad debt provision is charge to the profit and loss account.
45
Enteq Upstream Plc
5. 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 Drilling Tools division are 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 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. A key measurement used
by the board is Adjusted EBITDA. This reconciliation is included in note 6, below.
The revenues, net assets and non-current assets of the Group can be analysed by geographic location (post-
consolidation adjustments) as follows:
Revenues
North America
Rest of the world
Total Group revenue
Net Assets
Europe (UK)
United States
Total Group net assets
Non-current Assets
Europe (UK)
United States
Total Group non-current assets
31 March
2018
USD 000’s
6,017
443
6,460
31 March
2017
USD 000’s
3,325
1,437
4,762
31 March
2018
USD 000’s
13,673
9,899
23,572
31 March
2017
USD 000’s
13,985
9,755
23,740
31 March
2018
USD 000’s
-
5,958
5,958
31 March
2017
USD 000’s
-
3,503
3,503
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 3 customers that contributed in excess of 10% of the Group’s total sales for the year (2017: 4).
These customers contributed $1,371k, $927k and $881k. (2017: $1,222k, $1,030k, $853k and $513k). No revenue
relates to customers based in the UK (2017: none).
46
Enteq Upstream Plc
6. PROFIT AND LOSS ANALYSIS
The following analysis illustrates the performance of the Group’s activities, and reconciles the Group’s
loss for the period, as shown in the consolidated income statement, to adjusted earnings and adjusted
EBITDA.
Adjusted earnings and adjusted EBITDA are presented to provide a better indication of overall financial
performance and to reflect how the business is managed and measured on a day-to-day basis.
Loss attributable to ordinary shareholders
Other exceptional items
Amortisation of acquired intangible assets
Foreign exchange movements
Adjusted earnings
Depreciation charge
Finance income (note 8)
Performance Share Plan charge (note 20)
Tax charge (note 10)
Adjusted EBITDA
31 March 2018
USD 000’s
31 March 2017
USD 000’s
(604)
57
92
(48)
(503)
760
(175)
138
3
223
(1,185)
54
68
8
(1,055)
426
(127)
252
48
(456)
The other exceptional items result from non-recurring costs. The total can be analysed as follows:
31 March 2018
USD 000’s
31 March 2017
USD 000’s
Severance payments and other plant closure costs
Gain on sale of fixed assets
Other
Total exceptional items
143
(82)
(4)
57
43
-
11
54
7.
EMPLOYEES AND DIRECTORS
Wages and salaries
Social security costs
Equity settled transactions – in lieu of salaries
Equity settled transactions – share option and PSP charge
Pension and health costs
31 March 2018
USD 000’s
31 March 2017
USD 000’s
2,856
262
269
104
365
3,856
2,413
209
173
257
224
3,276
The average monthly number of employees during the year was as follows:
Directors
Senior management
Sales & marketing
Manufacturing & Technical
Finance & administration
No.
4
4
3
9
2
22
No.
5
3
3
6
2
19
47
Enteq Upstream Plc
USD 000’s
USD 000’s
Directors' remuneration
972
1,034
Information regarding the highest paid director is as
follows:
Emoluments
555
419
The directors are deemed to be 'Key Management'. This is detailed further in Note 23. Further details of
emoluments paid to directors, including details of the highest paid director are contained in the Remuneration
Committee report on pages 18 to 21.
Share plans
The Group has an equity-settled share option scheme. The total amount to be expensed over the vesting period is
determined by reference to the fair value at the date at which the options are granted. It is assumed that all options
will vest. The fair value is determined using a binomial model which assesses the likelihood of the Company
achieving certain goals in line with its strategy, ranging from failure to make any investments and return of funds
to investors, to achieving various rates of acquisitive growth. The cashflows attached to these different scenarios
are discounted over the vesting period at an annual rate of 14% and contribute to the estimated value of the
Company in line with each scenario's assessed weighting of likelihood of occurrence. The value of each share in
issue is therefore estimable and the consequent value to option holders calculable following their payment of the
exercise price.
Details of the share options outstanding at the end of the year are shown in note 20.
Incentive Shares
Certain current and previous Executive Directors have also subscribed to Incentive Shares with a base cost of
$79,937.
The fair value was determined using a binomial model. The fair value of the Incentive Shares has been recognised
as a current liability on the Statement of Financial Position as it becomes repayable if the Executive Directors
leave office.
These shares are included in the total number of Ordinary Shares and their additional rights vested in equal tranches
in June 2014 and June 2015. No entitlement to additional Ordinary Shares arose on either vesting date.
Enterprise Management Incentive Plan
The Group has established a share option plan that entitles all employees to purchase shares in the Company. See
note 20 for further details.
Performance Share Plan
The Group has established a share plan that entitles certain senior employees to acquire shares in the
Company if certain performance conditions are met. See note 20 for further details.
8. NET FINANCE INCOME
Interest earned on bank deposits
175
127
31 March 2018
USD 000’s
31 March 2017
USD 000’s
48
Enteq Upstream Plc
9. LOSS BEFORE INCOME TAX
The loss before income tax is stated after charging:
Depreciation of tangible assets
Amortisation of intangible assets
Auditors' remuneration:
- Fees payable to the Company’s auditor for the audit
of the Company’s and Group’s annual accounts
- Tax compliance services
Share based payments
Foreign exchange (gains)/losses
(Gain)/loss on disposal of Property, Plant & Equipment
31 March 2018
USD 000’s
31 March 2017
USD 000’s
760
92
73
28
104
(48)
(82)
426
68
63
42
257
8
26
10. 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
2018
USD 000’s
31 March
2017
USD 000’s
Loss on ordinary activities before tax
(601)
(1,137)
Loss on ordinary activities multiplied by the
standard rate of corporation tax in the UK of 19% (2017: 20%):
Effects of:
Items not subject to corporation tax
Tax losses to carry forward
Texas State Franchise Tax
Total income tax
(114)
(227)
170
(56)
3
3
99
128
48
48
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 $1.7m; United States $15.9m (2017: UK $2.6m; United States $14.1m). There
were no significant deferred tax liabilities.
49
Enteq Upstream Plc
11. 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
$604k (31 March 2017: loss of $1,185k) by the weighted average number of ordinary shares in issue during the
year of 61,616k (31 March 2017: 60,351k).
Adjusted earnings per share
Adjusted earnings per share is calculated by dividing the earnings attributable to ordinary shareholders, excluding
exceptional items, amortisation of intangible assets and foreign exchange profits or losses for the year of a loss of
$503k (31 March 2017: loss of $1,055k), by the weighted average number of ordinary shares in issue during the
year of 61,616k (31 March 2017: 60,351k).
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 adjusted diluted earnings per share information are considered to provide a fairer representation of the Group’s
trading performance. A reconciliation between basic earnings and adjusted earnings is shown below.
March 2018: EPS
Earnings
Weighted
average number
Per-share
amount
USD 000’s
of shares
000’s
US cents
Loss attributable to ordinary shareholders
Exceptional items
Amortisation of acquired intangible assets
Foreign exchange movements
Adjusted loss attributable to ordinary shareholders
(604)
57
92
(48)
(503)
61,616
(1.0)
61,616
(0.8)
March 2017: EPS
Earnings
Weighted
average number
Per-share
amount
USD 000’s
of shares
000’s
US cents
Loss attributable to ordinary shareholders
Exceptional items
Amortisation of acquired intangible assets
Foreign exchange movements
Adjusted loss attributable to ordinary shareholders
(1,185)
54
68
8
(1,055)
60,351
(2.0)
60,351
(1.7)
During the year Enteq Upstream Plc did not pay any dividends (2017: nil).
50
Enteq Upstream Plc
12. INTANGIBLE ASSETS
a) Goodwill
Cost:
As at 1 April 2017 and as at 31 March 2018
Impairment:
As at 1 April 2017 and as at 31 March 2018
Net Book Value:
As at 1 April 2017 and as at 31 March 2018
USD 000’s
19,619
19,619
-
b) Other Intangible Assets
Developed
technology
IPR&D
technology
Brand
names
Customer
relationships
USD 000’s
USD 000’s USD 000’s
USD 000’s
Total
Non-
compete
agreements
USD 000’s USD 000’s
Cost:
As at 1 April 2017
Capitalised in period
As at 31 March 2018
Amortisation/Impairment:
As at 1 April 2017
Charge for the year
As at 31 March 2018
Net Book Value:
As at 1 April 2017
As at 31 March 2018
12,676
-
12,676
12,418
92
12,510
258
165
7,495
669
8,164
7,108
-
7,108
387
1,057
1,240
-
1,240
1,240
-
1,240
-
-
20,586
-
20,586
20,586
-
20,586
5,931
-
5,931
5,931
-
5,931
47,928
6769
48,597
47,283
92
47,375
-
-
-
-
645
1,222
Developed
technology
IPR&D
technology
Brand
names
Customer
relationships
USD 000’s
USD 000’s
USD 000’s
USD 000’s
Total
Non-
compete
agreements
USD 000’s USD 000’s
Cost:
As at 1 April 2016
Transfers
Capitalised in period
As at 31 March 2017
Amortisation/Impairment:
As at 1 April 2016
Charge for the year
As at 31 March 2017
Net Book Value:
As at 1 April 2016
As at 31 March 2017
12,500
176
-
12,676
12,350
68
12,418
150
258
7,225
(176)
446
7,495
7,108
-
7,108
117
387
1,240
-
-
1,240
1,240
-
1,240
-
-
20,586
-
-
20,586
20,586
-
20,586
5,931
-
-
5,931
5,931
-
5,931
47,482
-
446
47,928
47,215
68
47,283
-
-
-
-
267
645
51
Enteq Upstream Plc
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 next 12 months.
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.
Non-compete agreements:
The value associated with the agreements signed by the Vendors of the acquired businesses not to compete in the
markets of the businesses acquired.
Goodwill and Impairment
The Group tests goodwill and other intangible assets annually for impairment. The impairment test carried out on
the balances as at 31 March 2018 indicated that there was no impairment of the full carrying value of both goodwill
and intangible assets.
There is deemed to be just one cash generating unit (“CGU”) within the Company. In previous years there were
deemed to be two, but from a financial & operational perspective both US locations are now being run as one unit.
The recoverable amount of the CGU is determined from value in use calculations. 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 2021. Cash flow forecasts are prepared from the
most recent financial plans approved by the Board.
The forecasts assume annual growth rates between 1% and 20% until 2023 and 3% thereafter in the long term.
These long-term growth rates do not exceed the long-term average growth rates for the industry as a whole.
The pre-tax rate used to discount cash flow forecasts is 13.6% (2017: 13.5%). Management have based this rate
on the following factors: a Risk Free Rate of 3.2%; 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 represent their fair value at the date of acquisition.
Amortisation
All categories of intangible assets, apart from the Goodwill and the IPR&D technology, are being amortised over
their respective useful lives, on a straight-line basis. The remaining amortisation period of the intangible assets
is between 10 and 46 months.
52
13. PROPERTY, PLANT AND EQUIPMENT
Land
$000’s
Leasehold
improvements
$000’s
Buildings Production
Equipment
$000’s
$000’s
Rental
Fleet
$000’s
Other
Equipment
$000’s
Cost:
As at 1 April 2017
Additions
Disposals
As at 31 March 2018
Depreciation:
As at 1 April 2017
Charge for the year
Disposals
As at 31 March 2018
Net Book Value:
As at 1 April 2017
As at 31 March 2018
461
-
-
461
-
-
-
-
461
461
102
-
(102)
-
40
10
(50)
-
62
-
2,120
175
-
2,295
372
89
-
461
1,748
1,834
1,334
27
(208)
1,153
1,302
18
(209)
1,111
32
42
789
2,559
(789)
2,559
272
620
(452)
440
517
2,119
Enteq Upstream Plc
Total
$000’s
5,128
2,793
(1,117)
6,804
2,270
760
(729)
2,301
322
32
(18)
336
284
23
(18)
289
38
47
2,858
4,503
Land
$000’s
Leasehold
improvements
$000’s
Buildings Production
Equipment
$000’s
$000’s
Rental
Fleet
$000’s
Other
Equipment
$000’s
Total
$000’s
Cost:
As at 1 April 2016
Additions
Disposals
As at 31 March 2017
Depreciation:
As at 1 April 2016
Charge for the year
Disposals
As at 31 March 2017
Net Book Value:
As at 1 April 2016
As at 31 March 2017
461
-
-
461
-
-
-
-
461
461
102
-
-
102
30
10
-
40
72
62
2,120
-
-
2,120
282
90
-
372
1,838
1,748
1,336
3
(5)
1,334
1,226
76
-
1,302
110
32
386
410
(7)
789
46
226
-
272
340
517
364
-
(42)
322
282
24
(22)
284
4,769
413
(54)
5,128
1,866
426
(22)
2,270
82
38
2,903
2,858
53
Enteq Upstream Plc
14. DEFFERED TAX
No deferred tax balances have been recognised in the statement of financial position on the basis that the only
material balances related to taxable losses carried forward, which are uncertain as to their recoverability.
As disclosed in Note 10, deferred tax assets in the UK of $1.7m (tax value of $0.3m at 17%) and in the US of
$15.9m (tax value of $4.8m at 30%) (2017: UK $2.6m; US $14.1m), in relation to losses carried forward have not
been recognised.
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments
Other receivables
The above can be analysed as follows:
Non-current
Current
31 March 2018
$000’s
31 March 2017
$000’s
2,087
158
97
2,342
238
2,104
2,342
3,657
64
203
3,924
-
3,924
3,924
The management believe that the carrying value is an approximation of fair value.
Bad debt provision
As at 1 April
Released to income statement
Allowances used
As at 31 March
Aging profile of unprovided trade receivables
Not past due
Past due 31-90 days
Past due 91-120 days
Past due more than 120 days
16. INVENTORIES
Finished goods
Work in progress
Raw Materials
31 March 2018
$000’s
31 March 2017
$000’s
69
(50)
(19)
-
278
-
(209)
69
31 March 2018
$000’s
31 March 2017
$000’s
842
653
39
553
2,087
2,190
650
671
215
3,726
31 March 2018
$000’s
2,722
229
351
3,302
31 March 2017
$000’s
2,952
63
351
3,366
The value of inventory recognised within Cost of Sales was $1,777k (2017: $1,168k). The 31 March 2018
balance includes a provision for slow moving stock of $213k (31 March 2017: $509k).
54
Enteq Upstream Plc
17. CASH AND CASH EQUIVALENTS
Denominated in USD
Denominated in GBP
31 March 2018
$000’s
31 March 2017
$000’s
15,387
114
15,501
14,374
961
15,335
18. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid ordinary shares of GBP 0.01 nominal value:
As at 1 April 2017
Issued during the year
As at 1 March 2018
All shares issued carry the same voting rights.
Number
000’s
Share
Capital
$000’s
Share
Premium
$000’s
60,712
963
90,718
1,426
19
313
62,138
982
91,031
In addition, there are 50,000 allotted, issued and fully paid incentive shares of GBP 1.00 nominal value. There
has been no change during the year. The incentive shares carrying no rights to either vote of receive dividends.
As mentioned in Note 7, certain current and previous Executive Directors have also subscribed to these incentive
shares, with a base cost of $79,937. The fair value was determined using a binomial model. The fair value of
the incentive shares has been recognised as a current liability on the Statement of Financial Position as it becomes
repayable if the incentive shareholders leave office.
There were no costs associated with the share capital issued during the year.
The Companies Act 2006 abolished the concept of authorised share capital and, accordingly, there is no
Limit on the maximum amount of shares that may be allotted by the Company.
Details of the incentive shares are included in note 7.
19. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Social security and other taxes
Other creditors
31 March 2018
$000’s
31 March 2017
$000’s
1,140
1,853
214
91
3,298
332
1,353
234
469
2,388
The management believe the carrying value is an approximation of the fair value. The average creditor days for
the period ending 31 March 2018 is 64 days (2017: 24 days).
20. EMPLOYEE BENEFITS
Enterprise Management Incentive Plan
The Group has established a share option plan that entitles all employees to purchase shares in the Company.
During the year to 31 March 2018 grants under the plan were made. In accordance with the scheme rules options
are exercisable at the market price of the shares at the date of the grant once all vesting conditions have been met.
Options vest after three years from the date of grant and expire after ten years.
55
Enteq Upstream Plc
The number and weighted average exercise prices of share options are as follows:
31 March 2018
31 March 2017
Weighted
average exercise
price (pence)
Number of
options
Weighted
average exercise
price (pence)
Number of
options
Outstanding at the beginning of the period
Granted during the period
Exercise during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
24.4
22.5
13.8
17.8
28.5
34.7
793,500
180,000
(214,000)
(110,000)
649,500
409,500
27.1
13.0
-
13.8
24.4
29.8
641,000
170,000
-
(17,500)
793,500
532,000
The weighted average remaining contractual life of all outstanding share options is 2,405 days (2017: 2,522 days).
The fair value of services received in return for share options are measured by reference to the fair value of share
options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes
model and expectations of early exercise are incorporated into this model.
The grant made during the year were as follows:
Grant Date
Fair value for option at grant date (pence)
Weighted average share price at date of grant (pence)
Weighted average exercise price
Expected volatility
Option life
Risk free interest rate
June
2017
7.6
22.5
22.5
50%
3 years
2.5%
The expected volatility is based on the historic volatility.
During the year, a credit of $34k (2017: Charge of $17k) has been included within the income statement in relation
to the above options.
Performance Share Plan
On the 17 September 2014, a Performance Share Plan was introduced for the executive directors and other senior
managers. In accordance with the scheme rules options are exercisable at the nominal value of the shares at the
date of the grant once all vesting conditions have been met. Options vest after three years from the date of grant
and expire after ten years. Options are settled in equity.
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the period
Granted during the period
Lapsed during the period
Outstanding at the beginning of the period
Exercisable at the end of the period
31 March 2018
Number of options
31 March 2017
Number of options
4,482,216
1,850,000
(2,074,284)
4,257,932
1,232,057
2,864,034
1,618,182
-
4,482,216
-
The weighted average remaining contractual life of all outstanding Performance Share Plan options is 397 days
(2017: 372 days).
The fair value of services received in return for share options are measured by reference to the fair value of share
options granted, measured using the Black-Scholes model and expectations of early exercise are incorporated into
this model. The balance is adjusted each year in accordance with the number of awards expected to vest.
56
Enteq Upstream Plc
The grants made during the year were as follows:
Fair value for option at grant date (pence)
Share price at date of grant (pence)
Option life
Non
market
based
conditions
20.0
20.0
3 years
During the year $138k (2017: $252k) has been included within the income statement as a charge, for the above
options.
The charge of $104k (2017: $257k) shown in note 7 includes the additional charges for both the above schemes.
21. OPERATING LEASES
The Group has lease agreements in respect of properties and other equipment, for which payments extend over a
number of years. The total gross payments over the life of these leases, split by maturity date and type, are as
follows:
At 31 March 2018
Within one year
Within two to five years
At 31 March 2017
Within one year
Within two to five years
Property Equipment
$000’s
$000’s
Total
$000’s
25
7
32
12
7
19
37
14
51
Property Equipment
$000’s
$000’s
Total
$000’s
85
24
109
-
-
-
85
24
109
The lease expense during the year amounted to $162k (2017: $151k), representing the minimum lease payment.
22. OPERATING LEASES AS LESSOR
The Group leases out equipment under operating leases, the carrying value of which is shown in note 13.
Rental income during the year amounts to $984k (2017: $499k) included within revenue.
The lease contracts are all non-cancellable for 3 months from the commencement of the lease. As at
31 March 2018 there were no significant future minimum lease rentals (2017: nil).
57
Enteq Upstream Plc
23. RELATED PARTY DISCLOSURES
Transactions with key management personnel
The remuneration of the current directors, who are the key management personnel of the Group, is set out below
in aggregate for each of the categories specified in IAS 24: ‘Related party disclosures’. Further information about
the remuneration of individual Directors is provided in the remuneration committee report. Incentive Shares were
issued to some of the directors as detailed in Note 7.
31 March 2018
$000’s
31 March 2017
$000’s
972
104
1,076
1,034
252
1,286
Short-term employee benefits
Share-based payments
24. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
25. FINANCIAL INSTRUMENTS
Exposure to credit, interest rate, and currency and liquidity risk arises in the normal course of the Group’s business.
The Group’s overall strategy to minimise this risk is discussed below.
Objectives, policies and procedures
Treasury operations are conducted within a framework of policies and guidelines authorised by the Board and are
subject to internal control procedures. The objectives of the framework are to provide flexibility whilst minimising
risk and prohibiting speculative transactions or positions to be taken.
The Group’s principal financial instruments comprise cash and lines of bank credit. The main purpose of these
financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets
and liabilities such as trade receivables and trade payables, which arise directly from its operations.
The main risks arising from the Group’s financial instruments are credit, interest rate, and currency and liquidity
risks. The Board reviews and agrees policies for managing these risks and they are summarised below.
Credit risk
Management has a credit policy in place and the exposure to credit risk is monitored on an on-going basis. The
Group does not require collateral in respect of financial assets.
At the end of each month the senior management review the level of credit risk, particularly with reference to
outstanding customer balance. The maximum exposure to credit risk is represented by the carrying amount of each
financial asset in the statement of financial position. The Group invests some of its surplus funds in high quality
liquid market instruments with a maturity no greater than three months. To reduce the risk of counterparty default
the Group deposits its surplus funds in approved high quality banks. Concentrations of credit risk with respect to
customers are limited due to the Group’s customer base being relatively broad. Customers are assessed for credit
worthiness and credit limits are imposed on customers and reviewed regularly.
Interest rate risk
The Group’s exposure to risk for changes in market interest rates relates primarily to the Group’s cash and cash
equivalents. The Group minimises that risk by using a series of short term interest rate fixes.
A 1% increase in interest rates, in the average balances held on deposit during the year end, would result in an
increase in finance income of $155k per annum.
Foreign currency risk
The Group is exposed to foreign currency risk on cash balances denominated in sterling, as its reporting currency
is USD. The amount of currency held in sterling is reviewed on a regular basis, together with the cash flows
denominated in sterling, to ensure that this risk is minimised.
58
Enteq Upstream Plc
The Group’s funding strategy is to ensure that the business has sufficient resources to meet its various financial
commitments on an on-going basis. It achieves this objective by actively monitoring its forecast cash flows and
requirements. The Group is cautious in its approach, applying appropriate sensitivities to both the quantum and
timing of its projections.
A 1% increase in the GBP/USD foreign exchange rate, on the GBP denominated year end cash balances, would
result in a foreign exchange loss of $2k. The year-end balance was chosen due to the highly fluctuating level of
GBP denominated cash held during the year.
Liquidity risk
The Group manages its liquidity risk by ensuring that the balances of cash on deposit gives it sufficient access to
liquid funds to meet both its immediate and longer term needs. In addition, the Group regularly reviews the access
to commercial bank lines of credit.
Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and
healthy capital ratios in order to support its current business, and allow it to take advantage of development
opportunities when they arise therefore allowing the Group to maximise Shareholder value at all times.
The Group manages its capital structure, primarily Shareholders’ equity, and makes adjustments to it, in light of
changes in economic conditions and development opportunities. To maintain or adjust the capital structure, the
Group may adjust the dividend payment to Shareholders, return capital to Shareholders or issue new shares. The
Group’s ordinary shares are quoted on the AIM market of the London Stock Exchange. This affords it access to
investors which seek access to growth opportunities of the sort which the Group is targeting to acquire.
Debt is not employed in the Group at present and the limited working capital requirements are currently financed
out of cash reserves. Details of the current equity structure can be seen on the Consolidated Statement of Financial
Position. There are no capital requirements that are externally imposed.
No changes were made in the objectives, policies or processes during the years ending 31 March 2018.
Estimation of fair values
The following summarises the major methods and assumptions used in estimating the fair values of financial
instruments reflected in the table, below.
Trade and other receivables/payables
The directors consider that the carrying amount of these balances approximates to their fair value.
The only allowances maintained by the Company for credit losses relate to allowances for bad and doubtful debts
relating to trade receivables.
Categories of financial instruments
Financial liabilities and assets included in the Statement of Financial Position relate to the following IAS 39
categories:
31 March 2018
Other
Financial
Liabilities
$000
Non-
Financial
Liabilities
$000
1,140
-
91
1,853
3,084
-
214
-
-
214
Total for
Statement of
Financial
Position
heading
$000
1,140
214
91
1,853
3,298
Statement of Financial Position headings – liabilities
Trade payables
Social security and other taxes
Other creditors
Accrued expenses
Total
59
Enteq Upstream Plc
Statement of Financial Position headings – assets
Trade receivables
Prepayments
Other receivables
Cash and cash equivalents
Total
31 March 2017
Statement of Financial Position headings – liabilities
Trade payables
Social security and other taxes
Other creditors
Accrued expenses
Total
Statement of Financial Position headings – assets
Trade receivables
Prepayments
Other receivables
Cash and cash equivalents
Total
Loans and
receivables
$000
Non-
Financial
Assets
$000
Total for
Statement of
Financial
Position
heading
$000
2,087
-
97
15,501
17,685
-
158
-
-
158
2,087
158
97
15,501
17,843
Other
Financial
Liabilities
$000
Non-
Financial
Liabilities
$000
Total for
Statement of
Financial
Position
heading
$000
332
-
469
1,353
2,154
-
234
-
-
234
332
234
469
1,353
2,388
Loans and
receivables
$000
Non-
Financial
Assets
$000
Total for
Statement of
Financial
Position
heading
$000
3,657
-
203
15,335
19,195
-
64
-
-
64
3,657
64
203
15,335
19,259
60
Enteq Upstream Plc
The directors are of the opinion that there is no material difference between the book value and the fair value of any
of the Group’s assets or liabilities. The contractual maturity of all financial liabilities are as follows:
31 March 2018
31 March 2017
Within 3 months
$000’s
3 to 12 months
$000’s
12 to 18 months
$000’s
3,084
2,154
-
-
-
-
26. CAPITAL COMMITMENTS
Other than those included in the statement of financial position, there were no material capital or other financial
commitments in place at the year end. Further, there was no authorised but not contracted for capital expenditure
at the year end.
27. POST-REPORTING DATE EVENTS
No adjusting events have occurred.
61
Enteq Upstream Plc
Enteq Upstream Plc
Company Statement of Financial Position
Fixed assets
Tangible Fixed Assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Debtors: amounts falling due after one year
Inter-Company loan notes
Creditors: amounts falling due within one year
Trade and other payables
Total assets less current liabilities
Capital and reserves
Called up share capital
Share premium
Share based payment reserve
Retained earnings
Total equity
Notes
3
4
5
6
7
8
9
9
31 March 2018
$ 000's
31 March 2017
$ 000's
-
-
-
14,408
14,702
29,110
-
-
-
12,777
14,696
27,473
8,592
8,592
(1,163)
36,539
(792)
35,273
982
91,031
910
(56,384)
36,539
963
90,718
807
(57,215)
35,273
The parent Company's profit for the financial year was $831k (2017: $574k). The financial statements were approved by
the Board of Directors on 12 June 2018 and were signed on its behalf by:
David Steel
Director
62
Enteq Upstream Plc
Company Statement of Changes in Equity
Enteq Upstream Plc
Issue of share capital
Share based payment charge
Transactions with owners
Profit for the period
Other comprehensive expense for the year
Total comprehensive income
Total movement
As at 1 April 2017
As at 31 March 2018
Issue of share capital
Share based payment charge
Transactions with owners
Profit for the period
Other comprehensive expense for the year
Total comprehensive income
Total movement
As at 1 April 2016
As at 31 March 2017
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
Share
based
payment
reserve
$ 000's
19
-
19
-
-
-
-
-
-
831
-
831
313
-
313
-
-
-
19
963
982
831
(57,215)
(56,384)
313
90,718
91,031
-
103
103
-
-
-
103
807
910
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
Share
based
payment
reserve
$ 000's
13
-
13
-
-
-
-
-
-
574
-
574
160
-
160
-
-
-
13
950
963
574
(57,789)
(57,215)
160
90,558
90,718
-
257
257
-
-
-
257
550
807
Total
equity
$ 000's
332
103
435
831
-
831
1,266
35,273
36,539
Total
equity
$ 000's
173
257
430
574
-
574
1,004
34,269
35,273
63
Enteq Upstream Plc
Enteq Upstream Plc
Company Statement of Cash Flows
Cash flows from operating activities
Profit for the year
Net finance income
Share-based payment non-cash charges
Foreign exchange difference
Increase in trade and other receivables
Increase in trade and other payables
Net cash from operating activities
Investing activities
Interest received
Net cash from investing activities
Financing activities
Share issue
Net cash from financing activities
Increase/(decrease) in cash and cash equivalents
Non-cash movements - foreign exchange
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year to 31 March
2018
Year to 31 March
2017
$ 000's
$ 000's
831
(175)
103
(48)
711
(1,631)
371
(549)
175
175
332
332
(42)
48
14,696
14,702
574
(127)
256
8
711
(1,601)
268
(622)
127
127
173
173
(322)
(8)
15,026
14,696
64
Notes to the Company Statement of Financial Position
For the year to 31 March 2018
1.
SIGNIFICANT ACCOUNTING POLICIES
Enteq Upstream Plc
Basis of accounting
Enteq Upstream Plc is a Company incorporated in the United Kingdom under the Companies Act 2006. The address
of the registered office is given in the Company Information found on page 3.
Statement of compliance
These financial statements have been prepared in accordance with applicable accounting standards and in
accordance with Financial Reporting Standard 101 – 'The Reduced Disclosure Framework' (FRS 101). The
principal accounting policies adopted in the preparation of these financial statements are set out below. These
policies have all been applied consistently throughout the year unless otherwise stated.
Basis of preparation
The financial statements have been prepared on a going concern basis under the historical cost convention.
The board regularly reviews the Company’s resources to ensure they are sufficient to continue trading for the
foreseeable future. It is therefore considered appropriate to use the going concern basis to compile these financial
statements. The main requirement is for sufficient financial resources to maintain the overhead required to fulfil
the pipeline of business.
The financial statements are presented in US dollars as the majority of the Company’s subsidiaries’ activities and
transactions are in US dollars.
Management notes that the Company's strategy is to invest in services aligned to the oil and gas industry, an
industry which trades principally in US$. All future operations and sources of funding are also expected to be
located in the US for the foreseeable future.
As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not
presented as part of these financial statements. The Company’s profit is disclosed on page 62.
In preparing these financial statements the Company has taken advantage of the following disclosure exemptions
conferred by FRS 101:
• The requirements of IAS 24: related party disclosures to disclose related party transactions entered
in to between two or more members of the group as they are wholly owned within the group;
• Presentation of comparative reconciliations for intangible assets and property, plant and equipment;
• Disclosure of key management personnel compensation;
• Capital management disclosures;
• Presentation of a comparative reconciliation of the number of shares outstanding at the beginning
and at the end of the period;
• The effect of future accounting standards not adopted;
• Certain share based payment disclosures; and
• Disclosures in respect of financial instruments (other than disclosures required as a result of recording
financial instruments at fair value).
Parent company
The Company is a wholly owned subsidiary of Enteq Upstream PLC which prepares publicly available
consolidated financial statements in accordance with IFRS. This Company is included in the consolidated financial
statements of Enteq Upstream PLC for the year ended 31 March 2018. These accounts are available from The
Courtyard, High Street, Ascot, Berkshire, SL5 7HP.
65
Enteq Upstream Plc
Foreign currencies
Foreign currency transactions are translated into the local currency of the Company, US dollars, using the exchange
rates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of
such transactions and from the remeasurement of monetary items denominated in foreign currency at year-end
exchange rates are recognised in profit or loss.
Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the
exchange rates at the transaction date).
Tangible assets
Tangible assets are stated at cost less accumulated depreciation and any impairment in value. The initial cost of an
asset comprises its purchase price or construction cost, and any costs directly attributable to bringing the asset into
operation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other
consideration given to acquire the asset.
The estimated useful lives are determined separately for each category and are as follows:
Computer equipment
Office equipment
3 years
1 year
A tangible fixed asset is derecognised upon disposal or when no future economic benefits are expected to arise
from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the item) is included in the administrative
expenses in the year the item is derecognised.
Investments
Fixed asset investments in subsidiaries are shown at cost less provision for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly
liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant
risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company
after deducting all of its liabilities.
Trade and other payables
Trade and other payables are not interest-bearing and are recognised initially at fair value. Subsequently they are
carried at amortised cost.
Amounts due from or to group companies
Amounts due from or to group companies are initially recognised at fair value being the present value of future
interest and capital receipts discounted at the market rate of interest for a similar financial asset or liability. For
group loans which are due on demand or where there is no significant difference between the amount due/payable
and fair value on initial recognition then such loans are carried at the amount due/payable on an amortised cost
basis. Interest receivable or payable on the loan is recognised in profit or loss under the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
66
Enteq Upstream Plc
Equity, reserves and dividend payments
Share capital represents the nominal value of shares that have been issued. Share premium includes any premiums
received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from
share premium, net of any related income tax benefits.
Retained earnings include all current and prior period retained profits. All transactions with owners of the parent
are recorded separately within equity. Dividend distributions payable to equity shareholders are included in other
liabilities when the dividends have been approved in a general meeting prior to the reporting date.
Share based payment reserve
Represents the total accumulated share based payment charge less any amounts transferred following the issue of
the relevant shares.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered)
using the tax rates and laws that have been enacted or substantively enacted by the Statement of Financial Position
date.
Deferred tax is recognised in respect of all temporary differences that have originated but not reversed at the
Statement of Financial Position date where transactions or events that result in an obligation to pay more tax in the
future or a right to pay less tax in the future have occurred at the Statement of Financial Position date. Temporary
differences are differences between the Company’s taxable profits and its results as stated in the financial
statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in
which they are recognised in the financial statements.
Share based payments
All employees receive remuneration in the form of share-based payment transactions, whereby they render services
in exchange for rights over shares under the Enterprise Management Incentive Plan option scheme. The executive
directors and other senior managers receive remuneration in the form of share-based payment transactions, whereby
they render services in exchange for rights over shares under the Performance Share Plan. Both these schemes
have options that vest three years after the date of grant. The total amount to be expensed over the vesting period
of the options is determined by reference to the fair value at the date of granting and the number of awards that are
expected to vest. The fair value is based upon a Black-Scholes model taking into account different scenarios for
the possible outcomes of the Company's investment activities, using management's best estimates of these likely
outcomes. The total expense is based upon initial conditions and will crystallise smoothly over the vesting period
without reassessment of the initial fair value. The charge is annually reassessed, based on the total number of
options expected to vest. In addition, where there are changes to the terms of any agreements, the fair value is
reassessed at that time. The movement in cumulative expense is recognised in the profit and loss, with a
corresponding entry to the share-based payment reserve.
On 17 September 2014, the Company introduced a Performance Share Plan (“PSP”) for the Executive Directors
and other key senior managers. The awards at the nominal value of the shares, but the exercise of which is subject
to certain performance conditions.
Incentive Shares
The Incentive Shares do not carry any voting or dividend rights and are not transferable. The amounts subscribed
for the Incentive Shares have been recognised as a current liability on the Statement of Financial Position as they
become repayable if the Executive Directors leave office.
2.
PROFIT FOR THE YEAR
As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not
presented as part of these financial statements. The parent Company's profit for the financial year was $831k
(2017: $574k).
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Enteq Upstream Plc
3.
TANGIBLE FIXED ASSETS
Cost:
As at 1 April 2017 and 31 March 2018
Depreciation:
As at 1 April 2017
Charge for the year
As at 31 March 2018
Net Book Value:
As at 1 April 2017
As at 31 March 2018
4.
INVESTMENTS
Cost
As at 1 April 2017 and 31 March 2018
Impairment
As at 1 April 2017 and 31 March 2018
Net book value
As at 1 April 2017 and 31 March 2018
Computer
equipment
$000’s
Office
equipment
$000’s
Total
$000’s
10
10
-
10
-
-
5
5
-
5
-
-
15
15
-
15
-
-
Shares in
Group
undertakings
$000’s
23,285
23,285
-
The Group or the Company's investments at the Statement of Financial Position date in the share capital of companies
represent the following:
Name
Enteq Upstream USA Inc.
Country of incorporation Nature of business
United States of America Manufacturer of down hole drilling
Holding
100%
equipment
5.
DEBTORS
Amounts falling due within one year:
Amounts owed by Group undertakings
Prepayments
Other debtors
31 March 2018
$000’s
31 March 2017
$000’s
14,272
39
97
14,408
12,695
38
44
12,777
The management believe that the carrying value is an approximation of fair value.
68
Enteq Upstream Plc
6.
CASH AT BANK AND IN HAND
Denominated in USD
Denominated in GBP
7.
INTER-COMPANY LOAN NOTES
Receivable from Enteq Upstream USA Inc:
As at 1 April
Provision
As at 31 March
8.
CREDITORS
Accrued expenses
Trade payables
Social security and other taxes
Other creditors
31 March 2018
$000’s
31 March 2017
$000’s
14,588
114
14,702
13,735
961
14,696
31 March 2018
$000’s
31 March 2017
$000’s
37,928
(29,336)
8,592
37,928
(29,336)
8,592
31 March 2018
$000’s
31 March 2017
$000’s
943
94
46
80
1,163
696
7
9
80
792
The management believe the carrying value is an approximation of the fair value. The average creditor days for
the period ending 31 March 2018 is 35 days (2017: 11 days).
9.
CALLED UP SHARE CAPITAL
Allotted, issued and fully paid ordinary shares of GBP 0.01 nominal value:
As at 1 April 2017
Issued during the year
As at 1 March 2018
Number
000’s
Share
Capital
$000’s
Share
Premium
$000’s
60,712
963
90,718
1,426
19
313
62,138
982
91,031
All shares issued carry the same voting rights.
10. RELATED PARTY DISCLOSURES
Details of directors’ remuneration and other transactions are set out on pages 18 to 21.
11. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
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