ENTEQ UPSTREAM PLC
ANNUAL REPORT
FOR THE YEAR TO 31 MARCH 2020
REGISTERED NUMBER: 07590845 (England and Wales)
Contents
Key features, Financial Metrics and Outlook
Company Information
Strategic Report:
Combined Chief Executive and Chairman’s report
Financial Review
Review of Principal Risks and Uncertainties
Corporate Governance:
Corporate Social Responsibility
Report of the Directors
Remuneration Committee Report
Corporate Governance Report
Financial Statements - Group:
Independent Auditor’s Report
Consolidated Statement of Profit and Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Page
2
3
4
7
10
12
14
18
21
25
33
34
35
36
37
Notes to the Consolidated Financial Statements
38
Financial Statements - Company:
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
64
65
66
1
Key features, Financial Metrics and Outlook
Key features
• Growth in both revenue and adjusted EBITDA*
•
International revenue up from 9% to 30% of total
• Adjusted EBITDA* margin up from 24% to 28%
• Continued investment in new technologies and rental fleet
• Recent downturn in global markets reflected in major write-down of intangible assets ($4.2m) and inventory ($2.7m)
Financial metrics
Years ended 31 March ($m):
• Revenue
• Adjusted EBITDA1
• Ongoing operating loss 2
• Exceptional items
• Total post tax loss
• Adjusted post tax loss per share (cents) 3
• Post tax loss per share (cents)
• Cash balance
2020
10.9
3.1
0.8
7.3
7.8
0.6
12.1
10.2
2019
10.2
2.5
0.4
-
0.1
0.0
0.2
11.9
Outlook
• US markets uncertain of short-term recovery; oil price stabilisation will support international opportunities
• Focussed investment in new technology
• Emphasis on maintaining a strong balance sheet
1 Adjusted EBITDA is reported profit before tax adjusted for interest, depreciation, amortisation, foreign exchange movements, Performance Share Plan
charges and exceptional items. See note 3.
2 Ongoing operating loss is reported profit before tax adjusted for interest and exceptional items.
3 Adjusted post tax loss per share (cents) is reported profit before tax adjusted for amortisation foreign exchange movements and exceptional items divided
by the weighted average numbers of ordinary shares in issue.
2
Company Information
For the year to 31 March 2020
DIRECTORS:
Chairman
Iain Paterson
Chairman of the Board, Chairman of Nomination Committee
Executive Directors
Martin Perry
David Steel
Chief Executive Officer
Finance Director
Chairman of the Remuneration and Audit Committees – appointed 24 March 2020
Resigned 24 March 2020
Non-Executive Director
Neil Hartley
Robin Pinchbeck
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
30 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 combined Chief Executive and Chairman’s report and continues to the end of the Review of the
Principle Risks and Uncertainties.
Combined Chief Executive and Chairman’s report
Introduction
Enteq supplies Measurement While Drilling (“MWD”) equipment and develops technology for the world-wide oil, gas and
geothermal directional drilling sector. Directional drilling is carried out by service companies who either purchase
equipment from third parties, such as Enteq, or develop the equipment themselves. MWD equipment is required on every
rig which drills directional wells and until recently Enteq’s equipment was estimated to be in use on more than 300 drilling
rigs worldwide.
Enteq has a proven track record of providing extremely reliable and respected technology to regional / independent drillers
who wish to compete with the major international drilling companies. Enteq’s vision is to continue to develop technology
which will provide efficient and cost-effective solutions for drilling companies, wherever they operate.
As a result of the recent virus pandemic and the associated significant negative adjustment to the world-wide oil prices,
Enteq has experienced significant disruption to its business since mid-March 2020.
Despite the recent market changes, Enteq remains well positioned with a strong balance sheet. The on-going level of
operational overheads have been reduced in order to protect the cash balance, enabling Enteq to sustain the operations of
the business for the foreseeable future. Enteq intends to grow the business, in due course, by maintaining and increasing
market presence, especially in the markets outside North America. This will be primarily through maintaining investment
in new technologies suitable for a competitive and low-cost medium-term drilling environment.
Review of the Year
This year’s financial results show growth in both revenue and adjusted EBITDA. Revenue increased by 7% to $10.9m,
primarily due to international revenue rising from $1.0m in the year to March 2019 to $3.2m this year. The North American
market experienced a challenging year with revenue falling from $9.2m to $7.7m, primarily due to the oilfield services
companies concentrating on reducing their debt burden, with a rapid decline in revenues since the outbreak of the virus
pandemic and dramatic oil price reductions. Adjusted EBITDA has risen to $3.1m (March 2019: $2.5m) and represents a
margin of 28%, up from 24% last year. Operating activities produced a positive cashflow of $0.9m. Overall, however,
the cash balance reduced by $1.7m during the year to $10.2m, due to continued investment in technology, engineering and
rental assets.
In mid-March 2020, a combination of reduced oil demand, due to the outbreak of COVID-19 virus, and increased oil
production by both Saudi Arabia and Russia saw a dramatic shift downwards in the oil price. The price of a barrel of West
Texas Intermediate (“WTI”) dropped from $41 on 6 March to $14 on 30 March. This raised questions regarding the
sustainability of the United States based shale oil drilling and production business model. US oilfield services companies
embarked on major cost and cash saving measures including laying off staff and freezing both capex and any discretionary
opex spend.
Enteq responded quickly to this major reduction in demand for all its product lines by reducing the US workforce by
approximately 60%, releasing all US based contract staff and curtailing all discretionary spend. In addition, in order to
further conserve cash, all Board members have agreed to take a significant proportion of their remuneration in new Enteq
shares.
In recognition of the uncertain market conditions in both the short and medium term, these reported results contain an
exceptional write off of previously capitalised costs of developing new products that are no longer deemed commercially
viable of $4.2m (held within intangible assets) and a $2.7m write down of specific products held in inventory.
4
During this financial year the Group’s USA focussed rental model continued to be a major proportion of the total group
revenue at 44%, up from 35% last year. Pleasingly, all kits were revenue earning during the year, with no kits being
returned before the end of their contractual rental period. During the year the number of kits held in the fleet reduced from
32 to 17; the remaining kits being held in the balance sheet at a value of $1.0m (March 2019: $3.4m).
Prior to the global slow-down, positive gains were made in the International markets with revenue rising from $1.0m to
$3.2m. The dominant geographical market was China, which represented 84% of the total international revenues. Although
the effect of the virus in China slowed all activity during the last quarter, new negotiations and supply contracts are again
under discussion. During the year a supply agreement and partnership was re-negotiated in Saudi Arabia, where a
separation, re-registering and reclaim of equipment was concluded with a previous agent. A new partner has been found
and appropriate agreements signed. This will enable renewed focus on the Saudi market, concentrating on suppling
equipment to Saudi Aramco.
A significant new technology license agreement was announced in September 2019 with Shell Global Solutions. This
license grants Enteq exclusive rights to the IP and know-how generated by Shell relating to a novel rotary steerable drilling
technology. A rotary steerable system offers significant advantages over traditional directional drilling techniques by
allowing for faster drilling, longer lateral distances, creation of a more manageable well and cost efficiencies.
The rotary steerable market is currently dominated by the major suppliers, such as Schlumberger, BakerGE and Halliburton,
whom, it is estimated, currently account for more than 75% of the global market. After recent price adjustments the global
market for Rotary Steerable related work in 2021 is still estimated to be greater than $2bn.
The Shell Rotary Steerable System, which had been developed through to initial prototype testing, delivers significant
advantages of efficiency and lower operating costs. The arrangement with Shell is royalty based, as outlined in the
agreement announcement of September 2019 and Enteq is on-track with the re-engineering efforts, based in the UK, for
new prototype tools to be in test during 2021. Enteq has submitted their first, satisfactory, progress report to Shell regarding
the work competed to date which includes validation of key principles, design review of requirements for a reliable down-
hole tool and significant modelling of force mechanisms. Enteq Board have concluded that this is a viable project and
continue to invest both internally and with a dedicated contract engineering team based in the UK for the following phases
of development.
Due to the dramatic change in market conditions at the end of the financial year, some difficult decisions had to be made
regarding the appropriate level of ongoing business overheads. Unfortunately, this resulted in significant reductions, mostly
related to operations support in the USA and in engineering projects which may not have a market in the new global
environment. Core competencies and capabilities have been maintained in the business and Enteq is well positioned with
inventory to fulfil future orders. Enteq remains able to provide competitive delivery times for potential new customers,
which together with creative partnerships, should continue to support on-going activity.
Board changes
On 24 March 2020, Neil Hartley joined the Board as a non-executive director. Neil entered the oil industry in 1988 as a
field engineer for Schlumberger after gaining an Engineering Degree at Oxford University. Following an MBA at Harvard
Business School, Neil has spent the past 20 years in financial services, as an investment banker at energy sector bank
Simmons and Company and as a private equity investor at First Reserve, a leading global private equity investment firm
exclusively focused on energy. He is non-executive director at Renewi plc and Telford Offshore. Neil chairs both the
Company's Audit and Remuneration Committees. Rob Pinchbeck, who had been serving as a Non-executive Director
since Enteq was admitted to AIM in 2011, retired from the Board on 24 March 2020. The Board wish to record their
appreciation for the contribution Rob made to Enteq Upstream since his appointment. His counsel proved invaluable to
the Board throughout his tenure.
Staff
There was a total of 19 employees at the end of the year, down from the 33 at the previous year end, primarily due to the
March oil price shock mentioned above. Additional contract personnel have been used as needed in the areas of engineering
and production during specific times of high demand. The Board would like to recognise the on-going loyalty, dedication
and support of the remaining personnel as Enteq continues with its excellent reputation for the reliability of equipment and
commitment to customer support during these difficult market conditions. On 22 April 2020, Raymond Garcia the US based
COO left the group. The Board would further like to thank all those who have left and wish them well.
5
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, unchanged from the previous year, 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, both WTI and Brent Oil Prices and Henry Hub Natural Gas Price.
Governance
Enteq is committed to maintaining high standards of Corporate Governance, as such on 10 July 2018, the Enteq Board
formally adopted the Quoted Company Alliance Code of Corporate Governance. More details are given on page 21.
Prospects
Enteq is well positioned to support current activities for the foreseeable future. In addition, Enteq will maintain investment
in potential game-changing technology which has the potential to address the demands for reduced costs in the future
drilling environment. Even in a medium term, reduced oil price, post Covid-19, world there will continue to be a demand
for hydrocarbons and increased efficiency in drilling will be needed for the industry.
With a strong balance sheet and a continued appetite to invest in focused new product development Enteq is well positioned
to benefit from a return to market stability.
Iain Paterson
Chairman
Martin Perry
Chief Executive officer
30 June 2020
6
Financial Review
Income Statement
Year to 31 March:
Revenue
Cost of Sales
Gross profit
Overheads
Adjusted EBITDA
Depreciation & amortisation
Other charges
Ongoing operating loss
Exceptional items
Interest
Loss before tax
Tax
Loss after tax
2020
2019
$ million
$ million
10.9
(4.3)
6.6
(3.5)
3.1
(3.6)
(0.3)
(0.8)
(7.3)
0.3
(7.8)
-
(7.8)
10.2
(3.5)
6.7
(4.2)
2.5
(2.7)
(0.2)
(0.4)
-
0.2
(0.2)
0.1
(0.1)
The total revenue of $10.9m represents a 7% increase over the previous year. The North American market was challenging
during the year, even before the events of mid-March, with a steady decrease in rig count from 1,025 as at 1 April 2019 to
790 at the end of February; with a dramatic drop to 664 as at 31 March 2020. This was despite a relatively stable price of
a barrel of WRT during the majority of the year, only varying between $65 and $52 until mid-March, then falling to $19
by 31 March. The market commentators were of the view that the oilfield service companies, Enteq’s customers, were
using any available cash to pay off debt acquired to service their expansion post the last down turn, rather than replacing
existing kit. This resulted in North American turnover falling from $9.3m last year to $7.7m this year. The international
revenue grew strongly from $0.9m to $3.2m, with the Chinese market being particularly buoyant. Despite facing fierce
competition from local Chinese suppliers, the fact that Enteq’s products have a proven track record of operating up to
175Oc, whereas the local products can only manage up to 150Oc, gave us a significant competitive advantage.
The full year gross margin was 61%, down from last year’s 65%, due to a combination of a lower proportion of the higher
margin rental revenue and a higher proportion of the lower margin mechanical component sales this year.
Total operational overheads, at $3.5m, was down 17% on last year’s figure. This reflected the reduction in the headcount
numbers during the year, plus a continued focus on cost control.
The combined depreciation and amortisation charge was up on the previous year due to an additional $0.7m being spent on
new rental kits combined with the underlying age profile of the historic rental fleet. The number of kits at 31 March 2020
was 17, a net reduction of 15 since the previous year end due to a number of kits coming to the end of their rental period,
with ownership passing to the renter on receipt of the final rental payment, Pleasingly, no kits were returned during the
year ahead of the full rental period.
The “Other charges” shown above relate, primarily, to the non-cash cost associated with the Performance Share Plan.
As previously mentioned, the year-end figures included an exceptional charge of $7.3m. This included a $4.2m write off
of all the new product development projects previous capitalised in Intangible assets, except for work on the rotary steerable
system acquired under license from Shell Global Solutions in September 2019. A charge of $2.7m was taken as a write
down of the carrying values of the majority of finished products held in inventory. Both these charges relate to the
continuing uncertainty surrounding the future trading conditions that Enteq faces, until the global oil and gas market
stabilises, the timing of which is unknown. A further $0.1m relates to severance payments made to the US employees that
were made redundant as a direct result of the mid-March oil price collapse.
7
Statement of Financial Position
Enteq’s net assets at the financial year-end comprised of the following items:
As at 31 March:
Intangible assets
Property, plant & equipment
Rental fleet
Net working capital
Cash
Net assets
2020
2019
$million
$million
0.1
2.4
1.0
3.0
10.2
16.7
2.4
2.5
3.4
3.8
11.9
24.0
As mentioned above the “Intangible assets” now solely represents the value of the on-going R&D work on the rotary
steerable system, carried out by the UK based engineering team. The decrease during the year to $0.1m relates to the net
of the ongoing development of various new products up until the mid-March downturn, less the $4.2m write down.
The net book value of property, plant & equipment at $2.4m is the net of the $0.2m invested in replacing production
equipment at South Houston, being offset by the depreciation charge.
The decrease in the net book value of the rental fleet reflects the net reduction of 15 during the year, as previously
mentioned.
The $0.8m decrease in net working capital is due, primarily, to the $2.7m inventory write down countered by an increase
in trade debtors due to strong sales in January and February.
Cash flows
Year to 31 March:
Adjusted EBITDA
Change in net operational working capital
Operational cash generated
Investment in rental fleet
Investment in R&D
CAPEX
Interest and share issues
Net cash movement
Opening cash balances
Closing cash balances
2020
2019
$ million
$ million
3.1
(2.2)
0.9
(0.7)
(2.2)
(0.2)
0.5
(1.7)
11.9
10.2
2.5
(1.5)
1.0
(3.8)
(1.3)
(0.2)
0.7
(3.6)
15.5
11.9
Whilst the Group delivered an improved adjusted EBITDA for the year, the investment in operational working capital
during the year meant that $0.9m of operational cash was created, broadly similar to last year.
8
The continuing robustness of the balance sheet enabled further expansion of Enteq’s market share through further
investment to increase the number of kits in the rental fleet.
The increase in R&D spend reflected the increased focus on engineering projects up until the unforeseen downturn in
March.
The CAPEX relates to the replacing of various production related equipment.
Overall, the Group saw a net cash outflow of $1.7m (2019: $3.6m) reducing the Group’s closing cash balance as at 31
March 2020 to $10.2m.
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 $10.2m as at 31 March 2020.
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. The year-
end GBP denominated holdings are approximately 11% of total cash holdings, up from the 1% of last year’s balance. The
increase was due to taking advantage of the favourable exchange rate during the mid-March turmoil to sell $1.0m for GBP.
Annual General Meeting
In light of ongoing Government advice to restrict all non-essential travel and social contact, the AGM will take place on 29
September 2020 at 12.00 noon in the Company's office in Amersham with the minimum quorum of attendees facilitated by
the Company.
David Steel
Finance Director
30 June 2020
9
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. A risk register is regularly updated and reviewed by the Board, the last review being
in April 2020.
The Directors believe the following risks, as set out in the Risk Register, 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.
The drastic oil price reduction seen in mid-March resulted in swift management action to minimise both the on-going cost
base and cash drain.
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.
As announced in the trading update on 8 April 2020, the combined and inter-related impact of both the COVID-19 virus
spreading and the recent drastic reduction in the oil price has had a significant impact on Enteq's current and future trading
environment.
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.
10
With the decrease in staff numbers during the year, this risk has increased. The Board continues to balance this risk
with the requirement to keep overhead spend constantly under review.
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. With the current difficulties in
the North American market any significant loss of business due to a North America based customer going out of
business could only be mitigated by a corresponding increase in revenue coming from markets outside North
America In order to mitigate this risk in addition to active management of key customer relationships, the Group’s
strategy also involves broadening the customer base especially outside North America,.
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 11 was approved by the Board of Directors on 30 June and signed on its
behalf by:
Martin Perry
Chief Executive Officer
30 June 2020
11
Corporate Social Responsibility
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 2020, the Group had 19 employees (2019: 33).
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 just one reportable incident (2019: nil). The
appropriate corrective action was taken following this reportable incident.
12
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
30 June 2020
13
Report of the Directors
For the year to 31 March 2020
The directors present their report with the financial statements of the Group and the Company for the year to
31 March 2020.
DIRECTORS
The directors holding office at the year-end are as follows:
Chief Executive Officer
Martin Perry
Martin Perry (58), formerly CEO of Sondex. 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 (59), 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 (73), formerly Chairman of Sondex and HYVE Group plc, Non-Executive Director of Hunting plc,
Paladin Resources, 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.
Neil Hartley
Neil Hartley (54), Formerly with First Reserve Corporation, a leading global private equity investment firm exclusively
focused on energy. He has held senior positions with McKinsey & Company and Simmons & Company International.
Neil chairs both the Company's Audit and Remuneration Committees.
Non-Executive Director
As Neil Hartley joined the Board on 24 March 2020, he requires election at the forthcoming Annual General Meeting.
All other Directors require re-election at the same meeting.
Under s172 of the Companies Act a director of a company must act in the way he considers, in good faith, would be
most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard
(amongst other matters) to:
•
•
•
•
•
•
the likely consequences of any decision in the long term.
o The Group’s long-term strategic objectives, including progress made during the year and principal
risks to these objectives have been addressed both in the Strategic Report and the Review of Principal
Risks and Uncertainties.
the interests of the company's employees.
o The Group’s employees are fundamental to the achievement of Enteq’s long-term strategic objectives
as more fully disclosed in the Strategic Review.
the need to foster the company's business relationships with suppliers, customers and others,
o A consideration of the Group’s relationship with wider stakeholders and their impact on our long-
term strategic objectives is also disclosed in the Strategic Review.
the impact of the company's operations on the community and the environment.
o The Group operates honestly and transparently. Consideration of the impact on the environment of
is assessed on a regular basis.
the desirability of the company maintaining a reputation for high standards of business conduct.
o The Group’s intention is to behave in a responsible manner, operating within the high standard of
business conduct and good corporate governance .
the need to act fairly as between members of the company.
o The Group’s intention is to behave responsibly towards all shareholders and treat them fairly and
equally, so that they too may benefit from the successful delivery of the Group’s strategic objectives.
14
Dividends
No dividends will be distributed for the year ended 31 March 2020 (year ended 31 March 2019: nil).
Changes in the Group during the Financial Year
There were no changes during the current financial year.
Post Balance Sheet Events
The impact of both COVID-19 and the significant deterioration in the oil and gas drilling market, particular in North
America has not resulted in any reportable post balance sheet events as at the date of this report.
Research and Development
The Company maintains its commitment to research and development through the activities undertaken by the
Engineering team, based both in the South Houston and locations in the United Kingdom.
Risks and uncertainties
A review of the key risks and uncertainties affecting the Group is set out on pages 10 and 11. The Group’s exposure to
key financial risks is set out in note 25 to the financial statements, see page 56.
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.
Future developments
A key future development will be a focus of the creation of innotive technologies such as the rotary steerable system
which has been referenced in the strategic review.
Annual General Meeting
In light of ongoing Government advice to restrict all non-essential travel and social contact, the AGM will take place
at the Company's office in Amersham with the minimum quorum of attendees facilitated by the Company. Physical
attendance by other shareholders will not be permitted, however, shareholders will be encouraged to vote on the AGM
resolutions electronically and also have the opportunity to submit questions on the AGM resolutions electronically
before the meeting and such questions, limited to matters relating to the business of the AGM itself, should be sent
to Mgmt@enteq.com. 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. As at 31 March 2020, there were
65,488,644 Ordinary shares. 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.
15
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
the
www.computershare.co.uk website.
their personal shareholder
information online,
through
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.
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 (“IFRS”)
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
At 31 March 2020 the Group has cash balances of $10.2m and no debt.
The impact of both COVID-19 and the significant deterioration in the oil and gas drilling market, particular in North
America have been fully factored into various financial scenarios relating to future trading. The output of this modelling
demonstrates that even in the case of a significant reduction in revenue the corresponding cost reduction measures and
reduction in CAPEX and development spend will enable the Group to retain significant cash balances in both the near
and medium term. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated
financial statements.
16
The uncertainty as to the future impact on the Group of the recent Covid-19 outbreak in particular has been considered
as part of the Group’s adoption of the going concern basis. To date, we have not observed any material impact on our
activities due to Covid-19 over and above that of the significant reduction in the North America rig count since the start
of March 2020 and, indeed, the recently announced $1.0m contract ward in China demonstrates the robustness of the
post Covid-19 oil and gas drilling market in that country.
All the staff at the Group’s Houston based facility has recently returned to work after an implementation of revised safe
working practices in view of Covid-19 concerns. As at the date of this report the UK based staff continue to work
remotely.
Auditors
Grant Thornton UK LLP will be proposed for reappointment at the forthcoming Annual General Meeting in accordance
with Section 489(4) of the Companies Act 2006.
Signed on behalf of the Board
David Steel
Company Secretary
30 June 2020
17
Remuneration Committee Report
For the year to 31 March 2020
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 Quoted Company Alliance Code 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 2020, the targets related
to the group achieving the following targets: an underlying adjusted EBITDA at least equal to the Board approved budget; a
specific year-end cash balance; acquiring a certain number of new customers and the launch of new technologies. All
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. The executive directors (Martin Perry and David Steel) plus
three 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
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 2020 were as follows (all salaries
denominated in £ Sterling have been converted to US dollars):
Annual
Salaries,
Fees, Bonus
and Benefits
31/03/2020 a
Actual amounts
paid during the
year to
31/03/2020 b
Annual
Salaries,
Fees, Bonus
and Benefits
31/03/2019 a
Actual amounts
paid during the
year to
31/03/2019b
$ 000’s
$ 000’s
$ 000’s
$ 000’s
501
308
809
38
38
-
76
885
787
408
1,195
44
44
-
88
613
362
975
39
39
-
78
727
382
1,109
42
42
-
84
1,283
1,053
1,193
Martin Perry
David Steel
Total - Executive
Iain Paterson
Robin Pinchbeck – to 24 March
Neil Hartley – from 24 March
Total – Non executive
Total
Notes:
a
b
includes share-based payments and bonuses awards to be paid in following year
includes payments relating to the previous year
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 were settled in shares during year:
31 March 2020
$ 000’s
31 March 2019
$ 000’s
Martin Perry
David Steel
Total - Executive
Iain Paterson
Robin Pinchbeck – to 24 March
Neil Hartley – from 24 March
Total – Non executive
Total
256
125
381
-
-
-
-
381
415
200
615
42
42
-
84
699
19
Interests in PSP and share options
Number of
PSP Options
at 31/3/20
-
-
Number of
PSP Options
at 31/3/19
457,692
230,769
540,000
270,000
714,286
367,347
495,629
254,895
540,000
270,000
714,286
367,347
-
-
2,642,157
2,580,094
Martin Perry
David Steel
Martin Perry
David Steel
Martin Perry
David Steel
Martin Perry
David Steel
Total
Vesting dates
June 2019 (exercised)
June 2019 (exercised)
June 2020
June 2020
June 2021
June 2021
June 2022
June 2022
The performance conditions for each of the PSP awards are as follows:
Vesting Date:
June 2020
June 2021
June 2022
Proportion awarded for compound annual growth
rate in Total Shareholder Return (“TSR”) * of:
30% or greater
10%
Less than 10%
Note: Award pro- rated if growth between 10%
and 30%
Proportion awarded for adjusted EBITDA:
Maximum of range achieved
Minimum of range achieved
TSR (share price) growth
Adjusted EBITDA
Weighting:
Start point:
n/a
n/a
n/a
100%
33%
n/a
100%
100%
33%
0%
100%
33%
50%
50%
100%
33%
0%
100%
33%
50%
50%
TSR (share price) growth
Adjusted EBITDA range
n/a
$1.5m to $3.7m
24.5p
$2.5m to $4.7m
28.6p
$3.75m to $7.5m
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.
* The TSR is defined as the difference between the share price on the date of the award (plus the sum of all dividends paid by the Company on one ordinary
share during the three-year measurement period) and the share price on the measurement date.
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 2020.
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 above.
Neil Hartley
Chairman of the Remuneration Committee
30 June 2020
20
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.
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 as at 31 March 2020 is set out below.
Board
Audit
committee
Remuneration
committee
Nomination
committee
Martin Perry
David Steel
Iain Paterson
Neil Hartley
Chief Executive Officer Member
Member
Finance Director
Non-Executive Director Chairman Member
Chairman
Non-Executive Director Member
-
-
-
-
Member
Chairman
Member
-
Chairman
Member
David Steel also acts as the Company secretary and, therefore, this role is not independent of the Board.
In the year the under review the Board formally met on 13 scheduled occasions, with additional meetings and conference
calls held as deemed necessary. All the directors attended every meeting.
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 with Neil Hartley joining the Board as Chairman of the Audit
Committee it is considered that the skills necessary to fulfil their duties have increased during the year. In addition,
financial advice is available externally as and when they require it. The committee has met twice during the year under
review.
21
Responsibilities
The responsibilities of the Audit Committee are set out on page 21.
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 on page 49. In 2020, fees for non-audit services totalled $183k in comparison to audit fees of $88k. 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 four times 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 met once 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.
22
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.
The Directors recognise the value and importance of maintaining the highest standards of corporate governance. To
this effect, on 10 July 2018, the Board agreed that the Quoted Companies Alliance’s (“QCA”) code of corporate
governance was the most appropriate for Enteq Upstream plc to follow, and so, was formally adopted. The main
principles of the QCA Code and how Enteq ensures that it is fully compliant with these principles are set out below:
• Establish a strategy and business model which promote long-term value for shareholders;
o Enteq has an established strategy and business model supplying the global Oil & Gas directional drilling market
with high-end, differentiated, robust Measurement While Drilling equipment and associated parts and
components. Both the strategy and business model are subject to Board review on at least an annual basis to
ensure that they provide the most appropriate way to provide long-term value for shareholders.
• Seek to understand and meet shareholder needs and expectations;
o The Executive Directors offer to meet the major shareholders after the announcement of both the year end and
interim results. As well as presenting an explanation of these results, these meetings give the shareholders an
opportunity to inform the Directors of both their needs and expectations. The AGM is an opportunity for all
shareholders to present their views to the whole Board. The Chairman is also available to meet shareholders
at any time.
• Consider wider stakeholder and social responsibilities and their implications for long-term success;
o Regular meetings are held with the staff to ensure that the strategic vision of the company is clearly presented.
o Meetings are held with other stakeholders as required.
o The manufacturing plant regularly re-assesses its impact on the environment and implements the appropriate
procedures minimise any adverse effects.
o Regular Health and Safety meetings are held with all staff to minimise the likelihood of any accidents and
“near misses”.
• Embed effective risk management, considering both opportunities and threats, throughout the organisation;
o The Board is responsible for the Group's risk management and undertakes a systematic review of the key risks
and uncertainties which face the Group. It seeks to embed risk management and to facilitate the implementation
of risk management measures throughout the Group’s businesses.
o A comprehensive risk register is maintained, which is regularly reviewed by the Board.
o Monthly reports relating to health and safety at work is presented to the Board.
23
• Maintain the board as a well-functioning, balanced team led by the chair;
o A “Board Effectiveness Review” is completed annually, with the results debated at the appropriate Board
meeting. This review includes an assessment of whether the Board has functioned in compliance with this
principle through assessing, inter alia, directors’ level of skills and experience, the Board’s performance,
review of company strategy, quantity and quality of board meetings.
• Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities;
o
In addition to being part of the “Board Effectiveness Review” outlined above, attendance at appropriate
external training courses and seminars is encouraged.
• Evaluate board performance based on clear and relevant objectives, seeking continuous improvement;
o A Board Effectiveness Review is carried out annually and is a rigorous process.
• Promote a corporate culture that is based on ethical values and behaviours;
o There are formalised policies covering areas such as anti-bribery and corruption, embargo compliance.
o There is a company-wide “speak up” policy covering breaches or potential breaches of our business principles,
unlawful conduct, financial malpractice or dangers to the public and the environment.
o The importance of ethical value and behaviours is included in the regular staff meetings mentioned above.
• Maintain governance structures and processes that are fit for purpose and support good decision-making by the
board; and
o
o
In addition to the Board, that comprise two executive and two non-executive directors, the following sub-
committees of the Board are in place, each having their own terms of reference and comprise solely of Non-
Executive Directors of the Company, except for the Nomination Committee which includes the Chief
Executive Officer:
Audit Committee whose main responsibilities are:
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;
consider and recommend to the Board the reappointment of the external auditor;
Remuneration Committee whose main responsibilities are 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
Nomination Committee whose main responsibilities are the reviewing and recommending executive
and Non-Executive Board appointments for the Group.
• Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and
other relevant stakeholders.
o The compliance with this principle has been addressed through regular meetings with investors and regular
staff and other stakeholder meetings as outlined above.
David Steel
Company Secretary
30 June 2020
24
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 ‘parent company’) and its
subsidiaries (the ‘group’) for the year ended 31 March 2020 which comprise the consolidated
statement of profit and loss, 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, and notes to the consolidated financial statements and notes to the company
financial statements, each including a summary 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 (IFRS) as adopted by the
European Union. The financial reporting framework that has been applied in the preparation of the
parent 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), as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent
company’s affairs as at 31 March 2020 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRS as
adopted by the European Union;
the parent 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 parent 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.
Emphasis of matter – Inventory valuation
We draw attention to Note 16 to the financial statements, which describes the basis by which the directors have
determined the net realisable value of inventory. As a result of various factors that have significantly impacted the
markets in which Enteq operates, the directors have determined that less certainty and a higher degree of caution
should be attached to the estimation of inventory net realisable value than would normally be the case. Our opinion is
not modified in respect of this matter.
The impact of macro-economic uncertainties on our audit
Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including
those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19. All audits assess and
challenge the reasonableness of estimates made by the directors and the related disclosures and the appropriateness of
the going concern basis of preparation of the financial statements. All of these depend on assessments of the future
economic environment and the group’s future prospects and performance.
25
Covid-19 is one of the most significant economic events currently faced by the UK, and at the date of this report it’s
effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and impacts
unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the group’s
future prospects and performance. However, no audit should be expected to predict the unknowable factors or all
possible future implications for a group associated with these particular events.
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 parent 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.
In our evaluation of the directors' conclusions, we considered the risks associated with the group's business model,
including effects arising from macro-economic uncertainties such as Covid-19 and analysed how those risks might
affect the group's resources or ability to continue operations over the period of at least twelve months from the date
when the financial statements are authorised for issue. In accordance with the above, we have nothing to report in
these respects.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that
are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a
material uncertainty in this auditor's report is not a guarantee that the group will continue in operation.
Overview of our audit approach
• Overall materiality: $231,000 which represents approximately
2.1% of the group’s total assets at the planning stage.
• The key audit matters identified were:
Occurrence of unpaid revenues arising from the sale of
goods, and valuation of trade receivables
Valuation of inventory
Use of the going concern assumption
Valuation of intercompany balances (parent company only)
• We performed full scope audit procedures on the financial
information of each of Enteq Upstream plc, the UK parent
company and on the financial information of Enteq Upstream
USA Inc, the significant group component in the USA.
Key audit matters
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.
26
Key Audit Matter - Group
How the matter was addressed in the audit – Group
Occurrence of unpaid revenues arising from the
sale of goods and valuation of trade receivables
Total revenues in the year were $10.903m, including
$6.112m from the sale of goods. In addition, $1.770m
of trade receivables were outstanding at the year end,
the majority of which relate to the sale of goods. This
key audit matter concerns unpaid revenue arising
from the sale of goods.
The fall in the oil price coupled with the impacts of
the COVID 19 pandemic around year end has caused
there
the
to be greater uncertainty around
recoverability of trade receivables. Enteq’s trade
receivables days are high, and certain customers have
lengthy extended credit terms. Even though these
extended terms are standard practice in the industry,
it does raise a risk regarding recoverability of the
balances, given the associated judgments regarding
recoverability made by management.
At the same time, Enteq has been looking to expand
its customer base, and so is working with new
customers in unfamiliar territories as demonstrated
by the increase in sales to customers based outside
North America (up to $3.244m from $953k in the
prior year). This can create judgments around the
recoverability of receivable balances. It can also
create judgments around the initial recognition of the
revenue, given Enteq are establishing agreements
with new customers which could lead to potential
returns, in particular where there has been no
payment due to the extended credit terms.
We therefore identified the occurrence of unpaid
revenues arising from the sale of goods, and
valuation of trade receivables, 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:
• Testing the appropriateness of revenue recognition
policies by comparing the policies adopted by
management against IFRS 15 and best practice;
• Testing the application of the revenue recognition
policies by testing a sample of unpaid revenue
entries to supporting documentation including
sales invoices and proof of delivery;
• Gaining and understanding of and inspecting
revenue process and controls to consider whether
they are designed effectively;
• Obtaining management’s assessment of
the
recoverability of these balances, Inspecting and
recalculating management’s estimate of the bad
debt provision and considering its reasonableness
in line with IFRS 9, and corroborating it by
reference to correspondence with counterparties,
historic payment patterns and payments received
since the year end;
• Evaluating management’s ability to appropriately
estimate the bad debt provision by comparing
current year bad debt write-offs to previous
provision estimates.
revenues and
The group’s accounting policies on
receivables are shown in note 4, on pages 40 and 47
respectively, and related disclosures are included in note 15
on page 55.
Key observations
Based on the audit work described we have identified no
issues over the occurrence of unpaid revenues, and the
recoverability of associated receivables
Key Audit Matter – Parent
How the matter was addressed in the audit – Parent
Valuation of inventory
Our audit work included, but was not restricted to:
The inventory balance at the year-end stands at
$3.110m this is after a write down of $2.700m which
occurred in the current year. The directors make
regular assessments on whether inventory is held at the
correct value.
• Gaining an understanding of the key assumptions
and judgements of the inventory write down and
provisions posted by management.
• Corroborating management’s assessment of the
underlying market conditions and potential
alternative markets and how that would affect the
future sales value of inventory held at year end.
• Reviewing historical data on sales on and margins
the write downs posted by
to corroborate
27
Key Audit Matter – Parent
How the matter was addressed in the audit – Parent
The fall in oil price along with the effective closure of
the North American oil market has caused there to be a
significant risk that inventory is no longer held at the
lower of cost and net realisable value. While the
directors have taken the decision to write off a
significant proportion of the inventory there is an
uncertainty over the remaining carrying value and
whether that value is representative of the actual net
realisable value.
We therefore identified the valuation of inventory at
year end, as a significant risk, and as one of the most
significant assessed risks of material misstatement.
management, and discussing the impairment at
length with management’s experts, challenging
assumptions made.
• Considering any post year-end sales occurring
which might corroborate the written down value of
the inventory.
• Challenging the level of provision by creating an
auditor’s expectation and comparing
to
management’s, the expectation of the provision
level was based upon slow moving and obsolete
inventory.
it
• Gaining an understanding of management’s
expert, and his expertise to assist in assessing the
accuracy of the impairment made.
• Assessed the adequacy of disclosure around the
impairment and the associated judgements
The group’s accounting policies on inventory balances are
shown in note 4, on page 47, and related disclosures are
included in note 16 on page 56.
Key observations
Based on the procedures performed, we have identified no
issues regarding director’s valuation of inventory. We have
nothing to report in addition to that stated in the ‘Emphasis
of matter – inventory valuation’ section of our report
Key Audit Matter – Parent
How the matter was addressed in the audit – Parent
Going concern
in
‘the
to unprecedented
As stated
impact of macro-economic
uncertainties on our audit’ section of our report, Covid-
19 is one of the most significant economic events
currently faced by the world, combined with the recent
drop in the oil market, and at the date of this report its
levels of
effects are subject
uncertainty. These events could adversely impact the
future trading performance of the group and as such
increases the extent of judgement and estimation
uncertainty associated with management’s decision to
adopt the going concern basis of accounting in the
preparation of the financial statements.
As such we identified going concern as a significant
risk, which was one of the most significant assessed
risks of material misstatement.
We undertook procedures to evaluate management’s
assessment of the impact of Covid-19 and the decrease
in the oil market on the group’s forecasted revenue and
net assets. This included, but was not restricted to:
• We obtained managements original forecasts
for the period to March 2023, and their revised
forecasts to consider the impact of current
market conditions with a “stress
tested”
in
scenario, setting out
managements estimation with significant
reduction in revenue being achieved.
the worst case
• We evaluated
the assumptions applied,
including the reduction in revenue, and the
resulting effect on the forecasted revenue and
net assets during the estimated period of
impact, for reasonableness and determined
whether they had been applied accurately. We
also considered whether the assumptions are
consistent with our understanding of the
business.
• Assessing the reliability of management’s
forecasting by comparing the accuracy of
actual financial performance to the forecast
information;
• We assessed
the wider macro-economic
impact of COVID 19 and the oil downturn, and
it’s possible effect on the group’s ability to
continue as a going concern.
28
Key Audit Matter – Parent
How the matter was addressed in the audit – Parent
• Assessing management’s cash position to
determine the impact of the pandemic on the
net asset position. This assessment included
the corroboration of mitigating actions taken
by management to relevant documentation and
evaluation of their application in the revised
forecasts for accuracy;
• Performing
analysis
sensitivity
on
management’s revised forecasts to determine
the reduction in revenue and net assets that
would lead to elimination of the headroom in
their original cash flow forecasts; and
• Assessing the adequacy of the going concern
the financial
included within
disclosures
statements.
The group’s accounting policy on going concern is
shown in note 4, on page 39
Key observations
Based on the audit work described we have identified no
issues over the going concern assumption used.
Key Audit Matter – Parent
How the matter was addressed in the audit – Parent
Valuation of intercompany balances
Our audit work included, but was not restricted to:
Intercompany balances at the year end stand at net $8m
owed from Enteq Upstream USA Inc (Inc) to Enteq
Upstream plc, which represents inter-company loan
notes. At year end there a provision of $29,928m against
the loan notes and a provision of $20.679m against
trading balances owed which took the net of the trading
balances
to nil. The directors make an annual
assessment to determine whether there are indicators
that these balances are impaired
Where indicators of impairment are identified and in
order to determine if these balances are impaired
management have compared the net assets of Inc to that
of the intercompany balances to calculate whether an
impairment is required.
Considering the wider economic environment including
the fall in the oil price and the COVID 19 pandemic and
thus the future forecasted negative cashflows the
valuation of the intercompany balances as a significant
risk, due to it being an area of significant management
judgement and as one of the most significant assessed
risks of material misstatement.
• Obtaining management's assessment, which
include details of the provisions posted and the
cash generating units (CGUs) identified;
• Assessing the assumptions and judgements in
management’s assessment of how they believe
the remaining intercompany loan balances are
recoverable, and whether the treatment of the
intercompany receivables is in line with IFRS
9;
• Reflecting on the group’s net asset position,
compared to the level of the intercompany
balances remaining in Enteq Upstream plc,
The group’s accounting policies on intercompany
balances are shown in note 1, on page 66, and related
disclosures are included in notes 5 and 7 on pages 69
and 69 respectively.
Key observations
Based on the audit work described we have identified no
issues over the valuation of intercompany balance.
29
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
Group
Parent
Financial statements as a
whole
Performance materiality
used to drive the extent of
our testing
Specific materiality
Communication of
misstatements to the audit
committee
30
is considered
$174,000, which is approximately 1.0% of
the company’s total assets.
the most
Total assets
appropriate benchmark as cash makes up a
significant portion of the parent company,
and consequently the group’s total assets,
which is a key metric for investors. The
parent company is a holding company with
significant
intercompany balances with
other group components, and therefore
group total assets is considered the most
appropriate benchmark .
Materiality for the current year is lower than
the level that we determined for the year
ended 31 March 2019 due total assets, being
lower in 2020 than the total assets figure in
2019.
.
$231,000 which is approximately 2.1% of
the group’s total revenue at the planning
stage. The group key audit matter identified
above
revenue,
demonstrating revenue to be the appropriate
benchmark. Revenue is also considered to
be a KPI for the group which adds to why it
is an appropriate benchmark.
unpaid
relates
to
being
the most
Materiality for the current year is lower than
the level that we determined for the year
ended 31 March 2019 because
the
benchmark was changed from total assets to
revenue.
Historically the focus of the group has been
on maintaining the assets of the group and
more specifically the cash balances as
markets recovered, which prompted total
assets
appropriate
benchmark to use.
Recently the focus of management has been
seen to be increasingly focused on new key
metrics as sales start to increase.
The loss before tax is also not considered a
key metric used by management in their
reporting.
revenue was
considered to be the most appropriate key
metric used by management on which we
could base our materiality.
Two percent of revenue has been selected as
the entity is listed, and this gives a value of
$231k.
This is 2.9% of the loss before tax.
Therefore,
$173,000, which is 75% of financial
statement materiality
$131,000, which is 75% of financial statement
materiality.
We determined a lower level of specific
materiality, for certain areas such as
related party transactions and directors’
emoluments.
We determined a lower level of specific
materiality, for certain areas such as related
party transactions and directors’ emoluments.
above
$12,000
Amounts
and
misstatements below that threshold that,
in our view, warrant reporting on
qualitative grounds.
Amounts above $9,000 and misstatements
below that threshold that, in our view, warrant
reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent
Tolerance for potential uncorrected mis-statements
Performance materiality
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, it’s
environment and risk profile and in particular included:
Evaluation by the group audit team of identified components to assess the significance of that component and to
determine the planned audit response based on a measure of materiality. Our assessment was based on the relative
materiality of each component entity to the group and an assessment of their audit risk;
Performing full scope audit procedures at Enteq Upstream plc and Enteq Upstream USA Inc;
Attendance at the stock count in Houston in respect of inventory held at the US component;
Evaluating the group’s internal control environment, including an assessment of the design effectiveness of controls
over key financial statement risk areas identified as part of our audit risk assessment;
On-site audit fieldwork visits to the sites Amersham (UK) and Houston (US);
Reperforming the group consolidation, to confirm the accuracy of management’s computations and to demonstrate
the group financial information was consistent with the financial information per the audited financial statements of
the significant group components; and
Substantive testing of 100% of group revenues
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.
31
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 report of the directors for the financial year for
which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the report of the directors 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 parent company and its environment obtained in
the course of the audit, we have not identified material misstatements in the strategic report or the report of the
directors.
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 parent company, or returns adequate for our audit
have not been received from branches not visited by us; or
•
the parent 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 statement of directors’ responsibilities set out on page 16, 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 parent 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 parent company or to cease
operations, or have no realistic alternative but to do so.
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.
Use of our report
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.
Mark Bishop FCA
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Reading
30 June 2020
32
Enteq Upstream Plc
Consolidated Statement of Profit and Loss
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
Loss for the period
Loss attributable to:
Owners of the parent
Year to 31
March 2020
Year to 31
March 2019
Notes
$ 000's
$ 000's
5
9
9
6
8
10
Total
10,903
(4,256)
6,647
(7,269)
(217)
(7,286)
37
(14,735)
(8,088)
250
(7,838)
-
(7,838)
Total
10,204
(3,546)
6,658
(6,952)
(116)
(7)
6
(7,069)
(411)
246
(165)
67
(98)
(7,838)
(98)
Loss per share (in US cents):
Basic
Diluted
11
(12.1)
(12.1)
(0.2)
(0.2)
The accounting policies and notes on pages 38 to 63 form part of these financial statements.
33
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 2020
Year to 31
March 2019
$ 000's
$ 000's
(7,838)
-
-
(7,838)
(7,838)
(98)
-
-
(98)
(98)
The accounting policies and notes on pages 38 to 63 form part of these financial statements.
34
Enteq Upstream Plc
Consolidated Statement of Financial Position
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
As at 31
March 2020
As at 31
March 2019
Notes
$ 000's
$ 000's
12a
12b
13
15
15
16
17
18
18
19
-
134
3,433
-
3,567
2,025
3,110
10,183
15,318
18,885
-
2,394
5,895
334
8,623
2,020
4,512
11,930
18,462
27,085
1,027
91,579
1,048
(76,943)
1,005
91,398
750
(69,105)
16,711
24,048
2,174
2,174
3,037
3,037
18,885
27,085
The financial statements were authorised for issue and approved by the Board of Directors on 30 June 2020 and were
signed on its behalf by:
David Steel
Director
The accounting policies and notes on pages 38 to 63 form part of these financial statements.
35
Enteq Upstream Plc
Consolidated Statement of Changes in Equity
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
Share
based
payment
reserve
$ 000's
Total
equity
$ 000's
As at 1 April 2019
1,005
(69,105)
91,398
750
24,048
Issue of share capital
Share based payment charge
Transactions with owners
Loss for the year
Other comprehensive income for the year
Total comprehensive income
22
-
22
-
-
-
-
-
-
(7,838)
-
(7,838)
181
-
181
-
-
-
-
298
298
-
-
-
203
298
501
(7,838)
-
(7,838)
Total movement
22
(7,838)
181
298
(7,337)
As at 31 March 2020
1,027
(76,943)
91,579
1,048
16,711
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
Share based
payment
reserve
$ 000's
Total
equity
$ 000's
As at 1 April 2018
982
(69,351)
91,031
910
23,572
Issue of share capital
Share based payment charge
Transfer of reserves
Transactions with owners
Loss for the year
Other comprehensive income for the year
Total comprehensive income
Total movement
23
-
-
23
-
-
-
23
-
-
344
344
(98)
-
(98)
246
367
-
367
-
-
-
-
184
(344)
(160)
-
-
-
367
(160)
390
184
-
574
(98)
-
(98)
476
As at 31 March 2019
1,005
(69,105)
91,398
750
24,048
The accounting policies and notes on pages 38 to 63 form part of these financial statements.
36
Enteq Upstream Plc
Consolidated Statement of Cash Flows
Cash flows from operating activities
Loss for the year
Tax (credit)/charge
Net finance income
Gain on disposal of fixed assets
Share-based payment non-cash charges
Foreign exchange charge
Depreciation and Amortisation charges
Tax paid
Decrease/(increase) in inventory
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Net cash from operating activities
Investing activities
Purchase of Property Plant and Equipment
Increase in rental fleet assets
Disposal proceeds of tangible fixed assets
Purchase of intangible fixed assets
Interest received
Net cash from investing activities
Financing activities
Share issue
Net cash from financing activities
Decrease/(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
2020
Year to 31 March
2019
$ 000's
$ 000's
(7,838)
-
(250)
-
298
(37)
7,822
(5)
-
1,402
329
(863)
863
(208)
(742)
-
(2,150)
250
(2,850)
203
203
(1,784)
37
11,930
10,183
(98)
(67)
(246)
(9)
186
(6)
2,691
2,451
-
(1,210)
(14)
(197)
1,030
(213)
(3,754)
9
(1,286)
246
(4,998)
391
391
(3,577)
6
15,501
11,930
The accounting policies and notes on pages 38 to 63 form part of these financial statements.
37
Notes to the Consolidated Financial Statements
For the year to 31 March 2020
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 (IFRSs) as adopted by the European Union. They have been prepared under the assumption that the
Group operates on a going concern basis.
In 2019 the Group has adopted new guidance for the recognition of leases (see Note 3 below). The new Standard
has been applied using the modified retrospective approach, with the cumulative effect of adoption as at 1 April
2019 showing no material impact to the financial statements, and no adjustment being required. Accordingly, the
Group is not required to present a third statement of financial position as at that date.
3. STANDARDS, AMENDMENTS AND INTERPRETATIONS OF ACCOUNTING POLICIES
The Group has adopted the new accounting pronouncements which have become effective this year, which is
solely IFRS 16 ‘Leases’. This replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining
whether an Arrangement contains a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the
Substance of Transactions Involving the Legal Form of a Lease’). Following a full review of all such leases no
material items were identified and hence the adoption of this new Standard has resulted no adjustments.
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, no new standards, amendments and interpretations to
existing standards have been identified.
4. ACCOUNTING POLICIES
Overall considerations
The consolidated financial statements have been prepared using the significant accounting policies and
measurement bases summarised below.
Basis of preparation
The Group’s financial statements have been prepared on an accrual basis and under the historical cost
convention. Monetary amounts are expressed in US dollars and are rounded to the nearest thousands, except for
earnings per share.
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.
Basis of consolidation
The Group financial statements consolidate those of the parent Company and all of its subsidiaries as of 31 March
2020. 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 2020.
38
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.
Companies included in the consolidation:
Name
Enteq Upstream USA Inc.
Country of
incorporation
United States of America
Jeteq Drilling Limited
England & Wales
Dormant
Nature of business
Holding
Manufacturer of down hole drilling
equipment
100%
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.
Going concern
At 31 March 2020 the Group has cash balances of $10.2m and no debt.
The impact of both COVID-19 and the significant deterioration in the oil and gas drilling market, particular in
North America have been fully factored into various financial scenarios relating to future trading. The output of
this modelling demonstrates that even in the case of a significant reduction in revenue the corresponding cost
reduction measures and reduction in CAPEX and development spend will enable the Group to retain significant
cash balances in both the near and medium term. Accordingly, the Group continues to adopt the going concern
basis in preparing its consolidated financial statements.
The uncertainty as to the future impact on the Group of the recent Covid-19 outbreak in particular has been
considered as part of the Group’s adoption of the going concern basis. To date, we have not observed any material
impact on our activities due to Covid-19 over and above that of the significant reduction in the North America rig
count since the start of March 2020 and, indeed, the recently announced $1.0m contract ward in China
demonstrates the robustness of the post Covid-19 oil and gas drilling market in that country.
All the staff at the Group’s Houston based facility has recently returned to work after an implementation of revised
safe working practices in view of Covid-19 concerns. As at the date of this report the UK based staff continue to
work remotely.
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 updates their estimates of the total
consideration expected to be paid. Where, during the first 12 months following the acquisition, a change in the
39
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.
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: $1.25 (31
March 2019 £1: $1.30). 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 arises mainly from the sale and rental of Measurement While Drilling (“MWD”) equipment. To
determine whether to recognise revenue, the Group follows a 5-step process:
Identifying the contract with a customer
Identifying the performance obligations
•
•
• Determining the transaction price
• Allocating the transaction price to the performance obligations
• Recognising revenue when/as performance obligation(s) are satisfied.
Revenue from contracts with customers
Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance
obligations by transferring the promised goods or services to its customers. The Group recognises contract
liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as
other liabilities in the statement of financial position (see Note 25). Similarly, if the Group satisfies a performance
obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its
statement of financial position, depending on whether something other than the passage of time is required before
the consideration is due. Revenue is recognised when the transfer of control takes place; this is taken to be at the
point of despatch from the Group’s facilities when the full legal title. In the years to both 31 March 2020 and 31
March 2019 there were no performance obligations associated with this category of revenue. All revenues under
this category are fully allocated to the equipment despatched.
Revenue from operating lease income
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.
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 in the period the warranty costs are incurred.
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.
40
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.
41
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
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 Group.
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
10 to 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
The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information
has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4.
Accounting policy applicable from 1 April 2019.
42
The Group as a lessee
For any new contracts entered into on or after 1 April 2019, the Group considers whether a contract is, or contains
a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying
asset) for a period of time in exchange for consideration’. To apply this definition the Group assesses whether the
contract meets three key evaluations which are whether:
• the contract contains an identified asset, which is either explicitly identified in the contract or
implicitly specified by being identified at the time the asset is made available to the Group
• the Group has the right to obtain substantially all of the economic benefits from use of the
identified asset throughout the period of use, considering its rights within the defined scope of
the contract
• the Group has the right to direct the use of the identified asset throughout the period of use.
The Group assess whether it has the right to direct ‘how and for what purpose’ the asset is used throughout the
period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet.
The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any
initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of
the lease, and any lease payments made in advance of the lease commencement date (net of any incentives
received). The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement
date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also
assesses the right-of-use asset for impairment when such indicators exist. At the commencement date, the Group
measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the
interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate. Lease
payments included in the measurement of the lease liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value
guarantee and payments arising from options reasonably certain to be exercised. Subsequent to initial
measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect
any reassessment or modification, or if there are changes in in-substance fixed payments. When the lease liability
is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-
use asset is already reduced to zero.
The Group as a lessor
The Group’s accounting policy under IFRS 16 has not changed from the comparative period. As a lessor the Group
classifies its leases as either operating or finance leases. A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to ownership of the underlying asset, and classified as an operating
lease if it does not.
Accounting policy applicable before 1 April 2019
The Group as a lessee
Finance leases
Management applies judgment in considering the substance of a lease agreement and whether it transfers
substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include
the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease
payments in relation to the asset’s fair value, and whether the Group obtains ownership of the asset at the end of
the lease term. For leases of land and buildings, the minimum lease payments are first allocated to each component
based on the relative fair values of the respective lease interests. Each component is then evaluated separately for
possible treatment as a finance lease, taking into consideration the fact that land normally has an indefinite
economic life. The interest element of lease payments is charged to profit or loss, as finance costs over the period
of the lease.
Operating leases
All other leases are treated as operating leases. Where the Group is a lessee, payments on operating lease
agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as
maintenance and insurance, are expensed as incurred.
The Group as a lessor
Rental income is recognised on a straight-line basis over the term of the lease.
43
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual
provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are
transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a significant financing component and are measured at the
transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for
transaction costs (where applicable).
Financial assets, , are classified into the following categories:
• amortised cost
• fair value through profit or loss (FVTPL)
• fair value through other comprehensive income (FVOCI).
In the periods presented the corporation does not have any financial assets categorised as either FVTPL or
FVOCI.
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 expenses.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated
as FVTPL):
• they are held within a business model whose objective is to hold the financial assets and collect
its contractual cash flows
• the contractual terms of the financial assets give rise to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
After initial recognition, these are measured at amortised cost using the effective interest method. 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 as well as listed bonds that were previously
classified as held-to-maturity under IAS 39.
Impairment of financial assets
IFRS 9’s impairment requirements use more forward-looking information to recognise expected credit losses –
the ‘expected credit loss (ECL) model’. This replaced IAS 39’s ‘incurred loss model’. Instruments within the
scope of the new requirements included loans and other debt-type financial assets measured at amortised cost
and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments
and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss.
Recognition of credit losses is no longer dependent on the Group first identifying a credit loss event. Instead the
Group considers a broader range of information when assessing credit risk and measuring expected credit losses,
including past events, current conditions, reasonable and supportable forecasts that affect the expected
collectability of the future cash flows of the instrument. In applying this forward-looking approach, a distinction
is made between:
• financial instruments that have not deteriorated significantly in credit quality since initial
recognition or that have low credit risk (‘Stage 1’) and
• financial instruments that have deteriorated significantly in credit quality since initial recognition
and whose credit risk is not low (‘Stage 2’).
‘Stage 3’ would cover financial assets that have objective evidence of impairment at the reporting date.
‘12-month expected credit losses’ are recognised for the first category while ‘lifetime expected credit losses’ are
recognised for the second category.
Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over
the expected life of the financial instrument.
44
Trade and other receivables and contract assets
The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract
assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in
contractual cash flows, considering the potential for default at any point during the life of the financial
instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking
information to calculate the expected credit losses. As the Group has so few customers with significant
outstanding receivable balances the expected credit losses can be assessed on an individual customer by customer
basis.
Classification and measurement of financial liabilities
The Group’s financial liabilities include borrowings, trade and other payables and derivative financial
instruments. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for
transaction costs unless the Group designated a financial liability at fair value through profit or loss.
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.
45
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. Any awards are made at the nominal value of the shares, but the exercise of these
awards is subject to certain performance conditions. During the life of each award a charge is made to the profit
and loss account representing the fair value of the benefit represented by each award the other side of the accounting
entry is to a corresponding reserve.
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. The carrying value of both the inventory and intangible
assets are the key areas where significant judgement are required.
There are no critical estimates included in either the current or prior years. Accounting judgements are applied in
determining the carrying amounts of the following significant assets and liabilities:
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.
46
Impairment of
inventory
The net inventory carrying value as at 31 March 2020 is $3,110k with an
exceptional impairment charge of $2,700k being recognised within the
consolidated statement of Profit and Loss for the year to 31 March 2020. In
determining the impairment charge to be recognised, the directors applied a
number of assumptions to estimate the net realisable value of inventory on a
line by line basis. Historically the directors have determined net realisable
value by reference to post year end demand and historic sales. However, as
explained in the Combined Chief Executive and Chairman’s report (see the
second paragraph of the section headed “Review of the Year”) various factors
have significantly impacted on the markets in which Enteq operates, resulting
in a higher degree of estimation uncertainty about future demand and reliance
on historic sales. Consequently, less certainty and a higher degree of caution
should be attached to the estimation of inventory net realisable value than
would normally be the case. The directors have considered the estimation
uncertainty, and while less certainty and a higher degree of caution needs to be
attached to the estimation of inventory net realisable value, the estimate can
still be relied upon. The directors therefore consider the inventory being carried
at a value of $3,110k to be an accurate reflection of its net realisable value.
Recoverability of
trade debtors
In assessing the recoverability of these assets, the Group uses its historical
experience, external indicators and forward-looking information to calculate
the expected credit losses using a provision matrix. The Group assess
impairment of trade receivables on a collective basis as they possess shared
credit risk characteristics they have been grouped based on the days past due.
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 profit and loss 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
United States of America
China
Rest of the world
Total Group revenue
Contracts with customers
Operating lease income
Total Group revenue
31 March
2020
$ 000’s
7,659
2,997
247
10,903
31 March
2020
$ 000’s
6,112
4,791
10,903
31 March
2019
$ 000’s
9,251
906
47
10,204
31 March 2019
$ 000’s
6,501
3,703
10,204
All the above revenues are recognised at a point in time.
47
Net Assets
Europe (UK)
United States
Total Group net assets
Non-current Assets
Europe (UK)
United States
Total Group non-current assets
31 March
2020
$ 000’s
8,713
7,999
16,712
31 March
2020
$ 000’s
-
3,567
3,567
31 March
2019
$ 000’s
10,315
13,733
24,048
31 March
2019
$ 000’s
-
8,623
8,623
All of the Group’s revenue arises from the sale and rental of specialised parts and products for Directional Drilling
and Measurement While Drilling operations. The Group had 2 customers that contributed in excess of 10% of the
Group’s total sales for the year (2019: 3). These customers contributed $3,948k and $1,279k respectively. (2019:
$2,617k, $1,286k and $1,122k). No revenue relates to customers based in the UK (2019: none).
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 profit and loss 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.
31 March 2020
$ 000’s
31 March 2019
$ 000’s
Loss attributable to ordinary shareholders
Exceptional items
Amortisation of acquired intangible assets (note 12b)
Foreign exchange movements
Adjusted earnings
Depreciation charge (note 13)
Finance income (note 8)
Performance Share Plan charge (note 20)
Tax (credit)/charge (note 10)
Adjusted EBITDA
(7,838)
7,286
217
(37)
(372)
3,412
(250)
298
-
3,088
(98)
7
116
(6)
19
2,575
(246)
173
(67)
2,454
The exceptional items can be analysed as follows:
Write down of intangible assets (note 12b)
Write down of inventory (note 16)
Aborted project costs incurred
Severance payments and other plant closure costs
Gain on sale of fixed assets
Total exceptional items
48
31 March 2020
$ 000’s
31 March 2019
$ 000’s
4,192
2,700
296
98
-
7,286
-
-
-
16
(9)
7
The write down of inventory has been classified as an exceptional item due to the nature of change in the oil and
gas market resulting from both the impact of the COVID-19 and the reductions in the price of oil during March
2020.
7.
EMPLOYEES AND DIRECTORS
31 March 2020
$ 000’s
31 March 2019
$ 000’s
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
3,849
222
9
299
416
4,796
The average monthly number of employees during the year was as follows:
Directors
Senior management
Sales & marketing
Manufacturing & Technical
Finance & administration
No.
4
2
2
21
2
31
3,951
314
87
186
494
5,032
No.
4
2
2
21
2
31
$ 000’s
$ 000’s
Directors' remuneration
Information regarding the highest paid director is as follows:
Emoluments
890
501
1,053
613
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 20.
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 Black Scholes 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.
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.
49
8. NET FINANCE INCOME
Interest earned on bank deposits
250
246
31 March 2020
$ 000’s
31 March 2019
$ 000’s
9. LOSS BEFORE INCOME TAX
The loss before income tax is stated after charging/(crediting):
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
- Transaction advisory services
- Transaction related tax services
Share based payments
Foreign exchange gains
Gain on disposal of Property, Plant & Equipment
31 March 2020
$ 000’s
31 March 2019
$ 000’s
3,412
217
88
39
130
14
298
(37)
-
2,575
116
70
41
-
-
186
(6)
(9)
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:
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by the
standard rate of corporation tax in the UK of 19% (2019: 19%):
Effects of:
Items not subject to corporation tax
Tax losses to carry forward
Texas State Franchise Tax
Release of previous year over accrual for Texas State Franchise Tax
Total income tax
31 March
2020
$ 000’s
31 March
2019
$ 000’s
(7,838)
(165)
(1,489)
1,999
(510)
-
-
-
(31)
511
(480)
5
(72)
(67)
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 $1.1m; United States $13.3m (2019: UK $0.7m; United States $15.7m). There
were no significant deferred tax liabilities.
50
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
$7,838k (31 March 2019: loss of $98k) by the weighted average number of ordinary shares in issue during the
year of 64,900k (31 March 2019: 63,297k).
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
$372k (31 March 2019: profit of $19k), by the weighted average number of ordinary shares in issue during the
year of 64,900k (31 March 2019: 63,297k).
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 2020: EPS
Weighted
Earnings
average number
of shares
000’s
$ 000’s
Per-share
amount
US cents
Loss attributable to ordinary shareholders
Exceptional items
Amortisation of acquired intangible assets
Foreign exchange movements
Adjusted loss attributable to ordinary shareholders
(7,838)
7,286
217
(37)
(372)
64,900
(12.1)
64,900
(0.6)
March 2019: EPS
Weighted
Earnings
average number
of shares
000’s
$ 000’s
Per-share
amount
US cents
Loss attributable to ordinary shareholders
Exceptional items
Amortisation of acquired intangible assets
Foreign exchange movements
Adjusted profit attributable to ordinary shareholders
(98)
7
116
(6)
19
63,297
(0.2)
63,297
-
During the year Enteq Upstream Plc did not pay any dividends (2019: nil).
51
12. INTANGIBLE ASSETS
a) Goodwill
Cost:
As at 1 April 2019 and as at 31 March 2020
Impairment:
As at 1 April 2019 and as at 31 March 2020
Net Book Value:
As at 1 April 2019 and as at 31 March 2020
$ 000’s
19,619
19,619
-
b) Other Intangible Assets
Cost:
As at 1 April 2019
Capitalised in period
As at 31 March 2020
Amortisation/Impairment:
As at 1 April 2019
Charge for the year
Impairment
As at 31 March 2020
Net Book Value:
As at 1 April 2019
As at 31 March 2020
Developed
technology
IPR&D
technology
Brand
names
Customer
relationships
$ 000’s
$ 000’s
$ 000’s
$ 000’s
Non-
compete
agreements
$ 000’s
12,823
-
12,823
12,626
197
-
12,823
9,305
2,149
11,454
7,108
20
4,192
11,320
1,240
-
1,240
1,240
-
-
1,240
20,586
-
20,586
20,586
-
-
20,586
197
-
2,197
134
-
-
-
-
Developed
technology
IPR&D
technology
Brand
names
Customer
relationships
$ 000’s
$ 000’s
$ 000’s
$ 000’s
Total
$ 000’s
49,885
2,149
52,034
47,491
217
4,192
51,900
2,394
134
Total
$ 000’s
48,597
1,288
49,885
47,375
116
47,491
5,931
-
5,931
5,931
-
-
5,931
-
-
Non-
compete
agreements
$ 000’s
5,931
-
5,931
5,931
-
5,931
-
-
-
-
1,222
2,394
20,586
-
20,586
20,586
-
20,586
Cost:
As at 1 April 2018
Capitalised in period
As at 31 March 2019
Amortisation/Impairment:
As at 1 April 2018
Charge for the year
As at 31 March 2019
Net Book Value:
As at 1 April 2018
As at 31 March 2019
12,676
147
12,823
12,510
116
12,626
165
197
8,164
1,141
9,305
7,108
-
7,108
1,057
2,197
1,240
-
1,240
1,240
-
1,240
-
-
52
The main categories of Intangible Assets are as follows:
Developed technology:
This is technology which is currently commercialised and embedded within the current product offering.
IPR&D technology:
This is technology which is in the final stages of field testing, has demonstrable commercial value and is expected
to be launched within the foreseeable future.
Brand names:
The value associated with the various trading names used within the Group.
Customer relationships:
The value associated with the on-going trading relationships with the key customers acquired.
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
Due to the severe downturn in the price of oil seen since the start of March 2020, all intangible assets were assessed
as to their future commercial viability. The conclusion was that only the development of the rotary steerable
project, whose licence was obtained from Shell Global Solutions in September 2019, could be justified as having
future economic value. As a consequence of this evaluation an impairment charge of $4,192k was recognised in
the consolidated profit and loss statement for the year ended 31 March 2020.
As the goodwill had previously been written down to zero there is no requirement for an impairment review to be
performed. The remaining intangible assets were subjected to the standard annual test for impairment. The
impairment test carried out on these balances as at 31 March 2020 indicated that there was no impairment of the
full carrying value of the 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 2025. Cash flow forecasts are prepared from the
most recent financial plans approved by the Board.
The forecasts assume annual growth rates between 15% and 30% until 2025 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 12.1% (2019: 13.5%). Management have based this rate
on the following factors: a Risk Free Rate of 1.4%; 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
Any intangible assets acquired during the year represents 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 26 and 34 months.
53
13. PROPERTY, PLANT AND EQUIPMENT
Cost:
As at 1 April 2019
Additions
Disposals
As at 31 March 2020
Depreciation:
As at 1 April 2019
Charge for the year
Disposals
As at 31 March 2020
Net Book Value:
As at 1 April 2019
As at 31 March 2020
Cost:
As at 1 April 2018
Additions
Disposals
As at 31 March 2019
Depreciation:
As at 1 April 2018
Charge for the year
Disposals
As at 31 March 2019
Net Book Value:
As at 1 April 2018
As at 31 March 2019
Land
Buildings
$000’s
$000’s
Production
Equipment
$000’s
Rental
Fleet
$000’s
Other
Equipment
$000’s
461
-
-
461
-
-
-
-
2,389
21
-
2,410
565
109
-
674
1,238
21
-
1,259
1,126
28
-
1,154
6,078
742
(3,333)
3,487
2,630
3,231
(3,333)
2,528
461
461
1,824
1,736
112
105
3,449
959
365
166
-
531
315
44
-
359
50
172
Land
Buildings
$000’s
$000’s
Production
Equipment
$000’s
Rental
Fleet
$000’s
Other
Equipment
$000’s
461
-
-
461
-
-
-
-
2,295
94
-
2,389
461
104
-
565
461
461
1,834
1,824
1,153
89
(4)
1,238
1,111
19
(4)
1,126
42
112
2,559
4,028
(509)
6,078
440
2,426
(236)
2,630
2,119
3,449
336
29
-
365
289
26
-
315
47
50
Total
$000’s
10,531
950
(3,333)
8,148
4,636
3,412
(3,333)
4,715
5,895
3,433
Total
$000’s
6,804
4,240
(513)
10,531
2,301
2,575
(240)
4,636
4,503
5,895
As the MWD equipment held within the rental fleet are classified as within this category of assets the depreciation
of such equipment is being charged as an administrative expense as opposed to being shown within cost of sales.
54
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, there are unused tax losses in the UK of $1.1m (tax value of $0.2m at 19%) and in the
US of $13.3m (tax value of $4.0m at 30%) (2019: UK $0.7m; US $15.7m), for which deferred tax assets have not
been recognised.”
15. TRADE AND OTHER RECEIVABLES
31 March 2020
$000’s
31 March 2019
$000’s
Trade receivables
Prepayments
Other receivables
The above can be analysed as follows:
Non-current
Current
The balance shown within trade receivables can be analysed as follows:
Relating to revenue from contracts with customers
Relating to revenue from operating leases
1,770
173
82
2,025
-
2,025
2,025
1,770
-
1,770
2,089
123
142
2,354
334
2,020
2,354
2,089
-
2,089
The management believe that the carrying value is an approximation of fair value. The below includes disclosures
relating to the credit risk exposures and analysis relating to the allowance for expected credit losses. Both the current
and comparative impairment provisions apply the IFRS 9 expected loss model.
Bad debt provision
31 March 2020
$000’s
31 March 2019
$000’s
As at 1 April
Charged to income statement arising from an entity’s contracts
with customers
Allowances used
As at 31 March
68
366
(68)
366
-
68
-
68
There were no impairment losses associated with revenue from operating leases.
16. INVENTORIES
Finished goods
Work in progress
Raw Materials
31 March 2020
$000’s
2,356
536
218
3,110
31 March 2019
$000’s
3,625
621
266
4,512
The value of inventory recognised within cost of sales was $4,256k (2019: $3,601k). The 31 March 2020 balance
includes a provision for slow moving stock of $195k (31 March 2019: $418k). The carrying value of $3,110k is after
the exceptional write down of $2,700k made during the year (2019: nil).
55
The net inventory carrying value as at 31 March 2020 is $3,110k with an exceptional impairment charge
of $2,700k being recognised within the consolidated statement of Profit and Loss for the year to 31 March
2020. In determining the impairment charge to be recognised, the directors applied a number of
assumptions to estimate the net realisable value of inventory on a line by line basis. Historically the
directors have determined net realisable value by reference to post year end demand and historic sales.
However, as explained in the Combined Chief Executive and Chairman’s report (see the second paragraph
of the section headed “Review of the Year”) various factors have significantly impacted on the markets in
which Enteq operates, resulting in a higher degree of estimation uncertainty about future demand and
reliance on historic sales. Consequently, less certainty and a higher degree of caution should be attached
to the estimation of inventory net realisable value than would normally be the case. The directors have
considered the estimation uncertainty, and while less certainty and a higher degree of caution needs to be
attached to the estimation of inventory net realisable value, the estimate can still be relied upon. The
directors therefore consider the inventory being carried at a value of $3,110k to be an accurate reflection
of its net realisable value.
17. CASH AND CASH EQUIVALENTS
Denominated in USD
Denominated in GBP
31 March 2020
$000’s
31 March 2019
$000’s
9,074
1,109
10,183
11,771
159
11,930
18. CALLED UP SHARE CAPITAL
Allotted, issued and fully paid ordinary shares of GBP 0.01 nominal value:
As at 1 April 2019
Issued during the year
As at 1 March 2020
Number
000’s
Share
Capital
$000’s
Share
Premium
$000’s
63,885
1,005
91,398
1,604
23
181
65,489
1,028
91,579
All shares issued carry the same voting rights.
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 number of shares that may be allotted by the Company.
19. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Social security and other taxes
Other creditors
31 March 2020
$000’s
31 March 2019
$000’s
727
1,256
164
27
2,174
1,157
1,559
232
89
3,037
The management believe the carrying value is an approximation of the fair value. The average creditor days for
the period ending 31 March 2020 is 50 days (2019: 70 days).
56
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 2020 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. Options are settled by the issue of
new shares.
The number and weighted average exercise prices of share options are as follows:
31 March 2020
31 March 2019
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
Exercised during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at the end of the period
Highest exercise price (p)
Lowest exercise price (p)
21.0
31.0
-
25.1
15.8
13.0
31.5
13.0
658,500
214,000
-
(200,500)
672,000
257,000
28.5
31.5
-
54.5
21.0
13.0
31.0
13.0
649,500
219,000
-
(210,000)
658,500
199,500
The weighted average remaining contractual life of all outstanding share options is 1,702 days (2019: 2,608 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
2019
9.2
31.0
31.0
50%
10 years
2.5%
The expected volatility is based on the historic volatility.
During the year, a credit of $1k (2019: $12k) 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.
57
The number and weighted average exercise prices of share options are as follows:
Outstanding at the beginning of the period
Granted during the period
Exercised during the period
Lapsed during the period
Outstanding at the end of the period
Exercisable at the end of the period
31 March 2020
Number of options
31 March 2019
Number of options
5,077,750
1,430,245
(1,146,154)
(428,108)
4,933,733
357,569
4,257,932
1,974,026
(548,592)
(605,616)
5,077,750
77,849
The weighted average remaining contractual life of all outstanding Performance Share Plan options is 1,981 days
(2019: 3,040 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.
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
13.0
13.0
3 years
During the year a charge of $299k (2019: $172k) has been included within the income statement as a charge, for
the above options.
The charge of $298k (2019: $184k) shown in note 7 includes the 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 2020
Within one year
Within two to five years
At 31 March 2019
Within one year
Within two to five years
Property Equipment
$000’s
$000’s
Total
$000’s
8
-
8
3
7
10
11
7
18
Property Equipment
$000’s
$000’s
Total
$000’s
6
-
6
3
-
3
9
-
9
The lease expense during the year amounted to $28k (2019: $27k), representing the minimum lease payment.
58
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 $4,791k (2019: $3,703k) included within revenue.
The lease contracts are all non-cancellable for 3 months from the commencement of the lease. As at 31 March
2020 there were no significant future minimum lease rentals (2019: nil). A balance of $1,418k relating to income
under operating leases will mature before 31 March 2021. No balances mature after that date.
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 in the
remuneration committee report for each of the categories specified in IAS 24: ‘Related party disclosures.
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
Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The group is exposed to
credit risk from financial assets including cash and cash equivalents held at banks, trade and other receivables.
Credit risk management
The credit risk is managed on a group basis based on the Group's credit risk management policies and procedures.
The credit risk in respect of cash balances held with banks and deposits with banks are managed via diversification
of bank deposits, and are only with major reputable financial institutions.
The Group continuously monitors the credit quality of customers based on a credit rating scorecard. Where
available, external credit ratings and/or reports on customers are obtained and used. The group's policy is to deal
only with credit worthy counterparties. The credit terms range between 30 and 90 days. The credit terms for
customers as negotiated with customers are subject to an internal approval process which considers the credit rating
scorecard. The ongoing credit risk is managed through regular review of ageing analysis, together with credit limits
per customer.
Trade receivables consist of a large number of customers in various industries and geographical areas.
59
Security
The Group does not hold any security on the trade receivables balance. In addition, the group does not hold
collateral relating to other financial assets (e.g. derivative assets, cash and cash equivalents held with banks).
Trade receivables
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade
receivables as these items do not have a significant financing component. In measuring the expected credit losses,
the trade receivables have been assessed on a collective basis as they possess shared credit risk characteristics.
The expected loss rates are based on the payment profile for sales over the past 48 months before 31 March 2020
and 1 April respectively as well as the corresponding historical credit losses during that period. The historical rates
are adjusted to reflect current and forwarding looking macroeconomic factors affecting the customer's ability to
settle the amount outstanding. On this basis the expected loss associated with the outstanding unprovided trade
debtor balances for is not material.
Trade receivables are written off when there is no reasonable expectation of recovery. Failure to make payments
within 180 days from the invoice date and failure to engage with the Group on alternative payment arrangement
amongst other is considered indicators of no reasonable expectation of recovery.
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 $97k 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.
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 gain of $11k. 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.
60
No changes were made in the objectives, policies or processes during the year ending 31 March 2020.
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 IFRS9
categories:
31 March 2020
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
Non-
Financi
al
Liabiliti
es
$000
Total for
Statement
of
Financial
Position
heading
$000
Financial
liabilities at
amortised cost
$000
727
-
27
1,256
2,010
-
164
-
-
164
727
164
27
1,256
2,174
Financial assets
at amortised
cost
$000
Non-
Financia
l Assets
$000
Total for
Statement of
Financial
Position
heading
$000
1,770
-
82
10,183
12,035
-
173
-
-
173
1,770
173
82
10,183
12,208
61
31 March 2019
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
Financial
liabilities at
amortised cost
$000
Non-
Financial
Liabilities
$000
Total for
Statement of
Financial
Position heading
$000
1,157
-
89
1,559
2,805
-
232
-
-
232
1,157
232
89
1,559
3,037
Financial assets
at amortised cost
$000
Non-
Financial
Assets
$000
Total for
Statement of
Financial
Position heading
$000
2,089
-
142
11,930
14,161
-
123
-
-
123
2,089
123
142
11,930
14,284
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 2020
31 March 2019
Within 3 months
$000’s
3 to 12 months
$000’s
12 to 18 months
$000’s
2,173
3,037
-
-
-
-
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.
62
27. POST-REPORTING DATE EVENTS
The impact of both COVID-19 and the significant deterioration in the oil and gas drilling market, particular in
North America have been fully factored into various financial scenarios relating to future trading. The output of
this modelling demonstrates that even in the case of a significant reduction in revenue the corresponding cost
reduction measures and reduction in CAPEX and development spend will enable the Group to retain significant
cash balances in both the near and medium term. Accordingly, the Group continues to adopt the going concern
basis in preparing its consolidated financial statements.
The uncertainty as to the future impact on the Group of the recent Covid-19 outbreak in particular has been
considered as part of the Group’s adoption of the going concern basis. To date, we have not observed any material
impact on our activities due to Covid-19 over and above that of the significant reduction in the North America rig
count since the start of March 2020 and, indeed, the recently announced $1.0m contract ward in China
demonstrates the robustness of the post Covid-19 oil and gas drilling market in that country.
63
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 2020
$ 000's
31 March 2019
$ 000's
-
-
-
175
9,530
9,705
-
-
-
14,119
11,212
30,331
8,000
8,592
(996)
16,709
(1,080)
32,843
1,027
91,579
1,048
(76,945)
16,709
1,005
91,398
750
(60,310)
32,843
The parent Company's loss for the financial year was $16,635k (2019: $4,270k). The financial statements were approved
by the Board of Directors on 30 June 2020 and were signed on its behalf by:
David Steel
Director
The accounting policies and notes on pages 66 to 70 form part of these financial statements.
64
Enteq Upstream Plc
Company Statement of Changes in Equity
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
premium
$ 000's
As at 1 April 2019
1,005
(60,310)
91,398
Issue of share capital
Share based payment charge
Transactions with owners
Loss for the period
Other comprehensive expense for the year
Total comprehensive income
22
-
22
-
-
-
-
-
-
(16,635)
-
(16,635)
181
-
181
-
-
-
Share
based
payment
reserve
$ 000's
750
-
298
298
-
-
-
Total
equity
$ 000's
32,843
203
298
501
(16,635)
-
(16,635)
Total movement
22
(16,635)
181
298
(16,134)
As at 31 March 2020
1,027
(76,945)
91,579
1,048
16,709
Called up
share
capital
$ 000's
Retained
earnings
$ 000's
Share
Premium
$ 000's
Share
based
payment
reserve
$ 000's
Total
equity
$ 000's
As at 1 April 2018
982
(56,384)
91,031
910
36,539
Issue of share capital
Share based payment credit
Transfer of reserves
Transactions with owners
Loss for the period
Other comprehensive expense for the year
Total comprehensive income
23
-
-
23
-
-
-
-
-
344
344
(4,270)
-
(4,270)
367
-
367
-
-
-
-
184
(344)
(160)
-
-
-
390
184
-
574
(4,270)
-
(4,270)
Total movement
23
(3,926)
367
(160)
(3,696)
As at 31 March 2019
1,005
(60,310)
91,398
750
32,843
The accounting policies and notes on pages 66 to 70 form part of these financial statements.
65
Notes to the Company Statement of Financial Position
For the year to 31 March 2020
1.
SIGNIFICANT ACCOUNTING POLICIES
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 61.
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;
• Presentation of a cashflow statement;
• 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).
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.
66
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.
The ability of the group entity to repay their respective balances are reviewed at the end of each reporting period
and the appropriate impairment recognised. As the only balance is with Enteq Upstream USA Inc. this impairment
review is based on the ability of this entity to generate cash in both the short and medium term.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
67
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 and is at the total discretion of the Remuneration Committee.
2.
LOSS 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 loss for financial year was $16,635k (2019:
$4,270k).
68
3.
TANGIBLE FIXED ASSETS
Cost:
As at 1 April 2019 and 31 March 2020
Depreciation:
As at 1 April 2019
Charge for the year
As at 31 March 2020
Net Book Value:
As at 1 April 2019
As at 31 March 2020
4.
INVESTMENTS
Cost
As at 1 April 2019 and 31 March 2020
Impairment
As at 1 April 2019 and 31 March 2020
Net book value
As at 1 April 2019 and 31 March 2020
Computer
equipment
$000’s
Office
equipment
$000’s
Total
$000’s
5
5
-
5
-
-
15
15
-
15
-
-
10
10
-
10
-
-
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
Jeteq Drilling Limited
England & Wales
equipment
Dormant
Holding
100%
100%
5.
DEBTORS
Amounts falling due within one year:
Amounts owed by Group undertakings:
Gross amount owed
Provision
Prepayments
Accrued interest receivable
VAT recoverable
31 March 2020
$000’s
31 March 2019
$000’s
20,679
(20,679)
-
94
74
7
175
18,936
(5,000)
13,936
41
127
15
14,119
The management believe that the carrying value is an approximation of fair value.
69
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 relating to the above
As at 31 March
8.
CREDITORS
Accrued expenses
Trade payables
Social security and other taxes
Other creditors
31 March 2020
$000’s
31 March 2019
$000’s
8,421
1,109
9,530
11,054
158
11,212
31 March 2020
$000’s
31 March 2019
$000’s
37,928
(29,928)
8,000
37,928
(29,336)
8,592
31 March 2020
$000’s
31 March 2019
$000’s
669
291
36
-
996
910
3
87
80
1,080
The management believe the carrying value is an approximation of the fair value. The average creditor days for
the period ending 31 March 2020 is 62 days (2019: 30 days).
9.
CALLED UP SHARE CAPITAL
Allotted, issued and fully paid ordinary shares of GBP 0.01 nominal value:
As at 1 April 2019
Issued during the year
As at 1 March 2020
All shares issued carry the same voting rights.
Number
000’s
Share
Capital
$000’s
Share
Premium
$000’s
63,885
1,005
91,398
1,604
22
181
65,489
1,027
91,579
10. RELATED PARTY DISCLOSURES
Details of directors’ remuneration and other transactions are set out on pages 18 to 20.
11. ULTIMATE CONTROLLING PARTY
There is no ultimate controlling party.
70