from OTAQ Plc (isin : GB00BK6JQ137)
OTAQ Plc: Final Results for 9 months to 31 December 2022
OTAQ Plc (OTAQ)
19 May 2023
OTAQ plc ("OTAQ", or the "Company")
Final Results for 9 months to 31 December 2022
OTAQ plc (OTAQ.AQ), the innovative technology company targeting the aquaculture, geotracking and offshore markets, announces its audited results for the 9 month period to 31 December 2022.
Financial Highlights
Strategic and Operational Highlights
*Adjusted EBITDA is earnings before income, tax, depreciation, exceptional costs, impairment, share option charges and amortisation
Commenting, Phil Newby, Chief Executive at OTAQ, said:
“OTAQ has ended the financial period with a strong balance sheet following the November 2022 share issue and renewed optimism that the Group will be successful. OTAQ is continuing to enhance its portfolio of products in all divisions and is looking to penetrate new markets through additional sales resource over the coming year.
“Completing the commercialisation of our new products and continuing the growth seen in the Offshore divisions gives the directors confidence that the Group will return to profitable growth.”
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About OTAQ:
OTAQ is a highly innovative technology company targeting the aquaculture, geotracking and offshore markets. It already has a number of established products in its portfolio and is focused on further developing its presence, customer base and cross selling opportunities within core markets both organically and via acquisition.
OTAQ’s aquaculture products, which include a sonar device (developed for Minnowtech LLC) to scan shrimp in ponds and water quality monitoring, are focused on maximising welfare and production yields. Additionally, the Company is developing a potentially game changing live plankton analysis product for finfish and shellfish farmers. It also continues to target opportunities in the acoustic deterrent devices market via its Sealfence product, which is used by salmon farmers, with global opportunities in Chile, Australia, Canada and Norway.
The Company is also developing high accuracy location trackers for specialist applications. Having already added clients within safety and multiple participant sport/racing applications, the Company is investigating wider market potential - including opportunities in the seafood industry.
OTAQ’s offshore product range includes OceanSense subsea leak detection, Eagle IP camera systems, Lander seabed survey devices and Subsea electrical connectors and penetrators. It is targeting a number of growth opportunities in new territories and has a strong client base including Expro, Amphenol and National Oilwell Varco. The Company is also focused on the development of new products through this division, with the aim of increased cross-deployment of skills and technologies into the aquaculture arena.
CHAIRMAN’S STATEMENT FOR THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2022
I’m pleased to present my first Chairman’s Statement for the nine-month period ended 31 December 2022.
The Group has spent the past nine-months working hard to develop and expand its product portfolio in each of its core markets, being Offshore, Aquaculture and Geotracking. Initial sales of some of these new products have been made in this or the prior financial period and the Group is now working hard to develop new markets and commercial opportunities for these products. Where development of key strategic products is not yet complete, efforts are being made in the new year to complete this development where credible market conditions prevail.
I am hopeful that 2023 will yield the benefit of our expanded product portfolio and I will be able to present improved revenue and profit performance for the year to 31 December 2023.
Strategy The strategy of the business is to use the Group’s customer base in the Offshore and Aquaculture industries to allow it to sell our new products developed by the Group’s product development team. Over time, the Group intends to have a full suite of complementary and sophisticated products for use in the Aquaculture industry, be that salmon or shrimp, as well as target niche markets in the Offshore sector where the Group can continue to enjoy the success historically seen. The Geotracking division will also make use of the products developed for this division to target specific sectors that the Group believe will benefit significantly from this technology.
Offshore The Offshore division, comprised of the previously separately reported Connectors and Offshore divisions, has continued to perform well and is expected to continue do so in 2023. The Group now sees additional opportunities for this division in new territories such as North America and other global markets. Sales and marketing resource is being invested to help develop the potential in this division and accelerate revenue growth.
Aquaculture The Group has developed exciting new products for use in the Aquaculture industry. As revenue from the company’s historically core product, Sealfence, has reduced, product development has been pursued in collaboration with key strategic partners to permit entry into the shrimp market, water quality monitoring sectors and plankton analysis. Whilst not all of these products are yet fully commercialised, the Group continues to believe in these technologies and the huge market potential that is possible.
Geotracking The Geotracking technology developed since 2020 has enjoyed some commercial success. In the year to 31 March 2022, the Group benefitted from a large contract award. Variants of the Geotracking device remain in development consisting of tracking devices for use in the railway industry and other similar sectors. Trials with partners in the railway industry are ongoing with orders placed and deliveries made. The potential for significant orders within this division in 2023 exists and the Group is working hard to achieve this.
Our Team Despite the challenges the Group has faced over the past year, I have been impressed since I joined with the passion and enthusiasm that exists within the business. I am delighted to welcome Giles Clifford to the Board and thank Malcolm Pye for his contribution now he has left. I am confident the team will work diligently to deliver the performance that the Board expects over the next twelve months.
Adam Reynolds Non-Executive Chairman
CHIEF EXECUTIVE’S REPORT FOR THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2022
Review of the period Despite the declining Revenue and increasing losses in the period, the Group has taken steps to reposition itself during the year to ensure the business can return to growth and profitability without relying on its historically core product in the Aquaculture division. The Offshore division has performed well in the nine-month period with the Geotracking division not achieving Revenue of significance but continuing to develop new markets and products.
Development of the phytoplankton analysis product is continuing with commercial launch being worked towards in 2023. Trial sites with potential customers have been deployed and this has been fruitful in enabling us to learn about this strategically important market as well as allow Blue Lion Labs Ltd, in which we own 10% of equity, to develop the software required as part of the product.
Development of the shrimp sonar product in collaboration with Minnowtech LLC, our 15% investment since February 2021, has continued during the period. No sales of significance were made but Minnowtech are continuing to finalise their end product and they have now, post year-end, placed a one hundred unit quantity order.
The Group achieved Revenue of £2.56m in the nine-month period (2021/22: £4.29m) with this delivered by £1.62m in the Offshore division (2021/22: £2.09m), £0.06m (2021/22: £0.76m) in the Geotracking division and revenue of £0.88m (2021/22: £1.45m) in the Aquaculture division. The Geotracking division in 2021/22 benefitted from the fulfilment of a significant sports tracking contract as well as sonar sales to Minnowtech. Sonar sales in future will be recorded as Aquaculture sales.
Sales to non-UK territories have increased from 46% of total revenue in 2021/22 to 50% in 2022 as the Offshore division continues to expand and become a more significant part of the Group.
Revenue Group revenue for the nine-month period ended 31 December 2022 was £2.56 million from £4.29 million in the twelve months to 31 March 2022. This revenue change is all organic.
With the changing mix of sales from Aquaculture to Offshore, the Group sales mix is changing with UK revenue now representing only 50% of total revenue (2021/22: 54%). Chile represents 5% (2021/22: 8%) of total revenue with other European countries accounting for 14% (2021/22: 13%) of total revenue and the rest of the world for 31% (2021/22: 25%) of total revenue.
Profit The statutory loss for the year of £2.30m (2021/22: £1.90m) was impacted by the period being nine-months with Revenue being £1.73m lower than the twelve-month prior period and Gross profit being £1.23m lower accordingly. Gross profit of 31% (2021/22: 47%) was impacted by the high fixed costs in Cost of sales. Administrative expenses changed to £3.10m (2021: £4.14) in line with the nine-month period.
The £3.10m of administrative expenses was impacted by the large exceptional charges and certain one-offs including a £0.06m (2021/22: £0.31ml) impairment charge for the write-down of Sealfence units returned from customers and a £0.33m (2021/22: £0.57m) intangibles amortisation charge which included an additional £0.15m impairment charge relating to development costs not commercially viable.
The Group’s exceptional charges in the year totalled £1.23m (2021/22: £0.26m). These included costs regarding the end of the Scottish Acoustic Deterrent Device market and costs that were associated with legal fees for the new shares issued and listing on the Aquis Stock Exchange in November 2022.
Dividends The Board is not recommending a final dividend (2021/22: £nil).
Trading environment The North Sea and wider oil market in which the Offshore division operates, and which impacts on demand for the Offshore division, has remained buoyant during the period. Demand in this division is expected to continue to be favourable in 2023 and will be supported by additional sales resources and dedicated product development support. The market for ADDs in Scotland is no longer an area of focus although Scotland remains a key market for the Group’s new live plankton analysis system (LPAS) and water quality monitoring product. The Chilean market has been subdued in the year but progress is being made with the Chilean authorities around the approval required to use ADDs and it is hoped when this is concluded it will enable the Chilean market to grow.
Innovation The Group has continued to invest in the development of new products and improvement to existing products. Investment in research and development, capitalised as development costs, amounted to £0.36 million in the period to 31 December 2022 (2021/22: £0.59 million), equivalent to 14% of Group revenue (2021/22: 14%). The aim of the Group’s research and development team is to deliver key projects such as LPAS, water quality monitoring and Geotracking devices.
Current trading and prospects There is cautious optimism that in the coming financial year the Group can return to profitable growth due to the performance of the Offshore division and the expected launch of the Group’s strategic new products such as LPAS. However, management and the Board will continue to exercise firm controls on costs and cash whilst the Group returns to profitability.
Phil Newby Chief Executive
CHIEF FINANCIAL OFFICER’S REPORT FOR THE NINE-MONTH PERIOD ENDED 31 DECEMBER 2022
The strategy of the Group is to build a business of significance within the aquaculture and offshore industries with the key financing requirements being to ensure there is sufficient resource to fund new product development and working capital as the Group returns to growth.
The Group's Key Performance Indicators are aligned to revenue, profits and ensuring sufficient cash flow to deliver future growth. These three measures were below targets in the period to 31 December 2022 due to the withdrawal of Sealfence units from the Scottish market. However, cash flow has been supplemented by the issue of shares in November 2022 which aided cash balances by an amount net of all relevant costs of £3.22m. In addition, the Group carefully monitors loss time incidents and employee absenteeism and turnover. Loss time incidents were zero (2021/22: zero) for the year and employee absenteeism was in line with historic levels although employee turnover increased.
Revenue Group revenue changed to £2.56m from £4.29 million with pro-rata growth in the Offshore division against decline in Aquaculture and Geotracking.
Profits The preferred measure of assessing profits for the Group is explained below:
* Earnings before income, tax, depreciation, share option charges, impairment, exceptional costs and amortisation.
Adjusted EBITDA declined to a loss of £0.26m from £0.05 million in 2021/22 with the corresponding EBITDA operating margin declining from 1% EBITDA operating loss in the prior year to a 10% EBITDA operating loss. This decline was driven by the decrease in Gross profit in the period to £0.79m from £2.03m in the prior year. The EBITDA decline also resulted from a decline in the gross profit percentage from 47.2% to 31.0% due to the changing revenue mix away from Sealfence rentals.
Operating losses increased to £2.31m from £2.11m with the total comprehensive expense for the year increasing to £2.30million (2021/22: £1.91 million). The statutory loss before tax increased to £2.51 million compared to £2.16 million in 2021/22.
Adjusted EBITDA Adjusting items relate to expenditure which does not relate directly to the core activities of the Group and is considered to be one-off in nature or in relation to investing, restructuring or financing activities. The total pre-tax adjusting items recorded in the nine-month period to 31 December 2022 were £1.23m. These relate to £0.23m of fees relating to the November 2022 issue of equity, £0.12m relating to the write-off of amounts loaned to the employee benefit trust due to the decline in the company’s share price, £0.34m of costs in association with Sealfence inventory purchased in the period immediately written down, £0.49m write-down of Aquaculture inventory associated with the Scottish Sealfence rental market and £0.05m of sundry costs considered to be one-off.
In addition to this, there were depreciation charges of £0.30 million (2021/22: £0.74m), intangible amortisation charges of £0.33m (2021/22: £0.57m) and right-of-use depreciation charges of £0.13m (2021/22: £0.16m). There was also an impairment charge of £0.06m (2021/22: £0.31m) relating to Sealfence units returned from customers following the end of rental agreements.
Other operating income The grant income received in 2021/22 of £0.13m related to the HMRC CBILs scheme. . Finance costs Net finance costs totalled £0.20m (2021/22: £0.17m) and related to the interest charge relating to deferred acquisition payments made in the year associated with the terms of the acquisition of Marine Sense Limited in 2018, Right of use asset interest charges and predominantly interest costs relating to the CBILs loan.
Taxation As the Group remains in a statutory loss-making position, there is no overall Group tax charge. The Group continues to benefit from research and development tax credits which, along with a decrease in deferred tax of £0.08m, accounts for the £0.22m (2021/22: £0.25m) tax credit in the year.
Earnings and losses per share Statutory basic losses per share were 5.0p (2021/22: loss 5.9p) and statutory diluted losses per share totalled 5.0p (2021/22: loss 5.9p). These are calculated using the weighted average number of shares in existence during the year.
Return on Capital The Group intends to report on capital returns once sustained profitability has been achieved. Whilst capital returns are monitored currently, it is not a key performance or key results measure given the Group’s high revenue growth and current statutory loss-making position.
Dividends No dividends have been paid in the year (2021/22: £nil) and no dividend is recommended. It is expected that all cash resources will be retained by the Group.
Headcount The Group’s number of employees for 2022 stood at 43 (2021/22: 45). The change in staff numbers during the year was due to efficiency measures undertaken.
Share capital and share options The Group's issued share capital at 31 December 2022 totalled 127,824,881 Ordinary shares (2021/1: 37,716,250). During the year, no share options were exercised with 108,631 (2021/22: 95,854) shares issued as part of the employee Share Incentive Plan. 90,000,000 new shares were issued at a price of 4p as part of a funding round held in November 2022. 6,272,729 new shares were issued at a price of 22p as part of a funding round held in January 2022.
No share options were issued in the year (2021/22: 800,000) with 23,930,878 (2021/22: 2,130,900) share options and warrants in issue at 31 December 2022. 700,000 (2021/22: 229,592) share options lapsed in the year due to performance criteria not being met. Warrants totalling 22,499,978 were issued in November 2022 with 22,819,978, included in the above figures, outstanding on 31 December 2022 (2021/22: 320,000).
Cashflow and net debt This year's cash generated from operations totalled an outflow of £0.88 million (2021/22: £1.77 million). Total capital expenditure amounted to £0.61 million (2021/22: £1.23 million). Year-end cash balances totalled £2.34 million compared to £1.01 million in 2021/22. The Group finished 2022 with net cash of £0.76 million compared to £1.27 million of net debt at the end of 2021/22 as reconciled below:
The directors consider the income tax credit to be part of net debt as the asset will be converted into cash and is not part of normal working capital requirements as with other current assets.
Assets and liabilities Total current assets at 31 December 2022 were £4.24m compared to total current assets of £4.11m at 31 March 2022. The key change during the year relates to the increase in cash balances following the November 2022 fund raising to £2.34m from £1.01m and the decrease in trade and other receivables to £0.69m (2021/22: £1.77m) due to the timing of prior year revenue being weighted towards the last quarter of 2021/22. Inventories have decreased to £0.94m from £1.18m with trade and other payables decreasing to £0.50m from £1.24m with deferred income reducing by £0.43m.
Total liabilities have decreased from £3.77m at 31 March 2022 to £2.36m at 31 December 2022 with this decrease driven by the repayments due under the CBILs loan, reducing deferred income balances and a reduction in deferred payments for acquisition. Right-of-use lease liabilities at the end of the period amount to a total liability of £0.35m (2021/22: £0.42m).
Despite the difficulties of the period, the Group's financial position is improved over previous years due to the November 2022 fund raising. Nonetheless, the Group remains focussed on tight cost control and cash management whilst revenue and EBITDA growth is delivered to enable the Group to become cash flow positive.
Summary The Group begins the new financial year with a strong balance sheet, but where management and the Board will continue to exercise firm controls on costs and cash. The Group’s Offshore division is trading well and there is optimism that this division and new product launches can return the Group to an EBITDA-positive position and improve the Group’s cash performance.
Matt Enright Chief Financial Officer
consolidated Statement of comprehensive incomeFOR the NINE-MONTH PERIOD ended 31 DECEMBER 2022 |