TIDMPOS
RNS Number : 6451W
Plexus Holdings Plc
16 November 2017
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
16 November 2017
Plexus Holdings plc ('Plexus' or 'the Group')
Preliminary Results for the year to 30 June 2017
Plexus Holdings plc, the AIM quoted oil and gas engineering
services business and owner of the proprietary POS-GRIP(R) method
of wellhead engineering, announces its preliminary results for the
year ending 30 June 2017.
Financial Results
-- Sales revenue GBP4.75m (2016: GBP11.23m)
-- Adjusted EBITDA GBP2.48m loss (2016: GBP1.56m loss)
-- Operating loss GBP7.03m (2016: GBP6.8m loss)
-- Loss after tax GBP5.70m (2016: GBP5.79m loss)
-- Basic loss per share 5.41p (2016: 6.39p loss per share)
-- Net cash GBP6.5m (2016: net cash GBP9.9m)
Whilst the Company remains committed to distributing dividends
to its shareholders, the Directors believe that in view of the
challenging oil price environment and resultant financial
performance it is prudent to continue the suspension of the payment
of dividends. The Company will look to reinstate the dividend at
the earliest opportunity.
Overview
-- Plexus' proprietary POS-GRIP friction grip technology
wellhead equipment enabled the Company to win new business despite
continuing subdued levels of exploration activity as a result of
the extended period of low oil prices:
o Purchase order from operator Masirah for an exploration well
in Oman
o Four-year framework agreement with Centrica Norway to supply
surface wellhead and mudline equipment services for jack-up
exploration wells of all pressure ratings in the Norwegian sector
of the North Sea
o Extension of an existing agreement with Shell Brunei to supply
both HPHT and standard pressure wellhead systems and services for
three exploration wells in Brunei
o New customer contract win from Nexen Petroleum U.K. Limited
('Nexen'), a subsidiary of CNOOC Limited for an exploration well in
the Central North Sea
o First purchase order for the Company's Tersus(TM) TRT Mudline
Suspension System ('MLS') equipment from LLC Gusar (OOO Gusar) Ltd
('Gusar'), Plexus' licensing partner in Russia
o Initial purchase order from Aker BP for an exploration well
offshore Norway
o Four-year contract with Maersk Oil North Sea UK Limited, for
the provision of standby wellhead, mudline suspension systems and
associated services including initial purchase order
-- Additional orders won post period end:
o First order from Rosneft (TNK Vietnam B.V) ('Rosneft
Vietnam'), a subsidiary of leading Russian oil and gas company,
Rosneft for exploration well offshore Vietnam using POS-GRIP high
pressure high temperature ('HPHT') adjustable rental wellhead
equipment - in line with strategy to gain exposure to new
geographies and markets
o First production well order from long-standing customer
Centrica North Sea Limited ('Centrica') for a gas well in the UK
Southern North Sea - in line with strategy to extend the
application of POS-GRIP technology beyond jack-up exploration and
into mainstream production and subsea applications
Corporate Highlights
-- Post period end, a conditional Business Purchase Agreement
('BPA') signed for the sale of Plexus' jack-up exploration business
to a subsidiary of top three global oil and gas services supplier
TechnipFMC ('TFMC') which provides major industry recognition of
Plexus' POS-GRIP technology and triggers a switch in strategic
focus to the roll-out of POS-GRIP products into new markets such as
production and decommissioning (outstanding conditions relate to
the transfer of employees and the novation of commercial
contracts)
-- Collaboration Agreement to be signed with TFMC at Completion
to explore the development of new and existing products based on
POS-GRIP for roll-out into new markets within the wider energy
sector which could extend to production, subsea, geothermal and
fracking applications
-- Current product suite based on POS-GRIP technology can cater
for all stages of the cycle from exploration to production to
decommissioning
-- Cash rich, debt free balance sheet due to be further
strengthened following completion of the sale of the jack-up
exploration business to TFMC with initial GBP15m cash consideration
less certain adjustments payable on completion
-- Three-year earn-out up to a maximum additional payment value
of GBP27.5m allows Plexus to benefit from anticipated pick-up in
exploration activity and TFMC's extensive global presence
-- Bank facilities available to the Group with the Bank of
Scotland comprise as from 1 October 2016 a two year GBP5m revolving
credit facility, and in addition to a reducing five year GBP1.5m
term loan (with a current balance of GBP0.7m) which was put in
place in September 2014 to part fund the purchase of a building in
Aberdeen and which runs to August 2019
For further information please visit www.posgrip.com or
contact:
Ben van Bilderbeek Plexus Holdings PLC Tel: 020 7795 6890
Graham Stevens Plexus Holdings PLC Tel: 020 7795 6890
Derrick Lee Cenkos Securities PLC Tel: 0131 220 9100
Frank Buhagiar St Brides Partners Ltd Tel: 020 7236 1177
Isabel de Salis St Brides Partners Ltd Tel: 020 7236 1177
Chief Executive Ben van Bilderbeek said:
"Following the post period end signing of a conditional BPA to
sell our jack-up exploration business to leading oil and gas
service and equipment company TechnipFMC, this will be our last set
of accounts as a company whose core business is the supply of
rental wellhead equipment and associated running tools to the niche
jack-up exploration market. Going forward, Plexus will be 100%
focused on replicating within the wider energy industry the success
our proprietary POS-GRIP technology has had in jack-up exploration.
This has seen our equipment deployed by blue-chip operators such as
BP, Centrica, Maersk, Royal Dutch Shell, Statoil and Total on over
350 wells worldwide and in the process set new higher standards in
terms of performance and safety. We already have a suite of
POS-GRIP products designed for use in other energy sub-sectors and,
with this in mind, the recent announcement of a first contract with
Centrica to supply our production wellhead equipment bodes well for
the future.
"Results are, by their nature, backward-looking, and our full
year financial performance goes a long way to justifying the
decisive action we have taken in recent years to realign our cost
base to the lower oil price environment and the associated
significant reduction in the levels of capital investment seen
across the upstream industry, particularly in relation to
exploration drilling. According to the International Energy
Agency's World Energy Investment 2017 report, upstream investment
recorded a 44% drop between 2014 and 2016. Such a sharp fall in
investment has inevitably led to lower levels of exploration and
consequently lower demand during this period for our best in class
jack-up exploration wellheads. This has been reflected in our full
year financial results: 57.7% decrease in revenue to GBP4.75m for
the year to 30 June 2017 (2016: GBP11.23m) with the UK and European
revenues decreasing by 59.7%; an EBITDA loss of GBP2.48m (2016:
GBP1.56m loss); a loss after tax of GBP5.7m (2016: GBP5.79m loss)
after incurring GBP4.47m of depreciation and amortisation and a
basic loss per share of 5.41p (2016: 6.39p loss per share).
"Thanks to a cash rich, debt free balance sheet; a streamlined
cost base; a fully paid up inventory of jack-up exploration
wellheads; and long-standing relationships with a blue-chip
customer base, Plexus has been positioned to withstand a lower oil
price. Prior to the downturn, we had become the dominant supplier
of HPHT wellheads in the North Sea jack-up exploration market with
a near 100% market share, and had made inroads in other parts of
the world, having won orders to supply operators with equipment for
wells being drilled in geographies such as Asia, West Africa,
Australasia, and Venezuela. Despite the drop off in activity, we
have continued to win orders where there has been business to be
won. Post period end, we were delighted to announce an order for a
well to be drilled by Russian supermajor Rosneft in Vietnam, a
double first for Plexus in terms of a new customer and a new
geography. However, as the full year numbers demonstrate, there can
be no doubt that the challenging trading conditions of the past two
years have acted as a brake on our plans to position POS-GRIP as an
enabling technology in the energy industry.
"The sale of our jack-up exploration business to top tier oil
and gas service and equipment provider, TFMC, promises to
re-establish the momentum behind the business. As well as allowing
us to benefit from a sustained recovery in jack-up exploration
drilling activity through the three year earn-out agreement with
TFMC, we expect the disposal to accelerate industry awareness and
the roll-out of our POS-GRIP friction based method of engineering
across the wider energy sector and beyond jack-up exploration
applications. The disposal repositions Plexus as an IP development
and licensing business and importantly provides industry validation
for our family of POS-GRIP enabled equipment, which is
scientifically proven to be superior to conventional technology in
terms of performance, reliability, safety and cost savings.
Furthermore, the implementation of the Collaboration Agreement
between ourselves and TFMC, where we will look to work together to
develop our existing POS-GRIP IP for applications outside of
jack-up exploration, represents a major endorsement of the
technology's potential to make safer and more efficient equipment
for use in the wider energy industry, including geothermal,
fracking and wind energy.
"The timing of the transaction with TFMC is in our view
extremely apposite, particularly when viewed against the wider
context of an energy industry which is undergoing a structural
shift including consolidation. At the same time our sector is
showing signs of renewed appetite for investment, albeit from
subdued levels, on the back of a more stable oil price. In this
year's BP Statistical Review, BP's chief executive Bob Dudley
wrote, 'The energy mix is shifting towards cleaner, lower carbon
fuels, driven by environmental needs and technological advances.'
Much debate surrounds the speed of this shift and the future makeup
of the energy sector, but one thing is for certain: the world will
continue to need energy, be it from renewable sources or cleaner
hydrocarbons such as natural gas. We believe that our engineering
led POS-GRIP technology is energy source neutral in terms of its
range of applications. Whether gas or renewables, POS-GRIP can
deliver significant operational benefits, saving operators
considerable time and money while at the same time increasing
overall standards and safety. Indeed, if an application is required
to operate under extreme temperatures or pressures we believe that
our technology comes into its own, as we have shown out in the
field many times over. POS-GRIP has set new standards in jack-up
exploration and we look forward to achieving the same success in
other areas inside and outside of the energy industry."
Summary of Results for the year ended 30 June 2017
2017 2016
GBP'000 GBP'000
Revenue 4,749 11,227
Adjusted EBITDA (2,483) (1,560)
Operating loss (7,031) (6,798)
Loss after taxation (5,701) (5,790)
Basic (Loss) / earnings per share (pence) (5.41) (6.39)
Chairman's Statement
Business progress
This year's results reflect the continued downturn in the
industry, as operators' level of capital expenditure, particularly
in the area of exploration drilling activity, remained depressed.
Plexus' traditional markets have for many years been the UKCS and
the ECS, and whereas in the prior year European revenues remained
more resilient than the UK, this year the North Sea as a whole was
impacted. These trading conditions resulted in a 57.7% decrease in
revenue to GBP4.75m for the year to 30 June 2017 (2016: GBP11.23m),
which was circa 10% ahead of market expectations; an adjusted
EBITDA loss of GBP2.48m (2016: loss of GBP1.56m); a loss after tax
of GBP5.7m slightly improved on the prior year (2016: loss of
GBP5.79m) and a basic loss per share of 5.41p (2016: 6.39p loss per
share). It should be noted that the loss is after the Group
incurred GBP4.47m of depreciation and amortisation costs.
Globally the International Energy Agency ('IEA') reported that
oil and gas investment continued to tumble in 2016 at a rate of
decline close to the collapse of 2015, and in fact was little more
than half the peak level of 2014 when oil prices started to fall
sharply. The IEA called this "an unprecedented contraction" and
although the pace of the decline varies by region, companies, and
type of asset, it is important to note that the IEA points out that
a significant share of the contraction is due to reduced drilling
which impacted the year being reported on. Crucially the IEA
further highlight the new projects that are expected to go forward
as being those where costs have been cut sharply, which once again
highlights the importance of Plexus' ability to deliver significant
operational time savings to operators that can run to millions of
dollars per well. Importantly, despite the fall in overall
revenues, Plexus was still able to win new customers in new
territories, and in particular Nexen in the UK and Rosneft in
Vietnam who joined a range of blue chip customers including AkerBP,
Centrica, Brunei Shell Petroleum, Maersk and Total.
Post period end we believe the reputation that Plexus has been
able to establish for its innovative wellhead equipment led to the
announcement last month of the intended sale of the Plexus jack-up
exploration rental wellhead business activities to a division of
TechnipFMC for up to GBP42.5m, subject to the fulfilment of certain
conditions. This is a clear endorsement of the unique strengths of
Plexus' proprietary technology and represents a significant
strategic step, as it realigns Plexus as an IP led research and
development business which will now pursue other applications, such
as production and subsea wellhead supply either organically or
through licensees. The transaction will enable greater resources
and focus to be brought to bear on the development of new and
existing POS-GRIP applications outside of jack-up drilling,
particularly it is hoped through a new collaboration agreement to
be signed with TFMC on Completion to establish a framework and
steering committee to work together on potential new
applications.
Overview
Plexus is first and foremost an innovative and specialist IP-led
business. Our ground-breaking POS-GRIP friction grip technology,
which was originally sponsored by Exxon, has been used on over 350
exploration wells across the world by a blue-chip roster of
operators. Exploration wells however, are just one of a number of
applications our POS-GRIP friction-based method of engineering can
be deployed on, both within the oil and gas sector and the wider
energy industry.
Our objective has always been to develop and commercialise a
suite of best-in-class POS-GRIP products serving a wide range of
markets, each of which can offer the customer the same range of
benefits in terms of performance, reliability, cost saving and
safety. If any piece of equipment incorporates POS-GRIP technology,
we want customers to immediately see it as best in class. To get to
this point, we first had to ensure the industry recognised the
superior nature and cost effectiveness of our equipment compared to
the competition. The post period end sale of our jack-up
exploration business to TFMC, a top three oil and gas service and
equipment company, with a market cap of circa US$12 billion, and
over 40,000 employees with operations in 48 countries, provides the
recognition we have been working towards and can provide a platform
for growth going forward.
With technology lying at the heart of what we do, a natural
model for the Company to adopt is the capital light, low cost and
high margin licensing route, widely adopted to good effect by
companies in other sectors such as computer software and IT. This
has been our objective from the outset and last year we were
delighted to secure a jack-up exploration application licensing
agreement with two leading independent oil and gas services
companies covering the important Russian and CIS markets. Despite
signing this licensing agreement, which is not included in the sale
of the Jack-up Business, we recognised at an early stage that to
become a supplier of critical equipment to an industry that has
traditionally taken its time to embrace change, we could not just
wait for business to come to Plexus. We needed to go to the market
directly and have operators try out our equipment in field
conditions so that they could experience for themselves the
benefits and cost advantages of our best in class wellheads. The
jack-up exploration market provided the perfect showcase for our
technology as, thanks to the temporary nature of exploration wells,
it enabled us to adopt a rental and services model, rather than the
more capital-intensive manufacturing alternative required for
larger markets such as production.
This strategy has proved to be highly successful. In a
relatively short period of time, Plexus became the dominant
supplier of wellheads and associated equipment for HPHT wells in
the North Sea; our equipment has been used on over 350 wells; a
who's who of operators have become long-standing customers; we have
been approached by operators to work jointly with them to apply our
technology to new products such as a subsea wellhead; and as far as
we are aware Plexus wellheads are the only ones to have passed a
new set of higher standards recently prescribed by a major
operator. All of the above were key steps that have led to the
signing of the conditional BPA for the sale of our jack-up
exploration business to TFMC. For a top tier supplier to acquire
this business following an extensive due diligence process, we
believe, represents a major vote of confidence in our technology.
Furthermore the signing on sale completion of a collaboration
agreement with us to explore applying POS-GRIP to new products in
different markets in our view highlights how POS-GRIP is a
game-changing technology that raises the standards of critical
equipment such as wellheads.
POS-GRIP was designed to address a number of limitations
associated with conventional wellhead technology, particularly in
terms of metal to metal sealing. By providing operators with
superior solutions which offer unique safety and operational
advantages, while at the same time delivering significant time and
cost savings, POS-GRIP has raised wellhead standards especially for
HPHT applications to equal or exceed those of premium couplings.
The benefits of our technology have been proven many times over in
exploration wells drilled out in the field; often in the most
challenging environments. The recognition that there are numerous
applications and products which could benefit from the POS-GRIP
method of engineering, in our view, lies behind TFMC's decision to
explore potential areas of future collaboration. These are
anticipated to range from oil and gas production, subsea and
connector technical solutions, to the development of initiatives to
make equipment safer and more efficient for use in the wider oil
and gas industry, including geothermal and fracking.
Gaining industry recognition of our technology is not just a
milestone, it also promises to transform our business over the
coming years. Following completion of the deal, our already debt
free, cash rich balance sheet will be further strengthened by
receipt of the initial consideration payment. Together with the
removal of the outgoings associated with running the jack-up
exploration business and a three-year earn-out, which will see
Plexus receive a third of revenues generated from revenues up to a
cap of GBP27.5 million, Plexus will be in a position to adopt the
licensing operating model more befitting of an IP-led technology
company. This will allow us to move onto the next phase of our
development, one which will see us focus on commercialising
POS-GRIP in other larger markets both within and outside the energy
sector.
We already have a suite of POS-GRIP based products targeting
markets outside jack-up exploration that have been tried and tested
and, in some cases, have already been successfully deployed by
operators out in the field. For example, in March 2015 Plexus was
awarded a contract by Centrica Energy Exploration and Production to
supply and rent our POS-SET Connector(TM) utilising POS-GRIP
friction grip engineering, for use on abandonment operations on a
gas well originally drilled 35 years ago in 1982 offshore Holland.
As a large number of ageing wells reach the end of their lives in
the North Sea and other regions, the Directors believe the
abandonment market has significant growth potential and as a result
could become an important new revenue stream for the Company.
Post period end in September 2017, we received a purchase order
from Centrica North Sea Limited to supply our POS-GRIP "HG"
10,000psi adjustable production wellhead for a gas production well
in the UK Southern North Sea. This contract represents the first
order Plexus has been awarded by Centrica for a production well,
having previously supplied the operator with wellhead equipment for
a number of exploration wells in the North Sea. Post the sale of
the jack-up exploration business, the larger production market is
one of several markets we will be targeting, so it is highly
encouraging to have won this contract from Centrica. Indeed this is
not our first production well order: we have previously supplied
Tullow in the North Sea, BP in Azerbaijan and the BP Amethyst gas
field in the Southern North Sea with our POS-GRIP production
wellheads.
In addition to the Connector and surface production wellheads,
Plexus has, over the years, invested heavily in R&D and IP
development covering a wide range of areas and applications outside
jack-up exploration. In particular our Python(TM) Subsea Wellhead,
which we believe sets a new best in class and safest standard for
subsea wellheads, was developed via a Joint Industry Project
supported by BG, Royal Dutch Shell, Wintershall, Maersk, Total,
Tullow Oil, eni, Senergy, and Oil States Industries Inc. Although
subsea drilling activity has also been adversely impacted by the
industry downturn we are confident that this innovative subsea
wellhead, which was designed to meet a range of industry targets
such as instant casing hanger lockdown, will have a major role to
play. Other products within our family of POS-GRIP enabled
applications include HPHT dual marine risers, which provide a
safer, technically superior and cost-efficient solution for use on
jack-up rigs; an innovative HPHT Tie-Back connector product; and a
new well tree product. Meanwhile, other markets where we believe
POS-GRIP enabled products can raise standards and optimise
performance include the renewable energy sectors of wave energy,
wind turbines, geothermal and gas storage.
In addition to rolling-out new POS-GRIP products, Plexus will
continue to target international markets including the Gulf of
Mexico, India, the Middle East and Russia, geographies where we
expect activity levels to remain relatively high going forward.
With this in mind, we were pleased to be awarded a follow-on
contract for an exploration well offshore Oman during the year
under review and post period we were awarded a contract with new
customer Rosneft Vietnam, a subsidiary of leading Russian oil and
gas company, Rosneft. We expect this contract, which will see
Plexus supply its POS-GRIP HPHT adjustable rental exploration
wellhead equipment for an exploration well offshore Vietnam, to
help raise the profile of Plexus with Rosneft and other operators
in Russia through our Russian licensing partners.
Staff
On behalf of the Board I would like to thank all our employees
both past and present for their dedication and hard work during a
challenging oil and gas industry trading environment which, like
many other E&P and service companies across the world, led to
Plexus having to restructure and reduce staff numbers and
overheads. Such cost control measures were regrettable and I look
forward to the level of both exploration and production activity
increasing and Plexus once again being able to increase its
workforce.
Outlook
Our goal is to replicate the success we have had in jack-up
exploration in other markets within the energy industry, including
surface production. With the production sector being many times the
size of jack-up exploration, achieving the same success here would
be truly transformational for Plexus. Our production wellheads,
like all our products including the connector technology, are based
on the same POS-GRIP method of engineering as our exploration
equipment and so offer operators superior qualities in terms of
performance, reliability and safety as well as significant time and
cost savings. As a result, we believe our production wellheads have
the potential to become the go-to equipment for operators all over
the world whether supplied by Plexus or future commercial partners.
Crucially we hope we can achieve this in a much shorter timeframe
than it took for our jack-up exploration equipment to become
established as the wellhead equipment of choice for use on the most
challenging wells, such as the Total Solaris well in the North Sea
which was the highest pressure well ever drilled in that
location.
Several reasons lie behind our confidence. At the micro level,
we are not starting from scratch: operators are already familiar
with what POS-GRIP-enabled wellheads deliver as they have been used
on over 350 wells worldwide. Furthermore, it will no longer just be
Plexus extolling the benefits of POS-GRIP, top tier supplier
TechnipFMC will be offering our technology to their extensive
client base for use in jack-up exploration wells. At the macro
level, the long-term dynamics of the oil and gas industry very much
play to our strengths, specifically natural gas' increasingly key
role in the hydrocarbon energy mix. If targeted reductions in C0(2)
emissions are to be met across the globe, cleaner hydrocarbons such
as natural gas will have to displace dirtier fossil fuels such as
coal.
The global industry is already seeing the impact of this trend.
According to the BP Energy Outlook 2017, gas is the fastest growing
fuel and is set to overtake coal as the second-largest fuel source
by 2035. In April 2017, for the first time since the 1880s, Britain
went a full day using electricity that was not generated by coal.
Speaking at the time, Duncan Burt, head of real-time operations at
the National Grid, told the Daily Telegraph, "It's a very proud
moment for us to be there on the first day when we weren't burning
coal...Days like this will become more and more common in the next
two or three years, and by the early 2020s burning coal will become
increasingly rare." As the FT further reported, "Gas has been
critical to Britain's success in pushing coal to the brink of
elimination from its electricity system". Maarten Wetselaar, Head
of Shell's gas business, sees gas playing an important role going
forward. Speaking to the FT he said, "Renewables will dominate in
the long run but during the transition, and maybe even at the end
of it, there will need to be a stable source of electricity that
can step in when wind and solar are not available...I'm absolutely
convinced that gas will provide that role." In the same article, Mr
Wetselaar adds, "Heavy transport by ships, trucks and buses can't
be electrified and the lowest carbon alternative is for them to use
LNG".
To continue growing during what amounts to a structural shift
towards cleaner fuels, the majors are increasingly prioritising gas
projects over oil. Big Oil is morphing into Big Gas. As Andrew Ward
of the FT wrote on 7 September 2017, "The $14bn Prelude project,
led by Royal Dutch Shell, is the latest in a surge of new LNG
capacity which promises to reshape the oil and gas industry - and
with it, the energy markets they serve. Chevron's Wheatstone LNG
development in Australia is due to start producing this month, on
the heels of its nearby Gorgon project last year, after a combined
$88bn of investment. ExxonMobil, BP, Total and Eni have also made
big commitments." It is not just the operators who are changing
their business mix. The FT on 30 October 2017 reported that Mitsui
& Co, one of Japan's largest trading companies, is moving its
energy operations away from oil to liquefied natural gas in
response to growing Asian demand for cleaner fuels. In the article
Mitsui's chief executive Tatsuo Yasunaga is quoted as saying,
"We're not that keen on liquid, we are now shifting more to
gas...Beyond 2020 we have seen lots of opportunities, and demand
will be increasing significantly. Now we have to prepare the supply
side". Plexus is well placed to capitalise on what has been called
a 'dash for gas'. We believe we have the best metal to metal
sealing system technology available which is crucial for gas
drilling. As a result, our equipment is ideally suited to the high
pressures and high temperatures associated with gas wells, as
demonstrated by the GBP3.3 million contract from Total E&P
Norge AS in 2015 to supply the Solaris exploration well, a
technically challenging Ultra HPHT well offshore Norway.
Regardless of how fast the majors restructure their portfolios
in favour of gas, there is a more pressing need that requires
addressing. As the International Energy Agency's World Energy
Investment 2017 report states, "falling investment points to a risk
of market tightness and under-capacity at some point down the line.
A drop in upstream oil and gas activity and the recent slowdown in
the sanctioning of conventional oil fields to its lowest level in
more than 70 years may lead to tighter supply in the near future.
Given depletion of existing fields, the pace of investment in
conventional fields will need to rise to avoid a supply squeeze,
even on optimistic assumptions about technology and the impact of
climate policies on oil demand. The energy transition has barely
begun in several key sectors, such as transport and industry, which
will continue to rely heavily on oil, gas and coal for the
foreseeable future." Remi Eriksen, the boss of Norway's DNV GL, a
leading risk assurance expert in the global energy industry, adds:
"There will be oil and gas in the future, and there will need to be
further exploration of our resources because the depletion of
existing reserves will be faster than the drop-in demand". Clearly
the ongoing demand for hydrocarbons, and the need for the
exploration and drilling activity that inevitably goes with it, has
some way to go yet.
In a similar vein, in this year's BP Statistical Review, Group
Chief Economist Spencer Dale wrote of the "the growing
gravitational pull of the longer-run energy transition that is
under way." Energy markets are changing. Plexus is changing too.
Post-sale we will have a structure and model that will allow us to
develop and market other POS-GRIP products in multiple sectors
within the energy market including renewables. We will however not
be alone. Thanks to our intended Collaboration Agreement we will be
looking to work with TFMC to maximise the potential of POS-GRIP to
raise standards across the industry, establish POS-GRIP as the
enabling technology of the energy sector, and in the process,
generate significant value for our shareholders.
J Jeffrey Thrall
Non-Executive Chairman
15 November 2017
Strategic Report
Principal Activity
The Group markets a patented friction grip method of engineering
for oil and gas field wellheads and connectors, named POS-GRIP.
This involves deforming one tubular member against another within
the elastic range to effect gripping and sealing. This superior
method of engineering for wellheads offers a number of important
advantages to operators, particularly for HPHT applications and can
include improved technical performance, improved integrity of metal
seals, significant installation time savings, reduced operating
costs and enhanced safety. Revenues during the year under review
were predominantly derived from the rental of POS-GRIP wellheads
for jack-up exploration, although the range of commercial and
safety benefits of POS-GRIP also apply to surface land and platform
production and subsea wellheads which are significantly bigger
market sectors that Plexus will be actively pursuing both
organically and with international partners. Furthermore, the
Directors believe that the Company's proprietary technology has
additional wide-ranging applications both within and outside the
oil and gas industry.
The post period end signing of a conditional BPA for the sale of
the niche jack-up exploration wellhead rental operations to a
division of leading oil and gas service and equipment provider
TechnipFMC realigns Plexus predominantly as an engineering and IP
led product design, development and licensing business. Following
Completion, Plexus retains the right to pursue jack-up exploration
related business in Russia and the CIS, the third largest
hydrocarbon producing market in the world, and where it has
existing licence agreements with LLC Gusar and CJSC Konar. Plexus
retains upside exposure to the resumption of jack-up exploration
drilling activity through the three year earn-out arrangement which
forms part of the terms of the sale agreement with TFMC. The
Company remains free to pursue the much larger surface production
market and in due course the subsea market. Positively in this
regard on 25 September 2017, Plexus announced a production
equipment order for Centrica, its first production order since
2006, for a gas production well in the UK Southern North Sea.
Financial Results
Revenue
Revenue for the year was GBP4.75m, down 57.7% from GBP11.23m in
the previous year. The decline in sales revenue is a result of the
continued low level of activity in the jack-up exploration market
in Plexus traditional markets, particularly the UKCS and ECS.
Encouragingly certain territories such as India and the Middle East
are more active and it is areas such as these where Plexus believes
TFMC can reach more effectively.
Positively the Group had a number of orders from first time
customers both domestically and in Asia such as Nexen in the North
Sea and Rosneft in Vietnam, with 23.9% of revenue being achieved
from "new customers".
The rental of exploration wellheads and related equipment and
services accounted for approximately 94% of revenue reflecting the
fact that the Company's organic business model remained focused
during the period on the supply of jack-up rental surface
exploration wellhead equipment and services. HPHT rental equipment
and related services continued to account for the majority of sales
revenues declining to GBP3.80m down from GBP8.21m last year, a
decrease of 53.7%, and accounted for 80.2% of total sales, compared
to 73.2% in the prior year. Standard pressure equipment sales
decreased by 63.3% to GBP0.66m from GBP1.80m in the prior year, and
accounted for 13.9% of total sales compared to 16.0% in the prior
year. This year re-billable expenses revenues made up GBP0.25m
compared to GBP0.68m last year for items such as freight, shipping
and equipment hire.
Plexus continued to invest for the future and in its technology
with total R&D spend, excluding test fixtures totalling
GBP0.63m compared to GBP1.86m last year.
Margin
Gross margin reduced to 20.6% (compared to 46.6% in the previous
year). The decline in margin is largely driven by decline in
revenue along with the fixed nature of the depreciation charge at
GBP2.5m. This makes up 66% of the cost of sales balance compared to
42% in the prior year.
Overhead expenses
The financial year to June 2017 has seen the full year benefits
of a number of cost saving initiatives which were identified and
implemented during the prior financial year. These were put in
place to conserve cash and reduce expenditure following the decline
in trading activities and, following the reduction in personnel and
infrastructure related overheads, have resulted in significant cost
savings being made which decreased to GBP7.94m from GBP11.28m in
the previous year, a reduction of 29.6%.
During the year to June 2017 there was a further headcount
reduction programme to "right size" the Group to fit current
trading conditions. Salary staff costs reduced to GBP3.87m from
GBP6.56m, whilst the employee headcount at the year-end was 68
compared to 81 for the prior year, a decrease of 16.0%. All other
categories of overhead expenditure experienced cost savings when
compared to the prior year with the exception being bank charges
following the cost of the renewed the banking facilities in October
2016.
Adjusted EBITDA
The directors use Adjusted EBITDA as a non-GAAP measure to
assess the Group's business. The directors consider Adjusted
EBITDA, approximating as it does to the cash generated by or used
in the business, to be the most appropriate measure of the
underlying performance of the Group's business in the period.
Adjusted EBITDA for the year (before non-recurring restructuring
costs of GBP0.07m) was a loss of GBP2.48m, compared to a loss of
GBP1.56m (before IFRS 2 share based payment charges of GBP0.02m)
the previous year. Adjusted EBITDA is calculated as follows:
2017 2016
GBP'000 GBP'000
Operating (Loss) / profit (7,031) (6,798)
Add back:
-Depreciation 3,438 3,488
-Amortisation 1,034 980
-Restructuring costs 69 755
-Fair value adjustment to asset held for
sale 8 -
-Gain on disposal (1) (6)
-Share based payments charges - 21
Adjusted EBITDA (2,483) (1,560)
Loss before tax
Loss before tax of GBP7.03m compared to a loss last year of
GBP6.92m. The loss was after absorbing depreciation and
amortisation charges which remain in line with last year at
GBP4.47m compared to GBP4.47m for the prior year.
Tax
The Group shows an income tax credit of GBP1.33m for the year
compared to a tax credit of GBP1.13m for the prior year. The income
tax credit for the year is driven by the loss incurred during the
financial period.
The Group has an effective tax rate for the year of 19% (2016:
16%). The effective rate of tax is lower than the current standard
UK corporation rate of 20% as a result of SME enhanced R&D tax
credits, which arise from the Group's ongoing R&D
programme.
EPS
The Group reports basic earnings loss per share of 5.41p
compared to a loss per share of 6.39p in the prior year.
Cash and Statement of Financial Position
The net book value of property, plant and equipment including
items in the course of construction and the property held for sale
at the year-end was GBP12.37m compared to GBP15.57m last year.
Capital expenditure on tangible assets decreased to GBP0.29m
compared to GBP1.96m last year in line with cash conservation
initiatives. The net book value of intangible assets, including IP
rights, R&D and software, decreased by 2.8% to GBP13.68m
compared to GBP14.08m last year. Capital expenditure on intangibles
totalled GBP0.63m compared to GBP1.9m last year, a decrease of
66.8%. Receivables decreased to GBP1.0m compared to GBP1.7m last
year. Net cash closed at GBP6.50m (cash and cash equivalents of
GBP7.18m less bank loans of GBP0.68m compared to net cash of
GBP9.88m last year (cash and cash equivalents of GBP15.86m less
bank loans of GBP5.98m) reflecting net cash outflow for the year of
GBP3.38m (net decrease in cash of GBP8.69m per Statement of Cash
Flows plus net decrease in bank borrowings of GBP5.30m). The
reduction in bank borrowing represents repayment of the GBP5.0m
drawn down revolving credit facility in addition to GBP0.30m of
repayments on the property term loan reducing the balance from
GBP0.98m to GBP0.68m. Banking facilities remain unchanged following
their renewal in October 2016 and comprise of a GBP5m revolving
credit facility in addition to a reducing five year GBP1.5m term
loan (with a current balance of GBP0.68m) which was put in place in
September 2014 to part fund the purchase of the additional building
in Aberdeen and which runs to August 2019. These facilities
combined with the expected cash inflow from the TFMC transaction
and the cash balances held are anticipated to be adequate to meet
current on-going working capital, capital expenditure, R&D and
related project commitments.
Intellectual Property ('IP')
The Group carries in its statement of financial position
goodwill and intangible assets of GBP14.45m, a decrease of 2.7%
from GBP14.85m last year. This represents investment of GBP0.63m
less the annual amortisation charge of GBP0.98m, reflecting the
Group's on-going investment in, and commitment to, the development
of its proprietary POS-GRIP technology, the most important elements
of which continued to be in relation to the POS-GRIP friction-grip
method of engineering and the new Python subsea wellhead. The
Directors have considered whether there have been any indications
of impairment of its IP and have concluded, following a detailed
asset impairment review, that there is no impairment. The Directors
therefore consider the current carrying values to be appropriate.
Indications of impairment are considered annually.
Research and Development
R&D expenditure including patents was reduced by 66.1% year
on year from GBP1.86m to GBP0.63m. This reduction must not be taken
as a sign that R&D ceases to be an important and necessary part
of our activities, as such investment is clearly key to protecting,
developing, and broadening the range of proprietary POS-GRIP
friction-grip method of engineering applications and related IP.
More particularly this reduction reflects the strategy of focusing
on essential R&D as part of our cost control expenditure as
well as the fact that our IP and product development suite has
never been stronger following the completion of a number of R&D
driven projects including the Python subsea wellhead.
IFRS 2 (Share Based Payments)
No IFRS 2 charges have been included in the accounts, in line
with reporting standards following the completion of the vesting
period of all share options. The fair value of share based payments
has been computed independently by specialist consultants and is
amortised evenly over the expected vesting period from the date of
grant. The charge for the year was GBPnil which compares to
GBP0.02m last year.
Dividends
While the Company remains committed to distributing dividends to
its shareholders, the Directors believe that in view of the
continued challenging oil price environment and resulting reduction
in exploration drilling activity, and resultant financial
performance, it is prudent to continue the suspension of the
payment of dividends. The Company will look to reinstate the normal
dividend at the earliest opportunity, and in addition will,
following completion of the TFMC transaction, assess the on-going
capital requirements of the business and if appropriate may
consider paying a proportion of the proceeds to shareholders by way
of a special dividend.
Operations
During the year, the Company's operational focus was centred on
its jack-up exploration business which resulted in a number of
orders and contracts being awarded to Plexus, both within the
reporting period and post period end. In line with the Company's
strategy to expand its geographic reach away from its dominant
position in the North Sea, several of these contracts are for wells
which are located in territories that are being actively targeted
by Plexus. Details of all these contracts are provided below.
In tandem with the ordinary course of business, a number of
strategic initiatives were pursued during the period. These
culminated in the post period end signing of a conditional BPA for
the sale of the jack-up exploration business to TFMC, with whom
Plexus will also at completion enter into a Collaboration Agreement
to explore opportunities for new, safer and more efficient POS-GRIP
technology based applications into significantly larger markets,
particularly within the target applications of production, subsea
and decommissioning.
Contracts announced during the year under review include:
-- January 2017 - Purchase order from Masirah for an exploration well in Oman
-- January 2017 - Four-year framework agreement with Centrica
Norway to supply surface wellhead and mudline equipment services
for jack up exploration wells of all pressure ratings in the
Norwegian sector of the North Sea
-- February 2017 - Extension of an existing agreement with Shell
Brunei to supply both HPHT and standard pressure wellhead systems
and services for three exploration wells in Brunei
-- March 2017 - New customer contract win from Nexen Petroleum
U.K. Limited ('Nexen') a subsidiary of CNOOC Limited for an
exploration well in the Central North Sea
-- April 2017 - First purchase order for Plexus' Tersus(TM) TRT
Mudline Suspension System ('MLS') equipment from LLC Gusar (OOO
Gusar) Ltd ('Gusar'), the Company's partner in Russia
-- May 2017 - Initial purchase order from Aker BP for an exploration well offshore Norway
-- June 2017 - 4 year contract with Maersk Oil North Sea UK
Limited, for the provision of wellhead, mudline suspension systems
and associated services including initial purchase order
Plexus continued to invest in R&D despite the ongoing
challenging trading environment, albeit at a reduced level
excluding test fixtures of GBP0.63m compared to GBP1.86m in the
prior year, a reduction of 66.1%. R&D remains an important
operational activity and underpins and further develops the value
of our IP and ability to extend the range of applications of
POS-GRIP technology. Innovation in the oil and gas industry
continues to be an essential part of developing both cost saving
initiatives and ever safer drilling methods, and Plexus is
confident that it can continue to play an important role in
delivering such solutions whilst raising wellhead standards to a
level that conventional technology cannot reach, such as passing
test standards equivalent to those used for premium couplings.
Staff and staff development continues to be important to the
Group, and following a sustained period of depressed operational
activity there was concern the technical skills of those who fulfil
specific technical roles would diminish and would find it
challenging to perform their role effectively and efficiently when
activity increased again. To ensure this is not the case, a full
review of each individual's abilities was completed during the
second half of the financial year, highlighting areas that have not
been refreshed during low levels of operational activity, and
suitable in-house training modules were made available to ensure
the necessary skill levels were maintained. The review was
completed in February, and in-house training carried out during
March and April. The training programme was received very well by
the technical staff and noted as beneficial and a worthwhile
refresher of the skills they have already developed.
Competency across the business has continued to evolve and
broaden; particularly within workshop and office based staff areas.
The workshop competency system has been developed under the OPITO
standards with a view to being accredited by OPITO. The office
based competency system will not be developed under the OPITO
standard as it is a concise system that supports the requirements
of the ISO9001:2015, which Plexus is currently transitioning to.
Although this system is in its infancy, an action plan is in place
to ensure all staff are under assessment within the first quarter
of 2018.
In light of the increasingly concerning activities and resultant
human misery that have brought about the much needed Modern Slavery
Act 2015, a review of the requirements was carried out and a focus
group was formed (HR, Executive Assistant, Contracts & Supply
Chain) to create a Business Code of Conduct, Supplier Code of
Conduct, Modern Slavery Statement and Whistleblowing procedure
suitable for the business needs. Plexus takes such matters very
seriously, and it is considered good practice that Plexus manages
its supply chain in line with the Modern Slavery Act to support the
legislative requirement placed on the majority of our clients. In
addition, these business tools have proven to be essential in
recent tendering processes as companies' awareness levels about
this pernicious crime increase.
Staffing figures at the end of June 2017 were 68 employees
including 2 international employees, which compares to a total of
81 in the prior year.
Health and Safety is an operational area where Plexus remains
fully committed to delivering the highest practical safety
standards in everything we do each and every day. We continue to
maintain a positive safety culture which is aligned with our
Company Safety Values and are pleased to report our HSE culture
remains strong across the business and this is reflected by our
LTCF and TRCF percentages both being zero, with no major findings
during our most recent LRQA certification surveillance audits set
against the OHSAS 18001:2007 standard.
Quality also remains a key focus in the delivery of our products
and services demonstrated by no major findings in our recent LRQA
ISO 9001:2008 surveillance audit and the successful recertification
of our API monogram licences for 6A and 17D products.
We continue to seek opportunities for continual improvement and
have fully revised our Business Management System not only to
comply with our current certification standards but also to meet
the new ISO 9001:2015 standard. We aim to complete our transition
to this by the end of January 2018 ahead of the September 2018
deadline, again demonstrating our relentless commitment to attain
and sustain the highest standards possible and allow us to respond
quickly to client demands. We recognise it is important that we
maintain our facilities so that they comply with applicable
regulations and equally promote our commitment to the welfare of
our employees. We have just completed several relevant improvement
projects including replacing the Plexus House workshop roofs as
well as modifications to the water supply to comply with the recent
changes to the Scottish Water Bylaws 2014 and The Water Supply
(Water Fittings) (Scotland) Bylaws.
IT services and support is an area that continues to be in the
headlines with increasing levels of online fraud and related
criminality. Plexus is committed to delivering comprehensive and
robust IT systems safely and securely to its employees and business
partners. The IT Department provides technology leadership for
Plexus, including governance, information security, software
development and expertise in deploying modern information
technologies to improve company efficiency, especially during
challenging trading conditions. Plexus relies on its own in-house
developed software systems, the ultimate goal of which is to
provide employees with timely and convenient access to appropriate
information and services, whether sales, cost, or asset related.
The commercial demands of any business drive information technology
needs and the ability to develop in-house solutions allows us to
maximise the productivity of employees and react quickly to
changing business and customer demands.
The ever-changing, and seemingly increasing, risks from cyber
breaches presents an ongoing threat to the security of our systems.
Defending against cyber-attacks and keeping up to date with
evolving policies and regulations is a complex and time-consuming
task. To guarantee that the confidentiality, integrity and
accessibility of information is maintained, Plexus has continually
evolved its security defences to minimise such cyber risks. To
ensure that the Plexus IT infrastructure, systems and data are as
secure as possible Plexus is currently working towards ISO 27001
accreditation, which will help ensure that both internal and
external risks are minimised. Such certification provides customers
and key stakeholders with the confidence that security risks are
taken and addressed seriously.
Strategy and Future Developments
Technology
Plexus' unique and patented POS-GRIP technology involves
applying compressive force to the outside of a wellhead or pipe, to
flex it inwards. As the bore of the vessel moves inwards, it makes
contact with an inner pipe (or hanger) on the inside. Sufficient
contact force is generated to hold the inner member (hanger) in
place through friction between the two components, and creates a
superior metal-to-metal seal. The Company's strategy is primarily
focused on delivering the highest standard of wellhead design for
the upstream oil and gas markets around the world, and one which is
already proven to be uniquely advantageous in terms of safety
features, operational efficiency, and cost savings for jack-up
drilling especially HPHT applications.
POS-GRIP wellhead designs deliver many advantages over
conventional "slip and seal" and "mandrel hanger" wellhead
technologies for surface exploration and land and platform
production applications. These include larger metal-to-metal seal
contact areas, virtual elimination of movement between parts, fewer
components, simplified design and assembly, enhanced corrosion
resistance, simpler manufacture, long term integrity, annulus
management, and reduced installation cost. Key components of Plexus
wellheads can include proprietary superior HG seals; robust
metal-to-metal seals which can be machined directly into the
hanger, and are energised by use of the external POS-GRIP
mechanism.
Plexus' POS-GRIP enabled product suite includes the Python
subsea wellhead as well as the POS-SET Connector(TM) for use in the
growing decommissioning market. Importantly the Python subsea
wellhead eliminates the need for wear bushings, pack-offs,
lock-rings, and lockdown sleeves, whilst delivering instant rigid
lock-down in all directions, fully reversible for ease of workover,
side-tracking or abandonment. These design simplifications and
features not only reduce the risk of installation problems and
safety issues, they also significantly reduce installation time and
the number of trips that are needed such that it has been
independently estimated that up to US$10m of savings are possible
for a deep water well. The POS-SET Connector, which is designed to
re-connect to bare conductor pipe for well re-entry or permanent
abandonment operations, creates a solid connection with reliable
sealing directly against the pipe, and retains bend and load
capabilities at 80% of pipe strength. The directors believe Plexus'
wellhead equipment sets a new standard. Apart from the operational
time saving and related safety benefits, at an engineering level
the Company has scientifically proven that its technology can
uniquely raise the integrity of wellhead testing and sealing to
that of premium couplings, which supports its claim that wellheads
no longer need to be the weak link in the well architecture
chain.
POS-GRIP friction-grip technology has wide ranging applications
both within and outside the oil and gas industry. As POS-GRIP is a
method of engineering and not a product in its own right, where
there is an opportunity for the technology to improve the
performance of conventional products, the Company will look to
integrate POS-GRIP so that the benefits together with HG sealing
can be realised.
Business Model and Markets
The Company is proprietary technology driven and its extensive
patent protected IP and many years' worth of know-how has been
successfully deployed in hundreds of wells around the world. Its
superior performance, safety and operational advantages have given
it an enviable position in the niche jack-up exploration market,
and the directors believe that this success can be leveraged and
extended to the wider energy sector including production, subsea,
geothermal and fracking applications based on its POS-GRIP
technology.
Historically Plexus has focused on supplying adjustable wellhead
equipment and associated running tools on a rental basis for the
relatively niche jack-up exploration drilling in the UK Continental
Shelf ('UKCS') and has achieved a near 100% market share. This
market has over the years expanded into the ECS (Norway,
Netherlands and Denmark) and individual contracts have been secured
as far afield as China, Russia, Egypt, Cameroon, Trinidad,
Venezuela, and Morocco. The exploration wellhead contracts have
been supplied from a rental fleet of owned inventory of which the
majority are for 15,000psi HPHT; as opposed to standard pressure
10,000psi wellheads.
Having secured a leading position in jack-up exploration
drilling, the directors believe Plexus is well placed to pursue its
strategy of breaking into the significantly larger and more
mainstream volume production wellhead and subsea markets both
organically and in conjunction with partners including licensees.
In line with this, the Company announced in September 2017 that it
had been awarded a contract with Centrica North Sea Limited to
supply its POS-GRIP "HG" 10,000psi adjustable production wellhead
for a gas production well in the UK Southern North Sea. Plexus had
previously supplied Centrica with equipment for a number of
exploration wells in the North Sea. This latest order was
particularly encouraging for the Company, as production wellheads
are required for entire field life conditions particularly suited
to POS-GRIP technology and seals, and the size of the market for
production wellheads is many times that of jack-up exploration.
Strategy
Plexus' long-term goal is to establish POS-GRIP technology as a
new industry standard for wellhead and metal sealing designs,
whilst continuing to develop new products, which can also offer
multiple benefits and advantages to the industry in terms of
improved safety, functionality, and cost and time savings. An
example of such extensions for POS-GRIP technology is the Company's
connector technology which is ideal for high integrity, low fatigue
applications. The directors believe wellhead connectors, riser
connectors, subsea jumper connectors, pipeline connectors, tether
tensioners and even vessel mooring connectors can all benefit from
the simplicity of POS-GRIP.
The sale of the Jack-up Business to TFMC represents a clear
endorsement of Plexus' proprietary technology and marks a
significant strategic step for the Company. It realigns Plexus as
an IP-led research and development business and will enable greater
resources and focus on the development of new and existing POS-GRIP
applications outside jack-up drilling, particularly through the
collaboration agreement to be signed with TFMC, which establishes a
framework for the two parties to work together on potential new
applications.
Having proven the significant advantages of Plexus POS-GRIP
wellheads for jack-up exploration applications to a wide range of
mostly international oil companies ('IOCs'), and having completed
the sale of the Jack-up Business to TFMC, Plexus will be able to
focus on extending its business activities into the volume land,
platform and subsea sectors. This strategy will be pursued both
organically (as highlighted by the Centrica production wellhead
order in September 2017) and also through licensees and
partners.
Following the pending completion of the sale of the Jack-up
Business to TFMC, Plexus will be focused on:
1. Continued operation of remaining business, contracts and
products
The Company will continue to focus on current projects which are
not part of the sale, and will pursue the development of
opportunities with existing products such as POS-GRIP "HG"
production wellheads. Plexus will continue to target international
customers in other territories including Gulf of Mexico, India,
Middle East and Russia, where it is thought there will be
opportunities due to ongoing and planned drilling activity. The
recent award of an exploration contract with new customer Rosneft
Vietnam, a subsidiary of leading Russian oil and gas company
Rosneft, is anticipated to help raise the profile of Plexus with
Rosneft and other operators in Russia and the CIS (which is a
territory that Plexus has retained the rights to).
2. Maximisation of Earn-out from the Jack-up Business
The Company intends to prioritise the maximisation of three
years' worth of earn-out revenues from the Jack-up Business through
the provision of, inter alia, sales and technical support to
TFMC.
3. Work with TFMC through the scope of the Collaboration
Agreement and the joint steering committee on key POS-GRIP
products
The Company and TFMC have reviewed certain topics that can be
suited for joint work under the Collaboration Agreement. Should
discussions progress successfully this could lead to further
commercial IP-led opportunities.
4. Design/Development of new and existing POS-GRIP
products/applications
The Company has identified a number of products and applications
which it believes would benefit from the integration of POS-GRIP
technology. The Company intends to selectively apply its resources
to capitalise on these opportunities, examples of which
include:
-- Existing applications of POS-GRIP HG(R) Wellheads, such as
HPHT Production Wellheads and Adjustable Production Wellheads
-- New applications of POS-GRIP HG Wellheads and other IP, such
as land wellheads, fracking heads, geothermal systems and well
abandonment and decommissioning
-- Existing applications for the Python subsea wellheads system,
such as deepwater exploration drilling and HPHT subsea
production
-- Further developments around the Python subsea system, such as
Annulus Access remedial capability and subsea Xmas Trees.
5. Research & Development
Plexus has always been an innovative IP-led business and the
Board intends to devote appropriate resources to continue its
ongoing innovative and proprietary technology driven approach.
Key Performance Indicators
The Directors monitor the performance of the Group by reference
to certain financial and non-financial key performance indicators.
The financial indicators include revenue, EBITDA, profit and loss,
earnings per share and working capital resources and requirements.
The analysis of these is included in the financial results section
of this report. Non-financial indicators include Health and Safety
statistics, equipment utilisation rates, geographical diversity of
revenues and customers, geo political considerations, effectiveness
of various research and development initiatives; for example in
relation to new patent activity and inventions and appropriate
employee headcount numbers and turnover rates.
Following the sale of the jack-up exploration wellhead equipment
and services business described in Note 11 the key performance
indicators of the Group will change to reflect the strategy of the
business in relation to the exploitation of its proprietary
technology, with the focus on non-financial key performance
indicators expected to be on research and development initiatives
and commercialisation objectives.
Principal Risks and Risk Management
There are a number of potential risks and uncertainties that
could have an impact on the Group's performance which include the
following.
(a) Political, legal and environmental risks
Plexus participates in a global market where the exploration and
production of oil and gas reserves and even the access to those
reserves can be adversely impacted by changes in political,
operational, and environmental circumstances. The current global
political landscape continues to demonstrate how any combination of
such factors can generate risks and uncertainties that can
undermine stable trading conditions, such as Iran making efforts to
return to the world hydrocarbon supply stage, America continuing to
aggressively pursue its fracking activities, extreme financial and
economic deterioration in Venezuela, the speed and scale of reform
recently announced in Saudi Arabia and wide-ranging sanctions on
Russia. A specific example of political risk are the aforementioned
sanctions, and in extreme circumstances even regime change or a
military coup. As a supplier to the global oil and gas industry it
is clear that Plexus can be adversely impacted by such events,
which can disrupt the markets and compromise the ability to execute
work for customers and/or collect payment for services performed.
Such risks also extend to legal and regulatory issues and it is
important to understand that these can change at short notice. To
help address and balance such risks, the Group has sought to
broaden its geographic footprint and customer base, as well as
actively looking to forge commercial relationships with larger
industry players.
Looking closer to home, 'BREXIT' continues to generate much
speculation and uncertainty about its timing and eventual impact in
terms of for example staff recruitment from abroad, export
negativity if duties were to apply and potentially volatile
exchange rates. Our current thinking is that staff recruitment when
activity levels pick up is not currently a major concern, and
weaker Sterling actually makes our products and services cheaper to
customers outside of the UK. In addition, some of our sales are in
Euros and this could generate a small currency gain opportunity
when converted to Sterling. Also, as we see our equipment as being
a unique option for customers we would anticipate that BREXIT is
likely to have a lesser impact for Plexus than it may have on other
companies and industries. However, if we need to manufacture more
equipment for rent or sale, the cost of raw material, and in
particular steel may increase if Sterling's weakness continues.
(b) Oil and Gas Sector Trends
It is readily understood that the world continues to move away
from coal as part of the COP21 climate change objectives and the
ongoing need to reduce CO(2) emissions. However, the commercial and
environmental dynamics between traditional hydrocarbons in terms of
coal, oil and gas is not the only trend to consider. New
technologies, particularly in relation to renewables, alternative
energies and developments such as the increasing use of electric
vehicles and corresponding improvements in battery storage life,
wind and wave energy, could all in the future prove very disruptive
to the traditional oil and gas industry and therefore demand for
exploration and production equipment and services.
(c) Technology
The Group is now beginning to turn towards the
commercialisation, marketing and application of its POS-GRIP
friction-grip technology beyond jack-up rental exploration wellhead
equipment, both with regard to expanding into the surface land and
platform production market sector, as well as the subsea market
where the Plexus POS-GRIP Python subsea wellhead offers numerous
operational and performance benefits. Current and future contract
opportunities may be adversely affected by technology related
factors outside the Group's control, especially where new product
developments are concerned. These may include unforeseen equipment
design issues, test delays during a contract and final testing, and
delayed acceptances of deliveries, as well as the slow uptake by
operators which could lead to possible abortive expenditure and
write downs, reputational risk and potential customer claims or
onerous contractual terms. Such risks may materially impact on the
Group. To mitigate this risk, the Group continues to invest in
developing and proving the technology and has a policy of on-going
training of our own personnel and where appropriate our partners
and customers.
(d) Competitive risk
The Group operates in highly competitive markets and often
competes directly with large multi-national corporations who have
greater resources and are more established, and who are more
resilient to extended adverse trading conditions. Major oil service
and equipment company consolidations that have taken place over the
last few years have magnified such issues as competitors reduce in
number but increase in size. Unforeseen product innovation or
technical advances by competitors could adversely affect the Group
and lead to a slower take up of the Group's proprietary technology.
To mitigate this risk Plexus maintains an extensive suite of
patents and trademarks, and actively continues to develop and
improve its IP to ensure that it continues to be able to offer
unique superior wellhead design solutions.
(e) Operational
Plexus, like many other oil service companies, has had to make
significant reductions in its workforce numbers since 2015 when the
oil price and corresponding drilling activity fell significantly.
Therefore, when the anticipated upturn comes in drilling activity,
it is possible that the industry and Plexus could experience
difficulties in rehiring past or new employees and this could
deprive Plexus of the key personnel necessary for expanding
operational activities, as well as research and development
initiatives at the rate that may be required. To help mitigate this
risk Plexus has developed effective recruitment and training
procedures, which combined with the appeal of working in a company
with unique technology and engineering solutions will hopefully
minimise this risk.
(f) Liquidity and finance requirements
In an economic climate that remains in many ways uncertain it
has become increasingly possible for both existing and potential
sources of finance to be closed to businesses for a variety of
reasons that have not been an issue in the past. Some of these may
even relate to the lender itself in terms of its own capital ratios
and lending capacity. Furthermore, after a sustained period of
record low interest rates signs are emerging that the cost of money
will increase and this could also have a negative impact on
business activity. Although access to capital could be an issue,
completion of the disposal of the Plexus jack-up business Plexus
will deliver additional cash to add to its existing reserves. In
addition, the Group successfully renewed bank facilities with Bank
of Scotland.
(g) Credit
The main credit risk is attributable to trade receivables. As
the majority of the Group's customers are large international oil
companies the risk of non-payment is significantly reduced, and
therefore is more likely to be related to client satisfaction
and/or trade sanction issues. Customer payments can involve
extended periods of time especially from countries where exchange
control regulations can delay the transfer of funds outside those
countries. As Plexus begins to establish international licensee
relationships there may be instances whereby certain capital
payments could be due some way into the future and as such greater
credit risk than exists under normal payments terms could apply.
The Group's exposure to credit risk is monitored continuously.
(h) Risk assessment
The Board has established an on-going process for identifying,
evaluating and managing the more significant risk areas faced by
the Group. One of the Board's control documents is a detailed
"Risks assessment & management document" which categorises
risks in terms of - business (including IT), compliance, finance,
cash, debtors, fixed assets, other debtors/prepayments, creditors,
legal, and personnel. These risks are assessed and updated on a
regular basis and can be associated with a variety of internal and
external sources including regulatory requirements, disruption to
information systems including cyber-crime, control breakdowns and
social, ethical, environmental and health and safety issues.
G Stevens
Director
15 November 2017
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2017
Notes 2017 2016
GBP'000 GBP'000
Revenue 1 4,749 11,227
Cost of sales (3,770) (5,994)
Gross profit 979 5,233
Administrative expenses (7,941) (11,276)
Restructuring costs (69) (755)
Operating loss (7,031) (6,798)
Finance income 59 69
Finance costs (61) (187)
Loss before taxation (7,033) (6,916)
Income tax credit 3 1,331 1,126
Loss attributable to the owners of the parent (5,702) (5,790)
Other comprehensive income - -
Total comprehensive income for the year attributable to the
owners of the parent (5,702) (5,790)
Loss per share 4
Basic (5.41p) (6.39p)
Diluted (5.41p) (6.39p)
Consolidated Statement of Financial Position
at 30 June 2017
2017 2016
Notes GBP'000 GBP'000
Assets
Goodwill 767 767
Intangible assets 5 13,678 14,080
Property, plant and equipment 6 11,976 15,567
Deferred tax asset 287 -
Total non-current assets 26,708 30,414
Asset held for sale 7 396 -
Inventories 6,840 6,726
Trade and other receivables 1,008 1,747
Current income tax asset 966 229
Cash and cash equivalents 7,178 15,863
Total current assets 16,388 24,565
Total Assets 43,096 54,979
Equity and Liabilities
Called up share capital 8 1,054 1,054
Share premium account 36,893 36,893
Share based payments reserve 767 766
Retained earnings 2,575 8,277
Total equity attributable to equity holders of the parent 41,289 46,990
Liabilities
Deferred tax liabilities - 468
Bank loans 375 675
Total non-current liabilities 375 1,143
Trade and other payables 1,132 1,546
Bank loans 300 5,300
Total current liabilities 1,432 6,846
Total liabilities 1,807 7,989
Total Equity and Liabilities 43,096 54,979
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
Called Up Share Share Retained Total
Share Premium Based Earnings GBP'000
Capital Account Payments GBP'000
GBP'000 GBP'000 Reserve
GBP'000
Balance as at 30 June 2015 849 20,141 1,862 15,628 38,480
Total comprehensive income for the year - - - (5,790) (5,790)
Share based payments reserve charge - - 21 - 21
Current year credit on share option exercise to share
based payment reserve - - 5 - 5
Transfer of share based payments reserve charge on
exercise of options - - (3) 3 -
Issue of ordinary shares (net of issue costs) 205 16,752 - - 16,957
Net deferred tax movement on share options - - (1,119) - (1,119)
Dividends - - - (1,564) (1,564)
Balance as at 30 June 2016 1,054 36,893 766 8,277 46,990
Total comprehensive income for the year - - - (5,702) (5,702)
Net deferred tax movement on share options - - 1 - 1
Balance as at 30 June 2017 1,054 36,893 767 2,575 41,289
Consolidated Statement of Cash Flows
for the year ended 30 June 2017
Notes 2017 2016
GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (7,033) (6,916)
Adjustments for:
Depreciation, amortisation and impairment charges 4,472 4,471
Gain on disposal of property, plant and equipment (1) (2)
Charge for share based payments - 21
Investment income (59) (69)
Interest expense 61 187
Changes in working capital:
Increase in inventories (114) (175)
Decrease in trade and other receivables 739 5,554
Decrease in trade and other payables (414) (1,750)
Cash (used) / generated from operating activities (2,349) 1,321
Income taxes (paid) / refunded (160) 34
Net cash (used) / generated from operating activities (2,509) 1,355
Cash flows from investing activities
Purchase of intangible assets (632) (1,900)
Purchase of property, plant and equipment (287) (1,956)
Proceeds of sale of property, plant and equipment and intangibles 45 61
Interest received 59 69
Net cash used in investing activities (815) (3,726)
Cash flows from financing activities
Repayment of loans and banking facilities (5,300) (300)
Interest paid (61) (187)
Net proceeds from issue of new ordinary shares - 16,923
Proceeds from share options exercised - 34
Equity dividends paid - (1,564)
Net cash (outflow) / inflow from financing activities (5,361) 14,906
Net (decrease) / increase in cash and cash equivalents (8,685) 12,535
Cash and cash equivalents at 1 July 2016 15,863 3,328
Cash and cash equivalents at 30 June 2017 10 7,178 15,863
Notes to the Consolidated Financial Statements
1. Revenue
2017 2016
GBP'000 GBP'000
By geographical area
UK 475 1,241
Europe 3,099 7,636
Rest of World 1,175 2,350
4,749 11,227
The revenue information above is based on the location of the
customer. Substantially all of the revenue in the current and
previous periods derives from the rental of equipment and the
provision of related services.
2. Segment reporting
The Group derives revenue from the sale of its POS-GRIP
technology and associated products, the rental of wellheads
utilising the POS-GRIP technology and service income principally
derived in assisting with the commissioning and on-going service
requirements of our equipment. These income streams are all derived
from the utilisation of the technology which the Group believes is
its only segment.
Per IFRS 8, the operating segment is based on internal reports
about components of the group, which are regularly reviewed and
used by the board of directors being the Chief Operating Decision
Maker ("CODM").
All of the Group's non-current assets are held in the UK.
The following customers each account for more than 10% of the
Group's revenue:
2017 2016
GBP'000 GBP'000
Customer 1 1,159 3,696
Customer 2 1,706 1,328
Customer 3 691 -
3. Income tax expense
(i) The taxation charge for the year comprises: 2017 2016
GBP'000 GBP'000
UK Corporation tax:
Current tax on income for the year - 5
Adjustment in respect of prior years (526) (383)
(526) (378)
Foreign tax
Current tax on income for the year 2 61
Adjustment in respect of prior years (52) 56
(50) 117
Total current tax credit (576) (261)
Deferred tax:
Origination and reversal of timing differences (1,054) (628)
Short term timing differences - 64
Difference between qualifying fixed assets and capital allowances - (643)
Share based payments charged to the Income Statement - 151
Adjustment in respect of prior years 298 193
Total deferred tax (756) (863)
Total tax credit (1,331) (1,126)
The effective rate of tax is 19% (2016: 16%)
(ii) Factors affecting the tax charge for the year 2017 2016
GBP'000 GBP'000
Loss on ordinary activities before tax (7,033) (6,916)
Tax on (loss) / profit at standard rate of UK corporation tax of 19.75% (2016:
20%) (1,389) (1,383)
Effects of:
Expenses not deductible for tax purposes 229 554
Effect of change in tax rate 114 (61)
Tax adjustments on share based payments (8) 151
Foreign tax rates 2 108
Adjustments in respect of prior year (279) (192)
Group income not subject to tax - (303)
Total tax (credit) / charge (1,331) (1,126)
(iii) Movement in deferred tax (asset)/liability balance 2017 2016
GBP'000 GBP'000
Deferred tax liability at beginning of year 468 212
(Credit) / charge to Statement of Comprehensive Income (756) (863)
Deferred tax movement on share options recognised in equity 1 1,119
Deferred tax (asset)/liability at end of year (287) 468
(iv) Deferred tax (asset)/ liability balance 2017 2016
GBP'000 GBP'000
The deferred tax liability balance is made up of the following items:
Difference between depreciation and capital allowances 643 1,001
Share based payments (96) (88)
Tax losses (705) (445)
Tax provisions (129) -
Deferred tax (asset)/liability at end of year (287) 468
4. Loss per share
2017 2016
GBP'000 GBP'000
Loss attributable to shareholders (5,702) (5,790)
Number Number
Weighted average number of shares in issue 105,386,239 90,597,415
Dilution effects of share schemes 1,108,692 2,135,987
Diluted weighted average number of shares in issue 106,494,931 92,733,402
Basic Loss per share (5.41p) (6.39p)
Diluted Loss per share (5.41p) (6.39p)
Basic loss per share is calculated on the results attributable
to ordinary shares divided by the weighted average number of shares
in issue during the year.
Diluted earnings per share calculations include additional
shares to reflect the dilutive effect of employee share schemes and
share option schemes. As a loss was made in the current year the
option schemes are considered to be anti-dilutive.
5. Intangible fixed assets
Intellectual Patent and Computer Total
Property Other Software GBP'000
GBP'000 Development GBP'000
GBP'000
Cost
As at 30 June 2015 6,440 11,193 294 17,927
Additions - 1,860 37 1,897
Disposals - (4) - (4)
As at 30 June 2016 6,440 13,049 331 19,820
Additions - 632 - 632
As at 30 June 2017 6,440 13,681 331 20,452
Amortisation
As at 30 June 2015 3,021 1,543 196 4,760
Charge for the year 330 612 38 980
On Disposals - - - -
As at 30 June 2016 3,351 2,155 234 5,740
Charge for the year 330 668 36 1,034
As at 30 June 2017 3,681 2,823 270 6,774
Net Book Value
As at 30 June 2017 2,759 10,858 61 13,678
As at 30 June 2016 3,089 10,894 97 14,080
6. Property, plant and equipment
Buildings Tenant Equipment Assets under Motor Total
GBP'000 Improvements GBP'000 Construction Vehicles GBP'000
GBP'000 GBP'000 GBP'000
Cost
As at 30 June 2015 4,379 432 28,544 174 48 33,577
Additions - 168 588 1,200 - 1,956
Transfers - - 1,316 (1,316) - -
Disposals - - (318) - (14) (332)
As at 30 June 2016 4,379 600 30,130 58 34 35,201
Additions - 132 65 90 - 287
Transfers - - 126 (126) - -
Reclassified to assets held for sale (455) - - - - (455)
Disposals - (26) (1,489) - (2) (1,517)
As at 30 June 2017 3,924 706 28,832 22 32 33,516
Depreciation
As at 30 June 2015 558 182 15,650 - 33 16,423
Charge for the year 250 68 3,164 - 6 3,488
On disposals - - (263) - (14) (277)
As at 30 June 2016 808 250 18,551 - 25 19,634
Charge for the year 250 72 3,112 - 4 3,438
On disposals - (26) (1,453) - (2) (1,481)
Reclassified to assets held for sale (51) - - - - (51)
As at 30 June 2017 1,007 296 20,210 - 27 21,540
Net Book Value
As at 30 June 2017 2,917 410 8,622 22 5 11,976
As at 30 June 2016 3,571 350 11,579 58 9 15,567
7. Asset Held for sale
2017 2016
GBP'000 GBP'000
Cost 455 -
Accumulated depreciation (51) -
Net book value 404 -
Fair value adjustment (4) -
Cost of sale (4) -
396 -
The asset held for sale relates to a property that was sold on
14 July 2017. The Group had entered into a sale agreement prior to
the year end. In line with IFRS5 the asset is held for sale at fair
value less costs of sale.
8. Share Capital
2017 2016
GBP'000 GBP'000
Authorised:
Equity: 110,000,000 (2016: 110,000,000) Ordinary shares of 1p each 1,100 1,100
Allotted, called up and fully paid:
Equity: 105,386,239 (2016: 105,386,239) Ordinary shares of 1p each 1,054 1,054
9. Reconciliation of net cash flow to movement in net cash/(debt)
2017 2016
GBP'000 GBP'000
(Decrease)/Increase in cash in the year (3,385) 12,835
Movement in net (debt)/cash in year (3,385) 12,835
Net cash/(debt) at start of year 9,888 (2,947)
Net cash at end of year 6,503 9,888
10. Analysis of net cash/(debt)
At beginning Cash flow At end
of year GBP'000 of year
GBP'000 GBP'000
Cash in hand and at bank 15,863 (8,685) 7,178
Bank loans (5,975) 5,300 (675)
Total 9,888 (3,385) 6,503
11. Subsequent Events
On 19 October 2017 the Group announced the sale of its wellhead
exploration equipment and services business for jack-up
applications (the "Jack-up Business") to FMC Technologies Limited
("TFMC"), a subsidiary of TechnipFMC (Paris:FTI) (NYSE:FTI) one of
the leading oil & gas service and equipment companies (the
"Disposal").
In addition and as part of the Transaction, Plexus, Plexus'
subsidiary POSL and TFMC will also be entering into a Collaboration
Agreement ("CA") which establishes a framework to work together
both on the development of existing POS-GRIP IP for applications
outside of jack-up exploration, as well as future new
technologies.
The Disposal follows the signing of a conditional Business
Purchase Agreement ("BPA") by Plexus, POSL and TFMC. Under the
terms of the BPA, the Plexus Group will receive an initial gross
cash consideration of GBP15,000,000, subject to certain
adjustments, with an additional sum of up to GBP27,500,000 payable
dependent on the future performance of the Jack-up Business during
a three-year earn-out period. The earn-out has the potential to
increase the total cash gross consideration to GBP42,500,000.
The tables below summarise the financial impact of the disposal
on the reported results of the Group:
Year ended 30 June 2017
Disposal Remaining Reported
GBP'000 GBP'000 GBP'000
Revenues 4,545 204 4,749
Loss before taxation (2,312) (4,721) (7,033)
Net assets 13,830 27,459 41,289
Year ended 30 June 2016
Disposal Remaining Reported
GBP'000 GBP'000 GBP'000
Revenues 11,193 34 11,227
Loss before taxation (1,415) (5,501) (6,916)
Net assets 16,208 30,782 46,990
The financial information above does not constitute the
company's statutory accounts for the year ended 30 June 2017 but is
derived from those statements.
The statutory financial statements and this preliminary
statement for the year ended 30 June 2017 were approved by the
Board on 15 November 2017. On the same date the company's auditors,
Crowe Clark Whitehill LLP issued an unqualified report on those
financial statements. The audit report did not include reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying the report or contain a statement under section
498(2) or (3) of the Companies Act 2006.
The financial information for the year ended 30 June 2016 is
derived from the statutory accounts for that year which have been
delivered to the Registrar of Companies. The auditors reported on
those accounts; their report was unqualified and did not draw
attention to any matters be way of emphasis and not contain a
statement under s498(2) or (3) of the Companies Act 2006 or
equivalent preceding legislation. The Company's financial
statements have been prepared in accordance with International
Financial Reporting Standards, as adopted by the EU. A copy of the
statutory accounts will be delivered to the Registrar of Companies
in due course.
The Annual Report will be circulated to all shareholders and
thereafter, copies will be available from the registered office of
the company, 42-50 Hersham Road, Walton-on-Thames, Surrey, KT12
1RZ.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GMMMMGKRGNZZ
(END) Dow Jones Newswires
November 16, 2017 02:00 ET (07:00 GMT)
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