TIDMPOS
RNS Number : 7019G
Plexus Holdings Plc
08 November 2018
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
8 November 2018
Plexus Holdings plc ('Plexus' or 'the Group')
Preliminary Results for the year to 30 June 2018
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 2018.
Financial Results
Following the completion on 1 February 2018 of the sale of
Plexus' wellhead exploration equipment services business for
jack-up applications ('the Jack-up Business') to FMC Technologies
Limited ('TFMC'), a subsidiary of one of the leading oil and gas
service and equipment companies TechnipFMC (Paris:FTI) (NYSE:FTI),
the year-end results and comparative prior year period have been
reported as required on a continuing and a discontinued operations
basis.
-- Continuing operations sales revenue GBP318k (2017: GBP225k)
o Discontinued operations sales revenue GBP3,907k (2017:
GBP4,524k)
-- Adjusted EBITDA on continuing activities (GBP3.74m) loss (2017: GBP3.58m loss)
-- Continuing operations operating loss GBP5,285k (2017: GBP5,275k)
o Discontinued operations operating loss GBP1,593k (2017:
GBP1,757k)
-- Continuing operations operating loss after tax GBP4,694k (2017: GBP4,278k)
o Discontinued operations profit after tax GBP4,322k (2017:
GBP1,424k loss)
-- Basic loss per share from continuing activities (4.45p) (2017: 4.06p loss)
o Basic earnings per share from discontinued activities 4.10p
(2017: 1.35p loss)
-- Net cash of GBP12.9m (2017: net cash GBP6.5m)
-- The Group has GBP2.12m in financial assets, namely high-yield bonds (2017: nil).
-- Whilst the Company remains committed to distributing
dividends to its shareholders, the Directors believe that it is
prudent to continue the suspension of the payment of dividends.
Overview and Corporate Highlights
-- Transformational sale for up to GBP42.5m, less certain
adjustments of Plexus' wellhead exploration and equipment services
business for Jack-up rigs and a Collaboration Agreement signed with
TFMC, a subsidiary of top tier industry supplier TechnipFMC
o Represents major industry recognition of Plexus' POS-GRIP
friction-grip method of engineering, which has been used on over
350 wells worldwide by blue chip customers such as BP, Equinor,
Royal Dutch Shell, Spirit Energy and Total
o As part of the transaction, Plexus and TFMC entered into a
Collaboration Agreement ('CA') which establishes a framework to
work together both on the development of existing POS-GRIP IP
applications outside of jack-up exploration, as well as future new
applications
o Triggers strategic shift in Plexus' business to an IP-led
research and development licensing model focused on rolling out
POS-GRIP applications in sectors outside of jack-up exploration
including surface production, subsea exploration and production and
decommissioning
o Frees up internal resources from the operational management of
the Jack-up Business to developing new products and markets for
POS-GRIP technology and products
o Initial circa GBP14.1m cash consideration from the sale
significantly strengthens cash rich balance sheet, and as part of
the transaction a three year earn-out period was entered into
o Plexus retains licensing rights for the major Russian and CIS
markets
-- Contracts secured for POS-GRIP products outside of jack-up
exploration in line with strategy to focus on extending the
adoption of POS-GRIP technology into new markets - current POS-GRIP
product suite caters for all stages of the cycle from exploration
to production (surface and subsea) to decommissioning:
o September 2017 - first production well order awarded by
long-standing customer Centrica North Sea Limited ('Centrica') now
Spirit Energy, for a gas well in the UK Southern North Sea
o Post period end August 2018 - award of a second rental order
for the POS-SET(TM) Connector from Oceaneering A/S, Norway for well
abandonment operations in the North Sea
-- Recovery in oil prices to circa US$70-80 per barrel level
anticipated to result in pick up in investment and exploration
activity as evidenced by purchase order in September 2017 from new
customer Rosneft (TNK Vietnam B.V.) for the supply of POS-GRIP High
Pressure/High Temperature ("HP/HT") adjustable rental jack-up
wellhead equipment for an exploration well in a new territory
offshore Vietnam
-- Plexus well placed to benefit from an increase in exploration
drilling activity post sale to TFMC via its continued exposure to
jack-up exploration:
o Three year earn-out as part of sale of Jack-up Business to
TFMC up to a maximum additional payment value of GBP27.5m- provides
exposure to TFMC's global reach and relationships
o Licensing Agreement with LLC Gusar (OOO Gusar) Ltd ('Gusar')
covering the major Russian and CIS market which was excluded from
the sale of the Jack-up Business
-- Significant progress made by licensing partner to secure first order in Russian market:
o February 2018 - sale of two POS-GRIP HP/HT rental wellhead
sets and associated equipment and tooling for circa GBP1.4m to
Gusar, Plexus' partner and licensee in Russia, represents a key
milestone ahead of the anticipated securing of a first contract in
Russia
o Post period end - breakthrough agreement signed by Gusar to
supply Gazprom with two sets of its Tersus(TM) - TRT Mudline
Suspension System ('MLS') for gas exploration wells on the Kara Sea
Shelf in 2019
-- Bank facilities available to the Group with the Bank of
Scotland comprise of a reducing five year GBP1.5m term loan (with a
current balance of GBP0.38m) which was put in place in September
2014 to part fund the purchase of a building in Aberdeen and which
runs to August 2019.
Chief Executive Ben van Bilderbeek said:
"The year under review has seen considerable progress made in
delivering our strategy. Notably there has been a step change in
industry recognition of our innovative POS-GRIP technology as well
as orders secured for Plexus products outside of our traditional
jack-up exploration market as well as expansion into new
geographies. Our strategy is centred on rolling out
POS-GRIP-enabled applications in larger market sectors, such as
surface production, subsea, abandonment and in the process
significantly raising standards across the industry, (particularly
in the area of metal-to-metal sealing in the age of gas
exploration, production and consumption), just as our best in class
proprietary wellheads have done for jack-up exploration
drilling.
"The results for the year and the comparative prior year period
have been reported as required on a continuing and a discontinued
operations basis. During the year to June 2018 the discontinued
operation (the Jack-up Business sold to TFMC) continued to be
challenging and generated sales of GBP3.91m compared to GBP4.52m in
the prior year, whereas continuing operations sales revenue
increased 41.3% to GBP318k compared to GBP225k in 2017. Looking
forward, and in terms of industry recognition, the standout event
of the year was undoubtedly the sale of our niche Jack-up Business
to TFMC, a subsidiary of major oil and gas equipment and services
provider TechnipFMC for up to GBP42.5m. Along with the signing of
an agreement with TFMC to collaborate on future applications of
POS-GRIP, our proprietary friction-grip method of engineering, this
represents a major endorsement of our technology from a leading
equipment and services supplier that we have been working hard to
achieve for a number of years. Importantly, it provides us with a
solid platform with which to deliver on our strategy going
forward.
"The Jack-up Business was set up to showcase to the industry
POS-GRIP's capability to deliver the very highest standards of
safety and also metal-to-metal sealing in terms of integrity and
long-term performance in some of the most challenging HP/HT
operating conditions. In this regard, the Jack-up Business has been
highly successful. Over the years, a wide range of blue-chip
operators have used our superior wellheads on over 350 wells
worldwide, most notably the Total-operated Solaris well in 2015
which is believed to be the highest pressure well ever drilled in
the North Sea. Having raised industry standards in jack-up
exploration drilling, we believe POS-GRIP can do the same for
production and subsea drilling, especially wherever long-term
metal-to-metal sealing is required. I believe that our timing could
not be better. As the world increasingly favours gas over dirtier
coal and oil hydrocarbons, the need for best in class gas-proof
equipment, including wellheads, to help address growing concerns
over the effects on the environment of toxic methane leaks from
supply chain operations is becoming all the more critical. The
highest standards of metal-to-metal sealing are essential,
particularly for gas and POS-GRIP is proven to deliver. I believe
that the TFMC Collaboration Agreement shows that a top tier oil and
gas services company shares our confidence.
"Our Jack-up Business also served another purpose. The revenues
generated through the rental of POS-GRIP wellheads and associated
equipment have enabled us to fund extensive R&D and the
development of POS-GRIP applications for markets outside of jack-up
exploration. As a result, following the sale to TFMC, not only do
we have a cash rich balance sheet, but we also have a suite of
POS-GRIP-enabled applications that we can now focus on promoting.
Our existing family of POS-GRIP products caters for all stages of
the hydrocarbon well cycle from exploration to production to
abandonment. All offer operators superior performance and cost
savings, especially subsea where our simple design eradicates the
need for a number of trips which can potentially save millions of
dollars per well. We are therefore confident that the award of a
purchase order for one of our production wellheads from Centrica in
September 2017, and the post period end award of a second order for
our POS-SET Connector for abandonment operations in the North Sea
bodes well for the future and will be followed by additional
contracts going forward. Our overriding aim is to build a portfolio
of multiple earnings streams for the Company on a product by
product basis, either organically or with partners including
licencees.
"Another potentially important revenue generator is our
exclusive licensing agreement with independent Russian oil and gas
equipment providers, Gusar and CJSC Konar, to manufacture and rent
Plexus' proprietary jack-up exploration wellhead and associated
equipment within the Russian Federation and the other CIS states.
This agreement falls outside the scope of the sold Jack-up
Business, and significant progress is being made. Specifically, the
sale of two wellhead systems and associated equipment to Gusar for
circa GBP1.4 million to seed an initial rental inventory of
wellheads is a key step towards POS-GRIP equipment being used in
Russia for shallow water jack-up gas exploration drilling for the
first time. This was followed by the post period end announcement
that Gusar has secured an initial agreement to supply Gazprom with
two sets of its Tersus - TRT Mudline Suspension System ('MLS') for
the construction of shallow water exploration gas wells on the Kara
Sea Shelf in 2019. Both are breakthrough developments and we
continue to work with Gusar to secure a follow on first contract
for our wellheads in Russia.
"Our Russian licensing agreement serves as a template for
Plexus' business model post the TFMC sale. For a company of our
size with a ground-breaking technology, securing licensing
agreements with established partners offers a capital light route
to monetising our intellectual property ('IP'). Without the need to
fund the Jack-up Business, the majority of revenues generated from
licensing agreements and the ongoing earn-out as part of the deal
with TFMC can be used to further grow our POS-GRIP family of
products. We are focused on signing similar licensing agreements
with suitable partners both on a geographic and a product
application basis. Alternatively, we will consider selling
individual products to larger groups, particularly if we believe
they will benefit from being part of a turnkey solution.
"The sale of our Jack-up Business and the signing of a
Collaboration Agreement with TFMC represent major strategic
milestones that have enabled Plexus to move onto the next phase of
its growth strategy, one which is focused on developing and
rolling-out POS-GRIP-enabled applications across the energy sector.
Today Plexus has a strong balance sheet, a track record of
delivering superior equipment to a blue-chip roster of customers
and industry recognition of our technology from a top tier
supplier. Together with a more positive market backdrop fuelled by
a circa 50% plus increase in the price of Brent Crude over the last
12 months, an uptick in activity and investment across the sector,
and in particular gas' growing status as the preferred hydrocarbon
fuel, Plexus is well placed to benefit. Furthermore, other industry
dynamics provide additional encouragement, particularly in relation
to subsea. Wood Mackenzie recently reported that 'For all big
majors, deep-water is a growth element', and that 'Deepwater is
where all the big discoveries are made...But is only accessible for
those with cash reserves and technical capability'. I look forward
to providing further updates on our progress as we focus on
monetising our technology and delivering significant value for
shareholders."
For further information please visit www.plexusplc.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
Summary of Results for the year ended 30 June 2018
2018 2017
GBP'000 GBP'000
Revenue (continuing operations) 318 225
Adjusted EBITDA (continuing operations) (3,737) (3,578)
Operating Loss (continuing operations) (5,285) (5,275)
Loss after taxation (continuing operations) (4,694) (4,278)
Profit / (loss) after taxation (discontinued operation) 4,322 (1,424)
Profit / (loss) after taxation (combined) 372 (5,702)
Basic loss per share (pence) (continuing operations) (4.45p) (4.06p)
Basic earnings / (loss) per share (pence) (discontinued operation) 4.10p (1.35p)
Chairman's Statement
Business progress
The Summary of Results table reflects the significant corporate
changes that took place during the year under review with
discontinued activity revenues accounting for GBP3.91m, down from
GBP4.52m, whilst revenues from continuing operations were up 41.3%
to GBP318k from GBP225k. Cash balances improved significantly, and
at the year-end were GBP13.3m with a further GBP2.1m invested in
financial assets, namely high-yield bonds. This compares to last
year-end cash balance of GBP7.2m. The sale of our Jack-up Business
to TFMC, is what has driven these changes, and underlines a major
strategic shift in our business model from that of a jack-up
exploration rental wellhead operating company to an IP-led research
and development licensing business focused on applications beyond
jack-up such as surface production and subsea wellhead supply.
Up until February 2018, a large proportion of the Company's time
and cash resources were taken up by the everyday management of our
jack-up exploration wellhead rental business. From a standing
start, and under our watch, over 350 jack-up exploration wells were
drilled by blue chip operators all over the world using our
best-in-class POS-GRIP wellheads. Proven to provide superior
performance, reliability and safety in the field, whilst at the
same time delivering considerable savings for operators, our
wellheads have been deployed in some of the most challenging
environments, specifically in terms of ultra-high temperatures and
pressures. As well as generating cash for the Company, the Jack-up
Business was set up to showcase and prove to the industry the
nature and advantage of our ground-breaking technology. As the sale
to TFMC demonstrates, we have clearly achieved this goal.
Now, following the sale of the Jack-up Business, Plexus can
revert to focusing on what it does best - developing applications
based on our proprietary POS-GRIP technology for use in the larger
market segments within the energy industry. We believe that our
patented HG metal-to-metal sealing technology will play an
important role in delivering this strategy, specifically where
gas-proof sealing capabilities are required, an area that the
industry, regulators, and scientists are now calling for across the
supply chain from the wellhead through to consumption. We intend to
achieve this both independently and, where appropriate, with
partners. Thanks to the Collaboration Agreement we signed with
TFMC, which represents a major endorsement of our friction-based
method of engineering from a top three circa US$12 billion oil and
gas services provider, we now have the attention of a top tier
partner. Once new products are ready for roll-out, we will then
look to monetise these either via licensing agreements, similar to
the one we have in place in Russia and the CIS, or potentially via
an outright sale, just as we did with the Jack-up Business.
Importantly, Plexus already has developed several
POS-GRIP-enabled products outside of jack-up exploration which have
been successfully used by blue chip operators out in the field,
including our production wellhead and POS-SET Connector for the
abandonment market. As exploration and production activity across
the industry plays catch-up with oil prices that have rallied by
more than 50% over the last 12 months, we will continue to pursue
contracts for both these products and also for our Python(R) subsea
wellhead. In parallel with this, we will be looking to secure
additional licensing agreements and outright sales both on a
geographic and product level, as we focus on fully monetising our
technology to fund further R&D and product roll-out.
Post period end progress continued to be made in terms of
continuing operations. In August 2018 Plexus was awarded a second
order for the POS-SET Connector from Oceaneering A/S Norway for
well abandonment operations in the North Sea, and in September 2018
a breakthrough agreement was signed by our licencee Gusar to supply
Gazprom with two sets of Tersus-TRT Mudline Suspension Systems for
gas exploration in shallow water wells on the Kara Sea Shelf in
2019. It is anticipated that Gazprom will place an inaugural
wellhead order in due course.
Overview
In recent years, our POS-GRIP technology has raised performance,
reliability and safety standards for wellheads and associated
equipment used in jack-up exploration drilling. When a major
operator recently issued a new set of higher test and performance
standards for the industry, POS-GRIP wellheads were the first, and
to date as far as we are aware are the only ones, to have exceeded,
let alone pass them without exceptions. Following the Macondo
tragedy in 2010, our growing reputation for supplying the industry
with best-in-class wellheads, led a group of leading operators to
approach us to develop a subsea wellhead based on POS-GRIP. This
resulted in the launch of our Python subsea wellhead in September
2015. In the same year, Total elected to drill the Solaris well,
believed to be the highest pressure well ever drilled in the North
Sea with a POS-GRIP exploration wellhead. The common thread behind
all the above is that as oil and gas companies increasingly explore
in ever more challenging environments, and environmental
considerations become increasingly important to address climate
change, they are looking to and are having to deploy the best
technology available. When it comes to metal-to-metal sealing, as
we have demonstrated many times over, we believe POS-GRIP is
starting to establish itself as the go-to technology solution.
POS-GRIP was designed by Plexus to raise wellhead standards for
HP/HT applications, and by default for standard pressure
operations. It has proved itself as being able to equal or exceed
the standard of premium couplings, thereby overcoming the
shortcomings that can be demonstrated to be associated with
conventional wellhead technology. POS-GRIP is a friction-grip
method of engineering which can be applied to a diverse range of
tubular connections. By applying an external hydraulic force to
squeeze housing until it engages a special-design end connection
(casing or tubing hanger in wellheads), a gripping force is
generated which initially eliminates assembly tolerances and
eventually merges the two members with such force that, for
practical purposes, the parts become one. The process is accurately
controlled by hydraulic pressure, is calibrated to deliver
monitored results and occurs within the elastic limits of material,
so that the connection is reversible.
Our friction-grip technology enables design improvements to be
made that cannot be matched by conventional technologies. Most
importantly from a risk-analysis perspective, POS-GRIP technology
limits the number of seals and leak paths. For example, the number
of leak paths past a hanger with integral annular seals is halved,
as only one contact area exists between hanger and housing. No
penetrations are required to energise the system, and conventional
outlet connections can be made redundant by alternative annulus
pressure management procedures. This is a major departure from
conventional technologies which typically are comprised of many
more individual components, each of which has the potential to
compromise seal integrity. Importantly this method of engineering
also delivers a lifetime gas-proof metal seal solution which we
believe is the only true long-term wellhead metal seal available to
the industry.
POS-GRIP wellheads and products can be used on a variety of oil
and gas applications, not just jack-up exploration but also
production, abandonment and subsea operations, areas where we
already have products developed or in development. Following the
sale of the Jack-up Business in February 2018, we are now able to
focus on winning additional contracts for our existing product
suite. Progress made to date has been encouraging. In September
2017, we secured a purchase order from Spirit Energy, a subsidiary
of Centrica to supply our POS-GRIP "HG" 10,000psi adjustable
production wellhead for a gas well in the UK Southern North Sea.
This was followed post period end in August 2018 with the award of
a second order for the POS-SET Connector(TM) from Oceaneering A/S,
Norway for well abandonment operations in the North Sea.
As with our jack-up exploration equipment, the production
wellhead and the POS-SET Connector provide operators with best in
class and innovative solutions for both the large and lucrative
production market, as well as for abandonment operations, an area
of the energy sector which we believe has significant growth
potential as ageing wells reach the end of their lives.
Encouragingly, the Chancellor in the recent budget launched a call
for evidence on how to establish Scotland as a global hub for
decommissioning and this is expected to attract billions in
investment every year. In response the industry's trade body said
that oil companies are expected to submit more than one hundred
decommissioning plans over the next two years, and that in the next
ten years oil companies are likely to spend GBP23.4bn closing
wells.
Other POS-GRIP products within our portfolio include the
potential for the subsea and surface interface points for HP/HT
dual marine risers, which provide a safer, technically superior and
cost-efficient solution for use on jack-up rigs; an innovative
HP/HT Tie-Back connector product; and a well tree product. This,
however, is not the extent of POS-GRIP's potential reach. Wherever
metal-to-metal sealing is required, we are confident POS-GRIP can
raise standards and optimise performance. This opens a plethora of
new sub-sectors within the broader energy industry for Plexus to
explore, such as geothermal and gas storage, and potential
structural applications in the renewable energy sectors of wave
energy and wind turbines. Following the sale of our Jack-up
Business, we now have the resources in place to pursue applications
in these markets and more, both independently and with partners
such as TFMC.
In the meantime, Plexus will continue to receive revenues from
contracts secured for POS-GRIP wellheads used in jack-up
exploration. As part of the three year earn-out agreed with TFMC,
Plexus stands to receive a third of rental revenues generated from
the Jack-up Business up to a cap of GBP27.5 million. Furthermore,
the sale to TFMC excludes the Russian and CIS states where we
already have a licensing agreement in place with Gusar and Konar,
two established oil and gas suppliers in what is one of the three
largest hydrocarbon producing areas in the world.
Since the licensing agreement with Gusar and Konar was signed in
2016, we have been working hard with our partners to secure a first
contract for our POS-GRIP equipment. As we found in other parts of
the world, establishing POS-GRIP as the go-to technology is not
just a matter of educating operating companies on the performance
and cost-saving benefits that our equipment offers. Operators'
inclination to award one-stop turnkey contracts also must be
overcome. Over time we successfully achieved this in the North Sea
where, prior to the downturn, Plexus became the dominant supplier
of wellhead equipment to the HP/HT market and so we are confident
that POS-GRIP equipment will soon gain traction in the important
Russian market. With this in mind, we are encouraged by the
progress made to date, particularly the GBP1.4 million sale of
wellhead equipment to our Russian partner to kick-start its
inventory, a necessary pre-curser to being awarded a first
contract. This proved to be the case as post period end in
September 2018, Gusar secured a breakthrough contract to supply
Gazprom with two sets of its Tersus - TRT Mudline Suspension System
('MLS') for the construction of shallow water exploration gas wells
on the Kara Sea Shelf in 2019.
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
year that continued to remain challenging for not only Plexus but
also the wider oil and gas industry. This trading environment led
to Plexus, like many other E&P and service companies having to
restructure and reduce staff numbers and overheads, and make a
strategic decision to dispose of its niche jack-up exploration
wellhead activities (with the exception of Russia and the CIS).
Such measures were regrettable where job losses were concerned, but
was strategically important, and I now look forward to an
increasing level of activity, particularly in relation to our
production wellhead applications, and I am confident that this will
be positive for our existing staff, and for employment
opportunities in general.
Outlook
For the first time since 2014, the publication of this annual
report coincides with a more favourable market backdrop, both at
the structural and cyclical level: structural as a result of the
ongoing shift towards cleaner fossil fuels such as natural gas,
which plays to the strengths of our best in class technology;
cyclical following the unwinding of what proved to be a persistent
and hard to shift supply glut which led to a collapse in the oil
price, exploration drilling activity and capital expenditure
levels. Furthermore, following the painful realignment to lower oil
prices and lower activity, participants operating at all levels of
the oil and gas supply chain, from exploration and production
companies to specialist and turnkey service providers, have emerged
from the downturn with cost bases much better able to withstand
volatile oil prices. A leaner and fitter industry, a structural
shift toward gas, a pickup in sentiment and investment, and
improving demand/supply fundamentals, combine to make the outlook
section of this latest report a more positive read for Plexus
shareholders than has been the case in recent years. It is such
market factors that can act as a 'pull marketing' mechanism for
proprietary technology like ours, and I am confident that this will
work to Plexus' commercial advantage over the coming years.
In terms of the cycle, correcting markets tend to overshoot in
both directions: on the way down as well as on the way up. There is
evidence to suggest that an overdone downturn effect has occurred
this time around. As PwC states in its Oil and Gas Trends 2018-19
Report: "After several years of oversupply, the oil and gas
industry could very well be moving headlong into a supply crunch.
This may seem hard to imagine, given the ramping up of U.S. oil
production and the burgeoning sense of optimism that is sweeping
the sector. In general, the industry feels much healthier than it
did 12 months ago. The price of oil has rebounded. After appearing
limited to a range between the mid-$40s and $50 per barrel (bbl),
Brent crude is now trading above $70 (at the time of writing). The
industry is thus recovering from the brutal last few years of weak
prices, enforced capital discipline, portfolio realignments, and
productivity efficiencies."
In the same report, PwC notes how the recovery in oil prices is
translating into a pickup in investment and activity: "global
upstream capital expenditure, which dropped nearly 45 percent
between 2014 and 2016 is now forecast to rise 6 percent
year-on-year in the medium term. Oil and gas rig activity levels
are rising, driven by the North American market, and major projects
are being approved. To name a few examples: BP went ahead with the
second phase of Mad Dog, a floating production platform, in the
Gulf of Mexico. Shell reached a final decision to invest in the
Penguins field redevelopment, its first new staffed installation in
the northern North Sea in almost 30 years. Exploration is on the
rise again for the first time since the global recession." The IEA
further reports and cautions in its World Energy Outlook that
following years of sharp retrenchment, there is much ground to make
up: "the world needs to find an additional 2.5 million bbls/d of
new production each year, just for conventional output to remain
flat".
Following the severe downturn, the uptick in exploration
activity and investment is welcome news for all companies operating
in the sector. What is even more encouraging however is that at the
same time, long-running structural themes have not only gained
momentum but have been propelled into the mainstream. In its
report, PwC acknowledges the major challenges confronting the
industry: "In short, while the supply glut may have ended, its
after effects will continue. In the short term, companies must
maintain capital discipline and the focus on productivity
improvements and applying new technology. In the long term, they
need to make their portfolios profitable against low break-even
prices. Moreover, they'll need to figure out how to future-proof
their overall portfolio, and make it secure amid the transition to
a lower carbon world."
The very definition of the term 'the transition to a lower
carbon world' rightly implies that simply switching on 'overnight'
new sources of renewable energy is not an option. Fossil fuels will
also have a major role to play for many years if not decades to
come. Favouring cleaner hydrocarbons such as natural gas over
dirtier fossil fuels such as coal can significantly lower harmful
emissions: on a CO2 emitted per unit of energy output or heat
content basis, the EIA has estimated natural gas emits 117 pounds
of CO2 per million British thermal units ('Btu') of energy,
compared to 228.6 pounds of CO2 emitted by coal; 161.3 pounds of
CO2 from diesel fuel and heating oil; and 157.2 pounds from
gasoline. Numbers such as these help to explain the rapid increase
in demand for natural gas in recent years. As Jillian Ambrose, the
Daily Telegraph's Energy Editor, wrote in August 2018: "Liquefied
natural gas, or LNG, is now the world's fastest-growing source of
energy. The boom in trade has kick-started trillions of dollars of
investment in export projects in the US, Qatar and Australia to
meet the growing needs of super-consumers in China and Europe...The
IEA expects Chinese gas demand to grow by 60pc between 2017 and
2023, as it scrambles to reduce choking air pollution by switching
from coal to gas."
To satisfy the world's fast-growing appetite for gas, leading
operators are pivoting towards gas. Arguably Royal Dutch Shell led
the way with its GBP41bn acquisition of BG Group in 2015; Total has
spent US$1.5bn to acquire Engie's (previously GDF Suez) LNG
business and at the same time took a 10% interest in an Arctic LNG
project; meanwhile Petronas has acquired a 25% interest in a Royal
Dutch Shell LNG project in Canada. To underline this trend, in an
interview with the Daily Telegraph, Royal Dutch Shell's Maarten
Wetselaar put the recent deal-making into context: "Since the start
of the century, the number of countries importing LNG has
quadrupled, while the number of countries supplying LNG has almost
doubled. The demand for LNG has gone up during that same period
from 100m to nearly 300m tons a year and is expected to keep
growing".
Critically however there is a major threat to natural gas' green
credentials: gas and by default methane leaks. As the FT's Ed
Crooks wrote in June 2018: "Gas-fired power plants produce much
lower carbon dioxide emissions than coal-fired plants for the same
electricity generation, but methane leakage cuts that advantage and
could even wipe it out altogether." The FT was commenting on a
report in the journal Science titled 'Assessment of methane
emissions from the U.S. oil and gas supply chain' which estimates
that methane leaks from the US oil and gas industry are around 60%
higher than government numbers. According to the FT, the study
concluded that "other research had underestimated the scale of
methane leakage by missing large escapes when equipment
malfunctions...The scale of methane leakage from wells, processing
plants and pipelines is central to the debate over switching from
coal to gas for power generation. Methane is the principal
component of natural gas and is a potent contributor to global
warming." The need for gas-proof technologies and equipment has
clearly never been greater.
In recognition of the scale of the problem, the industry is
taking leaks seriously. A number of operators have publicly set
targets to reduce the amount of gas that escapes from their
operations. As Bob Dudley, BP's CEO, was reported as saying, "Some
people may not be aware of the benefits of gas. Others see the
benefits but are genuinely concerned about methane emissions.
That's a legitimate concern and we share it - in fact, we're in
action." According to a spokesman for the Environmental Defence
Fund, a group which works with companies to improve environmental
performance: "We have a big problem... The good news is that it is
an addressable problem, which can be tackled in very cost-effective
ways." We believe that one obvious and cost-effective way is to use
better sealing technology to prevent leaks. Step-up POS-GRIP and
its HG metal-to-metal seals. As detailed earlier, our
friction-based method of engineering offers a far superior solution
to containing gas than conventional technologies can offer. As we
have proven many times over out in the field, Plexus provides a
metal-to-metal sealing solution that not only can prevent wellhead
leaks, but also offers operators considerable time and cost
savings. Our technology can be used on a variety of oil and gas
applications and has been successfully installed and used on
ultra-high pressure and temperature projects to 20,000 psi at 375
F. Furthermore, standard HG metal-to-metal seals are as easy to use
on low pressure oil applications as on high pressure methane gas
service projects, either on the surface or subsea.
Interestingly, in September the Independent Energy Standards
Corporation ('IES'), an independent ratings and analytics company
for event risk and responsibility in the oil and gas industry,
announced the completion of its first transaction under its IES
TrustWell(TM) Responsible Gas Program. This looks at the ability to
source gas responsibly, and in line with this evaluates producing
wells and well sites in terms of risks and impacts including
emissions, methane leaks, spills, well integrity, water sourcing,
and others. As part of the programme, IES assigns each well either
a Silver, Gold, and Platinum rating and is open to both natural gas
producers and purchasers. Speaking about the first transaction,
Jory Caulkins, IES' Chief Executive Officer said, "This is an
important precedent which demonstrates the growing demand from gas
purchasers and end consumers for responsible gas and energy. For
the first time, natural gas buyers have a credible, independent and
comprehensive way to source responsibly developed natural gas as
part of their energy mix via the TrustWell(TM) Responsible Gas
Program." We believe that as well as individual wells, it would
make sense to go a step further and that having equipment items
certified for leak proof performance would be a logical extension.
If and when this happens, we are confident our equipment would
command the highest rating.
Offering the best solution is one thing, but getting it to
market is another, especially for a small company such as
ourselves. The sale of our Jack-up Business to TFMC promises to be
the game-changer we have been working towards since our inception.
Not just because it provides us with industry validation of our
technology from a top tier supplier or that it significantly
strengthened our already cash rich balance sheet. The sale frees up
resources which enables our management and technical teams to
expand our POS-GRIP family of products and at the same to further
engage with potential partners, licensees, customers and even
acquirers. Above all, just as our Licensing Agreement in Russia did
in 2015, the sale to TFMC demonstrates that we have multiple routes
to market available to us. We are focused on capitalising on these
opportunities to raise industry standards, help the industry
minimise methane leaks and at the same time monetise the
substantial potential of POS-GRIP for the benefit of all our
shareholders.
J Jeffrey Thrall
Non-Executive Chairman
7 November 2018
Strategic Report
Principal Activity
The Group markets oil and gas industry equipment that utilises
its patented friction grip method of engineering, including
wellheads and connectors known as 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 several important advantages to operators,
particularly for HP/HT applications and can include improved
technical performance, improved integrity of metal seals,
significant installation time savings, reduced operating costs and
enhanced safety. The year under review was dominated by the sale of
the Company's niche jack-up exploration wellhead rental operations
to a division of leading oil and gas service and equipment provider
TechnipFMC.
The sale marks a strategic shift in Plexus' operations to a
predominantly engineering and IP-led product design, development
and licensing business although the Company 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. In addition, Plexus has upside exposure to jack-up
exploration drilling activity via a three year earn-out arrangement
with TFMC, which was part of the terms of the sale agreement. The
Company is now focused on pursuing the much larger surface
production market, the growing abandonment market and in due course
the subsea market. To these ends, on 25 September 2017, Plexus
secured a production equipment order from Spirit Energy for a gas
production well in the UK Southern North Sea and post period end,
in August 2018, it announced a purchase order for its POS-SET
Connector from Oceaneering A/S, Norway for well abandonment
operations in the North Sea.
The Directors believe that the Company's proprietary technology
has additional wide-ranging applications both within and outside
the oil and gas industry. It is therefore focused on developing
additional POS-GRIP-enabled applications for new markets both
independently and with partners including TFMC where in tandem with
the sale of the Jack-up Business, Plexus signed a Collaboration
Agreement with TFMC which envisages the two parties working
together to develop new POS-GRIP products.
Financial Results
Revenue
Continuing revenue for the year was GBP318k, an increase of
41.3% from GBP225k in the previous year. The increase in continuing
sales revenue is a result of the Group moving towards alternative
revenue streams following the sale of the Jack-up Business, in
particular production wellheads and the POS-SET Connector. Other
payables include GBP773k of deferred income which will be
recognised in the following accounting period, of this balance
GBP574k relates to production related sales.
Plexus continued to invest for the future and in its technology
with total R&D spend GBP0.23m compared to GBP0.63m last
year.
Margin
Gross margin on continuing operations reduced to 8.8% (compared
to 20% in the previous year). The decline in margin is largely
driven by decline in continuing rental revenue, falling from
GBP119k in 2017 to GBPnil in 2018 and the fixed nature of the
costs.
Overhead expenses
Continuing activities administrative expenses are broadly in
line with the prior year with expenditure of GBP5.31m (2017:
GBP5.32m). Within this total the continuing salary component
remained the largest at GBP2.53m which is a 4.5% increase compared
to last year's total cost of GBP2.42m.
Adjusted EBITDA
The Directors use Adjusted EBITDA on continuing operations as a
non-GAAP measure to assess the Group's business. Directors consider
Adjusted EBITDA on continuing operations, which approximates the
operational 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, given the continuing business will
be the focus of the Group going forward.
Adjusted EBITDA on continuing operations for the year was a loss
of GBP3.74m, compared to a loss of GBP3.58m in the previous year.
Adjusted EBITDA on continuing operations is calculated as
follows:
2018 2017
GBP'000 GBP'000
Operating loss (5,285) (5,275)
--------- --------
Add back:
--------- --------
-Depreciation 737 805
--------- --------
-Amortisation 898 885
--------- --------
-Fair value adjustment to asset held for
sale - 8
--------- --------
-Gain on disposal (87) (1)
--------- --------
Adjusted EBITDA on continuing operations (3,737) (3,578)
--------- --------
Loss before tax
Loss before tax on continuing operations of GBP5.25m compared to
a loss last year of GBP5.28m. The loss on discontinued operations
before adding the gain on sale of the discontinued operation of
GBP5.83m was GBP1.59m compared to a loss of GBP1.76m in the
previous year.
Tax
The Group shows a total income tax credit of GBP0.65m for the
year compared to a tax credit of GBP1.33m for the prior year. The
income tax credit has been split between continuing activities
(GBP0.55m, 2017: GBP1m) and discontinued activities (GBP0.09m,
2017: GBP0.33m). The income tax credit for the year is driven by
the loss incurred during the financial period.
EPS
The Group reports basic earnings loss per share on continuing
activities of 4.45p compared to a loss per share of 4.06p in the
prior year. The basic earnings per share on discontinued activities
of 4.10p, the calculation of which includes the GBP5.83m gain on
disposal of the Jack-up Business, compared to a loss per share of
1.35p 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 GBP4.00m compared to GBP12.37m last year.
Capital expenditure on tangible assets increased to GBP0.45m
compared to GBP0.29m last year. During the year assets, including
the asset held for sale at the prior period reporting date, with a
NBV of GBP6.77m were disposed of. The net book value of intangible
assets, including IP rights, R&D and software, decreased by
15.3% to GBP12.24m compared to GBP14.45m last year. Capital
expenditure on intangibles totalled GBP0.23m compared to GBP0.63m
last year. Receivables increased to GBP11.23m compared to GBP1.0m
last year. Net cash closed at GBP12.92m (cash and cash equivalents
of GBP13.30m less bank loans of GBP0.38m compared to net cash of
GBP6.50m last year (cash and cash equivalents of GBP7.18m less bank
loans of GBP0.68m) reflecting net cash inflow for the year of
GBP6.42m (net increase in cash of GBP6.12m per Statement of Cash
Flows plus net decrease in bank borrowings of GBP0.30m). The
reduction in bank borrowing represents GBP0.30m of repayments on
the property term loan reducing the balance from GBP0.68m to
GBP0.38m. It should also be noted that the Group has invested a
further GBP2.12m in high yield bonds that can be traded at any time
for cash, these are included in non-current financial investments
in the statement of financial position. Banking facilities comprise
of a reducing five year GBP1.5m term loan (with a current balance
of GBP0.38m) 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 future
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 GBP12.24m, a decrease of 15.3%
from GBP14.45m last year. This movement represents investment of
GBP0.23m less the annual amortisation charge of GBP0.98m and less
the disposal of intangible assets which exclusively related to the
disposed Jack-up business with a NBV of GBP1.46m.
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 has reduced from GBP0.63m
in 2017 to GBP0.23m in 2018. 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.
Following the sale of the Jack-up Business it is likely that there
will be an increase in R&D investment to increase the Group's
product offering as it enters new target markets.
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 and is amortised evenly over the
expected vesting period from the date of grant. The charge for the
year was GBPnil which compares to GBPnil last year.
Dividends
While the Company remains committed to distributing dividends to
its shareholders, the Directors believe that it is prudent to
continue the suspension of the payment of dividends. The Company
will look to reinstate the normal dividend at the appropriate time
and after on-going assessment of capital requirements of the
business as well as potential investment opportunities.
Operations
During the first half of the year, the Company's operational
focus was centred on its Jack-up Business. In September 2017 the
Company secured a contract with new customer Rosneft (TNK Vietnam
B.V), a subsidiary of leading Russian oil and gas company, Rosneft,
for Plexus' POS-GRIP HP/HT adjustable rental exploration wellhead
equipment for an exploration well offshore Vietnam. However, in
October 2017 the Company announced the conditional sale of the
Jack-up Business to TFMC, and in February 2018 all the conditions
were subsequently satisfied, and the transaction was successfully
completed.
The sale of the Jack-up Business did not include the Russian and
CIS markets where Plexus already has a licensing agreement in place
with Russian oil and gas service providers, Gusar and Konar. In
February 2018, the Company announced the sale of two POS-GRIP
18-3/4" rental wellhead sets and associated mudline equipment and
tooling to Gusar for circa GBP1.4m. The wellheads will serve as the
basis for Gusar's POS-GRIP rental exploration wellhead inventory
and are planned to be used for gas exploration drilling within the
Russian Federation. Plexus is working closely with Gusar to secure
a first contract in the Russian and CIS markets.
Beyond jack-up exploration, the Company continues to market its
POS-GRIP-enabled equipment, particularly its production and subsea
wellheads, and its POS-SET Connector for abandonment operations. In
September 2017, Plexus announced it had been awarded a contract
with Spirit Energy to supply its POS-GRIP HG 10,000psi adjustable
production wellhead for a gas production well in the UK Southern
North Sea. The Spirit purchase order is in line with the Company's
strategy to extend the application of its POS-GRIP technology
beyond jack-up exploration. Plexus has previously supplied
wellheads for production wells, including on the BP Amethyst gas
field in the Southern North Sea in 2006. Following the sale of the
Jack-up Business, the large production market is now an area of
focus for the Company.
Plexus continued to invest in R&D despite the ongoing
challenging trading environment, albeit at a reduced level
excluding test fixtures of GBP0.23m compared to GBP0.63m in the
prior year, a reduction of 63.5%. 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 initiatives were an important part of operations during
the year, and as part of the sale of the Jack-up Business to TFMC,
a consultation with employees was undertaken, resulting in 31
employees transferring under TUPE to TFMC. This process was viewed
as a success with job losses from the transaction being minimal. To
ensure continued efficiency, as part of the Management of Change
process, a gap analysis was conducted to review personnel
resources, training requirements and implement the appropriate
measures for the remaining Plexus workforce.
Staff development continues to be a significant focus and to
support this, a formal Training Plan process has been developed and
launched. The Training Plan allows Supervisors and Managers to
document the identification and closure of skills gaps or training
needs of an employee, and provides clear evidence of informal, "on
the job" type training, which can often be overlooked.
The restructuring of the business has created an opportunity to
review and improve the OPITO accredited competency system, allowing
the technical standards to better reflect the equipment operated
and to be more closely aligned with the strategy of the business
going forward. Following this review of the standards, Plexus will
also conduct an evaluation of the in-house training modules to
ensure they continue to provide the necessary underpinning
knowledge and skills which is required of those fulfilling
technical roles. In light of the review of the existing competency
system and the reduced headcount, plans to implement the
office-based competency framework have been postponed until
2019.
Staffing figures at the end of June 2018 were 35 employees
including 2 international employees, which compares to a total of
68 in the prior year.
Health and Safety is a pivotal part of the business and remains
at the centre of everything we do. Plexus remains fully committed
to continually improving safety standards and the safety culture
across the business, this is reflected in the business being lost
time injury (LTI) free for the third consecutive year, and the lost
time case frequency (LTCF) and total recordable case frequency
(TRCF) percentages remaining at zero. Plexus also retained OHSAS
18001:2007 accreditation during the recent surveillance audit with
no major findings being raised.
As part of the Group's continued commitment to provide staff
with suitable work and welfare facilities, Plexus is currently
working on several site improvement projects including the
relocation of the workshop and R&D testing facilities to better
fit the business going forward following the sale of the Jack-up
Business to TFMC.
Quality remains an integral focus for Plexus, ensuring the Group
consistently provides products and services that meet customers'
requirements. December 2017 saw a smooth transition to ISO
9001:2015 and in February 2018 Plexus successfully completed the
recertification audit of the API Monogram Licences for 6A and 17D
products.
Following the sale of the exploration Jack-up Business to TFMC,
Plexus conducted a full review of the Business Management System
ensuring it met the requirements of the Group going forward whilst
also identifying any areas requiring improvement.
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. During these challenging times for the
oil and gas industry Plexus has continued to develop its in-house
systems to ensure the Company is able to react swiftly to changing
market requirements.
With major cyber-attacks increasingly on the rise, the ongoing
risk to Plexus as with other companies increases year on year.
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 all cyber risks.
To ensure that the Plexus IT infrastructure, systems and data
are as secure as possible Plexus is currently working to the ISO
27002 standard and will, soon work towards achieving ISO 27001
accreditation. This will give added confidence to both customers
and key stakeholders that Plexus takes security risks seriously and
has put sufficient measures in place to deal with such risks.
Strategy and Future Developments
Technology
Plexus' proprietary 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 HP/HT applications, and which will now focus on
production and subsea wellheads as well as other initiatives such
as a POS-GRIP Crown Plus and POS-GRIP Lateral Trees.
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
gas-proof 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 also includes the Python
subsea wellhead as well as the POS-SET Connector 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 over ten days of savings per well can
be achieved in deep-water under certain conditions which, depending
on water depth Plexus estimates would result in a saving of over
$10m for the operator. 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 and delivers a new standard. Apart from the
operational time saving and related safety benefits, at an
engineering level the Company has demonstrated that its technology
can 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 organically or in conjunction with partners.
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 led to the
Company becoming established initially as a leading equipment and
services provider to the niche jack-up exploration market. The
Directors believe that following the sale of the Jack-up Business
to TFMC that this success can be replicated 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
exploration wellhead equipment and associated running tools on a
rental basis for the relatively niche jack-up exploration drilling
market in the UK Continental Shelf ('UKCS'), achieving a near 100%
market share. Over the years, Plexus' equipment has been deployed
in the ECS (Norway, Netherlands and Denmark) as well as China,
Russia, Egypt, Cameroon, Trinidad, Venezuela, and Morocco. The
exploration wellhead contracts were supplied from a rental fleet of
owned inventory of which the majority are for 15,000psi HP/HT; and
the remainder are 10,000psi wellheads.
Following the sale of the Jack-up Business to TFMC, 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
strategy, 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 several 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
metal 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 enables greater
resources and focus on the development of new and existing POS-GRIP
applications outside jack-up drilling, including through the
collaboration agreement 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 is now focused on
extending its business activities into the volume land, platform
and subsea sectors. This strategy will be pursued both organically
(as highlighted by the Spirit Energy production wellhead order in
September 2017) and also through licensees and partners.
Following the completion of the sale of the Jack-up Business to
TFMC in February 2018, Plexus is focused on:
(a) Continued operation of remaining business, contracts and
products
The Company will continue to focus on current projects which are
not part of the sale to TFMC and will pursue the development of
opportunities with existing and new products such as POS-GRIP HG
production wellheads. Plexus will continue to target international
customers in territories including Gulf of Mexico, India, Middle
East and Russia, where it is thought there will be opportunities
beyond jack-up drilling. In addition, it is hoped that 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).
(b) 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.
(c) 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
such initiatives progress successfully this could lead to further
commercial IP-led opportunities.
(d) Design/Development of new and existing POS-GRIP products/applications
The Company has identified several 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 Wellheads, such as HP/HT
Production Wellheads and Adjustable Production Wellheads
-- New applications of POS-GRIP 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 deep-water exploration drilling and HP/HT subsea
production
-- Further developments around the Python subsea system, such as
Annulus Access remedial capability and subsea Xmas Trees.
(e) 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, cash balances, 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 Business described in Note 4
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 focus for example 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 together with recent events in
Turkey 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 is seeking to broaden its geographic footprint and
customer base, as well as actively looking to forge commercial
relationships with large 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 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, although of course the converse is
true. 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 and other climate change objectives
in relation to the ongoing need to urgently reduce CO2 and CH4
(methane) 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. It is however
also recognised that the world will need hydrocarbons as an energy
source, and in particular gas for many years to come.
(c) Technology
The Group is now focusing on 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 target 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
performance of the Group. To help 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. This risk has
become more concentrated over the past few years as the large oil
service companies have merged. These major oil service and
equipment company consolidations that have taken place over the
last few years have therefore magnified such issues as competitors
reduce in number but increase in size reach. 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 over the past few
years as a result of a lower oil price and corresponding reduction
in drilling activity. 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 such risks.
(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 begin to increase, and this could also have a negative
impact on business activity. Although access to capital could be an
issue, the successful completion of the disposal of the Jack-up
Business delivered additional cash to add to existing reserves. In
addition, the Group maintains 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 potentially
therefore 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
7 November 2018
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2018
Notes 2018 2017
GBP'000 GBP'000
Revenue 1 318 225
------ --------- ---------
Cost of sales (290) (180)
------ --------- ---------
Gross profit 28 45
------ --------- ---------
Administrative expenses (5,313) (5,320)
------ --------- ---------
Operating loss (5,285) (5,275)
------ --------- ---------
Finance income 73 59
------ --------- ---------
Finance costs (37) (61)
------ --------- ---------
Loss before taxation (5,249) (5,277)
------ --------- ---------
Income tax credit 3 555 999
------ --------- ---------
Loss after taxation from continuing operations (4,694) (4,278)
------ --------- ---------
Profit / (loss) after taxation from discontinued operations 4 4,322 (1,424)
------ --------- ---------
Loss for year (372) (5,702)
------ --------- ---------
Other comprehensive income - -
------ --------- ---------
Total comprehensive income for the year attributable to the owners of the parent (372) (5,702)
------ --------- ---------
(Loss) / earnings per share 5
------ --------- ---------
Basic from continuing operations (4.45p) (4.06p)
------ --------- ---------
Diluted from continuing operations (4.45p) (4.06p)
------ --------- ---------
Basic from discontinued operations 4.10p (1.35p)
------ --------- ---------
Diluted from discontinued operations 4.08p (1.35p)
------ --------- ---------
Consolidated Statement of Financial Position
at 30 June 2018
2018 2017
Notes GBP'000 GBP'000
------ -------- --------
Assets
------ -------- --------
Goodwill 767 767
------ -------- --------
Intangible assets 6 11,469 13,678
------ -------- --------
Property, plant and equipment 7 4,004 11,976
------ -------- --------
Non-current financial assets 8 2,124 -
------ -------- --------
Deferred tax asset 3 984 287
------ -------- --------
Other receivables 6,337 -
------ -------- --------
Total non-current assets 25,685 26,708
------ -------- --------
Asset held for sale 9 - 396
------ -------- --------
Inventories 1,871 6,840
------ -------- --------
Trade and other receivables 4,888 1,008
------ -------- --------
Current income tax asset 414 966
------ -------- --------
Cash and cash equivalents 13,296 7,178
------ -------- --------
Total current assets 20,469 16,388
------ -------- --------
Total Assets 46,154 43,096
------ -------- --------
Equity and Liabilities
------ -------- --------
Called up share capital 10 1,054 1,054
------ -------- --------
Share premium account 36,893 36,893
------ -------- --------
Share based payments reserve 674 767
------ -------- --------
Retained earnings 2,295 2,575
------ -------- --------
Total equity attributable to equity holders of the parent 40,916 41,289
------ -------- --------
Liabilities
------ -------- --------
Other non-current liabilities 493 -
------ -------- --------
Bank loans 75 375
------ -------- --------
Total non-current liabilities 568 375
------ -------- --------
Trade and other payables 4,370 1,132
------ -------- --------
Bank loans 300 300
------ -------- --------
Total current liabilities 4,670 1,432
------ -------- --------
Total liabilities 5,238 1,807
------ -------- --------
Total Equity and Liabilities 46,154 43,096
------ -------- --------
Consolidated Statement of Changes in Equity
for the year ended 30 June 2018
Called Up Share
Share Share Based
Capital Premium Payments Retained
GBP'000 Account Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
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
----------- ---------- ---------- ----------- ----------
Total comprehensive income for the year - - - (372) (372)
----------- ---------- ---------- ----------- ----------
Net deferred tax movement on share options - - (1) - (1)
----------- ---------- ---------- ----------- ----------
Reallocation following lapse / expiry / forfeit of
share options - - (92) 92 -
----------- ---------- ---------- ----------- ----------
Balance as at 30 June 2018 1,054 36,893 674 2,295 40,916
----------- ---------- ---------- ----------- ----------
Consolidated Statement of Cash Flows
for the year ended 30 June 2018
Notes 2018 2017
GBP'000 GBP'000
Cash flows from operating activities
------ --------- ---------
Loss before taxation from continuing activities (5,249) (5,277)
------ --------- ---------
Profit / (loss) before taxation from discontinued activities 4,232 (1,757)
------ --------- ---------
Loss before tax (1,017) (7,034)
------ --------- ---------
Adjustments for:
------ --------- ---------
Depreciation, amortisation charges 3,030 4,472
------ --------- ---------
Gain on disposal of property, plant and equipment (87) (1)
------ --------- ---------
Gain on sale of discontinued operation (5,825) -
------ --------- ---------
Fair value adjustment on financial assets 21 -
------ --------- ---------
Investment income (73) (59)
------ --------- ---------
Interest expense 37 61
------ --------- ---------
Changes in working capital:
------ --------- ---------
Decrease in inventories (1,860) (114)
------ --------- ---------
(Increase) / decrease in trade and other receivables (1,377) 739
------ --------- ---------
Increase / (decrease) in trade and other payables 2,667 (413)
------ --------- ---------
Cash used in operating activities (4,484) (2,349)
------ --------- ---------
Income taxes refunded / (paid) 500 (160)
------ --------- ---------
Net cash used from operating activities (3,984) (2,509)
------ --------- ---------
Cash flows from investing activities
------ --------- ---------
Funds invested in financial instruments (2,145) -
------ --------- ---------
Net initial proceeds from sale of discontinued operation 14,050 -
------ --------- ---------
Associated costs on sale of discontinued operation (1,585) -
------ --------- ---------
Purchase of intangible assets (231) (632)
------ --------- ---------
Purchase of property, plant and equipment (447) (287)
------ --------- ---------
Proceeds of sale of property, plant and equipment 329 45
------ --------- ---------
Net proceeds from sale of asset held for sale 395 -
------ --------- ---------
Interest received 73 59
------ --------- ---------
Net cash generated / (used) in investing activities 10,439 (815)
------ --------- ---------
Cash flows from financing activities
------ --------- ---------
Repayment of loans and banking facilities (300) (5,300)
------ --------- ---------
Interest paid (37) (61)
------ --------- ---------
Net cash outflow from financing activities (337) (5,361)
------ --------- ---------
Net increase / (decrease) in cash and cash equivalents 6,118 (8,685)
------ --------- ---------
Cash and cash equivalents at 1 July 2017 7,178 15,863
------ --------- ---------
Cash and cash equivalents at 30 June 2018 12 13,296 7,178
------ --------- ---------
Notes to the Consolidated Financial Statements
1. Revenue
2018 2017
GBP'000 GBP'000
By geographical area
--------- ---------
UK 269 185
--------- ---------
Europe - 2
--------- ---------
Rest of World 49 38
--------- ---------
318 225
--------- ---------
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 continuing revenue:
2018 2017
GBP'000 GBP'000
Customer 1 230 167
--------- ---------
Customer 2 49 38
--------- ---------
Customer 3 39 -
--------- ---------
3. Income tax expense
(i) The taxation charge for the year comprises: 2018 2017
GBP'000 GBP'000
UK Corporation tax:
------------------------------------------------ --------- ---------
Current tax on income for the year - -
------------------------------------------------ --------- ---------
Adjustment in respect of prior years (434) (526)
------------------------------------------------------ --------- ---------
(434) (526)
------------------------------------------------------ --------- ---------
Foreign tax
------------------------------------------------ --------- ---------
Current tax on income for the year 45 2
------------------------------------------------------ --------- ---------
Adjustment in respect of prior years 440 (52)
------------------------------------------------------ --------- ---------
485 (50)
------------------------------------------------------ --------- ---------
Total current tax charge / (credit) 50 (576)
------------------------------------------------------ --------- ---------
Deferred tax:
------------------------------------------------ --------- ---------
Origination and reversal of timing differences (690) (1,054)
------------------------------------------------------ --------- ---------
Adjustment in respect of prior years (6) 299
------------------------------------------------------ --------- ---------
Total deferred tax (696) (755)
------------------------------------------------------ --------- ---------
Total tax credit (645) (1,331)
------------------------------------------------------ --------- ---------
The effective rate of tax is 19% (2017: 19%)
------------------------------------------------ --------- ---------
Tax credit on discontinued activities (90) (332)
------------------------------------------------------ --------- ---------
Tax credit on continuing activities (555) (999)
------------------------------------------------------ --------- ---------
Total tax credit (645) (1,331)
------------------------------------------------------ --------- ---------
(ii) Factors affecting the tax charge on continuing activities for the year 2018 2017
GBP'000 GBP'000
Loss on ordinary activities before tax (5,249) (5,277)
-------------------------------------------------------------------------------------------- --------- ---------
Tax on (loss) / profit at standard rate of UK corporation tax of 19% (2017: 19.75%) (997) (1,042)
-------------------------------------------------------------------------------------------- --------- ---------
Effects of:
------------------------------------------------------------------------------------- --------- ---------
Expenses not deductible for tax purposes 259 172
-------------------------------------------------------------------------------------------- --------- ---------
Effect of change in tax rate 112 86
-------------------------------------------------------------------------------------------- --------- ---------
Tax adjustments on share-based payments 70 (6)
-------------------------------------------------------------------------------------------- --------- ---------
Adjustments in respect of prior year 1 (209)
-------------------------------------------------------------------------------------------- --------- ---------
Group income not subject to tax - -
------------------------------------------------------------------------------------- --------- ---------
Total tax credit on continuing activities (555) (999)
-------------------------------------------------------------------------------------------- --------- ---------
(iii) Movement in deferred tax (asset)/liability balance 2018 2017
GBP'000 GBP'000
Deferred tax (asset) / liability at beginning of year (287) 468
--------------------------------------------------------------------- --------- ---------
Credit to Statement of Comprehensive Income (696) (756)
--------------------------------------------------------------------- --------- ---------
Deferred tax movement on share options recognised in equity (1) 1
--------------------------------------------------------------------- --------- ---------
Deferred asset at end of year (984) (287)
--------------------------------------------------------------------- --------- ---------
(iv) Deferred tax asset balance 2018 2017
GBP'000 GBP'000
The deferred tax liability balance is made up of the following items:
------------------------------------------------------------------------ --------- ---------
Difference between depreciation and capital allowances 854 643
------------------------------------------------------------------------------- --------- ---------
Share based payments (27) (96)
------------------------------------------------------------------------------- --------- ---------
Tax losses (1,811) (705)
------------------------------------------------------------------------------- --------- ---------
Tax provisions - (129)
------------------------------------------------------------------------------- --------- ---------
Deferred tax asset at end of year (984) (287)
------------------------------------------------------------------------------- --------- ---------
4. Discontinued Operations
On 1(st) February 2018 the Group sold its Jack-up Business to
TFMC for an initial gross consideration of GBP15m, with an
additional sum of up to GBP27.5m payable dependent on the future
performance of the Jack-up Business during a three year earn-out
period.
Based on current revenue forecasts provided by TFMC, the
earn-out has been accrued at GBP8,839k, GBP6,337k of this balance
is receivable in a period greater than one year and has been
included in non-current assets.
Included in the consideration adjustment is a balance of
GBP986k, which relates to the refurbishment of the sold rental
fleet which is deductible from the earn-out payments. Half of this
balance (GBP493k) is repayable in a period greater than one year
and is included within other non-current liabilities.
The gain on sale on disposal of discontinued operation was
determined as follows:
2018 2017
GBP'000 GBP'000
Initial gross consideration received 15,000 -
--------- ---------
Accrued consideration 8,840 -
--------- ---------
Consideration adjustment (2,695) -
--------- ---------
Total consideration 21,145 -
--------- ---------
Net assets disposed
--------- ---------
Equipment (6,122) -
--------- ---------
Assets under consideration (5) -
--------- ---------
Motor vehicles (3) -
--------- ---------
Intellectual property (706) -
--------- ---------
Patent and other development (750) -
--------- ---------
Inventories (5,957) -
--------- ---------
Trade and other payables (400) -
--------- ---------
Associated cost of sale (1,377) -
--------- ---------
(15,320) -
--------- ---------
Gain on disposal of discontinued operation 5,825 -
--------- ---------
The gain on sale of the Jack-up Business did not give rise to a
corporation tax charge.
The loss after tax from discontinued operation was calculated as
follows:
2018 2017
GBP'000 GBP'000
Revenue 3,907 4,524
--------- ---------
Expenses (5,500) (6,281)
--------- ---------
Loss before tax of discontinued operations (1,593) (1,757)
--------- ---------
Income tax credit 90 333
--------- ---------
Loss after tax of discontinued operations (1,503) (1,424)
--------- ---------
Profit / (Loss) after taxation from discontinued operations 4,322 (1,424)
The Statement of cash flows includes the following amounts
related to discontinued operations:
2018 2017
GBP'000 GBP'000
Operating activities (231) (747)
--------- ---------
Investing activities 12,424 (155)
--------- ---------
Financing activities - -
--------- ---------
Net cash generated / (used) from discontinued activities 12,193 (902)
--------- ---------
5. Loss per share
2018 2017
GBP'000 GBP'000
Loss attributable to shareholders - continuing operations (4,694) (4,278)
------------ ------------
Profit / (loss) attributable to shareholders - discontinued operations 4,322 (1,424)
------------ ------------
Loss attributable to shareholders (372) (5,702)
------------ ------------
Number Number
------------ ------------
Weighted average number of shares in issue 105,386,239 105,386,239
------------ ------------
Dilution effects of share schemes 486,979 1,108,692
------------ ------------
Diluted weighted average number of shares in issue 105,873,218 106,494,931
------------ ------------
(Loss) / earning per share
------------ ------------
Basic Loss per share for continuing operations (4.45p) (4.06p)
------------ ------------
Diluted Loss per share for continuing operations (4.45p) (4.06p)
------------ ------------
Basic Loss per share for discontinued operations 4.10p (1.35p)
------------ ------------
Diluted Earning per share for discontinued operations 4.08p (1.35p)
------------ ------------
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 share option schemes. As a
loss was made on continuing operations for the current year the
option schemes are considered to be anti-dilutive.
6. Intangible assets
Intellectual Patent and Computer Total
Property Other Software GBP'000
GBP'000 Development GBP'000
GBP'000
Cost
------------- ------------- ---------- ---------
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
------------- ------------- ---------- ---------
Additions - 231 - 231
------------- ------------- ---------- ---------
Disposals (1,840) (1,088) - (2,928)
------------- ------------- ---------- ---------
As at 30 June 2018 4,600 12,824 331 17,755
------------- ------------- ---------- ---------
Amortisation
------------- ------------- ---------- ---------
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
------------- ------------- ---------- ---------
Charge for the year 291 665 28 984
------------- ------------- ---------- ---------
On disposals (1,134) (338) - (1,472)
------------- ------------- ---------- ---------
As at 30 June 2018 2,838 3,150 298 6,286
------------- ------------- ---------- ---------
Net Book Value
------------- ------------- ---------- ---------
As at 30 June 2018 1,762 9,674 33 11,469
------------- ------------- ---------- ---------
As at 30 June 2017 2,759 10,858 61 13,678
------------- ------------- ---------- ---------
Patent and other development costs are internally generated.
7. 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 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
---------- -------------- ---------- -------------- ---------- ---------
Additions - 10 198 222 17 447
---------- -------------- ---------- -------------- ---------- ---------
Transfers - - 229 (229) - -
---------- -------------- ---------- -------------- ---------- ---------
Disposals (317) - (23,750) (5) (32) (24,104)
---------- -------------- ---------- -------------- ---------- ---------
As at 30 June 2018 3,607 716 5,509 10 17 9,859
---------- -------------- ---------- -------------- ---------- ---------
Depreciation
---------- -------------- ---------- -------------- ---------- ---------
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
---------- -------------- ---------- -------------- ---------- ---------
Charge for the year 225 85 1,733 - 3 2,046
---------- -------------- ---------- -------------- ---------- ---------
On disposals (74) - (17,628) - (29) (17,731)
---------- -------------- ---------- -------------- ---------- ---------
As at 30 June 2018 1,158 381 4,315 - 1 5,855
---------- -------------- ---------- -------------- ---------- ---------
Net Book Value
---------- -------------- ---------- -------------- ---------- ---------
As at 30 June 2018 2,449 335 1,194 10 16 4,004
---------- -------------- ---------- -------------- ---------- ---------
As at 30 June 2017 2,917 410 8,622 22 5 11,976
---------- -------------- ---------- -------------- ---------- ---------
8. Financial assets
2018 2017
GBP'000 GBP'000
Financial instruments held at fair value 2,124 -
--------- ---------
2,124 -
--------- ---------
The financial asset relates to cash invested in high-yield bonds
held at fair value in the statement of financial position. The
bonds can be redeemed for cash at any time. Included in the
statement of comprehensive income is a write-down in the carrying
value of the financial asset of GBP21k. The fair value of the
investment is evaluated by reviewing a portfolio summary at the
reporting date.
9. Asset held for sale
2018 2017
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 in the prior year related to a property
that was sold on 14 July 2017. The Group had entered into a sale
agreement prior to the 2017 year end. In line with IFRS 5 the asset
was held for sale at fair value less costs of sale.
10. Share Capital
2018 2017
GBP'000 GBP'000
Authorised:
--------- ---------
Equity: 110,000,000 (2017: 110,000,000) Ordinary shares of 1p each 1,100 1,100
--------- ---------
Allotted, called up and fully paid:
--------- ---------
Equity: 105,386,239 (2017: 105,386,239) Ordinary shares of 1p each 1,054 1,054
--------- ---------
11. Reconciliation of net cash flow to movement in net cash/(debt)
2018 2017
GBP'000 GBP'000
Increase / (decrease) in cash in the year 6,418 (3,385)
--------- ---------
Movement in net cash/(debt) in year 6,418 (3,385)
--------- ---------
Net cash at start of year 6,503 9,888
--------- ---------
Net cash at end of year 12,921 6,503
--------- ---------
12. 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 7,178 6,118 13,296
------------- ---------- ---------
Bank loans (675) 300 (375)
------------- ---------- ---------
Total 6,503 6,418 12,921
------------- ---------- ---------
The financial information above does not constitute the
company's statutory accounts for the year ended 30 June 2018 but is
derived from those statements.
The statutory financial statements and this preliminary
statement for the year ended 30 June 2018 were approved by the
Board on 7 November 2018. On the same date the company's auditors,
Crowe U.K. L.L.P 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 2017 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, Elder House, St Georges Business Park Brooklands Road,
Weybridge Surrey, KT13 0TS.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UGGWPGUPRGBM
(END) Dow Jones Newswires
November 08, 2018 02:01 ET (07:01 GMT)
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