07:00 Thu 16 Nov 2017
Plexus Holdings Plc - Preliminary Results for the year to 30 June 2017
16
Preliminary Results for the year to
Financial Results
• Sales revenue
• Adjusted EBITDA
• Operating loss
• Loss after tax
• Basic loss per share 5.41p (2016: 6.39p loss per share)
• Net cash
Whilst the Company remains committed to distributing dividends to its shareholders, the Directors believe that in view of the challenging oil price environment and resultant financial performance it is prudent to continue the suspension of the payment of dividends. The Company will look to reinstate the dividend at the earliest opportunity.
Overview
· Plexus' proprietary POS-GRIP friction grip technology wellhead equipment enabled the Company to win new business despite continuing subdued levels of exploration activity as a result of the extended period of low oil prices:
o Purchase order from operator Masirah for an exploration well in
o Four-year framework agreement with
o Extension of an existing agreement with Shell Brunei to supply both HPHT and standard pressure wellhead systems and services for three exploration wells in
o New customer contract win from
o First purchase order for the Company's Tersus™ TRT Mudline Suspension System ('MLS') equipment from LLC Gusar (OOO Gusar) Ltd ('Gusar'), Plexus' licensing partner in
o Initial purchase order from Aker BP for an exploration well offshore
o Four-year contract with
· Additional orders won post period end:
o First order from Rosneft (TNK Vietnam B.V) ('Rosneft Vietnam'), a subsidiary of leading Russian oil and gas company, Rosneft for exploration well offshore
o First production well order from long-standing customer
Corporate Highlights
· Post period end, a conditional Business Purchase Agreement ('BPA') signed for the sale of Plexus' jack-up exploration business to a subsidiary of top three global oil and gas services supplier TechnipFMC ('
· Collaboration Agreement to be signed with
· Current product suite based on POS-GRIP technology can cater for all stages of the cycle from exploration to production to decommissioning
· Cash rich, debt free balance sheet due to be further strengthened following completion of the sale of the jack-up exploration business to
· Three-year earn-out up to a maximum additional payment value of
· Bank facilities available to the Group with the
For further information please visit www.posgrip.com or contact:
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Tel: 020 7795 6890 |
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Tel: 020 7795 6890 |
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Cenkos Securities PLC |
Tel: 0131 220 9100 |
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Tel: 020 7236 1177 |
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Tel: 020 7236 1177 |
Chief Executive
"Following the post period end signing of a conditional BPA to sell our jack-up exploration business to leading oil and gas service and equipment company TechnipFMC, this will be our last set of accounts as a company whose core business is the supply of rental wellhead equipment and associated running tools to the niche jack-up exploration market. Going forward, Plexus will be 100% focused on replicating within the wider energy industry the success our proprietary POS-GRIP technology has had in jack-up exploration. This has seen our equipment deployed by blue-chip operators such as BP, Centrica, Maersk, Royal Dutch Shell, Statoil and Total on over 350 wells worldwide and in the process set new higher standards in terms of performance and safety. We already have a suite of POS-GRIP products designed for use in other energy sub-sectors and, with this in mind, the recent announcement of a first contract with Centrica to supply our production wellhead equipment bodes well for the future.
"Results are, by their nature, backward-looking, and our full year financial performance goes a long way to justifying the decisive action we have taken in recent years to realign our cost base to the lower oil price environment and the associated significant reduction in the levels of capital investment seen across the upstream industry, particularly in relation to exploration drilling. According to the
"Thanks to a cash rich, debt free balance sheet; a streamlined cost base; a fully paid up inventory of jack-up exploration wellheads; and long-standing relationships with a blue-chip customer base, Plexus has been positioned to withstand a lower oil price. Prior to the downturn, we had become the dominant supplier of HPHT wellheads in the
"The sale of our jack-up exploration business to top tier oil and gas service and equipment provider,
"The timing of the transaction with
Summary of Results for the year ended
|
2017 £'000 |
2016 £'000 |
Revenue |
4,749 |
11,227 |
Adjusted EBITDA |
(2,483) |
(1,560) |
Operating loss |
(7,031) |
(6,798) |
Loss after taxation |
(5,701) |
(5,790) |
Basic (Loss) / earnings per share (pence) |
(5.41) |
(6.39) |
Chairman's Statement
Business progress
This year's results reflect the continued downturn in the industry, as operators' level of capital expenditure, particularly in the area of exploration drilling activity, remained depressed. Plexus' traditional markets have for many years been the UKCS and the ECS, and whereas in the prior year European revenues remained more resilient than the
Globally the
Post period end we believe the reputation that Plexus has been able to establish for its innovative wellhead equipment led to the announcement last month of the intended sale of the Plexus jack-up exploration rental wellhead business activities to a division of TechnipFMC for up to
Overview
Plexus is first and foremost an innovative and specialist IP-led business. Our ground-breaking POS-GRIP friction grip technology, which was originally sponsored by Exxon, has been used on over 350 exploration wells across the world by a blue-chip roster of operators. Exploration wells however, are just one of a number of applications our POS-GRIP friction-based method of engineering can be deployed on, both within the oil and gas sector and the wider energy industry.
Our objective has always been to develop and commercialise a suite of best-in-class POS-GRIP products serving a wide range of markets, each of which can offer the customer the same range of benefits in terms of performance, reliability, cost saving and safety. If any piece of equipment incorporates POS-GRIP technology, we want customers to immediately see it as best in class. To get to this point, we first had to ensure the industry recognised the superior nature and cost effectiveness of our equipment compared to the competition. The post period end sale of our jack-up exploration business to
With technology lying at the heart of what we do, a natural model for the Company to adopt is the capital light, low cost and high margin licensing route, widely adopted to good effect by companies in other sectors such as computer software and IT. This has been our objective from the outset and last year we were delighted to secure a jack-up exploration application licensing agreement with two leading independent oil and gas services companies covering the important Russian and CIS markets. Despite signing this licensing agreement, which is not included in the sale of the Jack-up Business, we recognised at an early stage that to become a supplier of critical equipment to an industry that has traditionally taken its time to embrace change, we could not just wait for business to come to Plexus. We needed to go to the market directly and have operators try out our equipment in field conditions so that they could experience for themselves the benefits and cost advantages of our best in class wellheads. The jack-up exploration market provided the perfect showcase for our technology as, thanks to the temporary nature of exploration wells, it enabled us to adopt a rental and services model, rather than the more capital-intensive manufacturing alternative required for larger markets such as production.
This strategy has proved to be highly successful. In a relatively short period of time, Plexus became the dominant supplier of wellheads and associated equipment for HPHT wells in the
POS-GRIP was designed to address a number of limitations associated with conventional wellhead technology, particularly in terms of metal to metal sealing. By providing operators with superior solutions which offer unique safety and operational advantages, while at the same time delivering significant time and cost savings, POS-GRIP has raised wellhead standards especially for HPHT applications to equal or exceed those of premium couplings. The benefits of our technology have been proven many times over in exploration wells drilled out in the field; often in the most challenging environments. The recognition that there are numerous applications and products which could benefit from the POS-GRIP method of engineering, in our view, lies behind
Gaining industry recognition of our technology is not just a milestone, it also promises to transform our business over the coming years. Following completion of the deal, our already debt free, cash rich balance sheet will be further strengthened by receipt of the initial consideration payment. Together with the removal of the outgoings associated with running the jack-up exploration business and a three-year earn-out, which will see Plexus receive a third of revenues generated from revenues up to a cap of
We already have a suite of POS-GRIP based products targeting markets outside jack-up exploration that have been tried and tested and, in some cases, have already been successfully deployed by operators out in the field. For example, in
Post period end in
In addition to the Connector and surface production wellheads, Plexus has, over the years, invested heavily in R&D and IP development covering a wide range of areas and applications outside jack-up exploration. In particular our Python™ Subsea Wellhead, which we believe sets a new best in class and safest standard for subsea wellheads, was developed via a
In addition to rolling-out new POS-GRIP products, Plexus will continue to target international markets including the
Staff
On behalf of the Board I would like to thank all our employees both past and present for their dedication and hard work during a challenging oil and gas industry trading environment which, like many other E&P and service companies across the world, led to Plexus having to restructure and reduce staff numbers and overheads. Such cost control measures were regrettable and I look forward to the level of both exploration and production activity increasing and Plexus once again being able to increase its workforce.
Outlook
Our goal is to replicate the success we have had in jack-up exploration in other markets within the energy industry, including surface production. With the production sector being many times the size of jack-up exploration, achieving the same success here would be truly transformational for Plexus. Our production wellheads, like all our products including the connector technology, are based on the same POS-GRIP method of engineering as our exploration equipment and so offer operators superior qualities in terms of performance, reliability and safety as well as significant time and cost savings. As a result, we believe our production wellheads have the potential to become the go-to equipment for operators all over the world whether supplied by Plexus or future commercial partners. Crucially we hope we can achieve this in a much shorter timeframe than it took for our jack-up exploration equipment to become established as the wellhead equipment of choice for use on the most challenging wells, such as the Total Solaris well in the
Several reasons lie behind our confidence. At the micro level, we are not starting from scratch: operators are already familiar with what POS-GRIP-enabled wellheads deliver as they have been used on over 350 wells worldwide. Furthermore, it will no longer just be Plexus extolling the benefits of POS-GRIP, top tier supplier TechnipFMC will be offering our technology to their extensive client base for use in jack-up exploration wells. At the macro level, the long-term dynamics of the oil and gas industry very much play to our strengths, specifically natural gas' increasingly key role in the hydrocarbon energy mix. If targeted reductions in C02 emissions are to be met across the globe, cleaner hydrocarbons such as natural gas will have to displace dirtier fossil fuels such as coal.
The global industry is already seeing the impact of this trend. According to the
To continue growing during what amounts to a structural shift towards cleaner fuels, the majors are increasingly prioritising gas projects over oil. Big Oil is morphing into
Regardless of how fast the majors restructure their portfolios in favour of gas, there is a more pressing need that requires addressing. As the
In a similar vein, in this year's
J Jeffrey Thrall
Non-Executive Chairman
Strategic Report
Principal Activity
The Group markets a patented friction grip method of engineering for oil and gas field wellheads and connectors, named POS-GRIP. This involves deforming one tubular member against another within the elastic range to effect gripping and sealing. This superior method of engineering for wellheads offers a number of important advantages to operators, particularly for HPHT applications and can include improved technical performance, improved integrity of metal seals, significant installation time savings, reduced operating costs and enhanced safety. Revenues during the year under review were predominantly derived from the rental of POS-GRIP wellheads for jack-up exploration, although the range of commercial and safety benefits of POS-GRIP also apply to surface land and platform production and subsea wellheads which are significantly bigger market sectors that Plexus will be actively pursuing both organically and with international partners. Furthermore, the Directors believe that the Company's proprietary technology has additional wide-ranging applications both within and outside the oil and gas industry.
The post period end signing of a conditional BPA for the sale of the niche jack-up exploration wellhead rental operations to a division of leading oil and gas service and equipment provider TechnipFMC realigns Plexus predominantly as an engineering and IP led product design, development and licensing business. Following Completion, Plexus retains the right to pursue jack-up exploration related business in
Financial Results
Revenue
Revenue for the year was
Positively the Group had a number of orders from first time customers both domestically and in
The rental of exploration wellheads and related equipment and services accounted for approximately 94% of revenue reflecting the fact that the Company's organic business model remained focused during the period on the supply of jack-up rental surface exploration wellhead equipment and services. HPHT rental equipment and related services continued to account for the majority of sales revenues declining to
Plexus continued to invest for the future and in its technology with total R&D spend, excluding test fixtures totalling
Margin
Gross margin reduced to 20.6% (compared to 46.6% in the previous year). The decline in margin is largely driven by decline in revenue along with the fixed nature of the depreciation charge at
Overhead expenses
The financial year to
During the year to
Adjusted EBITDA
The directors use Adjusted EBITDA as a non-GAAP measure to assess the Group's business. The directors consider Adjusted EBITDA, approximating as it does to the cash generated by or used in the business, to be the most appropriate measure of the underlying performance of the Group's business in the period.
Adjusted EBITDA for the year (before non-recurring restructuring costs of
|
2017 £'000 |
2016 £'000 |
Operating (Loss) / profit |
(7,031) |
(6,798) |
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Add back: |
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-Depreciation |
3,438 |
3,488 |
-Amortisation |
1,034 |
980 |
-Restructuring costs |
69 |
755 |
-Fair value adjustment to asset held for sale |
8 |
- |
-Gain on disposal |
(1) |
(6) |
-Share based payments charges |
- |
21 |
|
|
|
Adjusted EBITDA |
(2,483) |
(1,560) |
Loss before tax
Loss before tax of
Tax
The Group shows an income tax credit of
The Group has an effective tax rate for the year of 19% (2016: 16%). The effective rate of tax is lower than the current standard
EPS
The Group reports basic earnings loss per share of 5.41p compared to a loss per share of 6.39p in the prior year.
Cash and Statement of Financial Position
The net book value of property, plant and equipment including items in the course of construction and the property held for sale at the year-end was
Intellectual Property ('IP')
The Group carries in its statement of financial position goodwill and intangible assets of
Research and Development
R&D expenditure including patents was reduced by 66.1% year on year from
IFRS 2 (Share Based Payments)
No IFRS 2 charges have been included in the accounts, in line with reporting standards following the completion of the vesting period of all share options. The fair value of share based payments has been computed independently by specialist consultants and is amortised evenly over the expected vesting period from the date of grant. The charge for the year was £nil which compares to
Dividends
While the Company remains committed to distributing dividends to its shareholders, the Directors believe that in view of the continued challenging oil price environment and resulting reduction in exploration drilling activity, and resultant financial performance, it is prudent to continue the suspension of the payment of dividends. The Company will look to reinstate the normal dividend at the earliest opportunity, and in addition will, following completion of the
Operations
During the year, the Company's operational focus was centred on its jack-up exploration business which resulted in a number of orders and contracts being awarded to Plexus, both within the reporting period and post period end. In line with the Company's strategy to expand its geographic reach away from its dominant position in the
In tandem with the ordinary course of business, a number of strategic initiatives were pursued during the period. These culminated in the post period end signing of a conditional BPA for the sale of the jack-up exploration business to
Contracts announced during the year under review include:
·
·
·
·
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·
Plexus continued to invest in R&D despite the ongoing challenging trading environment, albeit at a reduced level excluding test fixtures of
Staff and staff development continues to be important to the Group, and following a sustained period of depressed operational activity there was concern the technical skills of those who fulfil specific technical roles would diminish and would find it challenging to perform their role effectively and efficiently when activity increased again. To ensure this is not the case, a full review of each individual's abilities was completed during the second half of the financial year, highlighting areas that have not been refreshed during low levels of operational activity, and suitable in-house training modules were made available to ensure the necessary skill levels were maintained. The review was completed in February, and in-house training carried out during March and April. The training programme was received very well by the technical staff and noted as beneficial and a worthwhile refresher of the skills they have already developed.
Competency across the business has continued to evolve and broaden; particularly within workshop and office based staff areas. The workshop competency system has been developed under the OPITO standards with a view to being accredited by OPITO. The office based competency system will not be developed under the OPITO standard as it is a concise system that supports the requirements of the ISO9001:2015, which Plexus is currently transitioning to. Although this system is in its infancy, an action plan is in place to ensure all staff are under assessment within the first quarter of 2018.
In light of the increasingly concerning activities and resultant human misery that have brought about the much needed Modern Slavery Act 2015, a review of the requirements was carried out and a focus group was formed (HR, Executive Assistant, Contracts & Supply Chain) to create a Business Code of Conduct, Supplier Code of Conduct, Modern Slavery Statement and Whistleblowing procedure suitable for the business needs. Plexus takes such matters very seriously, and it is considered good practice that Plexus manages its supply chain in line with the Modern Slavery Act to support the legislative requirement placed on the majority of our clients. In addition, these business tools have proven to be essential in recent tendering processes as companies' awareness levels about this pernicious crime increase.
Staffing figures at the end of June 2017 were 68 employees including 2 international employees, which compares to a total of 81 in the prior year.
Health and Safety is an operational area where Plexus remains fully committed to delivering the highest practical safety standards in everything we do each and every day. We continue to maintain a positive safety culture which is aligned with our Company Safety Values and are pleased to report our HSE culture remains strong across the business and this is reflected by our LTCF and TRCF percentages both being zero, with no major findings during our most recent LRQA certification surveillance audits set against the OHSAS 18001:2007 standard.
Quality also remains a key focus in the delivery of our products and services demonstrated by no major findings in our recent LRQA ISO 9001:2008 surveillance audit and the successful recertification of our API monogram licences for 6A and 17D products.
We continue to seek opportunities for continual improvement and have fully revised our Business Management System not only to comply with our current certification standards but also to meet the new ISO 9001:2015 standard. We aim to complete our transition to this by the end of January 2018 ahead of the September 2018 deadline, again demonstrating our relentless commitment to attain and sustain the highest standards possible and allow us to respond quickly to client demands. We recognise it is important that we maintain our facilities so that they comply with applicable regulations and equally promote our commitment to the welfare of our employees. We have just completed several relevant improvement projects including replacing the Plexus House workshop roofs as well as modifications to the water supply to comply with the recent changes to the Scottish Water Bylaws 2014 and The Water Supply (Water Fittings) (
IT services and support is an area that continues to be in the headlines with increasing levels of online fraud and related criminality. Plexus is committed to delivering comprehensive and robust IT systems safely and securely to its employees and business partners.
The ever-changing, and seemingly increasing, risks from cyber breaches presents an ongoing threat to the security of our systems. Defending against cyber-attacks and keeping up to date with evolving policies and regulations is a complex and time-consuming task. To guarantee that the confidentiality, integrity and accessibility of information is maintained, Plexus has continually evolved its security defences to minimise such cyber risks. To ensure that the Plexus IT infrastructure, systems and data are as secure as possible Plexus is currently working towards ISO 27001 accreditation, which will help ensure that both internal and external risks are minimised. Such certification provides customers and key stakeholders with the confidence that security risks are taken and addressed seriously.
Strategy and Future Developments
Technology
Plexus' unique and patented POS-GRIP technology involves applying compressive force to the outside of a wellhead or pipe, to flex it inwards. As the bore of the vessel moves inwards, it makes contact with an inner pipe (or hanger) on the inside. Sufficient contact force is generated to hold the inner member (hanger) in place through friction between the two components, and creates a superior metal-to-metal seal. The Company's strategy is primarily focused on delivering the highest standard of wellhead design for the upstream oil and gas markets around the world, and one which is already proven to be uniquely advantageous in terms of safety features, operational efficiency, and cost savings for jack-up drilling especially HPHT applications.
POS-GRIP wellhead designs deliver many advantages over conventional "slip and seal" and "mandrel hanger" wellhead technologies for surface exploration and land and platform production applications. These include larger metal-to-metal seal contact areas, virtual elimination of movement between parts, fewer components, simplified design and assembly, enhanced corrosion resistance, simpler manufacture, long term integrity, annulus management, and reduced installation cost. Key components of Plexus wellheads can include proprietary superior HG seals; robust metal-to-metal seals which can be machined directly into the hanger, and are energised by use of the external POS-GRIP mechanism.
Plexus' POS-GRIP enabled product suite includes the Python subsea wellhead as well as the POS-SET Connector™ for use in the growing decommissioning market. Importantly the Python subsea wellhead eliminates the need for wear bushings, pack-offs, lock-rings, and lockdown sleeves, whilst delivering instant rigid lock-down in all directions, fully reversible for ease of workover, side-tracking or abandonment. These design simplifications and features not only reduce the risk of installation problems and safety issues, they also significantly reduce installation time and the number of trips that are needed such that it has been independently estimated that up to US$10m of savings are possible for a deep water well. The POS-SET Connector, which is designed to re-connect to bare conductor pipe for well re-entry or permanent abandonment operations, creates a solid connection with reliable sealing directly against the pipe, and retains bend and load capabilities at 80% of pipe strength. The directors believe Plexus' wellhead equipment sets a new standard. Apart from the operational time saving and related safety benefits, at an engineering level the Company has scientifically proven that its technology can uniquely raise the integrity of wellhead testing and sealing to that of premium couplings, which supports its claim that wellheads no longer need to be the weak link in the well architecture chain.
POS-GRIP friction-grip technology has wide ranging applications both within and outside the oil and gas industry. As POS-GRIP is a method of engineering and not a product in its own right, where there is an opportunity for the technology to improve the performance of conventional products, the Company will look to integrate POS-GRIP so that the benefits together with HG sealing can be realised.
Business Model and Markets
The Company is proprietary technology driven and its extensive patent protected IP and many years' worth of know-how has been successfully deployed in hundreds of wells around the world. Its superior performance, safety and operational advantages have given it an enviable position in the niche jack-up exploration market, and the directors believe that this success can be leveraged and extended to the wider energy sector including production, subsea, geothermal and fracking applications based on its POS-GRIP technology.
Historically Plexus has focused on supplying adjustable wellhead equipment and associated running tools on a rental basis for the relatively niche jack-up exploration drilling in the
Having secured a leading position in jack-up exploration drilling, the directors believe Plexus is well placed to pursue its strategy of breaking into the significantly larger and more mainstream volume production wellhead and subsea markets both organically and in conjunction with partners including licensees. In line with this, the Company announced in September 2017 that it had been awarded a contract with
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
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
Following the pending completion of the sale of the Jack-up Business to
1. Continued operation of remaining business, contracts and products
The Company will continue to focus on current projects which are not part of the sale, and will pursue the development of opportunities with existing products such as POS-GRIP "HG" production wellheads. Plexus will continue to target international customers in other territories including
2. Maximisation of Earn-out from the Jack-up Business
The Company intends to prioritise the maximisation of three years' worth of earn-out revenues from the Jack-up Business through the provision of, inter alia, sales and technical support to
3. Work with
The Company and
4. Design/Development of new and existing POS-GRIP products/applications
The Company has identified a number of products and applications which it believes would benefit from the integration of POS-GRIP technology. The Company intends to selectively apply its resources to capitalise on these opportunities, examples of which include:
· Existing applications of POS-GRIP HG® Wellheads, such as HPHT Production Wellheads and Adjustable Production Wellheads
· New applications of POS-GRIP HG Wellheads and other IP, such as land wellheads, fracking heads, geothermal systems and well abandonment and decommissioning
· Existing applications for the Python subsea wellheads system, such as deepwater exploration drilling and HPHT subsea production
· Further developments around the Python subsea system, such as Annulus Access remedial capability and subsea Xmas Trees.
5. Research & Development
Plexus has always been an innovative IP-led business and the Board intends to devote appropriate resources to continue its ongoing innovative and proprietary technology driven approach.
Key Performance Indicators
The Directors monitor the performance of the Group by reference to certain financial and non-financial key performance indicators. The financial indicators include revenue, EBITDA, profit and loss, earnings per share and working capital resources and requirements. The analysis of these is included in the financial results section of this report. Non-financial indicators include Health and Safety statistics, equipment utilisation rates, geographical diversity of revenues and customers, geo political considerations, effectiveness of various research and development initiatives; for example in relation to new patent activity and inventions and appropriate employee headcount numbers and turnover rates.
Following the sale of the jack-up exploration wellhead equipment and services business described in Note 11 the key performance indicators of the Group will change to reflect the strategy of the business in relation to the exploitation of its proprietary technology, with the focus on non-financial key performance indicators expected to be on research and development initiatives and commercialisation objectives.
Principal Risks and Risk Management
There are a number of potential risks and uncertainties that could have an impact on the Group's performance which include the following.
(a) Political, legal and environmental risks
Plexus participates in a global market where the exploration and production of oil and gas reserves and even the access to those reserves can be adversely impacted by changes in political, operational, and environmental circumstances. The current global political landscape continues to demonstrate how any combination of such factors can generate risks and uncertainties that can undermine stable trading conditions, such as
Looking closer to home, 'BREXIT' continues to generate much speculation and uncertainty about its timing and eventual impact in terms of for example staff recruitment from abroad, export negativity if duties were to apply and potentially volatile exchange rates. Our current thinking is that staff recruitment when activity levels pick up is not currently a major concern, and weaker Sterling actually makes our products and services cheaper to customers outside of the
(b) Oil and Gas Sector Trends
It is readily understood that the world continues to move away from coal as part of the COP21 climate change objectives and the ongoing need to reduce CO2 emissions. However, the commercial and environmental dynamics between traditional hydrocarbons in terms of coal, oil and gas is not the only trend to consider. New technologies, particularly in relation to renewables, alternative energies and developments such as the increasing use of electric vehicles and corresponding improvements in battery storage life, wind and wave energy, could all in the future prove very disruptive to the traditional oil and gas industry and therefore demand for exploration and production equipment and services.
(c) Technology
The Group is now beginning to turn towards the commercialisation, marketing and application of its POS-GRIP friction-grip technology beyond jack-up rental exploration wellhead equipment, both with regard to expanding into the surface land and platform production market sector, as well as the subsea market where the Plexus POS-GRIP Python subsea wellhead offers numerous operational and performance benefits. Current and future contract opportunities may be adversely affected by technology related factors outside the Group's control, especially where new product developments are concerned. These may include unforeseen equipment design issues, test delays during a contract and final testing, and delayed acceptances of deliveries, as well as the slow uptake by operators which could lead to possible abortive expenditure and write downs, reputational risk and potential customer claims or onerous contractual terms. Such risks may materially impact on the Group. To mitigate this risk, the Group continues to invest in developing and proving the technology and has a policy of on-going training of our own personnel and where appropriate our partners and customers.
(d) Competitive risk
The Group operates in highly competitive markets and often competes directly with large multi-national corporations who have greater resources and are more established, and who are more resilient to extended adverse trading conditions. Major oil service and equipment company consolidations that have taken place over the last few years have magnified such issues as competitors reduce in number but increase in size. Unforeseen product innovation or technical advances by competitors could adversely affect the Group and lead to a slower take up of the Group's proprietary technology. To mitigate this risk Plexus maintains an extensive suite of patents and trademarks, and actively continues to develop and improve its IP to ensure that it continues to be able to offer unique superior wellhead design solutions.
(e) Operational
Plexus, like many other oil service companies, has had to make significant reductions in its workforce numbers since 2015 when the oil price and corresponding drilling activity fell significantly. Therefore, when the anticipated upturn comes in drilling activity, it is possible that the industry and Plexus could experience difficulties in rehiring past or new employees and this could deprive Plexus of the key personnel necessary for expanding operational activities, as well as research and development initiatives at the rate that may be required. To help mitigate this risk Plexus has developed effective recruitment and training procedures, which combined with the appeal of working in a company with unique technology and engineering solutions will hopefully minimise this risk.
(f) Liquidity and finance requirements
In an economic climate that remains in many ways uncertain it has become increasingly possible for both existing and potential sources of finance to be closed to businesses for a variety of reasons that have not been an issue in the past. Some of these may even relate to the lender itself in terms of its own capital ratios and lending capacity. Furthermore, after a sustained period of record low interest rates signs are emerging that the cost of money will increase and this could also have a negative impact on business activity. Although access to capital could be an issue, completion of the disposal of the Plexus jack-up business Plexus will deliver additional cash to add to its existing reserves. In addition, the Group successfully renewed bank facilities with
(g) Credit
The main credit risk is attributable to trade receivables. As the majority of the Group's customers are large international oil companies the risk of non-payment is significantly reduced, and therefore is more likely to be related to client satisfaction and/or trade sanction issues. Customer payments can involve extended periods of time especially from countries where exchange control regulations can delay the transfer of funds outside those countries. As Plexus begins to establish international licensee relationships there may be instances whereby certain capital payments could be due some way into the future and as such greater credit risk than exists under normal payments terms could apply. The Group's exposure to credit risk is monitored continuously.
(h) Risk assessment
The Board has established an on-going process for identifying, evaluating and managing the more significant risk areas faced by the Group. One of the Board's control documents is a detailed "Risks assessment & management document" which categorises risks in terms of - business (including IT), compliance, finance, cash, debtors, fixed assets, other debtors/prepayments, creditors, legal, and personnel. These risks are assessed and updated on a regular basis and can be associated with a variety of internal and external sources including regulatory requirements, disruption to information systems including cyber-crime, control breakdowns and social, ethical, environmental and health and safety issues.
G Stevens
Director
15 November 2017
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2017
|
Notes |
2017 £'000 |
2016 £'000 |
Revenue |
1 |
4,749 |
11,227 |
Cost of sales |
|
(3,770) |
(5,994) |
|
|
|
|
Gross profit |
|
979 |
5,233 |
|
|
|
|
Administrative expenses |
|
(7,941) |
(11,276) |
Restructuring costs |
|
(69) |
(755) |
|
|
|
|
Operating loss |
|
(7,031) |
(6,798) |
Finance income |
|
59 |
69 |
Finance costs |
|
(61) |
(187) |
|
|
|
|
Loss before taxation |
|
(7,033) |
(6,916) |
Income tax credit |
3 |
1,331 |
1,126 |
|
|
|
|
Loss attributable to the owners of the parent |
|
(5,702) |
(5,790) |
Other comprehensive income |
|
- |
- |
|
|
|
|
Total comprehensive income for the year attributable to the owners of the parent |
|
(5,702) |
(5,790) |
|
|
|
|
Loss per share |
4 |
|
|
Basic |
|
(5.41p) |
(6.39p) |
Diluted |
|
(5.41p) |
(6.39p) |
Consolidated Statement of Financial Position
at 30 June 2017
|
|
2017 |
2016 |
|
Notes |
£'000 |
£'000 |
Assets |
|
|
|
|
|
767 |
767 |
Intangible assets |
5 |
13,678 |
14,080 |
Property, plant and equipment |
6 |
11,976 |
15,567 |
Deferred tax asset |
|
287 |
- |
|
|
|
|
Total non-current assets |
|
26,708 |
30,414 |
|
|
|
|
Asset held for sale |
7 |
396 |
- |
Inventories |
|
6,840 |
6,726 |
Trade and other receivables |
|
1,008 |
1,747 |
Current income tax asset |
|
966 |
229 |
Cash and cash equivalents |
|
7,178 |
15,863 |
|
|
|
|
Total current assets |
|
16,388 |
24,565 |
|
|
|
|
Total Assets |
|
43,096 |
54,979 |
|
|
|
|
Equity and Liabilities |
|
|
|
Called up share capital |
8 |
1,054 |
1,054 |
Share premium account |
|
36,893 |
36,893 |
Share based payments reserve |
|
767 |
766 |
Retained earnings |
|
2,575 |
8,277 |
|
|
|
|
Total equity attributable to equity holders of the parent |
|
41,289 |
46,990 |
|
|
|
|
Liabilities |
|
|
|
Deferred tax liabilities |
|
- |
468 |
Bank loans |
|
375 |
675 |
|
|
|
|
Total non-current liabilities |
|
375 |
1,143 |
|
|
|
|
Trade and other payables |
|
1,132 |
1,546 |
Bank loans |
|
300 |
5,300 |
|
|
|
|
Total current liabilities |
|
1,432 |
6,846 |
|
|
|
|
Total liabilities |
|
1,807 |
7,989 |
|
|
|
|
Total Equity and Liabilities |
|
43,096 |
54,979 |
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
|
Called Up Share Capital £'000
|
Share Premium Account £'000
|
Share Based Payments Reserve £'000 |
Retained Earnings £'000
|
Total £'000
|
Balance as at 30 June 2015 |
849 |
20,141 |
1,862 |
15,628 |
38,480 |
Total comprehensive income for the year |
- |
- |
- |
(5,790) |
(5,790) |
Share based payments reserve charge |
- |
- |
21 |
- |
21 |
Current year credit on share option exercise to share based payment reserve |
- |
- |
5 |
- |
5 |
Transfer of share based payments reserve charge on exercise of options |
- |
- |
(3) |
3 |
- |
Issue of ordinary shares (net of issue costs) |
205 |
16,752 |
- |
- |
16,957 |
Net deferred tax movement on share options |
- |
- |
(1,119) |
- |
(1,119) |
Dividends |
- |
- |
- |
(1,564) |
(1,564) |
Balance as at 30 June 2016 |
1,054 |
36,893 |
766 |
8,277 |
46,990 |
|
|
|
|
|
|
Total comprehensive income for the year |
- |
- |
- |
(5,702) |
(5,702) |
Net deferred tax movement on share options |
- |
- |
1 |
- |
1 |
|
|
|
|
|
|
Balance as at 30 June 2017 |
1,054 |
36,893 |
767 |
2,575 |
41,289 |
Consolidated Statement of Cash Flows
for the year ended 30 June 2017
|
Notes |
2017 £'000 |
2016 £'000 |
Cash flows from operating activities |
|
|
|
Loss before taxation |
|
(7,033) |
(6,916) |
Adjustments for: |
|
|
|
Depreciation, amortisation and impairment charges |
|
4,472 |
4,471 |
Gain on disposal of property, plant and equipment |
|
(1) |
(2) |
Charge for share based payments |
|
- |
21 |
Investment income |
|
(59) |
(69) |
Interest expense |
|
61 |
187 |
Changes in working capital: |
|
|
|
Increase in inventories |
|
(114) |
(175) |
Decrease in trade and other receivables |
|
739 |
5,554 |
Decrease in trade and other payables |
|
(414) |
(1,750) |
|
|
|
|
Cash (used) / generated from operating activities |
|
(2,349) |
1,321 |
Income taxes (paid) / refunded |
|
(160) |
34 |
|
|
|
|
Net cash (used) / generated from operating activities |
|
(2,509) |
1,355 |
|
|
|
|
Cash flows from investing activities |
|
|
|
Purchase of intangible assets |
|
(632) |
(1,900) |
Purchase of property, plant and equipment |
|
(287) |
(1,956) |
Proceeds of sale of property, plant and equipment and intangibles |
|
45 |
61 |
Interest received |
|
59 |
69 |
|
|
|
|
Net cash used in investing activities |
|
(815) |
(3,726) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Repayment of loans and banking facilities |
|
(5,300) |
(300) |
Interest paid |
|
(61) |
(187) |
Net proceeds from issue of new ordinary shares |
|
- |
16,923 |
Proceeds from share options exercised |
|
- |
34 |
Equity dividends paid |
|
- |
(1,564) |
|
|
|
|
Net cash (outflow) / inflow from financing activities |
|
(5,361) |
14,906 |
|
|
|
|
Net (decrease) / increase in cash and cash equivalents |
|
(8,685) |
12,535 |
Cash and cash equivalents at 1 July 2016 |
|
15,863 |
3,328 |
|
|
|
|
Cash and cash equivalents at 30 June 2017 |
10 |
7,178 |
15,863 |
|
|
|
|
Notes to the Consolidated Financial Statements
1. Revenue
|
2017 £'000 |
2016 £'000 |
By geographical area |
|
|
|
475 |
1,241 |
|
3,099 |
7,636 |
Rest of World |
1,175 |
2,350 |
|
4,749 |
11,227 |
The revenue information above is based on the location of the customer. Substantially all of the revenue in the current and previous periods derives from the rental of equipment and the provision of related services.
2. Segment reporting
The Group derives revenue from the sale of its POS-GRIP technology and associated products, the rental of wellheads utilising the POS-GRIP technology and service income principally derived in assisting with the commissioning and on-going service requirements of our equipment. These income streams are all derived from the utilisation of the technology which the Group believes is its only segment.
Per IFRS 8, the operating segment is based on internal reports about components of the group, which are regularly reviewed and used by the board of directors being the Chief Operating Decision Maker ("CODM").
All of the Group's non-current assets are held in the
The following customers each account for more than 10% of the Group's revenue:
|
2017 £'000 |
2016 £'000 |
Customer 1 |
1,159 |
3,696 |
Customer 2 |
1,706 |
1,328 |
Customer 3 |
691 |
- |
3. Income tax expense
(i) |
The taxation charge for the year comprises: |
2017 £'000 |
2016 £'000 |
|
|||
|
|
|
|
|
|||
|
Current tax on income for the year |
- |
5 |
|
|||
|
Adjustment in respect of prior years |
(526) |
(383) |
|
|||
|
|
(526) |
(378) |
|
|||
|
Foreign tax |
|
|
|
|||
|
Current tax on income for the year |
2 |
61 |
|
|||
|
Adjustment in respect of prior years |
(52) |
56 |
|
|||
|
|
(50) |
117 |
|
|||
|
Total current tax credit |
(576) |
(261) |
|
|||
|
|
|
|
|
|||
|
Deferred tax: |
|
|
|
|||
|
|
Origination and reversal of timing differences |
(1,054) |
(628) |
|||
|
|
Short term timing differences |
- |
64 |
|||
|
|
Difference between qualifying fixed assets and capital allowances |
- |
(643) |
|||
|
|
Share based payments charged to the Income Statement |
- |
151 |
|||
|
|
Adjustment in respect of prior years |
298 |
193 |
|||
|
Total deferred tax |
(756) |
(863) |
|
|||
|
|
|
|
|
|||
|
Total tax credit |
(1,331) |
(1,126) |
|
|||
|
The effective rate of tax is 19% (2016: 16%) |
|
|
|
|||
(ii) |
Factors affecting the tax charge for the year |
2017 £'000 |
2016 £'000 |
|
|||
|
Loss on ordinary activities before tax |
(7,033) |
(6,916) |
|
|||
|
Tax on (loss) / profit at standard rate of |
(1,389) |
(1,383) |
|
|||
|
Effects of: |
|
|
|
|||
|
Expenses not deductible for tax purposes |
229 |
554 |
|
|||
|
Effect of change in tax rate |
114 |
(61) |
|
|||
|
Tax adjustments on share based payments |
(8) |
151 |
|
|||
|
Foreign tax rates |
2 |
108 |
|
|||
|
Adjustments in respect of prior year |
(279) |
(192) |
|
|||
|
Group income not subject to tax |
- |
(303) |
|
|||
|
Total tax (credit) / charge |
(1,331) |
(1,126) |
|
|||
(iii) |
Movement in deferred tax (asset)/liability balance |
2017 £'000 |
2016 £'000 |
|
Deferred tax liability at beginning of year |
468 |
212 |
|
(Credit) / charge to Statement of Comprehensive Income |
(756) |
(863) |
|
Deferred tax movement on share options recognised in equity |
1 |
1,119 |
|
|
|
|
|
Deferred tax (asset)/liability at end of year |
(287) |
468 |
|
|
|
|
(iv) |
Deferred tax (asset)/ liability balance |
2017 £'000 |
2016 £'000 |
|
The deferred tax liability balance is made up of the following items: |
|
|
|
Difference between depreciation and capital allowances |
643 |
1,001 |
|
Share based payments |
(96) |
(88) |
|
Tax losses |
(705) |
(445) |
|
Tax provisions |
(129) |
- |
|
Deferred tax (asset)/liability at end of year |
(287) |
468 |
4. Loss per share
|
2017 £'000 |
2016 £'000 |
Loss attributable to shareholders |
(5,702) |
(5,790) |
|
Number |
Number |
Weighted average number of shares in issue |
105,386,239 |
90,597,415 |
Dilution effects of share schemes |
1,108,692 |
2,135,987 |
|
|
|
Diluted weighted average number of shares in issue |
106,494,931 |
92,733,402 |
|
|
|
Basic Loss per share |
(5.41p) |
(6.39p) |
Diluted Loss per share |
(5.41p) |
(6.39p) |
|
|
|
Basic loss per share is calculated on the results attributable to ordinary shares divided by the weighted average number of shares in issue during the year.
Diluted earnings per share calculations include additional shares to reflect the dilutive effect of employee share schemes and share option schemes. As a loss was made in the current year the option schemes are considered to be anti-dilutive.
5. Intangible fixed assets
|
Intellectual Property £'000 |
Patent and Other Development £'000 |
Computer Software £'000 |
Total £'000 |
Cost |
|
|
|
|
As at 30 June 2015 |
6,440 |
11,193 |
294 |
17,927 |
Additions |
- |
1,860 |
37 |
1,897 |
Disposals |
- |
(4) |
- |
(4) |
|
|
|
|
|
As at 30 June 2016 |
6,440 |
13,049 |
331 |
19,820 |
Additions |
- |
632 |
- |
632 |
As at 30 June 2017 |
6,440 |
13,681 |
331 |
20,452 |
|
|
|
|
|
Amortisation |
|
|
|
|
As at 30 June 2015 |
3,021 |
1,543 |
196 |
4,760 |
Charge for the year |
330 |
612 |
38 |
980 |
On Disposals |
- |
- |
- |
- |
|
|
|
|
|
As at 30 June 2016 |
3,351 |
2,155 |
234 |
5,740 |
Charge for the year |
330 |
668 |
36 |
1,034 |
As at 30 June 2017 |
3,681 |
2,823 |
270 |
6,774 |
|
|
|
|
|
Net Book Value |
|
|
|
|
As at 30 June 2017 |
2,759 |
10,858 |
61 |
13,678 |
|
|
|
|
|
As at 30 June 2016 |
3,089 |
10,894 |
97 |
14,080 |
6. Property, plant and equipment
|
Buildings £'000 |
Tenant Improvements £'000 |
Equipment £'000 |
Assets under Construction £'000 |
Motor Vehicles £'000 |
Total £'000 |
|
Cost |
|
|
|
|
|
|
|
As at 30 June 2015 |
4,379 |
432 |
28,544 |
174 |
48 |
33,577 |
|
Additions |
- |
168 |
588 |
1,200 |
- |
1,956 |
|
Transfers |
- |
- |
1,316 |
(1,316) |
- |
- |
|
Disposals |
- |
- |
(318) |
- |
(14) |
(332) |
|
|
|
|
|
|
|
|
|
As at 30 June 2016 |
4,379 |
600 |
30,130 |
58 |
34 |
35,201 |
|
Additions |
- |
132 |
65 |
90 |
- |
287 |
|
Transfers |
- |
- |
126 |
(126) |
- |
- |
|
Reclassified to assets held for sale |
(455) |
- |
- |
- |
- |
(455) |
|
Disposals |
- |
(26) |
(1,489) |
- |
(2) |
(1,517) |
|
|
|
|
|
|
|
|
|
As at 30 June 2017 |
3,924 |
706 |
28,832 |
22 |
32 |
33,516 |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
As at 30 June 2015 |
558 |
182 |
15,650 |
- |
33 |
16,423 |
|
Charge for the year |
250 |
68 |
3,164 |
- |
6 |
3,488 |
|
On disposals |
- |
- |
(263) |
- |
(14) |
(277) |
|
|
|
|
|
|
|
|
|
As at 30 June 2016 |
808 |
250 |
18,551 |
- |
25 |
19,634 |
|
Charge for the year |
250 |
72 |
3,112 |
- |
4 |
3,438 |
|
On disposals |
- |
(26) |
(1,453) |
- |
(2) |
(1,481) |
|
Reclassified to assets held for sale |
(51) |
- |
- |
- |
- |
(51) |
|
As at 30 June 2017 |
1,007 |
296 |
20,210 |
- |
27 |
21,540 |
|
|
|
|
|
|
|
|
|
Net Book Value |
|
|
|
|
|
|
|
As at 30 June 2017 |
2,917 |
410 |
8,622 |
22 |
5 |
11,976 |
|
|
|
|
|
|
|
|
|
As at 30 June 2016 |
3,571 |
350 |
11,579 |
58 |
9 |
15,567 |
|
7. Asset Held for sale
|
2017 £'000 |
2016 £'000 |
Cost |
455 |
- |
Accumulated depreciation |
(51) |
- |
Net book value |
404 |
- |
Fair value adjustment |
(4) |
- |
Cost of sale |
(4) |
- |
|
396 |
- |
The asset held for sale relates to a property that was sold on 14 July 2017. The Group had entered into a sale agreement prior to the year end. In line with IFRS5 the asset is held for sale at fair value less costs of sale.
8. Share Capital
|
2017 £'000 |
2016 £'000 |
Authorised: |
|
|
Equity: 110,000,000 (2016: 110,000,000) Ordinary shares of 1p each |
1,100 |
1,100 |
Allotted, called up and fully paid: |
|
|
Equity: 105,386,239 (2016: 105,386,239) Ordinary shares of 1p each |
1,054 |
1,054 |
9. Reconciliation of net cash flow to movement in net cash/(debt)
|
2017 £'000 |
2016 £'000 |
(Decrease)/Increase in cash in the year |
(3,385) |
12,835 |
|
|
|
Movement in net (debt)/cash in year |
(3,385) |
12,835 |
Net cash/(debt) at start of year |
9,888 |
(2,947) |
Net cash at end of year |
6,503 |
9,888 |
10. Analysis of net cash/(debt)
|
At beginning of year £'000 |
Cash flow £'000 |
At end of year £'000 |
Cash in hand and at bank |
15,863 |
(8,685) |
7,178 |
Bank loans |
(5,975) |
5,300 |
(675) |
Total |
9,888 |
(3,385) |
6,503 |
11. Subsequent Events
On 19 October 2017 the Group announced the sale of its wellhead exploration equipment and services business for jack-up applications (the "Jack-up Business") to FMC Technologies Limited ("TFMC"), a subsidiary of TechnipFMC (Paris:FTI) (NYSE:FTI) one of the leading oil & gas service and equipment companies (the "Disposal").
In addition and as part of the Transaction, Plexus, Plexus' subsidiary POSL and TFMC will also be entering into a Collaboration Agreement ("CA") which establishes a framework to work together both on the development of existing POS-GRIP IP for applications outside of jack-up exploration, as well as future new technologies.
The Disposal follows the signing of a conditional Business Purchase Agreement ("BPA") by Plexus, POSL and TFMC. Under the terms of the BPA, the Plexus Group will receive an initial gross cash consideration of £15,000,000, subject to certain adjustments, with an additional sum of up to £27,500,000 payable dependent on the future performance of the Jack-up Business during a three-year earn-out period. The earn-out has the potential to increase the total cash gross consideration to £42,500,000.
The tables below summarise the financial impact of the disposal on the reported results of the Group:
Year ended 30 June 2017
|
Disposal £'000 |
Remaining £'000 |
Reported £'000 |
Revenues |
4,545 |
204 |
4,749 |
Loss before taxation |
(2,312) |
(4,721) |
(7,033) |
Net assets |
13,830 |
27,459 |
41,289 |
Year ended 30 June 2016
|
Disposal £'000 |
Remaining £'000 |
Reported £'000 |
Revenues |
11,193 |
34 |
11,227 |
Loss before taxation |
(1,415) |
(5,501) |
(6,916) |
Net assets |
16,208 |
30,782 |
46,990 |
The financial information above does not constitute the company's statutory accounts for the year ended 30 June 2017 but is derived from those statements.
The statutory financial statements and this preliminary statement for the year ended 30 June 2017 were approved by the Board on 15 November 2017. On the same date the company's auditors, Crowe Clark Whitehill LLP issued an unqualified report on those financial statements. The audit report did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report or contain a statement under section 498(2) or (3) of the Companies Act 2006.
The financial information for the year ended 30 June 2016 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters be way of emphasis and not contain a statement under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. The Company's financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU. A copy of the statutory accounts will be delivered to the Registrar of Companies in due course.
The Annual Report will be circulated to all shareholders and thereafter, copies will be available from the registered office of the company, 42-50 Hersham Road, Walton-on-Thames, Surrey, KT12 1RZ.
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