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Plexus Holdings Plc - Preliminary Results for the year to 30 June 2019

RNS Number : 2257S
Plexus Holdings Plc
05 November 2019
 

Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil equipment & services

5 November 2019

 

 

 

 

This announcement contains inside information

 

Plexus Holdings plc ('Plexus' or 'the Group')

Preliminary Results for the year to 30 June 2019

 

Plexus Holdings plc, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® method of wellhead engineering, announces its preliminary results for the year ending 30 June 2019.

 

Financial and Corporate Overview

 

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 £3,611k (2018: £318k)

Discontinued operations sales revenue £nil (2018: £3,907k)

·    Adjusted EBITDA on continuing activities (£2.51m) loss (2018: £3.74m loss)

·    Continuing operations operating loss £4,010k (2018: £5,285k)

Discontinued operations operating loss £108k (2018: £1,593k)

·    Continuing operations operating loss after tax £3,227k (2018: £4,694k)

Discontinued operations loss after tax £88k (2018: £4,322k profit)

·    Basic loss per share from continuing activities 3.12p (2018: 4.45p loss)

Basic loss per share from discontinued activities 0.09p (2018: 4.10p earning)

·    Net cash of £5.08m (2018: net cash £12.9m)

·    The Group has £2.84m in high-yield bonds (2018: £2.12m)

·    February 2019 - Buyback of 4,950,495 Ordinary Shares held by Russian licensee Gusar at 50.5p per share to accelerate the completion of Plexus' sale of two POS-GRIP Jack-up exploration wellhead sets and associated equipment to Gusar ahead of initial rental order in Russia with Gazprom

·    April 2019 - Payment of aggregate £1.0m special interim dividend

·    May 2019 - Court approval of reduction of capital by way of a cancellation of the Plexus Share Premium Account in order to increase distributable reserves. This increases the flexibility to pay dividends, to facilitate any prospective buy back of shares or for any other general corporate purposes

·    Whilst the Company remains committed to distributing dividends to its shareholders, the Directors believe that it is prudent to consider the payment of dividends subject to the ongoing capital and operational requirements of the business

 

Operational Overview

 

·    Full year revenues principally generated through sale of POS-GRIP® equipment for production, abandonment and Russian Jack-up exploration operations - a major departure from previous years when revenues were dependent on the rental of Jack-up exploration wellheads:

 

August 2018 - Contract for a second rental order for the POS-SET™ Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea        

 

·    Progress made towards establishing a diversified portfolio of revenue streams based on products empowered by Plexus' proprietary POS-GRIP® Technology - follows 2018 sale of Plexus' wellhead exploration equipment services business for jack-up applications  to FMC Technologies Limited ('TFMC'), a subsidiary of top tier industry supplier TechnipFMC (Paris:FTI) (NYSE:FTI)

 

·    Potential material royalty stream from licensing agreement covering Russia and CIS market with Gusevsky Valves Plant LLC ('Gusar') follows:

 

September 2018 - Order secured by Russian partner to supply Gazprom with two sets of Plexus' Tersus™ - TRT Mudline Suspension System ('MLS') for shallow water exploration gas wells

 

March 2019 - Breakthrough order secured by Gusar with global energy giant Gazprom to supply POS-GRIP rental wellhead gas exploration equipment during the first year of a five-year gas exploration drilling programme

 

·    £735,000 investment in Kincardine Manufacturing Services Limited ('KMS'), a specialist precision engineering business with a blue-chip customer base in the oil and gas sector - acquisition of 49% interest in KMS has the potential to provide Plexus with:

 

Annual cash income stream from KMS distribution/dividend policy

 

Future access to machining capability which can support R&D development projects for alternative applications of POS-GRIP Technology

 

·    Formation of joint venture ('JV'), Plexus Pressure Control Ltd ('PPC') with UK based BEL Valves Ltd enables Plexus to offer operators full-service package including valves and Xmas-trees for large scale production projects

 

Actively tendering for a number of large-scale projects across the world

 

Step-up in interest in POS-GRIP equipment for use in surface production projects

 

Chief Executive Ben van Bilderbeek said:

 

"For the 12 months ended 30 June 2019, the major focus has been on our 'Reset and Rebuild' strategy: resetting our model away from running the niche Jack-up exploration wellhead rental business to one focused on developing and rolling out new products for the much larger production wellhead equipment, outlet valve and Xmas tree market sectors; and rebuilding over time our past record of reporting robust financial results and distributing dividends to shareholders.  The 2018 sale of the Jack-up exploration wellhead business to TFMC has been the trigger for the reset and rebuild initiative. Our business model is now one that is IP driven rather than operations-led, centred on designing, developing and marketing new POS-GRIP-enabled products, both independently and with partners such as TFMC through the Collaboration Agreement we signed in 2018.  This strategy is based upon our innovative proprietary POS-GRIP Technology and "HG"® Seals which importantly raise performance, reliability and safety standards, just as they did for Jack-up exploration.  

 

"In terms of rebuilding our revenue profile into one that is more balanced and diversified, a breakdown of our full year revenues demonstrates some of the progress that we have made in a short period of time. Income during the year was generated from orders for a production wellhead for Spirit Energy, our POS-SET Connector for abandonment operations for Oceaneering A/S and circa £1.4m from the sale of two POS-GRIP wellhead systems to our Russian partner Gusar for a Gazprom contract.  Our full year financial performance reflects the efforts being made with a substantial year on year increase in continuing sales revenues to £3,611k compared to £318k in 2018; a narrowing in the EBITDA loss to £2.51m (from £3.74m loss in 2018); and the special dividend of 0.99566 pence per Ordinary Share (paid in April 2019), the first since 2015.  While the numbers are small relative to those we regularly reported prior to the oil price downturn, the full year sets a foundation for future growth

 

"Our objective is to fully capitalise on the potential of our technology and to develop a portfolio of POS-GRIP-based products and partners.  We already have a suite of developed equipment for the production, subsea and abandonment markets as well as a number of first-rate partners, but there remains considerable run room in terms of the number of products and partners we can have - wherever metal to metal annulus sealing is required, POS-GRIP can deliver a true leak proof technology. This is key to delivering highly reliable production equipment that virtually eliminates maintenance costs and can significantly reduce the total cost of ownership of the equipment to operators over field life.

 

"Among our existing partnerships is our licensing agreement in Russia. Here we have high hopes based on our partner Gusar's breakthrough POS-GRIP wellhead order with Russian major Gazprom for a Jack-up exploration drilling campaign in the Arctic. As we found in the North Sea, once operators experience for themselves the multiple performance benefits of our equipment many become long-standing customers of Plexus and we are confident that this can be the case with Gazprom.  Majors such as BP and Royal Dutch Shell were all part of a blue-chip customer base with whom we established long-term relationships supplying Jack-up exploration wellheads. Gusar's first order with Gazprom therefore has the potential to be the first of many, which would in turn transform the Russian and CIS licensing agreement into a valuable long-term royalty stream for Plexus. 

 

"Another partnership with major income-generating potential for the Company is PPC, a JV with BEL Valves Limited.  A key strategic move, the JV enables us for the first time to offer a "package solution" so as to be able to compete with top tier suppliers when bidding for production contracts. Plexus can now offer operators a turnkey solution comprised of highly qualified surface Xmas trees and valves, alongside our POS-GRIP production wellhead systems. Contracts for the large production projects generally have long lead times but despite this and the recent conception of the JV, we have already begun to be invited to tender. Securing just one large production contract would be transformational for Plexus, not only in terms of the revenues that can be generated, but also in terms of demonstrating to the industry that we can supply major projects with state-of-the-art equipment as part of a full-service package.

 

"We believe we have the right IP, the right business model and the right partners to over time establish POS-GRIP as the go-to wellhead and related products technology for the broader energy sector, and in the process rebuild Plexus into a highly profitable, operating and IP-licensing company.  Moreover, we believe now is the right time for our technology, although we do not underestimate reports such as that from KPMG in September which said that oilfield service providers recorded their lowest level of transactions in five years. The meteoric rise of cleaner natural gas in the hydrocarbon energy mix has brought with it an increased urgency to tackle natural gas leaks.  A principal component of natural gas is methane which in un-combusted form is very damaging to the environment and a negative in respect of the green credentials of natural gas. By delivering a cost-effective, leak-proof solution at the wellhead, we believe POS-GRIP systems helps prevent methane emissions throughout the life of a well, where long term integrity is critical.

 

"A major opportunity is therefore opening up to Plexus, which we recognise has the potential to accelerate the roll-out of our leak-proof, and maintenance free equipment, increase the number of income / royalty streams within our portfolio whilst helping raise safety standards across the energy industry. I look forward to providing further updates on our progress as we focus on capitalising on the unique strengths of our technology for the benefit of all stakeholders."

 

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

Pete Lynch

Cenkos Securities PLC

Tel: 0131 220 9772

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 2019

 

 

2019

£'000

2018

£'000

Revenue (continuing operations)

3,611

318

Adjusted EBITDA (continuing operations)

(2,512)

(3,737)

Operating Loss (continuing operations)

Loss after taxation (continuing operations)

(4,010)

(3,227)

(5,285)

(4,694)

(Loss) / profit after taxation (discontinued operation)

(88)

4,322

Loss after taxation (combined)

(3,315)

(372)

Basic loss per share (pence) (continuing operations)

(3.12p)

(4.45)

Basic (loss) / earning per share (pence) (discontinued operation)

(0.09)p

4.10p

 

 

Chairman's Statement

 

Business progress

 

Following the sale of the Jack-up Business, the Company's revenues in the 12 months to 30 June 2019 amounted to £3,611k (2018: £318k), which was largely generated from orders for a production wellhead (Spirit Energy), a POS-SET Connector (Oceaneering A/S) and the sale of two POS-GRIP wellhead systems to Plexus' Russian partner Gusar for an initial Gazprom contract. The Company is optimistic that these orders are positive early steps into new and larger markets, and notes that there is typically a much longer lead time to securing new business in the production sector in particular. The Directors are pleased with the progress that has been made during the current year on the development of a project pipeline for future work, and organic growth is anticipated as the move into the production market begins to gain traction; however, these are not likely to begin to yield meaningful revenues until the last quarter of the year to 30 June 2020 ("FY20"). Accordingly, it is expected at this stage that revenues in FY20 will be H2-weighted and materially lower than the prior year.  However, the Company is currently in early stage discussions regarding a number of exciting projects which, due to the longer project lead times, could deliver significant growth in revenues in FY21.

 

Last year, I drew shareholders' attention to the Summary of Results table above the Chairman's Statement.  The numbers highlighted the significant corporate event that took place during 2018, specifically the sale of the Jack-up exploration wellhead rental business to TFMC.  Up until that point, this business had accounted for the vast majority of Plexus' revenues and so its sale resulted in, and necessitated, a reset and rebuild strategy centred around leveraging the recognition and awareness of our proprietary friction grip method of engineering that the transaction created. 12 months on, and the Summary of Results table is once again informative.  Despite being only one year into Plexus' goal of becoming  an IP-led business based around monetising POS-GRIP, our game-changing technology that has raised wellhead performance and safety standards, the table shows the progress being made in rebuilding our revenues from what was effectively a standing start to £3.6m

 

This year, I would like to draw shareholders' attention to our new direction of travel. The year ended 30 June 2019 was the first in Plexus' history as a plc where the rental of POS-GRIP wellheads for Jack-up exploration did not account for the majority of our income. Instead, revenues were generated from the sale of a production wellhead to Spirit Energy for deployment in the North Sea, a contract for our POS-SET Connector for use on abandonment operations also in the North Sea, and from the sale of two Jack-up rig exploration gas wellheads to Gusar, our licensee in Russia.  While we will continue to receive income from the rental of Jack-up exploration wellheads via our three year earn-out with TFMC and revenues from our retained rights for the CIS, going forward we are working on increasing the portion of our revenues generated from activities outside of the Jack-up Business.

 

Our goal is to add additional revenue streams to our portfolio and at the same time scale up those that are already in place. In that respect recent reports that the Russian government is considering opening up exploration of the Artic Sea to foreign operators is positive for our company as the potential of the region outstrips the original size of the North Sea. Each new revenue stream will be defined by geography, products or partners but they will all share one common denominator: our proprietary POS-GRIP Technology.  Used on over 350 wells worldwide by a blue-chip customer base that includes supermajors such as BP, Gazprom, Royal Dutch Shell and Total, POS-GRIP is the best technology for high pressure, high temperature drilling operations, where its metal-to-metal seals deliver true leak proof performance.  Prior to the oil price downturn, POS-GRIP had become the dominant Jack-up exploration wellhead equipment in the North Sea - one of our wellheads was selected by Total for what is believed to be the highest pressure and temperature well ever drilled in the North Sea.  This was for good reason. As far as we know only POS-GRIP enabled equipment has, without qualification, passed a level of test standards demanded by one of the supermajors.  For a company of Plexus' size to have raised the bar in terms of industry standards and established relationships with leading operators is a standout achievement, one that is testament to the strength and simplicity of our technology and the considerable time savings it offers operators.  We are focused on offering the same superior functionality and material cost savings to customers in other sectors, both inside and in due course potentially outside of the energy industry, and in the process build a portfolio of Plexus products. 

 

A number of important developments over the course of the year bode well for the coming years.  The sale of two exploration POS-GRIP wellheads to our Russian partner and the subsequent contract Gusar was awarded by Gazprom are the necessary first steps towards transforming the licensing agreement into a significant and regular royalty stream for Plexus; the Plexus Pressure Control Ltd ('PPC') joint venture ('JV') signed with BEL Valves Ltd, a UK based manufacturer and supplier of valves and actuators, enables us to combine our wellheads with extensively field-proven, highly qualified surface production Xmas trees and wellhead annulus outlet valves and so deliver the full service package operators of large scale production projects typically prefer, and the acquisition of a 49% stake in Kincardine Manufacturing Services Limited ('KMS'), a specialist precision engineering business servicing the oil and gas sector, provides us with access to machining capability in support of R&D projects focused on developing applications of POS-GRIP Technology for new markets.

 

Our aim is to have a pipeline of POS-GRIP-enabled applications at various stages of the development curve.  We have already developed equipment for the Jack-up exploration, production, subsea and abandonment markets.  We are currently working to not only exploit these products in the new market sectors we are now targeting, both independently and with partners, but are now also looking to develop new products and applications for areas of the energy market where POS-GRIP's proven capability to deliver what we believe is the only true metal-to-metal leak proof seal which can significantly raise performance and safety standards.  We are pursuing potential licensees for the supply and marketing of our POS-GRIP-enabled equipment in such markets and geographies and are confident that in due course further IP-led transactions will be secured.

 

Overview      

The technology around which the business is built is POS-GRIP, our friction grip method of engineering and associated product suite that is proven to deliver true and verifiable metal-to-metal leak proof "HG" seals, enhanced safety and operational features, and material time and cost savings due to lower or zero maintenance and remedial spend throughout field life. This is a key differential between Plexus and all other conventional oil service company equipment suppliers, and I am hopeful that the opportunities open to us are becoming more accessible as the industry continues to embrace the necessity for advanced technical solutions. This was very recently demonstrated during the recent UN climate summit in New York where the oil and gas industry met to discuss a plan for reducing emissions from fossil fuels, and in particular natural gas. A senior moderator involved with the Environmental Defence Fund concluded net-zero emissions without new technology was an impossibility and that - "We need every technology" to meet this goal.

 

The simplicity of POS-GRIP's design and by implication the ease with which it can be deployed and operated lies behind the technology's strength and explains why operators of hundreds of wells worldwide were willing to switch away from conventional wellhead technologies in favour of POS-GRIP, especially for high pressure high temperature ('HPHT') operations.  Competing equipment typically comprises a much larger number of individual components, each of which has the potential to compromise seal integrity and are vulnerable to fretting/movement caused by temperature and pressure variations.  By contrast, POS-GRIP involves applying an external hydraulic force to squeeze the housing until it engages a special-design end connection (casing or tubing hanger in wellheads) to generate a gripping force. This eliminates assembly tolerances and eventually merges the two members with such force that the parts effectively become one, delivering where required a lifetime leak proof metal seal solution. The process is accurately controlled by hydraulic pressure and occurs within the elastic limits of material, so that the connection is reversible, which is particularly beneficial for example for side-tracking operations.

 

Over the years, the benefits of our technology have attracted orders from blue-chip customers, such as Total and Equinor, and development and licensing partners, such as TFMC and Gusar.  The year under review saw new names added to the list of POS-GRIP customers and partners.  In August 2018 we secured an order for our POS-GRIP enabled POS-SET Connector™ from Oceaneering A/S, Norway for well abandonment operations in the North Sea. In March 2019, global energy giant Gazprom became the latest supermajor to award a contract for a POS-GRIP wellhead through Gusar.

 

The Gazprom purchase order, which was secured via our Russian licensing partner Gusar, covers the first year of a five-year Jack-up gas exploration drilling programme and so has the potential to lead to further orders in the future.  We believe that Russia can become an important market for Plexus equipment, and  being the number one gas producer in the world, Russia represents a huge market opportunity. As a result, the above breakthrough order with leading Russian operator Gazprom is highly encouraging.   

 

In terms of new partners, in June 2019 we announced the formation of PPC, a JV with UK-based BEL Valves Limited. The JV enables Plexus to compete on a level playing field with top tier suppliers when bidding for contracts for large scale production projects, which are typically awarded to providers offering turnkey solutions.  The JV, in which Plexus owns a majority shareholding, will supply us with highly qualified surface Xmas trees and valves, which we can then package up with our own POS-GRIP production wellhead systems.  We are now therefore much better placed to successfully bid for lucrative surface production projects where wellheads are often purchased as part of a package of equipment. 

 

PPC will not only service Plexus' existing surface production wellhead business, but it is anticipated the JV will also support the development of elements of our POS-GRIP Technology and other IP, specifically in relation to valve and Xmas tree technology for both land and offshore surface platform production wells. Such improvements in our design and development capability for future POS-GRIP applications was one reason behind our decision to invest £735,000 into Kincardine Manufacturing Services Limited ('KMS'), a specialist precision oil and gas engineering business.  As well as generating a future dividend stream for Plexus, our 49% interest in KMS gives us access to machining capability in support of R&D projects. 

 

Staff

On behalf of the Board I would once again 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, especially as pressure continues to grow on hydrocarbons and their associated impact on climate change. Following our prior year's restructuring and related job losses, these macro trends combined with our new strategy to create both new additional pressures and opportunities for our experienced and dedicated staff. I am confident that they will rise to these challenges as we look forward to an increased level of future activity, particularly in relation to our production wellhead applications, and now trees and valves. I am confident that these developments will be positive for our staff, and also for future employment opportunities within Plexus.

 

Outlook

"The outlook facing major energy providers, like BP, is both challenging and exciting. One of the biggest challenges of our time is a dual one: the need to meet rising energy demand while at the same time reducing carbon emissions." - this was BP CEO Bob Dudley's introduction to the 2019 edition of BP's Energy Outlook. This statement is an excellent summary of the current energy conundrum.  'Rising energy demand' is largely being driven by growing prosperity in Asia and other developing regions.  'Reducing carbon emissions' is largely being driven by the need to meet the climate goals set in the Paris Agreement. 

 

Satisfying such growing demand for energy while reducing harmful emissions may appear to be diametrically opposed, but only if the energy industry is viewed through a twentieth-century lens.  Today, advanced technologies that enable fast-growing energy sub-sectors, such as renewables and the transportation of cleaner natural gas in liquified form, offer up solutions that allow the industry to meet the challenge of providing the world with the ever-increasing amounts of energy it requires while at the same time combatting climate change. Bob Dudley continues, "New technologies are revolutionizing the way in which that energy is produced, transported and consumed." 

 

We count our own POS-GRIP wellhead and "HG" metal-to-metal sealing system as one such enabling technology.  POS-GRIP equipment delivers the only true long-term wellhead metal seal which can be tested and qualified as a system to mirror true field life conditions, rather than simplistic component-based testing.  By providing a leak proof solution at the wellhead end of the gas supply infrastructure chain both during production and beyond, we believe that POS-GRIP clearly has an important role to play in preventing wellhead gas leaks, which can result in costly well shutdowns, maintenance, and potential hydrocarbon emissions.

 

According to the US Energy Information Agency, gas-fired power plants produce approximately 50% less carbon dioxide than coal plants, and it is therefore very important that such benefits are not eradicated as a result of methane and other hydrocarbons leaks along the supply chain, from the wellhead all the way through to the consumer. As Bob Dudley, BP's CEO at this month's 40th annual Oil & Money conference in London told the audience one of his concerns "is that gas is being increasingly marginalised. Even vilified, and demonised". He further stated that to "exclude gas - when so much is at stake - is to take huge and unnecessary risk", and that "methane leaks and flaring can and must be tackled".

 

To illustrate the growing importance of gas, in July, Rystad Energy predicted 2019 will see LNG greenfield investment hit US$103 billion which, if achieved, would be a new record for the industry. With so much investment being committed to natural gas, it is clear that it is in the industry's interests to ensure the environmental benefits delivered by gas are safeguarded, and encouragingly many initiatives are being put in place.  For example, Shell has joined BP, Eni, ExxonMobil, Repsol, Statoil, Total and Wintershall to reduce methane emissions under the Guiding Principles, a collaboration between organisations, including the International Energy Agency and the United Nations.

 

Increased focus on and demand for gas by the energy industry, together with the growing scrutiny of leaks across operations and infrastructure, play to the strengths of our POS-GRIP Technology and provide a positive long-term backdrop for the uptake of our POS-GRIP-enabled equipment. Furthermore, while superior performance tends to go hand in hand with higher costs, POS-GRIP breaks the mould because of simplicity and by removing the need for remedial maintenance and associated shut in costs, offering operational cost savings that conventional technologies struggle to match. This fits perfectly with what we understand our customers really care about most, which is the lowest possible life-cycle cost, together with maximum reliability, zero maintenance and improved safety performance. 

 

The combination of POS-GRIP's operational, environmental and financial benefits ought to resonate strongly with companies operating across the energy sector.  Our challenge is to ensure all operators are aware of POS-GRIP Technology, its multiple benefits and its various applications. As the growing level of interest in POS-GRIP equipment by customers and partners demonstrates, progress is being made, although momentum will take time in a conservative industry. We are confident the year ahead will see us build on the start we have made in resetting and rebuilding Plexus into a profitable IP-led technology business, which can generate substantial value for our shareholders. 

 

 

J Jeffrey Thrall

Non-Executive Chairman

4 November 2019

 

 

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-to-metal seals, significant installation time savings, reduced operating and maintenance costs and enhanced safety.

 

Following the 2018 sale of the Company's Jack-up exploration wellhead rental operations to a division of leading oil and gas service and equipment provider TFMC, the year under review saw the Group move towards an IP-led business model focused on designing, developing and rolling-out a wider range of products based on the POS-GRIP method of engineering. 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 continues to benefit from Jack-up exploration drilling activity via its three year earn-out arrangement with TFMC, which was part of the terms of the 2018 sale agreement. 

 

The Company is now focused on pursuing other markets including surface production, abandonment and subsea.  In line with this strategy, in August 2018, the Company announced a purchase order for its POS-SET Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea.  In June 2019, the Company established Plexus Pressure Control Limited ('PPC'), with UK-based BEL Valves Limited, which is important when bidding for large scale production projects.  Plexus owns a majority interest in the JV, which enables it to supply operators with surface Xmas trees and valves, alongside its own POS-GRIP production wellhead systems.  As a result, Plexus is able to compete with top tier suppliers for high-value surface production projects which are generally awarded to service providers offering turnkey solutions. 

 

The Directors believe that the Company's proprietary technology has additional wide-ranging applications both within and outside the oil and gas industry. Work streams are underway to develop additional POS-GRIP-enabled applications for new markets, both independently and with partners, including TFMC with whom Plexus signed a Collaboration Agreement to develop new POS-GRIP products.

 

 

Financial Results

 

Revenue

Continuing revenue for the year was £3,611k, a significant increase from £318k 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 the production wellhead market.

 

Plexus continued to invest for the future and in its technology with total R&D spend £0.31m compared to £0.23m last year.

 

Margin

Gross margin on continuing operations increased to 48.4% (compared to 8.8% in the previous year). The increase in margin is largely driven by the increase in continuing sales revenue. Cost of sales include depreciation charges relating to rental assets which is a fixed cost in nature, therefore this year the depreciation charge is a significantly smaller portion of sales revenue. Additionally, the equipment sales during the year carried relatively high margins.

 

Overhead expenses

Continuing activities administrative expenses have increased when compared to the prior year with expenditure of £5.76m (2018: £5.31m). Within this total the continuing salary component remained the largest at £2.68m which is broadly in line with last year's total cost of £2.53m.  The increase in overhead expenditure is a result of costs realigning to the new business strategy structure.

 

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 £2.51m, compared to a loss of £3.74m in the previous year. Adjusted EBITDA on continuing operations is calculated as follows:

 

 

 

 

2019

£'000

2018

£'000

Operating loss

(4,010)

(5,285)

 

 

 

Add back:

 

 

-Depreciation

718

737

-Amortisation

904

898

-Fair value adjustment to asset held for sale

-

-

Share in profit of associate

(122)

-

-Gain on disposal

-

(87)

 

 

 

Adjusted EBITDA on continuing operations

(2,510)

(3,737)

 

 

Loss before tax

Loss before tax on continuing operations of £3.71m compared to a loss last year of £5.25m. The loss on discontinued operations was £0.1m compared to a loss of £1.59m, (which was before adding the gain on sale of the discontinued operation of £5.83m).

 

Tax

The Group shows a total income tax credit of £0.50m for the year compared to a tax credit of £0.65m for the prior year. The income tax credit has been split between continuing activities (£0.48m, 2018: £0.55m) and discontinued activities (£0.02m, 2018: £0.09m). The income tax credit for the year is driven by the loss incurred during the financial period.

 

Investments

In December 2018 Plexus acquired a 49% shareholding in Kincardine Manufacturing Services Limited ('KMS'), for a consideration of £735k plus associated legal fees of £50k. At the year-end a share in profit of associate of £122k has been recognised increasing the value of the investment to £907k. Moving forward it is expected that this investment will provide a dividend income stream to Plexus.

 

EPS

The Group reports basic earnings loss per share on continuing activities of 3.12p compared to a loss per share of 4.45p in the prior year. The basic loss per share on discontinued activities of 0.09p, compared to an earnings per share of 4.10p 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 £3.80m compared to £4.00m last year. Capital expenditure on tangible assets increased to £0.53m compared to £0.45m last year. The net book value of intangible assets, including goodwill, IP rights, R&D and software, decreased by 4.9% to £11.64m compared to £12.24m last year. Capital expenditure on intangibles totalled £0.31m compared to £0.23m last year. Receivables decreased to £9.46m compared to £11.23m last year. Net cash closed at £5.07m (cash and cash equivalents of £5.15m less bank loans of £0.08m) compared to net cash of £12.92m last year (cash and cash equivalents of £13.30m less bank loans of £0.38m) reflecting net cash outflow for the year of £7.85m (net decrease in cash of £8.14m per Statement of Cash Flows plus net decrease in bank borrowings of £0.30m). The reduction in bank borrowing represents £0.30m of repayments on the property term loan reducing the balance from £0.38m to £0.08m. It should also be noted that the Group has invested a further £2.84m in high yield bonds that can be traded for cash, these are included in non-current financial investments in the statement of financial position. Banking facilities comprise of a reducing five year £1.5m term loan (with a current balance of £0.08m) which was put in place in September 2014 to part fund the purchase of the additional building in Aberdeen. Post period end the bank loan has been settled in full. 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 £11.64m, a decrease of 4.9% from £12.24m last year. This movement represents investment of £0.30m less the annual amortisation charge of £0.90m.

 

Plexus own an extensive range of IP which includes many registered patents and trademarks across a number of jurisdictions, and actively works to develop and protect new POS-GRIP methods and applications where deemed commercially advantageous to do so. In addition to registered IP, Plexus has developed over many years a vast body of specialist know-how in relation of the POS-GRIP friction grip method of engineering.

 

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 increased from £0.23m in 2018 to £0.31m in 2019. This increase demonstrates an investment in 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 in the prior year 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 over the coming years.

 

Capital reorganisations

On 1 February 2019 Plexus Holdings PLC completed the acquisition of 4,950,495 Ordinary Shares beneficially held by LLC Gusar Following the above transaction, the Company's issued share capital comprises 105,386,239 Ordinary Shares, of which 4,950,495 Ordinary Shares are held in treasury. The Company now has a total of 100,435,744 Ordinary Shares in issue with voting rights. This transaction has created a negative "Shares Held in Treasury Reserve" of £2.5m.

 

Secondly, in April 2019 following a court approval process Plexus Holdings Plc cancelled the Share Premium Account in order to increase distributable reserves the principle benefit of which is to increase the Company's future flexibility, subject to the financial position and prospects of the Company, to pay dividends, to facilitate any prospective buyback of shares (including by way of a tender offer) or to provide flexibility for any other general corporate purposes. This transaction reduced the share premium account from £36,893k to nil.

 

Dividends

In April 2019 the Company paid a special dividend of 0.99566 pence per Ordinary Share, with an aggregate value of £1m. Whilst the Company remains committed to distributing dividends to its shareholders, the Directors believe that it is prudent to consider the payment of dividends subject to the ongoing capital and operational requirements of the business.

 

Operations

During the year important milestones have been achieved in line with the Company's strategy to build a portfolio of revenue streams based on its POS-GRIP technology.  In Jack-up exploration, activity was centred on supporting the efforts of Gusar and Konar, Plexus' licensing partners in Russia and CIS markets, to secure a first wellhead order in the Russian and CIS markets.  The Russian licensing agreement, which falls outside of the sale of the Jack-up Business to TFMC, achieved such a milestone in March 2019 following the award of a purchase order for a POS-GRIP wellhead from Gazprom covering the first year of a five-year Jack-up gas exploration drilling programme. This followed the £1.4m sale to Gusar in February 2019 of two POS-GRIP 18-3/4" rental wellhead sets and associated mudline equipment to provide the basis for Gusar's own POS-GRIP rental exploration wellhead inventory.

 

Outside Jack-up exploration, the Company continues to market its POS-GRIP-enabled production and subsea wellheads, and its POS-SET Connector for abandonment operations. Following the sale of the Jack-up Business, the much  larger production market is a key area of focus for the Company and with this in mind during the year, Plexus established a joint venture, Plexus Pressure Control Limited ('PPC'), with UK-based BEL Valves Limited, to bid for contracts for large scale production projects.  These contracts are generally awarded to service providers offering turnkey solutions. The JV, in which Plexus owns a majority interest, enables Plexus to supply operators with a full-service package comprised of surface Xmas trees and valves, as well as the Company's own POS-GRIP production wellhead systems.  PPC helps Plexus to compete on a level playing field with top tier suppliers when bidding for high-value surface production projects.  The Company is currently tendering for a number of such contracts.

 

In August 2018, Plexus secured a contract for a rental order for the POS-SET™ Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea.  This is the second order the Company has secured for its POS-SET Connector for abandonment operations, a market the Directors believe has the potential to grow significantly as decades old fields and equipment are decommissioned and made safe, particularly in the North Sea.        

 

Plexus continued to invest in R&D, with expenditure excluding test fixtures of £0.31m compared to £0.23m in the prior year, an increase of 34.7%. 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. 

 

Following the transfer of employees, as part of the sale of the Jack-up Business to TFMC, staffing levels have been stable and the resource gaps identified through the Management of Change process have been fulfilled.

 

As a result of the reduction in personnel, a new Emergency Response team has been established and additions made to the on-call team. Awareness and training sessions have been carried out with these employees to furnish them with the necessary information and skills demanded of these groups.

 

The OPITO accredited competency system has been completely updated to better reflect the equipment and to enhance the robust assessment of employees in safety critical roles. A thorough review of all standards across the system has taken place which resulted in a complete restructure and rework for the Workshop and FST scopes. The system has since undergone a monitoring audit in July 2019 and has successfully maintained its OPITO approval.

 

An evaluation of the in-house training modules has been conducted and work has commenced on redeveloping these to ensure they continue to provide the necessary underpinning knowledge and skills required of those fulfilling technical roles.

 

As part of the continuing commitment to the health and wellbeing of employees, the Healthy Working Lives programme aims to encourage habits of wellbeing and inspires individuals to take responsibility for their own health.  A schedule of diverse information campaigns and activities resulted in the retention of our Gold Award. 

 

The implementation of an absence management procedure ensures that the appropriate procedures and processes are in place to support employees during periods of ill-health and furthermore to allow the business to manage and monitor absence and facilitate employee return to work.

 

Comprehensive reviews of both the General Data Protection Regulations (GDPR) and the Criminal Finances Act 2017 were carried out and the resulting actions and processes necessary for compliance have been realised.  This also includes ensuring the communication and awareness of the measures throughout the business.

 

Staffing figures at the end of June 2019 were 37 employees including 2 international employees, which compares to a total of 54 in the prior year.

 

Health and Safety continues to be 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, and this is reflected in the business being lost time injury (LTI) free for the fourth consecutive year.

 

Plexus continues to retain OHSAS 18001:2007 accreditation with the next surveillance audit scheduled for Nov 2019. Plexus is currently enhancing its BMS with a look to transition across to ISO 45001:2018 which replaces OHSAS 18001:2007 in 2020 ahead of the March 2021 deadline.

 

Quality continues to be an integral focus for Plexus, ensuring the Group consistently provides products and services that meet customers' requirements. Plexus retained its ISO 9001:2015 accreditation following a re-certification audit completed by Lloyd's Register in November 2018, with only minor Non-conformities and Opportunities for Improvements raised.

 

As part of continual improvement, Plexus has completed the first (Stage 1) of two audits with API as part of the company strategy to achieve API Q1 Certification for its Business Management System, with the second audit (Stage 2) in October 2019. Plexus continues to hold Licences for both API 6A and 17D

 

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 correspondingly 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 continually evolves 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 in the future 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 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. The Company is now focused on replicating this success in other wellhead markets including production and subsea, as well as other initiatives such as a POS-GRIP Crown Plugs 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 and maintenance costs.

 

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. We believe the Python subsea wellhead is important as it can eliminate the need for wear bushings, pack-offs, lock-rings, and lockdown sleeves, whilst delivering instant rigid lock-down in all directions, and is 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 could 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 that such features mean that Plexus' wellhead equipment sets and delivers a new and superior standard. Apart from the operational time savings and related safety benefits, at an engineering level the Company has demonstrated that its technology can raise and even exceed 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 specialist 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 wellhead market. The Directors believe that this success can be replicated and extended to the wider and much larger energy sectors 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 niche Jack-up exploration drilling market in the UK Continental Shelf ('UKCS'), achieving a near 100% market share for HP/HT exploration wells. 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 were for 15,000psi HP/HT; and the remainder for 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 previously established Plexus Pressure Control Limited ('PPC'), a joint venture with UK-based BEL, to bid for contracts for large scale production projects that are typically awarded to service providers offering full package, turnkey solutions.  Plexus owns a majority interest in PPC which enables Plexus to supply operators with surface Xmas trees and valves, in addition to the Company's own POS-GRIP production wellhead systems.  In August 2018, the Company announced a purchase order for its POS-SET Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea.  The order is the second Plexus has secured for the POS-SET Connector.

 

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. 

 

Following the sale of the Jack-up Business to TFMC, Plexus is today an IP-led research and development business focused on extending its business activities into the volume land, platform and subsea sectors.  This strategy will be pursued both organically and through licensees and partners. 

 

 

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, and highlights the Group moving towards a supplier of production wellhead equipment. Non-financial indicators include Health and Safety statistics, equipment utilisation rates, geographical diversity of revenues and customers, the level of ongoing customer interest and support, geo-political considerations such as emissions concerns and awareness, 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. The non-financial key performance indicators are included within the strategic report.

 

 

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 and environmental landscape, particularly in relation to climate change concerns and the relentless move away from hydrocarbons to, for example renewables, continues to demonstrate how any combination of such factors can generate risks and uncertainties that can undermine stable trading conditions. Further examples include Iran making efforts to return to the world hydrocarbon supply stage, ongoing destabilisation in Syria, 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 potential 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 where possible seeks to broaden its geographic footprint and customer base, as well as actively looking to forge commercial relationships with large industry players.

 

         The Company is closely monitoring the potential impact and risks of the UK's pending exit ('Brexit') from the European Union ('EU') under various scenarios, including leaving the EU without a deal. This includes assessing the potential impact of the introduction of trade tariffs and the potential supply chain disruption that could result from increased customs checks at borders and related matters. Plexus has an IP-led business model which provides it with operational flexibility and the ability to respond to and mitigate some of the potential impacts of the different scenarios regarding the UK's exit from the EU. In the meantime, Plexus has amongst other activities applied for and is expecting shortly an Economic Operator Registration and Identification ('EORI') number to enable the Company to continue to import and export with the EU.

 

 (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 such as wind and solar, alternative energies and developments such as the increasing use of electric vehicles and corresponding improvements in battery storage life, 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, and indeed currently global demand for hydrocarbons continues to grow annually. 

 

 (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, time savings 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, influence, and 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 a corresponding reduction in drilling activity and related levels of CapEx spend. Therefore, with any upturn 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 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, the sustained period of record low interest rates is impacting on global finances in a number of ways and could 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.

 

 (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 therefore potentially 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 and royalty 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

4 November 2019

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2019

 

 

Notes

2019

£'000

2018

£'000

Revenue

1

3,611

318

Cost of sales

 

(1,865)

(290)

 

 

-------

-------

Gross profit

 

1,746

28

Administrative expenses

 

(5,756)

(5,313)

 

 

-------

-------

Operating loss

 

(4,010)

(5,285)

Finance income

 

218

73

Finance costs

 

(41)

(37)

Share in profit of associate

 

122

-

 

 

-------

-------

Loss before taxation

 

(3,711)

(5,249)

Income tax credit

3

484

555

 

 

-------

-------

Loss after taxation from continuing operations

 

(3,227)

(4,694)

Profit/(loss) after taxation from discontinued operations

4

(88)

4,322

Loss for year

 

(3,315)

(372)

Other comprehensive income

 

-

-

 

 

-------

-------

Total comprehensive

income for the year attributable to the owners of the parent

 

(3,315)

(372)

 

 

-------

-------

(Loss)/earnings per share

5

 

 

Basic from continuing operations

 

(3.12p)

(4.45p)

Diluted from continuing operations

 

(3.12p)

(4.45p)

Basic from discontinued operations

 

(0.09)p

4.10p

Diluted from discontinued operations

 

(0.09)p

4.08p

 

 

Consolidated Statement of Financial Position

at 30 June 2019

 

 

Notes

2019

£'000

2018

£'000

Assets

 

 

 

Goodwill

 

767

767

Intangible assets

6

10,876

11,469

Property, plant and equipment

7

3,804

4,004

Non-current financial assets

9

2,835

2,124

Investment in associate

 

8

907

-

Deferred tax asset

3

1,259

984

Other receivables

 

4,515

6,337

 

 

-------

-------

Total non-current assets

 

24,963

25,685

 

 

-------

-------

Inventories

 

698

1,871

Trade and other receivables

 

4,948

4,888

Current income tax asset

 

617

414

Cash and cash equivalents

 

5,152

13,296

 

 

-------

-------

Total current assets

 

11,415

20,469

 

 

-------

-------

Total Assets

 

36,378

46,154

Equity and Liabilities

 

 

 

Called up share capital

        10

1,054

1,054

Shares held in treasury

11

(2,500)

-

Share premium account

 

-

36,893

Share based payments reserve

 

674

674

Retained earnings

 

34,873

2,295

 

 

-------

-------

Total equity attributable to equity holders of the parent

 

34,101

40,916

Liabilities

 

 

 

Other non-current liabilities

 

-

493

Bank loans

 

-

75

 

 

-------

-------

Total non-current liabilities

 

-

568

 

 

-------

-------

Trade and other payables

 

2,202

4,370

Bank loans

 

75

300

 

 

-------

-------

Total current liabilities

 

2,277

4,670

 

 

-------

-------

Total liabilities

 

2,277

5,238

Total Equity and Liabilities

 

36,378

46,154

 

 

-------

-------

 

                                             

Consolidated Statement of Changes in Equity

for the year ended 30 June 2019

 

 

Called Up Share Capital

£'000

Shares Held in Treasury

£'000

Share Premium

Account

£'000

Share Based Payments Reserve

£'000

Retained Earnings

£'000

Total

£'000

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

Total comprehensive income for the year

-

-

-

-

(3,315)

(3,315)

Cancellation of share premium

-

-

(36,893)

-

36,893

-

Buyback of shares

-

(2,500)

-

-

-

(2,500)

Dividend paid

-

-

-

-

(1,000)

(1,000)

Balance as at 30 June 2019

1,054

(2,500)

-

674

34,873

34,101

 

 

Consolidated Statement of Cash Flows

for the year ended 30 June 2019

 

 

Notes

2019

£'000

2018

£'000

Cash flows from operating activities

 

 

 

Loss before taxation from continuing activities

 

(3,711)

(5,249)

Profit/(loss) before taxation from discontinued activities

 

(108)

4,232

Loss before tax

 

(3,819)

(1,017)

Adjustments for:

 

 

 

Depreciation, amortisation charges

 

1,625

3,030

Gain on disposal of property, plant and equipment

 

-

(87)

Share in profit of associate

 

(122)

-

Gain on sale of discontinued operation

 

-

(5,825)

Fair value adjustment on financial assets

 

3

21

Investment income

 

(218)

(73)

Interest expense

 

8

37

Changes in working capital:

 

 

 

Decrease / (increase) in inventories

 

1,173

(1,860)

Decrease / (increase) in trade and other receivables

 

1,762

(1,377)

(Decrease) / increase in trade and other payables

 

(2,661)

2,667

 

 

-------

-------

Cash used in operating activities

 

(2,249)

Income taxes refunded

 

26

500

Net cash used from operating activities

 

(2,223)

(3,984)

 

 

-------

-------

Cash flows from investing activities

 

 

 

Funds invested in financial instruments

 

(714)

(2,145)

Net initial proceeds from sale of discontinued operation

 

-

14,050

Associated costs on sale of discontinued operation

 

-

Purchase of intangible assets

 

(311)

(231)

Investment in associate

 

(785)

-

Purchase of property, plant and equipment

 

(530)

(447)

Proceeds of sale of property, plant and equipment

 

9

329

Net proceeds from sale of asset held for sale

 

-

395

Interest received

 

218

73

 

 

-------

Net cash (used) / generated in investing activities

 

(2,113)

10,439

 

 

-------

-------

Cash flows from financing activities

 

 

 

Repayment of loans and banking facilities

 

(300)

(300)

Buyback of shares held in treasury

 

(2,500)

-

Dividend paid

 

(1,000)

-

Interest paid

 

(8)

(37)

 

 

-------

-------

Net cash outflow from financing activities

 

(3,808)

(337)

 

 

-------

-------

Net (decrease) / increase in cash and cash equivalents

 

(8,144)

6,118

Cash and cash equivalents at 1 July 2018

 

13,296

7,178

 

 

-------

-------

Cash and cash equivalents at 30 June 2019

13

5,152

13,296

 

 

 

Notes to the Consolidated Financial Statements

 

1.      Revenue

 

 

2019

£'000

2018

£'000

By geographical area

 

 

UK

1,511

269

Europe

2,086

-

Rest of World

14

49

 

3,611

318

 

 

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 equipment 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:

 

2019

£'000

2018

£'000

Customer 1

1,818

230

Customer 2

1,447

49

Customer 3

-

39

 

 

3.      Income tax credit

 

(i)

The taxation charge for the year comprises:

2019

£'000

2018

£'000

 

UK Corporation tax:

 

 

 

 Current tax on income for the year

-

-

 

 Adjustment in respect of prior years

(620)

(434)

 

 

(620)

(434)

 

Foreign tax

 

 

 

 Current tax on income for the year

1

45

 

 Adjustment in respect of prior years

391

440

 

 

392

485

 

Total current tax (credit) / charge

(228)

51

 

 

 

 

 

Deferred tax:

 

 

 

 Origination and reversal of timing differences

(426)

(690)

 

 Adjustment in respect of prior years

150

(6)

 

Total deferred tax

(276)

(696)

 

 

 

 

 

Total tax credit

(504)

(645)

 

The effective rate of tax is 19% (2018: 19%)

 

 

 

 

 

 

 

Tax credit on discontinued activities

(20)

(90)

 

Tax credit on continued activities

(484)

(555)

 

Total tax credit

(504)

(645)

 

 

(ii)

Factors affecting the tax charge on continuing activities for the year

2019

£'000

2018

£'000

 

Loss on ordinary activities before tax

(3,711)

(5,249)

 

Tax on (loss) / profit at standard rate of UK corporation tax of 19% (2018: 19%)

(705)

(997)

 

Effects of:

 

 

 

Expenses not deductible for tax purposes

223

259

 

Effect of change in tax rate

53

112

 

Tax adjustments on share-based payments

22

70

 

Adjustments in respect of prior year

(78)

1

 

Group income not subject to tax

-

-

 

Foreign tax rates

1

 

 

Total tax credit on continuing activities

(484)

(555)

 

 

(iii)

Movement in deferred tax asset balance

2019

£'000

2018

£'000

 

Deferred tax asset at beginning of year

(984)

(287)

 

Credit to Statement of Comprehensive Income

(275)

(696)

 

Deferred tax movement on share options recognised in equity

-

(1)

 

 

 

 

 

Deferred asset at end of year

(1,259)

(984)

 

 

(iv)

Deferred tax asset balance

2019

£'000

2018

£'000

 

The deferred tax asset balance is made up of the following items:

 

 

 

Difference between depreciation and capital allowances

842

854

 

Share based payments

(4)

(27)

 

Tax losses

(2,097)

(1,811)

 

Deferred tax asset at end of year

(1,259)

(984)

 

The deferred tax asset is reviewed at the end of each reporting period. Following a review of the Group's financial models and taxable profitability in the future it is considered appropriate to recognise the deferred tax asset in full.

 

 

4.      Discontinued Operations

 

          On 1st February 2018 the Group sold its "Jack-up Business" to TFMC for an initial gross consideration of £15m, with an additional sum of up to £27.5m 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 earnout has been accrued at £8,839k. £4,515k (2018: £6,337k) 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 £986k, which relates to the refurbishment of the sold rental fleet which is deductible from the earn-out payments. This balance is payable within one year and is included within trade and other payables.

 

          The gain on sale on disposal of discontinued operation was determined as follows:

 

 

2018

£'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:

 

2019

£'000

2018

£'000

Revenue    

-

3,907

Expenses   

(108)

(5,500)

Loss before tax of discontinued operations

(108)

(1,593)

Income tax credit  

20

90

Loss after tax of discontinued operations

(88)

(1,503)

 

Profit / (Loss) after taxation from discontinued operations

(88)

4,322

 

The Statement of cash flows includes the following amounts related to discontinued operations:

 

 

2019

£'000

2018

£'000

Operating activities    

-

(231)

Investing activities

-

12,424

Financing activities

-

-

Net cash generated / (used) from discontinued activities

-

12,193

 

 

5.      Loss per share

 

 

2019

£'000

2018

£'000

Loss attributable to shareholders - continuing operations

(3,227)

(4,694)

(Loss) / profit attributable to shareholders - discontinued operations

(88)

4,322

Loss attributable to shareholders

(3,315)

(372)

 

 

 

 

Number

Number

Weighted average number of shares in issue

103,406,041

105,386,239

Dilution effects of share schemes

-

486,979

 

 

 

Diluted weighted average number of shares in issue

103,406,041

105,873,218

 

 

 

(Loss) / earning per share

 

 

Basic Loss per share for continuing operations

(3.12p)

(4.45p)

Diluted Loss per share for continuing operations

(3.12p)

(4.45p)

Basic Loss per share for discontinued operations

(0.09p)

4.10p

Diluted loss per share for discontinued operations

(0.09p)

4.08p

 

 

 

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

 Property

£'000

Patent and

Other

Development

£'000

Computer

Software

£'000

Total

£'000

Cost

 

 

 

 

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

Additions

-

310

1

311

Disposals

-

(38)

-

(38)

As at 30 June 2019

4,600

13,096

332

18,028

 

 

 

 

 

Amortisation

 

 

 

 

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

Charge for the year

238

646

20

904

On disposals

 

(38)

-

(38)

As at 30 June 2019

3,076

3,758

318

7,152

 

 

 

 

 

Net Book Value

 

 

 

 

As at 30 June 2019

1,524

9,338

14

10,876

 

 

 

 

 

As at 30 June 2018

1,762

9,674

33

11,469

 

When assessing the valuation of the Group's intangible assets the key assumptions on which the valuation is based are that:

 

l Industry acceptance will result in continued growth of the business above long term industry growth rates, Management consider this to be appropriate for a new technology gaining industry acceptance,

l Prices will rise with inflation,

l Staff wage inflation will be higher than general inflation but will not rise in line with sales.

 

These assumptions were determined from the directors' knowledge and experience.

 

The value in use calculation is based on cash flow forecasts derived from the most recent financial model information available. Although the Group's technology is proven and has proven commercial value the exploitation of opportunities beyond the rental wellhead exploration equipment services market are at a relatively early stage and the commercialisation process is expected to be a long term one. The cash flow forecasts therefore extend to 2039 to ensure the full benefit of all current projects is realised. The rationale for using a timescale up to 2039 with growth projections which increase in the first five years and decline thereafter, is that as time progresses, Plexus expects to gain an increasing foothold in the subsea and other equipment markets which are already well established. As the Group are starting from a base point of trading the growth rates are high in the initial years (varying from 50% to 400% depending on the model employed) then in later years where the technology becomes established the expected rate of growth declines (varying from 5% to 10 depending on the model employed).

 

The key assumptions used in these calculations include discount rate, revenue projections, growth rates, expected gross margins and the lifespan of the Group's technology. Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to the Group and the markets in which it operates. Revenue projections, growth rates, margins and technology lifespans are all estimated based on the latest business models and the most recent discussions with customers, suppliers and other business partners.

 

Management regularly assesses the sensitivity of the key assumptions and the probability that any of them would change to the degree that the carrying value would exceed the recoverable amount. It would require significant adjustments to key assumptions before the goodwill would be impaired.

 

Patent and other development costs are internally generated.

 

 

7.      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 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

Additions

92

-

391

47

-

530

Transfers

-

-

57

(57)

-

-

Disposals

-

-

(525)

-

-

(525)

 

 

 

 

 

 

 

As at 30 June 2019

3,699

716

5,432

-

17

9,864

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

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

Charge for the year

180

85

450

-

3

718

On disposals

 

-

(513)

-

-

(513)

As at 30 June 2019

1,338

466

4,252

-

4

6,060

 

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

 

As at 30 June 2019

2,361

250

1,180

-

13

3,804

 

 

 

 

 

 

 

As at 30 June 2018

2,449

335

1,194

10

16

4,004

 

 

8.      Investment in associate

 

 

2019

£'000

2018

£'000

Investment in associate during the year

735

-

Associated legal fees

50

-

Share of profit in the year

122

-

Investment in associate at 30 June 2019

907

-

 

 

On December Plexus Ocean Systems Limited acquired a 49% interest in   Kincardine Manufacturing Services Limited ('KMS') for a £735k plus associated legal fees. 

 

The summary financial information of KMS, extracted on a 100% basis from the accounts for the 6 months ended 30 June are as follows:

 

 

2019

£'000

Assets

2,692

Liabilities

1,467

Revenue

1,495

Profit

245

 

 

9.      Financial assets

 

 

2019

£'000

2018

£'000

Financial instruments held at fair value

2,835

2,124

 

2,835

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 £3k (2018: £21k). The fair value of the investment is evaluated by reviewing a portfolio on a quarterly basis.

 

         

10.    Share Capital

 

 

2019

£'000

2018

£'000

Authorised:

 

 

Equity: 110,000,000 (2018: 110,000,000) Ordinary shares of 1p each

1,100

1,100

Allotted, called up and fully paid:

 

 

Equity: 105,386,239 (2018: 105,386,239) Ordinary shares of 1p each

1,054

1,054

         

 

11.   Shares held in treasury

 

 

2019

£'000

2018

£'000

 

 

 

Buyback of shares

2,500

-

 

On 1 February 2019 Plexus Holdings PLC completed the acquisition of 4,950,495 Ordinary Shares beneficially held by LLC Gusar Following the above transaction, the Company's issued share capital comprises 105,386,239 Ordinary Shares, of which 4,950,495 Ordinary Shares are held in treasury. The Company now has a total of 100,435,744 Ordinary Shares in issue with voting rights. This figure, 100,435,744, should be used by shareholders as the denominator when determining whether they are required to notify their interest in, or a change to their interest in the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

 

12.    Reconciliation of net cash flow to movement in net cash/(debt)

 

 

2019

£'000

2018

£'000

Movement in cash and cash equivalents

(8,144)

6,118

Repayment of bank loans

300

300

(Decrease) / increase in net cash in year

(7,844)

6,418

Net cash at start of year

12,921

6,503

Net cash at end of year

5,077

12,921

 

 

 

13.    Analysis of net cash/(debt)

 

2019:

 

 

 

 

At beginning

of year

£'000

Cash flow

£'000

At end

of year

£'000

Cash in hand and at bank

13,296

(8,144)

5,152

Bank loans

(375)

300

(75)

Total

12,921

(7,844)

5,077

2018:

 

 

 

 

At beginning

of year

£'000

Cash flow

£'000

At end

of year

£'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 2019 but is derived from those statements.

 

The statutory financial statements and this preliminary statement for the year ended 30 June 2019 were approved by the Board on 4 November 2019.  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 2018 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 [email protected] or visit www.rns.com.
 
END
 
 
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Quick facts: Plexus Holdings Plc

Price: 26

Market: AIM
Market Cap: £26.11 m
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