TIDMPOS
RNS Number : 8054N
Plexus Holdings Plc
31 October 2016
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
31 October 2016
Plexus Holdings plc ('Plexus', 'the Company' or 'the Group')
Preliminary Results for the Year to 30 June 2016
Plexus Holdings plc, the AIM quoted oil and gas engineering
services business and owner of the proprietary POS-GRIP(R) method
of wellhead engineering, announces its preliminary results for the
year ending 30 June 2016.
Financial Results
-- Sales revenue GBP11.23m (2015: GBP28.53m)
-- Adjusted EBITDA (GBP1.56m) loss (2015: GBP9.53m profit)
-- Loss after tax (GBP5.79m) (2015: GBP5.43m profit)
-- Basic loss per share (6.39p) (2015: 6.40p profit per share)
-- Net cash of GBP9.9m (2015: net debt GBP2.9m)
-- No proposed final dividend (2015: 1.75p per share)
Whist the Company remains committed to distributing dividends to
its shareholders, the Directors believe that in view of the
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 dividend at the
earliest opportunity.
Overview
-- Continuing low oil prices resulting in global exploration
drilling activity falling to 60 year lows, with the UK North Sea
reporting the lowest levels recorded, significantly impacted the
performance of the Company's core business of renting its
proprietary POS-GRIP(R) friction-grip exploration wellhead
equipment to major international oil and gas customers - resulting
in a 61% fall in full year revenues
-- Significant realignment of Company's cost base in response to
lower revenues achieved without compromising ongoing ability to
service customers, whilst retaining a commitment to Research and
Development ('R&D') so as to support ongoing Plexus innovative
and proprietary technology driven focus:
o Near 50% reduction in annualised personnel costs and general
overheads from GBP14.0m to GBP7.4m
o R&D spend in the period, excluding costs of building test
fixtures, totalled GBP1.98m compared to GBP4.12m in the same period
last year, a reduction of 52%
-- Focus on diversifying revenues away from the Company's
traditional shallow water exploration jack-up market in the
Scottish and European North Sea continental shelf where Plexus is
the dominant supplier. Progress being made in expanding both
Plexus' geographical footprint and the number of POS-GRIP based
products:
o Licence agreement signed with Yantai Jereh Oilfield Services
Group Co., Ltd ('Jereh') in China to facilitate the rental, sale,
and manufacture of Plexus' wellhead equipment
o Licence agreement signed with LLC Gusar (OOO Gusar) Ltd
('Gusar'), and CJSC Konar (ZAO Konar) ('Konar'), two independent
Russian oil and gas equipment manufacturers, for the rental,
manufacture and servicing of Plexus' jack-up drilling wellhead
exploration equipment into the Russian Federation and the other CIS
states oil and gas markets
o Winning of a local Petronas licence to manufacture and supply
Plexus' POS-GRIP wellhead equipment in Malaysia through Plexus
Products (Asia) Sdn Bhd ('PPA'), the Malaysian company set up with
a local partner as part of an Asian business hub
o Python(R) Subsea Wellhead launched in September 2015 as a
result of a successful Joint Industry Project ('JIP') supported by
BG, Royal Dutch Shell, Wintershall, Maersk, Total, Tullow Oil, eni,
Senergy, and Oil States Industries Inc., as a new best in class and
safest standard for the multi-billion dollar subsea market sector -
the next milestone for this project will be an initial order for
the deployment of the prototype
o Collaboration with Aquaterra Energy to develop lightweight
HPHT dual barrier marine risers to provide a safer, technically
superior and cost efficient solution for use on jack-up rigs as an
alternative to semi-submersible installation
o Tersus(TM) Mudline equipment supplied to Masirah Oil Limited
where the safety and time savings of POS-GRIP were evaluated
against traditional slip and seal systems which cannot offer
installation through the blow out preventer
-- Reduction in capital investment in POS-GRIP rental wellhead
assets as part of cash conservation measures to GBP1.76m (2015:
GBP2.53m) - prior years capex spend on rental wellhead inventory
has resulted in surplus capacity during the current down cycle. As
a result Plexus will be able to respond quickly when drilling
activity picks up and will avoid the need for further investment
for the foreseeable future
-- Four purchase orders for rental wellhead equipment awarded in
the second half of the year, including two outside the North
Sea
o US$0.6m initial well contract with new customer Masirah Oil
Limited ('Masirah'), majority owned by leading technology driven
oil and gas company REX International Holdings Limited (REXIH:
Singapore) for oil exploration offshore Oman; a new country and new
region
o GBP0.9m purchase order with Talisman Malaysia Limited
('Talisman'), part of integrated global energy group REPSOL (MC:
REP), for an exploration well offshore Malaysia
o GBP0.6m purchase order with Det norske for HPHT rental
exploration equipment offshore Norway
o GBP0.6m additional purchase order with Det norske for an
exploration well offshore Norway
Corporate Highlights
-- Initiatives taken to strengthen balance sheet to navigate the
current challenging low oil price environment and support specific
initiatives:
o Subscription by Jereh China in new shares of the Company,
representing 5% of the new issued share capital of Plexus for c.
GBP8m net of expenses
o Subscription by Gusar in new shares of the Company,
representing 7% of the new issued share capital of Plexus for c.
US$5m net of expenses
o GBP6m placing of new shares of the Company with new and
existing shareholders which included CEO Ben van Bilderbeek
investing GBP200,000 in new Ordinary Shares - proceeds to enable
Plexus to pursue global opportunities and support target activities
in new regions; supporting Python subsea wellhead prototype trial
programme; strengthen working capital position and support targeted
R&D spend towards complementary products
-- Board changes:
o Appointment of Ms Kunming Liu to the Board as a Non-Executive
Director in place of another Non-Executive Director
-- Post period end the Bank of Scotland Corporate have agreed to
renew facilities for a two year GBP5m revolving credit facility -
in addition the Group has a reducing five year GBP1.5m term loan
(with a current balance of GBP0.9m) which was put in place in
September 2014 to part fund the purchase of an additional building
in Aberdeen and which runs to August 2019
For further information please visit www.posgrip.com or
contact:
Ben van Bilderbeek Plexus Holdings PLC Tel: 020 7795
6890
Graham Stevens Plexus Holdings PLC Tel: 020 7795
6890
Nick Tulloch Cenkos Securities PLC Tel: 0131 220
9772
Derrick Lee Cenkos Securities PLC Tel: 0131 220
9100
Frank Buhagiar St Brides Partners Tel: 020 7236
Ltd 1177
Isabel de Salis St Brides Partners Tel: 020 7236
Ltd 1177
Chief Executive Ben van Bilderbeek said:
"As Plexus is an IP led engineering services company supplying
the global oil and gas sector, our year end results reflect the
sharp drop in oil prices which fell to a 13 year low of c.US$27 per
barrel in January 2016. These trading conditions have in turn led
to a widely reported and unprecedented fall in exploration
activity, particularly in Plexus' core North Sea UKCS and ECS
markets which are relatively expensive regions for E&P
companies to operate in. With the global energy market experiencing
a surplus of production, and profit margins proving elusive in
higher cost regions cutting exploration budgets represents an easy
win, and this has translated in significantly lower order levels
for our best in class rental exploration jack-up wellheads. Whilst
we are disappointed with this set of results, particularly
following on from a record prior year we regard the current
cyclical downturn as just one backwards step in what we believe
will prove to be a highly rewarding journey for our shareholders.
It is important to note that strategic progress continues to be
made in turning Plexus from an Aberdeen based supplier of a ground
breaking technology to the local North Sea oil and gas industry
jack-up exploration drilling operators, to a global business
setting a new industry standard for wellheads across a range of
applications in terms of performance, reliability and safety; one
which conventional alternatives cannot attain.
"Despite the current difficult trading environment, thanks to
the proven superiority of our rental wellheads, together with the
growing number of blue chip operators such as eni, Maersk, Royal
Dutch Shell, Statoil, and Total, which all have first-hand
experience of the unique benefits our equipment delivers, we are
confident we will over time continue to win market share and that
we will increasingly be viewed by the industry as the supplier of
choice due to the proven superior nature of our metal sealing
technology and the major time savings that we can deliver. Cycles
will come and go within our sector, however the benefits of our
POS-GRIP technology will endure meaning that demand for Plexus'
wellhead equipment should increase as the global demand for
hydrocarbons continues to rise. Operators are continuing to target
resources in challenging and hostile environments, while having to
meet more stringent safety and regulatory requirements and keep a
tight rein on costs, and it is precisely this
combination of factors that we address to the extent that our
equipment can be cost negative to the operator as a result of the
value of time savings. Certain parts of the world such as the
Arctic particularly embody such concerns and requirements and we
are confident that in time, through our Russian partners we will be
able to play an important role in the supply of both exploration
and production wellheads to the region. Furthermore, as the
industry works to find ways to curb global CO2 emissions, natural
gas, which is the cleanest fossil fuel by some distance when
compared to coal and oil will have to account for a larger
proportion of the hydrocarbon fuel mix going forward. As a
recognised HPHT wellhead specialist this is a positive trend for
our company.
"Plexus is ideally placed to help the oil and gas industry meet
the challenges of drilling in the 21(st) century. One such example
was our contract win last year to supply the Total operated
ultra-HPHT Solaris well, offshore Norway; believed to be the
highest pressure well ever drilled in the North Sea and which has
now been successfully completed. In addition Plexus equipment now
meets a tough new set of higher industry test standards proposed by
a major IOC which are designed to establish casing hanger system
qualification procedures that better reflect the requirements of
actual applications. The testing involves numerous additional
combined temperature, load, and pressure cycles which delivers a
much more robust qualification programme; much closer to true field
life conditions. By contrast, I believe conventional wellheads with
their many moving parts, and their operational limitations and
capabilities belong in the past when general standards for safety,
reliability and performance were arguably not set as high as they
are today and we anticipate will continue to be in the future.
"It was for such reasons that a group of leading oil and gas
operators approached Plexus in 2011 to develop a new subsea
wellhead design based on our POS-GRIP friction-grip method of
engineering which has to date been successfully used on over 400
jack-up exploration wells across the world. Working with our blue
chip Joint Industry Partners, BG, eni, Royal Dutch Shell, Maersk,
Total, Wintershall, Tullow Oil, Senergy, and Oil States Industries
Inc. Plexus launched the Python subsea wellhead at the SPE Offshore
Europe Exhibition, Aberdeen in September 2015. Python provides a
range of unique and technologically superior advanced features with
increased safety, reduced cost and operational efficiency
capabilities. Thanks to our patent protected POS-GRIP technology,
Python offers 'instant casing hanger lockdown' and provides direct,
metal to metal, weld quality, high integrity sealing. In contrast
to current technologies, Python eliminates the need for many
components used in conventional subsea wellhead designs such as
lock rings and wear bushings, resulting in enhanced reliability and
fewer installation trips which translates into significant cost
savings that can run to millions of dollars for operators. As an
example, on a standard pressure subsea well, the Python subsea
wellhead may only require eight installation trips compared to up
to 15 for a conventional wellhead. With each trip costing circa
US$750,000, Python could therefore offer savings of over US$5m per
well. This combination of enhanced performance, increased safety
and significant cost savings is, in our view particularly
compelling in the current cost and safety conscious environment,
and provides me with great confidence that we will over the coming
years be able to replicate the success we have enjoyed with our
exploration jack-up drilling in the much larger and more valuable
subsea market.
"I do recognise however, that before our disruptive technology
can realise its full potential across a range of applications, we
first have to ensure Plexus emerges from the current downturn ready
to continue to play an important role in the oil services
marketplace. The 'lower for longer oil prices' mantra has dominated
market sentiment during the past year and with "longer"
unfortunately seemingly prevailing over "lower" inevitably this has
dominated our organic and strategic planning. The only certainty
that can be used for planning purposes is that no one can truly
claim to know how long or damaging the current cyclical downturn
will be. With this in mind, during the year under review we
initiated in March a significant reduction in our cost base
including an annualised 54% reduction in personnel costs. The full
effect of this rationalisation programme will of course be seen in
the 2016/17 financial year, and is intended to move the Company
towards a neutral cash consumption position, assuming no further
sharp deterioration in trading. As a further buffer against the
current market conditions and to strengthen our balance sheet, we
raised US$5m via a share subscription in April as a way of further
strengthening our licence relationship with our new Russian
partner, Gusar, and a further GBP6m via a share placing with new
and existing shareholders in June. Both exercises were priced close
to the prevailing share price at the time. In our view the lack of
need to offer new shares at a heavy discount, as many in the sector
have had to do, is testament to the strength of our technology and
our successful track record prior to the collapse in exploration
activity in our traditional markets.
"Having a strong balance sheet, along with a cost base that more
fully matches the reduced level of revenues, was not just
undertaken to ensure we navigate the cycle from a position of
strength. It will also enable Plexus to continue with its
international expansion initiatives, as we look to repeat the
success we have had in the North Sea and establish Plexus as the go
to provider of best in class wellhead equipment globally. Despite
the challenging trading conditions, much progress has been made in
terms of Plexus beginning to address the far larger subsea and
volume surface production multi-billion dollar wellhead markets, as
well as the establishment of international relationships and
licensees. We are focusing on such international initiatives being
the first of a number of similar agreements which have the
advantage of being able to enter new markets without incurring up
front capital costs. Such a business model means that if current
trading conditions continue for a long time we always have the
opportunity to consider becoming a pure licencing marketing company
rather than an operational one, which would enable us to focus full
time on selling and promoting our patented method of engineering so
as to maximise licensing royalty opportunities rather than our
equipment. The licensing agreements we already have in place, and
those we are looking to secure in major markets that to date remain
untapped by us, are therefore a key part of our strategy to
accelerate the global uptake of our POS-GRIP technology.
"Thanks to the steps we have taken over the course of the year,
we believe Plexus today is in a stronger position than it was when
the downturn set in, albeit that we have had to restructure the
business. Encouragingly there are signs that some stability is
beginning to return to the oil price as a result of recent OPEC
meeting initiatives designed to better balance production levels
with demand, and once these are better understood by the market we
would expect operators to begin planning the recommencement of
their exploration drilling programmes. Such new activity is of
course key for avoiding a 'supply crunch' as it must not be
forgotten that fields deplete on average up to 9% per annum and the
combination of the large drop off in drilling activity whilst
demand is stable or growing is a toxic mix, which could well lead
to a price shock in the upwards direction. Crucially, we entered
this challenging trading period as the owners of unique patented
IP, and we will come out of it with the same unique patented IP,
which means that the same opportunities always open to us continue
to be available; not the case for a number of "me too" companies.
When activity recovers I am confident that Plexus will more than
make up lost ground especially as we have inventory on the ground
ready to deploy at short notice, and will be able to go on and
fulfil our potential to become a major supplier of the best in
class wellhead equipment for types of drilling applications around
the world."
Summary of Results for the year ended 30 June 2016
2016 2015
GBP'000 GBP'000
Revenue 11,227 28,526
Adjusted EBITDA (1,558) 9,531
(Loss) / Profit before taxation (6,916) 5,938
Basic (Loss) / earnings per share (pence) (6.39) 6.40
Chairman's Statement
Business progress
This year's results are in stark contrast to the prior year
which delivered record sales and profits and resulted in a 60.6%
decrease in revenue to GBP11.23m for the year to 30 June 2016
(2015: GBP28.53m) with the UK and European revenues decreasing by
64.6%; an EBITDA loss of GBP1.56m (2015: profit GBP9.53m); a loss
after tax of GBP5.79m (2015: profit GBP5.43m) and a basic loss per
share of 6.39p (2015: 6.40p profit per share). The trading climate,
particularly for exploration drilling has been extremely difficult
with the International Energy Agency ('IEA') reporting in September
that oil discoveries have slumped to their lowest level since 1952.
Annual investment in oil and gas projects has fallen from $780bn to
$450bn over the last two years in an unprecedented collapse, with a
recovery not expected until 2017 onwards. The IEA's World Energy
Investment 2016 report went as far as stating that "There is
evidence that cuts in exploration activities have already resulted
in a dramatic decline in new oil discoveries, dropping to levels
not seen in the last 60 years". Such industry trends have been
acutely felt in the North Sea where
costs are higher than many other regions, and as Plexus is the
major supplier of jack-up drilling wellheads in the North Sea we
have been particularly affected. The extent to which the North Sea
has deteriorated is evidenced by Government figures published in
August which confirmed a 96% plunge in Scotland's North Sea oil
revenue, tumbling from GBP1.8bn in 2014-15 to just GBP60m in
2015-16. The only silver lining in such pronouncements for the
industry, if not the consumer, is that it is widely reported that
with drillers not finding enough oil to replace what is being
depleted the ground is being prepared for an oil price spike.
Plexus has wellhead inventory on standby and are therefore in a
strong position to react quickly and regain and indeed exceed our
past activity levels. Despite the existence of such challenging
trading conditions, which are impacting not only operators and
service companies, Plexus has continued to pursue a number of
R&D and international trading development initiatives as we
look to move away from our traditional North Sea orientated
business activities. Such initiatives range from licence
agreements, to new product developments and launches including our
new Python subsea wellhead design, collaboration with Aquaterra
Energy, gaining a new customer in the new territory of Oman, and
supplying one of our X-HPHT wellheads to Total for their Solaris
well in the North Sea which we believe to be the highest pressure
well yet drilled in that location.
Overview
Plexus has to date supplied its best in class wellhead equipment
to blue chip operators including BG, BP, ENI, GDF, Maersk, Shell
Statoil and Total for use on over 400 wells worldwide. Being able
to offer unique and patented equipment that is superior in terms of
performance, reliability and safety has seen Plexus become the go
to provider for wellheads for wells located in some of the harshest
and most challenging environments in the world, including the North
Sea, where Plexus has become firmly entrenched as the dominant
supplier of HPHT and X-HPHT wellheads. The June 2015 award to
Plexus of a GBP3.3m contract from Total E&P Norge AS to supply
the Solaris exploration well, a technically challenging Ultra HP/HT
well offshore Norway, believed to be the highest pressure well
drilled in the North Sea to date, is testament to our high standing
in this region.
Like all providers of critical equipment to the oil and gas
industry, our full year financial results reflect the major
retrenchment seen in the price of oil (over) the last two years.
The 50% plus fall in Brent Crude from the US$100 level it traded at
consistently for the best part of five years has led to operators
of all sizes increasing their focus on cash preservation. Due to
the higher levels of risk and capital involved and the ability to
rely on shorter contract commitments with suppliers, scaling back
exploration activity is the low hanging fruit for operators looking
to reduce budgets in the midst of a downturn. This cycle has been
no different, aside from the speed and severity of the cut backs
which has seen investment in exploration falling to 60 year lows.
According to global consultancy group Wood MacKenzie, 2015 saw
US$40bn invested globally into exploration (including seismic and
drilling activity) a mere 40% of 2014's US$100bn. In terms of well
count, in 2016 Wood MacKenzie further reported that just 209 wells
were drilled up to August, compared to 680 in 2015, 1,167 in 2014
and an historic long term average of 1,500 per annum. Similarly, in
the UKCS, a region where Plexus has a dominant market position,
exploration is estimated to have dropped to a 45-year low after Oil
& Gas UK reported just 13 wells were drilled in 2015. As
Plexus' historic focus has been supplying wellhead equipment for
exploration wells in the North Sea we have been heavily impacted
with the 12 months under review seeing the Company's last five-year
sequence of reporting strong growth in term of revenues, EBITDA and
dividends come to an abrupt halt.
Importantly, Plexus was able to take swift and decisive action
during the year to not only realign the business to the lower oil
price environment and the associated lower levels of exploration,
but to also accelerate our 'capital light' strategy to seek to
expand into new geographies and sub sectors of the oil and gas
industry, such as the high volume land and platform production
market. Significantly downsizing the cost base to match lower
activity levels while at the same time expanding into new markets
do not ordinarily go hand in hand. We have been able to make
progress on both these fronts because, unlike many suppliers to the
oil and gas industry, Plexus is first and foremost a proprietary IP
technology company. This means that we can scale back our infield
operational activities and related overheads without compromising
the value and relevance of our POS-GRIP IP, whilst being able to
continue to work on communicating the unique benefits of the
technology to potential trading partners and licensees without
having to commit large amounts of capital.
In an era where cash conservation and a strong balance sheet is
important it is helpful to note that like many companies operating
in the technology space, Plexus' investment profile has largely
been front ended: an initial R&D led IP development and
inventory build-up phase which required significant capital
investment is now largely complete. Plexus has incurred circa
GBP22m of capex over the last five years, and today we have 62
rental wellhead sets which if fully utilised are capable of
supporting sales revenues of up to GBP40m per annum. Furthermore,
thanks to having a long working life, we do not envisage having to
set aside significant funds to replace our wellheads for the
foreseeable future as they are subject to rolling refurbishment
programmes. From a cash consumption perspective investment
requirements going forward can therefore be viewed as being
essentially discretionary rather than a critical component of our
growth strategy which combined with being debt free, helps ensure
the maintenance of a strong balance sheet. Moreover, being a
provider of equipment which we maintain is superior to all other
available conventional alternatives opens up a number of different
avenues for Plexus to get its equipment to market, including the
direct rental and sale of equipment and services to operators, as
well as the licensing out of our technology to third party
manufacturers, a non-capital intensive route to market which can
fast track growth once initial traction is gained.
With our equipment tried and tested by a number of international
blue chip oil and gas operators we believe that Plexus is now in an
excellent position to pursue licensing opportunities with suitable
partners, and in the process accelerate the take-up of our
technology in new geographies that to date we have not chosen to
pursue such as Brazil, GOM, India and the Middle East. Licensing
agreements are typically used by IP led companies to break into new
markets without the need to invest in expensive manufacturing,
distribution and sales networks and can help to secure local
partners with established relationships in the respective target
markets they serve. With this in mind, during the year under review
we completed a licence agreement with Yantai Jereh Oilfield
Services Group covering China and other territories. We followed
this up with an agreement to partner with two independent Russian
oil and gas equipment manufacturers, Gusar and Konar, which saw us
enter the important market of the Russian Federation and other CIS
states. Under the terms of the agreement, Gusar and Konar will
rent, manufacture and service our jack-up drilling wellhead
exploration equipment in return for paying Plexus a licence fee
based on a multiple of EBITDA generated by Gusar's POS-GRIP related
business as well as royalties based on the value of sales. No
licence revenue has arisen in the current year however we are
hopeful this will be an important income stream in future years as
Russia is one of three main global producers. We are keen to secure
similar licensing agreements in other areas of the world and we are
currently in discussions with potential partners covering the
significant Middle Eastern and Mexican markets.
The expansion of our geographic footprint over the period has
not been limited to the licensing agreements we have struck in
China and Russia. During the year, Plexus Products (Asia) Sdn Bhd
('PPA'), a Malaysian company we established with a local oil and
gas partner as part of our strategy to create a fully operational
Asian business hub, secured a local licence with PETRONAS, the
Malaysian National Oil Company, to manufacture and supply POS-GRIP
wellhead equipment in Malaysia. Although this region is
experiencing the same significant slowdown in activity as many
other territories, in February 2016 it won first order worth an
estimated GBP0.9m with Talisman Energy.
Gaining access to the Russian market via our agreement with
Gusar is a milestone development and has the potential to generate
significant value for Plexus. In addition to being ranked the third
largest producer of petroleum in 2014 by the EIA alongside the USA
and Saudi Arabia, it has been estimated that Russia holds almost a
quarter of the world's proven natural gas reserves and 5% of global
crude reserves. As well as the size of the reserve numbers, the
bias towards gas in the reserve mix makes Russia a very important
target market for Plexus, as our equipment is ideally suited to the
high pressures and high temperatures associated with gas wells.
Furthermore, the Russian energy sector is among the most active in
the world. This is particularly the case in the huge land and
platform production sector as major operators in the region focus
on drilling production wells to maintain, let alone increase
output. Indeed, this month it was reported that as a result of the
launch of several greenfields, Russian oil output gained around
200,000 barrels per day in September alone to a post-Soviet record
of 11.18m barrels per
day. In terms of well numbers and drilling activity levels it
was further reported in September that Rosneft alone plans to drill
1,700 new wells every year from 2017 up from 750 in 2014, and that
it is also increasing the use of advanced drilling techniques.
As well as marking Plexus' entry into Russia, the Gusar jack-up
wellhead equipment licensing agreement is anticipated to extend to
entering into the huge land and platform production well market and
in the process deliver a key strategic objective for the Company.
It has always been our intention to prove our equipment and
technology in exploration before tackling the larger and more
valuable production wellhead sector which is estimated as being
over ten times the size of the jack-up market. In addition to being
a much larger market than exploration equipment, production
equipment can also be viewed as being a more defensive area of the
upstream sector, which could provide a degree of protection in any
future downturn as exploration activity is typically the first to
be cut back by operators keen to conserve cash. As Statoil ASA
Chief Executive Officer Eldar Saetre said earlier this year:
"Exploration activity is among the easiest of things to regulate,
to take up and down. It's not necessarily the right way to think.
We need to keep a long-term perspective and maintain exploration
activity through downturns as well, and Statoil has." By contrast,
a production well is likely to have already been significantly
de-risked and typically starts generating revenues within a much
shorter time frame. The promise of early revenues can therefore
protect a late stage development/production project from being
deferred or worse. Our entry into the production market is
therefore significant as it will reduce our exposure to the more
cyclical areas of the upstream sector and is in line with our
strategy to have a more balanced product mix for Plexus, one that
serves the whole life cycle of a project from exploration to
abandonment and is thus less exposed to future downturns.
A further market opportunity that we have taken our POS-GRIP
technology into, and one which arguably is more defensive than
exploration and production applications, is the increasingly
important decommissioning market. Here too, we are confident that
Plexus is well placed to win market share based on the uniquely
enabling capabilities and solutions that we can offer operators.
Progress is already being made, and in March 2015 we announced a
purchase order to supply Centrica Energy Exploration and Production
('Centrica') with our POS-SET Connector(TM) for abandonment
operations on a gas well originally drilled 32 years ago in 1982,
offshore Holland. The Connector, which utilises POS-GRIP friction
grip engineering, facilitates abandonment operations as it enables
operators to re-establish a connection onto rough conductor casing
that has been previously cut above the seabed. In full scale
testing, the Plexus connector can achieve 80% of the bending and
tensile strength of the parent pipe, which is significantly better
than conventional alternatives. We anticipate that this order will
prove to be the first of many for Plexus as the abandonment market
opens up, which we believe will grow significantly as a large
number of ageing wells reach the end of their lives in the North
Sea and other regions. The latest Activity Survey published by Oil
& Gas UK shows how resilient spending has been in this
sub-sector despite the volatile trading conditions: GBP1bn was
spent on decommissioning in the UKCS in 2015, the same figure as
2014. Encouragingly the same report forecasts spend in this
sub-sector will rise to GBP1.5bn in 2016 and GBP2bn in 2017.
Outperforming conventional technology in terms of operational
efficiencies, time savings, and safety is a consistent theme which
runs through our growing family of POS-GRIP enabled products. Our
new Python subsea wellhead, launched in September 2015, is no
different. With the support of our Joint Industry Partners, BG,
eni, Royal Dutch Shell, Maersk, Total, Wintershall, Tullow Oil,
Senergy, and Oil States Industries Inc., we set out to establish a
new safer and best in class standard for subsea wellheads. Four
years on and we believe we have done just that after our Python
subsea wellhead successfully passed the new tougher test standards
proposed by a major international operator for use by the industry.
In our view, our new subsea wellhead design addresses the key
technical issues and requirements highlighted by regulators
following the Gulf of Mexico incident in April 2010; delivering
substantial efficiencies and time savings, and taking key
metal-to-metal sealing functions to a standard that we believe
uniquely meets or exceeds those of premium couplings. Python offers
a unique set of features including instant casing hanger lockdown
eliminating the need for many complex components that our
competitors' designs require including lock rings, lockdown sleeves
and wear bushings which often prove problematic in the field. For
Plexus, Python will give us access to the multi-billion dollar
subsea exploration and production market. Were we to have the same
level of success we have to date enjoyed in our traditional jack-up
exploration and production market, where we have a circa 10% global
share, the impact on the Company would be transformational.
Our Python subsea wellhead is not the only new product we have
launched during the year under review. Our Tersus-PCT HPHT Tie-Back
connector product with its unique operational and cost saving
advantages is also now being marketed to the industry. Like Python,
the Tie-Back connector is based on our POS-GRIP technology being
able to offer operators significant capital cost savings thanks to
being the first product on the market which allows HPHT exploration
and pre-drilled production wells to be converted to either subsea
or platform producing wells.
Following a period in which we have been able to announce and
launch a number of new product and achieve a number of higher test
standard milestones, we believe that awareness is growing about our
POS-GRIP technology making drilling activity safer while at the
same time offering considerable time and cost savings to the
operator. Indeed, other suppliers to the oil and gas industry have
approached us to incorporate POS-GRIP into their product offering,
as demonstrated by our partnership with Aquaterra Energy ('AE') to
offer a light-weight, low-cost, high pressure riser ('HPR') system
for use from jack-up rigs. The combination of AE's riser products
and Plexus' POS-GRIP technology enables an inner liner to be
installed inside a conventional HPR to provide full 15,000 PSI
capability. These systems allow for safe effective drilling,
completion, work over and abandonment activities to be completed on
subsea wells from jack-up rigs. The HPR provides a structurally
sound, pressure retaining conduit between the subsea wellhead and
the rig's surface BOP and is capable of withstanding environmental
and operational conditions expected during the HPR service life. We
are keen to pursue further partnerships with suitable companies
such as Aquaterra both within and outside the oil and gas industry,
and such a strategy fits with one of our earlier goals of applying
the POS-GRIP method of engineering to a range of products both
within and outside of the oil and gas industry.
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
with many other E&P and service companies across the world
necessitated Plexus initiating a redundancy programme. Such cost
control measures are regrettable and I look forward to the level of
exploration and production activity increasing and Plexus once
again being in a position to expand its valued workforce.
Outlook
The significant fall in exploration activity and investment to
60 year lows is clearly unwelcome, specifically in terms of the
impact it has had on our financial performance during the year
under review and the current financial year, and has driven the
necessary measures we have had to take to realign our cost base
closer to the reduced levels of orders and order visibility, which
continues at the current time. On a more positive note however we,
like many other interested observers believe that the sharp fall
seen in the number of exploration wells drilled across the world
has sown the seeds for the next upturn due to an impending 'supply
crunch' which has the potential to result in a strong recovery in
the price of oil that could go a long way to match the steepness of
the decline.
On the supply side it is no coincidence that with fewer
exploration wells being drilled, fewer discoveries are being made.
According to the consultant group Wood MacKenzie, 2015 saw only 2.7
billion barrels of new supply discovered, the lowest number since
1947. 2016 could well see exploration plumb new depths, as up to
the end of August, just 736 million barrels of conventional crude
had been found. Nils-Henrik Bjurstroem from Oslo-based consultants
Rystad Energy AS said such a low number of discoveries "will
definitely be a strong impact on oil and gas supply, and especially
oil." For now, the lack of new finds is being masked by the huge
volumes of oil being pumped into the market as part of the policy
adopted by OPEC and Russia to defend market share. With fewer
discoveries being made to replenish reserves however, the supply
glut that is currently occupying the markets could quickly go into
reverse.
Meanwhile on the demand side, the U.S. Energy Information
Administration estimates that the daily global demand for oil will
grow to 105.3 million barrels in 2026 from 94.8 million barrels
this year. Such sentiment was supported by Ben Van Beurden, the CEO
of Royal Dutch Shell Plc who recently stated that he sees demand
rising by between 1 million to 1.5 million barrels a day and that
in order to meet these growth estimates oil companies will need to
invest about US$1 trillion a year. If the run rate of oil
discoveries does not pick up, Wood Mackenzie estimates there will
be a 4.5 million barrel per day shortfall in global supplies by
2035. When combining the lack of new discoveries and the removal of
approximately 5% of global supply from the market each year due to
natural decline rates it is easy to forecast considerably higher
oil prices in the future. Paal Kibsgaard, chief executive of
Schlumberger, the world's largest oil services company, would
appear to agree: "The magnitude of the E&P investment cuts are
now so severe that it can only accelerate production decline and
the consequent upward movement in [the] oil price."
When looking to the future it must be noted that oil and gas
markets are not just cyclical in nature; structural changes also
play a role in driving the industry forward. One of these is the
increased regulatory scrutiny faced by operators around the world
following well-documented disasters such as Macondo in the Gulf of
Mexico in 2010. As Plexus' wellheads can be proven to be superior
in terms of performance, reliability and safety in all operating
environments from standard to extreme HPHT conditions, we feel
Plexus is ideally placed to benefit in a world of heightened
regulatory oversight. We believe that it was for this reason that
Total selected us as the wellhead supplier for its ultra-HPHT
Solaris well in the North Sea, and also why Royal Dutch Shell
approached us four years ago to take our surface designs and
develop a POS-GRIP enabled subsea wellhead. In short the heightened
levels of regulation being seen across the industry play to Plexus'
strengths and therefore bode well for the future.
A further key structural driver set to play an increasing role
in the oil and gas industry in the years ahead is environmental. If
oil and gas companies are to manage the conflicting pressures of
maximising production and revenues for their shareholders while
making a contribution towards reducing carbon dioxide ('CO2')
emissions, then a move away from dirtier fossil fuels such as coal
to cleaner hydrocarbons such as natural gas is needed. The numbers
speak for themselves: on a CO2 emitted per unit of energy output or
heat content basis, the EIA calculates natural gas emits 117 pounds
of CO2 per million British thermal units ('Btu') of energy. This is
around half the 228.6 pounds of CO2 emitted by coal. Meanwhile
diesel fuel and heating oil emit 161.3 pounds of CO2; and gasoline
157.2 pounds. Interestingly, we are already seeing a renewed focus
on natural gas among the majors. Such considerations are already
impacting on the industry hydrocarbon mix, and in the UK as an
example in the three-month period April to June this year coal
accounted for just under 6% of electricity generation down from
over 20% in the same period in 2015, and gas increased from just
under 30% to more than 45%. At the corporate level Royal Dutch
Shell's recent acquisition of BG Group can partly be explained by
the latter's strong presence in global LNG markets. In addition, as
was reported in a recent article in the Wall Street Journal, Total
SA has set itself a target to increase its LNG production capacity
by 50% by 2020; while BP is aiming for gas to account for around
60% of its production by the end of the decade, compared to 44% in
H1 2016. With Plexus having the best metal to metal sealing system
technology available for gas we believe the Company is in an
excellent position to capitalise on such a trend.
When considering the outlook for both Plexus and the oil and gas
industry it is pertinent to remember that many of the key
geopolitical drivers for the oil price and related investment
decisions can be decided by a handful of individuals and
organisations. Whether it has been the significant increase in
shale drilling and oil and gas production in the USA; Saudi Arabia
wanting to maintain market share even at the cost of consuming a
significant share of its own foreign reserves as it makes up the
shortfall between revenues and expenditure; or Iran wanting to
regain its place in the global supply chain such drivers are all
out of our control. However, one key and eagerly awaited recent
positive development was this month's OPEC deal and the sign of
shifting attitudes that it conveyed. OPEC seems to have finally
accepted reality and the fact that the market forces behind
unconventional production in the USA, Canada and elsewhere are not
going to go away and that in the case of Saudi Arabia and others
their foreign reserves were just not large enough to outlast such
pressures. This means that OPEC appears to have accepted that low
prices are just not sustainable and that a rebalancing now needs to
take place, which again can only be helpful for the future of
Plexus and the wider industry. Further evidence of such changing
sentiment by the major producers was in evidence at this month's
World Energy Congress in Istanbul where President Putin of Russia
said that Russia supports "the recent initiative by OPEC to fix oil
production limits" and that the era of oil and gas will not come to
an end in the foreseeable future. Perhaps even more encouragingly
at this month's Oil and Money Conference in London Rex Tillerson,
Chief Executive ExxonMobil and several other senior oil executives
told the conference that fossil fuels would be needed for decades
to come to meet the energy needs of a growing world population.
Looking to the future, in order to ensure Plexus maximises its
potential in the years ahead, and in the process firmly establishes
itself as the standard bearer for delivering best in class wellhead
equipment in terms of performance, reliability and safety all over
the world, it has been necessary for us to firstly ensure that we
were in a strong position to navigate the sharp downturn in the
current cycle. From the outset we assumed the worst case scenario
that oil prices would stay 'lower for even longer' rather than just
'lower for longer' and we have taken appropriate action. This
included a comprehensive restructuring of our cost base which
included a regrettable near halving of our workforce, as well as a
major strengthening of our balance sheet firstly via a subscription
for new ordinary shares with a value of US$5m by Gusar, our partner
in Russia, which was then followed by a placing of GBP6m with new
and existing shareholders. We were delighted that despite the
challenging markets, both capital raising exercises were priced
close to the prevailing market price of our shares. We view this as
testament to the strength of our technology and the potential for
Plexus to deliver significant shareholder value over the coming
years.
J Jeffrey Thrall
Non-Executive Chairman
28 October 2016
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 predominantly derive 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 which Plexus is now actively
pursuing organically and with international partners such as Gusar,
Russia. Furthermore, the Directors believe that the Company's
proprietary technology has additional wide ranging applications
both within and outside the oil and gas industry.
Financial Results
Revenue
Revenue for the year was GBP11.23m, down 60.6% from GBP28.53m in
the previous year. The decline in sales was most acute in the UKCS
where the year on year reduction was 88.3% and was a direct result
of the significant slowdown in exploration drilling activities not
only in the North Sea but also across the world. Revenues derived
from a number of on-going and new contracts from customers around
the world including Asia and the Americas. On a positive note Asia
generated just over GBP2m of sales and accounted for 18.2% of total
sales which was up as a percentage of sales from 9.2% in the prior
year. The extent of the decline in the UKCS was highlighted by
Government data released a few months ago which reported that there
was a 96% plunge in Scotland's North Sea oil revenue and this
situation has resulted in a quarter of North Sea jobs being lost
and a number of independent oil explorers and oilfield services
companies going out of business.
The rental of exploration wellhead and related equipment and
services accounted for approximately 91% of revenue reflecting the
fact that the Company's organic business model remained focused on
the supply of jack-up rental surface exploration wellhead equipment
and services. It is anticipated that as Plexus' strategy to widen
its scope of activities to include the surface production, subsea,
and decommissioning markets both in the North Sea and
internationally then this weighting towards the jack-up market will
decline as Plexus becomes more diversified. HPHT rental equipment
and related services continued to account for the majority of sales
revenues declining to GBP8.22m down from GBP25.23m last year, a
decrease of 67.4%, and accounted for 73.2% of total sales, compared
to 88.4% in the prior year. Standard pressure equipment sales
decreased by 7.1% to GBP1.79m from GBP1.94m in the prior year, and
accounted for 7.1% of total sales compared to 6.8% in the prior
year. This year re-billable expenses revenues made up GBP0.68m
compared to GBP1.24m last year for items such as freight, shipping
and equipment hire. Despite the major fall in oil and gas prices
and resulting decline in sales, we continued to invest for the
future and incurred capital expenditure on rental assets of
GBP1.76m as compared to GBP2.53m in the prior year, a year on year
decrease of 30.4%.
Margin
Gross margins reduced to 46.6% (compared to 69.9% in the
previous year) as a result of higher depreciation, project costs,
and pricing constraints. The majority of rental activity sales
continued to be HPHT which delivers higher margins than lower
pressure equipment contracts.
Overhead expenses
In line with the reduction of sales revenues it was necessary
and important to conserve cash and reduce personnel and
infrastructure related overheads which decreased to GBP11.28m from
GBP14.93m in the previous year, a reduction of 20.16%. The cost
reduction exercise was initiated in January and implemented from
March and therefore these are not annualised savings. The full
effect of the overhead reduction programme will be seen in the
current 2016/17 financial year, where it is estimated that on a
like for like 12 month equivalent basis when looking at pre and
post the full savings effect overheads would be approximately 50%.
In the year being reported salary staff costs reduced to GBP6.56m
from GBP9.87m, whilst the employee headcount at the year-end was 81
compared to 157 for the prior year, a decrease of 48.4%. Other
items which decreased year on year as a result of the decreased
activity levels, staff decreases, and reduction of infrastructure
were recruitment fees, training, health and safety, overseas base
costs, advertising and marketing, and travel and subsistence.
Adjusted EBITDA
Adjusted EBITDA for the year (before IFRS 2 share based payment
charges of GBP0.02m and non-recurring restructuring costs of
GBP0.76m) was a loss of GBP1.56m, compared to GBP9.53m profit
(before IFRS 2 share based payment charges of GBP0.02m) the
previous year. Adjusted EBITDA is calculated as follows:
2016 2015
GBP'000 GBP'000
Operating (Loss) / profit (6,798) 5,020
Add back:
-Depreciation 3,488 3,070
-Amortisation 980 811
-Restructuring costs 755 -
-Share based payments charges 21 21
-(Gain) / loss on disposal (6) 20
-Share of profit of associate - 236
-Gain on disposal of associate - 352
-Rounding - 1
Adjusted EBITDA (1,560) 9,531
Loss before tax
Loss before tax of (GBP6.92m) compared to a profit last year of
GBP5.94m. This loss was after absorbing higher depreciation and
amortisation charges of GBP4.47m, up from GBP3.88m last year, the
largest component being depreciation of rental assets which
increased by 13.6%, reflecting the continued investment in Plexus'
wellhead rental inventory. The loss before tax is stated after an
IFRS 2 charge for share based payments under reporting standard
IFRS 2; the charge for the full year is GBP0.02m compared to
GBP0.3m last year.
Tax
The Group shows an income tax credit of GBP1.13m for the year as
compared to a tax charge of GBP0.51m for the prior year. The income
tax credit for the year is driven by the loss incurred during the
financial period.
The Group has an effective tax rate for the year of 16% (2015:
9%). The effective rate of tax is lower than the current standard
UK corporation rate of 20% as a result of SME enhanced R&D tax
credits, which arise from the Group's ongoing R&D programme. In
addition there has been a significant reduction in the deferred tax
computation in relation to share options recognised in equity
following a decline in the share price during the financial year to
63.3p on 30 June 2016 compared to 220p on 30 June 2015.
EPS
The Group reports basic earnings per share loss per of 6.39p
compared to earnings per share of 6.40p in the prior year.
Cash and Statement of Financial Position
The statement of financial position reflects the investment in
operations during the year and in particular on-going capital
expenditure and funds received as a result of share subscriptions
by strategic partners and a share placing. The net book value of
property, plant and equipment including items in the course of
construction was GBP15.57m compared to GBP17.15m last year. Capital
expenditure on tangible assets decreased to GBP1.96m compared to
GBP7.02m last year. The higher spend last year included the
acquisition of a 36,000 sq.ft work shop and office facility in
Aberdeen in September 2014 for GBP2.04m. The net book value of
intangible assets, including IP rights, R&D and software,
increased by 6.6% to GBP14.08m compared to GBP13.17m last year.
Capital expenditure on intangibles totalled GBP1.90m compared to
GBP3.54m last year, a decrease of 43.2%. Receivables decreased to
GBP1.7m compared to GBP7.3m last year. Net cash closed at GBP9.89m
(cash and cash equivalents of GBP15.86m less bank loans of GBP5.98m
compared to net borrowings of GBP2.95m last year (bank loans
GBP6.28m less cash and cash equivalents of GBP3.3m) reflecting net
cash inflow for the year of GBP12.84m (net increase in cash of
GBP12.54m per Statement of Cash Flows plus net decrease in bank
borrowings of GBP0.30m). This closing net cash position changed
materially year on year at positive GBP9.9m compared to negative
GBP2.9m, and reflects the subscription by Jereh in July 2015 for
new ordinary shares representing 5% of the issued share capital of
Plexus for circa GBP8m; the subscription by Gusar in April 2016 for
new ordinary shares representing 7% of the new issued share capital
of Plexus for circa US$5m and a GBP6m placing in June 2016 of new
shares with new and existing shareholders. Post period end the
Groups bank - Bank of Scotland Corporate - has agreed to provide
facilities for a two year GBP5m revolving credit facility. In
addition the Group has a reducing five year GBP1.5m term loan (with
a current balance of GBP1.0m) which was put in place in September
2014 to part fund the purchase of the additional building in
Aberdeen and which runs to August 2019. These facilities combined
with cash balances are anticipated to be adequate to meet current
on-going working capital, capital expenditure, R&D and related
project commitments.
Intellectual Property ('IP')
The Group carries in its statement of financial position
goodwill and intangible assets of GBP14.85m, an increase of 6.6%
from GBP13.93m last year, reflecting the Group's on-going
investment in and commitment to the development of its proprietary
POS-GRIP technology, the most important elements of which continued
to be in relation to the POS-GRIP friction-grip method of
engineering and the new Python subsea wellhead. The Directors have
considered whether there have been any indications of impairment of
its IP and have concluded, following a detailed asset impairment
review, that there is no impairment. The Directors therefore
consider the current carrying values to be appropriate. Indications
of impairment are considered annually.
Research and Development
R&D expenditure including patents was reduced by 46.4% year
on year from GBP3.47m to GBP1.86m. This reduction must not be taken
as a sign that R&D ceases to be an important and necessary part
of our activities, as such investment is key to protecting,
developing, and broadening the range of proprietary POS-GRIP
friction-grip method of engineering applications and related IP.
There are two main drivers for this reduction - one was the coming
to the end of the JIP to design and develop the new Python subsea
wellhead, and the other was the decision to focus on essential
R&D as part of our strategy to control expenditure during the
current challenging trading period. Such essential R&D, and the
patent protections that can form part of it is arguably even more
important where an industry continues to look to reduce costs in
the supply chain, combined with the need for ever greater safety
disciplines, both of which Plexus wellhead equipment is able to
fulfil, especially in relation to unconventional drilling. In the
case of Russia, the Deloitte "2016 Russian Oil & Gas Outlook
Survey" highlighted the importance of R&D for operators where
one of the questions posed was how compared to 2015 the respondents
saw their R&D costs changing, and 75% of the industry experts
thought they will increase. Such investment has culminated, in
addition to the Python subsea wellhead which offers operators a
unique range of operational and cost saving advantages, in a range
of POS-GRIP products which include the Tersus-PCT HPHT Tie-back
connector which for the first time allows HPHT exploration and
pre-drilled production wells to be converted to either subsea or
platform producing wells; the new POS-SET Connector which is
designed to enable operators to re-establish
a connection onto rough conductor casing for the expanding
abandonment market; a low cost wellhead system for the volume
production market - WellTree(TM) and HPHT dual barrier marine
risers in collaboration with Aquaterra. All of these product
innovations have been made possible through combining ongoing
investment with the proven nature of POS-GRIP, and we are confident
that along with our partners we will continue to identify new ways
to develop and deploy our technology.
IFRS 2 (Share Based Payments)
IFRS 2 charges have been included in the accounts, in line with
reporting standards. 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 GBP0.02m which compares to
GBP0.02m last year.
Dividends
While the Company remains committed to distributing dividends to
its shareholders, the Directors believe that in view of the
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 dividend at the
earliest opportunity.
Operations
The major operational driver for the year being reported on as
well as the current year to date, is the material decline in
operator's capital expenditure and drilling activity levels,
particularly in exploration drilling; a result of the collapse in
the oil price which is only just beginning to see signs of a mild
recovery. Although this has been particularly marked in the North
Sea, these are global issues and cannot be avoided, although we are
increasing our efforts to pursue sales opportunities outside of
Europe with some success such as a new customer win in Oman. In
response to such hostile trading conditions Plexus initiated a
range of cash conservation and significant cost reduction measures
in the second half of the year; the most important of which was
personnel related. Unfortunately, after over ten years of
expansion, headcount was reduced to 81 from 157 on a year-end
comparison basis. This reduction, along with other cost reduction
measures, was carefully planned to ensure that the lower level of
sales anticipated for the foreseeable future will support the
reduced headcount and cost structure, and if necessary further
adjustments will be made. On a positive note our fully invested
rental wellhead inventory is capable of being deployed at short
notice which can support sales of circa GBP40m. Efforts are now
being increased to move into the land, platform and subsea arenas,
although jack-up drilling remained our core activity and contracts
awarded by existing and new customers included the following:
-- June 2015 - a GBP3.3m ultra HP/HT wellhead equipment order
was received from new customer Total offshore Norway - believed to
be the deepest and highest pressure well ever drilled in the North
Sea estimated at 17,000 - 19,000psi, was successfully completed
during the year
-- July 2015 - local Petronas licence secured by Plexus'
Malaysian joint venture company Plexus Products (Asia) Sdn Bhd
-- September 2015 - official launch of Python subsea wellhead
prototype at SPE Offshore Europe in Aberdeen following the
culmination of a successful JIP with a number of oil majors
participation - efforts now ongoing to secure a first order for
this important product development
-- September 2015 - collaboration agreement signed with
Aquaterra Energy Ltd to jointly supply an industry first jack-up
deployable (as opposed to semi-submersible rigs) HPHT dual barrier
marine riser utilising POS-GRIP technology
-- January 2016 - US$0.6m standard pressure contract win with
new customer Masirah Oil Limited in new territory Oman - initially
for one well with a possible two additional wells to follow
-- February 2016 - GBP0.9m contract secured by Plexus Malaysian
joint venture Plexus Products (Asia) Sdn Bhd with Talisman Malaysia
Limited, part of Repsol Group for an exploration well offshore
Malaysia
-- March 2016 - GBP0.6m contract win for the supply of HPHT
wellhead equipment with long term customer Det norske for an
exploration well offshore Norway
-- May 2016 - GBP0.6m further purchase order from Det norske for
a standard pressure exploration well utilising HPHT equipment for
offshore Norway
Plexus continues to invest in R&D and although such
expenditure reduced by 46.4% compared to the prior year, R&D
remains an important operational activity and underpins the value
of our IP and ability to further develop POS-GRIP technology based
products. Innovation in the oil and gas industry continues to be an
essential part of developing ever safer drilling methods, and
Plexus is confident that it can play an important role in
delivering such solutions whilst raising wellhead standards to a
level that conventional technology cannot reach, such as passing
test standards equivalent to those used for premium couplings.
Staff and staff development are important disciplines for a
service company whether we are expanding or not, and correctly
trained and motivated staff are key. Unfortunately during the
second half of the year being reported, the focus concentrated on
managing the staff redundancy programme and further cost saving
exercises, including salary reductions and a reduction to employee
benefits. Consequently, following the consultation period, which
commenced early February during the three month period March to May
45 staff were made redundant from both our UK head office and
international locations and a companywide salary reduction based on
a percentage reduction, dependent on salary band was implemented.
Furthermore, a consultation process was undertaken during June to
reduce the employee benefits package. All cost reduction
initiatives were successfully implemented and the desired cost
saving outcomes were achieved. The rightsizing exercise across the
business has now placed a focus on redistribution of some
tasks/responsibilities across the business, with a number of
employees absorbing additional tasks. To document this and ensure
all required tasks are covered, an exercise was undertaken to
review all job descriptions to ensure all new job descriptions are
issued to staff in Q3 calendar year of 2016. Alongside these staff
reduction programmes the Competency Management System has continued
to be developed, and an additional department within the business
has recently developed and implemented full competency standards
for their discipline. We are continuing to roll out this system,
with an ambition to have all safety critical disciplines develop
and implement standards within the competency system by Q1 calendar
year of 2017. Staffing figure total at the end of June 2016 was 81
employees which compares to the prior year closing staff number of
157.
Health and Safety is important for all companies and industries,
but is a critical discipline in the oil and gas industry. Plexus
remains fully committed to delivering the highest safety standards
possible despite implementing a range of cost cutting initiatives,
and continues to maintain a positive safety culture which is
aligned with our Company Safety Values evident throughout the
organisation. This discipline is achieved by continual development
and implementation of a programme of initiatives, engaging with all
levels of staff and sharing our safety messages and performance,
via our health and safety branding STAR SAFETY. A recertification
audit by LRQA (our system certifying body) in December 2015 and
subsequent surveillance audit of our ISO 9001 and BS OHSAS 18001
Management Systems, had a positive outcome resulting in our
certification being extended until 2018. This is a tangible
demonstration that we are operating to the recognised industry and
national standards and we continue to collaborate with our clients
and industry bodies to share HSE best practice and information. We
continue to manage our safety risks through assessment,
implementation of controls, continual monitoring, and engaging and
developing staff to meet the competency levels required. We always
reinforce the compelling message that the health and well-being of
our employees is the crucial feature of our HSE and HR strategy, as
our workforce is key to the successful delivery of our services. We
encourage our personnel to get involved and have confidence to
intervene and to challenge any unsafe act or condition, suggest
improvements, and to ensure transparent reporting that meets our
desired safety culture.
IT services and support are key operational areas for Plexus.
Plexus relies on a variety of IT systems, both in-house and
proprietary, to manage and deliver safe and secure services for the
business. Importantly, like many companies Plexus continues to be
at risk of cyber-security threats. During the past year we have
begun working towards ISO 27001 accreditation which will help
ensure that both such internal and external risks are minimised.
Certification provides customers and key stakeholders with the
confidence that security risks are taken and addressed seriously.
The IT infrastructure has again undergone significant upgrades to
ensure that the systems are capable of reacting quickly to the ever
changing demands put on it by the business and its suppliers and
customers. The main improvements have included networking and
telecommunication upgrades as well as improvements to our cyber
security intrusion detection systems. These upgrades have combined
to increase our security from external risks whilst increasing
employees' access to data from any location worldwide. Business
support solutions carried out during the year were mainly focused
on the development of the in-house Manufacturing Requirements
Planning system. This system will help to provide an optimal use of
resources and allow for enhanced collecting and formation of
business data which in turn will allow improved and more efficient
planning of work through the system.
Strategy and Future Developments
Technology
Plexus' unique and patented POS-GRIP technology is a simple
concept which 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
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 has recently added both the new Python subsea
wellhead to its product suite as well as the POS-SET Connector(TM)
for use in the growing decommissioning market which is designed to
re-connect to bare conductor pipe for well re-entry or permanent
abandonment operations. The POS-SET Connector creates a solid
connection with reliable sealing directly against the pipe, and
retains bend and load capabilities at 80% of pipe strength. 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 directors believe
Plexus' wellhead equipment sets a new standard which can include
matching and even exceeding those required for premium couplings
and, having secured a leading position in jack-up exploration
drilling, 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.
As with any game changing technology that has the potential to
become a new global standard, there has to be sound and genuine
reasons for customers to select the equipment. 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 should not be, and indeed now do not 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
Historically Plexus' has focused on supplying adjustable
wellhead equipment and associated running tools on a rental basis
for the relatively niche jack-up exploration drilling in the UK
Continental Shelf ('UKCS') and has achieved a near 100% market
share. This market has over the years expanded into the ECS
(Norway, Netherlands and Denmark) and contracts have been secured
as far afield as China, Russia, Egypt, Cameroon, Trinidad,
Venezuela, and Morocco. The exploration wellhead contracts are
supplied from a rental fleet of owned inventory of which the
majority are HPHT as opposed to standard pressure 10,000psi
wellheads as these are increasingly demanded where added benefits
and features are appreciated. The wellhead equipment is typically
rented for an agreed initial set period that may typically range
from 60 to 180 days depending on pressure rating. Where a well runs
on beyond the initial agreed period a pro-rata day rate is then
charged to the operator until the well is completed and the
equipment returned. The steep decline in exploration drilling
activity in the North Sea has accelerated the need and goal of
expanding the target markets beyond Europe. Plexus also provides
service technicians to install and maintain its equipment at
various stages during the drilling of a well.
Exploration rental contracts enable the customer to experience
and learn about the many benefits of POS-GRIP technology on
temporary wells, rather than those used for production where
typically the wellhead equipment is in place for the life of the
well and are therefore sold rather than rented. Renting wellheads
also delivers a greater gross margin to Plexus as the cost of sales
is essentials repairs and maintenance. However with new partners
such as Gusar in Russia, the Company is looking to expand business
activities to include the development of a Plexus POS-GRIP surface
production wellhead suitable for the volume land production market
working on a license royalty model. Renting equipment from an
inventory enables Plexus to outsource all of its wellhead
manufacturing to a select number of third parties, and as a result
avoid having to invest in and develop in-house manufacturing
capabilities with attendant fixed overheads. Such a business model
has proven to be beneficial in the current trading climate as
although Plexus revenues have declined significantly it is able to
adjust and reduce its overhead which does not involve a
factory.
The traditional Plexus jack-up wellhead exploration market is
estimated to be worth circa USD$400m per annum. By contrast the
combined value of the global land and platform production wellhead
and subsea wellhead markets is many times greater and runs into
billions of dollars. In the case of the overall subsea market a
Douglas-Westwood analyst report last May calculated that deepwater
expenditure will total US$137bn for 2016 to 2020, with Africa and
the Americas accounting for 87% of this. Therefore, even with the
well reported global decline in general capital expenditure and the
deferral and cancellation of projects by operating companies, the
business potential that these market sectors offer to Plexus and
its partners is substantial.
Depressed oil markets saw Brent Crude fall during the financial
year by 76% from circa USD$112 on 1 July 2014 to a low of USD$27 in
January 2016. It is not surprising therefore that operators are
focusing closely on securing significant cost savings across their
operations which has resulted in an industry wide push for supply
chain savings at all levels of drilling operations. As Plexus'
equipment can deliver material cost savings to the operator at the
same time as providing a superior wellhead solution, it is hoped
that such trading conditions can have a silver lining in terms of
capturing operator's interest due to the unique combination of
enhanced safety and operational time and cost savings that Plexus
wellheads offer. In the case of Plexus' surface jack-up wellheads
these can be supplied at a rental cost that equates to less than
the time savings for the operator, thereby making them cost
negative. Similarly, the Company's new Python subsea wellhead will
also deliver such substantial cost savings benefits, and can also
be cost negative. Cost saving and safety features such as these
underpin Plexus' business model and the value of its IP as it
enters new international markets directly or through licensees.
Strategy
Having proven the significant advantages of Plexus POS-GRIP
wellheads for jack-up exploration applications to a wide range of
mostly international oil companies ('IOC's), the challenge now for
Plexus whilst waiting for its organic exploration led business to
recover is to extend its business activities into the volume land
and platform and also the subsea sectors. This strategy can be
pursued both organically and also through licensees and partners.
It should not be underestimated however that the wellhead business
is dominated by a small number of mostly American multi-national
oil services companies such as GE who continue to dominate the
industry. In fact, as a clear illustration of these market dynamics
just five companies account for over 90% of the subsea wellhead
business. Despite such challenges Plexus believes that its wellhead
equipment is gaining traction and awareness among major operators
of its wellhead systems is increasing which bodes well over the
longer term.
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 our connector
technology which is ideal for high integrity, low fatigue
applications. Wellhead connectors, riser connectors, subsea jumper
connectors, pipeline connectors, and even vessel mooring connectors
we believe can all benefit from the simplicity of POS-GRIP. To
support this strategy a key milestone achieved during the year,
which delivers significant credibility to the science based claims
that we can make for our equipment, was the completion of our
Python subsea wellhead design where an independent test report
summary considered the combined thermal, pressure and axial load
testing of a production casing hanger with our integral HG sealing
system configured for use with the Python subsea wellhead design.
This test which was put in place by a major IOC was initiated to
establish qualification procedures that better reflect the true
requirements of actual applications rather than the lower test
standards required by current industry standards. This new more
rigorous approach adds numerous additional combined temperature,
load, and pressure cycles whilst requiring the testing of a
complete hanger/sealing system, and requires testing at the
extremes of the product tolerance ranges. We believe that
successfully qualifying to these much more stringent test
requirements uniquely places Plexus at the forefront of test
standard passes, and supports our claim that we can match those
standards required for premium couplings.
Alongside our various product and engineering led strategies we
are also implementing a strategy to expand from our historically
dominant position in the North Sea into new geographical areas and
sizeable markets that to date have not been targeted such as the
GOM and offshore Mexico, India and the Middle East.
R&D continues to be central to the Company's strategy of
investing time and capital into new product development and
improving the application of POS-GRIP technology, and underpins our
product extension strategic initiatives. As part of the Group's
strategy of conserving cash and reducing overheads R&D spend
has been significantly reduced and excluding the cost of building
test fixtures R&D spend decreased 46.4% to GBP1.86m during the
last financial year. R&D was focused on such products as
WellTree, the HP/HT Tie-Back connector, the new POS-SET Connector
and the Python subsea wellhead. All of these product innovations
are in line with Plexus' goal to extend the POS-GRIP product reach
into new and commercially attractive markets which can be addressed
organically or with partners. Relevant R&D activity adds value
and leads to new inventions, product designs, and IP. Plexus
continues to pursue an active strategy of protecting existing and
securing new IP and patents and to date these remain unchallenged
which underlines the uniqueness of our technical solutions.
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.
Non-financial indicators include Health and Safety statistics,
equipment utilisation rates, geographical diversity of revenues and
customers, 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.
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 the political,
operational, and environmental landscape. The last eighteen months
have clearly demonstrated how any combination of such factors can
be so detrimental and generate in many cases risks and
uncertainties that can undermine stable trading conditions such as
Iran making efforts to return to the world hydrocarbon supply
stage, and Saudi Arabia implementing a strategy to maintain its
market share goals at whatever cost. A specific example of
political risk is the introduction of sanctions, and in extreme
circumstances even regime change or a coup. As a supplier to the
industry it is clear that Plexus can be adversely affected by such
events which disrupt the markets and can 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, especially as a result of incidents such as happened in the
GOM. To help address and balance such risks, the Group has
continued to broaden its geographic footprint and customer
base.
Closer to home, following the UK Referendum result 'BREXIT'
continues to generate a fair amount of speculation and uncertainty
about timing and eventual impact in terms of for example staff
recruitment, export negativity if duties were to apply and exchange
rates. It is of course at an early stage and Article 50 has not yet
been served. Our current thinking is that staff recruitment when
activity levels pick up is not currently a major concern, and
weaker Sterling actually makes our products and services cheaper to
customers outside of the UK. In addition some of our sales are in
dollars and this could generate a small currency gain opportunity
when converted to Sterling. Also as we see our equipment as being a
unique option for customers we would anticipate that BREXIT is
likely to have a lesser impact for Plexus than it may have on other
companies and industries. However if we need to manufacture more
equipment for rent or sale, the cost of raw material, and in
particular steel may increase if Sterling's weakness continues.
b) Oil and gas sector trends
It is readily understood that the world is actively moving away
from coal as part of the COP21 climate change objectives and the
need to reduce CO2 emissions. However the battle 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 battery life,
wind and wave energy could all in the future prove very disruptive
to the traditional oil and gas industry.
c) Technology
The Group is still at a relatively early stage in 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, and particularly the subsea
market where the new Python subsea wellhead was only launched last
September at the SPE Offshore Europe Exhibition, Aberdeen. 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, 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 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 arguably
more resilient to extended adverse trading conditions. 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 for the first time
since being admitted to the AIM market in 2005. 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 which will hopefully minimise this risk.
f) Liquidity and finance requirements
In an economic climate that remains volatile and unpredictable
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. Although this is a potential risk the Group
took appropriate steps during the year to mitigate this risk by
completing two share subscription events with strategic investors
as well as a share placing with existing and new shareholders. In
addition, the Group successfully renewed bank facilities with Bank
of Scotland.
g) Credit
The main credit risk is attributable to trade receivables. As
the majority of the Group's customers are large international oil
companies the risk of non-payment is much reduced, and therefore is
more likely to be related to client satisfaction and/or trade
sanction issues. Customer payments can involve extended period of
times especially from countries where exchange control regulations
can delay the transfer of funds outside those countries. As Plexus
begins to establish 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 has credit risk management
policies in place and 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 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.
Ben van Bilderbeek
Chief Executive
28 October 2016
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2016
Notes 2016 2015
GBP'000 GBP'000
Revenue 1 11,227 28,526
Cost of sales (5,994) (8,581)
Gross profit 5,233 19,945
Administrative expenses (11,276) (14,925)
Restructuring costs (755) -
Operating (loss) / profit (6,798) 5,020
Finance income 69 512
Finance costs (187) (182)
Share of profit of associate - 236
Gain on disposal of associate - 352
(Loss) / profit before taxation (6,916) 5,938
Income tax credit / (expense) 3 1,126 (509)
(Loss) / profit for the year attributable to the owners of the parent (5,790) 5,429
Other comprehensive income - -
Total comprehensive income for the year attributable to the owners of the parent (5,790) 5,429
(Loss) / earnings per share 5
Basic (6.39p) 6.40p
Diluted (6.39p) 6.16p
All income arises from continuing operations
Consolidated Statement of Financial Position
at 30 June 2016
2016 2015
Notes GBP'000 GBP'000
Assets
Goodwill 767 767
Intangible assets 6 14,080 13,167
Property, plant and equipment 7 15,567 17,154
Total non-current assets 30,414 31,088
Inventories 6,726 6,551
Trade and other receivables 1,747 7,301
Current income tax asset 229 -
Cash and cash equivalents 15,863 3,328
Total current assets 24,565 17,180
Total Assets 54,979 48,268
Equity and Liabilities
Called up share capital 8 1,054 849
Share premium account 36,893 20,141
Share based payments reserve 766 1,862
Retained earnings 8,277 15,628
Total equity attributable to equity holders of the parent 46,990 38,480
Liabilities
Deferred tax liabilities 468 212
Bank loans 675 5,975
Total non-current liabilities 1,143 6,187
Trade and other payables 1,546 3,296
Current income tax liabilities - 5
Bank loans 5,300 300
Total current liabilities 6,846 3,601
Total liabilities 7,989 9,788
Total Equity and Liabilities 54,979 48,268
Consolidated Statement of Changes in Equity
for the year ended 30 June 2016
Called Up Share
Share Share Based
Capital Premium Payments Retained
GBP'000 Account Reserve Earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
Balance as at 30 June 2014 849 20,138 2,476 11,117 34,580
Total comprehensive income for the year - - - 5,429 5,429
Share based payments reserve charge - - 21 - 21
Transfer of share based payments reserve charge on
exercise of options - - (1) 1 -
Tax credit recognised directly in equity - - - 2 2
Transfer of share based payments reserve charge on
lapse of options (38) 38 -
Issue of ordinary shares (net of issue costs) - 3 - - 3
Net deferred tax movement on share options - - (596) - (596)
Dividends - - - (959) (959)
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
Consolidated Statement of Cash Flows
for the year ended 30 June 2016
2016 2015
GBP'000 GBP'000
Cash flows from operating activities
(Loss) / profit before taxation (6,916) 5,938
Adjustments for:
Depreciation, amortisation and impairment charges 4,471 3,881
(Gain) / loss on disposal of property, plant and equipment (2) 20
Charge for share based payments 21 21
Investment income (69) (512)
Interest expense 187 182
Share of result in associate - (236)
Gain on disposal of associate - (352)
Dividend received from associate - 37
Changes in working capital:
Increase in inventories (175) (1,295)
Decrease / (increase) in trade and other receivables 5,554 (838)
Decrease in trade and other payables (1,750) (1,678)
Cash generated from operating activities 1,321 5,168
Income taxes refund / (payment) 34 (318)
Net cash generated from operating activities 1,355 4,850
Cash flows from investing activities
Proceeds from disposal of associate - 1,492
Acquisition of subsidiary - (7)
Purchase of intangible assets (1,900) (3,541)
Purchase of property, plant and equipment (1,956) (7,016)
Proceeds of sale of property, plant and equipment and intangibles 61 56
Interest received 69 4
Net cash used in investing activities (3,726) (9,012)
Cash flows from financing activities
Drawdown of loans - 2,500
Repayment of loans (300) (225)
Net proceeds from issue of new ordinary shares 16,923 -
Proceeds from share options exercised 34 3
Interest paid (187) (182)
Equity dividends paid (1,564) (959)
Net cash generated from financing activities 14,906 1,137
Net increase / (decrease) in cash and cash equivalents 12,535 (3,025)
Cash and cash equivalents at 1 July 2015 3,328 6,353
Cash and cash equivalents at 30 June 2016 15,863 3,328
Notes to the Consolidated Financial Statement
1. Revenue
2016 2015
GBP'000 GBP'000
By geographical area
UK 1,241 10,591
Europe 7,636 14,471
Rest of World 2,350 3,464
11,227 28,526
The revenue information above is based on the location of the
customer. Substantially all of the revenue in the current and
previous periods derives from the rental of equipment and the
provision of related services.
2. Segment reporting
The Group derives revenue from the sale of its POS-GRIP
technology and associated products, the rental of wellheads
utilising the POS-GRIP technology and service income principally
derived in assisting with the commissioning and on-going service
requirements of our equipment. These income streams are all derived
from the utilisation of the technology which the Group believes is
its only segment.
Per IFRS 8, the operating segment is based on internal reports
about components of the group, which are regularly reviewed and
used by the board of directors being the Chief Operating Decision
Maker ("CODM").
All of the Group's non-current assets are held in the UK.
The following customers each account for more than 10% of the
Group's revenue:
2016 2015
GBP'000 GBP'000
Customer 1 3,696 4,224
Customer 2 1,328 4,175
Customer 3 - 3,593
Customer 4 - 3,356
Customer 5 - 3,342
3. Income tax expense
(i) The taxation charge for the year comprises: 2016 2015
GBP'000 GBP'000
UK Corporation tax:
Current tax on income for the year 5 353
Adjustment in respect of prior years (383) (483)
(378) (130)
Foreign tax
Current tax on income for the year 61 263
Adjustment in respect of prior years 56 9
117 272
Total current tax (credit)/charge (261) 142
Deferred tax:
Origination and reversal of timing differences (628) 253
Short term timing differences 64 -
Difference between qualifying fixed assets and capital allowances (643) 36
Share based payments charged to the Income Statement 151 (3)
Adjustment in respect of prior years 191 81
Total deferred tax (865) 367
Total tax (credit)/charge (1,126) 509
The effective rate of tax is 16% (2015: 9%)
(ii) Factors affecting the tax charge for the year 2016 2015
GBP'000 GBP'000
(Loss) / profit on ordinary activities before tax (6,916) 5,938
Tax on (loss) / profit at standard rate of UK corporation tax of 20% (2015: 20.75%) (1,383) 1,232
Effects of:
Expenses not deductible for tax purposes 554 187
Income from and gain on sale of associate not subject to tax - (122)
Derecognition of financial liability not subject to tax - (105)
Effect of R&D tax credits - (521)
Effect of change in tax rate (61) (10)
Tax adjustments on share based payments 151 1
Foreign tax rates 108 240
Adjustments in respect of prior year (192) (393)
Group income not subject to tax (303) -
Total tax (credit) / charge (1,126) 509
(iii) Movement in deferred tax liability balance 2016 2015
GBP'000 GBP'000
Deferred tax liability / (asset) at beginning of year 212 (751)
(Credit) / charge to Statement of Comprehensive Income (865) 367
Deferred tax movement on share options recognised in equity 1,121 596
Deferred tax liability at end of year 468 212
(iv) Deferred tax liability balance 2016 2015
GBP'000 GBP'000
The deferred tax liability balance is made up of the following items:
Difference between depreciation and capital allowances 1,001 1,600
Share based payments (88) (1,361)
Tax losses (445) (27)
Deferred tax liability/(asset) at end of year 468 212
4. Dividends
2016 2015
GBP'000 GBP'000
Ordinary Shares
Interim paid for the period to 31 December 2015 of nil (2015: 0.51p) per share - 433
Ordinary Shares
Final dividend for the year ended 30 June 2016 of nil (2015: 1.75p) per share paid and
recognised
in 2016 - 1,564
5. (Loss) / Earnings per share
2016 2015
GBP'000 GBP'000
(Loss) / profit attributable to shareholders (5,790) 5,429
Number Number
Weighted average number of shares in issue 90,597,415 84,896,300
Dilution effects of share schemes 2,135,987 3,205,091
Diluted weighted average number of shares in issue 92,733,402 88,101,391
Basic (Loss) / earnings per share (6.39p) 6.40p
Diluted (Loss) / earnings per share (6.39p) 6.16p
Basic (Loss)/ earnings 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.
6. Intangible fixed assets
Intellectual Patent and Computer Total
Property Other Software GBP'000
GBP'000 Development GBP'000
GBP'000
Cost
As at 30 June 2014 6,440 7,720 226 14,386
Additions - 3,473 68 3,541
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
Amortisation
As at 30 June 2014 2,692 1,089 168 3,949
Charge for the year 329 454 28 811
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
Net Book Value
As at 30 June 2016 3,089 10,894 97 14,080
As at 30 June 2015 3,419 9,650 98 13,167
7. Property, plant and equipment
Buildings Tenant Equipment Assets under Motor Total
GBP'000 Improvements GBP'000 Construction Vehicles GBP'000
GBP'000 GBP'000 GBP'000
Cost
As at 30 June 2014 974 430 25,393 260 44 27,101
Additions 3,405 2 1,544 2,054 11 7,016
Transfers - - 2,140 (2,140) - -
Disposals - - (533) - (7) (540)
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
Depreciation
As at 30 June 2014 405 126 13,257 - 29 13,817
Charge for the year 153 56 2,854 - 7 3,070
On disposals - - (461) - (3) (464)
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
Net Book Value
As at 30 June 2016 3,571 350 11,579 58 9 15,567
As at 30 June 2015 3,821 250 12,894 174 15 17,154
8. Share Capital
2016 2015
GBP'000 GBP'000
Authorised:
Equity: 110,000,000 (2015: 110,000,000) Ordinary shares of 1p each 1,100 1,100
Allotted, called up and fully paid:
Equity: 105,386,239 (2015: 84,902,196) Ordinary shares of 1p each 1,054 849
Share issues during the year: Number of Share Share Total
shares capital premium GBP'000
GBP'000 GBP'000
At 30 June 2015 84,902,196 849 20,141 20,990
On 7 July 2015 4,468,537 45 7,893 7,938
On 9 December 2015 19,843 - 10 10
On 25 April 2016 6,764,893 68 3,250 3,318
On 29 June 2016 9,230,770 92 5,599 5,691
At 30 June 2016 105,386,239 1,054 36,893 37,947
During the period the Group issued new shares as a result of the
following transactions:
Number of Price per Aggregate Total
shares share nominal aggregate
value value
GBP GBP
On 7 July 2015
- Share subscription 4,468,537 180p 44,685 8,043,367
9 December 2015
- Share options 10,096 41p 101 4,139
- Share options 9,747 60p 97 5,848
25 April 2016
- Share subscription 6,764,893 52.05p 67,648 3,521,127
29 June 2016
- Share placing 9,230,770 65p 92,307 6,000,000
The excess net proceeds have been credited to the share premium
account.
9. Reconciliation of net cash flow to movement in net cash/(debt)
2016 2015
GBP'000 GBP'000
Increase/(decrease) in cash in the year 12,835 (3,025)
Cash inflow from increase in net debt - (2,275)
Movement in net cash/(debt) in year 12,835 (5,300)
Net (debt)/cash at start of year (2,947) 2,353
Net cash/(debt) at end of year 9,888 (2,947)
10. Analysis of net cash/(debt)
At beginning Cash flow At end
of year GBP'000 of year
GBP'000 GBP'000
Cash in hand and at bank 3,328 12,535 15,863
Bank loans (6,275) 300 (5,975)
Total (2,947) 12,835 9,888
The financial information above does not constitute the
Company's statutory accounts for the year ended 30 June 2016 but is
derived from those statements.
The statutory financial statements and this preliminary
statement for the year ended 30 June 2016 were approved by the
Board on 28 October 2016. On the same date the company's auditors,
Crowe Clark Whitehill LLP issued an unqualified report on those
financial statements. The audit report did not include reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying the report or contain a statement under section
498(2) or (3) of the Companies Act 2006. The financial information
for the year ended 30 June 2016 is derived from the statutory
accounts for that year which have been delivered to the Registrar
of Companies. The auditors reported on those accounts; their report
was unqualified and did not draw attention to any matters be way of
emphasis and not contain a statement under s498(2) or (3) of the
Companies Act 2006 or equivalent preceding legislation. The
Company's financial statements have been prepared in accordance
with International Financial Reporting Standards, as adopted by the
EU. A copy of the statutory accounts will be delivered to the
Registrar of Companies in due course.
The Annual Report will be circulated to all shareholders and
thereafter, copies will be available from the registered office of
the company, 42-50 Hersham Road, Walton-on-Thames, Surrey, KT12
1RZ.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR WGGRUUUPQGRU
(END) Dow Jones Newswires
October 31, 2016 03:00 ET (07:00 GMT)
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