REG - Plexus Holdings Plc - Final Results <Origin Href="QuoteRef">PLEX.L</Origin> - Part 2
28/10/2015 07:01
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our strategic
focus on Asian opportunities. Finally our most significant R&D driven project,
the new Python subsea wellhead JIP, not only gained BG as an additional and
valuable JIP member, but the completed design was officially launched at
OE2015, Europe's biggest oil and gas show last month. Python has been designed
to a new best in class and safest standard for subsea wellheads, and is
engineered to be simple, whilst offering a range of unique and superior
technologically advanced features, including 'instant casing hanger lockdown',
and secures hangers with HG seals which provide direct, metal-to-metal,
weld-quality, high integrity sealing. Uniquely, many complex components used
in competing conventional subsea wellhead designs such as lock rings, lockdown
sleeves and wear bushings are eliminated, which results in greater reliability
and fewer installation trips. R&D spend increased by 28.9%, including the cost
of building new test fixtures, to £4.12m from £3.19m in the prior year, and
will continue during the 2015/16 financial year as the Python subsea JIP nears
completion and the POS-GRIP product expands into the surface production and
connectors market sectors.
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
£0.02m which compares to £0.03m last year.
Dividends
The Company announced on 24 March 2015 the payment of an increased interim
dividend of 0.51p per share which was approved for payment on 22 April 2015.
In further recognition of the Group's on-going progress and confidence in the
future the Directors have decided to propose a 182.3% increase in the final
dividend of 1.75p per share for the year ending 30 June 2015 compared to 0.62p
last year, making a total dividend for the financial year of 2.26p. The final
dividend has been enhanced this year in recognition of the Group's strong
balance sheet and cash position, and will be recommended for formal approval
at the Annual General Meeting to be held on 10 December 2015. Subject to this
the dividend will be paid on 16 December 2015 to all members appearing on the
register of members on the record date 6 November 2015. The ex-dividend date
for the shares is 5 November 2015.
Operations
The main operational developments during the year were of both an organic and
an international strategic nature. As the reputation of our proprietary
POS-GRIP friction-grip method of engineering continues to grow and as our
target market expands from our traditional jack-up exploration sector to
surface production and subsea exploration and related new product
developments, it is important that our operational capabilities across all
disciplines, whether buildings, plant, and equipment or personnel are able to
support such developments. Our ability to continue to invest in operations
during the year was driven by our core jack-up drilling business and contracts
awarded by existing and new customers the most significant of which were as
follows:
· July 2014 - £0.6m additional well order signed with Centrica to supply
surface wellhead and mudline equipment services for Southern North Sea
exploration
· August 2014 - £1.0m order from Det Norske for the supply of HP/HT
equipment for an oil and gas appraisal well offshore Norway with a value of
£1.0m
· October 2014 - significant order signed with BG Group to supply HP/HT
surface wellhead and mudline equipment services for a standard pressure
exploration well in the UKCS
· November 2014 - £1.9m HP/HT wellhead equipment order for an exploration
well in the UKCS from a major oil and gas operator
· November 2014 - £0.9m Det Norske, Norway orders HP/HT equipment for an
oil and gas appraisal well offshore Norway and is the seventh Det Norske well
to use Plexus equipment since 2012
· January 2015 - £1.6m contract with Shell Brunei under an existing four
year contract which runs to 2016 for three additional exploration wells
· April 2015 - USD$0.8m new customer contract Cardon IV in new territory
Venezuela awarded for the supply of equipment for a development well offshore
Venezuela
· May 2015 - £1.0m Premier Oil Norge order HP/HT wellhead equipment for an
exploration well in the Norwegian Central North Sea
· May 2015 - £1.25m third well equipment order from Maersk Oil under a
contract signed in 2014 for an offshore well in the Danish sector of the North
Sea
· June 2015 - £3.3m ultra HP/HT wellhead equipment order received from new
customer Total for potentially the highest pressure well ever drilled in the
North Sea estimated at 17,000 - 19,000psi, offshore Norway
To date our core organic jack-up exploration business, and associated on-going
investment in wellhead rental inventory together with the infrastructure,
systems, and processes needed to support it have continued to generate the
majority of our revenues. However as the North Sea began to experience a
significant and widely reported slowdown, it was essential that we increased
our efforts to extend our international presence. As such, we secured a major
licensing agreement with our new major trading partner Jereh for China and
other important territories post period end. International growth continued
with wells won in Brunei with Shell Brunei, and our first ventures into China
with Shell China, and into Venezuela with Cardon IV (a 50:50 Joint Venture
between Repsol, S.A. and eni S.p.A). The operational base in Singapore
supported wells in South East Asia and investment in personnel and
infrastructure positions Singapore as a hub to support anticipated growth in
the region. Supply chain rationalisation and emphasis on forging partnerships
with our suppliers has resulted in reduction of overall risk and costs in the
critical areas of our supply chain.
Further emphasis was placed on Asia with the formation of a new Malaysian
company PPA in conjunction with a local Malaysian oil and gas partner, IPS.
The establishment of PPA is a key milestone in Plexus' strategy to create a
fully operational Asian business presence to increase the supply of our
pioneering POS-GRIP wellhead equipment and services to the important
Australian, Brunei, Indonesian, Malaysian, Thai, and Singaporean oil and gas
exploration and production markets. At the time of the establishment of PPA
the key task was the necessity to obtain a local Petronas licence, and
importantly post period end in July PPA was awarded the licence. The licence
enables PPA to manufacture and supply Plexus' POS-GRIP wellhead technology
into the Malaysian market and we hope over time will act as a springboard to
becoming a major supplier of wellhead equipment in the region. To support
these plans Plexus is slowly building the number of employees in the region,
and will also be sending more personnel to China from Aberdeen to support the
training and knowledge transfer process with Jereh at its headquarters in
Yantai. It is anticipated that the Singapore business unit will in the future
establish its ability to refurbish and inspect wellhead equipment for
servicing the local market, which simplifies logistics from Aberdeen and
reduces costs, whilst being able to offer customers a more responsive
service.
In anticipation of future growth, not only internationally but also in Europe
we doubled the size of our operational headquarters in Dyce, Aberdeen through
the purchase of a circa 36,000 sq.ft work shop and office facility for £2.4m.
The new facility is situated immediately adjacent to the existing 36,500 sq.ft
site in Aberdeen, and was previously occupied by leading oil services company
Baker Hughes. This major increase in Plexus' operational capacity is necessary
not only for supporting our rental wellhead business, but also to ensure that
we are able to support and respond to greater anticipated activity associated
with our recently launched Python subsea wellhead, and other new product
developments such as the POS-SET Connector. At a time when cost control and
indeed cost savings are paramount within the industry, the additional space
will also enable Plexus to consolidate its work facilities in Aberdeen,
thereby significantly improving our logistical efficiencies especially due to
the close proximity of our existing building.
As reviewed in the R&D section of our Strategic Report, as a proprietary
technology led business investment, time and effort continually go into
engineering improvements and new inventions. During the year a number of such
product development initiatives came to fruition and have now either arrived
at a point where active promotion to the wider global marketplace can begin,
for example, our HP/HT Tie-Back product originally sponsored by Maersk as well
as our POS-SET Connector to facilitate abandonment which has already been
ordered by Centrica; or will be able to be marketed in the near future such as
our new Python subsea wellhead. Such developments have to be properly
supported, and our ability to respond to technical enquiries and the physical
deployment and installation of equipment is key, and we therefore ensure that
appropriate training, methods, procedures and systems are in place, and
continually reviewed to meet our customer expectations and requirements. An
interesting development that we have recently seen during the current cycle of
low oil prices and focus on cost savings, and which is relevant to the unique
nature of our technology and product designs, is one where operators'
engineers are looking more closely at technology that can offer a range of
technical benefits from features such as monitoring, together with simplicity
and avoidance of 'in the field problems' caused by conventional wellhead
equipment that can arise for example from the use of lock rings and lock down
sleeves. The more complicated nature of conventional wellhead equipment
designs can lead to significant cost penalties whether direct or indirect
through delayed or lost production. We hope this will prove positive for
Plexus in the long-term.
Staff and staff development is essential for our current and future success.
During the year there was further focus on recruitment with year end total
employee numbers increasing from 144 to 157. As we expand our business
internationally and support the development of our operational base in
Singapore, we have recruited a number of local personnel each of which have
enjoyed a significant induction and training period in the UK to support an
effective transition of established working practices in the region.
Particular emphasis was placed on our sales and marketing capabilities and a
new sales strategy based around more forward looking market data for
forthcoming projects was implemented post period end. This initiative is
already showing positive signs of enabling us to engage with customers at an
early stage of their well planning and equipment specification and selection
process. Legislative changes have featured heavily during this period and in
particular, we met our pension auto enrolment targets as stipulated by
government. The role of field service technicians within Plexus is one of the
most pivotal roles within the organisation, being integral to the safe
operation of our equipment and the direct interface with our customers. The
focus on training and competence within this group remains a key target for
the business, bolstered by a new assessment centre led recruitment process
which successfully saw five new field service technicians being recruited. In
recognition of the importance that we place on such initiatives at a time when
safety is so key for the industry, we were also delighted to achieve a major
milestone with the accreditation and approval by Offshore Petroleum Industry
Training Organisation ('OPITO') for our competency management system ('CMS')
known as Competency@Plexus. OPITO is globally recognised and the accreditation
is continually requested during tender and contract reviews by customers.
Health and Safety is a key operational discipline and Plexus remains fully
committed to delivering the highest safety standards. We continue to manage
our safety risks through assessment, implementation of controls, continual
monitoring, and hiring and developing staff to meet the competency levels
required. We encourage our personnel to get involved, have confidence to
intervene and to challenge any unsafe act or condition and to ensure
transparent reporting of incidents that meets our desired safety culture.
Recent audits by Lloyds Register Quality Assurance ('LRQA'), the world leading
independent provider of Business Assurance services demonstrate that we are
operating to the recognised industry and national standards, with our ISO
90001 and BS OHSA 18001 certification maintained. We recognise that the health
and well-being of our employees is a crucial feature of our HSE and HR
strategy, and building on our achievement of our Bronze and Silver Healthy
Working Lives Awards presented in 2013, we received during the year our
Healthy Working Lives Gold Award.
IT services and support are of course essential for any modern business and
investment in IT has continued in both staff numbers and infrastructure. The
IT infrastructure has undergone major networking and telecommunication
upgrades to support the continued growth of Plexus internationally. These
upgrades are required to ensure delivery of flexible and integrated business
information systems. The bespoke nature of our in-house software development
allows the IT department to quickly react to the ever changing demands of the
business. It provides important information for decision making, providing
managers access to accurate business data for planning and analysis. The
recent updates to our sales system have given better visibility of worldwide
sales opportunities to both the sales team and senior management. Plexus is
committed to ensuring a safe and secure electronic environment and as a wide
range of cyber risks are an ever evolving and on-going risk for all companies
the IT department is working towards ISO 27001:2013 accreditation which will
help ensure that both internal and external risks are minimised. Certification
provides customers and key stakeholders with the confidence that security
risks are taken and addressed seriously. The certification process is rigorous
and is expected to be completed in financial quarter 4 2016.
Finally, Plexus has to date, chosen not to own its own manufacturing capacity
but it had previously acquired a 25% interest in a private UK engineering
company which manufactures specialist oil and gas equipment. As Plexus becomes
more international, and with stronger relationships developing with partners
such as Jereh in China and IPS in Malaysia it was decided that higher cost
base UK manufacturing was non-core and this interest was disposed of in June
2015.
Strategy and Future Developments
Technology
Plexus' unique and patented POS-GRIP friction-grip technology has wide ranging
applications both within and outside of the oil and gas industry. It is
important to remember that POS-GRIP is a method of engineering and not a
product in its own right, and where there is an opportunity for the technology
to improve upon conventional products, we look to integrate POS-GRIP into the
product so that the benefits together with HG sealing can be realised. In
simple terms POS-GRIP technology is based on a very simple concept. A
compressive force is applied on 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
fix the inner member (hanger) in place through friction between the two
components. The Company's strategy is primarily focused on delivering the
highest standard of wellhead design for the upstream oil and gas markets,
which is already proven to be uniquely advantageous in terms of safety
features, operational efficiency, and cost savings for jack-up drilling HP/HT
applications where Plexus has the majority market share in the North Sea.
POS-GRIP wellhead designs deliver many advantages over conventional "slip and
seal" and "mandrel hanger" wellhead technologies for surface exploration and
production activities, and in due course for subsea operation with our new
Python subsea wellhead. 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. In
particular our subsea wellhead eliminates the need for wearbushings,
pack-offs, lock-rings, and lockdown sleeves, whilst delivering instant rigid
lock-down in all directions whilst being fully reversible for ease of
workover, side-tracking or abandonment. At a time when unconventional HP/HT
and deep-water reservoir developments are growing in importance, the oil and
gas industry is facing increasing technical challenges to meet rigorous
regulatory and health and safety requirements, while having to ensure the
commerciality of operations during the current volatile oil price environment.
POS-GRIP wellheads address many of these challenges, whilst also being able to
deliver significant cost savings which in the case of our new subsea wellhead
design have been independently estimated at up to USD$10m for a deep-water
well. In our view, Plexus' equipment sets a new standard and, having secured a
leading position in jack-up exploration drilling, is well placed to break into
the significantly larger and more mainstream volume production wellhead and
subsea markets, particularly in conjunction with partners such as our new
licensee Jereh.
The superiority and potential of our POS-GRIP technology is being increasingly
recognised by the industry, and the various initiatives and agreements that we
entered into during the year with a range of industry partners such as Jereh,
COSL, and Aquaterra clearly support our view that the POS-GRIP friction-grip
method of engineering technology has many more applications beyond our
traditional organic jack-up exploration activities. Of course as with any
major 'game changing' technology that has the potential to become a new
standard, there have to be sound and genuine reasons for customers selecting
our equipment. Apart from our operational time saving and related safety
benefits, at the engineering level we believe that our technology can uniquely
raise the integrity of wellhead testing and sealing to that of premium
couplings, which supports our claim that wellheads should not be, and indeed
now do not need to be, the 'weak link' in the well architecture chain. In
support of these important principles an in depth report commissioned by the
Company from OTM Consulting Inc, ('OTM'), an international independent
engineering consultancy, concluded that Plexus wellheads using its HG metal
seals, offer the "best possible sealing performance through a metal-to-metal
seal that none of the existing designs can match. Moreover, sealing
performance is not affected by pressure/temperature cycles as there are no
movable components". OTM concludes that after evaluating POS-GRIP sealing
technology against existing competing technologies, "it is the best and safest
technology due to its enhanced safety performance".
Business Model and Markets
Plexus' traditional market has been the supply of adjustable rental wellhead
equipment and associated running tools for jack-up exploration drilling in the
UKCS. The exploration wellhead contracts are supplied from a rental fleet
inventory, the majority of which are HP/HT wellheads as these are increasingly
demanded not just for HP/HT drilling but also for standard pressure wells
where added benefits are appreciated. Initially this was only for standard
pressure equipment of 10,000 psi or less, but with the development of POS-GRIP
HP/HT equipment, Plexus has secured nearly 100% of the UKCS market, and
commands a large share of the European North Sea thanks to the superior nature
of its technology. The rental business has since expanded globally into other
territories such as Australia, Brunei, Cameroon, China, Egypt, Malaysia, and
Venezuela. Plexus also provides service technicians who install and maintain
our equipment at various stages during the drilling of a well.
The Company's focus on rental exploration allows customers to experience for
themselves the many benefits of POS-GRIP technology on temporary exploration
wells, rather than those used for production where typically the wellhead
equipment is in place for the life of the well. However with new partner Jereh
we are working closely to develop a Plexus POS-GRIP surface production
wellhead suitable for the volume Chinese land market. In addition renting out
equipment from a growing 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 strategy led to the disposal of a 25%
shareholding interest in a private UK oil and gas equipment manufacturing
company.
The jack-up wellhead exploration market is estimated to be worth circa
USD$400m per annum. By contrast the combined value of the global exploration
and production wellhead market was estimated by OTM at USD$4.5bn in 2014.
Clearly the size of the markets that Plexus is only now beginning to address
is far in excess of its traditional organic business, and even with the well
reported decline in capex by the operating companies the upside of moving into
these market sectors is substantial. As a result, in tandem with continuing to
grow the jack-up rental business in both its traditional and new market
territories, Plexus is focused in particular on expanding into the mainstream
volume production wellheads market, and the increasingly important subsea
market. In the case of the subsea market Douglas-Westwood expects deep-water
capex to rise post 2016, and sees expenditure growing by almost 69% compared
with the preceding five year period, totalling USD$210bn between 2015 and
2019, driven by Africa and the Americas which account for 82% of capex.
In light of volatile oil markets which saw Brent Crude fall during the
financial year from circa USD$112 on 1 July 2014 to circa USD$63 on 30 June
2015, operators are increasingly focused on securing significant cost savings
across their operations, and there is an industry wide push for savings at all
levels of drilling operations. With this in mind, it is compelling that
Plexus' equipment generates material cost savings for the operator, while at
the same time delivering a superior wellhead solution. Importantly, Plexus'
surface jack-up wellheads can be supplied at a rental cost that equates to
less than the time savings for the operator, thereby making them cost
negative. Similarly, our new Python subsea wellhead will also deliver
substantial cost savings benefits, and we hope to be able to run the first
prototype in the second half of calendar year 2016. Cost saving and safety
features such as these underpin the value of Plexus' IP and underpins Plexus'
growth potential as it enters new international markets directly or through
licensees.
Strategy and the Future
Plexus has pioneered a safer, more cost effective, reliable and technically
superior wellhead utilising POS-GRIP technology which we rent to many leading
oil and gas operators worldwide for surface exploration jack-up drilling
activities. Having battled with incumbent suppliers which have dominated the
industry for decades, (where for example just five companies account for over
90% of the subsea wellhead business), Plexus' wellhead equipment is gaining
traction and major operators awareness of our wellhead systems is increasing.
To date our equipment has been used in over 400 wells worldwide by the likes
of BG, BHP Billiton, BP, ConocoPhillips, Maersk, Shell, Statoil, Petronas,
Tullow Oil, and Wintershall, which we believe is a testament to the commercial
strength of Plexus' offering.
Plexus' long-term goal is to develop POS-GRIP technology as a new industry
standard for wellhead design, and to continue to develop additional new
products, which will also offer multiple benefits and advantages in terms of
improved safety, functionality, and cost and time savings. For example Plexus'
connector technology is ideal for high integrity, low fatigue connector
applications. Wellhead connectors, riser connectors, subsea jumper connectors,
pipeline connectors, and even vessel mooring connectors can all benefit from
the simplicity of POS-GRIP. A key factor in many of these commercial
opportunities is our superior metal-to-metal sealing capability with
unprecedented reliability, and true weld quality sealing, resulting from the
huge amount of preload that we generate which prevents any possible movement
at the seal interface over the life of the field.
We believe we have merely scratched the surface despite the excellent growth
seen to date, and that despite the current industry wide slowdown we believe
that we can still make inroads into the sizeable markets that to date we have
not addressed. As a company we are implementing a strategy to expand from a
dominant position in the North Sea into new geographical areas, as evidenced
by the growth we have reported in FY 2015 in Europe and Asia.
In an effort to continue to grow international revenues as a proportion of
sales, and in particular access the growth of the Asian HP/HT market, we have
established an Asian hub with offices in Singapore and Malaysia as we seek to
further position ourselves in a number of countries including Australia,
Brunei, Indonesia, Malaysia, Singapore and Thailand. With this in mind, we are
working to re-locate a proportion of our wellhead rental equipment to
Singapore to support and strengthen our current regional relationships and
broaden our customer base outside of the UK.
Importantly, as well as establishing new regional hubs, and pursuing licencing
agreements and strategic partners as a key part of strategy to continue
increasing our global footprint, post period end we secured Jereh as a
licencing partner in China; and secured a Petronas Licence in Malaysia through
our joint venture entity. We are also in active dialogue with regards
expansion into Russia and CIS countries as part of our wider focus on becoming
less reliant on the declining North Sea area and seizing a foothold in major
and emerging oil and gas economies.
In addition to our future strategy to accelerate the adoption of our POS-GRIP
technology by the wider oil and gas market through licencing agreements, we
are also developing new product lines to generate new revenue streams for
Plexus. The launch of our Python Subsea Wellhead marks such a step. As
mentioned the formal launch marked the first commercial availability of our
POS-GRIP enabled subsea wellhead system, where we are looking to deploy a
prototype offshore during the second half of calendar year 2016. With over six
majors, including the likes of BG, eni, Maersk, Shell, and Total, having
supported the development of the wellhead and its launch at OE2015, we are
actively working towards finding an operator to secure this first deployment
by either one of the original JIP partners or another operator. In terms of
market competitors there are five major suppliers of subsea wellheads, these
are Aker, Cameron, DrillQuip, FMC, and GE who are all major multi-billion
dollar corporations. However with a unique technology that is safer and more
cost effective we have a powerful story to tell and the progress we have made
to date demonstrates how large the potential is for future growth and value
creation. The subsea systems market had been estimated to be valued at
USD$41.6bn between 2009-2013, including subsea trees, manifolds, wellheads,
pumps, chokes and valves. The subsea wellhead market is therefore a sub-sector
of this market, which broking house Numis has estimated to be valued at
c.USD$10-12bn between 2014-2017. If Python is successfully commercialised this
would be a significant step towards achieving our strategy of increasing
adoption and brand awareness of our POS-GRIP product given the market size at
hand.
R&D spend is also central to our strategy of investing time and capital into
new product development. Excluding the cost of building test fixtures R&D
spend increased 46.7% to £3.47m during the last financial year. R&D has been
spent 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' strategy to extend our POS-GRIP product
reach into new and commercially attractive markets. Successful R&D activity
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
we have a number of exciting and we believe valuable patent applications
registered or in the process of being applied for.
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 earnings per share.
Non-financial indicators include Health and Safety statistics, equipment
utilisation rate, geographical diversity of customer revenues, effectiveness
of a range of research and development initiatives for example in relation to
new patent and proprietary intellectual property activity, and employee
headcount 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 and environmental risks
We participate in a global market where the oil and gas reserves and their
extraction and oil and gas prices can be severely impacted by changes in the
political, operational, and environmental landscape. The introduction of
sanctions is one example of such a risk, and in extreme circumstances even
regime change, and a volatile oil price is another where a severe fall in oil
prices can have a significant adverse impact on customers' drilling activities
and associated capital expenditure. As a supplier to the industry we in turn
can be adversely affected by such events which can disrupt the markets, and
affect our ability to execute work for customers and/or collect payment for
services performed. To help address such risks, the Group has continued to
broaden its geographic footprint and customer base and applies a stringent
approach to credit control.
(b) 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 production and subsea markets, as well as new product
development. Current and future contracts may be adversely affected by
technology related factors outside the Group's control. 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.
(c) 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. 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.
(d) Operational
Shortage of experienced personnel in the oil and gas industry is widely
recognised and could deprive Plexus of key personnel necessary for operational
activities and research and development initiatives. To 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 has enabled us to continue to grow our staff numbers,
and achieve to date a low rate of turnover of personnel.
(e) 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
successfully renewing and extending its bank facilities with Bank of Scotland.
The Group is required to meet certain financial criteria agreed as covenants
in connection with its bank loans and monthly management accounts are prepared
and reviewed against the covenant requirements to ensure that the Group's
obligations can be met.
(f) 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 sanctions. Customer payments can involve
extended period of times especially from countries where exchange control
regulations can delay the transfer of funds outside those countries. The Group
has credit risk management policies in place and exposure to credit risk is
monitored continuously.
Risk assessment
The Board has established an on-going process for identifying, evaluating and
managing the significant risks 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 could be associated
with a variety of internal and external sources including regulatory
requirements, disruption to information systems, control breakdowns and
social, ethical, environmental and health and safety issues.
Ben van Bilderbeek
Chief Executive
27 October 2015
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2015
2015 2014
Notes £'000 £'000As restated
Revenue 2 28,526 27,024
Cost of sales (8,581) (7,817)
Gross profit 19,945 19,207
Administrative expenses (14,925) (13,928)
Operating profit 5,020 5,279
Finance income 512 5
Finance costs (182) (124)
Share of profit of associate 236 215
Gain on disposal of associate 352 -
Profit before taxation 5,938 5,375
Income tax expense 4 (509) (804)
Profit for the year attributable to the owners of the parent 5,429 4,571
Other comprehensive income - -
Total comprehensiveincome for the year attributable to the owners of the parent 5,429 4,571
Earnings per share 6
Basic 6.40p 5.44p
Diluted 6.16p 5.21p
All income arises from continuing operations.
Earnings per share
6
Basic
6.40p
5.44p
Diluted
6.16p
5.21p
All income arises from continuing operations.
Consolidated Statement of Financial Position
at 30 June 2015
2015 2014
Notes £'000 £'000
Assets
Goodwill 767 760
Intangible assets 7 13,167 10,437
Investment in associate 8 - 941
Property, plant and equipment 9 17,154 13,284
Deferred tax asset - 751
Total non-current assets 31,088 26,173
Inventories 6,551 5,256
Trade and other receivables 7,301 6,463
Cash and cash equivalents 3,328 6,353
Total current assets 17,180 18,072
Total Assets 48,268 44,245
Equity and Liabilities
Called up share capital 10 849 849
Share premium account 20,141 20,138
Share based payments reserve 1,862 2,476
Retained earnings 15,628 11,117
Total equity attributable to equity holders of the parent 38,480 34,580
Liabilities
Deferred tax liabilities 212 -
Bank loans 5,975 4,000
Total non-current liabilities 6,187 4,000
Trade and other payables 3,296 5,482
Current income tax liabilities 5 183
Bank loans 300 -
Total current liabilities 3,601 5,665
Total liabilities 9,788 9,665
Total Equity and Liabilities 48,268 44,245
-
Total current liabilities
3,601
5,665
Total liabilities
9,788
9,665
Total Equity and Liabilities
48,268
44,245
Consolidated Statement of Changes in Equity
for the year ended 30 June 2015
Called Up Share Capital £'000 Share Premium Account £'000 Share Based Payments Reserve £'000 Retained Earnings £'000Asrestated Total £'000Asrestated
Balance as at 30 June 2013 828 17,288 2,741 6,335 27,192
Total comprehensive income for the year - - - 4,571 4,571
Share based payments reserve charge - - 26 - 26
Transfer of share based payments reserve charge on exercise of options - - (599) 599 -
Tax credit recognised directly in equity - - - 475 475
Issue of ordinary shares (net of issue costs) 21 2,850 - - 2,871
Net deferred tax movement on share options - - 308 - 308
Dividends - - - (863) (863)
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
Balance as at 30 June 2015
849
20,141
1,862
15,628
38,480
Consolidated Statement of Cash Flows
for the year ended 30 June 2015
2015 2014
£'000 £'000
Cash flows from operating activities
Profit before taxation 5,938 5,375
Adjustments for:
Depreciation, amortisation and impairment charges 3,881 3,405
Loss on disposal of property, plant and equipment 20 95
Charge for share based payments 21 26
Investment income (512) (5)
Interest expense 182 124
Share of result in associate (236) (215)
Gain on disposal of associate (352) -
Dividend received from associate 37 -
Changes in working capital:
(Increase)/decrease in inventories (1,295) 776
Increase in trade and other receivables (838) (1,541)
(Decrease)/increase in trade and other payables (1,678) 256
Cash generated from operating activities 5,168 8,296
Income taxes paid (318) (353)
Net cash generated from operating activities 4,850 7,943
Cash flows from investing activities
Acquisition of associate - (726)
Proceeds from disposal of associate 1,492 -
Acquisition of subsidiary (7) -
Purchase of intangible assets (3,541) (2,403)
Purchase of property, plant and equipment (7,016) (3,016)
Proceeds of sale of property, plant and equipment 56 57
Interest received 4 5
Net cash used in investing activities (9,012) (6,083)
Cash flows from financing activities
Drawdown of loans 2,500 -
Repayment of loans (225) -
Net proceeds from issue of new ordinary shares - 2,330
Proceeds from share options exercised 3 541
Interest paid (182) (124)
Equity dividends paid (959) (863)
Net cash generated from financing activities 1,137 1,884
Net (decrease)/increase in cash and cash equivalents (3,025) 3,744
Cash and cash equivalents at 1 July 2014 6,353 2,609
Cash and cash equivalents at 30 June 2015 3,328 6,353
(182)
(124)
Equity dividends paid
(959)
(863)
Net cash generated from financing activities
1,137
1,884
Net (decrease)/increase in cash and cash equivalents
(3,025)
3,744
Cash and cash equivalents at 1 July 2014
6,353
2,609
Cash and cash equivalents at 30 June 2015
3,328
6,353
Notes to the Consolidated Financial Statement
1. Prior period adjustment
The comparatives for the year ended 30 June 2014 have been adjusted to correct
the accounting treatment in relation to a tax credit received of £475k arising
on the exercise of share options. This credit was originally recognised within
'Income Tax Expense' in the Consolidated Statement of Comprehensive Income
whereas the amount should have been recognised directly in Equity in
accordance with IAS 12 Income Taxes. This adjustment arose following a review
of the Group's Annual Report and Accounts for the year ended 30 June 2014 by
the Financial Reporting Council's Conduct Committee.
The effect of the restatement in the year to 30 June 2014 has been to increase
the income tax expense within the Consolidated Statement of Comprehensive
Income by £475k, thereby reducing profit after tax by the same amount. This
has had the effect of decreasing basic and diluted earnings per share to 5.44p
and 5.21p respectively (basic earnings per share: 6.01p; diluted earnings per
share: 5.75p as originally reported).
This adjustment has had no impact on net assets, tax payable, or the cash flow
statement of the prior year and no impact on opening reserves in either the
current or the prior period.
2. Revenue
2015 2014
£'000 £'000
By geography
UK 10,591 9,892
Europe 14,471 6,905
Rest of World 3,464 10,227
28,526 27,024
3,464
10,227
28,526
27,024
The revenue information above is based on the location of the customer.
3. 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:
2015 2014
£'000 £'000
Customer 1 4,224 692
Customer 2 4,175 2,265
Customer 3 3,593 3,576
Customer 4 3,356 1,712
Customer 5 3,342 1,642
3,342
1,642
4. Income tax expense
(i) The taxation charge for the year comprises: 2015 2014
£'000 £'000
Asrestated
UK Corporation tax:
Current tax on income for the year 353 958
Adjustment in respect of prior years (483) (350)
(130) 608
Foreign tax:
Current tax on income for the year 263 81
Adjustment in respect of prior years 9 13
272 94
Total current tax 142 702
Deferred tax:
Origination and reversal of timing differences including share options 286 (42)
Adjustment in respect of prior years 81 144
Total deferred tax 367 102
Total tax charge 509 804
The effective rate of tax is 9% (2014: 15%)
(ii) Factors affecting the tax charge for the year
Profit on ordinary activities before tax 5,938 5,375
Tax on profit at standard rate of UK corporation tax of 20.75% (2014: 22.5%) 1,232 1,209
Effects of:
Expenses not deductible for tax purposes 187 217
Income from and gain on sale of associate not subject to tax (122) (48)
Derecognition of financial liability not subject to tax (105) -
Effect of R&D tax credits (521) (279)
Effect of change in tax rate (10) (128)
Tax adjustments on share based payments 1 26
Foreign tax rates 240 -
Adjustments in respect of prior year (393) (193)
Total tax charge 509 804
(iii) Movement in deferred tax liability/(asset) balance
Deferred tax asset at beginning of year (751) (545)
Charge to Statement of Comprehensive Income 367 102
Deferred tax movement on share options recognised in equity 596 (308)
Deferred tax liability/(asset) at end of year 212 (751)
(iv) Deferred tax liability/(asset) balance
The deferred tax liability/(asset) balance is made up of the following items:
Difference between depreciation and capital allowances 1,600 1,232
Share based payments (1,361) (1,956)
Tax losses
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