REG - Plexus Holdings Plc - Preliminary Results for the year to 30 June 2017 <Origin Href="QuoteRef">PLEX.L</Origin> - Part 2
16/11/2017 07:22
- Part 2: For the preceding part double click ID:nRSP6451Wa
connectors, riser connectors,
subsea jumper connectors, pipeline connectors, tether tensioners and even
vessel mooring connectors can all benefit from the simplicity of POS-GRIP.
The sale of the Jack-up Business to TFMC represents a clear endorsement of
Plexus' proprietary technology and marks a significant strategic step for the
Company. It realigns Plexus as an IP-led research and development business
and will enable greater resources and focus on the development of new and
existing POS-GRIP applications outside jack-up drilling, particularly through
the collaboration agreement to be signed with TFMC, which establishes a
framework for the two parties to work together on potential new applications.
Having proven the significant advantages of Plexus POS-GRIP wellheads for
jack-up exploration applications to a wide range of mostly international oil
companies ('IOCs'), and having completed the sale of the Jack-up Business to
TFMC, Plexus will be able to focus on extending its business activities into
the volume land, platform and subsea sectors. This strategy will be pursued
both organically (as highlighted by the Centrica production wellhead order in
September 2017) and also through licensees and partners.
Following the pending completion of the sale of the Jack-up Business to TFMC,
Plexus will be focused on:
1. Continued operation of remaining business, contracts and products
The Company will continue to focus on current projects which are not part of
the sale, and will pursue the development of opportunities with existing
products such as POS-GRIP "HG" production wellheads. Plexus will continue to
target international customers in other territories including Gulf of Mexico,
India, Middle East and Russia, where it is thought there will be opportunities
due to ongoing and planned drilling activity. The recent award of an
exploration contract with new customer Rosneft Vietnam, a subsidiary of
leading Russian oil and gas company Rosneft, is anticipated to help raise the
profile of Plexus with Rosneft and other operators in Russia and the CIS
(which is a territory that Plexus has retained the rights to).
2. Maximisation of Earn-out from the Jack-up Business
The Company intends to prioritise the maximisation of three years' worth of
earn-out revenues from the Jack-up Business through the provision of, inter
alia, sales and technical support to TFMC.
3. Work with TFMC through the scope of the Collaboration Agreement and the
joint steering committee on key POS-GRIP products
The Company and TFMC have reviewed certain topics that can be suited for joint
work under the Collaboration Agreement. Should discussions progress
successfully this could lead to further commercial IP-led opportunities.
4. Design/Development of new and existing POS-GRIP products/applications
The Company has identified a number of products and applications which it
believes would benefit from the integration of POS-GRIP technology. The
Company intends to selectively apply its resources to capitalise on these
opportunities, examples of which include:
· Existing applications of POS-GRIP HG Wellheads, such as HPHT Production
Wellheads and Adjustable Production Wellheads
· New applications of POS-GRIP HG Wellheads and other IP, such as land
wellheads, fracking heads, geothermal systems and well abandonment and
decommissioning
· Existing applications for the Python subsea wellheads system, such as
deepwater exploration drilling and HPHT subsea production
· Further developments around the Python subsea system, such as Annulus
Access remedial capability and subsea Xmas Trees.
5. Research & Development
Plexus has always been an innovative IP-led business and the Board intends to
devote appropriate resources to continue its ongoing innovative and
proprietary technology driven approach.
Key Performance Indicators
The Directors monitor the performance of the Group by reference to certain
financial and non-financial key performance indicators. The financial
indicators include revenue, EBITDA, profit and loss, earnings per share and
working capital resources and requirements. The analysis of these is included
in the financial results section of this report. Non-financial indicators
include Health and Safety statistics, equipment utilisation rates,
geographical diversity of revenues and customers, geo political
considerations, effectiveness of various research and development initiatives;
for example in relation to new patent activity and inventions and appropriate
employee headcount numbers and turnover rates.
Following the sale of the jack-up exploration wellhead equipment and services
business described in Note 11 the key performance indicators of the Group will
change to reflect the strategy of the business in relation to the exploitation
of its proprietary technology, with the focus on non-financial key performance
indicators expected to be on research and development initiatives and
commercialisation objectives.
Principal Risks and Risk Management
There are a number of potential risks and uncertainties that could have an
impact on the Group's performance which include the following.
(a) Political, legal and environmental risks
Plexus participates in a global market where the exploration and production of
oil and gas reserves and even the access to those reserves can be adversely
impacted by changes in political, operational, and environmental
circumstances. The current global political landscape continues to
demonstrate how any combination of such factors can generate risks and
uncertainties that can undermine stable trading conditions, such as Iran
making efforts to return to the world hydrocarbon supply stage, America
continuing to aggressively pursue its fracking activities, extreme financial
and economic deterioration in Venezuela, the speed and scale of reform
recently announced in Saudi Arabia and wide-ranging sanctions on Russia. A
specific example of political risk are the aforementioned sanctions, and in
extreme circumstances even regime change or a military coup. As a supplier to
the global oil and gas industry it is clear that Plexus can be adversely
impacted by such events, which can disrupt the markets and compromise the
ability to execute work for customers and/or collect payment for services
performed. Such risks also extend to legal and regulatory issues and it is
important to understand that these can change at short notice. To help
address and balance such risks, the Group has sought to broaden its geographic
footprint and customer base, as well as actively looking to forge commercial
relationships with larger industry players.
Looking closer to home, 'BREXIT' continues to generate much speculation and
uncertainty about its timing and eventual impact in terms of for example staff
recruitment from abroad, export negativity if duties were to apply and
potentially volatile exchange rates. Our current thinking is that staff
recruitment when activity levels pick up is not currently a major concern, and
weaker Sterling actually makes our products and services cheaper to customers
outside of the UK. In addition, some of our sales are in Euros and this could
generate a small currency gain opportunity when converted to Sterling. Also,
as we see our equipment as being a unique option for customers we would
anticipate that BREXIT is likely to have a lesser impact for Plexus than it
may have on other companies and industries. However, if we need to
manufacture more equipment for rent or sale, the cost of raw material, and in
particular steel may increase if Sterling's weakness continues.
(b) Oil and Gas Sector Trends
It is readily understood that the world continues to move away from coal as
part of the COP21 climate change objectives and the ongoing need to reduce CO2
emissions. However, the commercial and environmental dynamics between
traditional hydrocarbons in terms of coal, oil and gas is not the only trend
to consider. New technologies, particularly in relation to renewables,
alternative energies and developments such as the increasing use of electric
vehicles and corresponding improvements in battery storage life, wind and wave
energy, could all in the future prove very disruptive to the traditional oil
and gas industry and therefore demand for exploration and production equipment
and services.
(c) Technology
The Group is now beginning to turn towards the commercialisation, marketing
and application of its POS-GRIP friction-grip technology beyond jack-up rental
exploration wellhead equipment, both with regard to expanding into the surface
land and platform production market sector, as well as the subsea market where
the Plexus POS-GRIP Python subsea wellhead offers numerous operational and
performance benefits. Current and future contract opportunities may be
adversely affected by technology related factors outside the Group's control,
especially where new product developments are concerned. These may include
unforeseen equipment design issues, test delays during a contract and final
testing, and delayed acceptances of deliveries, as well as the slow uptake by
operators which could lead to possible abortive expenditure and write downs,
reputational risk and potential customer claims or onerous contractual terms.
Such risks may materially impact on the Group. To mitigate this risk, the
Group continues to invest in developing and proving the technology and has a
policy of on-going training of our own personnel and where appropriate our
partners and customers.
(d) Competitive risk
The Group operates in highly competitive markets and often competes directly
with large multi-national corporations who have greater resources and are more
established, and who are more resilient to extended adverse trading
conditions. Major oil service and equipment company consolidations that have
taken place over the last few years have magnified such issues as competitors
reduce in number but increase in size. Unforeseen product innovation or
technical advances by competitors could adversely affect the Group and lead to
a slower take up of the Group's proprietary technology. To mitigate this risk
Plexus maintains an extensive suite of patents and trademarks, and actively
continues to develop and improve its IP to ensure that it continues to be able
to offer unique superior wellhead design solutions.
(e) Operational
Plexus, like many other oil service companies, has had to make significant
reductions in its workforce numbers since 2015 when the oil price and
corresponding drilling activity fell significantly. Therefore, when the
anticipated upturn comes in drilling activity, it is possible that the
industry and Plexus could experience difficulties in rehiring past or new
employees and this could deprive Plexus of the key personnel necessary for
expanding operational activities, as well as research and development
initiatives at the rate that may be required. To help mitigate this risk
Plexus has developed effective recruitment and training procedures, which
combined with the appeal of working in a company with unique technology and
engineering solutions will hopefully minimise this risk.
(f) Liquidity and finance requirements
In an economic climate that remains in many ways uncertain it has become
increasingly possible for both existing and potential sources of finance to be
closed to businesses for a variety of reasons that have not been an issue in
the past. Some of these may even relate to the lender itself in terms of its
own capital ratios and lending capacity. Furthermore, after a sustained
period of record low interest rates signs are emerging that the cost of money
will increase and this could also have a negative impact on business activity.
Although access to capital could be an issue, completion of the disposal of
the Plexus jack-up business Plexus will deliver additional cash to add to its
existing reserves. In addition, the Group successfully renewed bank
facilities with Bank of Scotland.
(g) Credit
The main credit risk is attributable to trade receivables. As the majority of
the Group's customers are large international oil companies the risk of
non-payment is significantly reduced, and therefore is more likely to be
related to client satisfaction and/or trade sanction issues. Customer
payments can involve extended periods of time especially from countries where
exchange control regulations can delay the transfer of funds outside those
countries. As Plexus begins to establish international licensee relationships
there may be instances whereby certain capital payments could be due some way
into the future and as such greater credit risk than exists under normal
payments terms could apply. The Group's exposure to credit risk is monitored
continuously.
(h) Risk assessment
The Board has established an on-going process for identifying, evaluating and
managing the more significant risk areas faced by the Group. One of the
Board's control documents is a detailed "Risks assessment & management
document" which categorises risks in terms of - business (including IT),
compliance, finance, cash, debtors, fixed assets, other debtors/prepayments,
creditors, legal, and personnel. These risks are assessed and updated on a
regular basis and can be associated with a variety of internal and external
sources including regulatory requirements, disruption to information systems
including cyber-crime, control breakdowns and social, ethical, environmental
and health and safety issues.
G Stevens
Director
15 November 2017
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2017
Notes 2017£'000 2016£'000
Revenue 1 4,749 11,227
Cost of sales (3,770) (5,994)
Gross profit 979 5,233
Administrative expenses (7,941) (11,276)
Restructuring costs (69) (755)
Operating loss (7,031) (6,798)
Finance income 59 69
Finance costs (61) (187)
Loss before taxation (7,033) (6,916)
Income tax credit 3 1,331 1,126
Loss attributable to the owners of the parent (5,702) (5,790)
Other comprehensive income - -
Total comprehensive income for the year attributable to the owners of the parent (5,702) (5,790)
Loss per share 4
Basic (5.41p) (6.39p)
Diluted (5.41p) (6.39p)
Consolidated Statement of Financial Position
at 30 June 2017
2017 2016
Notes £'000 £'000
Assets
Goodwill 767 767
Intangible assets 5 13,678 14,080
Property, plant and equipment 6 11,976 15,567
Deferred tax asset 287 -
Total non-current assets 26,708 30,414
Asset held for sale 7 396 -
Inventories 6,840 6,726
Trade and other receivables 1,008 1,747
Current income tax asset 966 229
Cash and cash equivalents 7,178 15,863
Total current assets 16,388 24,565
Total Assets 43,096 54,979
Equity and Liabilities
Called up share capital 8 1,054 1,054
Share premium account 36,893 36,893
Share based payments reserve 767 766
Retained earnings 2,575 8,277
Total equity attributable to equity holders of the parent 41,289 46,990
Liabilities
Deferred tax liabilities - 468
Bank loans 375 675
Total non-current liabilities 375 1,143
Trade and other payables 1,132 1,546
Bank loans 300 5,300
Total current liabilities 1,432 6,846
Total liabilities 1,807 7,989
Total Equity and Liabilities 43,096 54,979
Consolidated Statement of Changes in Equity
for the year ended 30 June 2017
Called UpShareCapital£'000 SharePremiumAccount£'000 ShareBasedPaymentsReserve£'000 RetainedEarnings£'000 Total£'000
Balance as at 30 June 2015 849 20,141 1,862 15,628 38,480
Total comprehensive income for the year - - - (5,790) (5,790)
Share based payments reserve charge - - 21 - 21
Current year credit on share option exercise to share based payment reserve - - 5 - 5
Transfer of share based payments reserve charge on exercise of options - - (3) 3 -
Issue of ordinary shares (net of issue costs) 205 16,752 - - 16,957
Net deferred tax movement on share options - - (1,119) - (1,119)
Dividends - - - (1,564) (1,564)
Balance as at 30 June 2016 1,054 36,893 766 8,277 46,990
Total comprehensive income for the year - - - (5,702) (5,702)
Net deferred tax movement on share options - - 1 - 1
Balance as at 30 June 2017 1,054 36,893 767 2,575 41,289
Consolidated Statement of Cash Flows
for the year ended 30 June 2017
Notes 2017£'000 2016£'000
Cash flows from operating activities
Loss before taxation (7,033) (6,916)
Adjustments for:
Depreciation, amortisation and impairment charges 4,472 4,471
Gain on disposal of property, plant and equipment (1) (2)
Charge for share based payments - 21
Investment income (59) (69)
Interest expense 61 187
Changes in working capital:
Increase in inventories (114) (175)
Decrease in trade and other receivables 739 5,554
Decrease in trade and other payables (414) (1,750)
Cash (used) / generated from operating activities (2,349) 1,321
Income taxes (paid) / refunded (160) 34
Net cash (used) / generated from operating activities (2,509) 1,355
Cash flows from investing activities
Purchase of intangible assets (632) (1,900)
Purchase of property, plant and equipment (287) (1,956)
Proceeds of sale of property, plant and equipment and intangibles 45 61
Interest received 59 69
Net cash used in investing activities (815) (3,726)
Cash flows from financing activities
Repayment of loans and banking facilities (5,300) (300)
Interest paid (61) (187)
Net proceeds from issue of new ordinary shares - 16,923
Proceeds from share options exercised - 34
Equity dividends paid - (1,564)
Net cash (outflow) / inflow from financing activities (5,361) 14,906
Net (decrease) / increase in cash and cash equivalents (8,685) 12,535
Cash and cash equivalents at 1 July 2016 15,863 3,328
Cash and cash equivalents at 30 June 2017 10 7,178 15,863
Notes to the Consolidated Financial Statements
1. Revenue
2017£'000 2016£'000
By geographical area
UK 475 1,241
Europe 3,099 7,636
Rest of World 1,175 2,350
4,749 11,227
The revenue information above is based on the location of the customer.
Substantially all of the revenue in the current and previous periods derives
from the rental of equipment and the provision of related services.
2. Segment reporting
The Group derives revenue from the sale of its POS-GRIP technology and
associated products, the rental of wellheads utilising the POS-GRIP technology
and service income principally derived in assisting with the commissioning and
on-going service requirements of our equipment. These income streams are all
derived from the utilisation of the technology which the Group believes is its
only segment.
Per IFRS 8, the operating segment is based on internal reports about
components of the group, which are regularly reviewed and used by the board of
directors being the Chief Operating Decision Maker ("CODM").
All of the Group's non-current assets are held in the UK.
The following customers each account for more than 10% of the Group's
revenue:
2017£'000 2016£'000
Customer 1 1,159 3,696
Customer 2 1,706 1,328
Customer 3 691 -
3. Income tax expense
(i) The taxation charge for the year comprises: 2017£'000 2016£'000
UK Corporation tax:
Current tax on income for the year - 5
Adjustment in respect of prior years (526) (383)
(526) (378)
Foreign tax
Current tax on income for the year 2 61
Adjustment in respect of prior years (52) 56
(50) 117
Total current tax credit (576) (261)
Deferred tax:
Origination and reversal of timing differences (1,054) (628)
Short term timing differences - 64
Difference between qualifying fixed assets and capital allowances - (643)
Share based payments charged to the Income Statement - 151
Adjustment in respect of prior years 298 193
Total deferred tax (756) (863)
Total tax credit (1,331) (1,126)
The effective rate of tax is 19% (2016: 16%)
(ii) Factors affecting the tax charge for the year 2017£'000 2016£'000
Loss on ordinary activities before tax (7,033) (6,916)
Tax on (loss) / profit at standard rate of UK corporation tax of 19.75% (2016: 20%) (1,389) (1,383)
Effects of:
Expenses not deductible for tax purposes 229 554
Effect of change in tax rate 114 (61)
Tax adjustments on share based payments (8) 151
Foreign tax rates 2 108
Adjustments in respect of prior year (279) (192)
Group income not subject to tax - (303)
Total tax (credit) / charge (1,331) (1,126)
(iii) Movement in deferred tax (asset)/liability balance 2017£'000 2016£'000
Deferred tax liability at beginning of year 468 212
(Credit) / charge to Statement of Comprehensive Income (756) (863)
Deferred tax movement on share options recognised in equity 1 1,119
Deferred tax (asset)/liability at end of year (287) 468
(iv) Deferred tax (asset)/ liability balance 2017£'000 2016£'000
The deferred tax liability balance is made up of the following items:
Difference between depreciation and capital allowances 643 1,001
Share based payments (96) (88)
Tax losses (705) (445)
Tax provisions (129) -
Deferred tax (asset)/liability at end of year (287) 468
4. Loss per share
2017£'000 2016£'000
Loss attributable to shareholders (5,702) (5,790)
Number Number
Weighted average number of shares in issue 105,386,239 90,597,415
Dilution effects of share schemes 1,108,692 2,135,987
Diluted weighted average number of shares in issue 106,494,931 92,733,402
Basic Loss per share (5.41p) (6.39p)
Diluted Loss per share (5.41p) (6.39p)
Basic loss per share is calculated on the results attributable to ordinary
shares divided by the weighted average number of shares in issue during the
year.
Diluted earnings per share calculations include additional shares to reflect
the dilutive effect of employee share schemes and share option schemes. As a
loss was made in the current year the option schemes are considered to be
anti-dilutive.
5. Intangible fixed assets
Intellectual Property£'000 Patent andOther Development£'000 ComputerSoftware£'000 Total£'000
Cost
As at 30 June 2015 6,440 11,193 294 17,927
Additions - 1,860 37 1,897
Disposals - (4) - (4)
As at 30 June 2016 6,440 13,049 331 19,820
Additions - 632 - 632
As at 30 June 2017 6,440 13,681 331 20,452
Amortisation
As at 30 June 2015 3,021 1,543 196 4,760
Charge for the year 330 612 38 980
On Disposals - - - -
As at 30 June 2016 3,351 2,155 234 5,740
Charge for the year 330 668 36 1,034
As at 30 June 2017 3,681 2,823 270 6,774
Net Book Value
As at 30 June 2017 2,759 10,858 61 13,678
As at 30 June 2016 3,089 10,894 97 14,080
6. Property, plant and equipment
Buildings£'000 TenantImprovements£'000 Equipment£'000 Assets underConstruction£'000 MotorVehicles£'000 Total£'000
Cost
As at 30 June 2015 4,379 432 28,544 174 48 33,577
Additions - 168 588 1,200 - 1,956
Transfers - - 1,316 (1,316) - -
Disposals - - (318) - (14) (332)
As at 30 June 2016 4,379 600 30,130 58 34 35,201
Additions - 132 65 90 - 287
Transfers - - 126 (126) - -
Reclassified to assets held for sale (455) - - - - (455)
Disposals - (26) (1,489) - (2) (1,517)
As at 30 June 2017 3,924 706 28,832 22 32 33,516
Depreciation
As at 30 June 2015 558 182 15,650 - 33 16,423
Charge for the year 250 68 3,164 - 6 3,488
On disposals - - (263) - (14) (277)
As at 30 June 2016 808 250 18,551 - 25 19,634
Charge for the year 250 72 3,112 - 4 3,438
On disposals - (26) (1,453) - (2) (1,481)
Reclassified to assets held for sale (51) - - - - (51)
As at 30 June 2017 1,007 296 20,210 - 27 21,540
Net Book Value
As at 30 June 2017 2,917 410 8,622 22 5 11,976
As at 30 June 2016 3,571 350 11,579 58 9 15,567
7. Asset Held for sale
2017£'000 2016£'000
Cost 455 -
Accumulated depreciation (51) -
Net book value 404 -
Fair value adjustment (4) -
Cost of sale (4) -
396 -
The asset held for sale relates to a property that was sold on 14 July 2017.
The Group had entered into a sale agreement prior to the year end. In line
with IFRS5 the asset is held for sale at fair value less costs of sale.
8. Share Capital
2017£'000 2016£'000
Authorised:
Equity: 110,000,000 (2016: 110,000,000) Ordinary shares of 1p each 1,100 1,100
Allotted, called up and fully paid:
Equity: 105,386,239 (2016: 105,386,239) Ordinary shares of 1p each 1,054 1,054
9. Reconciliation of net cash flow to movement in net cash/(debt)
2017£'000 2016£'000
(Decrease)/Increase in cash in the year (3,385) 12,835
Movement in net (debt)/cash in year (3,385) 12,835
Net cash/(debt) at start of year 9,888 (2,947)
Net cash at end of year 6,503 9,888
10. Analysis of net cash/(debt)
At beginningof year£'000 Cash flow£'000 At endof year£'000
Cash in hand and at bank 15,863 (8,685) 7,178
Bank loans (5,975) 5,300 (675)
Total 9,888 (3,385) 6,503
11. Subsequent Events
On 19 October 2017 the Group announced the sale of its wellhead exploration
equipment and services business for jack-up applications (the "Jack-up
Business") to FMC Technologies Limited ("TFMC"), a subsidiary of TechnipFMC
(Paris:FTI) (NYSE:FTI) one of the leading oil & gas service and equipment
companies (the "Disposal").
In addition and as part of the Transaction, Plexus, Plexus' subsidiary POSL
and TFMC will also be entering into a Collaboration Agreement ("CA") which
establishes a framework to work together both on the development of existing
POS-GRIP IP for applications outside of jack-up exploration, as well as future
new technologies.
The Disposal follows the signing of a conditional Business Purchase Agreement
("BPA") by Plexus, POSL and TFMC. Under the terms of the BPA, the Plexus
Group will receive an initial gross cash consideration of £15,000,000, subject
to certain adjustments, with an additional sum of up to £27,500,000 payable
dependent on the future performance of the Jack-up Business during a
three-year earn-out period. The earn-out has the potential to increase the
total cash gross consideration to £42,500,000.
The tables below summarise the financial impact of the disposal on the
reported results of the Group:
Year ended 30 June 2017
Disposal£'000 Remaining£'000 Reported£'000
Revenues 4,545 204 4,749
Loss before taxation (2,312) (4,721) (7,033)
Net assets 13,830 27,459 41,289
Year ended 30 June 2016
Disposal£'000 Remaining£'000 Reported£'000
Revenues 11,193 34 11,227
Loss before taxation (1,415) (5,501) (6,916)
Net assets 16,208 30,782 46,990
The financial information above does not constitute the company's statutory
accounts for the year ended 30 June 2017 but is derived from those
statements.
The statutory financial statements and this preliminary statement for the year
ended 30 June 2017 were approved by the Board on 15 November 2017. On the
same date the company's auditors, Crowe Clark Whitehill LLP issued an
unqualified report on those financial statements. The audit report did not
include reference to any matters to which the auditor drew attention by way of
emphasis without qualifying the report or contain a statement under section
498(2) or (3) of the Companies Act 2006.
The financial information for the year ended 30 June 2016 is derived from the
statutory accounts for that year which have been delivered to the Registrar of
Companies. The auditors reported on those accounts; their report was
unqualified and did not draw attention to any matters be way of emphasis and
not contain a statement under s498(2) or (3) of the Companies Act 2006 or
equivalent preceding legislation. The Company's financial statements have
been prepared in accordance with International Financial Reporting Standards,
as adopted by the EU. A copy of the statutory accounts will be delivered to
the Registrar of Companies in due course.
The Annual Report will be circulated to all shareholders and thereafter,
copies will be available from the registered office of the company, 42-50
Hersham Road, Walton-on-Thames, Surrey, KT12 1RZ.
This information is provided by RNS
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