REG - Plexus Holdings Plc - Preliminary Results <Origin Href="QuoteRef">PLEX.L</Origin> - Part 2
31/10/2016 07:06
- Part 2: For the preceding part double click ID:nRSe8054Na
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 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
£0.02m which compares to £0.02m 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 £40m. 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 £3.3m 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 - £0.9m 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 - £0.6m contract win for the supply of HPHT wellhead equipment
with long term customer Det norske for an exploration well offshore Norway
· May 2016 - £0.6m 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 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 £1.86m 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£'000 2015£'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 £'000 £'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 UpShareCapital£'000 SharePremiumAccount£'000 ShareBasedPaymentsReserve£'000 RetainedEarnings£'000 Total£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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£'000 2015£'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 Property£'000 Patent andOther Development£'000 ComputerSoftware£'000 Total£'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£'000 TenantImprovements£'000 Equipment£'000 Assets underConstruction£'000 MotorVehicles£'000 Total£'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
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