Plexus Holdings Plc Trading Update (8281M)
January 25 2016 - 1:00AM
UK Regulatory
TIDMPOS
RNS Number : 8281M
Plexus Holdings Plc
25 January 2016
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
25 January 2016
Plexus Holdings PLC ('Plexus' or 'the Company')
Trading Update
Plexus Holdings PLC, the AIM quoted oil and gas engineering
services business and owner of the proprietary POS-GRIP(R)
friction-grip method of wellhead engineering, announces a trading
update ahead of its half year results for the six months ending 31
December 2015 ('H1 FY16') which will be announced in March
2016.
In the financial year ending 30 June 2015 ('FY 2015') Plexus
delivered a robust financial performance reporting strong growth in
revenue and profits during what was a period of substantial
progress in terms of renting its best in class POS-GRIP exploration
wellhead systems to an increased range of blue-chip oil and gas
companies worldwide; new product launches including its new and
safer Python Subsea Wellhead(R) which was supported by the likes of
Shell, BG, Total and Maersk; and a licensing agreement with major
Chinese oil and gas manufacturing company Yantai Jereh Oilfield
Services Group Co., Ltd ('Jereh') to help distribute and market
POS-GRIP products to the wider global market, in line with Plexus'
global expansion strategy.
Notwithstanding last year's progress, in light of the ongoing
global economic downturn and in particular the unprecedented oil
price decline which in just three months fell from circa US$50 in
October 2015 to as low as US$27 per barrel in January 2016, Plexus
has seen a significant slowdown in planned activity by its
customers to the extent that it cannot see the reduced activity
levels being recovered in the current financial year as a result of
a number of projects being delayed, postponed or cancelled. This
has affected the Company's performance in H1 FY16 and will have a
very significant impact on the financial results for the full year
to 30 June 2016 ('FY 2016').
This downward cycle has accelerated sharply towards the end of
2015 and into the beginning of 2016 throughout the oil and gas
industry. Schlumberger Limited, a world leading oil and gas
services company, recently reported that "negative market
sentiments intensified in the fourth quarter" prompting customers
to make "unscheduled and abrupt activity cancellations". In the
North Sea, where the Company's jack-up exploration drilling
wellhead equipment has an almost 100% market share, specialist
consultancy Hannon Westwood reported two weeks ago that only six
exploration wells (jack-ups and semis) are expected to be drilled
in 2016, the lowest number since 1964. These negative trends have
been reflected in the Company's order book and levels of
visibility, and as a result its traditional organic rental
exploration wellhead business, particularly in the UK North Sea,
and to a lesser extent the European Continental Shelf, which
together accounted for circa 87% of Plexus' sales in FY 2015, have
been severely impacted by this downturn in activity. Notably the
chief executive of the Cromarty Firth Port Authority in Scotland
went on record last week to say that the North Sea "doesn't work at
$30 a barrel" and that activity has "pretty much fallen off a
cliff".
There is also a slowdown in Plexus' rest of the world,
non-European North Sea activities, although this is anticipated to
be at a much smaller level of year on year decline which reflects
the Company's efforts to focus on sales opportunities outside of
Europe both organically and with Plexus' partners.
The Board therefore anticipates that revenues for H1 FY16 will
be below GBP7 million, and revenues for H2 FY16 are expected to be
approximately 20 per cent below those for H1 FY16. To place the
revenue reduction in perspective, the last quarter sales for
calendar year 2015 were circa 50% below those of the previous
quarter with the fall off accelerating in November and December
2015 as indicated in the Company's December AGM Statement (see
release 10.12.15). Although H2 FY16 will be weaker than H1 FY16 it
is anticipated that sales will stabilise going into the 2017
financial year prior to what the Directors and other commentators
expect to be a strong recovery in relation to exploration drilling
activity when the oil price recovers to sustainable levels. As a
result of this, the Company's financial results for the year to 30
June 2016, which are subject to external audit, will be very
significantly below market expectations.
As a result of the disappointing financial performance, Plexus
is currently taking significant cash conservation steps in terms of
reduced capex, opex and personnel expenditure, which the Board
believes will stabilise the Company during this difficult oil
market cycle. In addition, the Company is currently considering the
optimal allocation of its resources to enable it to continue to
progress the existing range of future opportunities which are
broader and more international than ever before. This is important
as the Company needs to be able to continue to invest in ongoing
R&D and POS-GRIP product extensions at a time when the industry
continues to actively pursue innovative cost saving disciplines and
safety driven initiatives.
The Directors believe that Plexus' POS-GRIP technology enables
the Company to deliver best in class solutions to the industry, and
that this clearly remains the case despite the current position
within the oil price cycle. Furthermore, the Directors have every
expectation that once activity in the sector resumes Plexus will
see a recovery in its order book. The Company holds a fast response
rental wellhead inventory and has a strong reputation with a large
number of blue chip customers around the world which recognises the
benefits and significant cost savings achievable through the use of
Plexus' POS-GRIP(R) technology. Plexus has the only wellhead
technology which has passed the new higher Shell standard, which
has already resulted in additional interest in the Company's
wellhead designs. Plexus has been extending its global presence to
emerging growth markets such as China, Malaysia and West Africa and
is also actively pursuing additional licencing agreement
opportunities in other key markets. These initiatives will enable
the Company to pursue its global expansion strategy of building on
its traditional niche jack-up exploration business and moving into
new, larger markets such as the production, subsea and
decommissioning markets without the need to invest its capital in
its own manufacturing facilities.
Despite the downturn, the Company is currently in discussions
regarding a number of potentially significant projects worldwide.
In January 2016 Plexus received a purchase order from Premier Oil
("Premier"), a leading oil & gas operator, which will see
Plexus supply its POS-GRIP(R) rental jack-up exploration wellhead
system to Premier for a 10,000 psi standard pressure exploration
well in the UK North Sea which demonstrates that Plexus will
continue to win business when operators are active despite the
global downturn in oil and gas activity. The value of the order
from Premier is GBP180,000 with revenues expected to commence in
March 2016.
Plexus' CEO Ben Van Bilderbeek said, "The combination of the oil
price sitting at unprecedented lows of circa US$30 per barrel and
ongoing geo-political tensions have resulted in extremely
challenging trading conditions, which have severely impacted the
oil and gas industry worldwide. Although Plexus is not, as we have
said before, immune to the current oil price decline we had
anticipated that the non-UKCS territories would prove more
resilient, and therefore we are naturally extremely disappointed to
have had our financial performance impacted to such a degree. We
are hopeful however that the growing concerns regarding the
downside overshooting and related worries about a 'supply crunch'
and resultant spike in oil prices in the future if levels of
drilling activity do not improve will lead to a consensus of what
is the "right price" for oil. Already various parties including
Saudi Aramco and BP out of Davos are talking about $50 oil by the
end of 2016, and such developments continue to provide support for
Shell's acquisition of BG.
"Oil price aside it is important to remember that one of the key
drivers behind the use and mix of hydrocarbons is climate change,
and in particular the recent Paris agreement in terms of limiting
global temperatures to a maximum increase of 2 degrees Celsius. It
is beginning to be understood that coal, and indeed oil are far
dirtier than gas in relation to CO2 emissions and that targets can
be met through the use of more gas as well as alternative fuels.
Statoil, one of our customers only recently reported that demand
for natural gas is expected to grow in Europe in 2016 "as countries
seek to reduce emissions". This is an important trend for Plexus as
the technical benefits of our HG metal sealing technology and
through the BOP wellhead design for high pressure/high temperature
('HP/HT') applications are widely recognised by the industry.
"For many years we have enjoyed a dominant position in the North
Sea, thanks to our Aberdeen headquarters, superior POS-GRIP
wellhead technology and the region's best and safest practices and
early adoption of new products. While the North Sea will always
remain an important market for us, over the years we have adopted a
more international focus based around organic business wins and
strategic licencing agreements to avoid additional investment in
capital intensive assets such as manufacturing. Furthermore we have
invested in extensive research and product development which sees
our POS-GRIP product suite extend over oil and gas exploration,
production and now subsea drilling, all of which have strong
economic outlooks for the future.
(MORE TO FOLLOW) Dow Jones Newswires
January 25, 2016 02:00 ET (07:00 GMT)
Plexus (LSE:POS)
Historical Stock Chart
From Jun 2024 to Jul 2024
Plexus (LSE:POS)
Historical Stock Chart
From Jul 2023 to Jul 2024