TIDMPOS
RNS Number : 9317A
Plexus Holdings Plc
30 March 2017
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
30 March 2017
Plexus Holdings PLC ('Plexus', 'the Company' or 'the Group')
Interim Results
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 its interim
results for the six months to 31 December 2016.
Financial Results
-- Sales revenue GBP3.77m (2015: GBP6.76m)
-- EBITDA (GBP0.13m) loss (2015: GBP1.23m loss)
-- Loss after tax (GBP2.5m) (2015: GBP3.5m loss)
-- Basic loss per share (2.33p) (2015: 3.93p loss)
-- Net cash of GBP10.1m (2015: GBP4.4m)
-- No proposed interim dividend. Whilst the Company remains
committed to distributing dividends to its shareholders, the
Directors believe that, in view of the ongoing reduction in
exploration drilling activity and resultant financial performance,
it is prudent to continue the suspension of the payment of
dividends. The Company will look to reinstate the dividend at the
earliest opportunity.
Overview
-- Half year financials impacted by extended period of low oil
prices and ongoing reduced levels of exploration activity,
particularly in the North Sea
-- Well placed to see out the current downturn
-- Significantly reduced cost and overhead base, strengthened
debt free balance sheet and reduced capital spending
commitments
-- Research and Development ('R&D') spend reduced to GBP0.3m
compared to GBP1.3m for the prior half year, and capital
expenditure reduced to GBP0.3m compared to GBP3.0m in the prior
year
-- Circa 30% increase in the price of a barrel of oil following
OPEC's decision in December 2016 to curtail production by 1.2m
barrels a day
-- Growing increase in enquiries with greater visibility
currently than at the same time last year
-- Gaining exposure to new geographies and markets with active
dialogues with Russia, India, and the Middle East
-- Continued strong presence in the North Sea, where various
industry and government initiatives are underway to increase
exploration
-- Strengthening product suite to cater for all stages of the
oil cycle from exploration to decommissioning based on extending
the range of applications for ground-breaking POS-GRIP
technology
-- Increased activity post period end:
o Purchase order from Masirah for an exploration well in
Oman
o Four-year framework agreement with Centrica Norway to supply
surface wellhead and mudline equipment services for jack up
exploration wells of all pressure ratings in the Norwegian sector
of the North Sea
o Extension of an existing agreement with Shell Brunei to supply
both HPHT and standard pressure wellhead systems and services for
three exploration wells in Brunei
o New customer contract win from Nexen Petroleum U.K. Limited
('Nexen') a subsidiary of CNOOC Limited for HPHT exploration
wellhead equipment for a well in the Central North Sea
-- Bank facilities with the Bank of Scotland currently comprises
a two-year term GBP5.0m revolving credit facility renewable
September 2018. The facility remains undrawn at the balance sheet
date. In addition, the Group has a reducing five year GBP1.5m term
loan (with a current balance of GBP0.8m), which was put in place in
September 2014 to part fund the purchase of an additional facility
in Aberdeen, and which runs to August 2019.
Chief Executive Ben van Bilderbeek said:
"Six months can be a long time in what continues to be a
volatile oil and gas industry. At the beginning of the review
period, oil prices appeared stuck at around the US$40 level; the
global supply glut was proving hard to shift as OPEC prioritised
maintaining market share over prices; and operators were focusing
their efforts on conserving cash. Fast forward six months and oil
prices have strengthened to around the US$50 level; upward
revisions to oil demand and OPEC driven production cuts are helping
the industry towards the point at which demand and supply reach
equilibrium; and operators are seemingly prepared to look at
exploration projects more closely. As Malcolm Dickson, analyst at
Wood Mackenzie, said recently 'The industry has moved out of
survival mode, through a phase of adaptation to lower prices and
now it is beginning to think about renewed growth'. I must stress
however that the spectre of ever more efficient shale production
combined with OPEC members and others not adhering to reduced
production targets continues in the short term to cast a shadow
over exploration activity levels.
"As an IP-led oil and gas engineering company, which supplies
its best in class wellheads to blue chip operators, including Royal
Dutch Shell, Total, and ENI, any improvement in sentiment from the
depths to which it had fallen is very welcome. While it will take
time for this to filter through to our order book, we are looking
forward to an anticipated upturn in trading conditions in the next
financial year so that we can continue to work towards delivering
on our objective: to establish Plexus as the go-to provider for the
safest, most reliable and best performing wellhead equipment, not
only for exploration but in due course also for surface production
and subsea applications.
"The decision by OPEC and certain major non-OPEC producers
including Russia in December 2016 to curtail production by 1.2m
barrels a day has largely fuelled the near 30% increase in the
price of a barrel of oil compared to the summer's lows. It is of
course one thing to promise production cuts but another to deliver
them. Encouragingly, the International Energy Agency ('the IEA')
has reported that cuts amounting to 90% of the overall target were
achieved in January 2017, although it remains to be seen whether
this accord will hold. The IEA went on to forecast that these cuts
when taken together with a 100,000 bopd upgrade to 2017 oil demand
growth to 1.4m bopd, then the global supply glut, which has cast a
shadow over markets for more than two years, could be reduced by
approximately 600k bopd over the next six months. Operators have
taken note and, combined with the steps they have taken to
significantly cut costs, exploration appears to be back on the
agenda. Encouragingly, Tom Ellacott, head of corporate research at
Wood Mackenzie, was recently reported as saying 'Most oil and gas
companies will start 2017 on a firmer footing, having halved cash
flow to break-even (point) to survive the past two years. Further
evidence of a cautious U-shaped recovery in investment should
emerge.' Such sentiment was encouragingly reflected by Deirdre
Michie, chief executive of Oil & Gas UK, in relation to the
North Sea which has been our most important market - 'Confidence is
slowly returning to the basin'.
"As recent updates from both ourselves and our peers in the oil
and gas services sector have shown, there is some way to go before
the improvement in sentiment translates into stronger financial
results. At Plexus, we have seen a marked increase in enquiries in
recent months and we are pleased to report that several of these
are moving forward, although timing is expected to fall in the
2017/18 financial year.
"In the meantime, like others in the sector we have not been
idle waiting for the recovery to take hold. We have significantly
pared back our cost base to more closely match the lower revenue
profile; we have strengthened our debt free balance sheet by
raising equity at the end of the last financial year around market
price; and we have reduced our capital spending commitments. These
actions are not unique to Plexus. Many of our peers within the
sector, both large and small, have carried out similar exercises.
In addition to the above, large companies within the industry have
embarked on a series of mergers and acquisitions in search of cost
savings, efficiencies, synergies and increased market share to help
them adapt to a significantly lower oil price. It is in this light
that Schlumberger's US$14.9 billion acquisition of Cameron
International and the multi-billion dollar merger completed last
month between Technip and FMC ought to be seen. As Osmar Abib,
global head of oil and gas at Credit Suisse, said in an interview
with the Financial Times 'There has been a trend towards
consolidation in the service industry over the past 30 years or
more. As oil production becomes more complex it becomes more and
more important for service companies to have the right skills and
capabilities, and that means they need to be large enough.' Many
commentators, believe further consolidation is likely, and
intellectual property strengths are likely to be an important
factor in the future, especially where cost saving and safety
factors come into play. In a recent note on the sector, analysts at
investment bank Canaccord wrote, 'We primarily see niche
high-technology specialists as the potential targets as the new
behemoths seek to round out their portfolios.'
"An additional motive behind the increase in corporate activity
in the services sector has been to enter new markets. Gaining
exposure to new geographies and markets has been a key strategic
focus for Plexus and we have recently secured a licensing agreement
in Russia. For a technology based company of our size, licensing
agreements allow Plexus to gain a foothold in a targeted territory
without having to commit vast sums of capital associated with
establishing supply lines, sales teams and other associated costs.
Instead, by partnering with leading local companies, we can
capitalise on their existing capabilities, infrastructure and
relationships with major operators who are active in the region.
With this in mind, we are working towards securing additional
licensing agreements in other hydrocarbon jurisdictions such as
India and the Middle East where we do not currently have a
presence.
"Looking to the future I am hopeful that the bottom of the cycle
has been reached. The industry has realigned itself to an oil price
that is closer to US$50 oil as opposed to the US$100 a barrel that
had prevailed for much of this decade, and capex and opex costs
have been significantly reduced. It will take time for the next
upswing to take root, but with demand for oil and gas forecast to
continue rising, new discoveries will have to be made not only to
cover the natural decline of mature fields but also to make up for
the exceptional drop in exploration activity we have seen over the
last two years. Quite simply - new wells will have to be drilled.
With unique and superior technology, an inventory of 62 wellheads,
a blue-chip customer base, licensing agreements in place with
established local partners in important hydrocarbon regions, a
growing suite of products and a strong balance sheet, Plexus is
well placed to help operators deliver these wells around the world
and in the process, generate value for all its shareholders."
For further information please visit www.posgrip.com or
contact:
Ben van Bilderbeek Plexus Holdings PLC Tel: 020 7795
6890
Graham Stevens Plexus Holdings PLC Tel: 020 7795
6890
Nick Tulloch Cenkos Securities PLC Tel: 0131 220
9772
Derrick Lee Cenkos Securities PLC Tel: 0131 220
9100
Frank Buhagiar St Brides Partners Tel: 020 7236
Ltd 1177
Isabel de Salis St Brides Partners Tel: 020 7236
Ltd 1177
Chairman's Statement
Business progress
Plexus is an asset backed, proprietary IP led oil and gas
engineering company which to date has supplied its best in class
POS-GRIP wellheads to a wide range of major international oil and
gas operators for use on over 400 exploration wells worldwide.
The six month period under review saw the cyclical downswing
continuing into its second year with exploration drilling activity
associated with new projects remaining depressed. This situation
resulted in year on year sales falling from GBP6.76m last year to
GBP3.77m this year, although cash balances remained stable as costs
were reduced to better balance overhead and activity levels. On a
positive note we have continued to win business when opportunities
present themselves whether longer term framework agreements, or
with a new customer such as Nexen, a subsidiary of CNOOC, for an
HPHT well in the Central North Sea.
At the macro level at International Petroleum Week in February
2017 held in London, it was reported that the widely adopted mantra
'lower for longer' had now been replaced by 'wait and see'. This
sentiment was more recently echoed by Stefano Cao, the chief
executive of Saipem of Italy, who told the Financial Times that
offshore oil exploration remains in the doldrums and that most oil
explorers remained in a "wait and see mode" before committing to
new projects, adding that in "order to see light at the end of the
tunnel we need to see a rebound of capital expenditure by oil
companies". We would of course agree with this analysis, but are
hoping that there is now some light at the end of the tunnel with
signs of increased exploration activity and tender opportunities
which we expect will translate into sales revenue in the next
financial year.
Encouragingly, post period end we announced a purchase order
from Masirah for an exploration well in Oman; a four-year framework
agreement with Centrica Norway to supply surface wellhead and
mudline equipment services for jack up exploration wells of all
pressure ratings in the Norwegian sector of the North Sea; and also
the extension of an existing agreement with Shell Brunei under
which we have previously received purchase orders to supply both
HPHT and standard pressure wellhead systems and services for three
exploration wells in Brunei. Furthermore, as we stated in our
trading update of 1 February 2017, we are currently negotiating the
conclusion of several other new contracts. The pick-up in sentiment
was never going to be reflected in our financial performance for
the latest half year period. We remain hopeful however that
purchase orders will be signed in the second half but as ever,
timing is dependent on factors that are largely out of our
control.
As the industry has had to focus intensively on reducing costs
and increasing efficiency levels, specifically addressing
non-productive time, it is helpful that a number of the enquiries
we are seeing are from long-standing customers of Plexus who have
first-hand experience of the benefits of using our equipment. These
operators therefore do not need to be educated on how our
proprietary POS-GRIP technology, which involves deforming one
tubular member against another within the elastic range of the
steel to effect gripping and sealing, sets a new standard for
wellhead equipment, as well as offering material time savings.
Instead, the conversations we are having centre on factors such as
logistics, availability and the speed with which purchase orders
can be turned around. We tick all these boxes. We have a tried and
tested logistics network which in recent years has ensured the
timely delivery of our equipment for wells drilled all over the
world, including offshore Australia, West Africa, Oman, Brunei and
Venezuela; and thanks to an inventory of 62 sets of wellheads, we
have stock available for rent at short notice.
We have stated before that where there is business to be won we
are well placed to win it and we stand by this view. We believe
that the high level of repeat orders we are awarded, the framework
agreements we have with blue chip operators such as Centrica and
Shell, and Plexus' standing prior to the downturn as the go to
supplier of HPHT and Ultra-HPHT wellheads in the North Sea with a
near 100% market share, are all testament to our high standing
within the industry. Our continued aim is to capitalise on this
success to break into much larger and more valuable markets, such
as land based production and subsea, as well as build a major
presence in those fast-growing hydrocarbon regions that we are
targeting around the world, which is further helped by the
accelerating trend away from coal.
It should not be forgotten that as Plexus is an IP-led
technology company protected by an extensive suite of patents, we
have several capital-light routes to market at our disposal. One of
these is the licensing model and we have already begun to pursue
this strategy with progress being made with the signing of
agreements with established local operators in the large Russian
market. To date, no jack-up orders have been secured via these
agreements but this clearly must be seen in the context of the
global drop-off in exploration, which has impacted activity across
the world. We remain confident that once exploration picks up,
these and other licence agreements we are looking to secure in
targeted regions such as the Middle East and the Gulf of Mexico,
will fast track the adoption of our equipment in new territories.
In the meantime, we are using this hiatus to work closely with our
local partners in demonstrating to those majors operating in these
regions the performance benefits and cost advantages of all our
POS-GRIP based equipment, not just our traditional jack-up
exploration wellheads.
Although geographic expansion remains a key part of our strategy
to establish Plexus wellheads as a new industry standard, it cannot
be ignored that the North Sea remains an important market for the
Company. Needing relatively high oil prices to breakeven, the
region was particularly exposed to the downturn and exploration
drilling all but dried up. This extreme level of decline is
demonstrated by the announcement during the period by the
Government Expenditure and Revenue Scotland ('GERS') that the
Scottish government's revenues from the North Sea in the last
financial year collapsed by 97% to just GBP60m from a level of
GBP1.8bn in 2014/15. The industry, however, has responded: the
average cost of oil production has fallen to $20 a barrel from $35;
the UK Government has slashed tax rates; while in a vote of
confidence in the region's prospects, lenders have been reluctant
to pull the plug on indebted operators, preferring instead to work
through debt issues with management teams. Progress has also been
made at the project level and according to Oil and Gas UK, the UK
offshore oil and gas industry association, oil production in the
North Sea rose by 10% last year and is expected to rise further in
2017.
The entry of new players into the region provides further
evidence that the North Sea is alive and well: private equity
backed Chrysaor acquired a large portfolio of both new and mature
fields as well as infrastructure assets from Royal Dutch Shell for
GBP3bn; while Blackrock-backed Siccar Point paid Austria's OMV GBP1
billion for a collection of North Sea assets. The emergence of
private equity backed operators bodes well for Plexus, as these
companies typically make investment decisions quickly and when they
do drill they can rely on turnkey contractors whom Plexus have
historically worked well with. We are therefore confident that when
jack-up exploration activity picks up, we will once again emerge as
the dominant supplier in the North Sea. At the political level we
were also pleased to see in this month's budget that a review of
North Sea tax rules has been initiated to find ways of encouraging
and accelerating fresh investment in UK oil and gas assets.
Chancellor Philip Hammond said that an expert panel would examine
ways of making it easier to buy and sell North Sea oil and gas
fields with the aim of keeping them in production longer.
Crucially, Mr Hammond told MP's that as 'UK oil and gas production
declines, it is absolutely essential we maximise exploitation of
remaining reserves'. Such
political will and strategy if effective would we believe be
very positive for exploration activity and in turn for Plexus.
Our growing family of products can now cater for all stages of
the oil cycle from exploration, production, subsea and
decommissioning. This family of products is based around our
ground-breaking POS-GRIP friction grip technology, which is proven
scientifically to be superior in terms of performance, reliability
and safety compared to that of our competitors. This in turn has
enabled Plexus to become the go to provider for exploration
wellheads in the North Sea, our home market; build a blue-chip
customer base from whom we regularly win repeat business where
operators have the budget; and secure licensing agreements such as
for the huge Russian market. In addition, we have strong asset
backing and cash resources. While all the above could not and did
not prevent our half year financial numbers from being impacted by
the extended period of low oil prices and low levels of exploration
activity, they do serve to demonstrate how well placed Plexus is to
not only ride out the current downturn, but also to emerge from it
ready to benefit from the upturn when it comes.
Operating Review
As stated in our trading update of 1 February 2017, the subdued
levels of exploration activity and resultant drop in orders for our
wellheads have continued into the second half of the current
financial year. Despite this, while a recovery when it comes is
likely to be slow and bumpy, particularly in the early stages, in
the same update we expressed our view that the remainder of the
current year will prove to be the bottom of the exploration
drilling cycle. This opinion is consistent with Rystad Energy,
which is predicting a modest increase in demand for jack-up
drilling units in 2017 before the rate of growth accelerates from
2018 onwards until activity levels normalise by 2020.
Such dynamics clearly have a direct impact on our operational
plans and activities, but this increasing confidence does at least
stem from positive developments at both the macro and micro levels.
At the macro level, we have been encouraged by the oil price
beginning to stabilise at levels at which the economics of many
exploration and production projects once again become commercial, a
consequence of OPEC's decision to tackle the global oil supply glut
by cutting production by 1.2million barrels a day. Micro in the
sense that at Plexus we are seeing tentative signs that the
industry is regaining its appetite for exploration activity and as
a result we have more visibility today in terms of potential orders
than we did this time last year. Management therefore believes that
from the 2017/18 financial year onwards, Plexus' revenues will show
a marked improvement compared to the current year and we will be
making the necessary operational changes to work towards delivering
an improved set of results next year.
Obviously the current adverse trading conditions have required
Plexus to continue to tightly control overheads including personnel
numbers which were further reduced in November 2016. This resulted
in a total headcount as at the half year period end of 70 compared
to 80 as at the last 30 June 2016 financial year end and 127 at the
previous first half period end of December 2015. These lower
headcount numbers clearly illustrate the extent of the
restructuring and associated cost reduction initiatives. Although
this circa 45% reduction in personnel over the last twelve months
is significant, it is operationally important to note that this has
been carried out in a balanced way to enable the business to be
easily scaled up again through re-hiring as activity levels
increase, while in the meantime ensuring today's growth
opportunities and service levels are not compromised. No further
headcount reductions are envisaged at the current time. The
backbone to such future growth remains our rental wellhead
inventory where our 62 wellhead sets are capable of being deployed
at relatively short notice and which can, subject to contract mix
and location efficiencies support revenues of up to GBP40m.
Operationally the North Sea has historically been our main
market and continues to suffer from the downturn, although Oil and
Gas UK in their recently published 2017 "Business Outlook" have
stated that the North Sea will in 2017 generate positive free cash
flow for the first time in four years provided costs are kept under
tight control and commodity prices hold. These 'closer to home'
trading conditions have meant that Plexus has continued to focus on
opportunities further afield and we were therefore pleased to be
able to announce post period end a follow-on exploration well
contract in Oman from Masirah Oil Limited, and an additional two
year contract extension with Shell Brunei for the supply of HPHT
and standard pressure wellhead equipment. In addition, we are
hopeful that progress will continue to be made in Russia.
The key functions within the business are HR, Health and Safety
('HSE'), IT and IP. HR's focus has continued to be on managing the
headcount to meet operational needs. Further analysis resulted in
an additional rightsizing exercise, which commenced in November
2016, and following the requisite consultation period nine staff
were made redundant. Emphasis remains on maintaining and developing
the right technical skills within the business, and therefore
further training needs were met with the development of in-house
training modules for Relative Space Out and Temporary Abandonment
Cap modules, which were subsequently rolled out across the Field
Service Technician team. Continued development of the Competency
Management System has been undertaken, and the fourth safety
critical department competency system has been drafted. Maintenance
of the robust competency system will continue and consideration
given to further areas in the business which can benefit from being
part of the Competency Management System.
In terms of HSE, Plexus remains fully committed to delivering
the highest safety standards in everything we do every day. We
continue to maintain a positive safety culture which is aligned
with our Company Safety Values and is evident throughout the
organisation. We are pleased to report our HSE culture remains
strong across the business with no major findings during our past
and most recent LRQA certification surveillance audits set against
OHSAS 18001 standard. We continue to manage our safety risks
through assessment, implementation of controls, continual
monitoring, engaging and developing staff to meet the competency
levels required. We always reinforce the important message that the
health and well-being of our employees is a crucial feature of our
HSE and HR strategy. We encourage our personnel to get involved,
have confidence to intervene and to challenge any act or condition,
suggest improvements, and to ensure transparent reporting to meet
our desired safety culture. Quality also remains a key focus in the
delivery of our products and services and this is demonstrated in
our customer satisfaction survey results score of 4.4 out of 5 and
no major findings in our past and most recent LRQA ISO 9001
surveillance audit. We are currently reviewing our procedures and
developing our Business Management System to comply with the ISO
9001:2015 and API Q1 standards, with the aim to have full
compliance by the end of 2017, again as part of our relentless
commitment to attain and sustain the highest standards
possible.
During challenging trading conditions, it is still vitally
important that Plexus is committed to ensuring its IT Systems
deliver safe and secure services to customers and the business. To
ensure that the confidentiality, integrity and accessibility of
information is maintained Plexus has continually evolved its
computer network and security monitoring systems to ensure ever
expanding cyber risks are minimised. Penetration testing and
network monitoring are regularly carried out to ensure our systems
have not been breached, while anti-virus and malware protection are
used to keep our data secure. The ever-changing cyber landscape
presents an increasing threat to the security of our systems.
Defending against cyber-attacks and keeping up to date with
evolving policies and regulations is a complex task. To ensure
Plexus systems and data are as secure as possible Plexus is
currently working towards ISO 27001 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.
Plexus relies on its own in-house developed software systems. These
systems allow the Company to develop software solutions that can
quickly react to the changes demanded by the business. During this
period the systems have been upgraded in several key areas, the
main being sales forecasting, capital expenditure monitoring and
inventory utilisation. These improvements will provide management
with a greater visibility of key areas which in turn will allow
them to make better decisions based on more accurate data.
It is important to remember that our patent protected POS-GRIP
technology is the enabler behind the best in class qualities of not
only our jack-up exploration equipment, but also our Python Subsea
wellhead, developed in collaboration with majors including Total,
Royal Dutch Shell, and ENI; our HGSS tie back connector developed
in partnership with Maersk; and our POS-SET Connector(TM) which has
already been used by Centrica for abandonment operations on a gas
well originally drilled in 1982, offshore Holland. As a result, all
three products offer operators the same mix of operational and
performance advantages together with cost savings that our jack-up
wellheads provide, none of which we believe can be matched by our
competitors. Significant operational advantages and costs savings
also apply to our Tersus-PCT HPHT Tie-Back connector product which
utilises our POS-GRIP technology. This is the first product on the
market which allows HPHT exploration and pre-drilled production
wells to be converted to either subsea or platform producing wells.
We estimate the time and cost savings made by the operator can run
into millions of dollars and certainly cover the cost of the
Tie-Back connector many times over. As activity in the oil and gas
sector picks up we are confident that the combination of
performance and cost benefits that run through our engineering
solutions will increasingly resonate with operators who we believe
will enter the next industry upturn keen to maintain a tight
control over costs, whilst looking for superior technology driven
solutions.
Ongoing operational activities and necessary R&D and capex
continue to be funded from cash reserves and if necessary our bank
facilities with the Bank of Scotland, comprising a two year term
GBP5.0m revolving credit facility renewable September 2018. The
facility remains undrawn both at the balance sheet date and
currently. In addition the Group has a reducing five year GBP1.5m
term loan (with a current balance of GBP0.8m) which was put in
place in September 2014 to fund the purchase of an additional
facility in Aberdeen, which runs to August 2019.
Interim Results
The ongoing reduction in jack-up exploration drilling activity
around the world, and the major down turn in the North Sea, which
traditionally has been one of the most expensive areas in the world
to explore and produce, has inevitably continued to impact on our
first half financial performance, and the outlook for the remainder
of this financial year. On a positive note according to Oil and Gas
UK the North Sea has halved its average unit operating costs from
$29.70 per barrel to $15.30 per barrel which bodes well for future
exploration activity. As a result, revenue for the six month period
ended 31 December 2016 was GBP3.77m, a 44.2% reduction compared to
the previous year's figure of GBP6.76m. The rental wellhead
equipment and associated services business activities for
exploration drilling contracts accounted for over 93% of sales
revenues. The largest sales element remains the supply of our HP/HT
wellhead equipment which totalled GBP3.2m compared to GBP5.8m last
year, and accounted for approximately 86% of total revenues
compared to 87% last year. Revenue generated by the rental of
10,000 psi standard pressure wells were GBP0.29m (2015: GBP0.59m)
which again reflects the significant downturn in the North Sea.
Geographically the North Sea during this period was the largest
element of sales revenues as compared to the Rest of the World.
Within the North Sea, UKCS sales during the period were GBP0.17m,
an 81% reduction against the same period last year, and meanwhile
in the ECS sales totalled GBP2.79m, a less impacted 39% reduction
compared to last year. Norway was once again the most important
sector and accounted for sales of GBP2.56m and where year on year
sales activity fell to a lesser degree by 36%. The relative
robustness of the Norwegian offshore territory we believe is the
result of tax incentives that relate to exploration drilling in the
region combined with the highest level of safety and operating
standards that are required. First half gross margins reduced to
41.3% compared to 46.8% in the comparative period last year.
The negative financial performance resulting from the reduced
level of exploration drilling has continued to dictate the need to
focus on cash preservation and conservation. Like many companies in
the sector this has led once again to a reduction in headcount
numbers as well as investment in capex, opex, and non-essential
R&D to better align our cost base with reduced sales revenues.
For the first half period to the end of December 2016
administration and overhead expenses were reduced to GBP3.92m
compared to GBP6.45m reflecting the full impact of the major
restructuring that took place in the second half of the last
financial year. Within this total the salary component remained the
largest at GBP1.94m which is a 52.4% reduction compared to the
prior year first half which totalled GBP4.01m. These reductions
have been an important part of reducing year on year losses.
Personnel numbers have reduced from circa 127 as at 31 December
2015 to circa 70 currently. These headcount numbers are down from
circa 157 as at 30 June 2015. The cost reductions have been
considered and implemented carefully with the primary aim we
believe being achieved; ensuring an ongoing ability to supply our
customers with first class equipment and service. This is important
as we need to be well positioned to respond to an upturn in
business activity when it comes. The effective focus on cash and
cost reduction meant that the closing cash position at the end of
the last financial year 30 June 2016 was almost unchanged as at 31
December 2016 at circa GBP10m. Combined with having a strong
balance sheet, we are in a good position to weather continued
challenging trading conditions throughout the remainder of this
financial year.
The circa 44% decrease in sales revenues resulted in a loss of
GBP2.5m which was a significant reduction on the prior year's loss
of GBP3.5m. The loss came after absorbing similar rental asset and
other property, plant and equipment depreciation and amortisation
costs totalling circa GBP2.2m. The stabilising of this cost
reflects the reduction in capital expenditure. On-going investment
in Plexus' rental wellhead equipment inventory was minimal at
GBP0.004m compared to GBP1.33m last year. Total capital expenditure
decreased 88.4% to GBP0.35m compared to GBP3.01m during the same
period last year. These reductions are not simply part of our cash
control strategy, but also reflect the fact that we now have
sufficient inventory to respond as necessary to market demand even
if there is a sharp increase in activity levels. Loss before tax is
stated after charges for share based payments under IFRS2; the
charge for this year was zero which compares to GBP0.01m last year.
The Group has therefore once again not provided for a charge to UK
Corporation tax at the prevailing rate of 20%. Basic earnings per
share is a negative 2.33p per share which compares to a 3.93p loss
per share for the same period last year.
The balance sheet continues to remain strong, and the current
level of intangible and tangible property, plant and equipment
asset values at GBP13.9m and GBP13.8m respectively illustrate the
amount of investment that has been made in the business. Total
asset values at the end of the period stood at GBP46.9m. The cut
backs in investment have been carefully considered and will not
compromise on our technology and ability to service the customer,
as well as potential new licencing partners. The non-essential
R&D spend was able to be reduced from GBP1.31m last year to
GBP0.32m this year, a reduction of 75.4%. The core part of our
business, and the balance sheet assets that have been built up
around it, continues to be our POS-GRIP method of friction grip
engineering. It is this IP and the engineering solutions developed
from it which enable us to offer the industry unique safety,
operational and cost saving solutions and we remain confident that
our technology will play an important role at a time when the
industry continues to pursue efficiency gains and cost reduction
strategies such as needing to reduce non-productive drilling time.
With regards to cash flow the Group's cash position remained
strong. The Group closed the period with net cash of circa GBP10m,
which although being part utilised during the current second half,
is anticipated to stabilise and be neutral to positive during the
next financial year. Bank facilities currently comprise an undrawn
two year term GBP5.0m revolving credit facility renewable September
2018. In addition, the Group has a reducing five year GBP1.5m term
loan (with a current balance of GBP0.8m), which was put in place in
September 2014 to fund the purchase of an additional facility in
Aberdeen, which runs to August 2019.
Outlook
Looking at the performance of the oil price over the last two
years, it can easily be overlooked that in terms of global end user
demand, Plexus operates in a stable market, and one that is in fact
forecast to continue to grow. According to a report by the US
Energy Information Agency in January 2017, 'Global consumption of
petroleum and other liquid fuels averaged 95.6 million b/d in 2016,
an increase of 1.4 million b/d from 2015. Consumption growth in
2016 was driven by non-OECD countries. Consumption growth is
expected to be about 1.6 million b/d in 2017 and 1.5 million b/d in
2018, with 1.2 million b/d of the growth in both years coming from
rising non-OECD consumption. Forecast growth in the consumption of
hydrocarbon gas liquids (HGL) is an important driver of overall
global liquid fuels consumption growth.' Even though renewable
technologies are expected to continue to grow their share of fossil
fuels' end markets, such as energy generation and transport,
hydrocarbons are expected, thanks to the industrial and chemical
sectors, to remain the dominant fuel driving the global economy for
the foreseeable future.
The IEA is not alone in predicting gas will account for an
increasingly bigger slice of the hydrocarbon pie. BP's latest
Energy Outlook, which sets out a base case outlining the 'most
likely' path for global energy markets until 2035, states "The
gradual decarbonisation of the fuel mix is set to continue, with
renewables, together with nuclear and hydroelectric power expected
to account for half of the growth in energy supplies. Even so, oil,
gas and coal remain the dominant sources of energy, accounting for
more than 75% of energy supplies in 2035 (down only 10% from 85% in
2015)." However, different growth rates are forecast within the
hydrocarbon fuel mix, as BP continues "Natural gas is expected to
grow faster than oil or coal, helped by the rapid growth of
liquefied natural gas increasing the accessibility of gas across
the globe." The rise of natural gas is not just down to increased
accessibility but also as a result of it being among the cleanest
fossil fuel around. A higher proportion of gas in the energy mix
very much plays to Plexus' strengths as our equipment is ideally
suited to the high pressures and high temperatures associated with
gas wells. This was demonstrated by the award to Plexus of a
GBP3.3m contract from Total E&P Norge AS to supply the Solaris
exploration well, a technically challenging Ultra HPHT well
offshore Norway, believed to be the highest pressure well drilled
in the North Sea to date.
Looking further into the future, while demand for energy is
forecast to increase, supply needs to grow at a faster rate just to
keep pace as it first must counter the natural decline of producing
fields before it can meet rising demand. Exploration activity
levels therefore need to pick up from today's depressed levels.
According to IHS Markit, at 174 2016 represented a 60 year low for
oil and gas discoveries, well below the annual 400-500 run rate
achieved in the years up until 2013. Combined with the length of
time between first making a discovery and commencing production,
which can take between five to seven years, it is easy to envisage
a future supply crunch materialising. According to recent reports,
Khalid al-Falih, Saudi Arabia's oil minister, estimates US$1
trillion needs to be invested in oil projects each year just to
keep pace with demand. Due to shorter lead times and reduced
breakeven costs, unconventional exploration such as US shale is
expected to play an increasingly larger role in satisfying future
energy demand. Such a dynamic is now underway with new technology
even reviving old US fields previously written off as exhausted,
increasing recovery rates threefold whilst in some cases costs have
been cut in half. However with unconventional resources exposed to
steep decline curves, conventional projects will still need to
pick-up from the reduced levels brought about by the oil price
collapse. Mr al-Falih encouragingly further said at the recent
CERAWeek event in Houston that Saudi Arabia welcomed wind, solar,
and other renewables but warned that they cannot quench Asia's
"insatiable demand" for more oil or meet supply as global energy
demand doubles by 2050. Such sentiment was only this month echoed
in an International Energy Agency report which said that after a
two year slump the industry was making a weak recovery but that the
world will be hit by a sharp increase in oil prices in the next
decade without major investment in new fields.
Alongside such analysis it would be remiss to ignore the ongoing
development and growth of electric cars and associated vehicle
battery technology. Although it cannot be denied that battery
powered cars are beginning to penetrate the car market there are
key macro drivers which strongly suggest that the impact on petrol
consumption will not be significant for some decades to come. The
energy consultancy FGE reported this month that the fate of petrol
demand (and therefore oil) will not be set in the west but in Asia
which is at an early stage of mass motorisation. FGE refer to a
range of statistics which underpin this view in a compelling way.
Asia accounts for approximately one third of the global light
vehicle fleet of 1.1 billion, whilst growth in the region is
expected over the next twenty five years to be more than 500m units
which is more than the whole of the rest of the world combined.
This would mean that by 2014 almost every other car in the world
will be driven in Asia (unless government or regulatory
intervention applies a brake to such a trend through for example
taxation measures). Therefore according to FGE petrol demand is
likely to grow for many years into the future.
Clearly, the downturn has undoubtedly been painful for the
industry and especially for Plexus in terms of the necessary steps
we took to realign our business to the lower oil price environment.
We continue to see the remainder of the second half of the
financial year being challenging, but thanks to the measures we
have taken we have a balance sheet that has considerable asset
backing in the form of cash, our inventory of 62 wellheads, and our
valuable patent protected suite of POS-GRIP related IP. At the same
time, our much-reduced cost base has been designed to allow us to
break even at the operating level at a much lower rate of wellhead
deployment than was the case prior to the downturn, and we are
planning on being cash flow neutral as we move into the next
financial year. Furthermore, we have an expanded family of POS-GRIP
enabled products, which will allow us to target markets other than
our traditional jack-up exploration business. Taking these factors
into consideration we strongly believe that once the next upswing
becomes firmly entrenched and activity normalises, Plexus' future
will be extremely positive and rewarding for shareholders.
J Jeffrey Thrall
Non-Executive Chairman
29 March 2017
Plexus Holdings Plc
Unaudited Interim Consolidated Statement
of Comprehensive Income
For the six months ended 31 December
2016
Six months Six months
to 31 to 31 Year to
December December 30 June
2016 2015 2016
GBP 000's GBP 000's GBP 000's
Revenue 3,770 6,764 11,227
Cost of sales (2,212) (3,602) (5,994)
---------- ---------- ---------
Gross profit 1,558 3,162 5,233
Administrative expenses (3,925) (6,451) (11,276)
Restructuring costs (69) (142) (755)
---------- ---------- ---------
Operating loss (2,436) (3,431) (6,798)
Finance income 35 34 69
Finance costs (50) (96) (187)
Loss before taxation (2,451) (3,493) (6,916)
Income tax expense (note
5) - (9) 1,126
Loss after taxation (2,451) (3,502) (5,790)
Other comprehensive income - - -
Total comprehensive income (2,451) (3,502) (5,790)
========== ========== =========
Loss per share
Basic (note 6) (2.33p) (3.93p) (6.39p)
Diluted (note 6) (2.33p) (3.93p) (6.39p)
Plexus Holdings Plc
Unaudited Interim Consolidated Statement of Financial
Position
As at 31 December 2016
31 December 31 December 30 June
2016 2015 2016
GBP 000's GBP 000's GBP 000's
ASSETS
Goodwill 767 767 767
Intangible assets 13,890 14,056 14,080
Property, plant and equipment
(note 8) 13,843 17,074 15,567
Total non-current assets 28,500 31,897 30,414
----------- ----------- ---------
Inventories 6,782 6,327 6,726
Trade and other receivables 715 1,222 1,747
Cash and cash equivalents 10,880 10,534 15,863
Current income tax asset - - 229
Total current assets 18,377 18,083 24,565
----------- ----------- ---------
TOTAL ASSETS 46,877 49,980 54,979
=========== =========== =========
EQUITY AND LIABILITIES
Called up share capital
(note 10) 1,054 894 1,054
Share premium account 36,893 28,045 36,893
Share based payments
reserve 862 1,457 766
Retained earnings 5,826 10,562 8,277
Total equity attributable
to equity holders
----------- ----------- ---------
of the parent 44,635 40,958 46,990
----------- ----------- ---------
Bank loans 525 5,825 675
Deferred tax liabilities 372 628 468
Total non-current liabilities 897 6,453 1,143
----------- ----------- ---------
Bank loans 300 300 5,300
Trade and other payables 994 2,187 1,546
Current income tax liabilities 51 82 -
Total current liabilities 1,345 2,569 6,846
----------- ----------- ---------
Total liabilities 2,242 9,022 7,989
----------- ----------- ---------
TOTAL EQUITY AND LIABILITIES 46,877 49,980 54,979
=========== =========== =========
Plexus Holdings Plc
Unaudited Interim Statement of Changes
in Equity
For the six months ended 31 December 2016
Share
Called Share Based
Up Share Premium Payments Retained
Capital Account Reserve Earnings Total
GBP GBP GBP GBP
000's 000's GBP 000's 000's 000's
Balance as at 30
June 2015 849 20,141 1,862 15,628 38,480
Total comprehensive
income for the period - - - (5,790) (5,790)
Issue of ordinary
shares
(net of issue costs) 205 16,752 - - 16,957
Share based payments
reserve charge - - 21 - 21
Transfer of share
based payment reserve
charge on exercise
of options - - (3) 3 -
Current year credit
on share option exercise
to share based payment
reserve - - 5 - 5
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 period - - - (2,451) (2,451)
Net deferred tax
movement on share
options - - 96 - 96
Balance as at 31
December 2016 1,054 36,893 862 5,826 44,635
========= ======== ========= ========= =======
Plexus Holdings Plc
Unaudited Interim Statement of Cash Flows
For the six months ended 31 December 2016
Six months Six months
to 31 to 31 Year to
December December 30 June
2016 2015 2016
GBP 000's GBP 000's GBP 000's
Cash flows from operating
activities
Loss before taxation (2,451) (3,493) (6,916)
Adjustments for:
Depreciation, amortisation
and impairment charges 2,240 2,193 4,471
(Profit)/loss on disposal
of property, plant and
equipment (4) 2 (2)
Charge for share based
payments - 11 21
Investment income (35) (34) (69)
Interest expense 50 96 187
Changes in working capital:
(Increase)/decrease in
inventories (56) 224 (175)
Decrease in trade and
other receivables 1,032 6,079 5,554
Decrease in trade and
other payables (552) (1,109) (1,750)
Cash generated from operations 224 3,969 1,321
Net income taxes received/
(paid) 280 68 34
Net cash generated from
operating activities 504 4,037 1,355
---------- ---------- ---------
Cash flows from investing
activities
Purchase of intangible
assets (323) (1,367) (1,900)
Purchase of property,
plant and equipment (27) (1,640) (1,956)
Proceeds of sale of property,
plant and equipment 28 3 61
Net cash used in investing
activities (322) (3,004) (3,795)
---------- ---------- ---------
Cash flows from financing
activities
Repayment of loans (5,150) (150) (300)
Net proceeds from issue
of new ordinary shares - 7,949 16,923
Proceeds from share options
exercised - - 34
Interest paid (50) (96) (187)
Interest received 35 34 69
Equity dividends paid - (1,564) (1,564)
Net cash generated from
financing activities (5,165) 6,173 14,975
---------- ---------- ---------
Net (decrease)/increase
in cash and cash equivalents (4,983) 7,206 12,535
Cash and cash equivalents
at brought forward 15,863 3,328 3,328
Cash and cash equivalents
at carried forward 10,880 10,534 15,863
========== ========== =========
Notes to the Interim Report December 2016
1. This interim financial information does not constitute
statutory accounts as defined in section 435 of the Companies Act
2006 and is unaudited.
This unaudited interim report has been prepared based on the
accounting policies set out in the annual report for the year ended
30 June 2016 and which are also expected to apply for 30 June
2017.
The interim financial information is compliant with IAS 34 -
Interim Financial Reporting.
The accounting policies are based on current International
Financial Reporting Standards ("IFRS"), International Financial
Reporting Interpretation Committee ("IFRIC") interpretations and
current International Accounting Standards Board ("IASB") exposure
drafts that are expected to be issued as final standards and
adopted by the EU such that they are effective for the year ending
30 June 2016. These standards are subject to on-going review and
endorsement by the EU and further IFRIC interpretations and may
therefore be subject to change.
2. This interim report was approved by the board of directors on
29 March 2017.
3. The directors do not recommend payment of an interim
dividend.
4. There were no other gains or losses to be recognised in the
financial period other than those reflected in the Statement of
Comprehensive Income.
5. No corporation tax provision has been provided for the six
months ended 31 December 2016 (2015: nil). As a result there is no
effective rate of tax for the six months ended 31 December 2016
(2015: 0%) after adjustments made to reflect R&D tax credits
received relating to the current and prior years and offsets for
disallowable expenditure.
6. Basic earnings per share are based on the weighted average of
ordinary shares in issue during the half-year of 105,386,239 (2015:
89,226,270).
7. The Group derives revenue from the sale of its POS-GRIP
friction-grip technology and associated products, the rental of
wellheads utilising the POS-GRIP friction-grip technology and
service income principally derived in assisting with the
commissioning and on-going service requirements of its equipment.
These income streams are all derived from the utilisation of the
technology which the Group believes is its only segment. Business
activity is not subject to seasonal fluctuations.
8. Property, plant and equipment
Assets
Tenant under
Improve-ments Constru-ction Motor
Buildings GBP'000 Equipment GBP'000 Vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 July
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 - - 27 - - 27
Transfers - - 11 (11) - -
Disposals - - (41) - (2) (43)
As at 31 December
2016 4,379 600 30,127 47 32 35,185
Depreciation
As at 1 July
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 125 38 1,562 - 2 1,727
On disposals - - (17) - (2) (19)
As at 31 December
2016 933 288 20,096 - 25 21,342
Net book value
As at 31 December
2016 3,446 312 10,031 47 7 13,843
As at 30 June
2016 3,571 350 11,579 58 9 15,567
As at 30 June
2015 3,821 250 12,894 174 15 17,154
9. The comparative figures for the financial year ended 30 June
2016 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the company's
auditors, Crowe Clark Whitehill LLP, and delivered to the registrar
of companies. The report of the auditors was (i) unqualified, (ii)
did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying their report
and (iii) did not contain a statement under section 498(2) or (3)
of the Companies Act 2006.
10. Share Capital
Six months to 31 December 2016 Six months to 31 December 2015 Year to
30 June
2016
GBP'000 GBP'000 GBP'000
Authorised:
Equity: 110,000,000 (2015: 110,000,000)
Ordinary shares of 1p each 1,100 1,100 1,100
Allotted, called up and fully paid:
Equity: 105,386,239 (Dec 2015:
89,390,576, June 16: 105,386,239)
Ordinary shares of 1p each 1,054 894 1,054
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LLFIEVDIAFID
(END) Dow Jones Newswires
March 30, 2017 02:00 ET (06:00 GMT)
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