TIDMPOS
RNS Number : 7710H
Plexus Holdings Plc
27 March 2020
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
27 March 2020
Plexus Holdings PLC ('Plexus', 'the Company' or 'the Group')
Interim Results for the 6 months to 31 December 2019
Plexus Holdings plc, the AIM quoted oil and gas engineering
services business and owner of the proprietary POS-GRIP(R) method
of wellhead engineering, announces its interim results for the six
months to 31 December 2019.
Financial Results
-- Following the sale of the wellhead Jack-up exploration
application business (the "Jack-up Business") to FMC Technologies
Limited ('TFMC'), a subsidiary of major oil services provider
TechnipFMC (Paris:FTI)(NYSE:FTI), on 1 February 2018, the interim
results and prior periods are reported as required on a continuing
and a discontinued operations basis.
-- Continuing operations sales revenue GBP49k (2018: GBP1,312k)
-- Continuing operations EBITDA loss (GBP1,809k) (2018: GBP1,504k loss)
-- Continuing operations loss before tax (GBP2,763k) (2018: Loss GBP2,337k)
-- Basic loss per share from continuing activities (2.75p) (2018: 2.22p loss)
-- Net cash of GBP4.5m (2018: GBP9.5m).
-- The Group in addition has GBP2.96m in financial assets (2018: GBP2.85m)
-- The Group has no debt following the final repayment (GBP75k)
of a term loan in September 2019.
Overview
Focus on IP led strategy to establish proprietary POS-GRIP
technology in new markets and replicate success achieved in North
Sea jack-up exploration where Plexus equipment raised standards,
generated substantial cost savings for operators and enjoyed a
dominant market position
Surface production wellhead and tree market
-- Strategy centred on offering full-service package following
formation of majority owned Plexus Pressure Control Ltd ('PPC'), a
JV with UK based BEL Valves Ltd, in June 2019
o Enables Plexus for the first time to offer operators of
large-scale production projects POS-GRIP wellheads alongside valves
and Xmas-trees
-- Growing sales pipeline of bidding activity
o Actively participating in the tender process for a range of
projects across the world
o Increased interest being expressed by operators in Plexus
tendering for projects
o Long lead times associated with large surface production
projects
-- Large target market - the award of just one contract in the
surface production market, which is estimated to be worth an
estimated US$2.5 billion over the five-year period 2021-2025, has
the potential to be transformational for Plexus
o Rystad Energy estimates a total of 691 wells are planned to be
drilled between 2021 - 2025 with an average capex spend of nearly
US$50 billion implying a potential production wellhead and tree
market opportunity of c. US$2.5 billion
o If Plexus was able to secure just a 5% share of this market
from its growing sales pipeline, this could translate into revenue
of US$125 million with an estimated average gross margin of around
30%
Russia and the CIS states
-- Strategy centred on supporting licensing partner Gusar's
efforts to secure contracts for POS-GRIP wellheads in the Russian
and CIS markets, a top three hydrocarbon producer in the world with
significant gas reserves
-- Breakthrough first jack-up exploration wellhead successfully
installed as part of the inaugural contract for POS-GRIP rental
wellhead equipment secured by Gusar with global energy giant
Gazprom
o Marks commencement of Gusar's contracted work with Gazprom for
the first year of an up to five-year jack-up gas exploration
drilling programme on the Kara Sea Shelf
o Set to initiate a licence royalty revenue stream for Plexus
under existing Gusar Licence Agreement
o Post period end, sale of additional POS-GRIP(R) wellhead
equipment to Gusar following encouraging discussions with Russian
operators
Outlook
-- The Board anticipates Group revenues for the 12 months to 30
June 2020 ("FY20") to be in line with market expectations.
-- It is important to acknowledge the ongoing disruption to the
general global economy and resultant uncertainty for companies and
workforces caused by the COVID-19 virus and the impact this may
have on Plexus. Like many companies the full extent of the impact
of the COVID-19 pandemic is not yet known, and it is difficult to
evaluate all of the potential implications on the company's trade,
customers, suppliers and the wider economy.
-- The Company also notes the actions of Saudi Arabia and Russia
in terms of increasing production of crude oil to record levels
which has, in conjunction with the impact of coronavirus on demand
for oil, had a material impact on the oil price.
Chief Executive Ben van Bilderbeek said:
"In previous results announcements I have extolled the virtues
of POS-GRIP, Plexus' proprietary wellhead technology: how it
delivers a gas-proof solution and substantial cost savings; how its
superior sealing technology reduces harmful carbon emissions from
the well-site; how it has been successfully deployed on over 400
wells worldwide by over 70 operators; and how our technology can
raise standards wherever metal to metal sealing is required. New
set of interims, same old message? Not quite. Our technology, which
is proven to raise performance, reliability and safety standards,
remains the same. So too do the substantial cost savings generated
by reduced installation and maintenance time. What is different and
what gives us considerable encouragement as we look to establish
POS-GRIP as the go-to technology for gas-proof solutions, is that
debate over the need to move to a carbon neutral world and the oil
and gas industry's place within it has moved from the fringes to
the mainstream. I therefore believe that a major opportunity is
opening up for Plexus, and our POS-GRIP leak-proof technology.
"Over the last 12 months, debate appears to have shifted
decisively away from 'if' to 'when' the world goes carbon neutral.
Indeed, such a goal has now become part of the mainstream strategy
of many major international corporations around the world, and not
just in the oil and gas industry. It therefore follows that to
safeguard its future in a world that is moving towards net-zero
carbon emissions, the oil and gas industry will have to clean-up
its act. As reported in an article in the Daily Telegraph on 24
January 2020, Michael Liebreich, founder of Bloomberg New Energy
Finance and head of Liebreich Associates, said, 'My advice to
companies is that you had better have a 2050 net-zero strategy or
you risk losing your societal licence to operate'. Speaking to
North Sea operators in Scotland in the same month, Oil & Gas
Authority (OGA) chairman, Tim Eggar, stressed the need to act fast,
'We have to act much, much faster and go farther in reducing the
carbon footprint. Our energy systems must keep improving at pace,
to become cleaner and more efficient and this requires ambitious
thinking, capital investment and bold leadership. Action not just
talk or more analysis.'
"Encouragingly, easy wins for the industry are at hand.
Specifically, prioritising cleaner natural gas at the expense of
dirtier oil and coal and eliminating harmful leaks from the supply
chain can make a real difference. As Ben Ratner powerfully pointed
out on the Environmental Defense Fund website in January 2020, 'The
opportunity presented is significant: if the global oil and gas
industry reduced methane emissions by 45% by 2025, it would deliver
the same near-term benefit to the climate as closing 1,300
coal-fired power plants - one-third of all the coal plants in the
world.' Crucially, natural gas and eliminating methane emissions
from the well-site are both areas where POS-GRIP can excel.
"I have often described POS-GRIP wellhead systems as being
'leak-proof' and 'superior' in terms of performance, reliability
and safety. These are tangible, measurable benefits that have been
proven many times over out in the field and in extensive testing to
levels that for the first time can fully match those of premium
couplings. In terms of 'leak-proof', which is defined as life-cycle
integrity for metal wellhead seals, POS-GRIP wellheads have been
used to drill exploration wells in highly challenging operating
environments around the world. This includes the Total Solaris
well, which is believed to be the highest pressure, highest
temperature well ever to be drilled in the North Sea. In terms of
testing, POS-GRIP wellheads are the only ones to have exceeded, let
alone passed without exception, new tougher standards set by a
major operator for wellheads. What lies behind this 'superior'
performance is the method by which POS-GRIP holds and seals
component parts. By harnessing the force of friction from the
outside of a wellhead, POS-GRIP enables a significantly higher
force to be applied over a large contact area to pre-load the
wellhead. This contrasts with the limitations of conventional
wellheads, which require torque to be applied from within to
activate an annular point seal. The result is POS-GRIP delivers a
superior metal to metal seal that prevents gas leakage, even when
dealing with liquids and gases from ultra-high pressure/high
temperature ('U-HP/HT') reservoirs.
"Having raised the bar to such an extent that wellhead equipment
can safely withstand extraordinary pressures and temperatures, our
technology can now offer operators a solution that prevents harmful
methane leaking into the atmosphere, just when the industry is
desperately in need of one as it seeks to eliminate fugitive
emissions throughout the supply chain. The backdrop in which we
operate has therefore changed decisively in a short space of time,
and I believe that our technology will gain wider acceptance as a
result. Together with key R&D testing and corporate
developments over the last 12 months, including a first POS-GRIP
wellhead order from Gazprom in Russia, the sale of a third wellhead
set to our Russian partner in anticipation of further orders in the
country, and the formation of a JV to offer full package solutions
for large production projects, we believe we have never been better
placed to establish POS-GRIP as a superior enabling technology for
the energy sector.
"On a more sober note, it is of course both necessary and
disappointing that I have to temper this report by making reference
to the perfect storm that the oil and gas industry is currently
being subjected to, specifically in terms of pressures associated
with the world's focus on Net Zero and the lowering of the
consumption of hydrocarbons; the material slowdown in economic
activity and therefore energy demand in relation to the impact of
COVID-19; and the breakdown of production level targets between
Saudi Arabia and Russia, linked to the United States ongoing
elevated oil and gas production levels. According to the
International Energy Agency in March 2020, these factors are
expected to lead to a fall in world oil demand this year for the
first time since 2009. However, we have to look beyond what will
hopefully be relatively short-term drivers and recognise that the
world will still need oil and gas for many years to come. With this
in mind, we fully expect to play our part in supplying superior
leakproof equipment, whether organically or through trading
partners and licensees.
"The half year numbers, including revenues of GBP49k, are in
line with internal budgets and the Group's revenues are projected
to be higher in the second half of the current financial year.
Trading for the full year is expected to be in line with market
expectations. Taking into account the confidence expressed above,
the Group's financial results should be set against the context of
the move into the surface production wellhead market being a new
initiative, and the long lead times associated with the contracts
we are looking to secure organically and via the JV with Bel
Valves. Although the JV was only established in June 2019, we are
already seeing an increased level of interest from operators for
our equipment. In the event Plexus was awarded a production
wellhead contract, which can be significant in value, it would
transform the Group's financial performance and broaden our
credentials as a supplier of gas-proof solutions for the surface
production market and the wider energy industry. In addition, we
will continue to support our licensing partner's efforts to secure
further orders in Russia, a top three hydrocarbon region. We are
working hard to grow and diversify our portfolio of revenue streams
and Plexus products, and I look forward to providing further
updates on our progress."
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
Derrick Lee Cenkos Securities PLC Tel: 0131 220 9100
Pete Lynch Cenkos Securities PLC Tel: 0131 220 9100
Frank Buhagiar St Brides Partners Ltd Tel: 020 7236 1177
Isabel de Salis St Brides Partners Ltd Tel: 020 7236 1177
Chairman's Statement
Business progress
New decade and new strategy. The 'reset and rebuild' of the
Company into an IP-led research and development licensing business
based on our game-changing POS-GRIP technology is well underway.
The 'reset' followed the sale of the niche jack-up exploration
wellhead rental business to TechnipFMC in 2018. The 'rebuild' has
been multi-layered and includes the establishment of the PPC JV
with Bel Valves Ltd which, for the first time, enables Plexus to
supply 'leak-proof' wellheads as part of a full service package;
supporting our Russian partner's successful efforts to secure the
first of what we hope will be many wellhead orders from Gazprom;
and acquiring a 49% stake in precision engineering business
Kincardine Manufacturing Services Limited ('KMS'), which provides
access to machining capability in support of R&D projects.
Plexus is now in a position to embark on the next phase of its
growth strategy, one that is centred on developing and rolling out
new POS-GRIP-based products, initially targeted at the larger and
lucrative surface production wellhead and Xmas tree market.
Our core objective is to replicate the success our POS-GRIP
technology enjoyed in the jack-up exploration market in other
sub-sectors of the energy industry, including surface production,
subsea exploration, abandonment and renewables, including
geothermal. By the time the Group sold the jack-up rental wellhead
exploration business, Plexus had become established as the dominant
supplier of wellheads for HP/HT applications in the North Sea. A
benchmark for future success has therefore been set, one that is
based on Plexus' superior method of engineering - POS-GRIP
technology. POS-GRIP wellheads not only set new performance,
reliability and safety standards but also generated considerable
cost savings for operators in the form of reduced installation and
maintenance time, a major cost component in the life cycle of a
conventional wellhead due to the need for additional trips at the
installation stage, as well as disruption to and loss of production
when remedial intervention is required. Once installed, a POS-GRIP
wellhead should require no maintenance and therefore delivers a
cost-effective, leak-proof solution. POS-GRIP based equipment
therefore not only benefits the environment by demonstrably helping
prevent methane emissions throughout the life of a well, but also
the industry's profitability by reducing downtime caused by
maintenance work. We are confident our technology can do the same
across the wider energy industry.
Our leak-proof metal sealing technology has an opportunity to be
in the right place at the right time. In response to increased
scrutiny, more and more operators are pledging to substantially
limit harmful carbon emissions from the energy supply chain. For
example, BP's new CEO, Bernard Looney, recently set a new target
for the supermajor to become a net zero company by 2050 or sooner:
"The world's carbon budget is finite and running out fast; we need
a rapid transition to net zero. We all want energy that is reliable
and affordable, but that is no longer enough. It must also be
cleaner. To deliver that, trillions of dollars will need to be
invested in replumbing and rewiring the world's energy system. It
will require nothing short of reimagining energy as we know it.
This will certainly be a challenge, but also a tremendous
opportunity. It is clear to me, and to our stakeholders, that for
BP to play our part and serve our purpose, we have to change. And
we want to change - this is the right thing for the world and for
BP." Importantly BP is not alone. Repsol has also pledged to become
a net zero emissions company by 2050, and the list is growing.
If operators are serious about tackling methane gas leakage, and
there is no reason to believe they are not, then state-of-the-art
equipment is needed. When it comes to the well-site, the POS-GRIP
wellhead is one such piece of critical equipment, one which has
been proven out in the field many times over. This is beginning to
resonate much more strongly with operators, and we are confident
that the underlying value of our unique IP will eventually be
realised. While these interims have come too soon for the numbers
to reflect the progress being made, we believe it is only a matter
of time before Plexus' future financial results do so.
On a note of caution, it would be remiss not to refer to the
ongoing COVID-19 outbreak ('coronavirus'). Demand for hydrocarbons
is directly related to general levels of economic activity. For
example, at the height of the quarantines in China oil demand fell
by circa 25% from what had been normal levels. How long the
outbreak lasts, how far it spreads, and the final number of
infections are of course all unknown at this stage. Until there is
greater clarity, concerns over the impact of coronavirus on supply
chains, the global economy and demand for oil will likely continue
to weigh heavily on global stock and energy markets: oil prices are
currently trading around the US$25 per barrel level, over 40% below
the highs of early January. These demand pressures are exacerbated
on the supply side by the conflict between Saudi Arabia and Russia
regarding production levels, which has resulted in what Jan Stuart,
the Credit Suisse global energy economist recently described as "a
freakish amount of oil". However, for now we must rely on forecasts
and anecdotal evidence. Energy consultancy FGE has forecast zero
global demand growth for oil in 2020, and the IEA negative growth.
Significantly, UBS recently noted the collapse of capital spending
expectations in America in 2020 from 10% growth to a 15%
contraction. These metrics are reflected across a range of
industries and businesses and have led to a raft of sales warnings
and stock market collapse. The oil and gas industry is not immune,
and it is reasonable to assume that the longer the outbreak
persists, projects could be delayed or even cancelled which would
potentially disrupt Plexus' new IP-led strategy.
Operating Review
When we first set out to prove our technology in the North Sea
jack-up exploration market, we had our POS-GRIP wellhead designs,
the science behind our technology, a highly competent and
experienced team, and not much else. As we enter the new decade and
focus on breaking into much larger and more lucrative markets, such
as surface production, we are in a far more advanced position.
Plexus has a suite of developed POS-GRIP products for multiple
markets including production, subsea and abandonment.
Plexus now has a long list of blue-chip customers. The likes of
BP, Gazprom, Shell, and Total have all experienced the benefits of
our technology for themselves.
Plexus has a debt free, cash rich balance sheet, along with a
fixed and operating cost base that is much reduced following the
sale of the rental business, and which can be further addressed if
required.
Plexus is no longer the only voice extolling the benefits of
POS-GRIP. We have now positioned ourselves to work with a number of
partners, each of whom is well established in their respective
markets: Bel Valves is our JV partner in PPC which, by adding Xmas
tree and valve technology to the product portfolio, strengthens our
ability to penetrate the substantial production wellhead and tree
market; Gusar is our licensing partner for the Russian and CIS
markets; and TFMC which, in addition to acquiring the jack-up
business, signed a collaboration agreement with us to advance
future product design and development, thereby demonstrating the
validity of our technology. This means that when talking to
potential customers Plexus is able to offer a package solution' in
terms of wellheads/valves/and trees, whilst also being able to
point at companies like TFMC and Gusar/Gazprom who have validated
the advantages of the technology.
In terms of penetrating our initial major target market, namely
surface production, progress is being made. We are increasingly
being invited to tender for projects and have a number of enquiries
ongoing not only in relation to POS-GRIP wellheads for oil and gas,
but also geothermal wellheads and Crown Plugs. It should be noted
that such projects generally involve longer sales cycles and
although we have no control over the timings of such contract
awards, it is worth pointing out that securing just one of these
would be of major significance for Plexus. Significant not just in
terms of what it would do to our revenue profile, but also in terms
of demonstrating to the industry that Plexus can supply major
projects with state-of-the-art equipment as part of a full-service
package that would likely include trees and valves.
In terms of the size of the addressable production market that
Plexus is initially targeting, Rystad Energy recently estimated,
ahead of the COVID-19 pandemic that a total of 691 wells are in
plan for drilling over the five-year period 2021 - 2025 with an
average capex spend of nearly US$50 billion. The proportion of well
development capex spent on production wellheads and trees is around
5%, although the final figure is dependent on a number of factors
and differs from one project to another. However, using this 5%
average figure implies a potential production wellhead and tree
market opportunity of c. US$2.5 billion over the next five years
from 2021. If Plexus was able to secure just a 5% share of this
market, this could translate into revenue of US$125 million with an
average gross margin of around 30%.
While our focus is on breaking into the global surface
production market, Plexus continues to be interested in its proven
jack-up exploration wellhead equipment via the earn-out agreed with
TechnipFMC as part of the sale of the Jack-Up Business in 2018, and
also via our licensing agreement with Gusar for the important
Russian and CIS markets. During the period, a breakthrough first
jack-up exploration wellhead was successfully installed on the Kara
Sea Shelf as part of the inaugural contract for POS-GRIP rental
wellhead equipment secured by our Russian licensing partner Gusar
with global energy giant Gazprom. Gusar's contracted work with
Gazprom covers just the first year of an up to five-year jack-up
gas exploration drilling programme and therefore has the potential
to generate a valuable licence royalty revenue stream for Plexus.
In line with this, the post period end sale of additional wellhead
equipment to our partner Gusar bodes well for further awards in the
country being forthcoming, and we are hopeful that further orders
will follow from Gazprom in due course in view of the success of
the first well project.
Following the sale of the jack-up exploration wellhead rental
business, Plexus has maintained high quality operating standards.
Together with the Company's PPC joint venture this ought to be seen
by customers as a statement of intent that Plexus is capable of
tendering, supplying, executing and servicing contracts for
projects that fit the current tender pipeline. In line with this,
Plexus has maintained a staffing and engineering team resource that
is at a level capable of both supporting increased business
activity, as well as carrying out research, testing and development
work for new POS-GRIP based products.
Key functions that support our operations are Human Resources
('HR'), Quality Health and Safety ('QHSE'), Information technology
('IT') and Intellectual Property (IP').
For the six months in review and following the annual monitoring
audit in August 2019, HR has successfully maintained OPITO
accreditation for the Competency Management System,
Competency@Plexus (C@P). In the wake of the review and revision of
C@P, attention has been turned to the in-house training modules.
These were initially developed as a complete training programme, in
order to develop the knowledge and skills required for their role
and which are later assessed on through C@P.
QHSE continues to be an important area, and recently posted zero
incidents and occupational health claims for 2019. Plexus, driven
by QHSE will continue to deliver the highest safety standards, and
this discipline has been further improved following the
introduction of Senior Management safety tours.
The overall health and safety culture continues to improve and
progress, allowing the company to meet its requirements for
compliance with important regulatory standards. Plexus recently
achieved accreditation to API Q1 which is viewed as an important
milestone. Looking ahead, Plexus will move towards achieving
compliance and accreditation to ISO 45001 (as OHSAS 18001 becomes
obsolete) with a compliance audit planned for May/June 2020 with
the aim of achieving full compliance and certification to ISO
45001.
Robust IT systems, and the delivery of a safe and secure service
to customers and Plexus itself is paramount, especially
as is widely reported there is no reduction in external threats
of hacking and viruses. Ensuring confidentiality, integrity
and accessibility of information is essential, and Plexus
continually reviews and develops its computer network and security
monitoring systems capability as part of its cyber security
protocols. Precautions include penetration testing and network
monitoring to ensure our IT systems have not been breached, while
our anti-virus software is continually updated to newer version
malware protection, and internet filtering is used to keep our data
secure. Active monitoring of network activity and infrastructure
ensures downtime is minimised. Plexus relies on its own in-house
developed software systems, and these have the advantage of
allowing the Company to develop software solutions that can react
quickly to any IT issues that may arise. Following the recent
coronavirus outbreak, the IT department has ensured that the
current infrastructure will enable the Group's operations to
function satisfactorily, whilst allowing the majority of the
workforce to work from home should this be required.
Innovative IP is at the core of Plexus, with a focus on oil and
gas equipment design and development utilising our proprietary
POS-GRIP friction grip method of engineering. POS-GRIP was designed
to address limitations associated with conventional technology
particularly in terms of metal sealing, and this has led to the
raising of safety standards for HP/HT wellhead applications whilst
delivering significant operational and cost advantages. The ongoing
development of our extensive IP suite, in conjunction with partners
where appropriate, continues to be a priority for the Company, and
ongoing investment in research and development in a wide range of
areas and applications outside of Jack-up rental wellhead
exploration including surface production and subsea wellhead
equipment, as well as proprietary connector technology, is an
important part of this strategy. It is envisaged that in time this
strategy will enable Plexus to introduce its technology to sectors
outside of oil and gas, such as geothermal and nuclear. Since the
formation of PPC there has also been significant work undertaken to
design a tree to add to the Plexus suite of products.
Significantly, in November 2019 Plexus announced that its POS-GRIP
"HG" metal sealing system successfully completed an extreme
temperature test verification programme from -75 to +400 degree F
in accordance with API 6A PR2F standards at 10,000 psi pressure.
This test exceeded both conventional API 6A temperature class
ranges and was independently verified by Lloyds Register. Plexus
believes that this qualification was an industry first as the
entire test was performed within a single test and passed first
time, whereas typically, multiple tests are required, possibly
using different test fixtures or different sealing systems.
Ongoing operational activities and necessary R&D and capex
continue to be funded from cash reserves.
Interim Results
The six months to December 2019 results and activities reflect
the Group's movement towards the development of new revenue
streams, including targeting the significantly larger surface
production wellhead market.
Continuing operations revenue for the six-month period ended 31
December 2019 decreased to GBP49k, compared to the previous year's
figure of GBP1,312k, reflecting the fact that last year's
comparison period included revenue in relation to a production well
contract for Spirit Energy .
During the period Plexus continued to focus on preserving Group
cash by minimising spending and investment on
capex, opex and non-essential R&D, without compromising
operations.
Continuing activities administrative expenses have increased for
the 6 months to December 2019 to GBP3.02m (2018: GBP2.83m) and
includes a part reinstatement of previously reduced salaries.
Personnel numbers for continuing staff are in line with the prior
year at 37. This staff structure has been balanced in anticipation
of ongoing and future organic operational opportunities, whilst
also being able to further develop and support our POS-GRIP IP led
strategy involving external partners in Plexus. The current staff
levels are also required to maintain the operational infrastructure
that has been developed to date, including maintaining the Group's
Business Management System, and retaining all relevant
accreditations, in addition to operational requirements.
For continuing operations, the Group has reported a loss of
GBP2.7m which is an increase on the prior year loss of GBP2.3m. The
increased loss is driven by the fall in revenues. The loss comes
after absorbing similar rental asset and other property, plant and
equipment depreciation and amortisation costs of circa GBP0.9m, an
increase of GBP0.1m when compared to the prior year as a result of
the amortisation charge in introduced following the adoption of
IFRS 16.
The Group has not provided for a charge to UK Corporation tax at
the prevailing rate of 19%. Basic loss per share for
continuing operations was 2.75p per share which compares to a
2.22p 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 GBP10.6m and GBP3.6m respectively illustrate the
amount of cumulative investment that has been made in the business.
Total asset values at the end of the period stood at GBP34.4m. The
non-essential R&D spend is in line with the prior year at
GBP0.1m. Such control on investment activity will not compromise
our IP and its ongoing development, or our ability to provide
customers with a high standard of equipment and service. The Group
has no debt, following the final repayment of a property term loan
in September 2019 (GBP75k) and closed the period with net cash of
approximately GBP4.48m and in addition has financial assets with a
value of GBP2.96m at 31 December 2019.
Outlook
Over the course of the last two hundred years the oil and gas
industry has fuelled three industrial revolutions. Each one has
played a major part in generating the prosperity the world enjoys
today. Arguably, all three revolutions have sown the seeds for the
next phase of progress. The technological revolution the world is
in the midst of today would seem to fit into the historic pattern.
As well as transforming the way we live and the way businesses
operate, technology is driving the rapid growth of new industries
such as electric vehicles and alternative / renewable energy
generation which are themselves at the forefront of efforts to
slash carbon emissions and tackle climate change. While progress is
being made, there is a considerable way to go before the world
becomes carbon neutral and because of this, hydrocarbons are
forecast to continue to be an important component of the energy mix
for years and even decades to come. As Ben Ratner writes in a post
on the Environmental Defense Fund website entitled: 'The next major
ESG opportunity for investors in Europe', "Although the EU is
aggressively moving off fossil fuels and aims to become carbon
neutral by mid-century, the transition to net-zero, low-carbon
energy sources will still require natural gas in the energy
mix."
Certainly, if the quantum of capital invested in oil and gas
projects around the world is anything to go by, the industry is
putting its money where its collective mouth is. In the North Sea
alone, the Investor's Chronicle reports BP and Chevron are
investing GBP6.78 billion into six new projects, while Total is
investing GBP10 billion over the next five years. Although the long
term impact of the current disruption to the oil and gas industry
and wider global economy by COVID-19 is still to be determined,
investment indicators such as these can only have helped to inform
the conclusion of an independent report from the Committee on
Climate Change which states: 'oil and gas will remain an important
part of the UK's energy mix for decades to come.' The North Sea is
not an outlier. Looking at the global picture, analysts at McKinsey
& Co expect a wave of 'sanctioning of new deep-water projects
thanks to recent cost compression trends in offshore, resulting in
an additional $654bn (GBP504bn) of cumulative deep-water oil
project expenditure until 2030.'
It would of course be wrong to infer that high levels of
investment translate into business as usual for the oil and gas
industry. Increasingly, the carbon footprint of operations right
across the energy spectrum, from the drill bit to the consumer, are
being subjected to thorough and urgent scrutiny by environmental
lobbyists and activist investors. Times have changed and the energy
industry is having to change with them. As the Financial Times' Lex
Column noted in February 2020, 'Carbon emissions were once thought
of as a costless "externality" by business. But as evidence of
climate change has mounted and public opinion shifted, energy
companies have begun to look at the real financial consequences.
This has been most notable in the rising cost of capital for
hydrocarbons groups and ever-cheaper money for renewables.' The
column goes on to point out that 'After much hand-wringing,
BlackRock, the world's largest investment manager, signed up to the
Climate Action 100+ initiative, a group of 370 fund managers
controlling at the time of that report some $35 trillion of assets.
These investors want and indeed demand action on greenhouse gases,
and energy producers with large stores of hydrocarbon reserves are
an obvious target.' In an interview with EnergyVoice in January
2020, Kevin Alexander, director of procurement solutions at
consultancy Achilles, said "In our communities, we are seeing a
continued focus on transparency of operations. Buyers are
initiating carbon audits for themselves and their supply chains to
get absolutely clear on the carbon impact of their own organisation
and where and how they can improve."
Access to development capital on commercial terms is one
pressure point that can be applied to the energy industry to ensure
it cleans up its act in terms of reducing harmful carbon emissions
from operations. If the targets being set by international oil and
gas companies to reduce methane emissions all along the supply
chain are anything to go by, together with the various industry-led
efforts, such as the Oil and Gas Climate Initiative ('OGCI'), the
energy industry clearly recognises the need to change. Certainly,
at the well-site, Plexus' area of focus, the race is on among oil
and gas industry participants to decarbonise hydrocarbons before
they enter the supply chain. Sound and verifiable technical
solutions have a key role to play. According to an article in the
Financial Times on 11 February 2020, Mr Fatih Birol, head of the
International Energy Agency, said, "We have the energy technologies
to do this, and we have to make use of them all".
At the well-site at least, one solution already exists, our
leak-proof POS-GRIP metal-to-metal sealing technology, a unique
method of engineering which can be deployed for surface and subsea
well applications. Thanks to POS-GRIP, we believe eliminating the
leakage of dangerous pollutants at the well-site is among the low
hanging fruit in the battle to achieve a 'net zero emissions' oil
and gas supply chain. Encouragingly, the role of digital
technologies, and the digitisation of information in minimising
global oil and gas methane emissions is becoming ever more
important. Plexus believes that such granular data analysis will
expose more clearly the integrity issues associated with the design
of conventional wellhead equipment and seals, and logic dictates
that this should result in greater interest in and demand for
leak-proof equipment and technologies, especially for hard to
access locations such as subsea.
Based on sealing principles derived from Hertzian Stress Theory,
POS-GRIP is the only known technology to have without exception
passed and exceeded tough new standards for wellhead equipment set
by a major operator. It can accurately deliver and maintain an
equal amount of contact interface stress, around each point of the
full perimeter of a metal seal, within a prescribed set of limits.
It is this unique quality that has seen our technology successfully
installed on ultra-HP/HT projects up to 20,000 psi at 375 degree F.
Proven to withstand extreme operating conditions, POS-GRIP is
particularly relevant for natural gas exploration and production.
This is important. As the cleanest hydrocarbon to combust in terms
of CO2 emissions, natural gas is widely regarded as a key
transitional fuel as the world moves towards net zero. "With
natural gas we have proven that economic growth and the reduction
of carbon emissions are not mutually exclusive," said American
Petroleum Institute (API) chief economist Dean Foreman. "The fact
that the U.S. has led the world in the reduction of carbon
emissions for nearly two decades wouldn't have been possible had it
not been for the abundant supply of affordable and clean natural
gas made possible by the shale revolution." The combination of
helping satisfy the world's insatiable demand for energy while at
the same time reducing harmful carbon emissions, lies behind
forecasts of strong growth in demand for natural gas in the years
ahead.
According to BP's International Energy Outlook, demand for
natural gas is expected to increase by almost 50% to c. 5,500 bcm
over the next two decades, compared to 3,700 bcm in 2017.
Importantly, for natural gas to fulfil its promise, however,
harmful methane leaks across the production and distribution chain
need to be addressed. The challenge is clear. Although natural gas
emits only half the level of CO2 compared to oil and coal when it
burns, even relatively low levels of leakage of un-combusted
methane during the process of extraction and delivery of gas along
the supply chain can wipe out gas' advantage over other fossil
fuels. In an interview with the Environmental Defense Fund, Tim
Goodman, Director for Hermes EOS at Hermes Investment Management in
London, stated, "Methane is a far more potent greenhouse gas than
carbon dioxide - the more that we can minimise its effects, the
greater the window the world has to transition to a low carbon
economy. Methane's effects don't last as long as carbon, but if we
don't tackle methane, we aren't taking meaningful action to move to
a low-carbon economy." Thanks to POS-GRIP's leak-proof solution,
eliminating methane emissions at the well-site is a challenge that
can be overcome.
Of course, it is one thing to offer a technology that prevents
methane emissions from occurring in the first place, but another
for it to be firstly adopted and then to become the industry
standard. Our strategy is focused on making life as easy as
possible for operators to elect to use POS-GRIP-enabled equipment
so that they can experience for themselves the superior performance
and cost savings on offer. With this in mind, and to cater for
operators' preference to award contracts for packaged solutions, we
established the PPC JV with Bel Valves Ltd in June 2019, so that
for the first time Plexus can offer high performance, low
maintenance POS-GRIP wellheads, xmas trees and outlet valves.
Tackling methane emissions at the well-site, being able to
withstand extreme temperatures and pressures, generating cost
savings, offering a full service package, there are more and more
reasons for operators to deploy POS-GRIP equipment for surface
production projects, and fewer (if any) reasons not to. Together
with an active licensing agreement for our jack-up exploration
technology in Russia where an order has recently been completed for
Gazprom, the potential for us to play a key role in reducing the
industry's carbon footprint, generate material cost savings for
operators and at the same time build significant value for Plexus
shareholders is clear.
J Jeffrey Thrall
Non-Executive Chairman
26 March 2020
Plexus Holdings Plc
Unaudited Interim Consolidated Statement of Comprehensive
Income
For the Six Months Ended 31 December 2019
Six months Six months Year to
to 31 December to 31 December 30 June
2019 2018 2019
GBP 000's GBP 000's GBP 000's
Revenue 49 1,312 3,611
Cost of sales (51) (828) (1,865)
--------------- --------------- ---------
Gross profit (2) 484 1,746
Administrative expenses (3,024) (2,833) (5,756)
--------------- --------------- ---------
Operating loss (3,026) (2,349) (4,010)
Finance income 100 100 218
Finance costs (43) (88) (41)
Other income 126 - -
Share in profit of associate 80 - 122
Loss before taxation (2,763) (2,337) (3,711)
Income tax credit (note 6) - - 484
Loss after taxation from continuing
operations (2,763) (2,337) (3,227)
(Loss) after taxation from discontinued
operations - - (88)
--------------- --------------- ---------
Loss for Year (2,763) (2,337) (3,315)
Other comprehensive income - - -
Total comprehensive income (2,763) (2,337) (3,315)
=============== =============== =========
Loss per share (note 7)
Basic from continuing operations (2.75p) (2.22p) (3.12p)
Diluted from continuing operations (2.75p) (2.22p) (3.12p)
Basic from discontinued operations - - (0.09p)
Diluted from discontinued operations - - (0.09p)
Plexus Holdings Plc
Unaudited Interim Consolidated Statement of Financial Position
As at 31 December 2019
31 December 31 December 30 June
2019 2018 2019
GBP 000's GBP 000's GBP 000's
ASSETS
Goodwill 767 767 767
Intangible assets 10,569 11,129 10,876
Property, plant and equipment
(note 9) 3,618 3,673 3,804
Non-current financial asset 2,964 2,849 2,835
Investment in associate 937 785 907
Deferred tax asset 1,259 984 1,259
Other Receivables 4,515 6,337 4,515
Right of use asset 1,700 - -
Total non-current assets 26,329 26,524 24,963
----------- ----------- --------------------------
Inventories 733 1,350 698
Trade and other receivables 2,822 3,187 4,948
Cash and cash equivalents 4,481 9,765 5,152
Current income tax asset - 371 617
Total current assets 8,036 14,673 11,415
----------- ----------- --------------------------
TOTAL ASSETS 34,365 41,197 36,378
=========== =========== ==========================
EQUITY AND LIABILITIES
Called up share capital (note
13) 1,054 1,054 1,054
Shares held in treasury (2,500) - (2,500)
Share premium account - 36,893 -
Share based payments reserve 674 674 674
Retained earnings 32,110 (42) 34,873
To tal equity attributable to
equity holders
----------- ----------- --------------------------
of the parent 31,338 38,579 34,101
----------- ----------- --------------------------
Lease liabilities 1,557 - -
Other non-current liabilities - 493 -
Total non-current liabilities 1,557 493 -
----------- ----------- --------------------------
Bank loans - 225 75
Trade and other payables 1,198 1,900 2,202
Current income tax liability 14 - -
Lease liabilities 258 - -
Total current liabilities 1,470 2,125 2,277
----------- ----------- --------------------------
Total liabilities 3,027 2,618 2,277
----------- ----------- --------------------------
TOTAL EQUITY AND LIABILITIES 34,365 41,197 36,378
=========== =========== ==========================
Plexus
Holdings Plc
Unaudited Interim Statement of Change
in Equity
For the Six Months Ended 31 December
2019
Called Shares Share Share Based Retained Total
Up Share Held in Premium Payments Earnings
Capital Treasury Account Reserve
GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's GBP 000's
Balance as at
1 July
2018 1,054 - 36,893 674 2,295 40,916
Total
comprehensive
income for
the period - - - - (3,315) (3,315)
Cancellation
of share
premium - - (36,893) - 36,893 -
Buyback of
shares - (2,500) - - - (2,500)
Dividends paid - - - - (1,000) (1,000)
------------- ----------- ----------- ------------ ------------ ----------
Balance as at
30 June
2019 1,054 (2,500) - 674 34,873 34,101
============= =========== =========== ============ ============ ==========
Total
comprehensive
income for
the period - - - (2,763) (2,763)
Balance as at
31 December
2019 1,054 (2,500) - 674 32,110 31,338
============= =========== =========== ============ ============ ==========
Plexus Holdings Plc
Unaudited Interim Statement of Cash Flows
For the six months ended 31 December 2019
Six months Six months Year to
to 31 December to 31 December 30 June
2019 2018 2019
GBP 000's GBP 000's GBP 000's
Cash flows from operating activities
Loss before taxation from continuing
activities (2,763) (2,337) (3,711)
Loss before taxation from discontinued
activities - - (108)
--------------- --------------- ---------
Loss before tax (2,763) (2,337) (3,819)
Adjustments for:
Depreciation, amortisation and
impairment charges 962 833 1,625
Gain on sale of discontinued
operation - - (122)
Fair value adjustment of on financial
assets (20) 72 3
Share in profit of associate (80) - -
Other income (126) - -
Investment income (80) (100) (218)
Interest expense 43 88 8
Changes in working capital:
(Increase)/Decrease in inventories (35) 521 1,173
Decrease in trade and other receivables 2,126 1,701 1,762
Decrease in trade and other payables (912) (2,470) (2,661)
Cash generated from operations (885) (1,692) (2,249)
Net income taxes received 631 43 26
Net cash used in operating activities (254) (1,649) (2,223)
--------------- --------------- ---------
Cash flows from investing activities
Investment in associate - (785) -
Funds invested in financial instruments (109) (797) (714)
Other income 126 - -
Dividend received from associate 50 - -
Associated cost on sale of discontinued
operation - - (311)
Purchase of intangible assets (147) (110) (231)
Investment in associate - - (785)
Interest received 80 100 218
Purchase of property, plant and
equipment (166) (52) (530)
Net proceeds of sale of property,
plant and equipment - - 9
Net cash used from investing
activities (166) (1,644) (2,113)
--------------- --------------- ---------
Cash flows from financing activities
Repayment of loans (75) (150) (300)
Repayments of lease liability (157) -
Buyback of shares held in treasury - - (2,500)
Dividends paid - - (1,000)
Interest paid (19) (88) (8)
Net cash outflow from financing
activities (251) (238) (3,808)
--------------- --------------- ---------
Net decrease in cash and cash
equivalents (671) (3,531) (8,144)
Cash and cash equivalents at
brought forward 5,152 13,296 13,296
Cash and cash equivalents carried
forward 4,481 9,765 5,152
=============== =============== =========
Notes to the Interim Report December 2019
1. This interim financial information does not constitute
statutory accounts as defined in section 435 of the Companies Act
2006 and is unaudited.
The comparative figures for the financial year ended 30 June
2019 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the company's
auditors, Crowe U.K 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.
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 2020. 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. Except as described below the accounting policies applied in
these interim financial statements are the same as those applied in
the Group's consolidated financial statements as at and for the
year ended 30 June 2019 and which are also expected to apply for 30
June 2020.
The changes in accounting policy set out below will also be
reflected in the Group's consolidated financial statements for the
year ended 30 June 2020.
IFRS 16
IFRS 16, which supersedes IAS 17, sets out principles for the
recognition, measurement, presentation and disclosure of leases for
both parties to a contract, i.e. the customer ('lessee') and the
supplier ('lessor'). Lessee accounting has changed substantially
under this new standard while there has been little change for the
lessor. IFRS 16 eliminates the classification of leases as either
operating leases or financing leases and, instead, introduces a
single lessee accounting model. A lessee is required to recognise
assets and liabilities for all leases with a term of more than 12
months (unless the underlying asset is of low value) and is
required to present depreciation of leased assets separately from
interest on lease liabilities in the consolidated statement of
comprehensive income. A lessor continues to classify its leases as
operating leases or financing leases, and to account for those two
types of leases separately. IFRS 16 is effective for fiscal periods
beginning on or after 1 January 2019. On inception an asset and
liability of GBP1.9m were recognised.
3. This interim report was approved by the board of directors on
26 March 2019.
4. The directors do not recommend payment of an interim dividend
in relation to this reporting period.
5. There were no other gains or losses to be recognised in the
financial period other than those reflected in the Statement of
Comprehensive Income.
6. No corporation tax provision has been provided for the six
months ended 31 December 2019 (2018: nil). As a result, there is no
effective rate of tax for the six months ended 31 December 2019
(2018: 0%) after adjustments made to reflect R&D tax credits
received relating to the current and prior years and offsets for
disallowable expenditure.
7. Basic earnings per share are based on the weighted average of
ordinary shares in issue during the half-year of 100,435,744 (2018:
105,386,239). In February 2019, Plexus Holdings PLC ("the Company")
completed the acquisition of 4,950,495 Ordinary Shares held by LLC
Gusar. The Buyback Shares have been transferred to the CREST
account of the Company and will be held in treasury and will not
rank for any future dividends and no voting rights will be
exercised in respect of such Ordinary Shares. Following the
transaction, the Company's issued share capital comprises
105,386,239 Ordinary Shares, of which 4,950,495 Ordinary Shares are
held in treasury. The Company now has a total of 100,435,744
Ordinary Shares in issue with voting rights.
8. 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.
9. 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 30 June 2018 3,607 716 5,509 10 17 9,859
Additions 92 - 391 47 - 530
Transfers - - 57 (57) - -
Disposals - - (525) - - (525)
As at 30 June 2019 3,699 716 5,432 - 17 9,864
Additions 41 - 125 - - 166
As at 31 December
2019 3,740 716 5,557 - 17 10,030
Depreciation
As at 1 July 2018 1,158 381 4,315 - 1 5,855
Charge for the
year 180 85 450 - 3 718
On disposals - (513) - (513)
As at 30 June 2019 1,338 466 4,252 - 4 6,060
Charge for the
period 76 36 238 - 2 352
On disposals
As at 31 December
2019 1,414 502 4,490 - 6 6,412
Net book value
As at 31 December
2019 2,326 214 1,019 - 11 3,618
As at 30 June 2019 2,361 250 1,180 - 13 3,804
As at 30 June 2018 2,449 335 1,194 10 16 4,004
10. Investments
Six months to 31 December 2019
Investment in associate at 30 June 2019 907
-------------------------------
Share of profit for the period 80
-------------------------------
Dividend received (50)
-------------------------------
Investment in associate at 31 December 2019 93 7
-------------------------------
In December 2018 Plexus Ocean Systems Limited acquired a 49%
interest in Kincardine Manufacturing Services Limited ('KMS') for a
GBP735k plus associated legal fees.
The summary financial information of KMS, extracted on a 100%
basis from the accounts for the 12 months ended 31 December 2019
are as follows:
2019
GBP'000
Assets 2,260
---------
Liabilities 2,070
---------
Revenue 5,533
---------
Profit after tax 413
---------
11. Discontinued operations
Six months to 31 December 2019 Six months to 31 December 2018 Year to
30 June
2019
GBP'000 GBP'000 GBP'000
Revenue - - -
Expenses - - ( 108)
-------------------------------- -------------------------------- ---------
(Loss)/Profit before tax of
discontinued operations - - (108)
I ncome tax credit - - 20
-------------------------------- -------------------------------- ---------
(Loss)/Profit after tax of
discontinued operations - - (88)
================================ ================================ =========
12. Share Capital
Six months to 31 December 2019 Six months to 31 December 2018 Year to
30 June
2019
GBP'000 GBP'000 GBP'000
Authorised:
Equity: 110,000,000 (2018: 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 2018:
105,386,239, June 19: 105,386,239)
Ordinary shares of 1p each 1,054 1,054 1,054
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BLGDXLDDDGGL
(END) Dow Jones Newswires
March 27, 2020 03:00 ET (07:00 GMT)
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