TIDMPOS
RNS Number : 5513Q
Plexus Holdings Plc
19 June 2020
Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil
equipment & services
This announcement contains inside information
Plexus Holdings PLC ('Plexus' or 'the Company')
Trading and Corporate Update
Plexus Holdings PLC, the AIM quoted oil and gas engineering
services business and owner of the proprietary POS-GRIP(R)
friction-grip method of wellhead engineering, known for its safety,
time and cost saving capabilities, provides a corporate update in
relation to the global COVID-19 pandemic and associated oil market
and price volatility. This includes updates on trading for the year
to 30 June 2020, operations, and strategy.
Trading and Market Developments
In the Company's Interim Results released on 27 March 2020, the
Board highlighted the ongoing disruption to the general global
economy and resultant uncertainty for companies and workforces
caused by COVID-19 and how this could impact Plexus. In addition,
the Company noted the actions of Saudi Arabia and Russia in terms
of increasing production of crude oil to record levels, which, in
conjunction with the global pandemic induced demand collapse,
resulted in sharp falls in oil prices. At their worst, WTI futures
prices fell into unprecedented negative price per barrel territory
due to storage capacity constraints, eventually bottoming out at
circa negative US$40 at the end of April 2020.
It is clear the impact of COVID-19 on the global economy and
specifically the oil and gas industry has been far worse than had
been anticipated. Unprecedented measures, including the enforced
lockdown of entire countries around the world, have been put in
place to curb the spread of the virus. At the time of writing,
lockdown measures are being eased at various speeds around the
world, but it remains to be seen how quickly societies and
economies, particularly manufacturing can recover. Despite an
agreement among the major producers, both those in and outside
OPEC, to drastically cut production from elevated levels, oil
prices remain in the US$35 to US$40 per barrel range, approximately
50% lower than the US$70 prices seen as recently as January 2020.
In response, oil and gas operators have moved quickly to realign
budgets to the low oil price environment, with significant cuts
being made to capex, resulting at the current time in a major
reduction in exploration and production activity.
Based on discussions with operators at the time of the interims,
the Board anticipated Group revenues for the 12 months to 30 June
2020 ("FY20") would be in line with market expectations. In light
of current oil markets and the ongoing impact of COVID-19, a number
of these operators have since taken the decision to defer awarding
contracts. However, the Company remains confident that a number of
these orders will be forthcoming, but that these will inevitably
move into the next financial year 2020/21 ("FY21").
While licence income opportunities continue from the CIS
operations and the Company's 49% investment in UK based engineering
business KMS, the Directors now anticipate that FY20 revenues will
therefore be materially below expectations. EBITDA and PBT losses
will be less than anticipated due to the Company's ongoing
management of its cost base, which recently has included the
furloughing of a number of employees. The Company's cash position
is expected to be broadly in line with expectations.
On an encouraging note the Company's operations team is actively
engaged with a number of operators in relation to actual and
prospective tender opportunities covering the next three years, the
value of which is larger than any target pipeline Plexus has
pursued in the past.
Plexus continues to benefit from having a robust balance sheet
with net cash and no debt.
Operations
The Company is focused on the design and development of oil and
gas equipment based around its proprietary POS-GRIP friction grip
method of engineering. POS-GRIP addresses performance limitations
associated with conventional technology particularly in terms of
leak proof metal-to-metal sealing, and this has led to POS-GRIP
raising safety standards for HP/HT wellhead applications to those
in line with or higher than premium couplings, while delivering
significant operational and cost advantages. Plexus firmly believes
these same benefits can be extended to other sectors and markets,
including geothermal and nuclear. Such market penetration can be
achieved organically by Plexus or through licencees - essentially
'partners in POS-GRIP'. The ongoing development of Plexus'
extensive IP suite to fully capitalise on its POS-GRIP technology
continues to be a priority for the Board.
Following the 2018 sale of the Company's POS-GRIP jack-up
exploration wellhead business to TechnipFMC, a key corporate
objective for Plexus has been to establish a market for its
POS-GRIP enabled production, rather than exploration wellhead
equipment. One important difference however is that production
wells are permanent and have to last many years, and therefore
wellhead equipment that can deliver seal integrity over the life of
the well, and significantly reduce or indeed eradicate seal related
maintenance and shut in costs has a special value.
While low oil prices have led to a major reduction in investment
and activity in the sector, the Company remains focused on breaking
into the multi-billion surface production market, where even a
small increase in market share for Plexus will result in a
significant increase in revenue. In addition, the Company continues
to support its licensees efforts to secure orders for jack-up
exploration wellhead equipment via the earn-out agreed with
TechnipFMC as part of the sale of the jack-up exploration wellhead
business in 2018, and also via the licensing agreement with Gusar,
its partner for the large Russian and CIS market where a first well
was successfully completed late 2019 for Gazprom.
Since the TechnipFMC transaction, management has sought to
strike the right balance between actively managing the corporate
cost base and maintaining sufficient operational capacity, its
ability to undertake valuable research and development work and to
support its licensing partners. In response to the impact of
COVID-19, the Company is looking to reduce overheads wherever
possible but no action will be taken that is inconsistent with the
Board's priority which is to preserve its key and valuable
proprietary POS-GRIP IP, the value of which, in the Board's view,
has the potential to significantly grow not just operationally, but
also by securing additional licensees and by expanding into new
sectors. This is in line with management's view that the Company's
IP has never been more relevant, especially in terms of its ability
to deliver a 'green solution' when addressing methane leaks at the
wellhead which is of increasing importance as natural gas grows as
a power source over other hydrocarbons.
Even before the COVID-19 outbreak, the oil and gas industry
faced a period of major upheaval as it was confronted with the
challenge of satisfying the world's demand for energy while at the
same time playing its part in helping the world move towards
becoming carbon neutral. This challenge has not gone away with
COVID-19. Arguably, it has become even more pressing as the
positive impact on the environment as a result of the enforced
lockdowns has highlighted to activists and investors what can be
achieved if carbon emissions are significantly reduced.
Once global economic activity recovers from the COVID-19 induced
-downturn, the Directors believe that, more than ever, operators
will be required to embrace superior technical solutions, such as
POS-GRIP enabled equipment, that are not only cost-effective but
also help meet their environmental responsibilities. Thanks to
superior metal to metal sealing, POS-GRIP wellheads provide a
leak-proof solution that eliminates harmful methane emissions at
the well-site even at the high temperatures and pressures which can
be associated with natural gas production. This is key as, due to
lower carbon emissions when combusted, natural gas is widely viewed
as a transition fuel in the battle to combat climate change, and
these positive benefits are seriously undermined when unburnt gas
leaks releasing toxic methane into the atmosphere. In addition to
providing a leak-proof solution, Plexus' IP delivers significant
cost savings for the operator due to reduced non-productive
installation and maintenance time.
Strategy
With a debt free balance sheet and significant resources at its
disposal, Plexus is well placed to withstand the current global
economic crisis and deliver a future which enables the significant
value of its IP to be harvested. Indeed, the time that has been
lost since COVID-19 impacted the industry has consumed some of the
lead times associated with tendering for projects, and as
referenced above this has meant that the Plexus sales team now
finds itself actively engaged in pursuing sales opportunities (for
both hydrocarbon and geothermal applications) where the Company's
wellhead equipment offers unique technical advantages over
conventional equipment, particularly for gas service
applications.
However, the Board does not wish to stand back and simply wait
for business to come its way, so with limited visibility on when
global economic activity will normalise and when investment levels
in the energy industry will pick up, the Board is currently
considering the optimal composition and structure of the business
to ensure the Company remains robust during the current economic
environment and Plexus' existing and future new IP is protected. A
further update will be provided in due course.
Plexus' CEO Ben Van Bilderbeek said, "As a supplier of high
performance wellheads and other specialist equipment to the oil and
gas industry, Plexus has not been immune to the major scaling back
of capex and general activity that has taken place across the
industry in response to the COVID-19 induced global downturn. With
the timing of production wellhead contracts that we have been
tendering for pushed out into the future, our FY20 revenues will
not meet expectations.
"We expect to report a narrower year on year loss at the EBITDA
and PBT levels which, we believe, is testament to the resilience of
the licensing business model we adopted post the sale of our
jack-up exploration rental business and the tight management of our
cost base. Together with a debt free balance sheet, strong
partnerships with Gusar and TechnipFMC, a capability to supply
package solutions covering key markets, and a broadening product
suite based around our innovative IP, Plexus is, in our view, not
just well placed to withstand the downturn but also to play an
active role in the recovery when it comes.
"Without clear visibility on when a recovery will take place or
what it will look like, we are not prepared to sit on our hands and
wait for the oil and gas cycle to turn. We are actively looking at
how best to structure our business to ensure that we can capitalise
on the opportunities which we anticipate will become available to
us and, importantly, to protect the value of POS-GRIP's IP.
"Our innovative IP remains core to Plexus and we are determined
to not only protect this valuable asset but also to grow it
further. Our leak proof technology has already been used on a large
number of wells worldwide by a host of blue-chip operators but,
with climate change increasingly setting the energy industry's
agenda and POS-GRIP ideally suited to the high pressures and
temperatures associated with natural gas, we firmly believe
POS-GRIP's best years lie in the future and not in the past. If the
new normal for the energy industry post COVID-19 is to be one of
heightened scrutiny of operators' carbon and methane emissions and
reducing operating costs, then POS-GRIP ought to be viewed as a
go-to technology that delivers on both counts, a view that has
already been clearly endorsed by one of the world's major oil
services companies - TechnipFMC."
**ENDS**
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
NOTES:
AIM-traded oil and gas engineering services company Plexus (AIM:
POS) is an IP led company that has developed a range of products
and applications based on its patent-protected POS-GRIP method of
engineering.
POS-GRIP is a friction grip technology which squeezes a pressure
vessel from the outside to hold and seal components in place. In
wellheads, this provides the capability to very simply secure
casing and tubing hangers in the well. POS-GRIP can also be used to
energise "HG" Seals directly between the contacting components,
rather than introducing a separate sealing element as with
conventional technology. When combined, these features provide for
high-integrity gas-tight sealing which guarantees leak-free and
maintenance-free performance. The benefits of this are reduced
installation costs due to the simplicity, enhanced performance to
guarantee safety, zero hydrocarbon leaks to the environment as well
as major potential cost savings in eliminating remedial work and
scheduled maintenance. POS-GRIP has potential applications in
connectors, geothermal applications and the nuclear industry.
Plexus is focused on establishing its technology and equipment
in markets beyond jack-up exploration drilling, including surface
production wellheads, subsea and de-commissioning. Its suite of
ongoing products and applications include: "HG" wellheads, which
combine POS-GRIP technology with gas tight metal sealing; the
Python(R) subsea wellhead (a new standard for subsea wellheads -
developed in a Joint Industry Project supported by Royal Dutch
Shell, BG (now owned by Shell), Wintershall, Total, Maersk (now
owned by Total), Tullow Oil, eni, Senergy (now Lloyds register),
and Oil States Industries Inc); the POS-SET(TM) connector for the
growing de-commissioning and abandonment market; and Tersus-PCT, an
innovative HP/HT tie back connector product.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
UPDKZGMVDLFGGZM
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June 19, 2020 10:55 ET (14:55 GMT)
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