Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil equipment & services
8 November 2018
Plexus Holdings plc ('Plexus' or 'the Group')
Preliminary Results for the year to 30 June 2018
Plexus Holdings plc, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® method of wellhead engineering, announces its preliminary results for the year ending 30 June 2018.
Financial Results
Following the completion on 1 February 2018 of the sale of Plexus' wellhead exploration equipment services business for jack-up applications ('the Jack-up Business') to FMC Technologies Limited ('TFMC'), a subsidiary of one of the leading oil and gas service and equipment companies TechnipFMC (Paris:FTI) (NYSE:FTI), the year-end results and comparative prior year period have been reported as required on a continuing and a discontinued operations basis.
· Continuing operations sales revenue £318k (2017: £225k)
o Discontinued operations sales revenue £3,907k (2017: £4,524k)
· Adjusted EBITDA on continuing activities (£3.74m) loss (2017: £3.58m loss)
· Continuing operations operating loss £5,285k (2017: £5,275k)
o Discontinued operations operating loss £1,593k (2017: £1,757k)
· Continuing operations operating loss after tax £4,694k (2017: £4,278k)
o Discontinued operations profit after tax £4,322k (2017: £1,424k loss)
· Basic loss per share from continuing activities (4.45p) (2017: 4.06p loss)
o Basic earnings per share from discontinued activities 4.10p (2017: 1.35p loss)
· Net cash of £12.9m (2017: net cash £6.5m)
· The Group has £2.12m in financial assets, namely high-yield bonds (2017: nil).
· Whilst the Company remains committed to distributing dividends to its shareholders, the Directors believe that it is prudent to continue the suspension of the payment of dividends.
Overview and Corporate Highlights
· Transformational sale for up to £42.5m, less certain adjustments of Plexus' wellhead exploration and equipment services business for Jack-up rigs and a Collaboration Agreement signed with TFMC, a subsidiary of top tier industry supplier TechnipFMC
o Represents major industry recognition of Plexus' POS-GRIP friction-grip method of engineering, which has been used on over 350 wells worldwide by blue chip customers such as BP, Equinor, Royal Dutch Shell, Spirit Energy and Total
o As part of the transaction, Plexus and TFMC entered into a Collaboration Agreement ('CA') which establishes a framework to work together both on the development of existing POS-GRIP IP applications outside of jack-up exploration, as well as future new applications
o Triggers strategic shift in Plexus' business to an IP-led research and development licensing model focused on rolling out POS-GRIP applications in sectors outside of jack-up exploration including surface production, subsea exploration and production and decommissioning
o Frees up internal resources from the operational management of the Jack-up Business to developing new products and markets for POS-GRIP technology and products
o Initial circa £14.1m cash consideration from the sale significantly strengthens cash rich balance sheet, and as part of the transaction a three year earn-out period was entered into
o Plexus retains licensing rights for the major Russian and CIS markets
· Contracts secured for POS-GRIP products outside of jack-up exploration in line with strategy to focus on extending the adoption of POS-GRIP technology into new markets - current POS-GRIP product suite caters for all stages of the cycle from exploration to production (surface and subsea) to decommissioning:
o September 2017 - first production well order awarded by long-standing customer Centrica North Sea Limited ('Centrica') now Spirit Energy, for a gas well in the UK Southern North Sea
o Post period end August 2018 - award of a second rental order for the POS-SET™ Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea
· Recovery in oil prices to circa US$70-80 per barrel level anticipated to result in pick up in investment and exploration activity as evidenced by purchase order in September 2017 from new customer Rosneft (TNK Vietnam B.V.) for the supply of POS-GRIP High Pressure/High Temperature ("HP/HT") adjustable rental jack-up wellhead equipment for an exploration well in a new territory offshore Vietnam
· Plexus well placed to benefit from an increase in exploration drilling activity post sale to TFMC via its continued exposure to jack-up exploration:
o Three year earn-out as part of sale of Jack-up Business to TFMC up to a maximum additional payment value of £27.5m- provides exposure to TFMC's global reach and relationships
o Licensing Agreement with LLC Gusar (OOO Gusar) Ltd ('Gusar') covering the major Russian and CIS market which was excluded from the sale of the Jack-up Business
· Significant progress made by licensing partner to secure first order in Russian market:
o February 2018 - sale of two POS-GRIP HP/HT rental wellhead sets and associated equipment and tooling for circa £1.4m to Gusar, Plexus' partner and licensee in Russia, represents a key milestone ahead of the anticipated securing of a first contract in Russia
o Post period end - breakthrough agreement signed by Gusar to supply Gazprom with two sets of its Tersus™ - TRT Mudline Suspension System ('MLS') for gas exploration wells on the Kara Sea Shelf in 2019
· Bank facilities available to the Group with the Bank of Scotland comprise of a reducing five year £1.5m term loan (with a current balance of £0.38m) which was put in place in September 2014 to part fund the purchase of a building in Aberdeen and which runs to August 2019.
Chief Executive Ben van Bilderbeek said:
"The year under review has seen considerable progress made in delivering our strategy. Notably there has been a step change in industry recognition of our innovative POS-GRIP technology as well as orders secured for Plexus products outside of our traditional jack-up exploration market as well as expansion into new geographies. Our strategy is centred on rolling out POS-GRIP-enabled applications in larger market sectors, such as surface production, subsea, abandonment and in the process significantly raising standards across the industry, (particularly in the area of metal-to-metal sealing in the age of gas exploration, production and consumption), just as our best in class proprietary wellheads have done for jack-up exploration drilling.
"The results for the year and the comparative prior year period have been reported as required on a continuing and a discontinued operations basis. During the year to June 2018 the discontinued operation (the Jack-up Business sold to TFMC) continued to be challenging and generated sales of £3.91m compared to £4.52m in the prior year, whereas continuing operations sales revenue increased 41.3% to £318k compared to £225k in 2017. Looking forward, and in terms of industry recognition, the standout event of the year was undoubtedly the sale of our niche Jack-up Business to TFMC, a subsidiary of major oil and gas equipment and services provider TechnipFMC for up to £42.5m. Along with the signing of an agreement with TFMC to collaborate on future applications of POS-GRIP, our proprietary friction-grip method of engineering, this represents a major endorsement of our technology from a leading equipment and services supplier that we have been working hard to achieve for a number of years. Importantly, it provides us with a solid platform with which to deliver on our strategy going forward.
"The Jack-up Business was set up to showcase to the industry POS-GRIP's capability to deliver the very highest standards of safety and also metal-to-metal sealing in terms of integrity and long-term performance in some of the most challenging HP/HT operating conditions. In this regard, the Jack-up Business has been highly successful. Over the years, a wide range of blue-chip operators have used our superior wellheads on over 350 wells worldwide, most notably the Total-operated Solaris well in 2015 which is believed to be the highest pressure well ever drilled in the North Sea. Having raised industry standards in jack-up exploration drilling, we believe POS-GRIP can do the same for production and subsea drilling, especially wherever long-term metal-to-metal sealing is required. I believe that our timing could not be better. As the world increasingly favours gas over dirtier coal and oil hydrocarbons, the need for best in class gas-proof equipment, including wellheads, to help address growing concerns over the effects on the environment of toxic methane leaks from supply chain operations is becoming all the more critical. The highest standards of metal-to-metal sealing are essential, particularly for gas and POS-GRIP is proven to deliver. I believe that the TFMC Collaboration Agreement shows that a top tier oil and gas services company shares our confidence.
"Our Jack-up Business also served another purpose. The revenues generated through the rental of POS-GRIP wellheads and associated equipment have enabled us to fund extensive R&D and the development of POS-GRIP applications for markets outside of jack-up exploration. As a result, following the sale to TFMC, not only do we have a cash rich balance sheet, but we also have a suite of POS-GRIP-enabled applications that we can now focus on promoting. Our existing family of POS-GRIP products caters for all stages of the hydrocarbon well cycle from exploration to production to abandonment. All offer operators superior performance and cost savings, especially subsea where our simple design eradicates the need for a number of trips which can potentially save millions of dollars per well. We are therefore confident that the award of a purchase order for one of our production wellheads from Centrica in September 2017, and the post period end award of a second order for our POS-SET Connector for abandonment operations in the North Sea bodes well for the future and will be followed by additional contracts going forward. Our overriding aim is to build a portfolio of multiple earnings streams for the Company on a product by product basis, either organically or with partners including licencees.
"Another potentially important revenue generator is our exclusive licensing agreement with independent Russian oil and gas equipment providers, Gusar and CJSC Konar, to manufacture and rent Plexus' proprietary jack-up exploration wellhead and associated equipment within the Russian Federation and the other CIS states. This agreement falls outside the scope of the sold Jack-up Business, and significant progress is being made. Specifically, the sale of two wellhead systems and associated equipment to Gusar for circa £1.4 million to seed an initial rental inventory of wellheads is a key step towards POS-GRIP equipment being used in Russia for shallow water jack-up gas exploration drilling for the first time. This was followed by the post period end announcement that Gusar has secured an initial agreement to supply Gazprom with two sets of its Tersus - TRT Mudline Suspension System ('MLS') for the construction of shallow water exploration gas wells on the Kara Sea Shelf in 2019. Both are breakthrough developments and we continue to work with Gusar to secure a follow on first contract for our wellheads in Russia.
"Our Russian licensing agreement serves as a template for Plexus' business model post the TFMC sale. For a company of our size with a ground-breaking technology, securing licensing agreements with established partners offers a capital light route to monetising our intellectual property ('IP'). Without the need to fund the Jack-up Business, the majority of revenues generated from licensing agreements and the ongoing earn-out as part of the deal with TFMC can be used to further grow our POS-GRIP family of products. We are focused on signing similar licensing agreements with suitable partners both on a geographic and a product application basis. Alternatively, we will consider selling individual products to larger groups, particularly if we believe they will benefit from being part of a turnkey solution.
"The sale of our Jack-up Business and the signing of a Collaboration Agreement with TFMC represent major strategic milestones that have enabled Plexus to move onto the next phase of its growth strategy, one which is focused on developing and rolling-out POS-GRIP-enabled applications across the energy sector. Today Plexus has a strong balance sheet, a track record of delivering superior equipment to a blue-chip roster of customers and industry recognition of our technology from a top tier supplier. Together with a more positive market backdrop fuelled by a circa 50% plus increase in the price of Brent Crude over the last 12 months, an uptick in activity and investment across the sector, and in particular gas' growing status as the preferred hydrocarbon fuel, Plexus is well placed to benefit. Furthermore, other industry dynamics provide additional encouragement, particularly in relation to subsea. Wood Mackenzie recently reported that 'For all big majors, deep-water is a growth element', and that 'Deepwater is where all the big discoveries are made…But is only accessible for those with cash reserves and technical capability'. I look forward to providing further updates on our progress as we focus on monetising our technology and delivering significant value for shareholders."
For further information please visit www.plexusplc.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 |
| Frank Buhagiar | St Brides Partners Ltd | Tel: 020 7236 1177 |
| Isabel de Salis | St Brides Partners Ltd | Tel: 020 7236 1177 |
Summary of Results for the year ended 30 June 2018
|
| 2018 £'000 | 2017 £'000 |
| Revenue (continuing operations) | 318 | 225 |
| Adjusted EBITDA (continuing operations) | (3,737) | (3,578) |
| Operating Loss (continuing operations) Loss after taxation (continuing operations) | (5,285) (4,694) | (5,275) (4,278) |
| Profit / (loss) after taxation (discontinued operation) | 4,322 | (1,424) |
| Profit / (loss) after taxation (combined) | 372 | (5,702) |
| Basic loss per share (pence) (continuing operations) | (4.45p) | (4.06p) |
| Basic earnings / (loss) per share (pence) (discontinued operation) | 4.10p | (1.35p) |
Chairman's Statement
Business progress
The Summary of Results table reflects the significant corporate changes that took place during the year under review with discontinued activity revenues accounting for £3.91m, down from £4.52m, whilst revenues from continuing operations were up 41.3% to £318k from £225k. Cash balances improved significantly, and at the year-end were £13.3m with a further £2.1m invested in financial assets, namely high-yield bonds. This compares to last year-end cash balance of £7.2m. The sale of our Jack-up Business to TFMC, is what has driven these changes, and underlines a major strategic shift in our business model from that of a jack-up exploration rental wellhead operating company to an IP-led research and development licensing business focused on applications beyond jack-up such as surface production and subsea wellhead supply.
Up until February 2018, a large proportion of the Company's time and cash resources were taken up by the everyday management of our jack-up exploration wellhead rental business. From a standing start, and under our watch, over 350 jack-up exploration wells were drilled by blue chip operators all over the world using our best-in-class POS-GRIP wellheads. Proven to provide superior performance, reliability and safety in the field, whilst at the same time delivering considerable savings for operators, our wellheads have been deployed in some of the most challenging environments, specifically in terms of ultra-high temperatures and pressures. As well as generating cash for the Company, the Jack-up Business was set up to showcase and prove to the industry the nature and advantage of our ground-breaking technology. As the sale to TFMC demonstrates, we have clearly achieved this goal.
Now, following the sale of the Jack-up Business, Plexus can revert to focusing on what it does best - developing applications based on our proprietary POS-GRIP technology for use in the larger market segments within the energy industry. We believe that our patented HG metal-to-metal sealing technology will play an important role in delivering this strategy, specifically where gas-proof sealing capabilities are required, an area that the industry, regulators, and scientists are now calling for across the supply chain from the wellhead through to consumption. We intend to achieve this both independently and, where appropriate, with partners. Thanks to the Collaboration Agreement we signed with TFMC, which represents a major endorsement of our friction-based method of engineering from a top three circa US$12 billion oil and gas services provider, we now have the attention of a top tier partner. Once new products are ready for roll-out, we will then look to monetise these either via licensing agreements, similar to the one we have in place in Russia and the CIS, or potentially via an outright sale, just as we did with the Jack-up Business.
Importantly, Plexus already has developed several POS-GRIP-enabled products outside of jack-up exploration which have been successfully used by blue chip operators out in the field, including our production wellhead and POS-SET Connector for the abandonment market. As exploration and production activity across the industry plays catch-up with oil prices that have rallied by more than 50% over the last 12 months, we will continue to pursue contracts for both these products and also for our Python® subsea wellhead. In parallel with this, we will be looking to secure additional licensing agreements and outright sales both on a geographic and product level, as we focus on fully monetising our technology to fund further R&D and product roll-out.
Post period end progress continued to be made in terms of continuing operations. In August 2018 Plexus was awarded a second order for the POS-SET Connector from Oceaneering A/S Norway for well abandonment operations in the North Sea, and in September 2018 a breakthrough agreement was signed by our licencee Gusar to supply Gazprom with two sets of Tersus-TRT Mudline Suspension Systems for gas exploration in shallow water wells on the Kara Sea Shelf in 2019. It is anticipated that Gazprom will place an inaugural wellhead order in due course.
Overview
In recent years, our POS-GRIP technology has raised performance, reliability and safety standards for wellheads and associated equipment used in jack-up exploration drilling. When a major operator recently issued a new set of higher test and performance standards for the industry, POS-GRIP wellheads were the first, and to date as far as we are aware are the only ones, to have exceeded, let alone pass them without exceptions. Following the Macondo tragedy in 2010, our growing reputation for supplying the industry with best-in-class wellheads, led a group of leading operators to approach us to develop a subsea wellhead based on POS-GRIP. This resulted in the launch of our Python subsea wellhead in September 2015. In the same year, Total elected to drill the Solaris well, believed to be the highest pressure well ever drilled in the North Sea with a POS-GRIP exploration wellhead. The common thread behind all the above is that as oil and gas companies increasingly explore in ever more challenging environments, and environmental considerations become increasingly important to address climate change, they are looking to and are having to deploy the best technology available. When it comes to metal-to-metal sealing, as we have demonstrated many times over, we believe POS-GRIP is starting to establish itself as the go-to technology solution.
POS-GRIP was designed by Plexus to raise wellhead standards for HP/HT applications, and by default for standard pressure operations. It has proved itself as being able to equal or exceed the standard of premium couplings, thereby overcoming the shortcomings that can be demonstrated to be associated with conventional wellhead technology. POS-GRIP is a friction-grip method of engineering which can be applied to a diverse range of tubular connections. By applying an external hydraulic force to squeeze housing until it engages a special-design end connection (casing or tubing hanger in wellheads), a gripping force is generated which initially eliminates assembly tolerances and eventually merges the two members with such force that, for practical purposes, the parts become one. The process is accurately controlled by hydraulic pressure, is calibrated to deliver monitored results and occurs within the elastic limits of material, so that the connection is reversible.
Our friction-grip technology enables design improvements to be made that cannot be matched by conventional technologies. Most importantly from a risk-analysis perspective, POS-GRIP technology limits the number of seals and leak paths. For example, the number of leak paths past a hanger with integral annular seals is halved, as only one contact area exists between hanger and housing. No penetrations are required to energise the system, and conventional outlet connections can be made redundant by alternative annulus pressure management procedures. This is a major departure from conventional technologies which typically are comprised of many more individual components, each of which has the potential to compromise seal integrity. Importantly this method of engineering also delivers a lifetime gas-proof metal seal solution which we believe is the only true long-term wellhead metal seal available to the industry.
POS-GRIP wellheads and products can be used on a variety of oil and gas applications, not just jack-up exploration but also production, abandonment and subsea operations, areas where we already have products developed or in development. Following the sale of the Jack-up Business in February 2018, we are now able to focus on winning additional contracts for our existing product suite. Progress made to date has been encouraging. In September 2017, we secured a purchase order from Spirit Energy, a subsidiary of Centrica to supply our POS-GRIP "HG" 10,000psi adjustable production wellhead for a gas well in the UK Southern North Sea. This was followed post period end in August 2018 with the award of a second order for the POS-SET Connector™ from Oceaneering A/S, Norway for well abandonment operations in the North Sea.
As with our jack-up exploration equipment, the production wellhead and the POS-SET Connector provide operators with best in class and innovative solutions for both the large and lucrative production market, as well as for abandonment operations, an area of the energy sector which we believe has significant growth potential as ageing wells reach the end of their lives. Encouragingly, the Chancellor in the recent budget launched a call for evidence on how to establish Scotland as a global hub for decommissioning and this is expected to attract billions in investment every year. In response the industry's trade body said that oil companies are expected to submit more than one hundred decommissioning plans over the next two years, and that in the next ten years oil companies are likely to spend £23.4bn closing wells.
Other POS-GRIP products within our portfolio include the potential for the subsea and surface interface points for HP/HT dual marine risers, which provide a safer, technically superior and cost-efficient solution for use on jack-up rigs; an innovative HP/HT Tie-Back connector product; and a well tree product. This, however, is not the extent of POS-GRIP's potential reach. Wherever metal-to-metal sealing is required, we are confident POS-GRIP can raise standards and optimise performance. This opens a plethora of new sub-sectors within the broader energy industry for Plexus to explore, such as geothermal and gas storage, and potential structural applications in the renewable energy sectors of wave energy and wind turbines. Following the sale of our Jack-up Business, we now have the resources in place to pursue applications in these markets and more, both independently and with partners such as TFMC.
In the meantime, Plexus will continue to receive revenues from contracts secured for POS-GRIP wellheads used in jack-up exploration. As part of the three year earn-out agreed with TFMC, Plexus stands to receive a third of rental revenues generated from the Jack-up Business up to a cap of £27.5 million. Furthermore, the sale to TFMC excludes the Russian and CIS states where we already have a licensing agreement in place with Gusar and Konar, two established oil and gas suppliers in what is one of the three largest hydrocarbon producing areas in the world.
Since the licensing agreement with Gusar and Konar was signed in 2016, we have been working hard with our partners to secure a first contract for our POS-GRIP equipment. As we found in other parts of the world, establishing POS-GRIP as the go-to technology is not just a matter of educating operating companies on the performance and cost-saving benefits that our equipment offers. Operators' inclination to award one-stop turnkey contracts also must be overcome. Over time we successfully achieved this in the North Sea where, prior to the downturn, Plexus became the dominant supplier of wellhead equipment to the HP/HT market and so we are confident that POS-GRIP equipment will soon gain traction in the important Russian market. With this in mind, we are encouraged by the progress made to date, particularly the £1.4 million sale of wellhead equipment to our Russian partner to kick-start its inventory, a necessary pre-curser to being awarded a first contract. This proved to be the case as post period end in September 2018, Gusar secured a breakthrough contract to supply Gazprom with two sets of its Tersus - TRT Mudline Suspension System ('MLS') for the construction of shallow water exploration gas wells on the Kara Sea Shelf in 2019.
Staff
On behalf of the Board I would like to thank all our employees both past and present for their dedication and hard work during a year that continued to remain challenging for not only Plexus but also the wider oil and gas industry. This trading environment led to Plexus, like many other E&P and service companies having to restructure and reduce staff numbers and overheads, and make a strategic decision to dispose of its niche jack-up exploration wellhead activities (with the exception of Russia and the CIS). Such measures were regrettable where job losses were concerned, but was strategically important, and I now look forward to an increasing level of activity, particularly in relation to our production wellhead applications, and I am confident that this will be positive for our existing staff, and for employment opportunities in general.
Outlook
For the first time since 2014, the publication of this annual report coincides with a more favourable market backdrop, both at the structural and cyclical level: structural as a result of the ongoing shift towards cleaner fossil fuels such as natural gas, which plays to the strengths of our best in class technology; cyclical following the unwinding of what proved to be a persistent and hard to shift supply glut which led to a collapse in the oil price, exploration drilling activity and capital expenditure levels. Furthermore, following the painful realignment to lower oil prices and lower activity, participants operating at all levels of the oil and gas supply chain, from exploration and production companies to specialist and turnkey service providers, have emerged from the downturn with cost bases much better able to withstand volatile oil prices. A leaner and fitter industry, a structural shift toward gas, a pickup in sentiment and investment, and improving demand/supply fundamentals, combine to make the outlook section of this latest report a more positive read for Plexus shareholders than has been the case in recent years. It is such market factors that can act as a 'pull marketing' mechanism for proprietary technology like ours, and I am confident that this will work to Plexus' commercial advantage over the coming years.
In terms of the cycle, correcting markets tend to overshoot in both directions: on the way down as well as on the way up. There is evidence to suggest that an overdone downturn effect has occurred this time around. As PwC states in its Oil and Gas Trends 2018-19 Report: "After several years of oversupply, the oil and gas industry could very well be moving headlong into a supply crunch. This may seem hard to imagine, given the ramping up of U.S. oil production and the burgeoning sense of optimism that is sweeping the sector. In general, the industry feels much healthier than it did 12 months ago. The price of oil has rebounded. After appearing limited to a range between the mid-$40s and $50 per barrel (bbl), Brent crude is now trading above $70 (at the time of writing). The industry is thus recovering from the brutal last few years of weak prices, enforced capital discipline, portfolio realignments, and productivity efficiencies."
In the same report, PwC notes how the recovery in oil prices is translating into a pickup in investment and activity: "global upstream capital expenditure, which dropped nearly 45 percent between 2014 and 2016 is now forecast to rise 6 percent year-on-year in the medium term. Oil and gas rig activity levels are rising, driven by the North American market, and major projects are being approved. To name a few examples: BP went ahead with the second phase of Mad Dog, a floating production platform, in the Gulf of Mexico. Shell reached a final decision to invest in the Penguins field redevelopment, its first new staffed installation in the northern North Sea in almost 30 years. Exploration is on the rise again for the first time since the global recession." The IEA further reports and cautions in its World Energy Outlook that following years of sharp retrenchment, there is much ground to make up: "the world needs to find an additional 2.5 million bbls/d of new production each year, just for conventional output to remain flat".
Following the severe downturn, the uptick in exploration activity and investment is welcome news for all companies operating in the sector. What is even more encouraging however is that at the same time, long-running structural themes have not only gained momentum but have been propelled into the mainstream. In its report, PwC acknowledges the major challenges confronting the industry: "In short, while the supply glut may have ended, its after effects will continue. In the short term, companies must maintain capital discipline and the focus on productivity improvements and applying new technology. In the long term, they need to make their portfolios profitable against low break-even prices. Moreover, they'll need to figure out how to future-proof their overall portfolio, and make it secure amid the transition to a lower carbon world."
The very definition of the term 'the transition to a lower carbon world' rightly implies that simply switching on 'overnight' new sources of renewable energy is not an option. Fossil fuels will also have a major role to play for many years if not decades to come. Favouring cleaner hydrocarbons such as natural gas over dirtier fossil fuels such as coal can significantly lower harmful emissions: on a CO2 emitted per unit of energy output or heat content basis, the EIA has estimated natural gas emits 117 pounds of CO2 per million British thermal units ('Btu') of energy, compared to 228.6 pounds of CO2 emitted by coal; 161.3 pounds of CO2 from diesel fuel and heating oil; and 157.2 pounds from gasoline. Numbers such as these help to explain the rapid increase in demand for natural gas in recent years. As Jillian Ambrose, the Daily Telegraph's Energy Editor, wrote in August 2018: "Liquefied natural gas, or LNG, is now the world's fastest-growing source of energy. The boom in trade has kick-started trillions of dollars of investment in export projects in the US, Qatar and Australia to meet the growing needs of super-consumers in China and Europe…The IEA expects Chinese gas demand to grow by 60pc between 2017 and 2023, as it scrambles to reduce choking air pollution by switching from coal to gas."
To satisfy the world's fast-growing appetite for gas, leading operators are pivoting towards gas. Arguably Royal Dutch Shell led the way with its £41bn acquisition of BG Group in 2015; Total has spent US$1.5bn to acquire Engie's (previously GDF Suez) LNG business and at the same time took a 10% interest in an Arctic LNG project; meanwhile Petronas has acquired a 25% interest in a Royal Dutch Shell LNG project in Canada. To underline this trend, in an interview with the Daily Telegraph, Royal Dutch Shell's Maarten Wetselaar put the recent deal-making into context: "Since the start of the century, the number of countries importing LNG has quadrupled, while the number of countries supplying LNG has almost doubled. The demand for LNG has gone up during that same period from 100m to nearly 300m tons a year and is expected to keep growing".
Critically however there is a major threat to natural gas' green credentials: gas and by default methane leaks. As the FT's Ed Crooks wrote in June 2018: "Gas-fired power plants produce much lower carbon dioxide emissions than coal-fired plants for the same electricity generation, but methane leakage cuts that advantage and could even wipe it out altogether." The FT was commenting on a report in the journal Science titled 'Assessment of methane emissions from the U.S. oil and gas supply chain' which estimates that methane leaks from the US oil and gas industry are around 60% higher than government numbers. According to the FT, the study concluded that "other research had underestimated the scale of methane leakage by missing large escapes when equipment malfunctions…The scale of methane leakage from wells, processing plants and pipelines is central to the debate over switching from coal to gas for power generation. Methane is the principal component of natural gas and is a potent contributor to global warming." The need for gas-proof technologies and equipment has clearly never been greater.
In recognition of the scale of the problem, the industry is taking leaks seriously. A number of operators have publicly set targets to reduce the amount of gas that escapes from their operations. As Bob Dudley, BP's CEO, was reported as saying, "Some people may not be aware of the benefits of gas. Others see the benefits but are genuinely concerned about methane emissions. That's a legitimate concern and we share it - in fact, we're in action." According to a spokesman for the Environmental Defence Fund, a group which works with companies to improve environmental performance: "We have a big problem… The good news is that it is an addressable problem, which can be tackled in very cost-effective ways." We believe that one obvious and cost-effective way is to use better sealing technology to prevent leaks. Step-up POS-GRIP and its HG metal-to-metal seals. As detailed earlier, our friction-based method of engineering offers a far superior solution to containing gas than conventional technologies can offer. As we have proven many times over out in the field, Plexus provides a metal-to-metal sealing solution that not only can prevent wellhead leaks, but also offers operators considerable time and cost savings. Our technology can be used on a variety of oil and gas applications and has been successfully installed and used on ultra-high pressure and temperature projects to 20,000 psi at 375 F. Furthermore, standard HG metal-to-metal seals are as easy to use on low pressure oil applications as on high pressure methane gas service projects, either on the surface or subsea.
Interestingly, in September the Independent Energy Standards Corporation ('IES'), an independent ratings and analytics company for event risk and responsibility in the oil and gas industry, announced the completion of its first transaction under its IES TrustWell™ Responsible Gas Program. This looks at the ability to source gas responsibly, and in line with this evaluates producing wells and well sites in terms of risks and impacts including emissions, methane leaks, spills, well integrity, water sourcing, and others. As part of the programme, IES assigns each well either a Silver, Gold, and Platinum rating and is open to both natural gas producers and purchasers. Speaking about the first transaction, Jory Caulkins, IES' Chief Executive Officer said, "This is an important precedent which demonstrates the growing demand from gas purchasers and end consumers for responsible gas and energy. For the first time, natural gas buyers have a credible, independent and comprehensive way to source responsibly developed natural gas as part of their energy mix via the TrustWell™ Responsible Gas Program." We believe that as well as individual wells, it would make sense to go a step further and that having equipment items certified for leak proof performance would be a logical extension. If and when this happens, we are confident our equipment would command the highest rating.
Offering the best solution is one thing, but getting it to market is another, especially for a small company such as ourselves. The sale of our Jack-up Business to TFMC promises to be the game-changer we have been working towards since our inception. Not just because it provides us with industry validation of our technology from a top tier supplier or that it significantly strengthened our already cash rich balance sheet. The sale frees up resources which enables our management and technical teams to expand our POS-GRIP family of products and at the same to further engage with potential partners, licensees, customers and even acquirers. Above all, just as our Licensing Agreement in Russia did in 2015, the sale to TFMC demonstrates that we have multiple routes to market available to us. We are focused on capitalising on these opportunities to raise industry standards, help the industry minimise methane leaks and at the same time monetise the substantial potential of POS-GRIP for the benefit of all our shareholders.
J Jeffrey Thrall
Non-Executive Chairman
7 November 2018
Strategic Report
Principal Activity
The Group markets oil and gas industry equipment that utilises its patented friction grip method of engineering, including wellheads and connectors known as POS-GRIP. This involves deforming one tubular member against another within the elastic range to effect gripping and sealing. This superior method of engineering for wellheads offers several important advantages to operators, particularly for HP/HT applications and can include improved technical performance, improved integrity of metal seals, significant installation time savings, reduced operating costs and enhanced safety. The year under review was dominated by the sale of the Company's niche jack-up exploration wellhead rental operations to a division of leading oil and gas service and equipment provider TechnipFMC.
The sale marks a strategic shift in Plexus' operations to a predominantly engineering and IP-led product design, development and licensing business although the Company retains the right to pursue jack-up exploration related business in Russia and the CIS, the third largest hydrocarbon producing market in the world, and where it has existing licence agreements with LLC Gusar and CJSC Konar. In addition, Plexus has upside exposure to jack-up exploration drilling activity via a three year earn-out arrangement with TFMC, which was part of the terms of the sale agreement. The Company is now focused on pursuing the much larger surface production market, the growing abandonment market and in due course the subsea market. To these ends, on 25 September 2017, Plexus secured a production equipment order from Spirit Energy for a gas production well in the UK Southern North Sea and post period end, in August 2018, it announced a purchase order for its POS-SET Connector from Oceaneering A/S, Norway for well abandonment operations in the North Sea.
The Directors believe that the Company's proprietary technology has additional wide-ranging applications both within and outside the oil and gas industry. It is therefore focused on developing additional POS-GRIP-enabled applications for new markets both independently and with partners including TFMC where in tandem with the sale of the Jack-up Business, Plexus signed a Collaboration Agreement with TFMC which envisages the two parties working together to develop new POS-GRIP products.
Financial Results
Revenue
Continuing revenue for the year was £318k, an increase of 41.3% from £225k in the previous year. The increase in continuing sales revenue is a result of the Group moving towards alternative revenue streams following the sale of the Jack-up Business, in particular production wellheads and the POS-SET Connector. Other payables include £773k of deferred income which will be recognised in the following accounting period, of this balance £574k relates to production related sales.
Plexus continued to invest for the future and in its technology with total R&D spend £0.23m compared to £0.63m last year.
Margin
Gross margin on continuing operations reduced to 8.8% (compared to 20% in the previous year). The decline in margin is largely driven by decline in continuing rental revenue, falling from £119k in 2017 to £nil in 2018 and the fixed nature of the costs.
Overhead expenses
Continuing activities administrative expenses are broadly in line with the prior year with expenditure of £5.31m (2017: £5.32m). Within this total the continuing salary component remained the largest at £2.53m which is a 4.5% increase compared to last year's total cost of £2.42m.
Adjusted EBITDA
The Directors use Adjusted EBITDA on continuing operations as a non-GAAP measure to assess the Group's business. Directors consider Adjusted EBITDA on continuing operations, which approximates the operational cash generated by or used in the business, to be the most appropriate measure of the underlying performance of the Group's business in the period, given the continuing business will be the focus of the Group going forward.
Adjusted EBITDA on continuing operations for the year was a loss of £3.74m, compared to a loss of £3.58m in the previous year. Adjusted EBITDA on continuing operations is calculated as follows:
|
| 2018 £'000 | 2017 £'000 |
| Operating loss | (5,285) | (5,275) |
|
|
|
|
| Add back: |
|
|
| -Depreciation | 737 | 805 |
| -Amortisation | 898 | 885 |
| -Fair value adjustment to asset held for sale | - | 8 |
| -Gain on disposal | (87) | (1) |
|
|
|
|
| Adjusted EBITDA on continuing operations | (3,737) | (3,578) |
Loss before tax
Loss before tax on continuing operations of £5.25m compared to a loss last year of £5.28m. The loss on discontinued operations before adding the gain on sale of the discontinued operation of £5.83m was £1.59m compared to a loss of £1.76m in the previous year.
Tax
The Group shows a total income tax credit of £0.65m for the year compared to a tax credit of £1.33m for the prior year. The income tax credit has been split between continuing activities (£0.55m, 2017: £1m) and discontinued activities (£0.09m, 2017: £0.33m). The income tax credit for the year is driven by the loss incurred during the financial period.
EPS
The Group reports basic earnings loss per share on continuing activities of 4.45p compared to a loss per share of 4.06p in the prior year. The basic earnings per share on discontinued activities of 4.10p, the calculation of which includes the £5.83m gain on disposal of the Jack-up Business, compared to a loss per share of 1.35p in the prior year.
Cash and Statement of Financial Position
The net book value of property, plant and equipment including items in the course of construction and the property held for sale at the year-end was £4.00m compared to £12.37m last year. Capital expenditure on tangible assets increased to £0.45m compared to £0.29m last year. During the year assets, including the asset held for sale at the prior period reporting date, with a NBV of £6.77m were disposed of. The net book value of intangible assets, including IP rights, R&D and software, decreased by 15.3% to £12.24m compared to £14.45m last year. Capital expenditure on intangibles totalled £0.23m compared to £0.63m last year. Receivables increased to £11.23m compared to £1.0m last year. Net cash closed at £12.92m (cash and cash equivalents of £13.30m less bank loans of £0.38m compared to net cash of £6.50m last year (cash and cash equivalents of £7.18m less bank loans of £0.68m) reflecting net cash inflow for the year of £6.42m (net increase in cash of £6.12m per Statement of Cash Flows plus net decrease in bank borrowings of £0.30m). The reduction in bank borrowing represents £0.30m of repayments on the property term loan reducing the balance from £0.68m to £0.38m. It should also be noted that the Group has invested a further £2.12m in high yield bonds that can be traded at any time for cash, these are included in non-current financial investments in the statement of financial position. Banking facilities comprise of a reducing five year £1.5m term loan (with a current balance of £0.38m) which was put in place in September 2014 to part fund the purchase of the additional building in Aberdeen and which runs to August 2019. These facilities combined with the expected future cash inflow from the TFMC transaction and the cash balances held are anticipated to be adequate to meet current on-going working capital, capital expenditure, R&D and related project commitments.
Intellectual Property ('IP')
The Group carries in its statement of financial position goodwill and intangible assets of £12.24m, a decrease of 15.3% from £14.45m last year. This movement represents investment of £0.23m less the annual amortisation charge of £0.98m and less the disposal of intangible assets which exclusively related to the disposed Jack-up business with a NBV of £1.46m.
The Directors have considered whether there have been any indications of impairment of its IP and have concluded, following a detailed asset impairment review, that there is no impairment. The Directors therefore consider the current carrying values to be appropriate. Indications of impairment are considered annually.
Research and Development
R&D expenditure including patents has reduced from £0.63m in 2017 to £0.23m in 2018. This reduction must not be taken as a sign that R&D ceases to be an important and necessary part of our activities, as such investment is clearly key to protecting, developing, and broadening the range of proprietary POS-GRIP friction-grip method of engineering applications and related IP. Following the sale of the Jack-up Business it is likely that there will be an increase in R&D investment to increase the Group's product offering as it enters new target markets.
IFRS 2 (Share Based Payments)
No IFRS 2 charges have been included in the accounts, in line with reporting standards following the completion of the vesting period of all share options. The fair value of share-based payments has been computed independently and is amortised evenly over the expected vesting period from the date of grant. The charge for the year was £nil which compares to £nil last year.
Dividends
While the Company remains committed to distributing dividends to its shareholders, the Directors believe that it is prudent to continue the suspension of the payment of dividends. The Company will look to reinstate the normal dividend at the appropriate time and after on-going assessment of capital requirements of the business as well as potential investment opportunities.
Operations
During the first half of the year, the Company's operational focus was centred on its Jack-up Business. In September 2017 the Company secured a contract with new customer Rosneft (TNK Vietnam B.V), a subsidiary of leading Russian oil and gas company, Rosneft, for Plexus' POS-GRIP HP/HT adjustable rental exploration wellhead equipment for an exploration well offshore Vietnam. However, in October 2017 the Company announced the conditional sale of the Jack-up Business to TFMC, and in February 2018 all the conditions were subsequently satisfied, and the transaction was successfully completed.
The sale of the Jack-up Business did not include the Russian and CIS markets where Plexus already has a licensing agreement in place with Russian oil and gas service providers, Gusar and Konar. In February 2018, the Company announced the sale of two POS-GRIP 18-3/4" rental wellhead sets and associated mudline equipment and tooling to Gusar for circa £1.4m. The wellheads will serve as the basis for Gusar's POS-GRIP rental exploration wellhead inventory and are planned to be used for gas exploration drilling within the Russian Federation. Plexus is working closely with Gusar to secure a first contract in the Russian and CIS markets.
Beyond jack-up exploration, the Company continues to market its POS-GRIP-enabled equipment, particularly its production and subsea wellheads, and its POS-SET Connector for abandonment operations. In September 2017, Plexus announced it had been awarded a contract with Spirit Energy to supply its POS-GRIP HG 10,000psi adjustable production wellhead for a gas production well in the UK Southern North Sea. The Spirit purchase order is in line with the Company's strategy to extend the application of its POS-GRIP technology beyond jack-up exploration. Plexus has previously supplied wellheads for production wells, including on the BP Amethyst gas field in the Southern North Sea in 2006. Following the sale of the Jack-up Business, the large production market is now an area of focus for the Company.
Plexus continued to invest in R&D despite the ongoing challenging trading environment, albeit at a reduced level excluding test fixtures of £0.23m compared to £0.63m in the prior year, a reduction of 63.5%. R&D remains an important operational activity and underpins and further develops the value of our IP and ability to extend the range of applications of POS-GRIP technology. Innovation in the oil and gas industry continues to be an essential part of developing both cost saving initiatives and ever safer drilling methods, and Plexus is confident that it can continue to play an important role in delivering such solutions whilst raising wellhead standards to a level that conventional technology cannot reach, such as passing test standards equivalent to those used for premium couplings.
Staff initiatives were an important part of operations during the year, and as part of the sale of the Jack-up Business to TFMC, a consultation with employees was undertaken, resulting in 31 employees transferring under TUPE to TFMC. This process was viewed as a success with job losses from the transaction being minimal. To ensure continued efficiency, as part of the Management of Change process, a gap analysis was conducted to review personnel resources, training requirements and implement the appropriate measures for the remaining Plexus workforce.
Staff development continues to be a significant focus and to support this, a formal Training Plan process has been developed and launched. The Training Plan allows Supervisors and Managers to document the identification and closure of skills gaps or training needs of an employee, and provides clear evidence of informal, "on the job" type training, which can often be overlooked.
The restructuring of the business has created an opportunity to review and improve the OPITO accredited competency system, allowing the technical standards to better reflect the equipment operated and to be more closely aligned with the strategy of the business going forward. Following this review of the standards, Plexus will also conduct an evaluation of the in-house training modules to ensure they continue to provide the necessary underpinning knowledge and skills which is required of those fulfilling technical roles. In light of the review of the existing competency system and the reduced headcount, plans to implement the office-based competency framework have been postponed until 2019.
Staffing figures at the end of June 2018 were 35 employees including 2 international employees, which compares to a total of 68 in the prior year.
Health and Safety is a pivotal part of the business and remains at the centre of everything we do. Plexus remains fully committed to continually improving safety standards and the safety culture across the business, this is reflected in the business being lost time injury (LTI) free for the third consecutive year, and the lost time case frequency (LTCF) and total recordable case frequency (TRCF) percentages remaining at zero. Plexus also retained OHSAS 18001:2007 accreditation during the recent surveillance audit with no major findings being raised.
As part of the Group's continued commitment to provide staff with suitable work and welfare facilities, Plexus is currently working on several site improvement projects including the relocation of the workshop and R&D testing facilities to better fit the business going forward following the sale of the Jack-up Business to TFMC.
Quality remains an integral focus for Plexus, ensuring the Group consistently provides products and services that meet customers' requirements. December 2017 saw a smooth transition to ISO 9001:2015 and in February 2018 Plexus successfully completed the recertification audit of the API Monogram Licences for 6A and 17D products.
Following the sale of the exploration Jack-up Business to TFMC, Plexus conducted a full review of the Business Management System ensuring it met the requirements of the Group going forward whilst also identifying any areas requiring improvement.
The IT Department provides technology leadership for Plexus, including governance, information security, software development and expertise in deploying modern information technologies to improve company efficiency. During these challenging times for the oil and gas industry Plexus has continued to develop its in-house systems to ensure the Company is able to react swiftly to changing market requirements.
With major cyber-attacks increasingly on the rise, the ongoing risk to Plexus as with other companies increases year on year. Defending against cyber-attacks and keeping up-to-date with evolving policies and regulations is a complex and time-consuming task. To guarantee that the confidentiality, integrity and accessibility of information is maintained, Plexus has continually evolved its security defences to minimise all cyber risks.
To ensure that the Plexus IT infrastructure, systems and data are as secure as possible Plexus is currently working to the ISO 27002 standard and will, soon work towards achieving ISO 27001 accreditation. This will give added confidence to both customers and key stakeholders that Plexus takes security risks seriously and has put sufficient measures in place to deal with such risks.
Strategy and Future Developments
Technology
Plexus' proprietary POS-GRIP technology involves applying compressive force to the outside of a wellhead or pipe, to flex it inwards. As the bore of the vessel moves inwards, it makes contact with an inner pipe (or hanger) on the inside. Sufficient contact force is generated to hold the inner member (hanger) in place through friction between the two components and creates a superior metal-to-metal seal. The Company's strategy is primarily focused on delivering the highest standard of wellhead design for the upstream oil and gas markets around the world, and one which is already proven to be uniquely advantageous in terms of safety features, operational efficiency, and cost savings for jack-up drilling especially HP/HT applications, and which will now focus on production and subsea wellheads as well as other initiatives such as a POS-GRIP Crown Plus and POS-GRIP Lateral Trees.
POS-GRIP wellhead designs deliver many advantages over conventional "slip and seal" and "mandrel hanger" wellhead technologies for surface exploration and land and platform production applications. These include larger metal-to-metal seal contact areas, virtual elimination of movement between parts, fewer components, simplified design and assembly, enhanced corrosion resistance, simpler manufacture, long term integrity, annulus management, and reduced installation cost. Key components of Plexus wellheads can include proprietary superior HG seals; robust gas-proof metal-to-metal seals which can be machined directly into the hanger and are energised by use of the external POS-GRIP mechanism.
Plexus' POS-GRIP enabled product suite also includes the Python subsea wellhead as well as the POS-SET Connector for use in the growing decommissioning market. Importantly the Python subsea wellhead eliminates the need for wear bushings, pack-offs, lock-rings, and lockdown sleeves, whilst delivering instant rigid lock-down in all directions, fully reversible for ease of workover, side-tracking or abandonment. These design simplifications and features not only reduce the risk of installation problems and safety issues, they also significantly reduce installation time and the number of trips that are needed such that it has been independently estimated that over ten days of savings per well can be achieved in deep-water under certain conditions which, depending on water depth Plexus estimates would result in a saving of over $10m for the operator. The POS-SET Connector, which is designed to re-connect to bare conductor pipe for well re-entry or permanent abandonment operations, creates a solid connection with reliable sealing directly against the pipe, and retains bend and load capabilities at 80% of pipe strength. The directors believe Plexus' wellhead equipment sets and delivers a new standard. Apart from the operational time saving and related safety benefits, at an engineering level the Company has demonstrated that its technology can raise the integrity of wellhead testing and sealing to that of premium couplings, which supports its claim that wellheads no longer need to be the weak link in the well architecture chain.
POS-GRIP friction-grip technology has wide ranging applications both within and outside the oil and gas industry. As POS-GRIP is a method of engineering and not a product in its own right, where there is an opportunity for the technology to improve the performance of conventional products, the Company will look to integrate POS-GRIP so that the benefits together with HG sealing can be realised organically or in conjunction with partners.
Business Model and Markets
The Company is proprietary technology driven and its extensive patent protected IP and many years' worth of know-how has been successfully deployed in hundreds of wells around the world. Its superior performance, safety and operational advantages led to the Company becoming established initially as a leading equipment and services provider to the niche jack-up exploration market. The Directors believe that following the sale of the Jack-up Business to TFMC that this success can be replicated and extended to the wider energy sector including production, subsea, geothermal and fracking applications based on its POS-GRIP technology.
Historically Plexus has focused on supplying adjustable exploration wellhead equipment and associated running tools on a rental basis for the relatively niche jack-up exploration drilling market in the UK Continental Shelf ('UKCS'), achieving a near 100% market share. Over the years, Plexus' equipment has been deployed in the ECS (Norway, Netherlands and Denmark) as well as China, Russia, Egypt, Cameroon, Trinidad, Venezuela, and Morocco. The exploration wellhead contracts were supplied from a rental fleet of owned inventory of which the majority are for 15,000psi HP/HT; and the remainder are 10,000psi wellheads.
Following the sale of the Jack-up Business to TFMC, the Directors believe Plexus is well placed to pursue its strategy of breaking into the significantly larger and more mainstream volume production wellhead and subsea markets both organically and in conjunction with partners including licensees. In line with this strategy, the Company announced in September 2017 that it had been awarded a contract with Centrica North Sea Limited to supply its POS-GRIP HG 10,000psi adjustable production wellhead for a gas production well in the UK Southern North Sea. Plexus had previously supplied Centrica with equipment for several exploration wells in the North Sea. This latest order was particularly encouraging for the Company, as production wellheads are required for entire field life conditions particularly suited to POS-GRIP technology and metal seals, and the size of the market for production wellheads is many times that of jack-up exploration.
Strategy
Plexus' long-term goal is to establish POS-GRIP technology as a new industry standard for wellhead and metal sealing designs, whilst continuing to develop new products, which can also offer multiple benefits and advantages to the industry in terms of improved safety, functionality, and cost and time savings. An example of such extensions for POS-GRIP technology is the Company's connector technology which is ideal for high integrity, low fatigue applications. The Directors believe wellhead connectors, riser connectors, subsea jumper connectors, pipeline connectors, tether tensioners and even vessel mooring connectors can all benefit from the simplicity of POS-GRIP.
The sale of the Jack-up Business to TFMC represents a clear endorsement of Plexus' proprietary technology and marks a significant strategic step for the Company. It realigns Plexus as an IP-led research and development business and enables greater resources and focus on the development of new and existing POS-GRIP applications outside jack-up drilling, including through the collaboration agreement signed with TFMC, which establishes a framework for the two parties to work together on potential new applications.
Having proven the significant advantages of Plexus POS-GRIP wellheads for jack-up exploration applications to a wide range of mostly international oil companies ('IOCs'), and having completed the sale of the Jack-up Business to TFMC, Plexus is now focused on extending its business activities into the volume land, platform and subsea sectors. This strategy will be pursued both organically (as highlighted by the Spirit Energy production wellhead order in September 2017) and also through licensees and partners.
Following the completion of the sale of the Jack-up Business to TFMC in February 2018, Plexus is focused on:
(a) Continued operation of remaining business, contracts and products
The Company will continue to focus on current projects which are not part of the sale to TFMC and will pursue the development of opportunities with existing and new products such as POS-GRIP HG production wellheads. Plexus will continue to target international customers in territories including Gulf of Mexico, India, Middle East and Russia, where it is thought there will be opportunities beyond jack-up drilling. In addition, it is hoped that the recent award of an exploration contract with new customer Rosneft Vietnam, a subsidiary of leading Russian oil and gas company Rosneft, is anticipated to help raise the profile of Plexus with Rosneft and other operators in Russia and the CIS (which is a territory that Plexus has retained the rights to).
(b) Maximisation of Earn-out from the Jack-up Business
The Company intends to prioritise the maximisation of three years' worth of earn-out revenues from the Jack-up Business through the provision of, inter alia, sales and technical support to TFMC.
(c) Work with TFMC through the scope of the Collaboration Agreement and the joint steering committee on key POS GRIP products
The Company and TFMC have reviewed certain topics that can be suited for joint work under the Collaboration Agreement. Should such initiatives progress successfully this could lead to further commercial IP-led opportunities.
(d) Design/Development of new and existing POS-GRIP products/applications
The Company has identified several products and applications which it believes would benefit from the integration of POS-GRIP technology. The Company intends to selectively apply its resources to capitalise on these opportunities, examples of which include:
· Existing applications of POS-GRIP HG Wellheads, such as HP/HT Production Wellheads and Adjustable Production Wellheads
· New applications of POS-GRIP and other IP, such as land wellheads, fracking heads, geothermal systems and well abandonment and decommissioning
· Existing applications for the Python subsea wellheads system, such as deep-water exploration drilling and HP/HT subsea production
· Further developments around the Python subsea system, such as Annulus Access remedial capability and subsea Xmas Trees.
(e) Research & Development
Plexus has always been an innovative IP-led business and the Board intends to devote appropriate resources to continue its ongoing innovative and proprietary technology driven approach.
Key Performance Indicators
The Directors monitor the performance of the Group by reference to certain financial and non-financial key performance indicators. The financial indicators include revenue, EBITDA, profit and loss, earnings per share, cash balances, and working capital resources and requirements. The analysis of these is included in the financial results section of this report. Non-financial indicators include Health and Safety statistics, equipment utilisation rates, geographical diversity of revenues and customers, geo political considerations, effectiveness of various research and development initiatives; for example, in relation to new patent activity and inventions, and appropriate employee headcount numbers and turnover rates.
Following the sale of the Jack-up Business described in Note 4 the key performance indicators of the Group will change to reflect the strategy of the business in relation to the exploitation of its proprietary technology, with focus for example on non-financial key performance indicators expected to be on research and development initiatives and commercialisation objectives.
Principal Risks and Risk Management
There are a number of potential risks and uncertainties that could have an impact on the Group's performance which include the following.
(a) Political, legal and environmental risks
Plexus participates in a global market where the exploration and production of oil and gas reserves, and even the access to those reserves can be adversely impacted by changes in political, operational, and environmental circumstances. The current global political landscape continues to demonstrate how any combination of such factors can generate risks and uncertainties that can undermine stable trading conditions, such as Iran making efforts to return to the world hydrocarbon supply stage, America continuing to aggressively pursue its fracking activities, extreme financial and economic deterioration in Venezuela, the speed and scale of reform recently announced in Saudi Arabia together with recent events in Turkey and wide ranging sanctions on Russia. A specific example of political risk are the aforementioned sanctions, and in extreme circumstances even regime change or a military coup. As a supplier to the global oil and gas industry it is clear that Plexus can be adversely impacted by such events, which can disrupt the markets and compromise the ability to execute work for customers and/or collect payment for services performed. Such risks also extend to legal and regulatory issues and it is important to understand that these can change at short notice. To help address and balance such risks, the Group is seeking to broaden its geographic footprint and customer base, as well as actively looking to forge commercial relationships with large industry players.
Looking closer to home, 'BREXIT' continues to generate much speculation and uncertainty about its timing and eventual impact in terms of for example staff recruitment from abroad, export negativity if duties were to apply and potentially volatile exchange rates. Our current thinking is that staff recruitment when activity levels pick up is not currently a major concern, and weaker Sterling makes our products and services cheaper to customers outside of the UK. In addition, some of our sales are in Euros and this could generate a small currency gain opportunity when converted to Sterling, although of course the converse is true. Also, as we see our equipment as being a unique option for customers we would anticipate that BREXIT is likely to have a lesser impact for Plexus than it may have on other companies and industries. However, if we need to manufacture more equipment for rent or sale, the cost of raw material, and in particular steel, may increase if Sterling's weakness continues.
(b) Oil and Gas Sector Trends
It is readily understood that the world continues to move away from coal as part of the COP21 and other climate change objectives in relation to the ongoing need to urgently reduce CO2 and CH4 (methane) emissions. However, the commercial and environmental dynamics between traditional hydrocarbons in terms of coal, oil and gas is not the only trend to consider. New technologies, particularly in relation to renewables, alternative energies and developments such as the increasing use of electric vehicles and corresponding improvements in battery storage life, wind and wave energy, could all in the future prove very disruptive to the traditional oil and gas industry and therefore demand for exploration and production equipment and services. It is however also recognised that the world will need hydrocarbons as an energy source, and in particular gas for many years to come.
(c) Technology
The Group is now focusing on the commercialisation, marketing and application of its POS-GRIP friction-grip technology beyond jack-up rental exploration wellhead equipment, both with regard to expanding into the surface land and platform production market sector, as well as the target subsea market where the Plexus POS-GRIP Python subsea wellhead offers numerous operational and performance benefits. Current and future contract opportunities may be adversely affected by technology related factors outside the Group's control, especially where new product developments are concerned. These may include unforeseen equipment design issues, test delays during a contract and final testing, and delayed acceptances of deliveries, as well as the slow uptake by operators which could lead to possible abortive expenditure and write downs, reputational risk and potential customer claims or onerous contractual terms. Such risks may materially impact on the performance of the Group. To help mitigate this risk, the Group continues to invest in developing and proving the technology and has a policy of on-going training of our own personnel and where appropriate our partners and customers.
(d) Competitive risk
The Group operates in highly competitive markets and often competes directly with large multi-national corporations who have greater resources and are more established, and who are more resilient to extended adverse trading conditions. This risk has become more concentrated over the past few years as the large oil service companies have merged. These major oil service and equipment company consolidations that have taken place over the last few years have therefore magnified such issues as competitors reduce in number but increase in size reach. Unforeseen product innovation or technical advances by competitors could adversely affect the Group and lead to a slower take up of the Group's proprietary technology. To mitigate this risk Plexus maintains an extensive suite of patents and trademarks, and actively continues to develop and improve its IP to ensure that it continues to be able to offer unique superior wellhead design solutions.
(e) Operational
Plexus, like many other oil service companies, has had to make significant reductions in its workforce numbers over the past few years as a result of a lower oil price and corresponding reduction in drilling activity. Therefore, when the anticipated upturn comes in drilling activity, it is possible that the industry and Plexus could experience difficulties in rehiring past or new employees and this could deprive Plexus of the key personnel necessary for expanding operational activities, as well as research and development initiatives, at the rate that may be required. To help mitigate this risk Plexus has developed effective recruitment and training procedures, which combined with the appeal of working in a company with unique technology and engineering solutions will hopefully minimise such risks.
(f) Liquidity and finance requirements
In an economic climate that remains in many ways uncertain it has become increasingly possible for both existing and potential sources of finance to be closed to businesses for a variety of reasons that have not been an issue in the past. Some of these may even relate to the lender itself in terms of its own capital ratios and lending capacity. Furthermore, after a sustained period of record low interest rates, signs are emerging that the cost of money will begin to increase, and this could also have a negative impact on business activity. Although access to capital could be an issue, the successful completion of the disposal of the Jack-up Business delivered additional cash to add to existing reserves. In addition, the Group maintains bank facilities with Bank of Scotland.
(g) Credit
The main credit risk is attributable to trade receivables. As the majority of the Group's customers are large international oil companies the risk of non-payment is significantly reduced, and therefore is more likely to be related to client satisfaction and/or trade sanction issues. Customer payments can potentially therefore involve extended periods of time especially from countries where exchange control regulations can delay the transfer of funds outside those countries. As Plexus begins to establish international licensee relationships there may be instances whereby certain capital payments could be due some way into the future and as such greater credit risk than exists under normal payments terms could apply. The Group's exposure to credit risk is monitored continuously.
(h) Risk assessment
The Board has established an on-going process for identifying, evaluating and managing the more significant risk areas faced by the Group. One of the Board's control documents is a detailed "Risks assessment & management document" which categorises risks in terms of - business (including IT), compliance, finance, cash, debtors, fixed assets, other debtors/prepayments, creditors, legal, and personnel. These risks are assessed and updated on a regular basis and can be associated with a variety of internal and external sources including regulatory requirements, disruption to information systems including cyber-crime, control breakdowns and social, ethical, environmental and health and safety issues.
G Stevens
Director
7 November 2018
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2018
|
| Notes | 2018 £'000 | 2017 £'000 |
| Revenue | 1 | 318 | 225 |
| Cost of sales |
| (290) | (180) |
|
|
|
|
|
| Gross profit |
| 28 | 45 |
|
|
|
|
|
| Administrative expenses |
| (5,313) | (5,320) |
|
|
|
|
|
| Operating loss |
| (5,285) | (5,275) |
| Finance income |
| 73 | 59 |
| Finance costs |
| (37) | (61) |
|
|
|
|
|
| Loss before taxation |
| (5,249) | (5,277) |
| Income tax credit | 3 | 555 | 999 |
|
|
|
|
|
| Loss after taxation from continuing operations |
| (4,694) | (4,278) |
|
|
|
|
|
| Profit / (loss) after taxation from discontinued operations | 4 | 4,322 | (1,424) |
|
|
|
|
|
| Loss for year |
| (372) | (5,702) |
|
|
|
|
|
| Other comprehensive income |
| - | - |
|
|
|
|
|
| Total comprehensive income for the year attributable to the owners of the parent |
| (372) | (5,702) |
|
|
|
|
|
| (Loss) / earnings per share | 5 |
|
|
| Basic from continuing operations |
| (4.45p) | (4.06p) |
| Diluted from continuing operations |
| (4.45p) | (4.06p) |
| Basic from discontinued operations |
| 4.10p | (1.35p) |
| Diluted from discontinued operations |
| 4.08p | (1.35p) |
Consolidated Statement of Financial Position
at 30 June 2018
|
|
| 2018 | 2017 |
|
| Notes | £'000 | £'000 |
| Assets |
|
|
|
| Goodwill |
| 767 | 767 |
| Intangible assets | 6 | 11,469 | 13,678 |
| Property, plant and equipment | 7 | 4,004 | 11,976 |
| Non-current financial assets | 8 | 2,124 | - |
| Deferred tax asset | 3 | 984 | 287 |
| Other receivables |
| 6,337 | - |
|
|
|
|
|
| Total non-current assets |
| 25,685 | 26,708 |
|
|
|
|
|
| Asset held for sale | 9 | - | 396 |
| Inventories |
| 1,871 | 6,840 |
| Trade and other receivables |
| 4,888 | 1,008 |
| Current income tax asset |
| 414 | 966 |
| Cash and cash equivalents |
| 13,296 | 7,178 |
|
|
|
|
|
| Total current assets |
| 20,469 | 16,388 |
|
|
|
|
|
| Total Assets |
| 46,154 | 43,096 |
|
|
|
|
|
| Equity and Liabilities |
|
|
|
| Called up share capital | 10 | 1,054 | 1,054 |
| Share premium account |
| 36,893 | 36,893 |
| Share based payments reserve |
| 674 | 767 |
| Retained earnings |
| 2,295 | 2,575 |
|
|
|
|
|
| Total equity attributable to equity holders of the parent |
| 40,916 | 41,289 |
|
|
|
|
|
| Liabilities |
|
|
|
| Other non-current liabilities |
| 493 | - |
| Bank loans |
| 75 | 375 |
|
|
|
|
|
| Total non-current liabilities |
| 568 | 375 |
|
|
|
|
|
| Trade and other payables |
| 4,370 | 1,132 |
| Bank loans |
| 300 | 300 |
|
|
|
|
|
| Total current liabilities |
| 4,670 | 1,432 |
|
|
|
|
|
| Total liabilities |
| 5,238 | 1,807 |
|
|
|
|
|
| Total Equity and Liabilities |
| 46,154 | 43,096 |
Consolidated Statement of Changes in Equity
for the year ended 30 June 2018
|
| Called Up Share Capital £'000
|
Share Premium Account £'000
| Share Based Payments Reserve £'000
|
Retained Earnings £'000
|
Total £'000
|
| Balance as at 30 June 2016 | 1,054 | 36,893 | 766 | 8,277 | 46,990 |
|
|
|
|
|
|
|
| Total comprehensive income for the year | - | - | - | (5,702) | (5,702) |
| Net deferred tax movement on share options | - | - | 1 | - | 1 |
|
|
|
|
|
|
|
| Balance as at 30 June 2017 | 1,054 | 36,893 | 767 | 2,575 | 41,289 |
|
|
|
|
|
|
|
| Total comprehensive income for the year | - | - | - | (372) | (372) |
| Net deferred tax movement on share options | - | - | (1) | - | (1) |
| Reallocation following lapse / expiry / forfeit of share options | - | - | (92) | 92 | - |
|
|
|
|
|
|
|
| Balance as at 30 June 2018 | 1,054 | 36,893 | 674 | 2,295 | 40,916 |
Consolidated Statement of Cash Flows
for the year ended 30 June 2018
|
| Notes | 2018 £'000 | 2017 £'000 |
| Cash flows from operating activities |
|
|
|
| Loss before taxation from continuing activities |
| (5,249) | (5,277) |
| Profit / (loss) before taxation from discontinued activities |
| 4,232 | (1,757) |
| Loss before tax |
| (1,017) | (7,034) |
| Adjustments for: |
|
|
|
| Depreciation, amortisation charges |
| 3,030 | 4,472 |
| Gain on disposal of property, plant and equipment |
| (87) | (1) |
| Gain on sale of discontinued operation |
| (5,825) | - |
| Fair value adjustment on financial assets |
| 21 | - |
| Investment income |
| (73) | (59) |
| Interest expense |
| 37 | 61 |
| Changes in working capital: |
|
|
|
| Decrease in inventories |
| (1,860) | (114) |
| (Increase) / decrease in trade and other receivables |
| (1,377) | 739 |
| Increase / (decrease) in trade and other payables |
| 2,667 | (413) |
|
|
|
|
|
| Cash used in operating activities |
| (4,484) | (2,349) |
| Income taxes refunded / (paid) |
| 500 | (160) |
|
|
|
|
|
| Net cash used from operating activities |
| (3,984) | (2,509) |
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
| Funds invested in financial instruments |
| (2,145) | - |
| Net initial proceeds from sale of discontinued operation |
| 14,050 | - |
| Associated costs on sale of discontinued operation |
| (1,585) | - |
| Purchase of intangible assets |
| (231) | (632) |
| Purchase of property, plant and equipment |
| (447) | (287) |
| Proceeds of sale of property, plant and equipment |
| 329 | 45 |
| Net proceeds from sale of asset held for sale |
| 395 | - |
| Interest received |
| 73 | 59 |
|
|
|
|
|
| Net cash generated / (used) in investing activities |
| 10,439 | (815) |
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
| Repayment of loans and banking facilities |
| (300) | (5,300) |
| Interest paid |
| (37) | (61) |
|
|
|
|
|
| Net cash outflow from financing activities |
| (337) | (5,361) |
|
|
|
|
|
| Net increase / (decrease) in cash and cash equivalents |
| 6,118 | (8,685) |
| Cash and cash equivalents at 1 July 2017 |
| 7,178 | 15,863 |
|
|
|
|
|
| Cash and cash equivalents at 30 June 2018 | 12 | 13,296 | 7,178 |
|
|
|
|
|
Notes to the Consolidated Financial Statements
1. Revenue
|
| 2018 £'000 | 2017 £'000 |
| By geographical area |
|
|
| UK | 269 | 185 |
| Europe | - | 2 |
| Rest of World | 49 | 38 |
|
| 318 | 225 |
The revenue information above is based on the location of the customer. Substantially all of the revenue in the current and previous periods derives from the rental of equipment and the provision of related services.
2. Segment reporting
The Group derives revenue from the sale of its POS-GRIP technology and associated products, the rental of wellheads utilising the POS-GRIP technology and service income principally derived in assisting with the commissioning and on-going service requirements of our equipment. These income streams are all derived from the utilisation of the technology which the Group believes is its only segment.
Per IFRS 8, the operating segment is based on internal reports about components of the group, which are regularly reviewed and used by the board of directors being the Chief Operating Decision Maker ("CODM").
All of the Group's non-current assets are held in the UK.
The following customers each account for more than 10% of the Group's continuing revenue:
|
| 2018 £'000 | 2017 £'000 |
| Customer 1 | 230 | 167 |
| Customer 2 | 49 | 38 |
| Customer 3 | 39 | - |
3. Income tax expense
| (i) | The taxation charge for the year comprises: | 2018 £'000 | 2017 £'000 |
|
| UK Corporation tax: |
|
|
|
| Current tax on income for the year | - | - |
|
| Adjustment in respect of prior years | (434) | (526) |
|
|
| (434) | (526) |
|
| Foreign tax |
|
|
|
| Current tax on income for the year | 45 | 2 |
|
| Adjustment in respect of prior years | 440 | (52) |
|
|
| 485 | (50) |
|
| Total current tax charge / (credit) | 50 | (576) |
|
|
|
|
|
|
| Deferred tax: |
|
|
|
| Origination and reversal of timing differences | (690) | (1,054) |
|
| Adjustment in respect of prior years | (6) | 299 |
|
| Total deferred tax | (696) | (755) |
|
|
|
|
|
|
| Total tax credit | (645) | (1,331) |
|
| The effective rate of tax is 19% (2017: 19%) |
|
|
|
|
|
|
|
|
| Tax credit on discontinued activities | (90) | (332) |
|
| Tax credit on continuing activities | (555) | (999) |
|
| Total tax credit | (645) | (1,331) |
| (ii) | Factors affecting the tax charge on continuing activities for the year | 2018 £'000 | 2017 £'000 |
|
| Loss on ordinary activities before tax | (5,249) | (5,277) |
|
| Tax on (loss) / profit at standard rate of UK corporation tax of 19% (2017: 19.75%) | (997) | (1,042) |
|
| Effects of: |
|
|
|
| Expenses not deductible for tax purposes | 259 | 172 |
|
| Effect of change in tax rate | 112 | 86 |
|
| Tax adjustments on share-based payments | 70 | (6) |
|
| Adjustments in respect of prior year | 1 | (209) |
|
| Group income not subject to tax | - | - |
|
| Total tax credit on continuing activities | (555) | (999) |
| (iii) | Movement in deferred tax (asset)/liability balance | 2018 £'000 | 2017 £'000 |
|
| Deferred tax (asset) / liability at beginning of year | (287) | 468 |
|
| Credit to Statement of Comprehensive Income | (696) | (756) |
|
| Deferred tax movement on share options recognised in equity | (1) | 1 |
|
|
|
|
|
|
| Deferred asset at end of year | (984) | (287) |
|
|
|
|
|
| (iv) | Deferred tax asset balance | 2018 £'000 | 2017 £'000 |
|
| The deferred tax liability balance is made up of the following items: |
|
|
|
| Difference between depreciation and capital allowances | 854 | 643 |
|
| Share based payments | (27) | (96) |
|
| Tax losses | (1,811) | (705) |
|
| Tax provisions | - | (129) |
|
| Deferred tax asset at end of year | (984) | (287) |
4. Discontinued Operations
On 1st February 2018 the Group sold its Jack-up Business to TFMC for an initial gross consideration of £15m, with an additional sum of up to £27.5m payable dependent on the future performance of the Jack-up Business during a three year earn-out period.
Based on current revenue forecasts provided by TFMC, the earn-out has been accrued at £8,839k, £6,337k of this balance is receivable in a period greater than one year and has been included in non-current assets.
Included in the consideration adjustment is a balance of £986k, which relates to the refurbishment of the sold rental fleet which is deductible from the earn-out payments. Half of this balance (£493k) is repayable in a period greater than one year and is included within other non-current liabilities.
The gain on sale on disposal of discontinued operation was determined as follows:
|
| 2018 £'000 | 2017 £'000 |
| Initial gross consideration received | 15,000 | - |
| Accrued consideration | 8,840 | - |
| Consideration adjustment | (2,695) | - |
| Total consideration | 21,145 | - |
|
|
|
|
| Net assets disposed |
|
|
| Equipment | (6,122) | - |
| Assets under consideration | (5) | - |
| Motor vehicles | (3) | - |
| Intellectual property | (706) | - |
| Patent and other development | (750) | - |
| Inventories | (5,957) | - |
| Trade and other payables | (400) | - |
| Associated cost of sale | (1,377) | - |
|
| (15,320) | - |
|
|
|
|
| Gain on disposal of discontinued operation | 5,825 | - |
The gain on sale of the Jack-up Business did not give rise to a corporation tax charge.
The loss after tax from discontinued operation was calculated as follows:
|
| 2018 £'000 | 2017 £'000 |
| Revenue | 3,907 | 4,524 |
| Expenses | (5,500) | (6,281) |
| Loss before tax of discontinued operations | (1,593) | (1,757) |
| Income tax credit | 90 | 333 |
| Loss after tax of discontinued operations | (1,503) | (1,424) |
| Profit / (Loss) after taxation from discontinued operations | 4,322 | (1,424) |
The Statement of cash flows includes the following amounts related to discontinued operations:
|
| 2018 £'000 | 2017 £'000 |
| Operating activities | (231) | (747) |
| Investing activities | 12,424 | (155) |
| Financing activities | - | - |
| Net cash generated / (used) from discontinued activities | 12,193 | (902) |
5. Loss per share
|
| 2018 £'000 | 2017 £'000 |
| Loss attributable to shareholders - continuing operations | (4,694) | (4,278) |
| Profit / (loss) attributable to shareholders - discontinued operations | 4,322 | (1,424) |
| Loss attributable to shareholders | (372) | (5,702) |
|
|
|
|
|
| Number | Number |
| Weighted average number of shares in issue | 105,386,239 | 105,386,239 |
| Dilution effects of share schemes | 486,979 | 1,108,692 |
|
|
|
|
| Diluted weighted average number of shares in issue | 105,873,218 | 106,494,931 |
|
|
|
|
| (Loss) / earning per share |
|
|
| Basic Loss per share for continuing operations | (4.45p) | (4.06p) |
| Diluted Loss per share for continuing operations | (4.45p) | (4.06p) |
| Basic Loss per share for discontinued operations | 4.10p | (1.35p) |
| Diluted Earning per share for discontinued operations | 4.08p | (1.35p) |
|
|
|
|
Basic loss per share is calculated on the results attributable to ordinary shares divided by the weighted average number of shares in issue during the year.
Diluted earnings per share calculations include additional shares to reflect the dilutive effect of share option schemes. As a loss was made on continuing operations for the current year the option schemes are considered to be anti-dilutive.
6. Intangible assets
|
| Intellectual Property £'000 | Patent and Other Development £'000 | Computer Software £'000 | Total £'000 |
| Cost |
|
|
|
|
| As at 30 June 2016 | 6,440 | 13,049 | 331 | 19,820 |
| Additions | - | 632 | - | 632 |
|
|
|
|
|
|
| As at 30 June 2017 | 6,440 | 13,681 | 331 | 20,452 |
| Additions | - | 231 | - | 231 |
| Disposals | (1,840) | (1,088) | - | (2,928) |
| As at 30 June 2018 | 4,600 | 12,824 | 331 | 17,755 |
|
|
|
|
|
|
| Amortisation |
|
|
|
|
| As at 30 June 2016 | 3,351 | 2,155 | 234 | 5,740 |
| Charge for the year | 330 | 668 | 36 | 1,034 |
|
|
|
|
|
|
| As at 30 June 2017 | 3,681 | 2,823 | 270 | 6,774 |
| Charge for the year | 291 | 665 | 28 | 984 |
| On disposals | (1,134) | (338) | - | (1,472) |
| As at 30 June 2018 | 2,838 | 3,150 | 298 | 6,286 |
|
|
|
|
|
|
| Net Book Value |
|
|
|
|
| As at 30 June 2018 | 1,762 | 9,674 | 33 | 11,469 |
|
|
|
|
|
|
| As at 30 June 2017 | 2,759 | 10,858 | 61 | 13,678 |
Patent and other development costs are internally generated.
7. Property, plant and equipment
|
| Buildings £'000 | Tenant Improvements £'000 | Equipment £'000 | Assets under Construction £'000 | Motor Vehicles £'000 | Total £'000 |
| Cost |
|
|
|
|
|
|
| As at 30 June 2016 | 4,379 | 600 | 30,130 | 58 | 34 | 35,201 |
| Additions | - | 132 | 65 | 90 | - | 287 |
| Transfers | - | - | 126 | (126) | - | - |
| Reclassified to assets held for sale | (455) | - | - | - | - | (455) |
| Disposals | - | (26) | (1,489) | - | (2) | (1,517) |
|
|
|
|
|
|
|
|
| As at 30 June 2017 | 3,924 | 706 | 28,832 | 22 | 32 | 33,516 |
| Additions | - | 10 | 198 | 222 | 17 | 447 |
| Transfers | - | - | 229 | (229) | - | - |
| Disposals | (317) | - | (23,750) | (5) | (32) | (24,104) |
|
|
|
|
|
|
|
|
| As at 30 June 2018 | 3,607 | 716 | 5,509 | 10 | 17 | 9,859 |
|
|
|
|
|
|
|
|
| Depreciation |
|
|
|
|
|
|
| As at 30 June 2016 | 808 | 250 | 18,551 | - | 25 | 19,634 |
| Charge for the year | 250 | 72 | 3,112 | - | 4 | 3,438 |
| On disposals | - | (26) | (1,453) | - | (2) | (1,481) |
| Reclassified to assets held for sale | (51) | - | - | - | - | (51) |
|
|
|
|
|
|
|
|
| As at 30 June 2017 | 1,007 | 296 | 20,210 | - | 27 | 21,540 |
| Charge for the year | 225 | 85 | 1,733 | - | 3 | 2,046 |
| On disposals | (74) | - | (17,628) | - | (29) | (17,731) |
| As at 30 June 2018 | 1,158 | 381 | 4,315 | - | 1 | 5,855 |
|
|
|
|
|
|
|
|
| Net Book Value |
|
|
|
|
|
|
| As at 30 June 2018 | 2,449 | 335 | 1,194 | 10 | 16 | 4,004 |
|
|
|
|
|
|
|
|
| As at 30 June 2017 | 2,917 | 410 | 8,622 | 22 | 5 | 11,976 |
8. Financial assets
|
| 2018 £'000 | 2017 £'000 |
| Financial instruments held at fair value | 2,124 | - |
|
| 2,124 | - |
The financial asset relates to cash invested in high-yield bonds held at fair value in the statement of financial position. The bonds can be redeemed for cash at any time. Included in the statement of comprehensive income is a write-down in the carrying value of the financial asset of £21k. The fair value of the investment is evaluated by reviewing a portfolio summary at the reporting date.
9. Asset held for sale
|
| 2018 £'000 | 2017 £'000 |
| Cost | - | 455 |
| Accumulated depreciation | - | (51) |
| Net book value | - | 404 |
| Fair value adjustment | - | (4) |
| Cost of sale | - | (4) |
|
| - | 396 |
The asset held for sale in the prior year related to a property that was sold on 14 July 2017. The Group had entered into a sale agreement prior to the 2017 year end. In line with IFRS 5 the asset was held for sale at fair value less costs of sale.
10. Share Capital
|
| 2018 £'000 | 2017 £'000 |
| Authorised: |
|
|
| Equity: 110,000,000 (2017: 110,000,000) Ordinary shares of 1p each | 1,100 | 1,100 |
| Allotted, called up and fully paid: |
|
|
| Equity: 105,386,239 (2017: 105,386,239) Ordinary shares of 1p each | 1,054 | 1,054 |
11. Reconciliation of net cash flow to movement in net cash/(debt)
|
| 2018 £'000 | 2017 £'000 |
| Increase / (decrease) in cash in the year | 6,418 | (3,385) |
|
|
|
|
| Movement in net cash/(debt) in year | 6,418 | (3,385) |
| Net cash at start of year | 6,503 | 9,888 |
| Net cash at end of year | 12,921 | 6,503 |
12. Analysis of net cash/(debt)
|
| At beginning of year £'000 | Cash flow £'000 | At end of year £'000 |
| Cash in hand and at bank | 7,178 | 6,118 | 13,296 |
| Bank loans | (675) | 300 | (375) |
| Total | 6,503 | 6,418 | 12,921 |
The financial information above does not constitute the company's statutory accounts for the year ended 30 June 2018 but is derived from those statements.
The statutory financial statements and this preliminary statement for the year ended 30 June 2018 were approved by the Board on 7 November 2018. On the same date the company's auditors, Crowe U.K. L.L.P issued an unqualified report on those financial statements. The audit report did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report or contain a statement under section 498(2) or (3) of the Companies Act 2006.
The financial information for the year ended 30 June 2017 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters be way of emphasis and not contain a statement under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. The Company's financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU. A copy of the statutory accounts will be delivered to the Registrar of Companies in due course.
The Annual Report will be circulated to all shareholders and thereafter, copies will be available from the registered office of the company, Elder House, St Georges Business Park Brooklands Road, Weybridge Surrey, KT13 0TS.