Plexus Regulatory News (POS)

29 Sep 2006 12:31

Plexus Holdings Plc29 September 2006 29 September 2006 Plexus Holdings plc ("Plexus") Preliminary Results for the year to 30 June 2006 Plexus Holdings plc (Plexus or "the Company") the oil wellhead services companyand owner of the proprietary POS-GRIP (R) method of wellhead engineeringannounces its maiden preliminary results for the year ended 30 June 2006. Highlights • 162% increase in turnover to £6.8 million (2005: £2.6 million)• Floated on AIM in December 2005 having raised c. £9.7 million net of expenses.• Tripled size of operating facility to support and accelerate growth in the UK and worldwide.• Accelerating investment in rental inventory for High Pressure/High Temperature (HP/HT) jack-up drilling rental wellheads and standard rental systems.• Developing strong trading relationships with key multinational operators.• Significant growth in HP/HT rentals where POS-GRIP(R) technical benefits can be clearly demonstrated.• Contracts signed for the supply of HP/HT wellhead equipment with Shell, BP, Maersk and ConocoPhillips.• Five-year framework contract agreed with BG International Ltd, which is also sponsoring the development of HP/HT 20,000 psi jack-up wellhead technology.• Installed BP Shah Deniz wellhead systems on a platform in the Caspian Sea - first gas expected to flow before the end of 2006.• Ongoing research & development - new technologies under development include specialist riser and conductor connectors, Mudline to Subsea cross-over wellhead systems, and X-HP/HT (30,000 psi) capability for tubing hangers. Chief Executive Ben van Bilderbeek said: "The successful flotation onto AIM in December 2005 has enabled your Company toraise the profile of its proprietary POS-GRIP wellhead technology andsubsequently sign new contracts with leading global operators including BP,British Gas, and Shell. The POS-GRIP method of engineering aims at a newstandard which we believe will provide safe and cost effective technology as theenergy operating companies have to tackle increasingly challenging environments. We are also expanding our geographic reach which now includes Egypt, Malaysiaand Trinidad as part of our strategy of driving the business towards our goal ofbecoming a first tier global wellhead systems supplier. We will also be focusingon opportunities in the Gulf of Mexico where recent announcements have confirmedthe need for technological solutions for extracting oil and gas from very deepformations. Part of this strategy will include the pursuit of potentiallicensing and alliance partners who have specialist knowledge of such markets." Summary of Results for the year ended 30 June 2006 2006 2005 £'000 £'000 Turnover 6,777 2,637 EBITDA 501 706 (Loss)/profit before taxation (54) 232 Basic (loss)/earnings per share (pence) (0.28) 0.76 Enquiries to: Ben van Bilderbeek Plexus Holdings plc Tel: 020 7589 8555Graham Stevens Plexus Holdings plc Tel: 020 7589 8555Hugo de Salis St Brides Media & Finance Ltd Tel: 020 7242 4477Felicity Edwards St Brides Media & Finance Ltd Tel: 020 7242 4477 Chairman's Statement Business progress In December 2005 Plexus issued 18.6 million new ordinary shares by way of aninstitutional placing at £0.59p per share and the shares were admitted totrading on AIM. The placing raised £9.7m net of expenses. Significant progresswas made during the year in raising the profile of Plexus and POS-GRIP with themajor oil companies: this has resulted in contracts being negotiated with BPEgypt; BG Egypt; BP in the North Sea; Maersk UK, Shell Brunei, and BGInternational Ltd. We are especially pleased at the progress made despite themarket place proving more challenging than anticipated in the second half as aresult of widely reported rig availability shortages in the North Sea. Strategy Plexus continues to pursue the strategy laid out at the time of the IPO ofmaximising and extending the reach of POS-GRIP wellhead technology. The initialapproach to introducing POS-GRIP technology was focused on the jack-upexploration rental wellhead market and, in the financial year ended 30 June2005, this source of revenue represented the majority of the Group's income.Rental wellhead contracts can also generate sales of and rental income frommudline suspension equipment. This mudline equipment related income can comprisethe sale of mudline hangers and rental of the associated running tools, as wellas the later sale of mudline tieback tools. The rental business is expected to grow as additional markets are developed(particularly for High Pressure/High Temperature (HP/HT) applications) and newproducts are introduced for the emerging surface blow out preventer (SBOP)drilling market for floating drilling rigs. Organic expansion serviced from theGroup's Aberdeen base is already making good progress in Egypt, and plans arebeing developed for similar initiatives in the Middle East and Far East. Plexus has more recently moved into the market of supplying wellheads forproduction applications, the Directors believe that this represents a logicalnext step as the company's rental activity is increasingly exposing operators tothe benefits of POS-GRIP technology on exploration wells. In 2004, BP selected POS-GRIP wellheads for use in HP/HT environments. The BPcontract for the development and supply of gas platform wellhead systems fortheir US$4.1 billion Shah Deniz development in the Caspian Sea is a particularlyimportant milestone for the Company as it is a clear endorsement by an oil majorof POS-GRIP technology. The first three wellheads have been delivered to theShah Deniz field and are in the process of being installed and commissioned withthe flow of first gas expected before the end of 2006. The Group continues to: • develop and extend its current jack-up wellhead rental business from its Aberdeen base;• pursue opportunities for mainstream production wellhead applications which are anticipated to grow once the current BP Shah Deniz contract is successfully completed in 2007;• seek to grant licences for use of the POS GRIP technology;• consider acquiring further access to manufacturing capacity; and• establish itself in new territories in the global market place. The Directors believe that the revenue profile of the Group will changeincreasingly over time with the share taken by production wellheads increasingand licensing income becoming an important part of the Group's activities. Thisis because whilst turnover related to rental wellheads is expected to growsubstantially, we expect turnover related to production wellheads to grow evenfaster as industry awareness, adoption of the POS-GRIP technology and theGroup's overall market share increases. As valves and Xmas trees are often "bundled" with wellhead equipment,opportunities for Plexus to extend the range of its equipment to include suchitems and increase revenues will also be pursued. The raising of the Group's corporate profile following admission to a publicmarket, combined with the access to additional working capital, has continued toaccelerate the roll out of POS-GRIP technology. We believe that such progresswill encourage customers to drive other manufacturers of wellheads to seeklicences, effectively "pull-marketing" POS-GRIP technology, through a process ofincreased market awareness. The Company's long term goal is to develop POS-GRIP technology as a futureindustry standard for wellhead design. This objective includes the distributionof POS-GRIP technology through licensees to maximise market penetration. We areconfident that the Plexus Group can become a member of the "first tier" ofglobal wellhead system suppliers. Outlook As global demand for oil and gas continues its inexorable rise, so too does theneed to increase the exploration for and production of oil and gas. Operatingcompanies are therefore having to pursue alternative and ever more challenginglocations in often extreme environments to discover new reserves. Inevitably newtechnologies and methods must be developed alongside these global developmentsin order to operate successfully in these environments, this is particularly thecase for X-HP/HT and HP/HT wells. With POS-GRIP's safety advantages, costeffectiveness as a result of operational time savings, and its ability toperform in extreme high pressure fields, we believe that POS-GRIP technologywill play an increasing role in the development of oil and gas fields worldwide.We are already the provider of choice to a number of major companies withchallenging operating criteria, and I believe that POS-GRIP will become evenmore of a necessity in the years to come for an increasing number of explorationand production operators and that we have the right strategy in place to achievethis. Therefore, we look forward to the future with great confidence. Chief Executive's Review Operational Review Prior to the successful floatation of the Group in December last year, Plexusmoved into new operating facilities in Aberdeen. This move, which nearly tripledthe size of our operating facility together with a commensurate increase inoverheads was necessitated by the growing demands for our technology and of amajor ongoing wellhead contract. Around the same time we expanded ourengineering and finance departments. Our major focus during the year has been to continue to raise the profile ofPOS-GRIP technology and wellhead systems around the world, whilst at the sametime delivering the first BP Shah Deniz wellhead systems for installation inJuly this year on a platform in the Caspian Sea. BP recently announced thatfirst gas is expected to flow before the end of 2006, heralding a true milestonefor our Company, and the culmination of a project that began in 2004. In addition to the substantial BP work, the Group also committed to accelerateits investment in rental assets both for its unique high pressure and hightemperature Jack up drilling rental wellheads, for which strong future demand isanticipated, and to meet the increasing order levels for standard rental systemsfrom several overseas locations including Egypt, Malaysia and Trinidad. TheGroup benefited from a participating interest in a precision engineeringbusiness, which contributed £0.2 m in the year. The opening up of these new rental wellhead markets was our response to theslower than anticipated UK market for exploration drilling during the secondhalf of 2006. This was caused by the combination of several hurricanes in theGulf of Mexico, and a strongly overheated drilling market, resulting in ashortage of rigs worldwide, and the designation of rigs for the Southern NorthSea delayed or diverted elsewhere. The impact for Plexus was that planned wellcontracts, booked by main turn-key customers were delayed, impacting our rentalrevenue during the fiscal year. Geographically, the North Sea has been Plexus' traditional area of operation andfocus. Due to the prevailing harsh environmental conditions, which increase thecost of drilling, operations in this part of the world are conducted with safetyand time saving features very much in mind. Following the stated long-term objective of the roll-out of POS-GRIP technologythrough a combination of organic growth, licensing and possibly acquisitions,the initial task for Plexus is to 'ice-break', and lead the way towards new andwe believe superior technology being adopted. This plan, which calls for theGroup to develop trading relationships with key multinational operators, is verymuch on track, with a number of long term contracts having materialised for thesupply of HP/HT equipment for Shell, BP, Maersk, ConocoPhillips and British Gas.Discussions are also ongoing with Transocean for POS-GRIP to be part of thedevelopment of the revolutionary hardware required for a new drillingtechnology, which promises to advance the capability to drill and produce frommuch deeper formations. As the proprietary purveyors of what can be termed 'disruptive' technology,Plexus is reliant on the pull effect developed through key customers. AlthoughPOS-GRIP technology is getting more than its share of exposure, with for exampleBritish Gas recently sponsoring the development of 20,000 psi jack-up wellheadtechnology, not currently available in the market, and entering into a five yearframework contract we are none the less feeling the effect of the overheatedmarket. Operators have little time to seek out new technologies, and there arefew incentives to encourage suppliers, who are running at excess capacity, toimprove and develop their product range. In addition to our success in gaining HP/HT rental wellhead contracts, ourstandard rental wellheads are gaining market share, and we now have thecapability to supply production wellhead technology, which will become moreevident to the market with the implementation of the Shah Deniz contract, andthrough the supply of wellheads for the Tullow, Newfield and BP AmethystSouthern North Sea platforms. With several new technologies, such as specialist riser and conductor connectorsunder research and development, our Mudline to Subsea cross-over wellheadsystems ready to go into the field, and a project commencing soon to developX-HP/HT (30,000 psi) capability for tubing hangers, Plexus is on its way to moveits POS-GRIP technology into new technical territory. Plexus is gaining ground because we are able to demonstrate that our technologyis safer to use, easier to install, lower in cost to manufacture, and superiorin performance. The potential installation time savings generated by thePOS-GRIP method of engineering for wellheads can outstrip the cost of ourservice, which has led to the progress we have been able to make, in a marketthat is not always particularly receptive to the introduction of newtechnologies. The future for POS-GRIP technology is bright, and I look forward with confidenceto Plexus eventually taking a seat at the top table of oil services businesses. Financial Review Turnover Turnover for the year was £6.8m, an increase of £4.2m from £2.6m in the previousyear. The turnover includes £4.4m of product and testing revenue from the BP ShahDeniz contract. The rental turnover was impacted by the rig availability in theNorth Sea and as a consequence anticipated rental income in the year wasdeferred. Cost of Sales Cost of sales has risen to 71% of turnover from 56% in the previous year. Thisis primarily driven by the sales mix, which for 2006 is dominated by equipmentsales, in particular to BP for the Shah Deniz development. In the previous year,sales were weighted more evenly between equipment sales and rental sales, whichachieve a higher gross margin. Administrative Expenses The current year has overseen a number of step-changes to our infrastructurewhich have placed us on a sound footing to achieve our growth goals for thefuture. This has resulted in administrative expenses increasing significantly.In particular, staff costs have increased from £0.5m to £1.0m; other generaloverhead costs associated with personnel, such as training, safety, insurances,and travel have increased accordingly; the move to substantially larger premisesin October 2005 has resulted in rent and rates and utility costs increasingaccordingly; the IPO on AIM in December 2005 has been the catalyst forsignificant increases in professional fees and board expenses; and additionally,higher activity levels have resulted in increased costs for warehouseconsumables, equipment hires and repairs. EBITDA The EBITDA for the year was £0.5m, down from £0.7m the previous year. This yearhas seen the Group make a significant investment in infrastructure in order tomanage the growth we expect in the coming years and this has had a short termnegative impact on EBITDA particularly as a result of administrative expensesincreasing year on year from £0.8m to £2.3m. (Loss)/Profit before interest and tax Loss before interest and tax was £0.1m (2005: profit £0.4m). Income from participating interest The Group has a participating interest in a precision engineering business. TheProfit and Loss Account includes a contribution from this interest in the yearof £0.2m (2005: nil). Interest Interest was a net receivable in the year due to the proceeds of the flotationbeing received in December 2005. We have maximised our interest income byplacing surplus funds on deposit during the year. Tax The Group's tax charge arises principally from deferred tax and current foreigntax paid in the year. On the basis that the Group incurred a loss before tax,the effective tax rate calculation does not offer any meaningful insight intothe Group's tax management. EPS The Group reports basic loss per share of 0.28p (2005: earnings per share 0.76p)and fully diluted loss per share of 0.28p (2005: earnings per share 0.25p). Balance sheet The Group continues to invest to ensure that we have the rental assets availableand the infrastructure to operate in an expanding geographic market place. Intellectual property The Group has added during the year, as part of the flotation process,intangible assets representing intellectual property assets with a total valueof £5.4m. Approximately £3.5m relates to conventional rights for product salesand deepwater rights both of which relate to the ongoing and future exploitationand commercialisation of the Group's proprietary POS-GRIP technology. Deepwaterrights do not currently generate any revenue, however as explained further inthe Chairman's Statement and Chief Executive Review, the Group's POS-GRIPtechnology is a central part of all its current and future activities, and theGroup will be seeking to extend its activities into these new areas either onits own or with partners. The directors have considered whether there have beenany indications of impairment and have concluded that there have been no suchindications. The directors therefore consider the current carrying values to beappropriate. Indications of impairment will be considered annually. Cash flow Net cash inflow in the year was £4.4m and the Group ended the year with net cashof £2.9m. International Financial Reporting Standards ("IFRS") The Group's IFRS implementation programme is at an early stage. Compliance withIFRS is required for the year ending 30 June 2008 with comparatives restatedaccordingly for the year ending 30 June 2007. At this stage it is not possibleto say what the impact upon earnings will be. However the key areas of potentialimpact identified so far are IFRS 2 - share based payments and IAS 28 -Investments in Associates. Consolidated Profit and Loss Accountfor the year ended 30 June 2006 2006 2005 Notes £'000 £'000 Turnover 1 6,777 2,637Cost of sales (4,841) (1,488) Gross profit 1,936 1,149Administrative expenses (2,268) (780) Operating (loss)/profit (332) 369Income from participating interest 225 -Interest receivable and similar income 126 13Interest payable and similar charges (73) (150) (Loss)/profit on ordinary activities before taxation (54) 232Tax on (loss)/profit on ordinary activities (113) (81) (Loss)/profit on ordinary activities after taxation being(loss)/profit for the financial year (167) 151 (Loss)/earnings per share 3Basic (0.28)p 0.76pDiluted (0.28)p 0.25p The profit and loss account contains all recognised gains and losses for theyear and the preceding year. There is no difference between the profit on ordinary activities before taxationand the retained profit for the financial year stated above, and theirhistorical cost equivalents. Consolidated Balance Sheetat 30 June 2006 2006 2005 Notes £'000 £'000 Fixed assetsIntangible assets 4 6,375 1,095Tangible assets 2,421 1,631Investments 200 - 8,996 2,726Current assetsStock 1,238 1,285Debtors 2,640 2,112Cash at bank and in hand 2,910 1 6,788 3,398Creditors: amounts falling due within one year (908) (4,213) Net current assets/(liabilities) 5,880 (815) Total assets less current liabilities 14,876 1,911 Creditors: amounts falling due after more than one year - (1,526) Net assets 14,876 385 Capital and reservesCalled up share capital 5 802 600Share premium account 15,596 1,140Profit and loss account (1,522) (1,355) Shareholders' funds (comparative year £400,000 non-equity on the FRS 4 basis) 14,876 385 Consolidated Cash Flow Statementfor the year ended 30 June 2006 2006 2005 Notes £'000 £'000 Net cash (outflow)/inflow from operating activities 6 (1,646) 104 Returns on investments and servicing of finance Interest paid (80) (146) Interest received 124 - Net cash inflow/(outflow) from returns on investments 44 (146)and servicing of finance Taxation paid (14) - Capital expenditure and financial investment Purchase of intangible fixed assets (1,360) (121) Purchase of tangible fixed assets (1,151) (588) Proceeds of sale of tangible fixed assets - 12 Net cash outflow from capital expenditureand financial investment (2,511) (697) Net cash outflow before financing (4,127) (739) Financing Repayment of loans (1,735) (587) Loan advances to participating interest (191) - Proceeds of share issues 10,466 - Net cash inflow/(outflow) from financing 8,540 (587) Increase/(decrease) in cash in the year 8 4,413 (1,326) Net funds at the start of the year (1,503) (177) Net funds at the end of the year 2,910 (1,503) Reconciliation of Movements in Equity Shareholders' Fundsfor the year ended 30 June 2006 2006 2005 £'000 £'000 (Loss)/Profit for the financial year being retained (loss)/profit (167) 151New share capital issued 14,658 - Net addition to equity shareholders' funds 14,491 151Opening shareholders' funds: 385 234 Closing equity shareholders' funds 14,876 385 Notes to the Financial Information 1. Turnover 2006 2005 £'000 £'000 UK 1,499 1,735Europe 550 746Rest of world 4,728 156 6,777 2,637 Turnover is shown by destination as the origin of turnover is all from the UK. 2. Segment Reporting The Group derives turnover from the sale of its POS-GRIP technology andassociated products, the rental of wellheads utilising the POS-GRIP technologyand service income principally derived in assisting with the commissioning andongoing service requirements of our equipment. These income streams are allderived from the utilisation of the technology which the Group believes is itsonly segment. 3. (Loss)/earnings per share 2006 2005 £'000 £'000 (Loss)/Profit attributable to shareholders (167) 151 Number NumberWeighted average number of shares in issue 59,545,669 20,000,000Dilution effects of convertible preference - 40,000,000sharesDilution effects of share schemes 505,583 -Diluted weighted average number of shares inissue 60,051,252 60,000,000 Basic (loss) / earnings per share (0.28)p 0.76pDiluted (loss) / earnings per share (0.28)p 0.25p Basic (loss) / earnings per share is calculated on the results attributable toordinary shares divided by the weighted average number of shares in issue duringthe year. Diluted (loss) / earnings per share calculations include additional shares toreflect the dilutive effect of employee share schemes and share option schemes. 4. Intangible fixed assets Patent and Intellectual Other Goodwill Property Development Total £'000 £'000 £'000 £'000 CostAs at 1 July 2005 821 - 368 1,189Additions - 5,403 110 5,513 As at 30 June 2006 821 5,403 478 6,702 Amortisation As at 1 July 2005 58 - 36 94Charge for the year 41 173 19 233 As at 30 June 2006 99 173 55 327 Net Book Value at 30 June 2006 722 5,230 423 6,375 Net Book Value at 30 June 2005 763 - 332 1,095 Goodwill, intellectual property, patents and other development costs areamortised over 20 years, being the period until expiry of the legal rights. During the year ended 30 June 2004 the Group acquired a 50% share in the licenceand profit sharing rights in relation to the rental business associated with thePOS-GRIP technology. The value of the assets acquired was US $2.3m for aconsideration of US $3.8m, resulting in the goodwill balances shown above. 5. Share Capital 2006 2005 £000 £000 Authorised:Equity: 110,000,000 Ordinary shares of 1p each 1,100 -Equity: 100,000 'A' Ordinary shares of £1 each - 100Equity: 100,000 'B' Ordinary shares of £1 each - 100Non-equity: 400,000 7.5% cumulative convertible redeemable - 400preference shares of £1 each 1,100 600 Allotted, called up and fully paid:Equity: 80,182,569 Ordinary shares of 1p each 802 -Equity: 100,000 'A' Ordinary shares of £1 each - 100Equity: 100,000 'B' Ordinary shares of £1 each - 100Non-equity: 400,000 7.5% cumulative convertible redeemable - 400preference shares of £1 each 802 600 The cumulative rights to dividends on the cumulative convertible redeemablepreference shares were waived on 3 November 2005. Accordingly, no financialliability has been recognised in these financial statements. The change in the share capital of the Company is explained below. On 18 October 2005, the 100,000 'A' Ordinary £1 shares, the 100,000 'B' Ordinary£1 shares, and the preference share capital of 400,000 £1 shares were convertedto ordinary shares of £1 each; on the same date the authorised share capital wasincreased from £600,000 to £615,385 to accommodate the issue of 15,385 ordinary£1 shares at £48.75 each. On 25 November 2005 each ordinary share of £1 was sub-divided into 100 ordinaryshares of 1p each and the authorised share capital was increased to 110,000,000ordinary 1p shares. On 8 December 2005 one ordinary share at a premium of £4,191,976.99 was issuedto Plexus International Limited (now called Mutual Holdings Limited) to satisfyloans arising in connection with the consideration payable by the Companypursuant to agreements relating to the restructuring of IP ownership. On 9 December 2005 an Initial Public Offering on the London AIM resulted in18,644,068 new ordinary shares being placed at an issue price of 59p per share,raising gross proceeds of £11.0m. Net proceeds after expenses were £9.7m fromwhich £2.7m was allocated to satisfy debt. Initial Use of Funds from IPO: £'000 Gross proceeds of IPO 11,000Less: Expenses of share issue (1,269) 9,731Repayment of bank overdraft (1,408)Repayment of loans from participating companies (1,320) Net proceeds of issue after settlement of debt 7,003 6. Reconciliation of operating (loss)/profit to operating cash flows 2006 2005 £000 £000 Operating (loss)/profit (332) 369Depreciation and amortisation 608 337Loss/(gain) on disposal of fixed assets 35 (9)Decrease/(increase) in stocks 47 (949)Increase in debtors (988) (1,250)(Decrease)/increase in creditors (1,016) 1,606 Net cash (outflow)/inflow from operating activities (1,646) 104 7. Reconciliation of net cash flow to movement in net debt 2006 2005 £000 £000 Increase/(decrease) in cash in the year 4,413 (1,326)Cash outflow from decrease in net debt 1,735 587 Change in net debt resulting from cash flows 6,148 (739)Loan set against debtor balance 515 - Movement in net debt in year 6,663 (739)Net debt at start of year (3,753) (3,014) Net cash/(debt) at end of year 2,910 (3,753) 8. Analysis of net debt At beginning Non cash At end of of year Cash flow movements year £'000 £'000 £'000 £'000 Cash in hand and at bank 1 2,909 - 2,910Overdrafts (1,504) 1,504 - - (1,503) 4,413 - 2,910Debt due after one year (1,526) 1,011 515 -Debt due within one year (724) 724 - - Total (3,753) 6,148 515 2,910 9. The financial information set out above does not constitute thecompany's statutory accounts for the years ended 30 June 2006 or 30 June 2005.The comparative figures reflected in this report reflect consolidated numbersand previously consolidated accounts were not prepared. Consolidated accountshave been prepared to aid understanding and comparison for the current reportingperiod. The consolidated financial information for 2005 is derived from thestatutory accounts for the Company and its subsidiary which have been deliveredto the registrar of companies. Statutory accounts for 2006 will be delivered indue course. The auditors have reported on those accounts (2006: KPMG Audit Plc,2005: Anderson, Anderson & Brown); their reports were unqualified and did notcontain statements under section 237(2) or (3) of the Companies Act 1985. Copies of this report will be sent to all Shareholders and will be available tothe public for at least one month from the date of posting to Shareholders, freeof charge, from the registered office of the Company, Plexus House, 1 CromwellPlace, London, SW7 2JE. 10. These preliminary results were approved by the board of Plexus Holdingsplc on 29 September 2006. 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