Plexus Holdings plc Announces its Preliminary Results for the Year Ending 30 June 2018

Posted by OilVoice Press - OilVoice


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)
    • 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)
    • Discontinued operations operating loss £1,593k (2017: £1,757k)
  • Continuing operations operating loss after tax £4,694k (2017: £4,278k)
    • Discontinued operations profit after tax £4,322k (2017: £1,424k loss)
  • Basic loss per share from continuing activities (4.45p) (2017: 4.06p loss)
    • 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
    • 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
    • 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
    • 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
    • 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
    • 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
    • Plexus retains licensing rights for the major Russian and CIS market:
  • 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:
    • 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
    • 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:
    • 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
    • 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:
    • 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
    • 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.”

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