Final Results

Plexus Holdings Plc 29 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 company and owner of the proprietary POS-GRIP (R) method of wellhead engineering announces 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 to raise the profile of its proprietary POS-GRIP wellhead technology and subsequently sign new contracts with leading global operators including BP, British Gas, and Shell. The POS-GRIP method of engineering aims at a new standard which we believe will provide safe and cost effective technology as the energy operating companies have to tackle increasingly challenging environments. We are also expanding our geographic reach which now includes Egypt, Malaysia and Trinidad as part of our strategy of driving the business towards our goal of becoming a first tier global wellhead systems supplier. We will also be focusing on opportunities in the Gulf of Mexico where recent announcements have confirmed the need for technological solutions for extracting oil and gas from very deep formations. Part of this strategy will include the pursuit of potential licensing 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 8555 Graham Stevens Plexus Holdings plc Tel: 020 7589 8555 Hugo de Salis St Brides Media & Finance Ltd Tel: 020 7242 4477 Felicity 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 an institutional placing at £0.59p per share and the shares were admitted to trading on AIM. The placing raised £9.7m net of expenses. Significant progress was made during the year in raising the profile of Plexus and POS-GRIP with the major oil companies: this has resulted in contracts being negotiated with BP Egypt; BG Egypt; BP in the North Sea; Maersk UK, Shell Brunei, and BG International Ltd. We are especially pleased at the progress made despite the market place proving more challenging than anticipated in the second half as a result 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 of maximising and extending the reach of POS-GRIP wellhead technology. The initial approach to introducing POS-GRIP technology was focused on the jack-up exploration rental wellhead market and, in the financial year ended 30 June 2005, this source of revenue represented the majority of the Group's income. Rental wellhead contracts can also generate sales of and rental income from mudline suspension equipment. This mudline equipment related income can comprise the sale of mudline hangers and rental of the associated running tools, as well as 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 new products are introduced for the emerging surface blow out preventer (SBOP) drilling market for floating drilling rigs. Organic expansion serviced from the Group's Aberdeen base is already making good progress in Egypt, and plans are being developed for similar initiatives in the Middle East and Far East. Plexus has more recently moved into the market of supplying wellheads for production applications, the Directors believe that this represents a logical next step as the company's rental activity is increasingly exposing operators to the benefits of POS-GRIP technology on exploration wells. In 2004, BP selected POS-GRIP wellheads for use in HP/HT environments. The BP contract for the development and supply of gas platform wellhead systems for their US$4.1 billion Shah Deniz development in the Caspian Sea is a particularly important milestone for the Company as it is a clear endorsement by an oil major of POS-GRIP technology. The first three wellheads have been delivered to the Shah Deniz field and are in the process of being installed and commissioned with the 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 change increasingly over time with the share taken by production wellheads increasing and licensing income becoming an important part of the Group's activities. This is because whilst turnover related to rental wellheads is expected to grow substantially, we expect turnover related to production wellheads to grow even faster as industry awareness, adoption of the POS-GRIP technology and the Group'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 such items and increase revenues will also be pursued. The raising of the Group's corporate profile following admission to a public market, combined with the access to additional working capital, has continued to accelerate the roll out of POS-GRIP technology. We believe that such progress will encourage customers to drive other manufacturers of wellheads to seek licences, effectively 'pull-marketing' POS-GRIP technology, through a process of increased market awareness. The Company's long term goal is to develop POS-GRIP technology as a future industry standard for wellhead design. This objective includes the distribution of POS-GRIP technology through licensees to maximise market penetration. We are confident that the Plexus Group can become a member of the 'first tier' of global wellhead system suppliers. Outlook As global demand for oil and gas continues its inexorable rise, so too does the need to increase the exploration for and production of oil and gas. Operating companies are therefore having to pursue alternative and ever more challenging locations in often extreme environments to discover new reserves. Inevitably new technologies and methods must be developed alongside these global developments in order to operate successfully in these environments, this is particularly the case for X-HP/HT and HP/HT wells. With POS-GRIP's safety advantages, cost effectiveness as a result of operational time savings, and its ability to perform in extreme high pressure fields, we believe that POS-GRIP technology will 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 with challenging operating criteria, and I believe that POS-GRIP will become even more of a necessity in the years to come for an increasing number of exploration and production operators and that we have the right strategy in place to achieve this. 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, Plexus moved into new operating facilities in Aberdeen. This move, which nearly tripled the size of our operating facility together with a commensurate increase in overheads was necessitated by the growing demands for our technology and of a major ongoing wellhead contract. Around the same time we expanded our engineering and finance departments. Our major focus during the year has been to continue to raise the profile of POS-GRIP technology and wellhead systems around the world, whilst at the same time delivering the first BP Shah Deniz wellhead systems for installation in July this year on a platform in the Caspian Sea. BP recently announced that first gas is expected to flow before the end of 2006, heralding a true milestone for our Company, and the culmination of a project that began in 2004. In addition to the substantial BP work, the Group also committed to accelerate its investment in rental assets both for its unique high pressure and high temperature Jack up drilling rental wellheads, for which strong future demand is anticipated, and to meet the increasing order levels for standard rental systems from several overseas locations including Egypt, Malaysia and Trinidad. The Group benefited from a participating interest in a precision engineering business, which contributed £0.2 m in the year. The opening up of these new rental wellhead markets was our response to the slower than anticipated UK market for exploration drilling during the second half of 2006. This was caused by the combination of several hurricanes in the Gulf of Mexico, and a strongly overheated drilling market, resulting in a shortage of rigs worldwide, and the designation of rigs for the Southern North Sea delayed or diverted elsewhere. The impact for Plexus was that planned well contracts, booked by main turn-key customers were delayed, impacting our rental revenue during the fiscal year. Geographically, the North Sea has been Plexus' traditional area of operation and focus. Due to the prevailing harsh environmental conditions, which increase the cost of drilling, operations in this part of the world are conducted with safety and time saving features very much in mind. Following the stated long-term objective of the roll-out of POS-GRIP technology through a combination of organic growth, licensing and possibly acquisitions, the initial task for Plexus is to 'ice-break', and lead the way towards new and we believe superior technology being adopted. This plan, which calls for the Group to develop trading relationships with key multinational operators, is very much on track, with a number of long term contracts having materialised for the supply 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 the development of the revolutionary hardware required for a new drilling technology, which promises to advance the capability to drill and produce from much deeper formations. As the proprietary purveyors of what can be termed 'disruptive' technology, Plexus is reliant on the pull effect developed through key customers. Although POS-GRIP technology is getting more than its share of exposure, with for example British Gas recently sponsoring the development of 20,000 psi jack-up wellhead technology, not currently available in the market, and entering into a five year framework contract we are none the less feeling the effect of the overheated market. Operators have little time to seek out new technologies, and there are few incentives to encourage suppliers, who are running at excess capacity, to improve and develop their product range. In addition to our success in gaining HP/HT rental wellhead contracts, our standard rental wellheads are gaining market share, and we now have the capability to supply production wellhead technology, which will become more evident to the market with the implementation of the Shah Deniz contract, and through the supply of wellheads for the Tullow, Newfield and BP Amethyst Southern North Sea platforms. With several new technologies, such as specialist riser and conductor connectors under research and development, our Mudline to Subsea cross-over wellhead systems ready to go into the field, and a project commencing soon to develop X-HP/HT (30,000 psi) capability for tubing hangers, Plexus is on its way to move its POS-GRIP technology into new technical territory. Plexus is gaining ground because we are able to demonstrate that our technology is safer to use, easier to install, lower in cost to manufacture, and superior in performance. The potential installation time savings generated by the POS-GRIP method of engineering for wellheads can outstrip the cost of our service, which has led to the progress we have been able to make, in a market that is not always particularly receptive to the introduction of new technologies. The future for POS-GRIP technology is bright, and I look forward with confidence to 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 previous year. The turnover includes £4.4m of product and testing revenue from the BP Shah Deniz contract. The rental turnover was impacted by the rig availability in the North Sea and as a consequence anticipated rental income in the year was deferred. Cost of Sales Cost of sales has risen to 71% of turnover from 56% in the previous year. This is primarily driven by the sales mix, which for 2006 is dominated by equipment sales, in particular to BP for the Shah Deniz development. In the previous year, sales were weighted more evenly between equipment sales and rental sales, which achieve a higher gross margin. Administrative Expenses The current year has overseen a number of step-changes to our infrastructure which have placed us on a sound footing to achieve our growth goals for the future. This has resulted in administrative expenses increasing significantly. In particular, staff costs have increased from £0.5m to £1.0m; other general overhead costs associated with personnel, such as training, safety, insurances, and travel have increased accordingly; the move to substantially larger premises in October 2005 has resulted in rent and rates and utility costs increasing accordingly; the IPO on AIM in December 2005 has been the catalyst for significant increases in professional fees and board expenses; and additionally, higher activity levels have resulted in increased costs for warehouse consumables, equipment hires and repairs. EBITDA The EBITDA for the year was £0.5m, down from £0.7m the previous year. This year has seen the Group make a significant investment in infrastructure in order to manage the growth we expect in the coming years and this has had a short term negative impact on EBITDA particularly as a result of administrative expenses increasing 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. The Profit and Loss Account includes a contribution from this interest in the year of £0.2m (2005: nil). Interest Interest was a net receivable in the year due to the proceeds of the flotation being received in December 2005. We have maximised our interest income by placing surplus funds on deposit during the year. Tax The Group's tax charge arises principally from deferred tax and current foreign tax 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 into the 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 available and 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 value of £5.4m. Approximately £3.5m relates to conventional rights for product sales and deepwater rights both of which relate to the ongoing and future exploitation and commercialisation of the Group's proprietary POS-GRIP technology. Deepwater rights do not currently generate any revenue, however as explained further in the Chairman's Statement and Chief Executive Review, the Group's POS-GRIP technology is a central part of all its current and future activities, and the Group will be seeking to extend its activities into these new areas either on its own or with partners. The directors have considered whether there have been any indications of impairment and have concluded that there have been no such indications. The directors therefore consider the current carrying values to be appropriate. 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 cash of £2.9m. International Financial Reporting Standards ('IFRS') The Group's IFRS implementation programme is at an early stage. Compliance with IFRS is required for the year ending 30 June 2008 with comparatives restated accordingly for the year ending 30 June 2007. At this stage it is not possible to say what the impact upon earnings will be. However the key areas of potential impact identified so far are IFRS 2 - share based payments and IAS 28 - Investments in Associates. Consolidated Profit and Loss Account for the year ended 30 June 2006 2006 2005 Notes £'000 £'000 Turnover 1 6,777 2,637 Cost of sales (4,841) (1,488) Gross profit 1,936 1,149 Administrative expenses (2,268) (780) Operating (loss)/profit (332) 369 Income from participating interest 225 - Interest receivable and similar income 126 13 Interest payable and similar charges (73) (150) (Loss)/profit on ordinary activities before taxation (54) 232 Tax 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 3 Basic (0.28)p 0.76p Diluted (0.28)p 0.25p The profit and loss account contains all recognised gains and losses for the year and the preceding year. There is no difference between the profit on ordinary activities before taxation and the retained profit for the financial year stated above, and their historical cost equivalents. Consolidated Balance Sheet at 30 June 2006 2006 2005 Notes £'000 £'000 Fixed assets Intangible assets 4 6,375 1,095 Tangible assets 2,421 1,631 Investments 200 - 8,996 2,726 Current assets Stock 1,238 1,285 Debtors 2,640 2,112 Cash at bank and in hand 2,910 1 6,788 3,398 Creditors: 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 reserves Called up share capital 5 802 600 Share premium account 15,596 1,140 Profit 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 Statement for 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 expenditure and 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' Funds for the year ended 30 June 2006 2006 2005 £'000 £'000 (Loss)/Profit for the financial year being retained (loss)/profit (167) 151 New share capital issued 14,658 - Net addition to equity shareholders' funds 14,491 151 Opening 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 1,735 Europe 550 746 Rest 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 and associated products, the rental of wellheads utilising the POS-GRIP technology and service income principally derived in assisting with the commissioning and ongoing 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. 3. (Loss)/earnings per share 2006 2005 £'000 £'000 (Loss)/Profit attributable to shareholders (167) 151 Number Number Weighted average number of shares in issue 59,545,669 20,000,000 Dilution effects of convertible preference - 40,000,000 shares Dilution effects of share schemes 505,583 - Diluted weighted average number of shares in issue 60,051,252 60,000,000 Basic (loss) / earnings per share (0.28)p 0.76p Diluted (loss) / earnings per share (0.28)p 0.25p Basic (loss) / earnings 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 (loss) / earnings per share calculations include additional shares to reflect 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 Cost As at 1 July 2005 821 - 368 1,189 Additions - 5,403 110 5,513 As at 30 June 2006 821 5,403 478 6,702 Amortisation As at 1 July 2005 58 - 36 94 Charge 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 are amortised 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 licence and profit sharing rights in relation to the rental business associated with the POS-GRIP technology. The value of the assets acquired was US $2.3m for a consideration 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 - 100 Equity: 100,000 'B' Ordinary shares of £1 each - 100 Non-equity: 400,000 7.5% cumulative convertible redeemable - 400 preference 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 - 100 Equity: 100,000 'B' Ordinary shares of £1 each - 100 Non-equity: 400,000 7.5% cumulative convertible redeemable - 400 preference shares of £1 each 802 600 The cumulative rights to dividends on the cumulative convertible redeemable preference shares were waived on 3 November 2005. Accordingly, no financial liability 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 converted to ordinary shares of £1 each; on the same date the authorised share capital was increased 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 ordinary shares of 1p each and the authorised share capital was increased to 110,000,000 ordinary 1p shares. On 8 December 2005 one ordinary share at a premium of £4,191,976.99 was issued to Plexus International Limited (now called Mutual Holdings Limited) to satisfy loans arising in connection with the consideration payable by the Company pursuant to agreements relating to the restructuring of IP ownership. On 9 December 2005 an Initial Public Offering on the London AIM resulted in 18,644,068 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 from which £2.7m was allocated to satisfy debt. Initial Use of Funds from IPO: £'000 Gross proceeds of IPO 11,000 Less: Expenses of share issue (1,269) 9,731 Repayment 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) 369 Depreciation and amortisation 608 337 Loss/(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 - 2,910 Overdrafts (1,504) 1,504 - - (1,503) 4,413 - 2,910 Debt 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 the company's statutory accounts for the years ended 30 June 2006 or 30 June 2005. The comparative figures reflected in this report reflect consolidated numbers and previously consolidated accounts were not prepared. Consolidated accounts have been prepared to aid understanding and comparison for the current reporting period. The consolidated financial information for 2005 is derived from the statutory accounts for the Company and its subsidiary which have been delivered to the registrar of companies. Statutory accounts for 2006 will be delivered in due course. The auditors have reported on those accounts (2006: KPMG Audit Plc, 2005: Anderson, Anderson & Brown); their reports were unqualified and did not contain 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 to the public for at least one month from the date of posting to Shareholders, free of charge, from the registered office of the Company, Plexus House, 1 Cromwell Place, London, SW7 2JE. 10. These preliminary results were approved by the board of Plexus Holdings plc on 29 September 2006. 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