Final Results

RNS Number : 3383Q

Plexus Holdings Plc

18 October 2011

 



Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil equipment & services

18 October 2011

Plexus Holdings plc ('Plexus' or 'the Group')

Preliminary Results for the year to 30 June 2011

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 2011.

Results

•        144% increase in profit before tax to £1.57m (2010: £0.65m)

•        77% increase in profit after tax to £1.24m (2010: £0.70m)

•        17% increase in revenue to £15.42m (2010: £13.14m)

•        37% increase in EBITDA to £4.69m before IFRS 2 share based payment charges of £0.19m (2010: £3.42m before IFRS 2 share based payment charges of £0.21m)

•        Gross margin increase to 60.1% (2010: 58.5%)

•        77% increase in basic earnings per share to 1.55p (2010: 0.88p)

•        EBITDA and profit after tax ahead of market expectations

Highlights

•        Increasing recognition of POS-GRIP® friction-grip wellhead equipment by major international oil and gas companies resulting in a strong forward order book

•        Growing regulator and government interest in international standards and how they can be improved in terms of safety and operational performance, particularly for subsea applications, is expected to accelerate interest in POS-GRIP methodology

•        Successful conclusion to a dialogue with the American Petroleum Institute ('API'). Plexus now marketing POS-GRIP technology where applicable as compliant with API Spec 6A wellhead standards and the equivalent ISO 10423

•        Industry support secured for Joint Industry Project ('JIP') for the development of a new POS-GRIP "HGSS"^TM subsea wellhead design launched Q4

•        High Pressure/High Temperature ('HP/HT') contract wins included Statoil Petroleum AS for £0.7m, Centrica Energi Norway Consortium including Detnor and Faroe Petroleum for £3.3m with £2m option, and post period end with Gaz de France Suez E&P Ltd for £1.7m, and Centrica Energy for £0.8m

•        Further new customer contracts secured, some of which are in new territories; Apache Energy Australia for £1m, Murphy Suriname Oil Ltd in Suriname South America for £0.5m, LLC Gazflot, a subsidiary of Gazprom, in the Okhotsk Sea Russia for US$0.5m, two contracts for BG Egypt totalling £0.75m, and post period end Niko Resources (Trinidad and Tobago) Limited for £1m, and Vantage Drilling Company Inc. an offshore drilling contractor to provide equipment to the major Malaysian oil and gas operator for US$1m

•        Post period end secured a fourth consecutive two year supply contract with Applied Drilling Technology International, a division of Transocean Drilling U.K. Limited to continue to supply standard pressure equipment in the North Sea Region worth an estimated £2m

•        Subsea related activities accelerated post period end with the award of a £0.5m engineering design contract for a subsea wellhead HP/HT crossover system from Wintershall, and a £0.25m contract for Senergy to supply Dana Petroleum PLC with wellhead exploration equipment with subsea crossover to production well capability

•        Continued capital investment of £2.34m (2010: £3.27m) - investment expected to increase significantly in 2011/12, due to expansion of POS-GRIP rental inventory and new product development

•        Ongoing Research and Development ('R&D') spend, excluding costs of building new test fixtures, of £0.67m (2010: £0.75m)

•        Renewal of bank facilities in September 2011 of £5m credit facility on a three year revolving basis with an additional £1m overdraft on a yearly term

•        The Board is today proposing a 10% increased final dividend of 0.43p per share (2010: 0.39p), which will be subject to shareholder approval at the Annual General Meeting ('AGM') to be held on 30 November 2011.  If approved, the dividend will be paid on 16 December 2011 to all members appearing on the register of members on the record date 28 October 2011. The ex-dividend date for the shares is 26 October 2011

For further information please visit www.posgrip.com or contact:

Ben van Bilderbeek	Plexus Holdings PLC	Tel: [phone]
Graham Stevens	Plexus Holdings PLC	Tel: [phone]
Jon Fitzpatrick	Cenkos Securities PLC	Tel: [phone]
Ken Fleming	Cenkos Securities PLC	Tel: [phone]
Felicity Edwards	St Brides Media & Finance Ltd	Tel: [phone]

Chief Executive Ben van Bilderbeek said:

"I am pleased to report an excellent set of financial results for the year in which strong sales and profit growth have been achieved despite ongoing economic and global uncertainty. This was also a period which saw the oil price per barrel fluctuating from US$75 to a peak of US$126 and back down to US$115 and such volatility can impact adversely on operators' investment decisions.

"During the period Plexus has delivered record sales and profit at the EBITDA level as a result of the growing interest in our proprietary POS-GRIP friction grip technology and the generation of contracts with existing and new customers worldwide. Such progress reinforces our confidence in the future and with this in mind I am pleased to announce that the Directors propose a 10% increase in the final dividend of 0.43p per share for the year ended 30 June 2011, which will be submitted for formal approval at the Annual General Meeting.

"We continue to make organic progress where our POS-GRIP wellhead equipment is selected against established conventional alternatives for its ability to offer a range of operational advantages including enhanced safety and reduced operating costs. Beyond this, we have advanced various strategic initiatives centred around the ongoing goal of expanding our product range beyond rental wellhead equipment for jack-up surface drilling. We currently have two key product development initiatives underway. The first of these is an HP/HT Tie-Back system design up to 20,000 psi, which will utilise Plexus' metal-to-metal 'HG'® seals, and allow HP/HT exploration wells and pre-drilled production wells to be converted to either subsea or platform producing wells; this is anticipated to be ready for commercialisation before mid 2012. To date there is no other technology in the market which can 'save' or 'convert' such wells, and I believe that this system has the potential to become one of the most far reaching and financially beneficial developments seen in many years as currently such exploration and pre-drilled production wells are abandoned after having cost an estimated £50m to £200m. The operational and financial benefits to operators are therefore very clear.

"The second key initiative concerns the design and development of a new 'HGSS' POS-GRIP subsea wellhead. The catalyst for this Joint Industry Project ('JIP') was the April 2010 event in the Gulf of Mexico and the resulting focus by regulators and the industry on the suitability of current standards that apply to subsea wellhead design, and what additional technical and safety features will be considered important, if not essential, in the coming years. It is our opinion that POS-GRIP friction grip technology is uniquely capable of delivering a number of such features that would combine to deliver a superior subsea wellhead at a time when subsea exploration and production activity enters a rapid growth phase. The JIP is currently estimated to last up to two years and will cost between £1.5m and £2m, and is anticipated to generate important new POS-GRIP related intellectual property ('IP') to further strengthen our patent suite.

"In summary the Board remains confident that the combination of growing organic business activities and various new product development initiatives will underpin future financial performance, help to strengthen commercial relationships with key customers and generate interest from potential licensing and alliance partners. The Board believes that this strategy, together with the unique nature of our proprietary technology will deliver significant value to shareholders over the coming years."

Summary of Results for the year ended 30 June 2011

	2010	2009
	£'000	£'000
Revenue	15,421	13,142
EBITDA - before the effect of IFRS 2	4,690	3,416
EBITDA - after the effect of IFRS 2	4,504	3,202
Profit before taxation	1,569	645
Basic earnings per share (pence)	1.55	0.88

Chairman's Statement

Business progress

I am pleased to report that the Group made significant financial progress during the year which resulted in a 17% increase in turnover to £15.42m for the year to 30 June 2011(2010: £13.14m), a 37% increase in EBITDA to £4.69m (before IFRS 2 share based payment charges of £0.19m) (2010: £3.42m), and a 144% increase in profit before tax to £1.57m (2010: £0.65m), resulting in a 77% increase in basic earnings per share of 1.55p (2010: 0.88p). In addition, we have made significant progress with respect to winning new customers in new geographic territories to supply our proprietary POS-GRIP wellhead equipment, advancing new POS-GRIP product development initiatives, as well as the ongoing expansion of our extensive intellectual property ('IP') and patent suite.

Strategy

Plexus is an innovative technology led company specialising in the supply of wellhead equipment, incorporating its unique proprietary friction-grip method of engineering called POS-GRIP, to large international and national oil and gas operators. Although conventional wellhead technology has been established for many years, we believe that sector and market conditions have never been more receptive than now to the recognition and deployment of a new standard of wellhead design, which not only offers advanced safety and operational capabilities, but also where applicable meets the requirements of API Spec 6A.

Our superior method of wellhead engineering, POS-GRIP, has now been proven over a number of years. A growing number of major operators are choosing to use our equipment for jack up drilling applications, not only for standard pressures but increasingly also for HP/HT applications where equipment is safer and more cost effective than competing wellhead systems. Its design is anchored around core principles including the blow out preventer for all surface and gas drilling applications should not be lifted from the well; all casing and casing tubing hangers should be locked down with sufficient capacity; wellheads should be designed in such a way that seals do not lose their integrity over time; and wellhead test standards need to reflect 'true' field life conditions and need to match the accepted higher standards of such components as casings and tubing couplings. Our ability to market our equipment on this safety case basis, along with the simplicity of our POS-GRIP method of engineering, is an important part of our business strategy that is now allowing us to extend our product range beyond jack-up drilling applications. We will in due course be bringing a new HP/HT up to 20,000 psi Tie Back product to market, again with unique patented features, followed by our new HGSS subsea wellhead design in approximately eighteen to twenty four months' time.

The strategic approach we have taken to expand our business activities has been further validated following the Gulf of Mexico incident in April 2010, by the significant level of governmental and regulatory interest in and recommendations for established technology and practices, and the need for 'best and safest' technology ('BAST'), particularly for subsea operations. Plexus has been fortunate to have had a dialogue with both the UK's Department of Energy and Climate Change ('DECC') and the USA's Bureau of Ocean Energy Management, Regulation and Enforcement ('BOEMRE') and it is clear that there is a strong mandate for the 'bar to be raised' in a number of wellhead related areas. BOEMRE published a "Fact Sheet" detailing an interim final "Drilling Safety Rule" in September 2010 stressing the importance of well bore integrity and highlighting various provisions to address this concern. For example making it mandatory to be able to detect and manage sustained casing pressure ('SCP') which is recognized as a serious industry problem. BOEMRE have also made mandatory the requirement of two independent test barriers across each flow path during well completion activities, and crucially the proper installation, sealing, and locking of the casing or liner.

In the case of SCP, the former USA regulator the Mineral Management Service agency reported as far back as 2004 that "annulus pressure is a potential threat to the environment" and that "access to monitor the outer annuli is not possible with a subsea wellhead. A path forward to developing the ability to monitor and remediate SCP is needed and will likely be led by regulators." Stricter requirements such as these are key features that we are designing into our new HGSS POS-GRIP subsea wellhead, together with annulus pressure monitoring and remedial capabilities. Although the project will take eighteen to twenty four months to complete, the commercial potential is substantial, particularly at a time when industry investment in subsea exploration and production is reported as entering a significant growth phase.

To support these growth strategies it is essential that we continue to invest in R&D, the expansion of our IP suite, rental inventory capacity, infrastructure and company personnel. With this in mind, we are in the process of establishing a separate facility in Aberdeen to house a dedicated subsea engineering and development team for the HGSS JIP project, and as part of this initiative we are embarking on a recruitment drive for senior engineering personnel. At the same time we will be increasing capital expenditure to expand the number of rental wellhead sets in our inventory, which is necessary to support growing sales activity, particularly for HP/HT applications. We believe our HP/HT strategic focus is an important one for the business and its future growth. For example, the HP/HT 2011 Wells Summit circulated a set of survey results which reported that out of their wide database of oil and gas professionals 87% of those who responded stated that they are involved in HP/HT assets, and of that 87%, a further 60% of respondent organisations are due to embark on an HP/HT well development programme within the coming two years.

Looking to the future, Plexus is now leveraging the proven advantages of its technology for jack-up exploration drilling and production wellheads by moving into the Tie-Back and subsea markets. Our longer term strategy will also include the assessment of commercial opportunities outside of traditional oil and gas activities and the potential for moving into new markets such as fracking, geothermal, and CO2 storage. In the case of fracking, which can involve high pressures being used to perforate formations, we believe that the wellheads should be equipped with dual high pressure seals that can be used to externally monitor the fracking process to ensure that integrity is preserved. POS-GRIP technology is ideally suited for this. Similarly geothermal operations experience temperature variances and inevitable casing expansion and seal corrosion over time. The veracity of POS-GRIP's metal-to-metal seal technology we believe would suit such applications extremely well, and such initiatives I believe will at some stage act as a catalyst for future licensing and other joint venture opportunities.

Finally such strategic initiatives need funding and the combination of our free cash flow, the commitment from key strategic customers to support certain projects where appropriate, and £6m bankingfacilitiesthat remain in place with Bank of Scotland Corporate all combine to support our immediate strategic investment plans.

Staff

On behalf of the Board, I would like to thank all our employees for their dedication and hard work during a year that has not only delivered excellent results, but importantly has further raised the awareness of the benefits of POS-GRIP wellhead equipment to new customers in new territories around the world including Australia and Russia, particularly for HP/HT applications.

Outlook

The increase in sales revenues and resultant positive set of financial results clearly demonstrates the validity of our core belief that POS-GRIP friction grip technology has an important and growing role to play in the oil and gas industry, particularly for HP/HT wells. The two new POS-GRIP product development projects that are underway, namely the well advanced up to 20,000 psi Tie-Back product which is attracting increasing levels of industry interest, and the recently announced HGSS subsea wellhead design joint industry project, will add significant future revenue and earnings opportunities over the coming years. It should also not be forgotten that our technology is a method of engineering with many applications, and we will in due course be assessing the fast emerging fracking and geothermal sectors where we believe POS-GRIP wellhead equipment has unique technical advantages to offer.

The oil and gas industry is showing signs of entering into a particularly active period over the coming years with significant increases in capital expenditure and M&A activity being widely reported. Our strong forward order book supports this view. Although the supply of oil and gas engineers is showing signs of constraint at a time when we are launching a recruitment drive, we are confident that the innovative nature of our technology and the advantages it delivers will continue to appeal to the senior quality of personnel that we seek and, to date, have been able to attract. For these reasons I look forward to the future with added confidence and continue to believe that significant shareholder value will be delivered over time. The increase in the final dividend is a demonstration of the Board's positive view of the future.

Robert Adair

Non-Executive Chairman

17October 2011

Chief Executive's Review

Plexus has made excellent progress throughout the year resulting in record revenue and EBITDA performance. These results have been achieved despite a volatile oil price and investment activity level concerns relating to the widely reported tax regime changes in the North Sea. It is therefore particularly pleasing to report that our UK sales rose to £7.21m compared to £1.34m last year driven by our growing HP/HT business, which more than offset contracts moving towards completion in Africa which had been our most important territory in the prior year.

As anticipated at the half year, I believe that we are moving into a phase of development where the increased recognition of the capabilities and advantages of our proprietary POS-GRIP friction grip technology, combined with the steady increase in the number of completed contracts for a growing list of 'blue chip' international and national oil and gas operators, is beginning to accelerate the acceptance and adoption of our technology. This is particularly the case for HP/HT rental exploration applications where Plexus offers a number of unique advantages and solutions in terms of operational performance, time savings, and safety which are so important for more unconventional and deeper formations that require superior and enabling technology.

The financial progress made during the year has been driven by a number of key contract wins with both existing and new customers and these have once again enabled us to penetrate into new territories including Australia, South America, and Russia. The most significant commercial as well as strategic developments during the period were as follows:

•        November 2010 - Plexus commenced an HP/HT exploration contract for new customer Apache Energy Australia in Australia with a value in excess of £1m. This is anticipated to lead to further opportunities in the region.

•        November 2010 - a contract for two standard pressure exploration wells with a value of £0.5m was secured from new customer Murphy Suriname Ltd in a new territory Suriname, South America.

•        March 2011 - Statoil Petroleum AS chose to extend its relationship with Plexus and awarded a contract for £0.7m for an HP/HT gas exploration well in the Norwegian Continental Shelf.

•        March 2011- a £3.3m multi-well contract was won with Centrica Energi Norway Consortium which includes Detnor and Faroe Petroleum, for both HP/HT and standard pressure wells. This contract includes a customer option for an additional three wells with a value of approximately £2m.

•        April 2011 - an initial contract was secured for the first time supply of mudline suspension equipment to LLC Gazflot a subsidiary of Gazprom in the Okhotsk Sea, Russia with a value of US$0.5m.

•        April 2011 - a new customer, BG Egypt, was secured in Egypt where Plexus already has business with BP Egypt, GDF Suez Egypt, and Shell Egypt, for the supply of standard pressure equipment with a value of £0.2m. This was then in May followed by a second contract for HP/HT equipment with a value of £0.55m.

•        A particularly important development concerned the successful conclusion to a dialogue with the American Petroleum Institute ('API'), combined with the completion of an assessment of friction-grip technology by Det Norske Veritas ('DNV'). This culminated in enabling Plexus to market POS-GRIP technology where applicable as compliant with API Spec 6A wellhead standards, as well as the equivalent ISO 10423.

Post year end, we have been particularly active with a number of new customer wins including:

•        A contract signed to supply Niko Resources Limited in Trinidad, which has which has a value of between £1m and £3.25m.

•        An HP/HT contract win with Gaz de France Suez E&P Ltd for the UK North Sea with a value of £1.7m.

•        A first time contract win via Vantage Drilling Company Inc. to supply the major Malaysian oil and gas operator with a value of US$1m.

•        A further contract with Centrica Energy for an HP/HT well in the North Sea for £0.8m.

•        A two year framework agreement with Transocean Drilling U.K. Limited for the supply of standard 10,000 psi wellhead equipment to Applied Drilling Technology International ('ADTI') the turnkey drilling division of Transocean with an estimated value of £2m over the next two years.

•        At a time when subsea drilling activities are becoming increasingly important and there is worldwide focus on the standards required to meet the challenges that such an environment inevitably generates, Plexus has seen an increased level of interest in the capabilities of POS-GRIP technology subsea. Two post period end contract wins which further validate the significant future potential of the subsea arena for Plexus were the award in July 2011 of a £0.5m engineering design contract by Wintershall Noordzee B.V. for the development of an HP/HT subsea wellhead crossover system, and the contract announced in August 2011 with new customer Dana Petroleum PLC for the supply of standard pressure equipment for one well also with subsea crossover to production well capability with an approximate value of £0.2m.

The organic and strategic progress that has and is being made within Plexus, and the way we engage with the wider industry is I believe now combining to ensure that more than ever before we are being considered as a real alternative to established conventional wellhead systems. This clearly helps us further towards our long term goal of becoming a new wellhead standard. This growing interest in our technology was clearly in evidence at the bi-annual "Offshore Europe" tradeshow in Aberdeen in September 2011 where we had one outdoor and one indoor stand, and benefitted from a number of valuable opportunities to further promote our POS-GRIP equipment.

This progress, and the gaining of a large number of contracts in the year, some of which are of a longer term nature, has culminated in a 17% year on year revenue growth resulting in sales of £15.42m, with rental of HP/HT exploration equipment accounting for the majority at £10.64m which was an increase of 13% over the prior year. The growing HP/HT business activities helped to further increase gross margins to 60.1% as compared to 58.5% last year, and EBITDA (before IFRS2 share based payment charges) increased by 37% to £4.69m from £3.42m. Profits before tax increased by 144% to £1.57m compared to £0.65m last year, and profit after tax increased 77% to £1.24m, against £0.70m last year. Sales by territory were more evenly balanced than last year with the UK accounting for 46% of sales, Africa 20%, Europe 14%, Australia 11%, Asia 5%, and America 4%.

As has always been stressed, it is essential with a new technology in a critical industry to ensure that personnel and infrastructure are kept in balance with a steadily growing rental wellhead equipment inventory. This is especially true at a time when the number of customers and territories that we are servicing is larger than ever before, and we pursue new product development initiatives outside of the core exploration jack-up rental activities. For these reasons total overheads increased to £7.59m from £6.92m in the previous year, and employee headcount increased to 91 at the year end as compared to 88 in the prior year. This number is expected to increase further in 2011/12 in support of the new product development projects and in particular the new subsea wellhead design, 'HGSS'. In addition our capital investment programme continued, totalling £2.34m compared to £3.26m last year. However, we expect this to more than double in 2011/12 as we anticipate further progress and market penetration. Similarly, R&D, which totalled £0.7m in the period and was essentially unchanged from £0.75m in the prior year, is also expected to increase significantly in 2011/12 as a result of the ongoing innovative design and development programmes.

In summary I am very pleased with this strong set of results and the progress that we have made in a number of key areas during the year. It is important to stress that Plexus and the commercialisation of our proprietary POS-GRIP technology is not just about working hard to deliver a good set of annual financial results, but is perhaps even more importantly about continuing to invest in the future development of POS-GRIP technology and its many applications, including subsea equipment, production wellhead equipment, fracking, geothermal, and CO2 storage that it can address outside of simply jack-up rental exploration. Such investment I believe will result in the creation of significant shareholder value as the POS-GRIP method of wellhead engineering steps up to meet and exceed existing standards, and indeed takes safer and superior operational features to new levels, particularly for subsea where the advantages of non threaded connector methodology is so material. What is particularly encouraging about the new subsea opportunity is that the global deepwater market is growing all the time, and it was only in September 2011 that energy analyst Douglas-Westwood raised its forecast by $7bn to $225bn as the amount to be spent in the period 2011-2015. At around the same time Alastair Birnie of Subsea UK acknowledged that the UK subsea market has become renowned throughout the industry for its innovative and pioneering nature, and that 30% of all goods and services supplied to the subsea sector worldwide are supplied from the UK. I believe that Plexus and POS-GRIP can play an important role in such developments and opportunities not only independently, but also eventually in conjunction with suitable licensees and alliance partners.

Ben van Bilderbeek

Chief Executive

17 October 2011

Financial Review

Revenue

Revenue for the year was £15.42m, up 17% from £13.14m in the previous year, reflecting a strong sales performance underpinned by a series of contract wins and the gaining of new customers in new territories around the world.

The rental of exploration wellhead equipment and related services accounted for over 92% of revenue which was essentially unchanged from last year reflecting the fact that the company's business model is currently centred around the supply of rental exploration wellhead equipment and services as opposed to sold production equipment. Rental of standard pressure equipment generated the largest year on year sales increase of £3.63m up from £2.52m last year, an increase of 44%. HP/HT equipment continued to deliver the largest contribution to revenues, and HP/HT sales increased by 13% to £10.64m from £9.41m in the prior year, and accounted for 68% of total sales. This year no revenues were generated by engineering and testing as opposed to £0.19m last year, although in 2011/12 year such revenue will be recorded as customer support for the development of our technology which continues to gather momentum.

Margin

Gross margins have increased slightly to 60.1% from 58.5% in the previous year as HP/HT rental sales continue to dominate sales and generate higher margins than low pressure equipment contracts, and as operational efficiencies flow through as a result of increased sales revenues.

Overhead expenses

In line with sales and profit growth overhead expenses have increased to provide the necessary infrastructure and personnel to support our increasing number of customers around the world. This resulted in total overheads increasing to £7.59m from £6.92m in the previous year, of which overhead staff costs increased to £3.39m from £3.10m, reflecting the importance of ensuring that increased activity levels are able to be managed in line with customer requirements. Employee headcount at the year end was 91 compared to 88 for the prior year. Other items which increased significantly year on year were as a result of the increased activity levels were advertising and marketing, rent and rates, travel and subsistence, and freight and couriers.

EBITDA

The EBITDA for the year (before IFRS2 share based payment charges of £0.19m) was £4.69m, significantly increased from £3.42m (before IFRS2 share based payment charges of £0.21m) the previous year, an increase of 37%. EBITDA margin for the year was also higher at 30% as compared to 26% last year, and this strong EBITDA performance was underpinned by the proprietary nature of the Plexus POS-GRIP friction grip technology combined with the operational efficiencies delivered by increased sales where the majority comprised of HP/HT contract activities made possible by on-going investment in inventory, infrastructure, and people.

Profit before tax

Profit before tax of £1.57m compares to a profit last year of £0.65m, an increase of 144%. This increase has been achieved after absorbing a 17% increase in rental asset and other property, plant and equipment depreciation and amortisation of £2.83m (of which £150k was one-off accelerated depreciation charge on rental assets), up from £2.43m last year. The profit before tax is stated after a slightly reduced IFRS2 charge for share based payments under reporting standard IFRS 2; the charge for the full year is £0.19m compared to £0.21m last year.

Tax

Group UK Corporation Tax resulted in a tax charge of £0.33m for the year as compared to a tax credit of £0.06m for the prior year. The tax charge continued to be below normal corporation tax rates as a result of research and development related tax credits arising from the company's ongoing development of its proprietary technology.

EPS

The Group reports basic earnings per share of 1.55p compared to 0.88p in the prior year, an increase of 77%.

Cash and Statement of Financial Position

The statement of financial position reflects the growth in operations during the year. The net book value of property, plant and equipment including items in the course of construction decreased by 10% to £7.99m compared to £8.87m last year, as a result of depreciation exceeding additions. Capital expenditure on tangibles totalled £1.64m compared to £2.56m last year. This position is expected to reverse during 2011/12 as a result of an anticipated acceleration in capital expenditure supported by a growing order book, and new R&D related developments. Receivables decreased to £3.54m as compared to £6.62m which reflected a normalisation of debtor days as some contracts can lead to delays even if there is no issue with the quality of the debtor. Net bank borrowings closed at a much reduced level of £0.56m compared to £2.90m last year reflecting net cash inflow for the year of £2.34m, as compared to net cash outflow of £1.56m last year. This movement is mainly accounted for by a combination of debtor inflows increasing to £16.54m compared to £12.97m in the prior year as business grew and debtor payments normalised. The Group continues to recognise the uncertainties and volatility that surround the world economy and capital markets, and that in particular banks' lending capacities have continued to show signs of being constrained. For this reason the Group decided to retain its existing £6m lending facilities structure with the Bank of Scotland Corporate, comprising of a £5m credit facility on a three year revolving basis, and a £1m overdraft facility on a yearly term. These facilities continue to place Plexus in a strong position to fund ongoing R&D and capital expenditure commitments.

Intellectual Property

The Group carries in its statement of financial position goodwill and intangible assets of £7.89m, increased from £7.62m last year reflecting the Group's on-going investment in the development of its POS-GRIP technology. 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 are considered annually.

Research and Development

R&D activity remains a key growth and value driver for the Group, and underpins the continual development and commercialisation of its technology as the majority of revenue streams derive from the deployment of equipment utilising the POS-GRIP proprietary method of engineering. The rolling R&D programme includes the registration of new patents as well as continuations and improvements to extend the life of the Group's existing comprehensive patent portfolio, combined with the design and build of new POS-GRIP products which incorporate the unique advantages that only POS-GRIP technology can offer. Two key examples of this strategy are the 15,000psi Tieback product which is moving towards its final stages of development, and the recently launched JIP for the development of a new subsea wellhead system design, POS-GRIP 'HGSS', which will incorporate features that deliver specific safety, operational, and cost saving advantages in response to calls by regulators for capabilities such as casing pressure monitoring. R&D spending was essentially unchanged at £0.67m from £0.75m in the prior year, and is expected to increase significantly during the 2011/12 financial year.

IFRS 2 (Share Based Payments)

IFRS2 charges have been included in the accounts, in line with reporting standards. The "fair value" of share based payments has been computed independently by specialist consultants and is amortised evenly over the expected vesting period from the date of grant. The charge for the year was £0.19m which compares to £0.21m for last year.

Dividends

The Company announced on 24 March 2011 the payment of an increased interim dividend of 0.35p per share which was approved for payment on 14 April 2011.

In recognition of the Group's ongoing progress the Directors have further decided to propose a 10% increase in the final dividend of 0.43p per share for the year ending 30 June 2011 compared to 0.39p last year, which will be recommended for formal approval at the Annual General Meeting to be held on 30 November 2011. Subject to this the dividend will be paid on 16 December 2011.

Graham Stevens

Finance Director

17 October 2011

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2011

		2011	2010
	Notes	£'000	£'000
Revenue	1	15,421	13,142
Cost of sales		(6,152)	(5,453)
Gross profit		9,269	7,689
Administrative expenses		(7,594)	(6,918)
Operating profit		1,675	771
Finance income		16	-
Finance costs		(121)	(127)
Share of profit of associate		(1)	1
Profit before taxation		1,569	645
Income tax expense	3	(326)	58
Profit after taxation and comprehensive income for the year attributable to the owners of the parent		1,243	703
Earnings per share	5
Profit for the year attributable to Plexus Holdings shareholders
Basic		1.55p	0.88p
Diluted		1.53p	0.87p

Consolidated Statement of Financial Position

at 30 June 2011

		2011	2010
	Notes	£'000	£'000
Assets
Goodwill		760	722
Intangible assets	6	7,128	6,897
Financial assets		60	60
Investment in associate		-	4
Property, plant and equipment	7	7,992	8,866
Total non-current assets		15,940	16,549
Inventories		4,049	3,332
Trade and other receivables		3,543	6,624
Current income tax assets		-	451
Cash and cash equivalents		3,441	1,470
Total current assets		11,033	11,877
Total Assets		26,973	28,426
Equity and Liabilities
Called up share capital	8	802	802
Share premium account		15,596	15,596
Share based payments reserve		950	764
Retained earnings		2,293	1,674
Total equity		19,641	18,836
Liabilities
Deferred tax liabilities		299	469
Bank loans		4,000	4,000
Total non-current liabilities		4,299	4,469
Trade and other payables		2,687	4,748
Current income tax liabilities		346	-
Borrowings		-	373
Total current liabilities		3,033	5,121
Total liabilities		7,332	9,590
Total Equity and Liabilities		26,973	28,426

These financial statements were approved and authorised for issue by the board of directors on 17 October 2011 and were signed on its behalf by:

B van Bilderbeek                                              G Stevens

Director                                                            Director

Consolidated Statement of Changes in Equity

for the year ended 30 June 2011

	Called Up Share Capital £'000	Share Premium Account £'000	Share Based Payments Reserve £'000	Retained Earnings £'000	Total £'000
Balance as at 1 July 2009	802	15,596	550	1,499	18,447
Total comprehensive income for the period	-	-	-	703	703
Share based payments reserve charge	-	-	214	-	214
Deferred tax movement on share options	-	-	-	41	41
Dividends	-	-	-	(569)	(569)
Balance as at 30 June 2010	802	15,596	764	1,674	18,836
Total comprehensive income for the period	-	-	-	1,243	1,243
Share based payments reserve charge	-	-	186	-	186
Deferred tax movement on share options	-	-	-	(31)	(31)
Dividends	-	-	-	(593)	(593)
Balance as at 30 June 2011	802	15,596	950	2,293	19,641

Consolidated Statement of Cash Flows

for the year ended 30 June 2011

		2011	2010
		£'000	£'000
Cash flows from operating activities
Profit before taxation		1,569	645
Adjustments for:
Depreciation, amortisation and impairment charges		2,830	2,430
Loss on disposal of property, plant and equipment		83	19
Charge for share based payments		186	214
Investment income		(16)	-
Interest expense		121	127
Changes in working capital:
(Increase)/decrease in inventories		(717)	462
Decrease/(increase) in trade and other receivables		3,090	(1,825)
(Decrease)/increase in trade and other payables		(2,086)	1,417
Cash generated from operations		5,060	3,489
Income taxes repaid/(paid)		268	(1,089)
Net cash generated from operations		5,328	2,400
Cash flows from investing activities
Acquisition of subsidiary entity		(10)	-
Adjustment to value of associate undertaking		(18)	(3)
Purchase of intangible assets		(699)	(707)
Purchase of property, plant and equipment		(1,640)	(2,560)
Proceeds of sale of property, plant and equipment		83	8
Net cash used in investing activities		(2,284)	(3,262)
Cash flows from financing activities
Interest paid		(121)	(127)
Interest received		14	-
Equity dividends paid		(593)	(569)
Net cash used in financing activities		(700)	(696)
Net increase/(decrease) in cash and cash equivalents		2,344	(1,558)
Cash and cash equivalents at 1 July 2010		1,097	2,655
Cash and cash equivalents at 30 June 2011		3,441	1,097

Notes to the Consolidated Financial Statement

1.       Revenue

	2011	2010
	£'000	£'000
By geography
UK	7,209	1,341
Europe	2,103	4,427
Rest of World	6,109	7,374
	15,421	13,142

Revenue is shown by destination as the origin of revenues is all from the UK.

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 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.

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 revenue:

	2011	2010
	£'000	£'000
Customer 1	2,502	393
Customer 2	2,199	1,840
Customer 3	1,889	-
Customer 4	1,411	1,536
Customer 5	937	1,383

3.       Income tax expense

(i) The taxation charge for the year comprises:	2011	2010
	£'000	£'000
UK Corporation tax:
Current tax on income for the year	582	245
Adjustment in respect of prior years	(245)	(455)
	337	(210)
Foreign tax:
Current tax on income for the year	190	188
Total current tax	527	(22)
Deferred tax:
Origination and reversal of timing differences	(236)	(117)
Adjustment in respect of prior years	35	81
Total deferred tax	(201)	(36)
Total tax charge	326	(58)
(ii) Factors affecting the tax charge for the year
Profit on ordinary activities before tax	1,569	645
Current tax charge at 26% (2010: 28%)	408	181
Effects of:
Expenses not deductible for tax purposes	101	111
Capital allowances for the year less than depreciation	120	18
Foreign tax	119	123
Adjustments in respect of prior year	(245)	(455)
Effect of change in tax rate	24	-
Current tax charge for the year	527	(22)
(iii) Movement in deferred tax balance
Deferred tax liability at beginning of year	469	546
Charge to Statement of Comprehensive Income	(201)	(36)
Deferred tax movement on share options	31	(41)
Deferred tax liability at end of year	299	469
(iv) Deferred tax balance
The deferred tax balance is made up of the following items:
Difference between depreciation and capital allowances	423	607
Share based payments	(88)	(100)
Tax losses	(36)	(38)
Deferred tax liability at end of year	299	469

4.      Dividends

	2011	2010
	£'000	£'000
Ordinary Shares
Interim paid of 0.35p (2010: 0.33p) per share for the year ended 30 June 2011	281	265
Ordinary Shares
Final dividend after the year end of 0.43p (2010: 0.39p) per share	345	313
The proposed final dividend has not been accrued at the balance sheet date.

5.      Earnings per share

	2011	2010
	£'000	£'000
Profit attributable to shareholders	1,243	703
	Number	Number
Weighted average number of shares in issue	80,182,569	80,182,569
Dilution effects of share schemes	789,827	47,294
Diluted weighted average number of shares in issue	80,972,396	80,229,863
Basic earnings per share	1.55p	0.88p
Diluted earnings per share	1.53p	0.87p
Basic 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 earnings per share calculations include additional shares to reflect the dilutive effect of employee share schemes and share option schemes.

6.       Intangible fixed assets

	Intellectual Property £'000	Patent and Other Development £'000	Computer Software £'000	Total £'000
Cost
As at 1 July 2009	6,440	1,383	113	7,936
Additions	-	701	6	707
As at 1 July 2010	6,440	2,084	119	8,643
Additions	-	674	25	699
As at 30 June 2011	6,440	2,758	144	9,342
Amortisation
As at 1 July 2009	1,043	192	83	1,318
Charge for the year	329	85	14	428
As at 1 July 2010	1,372	277	97	1,746
Charge for the year	330	122	16	468
As at 30 June 2011	1,702	399	113	2,214
Net Book Value As at 30 June 2011	4,738	2,359	31	7,128
As at 30 June 2010	5,068	1,807	22	6,897
As at 30 June 2009	5,397	1,191	30	6,618
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 1 July 2009	-	-	12,451	138	22	12,611
Additions	661	-	213	1,684	2	2,560
Transfers	-	-	1,646	(1,646)	-	-
Disposals	-	-	(64)	-	(10)	(74)
As at 1 July 2010	661	-	14,246	176	14	15,097
Arising on acquisition	-	-	-	-	14	14
Additions	24	81	212	1,323	-	1,640
Transfers	-	-	947	(947)	-	-
Disposals	-	-	(666)	-	(1)	(667)
As at 30 June 2011	685	81	14,739	552	27	16,084
Depreciation
As at 1 July 2009	-	-	4,258	-	18	4,276
Charge for the year	10	-	1,990	-	2	2,002
On disposals	-	-	(39)	-	(8)	(47)
As at 1 July 2010	10	-	6,209	-	12	6,231
Charge for the year	125	-	2,233	-	4	2,362
On disposals	-	-	(500)	-	(1)	(501)
As at 30 June 2011	135	-	7,942	-	15	8,092
Net book value
As at 30 June 2011	550	81	6,797	552	12	7,992
As at 30 June 2010	651	-	8,037	176	2	8,866
As at 30 June 2009	-	-	8,193	138	4	8,335

During the year, the review of the economic lives of property, plant and equipment resulted in an increase to the depreciation charge of £150k for the year, which is not expected to recur for the remaining life of the assets.

8.      Share Capital

	2011	2010
	£'000	£'000
Authorised:
Equity: 110,000,000 Ordinary shares of 1p each	1,100	1,100
Allotted, called up and fully paid:
Equity: 80,182,569 (2009: 80,182,569) Ordinary shares of 1p each	802	802

9.       Reconciliation of net cash flow to movement in net debt

	2011	2010
	£'000	£'000
Increase/(decrease) in cash in the year	2,344	(1,558)
Cash inflow from increase in net debt	-	-
Movement in net debt in year	2,344	(1,558)
Net debt at start of year	(2,903)	(1,345)
Net debt at end of year	(559)	(2,903)

10.     Analysis of net debt

	At beginning of year £'000	Cash flow £'000	At end of year £'000
Cash in hand and at bank	1,470	1,971	3,441
Overdrafts	(373)	373	-
	1,097	2,344	3,441
Bank loans	(4,000)	-	(4,000)
Total	(2,903)	2,344	(559)

The financial information above does not constitute the company's statutory accounts for the year ended 30 June 2011 but is derived from those statements.

The statutory financial statements and this preliminary statement for the year ended 30 June 2011 were approved by the Board on 17 October 2011. On the same date the company's auditors, Crowe Clark Whitehill LLP. 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 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, Thames House, Portsmouth Road, Esher, Surrey, KT10 9AD.

 

END

 

 

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