Final Results

RNS Number : 5315V

Plexus Holdings Plc

29 October 2014

 



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

29 October 2014

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

Preliminary Results for the year to 30 June 2014

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 2014.

Financial Results

·    Record revenue, EBITDA, profit before tax and profit after tax

·    65.1% increase in profit after tax to £5.05m (2013: £3.06m)

·    5.7% increase in revenue to £27.02m (2013: £25.57m)

·    18.7% increase in EBITDA to £9.02m (2013: £7.60m)

·    25.9% increase in profit before tax to £5.38m (2013: £4.27m)

·    62.9% increase in basic earnings per share to 6.01p (2013: 3.69p)

·    12.7% proposed increase in final dividend to 0.62p per share (2013: 0.55p)

Highlights

·    Strong financial performance driven by core business of renting proprietary POS-GRIP® friction-grip exploration wellhead equipment, particularly High Pressure/High Temperature ('HP/HT') applications, resulting in repeat business and the winning of new major international oil and gas customers in new territories around the world

·    HP/HT rental equipment contract wins with existing customers included Statoil Petroleum AS ('Statoil') for £2.5m, Glencore Exploration Cameroon Ltd ('Glencore') for £1.6m, Maersk Oil Danish Unit ('Maersk') for £1.1m, GDF Suez E&P UK Ltd ('GDF') for £1.5m, and post period end from Det Norske Oljeselskap ASA ('Det Norske') for £1m, and BG Group UK ('BG') for £2m

·    New customer wins included a third Australian customer Eni Australia Limited ('Eni Aus') for £1.0m (adding to Apache Energy Australia ('Apache') and Santos Ltd), as well as new customers in new territories Galp Energia Tarfya B.V. ('Galp') in Morocco (£0.6m), and Shell China Exploration and Production Company Limited ('Shell China') offshore Hainan Island, China

·    Three year contracts secured - firstly renewal of Wintershall Noordzee B.V. ('Wintershall') contract for the supply of exploration equipment for the North Sea offshore Netherlands, and secondly with leading drilling engineering company, AGR Well Management Limited ('AGR'), which has already generated a contract for a new user, Svenska Petroleum Exploration AB ('Svenska'), in another new territory, Guinea Bissau in West Africa (£0.4m)

·    Production wellhead equipment order secured from Centrica North Sea Gas Ltd ('Centrica') for £0.85m which further demonstrates Plexus' ability to supply wellhead equipment not only for exploration wells but also long term production wells which is a significantly larger addressable market

·    Continuing evidence of the need for safer and better technology and equipment following the Macondo incident in the Gulf of Mexico in 2010, particularly in relation to HP/HT drilling and subsea where a number of related major industry initiatives have been launched. Plexus firmly believes that for wellheads and metal-to-metal sealing, POS-GRIP technology offers a uniquely superior solution to the challenges faced by operators in the field

·    Significant progress being made with the new subsea wellhead design 'HGSS'^TM Joint Industry Project ('JIP') - design of the prototype frozen, testing of components well underway, and running of a prototype planned for 2015

·    Strong industry support for HGSS JIP as evidenced by both Senergy Holdings Limited ('Senergy') and post period end, BG International Ltd joining alongside existing consulting partners Eni S.p.A. ('Eni'), Maersk Oil North Sea UK Ltd ('Maersk North Sea'), Oil States Industries Inc. ('Oil States'), Shell International Exploration and Production B.V. ('Shell International'), Total E&P Recherche Developpement SAS ('Total'), Tullow Oil plc ('Tullow'), and Wintershall

·    HP/HT Tie-Back Connector JIP reached another milestone with full product testing commencing post period end, and is due for completion before the calendar year end - technical sales discussions are in progress with an international oil and gas operator regarding opportunities in the UK and Egypt

·    Capital investment in additional rental wellhead assets was £2.32m, a planned reduction on the prior year's record level (2013: £5.72m)

·    Research and Development ('R&D') spend, excluding cost of building test fixtures, increased by 61% to £2.37m (2013: £1.46m)

·    Spending on intellectual property ('IP') patent development and filings increased by 42.7% to £0.18m (2013: £0.12m)

Corporate

·    Strategy to create an Asian business hub gained momentum with Plexus Ocean Systems (Singapore) Pte Ltd ('Plexus Singapore') post period end completing the formation of a new Malaysian Joint Venture ('JV') company Plexus Products (Asia) Sdn Bhd ('PPA') in conjunction with a local oil and gas partner, Integrated Petroleum Services Sdn Bhd ('IPS') - first aim is to secure local licences for the supply of Plexus wellhead equipment

·    February 2014 - Sir Ian Wood's "UKCS Maximising Recovery Review: Final Report" ('Wood Report') published stating the need to exploit HP/HT resource potential, deploy the best and most cost effective technology, and leverage the capabilities of the UK's own oil and gas supply chain

·    Acquisition in July 2013 of a 25% interest in a private manufacturer of specialist oil and gas equipment for a consideration of £0.7m through the purchase of 100% of the share capital of Afrotel Corporation Ltd

·    Placing in December raised £2.50m from the issue of new ordinary shares before expenses to support various organic and strategic growth strategies as well as broadening the shareholder base and increasing liquidity

·    Expansion of Aberdeen HQ - Plexus doubled the size of its operational headquarters in Dyce through the purchase for £2.4m of a circa 36,000 sq. ft. work shop and office facility from leading oilfield services company Baker Hughes post period end in September 2014

·    Strengthening of Board - Charles Jones joined the Board as a non-executive director in September with over 30 years of senior management and board experience in the US energy sector and will advise and assist in building relationships in the US wellhead equipment market

·    Bank facilities renewed and increased with the Bank of Scotland, comprising an existing £5m revolving credit facility on a three year term with an additional £2m overdraft on a yearly term in September 2014 - also a five year £1.5m term loan was put in place to part fund the purchase of the additional Aberdeen facility

·    Proposing a 12.7% increased final dividend of 0.62p per share (2013: 0.55p), which will be subject to shareholder approval at the Annual General Meeting ('AGM') to be held on 11 December 2014 - this follows on from the 9.1% increase in the interim dividend (to 0.48p) making a total dividend for the financial year of 1.1p per share. If approved the final dividend will be paid on 17 December 2014 to all members appearing on the register of members on the record date 7 November 2014. The ex-dividend date for the shares is 6 November 2014

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]
Nick Tulloch	Cenkos Securities PLC	Tel: [phone]
Derrick Lee	Cenkos Securities PLC	Tel: [phone]
Felicity Edwards	St Brides Media & Finance Ltd	Tel: [phone]
Frank Buhagair	St Brides Media & Finance Ltd	Tel: [phone]

Chief Executive Ben van Bilderbeek said:

"I am pleased to report another excellent set of financial results which delivered a record performance in terms of revenues, margins, and profitability during a period that continued to experience a number of global economic and political uncertainties. As a result of such strong on-going progress I am delighted to announce that the Board proposes a 12.7% increase in the final dividend of 0.62p per share for the year ended 30 June 2014, which will be submitted for approval at the Annual General Meeting on 11 December 2014.

"The robust financial performance relates to our organic jack-up drilling business activities where we were able to grow our non UK and non-European 'Rest of the World' revenues by 17% year on year. This is in contrast to the UK and European North Sea territory which experienced only marginal growth as a result of a decline in exploration drilling activities in the UK Continental Shelf ('UKCS') during the period. As the North Sea has historically been our most important market, the decline in activity in the region validates our strategy of seeking growth beyond Europe. As such we have been making good progress with regard to contract wins in Asia, Australasia, and West Africa. In the longer term we also see significant sales opportunities in the Gulf of Mexico, and in Russia where, subject to sanction considerations, I believe Plexus can address a number of widely reported technical challenges facing conventional wellhead technology in the Artic.

"The cornerstone of our on-going success is our patented POS-GRIP friction-grip method of engineering which enables us to design wellheads that are able to uniquely, simply, and cost effectively suspend casing and form a metal-to-metal seal in a way that conventional wellhead designs cannot. We not only continue to expand our engineering capabilities as a result of considerable and effective R&D investment which in turn generates new and valuable IP and patents, we also continue to develop and refine the scientific and empirical principals that we communicate to the industry, and which underpin why we can become a new global wellhead standard, operating at safety and performance levels that I believe cannot be equalled.

"The key to this strategy is that we have identified the most critical aspect of wellhead technology as the ability to deliver the force necessary to hold casing hangers and metal seals rigid, as any degree of seal movement destroys seal integrity. Furthermore it is critical that the energising of metal seals is monitored and audited in real time, so that installation parameters can be confirmed for every connection, whilst ensuring that wellhead test and qualification standards can for the first time match those of premium couplings. The ability to deliver true auditability of wellhead seal performance, which in our view conventional wellhead designs cannot do is, I believe, a critical 'must have' for the industry, particularly subsea. Without this ability it is not possible to demonstrate to operators, regulators, and environmentalists that an 'out of sight out of mind' subsea wellhead seal is truly performing over the long term, or indeed at all. As Paul Day, Global Director of Business Development, Wells Completion Technology for Weatherford said last year in a subsea related interview with Drilling Contractor: "Reliability is absolutely key because the equipment in these wells has to work the first time and also work for the life of the well".

"I am highly confident therefore that Plexus has an exciting future, and believe that our technology has a unique role to play in addressing the range of sealing and long term integrity challenges that face conventional wellhead designs particularly as temperature and pressure ratings increase with the growth in HP/HT and X-HP/HT drilling. These challenges, and indeed limitations, were subject to immense scrutiny post the Gulf of Mexico 2010 incident, and continue to reverberate around the world with operators, equipment suppliers, regulators, and safety bodies. For this reason I am delighted with the excellent technical progress of our subsea wellhead design JIP which Senergy and BG International Ltd have now also joined, and the significant commercial opportunities that I believe will arise either organically, or in conjunction with partners and licences as we openly seek to work with the wider industry to bring our superior solutions to the global marketplace.

"Finally I would like to welcome Charles Jones onto the Board as an additional non-executive director, and I am confident that Charles with over 30 years of senior management and board experience in the US drilling equipment sector will be able to guide and support the executive team as we begin to pursue a number of initiatives to develop our organic business and explore corporate activity opportunities in the US."

Summary of Results for the year ended 30 June 2014

	2014	2013
	£'000	£'000
Revenue	27,024	25,566
EBITDA - before the effect of IFRS 2	9,019	7,598
EBITDA - after the effect of IFRS 2	8,993	7,457
Profit before taxation	5,375	4,269
Basic earnings per share (pence)	6.01	3.69

Chairman's Statement

Business progress

I am pleased to report that the Group made significant progress during the year in terms of operational, financial, and strategic developments. The increase in activity levels resulted in a 5.7% increase in revenue to £27.02m for the year to 30 June 2014 (2013: £25.57m) with the non UK and European revenues from the Rest of the World increasing by 17%; an 18.7% increase in EBITDA to £9.02m (2013: £7.60m); a 25.9% increase in profit before tax to £5.38m (2013: £4.27m); and a 65.1% increase in profit after tax to £5.05m (2013: £3.06m) helped by a lower effective tax rate, delivering a 62.9% increase in basic earnings per share of 6.01p (2013: 3.69p). Sales revenue growth reflects the growing reputation of our POS-GRIP wellhead equipment to deliver operational time savings and safety benefits, as evidenced by the winning of orders from new customers in new geographic territories including China, particularly for challenging HP/HT applications. Investment in R&D, IP, and the expansion of our rental wellhead fleet is on-going. Importantly we continue to experience industry support and encouragement for extending our POS-GRIP technology beyond our core business of renting exploration wellheads for jack-up rigs. Such support is particularly welcomed for our new HGSS subsea wellhead design JIP where the testing of key components is now well underway, and which saw Senergy the global energy services provider and member of Lloyd's Register Group, join as an additional consulting partner alongside a number of existing major operating company members. In addition, post period end BG International Ltd also joined the JIP, and we look forward to their valuable contribution to this important project.

Overview

This year's excellent set of results continues to demonstrate that the benefits of Plexus' proprietary POS-GRIP wellhead equipment are recognised by an increasing number of international oil and gas companies operating in the jack-up drilling exploration market, where we remain the dominant supplier in the North Sea and where we are extending our global reach, for example in West Africa and in China with Shell.

The new Strategic Report which forms part of these accounts provides a detailed narrative of all important aspects of our business, and I therefore wish to provide an overview of some of the key operational and strategic influences, developments, and drivers that took place throughout the year. It is important to note that we have been able to continue to expand our customer base with the addition of new first time users of our technology, as well as extending our geographic reach to new territories such as China and Morocco. HP/HT exploration drilling equipment, where our superior technology excels, continues to drive revenues and margins and we are seeing evidence of a developing trend where operators are selecting our HP/HT equipment for use on standard pressure wells so as to benefit from the associated safety and operational benefits.

As Plexus continues to grow its organic rental exploration drilling business it is essential that we make the necessary investment in infrastructure to support operations, and future expansion. This investment takes a variety of forms from plant, property, and equipment to staff, R&D, IP, Information Technology ('IT '), and Health and Safety. Of particular note was our £2.4m acquisition in September of an additional 36,000 sq. ft. work shop and office facility in Aberdeen, effectively doubling the size of our main operational headquarters, as well as further investment in our rental inventory fleet and on-going R&D and IP, particularly associated with our new subsea wellhead JIP. In the current financial year we anticipate as a demonstration of our confidence in the future investing a further £3.8m in R&D, patents, and software, and approximately £6.0m in additional plant and wellhead equipment.

With Plexus operating in the international oil and gas space it is inevitable that our 'day to day' progress must be placed in the context of a number of macro considerations and drivers, both local and global. Fortunately for Plexus, although there are inevitably uncertainties that arise from time to time in the industry such as the recent volatile oil price, I believe that the fundamental bedrock of the superior nature of our patented technology will continue to support our global aspirations and ability to become a new global wellhead standard.

More cautiously, a number of macro and geopolitical negatives have arisen over the past year, and it remains to be seen what impact they will have both in the current financial year and beyond in terms of operators business activity and investment levels. For example questions about the health of the Eurozone and in particular Germany, oil price falls, reduction of Quantitative Easing in the US and Europe, health of emerging markets, Middle East conflicts, and even Ebola in West Africa all make a particularly toxic mix for world economic confidence. However at a more micro level we believe Plexus will benefit from increased industry receptiveness to new and superior technology driven by regulatory and government initiatives focused on improving operational performance and safety standards. This trend is particularly relevant to subsea following the Gulf of Mexico incident in 2010. Plexus is confident that in particular our subsea JIP will be able to address such concerns head on, and provide solutions previously not able to be provided by conventional technology such as monitoring of all annuli in subsea wellheads with remedial capabilities, and that such innovative solutions will lead to Plexus wellheads being recognised as truly the best available and safest technology ('BAST'). Industry support for the JIP continues to be strong as evidenced by BG and Senergy having now joined the project alongside the other international oil and gas company members. The scale of this opportunity can be clearly demonstrated by 2013 Rystad Energy data which stated that the subsea industry "within twenty years will be equal to the production of traditional oil and gas offshore".

Closer to home the UKCS continues to be our most important market, and accounted for 37% of revenues despite a continuing low level of exploration drilling activity. Encouragingly Oil and Gas UK are acutely aware of the need to address this, and has stated in its "Economic Report 2014" there is "an urgent need for substantially more exploration to discover the untapped sources that will feed the future development of new oil and gas fields". This is helpful to Plexus as we have nearly 100% of the UKCS exploration jack-up drilling market so any increase in activity will have a very positive impact. However, Oil and Gas UK also say that three remedies need to be applied for this reversal to happen - radical change in the industry's fiscal regime; prompt and full implementation of the "Wood Report"; and the tackling of cost, efficiency, and productivity challenges. Encouragingly the UK Government has endorsed the Wood Report and HM Treasury has opened a formal consultation on how best to incentivise through tax regime measures exploration and investment in the ultra-high pressure high temperature opportunities in the UKCS. The results of the "Fiscal Review" are expected to be announced in December 2014. Should these Government led tax incentives result in the desired increase in exploration activity Plexus expects to benefit. I should also mention the Scottish referendum and the fact that the oil and gas industry welcomed the "No" vote in September 2014. For example Ben van Beurden, chief executive of Royal Dutch Shell, said that the outcome cut the risk to continuing investment in the North Sea and that "Shell welcomes the decision by the people of Scotland to remain within the UK, which reduces the operating uncertainty for businesses based in Scotland".

Away from the North Sea we are focusing on growing our presence around the world, and in particular in Asia where we now have subsidiaries in Brunei, Malaysia, and Singapore. We see this as an important and growing hub for business activities in the region, as well as being able to service for example Australia, China, India, and Indonesia as suitable sales opportunities arise. In addition we are also looking to further commercial opportunities in; Japan both for conventional and unconventional energy sources such as methane hydrates and mud volcanoes; Mexico where recent drilling success suggests that it is emerging as a major oil and gas opportunity; and Russia subject to sanction considerations where we think opportunities in the Artic drilling space are significant.

Such activities, and the unique nature of the POS-GRIP friction-grip method of engineering that drives them, must be communicated to the wider industry, and an effective method for this has been proven to be international HP/HT conferences. In September 2014 at the "World Oil HPHT Drilling and Completions Conference" in Houston, Texas we were invited to make a POS-GRIP metal sealing presentation, and also made a similar presentation at the Oil and Gas iQ "HPHT Wells Summit 2014" in London regarding pioneering techniques and technology in HP/HT drilling and completions. These initiatives are important not only to communicate the scientific principles that lie behind POS-GRIP, but also to show that we are reaching a stage, particularly with our new subsea wellhead design where we are open to finding ways to share and accelerate the adoption of our technology with the wider industry. Such opportunities come into sharp focus, for example in "Subsea world news" in September which referred to a Frost & Sullivan consultant's report saying that "as attractive returns and higher recovery rates position subsea exploration to challenge the near-shore and onshore industry, demand for subsea equipment will continue to grow". However an important related dynamic is that as a Frost & Sullivan Energy and Environmental Industry Analyst said, "Mergers, acquisitions and partnerships will help subsea equipment suppliers leverage expertise across the board and penetrate the market successfully. Major participants must especially partner with or acquire hardware suppliers and software providers to widen their products and service portfolios". Plexus intends to make every effort to play its role in such opportunities.

Staff

On behalf of the Board, I would like to thank all our employees for their dedication and hard work during another successful year that has not only delivered another set of record financial results but which, importantly and necessarily, has also seen us further increase our staff numbers from 135 at the beginning of July 2013 to 144 at the end of June 2014 and 149 currently as we continue to expand our business activities. Such efforts contributed to Plexus being declared, post period end, the winner of the 'Commitment to Innovative Use of Research and Development' award at the Northern Star Business Award 2014, the flagship event for the Aberdeen & Grampian Chamber of Commerce. Plexus was also a finalist in the 'Outstanding Contribution to the Energy Sector' and I congratulate our team on this engineering and operationally led recognition. I would also like to welcome as a non-executive director Charles Jones who will be advising the Board in respect of interacting with US oil and gas operators and service companies, industry bodies, and regulators, particularly in relation to the subsea arena.

Outlook

Looking forward it is necessary to consider the widely reported geopolitical events and negative sentiment in relation to the global economy that seem to be so prevalent at the current time, including the falling price of oil. During our financial year we have seen the Brent crude oil price start at circa US $103 per barrel, rising at the end of June 2014 to close near a high for the period of US $115 per barrel before falling sharply to almost US $80 per barrel in October 2014, the lowest point in nearly four years. Such price volatility, which is showing signs of reversing, can lead to a slowdown in investment and places a question mark over the longer term viability of certain unconventional energy sources such as shale drilling should this trend continue for any length of time. Notwithstanding short term oil market dynamics, it is clear that long term the demand for energy will continue to trend higher and with it the demand and need for innovative and safer oil service solutions. Douglas-Westwood in their recent quarterly publication of "The World Oilfield Services Market Forecast" expects "sustained and substantial growth" in the global oilfield services market which they forecast will grow from US $354bn in 2014 to US $521bn in 2018, an increase of 47%. A number of such positive oil services demand forecasts exist, particularly in relation to subsea drilling where Rystad Energy consultancy see the subsea market doubling in size by 2020, are underpinned by equally positive demand led market analysis. ExxonMobil in their 2014 "The Outlook for Energy: A View to 2040" ('Exxon Report') forecast that by 2040 the global population will increase by two billion, resulting in a 35% greater demand for energy, and importantly that 60% of demand will be supplied by oil and natural gas despite the efforts being made to promote alternative energy sources. Global demand for natural gas where Plexus is able to offer safer and lower operating cost wellhead designs, particularly for HP/HT and X-HP/HT, is forecast in the same report to rise by 65% from 2010 to 2040. For these reasons I believe that the markets that Plexus addresses have a healthy future.

In addition, as advances in technology play a critical role in meeting global energy demand, Plexus is well placed to capitalise on a number of important trends in the industry. These include an increased need for oil and gas companies to operate at the highest safety standard levels with calls for the use of the BAST equipment, as well as the need to improve efficiency and reduce costs. I believe that Plexus is able to offer a unique solution in the wellhead market that combines superior safety and cost saving opportunities driven by the simplicity of the technology and its ability to facilitate operations such as side-tracking in a way that cannot be done by conventional wellhead technology. The need for such features is clearly demonstrated by the results of a survey with leading global oil and gas and service company participants conducted by Lloyd's Register Energy, which only this month released findings in relation to technical innovation in the sector and what they see as the key future investment drivers. Safety improvements were top of the list closely followed by improving operational efficiency, and reducing costs. POS-GRIP wellheads deliver on all three of these drivers and offer a compelling safety and business case for their utilisation. Indeed, with increasing regulatory scrutiny post the 2010 Gulf of Mexico incident on-going around the world, evidenced by the new EU Directive on offshore oil and gas safety, we believe we are in a very strong position to answer the many questions being raised in relation to conventional wellhead designs such as the need for instant casing hanger lock down, monitoring, and in our view most importantly what constitutes a true long term metal-to-metal seal.

In terms of current trading we have a healthy order book and good visibility for our organic jack-up rental exploration business, and anticipate this continuing subject to any unforeseen downturn in exploration activity by our customers. The UK North Sea importantly contributed 37% of our revenues during the financial year against a backdrop of only 15 exploration wells drilled in the North Sea in 2013 according to Oil & Gas UK's "Economic Report 2014". Helpfully the UK industry knows that this needs to increase substantially and the important Wood Report will we hope be a positive catalyst and blue print for a resurgence in the future, particularly for HP/HT activity where new UK tax incentives have been introduced.

We further believe that there is a significant commercial opportunity for Plexus to expand into the subsea rental exploration and production wellhead markets with our new HGSS subsea wellhead design either directly, or through potential licences with third parties. In addition we are actively pursuing other strategic initiatives such as the volume surface production market, and specialist applications such as our unique up to 20,000psi HP/HT Tie-Back Connector. I was particularly pleased to note in relation to the HGSS subsea wellhead project that Senergy and BG both joined the JIP, adding to the formidable list of consulting partners that are actively contributing to and supporting the joint goal of designing and developing a superior subsea wellhead where we anticipate running a prototype for the first time in the second half of 2015. These important drivers lie behind our decision in September 2014 to double the size of our Aberdeen facility with the acquisition of an additional 36,000 sq. ft. building, and our plan to invest over £13m during the current financial year in tangible and intangible assets.

For these reasons I am confident in the future prospects for our company and its ability to deliver significant shareholder value from our patented POS-GRIP friction-grip method of engineering which can deliver a range of applications in the coming years both within and outside the oil and gas industry. The 12.7% proposed final dividend increase is a further demonstration of the Board's confidence in the future.

J Jeffrey Thrall

Non-Executive Chairman

28 October 2014

Strategic Report

Principal Activity

The Group markets a patented method of engineering for oil and gas field wellheads and connectors, named POS-GRIP, which involves deforming one tubular member against another within the elastic range to effect gripping and sealing. This superior method of engineering for wellheads offers a number of important advantages to operators, particularly for HP/HT applications and can include improved technical performance, improved integrity of metal seals, significant installation time savings, reduced operating costs and enhanced safety. Revenues predominantly derive from the rental of POS-GRIP wellheads for jack-up exploration, although the range of commercial and safety benefits of POS-GRIP also apply to surface production and subsea wellheads. The Directors believe that the Company's proprietary technology has additional wide ranging applications both within and outside the oil and gas industry, and may well extend beyond conventional oil and gas to for example undersea deposits of methane hydrates, and geothermal drilling.

Financial Results

Revenue

Revenue for the year was £27.02m, up 5.7% from £25.57m in the previous year. The steady growth in sales was supported by a number of on-going and new contract wins both from existing and importantly new customers around the world. Geographically, a particularly strong year on year performance was seen in Africa and Australia which grew 68% and 18% respectively, whilst the UK North Sea only grew by 2%, and accounted for 37% of total sales, highlighting the need for additional incentives for the North Sea oil and gas market to encourage investment as recommended in the influential Wood Report.

The rental of exploration wellhead and related equipment and services again accounted for approximately 95% of revenue which continues to reflect the fact that the Company's current business model is centred on the supply of rental surface exploration wellhead equipment and services as opposed to sold production surface well equipment. Looking forward, although Plexus' organic rental equipment business continues to grow, it is the Company's intention to begin to address both the surface production wellhead market and the subsea exploration and production markets, ideally in conjunction with a larger partner. Plexus' wellhead designs are already proven for production wells, a far larger market than rental exploration, and a contract worth approximately £0.85m was secured from Centrica in November 2013 for a standard pressure production well. HP/HT rental equipment sales continued to account for the majority of sales, rising to £23.3m up from £22.0m last year, an increase of 5.7%, and accounted for 86.2% of total sales. The continued growth in HP/HT revenue resulted from contracts for a number of existing and new customers including Centrica, Glencore, and Petronas. Such additional activity required further capital investment with £2.3m invested in rental assets including two additional HP/HT rental wellhead sets. Standard pressure equipment sales reduced by 19.6% to £1.71m from £2.13m in the prior year, and accounted for 6.3% of total sales. This decline reflected an on-going reduction in exploration activity in the UKCS where it has been reported to be at an all-time low. This year revenues of £0.37m were generated by engineering and testing as opposed to none last year.

Margin

Gross margins have been maintained at 71.1% (compared to 71.0% in the previous year) as the majority of rental activity sales continued to be HP/HT delivering higher margins than low pressure equipment contracts.

Overhead expenses

Sales and product development activities expanded in absolute and global reach terms and, as anticipated, overhead expenses increased to provide the necessary additional infrastructure and personnel to support these organic and on-going new product development initiatives. This resulted in total overheads increasing slightly to £13.93m from £13.78m in the previous year, although efficiency gains were made as these accounted for 51.5% of revenues compared to 53.9% for the prior year. Overhead staff costs was the most significant component, and increased marginally to £8.17m from £8.09m, reflecting the need to ensure that the Group's increased activity levels can be managed in line with customer and operational requirements, with the employee headcount increasing at the year-end to 144 compared to 135 for the prior year, an increase of 6.7%. Other items which increased year on year as a result of the increased activity levels, staff increases, and expansion of infrastructure were recruitment fees, training, health and safety, advertising and marketing, and travel and subsistence. These increases were in part offset by economies of which the main benefit came from reduced freight and courier costs as a result of a higher level of recharging.

EBITDA

EBITDA for the year (before IFRS 2 share based payment charges of £0.03m) was ahead of recently upgraded market expectations at £9.02m, increased from £7.60m (before IFRS 2 share based payment charges of £0.14m) the previous year, an increase of 18.7%. EBITDA margin for the year was higher at 33.4% as compared to 29.7% last year, an increase of 12.4%. This strong EBITDA performance is the result of operational efficiencies, coupled with maintaining the higher margins associated with HP/HT rental activity where the proprietary nature of the Plexus POS-GRIP friction-grip technology enables Plexus to deliver superior performance in terms of enhanced safety, time savings, and operational efficiencies, all of which add substantial value to our customers.

Profit before tax

Profit before tax increased significantly to a record £5.38m compared to a profit last year of £4.27m, an increase of 25.9%, and was ahead of recently upgraded market expectations. This increase has been achieved after absorbing higher depreciation and amortisation charges of £3.40m, up from £2.96m last year, the largest component being depreciation of rental assets which increased by 15.3%, reflecting the on-going investment in Plexus' wellhead rental inventory. Share of Associate profit contributed £0.21m. The profit before tax is stated after an IFRS 2 charge for share based payments under reporting standard IFRS 2; the charge for the full year is £0.03m compared to £0.14m last year.

Tax

The Group shows an income tax expense of £0.33m for the year as compared to £1.21m for the prior year. The Group has an effective tax rate for the year of 6% (2013: 28%) which is below UK corporation tax rates. This lower effective tax rate for the year is due to a reduced tax charge arising as a result of SME enhanced R&D tax credits, which arise from the Group's continuing significant R&D programme, and credits available against tax in respect of gains arising on share options exercised by employees. Last year's effective rate of tax was as previously reported higher than UK corporation tax rates due to adjustments made in 2013 for deferred tax that had not been provided for in 2012.

It is currently anticipated that for the foreseeable future, the Group will continue to report an effective tax rate that is lower than the prevailing UK corporation tax rate. This lower effective rate will depend upon the continuing eligibility to claim enhanced R&D tax credits as part of the on-going R&D programme; the expected potential reductions in tax rates arising from the Patent Box tax regime; and future movements in the Group's share price, which has the potential to have a positive or negative effect on the overall effective tax charge, in respect of both gains arising on share options exercised by employees and the deferred tax related thereto.

EPS

The Group reports basic earnings per share of 6.01p compared to 3.69p in the prior year, an increase of 62.7%.

Cash and Statement of Financial Position

The statement of financial position reflects the growth in operations during the year and in particular on-going capital expenditure, plus the acquisition of a 25% interest in a private manufacturer of specialist oil and gas equipment. The net book value of property, plant and equipment including items in the course of construction increased to £13.28m compared to £13.17m last year. Capital expenditure on tangible assets reduced as planned to £3.02m compared to £6.65m last year as it normalised following a record level in the prior year when ten more HP/HT wellhead equipment sets were added in preparation for a broader geographic presence. The net book value of intangible assets, including IP rights and R&D, increased by 20.1% to £10.44m compared to £8.69m last year. Capital expenditure on intangibles totalled £2.41m compared to £1.49m last year, an increase of 61%, of which importantly 57% related to additions in respect of the HGSS subsea wellhead JIP. Receivables increased to £6.46m compared to £4.92m last year. Net cash at bank closed at £2.35m compared to net bank borrowings of £1.39m last year reflecting net cash inflow for the year of £3.74m after absorbing total capital expenditure of £5.42m (2013: £8.14m), the acquisition of an associate investment for £0.73m, and receipt of £2.5m from the placing of new shares in December 2013. Following the post period end acquisition of an additional 36,000 sq. ft. work shop and office facility in Aberdeen in September for £2.4m the Group decided to increase its existing £6m working capital lending facilities structure with Bank of Scotland Corporate to £7m. In addition, to part fund the acquisition of the additional Aberdeen facilities, a £1.5m five year term loan was entered into. These facilities are anticipated to be adequate to meet on-going capital expenditure, R&D and related project commitments.

Intellectual Property

The Group carries in its statement of financial position goodwill and intangible assets of £11.2m, an increase of 18.5% from £9.45m last year, reflecting the Group's on-going investment in the development of its POS-GRIP technology and in particular patent development fee costs which increased 42.7% year on year, the most important elements of which continued to be in relation to POS-GRIP technology and the new subsea wellhead development project. The Directors have considered whether there have been any indications of impairment of its IP and have concluded, following a detailed asset impairment review, that there 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

Significant R&D expenditure continues to be an important and necessary investment in protecting and developing a range of applications for our proprietary POS-GRIP friction-grip method of engineering. This is at a time when R&D is increasingly being recognised as an essential component for the future success of the oil and gas industry, to help drive down costs, increase safety, and to develop enabling technology that can provide solutions to the growing challenges of unconventional drilling conditions, particularly subsea HP/HT. Plexus has always subscribed to the value of R&D expenditure, and yet ironically Nick Butler a former strategist at BP was recently quoted as saying that some operators may be cutting R&D "just when it matters" and relying more on the service companies. Plexus is confident that such a trend will help it to continue to play an important role in addressing the well reported wellhead integrity challenges which conventional wellhead equipment faces, particularly in the field of metal sealing where the unique advantages of POS-GRIP technology are so easy to demonstrate. Such a role manifests itself in a number of ways, with one specific R&D driven initiative being our on-going HGSS subsea wellhead JIP, which was launched at the request of an international operator in response to the 2010 incident in the Gulf of Mexico. This subsea wellhead JIP addresses a number of technical issues identified as part of the investigations into the incident, and is now supported by six major international oil and gas operators who are consulting partners to the project. A second R&D driven project is the up to 20,000 psi HP/HT Tie-Back Connector JIP, part funded by Maersk Oil North Sea UK Limited, which is designed to allow HP/HT exploration wells and pre-drilled production wells to be converted to either subsea or platform producing wells as opposed to abandoning such HP/HT wells and writing off typical costs of £50m to £200m. R&D activities such as these, utilising our proprietary technology, generate important opportunities to expand and extend our comprehensive range of POS-GRIP based patents thereby protecting the Company's significant level of investment in its IP, and maximising the opportunity of achieving financial returns on that investment over the long term. R&D spend increased by 67.7%, including the cost of building new test fixtures, to £3.19m from £1.91m in the prior year, and will continue during the 2014/15 financial year as the HGSS subsea JIP progresses and the POS-GRIP product range including the HP/HT Tie-Back Connector broadens.

IFRS 2 (Share Based Payments)

IFRS 2 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 £0.03m which compares to £0.14m last year.

Dividends

The Company announced on 27 March 2014 the payment of an increased interim dividend of 0.48p per share which was approved for payment on 25 April 2014.

In further recognition of the Group's on-going progress the Directors have decided to propose a 12.7% increase in the final dividend of 0.62p per share for the year ending 30 June 2014 compared to 0.55p last year, which will be recommended for formal approval at the Annual General Meeting to be held on 11 December 2014. Subject to this the dividend will be paid on 17 December 2014 to all members appearing on the register of members on the record date 7 November 2014. The ex-dividend date for the shares is 6 November 2014.

Operations

As Plexus continues to grow and expand its operations beyond the UK and the Continental North Sea it is essential that on-going investment is made in infrastructure including plant and equipment, IT operating systems and, crucially, personnel. The need for such initiatives is driven by the contract wins secured from existing and new customers in relation to our core rental exploration wellhead supply activities. The most significant contracts that underpinned our progress during the year were as follows:

·     July 2013 - new customer win with ENI Aus for the supply of standard pressure equipment offshore Australia with a value of £0.28m, adding to Apache and Santos in the region

·     July 2013 - Statoil contract for two HP/HT exploration wells in the Norwegian Continental Shelf with a value of £2.5m, plus two options for Statoil to extend the contract for a further two years

·     November 2013 - production well contract from Centrica for the supply of a standard pressure wellhead for the southern North Sea with a value of £0.85m

·     November 2013 - Glencore order for additional HP/HT wellhead equipment for two wells offshore Cameroon with value of £1.6m

·     February 2014 - first time Maersk Danish business unit contract for the supply of HP/HT equipment for standard pressure exploration well in the Danish North Sea with a value of £1.1m

·     February 2014 - two three year contract extensions. Firstly with Wintershall for offshore Netherlands, and secondly with AGR for the supply of standard pressure and HP/HT wellhead equipment where the first order for £0.4m was for a new territory Guinea Bissau for Svenska

·     February 2014 - GDF additional well order for the UK Central North Sea for HP/HT equipment for a standard pressure well with a value of £1.5m

·     April 2014 - new customer and new territory win with Galp for the supply of HP/HT equipment for a standard pressure well offshore Morocco with a value of £0.6m

·     May 2014 - new customer and new territory win with Shell China for the supply of HP/HT equipment for exploration well offshore Hainan Island

·     June 2014 - second well for Maersk Danish business unit with a value of £1.4m

Post year end contracts included:

·     August 2014 - our long standing customer Det Norske placed an order for HP/HT wellhead equipment for offshore Norway with a value of £1m

·     October 2014 - BG order for supply of HP/HT equipment for an exploration well in the UKCS

Day to day operations are driven by our core jack-up exploration business activities, and it is essential that we continue to invest in expanding our rental wellhead inventory, personnel recruitment and training, and infrastructure both close to our headquarters in Aberdeen, and further afield where we have established a base of operations in Singapore. Sales activities outside of the UK and Europe, which we designate as the Rest of the World, accounted for 38% of total sales which is an increase of 17% over the prior year and demonstrates that we can win business from such regions and are right to focus on identifying and building on such opportunities.

As part of our Rest of the World growth strategy we announced in August 2014 that our Plexus Ocean Systems (Singapore) Pte Ltd ('Plexus Singapore') subsidiary had completed the formation of a new Malaysian JV company Plexus Products (Asia) Sdn Bhd ('PPA') in conjunction with a local Malaysian oil and gas partner, IPS. The establishment of PPA is a key part of our strategy to create a fully operational Asian business hub which can target the important and growing Australian, Brunei, Indonesian, Malaysian, Thai and Singaporean oil and gas exploration and production markets. Our business partner IPS is a well-known upstream support services business to the offshore oil and gas industry in Malaysia and the Asia Pacific region with in-house manufacturing facilities, and is an approved vendor to Petronas, and actively participates in the bidding and tendering process to provide support services to its Production Sharing Contract ('PSC') operators such as Petronas Carigali, Shell, Talisman, ExxonMobil, Murphy Oil, Newfield, and Hess. IPS's first task is to seek to obtain the necessary local licences required to supply Plexus POS-GRIP wellhead equipment in the important Malaysian market. PPA's intended future business activities will complement Plexus' existing activity in the Asian and Oceanic regions where business has already been generated with Apache, Eni Australia, Petronas, Santos, Shell Brunei, and recently Shell China. Plexus is slowly growing the number of employees based in the region and we hope to report more progress in the coming months as Plexus Singapore is already able to inspect and refurbish wellhead equipment and service local markets, which also generates efficiency savings by not having to ship the equipment back to Aberdeen.

Closer to home, a significant investment was made post period end in September 2014 with the acquisition for £2.4m of the adjacent 36,000 sq. ft. building previously occupied by the leading oilfield services company Baker Hughes; effectively doubling the size of the main operational headquarters location in Dyce, Aberdeen. As Aberdeen continues to be at the heart of Plexus R&D, technical development, and operational support functions the opportunity to expand in such a logistically efficient manner was quickly seized. The additional site will provide extra work shop, warehouse, service bay, and office space and will strengthen our ability to support and respond to the growing demand for our equipment and services at a time when the UK, and Aberdeen in particular, is widely recognised as the technological leader in subsea technology, an area where we anticipate being able to offer a new standard of wellhead equipment over the coming years.

As highlighted in the R&D section of our Strategic Report, Plexus currently has two JIP's on-going. First is our HP/HT up to 20,000psi Tie-Back Connector, an innovative and unique product sponsored by Maersk. The Tie-Back Connector features our metal-to-metal HG® seals and will for the first time allow HP/HT exploration and pre-drilled production wells to be converted to either subsea or platform producing wells delivering significant savings in terms of capital expenditure and the acceleration of bringing a well into production. Full product testing commenced post period end and will be completed by the end of the 2014 calendar year. Technical sales discussions are in progress with an international oil and gas operator for opportunities in Egypt and the UK, although any potential Egyptian opportunities may be disrupted by current events in the region. The second JIP is our innovative and superior new subsea HGSS wellhead design project where good progress is being made with the support of our consulting partners to design and develop a safer and more technically advanced subsea wellhead. Innovative features of the product have been protected through various patent applications which further extend the life of our IP. Testing commenced post period end and it is anticipated it will be completed by the end of the 2014 calendar year. Furthermore, discussions continue with the JIP members and two international oil and gas operators regarding commercial opportunities for the new subsea wellhead in 2016 post the running of a prototype, for which a commitment will be sought for the second half of the 2015 calendar year.

Staff and staff development remains a key factor in our current and future success. It is well known that the oil and gas industry has one of the tightest labour markets and experiences consequent skill shortages, and therefore our ability to recruit and retain staff is paramount. Fortunately because Plexus offers the market a unique product range we believe that this appeals to seasoned industry personnel who have an opportunity to work in an entrepreneurial 'can do' environment with new and ground-breaking technology that can raise the standards bar to a new level. As a result the year on year total employee numbers increased from 135 to 144, and currently stands at 149. It is particularly gratifying to note that 40% of our recruitment comes from employee referral which is not only cost effective, but importantly demonstrates that our staff happily encourage others to join Plexus. To help meet these goals the training budget was trebled and a number of key deliverables were established to ensure the investment was effective. These included a leadership change programme for operating company directors, a bespoke supervisory and management skill training programme for all supervisors and managers, and the commencement of a "Competency@Plexus" initiative for our field service technicians. In recognition of the importance that we place on such initiatives at a time when safety is so key for the industry, we are on target to submit our programme for industry accreditation by Offshore Petroleum Industry Training Organisation ('OPITO') by early 2015.

Health and Safety is an operational area which is quite rightly at the forefront of the industry, and is one of our key performance indicators. Plexus is committed to delivering the highest safety standards, and we continue to manage safety risks through assessment, implementation of controls, continual monitoring, and hiring and developing staff to meet the competency levels required. In particular we encourage our personnel to intervene and to challenge any unsafe act or condition and to ensure transparent reporting. Recent audits by Lloyds Register Quality Assurance, our certifying body, and clients demonstrates that we are operating to the recognised industry and national standards. We also actively seek to share Health and Safety Executive ('HSE') best practice with our customers and industry bodies.

IT services are an additional area of operations essential for the delivery of fast, accurate, and secure data and hardware support. Investment in IT staff and associated infrastructure has increased to support the on-going growth of the business, and to address recognised risks that are identified as part of our on-going risk assessment and management process. Such risk management is a key priority for IT and therefore our internal software systems have been extended to include planning and MRP modules which enable us to better manage sales opportunities leading to a more cost effective supply chain process. The IT department is currently reviewing the adoption, where appropriate and effective, of the ISO 27001 standard for information security management systems ('ISMS'). Such certification can help protect systems against computer assisted fraud, cyber-attack, sabotage, and viruses, and is increasingly being sought by customers, trading partners, and other key stakeholders as a way of demonstrating that such security risks are taken seriously.

Finally, Plexus has to date, chosen not to own its own manufacturing capacity, but in July 2013 acquired the whole issued share capital of a private company which holds a 25% interest in a private UK engineering company which manufactures specialist oil and gas equipment. This investment complements our growth strategy as it is anticipated to support our capital equipment needs whether it be the expansion of our rental wellhead inventory or for engineering and prototype development capacity for the on-going JIPs.

Strategy and Future Developments

Technology

The Plexus strategy centres on our unique and patented POS-GRIP friction-grip method of engineering which has wide ranging applications both within and outside of the oil and gas industry. The strategy is primarily focused on delivering a new and highest standard of wellhead design for the upstream oil and gas markets where it has proved uniquely advantageous in terms of safety features, operational efficiency, and cost savings for jack-up drilling HP/HT applications.

In simple terms POS-GRIP wellhead designs, whether for exploration or production for the surface or in due course subsea, offer a proven range of advantages over conventional "slip and seal" and "mandrel hanger" wellhead technologies and can include larger metal-to-metal seal areas, virtual elimination of movement between parts, fewer components, simplified design and assembly, enhanced corrosion resistance, simpler manufacture, long term integrity, annulus management, and reduced installation cost. With the growing importance of unconventional HP/HT and deep-water reservoir developments, the oil and gas industry is facing increasing technical challenges to meet rigorous regulatory and health and safety requirements, whilst maintaining the economic viability and safety of operations at a time when the price of oil is under pressure. POS-GRIP wellheads address many of these challenges and we believe that our equipment is a new standard which will over time break out of its current niche jack-up exploration drilling and into the mainstream volume production wellhead market, as well as subsea, whether organically or through partners.

The validation of the potential of our technology came post the Gulf of Mexico 2010 incident when we were asked to consider applying POS-GRIP technology to the design of a new subsea wellhead which we have termed HGSS, and which uniquely provides instant casing hanger lock-down, and has no need for wearbushings, lock rings, or lock-down sleeves, and can provide easy release for side-track applications. This JIP has gained significant attention from the industry and our consulting partners now include BG International Ltd, Eni, Maersk North Sea, Oil States, Senergy, Shell International, Total, Tullow and Wintershall which we believe is the best supported JIP of its kind.

The importance of and need for superior and enabling technology is widely recognised by the industry, and as the 2014 Exxon Report stated, "Advances in technologies will play a critical role in meeting global energy demand because they enable the discovery of new resources, access to harsh or remote locations and the development of challenged reservoirs that previously were not economic to produce". Plexus is preparing to play an important role in the supply of such technology in the wellhead market, and to this end we recently commissioned an extensive in depth report by an international independent engineering consultancy, OTM Consulting Inc, ('OTM') which assessed POS-GRIP wellhead designs against competing conventional technology. OTM concluded that Plexus wellheads using its HG metal seals, offer the "best possible sealing performance through a metal-to-metal seal that none of the existing designs can match. Moreover, sealing performance is not effected by pressure/temperature cycles as there are no movable components". OTM concludes that after evaluating POS-GRIP sealing technology against existing competing technologies, "it is the best and safest technology due to its enhanced safety performance".

Although Plexus in no way underestimates the challenge of competing against long established multinational wellhead companies who often provide an equipment 'package' solution, we believe that such analysis and conclusions regarding the strengths of our technology are a sound base from which to continue to build market share. Additionally the HP/HT technology led sector in which Plexus specialises is known to need critical solutions. As a panel of international oil and gas industry experts including GE, Shell, and Maersk confirmed to Lloyd's Register Energy in a recent survey, at the very top of the list of the "high impact technologies going mainstream in the medium term (around 2020)" was "High-pressure high-temperature drilling, wellheads, and related technologies" according to 60% of the respondents. Such innovative technology also appeals to certain important markets where there is a growing desire and need not to become or remain reliant on imported technology and equipment. For example it was recently reported that Rosneft and Gazprom may cooperate on the development of technologies for oil and gas exploration in the Artic Shelf.

Business Model and Markets

The core organic market that Plexus has historically addressed is the supply of adjustable rental wellhead equipment and associated running tools for jack-up exploration drilling in the UKCS. Initially this was only for standard pressure equipment of 10,000 psi or less, but with the development of POS-GRIP HP/HT equipment Plexus has secured nearly 100% of the UKCS market as a result of the superior nature of our technology. This business has since expanded into the European markets including Norway, Netherlands, and Denmark, and beyond into global markets, particularly for the supply of HP/HT wellhead equipment where we have extended our reach to territories that include Australia, Brunei, Cameroon, Egypt, Malaysia, and Russia. Plexus also provides service technicians to install and maintain the equipment at various stages during the drilling of each well.

This advantage of focusing on rental exploration is that it allows customers to experience and validate the many benefits of POS-GRIP technology on wells of a temporary nature, as opposed to production wells where the wellhead equipment is in the field for the life of the well which can be over twenty years. This model has also mitigated the need for Plexus to develop internal manufacturing capabilities with attendant fixed overheads as it currently outsources all of its wellhead manufacturing to a select number of third parties.

Whereas the jack-up wellhead exploration market can be considered a niche market estimated to be worth circa US $300m per annum, OTM estimate that in 2014 the global combined worth for exploration and production wellheads is around US $4.5bn. Clearly therefore the opportunity for a superior and unique wellhead that has the potential to become a new global standard is considerable, and OTM has calculated that as a conservative estimate, if POS-GRIP captures just 1% of the wellhead market for production wet and dry, and exploration wet equipment, between 2014 and 2018 "it will generate revenues of circa US $280m in the same period". Such analysis is relevant to both Plexus from an organic opportunity perspective, and also from a potential international partner's perspective, as the ability to offer a 'package' equipment supply solution, of which an innovative and superior wellhead would comprise an important element, helps to drive sales of other items such as control equipment.

In terms of revenue generation Plexus owns an expanding fleet of rental wellheads which are quickly able to return their capital cost, and through a programme of on-going refurbishment are able to continue to generate rental revenue for an extended period of time that in some instances has exceeded fifteen years. The majority of the rental fleet now comprises HP/HT wellheads, and it is relevant to note a developing trend for the demand for such wellheads for standard pressure applications, as operators seek to use BAST.

Plexus is working hard to not only continue to grow the jack-up rental business in both its traditional and new market territories, but also to take its proven technology into the mainstream volume production wellheads market, and the important and growing subsea market. The subsea market which includes wellheads is according to Quest Offshore expected to be highly active and grow by over 60% in the next five years, from a US $49.7bn market for the previous five year period 2009 to 2013. It is also relevant to note the industry is beginning to focus on capital discipline and has increased its search for lower cost solutions. This trend is likely to grow further should the recently reduced oil price become the norm.

Plexus is ready to play its part in delivering such important cost savings for the operator, and crucially we believe that we can do this while also delivering a superior wellhead solution. Importantly not only can our surface jack-up wellheads be supplied at a cost that equates to less than the time savings for the operator, thereby making them cost negative, but looking forward, and as OTM have analysed, "for subsea wells, the reduced number of trips (the process of removing the drill string from the wellbore and running it back in the hole) is estimated to result in savings of 5-6 days for a 10,000 ft. water depth, with an average rig cost of US $1m per day", which would mean a saving of up to US $6m for the operator. This is because we are not aware of any other wellhead that can deliver instant casing hanger lockdown, effective long term metal sealing integrity, and monitoring, whilst having no need to install lock rings or a lock down sleeve, as well as then being able to offer the availability of readily implemented multiple side tracking capability. Features such as these underpin the value of our IP and give an indication of the growth potential of Plexus as our business model seeks to extend into these new markets.

As well as significant cost benefits, the superior nature of our technology can be readily applied to new addressable markets such as floating production storage and offloading vessels known as 'FPSO's' which are offshore production facilities that house both processing equipment and storage usually tied to multiple subsea wells. This market is expected to grow significantly over the next 10 years, particularly in the Gulf of Mexico. Plexus can deliver a system whereby the connections from the hanger to the subsea wellhead, the subsea wellhead to the tie back tool, and the surface hanger to the surface wellhead all match the integrity of the premium couplings in the system, which again we consider to be the BAST solution.

Strategy

Plexus has been working for a number of years to validate its POS-GRIP technology, and this has been successfully achieved in the exploration jack-up drilling market sector which remains the core organic business activity. However our technology has also been proven for the volume production wellhead market, and we are currently working in our JIP towards addressing the growing subsea market where significant commercial opportunities exist, and which could be best met through potential partnerships, for example through a licensing model. We will be actively exploring this corporate strategy at the appropriate time.

Whilst we continue to expand our core business, and develop new strategic goals, it is important to ensure that we plan for and implement the necessary infrastructure that is needed to support this future growth, both in the UK and abroad. Plexus has extensive sales, engineering, assembly, procurement and service facilities in Aberdeen, which lies at the heart of the UK's oil and gas industry, and as a sign of confidence in both Aberdeen and our own future we doubled the size of our main facility with the acquisition in September of a 36,000 sq. ft. ex-Baker Hughes facility for £2.4m. This additional space will enable us to plan for further on-going expansion of our rental exploration fleet, whilst ensuring that Aberdeen maintains its role as the centre of our supply hub.

Looking into the future we see a strategy developing to establish a number of regional hubs that can service local customers without having to return equipment back to Aberdeen providing cost saving and utilisation efficiency advantages. The first of these hubs is Plexus Singapore where we have established a local service base that can reach out to Australia, Brunei, and Malaysia, and hopefully in due course other markets such as Indonesia and Vietnam. The base is already being used to service a new customer, Shell China, and sizeable time and cost savings are expected to result.

On-going development of our IP continues to be an important strategy not only in terms of protecting existing IP, but also in terms of developing continuations and new IP that is able to deliver an on-going series of 20 year patent protections. This IP strategy has most recently been particularly active for subsea related designs and technology and we are confident that as these are based around our proprietary POS-GRIP technology that the many new patent applications that we have submitted will in due course be granted.

Creating IP is of course only part of the story - 'know-how' in terms of how to apply our IP is critical. Plexus products and business are all developed around our POS-GRIP friction-grip method of engineering which can be applied to additional upstream and downstream applications where it is necessary to join concentric tubular members, or engage remotely operated connectors, all without the need for threads. Examples include deepwater riser systems, stress joint connectors, riser tensioning systems, LNG terminal solutions, geothermal wellheads pipeline connections, and of course subsea wellheads where our JIP is well advanced and anticipate running a prototype in the field in 2015 calendar year. A further example of such a new product in the process of final testing, and sponsored by Maersk, is our HP/HT Tie-Back Connector system which for the first time will allow HP/HT exploration and pre-drilled wells to be converted to either subsea or platform producing wells. Not only would this enable production to be brought on-line quicker, but it also saves significant amounts of capex for the operator that otherwise would be written off when wells were previously abandoned. We are therefore in the best position to know how to apply the POS-GRIP 'recipe' to such engineering led solutions, and we hope to be able to progress these opportunities over the coming years.

In line with our strategy of extending sales territories and product ranges, we also keep a close eye on commercial opportunities that arise from new or growing energy sources. These can relate to the actual energy source itself, or physical locations. For example we recently undertook a sales visit to Japan to assess what opportunities may exist for our technology. Discussions extended beyond our core business technology, and included early stage future planned extraction of methane hydrates where safety and sealing are paramount, (methane is the chief ingredient of natural gas and can be found all over the world beneath the seafloor or underneath Artic permafrost), as well as mud volcanos for geothermal applications where high temperature wellheads would be required. Further opportunities have also been identified in the Artic offshore Russia and Norway where the ability to disconnect and reconnect wellhead equipment without the use of threaded connectors would have clear cost and safety advantages, and also offshore Western Greece where new offshore licencing rounds are being prepared as a result of nearby Italian and Albanian discoveries which share similar geology.

In summary our key strategic goal over time is for POS-GRIP wellheads, whether for surface or subsea exploration and production applications, to become a new industry standard which is recognised as a superior method of engineering that delivers a quality of metal seal that cannot be matched by conventional wellhead technology. The science based driver for our ability to achieve this goal is simply that unlike conventional wellhead designs available from all other wellhead suppliers, Plexus is uniquely able to deliver and maintain enough interface stress between the perimeter of a metal seal and the wellhead bore, within Hertzian Contact Stress limits, throughout the life of the well. In line with this strategy, we are beginning to actively explore how best to exploit this simple message with potential partners worldwide.

Key Performance Indicators

The Directors monitor the performance of the Group by reference to certain financial and non-financial key performance indicators. The financial indicators include revenue, EBITDA, profit and earnings per share. Non-financial indicators include Health and Safety statistics, equipment utilisation rate, geographical diversity of customer revenues, effectiveness of a range of research and development initiatives for example in relation to new patent activity, and employee headcount and turnover rates.

Principal Risks and Risk Management

There are a number of potential risks and uncertainties that could have an impact on the Group's performance which include the following.

(a)   Political and environmental risks

        We participate in a global market where the oil and gas reserves and their extraction can be severely impacted by changes in the political, operational, and environmental landscape. The introduction of sanctions is one example of such a risk. As a supplier to the industry we in turn can be adversely affected by such events which can disrupt the markets, and affect our ability to execute work for customers and/or collect payment for services performed. To help address such risks, the Group has continued to broaden its geographic footprint and customer base.

(b)   Technology

        The Group is still at a relatively early stage in the commercialisation, marketing and application of its POS-GRIP friction-grip technology beyond jack-up rental exploration wellhead equipment, particularly with regard to new product developments. Current and future contracts may be adversely affected by technology related factors outside the Group's control. These may include unforeseen equipment design issues, test delays during a contract and final testing and delayed acceptances of deliveries, which could lead to possible abortive expenditure, reputational risk and potential customer claims or onerous contractual terms. Such risks may materially impact on the Group. To mitigate this risk the Group continues to invest in developing and proving the technology and has a policy of on-going training of our own personnel and where appropriate our customers.

(c)   Competitive risk

        The Group operates in highly competitive markets and often competes directly with large multi-national corporations who have greater resources and are more established. Product innovation or technical advances by competitors could adversely affect the Group and lead to a slower take up of the Group's proprietary technology. To mitigate this risk Plexus maintains an extensive suite of patents and trademarks, and actively continues to develop and improve its IP to ensure that it continues to be able to offer unique superior wellhead design solutions.

(d)   Operational

Shortage of experienced personnel in the oil and gas industry is widely recognised and could deprive Plexus of key personnel necessary for operational activities and research and development initiatives. To mitigate this risk Plexus has developed effective recruitment and training procedures, which combined with the appeal of working in a company with unique technology and engineering solutions has enabled us to continue to grow our staff numbers, and achieve to date a low rate of turnover of personnel.

(e)   Liquidity and finance requirements

        In an economic climate that remains volatile and unpredictable it has become increasingly possible for both existing and potential sources of finance to be closed to businesses for a variety of reasons that have not been an issue in the past. Some of these may even relate to the lender itself in terms of its own capital ratios and lending capacity. Although this is a potential risk the Group took appropriate steps during the year to mitigate this risk by successfully renewing and extending its bank facilities with Bank of Scotland. The Group is required to meet certain financial criteria agreed as covenants in connection with its bank loans and monthly management accounts are prepared and reviewed against the covenant requirements to ensure that the Group's obligations can be met.

(f)    Credit

The main credit risk is attributable to trade receivables. As the majority of the Group's customers are large international oil companies the risk of non-payment is much reduced, and therefore is more likely to be related to client satisfaction and/or trade sanctions. Customer payments can involve extended period of times especially from countries where exchange control regulations can delay the transfer of funds outside those countries. The Group has credit risk management policies in place and exposure to credit risk is monitored continuously.

Risk assessment

The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Group. One of the Board's control documents is a detailed "Risks assessment & management document" which categorises risks in terms of - business (including IT), compliance, finance, cash, debtors, fixed assets, other debtors/prepayments, creditors, legal, and personnel. These risks are assessed on a regular basis and could be associated with a variety of internal and external sources including regulatory requirements, disruption to information systems, control breakdowns and social, ethical, environmental and health and safety issues.

Ben van Bilderbeek

Chief Executive

28 October 2014

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2014

		2014	2013
	Notes	£'000	£'000
Revenue	1	27,024	25,566
Cost of sales		(7,817)	(7,402)
Gross profit		19,207	18,164
Administrative expenses		(13,928)	(13,772)
Operating profit		5,279	4,392
Finance income		5	7
Finance costs		(124)	(130)
Share of profit of associate		215	-
Profit before taxation		5,375	4,269
Income tax expense	3	(329)	(1,213)
Profit after taxation		5,046	3,056
Other comprehensive income		-	-
Total comprehensive income for the year attributable to the owners of the parent		5,046	3,056
Earnings per share	5
Basic		6.01p	3.69p
Diluted		5.75p	3.51p
All income arises from continuing operations.

Consolidated Statement of Financial Position

at 30 June 2014

		2014	2013
	Notes	£'000	£'000
Assets
Goodwill		760	760
Intangible assets	6	10,437	8,691
Investment in associate	7	941	-
Property, plant and equipment	8	13,284	13,168
Deferred tax asset		751	545
Total non-current assets		26,173	23,164
Inventories		5,256	6,032
Trade and other receivables		6,463	4,922
Cash and cash equivalents		6,353	2,609
Total current assets		18,072	13,563
Total Assets		44,245	36,727
Equity and Liabilities
Called up share capital	9	849	828
Share premium account		20,138	17,288
Share based payments reserve		2,476	2,741
Retained earnings		11,117	6,335
Total equity attributable to equity holders of the parent		34,580	27,192
Liabilities
Bank loans		4,000	4,000
Total non-current liabilities		4,000	4,000
Trade and other payables		5,482	5,226
Current income tax liabilities		183	309
Total current liabilities		5,665	5,535
Total liabilities		9,665	9,535
Total Equity and Liabilities		44,245	36,727

Consolidated Statement of Changes in Equity

for the year ended 30 June 2014

	Called Up Share Capital £'000	Share Premium Account £'000	Share Based Payments Reserve £'000	Retained Earnings £'000	Total £'000
Balance as at 30 June 2012	827	17,280	1,726	4,057	23,890
Total comprehensive income for the year	-	-	-	3,056	3,056
Share based payments reserve charge	-	-	141	-	141
Issue of ordinary shares	1	8	-	-	9
Net deferred tax movement on share options	-	-	874	-	874
Dividends	-	-	-	(778)	(778)
Balance as at 30 June 2013	828	17,288	2,741	6,335	27,192
Total comprehensive income for the year	-	-	-	5,046	5,046
Share based payments reserve charge	-	-	26	-	26
Transfer of share based payments reserve charge on exercise of options	-	-	(599)	599	-
Issue of ordinary shares (net of issue costs)	21	2,850	-	-	2,871
Net deferred tax movement on share options	-	-	308	-	308
Dividends	-	-	-	(863)	(863)
Balance as at 30 June 2014	849	20,138	2,476	11,117	34,580

Consolidated Statement of Cash Flows

for the year ended 30 June 2014

	2014	2013
	£'000	£'000
Cash flows from operating activities
Profit before taxation	5,375	4,269
Adjustments for:
Depreciation, amortisation and impairment charges	3,405	2,956
Loss on disposal of property, plant and equipment	95	108
Loss on expiry of option	-	60
Charge for share based payments	26	141
Investment income	(5)	(7)
Interest expense	124	130
Share of result in associate	(215)	-
Changes in working capital:
Decrease in inventories	776	15
(Increase)/decrease in trade and other receivables	(1,541)	1,138
Increase/(decrease) in trade and other payables	256	(106)
Cash generated from operating activities	8,296	8,704
Income taxes paid	(353)	(926)
Net cash generated from operating activities	7,943	7,778
Cash flows from investing activities
Acquisition of associate	(726)	-
Purchase of intangible assets	(2,403)	(1,491)
Purchase of property, plant and equipment	(3,016)	(6,650)
Proceeds of sale of property, plant and equipment	57	125
Net cash used in investing activities	(6,088)	(8,016)
Cash flows from financing activities
Net proceeds from issue of new ordinary shares	2,330	-
Proceeds from share options exercised	541	9
Interest paid	(124)	(130)
Interest received	5	7
Equity dividends paid	(863)	(778)
Net cash generated from/(used in) financing activities	1,889	(892)
Net increase/(decrease) in cash and cash equivalents	3,744	(1,130)
Cash and cash equivalents at 1 July 2013	2,609	3,739
Cash and cash equivalents at 30 June 2014	6,353	2,609

Notes to the Consolidated Financial Statement

1.     Revenue

	2014	2013
	£'000	£'000
By geography
UK	9,892	9,663
Europe	6,905	7,157
Rest of World	10,227	8,746
	27,024	25,566

The revenue information above is based on the location of the customer.

2.     Segment reporting

The Group derives revenue from the sale of its POS-GRIP technology and associated products, the rental of wellheads utilising the POS-GRIP technology and service income principally derived in assisting with the commissioning and on-going service requirements of our equipment. These income streams are all derived from the utilisation of the technology which the Group believes is its only segment.

Per IFRS 8, the operating segment is based on internal reports about components of the group, which are regularly reviewed and used by the board of directors being the Chief Operating Decision Maker ("CODM").

All of the Group's non-current assets are held in the UK.

The following customers each account for more than 10% of the Group's revenue:

	2014	2013
	£'000	£'000
Customer 1	5,110	1,183
Customer 2	4,472	437
Customer 3	3,576	1,121

3.     Income tax expense

(i) The taxation charge for the year comprises:	2014	2013
	£'000	£'000
UK Corporation tax:
Current tax on income for the year	483	701
Adjustment in respect of prior years	(350)	(391)
	133	310
Foreign tax:
Current tax on income for the year	81	91
Adjustment in respect of prior years	13	10
	94	101
Total current tax	227	411
Deferred tax:
Origination and reversal of timing differences including share options	(42)	247
Adjustment in respect of prior years	144	555
Total deferred tax	102	802
Total tax charge	329	1,213
The effective rate of tax is 6% (2013: 28%)
(ii) Factors affecting the tax charge for the year
Profit on ordinary activities before tax	5,375	4,269
Tax on profit at standard rate of UK corporation tax of 22.5% (2013: 23.75%)	1,209	1,014
Effects of:
Expenses not deductible for tax purposes	217	263
Income from associate not subject to tax	(48)	-
Effect of R&D tax credits	(279)	(277)
Effect of change in tax rate	(128)	(14)
Tax adjustments on share based payments	(449)	53
Adjustments in respect of prior year	(193)	174
Total tax charge	329	1,213
(iii) Movement in deferred tax asset balance
Deferred tax asset at beginning of year	545	473
Charge to statement of comprehensive income	(102)	(802)
Deferred tax movement on share options	308	874
Deferred tax asset at end of year	751	545
(iv) Deferred tax balance
The deferred tax asset balance is made up of the following items:
Difference between depreciation and capital allowances	(1,232)	(1,107)
Share based payments	1,956	1,620
Tax losses	27	32
Deferred tax asset at end of year	751	545

4.    Dividends

	2014	2013
	£'000	£'000
Ordinary Shares
Interim paid for the period to 31 December 2013 of 0.48p (2013: 0.44p) per share	407	364
Ordinary Shares
Final dividend for the year ended 30 June 2014 of 0.62p (2013: 0.55p) per share	526	456

The proposed final dividend has not been accrued at the statement of financial position date in accordance with IFRS.

5.    Earnings per share

	2014	2013
	£'000	£'000
Profit attributable to shareholders	5,046	3,056
	Number	Number
Weighted average number of shares in issue	83,991,918	82,747,275
Dilution effects of share schemes	3,728,098	4,275,461
Diluted weighted average number of shares in issue	87,720,016	87,022,736
Basic earnings per share	6.01p	3.69p
Diluted earnings per share	5.75p	3.51p
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 2012	6,440	3,895	157	10,492
Additions	-	1,458	33	1,491
As at 30 June 2013	6,440	5,353	190	11,983
Additions	-	2,367	36	2,403
As at 30 June 2014	6,440	7,720	226	14,386
Amortisation
As at 1 July 2012	2,032	562	136	2,730
Charge for the year	330	219	13	562
As at 30 June 2013	2,362	781	149	3,292
Charge for the year	330	308	19	657
As at 30 June 2014	2,692	1,089	168	3,949
Net Book Value As at 30 June 2014	3,748	6,631	58	10,437
As at 30 June 2013	4,078	4,572	41	8,691
As at 30 June 2012	4,408	3,333	21	7,762
Patent and other development costs are internally generated.

7.     Investment in associate

The summary financial information of the Group's associate, extracted on a 100% basis from the accounts for the 11 months ended 30 June are as follows:

	£'000
Assets	8,464
Liabilities	5,037
Revenue	8,158
Profit	862
Value of associate investment
Investment in associate during the year	726
Share of profit in the year	215
Investment in associate at 30 June 2014	941

8.     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 2012	685	213	17,094	851	47	18,890
Additions	287	140	736	5,487	-	6,650
Transfers	-	-	5,679	(5,679)	-	-
Disposals	-	-	(915)	-	(5)	(920)
As at 30 June 2013	972	353	22,594	659	42	24,620
Additions	2	77	430	2,505	2	3,016
Transfers	-	-	2,904	(2,904)	-	-
Disposals	-	-	(535)	-	-	(535)
As at 30 June 2014	974	430	25,393	260	44	27,101
Depreciation
As at 1 July 2012	259	39	9,434	-	13	9,745
Charge for the year	66	37	2,279	-	12	2,394
On disposals	-	-	(685)	-	(2)	(687)
As at 30 June 2013	325	76	11,028	-	23	11,452
Charge for the year	80	50	2,612	-	6	2,748
On disposals	-	-	(383)	-	-	(383)
As at 30 June 2014	405	126	13,257	-	29	13,817
Net book value As at 30 June 2014	569	304	12,136	260	15	13,284
As at 30 June 2013	647	277	11,566	659	19	13,168
As at 30 June 2012	426	174	7,660	851	34	9,145

9.    Share Capital

	2014	2013
	£'000	£'000
Authorised:
Equity: 110,000,000 (2013: 110,000,000) Ordinary shares of 1p each	1,100	1,100
Allotted, called up and fully paid:
Equity: 84,892,673 (2013: 82,768,672) Ordinary shares of 1p each	849	828

Share issue during the year:

	Number of shares	Share capital £'000	Share premium £'000	Total £'000
At 30 June 2013	82,768,672	828	17,288	18,116
On 29 July 2013	36,377	-	16	16
On 5 December 2013	2,087,624	21	3,004	3,025
Less share issue costs	-	-	(170)	(170)
At 30 June 2014	84,892,673	849	20,138	20,987

During the period the Group issued new shares as a result of the following transactions:

			Aggregate	Total
	Number of	Price per	nominal	aggregate
	shares	share	value	value
			£	£
29 July 2013
- Share options	31,313	41.00p	313	12,838
- Share options	5,064	60.00p	51	3,038
	36,377		364	15,876
5 December 2013
- Issue of new shares	1,020,408	245.00p	10,204	2,500,000
- Share options	125,445	38.50p	1,254	48,296
- Share options	439,871	41.00p	4,399	180,347
- Share options	38,630	54.75p	386	21,150
- Share options	310,152	59.00p	3,102	182,990
- Share options	153,118	60.00p	1,531	91,871
	2,087,624		20,876	3,024,654
Total	2,124,001		21,240	3,040,530
Split by type
Issue of new shares	1,020,408		10,204	2,500,000
Share options	1,103,593		11,036	540,530
Total	2,124,001		21,240	3,040,530

The excess net proceeds have been credited to the share premium account.

10.   Reconciliation of net cash flow to movement in net cash/(debt)

	2014	2013
	£'000	£'000
Increase/(decrease) in cash in the year	3,744	(1,130)
Movement in net cash/(debt) in year	3,744	(1,130)
Net debt at start of year	(1,391)	(261)
Net cash/(debt) at end of year	2,353	(1,391)

11.   Analysis of net cash/(debt)

	At beginning of year £'000	Cash flow £'000	At end of year £'000
Cash in hand and at bank	2,609	3,744	6,353
Bank loans	(4,000)	-	(4,000)
Total	(1,391)	3,744	2,353

12.   Post balance sheet events

Subsequent to the year end, the Group acquired an additional facility adjacent to its existing operational headquarters in Dyce, Aberdeen. The consideration paid for the facility was £2,400k.

The financial information above does not constitute the company's statutory accounts for the year ended 30 June 2014 but is derived from those statements.

The statutory financial statements and this preliminary statement for the year ended 30 June 2014 were approved by the Board on 28 October 2014. 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 financial information for the year ended 30 June 2013 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters be way of emphasis and not contain a statement under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation. The Company's financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU. A copy of the statutory accounts will be delivered to the Registrar of Companies in due course.

The Annual Report will be circulated to all shareholders and thereafter, copies will be available from the registered office of the company, Thames House, Portsmouth Road, Esher, Surrey, KT10 9AD.

 

END

 

 

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