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A N N u A l R e p O R T
2 0 1 6
POS-GRIP® Technology is a patented method of engineering which has
the potential for a wide range of applications both within and outside
the oil and gas industry. For the upstream oil and gas markets POS-GRIP
has been developed to deliver a method of wellhead engineering which is
safer, faster and more cost effective to use for drilling activities across
exploration, production and subsea.
P O S - G R I P T E C H N O L O G Y A N D H G ® S E A L S
POS-GRIP is based on two very simple engineering concepts; elasticity
of materials and friction. Every object moves a small amount when a
force is applied to it; POS-GRIP uses this to flex a high pressure body
in and out within the elastic range.
In wellheads, POS-GRIP can replace the conventional load shoulder
or slips to create a high-load hanger support mechanism which is
adjustable, full-bore, fully elastic, and provides instant, high-capacity
lockdown.
HG seals are robust metal-to-metal seals which can be machined
directly into the hanger, and are energised by use of an external
POS-GRIP mechanism. External activation results in direct control
of contact stresses at the sealing surface, leading to exceptional
reliability and repeatability.
This simple and elegant sealing mechanism has been qualified for
X-HPHT service using validation criteria well above and beyond
standard industry seal performance verification requirements.
POS-GRIP Technology and HG seals have already been applied to a wide
range of wellhead and connector products, where the simplicity of the
system results in robust solutions which are safer to operate, cheaper
to install and offer unprecedented integrity for the life of the field.
P L E X U S
P O S - G R I P T E C H N O L O G Y
Financial Results
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Sales revenue £11.23m (2015: £28.53m)
Adjusted EBITDA (£1.56m) loss (2015: £9.53m profit)
Loss after tax (£5.79m) (2015: £5.43m profit)
Basic loss per share (6.39p) (2015: 6.40p profit per share)
Net cash of £9.9m (2015: net debt £2.9m)
No proposed final dividend (2015: 1.75p per share)
Whilst the Company remains committed to distributing dividends to its shareholders, the Directors believe
that in view of the challenging oil price environment and resulting reduction in exploration drilling activity
and resultant financial performance it is prudent to continue the suspension of the payment of dividends.
The Company will look to reinstate the dividend at the earliest opportunity.
Overview
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Continuing low oil prices resulting in global exploration drilling activity falling to 60 year lows, with
the UK North Sea reporting the lowest levels recorded, significantly impacted the performance of the
Company’s core business of renting its proprietary POS-GRIP® friction-grip exploration wellhead
equipment to major international oil and gas customers – resulting in a 61% fall in full year revenues
Significant realignment of Company’s cost base in response to lower revenues achieved without
compromising ongoing ability to service customers, whilst retaining a commitment to Research and
Development (‘R&D’) so as to support ongoing Plexus innovative and proprietary technology driven
focus:
o
o
Near 50% reduction in annualised personnel costs and general overheads from £14.0m to £7.4m
R&D spend in the period, excluding costs of building test fixtures, totalled £1.98m compared to
£4.12m in the same period last year, a reduction of 52%
Focus on diversifying revenues away from the Company’s traditional shallow water exploration jack-up
market in the Scottish and European North Sea continental shelf where Plexus is the dominant supplier.
Progress being made in expanding both Plexus’ geographical footprint and the number of POS-GRIP
based products:
o
Licence agreement signed with Yantai Jereh Oilfield Services Group Co., Ltd (‘Jereh’) in China to
facilitate the rental, sale, and manufacture of Plexus’ wellhead equipment
Licence agreement signed with LLC Gusar (OOO Gusar) Ltd (‘Gusar’), and CJSC Konar (ZAO
Konar) (‘Konar’), two independent Russian oil and gas equipment manufacturers, for the rental,
manufacture and servicing of Plexus’ jack-up drilling wellhead exploration equipment into the
Russian Federation and the other CIS states oil and gas markets
o
o
o Winning of a local Petronas licence to manufacture and supply Plexus’ POS-GRIP wellhead
equipment in Malaysia through Plexus Products (Asia) Sdn Bhd (‘PPA’), the Malaysian company
set up with a local partner as part of an Asian business hub
Python® Subsea Wellhead launched in September 2015 as a result of a successful Joint Industry
Project (‘JIP’) supported by BG, Royal Dutch Shell, Wintershall, Maersk, Total, Tullow Oil, eni,
Senergy, and Oil States Industries Inc., as a new best in class and safest standard for the multi-
billion dollar subsea market sector – the next milestone for this project will be an initial order for
the deployment of the prototype
Collaboration with Aquaterra Energy to develop lightweight HPHT dual barrier marine risers to
provide a safer, technically superior and cost efficient solution for use on jack-up rigs as an
alternative to semi-submersible installation
Tersus™ Mudline equipment supplied to Masirah Oil Limited where the safety and time savings
of POS-GRIP were evaluated against traditional slip and seal systems which cannot offer
installation through the blow out preventer
o
o
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Reduction in capital investment in POS-GRIP rental wellhead assets as part of cash conservation
measures to £1.76m (2015: £2.53m) – prior years capex spend on rental wellhead inventory has resulted
in surplus capacity during the current down cycle. As a result Plexus will be able to respond quickly
when drilling activity picks up and will avoid the need for further investment for the foreseeable future
Four purchase orders for rental wellhead equipment awarded in the second half of the year, including
two outside the North Sea
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Plexus Holdings plc Annual Report 2016
o
o
o
o
US$0.6m initial well contract with new customer Masirah Oil Limited (‘Masirah’), majority owned
by leading technology driven oil and gas company REX International Holdings Limited (REXIH:
Singapore) for oil exploration offshore Oman; a new country and new region
£0.9m purchase order with Talisman Malaysia Limited (‘Talisman’), part of integrated global
energy group REPSOL (MC: REP), for an exploration well offshore Malaysia
£0.6m purchase order with Det norske for HPHT rental exploration equipment offshore Norway
£0.6m additional purchase order with Det norske for an exploration well offshore Norway
Corporate Highlights
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Initiatives taken to strengthen balance sheet to navigate the current challenging low oil price environment
and support specific initiatives:
o
Subscription by Jereh China in new shares of the Company, representing 5% of the new issued
share capital of Plexus for c. £8m net of expenses
Subscription by Gusar in new shares of the Company, representing 7% of the new issued share
capital of Plexus for c. US$5m net of expenses
£6m placing of new shares of the Company with new and existing shareholders which included
CEO Ben van Bilderbeek investing £200,000 in new Ordinary Shares – proceeds to enable Plexus
to pursue global opportunities and support target activities in new regions; supporting Python
subsea wellhead prototype trial programme; strengthen working capital position and support
targeted R&D spend towards complementary products
o
o
Board changes:
o
Appointment of Ms Kunming Liu to the Board as a Non-Executive Director in place of another
Non-Executive Director
Post period end the Bank of Scotland Corporate have agreed to renew facilities for a two year £5m
revolving credit facility - in addition the Group has a reducing five year £1.5m term loan (with a current
balance of £0.9m) which was put in place in September 2014 to part fund the purchase of an additional
building in Aberdeen and which runs to August 2019
Plexus Holdings plc Annual Report 2016
2
Chief Executive Ben van Bilderbeek said:
“As Plexus is an IP led engineering services company supplying the global oil and gas sector, our year end
results reflect the sharp drop in oil prices which fell to a 13 year low of c.US$27 per barrel in January 2016.
These trading conditions have in turn led to a widely reported and unprecedented fall in exploration activity,
particularly in Plexus’ core North Sea UKCS and ECS markets which are relatively expensive regions for
E&P companies to operate in. With the global energy market experiencing a surplus of production, and profit
margins proving elusive in higher cost regions cutting exploration budgets represents an easy win, and this
has translated in significantly lower order levels for our best in class rental exploration jack-up wellheads.
Whilst we are disappointed with this set of results, particularly following on from a record prior year we
regard the current cyclical downturn as just one backwards step in what we believe will prove to be a highly
rewarding journey for our shareholders. It is important to note that strategic progress continues to be made
in turning Plexus from an Aberdeen based supplier of a ground breaking technology to the local North Sea
oil and gas industry jack-up exploration drilling operators, to a global business setting a new industry standard
for wellheads across a range of applications in terms of performance, reliability and safety; one which
conventional alternatives cannot attain.
“Despite the current difficult trading environment, thanks to the proven superiority of our rental wellheads,
together with the growing number of blue chip operators such as eni, Maersk, Royal Dutch Shell, Statoil,
and Total, which all have first-hand experience of the unique benefits our equipment delivers, we are confident
we will over time continue to win market share and increasingly be viewed by the industry as the supplier of
choice due to the proven superior nature of our metal sealing technology and the major time savings that we
can deliver. Cycles will come and go within our sector, however the benefits of our POS-GRIP technology
will endure, meaning that demand for Plexus’ wellhead equipment should increase as the global demand for
hydrocarbons continues to rise. Operators are continuing to target resources in challenging and hostile
environments, while having to meet more stringent safety and regulatory requirements and keep a tight rein
on costs, and it is precisely this combination of factors that we address to the extent that our equipment can
be cost negative to the operator as a result of the value of time savings. Certain parts of the world such as the
Arctic particularly embody such concerns and requirements and we are confident that in time, through our
Russian partners we will be able to play an important role in the supply of both exploration and production
wellheads to the region. Furthermore, as the industry works to find ways to curb global CO2 emissions,
natural gas, which is the cleanest fossil fuel by some distance when compared to coal and oil will have to
account for a larger proportion of the hydrocarbon fuel mix going forward. As a recognised HPHT wellhead
specialist this is a positive trend for our company.
“Plexus is ideally placed to help the oil and gas industry meet the challenges of drilling in the 21st century. One
such example was our contract win last year to supply the Total operated ultra-HPHT Solaris well, offshore
Norway; believed to be the highest pressure well ever drilled in the North Sea and which has now been successfully
completed. In addition Plexus equipment now meets a tough new set of higher industry test standards proposed
by a major IOC which are designed to establish casing hanger system qualification procedures that better reflect
the requirements of actual applications. The testing involves numerous additional combined temperature, load,
and pressure cycles which delivers a much more robust qualification programme; much closer to true field life
conditions. By contrast, I believe conventional wellheads with their many moving parts, and their operational
limitations and capabilities belong in the past when general standards for safety, reliability and performance were
arguably not set as high as they are today and we anticipate will continue to be in the future.
“It was for such reasons that a group of leading oil and gas operators approached Plexus in 2011 to develop
a new subsea wellhead design based on our POS-GRIP friction-grip method of engineering which has to date
been successfully used on over 400 jack-up exploration wells across the world. Working with our blue chip
Joint Industry Partners, BG, eni, Royal Dutch Shell, Maersk, Total, Wintershall, Tullow Oil, Senergy, and
Oil States Industries Inc. Plexus launched the Python subsea wellhead at the SPE Offshore Europe Exhibition,
Aberdeen in September 2015. Python provides a range of unique and technologically superior advanced
features with increased safety, reduced cost and operational efficiency capabilities. Thanks to our patent
protected POS-GRIP technology, Python offers ‘instant casing hanger lockdown’ and provides direct, metal
to metal, weld quality, high integrity sealing. In contrast to current technologies, Python eliminates the need
for many components used in conventional subsea wellhead designs such as lock rings and wear bushings,
resulting in enhanced reliability and fewer installation trips which translates into significant cost savings that
can run to millions of dollars for operators. As an example, on a standard pressure subsea well, the Python
subsea wellhead may only require eight installation trips compared to up to 15 for a conventional wellhead.
With each trip costing circa US$750,000, Python could therefore offer savings of over US$5m per well. This
combination of enhanced performance, increased safety and significant cost savings is, in our view particularly
3
Plexus Holdings plc Annual Report 2016
compelling in the current cost and safety conscious environment, and provides me with great confidence that
we will over the coming years be able to replicate the success we have enjoyed with our exploration jack-up
drilling in the much larger and more valuable subsea market.
“I do recognise however, that before our disruptive technology can realise its full potential across a range of
applications, we first have to ensure Plexus emerges from the current downturn ready to continue to play an
important role in the oil services marketplace. The ‘lower for longer oil prices’ mantra has dominated market
sentiment during the past year and with “longer” unfortunately seemingly prevailing over “lower” inevitably
this has dominated our organic and strategic planning. The only certainty that can be used for planning
purposes is that no one can truly claim to know how long or damaging the current cyclical downturn will be.
With this in mind, during the year under review we initiated in March a significant reduction in our cost base
including an annualised 54% reduction in personnel costs. The full effect of this rationalisation programme
will of course be seen in the 2016/17 financial year, and is intended to move the Company towards a neutral
cash consumption position, assuming no further sharp deterioration in trading. As a further buffer against
the current market conditions and to strengthen our balance sheet, we raised US$5m via a share subscription
in April as a way of further strengthening our licence relationship with our new Russian partner, Gusar, and
a further £6m via a share placing with new and existing shareholders in June. Both exercises were priced close
to the prevailing share price at the time. In our view the lack of need to offer new shares at a heavy discount,
as many in the sector have had to do, is testament to the strength of our technology and our successful track
record prior to the collapse in exploration activity in our traditional markets.
“Having a strong balance sheet, along with a cost base that more fully matches the reduced level of revenues,
was not just undertaken to ensure we navigate the cycle from a position of strength. It will also enable Plexus
to continue with its international expansion initiatives, as we look to repeat the success we have had in the
North Sea and establish Plexus as the go to provider of best in class wellhead equipment globally. Despite
the challenging trading conditions, much progress has been made in terms of Plexus beginning to address
the far larger subsea and volume surface production multi-billion dollar wellhead markets, as well as the
establishment of international relationships and licensees. We are focusing on such international initiatives
being the first of a number of similar agreements which have the advantage of being able to enter new markets
without incurring up front capital costs. Such a business model means that if current trading conditions
continue for a long time we always have the opportunity to consider becoming a pure licencing marketing
company rather than an operational one, which would enable us to focus full time on selling and promoting
our patented method of engineering so as to maximise licensing royalty opportunities rather than our
equipment. The licensing agreements we already have in place, and those we are looking to secure in major
markets that to date remain untapped by us, are therefore a key part of our strategy to accelerate the global
uptake of our POS-GRIP technology.
“Thanks to the steps we have taken over the course of the year, we believe Plexus today is in a stronger position
than it was when the downturn set in, albeit that we have had to restructure the business. Encouragingly there
are signs that some stability is beginning to return to the oil price as a result of recent OPEC meeting initiatives
designed to better balance production levels with demand, and once these are better understood by the market
we would expect operators to begin planning the recommencement of their exploration drilling programmes.
Such new activity is of course key for avoiding a ‘supply crunch’ as it must not be forgotten that fields deplete
on average up to 9% per annum and the combination of the large drop off in drilling activity whilst demand
is stable or growing is a toxic mix, which could well lead to a price shock in the upwards direction. Crucially,
we entered this challenging trading period as the owners of unique patented IP, and we will come out of it
with the same unique patented IP, which means that the same opportunities always open to us continue to be
available; not the case for a number of “me too” companies. When activity recovers I am confident that Plexus
will more than make up lost ground especially as we have inventory on the ground ready to deploy at short
notice, and will be able to go on and fulfil our potential to become a major supplier of the best in class
wellhead equipment for types of drilling applications around the world.”
Summary of Results for the year ended 30 June 2016
Revenue
Adjusted EBITDA
(Loss) / Profit before taxation
Basic (Loss) / earnings per share (pence)
Plexus Holdings plc Annual Report 2016
4
2016
£’000
11,227
(1,558)
(6,916)
(6.39)
2015
£’000
28,526
9,531
5,938
6.40
Contents
Chairman’s Statement
Strategic Report
– Principal Activity
– Financial Results
– Operations
– Strategy and Future Developments
– Key Performance Indicators
– Principal Risks and Risk Management
Board of Directors
Directors’ Report
Corporate Governance Report
Remuneration Committee Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc
Parent Company Statement of Financial Position
Parent Company Statement of Changes in Equity
Parent Company Statement of Cash Flows
Notes to the Parent Company Financial Statements
Corporate Information
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Plexus Holdings plc Annual Report 2016
Chairman’s Statement
Business progress
This year’s results are in stark contrast to the prior year which delivered record sales and profits and resulted
in a 60.6% decrease in revenue to £11.23m for the year to 30 June 2016 (2015: £28.53m) with the UK and
European revenues decreasing by 64.6%; an EBITDA loss of £1.56m (2015: profit £9.53m); a loss after tax
of £5.79m (2015: profit £5.43m) and a basic loss per share of 6.39p (2015: 6.40p profit per share). The trading
climate, particularly for exploration drilling has been extremely difficult with the International Energy Agency
(‘IEA’) reporting in September that oil discoveries have slumped to their lowest level since 1952. Annual
investment in oil and gas projects has fallen from $780bn to $450bn over the last two years in an unprecedented
collapse, with a recovery not expected until 2017 onwards. The IEA’s World Energy Investment 2016 report
went as far as stating that “There is evidence that cuts in exploration activities have already resulted in a
dramatic decline in new oil discoveries, dropping to levels not seen in the last 60 years”. Such industry trends
have been acutely felt in the North Sea where costs are higher than many other regions, and as Plexus is the
major supplier of jack-up drilling wellheads in the North Sea we have been particularly affected. The extent
to which the North Sea has deteriorated is evidenced by Government figures published in August which
confirmed a 96% plunge in Scotland’s North Sea oil revenue, tumbling from £1.8bn in 2014-15 to just £60m
in 2015-16. The only silver lining in such pronouncements for the industry, if not the consumer, is that it is
widely reported that with drillers not finding enough oil to replace what is being depleted the ground is being
prepared for an oil price spike. Plexus has wellhead inventory on standby and are therefore in a strong position
to react quickly and regain and indeed exceed our past activity levels. Despite the existence of such challenging
trading conditions, which are impacting not only operators and service companies, Plexus has continued to
pursue a number of R&D and international trading development initiatives as we look to move away from
our traditional North Sea orientated business activities. Such initiatives range from licence agreements, to
new product developments and launches including our new Python subsea wellhead design, collaboration
with Aquaterra Energy, gaining a new customer in the new territory of Oman, and supplying one of our
X-HPHT wellheads to Total for their Solaris well in the North Sea which we believe to be the highest pressure
well yet drilled in that location.
Overview
Plexus has to date supplied its best in class wellhead equipment to blue chip operators including BG, BP, eni,
GDF, Maersk, Shell Statoil and Total for use on over 400 wells worldwide. Being able to offer unique and
patented equipment that is superior in terms of performance, reliability and safety has seen Plexus become
the go to provider for wellheads for wells located in some of the harshest and most challenging environments
in the world, including the North Sea, where Plexus has become firmly entrenched as the dominant supplier
of HPHT and X-HPHT wellheads. The June 2015 award to Plexus of a £3.3m contract from Total E&P
Norge AS to supply the Solaris exploration well, a technically challenging Ultra HP/HT well offshore Norway,
believed to be the highest pressure well drilled in the North Sea to date, is testament to our high standing in
this region.
Like all providers of critical equipment to the oil and gas industry, our full year financial results reflect the
major retrenchment seen in the price of oil (over) the last two years. The 50% plus fall in Brent Crude from
the US$100 level it traded at consistently for the best part of five years has led to operators of all sizes
increasing their focus on cash preservation. Due to the higher levels of risk and capital involved and the ability
to rely on shorter contract commitments with suppliers, scaling back exploration activity is the low hanging
fruit for operators looking to reduce budgets in the midst of a downturn. This cycle has been no different,
aside from the speed and severity of the cut backs which has seen investment in exploration falling to 60 year
lows. According to global consultancy group Wood MacKenzie, 2015 saw US$40bn invested globally into
exploration (including seismic and drilling activity) a mere 40% of 2014’s US$100bn. In terms of well count,
in 2016 Wood MacKenzie further reported that just 209 wells were drilled up to August, compared to 680 in
2015, 1,167 in 2014 and an historic long term average of 1,500 per annum. Similarly, in the UKCS, a region
where Plexus has a dominant market position, exploration is estimated to have dropped to a 45-year low after
Oil & Gas UK reported just 13 wells were drilled in 2015. As Plexus’ historic focus has been supplying wellhead
equipment for exploration wells in the North Sea we have been heavily impacted with the 12 months under
review seeing the Company’s last five-year sequence of reporting strong growth in term of revenues, EBITDA
and dividends come to an abrupt halt.
Plexus Holdings plc Annual Report 2016
6
Chairman’s Statement continued
Importantly, Plexus was able to take swift and decisive action during the year to not only realign the business
to the lower oil price environment and the associated lower levels of exploration, but to also accelerate our
‘capital light’ strategy to seek to expand into new geographies and sub sectors of the oil and gas industry,
such as the high volume land and platform production market. Significantly downsizing the cost base to
match lower activity levels while at the same time expanding into new markets do not ordinarily go hand in
hand. We have been able to make progress on both these fronts because, unlike many suppliers to the oil and
gas industry, Plexus is first and foremost a proprietary IP technology company. This means that we can scale
back our infield operational activities and related overheads without compromising the value and relevance
of our POS-GRIP IP, whilst being able to continue to work on communicating the unique benefits of the
technology to potential trading partners and licensees without having to commit large amounts of capital.
In an era where cash conservation and a strong balance sheet is important it is helpful to note that like many
companies operating in the technology space, Plexus’ investment profile has largely been front ended: an
initial R&D led IP development and inventory build-up phase which required significant capital investment
is now largely complete. Plexus has incurred circa £22m of capex over the last five years, and today we have
62 rental wellhead sets which if fully utilised are capable of supporting sales revenues of up to £40m per
annum. Furthermore, thanks to having a long working life, we do not envisage having to set aside significant
funds to replace our wellheads for the foreseeable future as they are subject to rolling refurbishment
programmes. From a cash consumption perspective investment requirements going forward can therefore be
viewed as being essentially discretionary rather than a critical component of our growth strategy which
combined with being debt free, helps ensure the maintenance of a strong balance sheet. Moreover, being a
provider of equipment which we maintain is superior to all other available conventional alternatives opens
up a number of different avenues for Plexus to get its equipment to market, including the direct rental and
sale of equipment and services to operators, as well as the licensing out of our technology to third party
manufacturers, a non-capital intensive route to market which can fast track growth once initial traction is
gained.
With our equipment tried and tested by a number of international blue chip oil and gas operators we believe
that Plexus is now in an excellent position to pursue licensing opportunities with suitable partners, and in the
process accelerate the take-up of our technology in new geographies that to date we have not chosen to pursue
such as Brazil, GOM, India and the Middle East. Licensing agreements are typically used by IP led companies
to break into new markets without the need to invest in expensive manufacturing, distribution and sales
networks and can help to secure local partners with established relationships in the respective target markets
they serve. With this in mind, during the year under review we completed a licence agreement with Yantai
Jereh Oilfield Services Group covering China and other territories. We followed this up with an agreement to
partner with two independent Russian oil and gas equipment manufacturers, Gusar and Konar, which saw
us enter the important market of the Russian Federation and other CIS states. Under the terms of the
agreement, Gusar and Konar will rent, manufacture and service our jack-up drilling wellhead exploration
equipment in return for paying Plexus a licence fee based on a multiple of EBITDA generated by Gusar’s
POS-GRIP related business as well as royalties based on the value of sales. No licence revenue has arisen in
the current year however we are hopeful this will be an important income stream in future years as Russia is
one of three main global producers. We are keen to secure similar licensing agreements in other areas of the
world and we are currently in discussions with potential partners covering the significant Middle Eastern and
Mexican markets.
The expansion of our geographic footprint over the period has not been limited to the licensing agreements
we have struck in China and Russia. During the year, Plexus Products (Asia) Sdn Bhd (‘PPA’), a Malaysian
company we established with a local oil and gas partner as part of our strategy to create a fully operational
Asian business hub, secured a local licence with PETRONAS, the Malaysian National Oil Company, to
manufacture and supply POS-GRIP wellhead equipment in Malaysia. Although this region is experiencing
the same significant slowdown in activity as many other territories, in February 2016 it won first order worth
an estimated £0.9m with Talisman Energy.
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Plexus Holdings plc Annual Report 2016
Chairman’s Statement continued
Gaining access to the Russian market via our agreement with Gusar is a milestone development and has the
potential to generate significant value for Plexus. In addition to being ranked the third largest producer of
petroleum in 2014 by the IEA alongside the USA and Saudi Arabia, it has been estimated that Russia holds
almost a quarter of the world’s proven natural gas reserves and 5% of global crude reserves. As well as the
size of the reserve numbers, the bias towards gas in the reserve mix makes Russia a very important target
market for Plexus, as our equipment is ideally suited to the high pressures and high temperatures associated
with gas wells. Furthermore, the Russian energy sector is among the most active in the world. This is
particularly the case in the huge land and platform production sector as major operators in the region focus
on drilling production wells to maintain, let alone increase output. Indeed, this month it was reported that as
a result of the launch of several greenfields, Russian oil output gained around 200,000 barrels per day in
September alone to a post-Soviet record of 11.18m barrels per day. In terms of well numbers and drilling
activity levels it was further reported in September that Rosneft alone plans to drill 1,700 new wells every
year from 2017 up from 750 in 2014, and that it is also increasing the use of advanced drilling techniques.
As well as marking Plexus’ entry into Russia, the Gusar jack-up wellhead equipment licensing agreement is
anticipated to extend to entering into the huge land and platform production well market and in the process
deliver a key strategic objective for the Company. It has always been our intention to prove our equipment
and technology in exploration before tackling the larger and more valuable production wellhead sector which
is estimated as being over ten times the size of the jack-up market. In addition to being a much larger market
than exploration equipment, production equipment can also be viewed as being a more defensive area of the
upstream sector, which could provide a degree of protection in any future downturn as exploration activity
is typically the first to be cut back by operators keen to conserve cash. As Statoil ASA Chief Executive Officer
Eldar Saetre said earlier this year: “Exploration activity is among the easiest of things to regulate, to take up
and down. It’s not necessarily the right way to think. We need to keep a long-term perspective and maintain
exploration activity through downturns as well, and Statoil has.” By contrast, a production well is likely to
have already been significantly de-risked and typically starts generating revenues within a much shorter time
frame. The promise of early revenues can therefore protect a late stage development/production project from
being deferred or worse. Our entry into the production market is therefore significant as it will reduce our
exposure to the more cyclical areas of the upstream sector and is in line with our strategy to have a more
balanced product mix for Plexus, one that serves the whole life cycle of a project from exploration to
abandonment and is thus less exposed to future downturns.
A further market opportunity that we have taken our POS-GRIP technology into, and one which arguably is
more defensive than exploration and production applications, is the increasingly important decommissioning
market. Here too, we are confident that Plexus is well placed to win market share based on the uniquely
enabling capabilities and solutions that we can offer operators. Progress is already being made, and in March
2015 we announced a purchase order to supply Centrica Energy Exploration and Production (‘Centrica’)
with our POS-SET Connector™ for abandonment operations on a gas well originally drilled 34 years ago in
1982, offshore Holland. The Connector, which utilises POS-GRIP friction grip engineering, facilitates
abandonment operations as it enables operators to re-establish a connection onto rough conductor casing
that has been previously cut above the seabed. In full scale testing, the Plexus connector can achieve 80% of
the bending and tensile strength of the parent pipe, which is significantly better than conventional alternatives.
We anticipate that this order will prove to be the first of many for Plexus as the abandonment market opens
up, which we believe will grow significantly as a large number of ageing wells reach the end of their lives in
the North Sea and other regions. The latest Activity Survey published by Oil & Gas UK shows how resilient
spending has been in this sub-sector despite the volatile trading conditions: £1bn was spent on
decommissioning in the UKCS in 2015, the same figure as 2014. Encouragingly the same report forecasts
spend in this sub-sector will rise to £1.5bn in 2016 and £2bn in 2017.
Outperforming conventional technology in terms of operational efficiencies, time savings, and safety is a
consistent theme which runs through our growing family of POS-GRIP enabled products. Our new Python
subsea wellhead, launched in September 2015, is no different. With the support of our Joint Industry Partners,
BG, eni, Royal Dutch Shell, Maersk, Total, Wintershall, Tullow Oil, Senergy, and Oil States Industries Inc.,
we set out to establish a new safer and best in class standard for subsea wellheads. Four years on and we
believe we have done just that after our Python subsea wellhead successfully passed the new tougher test
standards proposed by a major international operator for use by the industry. In our view, our new subsea
Plexus Holdings plc Annual Report 2016
8
Chairman’s Statement continued
wellhead design addresses the key technical issues and requirements highlighted by regulators following the
Gulf of Mexico incident in April 2010; delivering substantial efficiencies and time savings, and taking key
metal-to-metal sealing functions to a standard that we believe uniquely meets or exceeds those of premium
couplings. Python offers a unique set of features including instant casing hanger lockdown eliminating the
need for many complex components that our competitors’ designs require including lock rings, lockdown
sleeves and wear bushings which often prove problematic in the field. For Plexus, Python will give us access
to the multi-billion dollar subsea exploration and production market. Were we to have the same level of
success we have to date enjoyed in our traditional jack-up exploration and production market, where we have
a circa 10% global share, the impact on the Company would be transformational.
Our Python subsea wellhead is not the only new product we have launched during the year under review. Our
Tersus-PCT HPHT Tie-Back connector product with its unique operational and cost saving advantages is
also now being marketed to the industry. Like Python, the Tie-Back connector is based on our POS-GRIP
technology being able to offer operators significant capital cost savings thanks to being the first product on
the market which allows HPHT exploration and pre-drilled production wells to be converted to either subsea
or platform producing wells.
Following a period in which we have been able to announce and launch a number of new products and achieve
a number of higher test standard milestones, we believe that awareness is growing about our POS-GRIP
technology making drilling activity safer while at the same time offering considerable time and cost savings
to the operator. Indeed, other suppliers to the oil and gas industry have approached us to incorporate POS-
GRIP into their product offering, as demonstrated by our partnership with Aquaterra Energy (‘AE’) to offer
a light-weight, low-cost, high pressure riser (‘HPR’) system for use from jack-up rigs. The combination of
AE’s riser products and Plexus’ POS-GRIP technology enables an inner liner to be installed inside a
conventional HPR to provide full 15,000 PSI capability. These systems allow for safe effective drilling,
completion, work over and abandonment activities to be completed on subsea wells from jack-up rigs. The
HPR provides a structurally sound, pressure retaining conduit between the subsea wellhead and the rig’s
surface BOP and is capable of withstanding environmental and operational conditions expected during the
HPR service life. We are keen to pursue further partnerships with suitable companies such as Aquaterra both
within and outside the oil and gas industry, and such a strategy fits with one of our earlier goals of applying
the POS-GRIP method of engineering to a range of products both within and outside of the oil and gas
industry.
Staff
On behalf of the Board I would like to thank all our employees both past and present for their dedication
and hard work during a challenging oil and gas industry trading environment which, like with many other
E&P and service companies across the world necessitated Plexus initiating a redundancy programme. Such
cost control measures are regrettable and I look forward to the level of exploration and production activity
increasing and Plexus once again being in a position to expand its valued workforce.
Outlook
The significant fall in exploration activity and investment to 60 year lows is clearly unwelcome, specifically in
terms of the impact it has had on our financial performance during the year under review and the current
financial year, and has driven the necessary measures we have had to take to realign our cost base closer to
the reduced levels of orders and order visibility, which continues at the current time. On a more positive note
however we, like many other interested observers believe that the sharp fall seen in the number of exploration
wells drilled across the world has sown the seeds for the next upturn due to an impending ‘supply crunch’
which has the potential to result in a strong recovery in the price of oil that could go a long way to match the
steepness of the decline.
On the supply side it is no coincidence that with fewer exploration wells being drilled, fewer discoveries are
being made. According to the consultant group Wood MacKenzie, 2015 saw only 2.7 billion barrels of new
supply discovered, the lowest number since 1947. 2016 could well see exploration plumb new depths, as up to
the end of August, just 736 million barrels of conventional crude had been found. Nils-Henrik Bjurstroem
9
Plexus Holdings plc Annual Report 2016
Chairman’s Statement continued
from Oslo-based consultants Rystad Energy AS said such a low number of discoveries “will definitely be a
strong impact on oil and gas supply, and especially oil.” For now, the lack of new finds is being masked by
the huge volumes of oil being pumped into the market as part of the policy adopted by OPEC and Russia to
defend market share. With fewer discoveries being made to replenish reserves however, the supply glut that is
currently occupying the markets could quickly go into reverse.
Meanwhile on the demand side, the U.S. Energy Information Administration estimates that the daily global
demand for oil will grow to 105.3 million barrels in 2026 from 94.8 million barrels this year. Such sentiment
was supported by Ben Van Beurden, the CEO of Royal Dutch Shell Plc who recently stated that he sees
demand rising by between 1 million to 1.5 million barrels a day and that in order to meet these growth
estimates oil companies will need to invest about US$1 trillion a year. If the run rate of oil discoveries does
not pick up, Wood Mackenzie estimates there will be a 4.5 million barrel per day shortfall in global supplies
by 2035. When combining the lack of new discoveries and the removal of approximately 5% of global supply
from the market each year due to natural decline rates it is easy to forecast considerably higher oil prices in
the future. Paal Kibsgaard, chief executive of Schlumberger, the world’s largest oil services company, would
appear to agree: “The magnitude of the E&P investment cuts are now so severe that it can only accelerate
production decline and the consequent upward movement in the oil price.”
When looking to the future it must be noted that oil and gas markets are not just cyclical in nature; structural
changes also play a role in driving the industry forward. One of these is the increased regulatory scrutiny
faced by operators around the world following well-documented disasters such as Macondo in the Gulf of
Mexico in 2010. As Plexus’ wellheads can be proven to be superior in terms of performance, reliability and
safety in all operating environments from standard to extreme HPHT conditions, we feel Plexus is ideally
placed to benefit in a world of heightened regulatory oversight. We believe that it was for this reason that
Total selected us as the wellhead supplier for its ultra-HPHT Solaris well in the North Sea, and also why
Royal Dutch Shell approached us four years ago to take our surface designs and develop a POS-GRIP enabled
subsea wellhead. In short the heightened levels of regulation being seen across the industry play to Plexus’
strengths and therefore bode well for the future.
A further key structural driver set to play an increasing role in the oil and gas industry in the years ahead is
environmental. If oil and gas companies are to manage the conflicting pressures of maximising production
and revenues for their shareholders while making a contribution towards reducing carbon dioxide (‘CO2’)
emissions, then a move away from dirtier fossil fuels such as coal to cleaner hydrocarbons such as natural gas
is needed. The numbers speak for themselves: on a CO2 emitted per unit of energy output or heat content
basis, the EIA calculates natural gas emits 117 pounds of CO2 per million British thermal units (‘Btu’) of
energy. This is around half the 228.6 pounds of CO2 emitted by coal. Meanwhile diesel fuel and heating oil
emit 161.3 pounds of CO2; and gasoline 157.2 pounds. Interestingly, we are already seeing a renewed focus
on natural gas among the majors. Such considerations are already impacting on the industry hydrocarbon
mix, and in the UK as an example in the three-month period April to June this year coal accounted for just
under 6% of electricity generation down from over 20% in the same period in 2015, and gas increased from
just under 30% to more than 45%. At the corporate level Royal Dutch Shell’s recent acquisition of BG Group
can partly be explained by the latter’s strong presence in global LNG markets. In addition, as was reported
in a recent article in the Wall Street Journal, Total SA has set itself a target to increase its LNG production
capacity by 50% by 2020; while BP is aiming for gas to account for around 60% of its production by the end
of the decade, compared to 44% in H1 2016. With Plexus having the best metal to metal sealing system
technology available for gas we believe the Company is in an excellent position to capitalise on such a trend.
When considering the outlook for both Plexus and the oil and gas industry it is pertinent to remember that
many of the key geopolitical drivers for the oil price and related investment decisions can be decided by a
handful of individuals and organisations. Whether it has been the significant increase in shale drilling and oil
and gas production in the USA; Saudi Arabia wanting to maintain market share even at the cost of consuming
a significant share of its own foreign reserves as it makes up the shortfall between revenues and expenditure;
or Iran wanting to regain its place in the global supply chain such drivers are all out of our control. However,
one key and eagerly awaited recent positive development was this month’s OPEC deal and the sign of shifting
attitudes that it conveyed. OPEC seems to have finally accepted reality and the fact that the market forces
behind unconventional production in the USA, Canada and elsewhere are not going to go away and that in
Plexus Holdings plc Annual Report 2016
10
Chairman’s Statement continued
the case of Saudi Arabia and others their foreign reserves were just not large enough to outlast such pressures.
This means that OPEC appears to have accepted that low prices are just not sustainable and that a rebalancing
now needs to take place, which again can only be helpful for the future of Plexus and the wider industry.
Further evidence of such changing sentiment by the major producers was in evidence at this month’s World
Energy Congress in Istanbul where President Putin of Russia said that Russia supports “the recent initiative
by OPEC to fix oil production limits” and that the era of oil and gas will not come to an end in the foreseeable
future. Perhaps even more encouragingly at this month’s Oil and Money Conference in London Rex Tillerson,
Chief Executive ExxonMobil and several other senior oil executives told the conference that fossil fuels would
be needed for decades to come to meet the energy needs of a growing world population.
Looking to the future, in order to ensure Plexus maximises its potential in the years ahead, and in the process
firmly establishes itself as the standard bearer for delivering best in class wellhead equipment in terms of
performance, reliability and safety all over the world, it has been necessary for us to firstly ensure that we
were in a strong position to navigate the sharp downturn in the current cycle. From the outset we assumed
the worst case scenario that oil prices would stay ‘lower for even longer’ rather than just ‘lower for longer’
and we have taken appropriate action. This included a comprehensive restructuring of our cost base which
included a regrettable near halving of our workforce, as well as a major strengthening of our balance sheet
firstly via a subscription for new ordinary shares with a value of US$5m by Gusar, our partner in Russia,
which was then followed by a placing of £6m with new and existing shareholders. We were delighted that
despite the challenging markets, both capital raising exercises were priced close to the prevailing market price
of our shares. We view this as testament to the strength of our technology and the potential for Plexus to
deliver significant shareholder value over the coming years.
J Jeffrey Thrall
Non-Executive Chairman
28 October 2016
11
Plexus Holdings plc Annual Report 2016
Strategic Report
Principal Activity
The Group markets a patented friction grip method of engineering for oil and gas field wellheads and
connectors, named POS-GRIP. This 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 HPHT 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 land
and platform production and subsea wellheads which are significantly bigger market sectors which Plexus is
now actively pursuing organically and with international partners such as Gusar, Russia. Furthermore, the
Directors believe that the Company’s proprietary technology has additional wide ranging applications both
within and outside the oil and gas industry.
Financial Results
Revenue
Revenue for the year was £11.23m, down 60.6% from £28.53m in the previous year. The decline in sales was
most acute in the UKCS where the year on year reduction was 88.3% and was a direct result of the significant
slowdown in exploration drilling activities not only in the North Sea but also across the world. Revenues
derived from a number of on-going and new contracts from customers around the world including Asia and
the Americas. On a positive note Asia generated just over £2m of sales and accounted for 18.2% of total sales
which was up as a percentage of sales from 9.2% in the prior year. The extent of the decline in the UKCS was
highlighted by Government data released a few months ago which reported that there was a 96% plunge in
Scotland’s North Sea oil revenue and this situation has resulted in a quarter of North Sea jobs being lost and
a number of independent oil explorers and oilfield services companies going out of business.
The rental of exploration wellhead and related equipment and services accounted for approximately 91% of
revenue reflecting the fact that the Company’s organic business model remained focused on the supply of
jack-up rental surface exploration wellhead equipment and services. It is anticipated that as Plexus’ strategy
to widen its scope of activities to include the surface production, subsea, and decommissioning markets both
in the North Sea and internationally then this weighting towards the jack-up market will decline as Plexus
becomes more diversified. HPHT rental equipment and related services continued to account for the majority
of sales revenues declining to £8.22m down from £25.23m last year, a decrease of 67.4%, and accounted for
73.2% of total sales, compared to 88.4% in the prior year. Standard pressure equipment sales decreased by
7.1% to £1.79m from £1.94m in the prior year, and accounted for 7.1% of total sales compared to 6.8% in the
prior year. This year re-billable expenses revenues made up £0.68m compared to £1.24m last year for items
such as freight, shipping and equipment hire. Despite the major fall in oil and gas prices and resulting decline
in sales, we continued to invest for the future and incurred capital expenditure on rental assets of £1.76m as
compared to £2.53m in the prior year, a year on year decrease of 30.4%.
Margin
Gross margins reduced to 46.6% (compared to 69.9% in the previous year) as a result of higher depreciation,
project costs, and pricing constraints. The majority of rental activity sales continued to be HPHT which
delivers higher margins than lower pressure equipment contracts.
Overhead expenses
In line with the reduction of sales revenues it was necessary and important to conserve cash and reduce
personnel and infrastructure related overheads which decreased to £11.28m from £14.93m in the previous
year, a reduction of 20.16%. The cost reduction exercise was initiated in January and implemented from
March and therefore these are not annualised savings. The full effect of the overhead reduction programme
will be seen in the current 2016/17 financial year, where it is estimated that on a like for like 12 month
equivalent basis when looking at pre and post the full savings effect overheads would be approximately 50%.
In the year being reported salary staff costs reduced to £6.56m from £9.87m, whilst the employee headcount
Plexus Holdings plc Annual Report 2016
12
Strategic Report continued
at the year-end was 81 compared to 157 for the prior year, a decrease of 48.4%. Other items which decreased
year on year as a result of the decreased activity levels, staff decreases, and reduction of infrastructure were
recruitment fees, training, health and safety, overseas base costs, advertising and marketing, and travel and
subsistence.
Adjusted EBITDA
Adjusted EBITDA for the year (before IFRS 2 share based payment charges of £0.02m and non-recurring
restructuring costs of £0.76m) was a loss of £1.56m, compared to £9.53m profit (before IFRS 2 share based
payment charges of £0.02m) the previous year. Adjusted EBITDA is calculated as follows:
Operating (Loss) / profit
Add back:
–Depreciation
–Amortisation
–Restructuring costs
–Share based payments charges
–(Gain) / loss on disposal
–Share of profit of associate
–Gain on disposal of associate
–Rounding
Adjusted EBITDA
2016
£’000
(6,798)
3,488
980
755
21
(6)
–
–
–
–––––––
(1,560)
–––––––
2015
£’000
5,020
3,070
811
–
21
20
236
352
1
–––––––
9,531
–––––––
Loss before tax
Loss before tax of (£6.92m) compared to a profit last year of £5.94m. This loss was after absorbing higher
depreciation and amortisation charges of £4.47m, up from £3.88m last year, the largest component being
depreciation of rental assets which increased by 13.6%, reflecting the continued investment in Plexus’ wellhead
rental inventory. The loss 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 £0.02m compared to £0.02m last year.
Tax
The Group shows an income tax credit of £1.13m for the year as compared to a tax charge of £0.51m for the
prior year. The income tax credit for the year is driven by the loss incurred during the financial period.
The Group has an effective tax rate for the year of 16% (2015: 9%). The effective rate of tax is lower than the
current standard UK corporation rate of 20% as a result of SME enhanced R&D tax credits, which arise
from the Group’s ongoing R&D programme. In addition there has been a significant reduction in the deferred
tax computation in relation to share options recognised in equity following a decline in the share price during
the financial year to 63.3p on 30 June 2016 compared to 220p on 30 June 2015.
EPS
The Group reports basic loss per share of 6.39p compared to earnings per share of 6.40p in the prior year.
Cash and Statement of Financial Position
The statement of financial position reflects the investment in operations during the year and in particular
on-going capital expenditure and funds received as a result of share subscriptions by strategic partners and
a share placing. The net book value of property, plant and equipment including items in the course of
construction was £15.57m compared to £17.15m last year. Capital expenditure on tangible assets decreased
13
Plexus Holdings plc Annual Report 2016
Strategic Report continued
to £1.96m compared to £7.02m last year. The higher spend last year included the acquisition of a 36,000 sq.ft
work shop and office facility in Aberdeen in September 2014 for £2.04m. The net book value of intangible
assets, including IP rights, R&D and software, increased by 6.6% to £14.08m compared to £13.17m last year.
Capital expenditure on intangibles totalled £1.90m compared to £3.54m last year, a decrease of 43.2%.
Receivables decreased to £1.7m compared to £7.3m last year. Net cash closed at £9.89m (cash and cash
equivalents of £15.86m less bank loans of £5.98m compared to net borrowings of £2.95m last year (bank
loans £6.28m less cash and cash equivalents of £3.3m) reflecting net cash inflow for the year of £12.84m (net
increase in cash of £12.54m per Statement of Cash Flows plus net decrease in bank borrowings of £0.30m).
This closing net cash position changed materially year on year at positive £9.9m compared to negative £2.9m,
and reflects the subscription by Jereh in July 2015 for new ordinary shares representing 5% of the issued share
capital of Plexus for circa £8m; the subscription by Gusar in April 2016 for new ordinary shares representing
7% of the new issued share capital of Plexus for circa US$5m and a £6m placing in June 2016 of new shares
with new and existing shareholders. Post period end the Group’s bank - Bank of Scotland Corporate – has
agreed to provide facilities for a two year £5m revolving credit facility. In addition the Group has a reducing
five year £1.5m term loan (with a current balance of £0.9m) which was put in place in September 2014 to
part fund the purchase of the additional building in Aberdeen and which runs to August 2019. These facilities
combined with cash balances are anticipated to be adequate to meet current on-going working capital, capital
expenditure, R&D and related project commitments.
Intellectual Property (‘IP’)
The Group carries in its statement of financial position goodwill and intangible assets of £14.85m, an increase
of 6.6% from £13.93m last year, reflecting the Group’s on-going investment in and commitment to the
development of its proprietary POS-GRIP technology, the most important elements of which continued to
be in relation to the POS-GRIP friction-grip method of engineering and the new Python subsea wellhead.
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 is no impairment. The Directors therefore
consider the current carrying values to be appropriate. Indications of impairment are considered annually.
Research and Development
R&D expenditure including patents was reduced by 46.4% year on year from £3.47m to £1.86m. This
reduction must not be taken as a sign that R&D ceases to be an important and necessary part of our activities,
as such investment is key to protecting, developing, and broadening the range of proprietary POS-GRIP
friction-grip method of engineering applications and related IP. There are two main drivers for this reduction
– one was the coming to the end of the JIP to design and develop the new Python subsea wellhead, and the
other was the decision to focus on essential R&D as part of our strategy to control expenditure during the
current challenging trading period. Such essential R&D, and the patent protections that can form part of it
is arguably even more important where an industry continues to look to reduce costs in the supply chain,
combined with the need for ever greater safety disciplines, both of which Plexus wellhead equipment is able
to fulfil, especially in relation to unconventional drilling. In the case of Russia, the Deloitte “2016 Russian
Oil & Gas Outlook Survey” highlighted the importance of R&D for operators where one of the questions
posed was how compared to 2015 the respondents saw their R&D costs changing, and 75% of the industry
experts thought they will increase. Such investment has culminated, in addition to the Python subsea wellhead
which offers operators a unique range of operational and cost saving advantages, in a range of POS-GRIP
products which include the Tersus-PCT HPHT Tie-back connector which for the first time allows HPHT
exploration and pre-drilled production wells to be converted to either subsea or platform producing wells;
the new POS-SET Connector which is designed to enable operators to re-establish a connection onto rough
conductor casing for the expanding abandonment market; a low cost wellhead system for the volume
production market – WellTree™ and HPHT dual barrier marine risers in collaboration with Aquaterra. All
of these product innovations have been made possible through combining ongoing investment with the proven
nature of POS-GRIP, and we are confident that along with our partners we will continue to identify new
ways to develop and deploy our technology.
Plexus Holdings plc Annual Report 2016
14
Strategic Report continued
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 £0.02m which compares to £0.02m
last year.
Dividends
While the Company remains committed to distributing dividends to its shareholders, the Directors believe
that in view of the challenging oil price environment and resulting reduction in exploration drilling activity
and resultant financial performance it is prudent to continue the suspension of the payment of dividends.
The Company will look to reinstate the dividend at the earliest opportunity.
Operations
The major operational driver for the year being reported on as well as the current year to date, is the material
decline in operators’ capital expenditure and drilling activity levels, particularly in exploration drilling; a result
of the collapse in the oil price which is only just beginning to see signs of a mild recovery. Although this has
been particularly marked in the North Sea, these are global issues and cannot be avoided, although we are
increasing our efforts to pursue sales opportunities outside of Europe with some success such as a new
customer win in Oman. In response to such hostile trading conditions Plexus initiated a range of cash
conservation and significant cost reduction measures in the second half of the year; the most important of
which was personnel related. Unfortunately, after over ten years of expansion, headcount was reduced to 81
from 157 on a year-end comparison basis. This reduction, along with other cost reduction measures, was
carefully planned to ensure that the lower level of sales anticipated for the foreseeable future will support the
reduced headcount and cost structure, and if necessary further adjustments will be made. On a positive note
our fully invested rental wellhead inventory is capable of being deployed at short notice which can support
sales of circa £40m. Efforts are now being increased to move into the land, platform and subsea arenas,
although jack-up drilling remained our core activity and contracts awarded by existing and new customers
included the following:
●
●
●
June 2015 – a £3.3m ultra HP/HT wellhead equipment order was received from new customer Total
offshore Norway - believed to be the deepest and highest pressure well ever drilled in the North Sea
estimated at 17,000 – 19,000psi, was successfully completed during the year
July 2015 – local Petronas licence secured by Plexus’ Malaysian joint venture company Plexus Products
(Asia) Sdn Bhd
September 2015 – official launch of Python subsea wellhead prototype at SPE Offshore Europe in
Aberdeen following the culmination of a successful JIP with a number of oil majors participation –
efforts now ongoing to secure a first order for this important product development
September 2015 – collaboration agreement signed with Aquaterra Energy Ltd to jointly supply an
industry first jack-up deployable (as opposed to semi-submersible rigs) HPHT dual barrier marine riser
utilising POS-GRIP technology
January 2016 – US$0.6m standard pressure contract win with new customer Masirah Oil Limited in
new territory Oman – initially for one well with a possible two additional wells to follow
February 2016 – £0.9m contract secured by Plexus Malaysian joint venture Plexus Products (Asia) Sdn
Bhd with Talisman Malaysia Limited, part of Repsol Group for an exploration well offshore Malaysia
● March 2016 – £0.6m contract win for the supply of HPHT wellhead equipment with long term customer
●
●
●
Det norske for an exploration well offshore Norway
● May 2016 – £0.6m further purchase order from Det norske for a standard pressure exploration well
utilising HPHT equipment for offshore Norway
Plexus continues to invest in R&D and although such expenditure reduced by 46.4% compared to the prior
year, R&D remains an important operational activity and underpins the value of our IP and ability to further
develop POS-GRIP technology based products. Innovation in the oil and gas industry continues to be an
15
Plexus Holdings plc Annual Report 2016
Strategic Report continued
essential part of developing ever safer drilling methods, and Plexus is confident that it can play an important
role in delivering such solutions whilst raising wellhead standards to a level that conventional technology
cannot reach, such as passing test standards equivalent to those used for premium couplings.
Staff and staff development are important disciplines for a service company whether we are expanding or
not, and correctly trained and motivated staff are key. Unfortunately during the second half of the year being
reported, the focus concentrated on managing the staff redundancy programme and further cost saving
exercises, including salary reductions and a reduction to employee benefits. Consequently, following the
consultation period, which commenced early February during the three month period March to May 45 staff
were made redundant from both our UK head office and international locations and a companywide salary
reduction based on a percentage reduction, dependent on salary band was implemented. Furthermore, a
consultation process was undertaken during June to reduce the employee benefits package. All cost reduction
initiatives were successfully implemented and the desired cost saving outcomes were achieved. The rightsizing
exercise across the business has now placed a focus on redistribution of some tasks/responsibilities across the
business, with a number of employees absorbing additional tasks. To document this and ensure all required
tasks are covered, an exercise was undertaken to review all job descriptions to ensure all new job descriptions
are issued to staff in Q3 calendar year of 2016. Alongside these staff reduction programmes the Competency
Management System has continued to be developed, and an additional department within the business has
recently developed and implemented full competency standards for their discipline. We are continuing to roll
out this system, with an ambition to have all safety critical disciplines develop and implement standards within
the competency system by Q1 calendar year of 2017. Staffing figure total at the end of June 2016 was 81
employees which compares to the prior year closing staff number of 157.
Health and Safety is important for all companies and industries, but is a critical discipline in the oil and gas
industry. Plexus remains fully committed to delivering the highest safety standards possible despite
implementing a range of cost cutting initiatives, and continues to maintain a positive safety culture which is
aligned with our Company Safety Values evident throughout the organisation. This discipline is achieved by
continual development and implementation of a programme of initiatives, engaging with all levels of staff
and sharing our safety messages and performance, via our health and safety branding STAR SAFETY. A
recertification audit by LRQA (our system certifying body) in December 2015 and subsequent surveillance
audit of our ISO 9001 and BS OHSAS 18001 Management Systems, had a positive outcome resulting in our
certification being extended until 2018. This is a tangible demonstration that we are operating to the recognised
industry and national standards and we continue to collaborate with our clients and industry bodies to share
HSE best practice and information. We continue to manage our safety risks through assessment,
implementation of controls, continual monitoring, and engaging and developing staff to meet the competency
levels required. We always reinforce the compelling message that the health and well-being of our employees
is the crucial feature of our HSE and HR strategy, as our workforce is key to the successful delivery of our
services. We encourage our personnel to get involved and have confidence to intervene and to challenge any
unsafe act or condition, suggest improvements, and to ensure transparent reporting that meets our desired
safety culture.
IT services and support are key operational areas for Plexus. Plexus relies on a variety of IT systems, both in-
house and proprietary, to manage and deliver safe and secure services for the business. Importantly, like many
companies Plexus continues to be at risk of cyber-security threats. During the past year we have begun working
towards ISO 27001 accreditation which will help ensure that both such internal and external risks are
minimised. Certification provides customers and key stakeholders with the confidence that security risks are
taken and addressed seriously. The IT infrastructure has again undergone significant upgrades to ensure that
the systems are capable of reacting quickly to the ever changing demands put on it by the business and its
suppliers and customers. The main improvements have included networking and telecommunication upgrades
as well as improvements to our cyber security intrusion detection systems. These upgrades have combined to
increase our security from external risks whilst increasing employees’ access to data from any location
worldwide. Business support solutions carried out during the year were mainly focused on the development
of the in-house Manufacturing Requirements Planning system. This system will help to provide an optimal
use of resources and allow for enhanced collecting and formation of business data which in turn will allow
improved and more efficient planning of work through the system.
Plexus Holdings plc Annual Report 2016
16
Strategic Report continued
Strategy and Future Developments
Technology
Plexus’ unique and patented POS-GRIP technology is a simple concept which involves applying compressive
force to the outside of a wellhead or pipe, to flex it inwards. As the bore of the vessel moves inwards, it makes
contact with an inner pipe (or hanger) on the inside. Sufficient contact force is generated to hold the inner
member (hanger) in place through friction between the two components, and creates a superior metal-to-
metal seal. The Company’s strategy is primarily focused on delivering the highest standard of wellhead design
for the upstream oil and gas markets around the world, and one which is already proven to be uniquely
advantageous in terms of safety features, operational efficiency, and cost savings for jack-up drilling especially
HPHT applications.
POS-GRIP wellhead designs deliver many advantages over conventional “slip and seal” and “mandrel hanger”
wellhead technologies for surface exploration and land and platform production applications. These 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. Key components of Plexus wellheads can include proprietary
superior HG seals; robust metal-to-metal seals which can be machined directly into the hanger, and are
energised by use of the external POS-GRIP mechanism. Plexus has recently added both the new Python
subsea wellhead to its product suite as well as the POS-SET Connector™ for use in the growing
decommissioning market which is designed to re-connect to bare conductor pipe for well re-entry or
permanent abandonment operations. The POS-SET Connector creates a solid connection with reliable sealing
directly against the pipe, and retains bend and load capabilities at 80% of pipe strength. The Python subsea
wellhead eliminates the need for wear bushings, pack-offs, lock-rings, and lockdown sleeves, whilst delivering
instant rigid lock-down in all directions, fully reversible for ease of workover, side-tracking or abandonment.
These design simplifications and features not only reduce the risk of installation problems and safety issues,
they also significantly reduce installation time and the number of trips that are needed such that it has been
independently estimated that up to US$10m of savings are possible for a deep water well. The directors believe
Plexus’ wellhead equipment sets a new standard which can include matching and even exceeding those required
for premium couplings and, having secured a leading position in jack-up exploration drilling, is well placed
to pursue its strategy of breaking into the significantly larger and more mainstream volume production
wellhead and subsea markets both organically and in conjunction with partners including licensees.
As with any game changing technology that has the potential to become a new global standard, there has to
be sound and genuine reasons for customers to select the equipment. Apart from the operational time saving
and related safety benefits, at an engineering level the Company has scientifically proven that its technology
can uniquely raise the integrity of wellhead testing and sealing to that of premium couplings, which supports
its claim that wellheads should not be, and indeed now do not need to be, the weak link in the well architecture
chain.
POS-GRIP friction-grip technology has wide ranging applications both within and outside the oil and gas
industry. As POS-GRIP is a method of engineering and not a product in its own right, where there is an
opportunity for the technology to improve the performance of conventional products, the Company will look
to integrate POS-GRIP so that the benefits together with HG sealing can be realised.
Business Model and Markets
Historically Plexus’ has focused on supplying adjustable wellhead equipment and associated running tools
on a rental basis for the relatively niche jack-up exploration drilling in the UK Continental Shelf (‘UKCS’)
and has achieved a near 100% market share. This market has over the years expanded into the ECS (Norway,
Netherlands and Denmark) and contracts have been secured as far afield as China, Russia, Egypt, Cameroon,
Trinidad, Venezuela, and Morocco. The exploration wellhead contracts are supplied from a rental fleet of
owned inventory of which the majority are HPHT as opposed to standard pressure 10,000psi wellheads as
these are increasingly demanded where added benefits and features are appreciated. The wellhead equipment
is typically rented for an agreed initial set period that may typically range from 60 to 180 days depending on
pressure rating. Where a well runs on beyond the initial agreed period a pro-rata day rate is then charged to
17
Plexus Holdings plc Annual Report 2016
Strategic Report continued
the operator until the well is completed and the equipment returned. The steep decline in exploration drilling
activity in the North Sea has accelerated the need and goal of expanding the target markets beyond Europe.
Plexus also provides service technicians to install and maintain its equipment at various stages during the
drilling of a well.
Exploration rental contracts enable the customer to experience and learn about the many benefits of
POS-GRIP technology on temporary wells, rather than those used for production where typically the wellhead
equipment is in place for the life of the well and are therefore sold rather than rented. Renting wellheads also
delivers a greater gross margin to Plexus as the cost of sales is essentially repairs and maintenance. However
with new partners such as Gusar in Russia, the Company is looking to expand business activities to include
the development of a Plexus POS-GRIP surface production wellhead suitable for the volume land production
market working on a license royalty model. Renting equipment from an inventory enables Plexus to outsource
all of its wellhead manufacturing to a select number of third parties, and as a result avoid having to invest in
and develop in-house manufacturing capabilities with attendant fixed overheads. Such a business model has
proven to be beneficial in the current trading climate as although Plexus revenues have declined significantly
it is able to adjust and reduce its overhead which does not involve a factory.
The traditional Plexus jack-up wellhead exploration market is estimated to be worth circa USD$400m per
annum. By contrast the combined value of the global land and platform production wellhead and subsea
wellhead markets is many times greater and runs into billions of dollars. In the case of the overall subsea
market a Douglas-Westwood analyst report last May calculated that deepwater expenditure will total
US$137bn for 2016 to 2020, with Africa and the Americas accounting for 87% of this. Therefore, even with
the well reported global decline in general capital expenditure and the deferral and cancellation of projects
by operating companies, the business potential that these market sectors offer to Plexus and its partners is
substantial.
Depressed oil markets saw Brent Crude fall during the financial year by 76% from circa USD$112 on 1 July
2014 to a low of USD$27 in January 2016. It is not surprising therefore that operators are focusing closely
on securing significant cost savings across their operations which has resulted in an industry wide push for
supply chain savings at all levels of drilling operations. As Plexus’ equipment can deliver material cost savings
to the operator at the same time as providing a superior wellhead solution, it is hoped that such trading
conditions can have a silver lining in terms of capturing operator’s interest due to the unique combination of
enhanced safety and operational time and cost savings that Plexus wellheads offer. In the case of Plexus’
surface jack-up wellheads these can be supplied at a rental cost that equates to less than the time savings for
the operator, thereby making them cost negative. Similarly, the Company’s new Python subsea wellhead will
also deliver such substantial cost savings benefits, and can also be cost negative. Cost saving and safety features
such as these underpin Plexus’ business model and the value of its IP as it enters new international markets
directly or through licensees.
Strategy
Having proven the significant advantages of Plexus POS-GRIP wellheads for jack-up exploration applications
to a wide range of mostly international oil companies (‘IOC’s), the challenge now for Plexus whilst waiting
for its organic exploration led business to recover is to extend its business activities into the volume land and
platform and also the subsea sectors. This strategy can be pursued both organically and also through licensees
and partners. It should not be underestimated however that the wellhead business is dominated by a small
number of mostly American multi-national oil services companies such as GE who continue to dominate the
industry. In fact, as a clear illustration of these market dynamics just five companies account for over 90% of
the subsea wellhead business. Despite such challenges Plexus believes that its wellhead equipment is gaining
traction and awareness among major operators of its wellhead systems is increasing which bodes well over
the longer term.
Plexus’ long-term goal is to establish POS-GRIP technology as a new industry standard for wellhead and
metal sealing designs, whilst continuing to develop new products which can also offer multiple benefits and
advantages to the industry in terms of improved safety, functionality, and cost and time savings. An example
of such extensions for POS-GRIP technology is our connector technology which is ideal for high integrity,
Plexus Holdings plc Annual Report 2016
18
Strategic Report continued
low fatigue applications. Wellhead connectors, riser connectors, subsea jumper connectors, pipeline
connectors, and even vessel mooring connectors we believe can all benefit from the simplicity of POS-GRIP.
To support this strategy a key milestone achieved during the year, which delivers significant credibility to the
science based claims that we can make for our equipment, was the completion of our Python subsea wellhead
design where an independent test report summary considered the combined thermal, pressure and axial load
testing of a production casing hanger with our integral HG sealing system configured for use with the Python
subsea wellhead design. This test which was put in place by a major IOC was initiated to establish qualification
procedures that better reflect the true requirements of actual applications rather than the lower test standards
required by current industry standards. This new more rigorous approach adds numerous additional combined
temperature, load, and pressure cycles whilst requiring the testing of a complete hanger/sealing system, and
requires testing at the extremes of the product tolerance ranges. We believe that successfully qualifying to
these much more stringent test requirements uniquely places Plexus at the forefront of test standard passes,
and supports our claim that we can match those standards required for premium couplings.
Alongside our various product and engineering led strategies we are also implementing a strategy to expand
from our historically dominant position in the North Sea into new geographical areas and sizeable markets
that to date have not been targeted such as the GOM and offshore Mexico, India and the Middle East.
R&D continues to be central to the Company’s strategy of investing time and capital into new product
development and improving the application of POS-GRIP technology, and underpins our product extension
strategic initiatives. As part of the Group’s strategy of conserving cash and reducing overheads R&D spend
has been significantly reduced and excluding the cost of building test fixtures R&D spend decreased 46.4%
to £1.86m during the last financial year. R&D was focused on such products as WellTree, the HP/HT Tie-
Back connector, the new POS-SET Connector and the Python subsea wellhead. All of these product
innovations are in line with Plexus’ goal to extend the POS-GRIP product reach into new and commercially
attractive markets which can be addressed organically or with partners. Relevant R&D activity adds value
and leads to new inventions, product designs, and IP. Plexus continues to pursue an active strategy of
protecting existing and securing new IP and patents and to date these remain unchallenged which underlines
the uniqueness of our technical solutions.
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 loss, earnings per share
and working capital resources and requirements. Non-financial indicators include Health and Safety statistics,
equipment utilisation rates, geographical diversity of revenues and customers, effectiveness of various research
and development initiatives for example in relation to new patent activity and inventions, and appropriate
employee headcount numbers 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, legal and environmental risks
Plexus participates in a global market where the exploration and production of oil and gas reserves and
even the access to those reserves can be adversely impacted by changes in the political, operational, and
environmental landscape. The last eighteen months have clearly demonstrated how any combination of
such factors can be so detrimental and generate in many cases risks and uncertainties that can undermine
stable trading conditions such as Iran making efforts to return to the world hydrocarbon supply stage,
and Saudi Arabia implementing a strategy to maintain its market share goals at whatever cost. A specific
example of political risk is the introduction of sanctions, and in extreme circumstances even regime
change or a coup. As a supplier to the industry it is clear that Plexus can be adversely affected by such
events which disrupt the markets and can compromise the ability to execute work for customers and/or
collect payment for services performed. Such risks also extend to legal and regulatory issues and it is
19
Plexus Holdings plc Annual Report 2016
Strategic Report continued
important to understand that these can change at short notice, especially as a result of incidents such
as happened in the GOM. To help address and balance such risks, the Group has continued to broaden
its geographic footprint and customer base.
Closer to home, following the UK Referendum result ‘BREXIT’ continues to generate a fair amount of
speculation and uncertainty about timing and eventual impact in terms of for example staff recruitment,
export negativity if duties were to apply and exchange rates. It is of course at an early stage and Article
50 has not yet been served. Our current thinking is that staff recruitment when activity levels pick up is
not currently a major concern, and weaker Sterling actually makes our products and services cheaper
to customers outside of the UK. In addition some of our sales are in dollars and this could generate a
small currency gain opportunity when converted to Sterling. Also as we see our equipment as being a
unique option for customers we would anticipate that BREXIT is likely to have a lesser impact for Plexus
than it may have on other companies and industries. However if we need to manufacture more
equipment for rent or sale, the cost of raw material, and in particular steel may increase if Sterling’s
weakness continues.
(b) Oil and Gas Sector Trends
It is readily understood that the world is actively moving away from coal as part of the COP21 climate
change objectives and the need to reduce CO2 emissions. However the battle between traditional
hydrocarbons in terms of coal, oil and gas is not the only trend to consider. New technologies
particularly in relation to renewables, alternative energies and developments such as the increasing use
of electric vehicles and corresponding battery life, wind and wave energy could all in the future prove
very disruptive to the traditional oil and gas industry.
(c) 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, both with
regard to expanding into the surface land and platform production market sector, and particularly the
subsea market where the new Python subsea wellhead was only launched last September at the SPE
Offshore Europe Exhibition, Aberdeen. Current and future contract opportunities may be adversely
affected by technology related factors outside the Group’s control, especially where new product
developments are concerned. 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 and write downs, 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.
(d) 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, and who are arguably more resilient
to extended adverse trading conditions. Unforeseen 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.
(e) Operational
Plexus, like many other oil service companies, has had to make significant reductions in its workforce
numbers for the first time since being admitted to the AIM market in 2005. Therefore, when the
anticipated upturn comes in drilling activity it is possible that the industry and Plexus could experience
difficulties in rehiring past or new employees and this could deprive Plexus of the key personnel necessary
for expanding operational activities as well as research and development initiatives at the rate that may
be required. To help mitigate this risk Plexus has developed effective recruitment and training procedures,
Plexus Holdings plc Annual Report 2016
20
Strategic Report continued
which combined with the appeal of working in a company with unique technology and engineering
solutions which will hopefully minimise this risk.
(f) 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 completing two share subscription events with strategic investors
as well as a share placing with existing and new shareholders. In addition, the Group successfully
renewed bank facilities with Bank of Scotland.
(g) 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 sanction issues. Customer payments can involve extended
period of times especially from countries where exchange control regulations can delay the transfer of
funds outside those countries. As Plexus begins to establish licensee relationships there may be instances
whereby certain capital payments could be due some way into the future and as such greater credit risk
than exists under normal payments terms could apply. The Group has credit risk management policies
in place and exposure to credit risk is monitored continuously.
(h) Risk assessment
The Board has established an on-going process for identifying, evaluating and managing the more
significant risk areas 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 can be associated with a variety of internal
and external sources including regulatory requirements, disruption to information systems including
cyber-crime, control breakdowns and social, ethical, environmental and health and safety issues.
Ben van Bilderbeek
Chief Executive
28 October 2016
21
Plexus Holdings plc Annual Report 2016
Board of Directors
Jerome Jeffrey Thrall BBA MBA (aged 66), Non-Executive Chairman
Jeff joined Thrall Enterprises, Inc. (‘TEI’), a family owned holding company headquartered in Chicago, USA,
in 1980 as vice president of corporate development of TEI’s subsidiary, Nazdar Company, a manufacturer
and distributor of ink jet, screen printing, flexo inks and supplies. Jeff was named President of TEI in 1995.
Jeff is also Managing Director of GSI Technologies, a printer of functional electronic products and industrial
graphics. Prior to joining TEI, Jeff’s professional career included a number of appointments in investment
banking, commercial lending and administration.
Bernard Herman van Bilderbeek BSc M.Eng (aged 68), Chief Executive
Ben founded the Plexus business in 1986. He has more than 40 years’ experience in the industry in both
engineering and management roles and previously held senior positions with Vetco Offshore Industries,
Dril-Quip, and Ingram Cactus. Following a career at Vetco, where Ben rose to the position of General
Manager of UK Engineering, he went on to found his own oil and gas consultancy, VBC Consultants, in
1982. During this time, his clients included Amoco, Marathon Oil, FMC Corporation and Dril-Quip. In 1986,
Ben founded Plexus and went on to merge the wellhead division of his company with Ingram Cactus where
he became President Eastern Hemisphere. In 1996 Ben regained the Plexus Ocean Systems Limited name
through which POS-GRIP technology was invented and then developed and commercialised for the oil
services wellhead equipment market.
Graham Paul Stevens BA (Hons) (aged 58), Finance Director
Graham has broad experience in financial, corporate, and operational management within both public and
private companies including J Sainsbury plc, BSM Group Limited, Sketchley Group plc, and Fii Group plc.
He has been involved in a range of industries as a director, investor, and advisor, and overseen a number of
acquisitions and disposals, as well as the implementation of turn around and growth strategies. Graham is a
non-executive director of Netplay TV PLC, the AIM listed largest UK interactive TV gaming company. He
was previously a non-executive director of NRX Global Inc. the worldwide leader in Asset Information
Management solutions used by leading companies in asset intensive industries, including oil and gas.
Craig Francis Bryce Hendrie M.Eng (Oxon) (aged 43), Technical Director
After gaining a Master’s Degree in Engineering Science from the University of Oxford, Craig began his career
with ICI plc in 1996 as a machines engineer. He joined Plexus in 1998 and was instrumental in the
development, testing and analysis of the original POS-GRIP products. As Technical Director, Craig is
responsible for overseeing new technology and concept development, product testing and analysis, as well as
pursuing new applications for POS-GRIP technology both internally and externally.
Geoffrey Edmund Thompson BSc (Hons) M.Eng (aged 62), Non-Executive Director
Geoff has over 40 years’ experience in the international oil and gas arena. Geoff’s expertise lies in the field of
well equipment and well design, including High Pressure High Temperature wellhead equipment technology.
He is currently contracted as an independent consultant to Maersk Oil UK for their Culzean HP/HT
development, having been, until recently, a Principal Drilling Equipment Engineer with Maersk Oil in
Denmark. Prior to this, Geoff was contracted as an independent consultant for 31 years advising international
operators and oil service companies including a number of Shell Group Operating Companies on well
equipment and all mechanical aspects of well design and technology.
Plexus Holdings plc Annual Report 2016
22
Board of Directors continued
Charles Edward Jones BSc M.Eng (aged 57), Non-Executive Director
Charles has over 30 years of senior management and Board experience in the energy sector. In 2007, Charles
was CEO of Houston-based Forum Oilfield Technology, a global oilfield products company which he
successfully merged with three other companies in 2010 to create Forum Energy Technologies (NYSE: FET)
and where he remained as President until 2013. Prior to Forum, Charles was COO of privately owned Hydril
Company LP, where he played a leading role in the US based drilling and downhole products company’s IPO
in 2000 and subsequent sale for USD$2.1 billion. Before joining Hydril, Charles served as Director of Subsea
Businesses for Cooper Cameron Corporation where he developed the global subsea production business.
Charles is a former Chairman of the Petroleum Equipment Suppliers Association, a Distinguished Alumni
of the Cullen College of Engineering at the University of Houston and graduate of the Advanced
Management Program at Harvard Business School.
Kunming Liu (aged 39), Non -Executive Director
Kunming, appointed 17 December 2015, has over 18 years’ experience in corporate finance and financial
accounting. She currently holds the position of Vice President and Chief Administrator of HITIC Energy,
an emerging oil and gas development company based in Canada, which is a subsidiary of Jereh Oilfield
Services Group, a multi-billion dollar Chinese oil services provider. Prior to this, Ms Liu was the Financial
Director of Jereh Energy Services Corporation, a wholly owned subsidiary of Jereh. Additionally, Ms Liu
holds a major in financial accounting from Shandong Cadres Institute of Economics and Management in
China.
23
Plexus Holdings plc Annual Report 2016
Directors’ Report
The directors present their annual report together with the audited financial statements for the year ended
30 June 2016.
Business review
A review of the development and performance during the year consistent with the size and complexity of the
business together with commentary on future developments including the main trends and factors likely to
affect the business is given in the Chairman’s Statement on page 6 and the Strategic Report on page 12. In
addition, the Strategic Report on page 12 includes references to and additional explanations of amounts
included in the annual accounts. Where guidelines make reference to the provision of key performance
indicators the directors are of the opinion certain financial and non-financial indicators included in the
highlights on page 1, the Strategic Report on page 12, and the Directors’ Report on page 24 meet this
requirement. The directors have provided a description of the principal risks and uncertainties facing the Group
in the Strategic Report on page 19.
Directors who served during the year
J. Jeffrey Thrall
Ben van Bilderbeek
Graham Stevens
Craig Hendrie
Geoff Thompson
Charles Edward Jones
Kunming Liu (appointed 17 December 2015)
Christopher Fraser (resigned 16 December 2015)
Research and development
The Group actively engages in an on-going research and development programme designed to expand and
develop the range of commercial applications deriving from its proprietary POS-GRIP technology. For the
year research and development expenditure including the cost of building new test fixtures totalled £1.86m
(2015: £4.12m), being amounts expensed through the Statement of Comprehensive Income and capitalised on
the Statement of Financial Position during the year.
Results and dividends
The results for the year, showing a loss before taxation of £6.92m (2015: Profit £5.94m), are set out on page 37.
The directors do not recommend the payment of a final dividend for the year ended 30 June 2016 (2015: 1.75p).
Corporate governance
This is the subject of a separate report set out on page 28.
Related party transactions
Details of related party transactions are set out in Note 64 in the financial statements.
Financial instruments and risk management
The Group maintains a commercial objective of contracting in sterling whenever possible. In circumstances
where this is not possible, the Group converts foreign currency balances into sterling on receipt so far as they
will not be used for future payments in the foreign currency. The Group maintains risk management policies
which are set out in more detail in note 23 to the accounts.
Plexus Holdings plc Annual Report 2016
24
Directors’ Report continued
Going concern
The directors, having made appropriate enquiries, believe that the Group has adequate resources to continue
in operational existence for the foreseeable future. The Group continues to adopt the going concern basis in
preparing the financial statements.
Directors’ interests
The directors who served during the year and to the date of this report are listed below.
The interests of the directors who held office during the year in the shares of the Company at 30 June 2016
were as follows:
J. Jeffrey Thrall 1
Ben van Bilderbeek 2
Graham Stevens
Craig Hendrie
Geoff Thompson
Charles Edward Jones
Kunming Liu (appointed 17 December 2015)
Christopher Fraser (resigned 16 December 2015)
Number of
Ordinary Shares
of 1p each
2016
Number of
Ordinary Shares
of 1p each
2015
44,295,513
58,077,461
15,100
12,600
–
–
–
–
42,704,001
58,700,001
15,100
12,600
–
–
–
10,000
1. J. Jeffrey Thrall, has an indirect beneficial interest in a company which controls 32.477% of Mutual
Holdings Limited. The number of Ordinary shares held by Mutual Holdings Limited in the Company at
30 June 2015 was 42,700,001 (2014: 42,700,001). Additionally, J. Jeffrey Thrall has an indirect beneficial
interest in Nazdar Limited, a company which holds 1,591,512 Ordinary shares in the Company and he
holds 4,000 Ordinary shares directly.
2. Ben van Bilderbeek is one of the beneficiaries of a trust which controls 59.962% of the shares of Mutual
Holdings Limited and the entire issued share capital of OFM Investment Limited. At 30 June 2015, Mutual
Holdings Limited held 42,700,001 shares and OFM Investment Limited held 15,069,767. Additionally,
Ben van Bilderbeek holds 307,693 Ordinary shares directly.
Retirement and re-election of Directors
Mr. van Bilderbeek and Mr. Thompson will retire by rotation at the Annual General Meeting and, being
eligible, will offer themselves for re-election. Ms Liu will also retire at the Annual General Meeting having
been appointed since the last AGM and, being eligible, will offer herself for re-election.
25
Plexus Holdings plc Annual Report 2016
Directors’ Report continued
Substantial shareholdings and interests
Shares
At the date of this Annual Report the Company is aware of the following shareholdings in excess of 3% of
the Company’s issued ordinary share capital:
Mutual Holdings Limited 42,700,001
OFM Investment Limited 15,069,767
Liontrust Investment Partners LLP
LLC Gusar 6,764,893
Blackrock Investment Management
JM Finn Nominees Limited
Jereh International (Hong Kong) Co., Ltd 4,468,537
% issued share capital
40.52%
14.3%
12.67%
6.42%
5.8%
4.8%
4.24%
Executive 2005 Share Option Scheme and Non-Executive 2005 Share Option Scheme
Details of the Executive and Non-Executive Schemes can be found in the Remuneration Committee Report
on page 31.
Employees
Plexus is a non-discriminatory employer which aims to eliminate unfair discrimination, harassment,
victimisation and bullying. The Company is committed to ensuring that all individuals are treated fairly, with
respect and are valued irrespective of disability, race, gender, health, social class, sexual preference, marital
status, nationality, religion, employment status, age or membership or non-membership of a trade union.
Disclosure of information to auditors
The directors who held office at the date of approval of this Directors’ Report confirm that, so far as they
are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each
director has taken steps that he ought to have taken as a director to make himself aware of any relevant audit
information and to establish that the Company’s auditor is aware of that information.
Annual General Meeting
The Annual General Meeting of the Company will be held on 8 December 2016. The Notice convening the
meeting can be found at the back of these financial statements.
In addition to the ordinary business of the meeting which is set out in the proposed resolutions numbered 1
to 7 (inclusive) there are three items of special business, namely the proposed resolutions numbered 8, 9 and
10, the effects of which are to renew the authority given to the directors to allot shares in the capital of the
Company, to authorise the Company to make market purchases, of shares and, to dis-apply pre-emption
rights. Your attention is drawn to the Notes on each of these resolutions at the foot of the Notice and to the
Notes generally.
Auditors
Crowe Clark Whitehill LLP has indicated its willingness to be reappointed as statutory auditor. In accordance
with Section 489 of the Act, two resolutions for the re-appointment of Crowe Clark Whitehill LLP as auditor
of the Company and authorising the directors to determine its remuneration will be proposed at the
forthcoming Annual General Meeting.
Plexus Holdings plc Annual Report 2016
26
Directors’ Report continued
Company number
The Company is registered in England and Wales under Company Number 03322928.
By order of the Board
Ben van Bilderbeek
Chief Executive
28 October 2016
27
Plexus Holdings plc Annual Report 2016
Corporate Governance
Introduction
Although the rules of AIM do not require the Company to comply with the UK Corporate Governance Code
(the ‘Code’), the Company fully supports the principles set out in the Code and will use it as a model of best
practice wherever possible, given both the size and resources available to the Company.
The Board
The Board of Directors comprises three Executive Directors and four independent Non-Executive Directors,
one of whom is the Chairman.
The Board meets regularly throughout the year and receives a Board pack in respect of each meeting together
with any other material deemed necessary for the Board to discharge its duties. The Board is responsible for
formulating, reviewing and approving the Group’s strategy, budgets, major items of expenditure and
acquisitions.
During the year to 30 June 2016 the Board (including transactional committees, but not including the Audit
and Remuneration committees) met a total of nineteen times of which five were scheduled Board meetings.
Board Committees
The Board has established two committees; Audit and Remuneration each having written terms of delegated
responsibilities.
It is considered that the composition and size of the Board does not warrant the appointment of a
Nominations Committee and appointments are dealt with by the whole of the Board.
Audit Committee
The Audit Committee comprises two Non-executive Directors, J. Jeffrey Thrall and Charles Jones and is
scheduled to meet twice a year. It is the Audit Committee’s role to provide formal and transparent
arrangements for considering how to apply financial reporting and internal control best practice, whilst
maintaining an appropriate relationship with the independent auditors of the Group. In order to comply with
best practice that at least one member has relevant financial experience, the Chairman of the Board sits on
the Audit Committee.
During the year to 30 June 2016 the Audit Committee met on two occasions.
Remuneration Committee
The Remuneration Committee comprises two Non-Executive Directors, J. Jeffrey Thrall and Christopher
Fraser and meets at least once a year. It is the Remuneration Committee’s role to establish a formal and
transparent policy on Executive remuneration and to set remuneration packages for individual Directors.
During the year to 30 June 2016 the Remuneration Committee met on three occasions.
Plexus Holdings plc Annual Report 2016
28
Corporate Governance continued
Board and committee meeting attendance
The table below shows the attendance record of individual directors at Board meetings and committees of
which they are members.
Board
Audit
Committee
Remuneration
Committee
Eligible to
Attend
19
19
19
19
19
19
Attended
7
14
19
15
6
6
Eligible to
Attend
2
–
–
–
–
2
Attended
2
–
–
–
–
2
Eligible to
Attend
3
–
–
–
–
3
11
10
2
4
–
1
–
1
–
1
Attended
3
–
–
–
–
3
–
1
J. Jeffrey Thrall
Ben van Bilderbeek
Graham Stevens
Craig Hendrie
Geoff Thompson
Charles Edward Jones
Kunming Liu (appointed
17 December 2015)
Christopher Fraser (resigned
16 December 2015)
Appointment of Non-Executive Director
Kunming Liu was appointed as a Non-Executive Director on 17 December 2015. As required by Article
69.(B) of the Company’s Articles of Association, Kunming Liu will retire at the Annual General Meeting to
held on 8 December 2015 and, being eligible, will offer herself for re-election.
Retirement and re-election
Ben van Bilderbeek and Geoff Thompson are to retire by rotation at the Annual General Meeting and, being
eligible, will offer themselves for re-election.
Shareholder relations
The Company meets with its institutional shareholders and analysts as appropriate and encourages
communication with private shareholders via the AGM. In addition, the Company uses the annual report
and accounts, interim statement and website (www.plexusplc.com) to provide further information to
shareholders.
Health and safety
The Company is active in assessing and minimising the risks in all areas of the business and educating the
workforce to provide as safe a working environment as possible.
Financial reporting
The directors have a commitment to best practice for the Group’s external financial reporting in order to
present a balanced and comprehensible assessment of the Group’s financial position and prospects to its
shareholders, employees, customers, suppliers and other third parties. This commitment encompasses all
published information including but not limited to the year end and interim financial statements, regulatory
news announcements and other public information. The Statement of Directors’ Responsibilities for preparing
the accounts may be found on page 34.
29
Plexus Holdings plc Annual Report 2016
Corporate Governance continued
Internal control and risk management
The Board is responsible for the systems of internal control and for reviewing their effectiveness. Such systems
are designed to manage rather than eliminate risks and can provide only reasonable and not absolute assurance
against material mis-statement or loss. Each year, on behalf of the Board, the Audit Committee reviews the
effectiveness of these systems. This is achieved primarily by considering the risks potentially affecting the
Group and discussions with the external auditors.
The Group does not currently have an internal audit function due to the small size of the administrative
function and the high level of Director review and authorisation of transactions.
A comprehensive budgeting process is completed once a year and is reviewed and commended by the Audit
Committee for approval by the Board. The Group’s results, as compared against budget, are reported to the
Board on a monthly basis and discussed in detail at each meeting of the Board.
The Group maintains appropriate insurance cover in respect of legal actions against the Directors as well as
against material loss or claims against the Group and reviews the adequacy of the cover regularly.
The Group has established procedures whereby employees may in confidence raise concerns relating to matters
of potential fraud or other improprieties, as well as health and safety issues.
Reserved matters
The Board has a formal schedule of matters reserved for its decision which includes the setting of Company
goals, objectives, budgets and other plans. Board papers, comprising an agenda and formal reports and
briefing papers, are sent to the directors in advance of each meeting. All directors have access to independent
professional advice at the Company’s expense, if required, as well as to the advice and services of the company
secretary.
Risk assessment
The Board has established an on-going process for identifying, evaluating and managing the significant risks
faced by the Group. The 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.
Plexus Holdings plc Annual Report 2016
30
Remuneration Committee Report
Introduction
Companies trading on AIM are not required to provide a formal remuneration report. However, in line with
current best practice this report provides information to enable a greater level of understanding as to how
Directors’ remuneration is determined.
The Remuneration Committee of the Board is responsible for considering Directors’ remuneration packages.
The Committee comprises two Non-Executive Directors J. Jeffrey Thrall and Charles Jones, and is required
to meet at least once a year.
Remuneration policy
The Group’s policy is to attract, retain and motivate high calibre executives capable of achieving the Group’s
objectives. Executive Directors receive salaries, annual bonuses (as and when appropriate), medical cover, and
pension scheme contributions which are intended to be competitive within the sector in which the Group
operates.
The Committee determines the policy of the overall remuneration package for Executive Directors and other
senior executives. Basic salaries and benefits of all employees are reviewed every year, and the Group and the
Committee as part of this annual process seeks advice from external remuneration consultants as and when
appropriate. In reviewing salaries, consideration is given to personal performance, the Group’s overall
performance and external comparative information.
An annual performance bonus may be payable to Executive Directors and senior staff, and each year an
exercise is undertaken, again in conjunction where appropriate with external remuneration consultants to
look at market comparisons, benchmarks, relative performance as well as consideration of strategic progress
in addition to simply financial ones. Comparator group analyses includes oil and gas exploration companies
with broadly similar market capitalisations and numbers of employees, as well as oil and gas service companies
where although the market capitalisation range is wide it is relevant as these are the sort of companies with
which Plexus may compete for talent. A further comparator group for the Committee to consider is the FTSE
AIM 100.
Service contracts
The Executive Directors have service agreements with the Company dated 25 November 2005 subject to
termination upon twelve months’ notice being given by either party.
Pensions
The Group offers a contributory group stakeholder pension scheme, into which the Group makes matching
contributions up to a pre-agreed level of base salary; the scheme is open to Executive Directors and permanent
employees. Directors may choose to have contributions paid into existing personal pension plans.
Non-Executive Directors
The Non-Executive Chairman, J. Jeffrey Thrall, entered into a Letter of Appointment with the Company
dated 25 November 2005 for an initial term through to the first AGM and having been re-elected as a director
either party can terminate upon three months’ notice being given. The subsequently appointed Non-Executive
Directors, Geoff Thompson, Charles Jones and Kunming Liu, entered into their Letters of Appointment
with the Company dated 8 June 2010, 18 September 2014, and 17 December 2015 respectively, and (with the
exception of Kunming Liu who is to retire at the forthcoming AGM), having been re-elected as a director at
the first respective AGM following their appointment, are subject to the same termination conditions as those
applicable to Mr Thrall.
31
Plexus Holdings plc Annual Report 2016
Remuneration Committee Report continued
Directors’ remuneration
Details of Directors’ remuneration for the year are set out below:
Short-Term
Employee
Benefits
Post-
Employment
Benefits
Share-
Based
Payment
Executive Directors
Ben van Bilderbeek
Graham Stevens
Craig Hendrie
Non-executive Directors
J Jeffrey Thrall
Geoff Thompson
Christopher Fraser
Charles Edward Jones
Kunming Lee
Total
Salary & Fees
(incl. annual bonus)
£
Benefits
£
Pension
£
330,654
292,133
144,773
18,078
10,318
907
27,083
16,667
21,250
40,432
10,000
––––––––––
872,992
––––––––––
–
–
–
–
–
––––––––––
29,303
––––––––––
–
15,194
20,775
–
–
–
–
–
––––––––––
35,969
––––––––––
IFRS 2
Charge
for Share
Options
£
–
–
–
–
–
21,000
–
–
––––––––––
21,000
––––––––––
2016
Total
£
2015
Total
£
348,732
317,646
166,454
27,083
16,667
42,250
40,432
10,000
––––––––––
969,264
––––––––––
745,154
389,701
275,655
32,500
20,000
51,016
34,976
–
––––––––––
1,549,002
––––––––––
Directors’ interest in share options
The options and awards have been granted pursuant to the Executive 2005 Share Option Scheme and Non-
Executive 2005 Share Option Scheme to the following Directors:
Executive 2005 Share Option Scheme
No of
Options Granted
Lapsed
No of
Exer-
cised Options Granted
Lapsed
Name
30/06/14
14/15
14/15
14/15 30/06/15
15/16
15/16
At During During During
At During During During
No of
Exer-
cised Options
At
15/16 30/06/16
No of
Options
Vested
At
Grant 30/06/16
Date
of
Exercise
Price
(£)
Expiry
Date
B. van Bilderbeek 194,152
B. van Bilderbeek 65,902
B. van Bilderbeek 332,110
B. van Bilderbeek 169,642
138,407
G. Stevens
43,177
G. Stevens
217,795
G. Stevens
101,042
G. Stevens
254,407
C. Hendrie
43,177
C. Hendrie
217,795
C. Hendrie
105,853
C. Hendrie
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
194,152
65,902
332,110
169,642
138,407
43,177
217,795
101,042
254,407
43,177
217,795
105,853
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
194,152 09/12/05
65,902 20/06/07
332,110 17/12/09
169,642 25/03/11
138,407 09/12/05
43,177 20/06/07
217,795 17/12/09
101,042 25/03/11
254,407 09/12/05
43,177 20/06/07
217,795 17/12/09
105,853 25/03/11
194,152 08/12/25
65,902 19/06/17
332,110 16/12/19
169,642 24/03/21
138,407 08/12/25
43,177 19/06/17
217,795 16/12/19
101,042 24/03/21
254,407 08/12/25
43,177 19/06/17
217,795 16/12/19
105,853 24/03/21
0.59
0.385
0.41
0.60
0.59
0.385
0.41
0.60
0.59
0.385
0.41
0.60
Non-executive 2005 Share Option Scheme
No of
Options Granted
Lapsed
Exer-
No of
cised Options Granted
Lapsed
Name
30/06/14
14/15
14/15
14/15 30/06/15
15/16
15/16
At During During During
At During During During
Exer-
No of
cised Options
At
15/16 30/06/16
No of
Options
Vested
At
Grant 30/06/16
Date
of
Exercise
Price
(£)
Expiry
Date
J. Thrall
G. Thompson
C. Fraser
40,169
100,000
100,000
–
–
–
–
–
–
–
–
–
40,169
100,000
100,000
–
–
–
–
–
–
–
–
–
40,169 09/12/05
100,000 08/06/10
100,000 05/07/12
40,169 08/12/25
100,000 07/06/20
100,000 04/07/22
0.59
0.60
1.18
No options are expected to lapse at the AGM
Plexus Holdings plc Annual Report 2016
32
Remuneration Committee Report continued
The exercise of the options granted on 5 July 2012 are subject to the following vesting conditions being
satisfied:
Date Option capable of exercise
14 days after Company AGM following
end of First Assessment Period – 1 July 2012
to 30 June 2013
14 days after Company AGM following
end of Second Assessment Period – 1 July 2013
to 30 June 2014
14 days after Company AGM following
end of Third Assessment Period – 1 July 2014
to 30 June 2015
Number of Shares over which Option could be
capable of exercise depending on TSR Growth
Up to 1⁄3 of Shares under Option
Up to 1⁄3 of Shares under Option
Up to 1⁄3 of Shares under Option
14 days after Company AGM following
end of Complete Assessment Period – 1 July 2012
to 30 June 2015
Up to all Shares under Option LESS Annual
Shares already capable of exercise.
On 9 July 2015 the Board of Plexus approved certain amendments to the rules of the Plexus Holdings plc
2005 Share Option Scheme (the "Plan") such that the Company is permitted to extend the exercise period for
options granted under the Plan by a further ten years. Subsequently, on 9 July 2015, the Company entered
into deeds of amendment with Ben van Bilderbeek, Graham Stevens, Craig Hendrie, all of whom are
Directors of Plexus, in respect of options granted to them on 9 December 2005 under the Plan (“2005
Options”), to enable each holder to exercise 2005 Options up until 8 December 2025, subject to the terms of
the Plan Rules.
The lowest mid-market price of the Company’s shares in the year to 30 June 2016 was 40.63p on 29 February
2016, and the high in the period to 30 June 2016 was 237.57p on 21 July 2015. The mid-market price on
30 June 2016 was 63.25p.
33
Plexus Holdings plc Annual Report 2016
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Directors’ Report, Strategic Report and the financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law
the directors have elected to prepare the financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the
Parent Company financial statements, as applied in accordance with the provisions of the Companies Act
2006. Under company law the directors must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the Company and of the Group and of the profit
or loss of the Group for that period. In preparing these financial statements, the directors are required to:
●
●
●
●
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state that the financial statements comply with IFRSs as adopted by the European Union;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the group and the parent company will continue in business.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy
at any time the financial position of the parent company and enable them to ensure that its financial
statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other
irregularities.
Under applicable law the directors are further responsible for ensuring that the Strategic Report and the
Report of the Directors and other information included in the Annual Report and Financial Statements is
prepared in accordance with applicable law in the United Kingdom.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Group’s website (www.plexusplc.com). The work carried out by the auditors does not involve
the consideration of these matters and, accordingly, the auditors accept no responsibility for any changes
that may have occurred in the accounts since they were initially presented on the website. Legislation in the
UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
By order of the Board
Ben van Bilderbeek
Chief Executive
28 October 2016
Plexus Holdings plc Annual Report 2016
34
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc
We have audited the group financial statements of Plexus Holdings plc for the year ended 30 June 2016 which
comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and
the related notes numbered 1 to 26.
The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient
to give reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the
company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the overall presentation of the financial statements.
We read all the financial and non-financial information in the Directors’ Report, Chairman’s Statement,
Strategic Report, Corporate Governance Report, Remuneration Committee Report and any other surround
information to identify material inconsistencies with the audited Financial Statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in performing the audit. If we become aware of any apparent material misstatements or
inconsistencies, we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
●
●
●
give a true and fair view of the state of the Group’s affairs as at 30 June 2016 and of its profit for the
year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report and Strategic Report for the financial year for
which the Group financial statements are prepared is consistent with the Group financial statements.
35
Plexus Holdings plc Annual Report 2016
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc contd
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
●
●
certain disclosures of Directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the parent company financial statements of Plexus Holdings plc for the year
ended 30 June 2016.
Matthew Stallabrass
Senior Statutory Auditor
for and on behalf of
Crowe Clark Whitehill LLP, Statutory Auditor
London
28 October 2016
Plexus Holdings plc Annual Report 2016
36
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Restructuring costs
Operating (loss) / profit
Finance income
Finance costs
Share of profit of associate
Gain on disposal of associate
(Loss) / profit before taxation
Income tax credit / (expense)
(Loss) / profit for the year attributable to the owners of the parent
Other comprehensive income
Total comprehensive
income for the year attributable to the owners of the parent
(Loss) / earnings per share
Basic
Diluted
All income arises from continuing operations
Notes
2
8
4
6
7
9
11
2016
£’000
11,227
(5,994)
–––––––
5,233
(11,276)
(755)
–––––––
(6,798)
69
(187)
–
–
–––––––
(6,916)
1,126
–––––––
(5,790)
–
–––––––
(5,790)
–––––––
(6.39p)
(6.39p)
2015
£’000
28,526
(8,581)
–––––––
19,945
(14,925)
–
–––––––
5,020
512
(182)
236
352
–––––––
5,938
(509)
–––––––
5,429
–
–––––––
5,429
–––––––
6.40p
6.16p
37
Plexus Holdings plc Annual Report 2016
Consolidated Statement of Financial Position
at 30 June 2016
Assets
Goodwill
Intangible assets
Property, plant and equipment
Total non-current assets
Inventories
Trade and other receivables
Current income tax asset
Cash and cash equivalents
Total current assets
Total Assets
Equity and Liabilities
Called up share capital
Share premium account
Share based payments reserve
Retained earnings
Total equity attributable to equity holders of the parent
Notes
12
13
15
16
17
19
19
20
2016
£’000
767
14,080
15,567
–––––––
30,414
–––––––
6,726
1,747
229
15,863
–––––––
24,565
–––––––
54,979
1,054
36,893
766
8,277
–––––––
46,990
–––––––
2015
£’000
767
13,167
17,154
–––––––
31,088
–––––––
6,551
7,301
-
3,328
–––––––
17,180
–––––––
48,268
849
20,141
1,862
15,628
–––––––
38,480
–––––––
Liabilities
Deferred tax liabilities
Bank loans
9
23
Total non-current liabilities
Trade and other payables
Current income tax liabilities
Bank loans
212
5,975
–––––––
6,187
–––––––
3,296
5
300
–––––––
3,601
–––––––
9,788
–––––––
48,268
–––––––
These financial statements were approved and authorised for issue by the board of directors on 28 October 2016
and were signed on its behalf by:
468
675
–––––––
1,143
–––––––
1,546
–
5,300
–––––––
6,846
–––––––
7,989
–––––––
54,979
–––––––
Total Equity and Liabilities
Total current liabilities
Total liabilities
18
23
B van Bilderbeek
Director
G Stevens
Director
Company Number: 03322928
Plexus Holdings plc Annual Report 2016
38
Consolidated Statement of Changes in Equity
for the year ended 30 June 2016
Called Up
Share
Capital
£’000
Share
Share
Based
Premium Payments
Reserve
Account
£’000
£’000
Balance as at 30 June 2014
Total comprehensive income for the year
Share based payments reserve charge
Transfer of share based payments reserve
charge on exercise of options
Tax credit recognised directly in equity
Transfer of share based payments reserve
charge on lapse of options
Issue of ordinary shares (net of issue costs)
Net deferred tax movement on share options
Dividends
Balance as at 30 June 2015
Total comprehensive income for the year
Share based payments reserve charge
Current year credit on share option exercise
to share based payment reserve
Transfer of share based payments reserve
charge on exercise of options
Issue of ordinary shares (net of issue costs)
Net deferred tax movement on share options
Dividends
Balance as at 30 June 2016
849
–
–
–
–
20,138
–
–
–
–
2,476
–
21
(1)
–
Retained
Earnings
£’000
11,117
5,429
–
1
2
Total
£’000
34,580
5,429
21
–
2
–
–
–
––––––––––
849
3
–
–
––––––––––
20,141
(38)
–
(596)
–
––––––––––
1,862
38
–
–
(959)
––––––––––
15,628
–
3
(596)
(959)
––––––––––
38,480
–
–
–
–
–
–
–
21
5
(5,790)
–
(5,790)
21
–
5
–
205
–
–
––––––––––
1,054
––––––––––
–
16,752
–
–
––––––––––
36,893
––––––––––
(3)
–
(1,119)
–
––––––––––
766
––––––––––
3
–
–
(1,564)
––––––––––
8,277
––––––––––
–
16,957
(1,119)
(1,564)
––––––––––
46,990
––––––––––
39
Plexus Holdings plc Annual Report 2016
Notes
Consolidated Statement of Cash Flows
for the year ended 30 June 2016
Cash flows from operating activities
(Loss) / profit before taxation
Adjustments for:
Depreciation, amortisation and impairment charges
(Gain) / loss on disposal of property, plant and equipment
Charge for share based payments
Investment income
Interest expense
Share of result in associate
Gain on disposal of associate
Dividend received from associate
Changes in working capital:
Increase in inventories
Decrease / (increase) in trade and other receivables
Decrease in trade and other payables
Cash generated from operating activities
Income taxes refund / (payment)
Net cash generated from operating activities
Cash flows from investing activities
Proceeds from disposal of associate
Acquisition of subsidiary
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds of sale of property, plant and equipment and intangibles
Interest received
Net cash used in investing activities
Cash flows from financing activities
Drawdown of loans
Repayment of loans
Net proceeds from issue of new ordinary shares
Proceeds from share options exercised
Interest paid
Equity dividends paid
Net cash generated from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 July 2015
Cash and cash equivalents at 30 June 2016
22
21
2016
£’000
(6,916)
4,471
(2)
21
(69)
187
–
–
–
(175)
5,554
(1,750)
–––––––
1,321
34
–––––––
1,355
–––––––
–
–
(1,900)
(1,956)
61
69
–––––––
(3,726)
–––––––
–
(300)
16,923
34
(187)
(1,564)
–––––––
14,906
–––––––
12,535
3,328
–––––––
15,863
–––––––
2015
£’000
5,938
3,881
20
21
(512)
182
(236)
(352)
37
(1,295)
(838)
(1,678)
–––––––
5,168
(318)
–––––––
4,850
–––––––
1,492
(7)
(3,541)
(7,016)
56
4
–––––––
(9,012)
–––––––
2,500
(225)
–
3
(182)
(959)
–––––––
1,137
–––––––
(3,025)
6,353
–––––––
3,328
–––––––
Plexus Holdings plc Annual Report 2016
40
Notes to the Consolidated Financial Statements
1.
Summary of significant accounting policies
The following accounting policies have been applied consistently in dealing with items which are
considered material in relation to the financial information.
Basis of preparation
a.
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards
Board as adopted by the European Union and therefore comply with the EU IAS Regulation and are
in accordance with the Companies Act 2006.
The Directors have considered those standards and interpretations, which have not been applied in the
financial statements but are relevant to the Group’s operations, that are in issue but not yet effective.
The adoption of IFRS 9 (Financial Instruments) and IFRS 15 (Revenue from Contracts with
Customers) is not expected to have a material impact on the future results of the Group. IFRS 16
(Leases) is expected to materially change the balance sheet with the inclusion of a right of use asset and
a matching lease liability however the quantum has yet to be calculated. The impact on future results is
not expected to be material.
The Group financial statements are presented in sterling and all values are rounded to the nearest
thousand pounds except where otherwise indicated.
The financial information has been prepared under the historical cost convention except where fair value
adjustments are required.
The directors, having made appropriate enquiries, have carefully considered the availability of working
capital along with future orders and satisfied themselves that the Group has adequate resources to
continue in operational existence for the foreseeable future. The Group continues to adopt the going
concern basis in preparing the financial statements.
Cost of sales includes salary and related costs for service personnel, and depreciation and refurbishment
costs on rental assets.
Going concern
b.
The Group’s activities and an outline of the developments taking place in relation to its products, services
and marketplace are considered in the Strategic Report on pages 12 to 21 along with an explanation
of revenue, trading results and cash flows.
Note 23 to the Financial Statements sets out the Company’s financial risks and the management of
capital risks.
At the year end, the Group had cash and cash equivalents of £15.9m and bank facilities of £6.975m
comprising a £5m revolving credit facility repayable in September 2016, a £1m overdraft repayable on
demand, and a term loan facility which had a balance of £0.975m, and which is repayable in quarterly
instalments of £75k with the final repayment due by September 2019.
The level of the Group’s available funds and facilities are anticipated to provide sufficient funding for
the foreseeable future.
Accordingly, after careful enquiry and review of available financial information, including projections
and cash flows for the period to 31 October 2017, the Directors believe that the Company has adequate
resources to continue to operate for the foreseeable future and that it is therefore appropriate to continue
to adopt the going concern basis of accounting in the preparation of the consolidated and company
financial statements.
41
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
Basis of consolidation
c.
The group financial statements consolidate the financial statements of Plexus Holdings plc and the
entities it controls (its subsidiaries) drawn up to 30 June each year. Control comprises the power to
govern the financial and operating policies of the investee so as to obtain benefit from its activities and
is achieved through direct and indirect ownership of voting rights; currently exercisable or convertible
potential voting rights; or by way of contractual agreement. Subsidiaries are consolidated from the date
of their acquisition, being the date on which the group obtains control, and continue to be consolidated
until the date that such control ceases. The financial statements of subsidiaries are prepared for the same
reporting year as the parent company, using consistent accounting policies. All intercompany balances
and transactions, including unrealised profits arising from intra group transactions, have been eliminated
in full. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of
the asset transferred.
Within twelve months of the date of acquisition of a subsidiary undertaking a re-assessment is made
of the fair value of the assets and liabilities acquired in order to assess any provisional values used in
initial accounting.
The financial statements of the Company and its subsidiaries are prepared in sterling (the functional
currency), which is the currency that best reflects the economic substance of the underlying events and
circumstances relevant to the Group. Transactions and balances in foreign currencies are converted into
sterling in accordance with the principles set forth by IAS 21 (“The Effects of Changes in Foreign
Exchange Rates”). Accordingly, transactions and balances have been converted as follows:
●
● Monetary assets and liabilities – at the rate of exchange applicable at the balance sheet date; and
Income and expense items – at exchange rates applicable as of the date of recognition of those
items. Non-monetary items are converted at the rate of exchange used to convert the related
balance sheet items i.e. at the time of the transaction. Exchange gains and losses from the
aforementioned conversion are recognised in the consolidated statement of comprehensive income.
Associate
d.
An associate is an entity over which the Group is in a position to exercise significant influence through
participation in the financial and operating policy decisions of the investee, but that is not a subsidiary
or a jointly controlled entity.
The results, assets and liabilities of an associate are incorporated in these financial statements using the
equity method of accounting. Under the equity method, the investment in an associate entity is carried
in the balance sheet at cost, plus post-acquisition changes in the Group’s share of net assets of the
associate, less distributions received and less any impairment in value of the investment. The Group
income statement reflects the Group’s share of the results after tax of the associate entity. The Group
statement of other comprehensive income reflects the Group’s share of any income and expense
recognised by the associate entity outside profit and loss.
Financial statements of associate entities are prepared for the same reporting year as the Group. Where
necessary, adjustments are made to those financial statements to bring the accounting policies used into
line with those of the Group.
Unrealised gains on transactions between the Group and its associate entities are eliminated to the extent
of the Group’s interest in the associate entities. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred.
Plexus Holdings plc Annual Report 2016
42
Notes to the Consolidated Financial Statements continued
The Group assesses investments in associate entities for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. If any such indication of
impairment exists, the carrying amount of the investment is compared with its recoverable amount,
being the higher of its fair value less costs to sell and value in use. Where the carrying amount exceeds
the recoverable amount, the investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting on the date from which it no longer has joint
control over, or significant influence in the associate, or when the interest becomes held for sale.
Revenue
e.
Revenue represents the amounts (excluding value added tax) derived from wellhead rentals and sales of
wellheads, plus associated equipment and services.
Income from rental contracts is recognised over the period of the rental on a straight-line basis. Income
from equipment sales is recognised following product acceptance by the customer. Income from services
is recognised over the period of performance of the services. Income from construction contracts is
recognised in accordance with paragraph (n) below.
Income taxes and deferred taxation
f.
The income tax credit for the period comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
The current income tax credit is calculated on the basis of the tax laws enacted or substantively enacted
at the balance sheet date in the countries where the company and its subsidiaries operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised.
As set out in note 20 the Group operates a share option scheme. Where the market price of the shares
at the year-end exceeds the option price there is a potential tax deduction. This is treated as a deferred
tax asset. The portion of the expected future tax deduction which is less than or equal to the associated
cumulative IFRS2 charge is recognised in the income statement. The balance of the credit is recognised
directly in equity.
43
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
Goodwill
g.
Purchased goodwill (representing the excess of the fair value of the consideration given over the fair
value of the separable assets acquired) arising on business combinations in respect of acquisitions is
capitalised.
Goodwill is not amortised; it is measured at cost less any accumulated impairment losses. Goodwill is
reviewed for impairment at least annually.
The recoverable amount of the goodwill has been determined on a value in use basis.
The key assumptions on which the valuation is based are that:
●
●
●
Industry acceptance will over time result in growth of the business above long term industry growth
rates. Management consider this to be appropriate for a new technology still gaining industry
acceptance,
Prices will rise with inflation,
Staff wage inflation will be higher than general inflation but will not rise in line with sales.
These assumptions were determined from the directors’ knowledge and experience.
The cash flows are based upon a 10-year period which is the period covered by the relevant patents, and,
in accordance with historical trends and current expectations, an average growth rate for the organic
income streams of 13.9% has been applied to periods beyond the current budget. In making these
calculations Management have not included an assessment of the terminal value. The Company’s
Weighted Average Cost of Capital for discounting purposes has been measured at 10.87%. The cashflows
are based upon approved budgets for the following 12 months, beyond this they are based upon
management’s expectations of future developments.
In addition, management have considered an indicative fair value less costs to sell (FVLCS) valuation
of goodwill and intangibles estimated by adjusting implied valuations of the Group from recent placings
for the estimated fair value of tangible assets and liabilities and other factors. Management noted that
this indicative FVLCS value exceeded the carrying value.
Management regularly assesses the sensitivity of the key assumptions and the probability that any of
them would change to the degree that the carrying value would exceed the recoverable amount. It would
require a substantial movement (over 30%) in any of these assumptions before there would be any
impairment to intangible assets.
Intangible assets and amortisation
h.
Patents are recorded initially at cost and amortised on a straight line basis over 20 years which represents
the life of the patent. The Group operates a policy of continual patent enhancement in order that
technology enhancements and modifications are incorporated within the registered patent, thereby
protecting the value of technology advances for a full 20-year period.
Intellectual Property rights are initially recorded at cost and amortised over 20 years on a straight line
basis. The technology defined by the Intellectual Property is believed to be able to generate income
streams for the Group for many years; key Intellectual Property is protected by patents; the lowest
common denominator in terms of economic life of the intangible assets is the life of the original patents
and therefore the life of the Intellectual Property has been matched to the remaining life of the patents
protecting it.
Plexus Holdings plc Annual Report 2016
44
Notes to the Consolidated Financial Statements continued
Development expenditure is capitalised in respect of development of patentable technology at cost
including an allocation of own time when such expenditure is incurred on separately identifiable
technology and its future recoverability can reasonably be regarded as assured. Any expenditure carried
forward is amortised on a straight line basis over its useful economic life, which the directors consider
to be 20 years.
Computer software is amortised over 2 to 5 years on a straight line basis.
In all cases the amortisation period represents the expected useful life of the asset.
Amortisation is charged to the Administrative Expenses line of the Statement of Comprehensive Income.
Expenditure on research and development, which does not meet the capitalisation criteria, is written
off to the Statement of Comprehensive Income in the period in which it is incurred.
The carrying value of intangible assets is reviewed on an on-going basis by the directors and, where
appropriate, provision is made for any indication of impairment in value. Where impairment arises, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if
any). Where it is not possible to estimate the recoverable amount of an individual asset, an estimate is
made of the recoverable amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using a discount rate that
reflects the current market assessments of the time value of money and the risks specific to the asset. If
the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount
of the asset is reduced to its recoverable amount.
The key assumptions on which the valuation is based are that:
●
●
●
Industry acceptance will result in continued growth of the business above long term industry
growth rates, Management consider this to be appropriate for a new technology gaining industry
acceptance,
Prices will rise with inflation,
Staff wage inflation will be higher than general inflation but will not rise in line with sales.
These assumptions were determined from the directors’ knowledge and experience.
The cash flows are based upon a 10-year period which is the period covered by the relevant patents, and,
in accordance with historical trends and current expectations, an average growth rate for the organic
income streams of 13.9% has been applied to periods beyond the current budget. In making these
calculations Management have not included an assessment of the terminal value. The company’s
Weighted Average Cost of Capital for discounting purposes has been measured at 10.87%. The cashflows
are based upon approved budgets for the following 12 months, beyond this they are based upon
management’s expectations of future developments.
In addition, management have considered an indicative fair value less costs to sell (FVLCS) valuation
of goodwill and intangibles estimated by adjusting implied valuations of the group from recent placings
for the estimated fair value of tangible assets and liabilities and other factors. Management noted that
this indicative FVLCS value exceeded the carrying value.
It would require a substantial movement (over 30%) in any of these assumptions before there would be
any impairment to intangible assets.
Any impairment loss would be recognised immediately in the Statement of Comprehensive Income.
45
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
i.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Cost represents the cost
of acquisition or construction, including the direct cost of financing the acquisition or construction
until the asset comes into use.
Depreciation is provided to write off the cost or valuation of property, plant and equipment less the
estimated residual value by equal instalments over their estimated useful economic lives as follows:
Buildings
Over the remaining life of the lease on the land on which the building is
constructed
Tenant improvements
Over the remaining life of the lease of the relevant building
Equipment
Motor vehicles
7% – 50% per annum
20% per annum
The expected useful lives and residual values of property, plant and equipment are reviewed on an annual
basis and, if necessary, changes in useful life or residual value are accounted for prospectively.
The carrying value of property, plant and equipment is reviewed for impairment whenever events or
changes in circumstances indicate the carrying value may not be recoverable.
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the item) is included in the Statement of Comprehensive Income in the period the item is
derecognised.
Cash and cash equivalents
j.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable
on demand form an integral part of the Group’s cash management and are included as a component of
cash and cash equivalents for the purpose of the statement of cash flows.
Foreign currencies
k.
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the statement of financial position date and the gains or losses on translation
are included in the Statement of Comprehensive Income.
The functional currency of the Group is pounds sterling.
Leases
l.
Operating lease rentals are charged to the Statement of Comprehensive Income on a straight line basis
over the period of the lease. Assets held under finance leases are recognised as assets of the Group at
their fair value or, if lower, at the present value of the minimum lease payments, each determined at the
inception of the lease. The corresponding liability to the lessor is included in the statement of financial
position as a finance lease obligation. Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against income.
Plexus Holdings plc Annual Report 2016
46
Notes to the Consolidated Financial Statements continued
Inventory
m.
Inventory is stated at the lower of cost and net realisable value. Cost is determined on a first in first out
basis and includes all direct costs incurred and attributable production overheads. Net realisable value
is based on estimated selling price allowing for all further costs to completion and disposal.
Construction contracts and work in progress
n.
The amount of profit attributable to the stage of completion of a long term contract is recognised when
the outcome of the contract can be foreseen with reasonable certainty. Revenue for such contracts is
stated at the cost appropriate to their stage of completion plus attributable profits, less amounts
recognised in previous years. Provision is made for any losses as soon as they are foreseen.
Contract work in progress is stated at costs incurred, less those transferred to the Statement of
Comprehensive Income, after deducting foreseeable losses and payments on account not matched with
revenue.
Construction work in progress is included in debtors and represent revenue recognised in excess of
payments on account. Where payments on account exceed revenue a payment received on account is
established and included within creditors.
The stage of completion for contracts is determined according to the level of progress of each item that
is included in the contract and the estimated cost to complete.
Pensions
o.
The Group offers a contributory Group stakeholder pension scheme, into which the Group will make
matching contributions up to a pre-agreed level of base salary; the scheme is open to executive directors
and permanent employees. Directors may choose to have contributions paid into personal pension plans.
Dividends
p.
Dividends are recognised when they become legally payable. In the case of interim dividends to equity
shareholders, this is when they are paid. In the case of final dividends, this is when approved by the
shareholders at the AGM. Dividends unpaid at the statement of financial position date are only
recognised as a liability at that date to the extent that they are appropriately authorised and are no longer
at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the
notes to the financial statements.
Classification of financial instruments issued by the Group
q.
In accordance with IAS 32, financial instruments issued by the Group are treated as equity (i.e. forming
part of shareholders’ funds) only to the extent that they meet the following two conditions:
(a)
they include no contractual obligations upon the Company (or Group as the case may be) to deliver
cash or other financial assets or to exchange financial assets or financial liabilities with another
party under conditions that are potentially unfavourable to the Company (or Group); and
(b) where the instrument will or may be settled in the Company’s own equity instruments, it is either
a non-derivative that includes no obligation to deliver a variable number of the Company’s own
equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount
of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial
liability. Where the instrument so classified takes the legal form of the Company’s own shares, the
amounts presented in these financial statements for called up share capital and share premium
account exclude amounts in relation to those shares.
47
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
Finance payments associated with financial liabilities are dealt with as part of finance charges.
Finance payments associated with financial instruments that are classified as part of shareholders’
funds (see dividends policy), are dealt with as appropriations in the reconciliation of movements
in shareholders’ funds.
Share based payments
r.
The Group issues share options to directors and employees, which are measured at fair value at the date
of grant. The fair value of the equity settled options determined at the grant date is expensed on a
straight line basis over the vesting period based on an estimate of the number of options that will actually
vest. The Group has adopted a Stochastic model to calculate the fair value of options, which enables
the Total Shareholder Return (TSR) performance condition attached to the awards to be factored into
the fair value calculation.
s. Management of capital
The Group’s capital is composed of share capital and retained earnings along with a share premium
account. The share premium account represents amounts received for shares issued in excess of the
nominal share capital less any issue costs.
The Group’s objective when managing capital is to safeguard its ability to continue as a going concern
so that it can continue to provide returns to shareholders.
The Group sets the amount of capital in proportion to its assessment of the risks that it faces. The
Group manages the capital structure and makes adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure the Group may adjust the amount of dividends paid or issue new equity.
Significant judgements made by management
t.
Estimates and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Key assumptions and sources of estimation
u.
The estimated life of the Group’s rental assets for depreciation purposes is of significance to the financial
statements. The life used is with reference to engineering experience of the probable physical and
commercial lifespans of the assets. Changes to these estimates can result in significant variations in the
carrying value and amounts charged to the consolidated statement of comprehensive income in specific
periods.
The estimated life of the Group’s Intellectual Property is estimated with reference to the lifespan of the
patents which protect the knowledge and their forecast income generation. Changes to these estimates
can result in significant variations in the carrying value and amounts charged to the consolidated
statement of comprehensive income in specific periods.
Provisions require management estimates and judgements. Provision has been made against slow moving
inventory based upon historical experience of the viability of the older parts as technological
improvements have been made. Changes to these estimates can result in significant variations in the
carrying value and amounts charged to the consolidated statement of comprehensive income in specific
periods.
When measuring goodwill and intangible assets for impairment a range of assumptions are required
and these are detailed in the Goodwill and Intangible Asset notes 1 (g) and 1 (h).
Plexus Holdings plc Annual Report 2016
48
Notes to the Consolidated Financial Statements continued
2.
Revenue
By geographical area
UK
Europe
Rest of World
2016
£’000
1,241
7,636
2,350
–––––––
11,227
–––––––
2015
£’000
10,591
14,471
3,464
–––––––
28,526
–––––––
The revenue information above is based on the location of the customer. Substantially all of the revenue
in the current and previous periods derives from the rental of equipment and the provision of related
services.
3.
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:
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
2016
£’000
3,696
1,328
–
–
–
4. Group operating loss
Loss / profit on ordinary activities before taxation is stated after charging/(crediting).
Depreciation of tangible assets
Amortisation of intangible assets:
– Intellectual property rights
– Research and development
– Computer software
Operating lease charges:
– land and buildings
– other
Group restructuring costs
Foreign currency exchange loss
2016
£’000
3,488
330
612
38
436
143
755
24
2015
£’000
4,224
4,175
3,593
3,356
3,342
2015
£’000
3,070
329
454
28
554
147
–
68
49
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
4. Group operating loss (continued)
(6)
969
636
283
20
1,552
2,368
105
Loss on disposal of property, plant and equipment
Directors’ emoluments
Inventories recognised as expense
Inventory write down provision
Auditors’ remuneration:
Fees payable to the Company’s auditors for:
The audit of the Company’s annual accounts
The audit of the Company’s subsidiary pursuant to legislation
Audit related assurance services
10
30
3
–––––––
43
–––––––
Key management are considered to be the Board of Directors and details of Directors’ remuneration
are given in the remuneration report on page 31 and this forms part of the financial statements.
10
30
3
–––––––
43
–––––––
Total audit fees
5.
Staff numbers and costs
The average number of persons, including executive directors, during the year was:
Management
Technical
Administrative
The aggregate payroll costs of these persons were as follows:
2016
Number
12
83
32
–––––––
127
–––––––
2016
£’000
2015
Number
12
104
38
–––––––
154
–––––––
2015
£’000
Wages and salaries
Social security costs
Redundancy and termination payments
Pension contributions to defined contribution plans
Share based payments
10,005
867
–
443
21
–––––––
11,336
–––––––
Details of Directors remuneration is given in the remuneration report on page and this forms part of
the financial statements.
7,144
743
619
345
21
–––––––
8,872
–––––––
6.
Finance income
2016
£’000
2015
£’000
Bank interest receivable
Other interest
Derecognition of financial liability
–
4
508
–––––––
512
–––––––
The derecognition of a financial liability of £nil (2015: £508k) relates to the end of a contract where no
legal liability remained. This is a non-cash transaction.
63
6
–
–––––––
69
–––––––
Plexus Holdings plc Annual Report 2016
50
Notes to the Consolidated Financial Statements continued
7.
Finance costs
On bank loans and overdraft
Other interest
8.
Restructuring Costs
Redundancy and termination payments
Relocation costs
9.
Income tax expense
(i) The taxation charge for the year comprises:
UK Corporation tax:
Current tax on income for the year
Adjustment in respect of prior years
Foreign tax
Current tax on income for the year
Adjustment in respect of prior years
Total current tax (credit)/charge
Deferred tax:
Origination and reversal of timing differences
Short term timing differences
Difference between qualifying fixed assets and capital allowances
Share based payments charged to the Income Statement
Adjustment in respect of prior years
Total deferred tax
Total tax (credit)/charge
The effective rate of tax is 16% (2015: 9%)
2016
£’000
187
–
–––––––
187
–––––––
2016
£’000
619
136
–––––––
755
–––––––
2015
£’000
182
–
–––––––
182
–––––––
2015
£’000
–
–
–––––––
–
–––––––
2016
£’000
2015
£’000
5
(383)
–––––––
(378)
–––––––
61
56
117
–––––––
(261)
–––––––
(628)
64
(643)
151
191
–––––––
(865)
–––––––
(1,126)
–––––––
353
(483)
–––––––
(130)
–––––––
263
9
272
–––––––
142
–––––––
253
-
36
(3)
81
–––––––
367
–––––––
509
–––––––
51
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
9.
Income tax expense (continued)
(ii) Factors affecting the tax charge for the year
(Loss) / profit on ordinary activities before tax
Tax on (loss) / profit at standard rate of UK corporation
tax of 20% (2015: 20.75%)
Effects of:
Expenses not deductible for tax purposes
Income from and gain on sale of associate not subject to tax
Derecognition of financial liability not subject to tax
Effect of R&D tax credits
Effect of change in tax rate
Tax adjustments on share based payments
Foreign tax rates
Adjustments in respect of prior year
Group income not subject to tax
Total tax (credit) / charge
(iii) Movement in deferred tax liability balance
Deferred tax liability / (asset) at beginning of year
(Credit) / charge to Statement of Comprehensive Income
Deferred tax movement on share options recognised in equity
Deferred tax liability at end of year
(iv) Deferred tax liability balance
The deferred tax liability balance is made up of the following items:
Difference between depreciation and capital allowances
Share based payments
Tax losses
Deferred tax liability/(asset) at end of year
10. Dividends
Ordinary Shares
Interim paid for the period to
31 December 2015 of nil (2015: 0.51p) per share
Ordinary Shares
Final dividend for the year ended
30 June 2016 of nil (2015: 1.75p) per share paid and recognised in 2016
Plexus Holdings plc Annual Report 2016
52
2016
£’000
(6,916)
–––––––
2015
£’000
5,938
–––––––
(1,383)
1,232
554
–
–
–
(61)
151
108
(192)
(303)
–––––––
(1,126)
–––––––
2016
£’000
212
(865)
1,121
–––––––
468
–––––––
2016
£’000
1,001
(88)
(445)
–––––––
468
–––––––
187
(122)
(105)
(521)
(10)
1
240
(393)
–
–––––––
509
–––––––
2015
£’000
(751)
367
596
–––––––
212
–––––––
2015
£’000
1,600
(1,361)
(27)
–––––––
212
–––––––
2016
£’000
2015
£’000
–
–––––––
433
–––––––
–
–––––––
1,564
–––––––
Notes to the Consolidated Financial Statements continued
11.
(Loss) / earnings per share
(Loss) / profit attributable to shareholders
2016
£’000
(5,790)
–––––––
2015
£’000
5,429
–––––––
Number
Number
Diluted weighted average number of shares in issue
Weighted average number of shares in issue
Dilution effects of share schemes
84,896,300
3,205,091
–––––––––
88,101,391
–––––––––
6.40p
6.16p
–––––––
Basic (Loss)/ earnings per share is calculated on the results attributable to ordinary shares divided by
the weighted average number of shares in issue during the year.
90,597,415
2,135,987
–––––––––
92,733,402
–––––––––
(6.39p)
(6.39p)
–––––––
Basic (Loss) / earnings per share
Diluted (Loss) / earnings per share
Diluted earnings per share calculations include additional shares to reflect the dilutive effect of employee
share schemes and share option schemes. As a loss was made in the current year the option schemes are
considered to be anti-dilutive.
12. Goodwill
Cost
As at 1 July 2014
Additions
As at 30 June 2015
Additions
As at 30 June 2016
Impairment
As at 1 July 2014
As at 30 June 2015
As at 30 June 2016
Net Book Value
As at 30 June 2016
As at 30 June 2015
Note 1(g) provides information on the Goodwill.
£’000
760
7
–––––––
767
–
–––––––
767
–––––––
–
–––––––
–
–––––––
–
–––––––
767
–––––––
767
–––––––
53
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
13.
Intangible fixed assets
Cost
As at 30 June 2014
Additions
As at 30 June 2015
Additions
Disposals
As at 30 June 2016
Amortisation
As at 30 June 2014
Charge for the year
As at 30 June 2015
Charge for the year
On Disposals
As at 30 June 2016
Intellectual
Property
£’000
Patent and
Other
Development
£’000
Computer
Software
£’000
6,440
–
––––––––––
6,440
–
–
––––––––––
6,440
––––––––––
2,692
329
––––––––––
3,021
330
–
––––––––––
3,351
––––––––––
7,720
3,473
––––––––––
11,193
1,860
(4)
––––––––––
13,049
––––––––––
1,089
454
––––––––––
1,543
612
–
––––––––––
2,155
––––––––––
226
68
––––––––––
294
37
–
––––––––––
331
––––––––––
168
28
––––––––––
196
38
–
––––––––––
234
––––––––––
Total
£’000
14,386
3,541
––––––––––
17,927
1,897
(4)
––––––––––
19,820
––––––––––
3,949
811
––––––––––
4,760
980
–
––––––––––
5,740
––––––––––
Net Book Value
As at 30 June 2016
As at 30 June 2015
14,080
3,089
––––––––––
––––––––––
13,167
3,419
––––––––––
––––––––––
Patent and other development costs are internally generated. Note 1 (h) provides additional information
on intangible assets.
97
––––––––––
98
––––––––––
10,894
––––––––––
9,650
––––––––––
Plexus Holdings plc Annual Report 2016
54
Notes to the Consolidated Financial Statements continued
14.
Investments
Included within the consolidated group accounts are the following subsidiary undertakings:
Subsidiary undertaking
Country of Registration Nature of Business
Percentage of Ordinary
Shares held
Plexus Ocean Systems
Limited
Scotland
Supply of wellheads
and associated
equipment for oil and
gas drilling
Plexus Limited
Scotland
Dormant
Plexus Holdings
USA, Inc.
Plexus Ocean
Systems US, LLC
Plexus Deepwater
Technologies Limited
USA
USA
USA
Investment Holding
Investment Holding
Dormant
Plexus Response
Services Limited
Turks and Caicos
Islands
Commercial exploitation
of subsea applications
Plexus Subsea
International Limited
Turks and Caicos
Islands
Commercial exploitation
of subsea applications
Plexus Ocean Systems Malaysia
(Malaysia) Sdn Bhd
Plexus Ocean Systems
(Brunei) Sdn Bhd
Brunei
Plexus Ocean Systems
(Singapore) Pte. Ltd.
Singapore
Afrotel Corporation Ltd Turks and Caicos
Supply of wellheads
and associated
equipment for oil and
gas drilling
Supply of wellheads
and associated
equipment for oil and
gas drilling
Supply of wellheads
and associated
equipment for oil and
gas drilling
Investment Holding
Islands
Plexus Applied
Technologies Limited
Scotland
Dormant
The Group’s investments are unlisted.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
55
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
15. Property, plant and equipment
Tenant
Buildings Improvements
£’000
£’000
Assets under
Equipment Construction
£’000
£’000
Motor
Vehicles
£’000
Cost
As at 30 June 2014
Additions
Transfers
Disposals
As at 30 June 2015
Additions
Transfers
Disposals
As at 30 June 2016
Depreciation
As at 30 June 2014
Charge for the year
On disposals
As at 30 June 2015
Charge for the year
On disposals
As at 30 June 2016
Net Book Value
As at 30 June 2016
As at 30 June 2015
974
3,405
–
–
––––––––––
4,379
–
–
–
––––––––––
4,379
––––––––––
405
153
–
––––––––––
558
250
–
––––––––––
808
––––––––––
3,571
––––––––––
3,821
––––––––––
430
2
–
–
––––––––––
432
168
–
–
––––––––––
600
––––––––––
126
56
–
––––––––––
182
68
–
––––––––––
250
––––––––––
350
––––––––––
250
––––––––––
25,393
1,544
2,140
(533)
––––––––––
28,544
588
1,316
(318)
––––––––––
30,130
––––––––––
13,257
2,854
(461)
––––––––––
15,650
3,164
(263)
––––––––––
18,551
––––––––––
11,579
––––––––––
12,894
––––––––––
260
2,054
(2,140)
–
––––––––––
174
1,200
(1,316)
–
––––––––––
58
––––––––––
–
–
–
––––––––––
–
–
–
––––––––––
–
––––––––––
58
––––––––––
174
––––––––––
44
11
–
(7)
––––––––––
48
–
–
(14)
––––––––––
34
––––––––––
29
7
(3)
––––––––––
33
6
(14)
––––––––––
25
––––––––––
9
––––––––––
15
––––––––––
16.
Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2016
£’000
1,925
52
4,749
–––––––
6,726
–––––––
Total
£’000
27,101
7,016
–
(540)
––––––––––
33,577
1,956
–
(332)
––––––––––
35,201
––––––––––
13,817
3,070
(464)
––––––––––
16,423
3,488
(277)
––––––––––
19,634
––––––––––
15,567
––––––––––
17,154
––––––––––
2015
£’000
2,265
124
4,162
–––––––
6,551
–––––––
Plexus Holdings plc Annual Report 2016
56
Notes to the Consolidated Financial Statements continued
17. Trade and other receivables
Trade receivables
Prepayments and other amounts
The ageing of trade receivables at the year-end was:
2016
£’000
1,100
647
–––––––
1,747
–––––––
2015
£’000
6,562
739
–––––––
7,301
–––––––
Not past due
Past due 0-30 days
Past due 30+ days
5,248
1,022
292
–––––––
6,562
–––––––
Trade and other receivables are classified as loans and receivables and are held at amortised cost. The
carrying value approximates fair value.
744
344
12
–––––––
1,100
–––––––
18. Trade and other payables
Trade payables
Non trade payables and accrued expenses
The maturity of ageing of trade and other payables at the year-end was:
Due within 30 days
Due in 30 – 90 days
Due in 90 days – 6 months
Due in 6 months – One year
19. Share Capital
Authorised:
Equity: 110,000,000 (2015: 110,000,000) Ordinary shares of 1p each
Allotted, called up and fully paid:
Equity: 105,386,239 (2015: 84,902,196) Ordinary shares of 1p each
2016
£’000
337
1,209
–––––––
1,546
–––––––
1,256
100
70
120
–––––––
1,546
–––––––
2016
£’000
1,100
–––––––
1,054
–––––––
2015
£’000
1,430
1,866
–––––––
3,296
–––––––
1,699
870
727
–
–––––––
3,296
–––––––
2015
£’000
1,100
–––––––
849
–––––––
57
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
19. Share Capital (continued)
Share issues during the year:
At 30 June 2015
On 7 July 2015
On 9 December 2015
On 25 April 2016
On 29 June 2016
At 30 June 2016
On 7 July 2015
- Share subscription
9 December 2015
- Share options
- Share options
25 April 2016
- Share subscription
Number of
shares
84,902,196
4,468,537
19,843
6,764,893
9,230,770
–––––––––––––
105,386,239
–––––––––––––
Share
capital
£’000
849
45
–
68
92
––––––––––
1,054
––––––––––
Number of
shares
Price per
share
Share
premium
£’000
20,141
7,893
10
3,250
5,599
––––––––––
36,893
––––––––––
Aggregate
nominal
value
£
Total
£’000
20,990
7,938
10
3,318
5,691
––––––––––
37,947
––––––––––
Total
aggregate
£
4,468,537
––––––––––
180p
––––––––––
44,685
––––––––––
8,043,367
––––––––––
10,096
9,747
––––––––––
41p
60p
––––––––––
101
97
––––––––––
4,139
5,848
––––––––––
6,764,893
––––––––––
52.05p
––––––––––
67,648
––––––––––
3,521,127
––––––––––
29 June 2016
- Share placing
65p
––––––––––
The excess net proceeds have been credited to the share premium account.
9,230,770
––––––––––
92,307
––––––––––
6,000,000
––––––––––
20. Share based payments
Share options have been granted to subscribe for ordinary shares, which are exercisable between 2006
and 2025 at prices ranging from £0.385 to £1.18. At 30 June 2016, there were 4,053,574 options
outstanding.
The Company has an unapproved share option scheme for the directors and employees of the Group.
Options are exercisable at the quoted mid-market price of the Company’s shares on the date of grant.
The options may vest in three equal portions, at the end of each of three assessment periods, provided
that the option holder is still employed by the Group at vesting date and that the Total Shareholder
Return (TSR) performance conditions are satisfied. Options that do not meet the TSR criteria at the
first available vesting date may vest at the end of the complete assessment period, provided that the
compounded TSR performance is met over the complete assessment period. Vested but unexercised
options ordinarily expire on the tenth anniversary of the date of grant. The options are equity settled.
On 9 July 2015 the directors approved an amendment to the rules of the scheme such that the Company
is permitted to extend the exercise period for options granted under the scheme by a further ten years.
Subsequently on 9 July 2015 the Company entered into deeds of amendment with Ben van Bilderbeek,
Graham Stevens, Craig Hendrie, J. Jeffrey Thrall and one employee in respect of options granted to
them on 9 December 2005 under the scheme, to enable each holder to exercise these particular options
up until 8 December 2025, subject to all other terms of the scheme rules.
Details of the share options outstanding during the year are as follows:
Plexus Holdings plc Annual Report 2016
58
Notes to the Consolidated Financial Statements continued
20. Share based payments (continued)
Outstanding at the beginning of the period
Granted during the period
Lapsed due to failure to meet TSR
criteria during the period
Forfeited during the period by
leaving employment
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016
2015
Weighted
Average
exercise
price
0.53
–
–
0.56
0.50
0.53
0.53
No of
shares
£’000
4,172,540
–
–
(85,278)
(9,523)
4,077,739
4,044,405
Weighted
Average
exercise
price
0.53
–
–
0.56
0.385
0.53
0.52
No of
shares
4,077,739
–
–
(4,322)
(19,843)
4,053,574
4,053,574
The weighted average share price at the time of exercise was £1.95 (2015: £1.81).
The aggregate of the estimated fair values of the options granted that are outstanding at 30 June 2016
is £736k (2015: £740k). The inputs to the Stochastic model for the computation of the fair value of the
options are as follows:
Share price at date of grant
Option exercise price at date of grant
Expected volatility
Expected term
Risk-free interest rate
Expected dividend yield
varies from
varies from
varies from
varies from
varies from
£0.385 to £1.18
£0.385 to £1.18
35.7% to 76.6%
4.5 years to 6.3 years
0.4% to 5.7%
0% to 1.7%
At the time of granting the older options, in the absence of sufficient historical share price data for the
Company, expected volatility was calculated by analysing the median share price volatility for similar
companies prior to grant for the period of the expected term. Since then sufficient historical share price
data has been built up to enable the expected volatility to be based upon the Company’s own share price
volatility. The expected term used has been adjusted based on the management’s best estimate for the
effects of non-transferability, exercise restrictions and behavioural considerations. The risk-free interest
rate is taken as the implied yield at grant available on government securities with a remaining term equal
to the average expected term. At the time of granting the older options, no dividends had been paid and
the directors did not envisage paying one therefore the dividend yield was 0%. Since then the directors
have introduced a dividend policy and at the time of the grants awarded the expected dividend yield
varies between 1.2% to 1.7%.
The Stochastic model for the fair value of the options incorporates the TSR criteria into the
measurement of fair value.
The Group has recognised an expense in the current year of £21k (2015: £21k) towards equity settled
share based payments.
The weighted average contractual life of the share options outstanding at the end of the period is 5 years.
59
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
21. Reconciliation of net cash flow to movement in net cash/(debt)
Increase/(decrease) in cash in the year
Cash inflow from increase in net debt
Movement in net cash/(debt) in year
Net (debt)/cash at start of year
Net cash/(debt) at end of year
22. Analysis of net cash/(debt)
Cash in hand and at bank
Bank loans
Total
2016
£’000
12,835
–––––––
–
12,835
(2,947)
–––––––
9,888
–––––––
Cash flow
£’000
12,535
300
––––––––––
12,835
––––––––––
2015
£’000
(3,025)
–––––––
(2,275)
(5,300)
2,353
–––––––
(2,947)
–––––––
At end
of year
£’000
15,863
(5,975)
––––––––––
9,888
––––––––––
At beginning
of year
£’000
3,328
(6,275)
––––––––––
(2,947)
––––––––––
23. Financial instruments and risk management
Treasury management
The Group’s activities give rise to a number of different financial risks: market risk (including foreign
currency exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s
management regularly monitors the risks and potential exposures to which the Group is exposed and
seeks to take action, where appropriate, to minimise any potential adverse impact on the Group’s
performance.
Risk management is carried out by Management in line with the Group’s Treasury policies. The Group’s
Treasury policies cover specific areas, such as foreign exchange risk, interest rate risk and investment of
excess cash. The Group’s policy does not permit entering into speculative trading of financial
instruments and this policy has been applied throughout the year.
(a) Market risks
(i)
Foreign currency exchange risk
The Group is exposed to foreign exchange risk arising from various currencies. In order to protect
the Group’s statement of financial position from movements in exchange rates, the Group converts
foreign currency balances into sterling on receipt so far as they will not be used for future payments
in the foreign currency.
The Group carefully monitors the economic and political situation in the countries in which it
operates to ensure appropriate action is taken to minimise any foreign currency exposure.
The Group’s main foreign exchange risk relates to movements in the sterling/US dollar and
sterling/euro exchange rates. Movements in these rates impact the translation of US dollar and
euro denominated net assets.
Plexus Holdings plc Annual Report 2016
60
Notes to the Consolidated Financial Statements continued
23. Financial instruments and risk management (continued)
As the Group does not use foreign exchange hedges, the consolidated statement of comprehensive
income would be affected by a gain/loss of approximately £15k (2015: £241k) by a reasonably
possible 10 percentage point fluctuation down/up in the exchange rate between sterling and the
US dollar, and by a gain/loss of approximately £nil (2015: £79k) by a reasonably possible 10
percentage point fluctuation down/up in the exchange rate between sterling and the euro, by a
gain/loss of approximately £15k (2015: £38k) by a reasonably possible 10 percentage point
fluctuation down/up in the exchange rate between sterling and the Malaysian Ringgit.
(ii)
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank borrowings.
The Group borrows in sterling at floating rates of interest.
The Group is also exposed to interest rate risk on cash held on deposit. The Group’s policy is to
maximise the return on cash deposits whilst ensuring that cash is deposited with a financial
institution with a credit rating of ‘AA’ or better.
The consolidated income statement would be affected by gain/loss £48k (2015: £48k) by a
reasonably possible 1 percentage point change down/up in LIBOR interest rates on a full year
basis.
(iii) Price risk
The Group is not exposed to any significant price risk in relation to its financial instruments.
(b) Credit risk
The Group’s credit risk primarily relates to its trade receivables. Responsibility for managing credit risks
lies with the Group’s management.
A customer evaluation is typically obtained from an appropriate credit rating agency. Where required,
appropriate trade finance instruments such as letters of credit, bonds, guarantees and credit insurance
will be used to manage credit risk.
The Group’s major customers are typically large companies which have strong credit ratings assigned
by international credit rating agencies. Where a customer does not have sufficiently strong credit ratings,
alternative forms of security such as the trade finance instruments referred to above may be obtained.
The Group’s customer base is concentrated on a few major companies but management believe that the
calibre of these companies means that no material credit risk provision is required.
Management review trade receivables across the Group based on receivable days’ calculations to assess
performance. There is significant management focus on receivables that are overdue. All receivables are
with large corporations with good credit history with which the entity has not experienced any
recoverability issues in the past. No debtor allowance has been provided for within the accounts.
Amounts deposited with banks and other financial institutions also give rise to credit risk. This risk is
managed by limiting the aggregate amount of exposure to any such institution by reference to their
rating and by regular review of these ratings. The possibility of material loss in this way is considered
unlikely.
61
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
23. Financial instruments and risk management (continued)
The currency composition of trade receivable at the year-end was:
Sterling
US Dollar
Euro
(c) Liquidity risk
2016
£’000
984
116
–
–––––––
1,100
–––––––
2015
£’000
4,605
1,777
180
–––––––
6,562
–––––––
The Group has historically financed its operations through equity finance and bank borrowings. The
Group has continued with its policy of ensuring that there are sufficient funds available to meet the
expected funding requirements of the Group’s operations and investment opportunities. The Group
monitors its liquidity position through cash flow forecasting. Based on the current outlook the Group
has sufficient funding in place to meet its future obligations.
Financial assets and liabilities
The interest rate and currency profiles of the Group’s financial assets at 30 June were as follows:
30 June 2016
Cash and liquid resources
30 June 2015
Cash and liquid resources
– Sterling
– US Dollar
– Euro
– Malaysian Ringgit
– Singapore Dollars
– Swiss Francs
– Sterling
– US Dollar
– Euro
– Malaysian Ringgit
– Singapore Dollars
Floating Non-interest
bearing
£’000
rates
£’000
Book and
fair value
£’000
15,453
155
–
–
–
–
––––––––––
15,608
––––––––––
1,589
560
616
–
–
––––––––––
2,765
––––––––––
6
13
–
169
51
16
––––––––––
255
––––––––––
–
73
–
381
109
––––––––––
563
––––––––––
15,459
168
–
169
51
16
––––––––––
15,863
––––––––––
1,589
633
616
381
109
––––––––––
3,328
––––––––––
At 30 June 2016 the Group had £15,863k of cash. The average rate of interest earned in the year is on a
floating rate basis and ranged between 0% and 1.25% on sterling deposits.
Cash is categorised as loans and receivables.
Plexus Holdings plc Annual Report 2016
62
Notes to the Consolidated Financial Statements continued
23. Financial instruments and risk management (continued)
The Group has facilities of £6,975k that are secured by a fixed and floating charge over the assets of the
Group. At 30 June 2016 the Group had drawn £5,975k on those facilities. The interest payable is on a
floating rate basis and ranged between 3.0% and 3.1% in the year. The facility comprises of a £5,000k
revolving credit facility repayable in September 2016, a balance of £975k outstanding on a term loan
repayable over the period to September 2019 and a £1,000k overdraft repayable on demand.
The interest rate and currency profiles of the Group’s financial liabilities at 30 June 2016 are as follows:
30 June 2016
Bank revolving credit facility – Sterling
Bank term loan – Sterling
30 June 2015
Bank revolving credit facility – Sterling
Bank term loan – Sterling
Maturity of Financial Liabilities:
30 June 2016
Bank revolving credit facility – Sterling
Bank term loan – Sterling
Total
Floating Non-interest
bearing
£’000
rates
£’000
Book and
fair value
£’000
5,000
975
––––––––––
–
–
––––––––––
5,000
975
––––––––––
5,000
1,275
––––––––––
–
–
––––––––––
5,000
1,275
––––––––––
Due
within
1 Year
Due
between
2–5 Years
£’000
Due
after
5 Years
£’000
Total
£’000
––––––––––
––––––––––
––––––––––
5,000
300
5,300
––––––––––
–
675
675
––––––––––
–
–
–
––––––––––
5,000
975
5,975
––––––––––
30 June 2015
Bank revolving credit facility – Sterling
Bank term loan – Sterling
Total
5,000
1,275
6,275
––––––––––
Bank borrowings are other financial liabilities which are measured at amortised cost. The carrying value
approximates fair value.
–
300
300
––––––––––
–
–
–
––––––––––
5,000
975
5,975
––––––––––
63
Plexus Holdings plc Annual Report 2016
Notes to the Consolidated Financial Statements continued
24. Operating lease commitments/Financial commitments
Operating lease commitments where the group is the lessee
The Group has the following total future lease payments under non-cancellable operating leases:
Within one year
Within two to five years
After five years
2016
£’000
365
1,280
1,505
–––––––
3,150
–––––––
2015
£’000
334
378
–
–––––––
712
–––––––
The Group had no capital commitments as at 30 June 2016 (2015: nil).
25. Contingent liabilities
The Group had no contingent liabilities as at 30 June 2016 (2015: £nil).
26. Related party transactions
Control
No one party owns a controlling interest in the Company.
Ultimate parent company
There is no ultimate parent company.
Transactions
During the year the Group had the following transactions with related parties:
2016
£’000
2015
£’000
Purchase of goods and services from Other Related Parties
Payables to Other Related Parties
Repayables from Other Related Parties
448
29
–
–––––––
Other related parties were @SIPP (Pension Trustees) Limited, OFM Holdings Limited and Plexus
Properties International Limited. The transactions related to accommodation, rent and related charges.
@SIPP (Pension Trustees) Limited are the trustees of Ben van Bilderbeek’s pension fund. OFM Holdings
Limited is a trust of which Ben van Bilderbeek’s family are beneficiaries. Plexus Properties International
Limited is a company in which Ben van Bilderbeek’s family are shareholders.
602
–
9
–––––––
All of these transactions were between either Plexus Ocean Systems Limited or Plexus Ocean Systems
International Limited and the relevant related party.
27. General information
These financial statements are for Plexus Holdings plc (“the company”) and subsidiary undertakings.
The company is registered, and domiciled, in England and Wales and incorporated under the Companies
Act 2006. The nature of the company’s operations and its principal activities are set out in the Strategic
Report on page 12 and the Directors’ Report on page 24.
Plexus Holdings plc Annual Report 2016
64
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc
We have audited the parent company financial statements of Plexus Holdings plc for the year ended 30 June
2016 which comprise the Parent Company Statement of Financial Position, the Parent Company Statement
of Changes in Equity, the Parent Company Statement of Cash Flows and the related notes numbered 1 to 13.
The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
company and the company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit the financial statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient
to give reasonable assurance that the financial statements are free from material misstatement, whether caused
by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the
company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the overall presentation of the financial statements.
We read all the financial and non-financial information in the Directors’ Report, Chairman’s Statement,
Strategic Report, Corporate Governance Report, Remuneration Committee Report and other surround
information to identify material inconsistencies with the audited Financial Statements and to identify any
information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in performing the audit. If we become aware of any apparent material misstatements or
inconsistencies, we consider the implications for our report.
Opinion on financial statements
In our opinion the parent company financial statements:
●
●
●
give a true and fair view of the state of the company’s affairs as at 30 June 2016;
have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report and Strategic Report for the financial year for
which the financial statements are prepared is consistent with the financial statements.
65
Plexus Holdings plc Annual Report 2016
Independent Auditor’s Report to the Shareholders of Plexus Holdings plc contd
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
●
●
●
●
adequate accounting records have not been kept, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns;
or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the group financial statements of Plexus Holdings plc for the year ended
30 June 2016.
Matthew Stallabrass
Senior Statutory Auditor
for and on behalf of
Crowe Clark Whitehill LLP, Statutory Auditor
London
28 October 2016
Plexus Holdings plc Annual Report 2016
66
Parent Company Statement of Financial Position
at 30 June 2016
Assets
Intangible assets
Investments
Total Non-current assets
Trade and other receivables
Cash at bank and in hand
Total current assets
Total Assets
Equity and Liabilities
Called up share capital
Share premium account
Share based payments reserve
Retained earnings
Total equity attributable to equity holders of the company
Liabilities
Deferred tax liabilities
Total non-current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total Equity and Liabilities
Notes
3
4
5
8
7
7
6
2016
£’000
13,424
8,294
–––––––
21,718
–––––––
1,168
15,364
–––––––
16,532
–––––––
38,250
1,054
–––––––
36,893
326
(1,330)
–––––––
36,943
–––––––
894
–––––––
894
–––––––
413
–––––––
413
–––––––
1,307
–––––––
38,250
–––––––
2015
£’000
12,450
8,294
–––––––
20,744
–––––––
4,575
9
–––––––
4,584
–––––––
25,328
849
–––––––
20,141
864
2,689
–––––––
24,543
–––––––
595
–––––––
595
–––––––
190
–––––––
190
–––––––
785
–––––––
25,328
–––––––
These financial statements were approved and authorised for issue by the board of directors on 28 October
2016 and were signed on its behalf by:
B van Bilderbeek
Director
G Stevens
Director
Company Number: 03322928
67
Plexus Holdings plc Annual Report 2016
Parent Company Statement of Changes in Equity
for the year ended 30 June 2016
Called
Up
Share
Capital
£’000
Share
Share
Based
Premium Payments
Reserve
Account
£’000
£’000
Balance as at 30 June 2014
Total comprehensive income for the period
Share based payments reserve charge
Transfer of share based payments reserve
charge on exercise of options
Transfer of share based payments charge
on lapse of options
Issue of ordinary shares (net of issue costs)
Deferred tax movement relating to share options
Dividends
849
–
–
–
–
–
–
–
20,138
–
–
–
–
3
–
–
892
–
21
–
(24)
–
(25)
–
Retained
Earnings
£’000
330
3,294
–
Total
£’000
22,209
3,294
21
–
–
24
–
–
(959)
–
3
(25)
(959)
–––––––
–––––––
–––––––
–––––––
–––––––
Balance as at 30 June 2015
Total comprehensive income for the period
Share based payments reserve charge
Current year credit on share option exercise
to share based payment reserve
Issue of ordinary shares (net of issue costs)
Deferred tax movement relating
to share options
Dividends
849
–
–
–
205
–
–
20,141
–
–
–
16,752
864
–
21
5
–
2,689
(2,455)
–
–
–
24,543
(2,455)
21
5
16,957
–
–
(564)
–
–
(1,564)
(564)
(1,564)
Balance as at 30 June 2016
–––––––
–––––––
–––––––
–––––––
–––––––
1,054
–––––––
36,893
–––––––
326
–––––––
(1,330)
–––––––
36,943
–––––––
Plexus Holdings plc Annual Report 2016
68
Parent Company Statement of Cash Flows
at 30 June 2016
Notes
Cash flows from operating activities
(Loss)/profit before taxation
Adjustments for:
Amortisation
Charge for share based payments
Investment income
Changes in working capital:
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Cash generated from operations
Income taxes paid
Net cash generated from operations
Cash flows from investing activities
Purchase of intangible assets
Proceeds from sale of intangible assets
Interest received
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of new ordinary shares
Proceeds from share options exercised
Equity dividends paid
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 July 2015
Cash and cash equivalents at 30 June 2016
8
2016
£’000
(2,714)
883
21
(93)
3,407
223
–––––––
1,727
–
–––––––
1,727
–––––––
(1,861)
–––––––
3
93
–––––––
(1,765)
–––––––
16,923
34
(1,564)
–––––––
15,393
–––––––
15,355
9
–––––––
15,364
–––––––
2015
£’000
3,717
723
21
(624)
(353)
52
–––––––
3,536
–
–––––––
3,536
–––––––
(3,473)
–––––––
-
116
–––––––
(3,357)
–––––––
–
3
(959)
–––––––
(956)
–––––––
(777)
786
–––––––
9
–––––––
69
Plexus Holdings plc Annual Report 2016
Notes to the Parent Company Financial Statements
1.
Summary of significant accounting policies
The following accounting policies have been applied consistently in dealing with items which are
considered material in relation to the financial information.
a. Basis of preparation
The Company financial statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards
Board as adopted by the European Union and they therefore comply with Article 4 of the EU IAS
Regulation and are in accordance with the Companies Act 2006.
The Directors have considered those standards and interpretations, which have not been applied in the
financial statements but are relevant to the Company’s operations, that are in issue but not yet effective
and do not consider that any will have a material impact on the future results of the Company.
The Company financial statements are presented in sterling and all values are rounded to the nearest
thousand pounds except where otherwise indicated.
The financial information has been prepared under the historical cost convention.
The directors, having made appropriate enquiries, believe that the Company has adequate resources to
continue in operational existence for the foreseeable future. The Company continues to adopt the going
concern basis in preparing the financial statements.
Income taxes and deferred taxation
b.
The income tax expense for the period comprises current and deferred tax. Tax is recognised in the
income statement, except to the extent that it relates to items recognised in other comprehensive income
or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted
at the balance sheet date in the countries where the company and its subsidiaries operate and generate
taxable income. Management periodically evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively
enacted by the balance sheet date and are expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilised.
As set out in note 20 of the Group accounts, the Company operates a share option scheme. Where the
market price of the shares at the year-end exceeds the option price there is a potential tax deduction.
This is treated as a deferred tax asset. The portion of the expected future tax deduction which is less
than or equal to the associated cumulative IFRS2 charge is recognised in the income statement. The
balance of the credit is recognised directly in equity.
Plexus Holdings plc Annual Report 2016
70
Notes to the Parent Company Financial Statements continued
Intangible assets and amortisation
c.
Patents are recorded initially at cost and amortised on a straight line basis over 20 years which represents
the life of the patent. The Group operates a policy of continual patent enhancement in order that
technology enhancements and modifications are incorporated within the registered patent, thereby
protecting the value of technology advances for a full 20-year period.
Intellectual Property rights are initially recorded at cost and amortised over 20 years on a straight line
basis. The technology defined by the Intellectual Property is believed to be able to generate income
streams for the Group for many years; key Intellectual Property is protected by patents; the lowest
common denominator in terms of economic life of the intangible assets is the life of the original patents
and therefore the life of the Intellectual Property has been matched to the remaining life of the patents
protecting it.
Development expenditure is capitalised in respect of development of patentable technology at cost
including an allocation of own time when such expenditure is incurred on separately identifiable
technology and its future recoverability can reasonably be regarded as assured. Any expenditure carried
forward is amortised on a straight line basis over its useful economic life, which the directors consider
to be 20 years.
Amortisation is charged to the Administrative Expenses line of the Statement of Comprehensive Income.
Expenditure on research and development, which does not meet the capitalisation criteria, is written
off to the Statement of Comprehensive Income in the period in which it is incurred.
The carrying value of intangible assets is reviewed on an on-going basis by the directors and, where
appropriate, provision is made for any impairment in value. It would require a substantial movement
(over 30%) in the assumptions employed in valuations before there would be any impairment to
intangible assets.
Potential impairment of intangible assets has been reviewed and is outlined in note 1 (h) in the Group
accounts, with no impairment required.
Investments
d.
The investment in subsidiary and associate undertakings is stated at cost less provision for impairment.
Cost is the amount of cash paid or the fair value of the consideration given to acquire the investment.
Income from such investments is recognised only to the extent that the Company receives distributions
from accumulated profits of the investee company arising after the date of acquisition. Distributions
received in excess of such profit i.e. from pre-acquisition reserves are regarded as a recovery of investment
and are recognised as a reduction of the cost of the investment.
Potential impairment of investments and the intangible assets each subsidiary undertaking holds has
been reviewed and is outlined in note 1 (h) in the Group accounts, with no impairment required.
e. Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable
on demand form an integral part of the Company’s cash management and are included as a component
of cash and cash equivalents for the purpose of the statement of cash flows.
Foreign currencies
f.
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the statement of financial position date and the gains or losses on translation
are included in the Statement of Comprehensive Income.
71
Plexus Holdings plc Annual Report 2016
Notes to the Parent Company Financial Statements continued
Pensions
g.
The Group offers a contributory Group stakeholder pension scheme, into which the Group will make
matching contributions up to a pre-agreed level of base salary; the scheme is open to executive directors
and permanent employees. Directors may choose to have contributions paid into personal pension plans.
Prior to 1 July 2007, the Group offered a basic stakeholder pension scheme, into which the Group did
not make employer contributions; none of the directors or employees were members.
h. Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity
shareholders, this is when they are paid. In the case of final dividends, this is when approved by the
shareholders at the AGM. Dividends unpaid at the statement of financial position date are only
recognised as a liability at that date to the extent that they are appropriately authorised and are no longer
at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the
notes to the financial statements.
Classification of financial instruments issued by the Group
i.
In accordance with IAS 32, financial instruments issued by the Group are treated as equity (i.e. forming
part of shareholders’ funds) only to the extent that they meet the following two conditions:
(a)
they include no contractual obligations upon the Company (or Group as the case may be) to deliver
cash or other financial assets or to exchange financial assets or financial liabilities with another
party under conditions that are potentially unfavourable to the Company (or Group); and
(b) where the instrument will or may be settled in the Company’s own equity instruments, it is either
a non-derivative that includes no obligation to deliver a variable number of the Company’s own
equity instruments or is a derivative that will be settled by the Company exchanging a fixed amount
of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial
liability. Where the instrument so classified takes the legal form of the Company’s own shares, the
amounts presented in these financial statements for called up share capital and share premium
account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance charges.
Finance payments associated with financial instruments that are classified as part of shareholders’
funds (see dividends policy), are dealt with as appropriations in the reconciliation of movements
in shareholders’ funds.
Share based payments
j.
The Company issues share options to directors and employees, which are measured at fair value at the
date of grant. The fair value of the equity settled options determined at the grant date is expensed on a
straight line basis over the vesting period based on an estimate of the number of options that will actually
vest. The Group has adopted a Stochastic model to calculate the fair value of options, which enables
the Total Shareholder Return (TSR) performance condition attached to the awards to be factored into
the fair value calculation.
Key assumptions and sources of estimation
k.
Employee share options are valued in accordance with a Stochastic model and judgement is required
regarding the choice of some of the inputs to the model. Where doubts have existed, management have
gone with the advice of experts. Full details of the model and inputs are provided in note 20 to the
Group accounts.
Plexus Holdings plc Annual Report 2016
72
Notes to the Parent Company Financial Statements continued
The estimated life of the Company’s Intellectual Property is estimated with reference to the lifespan of
the patents which protect the knowledge and their forecast income generation.
When measuring Intellectual Property for impairment a range of assumptions are required and these
are detailed in the Intangible Assets note above.
2.
Loss for the year
As permitted by section 480(4) of the Companies Act 2006, the parent company’s Statement of
Comprehensive Income has not been included in these financial statements. The parent company’s loss
after tax for the year was £2,455k (2015: profit of £3,294k).
3.
Intangible fixed assets
Cost
As at 30 June 2014
Additions
As at 30 June 2015
Additions
Disposals
As at 30 June 2016
Amortisation
As at 30 June 2014
Charge for the year
As at 30 June 2015
Charge for the year
Disposals
As at 30 June 2016
Net Book Value
As at 30 June 2016
As at 30 June 2015
Intellectual
Property
£’000
Patent and
Other
Development
£’000
4,171
–
–––––
4,171
–
–––––
–
4,171
–––––
1,103
270
–––––
1,373
271
–––––
–
1,644
–––––
2,527
–––––
2,798
–––––
7,453
3,473
–––––
10,926
1,861
–––––
(4)
12,783
–––––
821
453
–––––
1,274
612
–––––
–
1,886
–––––
10,897
–––––
9,652
–––––
Patent and other development costs are internally generated
4.
Investments
Subsidiary undertakings
As at 30 June 2014
As at 30 June 2015
As at 30 June 2016
Total
£’000
11,624
3,473
–––––
15,097
1,861
–––––
(4)
16,954
–––––
1,924
723
–––––
2,647
883
–––––
–
3,530
–––––
13,424
–––––
12,450
–––––
£’000
8,294
––––––
8,294
––––––
8,294
––––––
73
Plexus Holdings plc Annual Report 2016
Notes to the Parent Company Financial Statements continued
4.
Investments (continued)
The Company’s subsidiary undertakings are:
Subsidiary undertaking
Country of Registration Nature of Business
Percentage of Ordinary
Shares held
Plexus Ocean Systems
Limited
Scotland
Supply of wellheads
and associated
equipment for oil and
gas drilling
Plexus Limited
Scotland
Dormant
Plexus Holdings
USA, Inc.
Plexus Ocean
Systems US, LLC
Plexus Deepwater
Technologies Limited
USA
USA
USA
Investment Holding
Investment Holding
Dormant
Plexus Response
Services Limited
Turks and Caicos
Islands
Commercial exploitation
of subsea applications
Plexus Subsea
International Limited
Turks and Caicos
Islands
Commercial exploitation
of subsea applications
Plexus Ocean Systems Malaysia
(Malaysia) Sdn Bhd
Plexus Ocean Systems
(Brunei) Sdn Bhd
Brunei
Plexus Ocean Systems
(Singapore) Pte. Ltd.
Singapore
Supply of wellheads
and associated
equipment for oil and
gas drilling
Supply of wellheads
and associated
equipment for oil and
gas drilling
Supply of wellheads
and associated
equipment for oil and
gas drilling
Afrotel Corporation Ltd Turks and Caicos
Investment Holding
Plexus Applied
Technologies Ltd
Islands
Scotland
Dormant
Note 1(h) in the Group accounts provides additional information on investments.
5.
Trade and other receivables
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
£’000
2015
£’000
Receivables due from group companies
Prepayments and other amounts
4,472
103
–––––––
4,575
–––––––
Trade and other receivables are classified as loans and receivables and are held at amortised cost. The
carrying value approximates fair value.
1,068
100
–––––––
1,168
–––––––
Plexus Holdings plc Annual Report 2016
74
Notes to the Parent Company Financial Statements continued
Receivables due from group companies relates to an amount due from a subsidiary which is not impaired
and carries no credit risk. Prepayments relate to prepaid amounts for services to be consumed over the
next 12 months. There is no indication of impairment of any of these amounts.
6.
Trade and other payables
Trade payables
Non trade payables and accrued expenses
2016
£’000
83
330
–––––––
413
–––––––
2015
£’000
43
147
–––––––
190
–––––––
The maturity of ageing of trade and non-trade payables at the year-end was:
Due within 30 days
Due in 30 – 90 days
Due in 90 days – 6 months
Due in 6 months – One year
43
147
–
–
–––––––
190
–––––––
Trade and other payables are classified as other financial liabilities and are held at amortised cost. The
carrying value approximates fair value.
199
108
106
–
–––––––
413
–––––––
7.
Share capital
Authorised:
Equity: 110,000,000 (2015: 110,000,000) Ordinary shares of 1p each
Allotted, called up and fully paid:
Equity: 105,386,239 (2015: 84,911,719) Ordinary shares of 1p each
Share issues during the year:
2016
£’000
1,100
2015
£’000
1,100
1,054
–––––––
849
–––––––
Number of
shares
Share
capital
£’000
Share
premium
£’000
Total
£’000
At 30 June 2015
On 7 July 2015
On 9 December 2015
On 25 April 2016
On 29 June 2016
At 30 June 2016
849
45
-
68
92
84,902,196
4,468,537
19,843
6,764,893
9,230,770
20,990
7,938
10
3,318
5,691
–––––––––– –––––––––– –––––––––– ––––––––––
105,386,239
37,947
–––––––––– –––––––––– –––––––––– ––––––––––
20,141
7,893
10
3,250
5,599
36,893
1,054
75
Plexus Holdings plc Annual Report 2016
Notes to the Parent Company Financial Statements continued
7.
Share capital (continued)
During the period the Group issued new shares as a result of the following transactions:
On 7 July 2015
- Share subscription
9 December 2015
- Share options
- Share options
25 April 2016
- Share subscription
29 June 2016
- Share placing
Price per
share
£’000
Aggregate
nominal
value
£’000
Total
aggregate
value
£’000
180p
44,685
8,043,367
–––––––––– ––––––––––
41p
60p
101
97
4,139
5,848
–––––––––– ––––––––––
Number of
shares
4,468,537
––––––––––
10,096
9,747
––––––––––
6,764,893
––––––––––
52.05p
67,648
3,521,127
–––––––––– ––––––––––
9,230,770
––––––––––
65p
92,307
6,000,000
–––––––––– ––––––––––
The excess net proceeds have been credited to the share premium account.
8.
Reconciliation of net cash flow to movement in net cash
Movement in net cash in year
Net cash at start of year
Net cash at end of year
2016
£’000
15,355
9
–––––––
15,364
–––––––
2015
£’000
(777)
786
–––––––
9
–––––––
9.
Financial instruments and risk management
The Company’s activities give rise to a number of different financial risks: market risk (including foreign
currency exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s
management regularly monitors the risks and potential exposures to which the Company is exposed and
seeks to take action, where appropriate, to minimise any potential adverse impact on the Company’s
performance.
Risk management is carried out by Management in line with the Company’s Treasury policies. The
Company’s Treasury policies cover specific areas, such as foreign exchange risk, interest rate risk and
investment of excess cash. The Company’s policy does not permit entering into speculative trading of
financial instruments and this policy has been applied throughout the year.
(a) Market risks
(i) Foreign currency exchange risk
The Company is exposed to foreign exchange risk arising from various currencies. In order to protect the
Company’s statement of financial position from movements in exchange rates, the Company converts
foreign currency balances into sterling on receipt so far as they will not be used for future payments in
the foreign currency.
The Company carefully monitors the economic and political situation in the countries in which it operates
to ensure appropriate action is taken to minimise any foreign currency exposure.
Plexus Holdings plc Annual Report 2016
76
Notes to the Parent Company Financial Statements continued
9.
Financial instruments and risk management (continued)
The Company’s main foreign exchange risk relates to movements in the sterling/US. Movements in this
rate impacts the translation of US dollar denominated net liabilities. A reasonably possible 10%
fluctuation up/down in the exchange rate between sterling and the US dollar would result in a
corresponding gain/loss in the statement of comprehensive income of approximately £15k (2015: £nil).
(ii)
Interest rate risk
The Company is also exposed to interest rate risk on cash held on deposit. The Company’s policy is to
maximise the return on cash deposits whilst ensuring that cash is deposited with a financial institution
with a credit rating of ‘AA’ or better.
(iii) Price risk
The Company is not exposed to any significant price risk in relation to its financial instruments.
(b) Credit risk
The Company’s credit risk primarily relates to its inter-company loans and inter-company receivables.
Management believe that no risk provision is required for impairment.
Amounts deposited with banks and other financial institutions also give rise to credit risk. This risk is
managed by limiting the aggregate amount of exposure to any such institution by reference to their
rating and by regular review of these ratings. The possibility of material loss in this way is considered
unlikely.
(c) Liquidity risk
The Company has historically financed its operations through equity finance and the flow of inter-
company loan repayments. The Company has continued with its policy of ensuring that there are
sufficient funds available to meet the expected funding requirements of the Company’s operations and
investment opportunities. The Company monitors its liquidity position through cash flow forecasting.
Based on the current outlook the Company has sufficient funding in place to meet its future obligations.
The bank facility provided to the Group includes a fixed and floating charge over the assets of the
Company.
10. Operating lease commitments/Financial commitments
The Company had no capital commitments as at 30 June 2016 (2015: £nil).
11. Contingent liabilities
The Company had no contingent liabilities as at 30 June 2016 (2015: £nil).
77
Plexus Holdings plc Annual Report 2016
Notes to the Parent Company Financial Statements continued
12. Related party transactions
Control
No one party owns a controlling interest in the Company.
Ultimate parent company
There is no ultimate parent company.
Transactions
During the year the Company had the following transactions with related parties:
Plexus Ocean Systems Limited, a wholly owned subsidiary made net purchases of £340k from Plexus
Holdings plc, reducing the balance owed from £4,435k to £1,031k.
As at 30 June 2016 Plexus Holdings plc has an outstanding balance of £37k from Plexus Ocean Systems
(Singapore) Pte Ltd (2015: £37k).
Plexus Holdings plc Annual Report 2016
78
Corporate Information
Directors
Registered Office
Company Number
Company Secretary
Nominated Adviser and Broker
Auditor
Solicitors to the Company
Registrars
Jerome Jeffrey Thrall† (Non-Executive Chairman)
Bernard Herman van Bilderbeek (Chief Executive)
Graham Paul Stevens (Finance Director)
Craig Francis Bryce Hendrie (Technical Director)
Geoffrey Edmund Thompson (Non-Executive Director)
Charles Edward Jones† (Non-Executive Director)
Kunming Liu (Non-Executive Director)
† Member of Audit and Remuneration committees
42-50 Hersham Road
Walton-on-Thames
Surrey
KT12 1RZ
03322928
Douglas Armour FCIS
Equiniti David Venus Limited
42-50 Hersham Road
Walton-on-Thames
Surrey
KT12 1RZ
Cenkos Securities plc
66 Hanover Street
Edinburgh
EH2 1EL
6.7.8 Tokenhouse Yard
London
EC2R 7AS
Crowe Clark Whitehill LLP
St Bride’s House
10 Salisbury Square
London
EC4Y 8EH
Fox Williams LLP
10 Finsbury Square
London
EC2A 1AF
Ledingham Chalmers LLP
52-54 Rose Street
Aberdeen
AB10 1HA
SLC Registrars
42-50 Hersham Road
Walton-on-Thames
Surrey
KT12 1RZ
79
Plexus Holdings plc Annual Report 2016
Perivan Financial Print 242905
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