Plexus Holdings Plc – Trading Update

Plexus Holdings Plc – Trading Update

Plexus Holdings PLC, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® friction-grip method of wellhead engineering, known for its safety, time and cost saving capabilities, provides the following update on trading: 

Trading Update

Following the sale of the jack-up rental wellhead exploration business to TFMC last year (with the exception of Russia and the CIS territories), the Company has now completed the first half of the current financial year which will be reported on late March.  Ahead of this, the Company now provides the market with a trading update for the full year to 30 June 2019 (“FY2019”).

The Company’s revenues for FY2019 are running broadly in line with expectations, with Plexus encouraged by an increasing level of incoming enquiries for its POS-GRIP-enabled products during the last seven months. It is currently anticipated that EBITDA and LBT for FY2019 will be below market expectations due to a combination of lower than anticipated gross margins and higher overheads.  The reduced margins are associated with certain key contracts where the Company has factored in the importance of showcasing Plexus’ technology, raising its profile and proving it in the field. Higher overheads have been incurred as the baseline costs for the business have been refined, with the increase partly due to bringing forward certain investment costs from the next financial year as the Company prepares for the possibility of having to service a higher than expected pipeline of opportunities.

In February 2018 the Company announced that it had completed the disposal of Plexus’ wellhead exploration equipment and services business for jack-up applications (the “Jack-up Business”) and the licencing of certain intellectual property to TFMC.  This transaction repositioned the Company as an IP-led business with a range of POS-GRIP related products and services to be developed and deployed within the wider energy sector, with an initial focus on surface production opportunities.   The initial net proceeds from the sale of the Jack-up Business left the Company with a strong cash balance, with further cash payments payable to Plexus subject to the future performance of the Jack-up Business during a three year earn out period.  This has enabled Plexus to finance the acquisition of a 49% interest in KMS Ltd (a specialist engineering business), the buyback of Plexus ordinary shares held by LLC Gusar (OOO Gusar) and provided the flexibility for the Company’s accelerated expenditure for growth in recent months. The Company’s cash position remains strong, although as a result of the lower gross margin and higher expenses noted previously, together with the KMS Ltd investment and recent share buyback from Gusar it is expected that the Company’s cash balance at the end of FY2019 will be lower than previously anticipated.

Strategy

Plexus’ long-term goal is to establish POS-GRIP technology as a new industry standard for wellhead and metal-to-metal sealing designs, whilst continuing to develop a range of new Plexus products, which can also offer multiple benefits and advantages to the industry in terms of improved safety, performance, and operational cost and time savings.

Having proven the significant advantages of Plexus POS-GRIP wellheads for jack-up rental wellhead exploration applications to a wide range of mostly international oil companies and having completed the sale of the Jack-up Business to TFMC last year, Plexus is now focused on extending its business activities into the volume surface production and subsea exploration and production sectors. An example of product extensions for POS-GRIP technology is the Company’s connector technology which is ideal for high integrity, low fatigue applications. The Directors believe wellhead connectors, riser connectors, subsea jumper connectors, pipeline connectors, tether tensioners and even vessel mooring connectors can all benefit from the simplicity of POS-GRIP.  The simplicity of Plexus’ technology and its ability to deliver unequalled levels of integrity mean also that target markets can include decommissioning and abandonment such as with the Company’s POS-SET™ Connector product recently supplied to Oceaneering.

The sale of the Jack-up Business to TFMC represented a clear endorsement of Plexus’ proprietary technology and marked a significant strategic step for the Company, whilst leaving Plexus in a position to continue to participate in the major Russian hydrocarbon market through its licensee Gusar where encouraging progress is being made. At the same time the transaction realigned Plexus as an IP-led research and development business and enables greater resources and focus to be directed to the development of new and existing POS-GRIP applications outside of jack-up exploration drilling, including through the collaboration agreement signed with TFMC, which establishes a framework for the two parties to work together on potential new applications.

Importantly Plexus believes that as the world moves increasingly towards gas production and consumption, the need for gas-proof wellhead metal sealing technology (and in due course valve technology) is more critical than ever, especially in terms of containing the toxic nature of methane leakage which is coming under increased scrutiny from oil company investors, as well as the Green lobby. The Directors believe this lies behind a heightened level of interest in the Company’s surface production technology. The Saudi Arabian energy minister only recently underlined this trend when he said that their efforts will be focused on creating a “global gas” business, as many of the world’s energy majors are increasingly investing in gas, as the growth of demand outpaces that for oil. The Company is therefore pursuing its strategy of gaining market share in the mainstream production sector both organically (as highlighted by the Spirit Energy production wellhead order in late 2017 which is in the process of being drilled now) and through licensees and partners.

Plexus’ CEO Ben Van Bilderbeek said, “We believe that the Company’s short-term financial performance should not be seen as the key performance indicator, with the critical strategic goal being the continued and growing interest in Plexus’ POS-GRIP technology. 

The difference between market expectations and the likely reported full year numbers is in part due to investments that we have and will be making over the course of the period in support of the growth strategy we have been working on post the sale of our jack-up rental wellhead exploration business to TechnipFMC in 2018. The TFMC transaction has ensured that we have the capital and time to re-invent our business, particularly in respect of surface production wellhead opportunities.  Our overall objective therefore is to establish our ‘gas proof’ POS-GRIP equipment as an enabling technology for the wider energy industry.  Our strategy to achieve our goal is centred on securing orders for our suite of POS-GRIP products for applications outside of jack-up exploration, and in particular surface production and abandonment operations; designing and developing, both organically and with partners, POS-GRIP-enabled products for new markets such as geothermal and renewables; and supporting our Russian partner’s efforts to secure a major order for POS-GRIP equipment in the country. 

“In line with the above and in response to a higher level of enquiries we are receiving from around the world than previously envisaged at this stage, we have brought forward expenditure from the next financial year so that we are able to accommodate a potential uptick in activity levels.  Furthermore, we believe the higher costs than originally anticipated associated with the  supply of the two wellheads and associated equipment sold to Gusar will prove to be a worthwhile investment, as it has the potential to bring forward the point at which our partner secures its first major order for a POS-GRIP wellhead in the major Russian market.   Set against a backdrop of oil prices trading around the US$60 per barrel level and the resultant higher levels of drilling activity, the growing importance of natural gas in the hydrocarbon fuel mix, and increasing calls for the energy industry to tackle gas and in particular methane leaks, this is an exciting period for Plexus and I look forward to providing further details in the upcoming half yearly report.”

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