MBA case study Finance Assignment

8/12/2019 MBA case study Finance Assignment

1/15

09278237 Pratik Sangoi

FINMO3 Page 1

INTRODUCTION:

The analysis consists of three different companies. They operate in oil and

gas sector and we investigated those companies profile which includes

Customers, Market, Growth and Risk and Profitability of the companies.

We have also provided spread sheet analysis of the company for the last

three years and even last year annual report and accounts of each. We

analysed the net asset value per share and share price which represents

an investment opportunity worth pursu.

Plexus Holdings plc

Company overview:

Plexus Holdings PLC (Plexus) is a service oriented company. The company

has developed and patented a method of engineering for oil and gas field

wellheads and connectors, named POS GRIP, which involves deforming

one tubular member against another to effect gripping and sealing. The

company derives its turnover from the sale of its POS-GRIP technology

and associated products, the rental of wellheads utilizing the POS-GRIP

technology and its services. The company also assists with the

commissioning and ongoing service requirements of its equipment. In the

fiscal year 2008, the company had acquired Plexus Deepwater

Technologies Limited along with Plexus Holdings USA, Inc. and Plexus

Ocean Systems US, LLC. The company is headquartered at London in

United Kingdom.

Financial Performance:

The company reported revenues of (British Pounds) GBP 13.28 million

during the fiscal year ended June 2008, an increase of 29.21% over 2007.

The operating profit of the company was GBP 2.11 million during the

fiscal year 2008, an increase of 172.67% over 2007. The net profit of the


2/15


FINMO3 Page 2

company was GBP 1.29 million during the fiscal year 2008, an increase of

15.50% over 2007.

Products and Services:

The Group markets a patented method of engineering for oil and gas field

wellheads and connectors, named POS-GRIP which involves deforming

one tubular member against another within the elastic range to effect

gripping and sealing.Plexus is a UK based service oriented company. The

companys key products include the following:

POS-GRIP Adjustable Wellhead (13-5/8" 10000 psi)

POS-GRIP HPHT Adjustable Wellhead (15000 psi)

POS-GRIP HG Production Wellhead (18-3/4 15000psi)

POS-GRIP HG Production Wellhead (13-5/8 5000/10000 psi)

(Source: Annual Report, Company Website, Primary and Secondary

Research. Global Markets Direct).

Competitors:

Now-a-days competition in the market for oil and gas industry is

increasing on day to day basis. In such a competitive market the demand

for oil and gas has always been on the rise and will continue. The major

competitors for Plexus Holdings plc are: Caledus Holdings plc and

Lamprell plc. Plexus Holdings plc are committed to oil and gas distribution

model and they deal only through intermediaries and to hold their

competitors, throughout the world regional offices have been opened by

the company. Plexuss main listed US competitors also trade on

substantially lower ratios, however the difference in growth rates between

Plexus and its US competitors is stark, and a clear indication that such a

high PE ratio is justified.


3/15


FINMO3 Page 3

Risks and Uncertainties:

There are a number of potential risks and uncertainties that could have an

impact on the Groupsperformance which include the following:

(a) Political risksParticipation in a global market is done where the oil and gas reserves

and their extraction can be severely impacted by changes in the political

and operational landscape. As a supplier to the industry the company can

be adversely affected by such events, as was seen at the beginning of the

year with the disruption caused to North Sea exploration activity as a

result of rig availability shortages. To help address such risks, the Group

has continued to expand its geographic footprint and customer base.

(b) Technology

The Company is still at a relatively early stage in the commercialisation,

marketing and application of its technology. Current and future contracts

may be adversely affected by factors outside the Groups control. These

may include unforeseen equipment design issues, test delays during the

contract and final testing and delayed acceptances of deliveries, which

could lead to possible abortive expenditure, reputational risk and potential

customer claims or onerous contractual terms. Such risks may materially

impact on the Company. To mitigate this risk the Group continues to

invest in developing the technology and has a policy of ongoing training of

our own personnel and where appropriate our customers.

(c) Competitive risk

The Company operates in highly competitive markets and often competes

directly with large multi-national corporations. Product innovation or

technical advances by competitors could adversely affect the Company.

(d) Liquidity and finance requirements

In the current economic climate 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


4/15


FINMO3 Page 4

appropriate steps towards the end of the last calendar year to mitigate

this risk by successfully renewing, increasing, and extending its bank

facilities with the Bank of Scotland Corporate. The successful outcome of

this initiative resulted in a 25% increase in the Groups banking facilitiesStructured on a longer term basis of a 4 million credit facility on a three

year revolving basis with an additional 1 million overdraft facility agreed

on a yearly term.

Nature of Average/Transaction:

Plexus has developed a unique enabling technology POS-GRIP, which

has the potential to become a new standard in the oil and gas wellhead

market. The high performance metal-to-metal seals achieved with POS-

GRIP and the simplicity of design lends the technology to a range of

engineering applications. The fact that Plexuss order book contains

repeat orders from existing customers who hold strategic roles in the oil

industry for example BP and ConocoPhillips is testament to the

benefits of the POS-GRIP system. The fundamentals of POS-GRIP aresimple a wedge and taper system on the outside of a housing are

compressed, the wedge is forced downward over a tapered surface and

this, in turn, deforms the outer tube. Because this deformation is within

tolerances of the steel, the deformation is elastic (e.g., its like

squeezing a rubber ball, rather than crushing a plastic cup). Furthermore,

because this deformation is elastic, the compression is a spring-like

movement i.e. if the wedge is forced back to the original position, all

other components will also spring back therefore the compression

process is fully reversible and non-damaging.

Market Volatility:

Estimates of market size rely on interpretation of segmented financial

accounts of the main suppliers and the estimated income derived from

wellhead and associated product sales. We estimate the size of the global


5/15


FINMO3 Page 5

wellhead market in 2004 to have been c. $3bn with subsea sales of c.

$1.8bn and dry (non-subsea) of c. $1.2bn. The immediate market

opportunity for Plexus and POS-GRIP technology is fixed platform, jack-up

exploration and land based projects. However, the subsea market is amajor area of focus given the large number of deepwater developments

requiring this type of equipment. For example, during the 1980s, c. 50

subsea trees were sold per year versus c. 100 in 1990s. Quest Offshore

Resources10 estimates that from 1999 - 2010, the total global subsea

production capital expenditure will have been c. $22.4bn, with Xmas trees

and control equipment accounting for c.$11bn of that total.

Profitability:

Profits are expected to show sustained growth for the next three years

and beyond, as the high-margin rental business yields strong returns. We

expect overheads to increase as engineering and staff costs grow, and we

forecast that by 2009 an overseas facility may be necessary in order to

leverage the companys foreign markets. Depreciation will impact

profitability heavily rental stock is written off over 7 years straight-line

basis, however as POS-GRIP by its nature is non-deformative, the rental

assets have a lifetime far in excess of that timeframe.

Turnover for the year was 15.1m, up 14% from 13.3m in the previous

year. The rental business and related equipment and services accounted

for over 85% of turnover which was unchanged from last year. Rental of

HP/HT exploration equipment once again generated the largest year on

year sales increase of 35% as Plexus continued to gain market share in

this specialised field. Turnover includes 0.1m of engineering and testing

which is significantly reduced from the prior years level of 1.5mas the

need for ongoing development of POS-GRIP technology reduces as a

result of our technology being developed to a level where we can now

offer POS-GRIP wellhead equipment from inventory across a range of

pressures.


6/15


FINMO3 Page 6

Markets served:

The specific attributes of the POS-GRIP wellhead system offer a number

of significant advantages over existing wellhead technology, but

principally relate to performance, safety and cost. These attributes areparticularly relevant to technically challenging well environments such as

the high-energy situations associated with HP/HT projects. Extreme

component stress and the degradation of component materials (due to

elevated temperatures and the effect of corrosive constituents2) are

beyond the limits of current well control equipment. In this respect the

company believes to be uniquely positioned to address these challenges.

In recent years spending has shifted away from mature areas towards

new, large scale projects in deepwater frontiers evidenced by the growth

in subsea completions and deepwater drilling. This trend has been

gathering momentum as mature areas such as the North Sea and shallow

water Gulf of Mexico (GOM) have steadily depleted. We believe

investment by the integrated oil majors is set to rise significantly in order

to meet the challenges to replace reserves and increase production. Out

of necessity operators have moved towards deeper water exploration,

resulting in frontier developments in provinces such as deepwater Gulf of

Mexico, West Africa and Brazil.

Net Asset Value per Share:

Years 2009 2008 2007

Net asset value

(NAV)/Share

336p 318p 263p

(Net Asset Value per share = Net Assets / Total Shares)

As per the analysis of the NAV share (last three years) it gives the rise

from 263p in 2007 to 336 p in 2009, indicating higher NAV per share.

NAV is quite good from 2007-2009 and is expected to be high in coming

years.


7/15


FINMO3 Page 7

Directors Interest:

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 2009were as follows:No. Of Ordinary

shares of 1p each,

2009.

No. Of Ordinary

shares of 1p each,

2008.

Robert Adair1 3,505,425 3,505,425

Ben van Bilderbeek2 60,000,001 60,000,001

Graham Stevens 12600 12600

Craig Hendrie 12600 12600

J Jeffrey Thrall3 60,700,001 60,700,001

Augusto DaMota Nil Nil

Substantial shareholdings and interests:

At the date of this report the Group had been notified that the following

had an interest of 3%ormore of the issued share capital:

% issued share

capital

Mutual Holdings Ltd 60,000,001 74.83

Skye Investments Limited 3,505,425 4.37The Bank ofNew York

(Nominees) Limited 3,174,800 3.96


8/15


FINMO3 Page 8

Share Price:

2009 2008 2007

Share price 34p 33.5p 38.5p

Source:www.lse.co.uk

The graph above shows that the share price for Plexus Holdings has been

steadily coming down from 25thNOV. till date. However due to subprime

crisis there has been immense fall in the share price for the company.
http://www.lse.co.uk/http://www.lse.co.uk/http://www.lse.co.uk/http://www.lse.co.uk/


9/15


FINMO3 Page 9

NAME OF COMPANY Plexus Holdings plc

BALANCE SHEET ANALYSIS SPREAD SHEET

Date of balance sheet 30-06-2009 30-06-2008 30-06-2007

(State if qualified) n/q n/q n/q

Currency (in GBP 000's)

QUICK ASSETS

Cash & bank 2655 456 128Prepayments 494 974 1572

Other receivables 0 0 0

Debtors/Accounts Receivable/Bills Receivable 4305 5933 3404

TOTAL QUICK ASSETS 7454 7363 5104

Raw materials & consumables 1389 860 577

Work-in-progress 214 325 27

finished goods & goods for resale (inventory) 2191 2293 2519

investment portfolios of stamps 0 0 0

TOTAL CURRENT ASSETS 11248 10841 8227

CURRENT LIABILITIES

Trade & Other Payables 1006 1803 1992

Bank loans & overdrafts 4000 3600 1901Current portion long term loan 0 0 0

Provisions & charges 0 0 0

Accruals and deferred income 2325 1718 715

Other Current Liabilities 660 510 104

TOTAL CURRENT LIABILITIES 7991 7631 4712

LIQUID SURPLUS/(DEFICIT) 3257 3210 3515

QUICK ASSET SURPLUS/(DEFICIT) (537) (268) 392

FIXED AND OTHER ASSETS

Property & Leasehold Improvements 8355 7329 6549

Reference Stamp Collection(Goodwill) 722 722 722

Intagibles assets 6618 6661 5611

Trade & other receivables 0 0 0

Long term investments 61 0 0

15756 14712 12882

TERM AND OTHER LIABILITIES

Long term investments 0 0 0

Retirement Benefit Obligation 0 0 0

Defered tax liabilities 546 377 322

Provisions & charges 0 0 0

TERM & OTHER LIABILITIES 546 377 322

Minority Interests

TOTAL TERM & OTHER LIABILITES 546 377 322

NET TANGIBLE ASSETS - SURPLUS/(DEFICIT) 18467 17545 16075Financed by

Share Capital - Issued 802 802 802

Share Premium Account 15596 15596 15596

Capital Reserves(RETAINED EARNING) 1499 787 -501

Distributable Reserves(RETAINED EARNINGS) 570 360 178

Shares to be issued 0 0 0

SHAREHOLDERS FUNDS - SURPLUS/(DEFICIT) 18467 17545 16075

Check line 0 0 0


10/15


FINMO3 Page 10

SUMMARY OF MOVEMENTS IN NTA's

Opening NTA's 0 18467 17545

PBIT / Operating Profit 1942 2105 772

Exceptional items

Investment Income and Interest Receivable 0 0 0

Profit Before Interest Paid 1,942 2,105 772 (Interest Paid) (144) (200) 794

Profit Before Tax (PBT) 1,798 1,905 1,566

(Taxation) (780) (616) (450)

'Attributable Profit/Loss After Tax (APAT) 1,018 1,289 1,116

(Dividends) 0 0 0

Residual Profit/Loss 1,018 1,289 1,116

Asset revaluation 0 0 0

Taxation adjustment 780 (616) (450)

Shares Issued & sold 15,596 1595 2136

Pension Fund Adjustment 0 0 0

Share based payments (acquisitions/employees) 1,073 0 0

Sundry matters (3,190) (4,272)

NET VARIATION IN SURPLUS/(DEFICIT) 18,467 (922) (1,470)

Closing NTA's 18,467 17,545 16,075

Checkline 0 0 0

KEY FIGURES AND RATIOS

Sales 15105 13275 10274

Cost of Goods Sold 6364 6003 5640

Gross Profit 8741 7272 4634

Depreciation 1706 1238 681

Capital Employed 22993 17922 16397

PROFITABILITY

Gross Profit Margin

(Gross Profit Sales x 100 57.9 54.8 45.1 Net Profit Margin

(Residual profit Sales x 100) 6.7 9.7 10.9

Return on Capital Employed

(Profit Before Interest & Tax

Capital Employed )x 100) 8.4 11.7 4.7

CONTROL/LIQUIDITY

Credit Given

(Debtors Sales x 360) 124 128 104Credit Taken

(Creditors Cost of Goods Sold x 360) 57 108 127

Stock Turnover

(Stock Cost of Goods Sold x 360) 208.54 200.68 141.11

Current Ratio

(Current Assets Current Liabilities) 2.8 1.4 1.7

Liquid Ratio

(Quick Assets Current Liabilities) 1.7 0.8 0.8

GEARING AND SOLVENCY

Gross Gearing

(Total Borrowings Surplus) 0.00 0.00 0.00

Net Gearing

(Net Borrowings Surplus) 0.00 0.00 0.00

Gearing (Total Liabilties)

OTHER KEY FIGURES

Capital Expenditure (per cash flow statement) 0 0 0 Capital Commitments: Contracted 0 0 0

Authorised 0 0 0

Contingent Liabilities: Guarantess 0 0 0

Other 0 0

Leasing Obligations 0 0 0

Directors Remuneration 558 517 417.5


11/15


FINMO3 Page 11

Ratio Analysis:

1. Profitability ratioThe objective of profitability relates to a companys ability to earn a

satisfactory profit so that the investors and shareholders will continue to

provide capital to it. The gross profit margin for the company rises to 57.9

in 2009 from 54.8 in 2008 whereas the net profit margin decreases from

9.7 to 6.7 due to subprime crisis in the financial markets.

2. Return On Capital Employed (ROCE)

It is impossible to assess profits or profit growth properly without relating

them to the amount of funds (capital) that were employed in making

profits. ROCE is one of the most important profitability ratios which assess

how much the capital invested has earned during the period. ROCE for the

year 2008 being 10.20% went down to 4.30% due to financial crisis.

3. Gross profit margin and Net profit percentage

These ratios are used to measure the financial performance of the

business. The ratios show how aggressive the entity was in its sales

promotion. For service sectors the gross profit margin will not be

calculated as it is not involved in trading activities.

Earnings per share 1.27 1.61 1.8

Return on assets 3.88 5.52 6.05

Return on equity 5.66 7.67 7.21

Return on Capital Employed 4.30% 10.20% 8.90%


12/15


FINMO3 Page 12

4. Current Ratio

This compares assets which will become liquid within approximately

twelve months with liabilities which will be due for payment in the same

period and is intended to indicate whether there are sufficient short term

assets to meet the short- term liabilities. The current ratio for the

company is 2.8 in 2009 as compared to 1.4 in 2008. Recommended

current ratio being 2:1 this year ratio is quite good for the company as

compared to the last year financial analysis data.

5. Acid Test Ratio

This shows that, provided creditors and debtors are paid approximately

the same time, a view might be made as to whether the business has

sufficient liquid resources to meet its current liabilities. Referring to quick

ratio being 1:1 in nature the quick asset ratio for the company is 1.7 in

2009 as 0.8 in 2008.

6. Inventory turnover ratio

The ratio is aimed at checking how vigorous the entity is trading. It

measures approximately the number of times an entity is able to acquire

the inventories and convert them into sales. In the above the stock

turnover for the company is 208.54 days in 2009 as compared to 200.68

in 2008.

7. Receivable days ratio

Another asset management ratio which is used estimates how long it

takes for the credit customers to settle their balances. As outlined above

it is very difficult to establish the optimum level of receivables days, it will

always depend with the nature of the business an enterprise is involved.

The above company reveals 57 days in 2009 as compared to 108 in 2008

which is quite better in terms of receivables days.


13/15


14/15


FINMO3 Page 14

REFERENCES:

Northcote, Annual Report, (2007) [online], Available from:

http://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=2

6&SDL=NI03664

[Accessed on: 13thFebruary 2010]

OneSource, Plexus Holding plc, [online], Available from:

http://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45

928630&Process=CP&Report=FINREPSTD

[Accessed on 14thFebruary 2010]

Google, Plexus Holdings plc, [online], Available from:

http://www.lse.co.uk/ShareChart.asp?sharechart=POS&share=plexus


Financial Times, Plexus Holdings plc, [online], Available from:

http://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-

0000779e2340.html?nclick_check=1


Bibliography:

Pandey. I.M (2001), financial management, Eighth Edition, India, Vikas

Publication house Pvt Ltd.
http://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=26&SDL=NI03664http://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=26&SDL=NI03664http://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=26&SDL=NI03664http://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45928630&Process=CP&Report=FINREPSTDhttp://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45928630&Process=CP&Report=FINREPSTDhttp://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45928630&Process=CP&Report=FINREPSTDhttp://www.lse.co.uk/ShareChart.asp?sharechart=POS&share=plexushttp://www.lse.co.uk/ShareChart.asp?sharechart=POS&share=plexushttp://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-0000779e2340.html?nclick_check=1http://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-0000779e2340.html?nclick_check=1http://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-0000779e2340.html?nclick_check=1http://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-0000779e2340.html?nclick_check=1http://www.ft.com/cms/s/0/3d55973c-5fb3-11da-a628-0000779e2340.html?nclick_check=1http://www.lse.co.uk/ShareChart.asp?sharechart=POS&share=plexushttp://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45928630&Process=CP&Report=FINREPSTDhttp://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45928630&Process=CP&Report=FINREPSTDhttp://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=26&SDL=NI03664http://www.northcote.co.uk/company_links/by_sector.asp?SIT=1&SID=26&SDL=NI03664


15/15


FINMO3 Page 15

Holmes, Geoffery, et.al (2005), Interpreting Company reports and

Accounts, Ninth Edition, London, Prentice Hall.

MBA case study Finance Assignment

Documents

Transcript of MBA case study Finance Assignment