Plexus : Annual Report & Accounts 2023

A N N U A L R E P O R T

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P O S - G R I P T E C H N O L O G Y

Financial and Operational Overview Financial Summary

Operational Overview

Revenue streams are derived from the direct rental and sale of Plexus products together with the licencing of the Plexus' POS-GRIP® method of friction-grip engineering technology to third parties, including SLB (previously Schlumberger). The strategy is to establish the Company's proprietary and patented leak-proof wellhead systems, applications and specialist engineering solutions across the oil and gas industry, whilst helping to meet ESG and net zero goals by offering 'through the BOP' (Blow out Preventer) wellhead designs, and leak-proof seals capable of maintaining their integrity for the life of the well thereby avoiding costs associated with maintenance and well shut ins.

• March 2023 - secured a c.£5m contract for the rental of proprietary POS-GRIP "HG®" wellhead equipment and sealing technology for a specialised project application to be deployed over 12 months.
• May 2023 - SLB exercised its option to extend its non-exclusive licence agreement with Plexus for an additional six years effective from 10 November 2023, and confirmed that its testing programme was progressing well.

Post period end

• August 2023 - contract value of the major rental contract announced on 6 March 2023 increased materially from c.£5m to c.£8m.

1Plexus Holdings plc Annual Report 2023

Chief Executive Ben Van Bilderbeek said:

"During the year to 30th June 2023, the Group made a loss before tax of £4.23m compared to a loss in the prior year of £5.56m. Although revenues were lower than the prior year, the board's focus on reversing these losses and the decisions taken as part of the revised strategy has begun to have a positive impact with significantly increased revenues and a return to profitability anticipated for the 2023/24 financial year. Current activities are centred around our re-entry into the drilling from Jack-up rigs exploration rental wellhead business, sale of surface production wellheads and the provision of special solutions and applications to operators, for example in the Plug and Abandonment ('P&A') market sector. At the same time, we are developing our licensee relationship with SLB where we have licenced certain surface production wellhead IP and technology.

Looking at the macroeconomic and oil and gas ('O&G') sector backdrop, the clock is ticking as the world looks to achieve its 2030-2050 net zero goals. While the shift from an established fossil-fuel intensive hydrocarbon-based energy system to one that will focus on renewables and nuclear is irrefutably the right path forward, at the same time reality must prevail as it is becoming increasingly clear that O&G will for decades continue to play a key role in the energy mix until various complex cost and infrastructure challenges are overcome, including the establishment of robust and reliable critical supply chains. Importantly, natural gas is recognised as the key transition hydrocarbon, and Plexus' proprietary wellhead and HG® seal designs have a unique role to play in terms of their capability of delivering leak-proof performance and solutions for the smaller molecules and higher pressure and temperatures associated with gas exploration and production drilling. Emphasising the gas opportunity, the CEO of Baker Hughes in an interview with the Financial Times earlier this month declared that there is a long lifeline for natural gas and LNG and went one step further when he said that: "If you look at affordability, security and sustainability, natural gas and LNG is not just a transition fuel but a destination fuel".

BP believes that investment in O&G production will be needed for the next 30 years to avoid energy shortages and fluctuating prices, while the International Energy Agency ('IEA') suggests that although oil, gas and coal are on course to hit a peak in the next few years, having held a circa 80% share of the global energy mix for decades, they will continue to be just above 60% of the mix by 2050. The IEA's Oil 2023 report forecasts demand to grow to 105.7mn barrels per day in 2028 - a new global high, and 6% more than 2022 levels. Sentiment in the sector is therefore becoming more positive with Wood Mackenzie predicting that offshore exploration and drilling activity will grow 20% by 2025.

At the same time as O&G demand remains strong, there are clear signs of intensifying pressure to decarbonise, and the O&G industry is inevitably coming under increased scrutiny to drastically reduce its future carbon emissions. Consequently, it is now readily understood that whilst O&G production and consumption continues, it needs to be as green as possible in terms of reduced emissions (which are often unintentional leaks), especially regarding methane which is so much more harmful to the environment than CO2.

The US is leading this charge: Administrator Michael Regan at the Environmental Protection Agency ('EPA') recently said that no O&G infrastructure was "getting out of jail free" under pending methane rules. Meanwhile, California is looking to pass legislation that will require companies to report carbon emissions from supply chains or risk being excluded from the market; this mandate is the first of its kind in the US, but other states and countries are likely to follow suit. Such legislation according to reports seek to use consumer protection, racketeering, product liability and other laws to seek damages to pay for climate related costs. The product liability category is particularly relevant for Plexus as we believe that our leak-proof wellhead equipment seals can perform in a way that conventional equipment and seals cannot for scientifically verifiable reasons, thereby protecting both the environment and the operator.

Plexus has always argued and continues to argue that leak prevention is so much more effective than after the event questionable leak 'cures', and I must believe that at some stage where an E&P company is faced with the choice between specifying a conventional wellhead design with leak history, versus a proven design with no leak history that our time will come. A further incentive for such developments apart from O&G companies simply being motivated to do the 'right thing' by selecting equipment that can help deliver emission reduction, are powerful pending financial incentives such as President Joe Biden's Inflation Reduction Act which will introduce a charge of $900 USD per tonne of methane emitted in 2024, rising to $1,500 USD per tonne in 2026.

Bearing in mind that our proven long term leak-proof metal sealing technology for gas service wellheads has been around for many years, it begs the question as to why preventing leaks from wellhead annular seals has not been made a priority, and why the focus continues to be on monitoring and cure rather than prevention?

with all our shareholders, and my confidence in the future was evidenced during the year by my provision of a £1.5m convertible loan, and a £700,000 loan. Although there is still some debate about the extent of the impact humanity has on global warming, the current 1.5-degree centigrade cap will be bolstered by better technology, and in this respect I have no doubt that Plexus' proprietary POS-GRIP IP and its wellhead equipment designs will achieve the recognition they deserve, and I look forward to reporting further progress over the coming months.

Summary of Results for the year ended 30 June 2023

Contents

5Plexus Holdings plc Annual Report 2023

Chairman's Statement continued

capitalise on the strong reputation that we had built up in the rental exploration wellhead equipment sector prior to selling the previous division to TFMC in 2018.

With Plexus established reputation in Jack-up exploration drilling and mudline suspension systems, alongside having knowledge of a number of the legacy wells in the North Sea and worldwide, there is plenty of scope for gaining contracts in this growing space over the coming years as they are now being considered for re-entry and permanent decommissioning.

The Company's 49% investment in its associate company Kincardine Manufacturing Services Limited ("KMS") was deemed to be non-core during the year. As a result, a £0.7m loan arrangement was entered into with Ben van Bilderbeek related entities as announced in September 2023, which at the same time granted two option arrangements whereby the loan can be converted into 70% of Plexus' 49% shareholding in KMS, with a second option for the balance of 30% of the 49% shareholding for an additional £0.3m. Assuming the two options are exercised then it is believed that the £1m of additional funds are better deployed within Plexus and to support current growth plans. Although KMS experienced an upturn in business following the end of the Covid-19 pandemic, dividends have continued not to be declared which further supported the decision to potentially monetise the Plexus KMS shareholding. In the period, Plexus' share of KMS' profits led to a credit of £0.18m to the statement of comprehensive income. As required under IAS36 an impairment review was undertaken, which concluded that no impairment charge was required. At the reporting date the investment in KMS has been reallocated under IFRS 5 to current asset and has been presented as asset held for sale.

Plexus' family of proprietary intellectual property ("IP") continues to underpin the value and potential of the business as evidenced by the ongoing development of products and associated equipment which have enabled the c. £8m special project announced during the year, together with innovative P&A solutions contract wins. The IP suite consists of a mix of patents, confidential test results and analysis methods, as well as field experience and importantly in-depth product know-how which cannot be easily replicated. A key over riding feature of our Plexus HG seal designs is their ability to provide leak-proof performance solutions, and this capability was recognised by the LSE in 2021 with the accreditation of the Green Economy Mark. Although product patents do expire over time, ongoing R&D and proprietary technical innovations continue to protect Plexus and licenced products. In addition, new Method Patents for POS-GRIP are ongoing, and are anticipated to give Plexus and its licensees further protection of the POS-GRIP method for another 20 years in the UK and worldwide.

Staff

On behalf of the Board, I would once again like to thank all our employees for their dedication and hard work during the year. Although it was another challenging period as evidenced by the financial results, I am confident that the anticipated increase in exploration and production drilling activity which we are already beginning to see the benefits of in the current year will be positive for our staff, and for future employment opportunities within Plexus.

Outlook

As governments worldwide look to deliver clean transitions away from hydrocarbons, there has been a tightening of climate policies clamping down on O&G practices which is forcing the industry into change. While there has undoubtedly been a level of 'greenwashing,' ultimately the industry is now moving in the right direction, with new sustainable methods and equipment being encouraged, developed and employed to address regulatory demands for emissions reductions, particularly in relation to methane.

In conjunction with these important developments, there is a growing realisation that demand for O&G will, as Mike Sommers, the President, and CEO of the American Petroleum Institute, recently wrote in a letter to the Financial Times "… remain massive for decades to come". Furthermore, Mr. Sommers wrote that the "… proper focus should therefore be on smart policies that focus on innovations to produce that energy cleaner, safer and more efficiently." We see POS-GRIP as falling clearly into the innovation category.

7Plexus Holdings plc Annual Report 2023

Chairman's Statement continued

We see such developments, including the drive to reduce emissions throughout the supply chain, as opening a new chapter in Plexus' story, particularly as I believe our technology has been several steps ahead of the rest of the industry having delivered leak-proof wellhead integrity solutions for over 20 years including its HG wellhead metal annular seals.

With our experienced team of engineers and service personnel based in Aberdeen, and a growing range of products that offer multiple benefits and advantages to the O&G industry in terms of improved safety, functionality, and cost and time savings, Plexus is well positioned for growth. This includes organic growth in the UK, specialised projects in the exploration rental and surface production wellhead sectors, growing P&A activities, and opportunities across the wider global market through licencing partnerships such as the SLB licence (recently extended for a further six years).

Specifically in the UK, it is now being recognised that the reliance on imported gas, such as from the US and Qatar and the resultant implications for energy security is something that urgently needs addressing. Such considerations were brought into sharp focus with the terrorist attack on Israel in October, and it is no coincidence that the CEO of Baker Hughes in a recent interview with the Financial Times said that he sees geopolitical risks being at their highest level in half a century. However, encouragingly for the North Sea, Andy Brooks the NSTA Director of New Ventures recently stated that: "Oil and gas currently meets three-quarters of the UK's energy needs and projections suggest they will both play an important role in the energy mix for decades to come", a premise that is supported by the UK having a significant volume of unsanctioned, discovered resources as well as a wealth of infrastructure. For these reasons we believe there are clear growth prospects in the UKCS and the ECS for 'closer to home' new wells and associated leak-proof solutions, as well as opportunities arising in alternative energy markets and applications, and Plexus expects to be able to benefit accordingly.

In closing, I would like to take this opportunity to thank the Board, management team and staff for their continued hard work and support over the course of the year. I look forward to working with them all in the year ahead, as we focus on delivering on our overriding objective which remains to generate increasing value for all our shareholders.

J Jeffrey Thrall

Non-Executive Chairman

28 November 2023