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

25 November 2022

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

Preliminary Results

Plexus Holdings plc, the AIM quoted oil and gas engineering services business and owner of the proprietary POS-GRIP® method of wellhead engineering, announces its preliminary results for the year ending 30 June 2022.

FINANCIAL SUMMARY

·      Continuing operations sales revenue £2,306k (2021: £2,017k)

·      Adjusted EBITDA on continuing activities £2.78m loss (2021: £2.69m loss)

·      Continuing operations operating loss £4,291k (2021: £4,546k)

·      Continuing operations loss before tax £5,556k (2021: £4,372)

·      Continuing operations operating loss after tax £7,457k (2021: £4,110k)

·      Basic loss per share from continuing activities 7.42p (2021: 4.09p loss)

·      Cash and cash equivalents of £5.84m (2021: £5.18m)

·      Bank borrowing of £3.96m (2021: £2.04m) relating to a drawn down Lombard facility

·      The Group has £0.1m invested in financial assets (2021: £3.04m)

OPERATIONAL OVERVIEW

Revenue streams are derived from both direct sales and the licencing of the Plexus' POS-GRIP method of engineering technology to third parties, including Schlumberger. The goal is to establish the Company's proprietary and patented leak-proof wellhead systems and specialist engineering solutions across the oil and gas industry, whilst helping to meet ESG and NetZero goals by offering 'through the BOP' (Blow out Preventer) designs, and leak-proof seals capable of retaining their integrity for the life of well thereby avoiding costs associated with maintenance and well shut ins.     

·      June 2022 - secured Oceaneering order for Plug & Abandonment ("P&A") equipment and services estimated to generate revenues of circa. £500,000

·      March 2022 - suspended activities with LLC Gusar ("Gusar"), its Russian licencee partner following the outbreak of the war in Ukraine, with little or no impact on the Company's finances during the period.

·      December 2021 - signed a contract with a leading North Sea Operator for a POS-GRIP surface production wellhead system

·      December 2021 - expanded market reach via revised non-exclusive licence agreement terms with Cameron International Corporation ("Cameron"), Schlumberger's wellhead company enabling Cameron to:

o  Design, market and sell Plexus' POS-GRIP and HG® metal-to-metal seal method of wellhead engineering for surface production wellheads to its existing clients

o  Add additional territories to the agreement to make the licence worldwide and where higher royalty rates will apply in the range of 3% to 6% of the revenues generated from the sale, lease, or rental of surface wellheads

·      August 2021 - re-entered the Jack-up Exploration Rental Wellhead market, through a collaboration agreement with Cameron

·      July 2021 - received the London Stock Exchange's Green Economy Mark awarded to companies and funds where 50% or more of their revenues are attributable to environmental solutions which contribute to the global green economy, in alignment with NetZero and ESG principles

POST PERIOD END

·      October 2022 - raised £1,550,000 through the issue of Convertible Loan Notes ("CLNs"), which will be used for working capital and to fund the Group's activities as it seeks to capitalise on the increasing pipeline of opportunities within its target markets.

Chief Executive Ben Van Bilderbeek said:

"During the year to 30^th June 2022, the Group made a loss before tax on continuing operations of £5.56m compared to a loss in the prior year of £4.37m. The board is focussing reversing this performance and several pivotal decisions have been taken. Perhaps the most significant being the Company's re-entry into the drilling from Jack-up rigs exploration rental wellhead business. This is the sector in which Plexus initially built its name and reputation, before we elected to exit this market in 2018 following the collapse of the oil price in 2014 and 2015. During that time, capital investment in exploration activity dwindled away and, six years on, the oil and gas market has changed once again. 

During the pandemic we saw a major shift in geopolitics and industry sentiment led initially by a boom in renewable energy. Followed by Russia's war against Ukraine which has subsequently led to the recognition of the need to increase and deliver energy security closer to home. This has flagged the importance of the oil and gas industry investing in exploration and production activities as, without this, as suggested by Saudi Arabia, the world could be short of approximately 30 million barrels of oil a day in eight years' time, while currently the world consumes circa 100 million barrels per day. 

This change of industry circumstances is beginning to have a positive effect as evidenced by the significant increases in profits of the oil and gas operators, and it is anticipated that the oil services companies will similarly benefit.  As reported by Rystad Energy, global oil and gas investments will rise 4% to US$628 billion this year from US$602 billion in 2021, while Schlumberger's CEO recently said that it is "one of the strongest outlooks for the energy services industry in recent times", and Baker Hughes head said there are "very busy years ahead" in an "accelerating multiyear upcycle". In the same vein, Shell suggested it will cost billions of dollars just to keep production flat as production from existing wells declining at circa 15% to 20% a year; this requires investment tied to older wells as well as having to discover and develop new wells to replenish portfolios.  

However, it is not all plain sailing for the industry as investors, governments, and regulators are no longer tolerating the oil and gas industry's previously accepted practices as far as emission levels are concerned, which are now recognised as being too high and unsustainable. Pressure continues to build with operators required to operate more sustainably with the aim of achieving a 45% reduction in emissions by 2030 and NetZero targets by 2050. While in the past, many oil companies have focused on using/fixing old solutions and infrastructure, their hands are now being forced to invest in and utilise new technology that can help to prevent rather than cure emissions. I believe that as a result, companies like Plexus, which can offer leak proof wellheads with long term integrity for the life of a well, are well positioned to benefit from these major green initiatives, whilst also helping to significantly reduce the amount of methane gas being released into the atmosphere as a result of fugitive emissions, the polite name for leaks.

A major step forward in the journey towards a greener and more responsible oil and gas industry was the introduction of the Inflation Reduction Act ('IRA') in August this year by US President Biden. This is a US$369bn package of investment designed to tackle the climate crisis, which holds major oil and gas companies in the US to account for their operations and the amount of methane gas leaked into the atmosphere. Estimates suggest that it could cut US greenhouse gas emissions by 40% by 2030. Aside from penalising the worst polluters, the fund has set aside US$1.5bn in subsidies to help the companies affected invest in the technology to fix the leaks, as well as providing tax breaks for those that invest in green energy solutions.  It is hoped that, as suggested by Jonathan Banks at the Clean Air Task Force, a similar fee "could be repeated elsewhere in the world". 

I believe that Plexus can make a meaningful contribution to such emission reduction demands, particularly in relation to supplying the industry with its HG® metal-to-metal wellhead seals which can deliver leak proof performance for surface and subsea production wellheads, and specialist POS-GRIP applications such as P&A. We gained a boost in recognition of our green technology credentials in July 2021 when Plexus was recognised by the London Stock Exchange as contributing to the green economy by deriving more than 50% of revenues from environmental solutions with the Green Economy Mark accreditation.

Encouragingly, we are experiencing an increased level of interest in our Exact-EX 'through the BOP' exploration wellhead rental services, Centric-15 mudline hangers and our POS-GRIP "HG" surface production wellhead technology, for which we are positioning the Company to benefit, by way of planned investment in additional rental inventory and increased customer, industry partner and licencee engagement. 

For example, in December 2021, we signed a purchase order for a POS-GRIP surface production wellhead system for a leading North Sea operator, and we are pursuing a number of other additional prospects. This is in line with our IP-led strategy to gain surface production wellheads market share in conjunction with a licence co-operation agreement signed with Cameron, a Schlumberger Group company, the scope of which was expanded in mid-December 2021.

Our research and development ("R&D") team continues to work hard to ensure that our innovative patented POS-GRIP technology is fully utilised and deployed across various applications. For example, the high-growth, multi-billion P&A market, which focuses on preparing a well to be closed permanently at the end of its life, is such an opportunity. Towards the end of the period in June 2022, we were delighted to announce a Purchase Order for P&A equipment and services from Oceaneering International Services Limited ("Oceaneering"), a division of Oceaneering International Inc., a leading subsea engineering and applied technology company, to support its vessel-based P&A services for a six-operator joint campaign in the Dutch Sector of the North Sea. Given the size and rapid growth prospects for the P&A market, we hope this project will lead to other similar work in the North Sea and internationally both with Oceaneering and other customers.

Another pressing topic we believe that we can help address is the mitigation of problems related to subsea wellheads such as Sustained Casing Pressure ("SCP"), which is a major threat to subsea wellhead integrity and for which no means of remediation currently exists. Since 2015, following an industry Joint Industry Project, Plexus has considered a unique subsea annulus management solution, as part of our patented Python® subsea wellhead system, without needing penetrations through the wellhead body in line with API standards. As subsea wellheads are difficult and expensive to access and maintain, and in some cases are not able to have remedial work carried out at all, the new regulations and demands bring into sharp focus the argument that Plexus has always promoted which is that prevention is better than supposed cures. 

As the oil and gas industry transitions to being more responsible and innovative, an area that is developing fast, where I believe Plexus can also play a part is gas storage, whether natural gas, CO2, or indeed hydrogen. Such long-term gas storage applications demand equipment and infrastructure that can last for periods well beyond that expected of conventional oil and gas equipment. Wellheads are still required, but for injection rather than extraction purposes, and being able to supply leak proof wellheads, where our unique seal design can address corrosive conditions, such as exists with CO2 delivers unique benefits.  With one of the largest potential carbon dioxide storage capacities in Europe, the North Sea, the UK Government is committed to supporting the deployment of large-scale carbon capture, usage, and storage facilities. Accordingly, in June, the North Sea Transition Authority ("NSTA") launched the UK's first carbon storage licensing round, inviting applications for 13 areas across the United Kingdom Continental Shelf ("UKCS"), which, alongside the six licences issued previously, could have the ability to store circa 20-30 million tonnes of CO2 by 2030. We are assessing how Plexus could play a part in this unfolding opportunity.

To help ensure Plexus continues to have sufficient working capital to expedite our growth plans, post period end, in October 2022, we raised £1,550,000 through the issue of Convertible Loan Notes ("CLNs").  My fellow board member, Jeffrey Thrall, and my family interests took part in this raise, demonstrating our belief in the contributions Plexus can once again make to the oil and gas industry in reaching NetZero targets, and confidence that its increasingly diversified product and services mix will deliver value to shareholders. The funds raised will be used to support day to day activities including re-entering the Jack-up Exploration (Adjustable) Rental Wellhead market, and our ongoing R&D programme.

In summary, I am optimistic that as momentum grows for greater efficiency and environmentally responsible extraction of fossil fuels, oil and gas companies will look to innovative engineering companies like Plexus to support their growth trajectory with the provision of safer, more reliable, and sustainable solutions. Furthermore, those companies in related industries such as gas storage and carbon capture can also benefit from using our technology. I look forward to reporting on progress during the 2022 /2023 financial year."

For further information please visit www.plexusplc.com or contact:

Summary of Results for the year ended 30 June 2022

CHAIRMAN'S STATEMENT

Business progress

The Group's revenues increased in the 12 months to 30 June 2022 to £2,306k (2021: £2,017k), with a loss on continuing operations before tax of £5.56m compared to loss in the prior year of £4.37m in the prior year. Encouragingly, the global outlook for growth in oil and gas development in the coming years is, as a result of the war in Ukraine and the consequent increase in global energy prices, becoming more stable and positive after a period of extreme volatility. In the North Sea, and internationally, there is a continued pickup in activity for exploration and appraisal, production drilling and P&A work. As is usual in the cyclical oil and gas business, operators' initial priority in the up cycle is to increase production from existing wells and assets, and then turn to pursuing new exploration work and field developments.

The August 2021 co-operation agreement with Cameron has enabled Plexus to re-enter the Jack-up exploration rental wellhead market with the proven Exact and Centric wellhead and mudline suspension products. With the significant increase in the planning of new exploration wells, and an established reputation in the exploration drilling market, Plexus is well positioned to benefit from this growth in activity. During the period, Plexus has manufactured and tested several sets of this equipment in response to enquiries and an anticipated growth in demand from customers.

This year saw a major order from Oceaneering for decommissioning work with innovative Plexus products. The initial project scope will take place during the first half of 2023 where the equipment will be deployed on several wells in the Dutch sector of the North Sea. Importantly, this contract has the potential for follow-on work both with Oceaneering and with other contractors and operators with similar requirements.

As Plexus continues to be known as experts in Jack-up exploration drilling and mudline suspension systems and has knowledge of many of the legacy wells in the North Sea and worldwide which are now being considered for re-entry and permanent decommissioning, there is plenty of scope for gaining contracts in this growing space. Plexus has also been active in general product engineering and support for several specialised projects, such as P&A.

The Company's investment in associate company Kincardine Manufacturing Services Limited ("KMS") has, like many other similar companies in the sector, suffered a downturn in business over the past two years, primarily driven by the effects of the COVID-19 pandemic. KMS has managed to navigate through these turbulent times with reasonable success by careful management of costs and utilisation of available Government support, such as the furlough scheme. In the period, earnings have been lower than previous years and KMS has not been in a position to pay dividends. Accordingly, an impairment charge of £109k has been taken by the Company after an Impairment Review as required under IAS36. Management is confident that KMS is well positioned to recover as activity levels continue to pick up in the second half of 2022 and into 2023.

Plexus' primary core strength is its intellectual property ("IP"), together with its broad family of products and associated equipment, which feature and incorporate this IP. The IP consists of a mix of patents, confidential test results and analysis methods, as well as field experience and extensive product know-how, and has in the year been recognised by the LSE for its emissions reducing features with the accreditation of the Green Economy Mark. This all combines to continue to give Plexus a robust and long-term level of protection, which is evidenced by ongoing licensing with industry majors TechnipFMC and Schlumberger. Although product patents expire over time, the additional IP surrounding the technology continues to protect all Plexus and licenced products. In addition to this, new Method Patents for POS-GRIP are expected to be published in the coming months, which are anticipated to give Plexus and its licensees further general protection of the POS-GRIP method for another 20 years in the UK and worldwide.

Overview

Plexus is a wellhead engineering and engineering technology led business. While the industry norm is often for companies to try to win business with products which just meet the lowest acceptable technical requirement at the lowest price, Plexus has always pushed for ways to significantly enhance safety and performance of the products offered to result in a significantly improved value proposition for the end user, especially when considered over the life of a well. These proprietary products are invariably protected by Plexus IP, such as POS-GRIP technology and "HG" metal-to-metal seals. The Company has demonstrated that its products and technology perform and can be profitable over a wide range of products and applications and has also licenced its technology to industry majors, whilst at the same time delivering green ESG and NetZero compliant features in relation to being "through the BOP" and most importantly offering leak-proof sealing throughout the life of a well thereby avoiding periodic and often unsuccessful seal maintenance.

As well as supporting licensees to begin to deploy the Plexus technology on a worldwide basis in markets that Plexus is best placed to reach through its licencee partners, the Company continues to pursue surface and subsea wellhead opportunities directly. In addition to this, Plexus is also actively pursuing opportunities in the Jack-up exploration wellhead business through a second licensing deal with Cameron which enables Plexus to offer Exact exploration wellhead and Centric mudline suspension systems once again.

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. Following the relaxation of COVID-19 working restrictions we were pleased to welcome all staff back to working in our Dyce, Aberdeen operational headquarters. Having weathered this difficult period, I am sure that future developments and the anticipated increase in sales activity will be positive for our staff, and for future employment opportunities within Plexus.

Outlook

The past year has highlighted the critical need for energy independence, and it is clear that the West is still beholden to a variety of global macroeconomic factors, with some of these beyond its control. Whilst in an ideal world energy independence would come solely from renewable energy, the world is still a long way from that being possible, and at the same time population growth and energy demand continues to grow. In the meantime, with natural gas being recognised and utilised as a cleaner transitional energy source, it is vitally important that it is extracted as cleanly as possible.

The major importance of gas, and the unavoidable role that it has to play in the world's energy future needs was perhaps most clearly illustrated by statements made very recently to the Financial Times by Saad al-Kaabi the chief executive of QatarEnergy. He argues that natural gas, which emits significant carbon when burnt but less than oil and coal, should be central to the world's energy transition, and said - "I agree with going green, but I always say gas is not a transition fuel, it is a destination fuel. If you look at the base load of electricity in the world, it's either going to be gas, or nuclear for the ones that accept to have nuclear and can afford it. [The] rest is going to be some fuel oils and a lot of renewables."

The war in Ukraine and closure of the Nord Stream 1 gas pipeline highlighted the need for energy security in the UK and Europe, leading to a demand for a resurgence in the exploration and development of oil and gas fields, including in the North Sea. Governments across the globe have a precarious tightrope to walk - delivering on promises to cut methane emissions in half by 2030 whilst safeguarding the reliable supply of energy to its population. It is clear that currently hydrocarbons have a key role to play in energy provision and will do so for many years to come.

We are confident that Plexus' proprietary POS-GRIP HG wellhead sealing technology, which offers leak-free performance over the life of the well, can be utilised to simultaneously help operators secure energy independence whilst helping achieve pledges on methane emissions reductions in line with ESG and NetZero strategies of governments, regulators, and organisations worldwide. This is key; as Durwood Zaelke, president of the Institute for Governance & Sustainable Development pointed out when he said, "If you think of fossil fuel emissions as putting the world on a slow boil, methane is a blow torch that is cooking us today." 

Accordingly, we are delighted with positive progress being made in this regard.  Recently, the USA issued a first-of-its-kind fee on methane leaks from the oil and gas sector, with the law imposing a charge of US$900 per ton of fugitive methane emitted from oil and gas company wells. Whilst some of the oil and gas majors have pushed back on this, others, including Shell, have supported this approach, which we hope will galvanise the industry into eradicating leaks wherever possible whilst recognising that leaking wellheads would always be better addressed through prevention rather than cure.

Another positive step towards reducing methane emissions is the creation of a Responsibly Sourced Gas ("RSG") stamp, which certifies and demonstrates to a buyer that the gas has been produced with minimal or even zero methane leaks or other environmentally 'responsible' procurement practices. In time, I am hopeful that stamps like these and other similar steps will become more commonplace to ensure that natural gas is the clean transitional energy source that it has been earmarked to become. 

With this fast-changing background and following the recent raising of £1,550,000 through the issue of convertible loan notes which I supported alongside CEO Ben van Bilderbeek's family interests, I am confident that our sales team will convert the increasing number of enquiries and tenders into contracts, and that accordingly Plexus' outlook is a positive one. 

J Jeffrey Thrall

Non-Executive Chairman

24 November 2022

Principal Activity

The Group markets oil and gas industry wellhead and associated equipment that utilises its patented friction grip method of engineering known as POS-GRIP Technology. This involves squeezing one tubular member against another within the elastic range to effect gripping between the components and can also set metal-to-metal seals, known as "HG" ® Seal Technology. This superior method of load support and sealing for wellheads offers several important and unique advantages to operators, particularly for HP/HT surface and subsea production applications, and can include improved technical performance, improved integrity of metal-to-metal seals, significant installation time savings, reduced operating and maintenance costs and enhanced safety.

The Company has developed a range of products based on this technology, and is focused on pursuing surface production, abandonment, subsea and geothermal wellhead opportunities, as well as connectors and the subsea market. It has also recently re-entered the rental exploration wellhead from Jack-up rigs market through a licence arrangement with Schlumberger and it is hoped that this can be a main focus for Plexus to generate revenues from.

In addition to Plexus' organic activities, the Company also pursues licencing opportunities, and is currently supporting Cameron International Limited, a Schlumberger group company, to enable Cameron to use the Company's technology under a non-exclusive licence for the development of conventional and unconventional oil and gas surface production wellheads. Cameron is in the process of testing, completing Performance Verification Testing, and marketing two new POS-GRIP products, which should lead to a royalty revenue stream for the Company.

The Company retains the right to pursue Jack-up exploration rental wellhead related business with POS-GRIP products in Russia and the CIS where it has existing licence agreements with LLC Gusar and CJSC Konar. However, the licence agreement with Gusar is currently suspended due to the war in Ukraine and resulted in a bad debt provision of £277k being recognised in the year.

Following the sale of the Company's POS-GRIP based rental wellhead exploration business to TFMC in 2018 revenues fell away as focus was turned to building up a new range of activities, namely production wellheads and other specialist engineering opportunities, and longer-term subsea wellheads. This change of strategic direction coincided with market challenges, and losses have had to be incurred over the past few years. However, having re-entered the rental wellhead sector, and having begun to make progress in the production wellhead sector it is anticipated that this situation will begin to reverse in the 2023 calendar year.

Financial Results

Statement of Comprehensive Income

Revenue

Continuing revenue for the year was £2,306k, an increase from £2,017k in the previous year. The increase in continuing sales revenue is a result of increased operational project work taking place during the year.

Margin

Gross margin on continuing operations increased to 64.7% (compared to 47.3% in the previous year). The increase in margin is largely driven by higher margins on sold equipment being achieved when compared to the prior year. Additionally, cost of sales includes a stock provision charge of nil in the current year compared to £569k in the prior year. 

Overhead expenses

Continuing activities administrative expenses have increased when compared to the prior year with expenditure of £5.78m (2021: £5.50m). Included within administrative expenses is a bad debt provision of £277k, relating to a licensing fee due from Gusar LLC which has been compromised by the suspension of activities due to the war in Ukraine. Overhead expenses also include an impairment charge of £109k following a review of the carrying value of the Group's associate undertaking KMS.

Continuing salary and benefit costs remain the largest component of administrative expenses at £2.87m compared to £2.79m in the prior year.

Non-recurring item

The statement of comprehensive income includes a fair value adjustment on an asset held for sale of £1.03m, relating to the write-down in a building's value to its fair value.

Adjusted EBITDA

The Directors use, amongst other things, Adjusted EBITDA on continuing operations as a non-GAAP measure to assess the Group's financial performance. The Directors consider Adjusted EBITDA on continuing operations, which approximates the operational cash generated by, or used in the business, to be the most appropriate measure of the underlying financial performance of the Group in the period.

Adjusted EBITDA on continuing operations for the year was a loss of £2.78m, compared to a loss of £2.69m in the previous year. Adjusted EBITDA on continuing operations is calculated as follows:

Loss Before Tax

Loss before tax on continuing operations of £5.56m compared to a loss in the prior year of £4.37m. The loss on discontinued operations is nil compared to a profit of £0.02m in the prior year.

Tax

The Group shows a total income tax credit of £0.04m for the year compared to a tax credit of £0.39m for the prior year. The income tax credit wholly relates to continuing activities compared to the prior year split of £0.26m credit on continuing activities and £0.41m charge on discontinued activities.

Investments

In December 2018, Plexus acquired a 49% shareholding in Kincardine Manufacturing Services Limited ("KMS"), for a consideration of £735k plus associated legal fees of £50k. At the year-end a share in profit of associate of £111k (2021: loss £77k) has been recognised. Following an impairment of the investment overhead expenses include an impairment charge of £109k (2021: nil).

EPS

The Group reports basic loss per share on continuing activities of 7.42p compared to a loss per share of 4.09p in the prior year. The basic loss per share on discontinued activities of nil, compared to a loss per share of 0.39p in the prior year.

Statement of Financial Position

Intangible Assets and Intellectual Property ("IP")

The net book value of goodwill and intangible assets was £9.17m, a decrease of 4.9% from £9.64m last year. This movement represents investment of £0.45m less the annual amortisation charge of £0.93m.

Plexus owns an extensive range of IP which includes many registered patents and trademarks across a number of jurisdictions, and actively works to develop and protect new methods and applications where deemed commercially advantageous to do so. In addition to registered IP, Plexus has developed over many years a vast body of specialist know-how in relation to the POS-GRIP friction grip method of engineering and related activities.

The loss in the year and the market capitalisation of the company being less than the carrying value of the assets are clear indicators of impairment. Following a thorough review, including a discounted cashflow model which has included cashflows for 20 years. the Directors have concluded no impairment of IP is required. Therefore, the Directors consider the current carrying values to be appropriate.

Research and Development ("R&D")

R&D expenditure including patents increased from £0.24m in 2021 to £0.45m in 2022. Continued investment as and where necessary in R&D demonstrates the Group is protecting, developing, and broadening the range of proprietary POS-GRIP friction-grip method of engineering applications, related IP and Plexus products.

Tangible Assets

The net book value of property, plant and equipment including items at the year-end was £0.82m compared to £2.96m last year. Current assets include a property held for sale with a carrying value of £1.1m. Capital expenditure on tangible assets increased to £0.25m compared to £0.17m in the prior year.

Cash and Cash Equivalents

Net cash at the year-end was £1.88m (cash and cash equivalents of £5.84m less the bank Lombard facility of £3.96m) compared to net cash of £3.14m in the prior year (cash and cash equivalents of £5.18m less the bank Lombard facility of £2.04m) reflecting a net cash outflow for the year of £1.26m (net increase in cash of £0.66m per Statement of Cash Flows plus net increase in bank borrowings of £1.92m).

The increase in bank borrowing represents £3.96m, which has been drawn down on a Lombard facility. This facility was repaid in its entirety in July 2022.

It should also be noted that the Group has financial asset investments with a value of £0.10m (2021: £3.04m) at the reporting date. These investments are included in non-current financial investments in the statement of financial position.

The expected future cash inflows and the cash balances held are anticipated to be adequate to meet current on-going working capital, capital expenditure, R&D and project related commitments.

Dividends

The Company has not paid any dividends in the year and does not propose to pay a final dividend at this time. Whilst the Company remains committed to distributing dividends to its shareholders when appropriate, the Directors believe that it is prudent to suspend the payment of dividends in light of the ongoing capital and operational requirements of the business.

Operations

Progress has continued during the year with the Company's strategy to build a portfolio of revenue streams based on its POS-GRIP technology and associated products and services.

The Company's primary focus continues to be the marketing of its POS-GRIP-enabled products and supporting licensees of the technology, as well as the re-entry to the rental exploration market with its non-POS-GRIP equipment designs. Plexus continues to supply surface production wellheads and is also pursuing supplemental business opportunities relating to well abandonment and decommissioning, which are anticipated to be growth areas as the world's older producing oil and gas fields, such as in the North Sea, come to the end of their lives.

Plexus continued to invest in R&D during the year, with significant focus on optimising the Exact rental exploration wellhead product range for the current market, and also to complete product development and testing required for the Oceaneering decommissioning work. R&D remains an important operational activity and further develops the value of our IP and ability to extend the range of applications of POS-GRIP technology. Innovation in the oil and gas industry continues to be an essential part of developing both cost saving initiatives and ever safer drilling methods, particularly in relation to greener leak-proof technologies and equipment, and the Board is confident that Plexus can continue to 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 at the end of June 2022 (excluding non-executive directors) comprised of 35 employees, including 1 international employee, which compared to a weighted average total of 35 in the current year and 33 in the prior year.

Competency across the business has continued to evolve and broaden, with a system developed and implemented within the existing appraisal process, to demonstrate the competency of office-based personnel.  The Company continues to maintain the OPITO accreditation for its competency management system, ensuring a robust assessment of employees in safety-critical roles.

Public Health Scotland is no longer delivering a Healthy Working Lives Award but Plexus' commitment to the health and wellbeing of its employees will continue with a programme of activities aiming to encourage habits of wellbeing and inspiring individuals to take responsibility for their own health.

Health and Safety continues to be a pivotal part of the business and remains at the centre of everything we do. Plexus remains fully committed to continually improving safety standards and the safety culture across the business. This is reflected in the business being once again lost time injury ("LTI") free this year. Plexus has now passed its seventh anniversary of this milestone in September 2022.

Plexus continues to comply with the requirements of the API Q1/ISO 9001 and ISO 45001 standards to include the retention of both API 6A and 17D Licences. These accreditations demonstrate Plexus' capability and determination to operate under the highest standards.

The IT Department provides technology leadership for Plexus, including governance, information security, software development and expertise in deploying modern information technologies to improve company efficiency. Plexus has continued to develop its in-house systems to ensure the Company is able to react swiftly to changing market requirements, and constantly review the Company's IT infrastructure.

Strategy and Future Developments

Technology

Plexus' proprietary POS-GRIP technology 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 in place through friction between the two components, whilst at the same time creating 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 has already proven to be uniquely advantageous in terms of safety features, operational efficiency, and cost savings for Jack-up drilling, especially HP/HT applications, and for surface production. The Company is now focused on replicating this past success in other wellhead markets including surface production, subsea, gas storage and geothermal, as well as other initiatives such as a POS-GRIP Crown Plugs and POS-GRIP Lateral Trees. Plexus' re-entry into the exploration rental wellhead for the Jack-up drilling market will be built on non-POS-GRIP technology but with specific benefits and features including "through the BOP".

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 contact 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 and maintenance costs.

Plexus' POS-GRIP enabled product suite also includes the innovative Python^® Subsea Wellhead as well as the POS-SET Connector^® for use in the growing decommissioning market. We believe the Python subsea wellhead is important as it can eliminate the need for wear bushings, pack-offs, lock-rings, and lockdown sleeves, whilst delivering instant rigid lock-down in all directions, and is 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 over ten days of savings per well can be achieved in deep-water under certain conditions which, depending on water depth, Plexus estimates could result in a saving of over $10m for the operator. The POS-SET Connector, which is designed to re-connect to bare conductor pipe for well re-entry or permanent abandonment operations, creates a solid connection with reliable sealing directly against the pipe, and retains bend and load capabilities at 80% of pipe strength. The Directors believe that such features mean that Plexus' wellhead equipment sets and delivers a superior standard. Apart from the operational time savings and related safety benefits, at an engineering level the Company has demonstrated that its technology can raise and even exceed the integrity of wellhead testing and sealing to that of premium couplings, which supports its claim that wellheads no longer 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 organically or in conjunction with partners, including licensees. In line with this strategy, in November 2020 Plexus entered into a licence agreement with Cameron International Limited, which grants the Schlumberger group company a non-exclusive licence to use the POS-GRIP and HG® metal-to-metal seal method of wellhead engineering for the development of conventional and unconventional oil and gas surface wellheads. The scope of this licence was further expanded in December 2021. Schlumberger continue to make good progress with their engineering and testing of their new wellhead which will incorporate Plexus technology, and it is anticipated that marketing and sales by Schlumberger to its customers will begin in the first half of 2023 calendar year.

In addition to POS-GRIP Technology, Plexus is now re-entering the Jack-up Exploration Wellhead market with Cameron's Exact and Centric wellhead and mudline suspension products. These products are tried and tested, and well suited to the exploration market as they are "through the BOP" products which deliver crucial time savings and safety benefits over conventional wellhead products. As the exploration market regrows in the North Sea and internationally, these products, combined with Plexus' experience and reputation in this business means that we are well placed to win a significant share of the work now being planned.

Business Model and Markets

The Company is proprietary technology driven and its extensive patent protected IP and many years' worth of specialist know-how has been successfully deployed in hundreds of wells around the world. Its superior performance, safety and operational advantages led to the Company becoming established initially as a leading equipment and services provider to the niche Jack-up exploration wellhead market. The Directors believe that this success can over time be replicated and extended to the wider and much larger energy sectors including surface production, subsea, geothermal and fracking applications based on its POS-GRIP technology. In addition to this there is a surge in interest in subsurface storage wells for gas, CO2 and hydrogen, for which POS-GRIP technology is also ideally placed.

Plexus has a good reputation for the agility and customer focus required to succeed in the Jack-up Exploration Wellhead market, and so the agreement with Cameron to allow Plexus to re-enter this market with field proven products is welcome and is anticipated to see an addition to revenues as global exploration activity increases.

Strategy

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 Plexus 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 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 Company has taken on the Cameron Exact adjustable wellhead and Centric mudline suspension products. This has resulted in initial minor orders for P&A and decommissioning work associated with this equipment. We expect that the increase in activity and revenue from this business will be positive and will also allow

Plexus to re-engage with customers at the exploration stage, which then has the potential to lead to further production and subsea opportunities.

As the world and the oil and gas industry strives to implement a range of ESG compliant initiatives, particularly in relation to achieving NetZero. Plexus believes that its technology can make a valuable contribution in terms of its leak-free sealing capabilities, and its 'through the BOP' wellhead designs.

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, cash balances, and working capital resources and requirements. The analysis of these is included in the financial results section of this report. Non-financial indicators include Health and Safety statistics, equipment utilisation rates, geographical diversity of revenues and customers, the level of ongoing customer interest and support, geo-political considerations such as emissions concerns and awareness, 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. The non-financial key performance indicators are included within the strategic report.

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 political, operational, and environmental circumstances. This has for example been evidenced by the impact of the war in Ukraine. The current global political and environmental landscape, particularly in relation to climate change issues and NetZero goals, and the relentless move away from hydrocarbons to, for example renewables, continues to demonstrate how any combination of such factors can generate risks and uncertainties that can undermine commercial opportunities and trading conditions. Some risks are of course unforeseen, and one such significant risk took the form of the global pandemic caused by COVID-19 which materialised in 2020 and continued in the prior year. Although Plexus has taken all reasonable steps to mitigate the effects of this risk, both economic and to the health and well-being of our employees, customers and suppliers by complying with legislation and taking measures to ensure business continuity, the negative impact has clearly been felt. Such risks also extend to legal and regulatory issues, and it is important to understand that these can change at short notice. For example ongoing and future changes to oil and gas industry windfall taxes may have an adverse impact on investment levels. To help address and balance such risks, the Group where possible seeks to broaden its geographic footprint and customer base, as well as actively look to forge commercial relationships with large industry players.

The Company continues to closely monitor the potential impact and risks of the UK's exit ("Brexit") from the European Union ("EU"). This includes assessing and monitoring the potential impact of the introduction of trade tariffs and the potential supply chain disruption that could result from increased customs checks at borders and related matters. Plexus has an IP-led business model, which provides it with operational flexibility and the ability to respond to and mitigate some of the potential impacts of the different scenarios resulting from the UK's exit from the EU. In the meantime, Plexus has amongst other activities obtained an Economic Operator Registration and Identification ("EORI") number to enable the Company to continue to import and export with the EU.

(b)     Oil and Gas Sector Trends

It is readily understood that the world continues to move away from coal as part of the COP21 as well as the COP26 and COP 27 pronouncements, together with other climate change objectives in relation to the ongoing need to urgently reduce CO2 and CH4 (methane) emissions. However, the commercial and environmental dynamics between traditional hydrocarbons in terms of coal, oil and gas is not the only trend to consider. New technologies, particularly in relation to renewables such as wind and solar, alternative energies and developments such as the increasing use of electric vehicles and corresponding improvements in battery storage life, and wave energy, could all in the future prove very disruptive to the traditional oil and gas industry and the corresponding demand for exploration and production equipment and services. However, it is also recognised that the world will continue to need hydrocarbons as an energy and materials source, and in particular gas for many years to come, and indeed currently global demand for hydrocarbons is forecast to continue to grow for the foreseeable future. It should be noted that the climate change impact of methane is now better understood by environmentalists, regulators and the oil

and gas industry and that it is essential that methane wellhead leaks are prevented whenever and wherever possible. The impending Methane Emissions Reduction Act in the US and similar legislation being progressed in Europe demonstrate regulations are increasingly becoming more stringent.

(c)     Technology

Having originally proved the superior qualities of POS-GRIP technology within the Jack-up wellhead exploration market which culminated in the sale of that business to FMC Technologies Limited, a subsidiary of TechnipFMC (Paris:FTI, NYSE:FTI) (jointly "TFMC"), in early 2018, the Company has focused on establishing its technology and equipment in other markets including surface production wellheads, subsea and de-commissioning, both organically and through licence partners. Plexus has since re-entered the rental exploration wellhead market with non-POS-GRIP designed equipment following a licence agreement with Schlumberger in August 2021. Further, in November 2020 Plexus entered into a licence agreement with Cameron International Limited, which grants the Schlumberger group company a non-exclusive licence to use the POS-GRIP and HG® metal-to-metal seal method of wellhead engineering for the development of conventional and unconventional oil and gas surface wellheads. The scope of this licence was further expanded in December 2021.

(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 more resilient to extended adverse trading conditions. This risk has become more concentrated over recent years as a result of the large oil service company competitors becoming even larger and more influential through a series of mergers and acquisitions.  These major oil service and equipment company consolidations have therefore magnified such issues as competitors reduce in number but increase in size, influence, and reach. 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, including adding to its existing extensive 'know-how' 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 over the past few years as a result of a volatile oil price and market challenges and a corresponding reduction in drilling activity and related levels of capex spend. These adverse trading conditions had been magnified since early 2020 by the Covid-19 pandemic, which in turn has coincided with an acceleration in the world's desire to reduce its dependence on hydrocarbons, particularly following the start of the war in Ukraine in February 2022. Therefore, although there are now some encouraging signs of a pick-up 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 R&D initiatives, at the rate that may be required. Plexus has developed effective recruitment and training procedures, which combined with the appeal of working in a company with unique technology and engineering solutions will hopefully help to mitigate such risks. In addition, there are signs that certain pressure groups such as Just Stop Oil and Extinction Rebellion are increasing their level of activity and this may also impact on oil and gas investment and drilling activities, at least in the West.

(f)    Going Concern, liquidity, and finance requirements

In an economic climate that in many ways remains uncertain, it has become increasingly possible for 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 where financial pressures and constraints can apply. Also, the significant decline in the size of Plexus' market cap is a negative factor if consideration is given to raising additional funds in the public markets. Furthermore, a number of large and influential institutions have actively divested oil and gas investments and declared that further investments and funding will not be made available for oil and gas projects as a result of climate change concerns and as part of the move to NetZero. The Group undertakes cashflow forecasting throughout the year to ensure the going-concern assumption is still appropriate. The recent raising of funds from convertible loans is an example of this and helps to ensure the Group has adequate working capital headroom to see it through the next 12 months.

(g)   Credit

The main credit risk is attributable to trade receivables. Where the Group's customers are large international oil and gas companies the risk of non-payment is significantly reduced, and therefore is more likely to be related to client satisfaction and/or trade sanction issues. Where smaller independent oil and gas companies are concerned, credit risk can be a factor. Customer payments can potentially involve extended periods of time especially from countries where exchange control regulations can delay the transfer of funds outside those countries. As Plexus begins to establish international licensee relationships there may be instances whereby certain capital and royalty 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's 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 and updated as and when appropriate 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.

(i)      COVID-19

Although the regulations around COVID-19 were relaxed during the year, Plexus places the health and safety of its employees as its highest priority and in line with this has implemented various protocols. The Board continuously monitors the situation, should Government guidance change.

Section 172 Statement

This section serves as the section 172 statement and should be read in conjunction with the full Strategic Report and the Corporate Governance Report. Section 172 of the Companies Act 2006 requires directors to take into consideration the interests of stakeholders in their decision making. The Directors continue to have regard to the interests of the Company's employees and other stakeholders, including shareholders, customers and suppliers, Licence Partners and the community and environment, through positive engagement and when making decisions. Acting in good faith and fairly between members, the Directors consider what is most likely to promote the success of the Company for its members in the long term and to protect the reputation of the Company.

Shareholders

Plexus seeks to develop an investor base of long-term holders that are aligned to our strategy. By communicating our strategy and objectives, we seek to maintain continued support from our investor base. Such opportunities have been compromised by the financial performance of Plexus over the past few years, and the resultant decline in the size of the market cap of the business.  It is the Directors' intention that as soon as positive news flow begins to be generated a fresh approach to the investment community market to both existing and new potential shareholders will take place in conjunction with its advisors. Important issues include financial stability and protecting and strengthening the value of our intellectual property. Engagement with shareholders is a key element to this objective and methods of engagement are detailed in the Corporate Governance Report, although over the past years, as a result of the Covid pandemic, such interactions have been adversely impacted; in common with many other businesses those impacts have gradually lessened over the past year since the rollout of the vaccine programme and we are able to resume "normal" interaction levels. During the year, the Finance Director supported by other members of the executive team, the Company's broker, and the Investor Relations advisor, engaged where possible with investors by email, presentations, direct conversations, and ad-hoc meetings. In the prior year the Company re-launched its website to provide investors and other stakeholders with an improved platform to access information about the Company. The website includes details of the LSE "Green Economy Mark" status, which was awarded in July 2021, and associated NetZero commentary. During the year several key decisions were made by the board, including the re-entering of the exploration market, the decision to sell a building (currently held as an asset held for sale at the financial year end), and post year end the raising of funds through convertible loans. All of these decisions are aimed at increasing long-term shareholder value.

Employees

The Group's UK staff are engaged by the Company's subsidiary Plexus Ocean Systems Limited based in Aberdeen, Scotland. Being a relatively small company with just over 30 employees largely operating in one location, there is a high level of visibility regarding employee engagement and satisfaction. The Company is engaged with a specialist firm of benefits advisers who are able to offer a comprehensive service to employees as well as to the Company. The Company consults with employees on matters of competency, training, and health and safety as detailed in the Corporate Governance Report. During the year, the Company successfully achieved seven continuous years with no Lost Time Incidents (LTI's) and this successful safety culture has continued beyond that anniversary to the date of writing. In the course of the year under review, there was a gradual return of staff from home-working to permanent working in the office; at the time of writing, all staff are now fully returned to office based working. The challenges of maintaining close contact with employees presented by remote working were very successfully managed by use of appropriate software such as Microsoft Teams alongside the use of a secure VPN and other network security protocols. The easing of restrictions has enabled more in-person contact to be achieved and the Company is now operating under normal - and importantly, safe - direct conditions.

Customers and Suppliers

The Company is committed to acting ethically and with integrity in all business dealings and relationships. Fostering good business relationships with key stakeholders including customers and suppliers is important to the Company's success. The Board seeks to implement and enforce effective systems and controls to ensure its supply chain is maintaining the highest standard of business conduct in line with best practice including in relation to anti-bribery and modern slavery.

Licence Partners

The Company engages with Licence Partners in a way that follows the same principles as those applied to relationships with other customers and suppliers. Additionally, the Company engages with its Licence Partners to support their efforts to achieve commercial success by holding as and when required technical workshops, technical training and data transfer. Following the announcement in November 2020 of entering into a non-exclusive surface wellhead licencing agreement with Cameron and the extension of this agreement in December 2021, regular Teams meetings and occasional face to face meetings have been held as part of the process of transferring Plexus' relevant IP so that Cameron can design and develop its own low-cost wellhead with POS-GRIP technology inside.  The licence agreement with our Russian partner LLC Gusar was indefinitely suspended by Plexus in March 2022 following the Russian invasion of Ukraine and remains suspended.

Community and Environment

The Company has minimal environmental impact in the localities in which it operates. This clearly helps the Company meet its corporate objectives in this regard but is never taken for granted. In the year under review, the Company met its target for waste management and in general continues to operate in a manner that is open, honest, and socially responsible.

G Stevens
Director

24 November 2022

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2022

Consolidated Statement of Financial Position

at 30 June 2022

Consolidated Statement of Changes in Equity

for the year ended 30 June 2022

Consolidated Statement of Cash Flows

for the year ended 30 June 2022

Notes to the Consolidated Financial Statements

1.   Revenue

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 sale, rental and the provision of services relating to the Group's patent protected equipment.

2.  Segment Reporting

The Group derives revenue from the sale of its POS-GRIP technology and associated products, the rental of equipment 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 continuing revenue:

3.   Income tax credit

As outlined in the accounting policy (note 1f) deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available. The deferred tax asset relates to losses and is reviewed at the end of each reporting period. The Group has previously recognised a deferred tax asset based upon its mid-term forecast profitability. On the basis losses have not been utilised in the current financial year management consider that the probable threshold is not met and have released the asset to the extent there are not sufficient taxable temporary differences. Once this threshold can be demonstrated an asset will be recognised. At 30 June 2022 the Group has tax losses available of £21.5m and have not recognised a potential deferred tax asset in relation to these of £4.29m.

4.  Discontinued Operations

On 1st February 2018 the Group sold its "Jack-up Business" to TFMC for an initial gross consideration of £15m, with an additional sum of up to £27.5m payable dependent on the future performance of the Jack-up Business during a three year earn-out period.

The recognised profit on discontinued operations in the prior year represented an increase in the expected deferred consideration received.

The Statement of cash flows includes the following amounts related to discontinued operations:

5.  Loss per share

Basic loss per share is calculated on the results attributable to ordinary shares divided by the weighted average number of shares in issue during the year.

Diluted earnings per share calculations include additional shares to reflect the dilutive effect of share option schemes. As a loss was made on continuing operations for the current year the option schemes are considered to be anti-dilutive.

6.  Intangible Assets

When assessing the valuation of the Group's assets 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 considers this to be appropriate for a new technology gaining industry acceptance,

·      Prices will rise with inflation,

·      Costs, in particular direct costs and staff costs are based on past experiences, and management's knowledge of the industry,

These assumptions were determined from the directors' knowledge and experience.

The value in use calculation is based on cash flow forecasts derived from the most recent financial model information available. Although the Group's technology is proven and has proven commercial value the exploitation of opportunities beyond the rental wellhead exploration equipment services market are at a relatively early stage and the commercialisation process is expected to be a long term one. The cash flow forecasts therefore extend to 2042 to ensure the full benefit of all current projects is realised. The rationale for using a timescale up to 2042 with growth projections which increase in the first five years and decline thereafter, is that as time progresses, Plexus expects to gain an increasing foothold in the surface, subsea and other equipment markets, including the recent re-entry into the Jack-up exploration rental wellhead sector. As the Group is starting from a base point of trading the growth rates are expected to be high in the initial years (varying from 50% to 400% depending on the model employed) then in later years where the technology becomes established the expected rate of growth declines (varying from 5% to 10 depending on the model employed).

The key assumptions used in these calculations include discount rate, revenue projections, growth rates, expected gross margins and the lifespan of the Group's technology.

 Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to the Group and the markets in which it operates. Revenue projections, growth rates, margins and technology lifespans are all estimated based on the latest business models and the most recent discussions with customers, suppliers and other business partners.

Management regularly assesses the sensitivity of the key assumptions, including a sensitivity analysis, and the probability that any of them would change to the degree that the carrying value would exceed the recoverable amount. It would require significant adjustments to key assumptions before the goodwill and other intangibles would be impaired.

Patent and other development costs are internally generated Note 1h provides additional information on intangible assets.

7.  Property plant and equipment

The value in use of property, plant and equipment is not materially different from the carrying value.

8.  Asset held for sale

The asset held for sale relates to a property that will be sold during the financial year ended 30 June 2023.

The Group has agreed a sale in principle prior to the year end, with the building having been previously marketed for sale. In line with IFRS5 the asset is held for sale at the lower of its carrying value and fair value. A fair value adjustment to reduce the carrying value of the asset to its fair value has been recognised as shown above. The fair value was assessed by reference to an independent property agent.

9.  Investment in associate

On 14 December 2018 Plexus Ocean Systems Limited acquired a 49% interest in Kincardine Manufacturing Services Limited ("KMS") for a consideration of £735k plus associated legal fees. KMS are a precision engineering company which serves the oil and gas industry. This is viewed as a long-term strategic investment by Plexus.  KMS are based at Sky House, Spurryhillock Industrial Estate, Stonehaven, Aberdeenshire AB39 2NH

Following the investment Graham Stevens PLC Finance Director was appointed to the board of KMS. The company remains under the control and influence of the 51% majority shareholders.

On 30 June 2022, an impairment review has been undertaken. The investment has been revalued using a profit after tax earnings model. This has resulted in an impairment charge of £109k.

The summary financial information of KMS, extracted on a 100% basis from the accounts for the 6 months to 30 June 2022 are as follows:

KMS have a December 31 year-end date. Therefore, the profit before tax figure is based on management accounts for the 12-month period to 30 June 2022.

10.            Financial Assets

The financial asset relates to cash invested in an investment portfolio, made up of high-yield bonds held at fair value in the statement of financial position. The portfolio can be divested to cash at any time. Included in the statement of comprehensive income is a write-down in the carrying value of the financial asset of £513k (2021: £19k). The fair value of the investment is evaluated by reviewing the portfolio on a quarterly basis, including the reporting date of 30 June 2022.

11.            Share Capital

12.            Shares held in treasury

On 1 February 2019 Plexus Holdings PLC completed the acquisition of 4,950,495 Ordinary Shares beneficially held by LLC Gusar. Following the above transaction, the Company's issued share capital comprises 105,386,239 Ordinary Shares, of which 4,950,495 Ordinary Shares are held in treasury. The Company now has a total of 100,435,744 Ordinary Shares in issue with voting rights. This figure, 100,435,744, should be used by shareholders as the denominator when determining whether they are required to notify their interest in, or a change to their interest in the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

13.            Reconciliation of net cash flow to movement in net cash/debt

14.            Reconciliation of net cash flow to movement in net cash/debt

15.            Analysis of net cash/(debt)

The financial information above does not constitute the company's statutory accounts for the year ended 30 June 2022 but is derived from those statements.

The statutory financial statements and this preliminary statement for the year ended 30 June 2022 were approved by the Board on 24 November 2022.  On the same date the company's auditors, Crowe U.K. L.L.P issued an unqualified report on those financial statements.  The audit report did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report or contain a statement under section 498(2) or (3) of the Companies Act 2006.  

The financial information for the year ended 30 June 2020 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies.  The auditors reported on those accounts; their report was unqualified and did not draw attention to any matters be way of emphasis and not contain a statement under s498(2) or (3) of the Companies Act 2006 or equivalent preceding legislation.  The Company's financial statements have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU.  A copy of the statutory accounts will be delivered to the Registrar of Companies in due course.

The Annual Report will be circulated to all shareholders and thereafter, copies will be available from the registered office of the company, Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH.