REG - Tekmar Group PLC - Final Results
04/03/2024 07:00
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RNS Number : 3667F Tekmar Group PLC 04 March 2024
TEKMAR GROUP PLC
("Tekmar Group", the "Group" or the "Company")
FINAL RESULTS
For the year ending 30 September 2023
Tekmar Group (AIM: TGP), a leading provider of technology and services for
the global offshore energy markets, announces its audited final results for
the year ending 30 September 2023 ("FY23" or the "Period").
Financial Highlights
· Revenue of £39.9m (FY22: £30.2m) and Adjusted EBITDA loss of
£0.3m (FY22: loss of £2.3m) highlights an improved financial performance.
· Gross profit of £9.3m (FY22: £7.0m) with gross profit margin of
23.3% consistent with prior year (FY22: 23.2%)
· On a statutory basis, the Group loss before tax for the Period
was £9.9m (FY22: loss of £5.2m). This includes a non-cash impairment charge
of £4.7m to the value of goodwill in the Group's Offshore Energy division.
· The Group was also impacted by foreign exchange losses for the
Period of £0.9m (FY22: gain of £0.2m), accounted for within operating
expenses.
· The Group held £5.2m of cash as at 30 September 2023 with net
debt of £1.4m. Net debt included the drawdown of bank facilities from the
£3.0m CBILS loan and £4.0m trade loan facility, available until at least
July 2024. This cash position excludes the SCF Capital CLN facility. Net debt
at 31 January 2024 was £1.2m.
Strategic Highlights
· During the year, the Group successfully completed the formal
sales process and strategic review which culminated with the strategic
investment and related equity fundraising by SCF Partners and existing
shareholders. This exercise completed in April 2023 and raised £5.3m, net of
expenses.
· In addition, SCF Partners committed, with conditions, an
additional investment of £18.0m which is available through the convertible
loan note facility (the "CLN facility"). The use of the CLN facility is
targeted to drive growth including through acquisitions, in-line with the
ambition of the Board to build a leading offshore wind services company over
time.
Operational Highlights
· During the year, Pipeshield secured and delivered a combination
of projects valued in excess of £8m for pipeline protection systems in the
Middle East.
· The Group was also selected for Dogger Bank C Offshore Wind Farm
(in continuation of the previously announced Dogger Bank A & B contracts),
which, when completed, will be the largest global Offshore Wind Project to
date.
· These contract awards have helped to support a Group orderbook of
£19.7m at Jan-24 with a gross margin of 28%. and the Board is encouraged
by the opportunities for material order intake in the remainder of the current
financial year.
Key financials
Audited 12M Audited 12M
ended ended
Sep-23 Sep-22
£m £m
Revenue 39.9 30.2
Adjusted EBITDA(1) (0.3) (2.3)
Commercial KPIs
12M ending Sep-23 12M ending
£m Sep-22
£m
Order Book(2) 19.9 15.6
Order intake(3) 44.2 33.3
Enquiry Book(4) 386 370
Book to Bill(5) 1.11 1.2
Alasdair MacDonald, CEO, commented:
"Overall, the business made further progress in FY23 in improving operational
and financial performance and delivered results in-line with market
expectations. Importantly, we have stabilised the business, with breakeven
Adjusted EBITDA a significant improvement on FY22 and FY21 and the balance
sheet strengthened. We are confident we have established a clear and
sustainable path to improving profitability, with the Group expected to be
profitable at the Adjusted EBITDA level in FY24.
We are alert to the opportunities to complement organic growth through M&A
that can increase our scale and strengthen our services offering across our
end-markets, all consistent with building a leading, global offshore wind
services platform over time. We are fully committed to delivering on the
opportunity ahead for Tekmar to build a platform for sustainable growth and
creating significant value for shareholders."
Notes:
(1) Adjusted EBITDA is defined as profit before finance costs, tax, depreciation,
amortisation, share based payments charge, and significant one-off items is
a non-GAAP metric used by management and is not an IFRS disclosure.
(2) Order Book is defined as signed and committed contracts with clients.
(3) Order intake is the value of contracts awarded in the Period, regardless of
revenue timing.
(4) Enquiry Book is defined as all active lines of enquiry within the Tekmar
Group. When converted expected revenue recognition within 3 years.
(5) Book to Bill is the ratio of order intake to revenue.
Enquiries:
Tekmar Group plc
Alasdair MacDonald, CEO +44 (0)1325 349 050
Leanne Wilkinson, CFO
Singer Capital Markets (Nominated Adviser and Joint Broker)
Rick Thompson / Sam Butcher +44 (0)20 7496 3000
Berenberg (Joint Broker)
Ben Wright / Ciaran Walsh +44 (0)20 3207 7800
Bamburgh Capital Limited (Financial media & Investor Relations) +44 (0) 131 376 0901
Murdo Montgomery
About Tekmar Group plc
Tekmar Group plc (LON:TGP) collaborates with its partners to deliver robust
and sustainable engineering led solutions that enable the world's energy
transition.
Through our Offshore Energy and Marine Civils Divisions we provide a range of
engineering services and technologies to support and protect offshore wind
farms and other offshore energy assets and marine infrastructure. With near 40
years of experience, we optimise and de-risk projects, solve customer's
engineering challenges, improve safety and lower project costs. Our
capabilities include geotechnical design and analysis, simulation and
engineering analysis, bespoke equipment design and build, subsea protection
technology and subsea stability technology.
We have a clear strategy focused on strengthening Tekmar's value proposition
as an engineering solutions-led business which offers integrated and
differentiated technology, services and products to our global customer base.
Headquartered in Darlington, UK, Tekmar Group has an extensive global reach
with offices, manufacturing facilities, strategic supply partnerships and
representation in 18 locations across Europe, Africa, the Middle East, Asia
Pacific and North America.
For more information visit: www.tekmargroup.co.uk
(http://www.tekmargroup.co.uk) .
Subscribe to further news from Tekmar Group at Group News
(http://eepurl.com/cN91l5) .
Chairman's Statement
2023 was a pivotal year for Tekmar. We have stabilised the business and
welcomed SCF Partners (SCF) to the Board as a highly respected strategic
partner with a shared ambition to transform Tekmar as a leading, global
offshore wind services company. The underlying business is in much better
shape than it was two years ago and the business is now on the path to deliver
sustained and improving profitability. The hard work of my colleagues means we
are more in control of our business. This is particularly important at the
current time with uncertainty in energy markets but sets us up well for
significant success ahead. Aligned with this, is the benefit we have as a
balanced business, addressing the needs of the broad offshore energy market as
it transitions to meet the evolving commitments to lower carbon intensity and
net zero targets.
Instability in the offshore wind market has been a feature of 2023. The
pressures created by fiscal and regulatory uncertainty, particularly in the UK
and US, have been well trailed by the media but this has been exacerbated by
supply chain constraints, inflationary pressure, permitting delays and grid
connection and infrastructure shortage. We have been encouraged more recently
to see Governments adjust their subsidy regimes to enable developers to
proceed on a viable basis. Alongside this, projected demand for offshore wind
over the longer-term remains strong with fixed seabed foundations expected to
continue as the dominant technology through until mid-2030's with floating
foundations with dynamic cabling solutions increasing market share from
mid-2030's onwards. As installations become more complex the attractiveness of
our integrated offering becomes stronger. With the backing of SCF, we can,
over time, transform the scale and breadth of our platform, to offer more
strategic and commercial value to our infrastructure partners, the developers
and tier one contractors.
As the offshore wind industry continues to develop, we are being disciplined
in maintaining project margins, with the strong technology capability of
Tekmar's services and products underpinned by our consultancy expertise.
Alongside this, we value the ballast provided by our other energy division,
anchored by Pipeshield, a leading provider of specialised subsea pipeline
protection systems to oil and gas majors and offshore contractors.
We have made substantial progress over the last two years. There has been
uncertainty along the way for our employees, industry partners and
shareholders. This is now behind us and we are continuing to build a stronger
business. We are doing this from a good position in terms or our competitive
standing in the market and we look forward with real confidence given the
scale of the opportunity ahead for Tekmar. On behalf of the Board, I would
like to thank all our staff for their hard work and focus on improving the
Group's performance. I am pleased they can see the fruits of these efforts
coming through and look forward to our strengthened Group delivering on its
full potential.
Chief Executive Officer's Review
Overall, the business made further progress in FY23 in improving operational
and financial performance and delivered results in-line with market
expectations. Importantly, we have stabilised the business, with near
breakeven Adjusted EBITDA a significant improvement on FY22 and FY21 and the
current net assets position strengthened. We are confident we have established
a clear and sustainable path to improving profitability, with the Group
expected to be profitable at the Adjusted EBITDA level in FY24. The primary
objective for the management team in FY24 is on driving consistent operational
performance to deliver improved profitability and cash generation for the
Group. We are doing this in a maturing market environment for offshore wind
which we anticipate should support incremental market improvement in the
current year. Our balanced portfolio across energy markets gives us valuable
diversification as we work with developers and industry partners on de-risking
the delivery of critical energy infrastructure projects and supporting the
energy transition journey.
Review of near-term priorities
Return to sustained profitability
A key feature of these results is the business mix reflected in the Group
reporting an Adjusted EBITDA loss of £0.3m for the year. Marine Civils
delivered Adjusted EBITDA of £3.5m on revenue of £18.3m. This represents a
very strong performance for this division which has become an increasingly
important part of the Group since the acquisition of Pipeshield in 2019.
Marine Civils consistently generates profit and provides diversification for
the Group, which has been particularly valuable given the headwinds and
uncertainty in the offshore wind market over the last couple of years. Our
expectation is for Marine Civils to deliver positive EBITDA in FY24, albeit we
see it as unlikely that it will meet or exceed the contribution in the current
financial year.
The Offshore Energy division by contrast generated an Adjusted EBITDA loss for
the year of £2.1m, with a broadly similar loss across H123 and H223. This
reflects market delays and uncertainties in offshore wind projects and masks
the underlying improvements we have made in this part of the business,
particularly in strengthening the commercial and operating model of our Tekmar
Energy business. Supply chain cost escalation also impacted project margins
for two material contracts, weakening H2 profitability in particular.
Further detail on these legacy contracts is set out in the CFO Review. We are
comfortable any residual exposure for these contracts has been appropriately
addressed such that our expectation is for gross margin percentage for this
division to recover to the mid to high 20s in FY24. This, together with the
anticipated incremental volume growth in offshore wind projects supports our
confidence that Offshore Energy will deliver positive EBITDA in 2024.
Improving the profitability of our Offshore Energy business is an important
marker in demonstrating we are on track to deliver the trajectory of sustained
profit improvement we are driving for the Group. When we then overlay the
positive medium to long term fundamentals of the offshore wind industry, and
our balanced portfolio, we believe Tekmar is well positioned to deliver
sustainable profit growth for shareholders through the medium to long term.
Building a better quality pipeline and order book
Consistent with our profit improvement focus, we are focused on commercial
discipline as we convert the enquiry book into firm orders. New contracts
are being secured at more favourable gross margins at the outset and include
more favourable cost escalation protection and milestone payments to de-risk
the projects for Tekmar.
Our current order book of £19.7m as at 31 January 2024, reflects this
disciplined approach, with a gross margin of 28%. We are seeing the effects of
legacy contracts on margin diminishing in the order book, with 86% of the
January 2024 order book value represented by better forecasted margins on live
projects at a blended 30% margin. There is more we can do here but we are
more in control of our business than we were two years ago.
Our pipeline and enquiry book is healthy across the Group and we are in
discussions with developers and Tier 1 contractors on a number of significant
projects. The main risk to delivering on our expectations for FY24 is the
market environment where delays with decisions, extended negotiations and
project starts continues to be a feature.
On the offshore wind side, we secured an important contract win with an
established Tier 1 contractor announced in January 2024. This contract award
positions us well for future phases of this project, as and when they come to
fruition. We were also selected to deliver our flagship cable protection
systems (CPS) for the 1 GW Hai Long Offshore Wind Farm, situated in Taiwan,
highlighting our presence in APAC. We see APAC as a key near-term growth
market for our offshore wind division.
Our Marine Civils division continues to win significant and profitable
contracts balancing our offshore wind opportunity. This includes building a
strong capability in the Middle East in particular, where we secured £15m of
order intake for FY23, including our grouting services, which we see as an
attractive near-term growth opportunity, where in FY23, Tekmar won contracts
worth over £1.5m.
Customer engagement
With the strategic investment by SCF and related fundraise placing Tekmar on a
stronger financial standing, there is encouraging alignment with our customers
about the leadership role a stronger Tekmar can play in the industry - an
industry which requires the delivery of larger projects requiring more complex
engineering solutions that we are well set up to deliver. As part of this, an
increased focus of the Group is on embedding the Group's engineering
consultancy capability through the lifecycle of projects and on building more
strategic partnerships with our clients. It is worth highlighting that SCF's
diligence at the time they were appraising their investment highlighted the
strength of Tekmar's standing in the industry and the scope to deepen and
expand the services and technology we offer customers and partners. We have a
significant opportunity ahead of us to grow with our customers and help them
support energy transition and to manage the related risk of developing and
managing major infrastructure projects.
As previously reported, we are continuing to support our industry partners to
assess and address some issues relating to legacy Offshore Wind Systems
installed at offshore wind farms. As we have previously highlighted, the
precise cause of the issues are not clear and could be as a result of a number
of factors, such as the absence of a second layer of rock to stabilise the
cables. We remain committed to working with relevant installers and operators,
including directly with customers who have highlighted any issues, to
investigate the root cause and assist with identifying potential remedial
solutions. Whilst this consumes company resource and senior management
attention, it is consistent with our responsible approach to supporting the
industry to resolve these legacy issues.
Strengthening the business
During FY23, we continued to implement our programme of organisational
efficiency and targeted cost reductions. Across the Group there is a continued
focus on improvement and simplification, including full integration of Group
support functions. We also consolidated our early stage design and engineering
resources creating a more efficient base to grow our engineering consulting
offering which is a key focus for the current year. We streamlined the cost
base removing annualised cost of £0.8m, which has helped offset against staff
inflation costs and investment for growth in FY24. In addition, as part of our
discipline to maintain a tight control on costs, we are targeting additional
cost saving benefits in the current year in the region of £500,000 from
supply chain initiatives.
We continue to look for opportunities to further strengthen the business
through more efficient resource allocation.
Targeted investment and capex
We are also adopting a measured approach to capex and investment in the core
business, aligning our resources to opportunities which provide the greatest
near-term benefits. We expect capex for the current financial year to be in
the region of £2m, with approximately half of that covered by investment in
strategic initiatives including product development for our core Teklink cable
protection system and investment in our grouting services in support of
near-term revenue growth with Pipeshield including in the Middle East. We
have identified a number of other strategic investment opportunities, with
funding of these initiatives subject to phasing as cashflow builds to support
the required investment.
M&A to strengthen and broaden the portfolio
With the path to profitability established, we are pursing M&A
opportunities to complement organic growth, including opportunities to build
scale and strengthen the technology and services we offer to our customers.
The ambition is to build a leading global offshore wind services company over
time, and consistent with this, we are alert to the potential value in
acquiring capability that can transition to servicing the needs of the
offshore wind industry over time. Building a stronger platform should, in
turn, create a business which the stock market can value more highly.
We benefit significantly in this M&A context from having SCF as a
strategic partner, where we can leverage their complementary industry
knowledge and investment expertise to help source and execute value-enhancing
acquisitions. We also benefit from SCF's committed £18m funding through the
Convertible Loan Notes, which are targeted to be deployed primarily for
value-enhancing M&A and strategic growth. Having this committed funding
in place puts Tekmar at a distinct advantage, particularly given the current
financing environment for M&A
Market environment
The current instability in offshore wind investment has been a theme that has
been well trailed in the media. Looking beyond the media headlines, 2023 was
actually a record year for offshore wind investment, with market analysts
highlighting Final Investment Decisions ("FID") on projects totalling 12.3 GW
during the year globally (excluding China and cancelled projects). This
followed only 0.8 GW of FID in 2022, the lowest level since 2012 and
highlighting the volume constraints in the market. (Source: TGS - 4C Offshore,
3 January 2024).
The rebound in FID approval for 2023 is clearly a positive for Tekmar. With
the lead-time typically 12-months between a project receiving FID approval and
the contractors and suppliers being awarded contracts, this should support the
return to volume growth for Tekmar over the next 12-18 months. The headline
data does require some caution, however, given the prevailing environment for
ongoing delays to project starts and contract awards post-FID and the residual
risk of subsequent cancellations post-FID. Overall, we see the market moving
in the right direction in 2024 with a more balanced approach to developers and
contractors in managing project risk leading to incremental but sustained
improvement in demand. Longer-term, we see demand for offshore wind
remaining strong with fixed seabed foundations continuing as the dominant
technology through until mid-2030's.
Following a period of underinvestment, the Oil & Gas industry is entering
a new capex cycle, with market conditions expected to remain supportive of an
upturn in global spend over the medium term. Tekmar is well positioned to take
advantage of this forecast growth.
Current trading and outlook
The Board anticipates the Group should return to profitability at the Adjusted
EBITDA level for the current financial year. The absolute level of
profitability will be determined by conversion of the material opportunities
in our pipeline and by the timing of project awards and starts. Whilst timing
remains the key risk to our financial performance in the current environment,
we also remain focused on managing the delivery of existing contracts to
budget and on maintaining a tight control of costs and cash across the
business. Our near-term plans and targeted investments support the opportunity
we have to grow organically across our core markets.
We are alert to the opportunities to complement organic growth through M&A
that can increase our scale and strengthen our services offering across our
end-markets, all consistent with building a leading, global offshore wind
services platform over time. We are fully committed to delivering on the
opportunity ahead for Tekmar to build a platform for sustainable growth and
creating significant value for shareholders.
Alasdair MacDonald
CEO
CFO Review
Following my appointment to the role of CFO in April 2023, having held the
role on an interim basis since December 2022, I am pleased to present the
Financial Review for the Group for the year ended 30 September 2023.
A summary of the Group's financial performance is as follows:
Audited Audited
12M ended Sep -23 12M ended
£m Sep-22
£m
Revenue 39.9 30.2
Gross Profit 9.3 7.0
Adjusted EBITDA((1)) (0.3) (2.3)
(LBT) (9.9) (5.2)
EPS (10.7p) (9.0p)
Adjusted EPS((2)) (4.5p) (8.1p)
(1) Adjusted EBITDA is a key metric used by the Directors.
'Earnings before interest, tax, depreciation and amortisation' are adjusted
for material items of a one-off nature and significant items which allow
comparable business performance. Details of the adjustments can be found in
the adjusted EBITDA section below. Adjusted EBITDA might not be comparable to
other companies.
(2) Adjusted EPS is a key metric used by the Directors and measures
earnings are adjusted for material items of a one-off nature and significant
items which allow comparable business performance. Earnings for EPS
calculation are adjusted for share-based payments, £508k (£nil FY22),
amortisation on acquired intangibles £168k (£605k FY22), Impairment of
goodwill £4,745k (£nil FY22).
On a statutory basis, the Group loss before tax was £9.9m (FY22: £5.2m
loss).
Overview
The Group delivered revenue of £39.9m for the 12-month reporting period, a
32% increase from prior year and continued growth per half year with £22.2m
in revenue delivered in the second half from the £17.7m reported for the
first half. The adjusted EBITDA loss of (£0.3m) was largely in line with
our expectations of being around break-even at this level of trading
profitability. This is a much-improved position from the previous two
reporting years where adjusted EBITDA losses of (£2.3m) and (£2.0m) were
reported for the twelve-month period to September 2022 and the eighteen-month
period to September 2021 respectively. FY23 continued to be a transition
year for the Group as expected, particularly whilst some lower margin backlog
projects continued to be worked through and business improvement measures
continued. The cost base has been carefully managed with further
efficiencies achieved through wider group integration.
Revenue
Revenue by operating segment Revenue by market
£m Audited Audited Unaudited £m Audited Audited Unaudited
12M 12M LTM((1)) 12M 12M LTM((1))
FY23 FY22 FY21 FY23 FY22 FY21
Offshore Energy 21.6 17.4 21.9 Offshore Wind 17.7 14.7 16.8
Marine Civils 18.3 12.8 9.9 Other Offshore 22.2 15.5 15.0
Total 39.9 30.2 31.8 Total 39.9 30.2 31.8
(1) LTM - Last twelve months
It has been encouraging to see revenues grow in both Offshore Energy and
Marine Civils divisions in FY23, by 24% and 43% respectively during the
reporting period.
The Offshore Energy division, incorporating Tekmar Energy, Subsea Innovation,
AgileTek and Ryder Geotechnical, all of which operate largely as a single
unit, has achieved a revenue increase of £4.2m. The growth in offshore wind
contributed to £3m of this increase and was underpinned by revenues from
windfarm developments across a number of key regions for the Group including
Europe and emerging regions in offshore wind such as Asia Pacific and the
United States. The remaining increase in revenue of £1.2m was largely from
work in the Middle East, whereby the Group's brands and track record which has
been established, has enabled further work to be secured with key clients in
the region.
Marine Civils, comprising Pipeshield, saw continued revenue growth for the
12-month period at £18.3m, which is £5.5m higher compared with revenue of
£12.8m for the previous 12-month period. Consistent with prior year, this
growth was achieved through securing and delivering further contracts for both
the core Pipeshield product line as well as a diversified grouting service
line offering, in the Middle East, which continues to be a growth market for
Pipeshield and the wider group demonstrating our regional expansion strategy
is delivering.
Gross profit
Gross profit by operating segment Gross Profit by market
£m Audited Audited Unaudited £m Audited Audited Unaudited
12M FY23 12M LTM((1)) 12M FY23 12M LTM((1))
FY22 FY21 FY22 FY21
Offshore Energy 4.0 4.4 4.4 Offshore wind 4.8 4.2 4.8
Marine Civils 5.3 2.6 2.1 Other offshore 6.1 4.4 3.3
Unallocated costs (1.6) (1.6) (1.6)
Total 9.3 7.0 6.5 Total 9.3 7.0 6.5
(1) LTM - Last twelve months
The gross profit increase of £2.3m reported for the period is driven from the
increase in revenue which is £9.7m higher than the prior 12 months. The
gross profit percentage of 23% remains consistent with the prior year as the
opening order book for FY23 included two, sizable, lower margin offshore wind
contracts awarded in prior periods and have subsequently experienced material
cost escalations from wider macro-economic factors since they were awarded in
2021. This impacted gross profit margin in Offshore Energy division which
fell to 18% from 25% in FY22. Regarding the two Offshore Energy projects
noted above, one was significantly progressed for revenue recognition in FY23
and the other project which runs into early FY25 has appropriate contract loss
provisioning (£0.4m) included in FY23. Management continue to explore
opportunities for margin improvement on this contract over the remaining life
of the project.
Gross profit margin within Marine Civils increased to 29% from 20% in FY22
from the additional scale within the Pipeshield business coupled with
capturing the value of contract variations in the year.
The focus on margin improvement in Offshore Energy remains. Although there
has continued to be pricing pressure on some contracts from opening backlog
delivered in the year, newer contracts, some of which have been delivered
across FY23, have been awarded at improved margins which have been maintained
or improved through contract execution. This expected improved commercial
and operational performance, coupled with increased volume in the market and
the recent improvement in energy strike prices across the industry, paves the
way for the Offshore Energy division to track back to a 30% gross margin in
the next 3 years.
Operating expenses
Operating expenses for the 12-month period to 30 September 2023 were £18.6m
compared to £11.6m for the equivalent 12-month period ending 30 September
2022. The increase of £7.0m relates largely to several one-off items; £4.7m
goodwill impairment relating to the offshore energy CGU as detailed below,
£1.2m foreign exchange differences, a bonus payment of £0.4m was made to
staff upon the successful completion of the Group's strategic review and share
based payments increased by £0.5m, primarily as a result of share awards to
management on the completion of the Group's strategic review. In addition,
there were £0.3m of restructuring costs incurred. The share awards were
approved by shareholders when approving the investment by SCF.
Other cost increases in the year included higher professional fees of £0.2m
which have been offset by staff cost savings of £0.2m (net of inflationary
increase of £0.5m) and £0.3m benefit from lower amortisation expense year on
year.
Adjusted EBITDA
Adjusted EBITDA is a primary measure used across the business to provide a
consistent measure of trading performance. The adjustment to EBITDA removes
material items of a one-off nature or of such significance that they are
considered relevant to the user of the financial statements as it represents a
useful milestone that is reflective of the comparable performance of the
business. Foreign exchange losses and gains form part of the adjustment to
EBITDA, this is due to the significant influence of exchange rate fluctuations
versus the group's reporting currency (GBP) in the first quarter of FY23.
The below table shows the adjustments that have been made to calculate
Adjusted EBITDA in the year ended 30 September 2023.
EBITDA Reconciliation (£m) 12 months Sep-23 12 months Sep-22 18 months
Sep-21
Reported operating (loss)/profit (9.3) (4.6) (5.4)
Amortisation of intangible assets 0.1 0.6 0.8
Amortisation of other intangible assets 0.6 0.5 0.9
Depreciation on tangible assets 0.8 0.9 1.4
Depreciation on ROU assets 0.5 0.5 0.6
EBITDA (7.1) (2.1) (1.8)
Adjusted items:
Share Based Payments 0.5 - (0.4)
Impairment of goodwill 4.7 - -
Exceptional items - Bonus 0.4 - -
Foreign exchange losses & gains 0.9 (0.2) (0.2)
Restructuring costs 0.3 - -
Adjusted EBITDA (0.3) (2.3) (2.3)
The £0.3m adjusted EBITDA loss for the 12 months ended 30 September 2023 was
an improvement of £2.0m when compared to the £2.3m adjusted EBITDA loss for
the 12 months to September 2022 and is a result of the increased gross profit
as above.
Adjusted EBITDA by 6-month period
(Unaudited)
£m 6m 6m 6m 6m 6m 6m
Sep-23 Mar-23 Sep-22 Mar-22 Sep-21 Mar-21
Revenue 22.2 17.7 17.2 13.0 17.9 13.9
Adjusted EBITDA (0.5) 0.2 (0.3) (1.8) (1.8) (1.1)
H2 23 reported an increase revenue of £5m versus the prior 6-month period,
however, adjusted EBITDA (net of FX impacts) was £0.7m lower due to the gross
margin on two offshore energy projects and higher overhead costs of £0.4m
versus H1 23 due to £0.3m professional costs and £0.1m bank charges.
As we work through the remaining lower margin backlog contracts, coupled with
the increased volume in the offshore wind sector, the profitability of the
Group's Offshore Energy division has opportunity to improve going forward, in
support of management's medium-term target of 30% gross margin. The recent
pricing resets starting to be seen in the industry are also likely to support
this direction of travel, however, we are mindful this will take time to fully
take effect.
Adjusted EBITDA by division £m
£m 12M 12M LTM((1))
FY23 FY22 FY21
Offshore Energy (2.1) (1.8) (2.7)
Marine Civils 3.6 1.0 0.9
Group costs (1.8) (1.3) (1.1)
Total (0.3) (2.1) (2.9)
(1) LTM - Last twelve months
Result for the year
The result after tax is a loss of £10.1m (FY22: Loss of £5.2m) and the loss
includes an impairment charge of £4.7m to the value of the goodwill in the
Group's Offshore Energy division. Trading forecasts for the Offshore Energy
division have been reviewed and continue to grow inline with market
expectations for the offshore wind market , however changes in economic
conditions and specifically increases in interest rates have led to a
substantial increase in the group's Weighted average cost of capital (WACC),
increasing from 13.5% FY22 to 15.5% FY23. The increase in the group's WACC
resulted in a deterioration in the future expected cashflows leading to the
impairment being recognised.
Although the Group reports an improvement in adjusted EBITDA of £2.0m and
£0.4m lower depreciation and Amortisation between FY22 and FY23, this is
offset by impacts of one-off items; Share based payments £0.5m, bonus £0.4m,
restructuring costs of £0.3m and the movement in FX impacts of £1.2m.
Foreign currency
The Group has continued to see growth in international markets and, as a
result, this growth increases the Group's exposure to fluctuations in foreign
currency rates. During the year the Group were impacted by foreign exchange
losses of £0.9m. These losses have been accounted for within operating
expenses. In comparison, FY22 had a foreign currency gain of £0.2m.
The Group mitigates exposure to fluctuations in foreign exchange rates by the
use of derivatives, mainly forward currency contracts and options. At the year
end the Group held forward currency contracts to mitigate the risk of
receivables balances for both Euros and Dollars. Any gains or losses on
derivative instruments are accounted for in cost of sales. At the year end the
group had a derivative liability of £20k.
The Group predominately trades in pounds sterling with approximately 17% of
revenue denominated in Euros, 23% denominated in US dollars, and significant
trading in Chinese RMB. On certain overseas projects the Group can create a
natural hedge by matching the currency of the supply chain to the contracting
currency, this helps to mitigate the Group's exposure to foreign currency
fluctuations.
Cash and Balance Sheet
The Group's balance sheet was stabilised in April 2023 following the
conclusion of the strategic review. New capital investment from SCF Partners
and related parties of £4.3m alongside a placing and retail fund raise of
£2.1m raised cash proceeds of £5.3m, net of expenses. In addition, SCF
Partners have committed, with conditions, an additional investment of £18.0m
available through the convertible loan note facility.
The gross cash balance at 30 September 2023 was £5.2m with net debt being
(£1.4m). The Group has extended its CBILs facility of £3.0m for a further 12
months to October 2024 and the trade loan facility of £4.0m, which is
available until at least July 2024, aligning with the annual review date of
the facilities with Barclays Bank. These facilities continue to support the
working capital requirements of the Group in delivering the projects the Group
undertakes. The expected continued renewal of the banking facilities form part
of the directors going concern assumptions.
Of the £4.0m trade loan facility, £3.5m was drawn against supplier payments
at the year end and is repayable within 90 days of drawdown. The FY22
comparative is £4.0m. This balance and the CBILS loan of £3.0m is reported
within current liabilities.
The decrease in operational cashflows of £5.7m were primarily driven by the
increase in the year end trade receivables of £6.4m This position contributed
to a net decrease in cash and cash equivalents of £3.3m in the year.
Inventories reduced by £2.5m in the year, however, net working capital
increased by £3.7m due to a £6.4m increase in trade and other receivables
which rose to £19.7m (FY22: £13.4m). This was driven by specific overdue
debtor receipts in the Middle East and China. The ageing of debtors has
increased across the group due to the specific debts in the Middle East and
China. The group has not provided for any credit loss provisions as these
debts are considered to be recoverable in full based on prior trading history
with these customers.
The Group has continued to enhance its contracting terms and cash collection
processes however, the year-end position was impacted by the timing of certain
material receipts at the year-end related to these regions.
Cash generation continues to be a major focus for the Group. We maintain our
disciplined approach to commercial management and debtor collections whilst
adopting a cautious and considered approach to ongoing organic investment to
support the growth plans of the underlying business.
The business continuously invests in research and development activity. The
highlight during the financial year was the continued development of the next
generation TekLink product in the offshore wind division. A total of £353,000
of Research and Development costs were incurred in year. All costs have been
capitalised as intangible assets under IAS36.
The annual impairment review of the goodwill on the balance sheet has resulted
in an impairment charge of £4.7m which related to the offshore energy
division. As detailed in the P&L commentary, this was predominantly due
to a substantial increase in the Group's weighted average cost of capital
(WACC) which has increased from 13.5% in FY22 to 15.5% in FY23 due to changes
in economic conditions and especially increases in interest rates.
During the year, Tekmar Energy Limited renewed a property lease relating to
its manufacturing facility. The lease value was £1.1m and is accounted for
as a right of use asset under IFRS16, within fixed assets. To preserve cash
during the year a cautious approach has been taken regarding wider investments
and therefore other fixed asset investments were largely in line with
depreciation charges within the year.
A provision of £0.5m has been recognised in the year for onerous contracts.
The group has assessed that the unavoidable costs of fulfilling the contract
obligations exceed the economic benefits expected to be received from the
contract. The provision relates to two contracts in the offshore energy
division which are expected to be largely completed in the year ending
September 2024
A summary balance sheet is presented below:
Balance Sheet
£m FY23 FY22
Fixed Assets 6.8 5.9
Other non-current assets 19.4 24.6
Inventory 2.1 4.6
Trade & other receivables 19.7 13.4
Cash 5.2 8.5
Current liabilities (16.9) (16.9)
Other non-current liabilities (1.7) (0.8)
Equity 34.6 39.2
Summary
The Group has achieved the planned stepped improvement in financial results
for FY23 and our expectations of returning to profitability in FY24 remain.
The completion of the strategic review which culminated in the new capital
investment has reset the balance sheet and allowed the business to move
forward with the organic growth plans previously set out and supported by the
wider opportunity within the energy markets we operate.
The hard work and improvements undertaken by the Group in the last 3 years
provides for a stronger foundation and I look forward with optimism in
supporting the business in its continued growth and return to sustainable
profitability.
Leanne Wilkinson
Chief Financial Officer
Consolidated statement of comprehensive income
for the year ended 30 September 2023
12M 12M
ended ended
Note 30 Sep 30 Sep
2023 2022
£000 £000
Revenue 4 39,908 30,191
Cost of sales (30,608) (23,153)
Gross profit 9,300 7,038
Administrative expenses (18,616) (11,623)
Other operating income 26 24
Group operating (loss) (9,290) (4,561)
Analysed as:
Adjusted EBITDA( 1 ) 4 (323) (2,308)
Depreciation (1,327) (1,370)
Amortisation 6 (763) (1,112)
Exceptional Share based payments charges (508) -
Impairment of goodwill 6 (4,745) -
Exceptional bonus payments (430) -
Foreign exchange (losses)/gains (926) 229
Restructuring costs (268) -
Group operating (Loss) (9,290) (4,561)
Finance costs (637) (685)
Finance income 4 18
Net finance costs (633) (667)
(Loss) before taxation (9,923) (5,228)
Taxation (201) 99
(Loss) for the period (10,124) (5,129)
Equity-settled share-based payments 548 (97)
Revaluation of property - 238
Retranslation of overseas subsidiaries (281) 326
Total comprehensive (loss) for the period (9,857) (4,662)
(Loss) attributable to owners of the parent (10,124) (5,129)
Total Comprehensive income attributable to owners of the parent (9,857) (4,662)
(Loss) per share (pence)
Basic 5 (10.69) (9.04)
Diluted 5 (10.69) (9.04)
All results derive from continuing operations
1: Adjusted EBITDA, which is defined as profit before net finance costs, tax,
depreciation, amortisation, share based payments charge in relation to
one-off awards, material items of a one off nature and significant items
which allow comparable business performance is a non-GAAP metric used by
management and is not an IFRS disclosure.
Consolidated balance sheet
as at 30 September 2023
30 Sep 30 Sep
2023 2022
Note
£000 £000
Non-current assets
Property, plant and equipment 6,808 5,883
Goodwill and other intangibles 6 19,367 24,564
Total non-current assets 26,175 30,447
Current assets
Inventory 2,127 4,623
Trade and other receivables 7 19,734 13,375
Cash and cash equivalents 5,219 8,496
Total current assets 27,080 26,494
Total assets 53,255 56,941
Equity and liabilities
Share capital 1,360 609
Share premium 72,202 67,653
Merger relief reserve 1,738 1,738
Merger reserve (12,685) (12,685)
Foreign currency translation reserve (108) 173
Retained losses (27,854) (18,278)
Total equity 34,653 39,210
Non-current liabilities
Other interest-bearing loans and borrowings 8 834 194
Trade and other payables 327 331
Deferred tax liability 503 313
Total non-current liabilities 1,664 838
Current liabilities
Other interest-bearing loans and borrowings 8 7,046 7,198
Trade and other payables 9,398 9,669
Corporation tax payable 29 26
Provisions 9 465 -
Total current liabilities 16,938 16,893
Total liabilities 18,602 17,731
Total equity and liabilities 53,255 56,941
Consolidated statement of changes in equity
for the year ended 30 September 2023
Share Merger reserve Retained earnings Total equity attributable to owners of the parent Total
capital Share premium equity
Foreign currency translation reserve
Merger
relief
reserve
£000 £000 £000 £000 £000 £000 £000 £000
Balance at 30 September 2021 516 64,097 1,738 (12,685) (153) (13,290) 40,223 40,223
(Loss) for the Period - - - - - (5,129) (5,129) (5,129)
Share based payments - - - - - (97) (97) (97)
Revaluation of fixed assets - - - - - 238 238 238
Exchange difference on translation of overseas subsidiary - - - - 326 - 326 326
Total comprehensive income for the year - - - - 326 (4,988) (4,662) (4,662)
Issue of shares 93 3,556 - - - 3,649 3,649
-
Total transactions with owners, recognised 93 3,556 - - - - 3,649 3,649
directly in equity
Balance at 30 September 2022 609 67,653 1,738 (12,685) 173 (18,278) 39,210 39,210
(Loss) for the Period - - - - - (10,124) (10,124) (10,124)
Share based payments - - - - - 548 548 548
Exchange difference on translation of overseas subsidiary - - - - (281) - (281) (281)
Total comprehensive (loss) for the year - - - - (281) (9,578) (9,857) (9,857)
Issue of shares, net of transaction costs 751 4,549 - - - 5,300 5,300
-
Total transactions with owners, recognised 751 4,549 - - - - 5,300 5,300
directly in equity
Balance at 30 September 2023 1,360 72,202 1,738 (12,685) (108) (27,854) 34,653 34,653
Consolidated cash flow statement
for the year ended 30 September 2023
12M ended 12M Ended
30 Sep 2023 30 Sep 2022
£000 £000
Cash flows from operating activities
(Loss) before taxation (9,923) (5,228)
Adjustments for:
Depreciation 1,327 1,370
Amortisation of intangible assets 763 1,112
Share based payments charge 537 (103)
Impairment of goodwill 4,745 -
Finance costs 552 685
Finance income (4) (18)
(2,003) (2,182)
Changes in working capital:
Decrease / (Increase) in inventories 2,496 (658)
(Increase) / decrease in trade and other receivables (6,360) 4,561
(Decrease) / Increase in trade and other payables (272) 178
Increase in provisions 465 -
Cash (used in) / generated from operations (5,674) 1,899
Tax recovered - -
Net cash (outflow) / inflow from operating activities (5,674) 1,899
Cash flows from investing activities
Purchase of property, plant and equipment (1,012) (618)
Purchase of intangible assets (310) (369)
Proceeds on sale of property, plant and equipment 29 -
Interest received 4 18
Net cash (outflow) from investing activities (1,289) (969)
Cash flows from financing activities
Facility drawdown 11,526 991
Facility Repayment (11,941) -
Repayment of borrowings under Lease obligations (414) (537)
Shares issued 5,300 3,649
Interest paid (505) (345)
Net cash inflow from financing activities 3,966 3,758
Net (decrease) / increase in cash and cash equivalents (2,997) 4,688
Cash and cash equivalents at beginning of year 8,496 3,482
Effect of foreign exchange rate changes (280) 326
Cash and cash equivalents at end of year 5,219 8,496
Lease borrowings in relation to right of use assets have been offset against
the asset additions within cashflows from investing activities.
Notes to the Group financial statements
for the year ended 30 September 2023
1. GENERAL INFORMATION
Tekmar Group plc (the "Company") is a public limited company incorporated and
domiciled in England and Wales. The registered office of the Company is
Innovation House, Centurion Way, Darlington, DL3 0UP. The registered company
number is 11383143.
The principal activity of the Company and its subsidiaries (together the
"Group") is that of design, manufacture and supply of subsea stability and
protection technology, including associated subsea engineering services,
operating across the global offshore energy markets, predominantly Offshore
Wind.
Statement of compliance
The financial information set out in this preliminary announcement does not
constitute the Group's statutory financial statements for the period ended 30
September 2023 or 30 September 2022 as defined in section 435 of the Companies
act 2006 (CA 2006) but is derived from those audited financial statements.
Statutory financial statements for 2022 have been delivered to the Registrar
of Companies and those for 2023 will be delivered in due course. The auditors
reported on those accounts; their reports were unqualified and did not contain
a statement under either Section 498(2) or Section 498(3) of the Companies Act
2006. For the year ended 30 September 2023 and period to 30 September 2022
their report contains a material uncertainty in respect of going concern
without modifying their report.
Selected explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in financial position
and performance of the Group.
Forward looking statements
Certain statements in this Annual report are forward looking. The terms
"expect", "anticipate", "should be", "will be" and similar expressions
identify forward-looking statements. Although the Board of Directors believes
that the expectations reflected in these forward-looking statements are
reasonable, such statements are subject to a number of risks and uncertainties
and events could differ materially from those expressed or implied by these
forward-looking statements.
2. BASIS OF PREPARATION AND ACCOUNTING POLICIES
The Group's principal accounting policies have been applied consistently to
all of the years presented, with the exception of the new standards applied
for the first time as set out in paragraph (c) below where applicable.
(a) Basis of preparation
The results for the year ended 30 September 2023 have been prepared in
accordance with UK-adopted International Accounting Standards ("IFRS"). The
financial statements have been prepared on the going concern basis and on the
historical cost convention modified for the revaluation of Freehold property
and certain financial instruments. The comparative period represents 12 months
to 30 September 2022.
Tekmar Group plc ("the Company") has adopted all IFRS in issue and effective
for the year.
(b) Going concern
The Group meets its day-to-day working capital requirements through its
available banking facilities which includes a CBILs loan of £3.0m currently
available to 31 October 2024 and a trade loan facility of up to £4.0m that
can be drawn against supplier payments, currently available to 31 July 2024.
The latter is provided with support from UKEF due to the nature of the
business activities both in renewable energies and in driving growth through
export lead opportunities. The Group held £5.2m of cash at 30 September 2023
including draw down of the £3.0m CBILS loan and a further £3.6m of the trade
loan facility. There are no financial covenants that the Group must adhere to
in either of the bank facilities.
The Directors have prepared cash flow forecasts to 31 March 2025. The base
case forecasts include assumptions for annual revenue growth supported by
current order book, known tender pipeline, and by publicly available market
predictions for the sector. The forecasts also assume a retention of the
costs base of the business with increases of 5% on salaries and a cautious
recovery of gross margin on contracts. These forecasts show that the Group
is expected to have a sufficient level of financial resources available to
continue to operate on the assumption that the two facilities described are
renewed. Within the base case model management have not modelled anything in
relation to the matter set out in note 21 Contingent Liabilities, as
management have assessed there to be no present obligation.
The Directors have sensitised their base case forecasts for a severe but
plausible downside impact. This sensitivity includes reducing revenue by 15%
for the period to 31 March 2025, including the loss or delay of a certain
level of contracts in the pipeline that form the base case forecast, and a 10%
increase in costs across the Group as a whole for the same period. In addition
the delays of specific cash receipts have been modelled. The base case and
sensitised forecast also includes discretionary spend on capital outlay. The
Directors note there is further discretionary spend within their control which
could be cut, if necessary, although this has not been modelled in the
sensitised case given the headroom already available. These sensitivities
have been modelled to give the Directors comfort in adopting the going concern
basis of preparation for these financial statements. Further to
this, a 'reverse stress test' was performed to determine at what point there
would be a break in the model, the reverse stress test included reducing order
intake by 22.5% and increasing overheads by 15% against the base case. In
addition the delays of specific cash receipts have been modelled. The inputs
applied to the reverse stress are not considered plausible.
Facilities - Within the base case, severe but plausible case and reverse
stress test, management have assumed the renewal of both the CBILS loan and
trade loan facility in October 2024 and July 2024 respectively. In the
unlikely case that the facilities are not renewed, the Group would aim to take
a number of co-ordinated actions designed to avoid the cash deficit that would
arise.
The Directors are confident, based upon the communications with the team at
Barclays, the historical strong relationship and recent bank facility renewal
in November 2023, that these facilities will be renewed and will be available
for the foreseeable future. However, as the renewal of the two facilities in
October 2024 and July 2024 are yet to be formally agreed and the Group's
forecasts rely on their renewal, these events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the Group's and
parent company's ability to continue as a going concern.
The Directors are satisfied that, taking account of reasonably foreseeable
changes in trading performance and on the basis that the bank facilities are
renewed, these forecasts and projections show that the Group is expected to
have a sufficient level of financial resources available through current
facilities to continue in operational existence and meet its liabilities as
they fall due for at least the next 12 months from the date of approval of the
financial statements and for this reason they continue to adopt the going
concern basis in preparing the financial statements.
(c) New standards, amendments and interpretations
The new standards, amendments or interpretations issued in the year, with
which the Group has to comply with, have not had a significant effect impact
on the Group. There are no standards endorsed but not yet effective that
will have a significant impact going forward.
(d) Basis of consolidation
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group and
are deconsolidated from the date control ceases. Inter-company transactions,
balances and unrealised gains and losses on transactions between group
companies are eliminated.
(e) Revenue
Revenue (in both the offshore energy and the marine civils markets) arises
from the supply of subsea protection solutions and associated equipment,
principally through fixed fee contracts. There are also technical consultancy
services delivered through subsea energy.
To determine how to recognise revenue in line with IFRS 15, the Group follows
a 5-step process as follows:
1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when / as performance obligation(s) are
satisfied
Revenue is measured at transaction price, stated net of VAT and other sales
related taxes.
Revenue is recognised either at a point in time, or over-time as the Group
satisfies performance obligations by transferring the promised services to its
customers as described below.
i) Fixed-fee contracted supply of subsea protection
solutions
For the majority of revenue transactions, the Group enters individual
contracts for the supply of subsea protection solutions, generally for a
specific project in a particular geographic location. Each contract generally
has one performance obligation, to supply subsea protection solutions. When
the contracts meet one or more of the criteria within step 5, including the
right to payment for the work completed, including profit should the customer
terminate, then revenue is recognised over time. If the criteria for
recognising revenue over time is not met, revenue is recognised at a point in
time, normally on the transfer of ownership of the goods to the customer.
For contracts where revenue is recognised over time, an assessment is made as
to the most accurate method to estimate stage of completion. This assessment
is performed on a contract by contract basis to ensure that revenue most
accurately represents the efforts incurred on a project. For the majority of
contracts this is on an inputs basis (costs incurred as a % of total
forecast costs).
There are also contracts which include the manufacture of a number of
separately identifiable products. In such circumstances, as the deliverables
are distinct, each deliverable is deemed to meet the definition of a
performance obligation in its own right and do not meet the definition under
IFRS of a series of distinct goods or services given how substantially
different each item is. Revenue for each item is stipulated in the contract
and revenue is recognised over time as one or more of the criteria for over
time recognition within IFRS 15 are met. Generally for these items, an
output method of estimating stage of completion is used as this gives the most
accurate estimate of stage of completion. On certain contracts variation
orders are received as the scope of contract changes, these are review on a
case-by-case basis to ensure the revenue for these obligations is
appropriately recognised.
In all cases, any advance billings are deferred and recognised as the service
is delivered.
ii) Manufacture and distribution of ancillary
products, equipment.
The Group also receives a proportion of its revenue streams through the sale
of ancillary products and equipment. These individual sales are formed of
individual purchase order's for which goods are ordered or made using
inventory items. These items are recognised on a point in time basis, being
the delivery of the goods to the end customer.
iii) Provision of consultancy services
The entities within the offshore energy division also provide consultancy
based services whereby engineering support is provided to customers. These
contracts meet one or more of the criteria within step 5, including the right
to payment for the work completed, including profit should the customer
terminate. Revenue is recognised over time on these contracts using the
inputs method.
Tekmar Group PLC applies the IFRS 15 Practical expedient in respects of
determining the financing component of contract consideration: An entity need
not adjust the promised amount of consideration for the effects of a
significant financing component if the entity expects, at contract inception,
that the period between when the entity transfers a promised good or service
to a customer and when the customer pays for that good or service will be one
year or less.
Accounting for revenue is considered to be a key accounting judgement which is
further explained in note 3.
(f) EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and Amortisation ("EBITDA")
and Adjusted EBITDA are non-GAAP measures used by management to assess the
operating performance of the Group. EBITDA is defined as profit before net
finance costs, tax, depreciation and amortisation. Material items of a
one-off nature or of such significance they are considered relevant to the
user of the financial statements, and share based payment charge in relation
to one-off awards are excluded.
.
The Directors primarily use the Adjusted EBITDA measure when making decisions
about the Group's activities. As these are non-GAAP measures, EBITDA and
Adjusted EBITDA measures used by other entities may not be calculated in the
same way and hence are not directly comparable.
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the Group financial statements under IFRS requires the
Directors to make estimates and assumptions that affect the reported amounts
of assets and liabilities . Estimates and judgements are continually evaluated
and are based on historical experience and other factors including
expectations of future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
The Directors consider that the following estimates and judgements are likely
to have the most significant effect on the amounts recognised in the Group
financial statements.
(a) Critical judgements in applying the entity's accounting policies
Revenue recognition
Judgement is applied in determining the most appropriate method to apply in
respect of recognising revenue over-time as the service is performed using
either the input or output method. Further details on how the policy is
applied can be found in note 2(e).
Product development capitalisation
Group expenditure on development activities is capitalised if it meets the
criteria as per IAS 38. Management have exercised and applied judgement when
determining whether the criteria of IAS 38 is satisfied in relation to
development costs. As part of this judgement process, management establish the
future Total Addressable Market relating to the product or process, evaluate
the operational plans to complete the product or process and establish where
the development is positioned on the Group's technology road map and asses the
costs against IAS 38 criteria. This process involves input from the Group's
Chief Technical Officer plus the operational, financial and commercial
functions and is based upon detailed project cost analysis of both time and
materials.
(b) Critical accounting estimates
Revenue recognition - stage of completion when recognising revenue overtime
Revenue on contracts is recognised based on the stage of completion of a
project, which, when using the input method, is measured as a proportion of
costs incurred out of total forecast costs. Forecast costs to complete each
project are therefore a key estimate in the financial statements and can be
inherently uncertain due to changes in market conditions. For the partially
complete projects in Tekmar Energy at year end if the percentage completion
was 1% different to management's estimate the revenue impact would be
£106,590. Within Subsea Innovation and Pipeshield International there were a
number of projects in progress over the year end and a 1% movement in the
estimate of completion would impact revenue in each by £5,720 and £39,100
respectively. However, the likelihood of errors in estimation is small, as the
businesses have a history of reliable estimation of costs to complete and
given the nature of production, costs to complete estimate are relatively
simple.
The forecast costs to complete also form part of the judgement of management
as to whether a contract loss provision is required in line with IAS37. At
year end a contract loss provision has been recognised for 2 contracts where
the unavoidable costs of meeting the obligations under the contract exceed the
economic benefits expected to be received under it. If the loss making
contracts was 1% different to management's estimate the impact on the loss
making contract provision would be £4,650.
Recoverability of contract assets and receivables
Management judges the recoverability at the balance sheet date and makes a
provision for impairment where appropriate. The resultant provision for
impairment represents management's best estimate of losses incurred in the
portfolio at the balance sheet date, assessed on the customer risk scoring and
commercial discussions. Further, management estimate the recoverability of any
accrued income balances relating to customer contracts. This estimate includes
an assessment of the probability of receipt, exposure to credit loss and the
value of any potential recovery. Management base this estimate using the most
recent and reliable information that can be reasonably obtained at any point
of review. Given the group's historic recoverability of 100% of receivable
balances, no provision for bad debts or credit losses have been accounted for.
The group continues to operate in global markets where payment practices
surrounding large contracts can be different to those within Europe. The flow
of funds on large capital projects within China tend to move only when the
windfarm developer approves the completion of the project. The group has a
number of trade receivable balances, within its subsidiary based in China,
which have been past due for more than 1 year. At 30(th) September 2024 the
value of these overdue trade receivables was £1.4m, of a total outstanding
trade receivable balance for the entity of £2.9m, These amounts remain
outstanding at the approval of the financial statements. Management have not
provided for the trade receivable balance or made a credit loss provision on
the basis that previous trading history sets a precedent that these balances
will be received. Since 2020, the group has traded in China generating
£10.1m of revenue, of which £7.2m has been fully received to date which
represents full cash receipt on older projects. The amounts which remain
outstanding are from more recent projects and none of the values in trade
receivables are in dispute with the customer.
Impairment of Non-Current assets
Management conducts annual impairment reviews of the Group's non-current
assets on the consolidated statement of financial position. This includes
goodwill annually, development costs where IAS 36 requires it, and other
assets as the appropriate standards prescribe. Any impairment review is
conducted using the Group's future growth targets regarding its key markets of
offshore energy and marine civils. Sensitivities are applied to the growth
assumptions to consider any potential long-term impact of current economic
conditions. Provision is made where the recoverable amount is less than the
current carrying value of the asset. Further details as to the estimation
uncertainty and the key assumptions are set out in note 6.
4. REVENUE AND SEGMENTAL REPORTING
Management has determined the operating segments based upon the information
provided to the executive Directors which is considered the chief operation
decision maker. The Group is managed and reports internally by business
division and market for the year ended 30 September 2023.
Major customers
In the year ended 30 September 2023 there were three major customers within
the group that individually accounted for at least 10% of total revenues
(2022: one customer). The revenues relating to these in the year to 30
September 2023 were £13,913,000 (2022: £7,243,000). Included within this is
revenue from multiple projects with different entities within the group.
Analysis of revenue by region 12M ending 12M ending
30 Sep 2023 30 Sep 2022
£000 £000
UK & Ireland 10,146 8,028
Germany 1,133 1,230
Turkey 983 499
Greece - 409
Denmark - 757
Other Europe 1,716 2,721
China 1,676 3,847
USA & Canada 3,006 674
Japan 1,083 561
Philippines 1,157 534
Qatar 8,036 8,716
KSA 6,888 509
Other Middle East 2,152 468
Rest of the World 1,932 1,238
39,908 30,191
Analysis of revenue by market 12M ending 12M ending
30 Sep 2023 30 Sep 2022
£000 £000
Offshore Wind 17,659 14,705
Other offshore 22,249 15,486
39,908 30,191
Analysis of revenue by product category 12M ending 12M ending
30 Sep 2023 30 Sep 2022
£000 £000
Offshore Energy protection systems & equipment 20,119 15,497
Marine Civils 18,320 12,734
Engineering consultancy services 1,469 1,960
39,908 30,191
Note - Engineering consultancy services forms part of the offshore energy
segment
Analysis of revenue by recognition point 12M ending 12M ending
30 Sep 2023 30 Sep 2022
£000 £000
Point in Time 3,922 10,048
Over Time 35,986 20,143
39,908 30,191
At 30 September 2023, the group had a total transaction price £19,462k (2022:
£15,488k) allocated to performance obligations on contracts which were
unsatisfied or partially unsatisfied at the end of the reporting period. The
amount of revenue recognised in the reporting year to 30 September 23 which
was previously recorded in contract liabilities was £3,188k (2022: £1,168k)
Profit and cash are measured by division and the Board reviews this on the Offshore Marine
following basis.
Energy Civils Group/ Total
2023 2023 Eliminations 2023
£000 £000 £000 £000
Revenue 21,588 18,320 - 39,908
Gross profit 3,975 5,326 - 9,301
% Gross profit 18% 29% - 23%
Operating (loss)/ profit (9,554) 2,798 (2,533) (9,289)
Analysed as: (2,087) 3,544 (1,780) (323)
Adjusted EBITDA
Depreciation (1,018) (298) (12) (1,327)
Amortisation (594) - (168) (763)
Share based payments (63) (82) (363) (508)
Impairment of goodwill (4,745) - - (4,745)
Exceptional bonus payments (314) (34) (82) (430)
Foreign Exchange losses (672) (255) 2 (926)
Restructuring costs (61) (77) (130) (268)
Operating (loss)/ profit (9,554) 2,798 (2,533) (9,289)
Interest & similar expenses (55) (10) (569) (634)
Tax 521 (789) 67 (201)
(Loss) / profit after tax (9,087) 1,999 (3,036) (10,124)
Offshore Marine
Energy Civils Group/ Total
2023 2023 Eliminations 2023
£000 £000 £000 £000
Other information
Reportable segment assets 17,391 10,169 25,695 53,255
Reportable segment liabilities (8,175) (3,208) (7,218) (18,601)
The goodwill and other intangible assets allocated to group for the purposes
of internal reporting are £16,445k for Offshore energy and £2,805k for
Marine civils
Offshore Marine
Energy Civils Group/ Total
2022 2022 Eliminations 2022
£000 £000 £000 £000
Revenue 17,455 12,736 - 30,191
Gross profit 4,442 2,596 - 7,038
% Gross profit 25% 20% - 23%
Operating (loss)/ profit (3,405) 789 (1,945) (4,561)
Analysed as: (1,988) 1,020 (1,339) (2,307)
Adjusted EBITDA
Depreciation (1,099) (271) - (1,370)
Amortisation (506) - (606) (1,112)
Foreign Exchange gains 188 40 - 228
Operating (loss)/ profit (3,405) 789 (1,945) (4,561)
Interest & similar expenses (318) (185) (164) (667)
Tax (237) 175 161 99
(Loss) / profit after tax (3,960) 779 (1,948) (5,129)
Offshore Marine
Energy Civils Group/ Total
2022 2022 Eliminations 2022
£000 £000 £000 £000
Other information
Reportable segment assets 19,029 9,541 28,175 57,766
Reportable segment liabilities (5,530) (4,483) (7,631) (17,644)
5. EARNINGS PER SHARE
Basic earnings per share are calculated by dividing the earnings attributable
to equity shareholders by the weighted average number of ordinary shares in
issue. Diluted earnings per share are calculated by including the impact of
all conditional share awards.
The calculation of basic and diluted profit per share is based on the
following data:
12M ending 12M ending
30 Sep 2023 30 Sep 2022
Earnings (£'000)
Earnings for the purposes of basic and diluted earnings per (10,124) (5,219)
share being profit/(loss) for the year attributable to equity shareholders
Number of shares
Weighted average number of shares for the purposes of basic earnings per share 94,694,962 56,719,539
Weighted average dilutive effect of conditional share awards 4,346,203 968,399
Weighted average number of shares for the purposes of diluted earnings per 99,041,164 57,687,938
share
Profit per ordinary share (pence)
Basic profit per ordinary share (10.69) (9.04)
Diluted profit per ordinary share (10.69) (9.04)
Adjusted earnings per ordinary share (pence)* (4.49) (8.06)
The calculation of adjusted earnings per share is based on the following data:
2023 2022
£000 £000
(Loss) for the period attributable to equity shareholders (10,124) (5,129)
Add back:
Impairment of goodwill 4,745 -
Amortisation on acquired intangible assets 168 605
Share based payment on IPO and SIP at Admission 508 -
Exceptional bonus costs 430
Tax effect on above 22 (12)
Adjusted earnings (4,251) (4,536)
*Adjusted earnings per share is calculated as profit for the period adjusted
for amortisation as a result of business combinations, one off items, share
based payments and the tax effect of these at the effective rate of
corporation tax, divided by the closing number of shares in issue at the
Balance Sheet date. This is the measure most commonly used by analysts in
evaluating the business' performance and therefore the Directors have
concluded this is a meaningful adjusted EPS measure to present.
6. GOODWILL AND OTHER INTANGIBLES
Goodwill Software Product development Trade name Customer relationships Total
£000 £000 £000 £000 £000 £000
COST
As at 1 October 2021 26,292 394 3,181 1,289 1,870 33,026
Additions - 16 353 - - 369
Disposals - (116) (34) - - (150)
Forex on consolidation - - 3 - - 3
As at 30 September 2022 26,292 294 3,503 1,289 1,870 33,248
Additions - - 311 - - 311
As at 30 September 2023 26,292 294 3,814 1,289 1,870 33,559
AMORTISATION AND IMPAIRMENT
As at 1 October 2021 4,109 132 1,798 326 1,354 7,719
Charge for the period - 139 367 129 477 1,112
Eliminated on disposals - (116) (34) - - (150)
Forex on consolidation - - 3 - - 3
As at 30 September 2022 4,109 155 2,134 455 1,831 8,684
Amortisation charge for the year - 139 456 129 39 763
Impairment charge 4,745 - - - - 4,745
As at 30 September 2023 8,854 294 2,590 584 1,870 14,192
NET BOOK VALUE
As at 30 September 2021 22,183 262 1,383 963 516 25,307
As at 30 September 2022 22,183 139 1,369 834 39 24,564
As at 30 September 2023 17,438 - 1,224 705 - 19,367
The remaining amortisation periods for software and product development are 6
months to 48 months (2022: 6 months to 48 months).
Goodwill has been tested for impairment. The method, key assumptions and
results of the impairment review are detailed below:
Goodwill is attributed to the CGU being the division in which the goodwill has
arisen. The Group has 2 CGUs and the goodwill related to each CGU as disclosed
below.
Goodwill 2023 2022
£000 £000
Offshore Energy Division 14,848 19,593
Marine Civils Division 2,590 2,590
Goodwill is allocated to two CGUs being Offshore Energy and Marine Civils.
Goodwill has been tested for impairment by assessing the recoverable amount of
each cash generating unit. The recoverable amount is the higher of the fair
value less costs to sell (FVLCD) and the value in use. The value in use has
been calculated using budgeted cash flow projections for the next 4 years. A
terminal value based on a perpetuity calculation using a 2% real growth rate
was then added. The next 4 years forecasts have been compiled at individual
CGU level with the forecasts in the first 2 years modelled around the known
contracts which the entities have already secured or are in an advanced stage
of securing. A targeted revenue stream based on historic revenue run rates has
then been incorporated into the cashflows to model contracts that are as yet
unidentified that are likely be won and completed in the year. The forecasts
for year 3 and year 4 are based on assumed growth rates for each individual
entity, the total growth rate for the group (CAGR 13.5%) are in line with
expected market rate. The value in use calculation models an increase in
revenue for the offshore energy division of 16% across year 3 and year 4 and
then 2% into perpetuity. The growth rates for year 3 and 4 are comparable to
the expected market CAGR. The group has used the fair value less costs to sell
as the estimate of recoverable amount for one subsidiary of the offshore
energy division, as the FVLCD was in excess of the value in use.
The cashflow forecasts assume growth in revenue and profitability across the
Group. These growth rates are based on a combination of business units
returning to previously experienced results combined with externally generated
market information. The discount rates are consistent with external
information. The growth rates shown are the average applied to the cash flows
of the individual cash generating units and do not form a basis for estimating
the consolidated profits of the Group in the future.
In addition to growth in revenue and profitability, the key assumptions used
in the impairment testing were as follows:
· Gross Margin % returning towards FY20 levels for offshore energy
division
· A post tax discount rate of 15.5 % WACC (FY22 13.5%) estimated using a
weighted average cost of capital adjusted to reflect current market assessment
of the time value of money and the risks specific to the group
· Terminal growth rate percentage of 2% (FY22: 2%)
The discount rate used to test the cash generating units was the Group's
post-tax WACC of 15.5%. The goodwill impairment review has been tested
against a reduction in free cashflows. The Group considers free cashflows to
be EBITDA less any required capital expenditure and tax.
The value in use calculations performed for the impairment review, together
with sensitivity analysis using reasonable assumptions, indicate sufficient
headroom for the goodwill carrying value in the Marine Civils CGU.
The value in use calculations have a range of assumptions, which if changed
would lead to a change in the impairment charge recognised. To assess these
changes management have run a model which sensitises the assumption on EBITDA
generated in the offshore wind division. Management believes that the offshore
wind division will grow faster than market rates in FY24 and FY25 due to
contract visibility, however if the product sales in the offshore wind GCU
only grows in line with market CAGR of 16% for the forecast period, the
impairment charge in offshore wind division would be £12,136,000 as opposed
to the £4,745,000 recognised in the financial statements for FY23. Similarly
if the revenues generated in the consultancy business fell by 10% against the
base case for the forecast period, the impairment charge in Tekmar Limited
would increase to £5,979,000.
Management has considered the most likely worst-case scenario in the Marine
Civils CGU to be to be a reduction in free cashflows to 80% of the base case.
Under this sensitivity test sufficient headroom was available to support the
carrying value of goodwill in the Marine Civils CGU.
Further sensitivity analysis performed by management shows that free cashflows
would have to reduce to 27% (Marine Civils) of forecasted base case values to
trigger an impairment of goodwill. The post-tax discount rate of 15.5% would
need to increase to 54% in Marine Civils to trigger an impairment of goodwill.
Management do not consider either of these scenarios to be likely.
All amortisation charges have been treated as an expense and charged to cost
of sales and operating costs in the income statement.
7. TRADE AND OTHER RECEIVABLES
30 Sep 30 Sep
2023 2022
£000 £000
Amounts falling due within one year:
Trade receivables not past due 2,963 2,698
Trade receivables past due (1-30 days) 4,822 1,948
Trade receivables past due (over 30 days) 5,547 3,279
Trade receivables not yet due (retentions) 650 1,620
Trade receivables net 13,982 9,545
Contract assets 4,628 3,194
Other receivables 328 203
Prepayments and accrued income 796 433
19,734 13,375
Trade and other receivables are all current and any fair value difference is
not material. Trade receivables are assessed by management for credit risk
and are considered past due when a counterparty has failed to make a payment
when that payment was contractually due. Management assesses trade
receivables that are past the contracted due date by up to 30 days and by over
30 days.
The carrying amounts of the Group's trade and other receivables are all
denominated in GBP, USD, EUR and RMB.
There have been no provisions for impairment against the trade and other
receivables noted above. The Group has calculated the expected credit losses
to be immaterial.
The group continues to operate in global markets where payment practices
surrounding large contracts can be different to those within Europe. The flow
of funds on large capital projects within China tend to move only when the
windfarm developer approves the completion of the project. The group has a
number of trade receivable balances, within its subsidiary based in China,
which have been past due for more than 1 year. At 30(th) September 2024 the
value of these overdue trade receivables was £1.4m, of a total outstanding
trade receivable balance for the entity of £2.9m, These amounts remain
outstanding at the approval of the financial statements. Management have not
provided for the trade receivable balance or made a credit loss provision on
the basis that previous trading history sets a precedent that these balances
will be received. Since 2020, the group has traded in China generating
£10.1m of revenue, of which £7.2m has been fully received to date which
represents full cash receipt on older projects. The amounts which remain
outstanding are from more recent projects and none of the values in trade
receivables are in dispute with the customer.
8. BORROWINGS 30 Sep 30 Sep
2023 2022
£000 £000
Current
Trade Loan Facility 3,575 3,990
Lease liability 471 208
CBILS Bank Loan 3,000 3,000
7,046 7,198
Non-current
CBILS Bank Loan - -
Lease liability 834 194
834 194
2023 2022
£000 £000
Amount repayable
Within one year 7,049 7,198
In more than one year but less than two years 327 144
In more than two years but less than three years 290 39
In more than three years but less than four years 214 11
In more than four years but less than five years - -
7,880 7,392
The above carrying values of the borrowings equate to the fair values.
2023 2022
% %
Average interest rates at the balance sheet date
Lease liability 5.60 3.25
Trade Loan Facility 7.50 3.75
CBILS Bank Loan 7.50 2.40
The CBILS Bank Loan was renewed in October 2023 and is due for maturity on 31
October 2024, The trade Loan Facility has been renewed post year end and is
due for Maturity on 31 July 2024, as described in note 2b.
Lease liability
This represents the lease liability recognised under IFRS 16. The assets
leased are shown as a right of use asset within Property, plant and equipment
(note 12) and relate to the buildings from which the Group operates, along
with leased items of equipment and computer software.
The asset and liability have been calculated using a discount rate between
3.25% and 6% based on the inception date of the lease.
These leases are due to expire between May 2024 and August 2028.
9. PROVISIONS
All provisions are considered current. The carrying amounts and the movements
in the provision account are as follows:
Onerous contracts
£000 Total
£000
Carrying amount at 1 October 2022 - -
Additional provision 465 465
Amounts utilised - -
Reversals - -
Carrying amount at 30 September 2023 465 465
The provision recognised in the year ending 30 September 2023 is for onerous
contracts. The group has assessed that the unavoidable costs of fulfilling the
contract obligations exceed the economic benefits expected to be received from
the contract. The provision relates to two contracts in the offshore energy
division which are expected to be completed in the year ending September 2024.
10. CONTINGENT LIABILITIES
Contingent liabilities are disclosed in the financial statements when a
possible obligation exists, the existence will be confirmed by uncertain
future events that are not wholly within the control of the entity. Contingent
liabilities also include obligations that are not recognised because their
amount cannot be measured reliably or because settlement is not probable.
As noted by the Group in prior public announcements, there is an emerging
industry-wide issue regarding abrasion of legacy cable protection systems
installed at off-shore windfarms. The precise cause of the issues are not
clear and could be as a result of a number of factors, such as the absence of
a second layer of rock to stabilise the cables. The decision not to apply this
second layer of rock, which was standard industry practice, was taken by the
windfarm developers independently of Tekmar. Tekmar is committed to working
with relevant installers and operators, including directly with customers who
have highlighted this issue, to investigate further the root cause and assist
with identifying potential remedial solutions. This is being done without
prejudice and on the basis that Tekmar has consistently denied any
responsibility for these issues. However, given these extensive uncertainties
and level of variabilities at this early stage of investigations no
conclusions can yet be made.
Tekmar have been presented with defect notifications for 10 legacy projects on
which it has supplied cable protection systems ("CPS"). These defect
notifications have only been received on projects where there was an absence
of the second layer of rock traditionally used to stabilise the cables.
At this stage management do not consider that there is a present obligation
arising under IAS37 as insufficient evidence is available to identify the
overall root cause of the damage to any of the CPS. Independent technical
experts have been engaged to determine the root cause of the damage to the
CPS, Tekmar have reviewed the assessments and concluded that a present
obligation does not exists.
Management acknowledges that there are many complexities with regards to the
alleged defects which could lead to a range of possible outcomes. Given the
range of possible outcomes, management considers that a possible obligation
exists which will only be confirmed by further technical investigation to
identify the root cause of alleged CPS failures. As such management has
disclosed a contingent liability in the financial statements.
Tekmar has received a further 2 defect notifications in relation to alleged
defects with the loosening of VBR fasterners. The precise cause of the
issues are not clear and could be as a result of a number of factors, such as
the incorrect placing of rock bag shielding and restraint. Tekmar is committed
to working with relevant customers, to investigate further the root cause and
assist with identifying potential remedial solutions. This is being done
without prejudice and on the basis that Tekmar has denied any responsibility
for these issues. However, given these extensive uncertainties and level of
variabilities at this early stage of investigations no conclusions can yet be
made.
At this stage management do not consider that there is a present obligation
arising under IAS37 as insufficient evidence is available to identify the
overall root cause of the damage to any of the CPS. Independent technical
experts have been engaged to determine the root cause of the damage to the CPS
and upon completion of these technical assessments, Tekmar will review the
assessment as to whether a present obligation exists. Given the range of
possible outcomes, management considers that a possible obligation exists
which will only be confirmed by further technical investigation to identify
the root cause of alleged CPS failures. As such management has disclosed a
contingent liability in the financial statements.
Management acknowledges that there are many complexities with regards to the
alleged defects which could lead to a range of possible outcomes. Given the
range of possible outcomes, management considers that determining whether a
possible obligation exists, can only be confirmed by further technical
investigation to identify the root cause of alleged CPS failures. As such
management has disclosed a contingent liability in the financial statements.
Tekmar has received a further defect notification in relation to incorrect
coating specification on 1 historic project. This defect notification is in
relation to units which had not yet been installed and have been recoated post
year end at no cost to Tekmar. There are a number of units which have been
installed in relation to the same legacy project which may have the incorrect
coating specification. At this stage management do not consider that there
is a present obligation arising under IAS37 as insufficient evidence is
available to identify whether any unresolved defects exist. Given the range
of possible outcomes, management considers that determining whether a possible
obligation exists, can only be confirmed by further technical investigation to
identify any further units which have may not have been coated to the correct
specification. As such management has disclosed a contingent liability in the
financial statements.
Tekmar Group plc has taken exemption under IAS37, Paragraph 92 to not disclose
information on the range of financial outcomes, uncertainties in relation to
timing and any potential reimbursement as this could prejudice seriously the
position of the entity in a dispute with other parties on the subject matter
as a result of the early stage of discussions.
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