Tekmar Group P. Regulatory News (TGP)

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.

TEKMAR GROUP PLC

("Tekmar Group", the "Group" or the "Company")

FINAL RESULTS

For the 18-month period ending 30 September 2021

Tekmar Group (AIM: TGP), a leading provider of technology and services for the global offshore energy markets, announces its audited final results for the 18-month period ending 30 September 2021 ("FY21" or the "Period"), reflecting the extended financial year to 30 September 2021 as previously announced in October 2020.

Highlights

· Major Cable Protection System ("CPS") projects secured and/or delivered globally, including increased volume manufactured and exported to China and first Generation 10 CPS delivered and installed subsea

· Various contract awards in support of the Offshore Wind Operations & Maintenance (O&M) market, including the delivery of first significant O&M scope

· Secured and delivered largest Marine Civils project to date in Canada

· Established strategic partnership in the US in preparation for project activity anticipated with the emerging US offshore wind industry and to enhance Tekmar Group's floating wind offering

· Established local entities in the UAE and Kingdom of Saudi Arabia, supported by a plan for expansion in the Middle East

· Middle East expansion progressing with various contract awards, including a $10m award for pipeline support and protection for a major subsea customer (announced January 2022)

· Selected for Dogger Bank Offshore Wind Farm, when delivered will be the largest Global Offshore Wind Project (announced December 2021)

· The Group held £3.5m of cash at 30 September 2021 including full draw down of the £3.0m CBILS loan and a further £3.0m trade loan facility

· Post year end, the Group extended its CBILs facility to October 2022 and extended and increased the trade loan facility to £4.0 million, which is available at least to November 2022

The above contract awards highlight the breadth and depth of our offering and supports growth in our order book to £20.3m as at the end of December 2021, which is the largest we have reported since our admission to AIM.

Key financials

Sales KPIs

Near-term outlook

As the Company highlighted in its trading update on 21 October 2021, the dislocation to global trade flows has continued to act as a near-term headwind across the industry. However, whilst Tekmar is not immune to these industry-wide pressures, and it is difficult to assess when these pressures will abate, the Board is greatly encouraged by the operational progress the Company is making towards delivering its strategic goals announced at the 2021 CMD, supported by the record £20.3m order book as at end December 2021 and broader pipeline of activity.

In terms of financial performance for the current year, the Board continues to see 2022 as a transition year for Tekmar and the industry. The Board expects revenues for the 12 months to 30 September 2022 to be ahead of the 12-month equivalent of approximately £32m for the period to 30 September 2021, and for revenues to be strongly weighted to the second half of the financial year. Management's visibility on this weighting is supported by a number of significant secured project awards which are expected to contribute materially to revenues for the second half of FY22. This includes, inter alia, the USD 10 million contract announced in January 2022, the bulk of which is planned to be delivered in the second half of FY22, in addition to meaningful contributions from the Dogger Bank project, opportunities in China and two further O&M contracts we have been awarded.

Alasdair MacDonald CEO of Tekmar Group, said:

"We continue to see 2022 as a transition year for Tekmar and the industry, although we are encouraged by our own momentum, with our record order book of £20.3m, and the improving activity levels across the industry.

We have announced a number of landmark contracts that highlight the strategic progress we are making through diversification and regional expansion and reinforcing Tekmar's leading position as a trusted partner to customers. We have strengthened the leadership team in-line with our focus on establishing a stronger engineering culture across the business. We are investing in our technology and applied engineering offering and embedding a number of changes to our systems and processes to improve the way we run the business. The industry investment in our core markets provides significant forward opportunity for us, and we believe, the market will increasingly look for the integrated, engineering led solutions and services which differentiates our offering.

Whilst cautious on the environment in the very near-term, the market outlook is very positive and we believe we are on a path consistent with the trajectory we have set out to restore sustained profitable growth from 2023 in line with our longer-term ambitions for the company."

Notes:

Enquiries:

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.

Subscribe to further news from Tekmar Group at Group News.

Chairman's Statement

It is my pleasure to introduce the 2021 Report to shareholders, which covers the extended 18-month financial period to 30 September 2021. Whilst this is my first report as Chairman, I have been on the Board of Tekmar since its admission to AIM in 2018 and have over 20 years' experience within the Renewables and Offshore energy market. The reason for highlighting this is to give context to the comments I make in this introduction.

The market environment in which we are currently operating is in many ways unprecedented in its "double-edged" nature. We have an industry which is maturing, and needs to mature, in the offshore environment and a critical call to action with Net Zero by 2050, which is focusing the minds of governments, the energy industry, the global finance community and society more broadly. This presents a clear opportunity for Tekmar to be part of the industry response, highlighted by the over 200 GW increase in offshore capacity expected to be installed by 2030, from a current installed base globally of 40 GW. The recent ScotWind auction is a case in point, where we are also seeing floating offshore wind as an important part of the mix. These types of complex offshore and subsea installations are moving closer to the near-term horizon and increasingly will play to Tekmar's strengths as we continue our transition as an engineering solutions led company.

It is my conviction that this is increasingly what the industry needs, today and into the future. When I think about the capability we have across our business - to analyse, simulate and understand the subsea environment, to use our technology and engineering capability to provide strategic solutions, and to build on our industry learnings as a critical part of the offshore supply chain for over 30 years, I see a tremendous opportunity ahead for Tekmar. The great work of the team, involving collaboration across the business, in securing our role to provide the cable protection strategy to DEME Offshore in support of the Dogger Bank wind farm, shows the critical importance of our understanding and of our differentiated approach.

Set against this, and as has been widely observed, current market conditions are tough across the industry. Obviously, the protracted impact of the pandemic has caused significant disruption across global logistics with rapid raw material cost inflation also hurting the supply chain. A further consequence has been significant delays to project FIDs, or Final Investment Decisions, which affects our pipeline and resource planning. A personal observation is the industry needs to encourage governments to smooth the flow of offshore wind projects in construction. In the UK, for example, more frequent Contracts for Difference (CfD) auctions will strengthen the stability and visibility for the UK's increasingly valuable offshore supply chain, giving them the confidence to invest to maintain industry leadership and create valuable jobs. This is particularly important when you consider the pressure being exerted on the supply chain as the offshore wind industry transitions to a sustainable and competitive levelised cost of energy, or LCoE.

Tekmar, of course, is more than a supplier of product to the offshore wind industry. It's important to emphasise in this context, and is a key feature of the results we are reporting, the success of the acquisitions we have made in making us more resilient to the offshore wind market and in building our sub-sea expertise. We are a more balanced business as a result of these acquisitions and they position us to offer valuable, integrated solutions to our customers.

This has been a challenging period for our people who are steering us through significant change as well as dealing with the personal hardships of the pandemic. On behalf of the Board, I would like to thank all our staff for their resolute hard work and dedication in focusing on supporting the Group's performance alongside playing their role in building on Tekmar's strong foundations to improve our business. During the period, Alasdair MacDonald took over the CEO role, having assumed the role of Executive Chair on a temporary basis following the resignation of James Ritchie-Bland. The appointment of Ally as CEO was made in October 2020, following the Nomination Committee's extensive and rigorous formal process. Derek Bulmer also joined the Board as CFO in June 2021, ensuring a smooth transition from Sue Hurst, who retired after 10 years in the role. We would like to reiterate our thanks to James and Sue for their considerable contribution in growing Tekmar.

Whilst we are not reporting the financial performance we would want to for this period, it is a function of the broader environment, which has not been easy for the best part of two years. Ally and the new team are doing a great job of responding to these conditions alongside restructuring the business to the new environment. I have no doubt that Tekmar's position in this huge market makes the hard work worth it, and we appreciate the support of our shareholders as we see this come to fruition.

Julian Brown

Non-Executive Chairman

Chief Executive Officer's Review

Change, opportunity and a stronger engineering culture. This has been our focus as a business since I took over the role of Executive Chairman and subsequently Group CEO in 2020. Tekmar is at a pivotal stage as a company - we have built strong foundations and have a market opportunity in our offshore wind and subsea markets that is striking in its scale. As Julian highlighted in his introduction, the industry is changing, with a maturing industry alongside technology transition as installations and ongoing maintenance become more complex and challenging. This is positive for Tekmar and we are using our expertise to provide the industry leading solutions in our field, giving customers what they need to adapt to this changing environment. Our role in providing the cable protection strategy for Dogger Bank, set to be the world's largest offshore wind farm, underscores the scale of the opportunity ahead of us and validates how our integrated approach is resonating with the market

To make sure we capture this opportunity fully Tekmar is changing. We highlighted in our capital markets day ("CMD") in July 2021 that we would drive through a number of business improvement initiatives to enable us to benefit from more predictable, higher quality earnings and improved cash generation, based on a stronger, engineering led culture. We also highlighted this would involve a transition period for the business through 2022 as we prepared the business for significant order book growth, which we anticipate flowing through to accelerated revenue growth from FY23 onwards. Our view on the trajectory of growth in the market remains very positive over the mid-to long term, supporting the ambitions we outlined at the CMD. This view is supported by visibility on planned offshore wind construction projects, with over 200GW of new capacity by 2030, and by broader market indicators and industry analysis. We share this analysis with investors, with key industry analysis provided in this Report and summarised in the Markets section below.

There has been considerable change in the business through the 2021 financial period and this change continues. There has been significant change in personnel, with key roles strengthened to align with our core values as an engineering solutions-led business. We are prioritising investment in our technology, product and services offering and strengthening our processes, systems and control. Our sales strategy has been reshaped with greater focus on higher margins rather than volume and more robust governance procedures during a bid process. We are embedding a more disciplined framework in managing commercial risk and strengthening the technical content of proposals with dedicated engineering resource. The above examples give an illustration of the type of changes we are making to strengthen the business, but we are doing a lot more across key areas such as Organisation Leadership & Culture, Engineering Solutions & Organisation, Commercial Risk Management and Project Execution.

At our capital markets day, we set out our growth plan and our ambition to double organic revenue over the next five years and to deliver a sustainable mid to high teens EBITDA margin in the later years of the plan. M&A complements organic growth under the plan, building on the valuable acquisitions we have made. Acquisition candidates will share a similar customer base to our existing portfolio and support diversification into new products, markets or regions, aligned with our major opportunities in offshore wind and the subsea environment.

We came to market in 2018 as a business best known as the market leading provider of offshore wind cable protection systems. A key priority since IPO has been to diversify as an engineering services business that combines our technology and product capability. The acquisitions of Subsea Innovation, Ryder Geotechnical and Pipeshield accelerated this diversification and these businesses are now fully integrated and offer a lot of value to our group, both financially and also strategically. Under our strategic plan, we see the opportunity to drive significant growth by building on these strong foundations and diversifying further into the offshore wind industry and subsea environment.

Financial performance and operational review

This was a challenging financial period for Tekmar, with Covid related disruption a factor across the extended 18-month period from April 2020 to September 2021. Derek reviews the financial performance and position in his commentary, but from my perspective, whilst clearly it is disappointing to report an adjusted EBITDA loss of £2.1m, I do believe as a business we responded to these challenges as well as we could reasonably expect in what has been and remains a difficult market environment.

We are an operationally geared business, and the profitability impact of lower volumes has been exacerbated for Tekmar by the operational challenges in the current market. We covered the substance of these challenges in our October trading update - the dislocation to global trade flows, challenges with shipping goods for delivery, supply chain constraints and cost control pressures. A related challenge is short term delays to projects and lengthy tender and bid processes, with some projects taking 12 or more months to secure. Whilst this adds uncertainty to our business planning and pipeline visibility, and the prevailing market environment remains difficult across the supply chain, we do think it highlights the more prudent approach the industry is moving towards and that this plays to the strengths of our integrated, solutions-led offer.

We have made good progress in FY21 and into FY22 in securing a number of landmark contracts in line with our strategic plan:

· We are diversifying into the growing O&M market, with various contract awards in support of Offshore Wind Operations and Maintenance projects. This includes an ongoing landmark project providing O&M solutions to a UK offshore wind farm

· We are extending our geographical reach, targeting regional growth in-line with market expectations of future growth, including China where we generated approximately £7m in revenue in FY21 through our Shanghai base

· Our Marine Civils division has secured two transformational contracts, expanding our reach in North America and the Middle East, with the latter contract announced in January 2022 worth in excess of $10m, the largest contract Tekmar has secured to date

· We are successfully evolving our commercial proposition in sub-sea cable protection, where we have all group companies working on engineering solutions supporting our holistic and differentiated cable protection strategy offering. Recent contract wins, including Dogger Bank, demonstrate the combined value of the group in addressing the complex engineering challenges of the subsea environment

· A contract award with Van Oord to supply Tekmar's Cable Protection System ("CPS") for the Baltic Eagle offshore wind farm in the Baltic Sea, Germany 

· A partnership agreement with DeepWater Buoyancy announced in August 2021, which supports Tekmar's ambition for the global floating wind market and the US fixed offshore wind market

· A contract award from EPC contractor to design, build and supply an Emergency Pipeline Repair System for a subsea project in Qatar

· A contract award from EPC contractor to manufacture and supply concrete mattresses for a subsea project in the UK

These contract awards and related pipeline activity highlight a healthy level of forward visibility, with the Company reporting an order book at the end of December 2021 of £20.3 million, which is the highest order book value the Company has reported since its admission to AIM. This order book helps to support a broader pipeline of opportunity which the Company estimates to be in the region of £100 million. In addition to the £20.3 million order book, the Company estimates visible projects at advanced bid and bid stage to be in the region of £25 million, with the remainder representing a reasonable level of visibility through typical run-rate activity the Company expects to see and visible projects which have not yet reached the bid stage.

We continue to engage constructively with industry partners to help assess the legacy issues relating to cable installation which has had some industry prominence in the last 12 months. We see this as a wider industry issue that we are well set up to support as demonstrated on recent contracts where we have all group companies working on engineering solutions in support of cable protection strategies, utilising our analytical and engineering capability, alongside our subsea and offshore wind expertise. Whilst we are managing this as part of our commitment to responsibly supporting our customers, the learnings complement our existing expertise and capability and supports our strategic initiative to further diversify across the wider lifecycle of offshore wind projects, including our growing O&M capability, where Tekmar's technical understanding can be of real value to our customer.

Market

The global market for offshore wind, the Group's core market, continues to strengthen and we are encouraged by the UK Government's initiatives to support UK content within the UK sector. Most notably:

· Projected global demand increasing from a fully commissioned capacity of 41GW to projected global capacity of over 244GW (starting offshore construction) by 2030, with project visibility on over 300 projects globally

· The UK has committed to quadrupling its offshore wind capacity from 10GW to 40GW in the next 10 years, presenting a sizable growth opportunity for the Group in our home market

· The US is targeting 30GW installed offshore wind capacity by 2030, broadly equivalent to existing global installed offshore wind capacity

· Sixfold increase in global demand for subsea power cables, one of Tekmar's key service and technology application, with over 100,000km of cable expected to be installed globally by the end of 2030 compared to less than 17,000km which were installed by the end of 2020.

· China, Europe and the US will dominate the offshore wind markets within the decade, markets which Tekmar is already supplies and is well-positioned to benefit from future growth

Global floating wind industry is expected to grow at a commercial scale from 2025 with 14GW of floating offshore wind capacity forecast to be installed or underway globally by 2030.

Sustainability and People

Fundamental to the delivery of our ambitions are the contribution our people make, along with the impact we have on the environment, our local communities and the wider world. We have invested considerable time over the last year to develop specific People and ESG strategies and these are detailed in our Sustainability Report.

I would also like to extend my thanks to the team at Tekmar. Managing change can be difficult and I recognise the last two years have been particularly demanding for the team and the scale of change has been significant. It will take time for the benefits of this change programme to be reflected in the financial performance of the business but the plan is working and we are building a stronger business that can continue to deliver real value to our customers. We have a great team in place and I look forward to continuing the journey with you and thank you for your effort and commitment.

Near-term Outlook

As the Company highlighted in its trading update on 21 October 2021, the dislocation to global trade flows continues to act as a near-term headwind across the industry. However, whilst Tekmar is not immune to these industry-wide pressures, and it is difficult to assess when these pressures will abate, the Board is greatly encouraged by the operational progress the Company is making towards delivering its strategic goals announced at the 2021 CMD.

The Company has announced a number of significant contract wins over the course of the last six months, highlighting the progress the Company is making towards diversification and regional expansion, and reinforcing Tekmar's leading position as a trusted partner to customers. Of particular note is the partnership with DEME Offshore, announced in December 2021, contracting Tekmar to design, manufacture and supply Cable Protection Systems (CPS) for the Dogger Bank Wind Farm, which is set to become the world's largest offshore wind farm by capacity.

These recent contract wins highlight the commercial momentum which has developed across the business, demonstrating that customers are recognising the value of Tekmar's integrated and engineering led-services. This momentum is particularly important in the current financial year, as the Board aims to complete the transition period in FY22, ahead of restoring sustained profitable growth, achieving margin improvement and broadening the Company's growth strategy to strengthen its position in FY23 and beyond.

In terms of financial performance for the current year, the Board expects revenues for the 12 months to 30 September 2022 to be ahead of the 12-month equivalent of approximately £32m for the period to 30 September 2021, and for revenues to be strongly weighted to the second half of the financial year. Management's visibility on this weighting is supported by a number of significant secured project awards which are expected to contribute materially to revenues for the second half of 2022. This includes, inter alia, the USD 10 million contract announced in January 2022, the bulk of which is planned to be delivered in the second half of 2022, in addition to meaningful contributions from the Dogger Bank project, opportunities in China and two further O&M contracts we have been awarded through our Subsea Innovation business.

Final perspective

We continue to see 2022 as a transition year for Tekmar and the industry, although we are encouraged by our own momentum, with our record order book of £20.3m as at the end of December 2021, and the improving activity levels across the industry.

We have announced a number of landmark contracts that highlight the strategic progress we are making through diversification and regional expansion and reinforcing Tekmar's leading position as a trusted partner to customers. We have strengthened the leadership team in-line with our focus on establishing a stronger engineering culture across the business. We are investing in our technology and applied engineering offering and embedding a number of changes to our systems and processes to improve the way we run the business. The industry investment in our core markets provides significant forward opportunity for us, and we believe, the market will increasingly look for the integrated, engineering led solutions and services which differentiates our offering.

Whilst cautious on the environment in the very near-term, the market outlook is very positive and we believe we are on a path consistent with the trajectory we have set out to restore sustained profitable growth from 2023 in line with our longer-term ambitions for the company.

Alasdair MacDonald

CEO

Chief Financial Officer's Review

It is my pleasure to present my first Financial Review for the Group and I would like to start by thanking Sue Hurst for her input and commitment as my predecessor CFO.

A summary of the Group's financial performance is as follows:

· Adjusted EBITDA is a key metric used by the directors. Earnings before interest tax depreciation and amortisation are adjusted certain non-cash and exceptional items. Details of the adjustments can be found in the adjusted EBITDA section below.

· Adjusted EPS is a key metric used by the Directors and measures earnings after adjusting for non-recurring items. Earnings for EPS calculation are adjusted for share-based payments (£364k FY21) and amortisation on acquired intangibles (£1,128k FY21).

On a statutory basis Group loss before tax was £5.8m (FY20: £2.0m profit).

Overview

As has been well documented in prior announcements, the Group has been subject to the significant impacts of the Covid pandemic. As the market has reacted and the constraints of the pandemic took hold, the Group has seen revenue at £47.0m for the extended 18-month reporting period, effectively a fall to a 12-month equivalent of just below £31.3m, down near 23.5% on the 12-months to 31 March 2020. The business has seen cost pressures and inefficiencies driven by these lower volumes, supply chain and logistics matters. This together with a more challenging operating environment across the industry has seen gross profit fall from 30.0% for the prior period to 24% for the current period. As a result Adjusted EBITDA has fallen to a loss of £(2.1)m (FY20: profit of £4.7m).

Despite these challenges of the COVID-19 pandemic, some of which the impacts will flow into the transition year of FY22, we presented the Groups strategic plan to investors in the Capital Markets Day of 22nd July 2021, setting out the significant medium and long term prospects of the Group. This driven by the expansion in offshore wind energy from 33GW to over 238GW by 2030, drawing from the engineering and technology base of the Group, supplemented by the acquisitions on complementary technologies and products during 2018 and 2019.

The Group has seen two significant contract awards announced during late 2021 and early 2022. The contract at Dogger Bank, the world's largest offshore windfarm, with DEME Offshore was followed by a $10m contract to provide pipeline support and protection materials for a major subsea construction project in the Middle East. As noted in the contract announcement for Dogger Bank, such awards support the Group's strategic plan as we work through ongoing challenges that make for a more challenging near-term environment for the industry in terms of managing costs, contract delivery and associated payment cycles.

Revenue

Offshore Energy, incorporating Tekmar Energy, Subsea Innovation, AgileTek and Ryder Geotechnical, all of which operate largely as a single unit, saw revenue severely impacted by the protracted and ongoing effects of the pandemic, with revenue at £33.8m for 18-months compared to £37.8m for the previous 12-month period. Towards the latter part of the reporting period a significant number of despatches were successfully delivered with our contracts into China, despite the many challenges, with that region seeing revenue of £7.0m (FY20: £1.1m). This division also saw its first significant O&M contract delivered in a project providing a fix and secure solution to our client's failed system that had been supplied by a competitor to the Group.

Marine Civils, largely comprising Pipeshield, saw revenue for the 18-month period at £13.2m (FY20: £3.1m). In the prior period for FY20, much of the division became part of the Group only halfway through the year following the acquisition of Pipeshield in October 2019, so in effect compares an 18-month period to a six-month period. The larger part of the underlying growth was driven by a contract of in excess of £4m to design, engineer, and manufacture a subsea scour protection solution for a major quay development project.

Gross profit

Gross profit reduced in the year due to a change in project mix along with the impact of COVID-19, where cost pressures and inefficiencies driven by lower volumes, supply chain and logistics matters, plus a more challenging operating environment under pandemic restrictions saw gross profit fall to 24% (FY20: 30%).

Within Offshore Energy, gross profit fell to 24% (FY20: 30%) and within Marine Civils, gross profit fell to 23% (FY20: 35%) due to the impacts noted above. Offshore Energy was particularly impacted due to lower volumes of sales as it carries fixed manufacturing costs of an annual equivalent of £2m. Further, this division incurred costs supporting investigations to support our customers in the industry wide infield cable protection issues caused by the movement of the CPS over the rock-scour protection installed on the seabed.

Operating expenses

Operating expenses for the 18-month period to 30 September 2021 was £16.7m (FY20: £10.2m). The pro rate equivalent for 12 months being approximately £11.2m, indicating an annual, like for like increase of £1.1m, driven by the full year impacts of the Marine Civils division.

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 certain non-cash and exceptional items to provide a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the cash costs of the business. The Board reviews all exceptional items to ensure resulting Adjusted EBITDA achieves this. For the 18-month period ended 30 September 2021 and the comparable 12-month period to 31 March 2020, the adjustment includes share-based payment charges relating to the IPO options and SIP schemes launched at IPO costs. Further adjustments relate to the acquisition activities and the amortisation on the acquired intangible assets for Pipeshield during FY20.

Profit

The result after tax is a loss of £5.4m (FY20: Profit £2.0m) due mainly to a fall in revenue and reduction in gross margin on a pro-rate basis as set out above.

Foreign currency

We delivered four offshore wind contracts in Euros this year and purchased forward currency transactions to mitigate the risk of currency movements on payment milestones. The closing rate for revaluation of Euro balances at the year end was 1.1306 (FY20: 1.1605).

Balance Sheet

Fixed Assets

Fixed asset investments were largely in line with depreciation levels with an overall modest decrease of £0.2m. There was no major capital expenditure project or disposal in the period.

Other non-current assets

Goodwill of £22.2m includes the goodwill arising on the original management buy-out of Tekmar Energy Limited in 2011 of £19.6m. The balance relates to the acquisitions of Subsea Innovation during FY19 and Pipeshield during FY20.

Trade and other receivables

Trade and other receivables fell to £18.0m (FY20: £26.8m) due largely to the fall in revenue levels discussed earlier in this review. The high levels of debtors and accrued income relative to revenue reflects the large number of contracts across the Group, including in Offshore Energy into China, plus the major contracts within the Marine Civils division where project milestones were towards the end of the reporting period, or the projects were not yet due for invoicing.

Cash

Cash balance at the period end to 30 September 2021 was £3.5 million. The Group has extended its CBILs facility of £3.0 million for a further 12 months to October 2022 and has also worked with its relationship bank Barclays, together with UK Export Finance, to introduce an additional trade loan facility of £4.0 million, which is available at least to November 2022. This provides the Group with capacity to fund growth and the flexibility to support the working capital requirements typical in delivering the type of contracts that it undertakes in this industry.

Cash continues to be a major focus of the Group as we monitor and manage the working capital lifecycle across projects. We have strengthened much of the business systems surrounding contracting, project management and accounts receivable to drive greater transparency and integration amongst functions and also established dedicated credit control functions. We strongly believe that these enhanced systems will drive greater fluidity in contract lifecycles and cash collection.

Trade and other payables

Trade and other payables fell to £12.5m (FY20: £16.6m) due partly to the fall in revenue levels. Within the FY21 balance of £12.5m, £3.0m relates to a Trade Loan Facility with Barclays Bank which is drawn against supplier payments and is repayable within 90 days of drawdown. Additionally, the balance at 30 March 2020 included £2.75m of deferred consideration due under the Pipeshield acquisition of October 2019, due across two tranches with the first payment of £1.5m being made in April 2020 and the balance of £1.25m in October 2020.

Other non-current liabilities

Other non-current liabilities are £3.7m (FY20: £1.1m), with the increase due to the drawdown and renewal of the £3.0m CBILs facility noted above within the Cash section. Other amounts relate to lease liabilities in relation to IFRS16, deferred grant income and £0.3m in deferred tax liability relating to the Pipeshield acquisition in 2019.

Whilst the above results for the 18-month period to 30th September 2021 represent a disappointing financial performance during the era of the pandemic and some industry wide challenges, I feel it important to thank the team that have worked with such outstanding levels of commitment and professionalism. With the enhancement of business systems and controls ongoing and currently being executed and the significant market opportunity for offshore wind, I look forward with cautious optimism. I say this, not just because of the market opportunity, but because of the quality of the team that I lead and the Board that I am a part of. It is our absolute commitment to drive value in this business through high quality practices and strong values and cultures.

Derek Bulmer

CFO

Consolidated statement of comprehensive income

for the 18M period ended 30 September 2021

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, and exceptional items is a non-GAAP metric used by management and is not an IFRS disclosure.

Consolidated balance sheet

as at 30 September 2021

Consolidated statement of changes in equity

for the 18M period ended 30 September 2021

Consolidated cash flow statement

for the 18M period ended 30 September 2021

Notes to the Group financial statements

for the 18 month period ended 30 September 2021

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 2021 or 31 March 2020 as defined in section 435 of the Companies act 2006 (CA 2006) but is derived from those audited financial statements. Statutory financial statements for 2020 have been delivered to the Registrar of Companies and those for 2021 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 period ended 30 September 2021 their report contains a material uncertainty in respect of going concern without modifying their report.

The financial information for the year ended 31 March 2020 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The previous auditors have reported on those accounts and expressed an unmodified audit opinion which did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

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 group consolidated financial statements for the 18 months ended 30 September 2021 have been prepared in accordance with international accounting standards in conformity with companies act 2006 ("IFRS). The financial statements have been prepared on the going concern basis and on the historical cost convention modified for the revaluation of certain financial instruments.

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 2022 and a trade loan facility of up to £4.0m that can be drawn against supplier payments, currently available to 30 November 2022. 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 £3.5m of cash at 30 September 2021 including full draw down of the £3.0m CBILS loan and a further £3.0m 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 30 September 2023. 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 inflationary increases of 2% 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.

Given the planned recovery of the Group from the impacts of the Covid-19 pandemic and recognising the significant market opportunity for growth in the market for off-shore energy, the Directors have sensitised their base case forecasts for a severe but plausible downside impact. This sensitivity includes reducing revenue by 15% for the year to 30 September 2022, including the loss or delay of a certain level of contracts in the pipeline that form the base case forecast, and a 15% increase in costs across the group as a whole for the same period. The base case forecast also includes discretionary spend on capital outlay which has been withheld in the sensitised case. In addition, 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.

Based on this assessment, 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.

Facilities

Within both the base case and severe but plausible case, management have assumed the renewal of both the CBILS loan and trade loan facility in November 2022. 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 2021, that these facilities will be renewed and will be available for the foreseeable future.

However, as the renewal of the two facilities in October and November 2022 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.

(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 subsea 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 PO'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.

The Group has a number of revenue transactions which are generally contracted with customers using purchase orders. There is generally one performance obligation for each order and the transaction price is specified in the order. Revenue is recognised at a point in time as the customer gains control of the products, which tends to be on delivery.

(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. Exceptional items and share based payment charges are excluded from EBITDA to calculate Adjusted EBITDA.

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.

(g) Exceptional costs

The Group presents as exceptional costs on the face of the income statement, those significant items of expense, which, because of their size, nature and infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the underlying financial performance in the period, so as to facilitate comparison with prior years and assess trends in financial performance more readily.

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

(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

As described in note 2, 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 using input method

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 £123,926. 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 £78,065 and £86,250 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.

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 AROC 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. A material change in the facts and circumstances could lead to a reversal of impairment proportional to the expected cash inflows supported by this information.

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, such as the impact caused by the COVID-19 pandemic. 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 11.

4. 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 and has changed the composition of its reportable segments for the year ended 30 September 2021 to reflect this. The change in segmental reporting gives a more accurate representation of the combined entity product offering across the group. The previous period was reported as four reportable segments being the separate business entities.

Major customers

In the period ended 30 September 2021 there was One major customers within the offshore energy segment that individually accounted for at least 10% of total revenues (2020: two customers). The revenues relating to these in the period to 30 September 2021 were £7,123,000 (2020: £11,079,395). Included within this is revenue from multiple projects with different entities within each customer.

At 30 September 21, the group had a total transaction price £9,724k (2020: £10,056k) 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 period to 30 September 21 which was previously recorded in contract liabilities was £991k (2020: £570k)

Profit and cash are measured by division and the Board reviews this on the following basis.

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:

*Adjusted earnings per share is calculated as profit for the period adjusted for amortisation as a result of business combinations, exceptional 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. TRADE AND OTHER RECEIVABLES

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. The derivative financial asset relates to forward foreign currency contracts.

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.

7. BORROWINGS