Tekmar Group P. Regulatory News (TGP)

TEKMAR GROUP PLC

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

UNAUDITED INTERIM RESULTS

For the 6-month period ending 31 March 2023

Tekmar Group (AIM: TGP), a leading provider of technology and services for the global offshore energy markets, announces its half year results for the 6-month period ending 31 March 2023 ("H1 2023" or the "Period").

Headlines

The Group's financial performance is improving and is in-line with management expectations for the Period

· Revenue of £17.7m (HY22: £13.0m) with strong growth across both Offshore Energy (37%) and Marine Civils (35%) divisions, compared with prior year comparator

· Gross profit margin for the Period increased to 28% (HY22: 22%), driven by strong variation and commercial management

· Adjusted EBITDA loss of £0.6m (HY22: loss of £1.8m), attributable to non-cash FX movement of £0.8m during the Period. Excluding this FX loss Adjusted EBITDA is £0.2m, reflecting stronger underlying trading performance and enhanced margins.

· On a like for like basis, excluding FX gain of £149k in HY22 and £0.8m loss in HY23, there is a £2.2m improvement in underlying trading EBITDA YoY

· On a statutory basis Group loss before tax was £1.8m (HY22: £3.2m loss)

· Expect business to break even at an Adjusted EBITDA level for the current financial year, with revenue in the region of £40m, of which over 90% is already secured

Record order book and recent landmark contract awards highlight the appeal of Tekmar's differentiated and engineering-led solutions, and an improving market environment for commissioning offshore energy projects

· In December 2022, selected to design, manufacture and supply 172 Cable Protection Systems (CPS) for Dogger Bank C Offshore Wind Farm, following the previously announced Dogger Bank A & B contracts, which when delivered is expected to be the world's largest global offshore wind project

· Awarded US$10m of contract in January 2023 for pipeline support and protection for a major subsea customer in the Middle East

· £5m contract awarded in May 2023 to design, manufacture and supply Cable Protection System Solution ("CPS") for delivery in 2024

· The above contract awards support growth in the order book to £26m as at the end of May 2023, a record high for the Group

Business stabilised and balance sheet significantly strengthened

· In April 2023, the Group successfully completed an equity fundraise with SCF and other shareholders totalling £5.2m, net of expenses. This significantly strengthened the cash position of the Group post period end

· Ongoing strategic partnership with SCF, with Colin Welsh and Steve Lockard appointed to the Board and additional investment of £18m available through the committed convertible loan note facility ("CLN")

· Cash on the balance sheet of £3.7m as at 31 March 2023, with net debt of £3.3m as the £3m CBILs Loan and the £4m trade Loan were fully drawn. This excludes the fundraising and CLN facility referenced above. Cash on the balance sheet as at end of May 23 was £2.8m with net debt of £1m. The £3m CBILs loan continued to be fully drawn and £0.8m of the £4m trade loan was drawn. 

H1 2023 financials

Sales KPIs

 Alasdair MacDonald, CEO, commented: 

"We are delighted to have successfully concluded the strategic review process, welcoming SCF as a highly complementary strategic partner and significantly strengthening the balance sheet with the fundraise we completed in April. With our lower risk, lower cost and differentiated offering resonating strongly with the industry, the business can look forward now with real confidence to leveraging our lead position as the market accelerates its investment in offshore wind through 2030. Our near-term priority remains restoring profitability to the business, creating a solid platform to drive further profitable growth as the business scales, supported by investment, to create a leading offshore energy products and services business. As we complete this transition, we continue to expect the business to break even at an Adjusted EBITDA level for the current financial year, with revenue in the region of £40m, ahead of the business generating positive Adjusted EBITDA in FY24." 

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.

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INTERIM REPORT FOR THE 6 MONTHS TO 31 MARCH 2023

CEO overview

A key priority for me since assuming the role of CEO has been to stabilise the business and restore profitability as we transition the Group to a stronger engineering-led culture that sets the business up for sustained success, delivering lower installed cost and lower risk solutions as a leading offshore energy products and services business. Today we are reporting an Adjusted EBITDA loss of £0.6m, when adjusted for non-cash FX headwinds of £0.8m, this provides an underlying trading performance of £0.2m Adjusted EBITDA profit. For the 12-month period to September 2022 we reported a loss at the Adjusted EBITDA level of £2.1m, being a loss of £1.8m for H1 and £0.3m for H2; a £2.9m loss was reported for the 12 month period to September 2021. The financial performance for the second half of 2022 and the first half of 2023 illustrates the actions we have undertaken to stabilise the business are working. It is particularly encouraging to see the improved financial trajectory coming through given the transition has been undertaken through a period of industry headwinds, compounded by the impact of legacy contracts on gross margin, and the Group's relatively weak balance sheet. With the successful conclusion of the strategic review completed in April 2023, the strategic partnership with SCF and the related fundraise, the stability of the business has been secured and we can look forward with renewed confidence. Now our attention is firmly focused on driving the profitability of the business through operational improvements, and winning in the market, leveraging our strong reputation in the industry and working closely and effectively with our valued customers and partners.

Review of near-term priorities

Return to Sustained Profitability. We are currently over 18 months into a programme of business wide improvement initiatives in areas such as engineering discipline, project risk management, contract negotiations and sales effectiveness, disciplined cash management, supply chain strategy and operational excellence. With the benefit of the recent investment, we are taking the opportunity to target further efficiency gains across the business. We are developing a number of action plans on this, including greater integration, and we will update the market further on these plans in due course. These initiatives are all in support of our defined wider group strategy to strengthen our integrated, engineering-led offering and gross margin stabilisation and profit improvement. Strengthening the core business today, allows the operating leverage of the business to drive a step-change in profitability as volume growth accelerates reflecting a strengthening market outlook.

Building a better quality pipeline and order book.  As we focus on restoring sustainable profitable growth for the business, we are encouraged by the strength of our enquiry book, which is consistent with a recovering market, and are seeing signs of improving supply chain pricing to acceptable margin levels. We are seeing the strengthening of the market, with larger volumes of enquiries in the market converting into orders, supporting the record order book of £25.7m as at May 2023.

Consistent with our margin improvement focus, we are focused on commercial discipline and leveraging our technology leadership to capture more favourable project economics as we convert the enquiry book into firm orders. New contracts are being secured at more favourable project margins at the outset and include more favourable cost escalation protection and milestone payments to de-risk the projects for Tekmar. We are encouraged by the progress here in securing lower risk projects and our opportunity to partner with the tier 1 contractors and developers to address lower risk, lower installed cost solutions for complex engineering projects as the offshore wind market develops and matures.

Cash flow and liquidity. We have strengthened the liquidity position of the Group but remain focused on a disciplined approach to cash, working capital management and improved cash generation. Cash used in operations in the first half of £3.8m reflects short term working capital requirements which are expected to unwind over the course of the year. We are also in discussion with our relationship bank relating to the renewal of our existing trade and CBILs facilities, with these discussions progressing in line with planned timeframes.

Customer and employee engagement. A consequence of running a strategic review process is that it creates uncertainty for customers, employees and partners. Employee engagement remained high through the period and the successful conclusion has re-energised confidence across the Group. All employees were awarded a cash bonus of £1,000 in recognition of their considerable efforts in supporting the business through the period of strategic review.

Customer engagement has been an area of focus for the senior leadership group, and we have prioritised making sure customers understand the positive consequences of securing the strategic investment from SCF and how this transforms the future prospects of the Group whilst maintaining Tekmar's identity as an independent partner in the industry. There is mutual excitement 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 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.

In addition, we have introduced new solutions for customers and have embedded the industry learnings to support our superior technical offering for new installations alongside using our expertise and capability to support clients across the wider lifecycle of offshore wind projects. This supports our aim to diversify into the opex market whilst offering our customers a lower risk solution and a lower installed cost through our industry leading knowledge.

Leadership. Leanne Wilkinson has been appointed as Group CFO, having assumed the role of interim CFO in December 2022. Leanne has been with the business since June 2020, is a highly capable finance leader with a deep understanding of the business and was recruited with a view to assuming the role of CFO in time. Additionally, the team has been further strengthened with Bill Boyle joining the Group as Chief Commercial Officer, effective April 2023. I have known Bill for three decades and he brings great industry experience and a track record as a leader in global energy services businesses.

We are also benefitting from the high calibre additions of Colin Welsh and Steve Lockard to the Board, as representatives of SCF. Colin is a Partner of SCF and brings extensive global energy sector expertise, including through his role as Head of International Energy Investment Banking at Simmons & Company International prior to joining SCF in 2017. Colin's track record in the industry as an adviser and investor in building valuable companies is a major asset for us to draw on. Steve brings over 35 years of experience in global operations leadership and has been an operating partner of SCF since 2021 where he supports energy transition investments and company platform building, both highly relevant to the journey Tekmar is on. He brings great industry perspective on building valuable businesses in the global wind and broader energy industry, including through his roles at NASDAQ-quoted TPI Composites, where he was formerly CEO and is current Chairman, and where he led the company's transformation from a New England based boat builder to the largest independent global wind blade manufacturer. He is also an advisor to Keystone Tower Systems, an innovative manufacturer of wind turbine towers.

Recap of the Strategic Investment and Partnership with SCF.

We are excited to be partnering with SCF and look forward to delivering the value of this partnership on the public market for the benefit of all investors and stakeholders. SCF and Tekmar have a shared ambition to build a top tier global offshore wind services company, through the company's core organic growth strategy and, at the right time, through acquisitive growth. The investment by SCF is a major catalyst for creating this growth platform and by any measure is transformational for the future prospects of the Group. The Board also recognised the exceptional track record of SCF, built over 30 plus years, in supporting value creation in offshore energy companies.

It is also worth highlighting that SCF identified Tekmar as the business of choice for building a global, offshore wind services platform. This recognised Tekmar's market leading position in the industry and also reflects the diligence undertaken by SCF to validate the growth opportunity and Tekmar's strong standing in the industry, particularly with its customers.

Alongside the initial equity investment of £4.275m through SCF (investing through SCF-IX L.P.) and Steve Lockard, SCF Partners has also committed up to a further £18m investment through the creation of the CLN. The CLN is intended to provide the Company with funding for the primary purpose of financing acquisition-led growth, although is also available to finance significant organic growth initiatives that are consistent with the Group's strategic plan. Accordingly, the CLN is an effective mechanism of providing medium-term visibility of growth funding for the Company and creates a "war-chest" to be deployed as and when appropriate to drive acquisition led growth.

Market overview

The global market for offshore wind, the Group's core market, continues to strengthen as energy markets are aligned to the commitment of the United Nation's global coalition for net-zero emissions by 2050. Most notably:

· Global capacity is forecast to reach over 269GW (installed or underway) by 2030, from a commissioned capacity of 59.2GW today, with current visibility of over 300 projects. (1)

· Continued energy security concerns triggered by Russia's invasion of Ukraine, with many countries accelerating their renewable energy agenda.

· Over 47% of projects entering construction by 2035 are forecast to be in the UK, US and China, markets where Tekmar is already active and well-positioned to benefit from future growth. (1)

· The global operation and maintenance (O&M) market continues to scale up and is now valued at £19.5bn per year by 2035, offering significant growth potential for the Group. (1)

· The emerging floating wind market outlook is now at 13.9GW, installed or underway by 2030, motivated by a requirement to cut carbon emissions and reduce dependency on Russian energy. (1)

Adjacent offshore energy markets are strengthening due to renewed investment in offshore energy markets given the importance of energy security.

Current trading and outlook support our confidence in meeting previously set expectations

The financial performance of the business, for the first half of the current financial year was in-line with expectations. Trading remains satisfactory so far in the second part of the year, such that the Board's expectation continues to be for the business to break even at an Adjusted EBITDA level for the current financial year, with revenue in the region of £40m, of which over 90% is already secured. The effects of existing legacy contracts on margin begin to diminish in FY23 and as a result of improved contractual and commercial discipline, the Board continues to expect the business to generate positive Adjusted EBITDA in FY24.

Post period-end events

On 20th April 2023, the Company announced a £4.275m initial investment by SCF and Steve Lockard and a placing and retail offer of £2.1m with the company shareholders, together with a committed £18m convertible loan note facility from SCF. This concluded the Formal Sale Process and the Strategic Review which commenced in June 2022.

On 31 May 2023, the Company announced a contract award with a total value in excess of £5m for the design and supply of Tekmar Group's flagship Generation 10 cable protection system (CPS) product and associated ancillaries, helping to consolidate the Group's strong position in the growing offshore wind market.

On 21st June 2023, the Company announced the appointment of Leanne Wilkinson as Chief Financial Officer (CFO). Leanne had held the post of Interim CFO since 1st December 2022 and has been with the Group since June 2020.

Alasdair MacDonald

CEO

21 June 2023

Sources:

(1) 4C Offshore, Offshore Wind Farms Project Opportunity Pipeline Database, Version Q1 2023

Financial review

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

(1) 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.

(2) 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 amortisation on acquired intangibles (£104k HY23, £376k HY22).

(3) Net cash reflects total cash in bank less cash borrowings (trade loan facility and CBILS). The £10.4m cash balance at Mar 22 included an overpayment from a customer of £5.2m, resulting in an inflated cash position.

On a statutory basis Group loss before tax was £1.8m (HY22: £3.2m loss). 

Overview

The results for the 6 months to 31 March 2023 are in-line with the Board's expectations as the Group has begun to see the anticipated recovery from the challenging trading period of the previous two financial years, along with the continued benefits of cost saving initiatives. The Group reported revenue for the 6-month period to March 2023 of £17.7m, which is an increase of 36% when compared to the 6-months to 31 March 2022. Costs have continued to be monitored closely and the improvements in commercial management and project execution which were embedded in FY22 have resulted in a continued gross profit margin per cent improvement from 22% for the 6-months to 31 March 2022 to 28% for the 6-months to 31 March 2023. An adjusted EBITDA loss of £0.6m is reported for the 6-months to 31 March 2023, which includes a £0.8m FX loss due to unfavourable forex movements. Adjusting for this non-cash item, the group delivered positive Adjusted EBITDA of £0.2m for the period. In comparison, the period to the 6-months to 31 March 2022 reported an adjusted EBITDA loss of £1.8m and an adjusted EBITDA loss of £2.0m when adjusted for a £149k FX gain. The Adjusted EBITDA improvement, when adjusted for the non-cash FX gains and losses, was a positive variance of £2.2m when compared to the comparator period. This was driven by the £4.7m higher revenue at an improved gross profit margin.

As announced on 20th April 2023, the Group successfully raised £6.4m (£5.2m net of expenses) through an initial strategic investment by SCF, alongside a placing and retail offer with existing shareholders. The proceeds of the investment and placing have been used to strengthen the balance sheet and will help support the delivery of the strategic plan as the business embarks on its transition to sustained profitable growth.

Revenue

Offshore Energy, incorporating Tekmar Energy, Subsea Innovation, AgileTek and Ryder Geotechnical, all of which operate largely as a single unit, has started to see growth due to volume with revenue in the period increasing to £10.7m (HY23) from £7.8m (HY22).

The Marine Civils division has seen an increase in revenue of £1.8m, up from £5.2m for the comparative 6-month period to £7.0m for the 6-months to 31 March 2023. This growth is reflective of the size and volume of contracts the Group is winning in this important market, particularly in the Middle East region.

Gross profit

Gross profit margin for the group increased from 22% (HY22) to 28% (HY23). This is due primarily to improvements in the Marine Civils division increasing margins from 19% (HY22) to 34% (HY23). This was achieved by the Marine Civils team securing new contracts at higher margins, coupled with strong commercial and contract management resulting in good traction on variation orders where project scope change has been encountered.

Within Offshore Energy, gross profit margin remained stable at 24%, although gross profit increased as a direct result of increased volume in this division. Gross profit improvement plans continue to be in place to address the required increase in margin in this division. However, due to the duration of the contracts within this division, it will take some time to see the improvements in full until some of the current backlog is completed in the coming months. Due to quality of the recent order intake and the business improvements in place, the Board consider the planned gross profit margin improvement is tracking in line with expectations.

Operating expenses

Operating expenses for the 6-month period to 31 March 2023 were £6.6m (HY22: £6.0m). The negative variance relates to adverse forex movements from a gain of £149k in HY22 to a cost of £784k in HY23. Adjusting for the forex impacts, there has been an underlying reduction in operating expenses of £0.3m between HY22 and HY23, achieved by careful management of the group cost base whilst transitioning the business back to profitability.

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 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 6-month period ended 31 March 2023 and the comparable 6-month period to 31 March 2022, the adjustment includes depreciation and amortisation only. 

Improvements in EBITDA reflect a growth in revenue and gross margin in the period, along with cost savings in operating expenses, offset in part by unfavourable foreign exchange movements.

Profit

The result after tax is a loss of £1.8m (HY22: Loss £3.2m, FY22: Loss £5.1m). The improvement versus the comparator is due mainly to an increase in revenue and gross margin as set out above.

Balance Sheet

Fixed Assets

Fixed asset investments were largely in line with depreciation levels. Additions in the period included £1.0m relating to the renewal of the Newton Aycliffe Manufacturing facility lease in Tekmar Energy, otherwise there were no other major capital spends 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 and Pipeshield. 

Inventory

Inventory on the balance sheet grew by £2.5m to £5.6m compared to £3.1m at HY22 due to an increase in work-in-progress in Pipeshield relating to the mobilisation of the large Middle East contracts awarded in HY23.

Trade and other receivables

Trade and other receivables grew to £18.8m (HY22: £15.8m) due largely to an increase in accrued income in-line with the increase in revenue in the period, as discussed earlier in this review.

Within the above, trade receivables balance remained broadly in-line with the prior period (£11.3m HY23 v £11.6m HY22) which reflects the improvements in the strengthening of our contracting process and credit control function as despite a growth in revenue, a reduction in the balance has been achieved.

Accrued income has increased to £6.0m (HY22: £1.9m). The majority of the HY23 balance is expected to be invoiced by Jun-23. As an offset, deferred income balance is £5.5m which reflects the improved commercial terms and project milestone payments the business has been able to secure.

Cash

Cash balance at the period end to 31 March 2023 was £3.7 million offset by bank borrowings of £7m resulting in net debt of £3.3m. HY22 cash balance of £10.4m included a £5.2m overpayment by a customer and included £3.7m net proceeds from the Firm Placing and Open Offer which completed in March 2022.

Cash continues to be a major focus of the Group as we monitor and manage the working capital lifecycle across projects. In addition to establishing a dedicated credit control function, further work was undertaken in FY22 which strengthened much of the business systems surrounding contracting, project management and accounts receivable which has drove greater transparency and integration amongst functions. An increasingly common client base across the group also helps leverage credit control processes particularly in geographies with typically slower payment cycles.

Cash used in operations in the first half of £3.8m reflects short term working capital requirements which included the mobilisation of two large Middle East contracts with local supply chain. These contracts had sizable upfront milestones which were billed at the half year and represented around £3.8m of the £5.5m deferred income balance, however, as at end of March had not yet crystallised into cash.

On 20 April 2023 the Group successfully completed a strategic investment which secured an initial investment from SCF and other shareholders totalling £6.4m (£5.2m net of transaction expenses), with a further committed £18m of convertible loan note facility from SCF. This has significantly strengthened the cash position of the Group post period end.

Current liabilities

Current liabilities increased to £20.0m (HY22: £15.0m). Within the £20.0m in HY23 is £3m of CBILs loan which was classified as non-current liabilities in HY22. The trade loan borrowings have also been increased from £2.5m in HY22 to £4.0m in HY23. £0.8m of the £4m trade loan facility was utilised at the end of May 23, with the reduction due to timing of project working capital requirements. The trade loan remains a flexible facility available for ongoing working capital particularly as the business grows.

Other non-current liabilities

Other non-current liabilities are £1.9m (HY22: £3.8m). In HY22 the balance included £3m CBILs loan which is now included in current liabilities as the renewal, currently being progressed with the relationship bank, Barclays, is technically due in October 2023. Other amounts relate to lease liabilities in relation to IFRS16, deferred grant and deferred tax liability.

Leanne Wilkinson

CFO

21 June 2023

Consolidated statement of comprehensive income

for the 6M period ended 31 March 2023

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 31 March 2023

Consolidated statement of changes in equity

for the 6M period ended 31 March 2023

Consolidated cash flow statement

for the 6M period ended 31 March 2023

Notes to the Group financial statements

for the 6 month period ended 31 March 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.

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 unaudited consolidated interim financial information has been prepared under the historical cost convention and in accordance with the recognition and measurement requirements of UK-adopted international accounting standards ("IFRS"). The condensed consolidated interim financial information does not constitute financial statements within the meaning of Section 434 of the Companies Act 2006 and does not include all of the information and disclosures required for full annual financial statements. It should therefore be read in conjunction with the Group's Annual Report for the period ended 30 September 2022, which has been prepared in accordance with IFRSs and is available on the Group's investor website.

The accounting policies used in the financial information are consistent with those used in the Group's consolidated financial statements as at and for the period ended 30 September 2022, as detailed on pages 86 to 93 of the Group's Annual Report and Financial Statements for the period ended 30 September 2022, a copy of which is available on the Group's website, www.tekmargroup.com.

The comparative financial information contained in the condensed consolidated financial information in respect of the period ended 30 September 2022 has been extracted from the 2022 Financial Statements. Those financial statements have been reported on by Grant Thornton UK LLP and delivered to the Registrar of Companies. The report was unqualified and did not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006. The report did include a reference to a material uncertainty in relation to going concern which the auditor drew attention to by way of emphasis without qualifying 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 since the last annual consolidated financial statements as at the period ended 30 September 2022.

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Estimates and judgements are continually evaluated and are based on historical experience and other factors, such as expectations of future events and are believed to be reasonable under the circumstances. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements for the period ended 30 September 2022.

There have been no new accounting standards or changes to existing accounting standards applied for the first time from 1 October 2022 which have a material effect on these interim results. The Group has chosen not to early adopt any new standards or amendments to existing standards or interpretations.

(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 2023 and a trade loan facility of up to £4.0m that can be drawn against supplier payments, currently available to 31 July 2023. 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 £3.7m of cash at 31 March 2023 including full draw down of the £3.0m CBILS loan and a further £4.0m 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 2024. 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 8 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 30 September 2024, 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. The base case and sensitised forecast also includes discretionary spend on capital outlay. 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, the reverse stress test included reducing revenue by 20% and increasing overheads by 15% against the base case. The inputs applied to the reverse stress are not considered plausible.

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 October 2023 and July 2023 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.

Following the recent strategic investment from SCF a further avenue of funding could be available to the group in the form of the Convertible Loan Notes (CLN) facility from the group's largest shareholder, which is in place. SCF has agreed that the company may request to draw down against the CLN facility, subject to the relevant approvals required by the terms of the CLN (including investment committee approval), to support the working capital of the Group if the need arises, due to banking facilities not being renewed. The availability of this funding is contingent on the approval requirements of the CLN terms and is therefore not certain.

The Directors are confident, based upon the communications with the team at Barclays, the historical strong relationship and recent bank facility renewal in November 2022, that these facilities will be renewed and will be available for the foreseeable future. However, as the renewal of the two facilities in October 2023 and July 2023 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) 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.

(d) 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.

3. 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 markets.

Major customers

In the period ended 31 March 2023 there was one major customer within the Marine Civils segment, and one major customer in the Offshore Energy segment that individually accounted for at least 10% of total revenues (2022 6M: one customer, 2022 one customer). The revenues relating to these in the period to 31 March 2023 were £7,253,000 (2022 6M: £2,236,000, 2022; £7,243,000). Included within this is revenue from multiple projects with different entities within each customer.

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

4. 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 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.

5. TRADE AND OTHER RECEIVABLES

Trade and other receivables are initially recorded at transaction price and thereafter are measured at amortised cost using the effective interest rate. A loss allowance for expected credit losses on trade and other receivables and contract assets is measured at an amount equal to the lifetime expected credit losses. Lifetime expected credit losses are the expected credit losses that will result from all possible default events over the expected life of a financial instrument. This assessment is performed on a collective basis considering forward-looking information. The Group considers a financial asset to be in default when the receivable is unlikely to pay its credit obligations to the Group in full without recourse by the Group to actions such as realising security (if any is held).

Trade and other receivables are all current and any fair value difference is not material. 

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.

6. BORROWINGS

7. 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 8 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 these assessments and it is still unclear the cause of the faults and therefore no 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.

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.

8. POST BALANCE SHEET EVENTS

On 20th April 2023, the Group successfully raised £6.4m (£5.2m net of expenses) through an initial strategic investment by SCF, alongside a placing and retail offer with existing shareholders. The proceeds of the investment and placing have been used to strengthen the balance sheet and will help support the delivery of the strategic plan as the business embarks on its transition to sustained profitable growth.

Tekmar issued and allotted 22,222,222 Placing Shares, 47,505,458 Subscription Shares and 1,273,164 Retail Shares. The Company has also issued and allotted 4,075,788 Management Shares to certain members of the senior management team.