TEKMAR GROUP PLC

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

FINAL RESULTS

For the year ending 30 September 2023

Tekmar Group (AIM: TGP), a leading provider of technology and services for the global offshore energy markets, announces its audited final results for the year ending 30 September 2023 ("FY23" or the "Period").

Financial Highlights

·      Revenue of £39.9m (FY22: £30.2m) and Adjusted EBITDA loss of £0.3m (FY22: loss of £2.3m) highlights an improved financial performance.

·      Gross profit of £9.3m (FY22: £7.0m) with gross profit margin of 23.3% consistent with prior year (FY22: 23.2%)

·      On a statutory basis, the Group loss before tax for the Period was £9.9m (FY22: loss of £5.2m). This includes a non-cash impairment charge of £4.7m to the value of goodwill in the Group's Offshore Energy division.

·      The Group was also impacted by foreign exchange losses for the Period of £0.9m (FY22: gain of £0.2m), accounted for within operating expenses.

·      The Group held £5.2m of cash as at 30 September 2023 with net debt of £1.4m. Net debt included the drawdown of bank facilities from the £3.0m CBILS loan and £4.0m trade loan facility, available until at least July 2024. This cash position excludes the SCF Capital CLN facility. Net debt at 31 January 2024 was £1.2m.

Strategic Highlights

·      During the year, the Group successfully completed the formal sales process and strategic review which culminated with the strategic investment and related equity fundraising by SCF Partners and existing shareholders. This exercise completed in April 2023 and raised £5.3m, net of expenses.  

·      In addition, SCF Partners committed, with conditions, an additional investment of £18.0m which is available through the convertible loan note facility (the "CLN facility"). The use of the CLN facility is targeted to drive growth including through acquisitions, in-line with the ambition of the Board to build a leading offshore wind services company over time.  

Operational Highlights

·      During the year, Pipeshield secured and delivered a combination of projects valued in excess of £8m for pipeline protection systems in the Middle East.  

·      The Group was also selected for Dogger Bank C Offshore Wind Farm (in continuation of the previously announced Dogger Bank A & B contracts), which, when completed, will be the largest global Offshore Wind Project to date.  

·      These contract awards have helped to support a Group orderbook of £19.7m at Jan-24 with a gross margin of 28%.  and the Board is encouraged by the opportunities for material order intake in the remainder of the current financial year.  

Key financials

Commercial KPIs

 Alasdair MacDonald, CEO, commented: 

"Overall, the business made further progress in FY23 in improving operational and financial performance and delivered results in-line with market expectations. Importantly, we have stabilised the business, with breakeven Adjusted EBITDA a significant improvement on FY22 and FY21 and the balance sheet strengthened. We are confident we have established a clear and sustainable path to improving profitability, with the Group expected to be profitable at the Adjusted EBITDA level in FY24. 

We are alert to the opportunities to complement organic growth through M&A that can increase our scale and strengthen our services offering across our end-markets, all consistent with building a leading, global offshore wind services platform over time. We are fully committed to delivering on the opportunity ahead for Tekmar to build a platform for sustainable growth and creating significant value for shareholders."

Notes:

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

2023 was a pivotal year for Tekmar. We have stabilised the business and welcomed SCF Partners (SCF) to the Board as a highly respected strategic partner with a shared ambition to transform Tekmar as a leading, global offshore wind services company. The underlying business is in much better shape than it was two years ago and the business is now on the path to deliver sustained and improving profitability. The hard work of my colleagues means we are more in control of our business. This is particularly important at the current time with uncertainty in energy markets but sets us up well for significant success ahead. Aligned with this, is the benefit we have as a balanced business, addressing the needs of the broad offshore energy market as it transitions to meet the evolving commitments to lower carbon intensity and net zero targets.   

Instability in the offshore wind market has been a feature of 2023. The pressures created by fiscal and regulatory uncertainty, particularly in the UK and US, have been well trailed by the media but this has been exacerbated by supply chain constraints, inflationary pressure, permitting delays and grid connection and infrastructure shortage. We have been encouraged more recently to see Governments adjust their subsidy regimes to enable developers to proceed on a viable basis. Alongside this, projected demand for offshore wind over the longer-term remains strong with fixed seabed foundations expected to continue as the dominant technology through until mid-2030's with floating foundations with dynamic cabling solutions increasing market share from mid-2030's onwards. As installations become more complex the attractiveness of our integrated offering becomes stronger. With the backing of SCF, we can, over time, transform the scale and breadth of our platform, to offer more strategic and commercial value to our infrastructure partners, the developers and tier one contractors.

As the offshore wind industry continues to develop, we are being disciplined in maintaining project margins, with the strong technology capability of Tekmar's services and products underpinned by our consultancy expertise. Alongside this, we value the ballast provided by our other energy division, anchored by Pipeshield, a leading provider of specialised subsea pipeline protection systems to oil and gas majors and offshore contractors.

We have made substantial progress over the last two years. There has been uncertainty along the way for our employees, industry partners and shareholders. This is now behind us and we are continuing to build a stronger business. We are doing this from a good position in terms or our competitive standing in the market and we look forward with real confidence given the scale of the opportunity ahead for Tekmar. On behalf of the Board, I would like to thank all our staff for their hard work and focus on improving the Group's performance. I am pleased they can see the fruits of these efforts coming through and look forward to our strengthened Group delivering on its full potential. 

Chief Executive Officer's Review

Overall, the business made further progress in FY23 in improving operational and financial performance and delivered results in-line with market expectations. Importantly, we have stabilised the business, with near breakeven Adjusted EBITDA a significant improvement on FY22 and FY21 and the current net assets position strengthened. We are confident we have established a clear and sustainable path to improving profitability, with the Group expected to be profitable at the Adjusted EBITDA level in FY24. The primary objective for the management team in FY24 is on driving consistent operational performance to deliver improved profitability and cash generation for the Group. We are doing this in a maturing market environment for offshore wind which we anticipate should support incremental market improvement in the current year. Our balanced portfolio across energy markets gives us valuable diversification as we work with developers and industry partners on de-risking the delivery of critical energy infrastructure projects and supporting the energy transition journey.  

Review of near-term priorities

Return to sustained profitability

A key feature of these results is the business mix reflected in the Group reporting an Adjusted EBITDA loss of £0.3m for the year. Marine Civils delivered Adjusted EBITDA of £3.5m on revenue of £18.3m. This represents a very strong performance for this division which has become an increasingly important part of the Group since the acquisition of Pipeshield in 2019. Marine Civils consistently generates profit and provides diversification for the Group, which has been particularly valuable given the headwinds and uncertainty in the offshore wind market over the last couple of years.  Our expectation is for Marine Civils to deliver positive EBITDA in FY24, albeit we see it as unlikely that it will meet or exceed the contribution in the current financial year.

The Offshore Energy division by contrast generated an Adjusted EBITDA loss for the year of £2.1m, with a broadly similar loss across H123 and H223. This reflects market delays and uncertainties in offshore wind projects and masks the underlying improvements we have made in this part of the business, particularly in strengthening the commercial and operating model of our Tekmar Energy business. Supply chain cost escalation also impacted project margins for two material contracts, weakening H2 profitability in particular.  Further detail on these legacy contracts is set out in the CFO Review. We are comfortable any residual exposure for these contracts has been appropriately addressed such that our expectation is for gross margin percentage for this division to recover to the mid to high 20s in FY24. This, together with the anticipated incremental volume growth in offshore wind projects supports our confidence that Offshore Energy will deliver positive EBITDA in 2024.

Improving the profitability of our Offshore Energy business is an important marker in demonstrating we are on track to deliver the trajectory of sustained profit improvement we are driving for the Group.  When we then overlay the positive medium to long term fundamentals of the offshore wind industry, and our balanced portfolio, we believe Tekmar is well positioned to deliver sustainable profit growth for shareholders through the medium to long term.

Building a better quality pipeline and order book

Consistent with our profit improvement focus, we are focused on commercial discipline as we convert the enquiry book into firm orders.  New contracts are being secured at more favourable gross margins at the outset and include more favourable cost escalation protection and milestone payments to de-risk the projects for Tekmar.

Our current order book of £19.7m as at 31 January 2024, reflects this disciplined approach, with a gross margin of 28%. We are seeing the effects of legacy contracts on margin diminishing in the order book, with 86% of the January 2024 order book value represented by better forecasted margins on live projects at a blended 30% margin.  There is more we can do here but we are more in control of our business than we were two years ago.

Our pipeline and enquiry book is healthy across the Group and we are in discussions with developers and Tier 1 contractors on a number of significant projects. The main risk to delivering on our expectations for FY24 is the market environment where delays with decisions, extended negotiations and project starts continues to be a feature.

On the offshore wind side, we secured an important contract win with an established Tier 1 contractor announced in January 2024. This contract award positions us well for future phases of this project, as and when they come to fruition. We were also selected to deliver our flagship cable protection systems (CPS) for the 1 GW Hai Long Offshore Wind Farm, situated in Taiwan, highlighting our presence in APAC. We see APAC as a key near-term growth market for our offshore wind division.

Our Marine Civils division continues to win significant and profitable contracts balancing our offshore wind opportunity. This includes building a strong capability in the Middle East in particular, where we secured £15m of order intake for FY23, including our grouting services, which we see as an attractive near-term growth opportunity,  where in FY23, Tekmar won contracts worth over £1.5m.

Customer engagement

With the strategic investment by SCF and related fundraise placing Tekmar on a stronger financial standing, there is encouraging alignment with our customers about the leadership role a stronger Tekmar can play in the industry - an industry which requires the delivery of larger projects requiring more complex engineering solutions that we are well set up to deliver. As part of this, an increased focus of the Group is on embedding the Group's engineering consultancy capability through the lifecycle of projects and on building more strategic partnerships with our clients. It is worth highlighting that SCF's diligence at the time they were appraising their investment highlighted the strength of Tekmar's standing in the industry and the scope to deepen and expand the services and technology we offer customers and partners. We have a significant opportunity ahead of us to grow with our customers and help them support energy transition and to manage the related risk of developing and managing major infrastructure projects. 

As previously reported, we are continuing to support our industry partners to assess and address some issues relating to legacy Offshore Wind Systems installed at offshore wind farms. As we have previously highlighted, the precise cause of the issues are not clear and could be as a result of a number of factors, such as the absence of a second layer of rock to stabilise the cables. We remain committed to working with relevant installers and operators, including directly with customers who have highlighted any issues, to investigate the root cause and assist with identifying potential remedial solutions. Whilst this consumes company resource and senior management attention, it is consistent with our responsible approach to supporting the industry to resolve these legacy issues. 

Strengthening the business

During FY23, we continued to implement our programme of organisational efficiency and targeted cost reductions. Across the Group there is a continued focus on improvement and simplification, including full integration of Group support functions. We also consolidated our early stage design and engineering resources creating a more efficient base to grow our engineering consulting offering which is a key focus for the current year. We streamlined the cost base removing annualised cost of £0.8m, which has helped offset against staff inflation costs and investment for growth in FY24. In addition, as part of our discipline to maintain a tight control on costs, we are targeting additional cost saving benefits in the current year in the region of £500,000 from supply chain initiatives.

We continue to look for opportunities to further strengthen the business through more efficient resource allocation.

Targeted investment and capex

We are also adopting a measured approach to capex and investment in the core business, aligning our resources to opportunities which provide the greatest near-term benefits. We expect capex for the current financial year to be in the region of £2m, with approximately half of that covered by investment in strategic initiatives including product development for our core Teklink cable protection system and investment in our grouting services in support of near-term revenue growth with Pipeshield including in the Middle East.  We have identified a number of other strategic investment opportunities, with funding of these initiatives subject to phasing as cashflow builds to support the required investment.  

M&A to strengthen and broaden the portfolio

With the path to profitability established, we are pursing M&A opportunities to complement organic growth, including opportunities to build scale and strengthen the technology and services we offer to our customers. The ambition is to build a leading global offshore wind services company over time, and consistent with this, we are alert to the potential value in acquiring capability that can transition to servicing the needs of the offshore wind industry over time. Building a stronger platform should, in turn, create a business which the stock market can value more highly.

We benefit significantly in this M&A context from having SCF as a strategic partner, where we can leverage their complementary industry knowledge and investment expertise to help source and execute value-enhancing acquisitions. We also benefit from SCF's committed £18m funding through the Convertible Loan Notes, which are targeted to be deployed primarily for value-enhancing M&A and strategic growth.  Having this committed funding in place puts Tekmar at a distinct advantage, particularly given the current financing environment for M&A

Market environment

The current instability in offshore wind investment has been a theme that has been well trailed in the media. Looking beyond the media headlines, 2023 was actually a record year for offshore wind investment, with market analysts highlighting Final Investment Decisions ("FID") on projects totalling 12.3 GW during the year globally (excluding China and cancelled projects). This followed only 0.8 GW of FID in 2022, the lowest level since 2012 and highlighting the volume constraints in the market. (Source: TGS - 4C Offshore, 3 January 2024).

The rebound in FID approval for 2023 is clearly a positive for Tekmar. With the lead-time typically 12-months between a project receiving FID approval and the contractors and suppliers being awarded contracts, this should support the return to volume growth for Tekmar over the next 12-18 months. The headline data does require some caution, however, given the prevailing environment for ongoing delays to project starts and contract awards post-FID and the residual risk of subsequent cancellations post-FID. Overall, we see the market moving in the right direction in 2024 with a more balanced approach to developers and contractors in managing project risk leading to incremental but sustained improvement in demand.   Longer-term, we see demand for offshore wind remaining strong with fixed seabed foundations continuing as the dominant technology through until mid-2030's.

Following a period of underinvestment, the Oil & Gas industry is entering a new capex cycle, with market conditions expected to remain supportive of an upturn in global spend over the medium term. Tekmar is well positioned to take advantage of this forecast growth. 

Current trading and outlook

The Board anticipates the Group should return to profitability at the Adjusted EBITDA level for the current financial year. The absolute level of profitability will be determined by conversion of the material opportunities in our pipeline and by the timing of project awards and starts. Whilst timing remains the key risk to our financial performance in the current environment, we also remain focused on managing the delivery of existing contracts to budget and on maintaining a tight control of costs and cash across the business. Our near-term plans and targeted investments support the opportunity we have to grow organically across our core markets.

We are alert to the opportunities to complement organic growth through M&A that can increase our scale and strengthen our services offering across our end-markets, all consistent with building a leading, global offshore wind services platform over time. We are fully committed to delivering on the opportunity ahead for Tekmar to build a platform for sustainable growth and creating significant value for shareholders.

Alasdair MacDonald

CEO

CFO Review

Following my appointment to the role of CFO in April 2023, having held the role on an interim basis since December 2022, I am pleased to present the Financial Review for the Group for the year ended 30 September 2023.

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

(1)   Adjusted EBITDA is a key metric used by the Directors.

'Earnings before interest, tax, depreciation and amortisation' are adjusted for material items of a one-off  nature and significant items which allow comparable business performance. Details of the adjustments can be found in the adjusted EBITDA section below. Adjusted EBITDA might not be comparable to other companies.

(2)   Adjusted EPS is a key metric used by the Directors and measures earnings are adjusted for material items of a one-off nature and significant items which allow comparable business performance.  Earnings for EPS calculation are adjusted for share-based payments, £508k (£nil FY22), amortisation on acquired intangibles £168k (£605k FY22), Impairment of goodwill £4,745k (£nil FY22).

On a statutory basis, the Group loss before tax was £9.9m (FY22: £5.2m loss).

Overview

The Group delivered revenue of £39.9m for the 12-month reporting period, a 32% increase from prior year and continued growth per half year with £22.2m in revenue delivered in the second half from the £17.7m reported for the first half.  The adjusted EBITDA loss of (£0.3m) was largely in line with our expectations of being around break-even at this level of trading profitability.  This is a much-improved position from the previous two reporting years where adjusted EBITDA losses of (£2.3m) and (£2.0m) were reported for the twelve-month period to September 2022 and the eighteen-month period to September 2021 respectively.  FY23 continued to be a transition year for the Group as expected, particularly whilst some lower margin backlog projects continued to be worked through and business improvement measures continued.  The cost base has been carefully managed with further efficiencies achieved through wider group integration.

Revenue

(1)   LTM - Last twelve months

It has been encouraging to see revenues grow in both Offshore Energy and Marine Civils divisions in FY23, by 24% and 43% respectively during the reporting period. 

The Offshore Energy division, incorporating Tekmar Energy, Subsea Innovation, AgileTek and Ryder Geotechnical, all of which operate largely as a single unit, has achieved a revenue increase of £4.2m.  The growth in offshore wind contributed to £3m of this increase and was underpinned by revenues from windfarm developments across a number of key regions for the Group including Europe and emerging regions in offshore wind such as Asia Pacific and the United States.  The remaining increase in revenue of £1.2m was largely from work in the Middle East, whereby the Group's brands and track record which has been established, has enabled further work to be secured with key clients in the region.

Marine Civils, comprising Pipeshield, saw continued revenue growth for the 12-month period at £18.3m, which is £5.5m higher compared with revenue of £12.8m for the previous 12-month period. Consistent with prior year, this growth was achieved through securing and delivering further contracts for both the core Pipeshield product line as well as a diversified grouting service line offering, in the Middle East, which continues to be a growth market for Pipeshield and the wider group demonstrating our regional expansion strategy is delivering.

Gross profit

(1)   LTM - Last twelve months

The gross profit increase of £2.3m reported for the period is driven from the increase in revenue which is £9.7m higher than the prior 12 months.  The gross profit percentage of 23% remains consistent with the prior year as the opening order book for FY23 included two, sizable, lower margin offshore wind contracts awarded in prior periods and have subsequently experienced material cost escalations from wider macro-economic factors since they were awarded in 2021.  This impacted gross profit margin in Offshore Energy division which fell to 18% from 25% in FY22.  Regarding the two Offshore Energy projects noted above, one was significantly progressed for revenue recognition in FY23 and the other project which runs into early FY25 has appropriate contract loss provisioning (£0.4m) included in FY23. Management continue to explore opportunities for margin improvement on this contract over the remaining life of the project.

Gross profit margin within Marine Civils increased to 29% from 20% in FY22 from the additional scale within the Pipeshield business coupled with capturing the value of contract variations in the year.

The focus on margin improvement in Offshore Energy remains.  Although there has continued to be pricing pressure on some contracts from opening backlog delivered in the year, newer contracts, some of which have been delivered across FY23, have been awarded at improved margins which have been maintained or improved through contract execution.  This expected improved commercial and operational performance, coupled with increased volume in the market and the recent improvement in energy strike prices across the industry, paves the way for the Offshore Energy division to track back to a 30% gross margin in the next 3 years.

Operating expenses

Operating expenses for the 12-month period to 30 September 2023 were £18.6m compared to £11.6m for the equivalent 12-month period ending 30 September 2022. The increase of £7.0m relates largely to several one-off items; £4.7m goodwill impairment relating to the offshore energy CGU as detailed below, £1.2m foreign exchange differences, a bonus payment of £0.4m was made to staff upon the successful completion of the Group's strategic review and share based payments increased by £0.5m, primarily as a result of share awards to management on the completion of the Group's strategic review.  In addition, there were £0.3m of restructuring costs incurred.  The share awards were approved by shareholders when approving the investment by SCF.

Other cost increases in the year included higher professional fees of £0.2m which have been offset by staff cost savings of £0.2m (net of inflationary increase of £0.5m) and £0.3m benefit from lower amortisation expense year on year.

Adjusted EBITDA

Adjusted EBITDA is a primary measure used across the business to provide a consistent measure of trading performance.  The adjustment to EBITDA removes material items of a one-off nature or of such significance that they are considered relevant to the user of the financial statements as it represents a useful milestone that is reflective of the comparable performance of the business. Foreign exchange losses and gains form part of the adjustment to EBITDA, this is due to the significant influence of exchange rate fluctuations versus the group's reporting currency (GBP) in the first quarter of FY23.

The below table shows the adjustments that have been made to calculate Adjusted EBITDA in the year ended 30 September 2023.

The £0.3m adjusted EBITDA loss for the 12 months ended 30 September 2023 was an improvement of £2.0m when compared to the £2.3m adjusted EBITDA loss for the 12 months to September 2022 and is a result of the increased gross profit as above.

H2 23 reported an increase revenue of £5m versus the prior 6-month period, however, adjusted EBITDA (net of FX impacts) was £0.7m lower due to the gross margin on two offshore energy projects and higher overhead costs of £0.4m versus H1 23 due to £0.3m professional costs and £0.1m bank charges.

As we work through the remaining lower margin backlog contracts, coupled with the increased volume in the offshore wind sector, the profitability of the Group's Offshore Energy division has opportunity to improve going forward, in support of management's medium-term target of 30% gross margin.  The recent pricing resets starting to be seen in the industry are also likely to support this direction of travel, however, we are mindful this will take time to fully take effect.

(1)   LTM - Last twelve months

Result for the year

The result after tax is a loss of £10.1m (FY22: Loss of £5.2m) and the loss includes an impairment charge of £4.7m to the value of the goodwill in the Group's Offshore Energy division. Trading forecasts for the Offshore Energy division have been reviewed and continue to grow inline with market expectations for the offshore wind market , however changes in economic conditions and specifically increases in interest rates have led to a substantial increase in the group's Weighted average cost of capital (WACC), increasing from 13.5% FY22 to 15.5% FY23. The increase in the group's WACC resulted in a deterioration in the future expected cashflows leading to the impairment being recognised.

Although the Group reports an improvement in adjusted EBITDA of £2.0m and £0.4m lower depreciation and Amortisation between FY22 and FY23, this is offset by impacts of one-off items; Share based payments £0.5m, bonus £0.4m, restructuring costs of £0.3m and the movement in FX impacts of £1.2m.

Foreign currency

The Group has continued to see growth in international markets and, as a result, this growth increases the Group's exposure to fluctuations in foreign currency rates. During the year the Group were impacted by foreign exchange losses of £0.9m. These losses have been accounted for within operating expenses.  In comparison, FY22 had a foreign currency gain of £0.2m.

The Group mitigates exposure to fluctuations in foreign exchange rates by the use of derivatives, mainly forward currency contracts and options. At the year end the Group held forward currency contracts to mitigate the risk of receivables balances for both Euros and Dollars. Any gains or losses on derivative instruments are accounted for in cost of sales. At the year end the group had a derivative liability of £20k.

The Group predominately trades in pounds sterling with approximately 17% of revenue denominated in Euros, 23% denominated in US dollars, and significant trading in Chinese RMB. On certain overseas projects the Group can create a natural hedge by matching the currency of the supply chain to the contracting currency, this helps to mitigate the Group's exposure to foreign currency fluctuations.

Cash and Balance Sheet

The Group's balance sheet was stabilised in April 2023 following the conclusion of the strategic review.  New capital investment from SCF Partners and related parties of £4.3m alongside a placing and retail fund raise of £2.1m raised cash proceeds of £5.3m, net of expenses.  In addition, SCF Partners have committed, with conditions, an additional investment of £18.0m available through the convertible loan note facility.

The gross cash balance at 30 September 2023 was £5.2m with net debt being (£1.4m). The Group has extended its CBILs facility of £3.0m for a further 12 months to October 2024 and the trade loan facility of £4.0m, which is available until at least July 2024, aligning with the annual review date of the facilities with Barclays Bank. These facilities continue to support the working capital requirements of the Group in delivering the projects the Group undertakes. The expected continued renewal of the banking facilities form part of the directors going concern assumptions.

Of the £4.0m trade loan facility, £3.5m was drawn against supplier payments at the year end and is repayable within 90 days of drawdown. The FY22 comparative is £4.0m. This balance and the CBILS loan of £3.0m is reported within current liabilities.

The decrease in operational cashflows of £5.7m were primarily driven by the increase in the year end trade receivables of £6.4m This position contributed to a net decrease in cash and cash equivalents of £3.3m in the year.

Inventories reduced by £2.5m in the year, however, net working capital increased by £3.7m due to a £6.4m increase in trade and other receivables which rose to £19.7m (FY22: £13.4m).  This was driven by specific overdue debtor receipts in the Middle East and China. The ageing of debtors has increased across the group due to the specific debts in the Middle East and China. The group has not provided for any credit loss provisions as these debts are considered to be recoverable in full based on prior trading history with these customers.

 The Group has continued to enhance its contracting terms and cash collection processes however, the year-end position was impacted by the timing of certain material receipts at the year-end related to these regions.

Cash generation continues to be a major focus for the Group.  We maintain our disciplined approach to commercial management and debtor collections whilst adopting a cautious and considered approach to ongoing organic investment to support the growth plans of the underlying business.

The business continuously invests in research and development activity. The highlight during the financial year was the continued development of the next generation TekLink product in the offshore wind division. A total of £353,000 of Research and Development costs were incurred in year. All costs have been capitalised as intangible assets under IAS36.

The annual impairment review of the goodwill on the balance sheet has resulted in an impairment charge of £4.7m which related to the offshore energy division.  As detailed in the P&L commentary, this was predominantly due to a substantial increase in the Group's weighted average cost of capital (WACC) which has increased from 13.5% in FY22 to 15.5% in FY23 due to changes in economic conditions and especially increases in interest rates.  

During the year, Tekmar Energy Limited renewed a property lease relating to its manufacturing facility.  The lease value was £1.1m and is accounted for as a right of use asset under IFRS16, within fixed assets.  To preserve cash during the year a cautious approach has been taken regarding wider investments and therefore other fixed asset investments were largely in line with depreciation charges within the year.

A provision of £0.5m has been recognised in the year for onerous contracts. The group has assessed that the unavoidable costs of fulfilling the contract obligations exceed the economic benefits expected to be received from the contract. The provision relates to two contracts in the offshore energy division which are expected to be largely completed in the year ending September 2024

A summary balance sheet is presented below:

Summary

The Group has achieved the planned stepped improvement in financial results for FY23 and our expectations of returning to profitability in FY24 remain.  The completion of the strategic review which culminated in the new capital investment has reset the balance sheet and allowed the business to move forward with the organic growth plans previously set out and supported by the wider opportunity within the energy markets we operate.

The hard work and improvements undertaken by the Group in the last 3 years provides for a stronger foundation and I look forward with optimism in supporting the business in its continued growth and return to sustainable profitability.

Leanne Wilkinson

Chief Financial Officer

Consolidated statement of comprehensive income

for the year ended 30 September 2023

All results derive from continuing operations

1: Adjusted EBITDA, which is defined as profit before net finance costs, tax, depreciation, amortisation,  share based payments charge in relation to one-off awards,  material items of a one off nature and significant items which allow comparable business performance is a non-GAAP metric used by management and is not an IFRS disclosure.

Consolidated balance sheet

as at 30 September 2023