Final Results

Tekmar Group PLC

04 March 2024

TEKMAR GROUP PLC

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

FINAL RESULTS

For the year ending 30 September 2023

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

Financial Highlights

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

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

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

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

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

Strategic Highlights

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

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

Operational Highlights

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

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

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

Key financials

	Audited 12M ended Sep-23 £m	Audited 12M ended Sep-22 £m
Revenue	39.9	30.2
Adjusted EBITDA¹	(0.3)	(2.3)

Commercial KPIs

	12M ending Sep-23 £m	12M ending Sep-22 £m
Order Book²	19.9	15.6
Order intake³	44.2	33.3
Enquiry Book⁴	386	370
Book to Bill⁵	1.11	1.2

Alasdair MacDonald, CEO, commented:

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

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

Notes:

(1)	Adjusted EBITDA is defined as profit before finance costs, tax, depreciation, amortisation, share based payments charge, and significant one-off items is a non-GAAP metric used by management and is not an IFRS disclosure.
(2)	Order Book is defined as signed and committed contracts with clients.
(3)	Order intake is the value of contracts awarded in the Period, regardless of revenue timing.
(4)	Enquiry Book is defined as all active lines of enquiry within the Tekmar Group. When converted expected revenue recognition within 3 years.
(5)	Book to Bill is the ratio of order intake to revenue.

Enquiries:

Tekmar Group plc

Alasdair MacDonald, CEO

Leanne Wilkinson, CFO

+44 (0)1325 349 050

Singer Capital Markets (Nominated Adviser and Joint Broker)

Rick Thompson / Sam Butcher

+44 (0)20 7496 3000

Berenberg (Joint Broker)

Ben Wright / Ciaran Walsh

+44 (0)20 3207 7800

Bamburgh Capital Limited (Financial media & Investor Relations)

Murdo Montgomery

+44 (0) 131 376 0901

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.

Alasdair MacDonald

CEO

CFO Review

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

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

	Audited 12M ended Sep -23 £m	Audited 12M ended Sep-22 £m
Revenue Gross Profit	39.9 9.3	30.2 7.0
Adjusted EBITDA⁽¹⁾	(0.3)	(2.3)
(LBT)	(9.9)	(5.2)
EPS	(10.7p)	(9.0p)
Adjusted EPS⁽²⁾	(4.5p)	(8.1p)

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

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

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

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

Overview

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

Revenue

Revenue by operating segment				Revenue by market
£m	Audited 12M FY23	Audited 12M FY22	Unaudited LTM⁽¹⁾ FY21	£m	Audited 12M FY23	Audited 12M FY22	Unaudited LTM⁽¹⁾ FY21
Offshore Energy	21.6	17.4	21.9	Offshore Wind	17.7	14.7	16.8
Marine Civils	18.3	12.8	9.9	Other Offshore	22.2	15.5	15.0
Total	39.9	30.2	31.8	Total	39.9	30.2	31.8

(1) LTM - Last twelve months

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

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

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

Gross profit

	Gross profit by operating segment				Gross Profit by market
£m		Audited 12M FY23	Audited 12M FY22	Unaudited LTM⁽¹⁾ FY21	£m	Audited 12M FY23		Audited 12M FY22	Unaudited LTM⁽¹⁾ FY21
Offshore Energy		4.0	4.4	4.4	Offshore wind		4.8	4.2	4.8
Marine Civils		5.3	2.6	2.1	Other offshore		6.1	4.4	3.3
					Unallocated costs		(1.6)	(1.6)	(1.6)
Total		9.3	7.0	6.5	Total		9.3	7.0	6.5

(1) LTM - Last twelve months

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

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

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

Operating expenses

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

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

Adjusted EBITDA

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

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

EBITDA Reconciliation (£m)	12 months Sep-23	12 months Sep-22	18 months Sep-21

Reported operating (loss)/profit	(9.3)	(4.6)	(5.4)
Amortisation of intangible assets	0.1	0.6	0.8
Amortisation of other intangible assets	0.6	0.5	0.9
Depreciation on tangible assets	0.8	0.9	1.4
Depreciation on ROU assets	0.5	0.5	0.6
EBITDA	(7.1)	(2.1)	(1.8)
Adjusted items:
Share Based Payments	0.5	-	(0.4)
Impairment of goodwill	4.7	-	-
Exceptional items - Bonus	0.4	-	-
Foreign exchange losses & gains	0.9	(0.2)	(0.2)
Restructuring costs	0.3	-	-

Adjusted EBITDA	(0.3)	(2.3)	(2.3)

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

Adjusted EBITDA by 6-month period (Unaudited)
£m	6m Sep-23	6m Mar-23	6m Sep-22	6m Mar-22	6m Sep-21	6m Mar-21
Revenue	22.2	17.7	17.2	13.0	17.9	13.9
Adjusted EBITDA	(0.5)	0.2	(0.3)	(1.8)	(1.8)	(1.1)

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

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

Adjusted EBITDA by division £m
£m	12M FY23	12M FY22	LTM⁽¹⁾ FY21
Offshore Energy	(2.1)	(1.8)	(2.7)
Marine Civils	3.6	1.0	0.9
Group costs	(1.8)	(1.3)	(1.1)
Total	(0.3)	(2.1)	(2.9)

(1) LTM - Last twelve months

Result for the year

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

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

Foreign currency

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

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

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

Cash and Balance Sheet

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

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

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

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

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

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

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

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

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

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

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

A summary balance sheet is presented below:

Balance Sheet
£m	FY23	FY22
Fixed Assets	6.8	5.9
Other non-current assets	19.4	24.6
Inventory	2.1	4.6
Trade & other receivables	19.7	13.4
Cash	5.2	8.5
Current liabilities	(16.9)	(16.9)
Other non-current liabilities	(1.7)	(0.8)
Equity	34.6	39.2

Summary

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

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

Leanne Wilkinson

Chief Financial Officer

Consolidated statement of comprehensive income

for the year ended 30 September 2023

	Note	12M ended 30 Sep 2023	12M ended 30 Sep 2022
		£000	£000

Revenue	4	39,908	30,191
Cost of sales		(30,608)	(23,153)
Gross profit		9,300	7,038

Administrative expenses		(18,616)	(11,623)
Other operating income		26	24
Group operating (loss)		(9,290)	(4,561)

Analysed as:
Adjusted EBITDA^[1]	4	(323)	(2,308)
Depreciation		(1,327)	(1,370)
Amortisation	6	(763)	(1,112)
Exceptional Share based payments charges		(508)	-
Impairment of goodwill	6	(4,745)	-
Exceptional bonus payments		(430)	-
Foreign exchange (losses)/gains		(926)	229
Restructuring costs		(268)	-
Group operating (Loss)		(9,290)	(4,561)

Finance costs		(637)	(685)
Finance income		4	18
Net finance costs		(633)	(667)

(Loss) before taxation		(9,923)	(5,228)
Taxation		(201)	99
(Loss) for the period		(10,124)	(5,129)
Equity-settled share-based payments Revaluation of property Retranslation of overseas subsidiaries		548 - (281)	(97) 238 326
Total comprehensive (loss) for the period		(9,857)	(4,662)

(Loss) attributable to owners of the parent		(10,124)	(5,129)
Total Comprehensive income attributable to owners of the parent		(9,857)	(4,662)

(Loss) per share (pence)
Basic	5	(10.69)	(9.04)
Diluted	5	(10.69)	(9.04)

All results derive from continuing operations

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

Consolidated balance sheet

as at 30 September 2023

	Note	30 Sep 2023	30 Sep 2022
		£000	£000

Non-current assets
Property, plant and equipment		6,808	5,883
Goodwill and other intangibles	6	19,367	24,564
Total non-current assets		26,175	30,447

Current assets
Inventory		2,127	4,623
Trade and other receivables	7	19,734	13,375
Cash and cash equivalents		5,219	8,496
Total current assets		27,080	26,494

Total assets		53,255	56,941

Equity and liabilities
Share capital		1,360	609
Share premium		72,202	67,653
Merger relief reserve		1,738	1,738
Merger reserve		(12,685)	(12,685)
Foreign currency translation reserve		(108)	173
Retained losses		(27,854)	(18,278)
Total equity		34,653	39,210

Non-current liabilities
Other interest-bearing loans and borrowings	8	834	194
Trade and other payables		327	331
Deferred tax liability		503	313
Total non-current liabilities		1,664	838

Current liabilities
Other interest-bearing loans and borrowings	8	7,046	7,198
Trade and other payables		9,398	9,669
Corporation tax payable		29	26
Provisions	9	465	-
Total current liabilities		16,938	16,893

Total liabilities		18,602	17,731

Total equity and liabilities		53,255	56,941

Consolidated statement of changes in equity

for the year ended 30 September 2023

	Share capital	Share premium	Merger relief reserve	Merger reserve	Foreign currency translation reserve	Retained earnings	Total equity attributable to owners of the parent	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000

Balance at 30 September 2021	516	64,097	1,738	(12,685)	(153)	(13,290)	40,223	40,223
(Loss) for the Period	-	-	-	-	-	(5,129)	(5,129)	(5,129)
Share based payments	-	-	-	-	-	(97)	(97)	(97)
Revaluation of fixed assets	-	-	-	-	-	238	238	238
Exchange difference on translation of overseas subsidiary	-	-	-	-	326	-	326	326
Total comprehensive income for the year	-	-	-	-	326	(4,988)	(4,662)	(4,662)
Issue of shares	93	3,556	-	-	-	-	3,649	3,649
Total transactions with owners, recognised directly in equity	93	3,556	-	-	-	-	3,649	3,649
Balance at 30 September 2022	609	67,653	1,738	(12,685)	173	(18,278)	39,210	39,210
(Loss) for the Period	-	-	-	-	-	(10,124)	(10,124)	(10,124)
Share based payments	-	-	-	-	-	548	548	548
Exchange difference on translation of overseas subsidiary	-	-	-	-	(281)	-	(281)	(281)
Total comprehensive (loss) for the year	-	-	-	-	(281)	(9,578)	(9,857)	(9,857)
Issue of shares, net of transaction costs	751	4,549	-	-	-	-	5,300	5,300
Total transactions with owners, recognised directly in equity	751	4,549	-	-	-	-	5,300	5,300
Balance at 30 September 2023	1,360	72,202	1,738	(12,685)	(108)	(27,854)	34,653	34,653

Consolidated cash flow statement

for the year ended 30 September 2023

	12M ended 30 Sep 2023	12M Ended 30 Sep 2022
	£000	£000
Cash flows from operating activities
(Loss) before taxation	(9,923)	(5,228)
Adjustments for:
Depreciation	1,327	1,370
Amortisation of intangible assets	763	1,112
Share based payments charge	537	(103)
Impairment of goodwill	4,745	-
Finance costs	552	685
Finance income	(4)	(18)
	(2,003)	(2,182)

Changes in working capital:
Decrease / (Increase) in inventories	2,496	(658)
(Increase) / decrease in trade and other receivables	(6,360)	4,561
(Decrease) / Increase in trade and other payables	(272)	178
Increase in provisions	465	-
Cash (used in) / generated from operations	(5,674)	1,899

Tax recovered	-	-
Net cash (outflow) / inflow from operating activities	(5,674)	1,899

Cash flows from investing activities
Purchase of property, plant and equipment	(1,012)	(618)
Purchase of intangible assets	(310)	(369)
Proceeds on sale of property, plant and equipment	29	-
Interest received	4	18
Net cash (outflow) from investing activities	(1,289)	(969)

Cash flows from financing activities
Facility drawdown Facility Repayment Repayment of borrowings under Lease obligations	11,526 (11,941) (414)	991 - (537)
Shares issued	5,300	3,649
Interest paid	(505)	(345)
Net cash inflow from financing activities	3,966	3,758

Net (decrease) / increase in cash and cash equivalents	(2,997)	4,688
Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes	8,496 (280)	3,482 326
Cash and cash equivalents at end of year	5,219	8,496

Lease borrowings in relation to right of use assets have been offset against the asset additions within cashflows from investing activities.

Notes to the Group financial statements

for the year ended 30 September 2023

1. GENERAL INFORMATION

Tekmar Group plc (the "Company") is a public limited company incorporated and domiciled in England and Wales. The registered office of the Company is Innovation House, Centurion Way, Darlington, DL3 0UP. The registered company number is 11383143.

The principal activity of the Company and its subsidiaries (together the "Group") is that of design, manufacture and supply of subsea stability and protection technology, including associated subsea engineering services, operating across the global offshore energy markets, predominantly Offshore Wind.

Statement of compliance

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the period ended 30 September 2023 or 30 September 2022 as defined in section 435 of the Companies act 2006 (CA 2006) but is derived from those audited financial statements. Statutory financial statements for 2022 have been delivered to the Registrar of Companies and those for 2023 will be delivered in due course. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006. For the year ended 30 September 2023 and period to 30 September 2022 their report contains a material uncertainty in respect of going concern without modifying their report.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group.

Forward looking statements

Certain statements in this Annual report are forward looking. The terms "expect", "anticipate", "should be", "will be" and similar expressions identify forward-looking statements. Although the Board of Directors believes that the expectations reflected in these forward-looking statements are reasonable, such statements are subject to a number of risks and uncertainties and events could differ materially from those expressed or implied by these forward-looking statements.

2. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The Group's principal accounting policies have been applied consistently to all of the years presented, with the exception of the new standards applied for the first time as set out in paragraph (c) below where applicable.

(a) Basis of preparation

The results for the year ended 30 September 2023 have been prepared in accordance with UK-adopted International Accounting Standards ("IFRS"). The financial statements have been prepared on the going concern basis and on the historical cost convention modified for the revaluation of Freehold property and certain financial instruments. The comparative period represents 12 months to 30 September 2022.

Tekmar Group plc ("the Company") has adopted all IFRS in issue and effective for the year.

(b) Going concern

The Group meets its day-to-day working capital requirements through its available banking facilities which includes a CBILs loan of £3.0m currently available to 31 October 2024 and a trade loan facility of up to £4.0m that can be drawn against supplier payments, currently available to 31 July 2024. The latter is provided with support from UKEF due to the nature of the business activities both in renewable energies and in driving growth through export lead opportunities. The Group held £5.2m of cash at 30 September 2023 including draw down of the £3.0m CBILS loan and a further £3.6m of the trade loan facility. There are no financial covenants that the Group must adhere to in either of the bank facilities.

The Directors have prepared cash flow forecasts to 31 March 2025. The base case forecasts include assumptions for annual revenue growth supported by current order book, known tender pipeline, and by publicly available market predictions for the sector. The forecasts also assume a retention of the costs base of the business with increases of 5% on salaries and a cautious recovery of gross margin on contracts. These forecasts show that the Group is expected to have a sufficient level of financial resources available to continue to operate on the assumption that the two facilities described are renewed. Within the base case model management have not modelled anything in relation to the matter set out in note 21 Contingent Liabilities, as management have assessed there to be no present obligation.

The Directors have sensitised their base case forecasts for a severe but plausible downside impact. This sensitivity includes reducing revenue by 15% for the period to 31 March 2025, including the loss or delay of a certain level of contracts in the pipeline that form the base case forecast, and a 10% increase in costs across the Group as a whole for the same period. In addition the delays of specific cash receipts have been modelled. The base case and sensitised forecast also includes discretionary spend on capital outlay. The Directors note there is further discretionary spend within their control which could be cut, if necessary, although this has not been modelled in the sensitised case given the headroom already available. These sensitivities have been modelled to give the Directors comfort in adopting the going concern basis of preparation for these financial statements. Further to

this, a 'reverse stress test' was performed to determine at what point there would be a break in the model, the reverse stress test included reducing order intake by 22.5% and increasing overheads by 15% against the base case. In addition the delays of specific cash receipts have been modelled. The inputs applied to the reverse stress are not considered plausible.

Facilities - Within the base case, severe but plausible case and reverse stress test, management have assumed the renewal of both the CBILS loan and trade loan facility in October 2024 and July 2024 respectively. In the unlikely case that the facilities are not renewed, the Group would aim to take a number of co-ordinated actions designed to avoid the cash deficit that would arise.

The Directors are confident, based upon the communications with the team at Barclays, the historical strong relationship and recent bank facility renewal in November 2023, that these facilities will be renewed and will be available for the foreseeable future. However, as the renewal of the two facilities in October 2024 and July 2024 are yet to be formally agreed and the Group's forecasts rely on their renewal, these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Group's and parent company's ability to continue as a going concern.

The Directors are satisfied that, taking account of reasonably foreseeable changes in trading performance and on the basis that the bank facilities are renewed, these forecasts and projections show that the Group is expected to have a sufficient level of financial resources available through current facilities to continue in operational existence and meet its liabilities as they fall due for at least the next 12 months from the date of approval of the financial statements and for this reason they continue to adopt the going concern basis in preparing the financial statements.

The new standards, amendments or interpretations issued in the year, with which the Group has to comply with, have not had a significant effect impact on the Group. There are no standards endorsed but not yet effective that will have a significant impact going forward.

(d) Basis of consolidation

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases. Inter-company transactions, balances and unrealised gains and losses on transactions between group companies are eliminated.

(e) Revenue

Revenue (in both the offshore energy and the marine civils markets) arises from the supply of subsea protection solutions and associated equipment, principally through fixed fee contracts. There are also technical consultancy services delivered through subsea energy.

To determine how to recognise revenue in line with IFRS 15, the Group follows a 5-step process as follows:

1. Identifying the contract with a customer

2. Identifying the performance obligations

3. Determining the transaction price

4. Allocating the transaction price to the performance obligations

5. Recognising revenue when / as performance obligation(s) are satisfied

Revenue is measured at transaction price, stated net of VAT and other sales related taxes.

Revenue is recognised either at a point in time, or over-time as the Group satisfies performance obligations by transferring the promised services to its customers as described below.

i) Fixed-fee contracted supply of subsea protection solutions

For the majority of revenue transactions, the Group enters individual contracts for the supply of subsea protection solutions, generally for a specific project in a particular geographic location. Each contract generally has one performance obligation, to supply subsea protection solutions. When the contracts meet one or more of the criteria within step 5, including the right to payment for the work completed, including profit should the customer terminate, then revenue is recognised over time. If the criteria for recognising revenue over time is not met, revenue is recognised at a point in time, normally on the transfer of ownership of the goods to the customer.

For contracts where revenue is recognised over time, an assessment is made as to the most accurate method to estimate stage of completion. This assessment is performed on a contract by contract basis to ensure that revenue most accurately represents the efforts incurred on a project. For the majority of contracts this is on an inputs basis (costs incurred as a % of total forecast costs).

There are also contracts which include the manufacture of a number of separately identifiable products. In such circumstances, as the deliverables are distinct, each deliverable is deemed to meet the definition of a performance obligation in its own right and do not meet the definition under IFRS of a series of distinct goods or services given how substantially different each item is. Revenue for each item is stipulated in the contract and revenue is recognised over time as one or more of the criteria for over time recognition within IFRS 15 are met. Generally for these items, an output method of estimating stage of completion is used as this gives the most accurate estimate of stage of completion. On certain contracts variation orders are received as the scope of contract changes, these are review on a case-by-case basis to ensure the revenue for these obligations is appropriately recognised.

In all cases, any advance billings are deferred and recognised as the service is delivered.

ii) Manufacture and distribution of ancillary products, equipment.

The Group also receives a proportion of its revenue streams through the sale of ancillary products and equipment. These individual sales are formed of individual purchase order's for which goods are ordered or made using inventory items. These items are recognised on a point in time basis, being the delivery of the goods to the end customer.

iii) Provision of consultancy services

The entities within the offshore energy division also provide consultancy based services whereby engineering support is provided to customers. These contracts meet one or more of the criteria within step 5, including the right to payment for the work completed, including profit should the customer terminate. Revenue is recognised over time on these contracts using the inputs method.

Tekmar Group PLC applies the IFRS 15 Practical expedient in respects of determining the financing component of contract consideration: An entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Accounting for revenue is considered to be a key accounting judgement which is further explained in note 3.

(f) EBITDA and Adjusted EBITDA

Earnings before Interest, Taxation, Depreciation and Amortisation ("EBITDA") and Adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before net finance costs, tax, depreciation and amortisation. Material items of a one-off nature or of such significance they are considered relevant to the user of the financial statements, and share based payment charge in relation to one-off awards are excluded.

The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable.

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group financial statements under IFRS requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities . Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The Directors consider that the following estimates and judgements are likely to have the most significant effect on the amounts recognised in the Group financial statements.

(a) Critical judgements in applying the entity's accounting policies

Revenue recognition

Judgement is applied in determining the most appropriate method to apply in respect of recognising revenue over-time as the service is performed using either the input or output method. Further details on how the policy is applied can be found in note 2(e).

Product development capitalisation

Group expenditure on development activities is capitalised if it meets the criteria as per IAS 38. Management have exercised and applied judgement when determining whether the criteria of IAS 38 is satisfied in relation to development costs. As part of this judgement process, management establish the future Total Addressable Market relating to the product or process, evaluate the operational plans to complete the product or process and establish where the development is positioned on the Group's technology road map and asses the costs against IAS 38 criteria. This process involves input from the Group's Chief Technical Officer plus the operational, financial and commercial functions and is based upon detailed project cost analysis of both time and materials.

(b) Critical accounting estimates

Revenue recognition - stage of completion when recognising revenue overtime

Revenue on contracts is recognised based on the stage of completion of a project, which, when using the input method, is measured as a proportion of costs incurred out of total forecast costs. Forecast costs to complete each project are therefore a key estimate in the financial statements and can be inherently uncertain due to changes in market conditions. For the partially complete projects in Tekmar Energy at year end if the percentage completion was 1% different to management's estimate the revenue impact would be £106,590. Within Subsea Innovation and Pipeshield International there were a number of projects in progress over the year end and a 1% movement in the estimate of completion would impact revenue in each by £5,720 and £39,100 respectively. However, the likelihood of errors in estimation is small, as the businesses have a history of reliable estimation of costs to complete and given the nature of production, costs to complete estimate are relatively simple.

The forecast costs to complete also form part of the judgement of management as to whether a contract loss provision is required in line with IAS37. At year end a contract loss provision has been recognised for 2 contracts where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. If the loss making contracts was 1% different to management's estimate the impact on the loss making contract provision would be £4,650.

Recoverability of contract assets and receivables

Management judges the recoverability at the balance sheet date and makes a provision for impairment where appropriate. The resultant provision for impairment represents management's best estimate of losses incurred in the portfolio at the balance sheet date, assessed on the customer risk scoring and commercial discussions. Further, management estimate the recoverability of any accrued income balances relating to customer contracts. This estimate includes an assessment of the probability of receipt, exposure to credit loss and the value of any potential recovery. Management base this estimate using the most recent and reliable information that can be reasonably obtained at any point of review. Given the group's historic recoverability of 100% of receivable balances, no provision for bad debts or credit losses have been accounted for.

The group continues to operate in global markets where payment practices surrounding large contracts can be different to those within Europe. The flow of funds on large capital projects within China tend to move only when the windfarm developer approves the completion of the project. The group has a number of trade receivable balances, within its subsidiary based in China, which have been past due for more than 1 year. At 30^th September 2024 the value of these overdue trade receivables was £1.4m, of a total outstanding trade receivable balance for the entity of £2.9m, These amounts remain outstanding at the approval of the financial statements. Management have not provided for the trade receivable balance or made a credit loss provision on the basis that previous trading history sets a precedent that these balances will be received. Since 2020, the group has traded in China generating £10.1m of revenue, of which £7.2m has been fully received to date which represents full cash receipt on older projects. The amounts which remain outstanding are from more recent projects and none of the values in trade receivables are in dispute with the customer.

Impairment of Non-Current assets

Management conducts annual impairment reviews of the Group's non-current assets on the consolidated statement of financial position. This includes goodwill annually, development costs where IAS 36 requires it, and other assets as the appropriate standards prescribe. Any impairment review is conducted using the Group's future growth targets regarding its key markets of offshore energy and marine civils. Sensitivities are applied to the growth assumptions to consider any potential long-term impact of current economic conditions. Provision is made where the recoverable amount is less than the current carrying value of the asset. Further details as to the estimation uncertainty and the key assumptions are set out in note 6.

4. REVENUE AND SEGMENTAL REPORTING

Management has determined the operating segments based upon the information provided to the executive Directors which is considered the chief operation decision maker. The Group is managed and reports internally by business division and market for the year ended 30 September 2023.

Major customers

In the year ended 30 September 2023 there were three major customers within the group that individually accounted for at least 10% of total revenues (2022: one customer). The revenues relating to these in the year to 30 September 2023 were £13,913,000 (2022: £7,243,000). Included within this is revenue from multiple projects with different entities within the group.

Analysis of revenue by region	12M ending 30 Sep 2023	12M ending 30 Sep 2022
	£000	£000
UK & Ireland	10,146	8,028
Germany	1,133	1,230
Turkey	983	499
Greece	-	409
Denmark	-	757
Other Europe	1,716	2,721
China	1,676	3,847
USA & Canada	3,006	674
Japan	1,083	561
Philippines	1,157	534
Qatar	8,036	8,716
KSA	6,888	509
Other Middle East	2,152	468
Rest of the World	1,932	1,238
	39,908	30,191

Analysis of revenue by market	12M ending 30 Sep 2023	12M ending 30 Sep 2022
	£000	£000
Offshore Wind	17,659	14,705
Other offshore	22,249	15,486
	39,908	30,191

Analysis of revenue by product category	12M ending 30 Sep 2023	12M ending 30 Sep 2022
	£000	£000
Offshore Energy protection systems & equipment	20,119	15,497
Marine Civils	18,320	12,734
Engineering consultancy services	1,469	1,960
	39,908	30,191

Note - Engineering consultancy services forms part of the offshore energy segment

Analysis of revenue by recognition point	12M ending 30 Sep 2023	12M ending 30 Sep 2022
	£000	£000
Point in Time	3,922	10,048
Over Time	35,986	20,143
	39,908	30,191

At 30 September 2023, the group had a total transaction price £19,462k (2022: £15,488k) allocated to performance obligations on contracts which were unsatisfied or partially unsatisfied at the end of the reporting period. The amount of revenue recognised in the reporting year to 30 September 23 which was previously recorded in contract liabilities was £3,188k (2022: £1,168k)

Profit and cash are measured by division and the Board reviews this on the following basis.	Offshore Energy 2023	Marine Civils 2023	Group/ Eliminations	Total 2023
	£000	£000	£000	£000

Revenue	21,588	18,320	-	39,908
Gross profit	3,975	5,326	-	9,301
% Gross profit	18%	29%	-	23%
Operating (loss)/ profit	(9,554)	2,798	(2,533)	(9,289)

Analysed as: Adjusted EBITDA	(2,087)	3,544	(1,780)	(323)
Depreciation	(1,018)	(298)	(12)	(1,327)
Amortisation	(594)	-	(168)	(763)
Share based payments	(63)	(82)	(363)	(508)
Impairment of goodwill	(4,745)	-	-	(4,745)
Exceptional bonus payments	(314)	(34)	(82)	(430)
Foreign Exchange losses	(672)	(255)	2	(926)
Restructuring costs	(61)	(77)	(130)	(268)

Operating (loss)/ profit	(9,554)	2,798	(2,533)	(9,289)

Interest & similar expenses	(55)	(10)	(569)	(634)
Tax	521	(789)	67	(201)
(Loss) / profit after tax	(9,087)	1,999	(3,036)	(10,124)

	Offshore Energy 2023	Marine Civils 2023	Group/ Eliminations	Total 2023
	£000	£000	£000	£000

Other information
Reportable segment assets	17,391	10,169	25,695	53,255
Reportable segment liabilities	(8,175)	(3,208)	(7,218)	(18,601)

The goodwill and other intangible assets allocated to group for the purposes of internal reporting are £16,445k for Offshore energy and £2,805k for Marine civils

	Offshore Energy 2022	Marine Civils 2022	Group/ Eliminations	Total 2022
	£000	£000	£000	£000

Revenue	17,455	12,736	-	30,191
Gross profit	4,442	2,596	-	7,038
% Gross profit	25%	20%	-	23%
Operating (loss)/ profit	(3,405)	789	(1,945)	(4,561)

Analysed as: Adjusted EBITDA	(1,988)	1,020	(1,339)	(2,307)
Depreciation	(1,099)	(271)	-	(1,370)
Amortisation	(506)	-	(606)	(1,112)
Foreign Exchange gains	188	40	-	228
Operating (loss)/ profit	(3,405)	789	(1,945)	(4,561)

Interest & similar expenses	(318)	(185)	(164)	(667)
Tax	(237)	175	161	99
(Loss) / profit after tax	(3,960)	779	(1,948)	(5,129)

	Offshore Energy 2022	Marine Civils 2022	Group/ Eliminations	Total 2022
	£000	£000	£000	£000

Other information
Reportable segment assets	19,029	9,541	28,175	57,766
Reportable segment liabilities	(5,530)	(4,483)	(7,631)	(17,644)

5. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the earnings attributable to equity shareholders by the weighted average number of ordinary shares in issue. Diluted earnings per share are calculated by including the impact of all conditional share awards.

The calculation of basic and diluted profit per share is based on the following data:

	12M ending 30 Sep 2023	12M ending 30 Sep 2022
Earnings (£'000)
Earnings for the purposes of basic and diluted earnings per share being profit/(loss) for the year attributable to equity shareholders	(10,124)	(5,219)
Number of shares
Weighted average number of shares for the purposes of basic earnings per share	94,694,962	56,719,539
Weighted average dilutive effect of conditional share awards	4,346,203	968,399
Weighted average number of shares for the purposes of diluted earnings per share	99,041,164	57,687,938
Profit per ordinary share (pence)
Basic profit per ordinary share	(10.69)	(9.04)
Diluted profit per ordinary share	(10.69)	(9.04)

Adjusted earnings per ordinary share (pence)*	(4.49)	(8.06)
The calculation of adjusted earnings per share is based on the following data:
	2023	2022
	£000	£000
(Loss) for the period attributable to equity shareholders	(10,124)	(5,129)
Add back:
Impairment of goodwill	4,745	-
Amortisation on acquired intangible assets	168	605
Share based payment on IPO and SIP at Admission	508	-
Exceptional bonus costs	430
Tax effect on above	22	(12)
Adjusted earnings	(4,251)	(4,536)

*Adjusted earnings per share is calculated as profit for the period adjusted for amortisation as a result of business combinations, one off items, share based payments and the tax effect of these at the effective rate of corporation tax, divided by the closing number of shares in issue at the Balance Sheet date. This is the measure most commonly used by analysts in evaluating the business' performance and therefore the Directors have concluded this is a meaningful adjusted EPS measure to present.

6. GOODWILL AND OTHER INTANGIBLES

	Goodwill	Software	Product development	Trade name	Customer relationships	Total

	£000	£000	£000	£000	£000	£000
COST
As at 1 October 2021	26,292	394	3,181	1,289	1,870	33,026
Additions	-	16	353	-	-	369
Disposals	-	(116)	(34)	-	-	(150)
Forex on consolidation	-	-	3	-	-	3
As at 30 September 2022	26,292	294	3,503	1,289	1,870	33,248
Additions	-	-	311	-	-	311
As at 30 September 2023	26,292	294	3,814	1,289	1,870	33,559

AMORTISATION AND IMPAIRMENT
As at 1 October 2021	4,109	132	1,798	326	1,354	7,719
Charge for the period	-	139	367	129	477	1,112
Eliminated on disposals	-	(116)	(34)	-	-	(150)
Forex on consolidation	-	-	3	-	-	3
As at 30 September 2022	4,109	155	2,134	455	1,831	8,684
Amortisation charge for the year	-	139	456	129	39	763
Impairment charge	4,745	-	-	-	-	4,745
As at 30 September 2023	8,854	294	2,590	584	1,870	14,192

NET BOOK VALUE
As at 30 September 2021	22,183	262	1,383	963	516	25,307
As at 30 September 2022	22,183	139	1,369	834	39	24,564
As at 30 September 2023	17,438	-	1,224	705	-	19,367

The remaining amortisation periods for software and product development are 6 months to 48 months (2022: 6 months to 48 months).

Goodwill has been tested for impairment. The method, key assumptions and results of the impairment review are detailed below:

Goodwill is attributed to the CGU being the division in which the goodwill has arisen. The Group has 2 CGUs and the goodwill related to each CGU as disclosed below.

Goodwill

2023

£000

2022

£000

Offshore Energy Division

14,848

19,593

Marine Civils Division

2,590

Goodwill is allocated to two CGUs being Offshore Energy and Marine Civils. Goodwill has been tested for impairment by assessing the recoverable amount of each cash generating unit. The recoverable amount is the higher of the fair value less costs to sell (FVLCD) and the value in use. The value in use has been calculated using budgeted cash flow projections for the next 4 years. A terminal value based on a perpetuity calculation using a 2% real growth rate was then added. The next 4 years forecasts have been compiled at individual CGU level with the forecasts in the first 2 years modelled around the known contracts which the entities have already secured or are in an advanced stage of securing. A targeted revenue stream based on historic revenue run rates has then been incorporated into the cashflows to model contracts that are as yet unidentified that are likely be won and completed in the year. The forecasts for year 3 and year 4 are based on assumed growth rates for each individual entity, the total growth rate for the group (CAGR 13.5%) are in line with expected market rate. The value in use calculation models an increase in revenue for the offshore energy division of 16% across year 3 and year 4 and then 2% into perpetuity. The growth rates for year 3 and 4 are comparable to the expected market CAGR. The group has used the fair value less costs to sell as the estimate of recoverable amount for one subsidiary of the offshore energy division, as the FVLCD was in excess of the value in use.

The cashflow forecasts assume growth in revenue and profitability across the Group. These growth rates are based on a combination of business units returning to previously experienced results combined with externally generated market information. The discount rates are consistent with external information. The growth rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated profits of the Group in the future.

In addition to growth in revenue and profitability, the key assumptions used in the impairment testing were as follows:

· Gross Margin % returning towards FY20 levels for offshore energy division

· A post tax discount rate of 15.5 % WACC (FY22 13.5%) estimated using a weighted average cost of capital adjusted to reflect current market assessment of the time value of money and the risks specific to the group

· Terminal growth rate percentage of 2% (FY22: 2%)

The discount rate used to test the cash generating units was the Group's post-tax WACC of 15.5%. The goodwill impairment review has been tested against a reduction in free cashflows. The Group considers free cashflows to be EBITDA less any required capital expenditure and tax.

The value in use calculations performed for the impairment review, together with sensitivity analysis using reasonable assumptions, indicate sufficient headroom for the goodwill carrying value in the Marine Civils CGU.

The value in use calculations have a range of assumptions, which if changed would lead to a change in the impairment charge recognised. To assess these changes management have run a model which sensitises the assumption on EBITDA generated in the offshore wind division. Management believes that the offshore wind division will grow faster than market rates in FY24 and FY25 due to contract visibility, however if the product sales in the offshore wind GCU only grows in line with market CAGR of 16% for the forecast period, the impairment charge in offshore wind division would be £12,136,000 as opposed to the £4,745,000 recognised in the financial statements for FY23. Similarly if the revenues generated in the consultancy business fell by 10% against the base case for the forecast period, the impairment charge in Tekmar Limited would increase to £5,979,000.

Management has considered the most likely worst-case scenario in the Marine Civils CGU to be to be a reduction in free cashflows to 80% of the base case. Under this sensitivity test sufficient headroom was available to support the carrying value of goodwill in the Marine Civils CGU.

Further sensitivity analysis performed by management shows that free cashflows would have to reduce to 27% (Marine Civils) of forecasted base case values to trigger an impairment of goodwill. The post-tax discount rate of 15.5% would need to increase to 54% in Marine Civils to trigger an impairment of goodwill. Management do not consider either of these scenarios to be likely.

All amortisation charges have been treated as an expense and charged to cost of sales and operating costs in the income statement.

7. TRADE AND OTHER RECEIVABLES

	30 Sep 2023	30 Sep 2022
	£000	£000
Amounts falling due within one year:
Trade receivables not past due	2,963	2,698
Trade receivables past due (1-30 days)	4,822	1,948
Trade receivables past due (over 30 days)	5,547	3,279
Trade receivables not yet due (retentions)	650	1,620
Trade receivables net	13,982	9,545

Contract assets	4,628	3,194
Other receivables	328	203
Prepayments and accrued income	796	433
	19,734	13,375

Trade and other receivables are all current and any fair value difference is not material. Trade receivables are assessed by management for credit risk and are considered past due when a counterparty has failed to make a payment when that payment was contractually due. Management assesses trade receivables that are past the contracted due date by up to 30 days and by over 30 days.

The carrying amounts of the Group's trade and other receivables are all denominated in GBP, USD, EUR and RMB.

There have been no provisions for impairment against the trade and other receivables noted above. The Group has calculated the expected credit losses to be immaterial.

8. BORROWINGS	30 Sep 2023	30 Sep 2022
	£000	£000
Current
Trade Loan Facility Lease liability	3,575 471	3,990 208
CBILS Bank Loan	3,000	3,000
	7,046	7,198
Non-current
CBILS Bank Loan Lease liability	- 834	- 194
	834	194
	2023	2022
	£000	£000
Amount repayable
Within one year In more than one year but less than two years	7,049 327	7,198 144
In more than two years but less than three years	290	39
In more than three years but less than four years	214	11
In more than four years but less than five years	-	-
	7,880	7,392

The above carrying values of the borrowings equate to the fair values.

	2023	2022
	%	%
Average interest rates at the balance sheet date
Lease liability	5.60	3.25
Trade Loan Facility	7.50	3.75
CBILS Bank Loan	7.50	2.40

The CBILS Bank Loan was renewed in October 2023 and is due for maturity on 31 October 2024, The trade Loan Facility has been renewed post year end and is due for Maturity on 31 July 2024, as described in note 2b.

Lease liability

This represents the lease liability recognised under IFRS 16. The assets leased are shown as a right of use asset within Property, plant and equipment (note 12) and relate to the buildings from which the Group operates, along with leased items of equipment and computer software.

The asset and liability have been calculated using a discount rate between 3.25% and 6% based on the inception date of the lease.

These leases are due to expire between May 2024 and August 2028.

9. PROVISIONS

All provisions are considered current. The carrying amounts and the movements in the provision account are as follows:

	Onerous contracts £000	Total £000

Carrying amount at 1 October 2022	-	-
Additional provision	465	465
Amounts utilised	-	-
Reversals	-	-
Carrying amount at 30 September 2023	465	465

The provision recognised in the year ending 30 September 2023 is for onerous contracts. The group has assessed that the unavoidable costs of fulfilling the contract obligations exceed the economic benefits expected to be received from the contract. The provision relates to two contracts in the offshore energy division which are expected to be completed in the year ending September 2024.

10. CONTINGENT LIABILITIES

Contingent liabilities are disclosed in the financial statements when a possible obligation exists, the existence will be confirmed by uncertain future events that are not wholly within the control of the entity. Contingent liabilities also include obligations that are not recognised because their amount cannot be measured reliably or because settlement is not probable.

As noted by the Group in prior public announcements, there is an emerging industry-wide issue regarding abrasion of legacy cable protection systems installed at off-shore windfarms. The precise cause of the issues are not clear and could be as a result of a number of factors, such as the absence of a second layer of rock to stabilise the cables. The decision not to apply this second layer of rock, which was standard industry practice, was taken by the windfarm developers independently of Tekmar. Tekmar is committed to working with relevant installers and operators, including directly with customers who have highlighted this issue, to investigate further the root cause and assist with identifying potential remedial solutions. This is being done without prejudice and on the basis that Tekmar has consistently denied any responsibility for these issues. However, given these extensive uncertainties and level of variabilities at this early stage of investigations no conclusions can yet be made.

Tekmar have been presented with defect notifications for 10 legacy projects on which it has supplied cable protection systems ("CPS"). These defect notifications have only been received on projects where there was an absence of the second layer of rock traditionally used to stabilise the cables.

Management acknowledges that there are many complexities with regards to the alleged defects which could lead to a range of possible outcomes. Given the range of possible outcomes, management considers that a possible obligation exists which will only be confirmed by further technical investigation to identify the root cause of alleged CPS failures. As such management has disclosed a contingent liability in the financial statements.

Tekmar has received a further 2 defect notifications in relation to alleged defects with the loosening of VBR fasterners. The precise cause of the issues are not clear and could be as a result of a number of factors, such as the incorrect placing of rock bag shielding and restraint. Tekmar is committed to working with relevant customers, to investigate further the root cause and assist with identifying potential remedial solutions. This is being done without prejudice and on the basis that Tekmar has denied any responsibility for these issues. However, given these extensive uncertainties and level of variabilities at this early stage of investigations no conclusions can yet be made.

At this stage management do not consider that there is a present obligation arising under IAS37 as insufficient evidence is available to identify the overall root cause of the damage to any of the CPS. Independent technical experts have been engaged to determine the root cause of the damage to the CPS and upon completion of these technical assessments, Tekmar will review the assessment as to whether a present obligation exists. Given the range of possible outcomes, management considers that a possible obligation exists which will only be confirmed by further technical investigation to identify the root cause of alleged CPS failures. As such management has disclosed a contingent liability in the financial statements.

Management acknowledges that there are many complexities with regards to the alleged defects which could lead to a range of possible outcomes. Given the range of possible outcomes, management considers that determining whether a possible obligation exists, can only be confirmed by further technical investigation to identify the root cause of alleged CPS failures. As such management has disclosed a contingent liability in the financial statements.

Tekmar has received a further defect notification in relation to incorrect coating specification on 1 historic project. This defect notification is in relation to units which had not yet been installed and have been recoated post year end at no cost to Tekmar. There are a number of units which have been installed in relation to the same legacy project which may have the incorrect coating specification. At this stage management do not consider that there is a present obligation arising under IAS37 as insufficient evidence is available to identify whether any unresolved defects exist. Given the range of possible outcomes, management considers that determining whether a possible obligation exists, can only be confirmed by further technical investigation to identify any further units which have may not have been coated to the correct specification. As such management has disclosed a contingent liability in the financial statements.

Tekmar Group plc has taken exemption under IAS37, Paragraph 92 to not disclose information on the range of financial outcomes, uncertainties in relation to timing and any potential reimbursement as this could prejudice seriously the position of the entity in a dispute with other parties on the subject matter as a result of the early stage of discussions.

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Tekmar Group (TGP)

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