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

TEKMAR GROUP PLC

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

UNAUDITED INTERIM RESULTS

For the 6-month period ending 31 March 2022

Tekmar Group (AIM: TGP), a leading provider of technology and services for the global offshore energy markets, announces its half year results for the 6-month period ending 31 March 2022 ("H1 2022" or the "Period") and also notifies it is separately announcing today that the board of directors (the "Board") has determined to undertake a review of the strategic options open to the Company in order to maximise value for shareholders. These options include, but are not limited to, a sale of the Company which will be conducted under the framework of a "formal sale process" in accordance with the Takeover Code.

Headlines

Current trading remains challenging albeit consistent with management expectations

·    Revenue of £13.0m (6M to 31 March 2021: £13.9m) and Adjusted EBITDA loss of £1.8m (6M to 31 March 2021: loss of £1.1m), is in-line with management expectations for the period

·    On a statutory basis Group loss before tax was £3.2m (6M to 31 March 2021: £2.2m loss)

Recent landmark contract awards highlight the appeal of Tekmar's differentiated and engineering-led solutions, and signal that the market environment for commissioning offshore wind projects is improving

·    Contract award to design, manufacture and supply Cable Protection System Solution ("CPS") for Dogger Bank Offshore Wind Farm

·    US$10m award for pipeline support and protection for a major subsea customer in the Middle East, Tekmar's largest single contract award to date

·    Further expansion into the strategically important US offshore wind market with the recent award to provide an integrated engineering and CPS solution for a US offshore wind farm project

·    The above contract awards support a healthy order book of £20.1m as at the end of March 2022

Significant actions taken during the period to stabilise the Group's balance sheet

·    The Group extended its £3.0m CBILs facility to October 2022 and extended and increased its trade loan facility to £4.0 million, which is available at least to November 2022

·    The Group raised additional cash proceeds of £3.7m, net of expenses, through a Firm Placing and Open Offer of new ordinary shares which completed in March 2022

·    Cash on the balance sheet of £10.3m at the period-end is overstated by £5.2m due to a customer overpayment, which has now been repaid. Available cash at the period-end net of this overpayment was £5.1m and includes the funds received from the equity fundraise and draw down of bank facilities of £5.7m

H1 2022 financials

Sales KPIs

 Alasdair MacDonald, CEO, commented: 

"We continue to see 2022 and 2023 as transition years for Tekmar as we stabilise the business through the residual impacts of the pandemic and drive our business improvement programs to recover a sustainable level of profitability and cash generation for the business. Whilst we are making satisfactory progress in delivering on our strategic plans, our planned timeframes to establish the improved financial performance for the business we are targeting are being hampered by the prevailing industry conditions, which remain challenging.

On a more positive note, we are greatly encouraged by the momentum we have in securing landmark contracts. These contracts provide a good level of forward visibility for the business as we work on the transition and are an important marker of the market starting to recover.

We remain focused on managing the business through the current industry-wide pressures to benefit from this recovery. Whilst cautious on the environment in the near-term, with a focus on cash preservation prevalent across the industry an added pressure, the market opportunity for Tekmar remains significant, with our differentiated and integrated solutions adding value to our customers in large addressable markets."

Notes:

Enquiries:

The person responsible for arranging the release of this announcement on behalf of the Company is Derek Bulmer, Chief Financial Officer.

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.

INTERIM REPORT FOR THE 6 MONTHS TO 31 MARCH 2022

CEO overview

The financial results we are reporting today, with the headlines of revenue of £13.0m and an adjusted EBITDA loss of £1.8m, are in-line with our expectations for the first half at the time we announced our FY21 results in February. Whilst these results are consistent with management's expectations for the period, they do highlight the continued challenging environment in which the Company has operated over the last two years.

These results are also consistent with one of my key messages since assuming the role of CEO - that the business requires a transition period as we position Tekmar to recover a sustainable level of profitability and cash generation. We see this transition running through 2022 and 2023 as we navigate the ongoing industry pressures including the current dislocation triggered by the events in Ukraine.

A consequence of the Company incurring the level of sustained losses it has over the last two years has been the weakening of the balance sheet over this period. Since Derek Bulmer joined as Group CFO on 1 June 2021, to strengthen the management team, a key priority for the business has been to stabilise the balance sheet. A number of significant steps have been taken to improve the cash position, including renewing and extending the banking facilities, strengthening the systems and processes relating to cash collection, embedding a more disciplined approach to contract bidding and negotiation and undertaking the equity fundraise undertaken earlier this year. Whilst the net proceeds raised through the fundraise of £3.7m incrementally supports the balance sheet and the Group's turnaround strategy, it does not go as far as the Board would have wanted in fulfilling the objective of strengthening the balance sheet given the sustained period of losses and anticipated further challenges during the transition period over 2022 and 2023.

Operational progress highlighted by significant contract momentum

Alongside strengthening the balance sheet, the other key priority for the management team has been to deliver on the strategy to maintain Tekmar's position as a leader in the industry. The Group is making good progress towards meeting its strategic goals set out at the 2021 Capital Markets Day in support of this objective. The Company is embedding a stronger engineering culture within the business as a key pillar of strengthening the value proposition to customers. The success of this approach is highlighted by a number of significant contract wins announced by the Company over the course of the last six months. These contract awards highlight Tekmar's continued position as a trusted partner alongside strengthening the business through diversification and regional expansion.

Of particular note in this context are the following landmark contract awards:

- the partnership with DEME Offshore, announced in December 2021, contracting Tekmar to design, manufacture and supply Cable Protection System Solutions (CPS) for the Dogger Bank Wind Farm, which is set to become the world's largest offshore wind farm by capacity;

- the US$ 10m contract award announced in January 2022, to provide pipeline support and protection materials for a major subsea construction project in the Middle East. This is Tekmar's largest contract award to date; and

- the recent award of a significant contract to provide an integrated engineering solution, including Cable Protection System Solutions ("CPS"), for an offshore wind farm project in the US (expected to be delivered in 2023), extending our presence in this strategically important market.

These recent contract wins underpin an order book of £20.1m (as at end March 2022), which highlights the commercial momentum across the business. This momentum, order book visibility and broader pipeline of contract activity are particularly significant for the business as management stabilises and completes the turnaround of the business.

Industry cross-winds - short-term industry-wide challenges mask the longer-term market opportunity

The Group has been executing on its turnaround strategy at the same time as it continues to work with industry partners to assess and address the industry wide issues relating to legacy cable installations. Whilst the business is managing this as part of its commitment to responsibly supporting its customers, and the learnings complement its existing expertise and capability and supports its strategic initiative to further diversify across the wider lifecycle of offshore wind projects, it requires the Company to dedicate significant engineering and senior management resource.  The issues surrounding the ultimate resolution of these legacy issues are complex and multi-faceted and may be likely to continue to consume significant company resource and senior management attention for the foreseeable future. For a business the size of Tekmar this becomes a particularly onerous undertaking alongside executing a turnaround strategy in a market environment which remains challenging.

The contract awards highlighted above also signal an improving market outlook for commissioning new projects, as the industry emerges from the lag in offshore wind capacity investment we have highlighted with previous results announcements. Industry analysts highlight visibility on over 300 projects for construction by 2030 as the industry invests US$520bn⁽¹⁾ to build over 200GW⁽²⁾ of new offshore wind capacity by 2030. Additionally, the offshore wind market is a maturing industry with installations and ongoing maintenance become more complex and challenging. This is positive for Tekmar as we are using our expertise to provide the industry leading solutions in our field. It can, however, also lead to extended timelines for securing contracts as clients assess the impact of technology transition and the changing value proposition from a product-led approach to a more holistic integrated solutions and services led approach.

Whilst the market fundamentals support a positive medium to long term outlook, the current market environment remains challenging for contract related businesses operating in global energy supply chains. The issue of funding and cash pressure across the industry is evident from the extent of major corporate restructurings undertaken over the course of the last 12 months or so and companies continue to reference cash preservation as a key theme in public disclosures. Tekmar has not been immune from the impact of these pressures, with extended payment cycles a tactic being deployed by certain counterparties. The industry is also dealing with the ongoing disruption to global trade of "exogeneous shocks", which now extends to the repercussions of the Ukraine crisis. We are taking a proactive approach to mitigate cost inflation and supply chain issues, including escalation clauses on new contracts alongside more favourable milestone and earlier cash payments. This is consistent with our overall business improvement programme which is aligned with our objective of gross margin improvement through embedding a more disciplined commercial approach across the business.

We remain focused on delivering on our plans and on managing the business through the current headwinds, including prioritising balance sheet stability and cash. The Group meets its day-to-day working capital requirements through its available banking facilities which includes a CBILs loan of £3.0m, currently available to 31 October 2022, and a trade loan facility of up to £4.0m that can be drawn against supplier payments, currently available to 30 November 2022. As was outlined in the Company's audited accounts for the 18-month period to 30 September 2021, whilst these renewals are expected with some confidence, they represent a material uncertainty for the Group. The Board recognises this creates a potential vulnerability for the business, particularly at a time when the industry environment remains challenging. The Group's available cash at the period end of £10.3m over-states the Group's available cash position as it includes an overpayment of £5.2m by a customer that has subsequently been repaid. Available cash at the period-end net of this overpayment was £5.1m. This includes the net proceeds of £3.7m raised in the equity fundraise earlier in the year and draw down of bank facilities of £5.7m.

Announcement of strategic review including a formal sale process

Whilst the Group is currently operating with sufficient working capital for its requirements, the combination of sustained trading losses and increased pressure on working capital mean that the Group may not have the necessary cash to make all the required investment to deliver fully the turnaround strategy to return the Group to profitable cash generation within the timescale targeted by the Board.

In light of these matters, the Board considers that the Group's best interests would be served by seeking a strategic partner to support its opportunities for growth and provide additional balance sheet strength.  Accordingly, the Board has now determined to undertake a review of the strategic options open to it in order to maximise value for shareholders. These options include, but are not limited to, a sale of the Company which will be conducted under the framework of a "formal sale process" in accordance with the Takeover Code.

Further information on this process is set out in the strategic review and formal sales process announcement released separately today.

Market  overview

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

·    Global capacity is forecast to reach over 258GW (installed or underway) by 2030, from a commissioned capacity of 53GW today, with current visibility of over 300 projects.^{(1), (2)}

·    Considering growing energy security concerns triggered by Russia's invasion of Ukraine, the market's mid-term outlook could be revised upwards again.

·    Almost 40% of projects entering construction by 2032 will be in the UK, US and China, markets where Tekmar is already active and well-positioned to benefit from future growth.⁽¹⁾

·    The global operation and maintenance (O&M) market continues to scale up and is now valued at £11.8bn per year by 2030, offering significant growth potential for the Group. ⁽¹⁾

·    In the last six months, the emerging floating wind market outlook has grown by 4GW to 16GW, installed or underway by 2030, motivated by a requirement to cut carbon emissions and reduce dependency on Russian energy.⁽¹⁾

Adjacent offshore energy markets are strengthening, reflecting a stronger oil price. Most notably:

·    Brent spot price has reached a ten year high of $120 per barrel.

·    Upturn expected in UK North Sea activity due to short-term anxiety of supply. UK regulators are looking to hold oil and gas licencing rounds for new fields, and the UK government looking to fast track investment.     

Post period-end events

On 6 May 2022, the Company announced the appointment of David Wilkinson as a new independent Non-executive Director replacing Chris Gill, effective from the date of the announcement.

On 25 May 2022, the Company announced a contract award to provide an integrated engineering solution, including Cable Protection Systems ("CPS"), for an offshore wind farm project in the US, strengthening its position in this strategically important market.

Alasdair MacDonald

CEO

13 June 2022

Sources:

(1) 4C Offshore, Offshore Wind Farms Project Opportunity Pipeline Database, Version Q1 2022

(2) 4C Offshore - Offshore Wind Farm Database (06-Apr-2021 to 09-Jun-2022)

Financial review

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

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

·   Adjusted EPS is a key metric used by the Directors and measures earnings after adjusting for non-recurring items. Earnings for EPS calculation are adjusted for share-based payments awarded on IPO (£0k HY22, £44k HY21) and amortisation on acquired intangibles (£376k HY22, £376k HY21).

On a statutory basis Group loss before tax was £3.2m (HY21: £2.2m loss).

Overview

In the 6 months to 31 March 2022, the Group has endured the impacts of delayed financial investment decisions in the industry during the Covid pandemic. The 6-month period to 31 March 2022 has seen revenue at £13.0m, down by 6.2% on the 6-months to 31 March 2021.  The business has seen cost pressures and inefficiencies remain, driven by these lower volumes, supply chain and logistics matters. The group continues to experience the challenging operating environment across the industry which has seen gross profit fall to 22.2% for the 6 months ending 31 March 2022 from 25.8% for the comparative 6-month period.  As a result of decreased revenues and gross margin, Adjusted EBITDA has fallen to a loss of £(1.8)m for the 6 month period (HY21: Loss £1.1m).

Despite the challenges faced by the Group, we continue to view the current year as a transition year. We presented the Group's strategic plan to investors in the Capital Markets Day of 22nd July 2021, setting out the significant medium and long term prospects of the Group.  This driven by the expansion in offshore wind energy anticipated at the time from 33GW to over 238GW by 2030, drawing from the engineering and technology base of the Group, supplemented by the acquisitions on complementary technologies and products during 2018 and 2019.   

As announced on 16^th March 2022, the Group successfully raised approximately £3.7m (net of expenses) through the Firm Placing and Open Offer. The proceeds of the fundraise have been used to strengthen the balance sheet and will help support the delivery of the strategic plan as the business seeks to transition to sustained profitable growth.

Revenue

Offshore Energy, incorporating Tekmar Energy, Subsea Innovation, AgileTek and Ryder Geotechnical, all of which operate largely as a single unit, continued to see revenue severely impacted by the protracted effects of the pandemic, with revenue at £7.8m for 6-months compared to £9.6m for the comparative 6-month period. Revenue is behind the comparative period due to customer delays in project execution dates. 

The Marine Civils division has seen an increase in revenue of £0.9m, up from £4.3m for the comparative 6-month period to £5.2m for the 6-months to 31 March 2022. The majority of the underlying growth was driven by a single contract of in excess of £8m to design, build and supply a subsea protection system for a project in Qatar.

Gross profit

Gross profit margin for the group reduced from 25.8% (HY21) to 22.2% (HY22). This is due primarily to a change in project mix, with a higher proportion of group revenues being derived from the Marine Civils division, which operates at lower profit margins. The Group has also continued to face cost pressures driven by the global supply chain and logistics issues.  

Within Offshore Energy, gross profit fell to 24% (HY21: 27%) and within Marine Civils, gross profit fell to 19% (HY21: 23%) due to the impacts noted above.  Offshore Energy was particularly impacted due to lower volumes of sales as it carries fixed manufacturing costs of an annual equivalent of £2m.  Further, this division continue to incur costs supporting investigations to support our customers in the industry wide infield cable protection issues caused by the movement of the CPS over the rock-scour protection installed on the seabed. 

Operating expenses

Operating expenses for the 6-month period to 31 March 2022 was £6.0m (HY21: £6.0m). There have been no changes in the composition of the running costs of the business with the comparative period. 

Adjusted EBITDA

Adjusted EBITDA is a primary measure used across the business to provide a consistent measure of trading performance.  The adjustment to EBITDA removes certain non-cash and exceptional items to provide a key metric to the users of the financial statements as it represents a useful milestone that is reflective of the performance of the business resulting from movements in revenue, gross margin and the cash costs of the business.  The Board reviews all exceptional items to ensure resulting Adjusted EBITDA achieves this. For the 6-month period ended 31 March 2022 and the comparable 6-month period to 31 March 2021, the adjustment includes share-based payment charges relating to the IPO options and SIP schemes launched at IPO costs. 

Profit

The result after tax is a loss of £3.2m (HY21: Loss £2.1m, FY21: Loss £5.4m)) due mainly to a fall in revenue and reduction in gross margin as set out above.

Balance Sheet

Fixed Assets

Fixed asset investments were largely in line with depreciation levels. There was no major capital expenditure project or disposal in the period.

Other non-current assets

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

Trade and other receivables

Trade and other receivables fell to £15.8m (HY21:  £18.5m) due largely to the fall in revenue levels discussed earlier in this review. The high levels of debtors and accrued income relative to revenue reflects the large number of contracts across the Group, including in Offshore Energy into China, plus the major contracts within the Marine Civils division where project milestones were towards the end of the reporting period, or the projects were not yet due for invoicing.  Added to this, the Group has seen the impact of slowing down of payment cycles from a number of customers noted earlier.

Cash

Cash balance at the period end to 31 March 2022 was £10.4 million. As announced on 16th March 2022, the Group successfully raised £3.7m (net of expenses) through the Firm Placing and Open Offer. The proceeds of the fundraise have been used to strengthen the balance sheet and will help support the delivery of the strategic plan as the business transitions to sustained profitable growth. At the period end, the Group had received a milestone overpayment from one of its customers of £5.2m, resulting in an inflated cash and other current liabilities position.  Included within cash is £5.7m of draw down of the banking facilities.

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

Trade and other payables

Trade and other payables increased to £12.1m (HY21:  £8.1m).  Within the HY22 balance of £12.1m, £5.2m relates to an overpayment from a customer, which was refunded in April 2022. The underlying reduction in the balance of £1.3m is linked to lower revenues throughout the group.

Other non-current liabilities

Other non-current liabilities are £3.7m (HY21:  £1.0m), with the increase due to the drawdown and renewal of the £3.0m CBILs facility.  Other amounts relate to lease liabilities in relation to IFRS16, deferred grant income and £0.3m in deferred tax liability relating to the Pipeshield acquisition in 2019.

Derek Bulmer

CFO

13 June 2022

Consolidated statement of comprehensive income

for the 6M period ended 31 March 2022

All results derive from continuing operations.

1: Adjusted EBITDA, which is defined as profit before net finance costs, tax, depreciation, amortisation, share based payments charge, and exceptional items is a non-GAAP metric used by management and is not an IFRS disclosure.

Consolidated balance sheet

as at 31 March 2022