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Tekmar Group PLC
25 June 2019
 

25 June 2019

 

TEKMAR GROUP PLC

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

 

FINAL RESULTS 2019

 

Tekmar Group (AIM: TGP), a market-leading technology provider of protection systems for subsea cable, umbilical and flexible pipes and offshore engineering services, announces its final results for the year ended 31 March 2019 ("FY19").

 

Highlights:

 

·

Strong result in H2 with FY19 in line with revised market expectations

·

Revenue growth of 28.3% with Compound Annual Growth Rate over last five years at 21.5%

·

Strong balance sheet, following successful IPO in June 2018, enabling the Group to deliver on its growth and diversification strategy

·

Adjusted EPS of 6.0p

·

100% market share of all cable protection systems into European Offshore Wind ("OWF") maintained by Tekmar Energy

·

Two acquisitions completed in the year:

Subsea Innovation in September 2018, adding complementary products in shared markets with specialist engineers to aid new product development

Ryder Geotechnical on 28 March 2019 bringing earlier engagement to customers.

·

Diversification strategy has broadened the Group's technology offering to 47 products (FY18: 20)

·

Market Visibility2 at a record high of £50m a 44% increase year on year

·

Long term global outlook in the Group's markets continues to be positive with oil price stable above $50 a barrel and the offshore wind outlook7 up by 51.3%

 

Key financials:

 

 

 

FY19

FY18

·

Revenue

£28.1m

£21.9m

·

Adjusted EBITDA1

£4.8m

£4.9m

·

Cash

£4.2m

£2.6m

·

Market Visibility2

£50.2m

£34.9m

 

Sales KPIs:

 

 

 

As at 31.03.19

As at 31.03.18

·

Order Book3

£7.2m

£5.4m

·

Preferred Bidder4

£15m

£7.6m

·

Enquiry5

£195m

£145m

·

LTM6 sales conversion

62%

56%

  

Alasdair MacDonald, Non-executive Chairman of Tekmar Group, said:

 

"The market outlook for offshore wind and oil and gas are both strong, with offshore wind CAGR forecasts above 20% between 2018-2028 and demand for products for the oil and gas market at a three-year high.

 

"The Group remains focused on its strategy as stated at IPO to deliver long-term growth through the expansion of new products, organic growth and by selective and complementary acquisitions. On behalf of all the directors, I am pleased to report that the new financial year has started well and, with current order visibility levels, believe that the Group is making good progress to deliver results in line with market expectations in FY20."

 

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

2. Market Visibility is defined as: Revenue + Order Book + Preferred Bidder.  This measure is calculated from the sum of the previous 12 months' turnover plus pending contracts under negotiation on which we have Preferred Bidder Status and the Group's Secured Order Book.

3. Order Book is defined as signed contracts with clients. Expected revenue recognition within 6 months.

4. Preferred bidder is defined as out of competitive tender process, selected as sole bidder in active contract negotiations. Expected revenue recognition within 12 months.

5. All active lines of enquiry within the Tekmar Group. Expected revenue recognition within three years.

6. LTM is defined as Last Twelve Months conversion rate; Total Bid to Win ratio.

7. Improvement in Offshore Wind Market Outlook March 2018 vs March 2019, Source: 4C Offshore Wind Farm Global Market Overview Report - April 2019

 

For further information contact:

 

Tekmar Group plc

James Ritchie-Bland, Chief Executive Officer

Sue Hurst, Chief Financial Officer

 

Tel: +44 (0)1325 379 520

Grant Thornton UK LLP (Nominated Adviser)

Philip Secrett / Samantha Harrison

 

Tel: +44 (0)20 7383 5100

Berenberg (Broker)

Chris Bowman / Ben Wright

 

Tel:  +44 (0)20 3207 7800

Belvedere Communications (Financial PR)

Cat Valentine (cvalentine@belvederepr.com)

Llew Angus (langus@belvederepr.com)

Keeley Clarke, (kclarke@belvederepr.com)

 

Tel: +44 (0) 7715 769 078

Tel: +44 (0) 7407 023 147

Tel: +44 (0) 7967 816 525

 

About Tekmar Group plchttps://investors.tekmar.co.uk/

 

Tekmar Group plc's vision is to be the partner of choice for the supply and installation support of subsea protection equipment to the global offshore energy markets. The Group has four primary operating companies; these are Tekmar Energy Limited, Subsea Innovation Limited, AgileTek Engineering Limited and Ryder Geotechnical Limited.

 

Tekmar Energy is a global market leader in subsea cable, umbilical and flexible pipe protection systems. Tekmar have been trusted to protect billions of Euros worth of assets in the offshore wind, oil & gas, wave, tidal and interconnector markets since 1985: https://www.tekmar.co.uk/

 

Subsea Innovation is a global leader in the design, manufacture and supply of complex engineered equipment and technology used in the offshore energy market. Its products include large equipment handling systems which operate on the back of pipelay installation vessels; emergency pipeline repair clamps (EPRC) which protect major oil and gas pipelines, and bespoke equipment for use in the construction of offshore energy projects: https://www.subsea.co.uk/

 

AgileTek Engineering is an award-winning subsea engineering consultancy for offshore energy projects. AgileTek helps its clients de-risk projects through advanced computer simulation and analysis. https://agiletek.co.uk/ AgileDat, a division of AgileTek, provides software development, cloud architecture and data analytics services. https://agiledat.co.uk/

 

Ryder Geotechnical provides expert geotechnical design and consulting services to the offshore wind and subsea oil and gas sectors. Services include offshore structure foundation design, geohazard assessment and subsea cable routing and burial assessment.  https://www.rydergeotechnical.com/

 

Tekmar Energy and Tekmar Group plc is headquartered in Newton Aycliffe in the United Kingdom; AgileTek operates from an office in London; Subsea Innovation have their head office and manufacturing centre in Darlington, United Kingdom. Tekmar Group plc also has representation in South Korea, USA, China and the Middle East.

 

 

 

CHAIRMAN'S STATEMENT

 

I am pleased to present Tekmar Group's results for the year ended 31 March 2019 ("FY19"), the first since our successful IPO in June last year. It has been an exciting and productive year for the Group, though not one without its challenges, which I am pleased to report that the team successfully addressed. The Group showed its resilience in FY19, delivering substantial revenue growth of 28%, despite facing a rapid change in the procurement pattern from its major offshore wind customers, which is detailed in the CEO's Statement. This industry-wide change, which we reported in our H1 19 results, created a delay in the award of major contracts for our core product TekLink®.

 

In line with our strategy to broaden the Group's technology offering, we completed two complementary acquisitions during the year; Subsea Innovation in September 2018 and Ryder Geotechnical just prior to the year end. Both businesses have been successfully integrated and we are delighted with their contribution to the Group.

 

Whilst the level of growth in profitability in FY19 was affected by the timings in procurement activity in the offshore wind industry, our continued track record in offshore wind array projects in Europe demonstrates the business' unique presence in this market place and provides a strong platform for growth over the next five years.

 

I believe the Group's results for the full year demonstrate the strength of the management team and the people within the business. Whilst the level of profitability expected at the outset of the year has unavoidably been affected by the change in product mix, the management team has worked hard to deliver record revenues, making good progress on the diversification of revenue streams, both organically through innovation and via complementary acquisitions supporting the overall Group's long term vision.

 

Delivery on strategy

 

The successful IPO strengthened the Group's balance sheet considerably, enabling us to deliver on our stated strategic objective to diversify revenue streams and build a solid foundation for expansion and growth.

 

Maintain dominance in the existing and growing offshore wind market

 

I am pleased to report that, once again, we maintained our 100% market share for Array Cable Protection Systems in Europe. We achieved this through TekLink's® intrinsic value proposition, which offers a total solution to customers, not just a product. In addition, we continue to harness technology and evolve the product which is now in its eighth generation.

 

Our overall market share of the global offshore wind market is circa 75%. We have an office in Shanghai, where we are seeing significant growth opportunities, supported by sales agents in Busan, Singapore and Abu Dhabi to support our global position.

 

Overseas growth

 

We continued our expansion into international markets and established an entity in China, a country where we expect to see significant growth for the Asia Pacific offshore wind market.

 

In the Middle East, we delivered a first 'In-Kingdom' project to National Petroleum Construction Company, as part of its long-term agreement with Saudi Aramco.

 

Grow market share in subsea oil and gas

 

The acquisition of Subsea Innovation, shortly after the IPO, increased the Group's access to the oil and gas market, brought significant potential for cross-selling opportunities and increased our technical capabilities and engineering capacity. The Group businesses have already worked together on a number of high profile projects, adding intrinsic customer value.

 

Add new product variations

 

During the year, we increased the number of products that we are able to offer to new and existing clients from 20 to 47 across all sectors.

 

Make selective acquisitions

 

We made two strategic acquisitions in FY19. In September, we acquired Subsea Innovation and, in March 2019, Ryder Geotechnical. Both companies met our strategic objectives of increasing the Group's technology and customer base and extending the Group offering into full lifecycle revenues on projects.

 

Governance

 

We adopted the QCA Corporate Governance Code, which is available to view on the Group's website. The Board recognises the importance of high standards of corporate governance and has appointed In-House Legal Counsel to support this.

 

The Group has a strong culture of excellence and safety first, which is supported by detailed and audited policies and I am pleased to note that Tekmar Energy was one of the first UK businesses to be accredited to ISO 45001, awarded by DNV. During this period of increased activity, the Group also achieved zero lost time incidents, putting its people and their safety first.

 

People

 

I would like to take this opportunity to thank all our people. Events beyond the Board's control made this a more challenging 12 months than anticipated. Our people have shown spirit and resilience to produce a strong H2 performance and, thanks to their efforts, the Group has delivered the best possible outcome for its shareholders.

 

Outlook

 

Market Visibility, our primary measure for Group outlook, was up 44% at £50.2m. This measure is calculated from the sum of the previous 12 months' turnover plus pending contracts under negotiation on which we have Preferred Bidder Status and the Group's Secured Order Book.

 

We expect the Group's FY20 results to follow similar weighting to that which we experienced in FY19 with the majority of revenue and profit being secured in the second half of the year. This seasonality has two primary drivers: offshore projects are generally executed during the summer months and the timing of the award of Government subsidies. As our diversification strategy develops through acquisition and product development, we anticipate that the Group's results performance will smooth out over future years.

 

At the year end, our Order Book, which reflects the seasonality of contract awards as outlined above, stood at £7.2m - an increase of 33% on FY18. Pending contracts, on which we hold Preferred Bidder Status, have increased by 97% to £15m. The Group's Enquiry Book improved by 35% to £195m and our conversion rate on the bid to win ratio has increased from 56% to 62%.

 

The market outlook for offshore wind and oil and gas are both strong, with offshore wind CAGR forecasts of above 20% between 2018-2028 and demand for products for the oil and gas market at a three-year high.

 

The Group remains focused on its strategy as stated at IPO to deliver long-term growth through the expansion of new products, organic growth and by selective and complementary acquisitions. On behalf of all the directors, I am pleased to report that the new financial year has started well and, with current order visibility levels, believe that the Group is making good progress to deliver results in line with market expectations in FY20.

 

Alasdair MacDonald

Non-Executive Chairman

 

 

CEO STATEMENT

 

Our vision is to be the partner of choice for the supply and installation support of subsea protection equipment to the global offshore energy market. We aim to achieve this by developing a portfolio of complementary businesses serving shared markets and leveraging the enhanced skills and relationships these operations bring.

 

We are very pleased with the strategic progress that the Group has made since IPO last June and are confident of the long-term prospects of the Group. The solid foundations that we built prior to the Group's IPO have been strengthened further in the year under review with two strategic acquisitions, further product development and continued overseas expansion. The Board is focused on building a robust and diversified business, which generates revenues across the full lifecycle of projects and furthers the opportunities for the Group's growth.

 

We remain committed to the three strategic growth areas: organic growth within our core markets; accelerated growth through overseas expansion and new technologies in our product mix; and by acquisitions, which complement Tekmar Group's overall vision.

 

In the first half of FY19, the Group was impacted by a fundamental change in the procurement patterns of our major offshore wind customers for TekLink®. Previously, the procurement lead times on offshore wind projects were typically 12-18 months. As the major industry operators drive maximum cost efficiencies, contract negotiations have become more protracted and lead times shorter. Whilst these changes have brought short term frustrations for the Group, it is a clear sign of maturation in the industry as renewable energy becomes cost competitive with fossil fuels. This procurement pattern, along with the aforementioned seasonality, is likely to prevail and we have aligned our business operations accordingly.

 

Despite these challenges, we have delivered growth in Group revenue of 28%. This growth has been generated from new offshore wind products, increased volume in the oil and gas market and from the acquisition of Subsea Innovation, which contributed £3.5m to revenue.

 

It is important to note that Tekmar Energy has maintained its unrivalled supplier position winning 100% share of the European offshore wind market in FY19 for our core product TEKLINK® cable protection system.

 

I am pleased to report that we have made impressive progress on new product development, increasing the number of products we can offer to new and existing customers from 20 to 47. This is an important step for the Group; it increases our ability to grow organically and broadens the Group's addressable market, expanding our offering to customers and our ability to increase revenue per project across the lifecycle.

 

To support the Group's growth ambitions and improving Market Visibility, we have increased our headcount by 65% to 180 through the introduction of Tekmar Group (4) acquisition of Subsea Innovation (28) and Ryder Geotechnical (4), as well as organically to create additional engineering capacity.

 

I am delighted to report that we achieved an excellent record of zero lost time safety incidents, during the year, and improved our quality performance indicators, adhering to our core values of excellence and 'safety first' - a vital requirement for suppliers in our markets.

 

Markets

 

The market and product split for the full year was, as indicated in our Half Year results, 70% offshore wind (FY18: 84%) and 30% oil and gas (FY18: 16%) with 40% coming from our core TekLink® CPS product (FY18: 61%). With 60% of our sales in FY19 coming from other products, this demonstrates the success of our diversification strategy in terms of product mix.

 

All businesses in the Group supply both the offshore wind and oil and gas markets. Our aim is to create a Group in which no customer is unique to one portfolio business.

 

Our core markets continue to show strong long-term growth potential. Global cumulative capacity in offshore wind is expected to rise from 25 GW to 227 GW, creating a CAGR of above 20% from 2018 to 2028. Demand for products for the oil and gas market is at a three-year high with oil prices sustained above $50 price per barrel, which is assumed to be above the trigger for new offshore capital expenditure approvals. 

 

Operational review

 

Tekmar Energy - 84% of Group revenue

 

Tekmar Energy is a technology specialist focusing on the design, engineering and manufacture of subsea protection for dynamic products across multiple subsea markets including offshore wind, oil and gas and telecoms. The business is the world market leader in subsea cable protection system for offshore wind and is renowned for its patented TekLink® technology, which is used on 75% of the world's installed offshore wind farms.

 

The business has, as previously mentioned, maintained its unrivalled position in OWF with our 8th Generation securing seven new projects for 850 systems during the year within the EU. Outside TEKLINK®, Tekmar Energy secured three new projects for 168 systems, including, as reported in an RNS in February, a large scope for a bespoke remedial cable protection system for replacement subsea cables. Tekmar Energy also successfully delivered 132 systems into China for one of the largest Chinese wind farms. The business secured its largest order to-date for 226 hang-off systems onto the world's largest offshore wind farm Ørsted's Hornsea 1 project.

 

Two strategic frameworks with customers Ørsted and Royal Boskalis Westminster N.V. (formally VBMS) were secured during the year. Ørsted is the world's biggest offshore wind developer and Royal Boskalis Westminster is market leader in offshore cable installation. The award of these agreements increases our confidence in securing our future pipeline.

 

On the back of recent offshore wind success in China, Tekmar Energy opened a dedicated office in Shanghai and established a Wholly Foreign-Owned Enterprise, "Tekmar Marine Technology Company Limited". This office now employs four native speakers, who also support the wider Tekmar Group on sales activity for the APAC region. The strategy for China is to export core polyurethane products from the UK, whilst project managing the build and procurement of metallic parts in-country, to provide local content value. Local content (also called in-country value) is often a stipulation for overseas contracts, ensuring long term benefit to the economic prosperity in the host region.

 

Following on from previous agency agreements, Tekmar Energy has continued to develop within the Middle East. As part of the business's strategic plan, local content arrangements have been established in Saudi Arabi. The first "In-Kingdom" project was delivered in November 2018, as part of the recently awarded, long term agreement that National Petroleum Construction Company (NPCC) has with Saudi Aramco.

 

Tekmar Energy contributed 33% to total Group revenues from non-core (excluding TekLink®) products, comprising 16% subsea, 5% OPEX cable protection repair solutions, 5% other OWF and 4% hang-off product solutions, increasing its respective market share within these product groups.

 

Subsea Innovation - 12% of Group revenue:

 

Subsea Innovation is a global leader in the design, manufacture and supply of complex engineered equipment and technology used in the offshore energy market. Its products include large equipment handling systems which operate on the back of pipelay installation vessels; emergency pipeline repair clamps (EPRC) which protect major oil and gas pipelines, and bespoke equipment for use in the construction of offshore energy projects.

 

We completed the acquisition of Subsea Innovation in September 2018 for a maximum consideration of £4m, with circa £3m in fixed assets. The integration has gone seamlessly. Under the ownership of the Group, Subsea Innovation has turned around from a loss-making position in FY18 to contributing £3.5m in revenue and £0.5m in Adjusted EBITDA in the six months of the financial year following completion.

 

We have invested in people in this business, adding engineers to meet demand and build capacity to fulfil the clear growth opportunities. Since we acquired Subsea Innovation, it has secured a record order book of new work with a new Dutch customer, Royal IHC, for the design and build of pipeline installation tools and back-deck equipment. In addition, the business has generated a three-year record level of customer spend on proprietary technology, primarily with existing customers, such as Subsea 7 for pipeline repair equipment and Saipem for back-deck refurbishments.

 

AgileTek Engineering ("AgileTek") - 4% of Group revenue:

 

AgileTek is an award-winning subsea engineering consultancy for offshore energy projects, which helps its clients de-risk projects through advanced computer simulation and analysis.

 

AgileTek's scope for analytical engineering analysis enables the Group to differentiate itself from other technology providers and give us earlier involvement in a project's lifecycle, giving us a clear competitive advantage. In addition, its strategic value, this business grew revenues by 50% to £1m in FY19, contributing Adjusted EBITDA of £117,000, while also more than doubling its own independent customer base to 18.

 

In March, AgileTek completed its first acquisition of an 80% share in Ryder Geotechnical Limited for a nominal consideration of £2 with an option to buy the remaining 20% for a maximum consideration of £2m. The acquisition of Ryder increases the Group's ability to generate greater revenue per project, extends our involvement in the project lifecycle and provides a further opportunity to leverage our existing customers, with Group companies now joint bidding on multiple up-and-coming offshore wind projects.

 

Outlook

 

The Group's strategy, primary focus and vision remain unchanged. We are confident that the long-term growth prospects of the global offshore wind market are strong and that Tekmar Group is well positioned to capitalise on this opportunity.

 

The Group is focused on building a strategic portfolio of products and services, which will strengthen its value proposition further. We continue to focus on our three areas of sustainable growth: organic with the pending uplift in market demand; accelerated with more focus overseas and increase in our technology offering; and acquisitive supporting our vision and broadening our technology offering, to create full life cycle revenues which can leverage Group support.

 

James Ritchie

CEO

 

 

FINANCIAL REVIEW

 

I am pleased to report that, during our first year as a plc, we increased revenue by 28% and moved the business from loss making to profitability on a PBT basis. The IPO in June 2018 strengthened the Group's balance sheet and has enabled us to invest in growth and diversification. Whilst acquiring two strategically important businesses during the year, the Group ended FY19 with healthy cash balances.

 

Year ended 31 March 2019

 

Year ended 31 March 2018

£m

 

Adjusted items

Adjusted

 

£m

 

Adjusted items

Adjusted

Revenue

28.1

 

28.1

 

Revenue

21.9

 

21.9

EBITDA

4.2

0.6

4.8

 

EBITDA

4.8

0.1

4.9

PBT

2.0

0.6

2.6

 

PBT

(0.4)

0.1

(0.3)

PAT

2.4

0.6

3.0

 

PAT

(0.1)

0.1

0.0

Adjusted EPS *

 

 

6.0p

 

Adjusted EPS

 

 

N/A

 

* Adjusted EPS is a key metric used by the Directors since IPO as it aligns to the analysts' method of calculation.  This measure differs from that in Note 6 as it is based on Adjusted PAT and the shares in issue at the end of the year.

 

Overview

 

When we provided our first interim plc statements in December 2018 it was disappointing to report a loss at Adjusted EBITDA level for the six months to 30 September, particularly as we had been extremely successful in winning work during the period. As discussed at the time, this was due to changes in the procurement patterns of customers, particularly within the offshore wind sector, which impacted the timings of projects and pushed some expected revenues into the second half of the year and some into FY20. We developed and executed a plan to ensure a strong result in H2, in line with revised market expectations.

 

Revenue

 

Revenue increased by 28%. The acquisition of Subsea Innovation accounted for half of this with the balance driven by the second half plan to mitigate the delays experienced in offshore wind projects. This delivered a different product mix, with more emphasis on lower margin non-offshore wind markets, ensuring we maintained Adjusted EBITDA at last year's level, rather than the year on year growth originally expected.

 

Costs

 

The increase in operating expenses from £5.2m to £7.0m was largely due to the expansion of the Group, following our acquisition of Subsea Innovation and additional expenses associated with listing on AIM and running a plc.

 

Adjusted EBITDA

 

We focus on Adjusted EBITDA as a primary KPI across the businesses to provide a consistent measure of trading performance. We adjust EBITDA to remove certain non-cash and exceptional items to provide a more accurate reflection of underlying earnings. The Board reviews all exceptional items to ensure resulting Adjusted EBITDA achieves this. For the period ended 31 March 2019, the adjustment includes costs relating to the IPO and acquisition activities. We also adjust for share based payment charges, relating to the IPO options and SIP schemes. The gain on bargain purchase relates to the Ryder acquisition.

 

Adjusted items

£000

 

FY19

FY18

IPO costs

 

204

-

Professional fees - acquisition

 

117

52

Gain on bargain purchase

 

(95)

-

Other fees

 

-

71

Share based payment charge

 

418

-

Total

 

644

123

 

Profit before tax

 

Depreciation charges increased due to the early adoption of IFRS 16 Leases, which moved costs from operating expenses for this year. Amortisation includes the charge relating to the acquisition of intangible assets on the purchase of Subsea Innovation.

 

The improvement year over year is largely due to the reduction in interest charges, arising from the repayment of the debt instruments in place under the previous private equity ownership. Funds raised from the IPO allowed us to repay all debt in June 2018 with the interest reflecting the first quarter charge only . As the Group is now debt free, the only remaining sources of interest costs are from interest recognised to increase the lease liability under IFRS16 and derivatives relating to foreign currency transactions (see below).

 

Profit after tax

 

Taxation is a major focus across the Group, as we capture the benefits available to us under the R&D tax credit and patent box regimes, along with loss relief from previous periods. These, combined with prior year adjustments, resulted in a tax credit in the year of £0.4m.

 

Foreign currency

 

Whilst we trade internationally, the majority of our contracts, both customers and supply chain, are in GBP. In the year under review, we delivered three sizeable contracts in Euros and purchased forward currency transactions to mitigate this risk. The closing rate for revaluation of Euro balances at the year end was 1.1605 (FY18: 1.1410).

 

Our businesses

 

Revenue by business

Revenue by market

£m

 

FY19

FY18

 

FY19

FY18

Tekmar Energy

 

24.1

21.6

Offshore wind

19.2

18.1

Subsea Innovation

 

3.5

-

Subsea

8.4

3.5

AgileTek

 

1.0

0.7

Engineering

0.5

0.3

Intercompany elimination

 

(0.5)

(0.4)

 

 

 

Total

 

28.1

21.9

Total

28.1

21.9

 

 

Gross profit by business

Gross Profit by market

£m

FY19

FY18

 

FY19 

FY18

Tekmar Energy

8.2

8.5

Offshore wind

 

9.0

9.6

Subsea Innovation

1.1

-

Subsea

 

2.8

1.2

AgileTek

0.6

0.4

Engineering

 

0.6

0.4

 

 

 

Unallocated costs

 

(2.5)

(2.3)

Total

9.9

8.9

Total

 

9.9

8.9

 

 

Adjusted EBITDA by business

£m

 

FY19

FY18

Tekmar Energy

 

4.6

5.1

Subsea Innovation

 

0.5

-

AgileTek

 

0.1

(0.2)

Group

 

(0.4)

-

Total

 

4.8

4.9

 

Tekmar Energy

 

We achieved growth of 6% in offshore wind despite the delays to project timings. This was achieved with additional revenue from new products developed for this market. Revenue also increased as a result of expanding our customer base in other subsea sectors, predominantly oil and gas. 

 

In the drive to maintain our competitive position, we continually review our product design and supply chain relationships to ensure we provide the most robust cost-effective solution to customers.

 

Unallocated costs in the table above (gross profit by market) mainly relate to the manufacturing costs within this business, which were in line with previous years despite the additional throughput.

 

Subsea Innovation

 

Following the acquisition in September 2018, the team at Subsea Innovation has made considerable progress. Prior to acquisition, the business was loss making. The team have turned this round by securing profitable projects on accelerated customer timelines, the majority coming from the oil and gas sector. The integration of Subsea Innovation into the Group has been seamless and it has made a strong financial contribution in the six months since joining. 

 

AgileTek

 

In addition to external sales, AgileTek provides support to the other businesses in the Group with internal sales of £0.5m to Tekmar Energy in the year.

 

We completed the acquisition of 80% of the share capital in Ryder Geotechnical at the end of March 2019, which significantly complements the engineering skills within AgileTek. Given the timing of the deal, there is no trading impact in this year's P&L.

 

Acquisitions

 

We completed two acquisitions during the year. 

 

Subsea Innovation - 100% of the share capital of Subsea Innovation Limited was acquired in September 2018. Consideration was made up of £66k in cash, £1m of Group shares and £1m of contingent consideration based on the business performance to 31 March 2020. Funding of £1.8m was also provided to the business for the repayment of director and bank loans. The contingent consideration is considered highly likely to be paid so the fair value of the acquisition is deemed to be the total amount payable and has not been discounted due to the timeframe for payment being short. All consideration was recognised as either tangible or intangible assets and the deferred tax liability on the acquired intangibles is treated as goodwill.

 

Ryder Geotechnical - 80% of the share capital of Ryder Geotechnical Limited was acquired at the end of March 2019 for consideration of £2, with a working capital facility being provided to the business by the Group to fund growth. This gave rise to a gain on bargain purchase of £95k, which was recognised as an exceptional credit in the Income Statement. The Group holds an option to purchase the remaining 20% of the business by the end of the third full year of ownership, subject to certain financial conditions being met. This option has not been valued in the financial statements at year end as it vesting is wholly within our discretion.    

 

Balance Sheet

 

Balance Sheet

£m

 

FY19

FY18

Fixed Assets

 

5.5

1.4

Other non-current assets

 

21.8

20.2

Stock

 

1.9

1.8

Trade & other receivables

 

20.0

8.8

Cash

 

4.2

2.6

Trade & other payables

 

9.8

6.7

Other non-current liabilities

 

0.8

38.0

 

Fixed Assets

 

We acquired £3m of fixed assets as part of the Subsea Innovation deal with £2.7m relating to the property, Innovation House. We also invested £0.8m in new production equipment within Tekmar Energy, predominantly being new tooling to support the efficiency programme being rolled out in the manufacturing plant. In addition, the net impact of adopting IFRS16 was £0.7m.

 

Other non-current assets

 

This relates primarily to the goodwill arising on the original management buy-out in 2011 (£19.6m).  During the year, there has been significant investment within Tekmar Energy on new product development (£0.8m) and additional intangible assets arising on the acquisition of Subsea Innovation (£1.2m).

 

Trade and other receivables

 

We closed the year with unusually high levels of accrued income reflecting the significant volume of production activity in the final quarter (£13.5m). The majority of this relates to offshore wind projects previously delayed from the first half of the year. This balance unwinds into trade receivables as the contractual milestones are achieved.  

 

Cash

 

As part of the IPO, we raised additional funding for the business to invest in growth (£8.2m after costs). We invested £2m of cash in the acquisition of Subsea Innovation and a further £2m to support the businesses in their investment plans. We closed the year with a healthy cash balance across the Group, which is forecast to improve significantly as the current high levels of working capital unwind. The majority of the balance is held in GBP with £0.4m held in Euros.

 

Trade and other payables

 

Trade and other payables includes the deferred consideration (£1m) under the Subsea Innovation acquisition which we expect to pay within twelve months.

 

Other non-current liabilities

 

Other non-current liabilities relates to the lease liabilities in relation to IFRS16 and deferred grant income.  Last year reflects the equity debt instruments that were repaid following the IPO.

 

Sue Hurst

CFO

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 March 2019

 

 

 

 

Note

2019

2018

 

 

£'000

£'000

 

 

 

 

Revenue

4

28,082

21,891

Cost of sales

 

(18,190)

(12,962)

Gross profit

 

9,892

8,929

 

 

 

 

Operating expenses

 

(6,987)

(5,177)

Other operating income

 

-

56

Group operating profit

 

2,905

3,808

 

 

 

 

Analysed as:

 

 

 

Adjusted EBITDA[1]

 

4,833

4,947

Depreciation

9

(808)

(563)

Amortisation

8

(476)

(453)

Share based payments charge

 

(418)

-

Exceptional items

 

(226)

(123)

Group operating profit

 

2,905

3,808

 

 

 

 

Finance costs

 

(1,066)

(4,192)

Finance income

 

147

4

Net finance costs

5

(919)

(4,188)

 

 

 

 

Profit/(loss) before taxation

 

1,986

(380)

Taxation

7

407

270

Profit/(loss) for the year and total comprehensive income/(expense)

 

 

2,393

 

(110)

 

 

 

 

Attributable to owners of the parent

 

2,393

(59)

Attributable to the non-controlling interest

 

-

(51)

 

 

2,393

(110)

 

 

 

 

Profit/(loss) per share (pence)

 

 

 

Basic

6

4.75

(0.22)

Diluted

6

4.63

(0.22)

 

 

 

 

 

There are no items of Other Comprehensive Income.

 

Note 1: Adjusted EBITDA, which is defined as profit before 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.

 

All results derive from continuing operations.

 

 

CONSOLIDATED BALANCE SHEET

as at 31 March 2019

 

 

 

 

Note

2019

2018

 

 

£'000

£'000

 

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

9

5,501

1,401

Goodwill and other intangibles

8

21,837

20,005

Deferred tax asset

 

-

177

Total non-current assets

 

27,338

21,583

 

 

 

 

Current assets

 

 

 

Inventory

 

1,914

1,842

Trade and other receivables

10

19,537

8,493

Corporation tax recoverable

 

459

263

Cash and cash equivalents

 

4,190

2,617

Total current assets

 

26,100

13,215

 

 

 

 

Total assets

 

53,438

34,798

 

 

 

 

Equity and liabilities

 

 

 

Share capital

 

507

-

Share premium

 

64,100

-

Merger relief reserve

 

993

-

Merger reserve

 

(12,685)

2,886

Retained losses

 

(10,098)

(12,704)

Total equity/(deficit)

 

42,817

(9,818)

 

 

 

 

Non-current liabilities

 

 

 

Borrowings

 

487

32,521

Trade and other payables

 

358

5,430

Deferred tax liability

 

3

-

Total non-current liabilities

 

848

37,951

 

 

 

 

Current liabilities

 

 

 

Other interest-bearing loans and borrowings

 

378

-

Trade and other payables

 

9,395

6,665

Total current liabilities

 

9,773

6,665

 

 

 

 

Total liabilities

 

10,621

44,616

 

 

 

 

Total equity and liabilities

 

53,438

34,798

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2019

 

 

Share capital

Share premium

Merger relief reserve

Merger reserve

Retained earnings

Total equity attributable to owners of the parent

Non-controlling interest

Total equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

Balance at 1 April 2017

-

-

-

2,886

(12,645)

(9,759)

51

(9,708)

 

 

 

 

 

 

 

 

 

Loss for the year

-

-

-

-

(59)

(59)

(51)

(110)

Total comprehensive expense for the year

 

-

 

-

 

-

 

-

 

(59)

 

(59)

 

(51)

 

(110)

Balance at 31 March 2018

-

-

-

2,886

(12,704)

(9,818)

-

(9,818)

 

 

 

 

 

 

 

 

 

Adjustment on adoption of IFRS 16

 

-

 

-

 

-

 

-

 

(163)

 

(163)

 

-

 

(163)

Adjusted balance at 1 April 2018

 

-

 

-

 

-

 

2,886

 

(12,867)

 

(9,981)

 

-

 

(9,981)

Profit for the year

-

-

-

-

2,393

2,393

-

2,393

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

2,393

 

2,393

 

-

 

2,393

Issue of shares on IPO

500

64,500

-

(15,571)

-

49,429

-

49,429

Expenses of the IPO

-

(400)

-

-

-

(400)

-

(400)

Issue of shares post IPO

7

-

993

-

-

1,000

-

1,000

Share based payments

-

-

-

-

376

376

-

376

Total transactions with owners, recognised directly in equity

 

 

507

 

 

64,100

 

 

993

 

 

(15,571)

 

 

376

 

 

50,405

 

 

-

 

 

50,405

Balance at 31 March 2019

507

64,100

993

(12,685)

(10,098)

42,817

-

42,817

 

 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 March 2019

 

 

 

2019

2018

 

 

£'000

£'000

Cash flows from operating activities

 

 

 

Profit/(Loss) before taxation

 

1,986

(380)

Adjustments for:

 

 

 

Depreciation

 

808

563

Amortisation of intangible assets

 

476

453

Share based payments charge

 

345

-

Other operating income

 

-

(54)

Gain on bargain purchase

 

(95)

-

Finance costs

 

1,066

4,192

Finance income

 

(147)

(4)

 

 

4,439

4,770

Changes in working capital:

 

 

 

Decrease/(increase) in inventories

 

176

(605)

(Increase) in trade and other receivables

 

(10,493)

(40)

Increase in trade and other payables

 

2,876

2,318

(Decrease) in provisions

 

(131)

(300)

Cash (used in)/generated from operations

 

(3,133)

6,143

 

 

 

 

Tax recovered / (paid)

 

180

(250)

Net cash (outflow) inflow from operating activities

 

(2,953)

5,893

 

 

 

 

Cash flows from investing activities

 

 

 

Purchase of property, plant and equipment

 

(996)

(248)

Purchase of intangible assets

 

(865)

(124)

Proceeds on sale of property, plant and equipment

 

3

1

Acquisition of subsidiary net of cash acquired

 

(168)

-

Interest received

 

147

4

Net cash outflow from investing activities

 

(1,879)

(367)

 

 

 

 

Cash flows from financing activities

 

 

 

Repayment of borrowings

 

(33,282)

(2,250)

Repayment of other borrowings

 

(1,771)

-

Proceeds from issues of shares

 

49,429

-

Expenses of the IPO

 

(400)

-

Interest paid

 

(7,571)

(2,194)

Net cash inflow/(outflow) from financing activities

 

6,405

(4,444)

 

 

 

 

Net increase in cash and cash equivalents

 

1,573

1,082

Cash and cash equivalents at beginning of year

 

2,617

1,535

Cash and cash equivalents at end of year

 

4,190

2,617

 

 

NOTES TO THE GROUP FINANCIAL STATEMENTS

for the year ended 31 March 2019

 

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 Unit 1, Park 2000, Millennium Way, Aycliffe Business Park, Newton Aycliffe, County Durham, DL5 6AR. 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 cable, umbilical and flexible protection systems operating across the Offshore Wind, Oil & Gas and other energy sectors, including associated subsea engineering services.

 

Initial public offering ("IPO")

 

The Company's shares were admitted to trading on the AIM Market, a market operated by the London Stock Exchange, on 20 June 2018. These Group financial statements are the Company's first subsequent to its admission to AIM and followed a group reorganisation to facilitate the IPO. The consolidated financial statements were approved and authorised for issue by a duly appointed and authorised committee of the Board of Directors on 24 June 2019.

 

These Group financial statements have been prepared under merger accounting principles because the transaction under which the Company became the holding company of Tekmar Limited, the previous parent undertaking of the Tekmar trading operations, was a group reorganisation as the Company did not actively trade at that time.

 

The result of the application of the capital reorganisation is to present the financial statements as if the Company had always owned the Tekmar trading operations.

 

Group reorganisation

 

The principal steps of the Group reorganisation were as follows:

 

The Company was incorporated on 25 May 2018 as a private company limited by shares in England and Wales, with the allotment of 1 share of £0.01.

 

The Company issued 5,000,000 redeemable shares of £0.01 each in the capital of the Company which were redeemed shortly after Admission.

 

Under an Escrow agreement dated 14 June 2018, the selling shareholders agreed to sell their shares in Tekmar Limited to the Company immediately on Admission and the selling shareholder of AgileTek Engineering Limited agreed to sell his shares to Tekmar Holdings Limited immediately on Admission.

 

The acquisition by the Company of the shares in Tekmar Limited and AgileTek Engineering Limited constitutes a group reorganisation and the transaction is accounted for as a capital reorganisation. Under merger accounting principles, the assets and liabilities of the subsidiaries are consolidated at book value in the financial statements and the consolidated reserves of the Group are adjusted to reflect the statutory share capital, share premium and the reserves of the Company as if it had always existed.

 

The Company issued 50,000,000 shares of £0.01 each on Admission to AIM on 20 June 2018. The consideration in excess of the nominal value of £500,000 has been recorded as share premium. An amount was also recorded in merger reserve in respect of the element of the IPO proceeds to acquire the existing group. IPO costs of £400,000 have been charged to the share premium account.

 

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.

 

(a)   Basis of preparation

 

The results for the year ended 31 March 2019 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and their interpretations adopted by the European Union.  It should be read in conjunction with the Historical Financial Information for the three years ended 31 March 2018 within the Company's Admission Document and which was prepared in accordance with International Financial Reporting Standards as endorsed by the European Union ('IFRS'), International Financial Reporting Standards Interpretation Committee ('IFRS IC') interpretations and those provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared on the going concern basis and on the historical cost convention modified for the revaluation of certain financial instruments.

 

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

 

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in July 2019.

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2019 or 2018, but is derived from those accounts for 2019 and should be read in conjunction with the Historical Financial Information for the three years ended 31 March 2018 within the Company's Admission Document. The comparatives for the full year ended 31 March 2018 are not the Company's full statutory accounts for that year. They have been extracted from the Historical Financial Information within the Company's Admission Document. The Reporting Accountants have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.

 

The financial information presented in respect of the year ended 31 March 2019 has been prepared on a basis consistent with that presented in the Company's Admission Document.

 

Going concern

 

The Group meets its day-to-day working capital requirements through its available banking facilities. The Directors have prepared cash flow forecasts and projections for the years ending 31 March 2021.  There is currently no external debt and the Group has no covenants which it needs to comply with. Taking account of reasonably foreseeable changes in trading performance, these forecasts and projections show that the Group is expected to have a sufficient level of financial resources available through current and future facilities. Furthermore, the Directors have assessed the future funding requirements of the Group and compared them with the level of available borrowing facilities. Based on this work, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the interim financial statements.

 

(c)    New standards, amendments and interpretations

 

The Group has adopted the following new standards and interpretations:

 

IFRS 16 - Leases (effective 1 January 2019 and early adopted).

 

IFRS 16 "Leases" replaced IAS 17 "Leases" and sets out the principles for the recognition, measurement, presentation and disclosure of leases and has been applied from 1 January 2018 using the modified retrospective approach. Under IFRS 16 the main difference for the Group is that all leases that the Group holds as a lessee are recognised on the balance sheet, as both a right-of-use asset and a largely offsetting lease liability.  The right-of-use asset is depreciated in accordance with IAS 16 'Property, Plant and Equipment' and the liability is increased for the accumulation of interest and reduced by lease payments. There is no impact on cashflow.

 

On the income statement the Group recognises a depreciation charge and an interest charge instead of a straight-line operating cost. This changes the timing of cost recognition on the lease, resulting in extra cost in early years of the lease, and reduced cost towards the end of the lease.

 

The Group elected to exclude all short-term leases and all leases for which the underlying asset is of low value.

There are no standards endorsed but not yet effective that will have a significant impact going forward.

 

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 and the disclosure of contingent 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.

 

 

Revenue recognition

 

The recognition of revenue on contracts requires judgement and estimates on the overall contract margin. This judgement is based on contract value, historical experience and forecasts of future outcomes. 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 methods. For the large, offshore wind projects in the Tekmar Energy business which were not complete at year end, and require the most judgment, if the percentage completion was 1% different to management's estimate the revenue impact would be £116,000.  However, the likelihood of this is small, as the percentage completion is based upon items that are physically counted at year end.

 

Share based payments

 

The weighted average fair value of equity options granted is determined using various fair value models, including Black-Scholes-Merton and Monte Carlo models. The Group makes assumptions in identifying the appropriate inputs. The assumptions are subject to estimation and are considered for reasonableness at each balance sheet date.  If the fair value assumption on the options was changed by 5% this would lead to a £17,000 difference in the share-based payment charge.

 

IPO accounting

 

For the reasons set out in note 1 the Group applied merger accounting principles to the IPO accounting. This treatment was mandatory and therefore no reasonable sensitivity can be applied to the numbers involved.

 

(b)   Critical accounting estimates

 

Subsea Innovation acquisition accounting

 

Accounting for the purchase price allocation on the Subsea Innovation acquisition was a critical accounting estimate made during the year.  In particular, deriving the value of the intangible assets acquired (£1,184,000) and goodwill attributed (£234,000) were critical estimates.  If these intangibles had not been identified as such, and instead the balance recognised as goodwill, profit for the year would have been higher by £109,000.

 

4.     SEGMENTAL REPORTING

The trading operations of the Group are only in the global offshore energy industry and are all continuing. This includes the activities of Tekmar Energy Limited, Subsea Innovation Limited, and AgileTek Engineering Limited. In addition, the centralised group services and assets provided to Group companies are considered incidental to the activities of the Group and have therefore not been shown as a separate operating segment but have been subsumed within the global offshore energy industry. All assets of the Group reside in the UK.

 

Major customers

 

In the year ended 31 March 2019 there were three major customers that individually accounted for at least 10% of total revenues (2018: five customers). The revenues relating to these in the year to 31 March 2019 were £11,217,000 (2018: £17,047,000). Included within this is revenue from multiple projects with different entities within each customer.

 

Analysis of revenue

 

 

2019

2018

 

£'000

£'000

 

 

 

UK & Ireland

10,483

5,379

Rest of the World

17,599

16,512

 

28,082

21,891

 

5.      NET FINANCE COSTS

 

 

2019

2018

 

£'000

£'000

Interest payable and similar charges

 

 

On loan notes

144

624

On other loans

664

2,392

On preference shares classed as liabilities

258

1,123

Fair value movement on forward foreign exchange contracts

 

-

53

Total interest payable and similar charges

 

1,066

4,192

Interest receivable and similar income

 

 

Fair value movement on forward foreign exchange contracts

(142)

-

Interest receivable

 

(5)

(4)

Total interest receivable and similar income

(147)

(4)

Net finance costs

919

4,188

  

6.     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 conditional share awards granted during the year.

 

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

 

 

2019

2018

Earnings (£'000)

 

 

Earnings for the purposes of basic and diluted earnings per

share being profit/(loss) for the year attributable to equity shareholders

 

 

2,393

                         

(110)

Number of shares

 

 

Weighted average number of shares for the purposes of basic earnings per share

50,351,745

50,000,000

Weighted average dilutive effect of conditional share awards

1,336,986

-

Weighted average number of shares for the purposes of diluted earnings per share

 

 

51,688,732

 

50,000,000

Profit/(loss) per ordinary share (pence)

 

 

Basic profit/(loss) per ordinary share

4.75

(0.22)

Diluted profit/(loss) per ordinary share

4.63

(0.22)

 

The denominators used to calculate basic earnings per share are the same as those shown above for both basic and diluted earnings per share.

 

Adjusted EPS is calculated as follows:

 

 

2019

Earnings (£'000)

 

Earnings for the purposes of basic and diluted earnings per

share being adjusted profit for the year attributable to equity shareholders

 

 

3,037

Number of shares

 

Number of shares in issue at year end

50,687,852

Profit per ordinary share (pence)

 

Basic profit per ordinary share

6.0

 

7.     TAXATION

 

Analysis of credit in year

2019

 2018

 

£'000

£'000

Current tax

 

 

Current taxation charge for the year

-

250

Adjustments in respect of prior periods

(384)

(383)

Total current tax

(384)

(133)

 

 

 

Deferred tax

 

 

Origination and reversal of timing differences

(23)

(23)

Adjustments in respect of prior periods

-

(114)

Total deferred tax

(23)

(137)

 

 

 

Tax on profit/(loss) on ordinary activities

(407)

(270)

 

 

 

Reconciliation of total tax credit:

 

 

Profit/(loss) on ordinary activities before tax

1,986

(380)

Profit/(loss) on ordinary activities multiplied by the rate of corporation tax in the UK of 19% (2018: 19%)

 

377

 

(72)

Effects of:

 

 

Non-deductible expenses

178

660

Non-taxable income

(55)

(238)

Enhanced R&D tax relief

(373)

(129)

Impact of unrecognised deferred tax assets

(145)

3

Effect of change in rates

(5)

3

Adjustments in respect of previous periods

(384)

(497)

Total taxation credit

(407)

(270)

 

The current year's Adjustments in respect of previous periods relates to tax accruals held at the end of the prior year which did not crystallise as liabilities upon submission of the final tax computations for the previous financial year (£250,000) coupled with a prior year R&D claim received during the year (£134,000).

 

Factors that may affect future tax charges

 

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016 (on 7 September 2016). These included reductions to the main rate to reduce the rate to 17% from 1 April 2020, and this has been reflected in these financial statements.

 

Our expectation is that the Group will continue to benefit from incentives, such as Patent box, and this will lead to an effective tax rate that is lower than the main rate of corporation tax for future years.

 

8.     GOODWILL AND OTHER INTANGIBLES

 

 

Goodwill

Software

Product development

Trade name

Customer relationships

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

COST

 

 

 

 

 

 

As at 1 April 2017

23,471

151

1,105

-

-

24,727

Additions

-

-

124

-

-

124

As at 31 March 2018

23,471

151

1,229

-

-

24,851

On acquisition

234

25

-

738

446

1,443

Additions

-

93

772

-

-

865

Disposals

-

(88)

-

-

-

(88)

As at 31 March 2019

23,705

181

2,001

738

446

27,071

 

 

 

 

 

 

 

AMORTISATION AND IMPAIRMENT

 

 

 

 

 

 

As at 1 April 2017

4,109

80

204

-

-

4,393

Charge for the year

-

50

403

-

-

453

As at 31 March 2018

4,109

130

607

-

-

4,846

Charge for the year

-

36

331

36

73

476

Eliminated on disposals

-

(88)

-

-

-

(88)

As at 31 March 2019

4,109

78

938

36

73

5,234

 

 

 

 

 

 

 

NET BOOK VALUE

 

 

 

 

 

 

As at 31 March 2017

19,362

71

901

-

-

20,334

As at 31 March 2018

19,362

21

622

-

-

20,005

As at 31 March 2019

19,596

103

1,063

702

373

21,837

 

The remaining amortisation periods for software and product development are 6 months to 36 months (2018: 5 months to 26 months).

 

The goodwill, brand and customer relationships additions in the year relates to the acquisition of Subsea Innovation Ltd as set out in note 11.

 

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

 

Goodwill is attributed to the only CGU within the Group, services to the subsea Offshore Wind and Oil and Gas sectors. Goodwill has been tested for impairment by assessing the value in use of the cash generating unit. The value in use calculations were based on projected cash flows in perpetuity. Budgeted cash flows for 2019 to 2021 were used. These were based on a three-year forecast with growth rates of 13.2% and 14.9% applied for the following years. Subsequent years were based on a reduced rate of growth of 2.0% into perpetuity.

 

These growth rates are based on past experience and market conditions and 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.

 

The discount rate used to test the cash generating units was the Group's pre-tax WACC of 10.0%.

 

The value in use calculations described above, together with sensitivity analysis using reasonable assumptions, indicate ample headroom and therefore do not give rise to impairment concerns. Having completed the impairment reviews no impairments have been identified. Management does not consider that there is any reasonable downside scenario which would result in an impairment.

 

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

 

9.     PROPERTY, PLANT AND EQUIPMENT

 

Freehold property

Leasehold improve-ments

Containers and racking

Plant and equipment

Production tooling

Motor vehicles

Computer equipment

Right of use asset

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

COST

 

 

 

 

 

 

 

 

 

As at 1 April 2017

-

873

1,135

1,873

905

11

328

-

5,125

Additions

-

5

-

26

177

-

40

-

248

Disposals

-

-

-

-

-

-

(1)

-

(1)

As at 31 March 2018

-

878

1,135

1,899

1,082

11

367

-

5,372

Arising on acquisition

2,760

-

-

234

-

-

-

-

2,994

Right of use asset adjustment

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

2,360

 

2,360

Additions

-

41

13

176

600

-

60

106

996

Disposals

-

-

(30)

(3)

-

-

-

(97)

(130)

As at 31 March 2019

2,760

919

1,118

2,306

1,682

11

427

2,369

11,592

DEPRECIATION

 

 

 

 

 

 

 

 

 

As at 1 April 2017

-

623

1,079

753

718

11

224

-

3,408

Charge for the year

-

195

34

160

118

-

56

-

563

As at 31 March 2018

-

818

1,113

913

836

11

280

-

3,971

Right of use asset adjustment

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

1,439

 

1,439

Charge for the year

20

50

16

194

188

-

48

292

808

Eliminated on disposal

 

-

 

-

 

(30)

 

-

 

-

 

-

 

-

 

(97)

 

(127)

As at 31 March 2019

20

868

1,099

1,107

1,024

11

328

1,634

6,091

NET BOOK VALUE

 

 

 

 

 

 

 

 

 

As at 31 March 2017

-

250

56

1,120

187

-

104

-

1,717

As at 31 March 2018

-

60

22

986

246

-

87

-

1,401

As at 31 March 2019

2,740

51

19

1,199

658

-

99

735

5,501

 

Depreciation charges are allocated to cost of sales and operating expenses in the income statement. 

 

The Group has elected to early adopt IFRS 16 using the modified retrospective approach.  At the start of the year this led to the recognition of right of use assets with a net book value of £0.7m and a lease liability of £0.8m.  As a result of the change the Group recognised £30,000 of interest and £292,000 of depreciation, offset by a saving in operating costs of £357,000 of rental charges.  As a result of timing differences between recognition of the operating expense and depreciation and interest related to the capitalised lease an adjustment of £163,000 was required to equity.  This can be seen in the Statement of changes in equity.  The right of use assets all relate to building leases.  Cash flows during the year in relation to these leases totalled £357,000.

 

10.  TRADE AND OTHER RECEIVABLES

 

2019

2018

 

£'000

£'000

Amounts falling due within one year:

 

 

Trade receivables not past due

3,279

984

Trade receivables past due

1,462

2,358

Trade receivables net

4,741

3,342

 

 

 

Contract assets

13,515

4,432

Other debtors

693

404

Prepayments and accrued income

441

315

Derivative financial assets

147

-

 

19,537

8,493

 

Trade and other receivables are all current and any fair value difference is not material. They are considered past due once they have passed their contracted due date and are assessed for impairment based upon the expected credit losses model.

 

The carrying amounts of the Group's trade and other receivables are all denominated in GBP. The derivative financial asset relates to forward foreign currency contracts.

 

There have been no provisions for impairment against the trade and other receivables noted above.

 

11.  BUSINESS COMBINATIONS

 

On 20 September 2018, the Company acquired the entire share capital of Subsea Innovation Limited for an initial cash payment of £65,923, shares in the Group of £1,000,000 and contingent consideration of £1,000,000. Subsea Innovation Limited is an innovation leader in the design, manufacture and supply of complex engineered equipment and technology used in the installation of subsea equipment for the offshore oil and gas market. Its products include large equipment handling systems, which operate on the back of installation vessels; including cable, pipeline and SURF (subsea umbilical riser and flowline); pipeline repair clamps, which protect major oil and gas pipelines, and equipment for the construction of offshore oil and gas projects.

 

Consideration as at 20 September 2018

 £'000

 Cash

66

 Shares

1,000

 Contingent consideration to be settled

1,000

 Total consideration

2,066

 

For cash flow disclosure purposes, the amounts are disclosed as follows:

 

 

 £'000

Cash consideration

66

Overdraft acquired

115

 

181

 

Recognised amounts of identifiable assets acquired and liabilities assumed

 

 

Values recognised at acquisition

 

Book value

Adjustments

Fair value

 

 £'000

£'000

£'000

 Assets

 

 

 

 Property, plant and equipment

3,323

(329)

2,994

 Other intangibles - software

25

-

25

 Other intangibles - customer relationships

-

446

446

 Other intangibles - brand

-

738

738

 Trade and other receivables

314

(11)

303

 Inventories

248

-

248

 

3,910

844

4,754

 Liabilities

 

 

 

 Borrowings - overdraft

(115)

-

(115)

 Trade and other payables

(182)

(489)

(671)

 Directors Loan Account

(2,623)

1,200

(1,423)

 Borrowings

(348)

-

(348)

 Deferred tax liabilities

-

(234)

(234)

 Provisions

(131)

-

(131)

 

(3,399)

477

(2,922)

 

 

 

 

 Total identifiable assets

511

1,321

1,832

 Goodwill

 

 

234

 Total

 

 

2,066

 

Subsea Innovation Limited contributed £3,572,000 to revenue and £365,000 to profit before tax.

 

The fair value adjustments reflect:

 

Uplift in the valuation of freehold property to fair value;

Finalisation of the purchase price allocation and presentation of the identified other intangible assets of customer relationships and brand, with the associated deferred tax liability provided; and

Settlement of certain liabilities on acquisition.

 

On 28 March 2019, the Group acquired 80% of the share capital of Ryder Geotechnical Limited for a cash payment of £2. Ryder Geotechnical Limited is involved in geotechnical consulting for subsea environments.

 

Consideration as at 28 March 2019

 £'000

Cash

-

Total consideration

-

 

For cash flow disclosure purposes, the amounts are disclosed as follows:

 

 

 £'000

Cash consideration

-

Cash acquired

13

 

13

 

Recognised amounts of identifiable assets acquired and liabilities assumed

 

 

Values recognised at acquisition

 

Book value

Adjustments

Fair value

 

 £'000

£'000

£'000

 Assets

 

 

 

 Property, plant and equipment

11

-

11

 Trade and other receivables

90

-

90

 Cash and cash equivalents

13

-

13

 

114

-

114

 Liabilities

 

 

 

 Trade and other payables

(14)

-

(14)

 Borrowings

(5)

-

(5)

 

(19)

-

(19)

 

 

 

 

 Total identifiable assets

95

-

95

 Gain on bargain purchase

 

 

(95)

 Total

 

 

-

 

Ryder Geotechnical Limited contributed £nil to revenue and £nil to profit before tax due to the close proximity of the acquisition to the year end.

 


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