Global Expansion
Annual Report and Accounts 2020
Highlights for the year
Strong revenue growth across all divisions, increasing 46% YOY to £40.9m
Order Book of £10.0m – up 39% YOY
Enquiry Book increased 15% YOY
Tekmar Energy revenues up by 14% YOY, representing 67% of Group revenue:
•
Strong market growth continues
Overseas expansion progressing, with international markets (non-EU) now comprising
25% of Group revenue (FY19 8%)
Acquisition of Pipeshield International in October 2019:
• Contributed 8% of revenue in FY20 since acquisition in October 2019
•
Integrated well with other Group businesses, supplying multiple projects together
Record revenue growth for Subsea Innovation, representing 20% of Group revenue
AgileTek increased sales by over 200% and now represents 5% of Group revenue
Healthy balance sheet, with positive cash balance of £2.1m
Positive market outlook within offshore wind and early signs of recovery within oil and gas
02
Contents
Strategic Report
06 Chairman’s Statement
10 Vision and Values
12 Investment Case
16 Chief Executive Review
22 Market Review
24 Our Business Model
26 Track Record in Offshore Wind
30 Our strategy in Action
32 Key Performance Indicators
34 Risk Management
40 Sustainability and CSR
42 Chief Executive Q&A
44 Financial Review
Governance
48 Chairman’s Introduction to Governance
50 Corporate Governance Statement
54 Board of Directors
56 Management Team
58 Audit Committee Report
60 Remuneration Committee Report
64 Directors’ Report
67 Statement of Directors’ Responsibility
Financial Statements
70 Independent Auditor’s Report
78 Consolidated Statement of Comprehensive Income
79 Consolidated Balance Sheet
80 Consolidated Statement of Changes of Equity
81 Consolidated Cash Flow Statement
83 Notes to the Consolidated Financial Statements
120 Parent Company Balance Sheet
121 Parent Company Statement of Changes in Equity
122 Notes to the Company Financial Statements
Additional Information
129 Annual General Meeting
130 Glossary
Tekmar Group plc’s vision is
to be the leading provider of
technology and services to the
global offshore energy markets
Cautionary note and disclaimer
Forward-looking statements. This Annual Report contains certain forward-looking statements with respect to the operations, strategy, performance, financial condition
and growth opportunities of the Group. By their nature, these statements involve uncertainty and are based on assumptions and involve risks, uncertainties and other
factors that could cause actual results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information
available at the date of preparation of this Annual Report and, other than in accordance with its legal and regulatory obligations, the Company undertakes no obligation
to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast.
Non-GAAP measures and why we use them. Throughout this report we present underlying reports and measures. These underlying measures allow stakeholders to
better compare the performance of the Group between current and prior periods by removing the impact of one-off or non-operational items. Exceptional items are
explained in the Notes to the accounts and a reconciliation of GAAP to non-GAAP measures is also included within the report.
StrategicGovernanceFinance 04
Strategic Report
Establishing a strategy and business model that promotes long-term value
for shareholders
The Board has a clear strategy for delivering long-term
shareholder value. We will do this through:
Strategic Report Contents
06 Chairman’s Statement
10 Vision and Values
12 Investment Case
16 Chief Executive Review
22 Market Review
24 Our Business Model
26 Track Record in Offshore Wind
30 Our strategy in Action
32 Key Performance Indicators
34 Risk Management
40 Sustainability and CSR
42 Chief Executive Q&A
44 Financial Review
a) Increasing market share - through focusing on our
differentiated value proposition.
b) Bringing in new opportunities - through adding new
customers.
c) Increasing our offer to the market - by increasing our
technology and service portfolio.
d) Maximise growth - by developing a strong regional
presence in high demand and high growth areas.
The strategy is supported by our core building blocks of:
• Organic Growth – increasing sales to new and existing
customers.
• Accelerated Growth – investing in our business, R&D
and operations.
• Acquisition Strategy – targeting businesses which align
with our brand and values; that would benefit from Group
support; will add to Tekmar’s customer base and product
offering; smooth seasonality of contract revenues; and
which leverage engineering skills whilst maintaining
margins.
StrategicGovernanceFinance 06
Chairman’s Statement
Alasdair MacDonald
In line with our strategy to broaden the Group’s
technology offering and ensure further project lifecycle
opportunities are aligned with our shared customer base,
we completed the acquisition of Pipeshield International
in October 2019. We are delighted with its contribution
to date and the very quick, successful integration into the
Group.
Whilst the level of growth in profitability in FY20 was
inevitably affected by COVID-19 and the shutdown in
China, our strong market position and track record in
offshore wind cable protection projects remain unrivalled
globally. Our overall confidence in the prospects for the
business should not be understated. I now see a Group
which has truly been transformed and, with a much wider
portfolio of complementary technologies, is able to offer
an international customer base a unique customer-value
proposition. Coupled with a robust balance sheet, the
Group is well positioned with a solid platform for growth
over the next decade, which is supported by a positive
market outlook, despite some short-term uncertainty as
we transition through the COVID-19 recovery, which the
Group has somewhat mitigated by receipt of a CBILS
loan of £3m post year end.
The results for FY20 demonstrate the strength of our
management team and people within the business,
delivering both organically through innovation and via
complementary acquisitions and supporting the overall
Group’s long-term vision.
Year on year comparison
Revenue
Profit Before Tax
Order Book
Preferred Bidder
Enquiry Book
Market Visibility
FY20
FY19
£40.9m
£2.0m
£10.0m
£14.6m
£224m
£65.5m
£28.1m
£2.0m
£7.2m
£15.0m
£195m
£50.2m
I am pleased to present Tekmar Group’s results for the
year ended 31 March 2020 (“FY20” or the “Period”), our
second financial year since IPO in 2018. It has again
been an exciting and productive 12 months for the
Group, though not one without unexpected challenges,
which I can confidently report the team is successfully
navigating. The Group demonstrated its capability in
FY20 by delivering substantial revenue growth across
all businesses resulting in an increase of 46% and an
order book increase of 39% to £10m. This was despite
facing the impact of COVID-19 and the associated rapid
shutdown in China affecting our most productive fourth
quarter from January to March (“Q4”), which is detailed
in the CEO’s Statement. The Group has maintained its
strong balance sheet, with net cash and zero leverage
at the year end. The team have also continued to deliver
on our strategic objective at IPO to diversify revenue
streams and position the business for growth in the
global subsea markets which are benefiting from high
structural growth drivers.
£10m
Total sales order book grew
to a record of £10m, a 39%
increase YOY.
£224m
Total sales enquiry book grew
to a record of £224m, a 15%
increase YOY.
48%
Year on Year Growth in
Revenue (FY20 vs FY19).
>15% CAGR
Industry growth predicted from 28.9 GW to 216 GW of
projects underway by year 2030 with some analysts
expecting more than 15% CAGR in coming years.
6 year
revenue
growth
25.2% CAGR
19.4
17.2
10.6
40.9
28.1
21.9
FY15
FY16
FY17
FY18
FY19
FY20
Offshore Wind (%)
Subsea (%)
Total Revenue (£m)
Gross Profit (£m)
Gross Profit Margin (%)
8.1
2.5
10.6
2.6
25
14.8
2.6
17.4
6.6
38
17.8
1.6
19.4
8
41
18.4
3.5
21.9
8.9
41
19.7
8.4
28.1
9.9
35
25.7
15.2
40.9
12.3
30
StrategicGovernanceFinance 08
the Period, with non-European
Vision for the future
We continued our expansion into international markets
during
revenues
comprising over 25% of the Group’s revenue, including
15% in APAC and 9% in the Middle East, with the USA
emerging as a more prominent opportunity. We are
content with this performance, despite the delay in China,
which would, under the ordinary course of business,
have yielded a higher revenue contribution.
With
its well-established cable protection product,
TekLink®, the Group’s overall market share of this part
of the global offshore wind market remains above 75%. I
am pleased to report that we have successfully diversified
into new areas of this market, increasing our product
portfolio through acquisition and development. Total
revenue delivered from offshore wind in FY20 was 63%
of Group revenue in the Period, a record contribution
of £26m compared to £20m in FY19. TekLink® now
represents only 43% of Group sales.
People
During the year, we welcomed 23 new additions to the
Tekmar family, taking our total headcount to over 200.
I would like to take this opportunity to sincerely thank
all our people. COVID-19 brought about an unforeseen
business disruption which made this growth more
challenging than anticipated. Our teams have shown an
impressive resilience to deliver a strong H2 performance
and, thanks to their efforts, our businesses have
delivered the best possible outcome for shareholders in
the circumstances and have maintained a sustainable
strong position for our future.
Markets outlook
Offshore wind continues to show significant upside and
expansion globally. Market commentators are forecasting
a CAGR of >15% over the next decade for projects
coming online from 28 GW today, with installations
underway to 216 GW by 2030. The speed and scale of
offshore development continues to accelerate, as cost
competitiveness and other social and technological
benefits become even more apparent.
The Oil and Gas market has stalled, with the compounding
oil price pressure in recent months. Although less than a
fifth of the Group’s revenue is delivered from this sector,
it is clear that there will be no growth in this market in
FY21.
New market opportunities continue to emerge, with
increased demand for power interconnectors, telecoms,
marine civils and other renewable energy activity.
Group outlook
Project delays are often a consequence of disruption in
global markets, supply chains and production. Whilst we
are confident in achieving our targets for FY21, given the
ongoing uncertainty surrounding COVID-19, it would be
unwise to rule out the possibility of further unforeseen
challenges. This is particularly pertinent for our business,
which is heavily weighted to project delivery in H2. We
therefore believe it prudent to continue to refrain from
providing financial guidance for FY21.
The acquisitions that we have completed since IPO,
along with new product development, have broadened
our technologies in line with our diversification strategy,
enabling us to capitalise on further project lifecycle
opportunities. These acquisitions contributed 30% of
Group revenue in FY20, which only included six months
from Pipeshield.
Tekmar Group continues to have a healthy balance sheet
to support further growth. Record revenues, a combined
order book and preferred bidder status of £24.6m
increase in sales enquiries to £224m, and forecast
market growth of >15% in offshore wind, gives the Board
confidence in the Group’s ability to continue delivering
growth in the medium to long term.
The Board would like to thank all members of the Tekmar
team for, once again, rising to the challenges and
delivering on the strategy set out within our strategic
plan which is the result of the experience, knowledge,
expertise and commitment throughout the organisation.
In addition the Board would also like to add gratitude
to our clients, shareholders, suppliers and partners for
their ongoing and continued support to the business,
particularly recognising the recent global challenges we
have all encountered as we continue to deliver on our
strategy, vision and values.
Alasdair MacDonald
Non-Executive Chairman
Revenue Bridge (£m)
m
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45.0
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30.0
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TEL (Tekmar Energy)
AEL (AgileTek Engineering)
RYD (Ryder Geotechnical)
SIL (Subsea Innovation)
PIL (Pipeshield International)
TGP (Tekmar Group plc)
StrategicGovernanceFinance
10
Vision
Our vision is to be the leading provider
of technology and services to the global
offshore energy markets.
Key Objectives
1)
2)
3)
4)
Sustainable growth
Focus on value added technology for subsea
and offshore (Niche IP).
Develop ways to get into projects early and
stay in for longer (Full life cycle).
Leverage group support between companies
(Synergies).
Key Enablers
Values
1)
2)
3)
4)
5)
Our core values
Growing global demand >15% CAGR
Strong brand and outstanding reputation
Strong balance sheet
Our core strategy
Safety
Heritage
Innovation
Collaboration
People
StrategicGovernanceFinance 12
Investment Case
Innovative Marine Technology
Tekmar Group plc’s vision is to be the leading provider of technology and services
to the global offshore energy markets
Tekmar Group works together to provide leading technology and services to
the global offshore energy markets
Our primary operating companies include
We believe that our strategy, together with the following
competitive strengths, distinguish us from the competitors
in our chosen marketplace.
Leading market position and deep relationships with global
clients Tekmar Group is the market leading provider of
subsea asset protection solutions to the offshore energy
sector. Our patented TekLink® CPS (Cable Protection
System) is the system of choice amongst our customers
in the global offshore wind markets and we retain a
leading market share across all installed offshore wind
farms in Europe. Our reputation in the offshore wind
market has enabled us to successfully penetrate other
subsea markets.
Exposure to a structural high growth market building on
the significant growth already achieved in recent years,
we continue with our plans to accelerate our growth in
offshore wind to meet demand in an expanding market as
a consequence of (i) the lower cost of offshore wind farm
projects in Europe which is expected to lead to more
projects coming online more quickly, and (ii) the growing
emerging market opportunity for offshore renewable
energy in new geographies such as Asia-Pacific and
North America.
A culture of innovation our entry into the offshore wind
market with TekLink® was a direct consequence of
developing an innovative solution to meet a market need.
The Group has continued to build on this pedigree and
its heritage of product innovation to develop a market
leading range of products and solutions offered to the
global offshore energy sector.
Strong track record of historical financial growth with
clear visibility on organic growth revenues and pipeline.
The Group has delivered a consistent record of growth
with revenue increasing from £21.9 million for the year
ended 31 March 2018 to £40.9 million for the year ended
31 March 2020. The Group has visibility of significant
potential revenue with £224 million of sales enquiries
across all businesses.
Proven, experienced high-calibre management team the
Group benefits from a high-calibre senior management
team with substantial industry experience, led by James
Ritchie, the Group’s Chief Executive Officer. Together,
the management team has driven the growth and strong
financial performance of the business over the past
several years and has a proven track record of delivering
results.
We believe that the competitive advantages as described
above will enable the Group to continue delivering
profitable growth.
£40.9m
Group
Turnover
SIX
Group
Companies
17
Locations
Worldwide
Over
206
Employees 35 Years
Experience
Over
80,000
hours of geotechnical &
engineeering analysis
Over
30,000
bespoke concrete
mattressess delivered
Over
8,000
TekLink cable
protection systems
delivered
Over
120
Emergency Pipeline
Repair Systems
(EPRS) delivered
Over
200
Launch & Recovery
Systems delivered or
and maintained
StrategicGovernanceFinance
14
Global Reach
Head Office
Office / Facility
Regions
Representation
North America
Newton Aycliffe, UK
Montrose, UK
Blyth, UK
Newcastle, UK
Darlington, UK
Lowestoft, UK
London, UK
Island of Rügen, Germany
Baku, Azerbaijan
Manama, Bahrain
Dammam, KSA
Doha, Qatar
Middle East
Abu Dhabi & Dubai, UAE
Africa
Busan, South Korea
Shanghai, China
Asia Pacific
Johor, Malaysia
Singapore
Mossel Bay, South Africa
We operate from 17 locations across 12 countries in
Europe, Africa, the Middle East and Asia Pacific.
StrategicGovernanceFinance 16
Chief Executive Review
How we applied our strategy throughout the year
“
We continue
to deliver our
strategy with
continual growth
in renewables and
global expansion.
James Ritchie, CEO
“
Our vision remains unchanged, to be the leading
provider of subsea technology and services to the global
offshore energy markets. We are achieving this vision
by developing our portfolio to include complementary
businesses
that share market space, customer
relationships and a strong drive for innovation. We are
leveraging the unique, yet complementary skills and
technologies that our family of companies offer and are
enhancing what we deliver to the market.
I am proud of the strategic progress the Group has made
over the last 12 months and the transformation we have
created since our IPO over two years ago. Despite the
impacts and challenges of COVID-19 I remain confident
of the long-term prospects for the Group.
and respected brand in offshore wind, has created a
truly unique and compelling value proposition to the
global subsea sector that will create sustainable growth
opportunities long into the future.
We remain committed to our three core building blocks
for strategic growth: organic growth in our core markets;
accelerated growth through overseas expansion and
the addition of new technologies in our product mix, and
acquisitions that complement our overall vision. People
and technology remain at the forefront of everything we
do, and we will continue to expand organically. We will
also continue to explore selective accretive technology
M&A opportunities whilst maintaining a robust balance
sheet.
We set out at IPO to make selective and practical
acquisitions of businesses known to the Group. I believe
we have executed this meticulously adding accretive
benefit. These additions coupled with organic growth,
delivered largely through Tekmar Energy’s dominant
COVID-19
Our high revenue growth and strategic progress was
unfortunately overshadowed by the negative impact of
COVID-19. We had stated with confidence in the half-
year results announced on 3 December 2019, that
seasonal weighting (Circa H1 40% H2 60%) in the
Group’s performance was in line with our management
expectations and that the Group was firmly on track
to meet market expectations for FY20, however this
expectation included identified sales into China in Q4.
In addition, we did not foresee the major price rise
felt around the globe in components as a result of the
shutdown. These points combined had a negative effect
on our expected profitability. Despite this we are pleased
to report that the Group continued to operate across all
sites throughout the lockdown.
It is worth reiterating that Tekmar Group provides critical
components to major energy infrastructure projects
around the globe. The demand for such equipment is
ever increasing, our value proposition is unrivalled, and
we already have one of the largest track records in
offshore wind.
Although the effects of COVID-19 have impacted Tekmar
Group, our efficiency never dropped, we met all customer
deliveries and we are slowly starting the transition back
to normality.
We retain a solid balance sheet and see little negative
effect on our longer-term prospects. If anything, we
believe that countries are more likely to bring forward
their planned investment in renewables to support
economic growth.
We have included the Board’s assessment of the
key business risks associated with this changing
global environment in our Final Results presentation
(https://investors.tekmar.co.uk/investors/reports-and-
presentations/) and in our 2020 Annual Report.
Offshore wind market (63% Group revenue)
Tekmar Group now has an unrivalled value proposition
for its core technology. Offshore renewables and offshore
wind remain the focus for the business, representing
over 63% of Group sales. Our technology development,
acquisitions and strategic investment all support a drive
towards the offshore wind market, which continues to
pick up pace and is nearing 10x growth over the next
decade. The Group is now well placed to capitalise on
revenue opportunities through the offshore wind farm
project life cycle.
The addition of and substantial growth in AgileTek
Engineering has opened multiple new market
opportunities in both initial front-end engineering and
design (“FEED”) and post construction operations
and maintenance (“O&M”). This has been seamlessly
supported by the addition of Ryder Geotechnical, which
performs geotechnical evaluation of the seabed and
provides us with first-mover advantage on projects (such
as activity within the USA and France).
Tekmar Energy’s core TekLink® product maintains its
dominant market position in cable protection. TekLink®
now represents 43% of Group revenue and saw a
57% increase in sales from FY19. Subsea Innovation
increased its contribution to offshore wind in FY20,
delivering bespoke back deck equipment and innovative
cable repair solutions for the O&M phase of a project.
O&M now represents 6% of Group revenue and, as
installations continue, we expect it to play a larger role
in the future, based on the circa 27 GW capacity already
installed. With the addition of Pipeshield International
in October 2019, we have a strong product offering
across the project life cycle in offshore wind market and
the Group is starting to tender combined packages for
subsea protection.
Subsea market (37% Group revenue)
At IPO we set out to diversify revenues into other
subsea markets including, oil and gas, interconnectors,
telecoms, marine vessels, and more recently marine civils
through Pipeshield International. These now contribute
37% to Group sales an increase of 56% over the prior
year. This proportion is a fair example of the split we
hope to see going forward and is a representation of the
current enquiry book which is now circa £224m. Demand
for oil and gas equipment has fallen materially in recent
months due to the drop in the oil price to a ten year
low, brought about by the sudden imbalance of supply
and demand as a result of lockdown travel restrictions
imposed by COVID-19. Although many analysts view this
as a temporary impact, we have prudently revised our
outlook. It is important to note that oil and gas specifically
represented less than 20% of total Group revenue.
Tekmar Energy (67% Group revenue)
Tekmar Energy has grown revenue by 14% year-on-year
and saw a major increase in the volume of TekLink®
cable protection systems delivered with a 57% increase
in sales.
StrategicGovernanceFinance 18
This supports our continued dominant market position
for the technology, which is now on its 10th generation
of product development. Key customers and projects
include:
•
protecting 1.4 GW of electrical infrastructure on
Ørsted’s Hornsea 2 project, the largest offshore wind
project in the world;
protecting 640 MW on behalf of Subsea 7 for WPD’s
Yunlin project, the largest offshore wind project in the
emerging Taiwanese market; and
delivering products to Binhai for SPIC the largest
wind development in China to-date.
•
•
Tekmar Energy also delivered an increased volume of
sales in APAC representing over £5m of sales, 18.2% of
Tekmar Energy’s revenue. This number would have been
higher but was cut short in the final quarter due to the rapid
shut down in China. Hang-off solutions made an improved
contribution of circa £2m or 7.3% of Tekmar Energy’s
revenue. In addition to this organic growth Tekmar Energy
made some strategic developments including increasing
sales into O&M, securing the first French offshore wind
farm contract for TekLink® on the 480 MW Saint-Nazaire
project which is due to be manufactured in FY21, and
finally delivering its largest ever scope into floating
offshore wind, which now represents circa 3% of Tekmar
Energy revenue. The biggest financial impact was due to
the increased supplier costs because of COVID-19 supply
chain disruption, however, we feel this position will be
recovered in FY21. Across the Group we are now looking
at consolidation options and have already implemented
efficiencies within Tekmar Energy, resulting in a reduction
in headcount in the year from 115 to 105. We believe
Tekmar Energy remains well positioned and has sufficient
capacity to support the expected demand foreseen within
offshore wind.
AgileTek Engineering including Ryder Geotechnical (5% of
Group revenue)
AgileTek Engineering made a significant increase in
revenue of over 200% supported in part by the first full year
of Ryder Geotechnical which added £0.5m contribution
in revenue, but also due to the large increase in external
sales of circa £1.5m. AgileTek continues to provide a key
differentiating offering combining traditional engineering
with cutting edge software that saves our customers
money, reduces project risk and provides the Group with
early access to projects. AgileTek Engineering grew the
team from 11 to 14 and opened a new office in Newcastle
to support their growth, whilst Ryder Geotechnical started
bilaterally recruiting team members based in AgileTek
Engineering’s London office.
The Group is beginning to benefit from the collaboration
and combined approach of its portfolio businesses, which
have cross-sector capability and are already supplying
multiple projects together and have many ongoing
tendering opportunities.
Whilst we continue to explore accretive acquisitions that
match our core values, our focus will shift internally in
the near term, as we look to consolidate and maximise
the benefits from our recently enlarged business and
expanded technology offering.
Tekmar Group has progressed markedly since IPO,
delivering on its diversification strategy at the same time
as generating substantial revenue growth. We believe we
have a created a strong foundation on which to continue
growing the business, with our primary focus in FY21
being the offshore wind opportunity.
James Ritchie
Chief Executive Officer
Subsea Innovations (20% of Group revenue)
Subsea Innovation had a record year with sales increasing
over 147% and headcount increasing from 40 to 45.
The high growth rate was underpinned mainly by the
supply of bespoke back deck equipment to Subsea7 via
IHC. Although the financial performance of this project
was not as initially expected when reported during our
announcement in February 2020, we remain pleased
with the skills and technical ability the engineering team
offer. Harnessing the engineering capability of Subsea
Innovation is critical to our ongoing development as
a technology specialist for subsea equipment across
the Group and provides unique opportunities. Subsea
Innovation is currently engaged in the development of
bespoke equipment for the maintenance of subsea cables
support, an area in which the Group is increasing the rate
of sales. Although most of Subsea Innovations revenue
is currently classified within oil and gas, the engineering
skills and enquiry opportunities are fully transferable into
renewables and other subsea markets.
Pipeshield International (8% of Group revenue)
Pipeshield was acquired in October 2019 for consideration
of £6.5m. This was the Group’s third acquisition since
IPO and continues our strategy to acquire synergistic
offshore energy engineering businesses with a clear focus
on subsea technology and complementary customer
bases, which will benefit from being part of a wider group.
Pipeshield broadens our portfolio of complementary
technologies, allowing the seamless supply of subsea
protection products across the lifecycle of a project,
and takes us closer to our vision. Pipeshield itself is a
world leading technology provider of subsea concrete
mattresses. These mattresses are used in the protection
of subsea equipment such as pipelines and power
cables within all marine environments, including offshore
wind, marine renewables, oil and gas and marine civil
engineering.
We are very pleased with the rapid and successful
integration of the business into the Group, with Pipeshield
contributing 8% of total Group revenue in just six months
of trading since acquisition.
Outlook
Despite the short-term impacts of COVID-19, the Group’s
strategy, primary focus and vision remain unchanged. We
have a solid balance sheet and we remain confident that
the long-term growth prospects of the global offshore wind
market are accelerating, and most importantly that we are
well positioned to capitalise on this structural change in
the energy market.
StrategicGovernanceFinance 20
A year of positive PR
A collection of good news stories from FY20
March 2020
March 2020
March 2020
September 2019
September 2019
August 2019
Pipeshield wins big securing 20 new
projects in Q1 2020.
Tekmar Energy delivers CPS
to
SeaMade Offshore Wind Farm in
Belgium.
Tekmar Energy secures milestone
contract in France to protect the
country’s first offshore wind farm.
Ryder announce opening of new
London based office.
Energy
Tekmar
Changhua offshore wind
Taiwan by Jan De Nul.
selected
farm
for
in
Subsea Innovation to supply it’s next
Gen waterstops to TechnipFMC in
Norway
February 2020
January 2020
January 2020
August 2019
August 2019
August 2019
interaction
for Danish Kriegers Flak
Ryder delivers boulder
study
Offshore Wind Farm.
Tekmar Energy secures double
award
for Danish Krieger’s Flak
Offshore Wind Farm.
Tekmar Energy to supply CPS for
Windpark Fryslân in the Netherlands.
Tekmar Energy selected to provide
CPS for Formosa 1 Phase 2 in
Taiwan.
Ryder
headquarters in Newcastle
expands
with
new
Subsea
Innovation delivers new
launch and recovery Systems to
global clients.
January 2020
January 2020
October 2019
August 2019
July 2019
April 2019
Tekmar Energy complete rapid CPS
delivery for the WindFloat project in
Portugal.
Tekmar Energy secures major award
from Seaway 7 for Yunlin offshore
wind farm.
Tekmar Group makes third acquisition
with Pipeshield International Limited.
Tekmar to supply CPS to the world’s
largest offshore wind farm, Hornsea
Two
Tekmar Energy launch new Mental
Health and Wellbeing initiative.
Innovation deliver
Subsea
rapid
turnaround of repair clamps in under
10 weeks.
StrategicGovernanceFinance 22
Market Review - Offshore Wind
Industry growth predicted from 28.9 GW to 216 GW of projects underway by
year 2030 with many analysts expecting more than 15% CAGR in coming years
)
h
W
M
£
(
e
c
i
r
P
e
k
i
r
t
S
160
140
120
100
80
60
40
20
Tekmar Group is well positioned to take full advantage of
this substantial growth. Offshore wind is growing rapidly and
continues to expand globally as the technology plays a vital
role in the drive towards low carbon electricity. The scale,
speed, proximity to dense populations and the low-cost
competitiveness of this energy source makes it the clear
winner. Despite some short term delays the consensus
across the market is that COVID-19 does not affect the
medium to longer term outlook, or the growth opportunities
presented within offshore wind and renewables more
generally.
According to the IEA’s Offshore Wind Outlook(1), today’s
offshore wind market is nowhere near to its full potential.
When considering the wind resource available around the
globe, offshore wind has the potential to generate more
than 420,000 TWh’s/year worldwide, which is more than
18 times today’s global electricity demand.
The UK remains the world leader in offshore wind with more
installed capacity than any other country and is nearing 10
GW of cumulative capacity following the installation of 1,760
MW’s in 2019. Following the UK Government’s target to be
net-zero by 2050 and one year having passed since the
publication of the Sector Deal, the Committee on Climate
Change suggests an additional 75 GW of renewable
capacity could be required, with analysts predicting circa
36.5 GW required by 2030. Since the publication of the
Sector Deal, the cost of offshore wind has continued to fall.
The 2019 Contract for Difference auction saw 5.5 GW of
new offshore wind capacity come forward with record low
prices of £39.65/MWh or around 65% lower than projects
in the 2015 auction. These projects are expected to be
operational around 2023 to 2025.
2019 saw a major expansion in the Asia Pacific region
(“APAC”) and a high upside view towards 2030 including
the first projects in Taiwan (12.5 GW), large scale
developments in China (*50 GW) and ambitious targets set
in Japan, India and South Korea (around *6 GW each). The
APAC could overtake the EU within the next decade with
high growth scenarios above 30% CAGR.
Of the 22 GW now operational in Europe, 99% is still
dominated by the top five countries, that is the UK (45% or
10 GW), Germany (34% or 7.5 GW), Denmark (8% or 1.7
GW), Belgium (1.5% or 7 GW) and Netherlands (1.1% or
(1) https://www.iea.org/reports/offshore-wind-outlook-2019
5 GW) with the others making up just 1% or 0.3 GW. While
all these countries have set ambitious growth targets by
2030, we see new emerging potential in the likes of France
with 8.3 GW targeted by 2030, Ireland setting its own 3.5
GW target and Poland expecting over 5 GW to be installed.
Within the Americas, the USA is really starting to move,
although at the time of writing they only have two live
projects totalling 42 MW or less than 0.1% of the total
market, they could become the third biggest player by
2030 with over 26 GW under consideration.
Further, and not considered yet in any global market
forecast, is the development within Australia and Brazil
that have around 40 GW of potential capacity, although no
official targets have been set.
Market Highlights:
• More than 15% CAGR for offshore wind expected
globally up to 2030
•
• Global Wind Energy Council predicts 40 GW of new
offshore wind capacity to be installed globally over the
next five years (around 15% of total installations each
year).
UK latest CFD cost reduced further to £39/MWh or
30% lower than two-year prior at £57.50/MWh making
offshore wind even more compelling
The IEA finds that global offshore wind capacity may
increase 15-fold and attract around US$1 trillion of
cumulative investment globally by 2040.
•
Tekmar Highlights:
1. Tekmar Energy continues to secure a dominant
market share for TekLink® cable protection system
2. Group companies, AgileTek, Ryder, Tekmar Energy
and Pipeshield started working together on emerging
markets with the first Ørsted project in the USA now
completed
3. Tekmar Energy delivered first projects to Taiwan with
Formosa 1 and secured the first French offshore wind
project Saint-Nazaire
4. Group companies Tekmar Energy, Subsea Innovation
and AgileTek work together on multiple operations and
maintenance scopes 5. All Group companies have
started supplying into floating wind projects including
Portugal’s first offshore wind turbine Principle Power’s
Wind Float.
The cost of offshore
wind continues to fall
Left : Strike prices awarded under CFD
(Source BEIS)
2015-16
2017-18
2019-20
2021-22
2023-24
Delivery Year
227GW
186 GW
In planning
216GW
+168 GW
In planning
150GW
115.2 GW
In planning
14.1 GW
Ongoing
20.8 GW
Live
16 GW
Ongoing
21.5 GW
Ongoing
25 GW
Live
26.9 GW
Live
March 2018
March 2019
March 2020
Offshore Wind Market
9 year outlook
2020 vs 2030
(Source 4COffshore)
Belgium (1.5GW)
Other (0.5GW)
Netherlands (1.1GW)
Denmark (1.7GW)
China (4.9GW)
26.9 GW
UK (9.7GW)
Germany (7.5 GW)
(Source 4COffshore)
Under construction /
pre-construction capacity
Other
Belgium
Netherlands
Denmark
21.5 GW
UK
Germany
China
StrategicGovernanceFinance
24
Our business model
A world-leading subsea technology business built on innovation
Group revenues are tracked by product, market and
region. Across the Group there are no customers that
are unique to any one business. There is potential for
all Group companies to work with all customers that
the Group touches, allowing the Group to cross-sell all
products and services; working together to provide value
to the same clients, providing more revenue per client
and a complementary range of technology and services
that support multiple stages of the project life cycle.
As the business grows, our goal is to increase the
revenue per project from all stages of offshore energy and
subsea projects. We also have an aim to gain visibility on
upcoming projects as early as possible, with our design
and analysis businesses helping us achieve this.
Management reporting and decision making is made
by company and the Board of Directors measure
performance and profitability across the Group by
company.
Group revenue split:
67% Energy
20%
8%
5%
CPS(TekLink)
Back Deck Equipment
Concrete Mattresses
Hang-offs
O&M
Engineering
Other
18%
4%
6%
5%
Revenue split
by product
43%
8%
16%
1%
9%
Engineering
(incl RYD)
15%
Revenue split
by region
Europe
APAC
Middle East
USA
75%
Revenue split by market
63%
Offshore Wind
£25.7m
37%
Subsea*
£15.2m
Sectors
Offshore Wind,
*Oil & Gas , Interconnectors, Wave & Tidal, Marine Civils, Telecoms
Applications
Subsea Cables, Rigid & Flexible Pipelines, Umbilicals, Seabed, Vessel Back Deck, Structures
Customers
Energy Majors, Developers, Operators, Marine Contractors, Subsea Asset Manufacturers, Seabed
Project Phases:
DEVEX Development Expenditure
CAPEX Project Build Phase
OPEX Project Operation and Maintenance
Locations include:
UK, EU, Middle East, North America,
South America, Asia Pacific, China
See page 12 for location overview.
Product Categories:
Geotechnical Design
& Analysis
Engineering Analysis &
Software Innovation
Bespoke Equipment
Design & Build
Subsea Protection
Technology
Subsea Stability &
Protection Solutions.
See page 28 for technology overview.
StrategicGovernanceFinance 26
Engineering:
80 Projects
Export CPS:
9 Projects 137 Systems
Array CPS:
73 Projects 8,195 Systems
Hang-offs:
11 Projects 1,007 Units
Generation 1
1 Hooksiel
Generation 2
2 Bard I
3 Alpha Ventus
Generation 3
4 Walney I
5 Ormonde
6 Greater Gabbard
7 Thornton Bank II
8 Walney II
9 Gwynt-y-Mor
10 Borkum West II
Generation 4
11 Anholt
12 Riffgat
13 Teesside
14 Thornton Bank III
15 Global Tech I
16 Dan Tysk
Generation 5
17 West of Duddon
18 Baltic I
19 Meerwind
20 Amrumbank
21 Belwind Demonstator
22 Baltic II
23 Westermost Rough
24 Borkum Riffgrund
45
72
50
Tekmar Energy
Track Record
The Market Leaders
Protecting over 24 GW of electrical infrastructure
since 2008.
81
32
16
25
19 20
62
29
35
1
58
52
61
10
12
15
48
24
43
2
3
33
80
28
26
44
13
42
8
5
4
17
31
9
23
77
59
71
40
30
75
41
38
6
39
68
53
66
65
21
47
57
56
60
7
14
37
Finance
46
11
55
73
22
18
36
49
18
“Tekmar Energy continue to hold
more than 75% of the global market in
offshore wind cable protection”
Generation 5 (cont.)
25 Butendiek
26 Luchterduinen
27 Cape Wind
28 Westermeerwind
29 Gode Wind
Generation 6
30 Dudgeon
31 Burbo Bank Extension
32 Sandbank
33 Gemini Phase I
34 Block Island
35 Nordegründe
36 Wikinger
37 Rampion
38 Nobelwind
39 Formosa I P1
Generation 7
Generation 8
Generation 9
75 Seamade
76 Coastal Virginia
77 Hornsea TWO
78 Yunlin
79 Binhai Phase 3
80 Fryslan
81 Horns Rev 3
82 Saint Nazaire
83 Ostwind 2
84 Greater Changhua
85 Yangijang Nanpeng Island
59 Hornsea ONE
60 Modular Offshore Grid
61 BorWin 3
62 Deutsche Bucht
63 Dafeng H3
64 Formosa I P2
65 Borssele III & IV
66 Borssele V
67 Southwest Internal Line
68 Northwester 2
69 UK Replacement Project
70 Changhau
71 Triton Knoll
72 Moray East
73 Kriegars Flak
74 Nanpeng Island
40 Race Bank
41 Galloper
42 Walney Extension
43 Borkum Riffgrund II
44 Blyth Demonstrator
45 Beatrice
46 Pori Tahkoluoto
47 Rentel
48 Merkur
49 Arkona
50 Aberdeen
51 Binhai Phase II
52 Hohe See
53 East Anglia I
54 Southwest Demo
55 Kriegers Flak OSS
56 Borssele I&II
57 Norther OSS
58 Albatros
82
USA
27
34
76
APAC
67
54
79
51
63
39
70
78
74
64
85
84
86
StrategicGovernanceFinance
28
11
StrategicGovernanceFinance 30
Our Strategy in Action
Increased revenue per project by combined product offering
The Group’s objective is to be the leading provider of technology and services to the global offshore energy markets.
The Group has a strong track record of organic growth and intends to continue to grow the business in the following
ways:
Organic
Growth
Markets growing;
OWF growing at >15% CAGR
Successes in the year:
1. Grew revenues by 46%
2. Market visibility at record £66m or 30% growth
3. Enquiry book grew by 15% to record £224m
4. Tekmar Energy, Subsea Innovation and AgileTek all
grew revenue organically
5. Zero lost time incidents
Related Risk Factors:
General Economic Environment, Project
Technology, Key Staff Members
Accelerated
Growth
Investment in new technology,
operational efficiency,
expansion overseas
Successes in the year:
1. 25% (£10m) of revenue delivered outside of EU
2.
Increased technology from 47 to 60 products
3. First floating offshore wind project support by three
Group companies
4. All Group companies support USA offshore wind
delivery
timings,
5. All Group companies actively involved in O&M
opportunities now delivering 6% of Group turnover
Related Risk Factors:
Technology and competition, Risk of claims
Acquisition
Strategy
M&A targets;
Shared vision
Technology and sector focus
Leverage group support,
Share customers,
Project Life cycle
Successes in the year:
1. Three acquisitions successfully completed since
IPO, Ryder Geotechnical Limited, Subsea Innovation
Limited and this year Pipeshield International
2. The acquisitions are adding value, generating more
full life cycle revenues and a stronger customer
proposition within Group
“
Combining Group
capability to generate
more full life cycle
revenues and a stronger
customer proposition.
James Ritchie, CEO
“
Related Risk Factors:
Systems and Processes, Availability of capital
As a requirement of the Companies Act a section 172
statement has been prepared and is included in the
Directors Report on page 64.
StrategicGovernanceFinance 32
Key Performance Indicators
Identifying and monitoring the key indicators of success in our business
KPI
HY18
FY18
HY19
FY19
HY20
FY20
% Change(1)
Lost Time Incident
1.22
1.22
0
0
0
0
0
Enquiry book
£127m
£145m
£170m
£195m
£186m
£224m
+15%
Sales conversion
25%
56%
50%
62%
56%
46%
-26%
Preferred bidder
£2.9m
£7.6m
£18.1
£15.0m
£7.5m
£14.6m
-3%
Order book
Revenue
£8.9m
£5.4m
£12.9m
£7.2m
£15.9m
£10.0m
+39%
£11.4m
£21.9m
£7.1m
£28.1m
£17.1m
£40.9m
+46%
Market visibility
£23.2m
£34.9m
£38.1m
£50.2m
£40.5m
£65.5m
+30%
People (2)
97
109
154
180
175
206
+14%
Market measures
OWF outlook GW (3)
95
150
170
227
244
216
-5%
Oil price $ppbl
$57.0
$67.6
$72.0
$69.0
$60.9
$22.7
-67%
HY – Half Year is the 6 months ending 30 September
FY – Full Year is the 12 months ending 31 March
(1) % change is from FY19 to FY20
(2) People - number of employees at the end of each period
(3) Improvement in Offshore Wind Market Outlook. Source: 4C Offshore Wind Farm Global Market Overview
46%
Conversion Rate FY20
£224m
Total sales enquiry book FY20
£103m
£65.5m
market visibility{
£14.6m preferred bidder
£10.0m order book
£40.9m revenue
206
people
60
products
StrategicGovernanceFinance 34
Risk Management
Identifying, evaluating and monitoring the key indicators to the success of
our business is pivotal to informing our strategic decision making
The Board has overall responsibility for setting the course
for the Group’s risk management objectives and policies.
Working within the offshore energy industry, managing risk
is integral to our behaviours and has been demonstrated
by over 30 years of proven policies, procedures and
behaviours.
The objective of the Board is to set policies that seek to
mitigate ongoing risk as far as possible whilst maintaining
the Group’s competitiveness and flexibility. The Board
believes this helps to sustain stakeholder value, from
key suppliers to end-customers, while also protecting
the Group’s established corporate culture and creating
shareholder value.
Risk management, including both financial and non-
financial controls; what the board does to identify, evaluate
and manage risk and how it obtains assurance that the risk
management and control systems are working effectively,
is covered by the company’s business risk assessment
procedures. The Group operates a structured process in
relation to risk management, which identifies and evaluates
risks and uncertainties and reviews activity to mitigate
those risks. This includes a bi-monthly review of all risks
and opportunities.
The most salient and significant risks that the Board
considers could potentially impact the business (based
on the risk assessment process described above) are
described below. We consider the nature of the Group’s
principal risks have not materially changed since last year:
Severity
Risk Type:
Unlikely Possible Likely Very Likely
Strategic
Financial
Operational
Compliance
2) 6) 7)
5)
3)
4)
1)
Extensive
Major
Medium
Minor
Probability
Risk
1)
Macroeconomic
environment
Risk Type
Description
Impact
Mitigation
Evaluation
Brexit: In 2016 the UK held a referendum on the UK’s
continued membership of the EU which resulted in a vote
for the UK to exit the EU. There continues to be significant
uncertainties in relation to the terms within which such
an exit will be affected once the transition period comes
to an end, and to what the impact will be on the fiscal,
monetary and regulatory landscape in the UK.
COVID-19: there is considerable uncertainty over the
impact of the COVID-19 pandemic. Should this lead to
a significant, longer term downturn in the wider economy
this could impact on the opportunities available to
the Group. However, there could also be opportunity
here, should world governments seek to stimulate
economies through increasing public spending on energy
infrastructure, and particularly renewables.
The overall trading conditions for
the Company and environment
in which we operate could be
impacted by the policy decisions
made by government on both
Brexit and COVID-19, including
continued investment in energy
infrastructure, and the movement
of goods and people.
Brexit is closely monitored by the business, and any
potential changes are planned and prepared for. The
business has reacted positively to the challenges
presented by COVID-19, with regular meetings of the
senior management team determining our response
and regular communication made to our valued
employees.
Monitoring. Reacting
Increase: due to rapid
impacts of COVID-19.
StrategicGovernanceFinance 36
Risk
2)
Risk Type
Description
Impact
Mitigation
Evaluation
Systems and
processes
IT systems are vital to the operations of the Group.
Failure to adequately invest in and maintain the Group’s
systems could lead to the loss or theft of sensitive data
or compromise the Group’s ability to effectively carry out
operations.
Systems failures could lead to an
inability to meet customers’ needs
and lead to reputational damage.
The loss of sensitive information
could lead to significant damage
with an associated risk of fines.
Increase: due to volume
of remote working.
The Group predominantly outsources provision of
IT services to a suitably qualified third-party, whose
competence and service are regularly reviewed. This
is supplemented by in-house resource. Regular staff
training is offered or mandated, depending upon the
nature of the training, to ensure that all staff maintain
awareness of their responsibilities with respects to
IT security. Significant changes were rapidly and
successfully implemented to allow the majority of
the Group’s workforce to switch to a home working
model in light of COVID-19. After the year end the
Group appointed a Chief Technology Officer to further
enhance the focus on IT systems and processes
across the Group.
The business has ongoing relationships with banks
and other financial institutions that offer the required
level of support. Furthermore, the Group has
strengthened its cash position with the receipt of a
Coronavirus Business Interruption Loan in April 2020.
Cash flow forecasts are updated and discussed
regularly, with analysis prepared at both a subsidiary
and Group level.
Reduced:
remained
unleveraged at the end
of the period and access
to government support
has since become more
accessible at favourable
terms.
3)
Access to
capital
Linked to macroeconomic environment, access to capital
is a significant factor in our plans to grow the business.
There is uncertainty in relation to how, when and to what
extent developments will impact on the markets we
operate in, the wider economy, levels of investor activity
and confidence and exchange rates; Impact, Without
access to sufficient finance the company may struggle
to undertake all aspects of its growth plan, such as the
acquisition strategy and accelerated growth.
has
financial
business
institutions
The
ongoing
relationships with banks and
other
that
offer the required level of support.
the Group has
Furthermore,
strengthened
its cash position
with the receipt of a Coronavirus
Business Interruption Loan in April
2020. Cash flow forecasts are
updated and discussed regularly,
with analysis prepared at both a
subsidiary and Group level.
4)
Project timings
and delay
to contract
awards
The project-based, contractual nature of the Group’s
business, coupled with its concentrated customer base,
leads to a revenue profile that is inherently uneven over
the year. Most contract awards and associated revenues
are dependent on large capital projects within the energy
sector, the timing of which is out of the business’ control.
There is an associated risk that
the
fulfilment of any contract,
together with its revenue, may fall
outside the financial period that
was originally forecast. This, in
turn, may have a material adverse
impact on the Group’s reported
financial performance
the
specific period.
for
The business produces a detailed three year strategic
plan that includes an assessment on project timing and
the revenue streams macro climate. The acquisitions
of Ryder Geotechnical and Pipeshield International
have increased the diversity of the Group’s portfolio,
both from an offering perspective and typical timing of
the revenue in relation to the project. Pipeshield has
also opened up a new market for the Group to provide
services to the marine civils space.
the
–
of
our
mitigates
impact of wider
No
change
diversification
portfolio
the
macroeconomic
environment issues.
5)
Technology
and
competition
The risk of new competitors leading to a reduction in
pricing. Design changes could lead to technology
obsolescence and subsequently reduced volume of
sales.
Reduced volume of sales. Increase
in capital expenditure to develop
new products. Resulting
in a
reduction in the Group’s financial
performance.
The business undergoes a detailed
technology
readiness level (TRL) programme when developing
new products, which includes an assessment of
competition and what our ultimate value proposition
would be. Where possible the business invests in
intellectual property protection including the use
of trademarks and patents. Significant investment
is made in the continuous development of existing
products to ensure they keep pace with current
market trends. Our more diversified product portfolio
allows us to offer a unique proposition to customers.
Increased:
is a wider
competition
markets.
there
range of
our
in
StrategicGovernanceFinance 38
Risk
6)
Risk Type
Description
Impact
Mitigation
Recruitment
and Retention
of Key People
The business may fail to attract, retain and develop key
staff members with the skillsets required to make the
business a success, particularly within commercials
and engineering, and further to plan for succession in
leadership positions.
to
fulfil
A major impact on the business’
ability
its contractual
obligations. Adverse impact on the
future growth aspirations for the
business.
7)
Risk of claims
and failure
to meet
contractual
The Group enters contracts that contain terms that, in
some cases, contain wide reaching indemnities and
warranties. These terms are commonplace in the subsea
industry and do not unfairly prejudice the Group, nor do
they put the Group in a materially worse position than its
competitors. These warranties and indemnities lead to
an inherent risk that the Group’s liability for any breach
could be extensive, especially if these are given on an
uncapped basis.
to
fulfil
A major impact on the business’
its contractual
ability
obligations. Adverse
impact on
the future growth strategy for the
business.
Evaluation
No Change.
Increased: due to volume
of differing contracting
types and parties.
The businesses monitor staff turnover as a KPI and
people are a core value within each business. Further,
independent assessments are undertaken and a
skills matrix, with risk mitigation plans, is developed
annually by HR. We regularly review our remuneration
offering to ensure we are competitive against other
local firms. For the first time this year we conducted
a Group wide employee survey to garner our people’s
feelings about their role and the business and action
plans are being developed as a result of the feedback
received. The HR function has been strengthened in
the year with the addition of senior resource.
Contracts are reviewed extensively prior to signing,
and the likelihood of risks assessed by legal and
technical teams. Uncapped liabilities are kept to a
minimum and only agreed to for areas of the contract
that Directors believe are very low risk. Where
possible the Group insures against risks to minimise
the potential financial impact. There is a strong focus
across the Group on high quality project execution
which is regularly reviewed under independent ISO
certification where appropriate.
StrategicGovernanceFinance 40
Sustainability and
Corporate Social Responsibility
Developing a sustainable business model to remain efficient and competitive
We recognise that creating and maintaining a sustainable
business will enable the Group to deliver its strategy whilst
remaining both effective and competitive. We are mindful
of our responsibilities towards the people, communities,
businesses and environments impacted by our activities
in the many markets we operate in. We are committed to
ensuring our impact is positive.
Environment
Tekmar Group is a proud recipient of the London Stock
Exchange’s Green Economy Mark which recognises
listed companies who derive 50% or more of their
revenues from the green economy. We are determined to
conduct our business in an environmentally responsible
manner. We are developing processes to understand and
address our responsibilities in respect of our operational
impact on the environment, including climate change.
Employees
People are the future of Tekmar Group. We recognise
the importance of implementing systems, ways of
working and initiatives that create conditions in which
our people are supported, encouraged, and empowered
to contribute. The Group appointed an HR Manager in
2019 with responsibility for optimising the effectiveness
of our employees and the strategic management of
human resource in line with our intended future direction.
We have since conducted our first Group-wide employee
engagement survey using the Hive Platform. The Hive
initiative will be performed regularly to enhance employee
engagement and gather feedback that can be actioned for
positive organisational change. At an individual company
level, Pipeshield International holds an Investor in People
Gold Award until 2022, which further demonstrates the
commitment across the Group to building a stronger,
healthier, and happier place to work.
Shareholders
The Company maintains
communication with shareholders.
and
values
regular
Local Communities
Whilst the Group’s businesses are centred in the UK, we
operate from 17 locations across 11 countries in Europe,
Africa, the Middle East, Asia Pacific, and North America.
We encourage all Group businesses and employees
to support local communities within their operational
geographies. Product and service procurement
is
location specific, which means we can procure products
and services locally with a view to supporting supply
chains and sustaining employment in the region. Our
employees are encouraged and supported to engage
with local community projects and initiatives that have
a positive impact on the areas we work in. Supporting
our communities has never been as crucial as during the
COVID-19 pandemic. Responding to the unprecedented
demand for PPE throughout the UK, Group companies
Subsea Innovation and Tekmar Energy worked together
to manufacture and supply protective face shields at no
cost to frontline medical workers and carers in the North
East of England. We were fortunate in that we had the
capability to expand our operations and manufacture
PPE alongside ongoing production activities for our
customers. In total around 5,000 protective face shields
were donated to 49 hospitals, care homes and to
community care workers across the region.
Customers and Suppliers
Our customers and suppliers are extremely important
to us. We have followed a customer-led strategy with
regards to expansion into international markets and
we are proud to be a trusted partner of energy majors,
developers, operators, marine contractors, and subsea
asset manufacturers around the world. Our export
achievements have been recognised within industry on
several occasions, most recently attributed to Group
company Pipeshield International who was awarded a
Queens Award for International Trade in 2020. Every
customer has different needs and expectations therefore
we have developed positive, longstanding relationships
through active engagement with customers and suppliers
over many years to help customers find the solution
Images left to right: Protective Face Shields manufactured and donated by Tekmar Group / Tekmar Group is a proud recipient of the
London Stock Exchange’s Green Economy Mark / Creating a cleaner environment for future generations.
they require. We are committed to ensuring that legal
compliance, respect for human rights and transparent
business ethics are cemented both up and down our
supply chain
Innovation and Technology
We are a technology driven business harnessing an
entrepreneurial culture
forward-
thinking innovation whilst allowing us to react quickly in
response to changes in the market and the competitive
environment. We listen to and learn from our customers
and engage with them in a way that allows us to identify
and help solve their problems.
that encourages
Safety
We maintain a positive and proactive attitude towards
health and safety at all levels of our organisation and
among all our stakeholders. We promote a safety-first
policy, ensuring that everyone takes equal responsibility
and ownership for their own and others safety. At time
of writing the Group has reached three years without
incurring a lost time incident (LTI). This is a significant
milestone and a tremendous achievement by the Tekmar
family. We pride ourselves on our transparent and honest
reporting culture through which we aim to maintain a
‘zero’ Lost Time Incident goal.
Respect for Human Rights
We are committed to upholding and respecting human
rights in the workplace and in the wider communities
in which we operate across our international business.
We maintain work practices and policies throughout
the Group which are engineered to ensure that
respect for human rights is engrained in the fabric of
our businesses. We do not tolerate the use of child or
forced labour within our business and take all reasonable
steps to ensure that our suppliers and customers also
adhere to internationally recognised human rights. Our
Modern Slavery statement outlines the steps we take
to ensure that there is transparency across the Group
and throughout our supply chain. We encourage any
concerns relating to modern slavery to be raised using
the procedure set out in our whistleblowing policy.
Business Ethics, Anti-Bribery and Corruption Matters
We seek to act responsibly and ethically in all our
business interactions. We promote the highest standards
of business behaviour across the Group and we focus
on producing a culture of ethical compliance so that all
our people are aware of and dedicated to the standards
of ethical business practice that are expected of them.
We have an established business integrity policy and
have introduced a compliance programme which has
the support of the Board and Senior Management within
the Group. The programme incorporates communication
of the statement and policy, training, risk assessments,
monitoring and review processes. Employees assessed
to be at heightened risk because of the roles they fulfil are
required to complete the training and to self-certify that
they understand and agree to be bound by its provisions.
We do not permit bribery, nor illegal or corrupt business
practices in any form.
Supply Chain
We are committed to supporting the supply chains in which
we operate. We are members of several trade bodies
who promote industry awareness, opportunities, and
share best practise and lessons learnt. Our memberships
include, but are not limited to: RenewableUK, NOF,
EnergiCoast, SubseaUK, Wind Europe and Asia Wind
Energy Association. James Ritchie is also Chairman of
EnergiCoast, a representative group for the North East
of England’s offshore renewables sector.
ISO Standards
Within Tekmar Group, our businesses are accredited to
all the required international standards. These include,
but are not limited to:
•
•
•
•
ISO 45001:2018
ISO 14001:2015
ISO 9001:2015
ISO/TS 29001:2010
StrategicGovernanceFinance
42
Chief Executive Q&A
James Ritchie
In the longer to medium-term I remain highly optimistic
that COVID-19 has brought about some tangible benefits
to the Group. Our IT infrastructure for example has
proven robust and capable of supporting home working
for many of our employees, which has led to continued, if
not increased, productivity. Going forward I see societal
focus and demand switching quickly to renewables, which
is exciting for Tekmar Group as we are well positioned to
help deliver this clean-energy powered future.
What steps have you taken to ensure the resilience of the
Group in both the short and longer term?
Cash is king in any crisis so to reassure investors we
secured a Coronavirus Business
Interruption Loan
Scheme (“CBILS”) loan of £3m (shortly after our year-
end) to give the business sufficient headroom in dealing
with the challenging times. We remain very risk averse
regarding credit risk and still insist on securing credit
risk insurance against our main projects. People remain
the foundation and future of the Group, therefore we
will continue to prioritise their wellbeing and ensure
we maintain the resources necessary to deliver the
foreseen future demand. We are also focusing on the
consolidation of the Group to ensure we benefit from the
sum of the parts that we have created whilst developing
an extended technology offering for our customers.
What has been the highlight of the year for you?
I took great pride on behalf of the team when reporting
our half-year results. This demonstrated the rapid
progress the business had made since our IPO two years
prior. At this point we were set to deliver a record year
and continued to implement our strategic plan with the
recent acquisition of Pipeshield. It is hugely regrettable
that the impact of COVID-19 should then materially affect
this view, but I am still proud of the major top-line growth
we have achieved and that we have now nearly doubled
in size since our IPO in June 2018.
Is Teklink® and cable protection still the focus product of
Tekmar Group?
It is still very important; however, the Group continues
to evolve and now offers an extensive product range for
subsea applications.
TekLink® is our core cable protection system and
remains our largest revenue generator. It is what most
of our customers still identify us for and we continue to
invest in its development, and we held a dominant market
share for this technology throughout the year.
However, I see an opportunity in expanding the Group’s
other product lines. For example, Subsea Innovation
has delivered a record contract of over £7 million for
bespoke back deck equipment, Pipeshield has delivered
innovative scour protection providing seabed stability
to ports around the world, and AgileTek continues
to develop game changing engineering packages.
Combining the resources of these businesses could lead
to exceptional growth potential.
Is the focus still towards offshore wind?
In short yes. Longer-term we want the business to focus
on renewables and we see this as the greatest and
most sustainable opportunity for growth. It is important
to have a mix and a transition and although the events
of COVID-19 mean oil and gas now plays less of a role
in our business, it remains the largest market by capital
expenditure and is therefore still important.
How will you look to continue to grow the business?
Our core market is offshore wind, a market that is
growing and opening up across new regions, so that is a
big factor, but as I have already said we want to focus on
consolidation to make sure we maximise the benefit from
the sum of the parts we have acquired and to ensure a
unique value proposition to our customers. So long as
we continue to maintain a strong balance sheet position,
I think we could continue to explore select acquisitions
that can bring accretive technology offering to the mix.
is vital
How has the culture evolved within Tekmar Group?
to
Ensuring our employees are engaged
developing an inclusive culture, so I am really pleased
that over 33% of eligible employees took part in our
SAYE scheme launched in March 2020. I would like to
thank the team for their hard work and dedication during
these trying times. I realise this has been tremendously
hard for our people and it is down to their determination
we have continued to operate safely and effectively
from
in unprecedented circumstances. The
the team has shone through. Having acquired more
businesses and welcomed new members into the family
it is important we remain agile, proactive and dynamic,
the attributes our customers have come to recognise us
for and make us who we are.
loyalty
“
Going forward I
see societal focus
and demand
switching quickly
to renewables,
which is exciting
for Tekmar Group
as we are well
positioned to help
deliver this clean-
energy powered
future.
James Ritchie, CEO
“
What do you perceive to be the short, medium, and long-
term impacts of COVID-19 on the Group?
The world over has clearly been affected by the
unprecedented events of COVID-19. As we reported
in February, the short-term yet hard felt impact to the
Group was the disruption to our supply chain and delayed
opportunities in the APAC region as a direct result of
the rapid shut down in China. The effects since then
have been twofold. Firstly, the challenge of operating
under social distancing rules resulted in minor delays to
certain activities across the Group and the industry as a
whole, however, I am happy to report that our team and
all our sites responded well to the new conditions and
productivity was broadly unaffected. Secondly, there was
the major reduction in demand for oil and gas during the
same period, and although we believe this was driven
by a supply and demand issue, we quickly revised our
expectations for the sector and refocussed on offshore
wind and other subsea activities.
StrategicGovernanceFinance 44
Financial Review
Sue Hurst
“
We have
maintained
strong revenue
growth across
all businesses,
increasing by 46%
year on year.
Sue Hurst, CFO
“
Revenue increased across all businesses and markets
and has nearly doubled since our IPO in June 2018.
In October 2019 we acquired Pipeshield International
Limited, which contributed £3.1m revenue and gross
profit of £1.1m.
Financial performance for the year ended 31st March:
£m
FY20
Adj.
items
Adj.
FY20
FY19
Adj.
items
Adj.
FY19
Revenue
EBITDA
PBT
PAT
Adjusted EPS(1)
40.9
4.1
2.0
2.0
0.6
1.0
1.0
40.9
4.7
3.0
3.0
5.8p
28.1
4.2
2.0
2.4
0.6
0.7
0.7
28.1
4.8
2.7
3.1
6.2
Overview
We achieved strong results at the half year with revenue
up £10m and Adjusted EBITDA up £2.8m on HY19. An
improving order book and larger enquiry book at this point
supported further growth in the second six months and
we announced in our interims that we were firmly on track
to meet market expectations for the year. However, like
many businesses, we have been impacted by COVID-19
and were one of the first businesses to announce to the
market, on 18 February 2020, a foreseeable impact on
trading. This was largely due to delays to identified sales
opportunities in China in the final quarter of the financial
year, along with some of our estimated cost of sales being
based on components sourced from China. Our trading
update stated we expected our results to be broadly in
line with those achieved in FY19, and I am pleased to
report this was achieved.
COVID-19
The outbreak of the virus in China, including the restriction
of travel in the country, affected our performance
materially in a number of ways:
•
•
•
projects scheduled for shipment to China were
delayed due to the closure of ports;
the supply of components from China ceased for the
same reason. We were able to source replacement
components from Italy which was also subsequently
caught up in the early impact of the virus. These
supply chain delays pushed revenue and margin out
of the financial year, however, this has not affected
contractual delivery schedules for clients; and
the Group’s office in Shanghai, which services
the whole of APAC, was placed on mandatory
shutdown for several months, as were our clients’
and suppliers’ offices in the region.
China accounted for circa 10% of our revenue forecast
in FY20 and represented 20% of our outstanding supply-
chain commitments.
business, predominantly across five large European
projects and three APAC projects.
Subsea Innovation continues to grow with revenue
increasing by 26% (based on a FY equivalent for
FY19). A significant proportion of this came from one
customer, to whom we provided a number of design
engineering packages followed by the associated build
scopes across the year.
AgileTek doubled its external revenues this year,
including £0.6m from its subsidiary Ryder Geotechnical
who were acquired in March 2019 and are included
within AgileTek for reporting. AgileTek also plays a
crucial role delivering engineering services to the other
businesses in the Group with internal sales of £0.9m to
Tekmar Energy.
Pipeshield revenue related to the period from October
2019 to 31 March 2020.
Gross Profit
Revenue
Gross profit by business £m
FY20
FY19
Revenue by business £m
FY20
FY19
Tekmar Energy
Subsea Innovation
AgileTek
Pipeshield
Intercompany elimination
Total
27.5
8.8
3.0
3.1
(1.6)
40.9
24.1
3.5
1.0
-
(0.5)
28.1
Revenue by market £m
FY20
FY19
Offshore wind
Subsea
Total
25.7
15.2
40.9
19.7
8.4
28.1
Offshore wind accounted for 63% of Group revenue
and this sector increased by 30% on FY19. Subsea
revenue increased by 81% reflecting a full year of
Subsea Innovation and six months of Pipeshield.
Intercompany revenue also increased significantly as
a result of wider businesses collaborations on projects.
Tekmar Energy achieved revenue growth of 14%
despite the impact of COVID-19 in the final quarter.
Offshore wind accounted for 86% of turnover in this
Tekmar Energy
Subsea Innovation
AgileTek
Pipeshield
Total
Gross profit by market £m
Offshore wind
Subsea
Unallocated costs
Total
7.7
2.0
1.5
1.1
12.3
FY20
9.8
4.3
(1.8)
12.3
8.2
1.1
0.6
-
9.9
FY19
9.6
2.8
(2.5)
9.9
Gross profit reduced in the year due to a change in
project mix along with the impact of COVID-19. Within
Tekmar Energy we experienced increased costs from the
supply chain as a direct result of COVID-19, with the cost
of procurement increasing significantly on our Hornsea
Two project being executed at the end of the year.
Gross profit for Subsea Innovation was lower as a
percentage against last year due to a higher weighting
of build projects, which attract lower margins than the
design and engineering contracts.
StrategicGovernanceFinance
46
AgileTek, which usually derives its revenue from pure
consultancy, secured a large project which included build
elements, and which were executed by collaborating with
the other Group businesses.
Unallocated costs in the table above (gross profit by
market) relate to the manufacturing costs within this
business. The reduction in costs reflect targeted savings
and production efficiencies.
Operating expenses
Operating expenses increased from £7.0m to £10.2m
due to the business expansion with an additional £2.4m
relating to the full year impact of Subsea Innovation and
Ryder Geotechnical, and the part year for Pipeshield.
Adjusted EBITDA
Adjusted EBITDA is a primary reporting measure 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 2020,
the adjustment includes costs relating to the acquisition
activities and share based payment charges relating
to the initial IPO options and SIP scheme as both were
one-off awards relating to the IPO and not reflective of
underlying trading. There were no charges relating to the
SAYE scheme as this was only launched on 31 March
2020.
Adjusted EBITDA by business £m
FY20
FY19
Tekmar Energy
Subsea Innovation
AgileTek
Pipeshield
Group
Total
3.9
0.5
0.4
0.4
(0.5)
4.7
4.6
0.5
0.1
-
(0.4)
4.8
Adjusted items £000
FY20
FY19
IPO costs
Professional fees - acquisition
Gain on bargain purchase
Share based payment charge
Adjustment to EBITDA
Amortisation on acquired intangible
assets
-
109
-
454
563
443
204
117
(95)
418
644
109
Adjustment to PBT & PAT
1,006
753
Profit
Profit after tax is in line with last year after a small tax
credit (£3k) reflecting the assumption we will benefit from
R&D tax credits across the businesses, mitigating the tax
charge on profits. Adjusted PBT and PAT are adjusted
for the amortisation on the acquired intangible assets for
Subsea Innovation and Pipeshield.
Foreign currency
We delivered four offshore wind contracts in Euros this
year and purchased forward currency transactions to
mitigate the risk of currency movements on payment
milestones. The closing rate for revaluation of Euro
balances at the year end was 1.1306 (FY19: 1.1605).
Acquisitions
We completed one acquisition this year:
Pipeshield - 100% of the share capital of Pipeshield
International Limited was acquired in October 2019.
Consideration of £7.2m was made up of £3m in
cash, other consideration of £0.7m, £0.75m of Group
shares and £2.75m of deferred consideration, with
the first payment of £1.5m made in April 2020 and
the balance due in October 2020. All consideration
was recognised as either tangible or intangible
assets and the deferred tax liability recognised on the
acquired intangibles has in turn increased the goodwill
recognised.
Balance Sheet £m
FY20
FY19
Property, plant & equipment
Other non-current assets
Stock
Trade & other receivables
Cash
Trade & other payables
Other non-current liabilities
5.9
26.3
2.5
26.8
2.1
16.2
1.4
5.5
21.8
1.9
20.0
4.2
9.8
0.8
contract assets of £15m. The majority of the latter sits
within Tekmar Energy and relates to offshore wind
projects that have large project milestones towards the
end of the project that are not yet due for invoicing.
Cash
Cash is always a major focus of the Group as we monitor
and manage the working capital lifecycle across projects.
We remain self-funding in this degree, however, we have
reviewed our position carefully in light of COVID-19 and
were successful in securing a CBILS loan from Barclays
for £3m in early April which was drawn down immediately.
This will support us in navigating any potential delays in
receipts from customers should they arise.
Trade and other payables
the deferred
Trade and other payables
consideration (£2.75m) due under
the Pipeshield
acquisition which is due across two tranches within 12
months. The first payment (£1.5m) was made in April
2020 with the balance due in October 2020.
include
Other non-current liabilities
Other non-current liabilities relate to the lease liabilities
in relation to IFRS16 and deferred grant income. There is
also an increase of £0.3m in deferred tax liability relating
to the Pipeshield acquisition.
Sue Hurst
Chief Financial Officer
Property, plant & equipment
Fixed asset
line with
depreciation levels and the overall increase relates to
£0.5m of production assets acquired within Pipeshield.
investments were
largely
in
Other non-current assets
Goodwill of £19.6m relates to the goodwill arising on the
original management buy-out in 2011. Intangible assets
and goodwill arising on the acquisition of Pipeshield
increase our acquisition investments by £4.6m. We also
invested £0.4m within Subsea Innovation on new product
development.
Trade and other receivables
We closed the year with trade debtors of £9.9m and
StrategicGovernanceFinance
48
Chairman’s Introduction to
Governance
In all of our activities as a Board we desire to achieve
good governance for the Group. As Chairman it is
my responsibility to establish and maintain the culture
prevailing at a Board level. By setting the tone from the
top the Board seeks to ensure that we drive values and
behaviours which are consistent across the Group. This
covers the way that we behave with each other and in the
way we interact with our wider stakeholders – including
customers, suppliers, shareholders, employees and
the communities around us. Within the Annual Report
we have set out how we have engaged with our key
stakeholders – please see page 40. Our strategy as a
Group is founded on consistently meeting those high
standards. Creating an appropriate ethical culture at
Tekmar is pivotal to the Group’s success. This dedication
to good governance and driving the right behaviour has
been particularly salient since January, as the Group has
adapted working practices in line with the requirements
driven by the COVID-19 pandemic.
The Directors acknowledge the value of high standards
of corporate governance and therefore the Company
has adopted the QCA Code, which sets out a standard
of minimum best practice for small and mid-size quoted
companies, particularly AIM companies. Adoption and
compliance with the QCA Code ensures the Company
complies with the requirement for AIM quoted companies
to adopt and comply with a recognised corporate
governance code.
The Board comprises five Directors – two Executive
Directors and three Non-Executive Directors. We believe
that the different experiences and backgrounds of
the Board, as described on page 54, brings a suitable
range of skills in light of the Company’s challenges and
opportunities. At the same time, the composition of the
Board ensures that no individual (or a small group of
individuals) can dominate the Board’s decision-making.
The Board meets regularly to formulate, approve and
review progress against the Group’s strategy, budgets,
corporate actions and goals.
The Company has established an Audit Committee, a
Remuneration Committee and a Nomination Committee.
Each of these Committees has formally delegated duties
and responsibilities and written terms of reference, which
are available on the Group’s investor relations website
(https://investors.tekmar.co.uk/investors/corporate-
governance). When the need arises, separate working
groups of the Board may be set up to deal with particular
issues faced by the business.
As well as ensuring effective and efficient decision-
making, the Board aims to minimise risk at the same time
as maximising value within our business. We believe that
adherence to the QCA Code is an excellent way for us
to demonstrate our commitment to all stakeholders and
shareholders.
I trust that as you ingest the Governance section of the
Annual Report that the commitment to governance that
I have outlined above will be apparent. I will be available
at the Company’s Annual General Meeting to answer any
questions you may have in relation to governance of the
Group.
Alasdair MacDonald
Non-Executive Chairman
“
Good governance and
the right behaviour is
pivotal to the Group’s
success.
Ally MacDonald, Chairman
“
StrategicGovernanceFinance 50
Corporate Governance Statement
We understand that good corporate governance is about
building strong relationships with all stakeholders for the long-
term benefit of all parties. As well as ensuring effective and
efficient decision-making, the Board aims to minimise risk
at the same time as maximising value within our business. In
support of this goal we have elected to apply the QCA Code.
We believe that adherence to the QCA Code is an excellent
way for us to demonstrate our commitment to all stakeholders,
including shareholders, and a description of how we apply the
ten governance principles is provided below.
Principle 1. Establish a strategy and a business model that
promote long-term value for shareholders
The Board maintains its clear strategy for delivering long-term
shareholder value. We will do this through:
•
Increasing market share - through focusing on our
differentiated value proposition.
Bringing in new opportunities - through adding new
customers.
Increasing our offer to the market - through increasing our
technology and service portfolio.
•
•
• Maximise growth - through developing a strong regional
presence in high demand and high growth areas.
•
•
The strategy is supported by our core building blocks of:
•
Organic Growth – increasing sales to new and existing
customers.
Accelerated Growth – investing in our business, R&D and
operations.
Acquisition Strategy – targeting businesses which align
with our brand and values; that would benefit from Group
support; will add to Tekmar’s customer base and product
offering; smooth seasonality of contract revenues; and
which leverage our engineering skillset whilst maintaining
margins.
To achieve this and to protect shareholders, we manage risk
closely to limit any potential adverse effects in the implementation
of our strategy. We do this by ensuring that we have a framework
in place to identify and monitor risk and uncertainty in line with
our business risk assessment policy and reporting (see page
34).
Principle 2. Seek to understand and meet shareholder
needs and expectations
We are dedicated to communicating openly with shareholders to
ensure that our strategy, business model and performance are
clearly understood. Understanding what analysts and investors
think about us, including the factors which drive their investment
decisions towards us, and helping our stakeholders understand
our business, is a key component in driving our business forward.
Maintaining regular and positive engagement with shareholders
is a priority. Our primary methods of communication are through
the Annual Report; interim and full-year results announcements;
the Annual General Meeting and other information shared on
the Group’s investor website. Where possible, we will continue
to carry out investor roadshows at significant times throughout
the year, attend investor conferences and host investors for site
visits. Over the final quarter of the financial year a significant
amount of this activity has moved online and we expect that to
continue for the foreseeable future.
If and when voting decisions at AGMs or General Meetings
deviate from the Company’s expectations, the Board will
communicate with shareholders to understand and address any
issues informing those decisions.
Requests for information on any of these matters, including
details of investor days, can be made to investors@tekmar.co.uk.
Note: no unpublished price sensitive information will be provided
by this email address. All Tekmar Group plc communications will
align and accord with official AIM guidelines.
Principle 3. Take into account wider stakeholder and social
responsibilities, and implications for longer term success
In line with our corporate social responsibility policy, the Board
strives to create a socially and ethically responsible Company.
The executive team maintain oversight over our social and
ethical framework and are responsible for reviewing operational
processes for managing social, environmental and ethical risk.
These processes and strength in this area are externally
audited and reflected by our ISO accreditation and Tekmar
Energy and Pipeshield’s Investors in People certification.
Tekmar Energy, Pipeshield and Subsea Innovation all enjoy ISO
9001:2015 (quality management system) and ISO 14001:2015
(environmental management systems) accreditation, with
Tekmar Energy and Pipeshield also achieving ISO 45001:2018
(occupational health and safety management systems).
Our commitment to these areas is shown through their inclusion
in our annual strategic planning process, including a SWOT
analysis, and thus they are embedded into the company’s
strategy and business model.
The Board appreciates the need to maintain effective working
relationships across a wide range of stakeholders, including
investors, employees, partners and local communities. This is
managed by our executive team, with continued feedback from
our wider stakeholders and actions taken as a result, is seen as
an essential part of ensuring long term success.
Principle 4. Embed effective
risk management,
considering both opportunities and threats, throughout
the organisation
The Board has overall responsibility for the determination of the
Group’s risk management objectives and policies, as well as the
Group’s risk appetite. This risk management is included in and
reviewed as part of our business plan. Operating in the offshore
energy sector, managing risk is fundamental to our everyday
responsibilities and has been demonstrated by over 30 years of
proven policies, procedures and behaviours.
The aim of the Board is to set policies that provide a balance
between reducing risk as far as possible, without unduly
impacting the Group’s competitiveness and flexibility. The Board
believes this helps to sustain stakeholder value; including the
company’s supply chain, from key suppliers to end-customer;
while also protecting the Group’s established corporate culture.
A breakdown of the Company’s key risk factors can be found in
the Risk Management report.
Risk management, including financial and non-financial controls;
what the Board does to identify, assess and manage risk and
how it obtains assurance that our risk management and
control systems are operating effectively, is all covered by the
company’s business risk assessment procedures.
Principle 5. Maintain the Board as a well functioning,
balanced team led by the Chair
The Directors recognise the importance of high standards of
corporate governance and believe the QCA Code provides the
most appropriate fit for the Group by setting out a standard best
practice for small and mid-size quoted companies, particularly
those admitted to trading on AIM. The Chairman maintains overall
responsibility for ensuring the Group’s compliance with the QCA
Code. The Non-Executive Directors share responsibility for the
effective running of the Board’s committees which comprise an
important element of the governance process.
In line with QCA guidance, three of the Non-Executive Directors,
one of whom is the Chairman, are independent. The Non-
Executive Directors of the Board have been selected with
the desire to increase the breadth of skills and experience of
the Board and bring constructive challenge to the Executive
Directors.
The Company Directors are:
•
Independent Non-Executive
Alasdair MacDonald,
Chairman
Christopher Gill, Senior
Director
Julian Brown, Independent Non-Executive Director
Independent Non-Executive
•
•
•
•
James Ritchie, Chief Executive Officer
Sue Hurst, Chief Financial Officer
The Group has determined that the composition of the Board
and its committees brings a desirable portfolio of skills, personal
qualities, and experience for delivering our strategy, based upon
the size and nature of the business.
All Directors are subject to re-election by shareholders at the
Annual General Meeting within a three-year period of their
appointment. Any Directors appointed during the financial
year must be formally elected at the Annual General Meeting
following their appointment.
The Group believes that the successful functioning and
effectiveness of the Board is predicated upon a number of key
factors, in addition to its composition. These are:
•
•
•
•
Operations – the agenda and frequency of meetings, and
monitoring of attendance;
Access to appropriate advice and administrative services
– via both the Company Secretary and external resources,
as required;
Detailed induction of new Directors to the Board and its
committees; and
Regular assessment of Board performance – both as a unit
and of its members individually.
Both the Chairman and the other members of the Board
hold these factors in the highest regard and are dedicated to
performing ongoing evaluation to evaluate how they are applied
in practice.
The time commitments of the Non-Executive Directors are as
follows:
•
Alasdair MacDonald minimum time commitment of four or
five days per month.
Christopher Gill minimum time commitment of two or three
days per month.
Julian Brown minimum time commitment of two or three
days per month.
•
•
Principle 6. Ensure that between them, the Directors have
the necessary up-to-date skills, experience and capability
The Board is confident that its members have an appropriate
balance of backgrounds, skills and knowledge in order to
deliver on its core objectives. The members of the Board
have particular experience in offshore energy; engineering;
manufacturing; operations and finance, covering both private
and public companies.
StrategicGovernanceFinance 52
The Nomination Committee is responsible for overseeing the
selection of Board members that possess an appropriate range
of experience, knowledge, integrity and ethics. Throughout the
year, the Directors can access advice and services of independent
professional advisors, at the expense of the Company.
Each of the Directors are active in the energy sector and continually
refine and improve their knowledge of the latest techniques and
strategies in order to ensure they are adding maximum value to
the Board.
For acquisition activity we use a range of professional advisors
to protect and enhance the Group’s position as it delivers on its
strategy.
Principle 7. Evaluate Board performance based upon clear
objectives and reassess continuously
The Board has an annual process for the performance appraisal
of its members, the scope of which includes skills, experience
and capabilities, and incorporates consideration of additional
responsibilities such as chairing or membership of the Board
committees. The annual appraisal is carried out by the Chairman
with regards to the competencies and responsibilities set out by
the Nomination Committee pursuant to each Board role. As part of
this process, any training and personal development needs will be
identified and a plan formulated to ensure these are met over an
appropriate timeframe.
The Chairman’s performance is also appraised through a process
managed by a Chairman Appraisal Group, comprising the Chief
Executive Officer and the Chief Financial Officer.
The responsibilities of the Board are to review, formulate and
approve the Group’s strategy, budgets and corporate activities,
and to oversee the Group’s progress towards its goals. The Group
has a defined process for evaluating the performance of the Board,
its committees and the individual Directors, including the Chairman,
in respect of these objectives.
The Board carries out an evaluation of its performance review
regularly, covering Board composition and skills, strategy and
performance, governance and organisation, Board dynamics, and
communication with shareholders and other key stakeholders. This
evaluation is based upon the self-assessment of the Chairman and
Directors. If deemed necessary an external adviser may be brought
in to support with the evaluation.
The Nomination Committee may use the output of the evaluation
process when evaluating the composition of the Board for selecting
new Board members, and in succession planning for the Directors
of the Board as well as key executive team members.
Principle 8. Promote a culture which is based on ethical
values and behaviours
We have a clear vision, mission and values. Our values are:
Safety: Paramount to everything we do for our people, our
customers and the environment in which we operate. We always
aim higher than industry standards.
People: Are the foundation on which the business operates through
their integrity, intelligence, empowerment and ongoing investment
in their development.
Excellence: Is engrained in our culture to ensure we deliver
dynamic, reliable and responsive solutions that meet the exact
needs of our customers every time.
Heritage: Capitalising on years of experience and lessons learned
to deliver intelligent solutions that we’re proud of.
Innovation: Apply our technical excellence, experience and vision
to engineer products and services that evolve with the marketplace.
Collaboration: Committed to establishing strategic partnerships to
create robust and effective solutions that exceed expectations.
Customers: Driving our people to excel and exceed client
expectations, reduce cost, improve quality, apply innovation and
ensure excellence.
The Board advocates ethical responsibility and good conduct
within the Group, encouraging a culture of inclusion, responsibility
and openness which is consistent with the Group’s objectives. We
constantly strive to actively promote a proactive attitude towards
HSQE by all stakeholders and we have a safety-first approach in
everything we do.
The Group is an equal opportunities employer and actively
encourages diversity at all levels. These values are embedded in
the Group’s leadership and throughout the organisation.
Principle 9. Maintain governance structures and processes
that are fit for purpose and support good decision making
by the Board
Quality underpins everything we do. Within the offshore energy
industry, standards and the protection of those standards are
paramount and something which the Tekmar Group Board has
a wealth of experience in. Our independently audited quality
management systems and ISO accreditations demonstrate our
commitment in this area.
achieve this through a regular dialogue with the investor community
via our broker.
The principal methods of communication with shareholders are the
Annual Report, the interim and full-year results announcements,
the Annual General Meeting and other announcements as and
when applicable on the Group’s investor website.
The website is updated regularly with information regarding
developments across the Group, and users can register to receive
email alerts regarding new announcements, reports and events,
including Annual General Meetings. Where possible, we proactively
support investor roadshows at key dates throughout the year,
attend investor conferences and host site visits to Tekmar Group
premises; including ad-hoc meetings by exception.
The Group operates an effective governance framework. Within
this framework the Board encourages and challenges the executive
team in developing and delivering the Group’s strategy. An open
and constructive dialogue is entered into before decisions within
these governance structures are concluded.
The Chairman leads the Board and takes responsibility for its
governance structures, performance and effectiveness. This
includes ensuring that the dynamics of the Board are functional
and productive, and that deliberations and discussions are not
dominated by any individual member. The Chairman is also
responsible for ensuring that links between the Board and the
executive team and the Board and shareholders, are strong and
effective. Meanwhile, the Chief Executive Officer takes responsibility
for the day-to-day management of the Group’s operations and for
delivering the strategic goals agreed by the Board.
The Board maintains an agenda of regular financial and operational
matters for discussion, as well as reviewing each committee’s
area of work. The Board takes ultimate responsibility for making
any key strategic or business decisions. Members of the executive
team are invited to attend appropriate portions of meetings of the
Board in order to facilitate these processes. In other instances, the
Chief Executive Officer communicates their relevant views and
information to the rest of the Board.
The effectiveness of the corporate governance structures and
processes is formally assessed as part of the annual Board
evaluation.
It is considered that the composition of the Board is appropriate
for the company’s current size and structure. This is reviewed on
an annual basis. Effectiveness of the Board is predicated upon a
number of key factors in addition to Board composition. These are:
Operations – the agenda and frequency of meetings, and
•
monitoring of attendance;
Access to appropriate advice and administrative services –
via both the Company Secretary and external resources, as
required;
Detailed induction of new Directors to the Board and its
committees; and
Regular assessment of Board performance – both as a unit
and of its members individually.
•
•
•
Principle 10. Communicate how the company is governed
and performing by maintaining a dialogue with
shareholders and other relevant stakeholders
We are committed to communicating openly with our shareholders
to ensure our strategy, business model and performance are all
clearly understood. Understanding what key stakeholders think
about us, including the drivers behind their investment decisions,
is a key part of developing our business. We also maintain a strong
focus on ensuring our stakeholders understand our business. We
StrategicGovernanceFinance 54
The Board
Independent
Remuneration committee
Nomination committee
Audit committee
Alasdair MacDonald
Non-executive Chairman
James Ritchie
Chief Executive Officer
Sue Hurst
Chief Financial Officer
Christopher Gill
Non-executive Director
Julian Brown
Non-executive Director
Ally has over 30 years’ experience in the offshore
energy sector. He has held senior executive
positions at Wellstream International Limited
and Wellstream Holdings plc, a FTSE 250
designer, manufacturer, and supplier of flexible
pipeline product to customers in the offshore oil
industry. He was then CEO of Seanamic Group,
an engineering and equipment manufacturer in
the energy, defence, oceanographic science
and seismic industries. He spent 19 years
with Technip UK, acting as Managing Director
of Technip Umbilicals Limited between 2005
and 2008, a leader in its global markets. Ally
is currently Group CEO of Benbecula Group,
a privately
funded engineering-based buy
and build business. An engineer by trade,
he graduated with an honour’s degree in
mechanical engineering.
James has over 12 years’ experience as an
executive manager and is one of the first and
founding employees of Tekmar Energy. In
2009, James became Operations Director
and led the business through substantial
growth. He then subsequently
led the
management buy-out of Tekmar Energy in
September 2011 with Elysian and Opera
Finance and, consequently, became Chief
Executive Officer. He is also a committee
member of Subsea North East and
Chairman of Energi Coast. Energi Coast is
the representative group for the North East
of England’s offshore renewables sector.
With over 30 years in senior finance and
commercial
roles Sue has extensive
experience in both private equity backed
businesses and large listed companies,
ICI, Electrolux and
such as Serco,
Brambles. Working across sectors including
renewables, oil & gas,
transportation,
information technology and outsourcing,
as a Chartered Management Accountant,
she prides herself in people management
and has led extensive change programmes,
along with overseas business developments.
With a robust approach
to corporate
governance, she has worked on numerous
business expansions, new product launches
and acquisitions. Sue joined Tekmar in 2012
shortly after the management buy-out as
Finance Director.
Chris, a Chartered Accountant, has
extensive private and plc experience in the
engineering, fast moving consumer goods,
manufacturing and energy sectors. He was
Finance Director at Domnick Hunter Group
plc, an international filtration business, for
7 years before moving to become Finance
Director at Wellstream Holdings plc, the
FTSE250 designers, manufacturers and
supplier of flexible pipeline product to the
offshore oil industry. Subsequently, Chris
was director and CFO of SMD Limited,
a designer, engineer and assembler of
remotely controlled subsea equipment
to the oil and gas, offshore renewables,
telecommunications and mining industries.
Chris’ experience also includes being CFO
of Seanamic Group, a private equity backed
buy and build sub-sea engineering business,
and Senior Independent Director and Audit
Committee Chairman of then AIM quoted
Stadium Group plc.
Julian is a prominent figure within the
UK Renewables market, with a wealth of
experience in the sector. He is currently
Vice President and UK Country Manager
for MHI Vestas Offshore, the leading wind
turbine manufacturer. He is former Chair of
RenewableUK, the UK’s leading renewable
energy trade association. Other former
roles include co-founder and Chair of
8.2Aarufield, UK Director of AREVA Wind,
a founding partner of the globally respected
renewables consultancy BVG Associates
Limited, and Managing Director of Vestas
Blades UK (formerly NEG Micon Rotors
Limited), which was the largest renewables
manufacturing supply chain employer in the
UK during his employment.
StrategicGovernanceFinance 56
Management Team
Russell Edmondson
Managing Director
Tekmar Energy
Dave Thompson
Managing Director
Subsea Innovation
Steve Rossiter
Managing Director
AgileTek Engineering
With over 20 years management experience,
Russell began his career in the construction
industry prior to moving into the offshore wind
and oil & gas sectors. Having worked with all
the key industry stakeholders, Russell joined
Tekmar Energy in 2012 and is responsible
for the company P&L. Russell has a passion
for both business and innovation and strives
to develop teams who share his commitment
in operating within the vanguard.
A Chartered Engineer with over 32 years’
experience. Dave is a fellow of the IMechE
with a master’s degree in engineering and
a degree in management studies. Dave has
worked in senior engineering roles for over
20 years designing, building and servicing
capital equipment for several engineering
companies,
IHC Engineering
Business. Dave joined Subsea Innovation in
2014.
including
Steven is the founder of AgileTek and is
responsible for managing the day to day
business of the division. He leads the
coordination of the services delivered by
AgileTek to the rest of the Group and is
responsible for external direct sales. He is
also a certified solutions architect for Amazon
Web Services and leads the development of
AgileTek’s cloud platforms.
Fraser Gibson
Managing Director
Ryder Geotechnical
Fraser is a Chartered Engineer with the
Institution of Civil Engineers and has been
working as a geotechnical engineering
consultant in the offshore sector for over
15 years. Fraser spent time at UTEC
Geomarine, progressing
from Senior
Engineer to Regional Manager for APAC
where he spent 2 years in Singapore
establishing an office for UTEC Geomarine,
before later setting up Ryder Geotechnical
in 2016.
Steve Howlett
Managing Director
Pipeshield International
Steve established Pipeshield in 1999. Over
the past 20 years Steve has overseen the
growth of the company to become one of
the world’s leading providers of specialised
subsea asset protection systems to the
offshore energy markets, picking up
numerous awards for growth, innovation
and global exports along the way.
Terry Sheldrake
Non Executive Technical Director
Tekmar Energy
Terry has over 25 years’ experience in both
academia and within the offshore energy
sector, including 14 years of executive
management experience as the Head of
Technology at Wellstream International and
subsequently GE Wellstream. Terry has
also been an active member on several
international standards committees, has
a PhD in Mechanical Engineering and is
a Fellow of the Institution of Mechanical
Engineers.
Jack Simpson
Director Tekmar Energy
Chairman Tekmar China
Angela Lock
General Manager
Tekmar Energy
Pam Lamming
Group HR Manager
Tekmar Group
Joining in 2011, Jack was part of the
early Tekmar Energy team who grew the
company from its early roots to where it
stands today as a global market leader.
Jack has over 11 years’ experience in
business and is responsible for sales and
business development globally. Leading the
expansion of the business into Asia, Jack
is also the Chairman of Tekmar’s Shanghai
based subsidiary, Tekmar China.
Joining in 2018, Angela played a key role
in establishing Tekmar Energy in China.
Previously, Angela was the GM of the British
Chambers of Commerce Shanghai and
assisted numerous UK companies enter
China. Endorsed by the UK Department for
International Trade, Scotland Development
International, and RenewableUK, she was
the founder of UK-China Hub for Offshore
Wind in January 2017. Angela is a member
of Sino-British Offshore Wind Collaboration
Advisory Committee Meeting since 2016.
Pam is CIPD and PG certified and has over
20 years of experience in HR and L&D. Pam
has worked in a range of sectors during her
HR career including Wind Power, Utilities,
Social Housing, and the Nuclear Industry.
Prior to joining Tekmar Group Pam held
a senior HRD role in an Industrial and
Engineering company leading a cultural
change programme. Pam joined Tekmar
Group in 2019.
Tom Howard
Group Marketing Manager
Tekmar Group
Sarah Lenegan
Group Legal Counsel
Tekmar Group
Tom has over 13 years experience in the
offshore energy sector. Having previously
worked for subsea installation specialist
DeepOcean, Tom has extensive knowledge
of the subsea industry and has a strong
the group’s markets,
understanding of
products and stakeholders. Tom
joined
Tekmar Group in 2019 and is responsible for
marketing and communications across the
business.
Sarah joined Tekmar Group plc in 2018
to establish the Group’s in-house legal
function. She is a solicitor with over 20
years’ experience
in a combination of
private practice and in-house roles. Sarah
began her career in the ports and logistics
industry in a similar role with the PD Ports
Group, before joining the law firm McGarry
& Co. She specialises in the drafting and
negotiation of commercial contracts and
advising on general business matters.
StrategicGovernanceFinance 58
Audit Committee Report
Chris Gill, Chair of the Audit Committee
Dear shareholder,
I am pleased to share the Audit Committee Report for the
year ended 31 March 2020 and trust that you will find the
content informative.
Key Responsibilities
The Audit Committee has primary responsibility for:
•
reviewing the effectiveness of the Group’s internal
controls,
•
the
integrity of
the Group’s
• monitoring
statements,
reviewing the external announcements of the Group’s
results, and
approving the appointment and remuneration of the
Group’s external auditors, reviewing their reports and
ensuring their independence is maintained,
financial
•
in all cases having due regard to the interests of shareholders.
The Committee communicates to the Board on these matters
and during this financial year met three times. The Committee
has terms of reference in place which have been formally
approved by the Board and are available at the AGM and on
the Group’s website.
Experience
The Audit Committee comprises two Non-Executive Directors
and was chaired during the year by Chris Gill, who is a
chartered accountant with relevant financial experience in
this role. Alasdair MacDonald is the other independent non-
executive director who served during the year and is deemed
to have the necessary ability and experience to understand
financial statements.
that
itself
they preserve
External audit
The Audit Committee approves the appointment and
reappointment and compensation of the Group’s external
auditors and satisfies
their
independence, regardless of any non-audit work performed
by them. The auditor is permitted to provide non-audit
services which are not, and are not perceived to be, in
conflict with auditor independence - providing it has the skills,
ability and integrity to carry out the work and is considered to
be the most appropriate firm to undertake such work in the
best interests of the Group. All assignments are monitored
by the Committee.
provided by the auditors and fees payable to them are shown
in note 8 of the Group financial statements.
Whilst the Committee has not formally adopted a policy
in respect of the rotation of the external auditor, one of its
primary duties is to make recommendations to the Board in
relation to the appointment of the external auditor. Various
aspects are taken into account by the Committee in this
respect, including the quality of the reports provided to the
Committee and the level of understanding of the Group’s
business that the auditor displays.
Internal control and risk management
The Audit Committee assists the Board in reviewing the risk
management framework and evaluating the effectiveness of
internal control.
The current size and complexity of the business does not
require the Group to have an internal audit function. As the
Group grows, we will regularly monitor this requirement
which in the
Activities of the Audit Committee during the year
During the year the key areas the Committee focussed on
were:
•
Discussing the detailed audit report produced by the
auditors for the previous year’s annual report;
Determining the scope of the auditors’ half year review
and analysed the report once received; and
Reviewing the auditors’ proposed audit strategy and
plan for the year end audit.
•
•
Significant issues considered in relation to the financial
statements
The key issues relating to the financial statements considered,
discussed with the auditors and concluded upon were:
•
Revenue – the specific financial reporting risks in respect
of the judgement required for revenue recognised
over time based upon the input method, in particular
estimates of costs to complete on contracts;
Pipeshield acquisition accounting – considering the
purchase price allocation exercise and subsequent
determination of goodwill attributed to the transaction;
and
Going concern – addressing the sensitivity of budgets,
forecasts and liquidity to potential future COVID-19
impacts.
•
•
The responsibilities of the Directors and external auditors in
connection with the Group financial statements are explained
in the Statement of Directors’ Responsibilities on page 67 and
the Auditors’ Report on page 70. Information about services
Chris Gill
Chair of the Audit Committee
StrategicGovernanceFinance 60
Remuneration Committee
Report
Chris Gill, Chair of the Remuneration Committee
Response to COVID-19
As a result of the uncertainty created by the
COVID-19 pandemic it was communicated to staff
that the discretionary annual inflationary pay rise
would not take place in April. However, this decision
is being periodically reviewed and is still on hold at
time of publishing.
Share Awards
Sharesave plan (SAYE)
We were pleased to launch our first SAYE scheme
on 31 March 2020. The scheme was open to all
employees subject to a qualifying service period. A
total of 52 employees subscribed to options totalling
428,983 shares over a period of three years. We look
forward to seeing employees share in the ongoing
success of the Group.
IPO Share Incentive Plan
The IPO scheme has now matured and the Board
reviewed the performance conditions against those
targeted within the scheme. Details on the level of
award approved by the Board are provided below.
Dear shareholder,
I am pleased to present the Directors’ Remuneration
Report for the year ended 31 March 2020. I chair the
Remuneration Committee as an independent Non-
Executive Director, and the Committee also includes
Alasdair MacDonald. The purpose of this report is to
provide shareholders with information to understand
our remuneration strategy and how it links to the
Group’s financial performance.
Responsibilities
The remuneration committee reviews the performance
of the executive directors and establishes their terms
and conditions of service, including short and long-
term rewards, having due regard to the interests of
shareholders. It also ensures that good practices
apply to all employees across the Group through
the appropriate management structures. Prior to the
award being made the Remuneration Committee
also reviews pay and other benefits proposed for
the executive management of all Group companies.
The Remuneration Committee meets at least twice
a year.
Our performance in FY120
Despite the headwind of COVID-19 emerging
towards the end of the financial year the Group
delivered record revenues, closing the year with a
record order book and a net cash position of £2.1m.
Adjusted PAT of £3.0m and EPS of 5.8p are slightly
ahead of the then guidance in the market. The share
price was 97.5p as of 31 March 2020 vs 110.0p on
31 March 2019, a decrease of 11%, though this still
outperformed the wider FTSE AIM All Share index,
the comparator group for the business, which fell by
28% over the same period.
Group Remuneration Policy
Despite the pause in basic annual salary increases as a result of COVID-19 the key components of the remuneration policy are
unchanged:
Why
How
Basic annual salary
Pension
To attract and retain the right talent
reflecting level of responsibilities of
the role, along with experience and
skills required
To provide a contributory pension
scheme in line with statutory
requirements, to provide employees
with support after retirement
Inflationary pay rises implemented annually to track
national indicators
The group increased its contribution to 5% in advance of
the statutory requirement to do so
Other benefits
Additional benefits to support
the health and wellbeing of our
employees
Life assurance, healthcare scheme, cycle to work and
tech purchase schemes
Annual bonus
To reward high-performing
individuals
Annual bonus with performance criteria based upon
a mixture of profit-based and personal objectives,
supporting the Group’s growth strategy
Share schemes
Share ownership is an important
part of employee incentivisation and
retention
Four share schemes developed on IPO; implemented
IPO options and Share Incentive Plan; intending to
launch LTIP and SAYE plans in the coming year
StrategicGovernanceFinance 62
Remuneration arrangements
When appointing a new Executive Director,
the
Committee will set the Executive Director’s ongoing
remuneration in line with the policy described above. The
Committee takes into account the pay and employment
conditions of all employees across the Group. The
Group-wide pay review budget is one of the key factors
when determining the salaries of the Executive Directors.
Although the Group has not carried out a formal employee
consultation regarding Board remuneration, it does
comply with local regulations and practices regarding
employee consultation more broadly.
Remuneration of the Executive Board
Remuneration to our CEO and CFO remained in line
with our remuneration policy. Only inflationary increases
to basic salary were made. No bonuses were awarded,
given the impact of COVID-19 on the financial results for
the year. The only share options available are detailed
in the ‘IPO options plan’ paragraph below. No shares or
share options were awarded in the year.
Fees / basic salary
£000
Benefits
£000
Bonus
£000
Pension
£000
2020 Total
£000
2019 Total
£000
Name of Director
J Ritchie
S Hurst
A MacDonald
C Gill
J Brown
204
143
70
45
35
-
-
-
-
-
-
-
-
-
-
10
7
-
-
2
214
150
70
45
37
1,332(1)
307(1)
65
35(2)
28(2)
(1) payments in FY19 included one-off payments relating to the sale of shares allocated to executive directors during
the IPO (J Ritchie £124k; S Hurst £161k). Additional bonus of £1m was paid to J Ritchie and was reimbursed to the
company by the exiting private equity shareholders.
(2) part year only – appointed 20 June 2018
Looking forward
We have developed a framework of incentives for
management and staff to continue to drive the desired
behaviour across the Group. The framework comprises
a mix of the existing share option incentives (LTIP) and
cash incentives (bonuses) alongside two short period
share based awards (SIP). These short period awards
will cover the two year gap between IPO options vesting
in 2020 and LTIP awards vesting in 2023. The anticipated
award under each of these schemes represents between
10% and 100% of salary for participants, totalling a
maximum of 1.3m shares over the three years.
The performance criteria for awards under the LTIP will
be as envisaged in the Groups listing criteria, EPS and
TSR growth; specifically a minimum of 100% and 33%
respectively over the three year period. The performance
criteria for the two short period awards mirror these
objectives.
I do trust that this clearly explains our approach to
remuneration and enables you to appreciate how it
underpins the Group’s strategy. If you have any questions
on this report I will be available at the Group’s Annual
General Meeting to discuss them.
Chris Gill
Chair of the Remuneration Committee
IPO options plan
Awards granted under the IPO Plan were made to the
employees below on 20 June 2018 giving options to
acquire shares for a consideration per share equal to its
nominal value.
Following a detailed review of the conditions and targets,
the Remuneration Committee assessed performance as
follows:
•
EPS condition (50%) – the Group expected to
meet the FY20 EPS target prior to the COVID-19
pandemic. The business was directly impacted by
this due to its operations and customers in China
closing down swiftly. Management assessed the
impact and highlighted this to the market on 20
February with a trading update.
Since then the world has been impacted more widely
and the management of the business have operated
under difficult circumstances to maintain business
continuity. After assessing the initial and direct
impact on the Group performance of COVID-19
the Remuneration committee recommended to the
Board that shares are awarded at the EPS entry
threshold, being half of that available under this
measure.
•
TSR condition (50%) – Despite a relatively strong
share price performance versus our benchmark
during the past 12 months, the TSR measure does
not allow for any shares to vest.
The table below details the IPO option awards for the
Group Executive Directors and Senior Management:
Maximum
No of shares
awarded
No of shares
vesting
under EPS
measure
900,000
225,000
350,000
87,500
Name of Director
J Ritchie
S Hurst
R Edmondson
125,000
31,250
S Rossiter
J Simpson
125,000
31,250
125,000
31,250
StrategicGovernanceFinance 64
Directors Report
for the year ended 31 March 2020
The Directors present their report together with the audited
Group financial statements of the Parent Company (‘the
Company’) and the Group for the year ended 31 March
2020.
Business review and future developments
A review of the performance of the Group during the year,
including principal risks and uncertainties, key performance
indicators and comments on
future developments, is
presented in the Strategic Report.
Section 172 Statement
The Directors consider that they have acted in good faith in
the way they consider would be most likely to promote the
success of the company for the benefit of its members as
a whole, having regard to decisions taken during the year
ended 31 March 2020, in particular by reference to our three
point strategy (see Our Strategy in Action on page 30).
•
•
•
Continuing organic growth within Tekmar Energy,
AgileTek and Subsea Innovations
Accelerated growth from product development and
expanding our regional reach
Acquisition growth with Pipeshield International joining
the Group, adding value and supporting the expansion
of full cycle revenue.
This strategy is designed to have a long-term beneficial
impact on the Group
its shareholders and
for both
employees. The detail supporting the Group’s strategy is
driven by the business plans within each of the subsidiary
companies.
Approximately 80% of the Company’s shares are held
by 15 institutional shareholders. To ensure the Board
maintain a good understanding of their interests, and
keep these shareholders informed regarding the strategy
and objectives of the Group, the CEO and other directors
communicate regularly and meet at least bi-annually. The
Board recognises its responsibility to act fairly between
all shareholders of the Company and ensures up-to-date
information is available on the Group Investor website
and has recently launched a new Group website (www.
tekmargroup.com) which brings together the Group’s
portfolio of companies on to one site, promoting a greater
understanding of the breadth of our product and service
offering, which supports the global offshore wind, oil and
gas, interconnectors, telecommunications, marine civils,
and wave and tidal sectors.
Employees are fundamental to the delivery of the business
plan. We regularly provides our people with information on
matters of concern to them, consulting them regularly, so
that their views can be factored in when making decisions
that are likely to impact them. Employee involvement in the
Group is encouraged, as achieving a shared awareness
of the part that all employees play in the financial and
economic factors affecting the Group plays a major role
in its performance. We have a Business Integrity Policy
that communicates the expected business behaviours of
all employees and this policy incorporates guidance on
employee’s responsibilities should they become aware of
inappropriate business behaviours or any similar concern.
The Group recognises its responsibility to employ disabled
persons in suitable employment and gives full and fair
consideration to such persons, including any current
employee who becomes disabled, having regard to their
particular aptitudes and abilities. Where practicable,
disabled employees receive treatment equal to all other
employees in respect of their eligibility for training, career
development and promotion.
As the Board of Directors, our intention is to behave
responsibly and ensure that management operate the
business in a responsible manner, operating within the high
standards of business conduct and good governance (see
pages 50 to 53)and in doing so, will contribute to the delivery
of the plan.
Climate-related issues
The Directors take seriously the issue of climate change
and the fundamental strategy for the Group is to support
the development of the renewables industry. Accelerated
growth in investment in renewables infrastructure is a
growth opportunity for the Group, which is monitored and
tracked in detail.
In addition, the Directors consider the Group impact on the
environment, which is monitored and managed within each
company in the Group. In particular, management monitor
energy consumption across the various sites and have put
in place measures to minimise this where possible through
process change, and in one instance by changing the
lighting in our largest manufacturing facility to LED lighting.
Major shareholders
As at 31 July 2020 the following interests of shareholders in excess of 3% have been notified to the Company:
Number of
ordinary shares
Ordinary shares as a % of
issued share capital
Schroders plc
BlackRock, Inc.
Berenberg Bank
J O Hambro Capital Management Limited
BGF Investment Management Limited
Hargreave Hale
Henderson Global Investors Limited
River and Mercantile Asset Management LLP
Legal & General Investment Management
Impax Asset Management Ltd
Premier Miton Group plc
Threadneedle Asset Management
6,871,419
5,684,834
4,950,000
4,000,000
3,955,000
3,400,000
2,800,000
2,775,000
2,550,225
2,516,574
2,024,001
2,000,000
13.40%
11.09%
9.66%
7.80%
7.72%
6.63%
5.46%
5.41%
4.97%
4.91%
3.95%
3.90%
Going Concern
The Directors confirm that, having made appropriate
enquiries, they have a reasonable expectation the Group
and the Company have adequate resources to continue
operations for the foreseeable future. This includes a detailed
review of the impact of the COVID-19 pandemic on the
business and the sectors in which we operate. Accordingly,
the Directors continue to adopt the going concern basis in
the preparation of the financial statements.
Dividends
The Directors do not anticipate that the Company will
declare a dividend in the near term, as available cash will
be channelled into conserving the Group’s resources as a
result of the current economic uncertainty with a view to
longer term growth. No dividends have been paid in the
period.
Directors and their interests
The Directors of the Company during the year and their
interests in the ordinary share capital at the end of the year
are shown in the following table:
Ordinary shares of
1p each
31 March 2020
31 March 2019
A MacDonald
434,526
434,526
J Ritchie
S Hurst
C Gill
J Brown
1,013,375
1,013,375
276,569
276,569
19,230
19,230
19,230
19,230
There have been no changes in shareholdings during the
period or since year end. Further details of the Directors’
interests can be found in the Remuneration Committee
Report.
StrategicGovernanceFinance
66
Takeover Directive requirements
The Company has one class of equity share, namely 1p
ordinary shares. The shares have equal voting rights and
there are no special rights or restrictions attaching to any
of them or their transfer to other persons. The rights and
obligations attaching to these shares are governed by
the Companies Act 2006 and the Company’s Articles.
Rules governing the appointment and replacement of
Directors, and those relating to the amendment of the
Company’s Articles of Association, are contained within
those Articles of Association, a copy of which is located
on the Company’s website (investors.tekmar.co.uk).
Notice of Annual General Meeting
The Annual General Meeting will be held at 10am on 30
September 2020 at Tekmar, Park 2000, Millennium Way,
Newton Aycliffe DL5 6AR. Attendance will be subject to
government guidance at this time. The Notice of Meeting
which sets out the resolutions to be proposed at the
forthcoming AGM accompanies these Group financial
statements.
Events after the reporting date
There have been no significant events in the period from
31 March 2020 and the publication of these financial
statements.
Independent auditor
The auditor, KPMG LLP, has indicated its willingness
to continue in office and a resolution concerning their
reappointment will be proposed at the AGM. So far as
each of the Directors is aware at the time this report is
approved:
•
•
there is no relevant audit information of which the
Company’s auditor is unaware; and
the Directors have taken all the steps that they
ought to have taken to make themselves aware of
any relevant audit information and to establish that
the auditor is aware of that information.
This Directors’ Report was approved by order of the
Board.
S Hurst
Chief Financial Officer & Company Secretary
Tekmar Group plc
Unit 1, Park 2000
Millennium Way
Aycliffe Business Park
Newton Aycliffe
County Durham DL5 6AR
Registered number: 11383143
31 July 2020
Statement of Directors’ responsibilities
in respect of the Annual Report and the
Financial Statements
The directors are responsible for preparing the Annual
Report and the Group and parent Company financial
statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare Group
and parent Company financial statements for each
financial year. Under the AIM Rules of the London
Stock Exchange they are required to prepare the Group
financial statements in accordance with International
Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU) and
applicable law and they have elected to prepare the
parent Company financial statements in accordance
with UK accounting standards and applicable law (UK
Generally Accepted Accounting Practice), including FRS
101 Reduced Disclosure Framework.
Under company law the directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Group and parent Company and of their profit or loss for
that period. In preparing each of the Group and Parent
company financial statements, the directors are required
to:
•
select suitable accounting policies and then apply
them consistently;
•
• make judgements and estimates that are reasonable,
relevant, reliable and prudent; for the Group financial
statements, state whether they have been prepared
in accordance with IFRSs as adopted by the EU;
for the parent Company financial statements, state
whether applicable UK accounting standards have
been followed, subject to any material departures
disclosed and explained in the financial statements;
assess the Group and parent Company’s ability
to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
use the going concern basis of accounting unless
•
•
they either intend to liquidate the Group or the
parent Company or to cease operations, or have no
realistic alternative but to do so.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the parent Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the parent Company and enable them to
ensure that its financial statements comply with the
Companies Act 2006. They are responsible for such
internal control as they determine is necessary to enable
the preparation of financial statements that are free from
material misstatement, whether due to fraud or error,
and have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of
the Group and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the directors are
also responsible for preparing a Strategic Report and a
Directors’ Report that complies with that law and those
regulations.
The directors are responsible for the maintenance
and integrity of the corporate and financial information
included on the company’s website. Legislation in the
UK governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
S Hurst
Company Secretary
StrategicGovernanceFinance 68
Financial Statements
Strong revenue growth across the Group
Further growth in the Group with revenue up 46% to £40.9m,
which is a 87% increase in the two years since IPO. We
continued our acquisition strategy, adding a third new business
to the portfolio in October 2019. Unfortunately, we were
immediately impacted by the Covid-19 pandemic, having
customers and operations in China, with associated delays to
projects spanning our year end. Whilst the long term impact of
this global catastrophe is still unknown we closed the year with
PBT in line with the previous year.
Sue Hurst, CFO
Page Numbers
70 Independent Auditor’s Report
78 Consolidated Statement of Comprehensive Income
79 Consolidated Balance Sheet
80 Consolidated Statement of Changes of Equity
81 Consolidated Cash Flow Statement
83 Notes to the Consolidated Financial Statements
120 Parent Company Balance Sheet
121 Parent Company Statement of Changes in Equity
122 Notes to the Company Financial Statements
“
The acquisitions
have built a firm
foundation for the
Group’s growth
and we are pleased
with the revenue
growth. The focus
is now to build in
the benefits we
gain from being
a bigger group,
to improve the
bottom line.
Sue Hurst, CFO
“
StrategicStrategicGovernanceFinance 70
Independent Auditors Report on
the members of Tekmar Group plc
1. Our opinion is unmodified
We have audited the financial statements of Tekmar
Group plc (“the Company”) for the year ended 31
March 2020 which comprise the consolidated statement
of comprehensive
income, consolidated balance
sheet, consolidated statement of changes in equity,
consolidated cash flow statement, parent company
balance sheet, parent company statement of changes
in equity and the related notes, including the accounting
policies in note 2.
In our opinion:
the financial statements give a true and fair view of the
state of the Group’s and of the parent Company’s affairs
as at 31 March 2020 and of the Group’s profit for the
year then ended;
the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU);
the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
the
in
financial statements have been prepared
accordance with the requirements of the Companies Act
2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We
have fulfilled our ethical responsibilities under, and
are independent of the Group in accordance with, UK
ethical requirements including the FRC Ethical Standard
as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate
basis for our opinion.
Overview
Materiality: group
financial statements
as a whole
300,000 (2019: £270,000)
0.73% (2019: 96%) of Revenue
Coverage
100% (2019: 100%) of Group
revenue and profit before tax
Key audit matters
vs 2019
Recurring risks
Event driven
The impact of
uncertainties due to
the UK exiting the
European Union
Revenue recognition
on contracts ongoing
at year end
Going concern
Recoverability of
parent company’s
investments in
subsidiaries
New: Valuation of
intangibles on
acquisition of
Pipeshield
International Limited
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the
financial statements and include the most significant assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters in
arriving at our audit opinion above. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon and we do not provide a separate opinion on these matters.
The risk
Our response
The impact of
uncertainties due to
the UK exiting the
European Union
Refer to page 34 (principal risks), page
58 (Audit Committee Report), page
83 (accounting policy) and page 83
(financial disclosures).
the
estimates,
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness
in
of
particular as described in the forecast
based valuation of intangible assets
and
recoverability of parent
company’s investment in subsidiaries
below, and related disclosures and the
appropriateness of the going concern
basis of preparation of the financial
statements (see below). All of these
depend on assessments of the future
economic environment and the group’s
future prospects and performance.
Brexit is one of the most significant
economic events for the UK and its
effects are subject to unprecedented
levels of uncertainty of consequences,
with the full range of possible effects
unknown.
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising
in
planning and performing our audits. Our
procedures included:
from Brexit
Our Brexit knowledge
We considered the directors’ assessment
of Brexit-related sources of risk for the
group’s business and financial resources
compared with our own understanding
of the risks. We considered the directors’
plans to take action to mitigate the risks.
Sensitivity analysis
When addressing the forecast-based
valuation of intangible assets and the
recoverability of the parent company’s
investment in subsidiaries and other
areas that depend on forecasts, we
compared the directors’ analysis to
our assessment of the full range of
reasonably possible scenarios resulting
from Brexit uncertainty and, where
forecast cash flows are required to be
discounted, considered adjustments to
discount rates for the level of remaining
uncertainty.
he
Assessing transparency
individual
As well as assessing
isclosures as part of our procedures
on
forecastbased valuation of
intangible assets and the recoverability
of the parent company’s investment in
subsidiaries, we considered all of the
Brexit
together,
including those in the strategic report,
comparing the overall picture against
our understanding of the risks.
related disclosures
However, no audit should be expected
to predict the unknowable factors or
all possible future implications for a
company and this is particularly the case
in relation to Brexit.
StrategicStrategicGovernanceFinance
The risk
Our response
The risk
Our response
72
Revenue recognition
on contracts ongoing
at year end
(Audit Committee
Refer page 58
Report), page 83 (accounting policy)
and page 83 (financial disclosures).
Subjective estimate
The Group enters into contracts for the
manufacture and assembly of cable
protection systems. These contracts
generally
performance
obligation and the Group has to make an
assessment of the stage of completion
of the performance obligation in each
contract in order to determine how much
revenue to recognise.
have
one
of
For contracts ongoing at year end:
the
identification
inaccurate
performance obligations; assessment of
whether to use the input or output
method of stage of completion; and/or
incorrectly assessing
the stage of
to material
completion could
variances in the amounts recognised in
revenue.
lead
The effect of these matters is that, as
part of our risk assessment for audit
planning purposes, we determined that
revenue
recognised on contracts
ongoing at year end of had a high
degree of estimation uncertainty, with a
potential range of reasonable outcomes
greater than our materiality for the
financial statements as a whole, and
possibly many times that amount. In
conducting our final audit work, we
reassessed the degree of estimation
uncertainty
that
materiality.
to be
than
less
Accounting analysis: we assessed the
Group’s determination of performance
obligations by
inspecting selected
ongoing contracts at the year end and
looking for evidence of deliverables in
these contracts that could be considered
distinct.
Test of detail: we assessed whether a
sample of performance obligations had
been satisfied or the correct stage of
ompletion method had been properly
applied by inspecting the contracts,
other
customer
documentation and
the
Group’s project personnel.
correspondence,
interviewing
Test of detail: we assessed whether the
stage of completion calculated was
accurate by inspecting documentation of
forecast costs to complete and vouching
a sample to costs actually incurred
post year end, and then reperforming
the calculation to test for accuracy. We
also looked at the accuracy of previous
contract forecasts.#
Assessing transparency: we assessed
the adequacy of
the disclosures
about the judgements involved in the
identification of performance obligations
and the sensitivity disclosures reflecting
the risks inherent in estimating revenue.
Going Concern
Refer page 58
(Audit Committee
Report), page 83 (accounting policy)
and page 83 (financial disclosures).
The risk
Our response
Disclosure quality
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern
basis of preparation for the group and
parent company.
judgement
That
is based on an
evaluation of the inherent risks to the
Group’s and Company’s business model
and how those risks might affect the
financial
Group’s and Company’s
resources or ability
to continue
operations over a period of at least a
year from the date of approval of the
financial statements.
Funding assessment: We assessed the
level of committed financing secured by
the Group post year end.
Historical comparisons: We assessed
the reasonableness of the cash flow
projections by considering the historical
accuracy of the previous forecasts.
Sensitivity analysis:
We considered sensitivities over the level
of available financial resources indicated
by the Group’s financial forecasts taking
account of plausible (but not unrealistic)
adverse effects that could arise from
these risks individually and collectively.
The risks most likely to adversely affect
the Group’s and Company’s available
financial resources over this period were
in relation to the timing and delivery
of larger contracts which can cause
material fluctuations in actual cash flows
compared to those forecast. Covid-19
increases the risk of this.
There are also less predictable but
realistic second order impacts, such
as the impact of Brexit and the erosion
of customer or supplier confidence,
which could result in a rapid reduction
of demand and available
financial
resources.
The risk for our audit was whether or
not those risks were such that they
amounted to a material uncertainty that
may have cast significant doubt about
the ability to continue as a going
concern. Had they been such, then that
fact would have been required to have
been disclosed.
the key
We considered
reactive
measures management could take in
the event of a downside scenario and
whether those measures were fully in
management’s control.
Benchmarking assumptions: We tested
the integrity of the cash flow projections
and challenged
the appropriateness
of the key assumptions used therein
by reference
to our knowledge of
the business. We also assessed
the projections and assumptions by
reference to general market conditions
and post year end trading and cash
flows.
Assessing transparency: We assessed
the completeness and accuracy of the
matters covered in the going concern
disclosure with reference to our audit
findings from the above procedures
and our understanding of the Group’s
business and strategies.
The risk
Our response
Forecast-based valuation
The Group has identified and valued
intangible assets acquired as part of a
business combination.
Accounting application: With reference
to the requirements in the accounting
standards we assessed the intangible
assets identified on acquisition.
Incorrect identification of the intangible
assets acquired and/or using incorrect
ssumptions in the valuation could lead
to material variances in the amounts
recognised in intangibles assets.
The effect of these matters is that, as part
of our risk assessment, we determined
that intangible assets recognised of £2.0
million has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements
as a whole, and possibly many times that
amount. The financial statements (note
3) disclose the sensitivity estimated by
the Group.
Benchmarking assumptions: We tested
the integrity of the cash flow projections
used in the valuation and challenged the
appropriateness of the key assumptions
used therein by reference to external
inputs such as government bond rates.
Historical comparisons: We assessed
the reasonableness of the cash flow
projections by considering the historical
accuracy of both previous forecasts
and assumptions used in previously
valued intangibles assets recognised on
acquisition of a business.
Sensitivity analysis: We considered
sensitivities over the assumptions used
in the valuation of the intangible assets
recognised.
Assessing transparency: We assessed
the adequacy of the disclosures about
the assumptions involved in arriving at
the valuation including an assessment
of the adequacy of sensitivity related
disclosures.
Valuation of
intangibles on
acquisition of
Pipeshield
International Limited
(£2.0million; 2019: £nil)
Refer page 58
(Audit Committee
Report), page 83 (accounting policy)
and page 83 (financial disclosures).
StrategicStrategicGovernanceFinance 74
Recoverability of
parent company’s
investment in
subsidiaries
(£49.8m; 2019: £42.5m)
Refer page 58
(Audit Committee
Report), page 83 (accounting policy)
and page 83 (financial disclosures).
The risk
Our response
3. Our application of materiality and an
overview of the scope of our audit
The
significant.
Forecast based valuation
The carrying amount of the parent
company’s investments in subsidiaries
are
estimated
recoverable amount of these balances is
subjective due to the inherent uncertainty
in forecasting trading conditions and
cash flows used in the budgets, in
particular in relation to the investment in
Tekmar Limited.
The effect of these matters is that, as part
of our risk assessment, we determined
that the recoverable amount of the
cost of investment in subsidiaries has a
high degree of estimation uncertainty,
with a potential range of reasonable
outcomes greater than our materiality
for the financial statements as a whole.
The financial statements disclose the
sensitivity estimated by the Company.
Comparing valuations: Comparing the
carrying amount of the investment with
the expected value of the business
based on a suitable multiple of the
subsidiaries’ profit.
Assessing subsidiary audits: Assessing
the work performed by the group audit
team on all of those subsidiaries and
considering the results of that work, on
those subsidiaries’ profits.
In addition, for the investment in Tekmar
Limited:
Benchmarking assumptions: Challenging
the assumptions used
in the cash
in the budgets based
flowsincluded
on our knowledge of the Group and
the markets in which the subsidiaries
operate.
trading,
level of
Our sector experience: Evaluating the
current
including
identifying any indications of a downturn
in activity, by examining
the post
year end management accounts and
considering our knowledge of the Group
and the market.
Assessing transparency: Assessing the
adequacy of
the parent company’s
disclosures in respect of the investment
in subsidiaries.
it
for
the group
represents 0.73%
financial
Materiality
statements as a whole was set at
£300,000 (2019: £270,000), determined
with reference to a benchmark of revenue
of £40,943,000 (2019: £28,082,000), of
which
(2019:
0.96%). The reduction in the percentage
applied to the benchmark since the prior
year reflects the impact of changes to
the group structure (enacted during the
current year) on our audit. We consider
total revenue to be the most appropriate
benchmark as it provides a more stable
measure year on year than Group profit
before tax.
for
reference
the parent company
Materiality
financial statements as a whole was
set at £238,000 (2019: £256,500),
determined with
to a
benchmark of company total assets, of
which it represents 0.3% (2019: 0.4%
of total expenses). Our benchmark
has changed because
total assets
represents a more stable measure year
on year than company total expenses.
We agreed to report to the Audit
Committee any corrected or uncorrected
identified misstatements
exceeding
£15,000 (2019: £13,500), in addition to
other
warranted
grounds.
that
reporting on qualitative
identified misstatements
Of the group’s 8 (2019: 6) reporting
components, we subjected 8 (2019: 6)
to full scope audits for group purposes.
The components within the scope of our
work accounted for the percentages
illustrated opposite.
The Group team carried out all of the
work on all the reporting components
(including the parent company audit).
We used component materialities, which
from £18,000 to £265,000,
ranged
(2019: £12,000 to £256,500) having
regard to the mix of size and risk profile
of the Group across the components..
4. We have nothing to report on going
concern
The Directors have prepared the financial
statements on the going concern basis
as they do not intend to liquidate the
Company or the Group or to cease their
operations, and as they have concluded
that the Company’s and the Group’s
financial position means that this is
realistic. They have also concluded that
there are no material uncertainties that
could have cast significant doubt over
their ability to continue as a going
concern for at least a year from the
financial
date of approval of
statements (“the going concern period”).
the
Our responsibility is to conclude on
the appropriateness of the Directors’
conclusions and, had there been a
material uncertainty related to going
concern, to make reference to that in
this audit report. However, as we cannot
predict all future events or conditions
and as subsequent events may result
in outcomes that are inconsistent with
judgements that were reasonable at the
time they were made, the absence of
reference to a material uncertainty in this
auditor’s report is not a guarantee that
the group or the company will continue
in operation.
We identified going concern as a key
audit matter (see section 2 of this
report). Based on the work described
in our response to that key audit matter,
we are required to report to you if we
have concluded that the use of the going
concern basis of accounting
is
inappropriate or there is an undisclosed
material uncertainty
that may cast
significant doubt over the use of that
basis for a period of at least a year from
the date of approval of the financial
statements. We have nothing to report in
this respect.
5. We have nothing to report on the other
information in the Annual Report
in
The directors are responsible for the
other
the
information presented
Annual Report together with the financial
statements. Our opinion on the financial
statements does
not cover the other information and,
accordingly, we do not express an audit
opinion or, except as explicitly stated
below, any form of assurance conclusion
thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether, based on our
financial
statements audit work, the information
therein
is materially misstated or
inconsistent with the financial statements
or our audit knowledge. Based solely on
that work we have not identified material
misstatements in the other information.
Strategic report and directors’ report:
Based solely on our work on the other
information: we have not
identified
material misstatements in the strategic
report and the directors’ report;
in
our opinion the information given in
those reports for the financial year is
consistent with the financial statements;
and in our opinion those reports have
been prepared in accordance with the
Companies Act 2006.
6. We have nothing to report on the other
matters on which we are required to
report by exception
Under the Companies Act 2006, we are
required to report to you if, in our opinion:
adequate accounting records have not
been kept by the parent Company, or
returns adequate for our audit have
not been received from branches not
visited by us; or the parent Company
in
financial
agreement with the accounting records
and returns; or certain disclosures of
directors’ remuneration specified by law
are not made; or we have not received
all the information and explanations we
require for our audit. We have nothing to
report in these respects.
statements
are
not
7. Respective responsibilities
Directors’ responsibilities:
As explained more fully in their statement
set out on page 67 , the directors are
responsible for: the preparation of the
financial statements
including being
satisfied that they give a true and fair
view; such
internal control as they
determine is necessary to enable the
preparation of financial statements that
are free from material misstatement,
whether due to fraud or error; assessing
the Group and parent Company’s
ability to continue as a going concern,
disclosing, as applicable, matters
related to going concern; and using
the going concern basis of accounting
unless they either intend to liquidate
the Group or the parent Company or to
cease operations, or have no realistic
alternative but to do so.
StrategicStrategicGovernanceFinance
76
Auditor’s responsibilities:
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue our opinion
in an auditor’s
report. Reasonable
assurance is a high level of assurance,
but does not guarantee that an audit
conducted in accordance with ISAs (UK)
will always detect a material misstatement
when it exists. Misstatements can arise
from fraud or error and are considered
material if, individually or in aggregate,
they could reasonably be expected to
influence the economic decisions of
users taken on the basis of the financial
statements.
A fuller description of our responsibilities
is provided on the FRC’s website at www.
frc.org.uk/auditorsresponsibilities.
to
is made solely
8. The purpose of our audit work and
to whom we owe our responsibilities
This report
the
Company’s members, as a body, in
accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit
work has been undertaken so that we
might state to the Company’s members
those matters we are required to state
to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other
than the Company and the Company’s
members, as a body, for our audit work,
for this report, or for the opinions we
have formed.
David Mitchell (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory
Auditor
Chartered Accountants
Quayside House,
Newcastle upon Tyne.
NE1 3DX
2 August 2020
110 Quayside,
Revenue
£40.9m (2019: £28.1m)
Group Materiality
£300,000 (2019: £270,000)
£300,000
Whole financial statements
materiality (2019: £270,000)
£265,000
Range of materiality at 8 components
(£18,000-£265,000) (2019:£12,000
to £256,500)
Revenue
Group materiality
£15,500
Misstatements reported to the audit
committee (2019: £13,500)
Group revenue
Group profit before tax
100%
2019: 100%
100
100
100%
2019: 100%
100
100
Group total assets
100%
2019: 100%
100
100
Full scope for group audit purposes 2020
Full scope for group audit purposes 2019
StrategicStrategicGovernanceFinance 78
Consolidated Statement of
Comprehensive Income
For the year ended 31 March 2020
Revenue
Cost of sales
Gross profit
Operating expenses
Other operating income
Group operating profit
Analysed as:
Adjusted EBITDA (1)
Depreciation
Amortisation
Share based payments charge
Exceptional items
Group operating profit
Finance costs
Finance income
Net finance costs
Profit before taxation
Taxation
Profit for the year and total comprehensive income
Attributable to owners of the parent
Attributable to the non-controlling interest
Profit per share (pence)
Basic
Diluted
Note
4
6
6
12
11
23
6
7
9
10
10
2020
£000
40,943
(28,671)
12,272
(10,227)
-
2,045
4,695
(1,253)
(834)
(454)
(109)
2,045
(170)
84
(86)
1,959
3
1,962
1,962
-
1,962
3.85
3.73
2019
£000
28,082
(18,190)
9,892
(6,987)
-
2,905
4,833
(808)
(476)
(418)
(226)
2,905
(1,066)
147
(919)
1,986
407
2,393
2,393
-
2,393
4.75
4.63
Consolidated Balance Sheet
as at 31 March 2020
Non-current assets
Property, plant and equipment
Goodwill and other intangibles
Total non-current assets
Current assets
Inventory
Trade and other receivables
Corporation tax recoverable
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Share capital
Share premium
Merger relief reserve
Merger reserve
Retained losses
Total equity
Non-current liabilities
Other interest-bearing loans and borrowings
Trade and other payables
Deferred tax liability
Total non-current liabilities
Current liabilities
Other interest-bearing loans and borrowings
Trade and other payables
Corporation tax payable
Total current liabilities
Total liabilities
Total equity and liabilities
Note
12
11
14
15
16
21
18
17
19
18
17
2020
£000
5,892
26,294
32,186
2,536
26,819
-
2,130
31,485
63,671
513
64,100
1,738
(12,685)
(7,690)
2019
£000
5,501
21,837
27,338
1,914
19,537
459
4,190
26,100
53,438
507
64,100
993
(12,685)
(10,098)
45,976
42,817
310
355
469
1,134
504
16,010
47
16,561
17,695
63,671
487
358
3
848
378
9,395
-
9,773
10,621
53,438
There are no items of Other Comprehensive Income. 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.
The Group financial statements were approved by the Board and authorised for issue on 31 July 2020 and were
signed on its behalf by:
S Hurst
Chief Financial Officer & Company Secretary
Company registered number: 11383143
StrategicStrategicGovernanceFinance
80
Consolidated Statement of
Changes in Equity as at 31 March 2020
Consolidated Cash Flow
Statement as at 31 March 2020
Share
capital
£000
Share
premium
£000
Merger
relief
reserve
£000
Merger
reserve
£000
Retained
earnings
£000
Total equity
attributable to
the owners of
the parent
£000
Non
controlling
interest
£000
Total
equity
£000
Balance at 1 April 2018
Profit for the year
Total comprehensive income for
the year
Issue of shares on IPO
Expenses of the IPO
Issue of shares post IPO
Share based payments
Total transactions with owners,
recognised directly in equity
2,886
(12,867)
(9,981)
-
-
-
-
-
-
-
-
-
-
-
2,393
2,393
500
-
7
-
64,500
(400)
-
-
-
-
993
-
(15,571)
-
-
-
507
64,100
993
(15,571)
-
-
-
376
376
2,393
2,393
49,429
(400)
1,000
376
50,405
Balance at 31 March 2019
507
64,100
993
(12,685)
(10,098)
42,817
Profit for the year
Total comprehensive income for
the year
Issue of shares
Share based payments
Total transactions with owners,
recognised directly in equity
-
-
6
-
6
-
-
-
-
-
-
-
745
-
745
-
-
-
-
1,962
1,962
-
446
446
1,962
1,962
751
446
1,197
Balance at 31 March 2020
513
64,100
1,738
(12,685)
(7,690)
45,976
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(9,981)
2,393
2,393
49,429
(400)
1,000
376
50,405
42,817
1,962
1,962
751
446
1,197
45,976
Cash flows from operating activities
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangible assets
Share based payments charge
Gain on bargain purchase
Finance costs
Finance income
Changes in working capital:
(Increase)/decrease in inventories
(Increase) in trade and other receivables
Increase in trade and other payables
(Decrease) in provisions
Cash generated / (used in) from operations
Tax recovered
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on sale of property, plant and equipment
Acquisition of subsidiary net of cash acquired
Interest received
Net cash outflow from investing activities
Cash flows from financing activities
Repayment of borrowings
Repayment of other borrowings
Proceeds from issues of shares
Expenses of the IPO
Interest paid
Net cash (outflow)/inflow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2020
£000
1,959
1,253
834
488
-
170
(84)
4,620
(512)
(4,393)
2,357
-
2,072
209
2,281
(1,704)
(729)
-
(1,637)
84
(3,986)
(355)
-
-
-
-
(355)
(2,060)
4,190
2,130
2019
£000
1,986
808
476
345
(95)
1,066
(147)
4,439
176
(10,493)
2,876
(131)
(3,133)
180
(2,953)
(996)
(865)
3
(168)
147
(1,879)
(33,282)
(1,771)
49,429
(400)
(7,571)
6,405
1,573
2,617
4,190
StrategicStrategicGovernanceFinance 82
Notes to the Group Financial Statements
for the year ended 31 March 2020
1. General Information
incorporated and domiciled
Tekmar Group plc (the “Company”) is a public limited
company
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 stability and protection technology,
including associated subsea engineering services,
operating across the global offshore energy markets,
predominantly Offshore Wind.
Forward looking statements
Certain statements in this Annual report are forward
looking. The terms “expect”, “anticipate”, “should be”,
“will be” and similar expressions identify forward-looking
statements. Although the Board of Directors believes
that the expectations reflected in these forward-looking
statements are reasonable, such statements are subject
to a number of risks and uncertainties and events could
differ materially from those expressed or implied by these
forward-looking statements.
2. Basis of preparation and accounting policies
The Group’s principal accounting policies have been
applied consistently to all of the years presented, with the
exception of the new standards applied for the first time
as set out in paragraph (c) below where applicable.
(a) Basis of preparation
The results for the year ended 31 March 2020 have
been prepared in accordance with International Financial
Reporting Standards (“IFRS”), and their interpretations
adopted by the European Union. 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.
(b) Going concern
The Group meets
its day-to-day working capital
requirements through its available banking facilities which
includes an overdraft facility of £1.5m currently available
to 4 January 2021. This facility is an annual facility but
has a history of annual renewal and is expected to be
renewed again in January 2021. However, for the
purpose of this assessment, the directors have assumed
it will not be renewed. The Group held £2.1m of cash at
the end of the year and also secured a CBILS loan of £3m
in April 2020 (available through to April 2021) to ensure
any short-term impact of Covid-19 is manageable. There
are no financial covenants that the Group must adhere
to. The level of cash at 31 July 2020 was £1.9m. The
Directors have prepared cash flow forecasts to 31 March
2022. The base case forecasts include assumptions for
annual revenue growth (c.15%) supported by current
order book, known tender pipeline, and supported by
publicly available market predictions for the sector. They
also assume higher than usual costs of materials in case
of sourcing issues. These forecasts show that the Group
is expected to have a sufficient level of financial resources
available through current facilities available.
The Directors do not believe that the Covid-19 pandemic
will significantly impact the revenues included in the cash
flow forecasts and since the year end the group has cash
StrategicStrategicGovernanceFinance 84
balances ahead of budget. Whilst the lockdown period
in the UK and China initially caused short term delays
to completion of projects and a short term impact in
terms of raw materials sourcing from China, the Group
continued to trade throughout the lockdown period and
project completion has returned to being on-schedule.
Nevertheless, given the unprecedented uncertainty
Covid-19 has brought and the as yet unknown wider
economic impact in the short to medium term, the
Directors have sensitised their base case forecasts for
a severe but plausible downside impact. This sensitivity
includes reducing revenue growth to close-to nil for the
year to 31 March 2021 (taking into account a full year
of Pipeshield revenues), including the loss or delay of
a certain level of contracts in the pipeline that form the
base case forecast, and a 10% drop in revenue and
5% increase in costs across the group as a whole for
the same period. The base case forecast also includes
discretionary spend on capital outlay which has been
withheld in the sensitised case. In addition, the directors
note there is further discretionary spend within their
control which could be cut if necessary, although this
has not been modelled in the sensitised case given the
headroom already available. Whilst these sensitivities
have been modelled to give the Directors comfort
in adopting the going concern basis of preparation,
post year end performance and market visibility give
confidence over our base case forecast.
Based on this assessment, the Directors are satisfied
that, 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 facilities
to continue in operational existence and meet its liabilities
as they fall due for at least the next 12 months from the
date of approval of the financial statements and for this
reason they continue to adopt the going concern basis in
preparing the financial statements.
(c) New standards, amendments and interpretations
There have been no material new standards, amendments
or interpretations that the Group has to comply with
during the year. There are no standards endorsed but
not yet effective that will have a significant impact going
forward.
(d) Basis of consolidation
Subsidiaries are all entities over which the Group has
control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to
affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on
which control is transferred to the Group and are
deconsolidated from the date control ceases. Inter-
company transactions, balances and unrealised gains
and losses on transactions between group companies
are eliminated.
(e) Revenue
Revenue (in both the subsea and offshore wind markets)
arises from the supply of subsea protection solutions
and associated equipment, principally through fixed fee
contracts. There are also technical consultancy services
delivered through Agiletek Engineering and Ryder
Geotechnical.
To determine how to recognise revenue in line with IFRS
5, the Group follows a 5-step process as follows:
Identifying the contract with a customer
1.
2.
Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance
obligations
5. Recognising revenue when
obligation(s) are satisfied
/ as performance
Revenue is measured at transaction price, stated net of
VAT and other sales related taxes.
Revenue is recognised either at a point in time, or over-
time as the Group satisfies performance obligations by
transferring the promised services to its customers as
described below.
i.
Fixed-fee contracted supply of subsea protection
solutions
For the majority of revenue transactions, the Group
enters into individual contracts for the supply of subsea
protection solutions, generally for a specific project in a
particular geographic location. Each contract generally
has one performance obligation, to supply subsea
protection solutions. All contracts meet one or more of the
criteria within step 5 for recognition over time, including
the right to payment for the work completed, including
profit, should the customer terminate. An assessment
is made as to the most accurate method to estimate
stage of completion which in the majority of performance
obligations is on an inputs basis (costs incurred as a % of
total forecast costs).
There are also contracts which include the manufacture
of a number of separately identifiable products. In
such circumstances, as the deliverables are distinct,
each deliverable is deemed to meet the definition of a
performance obligation in its own right and do not meet
the definition under IFRS of a series of distinct goods or
services given how substantially different each item is.
Revenue for each item is stipulated in the contract and
revenue is recognised over time as one or more of the
criteria for over time recognition within IFRS 15 are met.
Generally for these items, an input method of estimating
stage of completion is used as this gives the most
accurate estimate of stage of completion.
In all cases, any advance billings are deferred and
recognised as the service is delivered.
i.
ii. Manufacture and distribution of ancillary products,
equipment and provision of consultancy services
dg
The Group has a number of revenue transactions which
are generally contracted with customers using purchase
orders. There is generally one performance obligation for
each order and the transaction price is specified in the
order. Revenue is recognised at a point in time as the
customer gains control of the products, which tends to
be on delivery. There is no variable consideration.
Accounting for revenue is considered to be a key
accounting judgement which is further explained in note
3.
(f) EBITDA and Adjusted EBITDA
Earnings before Interest, Taxation, Depreciation and
Amortisation (“EBITDA”) and Adjusted EBITDA are non-
GAAP measures used by management to assess the
operating performance of the Group. EBITDA is defined
as profit before net finance costs, tax, depreciation
and amortisation. Exceptional items and share based
payment charges are excluded from EBITDA to calculate
Adjusted EBITDA.
The Directors primarily use the Adjusted EBITDA
measure when making decisions about the Group’s
activities. As these are non-GAAP measures, EBITDA
and Adjusted EBITDA measures used by other entities
may not be calculated in the same way and hence are
not directly comparable.
(g) Exceptional costs
The Group presents as exceptional costs on the face of
the income statement, those significant items of expense,
which, because of their size, nature and infrequency
of the events giving rise to them, merit separate
presentation to allow shareholders to understand better
the underlying financial performance in the year, so as to
facilitate comparison with prior years and assess trends
in financial performance more readily.
(h) Foreign currency
Transactions in foreign currencies are translated into the
Group’s presentational currency at the foreign exchange
rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies
at the balance sheet date are translated at the foreign
exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in profit
or loss.
(i) Classification of instruments issued by the Group
Instruments issued by the Group are treated as equity
(i.e. forming part of shareholders’ funds) only to the
extent that they meet the following two conditions:
•
they include no contractual obligations upon the
Group to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with
another party under conditions that are potentially
unfavourable to the Group; and
• where the instrument will or may be settled in the
Company’s own equity instruments, it is either a
non-derivative that includes no obligation to deliver
a variable number of the Company’s own equity
instruments or is a derivative that will be settled by
the Company exchanging a fixed amount of cash or
other financial assets for a fixed number of its own
equity instruments.
To the extent that this definition is not met, the items are
classified as a financial liability. Where the instrument
so classified takes the legal form of the Company’s
own shares, the amounts presented in these financial
statements for called up share capital and share premium
account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are
dealt with as part of finance expenses. Finance payments
associated with financial instruments that are classified in
equity are dividends and are recorded directly in equity.
(j) Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation.
Cost includes the original purchase price of the asset and
the costs attributable to bringing the asset to its working
condition for its intended use. Where parts of an item of
property, plant and equipment have different useful lives,
they are accounted for as separate items of property,
plant and equipment.
Leased property is accounted for as a “right-of-use”
asset under IFRS 16 Leases. The initial value of a right-of-
use asset is determined by the value of the lease liability.
StrategicStrategicGovernanceFinance 86
Depreciation
Depreciation is charged to profit or loss over the
estimated useful lives of each part of an item of property,
plant and equipment. Depreciation is provided on the
following basis:
Freehold property - 50 years straight line
Leasehold improvements - Over the life of the lease
Containers and racking - 4 years straight line
Plant and equipment - 6 years reducing balance or 15–
25% straight line
Production tooling - 3 years straight line
Fixtures & fittings - 4 years straight line
Motor vehicles - 4 years reducing balance or straight line
Computer equipment - 4 years straight line
It has been assumed that all assets will be used until the
end of their economic life.
(k) Intangible assets
Goodwill
All business combinations are accounted for by applying
the purchase method. Goodwill represents the difference
between the cost of the acquisition and the fair value of the
net identifiable assets acquired. Identifiable intangibles
are those which can be sold separately, or which arise
from legal or contractual rights regardless of whether
those rights are separable and are initially recognised
at fair value. Other identified intangible assets include
customer relationships and brands. These are amortised
on a straight-line basis over the useful economic lives,
which are estimated to be 3 and 10 years respectively.
is stated at cost
less any accumulated
Goodwill
impairment losses. In cases where the fair value of the
net identifiable assets exceeds the cost of acquisition,
negative goodwill arises which is recorded immediately
in the income statement. Goodwill is allocated to cash-
generating units and is not amortised but is tested
annually for impairment.
Research and Product Development costs
Research costs are charged to the income statement in
the year in which they are incurred and are presented
within operating expenses. Internal development costs
that are incurred during the development of significant
and separately identifiable new technology are capitalised
when the following criteria are met:
•
It is technically feasible to complete the technological
development so that it will be available for use;
• Management intends to complete the technological
development and use or sell it;
•
•
•
It can be demonstrated how the technological
development will develop probable future economic
benefits;
Adequate technical, financial, and other resources
to complete the development and to use or sell the
product are available; and
Expenditure attributable to the technological product
during its development can be reliably measured.
Capitalised development costs include costs of materials
and direct labour costs. Internal costs that are capitalised
are limited to incremental costs specific to the project.
Other development expenditures that do not meet these
criteria are recognised as an expense as incurred and
presented within operating expenses, together with any
amortisation which is charged to the income statement
on a straight-line basis over the estimated useful lives of
product development intangible assets of 2-5 years.
Computer software
Computer software purchased separately, that does not
form an integral part of related hardware, is capitalised
at cost.
Amortisation is charged to profit or loss on a straight-line
basis over the estimated useful lives and is presented
within operating expenses. The useful life of computer
software is 3 years.
(l) Impairment
For goodwill that has an indefinite useful life, the
recoverable amount is estimated annually. For other
assets, the recoverable amount is only estimated when
there is an indication that an impairment may have
occurred. The recoverable amount is the higher of fair
value less costs to sell and value in use.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised
in profit or loss.
Impairment losses recognised in respect of cash-
generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating
unit and then to reduce the carrying amount of the other
assets in the unit on a pro rata basis. A cash generating
unit is the smallest identifiable group of assets that
generates cash inflows that are largely independent of
the cash inflows from other assets or groups of assets.
(m) Inventories
Inventories are stated at the lower of cost and estimated
selling price less costs to complete and sell. Cost is
calculated on a first in first out basis and includes the
cost of acquiring raw materials. Provision is made for any
foreseeable losses where appropriate.
(n) Defined contribution plans
Obligations for contributions to defined contribution
pension plans are recognised as an expense in profit or
loss as incurred.
the effective interest method. If there is a remeasurement
of the lease liability, a corresponding adjustment is made
to the carrying amount of the right-of-use asset, or is
recorded directly in profit or loss if the carrying amount of
the right of use asset is zero.
The Group has elected not to recognise right-of-use
assets and lease liabilities for short-term leases that
have a lease term of 12 months or less or leases of low
value assets. These lease payments are expensed on a
straight-line basis over the lease term.
(o) Provisions
A provision is recognised in the balance sheet when the
Group has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by
discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific
to the liability.
(p) Leases
The Group has applied IFRS 16 for this set of financial
statements. At inception of a contract, the Group
assesses whether a contract is, or contains, a lease. A
contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a
period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises
the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate
of costs to restore the underlying asset, less any lease
incentives received.
The right-of-use asset is subsequently depreciated using
the straight-line method from the commencement date
to the earlier of the end of the useful life of the right-of-
use asset or the end of the lease term. In addition, the
right-of-use asset is periodically reduced by impairment
losses, if any, and adjusted for certain remeasurements
of the lease liabilities.
The lease liability is initially measured at the present
value of lease payments that were not paid at the
commencement date, discounted using the Group’s
incremental borrowing rate.
The lease liability is measured at amortised cost using
(q) Net financing costs
Net financing costs comprise interest payable and
interest receivable on funds invested. Interest income
and interest payable are recognised in profit or loss as
they accrue using the effective interest method.
(r) Taxation
Tax on the profit or loss for the year comprises current
and deferred tax. Tax is recognised in profit or loss
except to the extent that it relates to items recognised
in other comprehensive income or directly in equity, in
which case it is recognised in other comprehensive
income or in equity, respectively.
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantively enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for
taxation purposes, except to the extent that it arises on:
•
•
•
the initial recognition of goodwill;
the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a
business combination;
differences relating to investments in subsidiaries to
the extent that they will probably not reverse in the
foreseeable future.
The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet
date.
A deferred tax asset is recognised only to the extent that
it is probable that future taxable profits will be available
against which the asset can be utilised.
StrategicStrategicGovernanceFinance 88
(s) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits. Bank borrowings that are repayable on
demand and form an integral part of the Group’s cash
management are included as a component of cash and
cash equivalents for the purpose only of the statement of
cash flows.
(t) Financial instruments
Non-derivative financial assets are classified as either
financial assets at amortised cost, fair value through
profit or loss and fair value through other comprehensive
income. The Group derecognises a financial asset when
the contractual rights to the cash flows from the asset
expire, or it transfers the rights to receive the contractual
cash flows in a transaction in which substantially all of the
risks and rewards of ownership of the financial asset are
transferred. The basis of classification depends on the
Group’s business model and the contractual cash flow
characteristics of the financial asset. All financial assets
of the Group are held at amortised cost.
Financial assets include trade and other receivables and
cash and cash equivalents. Trade and other receivables
are amounts due from customers for services performed
in the ordinary course of business. If collection is expected
in one year or less (or in the normal operating cycle of the
business if longer), they are classified as current assets.
If not, they are presented as non-current assets.
Trade and other receivables are initially recorded at fair
value and thereafter are measured at amortised cost
using the effective interest rate. A loss allowance for
expected credit losses on trade and other receivables
and contract assets is measured at an amount equal to
the lifetime expected credit losses . Lifetime expected
credit losses are the expected credit losses that will result
from all possible default events over the expected life of a
financial instrument. This assessment is performed on a
collective basis considering forward-looking information.
The Group considers a financial asset to be in default
when the debtor is unlikely to pay its credit obligations to
the Group in full without recourse by the Group to actions
such as realising security (if any is held); or the financial
asset is more than 120 days old.
Financial liabilities
Non-derivative financial liabilities are initially recognised at
fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these liabilities are
measured at amortised cost using the effective interest
method. The Group’s borrowings, finance leases, trade
and most other payables fall into this category of financial
instruments.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled, or
expire.
Interest-bearing borrowings are recognised initially at fair
value less attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are stated
at amortised cost with any difference between cost and
redemption value being recognised in profit or loss over
the year of the borrowings on an effective interest basis.
Trade payables are obligations to pay for goods or
services that have been acquired in the ordinary course
of business from suppliers and are initially recorded at fair
value and thereafter at amortised cost using the effective
interest rate method.
Financial derivatives
The Group uses derivative financial instruments to hedge
its exposure to risks arising from operational activities,
principally foreign exchange risk. In accordance with
treasury policy, the Group does not hold or issue
derivative financial instruments for trading purposes.
The Group does not hedge account for these items. Any
gain or loss arising from derivative financial instruments
is based on changes in fair value, which is determined by
direct reference to active market transactions or using
a valuation technique where no active market exists. At
certain times the Group has foreign currency forward
contracts that fall into this category.
(u) Contract assets
Contract assets represent the gross unbilled amount for
contract work performed to date, calculated by way of
units assembled using either the input or output method
– refer policy (e). They are presented as part of “trade
and other receivables” in the balance sheet. If payments
received from customers exceed the income recognised,
then the difference is presented as “accruals and contract
liabilities” in the balance sheet.
(v) Segmental reporting
The Group reports its business activities across each
of the business entities and this is reported in a manner
consistent with the internal reporting to the Board of
Directors, which has been identified as the chief operating
decision maker. The Board of Directors consists of the
Executive Directors and the Non-Executive Directors.
Project performance is monitored by Offshore Wind and
Subsea markets, but the Board does not measure profit
or cash by market.
(w) Share capital
Share capital represents the nominal value of shares that
have been issued.
(x) Share premium
Share premium includes any premiums received on issue
of share capital. Any transaction costs associated with
the issuing of shares are deducted from share premium,
net of any related income tax benefits.
(y) Merger reserve
The merger reserve was created as a result of the share
for share exchange under which Tekmar Group plc
became the parent undertaking prior to the IPO. Under
merger accounting principles, the assets and liabilities of
the subsidiaries were consolidated at book value in the
Group financial statements and the consolidated reserves
of the Group were adjusted to reflect the statutory
share capital, share premium and other reserves of the
Company as if it had always existed, with the difference
presented as the consolidation reserve.
(z) Own shares held by ESOP trust
Transactions of the Group-sponsored ESOP trust are
treated as being those of the Group and are therefore
reflected in the financial statements. In particular, the
trust’s purchases and sales of shares in the Group are
debited and credited to equity.
(aa) Retained earnings
Retained earnings includes all current and prior year
retained profits and losses.
(ab) Government grants
Government grants are included within accruals and
contract liabilities in the balance sheet and credit to
the income statement over the expected useful lives of
the assets to which they relate or in years to which the
related costs are incurred.
(ac) Share based payments
The Group operates equity-settled
share-based
remuneration plans for certain employees. None of the
Group’s plans are cash-settled. All goods and services
received in exchange for the grant of any share-based
payment are measured at their fair values.
Where employees are rewarded using share-based
payments, the fair value of employees’ services is
determined indirectly by reference to the fair value of the
equity instruments granted. This fair value is appraised
at the grant date and excludes the impact of non-market
vesting conditions.
All share-based remuneration is ultimately recognised as
an expense in profit or loss with a corresponding credit
to retained earnings. If vesting years or other vesting
conditions apply, the expense is allocated over the
vesting year, based on the best available estimate of the
number of share options expected to vest.
StrategicStrategicGovernanceFinance 90
3. Critical accounting judgements and estimates
Pipeshield International - valuation of intangibles
Accounting for the purchase price allocation on the
Pipeshield
International acquisition was a critical
accounting estimate made during the year. In particular,
deriving the value of the intangible assets acquired
(£1,975,000) and goodwill attributed (£2,590,000)
were critical estimates. The intangible assets relate to
the value in the trade name and customer relationships,
which were valued using the royalty relief method and
the Multi-period excess earning method, respectively,
based on forecast future cash flows assuming growth
rates of 10%, discounted using a weighted average
cost of capital of 9.6%. For each asset recognised, the
discount rate would have to change to over 20% (with
all other assumptions remaining the same) before there
was a material difference in the valuation. However, if
multiple assumptions changed reasonably at the same
time then the impact on the valuation could be material.
Furthermore, 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 £221,000,
which is the amortisation on the related Intangible Assets
in the year.
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.
(a) Critical judgements in applying the entity’s accounting
policies
Revenue recognition
Judgement is applied in determining the most appropriate
method to apply in respect of recognising revenue over-
time as the service is performed using either the input
or output method. Further details on how the policy is
applied can be found in note 2(e).
(b) Critical accounting estimates
Revenue recognition – stage of completion when using
input method
Revenue on contracts is recognised based on the stage
of completion of a project, which, when using the input
method, is measured as a proportion of costs incurred
out of total forecast costs. Forecast costs to complete
each project are therefore a key estimate in the financial
statements and can be inherently uncertain due to
changes in market conditions.
For the partially complete projects in Tekmar Energy at
year end if the percentage completion was 1% different
to management’s estimate the revenue impact would
be £90,442. Within Subsea Innovation and Pipeshield
International there were a number of projects in progress
over the year end and a 1% movement in the estimate
of completion would impact revenue in each by £28,854
and £38,287 respectively. However, the likelihood of
errors in estimation is small, as the businesses have
a history of reliable estimation of costs to complete
and given the nature of production, costs to complete
estimate are relatively simple.
StrategicStrategicGovernanceFinance 92
4. Segmental Reporting
Management has determined the operating segments
based upon the information provided to the Board of
Directors which is considered the chief operation decision
maker. The Group is managed and reports internally by
business entity and has changed the composition of its
reportable segments for the year ended 31 March 2020
to reflect this. All previous periods were reported as one
reportable segment. Project performance is monitored
by Offshore Wind and Subsea markets, but the Board
does not measure profit or cash by market. All assets of
the Group reside in the UK.
Analysis of revenue by region
UK & Ireland
Rest of the World
Analysis of revenue by market
Offshore Wind
Subsea
Major customers
In the year ended 31 March 2020 there were two major
customers that individually accounted for at least 10%
of total revenues (2019: three customers). The revenues
relating to these in the year to 31 March 2020 were
£11,079,395 (2019: £11,217,000). Included within this
is revenue from multiple projects with different entities
within each customer.
2020
£000
24,152
16,791
40,943
2020
£000
25,706
15,238
40,943
2019
£000
10,483
17,599
28,082
2019
£000
19,707
8,375
28,082
Revenue for the Offshore Wind market is reported separately from all other revenue, which reflects the focus of
management on this key market. All other revenue is included in Subsea. Profit and cash are measured by business
entity and the Board reviews this on the following basis.
Revenue
Gross profit
% Gross profit
Operating profit/(loss)
Analysed as:
Adjusted EBITDA
Depreciation
Amortisation
Share based payments
Exceptional
Operating profit/(loss)
Profit after tax
Other information
Reportable segment assets
Reportable segment liabilities
Revenue
Gross profit
% Gross profit
Operating profit/(loss)
Analysed as:
Adjusted EBITDA
Depreciation
Amortisation
Share based payments
Exceptional
Operating profit/(loss)
Profit after tax
TEL
2020
£000
27,515
7,702
28%
2,476
3,888
(959)
(366)
(87)
-
2,476
2,394
SIL
2020
£000
8,833
2,004
23%
346
503
(132)
(25)
-
-
346
340
AEL
2020
£000
3,026
1,506
50%
275
390
(75)
-
(35)
(5)
275
217
PIL
2020
£000
Group /
Eliminations
£000
Total
2020
£000
3,143
1,060
34%
295
382
(87)
-
-
-
295
388
(1,574)
-
-
(1,347)
(468)
-
(443)
(332)
(104)
(1,347)
(1,377)
(40,943)
12,272
30%
2,045
(4,695)
(1,253)
(834)
(454)
(109)
2,045
1,962
32,086
12,192
8,100
6,420
1,810
2,104
4,586
1,255
17,089
(4,276)
63,671
17,695
TEL
2019
£000
24,062
8,140
34%
3,522
4,626
(633)
(348)
(72)
(21)
3,522
3,682
SIL
2019
£000
3,476
1,112
32%
49
163
(71)
(19)
-
(24)
49
152
AEL
2019
£000
1,028
640
62%
(8)
8
(74)
-
(32)
90
(8)
(86)
PIL
2019
£000
Group /
Eliminations
£000
Total
2019
£000
28,082
9,892
35%
2,905
4,833
(808)
(476)
(418)
(226)
2,905
2,393
(485)
-
-
(657)
36
-
(109)
(314)
(271)
(657)
(1,355)
-
-
-
-
-
-
-
-
-
-
-
-
-
Other information
Reportable segment assets
Reportable segment liabilities
28,392
10,982
5,012
3,677
817
1,369
19,217
(5,407)
53,438
10,621
StrategicStrategicGovernanceFinance
94
5. Employees and Directors
(a) Staff numbers and costs
The average number of persons employed by the Group (including directors) during the year, analysed by category,
was as follows:
Directors
Sales
Administration
Technical
Direct labour
Staff costs for the Group during the year were:
Wages and salaries
Social security costs
Defined contribution pension cost (note 5 (d))
Share based payments
2020
(No)
5
10
53
40
86
194
2020
£000
7,100
754
300
454
8,608
2019
(No)
5
9
22
40
60
136
2019
£000
4,399
520
155
418
5,492
StrategicStrategicGovernanceFinance 6. Expenses by nature
Research and development
Employee benefit expense
Amortisation (note 11)
Depreciation – leased (note 12)
Depreciation – owned (note 12)
Inventory recognised as an expense
Exceptional items
Other expenses
Total cost of sales and operating expenses
Exceptional items
Exceptional items in 2020 include:
• Deal related costs, principally professional fees.
2020
£000
298
8,606
834
380
872
21,029
109
6,770
38,898
2019
£000
298
5,492
476
292
516
15,112
226
2,765
25,177
Exceptional items in 2019 include:
• Deal related costs, principally professional fees; and
• Credit in respect of negative goodwill arising on the acquisition of Ryder Geotechnical Limited – see note 24.
96
(b) Key management compensation
Key management of the Group is considered to be the Board of
Directors. Remuneration paid to the Directors is as follows:
Short term benefits:
Salaries including bonuses
Social security costs
Total short-term benefits
Post-employment benefits:
Defined contribution pension plan
Total remuneration
2020
£000
497
62
559
19
578
2019
£000
1,754
235
1,989
12
2,002
No shares or share options were awarded in the year. No existing share options were exercised in the year.
Director remuneration
Basic salary / fees
£000
Benefits
£000
Bonus
£000
Pension
£000
2020 Total
£000
2019 Total
£000
Name of Director
J Ritchie
S Hurst
A MacDonald
C Gill
J Brown
204
143
75
45
35
-
-
-
-
-
-
-
-
-
-
10
214
1,332 (1)
7
-
-
2
150
307 (1)
70
45
37
65
35 (2)
28 (2)
(1) payments in FY19 included one-off payments relating to the sale of shares allocated to executive directors during
the IPO (J Ritchie £124k; S Hurst £161k). Additional bonus of £1m was paid to J Ritchie and was reimbursed to the
company by the exiting private equity shareholders.
(2) part year only – appointed 20 June 2018.
Highest paid director
The aggregate remuneration of the highest paid director was £214,200 (2019: £1,332,000), which includes pension
contributions of £10,000 (2019: £7,000). The number of directors accruing pension benefits under a defined contribution
plan was three (2019: three).
StrategicStrategicGovernanceFinance 98
7. Net finance costs
Interest payable and similar charges
On loan notes
On other loans
On preference shares classed as liabilities
Fair value movement on forward foreign exchange contracts
Total interest payable and similar charges
Interest receivable and similar income
Fair value movement on forward foreign exchange contracts
Interest receivable
Total interest receivable and similar income
Net finance costs
Interest expense on lease liabilities was £25,534 (2019: £29,054).
8. Auditors Remuneration
During the year the Group obtained the following services from the
Company’s auditors at costs as detailed below:
Fees payable to Company’s auditor for the audit of the
parent company financial statements
Fees payable to Company’s auditor for other services:
– The audit of Company’s subsidiaries
– Tax compliance
– Other non-audit services
2020
£000
-
170
-
-
170
(80)
(4)
(84)
86
2019
£000
144
664
258
-
1,066
(142)
(5)
(147)
919
9. Taxation
Analysis of credit in year
Current tax
Current taxation charge for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of timing differences
Adjustments in respect of prior periods
Total deferred tax
Tax on profit on ordinary activities
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by the rate of corporation
tax in the UK of 19% (2018: 19%)
Effects of:
Non-deductible expenses
Non-taxable income
Enhanced R&D tax relief
Impact of unrecognised deferred tax assets
Effect of change in rates
Adjustments in respect of previous periods
Total taxation credit
2020
£000
2019
£000
55
(48)
7
(10)
-
(10)
(3)
1,959
372
147
(208)
(419)
162
(10)
(48)
(3)
-
(384)
(384)
(23)
-
(23)
(407)
1,986
377
178
(55)
(373)
(145)
(5)
(384)
(407)
2020
£000
2019
£000
Factors that may affect future tax charges
59
26
41
10
136
28
26
21
10
85
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). The decision for the UK corporation tax rate to remain at 19% (effective
from 1 April 2020) instead of a reduction to 17% was substantively enacted on 17 March 2020. As a result, deferred tax
balances have been measured at the effective rate of 19%.
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.
StrategicStrategicGovernanceFinance
100
10. Earnings per share
11. Goodwill and other intangibles
Basic earnings per share are calculated by dividing the earnings attributable to equity shareholders by the weighted
average number of ordinary shares in issue. Diluted earnings per share are calculated by including the impact of all
conditional share awards.
The calculation of basic and diluted loss per share is based on the following data:
Earnings £000
Earnings for the purposes of basic and diluted earnings per
share being profit/(loss) for the year attributable to equity shareholders
Number of shares
Weighted average number of shares for the purposes of basic earnings
per share
Weighted average dilutive effect of conditional share awards
Weighted average number of shares for the purposes of diluted earnings
per share
Profit per ordinary share (pence)
Basic profit per ordinary share
Diluted profit per ordinary share
Adjusted earnings per ordinary share (pence)*
The calculation of adjusted earnings per share is based on the following data:
Profit for the period attributable to equity shareholders
Add back:
Amortisation on acquired intangible assets
Exceptional costs
Share based payment on IPO and SIP at Admission
Tax effect on above
Adjusted earnings
Number of shares in issue at year end
2020
1,962
2019
2,393
50,961,405
50,351,745
1,625,000
1,336,986
52,586,405
51,688,732
3.85
3.73
4.75
4.63
5.79
2020
£000
1,962
443
109
454
2
2,970
6.21
2019
£000
2,393
109
226
418
-
3,146
51,261,685
50,687,852
*Adjusted earnings per share is calculated as profit for the period adjusted for amortisation as a result of business
combinations, exceptional items, share based payments and the tax effect of these at the effective rate of corporation
tax, divided by the closing number of shares in issue at the Balance Sheet date. This is the measure most commonly
used by analysts in evaluating the business’ performance and therefore the Directors have concluded this is a meaningful
adjusted EPS measure to present.
Goodwill
£000
Software
£000
Product
development
£000
Trade
name
£000
Customer
relationships
£000
COST
As at 1 April 2018
On acquisition
Additions
Disposals
As at 31 March 2019
On acquisition
Additions
Disposals
As at 31 March 2020
AMORTISATION AND IMPAIRMENT
As at 1 April 2018
Charge for the year
Eliminated on disposal
As at 31 March 2019
Charge for the year
Eliminated on disposals
As at 31 March 2020
NET BOOK VALUE
As at 31 March 2018
As at 31 March 2019
As at 31 March 2020
23,471
234
-
-
23,705
2,587
-
-
26,292
4,109
-
-
4,109
-
-
4,109
19,362
19,596
22,183
151
25
93
(88)
181
-
89
-
270
130
36
(88)
78
10
-
88
21
103
182
Total
£000
24,851
1,443
865
(88)
27,071
4,562
729
-
1,229
-
772
-
2,001
-
640
-
-
738
-
-
738
551
-
-
-
446
-
-
446
1,424
-
-
2,641
1,870
1,289
32,362
607
331
-
938
381
-
-
36
-
36
97
-
1,319
133
-
73
-
73
346
-
419
4,846
476
(88)
5,234
834
-
6,068
622
1,063
1,322
-
702
1,156
-
373
1,451
20,005
21,837
26,294
The remaining amortisation periods for software and product development are 6 months to 48 months (2019: 6 months
to 36 months).
The goodwill, brand and customer relationships additions in the year relates to the acquisition of Pipeshield International
Limited as set out in note 24.
StrategicStrategicGovernanceFinance
102
Goodwill has been tested for impairment. The method, key assumptions and results of the impairment review are
detailed below:
Goodwill is attributed to the CGU being the business entity in which the goodwill has arisen. The Group has four CGUs
and the goodwill related to each CGU as disclosed below.
Goodwill
Tekmar Energy
Subsea Innovation
Pipeshield International
AgileTek Engineering
2020
£000
19,362
234
2,590
-
2019
£000
19,362
234
-
-
Goodwill was all allocated to one CGU last year and this has now changed following various acquisitions. 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 2020 to 2023 were used. These were based on a
three-year forecast with growth in year one of between 20% and 40% built up from the detailed budget setting process,
and target growth rates of 15% applied for the following two 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 9.3%. The goodwill
impairment review has been tested against a reduction in EBITDA by 80% versus the original budget.
The value in use calculations described above, together with sensitivity analysis, 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.
12. Property, Plant and Equipment
Freehold
property
£000
Leasehold
improvements
£000
Containers
& racking
£000
Plant &
equip
£000
Fixtures
& fittings
£000
Production
tooling
£000
Motor
Vehicles
£000
Computer
Equipment
£000
Right of
use asset
£000
Total
equity
£000
COST
As at 1 April 2018
Arising on acquisition
Right of use asset
adjustment
Additions
Disposals
As at 31 March 2019
Arising on acquisition
Additions
Disposals
As at 31 March 2020
DEPRECIATION
As at 1 April 2018
Right of use asset
adjustment
Charge for the year
Disposals
As at 31 March 2019
Charge for the year
Eliminated on disposal
As at 31 March 2020
NET BOOK VALUE
As at 31 March 2018
As at 31 March 2019
As at 31 March 2020
-
2,760
-
-
-
2,760
576
-
(450)
2,886
-
-
20
-
20
50
-
70
-
2,740
2,816
878
-
-
41
-
919
1
1
-
921
818
-
50
-
868
36
-
904
60
51
17
1,135
-
-
13
(30)
1,118
-
86
(63)
1,141
1,899
234
-
176
(3)
2,306
151
244
-
2,701
1,113
913
-
16
(30)
1,099
17
(63)
1,053
22
19
88
-
194
-
1,107
277
-
1,384
986
1,199
1,317
-
-
-
-
-
-
-
21
-
21
-
-
-
-
-
1
-
1
-
-
20
1,082
-
-
600
-
1,682
-
632
-
2,314
836
-
188
-
1,024
450
-
1,474
246
658
840
11
-
-
-
-
11
-
-
-
11
11
-
-
-
11
-
-
11
-
-
-
367
-
-
60
-
427
5
61
-
493
280
-
48
-
328
41
-
369
87
99
123
-
-
2,360
106
(97)
2,369
-
316
-
2,685
5,372
2,994
2,360
996
(130)
11,592
733
1,361
(513)
13,173
-
3,971
1,439
292
(97)
1,634
380
-
2,014
-
735
671
1,439
808
(127)
6,091
1,253
(63)
7,281
1,401
5,501
5,892
Depreciation charges are allocated to cost of sales and operating expenses in the income statement. The carrying value
of the right of use asset relates to property leases.
StrategicStrategicGovernanceFinance 104
13. Investments
Principal subsidiary undertakings of the Group
Details of the investments in which the Group holds 20 per cent. or more of the nominal value of any class of share
capital are as follows:
Tekmar Limited
Tekmar Holdings Limited
Tekmar EBT Limited
Subsea Innovation Limited
Tekmar Energy Limited
Pipeshield International Limited
Tekmar Polyurethanes Limited
Tekmar GmbH
AgileTek Engineering Limited
Ryder Geotechnical Limited
Tekmar Marine Technology Company Limited
Class of share
capital held
Proportion
held by
parent company
Proportion
held by
Group
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
-
-
100%
-
100%
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
100%
All the companies listed above are incorporated in England and Wales, and have a registered address of Unit 1, Park
2000, Millennium Way, Aycliffe Business Park, Newton Aycliffe, County Durham DL5 6AR with the following exceptions::
Company / Country of Incorporation / Address
Subsea Innovation Limited / England / Innovation House, Centurion Way Darlington DL3 0UP.
Pipeshield International Limited / England / 4 Quay View Business Park, Barnards Way, Lowestoft, Suffolk NR32 2HD.
Tekmar GmbH / Germany / Möllneyer Ufer 17, 45257 Essen, Germany.
Tekmar Marine Technology Company Limited / China / Room 301,3F,No.1271 West Beijing Road, Jingan District,
Shanghai, China.
There are no restrictions on the Group’s ability to access or use the assets and settle the liabilities of the Group’s
subsidiaries. The principal activities of these undertakings for the last relevant financial period were as follows:
Company
Principal activity
Tekmar Limited
Tekmar Holdings Limited
Tekmar EBT Limited
Subsea Innovation Limited
Tekmar Energy Limited
Pipeshield International Limited
Tekmar Polyurethanes Limited
Tekmar GmbH
AgileTek Engineering Limited
Ryder Geotechnical Limited
Tekmar Marine Technology Company Limited
Holding of shares in subsidiary companies and the management thereof.
Holding of shares in subsidiary companies and the management thereof.
Corporate trustee for an employee benefit trust established to facilitate
employee share ownership.
Design and manufacture of equipment for the offshore subsea industry.
Design and manufacture of subsea protection solutions for use in offshore
subsea industry.
Design and manufacture of subsea asset protection.
Dormant.
Investment.
Engineering consulting for subsea environments.
Geotechnical consulting for subsea environments.
Sales and project management for Asia Pacific region.
14. Inventories
Raw materials
Finished goods
2020
£000
2,182
354
2,536
There is no difference between the carrying value and net realisable value of the above inventory items.
15. Trade and other receivables
Amounts falling due within one year:
Trade receivables not past due
Trade receivables past due (1-30 days)
Trade receivables past due (over 30 days)
Trade receivables net
Contract assets
Other debtors
Prepayments and accrued income
Derivative financial assets
2020
£000
9,049
509
296
9,854
14,969
1,261
593
142
26,819
2019
£000
1,761
153
1,914
2019
£000
3,279
1,204
258
4,741
13,515
693
441
147
19,537
Trade and other receivables are all current and any fair value difference is not material. Trade receivables are assessed
by management for credit risk and are considered past due when a counterparty has failed to make a payment when
that payment was contractually due. Management assesses trade receivables that are past the contracted due date
by up to 30 days and by over 30 days.
The carrying amounts of the Group’s trade and other receivables are all denominated in GBP. The derivative financial
asset relates to forward foreign currency contracts.
There have been no provisions for impairment against the trade and other receivables noted above. The Group has
calculated the expected credit losses to be immaterial.
StrategicStrategicGovernanceFinance 106
16. Cash and Cash Equivalents
18. Borrowing
Cash and cash equivalents
Cash at bank and in hand
Cash and cash equivalents were held in the following currencies:
UK Pound
Euro
Other
17. Trade and other payables
Current
Trade payables
Tax and social security
Accruals and contract liabilities
2020
£000
2,130
2,077
18
35
2,130
2020
£000
7,597
545
7,868
16,010
2019
£000
4,190
3,778
411
1
4,190
2019
£000
6,187
212
2,996
9,395
Current
Lease liability
Non-current
Lease liability
Amount repayable
Within one year
In more than two years but less than three years
In more than three years but less than four years
In more than four years but less than five years
In more than five years
The above carrying values of the borrowings equate to the fair values.
Average interest rates at the balance sheet date
Lease liability
2020
£000
2019
£000
504
504
310
310
505
202
45
41
21
814
2020
(%)
3.25
378
378
487
487
378
367
120
-
-
865
2019
(%)
3.25
The fair value of financial liabilities approximates to their carrying value due to short maturities. All trade and other
payables were held in GBP. Accruals and contract liabilities includes £2.75m in relation to deferred consideration on
the Pipeshield acquisition (see note 24).
Lease liability
This represents the lease liability recognised under IFRS 16. The assets leased are shown as a right of use asset within
Property, plant and equipment (note 12) and relate to the buildings from which the Group operates.
The asset and liability have been calculated using a 3.25% discount rate.
These leases are due to expire between December 2020 and September 2024.
Non-current
Accruals and contract liabilities
2020
£000
355
355
2019
£000
358
358
StrategicStrategicGovernanceFinance
108
Cash flows from financing activities
An analysis of cash flows from financing activities is provided as follows:
Balance at 1 April 2019
Changes from financing cash flows
Payment of lease liabilities
Total changes from financing cash flows
Changes arising from obtaining control of subsidiaries
Other changes
New leases
Total other changes
Balance at 31 March 2020
Lease liabilities
£000
865
(355)
(355)
48
256
256
814
19. Deferred Tax
Asset at start of year
Credit to income statement
Credit on share based payments
Arising on acquisition
Liability at end of year
The deferred tax liability relates to the following:
Accelerated capital allowances on property, plant & equipment
On intangible assets
On share based payments
Other timing differences
2020
£000
(3)
10
6
(482)
(469)
(34)
(420)
31
(46)
(469)
2019
£000
177
23
31
(234)
(3)
141
(183)
90
(51)
(3)
Other timing difference relate to the deferred tax liability arising on the property revaluation.
In addition to the deferred tax liability above, the Group has additional unrecognised gross tax losses of £3,941,000
(2019: £2,929,000), hence an unrecognised deferred tax asset of £749,000 (2019: £498,000). These assets remain
unrecognised as there is expected to be sufficient relief available in the businesses that hold the losses to mean it is
unlikely that the losses will be used over the medium term and therefore the benefit derived from them is too uncertain
to warrant recognition of an asset.
StrategicStrategicGovernanceFinance 110
20. Financial Instruments and Financial Risk
Management
Financial risk management
The Group uses various financial instruments. These have historically included cash, forward foreign exchange
contracts, issued equity instruments and various items, such as trade receivables and trade payables that arise directly
from its operations. The main purpose of these financial instruments are to raise finance for the Group’s operations.
The existence of these financial instruments exposes the Group to a number of financial risks, which are described in
more detail below.
The main risks arising from the Group’s financial instruments are market risk, cash flow interest rate risk, credit risk and
liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarised below.
Market risk
Market risk encompasses three types of risk, being currency risk, interest rate risk and price risk. In this instance price
risk has been ignored as it is not considered a material risk to the business. The Group’s policies for managing interest
rate risk are set out in the subsection entitled “interest rate risk” below.
Currency risk
The Group contracts with certain customers in Euros and manages this foreign currency risk using forward foreign
exchange contracts which match the expected receipt of foreign currency income. As at 31 March 2020 this covers the
period up to May 2021 (As at 31 March 2019 the period to September 2019).
The table below shows the EBITDA impact (excluding any changes in the fair value of derivatives) if there had been a
5% difference in the year end £:€ exchange rate:
+5%
-5%
2020
£000
(488)
539
2019
£000
(224)
247
Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by
closely managing the cash balance and by investing cash assets safely and profitably.
The Group policy throughout the period has been to ensure continuity of funding. Short-term flexibility is achieved by
bank overdraft facilities.
The table below analyses the group’s non-derivative and derivative financial liabilities into relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities
are included in the analysis if their contractual maturities are essential for an understanding of the timing of cash flows.
The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 March 2020
Borrowings
Forward foreign exchange contracts
Trade and other payables
Less than 1 year
£000
Between
1 and 2 years
£000
Between
2 and 5 years
£000
Over 5 years
£000
468
-
7,597
199
-
-
106
-
-
-
-
-
At 31 March 2019
Borrowings
Forward foreign exchange contracts
Trade and other payables
Less than 1 year
£000
Between
1 and 2 years
£000
Between
2 and 5 years
£000
Over 5 years
£000
399
-
6,187
380
-
125
-
-
-
-
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank borrowings. The Directors’ policy to
manage interest rate fluctuations is to regularly review the costs of capital and the risks associated with each class of
capital, and to maintain an appropriate mix between fixed and floating rate borrowings.
Credit risk
The Group’s principal financial assets are cash and trade receivables. The credit risk associated with cash is limited,
as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk
arises therefore from the Group’s trade receivables. In order to manage credit risk the Directors set limits for customers
based on a combination of payment history and third-party credit references. Credit limits are reviewed on a regular
basis in conjunction with debt ageing and collection history.
The Directors consider that the Group’s trade receivables were not impaired for the year ended 31 March 2020 or 2019
and no provision for credit losses was made. See note 15 for further information on financial assets that are past due.
StrategicStrategicGovernanceFinance 112
Summary of financial assets and liabilities by category
The carrying amount of financial assets and liabilities recognised at the balance sheet date of the reporting periods
under review may also be categorised as follows:
Financial instruments carried at fair value include forward foreign exchange contracts which are valued using Level 2
inputs in accordance with IFRS 13.
Financial assets
Financial assets measured at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial assets measured at fair value through profit or loss
Forward foreign exchange contracts
Financial liabilities
Financial liabilities measured at fair value through profit or loss
Forward foreign exchange contracts
Financial liabilities measured at amortised cost
Non-current:
Borrowings
Current:
Borrowings
Trade and other payables
Net financial assets and liabilities
Non-financial assets and liabilities
Plant, property and equipment
Goodwill
Other intangible assets
Inventory
Prepayments and accrued income
Deferred tax
Accruals and contract liabilities - current
Accruals and contract liabilities - non-current
Tax and social security
Corporation tax
2020
£000
26,084
2,130
142
28,356
(310)
(504)
(7,597)
(8,411)
19,945
5,892
22,183
4,111
2,536
593
(469)
(7,868)
(355)
(545)
(47)
26,031
2019
£000
18,949
4,190
147
23,286
-
(487)
(378)
(6,187)
(7,052)
16,234
5,501
19,596
2,241
1,914
441
(3)
(2,996)
(358)
(212)
459
26,583
Total equity / (deficit)
45,976
42,817
Capital risk management
The Group’s capital management objectives are:
•
•
To ensure the Group’s ability to continue as a going concern; and
To provide an adequate return to shareholders by pricing products and services commensurately with the level of
risk.
This is achieved through close management of working capital and regular reviews of pricing. Decisions on whether to
raise funding using debt or equity are made by the Board based on the requirements of the business. Capital for the
reporting period under review is shown as total equity in the table on page 112.
21. Share Capital
Nominal value
On incorporation on 25 May 2018
At 31 March 2019
Issued during the year
At 31 March 2020
Ordinary
shares
£0.01
(Number)
1
50,687,852
573,833
51,261,685
Ordinary
Share Total
(£)
-
506,878
5,738
512,617
The Company issued 573,833 shares of £0.01 were issued on 9 October 2020 at a value of £750,000 in respect of the
acquisition of Pipeshield International Limited.
StrategicStrategicGovernanceFinance 114
22. Related Party Transactions
The directors consider there to be no ultimate controlling party following Admission in June 2018. During the prior year,
related parties included representatives of major shareholder, Elysian Capital LLP and parent and intermediate parent
entities ultimately owned by the same shareholders. Related party balances with the Company are as follows:
Interest arising from transactions with previous shareholders totalled £nil (2019: £1,066,000).
Tekmar Energy Limited rents a property from a business owned by Gary Ritchie-Bland, father of James Ritchie. Costs
relating to this rental during the year were £120,000 (2019: £90,000).
Key management compensation is given in note 5 (b).
23. Share based payments
During the year the Group operated four equity-settled share-based payment plans as described below.
The Tekmar Group plc IPO Plan (“IPO Plan”)
As part of the admission to trading on AIM in June 2018, the Group granted a total of 1,750,000 share options to key
executives. All of the options granted are subject to service conditions, being continued employment with the Group
until the end of the vesting period. The options include certain performance conditions which must be met, based upon
earnings per share and total shareholder return targets for the financial year ending March 2020. The awards became
exercisable on 20 June 2020 to the extent that the performance conditions have been satisfied. The options were
granted with an exercise price equal to the nominal value of the share (£0.01).
The Tekmar Group plc Long Term Incentive Plan (“LTIP”)
The LTIP is a discretionary executive share plan under which the Board may, within certain limits and subject to any
applicable performance conditions, grant to eligible employees nil or nominal cost options, options with a market value
exercise price, conditional or restricted awards. All employees are eligible for selection to participate in the plan. No
awards have been granted under the LTIP.
The Tekmar Group Share Incentive Plan (“SIP”)
The SIP is an all-employee ownership plan under which eligible employees may be awarded free and/or matching
shares. The SIP operates through a UK-resident trust (the “SIP Trust”). On 13 September 2018 the Company issued
42,691 shares of £0.01 each in the Company. The shares will be held in trust for a minimum holding period of 3 years
and there is a forfeiture period of 3 years during which employees who participated in the SIP will lose their Award if they
resign or are dismissed from their employment.
The Tekmar Group plc Save as you earn Plan (“SAYE”)
The SAYE is an all-employee ownership plan under which eligible employees are invited to subscribe for options over
the Company’s shares which may be granted at a discount of up to 20%. On 31 March 2020 the Company launched the
SAYE plan and options over 428,983 shares were granted to 52 staff. There is a forfeiture period of 3 years during which
employees who participated in the SAYE will lose their award if they resign or are dismissed from their employment.
A summary of the options granted is shown in the table below:
Plan
IPO Plan
SIP
SAYE
1 April 2019
Granted in
the period
30 March 2020
share options
outstanding
1,625,000
42,691
-
-
-
428,983
1,625,000
42,691
428,983
Vesting
period
2 years
3 years
3 years
Exercise
period
10 years
10 years
10 years
The Group has recognised a total expense of £454,000 (2019: £418,000) in respect of equity-settled share-based
payment transactions in the year ended 31 March 2020. No options were exercised during the period.
Valuation model inputs
The key inputs to the Black-Scholes-Merton and Monte Carlo simulation models for the purposes of estimating the fair
values of the share options granted in the year are as follows:
Grant Date
Share price
on date of grant
Expiry Date
Expectation
of meeting
performance criteria
IPO Plan
SIP
SAYE
20 June 2018
13 September 2018
31 March 2020
130.00
161.50
83.00
20 June 2028
13 September 2028
31 March 2030
75%
80%
61%
StrategicStrategicGovernanceFinance 116
24 . Business Combinations
On 9 October 2019, the Company acquired the entire share capital of Pipeshield International Ltd for an initial cash
payment of £3,000,000, other consideration of £674k, shares in the Group of £750,000 and deferred consideration
of £2,750,000. Other consideration is for assets, including a property, in Pipeshield that were immediately sold to the
vendor for an equivalent sum post acquisition. There was no cashflow impact of this transaction and the net effect
leaves an receivables balance in Pipeshield which eliminates on consolidation.
Pipeshield International Limited are experts in subsea asset protection providing specialised equipment to support,
protect and stabilise all kinds of subsea installations world-wide.
Pipeshield International Limited contributed £3,142,677 to revenue and £290,216 to profit before tax for the period from
9 October 2019 to 31 March 2020.
The fair value adjustments reflect 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.
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. The
contingent consideration was payable on achieving target profitability within the business, which was achieved and the
consideration paid to the vendor in January 2020.
Consideration as at 09 October 2019
Cash
Other consideration
Shares
Deferred consideration to be settled
Total consideration
For cash flow disclosure purposes, the amounts are disclosed as follows:
Cash consideration
Recognised amounts of identifiable assets acquired and liabilities assumed
Assets
Property, plant and equipment
Investments
Other intangibles - customer relationships
Other intangibles - brand
Trade and other receivables
Inventories
Cash and cash equivalents
Liabilities
Corporation tax payable
Trade and other payables
Deferred tax liabilities
Total identifiable assets
Goodwill
Total
£000
3,000
674
750
2,750
7,174
3,000
3,000
Fair value
£000
733
24
1,424
551
2,444
109
1,361
6,646
(242)
(1,338)
(482)
(2,062)
4,584
2,590
7,174
Consideration
Cash
Shares
Consideration paid in January 2020
Total consideration
Recognised amounts of identifiable assets acquired and liabilities assumed
Assets
Property, plant and equipment
Other intangibles - software
Other intangibles - customer relationships
Other intangibles - brand
Trade and other receivables
Inventories
Liabilities
Borrowings - overdraft
Trade and other payables
Directors Loan Account
Borrowings
Deferred tax liabilities
Provisions
Total identifiable assets
Goodwill
Total
£000
66
1,000
1,000
2,066
Fair value
£000
2,994
25
446
738
303
248
4,754
(115)
(671)
(1,423)
(348)
(234)
(131)
(2,922)
1,832
234
2,066
StrategicStrategicGovernanceFinance 25. Post Balance Sheet Events
Other than the impact of COVID-19 there has been no significant change in the financial or trading position of the Group
or Company since 31 March 2020, to the date of the approval of these financial statements.
118
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
Cash
Total consideration
Recognised amounts of identifiable assets acquired and liabilities assumed
Assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings
Total identifiable assets
Gain on bargain purchase
Total
£000
-
-
Fair value
£000
11
90
13
114
(14)
(5)
(19)
95
(95)
-
StrategicStrategicGovernanceFinance 120
Parent Company Balance Sheet
as at 31 March 2020
Parent Company Statement of
Changes in Equity as at 31 March 2020
Non-current assets
Investments
Deferred tax assets
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Cash at bank and in hand
Total current assets
Total assets
Equity and liabilities
Share capital
Share premium
Merger relief reserve
Retained earnings
Total equity
Current liabilities
Other loans and borrowings
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
Note
3
4
4
5
6
2020
£000
49,776
60
15,869
65,705
5,320
-
5,320
71,025
513
64,100
1,738
(871)
65,480
535
5,010
5,545
5,545
2019
£000
42,484
67
15,869
58,420
4,062
3,848
7,910
66,330
507
64,100
993
(468)
65,132
-
1,198
1,198
1,198
Share
capital
£000
Share
premium
£000
Merger
relief
reserve
£000
Retained
earnings
£000
On incorporation on 25 May 2018
Loss for the year
Total comprehensive expense for the year
Issue of shares on IPO
Expenses of the IPO
Issue of shares post IPO
Share based payments
Total transactions with owners, recognised
directly in equity
Balance at 31 March 2019
Loss for the year
Total comprehensive expense for the year
Issue of shares
Share based payments
Total transactions with owners, recognised
directly in equity
-
-
-
500
-
7
-
507
507
-
-
6
-
6
-
-
-
64,500
(400)
-
-
64,100
64,100
-
-
-
-
-
Total
equity
£000
-
(836)
(836)
65,000
(400)
1,000
368
-
(836)
(836)
-
-
-
368
368
65,968
(468)
(850)
(850)
-
447
447
(871)
65,132
(850)
(850)
751
447
1,198
65,480
-
-
-
-
-
993
-
993
993
-
-
745
-
745
1,738
71,025
66,330
Balance at 31 March 2020
513
64,100
The Parent Company financial statements were approved by the Board of Directors on 31 July 2020 and were signed
on its behalf by:
S Hurst
Chief Financial Officer & Company Secretary
Company registered number: 11383143
StrategicStrategicGovernanceFinance
122
Notes to the parent company financial statements
for the year ended 31 March 2020
1. Significant Accounting Policies
incorporated and domiciled
Basis of preparation
Tekmar Group plc (the “Company”) is a public limited
company
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.
Reporting framework
The separate financial statements of the Company have
been prepared in accordance with Financial Reporting
Standard 101 “Reduced Disclosure Framework” (“FRS
101”), on the going concern basis under the historical
cost convention, and in accordance with the Companies
Act 2006 and applicable Accounting Standards in the
UK. The principal accounting policies are set out below.
The following exemptions from the requirements in IFRS
have been applied in the preparation of these financial
statements, in accordance with FRS 101:
•
•
•
•
•
10(d) (statement of cash flows);
16 (statement of compliance with all IFRS);
11 (cash flow statement information); and
134-136 (capital management disclosures)
The following paragraphs of IAS 1 “Presentation of
Financial Statements”
•
•
•
•
IFRS 7 “Financial Instruments : Disclosures”;
IAS 7 “Statement of Cash Flows”;
IAS 24 (paragraphs 17 and 18a) “Related Party
Disclosures” (key management compensation); and
IAS 24 “Related Party Disclosures” – the requireent
to disclose related party transactions between two
or more members of a group.
As the Group financial statements include the equivalent
disclosures, the Company has taken the exemptions
available under FRS 101 in respect of the following
disclosures;
•
IFRS 2 “Share-based Payments” in respect of Group
settled equity share-based payments; and
• Certain disclosures required by IFRS 13 “Fair Value
Measurement” and disclosures required by IFRS 7
“Financial Instruments : Disclosures”
Parent Company profit and loss account
The Company has not presented its own profit and loss
account as permitted by Section 408 of the Companies
Act 2006. The Company’s loss after taxation for the
period was £0.850m (2019: £0.836m)
Dividend distribution
The distribution of a dividend to the Company’s
shareholders is recognised as a liability in the Company’s
financial statements in the year in which it is approved by
the Company’s shareholders.
Investment in subsidiary undertakings
Investments in Group undertakings are stated at cost,
unless their value has been impaired in which case they
are valued at the lower of their realisable value or value
in use.
Deferred taxation
Deferred taxation is recognised in respect of all timing
differences that have originated but not reversed at the
balance sheet date where transactions or events that
result in an obligation to pay more tax in the future or a
right to pay less tax in the future have occurred at the
balance sheet date.
Deferred tax assets are regarded as recoverable and
recognised in the Group financial statements when, on
the basis of available evidence, it is more likely than not
that there will be suitable taxable profits from which the
future reversal of the timing differences can be deducted.
The recoverability of tax losses is assessed by reference
to forecasts which have been prepared and approved
by the Board. No timing differences are recognised in
respect of revalued tangible fixed assets or fair value
adjustments to acquired tangible fixed assets where
there is no commitment to sell the asset. The deferred
tax assets and liabilities are not discounted.
Share-based payments
The Group operates equity-settled
share-based
remuneration plans for certain employees. None of the
Group’s plans are cash-settled. All goods and services
received in exchange for the grant of any share-based
payment are measured at their fair values.
Where employees are rewarded using share-based
payments, the fair value of employees’ services is
determined indirectly by reference to the fair value of the
equity instruments granted. This fair value is appraised
at the grant date and excludes the impact of non-market
vesting conditions.
All share-based remuneration is ultimately recognised as
an expense in profit or loss with a corresponding credit
to retained earnings. If vesting years or other vesting
conditions apply, the expense is allocated over the
vesting year, based on the best available estimate of the
number of share options expected to vest.
The fair value determined at the grant date of equity-
settled share-based payments issued to employees of
subsidiary undertakings is recognised as an addition to
the cost of investment in subsidiary undertakings on a
straight-line basis over the vesting period, based on the
Company’s estimate of shares that will eventually vest
and adjusted for the effect of non-market-based vesting
conditions.
Employer social security contributions payable
in
connection with the grant of share awards are considered
an integral part of the grant itself and the charge is treated
as a cash-settled transaction.
Share capital
Ordinary shares are classified as equity. Incremental
costs directly attributable to the issue of new shares
are shown in equity as a deduction, net of tax, from the
proceeds of issue.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits with an original maturity of three months or
less.
Financial assets
Classification
The Company classifies its financial assets as loans and
receivables. Management determines the classification
of its financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that arise principally
through the provision of services to customers. They are
initially recognised at fair value, and are subsequently
stated at amortised cost using the effective interest
method. They are included in current assets, except
for maturities greater than 12 months after the end of
the reporting year. Loans and receivables comprise
mainly cash and cash equivalents and trade and other
receivables, including amounts owed by related entities.
Impairment of financial assets
Impairment provisions are recognised when there is
objective evidence (such as significant financial difficulties
on the part of the counterparty or default or significant
delay in payment) that the Group will be unable to collect
all of the amounts due under the terms receivable, the
amount of such a provision being the difference between
the net carrying amount and the present value of the
future expected cash flows associated with the impaired
receivable.
Financial liabilities
The Company initially recognises its financial liabilities
at fair value net of transaction costs where applicable
and subsequently they are measured at amortised cost
using the effective interest method. Financial liabilities
comprise trade and other payables, amounts owed
to Group undertakings, other liabilities and accruals
and deferred income and are initially recognised at
transaction price, unless the arrangement constitutes
a financing transaction, where the debt instrument is
measured at the present value of the future payments
discounted at a market rate of interest.
Trade and other payables are obligations to pay for
goods or services that have been acquired in the ordinary
course of business from suppliers. Trade payables are
classified as current liabilities if payment is due within one
year or less. If not, they are presented as non-current
liabilities. Other liabilities include payments in advance
from customers and rebates.
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
carried at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption
value is recognised in the income statement over the year
of the borrowings using the effective interest method.
StrategicStrategicGovernanceFinance 124
Critical accounting estimates
The preparation of the Parent Company
financial
statements 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..
(a) Critical judgements in applying the entity’s accounting
policies
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 significant as disclosed within note 24 to the
Group financial statements. The assumptions are subject
to estimation and are considered for reasonableness at
each balance sheet date.
(b) Critical accounting estimates
Impairment of non-current assets
The carrying amount of the Company’s investments in
subsidiaries £49,776,000 as at 31 March 2020 (2019:
£42,484,000). The Directors have carried out an
impairment review in accordance with the accounting
policies. The forecast cash generation for each Cash
Generating Unit (“CGU”) and the Weighted Average Cost
of Capital (“WACC”) represent significant assumptions.
The cash flows are based on a three year forecast
with growth at 15%. Subsequent years are based on a
reduced growth rate of 2.0% into perpetuity.
The discount rate used was the Group’s pre-tax WACC
of 9.3%.
for
in use calculations performed
The value
the
impairment review, together with sensitivity analysis
using reasonable assumptions, indicate ample headroom
for the investments in Subsea Innovations Limited and
Pipeshield International Limited and therefore do not give
rise to impairment concerns. There is lower headroom
on the investment in Tekmar Limited (see disclosures
in note 3 for further details). 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.
2. Remuneration of Directors and Auditors
Details of Directors’ remuneration are shown in the Directors’ Remuneration Report on page 60 of the Group financial
statements. Details o f auditor remuneration are shown in note 8 of the Group financial statements.
3. Investments in subsidiary undertakings
Cost and carrying amount
On incorporation
Additions
At 31 March 2019
Additions
At 31 March 2020
£000
-
42,484
42,484
7,292
49,776
At the year-end management reviewed the carrying value of the Investments for Impairment. The investment relates
to 3 companies being Tekmar Limited (which owns Tekmar Energy Limited and Agiletek Engineering Limited), Subsea
Innovation Limited and Pipeshield International Limited. The recoverable amount has been determined based on value
in use calculations. The value in use calculations were based on projected cash flows in perpetuity. Budgeted cash
flows for 2020 to 2023 were used. These were based on a three-year forecast with growth in year one built up from the
detailed budget setting process, and target growth rates of 15% applied for the following two 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 9.3%.
The value in use calculations described above, together with sensitivity analysis, indicate ample headroom for the
investments in Subsea Innovation Limited and Pipeshield International Limited and therefore do not give rise to
impairment concerns.
The value in use calculations described above for Tekmar Limited indicated that the recoverable amount was £2.2M
in excess of the carrying value of the investment. Using the same discount rate, the expected growth rate in PAT
would need to reduce to 7% before an impairment of the carrying value of the investment would be required. Equally
the discount rate would need to increase by 4% before the carrying value would be impaired. However, if multiple
assumptions changed reasonably at the same time then a material impairment could be required.
Having completed the impairment reviews no impairments have been identified.
StrategicStrategicGovernanceFinance 126
The Company directly owns the whole of the issued ordinary shares of the following subsidiary undertakings:
Details of the investments in which the Company holds 20 per cent or more of the nominal value of any class of share
capital are as follows:
Tekmar Limited
Subsea Innovation Limited
Pipeshield International Limited
Class of share
capital held
Proportion held by
parent company
Ordinary
Ordinary
Ordinary
100%
100%
100%
Carrying
Value
40,536
2,066
7,174
5. Borrowings
Current
Bank overdraft
Amount repayable
Within one year
2020
£000
2019
£000
535
535
535
535
-
-
-
-
All the companies listed above are incorporated in England and Wales and have a registered address of:
The above carrying values of the borrowings equate to the fair values. Overdraft facility is provided at interest rate
of 3.75% over base rate pa and is available the Company until 4 January 2021.
Company / Address
Tekmar Limited / Unit 1, Park 2000, Millennium Way, Aycliffe Business Park, Newton Aycliffe, County Durham DL5 6AR
Subsea Innovation Limited / Innovation House, Centurion Way Darlington DL3 0UP
Pipeshield International Limited / 4 Quay View Business Park, Barnards Way, Lowestoft, Suffolk NR32 2HD
Company
Principle Activity
Tekmar Limited
Subsea Innovation Limited
Pipeshield International Limited
Holding of shares in subsidiary companies and the management thereof
Design and manufacture of equipment for the offshore oil and gas industry
Design and manufacture of subsea asset protection
6. Creditors: amounts falling due within one year
Trade creditors
Amounts due to group undertakings
Other taxation and social security
Accruals and deferred income
Deferred consideration
2020
£000
93
2,007
84
76
2,750
5,010
2019
£000
8
23
83
84
1,000
1,198
4. Trade and other receivables
Amounts owed by Group undertakings - non-current
Amounts owed by Group undertakings - current
Prepayments and accrued income
2020
£000
15,589
5,248
72
2019
£000
15,869
4,054
8
21,189
19,931
All of the amounts owed to Group undertakings shown above are repayable on demand. Deferred consideration
relates to the Pipeshield acquisition. A payment of £1.5m was paid on 9 April 2020 and a payment of £1.25m is
due to be paid on 9 October 2020.
7. Share Capital
Details of movements in shares are set out in note 22 to the Group financial statements.
All of the amounts owed by Group undertakings shown above are repayable on demand and attract interest at rates
between 0% and 3%. No expected credit losses are recognised on intercompany receivables as they are assessed to
be immaterial.
StrategicStrategicGovernanceFinance
128
8. Related party transactions
Annual General Meeting
The Company has taken advantage of the exemption included in IAS 24 ‘Related Party Disclosures’ not to disclose details of
transactions with Group undertakings, on the grounds that it is the parent company of a Group whose accounts are publicly
available.
Directors’ transactions
Details of the Directors’ interests in the ordinary share capital of the Company are provided in the Directors’ Report.
9. Share-based payments
The Company operates a number of share option arrangements for key executives and employees, further details of which
can be found in note 24 to the Group financial statements. Further details of the arrangements for senior executives can be
found in the Directors’ Remuneration Report in the Group financial statements.
The Company recognised total expenses of £332,000 in respect of the equity-settled share-based payment transactions in
the year ended 31 March 2020 (2019 £313,000).
10. Post balance sheet events
The AGM will be held at 10am on 30 September 2020 at Tekmar, Park 2000, Millennium Way, Newton Aycliffe DL5 6AR.
The Notice of Meeting will be separately distributed to shareholders.
Advisors
Nominated Advisor
Grant Thornton UK LLP
30 Finsbury Square
London EC2P 2YU
Auditor & Tax advisors
KPMG LLP
Quayside House
110 Quayside
Newcastle Upon Tyne NE1 3DX
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing Business Park
West Sussex BN99 6DA
Investor Relations
Belvedere Communications Limited
Enterprise House
1-2 Hatfields
London
SE1 9PG
Broker
Berenberg
60 Threadneedle St
London EC2R 8HP
Bank
Barclays
Barclays House
5 St Ann’s Street
Quayside
Newcastle NE1 3DX
Other than the impact of COVID-19 there has been no significant change in the financial or trading position of the Group or
Company since 31 March 2020, to the date of the approval of these financial statements.
Financial calendar
30 September 2020 - Annual General Meeting
30 September 2020 - Half Year End
December 2020 - Interim Results
31 March 2021 - Full Year End
July 2021 - Full Year Results
StrategicStrategicGovernanceFinance Subsea division the division of the Group’s business
focused on the oil and gas industry
SURF Subsea Umbilicals, Risers and Flowlines
TEL Tekmar Energy Limited
TRL Number of technology and products within the
Group
Umbilical subsea umbilical system providing vital supply
(such as electric power, hydraulic power) and control
link from platforms or topside vessels to oil and gas
equipment
130
Glossary
Adjusted EBITDA earnings before
tax,
depreciation and amortisation, and non-recurring and
exceptional items
interest,
Admission the admission of the Enlarged Share Capital
to trading on AIM becoming effective in accordance with
Rule 6 of the AIM Rules for Companies
AEL AgileTek Engineering Limited
AgileTek AgileTek Engineering Limited
AIM the AIM market of the London Stock Exchange
API American Petroleum Institute
Berenberg Joh. Berenberg, Gossler & Co. KG, London
Branch, broker to the Company and sole global
coordinator
Board the board of Directors of the Company
Brent Crude a trading classification of sweet light crude
oil that serves as a benchmark price for purchases of oil
worldwide
CAGR compounded annual growth rate
CPS cable protection system
EEA the European Economic Area
Enquiry Book comprises all active lines of enquiry within
the Tekmar Group. Expected revenue recognition within
three years.
EU the European Union
Executive Directors the executive Directors of the
Company as at the date of this document, namely James
Ritchie-Bland and Susan Hurst
GW gigawatt, a unit of power
HSQE health, safety, quality and environmental
IAC Inter Array Cables
J-Tube a hollow steel tube that has the shape of a letter
“J” attached to the outside of a monopile or wind turbine
platform to act as a conduit for the power cable that runs
from the wind turbine to the seabed
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
large-diameter,
Monopile a
fixed single column
foundation structure to support the above-surface wind
turbine typically used in shallow water
MWh megawatt hour, a unit for measuring power
Non-Executive Directors the non-executive Directors of
the Company (including the Chairman) as at the date of
this document, namely Alasdair MacDonald, Christopher
Gill and Julian Brown
Preferred bidder is defined as out of competitive tender
process, selected as sole bidder in active contract
negotiations. Expected revenue recognition within 12
months
QCA the Quoted Companies Alliance
QCA Code the QCA Corporate Governance Code
published in 2018
Order Book is defined as signed contracts with clients.
Expected revenue recognition within 6 months.
FCA or Financial Conduct Authority the Financial Conduct
Authority of the United Kingdom
RYD Ryder Geotechnical Limited
OWF Offshore Wind
Flowline a flexible pipe laid on the seabed linking subsea
structures for the transportation of crude oil or natural
gas
Group as from Admission means the Company and its
subsidiaries
Sales Conversion measures value won versus value bid
as a percentage
SIL Subsea Innovation Limited
StrategicStrategicGovernanceFinance Park 2000
Newton Aycliffe
DL5 6AR
United Kingdom
T: +44 1325 379520
F: +44 1325 379521
E: investors@tekmar.co.uk
W: investors.tekmar.co.uk