Tekmar says 2023 pivotal year, despite instability in offshore wind market

Tekmar Group has reported improved financial performance for the 2023 financial year with a revenue of £39.9 million, compared to £30.2 million in FY22. Deemed a pivotal year that saw instability in the offshore wind market, Tekmar said it had stabilized the business in 2023.

Tekmar saw an adjusted EBITDA loss of £0.3 million, compared to £2.3 million loss in FY22, and a gross profit of £9.3 million, an increase from £7 million in FY22, with a gross profit margin of 23.3% consistent with the 23.2% in the prior year.

On a statutory basis, the company loss before tax for the period was £9.9 million (FY22: loss of £5.2 million), which includes a non-cash impairment charge of £4.7 million to the value of goodwill in the Offshore Energy division.

The Marine Civils division delivered adjusted EBITDA of £3.5 million on revenue of £18.3 million. The expectation for the division is positive EBITDA in FY24, although Tekmar said it was unlikely that it will meet or exceed the contribution in the current financial year.

The Offshore Energy division by contrast generated an adjusted EBITDA loss for the year of £2.1 million, with a broadly similar loss across H123 and H223, said to reflect market delays and uncertainties in offshore wind projects. Supply chain cost escalation also impacted project margins for two material contracts, weakening H2 profitability in particular.

During 2023, Tekmar completed the formal sales process and strategic review which culminated with the strategic investment and related equity fundraising by SCF Partners and existing shareholders. This exercise was completed in April 2023 and raised £5.3 million, net of expenses. In addition, SCF Partners committed, with conditions, an additional investment of £18 million which is available through the convertible loan note (CLN) facility, targeted to drive growth including through acquisitions.

“2023 was a pivotal year for Tekmar. We have stabilised the business and welcomed SCF Partners to the Board as a highly respected strategic partner with a shared ambition to transform Tekmar as a leading, global offshore wind services company. The underlying business is in much better shape than it was two years ago and the business is now on the path to deliver sustained and improving profitability,” said Julian Brown, Non-Executive Chairman at Tekmar.

According to Brown, instability in the offshore wind market has been a feature of 2023, and fiscal and regulatory uncertainty, particularly in the UK and U.S., created pressures. This has been exacerbated by supply chain constraints, inflationary pressure, permitting delays and grid connection and infrastructure shortage.

“The hard work of my colleagues means we are more in control of our business. This is particularly important at the current time with uncertainty in energy markets but sets us up well for significant success ahead. Aligned with this, is the benefit we have as a balanced business, addressing the needs of the broad offshore energy market as it transitions to meet the evolving commitments to lower carbon intensity and net zero targets,” Brown said.

“We have made substantial progress over the last two years. There has been uncertainty along the way for our employees, industry partners and shareholders. This is now behind us and we are continuing to build a stronger business. We are doing this from a good position in terms of our competitive standing in the market and we look forward with real confidence given the scale of the opportunity ahead for Tekmar.”

Pipeshield secured and delivered a combination of projects valued at over £8 million for pipeline protection systems in the Middle East. Tekmar was also selected for the Dogger Bank C offshore wind farm, in continuation of the previously announced Dogger Bank A & B contracts. These contract awards contributed to an order book of £19.7 million on January 24 with a gross margin of 28%.

Tekmar said that new contracts are being secured at more favorable gross margins at the outset and include more favorable cost escalation protection and milestone payments to de-risk the projects.

“Our pipeline and enquiry book is healthy across the Group and we are in discussions with developers and Tier 1 contractors on a number of significant projects,” Tekmar said.

In offshore wind, Tekmar secured an “important contract win with an established Tier 1 contractor” announced in January, and was also selected to deliver cable protection systems (CPS) for the 1 GW Hai Long offshore wind farm in Taiwan.

The company said it sees APAC as a key near-term growth market for the offshore wind division, while Marine Civils continues to win significant and profitable contracts, including building a strong capability in the Middle East in particular, where £15 million of order intake was secured for FY23.

Tekmar believes the market is moving in the right direction in 2024 with a more balanced approach to developers and contractors in managing project risk leading to incremental but sustained improvement in demand. Projected demand for offshore wind over the longer term will remain strong with fixed seabed foundations expected to continue as the dominant technology until the mid-2030s, with floating foundations with dynamic cabling solutions increasing market share from the mid-2030s onwards.

Following a period of underinvestment, the oil & gas industry is entering a new capex cycle, with market conditions expected to remain supportive of an upturn in global spend over the medium term, the company noted.

“We are confident we have established a clear and sustainable path to improving profitability, with the Group expected to be profitable at the Adjusted EBITDA level in FY24,” said Alasdair MacDonald, Tekmar CEO.

“The primary objective for the management team in FY24 is on driving consistent operational performance to deliver improved profitability and cash generation for the Group. We are doing this in a maturing market environment for offshore wind which we anticipate should support incremental market improvement in the current year.”

Tekmar said the main risk to delivering on the expectations for FY24 is the market environment where delays with decisions, extended negotiations and project starts continue to be a feature.