TP Group PLC Final Results for the year ending 31 December 2019

Data : 21/05/2020 @ 08:00
Fonte : UK Regulatory (RNS & others)
Titolo : Tp Group Plc (TPG)
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TP Group PLC Final Results for the year ending 31 December 2019

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RNS Number : 5462N

TP Group PLC

21 May 2020

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain .

21 May 2020

TP Group plc

("TP Group" or the "Company" or the "Group")

Full Year results for the year ending 31 December 2019

TP Group (AIM: TPG), the providers of mission-critical consulting, software and bespoke engineering solutions for a more secure world, announces its audited results for the year ended 31 December 2019.

Financial and operational highlights

Revenue up 49% to GBP58.2m (2018: GBP39.0m)

-- Organic growth of 16% (GBP6.2m), with Technology & Engineering up 10%, and Consulting & Programme Services up 29%

   --    Added GBP13.0m revenues, or 33% growth, from the acquisition of Westek(1) and Sapienza(2) 
   Adjusted operating profit(3)   up 48% to GBP5.9m (2018: GBP4.0m) 
   --    Organic growth of GBP1.1m (c. 28%) 
   --    Additional GBP0.8m of profit contributed by acquired companies, Westek and Sapienza 

Operating losses(3) GBP1.7m (2018: nil), include:

   --    Acquisition-related expenses of GBP1.5m (2018: GBP0.7m) 
   --    Earn-out provision of GBP1.6m (2018: GBP0.6m) relating to Westek and Sapienza 

Closing cash of GBP6.6m (2018: GBP22.4m)

   --    GBP7.7m cash used in the acquisition of Sapienza 
   --    Settlement of final earn-out payments, GBP2.0m for Polaris(4) and Westek 
   --    GBP1.5m invested in AI technologies, business systems and infrastructure 

Order intake GBP73.8m (2018: GBP43.2m)

   --    Organic growth of GBP8.4m (c. 20%) 
   --    Opening order book of GBP15.0m acquired with Sapienza 
   --    Additional GBP7.2m new orders post- acquisition from Westek and Sapienza 

Group closing order book up 32% to GBP63.8m (2018: GBP48.3m)

   --    Organic growth of GBP5.5m 
   --    Includes additional GBP10.0m from Sapienza 

Throughout the COVID-19 outbreak we have continued to operate at a sustainable level across the whole business. Our approach has focused on:

   --    protecting the health and wellbeing of staff and their families 
   --    sustaining the level of business activity on customer projects 
   --    working with customers on renewals, extensions and new business opportunities 
   --    managing investment in operating expenses and capital equipment where necessary 
   --    maintaining a healthy cash balance supplemented by a new GBP7m banking facility 
   --    protecting the long-term value of the business for investors 

We participate in global multi-year strategic programmes with government and institutional customers committed to supporting this work. This provides assurance of our business continuity. For further details, please refer to the CFO's report below.

Despite the resilience of the business, it was deemed prudent to withdraw market forecasts given the highly uncertain impacts of COVID-19.

Phil Cartmell, Chief Executive Officer of TP Group, commented:

"I am very pleased with TP Group's performance in 2019, in which we continued to deliver excellent service to our growing global customer base, achieving our financial and strategic objectives and investing in future growth. The core business demonstrated its strength with good organic growth and we welcomed the Sapienza team to the Group to cement our role in the space industry and build our presence across Europe.

"More recently, I have been especially impressed by the resilience and commitment of our team at all levels of the business in response to the COVID-19 outbreak. The safety and wellbeing of our staff and their families is of prime importance, and the team has adapted quickly, constructively and creatively to the challenges of new working arrangements whilst keeping safe, their projects on track and supporting our customers, wherever they are in the world.

"TP Group's diverse, resilient business model and financial strength places us in a very strong position to navigate through this period of uncertainty. The Group continues to have the value streams, opportunities and capability for further development as a global services and technologies business."

Additional narrative to the results will be published in the Group's Annual Report and Accounts that will be available in due course on the Company website at:

https://www.tpgroup.uk.com/investors/results-reports-presentations/

(1) Westek Technology Ltd. acquired November 2018

   (2)   Sapienza Consulting Holdings B.V. acquired April 2019 
   (3)   Refer to the CFO Report section "Adjusted operating profit" for the bridge from operating 

loss to adjusted operating profit

   (4)   Polaris Consulting Holdings Ltd. acquired December 2017 

For further information, please contact:

 
  TP Group plc                      Tel: 01753 285 810 
  Phil Cartmell, Chief Executive 
   Officer 
  Derren Stroud, Chief Financial 
   Officer 
  www.tpgroup.uk.com 
 
  Cenkos Securities plc             Tel: 020 7397 8980 
  Stephen Keys / Callum Davidson 
   / Mark Connelly 
  www.cenkos.com 
 
  Vigo Communications               Tel: 020 7390 0230 
  Jeremy Garcia / Charlie Neish 
  www.vigocomms.com 
 

Notes to Editors

TP Group is a global leader in consulting, digital solutions and engineering services across the full lifecycle of defence, space and energy programmes. With world class innovation, expertise and experience, TP Group employs approximately 450 people in six countries, with customers in more than 30 countries. The Company's shares have been traded on AIM since July 2001.

Chairman's statement

During 2019 we have made significant progress. Our business is now much more diversified and balanced, both geographically and in the markets we serve. This gives us a more robust foundation in uncertain times, and a solid platform from which to deliver growth.

We outlined the Group's strategy over the last few years in last year's Report. I am pleased to note that under our excellent leadership team the business has executed this strategy with focus and commitment.

We continue to drive the Group strategy by focusing on:

-- Organic growth : Our business development teams are winning more new contracts and deepening our existing relationships with key customers. We continue to invest in capability to maintain competitive leadership and grow our core business.

-- Technology transfer : Our proven technologies and equipment can be extended into new uses with careful investment. This becomes even more valuable when we combine the separate assets of our expanding Group and offer them in combination to meet new requirements.

-- Acquisitive expansion : We will seek to make acquisitions where the strategic fit is complementary to our existing activities and/or will allow us to provide a more extensive and integrated offering to existing and new customers.

The success of this approach is demonstrated by GBP19.2m revenue growth in the year, of which 32% was through organic expansion of the core business, with the remaining 68% added through our acquired businesses.

We have expanded our operating footprint in Europe this year and our goal is to extend this even further to become a truly global company.

Governance

The Board has continued to drive transparency across the business with a focus on financial robustness. This is demonstrated by our adoption of the QCA Corporate Governance Code to operate effectively within the current uncertain and evolving business landscape.

We have also given priority to ensuring that the best available talent is attracted to, retained and developed inside the business.

People

We are committed to a performance culture, with high levels of employee engagement across all our locations. Headcount has grown steadily in all areas of the business, reflecting the Group's growth in 2019.

We take great care to make TP Group a safe and attractive place to work:

-- leadership development has been a priority with both individuals and the team undertaking several training and development programmes;

   --    we invested in almost 1,000 training days in the year; 
   --    we are aiming to have 20 apprentices across the Group next year, up from five in 2019; 

-- in 2019, we invested in an employee wellbeing programme and trained 12 people as specialist responders; and

-- put in place suitable working patterns and home-working arrangements to sustain activity through the COVID-19 outbreak.

We believe our investment in employee welfare, future talent and career development has created a collaborative and positive working environment. Our team members now have an average length of service across the Group of more than five years, with 14 employees having more than 25 years' service.

I would like to take this opportunity to thank all our employees for a very strong performance this year. In particular, the Board wishes to record its appreciation for the performance of the executive team, led by the Chief Executive Officer, Phil Cartmell.

Outlook

In the last four years we have made progress technically, commercially and now geographically. We have also built a very strong executive leadership and management team to drive us forward. There are great opportunities ahead of us to apply our technologies and skills in new and exciting areas.

Our priority in these challenging times is to remain financially prudent and build a robust financial base. This has been demonstrated through our responses to COVID-19 where we continue to operate in a safe manner and at a sustainable level across both the CaPS and T&E business streams to protect the health and welfare of our staff and the interests of all our stakeholders. We will continue to focus on building a successful business which is attractive to customers, employees and investors. We will also carefully seek acquisitions.

With the solid foundations we have built, and the talent available to us, I am very confident in the prospects for the Group for the year ahead and beyond.

Chief Executive's statement

I am very pleased to look back on another excellent year of progress for TP Group. We have grown the business by almost 50% over its 2018 revenues and converted that into Adjusted Operating Profit, which is up 48%. This is the fourth consecutive year of growth and we generated almost three times our Group revenues of 2015.

We now offer a broader technology and services proposition and are significantly more diversified geographically. This was a reflection of the substantial organic growth in the Group's core business, as well as carefully selected acquisitions that have taken us into new markets. These add value today and prepare us well for future expansion.

We are, however, mindful of current circumstances in relation to COVID-19 and the challenges it presents for our business, the people within it and our plans for the future.

Strategy

We set out our strategy several years ago and have committed to it fully. We are now seeing consistent growth and value creation as a result.

Our clear focus is on the strength of our technologies and services, our access to high-value market sectors and the expansion of our geographic reach. We have invested in our core business to provide solid foundations and took an entrepreneurial approach to acquisitions and partnerships to make rapid progress where opportunities arise.

Acquisitions and progress against strategic objectives

During the year, the Group took a big step forward with the acquisition of Sapienza Consulting Holding B.V.. This group of privately held companies provided us with a substantial presence in the European space and defence sectors, new service and software offerings and a mature footprint across six European countries.

With that acquisition we have significantly increased the Group's capabilities and achieved a more balanced business in terms of geography, market sectors served, and services offered. As ever, our integration and cross-selling potential grows over time and we are seeing this with Sapienza's excellent project management software suite, ECLIPSE. This software originated in the space sector and is now being picked up across TP Group's other customers in the defence and energy sectors.

We will not stop there and continue to target advanced technologies and services that are incremental to our position and that will give us greater access to higher-value markets.

Organic growth remains important, and we will continue to develop the capabilities and assets we have. As the acquired companies join the Group, we have great potential to link them together and take them to places that they could not reach alone. This is the power of our approach and I am pleased to see it delivering as it has in 2019.

Competitive leadership

TP Group succeeds by increasing our clients' performance through the intelligent use of technology and information. Across the Group we are seeing an increasing demand for integrated solutions that combine software and systems (the technologies) with the actions of skilled and experienced people (the services) to deliver something that can be relied upon when it really matters. We see this as a differentiating requirement for our support that strengthens our competitive position.

Historically, TP Group has worked on physical systems that must work well and reliably in difficult or harsh environments. Increasingly volatile information and communications environments have created new challenges for our customers, and so our consulting-led approach becomes more relevant. We bring experience, technical skills, creativity and flexibility to guide our customers towards a suitable solution, confident that safety and performance can be assured.

Consulting and technology support capabilities were demonstrated this year by the award of contracts under the Skynet satellite programme where TP Group consultants are helping to guide the future of military communications.

Services

Our services businesses have become established as key providers of consultancy services and methods that accelerate and assure our customers' projects. Domain experience and insight, plus leadership in specialist disciplines such as cost engineering and project assurance, are important competitive advantages. These are key factors in winning new business and in extending our relationships into subsequent phases of major programmes that generate long-term value for the Group.

We have framework agreements in place with the UK Ministry of Defence, the European Space Agency and two Naval Design Partnerships. We use these as pathways to valuable projects, and through these we have become key contributors to the UK military satellite programme Skynet, and the Army's end-to-end communications system LE-TacCIS. As a result, the Consulting & Programme Services business more than doubled its revenues in 2019 and is well placed to continue this growth in the coming years.

Technology

We have set out on a development path that will involve internal investment in software and capabilities, alongside customer-funded projects, to bring technology solutions to maturity as quickly as possible to capitalise on market opportunities.

"Big data" environments open many new opportunities for communications, digital transformation services, modelling and simulation, and AI. We are already active in data and communications management for defence clients like the British Army and the Skynet satellite communications programme. AI and Machine Learning expertise came with the Polaris acquisition in 2017, and rugged IT for deployed computing came through the 2018 Westek acquisition. Combining these forms the core of future diverse, integrated and highly valuable solutions, and shows how we can bring solution components together to form bigger and more comprehensive offers to our customers.

Of course, it does not have to stop there, and options are available to extend the proposition to include sensors and data capture, other software services and systems including simulation and emulation and onward transmission through 5G and other channels. This technology horizon means that we stand on the brink of a very exciting period for the Group.

The growing portfolio of technologies has led us to create a centre of excellence for technology development that we believe will be a focal point for innovation across the Group.

Engineering

Our engineering activity is differentiated by our unrelenting focus on the quality and reliability of the solutions we deliver. This was demonstrated by the Group's nuclear condenser work with GE Baker Hughes. The first contract of GBP1.6m was awarded in 2016, followed by a second contract received in 2019 for the balance of the programme, valued at GBP6.4m to be delivered by 2023.

Similarly, we started the year with a follow-on order for carbon dioxide equipment, a key part of the habitable environments we support all around the world, which was the third in an ongoing multi-unit programme.

Contracts like these are key to securing the business with long-term and high-value relationships that offer greater confidence in planning and visibility of future performance.

Geographic expansion

TP Group has always looked for market opportunities beyond our UK origins. We are key suppliers to maritime programmes in Europe, Australia and Asia, and support energy markets in the Gulf states and elsewhere.

We have historically done this through partnerships and agency agreements, and, as we enter the next phase of our growth plan, it becomes necessary to have a more direct presence in our target markets. The acquisition of Sapienza has immediately extended our European base and we have committed to taking this further in France to be part of their growing aerospace and defence activities. We now have a national office in Toulouse, with a local leadership team operating as a new TP Group subsidiary to capitalise on the potential in that country.

The Sapienza acquisition also provided us with local presence in other European countries through which we can offer the wider capabilities of the Group. Business development discussions have accelerated in Belgium and Germany and we look forward to building future business relationships in those locations.

The United States is a key target for the Group, and we have spent a significant amount of time researching our opportunities and options. We have incorporated a subsidiary company in the US as a base from which to operate, and we intend to move this forward in 2020 to access the significant opportunities in the space, security and energy sectors that have opened up for us. In the defence sector particularly, there are regulatory matters that must be navigated, so we are proceeding carefully to ensure we can achieve the best possible outcome.

Organisation

As we have grown, the Board has looked carefully at the way in which it operates the business in order to understand strengths, weaknesses and areas for improvement. As a result, the Group will be making some improvements to its operational structures and methods. These range from relatively simple steps that bring sales and delivery teams closer together to maximise efficiencies and conversion of opportunities to contracts, to changes in management reporting lines that will simplify the business and better prepare us for future growth.

These structural improvements will allow us to employ a more country-based approach, where local management has accountability for business performance and a small central team provides support, consistency of methods, and a hub into which future acquisitions or partners can be joined without disrupting the day-to-day operations of the business.

The central team will also be able to plan investment and manage strategic development projects within a governance framework that allows us to balance effective business performance with a true entrepreneurial approach to our growth ambitions.

Investing in people

The Group now employs almost 450 people and we take that responsibility very seriously. Our recruitment processes have been streamlined to bring people into the business smoothly and ensure they are productive quickly. Our culture, benefits and training programmes have been overhauled to make TP Group an attractive place to work, and we aim to retain staff through the promotion of career development and appointments to senior positions from within the team wherever possible.

Our people are clearly key to our success, and through the current Covid-19 outbreak we have taken extensive steps to support their physical and mental health and wellbeing whilst supporting our customers, maintaining our business activities and contributing to the overall economy.

Outlook

We have come a long way in the last few years and have been careful to buy, integrate and manage our businesses in order to build a solid foundation, and enable ambitious future projects. We have the culture, the resources and the team to look outward whilst the core business performs well and without distraction. The strength of our people, our customers and long-term contract positions places us very well to manage the uncertainties arising from the COVID-19 outbreak.

I believe that the next few years will be notably exciting for TP Group, and I look forward to reporting again on our progress as we expand the business further.

CFO's financial and operational review

 
 Group Key Performance Indicators          2019    2018   Change 
                                          GBP'm   GBP'm    GBP'm 
---------------------------------------  ------  ------  ------- 
 Order intake                              73.8    43.2     30.6 
 Closing order book                        63.8    48.3     15.5 
 Revenue                                   58.2    39.0     19.2 
 Gross profit %                             29%     29%        - 
 Adjusted operating profit                  5.9     4.0      1.9 
 Operating loss                           (1.7)     0.0    (1.7) 
 Cash                                       6.6    22.4     15.9 
 
 Closing order book by business stream     2019    2018   Change 
                                          GBP'm   GBP'm    GBP'm 
---------------------------------------  ------  ------  ------- 
 T&E                                       46.4    42.3      4.1 
 CaPS                                      17.4     6.0     11.4 
 Group closing order book                  63.8    48.3     15.5 
 
 Revenue by business stream                2019    2018   Change 
                                          GBP'm   GBP'm    GBP'm 
---------------------------------------  ------  ------  ------- 
 T&E                                       33.7    27.7      6.0 
 CaPS                                      24.5    11.3     13.2 
 Group revenue                             58.2    39.0     19.2 
 
 Adjusted operating profit(1) by           2019    2018   Change 
  business stream 
                                          GBP'm   GBP'm    GBP'm 
---------------------------------------  ------  ------  ------- 
 T&E                                        5.7     4.5      1.2 
 CaPS                                       1.4     0.6      0.8 
 Central unallocated costs                (1.2)   (1.1)    (0.1) 
 Adjusted Group operating profit            5.9     4.0      1.9 
 

(1) Refer to the CFO Report section "Adjusted operating profit" for the bridge from operating loss to adjusted operating profit

We have delivered strongly against our KPIs, both organically and through acquisition.

In concluding the Sapienza acquisition, we have established a pan-European footprint which has doubled the size of our consulting business and provided us with routes to future business across Europe. The engineering side of the business has also grown, and with Westek now firmly on board, we anticipate significant further growth in this area.

We continue to invest across the business, through acquisition, capital assets and operational resources to deliver on our strategy.

Operating Results

Order book

The Group's closing order book increased by 32% to GBP63.8m (2018: GBP48.3m). GBP5.5m (c.11%) was secured through organic growth and the remaining GBP10.0m was from Sapienza.

Organic growth was achieved through a balanced approach to business development across all our sectors. Significant long-term contracts closed in the year included:

-- a contract worth approximately GBP16.9m with a leading UK defence company, to be completed by late 2021, providing advanced packaged equipment;

-- an order worth GBP6.4m over four years with Baker Hughes (a GE company) within the nuclear sector;

   --    GBP2.6m of new and follow-on consultancy orders from the Ministry of Defence; 
   --    EUR2.2m software license agreement for three years with the European Space Agency; and 

-- a one-year, GBP1.4m consulting agreement for the Land Environment Tactical Communication and Information Systems ("LE TacCIS") programme.

2019 was yet another record high in the Group's closing order book, reflecting the strong market demand for our technologies and services, matched by our investments in business development activities and updated propositions.

Order intake

The 2019 order intake increased by GBP30.6m (71%) year-on-year to GBP73.8m. This includes the GBP15.0m opening order book value that was acquired with the Sapienza transaction. An additional GBP7.2m of new orders were secured post acquisition by Westek and Sapienza. Excluding these, organic order intake growth was 20%.

Revenue

Revenue increased by 49% to GBP58.2m (2018: GBP39.0m), with growth delivered across the Group. The existing business grew by GBP6.2m (16%), with the balance of GBP13.0m coming from a full year's contribution from Westek, and from Sapienza since its acquisition.

A strong opening order book, coupled with good order capture in the first half of the year and efficient operational execution, has delivered another record year of revenue.

In line with our strategy we have diversified and developed both geographically and across our markets.

All market sectors have grown revenue year-on-year:

   --    GBP10.5m added in the space sector to GBP12.1m (2018: GBP1.6m) 
   --    GBP7.5m increase in the defence sector to GBP37.3m (2018: GBP29.8m) 
   --    GBP1.2m additional in the energy sector, rising to GBP8.8m (2018: GBP7.6m) 

International expansion was achieved as well as domestic growth:

   --    Europe up GBP11.7m to GBP13.6m 
   --    Rest of World up GBP2.3m to GBP5.5m 
   --    UK up GBP5.2m from prior year to GBP39.1m 

Operating loss

The Group has moved from a break-even position in 2018 to record an operating loss of GBP1.7m in 2019. This was driven largely by the impact of acquisition-related costs that accounting standards require to be written off to profit and loss in the period and masks the strong increase in the underlying profitability of the business. Acquisition costs expensed during the year include:

   --    transactional costs of GBP1.5m (2018: GBP0.7m) related to acquisitions; and 
   --    earn-out provision of GBP1.6m (2018: GBP0.6m) relating to Westek, Sapienza and Polaris. 

Excluding these acquisition-related costs, the Group would have made an operating profit of GBP1.4m (2018: GBP1.3m).

Adjusted operating profit

The directors of the Company believe that adjusted operating profit is more reflective of the underlying performance of the Group than equivalent GAAP measures. Adjusted operating profit is defined as operating loss adjusted to add back depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and impairment gains or losses on non-current assets, changes in fair value of contingent consideration, acquisition consideration accounted for as employment costs owing to ongoing service conditions, any other acquisition-related charges, share-based payment charges, non-controlling interests and non-operating costs. Non-operating costs are those items believed to be exceptional in nature by virtue of their size and/or incidence and include redundancy and restructuring costs. This provides shareholders and other users of the financial statements with the most representative year-on-year comparison of underlying operating performance attributable to shareholders. This measure and the separate components remain consistent with 2018. Refer below for details of the reconciliation of adjusted operating profit to operating loss.

 
                                                          2019     2018 
                                                         GBP'm    GBP'm 
 Operating loss                                          (1.7)    (0.0) 
 Depreciation, amortisation and impairment                 3.9      2.4 
 Acquisition-related costs                                 1.5      0.6 
 Non-operating costs                                       0.3      0.2 
 Earn-out payments                                         1.6      0.6 
 Share-based payments                                      0.2      0.2 
-----------------------------------------------------  -------  ------- 
 Adjusted operating profit including non-controlling 
  interest                                                 5.8      4.0 
 Non-controlling interest                                  0.1      0.0 
-----------------------------------------------------  -------  ------- 
 Adjusted operating profit                                 5.9      4.0 
=====================================================  =======  ======= 
 

Adjusted operating profit increased by 48% to GBP5.9m (2018: GBP4.0m). Profit from the existing business grew by 28%, or GBP1.1m, with the balance of GBP0.7m improvement coming from the acquisitions of Westek and Sapienza.

The adjusted operating profit percentage (as a percentage of revenue) is 10.1% (2018 10.2%).

This reflects:

-- the stable gross profit margin percentage of 29% (2018: 29%) which was derived from volume and efficiency improvements in our manufacturing facilities, offset by a change in the product and services mix through the acquisition of Sapienza; and

-- further investment in operating expenses, including business development and marketing, proportionate to the prior year's adjusted operating profit percentage.

Cash and bank balances

Year-end Group cash of GBP6.6m (2018: GBP22.4m), was lower than the prior year. The key movements included:

   --    the cash element of the acquisition of Sapienza of GBP7.7m; 
   --    the settlement of final earn-out payments of GBP2.0m combined for Polaris and Westek; 
   --    GBP1.5m invested in business systems, infrastructure, equipment and software development; and 

-- working capital consumption of GBP4.8m arising from the timing of material payments due from two customers at the year-end that were received in early January 2020, and the over-performance in cash collection that contributed to a GBP3.4m inflow achieved in 2018.

Note that working capital balances will vary through timing of operational delivery and receipts although these factors are typically short-term in nature.

Acquisitions, investments and disposals

In May 2019, the Group acquired Sapienza Consulting Holdings B.V. for an initial cash consideration of EUR10.0m plus EUR1.5m by way of the issue of 20,612,865 new ordinary shares and a possible earn-out of up to EUR2.0m over the next two years. The deal was concluded on a debt-free, cash-free, normalised working capital basis. Sapienza is a provider of highly complex solutions and skills to the European space and defence markets. With such specialist, technical services and skills, Sapienza is a highly complementary business for TP Group, with significant cross-selling opportunities. They have facilities in six European countries, which immediately expands the Group's geographic presence, improving proximity to existing customers and providing access to a new international community. Once fully integrated, we believe Sapienza will help further drive the Group's participation in future European and global space programmes.

The Group incurred GBP1.4m of transactional costs for acquisitions (2018: GBP0.7m) predominantly relating to the Sapienza transaction noted above. These were charged to the Statement of Comprehensive Income in the year.

Final earn-out payments of GBP2.0m have been made in the year relating to the acquisitions of Polaris and Westek in prior years.

The Group continues to invest in its facilities, equipment and technologies (principally the North* Artificial Intelligence toolset and the ECLIPSE project management software) to build capability and develop our propositions. Across the Group, GBP1.5m was invested in 2019 (2018: GBP0.9m).

On 1 July 2019, the Group invested c. EUR0.7m in the AI company Lift BV ("Lift"). Lift is based in Den Haag in the Netherlands and has developed an AI system to support rapid resourcing of large-scale technical projects.

Sapienza had initially acquired a c. 33% stake in Lift in May 2017, as part of their strategy to invest in complementary technology partners. This follow-on investment takes the Group's holding in Lift to 69%.

Lift is highly active in a range of sectors including defence, aerospace, security, government, medical and commercial, and we believe that the Group will be able to develop a number of highly complementary growth opportunities for the Lift technologies in our wider operations.

Non-operating items and earn-out costs

During the year, the Group incurred one-off non-operating and earn-out costs of GBP2.0m (2018: GBP0.8m). These relate to the business transformation actions required by the strategic plan, including employment-related restructuring costs (GBP0.4m), and earn-out provisions relating to Polaris, Westek and Sapienza (GBP1.6m).

Finance costs

Finance costs of GBP0.3m (2018: GBP0.1m) were incurred, predominantly relating to fees in relation to investments in the Manchester facility and lease interest charges following the adoption of IFRS 16 in 2018.

Taxation

The tax charge for the financial year to 31 December 2019 is less than GBP0.1m.

The Group expects to incur in total cash tax payments of c. GBP0.2m net of R&D tax credits for the 2019 financial year (2018: GBP0.2m).

Results and dividends

The directors continually evaluate Group performance, and do not currently recommend the payment of a dividend (2018: GBPnil).

Brexit

As negotiations progress on the future trading relationships between the UK and the EU, the Group has looked at the potential impacts on the business in the event of no deal being agreed and reversion to World Trade Organisation ("WTO") rules. We are monitoring the negotiations and will consider the impact of any alternative scenarios as they emerge.

Our strategy is to increase our presence outside the UK to enable contracts to be placed with TP Group companies local to our customers. This country-based model allows us to act as a global enterprise to best mitigate any possible impacts of Brexit. Initially, the acquisition of Sapienza has provided an operating footprint in Europe to take local contracts in the EU, as well as substantially increasing our revenues in the global space sector. We are also in the process of establishing an operational business in France and seeking to widen our physical footprint of operations further within and outside of Europe that will help offset the potential impact of Brexit.

The Group has significant revenue that originates in the UK relating to the defence market, and therefore ultimately to UK Government spending. The outcome of trade negotiations may have a knock-on impact on the Group if it leads to a change in Government decisions on current and future programmes.

Whilst we believe our exposure to be low, we are actively managing our supply chain through a number of risk mitigation approaches. Our main risk is in the supply of raw materials, most notably steel, from the EU, where we are investigating alternate sources as back-up. However, in any event, the nature of the goods means that under WTO rules, we expect them to attract low levels of tariffs (c. 2%). Furthermore, the nature of our projects means that the business has excellent visibility of when these goods are required and can plan receipts accordingly to tie into customer build programmes.

Coronavirus

The advent of Coronavirus in recent months has placed a number of challenges before the business.

The Group is approaching this situation on a number of fronts to:

   --    protect the health and wellbeing of staff and their families; 
   --    sustain the level of business activity on customer projects; 

-- continue dialogue with customers regarding renewals, extensions and new business opportunities; and

   --    manage investment in operating expenses and capital equipment where necessary. 

The business is robust as it participates in several long-term strategic government and institutional programmes in the UK and overseas. More than 80% of the year-end order book can be ultimately traced to programmes from government and international institutions and major prime contractors. Many of these organisations have publicly stated their intentions to continue the pursuit of current programmes and ensure continuity of payments and integrity of the supply chains through this period, which is proving to be the case. As such, a large percentage of our order book and pipeline of opportunities are regarded as secure.

The Group's profile further protects us through the spread of our business activities across multiple sectors, and the global nature of the major industrial businesses we work with that we expect to continue operating through such events.

The Group maintains a business continuity plan that includes several relevant features:

-- flexible working practices and systems that support the ability to work from home in many cases;

-- employee outreach initiatives to support as far as possible the health, wellbeing and safety of our staff;

-- flexible shift patterns within the manufacturing facilities to accommodate staggered activities and appropriate distancing within the facilities; and

-- communications processes to facilitate and co-ordinate the running of the business and the interaction with key stakeholders.

The business is further insulated through:

   --    a liquid cash balance that is retained predominantly within the UK operating businesses; 
   --    a banking facility of GBP7.0 m available to supplement our existing cash balance; and 
   --    our ability to flex our plans on operating expenses and capital investment. 

As of 20 May 2020 the banking facility has been fully drawn to insulate the business against any potential COVID-19 impact. However, it must be noted that the Group's current cash flow forecast indicates that none of these funds will be required to support the Group's ongoing operational activities.

Auditor

As part of our continued drive to adopt the highest possible standards of corporate governance, the directors undertook a competitive tender process for the 31 December 2019 year-end audit. The outcome of this process was the appointment of RSM UK Audit LLP as auditors.

Going concern

The directors, having considered various scenarios for the business over the foreseeable future, including the potential impact of COVID-19, are satisfied that it is appropriate to prepare the financial statements for the group on a going concern basis.

In reaching this conclusion the directors have undertaken a sensitivity analysis to reflect the potential impact of COVID-19, over a period of at least twelve months from the date of the approval of these financial statements, on our forecasts. This analysis has been based upon market conditions and other received intelligence, and the current operational conditions within the business. Possible scenarios include:

   --    execution of the 2020 budget as planned through managed operating procedures; 

-- zero revenue growth in 2020 but continued investment in capital equipment, technologies and operating expenses in line with the 2020 budget; and

-- reduced capacity or capability which impairs revenues across the business by 10% against prior year for a period of six months, and reduced investment in capital equipment, technologies and operating expenses.

In the last and most cautious of these scenarios, the Group has secured revenue cover through its February 2020 order book of c. 80% of the impaired 2020 revenues and would carry c. GBP33m of this order book forward into 2021. This provides considerable comfort in the Group's ability to execute this scenario.

All of these scenarios take into account the Group's existing cash resources of GBP6.6m, which along with the bank financing facility of GBP7.0m established on 3 March 2020, provides sufficient insulation against any reasonably plausible downside scenarios and risks.

Brexit has also been considered as part of this review, and whilst the decision to leave the EU has now been confirmed, the ongoing negotiations related to a future trade agreement may lead to some disruption in the short term on some TP Group projects. However, the Group has limited concern that this could impact on its ability to deliver against its forecast targets, based on:

-- the quality of TP Group's order book and the programmes it is involved in (both globally and in the UK);

-- the acquired Sapienza business, which provides a European footprint to offset some of the risk factors;

   --    the mitigation actions the business is putting in place; and 

-- the limited impact we expect Brexit to have on the defence market (both in the UK and in the EU).

Through all of our analysis, the directors have concluded that the Group is well placed to manage the business as a going concern through the foreseeable future.

Consolidated statement of comprehensive income

For the year ended 31 December 2019

 
 
                                                            2019       2018 
                                                 Note    GBP'000    GBP'000 
 
 Revenue                                         2        58,218     39,037 
 Cost of sales                                          (41,284)   (27,806) 
==============================================  =====  =========  ========= 
 
 Gross profit                                             16,934     11,231 
 
 Administrative expenses                                (18,633)   (11,261) 
==============================================  =====  =========  ========= 
 
 Operating loss                                  3       (1,699)       (30) 
 
 Adjusted operating profit including 
  non-controlling interest                       2         5,801      3,974 
 Depreciation, amortisation and impairment       2       (3,858)    (2,377) 
 Acquisition-related costs                       2       (1,527)      (657) 
 Non-operating costs                             2         (360)      (192) 
 Share based payments                            2         (176)      (165) 
 Movement in expected earn-out payments          2       (1,579)      (613) 
 Operating loss                                          (1,699)       (30) 
                                                -----  --------- 
 
 Net finance cost                                          (264)       (80) 
==============================================  =====  =========  ========= 
 
 Loss before taxation                                    (1,963)      (110) 
 
 Taxation (charge) / credit                                 (46)        285 
==============================================  =====  =========  ========= 
 (Loss)/profit after taxation for the 
  year                                                   (2,009)        175 
==============================================  =====  =========  ========= 
 Attributable to: 
==============================================  =====  =========  ========= 
 Equity holders of the parent company                    (1,927)        175 
==============================================  =====  =========  ========= 
 Non-controlling interest                                   (82)          - 
==============================================  =====  =========  ========= 
 
 Total (loss) / profit for the year                      (2,009)        175 
==============================================  =====  =========  ========= 
 (Loss)/earnings per share (pence per 
  share) 
 Basic (loss)/earnings per share (pence 
  per share)                                              (0.26)       0.02 
 Diluted (loss)/earnings per share 
  (pence per share)                                       (0.26)       0.02 
==============================================  =====  =========  ========= 
 
 (Loss)/profit for the year                              (2,009)        175 
 Other comprehensive income/(expense): 
  items that may be subsequently recycled 
  to the income statement: 
 Foreign exchange losses on translation of foreign           (4)          - 
  operations 
-----------------------------------------------------  ---------  --------- 
 Total comprehensive (expense)/income 
  for the year                                           (2,013)        175 
==============================================  =====  =========  ========= 
 Attributable to: 
 Equity holders of the parent company                    (1,931)        175 
 Non-controlling interest                                   (82)          - 
----------------------------------------------  -----  ---------  --------- 
                                                         (2,013)        175 
==============================================  =====  =========  ========= 
 

All income relates to continuing activities.

Consolidated and Parent Company statements of financial position

As at 31 December 2019

 
                                                    Group              Parent Company 
                                               2019           2018      2019      2018 
                                Note        GBP'000        GBP'000   GBP'000   GBP'000 
=============================  =====  =============  =============  ========  ======== 
 Assets 
 Non-current assets 
 Goodwill                                     9,161          5,289         -         - 
 Other intangible assets                     19,466         12,800       141        85 
 Property, plant and 
  equipment                                   2,073          1,401       157        46 
 Right-of-use assets                          5,808          5,423       363        94 
 Investments                                      -              -    33,874    18,806 
 Amounts owed by EBT                              -              -       105        95 
-----------------------------  -----  -------------  -------------  --------  -------- 
 
                                             36,508         24,913    34,640    19,126 
=============================  =====  =============  =============  ========  ======== 
 
 Current assets 
 Inventories                                  2,036          2,727         -         - 
 Trade and other receivables                 13,031          4,295     1,200     4,823 
 Amounts due from contract 
  customers                                  10,042          5,596         -         - 
 Taxation recoverable                             -             87         -         - 
 Cash and bank balances            5          6,568         22,413       144    10,505 
=============================  =====  =============  =============  ========  ======== 
 
                                             31,677         35,118     1,344    15,328 
=============================  =====  =============  =============  ========  ======== 
 
 Total assets                                68,185         60,031    35,984    34,454 
=============================  =====  =============  =============  ========  ======== 
 
 Liabilities 
 Current liabilities 
 Trade and other payables                  (11,605)       (10,614)   (7,152)   (8,312) 
 Amounts due to contract 
  customers                                (10,228)        (4,837)         -         - 
 Current tax liabilities                      (180)              -         -         - 
 Lease liabilities                          (1,022)          (739)     (120)      (38) 
=============================  =====  =============  =============  ========  ======== 
 
                                           (23,035)       (16,190)   (7,272)   (8,350) 
=============================  =====  =============  =============  ========  ======== 
 
 Non-current liabilities 
 Trade and other payables                     (286)              -     (285)         - 
 Deferred taxation                          (2,738)        (1,648)         -         - 
 Lease Liabilities                          (5,429)        (5,198)     (272)      (59) 
 Provisions                                   (231)          (499)      (20)      (10) 
 
                                            (8,684)        (7,345)     (577)      (69) 
-----------------------------  -----  -------------  -------------  --------  -------- 
 Total liabilities                         (31,719)       (23,535)   (7,849)   (8,419) 
=============================  =====  =============  =============  ========  ======== 
 
 Net assets                                  36,466         36,496    28,135    26,035 
=============================  =====  =============  =============  ========  ======== 
 
 Equity 
 Share capital                                7,792          7,586     7,792     7,586 
 Share premium                               18,529         17,438    18,529    17,438 
 Own shares held by the 
  EBT                                         (561)          (561)         -         - 
 Translation of foreign                         (4)              -         -         - 
  operations 
 Share-based payments 
  reserve                                     1,142          1,441     1,142     1,441 
 Retained earnings                            9,140         10,592       672     (430) 
 Non-controlling interest                       428              -         -         - 
-----------------------------  -----  =============  =============  ========  ======== 
 
 Total equity                                36,466         36,496    28,135    26,035 
=============================  =====  =============  =============  ========  ======== 
 

Consolidated statement of changes in equity

For the year ended 31 December 2019

 
                                                 Own 
                                              shares 
                                                held    Share-                                   Non- 
                           Share     Share        by     based   Translation   Retained   controlling 
                         capital   premium       EBT   reserve     Reserve     earnings      interest     Total 
                         GBP'000   GBP'000   GBP'000   GBP'000     GBP'000     GBP'000        GBP'000   GBP'000 
 
 Balance at 
  1 January 2018           7,586    17,438     (561)     1,553             -     10,882             -    36,898 
 
 Profit for 
  the year and 
  total comprehensive 
  income                       -         -         -         -             -        175             -       175 
 IFRS 16 cumulative 
  adjustment                   -         -         -         -             -      (742)             -     (742) 
 Share-based 
  payments charge              -         -         -       165             -          -             -       165 
 Share-based 
  payments reserves 
  transfer                     -         -         -     (277)             -        277             -         - 
----------------------  --------  --------  --------  --------  ------------  ---------  ------------  -------- 
 
 Balance at 
  31 December 
  2018                     7,586    17,438     (561)     1,441             -     10,592             -    36,496 
 
 Loss for the 
  year                         -         -         -         -             -    (1,927)          (82)   (2,009) 
 Other comprehensive 
  loss                         -         -         -         -           (4)          -             -       (4) 
----------------------  --------  --------  --------  --------  ------------  ---------  ------------  -------- 
 Total comprehensive 
  loss                         -         -         -         -           (4)    (1,927)          (82)   (2,013) 
 Shares issued               206     1,091         -         -             -          -             -     1,297 
 Share-based 
  payments charge              -         -         -       176             -          -             -       176 
 Share-based 
  payments reserves 
  transfer                     -         -         -     (475)             -        475             -         - 
 Non-controlling 
  interest on 
  acquisition 
  of Lift BV                   -         -         -         -             -          -           510       510 
 
 Balance at 
  31 December 
  2019                     7,792    18,529     (561)     1,142           (4)      9,140           428    36,466 
 
 

Parent Company statement of changes in equity

For the year ended 31 December 2019

 
                                               Share-based 
                             Share     Share      payments   Retained 
                           capital   premium       reserve   earnings     Total 
                           GBP'000   GBP'000       GBP'000    GBP'000   GBP'000 
 
 Balance at 1 January 
  2018                       7,586    17,438         1,459      4,165    30,648 
 
 Total comprehensive 
  loss                           -         -             -    (4,778)   (4,778) 
 Share-based payments 
  charge                         -         -           165          -       165 
 Share-based payments 
  reserves transfer              -         -         (183)        183         - 
 
 Balance at 31 December 
  2018                       7,586    17,438         1,441      (430)    26,035 
 
 Total comprehensive 
  profit                         -         -             -        627       627 
 Shares issued                 206     1,091             -          -     1,297 
 Share-based payments 
  charge                         -         -           176          -       176 
 Share-based payments 
  reserves transfer              -         -         (475)        475         - 
------------------------  --------  --------  ------------  ---------  -------- 
 Balance at 31 December 
  2019                       7,792    18,529         1,142        672    28,135 
 
 

Consolidated and Parent Company statement of cash flows

For the year ended 31 December 2019

 
                                              Group            Parent Company 
                                       ===================  =================== 
                                            2019      2018       2019      2018 
                                         GBP'000   GBP'000    GBP'000   GBP'000 
====================================   =========  ========  =========  ======== 
 Operating activities 
 (Loss)/profit before taxation           (1,963)     (110)        782   (5,114) 
 Adjustments for: 
 Depreciation, amortisation 
  and impairment                           3,865     2,377        198       193 
 Finance cost/(income)                       264        81       (11)      (56) 
 Share-based payment expense                 176       165        176       165 
 Increase in impairment on 
  loan to the EBT                              -         -         10         2 
 Provision against long term 
  inter-company loan                           -         -          -     4,876 
 Decrease in inventories                     691     3,141          -         - 
 (Increase)/decrease in trade 
  and other receivables                  (7,086)     1,490    (1,324)   (6,100) 
 Increase/(decrease) in trade 
  and other payables                       1,901   (1,277)      1,127     2,181 
 (Decrease)/increase in provisions         (269)        62         10        97 
 Dividend received                             -         -    (5,000)         - 
------------------------------------   ---------  --------  ---------  -------- 
                                         (2,421)     5,929    (4,032)   (3,756) 
 Taxation paid                             (412)     (211)          -         - 
====================================   =========  ========  =========  ======== 
 
 Net cash (used in) / generated 
  from operating activities              (2,833)     5,718    (4,032)   (3,756) 
====================================   =========  ========  =========  ======== 
 
 Investing activities 
 Acquisition of subsidiary, 
  net of cash acquired                   (8,282)   (2,953)    (9,002)   (3,000) 
 Acquisition of subsidiary 
  - payment of earn out                  (2,000)     (300)    (2,000)     (300) 
 Interest received                            23        60         23        60 
 Purchase of property, plant 
  and equipment                            (932)     (864)      (174)      (39) 
 Purchase of computer software             (556)      (79)       (97)      (35) 
 Dividend received                             -         -      5,000         - 
====================================   =========  ========  =========  ======== 
 
 Net cash used in investing 
  activities                            (11,747)   (4,136)    (6,250)   (3,314) 
====================================   =========  ========  =========  ======== 
 
 Financing activities 
 Interest payable                          (286)     (254)       (11)       (4) 
 Repayment of lease liabilities            (981)     (846)       (68)      (38) 
====================================   =========  ========  =========  ======== 
 
 Net cash used in financing 
  activities                             (1,267)   (1,100)       (79)      (42) 
====================================   =========  ========  =========  ======== 
 Effects of exchange rates                     2         -          -         - 
  on cash and cash equivalents 
====================================   =========  ========  =========  ======== 
 Net (decrease) / increase 
  in cash and cash equivalents          (15,845)       482   (10,361)   (7,112) 
 Cash and cash equivalents 
  at beginning of year                    22,413    21,931     10,505    17,617 
 Cash and cash equivalents 
  at end of year                           6,568    22,413        144    10,505 
====================================   =========  ========  =========  ======== 
 
 
   1.   Basis of preparation and statement of compliance 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The financial statements comply with IFRS as adopted by the EU.

The Parent Company financial statements have been prepared in accordance with Financial Reporting Standard ("FRS") 101 Reduced Disclosure Framework and in accordance with applicable accounting standards. In preparing the Parent Company financial statements, the directors have taken advantage of the exemption for disclosures under paragraphs 17 and 18A of IAS 24, and the requirements in IAS 24 to disclose related party transactions entered into between two or more members of the Group, provided that the subsidiary is wholly owned.

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below.

The Consolidated Financial Statements are presented in pounds sterling which is the Group's functional currency. Figures are presented to the nearest thousand pounds, unless otherwise stated.

The financial statements have been prepared on a historical cost basis, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss or financial assets at fair value through other comprehensive income.

The measurement bases and principal accounting policies of the Group and Parent Company are set out below. The accounting policies adopted are consistent with those of the previous financial year with exception of matters noted below.

The Group adopted IFRS 16 early on 1 January 2018 and reflected its impact in the financial statements for the year ended 31 December 2018.

New or amended Accounting Standards and Interpretations adopted

In the current year, the Group has adopted a number of amendments to Accounting Standards and Interpretations issued by the IASB that are effective for any period that began on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.

   --      IFRIC Interpretation 23: Uncertainty over Income Tax Treatment; 
   --      Amendments to IFRS 9: Prepayment Features with Negative Compensation; 
   --      Amendments to IAS 19: Plan Amendment, Curtailment or Settlement 
   --      Amendments to IAS 28: Long-term interests in associates and joint ventures 
   --      Annual Improvements 2015-2017 Cycle 

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been adopted early by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

Going concern

The Chief Financial Officer's Review includes a review of going concern, as well as separate consideration of the impact of Brexit and the Coronavirus, which has not identified any material impact on the values of any of the Group's assets or liabilities.

   2.   Segmental information 

An operating segment, as defined by IFRS 8 'Operating segments', is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Group is managed through its two reporting segments, Technology & Engineering ("T&E") and Consulting & Programme Services ("CaPS") which form the operating segments on which the information below is prepared. The Group determines and presents operating segments based on the information that is provided internally to the chief operating decision maker, which has been identified as the Board of Directors of TP Group plc.

 
                                  2019      2018 
                               GBP'000   GBP'000 
============================  ========  ======== 
 Revenue 
 T&E                            33,709      27,766 
 CaPS                           24,509      11,271 
============================  ========  ========== 
 Group revenue                  58,218      39,037 
 
 Segment operating result 
 T&E                             3,714       2,571 
 CaPS                            (487)       (484) 
 Central unallocated costs     (4,926)     (2,117) 
============================  ========  ========== 
 Group loss from operations    (1,699)        (30) 
 Finance cost                    (264)        (80) 
============================  ========  ========== 
 Loss before tax               (1,963)       (110) 
 Taxation (charge) / credit       (46)         285 
----------------------------  --------  ---------- 
 (Loss)/profit after tax       (2,009)         175 
============================  ========  ========== 
 

Segment revenue reported above represents revenue generated from external customers.

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segment profit or loss represents the profit or loss before tax earned by each segment without allocation of central administration costs and directors' salaries, other gains and losses, as well as finance costs.

The following table shows how the Group loss from operations, adjusted operating profit and reconciling exceptional items for the financial year are split between the Group's reportable segments and central unallocated costs.

 
                                    T&E      CaPS   Central unallocated 
                                                                  costs     Group 
                                GBP'000   GBP'000               GBP'000   GBP'000 
 ============================  ========  ========  ====================  ======== 
  2019 
   Segment operating 
   result                         3,714     (487)               (4,926)   (1,699) 
  Depreciation, amortisation 
   and impairment                 1,946     1,714                   198     3,858 
  Acquisition-related 
   costs                              -         -                 1,527     1,527 
  Non-operating costs                66        91                   203       360 
  Share based payments                -         -                   176       176 
  Movement in expected 
   earn-out payments                  -         -                 1,579     1,579 
 ----------------------------  --------  --------  --------------------  -------- 
  Adjusted operating 
   profit / (loss) 
   including non-controlling 
   interest                       5,726     1,318               (1,243)     5,801 
  Non-controlling 
   interest                           -        82                     -        82 
  Adjusted operating 
   profit / (loss) 
   (1)                            5,726     1,400               (1,243)     5,883 
 ============================  ========  ========  ====================  ======== 
 
 
  2018 
   Segment operating 
   result                       2,571   (484)   (2,117)    (30) 
  Depreciation, amortisation 
   and impairment               1,629     555       193   2,377 
  Acquisition-related 
   costs                            -       -       657     657 
  Non-operating costs             734     104     (646)     192 
  Share based payments              -       -       165     165 
  Movement in expected 
   earn-out payments                -       -       613     613 
 ----------------------------  ------  ------  --------  ------ 
  Adjusted operating 
   profit / (loss) 
   including non-controlling 
   interest                     4,934     175   (1,135)   3,974 
  Non-controlling                   -       -         -       - 
   interest 
 ----------------------------  ------  ------  --------  ------ 
  Adjusted operating 
   profit/ (loss) (1)           4,934     175   (1,135)   3,974 
 ============================  ======  ======  ========  ====== 
 

(1) Adjusted operating profit / (loss) is defined as operating result adjusted to add back depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and impairment gains or losses on non-current assets, changes in fair value of contingent consideration, acquisition consideration accounted for as employment costs owing to on-going service conditions, any other acquisition-related charges, share based payment charges, non-controlling interest and non-operating costs. Non-operating costs include GBP253,000 (2018: GBP579,000) in respect of termination payments, and the remainder due to restructuring of the Group. Non-operating costs are those items believed to be exceptional in nature by virtue of their size and or incidence. The directors of the Company believe this measure is more reflective of the underlying performance of the Group than equivalent GAAP measures. This is primarily due to the exclusion of non-cash items, such as share-based payments, impairment, depreciation and amortisation, as well as acquisition and non-operating costs. This provides shareholders and other users of the financial statements with the most representative year-on-year comparison of underlying operating performance attributable to shareholders . This measure and the separate components remain consistent with 2018.

Analysis by geographical destination

The following is an analysis of the Group's revenue from continuing operations from its products and services:

 
                                       2019      2018 
                                    GBP'000   GBP'000 
=================================  ========  ======== 
 United Kingdom                      39,094    33,979 
 Europe excluding United Kingdom     13,588     1,868 
 Asia                                 2,582     2,729 
 Middle East                          2,521         - 
 Rest of the World                      433       461 
=================================  ========  ======== 
 Total revenue                       58,218    39,037 
=================================  ========  ======== 
 

Revenue from continuing operations from external customers and non-current assets are all generated from operations in the UK. All segment assets are located in the UK.

Analysis by type of good or service

 
                     2019      2018 
                  GBP'000   GBP'000 
===============  ========  ======== 
 Revenue 
 Engineering       33,709    27,766 
 Software           1,271         - 
 Consultancy       23,238    11,271 
===============  ========  ======== 
 Total revenue     58,218    39,037 
===============  ========  ======== 
 

Analysis by timing of revenue recognition

 
                         T&E                CaPS                Total 
                 ==================  ==================  ================== 
                     2019      2018      2019      2018      2019      2018 
                  GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
===============  ========  ========  ========  ========  ========  ======== 
 Over time         28,001    25,456    23,908    11,271    51,909    36,727 
 Point in time      5,708     2,310       601         -     6,309     2,310 
---------------  --------  --------  --------  --------  --------  -------- 
 Total revenue     33,709    27,766    24,509    11,271    58.218    39,037 
===============  ========  ========  ========  ========  ========  ======== 
 

Analysis by industry

 
                     2019      2018 
                  GBP'000   GBP'000 
===============  ========  ======== 
 Revenue 
 Defence           37,305    29,796 
 Energy             8,821     7,595 
 Space             12,092     1,646 
===============  ========  ======== 
 Total revenue     58,218    39,037 
===============  ========  ======== 
 

Information about major customers

Revenue includes sales from customers who contributed 10% or more to the Group's revenue:

 
                     2019      2018 
                  GBP'000   GBP'000 
===============  ========  ======== 
 Customer 1         6,921     9,910 
 Customer 2        14,104     9,776 
 Customer 3         8,669         - 
---------------  --------  -------- 
 Total revenue     29,694    19,686 
===============  ========  ======== 
 
   3.   Operating loss 

The Group operating loss for the year is stated after charging the following:

 
                                                     2019      2018 
                                                  GBP'000   GBP'000 
===============================================  ========  ======== 
 Amortisation of intangible assets                  2,500     1,435 
 Impairment of intangible assets                        -         - 
 Depreciation of property, plant and equipment 
  and right-of-use assets                           1,360       855 
 Impairment of trade receivables                       36        87 
 Share-based payment expense(1)                       176       165 
===============================================  ========  ======== 
 

(1) Share-based payment expense arises from transactions accounted for as equity-settled share-based payment transactions and are non-cash in nature.

   4.   Earnings per share 

The calculation of basic earnings per share for the year ended 31 December 2019 is based upon a loss after tax of GBP1,927,000 (2018: profit after tax of GBP175,000) and a weighted average number of shares of 772,439,898 (2018: 758,565,854). The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust.

The issue of additional shares on exercise of employee share options would increase the basic loss per share and there is therefore no dilutive effect of employee share options.

   5.   Cash and cash equivalents 

The funds were placed on floating interest rate deposit as follows:

 
                                     Group            Parent Company 
                             =====================  ================== 
                                  2019        2018      2019      2018 
                               GBP'000     GBP'000   GBP'000   GBP'000 
===========================  =========  ==========  ========  ======== 
 
 Cash and bank balances          6,568      22,413       144    10,505 
===========================  =========  ==========  ========  ======== 
 
 Cash and cash equivalents    6,815(1)   22,873(1)       144    10,505 
===========================  =========  ==========  ========  ======== 
 

(1) Restricted cash of GBP247,000 (2018: GBP460,000) is included in Prepayments and Other Debtors

   6.   Business combinations 

Sapienza Consulting Holdings B.V

On 30 April 2019, the Group through its parent company TP Group plc, acquired 100% of the issued share capital of Sapienza Consulting Holdings BV ("Sapienza") on a cash free, debt free, normalised working capital basis, for a combined initial consideration of EUR10 million in cash and EUR1.5 million by way of the issue of 20,612,865 new ordinary shares of 1 pence each in the Company. In addition, a maximum of EUR2.0 million may also be payable in cash on delivery by the vendors of certain transition activities within two years following completion of the acquisition. This amount will be expensed in the Group's income statement over the two years to 30 April 2021, in line with IFRS 3. Sapienza was a privately-owned group of services and software companies serving the space and defence sectors.

On 28 June 2019, the Group via its subsidiary Sapienza Consulting Holdings BV acquired additional shares in Lift BV ("Lift"), increasing its shareholding from 33% to 69%. The additional 36% was acquired for an initial consideration of EUR486,000 in cash, paid from the Group's existing cash resources, and a further consideration of EUR216,667 in cash to be paid over an 18-month period, again from the Group's existing cash resources. Lift is a software business that designs AI based conversational technology.

The principal reason for the acquisition of Sapienza and the increased investment in Lift is to support the Group's evolution as a diversified engineering and services group. Sapienza and Lift form part of the CaPS business segment.

Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 
                                    Sapienza Consulting          Lift BV 
                                         Holdings BV 
                                        Book   Fair Value  Book Value  Fair Value 
                                       Value 
                                     GBP'000      GBP'000     GBP'000     GBP'000 
   =============================   =========  ===========  ==========  ========== 
 
    Property, plant & equipment          167          167          73          73 
    Right-of-use assets                    -          781           -           - 
    Investments                          491          491           -           - 
    Identifiable intangible 
     assets                                -        8,327           -         283 
    Cash and cash equivalents          1,178        1,178          31          31 
    Financial assets                   5,934        5,828          77         184 
    Financial liabilities            (6,671)      (7,901)        (59)        (59) 
    Deferred taxation                      -      (1,416)           -        (40) 
   ==============================  =========  ===========  ==========  ========== 
    Total identifiable 
     net assets                        1,099        7,455         122         472 
 
    Non-controlling interest                            -                   (510) 
    Goodwill arising on 
     consolidation                                  2,696                   1,176 
   ------------------------------  ---------  -----------  ----------  ---------- 
    Total Consideration                            10,151                   1,138 
   ==============================  =========  ===========  ==========  ========== 
    Consisting of: 
    Consideration in cash                           8,854                     631 
    Consideration in shares                          1297                       - 
    Fair value of previously 
     held interest                                      -                     507 
   ------------------------------  ---------  -----------  ----------  ---------- 
 

Following the increase in shareholding in Lift B.V., no change in fair value of the non-controlling interest has been recognised in view of the short space of time between the two transactions.

The non-controlling interest in Lift B.V. was valued as the percentage of shares not owned by the Group on 28 June 2019 multiplied by the fair value of the net assets of Lift B.V. on this date, including intangibles arising on acquisition. The fair values were determined using the income approach to value of the technology of the company, and the cost approach to value the workforce and all remaining assets and liabilities of Lift B.V. at acquisition.

The Group has identified intangible assets on the purchase of Sapienza Holdings BV relating to customer relationships of GBP5,727,000, internally developed software of GBP1,127,000, the brand of GBP520,000 and order backlog of GBP953,000.

Goodwill of GBP2,696,000 is primarily applicable to the assembled workforce acquired as part of the transaction to purchase Sapienza Holdings BV. Acquisition costs of GBP799,000 arose as a result of the transaction and these were settled in cash from the Group's existing resources. These have been recognised as part of administrative expenses in the Consolidated Statement of Comprehensive Income.

Had the acquisition of Sapienza Holdings BV been effective from 1 January 2019, the consolidated revenue of the Group for the year would have been approximately GBP63,000,000 and the operating loss for the year would have been approximately GBP1,846,000. The directors consider these values to represent an approximate measure of performance of the combined Group on an annualised basis and to provide a reference point for future periods. Since acquisition Sapienza Holdings BV, including Lift B.V. reports revenue of circa GBP9,900,000 and operating profit of circa GBP317,000.

The Group has identified intangible assets on the purchase of Lift B.V. relating to internally developed software GBP283,000. Goodwill of GBP1,176,000 is primarily applicable to the future enhancements made to the core technology acquired to support future revenue growth, and the highly skilled assembled workforce.

   7.   Subsequent events 

On 3 March 2020, the Group entered into a new GBP7.0 million revolving loan facility (the "Facility Agreement") with HSBC UK Bank plc. This facility has a term of three years and carries an option to increase the headroom to GBP12.0 million subject to certain conditions. Under the terms of the Facility Agreement, the Group will pay interest at a rate of between 1.75% and 2.25% over LIBOR on the amount drawn down, depending on the Group's total leveraged position. As of 20 May 2020 the facility had been fully drawn to insulate the business against any potential covid-19 impacts. However it must be noted that the Group's current cash flow forecast indicates that none of these funds will be required to support the Group's ongoing operational activities.

The Chief Financial Officer's Review includes a review of going concern, as well as separate consideration of the impact of Brexit and the Coronavirus, which has not identified any material impact on the values of any of the Group's assets or liabilities.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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