TPG.L Regulatory News (TPG)

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15 Aug 2022

TP Group plc

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

Audited results for the year ended 31 December 2021

TP Group (AIM: TPG) announces its audited results for the year ended 31 December 2021.

Revenue from continuing operations1 increased to £44.3m (2020: restated £38.7m).

· TPG Services revenue increased to £25.8m (2020: £19.9m) including full year of Osprey

· TPG Maritime revenue of £18.5m (2020: restated £18.8m)

Adjusted operating loss from continuing operations1 2 of £1.6m (2020 profit: restated £0.9m)

· TPG Services adjusted operating profit increased to £2.3m (2020 profit: £1.0m)

· TPG Maritime adjusted operating loss of £2.5m (2020 profit: restated £1.2m), impacted by the onerous legacy contracts and resulting in a prior year adjustment of £2.8m

· Central unallocated costs of £1.4m (2020: £1.3m)

Operating loss from continuing operations1 increased to £7.5m (2020 loss: restated £3.3m). This includes:

· Adjusted operating loss2 of £1.6m (2020 profit: restated £0.9m)

· £3.1m of depreciation and amortisation (2020: £2.3m)

· £2.7m of exceptional operating and acquisition related costs (2020: £1.8m)

Loss from discontinued operations of £11.1m (2020 loss: £9.2m)

Statutory loss of £19.0m (2020 loss: restated £12.8m)

2021 closing net debt was £1.6m (2020 net cash: £0.4m)

Additional narrative to the results will be published in the Group's Annual Report and Accounts which are expected to be published and sent to the Company's shareholders on or around 15th September 2022 and will be available to view on the Company website at:

https://www.tpgroupglobal.com/investors/results-reports-presentations/ 

 Notes

1 The revenue, adjusted operating loss and operating loss presented, for both 2021 and 2020, are from continuing operations and exclude Sapienza, Westek and Northstar which were classified as assets held for sale at the 31 December 2021 balance sheet date.

2 Adjusted operating profit 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 and disposal-related charges, share based payment charges, and exceptional operating costs. Exceptional 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 exceptional 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 2020

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Chairman's Statement

2021 was a challenging year for TP Group. The financial performance is reported in the Financial and Operational Review section including an explanation of certain prior year adjustments. A significant cost reduction programme was initiated in the middle of 2021, substantially reducing head office overhead costs, resources and office facilities. This streamlining of the organisation structure placed clearer responsibilities into the business operations. Following the investment by Science Group plc ("Science Group") in the second half of the year and the associated Board changes, the Group's strategy and operations were reviewed. As a result of the restructuring and associated disposals, TP Group now comprises two divisions: TPG Services and TPG Maritime, both operating primarily in the aerospace and defence markets. Segmental reporting is provided in note 4 of these financial statements.

TPG Services

TPG Services has adapted well to the increased commercial rigour with a good management team operating as a disciplined, process-driven organisation. This growing, profitable business continues to strengthen its position as "Customer Friend", aligning with the end user. Reinforcing the strategy as a solution and product agnostic trusted partner, TPG Services has recently won a three year contract in support of the deployment of autonomous systems across air, land and sea, a key multi-domain integration programme. The Osprey business, acquired in 2020, which has an excellent reputation in its markets, is now being integrated into TPG Services enabling operating scale benefits and marketing synergies within the enlarged organisation.

While order intake in the first half of 2022 is slightly behind expectations, this is expected to recover and the Board anticipates continued progress in TPG Services. Revenue through to the end of June 2022 is in-line with management's expectations and the Division continues to operate profitably with actions to improve operating margins being successfully implemented by the management team.

TPG Maritime

The substantial challenges within TPG Maritime, resulting from onerous legacy contracts, became progressively more apparent in the latter part of 2021 and early 2022. In summary, some years ago the decision was taken to provide products and services under fixed price contracts. However, the TPG Maritime submarine air handling systems are complex and almost invariably require custom development. This fundamental change in contractual risk profile was not adequately addressed and the organisation, processes and resources necessary to operate such a high risk model were not implemented or have proven to be ineffective.

The financial consequences of the failure to address this change in risk profile is now being realised and substantial provisions have had to be taken. Not only has TPG Maritime reported an operating loss for 2021 and recorded a prior year adjustment, but the impact on operating margins will continue for several years into the future until these onerous contracts have been completed or renegotiated. The major inhibitor to the recovery of TPG Maritime relates to a UK contract which accounted for the majority of the forecast contract cost increases and onerous contract provisions set out in the Financial and Operational Review section. Some of these contracts contain unlimited parent company guarantees. Renegotiating these legacy contracts, which are invariably with far larger counter-parties, has become the Board's priority and a corporate imperative. A new management team has been installed to effect the necessary changes, including a general manager seconded from Science Group and the recruitment of a finance manager, supported by a strengthened operational management team.

In this challenging situation, with resources across the organisation focused on the priority to review existing programmes and renegotiate onerous contracts, TPG Maritime has had a slower start to 2022. Order intake, revenue and profit metrics are all below management's expectations for the year-to-date and these issues will continue to impact the financial performance of the business. Nevertheless, despite the near-term challenges TPG Maritime remains a leading provider of critical systems to its core market and has considerable potential opportunity in the longer term.

Corporate

The TPG Group strategy to focus on its UK-based Defence and Aerospace operations, was set out in November 2021 and the Board has been executing on that strategy. Accordingly, the non-core businesses of Northstar and Sapienza have now been sold, net of costs, for c.£2.5m. Furthermore, while Westek is a modest business and discussions with a potential acquirer continue, it was turned around in the second half of 2021 and has traded profitably in the current year.

Throughout the past year, cash has been constrained and remains a major focus. Following the disposals of Northstar and Sapienza, c.£1.0m of the c.£2.5m net disposal proceeds have been used to reduce the Group's bank facility to £6 million, which remains fully drawn. In order to reassure the bank, suppliers and other stakeholders, and provide resilience against delays in customer payment receipts, a standby facility of up to £5 million was provided by Science Group in December 2021. A portion of the Science Group facility was drawn in March and June 2022 but on both occasions was subsequently not needed and was repaid, although current cash flow forecasts indicate that the facility may be utilised during the second half of the year. The Group's bank facility now expires in September 2023, co-terminus with the Science Group standby facility. The Board will shortly be commencing a refinancing exercise including discussions with its bank to extend or renew the facility. The Board are not anticipating that the Science Group facility will be extended beyond September 2023.

In summary, 2022 and 2023 will be a period of transition for TP Group, particularly dependent on the resolution of the legacy contracts in TPG Maritime. In view of the scheduled expiry of the debt facilities and the factors set out elsewhere in this report, the Board will need to consider the Group's financing and capital structure. However, if the TPG Maritime legacy contracts and the Group's capital structure are resolved, then TP Group should have a better foundation upon which the Board can then consider the longer term strategy.

Financial and Operational Review

1 Numbers presented, both 2021 and 2020, are from continuing operations and exclude Sapienza, Westek and Northstar which were classified as assets held for sale at the balance sheet date

2 The 2020 numbers have been restated for the prior year adjustment - refer below 'TPG Maritime onerous legacy contracts' and to note 10 to these financial statements for further detail

Revenue from continuing operations Revenue increased to £44.3m (2020: restated £38.7m).

TPG Maritime revenue reduced by £0.3m to £18.5m (2020: restated £18.8m). This small reduction in revenue was primarily due to the material increases in the forecast cost to complete estimates for the onerous legacy contracts partially offset by an increase in lower margin consumable orders. Revenue is recognised on these onerous contracts as a percentage of costs incurred against total forecast costs. The material increases in forecast cost to complete estimates resulted in significantly less revenue (£5.3m) being recognised than was forecast (refer to the 'TPG Maritime onerous legacy contracts' section below for further details).

TPG Services revenue increased by £5.9m to £25.8m (2020: 19.9m). £3.2m relates to the full year effect of Osprey, acquired in August 2020 and the balance of £2.7m is 14% organic growth in TPG's existing consulting business. This organic growth was primarily driven by the Group's established position on long term framework contracts and programmes.

Gross profit percentage from continuing operations Gross profit percentage reduced to 16% (2020: restated 22%). This reflects:

· the deterioration in the TPG Maritime business margins in 2021 to 1% (2020: restated 22%). A result of material increases in forecast costs to complete estimates, late delivery charges being accounted for and the recognition of onerous contract provisions for legacy contracts (refer to 'TPG Maritime legacy onerous contracts' section below for further details);

· a change in product mix, with a higher volume of low margin consumable orders received in 2021; and

· TPG Services margins have increased to 26% (2020: 22%), evidence of the strengthening position the business has on key frameworks and programs.

TPG Maritime onerous legacy contracts At the year end the Board has undertaken a detailed review of TPG Maritime's customer contracts. As a result of this review, and for a number of legacy contracts, forecast cost to complete estimates have materially increased, late delivery charges have been accounted for and onerous contract provisions have had to be recognised for the period ended 31 December 2021. The impact of these adjustments has resulted in £5.3m less revenue and £4.9m less adjusted operating profit being recognised than was forecast.

Furthermore, the Board has also revisited the forecast cost to complete estimates, late delivery charges and onerous contract provisions for the period ended 31 December 2020 and, for three of these contracts, adjustments have been made in respect of the prior period. Management considers this to be a material error in line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (paragraphs 41-43), and has corrected the prior period in line with the requirements of the standard. The impact of the prior period adjustment is to reduce revenue by £2.2m, increase cost of sales by £0.6m and reduce adjusted operating profit by £2.8m. 

For further details of the 2020 prior period adjustment please refer to note 10 of these financial statements.

Adjusted operating profit from continuing operations The directors believe that adjusted operating profit is more reflective of the underlying performance of the Group than equivalent GAAP measures because it excludes non-recurring exceptional and acquisition costs, non-cash items and is therefore a better proxy for underlying operating cash. 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 and exceptional operating costs. Exceptional 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 2020. Refer below for details of the reconciliation of adjusted operating profit to operating loss.

The restated adjusted operating profit of £0.9m in 2020 reduced to a loss of £1.6m in 2021. As noted in the previous section, the adjusted operating (loss)/profit has been impacted by the adjustments made in relation to the legacy TPG Maritime contracts, both in 2021 and 2020.

Operating loss from continuing operations

The Group's operating loss from continuing operations increased to £7.5m (2020: restated £3.3m). The key movements are as follows:

Discontinued operations

At the balance sheet date, the directors have applied the principles of IFRS 5, and concluded that Sapienza Consulting Holdings BV & subsidiaries ("Sapienza"), Westek Technologies Ltd ("Westek") and the Group's autonomous navigation technology ("Northstar"), are deemed to be assets held for sale and as such they have been classified as discontinued.

Subsequent to year end:

The loss from discontinued operations is £11.1m (2020: £9.2m). This includes an impairment charge of £10.6m for the carrying value of goodwill, intangible assets and net assets of each of the three discontinued businesses to the actual or expected proceeds from the sale. Refer to note 3 of these financial statements for further detail.

Statutory loss

The statutory loss in the period was £19.0m (2020: restated £12.8m), including the operating losses from continuing operations of £7.5m (2020: restated £3.3m), as noted above, and a loss from discontinued operations of £11.1m (2020: £9.2m).

Net debt

Year-end Group cash of £5.4m (2020: £7.4m), was lower than the prior year. The key movements included:

The £7m 3-year term loan facility with HSBC Bank, secured in March 2020, was fully drawn at the balance sheet date and so the net debt position, excluding the impact of IFRS 16, of the Group was £1.6m (2020: net cash position of £0.4m). This facility has been subsequently reduced to £6.0m following the disposal of Sapienza on 12 July 2022, with c£1.0m of the c.£2.0m net disposal proceeds being used to part repay the loan. The loan remained fully drawn at the time of signing the accounts.

In conjunction with Science Group providing a £5m loan facility in December 2021 (refer below for further details), the HSBC Bank loan term was extended to September 2023 and the leverage covenant increased to 3.75 times adjusted operating profit from 2.0 times for the 12-month period through to December 2022. As a consequence, a cash flow covenant for the same period was introduced, which requires the Company to have at least £3m of cash headroom at each month end including any undrawn HSBC Bank or Science Group Plc loan facility. In addition, the loan interest margin was increased to 3%, up from a variable loan interest margin of between 2.25% and 2.75% dependent on the amount of leverage.

With LIBOR ceasing to be used as an interest rate benchmark at the end of 2021, the Group transitioned the HSBC bank loan to use the Sterling Overnight Index Average ("SONIA") as an appropriate alternative. The transition was agreed during the year and was effective from December 2021.

In December 2021, the Group secured a £5m unsecured revolving credit facility with Science Group plc that expires on 30 September 2023. The covenants match those of the HSBC Bank facility with 10% more headroom. Interest is chargeable on any drawn amounts at 12% per annum and any undrawn amounts at 4.8% per annum, subject to SONIA remaining below 1%. A 3% arrangement fee was charged on the facility which can be cancelled at any time with no cancellation fees. The Science Group loan was undrawn at the balance sheet date and, although drawdowns occurred in March 2022 and June 2022, the balance was nil at the time of signing the accounts.

Exceptional operating, earn-out and disposal costs During the year, the Group incurred one-off exceptional operating, earn-out and disposal costs of £2.7m (2020: £1.8m). These relate to:

Finance costs

Finance costs of £0.5m (2020: £0.3m) were incurred in the year, predominantly relating to:

· Interest charges of £0.1m (2020: £0.2m) associated with the capitalisation of leased assets under IFRS 16.

· Finance facility interest charges of £0.2m (2020: £0.1m), most of which related to the HSBC Bank £7m loan.

· Loan arrangement fees of £0.2m (2020: nil), the majority of which was associated with the Science Group plc loan agreed in December 2021.

Taxation

There is a tax credit for the financial year to 31 December 2021 of £0.1m (2020 tax charge of nil). Refer to note 6 of these financial statements for further details.

The Group expects, in total, to receive a small tax refund of c. £0.2m for the financial year 2021, being the R&D tax credits for this period (2020: £0.2m).

Results and dividends

The directors continually evaluate Group performance, and do not currently recommend the payment of a dividend (2020: £nil).

Going concern

As part of the going concern assessment, the directors have considered:

· various scenarios for the business for the period through to 31 December 2023, including delivery of its base case budget through 2022 and 2023, and downside sensitivities to this budget, as noted below.

Both facilities terminate in September 2023. The Board will commence a process in the second half of 2022 to refinance the Group and will consider both debt and equity options.

In addition to its debt facilities, the Company could raise additional equity capital through its listing on the AIM, although is mindful that the ongoing market environment could impact any fundraising potential. The Company is currently able to raise up to 10% of its market capitalisation through an equity placing on a non pre-emptive basis without the need for shareholder approval. Accordingly, the directors believe that the Company would be able to react with reasonable speed in the event it was required to pursue this course of action, subject to market conditions.

The directors regularly review operating performance and cash generation projections for the Group which are based on delivery of the Group's order book, a reasonable expectation of success in ongoing and future bids for further contracts and an expectation of additional work from current and new customers. A base case budget and cash flow projection has been prepared for 2022 and 2023, covering at least the 12-month period following the signing of the Group accounts. The base case budget provides sufficient liquidity and bank covenant compliance throughout the period. Performance in Q1 of 2022 is in line with the base case budget and provides comfort in the Group's ability to execute on its projections for the year.

The business however continues to navigate through the consequential effects of COVID-19, most notably the challenges in supply chains and logistics, and the onerous legacy TPG Maritime contracts. Furthermore, whilst the Group has no trade or activity in Ukraine or Russia, it is mindful of the impact that the conflict may have on global supply chains and the timing of new business opportunities.

As such, the consequences of the above may further delay the timely execution of both the Group's order book and new order wins which could result in revenue, margins and resulting cash inflows, that are less and/or later than modelled, putting pressure on the Group's cash and covenant position at times. The directors have therefore flexed and stress tested the base case budget to account for various operating scenarios, the outcomes of which include:

These scenarios assume similar and/or greater levels of disruption to the Group's business to those experienced to date since the onset of the COVID-19 pandemic, despite conditions improving and as a result of the onerous legacy TPG Maritime contracts. All the scenarios take into account the cash and debt facilities currently available to the Company.

The directors have reviewed the Group's overall position and outlook in respect of the matters identified, including the scenarios noted above, and are of the opinion that there are reasonable grounds to believe that the operational and financial projections are achievable, and that the base case budget provides insulation to a plausible downside scenario. Accordingly, the directors have a reasonable expectation that the Group will have adequate resources to meet its obligations as and when they fall due for the foreseeable future and are satisfied that it is appropriate to prepare the financial statements for the Group on a going concern basis.

However, considering all of the above factors, the directors have concluded that if a more extreme but plausible down-side scenario arises the Group could breach one or more of its covenants in the 12 month period following approval of the financial statements. In this scenario, the business would be reliant on either securing a waiver from both HSBC Bank and Science Group or securing additional funding/debt headroom. Both HSBC Bank and Science Group have been supportive of the business through to this point and, whilst the Board cannot guarantee a waiver will be forthcoming, would consider it reasonable to conclude that agreement could be reached with the parties. For the avoidance of doubt, Martyn Ratcliffe and Peter Bertram would recuse themselves from discussions with Science Group in relation to their loan facility.

Furthermore, the Company could also look to raise additional capital through either or both, a 10% direct equity placing, as noted above or a wider equity placing that would require shareholder approval. The latter option would take more time but enable the Group to secure more funding than through a 10% direct equity placing. These events and conditions therefore indicate that a material uncertainty exists which may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern and therefore their ability to realise their assets and discharge their liabilities in the ordinary course of business. These financial statements do not include the adjustments that would be necessary should the Going Concern basis of preparation no longer be appropriate.

Consolidated statement of comprehensive income

For the year ended 31 December 2021

Note 9 explains the impact of the restatement.

Earnings per share:

Consolidated and Parent Company statements of financial position As at 31 December 2021

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present the Parent Company's income statement. The Parent Company made a loss of £15,934,000 (2020: £1,221,000) for the year.

Consolidated statement of changes in equity

For the year ended 31 December 2021

Parent Company statement of changes in equity

For the year ended 31 December 2021

Consolidated statement of cash flows

For the year ended 31 December 2021

Notes to the financial statements

1. General information

TP Group plc (the 'Group') together with its subsidiaries, is a consulting and engineering business, working to deliver mission, business and safety critical services and solutions across high growth sectors including Defence and Aerospace.

The Group is incorporated under the Companies Act and domiciled in the United Kingdom. The address of the registered office of the Parent Company is Cale House, Station Road, Wincanton, BA9 9FE. The Company's shares are listed on the Alternative Investment Market of the London Stock Exchange.

Basis of preparation

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2021 or 31 December 2020, but is derived from those accounts. Statutory accounts for 2020, which were prepared under accounting standards adopted by the EU, have been delivered to the registrar of companies and those for 2021 will be delivered following the Company's General Meeting. The Auditor has reported on these accounts; its report (i) was unqualified, (ii) in respect of the year ended 31 December 2021 drew attention to a material uncertainty in respect of going concern without qualifying and (iii) did not contain statements under sections 498 (2) or (3) of the Companies Act 2006.

The consolidated financial statements are measured and presented in sterling which is the currency of the primary economic environment in which the Group operates. They have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, or when an impairment is recognised on non-current assets. Figures are presented to the nearest thousand pounds, unless otherwise stated.

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

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 and the provisions of the Companies Act 2006.

In preparing the Parent Company financial statements, the directors have taken advantage of the following exemptions for disclosures:

New accounting standards and interpretations

New standards and interpretations newly applicable for companies with the financial year ending 31 December 2021 are set out below, together with any noted impact on the Group.

Standards issued but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2021 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.

2. Going concern and key accounting judgements

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all of the years presented, unless otherwise stated.

2.1 Going concern

As part of the going concern assessment, the directors have considered:

Both facilities terminate in September 2023. The Board will commence a process in the second half of 2022 to refinance the Group and will consider both debt and equity options.

In addition to its debt facilities, the Company could raise additional equity capital through its listing on the AIM, although is mindful that the ongoing market environment could impact any fundraising potential. The Company is currently able to raise up to 10% of its market capitalisation through an equity placing on a non-pre-emptive basis without the need for shareholder approval. Accordingly, the directors believe that the Company would be able to react with reasonable speed in the event it was required to pursue this course of action, subject to market conditions.

The directors regularly review operating performance and cash generation projections for the Group which are based on delivery of the Group's order book, a reasonable expectation of success in ongoing and future bids for further contracts and an expectation of additional work from current and new customers. A base case budget and cash flow projection has been prepared for 2022 and 2023, covering at least the 12-month period following the signing of the Group accounts. The base cash budget provides sufficient liquidity and bank covenant compliance throughout the period. Performance in Q1 of 2022 is in line with the base case budget and provides comfort in the Group's ability to execute on its projections for the year.

The business however continues to navigate through the consequential effects of COVID-19, most notably the challenges in supply chains and logistics, and the legacy onerous TPG Maritime contracts. Furthermore, whilst the Group has no trade or activity in Ukraine or Russia, it is mindful of the impact that the conflict may have on global supply chains and the timing of new business opportunities.

As such, the consequences of the above may further delay the timely execution of both the Group's order book and new order wins which could result in revenue, margins and resulting cash inflows, that are less and/or later than modelled, putting pressure on the Group's cash and covenant position at times. The directors have therefore flexed, and stress tested the base case budget to account for various operating scenarios, the outcomes of which include:

These scenarios assume similar and/or greater levels of disruption to the Group's business to those experienced to date since the onset of the COVID-19 pandemic, despite conditions improving and as a result of the legacy onerous TPG Maritime contracts. All the scenarios take into account the cash and debt facilities currently available to the Company.

The directors have reviewed the Group's overall position and outlook in respect of the matters identified, including the scenarios noted above, and are of the opinion that there are reasonable grounds to believe that the operational and financial projections are achievable, and that the base case budget provides insulation to a plausible downside scenario. Accordingly, the directors have a reasonable expectation that the Group will have adequate resources to meet its obligations as and when they fall due for the foreseeable future and are satisfied that it is appropriate to prepare the financial statements for the Group on a going concern basis.

However, considering all of the above factors, the directors have concluded that if a more extreme but plausible down-side scenario arises the Group could breach one or more of its covenants in the 12-month period following approval of the financial statements. In this scenario, the business would be reliant on either securing a waiver from both HSBC Bank and Science Group or securing additional funding/debt headroom. Both HSBC Bank and Science Group have been supportive of the business through to this point and, whilst the board cannot guarantee a waiver will be forthcoming, would consider it reasonable to conclude that agreement could be reached with the parties. For the avoidance of doubt, Martyn Ratcliffe and Peter Bertram would recuse themselves from discussions with Science Group in relation to their loan facility.

Furthermore, the Company could also look to raise additional capital through either or both, a 10% direct equity placing, as noted above or a wider equity placing that would require shareholder approval. The latter option would take more time but enable the Group to secure more funding than through a 10% direct equity placing. These events and conditions therefore indicate that a material uncertainty exists which may cast significant doubt on the Group's and Parent Company's ability to continue as a going concern and therefore their ability to realise their assets and discharge their liabilities in the ordinary course of business. These financial statements do not include the adjustments that would be necessary should the Going Concern basis of preparation no longer be appropriate.

2.2 Key accounting judgements and sources of estimation uncertainty

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on various other factors, including expectations of future events management believes to be reasonable under the circumstances. The actual outcome may differ from those originally calculated. The judgements, estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Accounting judgements

Alternative performance measures

The Group uses the alternative (non-Generally Accepted Accounting Practice) performance measure of 'Adjusted operating profit/ (loss)' which is not defined within IFRS. See note 3.

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, acquisition consideration accounted for as employment costs owing to ongoing service conditions, any acquisition-related charges, share-based payment charges and exceptional operating costs.

The directors believe this measure is more reflective of the underlying performance of the Group than equivalent Generally Accepted Accounting Practice ('GAAP') measures because it is excludes non-recurring exceptional and acquisition costs, non-cash items and is therefore a better proxy for underlying operating cash, providing shareholders and other users of the financial statements with the most representative year-on-year comparison of underlying operational performance attributable to shareholders.

This measure and the separate components remain consistent for all periods presented in these financial statements.

Assets held for sale

Management has reviewed the Group's non-current assets and associated liabilities in line with IFRS 5. In particular management has assessed the 'held for sale' criteria in IFRS 5 with a view to determining whether reclassification of either Westek Technology Limited, Sapienza Consulting Holdings BV (and its subsidiaries) or NorthStar (the Group's autonomous artificial intelligence technology) as a held for sale asset was required at the balance sheet date. Following management's assessment, it was determined that all three met the IFRS 5 held for sale criteria.

Discontinued operations

For operations classified as discontinued operations, management has considered the facts and circumstances of each transaction, with consideration of IFRS 5 as to whether the disposal or ceased activity represents a 'discontinued operation'. In particular the IFRS 5 discontinued operation criteria was considered in respect of Westek Technology Limited, Sapienza Consulting Holdings BV (and its subsidiaries) or NorthStar (the Group's autonomous artificial intelligence technology) and whether these cash generating units met the requirements of a separate major business line. Following the assessment, it was considered that all three met the criteria and have been disclosed as discontinued operations. 

The determination of incremental borrowing rates used to measure lease liabilities

The Group holds leases where the interest rate is not implicit in the lease. In these circumstances an incremental borrowing rate is used. The incremental borrowing rates used by the Group are based on assessment of rates to borrow over similar terms and with similar security to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Impairment of non-current assets

Determining whether intangible assets and goodwill are impaired requires an estimation of the value in use of the cash-generating units to which intangible assets and goodwill have been allocated. Investment in subsidiaries is based on the estimation of recoverability based on the value in use calculation of the cash-generating unit invested in.

The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

Useful economic life of intangible assets

Given the nature of the operations performed by the Group, the useful life of an asset is determined as the period over which the asset is expected to be available for use by the entity. Estimated useful lives and amortisation method are reviewed by management at the end of each reporting period, with the effect of any change in estimate accounted for on a prospective basis.

Assessment of the percentage of completion of long-term contracts

The Group's revenue recognition policy requires forecasts to be made of the outcomes of long-term design and manufacture contracts. This requires estimates of labour hours and rates, and material costs to determine forecast costs to completion and therefore revenue recognition on each long-term contract. Where actual costs incurred differ to forecast costs, or where forecast cost estimates change, the assessment of the percentage of completion of long-term contracts will be affected and therefore revenue and profits or losses recognised impacted.

Estimates are reviewed regularly throughout the contract life and adjustments are made based on the latest available information.

As at 31 December 2021, the amounts due from contract customers and amounts due to contract customers and contract provisions amounted to £5,599,000, £5,173,000 and £292,000 respectively. The Group has considered the nature of the estimates involved in deriving these balances and concluded that it is possible that outcomes within the next financial year may be different from the assumptions applied at 31 December 2021, which could require a material adjustment to revenue and profits or losses recognised and the carrying amounts of the related assets and liabilities in the next financial year.

The Group has identified one particular contract in the TPG Maritime Limited subsidiary company which is more susceptible to future changes in forecast costs to complete estimates. In respect of this contract, the Group has recognised revenue from continuing operations in the year of £1,872,000, together with an amount due to contract customers of £2,912,700. Since contract inception, the Group has recognised revenue totalling £10,012,000. The project, which commenced in 2019, is not scheduled to complete until 2027 which is beyond the Group's normal contract length of 1-3 years. Due to the increased complexity of the project and the extended delivery timeframe, the forecast costs to complete on this contract give rise to an increased level of estimation uncertainty.

The increased level of estimation uncertainty means that final costs could be materially different from the estimates at the balance sheet date. Based on the project status as of 31 December 2021, a 10% change in direct labour hours or material costs to completion from that estimated would give rise to a corresponding £0.3m and £0.2m impact respectively on the loss of the Group.

As at 31 December 2021 the directors estimate that, based on costs incurred to date as a percentage of forecast total costs to complete, the project was 64% complete.

Trade receivables provisioning

Recoverability of trade debtors are reviewed by management at the end of the reporting period. Trade debtors are impaired when specific knowledge of customers suggests it is appropriate to do so. 

3. Discontinued operations

Following review of the Group's strategy as noted in the market release dated 1 November 2021. Westek Technology Limited ('Westek'), Sapienza Consulting Holdings BV, including its subsidiaries ('Sapienza') and the Group's NorthStar operations have been identified as assets held for sale in line with IFRS 5 Assets Held for Sale and Discontinued Operations.

Westek makes up a significant percentage of the Engineering business segment's revenue and operating result, and a material percentage of Group's operating result and net assets. Furthermore, the business represents the Group's entire ruggedised electronics business and therefore represents a major line of business.

Sapienza makes up a significant percentage of the Consulting business segment's revenue, operating result and net assets. Furthermore, the business represents:

NorthStar is significant part of the Group's software operations in terms of revenue and adjusted operating profit/(loss). The balance of the software operations is the Eclipse software suite of products sold by Sapienza. Eclipse and NorthStar are both being disposed of as part of the revised strategy, closing the Group's software business in its entirety.

The financial performance and cash flow information for these discontinued operations, including the discontinued operations of TPG Engineering Limited, disposed of on 29 October 2020 is as follows:

4. Segmental information

The Group's segmental reporting shows the performance of each operating businesses separately from the central costs that remain unallocated. The segments have been renamed at the end of 2021 following the revised strategy announced 1st November 2021, which confirmed the Group would focus on its UK businesses including Maritime, UK Consulting and Osprey.

· Engineering, which previously included both the Group's life support systems business (TPG Maritime Limited) and its ruggedised electronics business (Westek Technology Limited), has been renamed TPG Maritime. This segment now only includes TPG Maritime Limited, with Westek Technology Limited ('Westek') classified as an asset held for sale and being reported as a discontinued operation.

· The TPG Services business segment (formerly named Consulting) provides specialist services to enable our clients to transform their enterprise and evolve their systems and services. This segment now excludes Sapienza Consulting Holdings BV and its subsidiaries ('Sapienza') as this is also classified as held-for-sale and reported as discontinued operations. The renaming to TPG Services more accurately reflects the substance of this business, excluding Sapienza.

Software Digital Solutions business unit is no longer applicable because it has been classified as discontinued.

Financial information is provided to the chief operating decision maker ('CODM') in line with this structure.

The segmental analysis is reviewed to operating profit. Other resources are shared across the Group.

Revenue reported above represents revenue generated from external customers.

Geographical analysis

Non-current assets by geographical area are as follows:

5. Operating loss

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

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

6. Taxation

Tax charge

The tax charge / (credit) comprises:

Deferred tax

The deferred tax liability brought forward on 1 January 2021 arose in respect of intangible assets acquired on the acquisition of TPG Maritime Limited, ALS Technologies Limited and Flexible Solutions Software Limited on 6 February 2017, Polaris Consulting (Holdings) Limited on 12 December 2017, Westek Technology Limited on 2 November 2018, Sapienza Consulting Holdings B.V. on 30 April 2019, Lift BV on 28 June 2019 and Osprey Consulting Services Limited on 25 August 2020.

At the reporting date, the Group has approximately £26.7m (2020: £18.6m) of unrelieved tax losses for offset against future taxable profit. There are no expiry dates on these unrelieved tax losses. No deferred tax asset has been recognised in respect of these losses. TPG Design & Technology Limited created £17.9m (2020: £18.1m) of these losses through a trade that is no longer being pursued. Losses can only be utilised against the same trade and management do not expect there to be sufficient trade to recover these losses against future taxable profit.

The deferred tax balances as at 31 December 2021 are measured at 25% as the increase to the main rate of corporation tax to 25% from April 2023 announced in the March 2021 Budget was substantively enacted on 24 May 2021.

7. Earnings per share

The calculation of basic earnings per share for the year ended 31 December 2021 is based upon a loss after tax of £18,630,000 (2020 (restated): loss after tax of £12,761,000) and a weighted average number of shares of 779,178,719 (2020: 779,178,719). Further split between continued and discontinued operations is shown in the table below.

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.

8. Contingent liabilities

As part of the Group's long-term contract trading activities, £366,000 of performance and warranty bonds (2020: £215,000) have been issued to two customers. Of this amount £nil has been cash backed (2020: £6,000) by the Group's cash resources and this balance sat within prepayments and other debtors.

9. Related party transactions

Key management personnel are represented by the Board of Directors.

During the year there were no material transactions or balances between the Group and its key management personnel or members of their close families, other than the remuneration of the individual directors.

As noted in the Director Remuneration report Martyn Ratcliffe is the largest shareholder in Science Group plc with 20.73%. Peter Bertram is a non-executive director of Science Group plc.

Science Group plc is the largest shareholder in TP Group plc with a shareholding of 27.97%.

On 16 December 2021 the Company entered into a standby credit facility with its major shareholder Science Group plc. Martyn Ratcliff and Peter Bertram recused themselves from this process due to a conflict of interest. The facility takes the form of a Revolving Credit facility of a sum up to £5 million for a period to 30 September 2023. The terms of the facility, which reflect the unsecured standby revolving nature of the arrangement, include a set-up fee of 3%, interest rate on drawn amounts of 1% per month and a rate of 0.4% per month of any undrawn amount, both subject to the Sterling Overnight Index Average remaining below 1%. The facility can be cancelled or refinanced by TP Group at any time and without penalty or early termination charges. The full £5m remains undrawn at 31 December 2021.

An interim management support service agreement was entered into with Science Group plc on 14th February 2022. Costs for the services provided are £50,000 per quarter.

The Parent Company applies the exemptions provided for under FRS 101 not to disclose transactions with wholly owned subsidiaries during the 2021 financial year.

Transactions between the Parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

10. Prior period adjustment

Following an intensive review of contracts within the TPG Maritime business, it was found that forecast costs to completion estimates were understated and contractual transaction prices were overstated as they did not include provision of late delivery penalties where required under IFRS 15 at 31 December 2020. The above resulted in an overstatement of contract revenue-to-date at 31 December 2020. Management considers this to be a material error in line with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (paragraphs 41-43) and have corrected the prior period in line with the requirements of the standard.

The principal accounting adjustments impacts on:

No Statement of financial position at 31 December 2019 has been presented in accordance with IAS 1 Presentation of Financial Statements as there was no material impact on the balance sheet at that date.

The impact on figures originally reported in the financial statements for the year ended 31 December 2020 is shown below.

11. Subsequent events

On 31 March 2022, the Group sold its NorthStar autonomous navigation software to QinetiQ Limited a subsidiary of QinetiQ Group PLC for a cash consideration of c£0.6m. The disposal resulted in the NorthStar software, and its development team, being transferred to QinetiQ Group PLC effective 1 April 2022.

On 12 July 2022 the Group announced the disposal of the entire issued share capital of Sapienza Consulting Holdings BV to Serco Holdings Limited (a wholly owned subsidiary of Serco Group plc) for a cash consideration of c.€3.2m. On completion c.£1m of the c.£2m net proceeds was used to part repay the Group's £7m loan facility with HSBC Bank plc thereby reducing it to c.£6.0m.