TPG.L Regulatory News (TPG)

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21 September 2022

TP Group plc

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

UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2022

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Business Review

TP Group is a consulting and engineering business operating primarily in the UK defence and aerospace markets. The Group comprises two operating divisions: TPG Services and TPG Maritime.

Comparisons to H1 2021 are before the additional provisions and charges that were accounted for in the 2021 full year results. In view of the current priorities, the Board consider that analysis of these 2021 adjustments and assessment of the exact timing of these adjustments through the year would be costly and of little benefit to shareholders. Therefore the 2021 comparisons are provided before the adjustments recorded for the full year and readers are referred to the Group's Annual Report for 2021. The H1 2021 results however, have been restated to take into account the impacts of the 2020 prior period adjustments. These adjustments have a roll forward impact on the H1 2021 results which the business has been able to quantify and account for accordingly. As noted above, the readers are referred to the Group's Annual Report for 2021 for details of the 2020 prior year adjustments.

For the six months ended 30 June 2022 the Group reported revenue from continuing operations of £24.3m (H1 2021 restated: £23.5m) and adjusted operating profit of £1.3m (H1 2021 restated: £0.9m). The operating loss from continuing operations was £0.3m (2021 operating loss restated: £1.7m) and the statutory loss, which includes discontinued operations, was £0.2m (H1 2021 statutory loss restated: £2.8m).

The Group's net debt position on 30 June 2022 was £4.3m (31 December 2021 net debt: £1.6m). The £5m Science Group facility was undrawn at the date of this announcement. Whilst drawdowns have occurred during the period, the funds have not been required and have been repaid to Science Group. However, the Board are forecasting utilising the Science Group facility in the coming months. The HSBC loan facility was fully drawn on 30 June 2022 and remained fully drawn at the date of this announcement. The HSBC facility reduced from £7m to c.£6m on 12 July 2022, following the repayment of c.£1m from the net disposal proceeds from the sale of Sapienza. As noted in the full year results, 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.

TPG Services

The TPG Services Division delivers technical expertise to complex and critical major government sponsored programmes in the defence and aerospace sectors. Osprey, the aviation safety consulting business acquired in 2020, is now being integrated into TPG Services existing consultancy business.

The TPG Services division has continued to enjoy success through the first half of the year performing in-line with management's expectations. For the six months ended 30 June 2022, TPG Services delivered revenue of £14.3m (H1 2021: £12.8m), organic growth of 12%. Adjusted operating profit increased to £1.5m (H1 2021: £0.9m).

TPG Maritime

TPG Maritime designs, manufactures and supports life support systems for submarine programmes including oxygen production and the removal of toxic gases.

The division has had a slower start to 2022 due to the previously reported challenges relating to onerous legacy contracts and the resources required in renegotiating commercial terms. Order intake, revenue and profit metrics are all below management's expectations for the year-to-date. Resolving these legacy contracts is the Board's key priority and a corporate imperative in light of the refinancing requirement noted above. In the first half of 2022, a new management team was installed within the division 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.

For the six months ended 30 June 2022, the TPG Maritime Division reported revenue of £10.0m (H1 2021 restated: £10.7m) and an adjusted operating profit of £0.3m (H1 2021 restated: £0.8m). The negative impact of the legacy contracts will continue to affect the division's financial performance for at least the remainder of the current year and the next.

Due to the materiality of the onerous legacy contracts, the ability of TP Maritime Limited, the operating subsidiary, to continue to operate as a going concern is dependent on the continuing financial support of TP Group plc. The Board recognise that this onerous legacy may impact the Group's refinancing discussions referenced above.

Corporate

In the first half of 2022, the Board has executed the Group strategy set out in November 2021 to focus on its UK-based defence and aerospace operations. Accordingly, the Board disposed of two of its non-core business activities: Northstar in March 2022 and Sapienza in July 2022. Westek continues to operate profitably and discussions with a potential acquirer continue. As noted above, half of the disposal proceeds (c£1.0m) from the sale of Sapienza have been used to reduce the HSBC debt facility to c£6.0m.

Summary and outlook

This period has continued to see mixed fortunes across TP Group's divisions as TPG Services enjoys both growth and increasing profitability while TPG Maritime's performance remains hampered by the legacy contracts.

In summary, 2022 and 2023 will be a period of transition for TP Group, critically dependent on the resolution of both the legacy contracts in TPG Maritime and the Group's financing/capital structure, matters which may be inter-related.

Condensed consolidated statement of comprehensive income

1 The six-month periods to June 2022 and June 2021 have been presented to reflect continuing operations and exclude the results of Northstar (disposed of in March 2022), Sapienza Consulting Holdings BV (disposed of in July 2022) and Westek Technology Limited (asset held for sale at the balance sheet date). The results for Northstar, Sapienza and Westek are presented above as 'profit / (loss) for the period from discontinued operations'. The six-month period to June 2021 has also been presented to reflect the impact of the 2020 prior year adjustments as referred to in the Group's Annual Report for 2021. Refer to note 7 for further details.

2 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.

Condensed consolidated statement of financial position

1 Includes the assets and liabilities for Northstar (disposed of in March 2022), Sapienza Consulting Holdings BV (disposed of in July 2022) and Westek Technology Limited (asset held for sale at the balance sheet date).

Condensed consolidated statement of changes in equity

Condensed consolidated statement of cash flows

Notes to the condensed set of unaudited interim financial statements

TP Group plc (the 'Group') together with its subsidiaries is a consulting and engineering business operating primarily in the UK defence and aerospace markets.

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

The financial information for the six months ended 30 June 2022 presented in these unaudited condensed consolidated interim financial statements (the 'interim report') has been 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 financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2021, prepared under International Financial Reporting Standards as adopted by the UK ("IFRS"), have been delivered to the Registrar of Companies. The auditor's report on the 2021 financial statements was unqualified, did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006 but did draw attention to a material uncertainty related to going concern. The audit opinion was not modified in respect of this matter.

These unaudited condensed consolidated interim financial statements were approved for issue by the Board of Directors on 20 September 2022.

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

The Group's debt facilities at the time of this announcement are:

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.

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.

This position is consistent with that disclosed in its 2021 Annual Report.

The Group's segmental reporting shows the performance of each operating business separately from the central costs that remain unallocated.

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.

The following is an analysis of the Group's revenue and results from the continuing operations by reportable segment.

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, 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.

2 The comparative segment for the six months to 30 June 2021 has been restated to present the segments in line with the financial statements to 31 December 2021

The tax charge/(credit) for the period comprises

The calculation of the basic loss per share is based on the loss after tax for the period divided by the weighted average number of shares in issue during the period as follows: 

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

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. Discussions are ongoing with a potential buyer.

Sapienza made up a significant percentage of the Consulting business segment's revenue, operating result and net assets and was disposed of on 12 July 2022. Furthermore, the business represented:

NorthStar was a significant part of the Group's software operations in terms of revenue and adjusted operating profit/(loss) and was disposed of on 31 March 2022. The balance of the software operations is the Eclipse software suite of products sold by Sapienza. Eclipse and NorthStar have now been disposed as noted above, 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 Northstar, disposed of on 31 March 2022 is as follows:

Following an intensive review of contracts within the TPG Maritime business during the latter part of 2021 and early part of 2022, 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. This resulted in a prior year adjustment to the 2020 numbers, fully disclosed in the 2021 full year results. The aforementioned 2020 corrections resulted in an overstatement of contract revenue-to-date at 30 June 2021. 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 corrected the prior period in line with the requirements of the standard.

The principal accounting adjustment corrections at the 31 December 2020 that have impacted the 6-month period to 30 June 2021 are:

The impact on figures originally reported in the financial statements for the six months to 30 June 2021 is shown below.

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 Ratcliffe 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 facility was utilised for short periods to provide liquidity, however was undrawn at 30 June 2022.

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.

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.

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those described in the last annual financial statements.