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Annual Report 2018
Innovative Thought
Absolute Trust
Critical Technology
TP Group is a systems engineering business
working in the defence, intelligence & security,
space and energy sectors.
Our specialist consultants and engineers, together
with precision manufacturing facilities, deliver
mission-critical systems and equipment which
keeps our customers and the wider public working
safely and securely.
Engineering
& Technology
The design, manufacturing
and support of mission-
critical systems.
Consulting &
Programme Services
Advising clients on strategic
problems and implementing
technology-driven solutions.
Company Overview
Strategy Report
Governance
Financial Statements
Introduction and Highlights
01
02 At a Glance
04 Chairman’s Statement
Group revenue up 40%
(2017: £27.9m)
44 Board of Directors
46 Directors’ Report
49 Corporate Governance
Report
54 Remuneration Report
Independent Auditor’s
56
Report to the Members of
TP Group plc
Investment Case
06
08 Market Review
12 Our Strategy
14 Business Model
16 Chief Executive’s Statement
20 Strategy in Action
24 Divisional Review
28 Key Performance Indicators
30 Chief Financial Officer’s
Review
34 Corporate Social
Responsibility
40 Principal Risks and
Uncertainties
65 Consolidated Statement of
Comprehensive Income
66 Consolidated and Parent
Company Statement of
Financial Position
67 Consolidated Statement of
Changes in Equity
68 Parent Company Statement
of Changes in Equity
69 Consolidated and Parent
Company Statement of Cash
Flows
70 Notes to the Financial
Statements
113 Company Information
Our customers trust us to find novel solutions
that ensure the safety, reliability and
performance of complex systems in the
most challenging or arduous situations.
Innovative
Thought Critical
Technology
With global presence, proven field experience
and a culture of innovative problem solving,
TP Group is often the first choice for platform
builders, integrators and users of both military
and industrial systems.
£39.0m
Group revenue
2018
39.0
2017
2016
2015
2014
27.9
21.2
20.4
21.7
Note – 2017 values are restated to reflect the impact of
IFRS 15, prior years are as originally reported, refer to
note 2.1 to the financial statements for further detail.
Adjusted operating profit1 up 85%
(2017: £2.1m)
£4.0m
Adjusted operating profit
2018
2017
2016
2015
2014
-2.1
4.0
2.1
1.1
0.0
Note – 2017 values are restated to reflect the impact of
IFRS 15, prior years are as originally reported, refer to
note 2.1 for further detail.
Group closing order book up 16%
(2017: £41.7m)
£48.3m
Group closing order book
2018
48.3
41.7
2017
2016
2015
2014
17.0
14.5
17.3
Note – 2017 order book is restated to reflect the
impact of IFRS 15, prior years are as originally
reported, refer to note 2.1 to the financial
statements for further detail.
Revenue up 40% to £39.0m
(2017: £27.9m)
• Efficient project execution ensured successful order conversion
• Added £4.6m revenues from Polaris Consulting acquisition
Adjusted operating profit1 up 85% to £4.0m
(2017: £2.1m)
• Operational focus on improving margins and delivery performance
Operating losses reduced to £nil
(2017: £1.0m loss)
• Improved underlying profitability
• Increase in acquisition-related expenses (£0.4m) and further depreciation
and amortisation (£0.5m) relating to investments in the business
Closing cash of £22.4m
(2017: £21.9m)
• Strong working capital performance
• Cash outflow of £3m related to Westek acquisition
• £0.9m invested in business systems and infrastructure
Order intake £43.2m
(2017: £44.7m)
• Another impressive year, in line with the exceptional prior year and well
ahead of in-year revenue conversion
Group closing order book up 16% to £48.3m
(2017: £41.7m)
• Good coverage across all parts of the Group
• Includes £2.4m of Westek order book
1. 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 on-going service conditions, any other
acquisition-related charges, share based payment charges and non-operating costs. 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 operating performance. This measure and the
separate components remain consistent with 2017.
Annual Report & Financial Statements 2018
01
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Our Sectors
TP Group provides engineering and services where
it matters most to our customers and their other
stakeholders. We work on mission-critical and
safety-critical solutions in these sectors.
Defence
Equipment packages and systems
that are regarded as mission-
critical for our customers. We
advise on their justification and
specification, then build, install
and support through their
operational lifetimes.
Energy
Static equipment packages
that deliver lasting value to our
customers. We conduct feasibility
and front-end engineering studies
to demonstrate value, then design,
build, install and support systems
that are at the heart of our
customers’ facilities.
75% Defence
20% Energy
4% Space
1%
Intelligence
& security
Space
Technical delivery and project
support to systems that are
critical to space missions that
deliver environmental, security
and military services worldwide.
Intelligence & Security
Innovation and capability to
support the transmission,
gathering, processing and
interpretation of intelligence
to support national and global
security programmes.
Serving a global market
International reach
& global partnerships
The Group has established long term
relationships with international
customers through its work on defence
equipment and was able to secure three
further contracts in Europe, the Middle
East and South-East Asia worth in
aggregate more than £3.5 million in 2018.
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Strategic Report / At a Glance
World class capabilities
to deliver mission-critical
equipment and systems
Our Mission
We work across national security and
energy supply services that are critical
to a safe and prosperous society.
We provide services and equipment
when critical systems are needed to
ensure public and industry security
and wellbeing.
Consulting & Programme Services
Advising clients on strategic problems and
implementing technology-driven solutions
71% Technology
& Engineering
29% Consulting
& Programme
Services
Technology & Engineering
The capability to design, manufacture and support
mission-critical systems
75 years
of engineering heritage and
leveraging our unique knowledge,
skills and experience
100,000
square feet of advanced
manufacturing space
237
skilled and experienced staff
>30
countries delivered to
02
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
03
Strategic Report / Chairman’s Statement
A robust and increasingly
international business.
This is my third Annual Report as Chairman of TP Group.
I am pleased to report that the strategy we set out is now
delivering year-on-year sustainable growth. Our focus has
been to balance carefully between delivering expectations
in the near-term whilst building a robust and increasingly
international business. This will equip us well for the
opportunities ahead and provide greater security in
the current economic climate.
Our strategy is focused on our core strengths
– providing the best in the development and
delivery of highly complex, high value, low
volume equipment and systems that are
critical to our customers’ activities.
We have maintained the growth trend
of recent years to deliver another strong
performance in 2018, which reflects
continued progress by the leadership team
and the efforts of the wider staff. This
approach and these results give us confidence
that the business is well positioned to
withstand, or even perhaps take advantage
of the current Brexit turbulence.
2018 performance
I am pleased to report a 40% increase in
revenue to £39.0m (2017: £27.9m) and an
increase in adjusted operating profit of 85%
to £4.0m (2017: £2.1m) and operating losses
reduced to nil (2017: £1.0m loss). The Group
closed the year with a cash balance of £22.4m
(2017: £21.9m) generating a net inflow of
£0.5m, even after using £3.0m cash to pay
for acquisitions. These results are all at or
ahead of market expectations, driven by an
order intake of £43.2m (2017: £44.7m). Order
intake in the year was 11% above revenue,
which led to a closing order book 16% higher
than last year at £48.3m (2017: £41.7m),
putting us in a very good position to
continue our growth trajectory into 2019.
Building capability and reach
Throughout 2018 we have invested in our
facilities and people to strengthen our
offering to key customers and work with
them more effectively. We invested in factory
equipment, business systems and talented
people so that we can deliver on our strategic
priorities, to deliver the best high-integrity
systems and equipment to our excellent
customer community.
We have also added breadth in products,
skills and customers via acquisition. Firstly,
we completed the integration of Polaris
Consulting Ltd, and then in November we
acquired Westek Technology Ltd.
These transactions have added to our
services and equipment propositions,
brought talented and like-minded people into
the business and gained access to new
customers both in the UK and overseas.
During the year we have put considerable effort
into developing new international relationships.
This not only enables us to access new
technologies and capabilities but also to open
new markets for our existing capabilities.
Reclassification
The Group was reclassified under the
FTSE sector definitions from Industrial
Engineering (2750) to Aerospace & Defence
(2710). This became effective on
24 December 2018. The new classification
A powerful blend of
talent, technologies and
the right management
team to generate further
value for shareholders.
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is more closely aligned with the Group’s
operational footprint and better reflects our
business moving forward as the majority
of our strategic focus, revenue and profits
is derived from clients across the Defence,
Intelligence & Security and Space sectors.
Board and governance
The Board has worked with a good balance
of support and challenge, applying its
strengths and insights to support the Group
as it implemented the growth strategy.
In February, Simon Kings stepped down
as an executive director and left the Group.
The Board was restructured, and the
Group made two appointments to the senior
management team to support business
development and key account management
activities.
As an established company on AIM,
TP Group is committed to high standards of
governance. The Quoted Companies Alliance
(QCA) Corporate Governance Code was
adopted by the Company in line with AIM
requirements on 28 September 2018. Work
continues to comply as fully as possible
with the principles and provisions contained
therein. We operate a robust framework
of systems and controls to maintain high
standards throughout the Company and more
details can be found in the Directors’ Report.
The Board believes that effective corporate
governance assists us in the delivery of our
corporate strategy, the generation of
sustainable shareholder value and the
safeguarding of all our stakeholders’
long-term interests.
Our people
I am pleased to note that as we have grown,
we have been able to attract talented people
at all levels of the business to help us on
this path, and this says a lot about the
attractiveness of the Group to our range
of stakeholders.
On behalf of the Board, I would like to thank
our employees for their hard work and
dedication as well as our suppliers, business
partners and shareholders for their
continued support over the last year.
Building for the future
We continue to build on the strong
foundations created in 2018 and before
as we continue to position the business for
future success. I remain confident that
we have the right strategy in terms of
competitive propositions and high-value
customers, with investment and acquisition
plans to deliver on a wider international
stage. I believe we have a powerful blend
of talent, technologies and the right
management team to generate further
value for shareholders in 2019.
Andrew McCree
Non-Executive Chairman
Governance
Highlights /
QCA Code
Recent changes to the AIM Rules
have led the Board to adopt the 2018
Quoted Companies Alliance Corporate
Governance Code (QCA Code) for Small
and Mid-sized Quoted Companies
as the basis of the Group’s governance
framework.
The QCA Code’s principles provide a
framework that the Group is working
to fulfil:
01
Deliver growth
• Establish a strategy and business
model which promotes long-term
value for shareholders
• Seek to understand and meet
shareholder needs and expectations
• Take into account wider stakeholder
and social responsibilities and their
implications for long-term success
• Embed effective risk management,
considering both opportunities
and threats, throughout the
organisation
02
Maintain a dynamic
management framework
• Maintain the Board as a
well-functioning, balanced team
led by the chair
• Ensure that between them,
the directors have the necessary
up-to-date experience, skills and
capabilities
• Evaluate Board performance based
on clear and relevant objectives,
seeking continuous improvement
• Promote a corporate culture that
is based on ethical values and
behaviours
• Maintain governance structures and
processes that are fit for purpose
and support good decision-making
by the Board
03
Build trust
• Communicate how the Company
is governed and is performing
by maintaining a dialogue with
shareholders and other relevant
stakeholders
04
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
05
Strategic Report / Investment Case
High-integrity
capabilities
and expertise
Chief Executive Officer,
Phil Cartmell explains why
TP Group has great future
prospects...
We have built our capabilities, invested in
our teams and facilities to capitalise on
high-value opportunities that we are
well-placed to deliver.
TP Group has grown year-on-year since
2010. Our growth strategy has focused
on five priorities that the Group follows –
excellent technologies and services; the
best customer relationships; investing
in world-class people and equipment;
partnering or acquiring to fill gaps;
and playing more actively on the
international stage.
The business has improved order capture
and order book cover for future revenues
that reflects our reputation and presence
in the markets we serve. From this solid
foundation, we have ambitious plans and
a clear pathway to future value as a global
player in defence, intelligence & security,
space and energy markets.
Building
stakeholder
value
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01 / Rare combination of business capabilities
A blend of consultancy, system development and implementation,
plus design, build and support through long-term operational lives.
This is a rare mix that ensures TP Group is better placed than others
to support end-users.
02 / Market leading propositions
TP Group has become the go-to provider in many markets and will
protect that position through close relationships with customers to
ensure continuous development of our capabilities.
03 / Trusted supplier of mission-critical
equipment and systems
We have built long-lasting supply relationships with our major
customers. We believe that they trust our capabilities to keep them
at the leading edge of performance.
04 / Secure long-term programmes
TP Group has become the embedded supplier on a number
of key equipment programmes and we believe that through
continuous customer satisfaction we will remain participants in
these valuable activities.
05 / High barriers to entry for competitors
Our established presence in key programmes, aligned with our
constant pursuit of customer satisfaction, makes it difficult for
others to intrude on our activities.
06 / Extensive and valuable major
account relationships
We have always believed that a limited number of good quality
relationships are easier to satisfy, support and protect. We have
built these over many years and are committed to extracting the
maximum reasonable value from each of them.
07 / Global outreach leading to global capability
As a UK-based business we have been very successful in serving
a global customer base. Our goal is to extend that reach and to
make it easier to support global customers through a wider spread
of capability.
We have a long-term growth
plan which will deliver increasing
profit whilst investing in people,
precision manufacturing and
business technologies to equip us
well for what lies ahead.
08 / Experienced and proven leadership team
Our Board and senior team have extensive experience of a variety
of business challenges, preparing them for what may lie ahead for
TP Group. They have proven themselves through recent growth
challenges and have built a capability to drive the Group forward.
09 / Cash generative
We have proved over recent years that we can manage our
operations to deliver on time and within budget on major equipment
programmes and systems management projects. This culture and
approach has led to healthy cash performance which is expected
to continue.
06
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
07
Strategic Report / Market Review
Significant opportunities
in high-value markets
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Our sectors
Defence submarine
platforms
Land-based
defence platforms
Surface naval
platforms
Space missions
& operations
Downstream
petrochemicals
Nuclear power
TP Group are system engineers working
in global defence, intelligence & security,
space and energy sectors.
Market / contractor landscape
Regional analysis
The Group’s main markets typically operate with
multi-layered supply chains. End-users such as
major energy companies, national defence forces or
governments buy large scale equipment or systems to
be supplied by prime contractors or integrators acting
across many disciplines, who in turn source from an
array of sub-contractors and smaller companies.
For new-build projects, TP Group acts as a second-tier supplier, working
with the prime contractor on a specific section of the ship, submarine,
plant or platform. Alternatively, we advise end-users on the
commercial, technical or project aspects of whatever they are buying.
We also work with the end-users once the new-build project is
completed. In this case we support them for performance management,
maintenance, repair and in some cases decommissioning.
In the defence and security sectors, we are seeing
increasing interest from various defence related
parties in the United States and the Asia-Pacific
regions arising from geo-political responses to
Russia and China converting into the updating of
defence capabilities by affected nations.
The slowly rising oil price has boosted confidence in the energy
sector in the Middle East with many large facility investments
coming to maturity. Europe has seen continuity of existing
programmes and is expected to remain steady until the Brexit
question is resolved and the future landscape becomes clearer.
Non-UK revenues
Non-UK revenues
2018
2017
2016
2015
2014
£5.2m
£4.3m
£4.6m
£4.9m
£5.3m
08
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
09
Strategic Report / Market Review continued
Growth trends
Primary trend
Defence submarine platforms
The Asia-Pacific (APAC) region is likely to lead the global submarine
market over at least the next five years. Nations in the region are
investing in submarines and other underwater warfare vehicles in
response to China’s rapid modernisation of its fleet.
Submarines typically form the centrepiece of naval fleets. They are
flexible, multi-operational and can complement other resources in
mission planning. The global market fell dramatically at the end of
the Cold War but has since recovered and continues to grow as
major powers update their fleets and developing countries
strengthen their capabilities, particularly in APAC.
Impact
Response
Around 40% of investment is expected to be
in nuclear powered hunter-killer submarines.
Non-nuclear submarines are more numerous and
seek longer submerged times to enhance stealth,
and to improve speed, efficiency, and have longer
endurance capabilities.
TP Group is working with partners on new
carbon capture methods to improve
breathable atmospheres with enhanced
efficiency to support longer submerged
times, whilst also capitalising on our
leadership in quiet systems for this purpose.
Land-based defence platforms
The requirements for military vehicles have changed fundamentally
since the Cold War and have extended to include more focus on
flexibility, connectivity and in some cases autonomy as well as the
traditional concepts of protection, firepower and mobility. Update
programmes have been commissioned all around the world to meet
the challenges of the perceived future battlespace.
Connectivity is a major part of the flexible front-line
force. This means more communications and IT
facilities distributed across the vehicles so that local
situational awareness can be joined up in a command
and control system that can direct battlefield
operations very quickly and accurately.
Surface naval platforms
Shipbuilding has become a global business with constrained
budgets forcing new partnership arrangements in the supply chain.
The Royal Navy’s Type 31e frigate is an example where additional
export sales are expected to drive down the per-vessel cost and
provide a route to a wider market for the successful contractors.
We expect systems and subsystems to become
increasingly modular to allow various configurations
to be built by different yards according to the end
customers’ operational needs. Proven modules will
reduce the risk for the user and so opportunities will
arise for companies like TP Group to gain a market lead
in certain modular systems as we have done for
atmosphere management on bard submarines.
Space missions & operations
Whilst individual mission volumes remain low, and complexity
and costs are high, the market is growing as technologies become
more accessible, driving new economic models for access to space.
Demand for navigation, communication and observation services
is accelerating and new entrants like SpaceX are joining the human
space flight market.
More missions are planned, particularly in the
accessible markets of the United States and Europe.
Small private operators are joining the large agencies
and niche technology providers are lining up alongside
the traditional major players like Lockheed Martin
or Astrium.
Downstream petrochemicals
The industry is recovering from the last few years of weak prices,
enforced efficiency drives and low capital investment. There is now
evidence of supply-side pressure that is leading energy majors to
invest in capacity and new facilities whist boosting productivity in
existing assets.
New investment will be smarter than in past
generations and so digital transformation alongside
new business models for operational partnerships will
emerge. The prime contractors will remain powerful
but will have to work smarter in the next few years.
Nuclear power
The UK nuclear programme hit a setback with the recent withdrawal
of Hitachi from the planned sites ate Wylfa and Oldbury. Nuclear
power remains part of the government’s strategic energy mix but
how that is delivered is again back under review. Decommissioning
remains a key area of activity with high demands on quality and
reliability in the supply chain.
The growing focus on small modular reactors will push
the industry forward alongside the focus on
decommissioning in both the civil and defence sectors.
TP Group has been working closely with
the British Army HQ on their integrated
communications system, and through
the acquisition of Westek Technology Ltd.,
now has the means to support equipment
supply to major armoured vehicle
programmes and work on a truly
integrated supply.
We have been working to build capability
in specialist software systems for
platform management and combat
management on board this type of vessel,
alongside partnerships with technology
specialists to apply our systems
engineering expertise on packaged
equipment that will be required on every
vessel built.
TP Group is already supporting satellite
mission development for defence,
intelligence and security purposes, and is
actively exploring partnerships and other
opportunities in the United States and
Europe to develop our capability further.
TP Group has, in recent years,
repositioned its’ offering to this sector,
moving up from commodity heat
exchanger supply towards more added
value static equipment packages. The
emerging capabilities in the Group for
digital transformation and Artificial
Intelligence (“AI”) are expected to make an
increasing contribution in the sector.
TP Group has built a long-term contracted
position on one of the remaining nuclear
power programmes and will use this, with
the advanced manufacturing facilities and
world-class quality assurance systems at
the Manchester facility, as a platform to
apply similar quality and engineering
principles to the decommissioning
requirement.
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Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
11
Strategic Report / Our Strategy
Investing in
capability & growth
We aim to be the first-choice company and a trusted
partner when large organisations need complex
equipment or systems to achieve their goals.
Our strategy has evolved to drive profitable growth and deliver long-
term financial performance. It is focused on our core strengths –
we are at our best in the development and delivery of highly complex,
high value, low volume equipment and systems that are critical to our
customers’ activities.
Our strategic objectives
2018 priorities
2018 achievements
KPIs
Principal Risks
Sustainable
competitive leadership
in complex, mission-
critical systems
We choose to work on complex, mission-critical
systems that are low volume, high value and
where innovation, skill and experience are
highly valued by our customers and barriers to
entry are high. Within this space, we aim to
outperform our peers, staying ahead of our
competition and enjoying long-term demand
for our services.
Prioritise key competitive
leadership areas
Understand market gaps
Develop technology and capability
roadmap
Awarded research funding
to develop AI systems
Delivered prototype
advanced CO2 capture unit
£1m
external funding
awarded to continue
existing AI research
Brexit
Competitor capabilities
Key employees
Forward view:
2019 and beyond
New solutions in CO2 capture and
management, H2 generation, storage
and use
Adoption of AI in more applications and
as a component of wider solutions
Emerging propositions in the
space sector
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Drive value from
excellent relationships
with major customers
We aim to work with a limited number of
consistent, high-value, long term customers,
whereby we have a detailed understanding of
their business, we have excellent visibility of
future needs and can minimise competitive
threat in a trusted mutually-beneficial
relationship .
Identify current and potential key
accounts
Drive focus on delivery excellence
Align business development to key
account strategies
Contract renewals with
Army HQ and SE Asia
submarine programme
Five-year agreement
with Naval Group
67%
of revenue drawn from
top six customers
Invest in best-in-class
operating capabilities
and technologies
We will ensure that wherever possible we
have the best and most advanced facilities,
equipment, tools, people, business systems and
methods. This will drive operational efficiencies,
improve decision making and our competitive
advantage.
Understand the gaps in capability,
processes and technologies
Plan and execute rapidly
Advanced Manufacturing
Centre (“AMC”) formally
opened in Manchester.
ERP software went live
across the business.
Strengthened the EMT with
recruitment of Senior VPs for
Corporate Development and
Key Account Management.
>£3m
invested in equipment
and systems in last
3 years
Market conditions
Reinforcing delivery quality disciplines
Government policies
Contract delivery
Key employees
Key assets
Cybersecurity
Regulatory burdens
Key assets
Key employees
Liquidity
Credit
Improving supplier performance
ratings on key account reviews
Skills and capabilities to develop
future technologies, solutions and
propositions to support competitive
position
Supplement organic
growth with suitable
acquisitions and
partnerships
We will pursue engagement with third parties to
extend our technical scope, geographic and
market reach, capacity and opportunities.
These engagements may be by acquisition or
by partnership where suitable mutual benefit
arrangements are available.
Define the future capability picture
Integration of Polaris
Identify and evaluate candidate
companies
Refine commercial and integration
processes
Partnership with Micropore
Acquisition of Westek
4
companies acquired
in last 2 years
Acquisition integration
Liquidity
Credit
Foreign currency
Evaluating opportunities in both
services and engineering capabilities
across multiple sectors
Focus on building a joined-up and
balanced business
Expand our geographic
reach in customers and
capabilities
We will seek to expand beyond the limits of the
UK to address global opportunities, and to add
local delivery capability that is technically,
economically or operationally advantageous to
our business needs and those of our
international customers.
Open channels to major international
programmes
Find potential technology or capability
partners with presence in desired
countries
Micropore partnership in
USA
Naval Group framework in
France
Improved presence in USA,
Australia, Europe and
Middle East
£5.2m
non-UK revenues
Brexit
Market conditions
Government policies
Key employees
Foreign currency
Building and strengthening
connections in the United States
Development in Australia for future
programmes
Active support of representative
agents in France, UAE, Asia and
elsewhere
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Strategic Report / Business Model
Delivering sustainable
stakeholder value
Developing trust in partnerships
Our agility allows us to combine skills
in complex critical technology with
innovative thinking to provide bespoke
solutions for our customers.
Innovative
thought
Value creation
We adopt a whole-life model that allows us to take
concepts and ideas and turn them into systems
and equipment that are at the heart of our
customers’ activities.
The value in that process is seen by the customer and
their stakeholders – better intelligence for their decision
making, better environments that allow their staff to
work more efficiently and for longer, and equipment
that works safely and reliably within their facility. We
create intrinsic value for our customers that they have
embraced through long term relationships with our
team and our support.
Project management
The most current suite of project,
programme and portfolio management
tools – known in the Group as P3M.
Consultancy
Specialist advice and guidance throughout
the project’s life to ensure technical and
financial success.
Manufacturing
Closely integrated with design and using
the most advanced precision equipment to
produce highly accurate equipment.
Delivery
Thorough testing and assurance with
on-site commissioning to hand over a fully
functioning and optimised system.
Design
Integrated software tools to analyse and
design components and systems.
Coding
Using a range of advanced software tools to
build systems that work in the real world.
Support
Living with the equipment or system and
its users to ensure long-term safe,
reliable and high-performance operation.
Integration
We work in partnership with specialists to build, deliver
and operate the most advanced systems or equipment
that customers rely upon for their mission’s success.
Critical
technology
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Our competitive
advantage
Drawing on our strengths, we can
deliver mission-critical equipment
in the world’s most challenging
environments.
Experienced management team
Our senior team have extensive experience
of our market sectors, technologies and the
business challenges they hold. They have
proven themselves through the recent
growth phase and have the capability to
drive the Group forward.
Rare knowledge and expertise
We have a rare blend of consultancy, system
development and implementation skills, plus
design, build and support capability through
long-term operational lives. This mix of
expertise means that TP Group is well placed
to support end-users better than most.
Long term customer relationships
We have built long-lasting supply
relationships with our major customers,
who trust in our capabilities to keep them
at the leading edge of performance.
Highly skilled, forward-thinking
employees
We have invested in our team of highly
regarded engineers, committed consultants
and technicians who deliver reliable quality
and innovation in equal measure.
Embedded supplier partnerships
We work as system integrators and so work
with niche technology and service providers
to work alongside us for shared benefit.
Well-established routes
to market
TP Group has become the embedded
supplier on key equipment programmes and
we believe that through continuous
customer satisfaction we will remain
participants in these valuable activities.
A rich heritage
We have 75 years of engineering heritage
and can apply our accumulated knowledge,
skills and experience for our customers’
benefit.
Third party technology
We actively seek advanced technology
partners to work alongside us. It gives us a
wider technology base and provides them
with a proven route to market for their
advanced ideas.
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Annual Report & Financial Statements 2018
15
Strategic Report / Chief Executive’s Statement
We continue to invest
in the growth of our
business and remain
excited by the global
market opportunities
We now have
a business of
significant scale
and international
reach.
Business performance
We delivered a strong performance in 2018
and find ourselves in an excellent position as
we look at the business going forward. We
achieved first-rate growth in our three key
measures – the order book rose 16%, revenue
increased 40% and adjusted operating profit
grew by 85%. Furthermore, operating loss
reduced to nil from a loss of £1.0m in 2017.
All of this was delivered whilst integrating
one corporate acquisition, completing
another and investing in our capability and
technology for the road ahead.
I am particularly pleased that the Group has
also achieved a strong cash flow performance,
a fundamental KPI for the business, with
cash increasing by £0.5m to £22.4m.
With strong revenue growth and cash
generation, we were able to balance
profitability and investment. We are still
working on our long-term growth plan which
will deliver increasing profit in line with
market expectations whilst investing in
people, precision manufacturing and
business technologies that equip us well
for what lies ahead.
This year’s results, more than ever, show
how the Group is well placed to succeed
on multiple fronts operationally, whilst
working hard behind the scenes to build
an exciting future.
We built upon our reputation, relationships
and excellent offerings in our markets to
drive order intake well ahead of revenue
which ensures our continuing growth.
Further details on our financial performance
are covered in the Group Chief Financial
Officer’s report.
Competitive leadership
TP Group has an enviable position as
a supplier of high-integrity packaged
equipment. These are low-volume, high-
value projects where we are trusted for our
expertise, experience and innovation. This
was a deliberate choice and the foundation
of our strategy that places us at the
premium end of the markets we serve.
An emerging technological challenge in
certain defence platforms is for quiet
operations, and TP Group’s engineers have
always had this high on their priority lists.
Our systems are among the quietest in the
world at present and we are working with our
prime contracting partners to improve this
even further.
Part of our acquisition strategy is to seek
out the next wave of leading technologies
to build future competitive advantage.
For example, Polaris has a small team working
on Artificial Intelligence systems with some
very innovative ideas. We recognised the
potential in this area and invested to build
critical mass in this team. In October, Polaris
was awarded almost £1 million pounds of
MoD funding to continue this development
as leaders of a consortium including Thales
and Exeter University.
Major customers
We are very aware that customer trust
and loyalty is a pillar of our competitive
advantage and hence our strategy. We have
grown beyond our UK heritage and this
year signed a five-year framework
agreement with Naval Group that covers
both submarine and surface ships. That
agreement has already yielded a £2 million
contract for advanced equipment.
One of our key metrics is the number of
accounts that generate more than £1 million
in annual revenue. This year, six such
organisations together accounted for 67%
of our revenue. Our goal is to take other
existing accounts and develop them in
this way. David Lomax joined us from BAE
Systems, one of our existing major accounts,
to lead this initiative and will benefit the
Group by applying his experience from the
buy-side of such relationships. He will help
us to strengthen our links with companies
like TKMS and Baker Hughes GE, with the
latter awarding a follow-on £6.4 million
contract just after the year-end, that
reflects very positively on the work we
have done on the original contract and the
potential from this relationship.
Investing in capability
and technology
Our plan throughout the year was to
invest to build a business for the future.
We continued to invest in precision
manufacturing in Manchester and formally
opened the Advanced Manufacturing Centre
in February 2018. This facility differentiates
us from our peers in UK manufacturing, and
creates a competitive advantage to succeed
in demanding environments like nuclear
fabrication. The manufacturing leadership
has also committed to continuous
improvement through staff training and
a workplace organisation approach known
as Five-S that has improved operational
efficiencies in both locations.
Quality systems are also key to our
competitive advantage and the Group has
committed significant effort and investment
to ensure compliance with GDPR and the
primary standards for quality, environment
and health and safety. We are also working
with market-specific bodies to demonstrate
our commitment to performance through
initiatives such as Fit4Nuclear. We were
an early subscriber to this initiative and
continue to support its evolution.
Work has continued throughout the year to
adopt Group-wide business systems that
will drive operational efficiency and allow
us to compete better on a global scale
as a joined-up business. We have already
benefited from the Group-wide financial
system that became fully operational this
year, and great progress has been made
on the Professional Services Management
System and Group ERP and CRM systems.
The result is a business that is better
informed, better connected and able to grow
as we build or acquire new capability and
new customers.
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People
Alongside our investment in advanced
facilities and business technologies, we are
also investing in people. New roles have
been created as we have grown, and we
have worked hard on staff development
programmes across the Group. A Group-
wide Core Values programme was also
launched and rolled out to all staff early
this year.
Acquisitions and partnerships
Since the fundraising in July 2017, we have
completed two acquisitions and have been
actively reviewing other opportunities to
build our capability, geographic reach and
customer community. During 2018, we
integrated Polaris into the CaPS business
stream and benefited greatly from their
cost engineering skills becoming part of
our portfolio of services.
In November 2018 we acquired, for and
initial consideration of £3.0m, Westek
Technology Ltd. This is consistent with our
overall business approach, because they
deliver packaged equipment as we do,
and add new major customers for the
Group who build aircraft and land vehicle
platforms. They also bring significant
electronic design and packaging experience
that will add to the existing work we do on
control system cabinets.
In addition to reviewing acquisition
opportunities, we have also worked on
developing a number of strategic commercial
and technological partnerships. These often
involve international companies where we
can form a technical alignment that builds
a stronger joint proposition which provides
local access to markets and customers in the
UK and in the partners’ locations.
One example is the link with Micropore Inc.
in the United States. We have collaborated
to produce new enclosures for their carbon
dioxide removal materials that will be
commercially available this year, and made
a joint proposition to the MoD that was
rewarded with a £1.2m contract just after
the year-end. We are also working on
other relationships in Europe and the
United States.
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Annual Report & Financial Statements 2018
17
Strategic Report / Chief Executive’s Statement continued
Geographic expansion
TP Group has operated from a UK base
and delivered a consistent value of export
business in recent years. As we grow, we
need to take steps to build on that heritage
and grow our international presence.
We have established relationships in France,
Germany, Australia, the Middle East and
South East Asia, and it has become clear
this year that our UK-based precision
engineering capability is well regarded in
the global market.
During 2018, we increased our overseas
account management and business
development activity through a combination
of direct sales and local agents or partners
who extend our reach in specific territories.
Business development meetings have been
carried out in the United States, Australia,
the UAE and South East Asia, and we are
confident of winning additional business
from these activities.
Outlook
TP Group is stronger and strategically better
placed today than when we delivered our
strategic milestone of break-even in 2015.
Since then, three acquisitions and
substantial investment for organic growth
have created a global consulting and
systems engineering Group. There is more
to come in this area and I will continue to
update all stakeholders as initiatives mature.
We now have a business of significant scale
and international reach. This too will grow as
we enter the next phase of our plan and
engage more actively with customers and
partners overseas.
We have a proven executive management
team and have built a strong team of
operational leaders with the experience and
bandwidth to exploit market opportunities
to the full and deliver efficiently and
carefully under the Group strategy.
With these features, I believe the Group is
well-positioned to capitalise on the
substantial opportunities in our markets in
line with our strategic objectives and
deliver another good year of progress.
Phil Cartmell
Chief Executive Officer
2019 initiatives
To achieve our strategic ambitions,
TP Group is committed to some key themes.
Find and develop high
value opportunities
We are at our best working on highly complex
and challenging projects. These tend to be
high in value, and when done well offer us
a lot of potential for high returns.
Anticipate and serve
customers’ needs
By being closer to our customers we can try
to be one step ahead. That places us ahead of
our competition and ahead of the requirement,
so we can respond in the most considered and
effective way possible.
Build on our competitive
advantages
We have developed strong positions in a
number of niche areas. We will continue to
innovate and develop and so take the lead
as new opportunities emerge.
Collaborate and deliver
As the Group has grown, we have found
complementary skills and resources that can
be joined together. This helps us to serve our
customers seamlessly and economically and
drives innovative thinking as experiences are
shared and challenges met.
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Core values
TP Group has adopted a set of core values that we
share and promote to all our staff to underpin
behaviours and beliefs. They enable our people to
deliver outstanding performance proudly. It’s not
just about the projects we deliver but how we
deliver them.
Our six core values are:
01 Achieve together
Thrive on knowledge sharing, helping each other and
delivering projects as a team
02 Embrace responsibility
Take responsibility for our own work. Trust our people
to deliver their projects and have ownership in what
they do
03 Strive for excellence
Constantly strive to achieve the highest standards in
our work
04 Build unity
Work cohesively with our colleagues, customers and
partners to build strong and lasting relationships
05 Challenge ourselves
Challenge ourselves and our people to develop and
grow. To learn new things and to always seek to
improve what we do
06 Have integrity in all that we do
Always conduct our business fairly, with honesty and
transparency
These values are becoming a way of life for everyone
at TP Group. They are the bond that joins us together
and are part of the reasons our customers will choose
us to deliver for them.
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Annual Report & Financial Statements 2018
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Strategic Report / Strategy in Action
Our 2018 strategic highlights
Case Study:
Finding and developing
high value opportunities
In 2016, the Manchester management team decided to
pursue more complex opportunities with higher added-
value. Nuclear grade heat exchangers typically use
sea-water as a fluid and so titanium is a common
material but is more difficult to work with in
many ways. These challenging characteristics reduce
competition and lead to higher value projects.
Early opportunities were challenging and
taught many lessons, until in late 2016 the
team was successful in presenting a
manufacturing process and investment plan
that convinced GE Oil & Gas to award
a contract to build condensers for a nuclear
power system.
Over £2 million was invested in the facility
with new equipment, staff, training,
processes and partners. The Advanced
Manufacturing Centre was opened in
February 2018 and is now active delivering
this project and other high-precision work
for a range of new customers.
The strategy developed through very close
attention to the customer needs and delivery
to the highest possible standards. In early
2019 the site’s evolution into a world-class
manufacturing hub for critical equipment in
the energy and defence sectors was rewarded
with a follow-on contract for additional units
worth £6.4 million that will keep the facility
busy for the next four years.
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Case Study:
Anticipating and serving
customer needs
TP Group consultants are often engaged as a
“customer friend” in complex procurement or
system implementation projects. This means
extending the customer’s knowledge and adding
processes and resources that the customer doesn’t
have to ensure a successful project delivery. In
short, we take away much of the customer’s
problem and get on with the job in hand.
An initial contract to provide independent
technical support to the Army HQ on the
£3.2 billion Land Environment Tactical
Communications and Information Systems
(LE TacCIS) programme was awarded in
October 2016. This provided skills in
Systems Engineering, Project and
Programme Management and Business
Analysis that were not available within the
Army’s own resources.
The embedded team provided insight
throughout the programme across the
various layers and components to build
a performance structure that was
commended as an “excellent exemplar
of good practice”.
In this role, our consultants are best placed
to see what’s coming and prepare for it.
This was recognised as being so valuable to
the customer that in April 2018 we were
awarded an extension to the contract worth
up to £2.3 million over 2 years.
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Annual Report & Financial Statements 2018
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Strategic Report / Strategy in Action continued
Case Study:
Build on our competitive
advantages
TP Group has built a leading position as system
engineers for complex, mission-critical equipment
on submarine platforms. The strategic plan aims to
take that competitive strength and extend it into
new markets, systems or platforms.
The opportunity to acquire Westek Technology
Ltd fitted that plan excellently. Westek
systems are complex IT and data equipment
that are configured and built to withstand
demanding use in very harsh environments
yet give reliable high performance no matter
what is thrown at them.
The parallels between this and our other
system engineering activities were clear, yet
the applications and the market sectors they
are used in were quite different. Through the
acquisition and the resulting integration of the
businesses we have discovered that the
technical and business philosophies are indeed
similar but both companies can add value to
the other. Westek has a customer base and
history in surface ships, land and air platforms.
TP Group has customer contact all around the
world, and the resources to push the business
forward on multiple fronts. Together this is a
powerful proposition with a lot of potential.
This greater competitive advantage led to the
award of a contract for £0.75 million from a
UAE customer, more than 20% of their prior
year’s revenue and an illustration of their
competitive position in global markets.
Case Study:
Collaborate and deliver
Collaboration is key to our success, both internally
across the Group and externally with partners,
suppliers and customers.
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When we acquired two companies from
the Wellman Group in 2012, they were
independent operators with no cross-over
between their two sites. We rebranded them
to become TPG Maritime and TPG Engineering
to begin the harmonisation and invested in
both sites to focus on their strengths whilst
supporting each other on customer deliveries.
Fabricated sections of defence equipment
packages are now produced in Manchester for
assembly in Portsmouth under the integrated
Technology and Engineering business stream
umbrella. Quality assurance remains in-house
under a single management system and
costs are reduced as a consequence.
We also collaborate externally. Early in 2018
we signed a partnership agreement with
Micropore Inc, an American developer of
carbon dioxide adsorbent systems used in
rebreathing and life support applications.
The agreement allowed TP Group to
act as Micropore’s preferred equipment
manufacturing partner in the maritime sector
and work together to pursue opportunities.
Since the agreement the team has successfully
demonstrated a prototype small system
package using Micropore’s ExtendAir®
adsorbent technology and signed a
£1.2 million contract with the MoD to provide
Extendair® Lithium Hydroxide Curtains for
management of localised carbon dioxide
contamination on board submarines.
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Annual Report & Financial Statements 2018
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Strategic Report / Divisional Review
Consulting &
Programme Services (CaPS)
Business performance
Revenue
£11.3m
+95% (2017: £5.8m)
2018 was a year of accelerated performance
for the CaPS business unit. It achieved
critical mass and established a reputation
with its customers that was rewarded with
strong renewal business, a critical feature of
this business model, and new order capture.
This was achieved through the combination
of organic growth and the addition of Polaris
which delivered an improvement of £1million
in adjusted operating profit.
Creative commercial
methods
TP Group founded the Enterprise
Technical Alliance (ETA) to deliver a simple
contracting mechanism for the MoD to
engage with a group of Small/Medium
Enterprises (SMEs) for specialist, agile and
responsive support to major programmes.
Adjusted operating profit
£0.2m
(2017: £0.8m loss)
Operating loss
£0.5m
(2017: £1.2m)
Building on strong
relationships
Our team has been working with Army HQ
since 2016 and has extended this work
to provide a range of customer services
including management support of the
programme, benefits, schedule, stakeholders,
dependencies and risk management as part
of an overall transformational change. This
grew with the award of a £1.2m contract in
2018 with the potential for follow-on work of
similar value.
TP Group’s consultants enable the transformation
and evolution of our clients’ systems and operations
to meet strategic objectives and business vision.
We use well-established systems engineering and
project management principles to consider the
system holistically and optimise both the technical
system and its practical implementation.
Our consultants bring domain-leading knowledge,
skills and experience to work within client teams or
take full responsibility for the delivery of outcomes.
CaPS business growth trend
2018
2017
2016
£5.8m
£2.1m
£11.3m
Note – 2017 revenues are restated to reflect the impact of IFRS 15,
prior years are as originally reported, refer to note 2.1 to the financial
statements for further details
Closing order book
£6.0m
+212% (2017: £1.9 m)
The ETA was selected as part of the
Ministry’s Submarine Enduring Naval Design
Partnering where we can provide early
phase submarine design and technology
studies, through-life technology
management studies and support for
submarines, systems and equipment.
This provides a valuable business stream and
builds our reputation, presence and profile
for future programmes where we can apply
our innovation and technical capability.
Innovative technical
development
Following the Polaris acquisition, the Group
has invested to build their team developing
advanced Artificial Intelligence solutions.
They were recognised with £0.9m of
government funding to work with prime
contractors and academic institutions on
the development of autonomous navigation
systems for future unmanned naval missions.
Outlook
In 2019 the CaPS business will focus on
continuing to build on our reputation as a
trusted provider of services in the defence
and security sectors. There are growth
opportunities available in Artificial
Intelligence, space and intelligence
programmes, and we will pursue these fully
whilst also linking with our engineering
colleagues to promote the integrated
proposition of TP Group.
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Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
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Strategic Report / Divisional Review
Technology
& Engineering (T&E)
Business performance 2018 was a year of organic growth
and improved efficiency in the T&E
business unit.
Revenue
£27.7m
+25% (2017: £22.1m)
Adjusted operating profit
£4.9m
+23% (2017: £4.0m)
Operating profit
£2.6m
(2017: £2.3m)
Demand across the business remains high.
Much of this demand is over multi-year
projects, but the closing order book still
equates to more than 17 months’ work at the
2018 run-rate, so future visibility of factory
loading is encouraging.
Profitability has improved through various
production efficiency initiatives and
integrated working between the sites.
Recovering oil
& gas business
Improving confidence in the downstream
processing sector, along with the step-change
in Manchester’s precision manufacturing
capability has boosted order intake, with new
contracts in India and Saudi Arabia. Prospects
in downstream oil and gas are better than
they have been for many years.
Our highly skilled multidisciplinary engineering teams
apply our advanced technology to produce solutions
for our customers which can be relied upon for long
service life, in challenging or dangerous environments.
We have the experience of working in highly regulated
industries and safety critical environments working
across the whole lifecycle from concept to disposal.
Based upon 75 years of engineering heritage and
leveraging our unique knowledge, skills and experience,
we combine a range of high-end capabilities to
produce high-integrity equipment from our factory
facilities in Portsmouth and Manchester.
T&E business growth trend
2018
2017
2016
£27.7m
£22.1m
£19.1m
Note – 2017 revenues are restated to reflect the impact of IFRS 15,
prior years are as originally reported, refer to note 2.1 to the financial
statements for further detail
Closing order book
£42.3m
(2017: £39.8m)
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Continuing presence
in defence
programmes
The Royal Navy is celebrating 50 years of the
Continuous At-Sea Deterrent, known as CASD.
Since April 1969 there has always been one
submarine from Clyde Naval Base carrying out
Operation Relentless. TP Group, through its
current and preceding iterations has been
connected with this programme throughout,
and we are proud to be associated with its
critical contribution to national security.
Investing in
production systems
We have implemented the FactoryMaster ERP
system and a shop floor data capture system
to deliver business intelligence that leads to
more efficient planning and manufacturing
with improved quality assurance. We are also
optimising layout and process at both primary
manufacturing sites. This includes the
re-purposing and refurbishment of a 10,000
square foot area in Manchester as a specialist
fabrication cell to support cross-Group
working on equipment packages.
Westek acquisition
Late in 2018 we acquired Westek
Technology Ltd. We have already seen
progress in customer outreach with new
contracts in the UAE and elsewhere, and
first steps in adding to their manufacturing
capacity to meet demand.
Outlook
The focus for 2019 is to work towards three
main goals. We aim to:
• protect our core business by continuously
improving quality assurance, efficiency
and customer interaction;
• build upon our experience with packaged
gas management equipment to pursue
technical development in new fields like
carbon capture and the hydrogen
economy; and
invest in further developments of
our high-integrity clean fabrication
and assembly.
•
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Annual Report & Financial Statements 2018
27
Strategic Report / Key Performance Indicators
Financial measures
Our strategic priorities
01
02
03
Sustainable competitive leadership in
complex mission-critical systems
Drive value from excellent relations
with major customers
Invest in best-in-class operating capabilities
04
05
Supplement organic growth with suitable
acquisitions and partnerships
Expand our geographic reach in customers
and capabilities
Why we measure it: Orders are
the primary demand stimulus
for the business and are the
early indicator of revenue and
profit performance in following
periods. These are binding
commitments and so do not
include framework contracts or
agreements where umbrella
terms are agreed but tasking
orders are yet to be issued.
Performance: Order intake has
remained high and well ahead of
revenue, ensuring continuing
growth. Large scale, long term
contracts as seen in 2014 and
2017 can distort the picture in
single years yet the five-year
growth picture is clear.
Why we measure it: Revenue is
the fundamental indicator of the
scale of the business, and also
demonstrates our ability to
convert demand into value and
fuels the generation of cash.
Performance: Continuing the
growth trend with an increase
of 40%.
Order intake
£43.2m
Order intake
2018
2017
2016
2015
2014
43.2
44.7
23.8
17.4
24.9
Link to strategic priorities
01 02 03
04 05
Revenue
£39.0m
Revenue
2018
2017
2016
2015
2014
39.0
27.9
21.2
20.4
21.7
Link to strategic priorities
01 02 03
04 05
Why we measure it: The order
book is a clear indicator of
forward demand for the
business. It is the basis of
capacity planning and resource
allocation.
Performance: The order book
grew by 16% and equates to
almost fifteen months of
activity at the 2018 run-rate.
Order book
£48.3m
Order book
48.3
41.7
2018
2017
2016
2015
2014
17.0
14.5
17.3
Link to strategic priorities
01 02 03
04 05
Cash
£22.4m
Cash
22.4
21.9
2018
2017
2016
2015
2014
9.2
7.0
9.6
Link to strategic priorities
01 02 03
04 05
Why we measure it:
Maintaining our cash balance
allows us to manage the
operational business effectively
and flexibly, and have resources
available for investment as it
is required
Performance: The closing cash
balance rose by £0.5m after
an outflow of c. £3m for the
acquisition of Westek, to
maintain available funds to
support our growth ambitions.
Note – 2017 value is restated to reflect the impact of
IFRS 15, prior years are as originally reported, refer to
note 2.1 to the financial statements for further detail
Adjusted operating profit
Productivity – revenue per head
£4.0m
Adjusted
2018
2017
2016
2015
2014
-2.1
4.0
2.1
1.1
0
Link to strategic priorities
01 02 03
04 05
Why we measure it: Adjusted
operating profit provides an
indication of the performance
of core operating activities after
removing transactions that are
not reflective of the routine
business operations. It
demonstrates our ability to
convert the order book
efficiently whilst managing
indirect costs.
Performance: Adjusted
operating profit increased 85%
as a result of close operational
focus on improving margins and
on-time, right-first-time
delivery performance.
£181k
Productivity
2018
2017
2016
2015
2014
181
139
131
120
126
Link to strategic priorities
01 02 03
04 05
Why we measure it: Revenue
per head is an indicator of
overall efficiency and
productivity and contributes to
margin improvement initiatives.
Performance: Productivity
across the Group rose by 18%,
reflecting the use of smarter
manufacturing technology and
processes and a drive to move
the delivery mix towards higher
margin specialist business.
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Annual Report & Financial Statements 2018
29
Note – 2017 values are restated to reflect the impact of IFRS 15 and includes
revenues introduced from acquired companies. Prior years are as originally
reported. Refer to note 2.1 to the financial statements for further detail
Note – 2017 values are restated to reflect the impact of IFRS 15, prior years
are as originally reported. Refer to note 3 to the Accounts for the reconciliation
between Operating Profit and Adjusted Operating Profit
Note – 2017 values are restated to reflect the impact of IFRS 15,
prior years are as originally reported
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Strategic Report / Chief Financial Officer’s Review
We have delivered strongly
against all our KPIs
I am pleased to report that TP Group has continued to deliver
against our strategy with improved adjusted operating profit
and closing order book, alongside a strong closing cash position.
It is pleasing to note that this performance has been derived
from both business streams, and the investment in our CaPS
business is now yielding positive returns. As a growing and
entrepreneurial business, we will continue to invest in people,
capability and systems to deliver our long-term goals.
85%
growth in adjusted
operating profit
Group Key Performance Indicator
Order Intake
Closing Order Book
Revenue
Adjusted Operating Profit
Operating Loss
Cash
Closing Order Book by Business Stream
T&E
CaPS
Group Closing Order Book
Revenue by Business Stream
T&E
CaPS
Group Revenue
Adjusted Operating Profit by Business Stream
T&E
CaPS
Central Costs
Group Operating Profit (adj.)
2018
£’m
43.2
48.3
39.0
4.0
0.0
22.4
2018
£’m
42.3
6.0
48.3
2018
£’m
27.7
11.3
39.0
2018
£’m
4.9
0.2
-1.1
4.0
2017
£’m
44.7
41.7
27.9
2.1
-1.0
21.9
2017
£’m
39.8
1.9
41.7
2017
£’m
22.1
5.8
27.9
2017
£’m
4.0
-0.8
-1.1
2.1
Change
£’m
-1.5
6.6
11.1
1.8
0.9
0.5
Change
£’m
2.5
4.1
6.6
Change
£’m
5.6
5.5
11.1
Change
£’m
0.9
1.0
0.0
1.8
Systems, the extension of our work with Army
HQ worth up to £2.3 million and a £2.0 million
order from Naval Group for export equipment
under our five-year framework agreement.
In the energy sector, we have worked hard to
secure the second phase order on the nuclear
condenser systems project with Baker Hughes
GE. This contract was secured just after
the year-end in early January 2019, and at
£6.4 million, gives us a strong start to the
current year. This type of work is consistent
with our strategy to pursue premium market
opportunities where competition becomes
more capability and quality driven with a
consequential improvement in gross margins.
2017 was a record high in the Group’s closing
order book and to continue growing from
that position through 2018 is a notable
achievement and reflects upon the
investment made in business development
and marketing resources across the Group.
Revenue
Revenue increased by 40% to £39.0 million
(2017: £27.9m), with growth delivered
across the Group.
We benefited from a strong opening order
book, and with continuing order capture well
ahead of the revenue conversion, demand
remained high throughout the year. Growth
from the existing business was significant,
contributing £10.3 million, which includes
£4.6m related to Polaris Consulting which
was acquired in December 2017. The
remaining £0.8 million came from the
acquisition of Westek in November 2018.
Technology and Engineering continued to
improve throughput and ran at consistently
high operating efficiencies. The business
stream’s revenue increased by 25% to
£27.7 million (2017: £22.1m). This reflects
the initiatives and investment by local
management teams in both Portsmouth
and Manchester to pursue continuous
improvement and lean methods as part
of an ongoing performance culture.
Consulting and Programme Services
benefited from a blend of growth in
established programmes, new contract
engagements and additional revenues
from the Polaris acquisition that closed in
December 2017. The consolidated CaPS
business, with revenues of £11.3 million
(2017: £5.8 million) now has a critical mass
that enables access to a wider range of
larger and more complex programmes
where they can compete effectively to
drive future growth.
Adjusted operating profit
Adjusted operating profit increased by 85%
to £4.0m (2017: £2.1m), primarily as a result
of additional volume and an operational
focus on improving margins and delivery
performance.
The existing business contributed £1.7m of
this increase, the balance coming from the
acquisition of Westek.
In the Technology & Engineering business
stream, revenue growth noted above was
converted at similar gross margins to the
prior year, coupled with close control of
overheads which led to another improved
adjusted operating profit position of
£4.9 million (2017: £4.0m).
It is pleasing to note that the strategy of
investment in Consulting and Programme
Services is beginning to deliver improving
returns as the business stream reaches a
significant scale.
Adjusted operating profit for CaPS improved
by £1.0 million in 2018 to a profit of
£0.2 million, from a loss in 2017 of £0.8m.
The CaPS business will continue to build on
this position and invest in people, processes
and systems to support long-term business
growth. We recognise that this investment
does not necessarily translate to adjusted
operating profit immediately as there
is a lag from investment in the business
infrastructure and capability to the delivery
of both top-line growth and operating
margins.
Operating Results
Group KPIs
We have delivered strongly against all our
KPIs. We have balanced the interests of
growth and in-year performance with
investment to ensure that we are well placed
to deliver sustainable and improving returns.
Order book
The Group’s closing order book increased by
16% to £48.3 million (2017: £41.7 million).
This was drawn from the successful closure
of significant long-term contracts in the
defence sector, alongside a recovery in
demand in the energy market. This included
the second call-off of £12.5 million against
the COGS framework agreement with BAE
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Strategic Report / Chief Financial Officers Review continued
Closing order book
£48.3m
Revenue up
40%
Group operating loss
The Group’s operating loss reduced to nil,
an improvement of £1.0 million from 2017.
This was driven by an increase in the
underlying profitability of the business as
noted above, offset by a number of factors:
• an increase in depreciation and
amortisation (£0.5m) relating to the
investments made in the business,
specifically the Advanced Manufacturing
Centre, and the adoption of IFRS 16 (refer
below for further information); and
• an increase in acquisition-related
expenses of £0.4 million.
Cash and bank balances
Year-end Group cash of £22.4 million
(2017: £21.9m), was up on the prior year,
notwithstanding the acquisition of Westek,
for an initial purchase price of £3.0 million.
This was achieved through strong working
capital performance across the business.
Acquisitions, investments
and disposals
The Company announced the acquisition of
Westek Technology Ltd. in November 2018.
The purchase was completed for an initial
consideration of £3.0 million on a normalised
net asset basis, funded from the Group’s
cash resources. Further consideration of up
to £0.5 million is payable on delivery of
certain employment transition activities
within 12 months following completion of
the acquisition.
The Group incurred £0.7 million of
acquisition-related costs (2017: £0.2m)
predominantly relating to the transaction
noted above and additional search fees
and services received. These were charged
to the Statement of Comprehensive Income
in the year.
Previous acquisitions led to earn-out
payments of £0.3 million in year and the
directors have agreed the remaining earn-out
payments in relation to ALS Technologies and
Polaris, which will be settled in 2019.
The Group continues to invest in the facilities,
equipment and systems to build capability
and develop our propositions. Across the
Group, £0.9 million was invested in 2018.
The major investment was in the continuing
enhancement of the Advanced Manufacturing
Centre and supporting infrastructure at the
Manchester facility, plus further investment
in IT and systems infrastructure across the
Group to support operational efficiency
improvements through refined business
processes and methods.
As noted last year, the directors reached an
agreement with the local management to
dispose of the trade and assets of our
low-end fabrication activity, based in Oldham,
Lancashire, under a management buy-out.
These assets, following their impairment,
were valued at less than £0.1 million on
completion at 27 April 2018 and were
disposed of for a total consideration of £0.3
million payable over the next 3 years.
Non-operating items
During the year, the Group incurred one-off
non-operating costs of £0.8 million
(2017: £0.7m). These relate to the business
transformation actions required by the
strategic plan, including employment-related
restructuring costs and earn-out provisions
relating to Polaris and Westek.
Finance costs
Finance costs of £0.1 million were incurred,
predominantly relating to the fair valuation
of a forward currency exchange contract
and financing fees in relation to funding of
the Advanced Manufacturing Centre.
Taxation
The Group expects to recover tax payments
on account of £0.2m for the 2018 financial
year (2017: £nil).
Results and dividends
The directors continually evaluate Group
performance, and do not currently
recommend the payment of a dividend
(2017: £nil).
Adoption of IFRS 15 and IFRS 16
The Group has adopted IFRS 15 “Revenue
from Contracts with Customers” and applied
the practical expedient methodology, under
which contracts beginning and ending in
2017 or that were completed prior to
1 January 2017 are not restated. The impact
of this is a reduction in opening reserves of
£3.2 million. Refer to note 2.1 to the financial
statements for further details.
The Board has decided, in accordance with
the early adoption provisions of IFRS 16
“Leases” to implement the standard one
year ahead of requirement. Rather than
apply IFRS 16 retrospectively in accordance
with IAS 8 “Accounting Policies, Changes
in Accounting Estimates”, the Group is
permitted to apply IFRS 16:c5(b) under which
comparative information is not restated. The
Group has recognised the cumulative effect
of initially applying IFRS 16 as an adjustment
to the opening balance of retained earnings
at 1 January 2018, the date of initial
application. The impact of this is a reduction
in reserves of £0.7 million and the creation of
a right-of-use asset valued at £4.5 million as
of 1 January 2018 with an opening lease
liability of £5.2 million. Refer to note 2.1 to
the financial statements for further details.
Brexit
As Brexit negotiations progress, the Group
has looked at the potential impacts on the
business. In the year ended 31 December
2018 a substantial amount of the Group’s
revenues originate in the UK and were
related to the UK defence market, and
therefore ultimately to UK government
defence spending. To the extent that
this is impacted by Brexit, it may have a
knock-on impact on the Group depending
on Government decisions on current and
future programmes.
Our strategy is to increase our level of
overseas work and the nature of our
approach to this may be impacted by Brexit.
In 2018 the amount of revenue from non-UK
customers in the European Union was less
than 5%. Most of this revenue was
attributable to long-term defence contracts
in France and Germany and these are not
expected to be materially impacted by any
short-term uncertainty surrounding the EU
exit process. This is a consequence of:
• our competitive position in the key global
•
programmes we support; and
the long-term nature of the contracts
and low number of deliverables provides
the business ample opportunity to
ensure the requisite delivery paperwork
is in place well ahead of time.
We are also potentially subject to low-level
exposure to supply of raw materials, most
notably steel, from the EU. A number of
positions have been adopted to mitigate
our risks on pricing and availability from
the EU supply chain. A very small section of
our supply chain is based in or sources from
Europe. Where possible we are looking to
source from else-where but in any event the
nature of the goods means that under WTO
rules we expect them to attract low levels
of tariffs (c2%). Similar to our deliveries
to customers, the business has excellent
visibility of when these goods are required
and we can plan receipt accordingly to tie
into customer build programs.
In the UK defence market (and indeed wider
Government spend across our sectors)
activity levels appear to remain high and we
are encouraged by recent bid and contract
activity. Until the Brexit outcomes are
known, however, it is not possible to predict
accurately the true impact on the UK
economy and our activity within it.
In Europe, whilst the activity only represents
a small percentage of Group revenue, we see
limited reason for concern, as an example
last year we signed a five-year framework
agreement to facilitate further defence
related work with Naval Group in France.
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Auditor
As part of our continued drive to adopt the
highest possible standards of corporate
governance and to tie in to the final year of
service for the current audit partner, before
his rotation off the engagement, the
directors have undertaken a competitive
tender process for the 31 December 2019
year-end audit. The directors have resolved
to appoint RSM UK Audit LLP as auditors
following the completion and issuance of
these financial statements. Deloitte LLP has
indicated its willingness to remain in office
until RSM UK Audit LLP are appointed.
Going concern
The directors are satisfied that the Group
has adequate resources to continue in
business for the foreseeable future and
accordingly continue to adopt the going
concern basis in preparing the accounts. In
reaching this conclusion, the directors have
considered forecasts that cover a period of
at least twelve months from the date of the
approval of these financial statements.
The forecasts take into account the Group’s
existing cash resources of £22.4 million,
which provides sufficient insulation against
any reasonable downside scenarios and risks.
Whilst there might be some disruption in the
short term on some of its projects, TPG has
limited concern that Brexit could impact on
its ability to deliver against its forecast
targets. Based on:
•
the quality of TPG’s order book and the
programs it is on (both globally and in
the UK);
the limited number of activities the
business has in the EU and the strong
position it holds on them;
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).
•
•
•
Derren Stroud
Chief Financial Officer
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Strategic Report / Corporate Social Responsibility
TP Group strives to provide specialist services and
engineering solutions in a manner that does not
compromise our integrity or our high standards of
business conduct. We take seriously our responsibility to
behave in a manner which is both responsible and ethical,
and introduced our Corporate Code of Conduct in 2017.
This code applies to all officers, employees, workers,
contractors and all those representing TP Group (including
its subsidiaries) in any capacity and covers a range of areas
where we define the standards of behaviour and conduct
that we expect as a responsible business.
We have worked hard
in staff developement
programmes across
the Group.
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Diversity & inclusion
We create an environment where individuals are
treated with dignity and respect, in line with our
duty to provide equal opportunities to all.
We respect human rights and do not directly or
indirectly discriminate between persons based on
reasons of race, creed, sex, gender, sexual
orientation, social status, religion, nationality,
pregnancy, age or bodily or mental disability.
We respect the cultures, customs and history of
every country in which we operate or with whom
we may come into contact.
Customers
We listen to the opinions of customers and
take account of them in the carrying out of
business affairs.
We are implementing a formal customer feedback
process across our key accounts to drive a more
joined up understanding of how we can seek to
continuously improve the services we offer to
our customers.
Employee engagement
We actively encourage employee engagement
throughout our sites. At the end of 2018 we
introduced an internal communication strategy which
included more direct communications with employees
such as email bulletins, an employee led, quarterly
magazine and the introduction of our core value
programme, ‘Team tpgroup’. Our core values were
created in collaboration with our employees and
encompass all our beliefs at TP Group. They are:
• Achieve together – thrive on knowledge sharing,
helping each other and delivering projects as
a team.
• Embrace responsibility – take responsibility for
our own work. Trust our people to deliver their
projects and have ownership in what they do.
• Strive for excellence – constantly strive to achieve
the highest standards in our work.
• Build unity – work cohesively with our colleagues,
customers and partners to build strong and lasting
relationships.
• Challenge ourselves – challenge ourselves and our
people to develop and grow. To learn new things
and to always seek to improve what we do.
• Have integrity in all we do – always conduct our
business fairly, with honesty and transparency.
We drive a culture of respect for one another
and make every effort to ensure that the work
environment, whether in an office, workshop or
other location where work is carried out, is open
and comfortable.
We do not tolerate any forms of bullying. For the
avoidance of doubt, bullying involves any offensive,
intimidating or insulting behaviour involving the
misuse of power that can make a person feel
vulnerable, upset, humiliated, undermined or
threatened.
If someone’s actions in the work environment are
offensive and hostile, we encourage others to speak
up without fear so that we can remedy the situation
quickly and sensitively.
Phil Cartmell
Chief Executive Officer
Training
TP Group is committed to ensuring that all
employees are able to meet their career
aspirations, and as such place a high value on the
development of its staff. As well as making sure
that all employees are fully trained in their specific
job roles, we also offer a suite of development
opportunities delivered by both internal and
external providers based on an individual’s career
path and learning requirements. To ensure that
we continue to look to the future, we develop both
our current and future leaders with a variety of
leadership development opportunities and, for
those who are early in their careers we are looking
at developing robust graduate and apprenticeship
schemes which will allow us to continue to recruit
and retain the best talent.
Anti-bribery & corruption
We have a clear anti-bribery policy supported by a process which is
followed across the business to put in place all reasonable steps to
ensure full compliance and control in this area. In our business dealings
we never act in a manner which results in an illegal restraint of trade,
such as collusion in tender or collusion with a view to the fixing of price
levels or levels of production or supply or the division of markets.
We never conduct unfair trade practices, such as boycott, resale price
maintenance or payment of unjustified rebates.
We take a zero-tolerance approach to bribery and are committed to
acting professionally, fairly and with integrity in all our business
dealings and relationships wherever we operate.
We conduct ourselves in an ethical and responsible manner in the
communities in which we work. In particular, we do not:
•
render public officials or persons in a similar position, any economic
favour such as money, gift or other favour in return for
performance of their duties.
• pay any agent, advisor or consultant any commission which they
have reason to know will be used for influencing public officials or
persons in a similar position in an unlawful manner.
render employees or officers of customers any economic favour
such as money, gift or other favour, the value of which is greater
than a generally accepted commercial level, nor receive such
economic favour from employees or officers of customers.
•
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Strategic Report / Corporate Social Responsibility continued
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No modern slavery
Modern slavery takes various forms, such as slavery,
servitude, forced or compulsory labour and human
trafficking, all of which involve a violation of
fundamental human rights by another in order to
exploit them for personal or commercial gain.
As a business we are not yet legally required to maintain
and publish a specific anti-slavery statement or policy.
Nevertheless, we take a zero-tolerance approach to
modern slavery and are committed to acting ethically
and with integrity in all our business dealings and
relationships. As such, employees are encouraged to
raise concerns about any issue or suspicion of modern
slavery in any parts of our business or supply chains
of any supplier at the earliest possible stage.
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Conflict of Interest
Our business judgement is free from bias, conflicts of
interest or undue influence of others. Any situation
that might interfere with our ability to perform our
jobs effectively, or even create an appearance of bias,
should be avoided. In particular, employees should not:
• participate in any activity or association which
creates or appears to create a conflict between
his or her personal interest and TP Group’s business
interest.
• use TP Group’s property, assets or information
system for any purpose other than that of
TP Group’s business.
Treatment of confidential information
We strive to protect those who have placed
their trust in us. We therefore conduct our
business with transparency and honesty.
As such, employees should:
• hold any secret information of TP Group as
strictly confidential and should not divulge
such information to any third party, nor
should they use the same for any purpose
other than that of the business of TP Group.
• not infringe the intellectual property rights
of any third party, including the copying
of computer software, without express
permission of such third party.
timely disclose any information of TP Group
in accordance with any laws and regulations
protecting the interests of investors
including the rules of any relevant stock
exchanges.
•
If employees become acquainted with any
information of TP Group or its customers which
may materially influence the judgement of
investors in TP Group or in such customers,
they should not sell or purchase any stock of
TP Group or stock of such customers unless
and until such information becomes public and
in any event employees should comply with all
relevant insider dealing laws including but not
limited to the Market Abuse Regulations 2016.
We understand the importance of ensuring
the privacy, security and appropriate handling
of data relating to employees, customers and
suppliers, including all personal data and we
ensure that this is managed effectively through
policies, procedures, education and audits
throughout our businesses. Implementation
of the EU General Data Protection Regulation
2016/679 took place across the company to the
scheduled timetable in May 2018. The TP Group
is already following the Data Protection Act
2018, which also covers GDPR, so in the event
of Brexit there will be no loss of continuity to
adherence to this regulation.
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Strategic Report / Corporate Social Responsibility continued
Community engagement
& volunteering
We are committed to community engagement and
volunteering within our local communities at TP
Group. In 2018 we introduced a STEM (initiatives in
Science, Technology, Engineering and Mathematics
education) programme where all employees have
the opportunity to engage in extracurricular
education for children and young people. Our people
understand the importance STEM plays in schools
and wider education. If young people choose to
pursue careers outside of engineering, then the
UK will not have enough resources to meet demand
in this critical field. That is why for 2019 we intend
to provide 100 hours of voluntary community
engagement in the STEM area.
Our people are also involved in raising money for
local charities, such as our site in Manchester, where
they have introduced dress-down Friday to raise
money for the local Willow Wood Hospice, and in
Wincanton where they have been raising money for
Children’s Liver Disease Foundation through many
fundraising initiatives.
Our Bristol office is really
excited to be sponsoring,
for the second year
running, Jordan Crane
who is currently playing
in the back row at Bristol
Bears Rugby Club
As well as fundraising for our local communities we also
introduced our Group chosen charities at the end of
2018. These were selected through staff consultation,
and so we are supporting Cancer Research UK,
Alzheimer’s Society and Mind (Blue Light) Mental Health
through a range of community activities.
TP Group is also supporting Jamie Ironmonger, who
suffered from PTSD during his 16 years as a Police
Officer. In April 2019 he will be heading off to
Kathmandu and onwards to Tibet to walk in the
footsteps of George Mallory and Andrew Irvine as they
attempted to summit Everest via the north side back in
1924. Jamie is taking on this challenge in support of
Mind, the Mental Health Charity to raise awareness of
the issues that can affect us all.
TP Group has provided Jamie with his high altitude
down suit, which will offer him full body protection
during his expedition.
100 hours planned
support to STEM
education.
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Environment
We comply with all laws and regulations concerning the protection of
the environment and keep informed and aware of environmental issues
concerning TP Group and its business.
Many of our businesses are accredited to ISO 14001, which is the
environmental management system. The measures in place for the EMS
system and associated external audits, ensures that these businesses
do not damage the environment. Those that are not yet accredited
conduct environmental assessments to raise awareness amongst its
employees to protect the environment against damage.
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Reducing waste and water
TP Group is very mindful of consuming less waste and water.
In all of our sites there are recycling bins appropriately labelled
to dispose of items correctly. Metrics of usage are monitored
against targets set to reduce both waste and water.
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39
Strategic Report / Principal Risks and Uncertainties
TP Group’s risk management framework, policies and procedures are
designed to identify, manage and mitigate risks that may impact upon
the execution of the Group’s strategy and day-to-day business.
Whilst we cannot eliminate uncertainty fully, we aim to ensure that we
are only exposed to risks that can be managed effectively in accordance
with the Board’s risk appetite.
Effective risk management is essential to safeguarding TP Group’s
ongoing commercial success. We manage risks through three phases in
a structured and controlled framework.
Our strategic priorities
01
02
Sustainable competitive
leadership in complex
mission-critical systems
Drive value from
excellent relations
with major customers
04
Supplement organic
growth with suitable
acquisitions and
partnerships
03
Invest in best-in-class
operating capabilities
05
Expand our geographic
reach in customers and
capabilities
Principal risk
Management strategy
Risk
Trend
Strategic
Impact
KPIs
Affected
1. Global economic conditions
The Group is adversely
affected by the commercial
conditions in its markets.
The Group is diversifying into adjacent markets to reduce our
exposure to a single market event. We carry out review and
analysis of emerging trends in our key markets including
political and economic aspects. This intelligence informs
strategy and planning decisions at the Group and business
unit levels.
Risk management
framework
The key elements of this approach are:
Identify and evaluate
The Board has identified the principal risks which could
impact the execution of its strategy, delivery of business
objectives or continuity of ongoing operations. A formal
process has been established for the Executive Management
Team (EMT) to identify and manage risks on a continuous
basis, reporting to the Board and supported by Group
Finance through regular risk reviews.
Using a centrally maintained risk register, risks are assessed
and prioritised by severity, using a scoring matrix of
likelihood and impact for effective comparison and
prioritisation.
Action plan
Risk responses and strategies are prepared by the EMT to
ensure risks are appropriately managed or mitigated and
where possible, their likelihood and/or severity is reduced to
an acceptable level. The Board reviews and agrees the risk
response plans, monitoring them regularly for effectiveness
and ensuring actions taken are appropriate and sufficient.
In some cases, certain areas of risk are further mitigated
by external insurance.
Implement
Local management regularly monitors TP
Group’s register of risks and the mitigation
actions that apply to them. Their continuous
review is reported to the EMT where the risk
portfolio is consolidated and reviewed before
onward reporting to the Board. This ensures
a consistency of awareness across the business
of context in which those risks stand and the
potential consequences of them maturing.
The Board therefore monitors the adequacy of
any mitigating controls and actions and the
effectiveness of risk management and internal
control systems that are in place.
Key performance indicators
2. Government policy, regulation and legislation
01
Orders
03
Revenue
05
Cash
02
Order book
04
Adjusted
operating profit
06
Revenue/head
Risk trend
The direction of change during the
year is illustrated by the icon in the
‘Risk Trend’ column. Please note that
this refers to the overall change in
the risk to the Group following
mitigating actions.
Increased risk
No change to risk
Decreased risk
Having considered all the elements of the risk management
framework described here, the Board has concluded that it
has taken all reasonable steps to satisfy itself that the risk
management framework is effective and has addressed all
material risks up to the date of approval of the Annual Report
and Accounts 2018.
Brexit leads to adverse
trading conditions.
From a defence perspective, Brexit is expected to have limited
impact on the Group as a result of our competitive position in
the key global programmes we support. In terms of our
activities in the energy sector, the possible disruption is in
relation to our supply chain, potentially through tariff impacts
or delays to material deliveries. Alternative sources of supply
are being investigated and/or customer contracts are being
negotiated to mitigate best possible the potential risks related
to supply chain impact. We will continue to monitor our
position as the exit date draws closer. Further narrative
is given in the CFO’s statement.
Revenue generated from
defence and energy
industry contacts are
impacted by changes in
government policies and
legislation.
Defence contracts are with long-term customers with whom
we have well established and close working relationships that
provide us with good visibility of future programmes and
spend. Defence policy, at least in the UK, has protected the
key programmes we are active on. Whilst the business is less
reliant on the energy sector, we monitor policy and
programmes horizon in order to react early to potential
impacts to the business plan.
Health safety,
environmental, privacy and
social regulations place
greater burden on the
business.
These risks are managed by the Group’s accreditation under
BS EN ISO 14001 (Environmental Management System) and
OHSAS 18001 (Occupational Health and Safety Management
System). The Group has implemented measures to comply with
GDPR and monitors pending regulations closely.
3. Customers, competitors and commercial relationships
Commercial contracts for
customers may be large and
long term, with risks relating
to contract delivery and
performance, including cost.
Internal procedures are in place to ensure that risks are
managed on a case-by-case basis so that contracts can be
successfully delivered to customers on time, on budget and to
the highest quality specification.
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01
02
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04
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01
02
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04
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41
Strategic Report / Principal Risks and Uncertainties continued
Principal risk
Management strategy
Competitor capabilities
may change leading to loss
of advantage or market
position.
The Group’s approach is to manage business development
primarily through the business unit teams who are closely
aligned to their propositions and the competitive threats
they face. Know-how has been built up over time, and close
relationships with customers provide insight into trends in the
requirement which create barriers to entry for competitors.
4. Availability of key resources
Key employee knowledge
and skill, upon which key
functions or initiatives
depend, may be lost.
The Group seeks to avoid single points of failure or capacity
constraints by attracting and retaining suitably skilled and
experienced staff to support the business performance.
This is achieved through appropriate and competitive
remuneration packages, a framework for personal and
professional development and working environments that
make TPG an attractive place to work.
Loss of performance,
reliability and availability
of certain key assets,
equipment and information
technology systems
impacts delivery execution.
The Group has taken steps to avoid single points of failure
or capacity constraints. The business has also taken out
insurance to mitigate best possible the risk. Some equipment
is subject to structured warranty and maintenance
provisions and as a further mitigation, selected tasks can
be subcontracted out as a worst-case response.
5. Technology and security
Cybersecurity threats come
in a number of forms, posing
a risk to sensitive data held
in the normal course of
business, as well as business
interruption risk.
The Group has implemented Cyber Essentials Plus across
its businesses and continuously reviews the quality of its
security shields and protocols to mitigate the threat.
6. Acquisitions
Issues may arise from an
acquisition that could add
unexpected costs or
liabilities to the Group.
Such risks cannot be eliminated; however they are mitigated
through, amongst other things, due diligence, vendor
warranties and integration plans developed and executed in
a timely fashion. All acquisitions are directed, approved and
monitored by the Board.
Risk
Trend
Strategic
Impact
KPIs
Affected
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
06
01
02
03
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05
06
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02
03
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06
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05
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Governance / Board of Directors
Andrew McCree
Non-Executive Chairman
Andrew McCree was appointed to the Board in October 2014
and has over 35 years’ experience of energy and
environmental technology and consulting businesses, with an
extensive knowledge of technologies and markets. Following
his early career with BP Exploration, he then joined the UK
Atomic Energy Authority (UKAEA) and in 2005 became Chief
Executive of AEA Technology. Since 2011 he has worked for a
US specialist consulting business. His principal role has been
to advise on a range of defence, energy and climate change
matters working with both government agencies and private
sector clients.
Phil Cartmell
Chief Executive Officer
Phil Cartmell was appointed to the Board in September 2009.
He has a highly active career in business, having formerly been
Chief Executive of Vega Group plc between 2001 and 2008,
where he grew the company into a leading European aerospace
and defence business. In February 2008, Vega Group was
acquired by Italian multi-national, Finmeccanica, for a
substantial premium. Phil has served as a Non-Executive
Director and adviser for a number of companies including
Alterian plc a leading provider of Global Information
Management Solutions, where he was Non-Executive Chairman
until its acquisition by SDL plc in January 2012, and Trafficmaster.
Derren Stroud
Chief Financial Officer
Derren Stroud was appointed to the Board in March 2016.
Derren, a member of the Chartered Institute of
Management Accountants has over 20 years of industry
experience, including senior finance roles at Retail Decisions,
Envox and Safenet. He has worked within a range of
specialist innovation and engineering businesses, with both
public and private equity backing, serving a global customer
base from manufacturing and commercial sites worldwide.
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Jeremy Warner-Allen
Non-Executive Director
Jeremy joined the Group in February 2017. He has over
25 years’ experience in capital markets, most recently as
Executive Director, Board Member and Head of the Growth
Companies Team at Cenkos Securities plc, where he advised
a number of AIM companies over a period of 11 years.
Prior to joining Cenkos, he was a founding member of
Beeson Gregory Limited and responsible for the UK sales
desk, a role he retained when Beeson Gregory merged
with Evolution Securities in 2002. Jeremy chairs the
Remuneration Committee and has held this position
since appointment.
Phil Holland
Non-Executive Director
Phil joined the Group in February 2017. He is a chartered
accountant and has over 20 years’ experience in board-level
finance roles, previously with Atlas Estates Limited, Laing
O’Rourke plc, Teesland plc and Estates & General plc. In 2011,
Phil became Finance Director and Deputy Managing Director
of Primary Health Properties PLC (‘PHP’), a leading investor in
primary care real estate, with a portfolio of over 300 medical
centre properties across the UK and Republic of Ireland, until
leaving that role on 31 March 2017. Phil joined Prime plc, a
healthcare real estate developer as Chief Investment Officer
on 10 April 2017. Phil chairs the Audit Committee and has
held this position since appointment. Phil is also a non-
executive director of Stenprop Limited, a real estate
investment trust listed on the London Stock Exchange.
Claire MacPherson
Company Secretary
Claire MacPherson was appointed as Company Secretary
in February 2015 and is also the Group Legal and Compliance
Director. Claire has enjoyed a successful career in commercial
and legal management spanning over 20 years. She has
worked in the global defence, retail transport and energy
sectors for companies such as GEC Marconi, Lockheed
Martin and CSC Computer Sciences Corporation.
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Annual Report & Financial Statements 2018
45
Board of Directors
Directors’ report
The directors present their report together with the audited financial statements for the year ending
31 December 2018.
Principal activity
TP Group is a system engineering business working in defence, intelligence & security, space and energy
sectors. With specialist consultants, engineers and precision manufacturing, we deliver mission-critical
systems and equipment that keeps our customers and the wider public moving, working and secure.
Our customers trust us to ensure the safety, reliability and performance of complex systems in the most
challenging or arduous situations. With global presence and proven field experience, TP Group is the first
choice for platform builders, integrators and users of both military and industrial systems.
Consulting & Programme Services (“CaPS”) - advising clients on strategic problems and
implementing technology-driven solutions
Technology & Engineering (“T&E”) - the capability to design, manufacture and support mission-
critical systems
Results and dividends
The directors do not recommend the payment of a dividend (2017: £nil).
The results of the financial year and future developments of the Group are detailed in the Strategic Report
and the Financial Statements.
Research and development
Total R&D expenditure in the year was £0.6m (2017: £0.2m), all of which was charged to the income
statement in the year.
Capital management
Capital consists of equity attributable to the shareholders of TP Group plc (the “Parent Company”).
The primary objective of the Group’s capital management actions is to ensure that it maintains sufficient
capital to support the on-going expenditure requirements of the business with a view to future
commercial success from these activities in order to maximise shareholder value.
The Group manages its capital structure and makes adjustments to it in light of working capital
requirements. To adjust the capital structure, the Group may issue new shares or raise debt capital.
In July 2017, the Group raised further funds through an issuance of ordinary shares. On 28 July,
336,101,128 shares were issued for trading on AIM at an issue price of 6.5 pence per share. This raised
gross proceeds of £21.8 million, realising £20.8 million net of fees and expenses, to be used primarily to
help fund the Group's acquisition programme and other internal investments.
Following the fundraising, the Group now has 758,565,854 ordinary shares in issue admitted to trading
on AIM.
Director’s report (continued)
Creditor payment policy
The Group and Parent Company seek to agree payment terms with their suppliers in advance of a
transaction and will pay in accordance with the agreed terms as long as the Group and Parent Company
are satisfied that the supplier has provided goods and services in accordance with the order.
The Group’s creditor payment period was 31 days (2017: 31 days). The Parent Company’s creditor
payment period was 31 days (2017: 31 days).
Employees
The success of the Group depends on maintaining a highly qualified and well-motivated workforce. Every
effort is made to achieve a common awareness of the financial and economic factors affecting the
performance of the Group. Regular communication with all employees is essential and achieved by
informal meetings, email updates and internal briefings.
The Group’s Equality Policy encourages recruitment, training, career development and promotion on the
basis of professional capability and is committed to retaining and retraining as necessary employees who
become disabled during the course of their employment.
Directors' and Officers' liability insurance
The Group has purchased liability insurance covering the directors and officers of the Parent Company
and its subsidiaries.
Directors and their Interests
The directors during the year and up to the date of this report were as follows:
Executive
P Cartmell
S Kings (resigned 9 February 2018)
D Stroud
Non-executive
A McCree
P Holland
J Warner-Allen
Directors’ interests in shares are shown in the Remuneration Report.
Related party transactions
These have been disclosed within note 30 to the financial statements.
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47
Governance
Director’s report (continued)
Auditor
Each of the persons who is a director at the date of approval of this report confirms that:
so far as the directors are aware, there is no relevant audit information of which the Group’s auditor
is unaware; and
the directors have taken all the steps that they ought to have taken as a director to make
themselves aware of any relevant audit information to establish that the Group’s auditor is aware of
that information.
The confirmation is given and should be interpreted in accordance with the provisions of s418 of the
Companies Act 2006.
As part of their continued drive to adopt the highest possible standards of corporate governance and to
tie in to the final year of service for the current audit partner, before his rotation off the engagement, the
directors have undertaken a competitive tender process for the 31 December 2019 year end audit. The
directors’ have resolved to appoint RSM UK Audit LLP as auditor following the completion and issuance
of these financial statements. Deloitte LLP has indicated its willingness to remain in office until RSM UK
Audit LLP are appointed.
By order of the board
Claire MacPherson
Company secretary
Cody Technology Park
Old Ively Road
Farnborough
Hampshire
GU14 0LX
1 April 2019
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Corporate Governance Report
Principles of Good Corporate Governance
The Group is committed to high standards of corporate governance. It has adopted procedures to
institute good governance insofar as it is practical and appropriate for an organisation of its size and
nature. Following recent changes in the requirements for all AIM listed companies to adopt a recognised
corporate code, the Group has adopted the Quoted Companies Alliance Corporate Governance Code
Companies (the “QCA Code”) with effect from 28 September 2018.
The QCA Code sets out 10 key principles that companies should adhere to or have a plan in place to
achieve. At this time the Group is able to demonstrate compliance with nine of the ten principles. The
Group is working towards full compliance with all principles during the course of 2019.
The following table shows, at a summary level, compliance against each principle. Furthermore where
this Annual Report references any of the principles, the relevant section is noted. Full details of our
compliance can be found on our website: https://www.tpgroup.uk.com/media/1208/tpg-statement-of-
compliance-with-the-qca-corporate-governance-code-draft-11-clean-1.pdf.
Principle
1) Establish a strategy & business model which
promotes long term value for shareholders
Compliant
Yes/No
Yes
2) Seek to understand and meet shareholders
needs and expectations
3) Take into account wider stakeholders, social
responsibilities, and their implications for
long-term success
4) Embed effective risk management
considering both opportunities and threats
throughout the organisation
5) Maintain the board as a well-functioning
balanced team led by the chair
6) Ensure that between the directors they have
the necessary up to date experience, skills
and capabilities
7) Evaluate board performance based on clear
and relevant objectives seeking continuous
improvement
Yes
Yes
Yes
Yes
Yes
No
8) Promote a corporate culture that is based on
Yes
ethical values and behaviours
9) Maintain governance structures and
processes that are fit for purpose and support
good decision-making by the Board
10) Communicate how the Company is governed
and is performing by maintaining a dialog
with shareholders
Yes
Yes
Comments
information
Please refer to the Chairman’s
Statement, Investment Case, Market
Review and Business Model sections
of this report
Please refer to the
provided below
Please refer to the Corporate and
Social Responsibility section of this
report
Risk
Please
Management Framework section of
this report
refer
the
to
Refer to the Board biographies
section of this report and the further
information provided below
As above
The board is investigating the most
appropriate approach to evaluate
performance in accordance with the
requirements of the QCA Code.
Please refer to the Corporate Social
Responsibility and CEO Statement
(Core Values) sections of this report
Please refer to the
information
provided below
Please refer to the
provided below
information
48
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49
Governance
Corporate Governance Report (continued)
Corporate Governance Report (continued)
Application of Principles
Effective Board Structure and Role
During the year, the board consisted of three executive (reduced to two following the departure of Simon
Kings in February 2018) and three non-executive directors. Andrew McCree remained in post as non-
executive Chairman throughout the period. The Group is satisfied that the current composition of the
board is appropriately skilled and experienced, and that it has a suitable balance between independence
on the one hand, and knowledge of the Company on the other, to enable it to discharge its duties and
responsibilities effectively.
The board is responsible for overall Group strategy, acquisition and divestment policy, approval of the
budget, approval of major commercial contracts and capital expenditure projects and consideration of
significant operational and financial matters.
All directors are encouraged to use their independent judgement and to challenge all matters, whether
strategic or operational. The Chairman engages with the directors outside of the board meetings on a
one-to-one basis as and when required to discuss matters of the business.
The board has both an Audit and a Remuneration Committee. The board does not consider it necessary
to constitute a separate Nominations Committee and all members of the board are consulted on the
potential appointment of a new director or a company secretary.
All directors can receive appropriate training as necessary and are able to take independent professional
advice in relation to their duties if necessary at the Parent Company’s expense. Directors are subject to
re-election in accordance with the Articles of Association.
The board met nine times in the year and is provided with relevant information on financial, business and
corporate matters sufficiently prior to meetings to enable it to properly discharge its duties.
Risk Identification and Management
The board drives effective risk management across the Group and retains ownership of the significant
risks that are faced by the business. This includes ultimate responsibility for determining and reviewing
the nature and extent of the principal risks faced by the Group and assessing the Group’s risk
management processes and controls. These systems and controls are designed to identify, manage and
mitigate risks that the Group faces but will not eliminate all risks and therefore can provide reasonable
but not absolute assurance. The board considers that the internal controls in place are appropriate for
the size, complexity and risk profile of the Group.
The Group’s risk management processes include the close involvement of the executive directors in the
day-to-day running of the business and regular reports submitted to and considered at meetings of the
board and its committees. The board also considers employee issues, key appointments and compliance
with relevant legislation.
Financial controls
The Group has an established framework of internal financial controls, the effectiveness of which are
reviewed by the Audit Committee, the board and the executive management, including:
well-understood and implemented processes for budgeting and forecasting;
an overall Group strategy, including approving revenue, profit and capital budgets and plans; and for
determining the financial and reporting structure of the Group;
agreed KPIs and other business measures.
Non-financial controls
The principal elements of the Group’s internal non-financial controls include:
close management of the day-to-day activities of the Group by the executive directors and the senior
management team;
an organisational structure with defined levels of responsibility, which promotes entrepreneurial
decision-making and rapid implementation while minimising risks;
a clearly documented and enforced approval process covering matters such as capital and operational
expenditure, recruitment, tendering, and contract acceptance;
detailed monthly reviews of major contract activities;
central control over key areas such as material capital expenditure and banking facilities.
The Audit Committee is delegated responsibility for reviewing the Group’s systems of risk management
and their effectiveness on behalf of the board. These systems and processes have been in place for the
year under review and remained in place up to the date of approval of the Annual Report and financial
statements. The Group continues to review its system of internal controls to ensure compliance with best
practice, while also having regard to its size and the resources available.
Effective Shareholder Engagement
The board has always attached a high importance to maintaining good relationships with all shareholders
and this is now further emphasised via principle 2 of the QCA Code. TP Group remains committed to
listening and communicating openly with its shareholders and the board holds regular meetings with
institutional shareholders to keep them updated on the Group’s performance, strategy, management and
board membership. The board as a whole is kept informed of the views and concerns of major
shareholders by briefings from the Chief Executive Officer and the Company’s broker, Cenkos. Any
significant investment reports from analysts are also circulated to the board. The Non-Executive Chairman
is available to meet with major shareholders if required to discuss issues of importance to them.
In addition, the board welcomes as many shareholders as possible to attend the Parent Company’s
Annual General Meeting and encourages an open discussion after the formal proceedings. The executive
directors give regular briefings to a number of analysts, who cover the Group’s sector and actively
encourage more analysts to follow the Group.
Ethical Behaviour and Social Responsibility
TP Group is committed to promoting a culture based on ethical values and behaviours across its business.
Policies are in place covering key matters such as bribery, protection of intellectual property and sensitive
information, diversity & anti-discrimination and whistleblowing. These are rigorously enforced. During
2018 the Company embarked on a companywide training programme covering key aspects of ethical
business dealings and see this as an area for continuous improvement. The business developed and
formally adopted a “Code of Conduct” policy which is issued to all employees and a system if being
developed whereby senior managers confirm their understanding of and adherence to this Code of
Conduct on an annual basis.
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51
Governance
Corporate Governance Report (continued)
Preparation of Financial Statements
The directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable law and regulations.
Company Law requires the directors to prepare financial statements for each financial year. Under that
law, the directors are required to prepare the Group financial statements in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European Union and have also chosen to
prepare the parent company financial statements under IFRSs as adopted by the EU.
Under Company Law, the directors must not approve the accounts unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that
period. In preparing these financial statements, International Accounting Standard 1 requires that
directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are
insufficient to enable users to understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial performance; and
assess the Group’s ability to continue as a going concern
The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position
of the Group and Parent Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets of the Parent Company
and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Parent Company’s website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with International Financial Reporting Standards
as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Parent Company and the undertakings included in the consolidation taken
as a whole;
the Strategic Report includes a fair review of the development and performance of the business and
the position of the Parent Company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties that they face; and
the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess the Parent Company’s position
and performance, business model and strategy.
Corporate Governance Report (continued)
Audit Committee
The Audit Committee, comprises three independent non-executive directors and is chaired by Philip
Holland, being appointed as chair in February 2017 upon his appointment to the board. The Committee
has specific terms of reference that deal with its authority and duties. It meets at least twice a year, with
the executive directors, and auditor attending by invitation. The Committee reviews the independence
and objectivity of the auditor each year. The Committee reviews the adequacy of the Group and the
Parent Company's internal controls, accounting policies and financial reporting and provides a forum
through which the Parent Company's external auditor reports to the non-executive directors. The Chair
of the Committee meets periodically with the auditor away from management to discuss matters relevant
to the Group.
The board has decided that the size of the Group does not justify a dedicated internal audit function.
This position will be reviewed as the Group's activities increase.
Going Concern
A review of going concern is included within the accounting policies described in note 2 to the Financial
Statements.
On behalf of the board
Philip Holland
Chairman, Audit Committee
1 April 2019
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53
Governance
Remuneration Report
Unaudited Information
Remuneration Committee
The Remuneration Committee, as of April 2019, is made up of three non-executive directors and is
chaired by Mr Jeremy Warner-Allen. Meetings are attended by the Chief Executive by invitation. The
Remuneration Committee sets and annually reviews the terms and conditions of employment of the
executive directors. The remuneration of non-executive directors is fixed by the board as a whole.
Remuneration Policy
The Parent Company's policy on executive directors' remuneration is to attract and retain high quality
executives by paying competitive remuneration packages relevant to each director's role, experience and
the external market. The packages include a basic salary, pension contributions, bonus scheme and share
options. Share options are granted with performance conditions.
Service Agreements
Executive directors are employed on service contracts with either 6 or 12 month notice periods. Non-
executive directors are appointed on three-year contracts, with no notice period.
Audited Information
Directors' Emoluments
Basic
salary
or fees
£000
285
144
160
65
32
35
Pension
contributions
£000
Other
benefits
£000
Total
emoluments
2018
£000
Total
emoluments
2017
£000
10
8
11
-
-
-
194
33
114
-
-
-
489
185
285
65
32
35
305
189
164
52
27
25
Executive
P Cartmell
S Kings1
D Stroud
Non-executive
A McCree
P Holland
J Warner-Allen
1 Includes a termination payment of £161,000.
721
29
341
1,091
762
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Remuneration Report (continued)
Directors' Share Options
The interests of the directors, who were in office during the financial year, in options over the new
Ordinary Shares at 31 December 2018 and 31 December 2017 were:
As at 31
December
2017
number
Exercised
in year
number
Cancelled
in year
number
Issued
in year
number
As at 31
December
2018
number
Exercise
price (p)
Lapse date
Executive
P Cartmell
22,179,398
D Stroud
S Kings
9,980,729
9,980,729
Non-
executive
A McCree
250,000
-
-
-
-
-
-
(9,980,729)
-
-
-
-
-
22,179,398
7.00 9 May 2027
9,980,729
7.00 9 May 2027
-
7.00 9 May 2027
250,000
10.00 30 September 2024
The closing mid-market price of an Ordinary Share as quoted on the Daily Official List as published by
the London Stock Exchange was 5.900p at 31 December 2018 and in the period 1 January 2018 to
31 December 2018 was a closing mid-market high of 7.750p per Ordinary Share and a low of 5.250p per
Ordinary Share.
Directors' Interests
The directors who were in office during the financial year, and appointed prior to the date of this report,
had the following beneficial interests in the Ordinary Shares of the Parent Company at
31 December 2018, at 31 December 2017 and at the date of this report:
Number held at
Number held at
Number held at
31 December 2018
2 April 2019
31 December 2017
Ordinary Shares of
Ordinary Shares of
Ordinary Shares of
1 pence each
1 pence each
1 pence each
P Cartmell
A McCree
D Stroud
P Holland
J Warner-Allen
3,136,105
333,847
653,847
421,978
1,854,945
3,136,105
333,847
653,847
421,978
1,854,945
3,136,105
333,847
653,847
421,978
1,854,945
On behalf of the Remuneration Committee
Jeremy Warner-Allen
Chairman, Remuneration Committee
1 April 2019
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Governance
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF TP GROUP PLC
Summary of our audit approach
Report on the audit of the financial statements
Key audit matters
The key audit matters that we identified in the current year were:
Opinion
In our opinion:
the financial statements of TP Group plc (the ‘parent company’) and its
subsidiaries (the ‘group’) give a true and fair view of the state of the group’s
and of the parent company’s affairs as at 31 December 2018 and of the group’s
profit for the year then ended;
the group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
the parent company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
the Consolidated statement of comprehensive income;
the Consolidated and Parent company statement of financial position;
the Consolidated statement of changes in equity;
the Parent company statement of changes in equity;
the Consolidated and Parent statement of cash flows; and
the related notes 1 to 31.
The financial reporting framework that has been applied in their preparation is applicable law and
IFRSs as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the
Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Revenue recognition on long-term contracts
Valuation of intangible assets on the Westek acquisition; and
Recoverability of goodwill in the consolidated statement of
financial position and recoverability of investments and
intercompany debtors in the company only statement of financial
position for TPG Engineering Ltd (TPGE)
Within this report, any new key audit matters are identified and any key
audit matters which are the same as the prior year identified.
Materiality
Scoping
The materiality that we used for the group financial statements was
£450,000, which equates to approximately 1.2% of revenue.
We have performed full scope audits of all components excluding non-
trading entities, providing full coverage of the Group’s revenue, Group’s
net assets and the Group’s profit before tax.
Significant
changes
approach
in our
We have identified two new key audit matters as described below.
We have removed one key audit matter relating to the provision for
warranty.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following
matters where:
• the directors’ use of the going concern basis of accounting
We have nothing to
report in respect of these
matters.
in preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements
any identified material uncertainties that may cast
significant doubt about the group’s or the parent
company’s ability to continue to adopt the going concern
basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised
for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud) that we identified. These
matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
We have identified two new key audit matters:
Valuation of intangible assets on the Westek acquisition. We focussed on this area
because of the quantitative materiality of the acquisition and that the PPA exercise,
which involves the identification of the acquired assets and liabilities and their
respective fair values, requires the use of significant management judgement and
estimate.
Recoverability of goodwill in the consolidated statement of financial position and
recoverability of investments and intercompany debtors in the company only statement
of financial position for TPG Engineering Ltd (TPGE). We focussed on this area due to
the loss-making position of TPGE in the current and prior years. The intercompany loan
balance has increased by £4.6m in the current year.
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Governance
We have removed one key audit matter:
o Provision for warranty. We have removed this as a key audit matter as we do not
believe a significant risk of material misstatement exists as at 31 December 2018. The
provision decreased by £62k as presented in note 24. The reduction is in line with
management’s expectations and is in line with the commercial situation as described by
lead engineers at TPG Maritime.
Revenue recognition on long-term contracts
Key audit matter
description
Revenue in the T&E and CaPS business segments is recognised as
performance obligations are satisfied in line with IFRS15.
The key audit matter relates to contracts accounted for over time that are
open and less than 90% complete at 31 December 2018. There is a risk
around the accuracy of the forecast costs to complete for contracts spanning
year end given the significant judgement in determining future contract
costs. Open contracts less than 90% complete at 31 December 2018
represents £22.1m of revenue recognised in 2018. Forecast costs to
complete are reviewed by Management and represent their best estimate
of the stage of completion on open contracts at 31 December 2018. The
accounting policy is described in more detail in note 2.5.
The group has accrued income of £5.6m (2017: £4.1m) as disclosed in note
16. This is a significant balance, there is a risk that accrued income is not
recoverable. The presence of significant accrued income can be an indicator
that revenue has been overstated.
How the scope of
our audit
responded to the
key audit matter
We have performed the following procedures in order to address this key
audit matter:
o Reviewed and challenged management’s judgements relating to IFRS
15 including:
o
o
Identification of performance obligations based on
inspection of underlying contracts and enquiries of lead
engineers who are independent of finance;
transaction price by inspecting contracts and evaluating
for unusual clauses such as presence of liquidated
damages; and
o whether revenue should be recognised over time or at a
point in time. The key judgement across the group
predominantly relating to the enforceable right to payment
for performance completed to date per paragraph 35(c) of
the standard;
o Evaluated the design and implementation of controls specific to both
forecast costs to complete and IFRS 15;
o Reviewed and challenged management’s conclusions on revenue
recognised for a sample of contracts. We inspected underlying
agreements as part of this review;
o Made enquiries of lead engineers for each project sampled to assess
the stage of completion and estimated costs to complete;
o Recalculated revenue recognised on the contract as at 31 December
2018 based on stages of completion and costs incurred to date;
o Assessed a sample of contracts for post balance sheet performance
and out-turn against forecasts; and
o Assessed the recoverability of a sample of accrued income by verifying
to signed contract, post year-end billing/payment and third-party
correspondence where appropriate.
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Key observations
From the work performed, we concluded that revenue recognised on long-
term contracts is appropriate.
Key observations
From the work performed, we concluded that revenue recognised on long-
term contracts is appropriate.
Valuation of intangible assets on Westek acquisition
Key audit matter
Valuation of intangible assets on Westek acquisition
description
Key audit matter
description
How the scope of
our audit
responded to the
How the scope of
key audit matter
our audit
responded to the
key audit matter
During the year ended 31 December 2018, the Group acquired Westek
Technology Ltd (“Westek”) for total consideration of £3.2m. As part of the
purchase price allocation (“PPA”) arising from the acquisition, the Group
During the year ended 31 December 2018, the Group acquired Westek
recognised goodwill and intangible assets of £0.9m and £2.4m respectively
Technology Ltd (“Westek”) for total consideration of £3.2m. As part of the
as presented in note 26.
purchase price allocation (“PPA”) arising from the acquisition, the Group
recognised goodwill and intangible assets of £0.9m and £2.4m respectively
We focussed on this area because of the quantitative materiality of the
as presented in note 26.
acquisition and that the PPA exercise, which involves the identification of
the acquired assets and liabilities and their respective fair values, requires
We focussed on this area because of the quantitative materiality of the
the use of significant management judgement and estimates. The
acquisition and that the PPA exercise, which involves the identification of
significant judgement and estimate involved in the PPA exercise relate to
the acquired assets and liabilities and their respective fair values, requires
the identification and valuation of intangible assets. Key judgements in the
the use of significant management judgement and estimates. The
customer relationship intangible include the three-year growth rates post-
significant judgement and estimate involved in the PPA exercise relate to
acquisition, churn rates and discount rates. Management has engaged
the identification and valuation of intangible assets. Key judgements in the
external valuation experts to assist them with the PPA exercise.
customer relationship intangible include the three-year growth rates post-
acquisition, churn rates and discount rates. Management has engaged
We assessed the competence, objectivity, and capabilities of the external
external valuation experts to assist them with the PPA exercise.
expert engaged by the Group. In auditing the accounting treatment of the
acquisition, we reviewed both the key terms in the sales and purchase
We assessed the competence, objectivity, and capabilities of the external
agreement and the financial information of Westek to obtain an
expert engaged by the Group. In auditing the accounting treatment of the
understanding of the transaction.
acquisition, we reviewed both the key terms in the sales and purchase
agreement and the financial information of Westek to obtain an
We performed the following procedures, amongst others:
understanding of the transaction.
o assessed the identification of intangible assets based on our
We performed the following procedures, amongst others:
o assessed the identification of intangible assets based on our
understanding of the business of the acquired companies and our
discussion with management on the business rationale for the
acquisition;
understanding of the business of the acquired companies and our
discussion with management on the business rationale for the
involved our internal specialists in assessing both the valuation
acquisition;
methodologies and the discount rate applied by management;
o
o
o
o
involved our internal specialists in assessing both the valuation
reviewed and challenged the key assumptions used in measuring
methodologies and the discount rate applied by management;
the fair value of the acquired intangible assets, primarily focussed
on growth rates and churn. We have assessed these inputs against
reviewed and challenged the key assumptions used in measuring
both historical and forward looking data; and
the fair value of the acquired intangible assets, primarily focussed
on growth rates and churn. We have assessed these inputs against
o assessed the adequacy of disclosures relating to the acquisition in
both historical and forward looking data; and
Note 26 to the financial statements.
Key observations
o assessed the adequacy of disclosures relating to the acquisition in
From the work performed, we concluded that intangible assets have been
valued appropriately.
Note 26 to the financial statements.
Key observations
From the work performed, we concluded that intangible assets have been
valued appropriately.
Recoverability of goodwill in the consolidated statement of financial position and
recoverability of investments and intercompany debtors in the company only statement
of financial position for TPG Engineering Ltd (TPGE)
Recoverability of goodwill in the consolidated statement of financial position and
recoverability of investments and intercompany debtors in the company only statement
The Group has goodwill in TPGE stated at cost of £0.6m (2017: £0.6m) as
Key audit matter
of financial position for TPG Engineering Ltd (TPGE)
presented in note 9. Per the requirements of IAS 36 it is mandatory to
description
perform an annual assessment of the recoverability of goodwill. Its carrying
The Group has goodwill in TPGE stated at cost of £0.6m (2017: £0.6m) as
value should be assessed in aggregate with other non-current assets against
presented in note 9. Per the requirements of IAS 36 it is mandatory to
the recoverable value of the cash-generating unit (CGU). The carrying value
perform an annual assessment of the recoverability of goodwill. Its carrying
for this recoverability test, inclusive of other non-current assets, is £2.9m.
value should be assessed in aggregate with other non-current assets against
the recoverable value of the cash-generating unit (CGU). The carrying value
for this recoverability test, inclusive of other non-current assets, is £2.9m.
Key audit matter
description
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Annual Report & Financial Statements 2018
59
Governance
The company holds an investment in TPGE stated at cost of £1.6m and
intercompany balances owing by TPGE amounting to £6.8m (net of £0.5m
impairment recognised in 2017). This balance has increased by £4.6m in
the current year. Due to the loss-making position of TPGE in the current and
prior years, there is an indicator of possible impairment.
As a result of this indicator management has performed a recoverability test
on these balances. The valuation of the investment and intercompany
balances requires the Company to estimate the future recoverable amount
either through value in use (VIU) or fair value less costs to sell. Management
has chosen to use a VIU approach, which is consistent with prior years.
Management apply judgement in determining appropriate assumptions
used in computing the recoverable amount. On this basis management’s
valuation has concluded that there is no impairment in the consolidated
statement of financial position and an impairment charge of £4.7m in the
company only statement of financial position. As highlighted in note 13
reasonably possible downsides, as determined by management, would
cause a further impairment of £0.8m to the intercompany loan and would
result in an impairment charge to goodwill of £0.1m.
How the scope of
our audit
responded to the
key audit matter
Our procedures in relation to the valuation of goodwill, investment in
subsidiaries and intercompany balances owed by TPGE included, among
others:
o Assessed management’s process and controls for performing
recoverability tests;
o Evaluated management’s computation and assumptions used in
determining the recoverable amount of TPGE, which was
determined on a VIU basis using latest approved board forecasts;
o Assessed the reasonableness of the valuation methodology
performed;
o Challenged the key judgement in the VIU model, which is the
trading performance of the business in 2019 and 2020.
Management has forecast a return to a cash generative position
for TPGE in those years. We have performed our assessment
considering factors such as historical accuracy of budgeting,
closing order book, order intake, likely impacts of Brexit and post
year-end performance in order to conclude on the appropriateness
of the short-term growth rates;
o Challenged other assumptions in the VIU model such as:
o
o
long-term growth rates of 1.5% to third-party evidence;
and
the discount rate of 11.5% to our valuation’s team range.
We also considered country-specific risk factors such as
Brexit uncertainty as part of this assessment;
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it
probable that the economic decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a
whole as follows:
Group financial statements
Parent
statements
company
financial
Materiality
£450,000 (2017: £400,000)
£180,000 (2017: £160,000)
Basis
for
determining
materiality
Our materiality of £450,000, which
to 1.2% of consolidated
equates
revenue. We
determined
materiality based predominantly on
revenue.
have
Our materiality of £180,000 equates to
0.7% of the parent company equity.
This has been capped at 40% of Group
materiality.
Rationale
for
benchmark
applied
the
In determining our benchmark we
considered the focus of the principal
users of the financial statements and
the stability of the metrics.
Revenue is a key performance measure
for the Group, as this is one of the key
metrics reported to the markets and
considered to be a key share price
driver. We considered alternative
benchmarks such as net assets,
profit/loss before tax and adjusted
operating profit. Loss before tax and
adjusted
are
considered to be too volatile year-on-
year for us to form a consistent and
representative view on materiality.
operating
profit
The parent company’s principal activity
is not to generate revenue, but more
to provide the subsidiary entities with
expertise through the experience of
the Board and Management.
As such, the investments are the key
component of the individual financial
statements and therefore equity is
deemed to be a more representative
and stable view of how the company is
performing.
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approach
appropriate basis on which
determine materiality.
the
the most
to
that
is
o Assessed whether management’s reasonably possible downsides is
based on appropriate rationale.
Key observations
From the work performed, we have concluded that management’s
assessment of the recoverability of the following balances is appropriate:
o goodwill in the consolidated statement of financial position; and
o
investments and intercompany debtors (net of impairment) in the
company only statement of financial position.
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Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on
the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor’s report.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
the information given in the strategic report and the directors’ report for the financial year for
which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the group and of the parent company and their
environment obtained in the course of the audit, we have not identified any material
misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
we have not received all the information and
explanations we require for our audit; or
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in
agreement with the accounting records and returns.
We have nothing to report
in respect of these
matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of directors’ remuneration have
not been made.
We have nothing to report
in respect of this matter.
We agreed with the audit committee that we would report to them all audit differences in excess of
£22,000 (2017: £20,000) as well as differences below that threshold that in our view, warranted
reporting on qualitative grounds. We also report to the audit committee on disclosure matters that
we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment,
including group-wide controls, and assessing the risks of material misstatement at the Group level.
Based on that assessment our group audit scope covered all components, inclusive of the parent
company but excluding dormant entities of the Group. All of these companies were subject to a
full audit. These components represent the principal business units and account for 100% of the
Group’s net assets, revenue and pre-tax profit. They were selected in order to provide an
appropriate basis for undertaking audit work to address the key matters identified above. Our
audit work at the components was executed at levels of materiality applicable to each individual
entity which were lower than group materiality, ranging between £180,000 and £292,500 (2017:
£160,000 and £300,000).
At the parent level we tested the consolidation process. Audit work to respond to the risks of
material misstatement was performed directly by the group audit engagement team.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s report
thereon.
We have nothing to
report in respect of these
matters.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible
for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and
the parent company’s ability to continue as a going concern, disclosing as applicable, matters
related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
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Governance
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of
Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Simon Olsen FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
1 April 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Adjusted operating profit
Depreciation, amortisation and impairment
Acquisition-related costs
Non-operating costs
Share based payments
Operating loss
Net finance cost
Loss before income tax
Income tax credit / (charge)
Total comprehensive income / (loss) for the year attributable
to shareholders
Earnings / (loss) per share expressed in pence per share
Basic and diluted earnings / (loss) per share
20182
2017
Restated1
Note
£'000
£'000
3
4
3
6
7
8
39,037
(27,806)
11,231
(11,261)
(30)
3,974
(2,377)
(657)
(805)
(165)
(30)
(80)
(110)
285
175
27,915
(20,121)
7,794
(8,760)
(966)
2,148
(1,842)
(242)
(655)
(375)
(966)
(65)
(1,031)
(122)
(1,153)
0.02
(0.20)
All comprehensive income relates to shareholders of the Parent Company and all amounts relate to continuing activities. The notes
on pages 70 to 112 form part of these financial statements.
1 The Group has applied IFRS 15 and IFRS 9 at 1 January 2018 and has restated 2017 as disclosed in note 2.1
2 The Group has applied IFRS 16 at 1 January 2018 and is not required to restate 2017 as disclosed in note 2.1
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Governance
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share
capital
£'000
Share
premium
£'000
Own
shares
held by
EBT
£'000
Share-based
payments
reserve
£'000
Retained
earnings
£'000
Total
£'000
4,225
-
4,225
3,361
-
-
-
-
-
(561)
1,178
14,821
19,663
-
-
(2,786)
(2,786)
(561)
1,178
12,035
16,877
17,438
-
-
-
-
-
-
375
-
-
-
20,799
375
(1,153)
(1,153)
7,586
17,438
(561)
1,553
10,882
36,898
-
-
-
-
-
-
-
-
-
-
(742)
(742)
(277)
165
-
277
-
175
-
165
175
7,586
17,438
(561)
1,441
10,592
36,496
Balance at
1 January 2017
IFRS 15 restatement1
Balance at 1 January 2017
restated
Share issue
IFRS 2 share option charge
Total comprehensive loss
restated
Balance at
31 December 2017
restated
IFRS 16 cumulative
adjustment
Share options expired
IFRS 2 share option charge
Total comprehensive
income
Balance at
31 December 2018
1 The Group has applied IFRS 15 at 1 January 2018 and has restated 2017 as disclosed in note 2.1
The notes on pages 70 to 112 form part of these financial statements.
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Consolidated and Parent Company Statement of Financial Position
At 31 December 2018
Group
20182
2017
Restated1
Parent Company
20182
2017
Note
£'000
£'000
£'000
£'000
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets2
Investments
Amounts owed by EBT
Current assets
Inventories
Trade and other receivables
Amounts due from contract customers
Taxation recoverable
Cash and bank balances
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Amounts due to contract customers
Obligations under hire purchase and lease
contracts
Non-current liabilities
Deferred taxation
Obligations under hire purchase and lease
contracts2
Provisions
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Own shares held by the EBT
Share-based payments reserve
Retained earnings
Total equity
9
10
11
12
13
14
15
18
16
17
21
16
22
23
22
24
25
5,289
12,800
1,401
5,423
-
-
24,913
2,727
4,295
5,596
87
22,413
35,118
60,031
4,386
11,759
2,126
-
-
-
18,271
6,542
8,114
4,084
10
21,931
40,681
58,952
-
85
46
94
18,806
95
19,126
-
4,823
-
-
10,505
15,328
34,454
(10,614)
(4,837)
(739)
(8,441)
(10,669)
(211)
(8,312)
-
(38)
-
180
33
-
15,435
96
15,744
-
3,130
-
-
17,617
20,747
36,491
(5,833)
-
-
(16,190)
(19,321)
(8,350)
(5,833)
(1,648)
(5,198)
(499)
(7,345)
(23,535)
36,496
7,586
17,438
(561)
1,441
10,592
36,496
(1,425)
(747)
(561)
(2,733)
(22,054)
36,898
7,586
17,438
(561)
1,553
10,882
36,898
-
(59)
(10)
(69)
(8,419)
26,035
7,586
17,438
-
1,441
(430)
26,035
-
-
(10)
(10)
(5,843)
30,648
7,586
17,438
-
1,459
4,165
30,648
1 The Group has applied IFRS 15 and IFRS 9 at 1 January 2018 and has restated 2017 as disclosed in note 2.1
2 The Group has applied IFRS 16 at 1 January 2018 and is not required to restate 2017 as disclosed in note 2.1
The financial statements were approved and authorised for issue by the board of directors and were
signed on its behalf on 1 April 2019. The notes on pages 70 to 112 form part of these financial statements.
Phil Cartmell
Chief Executive
(Company number: 3152034)
Derren Stroud
Chief Financial Officer
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Financial Report
Parent Company Statement of Changes in Equity
Consolidated and Parent Company Statement of Cash Flows
For the year ended 31 December 2018
For the year ended 31 December 2018
Share
capital
£'000
Share
premium
£'000
Share-
based
payments
reserve
£'000
Retained
earnings
£'000
Total
£'000
4,225
3,361
-
-
-
1,084
7,314
12,623
17,438
-
-
-
375
-
-
-
(3,149)
20,799
375
(3,149)
7,586
17,438
1,459
4,165
30,648
-
-
-
-
-
-
(183)
165
-
183
-
(4,778)
-
165
(4,778)
7,586
17,438
1,441
(430)
26,035
Balance at
1 January 2017
Share issue
IFRS 2 share option charge
Total comprehensive loss
Balance at
31 December 2017
Share options expired
IFRS 2 share option charge
Total comprehensive loss
Balance at
31 December 2018
The notes on pages 70 to 112 form part of these financial statements.
Operating activities
Loss before income tax
Adjustments for:
Depreciation, amortisation and impairment
Finance cost/(income)
Share-based payment expense
Increase in impairment on loan to the EBT
Provision against long term inter-company loan
Decrease / (increase) in inventories
Decrease / (increase) in trade and other
receivables
(Decrease)/increase in trade and other payables
Increase / (decrease) in provisions
Income tax paid
Group
Parent Company
2018
2017
Restated
2018
2017
Note
£'000
£'000
£'000
£'000
(110)
(1,031)
(5,114)
(3,149)
13
13
2,377
81
165
-
-
3,141
1,490
(1,277)
62
5,929
(211)
1,842
65
375
-
-
(2,106)
(5,763)
2,828
(540)
193
(56)
165
2
4,876
-
(6,100)
2,181
97
(4,330)
(3,756)
(87)
-
59
(14)
375
8
1,055
-
(146)
1,370
-
(442)
-
Net cash generated from operating activities
5,718
(4,417)
(3,756)
(442)
Investing activities
Acquisition of subsidiary, net of cash acquired
Acquisition of subsidiary - payment of earn out
Interest received
Purchase of property, plant and equipment1
Purchase of computer software
Long term loan to subsidiary
26
(2,953)
(300)
60
(864)
(79)
-
(2,564)
-
14
(908)
(47)
-
(3,000)
(300)
60
(39)
(35)
-
(3,071)
-
14
(35)
(47)
(315)
Net cash used in investing activities
(4,136)
(3,505)
(3,314)
(3,454)
Financing activities
Proceeds from issue of ordinary share capital
Interest payable
Repayment of hire purchase and lease liabilities
-
(254)
(846)
20,799
(26)
(80)
-
(4)
(38)
20,799
-
-
Net cash (used in) / from financing activities
(1,100)
20,693
(42)
20,799
Net increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
482
12,771
(7,112)
16,903
21,931
22,413
9,160
21,931
17,617
714
10,505
17,617
1 The Group has applied IFRS 16 at 1 January 2018 and is not required to restate 2017 as disclosed in note 2.1
The notes on pages 70 to 112 form part of these financial statements.
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Financial Report
Notes to the Financial Statements
1 Nature of operations
The Group is a professional services and technology partner to global prime contractors that are active
in defence, security and intelligence, space and energy programmes. The Group advises on management
and technology solutions and deliver with advanced manufacturing skills and expertise.
The Group’s team links world-class skills in complex technologies with modern design and manufacturing
facilities to provide a fully balanced and agile support network to our customers and partners wherever
they may be.
The Group consists of two interlinked business streams:
Consulting & Programme Services - advising clients on strategic problems and implementing
technology-driven solutions
Technology & Engineering - the capability to design, manufacture and support mission-critical
systems
TP Group plc (the “Parent Company”) is the Group’s ultimate parent company, which is incorporated
under the Companies Act and domiciled in the United Kingdom. The address of the registered office of
the Parent Company is Cody Technology Park, Old Ively Road, Farnborough, Hampshire, GU14 0LX. The
Parent Company’s shares are listed on the Alternative Investment Market of the London Stock Exchange.
2 Summary of Significant Accounting Policies
2.1 Basis of preparation
The consolidated and Parent Company financial statements have been prepared in accordance with
applicable International Financial Reporting Standards (“IFRS”) issued by the International Accounting
Standards Board as adopted by the European Union. The Group presents the consolidated financial
statements in pounds sterling, which is the Parent Company’s functional and presentation currency, and
all values are rounded to the nearest thousand except when otherwise indicated.
The financial statements have been prepared under the historical cost convention. 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.
Changes in accounting policies
New and amended IFRS standards that are effective for the current year
The Group has initially applied IFRS 9 “Financial Instruments”, IFRS 15 “Revenue from Contracts with
Customers” and IFRS 16 “Leases” from 1 January 2018. A number of other new standards are also effective
from 1 January 2018 but they do not have a material effect on the Group’s financial statements.
IFRS 9 Financial Instruments
As a result of the adoption of IFRS 9 “Financial Instruments”, the Group has adopted consequential
amendments to IAS 1 Presentation of Financial Statements which require impairment of financial assets
to be presented in a separate line item in the income statement. Previously, the Group’s approach was
to include the impairment of trade receivables in other expenses. Consequently, the Group reclassified
impairment losses amounting to £32,000, recognised under IAS 39 “Financial Instruments: Recognition
and Measurement”,, from ‘other expenses’ to ‘impairment loss on trade receivables and contract assets’
in the Income statement for the year ended 31 December 2017.
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Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
Classification and measurement of financial assets
2.1 Basis of preparation (continued)
Changes in accounting policies (continued)
i)
The Group has applied the requirements of IFRS 9 to instruments that continue to be recognised as at 1
January 2018 and has not applied the requirements to instruments that have already been derecognised
as at 1 January 2018. Comparative amounts in relation to instruments that continue to be recognised as
at 1 January 2018 have been restated where appropriate.
All recognised financial assets that are within the scope of IFRS 9 are required to be measured
subsequently at amortised cost or fair value on the basis of the entity’s business model for managing the
financial assets and the contractual cash flow characteristics of the financial assets. The adoption of IFRS
9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and
derivative financial instruments.
The following table and the accompanying notes explain the original measurement categories under IAS
39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets and
financial liabilities as at 1 January 2018.
Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified
at amortised cost.
Impairment of financial assets
ii)
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model. The new
impairment model applies to financial assets measured at amortised cost and contract assets, but not to
investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.
For assets in scope of the IFRS 9 impairment model, impairment losses are generally expected to increase
and become more volatile. The Group has determined that the application of IFRS 9’s impairment
requirements at 1 January 2018 results in additional allowance for impairments as follows:
Loss allowance at 31 December 2017 under IAS 39
Additional impairment recognised at 1 January 2017
Loss allowance at 1 January 2018 under IFRS 9
Hedge accounting
iii)
The Group does not apply hedge accounting.
£’000
-
32
32
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers retrospectively, applying the
practical expedient method under which contracts beginning and ending in 2017 or that were completed
prior to 1 January 2017 are not restated. The financial impact to comparative periods on adoption of this
standard is described in the tables below.
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.1 Basis of preparation (continued)
Changes in accounting policies (continued)
IFRS 16 Leases
The Group adopted IFRS 16 on 1 January 2018. Rather than apply IFRS 16 retrospectively in accordance
with IAS 8, the Group is permitted to apply IFRS 16 c5(b) under which comparative information is not
restated. The Group has recognised the cumulative effect of initially applying IFRS 16 as an adjustment
to the opening balance of retained earnings at 1 January 2018, the date of initial application.
The adoption of IFRS 16 has resulted in a right-of-use asset valued at £4.5m being recognised at 1 January
2018, with an opening lease liability of £5.2m and a cumulative loss adjustment to retained earnings of
£0.7m. A depreciation expense of £0.5m and an interest expense of £0.2m for the year to 31 December
2018 has been recognised, replacing the operating expense in respect of rental payments of £0.6m. The
net impact is a £0.1m reduction in operating loss and a £0.2m improvement in adjusted operating profit
for year to 31 December 2018. A weighted average incremental borrowing rate of 4% has been applied
to property leases and 5% on motor vehicles and other office equipment.
Re-measurement of accounting for acquisition of Polaris Consulting (Holdings) Limited
In 2018 the Group finalised its accounting for the acquisition including agreeing the deferred
consideration with the sellers of Polaris Consulting Holdings Ltd and identifying further pre-acquisition
information which required a revision to the provision accounting disclosed in the financial statements
for the year ended 31 December 2017. See note 26.
The tables below show the effect of IFRS 15 and re-measurement of the acquisition accounting for
Polaris Consulting (Holdings) Limited on the balance sheet as at 31 December 2017, and the effect on
the Income statement for the year ended 31 December 2017. Opening balance sheet adjustments at
1 January 2017 have been presented in the Consolidated Statement of Changes in Equity.
Consolidated Statement of Financial Position
At 31 December 2017
As
previously
reported
£’000
IFRS 15
adjustment
£’000
Fair value revision
of identified assets
and liabilities
acquired
£’000
Non-current assets
Goodwill
Current assets
Inventories
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Retained earnings
Total equity
4,170
-
230
13,798
54,024
(10,962)
(13,906)
40,118
14,102
40,118
6,312
(1,600)
4,712
(7,932)
(7,932)
(3,220)
(3,220)
(3,220)
Restated
£’000
4,386
6,542
12,198
58,952
(19,110)
(22,054)
36,898
216
-
-
216
(216)
(216)
-
-
-
10,882
36,898
2.1 Basis of preparation (continued)
Changes in accounting policies (continued)
In the current year, the Group has applied a number of amendments to IFRS Standards and
Interpretations issued by the International Accounting Standards Board (IASB) that are effective for an
annual period that begins on or after1 January 2018. Their adoption has not had any material impact on
the disclosures or on the amounts reported in these financial statements.
IFRS 2 (amendments) “Classification and Measurement of Share‑based Payment Transactions”;
IAS 40 (amendments) “Transfers of Investment Property”;
Annual Improvements to IFRS Standards 2014 – 2016 Cycle;
Amendments to IAS 28 “Investments in Associates and Joint Ventures”; and
IFRIC 22 ”Foreign Currency Transactions and Advance Consideration”.
Consolidated income statement
Year ended 31 December 2017
As
previously
reported
IFRS 15
adjustment
£’000
29,460
(21,232)
8,228
(532)
2,582
(597)
(719)
(0.14)
£’000
(1,545)
1,111
(434)
(434)
(434)
(434)
(434)
(0.06)
Fair value
revision of
identified
assets and
liabilities
acquired
£’000
-
-
-
-
-
-
-
-
Restated
£’000
27,915
(20,121)
7,794
(966)
2,148
(1,031)
(1,153)
(0.20)
Revenue
Cost of sales
Gross profit
Operating loss
Adjusted operating profit
Loss before income tax
Total comprehensive loss for the
year attributable to shareholders
Basic and diluted loss per share
Other
At the date of authorisation of these financial statements, the following other Standards and
Interpretations which have not been applied in these financial statements were in issue but not yet
effective (and in some cases had not yet been adopted by the EU):
Annual Improvements to IFRS Standards 2015-2017 cycle;
Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective 1 January
IFRIC 23 Uncertainty over Income Tax Treatments (effective 1 January 2019);
2019);
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January
2019); and
Amendments to IAS 19 Employee Benefit Plan Amendment, Curtailment or Settlement (1 January
2019).
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.1 Basis of preparation (continued)
Changes in accounting policies (continued)
At the date of authorisation of these financial statements, the directors have considered the other
standards and interpretations which have not been applied in these financial statements, were in issue
but not yet effective (and in some cases, had not yet been adopted by the EU). Application of these
standards may result in some changes in presentation of information within the Group’s financial
statements, but they are not expected to have a material impact on the results of the Group.
Going concern
The Board has reviewed the potential impact of Brexit. Although the final outcome is unclear the
business has considered the impact of labour mobility, regulatory issues, taxation and foreign
exchange. Due to the nature of the Group’s activities and our operating model, the Board believes
that the going concern of the business will not be materially impacted by Brexit, irrespective of the
form it takes.
The directors are satisfied that the Group has adequate resources to continue in business for the
foreseeable future, and accordingly continue to adopt the going concern basis in preparing the
accounts. In reaching this conclusion, the directors have considered forecasts that cover a period of
at least twelve months from the date of the approval of these financial statements and mitigating
actions available to them, including the ability of management to make certain reductions to the
Group’s discretionary expenditure if required.
2.2 Significant management judgements in applying accounting policies
The directors do not believe there to be any material judgements made in the process of applying the
Group’s accounting policies which are likely to lead to a material change to the amounts recognised
in the consolidated financial statements in the next twelve months.
2.3 Key sources of estimation uncertainty
The following are the key assumptions concerning the future activities of the Group, and other key
sources of estimation uncertainty at the end of the reporting period that may have a significant risk
of causing a material adjustment to the carrying amounts of the assets and liabilities within the next
financial year.
Impairment of intangible assets, goodwill and investments in subsidiaries
i)
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 are 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. See notes 9 and 13.
2.4 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Parent Company
and all entities controlled by the company (its subsidiaries) and the TP Group Employee Benefit Trust
(see note 25) made up to 31 December each year.
The results of subsidiaries acquired or disposed of during the year are included in the Consolidated
Statement of Comprehensive Income from the effective date of acquisition or up to the effective date
of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in to line with those used by the Group. All intra-
Group transactions, balances, income and expenses are eliminated on consolidation.
Subsidiary undertakings are entities over which the Group has the power to control the financial and
operating policies to obtain benefits from its activities. The Group obtains and exercises control
through voting rights.
The TP Group Employee Benefit Trust, which is managed by an independent trustee, is an employee
share scheme established for the benefit of and as an incentive for the employees of the Group.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Amounts reported in the financial statements of subsidiaries have been adjusted where
necessary to ensure consistency with the accounting policies adopted by the Group.
The Parent Company has taken advantage of the exemption available under section 408 of the
Companies Act 2006 and has not presented its Statement of Comprehensive Income. The Parent
Company’s result for the year was a loss of £4.8m (2017: £3.1m).
2.5 Revenue
The Group’s operations generate revenues through both the provision of services and the production of
high integrity equipment.
Revenue is measured based on the consideration to which the Group expects to be entitled in a contract
with a customer, excluding amounts collected on behalf of third parties, sales related taxes and trade
discounts. The Group recognises revenue when it transfers control of a product or service to a customer.
Sale of products
Revenue from the sale of products is recognised when control of the product has transferred, being
when the goods have been delivered to the customers specified location.
Provision of services
The Group provides advisory, technical, project management and development services to customers
for specialised business operations and technology-driven solutions. Dependant on the exact terms
of the customer contract revenue is recognised at a point-in-time or over-time. Performance
obligations are identified against each customer contract. Point in time revenue recognition is
triggered when the performance obligation is fully satisfied, and the customer is in control of any
deliverable. Over time revenue recognition for each performance obligation is based on the stage of
completion. The directors have assessed that the stage of completion is determined by the costs
incurred at the end of the reporting period as a proportion of the total costs expected to deliver the
performance obligation. The directors consider that the input method is an appropriate measure of
the progress towards complete satisfaction of these performance obligations under IFRS 15.
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2.5 Revenue (continued)
Design and manufacture of high-integrity equipment
The Group designs and manufactures mission-critical systems under long-term contracts with
customers. Dependant on the exact terms of the customer contract revenue is recognised at a point-
in-time or over-time. Point in time revenue recognition is triggered when the performance obligation
is fully satisfied, and the customer is in control of any deliverable. Over time revenue recognition for
each performance obligation is based on the stage of completion. Under terms where the Group has
an enforceable right to payment for work done, revenue from performance on these contracts is
therefore recognised over time on a cost-to-cost method, i.e. based on the proportion of contract
costs incurred for work performed to date related to the estimated total contract costs. The directors
consider that this input method is an appropriate measure of the progress towards complete
satisfaction of these performance obligations under IFRS 15.
The Group becomes entitled to invoice customers based on achieving a series of performance-related
milestones. Any amount previously recognised as a contract asset is reclassified to trade receivables
at the point at which it is invoiced to the customer. If the milestone payment exceeds the revenue
recognised to date under the cost-to-cost method, then the Group recognises a contract liability for
the difference. There is not considered to be a significant financing component in the design and
manufacture of high-integrity equipment with customers as the period between recognition of
revenue and under the cost-to-cost method and milestone payment is always less than one year.
2.6 Cost of sales
Cost of sales represents the actual costs of materials, direct labour and overheads incurred with
reference to the stage of completion of the contract at the reporting date.
2.7 Finance income
Finance income represents interest earned on cash deposits that is earned over the relevant financial
period and ‘mark to market’ adjustments in respect of derivative financial assets for forward currency
exchange contracts.
2.8 Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and any accumulated
impairment losses.
Depreciation is recognised so as to write off the cost or valuation of assets, less their residual values
over their useful lives (as below), using the straight-line method. The estimated useful lives, residual
values and depreciation method are reviewed at the end of each reporting period, with the effect of
any change in estimate accounted for on a prospective basis.
Computer equipment
Office furniture and fittings
Plant and machinery
33% per annum
20% per annum
10% to 20% per annum
Assets held under finance leases are reported in the Statement of Financial Position as Right of Use
Assets, and include for 2018 the impact of IFRS 16 (refer to note 2.1). These assets depreciated over
their expected useful lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease. An impairment loss is recognised for the amount by which the assets carrying amount
exceeds its recoverable amount.
2 Summary of Significant Accounting Policies (continued)
2.8 Property, plant and equipment (continued)
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the
disposal or retirement of an item or property, plant and equipment is determined as the difference
between the sales proceeds and the carrying amount and is recognised in the Consolidated Statement
of Comprehensive Income.
2.9 Leases
Assets held under finance lease, are initially recognised as assets of the Group at their fair value at
the inception of the lease or, if lower, at the present value of the minimum lease payments. The
corresponding liability to the lessor is included in the Consolidated Statement of Financial Position
as a finance lease obligation. IFRS 16 has been adopted as at 1 January 2018 resulting in the opening
liability increasing by £5.2m.
Lease payments are apportioned between the finance lease expenses and reduction of the lease
obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance lease expenses are recognised immediately in the Consolidated Statement of Comprehensive
Income, unless they are directly attributable to qualifying assets, in which case they are capitalised in
accordance with the Group’s general policy on borrowing costs.
2.10 Taxation
Income tax expense represents the sum of the tax currently payable and deferred taxation.
Current tax
i)
Current taxation is based on taxable profit for the year. Taxable profit differs from ‘profit before
taxation’ as reported in the Consolidated Statement of Comprehensive Income because items of
income or expense that are taxable or deductible in other years and items that are never taxable or
deductible. The Group’s current tax is calculated using tax rates that have been enacted or
substantively enactive by the end of the reporting period.
Income tax recoverable in respect of R&D tax credits is recognised when the decision has been taken
to claim such amounts in cash. The Group has made claims for R&D tax credits under the large
company Research and Development Expenditure Credit (RDEC) Scheme.
The income tax recoverable in respect of R&D cash tax credits is based upon management estimates,
judgements and assumptions considered reasonable at the time but the actual income tax
recoverable may differ from those estimates.
ii) Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences. Deferred tax assets are generally recognised for all deductible temporary differences to
the extent that it is probable that taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets and liabilities are no recognised if the
temporary difference arises from the initial recognition (other than in a business combination) of assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In
addition, deferred tax liabilities are not recognised if the temporary difference arises from the initial
recognition of goodwill.
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.10 Taxation (continued)
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period
in which the liability is settled or the asset realised, based on tax rates (and laws) that have been
enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.
iii) Current and deferred tax for the reporting period
Current and deferred tax are recognised in profit or loss, except where they related to other
comprehensive income or directly in equity, in which case, the current and deferred tax are also
recognised in other comprehensive income or directly in equity respectively. Where current tax or
deferred tax arise from the initial accounting for a business combination, the tax effect is included in
the accounting for the business combination.
2.11 Cash and bank balances
Cash and bank balances comprise cash on hand and demand deposits, together with other short-
term, highly liquid investments that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value.
2.12 Financial instruments
Financial assets and financial liabilities are recognised in the Group’s Statement of Financial Position
when the Group or Parent Company becomes a party to the contractual provisions of an instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value through profit or loss) are added or deducted from
the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
Purchases or sales of financial assets in the normal course of business are recognised and
derecognised on a trade date basis.
All recognised financial assets are measured subsequently in their entirety at either amortised cost
or fair value, depending on the classification of the financial assets.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortised cost:
the financial asset is held within the business model whose objective is to hold financial assets in
order to collect contractual cash flows; and
the contractual terms of the financial assets give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
2.12 Financial instruments (continued)
Foreign exchange gains and losses
The carrying amount of financial assets that are denominated in a foreign currency is determined in
that foreign currency and translated at the spot rate at the end of each reporting period. Financial
assets measured at amortised cost that are not part of a designated hedging relationship, exchange
differences are recognised in profit or loss in the ‘gains and losses on foreign exchange’ line item (note
6).
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on investments in debt instruments
that are measured at amortised cost or at fair value through other comprehensive income, including
lease receivables, trade receivables and contract assets, as well as on financial guarantee contracts.
The amount of expected credit losses is updated at each reporting date to reflect changes in credit
risk since initial recognition of the respective financial instrument.
The Group estimates expected credit losses for trade receivables, contract assets and lease
receivables based on the businesses historical credit loss experience, adjusted for factors that are
specific to the debtors and general economic conditions.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial
recognition, the Group compares the risk of a default occurring on the financial instrument at the
reporting date with the risk of a default occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Group considers both quantitative and qualitative
information that is reasonable and supportable, including historical experience and forward‑looking
information that is available without undue cost or effort. Forward‑looking information considered
includes the future prospects of the industries in which the Group’s debtors operate.
In particular, the following information is taken into account when assessing whether credit risk has
increased significantly since initial recognition:
an actual or expected significant deterioration in the financial instrument’s external (if available)
or internal credit rating;
existing or forecast adverse changes in business, financial or economic conditions that are
expected to cause a significant decrease in the debtor’s ability to meet its debt obligations;
an actual or expected significant deterioration in the operating results of the debtor;
significant increases in credit risk on other financial instruments of the same debtor;
an actual or expected significant adverse change in the regulatory, economic, or technological
environment of the debtor that results in a significant decrease in the debtor’s ability to meet its
debt obligations.
Irrespective of the outcome of the above assessment, the Group presumes that the credit risk on a
financial asset has increased significantly since initial recognition when contractual payments are more
than 30 days past due, unless the Group has reasonable and supportable information that
demonstrates otherwise.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.12 Financial instruments (continued)
Despite the foregoing, the Group assumes that the credit risk on a financial instrument has not
increased significantly since initial recognition if the financial instrument is determined to have low
credit risk at the reporting date. A financial instrument is determined to have low credit risk if:
the financial instrument has a low risk of default;
the debtor has a strong capacity to meet its contractual cash flow obligations in the near term;
and
adverse changes in economic and business conditions in the longer term may, but will not
necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.
The Group considers a financial asset to have low credit risk when the asset has a strong external credit
rating or if an external rating is not available, the asset has an internal rating of ‘performing’.
Performing means that the counterparty has a strong financial position and there is no past due
amounts.
The Group regularly monitors the effectiveness of the criteria used to identify whether there has been
a significant increase in credit risk and revises them as appropriate to ensure that the criteria are
capable of identifying significant increase in credit risk before the amount becomes past due.
(ii) Definition of default
The Group considers the following as constituting an event of default for internal credit risk
management purposes as historical experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
when there is a breach of financial covenants by the debtor; or
information developed internally or obtained from external sources indicates that the debtor is
unlikely to pay its creditors, including the Group, in full (without taking into account any collateral
held by the Group).
Irrespective of the above analysis, the Group considers that default has occurred when a financial asset
is more than 90 days past due unless the Group has reasonable and supportable information to
demonstrate that a more lagging default criterion is more appropriate.
(iii) Credit‑impaired financial assets
A financial asset is credit‑impaired when one or more events that have a detrimental impact on the
estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is
credit‑impaired includes observable data about the following events:
significant financial difficulty of the issuer or the borrower;
a breach of contract, such as a default or past due event (see (ii) above);
the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s
financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not
otherwise consider;
it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
or
the disappearance of an active market for that financial asset because of financial difficulties.
2.12 Financial instruments (continued)
(iv) Write‑off policy
The Group writes off a financial asset when there is information indicating that the debtor is in severe
financial difficulty and there is no realistic prospect of recovery, e.g. when the debtor has been placed
under liquidation or has entered into bankruptcy proceedings, or in the case of trade receivables, when
the amounts are over one year past due, whichever occurs sooner. Financial assets written off may still
be subject to enforcement activities under the Group’s recovery procedures, taking into account legal
advice where appropriate. Any recoveries made are recognised in profit or loss.
(v) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given default
(i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the
probability of default and loss given default is based on historical data adjusted by forward‑looking
information as described above.
The Group recognises an impairment gain or loss in profit or loss for all financial instruments with a
corresponding adjustment to their carrying amount through a loss allowance account.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the transferred asset, the Group recognises
its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group
continues to recognise the financial asset and also recognises a collateralised borrowing for the
proceeds received.
On de-recognition of a financial asset measured at amortised cost, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable is recognised in the income
statement.
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with
the substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument.
2.13 Financial liabilities and equity
Financial liabilities
The Group and Parent Company’s financial liabilities comprise trade and other payables.
Financial liabilities are measured subsequently at amortised cost using the effective interest rate
method except for financial liabilities held for trading or designated at fair value through profit or
loss, that are carried subsequently at fair value with gains or losses recognised in profit or loss.
Discounting is omitted where the effect of discounting is immaterial.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.13 Financial liabilities and equity (continued)
Derivative financial instruments
The Group enters into derivative financial instruments to manage its exposure to foreign exchange
risks.
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into
and are subsequently re-measured to their fair value at the end of the reporting period. The resulting
gain or loss is recognised in the Consolidated Statement of Comprehensive Income immediately
unless the derivative is designated and effective as a hedging instrument, in which event the timing
or the recognition in the Consolidated Statement of Comprehensive Income depends on the nature
of the hedge relationship.
i) De-recognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or have expired. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is recognised in profit or loss.
Equity
Equity comprises the following:
“Share capital” which represents the nominal value of equity shares;
“Share premium” which represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue;
“Own shares held by Employee Benefit Trust” which represents the costs of purchasing own
shares held by the Employee Benefit Trust;
“Share-based payment reserve" which represents equity-settled share-based employee
remuneration until such share options are exercised or lapse; and
“Retained earnings” which represents retained profits and losses.
2.14 Employee benefits
i)
Retirement benefit costs
The Group operates a defined contribution stakeholder pension scheme for employees. Payments to
the defined contribution retirement benefit plans are recognised as an expense when the employees
have rendered service entitling them to contributions.
ii)
Share-based payment
All equity-settled share-based payments are measured at fair value at the date of grant, which is
ultimately recognised as an expense in the Consolidated Statement of Comprehensive Income with
a corresponding credit to reserves.
Options with only time-based vesting conditions are valued using a Black-Scholes model. Share
options issued with market based vesting conditions are measured using the Monte Carlo method.
The expected life used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions, and behavioural considerations. Market vesting
conditions are factored into the fair value of the options granted.
2.14 Employee benefits (continued)
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the
vesting period, based on the number of share options expected to vest. This estimate takes into
account a number of factors including performance conditions applying to the relevant options.
Estimates are subsequently revised if there is any indication that the number of share options
expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is
recognised in the current period.
No adjustment is made to any expense recognised in prior periods if share options ultimately
exercised are different to that estimated on vesting. Upon exercise of share options, the proceeds
received net of attributable transaction costs are credited to share capital, and where appropriate
share premium.
iii) Employee benefit trust
The assets and liabilities of the Employee Benefit Trust ("EBT") have been included in the Group
accounts.
Any assets held by the Employee Benefit Trust cease to be recognised in the Consolidated Statement
of Financial Position when the assets vest unconditionally in identified beneficiaries.
The costs of purchasing own shares held by the Employee Benefit Trust are shown as a deduction
against consolidated equity. The proceeds from the sale of own shares held increase consolidated
equity. Neither the purchase nor sale of own shares leads to a gain or loss being recognised in the
Consolidated Statement of Comprehensive Income.
(iv) Short-term employee benefit costs
The undiscounted amount of short-term benefits attributable to services that have been rendered in
the period are recognised as an expense, unless specifically required or permitted within the scope
of IFRS reporting to be included in the cost of an asset. Any difference between the amount of cost
recognised and cash payments made is treated as a liability or prepayment as appropriate.
2.15 Foreign currency translation
In preparing the financial statements of each individual Group entity, transactions in currencies other
than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange
prevailing at the dates of the transactions. At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the rates prevailing at that date.
Exchange differences on monetary items are recognised in the Consolidated Statement of
Comprehensive Income in the period in which they arise.
2.16 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration
transferred in a business combination is measured at fair value, which is calculated as the sum of the
acquisition-to-date fair values of the assets transferred to the Group, liabilities incurred by the Group
to the former owners of the acquired and the equity interests issued by the Group in exchange for
control of the acquired. Acquisition related costs are generally recognised in the Consolidated
Statement of Comprehensive Income as incurred.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
2 Summary of Significant Accounting Policies (continued)
2.16 Business combinations (continued)
At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at
their fair value, except deferred tax assets or liabilities, and assets or liabilities related to employee
benefit arrangements which are recognised and measured in accordance with IAS 12 Income Taxes
and IAS 19 respectively.
Goodwill is measured as the excess of the sum of the consideration transferred over the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and
liabilities assumed exceeds the sum of the consideration transferred, the excess is recognised
immediately in the Statement of Comprehensive Income as a bargain purchase gain.
When the consideration transferred by the Group in a business combination includes assets or
liabilities resulting from a contingent consideration arrangement, the contingent consideration is
measured at the acquisition-date fair value and included as part of the consideration transferred in a
business combination.
Changes in the fair value of the contingent consideration that qualify as measurement period
adjustments are adjusted retrospectively, with corresponding adjustments against goodwill.
Measurement period adjustments are adjustments that arise from additional information obtained
during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about
facts and circumstances that existed at the acquisition date.
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the combination occurs, the Group reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during the measurement period
(see above), or additional assets or liabilities are recognised, to reflect new information obtained
about facts and circumstances that existed as of the acquisition date that, if known, would have
affected the amounts recognised as of that date.
2.17 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of
acquisition of the business (see note 2.16 above) less accumulated impairment losses, if any.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
2.18 Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a
straight-line basis over their estimated useful lives (being 3, 5, 10 and 15 years). The estimated useful
life and amortisation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful
lives that are acquired separately are carried at cost less accumulated impairment losses.
Intangible assets acquired in a business combination
2.18 Intangible assets (continued)
i)
Intangible assets acquired in a business combination and recognised separately from goodwill are
initially recognised at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition, intangible assets acquired in a business combination are reported
at cost less accumulated amortisation and accumulated impairment losses, on the same basis as
intangible assets that are acquired separately.
ii) De-recognition of intangible assets
An intangible asset is derecognised on disposal, or when no economic benefits are expected from use
or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount of the asset, and are recognised
in profit or loss when the asset is recognised.
2.19 Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and
intangible assets to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). When it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can
be identified, corporate assets are also allocated to individual cash-generating units, or otherwise
they are allocated to the smallest group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested
for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the assets for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable
amount. An impairment loss is recognised immediately in the Income statement, unless the relevant
asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-
generating unit) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in the Income statement, unless the relevant
asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as
a revaluation increase.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
2 Summary of Significant Accounting Policies (continued)
3 Segmental information
2.20 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials
and, where applicable, direct labour costs and those overheads that have been incurred in bringing
the inventories to their present location and condition. Cost is calculated using the weighted average
method. Net realisable value represents the estimated selling price less all estimated costs of
completion and costs necessary to make the sale.
2.21 Government Grants
Government grants are recognised at fair value when there is reasonable assurance that the Group
will comply with the conditions attaching to them and that the grants will be received.
Government grants are recognised in the Income statement on a systematic basis over the periods
in which the Group recognises as expenses the related costs for which the grants are intended to
compensate. Grants related to purchase of assets are treated as deferred income in the Statement of
Financial Position and allocated to the Income statement and transferred to profit or loss on a
systematic and rational basis over the useful lives of the related assets.
2.22 Non-operating costs
Items which are material either because of their size or their nature, are presented within their
relevant consolidated income statement category, but highlighted separately on the face of the
income statement within the section showing adjusted operating profit (as detailed and set out in
note 3); to help provide a better picture of the Group’s underlying performance. The tax and cash
flow implications of non-operating items are identified wherever necessary.
2.23 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that the Group will be required to settle that obligation and a reliable
estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the
present obligation at the reporting date, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash flows (when the effect of the time
value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, a receivable is recognised as an asset if it is virtually certain that
reimbursement will be received and the amount of the receivable can be measured reliably.
3.1 Segment revenues and results
The following is an analysis of the Group’s revenue and results from the continuing operations by
reportable segment.
Revenue
T&E
CaPS
Group revenue
Segment operating result
T&E
CaPS
Central unallocated costs
Group loss from operations
Finance cost
Loss before income tax
Income tax credit / (charge)
Profit / (loss) after tax
2018
£'000
27,766
11,271
39,037
2,571
(484)
(2,117)
(30)
(80)
(110)
285
175
2017
Restated
£'000
22,149
5,766
27,915
2,300
(1,223)
(2,043)
(966)
(65)
(1,031)
(122)
(1,153)
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 2. Segment profit or loss represents the profit before tax earned by each segment
without allocation of central administration costs and directors’ salaries, other gains and losses, as well
as finance costs.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
3 Segmental information (continued)
3.1 Segment revenues and results (continued)
3 Segmental information (continued)
3.2 Geographical segments
T&E
£'000
CaPS
£'000
Central
unallocated
costs
£'000
2,571
(484)
(2,117)
1,629
-
734
-
4,934
555
-
104
-
175
193
657
(33)
165
Group
£'000
(30)
2,377
657
805
165
The following is an analysis of the Group’s revenue from continuing operations from its products and
services:
Geographical analysis – revenue
United Kingdom
Europe excluding United Kingdom
Asia
Middle East
Rest of the World
2018
£'000
33,979
1,868
2,729
-
461
2017
£'000
23,581
1,996
1,978
341
19
(1,135)
3,974
Total revenue
39,037
27,915
2018
Segment operating result
Depreciation, amortisation
and impairment
Acquisition-related costs
Non-operating costs
Share based payments
Adjusted operating profit/
(loss)1
2017
Segment operating result
Depreciation, amortisation
and impairment
Acquisition-related costs
Non-operating costs
Share based payments
Adjusted operating profit/
(loss)1
2,300
(1,223)
(2,043)
1,602
-
124
-
10
-
420
-
230
242
111
375
(966)
1,842
242
655
375
4,026
(793)
(1,085)
2,148
1
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 on-going
service conditions, any other acquisition-related charges, share based payment charges and non-operating costs. Non-
operating costs include £579,000 in respect of termination payments. 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 operating performance. This measure and the separate components remain consistent with
2017.
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.
Information about major customers
Revenue includes sales from customers who contributed 10% or more to the Group’s revenue:
Engineering
Customer 1
Customer 2
Total revenue
2018
£'000
9,910
9,776
2017
£'000
6,794
4,747
19,686
11,541
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
4 Operating loss
4 Operating loss (continued)
The Group operating loss for the year is stated after charging the following:
Group
Staff costs
Wages and salaries
Social security costs
Other pension costs
Share based payment
Amortisation of intangible assets
Impairment of intangible assets
Depreciation of property, plant and equipment and right-of-use assets
Impairment of property, plant and equipment
Impairment of trade receivables
Auditor's remuneration:
Audit fees
fees payable for the audit of the consolidated and Company only
financial statements
fees payable to the audit of the subsidiary companies
Total audit fees
Non-audit fees
Fees payable for interim agreed upon procedures
Tax advisory services
Total auditor remuneration
2018
£'000
2017
£'000
10,516
1,230
694
165
8,835
1,016
595
375
12,605
10,821
1,435
-
855
-
87
58
99
157
8
-
165
1,132
192
220
301
-
42
61
103
5
20
128
Retirement benefits
The Group operates a defined contribution retirement benefit plans for all qualifying employees of
the Group. The assets of these plans are held separately from those of the Group in separately
administered funds.
The total expense recognised in profit or loss of £694,000 (2017: £595,000) represents contributions
payable to these plans by the Group at rates specified in the rules of the plans. As at 31 December
2018, contributions of £62,000 (2017: £88,000) due in respect of the 2018 (2017: £nil) reporting
remained outstanding. The amounts were paid subsequent to the end of the reporting period.
5 Directors' emoluments
Key management of the Group are members of the board of directors. Key management personnel
remuneration includes the following expenses:
Group
Emoluments1
Pension contributions paid to defined contribution pension
schemes
Other benefits
1 Includes a termination payment of £161,000 in 2018.
2018
£'000
721
29
341
1,091
2017
£'000
662
33
67
762
During 2018 three Directors (2017: three) accrued pension benefits during the year. No director
exercised share options during the year (2017: none).
Remuneration of the highest paid director included above is as follows:
Share-based payment expense of £165,000 (2017: expense £375,000) all arises from transactions
accounted for as equity-settled share-based payment transactions and are non-cash in nature.
Staff numbers
The average number of employees, including directors, employed by the Group during the year was
as follows:
Group
Emoluments
Pension contributions
Other benefits
Group
Engineering
Business development
Administration
2018
Number
2017
Number
144
16
54
214
140
17
44
201
2018
£'000
285
10
194
489
2017
£'000
257
12
38
307
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
6 Net finance cost
Group
Interest received on bank deposits
Interest paid on hire purchase and lease contracts
Bank interest paid
Gain / (loss) on foreign exchange derivative financial assets
2018
£'000
60
(240)
(13)
113
(80)
7 Taxation
Credit / (charge) to the Consolidated Statement of Comprehensive Income
Group
UK corporation tax at 19% (2017: 19.25%)
Adjustments in respect to prior year
Deferred tax:
Arising on amortisation of acquired intangibles
Reversal of timing differences
Release of deferred tax asset
Adjustments in respect to prior year
Tax credit / (charge) for the year
2018
£'000
(2)
103
101
184
-
-
-
285
2017
£'000
14
-
-
(79)
(65)
2017
£'000
(137)
24
(113)
130
(45)
(95)
1
(122)
The tax charge for the period is lower than (2017 – lower than) the standard rate of corporation
tax in the UK of 19% (2017 – 19.25%). The differences are explained as follows:
Group
Loss on ordinary activities before tax
Loss on ordinary activities at the standard rate
of corporation tax in the UK of 19% (2017: 19.25%)
Effects of:
Expenses not deductible for tax purposes
Income not taxable
Other timing differences
Share based payments
Adjustment to deferred tax in respect to change in tax rates
Deferred tax not recognised
Deferred tax adjustment IFRS 16
Adjustment in respect of prior years
2018
£'000
2017
£'000
(110)
(1,031)
21
198
(179)
500
(73)
(31)
(22)
(151)
119
101
(167)
23
(97)
(65)
(8)
(32)
26
Tax credit/(charge) for the year
285
(122)
7 Taxation (continued)
At the reporting date, the Group has approximately £20.5m (2017: £20.5m) of unrelieved tax losses
for offset against future taxable profit. No deferred tax asset has been recognised in respect of the
£20.5m losses (2017: £20.5m), TPG Design & Technology Limited created £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 remaining £2.4m has been generated through ongoing trade but has not been
recognised due to the uncertainty of timing of the generation of future taxable profits.
8 Earnings per share
The calculation of basic earnings per share for the year ended 31 December 2018 is based upon a
profit after tax of £175,000 (2017 (restated) – loss after tax of £1,153,000) and a weighted average
number of shares of 758,565,854 (2017 – 588,908,520). 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 decrease the basic profit
per share and there is therefore no dilutive effect of employee share options.
9 Goodwill
Cost and net book value
At 1 January 2017
Acquired through business combination
At 31 December 2017
Acquired through business combination
At 31 December 2018
Total
£'000
3,918
468
4,386
903
5,289
Goodwill arose on the acquisition of TPG Maritime Limited and TPG Engineering Limited on 5 April
2012 and on the acquisition of Polaris Consulting (Holdings) Limited on 12 December 2017. Goodwill
arising in current year on the acquisition of Westek Technology Limited on 2 November 2018.
In accordance with the requirements of IAS 36, Impairment of Assets, goodwill is allocated to the
Group’s cash generating units, or groups of cash generating units, that are expected to benefit from
the synergies of the business combination that gave rise to the goodwill as analysed in the table below:
TPG Maritime Limited
TPG Engineering Limited
Polaris Consulting (Holdings) Limited
Westek Technology Limited
Total
£'000
3,316
602
468
903
5,289
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
9 Goodwill (continued)
The goodwill balance has been tested for annual impairment on the following basis:
The carrying values have been assessed by reference to value in use.
Cash flows based on forecast information for the next financial year, which have been approved
by the board.
The key assumptions on which the impairment tests are based on are a pre-tax discount rate of
11.5% (2017: 11.5%), a return to profitability of TPG Engineering Limited in 2019 and a long-term
growth rate of 1.5% (2017: 2%) on forecast cash flows.
The 2018 pre-tax discount rate has been verified by independent advisors.
No impairment was identified as a result of the value in use exercise performed. The board has
identified a reduction of adjusted operating profit by 10%, in the cash flows, as a reasonably
possible change. This change would result in a goodwill impairment charge of £0.1m in TPG
Engineering Limited.
10 Other intangible assets
Technical
know how
£'000
Customer
relationships
£'000
Trade name
£'000
Computer
software
£’000
Cost
At 1 January 2017
Additions
Acquired through business
combination
At 31 December 2017
Additions
Acquired through business
combination
12,239
-
-
12,239
-
731
324
-
4,261
4,585
-
1,426
At 31 December 2018
12,970
6,011
Accumulated amortisation
and impairment
At 1 January 2017
Charge for year
Impairment
At 31 December 2017
Charge for year
At 31 December 2018
Net book value
At 31 December 2017
3,904
883
192
4,979
810
5,789
104
194
-
298
472
770
7,260
4,287
At 31 December 2018
7,181
5,241
171
-
-
171
-
239
410
128
11
-
139
15
154
32
256
Total
£'000
12,948
47
4,261
17,256
80
2,396
214
47
-
261
80
-
341
19,732
37
44
-
81
138
219
180
122
4,173
1,132
192
5,497
1,435
6,932
11,759
12,800
10 Other intangible assets (continued)
Intangible asset additions in the year ended 31 December 2017 comprise the acquisition of ALS
Technologies Limited (now TPG Services Limited) and Flexible Solutions Software Limited on 6 February
2017 and Polaris Consulting (Holdings) Limited on 12 December 2017. These assets are amortised on a
straight-line basis over their useful life of between nine and ten years.
Intangible assets acquired in the current year are a result of the acquisition of Westek Technology Limited
on 2 November 2018. Technical know-how, customer relationships and the trade name will be amortised
on a straight-line basis over their useful life of ten years.
Computer software represents externally acquired computer software licences and associated installation
costs. Externally acquired computer software are capitalised and amortised on a straight-line basis over
their useful life of three years. When the software is available for its intended use, these costs are amortised
in equal annual amounts over the estimated useful life of the software.
Parent Company
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Charge for year
At 31 December 2017
Charge for year
At 31 December 2018
Net book value
At 1 January 2017
Computer
software
£'000
Total
£'000
214
47
261
35
296
37
44
81
130
211
214
47
261
35
296
37
44
81
130
211
177
177
At 31 December 2017
180
180
At 31 December 2018
85
85
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Intangible assets brought-forward as at 1 January 2017 arose on the acquisition of TPG Maritime Limited
and TPG Engineering Limited on 5 April 2012 and are amortised on a straight-line basis over their useful
life of fifteen years.
94
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
95
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
11
Property, plant and equipment
11 Property, plant and equipment (continued)
Group
Cost
At 1 January 2017
Additions
Acquired through
business combinations
Transfers
Disposals
At 31 December 2017
Additions
Acquired through
business combinations
Transfers
Transfer to right-of-use assets
Disposals
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Charge for year
Disposals
Impairments
Transfers
At 31 December 2017
Charge for year
Disposals
Impairments
Transfers
Transfer to right-of-use assets
At 31 December 2018
Net book value
At 1 January 2017
Computer
equipment
£'000
Office
furniture
and fittings
£'000
Plant and
machinery
and motor
vehicles
£'000
Total
£'000
1,723
1,928
52
-
(594)
3,109
865
59
-
(1,142)
(237)
121
69
47
(38)
-
199
82
16
(5)
-
-
980
1,558
-
37
(138)
2,437
564
43
16
(1,142)
(237)
292
1,681
2,654
63
11
-
7
(1)
80
55
-
-
(25)
-
457
145
(135)
287
3
757
130
(28)
-
12
(19)
1,056
217
(591)
301
-
983
317
(28)
-
-
(19)
110
852
1,253
622
301
5
1
(456)
473
219
-
(11)
-
-
681
536
61
(456)
7
(2)
146
132
-
-
13
-
291
86
58
523
667
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m
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s
Computer
equipment
£'000
Total
£'000
25
35
60
39
99
12
15
27
26
53
13
33
46
25
35
60
39
99
12
15
27
26
53
13
33
46
Parent Company
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Accumulated depreciation
At 1 January 2017
Charge for year
At 31 December 2017
Charge for year
At 31 December 2018
Net book value
At 1 January 2017
At 31 December 2017
At 31 December 2018
At 31 December 2018 there are no assets held under finance leases (2017: £nil).
At 31 December 2017
327
119
1,680
2,126
At 31 December 2018
390
182
829
1,401
Assets held under hire purchase or finance lease agreements have been transferred to right-of-use
assets in note 12. Assets still in use with a net book value of zero are £1,133,000 (2017: £583,000).
96
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
97
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
12 Right-of-use assets
13
Investments in Subsidiary Undertakings
Group
Cost
Recognised on adoption of IFRS 16 on 1 January 2018
Finance leases transferred from property plant and equipment
Additions
Acquired through
business combinations
At 31 December 2018
Accumulated depreciation
At 1 January 2018
Charge for year
At 31 December 2018
Net book value
At 1 January 2018
Plant,
machinery
and motor
vehicles
£'000
4,506
1,123
119
Total
£'000
4,506
1,123
119
213
213
5,961
5,961
-
538
538
-
538
538
5,629
5,629
At 31 December 2018
5,423
5,423
Right-of-use assets comprise property leases (IFRS 16 adjustment) and property, plant and
equipment held across the Group.
Company
Cost
At 1 January 2018 and 31 December 2018
Accumulated depreciation
At 1 January 2018
Charge for year
At 31 December 2018
Net book value
At 1 January 2018
At 31 December 2018
Plant and
Machinery
£'000
Total
£'000
130
130
-
36
36
-
36
36
130
130
94
94
Right-of-use assets (IFRS 16 adjustment) comprise a property lease at Cody Technology Park,
Farnborough for a period of three years.
The Parent Company’s investments comprise interests in group undertakings, details of which are
listed below. The companies are wholly owned and are incorporated in England and Wales.
Parent Company
Cost and net book value
At 1 January
Investment during year:
Investment in shares in group undertakings
Long term loan to subsidiary
Provision against long term inter-company loan
At 31 December
The total cost of investment in subsidiary undertakings can be analysed as:
Investment in shares in group undertakings
Long term loan to subsidiary net of provision
Share options granted to subsidiary employees
2018
£'000
2017
£'000
15,435
11,681
3,371
133
(133)
4,494
315
(1,055)
18,806
15,435
2018
£'000
18,775
-
31
2017
£'000
15,404
-
31
18,806
15,435
The increase in investments in shares in Group undertakings relates to the acquisitions of Westek
Technology Limited please refer to note 26.
A long-term loan has been made to TPG Design & Technology Limited (“TPGD&T”). The loan is interest
free and has no fixed date for repayment. The Company holds a receivable balance with TPG
Engineering Limited which is non-interest bearing, and has no fixed date for repayment (note 18).
Following a review of the future expected performance of TPG D&T and TPGE and timings thereof, the
Parent Company has assessed that there is some risk in the full recoverability of the loan and receivable.
As such, an impairment review was undertaken and an increase in the provision of £133,000 against
the loan to TPG D&T and an increase in provision of £4,743,000 against the receivable to TPGE was
deemed to be required in the current year. The board has identified a reduction of adjusted operating
profit by 10%, in the cash flows, as a reasonably possible change. This change would result in a further
impairment charge of £0.8m to the intercompany receivable owed by TPG Engineering Limited.
The key assumptions on which the impairment tests are based are a pre-tax discount rate of 11.5%
(2017: 11.5%) and a long-term growth rate of 1.5% (2017: 2%) on forecast cash flows.
The remaining carrying value of the assets is based on the value in use.
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98
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
99
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
13
Investments in Subsidiary Undertakings (continued)
14
Amount owed by Employee Benefit Trust
Name of undertaking
TPG Maritime Limited
TPG Design & Technology Limited
TPG Engineering Limited
TPG Services Limited (previously ALS
Technologies Limited)
Polaris Consulting (Holdings) Limited
Polaris Consulting Limited
Westek Holdings Limited
TPG USA Inc
Hunt Thermal Technologies Limited
Atmosphere Control International Limited
Wellman Defence Limited
Description of
shares held
£1.00 ordinary shares
£1.00 ordinary shares
£1.00 ordinary shares
£0.01 ordinary shares
£1.00 ordinary shares
£1.00 ordinary shares
£1.00 ordinary shares
$0.001 ordinary shares
£1.00 ordinary shares
£1.00 ordinary shares
£1.00 ordinary shares
held by the Principal
activity
Proportion of
nominal value
of shares
Parent
Company
100%
100%
100%
1
2
3
4
4
4
100%
100%
100%
100%
6
100%
100% Dormant
100% Dormant
100% Dormant
5
Parent Company
Amounts owed by EBT
Less: impairment
2018
£'000
600
(505)
95
2017
£'000
600
(504)
96
The loan to the Employee Benefit Trust is interest free and unsecured. Details of the Employee Benefit
Trust are provided in note 27. The loan is repayable under the following circumstances:
i)
ii)
From receipt of consideration from the sale of shares in the Parent Company purchased with the
loan; and
Following any lapses in options granted by the Employee Benefit Trust over shares in the Parent
Company, the Parent Company can force the sale of shares to repay the loan.
The loan is not expected to be fully repaid within the next 12 months.
The registered office for all subsidiary undertakings incorporated in the United Kingdom is A2/1064 Cody
Technology Park, Farnborough, Hampshire, GU14 0LX.
Under the terms of the loan facility, should the Employee Benefit Trust be unable to repay the loan
following disposal of all its assets then the loan shall be considered waived.
1. Provision of air purification equipment for submarines including oxygen/hydrogen generation and
purification, air handling and distribution systems.
Innovation and development of turbomachinery systems.
2.
3. Design and manufacture of heat exchangers and other critical equipment used in large scale industrial
processes.
4. The provision of services including technical project management, systems engineering, design,
software development and assurance.
5. The provision of rugged, high performance computer servers and ancillary equipment for the defence
and commercial sectors.
6. A holding company to support any activity that arises in the United States of America. The Company
is incorporated in the United States of America.
The impairment against the loan is a result of movements in the number and open market value of
the shares in the Parent Company held by the Employee Benefit Trust, which could affect its ability to
fund future loan repayments.
15
Inventories
Raw materials
Work in progress
Group
2018
£'000
628
2,099
2,727
2017
Restated
£'000
162
6,380
6,542
The cost of inventories recognised as an expense during the year in respect of continuing operations
was £12,544,000. The cost of inventories recognised at the reporting date is not materially different to
the replacement cost. There has been no write-down of inventory to net realisable value.
100
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
101
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Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
16 Long term contracts
The carrying amounts presented in the Consolidated Statement of Financial Position for long term
contracts relate to the following categories of assets and liabilities:
18 Trade and other receivables
Group
Contracts in progress at the reporting date:
Work in progress included in inventories
Amounts due from contract customers included in
trade and other receivables (note 18)
Amounts due to contract customers included in trade and
other payables (note 21)
Contract costs incurred plus recognised profits less recognised
losses to date
Less progress billings
2018
£'000
2017
Restated1
£'000
1,871
6,312
5,596
4,084
(4,837)
(10,669)
2,630
(273)
49,591
(46,961)
43,005
(43,278)
2,630
(273)
1 The Group has applied IFRS 15 at 1 January 2018 and has restated 2017 as disclosed in note 2.1
17 Financial assets and liabilities
The carrying amounts presented in the consolidated and Parent Company Statement of Financial
Position relate to the following categories of assets and liabilities:
Financial assets
Amounts owed by EBT (note 14)
Trade and other receivables (note 18)
Cash at bank and in hand (note 19)
Financial liabilities
Trade payables and other payables
(note 21)
Obligations under hire purchase
contracts
Group
2018
£'000
-
8,817
22,413
2017
£'000
-
10,827
21,931
Parent Company
2018
£'000
95
4,677
10,505
2017
£'000
96
2,985
17,617
31,230
32,758
15,277
20,698
5,883
5,937
4,313
5,271
4,160
958
96
-
11,820
5,271
5,367
4,160
See note 2.12 for a description of the accounting policies for each category of financial instruments.
The fair values are presented in the related notes. A description of the Group’s risk management
and objectives for financial instruments is given in note 2.12.
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Financial assets:
Trade receivables
Amounts owed by subsidiary undertakings
Amounts due from construction contract
customers (see note 16)
Non-financial assets:
Prepayments and other debtors
Group
Parent Company
2018
2017
Restated
2018
2017
Restated
£'000
£'000
£'000
£'000
3,221
-
6,743
-
-
4,200
84
2,901
5,596
4,084
-
-
8,817
10,827
4,200
2,985
1,074
1,314
623
145
9,891
12,141
4,823
3,130
The carrying value of trade and other receivables is considered a reasonable approximation of fair
value due to their short-term nature. Impairment against intercompany receivable is discussed n
note 13.
During 2018, the Group has recognised an impairment loss against trade receivables of £30,000
(2017:- £89,000). The average age of receivables is 31 days (2017:- 31 days). The ageing of past due
but not impaired receivables is:
0-30 days
31-60 days
61-90 days
>90 days
Group
Parent Company
2018
£'000
2017
£'000
2018
£'000
2017
£'000
846
279
69
181
1,375
387
223
184
24
818
-
-
-
-
-
-
-
-
-
-
In 2018 a rent deposit of £67,000 (2017: £67,000) due after more than one year is included within
prepayments and other debtors.
Trade receivables disclosed above are classified as loans and receivables and are therefore
measured at amortised cost. Credit terms are negotiated as part of each individual contract. No
interest is charged on the receivables from the date of the invoice. The Group does not hold any
collateral or other credit enhancements over any of its trade receivables nor does it have a legal
right of offset against any amounts owed by the Group to the counterparty.
102
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
103
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
19
Cash and bank balances
The funds were placed on floating interest rate deposit as follows:
Group
2018
£'000
2017
£'000
Parent Company
2018
£'000
2017
£'000
Cash and bank balances
22,413
21,931
10,505
17,617
Group
2018
£'000
Parent Company
2017
£'000
2018
£'000
Cash and cash equivalents
1 Restricted cash of £460,000 (2017 – £531,000) is included in Prepayments and Other Debtors
10,505
22,8731
22,4621
2017
£'000
17,617
20 Borrowings
The book value and fair value of loans and borrowings are as follows:
Book value
2018
£'000
Group
Fair value
2018
£'000
Book value
2017
£'000
Fair value
2017
£'000
-
5,937
5,937
739
5,198
-
5,937
66
958
66
958
5,937
1,024
1,024
739
5,198
237
787
237
787
Secured
Other loans1 (note 21)
Finance lease liabilities2 (note 22)
Current
Non-current
Total loans and borrowings
5,937
5,937
1,024
1,024
1 Fixed interest rate loan at 8.3% over a 48-month term from 11th October 2016. The loans were
acquired on the purchase of Polaris Consulting (Holdings) Limited and settled in January 2018.
2 The borrowings are fixed with repayment periods from 5 to 25 years and include the adoption of
IFRS 16 which has increased borrowings by £5.0m at 31 December 2018.
21 Trade and other payables
Financial liabilities:
Amounts falling due within one
year
Other borrowings
Trade payables
Amounts owed to subsidiary
undertakings
Amounts falling due after one
year
Other borrowings
Non-financial liabilities:
Accrued expenses
Amounts due to construction
contract customers
(see note 16)
Contingent consideration
(see note 26)
Corporation tax
Other taxes and social security
Group
2018
£'000
2017
Restated
£'000
Parent Company
2018
£'000
2017
£'000
-
5,883
26
4,247
-
450
-
195
-
-
-
4,821
3,965
40
-
-
5,883
4,313
5,271
4,160
2,121
4,837
1,453
-
1,157
1,569
10,669
1,639
156
764
15,451
19,110
522
-
1,453
-
1,066
8,312
183
-
1,423
-
67
5,833
The carrying values of trade and other payables are considered to be a reasonable estimate of their
fair values.
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. The average credit period taken for trade purchases is 31 days (2017: 31 days). For
most suppliers no interest is charged on the trade payables. The Group has financial risk
management policies in place to ensure that all payables are paid within the pre-agreed credit
terms.
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104
Annual Report & Financial Statements 2018
Annual Report & Financial Statements 2018
105
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
22 Obligations under finance leases and hire purchase contracts
The Group uses finance leases and hire purchase contracts to acquire plant and machinery. As a
result of the adoption of IFRS 16 all property leases are now reported as lease obligation on the
Statement of Financial Position. Future minimum lease payments for both plant and machinery
and property are as follows:
Future minimum payments due:
Not later than one year
After one year but not more than five years
After five years
Less finance charges allocated to future periods
Present value of minimum lease payments
The present value of minimum lease payments is analysed as
follows:
Not later than one year
After one year but not more than five years
After five years
Group
2018
£'000
959
3,150
3,013
(1,185)
5,937
739
2,585
2,613
5,937
2017
£'000
243
883
-
(168)
958
211
747
-
958
The average lease term is 5 years. For the year ended 31 December 2018, the average effective
borrowing rate was 4.26% (2017: 5.73%). Interest rates are fixed at the contract date. All leases are on
a fixed repayment basis and no arrangements have been entered into for contingent rental payments.
All lease obligations are denominated in sterling. The Group's obligations under finance leases are
secured by the lessors' rights over the leased assets as disclosed in note 11.
23
Deferred taxation
At 1 January
Arising on business combination
Accelerated capital allowances
Credit to comprehensive income
Group
2018
£'000
1,425
407
-
(184)
2017
£'000
823
724
8
(130)
At 31 December
1,648
1,425
The deferred tax liability arose in respect of intangible assets acquired on the acquisition of
TPG Maritime Limited and TPG Engineering Limited on 5 April 2012, ALS Technologies Limited and
Flexible Solutions Software Limited on 6 February 2017 and Polaris Consulting (Holdings) Limited on
12 December 2017. Amounts arose in the current year in respect of intangible assets acquired on the
acquisition of Westek Technology Limited. In the year to 31 December 2018, the credit to the
Consolidated Statement of Comprehensive Income of £180,000 (2017: £130,000) comprises the release
of deferred tax liability arising on the amortisation of acquired intangibles.
24
Provisions
At 1 January 2018
Utilised
Released to income statement
Charged to income statement
At 31 December 2018
Warranty
£'000
Property
£'000
451
(62)
-
-
389
110
-
-
-
110
Total
£'000
561
(62)
-
-
499
The warranty provision recognises future claims for rectification and repair to goods sold and
remaining under a contractual warranty period, the majority of which are expected to be incurred in
the next one to three years.
The property provision recognises future costs of building dilapidations arising under the terms of
property leases expiring over the next 15 years.
25 Share capital
Allotted, called up and fully paid
2018
Number
2017
Number
2018
£'000
2017
£'000
Ordinary shares of 1 pence each
758,565,854
758,565,854
7,586
7,586
In accordance with the Articles of Association for the Parent Company adopted on 19 May 2011, the
share capital of the Parent Company at the start of the year consisted of an unlimited number of
ordinary shares of nominal value 1 pence each.
All shares are equally eligible to receive dividends and the repayment of capital and represent one
vote at the shareholders' meeting of TP Group plc. None of the Parent Company shares are held by
any company in the Group. The Employee Benefit Trust holds shares in the Parent Company as set
out in note 27.
In July 2017, the Group completed an exercise to raise funds through an issuance of ordinary shares.
On 28 July, 336,101,128 shares were issued for trading on AIM at an issue price of 6.5 pence per share.
This raised gross proceeds of £21.8 million pounds, realising £20.8 million net of fees and expenses,
to be used primarily to help fund the Group's acquisition programme and other internal investments.
Following the fundraising, the Group now has 758,565,854 Ordinary Shares in issue admitted to trading
on AIM.
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Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
25
Share capital (continued)
Options
The Group has two unapproved share option schemes and an Enterprise Management Incentive (EMI)
scheme. Share options have been granted by both the Parent Company and the Corac Employee
Benefit Trust (note 27) under the rules of these schemes. The share options granted by the Employee
Benefit Trust have no dilutive effect on the Parent Company's share capital.
Unapproved schemes
EMI scheme
Total
Parent
Parent
Parent
Number of options
Company
EBT
Company
EBT
Company
EBT
Total
number
number
number
number
number number
number
At 1 January 2018
35,191,862
Granted during the year
2,750,000
Lapsed during the year
-
Cancelled during the year
(5,480,729)
-
-
-
-
-
-
(5,295,810)
At 31 December 2018
32,461,133
-
10,832,328
-
2,750,000
-
2,750,000
(26,666)
-
(26,666)
(26,666)
-
-
(10,776,539)
- (10,776,539)
43,293,461
- 43,293,461
16,128,138
26,666
51,320,000
26,666
51,346,666
The exercise of options granted prior to April 2010, those granted during 2014 and 2015 and those
granted to the directors during 2017 are subject to the satisfaction of the applicable performance
conditions. At 31 December 2018, performance conditions not satisfied relate to the market price of
the ordinary shares of the Parent Company as quoted on AIM. Options vest over a three-year period
and generally will lapse on cessation of employment or ten years from issue.
The movement on the Group's share option scheme is summarised in the table below:
2018
Weighted
average
exercise
price
(pence)
2018
Number
of options
7.52
14.90
7.03
6.44
51,346,666
(26,666)
(10,776,539)
2,750,000
2017
Weighted
average
exercise
price
(pence)
15.62
28.42
11.80
7.00
2017
Number
of options
18,950,094
(3,890,836)
(11,130,448)
47,417,856
At 1 January 2018
Lapsed during the year
Cancelled during the year
Granted during the year
At 31 December 2018
7.57
43,293,461
7.52
51,346,666
Exercisable at 31 December 2018
9.23
11,657,744
13.45
4,152,144
No share options were exercised during the year (2017: none). The options outstanding at
31 December 2018 had exercise prices as shown in the following table and a weighted average
remaining contractual life of 7.93 years.
25 Share capital (continued)
At 31 December 2018 options over ordinary 1p shares together with the fair value per option granted
and the assumptions used in the calculation of fair value for awards made after 7 November 2002, are
set out in the table below.
The closing market price of the Parent Company's shares at 31 December 2018 was 5.900p and the
range during the year was between 5.250p and 7.750p.
Expected volatility is a measure of the amount by which a share price is expected to fluctuate during
a period. For options issued after 2009, expected volatility was based on the volatility of the Parent
Company's shares during the previous 12 months. For options issued in earlier periods, the volatility
of the Parent Company's share price was calculated as the average of annualised standard deviations
of daily continuously compounded returns on the Parent Company's stock, calculated over
1, 2 and 3 years back from the date of grant where possible.
The risk-free rate is the yield to maturity on the date of grant of a UK Gilt Strip, with term to maturity
equal to the expected life of the option.
The Group recognised total expenses of £165,000 and £375,000 related to equity-settled share-based
payment transactions in 2018 and 2017 respectively.
Option
price
per share
pence
Closing
share
price
at grant
pence
Exercise
price
pence
Expected
volatility
%
Risk-free
interest
rate
%
Fair value
per share
pence
21.75
15.00
11.25
10.00
14.00
10.00
10.00
7.00
7.00
7.00
7.00
6.50
6.42
22.00
14.80
11.25
9.50
14.00
9.75
5.50
7.25
7.25
7.25
7.25
6.50
6.42
21.75
15,00
11.25
10.00
14.00
10.00
10.00
7.00
7.00
7.00
7.00
6.50
6.42
50.63
37.43
36.28
36.28
42.23
19.57
42.28
56.89
56.89
56.89
56.89
56.89
56.89
1.20
0.80
0.47
0.51
0.35
0.53
0.76
0.66
0.66
0.66
0.66
0.66
0.66
6.31
3.04
2.27
1.73
3.25
0.99
0.38
3.12
3.14
3.26
3.57
3.57
3.57
Date of
Grant
2010
2010
2012
2012
2013
2014
2014
2017
2017
2017
2017
2018
2018
Number
200,000
1,950,000
500,000
166,667
250,000
789,667
250,000
18,377,216
9,188,608
4,594,303
4,277,000
750,000
2,000,000
43,293,461
All options expire 10 years after the date of grant.
The dividend yield of 0% in all cases reflects the absence of dividends and of a clear dividend policy
statement at the relevant dates of grant.
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109
Financial Report
Notes to the Financial Statements (continued)
Notes to the Financial Statements (continued)
26 Business combinations
Polaris Consulting (Holdings) Limited
On 12 December 2017, the Group, through its Parent Company, acquired 100% of the issued share
capital of Polaris Consulting (Holdings) Limited for an initial consideration of £1,499,000 and a
maximum deferred contingent consideration of £2,000,000 based on the performance of the business.
The initial consideration, paid in cash using the Group’s existing cash resources, has been adjusted for
net debt retained in the business.
During the financial year the Group finalised its accounting for the acquisition including agreeing the
deferred consideration with the sellers of Polaris Consulting Holdings Ltd and identifying further pre-
acquisition information which required a revision to the provisional accounting disclosed in the
financial statements for the year ended 31 December 2017. The financial statements for this period
have been therefore restated to reflect this as disclosed in note 2.1.
Westek Technology Limited
On 2 November 2018, the Group, through its Parent Company, acquired 100% of the issued share
capital of Westek Technology Limited for an initial consideration of £3,000,000 and a maximum
deferred consideration of £500,000 dependent on certain employment related transition activities. The
deal has been concluded on a cash free, debt free, normalised net asset basis, resulting in a £155,000
adjustment to the initial consideration. Westek is a leading provider of rugged, high performance
computer servers and ancillary equipment for military and industrial customers predominantly in the
UK, Europe and the United States, many of whom are not currently supplied by TP Group. The business
operates from a facility in Wiltshire.
The acquisition of Westek is a strategic addition of proven capability in the design and manufacture
of advanced electronic systems, providing specialist high-performance products. This capability also
offers vertical integration with the rugged control systems already delivered with TP Group's packaged
equipment offerings.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and
goodwill are as follows:
Book value
£'000
Adjustment
£’000
Fair value
£'000
Property, plant & equipment
Identifiable intangible assets
Inventories
Cash and bank balances
Trade and other receivables
Trade and other payables
Deferred taxation
Total net assets
Fair value of consideration
Cash
Completion adjustment
Total consideration
Goodwill
59
-
987
47
507
(1,023)
-
577
-
2,396
(314)
-
-
-
(407)
1,675
59
2,396
673
47
507
(1,023)
(407)
2,252
£'000
3,000
155
3,155
903
26 Business combinations (continued)
Goodwill of £903,000 is primarily applicable to the assembled workforce acquired as part of the
transaction. Acquisition costs of £275,000 arose as a result of the transaction. These have been
recognised as part of administrative expenses in the Consolidated Statement of Comprehensive
Income.
Had the acquisition of Westek Technology Limited been effective from 1 January 2018, the revenue
for the Group would have been approximately £42,310,000, and the operating profit for the year would
have been approximately £554,000. 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.
27 Employee Benefit Trust
On 8 November 2002, the Parent Company established the Corac Employee Benefit Trust, an employee
benefit trust, as an employees' share scheme for the benefit of and as an incentive for the employees
of the Group. The Corac Employee Benefit Trust is managed by an independent trustee.
At 31 December 2018 the Parent Company had loaned £600,000 (2017: £600,000) to the Corac
Employee Benefit Trust. With this loan the Trustee purchased shares in the Parent Company and, at 31
December 2018, the Corac Employee Benefit Trust held 1,606,769 (2017: 1,606,769) ordinary shares in
TP Group plc with a book cost of £653,352 (2017: £653,352) which had a market value of £94,799
(2017: £96,406). As set out in note 2.15(iii), neither the purchase nor sale of shares in the Parent
Company leads to a gain or loss being recognised in the Consolidated Statement of Comprehensive
Income but instead these are shown as movements on consolidated equity.
Options have been granted over nil (2017: 26,666) shares to certain employees.
The Parent Company intends to fund any shortfall should the Employee Benefit Trust need to purchase
more shares to fulfil its obligations to option holders.
Dividends on the shares owned by the Employee Benefit Trust, the purchase of which was funded by
an interest free loan to the Employee Benefit Trust from the Parent Company, are waived on the
condition that the Trustee shall not be liable for any losses to the Employee Benefit Trust as a result of
the waiver.
28 Risk management objectives and policies
Liquidity risk
The Group holds investments in bank deposits as a liquid resource to fund its operations. The Group's
strategy for managing cash is to maximise interest income whilst ensuring availability to match the
profile of the Group's expenditure. Liquidity is further managed by tight controls over expenditure.
Credit risk
The Group's exposure to credit risk arises from holding cash and cash equivalents. The Group places
funds on deposit directly with banks. Group credit policy limits deposits to an approved list of specific
banks, which is compiled taking into account various factors including credit ratings.
The Group's exposure to credit risk is also attributable to its trade receivables, which, as set out in
note 18, at 31 December 2018 were £3,221,000 (2017: £6,743,000). The amounts presented in the
balance sheet are net of allowances for doubtful receivables, estimated by the Group's management
in line with principles set out in IFRS 9. Impairment loss recognised against trade receivables for the
financial period was £87,000 (2017 restated: nil).
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111
Financial Report
Notes to the Financial Statements (continued)
Company Information
Risk management objectives and policies (continued)
28
Interest rate risk
The directors consider the principal element of risk directly arising from changes in interest rates
relates to the level of interest income earned on bank deposits. Funds are invested to maintain a
balance between accessibility of funds and competitive rates of return whilst investing funds safely.
It is, and has been throughout the period under review, the Group’s policy that no trading in financial
instruments shall be undertaken.
Foreign currency risk
The Group undertakes contracts denominated in foreign currencies (principally Euro and US dollar)
leading to an exposure in exchange rate movements for both sales and purchase transactions. Where
they cannot be offset, forward exchange contracts are utilised to minimise the risk.
Contingent liabilities
29
As part of the Group’s long-term contract trading activities, £1,331,000 of performance and warranty
bonds (2017: £531,000) have been issued to customers. Of this amount £460,000 has been cash backed
(2017: £531,000) by the Group’s cash resources and this balance sits within prepayments and other
debtors. The balance is supported by a bonding facility provided by Barclays Bank plc guaranteed by
the UK Export Fund. No liability is expected to arise and no provision is made in the accounts.
Related party transactions
30
There were no related party transactions during the reporting period.
Subsequent events
31
There are no subsequent events to note since the reporting date and the signing of these financial
statements.
Company Number
3152034
Directors
P Cartmell - Chief Executive Officer
A McCree - Non-executive Chairman
S Kings – Executive Director (resigned 9 February 2018)
D Stroud – Chief Financial Officer
P Holland – Non-executive Director
J Warner-Allen – Non-executive Director
Secretary
C MacPherson
Registered Office
Cody Technology Park
Old Ively Road, Farnborough, Hampshire, GU14 0LX
Nominated Adviser and Broker
Cenkos Securities plc
6-8 Tokenhouse Yard, London EC2R 7AS
Auditor
Deloitte LLP
Abbots House, Abbey Street, Reading, Berkshire, RG1 3BD
Solicitor
CMS Cameron McKenna Nabarro Olswang LLP
Cannon Place, 78 Cannon Street, London, EC4N 6AF
Bankers
National Westminster Bank plc
1 Penn Road, Beaconsfield, Buckinghamshire HP9 2PU
Barclays Bank plc
One Snowhill, Queensway, Birmingham B4 6GN
Patent Agent
Mathys & Squire LLP
The Shard, 32 London Bridge Street, London, SE1 9SG
Registrar
Equiniti
PO Box 4630 Aspect House, Spencer Road, Lancing, West Sussex BN99 6QQ
Financial PR
Vigo Communications
180 Piccadilly, London, W1J 9HF
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113
Financial Report
Attributions:
Contains public sector information licensed under the
Open Government Licence v3.0.
P11 Crown copyright – RAF
P21 Crown copyright - Army
P22 MoD/Crown copyright
P27 MoD/Crown copyright 2015
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2
0
1
8
Apex Plaza
Forbury Road
Reading
Berks
RG1 1AX
United Kingdom
tel: +44 (0)1753 285810
email: enquiries@tpgroup.uk.com
www.tpgroup.uk.com
Registered in England & Wales No. 3152034
© Copyright TP Group 2019