17:00 Thu 21 May 2020
TP Group PLC - Final Results for the year ending 31 December 2019
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
("
Full Year results for the year ending
Financial and operational highlights
Revenue up 49% to
· Organic growth of 16% (
· Added
Adjusted operating profit3 up 48% to
· Organic growth of
· Additional
Operating losses³
· Acquisition-related expenses of
· Earn-out provision of
Closing cash of
·
· Settlement of final earn-out payments,
·
Order intake
· Organic growth of
· Opening order book of
· Additional
Group closing order book up 32% to
· Organic growth of
· Includes additional
Throughout the COVID-19 outbreak we have continued to operate at a sustainable level across the whole business. Our approach has focused on:
· protecting the health and wellbeing of staff and their families
· sustaining the level of business activity on customer projects
· working with customers on renewals, extensions and new business opportunities
· managing investment in operating expenses and capital equipment where necessary
· maintaining a healthy cash balance supplemented by a new
· protecting the long-term value of the business for investors
We participate in global multi-year strategic programmes with government and institutional customers committed to supporting this work. This provides assurance of our business continuity. For further details, please refer to the CFO's report below.
Despite the resilience of the business, it was deemed prudent to withdraw market forecasts given the highly uncertain impacts of COVID-19.
"I am very pleased with
"More recently, I have been especially impressed by the resilience and commitment of our team at all levels of the business in response to the COVID-19 outbreak. The safety and wellbeing of our staff and their families is of prime importance, and the team has adapted quickly, constructively and creatively to the challenges of new working arrangements whilst keeping safe, their projects on track and supporting our customers, wherever they are in the world.
"
Additional narrative to the results will be published in the Group's Annual Report and Accounts that will be available in due course on the Company website at:
https://www.tpgroup.uk.com/investors/results-reports-presentations/
1
2
3 Refer to the CFO Report section "Adjusted operating profit" for the bridge from operating
loss to adjusted operating profit
4
For further information, please contact:
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Tel: 01753 285 810 |
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Cenkos Securities plc |
Tel: 020 7397 8980 |
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Tel: 020 7390 0230 |
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Notes to Editors
Chairman's statement
During 2019 we have made significant progress. Our business is now much more diversified and balanced, both geographically and in the markets we serve. This gives us a more robust foundation in uncertain times, and a solid platform from which to deliver growth.
We outlined the Group's strategy over the last few years in last year's Report. I am pleased to note that under our excellent leadership team the business has executed this strategy with focus and commitment.
We continue to drive the Group strategy by focusing on:
· Organic growth: Our business development teams are winning more new contracts and deepening our existing relationships with key customers. We continue to invest in capability to maintain competitive leadership and grow our core business.
· Technology transfer: Our proven technologies and equipment can be extended into new uses with careful investment. This becomes even more valuable when we combine the separate assets of our expanding Group and offer them in combination to meet new requirements.
· Acquisitive expansion: We will seek to make acquisitions where the strategic fit is complementary to our existing activities and/or will allow us to provide a more extensive and integrated offering to existing and new customers.
The success of this approach is demonstrated by
We have expanded our operating footprint in
Governance
The Board has continued to drive transparency across the business with a focus on financial robustness. This is demonstrated by our adoption of the QCA Corporate Governance Code to operate effectively within the current uncertain and evolving business landscape.
We have also given priority to ensuring that the best available talent is attracted to, retained and developed inside the business.
People
We are committed to a performance culture, with high levels of employee engagement across all our locations. Headcount has grown steadily in all areas of the business, reflecting the Group's growth in 2019.
We take great care to make
· leadership development has been a priority with both individuals and the team undertaking several training and development programmes;
· we invested in almost 1,000 training days in the year;
· we are aiming to have 20 apprentices across the Group next year, up from five in 2019;
· in 2019, we invested in an employee wellbeing programme and trained 12 people as specialist responders; and
· put in place suitable working patterns and home-working arrangements to sustain activity through the COVID-19 outbreak.
We believe our investment in employee welfare, future talent and career development has created a collaborative and positive working environment. Our team members now have an average length of service across the Group of more than five years, with 14 employees having more than 25 years' service.
I would like to take this opportunity to thank all our employees for a very strong performance this year. In particular, the Board wishes to record its appreciation for the performance of the executive team, led by the Chief Executive Officer,
Outlook
In the last four years we have made progress technically, commercially and now geographically. We have also built a very strong executive leadership and management team to drive us forward. There are great opportunities ahead of us to apply our technologies and skills in new and exciting areas.
Our priority in these challenging times is to remain financially prudent and build a robust financial base. This has been demonstrated through our responses to COVID-19 where we continue to operate in a safe manner and at a sustainable level across both the CaPS and T&E business streams to protect the health and welfare of our staff and the interests of all our stakeholders. We will continue to focus on building a successful business which is attractive to customers, employees and investors. We will also carefully seek acquisitions.
With the solid foundations we have built, and the talent available to us, I am very confident in the prospects for the Group for the year ahead and beyond.
Chief Executive's statement
I am very pleased to look back on another excellent year of progress for
We now offer a broader technology and services proposition and are significantly more diversified geographically. This was a reflection of the substantial organic growth in the Group's core business, as well as carefully selected acquisitions that have taken us into new markets. These add value today and prepare us well for future expansion.
We are, however, mindful of current circumstances in relation to COVID-19 and the challenges it presents for our business, the people within it and our plans for the future.
Strategy
We set out our strategy several years ago and have committed to it fully. We are now seeing consistent growth and value creation as a result.
Our clear focus is on the strength of our technologies and services, our access to high-value market sectors and the expansion of our geographic reach. We have invested in our core business to provide solid foundations and took an entrepreneurial approach to acquisitions and partnerships to make rapid progress where opportunities arise.
Acquisitions and progress against strategic objectives
During the year, the Group took a big step forward with the acquisition of
With that acquisition we have significantly increased the Group's capabilities and achieved a more balanced business in terms of geography, market sectors served, and services offered. As ever, our integration and cross-selling potential grows over time and we are seeing this with Sapienza's excellent project management software suite, ECLIPSE. This software originated in the space sector and is now being picked up across
We will not stop there and continue to target advanced technologies and services that are incremental to our position and that will give us greater access to higher-value markets.
Organic growth remains important, and we will continue to develop the capabilities and assets we have. As the acquired companies join the Group, we have great potential to link them together and take them to places that they could not reach alone. This is the power of our approach and I am pleased to see it delivering as it has in 2019.
Competitive leadership
Historically,
Consulting and technology support capabilities were demonstrated this year by the award of contracts under the
Services
Our services businesses have become established as key providers of consultancy services and methods that accelerate and assure our customers' projects. Domain experience and insight, plus leadership in specialist disciplines such as cost engineering and project assurance, are important competitive advantages. These are key factors in winning new business and in extending our relationships into subsequent phases of major programmes that generate long-term value for the Group.
We have framework agreements in place with the
Technology
We have set out on a development path that will involve internal investment in software and capabilities, alongside customer-funded projects, to bring technology solutions to maturity as quickly as possible to capitalise on market opportunities.
"Big data" environments open many new opportunities for communications, digital transformation services, modelling and simulation, and AI. We are already active in data and communications management for defence clients like the
Of course, it does not have to stop there, and options are available to extend the proposition to include sensors and data capture, other software services and systems including simulation and emulation and onward transmission through 5G and other channels. This technology horizon means that we stand on the brink of a very exciting period for the Group.
The growing portfolio of technologies has led us to create a centre of excellence for technology development that we believe will be a focal point for innovation across the Group.
Engineering
Our engineering activity is differentiated by our unrelenting focus on the quality and reliability of the solutions we deliver. This was demonstrated by the Group's nuclear condenser work with GE Baker Hughes. The first contract of
Similarly, we started the year with a follow-on order for carbon dioxide equipment, a key part of the habitable environments we support all around the world, which was the third in an ongoing multi-unit programme.
Contracts like these are key to securing the business with long-term and high-value relationships that offer greater confidence in planning and visibility of future performance.
Geographic expansion
We have historically done this through partnerships and agency agreements, and, as we enter the next phase of our growth plan, it becomes necessary to have a more direct presence in our target markets. The acquisition of Sapienza has immediately extended our European base and we have committed to taking this further in
The Sapienza acquisition also provided us with local presence in other European countries through which we can offer the wider capabilities of the Group. Business development discussions have accelerated in
Organisation
As we have grown, the Board has looked carefully at the way in which it operates the business in order to understand strengths, weaknesses and areas for improvement. As a result, the Group will be making some improvements to its operational structures and methods. These range from relatively simple steps that bring sales and delivery teams closer together to maximise efficiencies and conversion of opportunities to contracts, to changes in management reporting lines that will simplify the business and better prepare us for future growth.
These structural improvements will allow us to employ a more country-based approach, where local management has accountability for business performance and a small central team provides support, consistency of methods, and a hub into which future acquisitions or partners can be joined without disrupting the day-to-day operations of the business.
The central team will also be able to plan investment and manage strategic development projects within a governance framework that allows us to balance effective business performance with a true entrepreneurial approach to our growth ambitions.
Investing in people
The Group now employs almost 450 people and we take that responsibility very seriously. Our recruitment processes have been streamlined to bring people into the business smoothly and ensure they are productive quickly. Our culture, benefits and training programmes have been overhauled to make
Our people are clearly key to our success, and through the current Covid-19 outbreak we have taken extensive steps to support their physical and mental health and wellbeing whilst supporting our customers, maintaining our business activities and contributing to the overall economy.
Outlook
We have come a long way in the last few years and have been careful to buy, integrate and manage our businesses in order to build a solid foundation, and enable ambitious future projects. We have the culture, the resources and the team to look outward whilst the core business performs well and without distraction. The strength of our people, our customers and long-term contract positions places us very well to manage the uncertainties arising from the COVID-19 outbreak.
I believe that the next few years will be notably exciting for
CFO's financial and operational review
Group Key Performance Indicators |
2019 |
2018 |
Change |
|
£'m |
£'m |
£'m |
Order intake |
73.8 |
43.2 |
30.6 |
Closing order book |
63.8 |
48.3 |
15.5 |
Revenue |
58.2 |
39.0 |
19.2 |
Gross profit % |
29% |
29% |
- |
Adjusted operating profit |
5.9 |
4.0 |
1.9 |
Operating loss |
(1.7) |
0.0 |
(1.7) |
Cash |
6.6 |
22.4 |
15.9 |
|
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|
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Closing order book by business stream |
2019 |
2018 |
Change |
|
£'m |
£'m |
£'m |
T&E |
46.4 |
42.3 |
4.1 |
CaPS |
17.4 |
6.0 |
11.4 |
Group closing order book |
63.8 |
48.3 |
15.5 |
|
|
|
|
Revenue by business stream |
2019 |
2018 |
Change |
|
£'m |
£'m |
£'m |
T&E |
33.7 |
27.7 |
6.0 |
CaPS |
24.5 |
11.3 |
13.2 |
Group revenue |
58.2 |
39.0 |
19.2 |
|
|
|
|
Adjusted operating profit1 by business stream |
2019 |
2018 |
Change |
|
£'m |
£'m |
£'m |
T&E |
5.7 |
4.5 |
1.2 |
CaPS |
1.4 |
0.6 |
0.8 |
Central unallocated costs |
(1.2) |
(1.1) |
(0.1) |
Adjusted Group operating profit |
5.9 |
4.0 |
1.9 |
1 Refer to the CFO Report section "Adjusted operating profit" for the bridge from operating loss to adjusted operating profit
We have delivered strongly against our KPIs, both organically and through acquisition.
In concluding the Sapienza acquisition, we have established a pan-European footprint which has doubled the size of our consulting business and provided us with routes to future business across
We continue to invest across the business, through acquisition, capital assets and operational resources to deliver on our strategy.
Operating Results
Order book
The Group's closing order book increased by 32% to £63.8m (2018: £48.3m). £5.5m (c.11%) was secured through organic growth and the remaining £10.0m was from Sapienza.
Organic growth was achieved through a balanced approach to business development across all our sectors. Significant long-term contracts closed in the year included:
· a contract worth approximately £16.9m with a leading
· an order worth £6.4m over four years with
· £2.6m of new and follow-on consultancy orders from the Ministry of Defence;
· €2.2m software license agreement for three years with the
· a one-year, £1.4m consulting agreement for the Land Environment Tactical Communication and Information Systems ("LE TacCIS") programme.
2019 was yet another record high in the Group's closing order book, reflecting the strong market demand for our technologies and services, matched by our investments in business development activities and updated propositions.
Order intake
The 2019 order intake increased by £30.6m (71%) year-on-year to £73.8m. This includes the £15.0m opening order book value that was acquired with the Sapienza transaction. An additional £7.2m of new orders were secured post acquisition by Westek and Sapienza. Excluding these, organic order intake growth was 20%.
Revenue
Revenue increased by 49% to £58.2m (2018: £39.0m), with growth delivered across the Group. The existing business grew by £6.2m (16%), with the balance of £13.0m coming from a full year's contribution from Westek, and from Sapienza since its acquisition.
A strong opening order book, coupled with good order capture in the first half of the year and efficient operational execution, has delivered another record year of revenue.
In line with our strategy we have diversified and developed both geographically and across our markets.
All market sectors have grown revenue year-on-year:
· £10.5m added in the space sector to £12.1m (2018: £1.6m)
· £7.5m increase in the defence sector to £37.3m (2018: £29.8m)
· £1.2m additional in the energy sector, rising to £8.8m (2018: £7.6m)
International expansion was achieved as well as domestic growth:
·
· Rest of World up £2.3m to £5.5m
·
Operating loss
The Group has moved from a break-even position in 2018 to record an operating loss of £1.7m in 2019. This was driven largely by the impact of acquisition-related costs that accounting standards require to be written off to profit and loss in the period and masks the strong increase in the underlying profitability of the business. Acquisition costs expensed during the year include:
· transactional costs of £1.5m (2018: £0.7m) related to acquisitions; and
· earn-out provision of £1.6m (2018: £0.6m) relating to Westek, Sapienza and Polaris.
Excluding these acquisition-related costs, the Group would have made an operating profit of £1.4m (2018: £1.3m).
Adjusted operating profit
The directors of the Company believe that adjusted operating profit is more reflective of the underlying performance of the Group than equivalent GAAP measures. Adjusted operating profit is defined as operating loss adjusted to add back depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and impairment gains or losses on non-current assets, changes in fair value of contingent consideration, acquisition consideration accounted for as employment costs owing to ongoing service conditions, any other acquisition-related charges, share-based payment charges, non-controlling interests and non-operating costs. Non-operating costs are those items believed to be exceptional in nature by virtue of their size and/or incidence and include redundancy and restructuring costs. This provides shareholders and other users of the financial statements with the most representative year-on-year comparison of underlying operating performance attributable to shareholders. This measure and the separate components remain consistent with 2018. Refer below for details of the reconciliation of adjusted operating profit to operating loss.
|
2019 £'m |
2018 £'m |
Operating loss |
(1.7) |
(0.0) |
Depreciation, amortisation and impairment |
3.9 |
2.4 |
Acquisition-related costs |
1.5 |
0.6 |
Non-operating costs |
0.3 |
0.2 |
Earn-out payments |
1.6 |
0.6 |
Share-based payments |
0.2 |
0.2 |
Adjusted operating profit including non-controlling interest |
5.8 |
4.0 |
Non-controlling interest |
0.1 |
0.0 |
Adjusted operating profit |
5.9 |
4.0 |
Adjusted operating profit increased by 48% to £5.9m (2018: £4.0m). Profit from the existing business grew by 28%, or £1.1m, with the balance of £0.7m improvement coming from the acquisitions of Westek and Sapienza.
The adjusted operating profit percentage (as a percentage of revenue) is 10.1% (2018 10.2%).
This reflects:
· the stable gross profit margin percentage of 29% (2018: 29%) which was derived from volume and efficiency improvements in our manufacturing facilities, offset by a change in the product and services mix through the acquisition of Sapienza; and
· further investment in operating expenses, including business development and marketing, proportionate to the prior year's adjusted operating profit percentage.
Cash and bank balances
Year-end Group cash of £6.6m (2018: £22.4m), was lower than the prior year. The key movements included:
· the cash element of the acquisition of Sapienza of £7.7m;
· the settlement of final earn-out payments of £2.0m combined for Polaris and Westek;
· £1.5m invested in business systems, infrastructure, equipment and software development; and
· working capital consumption of £4.8m arising from the timing of material payments due from two customers at the year-end that were received in early January 2020, and the over-performance in cash collection that contributed to a £3.4m inflow achieved in 2018.
Note that working capital balances will vary through timing of operational delivery and receipts although these factors are typically short-term in nature.
Acquisitions, investments and disposals
In May 2019, the Group acquired Sapienza Consulting Holdings B.V. for an initial cash consideration of €10.0m plus €1.5m by way of the issue of 20,612,865 new ordinary shares and a possible earn-out of up to €2.0m over the next two years. The deal was concluded on a debt-free, cash-free, normalised working capital basis. Sapienza is a provider of highly complex solutions and skills to the European space and defence markets. With such specialist, technical services and skills, Sapienza is a highly complementary business for
The Group incurred £1.4m of transactional costs for acquisitions (2018: £0.7m) predominantly relating to the Sapienza transaction noted above. These were charged to the Statement of Comprehensive Income in the year.
Final earn-out payments of £2.0m have been made in the year relating to the acquisitions of Polaris and Westek in prior years.
The Group continues to invest in its facilities, equipment and technologies (principally the North* Artificial Intelligence toolset and the ECLIPSE project management software) to build capability and develop our propositions. Across the Group, £1.5m was invested in 2019 (2018: £0.9m).
On 1 July 2019, the Group invested c. €0.7m in the AI company Lift BV ("Lift"). Lift is based in
Sapienza had initially acquired a c. 33% stake in Lift in May 2017, as part of their strategy to invest in complementary technology partners. This follow-on investment takes the Group's holding in Lift to 69%.
Lift is highly active in a range of sectors including defence, aerospace, security, government, medical and commercial, and we believe that the Group will be able to develop a number of highly complementary growth opportunities for the Lift technologies in our wider operations.
Non-operating items and earn-out costs
During the year, the Group incurred one-off non-operating and earn-out costs of £2.0m (2018: £0.8m). These relate to the business transformation actions required by the strategic plan, including employment-related restructuring costs (£0.4m), and earn-out provisions relating to Polaris, Westek and Sapienza (£1.6m).
Finance costs
Finance costs of £0.3m (2018: £0.1m) were incurred, predominantly relating to fees in relation to investments in the
Taxation
The tax charge for the financial year to 31 December 2019 is less than £0.1m.
The Group expects to incur in total cash tax payments of c. £0.2m net of R&D tax credits for the 2019 financial year (2018: £0.2m).
Results and dividends
The directors continually evaluate Group performance, and do not currently recommend the payment of a dividend (2018: £nil).
Brexit
As negotiations progress on the future trading relationships between the
Our strategy is to increase our presence outside the
The Group has significant revenue that originates in the
Whilst we believe our exposure to be low, we are actively managing our supply chain through a number of risk mitigation approaches. Our main risk is in the supply of raw materials, most notably steel, from the EU, where we are investigating alternate sources as back-up. However, in any event, the nature of the goods means that under
Coronavirus
The advent of Coronavirus in recent months has placed a number of challenges before the business.
The Group is approaching this situation on a number of fronts to:
· protect the health and wellbeing of staff and their families;
· sustain the level of business activity on customer projects;
· continue dialogue with customers regarding renewals, extensions and new business opportunities; and
· manage investment in operating expenses and capital equipment where necessary.
The business is robust as it participates in several long-term strategic government and institutional programmes in the
The Group's profile further protects us through the spread of our business activities across multiple sectors, and the global nature of the major industrial businesses we work with that we expect to continue operating through such events.
The Group maintains a business continuity plan that includes several relevant features:
· flexible working practices and systems that support the ability to work from home in many cases;
· employee outreach initiatives to support as far as possible the health, wellbeing and safety of our staff;
· flexible shift patterns within the manufacturing facilities to accommodate staggered activities and appropriate distancing within the facilities; and
· communications processes to facilitate and co-ordinate the running of the business and the interaction with key stakeholders.
The business is further insulated through:
· a liquid cash balance that is retained predominantly within the
· a banking facility of £7.0 m available to supplement our existing cash balance; and
· our ability to flex our plans on operating expenses and capital investment.
As of 20 May 2020 the banking facility has been fully drawn to insulate the business against any potential COVID-19 impact. However, it must be noted that the Group's current cash flow forecast indicates that none of these funds will be required to support the Group's ongoing operational activities.
Auditor
As part of our continued drive to adopt the highest possible standards of corporate governance, the directors undertook a competitive tender process for the 31 December 2019 year-end audit. The outcome of this process was the appointment of
Going concern
The directors, having considered various scenarios for the business over the foreseeable future, including the potential impact of COVID-19, are satisfied that it is appropriate to prepare the financial statements for the group on a going concern basis.
In reaching this conclusion the directors have undertaken a sensitivity analysis to reflect the potential impact of COVID-19, over a period of at least twelve months from the date of the approval of these financial statements, on our forecasts. This analysis has been based upon market conditions and other received intelligence, and the current operational conditions within the business. Possible scenarios include:
· execution of the 2020 budget as planned through managed operating procedures;
· zero revenue growth in 2020 but continued investment in capital equipment, technologies and operating expenses in line with the 2020 budget; and
· reduced capacity or capability which impairs revenues across the business by 10% against prior year for a period of six months, and reduced investment in capital equipment, technologies and operating expenses.
In the last and most cautious of these scenarios, the Group has secured revenue cover through its February 2020 order book of c. 80% of the impaired 2020 revenues and would carry c. £33m of this order book forward into 2021. This provides considerable comfort in the Group's ability to execute this scenario.
All of these scenarios take into account the Group's existing cash resources of £6.6m, which along with the bank financing facility of £7.0m established on 3 March 2020, provides sufficient insulation against any reasonably plausible downside scenarios and risks.
Brexit has also been considered as part of this review, and whilst the decision to leave the EU has now been confirmed, the ongoing negotiations related to a future trade agreement may lead to some disruption in the short term on some
· the quality of
· the acquired Sapienza business, which provides a European footprint to offset some of the risk factors;
· the mitigation actions the business is putting in place; and
· the limited impact we expect Brexit to have on the defence market (both in the
Through all of our analysis, the directors have concluded that the Group is well placed to manage the business as a going concern through the foreseeable future.
Consolidated statement of comprehensive income
For the year ended 31 December 2019
|
|
|
|
|
|
2019 |
2018 |
|
Note |
£'000 |
£'000 |
|
|
|
|
Revenue |
2 |
58,218 |
39,037 |
Cost of sales |
|
(41,284) |
(27,806) |
|
|
|
|
Gross profit |
|
16,934 |
11,231 |
|
|
|
|
Administrative expenses |
|
(18,633) |
(11,261) |
|
|
|
|
Operating loss |
3 |
(1,699) |
(30) |
|
|
|
|
Adjusted operating profit including non-controlling interest |
2 |
5,801 |
3,974 |
Depreciation, amortisation and impairment |
2 |
(3,858) |
(2,377) |
Acquisition-related costs |
2 |
(1,527) |
(657) |
Non-operating costs |
2 |
(360) |
(192) |
Share based payments |
2 |
(176) |
(165) |
Movement in expected earn-out payments |
2 |
(1,579) |
(613) |
Operating loss |
|
(1,699) |
(30) |
|
|
|
|
Net finance cost |
|
(264) |
(80) |
|
|
|
|
Loss before taxation |
|
(1,963) |
(110) |
|
|
|
|
Taxation (charge) / credit |
|
(46) |
285 |
(Loss)/profit after taxation for the year |
|
(2,009) |
175 |
Attributable to: |
|
|
|
Equity holders of the parent company |
|
(1,927) |
175 |
Non-controlling interest |
|
(82) |
- |
|
|
|
|
Total (loss) / profit for the year |
|
(2,009) |
175 |
(Loss)/earnings per share (pence per share) |
|
|
|
Basic (loss)/earnings per share (pence per share) |
|
(0.26) |
0.02 |
Diluted (loss)/earnings per share (pence per share) |
|
(0.26) |
0.02 |
|
|
|
|
(Loss)/profit for the year |
|
(2,009) |
175 |
Other comprehensive income/(expense): items that may be subsequently recycled to the income statement: |
|
|
|
Foreign exchange losses on translation of foreign operations |
(4) |
- |
|
Total comprehensive (expense)/income for the year |
|
(2,013) |
175 |
Attributable to: |
|
|
|
Equity holders of the parent company |
|
(1,931) |
175 |
Non-controlling interest |
|
(82) |
- |
|
|
(2,013) |
175 |
All income relates to continuing activities.
Consolidated and Parent Company statements of financial position
As at 31 December 2019
|
|
Group |
Parent Company |
|||
|
|
2019 |
2018 |
2019 |
2018 |
|
|
Note |
£'000 |
£'000 |
£'000 |
£'000 |
|
Assets |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
9,161 |
5,289 |
- |
- |
|
Other intangible assets |
|
19,466 |
12,800 |
141 |
85 |
|
Property, plant and equipment |
|
2,073 |
1,401 |
157 |
46 |
|
Right-of-use assets |
|
5,808 |
5,423 |
363 |
94 |
|
Investments |
|
- |
- |
33,874 |
18,806 |
|
Amounts owed by EBT |
|
- |
- |
105 |
95 |
|
|
|
|
|
|
|
|
|
|
36,508 |
24,913 |
34,640 |
19,126 |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Inventories |
|
2,036 |
2,727 |
- |
- |
|
Trade and other receivables |
|
13,031 |
4,295 |
1,200 |
4,823 |
|
Amounts due from contract customers |
|
10,042 |
5,596 |
- |
- |
|
Taxation recoverable |
|
- |
87 |
- |
- |
|
Cash and bank balances |
5 |
6,568 |
22,413 |
144 |
10,505 |
|
|
|
|
|
|
|
|
|
|
31,677 |
35,118 |
1,344 |
15,328 |
|
|
|
|
|
|
|
|
Total assets |
|
68,185 |
60,031 |
35,984 |
34,454 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
|
(11,605) |
(10,614) |
(7,152) |
(8,312) |
|
Amounts due to contract customers |
|
(10,228) |
(4,837) |
- |
- |
|
Current tax liabilities |
|
(180) |
- |
- |
- |
|
Lease liabilities |
|
(1,022) |
(739) |
(120) |
(38) |
|
|
|
|
|
|
|
|
|
|
(23,035) |
(16,190) |
(7,272) |
(8,350) |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Trade and other payables |
|
(286) |
- |
(285) |
- |
|
Deferred taxation |
|
(2,738) |
(1,648) |
- |
- |
|
Lease Liabilities |
|
(5,429) |
(5,198) |
(272) |
(59) |
|
Provisions |
|
(231) |
(499) |
(20) |
(10) |
|
|
|
|
|
|
|
|
|
|
(8,684) |
(7,345) |
(577) |
(69) |
|
Total liabilities |
|
(31,719) |
(23,535) |
(7,849) |
(8,419) |
|
|
|
|
|
|
|
|
Net assets |
|
36,466 |
36,496 |
28,135 |
26,035 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Share capital |
|
7,792 |
7,586 |
7,792 |
7,586 |
|
Share premium |
|
18,529 |
17,438 |
18,529 |
17,438 |
|
Own shares held by the EBT |
|
(561) |
(561) |
- |
- |
|
Translation of foreign operations |
|
(4) |
- |
- |
- |
|
Share-based payments reserve |
|
1,142 |
1,441 |
1,142 |
1,441 |
|
Retained earnings |
|
9,140 |
10,592 |
672 |
(430) |
|
Non-controlling interest |
|
428 |
- |
- |
- |
|
|
|
|
|
|
|
|
Total equity |
|
36,466 |
36,496 |
28,135 |
26,035 |
|
Consolidated statement of changes in equity
For the year ended 31 December 2019
|
|
|
Own |
|
|
|
|
|
|
|
|
shares |
|
|
|
|
|
|
|
|
held |
Share- |
|
|
Non- |
|
|
Share |
Share |
by |
based |
Translation |
Retained |
controlling |
|
|
capital |
premium |
EBT |
reserve |
Reserve |
earnings |
interest |
Total |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Balance at 1 January 2018 |
7,586 |
17,438 |
(561) |
1,553 |
- |
10,882 |
- |
36,898 |
|
|
|
|
|
|
|
|
|
Profit for the year and total comprehensive income |
- |
- |
- |
- |
- |
175 |
- |
175 |
IFRS 16 cumulative adjustment |
- |
- |
- |
- |
- |
(742) |
- |
(742) |
Share-based payments charge |
- |
- |
- |
165 |
- |
- |
- |
165 |
Share-based payments reserves transfer |
- |
- |
- |
(277) |
- |
277 |
- |
- |
|
|
|
|
|
|
|
|
|
Balance at 31 December 2018 |
7,586 |
17,438 |
(561) |
1,441 |
- |
10,592 |
- |
36,496 |
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
- |
(1,927) |
(82) |
(2,009) |
Other comprehensive loss |
- |
- |
- |
- |
(4) |
- |
- |
(4) |
Total comprehensive loss |
- |
- |
- |
- |
(4) |
(1,927) |
(82) |
(2,013) |
Shares issued |
206 |
1,091 |
- |
- |
- |
- |
- |
1,297 |
Share-based payments charge |
- |
- |
- |
176 |
- |
- |
- |
176 |
Share-based payments reserves transfer |
- |
- |
- |
(475) |
- |
475 |
- |
- |
Non-controlling interest on acquisition of Lift BV |
- |
- |
- |
- |
- |
- |
510 |
510 |
|
|
|
|
|
|
|
|
|
Balance at 31 December 2019 |
7,792 |
18,529 |
(561) |
1,142 |
(4) |
9,140 |
428 |
36,466 |
|
|
|
|
|
|
|
|
|
Parent Company statement of changes in equity
For the year ended 31 December 2019
|
|
|
Share-based |
|
|
|
|
Share |
Share |
payments |
Retained |
|
|
|
capital |
premium |
reserve |
earnings |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
Balance at 1 January 2018 |
7,586 |
17,438 |
1,459 |
4,165 |
30,648 |
|
|
|
|
|
|
|
|
Total comprehensive loss |
- |
- |
- |
(4,778) |
(4,778) |
|
Share-based payments charge |
- |
- |
165 |
- |
165 |
|
Share-based payments reserves transfer |
- |
- |
(183) |
183 |
- |
|
|
|
|
|
|
|
|
Balance at 31 December 2018 |
7,586 |
17,438 |
1,441 |
(430) |
26,035 |
|
|
|
|
|
|
|
|
Total comprehensive profit |
- |
- |
- |
627 |
627 |
|
Shares issued |
206 |
1,091 |
- |
- |
1,297 |
|
Share-based payments charge |
- |
- |
176 |
- |
176 |
|
Share-based payments reserves transfer |
- |
- |
(475) |
475 |
- |
|
Balance at 31 December 2019 |
7,792 |
18,529 |
1,142 |
672 |
28,135 |
|
|
|
|
|
|
|
|
Consolidated and Parent Company statement of cash flows
For the year ended 31 December 2019
|
|
Group |
Parent Company |
|||
|
|
2019 |
2018 |
2019 |
2018 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Operating activities |
|
|
|
|
|
|
(Loss)/profit before taxation |
|
(1,963) |
(110) |
782 |
(5,114) |
|
Adjustments for: |
|
|
|
|
|
|
Depreciation, amortisation and impairment |
|
3,865 |
2,377 |
198 |
193 |
|
Finance cost/(income) |
|
264 |
81 |
(11) |
(56) |
|
Share-based payment expense |
|
176 |
165 |
176 |
165 |
|
Increase in impairment on loan to the EBT |
|
- |
- |
10 |
2 |
|
Provision against long term inter-company loan |
|
- |
- |
- |
4,876 |
|
Decrease in inventories |
|
691 |
3,141 |
- |
- |
|
(Increase)/decrease in trade and other receivables |
|
(7,086) |
1,490 |
(1,324) |
(6,100) |
|
Increase/(decrease) in trade and other payables |
|
1,901 |
(1,277) |
1,127 |
2,181 |
|
(Decrease)/increase in provisions |
|
(269) |
62 |
10 |
97 |
|
Dividend received |
|
- |
- |
(5,000) |
- |
|
|
|
(2,421) |
5,929 |
(4,032) |
(3,756) |
|
Taxation paid |
|
(412) |
(211) |
- |
- |
|
|
|
|
|
|
|
|
Net cash (used in) / generated from operating activities |
|
(2,833) |
5,718 |
(4,032) |
(3,756) |
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
Acquisition of subsidiary, net of cash acquired |
|
(8,282) |
(2,953) |
(9,002) |
(3,000) |
|
Acquisition of subsidiary - payment of earn out |
|
(2,000) |
(300) |
(2,000) |
(300) |
|
Interest received |
|
23 |
60 |
23 |
60 |
|
Purchase of property, plant and equipment |
|
(932) |
(864) |
(174) |
(39) |
|
Purchase of computer software |
|
(556) |
(79) |
(97) |
(35) |
|
Dividend received |
|
- |
- |
5,000 |
- |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(11,747) |
(4,136) |
(6,250) |
(3,314) |
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Interest payable |
|
(286) |
(254) |
(11) |
(4) |
|
Repayment of lease liabilities |
|
(981) |
(846) |
(68) |
(38) |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
(1,267) |
(1,100) |
(79) |
(42) |
|
Effects of exchange rates on cash and cash equivalents |
|
2 |
- |
- |
- |
|
Net (decrease) / increase in cash and cash equivalents |
|
(15,845) |
482 |
(10,361) |
(7,112) |
|
Cash and cash equivalents at beginning of year |
|
22,413 |
21,931 |
10,505 |
17,617 |
|
Cash and cash equivalents at end of year |
|
6,568 |
22,413 |
144 |
10,505 |
|
1. Basis of preparation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and interpretations issued by the IFRS Interpretations Committee applicable to companies reporting under IFRS. The financial statements comply with IFRS as adopted by the EU.
The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below.
The Consolidated Financial Statements are presented in pounds sterling which is the Group's functional currency. Figures are presented to the nearest thousand pounds, unless otherwise stated.
The financial statements have been prepared on a historical cost basis, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss or financial assets at fair value through other comprehensive income.
The measurement bases and principal accounting policies of the Group and Parent Company are set out below. The accounting policies adopted are consistent with those of the previous financial year with exception of matters noted below.
The Group adopted IFRS 16 early on 1 January 2018 and reflected its impact in the financial statements for the year ended 31 December 2018.
New or amended Accounting Standards and Interpretations adopted
In the current year, the Group has adopted a number of amendments to Accounting Standards and Interpretations issued by the IASB that are effective for any period that began on or after 1 January 2019. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements.
· IFRIC Interpretation 23: Uncertainty over Income Tax Treatment;
· Amendments to IFRS 9: Prepayment Features with Negative Compensation;
· Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
· Amendments to IAS 28: Long-term interests in associates and joint ventures
· Annual Improvements 2015-2017 Cycle
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2019 reporting periods and have not been adopted early by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.
Going concern
The Chief Financial Officer's Review includes a review of going concern, as well as separate consideration of the impact of Brexit and the Coronavirus, which has not identified any material impact on the values of any of the Group's assets or liabilities.
2. Segmental information
An operating segment, as defined by IFRS 8 'Operating segments', is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. The Group is managed through its two reporting segments, Technology & Engineering ("T&E") and Consulting & Programme Services ("CaPS") which form the operating segments on which the information below is prepared. The Group determines and presents operating segments based on the information that is provided internally to the chief operating decision maker, which has been identified as the Board of Directors of
|
2019 |
2018 |
|
|
£'000 |
£'000 |
|
Revenue |
|
|
|
T&E |
33,709 |
27,766 |
|
CaPS |
24,509 |
11,271 |
|
Group revenue |
58,218 |
39,037 |
|
|
|
|
|
Segment operating result |
|
|
|
T&E |
3,714 |
2,571 |
|
CaPS |
(487) |
(484) |
|
Central unallocated costs |
(4,926) |
(2,117) |
|
Group loss from operations |
(1,699) |
(30) |
|
Finance cost |
(264) |
(80) |
|
Loss before tax |
(1,963) |
(110) |
|
Taxation (charge) / credit |
(46) |
285 |
|
(Loss)/profit after tax |
(2,009) |
175 |
Segment revenue reported above represents revenue generated from external customers.
The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segment profit or loss represents the profit or loss before tax earned by each segment without allocation of central administration costs and directors' salaries, other gains and losses, as well as finance costs.
The following table shows how the Group loss from operations, adjusted operating profit and reconciling exceptional items for the financial year are split between the Group's reportable segments and central unallocated costs.
|
|
T&E |
CaPS |
Central unallocated costs |
Group
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
2019 Segment operating result |
3,714 |
(487) |
(4,926) |
(1,699) |
|
Depreciation, amortisation and impairment |
1,946 |
1,714 |
198 |
3,858 |
|
Acquisition-related costs |
- |
- |
1,527 |
1,527 |
|
Non-operating costs |
66 |
91 |
203 |
360 |
|
Share based payments |
- |
- |
176 |
176 |
|
Movement in expected earn-out payments |
- |
- |
1,579 |
1,579 |
|
Adjusted operating profit / (loss) including non-controlling interest |
5,726 |
1,318 |
(1,243) |
5,801 |
|
Non-controlling interest |
- |
82 |
- |
82 |
|
Adjusted operating profit / (loss)1 |
5,726 |
1,400 |
(1,243) |
5,883 |
|
2018 Segment operating result |
2,571 |
(484) |
|
(2,117) |
(30) |
|
Depreciation, amortisation and impairment |
1,629 |
555 |
|
193 |
2,377 |
|
Acquisition-related costs |
- |
- |
|
657 |
657 |
|
Non-operating costs |
734 |
104 |
|
(646) |
192 |
|
Share based payments |
- |
- |
|
165 |
165 |
|
Movement in expected earn-out payments |
- |
- |
|
613 |
613 |
|
Adjusted operating profit / (loss) including non-controlling interest |
4,934 |
175 |
|
(1,135) |
3,974 |
|
Non-controlling interest |
- |
- |
|
- |
- |
|
Adjusted operating profit/ (loss)1 |
4,934 |
175 |
|
(1,135) |
3,974 |
1 Adjusted operating profit / (loss) is defined as operating result adjusted to add back depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and impairment gains or losses on non-current assets, changes in fair value of contingent consideration, acquisition consideration accounted for as employment costs owing to on-going service conditions, any other acquisition-related charges, share based payment charges, non-controlling interest and non-operating costs. Non-operating costs include £253,000 (2018: £579,000) in respect of termination payments, and the remainder due to restructuring of the Group. Non-operating costs are those items believed to be exceptional in nature by virtue of their size and or incidence. The directors of the Company believe this measure is more reflective of the underlying performance of the Group than equivalent GAAP measures. This is primarily due to the exclusion of non-cash items, such as share-based payments, impairment, depreciation and amortisation, as well as acquisition and non-operating costs. This provides shareholders and other users of the financial statements with the most representative year-on-year comparison of underlying operating performance attributable to shareholders . This measure and the separate components remain consistent with 2018.
Analysis by geographical destination
The following is an analysis of the Group's revenue from continuing operations from its products and services:
|
2019 |
2018 |
|
£'000 |
£'000 |
|
39,094 |
33,979 |
|
13,588 |
1,868 |
|
2,582 |
2,729 |
|
2,521 |
- |
Rest of the World |
433 |
461 |
Total revenue |
58,218 |
39,037 |
Revenue from continuing operations from external customers and non-current assets are all generated from operations in the
Analysis by type of good or service
|
2019 |
2018 |
|
£'000 |
£'000 |
Revenue |
|
|
Engineering |
33,709 |
27,766 |
Software |
1,271 |
- |
Consultancy |
23,238 |
11,271 |
Total revenue |
58,218 |
39,037 |
Analysis by timing of revenue recognition
|
T&E |
CaPS |
Total |
|||
|
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
Over time |
28,001 |
25,456 |
23,908 |
11,271 |
51,909 |
36,727 |
Point in time |
5,708 |
2,310 |
601 |
- |
6,309 |
2,310 |
Total revenue |
33,709 |
27,766 |
24,509 |
11,271 |
58.218 |
39,037 |
Analysis by industry
|
2019 |
2018 |
|
£'000 |
£'000 |
Revenue |
|
|
Defence |
37,305 |
29,796 |
Energy |
8,821 |
7,595 |
Space |
12,092 |
1,646 |
Total revenue |
58,218 |
39,037 |
Information about major customers
Revenue includes sales from customers who contributed 10% or more to the Group's revenue:
|
2019 |
2018 |
|
£'000 |
£'000 |
Customer 1 |
6,921 |
9,910 |
Customer 2 |
14,104 |
9,776 |
Customer 3 |
8,669 |
- |
Total revenue |
29,694 |
19,686 |
3. Operating loss
The Group operating loss for the year is stated after charging the following:
|
2019 |
2018 |
|
£'000 |
£'000 |
Amortisation of intangible assets |
2,500 |
1,435 |
Impairment of intangible assets |
- |
- |
Depreciation of property, plant and equipment and right-of-use assets |
1,360 |
855 |
Impairment of trade receivables |
36 |
87 |
Share-based payment expense1 |
176 |
165 |
1 Share-based payment expense arises from transactions accounted for as equity-settled share-based payment transactions and are non-cash in nature.
4. Earnings per share
The calculation of basic earnings per share for the year ended 31 December 2019 is based upon a loss after tax of £1,927,000 (2018: profit after tax of £175,000) and a weighted average number of shares of 772,439,898 (2018: 758,565,854). The weighted average number of shares has been reduced by the weighted average number of shares held by the Employee Benefit Trust.
The issue of additional shares on exercise of employee share options would increase the basic loss per share and there is therefore no dilutive effect of employee share options.
5. Cash and cash equivalents
The funds were placed on floating interest rate deposit as follows:
|
Group |
Parent Company |
||
|
2019 |
2018 |
2019 |
2018 |
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
Cash and bank balances |
6,568 |
22,413 |
144 |
10,505 |
|
|
|
|
|
Cash and cash equivalents |
6,8151 |
22,8731 |
144 |
10,505 |
1 Restricted cash of £247,000 (2018: £460,000) is included in Prepayments and Other Debtors
6. Business combinations
Sapienza Consulting Holdings B.V
On 30 April 2019, the Group through its parent company
On 28 June 2019, the Group via its subsidiary Sapienza Consulting Holdings BV acquired additional shares in Lift BV ("Lift"), increasing its shareholding from 33% to 69%. The additional 36% was acquired for an initial consideration of €486,000 in cash, paid from the Group's existing cash resources, and a further consideration of €216,667 in cash to be paid over an 18-month period, again from the Group's existing cash resources. Lift is a software business that designs AI based conversational technology.
The principal reason for the acquisition of Sapienza and the increased investment in Lift is to support the Group's evolution as a diversified engineering and services group. Sapienza and Lift form part of the CaPS business segment.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
|
Following the increase in shareholding in Lift B.V., no change in fair value of the non-controlling interest has been recognised in view of the short space of time between the two transactions.
The non-controlling interest in Lift B.V. was valued as the percentage of shares not owned by the Group on 28 June 2019 multiplied by the fair value of the net assets of Lift B.V. on this date, including intangibles arising on acquisition. The fair values were determined using the income approach to value of the technology of the company, and the cost approach to value the workforce and all remaining assets and liabilities of Lift B.V. at acquisition.
The Group has identified intangible assets on the purchase of Sapienza Holdings BV relating to customer relationships of £5,727,000, internally developed software of £1,127,000, the brand of £520,000 and order backlog of £953,000.
Had the acquisition of Sapienza Holdings BV been effective from 1 January 2019, the consolidated revenue of the Group for the year would have been approximately £63,000,000 and the operating loss for the year would have been approximately £1,846,000. The directors consider these values to represent an approximate measure of performance of the combined Group on an annualised basis and to provide a reference point for future periods. Since acquisition Sapienza Holdings BV, including Lift B.V. reports revenue of circa £9,900,000 and operating profit of circa £317,000.
The Group has identified intangible assets on the purchase of Lift B.V. relating to internally developed software £283,000.
7. Subsequent events
On 3 March 2020, the Group entered into a new £7.0 million revolving loan facility (the "Facility Agreement") with
The Chief Financial Officer's Review includes a review of going concern, as well as separate consideration of the impact of Brexit and the Coronavirus, which has not identified any material impact on the values of any of the Group's assets or liabilities.
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