REG - Pennant Int. Group - 2022 Final Results
26/04/2023 07:00
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RNS Number : 5095X Pennant International Group PLC 26 April 2023
FOR IMMEDIATE RELEASE
26 April 2023
PENNANT INTERNATIONAL GROUP PLC
Final Results for the Year Ended 31 December 2022
Continued Positive Trading Momentum;
Full-Year EBITA Profit of £0.5m
Transformation of business mix produces significantly increased gross margin;
Further growth in recurring revenues; Robust order book
Pennant International Group plc (AIM:PEN)("Pennant", the "Group", the
"Company"), a leading global provider of training technology and integrated
product support solutions, announces its Final Results for the Financial Year
ended 31 December 2022.
Commenting on the Group's performance, Phil Cotton, Chair, said:
"I am pleased to report that the Group has delivered a much-improved
performance in the year ended 31 December 2022, with profitability in-line
with market expectations despite reduced revenues, achieving an EBITA profit
of £0.5 million for the year (2021: EBITA loss of £0.8 million) and an
EBITDA profit of £1.0 million (2021: EBITDA loss of £0.1 million).
The improved performance was primarily the result of the progress made towards
our technology and software transformation, coupled with the completion of the
legacy engineered solution contract. The Group's ongoing focus on increasing
revenues from software and technical services is reflected in these results,
and generated revenues totalling £10.2 million in 2022 (2021: £9.1
million)."
Financial Summary
· Group revenues of £13.7 million (2021: £16.0 million);
· Gross profit margin of 42% (2021: 27%);
· EBITA profit of £0.5 million (2021: EBITA loss of £0.8 million);
· Loss before tax of £1.4 million (2021: loss before tax of £2.5
million);
· Loss for the year attributable to shareholders of £0.9 million
(2021: loss of £1.6 million);
· Basic loss per share of 2.89p (2021: loss of 4.41p)
· Group net assets at year-end of £10.5 million (2021: £11.1
million);
· Net debt at year-end of £0.4 million (2021: net debt of £3.5
million);
· No final dividend recommended (2021: £NIL);
· Three-year order book at year-end stood at £25 million (2021: £22
million).
Post Period-End
· Acquisition of Track Access Productions Limited.
· Board strengthened with new appointments.
· Positive net cash position achieved in Q2 2023.
Operational Summary
A summary of new contract awards, amendments and operational achievements
during the year is set out below:
· Contract secured from Boeing Defence UK Limited for the upgrade of
UK Apache training equipment, worth £8.8 million over three years, with the
initial engineering milestone event successfully passed.
.
· Delivery and full device acceptance achieved on the £3.5 million
UK Helicopter programme.
· 'Launch partner' programme for the new GenS software product
initiated with key customers signed up.
· Surplus freehold site (Pennant Court) sold in August for £2.1
million with proceeds used to paydown borrowings.
On current trading and prospects, Mr Cotton concluded:
"Over the last financial year, the business has become more resilient as we
continue to deliver on the critical objective of increasing visibility and
recurrence of earnings, especially those derived from software and technical
services.
The global economic and geo-political environment and supportive strategic
backdrop for Pennant's capabilities means that the Board believes that the
Group's underlying strengths - our long-term customer relationships with
governments and major OEMs, our specialist services together with our
quality-assured reputation - provide solid foundations for continued
recovery and long-term success."
This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.
Enquiries:
Pennant International Group plc www.pennantplc.co.uk (http://www.pennantplc.co.uk)
Philip Walker, CEO +44 (0) 1452 714 914
David Clements, Commercial & Risk Director
Michael Brinson, CFO
WH Ireland Limited (Nomad and Broker) https://www.whirelandplc.com/capital-markets
(https://www.whirelandplc.com/capital-markets)
Mike Coe / Sarah Mather (Corporate Finance) +44 (0) 20 7220 1666
Fraser Marshall / George Krokos (Sales)
Walbrook PR (Financial PR) paul.vann@walbrookpr.com (mailto:paul.vann@walbrookpr.com)
Paul Vann +44 (0)20 7933 8780
Joe Walker Mob: +44 (0)7768 807631
CHAIRMAN'S STATEMENT
Results in-line, software & technical services focus, strong order book
The Group has delivered a much-improved performance in the year ended 31
December 2022 (the "Period") with profitability in-line with market
expectations despite an expected decrease in revenues, achieving an EBITA
profit of £0.5 million for the year (2021: EBITA loss of £0.8 million) and
an EBITDA profit of £1.0 million (2021: EBITDA loss of £0.1 million).
The improved performance was primarily the result of the progress made towards
our technology and software transformation, coupled with the completion of the
legacy engineered solution contract. The Group's focus on increasing higher
margin revenues from software and technical services is being reflected in the
results, with such revenues totalling £10.2 million in 2022 (2021: £9.1
million).
Following a strong order intake in 2022, including securing an £8.8 million
contract with Boeing Defence UK for the upgrade of Apache training devices,
the Group has a contracted year end order book of £25 million (2021: £22
million), underpinning forecasts and providing good visibility for 2023 and
beyond.
Strategy
Our focus remains firmly on increasing the proportion of the Group's revenues
which derive from the sale of software and technical services, particularly
those of a recurring nature, while expanding the Group's market coverage and
addressing gaps in the product range through the Group's 'Innovation'
programmes.
In addition, the Group continues to seek other strategic opportunities to
partner with or acquire complementary businesses.
Post Period-end, the Group announced the completion of the acquisition of
Track Access Productions, a provider of driver training, route mapping and
route familiarisation services to the UK rail industry, which aligns with the
Group's software and technical services strategy and is designed to enhance
the Group's rail capability.
Key Financials
For the year ended 31 December 2022, the Group recorded consolidated revenues
of £13.7 million (2021: £16.0 million). Turnover was underpinned by the
Group's contracted revenue base, in particular the continued delivery of the
Group's overseas services contracts and the successful achievement of
programme deliveries.
The Group's gross margin for the year increased significantly to 42% (2021:
27%) due to the change in sales mix, and as a result the Group posted a
consolidated EBITA profit of £0.5 million (2021: EBITA loss £0.8 million) in
line with market expectations.
The Group's net debt significantly reduced during the Period from £3.5
million to £0.4 million as a result of improved trading performance,
delivering against contract milestones and the rationalisation of the property
portfolio.
Dividend
Taking account of the Group's 2022 financial performance, the trading outlook
and the Group's cash position, the Directors believe that it is both prudent
and, in the Company's, and shareholders' current best interests to retain cash
for working capital.
The Board will therefore not be recommending the payment of a final dividend
for the year ended 31 December 2022.
Our People
To deliver a successful performance in 2023, the Group must have a committed
workforce, appropriately incentivised and motivated. I would like to publicly
thank all our employees for their commitment to supporting the Group and for
the resilience and flexibility they have demonstrated in meeting our
customer's needs.
The Group is constantly seeking ways to attract, retain and reward the
specialist skills that we need in order to deliver. During the Period the
business undertook a detailed review of Pennant's Employee Value Proposition,
which resulted in the implementation of an enhanced set of employee benefits
across the Group coupled with an unbudgeted interim pay award.
It is our people we rely on to deliver our strategy and in order to deliver
successful results in the current year and beyond, we must continue to pay
particular attention to their needs and as a Board we remained focused on
supporting them.
Our Culture
The Board remains committed to ensuring that all Group employees understand
and embody the Group's 'Core Values'. These underpin the approach to all
activities whether they be in an operational or customer facing environment.
These values are also critical in terms of the approach taken to all our
policies whether they are mandated by law (such as anti-bribery or
anti-counterfeiting laws) or mandated by behavioural ethics (such as fair
treatment and equality of opportunity), treating all individuals with the
respect they deserve regardless of their position. This requires strong
leadership at all levels.
Governance
The Board is committed to maintaining robust corporate governance. It has
worked closely with its advisors and in 2022 monitored governance frameworks
to ensure strong, proportionate governance throughout the Group; this is
important given the number of geographies in which we are present. The Board
has established appropriate risk management procedures and keeps key risks to
the Group under regular review.
Board Changes
During the Period and post Period-end, there were a number of Board changes.
Sadly, in the Autumn of 2022 our Chairman, John Ponsonby OBE, died following a
short period of illness. On behalf of the Board, I would like to take this
opportunity to recognise the significant contribution John made to Pennant
during his tenure - he was an inspirational leader and is sadly missed by
everyone at Pennant.
On 24 February 2023 it was announced that I would be succeeding John as Chair.
It is an honour and a privilege to be appointed and to have the opportunity to
continue John's work.
We were delighted to appoint Michael Brinson to the Board as Chief Financial
Officer with effect from 1 January 2023. Michael joined the Group as Head of
Finance in February 2020. Also in January 2023, the Group announced the
appointment of Deborah Wilkinson as Non-Executive Director with effect from 1
February 2023.
Encouraging outlook
Over the past Period the business has become more resilient as we continue to
deliver on the critical objective of increasing visibility and recurrence of
earnings, especially those derived from software and technical services.
The global economic and geo-political environment and supportive strategic
backdrop for Pennant's capabilities means that the Board believes that the
Group's underlying strengths - our long-term customer relationships with
governments and major OEMs, our specialist services together with our
quality-assured reputation - provide solid foundations for continued recovery
and long-term success.
With our contracted three-year order book, valued at over £25 million (with
£13 million scheduled for delivery in 2023) underpinning forecasts, further
enhanced by the post Period end acquisition, the Board is confident about
prospects for 2023 and beyond.
P Cotton
Chairman
CHIEF EXECUTIVE'S REVIEW
Software & services transformation, momentum building
2022 saw the acceleration of the Group's strategy with the focus on software
and higher margin software-linked activities, the impact of which is now
starting to come through in our financial performance.
As a result, Group profit for the year was in line with expectations and
represents the third consecutive six-month trading period where we have
reported a positive EBITA.
Pennant's return to EBITA profitability coupled with expanding gross margins
and strong order intake, indicates momentum is building.
Operational Highlights
During the Period, Pennant realigned its operations to enable effective and
efficient global delivery, by organising the Group into three key regions (UK
& Europe, North America, and Australasia).
This was designed to allow the 'full spectrum' of Pennant products and
services to be offered and delivered in across all three geographical regions.
Over this Period the strategic backdrop for our products and services has
shifted. The Russian invasion of Ukraine has seen a heightened focus amongst
governments, particularly European and NATO members on their spending plans on
defence.
It is difficult to predict the duration of the conflict and impact on the
Group's trading but it is clear that Pennant is well positioned, in particular
the integrated product support process and the management of data is becoming
evermore critical and the cost and complexity of programs is directly
impacting the training requirements.
The table below highlights Pennant's regional revenue for 2021 and 2022.
Regional revenue
2022 2021
£000s £000s
UK & Europe 5,557 8,161
North America 4,985 4,451
Australasia 3,144 3,353
Total 13,686 15,965
UK & Europe
Revenue generated in the UK & Europe region during 2022 was low by
historic levels, at £5.6 million (2021: £8.2 million).
Order intake improved with the Group securing an £8.8 million contract, over
three years, with Boeing Defence UK, and with recent events highlighting the
importance of national security and strategic investment in capability the
outlook appears to be improving.
In terms of operational delivery, the region had a successful Period with
notable highlights including site acceptance and final delivery of a UK
Helicopter trainer programme, achieved on time and on budget. Following the
contract award, the business successfully passed the initial engineering
milestone event on the Apache upgrade programme and successfully completed
delivery of all four MTE training devices to General Dynamics UK.
With the Group's increasing software focus and reduced reliance on
resource-intensive hardware engineering activities, the Board commissioned a
comprehensive review of the Group's UK facilities during 2022. Recognising a
reduced requirement for space at its Cheltenham operating sites, the Board
decided to market for sale the Group's former Cheltenham head office, Pennant
Court which was sold in August 2022 for £2.1 million with proceeds used to
paydown borrowings. The profit generated on this disposal was £0.37 million.
As a result of this facilities review, the Group also terminated its office
lease in Stevenage. The Group continues to have sufficient UK facilities to
service its order book and pipeline opportunities with 30,000 square feet of
retained facilities in Cheltenham alone.
North America
Our North American business performed well in 2022 reporting 12% growth in
revenue, with approximately 75% of its annual revenue recurring.
Pennant's long-term contract with the Canadian Department of National Defence
was successfully extended to the end of 2023 and the business secured a second
software and services order in the commercial aerospace sector (overall order
value: USD$1.7 million), for a new strategic customer which underpinned the
growth.
Australasia
Our Australasia business enjoyed a solid year and delivered results broadly in
line with the prior year.
Pennant's existing long term technical services contract in Wagga Wagga
continued to perform well and was extended into 2025 (year 12 out of 20 year
framework).
The transformation to longer term software and technical services has been
accelerated with new contracts secured with the Australian Defence Force for
technical publications and data conversion.
The Group also secured its first 'Launch Partner' to participate in a
programme of testing and product promotion for the new GenS product signed in
Australasia.
Investing in the future
In line with the Group's core strategic objectives, investment in innovation
has been targeted to drive growth and expand the Group's market coverage.
During the Period the Group invested circa £1.1 million in the development of
new and enhanced solutions with the aim of improving the overall customer
proposition.
The following new products are under development:
· Continued development of the new GenS software solution (OmegaPS
successor product) with release of version 2.0 scheduled for May 2023
· Development of next generation of training aids - modular, software
/ technology led.
Pennant anticipates that it will continue to invest in its software products
and technology-led software solutions during 2023 and expects the level of
investment to be at a higher level than 2022.
The Group also has an active pipeline of potential product innovations and
improvements that are undergoing a detailed assessment process with a view to
obtaining Board funding approval if a business case can be established.
Year-end order book & pipeline
At 31 December 2022, the Group's three-year contracted order book stood at
£25 million (2021: £22 million), of which £13 million of revenue (2021:
£10 million) is scheduled for recognition in 2023 based on anticipated
completion of generic products, execution of software & services projects
and progress made on engineered-to-order contracts.
Of the total order book, 50% (2021: 42%) is denominated in sterling, 12%
(2021: 31%) is denominated in Canadian dollars, 15% is denominated in US
dollars (2021: 5%) and 23% (2021: 22%) is denominated in Australian dollars.
The overall value of the Group's active pipeline at Period-end was in excess
of £70 million.
Post Period-end - acquisition
Post Period-end, the Group completed the acquisition of Track Access
Productions. Track Access provides driver training, route mapping and route
familiarisation services to the rail industry. Its acquisition aligns with the
Company's strategy, in particular by enhancing recurring revenues and further
diversifying into civilian markets while also enhancing the Group's existing
rail capabilities and complementing Pennant's Track Access Services business.
Implementing our strategy
The mix shift towards higher margin software and technical services,
diversified global revenues and order intake momentum together with the
evolving strategic backdrop provide a firm platform for continued progress in
the current year.
P H Walker
Director
CHIEF FINANCIAL OFFICER'S REVIEW
Record gross margins, and strengthened balance sheet
Financial review
The results and the key financial performance indicators are set out below.
Performance
Revenue for the year was delivered broadly in line with expectations at £13.7
million (2021: £16.0 million) with equal contributions to revenue in the
first and second half of the year.
There was significant growth in the gross profit margin for the Period to 42%
(2021: 27%) which is at record levels for the Group. This reflects the change
in the sales mix in the Period and shift in the strategic direction of the
Group towards higher margin, software-related products.
Despite inflation-linked remuneration reviews in the Period to support the
workforce with increasing costs of living, overall staff costs were held in
line with 2021 at £8.7 million (2021: £8.7 million).
The improved margins coupled with the controlled cost base, resulted in the
operating margin recovering to a loss of £1.0 million (2021: operating loss
£2.2 million) and an EBITA profit of £0.5 million (2021: EBITA loss £0.8
million). The Group has now reported an EBITA profit in both the first and
second half of 2022 per the table below. H2 2021 also delivered a profit at an
EBITA level, meaning the Group has reported an EBITA profit in the last three
six-month periods.
£m H1 H2 2022 2021
Revenue 6.9 6.8 13.7 16.0
Gross profit 2.8 3.0 5.8 4.3
Gross profit % 41% 44% 42% 27%
Admin costs (net of other Income) (3.6) (3.2) (6.8) (6.5)
Operating loss (0.8) (0.2) (1.0) (2.2)
EBITA 0.1 0.4 0.5 (0.8)
Growth in Software and Services
An analysis of the Group's revenue by product group is as follows:
2022 2021
£000s £000s
Software licences & products 1,377 1,080
Software maintenance 1,458 1,056
Software and technical services 7,410 6,994
Sub-total Software and Services 10,245 9,130
Engineered solutions 2,410 4,211
Generic products 1,031 2,624
Sub-total Training Solutions 3,441 6,835
Total Group Revenue 13,686 15,965
Revenues contributed by Software and Services have increased to £10.2 million
in 2022 (2021: £9.1 million) representing 75% of the total revenue in the
Period (2021: 57%). The upturn in software product sales has resulted in
increased maintenance revenues in the Period which will be recurring in
nature.
Recurring revenues, a key performance indicator, increased to £7.7 million
(2021: £7.4 million) in 2022 representing 56% (2021: 46%) of the total
revenue for the Period.
Software and Services
Software licences & products
The circa 30% increase in software product sales between 2021 and 2022 was
primarily driven by R4i software sales, with the associated recurring
maintenance revenues (circa 20% per annum) to follow on a recurring basis.
Revenues are recognised upon installation of the software and tend to be
non-recurring in nature.
Software maintenance
Software maintenance revenues are recurring by nature and are growing year on
year driven by the growth in the global customer base for the Group's software
solutions. The revenue is recognised over the duration of the maintenance
period for each customer which can range from annual renewals to multi-year
agreements. The average longevity of the customer relationship is in excess of
10 years.
Software and technical services
The predominantly recurring, software and technical services revenue stream
has grown from 57% of the Group's revenues in 2021 to 75% in 2022. In addition
to the long-standing, recurring revenue streams there are a number of
consultancy related tasks across the Group. The revenues are typically
recognised on a consumption of benefit basis over time .
Training Solutions
Engineered solutions
Revenues associated with engineered solutions reduced from £4.2 million in
2021 to £2.4 million in 2022. This is reflective of the stages of the major
programmes which form the basis of this revenue which is recognised over time
under IFRS 15. Revenue on engineered solutions is expected to increase in 2023
as progress is made on engineered solutions workstreams.
Generic products
The revenue recognition for generic products is at a point in time (typically
on delivery) under IFRS 15. The reason for the reduced revenues for these
products in 2022 (£1.0 million) compared to 2021 (£2.6 million) is due to
timing of delivery of the various generic products to customers with the final
Qatar installations occurring in 2021.
Cashflow
Cash generated in operations amounted to £2.6 million (2021: cash used in
operations of £0.1 million). This reflects milestone achievements on major
programmes in 2022 and associated cash payments being received.
The Group had net borrowings at the year-end of £0.4 million (2021: net
borrowings of £3.5 million) excluding lease liabilities. The net borrowings
have significantly reduced through the cash generated in operations and the
sale of the Group's Headquarters, Pennant Court, for £2.1 million.
Research & development
Research and development tax credits claimed in the UK during the year
amounted to £1.9 million (2021: £1.8 million) with further claims on current
projects expected to be made during 2023. These claims mostly relate to the
development of innovative new software products.
Taxation
The Group's tax position shows a tax credit of £0.3 million (2021: tax credit
of £0.9 million). The Group has unrelieved UK tax losses carried forward of
£7.1 million (2021: £6.7 million), all of which have been recognised in the
deferred tax balance as at 31 December 2022.
Looking forward
With the shift towards software and services driving improved gross margins,
and a strengthened balance sheet, the course is set for the Group's continued
financial progress.
M J Brinson
Director
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes 2022 2021
Continuing operations £000s £000s
Revenue 13,686 15,965
Cost of sales (7,897) (11,609)
Gross profit 5,789 4,356
Land and buildings revaluation - 117
Profit on sale of land and buildings 374 -
Other administration expenses (7,276) (6,826)
Administrative expenses (6,902) (6,709)
Other income 123 203
Operating loss 3 (990) (2,150)
Finance costs (377) (329)
Finance income 2 -
Loss before taxation (1,365) (2,479)
Taxation 464 865
Loss for the year attributable to the equity (901) (1,614)
holders of the parent
Earnings per share
(2.45p) (4.41p)
Basic
(2.45p) (4.41p)
Diluted
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes
2022 2021
£000s £000s
Loss for the year attributable to the equity holders of the parent
(901) (1,614)
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations 109 (64)
Prior year amortisation adjustment
39 -
Items that will not be reclassified to profit or loss
Net revaluation gain - 353
Deferred tax charge - property, plant and equipment
248 (156)
Total comprehensive loss for the period attributable to the equity holders of (505) (1,481)
the parent
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2022
Notes 2022 2021
£000s £000s
Non-current assets
Goodwill 4 2,507 2,403
Other intangible assets 5 4,690 5,081
Property, plant and equipment 4,002 6,009
Right-of-use assets 503 661
Deferred tax assets 1,497 850
Total non-current assets 13,199 15,004
Current assets
Inventories 1,001 865
Trade and other receivables 4,129 4,528
Corporation tax recoverable 354 330
Cash and cash equivalents 1,107 901
Total current assets 6,591 6,624
Total assets 19,790 21,628
Current liabilities
Trade and other payables 5,862 3,595
Bank overdraft 1,533 4,441
Current tax liabilities 155 367
Lease liabilities 174 209
Deferred consideration on acquisition 327 432
Total current liabilities 8,051 9,044
Net current assets / (liabilities) (1,460) (2,420)
Non-current liabilities
Lease Liabilities 385 529
Deferred tax liabilities - -
Warranty provisions 107 122
Contingent consideration on acquisition 552 789
Total non-current liabilities 1,044 1,440
Total liabilities 9,095 10,484
Net assets 10,695 11,144
Equity
Share capital 1,840 1,832
Share premium account 5,366 5,345
Capital redemption reserve 200 200
Retained earnings 2,844 2,687
Translation reserve 335 226
Revaluation reserve 110 854
Total equity 10,695 11,144
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Capital redemption reserve
Share Share Retained earnings Translation reserve Revaluation Total equity
capital Premium reserve
£000s £000s £000s £000s £000s £000s £000s
At 1 January 2021 1,822 5,295 200 2,243 290 683 12,533
(Loss) for the year - - - (1,614) - - (1,614)
Other comprehensive income - - - - (64) 197 133
Total comprehensive income 1,822 5,295 200 2,629 226 880 11,052
Issue of new ordinary shares 10 50 - - - - 60
Recognition of share based payment - - - 32 - - 32
Transfer from revaluation reserve - - - 26 - (26) -
At 31 December 2021 1,832 5,345 200 2,687 226 854 11,144
(Loss) for the year - - - (901) - - (901)
Other comprehensive income / (loss) - - - 1,031 109 (744) 396
Total comprehensive income 1,832 5,345 200 2,817 335 110 10,639
Issue of new ordinary shares 8 21 - (2) - - 27
Recognition of share based payment - - - 29 - - 29
Transfer from revaluation reserve - - - - - - -
At 31 December 2022 1,840 5,366 200 2,844 335 110 10,695
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes 2022 2021
£000s £000s
Net cash from operations 2,572 (127)
Investing activities
Interest received 2 -
Earn-out payment for acquisition of subsidiary (547) (549)
Purchase of intangible assets (1,150) (966)
Purchase of property, plant and equipment (63) (134)
Proceeds from disposal of property, plant and equipment
2,117 22
Net cash used in investing activities 359 (1,627)
Financing activities
Proceeds from issue of ordinary shares 24 60
Repayment of lease liabilities (263) (309)
Net cash from financing activities (239) (249)
Net (decrease)/increase in cash and cash equivalents 2,692 (2,003)
Cash and cash equivalents at beginning of year (3,540) (1,453)
Effect of foreign exchange rates 422 (84)
Cash and cash equivalents at end of year (426) (3,540)
Abbreviated notes to the consolidated financial statements FOR THE YEAR ENDED
31 DECEMBER 2022
1. Basis of Preparation
The financial information set out in this preliminary announcement does not
constitute statutory accounts for the purposes of the Companies Act 2006.
The statement of financial position at 31 December 2022 and income statement,
statement of changes in equity, statement of cash flows and associated notes
for the year ended 31 December 2022 have been extracted from the Group's 2022
financial statements upon which the auditor opinion is unqualified. The audit
report includes a material uncertainty in respect of going concern arising
from the potential impact of missing a major programme milestone due in
October 2023. The directors' assessment of the uncertainty is set out in note
3 of the notes to the financial statements as contained the 2022 Annual Report
and Accounts. Following such assessment, the Directors concluded that it was
appropriate to prepare the financial statements using the 'going concern'
basis.
The financial information in this preliminary statement has been prepared in
accordance with the accounting policies, and on the basis set out, in the
Group's 2022 financial statements.
The 2022 Annual Report and Accounts will be available on the Company's
website: www.pennantplc.co.uk (http://www.pennantplc.co.uk) Copies may be
obtained by contacting the Company Secretary at Unit D1, Staverton Connection,
Old Gloucester Road, Cheltenham GL51 0TF.
2. Segment information
The operating segments that are regularly reviewed by Executive Management in
order to allocate resources to segments and to assess performance are the
three regions; UK & Europe, North America and Australasia as these
represent the way the Group reports financial performance and position
internally.
2.1 Segment revenues and results
Segment revenue Segment profit/(loss)
2022 2021 2022 2021
£000s £000s £000s £000s
UK & Europe 5,557 8,161 (158) (1,801)
North America 4,985 4,451 1,435 1,050
Australasia 3,144 3,353 366 978
External Sales 13,686 15,965 1,643 227
Management charges and licence fees (2,633) (2,377)
Net finance costs (375) (329)
Loss before tax (1,365) (2,479)
The segment profit or loss for the period is stated after amortisation of
intangible assets. Recharges are made the parent company for central
management and group services. Licence fees are recharged to the segments for
the use of intellectual property rights owned by the parent.
2022 2021
3. Operating loss for the year
£000s £000s
The operating loss for the year is stated after charging /(crediting):
Net foreign exchange loss 119 -
Research and development costs* 818 1,309
Other income arising from RDEC claim (R&D) (113) (157)
Other income arising from Coronavirus Job Retention Scheme - (29)
Property rental and sundry other income (10) (17)
Amortisation of intangible assets 1,519 1,366
Effect of land and buildings revaluation - (117)
Depreciation of property, plant and equipment 373 460
Depreciation of right-of-use assets 183 243
Share-based payment (note 29) 29 32
Profit/Loss on disposal of land and buildings (note 17) (374) -
Profit/Loss on disposal of other property, plant and equipment (note (6) -
17)
* In 2022 research and development costs of £1,139k were
capitalised (2021: £966k)
4. Goodwill
£000s
Carrying amount:
At 1 January 2021 2,428
Currency translation (25)
At 1 January 2022 2,403
Currency translation 104
At 31 December 2022 2,507
Goodwill acquired in a business combination is allocated, at acquisition, to
cash generating units ("CGUs") that are expected to benefit from that business
combination. The goodwill will not be deductible for tax purposes. Although
the Group operates as a single operation selling and delivering all revenue
streams globally, for the purposes of impairment testing, it has been
determined that the Group has two CGUs (Training and Software). The carrying
amount of goodwill has been allocated as follows:
2022 2021
Cash generating unit: £000s £000s
Training 584 584
Software 1,923 1,819
2,507 2,403
The Group tests goodwill annually for impairment. The recoverable amounts of
the CGU's are determined from value in use calculations. The Group prepares
cash flow forecasts for the following twelve months derived from the most
recent annual financial budgets approved by the Board of Directors and
extrapolates cash flows as follows:
Software CGU:
Cashflows are extrapolated for a further four years beyond the twelve-month
annual budget period at a growth rate of 5% (2021: 3%). The forecast includes
a terminal value.
Training CGU:
Cashflows are forecast for an additional two years beyond the twelve-month
approved financial budget period based on a contract level review with the
addition of expected cash flows generated from 'pipeline' opportunities. As at
31 December 2022 the Training CGU had an active pipeline of over £60 million
(2021: £50 million) and in testing the goodwill for impairment the Directors
have assumed a prudent conversion rate of circa 40%. For years four and five,
a growth rate of 3% per annum (2021: 3%) is assumed. The forecast does not
include a terminal value.
The forecast cash flows of each CGU are discounted at the following pre-tax
rates to provide the value in use for each CGU:
Training CGU: 13.78% per annum (2021: 10.93% per annum); post-tax rate 12.02%
(2021: 7.21%)
Software CGU: 16.51% per annum (2021: 17.76% per annum); post-tax rate 12.02%
(2021: 9.28%)
The rates have been calculated to reflect the working capital structure of the
Group as each CGU utilises the optimal capital structure, being both debt and
equity.
The discounted cash flows provide headroom for the goodwill carrying values in
excess of their respective assets in the case of each CGU with the Training
headroom being £0.4 million without considering terminal values and Software
headroom of £8.2 million when considering terminal values.
Key assumptions are based on past experience and external sources. No
impairment of goodwill has been recorded in either the year ending 31 December
2022 or 31 December 2021. The Directors have assessed the sensitivity of the
assumptions detailed above and consider that it would require significant
adverse variance in any of the assumptions to reduce fair value to a level
where it matched the carrying value.
5. Other intangible assets
Software Development costs Total
£000s £000s £000s
Cost
At 1 January 2021 535 7,982 8,517
Currency translation - (113) (113)
Reclassifications (157) 157 -
Additions - 966 966
Disposals (30) - (30)
At 1 January 2022 348 8,992 9,340
Currency translation - 20 20
Reclassifications 240 (240) -
Additions 11 1,139 1,150
Disposals (50) - (50)
At 31 December 2022 549 9,911 10,460
Amortisation
At 1 January 2021 331 2,616 2,947
Currency translation - (29) (29)
Reclassifications (73) 73 -
Charge for the year 84 1,282 1,366
Disposals (25) - (25)
At 1 January 2022 317 3,942 4,259
Currency translation 2 1 3
Reclassifications 240 (240) -
Charge for the year* 22 1,536 1,558
Disposals (50) - (50)
At 31 December 2022 531 5,239 5,770
Carrying amount
At 31 December 2022 18 4,672 4,690
At 31 December 2021 31 5,050 5,081
*Includes £39k charged to retained earnings (prior year adjustment).
During 2022 the Group capitalised £1,139k (2021: £966k) of costs in relation
to the ongoing development of the GenS software solution along with
enhancements to existing software related assets. The Group also capitalised
costs related to the development of three (2021: five) new products. These
costs will be amortised over the estimated useful life of the asset.
In 2021, the useful economic life of one intangible asset was reviewed by
management and, as a result, the economic life for straight line amortisation
was reduced from five to two years. In the current year, under the revised
useful economic life, amortisation of £397k (2021: £397k) was charged in the
period with the asset having a net book value of £nil as at December 2022
(2021: £397k). If the useful economic life had remained at five years, the
amortisation charge would have been £159k (2021: £159k) with a net book
value at the year-end of £476k (2021: £635k).
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