REG - Pennant Int. Group - 2022 Interim Results
21/09/2022 07:00
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RNS Number : 0645A Pennant International Group PLC 21 September 2022
FOR IMMEDIATE RELEASE
21 September 2022
PENNANT INTERNATIONAL GROUP PLC
Interim Results for the six months ended 30 June 2022
Return to positive EBITA; business mix transformed; significant gross margin
improvement
Pennant International Group plc (AIM: PEN) ("Pennant", the "Group" or
"Company"), a leading global provider of training technology and integrated
product support solutions, announces its Interim Results for the six months
ended 30 June 2022 (the "First Half", the "Period", or "H1 2022").
Commenting on the results, Chairman John Ponsonby said:
"I am pleased to report that the Period saw the Group return to positive
earnings before interest, taxation and amortisation as gross margin
significantly improved and costs remained under tight control."
"As a result of management's continued efforts to deliver the Group's
strategy, we now have a leaner, more streamlined organisation, with an
increasing proportion of recurring revenues from software and services,
providing greater forward visibility and a solid platform from which to grow
the business and enhance shareholder value."
Key points: Financial
· oup revenues for the Period of £6.9 million (H1 2021: £7.4
million) of which circa 65% were recurring (H1 2021: 53% recurring);
· 52% of revenues generated from software licensing and associated
activities (H1 2021: 35%);
· Gross margin doubles to 41% (H1 2021: 21%);
· EBITA profit of £0.1 million (H1 2021: EBITA loss of £1.0
million);
· EBITDA profit of £0.4 million (H1 2021: EBITDA loss of £0.7
million);
· Loss before tax of £0.8 million (H1 2021: loss before tax of
£1.7 million);
· Net debt at Period end of £4.1 million (H1 2021: net debt of
£1.9 million);
· Trade and other receivables due at Period end of £5.1 million
(H1 2021: £3.7 million);
· Basic loss of (2.21)p per share (H1 2021: basic loss per share of
(4.64)p per share);
· Unrelieved tax losses of £6.7 million carried forward (H1 2021:
£4.5 million carried forward);
· Three-year order book at Period end stood at £27 million (H1
2021: £26 million).
Key points: Operational
· Secured the 'Major Programme' a contract from Boeing Defence UK
Limited for the upgrade of Apache training equipment, worth £8.8 million over
three years.
· Following contract award, successfully passed the initial engineering
milestone event on the Apache upgrade programme.
· Factory acceptance achieved on the UK Helicopter programme (overall
contract value: £3.5 million), with the training device delivered to the end
user's site post Period end.
· A second software and services order secured in the commercial
aerospace sector (overall order value: USD$1.7 million), a key target market
for the Group's IPS business line.
· evelopment work completed on prototype simulator for rail
infrastructure organisation which is intended to be rolled out to numerous
sites in the future.
Post Period end highlights:
· First 'Launch Partner' to participate in programme of testing and
product promotion for new GenS product signed in Australasia.
· Circa £1 million of orders for software and equipment upgrades
received across July and August, taking orders received during 2022 to
approximately £12 million.
· GD MTE programme almost complete - all four devices have been
built and achieved factory acceptance - and will be finished before year-end.
· Surplus freehold site (Pennant Court) sold in August for £2.1 million
with proceeds used to paydown borrowings (reduced to £2 million as at 20
September 2022).
Commenting on the Group's prospects, John Ponsonby added:
"We are securing new customers for our IPS software and services lines in
important adjacent sectors including commercial aerospace, while at the same
time gearing up for the launch of the new GenS software suite next year.
"Furthermore, with the prevailing global security situation, we are seeing
real signs that defence procurement programmes are unlocking in our key
regions, with several new opportunities already being pursued.
"With a stable contracted order book, good forward visibility of revenues over
the next three years, and a leaner, optimised organisational structure, the
Board is confident about the Group's future prospects."
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
WH Ireland Limited (Nomad and Broker) https://www.whirelandplc.com/capital-markets
(https://www.whirelandplc.com/capital-markets)
Mike Coe +44 (0) 20 7220 1666
Sarah Mather
Walbrook PR (Financial PR) pennant@walbrookpr.com (mailto:paul.vann@walbrookpr.com)
Paul Vann +44 (0)20 7933 8780
Tom Cooper Mob: +44 (0)7768 807631
Pennant International Group plc
Interim Report for the six months ended 30 June 2022
Chairman's Statement
Results and dividend
On behalf of the Board of Directors, I can report that the Group recorded
revenues for the Period of £6.9 million which were lower than the equivalent
period in 2021 (H1 2021: £7.4 million) as the GD MTE entered its final stages
and with the Apache programme yet to ramp up.
Encouragingly, EBITA was positive, at £0.1 million, which represents a
substantial improvement over the EBITA loss of £1.0 million recorded for the
comparable period in 2021. This turnaround is a result of sustained
administrative cost savings implemented in earlier periods combined with a
much-improved gross margin.
The gross profit margin for the Period increased to 41% (H1 2021: 21%) due to
the improved sales mix, comprising software licensing income and consultancy
fees and taking into account the much-reduced impact from the GD MTE
programme.
This resulted in a significantly reduced pre-tax loss for the Period of £0.8
million which compares with a pre-tax loss of £1.7 million in H1 2021.
Administrative costs for the Period were £3.6 million (H1 2021: £3.2
million), with the increase being associated with inflationary cost pressures
and an increased amortisation charge in the period arising from an increased
software intangible asset (predominantly the GenS development programme).
At the Period-end net debt stood at £4.1 million (H1 2021: net debt of £1.9
million), reflecting significant cash outflows as various programmes entered
their final stages during the First Half, but with reduced borrowings expected
throughout the second half following the sale of Pennant Court and as invoices
are raised and paid.
Total assets at the Period end were £21.9 million (H1 2021: £20.6 million).
The basic loss per share for the Half Year was (2.21)p compared to a loss of
(4.64)p for the same period last year.
A minimal effective tax rate is expected for the full year due to unrelieved
tax losses of £6.7 million which have been carried forward at the Half Year
(H1 2021: £4.5 million) and with R&D tax credit claims in progress.
The Group's three-year order book increased during the Period, closing at £27
million (H1 2021: £26 million) and is scheduled for delivery as follows:
£6.3 million in H2 2022, £12.2 million in 2023, £6.8 million in 2024 and
the balance in H1 2025. The net increase in the order book (which stood at
£22 million at 31 December 2021) is largely attributable to the award of the
Apache contract during the Period.
The Directors have concluded that it continues to be in the best interests of
the Company and its shareholders to retain cash at this time for expected
working capital requirements. The Board will therefore not be declaring an
interim dividend but will continue to review the Group's dividend policy based
on performance, cash generation and working capital and investment
requirements.
I would like to thank all Pennant employees, who have worked tirelessly during
the First Half, drawing on Pennant's long heritage to deliver our impressive
breadth of products and capabilities.
Board Appointment
I am pleased to report that Michael Brinson has been appointed as the Group's
Chief Financial Officer, an executive director position, with effect from 1
January 2023.
Mr Brinson, a chartered management accountant and currently the Group's
Director of Finance (a non-Board role), joined the Group in 2020 from Leonardo
Helicopters, where he was a senior executive within the company's UK finance
team. Since joining Pennant, he has been instrumental in re-organising the
Group's global financial operations, hugely improving management information
and forecasting, and providing strategic direction on finance matters across
the Group.
In accordance with Schedule 2(g) of the AIM Rules, Mr Michael John Brinson,
aged 35, holds or has held in the past five years the following directorships
and partnerships:
Current directorships Directorships within last five years
- Leonardo Futureplanner (Trustee) Ltd
There is no further information required to be disclosed in respect of the
above appointment pursuant to Rule 17 and Schedule 2 (g) of the AIM Rules for
Companies.
Operational Commentary
During the Period, management implemented a re-structuring of the Group's
operations into three key regions, comprising: UK & Europe; North America;
Australasia. The purpose of this change is to better implement the Group's
objective of delivering the full spectrum of its products and services in each
territory and moving away from particular business lines being centred on
certain regions, thereby enabling the overall business to grow.
Each region made a significant contribution during the Period as follows:
Revenue by Region £ m
UK & Europe 2.7
North America 2.4
Australasia 1.8
Total 6.9
A key strategic focus for management is to continue to increase the proportion
of the Group's revenues which derive from software and related activities. For
the first time in a reported period, these activities comprised a majority
(52%) of Group turnover as set out in the table below. Across the board, circa
65% of revenues during the Period were of a recurring nature.
Revenue by business line Non-recurring Recur-ring Total (£ m)
Engineered-to-order (Technical Training) 1.4 - 1.4
Generic Products (Technical Training) 0.4 - 0.4
Technical Services (Technical Training) - 1.5 1.5
Software Licences (IPS) 0.6 - 0.6
Software Maintenance (IPS) - 0.8 0.8
Software Services (IPS) - 2.2 2.2
Total 2.4 4.5 6.9
Commentary is provided on each business line (IPS and Technical Training)
below.
Integrated Product Support (IPS)
The Group's IPS business line centres on Pennant's two proprietary software
product suites, OmegaPS and R4i. OmegaPS is a sophisticated logistics data
tool; R4i provides its users with a dynamic, S1000D-compliant technical
documentation solution.
In addition, the IPS business provides long-term recurring consultancy,
support and maintenance services on both software suites to its many
customers, which include the Canadian and Australian defence departments and
their respective supply bases.
The Period saw continued demand for these products and related consultancy,
with a second commercial aerospace customer secured and further pipeline
opportunities identified for that sector together with private space
exploration and electric engines.
Product Investment
Capital investment continued in the OmegaPS successor product, 'GenS' to
realise the vision of a cutting-edge, end-to-end solution for customers' data
and documentation needs.
GenS represents the next generation of Logistics Support Analysis/Logistics
Product Data technology, with a modern, easy-to-use interface and
functionality, deployable 'on premise' or as a software as a service. GenS,
when combined with the R4i S1000D Technical Publishing suite will transform
customers' Integrated Product Support capabilities into a truly integrated
digital capability and reduce programme delivery costs.
During the Period, various potential 'launch partners' were approached to
participate in a programme of testing and product promotion for GenS. The
first such partnership was signed shortly after Period-end with a major OEM in
Australasia.
Looking Forward
The IPS sales pipeline is strong (currently assessed in excess of £20
million) and the Group expects the acquisition of new customers to continue
during the second half and beyond, with multiple opportunities in the United
States, Canada and Australia. As the new regional operational model takes
effect, increasing IPS opportunities in the UK and Europe is a top priority.
Technical Training
The Technical Training business line focuses on the design and build of
generic and platform-specific training technologies and the provision of
related technical and support services for the defence, aerospace, rail and
other safety critical industries.
The Period saw good progress on the Group's systems engineering contracts:
· Apache upgrade: The Period saw contract award and programme commencement
for the Apache programme, a contract worth £8.8 million over three years. The
first engineering event was held and passed during the First Half.
· GD MTE: with the build of all four devices complete, the first two
devices were delivered to the end user's site during the First Half.
· UK Helicopter programme: Under this contract with a UK OEM (worth c.
£3.5 million), Pennant was required to convert a real helicopter airframe
into a systems trainer. The completed training device was delivered to the end
user's site during the First Half.
Development work was also completed on a prototype simulator for a rail
infrastructure organisation which is intended to be rolled out to numerous
sites in the future.
Looking Forward
The Group has seen defence procurement activity increase during and after the
Period, particularly in relation to new and upgraded vehicle platforms in the
UK, and this aligns well with Pennant's training systems engineering
capabilities.
Furthermore, to complement its existing suite of generic training aids, the
Group is in the process of identifying (and will then develop) modular,
graphically engaging systems trainers which will build and expand upon its
current proprietary software emulation frameworks. An engine systems trainer
of such a type has already been developed and sold.
The sales pipeline for the Technical Training business line is very healthy,
currently assessed to be circa £30 million.
Post Period End Updates
A number of significant items have been achieved since Period-end:
· GD MTE: The programme is almost complete and, as previously
stated, will be finished before year-end.
All four devices have been built and achieved factory acceptance, with the
final device being shipped to the end user's site today. Two devices have
already achieved site acceptance (the final stage of customer acceptance
testing), and the remaining two will undergo site acceptance testing
imminently.
· UK Helicopter programme: The training device achieved site acceptance
in July and the programme is effectively finished with all major milestones
invoiced and paid.
· Sales: circa £1 million of orders for software and equipment upgrades
were received across July and August, taking orders received during 2022 to a
total of £12 million.
· Facilities: with all devices built on the GD MTE and the UK
Helicopter programme, the demand for space has significantly decreased, and
the rationalisation of the Group's facilities arrangements has continued.
Pennant Court, being surplus to requirements, was sold in August for £2.1
million and the proceeds used to paydown the overdraft, while the Stevenage
office lease was terminated during the same month. Material savings are
expected for 2023 from reduced property running costs, rates and depreciation.
· Cash: the Group's net debt is currently £2 million (with an overdraft
limit of £3 million). Following the completion of various programme
milestones, invoices totalling £1.8 million (excluding VAT) have been raised
since the start of August, for payment on 30 day terms, of which £0.7 million
has already been received.
Outlook
We are securing new customers for our IPS software and services lines in
important adjacent sectors including commercial aerospace, while at the same
time gearing up for the launch of the new GenS software suite next year.
Furthermore, with the prevailing global security situation, we are seeing real
signs that defence procurement programmes are unlocking in our key regions,
with several new opportunities already being pursued.
As a result of management's efforts to re-orient the business, we have a
leaner organisation, with increasing software and recurring services revenues;
the platform is now in place to grow the business and enhance shareholder
value.
With a Period-end contracted order book of £27 million with good forward
visibility, a healthy sales pipeline containing opportunities worth over £50
million, and a leaner, optimised organisation, the Board is confident about
the Group's future prospects.
J M Ponsonby
Chairman
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2022
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
Unaudited
Unaudited
Audited
Notes
£000s £000s £000s
Revenue 6,945 7,427 15,965
Cost of sales (4,110) (5,837) (11,609)
Gross profit 2,835 1,590 4,356
Administration expenses (3,558) (3,222) (6,709)
Other income 50 - 203
Operating (loss) (673) (1,632) (2,150)
Finance costs (137) (64) (329)
Finance income - - -
(Loss) before taxation (810) (1,696) (2,479)
Taxation 2 - - 865
(Loss) for the period (810) (1,696) (1,614)
Earnings per share 3
Basic (2.21p) (4.64p) (4.41p)
Diluted (2.21p) (4.64p) (4.41p)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2022
Six months ended 30 June 2022 Unaudited Six months ended 30 June 2021 Unaudited Year ended
31 December 2021 Audited
£000s £000s £000s
(Loss) attributable to equity
holders of the parent (810) (1,696) (1,614)
Other comprehensive income:
Exchange differences on
translation of foreign operations 364 (90) (64)
Net revaluation gain - - 353
Deferred tax credit - property, plant and equipment and intangibles - - (156)
(Loss) attributable to equity
holders of the parent (446) (1,786) (1,481)
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2022
Six months ended 30 Six months ended 30 Year ended
June 2022 audited
June 2021 Unaudited
31 December 2021
Audited
£000s £000s £000s
Non-current assets
Goodwill 2,546 2,428 2,403
Other intangible assets 4,681 5,178 5,081
Property plant and equipment 5,817 5,719 6,009
Right of use asset 567 736 661
Deferred tax asset 836 91 850
Total non-current assets 14,447 14,152 15,004
Current assets
Inventories / work-in-progress 1,347 1,930 865
Trade and other receivables 5,146 3,661 4,528
Cash and cash equivalents 585 749 901
Current tax asset 330 99 330
Total current assets 7,408 6,439 6,624
Total assets 21,855 20,591 21,628
Current liabilities
Trade and other payables 4,780 4,379 3,595
Current tax liabilities 89 83 367
Obligations under finance and operating leases 191 193 209
Bank overdraft 4,741 2,676 4,441
Deferred consideration on acquisition 335 355 432
Total current liabilities 10,136 7,686 9,044
Net current (liabilities) (2,728) (1,247) (2,420)
Non-current liabilities
Obligations under finance and operating leases 444 600 529
Deferred tax liabilities - 192 -
Contingent consideration on acquisition 419 1,141 789
Warranty provisions 122 122 122
Total non-current liabilities 985 2,055 1,440
Total liabilities 11,121 9,741 10,484
Net assets 10,734 10,850 11,144
Equity
Share capital 1,836 1,832 1,832
Share premium 5,367 5,348 5,345
Capital redemption reserve 200 200 200
Retained earnings 1,900 2,595 2,687
Translation reserve 590 200 226
Revaluation reserve 841 675 854
Total equity 10,734 10,850 11,144
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2022
Six months Six months Year ended
ended 30 June
ended 30 June 2021
31 December
2022
2021
Unaudited
Unaudited Audited
£000s £000s £000s
Net cash generated / (used in) from operating activities 47 230 (127)
Investing activities
Payment for acquisition of subsidiary, net of cash acquired (559) (536) (549)
Purchase of intangible assets (341) (260) (966)
Purchase of property plant and equipment (13) (48) (134)
Proceeds from disposal of property, plant and equipment - - 22
Net cash used in investing activities (913) (844) (1,627)
Financing activities
Proceeds from sale of ordinary shares 26 64 60
Net (repayment of) obligations under operating lease (103) (121) (309)
Net cash used in financing activities (77) (57) (249)
Net (decrease) in cash and cash equivalents (943) (671) (2,003)
(3,540) (1,453) (1,453)
Cash and cash equivalents at beginning of period
Effect of foreign exchange rates 327 197 (84)
Cash and cash equivalents at end of period (4,156) (1,927) 3,540
PENNANT INTERNATIONAL GROUP plc
STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2022
Share capital Share premium Capital redemption reserve Retained earnings Translation reserve Revaluation reserve Total equity
£000s £000s £000s £000s £000s £000s £000s
At 31 December 2020 1,822 5,295 200 4,243 290 683 12,533
(Loss) for the year - - - (1,614) - - (1,614)
Other comprehensive (loss) / income - - - - (64) 197 133
Total comprehensive income 1,822 5,295 200 2,629 226 880 11,052
Issue of new 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 - - - (810) - - (810)
Other comprehensive income - - - - 364 - 364
Total comprehensive income 1,832 5,345 200 1,877 590 854 10,698
Issue of new shares 4 22 - - - - 26
Recognition of share-based payment - - - 10 - - 10
Transfer from revaluation reserve - - - 13 - (13) -
At 30 June 2022 1,836 5,367 200 1,900 590 841 10,734
PENNANT INTERNATIONAL GROUP plc
NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2022
1. Basis of preparation
This condensed set of financial statements has been prepared using accounting
policies expected to be adopted for the year ending 31 December 2022.
These accounting policies are drawn up in accordance with International
Financial Reporting Standards (IFRSs) in conformity with the requirements of
the Companies Act 2006.
The comparative figures for the year ended 31 December 2021 set out in this
Interim Report are not statutory accounts. A copy of the statutory accounts
for that year has been delivered to the Registrar of Companies. The auditors
reported on those accounts; their report was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a statement
under s498(2) or s498(3) of the Companies Act 2006.
AIM-quoted companies are not required to comply with IAS34 'Interim Financial
Reporting' and the Company has taken advantage of this exemption.
2. Taxation
The taxation charge for the Period is based on the estimated rate of tax that
is likely to be effective for the full year to 31 December 2022.
3. Earnings per share
Basic earnings per share are calculated by dividing the profit for the Period
attributable to the shareholders by the weighted average number of shares in
issue. The calculation of diluted earnings per share does not take into
account the potentially diluting effect of share options as this impact would
be antidilutive to the losses attributable to equity shareholders.
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
Unaudited Unaudited Audited
£000s £000s £000s
Earnings
Net (loss) attributable to equity shareholders (810) (1,696) (1,614)
Number of shares Number Number Number
Weighted average number of ordinary shares 36,674,834 36,543,371 36,591,864
Diluting effect of share options 1,939,043 1,819,043 1,746,543
Weighted average number of ordinary shares for the purpose of dilutive 38,613,877 38,362,414 38,338,407
earnings per share
Earnings per share (basic) (2.21p) (4.64p) (4.41p)
Earnings per share (diluted) (2.21p) (4.64p) (4.41p)
4. Cash generated from operations
Six months ended Six months ended Year ended
30 June 2022
30 June 2021
31 December 2021
Unaudited Unaudited Audited
£000s £000s £000s
(Loss) for the period (810) (1,696) (1,614)
Finance costs 137 64 329
Income tax credit - - (865)
Withholding tax - - 38
Depreciation of property, plant and equipment 215 234 460
Depreciation of right of use assets 84 93 243
Amortisation of other intangible assets 741 652 1,366
Effect of land and buildings revaluation - - (117)
R&D tax credit (50) - (157)
Share-based payment 10 40 32
Operating cash flows before movement in working capital 327 (613) (285)
(Increase) / decrease in receivables (618) 1,223 356
(Increase) / decrease in inventories (482) (849) 216
Increase / (decrease) in payables 1,262 358 (525)
Cash generated from / (used in) operations 489 119 (238)
Tax (paid) / received (278) 175 440
Interest paid (164) (64) (329)
Net cash generated from / (used in) operations 47 230 (127)
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