REG - Pennant Int. Group - 2023 Interim Results
27/09/2023 07:00
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RNS Number : 7499N Pennant International Group PLC 27 September 2023
FOR IMMEDIATE RELEASE
27 September
2023
PENNANT INTERNATIONAL GROUP PLC
Interim Results for the six months ended 30 June 2023
EBITA of £0.5 million; fourth consecutive period of EBITA profit; record
gross margin;
on track to meet full year expectations;
Pennant International Group plc (AIM:PEN) ("Pennant", the "Group" or
"Company"), the IPS software and services company, announces its Interim
Results for the six months ended 30 June 2023 (the "First Half", the "Period",
or "H1 2023").
Commenting on the results, Chairman Philip Cotton said:
"I am pleased to report that the Group has maintained positive earnings before
interest, taxation and amortisation for a fourth consecutive period, with
profitability in-line with market expectations for the year as a whole.
Our plan to re-engineer the business to build on software, services and other
higher-margin work - focusing on our unique breadth of products and services
across multiple Integrated Product Support disciplines - is producing
results."
Key points: Financial
· Group revenues for the Period of £7.1 million (H1 2022: £6.9
million)
· 46% of revenues generated from software licensing and associated
activities (H1 2022: 52%)
· Record gross margin of 47% (H1 2022: 41%)
· Earnings before interest, taxation and amortisation (EBITA) of £0.5
million (H1 2022: EBITA of £0.1 million)
· Earnings before interest, taxation, depreciation and amortisation
(EBITDA) of £0.8 million (H1 2022: EBITDA of £0.4 million)
· Loss before tax of £0.4 million (H1 2022: loss before tax of
£0.8 million)
· Net debt at Period end of £1.9 million (H1 2022: net debt of
£4.1 million)
· Trade and other receivables due at Period end of £4.2 million (H1
2022: £5.1 million)
· Basic loss of (1.02)p per share (H1 2022: basic loss per share of
(2.21)p per share)
· Unrelieved tax losses of £7.1 million carried forward (H1 2022:
£6.7 million carried forward)
· Three-year order book at Period end stood at £25 million (H1
2022: £27 million)
Note: the above results are stated before circa £0.1 million of exceptional
transaction and integration costs associated with the acquisition of Track
Access Productions Limited. See note 5 to the Notes for a reconciliation
between operating loss, EBITDA and EBITA.
Key points: Operational
· Good progress on the circa £9 million Boeing Defence United Kingdom
(BDUK) Apache upgrade programme, which is running on time and on budget, with
final deliveries scheduled for completion in September 2024.
· Acquisition of Track Access Productions Limited ("TAP") in April
2023, broadening Pennant's existing rail offering and customer base, and
adding circa £0.3 million of subscription-based recurring revenues.
· Version 2 of GenS released in May 2023, with first commercial sale
achieved in June 2023.
· Order intake secured during the First Half of £6.5 million, which
resulted in a Period-end three-year contracted order book of £25 million.
Commenting on the Group's prospects, Philip Cotton added:
"Given the burgeoning technological complexity of military, aviation and rail
platforms, the demand for innovative Integrated Product Support solutions is
only likely to grow, particularly with increasing defence budgets across the
Western world.
Our strategy has been formulated with precisely these factors in mind and with
our developing S-Series solutions, we are well-placed to capitalise."
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.com
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
Mike Coe +44 (0) 20 7220 1666
Sarah Mather
Walbrook PR (Financial PR) pennant@walbrookpr.com
Paul Vann +44 (0)20 7933 8780
Joe Walker Mob: +44 (0)7768 807631
Pennant International Group plc
Interim Report for the six months ended 30 June 2023
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 £7.1 million (H1 2022: £6.9 million).
For the fourth consecutive six-month period, EBITA was positive at £0.5
million, an improvement over the EBITA profit of £0.1 million recorded for
the comparable period in 2022.
The gross profit margin for the Period increased to 47% (H1 2022: 41%) due to
software licence revenues and sound performance across a number of programmes.
This resulted in a significantly reduced pre-tax loss for the Period of £0.4
million which compares with a pre-tax loss of £0.8 million in H1 2022.
Administrative costs for the Period were £3.6 million (H1 2022: £3.6
million), pleasingly being held at the same level as 12 months ago, despite
general inflationary pressures.
At the Period-end net debt stood at £1.9 million (H1 2022: net debt of £4.1
million), as the Group utilised its overdraft facilities to fund programme
expenditure (for which the cash milestones are expected to unwind in the
latter part of the year and into early 2024) and internally-funded development
of the GenS software suite.
Total assets at the Period end were £20.5 million (H1 2022: £21.9 million).
The basic loss per share for the Half Year was (1.02)p compared to a loss of
(2.21)p for the same period last year.
A minimal effective tax rate is expected for the full year due to unrelieved
tax losses of £7.1 million which have been carried forward at the Half Year
(H1 2022: £6.7 million) and with R&D tax credit claims in progress.
The Group's three-year order book stood at £25 million at Period-end (H1
2022: £27 million) and is scheduled for delivery as follows: £8.1 million in
H2 2023, £8.7 million in 2024, £5.3 million in 2025 and the balance in H1
2026.
The Directors have concluded that it is in the best interests of the Company
and its shareholders to retain cash at this time for expected working capital
requirements, particularly as the internally-funded GenS development programme
reaches its critical later stages.
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.
Operational Commentary
Each region, and business line, made a significant contribution during the
Period as follows:
Revenue by Region £ m
UK & Europe 3.7
North America 2.2
Australasia 1.2
Total 7.1
A key strategic focus of the Group is to continue to grow the proportion of
revenues which derive from software and related activities. During the Period,
circa 46% of revenues derived from software and related services; 56% of
revenues were of a recurring nature.
Revenue by business line £ m
Software Licences 0.7
Software Maintenance 0.7
Software Services 1.9
Engineered-to-order training solutions 1.9
Generic training solutions 0.5
Technical Services 1.4
Total 7.1
Commentary is provided on the various business lines below.
Integrated Product Support (IPS) Software Suite
The Group's IPS software suite comprises Pennant's three proprietary software
product suites, OmegaPS, Analyzer and R4i. OmegaPS is a sophisticated
logistics data tool; Analyzer uses recognised processes and analytical methods
to develop, store and evaluate information about operational equipment and the
support environment; and R4i provides its users with a dynamic,
S1000D-compliant technical documentation solution.
In addition, Pennant 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 continuing demand for these products and related consultancy.
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. During the Period, the Group invested circa £0.6
million in this development project.
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 Analyzer and R4i S1000D Technical Publishing suite will
transform customers' Integrated Product Support capabilities into a truly
integrated digital capability and reduce programme delivery costs. Version 2
of GenS was released in May 2023, with the first commercial sale achieved in
June 2023.
The Group also has an active pipeline of potential product innovations and
improvements that are undergoing a detailed assessment process, including the
use of Artificial Intelligence to integrate our IPS software database and the
use of augmented / mixed reality in the delivery of our technical data to the
end user.
Training Technology
Training is an important sub-discipline within the IPS field and Pennant
designs and builds generic and platform-specific training technology (and
provides related technical and support services) for the defence, aerospace,
rail and other safety critical industries.
The Group's key training-related contract during the Period was the UK Apache
upgrade programme, under which Pennant is upgrading four different types of
Apache training device for the UK Army.
The Group is developing modular software-based training solutions and during
the Period launched the Engine Systems Starting Trainer (which combines a
high-fidelity graphical model of an engine with Pennant's proprietary
emulation technology), which has gone out on trial with a selected key
customer.
Programme Delivery
Major Programme update: Pennant continues to make good progress on its
contract with BDUK for the UK Apache upgrade programme. By the end of the
Period, Preliminary Design Review had been successfully passed on all four
devices, whilst on two of the devices, Critical Design Review (the final
design sign-off) had also been achieved. The contract remains on track for
completion in September 2024.
Commercial aerospace projects: the Group continues to progress its two North
American software and services contracts for the development and delivery of
its new technical publications solution for the commercial aviation market.
The projects have involved the transfer of complex legacy data into a new
solution which has resulted in an enlarged scope and technical challenges.
The contracts are now expected to be completed during the first half of 2024
with the associated milestones expected to unwind in early 2024.
Acquisition update
We successfully acquired Track Access Productions Limited ("TAP") in April
2023 for an initial consideration of £798,500, funded from existing
resources, and a deferred consideration of £175,500 payable in April 2024.
TAP is a provider of driver training, route mapping and route familiarisation
services to the UK rail industry and bolsters the Group's 'third pillar' of
rail products and services.
I am pleased that TAP is performing in line with the Board's expectations.
Pennant's combined Track Access business unit (comprising TAP and Track Access
Services) had a successful First Half in respect of order intake and is on
course to deliver turnover of approximately £900,000 for the year ending 31
December 2023 on an annualised basis, with an operating profit of
approximately £400,000.
Targeted acquisitions, which add new strategic customers and/or add to our
software capabilities, remain a key part of the Group's strategy for growth.
Post Period-end
Further positive outcomes have been achieved since Period-end:
· Sales: circa £1.5 million of new orders for software and services
were received across July and August, taking orders received during 2023 to a
total of £8.1 million. This included a new contract with the Australian
Defence Force worth AUD$1.2 million over 12 months, secured in early July.
· New partnership: the Group announced a strategic partnership with
Aquila Learning to collaborate on a number of projects, including the
integration of the ALaRMS - Aquila Learning (and Requirements
/Resource/Record) Management System into the market leading Pennant IPS
software suite (GenS, Analyzer and R4i). The integration will realise
natural synergies in both product and customer base and broaden our S-Series
capabilities.
· Cash: the Group secured a £1 million increase in its overdraft
facility (to £4 million). This is available from September 2023 to January
2024 to provide short-term working capital contingency pending the realisation
of programme milestones referred to above, and the continued investment ahead
of full product launch of GenS and the integrated IPS software suite in April
2024.
Outlook
Given the burgeoning technological complexity of military, aviation and rail
platforms, the demand for innovative Integrated Product Support solutions is
only likely to grow, particularly with increasing defence budgets across the
Western world.
Our strategy has been formulated with precisely these factors in mind and with
our developing integrated S-Series solutions, we are well-placed to
capitalise.
We continue to explore opportunities for partnerships and acquisitions that
will enhance our capabilities and accelerate our strategic objectives.
We also remain focused on ensuring a lean, productive and effective
organisation; costs remain well-controlled following the decisive
restructuring in 2021 and we are confident of meeting market expectations for
the year as a whole.
P Cotton
Chairman
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2023
Six months ended 30 June 2023 Unaudited Six months ended 30 June 2022 Unaudited Year ended 31 December 2022 Audited
Notes
£000s £000s £000s
Revenue 7,092 6,945 13,686
Cost of sales (3,750) (4,110) (7,897)
Gross profit 3,342 2,835 5,789
Administration expenses (3,616) (3,558) (6,902)
Other income 75 50 123
Operating (loss) (199) (673) (990)
Finance costs (176) (137) (377)
Finance income - - 2
(Loss) before taxation (375) (810) (1,365)
Taxation 2 - - 464
(Loss) for the period (375) (810) (901)
Earnings per share 3
Basic (1.02p) (2.21p) (2.45p)
Diluted (1.02p) (2.21p) (2.45p)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2023
Six months ended 30 June 2023 Unaudited Six months ended 30 June 2022 Unaudited
Year ended 31 December 2022 Audited
£000s £000s £000s
(Loss) attributable to equity
holders of the parent (375) (810) (901)
Other comprehensive income
Exchange differences on (124) 364 109
translation of foreign operations
Prior year amortization adjustment - 39
Deferred tax credit - property, plant and equipment and intangibles - 248
(Loss) attributable to equity (499) (446) (505)
holders of the parent
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2023
Six months ended 30 June 2023 Unaudited Six months ended 30 June 2022 Unaudited Year ended 31 December 2022
Audited
£000s £000s £000s
Non-current assets
Goodwill 2,459 2,546 2,507
Other intangible assets 5,251 4,681 4,690
Property plant and equipment 3,958 5,817 4,002
Right Of Use Asset 624 567 503
Deferred tax asset 1,530 836 1,497
Total non-current assets 13,822 14,447 13,199
Current assets
Inventories / work-in-progress 1,207 1,347 1,001
Trade and other receivables 4,204 5,146 4,129
Cash and cash equivalents 749 585 1,107
Current tax asset 492 330 354
Total current assets 6,652 7,408 6,591
Total assets 20,474 21,855 19,790
Current liabilities
Trade and other payables 5,871 4,780 5,862
Current tax liabilities 151 89 155
Obligations under finance and operating leases 351 191 174
Bank overdraft 2,668 4,741 1,533
Deferred consideration on acquisition 615 335 327
Total current liabilities 9,656 10,136 8,051
Net current (liabilities) / assets (3,004) (2,728) (1,460)
Non-current liabilities
Obligations under finance and operating leases 323 444 385
Deferred tax liabilities - - -
Contingent consideration on acquisition 152 419 552
Warranty provisions 108 122 107
Total non-current liabilities 583 985 1,044
Total liabilities 10,239 11,121 9,095
Net assets 10,235 10,734 10,695
Equity
Share capital 1,840 1,836 1,840
Share premium 5,366 5,367 5,366
Capital redemption reserve 200 200 200
Retained earnings 2,508 1,900 2,844
Translation reserve 211 590 335
Revaluation reserve 110 841 110
Total equity 10,235 10,734 10,695
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
Unaudited Unaudited Audited
£000s £000s £000s
Net cash generated from operating activities 159 47 2,572
Investing activities
Interest received - - 2
Payment for acquisition of subsidiary, net of cash acquired (995) (559) (547)
Purchase of intangible assets (730) (341) (1,150)
Purchase of property plant and equipment (107) (13) (63)
Proceeds from disposal of property, plant and equipment - - 2,117
Net cash used in investing activities (1,832) (913) 359
Financing activities
Proceeds from sale of ordinary shares - 26 24
Net (repayment of) obligations under operating lease (97) (103) (263)
Net cash used in financing activities (97) (77) (239)
Net (decrease) / increase in cash and cash equivalents (1,770) (943) 2,692
(426) (3,540) (3,540)
Cash and cash equivalents at beginning of period
Effect of foreign exchange rates 277 327 422
Cash and cash equivalents at end of period (1,919) (4,156) (426)
PENNANT INTERNATIONAL GROUP plc
STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2023
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 2021 1,832 5,345 200 2,687 226 854 11,144
(Loss) for the year - - - (901) - - (901)
Other comprehensive income - - - 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
(Loss) for the period - - - (375) - - (375)
Other comprehensive income - - - - (124) - (124)
Total comprehensive income 1,840 5,366 200 2,469 211 110 10,196
Issue of New Ordinary Shares - - - - - - -
Recognition of share based payment - - - 39 - - 39
Transfer from revaluation reserve - - - - - - -
At 30 June 2023 1,840 5,366 200 2,508 211 110 10,235
PENNANT INTERNATIONAL GROUP plc
NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2023
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 2023.
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 2022 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, however attention
was drawn to a material uncertainty relating to Going Concern in respect of
payments on one major programme. The auditors' report 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 an estimated effective tax rate
of zero, being the estimated effective rate of tax that is likely for the full
year to 31 December 2023.
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 2023 Six months ended 30 June 2022 Year ended 31 December 2022
Unaudited Unaudited Audited
£000s £000s £000s
Earnings
Net (loss) attributable to equity shareholders (375) (810) (901)
Number of shares Number Number Number
Weighted average number of ordinary shares 36,790,447 36,674,834 36,725,879
Diluting effect of share options 1,626,667 1,939,043 1,414,228
Weighted average number of ordinary shares for the purpose of dilutive 38,417,114 38,613,877 38,140,107
earnings per share
Earnings per share (basic) (1.02p) (2.21p) (2.45p)
Earnings per share (diluted) (1.02p) (2.21p) (2.45p)
PENNANT INTERNATIONAL GROUP plc
NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2023
(continued)
4. Cash generated from operations
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
Unaudited Unaudited Audited
£000s £000s £000s
(Loss) for the period (375) (810) (901)
Finance income - - (2)
Finance costs 176 137 377
Income tax credit - - (464)
Withholding tax - - (2)
Depreciation of property, plant and equipment 151 215 373
Depreciation of right of use assets 91 84 183
Profit on disposal of property - - (374)
Amortisation of other intangible assets 705 741 1,519
R&D tax credit (75) (50) (113)
Share-based payment 39 10 29
Operating cash flows before movement in working capital 712 327 625
(Increase) / decrease in receivables (75) (618) 398
(Increase) / decrease in inventories (206) (482) (136)
Increase / (decrease) in payables and provisions 85 1,262 2,252
Cash generated from operations 516 489 3,139
Tax (paid) / received (142) (278) (306)
Interest paid (215) (164) (261)
Net cash generated from operations 159 47 2,572
5. Reconciliation of operating loss to EBITA and EBITDA for the Period
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
Unaudited Unaudited Audited
£000s £000s £000s
(Loss) for the period including exceptional costs (475) (810) (901)*
Exceptional acquisition costs 100 - -
(Loss) for the period excluding exceptional costs (375) (810) (901)
Interest (net) 176 137 375
Taxation - - (464)
Amortisation 705 741 1,519
EBITA 506 68 529
Depreciation of property, plant and equipment 151 215 373
Depreciation of right of use assets 91 84 183
EBITDA 748 367 1,085
*The loss for the year ended 31 December 2022 includes a profit on sale of
land and buildings of £374k
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