Half Yearly Report

RNS Number : 4364J

Pentagon Protection PLC

30 June 2011

 



Pentagon Protection plc

Interim results for the six months ended 31 March 2011

Chairman's Statement

Introduction

The six months to 31 March 2011 has reflected a period of significant change for the Pentagon Group. As previously announced, this period started with an acquisition when in November 2010, the Group acquired International Glass Solutions LLC (IGS), creating for the first time a local outlet in the US market. At the same time, Steve Chambers was appointed to the Board as Managing Director, and I am delighted to be able to report that his strong management has already had a positive impact on the results for the period. 

The results for the first six months show significant improvement versus the same period in 2010 with turnover increasing 32% to £1,238,595 (2010: £ £937,414) and losses from operations before exceptional items reducing by 44% to £174,078 (2010: £309,929). These figures are explained in more detail below.

SDS Group Ltd, our security products subsidiary, continues to perform well and has had some significant contract gains during the period.  While John Wyatt has retired as the executive director of SDS and from the board of Pentagon, he remains involved with SDS as a consultant.

Financial Review

As I mentioned above, turnover has increased by 32% to £1,238,595. Over three quarters of this improvement has come from the SDS group, which has returned to historic levels of turnover, winning some large contracts from its traditional client base.

Cost of sales increased in line with this trend, which meant that gross profit has remained consistent with the first six months of last year at 30%. However, this is slightly down on the full year gross profit of 33%.

Total distribution and administration expenses have fallen by £40,292 from the same period in 2010, in part reflecting Steve Chamber's continual focus on operational efficiency.

The six months to 31 March 2010 included the reversal of a warranty claim provision of £225,800. There was no such write back in the period under review, therefore the loss before tax for the two periods is  not directly comparable. However, the loss from operations before exceptional items has reduced from £309,929 to £174,078, a reduction of 44%.

The Interim Statement of Financial Position includes increased Goodwill of £725,158 (£351,360 at 30 September 2010) as a result of the acquisition of IGS LLC. The acquisition was paid for by an initial consideration of shares, as set out in Note 4 to the Consolidated Interim Financial Information.  There is also potentially going to be contingent consideration based on profit multiples of IGS for a certain period, and our best estimate of this additional consideration has been included in this Interim Report. We will review this position for inclusion in the full year accounts to 30 September 2011.

Overall there has been an increase in total assets from £1,098,901 at 30 September 2010 to £1,597,126 at 31 March 2011.

Operational review

There has been significant progress made this year across both trading sectors; that is film and security products and services.

The film division has successfully negotiated a further one year extension to its contract with an overseas government for the upgrade of window security to its embassies and chanceries throughout the world and is generating additional revenue both in the UK and overseas. The European Commission contract also commenced during the second half of the year, and it is now proceeding well, according to our expectations.

The security products division built on its relationships with both police services and the armed forces, securing contracts with the Metropolitan Police and the British Transport Police for the supply of x-ray equipment, whilst continuing to support the Armed forces with supply and maintenance of portable x-ray equipment. In addition the Group's training and consultancy team have completed more than twenty projects in the past six months, and the 2012 Olympic Games continue to be a potential source of significant additional business over the next fifteen months.

Acquisition of International Glass Solutions LLC (IGS)

On 25 October 2010, the Group acquired from me 100% of the share capital of IGS, a company incorporated in the USA. The acquisition was part of a series of measures to strengthen the position of the Group by diversifying its project portfolio and allowing it to develop its presence in the US market.

IGS provides project management and installation services for film-based glazing solutions covering a wide range of applications, including blast mitigation and energy efficiency improvements. IGS primarily serves the commercial market and has a number of strategic partnerships already in place.  In addition, IGS has access to the US residential film market, which makes up the largest portion of the window film industry in the United States and will contribute significantly to the Group's financial stability. I am confident this acquisition will give the Group a strong foothold in the USA.

While IGS has made a small loss in the period to 31 March 2011, (which is part of the Film division result in the divisional analysis), it has a strong project portfolio and is projected to grow significantly in terms of revenue and profitability over the next few years.

Conclusion

As stated in my introduction, this first six months has been a period of significant change and I am confident that with continued investment in both our management team and product development programme, we can and will continue to improve the company over the next twenty four months.

I look forward to reporting further on our progress when we publish our full year results.

Haytham ElZayn

Chairman

30 June 2011

Consolidated Interim Statement of Comprehensive Income

For the Six Months ended 31 March 2011

		Unaudited		Unaudited		Audited
		six months		six months		year
		ended		ended		ended
		31 March		31 March		30 September
		2011		2010		2010
		£		£		£
Revenue		1,238,595		937,414		1,763,809
Cost of sales		(865,362)		(659,740)		(1,173,690)
Gross profit		373,233		277,674		590,119
Distribution costs		(19,308)		(61,633)		(94,802)
Administrative expenses		(528,003)		(525,970)		(1,181,394)
Other operating income		-		-		4,610
LOSS FROM OPERATIONS BEFORE EXCEPTIONAL ITEM		(174,078)		(309,929)		(681,467)
Profit on disposal of subsidiary		-		-		461,865
Exceptional item - provision		-		225,800		225,800
LOSS FROM OPERATIONS BEFORE FINANCING ACTIVITIES		(174,078)		(84,129)		6,198
Finance income		11		31		41
Finance costs		(2,741)		(1,100)		(4,695)
LOSS BEFORE TAX		(176,808)		(85,198)		1,544
Tax		-		-		-
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD		(176,808)		(85,198)		1,544
Loss before tax and total comprehensive income for the period are all attributable to the equity   shareholders of the parent.
(Loss)/earnings per share
Basic		(0.020)p		(0.013)p		0.000p
Diluted		(0.020)p		(0.013)p		0.000p

Revenue and operating loss for the period all derive from continuing operations.

Consolidated Interim Statement of Financial Position

As at 31 March 2011		Unaudited		Unaudited		Audited
		31 March		31 March		30 September
		2011		2010		2010
	Notes	£		£		£

ASSETS
Non-current assets
Intangible assets		5,614		13,902		-
Goodwill		725,158		351,360		351,360
Property, plant and equipment		16,103		31,077		15,917
		746,875		396,339		367,277
Current assets
Inventories		192,178		230,756		193,151
Trade and other receivables		581,948		899,822		360,417
Cash and cash equivalents	5	76,125		57,541		178,056
		850,251		1,188,119		731,624
TOTAL ASSETS		1,597,126		1,584,458		1,098,901
EQUITY AND LIABILITIES
Equity
Share capital	6	881,918		801,918		801,918
Share premium account	6	7,176,785		7,056,785		7,056,785
Share based payment reserve		51,749		-		51,749
Shares held by ESOP		(4,541)		(4,541)		(4,541)
Retained earnings		(7,631,162)		(7,541,096)		(7,454,354)
Total equity attributable to equity holders of the parent
		474,749		313,066		451,557
Non-current liabilities
Borrowings		-		1,747		-
Provisions		-		700,000		-
Deferred tax liability		-		-		-
		-		701,747		-
Current liabilities
Trade and other payables		820,318		505,364		642,989
Shareholder loan		302,059		-		-
Borrowings		-		64,281		4,355
		1,122,377		569,645		647,344
Total liabilities		1,122,377		1,271,392		647,344
TOTAL EQUITY AND LIABILITIES		1,597,126		1,584,458		1,098,901

Consolidated Interim Statement of Changes in Equity

	Share	premium	based	held by	Retained
	capital	account	payments	ESOP	earnings	Total
			reserve
	£	£	£	£	£	£
Audited at 1 October 2009	641,418	6,914,366	-	(4,541)	(7,455,898)	95,345
Total comprehensive income for the period	-	-	-	-	(85,198)	(85,198)
Transactions with owners:
Shares issued during the period	160,500	160,500	-	-	-	321,000
Share issue costs	-	(18,081)	-	-	-	(18,081)
Unaudited at 31 March 2010	801,918	7,056,785	-	(4,541)	(7,541,096)	313,066
Transactions with owners:
Share based payments	-	-	51,749	-	-	51,749
Total comprehensive income for the period	-	-	-	-	86,742	86,742
Audited as at 30 September 2010	801,918	7,056,785	51,749	(4,541)	(7,454,354)	451,557
Total comprehensive income for the period	-	-	-	-	(176,808)	(176,808)
Transactions with owners:
Shares issued during the period	80,000	120,000	-	-	-	200,000
Unaudited at 31 March 2011	881,918	7,176,785	51,749	(4,541)	(7,631,162)	474,749

All equity is attributable to equity shareholders of the parent.

Share premium

Represents amounts subscribed for share capital in excess of its nominal value, net of directly attributable issue costs.

Share based payment reserve

Represents the reserve account which is used for the corresponding entry to the share based payment charge through the Statement of Comprehensive Income.

Shares held by ESOP

These relate to shares held by Pentagon Employee Share Ownership Plan and are used to assist in meeting the obligations under employee remuneration schemes.

Consolidated Interim Statement of Cash Flows

For the Six Months ended 31 March 2011

		Unaudited		Unaudited			Audited
		six months		six months			year
		ended		ended			ended
		31 March		31 March			30 September
		2011		2010			2010
		£		£			£
Operating activities
(Loss)/profit before tax		(176,808)		(85,198)		1,544
Depreciation of property, plant and equipment		4,086		4,086		7,133
Amortisation of intangibles		161		4,638		18,540
Profit on disposal of subsidiary		-		-		(461,865)
Share based payments		-		-		51,749
Loss on disposal of property, plant and equipment		-		-		14,960
Changes in working capital:
(Increase)/decrease in inventories		973		(57,698)		(20,093)
Decrease/(increase) in trade and other receivables		(206,340)		545,291		438,127
(Increase)/decrease in trade and other payables		(19,173)		(156,734)		90,106
Decrease in provisions		-		(225,800)		(225,800)
Net finance cost/(income)		2,730		1,069		4,654
Net cash from/(used in) operating activities		(394,371)		29,654		( 80,945)
Investing activities
Payments to acquire property, plant and equipment		(2,721)		-		(8,071)
Receipts from sales of property, plant and equipment		-		-		5,224
Acquisition of a subsidiary net of cash acquired		(199,813)		-		-
Disposal of a subsidiary net of cash disposed of		-		-		(29,759)
Interest received		11		-		41
Net cash used in investing activities		(202,523)		-		(32,565)
Financing activities
Increase in shareholder loan		302,059		-		-
(Decrease)/increase in factor finance		(4,355)		(26,346)		(45,915)
Capital element of finance lease rental		-		(2,601)		(5,210)
Net proceeds from issue of shares		200,000		-		302,919
Interest paid		(2,741)		(1,069)		(4,695)
Net cash (used in)/from financing activities		494,963		(30,016)		247,099
Net decrease in cash and cash equivalents		(101,931)		(362)		133,589
Cash and cash equivalents at the start of the period		178,056		44,467		44,467
Cash and cash equivalents at the end of the period		76,125		44,105		178,056

Notes to the Consolidated Interim Financial Information

For the Six Months ended 31 March 2011

1

General information

Pentagon Protection Plc ('the Company') and its subsidiaries (together, 'the Group') specialise in the supply and installation of anti-shatter/safety films, bomb blast protection, security and solar control films as well as opaque privacy films and manifestation graphics and the provision of bespoke security consultancy for high risk project management. They are also involved in Assessment and Examination (A&E) projects.

The Company is a publicly listed company incorporated and domiciled in England. The address of its registered office is Solar House, Amersham Road, Chesham, Buckinghamshire HP5 1NG.

The Company is listed on AIM.

This consolidated interim financial information was approved for issue on 30 June 2011.

2

Accounting policies

2.1

Basis of preparation

The interim consolidated financial information comprises the consolidated Statements of Financial Position at 31 March 2011, 31 March 2010 and 30 September 2010 and the consolidated Statements of Comprehensive Income, Changes in Equity and Cash Flows for the periods then ended and the related notes of Pentagon Protection Plc, (hereinafter referred to as 'the interim financial information'.)

The interim financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union.  In preparing this information, management have used the accounting policies set out in the Group's annual financial statements as at 30 September 2010.

This interim financial information does not constitute a set of statutory accounts under the requirements of the Companies Act 2006 and is neither audited nor reviewed.  The comparative figures for the financial year ended 30 September 2010 are an extract from the Group's 2010 financial statements, which have been reported on by the Group's auditors and delivered to the Registrar of Companies.  The report of the auditors was unqualified.

This document (the Interim Statement 2011) will be published on the company's website and will be publicly available from the London Stock Exchange regulatory publications.  The maintenance and integrity of the Pentagon Protection Plc website is the responsibility of the directors.  Legislation in the UK governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

3	Business and geographical segments

Based on the risks and returns the directors consider that the primary reporting format is by business segment.  Results by business segment are as follows:

																			Unaudited		Unaudited		Audited
																			six months		six months		year
																			ended		ended		ended
																			31 March		31 March		30 September
																			2011		2010		2010
																			£		£		£
																							As restated
Protective Film and Anchoring
Turnover																			575,163		509,959		834,106
Cost of sales																			(397,998)		(376,164)		(564,889)
Gross profit																			177,165		133,795		269,217
Overheads (net)																			(219,126)		(283,559)		(702,734)
Operating profit/(loss) before exceptional item																			(41,961)		(149,764)		(433,517)
Exceptional item																			-		225,800		687,665
Operating(loss)/profit																			(41,961)		76,036		254,148
Security Products and Services
Turnover																			663,432		427,455		929,703
Cost of sales																			(467,364)		(283,576)		(608,801)
Gross profit																			196,068		143,879		320,902
Overheads																			(154,963)		(185,002)		(306,352)
Operating loss																			41,105		(41,123)		14,550
Group Operating Expenses (net)
Overheads																			(173,222)		(119,042)		(262,500)
Totals
Turnover																			1,238,595		937,414		1,763,809
Cost of sales																			(865,362)		(659,740)		(1,173,690)
Gross profit																			373,233		277,674		590,119
Overheads																			(547,311)		(587,603)		(1,271,586)
Operating loss before exceptional item																			(174,078)		(309,929)		(681,467)
Exceptional item																			-		225,800		687,665
Operating (loss)/profit																			(174,078)		(84,129)		6,198

Assets and liabilities by business segment are as follows:
															Unaudited				Unaudited		Audited
															31 March				31 March		30 September
															2011				2010		2010
															£				£		£
Protective Film and Anchoring
Total assets															1,229,793				1,259,612		594,136
Total liabilities															(800,114)				(1,125,503)		(234,519)
Depreciation and amortisation in period															2,480				7,463		429
Capital expenditure															-				-		7,375
Security Products and Services
Total assets															367,333				324,846		504,765
Total liabilities															(322,263)				(145,889)		(412,825)
Depreciation and amortisation in period															1,761				-		6,704
Capital expenditure															-				-		696
TOTAL ASSETS															1,597,126				1,584,458		1,098,901
TOTAL LIABILITIES															(1,122,377)				(1,271,392)		(647,344)
The secondary reporting format is by geographic segment based on location of customers.  All of the business assets are located in the United Kingdom. External revenue by segment is as follows:
														Unaudited				Unaudited				Audited
														six months				six months				year
														ended				ended				ended
														31 March				31 March				30 September
														2011				2010				2010
														£				£				£
Continuing operations
United Kingdom														883,990				820,285				1,540,633
Americas														63,022				2,185				6,319
Europe														168,941				43,521				59,429
Africa and Middle East														1,575				51,092				121,357
Far East														121,067				19,281				36,071
Australasia														-				1,050				-
														1,238,595				937,414				1,763,809

4	Acquisition of a subsidiary

On 25 October 2010, the Company acquired 100% of the share capital of International Glass Solutions LLC ("IGS"), a company incorporated in the USA. IGS was sold to the Company by Haytham ElZayn, the company chairman, for an initial consideration of £200,000 in shares and contingent consideration to be paid in shares or cash (see below). The Company acquired IGS to further develop its market penetration, giving it a strong foothold in the USA. The transaction has been accounted for using the acquisition method of accounting.

		Fair value			Total
		£			£
Property, plant and equipment		1,551
Intangible assets		5,775
Trade receivables		15,191
Cash and cash equivalents		187
Total assets					22,704
Trade payables		(9,880)
					(9,880)
Total liabilities
Total identifiable net assets					12,824
Provisional fair value of goodwill including contingent consideration					373,798
Total consideration (including direct costs and contingent consideration)					386,622
Satisfied by:
Initial consideration of ordinary 0.1p shares					200,000
Fair value of contingent consideration					186,622
					386,622

On completion, the Company issued 80 million shares at an issue price of 0.25 pence, a sum of £200,000.  The fair value of shares issued was based on published prices at the date of acquisition. The remainder of the consideration payable for the acquisition has been determined based on annualised projected profit multiples of IGS during the period ended twenty four months after completion of the acquisition, and will be satisfied by the issue of shares to the seller.  If the issue of shares to the seller in satisfaction of the deferred consideration would cause the seller to hold more than 29.9% of the entire issued share capital of the Group, the balance of the outstanding consideration will be paid in cash.

Contingent consideration cannot exceed £800,000 and cannot be less than £Nil.  The fair value of the contingent consideration is measured at the present value of the potential outcomes, which has been estimated taking into account historical patterns of trade and forecasted results.  The contingent consideration has been classified as a liability.  There is no right to return of previously transferred consideration. Directly attributable acquisition costs have been expensed through profit and loss as incurred within administrative expenses.  Costs directly incurred in relation to the issue of ordinary shares by the Company as consideration for the acquisition, have been deducted from the share premium account directly in equity. IGS contributed £25,682 of revenue and £2,657 of net loss for the period between the date of acquisition and the reporting date. The fair and gross value of trade receivables amounts to £15,191.  Since it is expected that the full contractual amount will be collected, none of them have been impaired. The goodwill is not deductible for tax purposes and is attributable to the operational and strategic synergies that are expected to arise in the post acquisition period.  These have not been recognised as a separate intangible asset on the basis they could not be separated from the value generated from the business as a whole.

5	Cash and cash equivalents

For the purpose of the consolidated interim cash flow statement, cash and cash equivalents are comprised of the following:
						Unaudited		Unaudited		Audited
						31 March		31 March		30 September
						2011		2010		2010
						£		£		£
Cash at bank and in hand						76,125		57,541		178,056
Bank overdraft						-		(13,436)		-
						76,125		44,105		178,056

6	Share capital				Unaudited		Unaudited		Audited
					six months		six months		year
					ended		ended		ended
					31 March		31 March		30 September
					2011		2010		2010
					£		£		£
	Authorised
	1,000,000,000 Ordinary shares of 0.1p each				1,000,000		1,000,000		1,000,000
	Issued and fully paid
	As at 1 October 2010 (801,915,156 ordinary shares of 0.1p each)				801,918		641,418		641,418
	Issue of Ordinary shares of 0.1p each				80,000		160,500		160,500
	At 31 March 2011 (881,918,156 ordinary shares of 0.1p each)				881,918		801,918		801,918

Share transaction history
						Quantity of 0.1p shares		Value
Shares issued in the period were as follows:
25 October 2010 (see note 4)						80,000,000		0.25p

7	Dividends paid and proposed
	Equity dividends on ordinary shares:
	No interim dividend was paid or is proposed for the half year ended 31 March 2011.

8	Loss per share

The calculations of loss per share are based on the following losses and number of shares:

							Unaudited		Unaudited				Audited
							six months		six months				year
							ended		ended				ended
							31 March		31 March				30 September
							2011		2010				2010
							£		£				£
(Loss)/profit for the financial period							(176,808)		(85,198)				1,544
Weighted average number of shares for diluted (loss)/profit per share							870,551,880		641,857,882				755,499,384
Weighted average number of shares for basic (loss)/profit per share
							870,551,880		641,857,882			722,327,745

At 31 March 2011, the number of ordinary shares in issue was 881,918,156.

In accordance with the provisions of IAS 33 for the periods ended 31 March 2011 and 31 March 2010, shares under option were not regarded as dilutive in calculating earnings per share.  In the year to 30 September 2010, there were 33,171,639 outstanding options which were considered dilutive.

9	Seasonality of interim operations

Pentagon Protection Plc does not operate in a seasonal or cyclical business environment.

10	Provisions						Unaudited		Unaudited		Audited
							six months		six months		year
							ended		ended		ended
							31 March		31 March		30 September
							2011		2010		2010
							£		£		£
	Other provision						-		700,000		-
The other provision related to a warranty claim in respect of some work performed in March 2005.  As at 30 September 2009, the directors were confident that the cost of the remedial works would be covered by the Group's insurance policy.  Nonetheless, in accordance with IAS 37, the anticipated insurance income could not be recognised in the prior reporting period so a provision was made for the cost of remedial works.  However, the claim and related provision were disposed of as part of the sale of Pentagon Protection (UK) Limited in the year to 30 September 2010; therefore the provision was released in full.

 

END

 

 

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