Half Yearly Report

RNS Number : 8476H

Pentagon Protection PLC

26 June 2013

 



RNS ANNOUNCEMENT

26 June 2013

Pentagon Protection plc

("Pentagon" or the "Group")

Half year results for the six months ended 31 March 2013

Pentagon Protection plc (AIM: PPR) is pleased to announce its half year financial results for the six months ended 31 March 2013.

Financial and business highlights:

·              Turnover increased by 189% to £1.75m (2012: £0.92m) mainly due to significant protective film and anchoring contract wins

·              Security division also improved dramatically with turnover up 76% to £693k (2012: £393k)

·              Improved gross margin of 32.9% (2012: 27.0%)

·              Profit after tax of £3k (2011: loss £327k)

For enquiries please contact:

Pentagon Protection Plc Haytham ElZayn, Chairman Steve Chambers, Managing Director	Tel: [phone]
Cantor Fitzgerald Europe (Nominated adviser) David Foreman / Catherine Leftley	Tel: [phone]
Allenby Capital Limited (Broker) Jeremy Porter / Mark Connelly	Tel: [phone]

Chairman's statement

Introduction

I have great pleasure in presenting the results for Pentagon for the interim period ended 31 March 2013. As I explained in my last statement, these results demonstrate the impact of all of the improvements that have been made in the Group so far since Steve Chambers was appointed as managing director.

Sales for the first half of the current financial year already represent 89% of the sales for the whole of the last financial year. We are reporting a small operating profit, instead of a large operating loss and encouragingly, the second half of this financial year is likely to be (as seen historically) stronger than the first half. I examine the numbers in more detail below and I am sure that you will be as encouraged as I am in our improvements and success stories.

Following Patric Fransco's resignation from the Board, as announced on 14 May 2013, we have approached two highly experienced individuals about joining the board in a non-executive capacity. I look forward to making a further announcement in this connection in the near future.

Financial review

Turnover of £1.75m for the six months to 31 March 2013 represents 189% of turnover for the same period last year. It is also the highest turnover reported in the interim accounts since the original flotation of the Company in 2003. This demonstrates the positive impact of all the hard work I explained in my report on the financial year ended 30 September 2012.

Specifically, turnover on protective film and anchoring has almost doubled from £531k to £1.1m, as a result of significant contract wins which represent the realisation of the sales pipeline that was built up during 2012.

The security division has also improved dramatically, even before the major portable X ray equipment contract which will fall into April 2013, with turnover up 76% to £693k (from £393k in the interim period to 31 March 2012). The security division turnover reported in these interims has already surpassed full year sales in 2012 of £685k and I am confident that the outlook for the remainder of the current financial year is even brighter.

In the 30 September 2012 financial statements, I was able to report an increased gross profit margin of 31%, resulting from improvements in our pricing policy and operational processes. I am pleased to report that these interim financial statements show a further improvement in overall gross profit margin, to 33%, an increase of 6 percentage points compared with the same period in last year.

Administrative costs were exactly in line with last year's interim period at £554k. We are, however, expecting an increase in administrative costs in the second half of the current financial year, as we will be moving our head office and consolidating our two UK-based divisions into one site. Although the combination of the two sites is unlikely to result in a decrease in costs, the much improved facilities and excellent working environment in the proposed new site will no doubt have a positive impact on working practices, staff morale and even income, as product demonstrations will be greatly facilitated by an integrated workshop.

The significant increase in turnover and the continuing improvements to gross profit margins combined with stable administrative costs have resulted in a much improved result for the period, being a modest operating profit of £10,652, compared to an operating loss of £317k in the first half of the financial year ended 31 March 2012.

As a result of this profit, the statement of financial position shows total equity attributable to the equity shareholders of the parent of negative £120,469 compared with negative £129,849 at 30 September 2012. I am delighted to report that this negative position has fully reversed since the period end date.

In the context of the above, the Board does not recommend the payment of an interim dividend. 

Operational review and future prospects

The results we've achieved in the first six months of the financial year are the result of the significant effort made to develop the Group's sales pipeline in FY 2012.  Long sales cycles are an inherent part of the industries in which the Group operates, which requires us to devote significant sales efforts well in advance of expected results.  The results to date have been impressive and the Group is continuing to focus on generating future business in order to extend the Group's performance into the next financial year and beyond.

We have several large potential projects we are pursuing in the UK but we continue to see greater opportunity overseas, primarily in Africa, the Middle East and the United States. For example, we are currently installing a large security window film project in Nigeria and have several large security equipment orders in Nigeria and Jordan.  As part of our emphasis on the markets in Africa, we are also working with local companies in Nigeria and Cameroon. We look to these projects to be the first of many to come, as we have devoted significant sales resources to these areas.

After significant reflection we decided to transition the Group's Beirut office to a sales agent status. We are also researching the potential of opening an office in Dubai as part of a joint venture with a Dubai based company and we will be introducing Pentagon's own brand Window Films in the Middle East and Africa.

After years of disappointing results from our US based division, we are focusing more resources and attention on this area, particularly since we are seeing increased activity in the US market at this time. Our operations in the US are almost exclusively window film related with the window film market in the US being significantly different from that of the UK.  Largely based on solar control film, the bulk of US window film sales come during the summer months, therefore this will be reflected in the last quarter of the current financial year. We are also considering introducing Pentagon's own brand products in a similar fashion to the venture in the Middle East.

Turning to the UK market, as I mentioned in the financial review above, our security business has benefited from a major portable X ray equipment contract this year, the results of which will be reflected in the end of year report.  We have continued to broaden our product offerings in the security field in order to diversify the Company's customer base. Many of the new products show great promise for significant sales, both in the UK and abroad.

All in all I am very pleased with the results reported in this Interim statement and future prospects. It's exciting, we have a lot going on in all of our divisions and am extremely encouraged by and appreciate the hard work the employees have put in and the results they have achieved.  We continue to progress towards our goal of becoming a sustainable, global security company and I expect continued significant improvement in results.

Conclusion

I believe that these interim accounts represent a turning point in Pentagon's story. Our patient investors will, we hope, soon have their faith in the Board rewarded. But most importantly, as in my view we are poised on the edge of a bright future, I would like to thank our highly talented, hardworking team for their extra energy and support over the last few exciting months.

Haytham El Zayn

Chairman                               

25 June 2013

		Unaudited		Unaudited		Audited
		six months		six months		year
		ended		ended		ended
		31 March		31 March		30 September
		2013		2012		2012
		£		£		£
Revenue		1,746,801		923,832		1,960,331
Cost of sales		(1,171,362)		(674,621)		(1,351,791)
GROSS PROFIT		575,439		249,211		608,540
Distribution costs		(10,944)		(11,986)		(24,974)
Administrative expenses		(553,843)		(553,741)		(1,107,050)
PROFIT/(LOSS) FROM OPERATIONS BEFORE FINANCING ACTIVITIES		10,652		(316,516)		(523,484)
Finance income		-		-		10
Finance costs		(7,864)		(10,637)		-
PROFIT/(LOSS) BEFORE TAX		2,788		(327,153)		(523,474)
Tax		(46)		-		(544)
PROFIT/(LOSS) FOR THE PERIOD		2,742		(327,153)		(524,018)
Other comprehensive income/(expense)		6,638		2,188		(2,748)
TOTAL COMPREHENSIVE INCOME/ (EXPENSE) FOR THE PERIOD		9,380		(324,965)		(526,766)
Profit/(loss) before tax and total comprehensive income/(expense) for the period are all attributable to the equity   shareholders of the parent.
Profit/(loss) per share
Basic		0.00 p		(3.7)p		(5.6)p
Diluted		0.00 p		(3.7)p		(5.6)p

Revenue and operating profit/(loss) for the period all derive from continuing operations.

		Unaudited		Unaudited			Audited
		31 March		31 Marchh			30 September
		2013		20121			2012
	Notes	£		£   ££			£

ASSETS
Non-current assets
Intangible assets		8,779		14,145		8,779
Goodwill		434,536		434,536		434,536
Property, plant and equipment		14,342		16,025		15,585
		457,657		464,706		458,900
Current assets
Inventories		168,006		204,698		168,546
Trade and other receivables		1,695,277		326,349		626,081
Cash and cash equivalents	4	45,686		1,661		114,954
		1,908,969		532,708		909,581
TOTAL ASSETS		2,366,626		997,414		1,368,481
EQUITY AND LIABILITIES
Equity
Share capital	5	905,065		881,918		905,065
Share premium account		7,160,948		7,056,785		7,160,948
Share based payment reserve		80,146		74,230		80,146
Other reserves		16,334		14,632		9,696
Retained earnings		(8,282,962)		(8,088,839)		(8,285,704)
Total equity attributable to equity holders of the parent
		(120,469)		(61,274)		(129,849)
Current liabilities
Trade and other payables		2,044,920		675,237		1,006,774
Shareholder loan		442,175		383,451		491,556
Total liabilities		2,487,095		1,058,688		1,498,330
TOTAL EQUITY AND LIABILITIES		2,366,626		997,414		1,368,481

		Share	Share
	Share	Premium	based	Other	Retained
	capital	account	payments	reserves	earnings	Total
			reserve
	£	£	£	£	£	£
Audited at 1 October 2011	881,918	7,056,785	74,230	12,444	(7,761,686)	263,691
Total comprehensive income/(expense) for the period	-	-	-	2,188	(327,153)	(324,965)
Unaudited at 31 March 2012	881,918	7,056,785	74,230	14,632	(8,088,839)	(61,274)
Total comprehensive expense for the period	-	-	-	(4,936)	(196,865)	(201,801)
Transactions with owners:
Shares issued	23,147	104,163	-	-	-	127,310
Share based payments	-	-	5,916	-	-	5,916
Audited as at 30 September 2012	905,065	7,160,948	80,146	9,696	(8,285,704)	(129,849)
Total comprehensive income for the period	-	-	-	6,638	2,742	9,380
Unaudited at 31 March 2013	905,065	7,160,948	80,146	16,334	(8,282,962)	(120,469)

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.

Group - Other reserves	Merger reserve	Currency reserve	Shares held by ESOP	Total
	£	£	£	£
Audited At 1 October 2011	16,000	985	(4,541)	12,444
Transactions with owners:
Total comprehensive income for the period	-	2,188	-	2,188
Unaudited at 31 March 2012	16,000	3,173	(4,541)	14,632
Total comprehensive income for the period	-	(4,936)	-	(4,936)
Audited as at 30 September 2012	16,000	(1,763)	(4,541)	9,696
Total comprehensive income for the period	-	6,638	-	6,638
At 31 March 2013	16,000	4,875	(4,541)	16,334

Merger reserve

Represents the difference between the fair value and nominal value of the equity consideration provided in exchange for 90% or more of the equity instruments acquired in another entity.

Foreign currency translation reserve

The translation reserve represents the exchange gains and losses that have arisen on the retranslation of overseas operations.

Shares held by ESOP

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

		Unaudited		Unaudited		Audited
		six months		six months		year
		ended		ended		ended
		31 March		31 March		30 September
		2013		2012		2012
		£		£		£
Operating activities
Profit/(loss) before tax		2,788		(327,153)		(523,474)
Depreciation of property, plant and equipment		1,243		1,891		4,365
Share based payments		-		-		5,916
Exchange adjustment		6,638		2,188		(2,748)
Changes in working capital:
Decrease in inventories		540		47,512		83,664
(Increase)/decrease in trade and other receivables		(1,069,196)		218,426		(81,306)
Increase/(decrease) in trade and other payables		1,038,146		(32,489)		305,358
Net finance cost/(income)		7,864		10,637		(10)
Net cash used in operating activities		(11,977)		(78,988)		(208,235)
Investing activities
Payments to acquire property, plant and equipment		-		(4,841)		(6,875)
Payments to acquire intangible assets		-		(8,779)		(3,413)
Interest received		-		-		10
Net cash used in investing activities		-		(13,620)		(10,278)
Financing activities
(Decrease)/increase in shareholder loan		(49,381)		25,520		133,625
Net proceeds from issue of shares		-		-		121,000
Interest paid		(7,864)		(10,637)		-
Net cash (used in)/from financing activities		(57,245)		14,883		254,625
Taxation		(46)		-		(544)
Net (decrease)/increase in cash and cash equivalents		(69,268)		(77,725)		35,568
Cash and cash equivalents at the start of the period		114,954		79,386		79,386
Cash and cash equivalents at the end of the period		45,686		1,661		114,954

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 25 June 2013 .

2

Accounting policies

2.1

Basis of preparation

The interim consolidated financial information comprises the consolidated Statements of Financial Position at 31 March 2013, 31 March 2012 and 30 September 2012 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 2012.

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 2012 are an extract from the Group's 2012 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 2013) 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.

2.2

Going concern

The Group has net liabilities of £120,469 as at 31 March 2013. The directors have reviewed the projections for the forthcoming 12 month period from the date of signing these financial statements, and based on the level of existing cash, projected income and expenditure, and other sources of funding, the directors are satisfied that the Company and Group have adequate resources to continue in business for the foreseeable future. Accordingly, the going concern basis has been used in preparing these financial statements.

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
																			2013		2012		2012
																			£		£		£
Protective Film and Anchoring
Turnover																			1,053,643		530,791		1,275,470
Cost of sales																			(687,637)		(402,379)		(875,544)
Gross profit																			366,006		128,412		399,926
Overheads (net)																			(294,249)		(317,117)		(681,482)
Operating profit/(loss)																			71,757		(188,705)		(281,556)
Security Products and Services
Turnover																			693,158		393,041		684,861
Cost of sales																			(483,725)		(272,242)		(476,247)
Gross profit																			209,433		120,799		208,614
Overheads																			(242,596)		(229,400)		(402,520)
Operating loss																			(33,163)		(108,601)		(193,906)
Group Operating Expenses (net)
Overheads																			(27,942)		(19,210)		(48,022)
Totals
Turnover																			1,746,801		923,832		1,960,331
Cost of sales																			(1,171,362)		(674,621)		(1,351,791)
Gross profit																			575,439		249,211		608,540
Overheads																			(564,787)		(565,727)		(1,132,024)
Operating profit/(loss)																			10,652		(316,516)		(523,484)

3	Business and geographical segments (continued)
Assets and liabilities by business segment are as follows:
																Unaudited				Unaudited		Audited
																31 March				31 March		30 September
																2013				2012		2012
																£				£		£
Protective Film and Anchoring
Total assets																1,432,285				692,245		1,127,754
Total liabilities																(1,578,491)				(724,659)		(1,144,559)
Depreciation and amortisation in period																598				794		2,132
Capital expenditure																-				2,134		3,407
Security Products and Services
Total assets																934,341				305,169		240,727
Total liabilities																(908,604)				(334,029)		(353,771)
Depreciation and amortisation in period																645				1,097		2,233
Capital expenditure																-				11,198		3,468
TOTAL ASSETS																2,366,626				997,414		1,368,481
TOTAL LIABILITIES																(2,487,095)				(1,058,688)		(1,498,330)
All of the business assets are located in the United Kingdom. The secondary reporting format is by geographic segment based on location of customers.  External revenue by segment is as follows:
															Unaudited				Unaudited				Audited
															six months				six months				year
															ended				ended				ended
															31 March				31 March				30 September
															2013				2012				2012
															£				£				£
United Kingdom															554,188				345,237				953,234
Americas															291,857				74,671				297,551
Europe															569,548				347,850				364,618
Africa and Middle East															295,288				150,114				300,687
Far East															35,920				5,960				44,241
															1,746,801				923,832				1,960,331

4	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
						2013		2012		2012
						£		£		£
Cash at bank and in hand						45,686		1,661		114,954

5	Share capital						Unaudited			Unaudited			Audited
							six months			six months			year
							ended			ended			ended
							31 March			31 March			30 September
							2013			2012			2012
							£			£			£
	Issued and fully paid
	As at 30 September 2012 and at 31 March 2013 Ordinary shares (11,133,908 shares of 1p each)						111,339			881,918			111,339
	Deferred shares (8,819,181 shares of 9p each)						793,726			-			793,726
							905,065			881,918			905,065
6		Dividends paid and proposed
		Equity dividends on ordinary shares:
		No interim dividend was paid or is proposed for the half year ended 31 March 2013.

7	Profit/(loss per share)

The calculations of profit/(loss) per share are based on the following results and number of shares:

							Unaudited		Unaudited				Audited
							six months		six months				year
							ended		ended				ended
							31 March		31 March				30 September
							2013		2012				2012
							£		£				£
Profit/(loss) for the financial period							2,742		(327,153)				(524,018)
Weighted average number of shares for diluted loss per share							10,575,836		8,705,519				9,421,643
Weighted average number of shares for basic loss per share
							10,575,836		8,705,519			9,421,643

At 31 March 2013, the number of ordinary shares in issue was 11,133,907.

In accordance with the provisions of IAS 33 for the periods ended 31 March 2013, 30 September 2012 and 31 March 2012, shares under option were not regarded as dilutive in calculating earnings per share.

8	Seasonality of interim operations

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

 

END

 

 

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