Interim Results

Pentagon Protection PLC 29 June 2007 29 March 2007 For immediate release Pentagon Protection INTERIM RESULTS Pentagon Protection, the global specialist in the supply and installation of enhanced glass protection and anchoring for glazing, announces its Interim Results for the six months ended 31 March 2007, a period showing a considerable reduction in losses. Results highlights: • Turnover up 7% to £1,051,035 (not incl. turnover from discontinued operations of £446,021 in the six months to 31 March 2006) • Operating loss down 54% to £175,668 (not incl. loss from discontinued operations of £245,631 in the six months to 31 March 2006) • Administrative expenses down 42% Alan Nicholl, Chairman of Pentagon, commented 'I would not usually be pleased to present accounts that showed a loss for a six month period of over £175,000. However, when this is compared with any of the six month periods going back over the last few years, it shows significant progress in bringing the performance of the company under control.' Enquiries: Pentagon Protection Plc Tel: 01494 793 333 Alan Nicholl, Chairman Seymour Pierce Tel: 0207 107 8000 Jonathan Wright Parkgreen Communications Tel: 0207 479 7933 Ben Knowles Mob: 07900 346 978 ben.knowles@parkgreenmedia.com Chairman's statement Introduction The constitution of your Board has changed since my last report in March. Graham Bannerman, our CEO of the last three and half years, has moved permanently to Dubai. As a consequence of this, he has resigned his directorship, although we will continue to have his invaluable input as an Advisor to the Board. Graham's involvement with the Group will also continue on a day to day basis, through his running of a licensed international operation, as explained further below. I have now taken up the Chief Executive position in order to recognise the increasingly executive role that I am playing in relation to the business of the Group. I welcome the opportunity to be more intimately involved in the day to day running of the business and have reorganised my affairs in order to allow me the opportunity to concentrate on growing and improving Pentagon with the help of my fellow directors. In addition to these changes to existing appointments, we currently have active plans to increase the non executive element of the Board. Moving on now to the real business of this Interim Report, I would not usually be pleased to present accounts that showed a loss for a six month period of over £175,000. However, when this is compared with any of the six month periods going back over the last few years, it really does show significant progress in bringing the performance of the company under control. When you consider that over £65,000 of the loss arises on consolidation, due to the amortisation of goodwill, and also that the vast majority of the loss was incurred in the very early part of the year, you can see why the Board of Pentagon is feeling confident that the strategy implemented by our 2006 business review is bearing fruit. As usual, I start my report by giving a brief overview of the figures reported in this Interim Statement, in order to demonstrate the financial impact of our actions in the recent past, before I go on to explain our current business strategies. Financial Review The turnover for six months ended 31 March 2007 was £1,051,035, which appears to be 26% down on the same period for last year. However, one must take into account the fact that we have disposed of the automotive division, so that when compared like with like, the turnover has actually increased by 7% of the buildings division turnover for the same period last year. By the same virtue, however, I must acknowledge that the apparently superb reduction in the loss for the six months from £637,953 for FY2006 to £180,678 for FY 2007 (a drop of 72%) is not a true comparison. The 2006 loss includes the costs of the underperforming automotive division; but even when we adjust for the effect of this, the buildings division loss has reduced by a respectable 54% However, since the amortisation of goodwill itself accounts for £65,471 of the loss in both periods, the actual improvement is even greater than it appears. Care must be taken when comparing margins with past analyses of our results, because we have redefined the way that we categorise expenses to treat every element of the variable cost associated with a contract as part of cost of sales (see note 4). This means that costs previously included as administrative overheads are now taken into account in our costings, thereby ensuring that we recover properly all costs associated with each assignment undertaken. This means that our margins for the first six months of last year have been reduced from the 48% shown in the 2006 Interim Statement to 43% for the same period, as reported here. The gross margin under the new method of analysis for the six months ended 31 March 2007 is 53%, reflecting the diligent work of our surveyors in ensuring contracts are properly priced. Please note that this level of gross profit is exceptional. As long as we achieve percentage margins in the high 40's (on the new fully costed basis) the Board will be content. Selling and distribution costs, at £162,938, have reduced by 45% from the 2006 level of £296,998. We are continuing to work hard to find ways of achieving the same or greater levels of sales while reducing selling and distribution costs, as explained further under International Developments below. Administrative expenses have dropped 42%, largely as a result of the disposal of the automotive division. We are not planning any further material cuts in this area in the future. Turning to the company's balance sheet, cash reserves remain sufficient at £410,410 (31 March 2006 - £82,026) and shareholders' funds are up 6% on the same time last year, at £2,820,234. The Board is happy with the various trading ratios, which are not immediately apparent from the limited information presented in an Interim Statement, but suffice to say that both trade debtor and trade creditor balances represent a smaller percentage of sales and purchases respectively than they did at the same time last year. The basic loss per share was 0.06p, compared to 0.38p last year, an improvement that reflects the much reduced loss for the period. The Board does not propose a dividend, in line with our continuing policy at the current time. Operational Overview My last report to you was only three months ago, but I am pleased to be able to state that the roll out of the operational policies implemented following our 2006 Business Review has resulted in further positive changes to the ways in which we conduct business. This can best be explained by dividing our marketplace into five broad territories and considering our different strategies in relation to each of them, as set out below. However, the Board wants you to understand that the approach detailed below is part of an ongoing process of re-establishing Pentagon as a profitable, expanding company, and therefore this approach represents our strategy for the next 12 months only - our longer term plans will be developed by our newly constituted Board over the next few months. UK Operations I am very pleased to be able to report that the sales force training explained in my last report has resulted in a much improved presence in the UK marketplace. The UK element of our sales has improved every month during the six months under review and the pipeline and order book bode well for the second half of the year. European Operations Our focus on the UK market has necessarily led to a reduction in effort in relation to Europe. This is a very fertile marketplace, with EC legislation having recently introduced the need for the energy performance of buildings to be made more efficient. However, our cost cutting efforts have left us with a smaller sales team, and our Sales Director, Steve Harrhy, has initially concentrated his team's efforts on to the UK market, in order to re-establish our presence here at the same time as maximising sales while minimising sales travel costs. In the early part of our next financial year, once we have the UK market well under control, we intend to re-enter the European marketplace and ensure that we capitalise on the opportunities presented by Infra-Max, our specialist solar protection film. USA Operations I have just returned from a very successful visit to our partners in the States, where we are negotiating a new arrangement for much greater involvement in the US operation which will be beneficial to our shareholders and to our US partners. The USA company already has some superb contracts in place, as mentioned in my report on the year end Financial Statements, and is now developing its presence further in collaboration with us. Middle East Operations We currently have agents appointed in Saudi Arabia, Bahrain, Qatar, Kuwait, Egypt, Lebanon and Jordan. These agents have not been performing to the extent that we had hoped and part of the strategic review to be conducted by the newly constituted Board will include a strategy to improve communications with these agents and promote sales in the Middle East. International Developments Graham Bannerman, our former CEO, has been granted a licence to make sales on behalf of the Group in a number of significant territories, most notably Dubai, India and China. Graham already has some good contacts in these territories, and after an initial period of development, hopes to return some excellent commissions to the Group on sales made. This approach has been adopted by the Board in order to minimise costs, whilst maximising opportunities to the Group. The licence arrangement has been made on the basis that any territory currently covered by the licence agreement will revert to the Group if the licensee fails to make material sales in that area within a one year period. This maximises our opportunities in these far flung regions at a time when we would not consider it appropriate to divert resources away from our core territories, whilst retaining our possibilities for the future in these territories if the licence arrangement does not deliver according to expectations. Conclusion I trust that this brief summary of our current position and plans is sufficient to demonstrate that Pentagon is in an interesting phase of development; as CEO, I plan to capitalise on this during the next stage in our recovery. I commend to you your newly constituted Board and slimmed down company and thank you for your continued support and belief in our superb product range, which must, in the long run, result in excellent returns to our ever patient investors. Alan Nicholl, Chairman PENTAGON PROTECTION PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31 MARCH 2007 Audited Unaudited six months ended year ended 31 March 31 March 30 September 2007 2006 2006 As restated As restated Notes £ £ £ Turnover 2 Continuing operations 1,051,035 983,778 1,616,343 Discontinued operations - 446,021 536,278 ----------- ----------- ----------- 1,051,035 1,429,799 2,152,621 Cost of sales 4 (497,229) (820,221) (1,430,170) ----------- ----------- ----------- Gross profit 553,806 609,578 722,451 ----------- ----------- ----------- Distribution costs (162,938) (296,998) (542,998) Administrative expenses 4 (571,546) (982,806) (1,752,827) (734,484) (1,279,804) (2,295,825) ----------- ----------- ----------- Other operating income - 32,273 40,804 ----------- ----------- ----------- Operating loss Continuing operations (180,678) (392,322) (1,271,245) Discontinued operations - (245,631) (261,325) ----------- ----------- ----------- (180,678) (637,953) (1,532,570) Loss on disposal of discontinued operations - - (206,072) ----------- ----------- ----------- Loss on ordinary activities before interest (180,678) (637,953) (1,738,642) Interest receivable and similar income 6,579 1,830 6,728 Interest payable and similar charges (1,569) (2,262) (18,437) Loss on ordinary activities before taxation (175,668) (638,385) (1,750,351) Tax on loss on ordinary activities - - - ----------- ----------- ----------- Retained loss for the period (175,668) (638,385) (1,750,351) ----------- ----------- ----------- Loss per share: 3 Basic (0.06)p (0.38)p (0.86)p Diluted (0.06)p (0.38)p (0.86)p PENTAGON PROTECTION PLC CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 31 MARCH 2007 Audited Unaudited six months ended year ended 31 March 31 March 30 September 2007 2006 2006 As restated As restated £ £ £ Loss for the period (175,668) (638,385) (1,750,351) ----------- ----------- ----------- Total recognised gains and losses relating to the period (175,668) (638,385) (1,750,351) ----------- ----------- Prior year adjustment as explained in note 1.12 (12,598) ----------- Total gains and losses recognised since last annual report (188,266) ----------- PENTAGON PROTECTION PLC CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2007 Audited Unaudited six months ended year ended 31 March 31 March 30 September 2007 2006 2006 As restated As restated Notes £ £ £ Fixed assets Intangible assets 2,192,680 2,323,622 2,258,151 Tangible assets 17,893 178,836 23,586 ----------- ----------- ----------- 2,210,573 2,502,458 2,281,737 Current assets Stocks 115,636 123,855 125,190 Debtors 429,090 980,748 691,326 Cash at bank and in hand 410,410 82,026 720,762 ----------- ----------- ----------- 955,136 1,186,629 1,537,278 Creditors: Amounts falling due within one year (251,667) (828,430) (639,306) ----------- ----------- ----------- Net current assets 703,469 358,199 897,972 ----------- ----------- ----------- Total assets less current liabilities 2,914,042 2,860,657 3,179,709 Creditors: Amounts falling due after more than one year - (5,289) - Provisions for liabilities (93,808) (195,000) (183,807) ----------- ----------- ----------- 2,820,234 2,660,368 2,995,902 ----------- ----------- ----------- Capital and reserves Called up share capital 5 310,918 165,918 310,918 Share premium account 6 5,600,303 4,297,803 5,600,303 Merger reserve 6 - 192,150 - Share option reserve 6 12,598 12,598 12,598 Profit and loss account 6 (3,103,585) (2,008,101) (2,927,917) ----------- ----------- ----------- Shareholders' funds 2,820,234 2,660,368 2,995,902 ----------- ----------- ----------- PENTAGON PROTECTION PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 MARCH 2007 Audited Unaudited six months ended year ended 31 March 31 March 30 September 2007 2006 2006 £ £ £ Net cash outflow from operating activities (158,044) (268,300) (877,728) Returns on investments and servicing of finance 5,010 (432) (11,709) Capital expenditure - (6,140) (10,986) Acquisitions and disposals (90,000) - (40,895) ----------- ----------- ----------- Net cash outflow before management of liquid resources and financing (243,034) (274,872) (941,318) Financing (67,318) (89,485) 1,215,709 ----------- ----------- ----------- (Decrease)/increase in cash in the period (310,352) (364,357) 274,391 ----------- ----------- ----------- Reconciliation of operating loss to net cash flow from operating activities Operating loss (180,678) (637,953) (1,532,570) Depreciation and amortisation of fixed assets 71,163 92,296 169,832 Loss on disposal of tangible assets - - 8,369 Decrease in stocks 9,555 78,068 56,559 Decrease in debtors 262,236 281,470 284,717 (Decrease)/increase in creditors (320,320) (82,181) 135,365 ----------- ----------- ----------- Net cash flow from operating activities (158,044) (268,300) (877,728) ----------- ----------- ----------- Reconciliation of net cash flow to movement in net funds/(debt) (Decrease)/increase in cash in the period (310,352) (364,357) 274,391 Cash outflow from decrease in debt 67,318 89,485 231,791 ----------- ----------- ----------- Movement in net funds resulting from cash flows (243,034) (274,872) 506,182 Opening net funds 653,444 147,262 147,262 ----------- ----------- ----------- Closing net funds 410,410 (127,610) 653,444 ----------- ----------- ----------- PENTAGON PROTECTION PLC NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 31 MARCH 2007 1. ACCOUNTING POLICIES 1.1 Accounting convention The financial information has been prepared in accordance with applicable UK accounting standards under the historical cost convention. 1.2 Basis of consolidation The group financial statements consolidate the financial statements of the company and all its subsidiary undertakings as at 31 March 2007 using merger accounting or acquisition accounting depending on the circumstances surrounding the combination of each subsidiary undertaking and after eliminating intra-group transactions. 1.3 Turnover Turnover represents net invoiced sales of goods, net of value added tax and trade discounts. 1.4 Goodwill Goodwill arising on the acquisition of subsidiaries is capitalised in the year of acquisition and written off over its estimated useful economic life to the profit and loss account. Impairment provisions are only made when, in the opinion of the directors, sustainable future earnings from such subsidiaries are insufficient to support the carrying value of that goodwill. 1.5 Tangible fixed assets and depreciation Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost less estimated residual values of each asset over its expected life, as follows: Leasehold land and buildings Over the term of the lease Plant and machinery 10% to 25% on written down value Fixtures and fittings 50% on cost and 25% on written down value Office equipment 50% on cost Motor vehicles 25% on written down value PENTAGON PROTECTION PLC NOTES TO THE INTERIM REPORT (CONTINUED) FOR THE SIX MONTHS ENDED 31 MARCH 2007 1.6 Research and development Development expenditure is capitalised on clearly defined projects whose outcome can be assessed with reasonable certainty. Amortisation is commenced in the year when significant revenues from the development occur and is amortised in line with sales. All other research and development expenditure is written off in the year in which it is incurred. 1.7 Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange prevailing at the date of transaction. Exchange differences are taken into account in arriving at the operating result. 1.8 Leasing Where assets are financed by leasing or hire purchase agreements, the assets are treated as if they had been purchased. The present value of the minimum lease payments payable during the lease term is capitalised as a tangible asset and the corresponding leasing commitment is included as a liability. Rentals payable are apportioned between interest which is charged to the profit and loss account, and capital which reduces the outstanding commitment. All other leases are treated as operating leases. Their annual rentals are charged to the profit and loss account on a payable basis. 1.9 Pensions The group operates a defined contribution pension scheme for its employees. The funds of this scheme are administered by trustees and are separate from the group. All payments are charged to the profit and loss account as and when they arise. 1.10 Deferred taxation Deferred tax is provided using the full provision method in accordance with Financial Reporting Standard 19. Deferred tax is recognised in respect of all timing differences that have originated but not reversed by the balance sheet date and is not recognised on permanent differences. It is the group's policy not to discount deferred tax to reflect the time value of money. 1.11 Invoice discounting The group discounts some of its trade debts. The accounting policy is to include trade debt within trade debtors due within one year and record cash advances within creditors due within one year. Discounting fees are charged to the profit and loss account when incurred. Bad debts are borne by the group and are also charged to the profit and loss account when they are incurred. PENTAGON PROTECTION PLC NOTES TO THE INTERIM REPORT (CONTINUED) FOR THE SIX MONTHS ENDED 31 March 2007 1.12 Share based payment transactions Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. The above policy is applied to all equity-settled share-based payments that were granted on or after 11th December 2004. The equity settled share-based payments in question had no vesting period and accordingly charges required by FRS20 have been recognised by adjusting brought forward reserves. This represents a change of accounting policy and prior years' results have been restated accordingly. 1.13 Stocks Stocks are included at the lower of cost and net realisable value, after making provision for slow moving and obsolete items. 2. TURNOVER The turnover and group loss for the period are attributable to the principal activities of the group. 3. LOSS PER SHARE The calculations of loss per share are based on the following losses and numbers of shares: Audited Unaudited six months ended year ended 31 March 31 March 30 September 2007 2006 2006 £ £ £ Loss for the financial period (175,668) (638,385) (1,750,351) ----------- ----------- ----------- Weighted average number of shares: Basic 310,918,156 165,918,156 203,233,224 Diluted 310,918,156 190,767,457 203,233,224 ----------- ----------- ----------- In accordance with the provisions of Financial Reporting Standard 22, share options are not regarded as dilutive in calculating earnings per share. PENTAGON PROTECTION PLC NOTES TO THE INTERIM REPORT (CONTINUED) FOR THE SIX MONTHS ENDED 31 March 2007 4. COMPARATIVE FIGURES Due to a change in the way in which expenses are categorised between costs of sales and administrative expenses, the comparatives in the consolidated profit and loss account for the six months ended 31st March 2006 have been restated. Cost of sales has been increased by £73,003 and administrative expenses have decreased by the same amount. 5. CALLED UP SHARE CAPITAL Unaudited Unaudited Audited Authorised 31 Mar 07 31 Mar 06 30 Sept 06 Number: £ £ £ 200,000,000 0.1p ordinary 200,000 200,000 200,000 Allotted, issued and fully paid Number: 310,918,156 0.1p ordinary 310,918 165,918 310,918 ----------- ----------- ----------- 6. MOVEMENT IN RESERVES Profit Share and loss option Share account reserve premium Total £ £ £ £ At 01.10.06 as restated (2,927,917) 12,598 5,600,303 2,684,984 Loss for the period (175,668) - - (175,668) ----------- ----------- ----------- ----------- At 31.03.07 (3,103,585) 12,598 5,600,303 2,509,316 ----------- ----------- ----------- ----------- 7. STATUS OF FINANCIAL INFORMATION The financial information set out in this interim report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 30 September 2006 has been extracted from the statutory accounts which have been delivered to the Registrar of Companies and on which the auditors gave an unqualified opinion. 8. APPROVAL OF THE INTERIM REPORT The interim results were approved by the board on 29 June 2007. 9. COPIES OF THE INTERIM REPORT Copies of the interim report are available from the company's registered office at Solar House, Amersham Road, Chesham, Buckinghamshire, HP5 1NG. Directors and Advisors Directors A R Nicholl S D Harrhy H ElZayn Secretary D C Stewart Company number 4488281 Registered office Solar House Amersham Road Chesham Buckinghamshire HP5 1NG Nominated Adviser Seymour Pierce Limited Bucklersbury House 3 Queen Victoria Street London EC4N 8EL Auditors Warrener Stewart Harwood House 43 Harwood Road London SW6 4QP Solicitors Mundays Cedar House 78 Portsmouth Road Cobham, Surrey KT17 1HS Registrars Capita Registrars Northern House Woodsome Park Fenay Bridge Huddersfield HD8 0LA This information is provided by RNS The company news service from the London Stock Exchange

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