Interim Results

Pentagon Protection PLC 29 June 2005 Pentagon Protection Plc Interim Results 2005 Mixed Results; Major Contract Gains; US Investment in Company and Collaboration Deal; Confident Outlook Pentagon Protection Plc ('Pentagon' or 'the Company'), the provider of protective filming and glazing products to the commercial building and automotive sectors, announces its Interim Results for the six months ended 31 March 2005. David Thomas, Chairman, in his statement, reports: 'Despite the temporary setbacks during the first half of the year, the Board remains confident that the outlook for the future is positive, especially given recent contract gains from multinationals, the refocus towards engaging global clients at HQ level, and the alliance with an established North American partner that we believe is well-placed to access the significant US market. These developments are making the Company more competitive globally.' Financial Highlights - Turnover: £1.37m (2004: £1.46m) - Operating loss: £558,882 (2004: profit £10,215) - Pre-tax loss: £563,495 (2004: profit £253) - Basic and diluted earnings per share: (0.4p), (2004: 0.0p) - Net assets: £3.0m (2004: £2.83m) - Cash £121,188 (2003: £274,696) - No dividend, in line with stated policy in prospectus. Corporate Highlights - Major overseas contracts with multinationals for offices and retail projects - Gestation period of securing some new contracts taken longer than expected - Recent contract gains to impact last quarter of 2005 - Signals correctness of strategy to focus on global clients - Points to recovery as transition to more global business moves apace - Joint venture in Bahrain - US investment in Company and collaboration deal for US market Outlook In his statement, David Thomas, Chairman, said: 'We look forward to reporting continued progress across all areas of the business in the second half and beyond, as we recover the Group's momentum.' Contact: David Thomas, Pentagon Protection PLC 020 8749 9749 Chairman Peter Binns Binns & Co PR Ltd 020 7786 9600 Ben Knowles Binns & Co PR Ltd 020 7153 1487 CHAIRMAN'S STATEMENT INTRODUCTION AND FINANCIAL REVIEW The period under review for the six months to 31 March 2005 has been one of mixed progress for Pentagon Protection. As indicated in both our AGM statement of 29 March 2005 and in a further announcement on 11 June 2005 the results were adversely affected by one cancelled order and one delayed order. In addition, the gestation period of securing overseas contracts with two leading oil and gas sector companies in the Middle East was longer than expected. Turnover for the period under review was £1,369,389 compared with £1,464,819 for the comparable six month period in the previous financial year, with losses at the operating and pre-tax levels of £558,882 (2004 profit: £10,215) and £563,495 (2004 profit:£253), respectively. The cost of sales is higher at £854,025 (2004: £473,347), reflecting continued investment in the long-term development of the business. Basic and diluted earnings per share are a loss of 0.4p per share (2004:0.0p). Net assets as at 31 March 2005 were £3.0m (2004: £2.83m). There is no dividend in line with policy, as stated in the prospectus. OPERATIONAL REVIEW During the first half of the year, the board has continued to invest in sales and marketing to strengthen Pentagon's presence internationally, which is now bearing fruit, with encouraging recent progress evidenced by contract gains from a number of global companies. These include the oil and gas sector companies, to protect the glass of their office buildings in the Middle East using our proprietary FT800 Bomb Blast Film and anchoring systems. Other contracts secured since the half year end include contracts in Dubai, for a leading hotel and retail group, to protect the glass of a prestige retail/ office centre in Dubai and from SKE GmbH ('SKE'), one of Germany's leading facilities management companies, to supply and install FT400 solar reflecting film at six American schools in Germany. We hope to extend our services to other geographical regions, such as North and South America and Europe and Africa through some of these companies and via SKE to other projects in Germany. Work on these contracts will commence in June and July of 2005 and will impact the last quarter of Pentagon's final results for the year ended 30 September 2005. A strategically significant development for the Group also occurred recently, with an agreement to enter the sizeable and lucrative US market. On 2 June 2005 the Company announced that it had entered into a letter of intent regarding an agreement with Mr. Haytham ElZayn, the Chairman of Allegiance Holdings LLC, a leading US automotive warranty group, to collaborate in the introduction and development of Pentagon's products in the US market. The details were as follows: • Mr ElZayn subscribed for 14,322,349 shares in Pentagon at 3.83p per share, for a total investment consideration of US$1 million (£548,546). • A new company, Allegiance Investment Company LLC (AICL), has been incorporated to act as the vehicle to market Pentagon's products and services throughout the United States. • Pentagon and AICL will enter into a licence agreement granting AICL the exclusive rights to trade within the USA as Pentagon's sole partner in the area of application of window films and anchoring products for architectural glass. • AICL will invest a further US$1million in the development and marketing of Pentagon's products into the US and international markets over the next 18 months. • Mr ElZayn has been invited to join the board of Pentagon. As part of the proposed agreement, Mr. ElZayn is to be granted options over 18,677,651 ordinary shares in the Company, exercisable at 4.25p per share. This grant of options requires approval of Pentagon shareholders via an Extraordinary General Meeting scheduled for July 8 at 11.00 am, in the City of London. This is a significant step forward for the development of Pentagon's global business. The collaboration with AICL will permit Pentagon to tender for larger and more extended contracts and strengthen our position world-wide. It will open up new market possibilities with large construction companies and leading curtain wall designers. The Directors of Pentagon have chosen AICL as its strategic partner in the US, given its strong and successful management team and impressive network of industry leaders in, for example, Architectural Design and Construction and Manufacturing and Property. The potential for Pentagon's products in the United States, with the current state of alert in North America with terrorism and hurricanes, has created a rapidly increasing general awareness of the need to protect people and property from the inherent potential dangers of glass. Said Mr ElZayn, Chairman of AICL: 'We are a company strategically focused on the building and automotive aftermarket sectors. We have established a vast network in both industries. In the building trade industry we reach the commercial, residential and OEM Sectors. Through the automotive aftermarket we provide a range of products through a sales network of over 200 outlets.' He added: 'AICL is very excited to introduce Pentagon Protection's state of the art product technology. We are experiencing growing demand in the flat glass sector for security, hurricane, solar and decorative products. The particular value enhancement that has positioned Pentagon Protection as the leader in this technology is their product line of anchoring systems, which will allow AICL to offer solutions to any area in the flat glass arena, no matter how demanding.' BUSINESS REVIEW Pentagon Filmtek Limited (Filmtek) - Commercial The non-fulfillment of two significant and high-profile contracts earlier in the year has strengthened the board's resolve to reposition the Company's sales and marketing strategy towards global clients, with the Middle East as a specific regional priority. Recent business gains are encouraging. They follow a growing list of blue-chip client gains made earlier this year, which included Credit Suisse, Standard Chartered, HSBC, Barclays Capital, Hitachi, Asda, Marks & Spencer and Boots. In the Middle East, the Group is in the process of establishing a joint venture in Bahrain with one of the region's largest automotive distributors and, at the same time, opening a commercial office in Bahrain to manage and control our expanding Middle East operations. This will be operational by the end of the current fiscal year. Pentagon GlassTech (GlassTech) - Automotive Despite a struggling market for new car sales, especially at the top end of the market, sales of Pentagon GlassTech's products to the Motor Trade have held steady during the first half of the current fiscal year. Following the impact of legislative changes last year, which resulted in a significant downward correction in demand for window tinting, the Directors believe the worst appears to be over and sales overall for GlassTech are moving forward encouragingly. This resurgence is being led by sales of our SupaGlass product, which has grown to 35% as a proportion of sales overall. SupaGlass is now being fitted to Police vehicles and for UK Government departments on special vehicles. With company vehicles now being viewed as an extension of the workplace, Health and Safety is anticipated to become a key driver for demand for SupaGlass over the next few years. A number of significant projects with major Original Equipment Manufacturers together with exclusive supply arrangements with major Car Retail Groups are expected to contribute substantially to revenues this fiscal year and in 2005/2006. Pentagon Pro-Marker - Building and Construction Pentagon's Pro-Marker provides a technically improved glass-etched security mark for use by glass and glazing industries in the face of new legislation. This new legislation, driven by the UK's Glass & Glazing Federation, dictates that all new building glass must be marked or etched with the confirmation of its compliance with building regulations. Pentagon has recently appointed Bohle Ltd, one of Europe's leading equipment suppliers to the glass industry, to assist in the European distribution for Pro-Marker. Sales are expected to grow steadily as anticipated regulatory changes, which will stipulate a need to 'mark' glass appropriately, draw nearer. In the meantime, Pro-Marker is rapidly earning a reputation for being the best glass-etching device on the market and is currently attracting considerable interest from international companies. OUTLOOK Despite the temporary setback during the first half of the year, the board remains confident that the outlook for the future is positive, especially given recent contract gains from multinationals, the refocus towards engaging global clients at HQ level, and the alliance with an established North American partner well-placed to access the significant US market. These developments are making the Company more globally competitive. We look forward to reporting continued progress across all areas of the business in the second half and beyond, as we recover the Group's growth momentum. David Thomas Chairman 29 June 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31ST MARCH 2005 Notes Unaudited Unaudited Audited year six months six months ended 31 March 31 March 30 September 2005 2004 2004 £ £ £ TURNOVER 2 ---------- ----------- ----------- Continuing operations 1,369,389 755,757 1,462,714 Acquisitions - 709,062 1,853,840 ---------- ----------- ----------- 1,369,389 1,464,819 3,316,554 Cost of Sales (854,025) (473,347) (1,364,463) ---------- ----------- ----------- GROSS PROFIT 515,364 991,472 1,952,091 Selling and distribution costs (321,162) (182,459) (501,997) Administrative expenses (742,288) (808,859) (1,192,343) Other operating income 44533 10,061 20,738 Amortisation of goodwill (55,329) - (82,994) ---------- ----------- ----------- OPERATING (LOSS)/PROFIT ---------- ----------- ----------- Continuing operations (558,882) (68,508) 17,980 Acquisitions - 78,723 177,515 ---------- ----------- ----------- (588,882) 10,215 195,495 ---------- ----------- ----------- Interest receivable 4,232 1,025 3,125 Interest payable (8,845) (10,987) (19,763) ---------- ----------- ----------- (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (563,495) 253 178,857 Tax on (loss)/projt on ordinary - - - activities ---------- ----------- ----------- (Loss)/Profit on ordinary activities after taxation (563,495) 253 178,857 Losses brought forward (510,767) (689,624) (689,624) ---------- ----------- ----------- Accumulated losses carried forward (1,074,262) (689,371) (510,767) ---------- ----------- ----------- Basid and diluted earnings/(loss) per share 3 (0.4)p 0.00p 0.15p TOTAL RECOGNISED GAINS AND LOSSES The group has no recognised gains or losses other than those included in the profit and loss account CONSOLIDATED BALANCE SHEET AS AT 31ST MARCH 2005 Notes Unaudited Unaudited six months six months Audited year ended ended ended 31 March 31 March 30 September 2005 2004 2004 £ £ £ FIXED ASSETS ----------- ----------- ------------- Intangible assets 2,362,358 2,348,873 2,430,844 Tangible assets 216,762 203,648 237,814 ----------- ----------- ------------- 2,579,120 2,552,521 2,668,658 ----------- ----------- ------------- CURRENT ASSETS 145,221 62,770 156,276 Stocks 998,814 1,002,792 1,219,965 Debtors 121,188 274,696 601,782 Cash at bank and in hand ----------- ----------- ------------- 1,265,223 1,340,258 1,978,023 ----------- ----------- ------------- CREDITORS (795,755) (770,380) (777,972) Amounts falling due within one year ----------- ----------- ------------- NET CURRENT ASSETS 469,468 569,878 1,200,051 ----------- ----------- ------------- TOTAL ASSETS LESS CURRENT LIABILITIES 3,048,588 569,878 1,200,051 CREDITORS (15,774) (283,694) (22,400) Amounts fallind due after more than one year PROVISIONS FOR LIABILITIES AND CHARGES - - (250,000) ----------- ----------- ------------- 3,032,814 2,838,705 3,596,309 ----------- ----------- ------------- CAPITAL AND RESERVES 4 151,345 125,956 135,556 Called up share capital 5 - 750,000 750,000 Shares to be issued 5 3,763,581 2,459,970 3,029,370 Share premium account 5 192,150 192,150 192,150 Merger reserve 5 (1,074,262) (689,371) (510,767) Profit and loss account ----------- ----------- ------------- EQUITY SHAREHOLDERS' FUNDS 3,032,814 2,838,705 3,596,309 ----------- ----------- ------------- The interim results were approved by the Board on 29 June 2005 CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31ST MARCH 2005 Unaudited Unaudited six months six months Audited ended ended year ended 31 March 31 March 30 September 2005 2004 2004 £ £ £ Net cash inflow/(outflow) from operating activities (326,893) 42,196 244,587 Returns on investments and servicing of finance (4,613) (9,961) (16,638) Capital expenditure and financial investment (8,939) (9,710) (410,522) Acquisitions and disposals (55,000) (943,263) (943,365) --------- ----------- ----------- Net cash outflow before management of liquid resources and financing (395,445) (920,738) (1,125,938) Financing (85,149) 943,331 1,475,611 --------- ----------- ----------- (Decrease)/Increase in cash in the period (480,594) 22,593 349,673 --------- ----------- ----------- Reconciliation of net cash flow to movement in net funds/(debt) (Decrease)/Increase in cash in the period (480,594) 22,593 349,673 Cash movements relating to debt and lease financing 85,149 9,683 80,917 --------- ----------- ----------- Movement in net funds/(debt) resulting from cash flows (395,445) 32,276 430,590 --------- ----------- ----------- Change in net funds/(debt) (395 445) 32,276 430,590 Net funds/(debt) at 1 October 2004 419,688 (10,902) (10,902) --------- ----------- ----------- Net funds at 31 March 2005 24,243 21,374 419,688 --------- ----------- ----------- NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 31ST MARCH 2005 1. ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. Accounting convention The financial statements have been prepared under the historical cost convention and are in accordance with applicable accounting standards. Basis of consolidation This interim report has been prepared in accordance with applicable accounting standards and under the historical cost convention. On 11 December 2003 Pentagon Protection Plc acquired 100% of the issued share capital of Filmtek Limited. This subsidiary has been accounted for using acquisition accounting and consequently only the results since 11 December 2003 have been included in the consolidated profit and loss account. 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 2004 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. Turnover Turnover represents net invoiced sales of goods, excluding value added tax and trade discounts. Goodwill Goodwill arising on the acquisition of a subsidiary undertaking is the difference between the fair value of the consideration paid and the fair value of assets acquired. It is capitalised and amortised through the profit and loss account over the Directors' estimate of its useful economic life of 20 years. Impairment tests on the carrying value of goodwill are undertaken: • At the end of the first financial year following acquisition; • In other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. Depreciation Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life or, if held under a finance lease, over the lease term, whichever is the shorter. Short leasehold - over the term of the lease Plant and machinery - 15% to 25% on reducing balance Fixtures and fittings - 50% on cost and 25% on reducing balance Motor vehicles - 25% on reducing balance Computer equipment - 50% on cost Stocks Stocks and work in progress are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Cost includes all direct expenditure and an appropriate proportion of fixed and variable overheads. Deferred tax Provision is made in full for all taxation deferred in respect of timing differences that have originated but not reversed by the balance sheet date, except for timing differences arising on revaluations of fixed assets which are not intended to be sold and gains on disposals of fixed assets which will be rolled over into replacement assets. No provision is made for taxation on permanent differences. Deferred tax assets are recognised to the extent that it is more likely than not that they will be recovered. Deferred tax balances are not discounted. 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 charged at 33% of net book value. All other research and development expenditure is written off in the year in which it is incurred. 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 ruling at the date of transaction. Exchange differences are taken into account in arriving at the operating result. Hire purchase and leasing commitments Assets obtained under hire purchase contracts or finance leases are capitalised in the balance sheet. Those held under hire purchase contracts are depreciated over their estimated useful lives. Those held under finance leases are depreciated over their estimated useful lives or the lease term, whichever is the shorter. The interest element of these obligations is charged to the profit and loss account over the relevant period. The capital element of the future payments is treated as a liability. Rentals paid under operating leases are charged to the profit and loss account as incurred. Pensions The group operates a defined contribution pension scheme. Contributions payable for the period are charged in the profit and loss account. 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 charged to the profit and loss account when incurred. 2. TURNOVER The turnover for the period is attributable to the principal activities of the group. 3. EARNINGS/(LOSS) PER SHARE The calculations of earnings/(loss) per share are based on the following profits /(losses) and numbers of shares: Unaudited Six months Audited ended year ended 31 March 2005 31 March 2004 30 September 2004 £ £ £ Profit/(loss) for the financial period 563,495 253 178,857 For basic and diluted earnings/(loss) per share: 141,542,261 111,567,876 119,002,923 Weighted average number of shares 4. CALLED UP SHARE CAPITAL Authorised: Class: Nominal Unaudited Audited Number: value: 31 March 2004 30 September 2004 £ £ 200,000,000 Ordinary 0.1p 200,000 200,000 ---------- ----------- Allotted, issued and fully paid: Number: Class: Nominal value: 31.03.05 30.09.04 £ £ 151,345,615 Ordinary 0.1p 151,345 135,556 ---------- ----------- Pentagon Protection Plc share transaction history On 21st January 2005 15,789,473 ordinary 0.1p shares were issued to the vendors of Filmtek Limited for 4.75p each as part of their contingent consideration. 5. MOVEMENT IN RESERVES Profit and loss Share Merger Shares to be account premium reserve issued £ £ £ £ £ At 1 October 2004 (510,767) 3,029,370 192,150 750,000 3,460,753 Deficit for the period (563,495) - - - (563,495) Premium arising on shares issued during the period - 734,211 - - 734,211 Shares issued in the period - - - (750,000) (750,000) -------- --------- --------- --------- --------- At 31 March 2005 (1,074,262) 3,763,581 192,150 - 2,881,469 6. COPIES OF THE INTERIM REPORT Copies of the interim report are available from the company's registered office at Pentagon House, Unit 4 Acton Park Estate, The Vale, Acton, London, W3 7QE. This information is provided by RNS The company news service from the London Stock Exchange

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