2022 Interim Results

RNS Number : 0645A
Pennant International Group PLC
21 September 2022
 


 

FOR IMMEDIATE RELEASE     21 September 2022

 

PENNANT INTERNATIONAL GROUP PLC

 

Interim Results for the six months ended 30 June 2022

 

 Return to positive EBITA; business mix transformed; significant gross margin improvement

 

Pennant International Group plc (AIM: PEN) ("Pennant", the "Group" or "Company"), a leading global provider of training technology and integrated product support solutions, announces its Interim Results for the six months ended 30 June 2022 (the "First Half", the "Period", or "H1 2022").

 

Commenting on the results, Chairman John Ponsonby said:

 

"I am pleased to report that the Period saw the Group return to positive earnings before interest, taxation and amortisation as gross margin significantly improved and costs remained under tight control."

 

"As a result of management's continued efforts to deliver the Group's strategy, we now have a leaner, more streamlined organisation, with an increasing proportion of recurring revenues from software and services, providing greater forward visibility and a solid platform from which to grow the business and enhance shareholder value."

 

Key points: Financial

 

·     oup revenues for the Period of £6.9 million (H1 2021: £ 7.4 million) of which circa 65% were recurring (H1 2021: 53% recurring);

· 52% of revenues generated from software licensing and associated activities (H1 2021: 35%);

· Gross margin doubles to 41% (H1 2021: 21%);

· EBITA profit of £0.1 million (H1 2021: EBITA loss of £1.0 million);

· EBITDA profit of £0.4 million (H1 2021: EBITDA loss of £0.7 million);

· Loss before tax of £0.8 million (H1 2021: loss before tax of £1.7 million);

· Net debt at Period end of £4.1 million (H1 2021: net debt of £1.9 million);

· Trade and other receivables due at Period end of £5.1 million (H1 2021: £3.7 million);

· Basic loss of (2.21)p per share (H1 2021: basic loss per share of (4.64)p per share);

· Unrelieved tax losses of £6.7 million carried forward (H1 2021: £4.5 million carried forward);

· Three-year order book at Period end stood at £27 million (H1 2021: £26 million).

 

Key points: Operational

 

·     Secured the 'Major Programme' a contract from Boeing Defence UK Limited for the upgrade of Apache training equipment, worth £8.8 million over three years.

·   Following contract award, successfully passed the initial engineering milestone event on the Apache upgrade programme.

·     Factory acceptance achieved on the UK Helicopter programme (overall contract value: £3.5 million), with the training device delivered to the end user's site post Period end.

·     A second software and services order secured in the commercial aerospace sector (overall order value: USD$1.7 million), a key target market for the Group's IPS business line.

·     evelopment work completed on prototype simulator for rail infrastructure organisation which is intended to be rolled out to numerous sites in the future.

Post Period end highlights:

· First 'Launch Partner' to participate in programme of testing and product promotion for new GenS product signed in Australasia.

·     Circa £1 million of orders for software and equipment upgrades received across July and August, taking orders received during 2022 to approximately £12 million.

· GD MTE programme almost complete - all four devices have been built and achieved factory acceptance - and will be finished before year-end.

·     Surplus freehold site (Pennant Court) sold in August for £2.1 million with proceeds used to paydown borrowings (reduced to £2 million as at 20 September 2022).

 

Commenting on the Group's prospects, John Ponsonby added:

 

"We are securing new customers for our IPS software and services lines in important adjacent sectors including commercial aerospace, while at the same time gearing up for the launch of the new GenS software suite next year.

"Furthermore, with the prevailing global security situation, we are seeing real signs that defence procurement programmes are unlocking in our key regions, with several new opportunities already being pursued. 

"With a stable contracted order book, good forward visibility of revenues over the next three years, and a leaner, optimised organisational structure, the Board is confident about the Group's future prospects."

 

This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

 

Enquiries:

 

Pennant International Group plc

www.pennantplc.co.uk

Philip Walker, CEO

David Clements, Commercial & Risk Director 

+44 (0) 1452 714 914



WH Ireland Limited (Nomad and Broker)

  https://www.whirelandplc.com/capital-markets

Mike Coe

Sarah Mather

+44 (0) 20 7220 1666



Walbrook PR (Financial PR)

pennant@walbrookpr.com

Paul Vann

Tom Cooper

+44 (0)20 7933 8780

Mob: +44 (0)7768 807631

 

 



 

Pennant International Group plc

Interim Report for the six months ended 30 June 2022

Chairman's Statement

Results and dividend

On behalf of the Board of Directors, I can report that the Group recorded r evenues for the Period of £6.9 million which were lower than the equivalent period in 2021 (H1 202 1: £7.4 million) as the GD MTE entered its final stages and with the Apache programme yet to ramp up.

Encouragingly, EBITA was positive, at £0.1 million, which represents a substantial improvement over the EBITA loss of £1.0 million recorded for the comparable period in 2021. This turnaround is a result of sustained administrative cost savings implemented in earlier periods combined with a much-improved gross margin.

The gross profit margin for the Period increased to 41% (H1 2021: 21%) due to the improved sales mix, comprising software licensing income and consultancy fees and taking into account the much-reduced impact from the GD MTE programme.

This resulted in a significantly reduced pre-tax loss for the Period of £ 0.8 million which compares with a pre-tax loss of £1.7 million in H1 2021.

Administrative costs for the Period were £3.6 million (H1 2021: £3.2 million), with the increase being associated with inflationary cost pressures and an increased amortisation charge in the period arising from an increased software intangible asset (predominantly the GenS development programme). 

At the Period-end net debt stood at £4.1 million (H1 2021: net debt of £1.9 million), reflecting significant cash outflows as various programmes entered their final stages during the First Half, but with reduced borrowings expected throughout the second half following the sale of Pennant Court and as invoices are raised and paid.

Total assets at the Period end were £21.9 million (H1 2021: £20.6 million).

The basic loss per share for the Half Year was (2.21)p compared to a loss of (4.64)p for the same period last year.

A minimal effective tax rate is expected for the full year due to unrelieved tax losses of £6.7 million which have been carried forward at the Half Year (H1 2021: £ 4.5 million ) and with R&D tax credit claims in progress.

The Group's three-year order book increased during the Period, closing at £27 million (H1 2021: £26 million) and is scheduled for delivery as follows: £6.3 million in H2 2022, £12.2 million in 2023, £6.8 million in 2024 and the balance in H1 2025. The net increase in the order book (which stood at £22 million at 31 December 2021) is largely attributable to the award of the Apache contract during the Period.

The Directors have concluded that it continues to be in the best interests of the Company and its shareholders to retain cash at this time for expected working capital requirements. The Board will therefore not be declaring an interim dividend but will continue to review the Group's dividend policy based on performance, cash generation and working capital and investment requirements .

I would like to thank all Pennant employees, who have worked tirelessly during the First Half, drawing on Pennant's long heritage to deliver our impressive breadth of products and capabilities. 

 

Board Appointment

 

I am pleased to report that Michael Brinson has been appointed as the Group's Chief Financial Officer, an executive director position, with effect from 1 January 2023.

 

Mr Brinson, a chartered management accountant and currently the Group's Director of Finance (a non-Board role), joined the Group in 2020 from Leonardo Helicopters, where he was a senior executive within the company's UK finance team. Since joining Pennant, he has been instrumental in re-organising the Group's global financial operations, hugely improving management information and forecasting, and providing strategic direction on finance matters across the Group.

 

In accordance with Schedule 2(g) of the AIM Rules, Mr Michael John Brinson, aged 35, holds or has held in the past five years the following directorships and partnerships:  

 

Current directorships

Directorships within last five years

-

Leonardo Futureplanner (Trustee) Ltd

 

There is no further information required to be disclosed in respect of the above appointment pursuant to Rule 17 and Schedule 2 (g) of the AIM Rules for Companies.



 

Operational Commentary

During the Period, management implemented a re-structuring of the Group's operations into three key regions, comprising: UK & Europe; North America; Australasia. The purpose of this change is to better implement the Group's objective of delivering the full spectrum of its products and services in each territory and moving away from particular business lines being centred on certain regions, thereby enabling the overall business to grow.

Each region made a significant contribution during the Period as follows:

Revenue by Region

£ m

UK & Europe

2.7

North America

2.4

Australasia

1.8

Total

6.9

A key strategic focus for management is to continue to increase the proportion of the Group's revenues which derive from software and related activities. For the first time in a reported period, these activities comprised a majority (52%) of Group turnover as set out in the table below. Across the board, circa 65% of revenues during the Period were of a recurring nature.

Revenue by business line

Non-recurring

Recur-ring

Total  (£ m)

Engineered-to-order (Technical Training)  

1.4

-

1.4

Generic Products (Technical Training)

0.4

-

0.4

Technical Services (Technical Training)

-

1.5

1.5

Software Licences (IPS)

0.6

-

0.6

Software Maintenance (IPS)

-

0.8

0.8

Software Services (IPS)

-

2.2

2.2

Total

2.4

4.5

6.9

Commentary is provided on each business line (IPS and Technical Training) below.

Integrated Product Support (IPS)

The Group's IPS business line centres on Pennant's two proprietary software product suites, OmegaPS and R4i. OmegaPS is a sophisticated logistics data tool; R4i provides its users with a dynamic, S1000D-compliant technical documentation solution.

In addition, the IPS business provides long-term recurring consultancy, support and maintenance services on both software suites to its many customers, which include the Canadian and Australian defence departments and their respective supply bases.

The Period saw continued demand for these products and related consultancy, with a second commercial aerospace customer secured and further pipeline opportunities identified for that sector together with private space exploration and electric engines.

Product Investment

Capital investment continued in the OmegaPS successor product, 'GenS' to realise the vision of a cutting-edge, end-to-end solution for customers' data and documentation needs.

GenS represents the next generation of Logistics Support Analysis/Logistics Product Data technology, with a modern, easy-to-use interface and functionality, deployable 'on premise' or as a software as a service. GenS, when combined with the R4i S1000D Technical Publishing suite will transform customers' Integrated Product Support capabilities into a truly integrated digital capability and reduce programme delivery costs.

 

During the Period, various potential 'launch partners' were approached to participate in a programme of testing and product promotion for GenS. The first such partnership was signed shortly after Period-end with a major OEM in Australasia.



Looking Forward

 

The IPS sales pipeline is strong (currently assessed in excess of £20 million) and the Group expects the acquisition of new customers to continue during the second half and beyond, with multiple opportunities in the United States, Canada and Australia. As the new regional operational model takes effect, increasing IPS opportunities in the UK and Europe is a top priority.

 

Technical Training  

 

The Technical Training business line focuses on the design and build of generic and platform-specific training technologies and the provision of related technical and support services for the defence, aerospace, rail and other safety critical industries.

 

The Period saw good progress on the Group's systems engineering contracts:

 

·   Apache upgrade: The Period saw contract award and programme commencement for the Apache programme, a contract worth £8.8 million over three years. The first engineering event was held and passed during the First Half.

 

·     GD MTE: with the build of all four devices complete, the first two devices were delivered to the end user's site during the First Half.

 

·   UK Helicopter programme : Under this contract with a UK OEM (worth c. £3.5 million), Pennant was required to convert a real helicopter airframe into a systems trainer. The completed training device was delivered to the end user's site during the First Half.

Development work was also completed on a prototype simulator for a rail infrastructure organisation which is intended to be rolled out to numerous sites in the future.

Looking Forward

The Group has seen defence procurement activity increase during and after the Period, particularly in relation to new and upgraded vehicle platforms in the UK, and this aligns well with Pennant's training systems engineering capabilities.

 

Furthermore, to complement its existing suite of generic training aids, the Group is in the process of identifying (and will then develop) modular, graphically engaging systems trainers which will build and expand upon its current proprietary software emulation frameworks. An engine systems trainer of such a type has already been developed and sold.

 

The sales pipeline for the Technical Training business line is very healthy, currently assessed to be circa £30 million.

 

Post Period End Updates

 

A number of significant items have been achieved since Period-end:

 

· GD MTE: The programme is almost complete and, as previously stated, will be finished before year-end.

  All four devices have been built and achieved factory acceptance, with the final device being shipped to the end user's site today. Two devices have already achieved site acceptance (the final stage of customer acceptance testing), and the remaining two will undergo site acceptance testing imminently.

 

·     UK Helicopter programme : The training device achieved site acceptance in July and the programme is effectively finished with all major milestones invoiced and paid.

 

·     Sales: circa £1 million of orders for software and equipment upgrades were received across July and August, taking orders received during 2022 to a total of £12 million.

  

·     Facilities : with all devices built on the GD MTE and the UK Helicopter programme, the demand for space has significantly decreased, and the rationalisation of the Group's facilities arrangements has continued. Pennant Court, being surplus to requirements, was sold in August for £2.1 million and the proceeds used to paydown the overdraft, while the Stevenage office lease was terminated during the same month. Material savings are expected for 2023 from reduced property running costs, rates and depreciation.

 

·     Cash : the Group's net debt is currently £2 million (with an overdraft limit of £3 million). Following the completion of various programme milestones, invoices totalling £1.8 million (excluding VAT) have been raised since the start of August, for payment on 30 day terms, of which £0.7 million has already been received.

Outlook

We are securing new customers for our IPS software and services lines in important adjacent sectors including commercial aerospace, while at the same time gearing up for the launch of the new GenS software suite next year.

Furthermore, with the prevailing global security situation, we are seeing real signs that defence procurement programmes are unlocking in our key regions, with several new opportunities already being pursued. 

As a result of management's efforts to re-orient the business, we have a leaner organisation, with increasing software and recurring services revenues; the platform is now in place to grow the business and enhance shareholder value.

With a Period-end contracted order book of £27 million with good forward visibility, a healthy sales pipeline containing opportunities worth over £50 million, and a leaner, optimised organisation, the Board is confident about the Group's future prospects.

J M Ponsonby

Chairman

 

 

 



PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2022

 


 

Six months ended 30 June 2022
Unaudited

Six months ended 30 June 2021
Unaudited

          Year ended 31 December 2021
Audited


Notes


 


 

£000s

£000s

£000s






Revenue

 

6,945

7,427

15,965

Cost of sales


(4,110)

(5,837)

(11,609)

Gross profit

 

2,835

1,590

4,356






Administration expenses


(3,558)

(3,222)

(6,709)

Other income

 

50 

 - 

203

Operating (loss)

 

(673)

(1,632)

(2,150)






Finance costs


(137)

(64)

(329)

Finance income


 - 

 - 

-

(Loss) before taxation

 

(810)

(1,696)

(2,479)






Taxation

 

2

-

-

865

(Loss) for the period

 

(810)

(1,696)

(1,614)






Earnings per share

3









Basic


(2.21p)

(4.64p)

(4.41p)

Diluted


(2.21p)

(4.64p)

(4.41p)

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2022

 


Six months ended 30 June 2022 Unaudited

Six months ended 30 June 2021 Unaudited

                 Year ended
31  December  2021  Audited




£000s

£000s

£000s

(Loss) attributable to equity




holders of the parent

(810)

(1,696)

(1,614)

Other comprehensive income:




Exchange differences on




translation of foreign operations

364

(90)

(64)

Net revaluation gain

-

-

353

Deferred tax credit - property, plant and equipment and intangibles

 - 

 - 

(156)

(Loss) attributable to equity




holders of the parent

(446)

(1,786)

(1,481)

 

 

 

 



 

PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2022

 


Six months ended 30
June 2022  audited

Six months ended 30
June 2021   Unaudited

Year ended
31 December 2021

Audited




£000s

£000s

£000s

Non-current assets




Goodwill

2,546

2,428

2,403

Other intangible assets

4,681

5,178

5,081

Property plant and equipment

5,817

5,719

6,009

Right of use asset

567

736

661

Deferred tax asset

 836 

 91 

850 

Total non-current assets

14,447

14,152

15,004





Current assets




Inventories / work-in-progress

1,347

1,930

865

Trade and other receivables

5,146

3,661

4,528

Cash and cash equivalents

585

749

901

Current tax asset

 330

 99

330

Total current assets

7,408

6,439

6,624





Total assets

21,855

20,591

21,628





Current liabilities




Trade and other payables

4,780

4,379

3,595

Current tax liabilities

89

83

 367 

Obligations under finance and operating leases

191

193

209

Bank overdraft

 4,741 

 2,676 

4,441

Deferred consideration on acquisition

335

355

 432 

Total current liabilities

10,136

7,686

9,044





Net current (liabilities)

(2,728)

(1,247)

(2,420)





Non-current liabilities




Obligations under finance and operating leases

444

600

529

Deferred tax liabilities

-

192

-

Contingent consideration on acquisition

419

1,141

 789 

Warranty provisions

122 

122 

 122 

Total non-current liabilities

985

2,055

1,440





Total liabilities

11,121

9,741

10,484





Net assets

10,734

10,850

11,144





Equity




Share capital

1,836

1,832

1,832

Share premium

5,367

5,348

5,345

Capital redemption reserve

200

200

200

Retained earnings

1,900

2,595

2,687

Translation reserve

 590

 200

226

Revaluation reserve

841

675

854

Total equity

10,734

10,850

11,144

 

 

 

 

PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2022

 


Six months
ended  30 June
2022  

Unaudited

Six months
ended 30 June 2021 

Unaudited

Year ended
31 December
2021

Audited


 

 

£000s

£000s

£000s

Net cash generated / (used in) from operating activities

 

47

230

(127)




Investing activities




Payment for acquisition of subsidiary, net of cash acquired

(559)

(536)

(549)

Purchase of intangible assets

(341)

(260)

(966)

Purchase of property plant and equipment

(13)

(48)

(134)

Proceeds from disposal of property, plant and equipment

-

-

22

Net cash used in investing activities

(913)

(844)

(1,627)





Financing activities




Proceeds from sale of ordinary shares

26

64

60

Net (repayment of) obligations under operating lease

(103)

(121)

(309)

Net cash used in financing activities

(77)

(57)

(249)





Net (decrease) in cash and cash equivalents

(943)

(671)

(2,003)

 

Cash and cash equivalents at beginning of period

(3,540)

(1,453)

(1,453)

Effect of foreign exchange rates

327

197

(84)

Cash and cash equivalents at end of period

(4,156)

(1,927)

3,540

 

 

 


 

 

 

 

PENNANT INTERNATIONAL GROUP plc

STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2022

 

 


Share capital

Share premium

Capital redemption reserve

Retained earnings

Translation reserve

Revaluation reserve

Total equity





£000s

£000s

£000s

£000s

£000s

£000s

£000s


At 31 December 2020

1,822

5,295

200

4,243

290

683

12,533


(Loss) for the year

 - 

 - 

 - 

(1,614)

 - 

 - 

(1,614)


Other comprehensive (loss) / income

 - 

 - 

 - 

-

(64)

197

133


Total comprehensive income

1,822

5,295

200

2,629

226

880

11,052


Issue of new shares

10

50

 - 

 - 

 - 

 - 

60


Recognition of share-based payment

 - 

 - 

 - 

32

 - 

 - 

32


Transfer from revaluation reserve

 - 

 - 

 - 

26

 - 

(26)

 - 


At 31 December 2021

1,832

5,345

200

2,687

226

854

11,144


(Loss) for the year

-

-

-

(810)

-

-

(810)


Other comprehensive income

-

-

-

-

364

-

364


Total comprehensive income

1,832

5,345

200

1,877

590

854

10,698


Issue of new shares

4

22

-

-

-

-

26


Recognition of share-based payment

-

-

-

10

-

-

10


Transfer from revaluation reserve

-

-

-

13

-

(13)

-


At 30 June 2022

1,836

5,367

200

1,900

590

841

10,734


 


 

 

PENNANT INTERNATIONAL GROUP plc

NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2022

 

1.  Basis of preparation

 

This condensed set of financial statements has been prepared using accounting policies expected to be adopted for the year ending 31 December 2022.

 

These accounting policies are drawn up in accordance with International Financial Reporting Standards (IFRSs) in conformity with the requirements of the Companies Act 2006.

 

The comparative figures for the year ended 31 December 2021 set out in this Interim Report are not statutory accounts. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.

 

AIM-quoted companies are not required to comply with IAS34 'Interim Financial Reporting' and the Company has taken advantage of this exemption.

 

2.   Taxation

 

The taxation charge for the Period is based on the estimated rate of tax that is likely to be effective for the full year to 31 December 2022.

 

3. Earnings per share

 

Basic earnings per share are calculated by dividing the profit for the Period attributable to the shareholders by the weighted average number of shares in issue. The calculation of diluted earnings per share does not take into account the potentially diluting effect of share options as this impact would be antidilutive to the losses attributable to equity shareholders.

 

 

Six months ended 30 June 2022

Unaudited

Six months ended 30 June 2021

Unaudited

Year ended 31 December 2021

Audited

 

 

£000s

£000s

£000s

Earnings




Net (loss) attributable to equity shareholders

(810)

(1,696)

(1,614)

 




Number of shares

Number

Number

Number

Weighted average number of ordinary shares

36,674,834

36,543,371

36,591,864

Diluting effect of share options

1,939,043

1,819,043

1,746,543

Weighted average number of ordinary shares for the purpose of dilutive earnings per share

  38,613,877

  38,362,414

38,338,407





Earnings per share (basic)

(2.21p)

(4.64p)

(4.41p)

Earnings per share (diluted)

(2.21p)

(4.64p)

(4.41p)



4.  Cash generated from operations

 

 

Six months ended
30 June 2022

Unaudited

Six months ended
30 June 2021

Unaudited  

Year ended
31 December 2021

Audited

 

£000s

£000s

£000s

(Loss) for the period

(810)

(1,696)

(1,614)

Finance costs

137

64

329

Income tax credit

-

-

(865)

Withholding tax

-

-

38

Depreciation of property, plant and equipment

215

234

460

Depreciation of right of use assets

84

93

243

Amortisation of other intangible assets

741

652

1,366

Effect of land and buildings revaluation

-

-

(117)

R&D tax credit

(50)

-

(157)

Share-based payment

10

40

32

Operating cash flows before movement in working capital

327

(613)

(285)

(Increase) / decrease in receivables

(618)

1,223

356

(Increase) / decrease in inventories

(482)

(849)

216

Increase / (decrease) in payables

1,262

358

(525)

Cash generated from / (used in) operations

489

119

(238)

Tax (paid) / received

(278)

175

440

Interest paid

(164)

(64)

(329)

Net cash generated from / (used in) operations

47

230

(127)

 

 

 

 

 

 

 

 

 

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