2023 Interim Results

Pennant International Group PLC
27 September 2023
 

 

FOR IMMEDIATE RELEASE                                                                                27 September 2023

                                                                    

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PENNANT INTERNATIONAL GROUP PLC

                                               

Interim Results for the six months ended 30 June 2023

 

EBITA of £0.5 million; fourth consecutive period of EBITA profit; record gross margin;

on track to meet full year expectations;

 

Pennant International Group plc (AIM:PEN) ("Pennant", the "Group" or "Company"), the IPS software and services company, announces its Interim Results for the six months ended 30 June 2023 (the "First Half", the "Period", or "H1 2023").

 

Commenting on the results, Chairman Philip Cotton said:

 

"I am pleased to report that the Group has maintained positive earnings before interest, taxation and amortisation for a fourth consecutive period, with profitability in-line with market expectations for the year as a whole.

 

Our plan to re-engineer the business to build on software, services and other higher-margin work - focusing on our unique breadth of products and services across multiple Integrated Product Support disciplines - is producing results."

 

Key points: Financial

 

·       Group revenues for the Period of £7.1 million (H1 2022: £6.9 million)

·       46% of revenues generated from software licensing and associated activities (H1 2022: 52%)

·       Record gross margin of 47% (H1 2022: 41%)

·    Earnings before interest, taxation and amortisation (EBITA) of £0.5 million (H1 2022: EBITA of £0.1 million)

·       Earnings before interest, taxation, depreciation and amortisation (EBITDA) of £0.8 million (H1 2022: EBITDA of £0.4 million)

·       Loss before tax of £0.4 million (H1 2022: loss before tax of £0.8 million)

·       Net debt at Period end of £1.9 million (H1 2022: net debt of £4.1 million)

·       Trade and other receivables due at Period end of £4.2 million (H1 2022: £5.1 million)

·       Basic loss of (1.02)p per share (H1 2022: basic loss per share of (2.21)p per share)

·       Unrelieved tax losses of £7.1 million carried forward (H1 2022: £6.7 million carried forward)

·       Three-year order book at Period end stood at £25 million (H1 2022: £27 million)

 

Note: the above results are stated before circa £0.1 million of exceptional transaction and integration costs associated with the acquisition of Track Access Productions Limited. See note 5 to the Notes for a reconciliation between operating loss, EBITDA and EBITA.

 



 

Key points: Operational

 

·    Good progress on the circa £9 million Boeing Defence United Kingdom (BDUK) Apache upgrade programme, which is running on time and on budget, with final deliveries scheduled for completion in September 2024.

·       Acquisition of Track Access Productions Limited ("TAP") in April 2023, broadening Pennant's existing rail offering and customer base, and adding circa £0.3 million of subscription-based recurring revenues.

·       Version 2 of GenS released in May 2023, with first commercial sale achieved in June 2023.

·    Order intake secured during the First Half of £6.5 million, which resulted in a Period-end three-year contracted order book of £25 million.

 

Commenting on the Group's prospects, Philip Cotton added:

 

"Given the burgeoning technological complexity of military, aviation and rail platforms, the demand for innovative Integrated Product Support solutions is only likely to grow, particularly with increasing defence budgets across the Western world.

 

Our strategy has been formulated with precisely these factors in mind and with our developing S-Series solutions, we are well-placed to capitalise."

  

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.com   

Philip Walker, CEO

David Clements, Commercial & Risk Director 

+44 (0) 1452 714 914

Michael Brinson, CFO

 


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

Joe Walker

+44 (0)20 7933 8780

Mob: +44 (0)7768 807631

 

 



 

Pennant International Group plc

Interim Report for the six months ended 30 June 2023

Chairman's Statement

Results and dividend

On behalf of the Board of Directors, I can report that the Group recorded revenues for the Period of £7.1 million (H1 2022: £6.9 million).

For the fourth consecutive six-month period, EBITA was positive at £0.5 million, an improvement over the EBITA profit of £0.1 million recorded for the comparable period in 2022.

The gross profit margin for the Period increased to 47% (H1 2022: 41%) due to software licence revenues and sound performance across a number of programmes.

This resulted in a significantly reduced pre-tax loss for the Period of £0.4 million which compares with a pre-tax loss of £0.8 million in H1 2022.

Administrative costs for the Period were £3.6 million (H1 2022: £3.6 million), pleasingly being held at the same level as 12 months ago, despite general inflationary pressures.

At the Period-end net debt stood at £1.9 million (H1 2022: net debt of £4.1 million), as the Group utilised its overdraft facilities to fund programme expenditure (for which the cash milestones are expected to unwind in the latter part of the year and into early 2024) and internally-funded development of the GenS software suite.

Total assets at the Period end were £20.5 million (H1 2022: £21.9 million).

The basic loss per share for the Half Year was (1.02)p compared to a loss of (2.21)p for the same period last year.

A minimal effective tax rate is expected for the full year due to unrelieved tax losses of £7.1 million which have been carried forward at the Half Year (H1 2022: £6.7 million) and with R&D tax credit claims in progress.

The Group's three-year order book stood at £25 million at Period-end (H1 2022: £27 million) and is scheduled for delivery as follows: £8.1 million in H2 2023, £8.7 million in 2024, £5.3 million in 2025 and the balance in H1 2026.

The Directors have concluded that it is in the best interests of the Company and its shareholders to retain cash at this time for expected working capital requirements, particularly as the internally-funded GenS development programme reaches its critical later stages.

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. 

 

 

Operational Commentary

Each region, and business line, made a significant contribution during the Period as follows:

Revenue by Region

£ m

UK & Europe

3.7

North America

2.2

Australasia

1.2

Total

7.1

 

A key strategic focus of the Group is to continue to grow the proportion of revenues which derive from software and related activities. During the Period, circa 46% of revenues derived from software and related services; 56% of revenues were of a recurring nature.

 

Revenue by business line

£ m

Software Licences

0.7

Software Maintenance

0.7

Software Services

1.9

Engineered-to-order training solutions

1.9

Generic training solutions

0.5

Technical Services

1.4

Total

7.1

Commentary is provided on the various business lines below.

Integrated Product Support (IPS) Software Suite

The Group's IPS software suite comprises Pennant's three proprietary software product suites, OmegaPS, Analyzer and R4i. OmegaPS is a sophisticated logistics data tool; Analyzer uses recognised processes and analytical methods to develop, store and evaluate information about operational equipment and the support environment; and R4i provides its users with a dynamic, S1000D-compliant technical documentation solution.

In addition, Pennant 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 continuing demand for these products and related consultancy.

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. During the Period, the Group invested circa £0.6 million in this development project.

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 Analyzer and R4i S1000D Technical Publishing suite will transform customers' Integrated Product Support capabilities into a truly integrated digital capability and reduce programme delivery costs. Version 2 of GenS was released in May 2023, with the first commercial sale achieved in June 2023.

The Group also has an active pipeline of potential product innovations and improvements that are undergoing a detailed assessment process, including the use of Artificial Intelligence to integrate our IPS software database and the use of augmented / mixed reality in the delivery of our technical data to the end user.

  

 

Training Technology   

 

Training is an important sub-discipline within the IPS field and Pennant designs and builds generic and platform-specific training technology (and provides related technical and support services) for the defence, aerospace, rail and other safety critical industries.

 

The Group's key training-related contract during the Period was the UK Apache upgrade programme, under which Pennant is upgrading four different types of Apache training device for the UK Army.

 

The Group is developing modular software-based training solutions and during the Period launched the Engine Systems Starting Trainer (which combines a high-fidelity graphical model of an engine with Pennant's proprietary emulation technology), which has gone out on trial with a selected key customer.

 

Programme Delivery

 

Major Programme update: Pennant continues to make good progress on its contract with BDUK for the UK Apache upgrade programme. By the end of the Period, Preliminary Design Review had been successfully passed on all four devices, whilst on two of the devices, Critical Design Review (the final design sign-off) had also been achieved. The contract remains on track for completion in September 2024.

 

Commercial aerospace projects: the Group continues to progress its two North American software and services contracts for the development and delivery of its new technical publications solution for the commercial aviation market.  The projects have involved the transfer of complex legacy data into a new solution which has resulted in an enlarged scope and technical challenges.  The contracts are now expected to be completed during the first half of 2024 with the associated milestones expected to unwind in early 2024.

 

Acquisition update

 

We successfully acquired Track Access Productions Limited ("TAP") in April 2023 for an initial consideration of £798,500, funded from existing resources, and a deferred consideration of £175,500 payable in April 2024. TAP is a provider of driver training, route mapping and route familiarisation services to the UK rail industry and bolsters the Group's 'third pillar' of rail products and services.

 

I am pleased that TAP is performing in line with the Board's expectations. Pennant's combined Track Access business unit (comprising TAP and Track Access Services) had a successful First Half in respect of order intake and is on course to deliver turnover of approximately £900,000 for the year ending 31 December 2023 on an annualised basis, with an operating profit of approximately £400,000.

 

Targeted acquisitions, which add new strategic customers and/or add to our software capabilities, remain a key part of the Group's strategy for growth.

 

Post Period-end

 

Further positive outcomes have been achieved since Period-end:

·      Sales: circa £1.5 million of new orders for software and services were received across July and August, taking orders received during 2023 to a total of £8.1 million.  This included a new contract with the Australian Defence Force worth AUD$1.2 million over 12 months, secured in early July.

 

·      New partnership: the Group announced a strategic partnership with Aquila Learning to collaborate on a number of projects, including the integration of the ALaRMS - Aquila Learning (and Requirements /Resource/Record) Management System into the market leading Pennant IPS software suite (GenS, Analyzer and R4i).  The integration will realise natural synergies in both product and customer base and broaden our S-Series capabilities.

 

·      Cash: the Group secured a £1 million increase in its overdraft facility (to £4 million). This is available from September 2023 to January 2024 to provide short-term working capital contingency pending the realisation of programme milestones referred to above, and the continued investment ahead of full product launch of GenS and the integrated IPS software suite in April 2024.

 

Outlook

 

Given the burgeoning technological complexity of military, aviation and rail platforms, the demand for innovative Integrated Product Support solutions is only likely to grow, particularly with increasing defence budgets across the Western world.

 

Our strategy has been formulated with precisely these factors in mind and with our developing integrated S-Series solutions, we are well-placed to capitalise. 


We continue to explore opportunities for partnerships and acquisitions that will enhance our capabilities and accelerate our strategic objectives.

 

We also remain focused on ensuring a lean, productive and effective organisation; costs remain well-controlled following the decisive restructuring in 2021 and we are confident of meeting market expectations for the year as a whole.

  

 

P Cotton

Chairman

  



PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2023

 


 

Six months ended 30 June 2023       Unaudited

Six months ended 30 June 2022      Unaudited

Year ended  31 December 2022          Audited


Notes


 


 

£000s

£000s

£000s






Revenue

 

7,092

6,945

13,686

Cost of sales


(3,750)

(4,110)

(7,897)

Gross profit

 

3,342

2,835

5,789






Administration expenses


(3,616)

(3,558)

(6,902)

Other income

 

75

50

123

Operating (loss)

 

(199)

(673)

(990)






Finance costs


(176)

(137)

(377)

Finance income


-

-

2

(Loss) before taxation

 

(375)

(810)

(1,365)






Taxation

 

2

-

-

464

(Loss) for the period

 

(375)

(810)

(901)






Earnings per share

3









Basic


(1.02p)

(2.21p)

(2.45p)

Diluted


(1.02p)

(2.21p)

(2.45p)

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2023

 


Six months ended 30 June 2023 Unaudited

Six months ended 30 June 2022 Unaudited

       

Year ended 31 December 2022     Audited




£000s

£000s

£000s

(Loss) attributable to equity




holders of the parent

(375)

(810)

(901)

Other comprehensive income




Exchange differences on

(124)

364

109

translation of foreign operations




Prior year amortization adjustment


-

39

Deferred tax credit - property, plant and equipment and intangibles


-

248

(Loss) attributable to equity

(499)

(446)

(505)

holders of the parent




 

 

 

 



 

PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 June 2023

 


Six months ended 30 June 2023              Unaudited

Six months ended 30 June 2022               Unaudited

Year ended              31 December 2022

Audited




£000s

£000s

£000s

Non-current assets




Goodwill

2,459

2,546

2,507

Other intangible assets

5,251

4,681

4,690

Property plant and equipment

3,958

5,817

4,002

Right Of Use Asset

624

567

503

Deferred tax asset

1,530

836

1,497

Total non-current assets

13,822

14,447

13,199





Current assets




Inventories / work-in-progress

1,207

1,347

1,001

Trade and other receivables

4,204

5,146

4,129

Cash and cash equivalents

749

585

1,107

Current tax asset

492

330

354

Total current assets

6,652

7,408

6,591





Total assets

20,474

21,855

19,790





Current liabilities




Trade and other payables

5,871

4,780

5,862

Current tax liabilities

151

89

155

Obligations under finance and operating leases

351

191

174

Bank overdraft

2,668

4,741

1,533

Deferred consideration on acquisition

615

335

327

Total current liabilities

9,656

10,136

8,051





Net current (liabilities) / assets

(3,004)

(2,728)

(1,460)





Non-current liabilities




Obligations under finance and operating leases

323

444

385

Deferred tax liabilities

-

-

-

Contingent consideration on acquisition

152

419

552

Warranty provisions

108

122

107

Total non-current liabilities

583

985

1,044





Total liabilities

10,239

11,121

9,095





Net assets

10,235

10,734

10,695





Equity




Share capital

1,840

1,836

1,840

Share premium

5,366

5,367

5,366

Capital redemption reserve

200

200

200

Retained earnings

2,508

1,900

2,844

Translation reserve

211

590

335

Revaluation reserve

110

841

110

Total equity

10,235

10,734

10,695

 

 

 

 

PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2023

 


Six months ended     30 June 2023             

Unaudited

Six months ended     30 June 2022              

Unaudited

Year ended              31 December 2022

Audited


 

 

£000s

£000s

£000s

Net cash generated from operating activities

 

159

47

2,572




Investing activities




Interest received

-

-

2

Payment for acquisition of subsidiary, net of cash acquired

(995)

(559)

(547)

Purchase of intangible assets

(730)

(341)

(1,150)

Purchase of property plant and equipment

(107)

(13)

(63)

Proceeds from disposal of property, plant and equipment

-

-

2,117

Net cash used in investing activities

(1,832)

(913)

359





Financing activities




Proceeds from sale of ordinary shares

-

26

24

Net (repayment of) obligations under operating lease

(97)

(103)

(263)

Net cash used in financing activities

(97)

(77)

(239)





Net (decrease) / increase in cash and cash equivalents

(1,770)

(943)

2,692

 

Cash and cash equivalents at beginning of period

(426)

(3,540)

(3,540)

Effect of foreign exchange rates

277

327

422

Cash and cash equivalents at end of period

(1,919)

(4,156)

(426)

 

   

 

PENNANT INTERNATIONAL GROUP plc

STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2023


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 2021

1,832

5,345

200

2,687

226

854

11,144


(Loss) for the year

-

-

-

(901)

-

-

(901)


Other comprehensive income

-

-

-

1,031

109

(744)

396


Total comprehensive income

1,832

5,345

200

2,817

335

110

10,639


Issue of New Ordinary Shares

8

21

-

(2)

-

-

27


Recognition of share based payment

-

-

-

29

-

-

29


Transfer from revaluation reserve

-

-

-

-

-

-

-


At 31 December 2022

1,840

5,366

200

2,844

335

110

10,695


(Loss) for the period

-

-

-

(375)

-

-

(375)


Other comprehensive income

-

-

-

-

(124)

-

(124)


Total comprehensive income

1,840

5,366

200

2,469

211

110

10,196


Issue of New Ordinary Shares

-

-

-

-

-

-

-


Recognition of share based payment

-

-

-

39

-

-

39


Transfer from revaluation reserve

-

-

-

-

-

-

-


At 30 June 2023

1,840

5,366

200

2,508

211

110

10,235


 

 

  


 

 

PENNANT INTERNATIONAL GROUP plc

NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2023

 

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 2023.

 

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 2022 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, however attention was drawn to a material uncertainty relating to Going Concern in respect of payments on one major programme. The auditors' report 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 an estimated effective tax rate of zero, being the estimated effective rate of tax that is likely for the full year to 31 December 2023.

 

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 2023

Unaudited

Six months ended 30 June 2022

Unaudited

Year ended 31 December 2022

Audited

 

 

£000s

£000s

£000s

Earnings




Net (loss) attributable to equity shareholders

(375)

(810)

(901)

 




Number of shares

Number

Number

Number

Weighted average number of ordinary shares

36,790,447

36,674,834

36,725,879

Diluting effect of share options

1,626,667

1,939,043

1,414,228

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

          38,417,114

38,613,877

38,140,107





Earnings per share (basic)

(1.02p)

(2.21p)

(2.45p)

Earnings per share (diluted)

(1.02p)

(2.21p)

(2.45p)



 

PENNANT INTERNATIONAL GROUP plc

NOTES TO THE FINANCIAL INFORMATION for the six months ended 30 June 2023 (continued)

 

 

4.  Cash generated from operations

 

 

Six months ended    30 June 2023

Unaudited

Six months ended     30 June 2022

Unaudited

 

Year ended               31 December 2022

Audited

 

£000s

£000s

£000s

(Loss) for the period

(375)

(810)

(901)

Finance income

-

-

(2)

Finance costs

176

137

377

Income tax credit

-

-

(464)

Withholding tax

-

-

(2)

Depreciation of property, plant and equipment

151

215

373

Depreciation of right of use assets

91

84

183

Profit on disposal of property

-

-

(374)

Amortisation of other intangible assets

705

741

1,519

R&D tax credit

(75)

(50)

(113)

Share-based payment

39

10

29

Operating cash flows before movement in working capital

712

327

625

(Increase) / decrease in receivables

(75)

(618)

398

(Increase) / decrease in inventories

(206)

(482)

(136)

Increase / (decrease) in payables and provisions

85

1,262

2,252

Cash generated from operations

516

489

3,139

Tax (paid) / received

(142)

(278)

(306)

Interest paid

(215)

(164)

(261)

Net cash generated from operations

159

47

2,572

 

 



 

 

5.  Reconciliation of operating loss to EBITA and EBITDA for the Period

 

 

Six months ended    30 June 2023

Unaudited

Six months ended     30 June 2022

Unaudited

 

Year ended               31 December 2022

Audited

 

£000s

£000s

£000s

(Loss) for the period including exceptional costs

(475)

(810)

(901)*

Exceptional acquisition costs

100

-

-

(Loss) for the period excluding exceptional costs

(375)

(810)

(901)

Interest (net)

176

137

375

Taxation

-

-

(464)

Amortisation

705

741

1,519

EBITA

506

68

529

Depreciation of property, plant and equipment

151

215

373

Depreciation of right of use assets

91

84

183

EBITDA

748

367

1,085

 

 

 

 

*The loss for the year ended 31 December 2022 includes a profit on sale of land and buildings of £374k

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