Final Results
Pentagon Protection PLC
29 March 2007
For release
29th March 2007
Pentagon Protection PLC
Preliminary Results
For the twelve months ended 30 September 2006
Pentagon Protection PLC ('Pentagon'), the provider of enhanced glass film and
anchoring systems for greater security, blast protection and reduction of the
transmission of infrared radiation, announces its Preliminary results for the
twelve months ended 30 September 2006.
Highlights
• Turnover down 40% to £2.2m (includes only 5 months of disposed of
automotive business)
• Operating loss of 1.28m
• Administrative costs unchanged at £1.75m; included major re-branding
& marketing expense
• Cash reserves up 53% to £720,000
Operational highlights
• Disposed of loss making automotive division. This removed the high
cost of the central London offices and showroom
• Head office relocated to existing office outside London, in
Buckinghamshire
• Product and services relaunch
• Maiden contract wins in USA by Pentagon USA
• Greater focus on domestic sales
Business review since year end
• Expenditure cuts across the business
• Head count reduced through ongoing redundancy programme
• Extensive in house retraining programme for all sales staff ahead of
anticipated increase in demand as businesses need to comply with Regulation
14, which states that building glass 'be of safe material or be protected
against breakage'
Commenting on the results and the outlook, Alan Nicholl, Chairman said:
'The results reported in the period under review show large losses, but I am
happy to announce that Pentagon has reacted positively by carrying out an
extensive Business Review that has already resulted in the Company returning to
trading profitably on a month to month basis. With the anticipated increase in
demand for our products and services in the UK in 2007 we are optimistic that
further benefits will start to show through. I would like to thank all the staff
for their hard work as we continue to improve the Company's fortunes.'
For further information:
Pentagon Protection PLC Seymour Pierce Parkgreen Communications
Alan Nicholl, Chairman Jonathan Wright Ben Knowles
Danielle Stewart, Company T: 020 7107 8000 T: 020 7851 7480
Secretary
T: 01494 793333
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
Introduction
The nine months since I reported to you on our interim financial statements has
been a progressive period for Pentagon Protection Plc. Although the results for
the financial year ended 30 September 2006 report a very large loss, I am
extremely pleased to be able to let you know that we have now turned the company
around to month on month profitable trading and have no reason to presume that
the trend of improving results will not continue for the foreseeable future.
This has been achieved by a straightforward and down to earth approach of
cutting overheads to the level that can be supported on a sustained basis out of
current turnover levels, at the same time as working to regain ground in all of
our traditional markets, thereby ensuring higher turnover in future.
In the paragraphs which follow, I will set out for you how the turnaround has
been achieved and why I have every confidence in the future. In this context, I
hope that you will take a measured view of the disappointing results for the
year.
Financial Review
The turnover for the period under review was £2,152,621. This represents a drop
of over 40% when compared with the results for the year ended 30 September 2005.
These figures include the turnover of the automotive division, which was
disposed of five months before the end of the year. However, the drop in
turnover on continuing operations (from £2,739,407 to £1,616,344) was similarly
41%. Obviously such a large reduction in turnover is of concern, but the Board
has now taken extensive steps to reverse this trend. I explain further below
what has been done subsequent to the year end to work on improving turnover back
to previous levels and beyond.
The gross profit margin has also dropped from 43% to 34%. This has been caused
in part by price pressure as well as by a lack of economies of scale resulting
from the reduced volumes. This is another area that we are attacking, and
margins in the current year are much improved, again to previous levels.
Administrative expenses for the year are very similar to those incurred in 2005
in absolute terms (2006 - £1,752,827, 2005 - £1,725,770). However, these costs
included a high level of expenditure on re-branding and marketing expenses,
which represents a one off cost that is already paying dividends in improved
turnover. The 2006 figures also include one off costs of approximately £62,000
relating to redundancies arising as a result of the Board's extensive review of
the overheads and cost cutting exercise which is explained further below.
Taken overall, the operating loss from continuing operations of £1,284,655 is
substantially larger than the 2005 loss of £453,797. Nonetheless, the company's
cash reserves remain stable, with year end cash at £720,762 against 2005 cash
reserves of £471,347. This is after taking account of two fund raisings on
15th June and 25th September 2006, the details of which are given in note 18 to
the accounts. Our projections indicate that there will be no need to perform
any further fundraising in the current year.
The basic loss per share, at 0.86p, was only 5% greater than the basic loss per
share in 2005, which was 0.82p. The Board has not proposed a dividend, in line
with its continuing policy at the current time.
The net assets of the group have fallen by 9% from £3,298,753 to £2,995,902.
Business Review
In my last report, I explained that, subsequent to the disposal of the
automotive division on 1 May 2006, the Board undertook a review of all areas of
the business in order to determine the best way forward in the interests of all
stakeholders in the business. This review was conducted thoroughly,
professionally and unemotionally. Some hard decisions had to be taken and many
changes made.
The Board's review recommended the cutting of expenditure in every area of the
business. We also reviewed critically our sales and marketing strategy with the
result that a major re-launch of our products and services took place in October
2006.
Strategically, we have realised that our laudable focus on global penetration
had led us to take our eye off the ball in our home territory, leading to
disappointingly low UK sales. I am now addressing this with a complete
retraining and reorganisation of the sales force.
I am very pleased to be able to report that there was one area of our review
that resulted in purely positive observations and no need for any change in
strategy, being our American operations. Haytham ElZayn, our American investor/
director, has established an excellent team in the USA and we anticipate our
relationship with them developing to the benefit of all concerned over the years
to come.
Taken overall, the Board currently feels content that no area of the business
requires any further dramatic change, although we continue to review
opportunities for risk minimisation and profit maximisation, such as the current
opportunity in Dubai, detailed below. The challenge now is simply to apply the
new policies, procedures and plans successfully.
I set out below details of each of the areas mentioned above.
Some serious cost cutting
Our focus on overheads necessarily included cutting our payroll bill. This led
to the redundancy of a key individual who has been with the company since
floatation. Geoff Russell left on 1st November 2006 because his role in the
business was severely curtailed by the disposal of the automotive division.
Geoff has not been replaced, since his role has ceased to exist. The Board
wishes Geoff well for the future.
Our review led to a number of further staff losses, some of which were effected
by redundancies and others by not replacing those leaving naturally. Overall,
we have cut staff costs on a month by month basis subsequent to the year end by
over 40%.
Other overheads were also subjected to our critical gaze. Establishment costs
have reduced dramatically because the disposal of the automotive division means
that the group no longer incurs the cost of the Acton offices and showrooms. We
now operate from a small office in Chesham, which is sufficient for our
circumstances at the current time, given that all new business presentations are
made at our clients' premises. This is, in any event, the norm for a buildings
focussed glass surfacing company, whereas an automotive glass surfacing business
needs a workshop type premises.
I am pleased to report that subsequent to the year end, overheads are now
annualising at a level which should allow the company to trade profitably on an
ongoing basis.
The re-launch of Pentagon Protection
In November our global brand was re-launched at an industry seminar held in
London. Pentagon Filmtek Limited was re-branded as Pentagon Protection UK
Limited, which more accurately describes the range of services we are now
marketing.
At the seminar, the effects of global warming were presented, focusing on the
huge impact this was having on energy costs for the owners and occupiers of
commercial buildings with glass facades.
The 25 EU member states have recently agreed to new EU directives regarding the
energy performance of buildings and a commitment to reduce carbon dioxide
emissions by 2010. Air conditioning costs have soared to become one of the most
serious challenges facing companies seeking to control overheads and yet
continue to provide acceptable working environments for their staff.
Pentagon Protection Plc launched Infra-Max(R), an advanced glazing film that is
designed precisely to bring the problem of solar gain in glass-clad buildings
under control by significantly reducing the transmission of infra red light.
Infra-Max(R) has been formulated to prevent more than 60% of infra red radiation
from passing through glass into the interior of the building, thus dramatically
reducing the load on air conditioning plant.
Infra-Max(R) will, nonetheless, continue to allow 69% light transmission so
lighting loads will remain unaffected. It will not change the internal or
external appearance of the building, thus maintaining aesthetics whilst
significantly improving its performance and comfort. Tested to BS EN12600,
Infra-Max(R) is supplied in Solar Control and combination Security/Solar control
formats.
The audience was also reminded that more people are injured and killed from the
secondary effects of explosions caused by terrorism, industrial accidents,
extreme weather conditions and violent attack than those in the direct path of
the incident, caused by flying glass and other debris. In fact more than 90% of
all blast-related injuries are caused by flying glass.
The effects of jagged pieces of flying glass can be catastrophic but may be
easily and effectively prevented by the combination of Pentagon's FT800
high-tensile strength film - which retains the glass during an explosion or
other violent incident - and an effective edge retention, or anchoring system,
which prevents the shattered but retained glass from being propelled en masse
into the building. One of the newest and most effective solutions is the
installation of Pentagon EliteTM.
Pentagon EliteTM glazing anchoring system will prevent the retained glass from
blowing inwards following a blast or other violent incident, causing the unit to
rebound backwards into the blast area as the explosive force dissipates.
Pentagon EliteTM is discreet in appearance and complements existing framing and
weatherseals in appearance and feel. As a system the Pentagon anchoring and
security film combination is designed to offer the maximum possible protection
without disclosing the presence of security measures to staff, customers and
guests within a building.
Sales Force Training
During the past 6 months, we have undertaken a complete overhaul of the sales
team and have initiated an intensive in house retraining programme. This has
been augmented by the valuable assistance of our manufacturers who have also
given additional product training ensuring that our team is amongst the most
technically adept in the industry.
Due to the high number of accidents still being experienced with glass and it
being over 10 years since the introduction of Regulation 14, there is an urgent
requirement for us to revisit those premises where previously applied film may
now be well past its effective life and, also equally importantly, to visit
those premises that might previously have omitted to comply with the Regulation.
Regulation 14 requires that 'every window or other transparent or translucent
surface in a wall, partition, door or gate should, where necessary for reasons
of health and safety, be of a safety material or be protected against breakage
... and be appropriately marked or incorporate features to make it apparent'.
In preparation for what we expect to be an enormous demand, our sales team have
been trained to carry out detailed Glazing Audits and Risk Assessments to ensure
that the duty holders are complying with their responsibilities under Regulation
14 to take every possible precaution to ensure the safety of everybody using
their premises.
This, we believe, is a huge market which will match or exceed our other market
sectors and will give us an unprecedented opportunity to re-establish Pentagon
Protection as an industry leader.
Good News in the USA
In September this year, the first important contract wins in the USA were
achieved by our partner, Pentagon USA, with contracts being placed by Columbus
Police HQ and East Jefferson General Hospital. A number of other contracts have
been subsequently won and the U.S. team continues to be enthusiastic about
further large contract gains in the near future.
Developments in Dubai
The recent establishment of an office in Dubai has helped to give greater local
credibility to Pentagon Protection Plc and has undoubtedly helped to win
contracts with airports in the Middle East and The Far East, hotel groups and
oil companies.
The future
Further consolidation of the UK Market will underpin our global efforts and
ensure that the encouraging results achieved in the first period of the new
financial year will continue for the remainder of the year.
The continuing development of film and anchoring systems, where we are at the
cutting edge of technology, will endorse our position as market leaders in the
years to come.
Conclusion
The board has worked very hard over the past year with the onerous task of
turning the company around and as mentioned, we have not been afraid of making
many difficult decisions. I know that our perseverance will take some time to
manifest in the returns that you justifiably expect on your investment, but this
is nonetheless what I intend we should attain in the medium term. I thank you in
advance for your continued support, patience and understanding while we work to
achieve this goal.
Alan Nicholl
Chairman
29 March 2007
DIRECTORS' REPORT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
The directors present their report and financial statements of the company and
the group for the year ended 30 September 2006.
Directors
The following directors have held office since 1 October 2005:
G H Bannerman Chief executive
A R Nicholl Executive chairman
S D Harrhy International sales director
H ElZayn Non-executive director
D A Thomas (Resigned 13 April 2006)
R Bambra (Resigned 13 April 2006)
G P Russell (Resigned 13 April 2006)
Principal activities and review of the business
Pentagon Protection Plc is the parent company of Pentagon Protection (UK)
Limited (formerly Pentagon Filmtek Limited).
The principal activity of Pentagon Protection (UK) Limited is the supply and
application of solar control, safety and security films to commercial buildings.
The company disposed of two former subsidiary undertakings during the year under
review being Pentagon Glass Tech Limited and Pentagon Glass Tech (Franchising)
Limited.
A review of the business and future developments is included within the
chairman's statement which immediately precedes this report.
Results and dividends
The consolidated profit and loss account for the year is set out on page 10.
The directors do not recommend the payment of a dividend and the loss for the
year will be transferred to consolidated reserves.
Supplier payment policy
The group's payment policy is to obtain the best possible terms for all business
and hence there is no standard policy as to the terms applied. The group seeks
to abide by the payment terms agreed with suppliers when it is satisfied that
the supplier has provided goods and services in accordance with contractual
arrangements. Trade creditors of the group at 30 September 2006 were equivalent
to 83 days purchases based on the average daily amount incurred by suppliers
during the year (2005: 120 days).
Directors' interests
The directors' interests in the shares of the company were as stated below:
30 September 2006 1 October 2005
G H Bannerman 24,278,947 19,578,947
A R Nicholl 1,232,002 1,092,022
S D Harrhy 10,073,684 10,073,684
H ElZayn 34,322,349 14,322,349
========== ==========
In addition, the following directors held share options in the company:
30 September 2006 1 October 2005
G H Bannerman 3,290,071 3,290,071
S D Harrhy 1,953,948 1,953,948
========= =========
Employee involvement
Efforts are made to consult and inform employees on matters which concern them
with emphasis on the continuous growth and development of the group. Regular
meetings are held to keep staff abreast of group changes and progress.
It is the group's policy to support the employment of disabled persons wherever
possible, both through recruitment and through retention of those who have
become disabled whilst in the employment of the group.
Auditors
Warrener Stewart, Chartered Accountants, of Harwood House, 43 Harwood Road,
London, SW6 4QP will be proposed for reappointment at the forthcoming annual
general meeting.
Directors' responsibilities
The directors are responsible for preparing the annual report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare the
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
The financial statements are required by law to give a true and fair view of the
state of affairs of the company and of the group and of the profit or loss of
the group for that period. In preparing those financial statements, the
directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the group will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and the group and to enable them to ensure that the financial statements
comply with the Companies Act 1985. They are also responsible for safeguarding
the assets of the company and the group and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate
and financial information included on the group's website. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ in other jurisdictions.
Statement of disclosure to auditor
(a) So far as the directors are aware, there is no relevant audit information
of which the company's auditors are unaware, and
(b) they have taken all the steps that they ought to have taken as directors in
order to make themselves aware of any relevant audit information and to
establish that the company's auditors are aware of that information.
On behalf of the board
A R Nicholl
Director
29 March 2007
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF PENTAGON PROTECTION PLC
We have audited the group and parent company financial statements (the '
financial statements') of Pentagon Protection Plc for the year ended 30
September 2006 which comprise the Group Profit and Loss Account, the Group and
Company Balance Sheets, the Group Cash Flow Statement and the related notes.
These financial statements have been prepared under the accounting policies set
out therein.
This report is made solely to the company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are
set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you whether in our opinion the information given in the
Directors' Report is consistent with the financial statements.
In addition we report to you if, in our opinion, the company has not kept proper
accounting records, if we have not received all the information and explanations
we require for our audit, or if information specified by law regarding
directors' remuneration and other transactions is not disclosed.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report and the Chairman's Statement. We consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements. Our responsibilities
do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statement
Opinion
In our opinion:
• the financial statements give a true and fair view, in accordance
with United Kingdom Generally Accepted Accounting Practice, of the state of
the group's and the parent company's affairs as at 30 September 2006 and of
the group's loss for the year then ended;
• the financial statements have been properly prepared in accordance with the
Companies Act 1985; and
• the information given in the Directors' Report is consistent with the
financial statements.
Warrener Stewart
Chartered Accountants 29 March 2007
Registered Auditors
Harwood House
43 Harwood Road
London
SW6 4QP
PENTAGON PROTECTION PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
2006 2005
Notes £ £
Turnover 2
Continuing operations 1,616,343 2,739,407
Discontinued operations 536,278 880,532
--------- ---------
2,152,621 3,619,939
Cost of sales (1,430,170) (2,010,805)
Exceptional item 4 - (40,473)
--------- ---------
Gross profit 722,451 1,568,661
--------- ---------
Distribution costs (542,998) (631,058)
Administrative expenses (1,752,827) (1,725,770)
Exceptional items 4 - (463,257)
--------- ---------
(2,295,825) (2,820,085)
--------- ---------
Other operating income 40,804 26,828
--------- ---------
Operating loss 4
Continuing operations (1,271,245) (453,797)
Discontinued operations (261,325) (770,799)
--------- ---------
(1,532,570) (1,224,596)
Loss on disposal of discontinued 5 (206,072) -
operations
--------- ---------
Loss on ordinary activities before (1,738,642) (1,224,596)
interest
Interest receivable and similar income 6,728 8,245
Interest payable and similar charges 6 (18,437) (19,451)
--------- ---------
Loss on ordinary activities before (1,750,351) (1,235,802)
taxation
Tax on loss on ordinary activities 7 - -
--------- ---------
Retained loss for the year 19 (1,750,351) (1,235,802)
========= =========
Basic and diluted loss per share 8 (0.86)p (0.82)p
========= =========
There are no recognised gains or losses other than those passing through
the profit and loss account.
PENTAGON PROTECTION PLC
BALANCE SHEETS
AS AT 30 SEPTEMBER 2006
Group Company
Notes 2006 2005 2006 2005
£ £ £ £
Fixed assets
Intangible assets 10 2,258,151 2,389,093 - -
Tangible assets 11 23,586 202,038 - -
Investments 12 - - 2,610,510 2,710,510
--------- --------- --------- ---------
2,281,737 2,591,131 2,610,510 2,710,510
--------- --------- --------- ---------
Current assets
Stocks 125,190 201,923 - -
Debtors 13 691,326 1,262,218 935,066 133,471
Cash at bank and in hand 720,762 471,347 710,508 290,287
--------- --------- --------- ---------
1,537,278 1,935,488 1,645,574 423,758
Creditors: amounts falling due within 14 (639,306) (1,024,298) (102,277) (96,100)
one year
--------- --------- --------- ---------
Net current assets 897,972 911,190 1,543,297 327,658
--------- --------- --------- ---------
Total assets less current liabilities 3,179,709 3,502,321 4,153,807 3,038,168
Creditors: amounts falling due after 15 - (8,568) - -
more than one year
Provisions for liabilities 16 (183,807) (195,000) (183,807) (195,000)
--------- --------- --------- ---------
2,995,902 3,298,753 3,970,000 2,843,168
========= ========= ========= =========
Capital and reserves
Called up share capital 18 310,918 165,918 310,918 165,918
Share premium account 19 5,600,303 4,297,803 5,600,303 4,297,803
Merger reserve 19 - 192,150 - 1,570,783
Profit and loss account 19 (2,915,319) (1,357,118) (1,941,221) (3,191,336)
--------- --------- --------- ---------
Shareholders' funds 20 2,995,902 3,298,753 3,970,000 2,843,168
========= ========= ========= =========
The financial statements were approved by the board for issue on 29 March 2007.
A R Nicholl
Director
PENTAGON PROTECTION PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
2006 2005
£ £ £ £
Net cash outflow from operating activities (877,728) (870,798)
Returns on investments and servicing of
finance
Interest received 6,728 8,245
Interest paid (15,586) (18,940)
Interest element of finance lease rentals (2,851) (511)
--------- ---------
Net cash outflow for returns on investments (11,709) (11,206)
and servicing of finance
Taxation - -
Capital expenditure
Payments to acquire tangible assets (12,486) (27,807)
Receipts from sales of tangible assets 1,500 14,154
--------- ---------
Net cash outflow for capital expenditure (10,986) (13,653)
Acquisitions and disposals
Payment against provision for purchase of (11,193) (55,000)
subsidiary undertaking
Disposal of subsidiaries (29,702) -
--------- ---------
(40,895) (55,000)
Financing
Loans repaid to financial institutions - (2,309)
(Decrease)/increase in factor finance (213,837) 281,155
Share issue costs (52,500) (40,728)
Capital element of finance lease rental (17,954) (13,932)
Shares issued 1,500,000 589,523
--------- ---------
Net cash inflow from financing 1,215,709 813,709
--------- ---------
Increase/(decrease) in cash in the year 274,391 (136,948)
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
1 Reconciliation of operating loss to net cash outflow from operating 2006 2005
activities
£ £
Operating loss (1,532,570) (1,224,596)
Depreciation and amortisation of fixed assets 169,832 480,949
Loss/(profit) on disposal of tangible assets 8,369 (318)
Decrease/(increase) in stocks 56,559 (45,647)
Decrease/(increase) in debtors 284,717 (42,253)
Increase/(decrease) in creditors 135,365 (38,933)
--------- ---------
Net cash outflow from operating activities (877,728) (870,798)
========= =========
2 Analysis of net funds 1 October 2005 Cash flow 30 September
2006
£ £ £
Cash at bank and in hand 471,347 249,415 720,762
Bank overdrafts (24,976) 24,976 -
--------- --------- ---------
446,371 274,391 720,762
--------- --------- ---------
Finance leases (17,954) 17,954 -
Factor finance (281,155) 213,837 (67,318)
--------- --------- ---------
(299,109) 231,791 (67,318)
--------- --------- ---------
Net funds 147,262 506,182 653,444
========= ========= =========
3 Reconciliation of net cash flow to movement in net debt 2006 2005
£ £
Increase/(decrease) in cash in the year 274,391 (136,948)
Cash outflow/(inflow) from decrease/(increase) in debt 231,791 (264,914)
--------- ---------
Movement in net funds in the year 506,182 (401,862)
Opening net funds 147,262 549,124
--------- ---------
Closing net funds 653,444 147,262
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2006
4 Sale of businesses 2006 2005
£ £
Net assets disposed of
Fixed assets 142,179 -
Stock 20,174 -
Debtors 286,176 -
Cash 29,702 -
Creditors (272,158) -
--------- ---------
206,073 -
Sales proceeds 1 -
--------- ---------
Loss on disposal 206,072 -
========= =========
The businesses disposed of during the year were responsible for £23,020 of the group's net operating cash
outflows and were sold for a nominal consideration of £1.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2006
1 Accounting policies
1.1 Accounting convention
The financial statements have been prepared in accordance with applicable accounting standards under
the historical cost convention and in compliance with the requirements of the Companies Act 1985.
As permitted by Section 230 of the Companies Act 1985 the profit and loss account of the parent
company has not been separately presented in the financial statements.
1.2 Basis of consolidation
The group financial statements consolidate the financial statements of the company and all its
subsidiary undertakings as at 30 September 2006 using merger accounting or acquisition accounting
depending on the circumstances surrounding the combination of each subsidiary undertaking and after
eliminating intra-group transactions.
Because the company prepares consolidated financial statements, advantage has been taken of the
partial exemptions contained within Financial Reporting Standard 8 and transactions with group
companies have not been disclosed.
1.3 Turnover
Turnover represents invoiced sales, 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 value of each asset over its expected useful life, as follows:
Leasehold land and buildings Over the term of the lease
Plant and machinery 10% to 25% on written down value
Fixtures & fittings 50% on cost and 25% on written down value
Office equipment 50% on cost
Motor vehicles 25% on written down value
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 in which 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 the transaction. Exchange differences are taken
into account in arriving at the operating result.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
1 Accounting policies (continued)
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 Investments
Investments are included in these financial statements at the cost of the ordinary share capital
acquired. Adjustments to this value are only made when, in the opinion of the directors, a permanent
diminution in value has taken place and where there is no prospect of an improvement in the foreseeable
future.
1.10 Pensions
The group operates a defined contribution 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.
1.11 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.
1.12 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 to 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 they are incurred.
1.13 Stocks
Stocks are included at the lower of cost and net realisable value, after making provision for slow
moving and obsolete items.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
2 Turnover
The turnover and group loss are attributable to the principal activities of the group. An analysis of
turnover by geographical market is given below:
2006 2005
£ £
United Kingdom 1,479,127 2,599,225
Americas 76,429 -
Europe 155,553 562,974
Africa and Middle East 422,018 378,525
Far East 19,494 79,215
--------- ---------
2,152,621 3,619,939
========= =========
3 Continuing/discontinued operations
2006 2005
£ £ £ £ £ £
Continuing Dis- Total Continuing Dis- Total
continued continued
Cost of sales 1,160,760 269,410 1,430,170 1,595,556 455,722 2,051,278
--------- --------- --------- --------- --------- ---------
Net operating expenses
Distribution expenses 406,707 136,291 542,998 376,156 254,902 631,058
Administrative expenses 1,320,121 432,706 1,752,827 1,221,492 967,535 2,189,027
Other operating income - (40,804) (40,804) - (26,828) (26,828)
--------- --------- --------- --------- --------- ---------
1,726,828 528,193 2,255,021 1,597,648 1,195,609 2,793,257
--------- --------- --------- --------- --------- ---------
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
4 Operating loss 2006 2005
£ £
Operating loss is stated after charging/(crediting):
Depreciation of tangible fixed assets 38,890 49,747
Loss/(profit) on disposal of tangible fixed assets 8,369 (318)
Amortisation of intangible fixed assets 130,942 130,526
Operating lease rentals
- Plant and machinery 75,774 25,748
- Other assets 159,663 264,436
Auditors' remuneration 17,000 17,000
Exceptional items (see below) 206,072 503,730
========= =========
The following items have been treated as exceptional in arriving at the
operating loss for the year:
Exceptional stock write off - 40,473
Provision for diminution in value of development costs (see note 10) - 300,676
Exceptional bad debt charge - 162,581
--------- ---------
- 503,730
========= =========
In 2005 the exceptional stock write off was included within cost of sales
and the provision for diminution in value and exceptional bad debt charge
(total £463,257) were included within administrative expenses.
5 Loss on disposal of discontinued operations 2006 2005
£ £
Loss on disposal of subsidiary undertaking - Pentagon Glass Tech 491,447 -
(Franchising) Limited
Profit on disposal of subsidiary undertaking - Pentagon Glass Tech Limited (285,375) -
--------- ---------
206,072 503,730
========= =========
6 Interest payable 2006 2005
£ £
On bank loans and overdrafts 2,176 11,324
On other loans - 2,869
On factored debts 13,410 4,747
On finance leases 2,851 511
--------- ---------
18,437 19,451
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
7 Taxation
£ £
2006 2005
Domestic current year tax
U.K. corporation tax - current tax charge - -
========= =========
Factors affecting the tax charge for the year
Loss on ordinary activities before taxation (1,750,351) (1,235,802)
========= =========
Loss on ordinary activities before taxation multiplied by standard rate (525,105) (370,741)
of UK corporation tax of 30.00% (2005: 30.00%)
--------- ---------
Effects of:
Non deductible expenses 60,566 9,744
Accelerated capital allowances (4,422) (1,505)
Carried forward losses (325,783) (378,980)
Amortisation of goodwill 39,283 -
Losses surrendered on disposal of subsidiaries (75,362) -
Other adjustments (219,387) -
--------- ---------
(525,105) (370,741)
--------- ---------
Current tax charge - -
========= =========
The group has tax losses of approximately £1,410,000 available to carry forward against future trading
profits, subject to agreement by HMRC.
On the basis of prudence, no provision has been made for a potential deferred tax asset of approximately
£423,000.
8 Loss per share
The calculations of loss per share are based on the following losses
and number of shares:
2006 2006 2005 2005
Basic Diluted Basic Diluted
Loss for the financial year (1,750,351) (1,750,351) (1,235,802) (1,235,802)
========= ========= ========= =========
Weighted average number of shares for
basic and diluted loss per share 203,233,224 203,233,224 151,488,970 151,488,970
========= ========= ========= =========
In accordance with the provisions of FRS22, shares under option are not regarded as dilutive in
calculating earnings per share.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
9 Loss for the financial year
As permitted by section 230 of the Companies Act 1985, the holding company's profit and loss account has
not been included in these financial statements. The loss for the financial year is made up as follows:
2006 2005
£ £
Holding company's loss for the financial year (320,668) (3,046,411)
========= =========
10 Intangible fixed assets
Group
Goodwill Development Total
costs
£ £ £
Cost
At 1 October 2005 & 30 September 2006 2,618,840 334,984 2,953,824
--------- --------- ---------
Amortisation
At 1 October 2005 229,747 334,984 564,731
Charge for the year 130,942 - 130,942
--------- --------- ---------
At 30 September 2006 360,689 334,984 695,673
--------- --------- ---------
Net book value
At 30 September 2006 2,258,151 - 2,258,151
========= ========= =========
At 30 September 2005 2,389,093 - 2,389,093
========= ========= =========
Goodwill arose in 2003 on the acquisition of Pentagon Protection (UK) Limited (formerly Pentagon Filmtek
Limited). The goodwill arising is being amortised over its estimated useful economic life of 20 years.
Following a review of deferred development costs, in 2005 the directors took the view that the asset
should be fully amortised.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
11 Tangible fixed assets
Group
Land and Plant and Fixtures & Office Motor vehicles Total
buildings machinery fittings equipment
Leasehold
£ £ £ £ £ £
Cost or valuation
At 1 October 2005 81,838 138,520 72,146 12,994 100,672 406,170
Additions - 9,797 2,689 - - 12,486
Disposals (81,838) (114,055) (65,704) (12,994) (83,163) (357,754)
--------- --------- --------- --------- --------- ---------
At 30 September 2006 - 34,262 9,131 - 17,509 60,902
--------- --------- --------- --------- --------- ---------
Depreciation
At 1 October 2005 37,327 63,323 44,547 4,137 54,798 204,132
Charge for the year 1,855 24,135 3,009 - 9,891 38,890
On disposals (39,182) (69,621) (40,987) (4,137) (51,779) (205,706)
--------- --------- --------- --------- --------- ---------
At 30 September 2006 - 17,837 6,569 - 12,910 37,316
--------- --------- --------- --------- --------- ---------
Net book value
At 30 September 2006 - 16,425 2,562 - 4,599 23,586
========= ========= ========= ========= ========= =========
At 30 September 2005 44,511 75,197 27,599 8,857 45,874 202,038
========= ========= ========= ========= ========= =========
Included above are assets held under finance leases or hire purchase contracts as follows:
2006 2005
£ £
Net book values
Motor vehicles - 18,683
========= =========
Depreciation charge for the year
Motor vehicles 1,573 6,228
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
12 Fixed asset investments
Company
Shares in group
undertakings
£
Cost or valuation
At 1 October 2005 4,235,458
Disposals (1,624,948)
---------
2,610,510
---------
Provision for permanent diminution in value
At 1 October 2005 1,524,948
Disposals (1,524,948)
---------
At 30 September 2006 -
---------
Net book value
At 30 September 2006 2,610,510
=========
At 30 September 2005 2,710,510
=========
The company disposed of two subsidiary undertakings during the year, being Pentagon Glass Tech Limited
and Pentagon Glass Tech (Franchising) Limited. The investment in Pentagon Protection (UK) Limited
(formerly Pentagon Filmtek Limited) remains at cost.
The company owns 100% of the ordinary share capital of the following subsidiary company, which is
incorporated in England:
Name: Principal activity:
Pentagon Protection (UK) Limited (formerly Supply and application of solar controls, safety
Pentagon Filmtek Limited) and security films to commercial buildings.
13 Debtors
Group Company
2006 2005 2006 2005
£ £ £ £
Trade debtors 386,284 1,087,666 - -
Amounts owed by group undertakings - - 646,555 111,360
Other debtors 301,271 120,464 288,511 -
Prepayments and accrued income 3,771 54,088 - 22,111
--------- --------- --------- ---------
691,326 1,262,218 935,066 133,471
========= ========= ========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
14 Creditors : amounts falling due within one year
Group Company
2006 2005 2006 2005
£ £ £ £
Bank loans and overdrafts - 24,976 - -
Factor finance 67,318 281,155 - -
Net obligations under finance lease and - 9,386 - -
hire purchase contracts
Trade creditors 325,899 507,740 31,693 27,033
Other taxes and social security costs 20,352 70,802 - 10,984
Other creditors 78,007 71,879 2,584 52,083
Accruals and deferred income 147,730 58,360 68,000 6,000
--------- --------- --------- ---------
639,306 1,024,298 102,277 96,100
========= ========= ========= =========
The invoice financing facility is secured by way of a fixed and floating charge over all of the
assets, both present and future, of the company.
15 Creditors : amounts falling due after more than one year
Group Company
2006 2005 2006 2005
£ £ £ £
Net obligations under finance leases and - 8,568 - -
hire purchase agreements
--------- --------- --------- ---------
- 8,568 - -
========= ========= ========= =========
Analysis of loans
Wholly repayable within five years - 17,954 - -
Included in current liabilities - (9,386) - -
--------- --------- --------- ---------
- 8,568 - -
========= ========= ========= =========
Loan maturity analysis
In more than one year but not more than - 8,568 - -
two years
========= ========= ========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
16 Provisions for liabilities
Other provisions
Group Company
£ £
Balance at 1 October 2005 195,000 195,000
Payments made in the year (11,193) (11,193)
--------- ---------
Balance at 30 September 2006 183,807 183,807
========= =========
The above provision relates to deferred consideration on the acquisition of a subsidiary as follows:
Group Company
2006 2005 2006 2005
£ £ £ £
Further payments 183,807 195,000 183,807 195,000
========= ========= ========= =========
17 Pension costs
Defined contribution 2006 2005
£ £
Contributions payable by the group for the year 8,139 22,336
========= =========
18 Share capital 2006 2005
£ £
Authorised
1,000,000,000 Ordinary shares of 0.1p each 1,000,000 1,000,000
========= =========
Allotted, called up and fully paid
310,918,156 (2005: 165,918,156) Ordinary shares of 0.1p each 310,918 165,918
========= =========
Share transaction history:
On 15 June 2006 there was a placing of 125,000,000 ordinary 0.1p shares for 1p each. There was a
further placing of 20,000,000 ordinary 0.1p shares for 1.25p on 25 September 2006.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
18 Share capital (continued)
Share options
As at 30 September 2006 there were 3,592,105 share options outstanding under an Unapproved Executive
Share Option scheme. These options are exercisable at 4.75p on or before 11 December 2014. There
were also 2,579,534 options outstanding under an Enterprise Management Initiative Scheme exercisable
at 4.75p per share on or before 9 February 2015.
Employee share option plan
On flotation 4,541,262 shares were gifted into an Employee Share Option Plan. At 30 September 2006
1,941,635 of these shares remained unallocated.
19 Statement of movements on reserves
Group
Profit and loss Share premium Merger reserve Totals
account account
£ £ £ £
At 1 October 2005 (1,357,118) 4,297,803 192,150 3,132,835
Shares issued - 1,355,000 - 1,355,000
Share issue expenses - (52,500) - (52,500)
Loss for the year (1,750,351) - - (1,750,351)
Reserve transfer 192,150 - (192,150) -
--------- --------- --------- ---------
At 30 September 2006 (2,915,319) 5,600,303 - 2,684,984
========= ========= ========= =========
Company
Profit and loss Share premium Merger reserve Totals
account account
£ £ £ £
At 1 October 2005 (3,191,336) 4,297,803 1,570,783 2,677,250
Shares issued - 1,355,000 - 1,355,000
Share issue expenses - (52,500) - (52,500)
Loss for the year (320,668) - - (320,668)
Reserve transfer 1,570,783 - (1,570,783) -
--------- --------- --------- ---------
At 30 September 2006 (1,941,221) 5,600,303 - 3,659,082
========= ========= ========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
20 Reconciliation of movements in shareholders' funds 2006 2005
Group £ £
Loss for the financial year (1,750,351) (1,235,802)
Net proceeds from issue of shares 1,447,500 548,795
--------- ---------
Net depletion in shareholders' funds (302,851) (687,007)
Opening shareholders' funds 3,298,753 3,985,760
--------- ---------
Closing shareholders' funds 2,995,902 3,298,753
========= =========
2006 2005
Company £ £
Loss for the financial year (320,668) (3,046,411)
Net proceeds from issue of shares 1,447,500 548,795
--------- ---------
Net increase/(depletion) in shareholders' funds 1,126,832 (2,497,616)
Opening shareholders' funds 2,843,168 5,340,784
--------- ---------
Closing shareholders' funds 3,970,000 2,843,168
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
21 Directors' emoluments 2006 2005
£ £
Aggregate emoluments including benefits in kind 207,697 232,734
========= =========
Emoluments disclosed above include the following amounts paid to
the highest paid director:
Aggregate emoluments 59,316 69,072
========= =========
No director benefited from any increase in the value of share
options during the year.
22 Employees
Number of employees
The average monthly number of employees (including directors) during the year was:
2006 2005
Number Number
Operations 12 13
Administration 15 16
Sales 9 10
--------- ---------
36 39
========= =========
Employment costs
£ £
Wages and salaries 903,013 1,119,294
Social security costs 86,358 113,250
Other pension costs 8,139 22,336
--------- ---------
997,510 1,254,880
========= =========
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
23 Financial instruments
The group's financial instruments comprise cash, borrowings, factor finance and hire purchase and
finance liabilities as well as various items such as trade debtors and trade creditors that arise
directly from its operations. The main purpose of these financial instruments is to raise finance for
the group's operations. Short term debtors and creditors have been excluded from the following
disclosures.
The fair value of the group's financial assets and liabilities is not materially different from the
carrying values in the balance sheet.
It is and has been throughout the period under review, the group's policy that no trading in financial
instruments shall be undertaken.
The main risks arising from the group's financial instruments are interest rate risk and liquidity
risk.
Interest rate risk
It is the group's policy to regularly review the group's exposure to interest rate risk.
Liquidity risk
It is the group's policy to regularly review the group's exposure to liquidity risk so that an
appropriate balance between continuity of funding and short term flexibility is achieved. The maturity
profile of the group's financial liabilities at 30 September 2006 is shown in note 15 to the financial
statements.
Interest rate risk profile of financial assets and financial liabilities
Financial assets
The group's exposure to interest rate risk currently applies only to the interest received on cash
deposits which is based on the Nat West base rate. The group' sterling floating cash balances at the
year end were £720,762 (2005: £471,347).
Financial liabilities
The interest rate profile of the group's financial liabilities was as follows:
Total Floating rate Fixed rate
financial financial
liabilities liabilities
£ £ £
Currency
At 30 September 2006: Sterling 67,318 67,318 -
========= ========= =========
At 30 September 2005: Sterling 299,109 306,131 17,954
========= ========= =========
All fixed rate financial liabilities relate to hire purchase and finance lease agreements which have
different levels of agreed fixed interest rates.
The floating rate financial liabilities comprise sterling denominated overdrafts that bear interest
based on the Nat West base rate and borrowing from a factor that bears interest based on the Royal Bank
of Scotland base rate.
PENTAGON PROTECTION PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 30 SEPTEMBER 2006
24 Control
The company is listed on AIM and there is no individual controlling party.
25 Related party disclosures
2006 2005
£ £
Creditor balances
R Bambra 2,803 52,803
A Nicholl 50,000 -
========= =========
During the year the group paid rent and service charges of £18,850
(2005: £35,400) to GB Management Limited, a company in which G Bannerman
has an interest.
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