Final Results

RNS Number : 6500P

Pentagon Protection PLC

27 March 2009

 



27 March 2009

Pentagon Protection Plc

('Pentagon' or 'The Company')

(AIM: PPR),

Final Results

Pentagon Protection Plc, the global specialist in the supply and installation of enhanced glass protection, is pleased to announce its Final Results for the 12 months ended 30 September 2008.

Highlights:

• UK turnover increased by 16% to over £700,000 in 2008 (2007:£606,232);

• Sales in Europe increased by 68% to £343,725 in 2008 (2007:£204,283);

• Distribution costs reduced by 28% to £256,691 in 2008 (2007: £356,761);

• Administrative expenses were reduced by 8% to £730,169 in 2008 (2007: £791,745);

• Strong cash position, with cash reserves of over £500,000 (100% up lift against 2007:£260,904); and

• Successful acquisition of SDS Group Limited, supporting the Group's plans for continued expansion in the security industry.

Haytham ElZayn, Chairman of Pentagon Protection Plc, said: 'Despite the challenging trading conditions, we believe that the Group remains in a strong position to emerge from the economic downturn leaner and more efficient, with a focus on technologies and expertise which is valued by our customers. We continue to have a strong cash reserve and look for expansion opportunities especially in the security industry which is less affected by the economic down turn.' 

Enquiries:

Pentagon Protection Plc	Tel: [phone]
Haytham ElZayn , Chairman
Seymour Pierce	Tel: [phone]
Jonathan Wright
Dowgate Capital Stockbrokers	Tel: [phone]
Philip Dumas
Bishopsgate Communications Ltd	Tel: [phone]
Jenni Herbert/Gemma O’Hara

PENTAGON PROTECTION PLC

CHAIRMAN'S STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2008

Introduction

I present the results for the year ended 30 September 2008 to you in this statement, my first as Chairman. The Group has faced some challenges over the year, not least, the pressures of the economic downturn, but subsequent to the year end, the Board has been reconfigured and the new team intends to focus ever more sharply on improved strategies and operational efficiencies.

I would like to take this opportunity to thank my predecessor, Alan Nicholl, for his dedication as Chairman of the Group for the last 3 years, and wish him well in his retirement.

Moving on to the other changes to the Board this year; Mr Chunlin Liu, who joined the Board of Pentagon Protection Plc ('Pentagon') in November 2007 as Deputy Chairman, has since taken the decision to focus on academic pursuits and resigned in August 2008. The Board wishes Chunlin, who continues to be a substantial shareholder in the Group, every success in pursuing his doctorate.

More recently, we have been joined by two new Directors; Mr Patric Fransko and Dr John Wyatt MBE. Patric brings with him nearly ten year's experience in the window film industry and can also contribute his expert knowledge of the US market. John, who has been awarded an MBE for gallantry in counter-terrorism, is a highly-respected authority in the area of security consultancy and is very well known in his field. Both of our new Directors are working with me to evolve the strategic direction of the Group and I am excited about the opportunities this brings. 

As we explained to you in the interim statement to March 2008, Pentagon has won its largest contract to date; a £2m turnkey contract to retro-fit glass containment window film and anchoring and replacement windows for an overseas government to their worldwide premises. This project commenced in Autumn 2008 and continues into 2009 although, unfortunately, the benefits of this contract have been impacted by an extensive and costly legal battle with a third party who tried to stop the Group from benefiting from this prestigious work. This litigation diverted significant management effort away from the day-to-day running of the business and has had a detrimental effect on the results for the year. However, this issue is now behind us and we can concentrate fully on maximising the benefit from this contract and our other new projects. 

Financial Review

In the interim report to 31 March 2008, it was reported that turnover was lower than the comparable period last year due to a lack of sales in the Far East. Unfortunately, this trend continued for the rest of the year with disappointing sales in this region. Turnover in the Far East for the year ended September 2008 was just £971. This is a drop from the year to September 2007 of £398,771 (almost 100%). Sales to Africa and the Middle East also fell from £526,740 to £303,275 from 2007 to 2008 (representing a 42% reduction in turnover). However, results across the rest of the world have been much more encouraging; UK turnover has increased by 16% from the previous period, from £606,232 in 2007 to over £700,000 this year. The Group has also made exciting inroads in North America where revenue increased from no revenue in the region in 2007 to £95,451 in 2008. Sales within Europe have also increased by an impressive 68% from sales of £204,283 in 2007 to sales of £343,725 in 2008.

The gross profit for the year of £376,621 was 54% lower than the 2007 gross profit of £818,719. This results from a reduction in the gross profit margins from 47% in 2007 to 26% in 2008 reflecting the very difficult, competitive markets we continue to face across all sectors. The smaller margins also result from performing a high proportion of much smaller contracts, where set up costs inevitably impinge on our ability to make good margins.

The Group continued to control other expenditure during the year; distribution costs of £256,691 have reduced by 28% on 2007 expenditure of £356,761. Administrative expenses have also fallen, from £791,745 to £730,169, representing a drop of 8%.

The Group operating loss for the year was £610,239, an increase of 85% on the 2007 loss of £329,787. This reflects the reduced turnover and margins arising from the current economic environment.

Finance income in 2008 of £10,974 (against 2007 finance income of £10,440) is a marginal increase on last year and finance costs have reduced by 53% to £2,916 (2007: £6,196).

Overall, the Group consolidated loss for the year was £2,991,274. This is arrived at after an exceptional charge for impairment of goodwill of £2,389,093 (2007: £nil).  The impairment relates to the historic goodwill which arose on the acquisition of Pentagon Protection (UK) Limited (formerly Filmtek Limited). The current lack of demand, which stems from the tight controls being applied to capital expenditure in our markets, has impacted the activity of this business unit. The goodwill generated upon the acquisition of SDS Group Limited in the year remains unaffected.

The Group balance sheet at the end of the period has net assets of £1,183,957 after the above impairment (2007: £2,912,418); this is a decrease of 59% on the previous year. The cash position of the Group remains strong with cash reserves of over £500,000 (against 2007 levels of £260,904; an uplift of over 100%).

Cash raised from the issue of shares amounted to £1,154,813 and this cash inflow was used to fund a new acquisition in the period; SDS Group Limited, which was acquired just before the year end, hence its balance sheet, but not its results, are included within the consolidated financial statements for the year. I comment further on the operational impact of this strategic acquisition below.

The Board does not recommend the payment of a dividend.

Operational Review

As I mention above, the operating climate has been challenging in the year to 30 September 2008. However, as terrorism and the ongoing issue of global warming continue to impact the thinking of the Group's customer base, the Group continues to be a leader in its field.

Acquisition

In September 2008, Pentagon acquired SDS Group Limited ('SDS'). SDS has been established for over 30 years and is a leading supplier of security equipment and products.  SDS is also a world leader in security consulting and training, these services being led by Dr John Wyatt. John is highly respected in his field and also widely known both in the UK and overseas; his knowledge and reputation are substantial assets to the wider Group.  

SDS supplies equipment, including highly-specialist security and search equipment, mainly to governments, police forces and security and defence forces in the UK and around the world. SDS has strong relationships with customers and extends its offering to clients by providing expert knowledge and further training and consultancy. The Board and management of SDS are working together on new products, particularly in order to penetrate the private sector in the hotel and leisure industry.

The success of this acquisition supports plans for continued expansion of the Group's activities in the security industry, which is affected less by the world economic downturn than many sectors.

UK Operations

In this turbulent economic climate, we have continued to invest in sales and marketing. This policy will ensure that the Group maintains its presence in the industry and will seek to inform the market of our leading services. With carbon footprints now becoming a priority and the reduction of CO2 emissions being paramount, we believe there is a golden opportunity to introduce Pentagon's energy-saving films to a wide range of clients.

The Group launched a speculative new venture in the year to supply glazing to the commercial retail sector including shopfronts, curtain walling, balustrade glazing, and mirrors as well as emergency glazing. During the year, approximately £25,000 of set-up costs were incurred. However, this venture was started prior to the collapse of the UK economy in Autumn 2008, before the virtual freeze on capital expenditure and, subsequent to the year-end, investment into this venture has been discontinued.

USA Operations

Taking on the role of Chairman has allowed me to further strengthen links between the UK Group and Pentagon USA given my strong involvement with operations in the States. I bring detailed knowledge of the American market and I am excited about the potential in this area.

Middle Eastern Operations

The Middle East still continues to be an area of growth in the supply of security products and blast mitigation products continue to be at the forefront of this revenue stream. Our agents in Algiers and Saudi Arabia have obtained enquiries of over £1 million to date, in addition to a healthy order book.

Rest of World

In my introduction, I explain that Pentagon's largest contract to date commenced in Autumn 2008; this contract continues to go well and Pentagon will see the benefits over the coming years. On our other projects, blast mitigation film and anchoring remains high on the list for the protection of staff and equipment within all buildings. 

The overseas government I referred to above has also confirmed that Pentagon is now one of their approved contractors for the implementation of security Assessment and Examination consultancy works globally, and this contract will run for 3 years with a potential value of approximately £500,000 per year.

We also continue to tender for other substantial contracts in Europe.

Conclusion

Despite the challenging trading conditions, the Group remains in a strong position to emerge from the economic downturn leaner and more efficient, with a focus on technologies and expertise valued by our customers. On behalf of the Board, I would like to thank all of the employees for their continued hard work and commitment.

Haytham ElZayn

Chairman

27 March 2009

PENTAGON PROTECTION PLC

GROUP INCOME STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2008

			2008		2007
		Notes	£		£
Revenue			1,444,247		1,736,026
Cost of sales			(1,067,626)		(917,307)
Gross profit			376,621		818,719
Distribution costs			(256,691)		(356,761)
Administrative expenses			(730,169)		(791,745)
OPERATING LOSS BEFORE FINANCING ACTIVITIES			(610,239)		(329,787)
Impairment of goodwill			(2,389,093)		-
Finance income			10,974		10,440
Finance costs			(2,916)		(6,196)
LOSS BEFORE TAX			(2,991,274)		(325,543)
Tax			-		-
LOSS FOR THE YEAR			(2,991,274)		(325,543)
Loss attributable to:
Equity holders of the Parent			(2,991,274)		(325,543)
Total recognised income and expenses attributable to:
Equity holders of the Parent			(2,991,274)		(325,543)
Loss per share
Basic		1	(0.76)p		(0.10)p
Diluted		1	(0.76)p		(0.10)p
Revenue and operating loss for the year all derive from continuing operations.

  PENTAGON PROTECTION PLC

BALANCE SHEETS

AS AT 30 SEPTEMBER 2008

				Group		Company
				2008	2007	2008	2007
			Notes	£	£	£	£
ASSETS
Non-current assets
Intangible assets				27,810	-	-	-
Goodwill				351,360	2,389,093	-	-
Property, plant and equipment				37,912	6,459	-	-
Investments				-	-	767,338	2,610,510
				417,082	2,395,552	767,338	2,610,510
Current assets
Inventories				195,961	105,984	-	-
Trade and other receivables				553,750	496,247	1,736,360	1,263,289
Cash and cash equivalents				523,122	260,904	323,394	253,039
				1,272,833	863,135	2,059,754	1,516,328
TOTAL ASSETS				1,689,915	3,258,687	2,827,092	4,126,838
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables				456,217	267,100	56,811	62,500
Borrowings				39,912	20,362	-	-
				496,129	287,462	56,811	62,500
Non-current liabilities
Borrowings				9,565	-	-	-
Provisions				-	58,807	-	58,808
Deferred tax liability				264	-	-	-
				9,829	58,807	-	58,808
Total liabilities				505,958	346,269	56,811	121,308
Equity
Share capital				531,418	326,418	531,418	326,418
Share premium account				6,763,116	5,705,303	6,763,116	5,705,303
Shares held by ESOP				(4,541)	(4,541)	(4,541)	(4,541)
Retained earnings				(6,106,036)	(3,114,762)	(4,519,712)	(2,021,650)
Total equity attributable to equity holders of the parent
			2	1,183,957	2,912,418	2,770,281	4,005,530
TOTAL EQUITY AND LIABILITIES				1,689,915	3,258,687	2,827,092	4,126,838
The financial statements on pages 9 to 29 were approved by the directors and authorised for issue on 27 March 2009 and are signed on their behalf by
S D Harrhy
Director

  PENTAGON PROTECTION PLC

CASH FLOW STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER 2008

		Group		Company
		2008	2007	2008	2007
	Notes	£	£	£	£
Operating activities
Operating loss before tax		(610,239)	(329,787)	(119,916)	(92,650)
Depreciation of property, plant and equipment		5,571	16,186	-	-
Loss on disposal of property, plant and equipment		1,721	200	-	-
Decrease in inventories		34,073	19,206	-	-
Decrease in trade receivables		83,240	195,078	(473,071)	(328,223)
Decrease in trade payables		(62,070)	(314,271)	(5,691)	(42,278)
Decrease in provisions		(58,807)	-	(58,807)	-
Interest received		10,974	10,440	10,948	10,191
Interest paid		(2,916)	(6,196)	-	(10)
Net cash used in operating activities		(598,453)	(409,144)	(646,537)	(452,970)
Investing activities
Payments to acquire intangible fixed assets		(27,810)	-	-	-
Payments to acquire property, plant and equipment		(28,625)	(559)	-	-
Receipts from sales of property, plant and equipment		341	1,300	-	-
Payment against provision for purchase of subsidiary undertaking		-	(124,999)	-	(124,999)
Acquisition of a subsidiary net of cash acquired		(267,163)	-	(437,921)	-
Net cash used in investing activities		(323,257)	(124,258)	(437,921)	(124,999)
Financing activities
Increase/(decrease) in factor finance		14,416	(47,511)	-	-
Capital element of finance lease rental		14,782	-	-	-
Net proceeds from issue of shares		1,154,813	120,500	1,154,813	120,500
Net cash from financing activities		1,184,011	72,989	1,154,813	120,500
Net increase/(decrease) in cash and cash equivalents		262,301	(460,413)	70,355	(457,469)
Cash and cash equivalents at the start of the period		260,349	720,762	253,039	710,508
Cash and cash equivalents at the end of the period		522,650	260,349	323,394	253,039
Cash and cash equivalents consists of:
Cash and cash equivalents		523,122	260,904	323,394	253,039
Bank overdrafts		(472)	(555)	-	-
		522,650	260,349	323,394	253,039

  PENTAGON PROTECTION PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 

FOR THE YEAR ENDED 30 SEPTEMBER 2008

1	Loss per share
	The calculations of loss per share are based on the following losses and number of shares:
					2008		2008		2007		2007
					Basic		Diluted		Basic		Diluted
	Loss for the financial year				(2,991,274)		(2,991,274)		(325,543)		(325,543)
	Weighted average number of shares for basic and diluted loss per share
					396,188,019		396,188,019		312,271,580		312,271,580
	In accordance with the provisions of IAS33, shares under option are not regarded as dilutive in calculating earnings per share.

2	Statement of changes in equity
	Group						2008		2007
							£		£
	At 1 October 2007						2,912,418		3,117,461
	Loss for the financial year						(2,991,274)		(325,543)
	Increase from issue of shares						1,262,813		120,500
	Total recognised income and expense for the year						(1,728,461)		(205,043)
	At 30 September 2008						1,183,957		2,912,418

2	Statement of changes in equity (continued)
	Company							2008		2007
								£		£
	At 1 October 2007							4,005,530		3,970,000
	Loss for the financial year							(2,498,062)		(84,970)
	Net proceeds from issue of shares							1,262,813		120,500
	Total recognised income and expense for the year							(1,235,249)		35,530
	At 30 September 2008							2,770,281		4,005,530

 

END

 

 

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