Final Results

RNS Number : 2113D

Pentagon Protection PLC

18 March 2011

 



Pentagon Protection plc

Final results for the year ended 30 September 2010

Introduction

I present the results for Pentagon Protection Plc for the year ended 30 September 2010.

This has been a transformational period for the Group, with the sale of Pentagon Protection (UK) Limited (PP UK) and the acquisition, since the year end, of International Glass Solutions LLC (IGS), allowing the Group to find a real foothold in the US market. In addition, since the year end, we have made two senior appointments with Patric Fransko moving from a non-executive role to Executive Director in charge of US Operations and Steve Chambers joining the board as Managing Director for UK operations. I strongly believe that the combination of these appointments and corporate transactions provide us with a firm foundation to take the business forward.

The Group is reporting a profit of £1,544 for the year (2009; Loss £1,349,862) which is set against a backdrop of significantly reduced turnover and an increase in operating losses. This profit has been achieved as a result of the profit recognised on disposal of PPUK and the reversal of the warranty claim provision in last year's figures. A significant proportion of management time and effort has been devoted to the disposal of PPUK and the handling of the warranty claim and this exacerbated a poor trading performance which reflected the general worldwide decline in trade as a result of the global economic crisis. I will report in further detail on the financial and operational performance below.However I am pleased to be able to report that the distraction of the warranty claim has now been removed from our senior managers' attention and this combined with the senior appointments I have referred to provides us with sufficient management capability to tackle the future with confidence.

Financial Review

As highlighted above, 2010 has been a mixed year. General trends show that whilst turnover has fallen, gross profit margins have increased, and although the loss from trading was substantial, this was compensated for by exceptional items to produce a small net profit overall for the year.

Turnover has fallen in the year from £2,948,574 to £1,763,809, representing a decrease of £1,184,765 (or 40%). There has been a general decrease across all regions, the largest being a disappointing decrease of 98% in sales to the Americas. We feel that this problem will be addressed by the acquisition of IGS, which gives us a full US presence, including two offices, some dedicated staff as well as the appointment of one of our non-executive directors, Patric Fransko, to a fully executive role of Director of US Operations.

Although the gross profit fell in absolute terms as a direct result of the drop in sales volume, (by £125,178 from £715,297 in 2009 to £590,119 in 2010) the gross profit margin increased from 24% in 2009 to 33% in 2010. We have maintained this increased level of margin into the current year and if this trend continues we should see a marked increase in Gross Profit as turnover returns to historic levels.

Whilst distribution costs have fallen 21% in the year (£94,802 compared with £119,618 in 2009), largely as a result of the downturn in turnover, administration costs at £1,181,394 (2009: £1,025,316) have been inflated as a result of the acquisition activity and the cost of share options granted in the year (being a non-cash, accounting adjustment only). This is despite the cost cutting exercise that has been carried out and which will be better reflected in the administrative costs of the current year.

The net impact of the increased margin and overheads has been to restrict the operating loss before exceptional items to £681,467 (2009: £425,014) despite a £1.2 m reduction in turnover.

There have then been two exceptional items in the year. The disposal of PP UK during the current year realised a profit on disposal of £461,865.  The Group may receive further consideration for the company in the future dependent upon its future profitability. The other exceptional item was the reversal of the warranty claim provided for in the 2009 Financial Statements.

The Group Statement of Financial Position shows a stronger net asset position of £451,557 in 2010, compared with £95,345 in 2009, an increase of £356,212. This is largely due to the disposal of PP UK Limited.

There has been an increase in the Group cash position, which is £178,056 in 2010 compared to £44,467 in 2009, representing an increase of 300%. This is primarily due to the issue of shares in the year and the collection of trade receivables.

The Board does not recommend the payment of a dividend.

Operational review

The general world economy continues to be challenging, however the ongoing threat of terrorism, and political unrest in the Middle East, represents opportunities for the Group.

Disposal of Pentagon Protection (UK) Limited

As mentioned above, during the year the Group disposed of one of its trading subsidiaries, PP UK. The practical impact of this has been to remove the distraction of resolving the outstanding warranty claim from the Group's day-to-day trading and place this responsibility with the former management of the Group with a view to resolving the issue to the satisfaction of all parties. As  the Group's major contracts have  in recent years been held by the Plc (although historically serviced by PP UK) the disposal should have no adverse impact on trading and in fact the Group has recently commenced work on the European Commission film contract which is the largest contract undertaken by the Group in its history to date.

Acquisition of International Glass Solutions LLC

On 25 October 2010, the Group acquired from me 100% of the share capital of IGS, a company incorporated in the USA. The acquisition was part of a series of measures to strengthen the position of the Group and to allow it to gain a firm place in the US market.

IGS is run by Patric Fransko, who has been one of Pentagon's non-executive directors since 2 March 2009. IGS provides film-based glazing solutions covering a wide range of applications, including blast mitigation and improving energy efficiency. IGS has built a number of strategic partnerships and I am confident this acquisition will give the Group a strong foothold in the USA. As reported above Patric will now adopt an executive role within Pentagon, adding significant experience to, and strengthening, the management team. Patric is also going to become the Group CEO, with specific responsibility for developing the business in the USA.

Security products and services

The Group's subsidiary in this field, SDS Group Limited, continues to seek and exploit opportunities in its field. The company has worked very closely with the Metropolitan Police over the last year with a view to working together on large projects leading up to and during the 2012 Olympic Games in London.

Current Trading and Future Prospects

Looking to the future, I am very pleased to report the appointment of Steve Chambers as our new UK Managing Director in November 2010. Steve has extensive experience in the window film industry and associated energy markets, prior to which he had sixteen years experience in the United States Navy as an engineering officer.  I am delighted to welcome him on board at such a crucial time in the Group's growth and progression globally and I am confident he will be able to help us to strengthen our strategy going forward and to return the Group to profitability and growth.   

Whilst trade in the first half of the current year continued at a similar level to last year, as we completed the acquisition of IGS and the search for our new UK Managing Director, we have seen an upturn in recent months as Steve Chambers has begun to settle into his role and the European Commission contract has commenced and I look forward to reporting on the next 18 months trade which should reflect the hard work carried out to date.

Conclusion

The Group has performed well in what has been a busy and sometimes difficult year but I am excited about the prospects for the year ahead as we take the Group forward with renewed vigour and strategic focus.

On behalf of the Board, I would like to thank all of our employees for their continued hard work and support.

H ElZayn

Chairman                                

17 March 2011

Enquiries:

Pentagon Protection Plc

Haytham ElZayn, Chairman                                 Tel: [phone]

Seymour Pierce                                                Tel: [phone]

Jonathan Wright

Statements of Financial Position		Group		Company
		2010	2009	2010	2009
		£	£	£	£
ASSETS
Non-current assets
Intangible asset		-	18,540	-	-
Goodwill		351,360	351,360	-	-
Property, plant and equipment		15,917	35,163	6,946	-
Investments		______-	______-	545,921	767,338
		367,277	405,063	552,867	767,338
Current assets
Inventories		193,151	173,058	2,000	-
Trade and other receivables		360,417	1,142,194	383,640	2,308,053
Cash and cash equivalents		178,056	44,467	38,382	679
		731,624	1,359,719	424,022	2,308,732
		________	________	_______	________
TOTAL ASSETS		1,098,901	1,764,782	976,889	3,076,070
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables		642,989	662,098	418,356	90,575
Borrowings		4,355	77,191	4,355	_______-
		647,344	739,289	422,711	__90,575
Non-current liabilities
Borrowings		-	4,348	-	-
Provisions		-	925,800	-	-
		___ _____	________	__ _____	__________
		________-	930,148	_______-	_________-
		___ _____	________	___ ____	__ _______
Total liabilities		647,344	1,669,437	422,711	90,575
Equity
Issued capital		801,918	641,418	801,918	641,418
Share premium account		7,056,785	6,914,366	7,056,785	6,914,366
Share based payments		51,749	-	51,749	-
Shares held by ESOP		(4,541)	(4,541)	(4,541)	(4,541)
Retained earnings		(7,454,354)	(7,455,898)	(7,351,733)	(4,565,748)
Total equity attributable to		_________	__________	__________	_________
equity shareholders of the parent		451,557	95,345	554,178	2,985,495
		_________	__________	__________	_________
TOTAL EQUITY AND LIABILITIES		1,098,901	1,764,782	976,889	3,076,070

Consolidated Income Statements		2010	2009
		£	£
Revenue		1,763,809	2,948,574
Cost of sales		(1,173,690)	(2,233,277)
		__________	_________
Gross profit		590,119	715,297
Distribution costs		(94,802)	(119,618)
Administrative expenses		(1,181,394)	(1,025,316)
Other operating income		4,610	4,623
		__________	_________
OPERATING LOSS BEFORE PROVISIONS		(681,467)	(425,014)
Profit on disposal of subsidiary		461,865	-
Warranty claim provision		225,800	(925,800)
		__________	_________
OPERATING PROFIT/(LOSS) BEFORE FINANCING ACTIVITIES		6,198	(1,350,814)
Finance income		41	6,611
Finance costs		(4,695)	(5 ,923)
		__________	__________
PROFIT/(LOSS) BEFORE TAX		1,544	(1,350,126)
Tax		-	264
PROFIT/(LOSS) FOR THE YEAR		1,544	(1,349,862)
Other comprehensive income		-	-
		__________	_________
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		1,544	(1,349,862)
Profit/(loss) attributable to:
Equity holders of the parent		1,544	(1,349,862)
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Equity holders of the parent		1,544	(1,349,862)
Earnings/(loss) per share
Basic (pence per share)		0.00p	(0.24)p
Diluted (pence per share)		0.00p	(0.24)p

Consolidated statements of cash flows	Group		Company
	2010	2009	2010	2009
	£	£	£	£
Operating activities
Profit/(Loss) before tax	1,544	(1,350,126)	(2,785,985)	(46,036)
Adjustments for:
Depreciation of property, plant and equipment	7,133	9,595	429	-
Amortisation of intangibles	18,540	9,270	-	-
(Profit)/Loss on disposal of subsidiary	(461,865)	-	221,416	-
Share based payments	51,749	-	51,749	-
Loss on disposal of property, plant and equipment	14,960	-	-	-
Changes in working capital:
(Increase)/Decrease in inventories	(20,093)	22,903	(2,000)	-
Decrease/(Increase) in trade receivables	438,127	(588,444)	1,924,413	(571,693)
Increase/(Decrease) in trade payables	90,106	206,353	327,781	33,764
(Decrease)/Increase in provisions	(225,800)	925,800	-	-
Net finance cost/(income)	4,654	(688)	3,331	(6,385)
Net cash used in operating activities	(80,945)	(765,337)	(258,866)	(590,350)

Investing activities
Payments to acquire intangible fixed assets	-	-	-	-
Payments to acquire property, plant and equipment	(8,071)	(6,846)	(3,020)	-
Receipts from sales of property, plant and equipment	5,224	-	-	-
Disposal of a subsidiary net of cash disposed of	(29,759)	-	1	-
Interest received	41	6,611	-	6,385
Net cash (used in)/from investing activities	(32,565)	(235)	(3,019)	6,385

Financing activities
(Decrease)/Increase in factor finance	(45,915)	37,279	-	-
Capital element of finance lease contracts	(5,210)	(5,217)	-	-
Net proceeds from issue of shares	302,919	261,250	302,919	261,250
Interest paid	(4,695)	(5,923)	(3,331)	-
Net cash from financing activities	247,099	287,389	299,588	261,250

Net increase/(decrease) in cash and cash
equivalents	133,589	(478,183)	37,703	(322,715)
Cash and cash equivalents at the start of the year	44,467	522,650	679	323,394
	_______	_______	______	________
Cash and cash equivalents at the end of the year	178,056	44,467	38,382	679
Cash and cash equivalents consists of:
Cash and cash equivalents	178,056	44,467	38,382	679
	178.056	44,467	38,382	679

This announcement has been extracted from the audited accounts for the year ended 30 September 2010 which are being posted to shareholders and will be available on the company's website and on which the auditors gave an unqualified audit opinion.

 

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