Interim Results
Pentagon Protection PLC
29 June 2007
29 March 2007
For immediate release
Pentagon Protection
INTERIM RESULTS
Pentagon Protection, the global specialist in the supply and installation of
enhanced glass protection and anchoring for glazing, announces its Interim
Results for the six months ended 31 March 2007, a period showing a considerable
reduction in losses.
Results highlights:
• Turnover up 7% to £1,051,035 (not incl. turnover from discontinued operations
of £446,021 in the six months to 31 March 2006)
• Operating loss down 54% to £175,668 (not incl. loss from discontinued
operations of £245,631 in the six months to 31 March 2006)
• Administrative expenses down 42%
Alan Nicholl, Chairman of Pentagon, commented 'I would not usually be pleased to
present accounts that showed a loss for a six month period of over £175,000.
However, when this is compared with any of the six month periods going back over
the last few years, it shows significant progress in bringing the performance of
the company under control.'
Enquiries:
Pentagon Protection Plc Tel: 01494 793 333
Alan Nicholl, Chairman
Seymour Pierce Tel: 0207 107 8000
Jonathan Wright
Parkgreen Communications Tel: 0207 479 7933
Ben Knowles Mob: 07900 346 978
ben.knowles@parkgreenmedia.com
Chairman's statement
Introduction
The constitution of your Board has changed since my last report in March.
Graham Bannerman, our CEO of the last three and half years, has moved
permanently to Dubai. As a consequence of this, he has resigned his
directorship, although we will continue to have his invaluable input as an
Advisor to the Board. Graham's involvement with the Group will also continue on
a day to day basis, through his running of a licensed international operation,
as explained further below.
I have now taken up the Chief Executive position in order to recognise the
increasingly executive role that I am playing in relation to the business of the
Group. I welcome the opportunity to be more intimately involved in the day to
day running of the business and have reorganised my affairs in order to allow me
the opportunity to concentrate on growing and improving Pentagon with the help
of my fellow directors.
In addition to these changes to existing appointments, we currently have active
plans to increase the non executive element of the Board.
Moving on now to the real business of this Interim Report, I would not usually
be pleased to present accounts that showed a loss for a six month period of over
£175,000. However, when this is compared with any of the six month periods
going back over the last few years, it really does show significant progress in
bringing the performance of the company under control. When you consider that
over £65,000 of the loss arises on consolidation, due to the amortisation of
goodwill, and also that the vast majority of the loss was incurred in the very
early part of the year, you can see why the Board of Pentagon is feeling
confident that the strategy implemented by our 2006 business review is bearing
fruit.
As usual, I start my report by giving a brief overview of the figures reported
in this Interim Statement, in order to demonstrate the financial impact of our
actions in the recent past, before I go on to explain our current business
strategies.
Financial Review
The turnover for six months ended 31 March 2007 was £1,051,035, which appears to
be 26% down on the same period for last year. However, one must take into
account the fact that we have disposed of the automotive division, so that when
compared like with like, the turnover has actually increased by 7% of the
buildings division turnover for the same period last year. By the same virtue,
however, I must acknowledge that the apparently superb reduction in the loss for
the six months from £637,953 for FY2006 to £180,678 for FY 2007 (a drop of 72%)
is not a true comparison. The 2006 loss includes the costs of the
underperforming automotive division; but even when we adjust for the effect of
this, the buildings division loss has reduced by a respectable 54% However,
since the amortisation of goodwill itself accounts for £65,471 of the loss in
both periods, the actual improvement is even greater than it appears.
Care must be taken when comparing margins with past analyses of our results,
because we have redefined the way that we categorise expenses to treat every
element of the variable cost associated with a contract as part of cost of sales
(see note 4). This means that costs previously included as administrative
overheads are now taken into account in our costings, thereby ensuring that we
recover properly all costs associated with each assignment undertaken. This
means that our margins for the first six months of last year have been reduced
from the 48% shown in the 2006 Interim Statement to 43% for the same period, as
reported here. The gross margin under the new method of analysis for the six
months ended 31 March 2007 is 53%, reflecting the diligent work of our surveyors
in ensuring contracts are properly priced. Please note that this level of gross
profit is exceptional. As long as we achieve percentage margins in the high 40's
(on the new fully costed basis) the Board will be content.
Selling and distribution costs, at £162,938, have reduced by 45% from the 2006
level of £296,998. We are continuing to work hard to find ways of achieving the
same or greater levels of sales while reducing selling and distribution costs,
as explained further under International Developments below.
Administrative expenses have dropped 42%, largely as a result of the disposal of
the automotive division. We are not planning any further material cuts in this
area in the future.
Turning to the company's balance sheet, cash reserves remain sufficient at
£410,410 (31 March 2006 - £82,026) and shareholders' funds are up 6% on the same
time last year, at £2,820,234. The Board is happy with the various trading
ratios, which are not immediately apparent from the limited information
presented in an Interim Statement, but suffice to say that both trade debtor and
trade creditor balances represent a smaller percentage of sales and purchases
respectively than they did at the same time last year.
The basic loss per share was 0.06p, compared to 0.38p last year, an improvement
that reflects the much reduced loss for the period.
The Board does not propose a dividend, in line with our continuing policy at the
current time.
Operational Overview
My last report to you was only three months ago, but I am pleased to be able to
state that the roll out of the operational policies implemented following our
2006 Business Review has resulted in further positive changes to the ways in
which we conduct business. This can best be explained by dividing our
marketplace into five broad territories and considering our different strategies
in relation to each of them, as set out below. However, the Board wants you to
understand that the approach detailed below is part of an ongoing process of
re-establishing Pentagon as a profitable, expanding company, and therefore this
approach represents our strategy for the next 12 months only - our longer term
plans will be developed by our newly constituted Board over the next few months.
UK Operations
I am very pleased to be able to report that the sales force training explained
in my last report has resulted in a much improved presence in the UK
marketplace. The UK element of our sales has improved every month during the
six months under review and the pipeline and order book bode well for the second
half of the year.
European Operations
Our focus on the UK market has necessarily led to a reduction in effort in
relation to Europe. This is a very fertile marketplace, with EC legislation
having recently introduced the need for the energy performance of buildings to
be made more efficient. However, our cost cutting efforts have left us with a
smaller sales team, and our Sales Director, Steve Harrhy, has initially
concentrated his team's efforts on to the UK market, in order to re-establish
our presence here at the same time as maximising sales while minimising sales
travel costs. In the early part of our next financial year, once we have the UK
market well under control, we intend to re-enter the European marketplace and
ensure that we capitalise on the opportunities presented by Infra-Max, our
specialist solar protection film.
USA Operations
I have just returned from a very successful visit to our partners in the States,
where we are negotiating a new arrangement for much greater involvement in the
US operation which will be beneficial to our shareholders and to our US
partners. The USA company already has some superb contracts in place, as
mentioned in my report on the year end Financial Statements, and is now
developing its presence further in collaboration with us.
Middle East Operations
We currently have agents appointed in Saudi Arabia, Bahrain, Qatar, Kuwait,
Egypt, Lebanon and Jordan. These agents have not been performing to the extent
that we had hoped and part of the strategic review to be conducted by the newly
constituted Board will include a strategy to improve communications with these
agents and promote sales in the Middle East.
International Developments
Graham Bannerman, our former CEO, has been granted a licence to make sales on
behalf of the Group in a number of significant territories, most notably Dubai,
India and China. Graham already has some good contacts in these territories,
and after an initial period of development, hopes to return some excellent
commissions to the Group on sales made. This approach has been adopted by the
Board in order to minimise costs, whilst maximising opportunities to the Group.
The licence arrangement has been made on the basis that any territory currently
covered by the licence agreement will revert to the Group if the licensee fails
to make material sales in that area within a one year period. This maximises
our opportunities in these far flung regions at a time when we would not
consider it appropriate to divert resources away from our core territories,
whilst retaining our possibilities for the future in these territories if the
licence arrangement does not deliver according to expectations.
Conclusion
I trust that this brief summary of our current position and plans is sufficient
to demonstrate that Pentagon is in an interesting phase of development; as CEO,
I plan to capitalise on this during the next stage in our recovery. I commend
to you your newly constituted Board and slimmed down company and thank you for
your continued support and belief in our superb product range, which must, in
the long run, result in excellent returns to our ever patient investors.
Alan Nicholl, Chairman
PENTAGON PROTECTION PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 31 MARCH 2007
Audited
Unaudited six months ended year ended
31 March 31 March 30 September
2007 2006 2006
As restated As restated
Notes £ £ £
Turnover 2
Continuing operations 1,051,035 983,778 1,616,343
Discontinued operations - 446,021 536,278
----------- ----------- -----------
1,051,035 1,429,799 2,152,621
Cost of sales 4 (497,229) (820,221) (1,430,170)
----------- ----------- -----------
Gross profit 553,806 609,578 722,451
----------- ----------- -----------
Distribution costs (162,938) (296,998) (542,998)
Administrative expenses 4 (571,546) (982,806) (1,752,827)
(734,484) (1,279,804) (2,295,825)
----------- ----------- -----------
Other operating income - 32,273 40,804
----------- ----------- -----------
Operating loss
Continuing operations (180,678) (392,322) (1,271,245)
Discontinued operations - (245,631) (261,325)
----------- ----------- -----------
(180,678) (637,953) (1,532,570)
Loss on disposal of discontinued
operations - - (206,072)
----------- ----------- -----------
Loss on ordinary activities before interest (180,678) (637,953) (1,738,642)
Interest receivable and similar income 6,579 1,830 6,728
Interest payable and similar charges (1,569) (2,262) (18,437)
Loss on ordinary activities before taxation (175,668) (638,385) (1,750,351)
Tax on loss on ordinary activities - - -
----------- ----------- -----------
Retained loss for the period (175,668) (638,385) (1,750,351)
----------- ----------- -----------
Loss per share: 3
Basic (0.06)p (0.38)p (0.86)p
Diluted (0.06)p (0.38)p (0.86)p
PENTAGON PROTECTION PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 31 MARCH 2007
Audited
Unaudited six months ended year ended
31 March 31 March 30 September
2007 2006 2006
As restated As restated
£ £ £
Loss for the period (175,668) (638,385) (1,750,351)
----------- ----------- -----------
Total recognised gains and losses
relating to the period (175,668) (638,385) (1,750,351)
----------- -----------
Prior year adjustment as explained in note 1.12 (12,598)
-----------
Total gains and losses recognised since last annual
report (188,266)
-----------
PENTAGON PROTECTION PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2007
Audited
Unaudited six months ended year ended
31 March 31 March 30 September
2007 2006 2006
As restated As restated
Notes £ £ £
Fixed assets
Intangible assets 2,192,680 2,323,622 2,258,151
Tangible assets 17,893 178,836 23,586
----------- ----------- -----------
2,210,573 2,502,458 2,281,737
Current assets
Stocks 115,636 123,855 125,190
Debtors 429,090 980,748 691,326
Cash at bank and in hand 410,410 82,026 720,762
----------- ----------- -----------
955,136 1,186,629 1,537,278
Creditors: Amounts falling due within one
year (251,667) (828,430) (639,306)
----------- ----------- -----------
Net current assets 703,469 358,199 897,972
----------- ----------- -----------
Total assets less current liabilities 2,914,042 2,860,657 3,179,709
Creditors: Amounts falling due after more
than one year - (5,289) -
Provisions for liabilities (93,808) (195,000) (183,807)
----------- ----------- -----------
2,820,234 2,660,368 2,995,902
----------- ----------- -----------
Capital and reserves
Called up share capital 5 310,918 165,918 310,918
Share premium account 6 5,600,303 4,297,803 5,600,303
Merger reserve 6 - 192,150 -
Share option reserve 6 12,598 12,598 12,598
Profit and loss account 6 (3,103,585) (2,008,101) (2,927,917)
----------- ----------- -----------
Shareholders' funds 2,820,234 2,660,368 2,995,902
----------- ----------- -----------
PENTAGON PROTECTION PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 31 MARCH 2007
Audited
Unaudited six months ended year ended
31 March 31 March 30 September
2007 2006 2006
£ £ £
Net cash outflow from operating activities (158,044) (268,300) (877,728)
Returns on investments and servicing of finance 5,010 (432) (11,709)
Capital expenditure - (6,140) (10,986)
Acquisitions and disposals (90,000) - (40,895)
----------- ----------- -----------
Net cash outflow before management of liquid
resources and financing (243,034) (274,872) (941,318)
Financing (67,318) (89,485) 1,215,709
----------- ----------- -----------
(Decrease)/increase in cash in the period (310,352) (364,357) 274,391
----------- ----------- -----------
Reconciliation of operating loss to net cash flow
from operating activities
Operating loss (180,678) (637,953) (1,532,570)
Depreciation and amortisation of fixed assets 71,163 92,296 169,832
Loss on disposal of tangible assets - - 8,369
Decrease in stocks 9,555 78,068 56,559
Decrease in debtors 262,236 281,470 284,717
(Decrease)/increase in creditors (320,320) (82,181) 135,365
----------- ----------- -----------
Net cash flow from operating activities (158,044) (268,300) (877,728)
----------- ----------- -----------
Reconciliation of net cash flow to movement in net
funds/(debt)
(Decrease)/increase in cash in the period (310,352) (364,357) 274,391
Cash outflow from decrease in debt 67,318 89,485 231,791
----------- ----------- -----------
Movement in net funds resulting from cash flows (243,034) (274,872) 506,182
Opening net funds 653,444 147,262 147,262
----------- ----------- -----------
Closing net funds 410,410 (127,610) 653,444
----------- ----------- -----------
PENTAGON PROTECTION PLC
NOTES TO THE INTERIM REPORT
FOR THE SIX MONTHS ENDED 31 MARCH 2007
1. ACCOUNTING POLICIES
1.1 Accounting convention
The financial information has been prepared in accordance with applicable UK
accounting standards under the historical cost convention.
1.2 Basis of consolidation
The group financial statements consolidate the financial statements of the
company and all its subsidiary undertakings as at 31 March 2007 using merger
accounting or acquisition accounting depending on the circumstances surrounding
the combination of each subsidiary undertaking and after eliminating intra-group
transactions.
1.3 Turnover
Turnover represents net invoiced sales of goods, 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 values of each asset over its
expected life, as follows:
Leasehold land and buildings Over the term of the lease
Plant and machinery 10% to 25% on written down value
Fixtures and fittings 50% on cost and 25% on written down value
Office equipment 50% on cost
Motor vehicles 25% on written down value
PENTAGON PROTECTION PLC
NOTES TO THE INTERIM REPORT (CONTINUED)
FOR THE SIX MONTHS ENDED 31 MARCH 2007
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 when 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 transaction. Exchange differences are taken into account in
arriving at the operating result.
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 Pensions
The group operates a defined contribution pension 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.
1.10 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.
1.11 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 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 also charged to the profit and loss account
when they are incurred.
PENTAGON PROTECTION PLC
NOTES TO THE INTERIM REPORT (CONTINUED)
FOR THE SIX MONTHS ENDED 31 March 2007
1.12 Share based payment transactions
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instrument at the grant
date. Fair value is measured by use of a Black-Scholes model. The expected life
used in the model has been adjusted, based on management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations. The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line basis over
the vesting period, based on the Group's estimate of shares that will eventually
vest.
The above policy is applied to all equity-settled share-based payments that were
granted on or after 11th December 2004. The equity settled share-based payments
in question had no vesting period and accordingly charges required by FRS20 have
been recognised by adjusting brought forward reserves.
This represents a change of accounting policy and prior years' results have been
restated accordingly.
1.13 Stocks
Stocks are included at the lower of cost and net realisable value, after making
provision for slow moving and obsolete items.
2. TURNOVER
The turnover and group loss for the period are attributable to the
principal activities of the group.
3. LOSS PER SHARE
The calculations of loss per share are based on the following losses and numbers
of shares:
Audited
Unaudited six months ended year ended
31 March 31 March 30 September
2007 2006 2006
£ £ £
Loss for the financial period (175,668) (638,385) (1,750,351)
----------- ----------- -----------
Weighted average number of shares:
Basic 310,918,156 165,918,156 203,233,224
Diluted 310,918,156 190,767,457 203,233,224
----------- ----------- -----------
In accordance with the provisions of Financial Reporting Standard 22, share
options are not regarded as dilutive in calculating earnings per share.
PENTAGON PROTECTION PLC
NOTES TO THE INTERIM REPORT (CONTINUED)
FOR THE SIX MONTHS ENDED 31 March 2007
4. COMPARATIVE FIGURES
Due to a change in the way in which expenses are categorised between
costs of sales and administrative expenses, the comparatives in the consolidated
profit and loss account for the six months ended 31st March 2006 have been
restated. Cost of sales has been increased by £73,003 and administrative
expenses have decreased by the same amount.
5. CALLED UP SHARE CAPITAL
Unaudited Unaudited Audited
Authorised 31 Mar 07 31 Mar 06 30 Sept 06
Number: £ £ £
200,000,000 0.1p ordinary 200,000 200,000 200,000
Allotted, issued and fully paid
Number:
310,918,156 0.1p ordinary 310,918 165,918 310,918
----------- ----------- -----------
6. MOVEMENT IN RESERVES
Profit Share
and loss option Share
account reserve premium Total
£ £ £ £
At 01.10.06 as restated (2,927,917) 12,598 5,600,303 2,684,984
Loss for the period (175,668) - - (175,668)
----------- ----------- ----------- -----------
At 31.03.07 (3,103,585) 12,598 5,600,303 2,509,316
----------- ----------- ----------- -----------
7. STATUS OF FINANCIAL INFORMATION
The financial information set out in this interim report does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The financial information for the year ended 30 September 2006 has been
extracted from the statutory accounts which have been delivered to the Registrar
of Companies and on which the auditors gave an unqualified opinion.
8. APPROVAL OF THE INTERIM REPORT
The interim results were approved by the board on 29 June 2007.
9. COPIES OF THE INTERIM REPORT
Copies of the interim report are available from the company's registered office
at Solar House, Amersham Road, Chesham, Buckinghamshire, HP5 1NG.
Directors and Advisors
Directors A R Nicholl
S D Harrhy
H ElZayn
Secretary D C Stewart
Company number 4488281
Registered office Solar House
Amersham Road
Chesham
Buckinghamshire
HP5 1NG
Nominated Adviser Seymour Pierce Limited
Bucklersbury House
3 Queen Victoria Street
London
EC4N 8EL
Auditors Warrener Stewart
Harwood House
43 Harwood Road
London
SW6 4QP
Solicitors Mundays
Cedar House
78 Portsmouth Road
Cobham, Surrey
KT17 1HS
Registrars Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
HD8 0LA
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