2008 Final Results

RNS Number : 7683T

Pennant International Group PLC

15 June 2009

 



For Immediate Release                                                                                                                                 15 June 2009

Pennant International Group plc

Preliminary Results for the year ended 31 December 2008

Resilient performance in difficult markets;

Pennant International Group plc ('Pennant' or 'the Company'), the AIM quoted supplier of integrated logistic support solutions, products and services, principally to the defence, rail, aerospace, and naval sectors and to Government Departments, announces preliminary results for the year ended 31 December 2008.

In his statement to shareholders, Mr. Christopher Powell, Executive Chairman, said:

'The general sharp economic downturn in the second half of 2008 was challenging for the Group as it was for many other businesses and resulted in an operating loss for the year on significantly lower revenues. The Board has taken the necessary steps to reduce costs, continue diversification into markets other than defence (e.g. rail and power) and to develop further consultancy and support services to complement sales of hardware and software thus generating increasing recurring revenues.'

Highlights: Financial

·         Group revenues of £9.8 million (2007: £12.35 million).

·         Gross margins maintained

·         Group operating loss of £0.43 million (2007: £1.23 million profit including profit on property sale of £0.38 million).

·         Loss attributable to equity holders of £0.48 million (2007: £1.01 million profit)

·         Loss per share (basic) of 1.57 pence (2007: 3.23 pence earnings).

·         Net debt at year-end of £23,000 (2007: £806,000 net cash including net proceeds from sale of freehold property of £0.75million)

·         Satisfactory bank facilities recently renewed

 

Highlights: Operational

 

·         Resilient performance in very challenging markets.

·         Training Systems experienced reduced revenues and profitability but maintained margins and has won two new contracts since the year-end with British Energy and Agusta Westland.

·         Data Services had a difficult year but has improved visibility of earnings for 2009 including new contract since year end with ALSTOM Power in Switzerland.

·         Software Services traded profitably throughout 2008 and has a strong order book going forward.

·         Since year-end new support and consultancy agreement secured in May 2009 from Canadian Department of National Defence worth up to C$15 million over five years

·         Negotiation of Strategic Memorandum of Understanding with a Saudi Arabian company to exploit existing and future opportunities arising from defence spending in Middle East.

On current trading and prospects, Mr. Powell added:

'I am pleased to report that that the first quarter of 2009 has been encouraging despite the economic backdrop remaining poor. New relationships have been established; new prospects added to the pipeline and new orders won, substantially increasing the value of the order book. At this stage of the financial year any further new orders are expected to benefit 2010 and beyond.'

'Looking ahead, there are major opportunities for the Group, built strongly on its reputation and the quality and diversity of its products and services. Your Board remains confident for the future.'

  Enquiries:

Pennant International Group plc             Tel: [phone]

Chris Snook, Chief Executive

John Waller, Finance Director

WH Ireland                                          Tel: [phone]

Tim Cofman/Katy Birkin

Winningtons Financial                            Tel: [phone]

Paul Vann/Tom Cooper

PENNANT INTERNATIONAL GROUP PLC: 

Preliminary results for the year ended 31 December 2008

CHAIRMAN'S STATEMENT AND BUSINESS REVIEW

The general sharp economic downturn in the second half of 2008 was challenging for the Group as it was for many other businesses. The effect was felt particularly strongly in the Data Services division where orders for work in 2008 were difficult to find as customers held back short term spending. In the Software Division new license sales were similarly affected, and, as these license sales attract minimal cost, the loss of revenue was directly reflected in the result. 

In the light of this economic outlook and expected reduction in Government spending the Board reviewed staffing levels and implemented a rationalisation plan reducing head count in the Training and Data Services divisions at a cost of £175,000. On an annualised basis, staffing costs were reduced by in excess of £1 million going into 2009.

I am pleased to report that the first quarter of 2009 has been more encouraging despite the economic backdrop remaining poor. Significant new relationships have been established; new prospects added to the pipeline and substantial new orders won increasing the value of the order book significantly. At this stage of the financial year any further new orders are expected to benefit 2010 and beyond.

Two major advances have been:

• Securing a new support and consultancy agreement from the Canadian Department of National Defence ('DND') worth up to C$15 million over 5 years: and

• Negotiating a strategic Memorandum of Understanding with a Saudi Arabian company to enable the Group better to pursue the existing and future opportunities arising from defence spending in the Middle East.  

Results

Revenue for the year was £9.8 million (2007: £12.3 million) a reduction of 20%. Gross margins were maintained. Administrative expenses increased by £300,000 to £3.85 million (2007:£3.56 million); this increase included £175,000 redundancy costs (2007: £15,000). In addition there were corporate finance costs of £62,500. (2007: Nil).

There was an operating loss of £427,000 (2007: profit of £1,234,000 including a profit on sale of property of £376,000) and a loss attributable to equity holders of £481,000 (2007: profit of £1,013,000). The basic loss per share was 1.57p (2007: earnings per share 3.23p).

There was a net outflow of cash of £968,000. Cash and cash equivalents at the end of the year were £601,000 (2007: £1,569,000). Net debt was £23,000 (2007: Net cash £806,000). As expected and in accordance with contract terms there is significant work in progress on two major contracts that is expected to be invoiced and turned to cash as the contracts progress towards completion in the next 12 months. Satisfactory bank facilities have recently been renewed.

In the current economic climate the directors consider that it is not appropriate to pay a final dividend.  

Training Systems

The Training Systems division provides and supports specialist training systems based on software emulation, hardware simulation and computer based training for engineer training principally in the defence arena.

In my report on the 2007 results I warned that the division may see a reduction in revenues due to budget cuts and delays to contract placement. These delays materialised both in the UK and internationally and the division was also affected by the slower than expected release of work on two major ongoing contracts. Overall revenues decreased by 23% to £4,605,000. Careful management of resources meant that gross margins were maintained. Net profits were £200,000 (2007: £737,000).

The division has major contracts in progress as below:

• Two contracts for the supply of electronic classrooms, computer based training and emulation to BAE in support of their sales of Hawk aircraft. These contracts have been running for several years and are now expected to increase in scope and run through 2009 and well into 2010.

• An ongoing service provision contract for the MOD which runs until 2011.

• A support contract with BAE Australia covering training equipment supplied to the Royal Australian Air Force. This contract currently runs to 2011.

• Two contracts with BAE Insyte one for the Royal Navy's Maritime Composite Training System and the other providing training media for the Type 45 Destroyer Warfare System. Both contracts have increased in scope and run substantially through 2009.

• A new contract for the support of equipment supplied to British Energy. 

• Since the year-end, a contract to supply a 3D model of the Future Lynx Helicopter to Augusta Westland.

Recently, an important relationship has been established by the negotiation of a Memorandum of Understanding with a Saudi Arabian company to pursue the substantial opportunities that are expected to arise from Saudi defence spending over a number of years.

At the end of 2008 and in the first quarter of 2009 there was an encouraging increase in tendering bringing major new opportunities into the pipeline of prospects.

Data Services

The Data Services division provides a wide portfolio of products and services in support of technical products and skills including: technical documentation, electronic documentation, e-learning, graphic design and virtual reality.

As stated above the Data Services Division was severely affected by the economic downturn in the second half. 

Revenue for the year was £2,653,000 (2007: £3,718,000). Gross margins fell reflecting the difficult trading conditions. There was a net loss of £499,000 (2007: profit £13,000) after £100,000 of redundancy costs.

Notwithstanding the poor results for 2008 there were a number of successes which give good visibility of revenues for 2009 and opportunities for follow-on work:

• A contract with Specialist Computer Centres plc to develop for Her Majesty's Revenue and Customs a CD-ROM that brings together a wide range of guidance booklets and interactive forms to help employers carry out their payroll responsibilities and which is issued to all 1.7 million employers and agents. The contract is expected to run for 3 years and since the year-end the first CD has been successfully completed and released.

• An extension to April 2010 of the contract to support the Learning Highway Blended learning Solution for the Department of Works and Pensions.

• Following successful completion of the contract with Kawasaki Heavy Industries in Japan to provide maintenance manuals for the Taipei Subway EMU Project, the division was awarded a new contract with Kawasaki for a full suite of maintenance manuals and training support for its Xinyi/Songshan Line contract in Taiwan. Work on this contract will be undertaken in 2009 and 2010.

• The extension of a draughting services contract for TOTAL E&P UK Limited to September 2010.

• A new framework agreement with Network Rail to provide services covering the whole range of the Division's capabilities, under which a number of tasks have already been successfully completed.

• Since the year-end, a substantial new contract, with a value in excess of £500,000, for ALSTOM Power in Switzerland for technical documentation for the auxiliary systems of a gas powered turbine.

With these known revenues together with a reduced cost base and further planned cost reductions the division is expected to be profitable in 2009.

Software Services

The Software Services Division owns the rights to the market leading OmegaPS suite of software which is sold worldwide and used by many major defence contractors and by the Defence authorities in both Canada and Australia to support complex long life assets. Revenues are generated from the sale of licences, associated maintenance agreements and consultancy.

Turnover for the year was £3,013,000 (2007: £3,041,000) and profit was £94,000 (2007: £397,000). Although revenues remained at a similar level to 2007 profitability was reduced because of the lower level of new licence sales in 2008.

Trading for 2009 and beyond is underpinned by a strong order book. OmegaPS is used extensively by the Canadian Department of National Defence ('DND') and the Australian Defence Materiel Organisation ('ADMO'). Both organisations have recently confirmed their commitment to the software by awarding the following long-term major contracts:

• The contract recently announced, awarded by the DND, for training, installation and specialist consultant support to maximise effective use of OmegaPS within the DND. The contract has an initial term of 2 years with options for 3 one-year extensions. The contract has a potential value of C$15 million.

• A contract with the ADMO to support and develop the use of the Omega suite of tools in their logistics operations. The contract runs for 3 years with options to extend for a subsequent 3 years and has a potential value in excess of A$2 million.

  The Board is actively seeking to improve the profitability of maintenance and consultancy work and both these contracts are steps towards achieving this.

During the year new licence sales were made to Shenyang Aircraft Research in China, BAE Marine in Australia, VT, Gentex in USA and Alenia in Italy. Extra licences were taken up by the BAE Nimrod team.

Joint Venture

The Joint Venture set up to provide engineering support and technical documentation to Airbus has continued to suffer from ongoing problems and delays at Airbus. The Board is currently reviewing the Group's involvement with the joint venture in order to eliminate further losses.

People

I would like to extend the Board's thanks to the Group's personnel for their efforts and achievements in a difficult period.

Outlook

The Group has the benefit of a number of long-term maintenance, support and consultancy agreements which provide a good base for the business going forward and demonstrate our customers' commitment to our products. 

While the current economic conditions mean that major contracts are being delayed and in some cases cancelled, the Group continues to hold a strong position in the defence maintenance training market and its products and services are well respected by prime contractors and their ultimate customers. The Group is positioned to take advantage of opportunities as they arise and has ongoing dialogue with project teams for a number of major defence platforms such as Typhoon and Lynx Wildcat for which prospects are actively being discussed. 

It is clear that major defence spending is planned and being progressed in the Middle East. In order to position the Group to take maximum advantage of this the Board has negotiated a strategic Memorandum of Understanding with a Saudi Arabian company and is already involved in tendering for work through this relationship.

There are major opportunities for the future built strongly on the Group's reputation and the quality of its products. The timing of the placing of major orders is however difficult to predict particularly in the current economic climate and at this stage of the financial year the benefit of any new orders is unlikely to be felt until 2010 and beyond. Recognising the length of time it takes to win new business, and the likelihood of contract delays, the Board has taken the necessary steps to reduce costs, continue diversification into markets other than defence (e.g. rail and power) and to develop further consultancy and support services to complement sales of hardware and software thus generating recurring revenues.

Your Board remains confident for the future.

C C Powell

Chairman                           11 June 2009

  PENNANT INTERNATIONAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	Notes	2008 £		2007 £
Revenue		9,839,547		12,349,683
Cost of sales		(6,419,631)		(7,936,361)
Gross profit		3,419,916		4,413,322
Administration expenses		(3,847,137)		(3,555,765)
Profit on sale of assets held for sale		-		375,997
Operating loss/(profit)		(427,221)		1,233,554
Share of results of joint venture		(33,705)		(33,070)
		(460,926)		1,200,484
Finance costs		(48,222)		(92,292)
Finance income		8,765		9,991
(Loss)/profit before taxation		(500,383)		1,118,183
Taxation	1	19,516		(104,924)
Loss/(profit) for the year attributable to equity holders of parent		(480,867)		1,013,259
Earnings per share
Basic		(1.57)p		3.23p
Diluted		(1.47)p		3.02p

The Income Statement has been prepared on the basis that all operations are continuing operations.

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

FOR THE YEAR ENDED 31 DECEMBER 2008

	2008 £		2007 £
Exchange differences on translation of foreign operations	136,533		101,860
Net income recognised directly in equity	136,533		101,860
(Loss)/profit for the year	(480,867)		1,013,259
Total recognised income and expenses for the year attributable to equity holders of the parent	(344,334)		1,115,119

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2008

	Notes	2008 £		2007 £
Non-current assets
Goodwill		923,299		909,697
Other intangible assets		121,475		117,731
Property, plant and equipment		1,925,918		2,051,477
Equity accounted interest in joint venture		3,251		16,956
Available for sale investments		6,135		6,135
Deferred tax assets		26,627		19,629
Total non-current assets		3,006,705		3,121,625
Current assets
Inventories		24,970		27,378
Trade and other receivables		3,196,215		3,161,595
Cash and cash equivalents		600,631		1,568,620
Total current assets		3,821,816		4,757,593
Total assets		6,828,521		7,879,218
Current liabilities
Trade and other payables		1,313,601		1,445,520
Current tax liabilities		14,920		104,779
Obligations under finance leases		3,603		1,089
Bank loan		174,550		147,559
Deferred revenue		432,221		414,838
Total current liabilities		1,938,895		2,113,785
Net current assets		1,882,921		2,643,808
Non-current liabilities
Bank loan		428,608		614,430
Obligations under finance leases		17,138		1,532
Deferred tax liabilities		-		32,000
Deferred revenue		21,279		25,781
Total non-current liabilities		467,025		673,743
Total liabilities		2,405,920		2,787,528
Net assets		4,422,601		5,091,690
Equity
Share capital		1,600,000		1,600,000
Treasury shares	2	(363,016)		(249,298)
Share premium account	2	3,582,329		3,582,329
Retained earnings	2	(571,200)		120,704
Translation reserve	2	174,488		37,955
Total equity		4,422,601		5,091,690

Approved by the Board on 11 June 2009

and signed on its behalf

C Snook     J M Waller

Director     Director    

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	Notes	2008		2007
		£		£
Net cash (used in)/from operations		(574,815)		563,799
Investing activities
Interest received		8,765		9,991
Proceeds on disposal of property, plant and equipment		-		748,519
Purchase of intangible assets		(49,301)		(107,542)
Purchase of property, plant and equipment		(42,775)		(154,120)
Loan to Joint Venture		(20,000)		10,000
Net cash (used in)/from investing activities		(103,311)		506,848
Financing activities
Dividends paid		(201,214)		(194,098)
Transactions in own shares		(61,218)		(176,225)
Repayment of borrowings		(158,831)		(143,301)
Net increase in/(repayment of) obligations under finance leases		18,120		(177)
Net cash used in financing activities		(403,143)		(513,801)
Net (decrease) increase in cash and cash equivalents		(1,081,269)		556,846
Cash and cash equivalents at beginning of year		1,568,620		909,609
Effect of foreign exchange rates		113,280		102,165
Cash and cash equivalents at end of year		600,631		1,568,620

ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2008

1.

Taxation

Recognised in the income statement	2008 £	2007 £
Current tax expense	18,415	107,587
In respect of prior year	487	-
Deferred tax expense relating to origination and reversal of temporary differences	(38,418)	(2,663)
Total tax (credit)/expense in income statement	(19,516)	104,924
Reconciliation of effective tax rate
(Loss)/profit before tax	(500,383)	1,118,183
Tax at applicable tax rate of 28% (2007: 30%)	(140,108)	335,455
Tax effect of:
Share of results of joint venture	9,437	9,921
Expenses not deductible for tax	46,016	9,214
Income not taxable	-	(112,940)
Chargeable gain	-	83,478
Losses	99,709	(240,456)
Different tax rates for overseas subsidiaries	4,092	5,306
Other differences	(731)	17,609
Deferred tax	(38,418)	(2,663)
In respect of prior year	487	-
Tax (credit)/expense	(19,516)	104,924

2.

Equity

	Issued share capital	Treasury shares	Share premium	Retained earnings	Translation reserve	Total equity
	£	£	£	£	£	£
At 1 January 2007	1,600,000	-	3,582,329	(744,302)	(63,905)	4,374,122
Re-designation	-	(73,073)	-	73,073	-	-
Profit for the year	-	-	-	1,013,259	-	1,013,259
Dividends paid	-	-	-	(194,098)	-	(194,098)
Purchase of treasury shares	-	(176,225)	-	-	-	(176,225)
Share-based payment	-	-	-	(27,228)	-	(27,228)
Currency translation					101,860	101,860
At 1 January 2008	1,600,000	(249,298)	3,582,329	120,704	37,955	5,091,690
Loss for the year	-	-	-	(480,867)	-	(480,867)
Dividends paid	-	-	-	(201,214)	-	(201,214)
Purchase of treasury shares	-	(113,718)	-	-	-	(113,718)
Share-based payment	-	-	-	(9,823)	-	(9,823)
Currency translation	-	-	-	-	136,533	136,533
At 31 December 2008	1,600,000	(363,016)	3,582,329	(571,200)	174,488	4,422,601

3.	Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. 

The balance sheet at 31 December 2008 and income statement, statement of changes in equity, cash flow statement and associated notes for the year then ended have been extracted from the Company's 2008 financial statements upon which the auditors opinion is unqualified. 

 

END

 

 

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