Interim Results

Pennant International Group PLC 2 October 2000 CHAIRMAN'S STATEMENT Whilst this has been a period of considerable activity and achievement with the successful integration of the acquired companies, results for the first half have been affected by a number of one off factors. The cost reductions achieved in the reorganisation and the integrated approach to our markets by group companies offer a firm foundation for future development. RESULTS AND DIVIDEND Group profit on ordinary activities before taxation, and after exceptional items of £334,000, for the six months ended 30 June 2000 was £29,000. Your Board is recommending an interim dividend of 1.4p per share, to be paid on 13 November 2000 to shareholders on the register at close of business on 13 October 2000. On 29 March 2000 a placing of 1,066,000 Ordinary Shares at £1.875 was completed raising £1,857,000 net of expenses. This has reduced net debt from £2,430,000, after the acquisitions in December 1999, to £1,207,000 and gearing from 71% to 23%. The balance has funded capital expenditure and additional working capital. The principal feature of the period has been the reorganisation and integration of the acquisitions, completed in December 1999, full details of which were contained in my statement accompanying the 1999 Annual Report. The acquired UK companies, now trading as Pennant Information Services Limited, which were trading at a loss prior to acquisition, have contributed a profit of approximately£237,000 before exceptional reorganisation costs. The American company, Pennant Information Services Inc., made a loss of approximately £130,000 before exceptionals against a forecast break even and is expected to contribute a profit in the second half. Exceptional reorganisation costs originally estimated at £200,000 are now expected to be approximately £400,000, of which £334,000 has been incurred in the first half. These costs cover the closure of 4 branches and relocation of the Manchester office to smaller, more efficient, premises and personnel reductions of 84 compared with an original estimate of 50. Turnover in Pennant Training Systems Limited was ahead of the corresponding period last year, profits however are less than expected. Recently planned development expenditure of £165,000 has been written off, pending further orders, in accordance with SSAP13. This relates to the development of the GenFly platform, where a number of modules have been created that can be configured into a family of synthetic aircraft trainers, in anticipation of future requirements of the Ministry of Defence. Also, margins on a major contract are restricted pending the outcome of negotiations between the company, the prime contractor and the ultimate customer in respect of potential significant revenues to cover additional work. The effect on the first half is to reduce profits by approximately £120,000. The results of the second half will also be affected, until the additional revenues are agreed. CURRENT TRADING AND PROSPECTS Tender activity for new business is at a satisfactory level, albeit some major programmes are experiencing delays in contract awards. Presenting the overall integrated logistics support capabilities of group companies, following the acquisitions in December1999, is leading to the identification of new opportunities in both the defence and other markets. These opportunities extend beyond training systems to encompass our software and data services products. Hawk aircraft sales prospects have risen significantly with press announcements on potential contracts in both Saudi Arabia and India, in addition to the procurement already announced by South Africa. There is continuing interest in GenFly based synthetic aircraft trainers. Contracts recently secured include: - A contract with BAE Systems to provide in-service support for the Royal Australian Air Force Lead-In Fighter Computer Based Training & Virtual Aircraft Training Systems. This contract, of significant value, covers an initial period of six years commencing 1 October 2000. A major contract between Pennant Information Services Inc. and a Canadian customer using OmegaPS as part of a Material Acquisition and Support System has been reactivated. The contract had originally been awarded and then suspended by the customer prior to our acquisition in December 1999. A number of OmegaPS software contracts with major defence contractors in the UK and Europe including the first web-enabled version, 'e-OmegaPS', to Thompson CSF Naval Combat Systems. A significant uplift to the GenFly contract from two Basic and two Advanced units to four Advanced versions. A number of existing significant support contracts with the Ministry of Defence have been amalgamated into one contract for Full Contractor Support and extended to March 2003. An export order for a Synthetic Environment Procedural Trainer and Computer Based Training courseware. A contract to supply a Training Management Information System to the E-3D Sentry Aircrew Training Service, a recently announced PFI programme. Various data services contracts in the oil and gas, power and transportation industries including contracts with Alstom for technical publications for two light rail programmes in the USA and one in Argentina. CONCLUSION The integration of the acquired companies has been successfully completed and whilst the exceptional reorganisation costs have been higher than expected, more costs than estimated have been eliminated and a satisfactory cost base set for the future. Group companies generally enter into contracts in their local currency and as a result exposure to currency fluctuations is not significant. The overall result for the year will be materially affected by the outcome of negotiations for additional revenues on a major contract, which cannot yet be quantified. Also, the result for the year will reflect first half losses in America and higher than expected reorganisation costs. Response to the broader based capability of the enlarged group, offering integrated solutions, has been positive and has positioned group companies for a number of new opportunities in defence and other high technology industries. Looking further out your Board remains confident. CHRISTOPHER POWELL Chairman 2nd October 2000 Consolidated Profit and Loss Account Six months Six months Six months Year ended ended ended ended 30 June 30 June 30 June 31 December 2000 2000 1999 1999 Notes £'000 £'000 £'000 £'000 Turnover Continuing operations 3958 Acquisitions 3543 ______ 7501 3122 7118 _______________________________ Operating Profit Continuing operations 379 Acquisitions 107 ______ 486 507 1108 Exceptional item -334 0 0 _______________________________ Profit on ordinary activities before interest 152 507 1108 Interest -123 -49 -103 _______________________________ Profit on ordinary activities before taxation 29 458 1005 Taxation 2 0 -128 -262 _______________________________ Profit attributable to ordinary shareholders 29 330 743 Ordinary dividends -112 -92 -293 _______________________________ Amount transferred to/(from) reserves -83 238 450 _______________________________ Basic earnings per 20p Ordinary Share 3 Before exceptional item 4.03p 5.00p 11.07p After exceptional item 0.39p 5.00p 11.07p Diluted earnings per 20p Ordinary Share 3 Before exceptional item 3.85p 4.82p 10.67p After exceptional item 0.37p 4.82p 10.67p Dividend per share 1.40p 1.40p 4.20p Summarised Consolidated Balance Sheet As at As at As at 30 June 30 June 31 December 2000 1999 1999 £'000 £'000 £'000 Fixed assets 4031 2997 4149 ___________________________________ Stock,work in progress and debtors 5272 2211 5115 Creditors falling due within one year -2915 -1326 -3427 ___________________________________ 2357 885 1688 Net bank balance 1052 -392 -79 Current instalments of borrowings -1687 -219 -1734 ___________________________________ Net current assets/(liabilities) 1722 274 -125 ___________________________________ Total assets less current liabilities 5753 3271 4024 Future instalments of borrowings -572 -616 -617 ___________________________________ 5181 2655 3407 Provisions for liabilities and charges 0 0 0 ___________________________________ 5181 2655 3407 ___________________________________ Called up share capital and share premium account 4625 2160 2768 Reserves 556 495 639 ___________________________________ 5181 2655 3407 ___________________________________ Consolidated cash flow Six months Six months Year ended ended ended 30 June 30 June 31 December 2000 1999 1999 £'000 £'000 £'000 Cash flow from operating activities -161 592 680 Returns on investment and servicing of finance -123 -49 -103 Taxation 0 0 -60 Capital expenditure -156 -437 -764 Acquisitions 0 0 -1447 Equity dividends -195 -158 -256 ____________________________________ Cash Outflow before Financing -635 -52 -1950 ____________________________________ Financing Issue of ordinary share capital 1857 0 609 Other financing -91 -108 1493 ____________________________________ Increase/(decrease) in net cash 1131 -160 152 ____________________________________ Reconciliation of net cash flow to movement in net debt Decrease in net cash 1131 -160 152 Cash to repurchase debt 156 108 374 New loans and hire purchase contracts -64 -154 -1866 Debt acquired with subsidiary undertakings 0 0 -69 ____________________________________ Movement in net debt in period 1223 -206 -1409 Net debt at beginning of period -2430 -1021 -1021 Net debt at end of period -1207 -1227 -2430 ____________________________________ Reconciliation of operating profit to cash flow from operating activities Operating profit 486 507 1108 Exceptional item -334 0 0 Depreciation 229 122 273 Amortisation of intangible assets 47 28 55 (Profit)/loss on sale of fixed assets -2 0 3 Increase in stock, work in progress and debtors -157 -249 -1436 Increase/(decrease) in creditors -430 184 677 ____________________________________ -161 592 680 ____________________________________ Pennant International Group plc Notes: 1. This interim statement, which is neither audited nor reviewed, has been prepared on the basis of the accounting policies set out in the Group's 1999 annual report and financial statements. The balance sheet at 31 December 1999 and the results for the year then ended have been abridged from the Group's annual report and financial statements which has been filed with the Registrar of Companies: the auditors' opinion on the financial statements was unqualified. 2. The taxation charge for the period is based on the estimated charge for the full year. 3. The calculation of basic earnings per share is based on the weighted average number of shares in issue of 7514714 (1999 - 6600000) and the profit after taxation of £29000 (1999 - £330000). Diluted earnings per share allow for the exercise of options and are calculated on profit after taxation of £29000 (1999 - £330000) and on 7860082 (1999 - 6852500) ordinary shares. 4. This announcement is being circulated to all shareholders of the Company and copies will be available to the public at the Company's Registered Office at Pennant court, Staverton Technology Park, Cheltenham GL51 6TL.

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