Interim Results

Pennant International Group PLC 02 September 2003 PENNANT FLAGS UP A RETURN TO PROFIT Pennant International Group plc, listed on AIM, is a leading supplier of technology solutions to the defence and industrial sectors, including specialist software, data management systems, simulation and training systems. The company today announces satisfactory Interim Results for the period to June 30th 2003. 'As anticipated the Group has now returned to profit. The continuing strong order book and good cash position gives us confidence in the future.' Christopher Powell, Chairman. • Pre-tax profit £242,000 (2002, Loss of £894,000) • Significant reduction in net debt • Worldwide order book shows potential revenues of over £10,000,000 • Investment in Aberdeen to expand services business in oil and gas industry The full text of the Chairman's Statement and the Profit and Loss Account, Balance Sheet and Cash Flow Statement follow. FOR FURTHER INFORMATION CONTACT: Joe Thompson, Chief Executive, on 01452 714881 Ken Rees, Binns Winningtons on 0117 317 9477 or 07802 466567 CHAIRMAN'S STATEMENT I am pleased to report a return to profit in the six months to 30 June 2003. This was anticipated in my statement accompanying the 2002 results when I reflected the Board's confidence of a return to profitability in 2003 as the benefits of increased orders, cost reductions and efficiency gains were realised. RESULTS AND DIVIDEND The Group profit on ordinary activities before taxation was £242,000 (2002: loss of £894,000). Cash generated from operating activities was £533,000 and net debt was reduced to £1,296,000 from £1,611,000 at 31 December 2002 (June 2002: £2,791,000). Your Board is not recommending an interim dividend. CURRENT TRADING AND OPERATIONS Market conditions remain challenging but the high levels of tendering activity experienced in the fourth quarter of 2002 and the first quarter of 2003 have continued. Group companies have succeeded in securing new business to maintain the firm order bank, which has the potential to generate revenues in excess of £10,000,000, with some 26% of the new orders by value coming from new customers. Pennant Training Systems has continued to progress work on the contract from Westland Helicopters Limited for two training devices in support of a new buy of Lynx 300 helicopters and workshare with Atlantis Systems International of Canada for the Canadian Government EH101 Cormorant cockpit procedures trainer. In addition it has worked on a number of projects under the Ministry of Defence Post Design Services contract, which include major upgrades to a virtual reality training system for aircraft marshallers at RAF Cosford and a further enhancement to the Sea King helicopter training system for the Royal Navy at HMS Sultan. In the first quarter there were several smaller value quick turnaround upgrades to Pennant products in service at various military establishments. The design phase of the South African Air Force Hawk Lead-In Fighter Trainer programme under contract to BAE Systems was completed on 15 August. The initial stage in the production phase of the programme is scheduled to start during the third quarter. This production phase, which has a significant overall value, is divided into four stages to coordinate the design and development of the training system with the maturing aircraft systems. All four stages of the production phase are expected to generate revenues in the period from 2003 to 2005. It is anticipated that this will be followed by a third phase starting in 2005 to bring the training systems up to the technical standard of the aircraft for delivery in 2006. A number of other contracts have been won in the period including the sale of aero engineering computer based maintenance training courseware and Pennant presentation suites to non-military colleges in Wales and Scotland. Significant new business has been secured by Pennant Information Services during the period. As anticipated in my last statement, a further order was received from a Rolls-Royce group company covering the delivery of training in support of their Private Finance Initiative programme with the Ministry of Defence to provide a new range of diesel-powered generators, the Field Electrical Power Source or FEPS(R) for the British Army, Royal Marines and Royal Air Force. Under the contract Pennant is training military instructors and instructing on conversion training courses at a variety of military establishments over the next two years. This order has a substantial value and represents a major success in the company's growing training delivery activity within its portfolio of products and services. Under contracts awarded in 2002 Pennant Information Services designed and produced the technical documentation and training media for FEPS(R).In the non-defence markets there has been success with a significant order for Airbus documentation as a sub-contractor to Eurodoc Sonovision-ITEP. This has now developed into a co-contracting agreement with the parent company in Paris, Sonovision-ITEP. The objective of the agreement is to present a Franco-British grouping of companies to further the technical documentation business interests of both parties in aerospace and defence. In the rail industry an order has been received for a track safety training product to be delivered on Digital Video Disc. Further e-learning programmes have been developed for British Telecom. Having provided services to the oil and gas industry in a limited way for a number of years, the company, in response to improving business prospects and recognising the importance of an Aberdeen base, acquired the shares of Integrated Engineering Design (Aberdeen) Ltd (IED) on 30th June 2003 for a consideration of £129,000. This acquisition will be integrated with other Pennant operations and, whilst continuing with the IED core activity of cartography and draughting services, will be seeking to expand the existing customer base for technical documentation. The software businesses in North America, Australia and the United Kingdom, in addition to product sales and support, have been actively engaged in two major programmes with software development being undertaken at all locations. The work involved activity on the Materiel Acquisition Supportability Information System (MASIS) for the Canadian Department of Defense, with SAP and IBM as prime contractor, and the Australian Defence Force software upgrade. In Australia, a full suite of Pennant specialist products is being customised to Australian Defence Force standards and installed including OmegaPS, the supportability engineering software, OmegaPS Analyzer and OmegaPS Publisher. In North America, a major milestone was achieved when Pennant Information Services Inc gained accreditation from SAP AG for its Complex Asset Supportability System (CASS) interface. This is a software solution that links Pennant's OmegaPS product suite with SAP(R) R/3(R) using SAP approved Business Application Programming to integrate with SAP(R) R/3(R). In the United Kingdom, Pennant Software Services has continued actively to support the Product Life Cycle Support (PLCS) development initiative and the company will also participate in PLCS launch events, planned for September 2003, in the United Kingdom, Scandinavia and the United States of America. PROSPECTS The company's performance in the first half of this year has been in line with expectations and in looking ahead prospects remain good, subject to contracts being awarded on time and running to schedule. The strong order bank is being maintained and the positioning within our potential markets is good with many new business opportunities in prospect. Of particular significance is the high level of interest being shown in overseas markets for existing Pennant Training Systems products. We are also encouraged by the continuing success in winning business with new customers. Nevertheless, the business has to be won and there can be no relaxation in the sales effort in all markets. CONCLUSION The Group's return to profitability is attributable to numerous factors. We recognise and are grateful to our shareholders and our customers for their support but a key factor has been the response of the staff to measures to reduce costs and increase efficiency. Their contribution has been excellent. The continuing strong order bank and good cash position, combined with prospects for new business in all areas, gives your Board confidence in the future. CHRISTOPHER POWELL Chairman 2 September 2003 Pennant International Group plc Consolidated Profit and Loss Account Six Six Year months months ended ended ended 31 30 June 30 June December 2003 2002 2002 Notes £'000 £'000 £'000 Turnover 6129 4451 9030 Cost of sales 3277 2759 5488 -------- -------- --------- Gross profit 2852 1692 3542 Net operating expenses 2553 2469 4938 Exceptional redundancy 0 123 0 cost -------- -------- --------- Operating profit/(loss) 299 -900 -1396 Profit on sale of property 0 110 110 -------- -------- --------- Profit/(loss) on ordinary activities 299 -790 -1286 before interest Interest -57 -104 -197 -------- -------- --------- Profit/(loss) on ordinary activities 242 -894 -1483 before taxation Taxation 2 0 0 0 -------- -------- --------- Profit/(loss) attributable to ordinary 242 -894 -1483 shareholders Ordinary dividends 0 0 0 -------- -------- --------- Amount transferred to/(from) 242 -894 -1483 reserves -------- -------- --------- Earnings per share 3 Basic 0.76p -3.84p -5.34p Diluted 0.69p -3.82p -5.14p Statement of Total Recognised Gains and Losses Profit/(loss) for the 242 -894 -1483 period Currency translation differences on foreign 36 -5 47 currency net investments -------- -------- --------- 278 -899 -1436 -------- -------- --------- Pennant International Group plc Summarised Consolidated Balance Sheet As at As at As at 30 June 30 June 31 December 2003 2002 2002 £'000 £'000 £'000 Intangible assets 1389 1529 1411 Tangible assets 2852 3022 2900 Investments 6 6 6 -------- -------- --------- 4247 4557 4317 Work in progress and debtors 3207 4498 3080 Creditors falling due within one -2683 -2530 -2589 year -------- -------- --------- 524 1968 491 Net bank balance 799 -449 599 Current instalments of borrowings -256 -304 -236 -------- -------- --------- Net current assets 1067 1215 854 -------- ---- ---- --------- Total assets less current 5314 5772 5171 liabilities Future instalments of borrowings -1839 -2038 -1974 Creditors falling due after one year 0 0 0 -------- -------- --------- 3475 3734 3197 Provisions for liabilities and 0 0 0 charges -------- -------- --------- 3475 3734 3197 -------- -------- --------- Called up share capital and share premium 6609 6609 6609 account Reserves -3134 -2875 -3412 -------- -------- --------- 3475 3734 3197 -------- -------- --------- Pennant International Group plc Consolidated cash flow Six Six Year months months ended ended ended 31 30 June 30 June December 2003 2002 2002 Notes £'000 £'000 £'000 Cash inflow from operating 533 -493 861 activities Returns on investment and servicing of -57 -104 -260 finance Taxation 0 0 0 Capital expenditure -34 -487 -506 Acquisitions 4 -127 0 0 Equity dividends 0 0 0 -------- -------- --------- Cash inflow/(outflow) before 315 -1084 95 Financing Financing Issue of ordinary share 0 1995 1995 capital Other financing -115 318 187 -------- -------- --------- Increase in net cash 200 1229 2277 -------- -------- --------- Reconciliation of net cash flow to movement in net debt Increase in net cash 200 1229 2277 Cash to repurchase debt 115 322 464 New loans and hire purchase 0 -640 -650 contracts -------- -------- --------- Movement in net debt in 315 911 2091 period -------- -------- --------- Net debt at beginning of -1611 -3702 -3702 period Net debt at end of period -1296 -2791 -1611 -------- -------- --------- Reconciliation of operating profit to cash flow from operating activities Operating profit/(loss) 299 -900 -1396 Profit on sale of property 0 110 0 Depreciation 102 164 302 Amortisation of intangible 120 122 240 assets (Profit)/loss on sale of fixed 0 -110 0 assets (Increase)/decrease in work in progress and -59 108 1522 debtors Increase in creditors 69 18 80 Other movements 2 -5 113 -------- -------- --------- 533 -493 861 -------- -------- --------- Pennant International Group plc Notes to Interim Statement 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 2002 annual report and financial statements. The balance sheet at 31 December 2002 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. There is no taxation charge as no taxation charge is expected for the full year. 3. The calculation of earnings per share is based on the profit attributable to the shareholders and the weighted average number of shares as set out below: Six Six months months Year ended ended ended 30-Jun 30-Jun 31-Dec 2003 2002 2002 £ £ £ Profit/(loss) attributable to 242,000 -894,000 -1,483,329 shareholders ---------- ----------- --------- Number Number Number Basic weighted average number of 32,000,000 23,261,746 27,798,093 shares Employee share options 2,836,500 166,500 1,086,500 ---------- ---------- ----------- Diluted weighted average number of 34,836,500 23,428,246 28,884,593 shares ---------- ---------- ----------- p/share p/share p/share Basic 0.76 -3.84 -5.34 Diluted 0.69 -3.82 -5.14 4. On 30 June 2003 the Group acquired the whole of the issued share capital of Integrated Engineering Design (Aberdeen) Limited for £129,000 in cash. The net assets acquired are as follows: £'000 Tangible fixed assets 10 Debtors 68 Cash at bank 2 Creditors -25 ------- 55 Goodwill 74 ------- 129 ------- 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 This information is provided by RNS The company news service from the London Stock Exchange

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