Interim Results

Pennant International Group PLC 27 September 2004 27 September 2004 Pennant International Group plc Pennant International Group plc, listed on AIM, is a leading supplier of technology solutions to the defence and industrial sectors, including specialist software, technical data services and data management systems, simulation and training systems. Interim results for six months to 30 June 2004 'Following the Group's success in 2003 with a return to profit and dividend.......I am pleased to report a period of continued profit in the six months to 30 June 2004.......the period ahead is being affected by programme delays outside the Group's control and this will influence the second half performance and possibly the early part of 2005.' 'Our businesses are well established and well positioned in their markets, we have a high quality management team and first class employees, we have industry leading technology and products, and, finally, there is a good pipeline of prospective business to be secured in the months ahead.' CHRISTOPHER POWELL Chairman • Group profit before tax up 15% to £279,000 (June 2003: £242,000) • Interim dividend of 0.13p per share (June 2003: nil) • Basic earnings per share up to 0.87p (June 2003: 0.76p) • Gearing reduced to 23% (June 2003: 34%) For further information contact: Joe Thompson, Chief Executive, Pennant International Group plc on 01452 714881 Barrie Newton, Rowan Dartington & Co, on 0117 925 3377 Ken Rees, Binns Winningtons, on 0117 317 9477 or mobile 07802 466 567 CHAIRMAN'S STATEMENT Following the Group's success in 2003 with a return to profit and dividend, as covered by my statement in the Annual Report for 2003, I am pleased to report a period of continued profit in the six months to 30 June 2004. As I set out later in this statement, the period ahead is being affected by programme delays outside the Group's control and this will influence the second half performance and possibly the early part of 2005. RESULTS AND DIVIDEND Trading has been in line with expectations and Group profit on ordinary activities before taxation was £279,000 (June 2003: £242,000). There has been an outflow of cash of £1,652,000 that has resulted from the repayment of £505,000 of loans ahead of schedule, the unwinding of upfront contract payments received at the end of 2003 and a build up of debtors and work in progress that will be realised in cash in the second half. Net debt was £930,000 (June 2003: £1,296,000) representing gearing of 23% (June 2003: 34%). Basic earnings per share were 0.87p (June 2003: 0.76p). Your Board is recommending an interim cash dividend of 0.13p per share (June 2003: Nil). The dividend will be paid on 19 November 2004 to shareholders on the register at the close of business on 22 October 2004. The shares are expected to go ex dividend on 20 October 2004. The interim cash dividend reflects the Group's performance in the first half and confidence in the future and the Board will determine the final dividend in the light of the then prevailing trading and prospects. CURRENT TRADING AND OPERATIONS The high level of tendering activity experienced over the past 18 months has continued. Some tendering activity relates to business 3 to 5 years ahead, some is updating current bids whilst others are for new business prospects in the period 2004 to 2006 inclusive. Group companies have continued to win new business and prospects in the pipeline remain strong. The immediate firm order bank, however, has reduced from the position at 31 December 2003, resulting from both the timing of contract awards and the incremental method of contracting on a major programme. Pennant Training Systems has made initial deliveries under the contract from Westland Helicopters Limited for two training devices in support of the supply of Lynx 300 helicopters and work continues to complete installation and customer acceptance. Also for Westland Helicopters, the company is engaged in the production of two HIDAS (Helicopter Integrated Defensive Aid Suite) trainers for the Apache helicopter. They will be used to train Apache aircrew and ground crew of the British Army Air Corps. Delivery is now complete for the 18 Hand Skill trainers ordered in December 2003. These trainers, referred to by the company as GenSkill and complementary to the GenFly trainer, will be used for aircraft engineer training at RAF Cosford. Sales of Aero Engineering Courseware have been made to the City of Bristol and Filton Colleges. These sales follow entry into this market in 2003 with courseware sales to Barry, Deeside, Filton and City of Bristol Colleges in the UK and to the Royal Melbourne Institute of Technology in Australia. During this period the company has been engaged in a consultative role by the Rail Safety and Standards Board to study and report on the use of simulation and training in the rail industry. The study is well advanced with the report due for delivery later this year. Also during the first half L-3 Communications purchased a Training Management Information System (TMIS) to be used on the ASTOR (Airborne STand-Off Radar) training programme at RAF Waddington. The South African Air Force Hawk Lead-In Fighter Trainer programme under contract to BAE Systems is now in the production phase with work well advanced on the computer based training courseware. This production phase is expected to continue to generate revenues throughout 2005. It is anticipated that this will be followed by a third phase starting in late 2006 or early 2007 to bring the training systems up to the technical standard of the aircraft for delivery in 2007/2008. Pennant Information Services has secured significant new orders during the period in addition to renewals and initiations of enabling contracts with key clients. Examples of new orders include technical data services for Airbus, O'Neil & Associates for the UK MoD wheeled tanker programme, Marathon Oil, Kerr McGee and with Interfleet for the Singapore Circle Line rail system. Work continues for the UK MoD under the recently renewed graphics and associated services enabling contract and for the Department of Work and Pensions, delivering e-learning solutions, under a new framework agreement. Cartographic work has continued with Total E&P and with other operators in the oil and gas industry including UK Hydrographics. It continues to be the case that Pennant Information Services business is made up of many relatively small orders, within enabling and framework agreements, for a broad range of clients within our markets. The software businesses in North America, Australia and the United Kingdom, in addition to product sales and support, continue to be engaged on two major programmes with software development being undertaken at all locations. The first involves activity with SAP on the Materiel Acquisition Supportability Information System (MASIS) for the Canadian Department of Defense, where IBM is prime contractor. The second is for a software upgrade programme for the Australian Defence Force where a full suite of Pennant specialist products is being customised and installed including OmegaPS, the supportability engineering software, OmegaPS Analyzer and OmegaPS Publisher. Contractors in the Australian defence industry are now progressively upgrading to this new software standard and Pennant Australasia is supplying both products and services, including installation, user training and data migration. ORGANISATION AND MANAGEMENT In August 2004, Pennant Canada Limited was set up, based on the Ottawa operation of Pennant Information Services Inc. This action recognises the strength and potential of the Canadian business and provides a focus for its continuing software operations and potential training solutions business. On 1st September I announced the appointment of Christopher Snook to the Board of Pennant International Group plc, as Chief Operating Officer. With effect from 31st December 2004, Joe Thompson will be standing down as Chief Executive and resigning as a director of Pennant International Group plc and its subsidiaries. I am pleased to say that his knowledge and experience will not be lost as he will continue to serve the Board as a consultant for the immediate future. Christopher Snook, Chief Operating Officer, will step up to assume the appointment of Chief Executive with effect from 1st January 2005. PROSPECTS The Group's performance in the first half of this year has been very much in line with expectations even though a major programme in training systems has progressed significantly slower than the anticipated rate. In addition, a number of potential contract awards that had been expected during the first half have not yet been made. In looking ahead to the immediate future, there is a gap in orders, most specifically in training systems, that will affect turnover in the second half of 2004 and which is also likely to influence the early part of 2005. Notwithstanding this short term gap, prospects remain good, with some very good programme opportunities in the pipeline. CONCLUSION Whilst the first half results are close to target the underlying delays to current and prospective programmes, particularly in training systems, has led to the Board revising expectations for the full year. Expected losses in the second half, which substantially arise from a modest restructuring, will reduce the forecast profit for the full year. Despite this the Board does not expect a cash outflow in the second half. The backlog of work resulting from contracts running slowly is still to be done and contracts not yet awarded are still to be let. In preparing its budgets, your Board makes every effort to be prudent in its forecasting but unforeseen events and other factors outside the Group's control can and do have an impact upon schedules at all stages. Mindful of such eventualities, the Board operates very tight cost controls to minimise the bottom line effect of any delays. This set-back should be viewed over a 3 to 5 year cycle rather than the traditional 12 month reporting period. Our businesses are well established and well positioned in their markets, we have a high quality management team and first class employees, we have industry leading technology and products, and, finally, there is a good pipeline of prospective business to be secured in the months ahead. Your Board remains confident in the future. CHRISTOPHER POWELL Chairman 27 September 2004 Pennan Pennant International Group plc Consolidated Profit and Loss Account Six Six Year months months ended ended ended 30 June 30 June 31 December 2004 2003 2003 Notes £'000 £'000 £'000 Turnover 6368 6129 11880 Cost of sales 3960 3596 7014 -------- -------- --------- Gross profit 2408 2533 4866 Net operating expenses 2090 2234 4211 -------- -------- --------- Operating profit 318 299 655 Profit on sale of property 0 0 164 -------- -------- --------- Profit on ordinary activities before interest 318 299 819 Interest -39 -57 -108 -------- -------- --------- Profit on ordinary activities before taxation 279 242 711 Taxation 2 0 0 -46 -------- -------- --------- Profit attributable to ordinary shareholders 279 242 665 Ordinary dividends -42 0 -128 -------- -------- --------- Amount transferred to reserves 237 242 537 -------- -------- --------- Earnings per share 3 Basic 0.87p 0.76p 2.08p Diluted 0.81p 0.69p 1.93p Statement of Total Recognised Gains and Losses Profit for the period 279 242 665 Currency translation differences on foreign currency net investments -9 36 -7 -------- -------- --------- 270 278 658 -------- -------- --------- Pennant International Group plc Summarised Consolidated Balance Sheet As at As at As at 30 June 30 June 31 December 2004 2003 2003 £'000 £'000 £'000 Intangible assets 1132 1389 1274 Tangible assets 2745 2852 2629 Investments 6 6 6 -------- -------- --------- 3883 4247 3909 Work in progress and debtors 3515 3207 2719 Creditors falling due within one year -2513 -2683 -3041 -------- -------- --------- 1002 524 -322 Net bank balance 314 799 1966 Current instalments of borrowings -130 -256 -646 -------- -------- --------- Net current assets 1186 1067 998 -------- -------- --------- Total assets less current liabilities 5069 5314 4907 Future instalments of borrowings -1114 -1839 -1180 Creditors falling due after one year 0 0 0 -------- -------- --------- 3955 3475 3727 Provisions for liabilities and charges 0 0 0 -------- -------- --------- 3955 3475 3727 -------- -------- --------- Called up share capital and share premium account 6609 6609 6609 Reserves -2654 -3134 -2882 -------- -------- --------- 3955 3475 3727 -------- -------- --------- Pennant International Group plc Consolidated cash flow Six Six Year months months ended ended ended 30 30 31 June June December 2004 2003 2003 £'000 £'000 £'000 Cash (outflow)/ inflow from operating activities -705 533 1726 Returns on investment and servicing of finance -39 -57 -107 Taxation 0 0 -3 Capital expenditure -198 -34 262 Acquisitions 0 -127 -127 Equity dividends -128 0 0 -------- -------- --------- Cash (outflow)/inflow before Financing -1070 315 1751 Financing Issue of ordinary share capital 0 0 0 Other financing -582 -115 -385 -------- -------- --------- (Decrease)/increase in net cash -1652 200 1366 -------- -------- --------- Reconciliation of net cash flow to movement in net debt (Decrease)/increase in net cash -1652 200 1366 Cash to repurchase debt 582 115 385 New loans and hire purchase contracts 0 0 0 -------- -------- --------- Movement in net debt in period -1070 315 1751 -------- -------- --------- Net debt at beginning of period 140 -1611 -1611 Net debt at end of period -930 -1296 140 -------- -------- --------- Reconciliation of operating profit to cash flow from operating activities Operating profit 318 299 655 Depreciation 66 102 191 Amortisation of intangible assets 141 120 240 (Profit)/loss on sale of fixed assets 0 0 -2 (Increase)/decrease in work in progress and debtors -796 -59 466 (Decrease)/increase in creditors -442 69 220 Other movements 8 2 -44 -------- -------- --------- -705 533 1726 -------- -------- --------- 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 2003 annual report and financial statements. The balance sheet at 31 December 2003 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 months Six months Year ended ended ended 30 June 30 June 31 December 2004 2003 2003 £ £ £ Profit attributable to shareholders 279,000 242,000 665,000 --------- -------- --------- Number Number Number Basic weighted average number of shares 32,000,000 32,000,000 32,000,000 Employee share options 2,385,500 2,836,500 2,495,500 ---------- ---------- ---------- Diluted weighted average number of shares 34,385,500 34,836,500 34,495,500 ---------- ---------- ---------- p/share p/share p/share Basic 0.87 0.76 2.08 Diluted 0.81 0.69 1.93 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 IR SEAFWLSLSEDU

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