2010 Final Results

RNS Number : 6974D

Pennant International Group PLC

28 March 2011

 



For Immediate Release                                                                                                             28 March 2011

Pennant International Group plc

Preliminary Results for the year ended 31 December 2010

A further year of improved profitability and strong cash generation across all three divisions;

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 2010.

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

"I am pleased to report further improved profitability and strong cash generation.  2010 was a very busy year on the tendering front resulting in a much improved order book, including a contract signed after the year end with AgustaWestland worth in excess of £10 million over two years, the largest contract ever won by the Group.  There is also an increasingly strong pipeline of further opportunities."

Highlights: Financial

·     Group revenues rose to £9.57million (2009: £9.49million).

·     Gross margin increased to 41.45% (2009: 39.1%).

·     Group operating profit up 70% to £542,000 (2009: £305,000).

·     Basic earnings per share up 100% to 2.01p (2009: 1.00p).

·     Net cash at year end up 36% to £1.16million (2009: £0.85million).

·     Proposed final dividend of 1.00p per share (2009: NIL).

·     Balance sheet further strengthened.

Highlights: Operational

·     All three divisions profitable and cash generative

·     Training Systems (45% of Group Revenues) enjoyed a year of intense tendering activity, culminating in it winning the Group's largest ever contract worth £10 million over two years. The contract was awarded by AgustaWestland for the development of Maintenance Training Equipment for its AW159 Lynx Wildcat helicopter. Other notable successes for the division included the completion of a contract to provide a Virtual Reality Parachute Trainer ("VRPT") to the MOD, ongoing work and extensions to contracts with BAE Systems for computer-based training systems and emulations supporting the sale of Hawk aircraft to India and South Africa and a new contract with Krauss Maffei Wegmann  to support a number of rail and police vehicle simulators in the UK

·     Data Services (20% of Group Revenues) has been steadily growing its presence in the rail sector and during the year, carried out work for the UK Rail Safety and Standards Board, Network Rail, Siemens and Kawasaki Heavy Industries. It also won a significant contract with a potential value in excess of US$2 million to supply manuals, training material and training delivery supporting a major programme for the supply of rail rolling stock. In aerospace it continued its technical documentation for Airbus and in oil and gas, a contract with TOTAL for specialist drawing services was extended for three years. It also acts as a supplier to Training Systems Division for high quality media assets used in computer based training and emulation products. 

·     Software Services (35% of Group Revenues) performed well with its market-leading OmegaPS suite of software being used by many defence contractors and by the defence authorities in both Canada and Australia. The agreement with the Canadian DND for training, installation and specialist consultant support has recently been extended with a value of CA$3 million for the first of three option years, while continued success has been achieved in the Chinese market with licence sales to Beijing Design and Research Institute and the Chinese civil aircraft company COMAC; elsewhere new licence sales have been made to BN Group, Daimler AG and Boeing Australia.  

On current trading and prospects, Mr. Powell added:

"The significant new contracts recently won, together with existing contracts and the ongoing revenue streams from support and consultancy agreements, place the Group in an encouraging position for the medium term. The Group has a strong balance sheet, a good cash position, a strong order book and a good pipeline of opportunities, giving your Board confidence for the future."

Enquiries:

Pennant International Group plc                           Tel: [phone]

Chris Snook, Chief Executive

John Waller, Finance Director

WH Ireland                                                        Tel: [phone]

Mike Coe/Marc Davies

Winningtons Financial                                         Tel: [phone]

Paul Vann/Tom Cooper

CHAIRMAN'S STATEMENT AND BUSINESS REVIEW

I am pleased to report further improved profitability and strong cash generation.

2010 was a very busy year on the tendering front resulting in a much improved order book including a contract, signed after the year end, with AgustaWestland worth in excess of £10 million pounds over 2 years, the largest contract ever won by the Group. In addition a new contract was won, with a potential value in excess of US$2 million, to supply manuals and training to a major rail programme and the consultancy agreement with the Canadian Department of National Defence ('DND') in respect of the implementation of OmegaPS software was increased in value by CA$3 million and extended for one year. There is also an increasingly strong pipeline of opportunities.

Results and dividend

Revenue increased slightly to £9.57 million (2009: £9.49 million). Gross margin increased to 41.45% (2009: 39.1%) and administration expenses were well controlled resulting in 78% increase in operating profit to £542,000 (2009: £305,000).

The tax credit of £35,000 arose as the result of the first time recognition of tax losses as a deferred asset as it is clear that they will be used to reduce tax liabilities in the foreseeable future. Basic earnings per share increased by 100% to 2.01p (2009: 1.00p).

Cash generated from operations was £962,000 (2009: £962,000) resulting in a cash balance of £1.41 million (2009: £1.28 million) and net funds increased to £1.16 million (2009: £0.85 million) at the reporting date.

Your Board recommends the payment of a final dividend of 1p per share (2009: nil). Subject to approval at the Annual General Meeting, the dividend will be paid on 27 May 2011 to shareholders on the register at close of business on 6 May 2011. The shares are expected to go ex-dividend on 4 May 2011.

The Group

The Group operates mainly in the defence, rail, government, power and oil and gas sectors. It is managed as three operating divisions as shown below, all three divisions were profitable and cash generative during the year.

Division	Activity	Percentage of Group revenues
		2010	2009
Training Systems	Design, manufacture and delivery of simulation, virtual reality and computer-based training products mainly for defence projects including new platforms and updates to existing platforms.	45%	42%
Data Services	High quality media, graphics, virtual reality and technical documentation principally for the defence, rail, power and government sectors. Also provides media production services to Training Systems division.	20%	26%
Software Services	Owns the rights to the OmegaPS suite of engineering support software.	35%	32%

Strategy

The Board believes that there is significant opportunity for organic growth in all three divisions. Capital projects for complex assets are assessed not only on the capital cost of the asset but principally on the through-life cost required to keep them in service. It is in this area that Pennant's products and services contribute.

·    Through-life costs include training programmes for the operation and maintenance of the equipment. The cost of using the assets themselves for training purposes is prohibitive so the use of value-for-money synthetic training products continues to grow.

·    Engineering support software such as Pennant's OmegaPS is used to optimise design and to plan and monitor through-life support processes and reduce costs.

Contracts for major assets have long gestation periods and are normally awarded to original equipment manufacturers ('OEMs) and/or prime contractors ('primes'). It is the OEMs and primes that are Pennant's major customers.

Against this background a common strategy has been consistently applied across the Group. The main objectives of this strategy are:

·    To continually improve our products and services to keep them relevant to our customers needs and to reflect current practice and use the latest available technology.

·    To work closely with the OEMs and primes, both before and after contract award, to enhance our reputation and become their partner of choice.

·    To extend our reach both with new customers and in appropriate new sectors.

·    To underpin future revenues by increasing the number of long-term support contracts.

This strategy has been increasingly successful producing a strong pipeline of opportunities and recent major contract awards.

Training Systems

A year of intense tendering activity was rewarded by the winning of a contract, worth in excess of £10 million with AgustaWestland for the development of Maintenance Training Equipment for the AW159 Lynx Wildcat helicopter which will be used by the Army and Royal Navy to train students with the physical layout, operation and organisational level maintenance and flight servicing of the aircraft systems. The contract will run over two years providing a value-for-money training solution to achieve the ready-for-training date in 2013.

There have been a number of other successes and achievements including:

·    Selection as potential supplier in respect of a multi-million pound contract to provide computer based training and emulation in respect of a major Land Systems programme.

·    The completion of a contract to provide a Virtual Reality Parachute Trainer ('VRPT') to the UK Ministry of Defence ('MOD'). The VRPT provides a virtual environment that immerses the student in a virtual world where a parachute jump is simulated. It allows the students to practice skills with a variety of parachutes and rehearse malfunction procedures in a safe but realistic environment. The VRPT was featured in BBC news programmes and the press.

·    Tasking under a framework contract with the MOD to update existing courseware for the Sea King helicopter for RNAS Culdrose and the Jaguar aircraft for DCAE Cosford.

·    A new contract with the MOD for the support of four Frame Electrical Layouts ('FELs') located at the British Army's School of Electrical and Mechanical Engineering at Borden. The FELs are used to provide basic training in the repair and fault diagnosis of the Warrior Infantry Fighting Vehicle.

·    A contract with the Sultanate of Oman for the supply of 12 Handskill Trainers designed to teach students the correct use of hand tools.

·    A new contract with Krauss Maffei Wegmann to support a number of rail and police vehicle simulators in the UK.

·    Ongoing work and extensions to contracts with BAE Systems for computer-based training systems and emulations supporting their sale of Hawk aircraft to India and South Africa.

·    A contract with AgustaWestland to supply computer based training for the AW101 helicopter.

·    An extension to the contract for interactive computer based training for the command systems to the Royal Navy Type 23 frigates and Type 45 destroyers as part of the Maritime Composite Training System.

The division has a strong pipeline of opportunities for the medium and long term and support contracts with MOD, BAE Systems and British Energy providing ongoing revenue streams.

Data Services

Having successfully moved to new premises in Manchester, Data Services division has won a significant contract with a potential value in excess of $2 million to supply manuals, training material and training delivery in support of a major programme for the supply of rail rolling stock. Production of the manuals will run over two years with training extending to 2015.

The division has been growing its presence in the rail sector and during the year has carried out work on projects for the UK Rail Safety and Standards Board, Network Rail Siemens and Kawasaki Heavy Industries.

Work carried out for the UK Government included further development of her Majesty's Revenue and Custom's 'Employer CDROM 2010' for its rebranded launch as 'Basic PAYE Tools' and updates to the Department of Work and Pension's Learning Highway.

In the power sector, work was successfully completed for Alstom Switzerland creating operation and maintenance manuals in respect of the auxiliary systems required to keep gas turbines operational.

In the aerospace sector work continued on technical documentation for Airbus and in the oil and gas sector a contract with TOTAL for specialist drawing services was extended for three years to September 2013.

Data Services division also acts as a supplier to Training Systems division for high quality media assets used in computer-based training and emulation products.

Software Services

The market-leading OmegaPS suite of software is used by many defence contractors and by the defence authorities in both Canada and Australia to support long life assets and to reduce through-life costs. Revenues are generated from licence sales, support contracts and from related consultancy.

The software is continually updated to keep it in line with changing standards and during the year a multi-lingual version was developed to support the needs of the global customer base.

Software Services also sell 'Analyser' which uses the data stored in the OmegaPS database to allow users to carry out level of repair, sparing and life cycle cost analyses. Use of this tool has helped customers to make substantial savings to through life costs.

Revenues for the division are underwritten by;

·    Ongoing annual maintenance contracts for existing and new installations.

·    The agreement with the Canadian DND for training, installation and specialist consultant support to maximise effective use of OmegaPS within the DND. This contract has recently been extended with a value of CA$3 million for the first of three option years. There are two further option years with a potential further value of $6 million.

·    An ongoing support contract with the Australian Defence Organisation.

Continued success has been achieved in the Chinese market, helped by the multi-lingual development, with licence sales to Beijing Design and Research Institute, Beijing Design Institute and the civil aircraft company COMAC; elsewhere there have been new licence sales to Vitrociset (in respect of the Galileo project), BN Group, Daimler AG and Boeing Australia.

People

I would like to take this opportunity to thank our committed and skilled staff for their work and, in particular, their significant efforts supporting the successful tender work during the year.

Outlook

The significant new contracts recently won together with existing contracts and the ongoing revenue streams from support and consultancy agreements place the Group in an encouraging position for the medium term. The Group has a strong balance sheet, a good cash position, a strong order book and a good pipeline of opportunities giving your Board confidence for the future.

C C Powell

Chairman

25 March 2011

PENNANT INTERNATIONAL GROUP plc

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2010

	Notes	2010 £		2009 £
Revenue		9,572,948		9,485,858
Cost of sales		(5,605,421)		(5,778,263)
Gross profit		3,967,527		3,707,595
Administration expenses		(3,425,368)		(3,402,742)
Operating profit		542,159		304,853
Net gain on closure of joint venture		-		20,390
		542,159		325,243
Finance costs		(17,051)		(24,932)
Finance income		340		639
Profit before taxation		525,448		300,950
Taxation	1	35,017		(7,715)
Profit for the year attributable to equity holders of parent		560,465		293,235
Earnings per share
Basic		2.01p		1.00p
Diluted		1.96p		0.91p

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

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2010

	2010 £		2009 £
Profit for the year attributable to equity holders of parent	560,465		293,235
Other comprehensive income:
Exchange differences on translation of foreign operations	151,595		71,868
Comprehensive income for the period	712,060		365,103

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2010

		2010 £		2009 £
Non-current assets
Goodwill		991,557		952,939
Other intangible assets		75,123		64,832
Property, plant and equipment		1,776,559		1,802,587
Available for sale investments		3,700		3,700
Deferred tax assets		226,452		38,304
Total non-current assets		3,073,391		2,862,362
Current assets
Inventories		44,375		16,340
Trade and other receivables		2,388,739		2,347,179
Cash and cash equivalents		1,414,759		1,284,384
Total current assets		3,847,873		3,647,903
Total assets		6,921,264		6,510,265
Current liabilities
Trade and other payables		1,047,586		989,819
Current tax liabilities		17,000		14,089
Obligations under finance leases		20,179		4,612
Bank loan		190,730		172,334
Deferred revenue		338,815		377,294
Total current liabilities		1,614,310		1,558,148
Net current assets		2,233,563		2,089,755
Non-current liabilities
Bank loan		42,639		245,225
Obligations under finance leases		-		15,661
Deferred revenue		6,648		7,700
Deferred tax liabilities		134,968		-
Total non-current liabilities		184,255		268,586
Total liabilities		1,798,565		1,826,734
Net assets		5,122,699		4,683,531
Equity
Share capital		1,475,000		1,600,000
Capital redemption reserve		125,000		-
Treasury shares		(81,076)		(470,318)
Retained earnings		3,205,824		3,307,493
Translation reserve		397,951		246,356
Total equity		5,122,699		4,683,531

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2010

		2010		2009
		£		£
Net cash from operations		962,295		961,688
Investing activities
Interest received		340		639
Purchase of intangible assets		(66,074)		(4,488)
Purchase of property, plant and equipment		(92,529)		(31,469)
Loan to Employee Benefit Trust		(292,775)		-
Net cash inflow from closure of joint venture		-		18,639
Net cash used in investing activities		(451,038)		(16,679)
Financing activities
Dividends paid		(349,698)		-
Transactions in own shares		44,529		(107,302)
Repayment of borrowings		(184,190)		(185,599)
Net repayment of obligations under finance leases		(94)		(468)
Net cash used in financing activities		(489,453)		(293,369)
Net increase in cash and cash equivalents		21,804		651,640
Cash and cash equivalents at beginning of year		1,284,384		600,631
Effect of foreign exchange rates		108,571		32,113
Cash and cash equivalents at end of year		1,414,759		1,284,384

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2010

	Share capital	Capital redemption reserve	Treasury shares	Share premium	Retained earnings	Translation reserve	Total equity
	£	£	£	£	£	£	£
At 1 January 2009	1,600,000	-	(363,016)	3,582,329	(571,200)	174,488	4,422,601
Total comprehensive income for the year	-	-	-	-	293,235	71,868	365,103
Capital reduction	-	-	-	(3,582,329)	3,582,329	-	-
Recognition of share based payment	-	-	-	-	3,129	-	3,129
Purchase of treasury shares	-	-	(107,302)	-	-	-	(107,302)
At 1 January 2010	1,600,000	-	(470,318)	-	3,307,493	246,356	4,683,531
Total comprehensive income for the year	-	-	-	-	560,465	151,595	712,060
Capital reduction	(125,000)	125,000	292,425	-	(292,425)	-	-
Recognition of share based payment	-	-	-	-	32,277	-	32,277
Transactions in treasury shares	-	-	96,817	-	(52,288)	-	44,529
Dividends paid	-	-	-	-	(349,698)	-	(349,698)
At 31 December 2010	1,475,000	125,000	(81,076)	-	3,205,824	397,951	5,122,699

ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2010

1.

Taxation

Recognised in the income statement	2010 £		2009 £
Current tax expense	16,513		13,498
In respect of prior year	(863)		526
	15,650		14,024
Deferred tax expense relating to origination and reversal of temporary differences	(52,082)		(7,020)
In respect of prior years	1,415		711
Total tax (credit)/expense in income statement	(35,017)		7,715
Reconciliation of effective tax rate
Profit/ (loss) before tax	525,448		300,950
Tax at the applicable tax rate of 28% (2009: 28%)	147,125		84,266
Tax effect of:
Share of results of joint venture	-		(23,750)
Expenses not deductible for tax	28,965		38,801
Income not taxable	-		(13,139)
Capital loss	-		14,522
Differences between capital allowances and depreciation	(19,545)		19,561
Short-term timing differences	(9,902)		(305)
Losses utilised	(136,786)		(112,022)
Unrelieved losses arising	2,936		3,552
Different tax rates for overseas subsidiaries	3,758		2,062
Other differences	(38)		(50)
In respect of prior year	(863)		526
Current tax expense	15,650		14,024
Deferred tax adjustment	(50,667)		(6,309)
Total tax (credit)/expense	(35,017)		7,715

2.	Publication of non-statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in the Companies Act 2006.

The statement of financial position at 31 December 2010 and income statement, statement of changes in equity, statement of cash flows and associated notes for the year then ended have been extracted from the Company's 2010 financial statements upon which the auditors opinion is unqualified.

Copies of the 2010 Annual Report and Accounts will be posted to shareholders in April and will be available on the Company's website at www.pennantplc.co.uk. Further copies may be obtained by contacting the Company Secretary at Pennant Court, Staverton Technology Park, Cheltenham, Gloucestershire GL51 6TL.

 

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