28 Mar 2013 07:00
RNS ANNOUNCEMENT
28 March 2013
Pentagon Protection plc
("Pentagon" or "the Company")
Final Results for the year ended 30 September 2012
Pentagon Protection (AIM: PPR), the AIM listed global specialist in the supply and installation of enhanced glass protection, high-risk security consulting, training and equipment, today announces its final results for the year ended 30 September 2012.
The audited Report and Accounts for the year ended 30 September 2012 will be sent to those shareholders who have requested a copy and will also be available on the Company's website: www.pentagonprotection.com on 28 March 2012.
Enquiries:
Pentagon Protection Plc Haytham Elzayn, Chairman Steve Chambers, Managing Director | Tel: 01494 793 333 |
Seymour Pierce (Nominated adviser) David Foreman / Catherine Leftley
|
Tel: 0207 894 7000 |
Peterhouse Capital Limited Jon Levinson | Tel: 0207 469 0935 |
CHAIRMANS' STATEMENT
Introduction
I am writing in order to present the results for Pentagon Protection Plc for the year ended 30 September 2012.
It is often said that the darkest hour comes before the dawn, and although this is a cliché, this phrase describes perfectly the way that I feel as I introduce these financial statements to you. If you have followed our recent RNS announcements you are no doubt aware that since the year end, the Group has signed many new and substantial sales contracts, which is very exciting. In the year under review however, the company's performance was disappointingly poor.
Having said this, fundamental changes have taken place in the Group which give me confidence in the future. Under the direction of our Managing Director, Steve Chambers, we have worked diligently to improve the Group's fundamentals during the year under review. For example, we have significantly improved controls over our pricing policy to ensure that the contracts won will be profitable in due course; we have pursued and opened up new markets both in the UK and overseas; focussed on developing a growing and vibrant sales pipeline; and very importantly, taken measures to ensure that leads are not only generated, but also converted, with reassuring regularity.
Recently, the Board has turned its attention to wider strategy issues, including senior recruitment, targeted growth initiatives and additional product line and market development, with the consequence that we think that this is the most exciting time that the Pentagon Group has ever known.
It is said that "all good things take time" and reinvigorating Pentagon Protection is no different. The focus and effort that went into sorting out our systems and controls for the future has meant that the year under review ended up being somewhat disappointing. We had hoped that some of the contracts that fell into the current year would have landed in 2012, but our marketplace is characterised by long sales cycles, the benefit of which we are now enjoying. The important thing is that quality contracts are now being won regularly and executed efficiently. So the Board is happy about the present as well as excited about the future - it is only the past that needs explaining, which I shall do in the rest of this report.
Financial review
The main problem with the FY2012 results is that turnover fell 31% from £2.9m in 2011 to near 2010 levels. Examining turnover by division, we can see that our window film income was reduced by 22%, caused mainly by the late start of the second leg of our EC film project, a matter outside the control of the PLC.
Our security division was down a massive 43%, due to the fact that none of our regular customers placed any substantial orders during the year. Whilst this has corrected itself in the current year, we appreciate this gives a very 'lumpy' revenue profile for the Group. To counter this, we are endeavouring to develop new customers, enter new markets and add additional product lines to our portfolio in order to reduce the security division's reliance on two primary customers. I will go into more detail about this below.
I am not concerned that either of these effects will impact on the current year; we are currently generating our best turnover to date, now that many of the improvements described above are starting to take effect.
More specifically, two positive effects of the work performed in 2012 are improvements to our pricing policy and to our operational processes. The combined impact of these resulted in the Group reporting an improved gross profit margin of 31%, an increase of 2.4 percentage points compared to the prior year.
The increase in administrative costs of 3% is principally due to inflationary reasons.
The slightly increased costs together with much reduced sales, even with the margin improvement, resulted in a significant, £208k increase in our operating loss to £523k.
As a result of this loss, the statement of financial position shows total equity attributable to the equity shareholders of the parent of negative £129,849, compared to a positive position of £263,691 in 2011. In order to assist the external view of the going concern status of the Group at 30 September 2012, I have accordingly deferred repayment of my shareholders loan of £491,556 until the Company once again has a surplus of assets over liabilities.
In the context of the above, the Board does not recommend the payment of a dividend.
Operational review
I have already mentioned that although the sales of the Group were disappointing in the year under review, there were significant efforts made to grow and develop the sales pipeline. While the results of these efforts are not reflected in the year under review's performance, they will contribute significantly to the FY2013 results.
The Group continues to focus on the UK window film market, but we have also pursued opportunities in the Middle East, Africa and the United States, where the board feels there is greater potential for future growth. Because of the long sales cycles inherent in the window film business, no large sales were achieved in these regions during the reporting period, however I am confident we will have significant sales in the future.
As mentioned above, our security division also suffered from a dearth of large orders, a situation that has reversed itself in the current year. One advantage of the slowdown in our security business was that it spurred us to develop our business model by broadening our product portfolio and pursuing opportunities in new markets.
Specifically, we have devoted significant time and effort to expand what we offer and where we offer it, by adding several different product lines to our portfolio and pursuing opportunities in the Middle East and Africa. Of course, it takes time to get traction with new initiatives, but I am encouraged by the number and size of proposals we have in these regions.
Current trading and future prospects
I am very encouraged by the Group's prospects in the coming year and beyond. Sales during the first quarter of FY2013 were impressive for both our window film and security divisions. These, combined with the impact of a large security division order received in the second quarter, I fully expect the Group to record its best year on record. Our sales pipeline is strong, which should provide long term sales growth for the Group and the structure of the pipeline is also encouraging, as it consists of an optimal mix of small, medium and very large sized projects.
The Group is committed to growing its global presence. I fully expect to achieve significant results from both our Middle East and African initiatives, which involve tendering for several large projects in both regions.
Finally, this upcoming year will see a renewed focus and effort in the United States market. While I have been disappointed to date with the performance of our US division, the potential for growth within this market is huge, especially in light of the current economic situation in the Eurozone. We will continue to pursue opportunities within our traditional core markets in the UK and Europe, but the greatest opportunity for the future growth of the company lies outside the EU. The board is considering a significant investment in and expansion of our American operations, the success of which, combined with our African and Middle Eastern efforts, will secure the Group's position as a truly global player in the security and window film markets.
Conclusion
Despite the poor financial result, this has been a very significant year in the Group's development and I feel positive about our prospects. The Group has established a strong pipeline of work with a number of significant contract wins post year end and we continue to develop still more opportunities, which I am sure we will maximise to the best advantage of shareholders.
Finally, on behalf of the Board, I would like to thank all of our employees for their continued hard work and support.
Chairman
27 March 2013
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2012
Group | Company | ||||
2012 | 2011 | 2012 | 2011 | ||
£ | £ | £ | £ | ||
ASSETS | |||||
Non-current assets | |||||
Intangible asset | 8,779 | 5,366 | - | - | |
Investments | - | - | 641,921 | 641,921 | |
Goodwill | 434,536 | 434,536 | - | - | |
Property, plant and equipment | 15,585 | 13,075 | 5,932 | 5,585 | |
458,900 | 452,977 | 647,853 | 647,506 | ||
Current assets | |||||
Inventories | 168,546 | 252,210 | 8,135 | 2,000 | |
Trade and other receivables | 626,081 | 544,775 | 700,296 | 618,877 | |
Cash and cash equivalents | 114,954 | 79,386 | 84,692 | 17,884 | |
909,581 | 876,371 | 793,123 | 638,761 | ||
TOTAL ASSETS | 1,368,481 | 1,329,348 | 1,440,976 | 1,286,267 | |
EQUITY AND LIABILITIES | |||||
Current liabilities | |||||
Trade and other payables | 1,006,774 | 707,726 | 619,257 | 501,989 | |
Shareholder loan | 491,556 | 357,931 | 491,556 | 357,931 | |
Total liabilities | 1,498,330 | 1,065,657 | 1,110,813 | 859,920 | |
Equity | |||||
Issued capital | 905,065 | 881,918 | 905,065 | 881,918 | |
Share premium account | 7,160,948 | 7,056,785 | 7,160,948 | 7,056,785 | |
Share based payments | 80,146 | 74,230 | 80,146 | 74,230 | |
Other reserves | 9,696 | 12,444 | 11,459 | 11,459 | |
Retained earnings | (8,285,704) | (7,761,686) | (7,827,455) | (7,598,045) | |
Total equity attributable to | |||||
equity shareholders of the parent | (129,849) | 263,691 | 330,163 | 426,347 | |
TOTAL EQUITY AND LIABILITIES | 1,368,481 | 1,329,348 | 1,440,976 | 1,286,267 | |
The financial statements were approved by the directors and authorised for issue on 27 March 2013 and are signed on their behalf by
S Chambers
Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 SEPTEMBER 2012
2012 | 2011 | ||
£ | £ | ||
Revenue | 1,960,331 | 2,851,631 | |
Cost of sales | (1,351,791) | (2,036,104) | |
Gross profit | 608,540 | 815,527 | |
Distribution costs | (24,974) | (56,694) | |
Administrative expenses | (1,107,050) | (1,074,330) | |
OPERATING LOSS BEFORE FINANCING ACTIVITIES | (523,484) | (315,497) | |
Finance income | 10 | 29 | |
Finance costs | - | (2,500) | |
LOSS BEFORE TAX | (523,474) | (317,968) | |
Tax | (544) | 10,636 | |
LOSS FOR THE YEAR | (524,018) | (307,332) | |
Other comprehensive (expense)/income | (2,748) | 985 | |
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR | (526,766) | (306,347) | |
Loss attributable to: | |||
Equity holders of the parent | (524,018) | (307,332) | |
Total comprehensive expense for the year attributable to: | |||
Equity holders of the parent | (526,766) | (306,347) | |
Loss per share (pence per share) | |||
Basic | (5.6)p | (3.5)p | |
Diluted | (5.6)p | (3.5)p |
Revenue and operating loss for the year all derive from continuing operations.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2012
Group | ||||||
Share capital | Share premium account | Share based payments |
Other reserves |
Retained earnings |
Total | |
£ | £ | £ | £ | £ | £ | |
At 1 October 2010 | 801,918 | 7,056,785 | 51,749 | (4,541) | (7,454,354) | 451,557 |
For the year to | ||||||
30 September 2011: | ||||||
Total comprehensive expense | ||||||
for the year | - | - | - | 985 | (307,332) | (306,347) |
Transactions with owners | ||||||
Shares issued on acquisition of subsidiary | 80,000 | - | - | 16,000 | - | 96,000 |
Share based payments | - | - | 22,481 | - | - | 22,481 |
At 1 October 2011 | 881,918 | 7,056,785 | 74,230 | 12,444 | (7,761,686) | 263,691 |
For the year to | ||||||
30 September 2012: | ||||||
Total comprehensive expense | ||||||
for the year | - | - | - | (2,748) | (524,018) | (526,766) |
Transactions with owners | ||||||
Shares issued | 23,147 | 104,163 | - | - | - | 127,310 |
Share based payment | - | - | 5,916 | - | - | 5,916 |
At 30 September 2012 | 905,065 | 7,160,948 | 80,146 | 9,696 | (8,285,704) | (129,849) |
Group - Other reserves | Merger reserve | Currency reserve | Shares held by ESOP | Total |
£ | £ | £ | £ | |
At 1 October 2010 | - | - | (4,541) | (4,541) |
For the year to | ||||
30 September 2011: | ||||
Total comprehensive income | ||||
for the year | - | 985 | - | 985 |
Transactions with owners | ||||
Shares issued on acquisition of subsidiary | 16,000 | - | - | 16,000 |
At 1 October 2011 | 16,000 | 985 | (4,541) | 12,444 |
For the year to | ||||
30 September 2012: | ||||
Total comprehensive expense | ||||
for the year | - | (2,748) | - | ( 2,748) |
At 30 September 2012 | 16,000 | (1,763) | (4,541) | 9,696 |
All equity is attributable to equity shareholders of the parent.
Share capital
Represents the par value of shares in issue.
Share premium
Represents amounts subscribed for share capital in excess of nominal value, net of directly attributable issue costs.
Share based payments
Represents the reserve account which is used for the corresponding entry to the share based payment charge through the income statement.
Merger reserve
Represents the difference between the fair value and nominal value of the equity consideration provided in exchange for 90% or more of the equity instruments acquired in another entity.
Shares held by ESOP
These relate to shares held by the Pentagon Employee Share Ownership Plan and are used to assist in meeting the obligations under employee remuneration schemes.
Foreign currency translation reserve
The translation reserve represents the exchange gains and losses that have arisen on the retranslation of overseas operations.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 SEPTEMBER 2012
Group | Company | |||
2012 | 2011 | 2012 | 2011 | |
£ | £ | £ | £ | |
Operating activities | ||||
Loss before tax | (523,474) | (317,968) | (229,410) | (246,312) |
Adjustments for: | ||||
Depreciation of property, plant and equipment | 4,365 | 5,222 | 1,513 | 1,589 |
Amortisation of intangibles | - | 409 | - | - |
Share based payments | 5,916 | 22,481 | 5,916 | 22,481 |
Exchange adjustment | (2,748) | 985 | - | - |
Changes in working capital: | ||||
Decrease/(increase) in inventories | 83,664 | (59,059) | (6,135) | - |
(Increase) in trade and other receivables | (81,306) | (169,167) | (81,419) | (235,237) |
Increase in trade and other payables | 305,358 | 129,324 | 123,578 | 158,100 |
Net finance (income)/cost | (10) | 2,471 | - | - |
Net cash used in operating activities | (208,233) | (385,302) | (185,957) | (299,379) |
Investing activities | ||||
Payments to acquire property, plant and equipment | (6,875) | (829) | (1,860) | (228) |
Payments to acquire intangible fixed assets | (3,413) | - | - | - |
Acquisition of a subsidiary net of cash received | - | 187 | - | - |
Interest received | 10 | 29 | - | - |
Net cash used in investing activities | (10,278) | (613) | (1,860) | (228) |
Financing activities | ||||
Capital element of finance lease contracts | - | (4,355) | - | (4,355) |
Shareholder loan | 133,625 | 283,464 | 133,625 | 283,464 |
Net proceeds from issue of shares | 121,000 | - | 121,000 | - |
Interest paid | - | (2,500) | - | - |
Net cash from financing activities | 254,625 | 276,609 | 254,625 | 279,109 |
Taxation | (544) | 10,636 | - | - |
Net increase/(decrease) in cash and cash | ||||
equivalents | 35,568 | (98,670) | 66,808 | (20,498) |
Cash and cash equivalents at the start of the year | 79,386 | 178,056 | 17,884 | 38,382 |
Cash and cash equivalents at the end of the year | 114,954 | 79,386 | 84,692 | 17,884 |
Cash and cash equivalents consists of:
| ||||
Cash and cash equivalents | 114,954 | 79,386 | 84,692 | 17,884 |
114,954 | 79,386 | 84,692 | 17,884 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2012
1 Accounting policies
1.1 Basis of preparation
The financial statements have been prepared in accordance with EU endorsed International Accounting Standards and International Financial Reporting Standards (collectively "IFRS") and the requirements of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements are presented in sterling and have been prepared on the historical cost basis, except where IFRS requires an alternative treatment. The principal variations from historical cost relate to financial instruments (IAS 39).
The Company is a public listed company, quoted on AIM and is incorporated and domiciled in the UK.
The Group had net liabilities of £129,849 as at 30 September 2012 (2011: net assets of £263,691) and generated a loss before tax of £523,474 (2011: £317,968) in the reporting period.
In common with most businesses in its sector, the Group's financial position has been adversely affected by contraction in its primary markets arising as a result of the economic recession. The holding company is currently being supported by the Group's Chairman, Haytham ElZayn, via a shareholder's loan of £449K as at 30 September 2012. Mr. ElZayn has agreed to defer repayment of this loan until the Group's financial situation has improved.
The Group has recently won several large contracts totalling approximately £2.8 million and currently has a combined potential sales pipeline with high probability prospects valued at over £5.3 million. The company is also actively involved in several possible high value opportunities totalling roughly £36 million. Management is confident that a significant portion of the sales pipeline will be converted into sales contracts in due course.
In the light of this and after taking into account all information that could reasonably be expected to be available, the directors are confident that the Group will remain in operational existence for the foreseeable future and that the going concern basis of preparation is appropriate to the Group's financial statements.
The full audit report is contained in the Company's Annual Report, which will be available on the Company's website by 28 March 2013.
2 Related party disclosures
As well as remuneration of directors, the following transactions fall within the scope of IAS 24 Related Party Disclosures.
On 25 October 2010, one of the directors, Haytham ElZayn, entered into an agreement with the Group in the form of a working capital facility, as part of a package of measures whereby the Company acquired 100% of the share capital of a company owned by him.
Accordingly, at 30 September 2012, the Group owed Haytham ElZayn, the Chairman, £491,556 (2011: £357,931) in the form of a working capital loan. During the year £110,000 of this loan was capitalised through the issue of 2,000,000 1p Ordinary shares issued at a premium of 4.5p per share. This represents the maximum value of the loan in the year. The loan bears interest at 3% over The Royal Bank of Scotland Plc's base rate and was secured during the year by a debenture and share charge over the investments of the Company, and any income and other rights relating to such investments.
- Ends -
Notes to Editors:
About Pentagon Protection
Pentagon Protection is a trusted provider of security and energy saving solutions for clients around the globe. Admitted to AIM in March 2003, Pentagon consists of three divisions focused on security solutions, energy efficiency and carbon reduction. Visit the website at Pentagon Protection PLC or contact us at info@pentagonprotection.com.
About SDS Group Ltd
Acquired by Pentagon Protection in September 2008 to enhance the group's portfolio of security products and services, SDS is a leading provider of training, consulting and security equipment, including highly-specialist security and search equipment. SDS customers and clients include governments, police forces, security and defence forces in the UK and around the world. Visit our website at SDS Group Limited or contact them at sales@sdsgroupltd.co.uk
About International Glass Solutions
Acquired by Pentagon Protection in 2010, IGS is headquartered in the United States and specialises in window film installation and project management services for commercial and government buildings, retail clients and large office buildings. IGS improves the group's capability and increases our exposure and reach into the North American market. Visit the website at International Glass Solutions, LLC or contact them at info@igsfilm.com