Last checked at 17 Mar 2015 07:00
17 March 2015
PENNANT INTERNATIONAL GROUP PLC
(AIM: PEN)
Preliminary Results for the year ended 31 December 2014
Strong trading performance;
Earnings per share up 76%; Final Dividend raised by 11%; Net assets up 52%
Pennant International Group plc ("Pennant" or "the Group"), 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 financial year ended 31 December 2014.
Commenting on the Group's performance, Chairman Christopher Powell said:
"I am pleased to report that 2014 has been another year of sustained progress, maintaining the trading momentum experienced over the last three years. The Group delivered significantly enhanced earnings and a strengthened balance sheet, enabling the directors to recommend an 11% increase in the final dividend per share."
Highlights: Financial
· | Profit for the year attributable to shareholders of £2.98m (2013: £1.70m); |
· | Basic earnings per share increased by 76% to 11.32p (2013: 6.43p); |
· | Group net assets increased by 52% to £9.42m (2013: £6.19m); |
· | Group revenues marginally reduced to £17.98m (2013: £18.68m); |
· | Operating margins maintained at 12.2% (2013: 12.1%); |
· | Cash generated from operating activities of £1.69m (2013: £0.17m); |
· | Net cash at period end of £1.07m (2013: £1.16m); nil borrowings; |
· | Proposed Final Dividend increased by 11% to 2.0p per share (2013: 1.8p) making a total dividend for the year of 2.9p per share (2013: 2.6p); |
· | Successful claim of Research and Development tax credits in the UK in respect of financial years 2012 to 2014 producing a tax credit of £1.3m; |
· | Revaluation of land and buildings produces £1.1m net asset uplift; |
· | Unrelieved tax losses of £3m carried forward; |
· | Underlying EBITA fully in line with expectations. |
Highlights: Operational
The Board has consistently and successfully applied a strategy across the Group of increasing shareholder value through organic growth built on customer focus, innovation and diversification.
Training Systems Division:
· | Contribution to Group profit increased by 69% to £2.19m (2013: £1.29m) on revenues marginally lower at £12.2m (2013: £12.6m); |
· | Contract worth £1.6m successfully secured to supply suite of training aids to the Military Technological College, Oman; all training devices were manufactured, delivered and accepted in 2014; |
· | Contract valued at £1.7m secured with Agustawestland to provide an upgrade programme to the Wildcat training devices delivered in 2013 and 2014; |
· | Ongoing manufacture of several training devices for BAE Systems Australia Limited as part of a £16m contract. Work set to continue through 2015 to deliver training devices to end user. This is due to be completed during the second quarter of 2015. Contract to support devices in service has commenced, renewable on an annual basis for a five year rolling period; |
· | Successful completion and delivery of the Wildcat maintenance training equipment to Agustawestland under the terms of a £12.5m contract completed in 2014; |
· | Successful completion of six month performance phase of leading-edge Parachute Flight Simulator to a far-eastern customer; |
· | On-schedule delivery and acceptance of a software-based training capability to Indian customer. |
Software Services Division:
· | Revenues increased by 7% to £4.6m (2013: £4.3m); |
· | Contribution to Group operating profit lower at £0.33m (2013: £0.43m); |
· | With offices in Canada, Australia and the UK, the division owns the rights to the market leading OmegaPS suite of software which is sold world-wide and used by major defence contractors and defence authorities in Canada and Australia to support complex long-life assets; |
· | Renewal of contract with Canadian Department of National Defence (DND) secured to provide specialist consultancy support to maximise use of OmegaPS within the DND; |
· | The CA$19.7 million contract is for an initial two year term through to September 2016 with three additional one year extension options. |
Data Services Division:
· | Revenues for the year of £2.4m (2013: £2.95m) contributing £0.02m (2013: £0.31m) to Group operating profits; |
· | On-going contract to provide all Operational, Maintenance and Training Documentation for the R188 Rail Car Project currently being built by Kawasaki Rail Car Inc. for New York City Transit Department; |
· | Professional services contract with Capgemini UK PLC on behalf of HMRC relating to its Real Time Initiative for PAYE will continue to require a combination of development and ongoing support throughout 2015 and beyond; |
· | Contract with EDF to design and build a second generation simulator for teaching Basic Substation Switching Principles; |
On current trading and prospects, Mr Powell added:
"Our strategy of driving organic growth built on customer focus, innovation and diversification, which we have followed consistently over the last 5 years, has been very successful and has significantly increased shareholder value during this period. This strategy will be continued."
"The Board looks forward to further progress across the Group in the current year, with an anticipated weighting towards the second half. The forward visibility of the order book also provides additional confidence in Group revenues for 2015 and beyond."
Contacts: | |
Pennant International Group plc | www.pennantplc.co.uk |
Philip Walker, CFO | +44 (0) 1452 714 881 |
Chris Snook, CEO | |
WH Ireland Limited | www.wh-ireland.co.uk |
Mike Coe / Ed Allsopp | +44 (0) 117 945 3470 |
Winningtons Financial | www.winningtons.co.uk |
Paul Vann / Tom Cooper | +44 (0)117 985 8989 or +44 (0)7768 807631 |
CHAIRMAN'S REVIEW AND STRATEGIC REPORT
I am pleased to report that 2014 has been another year of sustained progress, maintaining the trading momentum experienced over the last three years. The Group delivered significantly enhanced earnings and a strengthened balance sheet, enabling the directors to recommend an 11% increase in the final dividend per share.
Results and Dividend
Profit for the year increased by 76% to £2.98 million (2013: £1.70 million) having been enhanced by the successful claim of Research and Development tax credits amounting to £1.3 million across the Group in respect of financial years 2012 to 2014. This has resulted in significantly enhanced earnings per share of 11.32p (2012: 6.43p).
Consolidated net assets have increased by 52% to £9.42 million (2013: £6.19 million). This strengthening of the net asset position resulted from a revaluation of the Group's land and buildings (£1.1 million uplift) and the earnings enhancement.
Consolidated revenues were marginally lower at £17.98 million (2013: £18.68 million).
Group operating margins were maintained at 12.2% (2013: 12.1%) demonstrating a well-controlled cost base.
Cash generated from operations amounted to £1.69 million (2013: £0.17 million) reflecting the improved working capital position and the positive impact of the receipt of contracted stage payments on major contracts.
The Group has unrelieved tax losses of £3 million carried forward into 2015.
Your Board is recommending the payment of a final cash dividend of 2.0p per share, bringing the total dividend for the year to 2.9p per share which is covered 5.0 times by earnings and represents an increase of 12% over the previous year. The final dividend is payable on 1 May 2015 to shareholders on the register at the close of business on 17 April 2015. The ex-dividend date will be 16 April 2015.
About Pennant
Pennant International Group plc ('the Group') has a diverse portfolio of capabilities enabling it to offer services that cover training equipment and related support, technical documentation, media development, software development and related consultancy. It operates principally in the defence, rail, and aerospace sectors and with government departments.
The Group operates as three trading divisions and has offices in the UK, Australia and Canada.
Strategy
The Board has consistently applied a successful strategy across the Group of increasing shareholder value through organic growth. This strategy is built upon:
Customer focus | Building relationships with existing and potential new customers, understanding their requirements, being flexible and delivering on time and to budget. |
Innovation | Developing new capabilities by applying newly developed and existing, proven technologies and continually updating existing products and services to meet market demands, current standards and new technologies. |
Diversification | Pursuing opportunities in closely related sectors and in particular those with potential long term revenue streams. |
This strategy continues to be successful and during 2014 has generated considerable tendering activity, particularly for Training Systems, and regular involvement with customers in respect of a strong pipeline of opportunities.
Training Systems Division
Training Systems Division continues to be the main driver within the Group. Revenues for the year were marginally below anticipated levels at £12.2 million (2013: £12.6 million). This reduction arose due to a contract that had been expected to be awarded in 2014 being deferred into 2015.
The Division provides and supports specialist training systems based on software emulation, hardware simulation, virtual reality and computer based training principally in the defence sector. It has a strong portfolio of proven training devices ranging from simple hand skill trainers to sophisticated simulators. It also has a track record of successfully designing and manufacturing new devices for specific applications.
There are significant ongoing orders that provide work through 2015 and beyond and active involvement with existing and new customers for a number of major opportunities. Although the timing of major contracts is difficult to predict and beyond the Group's control, the Board considers that a number of factors suggest that there is significant potential for further growth:
· new capital equipment platforms are becoming more sophisticated and complex thereby increasing the requirement for training;
· the use of 'real' equipment for training has safety implications, is expensive and often impractical; and
· there is a continuing trend for defence forces to outsource training services including updating their training devices.
New contract awards and operational achievements during the year are set out below:
· A contract worth £1.6m was secured to supply a suite of training aids to the Military Technological College, Oman. All training devices were manufactured, delivered and accepted in 2014
· A contract with a value of £1.7m was secured with Agustawestland to provide an upgrade program to the Wildcat training devices delivered in 2013 and 2014.
· Ongoing manufacture of a number of training devices for BAE Systems Australia Limited as part of a £16m contract. Work will continue through 2015 to deliver the training devices to the end user. This is due to be achieved during the second quarter of 2015. The Company has begun operating the contract to support the devices in service which is renewable on an annual basis for a five year rolling period.
· Successful completion and delivery of the Wildcat maintenance training equipment under the terms of a £12.5m contract completed in 2014.
· Successful completion of the six month performance phase of the leading edge Parachute Flight Simulator to a far-eastern customer.
· Successful on schedule delivery and acceptance of a software-based training capability to an Indian customer.
Software Services Division
The Division has offices in Canada, Australia and the UK. It owns the rights to the market leading OmegaPS suite of software which is sold world-wide and used by major defence contractors and by the defence authorities in Canada and Australia to support complex long-life assets.
Revenues are generated from the sale of licenses, associated maintenance agreements and consultancy. The product is regularly updated to keep in line with industry standards and changing technology. Regular updates are issued to users.
The Division has had a successful year with revenues increasing by 7% to £4.6 million (2013: £4.3 million). The contribution to Group operating profit reduced to £332,000 (2013: £435,000). The reduction has arisen mainly from a reallocation of centralised administrative costs.
In September 2014 the renewal of the existing contract with the Canadian Department of National Defence (DND) to provide specialist consultant support to maximise use of OmegaPS within the DND was secured. The CA$19.7 million contract is for an initial two year term through to September 2016 with three additional one year extension options.
In Australia, the Division is in the process of negotiating a multi-year contract extension to the current contract with the Australian Department of Defence, Defence Materiel Organisation to support OmegaPS.
Data Services Division
The Data Services Division provides high quality media, graphics, virtual reality software and technical documentation to the defence, rail, power and government sectors. Revenues and operating profits for the year were lower at £2.4 million (2013: £2.95 million) and £21,000 (2013: £307,000) respectively. This is largely a result of a delay in the award of a significant contract which is now expected to contribute to current year performance.
The main contracts contributing to trading during the year were:
· an on-going contract to provide all Operation, Maintenance and Training Documentation for the R188 Rail Car Project currently being built by Kawasaki Rail Car Inc. for New York City Transit Department;
· an on-going contract with Capgemini UK PLC for the development for Her Majesty's Revenue and Customs (HMRC) of a Basic PAYE Tools (BPT) product as a multi-platform, client side application that operates in unison with HMRC's Real Time Initiative for PAYE; and
· a contract with EDF to design and build a second generation simulator for teaching Basic Substation Switching Principles.
The Division has many years' experience in the rail sector and is actively involved with a number of noteworthy opportunities in USA and the Far East.
People
The Group has staff with diverse experience and educational, professional and cultural backgrounds. They have responded well to the challenges presented during the year and the Group's strong reputation and longstanding relationships with many of its customers are the measure of their success.
Outlook
The strategy followed consistently over the last five years has been successful in achieving its goal of significantly increasing shareholder value and this strategy will be continued. Over this period a number of major contracts have been won and completed to the satisfaction of our customers, enhancing the Group's profile and reputation. As a result, the Group is currently actively involved in a number of significant opportunities with existing and prospective customers.
The Board looks forward to further progress across the Group in the current year, with an anticipated weighting towards the second half. The forward visibility of the order book also provides additional confidence in Group revenues for 2015 and beyond.
Approved by the Board on 16 March 2015
and signed on its behalf
C C Powell
Chairman
PENNANT INTERNATIONAL GROUP plc
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2014
| Notes | 2014 | 2013 |
Continuing operations |
| £ | £ |
Revenue |
| 17,798,023 | 18,676,969 |
Cost of sales |
| (10,841,174) | (12,226,023) |
Gross profit |
| 6,956,849 | 6,450,946 |
Administrative expenses |
| (4,782,146) | (4,195,236) |
Operating profit |
| 2,174,703 | 2,255,710 |
Finance costs |
| (10,569) | (11,733) |
Finance income |
| 2,684 | 2,651 |
Profit before taxation |
| 2,166,818 | 2,246,628 |
Taxation credit/(charge) | 1 | 814,612 | (550,830) |
Profit for the year attributable to the equity holders of the parent |
| 2,981,430 |
1,695,798 |
Earnings per share |
|
|
|
Basic |
|
11.32p |
6.43p |
Diluted |
|
10.88p |
6.33p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
| 2014£ | 2013 £ |
Profit for the year attributable to the equity holders of the parent | 2,981,430 |
1,695,798 |
Other comprehensive income: |
|
|
Items that will not be reclassified to profit and loss |
|
|
Property revaluation gain | 1,106,006 | - |
Deferred tax | (221,201) | - |
Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations | (12,235) |
(189,217) |
|
|
|
Total comprehensive income for the period attributable to the equity holders of the parent | 3,854,000 |
1,506,581 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
|
| 2014 | 2013 |
|
| £ | £ |
Non-current assets |
|
|
|
Goodwill |
| 941,457 | 946,749 |
Other intangible assets |
| 850,486 | 128,174 |
Property, plant and equipment |
| 2,999,600 | 1,910,187 |
Available-for-sale investments |
| 3,700 | 3,700 |
Deferred tax assets |
| 226,639 | 33,490 |
Total non-current assets |
| 5,021,882 | 3,022,300 |
|
|
|
|
Current assets |
|
|
|
Inventories |
| 29,000 | 4,000 |
Trade and other receivables |
| 5,383,126 | 5,750,546 |
Cash and cash equivalents Current tax asset |
| 1,068,632 743,056 | 1,156,950 - |
Total current assets |
| 7,223,814 | 6,911,496 |
|
|
|
|
Total assets |
| 12,245,696 | 9,933,796 |
|
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
| 2,179,010 | 3,010,744 |
Current tax liabilities |
| 6,931 | 243,930 |
Obligations under finance leases |
| 15,347 | 8,171 |
Deferred revenue |
| 223,440 | 326,116 |
Total current liabilities |
| 2,424,728 | 3,588,961 |
|
|
|
|
Net current assets |
| 4,799,086 | 3,322,535 |
|
|
|
|
Non-current liabilities |
|
|
|
Obligations under finance leases |
| 18,438 | 36,229 |
Deferred revenue |
| 5,239 | - |
Deferred tax liabilities |
| 379,952 | 121,866 |
Total non-current liabilities |
| 403,629 | 158,095 |
|
|
|
|
Total liabilities |
| 2,828,357 | 3,747,056 |
|
|
|
|
Net assets |
| 9,417,339 | 6,186,740 |
|
|
|
|
Equity |
|
|
|
Share capital |
| 1,401,400 | 1,400,000 |
Share premium account |
| 5,600 | - |
Capital redemption reserve |
| 200,000 | 200,000 |
Treasury shares |
| (418,225) | (459,288) |
Retained earnings |
| 7,207,603 | 4,897,637 |
Translation reserve |
| 136,156 | 148,391 |
Revaluation reserve |
| 884,805 | - |
|
|
|
|
Total equity |
| 9,417,339 | 6,186,740 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Share capital
|
Share premium
| Capital redemption reserve
|
Treasury shares
|
Retained earnings |
Translation reserve
|
Revaluation reserve |
Total equity | |
£ | £ | £ | £ | £ | £ | £ | £ | |
At 1 January 2013 | 1,400,000 | - | 200,000 | (402,690) | 3,771,398 | 337,608 | - | 5,306,316 |
Profit for the year | - | - | - | - | 1,695,798 | - | - | 1,695,798 |
Other comprehensive income | - | - | - | - | - | (189,217) | - | (189,217) |
Recognition of share based payment | - | - | - | - | 19,734 | - | - | 19,734 |
Purchase of own shares for treasury | - | - | - | (68,906) | - | - | - | (68,906) |
Sale of treasury shares to satisfy share options | - | - | - | 4,125 | - | - | - | 4,125 |
Loss on sale of treasury shares transferred to retained earnings | - | - | - | 8,183 | (8,183) | - | - | - |
Dividends paid | - | - | - | - | (581,110) | - | - | (581,110) |
At 1 January 2014 | 1,400,000 | - | 200,000 | (459,288) | 4,897,637 | 148,391 | - | 6,186,740 |
Profit for the year | - | - | - | - | 2,981,430 | - | - | 2,981,430 |
Other comprehensive income | - | - | - | - | - | (12,235) | 884,805 | 872,570 |
Issue of B shares | 1,400 | 5,600 | - | - | - | - | - | 7,000 |
Recognition of share based payment | - | - | - | - | 53,674 | - | - | 53,674 |
Sale of treasury shares to satisfy share options | - | - | - | 26,625 | - | - | - | 26,625 |
Loss on sale of treasury shares transferred to retained earnings | - | - | - | 14,438 | (14,438) | - | - | - |
Dividends paid | - | - | - | - | (710,700) | - | - | (710,700) |
At 31 December 2014 | 1,401,400 | 5,600 | 200,000 | (418,225) | 7,207,603 | 136,156 | 884,805 | 9,417,339 |
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
|
| 2014 | 2013 |
|
| £ | £ |
|
|
|
|
Net cash from operations |
| 1,694,866 | 165,319 |
|
|
|
|
Investing activities |
|
|
|
Interest received |
| 2,684 | 2,651 |
Proceeds of sale of property, plant and equipment |
| - | 1,000 |
Purchase of intangible assets |
| (802,565) | (94,603) |
Purchase of property, plant and equipment |
| (251,100) | (298,089) |
|
|
|
|
Net cash used in investing activities |
| (1,050,981) | (389,041) |
|
|
|
|
Financing activities |
|
|
|
Issue of B shares |
| 7,000 | - |
Dividends paid |
| (710,700) | (581,110) |
Purchase of own shares for treasury |
| - | (68,906) |
Proceeds from sale of treasury shares |
| 26,625 | 4,125 |
Net funds from obligations under finance leases |
| (10,615) | 15,197 |
|
|
|
|
Net cash used in financing activities |
| (687,690) | (630,694) |
|
|
|
|
Net decrease in cash and cash equivalents |
| (43,805) | (854,416) |
|
|
|
|
Cash and cash equivalents at beginning of year |
| 1,156,950 | 2,173,237 |
|
|
|
|
Effect of foreign exchange rates |
| (44,513) | (161,871) |
|
|
|
|
Cash and cash equivalents at end of year |
| 1,068,632 | 1,156,950 |
|
|
|
|
ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014
1 Taxation | 2014 | 2013 | |
| £ | £ | |
| Recognised in the income statement |
|
|
| Current UK tax expense | - | 412,127 |
| Foreign tax | 26,175 | 176,742 |
| Double taxation relief | - | (36,809) |
| In respect of prior years | (684,938) | (4,288) |
|
| (658,763) | 547,772 |
| Deferred tax expense relating to origination and reversal of temporary differences | (155,849) |
3,058 |
| Total tax expense | (814,612) | 550,830 |
|
|
|
|
Reconciliation of effective tax rate |
|
|
Profit before tax | 2,166,818 | 2,246,628 |
|
|
|
Tax at the applicable rate of 21.5% (2013: 23.25%) | 465,717 | 522,341 |
Tax effect of expenses not deductible in determining taxable profit | 56,921 |
19,206 |
Additional deduction for R&D expenditure | (474,588) | - |
Tax effect of utilisation of losses not previously recognised | (871,341) | (6,947) |
Foreign tax credits | - | 39,691 |
Effect of different tax rates of subsidiaries operating in other jurisdictions | 6,612 |
6,024 |
Effect of small companies rate | - | (156) |
Effect of change of deferred tax rate | (67,151) | (18,135) |
Losses arising not recognised in deferred tax | 93,043 | - |
Effect of adjustments for prior years | - | (3,999) |
Effect of share options exercised | (23,213) | (7,148) |
Other differences | (612) | (47) |
Total tax expense | (814,612) | 550,830 |
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 2014 and income statement, statement of changes in equity, statement of cash flows and associated notes for the year ended have been extracted from the Company's 2014 financial statements upon which the auditor opinion is unqualified.
Copies of the 2014 Annual Report and Accounts will be sent to shareholders shortly 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.