Pennant International Regulatory News (PEN)

3 Apr 2007 07:02

Pennant International Group PLC03 April 2007 3 April 2007Pennant International Group Plc Final Results Preliminary Results for the year ended 31 December 2006 Chairman's Statement and Business Review I am pleased to announce another year of increased profits and dividend and afurther strengthened balance sheet. Group turnover has increased by 7% and groupoperating profit by 38% compared to 2005. The profits are reflected in a furtherimproved cash position and a strong balance sheet. The forward order book at the year end grew by 25% on a comparable basis withthe preceding year and there have also been major contract wins since the yearend. Results and Dividend Group operating profit increased to £689,123 (2005 as restated: £496,851), anoperating margin of 6.1% of turnover compared to 4.7% for 2005. Earnings were£509,691 (2005 as restated: £388,398) giving basic earnings per share of 1.61p(2005 as restated: 1.21p) an increase of 33% The taxation charge is 7.8% of pre-tax profits reflecting the benefit ofsubstantial tax losses. The Group's cash position has strengthened with net cash standing at £1,520compared to net debt of £261,795 at the end of 2005. £753,457 was generated fromoperations. Your Board is recommending a final cash dividend of 0.4p per share (2005: 0.31p)which, together with the interim dividend of 0.2p, gives a total dividend forthe year of 0.6p (2005: 0.44p) an increase of 36%. The total dividend is 2.7times covered by earnings. The final dividend will be paid on 1 June 2007 toshareholders on the Register at close of business on 4 May 2007. The shares areexpected to go ex dividend on 2 May 2007. Strategy Your Board has continued its strategy to improve profitability and shareholdervalue. The major elements of the strategy are: • To concentrate on the core strengths of each of the Group's businesses.• To identify new customers and markets appropriate to those core strengths• To build on the established good relationships with existing customers, to extend the Group's reach within those customers and to become their supplier of choice.• To reduce risk by developing robust revenue streams in the form of equipment support contracts, framework service contracts and software maintenance contracts to provide a sustainable platform for the performance of major equipment and service contracts as they arise. Our Business The Group operates as three trading divisions which have complementarycapabilities and customer overlap Training Systems Provides and supports specialist training systems based on software emulation, hardware simulation and computer based training for engineer training. Information Services Supplies electronic documentation, e-learning products, electronic data, publicity and newsletters, parts catalogues and authoring in support of technical products and skills. Software Services Provides and supports software tools used to support complex long-life assets. Owns the rights to the market leading OmegaPS suite of software. The Group wins new business from: • The introduction, by its customers, of new technology, newequipment or services that require training, documentation and maintenanceservices to be in place at the point of sale and to be maintained thereafter. • Updates and changes to existing equipment or software,driven by new technology and the replacement of obsolete hardware or software.These changes drive amendments to documentation, training and maintenanceregimes. • Expansion of the 'footprint' across customer organisationsand market sectors. For instance the Group has recently significantly increasedits presence with BAE Systems and in the naval sector with work relating theType 45 Destroyer. • Extended support and maintenance contracts. The complexity of the technologies which customers produce means that it isnecessary to work closely with them to achieve their goals. The Group employsdomain and platform expertise to complement their skills and has a structuredand flexible approach to project risk management. Tools and processes aredeveloped that bring mutual benefit from productivity gains. Training Systems Training Systems major customers are BAE Systems, Augusta Westland, and the UKMOD. During 2006 external turnover increase by 19% to £5.3million and the orderbacklog increased by 30% securing work load through 2007 and beyond. The senior management of the division has been strengthened in the projectmanagement and commercial areas by external recruitment of industryprofessionals to improve risk management and profitability. Major contracts running through the year included: • A support contract for equipment previously supplied tothe MOD. This contract has been running for many years and the current extensionruns until 2011 with an option to extend for a further 2 years. This contracthas a significant basic value and generates further revenues as additional tasksare identified. • A support contract for training equipment supplied to theRoyal Australian Air Force, through BAE Systems. This contract has just beenrenewed to run to 2011with a basic value in excess of £1 million and includesoptions to extend to a total term of 20 years. The contract also has potentialto generate significant additional revenues. • Continued production of computer based training for theMOD under a contract running into 2009 with options to extend for a further 2years. • Two multi-million pound contracts to supply BAE Systemswith training equipment associated with their delivery of aircraft. Thesecontracts run into 2008. Information Services Information Services operates in a number of different markets including, rail,power, defence, government, telecommunications and retail. Turnover in 2006increased by 11% to £3.4 million and the order book by 24 % underpinningperformance through 2007 into 2008. Major areas of work during the period include: • Graphic design and multimedia Services for the MOD under aframework agreement that has been extended to run through into 2009. • Documentation and training for Kawasaki for rail projectsin China and USA. • Continued and growing involvement, through BAE Systems, inthe provision of electronic technical data services for the Type 45 Destroyer. • E learning packages supplied to the Department of Work andPensions including high-fidelity emulation exercises on the customer's mainprocessing systems and on-the-job knowledge refreshment. Two orders have recently been won with Siemens in Germany, a new customer, fortechnical documentation in respect of two rail projects in the USA. Software Services The market-leading OmegaPS suite of software is sold worldwide and is used bymany major defence contractors including, Boeing, Lockheed Martin, NorthropGrumman, BAE Systems, Thales, Australian Aerospace, Honeywell Aerospace and VTGroup. It is also used by the Defence Authorities in both Canada and Australia. The turnover of the division was £2.6 million and the order book increased by10% during the year. The turnover arises from: • Annual maintenance contracts in respect of installationssupplied. • Consultancy associated with the implementation of theOmegaPS product. Such work is carried out for both the Canadian and theAustralian Defence Authorities. • Sales of new licences to new customers and for theexpanding requirements of existing customers. Sales during the year have beenmade to a number of new customers including Eurocopter in Germany, Aselsan inTurkey and Aermacchi in Italy. Joint Venture The Joint Venture with Sonovision - ITEP SAS, was set up to provide technicaldocumentation and engineering services to Airbus UK. The well publicised delaysto the A380 programme have adversely affected financial performance resulting ina loss for the year. Pennant's share of the loss was £63,410 (2005: profit of£4,836). Sale of Property in Southampton The conditional sale of the property in Southampton has been delayed pending theoutcome of a planning appeal. The matter is being actively pursued by thepurchaser and is expected to be resolved during 2007. The sale of the propertyfor approximately £700,000 is conditional upon the purchaser obtaining planningpermission. Cancellation of Deferred Shares As previously reported the special resolution, passed at the AGM held on 4 May2006, to cancel the deferred shares was confirmed by the High Court. Theconditions attaching to that confirmation have been met and as a result thedistributable reserves of the Company have been increased by £1,445,400. People The Group employs 160 people supplemented significantly by contractors. Inlarge measure their efforts have been responsible for the excellent progressmade, and I am delighted to pass on the Board's sincere thanks. Outlook With the benefit of a good track record, your Board's strategy is developingstrong positions that have the potential to create significant opportunities.With a stronger forward order book and consequent improved earnings visibilitythe Group has entered its current financial year with confidence. C C PowellChairman3 April 2007 Group Profit and Loss AccountFor the year ended 31 December 2006 Notes 2006 2005 (Restated) £ £Turnover: Group and Share of Joint Venture. 11,451,977 10,784,644Less: Share of Joint Venture turnover (189,655) (222,896) Group Turnover 2 11,262,322 10,561,748Cost of sales (7,204,381) (6,372,538) Gross profit 4,057,941 4,189,210Administration expenses (3,368,818) (3,692,359) Group Operating Profit 3 689,123 496,851Share of operating profit in joint venture ( 63,410) 4,836 625,713 501,687 Interest receivable and similar income (Group) 7,258 1,137Interest payable - Group 5 (75,237) (86,799) -Joint Venture (4,875) (1,524)Profit on ordinary activities before taxation 552,859 414,501Tax on profit on ordinary activities- Group 6 (44,334) (24,937) -Joint Venture 1,166 1,166Profit on ordinary activities after taxation for Group 509,691 388,398and its share of joint venture attributable to membersof the parent undertaking The profit for the year has been calculated on the historical cost basis. The company's turnover and expenses all relate to continuing activities. Earnings per share 8 Basic 1.61p 1.21pDiluted 1.51p 1.12p Group Statement of Total Recognised Gains and LossesFor the year ended 31 December 2006 Notes 2006 2005 £ (Restated) £ Profit for the financial year 509,691 388,398Currency translation differences on foreign currency net (37,235) 34,609investmentsTotal gains and losses recognised since last annual 472,456 423,007report Group Balance SheetAs at 31 December 200 Notes 2006 2005 (Restated) £ £Fixed assetsIntangible assets 9 837,254 857,604Tangible assets 10 2,600,189 2,561,663Investments 11 6,135 6,135 Investment in joint venture - share of gross assets - 155,346Investment in joint venture - share of gross - (148,200)liabilities 3,443,578 3,432,548 Current assetsStocks 12 518,034 750,884Debtors 13 2,410,975 2,344,685Cash at bank and in hand 909,608 939,798 3,838,617 4,035,367Creditors: amounts falling due within one year 14 (2,120,463) (2,521,168)Net current assets 1,718,154 1,514,199Total assets less current liabilities 5,161,732 4,946,747 Creditors: amounts falling due after more than one year 15 ( 766,338) (919,918) 11b Interest in liabilities of joint ventureShare of gross assets 124,345 -Share of gross liabilities (184,318) - ( 59,973)Provisions for liabilities 16 - (16,000) 4,335,421 4,010,829Capital and reservesCalled up share capital 17 1,600,000 3,045,400Share premium 19 3,582,329 3,563,504Profit and loss account 19 (846,908) (2,598,075)Shareholders' funds 20 4,335,421 4,010,829 Company Balance Sheet at 31 December 2006 Notes 2006 2005 £ (Restated) £ Fixed assetsTangible assets - Land and buildings 368,796 -Investments 11 7,920,172 7,920,172 8,288,968 7,920,172Current assetsDebtors (including £1,595,803 (2005 £1,556,663) (due after more than one year) 13 2,000,541 1,982,819Cash at bank 165 165 2,000,706 1,982,984 Creditors amounts falling due within one year 14 (2,337,481) (1,615,990) Net current (liabilities)/assets (336,775) 366,994 Total assets less current liabilities 7,952,193 8,287,166 Creditors amounts falling due after more than one year 15 (763,952) (909,657) 7,188,241 7,377,509 Capital and reserves Called up share capital 17 1,600,000 3,045,400Share premium account 19 3,582,329 3,563,504Profit and loss account 19 2,005,912 768,605 Shareholders' funds 7,188,241 7,377,509 Group Cashflow Statement For the year ended 31 December 2006 Notes 2006 2005 £ £Net cash inflow from operating activities 27 753,457 484,238Returns on investments and servicing of finance 28 (67,979) (85,662)Taxation (22,251) (32,257)Capital expenditure 28 (234,083) (71,407)Acquisitions and disposals 28 - (5,000)Equity dividends (161,490) (128,000)Cash inflow before financing 267,654 161,912Financing 28 (155,722) (179,320)Increase/ (decrease) in cash 30 111,932 (17,408) C Snook J M WallerDirector Director Notes to the Financial StatementsFor the year ended 31 December 2006 1 ACCOUNTING POLICIES Basis of accounting The financial statements are prepared under the historical cost conventionmodified to include the revaluation of freehold land and buildings. The analysis of certain comparatives has been adjusted to conform with thecurrents years presentation. Change in accounting policy The Group has adopted FRS 20 'Share-based payment'. This change in accountingpolicy has resulted in a charge to profit and loss account for the year of£17,965. The profit and loss account for 2005 has been restated to reflect acharge of £36,060 for that year. Compliance with accounting standards The financial statements are prepared in accordance with UK applicableaccounting standards. Basis of consolidation The Group accounts consolidate the accounts of Pennant International Group plcand all of its subsidiaries and joint ventures made up to 31 December 2006 andto the extent of Group ownership after eliminating inter-group transactions.Joint ventures are consolidated using the gross equity method. No profit and loss account is presented for Pennant International Group plc asprovided by S230 of the Companies Act 1985. Turnover Turnover represents amounts receivable for goods and services net of VAT. Profit is recognised on long-term contracts, if the final outcome can beassessed with reasonable certainty, by including in the profit and loss accountturnover and related costs as contract activity progresses. Turnover isrecognised when, and to the extent that, ,the right consideration is obtainedand is calculated as the fair value of goods and services provided as aproportion of the total value of the contract. Maintenance contracts Software maintenance income, which is received in advance, is deferred andreleased to profit and loss account over the life of the contract. Turnoverincludes the proportion of income released during the period and it isconsidered that this adequately reflects the relationship of income to therelated costs incurred. Goodwill The variance of the purchase consideration over the fair value of net assets atthe date of acquisition of subsidiary undertakings is capitalised in the year ofacquisition and amortised over its useful economic life. Purchased goodwill is capitalised at its fair value and amortised over itsestimated useful economic life which is currently consider to be 20 years. The estimated useful life is reviewed annually and amended if necessary. Investments Investments are stated in the Group balance sheet at cost less amounts writtenoff for permanent diminution in value. Investments in subsidiary undertakings are stated in the Company balance sheetat cost less amounts written off for permanent diminution in value. Research and development Research expenditure is written off to the profit and loss account in the yearin which it is incurred. Development expenditure is written off in the same wayunless the directors are satisfied as to the technical, commercial and financialviability of individual projects. In this situation, the expenditure isdeferred and amortised over the period during which the Company is expected tobenefit. Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translatedinto sterling to at the appropriate rates of exchange prevailing at the balancesheet date and exchange differences arising are dealt with in the profit andloss account. In the Group financial statements, the results of overseas subsidiaries aretranslated using the closing rate. Exchange differences arising on theretranslation of the opening net investment in the subsidiaries at the closingrate are taken directly to reserves. Tangible fixed assets, depreciation and impairment Tangible fixed assets other than freehold land are stated at cost or valuationless depreciation. Depreciation is provided at rates calculated to write offthe cost or valuation less estimated residual value of each asset over itsexpected useful life, as follows: Freehold land Nil Freehold buildings 1% of valuation or cost Short leasehold land and buildings Over the period of the lease Long leasehold and buildings Over the period of the lease Fixtures, fittings, plant and equipment 10% or 25% of written down value Computers 33 1/3 of cost Motor vehicles 25% of cost The estimated useful lives of assets are reviewed annually and amended ifnecessary. The Group's policy is not to revalue fixed assets. Following the adoption ofFRS 15 previous valuations have been retained, but have not been updated. Thelast valuation was carried out in 1988. Impairment reviews have been carried out on the freehold properties comparingthe carrying value to the net realisable value. Leasing and hire purchase commitments Assets obtained under hire purchase contracts and finance leases are capitalisedas tangible assets and depreciated over the shorter of the lease term and theiruseful lives. Obligations under such agreements are included in creditors netof the finance charge allocated to future periods. The finance element of therental payment is charged to the profit and loss account so as to produce aconstant periodic rate of charge on the net obligation outstanding in eachperiod. Rentals payable under operating leases are charged against income on a straightline basis over the lease term. Stock and work in progress Stock and work in progress, other than long term contracts, is valued at thelower of cost and net realisable value. Cost is represented by raw materialsand direct labour together with a relevant proportion of fixed and variableoverheads. Net realisable value is estimated selling price less cost tocompletion. Long term contracts Amounts recoverable on long term contracts, which are included in debtors, arestated at the fair value of goods and services provided as a proportion of thetotal value of each contract, after assessing each stage of completion of thecontractual obligations. Progress received on account are included in creditors. Pensions The pension costs charged in the financial statements represent thecontributions payable by the Group during the year in accordance with FRS17. Share-based payments In accordance with FRS 20 the Group reflects the economic cost of awardingshares and share options to employees by recording an expense in the profit andloss account equal to the fair value of the benefit awarded, fair value beingestimated by an independent third party using a proprietary binomial probabilitymodel. The expense is recognised in the profit and loss account over the vestingperiod of the award. Deferred taxation Deferred tax is provided in respect of the tax effect of all timing differencesthat have originated but not reversed at the balance sheet date. A deferred tax asset is regarded as recoverable and therefore recognised onlywhen, on the basis of all evidence, it can be regarded as more likely than notthat there will be suitable taxable profits from which the future reversal ofthe underlying timing differences can be deducted. Deferred tax is measured on a basis at the average tax rates that are expectedto apply in the periods in which the timing differences are expected to reverse,based on tax rates and laws that have been enacted or substantively enacted bythe balance sheet date. 2. Turnover The Group's turnover is attributable to its one principal activity. The geographical analysis of turnover by destination is as follows: 2006 2005 (Restated) £ £ United Kingdom 8,203,409 7,133,380Europe 482,814 255,245USA and Canada 1,597,598 2,154,638Australasia 645,063 741,899Africa 9,600 34,599 Far East 323,838 25,125Middle East - 216,862 11,262,322 10,561,748 The geographical analysis of turnover by 2006 2005origin is as follows: £ (restated) £United Kingdom 8,987,245 8,047,007USA and Canada 1,857,239 2,089,517Australasia 417,838 425,224 11,262,322 10,561,748 Additional segmental information has not been provided as, in the opinion of thedirectors, it would be seriously prejudicial to the Group. 3. Operating profit The operating profit is stated after charging/ 2006 2005(crediting): £ (restated) £Depreciation of tangible fixed assets 191,935 202,236Loss/profit on sale of tangible fixed assets 2,092 (3,433)Amortisation of intangible fixed assets 20,234 203,439(Profit)/loss on foreign exchange transactions (13,370) 48,734Operating leases - property 136,861 128,502 - plant and 77,277 71,732machineryRestructuring costs - 128,861Share-based payment 17,965 36,060 4. Auditors' remuneration, including non-cash benefits 2006 2005 £ £Audit services 35,125 36,500Taxation services 2,200 1,835Other services 3,945 800 41,270 39,135 Audit services include fees in respect of the Group audit and fees for otherservices required by statute or regulation. Taxation services consist of taxcompliance services and tax advice. Other services consist of advice inconnection with International Accounting Standards. 5. Interest payable 2006 2005 £ £On bank loans and overdrafts 9,688 11,646On loans repayable after five years 63,640 73,634On overdue tax 65 283On hire purchase 1,844 1,236 75,237 86,799 6. Taxation 2006 2005 (Restated) £ £UK corporation taxCurrent - 733Prior year adjustment (1,276) - (1,276) 733Foreign taxCurrent 75,042 22,128Prior year adjustment (26,336) (8,137) 48,706 13,991Current tax charge/(credit) 47,430 14,724 Deferred taxDeferred tax charge (4,262) 11,379Tax on profit on ordinary activities 43,168 26,103 Tax charge relates to the followingPennant International Group plc 44,334 24,937Joint venture (1,166) 1,166 43,168 26,103 Factors affecting the tax charge for the yearProfit on ordinary activities before taxation 552,859 414,501 Profit on ordinary activities before taxation 165,858 124,350multiplied by standard rate of UK corporationtax of 30% (2005:30%)Effects of:Non deductible expenses 27,347 16,123Depreciation 53,677 62,810Capital allowances (55,590) (46,203)Tax losses (160,450) (142,066)Other tax adjustments 43,683 (290)Adjustment to tax charge in respect of (27,095) -previous periods (118,428) (109,626)Current tax charge 47,430 14,724 The Group has estimated UK tax losses of £1,990,000 (2005: £2,022,000) availablefor carry forward against future trading profits. 7. Dividends Amounts recognised as distributions to equity 2006 2005holders in the year: £ £ Ordinary shares of 5p each:2005 final dividend paid of 0.31p (2004: 97,855 86,4000.27p)2006 interim dividend paid of 0.20p (2005: 63,635 41,6000.13p) 161,490 128,000 The directors have also proposed a final dividend for 2006 of 0.40p per share.This dividend is subject to approval by the shareholders at the Annual GeneralMeeting on 10 May 2007 and, in accordance with FRS 21 has not been included as aliability in these financial statements. 8. Earnings per share Earnings per share has been calculated by dividing the profit attributable toshareholders by the weighted average number of ordinary shares in issue duringthe year as follows: 2006 2005 (Restated) £ £Profit after tax attributable to shareholders 509,691 388,398 Number Number £ £Weighted average number of ordinary shares in 31,611,500 31,971,463issue during the yearDiluting effect of share options 2,207,500 2,777,500Diluted average number of ordinary shares 33,819,000 34,748,963 Earnings per share p pBasic 1.61 1.21Diluted 1.51 1.12 9. Intangible fixed assets Group Positive Negative Development costs goodwill goodwill Total £ £ £ £CostAt 1 January 2006 and 31 1,243,731 (69,234) 922,045 2,096,542December 2006 AmortisationAt 1 January 2006 337,665 (20,772) 922,045 1,238,938Exchange difference on opening 116 - - 116balanceCharge/(credit) for the year 68,696 (48,462) - 20,234At 31 December 2006 406,477 (69,234) 922,045 1,259,288 Net book valueAt 31 December 2006 837,254 - - 837,254At 31 December 2005 906,066 (48,462) - 857,604 10. Tangible fixed assets Group Long Short Freehold Plant Motor Total leasehold leasehold land and equipment & vehicles land and land and buildings fittings buildings buildings £ £ £ £ £ £Cost or valuation At 1 January 2006 623,582 70,737 1,587,858 3,129,757 51,964 5,463,898Exchange difference - - - (19,308) (591) (19,899)on opening balanceAdditions 48,242 - - 190,348 - 238,590Disposals - - - (1,578,842) (34,504) (1,613,346)At 31 December 2006 671,824 70,737 1,587,858 1,721,955 16,869 4,069,243 DepreciationAt 1 January 2006 36,526 5,096 214,003 2,603,071 43,539 2,902,235Exchange difference - (18,254) (115) (18,369)on opening balanceCharge for the year 191,935 6,353 656 13,739 169,837 1,350 Disposals - (1,578,842) (27,905) (1,606,747)At 31 December 2006 42,879 5,752 227,742 1,175,812 16,869 1,469,054 Net book valueAt 31 December 2006 628,945 64,985 1,360,116 546,143 - 2,600,189At 31 December 2005 587,056 65,641 1,373,855 526,686 8,425 2,561,663 The freehold land and buildings include a revalued asset owned by a subsidiary which was valued on anopen market basis in 1988 by a firm of independent Chartered Surveyors. Comparable historical cost for the land and buildings included at valuation:Cost £At 1 January 2006 and at 31 December 2006 510,894 Depreciation based on costAt 1 January 2006 90,689Charge for the year 4,091At 31 December 2006 94,780 Net book valueAt 31 December 2006 416,114At 31 December 2005 420,205 Included in freehold land and buildings is a non-depreciable asset of £101,789(2005: £101,789. Included above are assets held under finance leases or hire purchase contractsas follows: Motor vehicles £Net book valueAt 31 December 2006 -At 31 December 2005 11,739 Depreciation charge for the yearAt 31 December 2006 -At 31 December 2005 1,944 Company Tangible assets are freehold land and buildings transferred from another Groupcompany during the year. The net book value is £368,796 and the depreciationcharged for the period from transfer in September 2007 to 31 December 2007 is£621. 11. Investments 2006 2005Group £ £Quoted (note 11a) 6,135 6,135CompanyQuoted (note 11a) 6,135 6,135Unquoted - Group undertakings (note 11c) 7,909,037 7,909,037Joint Venture (11b) 5,000 5,000 7,920,172 7,920,172 11a. Market values Quoted 7,250 5,625 11b. Joint venture Pennant International Group plc has a 50% interest, consisting of 5,000 Ordinary Shares in PennantSonovision ITEP Limited, a joint venture with Sonovision ITEP SAS of France. The company is based inBristol, England and is headed by a board of directors with equal representation from both shareholders. 11c. Subsidiary Undertakings Country of Class of shares Percentage held at incorporation 31 December 2006Subsidiary and activity Pennant Training Systems Ltd England Ordinary 100% Training systems and simulationPennant Software Services Ltd England Ordinary 100% ILS softwarePennant Information Services Ltd England Ordinary 100% Technical documentation and dataservicesPennant Information Services Inc. USA Ordinary 100% ILS softwarePennant Australasia Pty Ltd Australia Ordinary 100% ILS softwarePennant Canada Ltd Canada Ordinary 100% ILS softwareOld Court Trust Plc England Ordinary 100% Dormant*Bettertrain Ltd England Ordinary 100% Dormant * Indirect subsidiary 12. Stocks 2006 2005 £ £Raw materials and consumables 34,720 34,868Work in progress 483,314 716,016 518,034 750,884 13. Debtors Group 2006 2005 £ £Trade debtors 1,433,164 1,208,332Amounts recoverable on long-term contracts 610,106 838,165Other debtors 8,287 1,857Prepayments 217,577 155,433Deferred tax asset (note 16) 16,966 28,198Amounts due from joint venture 124,875 83,500VAT recoverable - 29,200 2,410,975 2,344,685CompanyAmounts owed by subsidiary undertakings 1,865,667 1,906,774Amounts due from Joint Venture 124,875 75,000Other debtors 2,867 -Prepayments 7,132 1,045 2,000,541 1,982,819 Amounts owed to subsidiary undertakings includes £1,475,803 (2005:£1,481,663)due after more than one year. Amounts due from the Joint Venture are due after more than one year. They arerepayable in five instalments, with the first instalment becoming due forrepayment on 14 February 2008. Interest is being charged at 2% above the bankbase rate. 14. Creditors: amounts falling due within one year 2006 2005 (Restated) £ £GroupBank loans and overdrafts 141,338 278,817Trade creditors 751,849 555,636Corporation tax 52,791 31,184Social security and other taxes 449,980 505,883Net obligations under hire purchase contracts 412 2,858Payments received on account 2,000 114,000Other creditors 108,857 300,993Accruals and deferred income 613,071 651,445Dividends payable 165 165Amounts due to joint venture - 80,187 2,120,463 2,521,168CompanyBank loans and overdrafts 424,642 229,610Amounts owed to subsidiary undertakings 1,876,292 1,338,549Corporation tax - 1,184Accruals and deferred income 36,382 20,822Dividends payable 165 165Tax and social security - 25,660 2,337,481 1,615,990 15. Creditors: amounts falling due after more than one year 2006 2005 £ £GroupBank loans 763,952 909,657Net obligations under hire purchase contracts 2,386 10,261 766,338 919,918 CompanyBank loans 763,952 909,657 Analysis of loansGroup and CompanyNot wholly repayable within five years by instalments 905,290 1,046,352Included in current liabilities (141,338) (136,695) 763,952 909,657 Instalments not due within five years 92,494 268,059Loan maturity analysisGroup and CompanyIn more than one year but not more than two years 151,230 145,580In more than two years but not more than five years 520,228 496,018In more than five years 92,494 268,059 Bank loans of £905,290 (2005: £1,046,352) are secured by fixed and floatingcharges over the assets of Pennant International Group plc, Pennant TrainingSystems Limited, Pennant Software Services Limited and Pennant InformationServices Limited, and are repayable by monthly instalments and interest ischarged at 2% above the bank's base rate. Net obligations under hire purchase contracts 2006 2005 £ £GroupRepayable within one year 412 2,858Repayable between one and two years 412 2,858Repayable between two and five years 1,974 7,403 2,798 13,119 Included in liabilities falling due within one year (412) (2,858) 2,386 10,261 16. Provisions for liabilities and charges Group Deferred taxation provided in the financial statements and the amounts notprovided are as follows: 2006 2005 £ £At 1 January 2006 (11,125) (22,504)Exchange translation difference in opening balance (1,579) -Profit and loss account (4,262) 11,379At 31 December 2006 (16,966) (11,125) Deferred tax relates to the following:Pennant International Group plc - Deferred tax asset (note 13) (16,966) (28,198) - Deferred tax - 16,000liability (16,966) (12,198)Joint venture - 1,073 (16,966) (11,125) Not provided Provided 2006 2005 2006 2005 £ £ £ £Accelerated capital allowances - - 91,812 104,522Other timing differences - - 5,882 (5,233)Tax losses available - - (114,660) (110,414) - - (16,966) (11,125)Surplus on revaluation of land and 32,000 32,000 - -buildings 32,000 32,000 (16,966) (11,125) The deferred taxation liability on the surplus arising on the revaluation of thefreehold property has not been provided because there is little possibility ofthe property being sold in the foreseeable future. 17. Share Capital 2006 2005Authorised £ £51,092,000 Ordinary shares of 5p each 2,554,600 2,554,6009,636,000 Deferred shares of 15p each - 1,445,400 2,544,600 4,000,000 Allotted, called up and fully paid32,000,000 Ordinary shares of 5p each 1,600,000 1,600,0009,636,000 Deferred shares of 15p each - 1,445,400 1,600,000 3,045,400 At the AGM of the Company held on 4 May 2006, the shareholders agreed by specialresolution to reduce the share capital of the Company by the cancellation of theDeferred Shares of 15p each in the capital of the Company. The specialresolution was confirmed, subject to conditions by the High Court of JusticeChancery Division on 14 June 2006 and registered with the Registrar of Companieson 22 June 2006. The conditions required that a special reserve should be set upuntil certain liabilities were satisfied. The Directors considered theseliabilities satisfied on 8 September 2006 and the balance of the special reservewas transferred to Profit and Loss Account on that date. 18. Share Option Scheme. The Company operates a Share Option Scheme under which share options have been granted toemployees as described below. Date granted Options Forfeited Options outstanding Exercisable Exercise outstanding at 1 at 31 December 2006 price January 2006 31 October 2000 17,500 17,500 2003-2007 122.5p 15 October 2002 460,000 40,000 420,000 2005-2012 11.5p 27 March 2003 1,800,000 800,000 1,000,000 2006-2013 10p 3 May 2005 500,000 500,000 2008-2015 13p 12 October 2006 270,000 2009-2016 17.5p The options outstanding at 31 December 2006 had a weighted average remainingcontractual life of 7 years. The exercise of the options granted on 31 October 2000 and 15 October 2002 and12 October 2006 is conditional upon the percentage growth in the group'sannualised earnings per share over a prescribed period being 2% over themovement in the retail price index. The options granted on 27 March 2003 and 3 May 2005 may be exercised if theaggregate after tax profit as shown in the audited consolidated profit and lossaccounts for the three years to December 2007 equals or exceeds £2,250,000 or inthe event that the Company is taken over. Fair value of options The fair values of awards granted after 7 November 2002 under the Share OptionScheme have been calculated using a variation of the binomial option pricingmodel that takes into account the specific features of the scheme. The followingprincipal assumptions were used in the valuation: Granted 27/3/2003 Granted 3/5/2005 Granted 12/10/2006Share price at date of grant 10p 13p 17.5pExpected dividend yield 2.0% 2.0% 2.0%Expected volatility 70% 70% 64%Risk-free interest rate 4.25% 4.40% 4.61%Employee turnover None None None Volatility has been based on share prices from flotation in 1998 to date ofgrant. Using the above assumptions the fair values of the options granted are estimatedas follows: Grant date Weighted average fair value 27/3/2003 1.87p3/5/2005 7.30p12/10/2006 9.67p Based on the above, the expense arising from share options granted to employeeswas £17,965 (2005: £36,060). There were no other share-based paymenttransactions. 19. Statement of movements on reserves Share Profit Premium and loss Account account £ £ Group Balance at 1 January 2006 . 3,563,504 (2,598,075)Profit for the year - 509,691Dividends - (161,490)Currency translation differences on foreign currency net - (37,235)investmentsTransactions in treasury shares 18,825 (23,164)Share-based payment - 17,965Cancellation of Deferred Shares - 1,445,400Balance at 31 December 2006 3,582,329 (846,908)CompanyBalance at 1 January 2006 3,563,504 768,605Loss for the year - (41,404)Dividends - (161,490)Transactions in treasury shares 18,825 (23,164)Share-based payment - 17,965Cancellation of Deferred Shares - 1,445,400Balance at 31 December 2006 3,582,329 2,005,912 20. Reconciliation of movements in shareholders' funds 2006 2005 £ (Restated) £GroupProfit for the financial year 509,691 388,398Dividends (161,490) (128,000)Transactions in treasury shares (4,339) (49,910)Other recognised gains and losses relating to the year (37,235) 34,609Share-based payment 17,965 36,060Net addition to shareholders' funds 324,592 281,157Opening shareholders' funds 4,010,829 3,729,672Closing shareholders' funds 4,335,421 4,010,829CompanyLoss for the financial year (41,404) (32,514)Dividends (161,490) (128,000)Transactions in treasury shares (4,339) (49,910)Share-based payment 17,965 36,060 Net loss to shareholders' funds (189,268) (174,364)Opening shareholders' funds 7,377,509 7,551,873 Closing shareholders' funds 7,188,241 7,377,509 21. Capital commitments GroupThere were no capital commitments at 31 December 2006 and 31 December 2005.CompanyThere were no capital commitments at 31 December 2006 and 31 December 2005. 22. Financial commitments Group At 31 December 2006 the Group had annual commitments under non-cancellable operating leases asfollows: Land and Buildings Other 2006 2005 2006 2005Expiry date: £ £Within one year 7,500 - 13,941 24,840Between two and five years 126,828 48,015 36,084 52,680In over five years 6,550 72,356 18,642 - On 14 February 2005 the Group entered into a commitment with Pennant SonovisionITEP Ltd to make £120,000 of loan finance available for a period of three years.At 31 December 2006 £120,000 had been drawn down. Company The Company has guaranteed a lease on behalf of Pennant Software ServicesLimited. The annual rent payable under the terms of the lease is £65,806 (2005:£65,806). 23. Directors' emoluments 2006 2005 £ £Emoluments for qualifying services 240,931 226,283Pension contributions to money purchase schemes 13,185 12,350Amounts paid for directors' services 111,600 111,600 365,716 350,233The number of directors for whom retirement benefits are accruingunder money purchase pension schemes amounted to 2 (2005: 2)Emoluments disclosed above include the following amounts paid tothe highest paid director:Emoluments for qualifying services 116,924 112,607Contributions to money purchase pension schemes 6,825 6,175 24. Employees Number of employees 2006 2005 Number NumberThe average monthly number of employees (including directors)during the year was:Office and management 24 25Production 130 125Selling and distribution 8 11 162 161Employment costs £ £Wages and salaries 4,613,060 4,665,066Social security costs 445,116 456,432Other pension costs 168,624 181,769 5,226,800 5,303,267 25. Pension costs Defined contribution The Group operates a defined contribution pension scheme for its employees in the United Kingdom andCanada. The assets of the schemes are held separately from those of the Group in an independentlyadministered fund. The pension cost charge represents contributions payable by the Group to the funds. 2006 2005 £ £Contributions payable by the Group for the year 168,623 181,273Contributions payable to the fund at the year end and included 27,950 26,342in creditors 26. Substantial shareholdingsThe company is aware of the following substantial shareholdings in its issued ordinary share capital: Ordinary shares of 5p eachNameRathbone Nominees Limited 3,330,691Dartington Portfolio Nominees Limited 2,846,839Capita Trust Co. Limited 1,741,850HSBC Global Custody Nominee 2,256,929Pennine Downing AIM VCT 3 PLC 1,111,111Pennine Downing AIM VCT 5 PLC 1,111,111 27. Reconciliation of Group operating profit to net cash inflow/(outflow) from operating activities 2006 2005 £ £Operating profit 689,123 496,851Depreciation 191,935 202,236Loss/(profit) on sale of tangible fixed assets 2,092 (3,433)Amortisation of intangible fixed assets 20,234 203,439(Increase)/decrease in stocks 232,850 (240,024)(Increase)/decrease in debtors (157,710) (627,055)Increase/(decrease) in creditors (202,200) 384,903Other movements (22,867) 67,321Net cash inflow from operating activities 753,457 484,238 28. Analysis of cash flows for headings netted in the cash flow statement 2006 2005 £ £Returns on investment and servicing of financeInterest received 7,258 1,137Interest paid (75,237) (86,799)Net cash outflow for returns on investments and servicing of (67,979) (85,662)finance Capital expenditurePayments to acquire tangible fixed assets (238,590) (89,791)Receipts from sales of tangible fixed assets 4,507 18,384Net cash outflow from capital expenditure (234,083) (71,407) Acquisitions and disposalsPurchase of joint venture - 5,000 FinancingRepayment of hire purchase and finance leases (10,321) (2,397)Repayment of loans (141,062) (127,013)Transaction in treasury shares (4,339) (49,910)Net cash inflow for financing (155,722) (179,320) 29. Analysis of net (debt)/funds Other 1 January 2006 Cash non-cash 31 December Flow changes 2006 £ £ £ £Cash in hand and at bank 939,798 (30,190) - 909,608Bank overdraft (142,122) 142,122 - - 797,676 111,932 - 909,608 Hire purchase due within one year (2,858) 10,321 (7,875) (412)Hire purchase due after one year (10,261) - 7,875 (2,386)Loans due within one year (136,695) 141,062 (145,705) (141,338)Loans due after one year (909,657) - 145,705 (763,952) (261,795) 263,315 - 1,520 30. Reconciliation of net cash flow to movement in net (debt)/funds 2006 2005 £ £Increase/(decrease) in cash in the year 111,932 (17,408)Cash to repurchase debt 151,383 129,410New hire purchase - (15,516)Movement in net debt in the year 263,315 96,486Opening net debt (261,795) (358,281)Closing net funds/(debt) 1,520 (261,795) 31 . Profit of Parent Company As permitted by section 230 of the Companies Act 1985, the profit and loss account of the parentcompany is not presented as part of these financial statements. The parent company's loss for thefinancial year was £41,401 (2005:£32,514). 32. Financial Instruments The group's activities expose it to a variety of financial risks, including the effects of foreigncurrency, exchange rates and interest rates. The Group's overall risk management policy focuses onmonitoring potential adverse effects where considered material. For foreign currency transactions, the Group normally converts using spot rates. Risk is mitigated bythe holding of foreign currency accounts in US, Canadian and Australian dollars plus Euros. The Groupmay use derivative financial instruments, such as forward contracts to hedge against certain futureexposures. There were no contracts in place at the balance sheet date. All of the Group's borrowing is in sterling and at variable rates, with the exception of it's financelease obligations which are at a fixed rate. The Group's total financial liabilities at 31 December 2006 are repayable as follows: Within one year 141,338 278,817In more than one year but not more than two years 151,230 145,580In more than two years but not more than five years 520,228 496,018In more than five years 92,494 268,059 905,290 1,188,474 This information is provided by RNS The company news service from the London Stock Exchange