REG - Pennant Int. Group - 2023 Final Results
21/06/2024 07:00
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RNS Number : 2986T Pennant International Group PLC 21 June 2024
FOR IMMEDIATE RELEASE
21 June
2024
PENNANT INTERNATIONAL GROUP PLC
("Pennant", the "Company", or the "Group")
Final Results for the Year Ended 31 December 2023
Growth Strategy Delivers Return to Operating Profit & Record Gross Margin
Pennant International Group plc (AIM:PEN), the systems support and training
solutions company, announces its Final Results for the Financial Year ended 31
December 2023 (the "Year", the "Period" or "FY 2023").
Commenting on the results, Chairman, Ian Dighé, said: "I'm pleased to report
my first set of results as Chairman of Pennant, highlighting significant
Group-wide progress with a return to operating profit and record gross
margins.
"We continue to invest in, and develop, our leading suite of services and
solutions, helping our customers maximise their operational efficiency, whilst
pursuing a Group strategy that focuses on higher value, higher margin,
recurring software and services revenues."
Key points: Financial
· Group revenues of £15.5 million (2022: £13.7 million);
· Gross profit margin of 50% (2022: 42%);
· EBITA profit of £1.4 million (2022: £0.5 million);
· Loss before tax of £0.4 million (2022: loss before tax £1.4
million);
· Operating profit of £0.1 million (2022: operating loss of £1.0
million);
· Basic loss per share of 2.53p (2022: loss of 2.45p);
· Unrelieved tax losses carried forward of £6.8 million (2022:
£7.1 million);
· Group net assets at year-end of £9.8 million (2022: £10.7
million);
· Net debt at year-end of £1.9 million (2022: £0.4 million)
reflecting investment in the IPS suite;
· No final dividend recommended (2022: £NIL).
Key points: Operational
· Continued significant investment in the Group's proprietary
software products, totalling £1.4 million for the Period;
· Strong European revenue growth;
o Underpinned by progress on c.£9 million Boeing Defence United Kingdom
(BDUK) Apache upgrade programme - on time and on budget, with final deliveries
still expected in September 2024;
· Acquisition of Track Access Productions Limited ("TAP") in April
2023, broadening Pennant's existing rail offering and customer base,
delivering PBT of £155k in approx. 9 months;
· Version 2 of GenS released in May 2023, with first commercial sale
achieved in June 2023;
· Strategic partnership with Aquila Learning Ltd to collaborate and
integrate its ALaRMS - Aquila Learning (and Requirements /Resource/Record)
Management System into Pennant's software suite, providing additional
capabilities to shared customers, including an end-to-end S-Series software
toolkit.
Post Period Highlights
· Successful £1.36 million (gross proceeds) fundraise to provide
working capital and support investment in the IPS suite;
· Ian Dighé appointed Chairman with Philip Cotton stepping down;
· Beginning of investment phase which will see all three IPS
applications - GenS, Analyzer and R4i - integrated into one, holistic
solution.
Providing further comment on trading and prospects, Mr. Dighé added: "The
Board is encouraged by the improvements already realised, reflecting the
implementation of the growth strategy, and is optimistic about the Group's
prospects.
"Current economic and geo-political trends are driving significant increases
in global defence spending and the outlook for our other key markets also
appears to be improving; promising growing tailwinds for the Group in the
short-to-medium term.
"Despite recent delays in order conversion, the impact is expected to be
limited to the short-term. The strategic investment in our integrated
software suite and post Period-end release of GenS Version 3.0, brings to
market a leading software solution aligned to addressing the challenges that
operators face in managing, modelling and utilising vast amounts of complex
systems data.
"The Board believes that this integrated product suite, coupled with the
Group's underlying strengths - our long-term customer relationships with
governments and major OEMs, our specialist services together with our
quality-assured reputation - will provide opportunities for long-term
success."
Pennant International Group plc www.pennantplc.com (http://www.pennantplc.com)
Philip Walker, CEO +44 (0) 1452 714 914
David Clements, Commercial & Risk Director
Michael Brinson, CFO
WH Ireland Limited (Nomad) www.whirelandplc.com/capital-markets
(http://www.whirelandplc.com/capital-markets)
Mike Coe / Sarah Mather (Corporate Finance) +44 (0) 20 7220 1666
Fraser Marshall / George Krokos (Sales)
Cavendish Capital Markets Limited (Broker) www.cavendish.com (http://www.cavendish.com)
Ben Jeynes / Callum Davidson / George Lawson (Corporate Finance) +44 (0) 207 220 0500
Michael Johnson / Dale Bellis / Sunila de Silva (Sales & Corporate
Broking)
Walbrook PR (Financial PR) pennant@walbrookpr.com (mailto:pennant@walbrookpr.com)
Tom Cooper +44 (0)20 7933 8780
Joe Walker Mob: +44 (0)7971 221 972
Notes to editors:
Pennant International Group plc (AIM: PEN) is a technology driven, leading
global provider of system support services, technical services, and training
solutions. It supports its global customer base in the design, development,
operation, maintenance, and training of complex assets, to maximise
operational and maintenance efficiency.
Its key markets include Aerospace, Defence and Rail, and adjacent
safety-critical markets such as Shipping, Nuclear and Space.
The Group addresses the market through three key business lines:
• Systems support: software tools designed to help clients: manage and use
complex data; ensure equipment availability at optimal cost; and comply with
industry standards. Its Integrated Product Support (IPS) and Integrated
Logistics Support (ILS) software and services equips customers with powerful
market-leading toolsets to manage, model and utilise complex equipment data.
• Training solutions: provide hardware, software and virtual solutions,
critical skills training for maintainers and operators of aircraft, ships and
land systems.
• Technical services: support all Pennant's software and training solutions
including consultancy, support and maintenance, training and bespoke
development.
The Company's full product suite encompasses consultancy, technical
documentation, rail services, training services, and bespoke engineering
solutions.
Pennant is strategically focused on sustainable recurring revenue and
profitability growth, shifting its model towards high margin software and
services. Against a climate of rising defence budgets and the burgeoning
technological complexity of military, aviation and rail platforms, the demand
for these solutions is expected to grow substantially.
Headquartered in Cheltenham, UK, the Group operates worldwide, with offices in
Europe, North America and Indo-Pacific, serving markets with high barriers to
entry often in regulated industries.
Pennant - Maximising Operational Efficiency - YouTube
(https://www.youtube.com/watch?v=mzWGdaY8clY)
CHAIR'S STATEMENT
Full Year expectations met, return to operating profit, record gross margin
The Group has made significant progress in the year ended 31 December 2023
(the "Period"), meeting market expectations and achieving a return to
operating profit, with an adjusted EBIT profit of £0.4 million for the year
(2022: EBIT loss of £1.0 million) and an adjusted EBITDA profit of £2.2
million (2022: EBITDA of £1.0 million).
The Group's performance continues to benefit from, and is primarily the result
of, Pennant's technology and software strategy shifting the Group's focus to
delivery of higher value services. The Group's ongoing focus on higher margin
revenues from software and technical services continues to be reflected in the
results. Therefore, despite relatively consistent revenues, totalling £9.6
million in 2023 (2022: £10.2 million), the strengthened revenue mix and
improved margin has delivered notable improvements already.
Strategy
Pennant's strategy remains firmly on increasing the proportion of the Group's
revenues which derive from the sale of software and technical services,
particularly those of a recurring nature, by expanding the market coverage
through the development of the Group's market-leading proprietary software
suite and associated services.
The Group also continues to seek other strategic opportunities to partner with
or acquire complementary businesses which will accelerate the Group's
strategy.
During the Period the Group announced the completion of the acquisition of
Track Access Productions and its strategic partnership with Aquila Learning
Ltd. The acquisition of Track Access Productions is aligned with the Group's
software and technical services strategy and has enhanced the Group's rail
capability, diversifying into non-defence growth markets. Our partnership with
Aquila Learning Ltd is designed to offer our customers an end-to-end
integrated software platform to maximise operational efficiency.
Key Financials
For the year ended 31 December 2023, the Group recorded consolidated revenues
of £15.5 million (2022: £13.7 million) again underpinned by the Group's
contracted revenue base.
The Group's gross margin for the year increased significantly to 50% (2022:
42%) due to the strategic shift towards software and higher value services. As
a result, the Group posted a consolidated adjusted EBITA profit of £1.7
million (2022: EBITA £0.5 million) which is in line with market expectations.
The Group's net debt at the Period end was £1.9 million (2022: net debt of
£0.4 million) which reflects, amongst other things, the continued investment
in the integrated software suite, acquisition related expenses and expenses
related to aborted corporate activity.
Dividend
The Directors believe that it continues to be both prudent and in the
Company's and shareholders' best interests to retain cash for working capital
and focus on delivering growth. The Board will therefore not be recommending
the payment of a final dividend for the year ended 31 December 2023.
Our People
To deliver a successful performance in 2024, the Group must have a committed
workforce, appropriately incentivised and motivated. I would like to thank all
our employees for their commitment to supporting the Group and for the
resilience and flexibility they have demonstrated in meeting our customers'
needs.
The Group is constantly seeking ways to attract, retain and reward the
specialist skills that we need in order to deliver. It is our people we rely
on to deliver our strategy and deliver successful results in the current
period and beyond. We must continue to pay particular attention to their needs
and as a Board we remain focused on supporting them.
Our Culture
The Board remains committed to ensuring that all Group employees understand
and embody the Group's 'Core Values'. These underpin the approach to all
activities whether they be in an operational or customer facing environment.
These values are also critical in terms of the approach taken to all our
policies whether they are mandated by law (such as anti-bribery or
anti-counterfeiting laws) or mandated by behavioural ethics (such as fair
treatment and equality of opportunity), treating all individuals with the
respect they deserve regardless of their position. This requires strong
leadership at all levels.
Governance
The Board is also committed to maintaining robust corporate governance. It has
worked closely with its advisors and in 2023 monitored governance frameworks
to ensure strong, proportionate governance throughout the Group; this is
important given the number of geographies in which we are present. The Board
has established appropriate risk management procedures and keeps key risks to
the Group under regular, rigorous review.
Board Changes
During the Period and post Period-end there were a number of Board changes.
We were delighted to appoint Michael Brinson to the Board as Group Chief
Financial Officer with effect from 1 January 2023. Michael joined the Group as
Head of Finance in February 2020.
Also in January 2023, the Group announced the appointment of Deborah Wilkinson
as Non-Executive Director with effect from 1 February 2023.
Post Period-end, I joined the Group as a Non-Executive Director and Chair
designate with effect from 7 February 2024.
On 14 May 2024, Phil Cotton stepped down as Chair and announced his intention
to retire as Non-Executive Director following the Company's next Annual
General Meeting. I assumed the role of Chair on 14 May 2024 upon Phil stepping
down. On behalf of the Board, I would like to thank Phil Cotton for his five
years of service and we wish him all the best for the future.
Current Trading and Outlook
I join the Group at a time when global economic and geo-political trends
provide a supportive backdrop for Pennant's capabilities. Pennant has few
competitors that can offer the end-to-end solution that we provide, and
defence forces, organisations and OEMs continue to prefer to outsource these
services. Additionally, examples of key drivers currently include growing
global defence budgets, increasing complexity of programmes, and an increasing
need for sovereign capabilities, all of which stands to our benefit.
Post Period-end, the Group started the year well. Despite delayed order
conversion, as previously announced, we have observed a material increase in
activity in our key markets and are well placed to capitalise.
The strategic investment in our integrated software suite and post Period-end
release of GenS Version 3.0, brings to market a leading software solution
aligned to addressing the challenges that operators face in managing,
modelling and utilising vast amounts of complex systems data.
The Board believes that this integrated product suite, coupled with the
Group's underlying strengths - our long-term customer relationships with
governments and major OEMs, our specialist services together with our
quality-assured reputation - will provide opportunities for long-term success.
I Dighé
Chair
CHIEF EXECUTIVE'S REVIEW
Strategy delivering; improved performance
In 2023 we continued the implementation of the Group's strategic plan: a
programme of investment in the Group's proprietary software suite designed to
provide our customers with a powerful market-leading toolset that allows users
to manage, model and utilise vast amounts of complex systems data, with the
objective of increasing revenue from software and higher value technical
services and recurring contracts.
The impact of this strategy is now visible in our financial performance with
the Group achieving an operating profit and meeting the market's expectations
for the full year. Pennant has continued to invest in its integrated software
suite, acquired a complementary business and agreed beneficial strategic
partnerships. The implementation of our growth strategy is already delivering
improved order lead times, revenue recognition and margins.
Strategic software investment
In line with the Group's core strategic objectives, investment in our
proprietary software suite has continued during the year targeting growth in
capability and with the aim of expanding the Group's market offering.
During the Period the Group invested circa £1.4 million in the development of
its new and enhanced suite of software solutions with the aim of improving the
overall customer proposition. The continued development of the new GenS
software solution (OmegaPS successor product) was accelerated with release of
version 3.0 achieved in April 2024.
The investment programme now moves into the next phase, which will see all
three of the Group's software applications - GenS, Analyzer and R4i - being
integrated into one, holistic solution with release scheduled for Q4 2024.
Pennant anticipates that it will continue to invest in its integrated software
suite during 2024 and expects the level of investment to be in line with 2023.
Rail acquisition
During the Period, the Group successfully completed the acquisition of Track
Access Productions.
Track Access provides driver training, route mapping and route familiarisation
services to the rail industry. Its acquisition aligns with the Group's
strategy, in particular by enhancing recurring revenues and further
diversifying into civilian markets, while also enhancing the Group's existing
rail capabilities and complementing Pennant's Track Access Services business.
In the Period, it delivered revenues of £342k and profits before tax of
£155k (excluding management charges of £68k) over approximately 9 months.
Strategic partnership
In September 2023, the Group announced a strategic partnership with Aquila
Learning Ltd to collaborate on a number of projects, including the integration
of the ALaRMS - Aquila Learning (and Requirements /Resource/Record) Management
System into the market leading Pennant IPS software suite (GenS, Analyzer and
R4i).
The partnership is looking to provide users with additional capabilities to
our shared customers, including an end-to-end S-Series software toolkit.
Regional Operational Review
The table below highlights Pennant's regional revenue for 2022 and 2023.
Regional revenue
2023 2022
£000s £000s
UK & Europe 8,821 5,557
North America 4,051 4,985
Indo-Pacific 2,663 3,144
Total 15,535 13,686
UK & Europe
Revenue generated in the UK & Europe region showed strong growth during
2023 at £8.8 million (2022: £5.6 million). The current geopolitical backdrop
and recent events have highlighted the importance of national security and
strategic investment in capability, and current deficits in preparedness.
Therefore, the outlook for Pennant's key markets appears to be improving.
The revenue in the region was underpinned by contracts with Boeing Defence UK,
HMRC and with rail operators, which grew as result of the enhanced rail
capability from the acquisition.
In terms of operational delivery, the region had a successful Period with
notable highlights including the on-time achievement of several engineering
milestones on the Boeing Defence UK contract which continues to progress well
in 2024 and the successful release of the annual update to the HMRC Basic PAYE
software tool where Pennant is responsible for the development and support of
the tool.
With the Group's increasing software and higher value services focus bringing
reduced reliance on resource-intensive hardware engineering activities the
Board decided to market for sale one of the Group's previously leased
Cheltenham properties with the sale completed post Period end for £0.5
million. The profit generated on this disposal was £231k.
North America
The North America business saw revenues decline to £4.1 million from £5.0
million in 2022. This was driven by two factors; 1) 2022 included a
significant perpetual software sale and 2) a Government-driven procurement
change in respect of Pennant's long-term contract with the Canadian Department
of National Defence.
In October 2023, after 23 years of single-source procurement, the contracting
mechanism for the various tasks under the framework contract was changed to a
competitive tender process per each individual task. To date, Pennant has
successfully tendered and secured 100% of the 8 tasks competed which account
for approximately 50% of historic annual recurring revenues. Pennant will
continue to tender for further opportunities as they are competed as the
region looks to restore the level and long-term visibility of revenues that
the legacy contract provided.
Indo-Pacific
The Indo-Pacific business enjoyed a solid year but was impacted by customer
budget phasing which resulted in revenue delays in the Period with resultant
revenues reducing from £3.1 million to £2.7 million. It is expected that
this temporary timing-related issue will unwind throughout 2024.
Operationally, Pennant's existing long term technical services contract in
Wagga Wagga continued to perform well and was extended into 2027 (year 14 of a
20-year framework). The contract was expanded in the Period with the
establishment of a Composites Training Facility in the region which is
expected to deliver recurring revenues for at least 5 years.
Delivering on our strategy
The software investment programme now moves into the next phase, which will
see all three of Pennant's core applications - GenS, Analyzer and R4i - being
integrated into one, holistic solution which will provide customers with a
powerful, market leading toolset.
This investment continues the strategy to drive higher margin, recurring
software revenues and higher value technical services, which when aligned with
a favourable strategic backdrop provide a firm platform for continued progress
in the current year.
P H Walker
Director
CHIEF FINANCIAL OFFICER'S REVIEW
Record gross margins and cost control; return to operating profit
Financial review
The results and a review of the key financial performance indicators of
revenue and profitability are set out below.
Performance
Group revenue for the year increased by 14% and was delivered in line with
expectations at £15.5 million (2022: £13.7 million) with a marginal
weighting towards the second half.
There was further growth in the gross profit margin for the Period to 50%
(2022: 42%), a record for the Group. This reflects the change in the sales mix
in the Period and shift in the strategic direction of the Group towards
software-related products and higher value services.
Despite inflationary cost pressures, administrative costs were held broadly in
line with 2022 with a 3.8% increase at £7.6 million (adjusted for £325k of
exceptional costs) (2022: £7.3 million).
The improved margins coupled with the controlled cost base, resulted in a
return to profit at an operating margin level of £0.1 million (2022:
operating loss £1.0 million) and an adjusted EBITA profit of £1.7 million
(2022: EBITA profit £0.5 million).
£m H1 H2 2023 2022
Revenue 7.1 8.4 15.5 13.7
Gross profit 3.3 4.4 7.7 5.8
Gross profit % 47% 52% 50% 42%
Other income 0.1 0.2 0.3 0.5
Admin costs (3.6) (4.3) (7.9) (7.3)
Operating profit / (loss) (0.2) 0.3 0.1 (1.0)
Amortisation 0.7 0.6 1.3 1.5
EBITA 0.5 0.9 1.4 0.5
Depreciation 0.2 0.3 0.5 0.6
EBITDA 0.7 1.2 1.9 1.1
A summary of the income statement adjusted for exceptional costs is as
follows:
£m 2023 Exceptional Costs Adjusted
Revenue 15.5 - 15.5
Gross profit 7.7 - 7.7
Gross profit % 50% - 50%
Other income 0.3 - 0.3
Admin costs (7.9) 0.3 (7.6)
Operating profit / (loss) 0.1 0.3 0.4
Amortisation 1.3 - 1.3
EBITA 1.4 0.3 1.7
Depreciation 0.5 - 0.5
EBITDA 1.9 0.3 2.2
Exceptional costs are non-recurring, and include transaction and integration
costs associated with the acquisition of Track Access Productions Limited in
April 2023, and professional costs and expenses associated with another,
aborted transaction.
Revenue analysis
An analysis of the Group's revenue by product group is as follows:
2023 2022
£000s £000s
Software licences & products 1,111 1,377
Software maintenance 1,589 1,458
Software and technical services 6,873 7,410
Sub-total Software and Services 9,573 10,245
Engineered solutions 5,229 2,410
Generic products 733 1,031
Sub-total Training Solutions 5,962 3,441
Total Group Revenue 15,535 13,686
Revenues contributed by Software and Services have reduced to £9.6 million in
2023 (2022: £10.2 million) representing 62% of the total revenue in the
Period (2022: 75%). The reduction is predominantly due to the change in
procurement methodology in North America (as outlined in the Chief Executive's
Review). The ongoing software product sales from this and prior periods have
resulted in increased maintenance revenues in the Period which will be
recurring in nature. Recurring revenues remained broadly in line with the
prior year at £7.3 million (2022: £7.7 million) in 2023. The recurring
revenues associated with technical services increased by 10% year-on-year,
partly mitigating the software services reduction in North America. Recurring
revenues represented 47% (2022: 56%) of the total revenue for the Period due
to the increased revenues on non-recurring engineered solutions in FY2023.
Software and Services
Software licences & products
The software product sales in 2023 continued to be predominantly driven by R4i
software sales, with the associated recurring maintenance revenues (circa 20%
per annum) to follow on a recurring basis. Revenues are recognised upon
installation of the software and tend to be non-recurring in nature.
Software maintenance
Software maintenance revenues are recurring by nature and are growing year on
year, driven by the growth in the global customer base for the Group's
software solutions. The revenue is recognised over the duration of the
maintenance period for each customer which can range from annual renewals to
multi-year agreements. The software is used to support the lifecycle of
complex assets which can span decades.
Software and technical services
The predominantly recurring software and technical services revenue stream has
reduced from 75% of the Group's revenues in 2022 to 62% in 2023 for the
reasons outlined above. The revenues are typically recognised on a consumption
of benefit basis over time.
Training Solutions
Engineered solutions
As per the expectation stated in the Annual Report and Accounts for FY2022,
revenues associated with engineered solutions have increased significantly
from £2.4 million in 2022 to £5.2 million in 2023. This is reflective of the
operational stage of completion on the programmes which form the basis of this
revenue stream which is recognised over time under IFRS 15.
Generic products
The revenue recognition for generic products is at a point in time (typically
on delivery) under IFRS 15. Revenues for these products in 2023 was £0.7
million compared to £1.0 million in 2022.
Cashflow
Cash generated from operations amounted to £1.3 million (2022: £2.6
million). This reflects milestone achievements on major programmes in 2023 and
associated cash payments being received. The cash generation in operations has
been deployed to support the Group's ongoing strategic investment in the
integrated software suite and the in Period acquisition of Track Access
Productions.
The Group had net borrowings at the year-end of £1.9 million (2022: net
borrowings of £0.4 million) excluding lease liabilities.
Post Period-end, the Group has renewed its overdraft facility with its
bankers, HSBC, at £3 million. Furthermore, in order to support the
required strategic investment in our integrated software suite, in May
2024 the Group utilised its 15% placing authority to raise circa £1.15
million after fees. The Board also confirmed an intention to subscribe for
a further £200k of shares in aggregate, subject to a further placing
authority being approved at the 2024 AGM. Assuming the Board's subscription
proceeds as expected, the total proceeds after fees will be £1.35 million.
These funds will support the planned capital investment in the integrated
software suite.
The Group has an active pipeline of opportunities spanning the entire spectrum
of product and services. Securing these pipeline orders will underpin the
cashflows of the Group in 2025 and beyond.
Research & development
Research and development repayable tax credits expected to be claimed in the
UK for the Period amount to £0.3 million (2022: £0.3 million) on qualifying
expenditure of £1.7 million (2022: £1.4 million). The claims mostly relate
to the development of innovative new software products.
Taxation
The Group's tax position shows a tax charge of £566k (2022: tax credit of
£464k). The tax charge in 2023 is primarily due to deferred tax being
partially derecognised based on the amount of taxable profits in the profit
forecasts. This is a non-cash adjustment. Deferred tax has been recognised to
the extent that future forecasts (excluding a selection of pipeline
opportunities totalling £18 million aligned to timing uncertainties in the
extreme but plausible scenario in the Going Concern scenario analysis) support
the carrying value. As a result, UK trading losses with a gross value of £1.3
million have not been recognised within the deferred tax asset. After the
approval of the Financial Statements, if the expected conversion of the
pipeline occurs, a deferred tax asset in relation to these losses may be
recognised or there may be a reduction in any taxable profits made in the UK
entities in 2025. The unrecognised deferred tax asset in relation to the above
losses amounts to £324k.
A deferred tax asset in relation to temporary timing differences within
Pennant America Inc. has been recognised on the basis of taxable profit over
the three years to 2026. As a result, temporary timing differences of £812k
have not been recognised as part of the deferred tax asset. If future profits
exceed the current forecast an additional deferred tax asset of £226k may be
recognised.
The Group has total unrelieved UK tax losses carried forward of £6.8 million
(2022: £7.1 million).
Looking forward
With the development of the integrated software suite nearing its conclusion,
the Group is looking forward to realising the returns on this investment, and
the associated profit and generation of free cashflows which strengthen the
balance sheet.
M J Brinson
Director
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
Notes 2023 2022
Continuing operations £000s £000s
Revenue 15,535 13,686
Cost of sales (7,808) (7,897)
Gross profit 7,727 5,789
Land and buildings revaluation on previously impaired asset 39 -
Profit on sale of land and buildings - 374
Other administration expenses (7,880) (7,276)
Administrative expenses (7,841) (6,902)
Other income 209 123
Operating profit/(loss) 2 95 (990)
Finance costs (463) (377)
Finance income 1 2
Loss before taxation (367) (1,365)
Taxation 3 (566) 464
Loss for the year attributable to the equity (933) (901)
holders of the
parent
Earnings per share
(2.53p) (2.45p)
Basic
(2.53p) (2.45p)
Diluted
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
Notes
2023 2022
£000s £000s
Loss for the year attributable to the equity holders of the parent
(933) (901)
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations (120) 109
Prior year amortisation adjustment
- 39
Items that will not be reclassified to profit or loss
Net revaluation gain 113 -
Deferred tax (charge)/credit - property, plant and equipment 6
(28) 248
Total comprehensive loss for the period attributable to the equity holders of (968) (505)
the parent
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2023
Notes 2023 2022
£000s £000s
Non-current assets
Goodwill 4 2,595 2,507
Other intangible assets 5 5,335 4,690
Property, plant and equipment 4,155 4,002
Right-of-use assets 860 503
Deferred tax assets 6 399 1,497
Total non-current assets 13,344 13,199
Current assets
Inventories 980 1,001
Trade and other receivables 2,647 4,129
Corporation tax recoverable 641 354
Cash and cash equivalents 1,099 1,107
Total current assets 5,367 6,591
Total assets 18,711 19,790
Current liabilities
Trade and other payables 4,099 5,862
Bank overdraft 2,978 1,533
Current tax liabilities 1 155
Lease liabilities 420 174
Deferred consideration on acquisition 468 327
Total current liabilities 7,966 8,051
Net current liabilities (2,599) (1,460)
Non-current liabilities
Lease liabilities 501 385
Warranty provisions 144 107
Contingent consideration on acquisition 283 552
Total non-current liabilities 928 1,044
Total liabilities 8,894 9,095
Net assets 9,817 10,695
Equity
Share capital 1,844 1,840
Share premium account 5,383 5,366
Capital redemption reserve 200 200
Retained earnings 1,990 2,844
Translation reserve 215 335
Revaluation reserve 185 110
Total equity 9,817 10,695
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Capital redemption reserve
Share Share Retained earnings Translation reserve Revaluationreserve Total equity
capital premium
£000s £000s £000s £000s £000s £000s £000s
At 1 January 2022 1,832 5,345 200 2,687 226 854 11,144
(Loss) for the year - - - (901) - - (901)
Other comprehensive income - - - 1,031 109 (744) 396
1,832 5,345 200 2,817 335 110 10,639
Issue of new ordinary shares 8 21 - (2) - - 27
Recognition of share based payment - - - 29 - - 29
Transfer from revaluation reserve - - - - - - -
At 31 December 2022 1,840 5,366 200 2,844 335 110 10,695
(Loss) for the year - - - (933) - - (933)
Other comprehensive income / (loss) - - - - (120) 85 (35)
1,840 5,366 200 1,911 215 195 9,727
Issue of new ordinary shares 4 17 - - - - 21
Recognition of share based payment - - - 69 - - 69
Transfer from revaluation reserve - - - 10 - (10) -
At 31 December 2023 1,844 5,383 200 1,990 215 185 9,817
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
Notes 2023 2022
£000s £000s
Net cash from operations 1,294 2,572
Investing activities
Interest received 1 2
Payment for acquisition of subsidiaries, net of cash acquired
7 (214) -
Deferred consideration paid in respect of prior year acquisition (352) (547)
Purchase of intangible assets 5 (1,453) (1,150)
Purchase of property, plant and equipment (305) (63)
Proceeds from disposal of property, plant and equipment - 2,117
Net cash (used in)/generated from investing activities (2,323) 359
Financing activities
Proceeds from issue of ordinary shares 21 24
Repayment of lease liabilities (195) (207)
Net cash from financing activities (174) (183)
Net (decrease)/increase in cash and cash equivalents (1,203) 2,748
Cash and cash equivalents at beginning of year (426) (3,540)
Effect of foreign exchange rates (250) 366
Cash and cash equivalents at end of year (1,879) (426)
Abbreviated notes to the consolidated financial statements FOR THE YEAR ENDED
31 DECEMBER 2023
1. Basis of Preparation
The financial information set out in this preliminary announcement does not
constitute statutory accounts for the purposes of the Companies Act 2006.
· The statement of financial position at 31 December 2023 and income
statement, statement of changes in equity, statement of cash flows and
associated notes for the year ended 31 December 2023 have been extracted from
the Group's 2023 financial statements upon which the auditor opinion is
unqualified. The audit report includes material uncertainties in respect of:
· the timing of contractual delivery,
· the timing of pipeline conversion currently forecasted at the end
of 2024; and
· the availability of adequate borrowing facilities for the duration of
the review period
The directors' assessment of these uncertainties is set out in note 3 of the
notes to the financial statements as contained the 2023 Annual Report and
Accounts. Following such assessment, the Directors concluded that it was
appropriate to prepare the financial statements using the 'going concern'
basis.
The financial information in this preliminary statement has been prepared in
accordance with the accounting policies, and on the basis set out, in the
Group's 2023 financial statements.
The 2023 Annual Report and Accounts will be available on the Company's
website: www.pennantplc.com (http://www.pennantplc.com) Copies may be
obtained by contacting the Company Secretary at Unit D1, Staverton Connection,
Staverton, Cheltenham GL51 0TF.
2023 2022
2. Operating profit/(loss) for the year
£000s £000s
The operating profit/(loss) for the year is stated after charging
/(crediting):
Net foreign exchange (profit)/loss (73) 119
Research and development costs* 1,033 818
Other income arising from RDEC claim (R&D) (205) (113)
Property rental and sundry other (4) (10)
income
Amortisation of intangible 1,330 1,585
assets
Reversal of previously recognised impairment loss as a result of land (39) -
and buildings revaluation
Depreciation of property, plant and equipment 305 373
Depreciation of right-of-use assets 200 183
Share-based payment 69 29
(Profit)/Loss on disposal of land and buildings - (374)
(Profit)/Loss on disposal of other property, plant and equipment - (6)
* In addition, in 2023 research and development costs
of £1,452k were capitalised (2022: £1,139k)
Abbreviated notes to the consolidated FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2023
3 Taxation 2023 2022
£000s £000s
Recognised in the income statement
Current UK tax credit 137 178
Foreign tax credit / (charge) 110 (323)
In respect of prior years 150 191
Sub-total current tax 397 46
Deferred tax (charge) / credit relating to origination and reversal of (990) 485
temporary differences
In relation to prior years 44 (88)
Exchange rate difference (17) 21
Subtotal deferred tax (963) 418
Total income statement tax (charge)/credit (566) 464
Other Comprehensive Income charge for the period
Deferred tax (28) 248
Reconciliation of effective tax rate
Loss before tax (367) (1,365)
Tax at the rate applicable in the United Kingdom of 23.52% (2022: 19.00%)
86 259
Tax effect of expenses not deductible in determining taxable profit (198) 30
Tax effect of income excluded from taxable profits 9 233
Impact of R&D tax credits 57 77
Foreign tax expensed (8) -
Effect of different tax rates of subsidiaries operating in other
jurisdictions 45 (53)
Effect of (higher) / lower rate of deferred tax (28) 175
Effect of change in recognition of deferred tax asset (601) -
Effect of adjustments for prior years (current tax) 150 191
Effect of adjustments for prior years (deferred tax) 44 (88)
Other differences (122) (360)
Total tax (charge)/credit (566) 464
4. Goodwill
£000s
Carrying amount:
At 1 January 2022 2,403
Currency translation 104
At 1 January 2023 2,507
Currency translation (62)
Acquisition of Track Access Productions Ltd 150
At 31 December 2023 2,595
Goodwill acquired in a business combination is allocated at acquisition to
cash generating units ("CGUs") that are expected to benefit from that business
combination. The goodwill will not be deductible for tax purposes.
Abbreviated notes to the consolidated FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2023
4. Goodwill (continued)
The Group sells or offers for sale the same range of all of its products in
each of three distinct geographical regions, as shown in the segmental
analysis at note 6. However, the Group's intellectual property is owned by the
Company and is licenced to its subsidiaries. As the regional entities do not
have significant revenue-generating assets, the geographic regions are not
considered to be CGUs.
The Group has instead chosen its CGUs to reflect its two different product
streams, which are Training (sale of Engineered and Generic products) and
Software (sale of Licences, Maintenance and Services). This choice is
justified because the intellectual property, know-how and mode of operation is
different for each CGU.
The carrying amount of goodwill has been allocated as follows:
2023 2022
Cash generating unit: £000s £000s
Training 734 584
Software 1,861 1,923
2,595 2,507
The Group tests goodwill annually for impairment. The recoverable amounts of
the CGU's are determined from value in use calculations. The Group prepares
cash flow forecasts for the following twelve months derived from the most
recent annual financial budgets approved by the Board of Directors and
extrapolates cash flows as follows:
Software CGU:
Cashflows are extrapolated for a further four years beyond the twelve-month
annual budget period at a growth rate of 5% (2022: 5%). The forecast includes
a terminal value at a terminal growth rate of 2%.
Training CGU:
Cashflows are forecast for an additional two years beyond the twelve-month
approved financial budget period based on a contract level review with the
addition of expected cash flows generated from 'pipeline' opportunities. As at
31 December 2023 the Training CGU had an active pipeline of circa £70 million
(2022: £60 million) and in testing the goodwill for impairment the Directors
have assumed a prudent conversion rate of circa 30%. For years four and five,
a growth rate of 3% per annum (2022: 3%) is assumed. The forecast does not
include a terminal value.
The forecast cash flows of each CGU are discounted at the following pre-tax
rates to provide the value in use for each CGU:
Training CGU: 11.74% per annum (2022: 13.78% per annum); post-tax rate 10.85%
(2022: 12.02%)
Software CGU: 12.87% per annum (2022: 16.51% per annum); post-tax rate 10.85%
(2022: 12.02%)
The rates have been calculated to reflect the working capital structure of the
Group as each CGU utilises the optimal capital structure, being both debt and
equity.
The discounted cash flows provide headroom for the goodwill carrying values in
excess of their respective assets in the case of each CGU with the Training
headroom being £0.6 million without considering terminal values and Software
headroom of £2.9 million when considering terminal values.
Abbreviated notes to the consolidated FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2023
4. Goodwill (continued)
Key assumptions are based on past experience and external sources. No
impairment of goodwill has been recorded in either the year ending 31 December
2023 or 31 December 2022. The Directors have assessed the sensitivity of the
assumptions detailed above and consider that it would require significant
adverse variance in any of the assumptions to reduce fair value to a level
where it matched the carrying value. The Directors have conducted their review
using best estimates, including the quantum and timing of pipeline conversion.
5. Other intangible assets
Software Development costs Customer lists and contracts Total
£000s £000s £000s £000s
Cost
At 1 January 2022 348 8,992 - 9,340
Currency translation - 20 - 20
Reclassifications 240 (240) - -
Additions 11 1,139 - 1,150
Disposals (50) - - (30)
At 1 January 2023 549 9,911 - 10,460
Currency translation - (21) - (21)
Acquisition of TAP - - 536 536
Additions 28 1,139 - 1,453
Disposals (40) - - (40)
At 31 December 2023 537 11,315 536 12,388
Amortisation
At 1 January 2022 317 3,942 - 4,259
Currency translation 2 1 - 3
Reclassifications 240 (240) - -
Charge for the year 22 1,536 - 1,588
Disposals (50) - - (25)
At 1 January 2023 531 5,239 - 5,770
Currency translation - (7) - (7)
Charge for the year 10 1,240 80 1,330
Disposals (40) - - (40)
At 31 December 2023 501 6,472 80 7,053
Carrying amount
At 31 December 2023 36 4,843 456 5,335
At 31 December 2022 18 4,672 - 4,690
During 2023 the Group capitalised £1,425k (2022: £1,139k) of costs in
relation to the ongoing development of the GenS software solution along with
enhancements to existing software related assets. An impairment review was
performed and as at the 31 December 2023 no indicators of impairment were
identified.
Abbreviated notes to the consolidated FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2023
6 Deferred tax
Accelerated tax depreciation Other temporary differences
Intangible Assets Tax losses
Total
£000s £000s £000s £000s £000s
At 1 January 2022 (1,554) 734 - 1,670 850
(Charge)/credit to income (7) (35) - 419 377
Credit to OCI 248 - - - 248
Exchange differences 1 21 - - 22
At 1 January 2023 (1,312) 720 - 2,089 1,497
(Charge)/credit to income (49) (155) - (715) (919)
(Charge)/credit to OCI (28) - - - (28)
Exchange differences - (17) - - (17)
Acquisition entry - - (134) - (134)
At 31 December 2023 (1,389) 548 (134) 1,374 399
The main rate of United Kingdom (UK) corporation tax increased from 19% to 25%
with effect from 1 April 2023. The 25% rate has been applied in the
calculation of deferred taxation balances for the UK-based entities. In each
foreign subsidiary, deferred tax has been recognised at the prevailing income
tax rate in the respective country.
At the reporting date the Group had unused tax losses of approximately £6.8
million (2022: £7.1 million) which are expected to be available for set-off
against future profits arising in the UK. Unused tax losses of £1.3m have not
been recognised within the deferred tax asset above.
7 Business combinations
Business combinations 2023
On 12 April 2023, Pennant acquired the entire issued share capital of Track
Access Productions Limited ("TAP").
TAP is a UK business, incorporated in 2001 and based in Bedfordshire, which
provides driver training, route mapping and route familiarisation services to
the UK rail industry. Its clients comprise train operating companies, freight
operating companies, engineering prime contractors and infrastructure
providers. TAP has two key revenue streams: a subscription-based web portal
through which its clients can access training content, and project-specific
route mapping work.
The consideration payable for the acquisition comprised an enterprise value of
£585k, plus an amount of circa £385k in respect of TAP's 'free cash' after
allowing for normalised working capital and repayment of debt ("Cash Free,
Debt Free Adjustment"). The acquisition has been funded from the Group's
existing cash resources.
Purchase consideration Track Access Productions Ltd £000s
Cash paid 795
Deferred cash consideration 176
Total consideration before discounting of deferred consideration 971
Less discounting applied to deferred consideration (21)
Total consideration after discounting of deferred consideration 950
Abbreviated notes to the consolidated FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2023
7 Business combinations (continued)
Business combinations 2023 (continued)
The accounting treatment for the business combination is
summarised below:
Assets and liabilities recognised as a result of the
acquisition:
Assets Liabilities Fair Value Total
£000s £000s £000s £000s
Intangible assets* - - 536 536
Plant and equipment 2 - - 2
Inventories 3 - - 3
Trade and other receivables 158 - - 158
Cash at bank 581 - - 581
Trade and other payables - (350) - (350)
Corporation tax recoverable 4 - - 4
Deferred tax - - (134) (134)
Net identifiable assets acquired 748 (350) 402 800
Goodwill recognised on acquisition 150
Purchase consideration 950
*comprising customer contracts and ongoing relationships. To be amortised on a
straight-line basis over 5 years.
Factors that lead to the recognition of goodwill include the non-recognition
of certain software intangible assets (internally-generated or otherwise) and
synergies to be gained from the planned merger of TAP and the Group's existing
rail business Track Access Services (TAS, a division of Pennant International
Limited) into a single operating rail entity. The goodwill recognised will not
be tax deductible.
Purchase consideration net cash outflow £000s
Cash paid 795
Less cash acquired (581)
214
The acquisition was in the Group's best interests because TAP's business
aligns closely with Pennant's existing Track Access Services (TAS)
business unit and the acquisition will enhance the Group's presence in the UK
rail market. The combined TAS and TAP rail unit generated revenues in 2023 of
£809k. At the acquisition date all trade receivables were expected to be
collected and so the fair value is considered to be the book value of the
debts acquired.
For the period from the date of acquisition on 12 April 2023 to 31 December
2023 the acquisition delivered revenues of £342k and profits before tax of
£155k, excluding management charges from the Company of £68k. For the full
2023 calendar year it is estimated that on a time-apportioned basis TAP's
revenue for the year to 31 December 2023 was £472k and its profit before tax
was £214k, excluding management charges from the Company of £94k.
Business Combinations 2022
The Group did not enter into any business combinations in 2022.
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