Pennant International Group plc (LON:PEN), a leading global provider of training technology and integrated product support solutions, has announced its Final Results for the Financial Year ended 31 December 2022.
Commenting on the Group’s performance, Phil Cotton, Chair, said:
“I am pleased to report that the Group has delivered a much-improved performance in the year ended 31 December 2022, with profitability in-line with market expectations despite reduced revenues, achieving an EBITA profit of £0.5 million for the year (2021: EBITA loss of £0.8 million) and an EBITDA profit of £1.0 million (2021: EBITDA loss of £0.1 million).
The improved performance was primarily the result of the progress made towards our technology and software transformation, coupled with the completion of the legacy engineered solution contract. The Group’s ongoing focus on increasing revenues from software and technical services is reflected in these results, and generated revenues totalling £10.2 million in 2022 (2021: £9.1 million).”
Financial Summary
· Group revenues of £13.7 million (2021: £16.0 million);
· Gross profit margin of 42% (2021: 27%);
· EBITA profit of £0.5 million (2021: EBITA loss of £0.8 million);
· Loss before tax of £1.4 million (2021: loss before tax of £2.5 million);
· Loss for the year attributable to shareholders of £0.9 million (2021: loss of £1.6 million);
· Basic loss per share of 2.89p (2021: loss of 4.41p)
· Group net assets at year-end of £10.5 million (2021: £11.1 million);
· Net debt at year-end of £0.4 million (2021: net debt of £3.5 million);
· No final dividend recommended (2021: £NIL);
· Three-year order book at year-end stood at £25 million (2021: £22 million).
Post Period-End
· Acquisition of Track Access Productions Limited.
· Board strengthened with new appointments.
· Positive net cash position achieved in Q2 2023.
Operational Summary
A summary of new contract awards, amendments and operational achievements during the year is set out below:
· Contract secured from Boeing Defence UK Limited for the upgrade of UK Apache training equipment, worth £8.8 million over three years, with the initial engineering milestone event successfully passed.
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· Delivery and full device acceptance achieved on the £3.5 million UK Helicopter programme.
· ‘Launch partner’ programme for the new GenS software product initiated with key customers signed up.
· Surplus freehold site (Pennant Court) sold in August for £2.1 million with proceeds used to paydown borrowings.
On current trading and prospects, Mr Cotton concluded:
“Over the last financial year, the business has become more resilient as we continue to deliver on the critical objective of increasing visibility and recurrence of earnings, especially those derived from software and technical services.
The global economic and geo-political environment and supportive strategic backdrop for Pennant’s capabilities means that the Board believes that the Group’s underlying strengths – our long-term customer relationships with governments and major OEMs, our specialist services together with our quality-assured reputation – provide solid foundations for continued recovery and long-term success.”
CHAIRMAN’S STATEMENT
Results in-line, software & technical services focus, strong order book
The Group has delivered a much-improved performance in the year ended 31 December 2022 (the “Period“) with profitability in-line with market expectations despite an expected decrease in revenues, achieving an EBITA profit of £0.5 million for the year (2021: EBITA loss of £0.8 million) and an EBITDA profit of £1.0 million (2021: EBITDA loss of £0.1 million).
The improved performance was primarily the result of the progress made towards our technology and software transformation, coupled with the completion of the legacy engineered solution contract. The Group’s focus on increasing higher margin revenues from software and technical services is being reflected in the results, with such revenues totalling £10.2 million in 2022 (2021: £9.1 million).
Following a strong order intake in 2022, including securing an £8.8 million contract with Boeing Defence UK for the upgrade of Apache training devices, the Group has a contracted year end order book of £25 million (2021: £22 million), underpinning forecasts and providing good visibility for 2023 and beyond.
Strategy
Our focus 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, while expanding the Group’s market coverage and addressing gaps in the product range through the Group’s ‘Innovation’ programmes.
In addition, the Group continues to seek other strategic opportunities to partner with or acquire complementary businesses.
Post Period-end, the Group announced the completion of the acquisition of Track Access Productions, a provider of driver training, route mapping and route familiarisation services to the UK rail industry, which aligns with the Group’s software and technical services strategy and is designed to enhance the Group’s rail capability.
Key Financials
For the year ended 31 December 2022, the Group recorded consolidated revenues of £13.7 million (2021: £16.0 million). Turnover was underpinned by the Group’s contracted revenue base, in particular the continued delivery of the Group’s overseas services contracts and the successful achievement of programme deliveries.
The Group’s gross margin for the year increased significantly to 42% (2021: 27%) due to the change in sales mix, and as a result the Group posted a consolidated EBITA profit of £0.5 million (2021: EBITA loss £0.8 million) in line with market expectations.
The Group’s net debt significantly reduced during the Period from £3.5 million to £0.4 million as a result of improved trading performance, delivering against contract milestones and the rationalisation of the property portfolio.
Dividend
Taking account of the Group’s 2022 financial performance, the trading outlook and the Group’s cash position, the Directors believe that it is both prudent and, in the Company’s, and shareholders’ current best interests to retain cash for working capital.
The Board will therefore not be recommending the payment of a final dividend for the year ended 31 December 2022.
Our People
To deliver a successful performance in 2023, the Group must have a committed workforce, appropriately incentivised and motivated. I would like to publicly thank all our employees for their commitment to supporting the Group and for the resilience and flexibility they have demonstrated in meeting our customer’s needs.
The Group is constantly seeking ways to attract, retain and reward the specialist skills that we need in order to deliver. During the Period the business undertook a detailed review of Pennant’s Employee Value Proposition, which resulted in the implementation of an enhanced set of employee benefits across the Group coupled with an unbudgeted interim pay award.
It is our people we rely on to deliver our strategy and in order to deliver successful results in the current year and beyond, we must continue to pay particular attention to their needs and as a Board we remained 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 committed to maintaining robust corporate governance. It has worked closely with its advisors and in 2022 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 review.
Board Changes
During the Period and post Period-end, there were a number of Board changes.
Sadly, in the Autumn of 2022 our Chairman, John Ponsonby OBE, died following a short period of illness. On behalf of the Board, I would like to take this opportunity to recognise the significant contribution John made to Pennant during his tenure – he was an inspirational leader and is sadly missed by everyone at Pennant.
On 24 February 2023 it was announced that I would be succeeding John as Chair. It is an honour and a privilege to be appointed and to have the opportunity to continue John’s work.
We were delighted to appoint Michael Brinson to the Board as 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.
Encouraging outlook
Over the past Period the business has become more resilient as we continue to deliver on the critical objective of increasing visibility and recurrence of earnings, especially those derived from software and technical services.
The global economic and geo-political environment and supportive strategic backdrop for Pennant’s capabilities means that the Board believes that the Group’s underlying strengths – our long-term customer relationships with governments and major OEMs, our specialist services together with our quality-assured reputation – provide solid foundations for continued recovery and long-term success.
With our contracted three-year order book, valued at over £25 million (with £13 million scheduled for delivery in 2023) underpinning forecasts, further enhanced by the post Period end acquisition, the Board is confident about prospects for 2023 and beyond.
P Cotton
Chairman
CHIEF EXECUTIVE’S REVIEW
Software & services transformation, momentum building
2022 saw the acceleration of the Group’s strategy with the focus on software and higher margin software-linked activities, the impact of which is now starting to come through in our financial performance.
As a result, Group profit for the year was in line with expectations and represents the third consecutive six-month trading period where we have reported a positive EBITA.
Pennant’s return to EBITA profitability coupled with expanding gross margins and strong order intake, indicates momentum is building.
Operational Highlights
During the Period, Pennant realigned its operations to enable effective and efficient global delivery, by organising the Group into three key regions (UK & Europe, North America, and Australasia).
This was designed to allow the ‘full spectrum’ of Pennant products and services to be offered and delivered in across all three geographical regions.
Over this Period the strategic backdrop for our products and services has shifted. The Russian invasion of Ukraine has seen a heightened focus amongst governments, particularly European and NATO members on their spending plans on defence.
It is difficult to predict the duration of the conflict and impact on the Group’s trading but it is clear that Pennant is well positioned, in particular the integrated product support process and the management of data is becoming evermore critical and the cost and complexity of programs is directly impacting the training requirements.
The table below highlights Pennant’s regional revenue for 2021 and 2022.
| Regional revenue | ||
| 2022 | 2021 | |
| £000s | £000s | |
| UK & Europe | 5,557 | 8,161 |
| North America | 4,985 | 4,451 |
| Australasia | 3,144 | 3,353 |
| Total | 13,686 | 15,965 |
UK & Europe
Revenue generated in the UK & Europe region during 2022 was low by historic levels, at £5.6 million (2021: £8.2 million).
Order intake improved with the Group securing an £8.8 million contract, over three years, with Boeing Defence UK, and with recent events highlighting the importance of national security and strategic investment in capability the outlook appears to be improving.
In terms of operational delivery, the region had a successful Period with notable highlights including site acceptance and final delivery of a UK Helicopter trainer programme, achieved on time and on budget. Following the contract award, the business successfully passed the initial engineering milestone event on the Apache upgrade programme and successfully completed delivery of all four MTE training devices to General Dynamics UK.
With the Group’s increasing software focus and reduced reliance on resource-intensive hardware engineering activities, the Board commissioned a comprehensive review of the Group’s UK facilities during 2022. Recognising a reduced requirement for space at its Cheltenham operating sites, the Board decided to market for sale the Group’s former Cheltenham head office, Pennant Court which was sold in August 2022 for £2.1 million with proceeds used to paydown borrowings. The profit generated on this disposal was £0.37 million.
As a result of this facilities review, the Group also terminated its office lease in Stevenage. The Group continues to have sufficient UK facilities to service its order book and pipeline opportunities with 30,000 square feet of retained facilities in Cheltenham alone.
North America
Our North American business performed well in 2022 reporting 12% growth in revenue, with approximately 75% of its annual revenue recurring.
Pennant’s long-term contract with the Canadian Department of National Defence was successfully extended to the end of 2023 and the business secured a second software and services order in the commercial aerospace sector (overall order value: USD$1.7 million), for a new strategic customer which underpinned the growth.
Australasia
Our Australasia business enjoyed a solid year and delivered results broadly in line with the prior year.
Pennant’s existing long term technical services contract in Wagga Wagga continued to perform well and was extended into 2025 (year 12 out of 20 year framework).
The transformation to longer term software and technical services has been accelerated with new contracts secured with the Australian Defence Force for technical publications and data conversion.
The Group also secured its first ‘Launch Partner’ to participate in a programme of testing and product promotion for the new GenS product signed in Australasia.
Investing in the future
In line with the Group’s core strategic objectives, investment in innovation has been targeted to drive growth and expand the Group’s market coverage.
During the Period the Group invested circa £1.1 million in the development of new and enhanced solutions with the aim of improving the overall customer proposition.
The following new products are under development:
· Continued development of the new GenS software solution (OmegaPS successor product) with release of version 2.0 scheduled for May 2023
· Development of next generation of training aids – modular, software / technology led.
Pennant anticipates that it will continue to invest in its software products and technology-led software solutions during 2023 and expects the level of investment to be at a higher level than 2022.
The Group also has an active pipeline of potential product innovations and improvements that are undergoing a detailed assessment process with a view to obtaining Board funding approval if a business case can be established.
Year-end order book & pipeline
At 31 December 2022, the Group’s three-year contracted order book stood at £25 million (2021: £22 million), of which £13 million of revenue (2021: £10 million) is scheduled for recognition in 2023 based on anticipated completion of generic products, execution of software & services projects and progress made on engineered-to-order contracts.
Of the total order book, 50% (2021: 42%) is denominated in sterling, 12% (2021: 31%) is denominated in Canadian dollars, 15% is denominated in US dollars (2021: 5%) and 23% (2021: 22%) is denominated in Australian dollars.
The overall value of the Group’s active pipeline at Period-end was in excess of £70 million.
Post Period-end – acquisition
Post Period-end, the Group 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 Company’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.
Implementing our strategy
The mix shift towards higher margin software and technical services, diversified global revenues and order intake momentum together with the evolving strategic backdrop provide a firm platform for continued progress in the current year.
P H Walker
Director
