A N N U A L
R E P O R T &
A C C O U N T S
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PENNANT INTERNATIONAL GROUP PLC
COMPANY NUMBER: 3187528
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
STRATEGIC REPORT
Financial highlights
Chairman’s statement
Chief Executive’s review
Solid performance, positive momentum
Operational review
Engineering future growth
Group strategic framework
About Pennant
Reorganisation
Group structure & capabilities
GOVERNANCE & RISK
Board of Directors
Audit committee
Remuneration committee
Attendance
Operational governance
Financial control
Risk management & principal risks
Remuneration report
Directors’ report
Directors’ responsibility statement
FINANCIAL STATEMENTS
Independent Auditor’s report
The Group
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
The Company
Company statement of comprehensive income
Company statement of changes in equity
Company statement of financial position
Company statement of cash flows
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Notes to the company financial statements
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Shareholder information & financial calendar
Officers and professional advisers
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Pennant International Group PLC Annual Report and Financial Statements 2017
Our vision is to be the
provider of choice for
world-class products and
services which train and
assist engineers in both
the defence and regulated
civilian sectors.
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STRATEGIC REPORT
FINANCIAL HIGHLIGHTS
ADJUSTED
OPERATING PROFIT:
£1,931,073
2016: £1,904,609
ORDER BOOK:
£34 million
2016: £38 million
BASIC EPS:
4.65p
2016: 6.48p
YEAR END CASH:
£1,502,655
2016: £3,517,541
• Adjusted operating profit is stated after exceptional one off termination costs of £125,000
• Year-end order book does not reflect IFRS 15 transitional adjustment of £7m revenue in 2018
• Cash at bank reflects timing of contracts with significant cash inflows received during quarter 1 of 2018
GROUP REVENUE:
£19,000,000
£18,000,000
£17,000,000
£16,000,000
£15,000,000
£14,000,000
£13,000,000
£12,000,000
£11,000,000
£10,000,000
£9,000,000
2015
2016
2017
KEY POINTS:
Gross margin 40% (2016: 40%)
Operating profit £1.81 million (2016: £1.90 million)
Adjusted operating margin 11% (2016:11%)
Order book £34 million (2016: £38 million)
Net assets £13.3 million (2016: £11.8 million)
Cash used in operations £1.0 million (2016: £0.2 million)
£18,069,960
2017
£17,211,455
2016
£9,892,685
2015
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Pennant International Group PLC Annual Report and Financial Statements 2017 CHAIRMAN’S STATEMENT
YEAR OF CHANGE
2017 was a year of dynamic and transformational change for the
Group, led by new management, engaged staff and supportive
customers.
The management team, led by Phil Walker, is building strong
and sustainable new partnerships and further strengthening
existing relationships with customers across the globe, including
Australia, South East Asia, the Middle East, Canada and the
United States.
Customers of Pennant include some of the world’s leading
original equipment manufacturers, governments and colleges,
who are working closely with us to embed Pennant solutions into
their training programmes for the long term.
“A YEAR OF DYNAMIC AND
TRANSFORMATIONAL CHANGE
LED BY NEW MANAGEMENT,
ENGAGED STAFF AND
SUPPORTIVE CUSTOMERS”
The next generation of engineers around the world is being
trained via a growing range of Pennant products and services.
Our
traditional, bespoke engineered products are being
increasingly supplemented by virtual reality solutions offering
state of the art training to our customers across a widening range
of industries.
Our software business is deeply engrained in the maintenance
and supportability standard operating procedures of defence
forces around the world. As we enter the new financial year, we
are launching a major overhaul of our software-offering to make
it even more compelling as a market leading solution.
None of this change would have been possible without the
dedication of the Pennant team, which is committed to excellence
and the delivery of world class, market leading, technology-driven
solutions.
The Group posted consolidated operating profit of £1.81 million
(2016: operating profit of £1.90 million), which is broadly in line
with the prior year and was achieved despite a prime contractor-
led rescoping of one of the Group’s major contracts, announced
in September 2017, which resulted in revenue deferral, and
exceptional termination costs incurred on the departure of the
former CEO.
Consolidated net assets increased to £13.33 million (2016: £11.82
million) reflecting the profitable trading.
Basic earnings per share were 4.65p compared to the reported
earnings per share of 6.48p for the same period last year.
DIVIDENDS
KEY FINANCIALS
In the year ended 31 December 2017 the Group delivered
consolidated revenues of £18.07 million (2016: £17.21 million),
driven by the continued production and delivery of work on the
Middle East contracts.
The Board fully appreciates the importance of dividend payments.
However, notwithstanding the trading performance, positive
outlook and nil borrowings, the Directors have concluded that it
is in the Company’s and shareholders’ current best interests to
retain cash for working capital and investment in accordance with
plans for future growth.
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Pennant International Group PLC Annual Report and Financial Statements 2017
CHAIRMAN’S STATEMENT
The Board will therefore not be recommending the payment of a
final dividend for the year ended 31 December 2017. However, it
will continue to review dividend policy throughout 2018 based on
trading performance and working capital requirements.
GOVERNANCE
The Board believes in robust corporate governance. We have
worked closely with our advisors and in 2017 continued to
strengthen our governance frameworks to ensure strong
governance throughout the Group, appropriate for a company
of our size. We have established appropriate risk management
procedures and keep key risks to the Group under continual
review. Further details are provided in the Governance & Risks
section of this document.
OUR PEOPLE
I would also like to take this opportunity to thank all staff across
the Group for their hard work and dedication throughout this
transitional year. Their commitment and drive to ensure that the
business continues to deliver the high-quality solutions that our
customers require and expect, operating under tight timescales,
are key factors in maintaining and enhancing the ongoing and
longstanding relationships we have with our customers.
OUTLOOK
Prospects for the global economy in 2018 remain uncertain, and
there are budgetary pressures in defence markets. However,
Pennant is nimble, agile and responsive and so is well placed to
maximise opportunities as the economic situation develops.
We are experiencing an encouraging start to the current financial
year and anticipate that the full year results for 2018 will be
first-half weighted owing to the adoption of IFRS 15 (as further
explained in note 2 to the Consolidated Financial Statements).
Prospects remain positive. The contracted order book, valued
at more than £34 million, underpins good forward visibility of
revenues well into 2020. In addition, the pipeline of active bids and
other opportunities remains healthy.
Approved by the Board on 9 March 2018
And signed on its behalf
S A Moore
Chairman
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ENHANCING THE ONGOING AND LONGSTANDING RELATIONSHIPS WITH CUSTOMERSPennant International Group PLC Annual Report and Financial Statements 2017 CHIEF EXECUTIVE’S REVIEW
SOLID PERFORMANCE
I am pleased to report that 2017 produced a healthy result for
Pennant. In what was a transitional year, the Group overcame all
the challenges faced and, most importantly, each Group company
made a positive contribution to overall performance.
“PENNANT HAS CONTINUED
TO MEET CONTRACTUAL
MILESTONES, DELIVERING
PRODUCTS AND SERVICES -
A TESTAMENT TO OUR
DEDICATION AND
HARD WORK”
Our interim report, released in September, announced positive
results for the first half of the year but also highlighted a prime
contractor-led rescoping of one of our major contracts that would
impact revenues for the year.
I am delighted that the Group was able to realise a number of
other opportunities to largely mitigated the effect of the reduced
revenues on that major contract. Most importantly, the Group has
continued to meet contractual milestones, delivering products
and services, and securing payments in line with all performance
obligations, which is testament to the dedication and hard work
of all employees and the resilience of the business, enabling the
positive momentum of the business as a whole to be maintained.
FINANCIAL REVIEW
The gross profit margin for the period was 40% (2016: 40%)
reflecting the consistent mix of products and services delivered
during the year.
Adjusted operating profit margin (taking into account one-
off exceptional termination costs of £125,000 associated with
the departure of the former CEO) was maintained at 11%,
demonstrating robust financial controls.
Cash used in operations amounted to £1.0 million (2016: cash used
in operations £0.2 million), reflecting the phases of production
on several major programmes. The Group continues to have nil
borrowings with a healthy year-end cash balance of £1.5 million
(2016: £3.5 million).
The Group’s tax position shows a tax charge of £275,409 (2016: tax
credit of £17,691), which relates to overseas subsidiaries and the
release of deferred tax. Profits generated from operations utilised
£2.2 million of UK tax losses and the Group has unrelieved tax
losses carried forward of £0.3 million (2016: £2.5 million).
Research and Development tax credits claimed in the UK during
the year amounted to £0.3 million (2016: £0.1 million) with further
significant claims on current projects expected to be made during
2018.
The year-end order book stood at £34 million (2016: £38 million),
of which £13 million (2016: £18 million) is scheduled for delivery
within one year. Of the total order book, 65% (2016: 70%) is
denominated in sterling and 30% (2016: 25%) is denominated
in Canadian dollars. Any movement of sterling to the Canadian
dollar would potentially impact the OmegaPS business.
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Pennant International Group PLC Annual Report and Financial Statements 2017 CHIEF EXECUTIVE’S REVIEW
OPERATIONAL REVIEW
Strengthening the team
The year has seen a number of key appointments, including David
Clements as Commercial & Risk Director. David is a solicitor with
extensive experience in corporate and commercial law gained
acting for AIM-quoted and private companies.
With over 21 years accounting experience, Gary Barnes was
promoted from Group Financial Controller to Head of Finance in
March 2017. In this role, Gary has been responsible for operational
oversight of all financial matters and has reported direct to the
Board.
The Group also appointed a new Operations Manager (overseeing
key engineering, production, software and programme
management functions), a Training Specialist (a former Deputy
Head of Oman Military Technological College), and a new
Purchasing Manager.
These appointments have strengthened the Group’s commercial,
risk and compliance framework; financial function; training
delivery, product development and user insight; and procurement
process and supplier management, together underlining the
Group’s continued commitment to investing in people.
Product innovation
During the year the Group has focused on targeted product
development and as a result work has commenced on a range of
new products and enhancements that will significantly broaden
the offering and create commercial opportunities, including the
following:
• Basic Helicopter Maintenance Trainer – new mechanical
trainer
• Generic Stores Loading Trainer – new procedural trainer
• Virtual Parachute Training System – redesign and
improvement of existing product
• Genskills Mk 2 – additional functionality added to existing
product
• Virtual Training Suite – including Loadmaster and
Jumpmaster trainers
• Point of Maintenance – deployable tablet version of
OmegaPS
• Virtual Aircraft Training System – upgrade to model and
graphics
In line with our core strategic objectives these product innovations
will significantly expand the Group’s market coverage and improve
the overall customer proposition.
Infrastructure
The Group has continued to modernise and improve its facilities
with over £1m invested or committed during 2017, in addition to
the £1m investment in 2016.
In July 2017, the Board committed to spending a further £500,000
on the Group’s facilities to create additional office space and
establish a secure fibre-optic link between its two Cheltenham
sites. This work has been successfully concluded within budget
and provides essential infrastructure for growth. With an expanded
workforce, the new offices are already being fully utilised.
In October 2017 the Group acquired land for £255,000 (totalling
11,000 sq. ft) in front of the recently acquired commercial premises
at Staverton Connection. The purchase provides additional space
for expansion and crucially secures the entire site.
Following these investments: the Group’s production capacity
has tripled to over 30,000 sq. ft; 30 new desk spaces have been
created; new purchasing, inspection, test and stores facility have
been built; and a prototyping and demonstration facility has been
established.
Our people
Our employees remain core to our future business success.
Without talented people, there are no product innovations or
technical solutions.
During 2017 we strengthened and grew the teams across our UK,
Canadian and Australian operations. To attract the right people
with the specialist skills required, we strive to be an employer that
offers an exciting and rewarding place to work.
The Group is committed to providing meaningful and challenging
roles for our employees. It is critical to our success to engender a
working environment that encourages innovation and supports a
culture of delivering world class products and services that meet
customers’ needs.
The Group’s employees have diverse experience and educational,
professional and cultural backgrounds and we respect equality
of opportunity for all existing and prospective employees without
unlawful or unfair discrimination and regardless of age, gender,
background or ethnic origin.
The Pennant team has responded exceptionally well to the
challenges presented during the year and the Group’s strong
reputation and longstanding relationships with many of its
customers are the measure of its success.
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Pennant International Group PLC Annual Report and Financial Statements 2017 CHIEF EXECUTIVE’S REVIEW
CONTRACTS
ENGINEERING FUTURE GROWTH
•
•
•
•
New contract awards and operational achievements during the
year are set out below:
• Ongoing production and delivery of training aids in
fulfilment of a second phase contract with undisclosed
Middle Eastern customer worth in excess of £7 million;
•
ongoing production and successful delivery of training aids
in accordance with a contract with another undisclosed
Middle Eastern customer worth £6 million;
• performance of a major contract for electro-mechanical
trainers affected by delays in the provision to the Group
of programme-critical customer data and requirements
(subsequently resolved shortly after the year-end, with
work on the contract having now resumed in earnest);
renewal of contract for logistical support at RNAS
Yeovilton for a further five years, with gross revenues
anticipated to be in the region of £1.25 million over the
life of the contract;
amendment and extension to the existing contract with
BAE Systems Australia for the maintenance of training
equipment at Defence Aeroskills Training Academy at
Wagga Wagga. Contract extended by two years to cover
2020 and 2021, securing AUD $3.5 to contracted revenues;
•
•
ongoing delivery of a contract with Lockheed Martin to
provide Rotary Wing Rear Crew Winch Trainer in support
of Rear Crew Training for the United Kingdom Military
Flight Training System;
a new contract with Kawasaki Heavy Industries in Japan
in relation to the Thomson-East Coast Line (Singapore’s
new mass rapid transport rail project);
• new contracts with Network Rail for control room
simulators;
• multiple sales of Genskills Trainers to new customers in
Abu Dhabi, China, Russia and Singapore;
•
amendment to the Group’s contract with the Canadian
Department of National Defence, adding C$3.8 million to
the contract value for the remaining term to September
2018;
• Omega PS software sales to Fleetway, Stadler Rail and
Damen Shipyards Group; and
•
the sale of additional training aids to an undisclosed
Middle Eastern customer for £1.15 million (for delivery
during 2017 and 2018).
The underlying strengths of Pennant – our long-term customer
relationships, our specialist services and our quality-assured
reputation remain the solid foundation of our offerings across the
Group.
The continued investment in infrastructure, people and products
means that the business has the tools required to drive future
growth.
The Group has significant ongoing orders that will provide work
through 2018, 2019 and beyond and there are further prospects
with both existing and new customers, many of which represent
substantial opportunities for new business. Although the timing
of major contract awards has proved to be both difficult to predict
and beyond the Group’s control, we remain confident that the
following factors point towards significant potential for growth:
• New capital equipment platforms (for land, naval, air, rail)
are becoming more sophisticated and complex, thereby
increasing the requirement for training;
the use of ‘real’ equipment for training has safety
implications, is expensive and often impractical;
there is a continuing trend for defence forces and other
organisations to outsource training services, including
updating their training devices;
• global training regulations are harmonising and the ability
to utilise synthetic training is increasing; and
• global expenditure on defence and rail is on the rise.
The Board is confident that it can continue to increase revenues
through organic growth and will continue to explore ways to
complement our organic growth strategy by pursuing opportunities
for corporate development, including strategic acquisitions,
partnerships and joint ventures, carefully considering options to
expand our capabilities and service offering, such as the teaming
agreements entered into during the year with US and UK partners.
The delivery achieved in the year, together with operational
improvements implemented across the Group provides a firm
platform for future performance.
Approved by the Board on 9 March 2018
and signed on its behalf
P H Walker
Director
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Pennant International Group PLC Annual Report and Financial Statements 2017 GROUP STRATEGIC FRAMEWORK
To achieve our vision and mission, our strategy comprises four longer term focus areas and four strategic objectives. This strategy has
been developed to enable the business to maintain our world-class capabilities and seize opportunities for growth.
This strategy was introduced, and implementation commenced throughout 2017.
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Pennant International Group PLC Annual Report and Financial Statements 2017 ABOUT PENNANT
The Group was 60 years old on 25 February 2018. Over the past
six decades Pennant has evolved, from modest beginnings, into
a market-leading technology-led business with a truly global
customer base.
The Group has offices worldwide: in the UK (with two sites in
Cheltenham and offices in Manchester and Fareham), Australia
(in Melbourne and on the Wagga Wagga RAAF base) and in Ottawa
in Canada.
The Group has a diverse portfolio of capabilities enabling it to
offer a wide range of products and services which train and assist
engineers in both the defence and regulated civilian sectors.
REORGANISATION
The Group’s range of hardware trainers spans complex generic
part-task trainers such as the IAMT and GenFly (incorporating
real aircraft parts and sophisticated avionics software) and
platform-specific emulators (such as the Wildcat trainers).
The Group also provides computer-based training and desktop
software emulators, plus technical documentation (either to
supplement hardware trainers or as standalone products), and
has a well-established and growing ability to deliver advanced
virtual reality training solutions (such as the Virtual Parachute
Training System). The Group (through its OmegaPS division) also
develops, supplies and consults on the market-leading LSAR
software OmegaPS.
The Group operates principally in the defence, rail, power and
aerospace sectors and with government departments.
The Company was admitted to trading on the AIM stock exchange
in 1998 and has successfully traded as a public company for
20 years, last issuing shares to fund working capital on major
programmes in 2016.
Throughout the period under review the Group operated with three
UK trading companies, namely Pennant Training Systems Limited
(which changed its name to Pennant International Limited post
period-end), Pennant Software Services Limited and Pennant
Support and Development Services Limited.
The Board continuously explores ways to enhance and improve
the strength and operating efficiency of the Group and has taken
the opportunity to consolidate the UK Group structure.
Post year-end, the assets and undertakings of Pennant Software
Services Limited and Pennant Support & Development Services
Limited were transferred to Pennant International Limited
(formerly Pennant Training Systems Limited). The Board’s
intention is to consolidate UK operations into a new, simplified
organisational structure. The practical effect of this will be to
consolidate in one trading company all the UK functions currently
spread across the Group and will result in the Group operating one
trading company in the UK being Pennant International Limited.
NEW GROUP STRUCTURE & CAPABILITIES
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Pennant International Group PLC Annual Report and Financial Statements 2017
ABOUT PENNANT
PENNANT INTERNATIONAL LIMITED
Following the consolidation of the Group’s UK trading subsidiaries,
Pennant International Limited (“PIL”), will be the main driver
within the Group. PIL has the capability to deliver the full range
of products and services including training, development and
support across the globe.
PIL has a strong portfolio of proven training devices and services
ranging from simple hand skill trainers to sophisticated simulators
(incorporating virtual reality technology in many cases). It also
has a track record of successfully designing and manufacturing
bespoke new devices for specific hardware platforms.
Large defence primes or government departments predominantly
act as our prime contractors across all the Group, and they rely
on our niche technical training capabilities as part of their overall
customer proposition.
The Group has established long term relationships with its key
customers and these relationships have often been maintained
over many years, if not decades.
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FOUNDED 19581958196819781988MODELLINGANIMATEDDISPLAYSPRESENTATION SYSTEMS,CPT’S, PTT’SPROTOTYPES OFSRN HOVERCRAFT MADERELOCATED TONEW FACILITYPENNANT COURT BECOMES THE NEW HEAD OFFICEPennant International Group PLC Annual Report and Financial Statements 2017 13
OVER SIX DECADES PENNANT HAS EVOLVED FROM MODEST BEGINNINGS, INTO A MARKET LEADING TECHNOLOGY-LED BUSINESS. 1998200820102018CAI, CBTSYNTHETIC 3DVIRTUAL REALITYFLOATED ON AIMACQUIREDSOLVERAESTABLISHEDPENNANTAUSTRALASIAATT CONTRACTAUSTRALIA BHMT INPROGRESSPennant International Group PLC Annual Report and Financial Statements 2017 ABOUT PENNANT
OmegaPS
Pennant owns the rights to the market leading OmegaPS suite of Logistics Support Analysis software which is sold and used worldwide
by major defence contractors and exclusively by the defence authorities in Canada and Australia to maximise efficient logisticals
support to complex long-life assets.
The OmegaPS business has offices in Canada, Australia and the UK.
Revenues are generated from the sale of licences, associated maintenance agreements, software training course and consultant
services in support of the product implementation. The product is regularly updated to enhance functionality, keep in line with emerging
industry standards and changing technology.
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MARKETLEADING LSAR SOFTWAREPennant International Group PLC Annual Report and Financial Statements 2017 S
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The Group is committed to
good corporate governance
and this section of the
annual report details the
Group’s current governance
arrangements, including
those in relation to risk
management.
GOVERNANCE & RISKS
CORPORATE GOVERNANCE REVIEW
THE BOARD
The business of the Group is ultimately managed by the Directors
of Pennant International Group Plc, who are responsible for
running the Company for the benefit of its shareholders in
accordance with their fiduciary and statutory duties.
The Board does not have a nominations committee and any
nominations for appointment to the Board are considered by the
full Board (with any appointment subject to a shareholder vote at
the next Annual General Meeting).
The Board has two standing committees (the “Committees”): the
Audit Committee; and the Remuneration Committee. The Terms of
Reference for each of the Committees are available on the Group’s
website (www.pennantplc.co.uk/investors/corporate-governance)
and a summary of their respective functions is provided below.
The Terms of Reference for each of the Committees were updated
and reviewed and approved by the Board on 8 February 2018.
During the year, the Board has continued to strengthen the Group’s
corporate governance. For example, an annual schedule of Board
matters is now in place and enhancements have been made to
the management information and commentary circulated to the
Board ahead of meetings.
THE AUDIT COMMITTEE
The Audit Committee’s role is to determine and apply policy on behalf of the Board to the financial reporting and internal controls
of the Company and to maintain an appropriate relationship with the Company’s auditors. The Committee consists of the Chairman
and the Non-Executive Directors. It meets at least twice a year at appropriate times in the reporting and audit cycle and otherwise
as required.
During the year the Committee, operating under Terms of Reference adopted on 15 November 2016 (as updated on 8 February 2018),
discharged its responsibilities by (amongst other things) reviewing and monitoring:
•
the consistency of, and any changes to, accounting policies both on a year-on-year basis and across the Group (including
the consideration of future impact of IFRS15);
the methods used to account for significant or unusual transactions;
•
• whether the Company has followed appropriate accounting standards and made appropriate estimates and judgments,
taking into account the views of the external auditors;
•
•
the clarity of disclosure in the Company’s financial reports and the context in which statements are made; and
all material information presented with the financial statements, such as the operating and financial review and this
corporate governance section (insofar as it relates to audit and risk management).
Given the nature of the Group’s business, the Committee pays particularly close attention to reviewing and discussing with the
external auditors the management’s judgments on the application of revenue recognition policies in relation to material projects.
THE REMUNERATION COMMITTEE
The Remuneration Committee’s role is to determine and apply policy on behalf of the Board to the remuneration and benefits of
Executive Directors and to ensure compliance with best practice (including reporting to shareholders).
The Committee comprises the Chairman and the Non-Executive Directors.
During the year, the Committee, operating under its Terms of Reference adopted on 15 November 2016 (as updated 8 February
2018), discharged its responsibilities, including determining and agreeing with the Board the framework or broad policy for the
remuneration of the Company’s Chief Executive Officer, Chairman, the Executive Directors, the Company Secretary and such other
members of the Group’s executive management as it is designated to consider.
The Committee also reviews and approves the Executive Directors’ proposals (if any) following annual review of employee pay
and benefits.
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Pennant International Group PLC Annual Report and Financial Statements 2017
CORPORATE GOVERNANCE REVIEW
ATTENDANCE
Directors’ attendance at meetings of the Board and its Committees
during 2017 were as follows:
Simon Moore
Philip Walker
Christopher Powell
Timothy Rice
David Clements
(appointed 11/10/17)
Chris Snook
(stepped down 21/02/17)
Board
15/15
14/15*
13/15
13/15
2/2
1/1
Audit
Committee
Remuneration
Committee
2/2
-
2/2
2/2
-
-
2/2
-
2/2
2/2
-
-
* a Board meeting was held to approve the cancellation of Philip Walker’s C
Shares which Mr Walker did not attend.
COMPLIANCE WITH CORPORATE
GOVERNANCE CODES
As an AIM company, the Company is not required to comply with
the Financial Reporting Council’s UK Corporate Governance
Code (the “Code”). Notwithstanding that, the Board seeks to
achieve compliance with the Code wherever appropriate and
proportionate, having regard to the size of the Group and the
resources available to it.
In addition, the Company aims to comply with the QCA Code wher-
ever reasonably practicable and proportionate and further details
of such compliance are contained on the Company’s website:
http://www.pennantplc.co.uk/investors/corporate-governance/
OPERATIONAL GOVERNANCE
Day-to-day running of the Group’s business is delegated by the
Board to the Executive Directors lead by the Chief Executive
Officer.
The Executive Directors have established a management
and reporting framework across the Group, supported by
a Management Committee comprising the Group’s senior
managers. The consolidation in January 2018 of the Group’s UK
businesses has simplified reporting lines. Clear channels are in
place for information and proposals to flow up from the Group’s
various operating units to the Executive Directors and the Board,
and for information and decisions to flow back down.
Furthermore, during the year, considerable improvements were
made to the internal management information produced across
the Group, in particular in respect of the monitoring and reporting
of key performance indicators, providing improved visibility and
accountability across the business leading to better products and
services for customers and ensuring the Group retains its quality
accreditations.
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Pennant International Group PLC Annual Report and Financial Statements 2017 CORPORATE GOVERNANCE REVIEW
FINANCIAL CONTROL
RISK MANAGEMENT REVIEW
The Board has overall responsibility for the Group’s system of
internal financial control and for reviewing its effectiveness.
The purpose of the system of control is to manage rather than
eliminate the risk of failure to achieve business objectives and
can only provide reasonable, but not absolute, assurance against
misstatement or loss.
During the year (operating under its Terms of Reference) the
Audit Committee kept the effectiveness of the Company’s internal
controls and risk management systems under review.
Group-wide risk management is ultimately the responsibility of
the Board (supported by the Audit Committee) and is overseen
operationally by the Commercial & Risk Director.
Operational risk management is embedded in the Group’s
business processes, which are set down in writing and compliance
with which is monitored and audited by the Group’s internal
Quality function (and periodically reviewed by external quality
compliance auditors).
The Head of Finance is the executive within the Group responsible
for day-to-day financial management of the Group’s affairs and its
internal accounting. Gary Barnes is the Head of Finance.
Each live programme has a risk and opportunities register
which is maintained by the relevant Programme Manager and
reviewed regularly, in particular at standing monthly and quarterly
programme review meetings.
The Head of Finance has a standing invite to and attends Board
meetings to present to the Board on the monthly management
accounts and other relevant financial matters. Operationally,
the Head of Finance reports to the Chief Executive Officer, who
is ultimately accountable at Board level for the Group’s financial
performance.
All Directors (Executive and Non-Executive) have direct access
to the Head of Finance who has standing authority to provide
assistance and information to Directors on their request.
The Head of Finance also participates in and provides information
and support to the Audit Committee as and when the Audit
Committee so requests.
The Group’s key risks (operational and otherwise) are recorded
in a Group Risk Register and those risks together with their
respective mitigants, controls and corrective actions are reviewed
regularly by the Board. Risk is a standing agenda item for the
Board and senior managers are required to review, identify and
report risks on an ongoing basis and to formally review all key
risks at least every six months.
18
Pennant International Group PLC Annual Report and Financial Statements 2017 KEY RISKS
KEY RISKS
Key risks to the Group (and the relevant mitigants and controls
employed by the Group) are explained below.
The risks are those which the Board considers, as at the date of
this report, are the most critical to the continued operation of the
Group. The risks described do not represent the totality of the
risks facing the Group and should not be relied on as such by
any person considering any investment decision in relation to the
Company’s ordinary shares.
Description of risk
Potential Impact
Migation and control
Defence focus
The Group has historically been heavily
reliant on government defence spending
by the UK and other states (particularly
aviation related), with over 75% of its
revenues for 2017 deriving from defence
contracts.
A reduction in defence spending leads to
reduced orders, adversely affecting the
Group’s revenue and profit.
The Group’s largest contract (by value)
is currently a military land vehicle
programme, diversifying from aviation-
related defence projects.
Furthermore, it is a key strategic focus
of the Group to expand into civilian
sectors in order to reduce reliance on
defence spending generally. The rail
sector is currently the Group’s most
active area of civil diversification.
Prime dependence
The Group currently depends to a large
extent on prime contractors awarding
it sub-contracts to deliver the training
solution on larger programmes.
Loss or deterioration of relationships
with prime contractors leads to reduced
orders, adversely affecting the Group’s
revenue and profit.
Work for prime contractors is carried
out under written contracts spanning a
number of years, mitigating the risk of
immediate loss of business.
The Group contracts with and maintains
(and continues to cultivate) long-term
good relationships with several primes,
meaning that it is not overly-reliant on
any one of them.
Relationships are developed and
maintained with primes at all
organisational levels, from technical
leads to programme managers to
executives.
Direct sales, particularly of software
products (and related consultancy
services), are an increasingly important
part of the Group’s business.
19
Pennant International Group PLC Annual Report and Financial Statements 2017 KEY RISKS
Description of risk
Potential Impact
Migation and control
Legal and compliance burden
In the sectors in which it operates, the
Group is subject to considerable legislation
and regulation.
Failure to comply with relevant legislation
and regulation results in the Group being
unable to sell its products.
For example: in selling its training
equipment overseas, the Group must
comply with UK export control laws; in
receiving and using certain data, it must
comply with the US ITAR regulations; in
designing its hardware trainers, it must
comply with various EU and UK safety
laws.
Of course, the Group in operating overseas
is subject to the laws of relevant foreign
jurisdictions, whether it is aware of them
or not.
Contract pricing and delivery
The Group’s key contracts are often on a
fixed price with a fixed delivery timeline
and performance of those contracts will be
reliant on external dependencies.
The Group will contract on fixed prices on
‘engineered-to-order’ projects (e.g. for a
platform-specific training aid), where it has
never designed and delivered the required
product before. In such cases, the fixed
price must be calculated without reference
to the previous costs of producing such a
product. This creates a risk of mis-pricing
a contract.
Where a project has been keenly priced,
any delays may cause budgets to become
very strained.
The Group and its officers are found
criminally liable for breaches of foreign
legislation and/or face civil penalties.
Serious breaches of health and safety law
result in the Group’s operations being
suspended.
External factors (e.g. a supplier delay
on delivering a part) cause the delay or
failure to deliver a contract resulting
in reputational damage to the Group
and entitling the customer to claim
compensation (including, on some
contracts, liquidated damages).
A mis-priced contract, although delivered
in compliance with its terms and timeline,
results in the Group failing to realise the
desired profit on carrying out such work,
with an associated negative impact on the
Group’s overall financial performance.
The Group has an experienced
Commercial team with considerable
export expertise. The Commercial & Risk
Director is a qualified lawyer and provides
legal advice to the Group as appropriate
External legal counsel (both UK and
overseas) and safety and compliance
advisors are retained and consulted as
necessary.
The Group has a dedicated Heath &
Safety officer and several employees with
relevant qualifications and experience.
The Group is careful to deal with
trusted suppliers with a track record of
performance, wherever possible.
Considerable analysis and effort is applied
in pricing each ‘engineered-to-order’
contract to ensure that all likely work and
costs required to deliver that contract are
reflected in the price.
The Group employs qualified and
experienced programme managers to
manage delivery (including cost and
risk) on all projects. The programme
managers, in turn, regularly report to the
Executive Directors and Head of Finance.
The Group’s experienced Commercial
team, in conjunction with the programme
managers, monitor for contractual
‘scope creep’ and manage change control
requests accordingly.
The Group’s dedicated Purchasing team
controls the ordering of items in time
for production and manages the Group’s
supply chain with support from the
Commercial team.
20
Pennant International Group PLC Annual Report and Financial Statements 2017
KEY RISKS
Description of risk
Potential Impact
Migation and control
Customer dependencies
In delivering its ‘engineered-to-order’
programmes, the Group is often dependent
on the provision of data from its customers
and, in some cases, third parties.
The required data may not be available
(because it has not yet been created or
distilled into writing) or a third-party data
owner may be unwilling to release the
data.
Material amounts of data are not received
when required, and a programme is
delayed, impacting the Group’s ability
to pass progress milestones and render
invoices. In very serious cases, the delivery
of the programme itself is jeopardised
Contract profiles
The Group’s turnover, profits and
cashflows are, particularly in the Training
Systems division, reliant on the award and
timely delivery of a small number of high-
value contracts. For example, one contract
currently in delivery has a value which is
over a third of 2017 turnover.
Award or delivery of such contracts is
delayed, causing significant financial
effects on the Group (particularly when
judged by annual reporting).
Delays on award or delivery lead to a
negative perception amongst stakeholders
that the Group’s business is inconsistent
and prone to ‘lumpy’ revenues.
Large contracts generate significant
working capital demands which cannot
be met, delivery of the contract (and
continuance of the business generally) is
jeopardised.
This is a difficult risk to manage.
The Group monitors the provision of data
and is always alive to the risk of data
flows drying up. Concerns are raised
at an early stage with customers to
ensure that the customer understands
the importance of timely data flow to the
Group. The risk is always flagged to the
customer in pre-contract negotiations
so that the contracting assumption is
clear to the customer at outset. If a
programme ultimately terminates due to
this risk eventuating, the Group will have
a right to payment for work done until
termination.
The Group always seeks to negotiate
cash-neutral or cash-positive payment
milestones such that contractual
programmes of work are largely self-
funding.
Where this is not possible, the Group
has access to overdraft facilities with
its bankers (currently undrawn) to fund
working capital requirements and can
(and has evidenced an ability to) utilise
its status as a public company to raise
funding on the equity capital markets.
The Group is constantly seeking ways
to enhance its recurring revenues (to
increase profitable turnover generally
and to mitigate the effects of ‘lumpy’
contracts) and actively targets sales
of support and software services as a
means of doing so.
21
Pennant International Group PLC Annual Report and Financial Statements 2017 KEY RISKS
Description of risk
Potential Impact
Migation and control
Information systems and security
The Group’s operations are heavily
dependent on the availability and security
of its IT systems. A diverse range of
software platforms and packages are
needed to deliver the Group’s contracts.
Key systems are unavailable for a
meaningful length of time and the Group’s
delivery of customer contracts is delayed
or prevented, with consequent potential
adverse effects on revenue.
The ‘hacking’ of, or a successful cyber
attack against, the Company’s systems
leads to serious negative reputational
and contractual consequences, as well as
regulatory breaches.
The Group has dedicated IT personnel
tasked with ensuring the security and
availability of the systems.
The Group follows best practice as regards
IT security and has the Cyber Essentials
accreditation.
The Group’s secure connection between its
Cheltenham and Manchester sites is a UK
MOD-approved private secure connection.
Data transfer between its different
Cheltenham sites is via the Group’s own
fibre cables.
All data is backed up regularly to secure
servers. The Group’s multi-site operations
allow the recovery and restoration of
systems from one site if another is
affected.
Managing growth
As the Group looks forward to a period of
growth, it will face challenges in ‘ramping
up’ to meet demand.
Given its volume of ‘engineered-to-order’
programmes and pipeline, the Group is not
able to run a standard assembly line and
has to custom-configure its production
facilities for each order.
The Group needs staff with a wide range
of technical skills, including engineering
and software design and programming.
Subject matter expertise is required in
various areas including fixed wing and
rotary aviation and parachuting. The pool
of people with the appropriate skills is
inherently limited.
Changes in training standards and
technology
Much of the Group’s business is driven by
the training requirements of its customers
which are in turn driven by training
standards set down by various authorities
(such as the European Aviation Safety
Agency).
The rapid development in virtual and
augmented reality technology and other
innovative solutions present challenges
(and opportunities) to the Group’s
traditional hardware focused approach to
training aids.
The Group does not have the appropriate
facilities in which to build its goods
and delivery of contracts is delayed or
prevented, leading to negative impacts on
revenue and reputation.
The Group has developed a comprehensive
facilities plan and carefully monitors its
needs for future space, both for secured
and potential orders and has already
acquired additional space for expansion.
The Group is unable to secure the
necessary human resources and the timely
delivery of its contracts is jeopardised, with
potentially negative effects to revenue and
profit.
The Group maintains a panel of
recruitment consultants with track-records
of finding suitable people, enabling the
Group to ‘flex’ resource to meet demands
of programmes.
Employee training and development is
prioritised in technical areas so that skills
gaps can be filled internally.
Good links to former employers are
maintained by those staff with military
backgrounds, enabling the recruitment of
additional subject matter experts.
Failure to ensure its products comply with
changing standards means decreased
saleability (and a lesser end-user
experience), adversely affecting the
Group’s revenue and profit.
Similarly, being left behind as technology
progresses reduces the attractiveness of
the Group’s products, ultimately resulting
in fewer sales and lower revenue and
profit.
The Group has formed a discrete
business unit (comprised of specialists in
relevant training regulation and delivery)
tasked with ensuring its product range
keeps pace with, and anticipates changes
to, regulation.
This unit also proactively considers and
implements product improvements
(to enhance training value) and works
in conjunction with the Group’s virtual
technology specialists on innovative ways
to deliver training.
22
Pennant International Group PLC Annual Report and Financial Statements 2017 REMUNERATION REPORT
The Remuneration Committee plays an important role in the good
governance of the Group. As set out in its Terms of Reference, the
Committee determines the remuneration packages for Executive
Directors and other senior employees and keeps the Group’s
policy on pay and benefits under review generally.
During 2017, the Committee made good progress in further
aligning the remuneration arrangements for the Executive
Directors with the interests of shareholders, in particular,
introducing a new bonus scheme which only pays out upon the
Group achieving at least 90% of the market forecast profit for
the relevant financial year. In agreeing to this new scheme, the
current Chief Executive Officer waived bonus accrued under the
former scheme. A similarly calibrated scheme has also been
introduced for employees generally.
Directors’ emoluments in respect of 2017 are shown in the table
below.
For the current year, the Committee will keep under review the
long-term incentivisation of Executive Directors and senior
employees, having regard to the need to control costs while
ensuring that pay and benefits offered by the Group are appropriate
for attracting and retaining the right people.
The Committee will continue to have due regard to remuneration
reports from independent sources, to the guidance of its
professional advisers and to good practice generally.
Given the results for 2017, neither the Executive Directors’ scheme
nor the scheme for employees will pay out. A pay increase of 2.5%
was approved for employees generally, effective 1 January 2018.
Simon Moore
Chair
Remuneration Committee
DIRECTORS’ REMUNERATION
Salary
Bonus
Benefits and
car allowance
Pension
Total 2017
C C Powell
C Snook*
J K Powell
P H Walker
S A Moore
T J Rice
D Clements
£
45,000
404,505
-
156,266
60,000
40,000
22,436
728,207
£
-
2,440
-
17,720
-
-
-
20,160
-
-
-
-
-
-
-
-
£
-
3,467
-
15,600
-
-
2,244
21,311
£
45,000
410,412
-
189,586
60,000
40,000
24,680
2016
£
178,000
325,149
23,333
292,126
54,385
10,769
-
769,678
883,762
* The salary reported for Mr Snook comprises payment for services during the period of £30,333 together with an amount of £374,172
in respect of pay in lieu of notice, other contractual entitlements and contribution to legal costs associated with the termination of
appointment.
Pension contributions shown above are pension payments into the Pennant International Group Plc Pension Scheme, a defined
contribution scheme.
There were 1,223,588 share options held by the Directors at the end of 2017 (2016: 597,619) as further particularised in the following
tables.
23
Pennant International Group PLC Annual Report and Financial Statements 2017 REMUNERATION REPORT
SERVICE CONTRACTS
There are no Directors’ service contracts (or contracts for services) with notice periods in excess of one year.
DIRECTORS AND THEIR INTERESTS
The following Directors have held office since 1 January 2017 except where indicated otherwise and their beneficial interests in the
ordinary shares of the Company were as stated below:
31 December 2017 5p ordinary shares
31 December 2016 5p ordinary shares
C C Powell
P H Walker
S A Moore
T Rice
D Clements (appointed 11 October 2017)
C Snook (stepped down 21 February 2017)
Number
6,301,533
-
18,183
-
-
-
Number
6,301,533
-
18,183
-
-
487,500
The following Directors have interests in share options of the Company as stated below:
C C Powell
P H Walker
S A Moore
T Rice
D Clements
Total
EMI options
Unapproved options
Total 2017
Number
-
297,619
-
-
100,000
397,619
Number
-
525,969
300,000
-
-
825,969
Number
-
823,588
300,000
-
100,000
1,223,588
On 18 March 2015 Philip Walker was granted 297,619 EMI options at 84.0p, exercisable upon expiry of three years from the date of
grant.
On 20 June 2016 Simon Moore was granted 300,000 unapproved share options at 55.5p, exercisable once the ordinary shares of the
company have traded on AIM at a price of 100p or more for more than 10 business days within a 20 business day period.
On 19 April 2017 Philip Walker was granted 525,969 unapproved share options at 55.0p, exercisable upon expiry of three years from
the date of grant.
On 12 September 2017 David Clements was granted 100,000 EMI options at 80.5p, exercisable upon expiry of three years from the date
of grant.
24
Pennant International Group PLC Annual Report and Financial Statements 2017 DIRECTOR’S REPORT
The Directors present their report and the audited financial
statements for the year ended 31 December 2017.
PRINCIPAL ACTIVITIES
The principal activity of the Company is the provision of
management services to the Group.
The principal activities of Group companies during the year were
the supply of integrated training and support solutions, products
and services, principally to the defence, rail, aerospace and naval
sectors and to Government Departments.
DIVIDENDS
No dividends were paid during the year (2016: £NIL). As highlighted
in the Chairman’s Statement, the Board is not recommending
the payment of a final dividend in respect of the year ended 31
December 2017.
GOING CONCERN
The Directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. In reaching this conclusion
the Directors have considered the financial position of the Group,
its cash, liquidity position and borrowing facilities together with
its forecasts and projections for 18 months from the reporting
date that take into account reasonably possible changes in
trading performance. The going concern basis of accounting
has therefore continued to be adopted in preparing the financial
statements.
POST BALANCE SHEET EVENTS
liabilities such as trade receivables and trade payables arising
directly from its operations. In accordance with the Group’s
treasury policy, derivative instruments are not entered into for
speculative purposes. The Group’s exposure and approach to
capital and financial risk, and approach to managing these is set
out in note 33 to the Consolidated Financial Statements.
EMPLOYEE ENGAGEMENT
The Group engages with its employees regularly through various
media including emails, intranet, newsletters, employee opinion
surveys, team briefings and twice yearly financial results
presentations to all staff. Details of the Group’s performance
are shared with all employees at appropriate times using these
methods.
EMPLOYEE POLICIES
The Group has established employment policies to ensure
compliance with current legislation and codes of practice,
including equal opportunities.
The Group is an equal opportunities employer and applications
from disabled persons are fully and fairly considered having
regard to each applicant’s individual aptitudes and abilities. In the
event of disability, every effort is made to ensure that employment
continues and appropriate training is provided with the intention
that career development and promotion of disabled people should
not be affected.
POLICY ON PAYMENT OF SUPPLIERS
The Group’s policy during the year and for 2018 is to pay suppliers
in accordance with the relevant contractual terms between the
Group and the supplier.
Aside from the re-organisation of the Group’s UK trading
subsidiaries already described in the CEO Review, there are no
post balance sheet events to report.
AUTHORITY FOR COMPANY TO PURCHASE ITS
OWN SHARES
TREASURY OPERATIONS AND FINANCIAL
INSTRUMENTS
The Group operates a centralised treasury function which is
responsible for managing liquidity, interest and foreign currency
risks associated with the Group’s activities.
The Group’s principal financial instrument is cash, the main
purpose of which is to provide finance for the Group’s operations.
In addition, the Group has various other financial assets and
Under a shareholders’ resolution of 19 April 2017, the Company
(acting by its Directors) was granted authority to purchase
through the market up to 4,941,530 of the Company’s ordinary
shares, at a maximum price equal to 105% of the average of the
middle market quotations for an ordinary share taken from the
Company’s quotation on the London Stock Exchange for the five
business days immediately preceding the purchase. Since 19
April 2017, the Company has not purchased any of its own shares
and the authority referred to above remains unutilised.
A proposal to renew the authority will be made at the Company’s
Annual General Meeting (“AGM”) in 2018.
25
Pennant International Group PLC Annual Report and Financial Statements 2017 DIRECTOR’S REPORT
THE BOARD
SIGNIFICANT SHAREHOLDINGS
On 21 February 2017, Chris Snook stepped down from the Board
as Chief Executive Officer and, after a short interim period,
Philip Walker (formerly the Group’s Chief Financial Officer) was
appointed as his successor.
As at 31 December 2017 the Group has been notified, in accordance
with Chapter 5 of the Disclosure and Transparency Rules, of the
voting rights held as a shareholder of the Company as shown in
the table below.
David Clements was promoted to the Board as Commercial
Director (later Commercial & Risk Director) on 11 October
2017, having been appointed as Company Secretary to all Group
companies in June 2017.
The Board comprises the Chairman, the Chief Executive Officer,
the Commercial & Risk Director and the Non-Executive Directors.
It meets at least once each quarter and a full pack of Board papers
(containing various reports and management information) is
distributed to Directors in advance of the meetings. The Directors
have access to external advice at the expense of the Company and
access to the Company Secretary.
One third of the Directors are subject to re-election every year.
Accordingly, Simon Moore (the Chairman) retires by rotation at
the AGM and, being eligible, offers himself for re-election. David
Clements, as a Director appointed since the 2017 AGM, is also
subject to election.
Investor
Number of
shares held
% interest in
the total voting
rights of Pennant
Powell C C Esq
6,301,533
Canaccord Genuity Group
4,615,000
BGF Investment
Management Limited
Liontrust Asset
Management
Downing LLP
Seal D J Esq
Barclays Stockbrokers
Limited
3,636,364
3,633,077
2,408,172
1,300,000
1,129,951
19.13
14.01
11.04
11.03
7.31
3.95
3.43
DIRECTORS’ INDEMNITY
POLITICAL DONATIONS
The Company’s Articles of Association provide, subject to the
provisions of UK legislation, an indemnity for Directors and
officers of the Company in respect of liabilities they may incur in
the discharge of their duties or in the exercise of their powers,
including any liabilities relating to the defence of any proceedings
brought against them which relate to anything done or omitted,
or alleged to have been done or omitted, by them as officers or
employees of the Company. Appropriate directors’ and officers’
liability insurance cover is in place in respect of all the Directors.
DIRECTORS’ CONFLICTS OF INTEREST
The Company has procedures in place for managing conflicts
of interest. Should a Director become aware that they, or their
connected parties, have an interest in an existing or proposed
transaction involving Pennant, they will notify the Board in writing
or at the next Board meeting. Directors have an ongoing duty to
update the Board in relation to any changes to these conflicts.
The Group did not make any political donations during 2017 (2016:
£NIL).
MATTERS COVERED IN THE CHAIRMAN’S
STATEMENT AND FINANCIAL STATEMENTS
As permitted by paragraph 1A of schedule 7 to the Large and
Medium Sized Companies and Groups (Accounts and Reports)
Regulations 2008 certain matters which are required to be
disclosed in the Directors Report (such as review of the business
and future developments) have been omitted as they are included
within the Strategic Report section (in the Chairman’s Statement
on pages 5 to 6 and the CEO Review on pages 7 to 9 and within the
notes to the Financial Statements.
26
Pennant International Group PLC Annual Report and Financial Statements 2017
DIRECTOR’S REPORT
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting will be held at its
offices located at Pennant Court, Staverton Technology Park,
Cheltenham, GL51 6TL on Wednesday 25 April 2018. The Notice
convening the Annual General Meeting and an explanation of the
business to be put to the meeting will be contained in a separate
circular sent to shareholders and will also be made available
on the website at www.pennantplc.co.uk under the ‘Circulars’
section.
STATEMENT AS TO DISCLOSURE OF
INFORMATION TO AUDITOR
As far as the Directors are aware they have each taken all
necessary steps to make themselves aware of any relevant audit
information and to establish that the auditor is aware of that
information.
As far as the Directors are aware, there is no relevant audit
information of which the Company’s auditor is unaware.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
AUDITOR
Mazars LLP have signified their willingness to continue in office and
a resolution to reappoint Mazars LLP as auditor to the Company
will be proposed at the AGM.
DAVID CLEMENTS, DIRECTOR
Approved by the Board on 9 March 2018
and signed on its behalf
D J Clements
Director
27
Pennant International Group PLC Annual Report and Financial Statements 2017
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors are responsible for preparing the Strategic Report,
Directors’ Report and the financial statements in accordance with
applicable law and regulations.
Company
law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have elected to prepare the financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as adopted
by the European Union and applicable law. Under company law
the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of
affairs of the Company and the Group and of the profit or loss of
the Company and the Group for that period.
In preparing these financial statements, the Directors are
required to:
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
and the Group’s and the group’s transactions and disclose with
reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the
financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company
and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
•
select suitable accounting policies and then apply them
consistently;
• make judgments and accounting estimates that are
reasonable and prudent;
•
•
•
state whether IFRS as adopted by the European Union
have been followed subject to any material departures
disclosed and explained in the financial statements;
provide additional disclosures when compliance with
specific requirements in IFRS is insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the company’s and the
group’s financial position and financial performance;
and
prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
company and the group will continue in business.
28
Pennant International Group PLC Annual Report and Financial Statements 2017 The following section
outlines the results
for the year ended
31 December 2017.
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
OPINION
USE OF THE AUDIT REPORT
We have audited the financial statements of Pennant International
Group Plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 31 December 2017 which comprise
the Consolidated
Income Statement, Consolidated and
Parent Company Statements of Comprehensive Income, the
Consolidated and Parent Company Statements of Financial
Position, the Consolidated and Parent Company Statements of
Cash Flows, the Consolidated and Parent Company Statements
of Changes in Equity and notes to the Consolidated and Parent
Company financial statements,
including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union and, as regards the parent company
financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the
state of the group’s and of the parent company’s affairs
as at 31 December 2017 and of the group’s profit for the
year then ended
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006; and
the financial statements have been prepared
in
accordance with the requirements of the Companies Act
2006.
BASIS FOR OPINION
We conducted our audit
in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
This report is made solely to the company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members
as a body for our audit work, for this report, or for the opinions we
have formed.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you where:
•
•
the directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is not appropriate; or
in the financial
the directors have not disclosed
statements any identified material uncertainties that
may cast significant doubt about the group’s or the
parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve
months from the date when the financial statements are
authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
30
Pennant International Group PLC Annual Report and Financial Statements 2017 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
The risk
Our response
Revenue/Profit Recognition
A significant proportion of the group’s activities are accounted
for as long term contracts. Accounting for these contracts can be
complex and requires management to exercise their judgement
when considering the likely costs to complete on a contract.
Management’s assessment of the costs to complete will impact on
the expected overall profitability of the contract. This also raises
the risk that revenue and profit could be materially misstated,
either in error or fraudulently, as they are based on the estimated
stage of completion with reference to costs.
Our procedures over revenue and profit recognition included,
but were not limited to:
•
•
•
A detailed review of how revenue and profit is
recognised. This included confirming that sales
invoices are raised in relation to the achievement
of agreed milestones and detailed testing of the
accuracy and robustness of estimating costs to
complete.
A detailed review of management’s treatment of
the commercial risks and the associated financial
exposures presented by each material contract.
An assessment of how accurately actual costs were
monitored and compared to budgeted costs and what
subsequent actions were taken for any variations
identified.
In addition, we reviewed and challenged material exposures to
customer delays, re-scoping of contracts and the requirement
to hold warranty provisions.
No material misstatements were identified as a result of the
audit procedures performed.
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on the
financial statements and our audit. Materiality is used so we can plan and perform our audit to obtain reasonable, rather than absolute,
assurance about whether the financial statements are free from material misstatement. The level of materiality we set is based on our
assessment of the magnitude of misstatements that individually or in aggregate, could reasonably be expected to have influence on
the economic decisions the users of the financial statements may take based on the information included in the financial statements.
Based on our professional judgement the level of overall materiality we set for the financial statements is outlined below:
Financial Statement materiality:
£181,000
Benchmark applied:
Materiality has been determined with reference to a benchmark of Profit before tax,
of which it represents 10%.
Basis for chosen benchmark:
We used profit before tax to calculate our materiality as, in our view, this is the most relevant
measure of the underlying financial performance of the company.
On the basis of our risk assessments, together with our assessment of the group’s overall control environment, our judgement was
that performance materiality was approximately 80% of our financial statement materiality, namely £145,000.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £5,400 as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee
on disclosure matters that we identified during the course of assessing the overall presentation of the financial statements.
31
Pennant International Group PLC Annual Report and Financial Statements 2017 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes
an assessment of: whether accounting policies are appropriate to
the company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the annual report
to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently
incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group
level. Based on that assessment, all entities within the group
were subject to full scope audit, with the exception of immaterial
overseas entities and was performed by the group audit team. At
the parent company level we also tested the consolidation process
and carried out analytical procedures to confirm our conclusion
that there were no significant risks of material misstatement of
the aggregated financial information.
OTHER INFORMATION
The directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
OPINIONS ON OTHER MATTERS PRESCRIBED
BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the
audit:
•
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
•
the Strategic Report and the Directors’ Report have
been prepared in accordance with applicable legal
requirements.
MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
In light of the knowledge and understanding of the group and the
parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
•
•
•
adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
the parent company financial statements are not in
agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specific
by law are not made; or
• we have not received all the information and explanations
we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully
in the directors’ responsibilities
statement set out on page 36, the directors are responsible for
the preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate
the group or the parent company or to cease operations, or have
no realistic alternative but to do so.
32
Pennant International Group PLC Annual Report and Financial Statements 2017 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
AUDITOR’S RESPONSIBILITIES FOR THE
AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Signed:
Louis Burns
(Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
45 Church Street
Birmingham
B3 2RT
Date: 9 March 2018
33
Pennant International Group PLC Annual Report and Financial Statements 2017 CONSOLIDATED INCOME STATEMENT FOR THE YEAR
ENDED 31 DECEMBER 2017
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Finance costs
Finance income
Profit before taxation
Taxation (charge) / credit
Profit for the year attributable to the equity holders of the parent
Earnings per share
Basic
Diluted
Notes
2017
£
2016
£
5
18,069,960
17,211,455
(10,906,992)
(10,249,472)
7,162,968
6,961,983
(5,356,895)
(5,057,374)
1,806,073
1,904,609
(2,693)
5,371
(9,051)
7,781
1,808,751
1,903,339
(275,409)
17,691
1,533,342
1,921,030
4.65p
4.30p
6.48p
6.06p
8
10
11
12
14
The accompanying notes on pages 40 to 65 are an integral part of these financial statements.
34
Pennant International Group PLC Annual Report and Financial Statements 2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME FOR THE YEAR ENDED 31 DECEMBER 2017
Profit for the year attributable to the equity
holders of the parent
Other comprehensive income:
Items that will not be reclassified to profit and loss
Property impairment
Deferred tax
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Total comprehensive income for the period attributable to the equity holders of the
parent
Notes
17
2017
£
2016
£
1,533,342
1,921,030
-
-
(276,212)
46,956
(85,055)
413,469
1,448,287
2,105,243
35
Pennant International Group PLC Annual Report and Financial Statements 2017
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION AS AT 31 DECEMBER 2017
Notes
15
16
17
26
18
20
21
22
23
25
23
25
26
27
28
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Asset held for sale
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Obligations under finance leases
Deferred revenue
Total current liabilities
Net current assets
Non-current liabilities
Obligations under finance leases
Deferred revenue
Deferred tax liabilities
Warranty provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Retained earnings
Translation reserve
Revaluation reserve
Total Equity
Approved by the Board and authorised for issue on 9 March 2018
P H Walker - Director
The accompanying notes on pages 40 to 65 are an integral part of these financial statements.
2017
£
962,133
231,048
3,702,851
310,699
5,206,731
74,629
10,153,650
1,502,655
-
11,730,934
16,937,665
2,808,009
80,600
4,945
124,848
3,018,402
8,712,532
26,895
6,325
307,916
250,000
591,136
3,609,538
13,328,127
1,647,177
2,677,571
200,000
7,982,360
332,012
489,007
2016
£
964,159
295,780
2,642,448
482,989
4,385,376
-
7,820,128
3,517,541
575,000
11,912,669
16,298,045
3,824,925
1,610
4,070
162,500
3,993,105
7,919,564
31,957
18,403
287,625
150,000
487,985
4,481,090
11,816,955
1,649,277
2,685,971
200,000
6,347,343
417,067
517,297
13,328,127
11,816,955
36
Pennant International Group PLC Annual Report and Financial Statements 2017
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017
Share
Capital
Share
Premium
(See below)
Capital
Redemption
reserve
(See below)
Treasury
Shares
Retained
Earnings
Translation
Reserve
(See below)
Revaluation
Reserve
(See below)
Total
Equity
£
£
£
£
£
£
£
£
1,402,100
8,400
200,000
(418,225)
4,230,206
3,598
839,157
6,265,236
-
-
-
-
-
-
-
-
1,921,030
-
-
1,921,030
-
413,469
(276,212)
137,257
At 1 January 2016
Profit for the year
Other comprehensive income
Total comprehensive income
1,402,100
8,400
200,000
(418,225)
6,151,236
417,067
562,945
8,323,523
Issue of ordinary shares
247,177
2,677,571
Recognition of share based payment
Deferred tax on revaluation loss
Transfer from revaluation reserve
-
-
-
-
-
-
-
-
-
-
At 1 January 2017
1,649,277
2,685,971
200,000
Profit for the year
Other comprehensive income
-
-
-
-
-
-
Total comprehensive income
1,649,277
2,685,971
200,000
Cancellation of B and C shares
(2,100)
(8,400)
Recognition of share based payment
Transfer from revaluation reserve
-
-
-
-
-
-
-
At 31 December 2017
1,647,177
2,677,571
200,000
-
-
-
-
-
-
-
-
-
-
-
418,225
-
103,503
46,956
45,648
-
-
-
-
-
-
-
3,342,973
103,503
46,956
(45,648)
-
6,347,343
417,067
517,297
11,816,955
1,533,342
-
-
(85,055)
-
-
1,533,342
(85,055)
7,880,685
332,012
517,297
13,265,242
-
73,385
28,290
-
-
-
-
-
(10,500)
73,385
(28,290)
-
7,982,360
332,012
489,007
13,328,127
37
Pennant International Group PLC Annual Report and Financial Statements 2017 CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017
SHARE PREMIUM ACCOUNT
Represents the amount by which shares have been issued at a
price greater than nominal value less issue costs.
CAPITAL REDEMPTION RESERVE
This represents the amount by which the Company’s share capital
has been diminished by the cancellation of shares held in treasury.
RETAINED EARNINGS
This represents the accumulated realised earnings from the prior
and current periods as reduced by losses and dividends from time
to time.
TRANSLATION RESERVE
Exchange differences relating to the translation of the net assets
of the Group’s foreign subsidiaries from their functional currency
to the presentational currency of the Group, being sterling, are
recognised directly in the translation reserve.
REVALUATION RESERVE
This represents the extent to which the revaluation of such land
and buildings at fair value exceed the carrying amount.
38
Pennant International Group PLC Annual Report and Financial Statements 2017 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2017
Net cash from operations
Investing activities
Interest received
Purchase of intangible assets
Notes
29
2017
£
(988,536)
5,371
(227,108)
2016
£
(249,248)
7,781
(28,438)
Purchase of property, plant and equipment
(1,282,088)
(1,086,896)
Proceeds from sale of motor vehicles
Proceeds from sale of assets held for sale
-
575,000
12,491
4,314
Net cash used in investing activities
(928,825)
(1,090,748)
Financing activities
Proceeds from sale of ordinary shares
Net funds from obligations under finance leases
(10,500)
(4,187)
3,342,973
13,842
Net cash (used in)/from financing activities
(14,687)
3,356,815
Net (decrease)/increase in cash and cash equivalents
(1,932,048)
2,016,819
Cash and cash equivalents at beginning of year
3,517,541
1,123,456
Effect of foreign exchange rates
(82,838)
377,266
Cash and cash equivalents at end of year
21
1,502,655
3,517,541
The accompanying notes on pages 40 to 65 are an integral part of these financial statements.
39
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
1. GENERAL INFORMATION
Pennant International Group plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the
registered office is Pennant Court, Staverton Technology Park, Cheltenham, GL51 6TL.
The principal activity of the Group during the year was the delivery of integrated training and support solutions, products and services,
principally to the defence, rail, aerospace and naval sectors and to Government Departments.
These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in
which the Group operates. Foreign operations are included in accordance with the policies set out in note 3.
2. STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED IN THE CURRENT
FINANCIAL YEAR ENDED 31 DECEMBER 2017
The adoption of the following mentioned standards, amendments and interpretations in the current year have not had a material
impact on the Group’s financial statements for the year ended 31 December 2017:
Amendment to IAS 7 Statement of Cash Flows: Disclosure initiative
EU effective date -
periods beginning on or after
1 January 2017
Amendment to IAS 12 Income Taxes: Recognition of deferred tax assets for unrealised losses
1 January 2017
Annual Improvements to IFRSs (2014 - 2016): Clarification of the scope of IFRS 12
Disclosure of Interests in Other Entities
Expected to be endorsed Q1 2018
40
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
2. STANDARDS, AMENDMENTS AND INTERPRETATIONS ADOPTED IN THE CURRENT
FINANCIAL YEAR ENDED 31 DECEMBER 2017
Amendments to IAS 28 Investments in Associates and Joint Ventures: Long-term interests in
Associates and Joint Ventures
EU effective date -
periods beginning on or after
Expected to be endorsed 2018
Amendment to IAS 40 Investment Property: Transfers of investment property
Expected to be endorsed Q1 2018
Amendment to IFRS 2 Share-based Payment: Classification and measurement of share-based
payment transactions
Expected to be endorsed Q1 2018
Amendment to IFRS 4 Insurance Contracts: Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
IFRS 9 Financial Instruments
1 January 2018
1 January 2018
Amendments to IFRS 9 Financial Instruments: Prepayment features with negative compensation
Expected to be endorsed 2018
IFRS 9 Revenue from Contracts with Customers
Clarifications to IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
1 January 2018
1 January 2018
1 January 2018
IFRS 17 Insurance Contracts
Expected endorsement date not available
Annual Improvements to IFRSs
(2014 - 2016)
Annual Improvements to IFRSs
(2015 - 2017)
Expected to be endorsed Q1 2018
Expected to be endorsed 2018
IFRIC 22 Foreign Currency Transactions and Advance Consideration
Expected to be endorsed Q1 2018
IFRIC 23 Uncertainty over Income Tax Treatments
Expected to be endorsed 2018
41
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
2. STANDARDS, AMENDMENTS AND
INTERPRETATIONS ADOPTED IN THE
CURRENT FINANCIAL YEAR ENDED 31
DECEMBER 2017
The adoption of the above-mentioned standards, amendments
and interpretations in future years are not expected to have a
material impact except in the case of of IFRS15 and IFRS16, as
further explained below:
IFRS 15 - Revenue from Contracts with Customers
This section details the expected impact on the Group of adopting
IFRS15 on 1 January 2018.
• Revenue
in relation to the production of generic
Commercial Off The Shelf (“COTS”) products (such as
the GenFly, GenSkills and IAMT) will only be recognised
on completion of the contract, delivery of the product,
or upon a contractual acceptance milestone, rather than
throughout the duration of the contract.
• This means that if a COTS item is produced in one year
but the acceptance or delivery of the item (as the case
may be) takes place the following year, all revenue
associated with that item would be recognised in the
second year.
• Costs incurred to date on COTS products will be shown
as work-in-progress held on the statement of financial
position at cost.
• The adoption of IFRS15 with effect from 1 January 2018
will require Pennant to:
o report revenue and profit on certain contracts
in the 2018 financial year (“FY 2018”) where the
relevant work was carried out, costs incurred,
and revenue and profit recognised during prior
financial years but where the completion,
acceptance or delivery of the relevant goods
under those contracts will occur during FY
2018 (as explained in key points 1 and 2 above);
and
o make a corresponding transitional adjustment
to the Group’s opening reserves for FY 2018 to
reflect the impact of adopting IFRS15 in relation
to such contracts (the “Opening Adjustment”).
• The Opening Adjustment comprises the recognition of
approximately £7 million of revenue and £3 million of
EBITA.
•
In addition to the Opening Adjustment, the adoption of
IFRS15 is also likely to result in revenue and profit on
work carried out during FY 2018 being reported across
2019 and 2020, rather than for FY 2018 (as explained on
the preceding page).
• The ultimate impact of the later recognition of revenue
and profit will depend on the mix of products worked on
during FY 2018 but the present estimate is approximately
£5 million of revenue and £2 million of EBITA.
• Revenue in relation to engineered-to-order solutions
(such as the Wildcat trainers for the MOD), previously
recognised on a percentage of costs completed basis,
will continue to be recognised on fundamentally the
same basis.
• The anticipated net effect on FY 2018 of Pennant adopting
IFRS15 (taking into account the Opening Adjustment and
the later recognition of revenue and profit) is a positive
adjustment to revenue and EBITA of £2 million and £1
million respectively.
• Revenue on service contracts will continue to be
recognised over time as the customer receives the
service.
IFRS 16 - Leases
• Profit on contracts will continue to be recognised
progressively as risks are mitigated or retired.
We anticipate that the standard will impact almost all commonly
used financial metrics including gearing ratio, current ratio, asset
turnover, EBITA, operating profit, EPS and operating cash flows.
• No impact is anticipated on the way that Pennant
manages its contracts.
No impact is anticipated on the lifetime revenue and profitability
of contracts or the timing of cash receipts, which are determined
by the terms and conditions of those contracts.
The Board continues to assess the impact of the above standard
on the Groups arrangements, in particular with stakeholders
such as banks, investors and analysts.
It is anticipated that the adoption of the above standard will create
an asset and an equal liability on the balance sheet, thereafter
the amortisation profile of the asset and liability will be different.
42
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
3. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The financial statements have been prepared on the historical
cost basis or a revaluation basis where indicated. The principal
accounting policies set out below have been consistently applied
to all periods presented.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. In reaching this conclusion
the directors have considered the financial position of the Group,
its cash, liquidity position and borrowing facilities together with
its forecasts and projections for 18 months from the reporting
date that take into account reasonably possible changes in
trading performance. The going concern basis of accounting
has therefore continued to be adopted in preparing the financial
statements.
Basis of consolidation
The financial statements incorporate the results of the Company
and entities controlled by the Company (its subsidiaries). Control
is achieved where the Company has power to govern the financial
and operating policies of the investee entity so as to obtain
benefits from its activities.
Where necessary, adjustments are made to the results of
subsidiaries to bring accounting policies used into line with those
used by the Group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Business combinations and goodwill
Acquisitions of subsidiaries and businesses are accounted
for using the acquisition method. The assets and liabilities
and contingent liabilities of the subsidiaries are measured at
their fair value at the date of acquisition. Any excess of cost of
acquisition over fair values of the identifiable net assets acquired
is recognised as goodwill. Any deficiency of cost of acquisition
below the fair value of the identified net assets acquired (i.e.
discount on acquisition) is credited in profit or loss in the period
of acquisition. Goodwill arising on consolidation is recognised
as an asset and reviewed for impairment at least annually. Any
impairment is recognised immediately in profit or loss account
and is not subsequently reversed. Acquisition related costs are
recognised in the income statement as incurred.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for
goods and services provided in the normal course of business,
net of discounts, VAT and other sales related taxes.
Sales of goods are recognised when goods are delivered and title
has passed.
Rendering of consultancy services relates to the services of
contractors provided to customers on a time basis. It is invoiced
and recognised as revenue on a time basis.
Revenues arising from the software maintenance programme
provided to customers are invoiced in advance but recognised as
revenue across the period to which the maintenance agreements
relate. Amounts not taken to revenue at a period end are shown in
the statement of financial position as deferred revenue.
Revenue from construction contracts is recognised in accordance
with the Group’s accounting policy on construction contracts (see
below).
Construction contracts
Where the outcome of a construction contract can be estimated
reliably, revenue and costs are recognised by reference to the
stage of completion of the contract activity at the reporting date.
This is normally measured by the proportion that contract costs
incurred for work performed to date bear to the estimated total
contract costs, except where this would not be representative of
the stage of completion. Variations in contract work, claims and
incentive payments are included to the extent that they have been
agreed with the customer.
Where the outcome of a construction contract cannot be estimated
reliably, contract revenue is recognised to the extent of contract
costs incurred where it is probable they will be recoverable.
Contract costs are recognised as expenses in the period in which
they are incurred.
When it is probable that total contract costs will exceed total
contract revenue, the expected loss is recognised as an expense
immediately.
43
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the
Group at their fair value or, if lower at the present value of the
minimum lease payments, each determined at the inception of
the lease. The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance expenses and
a reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. Finance
expenses are recognised immediately in profit or loss.
Rentals payable under operating leases are charged to income on
a straight-line basis over the term of the relevant lease.
Foreign currency
The individual financial statements of each group company are
presented in the currency of the primary economic environment
in which it operates (its functional currency). For the purpose of
the consolidated financial statements, the results and financial
position of each group company are expressed in pound sterling,
which is the functional currency of the Company, and the
presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies,
transactions in currencies other than the Group Company’s
functional currency (foreign currencies) are recorded at rates
of exchange prevailing on the dates of the transactions. At
the reporting date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the reporting date. Non-monetary items carried
at fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
was determined. Non-monetary items that are measured in
terms of historical cost in foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included
in profit or loss for the period. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are
included in profit or loss for the period except for differences
arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such
non-monetary items, any exchange component of the gain or loss
is also recognised directly in equity.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the reporting date.
Income and expense items are translated at the average exchange
rates for the period, unless exchange rates fluctuate significantly
during the period, in which case the exchange rates at the date
of transactions are used. Exchange differences arising, if any, are
classified as equity and transferred to the Group’s translation
reserve. Such translation differences are recognised as income
and expense in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of
a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rates.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on taxable
profit for the year. Taxable profit differs from the net profits as
reported on the income statement because it excludes items of
income and expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the reporting
date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax liabilities are
generally recognised for all temporary differences and deferred
tax assets are recognised to the extent that it is probable that
the taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary difference arises from the
initial recognition of goodwill or from the initial recognition (other
than in a business combination) of other assets and liabilities in
a transaction that affects neither the tax profit nor the accounting
profit.
Deferred tax liabilities are recognised for temporary differences
arising on investments in subsidiaries and interest in joint
ventures, except where the Group is able to control the reversal
of the temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or at least realised
based on the tax rates that have been enacted or substantively
enacted at the reporting date. Deferred tax is charged or credited
in the income statement, except when it relates to items charged
or credited directly to equity, in which case the deferred tax is also
dealt within equity.
44
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same
taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Provisions
Provisions are made in respect of contractual obligations and
warranties based on the judgement of management taking into
account the nature of the claim or contractual obligation, the
range of possible outcomes, past experience and any mitigation.
Share-based payment
The Group issues equity-settled share based payments to certain
employees. Equity-settled share based payments are measured
at fair value (excluding the effect of non market-based vesting
conditions) at the date of grant. The fair value determined at
the date of grant is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of shares that will
eventually vest and adjusted for the effect of non market-based
vesting conditions.
Fair value is measured by use of an option pricing model. The
model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions and
behavioural conditions.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and any recognised impairment loss. Depreciation
is charged to write off the cost of assets over their estimated
useful lives on the following bases:
Freehold land
Freehold buildings
Plant and equipment
Computers
Motor vehicle
}
Nil
Net book value at 1 January
2007 being written off over
35 years on a straight line basis
10% to 25% if cost per annum
33.33% of cost per annum
25% of cost per annum
Land and buildings held for use in the production or supply of
goods or services, or for administrative purposes, are stated in
the balance sheet at their revalued amounts, being the fair value
at the date of revaluation, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
Revaluations are performed with sufficient regularity such that
the carrying amount does not differ materially from that which
would be determined using fair values at the balance sheet date.
Any revaluation increase arising on the revaluation of such land
and buildings is credited to the properties revaluation reserve,
except to the extent that it reverses a revaluation decrease for the
same asset previously recognised as an expense, in which case
the increase is credited to the income statement to the extent of
the decrease previously expensed. A decrease in carrying value
amount arising on the revaluation of such land and buildings is
charged as an expense to the extent that it exceeds the balance,
if any, held in the properties revaluation reserve relating to a
previous revaluation of that asset.
An annual transfer from the asset revaluation reserve to retained
earnings is made for the difference between depreciation based
on the revalued carrying amount of the asset and depreciation
based on the asset’s original cost. Additionally, accumulated
depreciation as at the revaluation date is eliminated against
the gross carrying amount of the asset and the net amount is
restated to the revalued amount of the asset. Upon disposal, any
revaluation reserve relating to the particular asset being sold is
transferred to retained earnings.
Internally-generated intangible assets
An internally-generated intangible asset arising from the Group’s
development activities is capitalised and held as an intangible
asset in the statement of financial position when the costs relate
to a clearly defined project; the costs are separately identifiable;
the outcome of such a project has been assessed with reasonable
certainty as to its technical feasibility and its ultimate commercial
viability; the aggregate of the defined costs plus all future
expected costs in bringing the product to market is exceeded by
the future expected sales revenue; and adequate resources are
expected to exist to enable the project to be completed. Internally-
generated intangible assets are amortised over their useful lives,
normally three years, from completion of development. Where
no internally-generated intangible asset can be recognised,
development expenditure is recognised as an expense in the
income statement in the period in which it is incurred.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation
and any recognised impairment loss. Amortisation is charged
to write off intangible assets on a straight line basis over their
estimated useful lives on the following basis:
Software development costs 33.33% of cost per annum
45
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Inventories
Available-for-sale investments
Inventories are stated at the lower of cost and net realisable
value. Costs comprise direct materials and, where applicable,
direct labour costs and overheads that have been incurred in
bringing the inventories to their present location and condition.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Financial instruments
The Group classifies financial instruments, or their component
parts, on initial recognition as a financial asset, a financial liability
or an equity instrument.
Trade and other receivables
Trade and other receivables are measured at initial recognition at
fair value, and subsequently measured at amortised cost using the
effective interest method. A provision is established when there is
objective evidence that the Group will not be able to collect all
amounts due. The amount of any provision is recognised in profit
or loss.
Cash and cash equivalents
Cash and cash equivalents are recognised as financial assets.
They comprise cash held by the Group and short term bank
deposits with an original maturity date of three months or less.
Loss recognised previously in equity is included in profit or loss
for the period. Dividends are recognised in the income statement
when the right to receive payment has been established.
Available-for-sale investments are recognised as financial assets
and are initially measured at fair value, including transaction costs.
At subsequent reporting dates available-for-sale investments are
measured at fair value where material or cost where fair value is
not readily ascertainable. Gains and losses arising from changes
in fair value are recognised directly in equity until the investment
is disposed of or is determined to be impaired, at which time the
cumulative gain or loss recognised previously in equity is included
in profit or loss for the period. Dividends are recognised in the
income statement when the right to receive payment has been
established.
Financial instruments
Trade payables
Trade payables are initially recognised as financial liabilities
measured at fair value, and subsequent to initial recognition
measured at amortised cost.
Bank borrowings
Interest bearing bank loans, overdrafts and other loans are
recognised as financial liabilities and recorded at fair value,
net of direct issue costs. Finance costs are accounted for on an
amortised cost basis in the income statement using the effective
interest rate.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deduction of all its liabilities.
Equity instruments issued by the Company are recorded at the
proceeds received net of direct issue costs.
46
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Key source of estimation uncertainty
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation, as described in
note 15, requires estimates of the future cash flows expected to
arise from the cash-generating unit and a suitable discount rate
in order to calculate the present value. The carrying amount of
goodwill at the balance sheet date was £962,133 (2016: £964,159)
and the review carried out has shown no impairment.
5. REVENUE
An analysis of the Group’s revenue is as follows:
Sale of goods
2017
£
2016
£
229,591
153,133
Rendering of services
3,388,012
2,948,960
Revenue from construction contracts
13,678,784
13,412,304
Software maintenance programmes
773,573
697,058
Investment income (note 11)
5,371
7,781
18,069,960
17,211,455
18,075,331
17,219,236
4. CRITICAL ACCOUNTING JUDGEMENTS
AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
In the application of the Company’s accounting policies, which
are described in note 3, the Directors are required to make
judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions
are based on historical experience and other factors considered
to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
The following are the critical judgements and estimations that the
Directors have made in the process of applying the Company’s
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Critical accounting judgements
Revenue recognition
A significant proportion of the Group’s revenue derives from
construction contracts. The Directors are satisfied that revenue
is recognised when, and to the extent that, the group obtains the
right to consideration which is derived on a contract-by-contract
basis from the stage of completion of the contract activity at the
reporting date. This is measured by the proportion that contract
costs incurred for work performed to date bear to the estimated
total contract cost. Judgement has been required in the estimation
of the total costs of each contract.
Recoverability of internally-generated intangible asset
During the year, management reconsidered the recoverability of
its internally-generated intangible asset which is included in its
balance sheet at £174,520 (2016: £252,000). The project continues
to progress in a very satisfactory manner, and customer reaction
has reconfirmed management’s previous estimates of anticipated
revenues from the project.
47
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
6. SEGMENT INFORMATION
The operating segments that are regularly reviewed by Executive Management in order to allocate resources to segments and to
assess performance are Training Systems, Data Services and Software as these represent the way the Group organised its products
and services during the year. The accounting policies of the reporting segments are the same as those adopted by the Group and set
out in note 3.
6.1 Segment revenues and results
Training Systems
Data Services
Software
Inter-segment sales
Training Systems
Data Services
Software
External sales
Segment revenue
Segment profit
2017
£
2016
£
2017
£
2016
£
9,660,779
12,080,290
676,108
1,693,501
4,503,423
1,782,516
5,276,292
4,331,681
726,318
311,581
(98,103)
221,637
19,440,494
18,194,487
1,714,007
1,817,035
-
(885,122)
(485,412)
-
(450,502)
(532,530)
18,069,960
17,211,455
Net unallocated corporate receipts
Net finance income / (costs)
Profit before tax
Inter-segment sales are made on an arm’s length basis.
92,066
2,678
87,574
(1,270)
1,808,751
1,903,339
48
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
6. SEGMENT INFORMATION
6.2 Segment assets and liabilities
Segment assets
Training Systems
Data Services
Software
Eliminations on consolidation
Unallocated
Consolidated assets
Segment liabilities
Training Systems
Data Services
Software
Unallocated
Consolidated assets
6.3 Other segment information
Training Systems
Data Services
Software
2017
£
9,821,444
2,272,242
4,616,006
16,709,692
(587,140)
815,113
16,937,665
2,661,143
276,936
582,585
3,520,664
88,874
3,609,538
2016
£
10,111,893
1,574,163
4,401,754
16,087,810
(2,603,448)
2,813,683
16,298,045
3,531,488
207,161
547,438
4,286,087
195,003
4,481,090
Depreciation and amortisation
Additions to non-current assets
2017
£
434,283
35,937
43,136
2016
£
2017
£
2016
£
508,499
1,382,092
1,046,812
44,174
31,447
70,261
56,843
5,302
63,220
513,356
584,120
1,509,196
1,115,334
49
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
6. SEGMENT INFORMATION
6.4 Geographical information
The Group operates in four geographical areas – United Kingdom, USA, Canada and Australia.
The Group’s revenue from external customers and information about its non-current assets by geographical location are detailed
below.
Revenue from external customers
Non-current assets*
2017
£
2016
£
2017
£
2016
£
United Kingdom
13,986,414
13,650,129
4,614,799
3,617,519
USA
Canada
Australia
19,003
3,723,259
341,284
12,029
3,229,943
319,354
-
10,695
270,538
-
7,513
277,355
18,069,960
17,211,455
4,896,032
3,902,387
* Non-current assets excluding financial instruments and deferred tax assets.
6.5 Information about major customers
Included in the revenues of each segment are the following sales to individual external customers amounting to 10% or more of the
Group’s revenues.
Training Systems
Customer 1
Customer 2
Software services
Customer 3
2017
£
3,446,250
4,128,510
2016
£
4,254,480
2,065,140
3,273,152
3,199,160
50
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
7. STAFF COSTS
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 32)
2017
£
6,084,710
591,793
304,326
2016
£
5,392,158
539,555
284,701
6,980,829
6,216,414
The average number of persons, including Executive Directors employed by the Group during the year was:
Number
Number
Office and management
Production
Selling
8. OPERATING PROFIT FOR THE YEAR
Operating profit for the year has been arrived at after charging:
Net foreign exchange (gain)/loss
Research and development costs
Amortisation of intangible assets
Depreciation of property, plant and equipment
Loss on disposal of motor vehicles
Share-based payment (note 32)
Redundancy cost
Exceptional termination cost
16
90
9
115
2017
£
(45,683)
311,636
291,816
221,540
-
73,385
-
125,000
14
85
8
107
2016
£
139,759
64,869
299,801
284,319
16,877
103,503
42,345
-
51
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
9. AUDITOR REMUNERATION
Fees payable to the company’s auditor for:
- The audit of the annual financial statements
- The audit of the company’s group undertakings
Total audit fees
10. FINANCE COSTS
Interest expense for financial lease arrangements
Interest expense for bank overdraft
Other interest expense
11. FINANCE INCOME
Income from bank deposits
Dividends receivable from available-for-sale investments
Other interest receivable
12. TAXATION
Recognised in the income statement
Current UK tax expense
Foreign tax
In respect of prior years
Deferred tax expense relating to origination and reversal of temporary differences
Exchange rate difference
Effect of tax rate change on opening balance
Total tax expense
2017
£
27,000
33,000
60,000
2017
£
-
2,693
-
2,693
2017
£
4,285
-
1,086
5,371
2017
£
52,218
34,385
(3,511)
83,092
189,398
2,919
-
275,409
2016
£
17,000
33,000
50,000
2016
£
834
57
8,160
9,051
2016
£
3,772
25
3,984
7,781
2016
£
3,511
64,657
(82,156)
(13,988)
17,720
-
(21,423)
(17,691)
52
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Reconciliation of effective tax rate
Profit before tax
Tax at the applicable rate of 19.25% (2016: 20.00%)
Tax effect of expenses not deductible in determining taxable profit
Additional deduction for R&D expenditure
Tax effect of utilisation of losses not previously recognised
Foreign tax credits
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of change of deferred tax rate
Losses arising not recognised in deferred tax
Utilisation of unrecognised deferred tax
Effect of adjustments for prior years
Other differences
Total tax expense
2017
£
2016
£
1,809,751
1,903,339
348,378
19,788
(77,974)
-
2,250
-
8,853
(40,612)
(2,169)
16,895
275,409
380,666
57,418
-
-
29,265
4,437
(33,529)
-
(367,922)
(82,156)
(5,870)
(17,691)
13. DIVIDENDS
No dividends were paid during the year (2016: £NIL). No final dividend will be proposed at the Annual General Meeting (2016: £NIL).
14. EARNINGS PER SHARE
Earnings per share has been calculated by dividing the net profit attributable to equity holders by the weighted average number of
ordinary shares in issue during the year as follows:
Profit after tax attributable to equity holders
Weighted average number of ordinary shares in issue during the year
Diluting effect of share options
Diluted average number of ordinary shares
2017
£
2016
£
1,533,342
1,921,030
Number
Number
32,943,533
2,752,096
35,695,629
29,647,844
2,326,786
31,979,630
53
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
15. GOODWILL
Goodwill
Carrying amount:
At 1 January 2016
Currency translation
At 1 January 2017
Currency translation
At 31 December 2017
£
929,606
34,553
964,159
(2,026)
962,133
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 carrying amount of goodwill has been allocated as follows:
Cash generating unit:
Data Services division
Software division
2017
£
583,900
378,233
962,133
2016
£
583,900
380,259
964,159
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 12 months derived from the most recent annual financial budgets approved by
management and extrapolates cash flows for a further 3 years based on a growth rate of 3.0% (2016: 3.0%). These forecast cash flows
are discounted at 10% per annum (2016: 10% per annum) to provide the value in use for each CGU.
Key assumptions are based on past experience and external sources. No impairment of goodwill has been recorded in previous years
and the most recent tests confirm no impairment. 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.
54
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
16. OTHER INTANGIBLE ASSETS
Software
Development costs
Cost
At 1 January 2016
Currency translation
Additions
Disposals
At 1 January 2017
Currency translation
Additions
At 31 December 2017
Amortisation
At 1 January 2016
Currency translation
Charge for the year
Disposals
At 1 January 2017
Currency translation
Charge for the year
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2017
£
385,979
6,488
28,438
(358,548)
62,357
(261)
52,588
114,684
323,157
6,167
47,801
(358,548)
18,577
(237)
39,816
58,156
56,528
43,780
Total
£
£
907,753
1,293,732
-
-
-
907,753
-
174,520
6,488
28,438
(358,548)
970,110
(261)
227,108
1,082,273
1,196,957
403,753
-
252,000
-
655,753
-
252,000
907,753
726,910
6,167
299,801
(358,548)
674,330
(237)
291,816
965,909
174,520
252,000
231,048
295,780
55
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
17. PROPERTY, PLANT AND EQUIPMENT
Cost / Valuation
Land and buildings
Fixtures and equipment
Motor vehicles
At 1 January 2016
Currency translation
Additions
Disposal
Impairment
Assets held for sale
At 1 January 2017
Currency translation
Additions
At 31 December 2017
Depreciation
At 1 January 2016
Currency translation
Charge for year
Disposal
Assets held for sale
At 1 January 2017
Currency translation
Charge for year
At 31 December 2017
Carrying amount
At 31 December 2017
At 31 December 2016
£
2,320,000
-
827,398
-
(276,212)
(643,788)
2,227,398
-
878,079
3,105,477
£
91,704
-
97,282
-
(68,788)
120,198
-
79,606
199,804
2,905,673
2,107,200
£
2,086,307
32,994
230,100
(408,712)
-
-
1,940,689
(1,053)
404,009
2,343,645
£
1,635,726
28,237
182,594
(408,712)
-
1,437,845
894
137,795
1,576,534
767,111
502,844
£
51,840
9,477
29,398
(48,058)
-
-
Total
£
4,458,147
42,471
1,086,896
(456,770)
(276,212)
(643,788)
42,657
4,210,744
694
-
(359)
1,282,088
43,351
5,492,473
£
23,391
1,109
4,443
(18,690)
-
10,253
(1,108)
4,139
13,284
£
1,750,821
29,346
284,319
(427,402)
(68,788)
1,568,296
(214)
221,540
1,789,622
30,067
32,404
3,702,851
2,642,448
Land and buildings were revalued at 20 October 2017 to £2,800,000 by Hutchings & Thomas, independent valuers not connected with
the Group, on the basis of market value. The valuation conforms to International Valuation Standards and was based on recent market
transactions on arm’s lengths terms and rental yields for similar properties. This valuation equated to the carrying value at the time,
so no gain or loss was realised on revaluation.
Within the value stated for land and buildings are assets under construction totalling £620,000 (2016: £NIL).
56
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
At 31 December 2017, had the land and buildings of the Group been carried at historical cost less accumulated depreciation and
accumulated impairment losses, their carrying amount would have been approximately £0.56 million (2016: £1.16 million; 2015: £1.21
million).
The revaluation surplus is disclosed in the Statement of Changes in Equity. The revaluation surplus arises in a subsidiary and cannot
be distributed to the parent due to legal restrictions in the country of incorporation.
All of the Group’s properties are categorised as Level 2 in the fair value hierarchy as defined by IFRS 13 Fair Value Management. There
are no transfers of properties between Levels 1, 2 and 3 during the year ended 31 December 2017.
18. INVENTORIES
Raw materials and consumables
19. CONSTRUCTION CONTRACTS
Contracts in progress:
Amounts due from contract customers included in trade and other receivables
(note 20)
Amounts due to contract customers included in trade and other payables
(note 22)
Contract costs incurred plus recognised profits less
Recognised losses to date
Less: progress billings
20. TRADE AND OTHER RECEIVABLES
Trade receivables
Amounts due from construction customers (note 19)
Other receivables
Prepayments and accrued income
2017
£
74,629
2017
£
2016
£
-
2016
£
4,901,013
4,942,292
(1,148,009)
(1,728,759)
3,753,004
3,213,533
31,848,875
27,626,304
(28,095,871)
(24,412,771)
3,753,004
3,213,533
2017
£
4,844,785
4,901,013
2,561
405,291
2016
£
2,511,789
4,942,292
50,745
315,302
10,153,650
7,820,128
57
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
There are no unimpaired trade receivables that are past due as at the reporting date.
No receivables have been written off as uncollectible during the year (2016: £NIL) and it has not been necessary to recognise any
impairment loss. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
21. CASH AND CASH EQUIVALENTS
Bank
Petty cash
2017
£
1,498,936
3,719
1,502,655
2016
£
3,514,253
3,288
3,517,541
Cash and cash equivalents comprise cash held by the Group and short-term deposits with an original maturity date of three months
or less. The carrying amount approximates their fair value.
22. TRADE AND OTHER PAYABLES
Amounts due to construction contract customers (note 19)
Trade payables
Taxes and social security costs
Accruals
2017
£
1,148,009
931,498
464,351
264,151
2016
£
1,728,759
1,552,710
23,265
520,191
2,808,009
3,824,925
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
23. OBLIGATIONS UNDER FINANCE LEASES
Amounts payable
Within 1 year
Within 2 to 5 years inclusive
Less future finance charges
Minimum payments
Present value of minimum payments
2017
£
8,109
30,055
(6,324)
31,840
2016
£
8,183
39,130
(11,286)
36,027
2017
£
4,945
26,895
-
31,840
2016
£
4,070
31,957
-
36,027
Carrying amount of assets subject to finance lease:
Property, plant and equipment
23,950
27,621
The Group’s obligations under finance leases are secured by the lessor’s rights to the leased assets.
58
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
24. BORROWINGS
The Group has available unused bank overdraft facilities of £1,500,000 (2016: £1,500,000). Any overdraft arising from the facility is
repayable on demand and carries interest at 2.00% (2016: 2.00%) plus the bank’s base rate. Any facilities used are secured by fixed
and floating charges over the assets of Pennant International Group plc, Pennant International Limited, Pennant Software Services
Limited and Pennant Support & Development Services Limited (formerly known as Pennant Information Services Limited) and by
cross-guarantees between those companies.
25. DEFERRED REVENUE
Deferred revenue arises in respect of prepaid software maintenance contracts and is shown as:
Revenue that can be recognised within 1 year included in current liabilities.
Revenue that can be recognised after 1 year included in non-current liabilities.
2017
£
124,848
6,325
131,173
2016
£
162,500
18,403
180,903
26. DEFERRED TAX
At 1 January 2016
Change in rate
Credit/(charge) to income
Exchange differences
At 1 January 2017
Credit/(charge) to income
Exchange differences
At 31 December 2017
Accelerated tax
depreciation
Other temporary
differences
Tax losses
Total
£
(387,544)
21,530
82,747
-
(283,267)
(17,063)
-
(300,330)
£
33,305
8,986
10,058
(21,327)
31,022
13,805
(4,087)
40,740
£
493,004
-
(45,395)
-
447,609
(186,139)
903
262,373
In the statement of financial position deferred assets and liabilities are shown without any set off as follows:
Deferred tax assets
Deferred tax assets
2017
£
310,699
(307,916)
2,783
2016
£
482,989
(287,625)
195,364
Deferred tax has been provided at 17% (2016: 17%), the corporation tax rate that will be effective from 1 April 2020.
£
138,765
30,516
47,410
(21,327)
195,364
(189,397)
(3,184)
2,783
2015
£
530,622
(391,857)
138,765
59
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
At the reporting date the Group had unused tax losses of approximately £0.3 million (2016: £2.5 million) available for set-off against
future profits. No deferred tax asset has been recognised in respect of some of these available losses due to the unpredictability of
future profit streams in some of the subsidiaries in which they arise. The tax losses are available indefinitely for offsetting against
future taxable profits.
27. WARRANTY PROVISIONS
Warranty provisions
2017
£
250,000
The Group has recognised warranty provisions in respect of contractual obligations on two major programmes.
The Group expects the provision to be utilised within the next three years.
28. SHARE CAPITAL
Authorised, issued and fully paid
32,943,533 ordinary shares of 5p each
1,400,000 B shares of 0.1p each
700,000 C shares of 0.1p each
2017
£
1,647,177
-
-
1,647,177
2016
£
150,000
2016
£
1,647,177
1,400
700
1,649,277
The B and C shares were repurchased by the Company and cancelled and there are no shares of such classes now in issue (the
Company’s entire issued share capital now comprises ordinary shares of 5p each only). The Company’s ordinary shares carry one
vote per share, have equal rights to participate in dividends, are freely transferable and are not redeemable.
60
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
29. NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash generated from operations
Profit for the year
Finance income
Finance costs
Income tax charge/(credit)
Depreciation of property, plant and equipment
Amortisation of other intangible assets
Profit on disposal of property, plant and equipment
Profit on disposal of available-for-sale investments
Share-based payment
Operating cash flows before movement in working capital
(Increase) /decrease in receivables
(Decrease)/increase in inventories
Increase/(decrease) in payables and provisions (notes 22 and 27)
(Decrease)/increase in deferred revenue
Cash generated from operations
Tax (paid)
Interest paid
Net cash in operations
30. OPERATING LEASE ARRANGEMENTS
Lease payments under operating leases recognised as an expense in the year
The Group had commitments under non-cancellable operating leases as follows:
2017
£
2016
£
1,533,342
1,921,030
(5,371)
2,693
275,409
221,540
291,816
-
-
73,385
2,392,814
(7,781)
9,051
(17,691)
284,319
299,801
16,877
(614)
103,503
2,608,495
(2,333,522)
(4,076,693)
(74,629)
(916,916)
(49,730)
(981,983)
(3,860)
(2,693)
(988,536)
29,854
1,317,015
6,735
(114,594)
(125,603)
(9,051)
(249,248)
2017
£
273,911
2016
£
232,724
Within one year
In the second to fifth years
In the sixth to tenth years
After ten years
Land and buildings
Other
2017
£
154,038
352,595
-
-
506,633
2016
£
147,204
265,521
32,750
236,788
682,263
2017
£
61,915
74,162
-
-
2016
£
58,991
72,873
-
-
136,077
131,864
The Group has no operating leases longer than 10 years.
61
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
31. SHARE-BASED PAYMENT
The Company operates an EMI share option scheme for certain employees of the Group (the “Scheme”) and has also granted
unapproved options to certain Directors. Options granted under the Scheme are exercisable at the price equal to the quoted mid-
market price at the close of business on the date of grant while unapproved options are exercisable in accordance with the terms of the
relevant agreement (further details of which are contained in the Remuneration Report). Exercise in all cases is subject to non-market
conditions as options are forfeited if the employee leaves the Group before the options vest. Details of the share options outstanding
during the year are as follows:
Options granted under the Scheme
2017
2016
Number of share
options
Weighted average
exercise price
Number of share
options
Weighted average
exercise price
Outstanding at 1 January 2017
Granted during the year
Exercised during the year
Outstanding at 31 December 2017
Exercisable at 31 December 2017
2,007,619
200,000
-
2,207,619
1,010,000
65.58p
80.50p
-
66.93p
59.79p
2,077,619
-
(70,000)
2,007,619
530,000
64.38p
-
38.79p
65.58p
36.06p
The fair value of the options granted during the year under the Scheme is £4,483.
The inputs to the Black-Scholes model for the 2017 grants were as follows:
• Share price at date of grant 80.50p
• Exercise price 80.50p
• Expected volatility (based on historic volatility) 37%
• Risk free rate 1.30%
• Expected dividend yield 2.20%
• Option life 10 years
• Vesting period 3 years
Unapproved Options
2017
2016
Number of share
options
Weighted average
exercise price
Number of share
options
Weighted average
exercise price
Outstanding at 1 January 2017
Granted during the year
Exercised during the year
Outstanding at 31 December 2017
Exercisable at 31 December 2017
300,000
525,969
-
825,969
-
55.50p
55.00p
-
55.18p
-
-
300,000
-
300,000
-
-
55.50p
-
55.50p
-
The fair value of the unapproved options granted during the year is £21,333.
The options outstanding at 31 December 2017 (unapproved and those under the Scheme) had a weighted average remaining contractual
life of 7.32 years (2016: 7.40 years).
The Group recognised total expenses related to equity-settled share-based payment transactions of £73,385 (2016: £103,503).
62
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
32. EMPLOYEE BENEFITS
Defined contribution
The Group operates defined contribution pension schemes. The assets of the schemes are held separately from those of the Group in
independently administered funds. The pension cost charge represents contributions payable by the Group to the funds.
Contributions payable by the Group for the year
33. FINANCIAL INSTRUMENTS
33.1 Capital risk management
2017
£
304,326
2016
£
284,701
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders.
The capital structure of the Group consists of cash and cash equivalents and equity comprising issued share capital, reserves and
retained earnings. The Group is not subject to any externally imposed capital requirements.
33.2 Categories of financial instruments
Financial assets
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Trade and other payables
33.3 Financial risk management
2017
£
5,252,637
1,502,655
6,755,292
2016
£
2,877,836
3,517,541
6,395,377
1,660,000
2,096,166
Financial risks include market risk (principally foreign currency risk), credit risk, liquidity risk and interest risk. The Group seeks to
minimise the effect of these risks by developing and applying policies and procedures which are regularly reviewed for appropriateness
and effectiveness. The Group’s principal financial instruments comprise cash held in current accounts, trade receivables, amounts due
from and to construction contract customers, trade payables, other payables and borrowings that arise directly from its operations.
63
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
33.4 Foreign currency risk
The Group operates internationally giving rise to exposure from changes in foreign exchange rates. The Group’s policy permits but does
not demand that these exposures are hedged in order to fix their cost in sterling. Forward foreign exchange contracts are entered into
in respect of forecast foreign exchange transactions when the amount and timing of such transactions becomes reasonably certain. At
31 December 2017 and 31 December 2016 the Group had no commitments under forward exchange contracts.
33.4 Foreign currency risk (continued)
The Canadian dollar, the Australian dollar and the American dollar are the main foreign currencies in which the Group operates. The
carrying amounts of the Group’s monetary assets and liabilities denominated in these currencies expressed in sterling at the reporting
date are as follows:
Canadian $
American $
Australian $
Total
Liabilities
Assets
2017
£
187,015
1,202
156,295
344,512
2016
£
172,589
9,766
80,516
262,871
2017
£
1,465,791
205,014
225,653
1,896,458
2016
£
1,677,967
224,575
239,500
2,142,042
The following table details the Group’s sensitivity to a 5% increase in Sterling against the relevant foreign currencies. The analysis
includes outstanding foreign currency denominated monetary items where denominated in a currency other than the functional
currency of the debtor or creditor. A positive number indicates an increase in profits and a negative number a decrease in profit. A 5%
weakening of Sterling against the relevant currencies would have an equal and opposite effect on profit.
Canadian $
American $
Australian $
33.5 Credit risk
Impact on profit
2017
£
63,939
10,191
3,468
2016
£
75,269
10,740
7,949
Credit risk refers to the risk that a customer or counterparty to a financial instrument fails to meet its contractual obligations, resulting
in financial loss to the Group, and arises principally from the Group’s receivables from customers and bank current accounts. Major
customers that wish to trade on credit terms are subject to credit verification procedures and receivable balances are monitored on
an on-going basis. The credit risk on bank current account balances is limited because the counterparties are banks with high credit
ratings assigned by international credit-rating agencies. No significant impairments for bad or doubtful debts have made. At the end
of the financial year there are no material debts that are deemed to be past due.
At 31 December 2017 and 31 December 2016 there were no significant concentrations of credit risk. The maximum exposure to credit
risk is represented by the carrying amount of each financial asset in the statement of financial position.
64
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
33.6 Liquidity risk
34. CAPITAL COMMITMENTS
Liquidity risk is the risk that the Group does not have sufficient
cash to meet its financial obligations as they fall due. The Group
ensures that sufficient cash and undrawn facilities are available
to fund ongoing operations and to meet its medium term capital
and funding obligations.
At 31 December 2017 the Group had capital commitments of
£115,501 in respect of assets under construction (2016: £NIL).
35. RELATED PARTY TRANSACTIONS
At the year end the Group had net cash funds of £1,502,655
(2016: £3,517,541) and undrawn facilities of £1,500,000 (2016:
£1,500,000). The level of the Group’s overdraft facility is reviewed
annually.
Transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation and
are not disclosed in this note.
The Groups financial obligations consist of trade and other
payables and obligations under finance leases which are all
payable within 12 months with the exception of the non-current
obligations under finance leases set out in note 23.
Barclays Bank Plc have given performance guarantees of
£773,326 (2016: £769,938), in the normal course of business, to a
customer of Pennant International Limited. These are secured by
fixed and floating charges over the assets of the Company.
Trade and other payables are all payable within three months.
33.7 Interest risk
The Group has no liabilities subject to interest rate risk at the
balance sheet date. However, the Group is from time to time
exposed to interest rate risk on bank overdraft. Interest is paid on
bank overdraft at 2.00% (2016: 2.00%) over base rate. 1% rise/fall
in interest rates would have decreased / increased profit for the
year by an immaterial amount (2016: immaterial).
Remuneration of key management personnel
Amounts paid to Group directors who are the only key
management personnel of the Group are set out in the
Corporate Governance Report.
Dividends paid to Directors
Dividends totalling £NIL (2016: £NIL) were paid in the year in
respect of ordinary shares in which the Company’s Directors had
a beneficial interest.
65
Pennant International Group PLC Annual Report and Financial Statements 2017 COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
Continuing operations
Management charges receivable
Administrative expenses
Operating profit
Finance costs
Finance income
Profit before tax
Tax charge
Profit after tax
Other comprehensive income
Total comprehensive income attributable to equity holders
Notes
2017
£
2016
£
1,900,021
2,314,430
(1,807,954)
(2,226,856)
3
4
5
92,067
-
1,040
93,107
(32,124)
60,983
-
60,983
87,574
(28)
25
87,571
(37,638)
49,933
-
49,933
66
Pennant International Group PLC Annual Report and Financial Statements 2017
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
Share
Capital
Share
Premium
Capital
Redemption
reserve
Treasury
Shares
Retained
Earnings
Total
Equity
£
£
£
£
£
£
At 1 January 2016
1,402,100
8,400
200,000
(418,225)
3,235,584
4,427,859
Total comprehensive income for
the year
-
-
Issue of ordinary shares
247,177
2,677,571
Recognition of share based
payment
-
-
-
-
-
At 1 January 2017
1,649,277
2,685,971
200,000
Total comprehensive income for
the year
-
-
Cancellation of B and C Shares
(2,100)
(8,400)
Recognition of share-based
payment
-
-
-
-
-
At 31 December 2017
1,647,177
2,677,571
200,000
-
49,933
49,933
418,225
-
3,342,973
-
-
-
-
-
-
103,503
103,503
3,389,020
7,924,268
60,983
60,983
-
(10,500)
73,385
73,385
3,523,388
8,048,136
Note: see page 38 for a description of the reserves appearing in the column headings of the table above.
67
Pennant International Group PLC Annual Report and Financial Statements 2017 COMPANY NUMBER: 3187528 - COMPANY STATEMENT
OF FINANCIAL POSITION AT 31 DECEMBER 2017
Notes
6
11
7
8
10
2017
£
7,909,037
-
7,909,037
18,861
3,455,544
796,252
4,270,657
12,179,694
56,750
4,042,684
32,124
4,131,558
139,099
4,131,558
8,048,136
1,647,177
2,677,571
200,000
3,523,388
8,048,136
Non-current assets
Investment in subsidiaries
Deferred tax asset
Total non-current assets
Current assets
Trade and other receivables
Amounts due from subsidiaries
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Amounts due to subsidiaries
Current tax liabilities
Total current liabilities
Net current assets
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Retained earnings
Total Equity
Approved by the Board and authorised for issue on 9 March 2018.
P H Walker
Director
2016
£
7,909,037
-
7,909,037
5,129
743,179
2,760,889
3,509,197
11,418,234
195,003
3,298,963
-
3,493,966
15,231
3,493,966
7,924,268
1,649,277
2,685,971
200,000
3,389,020
7,924,268
68
Pennant International Group PLC Annual Report and Financial Statements 2017 COMPANY STATEMENT OF CASH FLOWS FOR
THE YEAR ENDED 31 DECEMBER 2017
Net cash from operations
Investing activities
Dividend/interest received
Proceeds from sale of available-for-sale investments
Net cash from investing activities
Financing activities
Proceeds from sale of ordinary shares
Net cash used in financing activities
Notes
2017
£
12
(1,955,177)
1,040
-
1,040
(10,500)
(10,500)
2016
£
(349,377)
25
4,314
4,339
3,342,973
3,342,973
Net cash (decrease)/increase in cash and cash equivalents
(1,964,637)
2,997,935
Cash and cash equivalents at beginning of year
2,760,889
(237,046)
Cash and cash equivalents at end of year
796,252
2,760,889
69
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
1. ACCOUNTING POLICIES
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by the Act
the separate financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by
the European Union. The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial
statements except as noted below:
•
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
2. OPERATING PROFIT
The auditor remuneration for audit and other services is disclosed in note 9 to the consolidated financial statements.
3. FINANCE COSTS
Interest expense for bank overdraft
4. FINANCE INCOME
Dividend from available-for-sale financial asset
Bank Interest Received
5. TAX
Current tax expense
Deferred tax charge for the period
Tax charge for the year
Reconciliation of effective tax rate
Profit before tax
Tax at applicable rate 19.25% (2016: 20.00%)
Tax effect of:
Expenses that are not deductible for tax
Changes in rate on deferred tax
Group relief
Total tax charge
2017
£
-
2017
£
-
1,040
2017
£
32,124
-
32,124
93,106
17,920
14,674
(470)
-
32,124
2016
£
28
2016
£
25
-
2016
£
-
37,638
37,638
87,571
17,514
23,823
(4,186)
487
37,638
70
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
6. SUBSIDIARIES
Details of the Company’s subsidiaries at 31 December 2017 are as follows:
Registered office
Proportion of
ownership
Pennant International Limited
Pennant Court, Staverton Technology Park,
Cheltenham GL51 6TL
Pennant Support & Development Services Limited
Pennant Court, as above
Pennant Software Services Limited
Pennant Court, as above
Pennant Canada Limited
Pennant Australasia Pty Limited
Pennant Information Services Inc.
Pennant EBT Trustee Limited
1400 Blair Place, Suite 100, Ottawa, Ontario
K1J 9B8, Canada
Suite 6, 334 Highbury Road, Mt. Waverley Victoria,
3149, Australia
1400 Blair Place, as above
Pennant Court, as above
100%
100%
100%
100%
100%
100%
100%
The investments in subsidiaries are all stated at cost.
7. CASH AND CASH EQUIVALENTS
These comprise cash held by the company and short-term bank deposits with an original maturity of three months or less.
8. TRADE AND OTHER PAYABLES
Trade payables principally comprise amounts outstanding for services and ongoing costs. The carrying amount approximates their fair
value.
9. BORROWINGS
Details of the Group overdraft arrangements are set out in note 24 to the consolidated financial statements.
10. SHARE CAPITAL
Details are set out in note 28 to the consolidated financial statements.
71
Pennant International Group PLC Annual Report and Financial Statements 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
11. DEFERRED TAX
At 1 January 2016
Charge to income
At 31 December 2016
Charge to income
At 31 December 2017
12. NOTE TO STATEMENT OF CASH FLOWS
Cash generated from operations
Profit for the year
Tax charge
Finance costs
Finance income
Profit on available-for-sale investments
Share-based payment
Operating cash flows before movement in working capital
(Increase) in receivables
Increase in payables
Cash generated from operations
Interest paid
Net cash generated from operations
Tax losses
£
37,638
(37,638)
-
-
-
2017
£
60,983
32,124
-
(1,040)
-
73,385
165,452
Total
£
37,638
(37,638)
-
-
-
2016
£
49,933
37,638
28
(25)
(614)
103,503
190,463
(2,726,097)
(578,242)
605,468
38,430
(1,955,177)
(349,349)
-
(28)
(1,955,177)
(349,377)
72
Pennant International Group PLC Annual Report and Financial Statements 2017 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
13. FINANCIAL INSTRUMENTS
The Company’s approach to the management of capital and market risks is set out in note 35 to the consolidated financial statements.
To address its liquidity risk the Company ensures that sufficient cash and undrawn facilities are available to fund ongoing operations
and to meet its medium term capital and funding obligations. The Company is from time to time exposed to interest rate risk on a
bank overdraft. Interest is paid on its bank overdraft at 2.00% (2016: 2.00%) over base rate. 1% rise/fall in interest rates would have
decreased/increased profit for the year by an immaterial amount (2016: immaterial). The Company is not exposed to foreign currency
risks.
Categories of financial instruments
Financial assets
Loans and receivables
Trade and other receivables
Amounts due from subsidiaries
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Trade and other payables
Amounts due to subsidiaries
2017
£
2016
£
18,861
3,455,544
796,252
4,270,657
56,750
4,042,684
4,099,434
5,129
743,179
2,760,889
3,509,197
195,003
3,298,963
3,493,966
14. CONTINGENT LIABILITIES
The Company is party to a group registration for the purposes of Value Added Tax (VAT). Members of the group are jointly and severally
liable for the total tax due. The total amount of VAT payable by the group registration and not accrued in the statement of financial
position was £80,484 (2016: £NIL).
15. RELATED PARTY TRANSACTIONS
The Company has provided guarantees to the bank in respect of its bank borrowings and any bank borrowings of its subsidiaries as set
out in note 24 to the consolidated financial statements.
The Company has guaranteed the payment of rent under a lease agreement for office premises occupied by a subsidiary company. The
lease runs for five years from 1 February 2015 at an annual rental of £51,135.
Other transactions with related parties consist of management charges for services provided to and by subsidiary companies as
disclosed on the face of the statement of comprehensive income.
73
Pennant International Group PLC Annual Report and Financial Statements 2017
SHAREHOLDER INFORMATION
&FINANCIAL CALENDER
SHAREHOLDER ENQUIRIES
If you have an enquiry about the Company’s business, or about
something affecting you as a shareholder (other than queries
that are dealt with by the Neville Registrars as registrar), you
should contact the Company Secretary by letter to the Company’s
registered office or by email to: cosec@pennantplc.co.uk.
SHARE REGISTER
Neville Registrars maintain the register of members of the
Company.
If you have any questions about your personal holding of the
Company’s shares, please contact Neville Registrars using the
following details:
Neville House
18 Laurel Lane
Halesowen
B63 3DA
Telephone: 0121 585 1131
If you change your name or address (or we write to you and have
mis-addressed the correspondence), please notify the registrars
in writing or contact them using the details above.
FINANCIAL CALENDAR
• Annual General Meeting - 25 April 2018
Expected announcement of results for the year ending
31 December 2018
• Half-year announcement - September 2018
•
Full-year preliminary announcement - March 2019
DAILY SHARE PRICE LISTINGS
The Financial Times - AIM
74
Pennant International Group PLC Annual Report and Financial Statements 2017 OFFICERS AND PROFESSIONAL ADVISERS
DIRECTORS
S Moore
P Walker FCA
D Clements
C Powell FCA
T Rice
C Snook
(Chairman)
(Chief Executive Officer)
(Appointed 11 October 2017)
(Stepped down 21 February 2017)
SECRETARY
D Clements
REGISTERED OFFICE
Pennant Court
Staverton Technology Park
Cheltenham
Gloucestershire
GL51 6TL
COMPANY NUMBER
3187528
AUDITOR
BANKERS
NOMINATED ADVISER
AND BROKER
Mazars LLP
45 Church Street
Birmingham
B3 2RT
Barclays Bank Plc
Bridgewater House
Finzels Reach
Counterslip
Bristol
BS1 6BX
W H Ireland Ltd
4 Colston Avenue
Bristol
BS1 4ST
Pennant Court
Staverton Technology Park
Cheltenham
Gloucestershire
GL51 6TL
WWW.PENNANTPLC.COM