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ANNUAL REPORT
& ACCOUNTS
A N N U A L
R E P O R T
& ACCOUNTS
2019
WWW.PENNANTPLC.COM
2
COMPANY NUMBER: 3187528
PENNANT ANNUAL REPORT 2019 STRATEGIC REPORT
Financial highlights
Chairman’s statement
Chief Executive’s review
Group strategic framework
About Pennant
GOVERNANCE & RISKS
Board of Directors
Audit & Risk committee
Remuneration committee
Strategy committee
Attendance
Operational governance
Financial control
Risk management & principal risks
Remuneration report
Audit & Risk committee 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
Notes to the company financial statements
Shareholder information & financial calendar
Officers and professional advisers
5
6-8
10-13
14
15-19
21-23
24
24
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24
25
25
26-31
32-34
35
36-39
40
43-48
49
50
51
52-53
54
55-83
84
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88-93
94
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PENNANT ANNUAL REPORT 2019
STRATEGIC REPORT
Our vision is to be the provider of choice
for world-class products and services
which train and assist operators &
maintainers in both the defence and
regulated civilian sectors.
4
PENNANT ANNUAL REPORT 2019 FINANCIAL HIGHLIGHTS
2019
REVENUE
YEAR: 2019
YEAR: 2018
YEAR: 2017
YEAR: 2016
£20,429,990
£21,069,223
£18,069,960
£17,211,455
NET ASSETS
£14.8M
REVENUE
£20.4M
ORDER BOOK
£33M
GROSS MARGIN
36.0%
2018
NET ASSESTS
£14.0M
REVENUE
£21.1M
ORDER BOOK
£37M
GROSS MARGIN
39.2%
KEY FIGURES
• UNDERLYING EBITA* = £1.6M (2018: £3.3M)
• UNDERLYING EBITDA* = £2.4M (2018: £3.7M)
• CASH (USED) IN OPERATIONS = (£2.2M) (2018: CASH GENERATED IN OPERATIONS £5.0M)
• OPERATING LOSS (£1.5M) (2018: OPERATING PROFIT £3.2M)
•
LOSS BEFORE TAX (£1.6M) (2018: PROFIT BEFORE TAX £3.2M)
* ADJUSTED FOR NON-UNDERLYING COSTS, SEE PAGE 10.
5
PENNANT ANNUAL REPORT 2019 CHAIRMAN’S STATEMENT
SIMON MOORE
“2019 H2 contract revenues &
”
profits have been delivered as forecast
A CHALLENGING YEAR BUT GROUNDS
FOR OPTIMISM
In last year’s Annual Report following an excellent set of results
in 2018, I stated that the Group’s 2019 financial performance was
expected to be significantly weighted in favour of the second half,
with the majority of revenues (and all of the profits) to be realised
towards the end of the year.
This was dependent upon the achievement of certain performance
milestones on the Qatar contract as part of a strong second half
weighted order book. I can report that these revenues and profits
have indeed been recognised as budgeted, in large part due to the
continued successful delivery of the Qatar programme.
in August 2018, together, had a negative impact on revenues,
cashflow and profits for the year as a whole.
I can confirm that steps have been taken to address these
challenges
including a wide-ranging cost reduction and
restructuring exercise, as outlined on pages 10-11.
Post period-end, the successful rebasing and uplift of the General
Dynamics programme and the announcement of the acquisition of
Absolute Data Group and its complementary R4i suite of software
products (which will increase our penetration of the US market),
and which will be earnings enhancing in the first year, have
underpinned our optimism and confidence for 2020 and beyond.
BOARD CHANGES
KEY FINANCIALS
During 2019 there were a number of Board changes.
For the year ended 31 December 2019, the Group recorded
consolidated revenues of £20.4 million (2018: £21.1 million),
underpinned by both the continued delivery of the Groups services
contracts and the successful ongoing acceptance of products on
its major Middle East contracts.
The Group posted a consolidated loss before tax of £1.6 million
(2018: profit before tax £3.2 million) which is stated after
significant non-underlying costs. These non-underlying costs are
set out in the Financial Review on page 10. Underlying earnings
before interest, tax and amortisation (EBITA) were £1.6m (2018:
£3.3m) and underlying EBITDA was £2.4m (2018: £3.7m).
REVIEW OF OPERATIONS
AND RE-STRUCTURING
With effect from 14 June 2019 Philip Cotton was appointed Non-
Executive Director and Chair of the Audit & Risk Committee.
On 22 November 2019 the Group confirmed the appointment of
Mervyn Skates as Operations Director, with effect from 1 January
2020.
On 21 November 2019 Gary Barnes, Finance Director, stepped
down from the Board. On behalf of the Board, I would like to take
this opportunity to recognise Gary’s significant contribution to the
Company and thank him for his 22 years’ service.
Further details on the new Board members can be found in the
Governance and Risks section of this document.
DIVIDENDS
During the period under review, a number of significant customer-
driven challenges developed which slowed progress, incurred
additional costs and impacted our overall financial performance.
Most notably the re-basing of the maintenance training contract
for the General Dynamics armoured vehicle programme and
delays to the award of the major programme first announced
Taking account of the Group’s 2019 financial performance, the
trading outlook (including potential Covid-19 challenges) and the
Group’s cash position, the Directors believe that it is both prudent
and in the Company’s and shareholders’ current best interests to
retain cash for working capital
6
PENNANT ANNUAL REPORT 2019 CHAIRMAN’S STATEMENT
The Board will therefore not be recommending the payment of a
final dividend for the year ended 31 December 2019. However, it
will continue to review dividend policy throughout 2020 based on
trading performance and working capital requirements.
the wider supply chain and the business environment generally
becomes clearer.
CORONAVIRUS (COVID-19)
GOVERNANCE
CURRENT RISKS
The Board
is committed to maintaining robust corporate
governance. It has worked closely with its advisors and in 2020 will
monitor governance frameworks to ensure strong, proportionate
governance throughout the Group. The Board has established
appropriate risk management procedures and keeps key risks to
the Group under regular review. Further details of the Group’s
principal risks and uncertainties are provided in the Governance
& Risks section of this document.
CULTURE
The Group continues to assess and manage the impact of
Covid-19 on its business. Three key risks to trading and prospects
have been identified so far.
The first is the challenge of holding review events with customers.
Such review events are held, as physical meetings, through the
lifecycle of an engineering programme and frequently have
milestone payments attached (paid by the customer to Pennant
upon successful completion of the review). If the review cannot
be held due to Covid-19 restrictions, cash and revenue associated
with completion of the milestone may be delayed.
The Board is likewise committed to embodying and promoting a
strong corporate culture and has endorsed various policies which
require the ethical behaviour of staff and relevant counterparties
(such as those mandating anti-corruption, anti-counterfeiting,
fair treatment and equality of opportunity).
The second risk is the inability to gain access to customer facilities
to deliver services. Our ‘integrated logistics support’ consultancy
services are typically delivered at a customer’s site; if we cannot
access the relevant site due to Covid-19 restrictions, the ability to
deliver the services is severely hampered.
The Directors, in consultation with employees, have established
a clear set of ‘Core Values’ for the Company that encapsulate the
ethical and cultural expectations of the Company, and which will
guide and inform the actions of the Company (and to which its
staff can be held accountable). These values are aligned to the
Company’s strategic objectives and further details are provided
at page 37.
OUR PEOPLE
As always, I would like to take this opportunity to thank all
Pennant staff across the Group for their hard work and dedication
throughout what has been a challenging year. Their continued
commitment and drive to ensure that the business delivers 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.
BREXIT
Lastly, there is the broader risk that governments and major
OEMs which award contracts to Pennant are, in the shorter term
at least, consumed by their own efforts to deal with Covid-19 and
therefore expected contract awards are consequently delayed
until the pandemic has abated.
ACTIONS TAKEN
With the first two risks set out above, we are working closely with
the applicable customers to establish solutions so that reviews
and services can be held and provided via remote means. We are
confident that workarounds will be possible (and in some cases,
these are already being implemented) but the impact on the
timing and amount of any affected revenues is not yet clear. The
third, macro risk is less easy for Pennant to directly influence, but
we remain in close contact with key stakeholders to ensure we
are well-informed and remain well-placed for awards.
Simultaneously, we are prioritising the safety and well-being of
our employees and other stakeholders and have implemented
near-total home-working.
FINANCIAL POSITION
The Board has carried out a review of its customer and supplier
base and continues to monitor developments in relation to Brexit
and its potential impact on the Group.
Pennant has no significant contracts with customers in EU
member states and no material direct suppliers within the EU.
The Group presently expects that Brexit will have minimal effect
on its trading but is keeping this under review as the political and
economic situation develops and the potential impact of Brexit on
We are actively focused on cash and cost management across the
business and retain undrawn facilities.
We have welcomed certain governmental initiatives to support
businesses in these exceptional times, and we have already
utilised the UK Government’s Coronavirus Job Retention Scheme
to protect (and part-fund) the jobs of those employees who are
currently unable to carry out their usual duties due to Covid-19
interruption.
7
PENNANT ANNUAL REPORT 2019 CHAIRMAN’S STATEMENT
We are also investigating other potential financial options, including the Coronavirus Business Interruption Loan Scheme, with a view
to securing access to further funding should it be required.
STRATEGY AND OUTLOOK
A key objective of the Board’s stated strategy for future growth is to increase the visibility and recurrence of earnings, especially those
derived from software and services, and to develop new products and services complemented by strategic acquisitions.
Notwithstanding the ongoing uncertainties surrounding the Covid-19 pandemic, revenues and profits for 2020 are again expected to be
second-half weighted due to the mix of products and the application of IFRS 15.
With our contracted three-year order book, valued at more than £33 million, the Board is confident that the Group’s underlying
strengths - our long-term customer relationships with governments and major OEMs, specialist services and our quality-assured
reputation - will continue to provide a solid foundation for our long-term success.
Approved by the Board on 17 April 2020
And signed on its behalf
S A Moore
Chairman
8
PENNANT ANNUAL REPORT 2019 9
PENNANT ANNUAL REPORT 2019 CHIEF EXECUTIVE’S REVIEW
PHILIP WALKER
“the Group has made significant
investment in products, people
and infrastructure
”
RESTRUCTURING AND REPOSITIONING
FOR FUTURE GROWTH
of Aviation Skills Partnership, and increased overheads and
restructuring expenses, together contributed to a consolidated
loss before tax of £1.6 million.
The year under review was a challenging one for both management
and staff with a number of issues involving significant customer
driven changes to contracts, delays to the award of the major
programme, under-performance in the Aviation Skills business
and adverse freehold property valuations, combined to produce
an outcome for the year which was below management’s original
expectations.
However, decisive action was taken during the period to
restructure and reposition the business. This has involved a
wide-ranging cost reduction exercise, resulting in net annualised
savings of over £0.6 million.
Notwithstanding these challenges (and the additional challenges
now presented by Covid-19), the Group continues to focus on its
strategic objective of increasing the proportion of its revenues
which derive from software and services, particularly those of a
recurring nature.
FINANCIAL REVIEW
The results for the year are set out in detail on page 5 with the key
financial performance indicators set out below.
PERFORMANCE
The gross profit margin for the period was 36% (2018: 39%)
reflecting the broadly consistent mix of products and services
delivered across the two years.
The operating margin has, however, significantly decreased to
a loss of (£1.5m) (2018: operating margin 15%) due to ‘gearing
up’ (through investment in people and facilities) for the major
programme for which Pennant was down selected in August
2018, recognition of the downward valuation of certain freehold
properties in line with the current market, the goodwill impairment
Underlying EBITA, after adjusting for non-underlying costs, was
£1.6 million and is derived as follows:
Operating Loss
Impairment of Freehold Properties
Restructuring Expense
Amortisation (including Goodwill Impairment)
ADG Acquisition costs
Underlying EBITA
IMPAIRMENT OF FREEHOLD PROPERTIES
£000
(1,517)
819
654
1,638
54
1,648
In order to prepare for major contracts, the Group invested over
£3 million in freehold property in 2018. The properties acquired
are currently being utilised on the Qatar programme and on the
helicopter trainer contract announced on 31 October 2019 and
they are essential for the further expansion of the business.
Following a revaluation for the purposes of the annual accounts,
it became apparent that, due to the general softening of the
commercial property market both locally and more broadly,
certain of the properties were overvalued in the Company’s
balance sheet. The net effect of the revaluation across Pennant’s
entire freehold portfolio is a reduction of £0.4 million (being an
impairment of £0.8 million against certain properties and an
increase in value of £0.4 million against others). However, due
to applicable accounting standards, the Group is required to
expense the gross amount of the impairment (£0.8 million), which
is regarded as non-underlying, with the upwards revaluations
being credited to reserves.
10
PENNANT ANNUAL REPORT 2019
CHIEF EXECUTIVE’S REVIEW
RESTRUCTURING EXPENSE
TAXATION
During the year, the Group implemented a wide-ranging cost
reduction exercise and various roles were removed from the
business. The aggregate cost associated with terminations of
employment resulting from this exercise was £0.7 million. This is
regarded as a non-underlying expense.
It is anticipated that this programme will realise gross annualised
savings of over £1 million. Taking into account new roles and
capabilities implemented in the revised structure, the net
annualised cost saving will be circa £0.6 million.
GOODWILL IMPAIRMENT
On 6 February 2019, the Company acquired the entire issued share
capital of Aviation Skills Holdings Limited, the parent company of
The Aviation Skills Partnership Limited (“ASP”).
During the period, it became apparent that commercialisation of
the ASP model would be significantly slower and more challenging
than expected.
Whilst opportunities to develop new academies are still being
progressed, it is not anticipated that any will come to fruition nor
generate sustainable revenue within the next two years.
Following consultation with various stakeholders, the elements of
the ASP business related to campaigning and delivering aviation
skills (for young people and more broadly) were transferred to a
newly-incorporated not-for-profit entity, Aviation Skills Foundation
Limited. The ‘NFP’ status of this new entity is perceived to be
critical to ‘unlocking’ the wider participation of key OEMs, primes
and education sector participants. The commercial activities of
ASP continue to be carried on by Pennant.
Based on its assessment of the short-term prospects of realising
new academies, and the aforementioned restructuring, the Board
has concluded that a full write-off of the £1.2m ASP goodwill is
appropriate.
YEAR-END ORDER BOOK
At the end of the period, the year-end order book stood at £33
million (2018: £37 million), of which £16 million of revenue (2018:
£19 million) is scheduled for recognition within one year [based
on anticipated completion of generic products and progress made
on engineered-to-order contracts]. Of the total order book, 61%
(2018: 51%) is denominated in sterling and 28% (2018: 36%) is
denominated in Canadian dollars. Any movement of sterling to the
Canadian dollar would potentially impact the OmegaPS business.
The Group’s tax position shows a tax credit of £133,812 (2018: tax
charge £32,712), representing an effective tax rate of nil (2018:
1%). The Group has unrelieved UK tax losses carried forward of
£2.8 million (2018: £5.3 million).
RESEARCH & DEVELOPMENT
Research and Development tax credits claimed in the UK during
the year amounted to £2.2 million (2018: £1.9 million) with further
claims on current projects expected to be made during 2020.
CASHFLOW
Cash used in operations amounted to £2.2 million (2018: cash
generated in operations £5.0 million), reflecting the position on
major programmes and the significant movement in working
capital with many products reaching completion in the final
quarter of 2019.
The Group had net borrowings at the year-end of £2.2 million
(2018: Net cash of £1.5 million).
DIVISIONAL PERFORMANCE
Divisional financial performance is set out below and further
information about the business of each division is provided in the
‘About Pennant’ section of this document.
TECHNICAL TRAINING
The Group’s Technical Training division (formerly known as
Training Systems) is focused on the design and build of generic
and platform-specific training solutions and the provision of
related technical and support services.
During the period, the Group made significant investment in
products, people and infrastructure in preparation for further
growth expected to be driven by potential future contract awards.
The Technical Training division continues to be the main driver
of revenues within the Group and has delivered a satisfactory
performance given the challenges set out previously. Revenues
for the year, which were significantly H2 weighted, were strong
at £16.1 million (2018: £16.8 million) as a direct result of the
successful delivery of major Middle East contracts.
11
PENNANT ANNUAL REPORT 2019 STRATEGIC & OPERATIONAL REVIEW
Our mission is to generate sustainable long-term growth for the
business. In order to deliver this objective, we continue to invest in
areas that we consider are the main drivers for business success
and to ensure the business has the tools and flexible skilled
workforce required to deliver new, major and complex contracts.
INNOVATION
In line with the Group’s core strategic objective, investment in
innovation has been targeted to expand the Group’s market
coverage, addressing gaps in the product range and improving
the overall customer proposition. During the period, the Group
invested over £2m in the development of new and enhanced
solutions.
To date eight new products have been successfully launched and
orders have been secured for all of these solutions:
• Crew Escape & Safety Systems Trainer;
• Omega Rail software tool;
• Basic Helicopter Maintenance Trainer;
• Generic Stores Loading Trainer;
• Generic Fastener Installation Trainer;
• Genskills Mk 2;
•
•
Virtual Aircraft Training System; and
Virtual Loadmaster Training System.
The Company anticipates that it will continue to invest in new
solutions during 2020 and beyond. The Group has an active
pipeline of potential product innovations and improvements that
are going through an assessment process with a view to obtaining
funding approval if a business case is proven. Together, these new
products offer the potential for further significant growth.
INFRASTRUCTURE
The Group has continued to modernise and improve both
production and administrative facilities with investment in a
planned programme to upgrade our operations. During 2019 the
Group invested £400,000 in modernising and improving production
capability.
These new facilities provide the capability to deliver complex and
larger scale engineering programmes in the future.
CHIEF EXECUTIVE’S REVIEW
Revenue
Divisional Contribution
2019
£m
16.1
(1.6)
2018
£m
16.8
2.9
Revenues from the Technical Training division were predominantly
generated from product sales, which accounted for 70% of the
divisional revenues, with the balance generated from technical
and support services.
The underlying contribution from Technical Training, after
adjusting for non-underlying costs, accounted for 100% of the
Group’s underlying EBITDA for the period (2018: 90%).
TRACK ACCESS SERVICES
During the period the Group acquired
the assets of Track Access Services
(“TAS”). TAS provides safety-critical
services to train operating companies and rail infrastructure
providers. TAS’s current capabilities include rail driver training,
rail survey services, laser and video scanning, 3D track models,
signal siting and a subscription-based route video and mapping
service. Customers include Network Rail and DB Cargo. It
is anticipated that TAS will provide the Group with additional
opportunities to increase recurring revenues.
INTEGRATED LOGISTICS SUPPORT (ILS)
The Group’s ILS division (formerly known as Software Services)
focuses on the development of the OmegaPS LSAR software
product and the provision of consultancy, training and support
services in relation thereto.
Revenue
Divisional Contribution
2019
£m
2018
£m
4.3
-
4.3
0.3
Revenues from the ILS division in both 2019 and 2018 were
primarily generated from consultancy services (80)% and long-
term software maintenance agreements (20)%. This contracted,
recurring revenue is integral to the Group’s forward visibility and
quality of earnings and forms a key component of Group Strategy.
ABSOLUTE DATA GROUP
Post year end the Group announced
the completion of the purchase of
Absolute Data Group (“ADG”), based
in Brisbane, Australia. ADG owns the R4i suite of technical
documentation software. The acquisition will enable
the
integration of R4i with the Group’s OmegaPS suite of products
and provide much greater traction in two of the Group’s principal
target markets, the United States and Australia. Further details
are provided on page 17.
12
PENNANT ANNUAL REPORT 2019 CHIEF EXECUTIVE’S REVIEW
PEOPLE
Our employees remain core to our future business success.
Without talented people, there are no product innovations or
technical solutions.
During the early part of 2019, we strengthened and grew the
teams across our UK, Canadian and Australian operations
with significant investment made in senior skills and we made
a number of strategic appointments designed to
improve
operational delivery, manage risk and gear up for the major
programme.
However, following delays to certain contract awards and other
costs incurred, the necessary wide-ranging cost reduction
exercise implemented during the year (mentioned above on page
11) has resulted in a number of other roles being removed from the
business, thereby streamlining operations without compromising
the ability to deliver.
• A renewed contract in the Middle East for technical and
support services to be provided in region.
IMPLEMENTING THE STRATEGY
The underlying strengths of Pennant – our long-term customer
relationships, our specialist services and our quality-assured
reputation – remain the solid foundations of our proposition.
Across the Group, we have implemented various measures
(including wide-spread homeworking) to protect our people
during the Covid-19 pandemic.
In accordance with our stated strategy, the focus remains firmly
on increasing the proportion of the Group’s revenues which derive
from the sale of software and services, particularly those of a
recurring nature.
CONTRACTS
New contract awards, amendments and achievements during the
year are set out below:
• Award of a new contract in October 2019 to design and
build a full-size representation of a helicopter training
aid for Leonardo Helicopters worth approximately £3.4
million, deliverable across 2020 and 2021.
•
The successful completion and customer acceptance
of devices on the Qatar contract delivering strong H2
revenues.
• Successful rescoping of the Group’s key contract with
a major UK prime contractor for electromechanical
trainers and computer-based training for General
Dynamics, with contract value increased by £1.5 million
to circa £13.5 million.
• Award of a new contract for the provision of additional
training aids to the Middle East, including two new
training solutions, worth circa £1.5 million, deliverable
predominantly in 2020.
• Secured a new contract for the supply of training aids
and associated services for aviation technician training
for the Australian Defence Force, valued undisclosed.
• An order from a Middle East customer for two software
products, worth circa £0.5 million.
• An order from BAE Systems Australia for 50 Generic
Fastening Instruments Trainers, a new solution created
under the Group’s product development strategy.
• Additional orders secured for multiple Genskills devices
(marks 1 and 2).
Steps taken this year include:
•
•
•
•
•
•
the acquisition of Track Access Services at the start of
the Second Half;
the ongoing development of a new variant of OmegaPS
(deployable on a ‘software-as-a-service’ basis);
promoting unique VR software products
in North
America (deployable on a ‘software-as-a-service’ basis);
our focus on securing additional, long-term product
support contracts;
the post period-end acquisition of Absolute Data Group
and its R4i suite of software products; and
continued investment and development of a training
delivery capability.
The Group continues to progress other strategic opportunities to
partner with or acquire complementary businesses.
The restructuring and repositioning of the business through
the year, together with operational improvements implemented
across the Group and our strong order book, provide a firm
platform for future success.
Approved by the Board on 17 April 2020
and signed on its behalf
P H Walker
Director
13
PENNANT ANNUAL REPORT 2019 GROUP STRATEGIC FRAMEWORK
OUR VISION
World-class products and services which train
and assist operators and maintainers.
OUR MISSION
To realise the Vision while delivering sustainable growth in shareholder value.
OUR STRATEGY
Innovation – Make World Class Products
Customer Focus – Provide Excellent Services
Diversification – Grow Civil
Corporate Development – New Markets, New Ventures
STRATEGIC OBJECTIVES
Continuously
review and
enhance
the Group’s
product range
To grow and
improve our
service offering
Accelerate the
Group’s presence
in civilian training
and regulated
engineering markets
Expand the
Group’s business
in innovative ways
OUR STRATEGY IN ACTION
Launch of new Generic Fastener
Installation Trainer (GFIT)
New Crew Escape & Safety
Systems Trainer (CESST)
Post year end acquisition of ADG
& the R4i software product suite
Acquisition of Track Access &
rail software portal
RDA Hunter – new Australian
strategic partnership
New OmegaPS Rail software
product achieved product
acceptance
Continued investment in
infrastructure
14
PENNANT ANNUAL REPORT 20192143 ABOUT PENNANT
Founded in 1958, Pennant has evolved over the past six decades, from modest beginnings, into a market-leading technology-led
business with a truly global customer base.
The Group operates principally in the areas of civil and military aviation, defence and rail with customers including global defence
primes, government departments, overseas aviation colleges and rail operators.
We are 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.
Pennant has a diverse portfolio of capabilities enabling it to offer a wide range of products and services which train and assist operators
and maintainers in both the defence and regulated civilian sectors and so it is ideally placed to take advantage of the trends outlined
above.
The Group has offices worldwide: in the UK (with its head office sites in Cheltenham and offices in Manchester, Stevenage and Fareham),
Australia (in Melbourne, Brisbane, Nowra and Wagga Wagga) and in Ottawa in Canada.
The Company was admitted to trading on the AIM market in 1998 and has successfully traded as a public company for over 20 years.
The Group operates through two divisions:
15
PENNANT ANNUAL REPORT 2019 ABOUT PENNANT
TECHNICAL TRAINING
The division provides technical training solutions, services and
support.
SOLUTIONS – GENERIC & ENGINEERED
Pennant is a leading provider of technology-based training
solutions to the Defence, Aerospace, and safety critical industries
in the UK and overseas, as well as rail specific capabilities. An
established supplier to the UK MoD and other major defence
contractors, Pennant has a proven capability in the Design,
Development, Manufacture and Delivery of training solutions
including:
•
Translating and developing a training requirement into a
deliverable product
• Providing Subject Matter Expertise in specialist and
technical areas Virtual Reality (VR), Augmented Reality
(AR) & 3D walk-through applications
• Hardware & software based Part Task Trainers (PTT)
• Hardware & software based simulators for Operators
and Maintainers
• Computer Based Training (CBT) to include:
o Multimedia assets
o Instructor led / Computer Assisted Instruction (CAI)
o Self-Paced / CBT
o Screen Based Emulators
o Integrated Electronic Classrooms
o E Learning
Pennant equipment offers a modern, blended training solution
enabling ab-initio students to benefit from a suite of modern,
generic and bespoke training aids offering operation and
maintenance savings and improved safety outcomes. These
training aids complement training on real equipment and include
basic hand skills devices, virtual reality trainers and maintenance
emulators for regulated sectors.
Pennant has a wide range of generic products based on real
or simulated equipment interfaced with software emulations
and instructor control facilities. Ranging from basic hand-skills
training aids to complex multi-function simulators, these devices
provide an end to end training solution for non-type specific
training requirements.
In addition to the suite of generic training products, Pennant
has an experienced team of systems engineers that analyse,
design and manufacture bespoke engineering solutions to satisfy
specific training needs. This equipment can be platform specific
or custom-built, and can include simulators, part-task trainers
and procedural trainers for both defence and civilian customers.
16
TECHNICAL SERVICES & SUPPORT
Pennant takes a “Through Life Support” approach to Technical
Services and Support for both Pennant and third-party training
systems in the regulated sectors. From Training Needs Analysis
(TNA) Development to final disposal, Pennant can plan, implement
and manage every stage of a support life cycle.
The dedicated support services department has a core level of
qualified and experienced engineers, providing us with the skills
and knowledge to establish Pennant’s reputation for delivering
highly professional, reliable and cost-effective customer support
services. Pennant has a proven track record in providing support
services across a wide range of training solutions.
PENNANT ANNUAL REPORT 2019 ABOUT PENNANT
Pennant capabilities include:
Training Needs Analysis (TNA)
Technical Publications, IETMS, S1000D etc.
•
• Courseware Development
•
• Facilities Planning
• Competency Mapping to EASA, EMAR, City of Guilds etc.
•
• Preventative and Corrective Maintenance
•
• Consultancy Spares and Obsolescence Management
• Dismantling and Disposal
•
Integrated Logistic Support (ILS) services and planning
Instruction and Training delivery
In Service Support
Pennant has significant expertise and long-standing pedigree in
technical publications and is able to provide S1000D-compliant
Integrated Electronic Technical Manuals, either as a standalone
service or to complement Pennant training solutions.
This capability has been significantly enhanced following the
acquisition Track Access, ADG and the R4i suite of product, as
set out below.
TRACK ACCESS SERVICES
During the period the Group acquired the business and assets
of Track Access Services (“TAS”). TAS provides safety-critical
services to train operating companies and rail infrastructure
providers. TAS’s current capabilities include rail driver training,
rail survey services, laser and video scanning, 3D track models,
signal siting and a subscription-based route video and mapping
service. Customers include Network Rail and DB Cargo.
ILS DIVISION
Pennant owns the market-leading OmegaPS suite of Logistics
Support Analysis software which is used worldwide by major
defence contractors and by the defence authorities in Canada and
Australia to maximise efficient logistical support on complex long-
life assets. The Group’s ILS division focuses on the development
of the OmegaPS LSAR software suite and the provision of
consultancy, training and support services in relation thereto.
Revenues are generated from the sale of licences, associated
maintenance agreements, software
training courses and
consultancy services in support of the product implementation.
The product is regularly updated to enhance functionality, and
to keep in line with emerging industry standards and changing
technology.
The OmegaPS business has offices in Canada, Australia and the
UK.
Post period end this capability has been significantly enhanced
following the acquisition of ADG and the R4i suite of product, as
set out below.
ACQUISITION OF ABSOLUTE DATA GROUP
On 3 March 2020, the Company acquired the entire issued share
capital of Absolute Data Group Pty Limited (“ADG”). The vendors
were Tammy Halter, CEO of ADG, and Michael Halter, Founder
and Product Manager.
The maximum consideration payable for the acquisition is AU$6.5
million (£3.44 million), subject to adjustment following completion
for cash, working capital and debt.
50% of the maximum consideration (i.e. AUD$3.25 million) is
payable upfront (subject to the aforementioned adjustment).
Of that amount, AUD$0.325 million was settled by the issue of
ordinary Pennant shares and AUD$1.8 million via the issue of a loan
note paying a 10% interest coupon. The loan note is redeemable on
31 May 2020. The balance of the initial payment will be settled (in
cash or via a further loan note) upon the finalisation of completion
accounts being prepared to ascertain the adjustment for cash,
17
PENNANT ANNUAL REPORT 2019 ABOUT PENNANT
working capital and debt. The quantum of that adjustment will be dictated by whether or not ADG, at completion, had surplus cash
against a contractual net debt and working capital target.
The remaining 50% (i.e. AUD$3.25 million) is payable in the five years following completion of the acquisition (at AUD$0.650 million per
annum, settled in cash) subject, in each year, to the satisfaction of a financial performance hurdle. The hurdle comprises a contractual
revenue target for each year. If the hurdle is met, the full instalment for that year (i.e. AUD$0.650) is paid to the vendors. If the hurdle
is missed, the amount of the instalment ratchets downwards in proportion to the extent of the shortfall.
The acquisition agreement contained customary warranties and indemnities in respect of title, tax and various commercial matters as
well as buyer protections and termination rights in respect of the earn-out in the case of vendor default.
Tammy Halter and Michael Halter each entered into a new service agreement with the Pennant Group upon completion of the
acquisition.
ADG’s unaudited accounts for the financial year ended 30 June 2019 showed turnover of AUD$2.2 million (£1.22 million), profit before
tax of AUD$0.890 million (£0.47 million) and net assets of AUD$3.5 million (£1.85 million).
For the financial period (10 months) ending 31 December 2020, ADG expects to report profit before tax in excess of £500,000.
The accounting treatment for the business combination has not been finalised (i.e. fair value of assets and liabilities at date of
acquisition and any intangible assets or goodwill) due to the short period of time between the completion of the acquisition and the
authorisation of these financial statements.
The Board believes that the ADG business is highly complementary to the Group’s existing business and that the acquisition was in the
Company’s best interests for the following reasons inter alia:
•
The acquisition is expected to be earnings enhancing in the first year (before integration costs).
• ADG operates at higher gross margins that Pennant’s existing business lines.
•
The acquisition will provide Pennant with an expanded presence in its target growth markets of North America and Australasia.
• R4i provides its users with a dynamic, S1000D-compliant publication solution. ADG licences the software and provides related
support, maintenance and consultancy services.
•
•
•
The acquisition will enable the integration of R4i with the Group’s OmegaPS product, providing users with an end-to-end
database and documentation solution.
The ADG business will form part of an enlarged, enhanced ‘Integrated Logistics Support’ offering focused on the provision of
software and other support services.
The acquisition aligns with the Company’s strategy, in particular it diversifies and enhances the Group’s revenues and reduces
reliance on substantial engineered-to-order contracts.
18
PENNANT ANNUAL REPORT 2019
ABOUT PENNANT
SECTION 172 STATEMENT
•
•
•
This section serves as our section 172 statement and should be read in conjunction with the rest of the Strategic Report set
out on pages 5 to 18 (inclusive).
The Directors are fully aware of their duty to promote the success of the Company in accordance with section 172 of the
Companies Act 2006.
Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of various stakeholders in
their decision making.
• With a view to informing such decision-making, the Company maintains a written policy statement (with a periodic review
cycle) which sets out its key business relationships including customers and suppliers as well as insurance and advisory
engagements, and how the Company approaches its relationships with these parties.
•
•
•
•
•
The Company’s approach to the interests of its employees is detailed on page 38 of this report.
The Board is mindful of the Group’s impact on the environment and the communities within which it operates. The Group has
implemented various recycling and waste reduction programmes, incentivises electric vehicle use and tracks products which
may need safe disposal in the future. Community engagement is highly regarded at Board level, with apprenticeships, work
experience and science fairs all being supported.
The Board places a significant premium on the Group’s reputation for quality and, in addition to lending full support to the
maintenance of the Group’s ISO9001 status, takes reputational matters into account in its decision-making.
Investor relations (and fairness between members of the Company) are at the forefront of all discussions regarding equity,
distributions and corporate finance with the Board taking advice from the Company’s nominated adviser and its corporate
lawyers as appropriate.
In addition, the Commercial & Risk Director (as a practicising solicitor, with substantial company law experience) is available
to provide guidance to his fellow Board members as to the substance of the duties in question.
19
PENNANT ANNUAL REPORT 2019 GOVERNANCE & RISKS
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.
20
PENNANT ANNUAL REPORT 2019 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.
This strategy is kept under review by, and evolves under the
guidance of, the Strategy Committee. The key challenges in
implementing the Company’s business model and strategy are
documented on pages 26 to 31.
The Board is led by the Chairman, Simon Moore, who is
responsible for the Group’s corporate governance arrangements
and who ensures that all members of the Board are able to
contribute to Board discussions and decision-making. All
Directors acknowledge their collective responsibility and legal
obligation to promote the best interests of the Company.
The effectiveness of the Board is kept under review by the
Chairman, and the Company’s nominated adviser is regularly
invited to Board meetings to review the Board in action and the
contributions of its members (with any feedback being shared
with the Chairman). The Chairman also regularly solicits feedback
on Board effectiveness from institutional and other shareholders.
Feedback from such meetings is that investors remain supportive
of the Company’s strategy and approach, with no proposals
received that efforts ought to be targeted elsewhere.
Succession planning for the Board is kept under review by the
Chairman having regard to the current composition of the Board
and taking into account corporate governance guidelines and
business requirements. Gender balance will be a consideration in
any future appointments.
In discharging its duties, the Board is supported by three standing
committees (the “Committees”): the Audit & Risk Committee,
the Remuneration Committee and the Strategy 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 last substantively updated, and reviewed and
approved by the Board, with effect from 1 January 2020.
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 three Non-Executive Directors and three Executive
Directors. The Company considers that all of its Non-Executive
Directors are independent.
The Company has a written strategic plan to expand the business
with a view to growth in shareholder value. In essence, the
strategy focuses on four core themes: making innovative, world-
class products; providing excellent customer service (before
and after sale); diversifying into regulated civilian markets; and
corporate development (exploring partnerships, acquisitions and
other ways to grow the business). See page 14 for a summary of
the strategy.
THE DIRECTORS
SIMON MOORE
Mr Moore (54) is an independent Non-Executive Director and the
Company’s Chairman.
In addition to chairing the Board, he is Chair of the Remuneration
Committee and a member of the Audit & Risk Committee and the
Strategy Committee.
Mr Moore has over 25 years’ experience within a variety of
strategic, advisory, executive and non-executive roles in a number
of sectors. He is particularly experienced in finance matters,
having worked in the banking industry for a number of years
(following a commission in the British Army).
Mr Moore’s work in strengthening the Group’s governance was
recognised at the 2018 QCA Awards by the award of Non-Executive
Director of the Year.
Mr Moore is also chairman of Cambridge & Counties Bank and
chairman of Al Rayan Bank PLC.
JOHN PONSONBY
Mr Ponsonby (64) is an independent Non-Executive Director,
Vice-Chair of the Board and the Chair of the Strategy Committee.
He is also a member of the Audit & Risk Committee and the
Remuneration Committee.
He is an experienced senior executive within the aerospace
industry having been the managing director of Leonardo
Helicopters UK (the AgustaWestland business).
Mr Ponsonby has an extensive background in the organisation,
delivery and commercialisation of technical training: prior
to his appointment as managing director, he was the senior
vice-president for global customer support and training for
AgustaWestland and, before moving into industry, was the Air
Vice-Marshal commanding the RAF’s training group.
Mr Ponsonby also chairs the Aviation Skills Foundation which
entails an additional time commitment of circa two days per week.
21
PENNANT ANNUAL REPORT 2019 CORPORATE GOVERNANCE REVIEW
PHILIP COTTON
DAVID CLEMENTS
Philip Cotton (61) is an independent Non-Executive Director and
the Chair of the Audit & Risk Committee. He is also a member of
the Remuneration Committee and the Strategy Committee.
Mr Clements (40) is the Commercial & Risk Director. He joined
the Group in June 2017 and was appointed to the Board in October
2017.
Mr Cotton, a Fellow of the Institute of Chartered Accountants in
England and Wales, is a former KPMG partner with extensive
experience of working with businesses in the defence and
aerospace sectors (with audit clients including various BAE
Systems group companies, AgustaWestland (now Leonardo
Helicopters), Airbus UK, Eurocopter UK (now Airbus Helicopters),
Rotork and VT Group).
Mr Cotton is also Chair of Governors of Solent University and
chairs the Audit Committee of World Sailing.
Mr Cotton was appointed to the Board on 14 June 2019.
PHILIP WALKER
Mr Walker (39) is the Group’s Chief Executive Officer. He joined
Pennant in 2014 as Chief Financial Officer, being promoted to CEO
in February 2017.
He is a practising solicitor with extensive experience in corporate
and commercial law and practice, gained advising AIM-quoted and
private companies particularly in the engineering, manufacturing
and software sectors. Prior to joining Pennant, he was with the
law firm Charles Russell Speechlys.
As Commercial & Risk Director, Mr Clements is responsible for
commercial, risk management, administrative and infrastructure
functions across the Group, seeking to ensure the Group’s legal
and commercial position is appropriately protected.
Mr Clements also acts as Company Secretary to all Group
companies, advising the Chairman on corporate governance
matters and being available as a ‘sounding board’ for other
Directors. Mr Clements works closely with the Company’s
nominated adviser to ensure proper management of investor
relations, company law and AIM compliance. He is experienced
on public company regulatory compliance and Takeover Code
matters.
Mr Walker is a chartered accountant and qualified corporate
finance professional.
Mr Clements is a member of the Strategy Committee.
Prior to joining the Company, Mr Walker worked for Grant
Thornton UK LLP and Barclays Bank Plc. At Grant Thornton, he
led numerous corporate finance transactions (both buy side and
sell side) and developed and implemented strategic plans for a
number of businesses.
While at Barclays, Mr Walker worked with businesses with a
turnover of between £5 million and £50 million, focusing on debt
structuring, including working capital, investment, trade finance
and the restructuring of facilities. He provided structuring advice
on various types of corporate transactions.
Since joining Pennant, Mr Walker has brought this experience to
bear in driving the review, renewal and implementation of Group
strategy.
Mr Walker is responsible for the day-to-day running of all Group
businesses and the execution of Group strategy. He is a member
of the Strategy Committee.
MERVYN SKATES
Mr Skates (56) is the Operations Director. He joined Pennant as
Chief Operating Officer in January 2019 and was appointed to the
Board as Operations Director effective 1 January 2020.
Mr Skates heads up the Group’s technical training business in
the UK, Europe and Middle East and is also responsible for the
delivery of key projects, business planning and organisational
change.
Prior to joining Pennant, Mr Skates held various senior operational
roles within BAE Systems most recently as Operations Director
for BAE Systems SDT in Saudi Arabia which operates a large
aviation training facility.
Mr Skates is a member of the Strategy Committee.
22
PENNANT ANNUAL REPORT 2019 CORPORATE GOVERNANCE REVIEW
MAINTAINING THE BOARD’S SKILLS
The Directors acknowledge their responsibility to maintain their skills, knowledge and competences. For example, Directors complete
appropriate ‘continuing professional development’ in support of their respective professional qualifications and attend forums and
briefings organised by trade bodies on industry developments and wider changes.
Prior to any appointment being made to the Board, any prospective Director is subject to a full due diligence exercise conducted by
the Company’s nominated adviser which addresses such issues as experience, skills and competences (as well as vetting for adverse
court judgements and disqualifications).
The Board seeks guidance from external advisors when appropriate such as financial and legal due diligence on the ASP and ADG
acquisitions.
Based on the skills and expertise highlighted in the profiles of each Director above, the Board is confident that it has the necessary mix
of capabilities, experience and personal qualities to deliver the Group’s strategic objectives.
23
PENNANT ANNUAL REPORT 2019 CORPORATE GOVERNANCE REVIEW
THE COMMITTEES
AUDIT & RISK COMMITTEE
The Audit & Risk Committee’s role is to determine and apply policy
on behalf of the Board to the financial reporting, internal controls
and risk management framework of the Company and to maintain
an appropriate relationship with the Company’s auditors.
The Committee comprises all Non-Executive Directors. During
the reported period the Committee was chaired by Christopher
Powell (until his resignation
in May) and then, from his
appointment on 14 June 2019, by Phil Cotton. It typically meets at
least twice a year at appropriate times in the reporting and audit
cycle and otherwise as required.
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.
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).
STRATEGY COMMITTEE
The Strategy Committee was established in April 2018 to consider,
review and approve the strategic objectives and plans of the Group
as may be proposed by the Executive Directors and to provide
guidance and make recommendations as appropriate to the
Board and senior management of the Group as to the formulation
and implementation of strategy.
The Committee currently comprises all Directors and during the
reported period was chaired by John Ponsonby.
During the year, the Committee, operating under its Terms
of Reference, discharged its responsibilities by holding two
Committee meetings at which various business plans and
investment cases were presented and certain strategic
programmes were approved.
ATTENDANCE
Directors are required to devote such time and effort to their
duties as is required to secure their proper discharge and, for
Non-Executive Directors, this typically entails one or two days
of meetings per month as well as reading and preparation time.
A full pack of management information (in consistent, agreed
form) is provided to the Board in advance of every meeting. Each
Executive Director has a full-time service agreement.
The Committee comprises all Non-Executive Directors and during
the reported period was chaired by Simon Moore.
Directors’ attendances at meetings of the Board and
Committees during 2019 were as follows:
its
During the year, the Committee, operating under its Terms of
Reference, 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.
BOARD
AUDIT & RISK
COMMITTEE
REMUNERATION
COMMITTEE
STRATEGY
COMMITTEE
Simon Moore
Christopher Powell (resigned 1 May 2019)
John Ponsonby
Phil Cotton (appointed 14 June 2019)
Philip Walker
David Clements
Gary Barnes (resigned 21 November 2019)
9/10
2/2
10/10
6/6
10/10
10/10
8/9
2/2
1/1
2/2
1/1
-
-
-
2/2
1/1
2/2
1/1
-
-
-
2/2
-
2/2
1/1
2/2
2/2
2/2
24
PENNANT ANNUAL REPORT 2019 CORPORATE GOVERNANCE REVIEW
COMPLIANCE WITH CORPORATE
GOVERNANCE CODES
The Company has adopted the QCA Corporate Governance Code
and a detailed statement of the Company’s compliance against
the code (together with references to supporting material) is
provided on the Group’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 led by the Chief Executive Officer.
FINANCIAL CONTROL
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 it
can only provide reasonable, but not absolute, assurance against
misstatement or loss.
Since the departure of the former Finance Director, Gary Barnes,
in November 2019 the executive within the Group responsible for
day-to-day financial management of the Group’s affairs has been
the Chief Executive Officer (with delegation to the Interim CFO and
Financial Controller) under the supervision of the Audit & Risk
Committee.
The Executive Directors have established a management and
reporting framework across the Group, supported by an Executive
Committee comprising the Executive Directors together with the
managing directors of the OmegaPS and the ADG/R4i business.
The Executive Directors participate in and provide information
and support to the Audit Committee as and when the Audit & Risk
Committee so requests.
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.
Key performance indicators (at both a contract and functional
level) are reported monthly, providing visibility and accountability
across the business leading to better products and services for
customers, allowing effective risk management, and ensuring the
Group retains its quality accreditations.
Governance Structure
BOARD
SIMON MOORE (CHAIR)
PHILIP WALKER
PHILIP COTTON
JOHN PONSONBY
MERVYN SKATES
DAVID CLEMENTS
AUDIT & RISK COMMITTEE
PHILIP COTTON (CHAIR) SIMON
MOORE
JOHN PONSONBY
EXECUTIVE DIRECTORS
PHILIP WALKER (CEO)
MERVYN SKATES
DAVID CLEMENTS
REMUNERATION COMMITTEE
SIMON MOORE (CHAIR)
PHILIP COTTON
JOHN PONSONBY
STRATEGY COMMITTEE
JOHN PONSONBY (CHAIR)
SIMON MOORE
PHILIP WALKER
MERVYN SKATES
DAVID CLEMENTS
PHILIP COTTON
EXECUTIVE COMMITTEE
PHILIP WALKER (CHAIR)
DAVID CLEMENTS
MERVYN SKATES
JONATHAN PATTERSON
TAMMY HALTER
MICHAEL BRINSON
25
PENNANT ANNUAL REPORT 2019
RISK MANAGEMENT REVIEW
Group-wide risk management is ultimately the responsibility
of the Board (supported by the Audit & Risk 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).
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 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
by the Audit & Risk Committee (and the Board as appropriate).
CORONAVIRUS (COVID-19) RISK
The impact of Covid-19 on the Group (and the Group’s response
thereto) is described in more detail on page 7 (Chairman’s
Statement) and within note 3 of the Notes to the Financial
Statements.
KEY RISKS
Key risks to the Group (and the relevant mitigants and controls
employed by the Group) are explained below.
These are the risks which the Board considers, as at the date
of this report, are the most critical to the continued operation of
the Group and the achievement of its strategic objectives. 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.
26
PENNANT ANNUAL REPORT 2019 RISK MANAGEMENT REVIEW
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION 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
80% of its revenues for 2019 deriving
from defence contracts.
A reduction in defence
spending leads to reduced
orders, adversely affecting
the Group’s revenue and
profit.
Exposure to reputational
risks arising from sub-con-
tracting to defence primes
supplying into geo-politically
sensitive regions.
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 historically the Group’s most active
area of civil diversification and the acquisition of Track
Access Services was made with the objective of growing
this part of the business.
Any new defence export opportunities are assessed for
potential reputational risk to Pennant and due regard is
given to UK government policy and guidance.
The expansion of the Group’s software and services
offerings (including via the acquisition of ADG) is a
natural mitigant to the reliance on, and risks of, high-
value engineering programmes.
It should be noted that long-term defence contracts are,
however, a foundation of the Group’s resilience during
periods of economic disruption such as that caused by
Covid-19.
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
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 (BAE, General Dynamics, Lockheed Martin),
meaning that it is not overly-reliant on any one of them.
Furthermore, the Group is always seeking to add to its
customer roster.
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 pursued wherever
possible.
It should be noted that long-term contracts with OEMs
are, however, a foundation of the Group’s resilience
during periods of economic disruption such as that
caused by Covid-19.
27
PENNANT ANNUAL REPORT 2019 RISK MANAGEMENT REVIEW
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION 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.
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.
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 Health & Safety officer and
several employees with relevant qualifications and
experience.
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
Contract pricing and delivery
The Group’s key contracts are often
on a fixed price with a fixed delivery
timeline. Performance of those
contracts may 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.
This creates a risk of mispricing a
contract.
Where a project has been keenly
priced, any delays may cause budgets
to become very strained.
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 Group’s senior
management.
in
The Group’s experienced Commercial
conjunction with the programme managers, monitor for
contractual ‘scope creep’ and manage change control
requests accordingly.
team,
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.
Video conferencing and remote working are able
to mitigate the effects of Covid-19 restrictions on
movements and gatherings.
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 mispriced 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 current Covid-19
pandemic has the potential
to impact the Group’s ability
to hold key contractual
meetings, with associated
inability to realise payment
milestones. The Chairman’s
Statements provides more
detail.
28
PENNANT ANNUAL REPORT 2019
RISK MANAGEMENT REVIEW
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION 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.
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. The Group will seek extensions of time or
compensation for out-of-scope work where its contract
delivery is impacted by data delays.
If a programme ultimately terminates due to this risk
eventuating, the Group will have a right to payment for
work done until termination.
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
Contract profiles
The Group’s turnover, profits and
cashflows are, particularly in the
Technical Training division, reliant
on the award and timely delivery of a
small number of high-value contracts.
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.
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 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).
The expansion of the Group’s software and services
offerings (including via the acquisition of ADG) is a
natural mitigant to the reliance on, and risks of, high-
value engineering programmes.
29
PENNANT ANNUAL REPORT 2019 RISK MANAGEMENT REVIEW
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION 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.
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.
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 to another.
The Group’s infrastructure capacity has been rapidly
scaled up (with support from long-term trusted IT
vendors) and the surge in demand caused by Covid-19
has been successfully managed.
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.
Widespread virtual working
due to Covid-19 restrictions
causes a significant increase
in the demands placed on the
Group’s IT infrastructure.
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
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 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 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 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.
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.
30
PENNANT ANNUAL REPORT 2019 RISK MANAGEMENT REVIEW
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
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
Union 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.
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.
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
(including changes flowing from Brexit and any related
regulatory divergences
from currently applicable
regulations).
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.
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.
31
PENNANT ANNUAL REPORT 2019 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.
Based on the performance criteria, neither the Executive Directors’ bonus scheme nor the bonus scheme for employees will pay out
in respect of the 2019 financial year (each scheme is a cash bonus scheme which pays out upon the Group meeting or exceeding
its market forecast for the year). A pay increase of 2.5% was approved for employees generally, effective 1 January 2020. Directors’
emoluments in respect of 2019 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.
Simon Moore
Chair
Remuneration Committee
17 April 2020
32
PENNANT ANNUAL REPORT 2019 REMUNERATION REPORT
DIRECTORS’ REMUNERATION
C C Powell
P H Walker
S A Moore
D J Clements
G Barnes *
J Ponsonby
P Cotton
SALARY
BONUS
BENEFITS
AND CAR
ALLOWANCE
PENSION
TOTAL 2019
£
15,000
£
-
£
-
£
-
£
15,000
2018
£
45,000
183,650
16,000
16,926
18,500
235,076
208,859
65,000
128,650
325,250
84,666
24,404
-
11,000
8,700
-
-
203
7,465
7,337
1,022
-
-
13,000
12,000
-
-
65,203
160,115
353,287
85,688
24,404
65,397
131,271
87,521
34,464
-
826,620
35,700
32,953
43,500
938,773
624,978
* The salary reported for Mr Barnes comprises payment for services rendered during the period together with a lump-sum payment
of £206,600 in respect of Mr Barnes’ notice period and other contractual entitlements.
Pension contributions shown above are pension payments into the Pennant International Group Plc Pension Scheme, a defined
contribution scheme.
There were 1,129,043 share options held by the Directors at the end of 2019 (2018: 1,799,043) as further particularised on the following
tables.
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 2019 except where indicated otherwise and their beneficial interests in the
ordinary shares of the Company were as stated below:
31 DECEMBER 2019
5P ORDINARY SHARES
31 DECEMBER 2018
5P ORDINARY SHARES
Number
Number
P H Walker
S A Moore
D J Clements
J Ponsonby
P Cotton (appointed 14 June 2019)
M Skates (appointed 1 January 2020)
19,843
79,314
18,036
13,655
-
25,000
6,349
23,264
5,291
-
-
-
33
PENNANT ANNUAL REPORT 2019 REMUNERATION REPORT
The following Directors have interests in share options of the Company as stated below:
P H Walker
S A Moore
D J Clements
J Ponsonby
P Cotton (appointed 14 June 2019)
M Skates (appointed 1 January 2020)
EMI OPTIONS
UNAPPROVED
OPTIONS
Number
Number
TOTAL
2019
Number
297,619
525,969
823,588
-
305,455
-
-
-
-
-
-
-
-
-
305,455
-
-
-
Total
603,074
525,969
1,129,043
EMI OPTIONS
Philip Walker holds 297,619 EMI options exercisable at 84.0p (granted on 18 March 2015) which have vested and are exercisable in
accordance with the terms of the option agreement.
David Clements holds 100,000 EMI options at 80.5p (granted on 12 September 2017) exercisable upon expiry of three years from the
date of grant.
Mr Clements holds a further 205,455 EMI options at 82.5p per share (granted on 26 March 2018). These options are subject to a time-
based vesting condition, becoming exercisable as to one third three years after grant, another third after four years and the final third
after five years. The options lapse upon the occurrence of certain events, including the termination of Mr Clements’ employment.
UNAPPROVED OPTIONS
Philip Walker holds 525,969 unapproved share options at 55.0p (granted on 19 April 2017), exercisable upon expiry of three years from
the date of grant.
34
PENNANT ANNUAL REPORT 2019 AUDIT & RISK COMMITTEE REPORT
During the year, the Committee operating under its Terms of Reference 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;
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).
For 2019, a particular focus for the Committee was the Company’s approach to IFRS 15 following its introduction in 2018, and to the
application of IFRS 16 (which became effective in 2019).
The Committee has continued its monitoring of the financial reporting process and its integrity, risk management systems
and assurance. The Committee has also overseen the transition of lead partners at the Company’s auditors.
The Committee has reviewed all significant issues concerning the financial statements. The principal matters we considered concerning
the 2019 financial statements were the appropriateness of the going concern assessment after consideration of the impacts arising
from the COVID 19 (Coronavirus), recognition of revenue, profit, adequacy of working capital and provisioning. We have reviewed key
estimates and management judgements prior to publication of the 2019 financial statements, including on the Qatar contract and the
General Dynamics programme.
Philip Cotton
Chair
Audit Committee
17 April 2020
35
PENNANT ANNUAL REPORT 2019 DIRECTORS’ REPORT
The Directors present their report and the audited financial statements for the year ended 31 December 2019.
DAVID CLEMENTS
“the Core Values support the Group’s strategic
objectives, linking into the Innovation and
Customer Focus themes
”
PRINCIPAL ACTIVITIES
RESEARCH & DEVELOPMENT
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.
Research and development expenditure within the Group
(involving the continued development of hardware and software
products of which a proportion has been capitalised such as the
continued development of military training devices, Virtual Reality
training systems and OmegaRail software) amounted to £2.2
million (2018: £1.5 million).
DIVIDENDS
No dividends were paid during the year (2018: £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 2019.
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, (including cash flows on major programmes), liquidity
position and borrowing available (and in discussion) facilities
together with its forecasts and projections for 12 months from
the reporting date that take into account reasonably possible
changes in trading performance and post year end events such
as Covid-19, future acquisition and potential share issues. The
going concern basis of accounting has therefore continued to be
adopted in preparing the financial statements. Further details are
provided on page 56.
POST BALANCE SHEET EVENTS
Aside from the acquisition of Absolute Data Group - already
described in the ‘About Pennant’ section, there are no post
balance sheet events to report. As described in note 36, the Group
are treating Covid-19 as a non-adjusting post balance sheet event.
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
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.
Given the Group’s customer base (government bodies and major
OEMs), credit risk is not considered a significant factor in the
Group’s financial risk profile (although is monitored). Pricing and
cash profiling are the key financial risks arising from the Group’s
trading and these are discussed in detail on pages 26 and 31.
The Group’s exposure and approach to capital and financial risk,
and approach to managing these is set out in note 32 to the
Consolidated Financial Statements.
36
PENNANT ANNUAL REPORT 2019 DIRECTORS’ REPORT
EMPLOYEE ENGAGEMENT
The Group engages with its employees regularly through various
media including 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.
The Group’s culture and related behaviours are driven (and
closely monitored) by the Board, with employee feedback (via
opinion surveys and other channels) being delivered to the Board
periodically.
A formal set of Core Values has been established focusing on
Performance, Innovation, Quality, Respect and Teamwork. These
Core Values support the Group’s strategic objectives, particularly
linking into the Innovation and the Customer Focus themes
and, going forward, will form part of each employee’s periodic
appraisal.
Employees are key to the Group’s success and the Company
gives significant consideration to ensuring that it offers a working
environment, culture and benefits package which can attract and
retain the talented people it needs.
John Ponsonby is designated as the Non-Executive Director to
whom employees can raise any concerns regarding wrong-doing.
N O V ATION
IN
T
C
SP E
E
R
E
C
N
R MA
PE R F
O
QUA
L
I
T
Y
T
E
A
M
WOR K
INNOVATION
RESPECT
WE USE OUR KNOWLEDGE AND EXPERTISE
TO CREATE WORLD CLASS SOLUTIONS
WE BELIEVE THAT EVERYONE MATTERS
QUALITY
PERFORMANCE
WE CONTINOUSLY STRIVE TO IMPROVE
WE DELIVER ON OUR COMMITMENTS
TEAMWORK
WE ALL TAKE RESPONSIBILITY
© Pennant International Group Plc
37
PENNANT ANNUAL REPORT 2019 DIRECTORS’ REPORT
EMPLOYEE POLICIES
The Directors in office as at the date of this report, all of whom
served within the year, are named on pages 21 to 22.
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. 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.
The Company is a signatory to the UK’s Armed Forces Covenant
and welcomes applications from ex-service personnel.
POLICY ON PAYMENT OF SUPPLIERS
The Group’s policy during the year and for 2020 is to pay suppliers
in accordance with the relevant contractual terms agreed between
the Group and the supplier.
AUTHORITY FOR COMPANY TO
PURCHASE ITS OWN SHARES
Under a shareholders’ resolution of 1 May 2019, the Company
(acting by its Directors) was granted authority to purchase
through the market up to 5,406,104 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 1 May
2019, 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 AGM in 2020.
THE BOARD
The Board comprises the Chairman, the Chief Executive Officer,
the Commercial & Risk Director, the Operations Director and the
Non-Executive Directors.
The Board typically meets ten times per year 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 (who is a qualified
solicitor).
One third of the Directors are subject to retirement by rotation
every year. Accordingly, David Clements retires by rotation at the
AGM and being eligible, offers himself for re-election.
DIRECTORS’ INDEMNITY
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.
SIGNIFICANT SHAREHOLDINGS
As at 31 December 2019 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.
INVESTOR
Powell C C Esq
Canaccord Genuity Group
BGF Investment Management Limited
Liontrust Asset Management
Killik & Co LLP
Downing LLP
38
NUMBER OF SHARES HELD
% INTEREST IN THE TOTAL
VOTING RIGHTS OF PENNANT
6,278,253
5,416,922
4,090,909
3,663,077
1,797,555
1,777,377
17.38
15.00
11.33
10.14
4.95
4.92
PENNANT ANNUAL REPORT 2019 DIRECTORS’ REPORT
POLITICAL DONATIONS
The Group did not make any political donations during 2019 (2018:
£NIL).
MATTERS COVERED IN THE STRATEGIC
REPORT
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 6 to 8 and the Chief Executive’s review on pages 10 to
13).
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 15 May 2020. 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 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.
Approved by the Board on 17 April 2020
and signed on its behalf
D J Clements
Director
39
PENNANT ANNUAL REPORT 2019 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:
•
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 entity’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 will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’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.
Approved by the Board on 17 April 2020
and signed on its behalf
D J Clements
Director
40
PENNANT ANNUAL REPORT 2019
41
PENNANT ANNUAL REPORT 2019 FINANCIAL STATEMENTS
The following section outlines
the results for the period
ended 31 December 2019.
42
PENNANT ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
OPINION
We have audited the financial statements of Pennant International
Group PLC (the ‘company’) and its subsidiaries (the ‘group’) for
the year ended 31 December 2019 which comprise Consolidated
and Company Income Statement, Consolidated and Company
Statement of Comprehensive Income, Consolidated and Company
Statement of Financial Position, Consolidated and Company
Statements of Changes in Equity, Consolidated and Company
Statements of Cash Flows and notes to the Consolidated
and 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.
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 2019
and of the group’s and the parent company’s loss for the
year then ended;
• have been properly prepared in accordance with IFRSs
as adopted by the European Union; and
• 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 as applied to listed entities, 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.
MATERIAL UNCERTAINTY RELATED TO
GOING CONCERN
We draw attention to page 7 in the financial statements, which
sets out the Directors’ view on the impacts of the COVID-19
coronavirus on the sector in which the group and parent company
operates and on the group and parent company itself. As stated in
note 3, these events or conditions, along with the other matters as
set forth in note 36, indicate that a material uncertainty exists that
may cast significant doubt on the group and parent company’s
ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Explanation of material uncertainty
Since 31 December 2019 there has been a global pandemic from
the outbreak of the COVID-19 coronavirus. The potential impact of
the COVID-19 coronavirus became significant in March 2020 and
is causing widespread disruption to normal patterns of business
activity across the world, including the UK, Canada and Australia.
While the situation is still evolving, the directors have assessed
the impact of the COVID-19 coronavirus on the group and parent
company based on the information available up to 17 April 2020.
The directors have identified a material risk relating to staffing
issues at a major customer along with the ultimate customer
caused by COVID-19. This has resulted in the delay of the
execution of an agreed contractual variation to the milestone
phasing. The directors assessment of cashflows in the going
concern assessment (note 3) assumes that this variation has
been executed with the resultant acceleration of cashflows
if milestones are achieved. Furthermore, the pandemic has
caused a key contractual event, to which an anticipated £2m
milestone payment is attached, to be delayed. If further delays
are experienced on the execution of this contract variation or to
the completion of the contractual milestone event, this could lead
to the group and parent entity not operating within its current
contractual credit facilities.
As a result of this assessment, the directors have concluded that
there is a material uncertainty related to going concern.
43
PENNANT ANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
What audit procedures we performed
In forming our conclusion that there is a material uncertainty related to going concern, we evaluated how the directors’ going concern
assessment considered the impacts arising from the COVID-19 coronavirus as follows:
• We reviewed the directors’ going concern assessment, including the implications of the COVID-19 coronavirus, based on a
“most likely” (base case) scenario and a “stress tested” scenario, as approved by the board of directors on 14 April 2020. We
made enquiries of the directors to understand the period of assessment considered by the directors, the completeness of
the adjustments taken into account and the implications of those when assessing the “base case” scenario and the “stress
tested” scenario on the group and parent company’s future financial performance;
• We evaluated the key assumptions in the “base case” forecast and the “stress tested” scenario forecast and considered
whether these appeared reasonable;
• We examined the minimum committed facility headroom under the “base case” monthly cash flow forecasts and evaluated
whether the directors’ conclusions were reasonable; and
• We evaluated the adequacy and appropriateness of the directors’ disclosures in respect of the implications of the COVID-19
coronavirus, in particular disclosures within principal risks & uncertainties on page 26, post balance sheet events on page 83
and going concern on page 56.
44
PENNANT ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
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.
The below matters are in addition to the matter described in the “Material uncertainty related to going concern” section of our report.
DESCRIPTION OF KEY AUDIT MATTER:
WORK PERFORMED:
Revenue Recognition
Our procedures over revenue recognition included, but were not
limited to:
For Pennant International Group PLC we see the risk of fraud
in revenue recognition as being principally in relation to:
-
Incorrect accounting treatment of contracts arising from the
incorrect classification as either engineered solutions or off
the shelf (OTS) products leading to incorrect recognition of
revenue.
Cut off – delivery of major items were expected to occur in
December 2019. Given revenue recognition for OTS is upon
acceptance there is a risk that the revenue is not recognized
in the period in which customer acceptance is received.
Contract modification – A major contract is currently being
renegotiated following changes in scope and delays. There
is a risk that the accounting for any contract modification is
not in line with rules contained in IFRS15 and could lead to
incorrect revenue recognition.
Engineered solutions – revenue is recognized on a stage of
completion basis. There is a risk of premature recognition of
revenue due to incorrect assessment of cost to complete and
therefore stage of completion.
An assessment that revenue is recorded in accordance
with the accounting policies and that these policies are
consistent with the requirements of IFRS15 – “Revenue
from Contracts with Customers”.
- Confirmation that acceptance has been received before
OTS product revenue is recognised.
- Review of the contractual circumstances and obtaining
evidence from the customer regarding their acceptance
of the change in scope and the contract consideration.
- Challenge of the allocation of the additional contract
consideration against the performance obligations.
- Confirmation of that the treatment is in line with the
IFRS15 –
contract modification rules contained
in
“Revenue from Contracts with Customers”.
-
A detailed review, based upon a sample of contracts of
the recording of contract costs and the recognition of
revenue and profit. This included confirming that sales
invoices are raised in relation to the achievement of
agreed milestones and that revenue is based upon the
cost progression including the accuracy and robustness
of management’s estimates of costs to complete.
- Discussion with and challenge of management and its
assessment the commercial and operational risks and
how the associated financial exposures are recorded in
each contract in our sample
-
Testing on a sample basis that actual costs were
accurately recorded in the appropriate contract on a
timely basis and that contract cost accruals at the year
end were substantiated.
- Reviewed and challenged material exposures to customer
delays and re-scoping of contracts.
-
Validating the appropriate disclosures of accounting
policies and information required by IFRS 15.
Our observations:
No material misstatements were identified as a result of the audit procedures performed.
45
PENNANT ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
OUR APPLICATION OF MATERIALITY
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Financial Statement materiality
£122,000
How we determined it:
Materiality has been determined with reference to a benchmark of underlying Earnings
before interest and taxation, of which it represents 5%.
Rationale for benchmark applied:
Performance materiality
Reporting threshold
We used underlying Earnings before interest and taxation 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
75% of our financial statement materiality, namely £91,500.
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £3,700 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.
The company financial statement materiality has been set as 2% of net assets, namely £170,000. Performance materiality has been
set at approximately 75 per cent of our financial statement materiality, namely £127,000.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements such as making assumptions on significant accounting
estimates.
We gained an understanding of the legal and regulatory framework applicable to the group and company, the structure of the group
and the parent company and the industry in which it operates. We considered the risk of acts by the company which were contrary to
the applicable laws and regulations including fraud. We designed our audit procedures to respond to those identified risks, including
non-compliance with laws and regulations (irregularities) that are material to the financial statements.
We focused on laws and regulations that could give rise to a material misstatement in the financial statements, including, but not
limited to, the Companies Act 2006.
We tailored the scope of our group audit to ensure that we performed sufficient work to be able to give an opinion on the financial
statements as a whole. We used the outputs of a risk assessment, our understanding of the company and groups, accounting processes
and controls and its environment and considered qualitative factors in order to ensure that we obtained sufficient coverage across all
financial statement line items.
Our tests included, but were not limited to, 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 irregularities
including fraud or error, review of minutes of directors’ meetings in the year and enquiries of management..
The risks of material misstatement, including due to fraud that had the greatest effect on our audit, are discussed under “Key audit
matters” within this report.
46
PENNANT ANNUAL REPORT 2019 INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
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 specified
by law are not made; or
• we have not received all the information and explanations
we require for our audit.
RESPONSIBILITIES OF DIRECTORS
in the directors’ responsibilities
As explained more fully
statement set out on page 40, 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.
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 and was performed by the group
audit team. At the 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.
47
PENNANT ANNUAL REPORT 2019 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.
USE OF THE AUDIT REPORT
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.
Tim Hudson (Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
90 Victoria Street
Bristol
BS1 6DP
17 April 2020
48
PENNANT ANNUAL REPORT 2019 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Land & buildings impairment
Goodwill impairment
Restructuring expenses
Other Administration expenses
Administrative expenses
Other income
Operating (Loss)/Profit
Finance costs
Finance income
(Loss)/Profit before taxation
Taxation
(Loss)/Profit for the year attributable to the equity holders
of the parent
Earnings per share
Basic
Diluted
NOTES
5
8
8
8
8
10
11
12
14
2019
£
2018
£
20,429,990
21,069,223
(13,079,052)
(12,806,223)
7,350,938
8,263,000
(819,496)
(1,169,072)
(654,248)
-
-
-
(6,545,440)
(5,093,520)
(9,188,256)
(5,093,520)
319,663
-
(1,517,655)
3,169,480
(110,655)
(1,700)
156
10,857
(1,628,154)
3,178,637
133,812
(32,712)
(1,494,342)
3,145,925
(4.16p)
(4.16p)
9.49p
8.67p
The accompanying notes on pages 55 to 83 are an integral part of these financial statements.
49
PENNANT ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
NOTES
2019
£
2018
£
(Loss)/Profit for the year attributable to the equity
holders of the parent
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations
Deferred tax charge - share based payments
Items that will not be reclassified to profit or loss
Net revaluation gain
Deferred tax credit – property, plant and equipment and intangibles
26
17
26
Total comprehensive income for the period attributable to the equity
holders of the parent
(1,494,342)
3,145,925
(49,259)
(102,762)
370,197
(62,933)
(34,086)
-
-
-
(1,339,099)
3,111,839
50
PENNANT ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
NOTES
2019
£
2018
£
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Corporation tax recoverable
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Bank overdraft
Current tax liabilities
Lease liabilities
Total current liabilities
Net current assets
Non-current liabilities
Lease Liabilities
Trade and other payables
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
15
16
17
18
26
19
20
21
22
21
23
23
25
26
27
28
923,349
3,391,411
6,284,769
971,296
-
11,570,825
570,724
9,372,767
869,247
497,039
11,309,777
951,939
1,660,292
6,889,346
-
198,432
9,700,009
1,923,639
5,184,533
-
1,848,954
8,957,126
22,880,602
18,657,135
3,929,527
2,739,278
-
209,113
6,877,918
4,431,859
833,616
-
325,215
-
1,158,831
8,036,749
4,478,039
-
42,247
5,350
4,525,636
4,431,490
20,383
23,105
-
50,000
93,488
4,619,124
14,843,853
14,038,011
1,805,730
5,100,253
200,000
6,686,581
248,667
802,622
1,685,177
3,168,870
200,000
8,225,321
297,926
460,717
14,843,853
14,038,011
Approved by the Board and authorised for issue on 17 April 2020.
P H Walker
Director
The accompanying notes on pages 55 to 83 are an integral part of these financial statements.
51
PENNANT ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
SHARE
CAPITAL
SHARE
PREMIUM
(SEE BELOW)
£
£
CAPITAL
REDEMPTION
RESERVE
(SEE BELOW)
£
RETAINED
EARNINGS
TRANSLATION
RESERVE
(SEE BELOW)
REVALUATION
RESERVE
(SEE BELOW)
TOTAL
EQUITY
£
£
£
£
At 1 January 2018
1,647,177
2,677,571
200,000
7,982,360
332,012
489,007
13,328,127
Total Comprehensive
Income for the year
Adjustment on initial
application of IFRS 15
Other comprehensive
income
Total comprehensive
income
Issue of New Ordinary
Shares
Recognition of share
based payment
Deferred tax on share
options
Transfer from
revaluation reserve
-
-
-
-
-
-
-
-
-
3,145,925
(3,151,644)
-
-
-
-
3,145,925
(3,151,644)
-
(34,086)
-
(34,086)
1,647,177
2,677,571
200,000
7,976,641
297,926
489,007
13,288,322
38,000
491,299
-
-
-
-
-
-
-
-
-
-
-
103,983
116,407
28,290
-
-
-
-
-
-
-
529,299
103,983
116,407
(28,290)
-
At 31 December 2018
1,685,177
3,168,870
200,000
8,225,321
297,926
460,717
14,038,011
(Loss) for the year
Other comprehensive
income
Total comprehensive
income
Issue of New Ordinary
Shares
Recognition of share
based payment
Transfer from
revaluation reserve
-
-
-
-
-
-
(1,494,342)
-
-
(1,494,342)
(165,695)
(49,259)
370,197
155,243
1,685,177
3,168,870
200,000
6,565,284
248,667
830,914
12,698,912
120,553
1,931,383
-
-
-
-
-
-
-
-
93,005
28,292
-
-
-
-
-
2,051,936
93,005
(28,292)
-
At 31 December 2019
1,805,730
5,100,253
200,000
6,686,581
248,667
802,622
14,843,853
52
PENNANT ANNUAL REPORT 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
SHARE CAPITAL
This represents the issued share capital of the Company.
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.
53
PENNANT ANNUAL REPORT 2019 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2019
Net cash from operations
Investing activities
Interest received
Payment for acquisition of subsidiary, net of cash acquired
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds on disposal of property, plant & equipment
Net cash used in investing activities
Financing activities
Proceeds from issue of ordinary shares
Loan repayments
Repayment of lease liabilities
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rates
Cash and cash equivalents at end of year
NOTES
29
11
35
16
17
28
23
21
21
2019
£
2018
£
(2,210,706)
5,012,123
156
(406,496)
(2,200,775)
(405,095)
-
(3,012,210)
2,051,936
(598,776)
(272,178)
1,180,982
(4,041,934)
10,857
-
(1,583,760)
(3,561,439)
1,600
(5,132,742)
529,299
-
(4,647)
524,652
404,033
1,848,954
1,502,655
(49,259)
(57,734)
(2,242,239)
1,848,954
54
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
1. GENERAL INFORMATION
IFRS 16 – LEASES
Pennant International Group plc is a public company incorporated
in England and Wales 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. All values are rounded to the nearest
pound except where otherwise stated. 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 2019
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 2019 with the exception of IFRS 16 – ‘Leases’ whose
impact is disclosed below:
•
•
•
•
•
•
‘Annual Improvements to IFRS Standards 2015–2017
Cycle,’1 January 2019.
‘Prepayment Features with Negative Compensation
(Amendments to IFRS 9)’ 1 January 2019.
‘Long-term Interests in Associates and Joint Ventures
(Amendments to IAS 28)’ 1 January 2019.
‘Plan Amendment, Curtailment or Settlement
(Amendments to IAS 19)’ 1 January 2019.
IFRIC 23 ‘Uncertainty over Income Tax Treatments’
1 January 2019
IFRS 16 ‘Leases’ 1 January 2019
The Group has adopted the modified retrospective approach in
respect of IFRS 16. Under this approach, the cumulative effect
of initially applying IFRS 16 is recognised as an adjustment to
equity at the date of initial application (e.g. 1 January 2019). The
implementation of IFRS 16 on 1 January 2019 created an asset of
£645,261, adjusted for prepayment balances and an equal liability.
This lease liability related to leases that had been classified as
‘operating leases’. These liabilities were measured at the present
value of the remaining lease payments, discounted using the
lessee’s incremental borrowing rate as of 1 January 2019. The
weighted average lessee’s borrowing rate applied to the lease
liabilities on 1 January 2019 was 9%.
For leases previously classified as finance leases the Group
recognised the carrying amount of the lease asset and liability
immediately before transition and the carrying amount of the
right-of-use asset and the lease liability at the date of initial
application. The measurement principles of IFRS 16 are only
applied after that date.
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
• Applying a single discount rate to a portfolio of leases
with reasonably similar characteristics;
• Accounting for ‘operating leases’ with a remaining lease
term of less than 12 months as at 1 January as short-
term lease;
• Excluding initial direct casts from the measurement of
the right of use asset at the date of initial application;
and
• Using hindsight in determining the lease term where
the contract contains options to extend or terminate the
lease.
The amortisation profile and the liability do not precisely match
and, including the additional leases entered into during 2019, this
had a positive effect of £87,997 on EBITA and a positive effect on
profit before tax for the period of approximately £6,872.
3. ACCOUNTING POLICIES
The adoption of the following mentioned standards, amendments
and interpretations in future years are not expected to have a
material impact on the Group’s financial statements:
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
•
•
•
‘Definition of a Business (Amendments to IFRS 3)’
1 January 2020.
‘Definition of Material (Amendments to IAS 1 and IAS 8)’
1 January 2020.
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.
IFRS 17 ‘Insurance Contracts’
1 January 2021.
55
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
GOING CONCERN
Accounting standards require
the Directors satisfy
themselves that it is reasonable for them to conclude whether
it is appropriate to prepare the financial statements on a going
concern basis.
that
that will allow access to a £4 million overdraft facility. This
represents an increase over the contracted facility of £1 million.
Finally, the Group has implemented the Coronavirus Job Retention
Scheme & a ‘time to pay’ agreement with HMRC, and its recent
acquisition, Absolute Data Group Pty Ltd, is delivering a strong
pipeline of recurring software revenue opportunities which will
deliver cash resources to further support the Group.
ANALYSIS OF CURRENT BUSINESS
PROSPECTS
SUMMARY OF ASSESSMENT
METHODOLOGY
The Directors have undertaken an assessment of the future
prospects of the Group and parent Company (the ‘Group’), taking
into account the Group’s current position and principal risks. This
review considered both the Group’s prospects and also its ability
to continue in operation and to meet its liabilities as they fall due
over the 12 month period (‘review period’) following approval
of these financial statements. This review also considered the
potential impacts of the COVID-19 coronavirus on the sector in
which the Group operates and on the Group itself. The Covid-19
risks are detailed in the Chairman’s Statement and the risk
scenarios tested are detailed in the ‘summary of assessment
methodology’ below. As detailed in note 36, the Group are treating
Coronavirus as non-adjusting post balance sheet event as the
impact of the virus in the countries in which Pennant operate was
only experienced in the year ending 31 December 2020.
The Group enjoys a strong contracted order book of £33 million,
of which £16 million is scheduled for recognition in 2020 with the
remaining balance scheduled across 2021 (£10 million) and 2022
(£7 million). This contracted order book is primarily underpinned
by military expenditure of UK, European, Middle East, North
American and Australian Governments. Such Government
expenditure has proved to be resilient in times of economic
contraction. There is, however, a degree of concentration risk
with four contracts representing c.55% of the forecast order book
recognition scheduled for 2020.
The Group has taken action to renegotiate its contract milestone
profile on two major programmes which will significantly enhance
liquidity in 2020. This re-profiling will have the benefit of pulling
forward in excess of £4 million of contract receipts into 2020
providing that the revised contract milestones are achieved.
However, due to the Coronavirus pandemic and necessary
restrictions on employee movements and access to customer
facilities there is a risk that customer acceptance of the various
milestones may be delayed and the resulting cash payments
delayed. At the date of signing the accounts, in one of programmes
mentioned above the Coronavirus has resulted in a delay (not
expected to be more than four weeks) in a milestone review and
a delay in the execution on the agreed contract rescheduling to
which a milestone payment of £2 million is attached.
The Group has a £3 million annually renewing overdraft facility
in place with its bankers, Barclays. However, given the current
economic situation the Group has operational flexibility agreed
with Barclays to extend this limit and honour payments up to £3.5
million. In addition, we are in advanced refinancing discussions
The Director’s assessment of the Group’s prospects was informed
by the following processes.
Risk management and annual business planning process – the
Group has a well-developed approach to the management of
risk, and emerging risks identified by the Board. These risks are
reviewed and factored into the annual business plan which is
aligned to the Group’s strategic objectives.
Cash flow and scenario analysis and ‘reverse stress’ testing –
based on the output from the business plan, the Directors have
reviewed the Group’s forecast working capital requirements, cash
flow, committed borrowing facilities and other funding options
available to the Group over the review period. This analysis
included scenario testing of multiple adverse factors and ‘reverse
stress testing’ of the Group’s cash flow under severe but plausible
scenarios. Example scenarios included the following:
•
•
•
Test 1: Delays in / failure of the Group’s current £4
million facility refinancing discussions;
Test 2: Delays of up to two months in achieving contract
milestones on two major programmes; and
Test 3: A hybrid scenario including a delay of between one
and two months in one of the major programmes and a
delay in / failure of the Group’s refinancing discussions.
In all of the tests below the Directors included downside risks
such as:
• Reductions in certain overseas contract revenues (e.g.
North America and Australia) as a result of employee
availability arising from the Coronavirus pandemic; and
• Removal of all uncontracted revenue opportunities from
the review period.
In all but one of the ‘stress test’ scenarios detailed above, the
Group remained within its currently available facilities of £3.5
million. The hybrid scenario highlighted a potential risk of
exceeding available bank facilities by up to £0.2 million for a
period of not more than one month if there was a two month delay
in the programme and the Group failed to secure the £4 million
overdraft in the same period. However, this risk can be mitigated
by further actions available to the Directors as detailed below, for
example implementing the VAT payment holiday would eliminate
this risk.
56
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
In addition, the Directors believe that the risk of an extended delay
(e.g. in excess of two months) in this programme is relatively low
given the importance of the Group’s contractual delivery within
the customer’s overall programme’s critical path.
Furthermore, in relation to credit risk, this contract is ultimately
UK Government-backed through providing products and services
to major defence OEMs, and following the recent Government
statement that no invoice payments to those OEMs would be
delayed this contributes to the Board’s assessment of reduced
credit risk in relation to forecast receipts from these major
defence OEMs.
Finally, the Directors’ discussions with a UK bank to provide the
£4 million facility are at an advanced stage and believe these
discussions will be concluded within the next four weeks.
In making such future assessments and scenario analysis detailed
above, especially given the timing, quantum and uncertainty
around the Coronavirus impact, it should be recognised that they
are subject to a level of uncertainty, and this level of uncertainty
increases with time and, therefore, future outcomes cannot
be guaranteed or predicted with certainty. The impact of this
uncertainty in relation to Covid-19 could be material on the Group
if it continues for an extended period across its countries of
operation such as UK, North America and Australia.
MEASURES TAKEN TO DATE BY THE
DIRECTORS TO REDUCE RISK AND
IMPROVE CASH FLOW
In the scenarios discussed above, the Directors have included the
following mitigants:
•
Implementation of the UK Government Coronavirus
Job Retention Scheme and a three month ‘time to pay’
arrangement with HMRC for UK PAYE; and
• Renegotiated critical contract milestones and supplier
payments in support of these contracts. As noted above,
Covid-19 has already caused a delay in executing an
agreement on one programme.
FURTHER MITIGATION OPPORTUNITIES
AVAILABLE AND POTENTIAL UPSIDES
In the scenarios discussed above the Directors have not included
the following mitigants:
•
Implementing the Government’s further initiatives e.g.
VAT payment holidays. The Directors welcome this
Government initiative and intend to take full advantage
of the cash flow benefit provided by this or similar future
schemes;
• A number of our programmes have been awarded ‘key
worker’ status which will limit the impact of Coronavirus
on certain programmes in the UK, North America and
Australia. We continue to work with our partners to limit
the impact of the Coronavirus;
•
•
The Group is in advanced refinancing discussions which
will allow access to a £4 million overdraft facility. This
represents an increase over the current facility of £3.5
million by £0.5 million. In addition, other potential
financial options include the Coronavirus Business
Interruption Loan Scheme and the Directors will seek to
secure access to further funding should this be required;
In the case that the Coronavirus pandemic extends and
deepens we will review and restructure the Group’s
global cost base and ensure the teams are focused on
delivering opportunities in the most profitable and cash-
generative products (e.g. recurring software revenues);
and
• Uncontracted revenue opportunities excluded from
the scenarios above: there are two major programmes
currently in discussion that have a high probability of
being signed in 2020 and therefore contribute favourably
to cash flow in the second half of 2020 and early 2021.
MATERIAL UNCERTAINTY AND GOING
CONCERN CONCLUSION
Following the review outlined above, the Directors have identified
a material uncertainty relating to staffing issues at a major
customer along with the ultimate customer caused by COVID-19.
This has resulted in the delay of the execution of an agreed
contractual variation to the milestone phasing. The Directors’
assessment of cash flows in the going concern assessment
assumes that this agreed variation has been executed with the
resultant acceleration of cash flows if milestones are achieved.
Furthermore, the pandemic has caused a key contractual event,
to which an anticipated £2 million milestone payment is attached,
to be delayed by a short period (expected to be less than four
weeks). If further delays are experienced on the execution of
this contract variation or to the completion of the contractual
milestone event, this could lead to the Group not operating within
its current credit facilities. However, the Directors have numerous
mitigation strategies highlighted above to reduce / remove this
material uncertainty.
57
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
In summary, the Directors have concluded that there is a material
uncertainty with regard to the anticipated cash flows on major
contracts as a direct result of the Covid-19 pandemic. Whilst
this material uncertainty may cast doubt on the Group’s ability
to continue to operate within its agreed facilities in the review
period, the Directors have, at the time of approving the financial
statements, identified various mitigation strategies that provide a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. For
this reason, the Directors continue to adopt the going concern
basis 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.
REVENUE RECOGNITION
TECHNICAL TRAINING SOLUTIONS – ENGINEERED
SOLUTIONS
Where the outcome of an engineered solution can be estimated
reliably, revenue and costs are recognised by reference to the
stage of completion of the construction 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 an engineered solution 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.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
TECHNICAL TRAINING SOLUTIONS – GENERIC
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 is recognised upon customer acceptance of the product
in accordance with the relevant contract.
TECHNICAL SUPPORT SERVICES
Revenues arising from the support contracts provided to
customers are invoiced in advance but recognised as revenue
across the period to which the support agreements relate.
Amounts not taken to revenue at a period end are shown in the
statement of financial position as a contract liability.
OMEGAPS – LICENCES AND SUPPORT CONTRACT
Revenues arising from the OmegaPS licences are recognised at
the point of sale or in relation to fixed term licences the revenue
will be recognised over the term of the licence. Any associated
maintenance contract being invoiced in advance but recognised
as revenue across the period to which the maintenance support
agreements relate. Amounts not taken to revenue at a period
end are shown in the statement of financial position as contract
liability.
OMEGAPS – CONSULTANCY
Revenue is recognised on a time and materials basis on the basis
of the amount which the group has the right to invoice.
58
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
LEASES AND RIGHT-OF-USE ASSETS
As explained in note 2 above, the Group has changed its accounting
policy for leases where the Group is the Lessee. The new policy is
described below and the impact of the change in note 2.
The Group leases various offices and vehicles. Lease contracts can
typically range from 6 months to in excess of 5 years. Some office
leases may have extension options. Extension and termination
options are included in a number of property leases across the
Group. These are used to maximise operational flexibility in
terms of managing the assets used in the group’s operations. The
majority of extension and termination options held are exercisable
only by the Group and not by the respective lessor.
Contracts may contain both lease and non-lease components. The
group allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone prices.
However, for leases of offices for which the group is a lessee, it
has elected not to separate lease and non-lease components and
instead accounts for these as a single lease component. Lease
terms are negotiated on an individual basis and contain a wide
range of different terms and conditions. The lease agreements do
not impose any covenants other than the security interests in the
leased assets that are held by the lessor.
Until the 2018 financial year, leases of property, plant and
equipment were classified as either finance leases or operating
leases (see note 23). From 1 January 2019, leases are recognised
as a right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the Group.
Assets and liabilities arising from a lease are initially measured
on a present value basis. Lease liabilities include the net present
value of the following lease payments:
•
•
•
•
•
fixed payments (including in-substance fixed payments),
less any lease incentives receivable;
variable lease payment that are based on an index or a
rate, initially measured using the index or rate as at the
commencement date;
amounts expected to be payable by the group under
residual value guarantees;
the exercise price of a purchase option if the group is
reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the
lease term reflects the group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee’s
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
To determine the incremental borrowing rate, the Group:
• where possible, uses recent third-party financing
received by the individual lessee as a starting point,
adjusted to reflect changes in financing conditions since
third party financing was received;
• uses a build-up approach that starts with a risk-free
interest rate adjusted for credit risk for leases which
does not have recent third party financing, and
• makes adjustments specific to the lease, e.g. term,
country, currency and security.
Where the Group is exposed to potential future increases in
variable lease payments based on an index or rate, these are
not included in the lease liability until they take effect. When
adjustments to lease payments based on an index or rate take
effect, the lease liability is reassessed and adjusted against the
right-of-use asset.
Lease payments are allocated between principal and finance
cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
•
•
•
the amount of the initial measurement of lease liability;
any
the
lease payments made at or before
commencement date less any lease incentives received;
any initial direct costs; and restoration costs.
Right-of-use assets are generally depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line basis.
If the Group is reasonably certain to exercise a purchase option,
the right-of-use asset is depreciated over the underlying asset’s
useful life. While the Group revalues its land and buildings that
are presented within property, plant and equipment, it has chosen
not to do so for the right-of-use buildings held by the Group.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months or less. Low-
value assets comprise IT equipment and small items of office
furniture.
59
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
FOREIGN CURRENCY
TAXATION
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.
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.
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.
60
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
WARRANTY PROVISIONS
Warranty 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 (except for land and buildings) 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
Nil
Net book value at 1 January 2007
being written off over 35 years on
a straight-line basis
}
Plant and equipment
10% to 25% of cost per annum
Computers
Motor vehicle
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
The amortisation of intangible assets is included in administration
expenses in the Consolidated Income Statement.
61
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
INVENTORIES
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 or a financial
liability.
TRADE AND OTHER RECEIVABLES
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.
Trade and other receivables are measured at initial recognition at
fair value, and subsequently measured at amortised cost using
the effective interest method.
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
long-term 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. The Directors estimate the
standalone selling price at contract conception based on products
supplied in similar circumstances to similar customers.
The Group assesses possible increase in credit risk for financial
assets measured at amortised cost at the end of each reporting
period. For trade receivables the simplified approach is used, and
the loss allowance is measured at the estimate of the lifetime
expected credit losses. The amount of any loss allowance 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.
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.
62
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
CAPITALISATION OF DEVELOPMENT
COSTS
The capitalisation of development costs includes judgements
over when the requirements of IAS38 intangible assets is met.
This includes confirmation that the asset is technically and
commercially feasible and the Group can demonstrate a market
for the product, which supports its future economic benefits. This
is confirmed by information received through the sales team from
existing and potentially new customers.
DEFERRED TAX ASSET RECOGNITION
The recognition of deferred tax assets (see note 26) is based upon
whether it is more likely than not that sufficient and suitable
taxable profits will be available in the future against which the
reversal of temporary differences can be deducted. To determine
the future taxable profits, reference is made to the latest available
profit forecasts.
Significant items on which the Group has exercised accounting
judgement include recognition of deferred tax assets in respect
of tax losses in Pennant International Limited both at the current
year end. Deferred tax has therefore been recognised at both dates
based on the amount of taxable profits in the profit forecasts.
KEY SOURCE OF ESTIMATION UNCERTAINTY
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 £3,111,855 (2018: £1,462,405). The products
continue to progress in a very satisfactory manner, and customer
reaction has reconfirmed management’s previous estimates of
anticipated revenues from the project. Key judgements made
in estimating the recoverability of intangible assets are revenue
growth and useful life of individual assets.
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 £923,349 (2018: £951,939)
and the review has been carried out by the directors. The review
including sensitivity analysis has shown no impairment to the
goodwill carrying value at year end with the exception of the ASP
goodwill recognised in 2019 which has been fully impaired.
63
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
5. REVENUE
An analysis of the Group’s revenue is as follows:
Technical Training Solutions
Technical Support Services
Omega PS
2019
£
2018
£
10,929,834
13,744,718
5,224,047
4,276,109
3,074,490
4,250,015
20,429,990
21,069,223
In the case of Technical Training Solutions, the customer pays a fixed amount based on a payment schedule. The performance
obligation in relation to off the shelf training products is satisfied upon customer acceptance and in relation to engineered to order
solutions upon percentage of completion based on cost. Technical Support Services (including Aviation Skills Partnership revenues)
and OmegaPS licences and supports are invoiced in advance of the contract period with the performance obligation being satisfied
over the contract period. OmegaPS consultancy services are invoiced on a monthly basis in arrears based on time and material. If the
services rendered by the Group exceed the payment, a contract asset is recognised, if the payments exceed the services rendered a
contract liability is recognised.
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 UK, Europe & Middle East; North America; and Australasia as these represent the way the Group reports
financial performance and position internally. 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
UK, Europe and Middle East
North America
Australasia
External sales
Net unallocated corporate
(costs)/receipts
Net finance income/(costs)
(Loss)/Profit before tax
SEGMENT REVENUE
SEGMENT PROFIT
2019
£
16,370,112
3,682,228
377,650
20,429,990
2018
£
17,074,182
3,675,798
319,243
21,069,223
2019
£
(119,944)
34,080
8,385
(77,479)
(1,440,176)
(110,499)
(1,628,154)
2018
£
2,874,029
165,983
102,743
3,142,755
26,725
9,157
3,178,637
Technical Training Solutions and Technical Support Services are only performed by the UK Segment, with OmegaPS being performed
by all three segments. Net unallocated costs in 2019 includes a Goodwill impairment of £1,169,072 (see note 15).
64
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
6. SEGMENT INFORMATION (CONTINUED)
6.2
SEGMENT ASSETS AND LIABILITIES
Segment assets
UK, Europe and Middle East
North America
Australasia
Eliminations on consolidation
Unallocated
Consolidated assets
SEGMENT LIABILITIES
UK, Europe and Middle East
North America
Australasia
Eliminations on consolidation
Unallocated
Consolidated liabilities
2019
£
2018
£
16,894,381
16,625,498
2,632,325
833,448
20,360,154
2,207,253
313,195
2,291,457
1,103,405
20,020,360
(1,469,792)
106,477
22,880,602
18,657,135
7,101,726
6,183,905
309,828
382,732
297,721
299,828
7,794,286
6,781,454
-
(2,287,784)
242,463
8,036,749
125,454
4,619,124
6.3
OTHER SEGMENT INFORMATION
UK, Europe and Middle East
North America
Australasia
DEPRECIATION AND AMORTISATION*
ADDITIONS TO NON-CURRENT ASSETS**
2019
£
3,218,103
20,874
34,424
3,273,401
2018
£
508,869
6,253
9,179
524,301
2019
£
2,599,070
5,900
900
2,605,870
2018
£
5,125,878
-
19,321
5,145,199
* Goodwill, Other intangibles and Property, plant & equipment, and Right-of-use assets
** Other intangibles and Property, plant & equipment
The Goodwill impairment of £1,169,072 (note 15) and Property impairment of £819,496 (note 8) relates to the UK segment.
Restructuring costs of £654,248 relates to the segments as follows: United Kingdom (£581,265) and North America (£72,983).
65
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
6. SEGMENT INFORMATION (CONTINUED)
6.4
GEOGRAPHICAL INFORMATION
The Group operates in three geographical areas – UK, Europe & Middle East; North America; and Australasia. 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*
2019
£
2018
£
2019
£
2018
£
UK, Europe and Middle East
16,370,112
17,074,182
11,045,881
9,231,096
North America
Australasia
3,682,228
377,650
3,675,798
319,243
346,936
178,008
15,955
254,526
20,429,990
21,069,223
11,570,825
9,501,577
* 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.
2019
£
-
6,787,899
2,406,121
2018
£
7,747,603
3,472,963
2,870,750
3,275,899
3,362,350
2019
£
2018
£
8,222,571
6,568,032
775,655
455,311
585,399
380,127
9,453,537
7,533,558
UK, Europe and Middle East
Customer 1
Customer 2
Customer 3
North America
Customer 3
7. STAFF COSTS
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 31)
66
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
7. STAFF COSTS (CONTINUED)
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 (LOSS)/PROFIT FOR THE YEAR
28
128
9
165
2019
£
Operating (Loss) / Profit for the year has been arrived at after charging / (crediting):
Net foreign exchange loss
Research and development costs*
Other income arising from RDEC claim (R&D)
Amortisation of intangible assets
Impairment of Goodwill**
Depreciation of property, plant and equipment
Impairment of land & buildings (note 16)
Depreciation of right-of-use
Share-based payment (note 30)
Restructuring expenses***
* In 2019 these research and development costs, £1,994,247 were capitalised (2018: £1,024,984).
** Impairment of goodwill arising on the acquisition of the subsidiary ASP (see note 15).
*** Restructuring expenses are explained in more detail in the Chief Executive’s review.
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 undertaking
Non-audit fees - other services
Total audit fees
9,999
240,277
(319,663)
469,688
1,169,072
567,226
819,496
247,919
93,005
654,248
2019
£
47,500
25,000
2,595
75,095
22
103
10
135
2018
£
5,416
455,196
-
154,489
-
369,812
-
-
103,983
-
2018
£
30,000
25,000
2,200
57,200
67
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
10. FINANCE COSTS
Interest expense for bank overdraft
Lease interest
Other interest expense
11. FINANCE INCOME
Income from bank deposits
2019
£
29,103
81,125
427
110,655
2019
£
156
2018
£
166
-
1,534
1,700
2018
£
10,857
68
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
12. TAXATION
Recognised in the income statement
Current UK tax expense
Foreign tax
Adjustment in respect of prior tax years foreign
In respect of prior years
Deferred tax expense relating to origination and reversal of
temporary differences
Deferred tax prior year adjustment
Exchange rate difference
Total P&L tax credit / (expense)
Other Comprehensive Income charge for the period – Deferred tax
Reconciliation of effective tax rate
(Loss)/Profit before tax
Tax at the applicable rate of 19.00% (2018: 19.00%)
Fixed asset differences
Income not taxable for tax purposes
Tax effect of expenses not deductible in determining taxable profit
Surrender of tax losses for R&D credits
R&D expenditure credits
Additional deduction for R&D expenditure
Foreign tax credits
Share Option deduction
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of lower rate of deferred tax
Deferred tax not recognised
Effect of adjustments for prior years
Effect of adjustments for prior years – deferred tax
Deferred tax charged directly to equity
Temporary differences not recognised in computation
Total tax credit/(expense)
2019
£
303,891
(30,978)
7,722
211,129
491,764
(235,500)
(121,175)
(1,277)
133,812
(165,695)
2018
£
-
(103,819)
(9,770)
(5)
(113,594)
84,463
-
(3,581)
(32,712)
-
(1,628,154)
3,178,641
309,348
(206,322)
-
(262,260)
(94,311)
31,342
233,489
(25,495)
27,392
74
38,765
(68,017)
218,851
(121,175)
165,695
(113,564)
133,812
(604,199)
-
598,812
(88,885)
-
-
365,604
30,125
79,933
(21,329)
9,852
(340,001)
(13,351)
-
-
10,977
(32,712)
FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
At Budget 2020, the Government announced that the main rate of Corporation Tax for the years starting 1 April 2020 and 2021 would
remain at 19%.
69
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
13. DIVIDENDS
No dividends were paid during the year (2018: £NIL). No final dividend will be proposed at the Annual General Meeting (2018: £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:
(Loss)/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
15. GOODWILL
Carrying amount:
At 1 January 2018
Currency translation
At 1 January 2019
Currency translation
Acquisition of ASP
ASP Impairment recognised in year
At 31 December 2019
2019
£
2018
£
(1,494,342)
3,145,925
NUMBER
35,901,357
2,321,543
38,222,900
NUMBER
33,133,533
3,168,134
36,301,667
£
962,133
(10,194)
951,939
(28,590)
1,169,072
(1,169,072)
923,349
Goodwill acquired in a business combination is allocated, at acquisition, to cash generating units (“CGUs”) that are expected to benefit
from that business combination. The Goodwill will not be deductible for tax purposes. The carrying amount of goodwill has been
allocated as follows:
Cash generating unit:
Pennant International Ltd
ILS Division – North America & Australasia
2019
£
583,900
339,449
923,349
2018
£
583,900
368,039
951,939
70
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
15. GOODWILL (CONTINUED)
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
the management and extrapolates cash flows for a further 3 years based on a growth rate of 10.0% (2018: 10.0%). The rate of 10% has
been used to reflect the current growth expectations of the business and contract pipeline. These forecast cash flows are discounted
at 9% per annum (2018: 12% per annum) to provide the value in use for each CGU. The discount rate has been calculated based on the
weighted average cost of capital using market data at the year end.
Key assumptions are based on past experience and external sources. No impairment of goodwill has been recorded in previous years.
In the current year, following a decision to restructure the business as a not-for-profit entity, the carrying amount of ASP exceeded
the value in use and as such the goodwill arising on acquisition was impaired. 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.
16. OTHER INTANGIBLE ASSETS
Cost
At 1 January 2018
Currency translation
Additions
At 1 January 2019
Currency translation
Additions*
At 31 December 2019
Amortisation
At 1 January 2018
Currency translation
Charge for the year
At 1 January 2018
Currency translation
Charge for the year
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
SOFTWARE
DEVELOPMENT
COSTS
TOTAL
£
£
£
114,684
(1,055)
191,791
305,420
(818)
206,528
511,130
58,156
(1,028)
50,505
107,633
(850)
124,791
231,574
279,556
197,787
1,082,273
-
1,391,969
2,474,242
-
1,994,247
4,468,489
907,753
-
103,984
1,011,737
-
344,897
1,356,634
1,196,957
(1,055)
1,583,760
2,779,662
(818)
2,200,775
4,976,619
965,909
(1,028)
154,489
1,119,370
(850)
469,688
1,588,208
3,111,855
1,462,505
3,391,411
1,660,292
*Included in software additions is £100,000 relating to the acquisition of Track Access in the year.
During 2019 the Group capitalised £1,994,247 (2018: £1,391,969) of development costs in relation to the development of seven
(2018: nine) new products, these costs will be amortised over a three-year period.
71
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
17. PROPERTY, PLANT AND EQUIPMENT
Cost / Valuation
At 1 January 2018
Currency translation
Additions
Disposal
At 1 January 2019
Currency translation
Acquisition of ASP
Additions
Transfer in year
Revaluation
Disposals
LAND AND
BUILDINGS
FIXTURES AND
EQUIPMENT
MOTOR
VEHICLES
TOTAL
£
£
£
£
3,105,477
2,343,645
-
2,693,613
-
(3,471)
867,826
(11,517)
5,799,090
3,196,483
-
-
79,225
(485,302)
-
-
(5,132)
8,068
325,870
485,302
-
-
43,351
(3,765)
-
-
39,586
(279)
-
-
-
-
-
5,492,473
(7,236)
3,561,439
(11,517)
9,035,159
(5,411)
8,068
405,095
-
-
-
At 31 December 2019
5,393,013
4,010,591
39,307
9,442,911
Depreciation
At 1 January 2018
Currency translation
Disposals
Charge for year
At 1 January 2019
Currency translation
Transfer in year
Revaluation surplus
Impairment on revaluation
Charge for the year
At 31 December 2018
Carrying amount
At 31 December 2019
At 31 December 2018
199,804
1,576,534
-
-
107,743
307,547
-
(15,370)
(370,197)
819,496
131,537
873,013
(4,414)
(8,800)
258,644
1,821,964
(3,681)
15,370
-
-
432,782
2,266,435
4,520,000
5,491,543
1,744,156
1,374,519
13,284
(407)
-
3,425
16,302
(515)
-
-
-
2,907
18,694
20,613
23,284
1,789,622
(4,821)
(8,800)
369,812
2,145,813
(4,196)
-
(370,197)
819,496
567,226
3,158,142
6,284,769
6,889,346
Land and buildings were revalued at 14 November 2019 to £4,520,000 by Andrew Forbes Limited, 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 revaluation resulted in an impairment loss being recognised in the income statement of £819,496 in respect of certain building
assets, a gain being recognised in the revaluation reserve of £403,607 in relation to certain building assets and an impairment against
previously revalued assets of £33,410. This resulted in a net gain to the revaluation reserve of £370,197.
Within the value stated for land and buildings are assets under construction totalling £Nil (2018: £402,683).
72
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
17. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
At 31 December 2019, 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 £4.5 million (2018: £5.0 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 1 in the fair value hierarchy as defined by IFRS 13 Fair Value Management. As a
result, Group properties transferred from Level 2 to Level 1 during its year ended 31 December 2019. There were no other transfers
between levels.
18. RIGHT-OF-USE ASSETS
Valuation
At 1 January 2019
Adjustment on initial application of IFRS 16
Prepayment
Currency translation
Additions
Depreciation
At 31 December 2019
19. INVENTORIES
Raw materials and consumables
Work in Progress
20. TRADE AND OTHER RECEIVABLES
Trade receivables
Contract Assets
Other receivables
VAT receivable
Prepayments
There are no unimpaired trade receivables that are past due as at the reporting date.
PROPERTY
MOTOR VEHICLES
TOTAL
£
-
447,341
-
(2,555)
494,926
(144,215)
795,497
£
-
197,920
10,089
-
71,494
(103,704)
175,799
£
-
645,261
10,089
(2,555)
566,420
(247,919)
971,296
2019
£
357,807
212,917
570,724
2018
£
160,212
1,763,427
1,923,639
2019
£
3,522,059
5,484,407
4,402
-
361,899
2018
£
2,503,726
1,891,527
2,579
277,755
508,946
9,372,767
5,184,533
73
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
20. TRADE AND OTHER RECEIVABLES (CONTINUED)
No receivables have been written off as un-collectible during the year (2018: £NIL) and it has not been necessary to recognise any
impairment loss under the expected lifetime loss model.
The contract asset has been increased as a result of the delivery of commercial off-the-shelf products ahead of the billing milestones.
21. CASH AND CASH EQUIVALENTS
Bank
Petty cash
Bank overdraft
Balance as per statement of cash flows
2019
£
2018
£
493,412
1,845,644
3,627
3,310
497,039
1,848,954
(2,739,278)
-
(2,242,239)
1,848,954
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
Contract Liabilities
Trade payables
Taxes and social security costs
Other creditors and Accruals
2019
£
475,441
2,036,379
940,724
476,9843
2018
£
1,926,731
1,859,029
527,279
165,000
3,929,527
4,478,039
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
The contract liability has reduced due to engineered solutions being worked upon during the year where billing milestones had been
reached in advance of work done in the previous year.
74
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
23. LEASES LIABILITIES
Valuation
At 1 January 2019
Adjustment on initial application of IFRS 16
Currency translation
Additions
Interest expense
Repayments
At 31 December 2019
Current
Non-current
PROPERTY
MOTOR
VEHICLES
TOTAL
£
-
447,341
(3,672)
494,926
63,369
(150,830)
851,133
111,693
739,440
£
£
25,733
197,920
41
71,494
17,756
(121,348)
191,596
97,420
94,176
25,733
645,261
(3,632)
566,420
81,125
(272,178)
1,042,729
209,113
833,616
In 2019 short term lease rentals expensed amounted to £11,441. There we no value leases or variable lease payments excluded from
lease liabilities.
Lease maturity – minimum lease payments are as follows
Within 1 year
In 2-5 years
After 5 years
Reconciliation of operating leases to leases
Operating lease commitments disclosed at 31 December 2018
Discounted using incremental borrowing rate at initial application
Lease liability recognised at 1 January 2019
24. BORROWINGS
2019
£
209,113
804,076
29,540
1,042,729
2018
£
5,350
20,383
-
25,733
2019
£
750,816
(105,555)
645,261
The Group has available bank overdraft facilities of £3,000,000 that renew annually (2018: 3,000,000). Any overdraft arising from the
facility is repayable on demand and carries interest at 2.00% (2018: 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 and Pennant Support
& Development Services Limited (formerly known as Pennant Information Services Limited) and by cross-guarantees between those
companies.
75
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
25. TRADE AND OTHER PAYABLES NON-CURRENT
Contract Liabilities
26. DEFERRED TAX
At 1 January 2018
Credit/(charge) to income
Credit/(charge) to equity
Exchange differences
At 1 January 2019
Adjustment in relation to prior year
Credit/(charge) to income
Credit/(charge) to equity
Exchange differences
At 31 December 2019
2019
£
-
2018
£
23,105
ACCELERATED TAX
DEPRECIATION
OTHER
TEMPORARY
DIFFERENCES
TAX LOSSES
TOTAL
£
(300,330)
(259,796)
-
-
(560,126)
-
(235,485)
(62,933)
-
(858,544)
£
40,740
12,803
116,407
(1,640)
168,310
-
(269)
(102,762)
(1,271)
64,008
£
262,373
327,875
-
-
590,248
(121,175)
254
-
(6)
£
2,783
80,882
116,407
(1,640)
198,432
(121,175)
(235,500)
(165,695)
(1,277)
469,321
(325,215)
76
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
26. DEFERRED TAX (CONTINUED)
In the statement of financial position deferred assets and liabilities are shown without any set off as follows:
Deferred tax assets
Deferred tax liabilities
2019
£
-
(325,215)
(325,215)
2018
£
198,432
-
198,432
2017
£
310,699
(307,916)
2,783
Deferred tax has been provided at 17% (2018: 17%), the corporation tax rate that was enacted at the balance sheet date. Following the
budget speech on the 11 March 2020 the Chancellor announced the Corporation tax rate would remain at 19%.
At the reporting date the Group had unused tax losses of approximately £2.8 million (2018: £5.3 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
2019
£
-
2018
£
50,000
The Group has recognised a warranty provision in respect of contractual obligations on one major programme. During the period, the
Group incurred costs of £47,000 in relation to warranty claims and released £50,000 of the provision brought forward from 2018.
28. SHARE CAPITAL
Authorised, issued and fully paid
36,114,596 ordinary shares of 5p each (2018: 33,703,533)
2019
£
2018
£
1,805,730
1,805,730
1,685,177
1,685,177
The Company’s ordinary shares carry one vote per share, have equal rights to participate in dividends, are freely transferable and are
not redeemable.
During February 2019 2,337,160 5p ordinary shares were issued for cash consideration of £2,051,936 after expenses. In addition, during
April 2019 73,903 5p ordinary shares were issued for nil consideration. The shares issued were part of an employee SIP scheme.
On 5 March 2020 214,035 new 5p shares were issued in relation to the purchase of Absolute Data Group Pty Ltd (See page 17).
77
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
29. NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash generated from operations
(Loss)/Profit for the year
Finance income
Finance costs
Income tax (credit)/charge
Depreciation of property, plant and equipment
Impairment of property
Depreciation of right-of-use assets
Amortisation of other intangible assets
Impairment of Goodwill
Profit on disposal of property, plant and equipment
R&D tax credit
Share-based payment
Operating cash flows before movement in working capital
Decrease/(increase) in receivables
Decrease/(increase) in inventories
(Decrease) in payables and provisions (notes 22, 26 and 27)
Cash generated from operations
Tax
Interest paid
Net cash generated/(used) in operations
30. SHARE-BASED PAYMENT
2019
£
2018
£
(1,494,342)
(156)
110,657
(133,813)
567,226
819,496
247,919
469,688
1,169,072
-
(319,663)
93,005
1,529,089
3,145,925
(10,857)
1,700
32,712
154,489
-
-
369,812
-
1,117
-
103,983
3,798,881
(4,096,287)
718,640
1,352,915
(879,611)
(2,093,894)
(87,874)
(28,938)
(2,210,706)
2,022,941
(1,411,156)
5,129,306
(115,483)
(1,700)
5,012,123
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:
78
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
30. SHARE-BASED PAYMENT (CONTINUED)
OPTIONS GRANTED UNDER THE SCHEME
NUMBER OF
SHARE OPTIONS
2019
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER OF
SHARE OPTIONS
2018
WEIGHTED
AVERAGE
EXERCISE PRICE
Outstanding at 1 January 2019
Granted during the year
Exercised during the year
Outstanding at 31 December 2019
Exercisable at 31 December 2019
2,103,074
60,000
(390,000)
1,773,074
857,619
80.42p
66.00p
46.04p
87.49p
71.62p
2,207,619
655,455
(760,000)
2,103,074
1,247,619
65.58p
112.36p
69.64p
80.42p
63.63p
The average share price at the time of exercise was 79.11p.
The option prices for the outstanding share options are:
51 – 80p
81 - 100p
101 - 135p
150,000
1,243,074
380,000
The fair value of the options granted during the year under the Scheme is £36,515. The weighted average fair value is 27p.
UNAPPROVED OPTIONS
NUMBER OF
SHARE OPTIONS
2019
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER OF
SHARE OPTIONS
2018
WEIGHTED
AVERAGE
EXERCISE PRICE
Outstanding at 1 January 2019
Exercised during the year
Outstanding at 31 December 2019
Exercisable at 31 December 2019
825,969
(300,000)
525,969
-
55.18p
55.50p
55.28p
-
825,969
-
825,969
300,000
55.18p
-
55.18p
55.50p
The options outstanding at 31 December 2019 (unapproved and those under the Scheme) had a weighted average remaining contractual
life of 6.65 years (2018: 7.12 years).
The Group recognised total expenses related to equity-settled share-based payment transactions of £16,362 (2018: £103,983).
The inputs to the Black-Scholes model for all options granted in 2019 were as follows:
Expected volatility (based on historic volatility) 20% (2018:20%)
Share price at date of grant 98.56p (2018: 112.36p)
Exercise price 98.56p (2018:112.36p)
•
•
•
• Risk free rate 0.74% (2018:1.27%)
•
• Option life 10 years (2018:10 years)
•
Vesting period 3 years (2018:3 years)
Expected dividend yield 0.0% (2018:2.9%)
79
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
31. 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
32. FINANCIAL INSTRUMENTS
32.1
CAPITAL RISK MANAGEMENT
2019
£
2018
£
455,311
380,127
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.
32.2
CATEGORIES OF FINANCIAL INSTRUMENTS
Financial assets
Measured at amortised cost
Trade receivables
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Trade payables
Cash and cash equivalents
2019
£
2018
£
3,522,059
497,039
4,019,098
2,036,379
2,739,278
4,775,657
3,293,006
1,848,954
5,141,960
2,551,308
-
2,551,308
32.3
FINANCIAL RISK MANAGEMENT
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, trade
payables, other payables and borrowings that arise directly from its operations.
32.4
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 2019 and 31 December 2018 the Group had no commitments under forward exchange contracts.
80
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
32. FINANCIAL INSTRUMENTS (CONTINUED)
32.4
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
2019
£
150,945
15,090
183,815
349,850
2018
£
161,832
-
115,868
277,700
2019
£
744,501
17,750
125,893
888,144
2018
£
1,148,912
339,515
167,460
1,655,887
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 $
32.5
CREDIT RISK
IMPACT ON PROFIT
2019
£
900
488
29
2018
£
49,354
16,976
2,580
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 impairments for bad or doubtful debts have been made. At the end of the
financial year there are no material debts that are deemed to be past due.
At 31 December 2019 and 31 December 2018 there were no significant concentrations of credit risk outside of the three customers
disclosed in note 6.5. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the
statement of financial position.
81
PENNANT ANNUAL REPORT 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
32. FINANCIAL INSTRUMENTS
(CONTINUED)
REMUNERATION OF KEY
MANAGEMENT PERSONNEL
32.6
LIQUIDITY RISK
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 the year end the Group had a net overdraft of £2,242,239 (2018:
£1,848,954 funds) and net undrawn facilities of £757,761 (2018:
£1,500,000). The level of the Group’s overdraft facility is reviewed
annually.
The Group’s financial obligations consist of trade and other
payables and obligations under leases which are set out in note
22 and 23 respectively.
Trade and other payables are all payable within three months.
32.7
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% (2018: 2.00%) over base rate. 1% rise/fall
in interest rates would have decreased / increased profit for the
year by an immaterial amount (2018: immaterial).
33. CAPITAL COMMITMENTS
At 31 December 2019 the Group had capital commitments of £Nil
in respect of assets under construction (2018: £71,073).
34. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation and
are not disclosed in this note.
Barclays Bank Plc have given performance guarantees of
£738,438 (2018: £738,438 ), 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.
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 (2018: £NIL) were paid in the year in
respect of ordinary shares in which the Company’s Directors had
a beneficial interest.
35. BUSINESS COMBINATIONS
On 6 February 2019, the Company acquired the entire issued share
capital of ASH Limited, the parent company of The Aviation Skills
Partnership Limited (“ASP”). The key reason for the acquisition
was to increase access to the commercial aviation market,
diversify the business by enhancing its contracted recurring
revenue and increasing its service offering.
The initial consideration payable for the acquisition comprised a
cash payment of £250,000 on completion with a potential further
cash payment due based on completion accounts. The total
consideration was £390,262 (see below). The Directors do not
anticipate any further payments under the earn-out following the
signing of an amendment deed to the original deal. The remaining
payment of £20,000 is noted below. The initial consideration
payable in respect of the acquisition was financed by a proportion
of the proceeds generated from the Company’s allotment and
issue of 2,337,160 new ordinary shares on 1 February 2019 which
raised circa £2.1 million before expenses.
For the financial year ended 31 December 2019 ASP delivered
revenues, gross margin and a loss before tax of £419,930, £272,011
and £289,165 respectively.
Purchase Consideration ASH
Cash paid
Contingent consideration
£
370,262
20,000
390,262
The accounting treatment for the business combination (i.e.
fair value of assets and liabilities at date of acquisition and any
intangible assets or goodwill) included within these financial
statements can be summarised below:
82
PENNANT ANNUAL REPORT 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
35. BUSINESS COMBINATIONS (CONTINUED)
Assets & Liabilities recognised as a result of the acquisition
Trade receivables
Plant & equipment
Trade payables
Bank overdraft and loans
Loans
Tax payable
Net identifiable liabilities acquired
Goodwill recognised on acquisition
Purchase consideration (see above)
Purchase Consideration Net Cash out flow
Cash paid
Less bank overdraft acquired
£
105,103
8,067
(135,894)
(36,234)
(598,776)
(121,076)
(778,810)
1,169,072
390,262
£
370,262
36,234
406,496
36. POST BALANCE SHEET EVENTS
Post year-end on 28 February 2020 the Company acquired the entire issued share capital of Absolute Data Group Pty Ltd, further
details regarding the acquisition are disclosed on page 17.
In addition, Pennant are treating Coronavirus as a non-adjusting post balance sheet event as the impact of the virus in the countries
which Pennant operate (UK, Europe, Middle East, North America and Australia) was only experienced in the year ending 31 December
2020.
83
PENNANT ANNUAL REPORT 2019 COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Continuing operations
Management charges receivable
Administrative expenses
Operating (Loss) / Profit
Finance costs
(Loss) / Profit before tax
Tax charge
(Loss) / Profit after tax
Other comprehensive income
NOTES
2019
£
2018
£
1,420,240
1,301,938
(3,110,088)
(1,275,212)
(1,689,848)
26,726
(4,694)
(1)
(1,694,542)
26,725
-
(1)
(1,694,542)
26,724
-
-
4
5
Total comprehensive income attributable to equity holders
(1,694,542)
26,724
The accompanying notes on pages 88 to 93 are an integral part of these company financial statements.
84
PENNANT ANNUAL REPORT 2019 COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
SHARE
CAPITAL
SHARE
PREMIUM
CAPITAL
REDEMPTION
RESERVE
RETAINED
EARNINGS
TOTAL
EQUITY
£
£
£
£
£
At 1 January 2018
1,647,177
2,677,571
200,000
3,523,388
8,048,136
Total comprehensive income for the year
-
-
Issue of new ordinary shares
Recognition of share-based payment
38,000
491,299
-
-
-
-
-
26,724
-
103,982
26,724
529,299
103,982
At 1 January 2019
1,685,177
3,168,870
200,000
3,654,094
8,708,141
Total comprehensive income for the year
-
-
Issue of new ordinary shares
120,553
1,931,383
Recognition of share-based payment
-
-
-
-
-
(1,694,542)
(1,694,542)
-
2,051,936
93,005
93,005
At 31 December 2019
1,805,730
5,100,253
200,000
2,052,557
9,158,540
Note: see page 53 for a description of the reserves appearing in the column headings of the table above.
85
PENNANT ANNUAL REPORT 2019 COMPANY NUMBER: 3187528
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2019
NOTES
6
7
8
9
10
10
12
2019
£
6,530,040
31,668
6,561,708
33,228
4,654,653
271,732
4,959,613
2018
£
7,909,037
-
7,909,037
56,771
2,287,784
49,706
2,394,261
11,521,321
10,303,298
229,770
2,096,885
5,060
21,172
2,352,887
120,394
1,469,702
5,061
-
1,595,157
2,606,726
799,104
9,894
-
2,362,781
1,595,157
9,158,540
8,708,141
1,805,730
5,100,253
200,000
2,052,557
1,685,177
3,168,870
200,000
3,654,094
9,158,540
8,708,141
Non-current assets
Investment in subsidiaries
Right of Use Assets
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
Lease liabilities
Total current liabilities
Net current assets
Non-current liabilities
Lease liabilities
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 17 April 2020.
P H Walker
Director
86
PENNANT ANNUAL REPORT 2019
COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019
NOTES
2019
£
2018
£
Net cash from operations
13
(1,435,530)
(1,275,845)
Investing activities
Purchase of ASP
Net cash from investing activities
Financing activities
Proceeds from issue of ordinary shares
12
Net funds from leases
Net cash used in financing activities
(370,262)
(370,262)
2,051,936
(24,118)
2,027,818
-
-
529,299
529,299
Net cash increase / (decrease) in cash and cash equivalents
222,026
(746,546)
Cash and cash equivalents at beginning of year
49,706
796,252
Cash and cash equivalents at end of year
8
271,732
49,706
87
PENNANT ANNUAL REPORT 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
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. STAFF COSTS
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2019
£
895,273
123,228
43,500
1,062,001
2018
£
588,978
68,584
36,000
693,562
The average number of persons, including Executive Directors employed by the Company during the year was 7 (2018: 7).
4. FINANCE COSTS
Interest expense for bank overdraft
2019
£
(4,694)
2018
£
1
88
PENNANT ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
5. TAX
Current tax expense
Tax charge for the year
Reconciliation of effective tax rate
Profit before tax
Tax at applicable rate 19.00% (2018: 19.00%)
Tax effect of:
Expenses that are not deductible for tax
Changes in rate on deferred tax
Group relief
Total tax charge
2019
2018
£
-
-
-
-
-
-
-
£
1
1
26,725
5,078
25,437
1
(30,515)
1
89
PENNANT ANNUAL REPORT 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
6. SUBSIDIARIES
Details of the Company’s subsidiaries at 31 December 2019 are as follows:
SUBSIDIARY NAME
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
Aviation Skills Holdings Limited
Pennant Court, as above
The Aviation Skills Partnership Limited
Pennant Court, as above
Aviation Skills Foundation Limited
Pennant Court, as above
Pennant SIP Trustee Limited
Pennant Court, as above
Pennant Canada Limited
Pennant Australasia Pty Limited
1400 Blair Place, Suite 100, Ottawa, Ontario
K1J 9B8, Canada
Suite 6, 334 Highbury Road, Mt. Waverley
Victoria, 3149, Australia
Pennant Information Services Inc.
1400 Blair Place, as above
100%
100%
100%
100%*
100%*
100%
100%
100%
100%
*Subsidiary of Aviation Skills Holdings
The investments in subsidiaries are all stated at cost as follows:
Cost of investment
Cost of investment – beginning of year
Additions
Disposals
Cost of investment – end of year
Impairment – beginning of the year
Impairment in the year**
Disposals*
Impairment - end of year
Net cost of investment - end of year
Net cost of investment - beginning of year
£
7,909,037
390,262
(1,378,997)
6,920,302
-
390,262
-
390,262
6,530,040
7,909,037
*Disposals relate to the striking off of a dormant subsidiary, Pennant Software Services Limited, during 2019.
**Following the decision to structure ASP as a not for profit organisation it was decided to impair the cost of investment.
90
PENNANT ANNUAL REPORT 2019
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
7. RIGHT-OF-USE ASSETS
Valuation
At 1 January 2019
Adjustment on initial application of IFRS 16
Prepayment
Additions
Depreciation
At 31 December 2019
MOTOR
VEHICLES
TOTAL
£
-
51,679
3,433
-
(23,444)
31,668
£
-
51,679
3,433
-
(23,444)
31,668
8. 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.
9. TRADE AND OTHER PAYABLES
Trade payables principally comprise amounts outstanding for services and ongoing costs. The carrying amount approximates their fair
value.
10. LEASE LIABILITIES
Valuation
At 1 January 2019
Adjustment on initial application of IFRS 16
Additions
Interest expense
Repayments
At 31 December 2019
Current
Non-current
MOTOR
VEHICLES
TOTAL
£
-
51,679
-
3,505
(24,118)
31,066
21,172
9,894
£
-
51,679
-
3,505
(24,118)
31,066
21,172
9,894
In 2019 short term lease rentals expensed amounted to £11,441. There we no value leases or variable lease payments excluded from
lease liabilities.
91
PENNANT ANNUAL REPORT 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
10. LEASE LIABILITIES (CONTINUED)
Lease maturity
Within than 1 year
In 2-5 years
After 5 years
11. BORROWINGS
2019
£
21,172
9,894
-
31,066
2018
£
-
-
-
-
Details of the Group overdraft arrangements are set out in note 24 to the consolidated financial statements.
12. SHARE CAPITAL
Details are set out in note 28 to the consolidated financial statements.
13. NOTE TO STATEMENT OF CASH FLOWS
Cash generated from operations
(Loss)/Profit for the year
Tax charge
Profit on disposal of subsidiary
Finance costs
Impairment cost of investment
Depreciation charge - right-of-use
Share-based payment
Operating cash flows before movement in working capital
(Increase) /Decrease in receivables
Increase/(Decrease) in payables
Cash generated from operations
Tax paid
Interest paid
Net cash generated from operations
92
2019
£
2018
£
(1,694,542)
26,724
-
(6,219)
4,694
390,262
23,444
93,005
1
-
1
-
-
103,982
(1,189,356)
130,708
(2,346,760)
1,129,850
2,101,776
(2,509,338)
(1,434,340)
(1,248,780)
(1)
(27,064)
(1,189)
(1)
(1,435,530)
(1,275,845)
PENNANT ANNUAL REPORT 2019 NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
14. FINANCIAL INSTRUMENTS
The Company’s approach to the management of capital and market risks is set out in note 32 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% (2018: 2.00%) over base rate. 1% rise/fall in interest rates would have
decreased/ increased profit for the year by an immaterial amount (2018: immaterial). The Company is not exposed to foreign currency
risks.
Categories of financial instruments
Financial assets
Measured at amortised cost
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
2019
£
2018
£
33,228
4,654,653
271,732
4,959,613
56,771
2,287,784
49,706
2,394,261
229,770
2,096,885
2,352,887
120,394
1,469,702
1,590,096
15. 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 £Nil (2018: £NIL).
16. 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 (2018: £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.
93
PENNANT ANNUAL REPORT 2019
SHAREHOLDER INFORMATION & FINANCIAL CALENDAR
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 – 15th May 2020.
Expected announcement of results for the year ending 31 December 2020:
Half-year announcement - September 2020
Full-year preliminary announcement - March 2021
DAILY SHARE PRICE LISTINGS
The Financial Times - AIM
94
PENNANT ANNUAL REPORT 2019 OFFICERS AND PROFESSIONAL ADVISERS
DIRECTORS
S A Moore (Chairman)
P H Walker FCA (Chief Executive Officer)
D J Clements
J Ponsonby
P Cotton (appointed 14 June 2019)
M Skates (appointed 1 January 2020)
SECRETARY
D J Clements
REGISTERED OFFICE
Pennant Court
Staverton Technology Park
Cheltenham
Gloucestershire
GL51 6TL
COMPANY NUMBER
3187528
AUDITOR
BANKERS
NOMINATED ADVISER
AND BROKER
Mazars LLP
90 Victoria Street
Bristol
BS1 6DP
Barclays Bank Plc
Bridgewater House
Finzels Reach
Counterslip
Bristol
BS1 6BX
W H Ireland Ltd
4 Colston Avenue
Bristol
BS1 4ST
95
PENNANT ANNUAL REPORT 2019 COMPANY NUMBER: 3187528
WWW.PENNANTPLC.CO.UK
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