2020
ANNUAL REPORT
COMPANY NUMBER: 03187528
WWW.PENNANTPLC.COM
2020
ANNUAL REPORT
GLOSSARY
ADG - ABSOLUTE DATA GROUP PTY LTD
EBITA - EARNINGS BEFORE INTEREST, TAXATION AND AMORTISATION
EBITDA - EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION & AMORTISATION
H1 - THE SIX MONTHS ENDED 30 JUNE 2020
H2 - THE SIX MONTHS ENDED 31 DECEMBER 2020
IBP - INTEGRATED BUSINESS PLAN
IPS - INTEGRATED PRODUCT SUPPORT
ILS - INTEGRATED LOGISTICS SUPPORT
Q1 - THE THREE MONTHS ENDED 31 MARCH 2020
Q2 - THE THREE MONTHS ENDED 30 JUNE 2020
Q3 - THE THREE MONTHS ENDED 30 SEPTEMBER 2020
Q4 - THE THREE MONTHS ENDED 31 DECEMBER 2020
TTD - TECHNICAL TRAINING DIVISION
4
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Glossary
STRATEGIC REPORT
Group key financials
Chairman’s statement
Chief Executive’s review
Group strategic framework
About Pennant
GOVERNANCE & RISK
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
4
6
7
8-11
12-17
18-19
20-25
26
27-29
29
29
29
30
30
31
32-36
37-39
40-41
42-44
45
46
47-51
52
53
54
55-56
57
Notes to the consolidated financial statements
60-87
THE COMPANY
Company statement of comprehensive income
Company statement of changes in equity
Company statement of financial position
Company statement of cash flows
88
89
90
91
Notes to the company financial statements
92-97
Shareholder information & financial calendar
Officers and professional advisers
98
99
5
STRATEGIC REPORT
Our vision is to be a global world-class
provider of technology-based training
solutions, Integrated Product Support
software and associated services.
GROUP KEY FINANCIALS
2020
NET ASSETS
£12.5M
2019
NET ASSETS
£14.9M
2020
REVENUE
£15.1M
2019
REVENUE
£20.4M
2020
GROSS MARGIN
29%
2019
GROSS MARGIN
36%
2020
ORDER BOOK
£31M
2019
ORDER BOOK
£33M
KEY FIGURES
•
CASH GENERATED IN OPERATIONS - £3.1M (2019 CASH (USED) IN OPERATIONS (£2.2M))
• NET DEBT AT YEAR END - (£1.4M) (2019 (£2.2M))
•
UNDERLYING EBITA * - (£1.0M) (2019: £1.6M)
•
UNDERLYING EBITDA - (£0.3M) (2019: £2.4M)
• OPERATING LOSS - (£3.0M) (2019: (£1.5M))
•
LOSS BEFORE TAX – (£3.1M) (2019: (£1.6M))
*ADJUSTED FOR NON-UNDERLYING COSTS (SEE PAGE 12)
CHAIRMAN’S STATEMENT
Simon Moore
Chairman, Pennant
A CHALLENGING PERIOD WITH SIGNS OF
IMPROVING TRADING MOMENTUM
If the review cannot be held due to Covid-19 restrictions, cash
and revenue associated with completion of the milestone
may be delayed.
In the Group’s Interim Results statement last September, I
reported that the first half of the year had been challenging,
with Covid-19 having a significant impact on revenues across the
Group, which resulted in an underlying EBITA loss of £2.0m for
H1.
2.
I also stated that the Board anticipated trading would materially
improve in the second half providing guidance that the Group was
expecting to make an underlying EBITA profit of £1.0m for H2.
I am pleased to report that the Group has delivered a much-
improved performance in the second half of the year in line with
these expectations.
Access to facilities - the second risk is the inability to gain
access to customer facilities to deliver services, including
installations and repair tasks. Our ‘Integrated Product
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.
3. Delays to contract awards – 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 its aftermath, and therefore expected
contract awards are consequently delayed.
KEY FINANCIALS
ACTIONS TAKEN
To combat the first two risks set out above, we have worked closely
with the applicable customers so that reviews and services can
be held and provided via remote means where possible whilst
continually
implementing workarounds when required. The
further impact on the timing and amount of any affected revenues
remains uncertain as we navigate our way out of the third UK
lockdown.
The third risk is more challenging for Pennant to mitigate, but we
remain in close contact with key stakeholders to ensure we are
well-informed. Nevertheless, progress has been hampered by the
wider impact of Covid-19 and we continue to experience delays on
contract awards.
Above all else, the safety and wellbeing of our employees is
paramount, and it has been our primary consideration as we
manage our response to the global pandemic. Safety measures
and systems have been introduced over and above those required
by Government guidelines.
For the year ended 31 December 2020, the Group recorded
consolidated revenues of £15.1 million (2019: £20.4 million).
Turnover was significantly impacted by Covid-19 in H1 but
underpinned by both the continued delivery of the Group’s
overseas services contracts and the successful achievement of a
number of operational milestones.
The Group posted a consolidated loss before tax of £3.1 million
(2019: loss before tax £1.6 million) which is stated after significant
non-underlying costs. These non-underlying costs are set out in
the Financial Review on page 12. The underlying EBITA loss was
£1.0m (2019: Underlying EBITA profit of £1.6m) and underlying
EBITDA loss was £0.3m (2019: underlying EBITDA profit £2.4m).
OUR RESPONSE TO COVID-19
The Group continues to assess and manage the impact of
Covid-19 on its business. Three key risks to trading and prospects
were identified and continue to exist.
1.
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).
8
CHAIRMAN’S STATEMENT
“I AM PROUD OF PENNANT’S OUTSTANDING RESPONSE TO THE COVID-19
PANDEMIC, THE SUCCESSFUL ACQUISITION AND INTEGRATION OF
ABSOLUTE DATA GROUP AND THE EVOLUTION OF PENNANT’S EXECUTIVE
AND BOARD LEADERSHIP.”
FINANCIAL POSITION
We are highly focused on cash and cost management across the
business and retain undrawn facilities.
We have welcomed Governmental initiatives to support businesses
in these exceptional times, and, during the period, we utilised the
UK Government’s Coronavirus Job Retention Scheme to protect
(and part-fund) the jobs of those employees who have been or are
currently unable to carry out their usual duties due to Covid-19
interruption.
In recognition of the challenges to the Company and its workforce
presented by Covid-19, and to reduce pressure on cashflow and
Group finances generally, all Directors took a 20% pay cut for the
second six months of the year.
DIVIDENDS
Taking account of the Group’s 2020 financial performance, the
trading outlook (including the ongoing 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.
The Board will therefore not be recommending the payment of a
final dividend for the year ended 31 December 2020. However, it
will continue to review dividend policy throughout 2021 based on
trading performance and working capital requirements.
GOVERNANCE
The Board
is committed to maintaining robust corporate
governance. It has worked closely with its advisors and in 2021 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 Board is 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 Directors, in consultation with employees, have established
a clear set of ‘Core Values’ for the Group that encapsulate the
ethical and cultural expectations of the Group, and which will
guide and inform the actions of the Group (and to which its staff
can be held accountable). These values are aligned to the Group’s
strategic objectives and further details are provided at page 43.
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 longstanding relationships we have with our
customers.
BOARD CHANGE
Having served as Pennant Chair for the last five years, and as a
Non-Executive Director for six years, and overseen a great deal
of beneficial change during that period, I have decided that now
is the right time to step down, and for the Group to seek new
leadership for the next phase of its evolution. I will continue to
serve as Chairman until the Group’s 2021 Annual General Meeting.
I am proud of Pennant’s development during my tenure in
particular our outstanding response to the Covid-19 pandemic,
the successful acquisition and integration of Absolute Data Group
and the evolution of Pennant’s Executive and Board leadership.
Our Corporate Governance reforms have ensured that the Group
is in the best possible shape to recover and prosper as we emerge
from the current challenging business environment.
BREXIT
The Board continues to monitor the ongoing impact of Brexit on
its customer and supplier base. No material impact has yet been
identified.
Furthermore, 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.
9
CHAIRMAN’S STATEMENT
PIPELINE UPDATE (INCLUDING MAJOR PROGRAMME )
The conversion of the Group’s pipeline into new orders slowed significantly during the height of the pandemic, although the
Group’s sales functions remained active during the period, continuing dialogue and negotiations with prospective customers.
The ‘Major Programme’, for which Pennant was ‘down-selected’ in August 2018, is one of the key opportunities which Pennant
has remained focused on converting. However, progress to contract award on the Major Programme has been impacted by
factors beyond the pandemic.
This potential contract flows from the United Kingdom’s defence requirements, forming part of a wider programme intended
to be delivered by Pennant’s OEM customer to the UK Ministry of Defence in support of a particular military platform. The
entire overarching programme was, in effect, paused during the period as it was subject to strategic evaluation as part of the
UK Government’s ‘Integrated Review of Security, Defence, Development and Foreign Policy’ (the “Review”).
The outcome of the Review was published in March 2021 and has reaffirmed the UK Government’s commitment to the relevant
military platform. This means that the overarching programme (of which Pennant’s contract would form one part) should
proceed.
However, Pennant understands that work remains to be done between its customer and the MOD to finalise matters and,
accordingly, does not expect to receive any contract award until the latter part of 2021, at the earliest. The timing, scope and
value of the eventual award (if any) remains subject to contract.
The overall value of the Group’s active pipeline (including the Major Programme) at year end was in excess of £50m.
STRATEGY AND OUTLOOK
In this challenging period we have built resilience into the business and continued to deliver on the critical objective of
increasing the visibility and recurrence of earnings, especially those derived from software and services, not least through
the acquisition of ADG.
With our contracted three-year order book, valued at more than £31million coupled with our active pipeline of opportunities,
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 recovery
and long-term success.
Approved by the Board on 27 April 2021
And signed on its behalf
S A Moore
Chairman
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11
CHIEF EXECUTIVE’S REVIEW
Philip Walker
Chief Executive, Pennant
EVOLVING A MORE EFFICIENT BUSINESS
The year under review presented the Group with many
unprecedented challenges, including the switch to near total
home working for prolonged periods, restricted access to
customer facilities and unavailability of key customer personnel,
which combined to produce an outcome for the year as a whole
which, notwithstanding the improved second half performance
was below management’s expectations.
Throughout 2020, we focused on keeping our people safe,
whilst continuing to deliver for our stakeholders. Thanks to the
outstanding efforts of our employees and close cooperation with
our customers and suppliers, we have maintained progress on a
number of critical programmes despite facing many difficulties.
FINANCIAL REVIEW
The results for the year are summarised on page 7 with the key
financial performance indicators set out below.
PERFORMANCE
As outlined in the Chairman’s Statement, the performance for
the year was significantly impacted by Covid-19 with revenues
suppressed and new contract awards delayed. However, the
Group’s contracts in Canada and Australia remained resilient
throughout the year and, with the easing of lockdown in the
UK over the summer, as anticipated the business produced a
much-improved performance in the second half. The table below
highlights this improvement.
In response to these challenges, decisive action was taken during
the first half of the year to ensure the continued delivery of key
programmes and the re-alignment of operations and personnel
for improved efficiency in light of the pandemic and emerging
trends. This involved a wide-ranging restructuring, resulting in
net annualised savings of over £1.0 million to be fully realised
from 2021. Further details can be found on page 13.
£m
Revenue
Gross profit
Operating margin
PROGRESSING THE STRATEGY
Underlying EBITA
Non-underlying costs (see below)
H1 H2 2020
15.1
9.1
6.0
1.1
(3.2)
0.4
(2.0)
3.3
0.2
0.2
1.0
4.4
(3.0)
0.6
(1.0)
In March, the Group successfully completed the acquisition of
Absolute Data Group and its R4i suite of software. The acquisition
has enabled the integration of R4i with the Group’s existing Omega
Product Suite, providing users with an end-to-end database and
documentation solution.
The gross profit margin for the period was 29% (2019: 36%)
reflecting the impact of the broader economic environment
on revenues and prudent margins taken on key contracts. The
operating margin has, however, significantly decreased to a loss
of £3.0 million (2019: operating loss £1.5 million).
I am pleased to report that the acquisition has been immediately
earnings enhancing with the ADG business being successfully
integrated with our existing OmegaPS business to form an
enlarged, enhanced
‘Integrated Product Support’ offering
focused on the provision of software and other support services.
The acquisition aligns with the Group’s strategic objectives.
Specifically it diversifies and enhances the Group’s recurring
revenue streams and reduces reliance on substantial engineered-
to-order contracts.
More information can be found on page 14.
12
CHIEF EXECUTIVE’S REVIEW
“CONTRACTS IN CANADA AND AUSTRALIA REMAINED RESILIENT
THROUGHOUT THE YEAR AND, WITH THE EASING OF LOCKDOWN IN THE
UK, THE BUSINESS PRODUCED A MUCH-IMPROVED PERFORMANCE IN THE
SECOND HALF. ”
Underlying EBITA, after adjusting for non-underlying costs, was
a loss of £1.0 million (2019: underlying EBITA profit £1.6 million)
and is derived as follows:
The Group remains in dialogue with both businesses and continues
to explore opportunities to develop the respective relationships.
2020
£m0
(3.0)
2019
£m
(1.5)
1.0
0.4
0.4
-
(1.6)
(1.1)
0.5
-
-
-
0.1
(1.0)
0.7
1.2
0.8
0.1
-
1.6
Operating loss
Amortisation
Amortisation of acquired intangible assets
EBITA
Restructuring expense
Impairment of goodwill
Impairment of freehold properties
ADG acquisition costs
Aborted transaction costs
Underlying EBITA
RESTRUCTURING EXPENSE
During the first half of the year and following the acquisition of
ADG, the Group implemented a wide-ranging review to realign
business operations with the Group’s Integrated Business Plan
(“IBP”) to advance the Group’s strategy. As a result, significant
changes were made to the Group operational structure with a
number of roles made redundant. The aggregate costs associated
with terminations of employment resulting from this exercise was
£0.54 million. This is treated as a non-underlying expense.
Taking into account some new roles and capabilities implemented
in the revised structure, it is anticipated that this programme will
realise net annualised savings of over £1 million from 2021 (the
cost savings net of restructuring costs in 2020 were minimal).
ABORTED TRANSACTION COSTS
Towards the end of 2019, the Group had initiated negotiations and
commenced due diligence in relation to the acquisition of two
strategic targets (businesses with complementary service lines
and recurring revenue models).
In March 2020, the Group decided to pause both potential
acquisitions due to the severe impact of the pandemic on the
targets. At that point, full due diligence had been completed and
substantial professional costs incurred. This is regarded as a
non-underlying expense.
YEAR-END ORDER BOOK
At the end of the period, the year-end order book stood at £31
million (2019: £33 million), of which £14 million of revenue (2019:
£16 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, 46% (2019:
61%) is denominated in sterling, 39% (2019: 28%) is denominated
in Canadian dollars and 15% (2019: 16%) is denominated in
Australian dollars. Any movement of sterling to the Canadian or
Australian dollars would potentially impact the IPS business, in
particular.
TAXATION
The Group’s tax position shows a tax credit of £513k (2019: tax
credit of £134k).The Group has unrelieved UK tax losses carried
forward of £4.5 million (2019: £2.8 million), all but £0.1 million of
which has been recognised in the deferred tax balance as at 31
December 2020.
RESEARCH & DEVELOPMENT
Research and Development tax credits claimed in the UK during
the year amounted to £1.6 million (2019: £2.2 million) with further
claims on current projects expected to be made during 2021.
These claims relate to the development of innovative new generic
products, many of which now form part of Pennant’s enhanced
product portfolio and have been successfully sold internationally.
CASHFLOW
Cash generated in operations amounted to £3.1 million (2019
cash used in operations: £2.2 million), which was the result of
cash milestones being realigned to stages of completion on major
programmes. In addition to this, cash receipts of £2.5 million
(scheduled for receipt by December 2020) were received in the
first week of January 2021.
The Group had net borrowings at the year-end of £1.4 million
(2019: net borrowings of £2.2 million) exclusive of lease liabilities.
13
CHIEF EXECUTIVE’S REVIEW
DIVISIONAL PERFORMANCE
INTEGRATED PRODUCT SUPPORT (IPS)
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.
The Group’s IPS division has traditionally focused on the
development of the OmegaPS LSAR software product and the
provision of consultancy, training and support services in relation
thereto.
TECHNICAL TRAINING DIVISION (TTD)
The Group’s TTD is focused on the design and build of generic and
platform-specific training solutions and the provision of related
technical and support services.
The TTD continues to be the main driver of revenues within
the Group. As TTD is predominantly based in the UK there has
been a significant impact on operational performance due to
the severe nature of the Covid-19 pandemic across the country,
despite the decisive actions taken to maintain progress on critical
programmes.
Revenues for the year reduced to £9.8 million (2019: £16.1 million)
primarily as a direct result of the Covid-19 impacts outlined
above combined with delays to contract awards, most notably the
Major Programme. As the impact of Covid-19 evolved within Q2 it
became clear that action was required. Therefore, significant staff
costs were removed from TTD to realign with reduced revenues
resulting in one-off restructuring costs of £0.5m in 2020 but with
anticipated annualised savings in the region of £1m from 2021.
Revenue
- Engineered
- Generic
- Technical Services & Support
Total
Divisional Contribution*
Allocation of Group costs
Loss for the period**
2020
£m
2019
£m
3.6
2.7
3.5
9.8
(1.6)
(1.3)
(2.9)
5.7
5.9
4.5
16.1
(0.4)
(1.2)
(1.6)
* Divisional contribution to Group operating loss
** Divisional contribution to Group operating loss after allocation of Group
costs
Revenues from TTD were predominantly generated from product
sales, which accounted for 64% of the divisional revenues, with
the balance generated from technical and support services.
In March, the Group completed the purchase of Absolute Data
Group (“ADG”), based in Brisbane, Australia. ADG owns the
R4i software suite of technical documentation software. The
acquisition has enabled the integration of R4i with the Group’s
OmegaPS suite of products and provides much greater traction
in two of the Group’s principal target markets, the United States
and Australia.
Revenue
- Products & Licences
- Maintenance
- Services
Total
Divisional Contribution*
Allocation of Group costs
Loss for the period**
2020
£m
2019
£m
0.5
1.3
3.5
5.3
0.5
(0.6)
(0.1)
0.5
0.5
3.3
4.3
0.2
(0.2)
-
* Divisional contribution to Group operating performance prior to
allocation of Group costs
** Divisional contribution to Group operating loss after allocation of Group
costs
In 2020 revenues were primarily generated from consultancy
services (66%) and long-term software maintenance agreements
(25%), predominantly in North America and Australia.
In the 2020 divisional revenue breakdown, both software
maintenance and services revenues were bolstered by the
acquisition of ADG whilst the underlying services revenues
remained resilient despite the impact of the pandemic. The
revenue and profit of the acquisition in the period are presented
in note 33 of the financial statements.
This increased contracted, recurring revenue is integral to the
Group’s forward visibility and quality of earnings and forms a key
component of Group Strategy.
STRATEGIC & OPERATIONAL REVIEW
Our mission is to generate sustainable long-term, profitable
growth. We continue to invest in areas that we consider are the
main drivers for success and to ensure the business has the tools
and flexible skilled workforce required to deliver new, major and
complex contracts.
14
INNOVATION
In line with the Group’s core strategic objectives, 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
£1.3m in the development of new and enhanced solutions and the following new products were successfully completed:
CHIEF EXECUTIVE’S REVIEW
• Crew Escape & Safety Systems Trainer;
• Basic Helicopter Maintenance Trainer;
• Generic Stores Loading Trainer;
•
Virtual Maintenance Trainer Electrical;
• Omega GenS (OmegaPS successor product) proof of concept.
Pennant anticipates that it will continue to invest in new solutions during 2021 and beyond. The Group has an active pipeline of potential
product innovations and improvements that are undergoing a detailed assessment process with a view to obtaining funding approval if
a business case can be established. Together, these new products offer the potential for further significant growth.
PEOPLE
Our employees remain core to our future business success. Without talented people, there are no product innovations or technical
solutions.
As outlined above on page 13 the Group realigned its operations during the period which resulted in some roles being combined, a
small number of new roles being created and the removal of several roles from the business, thereby streamlining operations without
compromising operational capability.
Across the Group, we have implemented various measures (including wide-spread homeworking) to protect our people during the
Covid-19 pandemic.
NEW CONTRACTS & OPERATIONAL ACHIEVEMENTS
New contract awards, amendments and operational achievements during the year are set out below:
• Acquisition of Absolute Data Group Pty Ltd (“ADG”) for initial consideration of c. £1.7 million, adding high-margin software
product and recurring services revenues to the Group.
• Amendment executed on the General Dynamic contract, with £1.5 million uplift secured.
• Key design review on the General Dynamics contract held and successfully passed despite lockdown restrictions.
• Completion of various aspects of the Qatar contract, including the achievement of design and testing events on the newly
developed generic helicopter and loading products.
• Group banking facilities transferred to HSBC with an arranged overdraft increased to £4 million.
• Costs review completed resulting in circa £1 million of annualised savings from 2021.
• Covid-19 measures successfully implemented, with home working deployed. Sites now reopened following completion of Covid-
secure assessments.
• An order from a long-standing Middle East customer for £1.5 million of new training aids, with the expectation of further
purchases to follow up to a value £5 million in total.
• Additional orders from General Dynamics for virtual training and computer learning modules, with an aggregate order value
of circa £900k.
• An add-on for the Qatar contract with an order value of circa £500k.
•
Sales of new OmegaPS licences in Canada and Australia.
• Contract extension secured for an innovative training delivery contract in Australasia.
• Progress on the Group’s Virtual Training solutions, including an order for the Virtual Parachute Training device from Morocco.
15
CHIEF EXECUTIVE’S REVIEW
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.
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, while expanding the Group’s market
coverage and addressing gaps in the product range through the Group’s ‘Innovation’ programmes.
Steps taken this year include:
•
•
•
•
•
the acquisition of Absolute Data Group and its R4i suite of software products;
the development of a successor product to OmegaPS currently known as Omega GenS (deployable on a ‘software-as-
a-service’ basis);
campaign to secure additional, long-term product support contracts;
continued investment in building a training delivery capability; and
development of ‘mid-range’ technical training products incorporating an engaging blend of hardware and graphical
trainee interfaces.
The Group continues to progress other strategic opportunities to partner with or acquire complementary businesses.
BOARD CHANGE
On behalf of the Board, I would like to take this opportunity to recognise Simon for his leadership over the last five years
and thank him for his significant contribution to the Group. Simon has been integral to Pennant’s ongoing evolution and, in
particular to progressing its Corporate Governance agenda and in leading the development of the Board. We wish Simon every
success for the future.
The review undertaken of the business through the year, together with operational improvements across the Group and our
strong order book, provide a firm platform for a successful recovery and growth.
Approved by the Board on 27 April 2021
and signed on its behalf
P H Walker
Director
16
ABOUT PENNANT
17
18
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
Completion of the Basic
Helicopter Maintenance
Trainer (BHMT)
Acquisition and integration
of R4i software suite
Completion of the Generic
Stores Loader Trainer (GSLT)
Pennant Customer
Care Portal
New GenS product launched
at the User Forum
IPS Website launched
19
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2143 ABOUT PENNANT
CANADA
OTTAWA
USA
PENNSYLVANIA
Pennant has sites across the globe.
The head office is based in Cheltenham UK;
featuring units, production space, demo
suite and modern offices.
20
UNITED KINGDOM
CHELTENHAM (HQ)
MANCHESTER
FAREHAM
200+ EMPLOYEES
60,000 SQ FT IN
UK FACILITIES
AUSTRALIA
BRISBANE
MELBOURNE
WAGGA, WAGGA
21
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 specialist technical 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 and exploring innovative technology-based solutions;
•
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 technology-based training solutions and integrated product support capabilities that enables it to
offer a wide range of solutions to both the defence and regulated civilian sectors and 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 traded as a public company ever since.
The Group operates through two business units:
22
TECHNICAL TRAINING DIVISION (TTD)
TTD is a global, leading provider of technology-based training solutions to the Defence,
Aerospace, Rail and safety critical industries.
Over recent years, the Group’s offering has expanded into civil markets with the alignment and
mapping of our training aids to aviation regulations such as EASA/EMAR, FAA, City & Guilds and
CASA MEA Units compliant organisations.
SOLUTIONS – GENERIC & ENGINEERED
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:
- Multimedia assets
- Instructor led / Computer Assisted Instruction (CAI)
- Self-Paced / CBT
- Screen Based Emulators
- Integrated Electronic Classrooms
- 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.
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.
ABOUT PENNANT
23
ABOUT PENNANT
Pennant capabilities include:
•
•
•
•
•
•
•
•
•
•
•
Training Needs Analysis (TNA)
Courseware Development
Technical Publications, IETMS, S1000D etc.
Facilities Planning
Competency Mapping to EASA, EMAR, City of Guilds etc.
In Service Support
Preventative and Corrective Maintenance
Instruction and Training delivery
Consultancy Spares and Obsolescence Management
Dismantling and Disposal
Integrated Logistic Support (ILS) services and planning
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 products, as set out
below.
STUDIO SERVICES
Pennant Studio Services is a collective of highly skilled artists, developers, technical authors, translators, and various industry experts.
The department covers 2D & 3D Design, VR Media Development, Film and Media Production, E-Learning and CBT, Illustration,
Authoring, Copywriting and Translation. These capabilities are on display in the numerous Pennant products, as well as an impressive
list of external businesses and customers from many sectors, with varied skills enabling the team to work competitively, with efficiency
and innovation.
RAIL SERVICES
Track Access Services (“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.
INTEGRATED PRODUCT SUPPORT (IPS) 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 IPS division (formerly Integrated Logistics Support division) focuses on the development of the OmegaPS LSAR software
suite and the provision of consultancy, training and support services in relation thereto.
During the period this capability was significantly enhanced by the acquisition of Absolute Data Group (“ADG”) and the R4i suite of
products.
The acquisition aligns with the Group’s strategy, in particular it diversifies and enhances the Group’s revenues and reduces reliance on
substantial engineered-to-order contracts.
The ADG business is highly complementary to the Group’s existing business providing Pennant with an expanded presence in its target
growth markets of North America and Australasia.
The R4i software suite provides its users with a dynamic, S1000D-compliant publication solution. ADG licences the software and
provides related support, maintenance and consultancy services.
24
ABOUT PENNANT
The acquisition has enabled the integration of R4i with the Group’s OmegaPS product, providing users with an end-to-end database
and documentation solution.
As part of the business review the ADG business has been fully integrated with the legacy Pennant Software business to form part of
an enlarged, enhanced ‘Integrated Product Support’, under the leadership of Tammy Halter as divisional MD.
Revenues are generated from the sale of licences, associated maintenance agreements, software training courses and consultancy
services in support of the product implementation. The products are regularly updated to enhance functionality, and to keep in line with
emerging industry standards and changing technology.
The IPS business has offices in Canada, Australia, USA and the UK.
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 6 to 25 (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 42 of this report. Given the challenges and risks
posed by the Covid-19 pandemic during the period, employee welfare was very much at the forefront of Directors’ minds during
2020.
Furthermore, with the unfortunate necessity of achieving cost savings in response to reduced revenues, employee interests
were again at the centre of matters under consideration by the Board and the Executive Directors. Where possible, the Group
sought to preserve jobs for example, by utilising furlough schemes and re-deploying staff to other duties. This consideration of
employee interests intersected with the Group’s endeavours to secure contract awards, where the impact of delays in awards
was having a clear impact on the Group’s ability to sustain particular resourcing levels.
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 electrical 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. This led to the Board
approving the engagement of additional resource in Australasia to secure re-certification in that territory, also an important
pre-requisite to potential future orders.
Investor relations (and fairness between members of the Company) are at the centre 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 practising 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.
25
GOVERNANCE & RISK
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.
26
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 Group 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 32 to 36.
The Board is led by the Chairman, 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 Group.
The effectiveness of the Board is kept under review by the
Chairman, and the Group’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 indicates 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. In matters relating to the Chairman’s
succession, the lead is taken by the other independent Non-
Executive Directors, consulting with stakeholders as appropriate.
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 2021.
Following a review of the effectiveness of the Group’s governance
arrangements during the year, the Board decided to streamline
the number of scheduled meetings per year (from around 10 to
six) and to hold Committee meetings on separate days from Board
meetings so as to allow greater time to be devoted to Committee
matters. The Chairmanship of the Remuneration Committee
was also separated from the role of Chair of the Group. This new
structure is effective from January 2021 and is explained in more
detail on the governance pages of the Group’s website:
https://www.pennantplc.co.uk/investors/corporate-governance/
The year also saw the incorporation of ADG (as a mature, profitable
operating business)
into the Group’s existing operational
governance structures. After a period of initial integration, the
ADG business was formally consolidated with the existing IPS
division, to create a larger unit with a broader offering of products
and services. After a structured recruitment process, Tammy
Halter (founder and former CEO of ADG) was appointed to run
the enlarged division, with the Group’s Board delegated authority
framework being updated accordingly, along with other key
documents such as the Integrated Business Plan.
THE DIRECTORS
SIMON MOORE
Mr Moore (55) is an independent Non-Executive Director and the
Group’s Chairman.
In addition to chairing the Board, he was Chair of the Remuneration
Committee up until 1 January 2021 and is a member of the Audit
& Risk Committee.
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).
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).
The Board has three Non-Executive Directors and three Executive
Directors. The Board considers that all of its Non-Executive
Directors are independent.
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.
The Group 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 19 for a summary of
the strategy.
Mr Moore is also Chairman of Cambridge & Counties Bank and
Chairman of RCI Bank UK.
Mr Moore has given notice of his resignation and it is expected
that his appointment will end immediately after the 2021 AGM.
27
CORPORATE GOVERNANCE REVIEW
JOHN PONSONBY
Mr Ponsonby (65) 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 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.
PHILIP COTTON
Mr Cotton (62) is an independent Non-Executive Director. He
chairs the Audit & Risk Committee and with effect from 1 January
2021, the Remuneration Committee.
Mr Cotton, a Fellow of the Institute of Chartered Accountants
in England and Wales, is a former KPMG audit partner with
extensive experience of working with businesses in the defence
and aerospace sectors
Mr Cotton is also Chair of Governors of Solent University and
chairs the Audit Committee of World Sailing.
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.
DAVID CLEMENTS
Mr Clements (41) is the Commercial & Risk Director. He joined
the Group in June 2017 and was appointed to the Board in October
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.
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.
PHILIP WALKER
MERVYN SKATES
Mr Walker (40) is the Group’s Chief Executive Officer. He joined
Pennant in 2014 as Chief Financial Officer, being promoted to CEO
in February 2017.
Mr Skates (57) 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 Walker is a chartered accountant and qualified corporate
finance professional.
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.
Mr Skates heads up the Group’s technical training business
in the UK, Europe, Middle East and Australasia 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.
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.
28
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 will seek guidance from external advisors when appropriate and regularly obtains independent legal and tax and financial
advice. For example, during the period, the Directors sought advice in respect of financial and legal due diligence and transfer pricing.
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.
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 Group and to maintain an appropriate relationship with the Group’s auditors.
The Committee comprises at least two Non-Executive Directors. 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.
The Group does not engage its auditors for non-audit services.
REMUNERATION COMMITTEE
The Remuneration Committee’s role is to determine and apply policy on behalf of the Board to the remuneration and benefits of
Executive Directors and to ensure compliance with best practice (including reporting to shareholders).
The Committee comprises all Non-Executive Directors and during the reported period was chaired by Simon Moore (since 1 January
2021, the Committee has been chaired by Philip Cotton).
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 Group’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.
STRATEGY COMMITTEE
The Strategy Committee acts as a forum at which strategic objectives and plans of the Group may be proposed, debated, challenged
and refined so that recommendations can be formulated and put to the Board as to the direction and implementation of Group strategy.
The Committee currently comprises John Ponsonby and Philip Walker (with Mervyn Skates as a standing invitee) 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.
29
CORPORATE GOVERNANCE REVIEW
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.
Directors’ attendances at meetings of the Board and its Committees during 2020 were as follows:
Simon Moore
John Ponsonby
Philip Cotton
Philip Walker
David Clements
Mervyn Skates
BOARD
AUDIT RISK
COMMITTEE
REMUNERATION
COMMITTEE
STRATEGY
COMMITTEE
12/12
12/12
12/12
12/12
12/12
12/12
2/2
2/2
2/2
-
-
-
1/1
1/1
1/1
-
-
-
2/2
2/2
2/2
2/2
2/2
2/2
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.
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 Director of the Integrated Product Support division and the
Group Head of Finance.
Following annual review and approval by the Board, the Group’s Integrated Business Plan is promulgated by the Executive Committee
through the various operating units of the Group. Clear channels are in place, with a structured meeting cycle, for the exchange of
information from the Group’s operating units to the Executive Directors and the Board and for the reciprocal provision of direction.
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.
30
CORPORATE GOVERNANCE REVIEW
BOARD
SIMON MOORE (CHAIR)
PHILIP WALKER
PHILIP COTTON
JOHN PONSONBY
MERVYN SKATES
DAVID CLEMENTS
AUDIT & RISK COMMITTEE
PHILIP COTTON (CHAIR)
SIMON MOORE
EXECUTIVE DIRECTORS
PHILIP WALKER (CEO)
MERVYN SKATES
DAVID CLEMENTS
REMUNERATION COMMITTEE
PHILIP COTTON (CHAIR)
SIMON MOORE
JOHN PONSONBY
STRATEGY COMMITTEE
JOHN PONSONBY (CHAIR)
PHILIP WALKER
MERVYN SKATES
EXECUTIVE COMMITTEE
PHILIP WALKER (CHAIR)
DAVID CLEMENTS
MERVYN SKATES
TAMMY HALTER
MICHAEL BRINSON
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.
The Executive within the Group responsible for day-to-day financial management of the Group’s affairs is the Group Head of Finance
under the supervision of the Audit & Risk Committee.
The Executive Directors participate in and provide information and support to the Audit & Risk Committee as and when the Committee
so requests.
31
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 pages 8 & 9 (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.
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 2020 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-contracting 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 in 2020 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 in 2020) 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.
32
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
RISK MANAGEMENT REVIEW
Prime dependence
The Group currently depends to a
large extent on prime contractors
awarding
to
deliver the training solution on
larger programmes.
it sub-contracts
or
deterioration
with
to
Loss
relationships
contractors
orders, adversely affecting
Group’s revenue and profit.
of
prime
reduced
the
leads
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, Leonardo Helicopters,
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 with
direct sales regularly being secured in the ADG business.
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.
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.
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
laws;
For example: in selling its training
equipment overseas, the Group
must comply with UK export
in receiving and
control
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.
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.
33
RISK MANAGEMENT REVIEW
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.
(e.g.
The Group will contract on fixed
‘engineered-to-order’
prices on
for a platform-
projects
it
specific training aid), where
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.
External factors (e.g. a supplier
delay on delivering a part) cause
the delay or failure to deliver a
contract resulting in reputational
damage
the Group and
entitling the customer to claim
compensation (including, on some
contracts, liquidated damages).
to
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 Statement provides
more detail.
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. High-value contract bids are only
released once approved through a ‘gated’ bid management
process in accordance with written delegated authority
framework.
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.
The Group’s experienced Commercial team, in conjunction
with the programme managers, monitor for contractual
‘scope creep’ and manage change control requests
accordingly.
The Group’s dedicated Purchasing team controls the
ordering of items in time for production and manages the
Group’s supply chain with support from the Commercial
team.
The Group is careful to deal with trusted suppliers with a
track record of performance, wherever possible.
Video-conferencing and remote working are able to
mitigate the effects of Covid-19 restrictions on movements
and gatherings.
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
34
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
RISK MANAGEMENT REVIEW
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
the Group’s
that
business is inconsistent and prone
to ‘lumpy’ revenues.
working
contracts
generate
Large
significant
capital
demands which cannot be met,
delivery of
(and
continuance of
the business
generally) is jeopardised.
the contract
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 ‘re-banked’ in 2020 to HSBC, securing
enhanced facilities. The Company 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
increase profitable turnover
generally and to mitigate the effects of ‘lumpy’ contracts).
(to
The expansion of the Group’s software and services
offerings is a natural mitigant to the reliance on, and risks
of, high-value engineering programmes.
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.
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 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.
against,
The ‘hacking’ of, or a successful
the
cyber-attack
Company’s systems
to
serious negative reputational and
contractual consequences, as well
as regulatory breaches.
leads
Widespread virtual working due
to Covid-19 restrictions causes
the
a significant
demands placed on the Group’s IT
infrastructure.
increase
in
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.
35
RISK MANAGEMENT REVIEW
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.
Conversely, resources may be
over-provisioned or secured at the
wrong time, incurring unnecessary
costs/allocating
capital which
might be used elsewhere.
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. Where space is no longer
required for a period, the Group looks to either let out
or dispose of it, or return to the landlord (in the case of
tenancies).
The Group has a formalised resource planning process.
The Group retains a managing recruitment agent with
a track-record 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 to further
recover and grow its business, it
may face challenges in ‘ramping
up’ to meet demand. Planning
for and securing resources as a
in
business which
the case of TTD) operates with a
relatively small number of high-
value contracts, prone to delays in
award, is a challenge.
(particularly
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
inherently
limited.
is
DESCRIPTION OF RISK
POTENTIAL IMPACT
MITIGATION AND CONTROL
its products
Failure to ensure
comply with changing standards
means decreased saleability (and
a
lesser end-user experience),
adversely affecting the Group’s
revenue and profit.
Similarly, being
left behind as
technology progresses reduces
the attractiveness of the Group’s
products, ultimately resulting in
fewer sales and lower revenue and
profit.
The Group employs specialists with training delivery
experience to ensure it keeps pace with, and anticipates
changes to, regulation (including changes flowing from
Brexit and any related regulatory divergences from
currently applicable regulations).
The Group proactively considers and implements product
improvements (to enhance training value) including
through the use of virtual technology to deliver innovative
training.
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). Any regulatory
divergence flowing
from Brexit
may create further complexity in
the regulatory environment.
rapid
development
The
in
virtual and augmented reality
technology and other innovative
solutions
challenges
present
(and opportunities) to the Group’s
traditional
focused
approach to training aids.
hardware
36
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.
The Committee’s general ‘philosophy’ as regards Executive remuneration is to pay in line with market averages for a public company
of the Company’s size and market sectors, with an ability to award bonuses for meeting and exceeding Committee-approved targets
(which are aligned to successful business performance of the Group as measured against the Group’s Integrated Business Plan). The
Committee retains discretion to reduce or withhold awards as appropriate.
Neither the Executive Directors’ bonus scheme nor the bonus scheme for employees will pay out in respect of the 2020 financial year
(each scheme is a cash bonus scheme which pays out upon the Group meeting or exceeding its financial targets for the year). Given
the current financial position, the Remuneration Committee determined that there would be no general pay rise for 2021. Directors’
emoluments in respect of 2020 are shown in the table overleaf (including the Directors’ pay waivers for the second half of the year).
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.
Philip Cotton
Chair
Remuneration Committee
27 April 2021
37
REMUNERATION REPORT
DIRECTORS’ REMUNERATION
SALARY
BONUS
BENEFITS & CAR
ALLOWANCE
PENSION
TOTAL 2020
2019
£000s
£000s
£000s
£000s
£000s
£000s
C C Powell
P H Walker
S A Moore
D J Clements
G Barnes
J Ponsonby
M Skates
P Cotton
-
176
59
126
-
65
126
41
593
-
22*
-
10*
-
-
-
-
32
-
15
-
10
-
-
9
-
34
-
20
-
14
-
-
14
-
48
-
233
59
160
-
65
149
41
707
15
235
65
160
353
86
-
24
939
Pension contributions shown above are pension payments into the Pennant International Group Plc Pension Scheme, a defined
contribution scheme.
* A discretionary bonus awarded in respect of the 2019 financial year. Payment was contingent on certain performance conditions,
satisfaction of which was determined in May 2020.
In recognition of the challenges to the Group and its workforce presented by Covid-19, and to reduce pressure on cashflow and Group
finances generally, all Directors took a 20% pay cut for the second six months of the year which is reflected in the figures above.
There were 1,169,043 share options held by the Directors at the end of 2020 (2019: 1,129,043) as further particularised on the following
tables. The details of the share options granted in the period are set out below.
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 2020 except where indicated otherwise and their beneficial interests in the
ordinary shares of the Company were as stated below:
31 DECEMBER 2020
5P ORDINARY SHARES
31 DECEMBER 2019
5P ORDINARY SHARES
NUMBER
NUMBER
24,579
79,314
34,772
13,655
12,000
25,000
19,843
79,314
18,036
13,655
-
25,000
P H Walker
S A Moore
D J Clements
J Ponsonby
P Cotton
M Skates
38
The following Directors have interests in share options of the Company as stated below:
REMUNERATION REPORT
P H Walker
S A Moore
D J Clements
J Ponsonby
P Cotton
M Skates (appointed 1 January 2020)
EMI OPTIONS
UNAPPROVED
OPTIONS
TOTAL
2020
NUMBER
297,619
-
305,455
-
-
40,000
NUMBER
525,969
-
-
-
-
-
NUMBER
823,588
-
305,455
-
-
40,000
Total
643,074
525,969
1,169,043
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) which have vested and are exercisable in accordance
with the terms of the option agreement.
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. One third of the grant (i.e. over 68,485 shares) has, therefore, vested. The options lapse upon the occurrence of certain
events, including the termination of Mr Clements’ employment.
Mervyn Skates holds 40,000 EMI options (granted on 20 April 2020) at 38.5p per share exercisable from 29 months after the date of
grant.
No EMI options were exercised by the Directors during the year.
UNAPPROVED OPTIONS
Philip Walker holds 525,969 unapproved share options at 55.0p (granted on 19 April 2017), which have vested and are exercisable in
accordance with the terms of the option agreement.
No unapproved options were exercised by the Directors during the year. In 2019, Simon Moore exercised 300,000 unapproved share
options at an exercise price of 55.5p per share (simultaneously disposing of 243,950 of the resulting shares for 110p per share).
39
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 Group 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).
The Committee has continued its monitoring of the financial reporting process and its integrity, risk management systems
and assurance.
The Committee has reviewed all significant issues concerning the financial statements. The principal matters we considered
concerning the 2020 financial statements were: the appropriateness of the Going Concern assessment after the consideration
of the impact of Covid-19; recognition of revenue and profit; and adequacy of working capital and provisioning (including creation
of warranty provisions and release of ‘mid-year’ provision). We have reviewed key estimates and management judgements prior
to publication of the 2020 financial statements, including on the Qatar contract and the General Dynamics programme.
Philip Cotton
Chair
Audit and Risk Committee
27 April 2021
40
41
DIRECTORS’ REPORT
David Clements
Director, Pennant
The Directors present their report and the audited financial
statements for the year ended 31 December 2020.
POST BALANCE SHEET EVENTS
There are no post balance sheet events to report.
PRINCIPAL ACTIVITIES
The principal activity of the Company is the provision of
management services to the Group.
The principal activities of Group companies during the year were
the supply of integrated training and support solutions, products
and services, principally to the defence, rail, aerospace and naval
sectors and to Government Departments.
DIVIDENDS
No dividends were paid during the year (2019: £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 2020.
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 debt 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 the ongoing
impact of Covid-19 and related restrictions. The going concern
basis of accounting has therefore continued to be adopted in
preparing the financial statements. Further details are provided
on pages 60 to 61.
RESEARCH & DEVELOPMENT
Research and development expenditure within the Group
(involving the continued development of hardware and software
products of which a proportion has been capitalised) amounted to
£1.6 million (2019: £2.2 million).
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 are cash, contract
assets, trade receivables and payables, 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 any 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 32 to 36.
The Group’s exposure and approach to capital and financial risk,
and approach to managing these is set out in note 31 to the
Consolidated Financial Statements.
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.
“EMPLOYEES ARE KEY TO THE
GROUP’S SUCCESS”
42
DIRECTORS’ REPORT
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.
Company’s quotation on the London Stock Exchange for the five
business days immediately preceding the purchase. Since 15 May
2020, 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 2021.
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.
EMPLOYEE POLICIES
THE BOARD
The Board comprises the Chairman, the Chief Executive Officer,
the Commercial & Risk Director, the Operations Director and the
Non-Executive Directors.
The Directors in office as at the date of this report, all of whom
served within the year, are named on pages 27 to 28.
As explained on page 27, from 2021 the Board will have scheduled
meetings six 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).
The Group has established employment policies to ensure
compliance with current legislation and codes of practice,
including equal opportunities.
One third of the Directors are subject to retirement by rotation
every year. Accordingly, Simon Moore and John Ponsonby retire by
rotation at the AGM. John Ponsonby, being eligible, offers himself
for re-election.
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 should not be affected.
The Group 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 2021 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 15 May 2020, the Company
(acting by its Directors) was granted authority to purchase
through the market up to 5,449,295 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
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 Group 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.
43
DIRECTORS’ REPORT
SIGNIFICANT SHAREHOLDINGS
As at 31 December 2020 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
Miton
BGF Investment Management Limited
Killik & Co LLP
POLITICAL DONATIONS
NUMBER OF
SHARES HELD
% INTEREST IN THE TOTAL
VOTING RIGHTS OF PENNANT
6,278,253
5,416,922
4,595,772
4,090,909
1,797,555
17.23
14.86
12.61
11.22
4.93
The Group did not make any political donations during 2020 (2019: £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 8 to 10 and the Chief
Executive’s review on pages 12 to 16).
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 2 June 2021. 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 in accordance with communications preferences and will also be
available on the website at www.pennantplc.co.uk under the ‘AGM Documents’ 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 Group’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 Group will be
proposed at the AGM.
Approved by the Board on 27 April 2021
and signed on its behalf
D J Clements
Director
44
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”) in conformity with the
requirements of the Companies Act 2006 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 in conformity with the requirements of the Companies Act 2006 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 27 April 2021
and signed on its behalf
D J Clements
Director
45
FINANCIAL STATEMENTS
The following section outlines the results
for the period ended 31 December 2020.
46
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 ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 31 December 2020 which comprise
Income Statement, Company Statement
the Consolidated
of Comprehensive
Income, Consolidated Statement of
Comprehensive Income, Consolidated and Company Statements
of Financial Position, Consolidated and Company Statements
of Changes in Equity, Consolidated and Company Statements
of Cash Flows and notes to the 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 accounting standards in
conformity with the requirements of the Companies Act 2006 and,
as regards the parent company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
In our opinion, the financial statements have been prepared in
accordance with the requirements of the Companies Act 2006
and:
•
•
give a true and fair view of the state of the group’s and of
the parent company’s affairs as at 31 December 2020 and
of the group’s and the parent company’s loss for the year
then ended; and
have been properly prepared
in accordance with
international accounting standards in conformity 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.
CONCLUSIONS RELATING TO GOING
CONCERN
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our audit procedures to evaluate the directors’ assessment of the
group’s and the parent company’s ability to continue to adopt the
going concern basis of accounting included but were not limited
to:
• Undertaking an initial assessment at the planning stage
of the audit to identify events or conditions that may cast
significant doubt on the group’s and the parent company’s
ability to continue as a going concern;
• Obtaining an understanding of the relevant controls
relating to the directors’ going concern assessment;
• Evaluating the directors’ method to assess the group’s
and the parent company’s ability to continue as a going
concern;
• Reviewing the directors’ going concern assessment, which
included scenario testing of multiple adverse factors and
‘reverse stress testing’ of the Group’s cash flow under
severe but plausible scenarios, which are disclosed in note
3;
• Evaluating the key assumptions used and judgements
applied by the directors in forming their conclusions on
going concern;
• Comparing the relevant assumptions in the directors’
going concern assessment with the current bank facilities
and contracted orders;
• Challenging the inputs into the model and evaluating the
sensitivity of this assessment to changes in key underlying
assumptions;
• Confirming the mathematical accuracy of the models
underpinning the directors’ going concern assessment;
and
• Reviewing the appropriateness of the directors’ disclosures
in the financial statements.
Based on the work we have performed, we have not identified
any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
group’s and the parent company’s ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
47
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.
KEY AUDIT MATTER
HOW OUR SCOPE ADDRESSED THIS MATTER
Risk of fraud in revenue recognition in respect of major
programme contracts
For the Group we see the risk of fraud in revenue recognition
as being principally in relation to major engineered solution
contracts, particularly around the judgements in respect of
costs to complete, accounting for contract modifications and
contractual penalties e.g. for missed milestone dates.
The major contracts which this relates to is the two significant
ongoing engineered solution contracts.
Our audit procedures included, but were not limited to:
• A detailed review of whether revenue was recognised as per
IFRS15, including management’s assessment of the IFRS15
treatment of contract modifications.
• Confirming that invoices were raised in relation to the
achievement of agreed milestones and detailed testing of the
accuracy and robustness of estimating costs to complete,
including observing a December 2020 contract review
meeting and reviewing contract status reports.
•
Focusing on management’s treatment of potential and
actual risks and the potential exposures of each significant
contract.
• Reviewing the variances between actual and budgeted costs,
and assessing the actions taken by management where
significant variances had occurred.
Our observations
No material misstatements were identified as a result of the audit
procedures performed.
OUR APPLICATION OF MATERIALITY AND AN OVERVIEW OF THE SCOPE OF OUR AUDIT
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:
48
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
Overall materiality
£188,000
£94,000
GROUP MATERIALITY
COMPANY MATERIALITY
How we determined it
Overall materiality has been determined with
reference to a benchmark of loss before tax, of
which it represents 6%.
Overall materiality has been determined with
reference to a benchmark of total assets, of
which it represents 0.8%.
Rationale for benchmark
applied
We used loss before tax to calculate our overall
materiality as, in our view, this is the most
relevant measure of the underlying financial
performance of the group.
We used total assets to calculate our overall
materiality as, in our view, this is the most
relevant measure of the underlying financial
position of the company
Performance materiality
Reporting threshold
On the basis of our risk assessments, together
with our assessment of the group’s overall
control environment, we set performance
materiality at approximately 75% of our overall
materiality, being £141,000.
On the basis of our risk assessments, together
with our assessment of the group’s overall
control environment, we set performance
materiality at approximately 75% of our overall
materiality, being £70,000.
We agreed with the Audit and Risk Committee
that we would report to the Committee all
audit differences in excess of £6,000 as well
as differences below that threshold that, in
our view, warranted reporting on qualitative
grounds. We also report to the Audit and Risk
Committee on disclosure matters that we
identified during the course of assessing the
overall presentation of the financial statements.
We agreed with the Audit and Risk Committee
that we would report to the Committee all
audit differences in excess of £3,000 as well as
differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We
also report to the Audit and Risk Committee on
disclosure matters that we identified during the
course of assessing the overall presentation of
the financial statements.
As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud or
error, and then designed and performed audit procedures responsive to those risks. In particular, we looked at where the directors
made subjective judgements, such as making assumptions on significant accounting estimates.
We tailored the scope of our 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 group and parent company, their environment, controls
and critical business processes, to consider 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, including the allocation of our resources and effort, are
discussed under “Key audit matters” within this report.
Our group audit scope included an audit of the group and the parent company financial statements of Pennant International Group
PLC. Based on our risk assessment, Pennant International group PLC, Pennant International Limited and Pennant Canada Limited
were subject to full scope audit, which was performed by the group audit team. Pennant Australasia Pty Limited, Absolute Data Group
Pty Ltd and Onestrand Inc were subject to full scope audit, which was performed by a component auditor from Mazars Australia. At the
parent company level, we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
49
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
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.
ON
OPINIONS
OTHER MATTERS
PRESCRIBED BY THE COMPANIES ACT
2006
In our opinion, based on the work undertaken in the course of the
audit:
•
•
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
RESPONSIBILITIES OF DIRECTORS
As explained more fully
in the directors’ responsibilities
statement set out on page 45, 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.
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.
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.
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud.
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.
Based on our understanding of the group and the parent
company and its industry, we identified that the principal risks
of non-compliance with laws and regulations related to the UK
tax legislation, pensions legislation, employment regulation and
health and safety regulation, money laundering, non-compliance
with implementation of government support schemes relating to
Covid-19, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We
also considered those laws and regulations that have a direct
impact on the preparation of the financial statements such as the
Companies Act 2006.
50
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PENNANT INTERNATIONAL GROUP PLC
We evaluated the directors’ and management’s incentives and opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls) and determined that the principal risks were related to posting manual journal entries to
manipulate financial performance, management bias through judgements and assumptions in significant accounting estimates, in
particular in relation to cost to complete on major contracts, impairment of intangible assets and goodwill, useful lives of intangible
assets, valuation of goodwill and intangible assets upon business combinations, fair value of land and buildings and significant one-off
or unusual transactions.
Our audit procedures were designed to respond to those identified risks, including non-compliance with laws and regulations
(irregularities) and fraud that are material to the financial statements. Our audit procedures included but were not limited to:
• Discussing with the directors and management their policies and procedures regarding compliance with laws and regulations;
• Communicating identified laws and regulations throughout our engagement team and remaining alert to any indications of
non-compliance throughout our audit; and
• Considering the risk of acts by the group and the parent company which were contrary to the applicable laws and regulations,
including fraud.
Our audit procedures in relation to fraud included but were not limited to:
• Making enquiries of the directors and management on whether they had knowledge of any actual, suspected or alleged fraud;
• Gaining an understanding of the internal controls established to mitigate risks related to fraud;
• Discussing amongst the engagement team the risks of fraud; and
• Addressing the risks of fraud through management override of controls by performing journal entry testing.
The primary responsibility for the prevention and detection of irregularities including fraud rests with both those charged with
governance and management. As with any audit, there remained a risk of non-detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations or the override of internal controls.
The risks of material misstatement that had the greatest effect on our audit, including fraud, are discussed under “Key audit matters”
within this report.
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.
Timothy Hudson (Senior Statutory Auditor) for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
90 Victoria Street
Bristol
BS1 6DP
27 April 2021
51
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2020
Continuing operations
Revenue
Cost of sales
Gross Profit
Land & buildings impairment
Goodwill impairment
Intangible asset impairment
Restructuring expenses
Other Administration expenses
Administrative expenses
Other income
Operating Loss
Finance costs
Finance income
Loss before taxation
Taxation
Loss for the year attributable to the equity
holders of the parent
Earnings per share
Basic
Diluted
NOTES
2020
5
8
8
16
8
8
8
10
11
12
14
£000s
15,056
(10,676)
4,380
-
-
(222)
(541)
(7,156)
(7,919)
525
(3,014)
(125)
0
(3,139)
513
(2,626)
(7.22p)
(7.22p)
2019
Restated
£000s
20,430
(13,079)
7,351
(819)
(1,169)
-
(654)
(6,546)
(9,188)
320
(1,517)
(111)
0
(1,628)
134
(1,494)
(4.16p)
(4.16p)
The accompanying notes on pages 60 to 87 are an integral part of these financial statements.
52
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020
Loss 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
Items that will not be reclassified to profit or loss
Net revaluation gain
Deferred tax charge – property, plant and equipment
NOTES
17
25
2020
£000s
(2,626)
41
-
(18)
2019
£000s
(1,494)
(49)
370
(63)
Total comprehensive loss for the period attributable to the equity holders
of the parent
(2,603)
(1,236)
53
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020
NOTES
2020 2019 RESTATED
£000s
£000s
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
Deferred consideration on acquisition
Total current liabilities
Net current assets
Non-current liabilities
Lease Liabilities
Deferred tax liabilities
Warranty provisions
Contingent consideration on acquisition
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
25
19
20
21
22
21
23
33
23
25
26
33
27
2,428
5,570
5,904
830
91
923
3,391
6,285
971
-
14,823
11,571
1,081
4,884
533
1,439
7,937
22,760
4,120
2,892
200
193
367
7,772
165
720
192
122
1,421
2,455
10,227
12,533
1,822
5,295
200
4,243
290
683
571
9,372
870
497
11,310
22,881
3,930
2,739
-
209
-
6,878
4,432
834
325
-
-
1,159
8,037
14,844
1,806
5,100
200
6,759
249
730
12,533
14,844
Approved by the Board and authorised for issue on 27 April 2021
P H Walker
Director
The accompanying notes on pages 60 to 87 are an integral part of these financial statements.
54
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020
SHARE
CAPITAL
SHARE
PREMIUM
CAPITAL
REDEMPTION
RESERVE
RETAINED
EARNINGS
TRANSLATION
RESERVE
REVALUATION
RESERVE
TOTAL
EQUITY
£000s
£000s
£000s
£000s
£000s
£000s
£000s
1,685
3,169
200
8,225
Restated 1 January 2019
1,685
3,169
-
-
1,685
121
-
-
-
-
-
3,169
1,931
-
-
-
As previously stated at 1
January 2019
Restatement (see note 34)
(Loss) for the year
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
Restated at 31 December
2019 (TOTAL)
As previously stated at 31
December 2019
Restatement (see note 34)
Restated 31 December 2019
1,806
5,100
(Loss) for the year
Other comprehensive income
Total comprehensive income
Issue of New Ordinary Shares
Recognition of share based
payment
Transfer from revaluation
reserve
-
-
1,806
16
-
-
-
-
5,100
195
-
-
15
8,240
(1,494)
-
200
-
-
200
6,746
-
-
-
-
-
93
(103)
23
58
6,759
(2,626)
-
200
-
-
200
4,133
-
-
-
-
81
29
1,806
5,100
200
6,759
1,806
5,100
200
6,701
298
298
-
(49)
249
-
-
-
-
249
249
249
41
290
-
-
-
At 31 December 2020
1,822
5,295
200
4,243
270
Note: see page 56 for a description of the reserves appearing in the column headings of the table above.
461
(15)
446
-
307
753
-
-
-
14,038
-
14,038
(1,494)
258
12,802
2,052
93
(103)
(23)
-
730
14,844
788
(58)
730
-
(18)
712
-
-
(29)
683
14,844
-
14,844
(2,626)
23
12,241
211
81
-
12,533
55
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020
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
The capital redemption reserve is a non-distributable reserve into which amounts are transferred following the redemption or purchase
of the Group’s own shares.
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 increments and decrements on the revaluation of non-current assets.
56
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020
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
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 increase/(decrease) 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
28
11
33
16
17
27
23
21
21
2020
£000s
3,145
0
(791)
(1,283)
(118)
(2,192)
45
-
(277)
(232)
721
(2,242)
68
2019
£000s
(2,211)
0
(406)
(2,201)
(405)
(3,012)
2,052
(599)
(272)
1,181
(4,042)
1,849
(49)
(1,453)
(2,242)
57
PENNANT EXPORTS ITS RANGE
OF PRODUCTS AND SERVICES
AROUND THE WORLD TO TRAIN
CURRENT AND FUTURE GENERATIONS
OF OPERATORS & MAINTAINERS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
1. GENERAL INFORMATION
GOING CONCERN STATEMENT
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.
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
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 thousand pounds except where otherwise stated. Foreign
operations are included in accordance with the policies set out in
note 3.
2. STANDARDS, AMENDMENTS AND
IN THE
INTERPRETATIONS ADOPTED
CURRENT FINANCIAL YEAR ENDED 31
DECEMBER 2020
The group has applied the following standards and amendments
for the first time in the annual reporting period commencing 1
January 2020, none of which have had a material impact of the
Group’s financial statements for the year ended 31 December
2020:
• Definition of Material – amendments to IAS 1 and IAS 8,’
- 1 January 2020.
• Definition of a Business – amendments to IFRS 3
- 1 January 2020
•
Interest Rate Benchmark Reforms – amendments to IFRS
9, IAS 39 and IFRS 7 - 1 January 2020
• Revised Conceptual Framework for Financial Reporting -
1 January 2020
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:
• Annual Improvements to IFRS Standards 2018 – 2020
Cycle - 1 January 2021
3. ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) in conformity
with the requirements of the Companies Act 2006.
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.
ANALYSIS OF CURRENT BUSINESS PROSPECTS
The Directors have undertaken an assessment of the future
prospects of the Company and its subsidiary undertakings
(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 18-month period (‘review
period’) following approval of these financial statements. This
review also considered the ongoing impacts of Covid-19 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’ on page 61.
The Group enjoys a strong contracted order book of £31 million,
of which £14 million is scheduled for recognition as revenue
in 2021 with the remaining balance scheduled across 2022 (£9
million) and 2023 (£8 million). The cash receipts into the Group
are expected to broadly align to this revenue projection. This
contracted order book is primarily underpinned by military
expenditure of UK, 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.74% of the forecast order book recognition scheduled for 2021.
During the period the Group has taken decisive action to
restructure its cost base, removing over £1m of annualised costs
from the business, which will be realised in full during the year
to 31 December 2021. In addition, the Group has been working
closely with its customers and suppliers to ensure contractual
milestones are met and payments received. In the vast majority of
cases key milestones have been completed however in situations
where Covid-19 has prevented the successful achievement of
contractual milestones, for example through the restriction of
international travel, we have worked closely with our customers
and in some cases secured part payment of invoices for work
which we have been prevented from carrying out.
The Group has a £4 million annually renewing overdraft facility in
place with its bankers, HSBC, who were appointed in April 2020
after a refinancing process. The terms of this facility have not
been modified following the bank’s annual review of the facility
carried out in April 2021.
Finally, the Group has continued to utilise Government support
in the form of the Coronavirus Job Retention Scheme (CJRS) & a
‘time to pay’ agreement with HMRC. In the 2019 Annual Report &
Accounts, the Group listed the Coronavirus Business Interruption
Loan Scheme (CBILs) as a potential mitigant should the timing
of cashflows be significantly impacted by the pandemic. As it
transpired, through prudent working capital management and
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
utilisation of existing facilities and the CJRS, it was not necessary
to apply for the CBILs loan during the year. Now that the CBILs
has ended as at 31st March, the Recovery Loan Scheme that has
replaced it remains a potential mitigant for the Group should the
need arise.
MITIGATION OPPORTUNITIES AVAILABLE AND
POTENTIAL UPSIDE
In the scenarios discussed above the Directors have not included
the following mitigants:
SUMMARY OF ASSESSMENT METHODOLOGY
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.
Cashflow 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, current 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: During the review period, the Group discharges
contracted work only assuming no contract wins
Test 2: Scenario where no contracts are awarded in
year and cash receipts associated with cash milestones
which are intended to be achieved during 2021 on 3 major
contracts are delayed for 90 days after the scheduled
milestone event. This assumption is based on delays
in payments from customers rather than any delay in
operational delivery. Note – a delay of a further 60 days
(150 days total) would result in a breach of the existing
overdraft facility
•
Test 3: An upside scenario whereby the Group secures a
Major OEM contract.
In tests 1 & 2, the Directors included downside risks such as:
• Delays in the payment of contractual milestones.
• Removal of all uncontracted revenue opportunities from
the review period.
In each of the scenarios detailed above, the Group remained
within its currently available facilities of £4 million within the
period 18 months from the signing of these financial statements
unless there were a delay of cash milestones of a further 60 days
applied to Test 2. The reverse stress test 2 indicates the limit of
the facility may be reached in September 2022. However, this risk
can be mitigated by further actions available to the Directors, see
below.
The scenario analysis and
forward-looking assessments
described above are inherently subject to risk and uncertainty;
and the greater the period of any projection, the greater the
exposure thereto. There is no guarantee that actual results will be
consistent with any of these assessments. Events and outcomes
may transpire during the relevant period(s) which have an impact
more adverse than contemplated by the assessments.
• Uncontracted revenue opportunities excluded from the
scenarios above: there are a number of active pipeline
opportunities currently in discussion that have a high
probability of being signed in 2021 and therefore contribute
favourably to cash flow in the second half of 2021 and early
2022;
•
•
•
The Group refinanced its banking during the year to HSBC
and secured a £4 million overdraft facility. In discussions
with HSBC the Directors have explored the option to
secure access to further funding, should this be required.
In addition, other potential financial options include the
UK Government Recovery Loan Scheme and the Directors
will seek to secure access to additional funding should
this be required;
The Group could utilise its cash placing authority to raise
funds (at present, up to 20% of the Group’s share capital);
and
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).
GOING CONCERN CONCLUSION
In summary, the Directors have, at the time of approving the
financial statements, a reasonable expectation that 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 available borrowing facilities. The Board has also considered
the downside risks to the projections and have held back certain
upside contingencies.
The going concern basis of accounting has therefore continued to
be adopted in preparing the financial statements.
BASIS OF CONSOLIDATION
The financial statements incorporate the results of the Company
and entities controlled by the Company (its subsidiaries). Control
is achieved where the Company has power to direct the activities
of the investee; the right to the variable returns of the investee;
and the ability to use power to affect the returns of the investee.
Where necessary, adjustments are made to the results of
subsidiaries to bring accounting policies used into line with those
used by the Group. All intra-group transactions, balances, income
and expenses are eliminated on consolidation.
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
BUSINESS COMBINATIONS & GOODWILL
Acquisitions of subsidiaries and businesses are accounted
for using the acquisition method. The assets and liabilities
and contingent liabilities of the subsidiaries are measured at
their fair value at the date of acquisition. Any excess of cost of
acquisition over fair values of the identifiable net assets acquired
is recognised as goodwill. Any deficiency of cost of acquisition
below the fair value of the identified net assets acquired (i.e.
discount on acquisition) is credited in profit or loss in the period
of acquisition. Goodwill arising on consolidation is recognised
as an asset and reviewed for impairment at least annually. Any
impairment is recognised immediately in profit or loss account
and is not subsequently reversed. Acquisition related costs are
recognised in the income statement as incurred.
REVENUE RECOGNITION
TECHNICAL TRAINING DIVISION - ENGINEERED
SOLUTIONS
Revenue on engineered solutions contracts is measured over
time, based on the stage of completion of the performance
obligation at the reporting date. Revenue is recognised over time
due to the goods having no alternative use and the Group being
entitled to compensation from the customer for work completed
to date. Stage of completion is measured as costs incurred to date
over total expected costs to complete the contract.
TECHNICAL TRAINING DIVISION - GENERIC PRODUCTS
Revenue is recognised on a point in time basis upon contractual
acceptance of the manufactured product by the customer. Revenue
is recognised at a point in time due to not meeting the recognition
criteria of IFRS 15 in order to be recognised over time. Until the
contractual acceptance of the product, costs are recognised as
work in progress in inventories.
TECHNICAL TRAINING DIVISION
SUPPORT SERVICES
- TECHNICAL
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.
INTEGRATED PRODUCT SUPPORT DIVISION
-
OMEGAPS AND R4I - LICENCES AND SUPPORT
CONTRACTS
Revenues arising from the OmegaPS and R4i licences which are
sold outright are recognised at the point of sale. Where the Group
hosts the software licence for a fixed period of time the revenue
is recognised over the period over which the service is provided,
which is the licence term.
Associated maintenance contracts are treated as a separate
performance obligation. These are invoiced in advance but
recognised as revenue across the period to which the maintenance
support agreements relate.
Amounts invoiced but not taken to revenue at a period end are
shown in the statement of financial position as contract liabilities.
INTEGRATED PRODUCT SUPPORT DIVISION
OMEGAPS AND R4I - CONSULTANCY
-
Revenue is recognised on a time and materials basis on the basis
of the amount which the group has the right to invoice.
LEASES AND RIGHT-OF-USE ASSETS
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.
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 payments 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
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
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.
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 lease payments made at or before the 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 useful life to
include the period covered by the option. 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.
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 into sterling at the
average exchange rates for the period, unless exchange rates
fluctuate significantly during the period, in which case the
exchange rates at the date of transactions are used. Exchange
differences arising, if any, are classified as equity and transferred
to the Group’s translation reserve. Such translation differences
are recognised as income and expense in the period in which the
operation is disposed of. Goodwill and fair value adjustments
arising on the acquisition of a foreign entity are treated as assets
and liabilities of the foreign entity and translated at the closing
rates.
TAXATION
The tax expense represents the sum of the current tax charge and
deferred tax charge. 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.
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.
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.
FOREIGN CURRENCY
Transactions in currencies other than each Group entity’s
functional currency 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 are not retranslated.
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
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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.
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.
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. Warranty provisions are recognised at contract award.
All warranty provisions currently provided for by the Group are
considered to be assurance based only.
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:
Plant and equipment:
Computers:
Motor vehicle:
Nil
Net book value at 1 January 2007 being
written off over 35 years on a straight-line basis
10% to 25% of cost per annum
33.33% of cost per annum
25% of cost per annum
}
Land and buildings held for use in the production or supply of
goods or services, or for administrative purposes, are stated in
the balance sheet at their revalued amounts, being the fair value
at the date of revaluation, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
Revaluations are performed with sufficient regularity such that
the carrying amount does not differ materially from that which
would be determined using fair values at the balance sheet date.
64
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
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:
Development Costs:
Hardware development costs
Courseware development costs
Software development costs
Virtual Reality development costs
Software
10% of cost per annum
20% of cost per annum
20% of cost per annum
50% of cost per annum
33% of cost per annum
The amortisation of intangible assets is included in administration
expenses in the Consolidated Income Statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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.
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.
CORONAVIRUS JOB RETENTION SCHEME (CJRS)
GOVERNMENT GRANT INCOME
Income received relating to the CJRS government grant income
has been recognised in other income on an accruals basis (see
note 8).
REVENUE RECOGNITION
A significant proportion of the Group’s revenue derives from long-
term, engineered solutions 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 based on the
contractual requirements and the estimate cost to complete these.
The Directors estimate the standalone selling price at contract
conception based on products supplied in similar circumstances
to similar customers.
CAPITALISATION
COSTS
OF
DEVELOPMENT
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.
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
DEFERRED TAX ASSET RECOGNITION
IMPAIRMENT OF GOODWILL
The recognition of deferred tax assets (see note 25) 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
CONTINGENT CONSIDERATION ON
ACQUISITION
During the year Pennant acquired entire issued share capital
of Halter Holdings Pty Ltd, the parent company of Absolute
Data Group Pty Ltd and Onestrand Inc, a transaction which
resulted in contingent consideration relating to an earn out. The
judgement of the Directors is that, based on the current and
projected performance of the acquired entity being significantly
in excess of the earnout threshold, the fair value of the contingent
consideration is deemed to be not materially different to the
maximum amount of the contingent consideration under the share
purchase agreement. Therefore the contingent consideration,
which has been discounted to present value, totalled £1,691k at
the point of acquisition (see note 33).
RECOVERABILITY OF INTERNALLY-
GENERATED INTANGIBLE ASSET
During the year, management reconsidered the recoverability
of its internally-generated intangible asset which is included
in its consolidated statement of financial position at £5,366k
(2019: £3,112k) and upon review, one internally generated asset
was fully impaired during the year (see note 16). For all other
assets, the products continue to progress in a very satisfactory
manner, and customer reaction has reconfirmed management’s
previous estimates of anticipated revenues from the assets held
on the balance sheet. Key judgements made in estimating the
recoverability of intangible assets are revenue growth and useful
life of individual assets.
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 £2,428k (2019: £923k) and
the review has been carried out by the Directors.
5. REVENUE
An analysis of the Group’s revenue is as
follows:
Engineered Solutions and
Generic Products
2020
£000s
2019
£000s
6,256
10,930
Technical Support Services
3,536
5,224
Subtotal Technical Training Division
9,792
16,154
OmegaPS & R4i
Subtotal Integrated Product Support
Division
5,264
4,276
5,264
4,276
Total Group Revenue
15,056
20,430
In the case of Technical Training Division, the customer pays a
fixed amount based on a payment schedule. The performance
obligation in relation to off the generic products is satisfied upon
customer acceptance and in relation to engineered solutions, upon
percentage of completion based on cost. In both the Technical
Training Division and Integrated Product Support Division licences
and support services 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.
Revenue which was deferred as at 31 December 2019 now
recognised in this year amounts to £475k.
As at 31 December the transaction price of performance
obligations which are unsatisfied at the year end amounts to
£8,436k to be recognised in future periods.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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 the Technical Training Division and Integrated Product Support Division (as detailed in pages 22 to 25 in the
‘About Pennant’ section) 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.
The approach differs from the year ended 31 December 2019 where performance was reported by geographic location and reflects the
restructuring exercise undertaken by the group in the year ended 31 December 2020.
6.1 SEGMENT REVENUES AND RESULTS
Technical Training Division
Integrated Product Support Division
External sales
Net finance costs
Loss before tax
SEGMENT REVENUE
SEGMENT LOSS
2020
£
9,792
5,264
15,056
2019
£
16,088
4,342
20,430
2020
£
(2,927)
(87)
(3,014)
(125)
(3,139)
2019
£
(1,560)
42
(1,518)
(110)
(1,628)
Technical Training Division operates in the UK and Australasia, Integrated Product Support operates in all geographic locations. The
Segment loss for the period includes the restructuring costs, amortisation and management charges associated with each division.
6.2 SEGMENT ASSETS AND LIABILITIES
Segment assets
Technical Training Division
Integrated Product Support Division
Eliminations on consolidation
Unallocated
Consolidated assets
Segment liabilities
Technical Training Division
Integrated Product Support Division
Eliminations on consolidation
Unallocated
Consolidated liabilities
2020
£000s
15,707
6,978
22,985
-
75
22,760
6,229
3,452
9,681
-
546
10,227
2019
£000s
16,895
3,465
20,361
2,207
313
22,881
7,102
693
7,795
-
242
8,037
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
6.3 OTHER SEGMENT INFORMATION
Technical Training Division
Integrated Product Support Division
Unallocated
DEPRECIATION AND
AMORTISATION*
ADDITIONS TO
NON-CURRENT ASSETS**
2020
£000s
1,354
717
18
2,089
2019
£000s
3,218
55
-
3,273
2020
£000s
993
2,663
-
3,656
2019
£000s
2,607
7
-
2,614
* Goodwill, Other intangibles and Property, plant & equipment, and Right-of-use assets
** Other intangibles and Property, plant & equipment
Technical Training Division
Integrated Product Support Division
Unallocated
6.4 GEOGRAPHICAL INFORMATION
RESTRUCTURING EXPENSES
2020
£000s
327
214
-
541
2019
£000s
654
-
-
654
The Group operates in four geographical areas – UK, Canada, United States of America and Australia. The Group’s revenue from
external customers and information about its non-current assets by geographical location are detailed below.
UK
Canada
United States of America
Australia
REVENUE FROM EXTERNAL
CUSTOMERS
2020
£000s
9,675
3,518
545
1,318
15,056
2019
£000s
16,370
3,682
-
378
20,430
NON-CURRENT
ASSETS*
2020
£000s
10,531
350
91
3,851
14,823
2019
£000s
11,046
347
-
178
11,571
* Non-current assets excluding financial instruments and deferred tax assets.
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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.
UK
Customer 1
Customer 2
Canada
Customer 3
7. STAFF COSTS
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 30)
2020
£000s
2,677
2,379
2019
£000s
2,406
6,788
3,059
3,276
2020
£000s
8,418
821
369
9,608
2019
£000s
8,223
776
455
9,454
The average number of persons, including Executive Directors employed by the Group during the year was:
Office and management
Production
Selling
2020
NUMBER
2019
NUMBER
36
110
6
152
28
128
9
165
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
8. OPERATING LOSS FOR THE YEAR
Operating loss 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)
Other income arising from Coronavirus Job Retention Scheme (CJRS)
Amortisation of intangible assets
Impairment of intangible assets (note 16)
Impairment of Goodwill
Depreciation of property, plant and equipment
Impairment of land & buildings (note 17)
Depreciation of right-of-use assets
Share-based payment (note 29)
Restructuring expenses**
* In 2020 research and development costs, £1,292k were capitalised (2019: £1,994k)
** Restructuring expenses are explained in the Chief Executives 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
10. FINANCE COSTS
Interest expense for bank overdraft
Lease interest
Other interest expense
70
2020
£000s
1
261
(198)
(327)
1,139
222
-
522
-
198
81
541
2020
£000s
68
37
-
105
2020
£000s
32
87
6
125
2019
£000s
10
240
(320)
-
470
-
1,169
567
819
248
93
654
2019
£000s
47
25
3
75
2019
£000s
30
81
-
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
11. FINANCE INCOME
Income from bank deposits
12. TAXATION
Recognised in the income statement
Current UK tax expense
Foreign tax expense
In respect of prior years
Deferred tax expense relating to origination and reversal of temporary differences
In relation to prior years
Effect of tax rate change
Exchange rate difference
Subtotal deferred tax
Total P&L tax credit
Other Comprehensive Income charge for the period – Deferred tax
Reconciliation of effective tax rate
Loss before tax
Tax at the applicable rate of 19.00% (2019: 19.00%)
Tax effect of expenses not deductible in determining taxable profit
Impact of R&D tax credits
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 (see note 25)
Effect of adjustments for prior years
Effect of adjustments for prior years – deferred tax
Deferred tax charged directly to equity
Total tax credit
2020
£000s
0
2020
£000s
216
(360)
25
(119)
663
(7)
(24)
-
632
513
(18)
2019
£000s
0
2019
£000s
304
(31)
219
492
(236)
(121)
-
(1)
(358)
134
(63)
(3,139)
(1,628)
596
(50)
93
(115)
18
(7)
(5)
(35)
25
(7)
-
513
309
(582)
170
(25)
27
-
39
(68)
219
(121)
166
134
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%.
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
13. DIVIDENDS
No dividends were paid during the year (2019: £NIL). No final dividend will be proposed at the Annual General Meeting (2019: £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 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
2020
£000s
(2,626)
2019
£000s
(1,494)
NUMBER
NUMBER
36,381,274
35,901,357
2,147,376
2,321,543
38,528,650
38,222,900
* Share options are excluded from the earnings per share calculation in the consolidated income statement due to their antidilutive
effect on the loss after tax attributable to equity holders
15. GOODWILL
Carrying amount:
At 1 January 2019
Currency translation
Acquisition of ASP
ASP Impairment recognised in year
At 1 January 2020
Currency translation
Acquisition of ADG (see note 33)
At 31 December 2020
£
952
(29)
1,169
(1,169)
923
37
1,468
2,428
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 arising on the acquisition of ADG is wholly allocated to the Integrated Product Support
cash generating unit. The Goodwill will not be deductible for tax purposes. The carrying amount of goodwill has been allocated as
follows:
Cash generating unit:
Technical Training Division
Integrated Product Support Division
72
2020
£000s
584
1,884
2,428
2019
£000s
584
339
923
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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 Board of Directors and extrapolates cash flows as follows:
Integrated Product Support Division:
Cashflows are extrapolated for a further 4 years beyond the 12-month annual budget period at a growth rate of 3% (2019: 10%). The
forecast does not include a terminal value.
Technical Training Division:
Cashflows are forecast for an additional 2 years beyond the 12-month approved financial budget period based on a contract level
review with the addition of expected cashflows generated from ‘pipeline’ opportunities. As at 31 December 2020 the Division had
an active pipeline of over £40m and in testing the Goodwill for impairment the Directors have assumed a prudent conversion rate
of 50%. For years 4 & 5, a growth rate of 3% per annum (2019: 10%) is assumed. The forecast does not include a terminal value.
The forecast cash flows of each Division are discounted at 6.53% per annum (2019: 8.91% per annum) to provide the value in use
for each CGU.
The discounted cashflows provide headroom for the Goodwill carrying values in excess of their respective assets of circa £0.5
million in the case of each Division.
Key assumptions are based on past experience and external sources. No impairment of goodwill has been recorded in previous years
with the exception of goodwill relating to the acquisition of ASP in the year ended 31 December 2019. 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.
In the year ended 31 December 2019 the goodwill arising on the acquisition of ASP which was a separate cash generating unit was
fully impaired as the operations ceased.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
16. OTHER INTANGIBLE ASSETS
SOFTWARE
DEVELOPMENT COSTS
TOTAL
Cost
At 1 January 2019
Currency translation
Additions
At 1 January 2020
Currency translation
Additions *
At 31 December 2020
Amortisation
At 1 January 2019
Currency translation
Charge for the year
At 1 January 2020
Currency translation
Impairment
Charge for the year
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
£000s
305
(1)
207
511
-
24
535
107
(1)
125
231
-
-
100
331
204
280
£000s
£000s
2,474
-
1,994
4,468
33
3,481
7,982
1,012
-
345
1,357
(2)
222
1,039
2,616
5,366
3,111
2,779
(1)
2,201
4,979
33
3,505
8,517
1,119
(1)
470
1,588
(2)
222
1,139
2,947
5,570
3,391
* Included in additions to development costs is £2,222k relating the acquisition of Absolute Data Group Pty Ltd in the year.
During 2020 the Group capitalised £1,259k (2019: £1,994k) of costs in relation to the development of seven (2019: nine) new products.
These costs will be amortised over the estimated useful life of the asset as per note 3. One Integrated Product Support software asset
was fully amortised (Consolidated Income Statement: ‘Intangible asset impairment’) in the period by £222k on the basis there is no
longer a useful economic value to the asset as it has no known customer.
During the year end amortisation rates were amended to more effectively reflect the useful economic lives of the assets. This resulted
in a reduction in the amortisation charge in year of £223k.
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
17. PROPERTY, PLANT AND EQUIPMENT
LAND AND
BUILDINGS
FIXTURES AND
EQUIPMENT
MOTOR
VEHICLES
TOTAL
£000s
£000s
£000s
£000s
Cost / Valuation
At 1 January 2019
Currency translation
Additions
Transfer in year
At 1 January 2020
Currency translation
Acquisition of ADG (note 33)
Additions
At 31 December 2020
Depreciation
At 1 January 2019
Currency translation
Transfer in year
Revaluation surplus
Impairment on revaluation
Charge for year
At 1 January 2020
Currency translation
Charge for the year
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
5,799
-
79
(485)
5,393
-
-
-
5,393
308
-
(15)
(370)
819
132
874
-
91
965
4,428
4,519
3,196
(5)
334
485
4,010
4
-
117
4,131
1,822
(4)
15
-
-
433
2,266
1
429
2,696
1,435
1,744
40
-
-
-
40
1
19
1
61
16
(1)
-
-
-
3
18
-
2
20
41
22
9,035
(5)
413
-
9,443
5
19
118
9,585
2,146
(5)
-
(370)
819
568
3,158
1
522
3,681
5,904
6,285
Land and buildings were formally revalued at 14 November 2019 to £4.52 million 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.
The Directors have conducted a fair value assessment of the properties at 31 December 2020 and deemed there is no material change
in value since 31 December 2019.
At 31 December 2020, 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 £3.7 million (2019: £3.8 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.
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
All of the Group’s properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value Management.
See note 24 regarding the securities associated with these assets.
18. RIGHT-OF-USE ASSETS
Valuation
At 1 January 2020
Additions
Termination of lease
Depreciation
At 31 December 2020
19. INVENTORIES
Raw materials and consumables
Work in Progress
20. TRADE AND OTHER RECEIVABLES
Trade receivables
Contract Assets
Other receivables
Prepayments
PROPERTY
MOTOR VEHICLES
£000s
£000s
TOTAL
£000s
795
53
-
(147)
701
176
32
(28)
(51)
129
2020
£000s
710
371
1,081
2020
£000s
3,417
1,155
20
292
4,884
971
85
(28)
(198)
830
2019
£000s
358
213
571
2019
£000s
3,522
5,484
4
362
9,372
No receivables have been written off as uncollectible during the year (2019: £Nil) and it has not been necessary to recognise any
impairment loss under the expected lifetime loss model as there is no history of trade receivables being uncollected.
The contract assets have been decreased as a result of receiving cash milestones in year for generic products that had been delivered
ahead of billing milestones in the previous year
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
21. CASH AND CASH EQUIVALENTS
Bank
Petty cash
Bank overdraft
Balance as per statement of cash flows
2020
£000s
1,434
5
1,439
(2,892)
(1,453)
2019
£000s
493
4
497
(2,739)
(2,242)
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
2020
£000s
1,571
959
864
726
4,120
2019
£000s
475
2,036
941
478
3,930
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
Contract liabilities have increased as a result of the acquisition of ADG and the inclusion of contract liabilities at the year end as a result
of deferral of software maintenance revenue within ADG.
23. LEASES LIABILITIES
Valuation
At 1 January 2020
Currency translation
Additions
Termination of lease
Interest expense
Repayments
At 31 December 2020
Current
Non-current
PROPERTY
MOTOR VEHICLES
TOTAL
£000s
£000s
£000s
851
-
53
-
75
(189)
790
112
678
192
-
32
(25)
12
(88)
123
81
42
1,043
-
85
(25)
87
(277)
913
193
720
In 2020 short term lease rentals expensed amounted to £11k (2019: £11k). There were no low value leases or variable lease payments
in the year. This is not likely to significantly change in the year ahead.
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
Lease liability maturity analysis:
Within than 1 year
In 2-5 years
After 5 years
24. BORROWINGS
2020
£000s
267
818
-
1,085
2019
£000s
296
975
52
1,323
The Group has available bank overdraft facilities of £4 million that renew annually (2019: £3 million). Any overdraft arising from the
facility is repayable on demand and carries interest at 1.92% (2019: 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 by cross-guarantees
between those companies.
TAX LOSSES
TOTAL
25. DEFERRED TAX
At 1 January 2019
Credit/(charge) to income
Credit/(charge) to OCI
Credit/(charge) to equity
Exchange differences
Prior year adjustment
At 1 January 2020
Credit/(charge) to income
Credit/(charge) to OCI
Exchange differences
Acquisition entry
At 31 December 2020
ACCELERATED
TAX
DEPRECIATION
£000s
OTHER
TEMPORARY
DIFFERENCES
INTANGIBLE
ASSETS
£000s
£000s
(560)
(235)
(63)
-
-
-
(858)
-
(18)
-
-
(876)
168
(0)
-
(103)
(1)
-
64
151
-
2
-
217
-
-
-
-
-
-
-
100
-
(5)
(387)
(292)
£000s
590
0
-
-
(0)
(121)
469
381
-
-
-
850
In the statement of financial position deferred assets and liabilities are shown without any set off as follows:
Deferred tax assets
Deferred tax liabilities
2020
£000s
91
(192)
(101)
2019
£000s
-
(325)
(325)
£000s
198
(235)
(63)
(103)
(1)
(121)
(325)
632
(18)
(3)
(387)
(101)
2018
£000s
198
-
198
Deferred tax has been provided at 19% (2019: 17%), the corporation tax rate was enacted at the balance sheet date. Following the
budget speech on 11 March 2020 the Chancellor announced corporation tax rate would remain at 19%. In each foreign subsidiary,
deferred tax is recognised at the prevailing tax rate in the respective Country.
At the reporting date the Group had unused tax losses of approximately £4.5 million (2019: £2.8 million) available for set-off against
future profits. A deferred tax asset of £206k has not been recognised 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.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
26. WARRANTY PROVISIONS
Warranty provisions
2020
£000s
122
The Group has recognised a warranty provision in the year in respect of contractual obligations on two major programmes.
27. SHARE CAPITAL
Authorised, issued and fully paid
36,446,385 ordinary shares of 5p each (2019: 36,114,596)
2020
£000s
1,822
1,822
2019
£000s
-
2019
£000s
1,806
1,806
The Company’s ordinary shares carry one vote per share, have equal rights to participate in dividends, are freely transferable and are
not redeemable.
In April 2020 117,754 5p ordinary shares were issued at 38p per share for a total consideration of £45k in connection with the Group’s
employee SIP scheme (see note 29).
On 5 March 2020 214,035 new 5p shares were issued at 78p in relation to the purchase of Absolute Data Group Pty Ltd (“ADG”) for a
total consideration of £167k (see page 14).
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
28. NOTE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash generated from operations
Loss for the year
Finance income
Finance costs
Income tax credit
Withholding tax
Depreciation of property, plant & equipment
Impairment of property
Depreciation of right-of-use assets
Amortisation of other intangible assets
Impairment of other intangible assets
Impairment of Goodwill
Other income – RDEC (R&D)
Share-based payment
Operating cash flows before movement in working capital
Decrease/(increase) in receivables
(Increase)/decrease in inventories
Increase/(Decrease) in payables and provisions (notes 22 and 26)
Cash generated from operations
Tax received
Interest paid
Net cash generated/(used) in operations
29. SHARE-BASED PAYMENT
2020
£000s
(2,626)
(0)
125
(513)
(114)
522
-
198
1,139
222
-
(198)
81
(1,164)
5,073
(510)
(790)
2,609
574
(38)
3,145
2019
£000s
(1,494)
(0)
111
(134)
-
567
819
248
470
-
1,169
(320)
93
1,529
(4,096)
1,353
(880)
(2,094)
(88)
(29)
(2,211)
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:
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
OPTIONS GRANTED UNDER THE SCHEME
2020
NUMBER OF
SHARE OPTIONS
1,773,074
180,000
-
(440,000)
1,513,074
1,057,679
2019
WEIGHTED
AVERAGE
EXERCISE PRICE
87.49p
37.90p
-p
106.58p
77.16p
73.30p
NUMBER OF
SHARE OPTIONS
2,103,074
60,000
(390,000)
-
1,773,074
857,619
WEIGHTED
AVERAGE
EXERCISE PRICE
80.42p
66.00p
46.04p
-p
87.49p
71.62p
Outstanding at 1 January
2020
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31
December 2020
Exercisable at 31
December 2020
The option prices for the outstanding share options are:
30 - 50p
51- 80p
81 - 100p
2020
150,000
430,000
2019
-
150,000
743,074
1,243,074
101 - 135p
190,000
380,000
The fair value of the options granted during the year under the Scheme is £31,500. The weighted average fair value is 18p.
UNAPPROVED OPTIONS
Outstanding at 1
January 2020
Exercised during the year
Outstanding at 31
December 2020
Exercisable at 31
December 2020
2020
NUMBER OF
SHARE OPTIONS
525,969
-
525,969
525,969
WEIGHTED
AVERAGE
EXERCISE PRICE
55.00p
-
55.00p
55.00p
2019
NUMBER OF
SHARE OPTIONS
825,969
(300,000)
525,969
-
WEIGHTED
AVERAGE
EXERCISE PRICE
55.18p
55.50p
55.00p
-
The options outstanding at 31 December 2020 (unapproved and those under the Scheme) had a weighted average remaining contractual
life of 5.94 years (2019: 6.65 years).
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
The Group recognised total expenses related to equity-settled share-based payment transactions of £81k (2019: £93k).
The inputs to the Black-Scholes model for all options granted in 2020 were as follows:
•
•
•
Share price at date of grant 43.00p (2019: 98.56p)
Exercise price 43.00p (2019: 98.56p)
Expected volatility (based on historic volatility) 20% (2019:20%)
• Risk free rate 0.74% (2019:0.74%)
•
Expected dividend yield 0.0% (2019:0.0%)
• Option life 10 years (2019:10 years)
•
Vesting period 3 years (2019:3 years)
SIP SCHEME
The SIP scheme is open to UK employees and is governed by UK legislation. It is designed to promote employee share ownership and
provides tax advantages to participants. The participating employees have monthly deductions taken from their salaries from April to
March each year under a salary sacrifice regime which are then held by the trustees of the SIP and used to purchase shares at the
end of the period.
30. 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
31. FINANCIAL INSTRUMENTS
31.1 CAPITAL RISK MANAGEMENT
2020
£000s
369
2019
£000s
455
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.
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
31.2 CATEGORIES OF FINANCIAL INSTRUMENTS
Financial assets
Measured at amortised cost
Trade receivables
Contract assets
Other receivables & prepayments
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Trade payables
Contract liabilities
Taxes and social securities costs
Other creditors and accruals
Cash and cash equivalents
2020
£000s
3,417
1,155
312
1,439
6,323
959
1,571
864
726
2,892
7,012
2019
£000s
3,552
5,484
366
497
9,869
2,036
475
941
477
2,739
6,668
31.3 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.
31.4 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. At 31 December 2020 and 31 December 2019,
the Group had no commitments under forward exchange contracts.
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
2020
£000s
248
148
764
1,160
2019
£000s
151
15
184
350
2020
£000s
996
400
396
1,792
2019
£000s
745
18
126
889
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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 $
31.5 CREDIT RISK
IMPACT ON PROFIT
2020
£000s
37
13
(18)
2019
£000s
30
-
(3)
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 2020 and 31 December 2019 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.
31.6 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 £1,453k (2019: £2,242k) and net undrawn facilities of £2,547k (2019: £758k). The level
of the Group’s overdraft facility is reviewed annually and has been renewed at the current level of £4m as of April 2021.
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.
31.7 INTEREST RISK
The Group is from time to time exposed to interest rate risk on bank overdraft when the Group is overdrawn. This is the only liability
subject to interest rate risk at the balance sheet date. Interest is paid on bank overdraft at 1.92% (2019: 2.00%) over base rate. 1% rise/
fall in interest rates would have decreased / increased profit for the year by an immaterial amount (2019: immaterial).
32. 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.
REMUNERATION OF KEY MANAGEMENT PERSONNEL
Amounts paid to Group Directors who are the only key management personnel of the Group are set out in the Remuneration Report.
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
DIVIDENDS PAID TO DIRECTORS
Dividends totalling £NIL (2019: £NIL) were paid in the year in respect of ordinary shares in which the Company’s Directors had a
beneficial interest.
33. BUSINESS COMBINATIONS
BUSINESS COMBINATIONS 2020
On 3 March 2020, the Group acquired the entire issued share capital of Halter Holdings Pty Ltd, the parent company of Absolute Data
Group Pty Ltd and Onestrand Inc. The acquisition was in the Company’s best interests for the following reasons:
•
•
•
•
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.
The Acquisition provides Pennant with an expanded presence in its target growth markets of North America and Australasia.
The ADG business now forms part of an enlarged, enhanced ‘Integrated Product Support’ offering focused on the provision of
software and other support services.
The Acquisition enables the integration of R4i with the Group’s OmegaPS product, providing users with an end-to-end database
and documentation solution.
The initial consideration payable for the acquisition comprised a cash payments totalling £1,608k in the year with potential further cash
payments due based on the ongoing performance measured through sales targets of the acquisition over each of the next 5 years being
the earn out period. These payments are equal amounts each year and are not dependent on each other. The total consideration was
£3,466k (see below). The Directors expect that the full consideration will be paid in due course and is included in the liabilities of the
Group as a result. The remaining payments are noted below.
For the financial year ended 31 December 2020 the acquisition delivered revenues and a profit before tax of £1,318k and £367k
respectively.
PURCHASE CONSIDERATION HALTER HOLDINGS PTY LTD ON ACQUISITION
Cash paid
Share issue
Contingent consideration
£
1,608
167
1,691
3,466
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 is summarised below:
ASSETS & LIABILITIES RECOGNISED AS A
RESULT OF THE ACQUISITION
ASSETS
LIABILITIES FAIR VALUE
TOTAL
Intangible Software asset
Trade receivables
Plant & equipment
Trade and other payables
Cash at bank
Loans
Deferred tax
Tax payable
Net identifiable assets acquired
Goodwill recognised on acquisition
Purchase consideration (see above)
£000s
£000s
704
585
19
-
817
-
-
-
2,125
-
-
-
(1,102)
-
-
-
(156)
(1,258)
£000s
1,518
-
-
-
-
-
(387)
-
1,131
£000s
2,222
585
19
(1,102)
817
-
(387)
(156)
1,998
1,468
3,466
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
The fair value of the acquired intangible software asset was calculated via a discounted cash flow model based on the projected 5-year
profitability of the acquired companies at discount rate of 9%.
PURCHASE CONSIDERATION NET CASH OUT FLOW
Cash paid
Less cash acquired
£
1,608
(817)
791
BUSINESS COMBINATIONS 2019
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”). 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 £250k on completion with a potential further cash
payment due based on completion accounts. The total consideration was £390k (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 £20k 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 £420k, £272k and £289k
respectively.
The initial consideration payable for the acquisition comprised a cash payment of £562k on completion with potential further cash
payments due based on the ongoing performance measured through sales targets of the acquisition over each of the next 5 years being
the earn out period. These payments are equal amounts each year and are not dependent on each other. The total consideration was
£3,864k (see below). The Directors expect that the full consideration will be paid in due course and is included in the liabilities of the
Group as a result. The remaining payments are noted below.
For the financial year ended 31 December 2020 the acquisition delivered revenues and a profit before tax of £1,318k and £367k
respectively.
PURCHASE CONSIDERATION ASP
Cash paid
Contingent consideration
£000s
370
20
390
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:
ASSETS & LIABILITIES RECOGNISED AS A RESULT OF THE ACQUISITION
Trade receivables
Plant & equipment
Trade payables
Bank overdraft and loans
Loans
Tax payable
Net identifiable assets acquired
Goodwill recognised on acquisition
Purchase consideration (see above)
86
TOTAL
£000s
105
8
(136)
(36)
(599)
(121)
(779)
1,169
390
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
PURCHASE CONSIDERATION NET CASH OUT FLOW
Cash paid
Less bank overdraft acquired
£000s
370
36
406
34. PRIOR YEAR ADJUSTMENT
In the period ended 31 December 2020 it was noted that the revaluation reserve relating to an asset impaired in 2016 and disposed of
in 2017 was not correctly treated in the financial statements.
The error resulted in the overstatement of the revaluation reserve and the understatement of retained earnings. The error has been
corrected by restatement of the affected line items as follows:
BALANCE SHEET
EXTRACT
2019
INCREASE/
(DECREASE)
2019
RESTATED
2018
INCREASE/
(DECREASE)
2018
RESTATED
£000s
£000s
£000s
£000s
£000s
£000s
Revaluation reserve
Retained earnings
788
6,702
(58)
58
730
6,760
461
8,225
(15)
15
446
8,240
A further restatement has been made to reclassify the deferred tax charge on share based payments (£103k) from the consolidated
statement of comprehensive income to the consolidated statement of changes in equity.
35. AUDIT EXEMPTIONS FOR GROUP COMPANIES
The following companies have exercised exemption from audit under s479A of the Companies Act 2006 and s394A of the Companies
Act 2006:
• Aviation Skills Holdings Ltd (s394A)
• The Aviation Skills Partnership Limited (s394A)
• Aviation Skills Foundation Limited (s479A)
• Pennant SIP Trustee Limited (s479A)
• Pennant Support and Development Services Limited (s394A)
87
COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020
Continuing operations
Management charges receivable
Administrative expenses
Operating loss
Finance costs
Loss before tax
Tax charge
Loss after tax
Other comprehensive income
Total comprehensive loss attributable to equity holders
NOTES
4
5
2020
£000s
1,939
(2,095)
(156)
(2)
(158)
-
(158)
-
(158)
2019
£000s
1,420
(3,110)
(1,690)
(5)
(1,695)
-
(1,695)
-
(1,695)
88
COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020
At 1 January 2019
Total comprehensive income for the year
Issue of new ordinary shares
Recognition of share-based payment
At 1 January 2020
Total comprehensive income for the year
Issue of new ordinary shares
Recognition of share-based payment
SHARE
CAPITAL
SHARE
PREMIUM
CAPITAL
REDEMPTION
RESERVE
RETAINED
EARNINGS
TOTAL
EQUITY
£000s
1,685
-
121
-
1,806
-
16
-
£000s
3,169
-
1,931
-
5,100
-
195
-
£000s
200
-
-
-
200
-
-
-
£000s
3,655
(1,695)
-
93
2,053
(158)
-
81
£000s
8,709
(1,695)
2,052
93
9,159
(158)
211
81
At 31 December 2020
1,822
5,295
200
1,976
9,293
Note: see page 56 for a description of the reserves appearing in the column headings of the table above.
89
COMPANY NUMBER: 3187528
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2020
NOTES
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
Bank overdraft
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
6
7
8
9
8
10
10
12
2020
£000s
6,530
56
6,586
18
4,593
-
4,611
2019
£000s
6,530
32
6,562
33
4,654
272
4,959
11,197
11,521
101
382
1,363
5
26
1,877
2,734
27
1,904
9,293
1,822
5,295
200
1,976
9,293
230
-
2,096
5
21
2,352
2,607
10
2,362
9,159
1,806
5,100
200
2,053
9,159
Approved by the Board and authorised for issue on 27 April 2021
P H Walker
Director
The accompanying notes on pages 92 to 97 are an integral part of these financial statements.
90
COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020
Net cash from operations
Investing activities
Purchase of ASP
Net cash from investing activities
Financing activities
Proceeds from issue of ordinary shares
Lease repayments
Net cash used in financing activities
Net cash (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
NOTES
13
12
8
2020
£
(836)
-
-
211
(29)
182
(654)
272
(382)
2019
£
(1,436)
(370)
(370)
2,052
(24)
2,028
222
50
272
91
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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 (“IFRS”) in
conformity with the requirements of the Companies Act 2006. 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 LOSS
The auditor’s 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
2020
£000s
1,039
77
48
1,164
The average number of persons, including Executive Directors employed by the Company during the year was 6 (2019: 7).
4. FINANCE COSTS
Interest expense
5. TAX
Current tax expense
Tax charge for the year
Reconciliation of effective tax rate
(Loss)/profit before tax
Tax at applicable rate 19.00% (2019: 19.00%)
Tax effect of:
Expenses that are not deductible for tax
Changes in rate on deferred tax
Deferred tax not recognised
Group relief
Total tax charge
92
2020
£000s
(2)
2019
£000s
-
-
(158)
(31)
52
(21)
-
-
2019
£000s
895
123
44
1,062
2019
£000s
(5)
2018
£000s
1
1
27
5
25
0
(31)
1
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
6. SUBSIDIARIES
Details of the Company’s subsidiaries at 31 December 2020 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
Halter Holdings Pty Ltd**
Absolute Data Group Pty Ltd***
Onestrand Inc****
GPO Box 2890, Brisbane, Queensland, 4001
Australia
GPO Box 2890
Brisbane, Queensland, 4001
Australia
1554 Paoli Pike #286
West Chester
PA 19380, USA
100%
100%
100%
100%*
100%*
100%
100%
100%
100%
100%
100%
100%
* Subsidiary of Aviation Skills Holdings
** Subsidiary of Pennant Australasia Pty Limited
*** Subsidiary of Halter Holdings Pty Ltd
**** Subsidiary of Absolute Data Group Pty Ltd
93
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
The investments in subsidiaries are all stated at cost as follows in the table below. The investment in relation to the acquisition of
Halter Holdings Pty Ltd, the parent company of Absolute Data Group Pty Ltd and Onestrand Inc was made by Pennant Australasia
Pty Ltd with the acquired Companies becoming wholly owned subsidiaries thereof hence no movement in the cost of investment in
Pennant International Group Plc.
COST OF INVESTMENT
Cost of investment – beginning of year
Cost of investment – end of year
Impairment – beginning of the year
Impairment – end of year
Net cost of investment – end of year
Net cost of investment – beginning of year
7. RIGHT-OF-USE ASSETS
Valuation
At 1 January 2020
Prepayment
Additions
Transfers
Depreciation
At 31 December 2020
£000s
6,920
6,920
390
390
6,530
6,530
MOTOR VEHICLES
£000s
TOTAL
£000s
32
-
58
(12)
(22)
56
32
-
58
(12)
(22)
56
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.
94
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
10. LEASE LIABILITIES
Valuation
At 1 January 2020
Additions
Interest expense
Transfers
Repayments
At 31 December 2020
Current
Non-current
MOTOR VEHICLES
£000s
TOTAL
£000s
31
57
3
(9)
(29)
53
26
27
31
57
3
(9)
(29)
53
26
27
In 2020 short term lease rentals expensed amounted to £Nil (2019: £Nil). There we no value leases or variable lease payments excluded
from lease liabilities. This is not likely to significantly change in the year ahead.
Lease maturity
Within than 1 year
In 2-5 years
After 5 years
11. BORROWINGS
2020
£000s
32
29
-
61
2019
£000s
21
10
-
31
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 27 to the consolidated financial statements.
95
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
13. NOTE TO STATEMENT OF CASH FLOWS
Cash generated from operations
Loss for the year
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
Decrease /(Increase) in receivables
(Decrease)/Increase in payables
Cash generated from operations
Interest paid
Net cash generated from operations
14. FINANCIAL INSTRUMENTS
2020
£000s
2019
£000s
(158)
(1,695)
-
2
-
22
81
(53)
94
(879)
(838)
2
(836)
(6)
5
390
23
93
(1,190)
(2,347)
2,102
(1,435)
(1)
(1,436)
The Company’s approach to the management of capital and market risks is set out in note 31 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 1.92% (2019: 2.00%) over base rate. A 1% rise/fall in interest rates would have
decreased/ increased profit for the year by an immaterial amount (2019: immaterial). The Company is not exposed to foreign currency
risks.
96
NOTES TO THE COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
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
Bank overdraft
Trade and other payables
Amounts due to subsidiaries
2020
£000s
18
4,593
-
4,611
382
101
1,363
1,846
2019
£000s
33
4,655
272
4,960
-
230
2,097
2,327
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 (2019: £Nil).
16. RELATED PARTY TRANSACTIONS
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.
97
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
Steelpark Road
Halesowen
B62 8HD
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 – 2 June 2021
Expected announcement of results for the year ending 31 December 2021:
Half-year announcement - September 2021
Full-year preliminary announcement - April 2022
DAILY SHARE PRICE LISTINGS
The Financial Times - AIM
98
OFFICERS AND PROFESSIONAL ADVISERS
DIRECTORS
S A Moore (Chairman)
P H Walker FCA (Chief Executive Officer)
D J Clements
J Ponsonby
P Cotton
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 & BROKER
Mazars LLP
90 Victoria Street
Bristol
BS1 6DP
Barclays Bank Plc
Bridgewater House
Finzels Reach
Counterslip
Bristol
BS1 6BX
HSBC UK Bank Plc
2 The Promenade
Cheltenham
GL50 1LR
W H Ireland Ltd
4 Colston Avenue
Bristol
BS1 4ST
99
2020 ANNUAL REPORT
WWW.PENNANTPLC.COM