ANNUAL REPORT 2021
pennantplc.com
COMPANY NUMBER: 03187528
ANNUAL REPORT 2021
GLOSSARY
ADG – Absolute Data Group Pty Ltd
AGM – Annual General Meeting
CASA – Civil Aviation Safety Authority
EASA – European Union Aviation Safety Agency
EBITA – earnings before interest, taxation and amortisation
EBITDA – earnings before interest, taxation, depreciation and amortisation
EMAR – European Military Aviation Requirements
FAA – Federal Aviation Administration
H1 – the six months ended 30 June 2021
H2 – the six months ended 31 December 2021
IBP – Integrated Business Plan
IPS – Integrated Product Support
ILS – Integrated Logistics Support
LSAR – Logistic Support Analysis Record
OEM – Original Equipment Manufacturer
Q1 – the three months ended 31 March 2021
Q2 – the three months ended 30 June 2021
Q3 – the three months ended 30 September 2021
Q4 – the three months ended 31 December 2021
TTD – Technical Training Division
4
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
Attendance
Operational governance
Financial control
Risk management & principal risks
Remuneration report
Audit & Risk committee report
Directors’ report
Directors’ responsibility statement
Financial Statements
Independent Auditor’s report
The Group
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
The Company
Company statement of comprehensive income
Company statement of changes in equity
Company statement of financial position
Company statement of cash flows
4
6
7
8-9
10-13
14-15
16-20
22
23-24
25
25
26
26
27
28-35
36-38
39
40-43
44
46
47-52
53
54
55
56-57
58
60-86
87
88
89
90
Notes to the company financial statements
91-96
Shareholder information & financial calendar
Officers & professional advisers
97
98
5
STRATEGIC
REPORT
Our vision is to be the leading provider of world-class integrated
training technologies and product support for the defence, rail,
and other safety critical industries.
Group Key Financials
Group revenues of
£16.0 million
(2020: £15.1 million)
Gross margin 27%
(2020: 29%)
Loss before tax £2.5 million
(2020: £3.1 million)
EBITA loss £0.8 million
(2020: EBITA loss £1.6 million)
Group net assets
£11.1 million
(2020: £12.5 million)
Basic loss per share 4.41p
(2020: 7.22p)
Other highlights:
• Realisation of £0.9 million in cost savings as planned in 2020
• Net debt at year-end of £3.5 million (2020: net debt of £1.5 million)
• No final dividend recommended (2020: £NIL)
• Operating Loss (£2.2) million (2020: ((£3.0) million)
• Three-year contracted order book at year-end stood at £22 million, now standing at £32 million
(2020: £31 million) of which approximately £13 million is scheduled for recognition in 2022 and
£13m in 2023.
7
Chairman’s Statement
CHAIRMAN'S
STATEMENT
I am pleased to report that the Group has delivered a
significantly improved performance in 2021 compared
with 2020 albeit the extent of the improvement is impacted
by the well documented issues we have experienced on
the General Dynamics Maintenance Training Equipment
(“MTE”) programme.
Post period end, the Group has realigned operations to
enable effective and efficient global delivery, with the
Group organised into key regions (UK, EU & Middle East,
North America, and Australia). This is designed to allow
the ‘full spectrum’ of Pennant products and services to be
offered and delivered in all three regions.
Revenue was up in both the Technical Training Division
(TTD) and Integrated Product Support (IPS) Division. This
was achieved despite the ongoing impact of Covid-19
and a challenging first half upon which we reported an
EBITA loss of £1.0 million. As anticipated, the second half
was stronger, generating an EBITA profit of £0.2 million,
resulting in an EBITA loss of £0.8 million for the year as a
whole.
Particularly pleasing has been the performance of the IPS
division where significant progress has been made in line
with our strategy to increase visibility of revenues and, in
particular, recurring revenues which are now running at
an estimated £5.5 million for 2022.
Our 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 and present formidable barriers to
entry for any new market entrants.
Our 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.
Key Financials
For the year ended 31 December 2021, the Group
recorded consolidated revenues of £16.0 million (2020:
£15.1 million). Turnover was underpinned by the Group’s
contracted revenue base, in particular the continued
delivery of the Group’s overseas services contracts and
the successful achievement of a number of operational
milestones.
The decisive action taken to realign costs in 2020 has
resulted in an annualised staff costs reduction of £0.9
million (see note 7).
The Group posted a consolidated loss before tax of £2.5
million (2020: loss before tax £3.1 million) with an EBITA
loss of £0.8 million (2020: EBITA loss £1.6 million).
Dividend
Taking account of the Group’s 2021 financial performance,
the trading outlook and the Group’s cash position,
the Directors believe that it is both prudent and in the
Company’s and shareholders’ current best interests to
retain cash for working capital.
The Board will therefore not be recommending the
payment of a final dividend for the year ended 31
December 2021.
In addition, the Group continues to seek other strategic
opportunities to partner with or acquire complementary
businesses.
8
CHAIRMAN'S
STATEMENT
"The underlying strengths
of Pennant – our long-term
customer relationships, our
specialist services and our
quality-assured reputation –
remain the solid foundations"
Our People
To deliver a successful set of results in 2022, the Group
must have a committed workforce, appropriately
incentivised and motivated. Under extraordinarily
difficult circumstances, I would like to publicly thank all
our employees for their commitment to supporting the
Group’s intent for 2021 and for the flexibility they have
demonstrated in meeting specific contract outputs.
It is also our people we rely on to deliver our strategy and
in order to deliver a successful set of results in 2022, we
must pay particular attention to their needs going forward
and as a Board we remained focused on supporting them.
Our Culture
The Board remains committed to ensuring that all Group
employees understand and embody the Group’s ‘Core
Values’. These underpin the approach to all activities
whether they be in an operational or customer facing
environment. These values are also critical in terms
of the approach taken to all our policies whether they
are mandated by law (such as anti-bribery or anti-
counterfeiting laws) or mandated by behavioural ethics
(such as fair treatment and equality of opportunity),
treating all individuals with the respect they deserve
regardless of their position. This requires strong leadership
at all levels.
Governance
The Board is committed to maintaining robust corporate
governance. It has worked closely with its advisors and
in 2021 monitored governance frameworks to ensure
strong, proportionate governance throughout the Group;
this is important given the number of geographies
in which we are present. The Board has established
appropriate risk management procedures and keeps key
risks to the Group under regular review. Further details of
the Group’s principal risks and uncertainties are provided
in the Governance & Risks section of the Annual Report.
Chairman’s Statement
Contracted Order Book & Pipeline Update
The conversion of the Group’s pipeline
into new
orders continued to be impacted during the Period but
proceeded broadly in line with expectations in the second
half of the year, with a strong final quarter. The Group has
maintained this trading momentum into 2022 with over
£10 million of new orders secured during the first quarter,
as highlighted in the Contracts & Order Book Update
announcement released on 23 March 2022. The post
period end contract wins have delivered a strong start
to the current year, with the contracted order book now
standing at £32 million.
The overall value of the Group’s active pipeline (including
the Major Programme) at year-end was in excess of £60
million.
Outlook
Looking forward, we are confident that with the MTE
contract soon to be behind us, meeting our Group
performance metrics in 2022 will be achieved, and our
strategy to continue to build our global footprint and
develop long-term partnerships, will bring further sales.
The post period end realignment of operations into
a global delivery model will enable the full spectrum
of Pennant’s products and services to be offered and
delivered in all three key regions.
The current year has started well. In March we finally
secured the Major Programme for Boeing Defence United
Kingdom Limited – a contract worth £8.8 million over
three years. With other contract wins also secured, our
contracted three-year order book now stands at more
than £32 million.
On this basis, the Board views prospects for 2022 with
increasing confidence and looks forward to reporting a
significantly improved performance for the current year.
In addition, the Board believes that the Group's underlying
strengths - our long-term customer relationships with
governments and major OEMs, our specialist services and
our quality-assured reputation - will continue to provide
a solid foundation for continued recovery and long-term
success.
Approved by the Board on 24 May 2022
And signed on its behalf
J Ponsonby
Chairman
9
CHIEF
EXECUTIVE’S
REVIEW
Encouraging signs
The year under review has seen significant progress made
both financially and strategically despite the continuing
impact of Covid-19 across the Group’s main markets, and
the challenges and the well documented impact of the
MTE programme.
The successful integration of the R4i suite of software,
coupled with the structural and operational changes
implemented have advanced the Group’s strategic
objectives, to diversify and enhance our recurring
revenue streams, thereby reducing our historic reliance
on substantial engineered-to-order contracts, whilst also
improving efficiency.
Financial review
The results and the key financial performance indicators
set out below.
Performance
Revenue for the year was delivered
line with
expectations, with solid progress and improved revenues
achieved across both divisions.
in
The Group’s contracted order book remained resilient
with a good performance achieved in North America and
Australia and, as anticipated, the business produced a
much-improved performance in the second half of 2021.
The post period end contract wins has ensured momentum
is continued into 2022, with the contracted order book
now standing at £32 million.
The table highlights the second half improvement.
£m
Revenue
Gross Profit
Gross Profit %
Admin Costs
(net of Other Income)
Operating Margin
EBITA
H1
7.4
1.6
21%
(3.2)
(1.7)
(1.0)
H2
8.6
2.8
33%
(3.3)
(0.5)
0.2
2021
16.0
4.4
27%
(6.5)
(2.2)
(0.8)
The gross profit margin for the period was 27% (2020:
29%) with the impact of the MTE programme masking
the underlying improvements delivered during the period
which shows an underlying gross margin of 41%.
Staff costs were decreased to £8.7 million (2020: £9.6
million) benefitting from the positive impact of the
revised operational structure, generating a net £0.9
million reduction.
As a result, the operating margin has recovered to a loss
of £2.2 million (2020: operating loss £3.0 million) and an
EBITA loss of £0.8 million (2020: EBITA loss £1.6 million).
Underlying performance
Whilst the Group’s performance demonstrates signs of
improvement the overall result was significantly impacted
by the MTE programme with its continuing and well
publicised challenges impacting the business.
As outlined in previous announcements, the challenges
of the MTE Programme negatively impacted the financial
performance of the TTD and Group result throughout the
year.
The MTE programme is scheduled to complete within
2022, although in order to accommodate MOD facilities
readiness, the delivery and acceptance testing of the
second set of MTE devices are now anticipated to take
10
CHIEF
EXECUTIVE’S
REVIEW
Chief Executive's Review
place in July and September 2022 respectively. It is
anticipated that the contract will have little or no further
financial impact on the current year.
Notwithstanding the impact of this specific programme,
the underlying performance of the Group demonstrates
encouraging signs of recovery as illustrated in the table
below.
Research & Development
Research and development tax credits claimed in the UK
during the year amounted to £1.8 million (2020: £1.6
million) with further claims on current projects expected
to be made during 2022. These claims relate to the
development of innovative new software products, many
of which now form part of Pennant’s enhanced product
portfolio and are being successfully sold internationally.
£m
Revenue
Cost of sales
Gross Profit / (Loss)
Gross Profit %
Admin Costs (net of
Other Income)*
Operating Margin
EBITA
Excl MTE
14.2
(8.4)
5.8
41%
(6.5)
(0.7)
0.6
MTE
1.8
(3.2)
(1.4)
(78%)
-
(1.4)
(1.4)
2021
16.0
(11.6)
4.4
27%
(6.5)
(2.2)
(0.8)
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 circa £1.0 million
in the development of new and enhanced solutions and
the following new products were successfully completed
or were under development:
• GenS software (OmegaPS successor product)
release 1;
* Admin costs associated with the delivery of the MTE programme are
excluded from the above analysis
Year-end order book
At 31 December 2021, the Group’s three year contracted
order book stood at £22 million (2020: £31 million),
of which £10 million of revenue (2020: £14 million) is
scheduled for recognition in 2022 based on anticipated
completion of generic products, execution of software &
services projects and progress made on engineered-to-
order contracts.
Following additional contract wins after the year-end,
including the BDUK award, the current three year
contracted order book now stands at £32 million, of which
approximately £13 million is scheduled for recognition in
2022 and £13 million in 2023.
Of the total order book, 42% (2020: 46%) is denominated
in sterling, 36% (2020: 39%) is denominated in Canadian
dollars and 22% (2020: 15%) is denominated in Australian
dollars. Any movement of sterling to the Canadian or
Australian dollars would potentially
impact the IPS
business.
Taxation
The Group’s tax position shows a tax credit of £0.9 million
(2020: tax credit of £0.5 million). The Group has unrelieved
UK tax losses carried forward of £6.7 million (2020: £4.5
million), all of which has been recognised in the deferred
tax balance as at 31 December 2021.
•
Engine Systems Start Trainer – modular software
training solution;
• New Signal Sighting software system developed
for Network Rail; and
• Upgraded Loadmaster virtual software training
system developed for US market.
Pennant anticipates that it will continue to invest in new
technology-led solutions during 2022 albeit, given the
stage of development of its pipeline, investment will be at
a lower level than in 2021. The Group has an active pipeline
of potential product innovations and improvements that
are undergoing a detailed assessment process with a view
to obtaining Board funding approval if a business case can
be established.
Cashflow
Cash used in operations amounted to £0.1 million (2020:
cash generated in operations of £3.1 million). This reflects
the stage of completion on major programmes with
contract milestones to be achieved in 2022 ahead of
invoicing and cash payments being received.
The Group had net borrowings at the year-end of £3.5
million (2020: net borrowings of £1.5 million) excluding
lease liabilities.
Divisional performance
Divisional financial performance is set out on the following
page and further information about the business of each
division is provided in the ‘About Pennant’ section of the
Annual Report.
11
Chief Executive's Review
Integrated Product Support (IPS)
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.
The successful integration of the R4i software suite
alongside the existing OmegaPS suite of products has
significantly enhanced the Group’s operational footprint
in Australia and the United States to deliver software
and consultancy programmes, providing much greater
traction in and between two of the Group’s principal
target markets.
The table below summarises the improvements in revenue
and contribution.
Revenue
- Products & Licenses
- Maintenance
- Services
Total
Divisional Contribution
Allocation of Group costs
Profit / (Loss) for the period
2021
£m
2020
£m
1.1
1.4
3.1
5.6
0.9
(0.7)
0.2
0.5
1.3
3.5
5.3
0.5
(0.6)
(0.1)
Of the revenues above, maintenance and services
revenues are essentially recurring revenues with product
and licenses representing new sales that will subsequently
lead to additional recurring revenues.
In both 2021 and 2020, recurring revenues accounted
for the majority of revenues (80%). Services revenues in
2021 were impacted by the timing of a contract renewal
in Canada (resolved in December 2021) which resulted in
reduced billing in the final quarter of the year and a drop
in annual revenues. Recurring revenues were primarily
generated from consultancy services (55%) and long-term
software maintenance agreements (25%), predominantly
in North America and Australia.
The significant increase in Product & Licenses was driven
by R4i software sales, with the associated recurring
maintenance revenues (circa 20% per annum) to follow.
Strategically the Group continues to invest in the internally
funded development of our Omega PS successor product,
known as GenS (redesigned to ensure legacy, current and
future LSA standards are quickly and easily supported,
with a modern, easy to use interface). The first version
was released in 2021 with the full product suite expected
to be released in early 2023.
The divisional contribution was much improved in 2021
resulting in a profit for the period (after the allocation of
Group costs) of £0.2 million compared to a loss of £0.1
million in the prior year.
Post period contract wins, including securing a second
customer, has maintained
commercial aerospace
in
momentum
contracted run rate revenues of approximately £7 million
for 2022, of which £5.5 million is considered to be
recurring revenue.
in the software business resulting
It is pleasing to see the improved visibility that this
Division’s recurring revenue provides and the Board
remains highly focused on increasing the proportion of
Group sales generated from these services.
Technical Training Division (TTD)
Revenues for the year increased by £0.5 million to £10.3
million (2020: £9.8 million) primarily as a direct result of
the delivery of the contracted order book.
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 performance of TTD is summarised below:
Revenue
- Engineered
- Generic
- Technical Services & Support
Total
Divisional Contribution
Allocation of Group costs
Loss for the period
2021
£m
2020
£m
4.2
2.6
3.5
10.3
(1.0)
(1.4)
(2.4)
3.6
2.7
3.5
9.8
(1.6)
(1.3)
(2.9)
During the year Pennant secured its first commercial
aerospace customer for S1000D software and services in
North America.
Revenues from TTD were predominantly generated from
product sales, which accounted for 66% (2020: 64%) of
the divisional revenues.
12
Chief Executive's Review
" The operational improvements achieved through the year, together
with the post period end contract wins and our improved contracted
order book, provide a firm platform for a successful recovery and
growth in the current year."
The balance of revenues was generated from the strong recurring technical and support services business which
was largely stable throughout the year. As already highlighted, the challenges on the GD MTE programme negatively
impacted the financial performance of TTD.
The MTE programme is scheduled to complete within 2022, although in order to accommodate MOD facilities readiness,
the delivery and acceptance testing of the second set of MTE devices are now anticipated to take place in July and
September 2022 respectively.
During the period notable operational achievements included:
•
•
•
critical design review successfully passed on UK Helicopter trainer programme, on time and on budget;
after significant Covid-19 related delays, successful installation and commission of generic training devices in
Qatar, enabling revenue to be recognised; and
completion of build and factory acceptance on products for second Middle East customer, ready for delivery
and installation in the second half.
Board change
On behalf of the Board, I would like to take this opportunity to thank Mervyn Skates, who stood down as a Director in
April 2022, for his service over the last three years. Mervyn has played a key role in developing Pennant’s operational
delivery governance, leading the development of technical training solutions. We wish Mervyn every success for the
future.
Post Period end
We have made an excellent start to 2022 in terms of order intake, as already announced. In March we at long last
secured the Major Programme for Boeing Defence United Kingdom Limited – a contract worth £8.8 million over three
years with the majority of revenue expected to be recognised in 2023. Work on the contract has commenced and I am
pleased to report that the first milestone has just been successfully passed.
Also, in Q1 2022 the Group has secured a USD$1.8 million contract comprising software licenses with a new customer
in the North American commercial aerospace market. Furthermore, we have secured a new contract to supply training
software and services worth £200,000 to UK Defence and £200,000 of orders from rail industry customers.
I am also pleased to report that the Board has accepted an offer, subject to contract, in excess of book value for
Pennant Court, one of the Group’s freehold properties, which is now surplus to requirements due to the shift to hybrid
working and the strategic focus on software development activities. The majority of any sales proceeds are expected to
be used to repay and reduce existing debt facilities with a proportion also being retained for working capital purposes.
The operational improvements achieved through the year, together with the post period end contract wins and our
improved contracted order book, provide a firm platform for a successful recovery and growth in the current year.
Approved by the Board on 24 May 2022
and signed on its behalf
P H Walker
Director
13
GROUP
STRATEGIC
FRAMEWORK
14
Group Strategic Framework
Our Vision
To be the leading provider of world-class integrated training technologies and product support for
the defence, aerospace, rail and other safety critical industries.
Our Mission
To deliver sustainable growth in shareholder value through innovation, diversification, the
execution of delivery excellence and corporate expansion.
Strategic objectives
Continuously review and enhance the Group’s product range
1
2
To grow and improve our service offering
3
Accelerate the Group’s presence in civilian training and regulated engineering markets
4
Expand the Group’s business in innovative ways
Our Strategy in action
Integration and
acceleration of R4i
software suite into
Pennant’s core offering
Completion of the
Engine Systems Start
Trainer (ESST) -
modular software
training solution
Pennant Customer
Care Portal launched
New GenS
software released
Loadmaster virtual
software training
system developed for
the US market
New signal Sighting
software system being
developed for
Network Rail
15
15
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
the uncertain global outlook is driving commitments to increase expenditure on defence.
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 and Wagga Wagga), Ottawa in Canada and a new office in the US
(West Chester).
The Company was admitted to trading on the AIM market in 1998 and has traded as a public company ever since.
The Group operated throughout 2021 as two business units.
Post year end, Pennant has realigned operations to enable effective and efficient global delivery, with the Group
organised into three key regions (UK, EU & Middle East, North America, and Australia).
This is designed to allow the ‘full spectrum’ of Pennant products and services to be offered and delivered in all three
key regions
16
About Pennant
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 focuses on the development of the OmegaPS LSAR software suite and the
provision of consultancy, training and support services in relation thereto.
During 2020 the Group’s capability was significantly enhanced by the acquisition of Absolute Data
Group (“ADG”) and the R4i suite of products.
The acquisition aligned 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 R4i software suite is highly complementary to the Group’s existing business and has provided 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. The R4i solution is
licenced software and provides related support, maintenance and consultancy services.
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.
To enhance this end-to-end solution the Group continued the development of a successor product to OmegaPS
currently known as GenS (deployable on a ‘software-as-a-service’ basis) with release 1 achieved.
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.
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 Ministry of Defence (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
17
About Pennant
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.
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.
•
• Preventative and Corrective Maintenance
•
• Consultancy Spares and Obsolescence Management
• Dismantling and Disposal
•
Integrated Logistic Support (ILS) services and planning
Instruction and Training Delivery
In Service Support
Pennant has significant expertise and long-standing pedigree in technical publications and is able to provide S1000D-
compliant Integrated Electronic Technical Manuals, either as a standalone service or to complement Pennant training
solutions.
This capability has been significantly enhanced following the acquisition of Track Access, ADG and the R4i suite of
products, as set out above.
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.
18
About Pennant
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 Govia Thameslink Railway.
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 19 (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 various matters including
the interests of certain stakeholders in their decision making.
• Board decision-making primarily takes place at Board meetings via full and open discussions facilitated by the
Chair and with reference to Board papers prepared and circulated in advance of the meeting. Where possible,
decisions are reached through consensus or, where this is not possible, a vote. The key points of any decision
are captured in Board minutes and, where applicable, incorporated into the Group’s Integrated Business Plan.
• With a view to supporting 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 strategy is focused on realising long-term profitable growth for the benefit of all stakeholders. To
ensure that this overriding objective is kept in mind, the strategy exists as a written, Board-approved statement
(containing multi-year targets) and the specific actions which underpin its implementation are recorded within
the IBP. Decisions can then be taken with this long-term statement in mind and with reference to the effects or
relationship with existing actions in the IBP. The CEO Review on pages 10 to 13 contains further details on the
strategy and its implementation.
The following bullet points provide some detail as to the approach taken in relation to key matters and
stakeholders.
̶
̶
̶
Shareholders: Investors are at the centre of all financial discussions including equity, distributions and
corporate finance, with the Board taking advice from the Company’s nominated adviser and its corporate
lawyers as appropriate. As examples during the period: the decisions as to non-payment of a dividend, and
the internal investment in the new GenS software suite.
Led by the Chairman and CEO, the Company is active in engaging with its investors, holding periodic
meetings, calls and an open Q&A at the AGM. Fairness between investors is prioritised during such
engagements and presentations are made available on the Company’s website so that all investors can
view them.
Customers: of course, customers are absolutely key to the Company’s business. Often working together
on a long-term multi-year programmes, the Company endeavours to build strong relationships with its
customers at every level.
The Board places a significant premium on the Group’s reputation for quality and gives its full support
to the maintenance of the Group’s ISO9001 status. During the year, this led to the Board approving the
engagement of additional resource for quality management.
Employees: without employees, there is no business. The Company’s approach to the interests of its
employees is detailed on page 41 of this report. With the continued challenges of the Covid-19 pandemic,
employee welfare was very much at the forefront of Directors’ minds during 2021 and the details from
page 41 onwards explain how the Company has sought to engage with, and properly take account of, its
valued employees.
19
About Pennant
̶
̶
Suppliers: the Group works closely with its suppliers, and has a core cohort of trusted partners engaged
in delivering its long-term programmes. The Group is committed to fair dealing with its suppliers,
including meeting agreed payment terms, and favours building lasting relationships.
Community and environment: 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, energy usage
monitoring 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.
•
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.
Approved by the Board on 24 May 2022
and signed on its behalf
P H Walker
Director
20
About Pennant
21
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.
22
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.
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 the
nominated adviser, institutions 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 Director, consulting
with stakeholders as appropriate. Gender balance will be
a consideration in any future appointments.
In discharging its duties, the Board is supported by two
standing committees (the “Committees”): the Audit & Risk
Committee and the Remuneration Committee. The Terms
of Reference for each of the Committees are available on
the Group’s website (www.pennantplc.co.uk/investors/
corporate-governance) and a summary of their respective
functions is provided below. The Terms of Reference for
each of the Committees were last substantively updated,
and reviewed and approved by the Board, with effect
from 1 January 2021.
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).
Corporate Governance Review
The Board has two Non-Executive Directors and two
Executive Directors. The Board considers that all of its
Non-Executive Directors are independent.
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 15 for a summary of the
strategy.
This strategy is kept under review by, and evolves
under the guidance of, the Board. The key challenges in
implementing the Company’s business model and strategy
are documented on pages 28 to 35.
The Board typically holds six scheduled meetings per
year and holds 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 with effect from January 2021.
The Group’s corporate governance arrangements are
explained in more detail on the governance pages of the
Group’s website:
https://www.pennantplc.co.uk/investors/corporate-
governance/
The Directors
John Ponsonby
Mr Ponsonby (66) is an independent Non-Executive
Director and the Company’s Chairman. He is a member
of the Audit & Risk Committee and the Remuneration
Committee.
He is an experienced senior executive within the aerospace
industry having been the Managing Director of Leonardo
Helicopters UK (the AgustaWestland business).
Mr Ponsonby has an extensive background
in the
organisation, delivery and commercialisation of technical
training: prior to his appointment as Managing Director, he
was the senior vice-president for global customer support
and training for AgustaWestland and, before moving into
industry, was the Air Vice-Marshal commanding the RAF’s
training group.
Mr Ponsonby also chairs the Aviation Skills Foundation.
23
Corporate Governance Review
Philip Cotton
David Clements
Mr Clements (42) 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.
Mervyn Skates
Mr Skates served as Operations Director throughout 2021,
retiring from the Board on 31 March 2022. During the
period, Mr Skates oversaw all activities of the Technical
Training division (including those relating to business
development), as well as providing broader operational
oversight.
Simon Moore
Mr Moore served as an independent Non-Executive
Director and the Company’s Chairman until 2 June 2021
when he retired from the Board.
(63)
Mr Cotton
independent Non-Executive
Director. He chairs the Audit & Risk Committee and the
Remuneration Committee.
is an
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.
Philip Walker
Mr Walker (41) is the Group’s Chief Executive Officer. He
joined Pennant in 2014 as Chief Financial Officer, being
promoted to CEO in February 2017.
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.
While at Barclays, Mr Walker worked with businesses
with a turnover of between £5 million and £50 million,
focusing on debt structuring, including working capital,
investment, trade finance and the restructuring of
facilities. He provided structuring advice on various types
of corporate transactions.
Since joining Pennant, Mr Walker has brought this
experience to bear in driving the review, renewal and
implementation of Group strategy.
Mr Walker is responsible for the day-to-day running of all
Group businesses and the execution of Group strategy.
24
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 advisers when appropriate and regularly obtains independent legal, tax
and financial advice. For example, during the period, the Directors sought advice in respect of intellectual property
ownership 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 the 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 judgements on the application of revenue recognition policies in relation
to material projects as well as carefully reviewing matters relating to the valuation of the Group’s assets and its status
as a going concern.
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 the Non-Executive Directors.
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.
25
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 2021 were as follows:
Simon Moore
John Ponsonby
Philip Cotton
Philip Walker
David Clements
Mervyn Skates
Board
Audit &
Risk Committee
Remuneration
Committee
2/2
5/5
5/5
5/5
5/5
5/5
1/1
2/2
2/2
-
-
-
-
1/1
1/1
-
-
-
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 Director of Finance, the Director of Sales &
Marketing and the Director of Technology & Innovation.
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.
26
Corporate Governance Review
PENNANT INTERNATIONAL GROUP PLC
(AIM Listed)
UK
PENNANT CANADA
LIMITED
CANADA
PENNANT AMERICA
INC
US
PENNANT
PENNANT
AUSTRALASIA PTY
AUSTRALASIA PTY
LIMITED
LIMITED
AUSTRALIA
AUSTRALIA
PENNANT
INTERNATIONAL
LIMITED
UK
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 Director
of Finance, Michael Brinson, 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.
27
Risk Management Review
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 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).
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 2021 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 R4i product suite is gaining
increasing traction in the civilian aerospace sector.
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 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. It is also expected that national defence budgets
will increase in light of Russia’s invasion of Ukraine and
that training, logistics and maintenance aspects may
feature within any new requirements.
28
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 it sub-contracts
to deliver the training
solution on larger
programmes.
Loss or deterioration
of relationships with
prime contractors leads
to reduced orders,
adversely affecting the
Group’s revenue and
profit.
Work for prime contractors is carried out under written
contracts spanning a number of years, mitigating the risk
of immediate loss of business.
The Group contracts with and maintains (and continues to
cultivate) long-term good relationships with several primes
(BAE, General Dynamics, Leonardo Helicopters, Lockheed
Martin and Boeing), meaning that it is not overly-reliant on
any one of them. Furthermore, the Group is always seeking
to add to its customer roster (as it did with Boeing Defence
UK, post period-end).
Relationships are developed and maintained with primes
at all organisational levels, from technical leads to pro-
gramme 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 IPS software
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.
29
Risk Management Review
Description of risk
Potential impact
Mitigation and control
The Group has an experienced Commercial team with
considerable export expertise. The Commercial & Risk
Director is a qualified lawyer and provides legal advice to
the Group as appropriate
External legal counsel (both UK and overseas) and safety
and compliance advisers are retained and consulted as
necessary.
The Group has a dedicated Health & Safety manager
and several employees with relevant qualifications and
experience.
Failure to comply with
relevant legislation and
regulation results in the
Group being unable to
sell its products.
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.
Legal and compliance
burden
In the sectors in which
it operates, the Group is
subject to considerable
legislation and regulation.
For example: in selling
its training equipment
overseas, the Group must
comply with UK export
control laws; in receiving
and using certain data,
it must comply with the
US ITAR regulations; in
designing its hardware
trainers, it must comply
with various EU and UK
safety laws.
Of course, the Group
in operating overseas
is subject to the laws
of relevant foreign
jurisdictions, whether it is
aware of them or not.
30
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.
The Group will contract
on fixed prices on
‘engineered-to-order’
projects (e.g. for a
platform-specific training
aid), where it has never
designed and delivered
the required product
before. This creates a risk
of mispricing a contract.
Where a project has been
keenly priced, any delays
may cause budgets to
become very strained.
External factors (e.g.
a supplier delay on
delivering a part)
cause the delay or
failure to deliver a
contract resulting in
reputational damage
to the Group and
entitling the customer
to claim compensation
(including, on some
contracts, liquidated
damages).
A mispriced contract,
although delivered in
compliance with its
terms and timeline,
results in the Group
failing to realise the
desired profit on
carrying out such work,
with an associated
negative impact on the
Group’s overall financial
performance.
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.
31
Risk Management Review
Description of risk
Potential impact
Mitigation and control
Customer dependencies
In delivering its
‘engineered-to-order’
programmes, the Group
is often dependent on the
provision of data from its
customers and, in some
cases, third parties.
The required data may
not be available (because
it has not yet been
created or distilled into
writing) or a third-party
data owner may be
unwilling to release the
data.
Material amounts of
data are not received
when required, and a
programme is delayed,
impacting the Group’s
ability to pass progress
milestones and render
invoices. In very serious
cases, the delivery of
the programme itself is
jeopardised.
This is a difficult risk to manage. The Group monitors the
provision of data and is always alive to the risk of data
flows drying up.
Concerns are raised at an early stage with customers to
ensure that the customer understands the importance of
timely data flow to the Group. The risk is always flagged
to the customer in pre-contract negotiations so that the
contracting assumption is clear to the customer at outset.
The Group will seek extensions of time or compensation
for out-of-scope work where its contract delivery is
impacted by data delays.
If a programme ultimately terminates due to this risk
eventuating, the Group will have a right to payment for
work done until termination.
Description of risk
Potential impact
Mitigation and control
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 (to increase profitable turnover
generally and to mitigate the effects of ‘lumpy’ contracts).
The current expansion of the Group’s software and
services offerings is a natural mitigant to the reliance on,
and risks of, high-value engineering programmes.
Contract profiles
The Group’s turnover,
profits and cashflows
are, particularly in
the Technical Training
business, reliant on the
award and timely delivery
of a small number of
high-value contracts.
Award or delivery
of such contracts
is delayed, causing
significant financial
effects on the Group
(particularly when
judged by annual
reporting).
Delays on award or
delivery lead to a
negative perception
amongst stakeholders
that the Group’s
business is inconsistent
and prone to ‘lumpy’
revenues.
Large contracts generate
significant working
capital demands which,
if cannot be met,
delivery of the contract
(and continuance of the
business generally) is
jeopardised.
32
Description of risk
Potential impact
Mitigation and control
Risk Management Review
Risk Management Review
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 industry standard accreditations. The Group assigns
considerable budgets and internal effort to solutions for
protecting its IT environments.
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 was successfully
managed.
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
applications are needed
to deliver the Group’s
contracts.
Key systems are
unavailable for a
meaningful length of
time and the Group’s
delivery of customer
contracts is delayed
or prevented, with
consequent potential
adverse effects on
revenue.
The ‘hacking’ of, or a
successful cyber-attack
against, the Company’s
systems leads to serious
negative reputational
and contractual
consequences, as well
as regulatory breaches.
Widespread virtual
working due to Covid-19
restrictions causes a
significant increase in
the demands placed
on the Group’s IT
infrastructure.
33
Risk Management Review
Description of risk
Potential impact
Mitigation and control
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 it 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.
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.
Managing recovery and
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 business
which (particularly in the
case of TTD) operates
with a relatively small
number of high-value
contracts, prone to delays
in award, is a challenge.
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 and the pool
of people with the
appropriate skills is
inherently limited.
34
Description of risk
Potential impact
Mitigation and control
Risk Management Review
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.
The rapid development
in virtual and augmented
reality technology and
other innovative solutions
present challenges
(and opportunities) to
the Group’s traditional
hardware focused
approach to training aids.
Failure to ensure its
products comply with
changing standards
means decreased
saleability (and a lesser
end-user experience),
adversely affecting the
Group’s revenue and
profit.
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.
35
Remuneration Report
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 written Strategy Statement and its Integrated Business Plan). The Committee retains discretion to reduce
or withhold awards as appropriate.
The Executive Directors’ bonus scheme will not pay out in respect of the 2021 financial year (the scheme is a cash
bonus scheme which pays out upon the Group meeting or exceeding its financial targets for the year). Directors’ emol-
uments in respect of 2021 are shown in the table on the next page.
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
24 May 2022
36
Remuneration Report
Directors’ Remuneration
P H Walker
S A Moore
D J Clements
J Ponsonby
M Skates
P Cotton
Salary
Bonus
£000s
£000s
Benefits
and car
allowance
£000s
Pension
Total 2021
2020
£000s
£000s
£000s
210
54
150
58
150
48
670
-
-
-
-
-
-
-
16
-
12
-
11
-
39
21
-
15
-
15
-
51
247
54
177
58
176
48
760
233
59
160
65
149
41
707
Pension contributions shown above are pension payments into the Pennant International Group Plc Pension Scheme,
a defined contribution scheme.
There were 1,169,043 share options held by the Directors at the end of 2021 (2020: 1,169,043) as further particularised
in the following tables. There were no share options granted to Directors during the period.
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 2021 except where indicated otherwise and their beneficial
interests in the ordinary shares of the Company were as stated below:
P H Walker
D J Clements
J Ponsonby
P Cotton
M Skates
31 December 2021
5p ordinary shares
31 December 2020
5p ordinary shares
Number
45,898
59,408
20,288
18,633
41,583
Number
24,579
34,772
13,655
12,000
25,000
S A Moore resigned as a Director on 2 June 2021. His shareholding at that date was 79,314 (31 December 2020: 79,314).
37
Remuneration Report
The following Directors have interests in share options of the Company as stated below:
P H Walker
S A Moore
D J Clements
J Ponsonby
P Cotton
M Skates
Total
EMI Options
EMI options
Number
297,619
-
305,455
-
-
40,000
Unapproved
options
Number
525,969
-
-
-
-
-
Total
2021
Number
823,588
-
305,455
-
-
40,000
643,074
525,969
1,169,043
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. Two thirds of the grant (i.e. 136,970 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. The options lapse upon the occurrence of certain events, including the termination of Mr
Skates’ employment.
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.
38
Audit & Risk Committee Report
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 Group’s risk registers, including the effectiveness of controls and mitigations;
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 judg-
ments, 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 2021 financial statements were: the appropriateness of the Going Concern assessment;
recognition of revenue and profit; and adequacy of working capital. We have reviewed key estimates and management
judgements prior to publication of the 2021 financial statements, including on the General Dynamics programme.
Philip Cotton
Chair
Audit & Risk Committee
24 May 2022
39
Chairman’s Statement
Directors' Report
DIRECTORS'
REPORT
Directors’ Report
Research & Development
The Directors present their report and the audited financial
statements for the year ended 31 December 2021.
Principal activities
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 £1.8 million (2020: £1.6 million).
The principal activity of the Company is the provision of
management services to the Group.
Post Balance sheet events
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 (2020: £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 2021.
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
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. 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 62.
Post period end, the Directors have accepted an offer
of £2.1 million for the sale of Pennant Court, a freehold
property in Cheltenham, UK.
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 instruments are cash,
contract assets, trade receivables and payables, the main
purpose of which is to provide finance for the Group’s
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 28 to 35.
The Group’s exposure and approach to capital and
financial risk, and approach to managing these is set out
in note 30 to the Consolidated Financial Statements.
40
DIRECTORS'
REPORT
Employee engagement
The Group engages with its employees regularly through
various media including intranet, newsletters, employee
opinion surveys, team briefings and twice-yearly financial
results presentations to all staff. Details of the Group’s
performance are shared with all employees at appropriate
times using these methods.
The Group’s culture and related behaviours are driven (and
closely monitored) by the Board, with employee feedback
(via staff suggestion schemes and other channels) being
delivered to the Board periodically.
A formal set of Core Values has been established
focusing on Performance, Innovation, Quality, Respect
and Teamwork. These Core Values support the Group’s
strategic objectives, particularly linking into the Innovation
and the Customer Focus themes and relevant aspects
form part of employees’ periodic appraisals.
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.
Phil Cotton is designated as the Non-Executive Director
to whom employees can raise any concerns regarding
wrong-doing.
Employee policies
The Group has established employment policies to ensure
compliance with current legislation and codes of practice,
including equal opportunities.
The Group is an equal opportunities employer and is
committed to treating all employees and applicants fairly.
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.
Directors' Report
Authority for company to purchase its own shares
Under a shareholders’ resolution of 2 June 2021, the
Company (acting by its Directors) was granted authority
to purchase through the market up to 5,496,054 of the
Company’s ordinary shares, at a maximum price equal to
105% of the average of the middle market quotations for
an ordinary share taken from the Company’s quotation
on the London Stock Exchange for the five business days
immediately preceding the purchase. Since 2 June 2021,
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 2022.
The Board
The Board comprises the Chairman, the Chief Executive
Officer, the Commercial & Risk Director, and an additional
Non-Executive Director.
The Directors in office as at the date of this report, all of
whom served within the year, are named on pages 23 to
24.
A full pack of Board papers (containing various reports
and management information) is distributed to Directors
in advance of each Board and Committee meeting. The
Directors have access to external advice at the expense of
the Company and access to the Company Secretary (who
is a qualified solicitor).
One third of the Directors are subject to retirement
by rotation every year (rounded to the nearest whole
number). Accordingly, Phil Walker retires by rotation at
the AGM and, being eligible, offers himself for re-election.
Directors’ indemnity
The Company’s Articles of Association provide, subject to
the provisions of UK legislation, an indemnity for Directors
and officers of the Company in respect of liabilities they
may incur in the discharge of their duties or in the exercise
of their powers, including any liabilities relating to the
defence of any proceedings brought against them which
relate to anything done or omitted, or alleged to have
been done or omitted, by them as officers or employees of
the Company. Appropriate Directors’ and officers’ liability
insurance cover is in place in respect of all the Directors.
41
Directors' Report
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.
Significant shareholdings
As at 31 December 2021 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
Number of shares held
% interest in the total voting
rights of Pennant
Powell C C Esq
Premier Miton Group
BGF Investment Management Limited
Brett Gordon
Killik & Co LLP
Cannaccord Genuity Group
6,278,253
5,266,040
4,090,909
3,020,000
1,797,555
1,681,281
Political donations
The Group did not make any political donations during 2021 (2020: £NIL).
Matters covered in the Strategic Report
17.13
14.37
11.17
8.24
4.91
4.59
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 9 and the Chief Executive’s review on pages 10 to 13).
Annual General Meeting
The Company’s Annual General Meeting will be held at its offices located at Pennant Court, Staverton Technology
Park, Cheltenham, GL51 6TL on 22 June 2022. 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.
42
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.
Directors' Report
Approved by the Board on 24 May 2022
and signed on its behalf
D J Clements
Director
43
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 24 May 2022
and signed on its behalf
D J Clements
Director
44
Directors' Responsibility Statement
45
FINANCIAL
STATEMENTS
The following section outlines the results for the period
ended 31 December 2021.
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
2021 which comprise the Consolidated Income Statement,
Consolidated and Company Statements 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 UK-adopted
international accounting standards and, as regards the
in
parent company financial statements, as applied
accordance with the provisions of the Companies Act 2006.
In our opinion, the financial statements:
•
•
•
give a true and fair view of the state of the group’s
and of the parent company’s affairs as at 31
December 2021 and of the group’s and the parent
company’s loss for the year then ended;
have been properly prepared in accordance with
UK-adopted international accounting standards;
and
have been prepared
requirements of the Companies Act 2006.
in accordance with the
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 group and the parent 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.
In addition to those matters set out in the “Key audit
matters” section below, we identified going concern of the
group and of the parent company as a key audit matter.
The group have temporarily extended their overdraft
facility and there are various factors which can impact the
group’s forecasted cash flows, including the timing of the
completion of major engineered solutions contracts and
the award of major contracts throughout 2022 and 2023.
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:
reverse stress
• We obtained the group’s going concern assessment,
including
test, and challenged
assumptions made including reviewing for areas of
possible bias and assessed the appropriateness of
potential and actual mitigations disclosed in note 3
open to the directors to access further funding.
• We compared the assessment with current banking
facilities along with the short term extension,
obtaining evidence that the overdraft facility has also
been renewed for the duration of the going concern
assessment period;
• We have agreed contractual cash flow payments back
to underlying contract and challenged management
on the phasing of cashflows, including consistency
with the results of our work on the major engineered
solution contracts. This includes a consideration of the
potential impact on the going concern assessment by
the current delay in settlement of milestone payments
due from one of the Group’s major OEM customer.
• We confirmed that the time to pay arrangement
agreed with HMRC has been appropriately included
in the cash flow model by reference to the underlying
agreement.
• We confirmed the mathematical accuracy of any
models given to support the assessment and how
sensitive the assessment is to changes in underlying
assumptions
• We reviewed 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.
47
Independent Auditor’s Report To The Members Of Pennant International Group Plc
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant
sections of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy;
the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
The matters set out below are in addition to going concern which, as set out in the “Conclusions relating to going concern”
section above, was also identified as a key audit matter.
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 is recognised
as per IFRS15, including management’s assessment
of the IFRS15 treatment of contract modifications and
variable consideration such as liquidated damages.
• Confirming that invoices are raised in relation to
the achievement of agreed milestones and detailed
testing of the accuracy and robustness of estimating
costs to complete, including observing contract review
meetings.
•
Focus on management’s treatment of potential and
actual risks and the potential exposures on each
material contract;
• An assessment of how well actual costs are being
compared to forecasted costs post year end and what
subsequent actions are being taken for any variations
identified; and
• An assessment of whether post year end information
supports management's view in terms of whether
the remaining contract programme schedule is being
followed and therefore judgements regarding the costs
to complete made at the year-end were appropriate.
Our observations
Based on the work we have performed, including review of
post year end performance, we have not highlighted any
material issues regarding the revenue recognition on the
two major engineered solution contracts.
48
Independent Auditor’s Report To The Members Of Pennant International Group Plc
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:
Group materiality
Parent Company Materiality
Overall materiality
£148,000
£148,000
How we determined it
Rationale for benchmark
applied
Performance materiality
Reporting threshold
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 1%.
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.
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
£111,000.
On the basis of our risk assessments,
together with our assessment of the
control
Parent
environment, we
set performance
materiality at approximately 75% of our
overall materiality, being £111,000.
Company’s
overall
We agreed with the Audit and Risk
Committee that we would report to the
Committee all audit differences in excess
of £4,440 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 £4,440 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 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 our risk assessment, our understanding of the group and the
parent company, their environment, controls, and critical business processes, to consider qualitative factors to ensure
that we obtained sufficient coverage across all financial statement line items.
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 Pennant America Inc. were subject to specific procedures, which
were performed by the group audit team.
49
Independent Auditor’s Report To The Members Of Pennant International Group Plc
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 other information comprises the information included in the annual report, other than the financial statements
and our auditor’s report thereon. The Directors are responsible for the other information contained within the annual
report. 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.
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 course of 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 this gives rise to a material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the Directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us
to report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
•
the parent company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 44, 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.
50
Independent Auditor’s Report To The Members Of Pennant International Group Plc
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
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.
Based on our understanding of the group and the parent company and their industry, we considered that non-compliance
with the following laws and regulations might have a material effect on the financial statements: GDPR, employment
regulation, compliance with AIM rules for companies, health and safety regulation, anti-money laundering regulation and
compliance with International Traffic in Arms Regulations (ITAR).
To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks
of material misstatement in respect to non-compliance, our procedures included, but were not limited to:
•
Inquiring of management and, where appropriate, those charged with governance, as to whether the group and
the parent company is in compliance with laws and regulations, and discussing their policies and procedures
regarding compliance with laws and regulations;
Inspecting correspondence, if any, with relevant licensing or regulatory authorities;
•
• Communicating identified laws and regulations to the 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 applicable laws and
regulations, including fraud.
We also considered those laws and regulations that have a direct effect on the preparation of the financial statements,
such as tax legislation and the Companies Act 2006.
In addition, we evaluated the Directors’ and management’s incentives and opportunities for fraudulent manipulation of
the financial statements, including the risk of management override of controls, and determined that the principal risks
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 revenue recognition (which we pinpointed
to the completeness and cut-off assertions), going concern, errors in respect of software revenue deferral, impairment of
goodwill and intangible assets, and significant one-off or unusual transactions.
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.
There are inherent limitations in the audit procedures described above and the primary responsibility for the prevention
and detection of irregularities including fraud rests with 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.
51
Independent Auditor’s Report To The Members Of Pennant International Group Plc
The risks of material misstatement that had the greatest effect on our audit are discussed in the “Key audit matters”
section of 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.
Jonathan Barnard (Senior Statutory Auditor) for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
90 Victoria Street
Bristol
BS1 6DP
24 May 2022
52
Consolidated Income Statement For The Year Ended 31 December 2021
Continuing operations
Revenue
Cost of sales
Gross profit
Intangible asset impairment
Land and buildings revaluation
Restructuring expenses
Other administration expenses
Administrative expenses
Other income
Operating loss
Finance costs
Loss before taxation
Taxation
Loss for the year attributable to the equity
holders of the parent
Earnings per share
Basic
Diluted
Notes
5
15
16
8
8
8
10
11
13
2021
£000s
15,965
(11,609)
4,356
-
117
-
(6,826)
(6,709)
203
(2,150)
(329)
(2,479)
865
2020
£000s
15,056
(10,676)
4,380
(222)
-
(541)
(7,156)
(7,919)
525
(3,014)
(125)
(3,139)
513
(1,614)
(2,626)
(4.41p)
(4.41p)
(7.22p)
(7.22p)
The accompanying notes on pages 60 to 86 are an integral part of these financial statements.
53
Consolidated Statement Of Comprehensive Income For The Year Ended 31 December 2021
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
Total comprehensive loss for the period attributable to the
equity holders of the parent
Notes
2021
£000s
2020
£000s
(1,614)
(2,626)
(64)
16
24
353
(156)
41
-
(18)
(1,481)
(2,603)
54
Consolidated Statement Of Financial Position As At 31 December 2021
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 (liabilities) / 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
Notes
14
15
16
17
24
18
19
20
21
20
22
32
22
24
25
32
26
2021
£000s
2,403
5,081
6,009
661
850
15,004
865
4,528
330
901
6,624
2020
£000s
2,428
5,570
5,904
830
91
14,823
1,081
4,884
533
1,439
7,937
21,628
22,760
3,595
4,441
367
209
432
9,044
(2,420)
529
-
122
789
1,440
10,484
11,144
1,832
5,345
200
2,687
226
854
11,144
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
12,533
Approved by the Board and authorised for issue on 24 May 2022
P H Walker - Director
The accompanying notes on pages 60 to 86 are an integral part of these financial statements.
55
Consolidated Statement Of Changes In Equity For The Year Ended 31 December 2021
Share
capital
(see page
57)
Share
Premium
(see page
57)
Capital
redemption
reserve
(see page
57)
Retained
earnings
(see page
57)
Translation
reserve
(see page
57)
Revaluation
reserve
(see page
57)
Total
equity
At 1 January 2020
(Loss) for the year
Other comprehensive
income
Total comprehensive
income
Issue of new ordinary
shares
Recognition of share based
payment
Transfer from revaluation
reserve
£000s
1,806
-
-
£000s
5,100
-
-
£000s
£000s
200
6,759
-
-
(2,626)
-
1,806
5,100
200
4,133
16
-
-
195
-
-
-
-
-
-
81
29
At 31 December 2020
1,822
5,295
200
4,243
(Loss) for the year
Other comprehensive
income / (loss)
-
-
-
-
-
-
(1,614)
-
Total comprehensive income
1,822
5,295
200
2,629
Issue of new ordinary
shares
Recognition of share based
payment
Transfer from revaluation
reserve
10
-
-
50
-
-
-
-
-
-
32
26
£000s
249
-
41
290
-
-
-
290
-
(64)
226
-
-
-
£000s
£000s
730
14,844
-
(2,626)
(18)
23
712
12,241
-
-
211
81
(29)
-
683
12,533
-
(1,614)
197
880
-
-
(26)
133
11,052
60
32
-
At 31 December 2021
1,832
5,345
200
2,687
226
854
11,144
56
Consolidated Statement Of Changes In Equity For The Year Ended 31 December 2021
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 net of deferred tax.
57
Consolidated Statement Of Cash Flows For The Year Ended 31 December 2021
Net cash from operations
Investing activities
Payment for acquisition of subsidiary, net of cash acquired
Purchase of intangible assets
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Net cash used in investing activities
Financing activities
Proceeds from issue of ordinary shares
Repayment of lease liabilities
Net cash from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rates
Cash and cash equivalents at end of year
Notes
27
32
15
16
16
26
22
20
20
2021
£000s
(127)
(549)
(966)
(134)
22
(1,627)
60
(309)
(249)
(2,003)
(1,453)
(84)
2020
£000s
3,145
(791)
(1,283)
(118)
-
(2,192)
45
(277)
(232)
721
(2,242)
68
(3,540)
(1,453)
58
59
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
1. General information
Pennant International Group plc is a public company
incorporated in England and Wales under the Companies
Act 2006. The address of the registered office is Pennant
Court, Staverton Technology Park, Cheltenham, GL51 6TL.
The principal activity of the Group during the year was
the delivery of integrated training and support solutions,
products and services, principally to the defence,
rail, aerospace and naval sectors and to Government
Departments.
These financial statements are presented in pounds
sterling because that is the currency of the primary
economic environment in which the Group operates.
All values are rounded to the nearest thousand pounds
except where otherwise stated. Foreign operations are
included in accordance with the policies set out in note 3.
2. Standards, amendments and interpretations
adopted in the current financial year ended 31
December 2021
The Group has applied the following new accounting
standards and amendments for the first time in the annual
reporting period commencing 1 January 2021, none of
which have had a material impact on the Group’s financial
statements for the year ended 31 December 2021:
•
Interest Rate Benchmark Reform – Phase 2:
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and
IFRS 16
• Covid-19-related Rent Concessions beyond 30
June 2021: Amendments to IFRS 16
•
•
IAS 16 Property, Plant and Equipment
(Amendment): Proceeds Before Intended
Use
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets: (Amendment): Onerous
Contracts – Cost of Fulfilling a Contract
1 January 2022
1 January 2022
•
IFRS 3 Business Combinations (Amendment):
Reference to the Conceptual Framework
1 January 2022
• Annual Improvements to IFRSs (2018 – 2020
1 January 2022
cycle)
•
•
•
•
IAS 1 Presentation of Financial Statements
(Amendment): Classification of Liabilities as
Current or Non-current and Classification
of Liabilities as Current or Non-current -
Deferral of Effective Date
IAS 1 Presentation of Financial Statements
and IFRS Practice Statement 2 Making
Materiality Judgements (Amendment):
Disclosure of Accounting Policies
IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors
(Amendment): Definition of Accounting
Estimates
IAS 12 Income Taxes: Deferred Tax related
to Assets and Liabilities arising from a Single
Transaction
1 January 2023
1 January 2023
1 January 2023
1 January 2023
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.
•
Extension of the Temporary Exemption from
applying IFRS 9: Amendments to IFRS 4
Going concern statement
The following new accounting standards, amendments
to accounting standards and interpretations, which are
relevant to the group, have been published but are not
yet effective nor have been adopted early by the group.
These standards, amendments or interpretations are not
expected to have a material impact on the group in the
current or future reporting periods:
Accounting standards require that the Directors satisfy
themselves that it is reasonable for them to conclude
whether
is appropriate to prepare the financial
statements on a going concern basis.
it
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 twenty-month period (‘review period’)
following approval of these financial statements. The
risk scenarios tested are detailed in the ‘summary of
assessment methodology’ on page 61.
60
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
The Group enjoys a strong contracted order book at 31
December 2021 of £22 million, of which £10 million is
scheduled for recognition as revenue in 2022 with the
remaining balance scheduled across 2023 (£8 million) and
2024 (£4 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
three contracts representing approximately 66% of the
forecast order book recognition scheduled for 2022.
During 2020, the Group took decisive action to restructure
its cost base, removing over £1 million of annualised costs
from the business, which has been realised in full during
the year to 31 December 2021. In addition, the Group
continues to work closely with its customers and suppliers
to ensure contractual milestones are met and related
payments are received.
The Group has a £4 million annually renewing overdraft
facility in place with its bankers, HSBC. The overdraft
facility has been renewed for the next rolling 12 month
period from April 2022 at £4 million. In order to support
working capital requirements of the engineered solutions
contracts as they moved into their production phases,
HSBC temporarily increased the facility to £4.5 million
with effect from September 2021, expiring at the end of
July 2022. In April 2022 HSBC granted a further temporary
increase to £5.0 million with the same expiry date. The
terms of this facility have not been modified following
the bank’s annual review of the facility carried out in April
2022 other than the temporary facility increase.
An agreement with HMRC has been reached to defer
PAYE payments from August 2021 with a repayment
schedule agreed throughout 2022. In the 2020 Annual
Report and Accounts, the Group listed the Recovery Loan
Scheme (the replacement of 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, utilisation of the existing
and temporarily extended facilities and the CJRS, it was
not necessary to apply for the Recovery Loan Scheme
during the year.
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
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 work in line with a ‘downside budget’
scenario and secures no contract wins in 2023.
This severe but plausible scenario forms the basis
for the reverse stress test of the Group’s cashflows.
In addition to this, Test 1 was further stress tested
through the modelling of delays to payments from
General Dynamics on the MTE programme and;
Test 2: As an upside to ‘Test 1’, further pipeline
wins are included in the cashflows based on the
approved 2022 budget and securing defined
opportunities in 2023 in line with the assumptions
made for impairment testing. There are a number
of active pipeline opportunities which have a
high probability of being secured, contributing
favourably to cashflows in the 2022 and 2023
review period.
Under both tests, the Group remained within its currently
available facilities of £4 million within the period 20
months from the signing of these financial statements.
The reverse stress ‘Test 1’ indicates the headroom of the
facility may reduce to £0.4 million in August 2022 and to
£0.1 million in November 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.
61
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
Mitigation opportunities available and potential
upside
In the scenarios discussed above the Directors have not
included the following mitigants:
• Post year end, the Group has reviewed its freehold
property portfolio to release cash for freehold
property assets that are not fully utilised. Post
this review, the Group marketed Pennant Court,
a freehold property in Cheltenham UK, for sale
or lease. The Directors have accepted an offer
for the property of £2.1 million with £1.5 million
of overdraft secured against the asset. This will
contribute up to net £0.6 million cash subject to
transaction costs and post any reduction in the
secured overdraft;
In discussions with the Group’s bankers, HSBC,
the Directors have explored the option to secure
access to further funding should this be required.
The bank have already supported the Group
through the provision of a temporary facility
increase to £5 million. The Directors could explore
the potential to extend further should the need
arise;
The Group could utilise its cash placing authority
to raise funds (at present, up to 5% of the Group’s
share capital) which would raise circa £0.6 million
at a share price of 33.5p and;
•
•
• A further review and restructure of the Group’s
global cost base to ensure the teams are focused
on delivering opportunities in the most profitable
and cash-generative products (e.g. recurring
software revenues) remains an option.
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.
62
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,
income and expenses are eliminated on
balances,
consolidation.
Business combinations and goodwill
Acquisitions of subsidiaries and businesses are accounted
for using the acquisition method. The assets and liabilities
and contingent liabilities of the subsidiaries are measured
at their fair value at the date of acquisition. Any excess of
cost of acquisition over fair values of the identifiable net
assets acquired is recognised as goodwill. Any deficiency
of cost of acquisition below the fair value of the identified
net assets acquired (i.e. discount on acquisition) is
credited in profit or loss in the period of acquisition.
Goodwill arising on consolidation is recognised as an
asset and reviewed for impairment at least annually. Any
impairment is recognised immediately in the 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 for each performance obligation
is measured as costs incurred to date over total expected
costs to complete the identified performance obligation.
Estimation uncertainty regarding variable considerations
on contractual obligations on these contracts is also
reflected in the revenue recognition.
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
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 the products having alternative uses to the Group
in that they could be sold to other prospective customers.
Additionally there is not normally any entitlement to
payment for work completed to date. Until the contractual
acceptance of the product, costs are recognised as work
in progress in inventories.
Technical Training Division – Technical Support Services
Revenues arising from the support contracts provided
to customers are invoiced in advance but recognised
as revenue across the period to which the support
agreements relate. Amounts not taken to revenue at
a period end are shown in the statement of financial
position as a contract liability.
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. 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 six months to in excess
of five years. 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.
lease and non-lease
Contracts may contain both
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 to obtain an asset of
similar value to the right-of-use asset in a similar economic
environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
• where possible, uses recent third-party financing
received by the individual lessee as a starting point,
adjusted to reflect changes in financing conditions
since third party financing was received;
• uses a build-up approach that starts with a risk-
free interest rate adjusted for credit risk for leases
which does not have recent third-party financing,
and
• makes adjustments specific to the lease, e.g. term,
country, currency and security.
63
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
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.
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.
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.
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.
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.
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.
64
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or at least
realised based on the tax rates that have been enacted or
substantively enacted at the reporting date. Deferred tax
is charged or credited in the income statement, except
when it relates to items charged or credited directly to
equity, in which case the deferred tax is also charged or
credited to 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.
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: Nil
Freehold
buildings:
Fixtures and
equipment:
Motor vehicle:
Net book value at 1 January 2020
being written off over 35 years on a
straight-line basis
10% to 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
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.
impairment
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 revaluation reserve
relating to a previous revaluation of that asset.
An annual transfer from the asset revaluation reserve
to retained earnings is made for the difference between
depreciation based on the revalued carrying amount of
the asset and depreciation based on the asset’s original
cost. Additionally, accumulated depreciation as at the
revaluation date is eliminated against the gross carrying
amount of the asset and the net amount is restated to
the revalued amount of the asset. Upon disposal, any
revaluation reserve relating to the particular asset being
sold is transferred to retained earnings.
65
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
Internally-generated intangible assets
Financial instruments
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
loss.
Amortisation is charged to write off intangible assets on a
straight-line basis over their estimated useful lives on the
following basis:
impairment
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 ‘Other
administration expenses’ in the Consolidated Income
Statement and further disclosed in note 8.
Inventories
The Group classifies financial
instruments, or their
component parts, on initial recognition as a financial asset
or a financial liability.
Trade and other receivables
Trade and other receivables are measured at initial
recognition at fair value, and subsequently measured at
amortised cost using the effective interest method.
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).
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.
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
66
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
associated assumptions are based on historical experience
and other factors considered to be relevant. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both
current and future periods.
The following are the critical judgements and estimations
that the Directors have made in the process of applying
the Company’s accounting policies and that have the
most significant effect on the amounts recognised in the
financial statements.
Revenue recognition
A significant proportion of the Group’s revenue derives
long-term engineered solutions contracts. The
from
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 of development costs
includes
The capitalisation of development costs
judgements over when the requirements of
IAS38
intangible assets are met. This includes confirmation that
the asset is technically and commercially feasible and the
Group can demonstrate a market for the product, which
supports its future economic benefits. This is confirmed
by information received through the sales team from
existing and potentially new customers.
Deferred tax asset recognition
The recognition of deferred tax assets (see note 24)
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 at both the current and prior year end. Deferred
tax has therefore been recognised at both dates based on
the amount of taxable profits in the profit forecasts.
Key source of estimation uncertainty
Recoverability of internally-generated intangible
assets
life of one
reconsidered
internally-generated
the year, management
its
the
During
recoverability of
intangible
assets which are included in its consolidated statement
of financial position at £5,050k (2020: £5,366k). Upon
review, the useful economic
internally
generated asset was reduced from five years to two years
(see note 15). 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.
Valuation of property portfolio
In November 2021, the property portfolio was revalued
by an independent valuer, with the resultant value being
reflected in these financial statements. The freehold
property held by the Group has been valued at £4.78
million with the impairment previously reflected in 2019
being reversed through the income statement on an asset
by asset basis where applicable. The balance of the gain on
revaluation has been credited to the revaluation reserve
in the statement of changes in equity. The property
valuation was reviewed by the Directors and adopted into
the report but carries estimation uncertainty due to the
potential volatility of the property market from time to
time.
Impairment of goodwill
Determining whether goodwill is impaired requires an
estimation of the value in use of the cash-generating units
to which goodwill has been allocated. The value in use
calculation, as described in note 14, 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 £2,403k (2020:
£2,428k) and the review has been carried out by the
Directors.
67
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
5. Revenue
An analysis of the Group’s revenue is as follows:
Engineered Solutions and Generic Products
Technical Support Services
Subtotal Technical Training Division
OmegaPS & R4i
Subtotal Integrated Product Support Division
Total Group Revenue
2021
£000s
6,835
3,486
10,321
5,644
5,644
15,965
2020
£000s
6,256
3,356
9,792
5,264
5,264
15,056
In the case of the Technical Training Division, the customer pays a fixed amount based on a payment schedule. Revenue
is recognised in relation to generic products upon customer acceptance and in relation to engineered solutions, based
on the percentage completion using actual costs to date as a proportion of estimated costs at completion. In both the
Technical Training Division and the 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
and R4i consultancy services are invoiced on a monthly basis in arrears based on time and materials. If the services
rendered by the Group exceed the payment, a contract asset is recognised, whereas if the payments exceed the services
rendered, a contract liability is recognised.
Revenue which was deferred as at 31 December 2020 now recognised in this year amounts to £469k (2020: £475k).
As at 31 December the transaction price of performance obligations which are unsatisfied at the year-end amounts to
£3,527k (2020: £8,436k), mainly to be recognised as revenue in the coming financial year.
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 17 to 18 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.
6.1 Segment revenues and results
Technical Training Division
Integrated Product Support Division
External sales
Net finance costs
Loss before tax
Segment revenue
Segment profit/(loss)
2021
£000s
10,321
5,644
15,965
2020
£000s
9,792
5,264
15,056
2021
£000s
(2,357)
207
(2,150)
(329)
(2,479)
2020
£000s
(2,927)
(87)
(3,014)
(125)
(3,139)
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 amortisation and management charges associated with each
division.
68
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
6.2 Segment assets and liabilities
Segment assets
Technical Training Division
Integrated Product Support Division
Unallocated
Consolidated assets
Segment liabilities
Technical Training Division
Integrated Product Support Division
Unallocated
Consolidated liabilities
6.3 Other segment information
2021
£000s
11,753
7,783
19,536
2,092
21,628
6,140
3,724
9,864
620
10,484
2020
£000s
15,707
6,978
22,685
75
22,760
6,229
3,452
9,681
546
10,227
Technical Training Division
Integrated Product Support Division
Unallocated
Depreciation and amortisation*
Additions to non-current assets**
2021
£000s
1,445
595
28
2,068
2020
£000s
1,354
717
18
2,089
2021
£000s
627
572
-
1,199
2020
£000s
993
2,663
-
3,656
* Goodwill, Other intangibles, Property, plant and equipment, and Right-of-use assets
** Other intangibles and Property, plant and equipment
Technical Training Division
Integrated Product Support Division
Restructuring expenses
2021
£000s
-
-
-
2020
£000s
327
214
541
69
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
6.4 Geographical information
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
Non-current assets*
2021
£000s
9,553
3,523
928
1,961
15,965
2020
£000s
9,675
3,518
545
1,318
15,056
2021
£000s
12,164
829
446
730
14,169
2020
£000s
10,531
350
91
3,851
14,823
* Non-current assets excluding financial instruments.
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
Customer 3
Canada
Customer 4
7. Staff costs
The aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 29)
2021
£000s
2,211
2,160
633
2020
£000s
2,677
774
2,379
2,795
3,059
2021
£000s
7,568
777
344
8,689
2020
£000s
8,418
821
369
9,608
The highest paid Director remuneration is detailed in the ‘Remuneration Report’ on pages 36 to 38.
70
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
The average number of persons, including Executive Directors employed by the Group during the year was:
Office and management
Production
Selling
8. Operating loss for the year
The operating loss for the year is stated 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)
Property rental and sundry other income
Amortisation of intangible assets
Impairment of intangible assets (note 15)
Effect of land and buildings revaluation
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Share-based payment (note 28)
Restructuring expenses
* In 2021 research and development costs of £966k were capitalised (2020: £1,292k)
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
2021
Number
37
109
7
153
2021
£000s
-
1,309
(157)
(29)
(17)
1,366
-
(117)
460
243
32
-
2021
£000s
83
45
128
2020
Number
36
110
6
152
2020
£000s
1
261
(198)
(327)
-
1,139
222
-
522
198
81
541
2020
£000s
68
37
105
71
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
10. Finance costs
Interest expense for bank overdraft
Lease interest
Interest payable on deferred consideration on acquisition
Other interest expense
11. Taxation
Recognised in the income statement
Current UK tax credit
Foreign tax expense
In respect of prior years
Sub-total current tax
Deferred tax credit 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% (2020: 19.00%)
Tax effect of expenses not deductible in determining taxable profit
Tax effect of income excluded from taxable profits
Impact of R&D tax credits
Foreign tax expensed
Effect of different tax rates of subsidiaries operating in other jurisdictions
Effect of lower / (higher) rate of deferred tax
Deferred tax not recognised (see note 24)
Effect of adjustments for prior years (current tax)
Effect of adjustments for prior years (deferred tax)
Other differences
Total tax credit
72
2021
£000s
56
74
193
6
329
2021
£000s
80
(365)
62
(223)
1,205
150
(272)
5
1,088
865
(156)
2020
£000s
32
87
-
6
125
2020
£000s
216
(360)
25
(119)
663
(7)
(24)
-
632
513
(18)
(2,479)
(3,139)
471
(18)
181
34
38
(93)
220
12
62
150
(192)
865
596
(50)
29
93
(115)
(7)
(34)
(35)
25
(7)
18
513
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
Factors that may affect future tax charges
On 24 May 2021 the Finance Bill 2021 was substantively enacted with the consequence that the main rate of corporation
tax will increase from 19% to 25% with effect from 1 April 2023, with a corresponding effect on deferred tax balances
arising after that date.
12. Dividends
No dividends were paid during the year (2020: £NIL). No final dividend will be proposed at the Annual General Meeting
(2020: £NIL).
13. 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
Earnings per share (basic)
Earnings per share (diluted)*
2021
£000s
(1,614)
2020
£000s
(2,626)
Number
36,591,864
1,746,543
Number
36,381,274
2,147,376
38,338,407
38,528,650
(4.41p)
(4.41p)
(7.22p)
(7.22p)
*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.
14. Goodwill
Carrying amount:
At 1 January 2020
Currency translation
Acquisition of ADG (see note 32)
At 1 January 2021
Currency translation
At 31 December 2021
£000s
923
37
1,468
2,428
(25)
2,403
73
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
Goodwill acquired in a business combination is allocated, at acquisition, to cash generating units (“CGUs”) that are
expected to benefit from that business combination. The goodwill will not be deductible for tax purposes. The carrying
amount of goodwill has been allocated as follows:
Cash generating unit:
Technical Training Division
Integrated Product Support Division
2021
£000s
584
1,819
2,403
2020
£000s
584
1,844
2,428
The Group tests goodwill annually for impairment. The recoverable amounts of the CGU’s are determined from value in
use calculations. The Group prepares cash flow forecasts for the following twelve months derived from the most recent
annual financial budgets approved by the Board of Directors and extrapolates cash flows as follows:
Integrated Product Support Division:
Cashflows are extrapolated for a further four years beyond the twelve-month annual budget period at a growth rate of
3% (2020: 3%). The forecast does not include a terminal value.
Technical Training Division:
Cashflows are forecast for an additional two years beyond the twelve-month approved financial budget period based
on a contract level review with the addition of expected cashflows generated from ‘pipeline’ opportunities. As at
31 December 2021 the Division had an active pipeline of over £50m (2020: £40m) and in testing the Goodwill for
impairment the Directors have assumed a prudent conversion rate of circa 50%. For years four and five, a growth rate
of 3% per annum (2020: 3%) is assumed. The forecast does not include a terminal value.
The forecast cash flows of each Division are discounted at the following rates to provide the value in use for each CGU:
TTD: 7.21% per annum (2020: 6.53% per annum)
IPS: 9.28% per annum (2020 6.53% per annum)
The rates have been calculated to reflect the respective working capital structure of each Division.
The discounted cash flows provide headroom for the Goodwill carrying values in excess of their respective assets in
the case of each Division (TTD headroom £0.2 million; IPS headroom £0.4 million) without considering terminal values.
Key assumptions are based on past experience and external sources. No impairment of goodwill has been recorded
in either the year ending 31 December 2021 or 31 December 2020. 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.
74
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
15. Other intangible assets
Software
£000s
Development costs
£000s
Cost
At 1 January 2020
Currency translation
Additions
At 1 January 2021
Currency translation
Reclassifications
Additions
Disposals
At 31 December 2021
Amortisation
At 1 January 2020
Currency translation
Impairment
Charge for the year
At 1 January 2021
Currency translation
Reclassifications
Charge for the year
Disposals
At 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
511
-
24
535
-
(157)
-
(30)
348
231
-
-
100
331
-
(73)
84
(25)
317
31
204
4,468
33
3,481
7,982
(113)
157
966
-
8,992
1,357
(2)
222
1,039
2,616
(29)
73
1,282
-
3,942
5,050
5,366
Total
£000s
4,979
33
3,505
8,517
(113)
-
966
(30)
9,340
1,588
(2)
222
1,139
2,947
(29)
-
1,366
(25)
4,259
5,081
5,570
During 2021 the Group capitalised £966k (2020: £1,259k) of costs in relation to the development of five (2020: seven)
new products. These costs will be amortised over the estimated useful life of the asset as described at note 3.
During 2021, the useful economic life of one Technical Training Division asset was reviewed by management and, as a
result, the economic life for straight line amortisation was reduced from five to two years. In the current year, under
the revised useful economic life, amortisation of £397k was charged in the period with the asset having a net book
value of £397k as at December 2021. If the useful economic life had remained at five years, the amortisation charge
would have been £159k with a net book value at the year-end of £635k.
75
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
16. Property, plant and equipment
Land and
buildings
£000s
Fixtures and
equipment
£000s
Motor
vehicles
£000s
Cost / Valuation
At 1 January 2020
Currency translation
Acquisition of ADG (note 32)
Additions
At 1 January 2021
Currency translation
Additions
Revaluation
Disposals
At 31 December 2021
Depreciation
At 1 January 2020
Currency translation
Charge for year
At 1 January 2021
Currency translation
Revaluation
Disposals
Charge for the year
At 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
5,393
4,010
-
-
-
5,393
-
-
(615)
-
4,778
874
-
91
965
-
(1,085)
-
120
-
4,778
4,428
4
-
117
4,131
15
102
-
-
4,248
2,266
1
429
2,696
10
-
-
324
3,030
1,218
1,435
40
1
19
1
61
5
32
-
(59)
39
18
-
2
20
6
-
(16)
16
26
13
41
Total
£000s
9,443
5
19
118
9,585
20
134
(615)
(59)
9,065
3,158
1
522
3,681
16
(1,085)
(16)
460
3,056
6,009
5,904
Land and buildings were formally revalued at 16 November 2021 to £4.78 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 revaluation resulted in a total gain of £470k with no assets requiring impairment.
An impairment loss of £819k was recognised in the 2019 income statement in respect of certain building assets. The
revaluation of these assets in 2021 has resulted in a partial reversal of the impairment and a credit in the income
statement of £117k in the current year. The balance of the revaluation gain of £353k has been credited to the revaluation
reserve.
76
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
At 31 December 2021, 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 £2.7 million
(2020: £2.7 million).
The revaluation surplus is disclosed in the Statement of Changes in Equity. The revaluation surplus arises in a subsidiary
and cannot be distributed to the parent due to legal restrictions in the country of incorporation.
All of the Group’s properties are categorised as Level 3 in the fair value hierarchy as defined by IFRS 13 Fair Value
Management. For the valuation of the property, the independent valuers used a Market Approach (Comparable
Method) and an assumption of vacant possession which is standard industry practice. See note 23 regarding the
securities associated with these assets.
17. Right-of-use assets
Valuation
At 1 January 2021
Currency translation
Additions
Termination of lease
Depreciation
At 31 December 2021
18. Inventories
Raw materials and consumables
Work in Progress
Property
Motor vehicles
£000s
701
(2)
44
(14)
(156)
573
£000s
129
(5)
56
(5)
(87)
88
2021
£000s
774
91
865
Total
£000s
830
(7)
100
(19)
(243)
661
2020
£000s
710
371
1,081
In 2021, a total of £3,847k (2020: £2,003k) of inventories was recognised as an expense in the year within the
consolidated income statement.
77
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
19. Trade and other receivables
Trade receivables
Contract Assets
Other receivables
Prepayments
2021
£000s
1,895
2,110
38
485
4,528
2020
£000s
3,417
1,155
20
292
4,884
No receivables have been written off as uncollectible during the year (2020: £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 increased as a result of the stage of completion of engineered solutions contracts
relative to the billing milestones which become due in the following period.
20. Cash and cash equivalents
Bank
Petty cash
Bank overdraft
Balance as per statement of cash flows
2021
£000s
887
14
901
(4,441)
(3,540)
2020
£000s
1,434
5
1,439
(2,892)
(1,453)
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.
21. Trade and other payables
Contract Liabilities
Trade payables
Taxes and social security costs*
Other creditors and Accruals
2021
£000s
909
841
1,030
815
3,595
2020
£000s
1,571
959
864
726
4,120
*Included in Taxes and Social security costs, £857k is related to deferred PAYE payments due to HMRC. These outstanding amounts
will be settled through 2022 in accordance with agreed terms with HMRC.
Contract liabilities have decreased as a result of stage of completion on engineered solutions contracts within the
Technical Training Division.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
78
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
22. Lease liabilities
Valuation
At 1 January 2021
Currency translation
Additions
Termination of lease
Interest expense
Repayments
At 31 December 2021
Current
Non-current
Property
Motor vehicles
£000s
£000s
790
(2)
44
(33)
65
(220)
644
156
488
123
(3)
54
-
9
(89)
94
53
41
Total
£000s
913
(5)
98
(33)
74
(309)
738
209
529
In 2021 short term lease rentals expensed amounted to £12k (2020: £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.
Lease liability maturity analysis:
Within 1 year
In 2-5 years
After 5 years
23. Borrowings
2021
£000s
255
546
-
801
2020
£000s
267
818
-
1,085
The Group has available bank overdraft facilities of £4 million that renew annually (2020: £4 million). In order to support
working capital requirements due to the net contract asset position on engineered solution contracts at the year end,
the bank overdraft has been temporarily increased as at 31 December 2021 to £4.5 million. A further temporary
increase to £5.0 million was granted in April 2022. The extension expires at the end of July 2022 at which point the
facility will revert to £4 million.
Any overdraft arising from the facility is repayable on demand and carries interest at 2.30% (2020: 1.92%) 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.
79
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
£000s
(325)
632
(18)
(3)
(387)
(101)
1,205
(156)
(272)
24
150
850
2020
£000s
91
(192)
(101)
Intangible
Assets
Tax losses
Total
24. Deferred tax
At 1 January 2020
Credit/(charge) to income
Credit/(charge) to OCI
Exchange differences
Acquisition entry
At 1 January 2021
Credit/(charge) to income
Credit/(charge) to OCI
Change in tax rate
Exchange differences
Prior year adjustment
At 31 December 2021
Accelerated tax
depreciation
£000s
(858)
-
(18)
-
-
(876)
(233)
(156)
(275)
22
(36)
(1,554)
Other
temporary
differences
£000s
64
151
-
2
-
217
562
-
3
(8)
(40)
734
£000s
-
100
-
(5)
(387)
(292)
26
-
-
10
256
-
£000s
469
381
-
-
-
850
850
-
-
-
(30)
1,670
In the statement of financial position deferred assets and liabilities are shown without any set off as follows:
Deferred tax assets
Deferred tax liabilities
2021
£000s
850
-
850
On 24 May 2021 the Finance Bill 2021 was substantively enacted with the consequence that the main rate of corporation
tax will increase from 19% to 25% with effect from 1 April 2023, with a corresponding effect on deferred tax balances
arising after that date. 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 £6.7 million (2020: £4.5 million) available for
set-off against future profits. The tax losses are available indefinitely for offsetting against future taxable profits.
25. Warranty provisions
Warranty provisions
2021
£000s
122
2020
£000s
122
The Group has maintained a warranty provision as at 31 December 2021 in respect of contractual obligations on two
major programmes both of which are scheduled for delivery in 2022.
80
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
26. Share capital
Authorised, issued and fully paid
36,640,357 ordinary shares of 5p each (2020: 36,446,385)
2021
£000s
1,832
1,832
2020
£000s
1,822
1,822
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 2021 63,972 5p ordinary shares were issued at 38p per share for a total consideration of £24k in connection
with the Group’s employee SIP scheme. Additionally the Company issued 130,000 new ordinary shares at 26.75p per
share in April 2021 following an exercise notice for an option granted in 2012 (see note 28).
27. Note to consolidated statement of cash flows
Cash generated from/(used) in operations
Loss for the year
Finance income
Finance costs
Income Tax credit
Withholding tax
Depreciation of property, plant & equipment
Depreciation of right-of-use assets
Amortisation of other intangible assets
Impairment of other intangible assets
Effect of land and buildings revaluation
Other income – RDEC (R&D)
Share-based payment
Operating cash flows before movement in working capital
Decrease in receivables
Decrease/(Increase) in inventories
Increase in payables and provisions (notes 21 and 25)
Cash generated from/(used) in operations
Tax received
Interest paid
Net cash (used in)/generated from operations
2021
£000s
2020
£000s
(1,614)
(2,626)
-
329
(865)
38
460
243
1,366
-
(117)
(157)
32
(285)
356
216
(525)
(238)
440
(329)
(127)
-
125
(513)
(114)
522
198
1,139
222
-
(198)
81
(1,164)
5,073
(510)
(790)
2,609
574
(38)
3,145
81
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
28. Share-based payments
The Company operates an EMI share option scheme for certain employees of the Group (the “Scheme”) and has also
granted unapproved options to certain Directors. Options granted under the Scheme are exercisable at the price equal
to the quoted mid-market price at the close of business on the date of grant while unapproved options are exercisable
in accordance with the terms of the relevant agreement (further details of which are contained in the Remuneration
Report). Exercise in all cases is subject to non-market conditions as options are forfeited if the employee leaves the
Group before the options vest. Details of the share options outstanding during the year are as follows:
Options granted under the Scheme
2021
2020
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
Outstanding at 1 January 2021
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at 31 December 2021
1,513,074
50,000
(130,000)
(260,000)
1,173,074
77.16p
30.00p
26.75p
80.88p
78.56p
1,773,074
180,000
-
(440,000)
1,513,074
87.49p
37.90p
-
106.58p
77.16p
Exercisable at 31 December 2021
746,104
91.77p
1,057,679
73.30p
The average share price at the time of exercise was 41.50p.
The option prices for the outstanding share options are:
30 – 50p
51 – 80p
81 – 100p
101 – 135p
2021
230,000
70,000
743,074
130,000
2020
150,000
430,000
743,074
190,000
The fair value of the options granted during the year under the Scheme is £4,300. The weighted average fair value is 9p.
Unapproved Options
2021
2020
Number of
share
options
Weighted
average
exercise price
Number of
share
options
Weighted
average
exercise price
Outstanding at 1 January 2021
Exercised during the year
Outstanding at 31 December 2021
Exercisable at 31 December 2021
525,969
-
525,969
525,969
55.00p
-
55.00p
55.00p
525,969
-
525,969
525,969
55.00p
-
55.00p
55.00p
82
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
The options outstanding at 31 December 2021 (unapproved and those under the Scheme) had a weighted average
remaining contractual life of 5.55 years (2020: 5.94 years).
The Group recognised total expenses related to equity-settled share-based payment transactions of £32k (2020: £81k).
The inputs to the Black-Scholes model for all options granted in 2021 were as follows:
Share price at date of grant: 30.00p (2020: 43.00p)
Exercise price: 30.00p (2020: 43.00p)
Expected volatility (based on historic volatility): 20% (2020:20%)
•
•
•
• Risk free rate: 0.97% (2020:0.74%)
•
• Option life: 10 years (2020:10 years)
• Vesting period: 3 years (2020:3 years)
Expected dividend yield: 0.0% (2020:0.0%)
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 arrangement which are then held by the
trustees of the SIP and used to purchase shares at the end of the period.
29. 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
30. Financial instruments
30.1 Capital risk management
2021
£000s
344
2020
£000s
369
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.
83
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
30.2 Categories of financial instruments
Financial assets
Measured at amortised cost
Trade receivables
Contract assets
Other receivables
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Trade payables
Contract liabilities
Taxes and social security costs
Other creditors
Cash and cash equivalents
30.3 Financial risk management
2021
£000s
1,895
2,110
38
901
4,944
841
909
1,030
156
4,441
7,377
2020
£000s
3,417
1,155
312
1,439
6,323
959
1,571
864
726
2,892
7,012
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.
30.4 Foreign currency risk
The Group operates internationally, which gives rise to financial 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 2021 and 31 December 2020, 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:
2021
£000s
289
169
787
1,245
Liabilities
2020
£000s
248
148
764
1,160
2021
£000s
853
405
842
2,100
Assets
2020
£000s
996
400
396
1,792
Canadian $
American $
Australian $
Total
84
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
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 $
30.5 Credit risk
Impact on profit
2021
£000s
28
12
3
2020
£000s
37
13
(18)
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 2021 and 31 December 2020 there were no significant concentrations of credit risk outside of the four
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.
30.6 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 £3,540k (2020: £1,453k) and net undrawn facilities of £960k (2020:
£2,547k) against the temporarily increased overdraft facility of £4.5m. The level of the Group’s overdraft facility is
reviewed annually and has been renewed at the current level of £4 million as of April 2022. A further temporary
increase to £5.0m was granted in April 2022, expiring at the end of July 2022 after which the facility will revert to £4
million.
The Group’s financial obligations consist of trade and other payables and obligations under leases which are set out in
notes 21 and 22 respectively.
Trade and other payables are all payable within three months.
30.7 Interest risk
The Group is from time to time exposed to interest rate risk on the 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 2.30%
(2020: 1.92%) over base rate. A 1% rise/fall in interest rates would have decreased/increased profit for the year by an
immaterial amount (2020: immaterial).
85
Notes To The Consolidated Financial Statements For The Year Ended 31 December 2021
31. Related party transactions
Intra-group 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.
Dividends paid to Directors
Dividends totalling £Nil (2020: £Nil) were paid in the year in respect of ordinary shares in which the Company’s Directors
had a beneficial interest.
32. Business combinations
Business Combinations 2021
The Group has not entered into any business combinations in this period.
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.
Purchase Consideration Halter Holdings Pty Ltd on acquisition
Cash paid
Share issue
Contingent consideration
£000s
1,608
167
1,691
3,466
The initial consideration payable for the acquisition comprised cash payments totaling £1,608k with further cash
payments contingent on the acquisition’s annual sales performance against agreed targets in each of the next 5 years,
being the earn-out period. The contingent payments are equal amounts each year and are not dependent on each
other. The Directors expect that the full consideration will be paid and so this is included in the liabilities of the Group
as a result. The remaining payments are noted below.
Contingent consideration paid in 2021 was £549k including interest accrued to the date of payment of £29k. Contingent
consideration outstanding was £1,221k at the year-end, after discounting. Interest payable to the vendors of £127k has
been accrued on the consideration outstanding.
For the financial year ended 31 December 2021 the acquisition delivered revenues and a profit before group charges
and tax of £2,142k (2020: £1,318k) and £363k (2020: £367k) respectively.
33. 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 Foundation Limited (s479A)
• Pennant SIP Trustee Limited (s479A)
• Pennant Support and Development Services Limited (s394A)
86
Company Statement Of Comprehensive Income For The Year Ended 31 December 2021
Continuing operations
Management charges and licence fees receivable
Administrative expenses
Operating loss
Finance costs
Loss before tax
Taxation
Loss after tax
Other comprehensive income
Total comprehensive loss attributable to equity holders
Notes
4
5
2021
£000s
2,377
(2,797)
(420)
(15)
(435)
99
(336)
-
(336)
2020
£000s
1,939
(2,095)
(156)
(2)
(158)
-
(158)
-
(158)
87
Company Statement Of Changes In Equity For The Year Ended 31 December 2021
Share
capital
Share
Premium
Capital
redemption
reserve
Retained
earnings
Total
equity
£000s
£000s
£000s
At 1 January 2020
Total comprehensive income for the year
Issue of new ordinary shares
Recognition of share-based payment
£000s
1,806
-
16
-
£000s
5,100
-
195
-
200
-
-
-
At 1 January 2021
1,822
5,295
200
Total comprehensive income for the year
Issue of new ordinary shares
Recognition of share-based payment
-
10
-
-
50
-
-
-
-
2,053
(158)
-
81
1,976
(336)
-
32
9,159
(158)
211
81
9,293
(336)
60
32
At 31 December 2021
1,832
5,345
200
1,672
9,049
Note: see page 57 for a description of the reserves appearing in the column headings of the table above.
88
Company Number: 03187528 - Company Statement Of Financial Position At 31 December 2021
Non-current assets
Investment in subsidiaries
Other intangible assets
Right of Use Assets
Deferred Tax Asset
Total non-current assets
Current assets
Trade and other receivables
Amounts due from subsidiaries
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 (liabilities)/assets
Non-current liabilities
Lease liabilities
Deferred tax liability
Total liabilities
Net assets
Equity
Share capital
Share premium account
Capital redemption reserve
Retained earnings
Total equity
Notes
6
7
8
13
9
10
11
12
12
13
14
2021
£000s
6,763
5,563
56
12
12,394
165
2,271
2,436
14,830
323
456
4,282
-
28
5,089
2020
£000s
6,530
-
56
-
6,586
18
4,593
4,611
11,197
101
382
1,363
5
26
1,877
(2,653)
2,734
28
664
5,781
9,049
1,832
5,345
200
1,672
9,049
27
-
1,904
9,293
1,822
5,295
200
1,976
9,293
Approved by the Board and authorized for issue on 24 May 2022.
P H Walker
Director
The accompanying notes on pages 91 to 96 are an integral part of these financial statements.
89
Company Statement Of Cash Flows For The Year Ended 31 December 2021
Net cash from operations
Net cash from investing activities
Financing activities
Notes
15
2021
£
(104)
-
Proceeds from issue of ordinary shares
14
60
Lease repayments
Net cash generated from 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
11
(30)
30
(74)
(382)
(456)
2020
£
(836)
-
211
(29)
182
(654)
272
(382)
90
Notes For The Company Financial Statements For The Year Ended 31 December 2021
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 operating loss is stated after amortisation of other intangible assets acquired in the year of £780k, which is included
in ‘Administrative expenses’ in the Statement of Comprehensive Income. 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
2021
£000s
1,048
111
71
1,230
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 (2020:
6).
4. Finance costs
Interest expense
5. Taxation
Current tax expense – in respect of prior year
Deferred tax credit (origination and reversal of temporary differences)
Tax charge for the year
Reconciliation of effective tax rate
(Loss)/profit before tax
Tax at applicable rate 19.00% (2019: 19.00%)
Effect of expenses that are not deductible for tax
Effect of other transfers and adjustments – deferred tax
Effect of adjustments for prior years (current tax)
Total tax charge
2021
£000s
(15)
2021
£000s
5
94
99
(435)
83
(14)
25
5
99
2020
£000s
(2)
2020
£000s
-
-
-
(158)
(31)
52
(21)
-
-
91
Notes For The Company Financial Statements For The Year Ended 31 December 2021
6. Subsidiaries
Details of the Company’s subsidiaries at 31 December 2021 are as follows:
Subsidiary name
Pennant International Limited
Registered office
Pennant Court, Staverton
Technology Park,
Cheltenham GL51 6TL
Pennant Support & Development Services 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
Pennant Information Services Inc.
Halter Holdings Pty Ltd*
Absolute Data Group Pty Ltd*
Pennant America Inc.**
* Subsidiary of Pennant Australasia Pty Limited
** Previously Onestrand Inc.
1400 Blair Place, Suite 100,
Ottawa, Ontario K1J 9B8,
Canada
Suite 6, 334 Highbury Road, Mt.
Waverley Victoria, 3149,
Australia
1400 Blair Place, as above
GPO Box 2890
Brisbane, Queensland,
4001 Australia
GPO Box 2890, as above
2 W Market St
West Chester
PA 19382 USA
The investments in subsidiaries are all stated at cost as follows in the table below.
Cost of investment
Cost of investment – beginning of year
Additions
Disposals
Cost of investment – end of year
Impairment – beginning of the year
Disposals
Impairment – end of year
92
Net cost of investment – end of year
Net cost of investment – beginning of year
Proportion of
ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
£000s
6,920
233
(390)
6,763
390
(390)
-
6,763
6,530
Notes For The Company Financial Statements For The Year Ended 31 December 2021
The additions in the year relate to the transfer of Pennant America Inc. (formerly Onestrand Inc.) from Absolute Data
Group Pty Ltd to the ownership of the company. The disposals in the year resulted from the striking-off of Aviation Skills
Holdings Ltd and Aviation Skills Partnership Ltd.
7. Other intangible assets
Cost
At 1 January 2021
Additions
At 31 December 2021
Amortisation
At 1 January 2021
Charge for the year
At 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
Development costs
£000s
-
6,343
6,343
-
780
780
5,563
-
The additions in the year relate to the transfer of certain intellectual property rights from Pennant International Ltd and
Pennant Australasia Pty Ltd to the company, totalling £5,451k. In addition product development services were carried
out on behalf of the company by its operating subsidiaries amounting to £892k.
8. Right-of-use assets
Valuation
At 1 January 2021
Additions
Termination of lease
Depreciation
At 31 December 2021
Motor vehicles
£000s
56
31
(4)
(27)
56
Total
£000s
56
31
(4)
(27)
56
9. Trade and other receivables
Trade and other receivables principally comprise prepaid overhead costs. The carrying amount approximates their fair
value.
10. Trade and other payables
Trade and other payables principally comprise amounts outstanding for services and ongoing costs. The carrying
amount approximates their fair value.
93
Notes For The Company Financial Statements For The Year Ended 31 December 2021
11. Borrowings
Details of the Group overdraft arrangements are set out in note 23 to the consolidated financial statements.
12. Lease liabilities
Valuation
At 1 January 2021
Additions
Interest expense
Repayments
At 31 December 2021
Current
Non-current
Motor vehicles
£000s
Total
£000s
53
29
4
(30)
56
28
28
53
29
4
(30)
56
28
28
In 2021 short term lease rentals expensed amounted to £Nil (2020: £Nil). There were no low value leases or variable
lease payments excluded from lease liabilities. This is not likely to significantly change in the year ahead.
Lease maturity
Within 1 year
In 2-5 years
After 5 years
13. Deferred tax
At 1 January 2021
Credit/(charge) to income
Other transfers*
Prior year adjustment
At 31 December 2021
2021
£000s
32
30
-
62
Accelerated tax depreciation
£000s
Tax losses
£000s
-
82
(746)
-
(664)
-
9
-
3
12
2020
£000s
32
29
-
61
Total
£000s
-
91
(746)
3
(652)
As described at note 7, certain intellectual property assets were transferred to the Company from Pennant International
Ltd (PIL). As a result the deferred tax liability previously recorded in PIL’s accounts has been transferred to the Company.
There is no profit or loss effect of the transfer.
14. Share capital
Details are set out in note 26 to the consolidated financial statements.
94
Notes For The Company Financial Statements For The Year Ended 31 December 2021
15. Note to statement of cash flows
Cash generated from operations
Loss for the year
Finance costs
Amortisation
Depreciation charge – right-of-use
Loss on disposal of right-of-use asset
Income Tax Credit
Share-based payment
Operating cash flows before movement in working capital
(Increase)/Decrease in receivables
Decrease in payables
Cash generated from operations
Interest paid
Net cash generated from operations
16. Financial instruments
2021
£000s
2020
£000s
(336)
(158)
15
780
27
6
(99)
32
425
(103)
(411)
(89)
(15)
(104)
2
-
22
-
-
81
(53)
94
(879)
(838)
2
(836)
The Company’s approach to the management of capital and market risks is set out in note 30 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 its bank overdraft facility. Interest is paid on its bank overdraft at
2.30% (2020: 1.92%) over base rate. A 1% rise/fall in interest rates would have decreased/ increased profit for the year
by an immaterial amount (2020: immaterial). The Company is not exposed to foreign currency risks.
Categories of financial instruments
Financial assets
Measured at amortised cost
Trade and other receivables
Amounts due from subsidiaries
Cash and cash equivalents
Financial liabilities
Measured at amortised cost
Bank overdraft
Trade and other payables
Amounts due to subsidiaries
2021
£000s
165
1,525
-
1,690
456
323
4,282
5,061
2020
£000s
18
4,593
-
4,611
382
101
1,363
1,846
95
Notes For The Company Financial Statements For The Year Ended 31 December 2021
17. 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 (2020: £Nil).
18. Related party transactions
Transactions with related parties consist of management charges made to subsidiary companies as disclosed on the
face of the statement of comprehensive income.
Product development services were received from subsidiary companies in the period, as disclosed at note 7.
96
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 – 22 June 2022
Expected announcement of results for the year ending 31 December 2022:
Half-year announcement - September 2022
Full-year preliminary announcement - April 2023
Daily share price listings
The Financial Times - AIM
97
Officers & Professional Advisors
Directors
J Ponsonby (Chairman)
P H Walker FCA (Chief Executive Officer)
D J Clements
P Cotton
M Skates (resigned 31/03/2022)
S Moore (resigned 02/06/2021)
Secretary
D J Clements
Registered office
Pennant Court
Staverton Technology Park
Cheltenham
Gloucestershire
GL51 6TL
Company number
03187528
Auditor
Bankers
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
Nominated Adviser and Broker
W H Ireland Ltd
24 Martin Lane
London
EC4R 0DR
98
98
99
ANNUAL REPORT 2021