TIDMPEN
RNS Number : 6882N
Pennant International Group PLC
22 May 2020
FOR IMMEDIATE RELEASE 22 May 2020
PENNANT INTERNATIONAL GROUP PLC
Business Update - Covid-19 Risks;
New & Improved Banking Facilities; GBP2 million Milestone
Achieved;
Revenue Impacts; Order Book and Pipeline Update including Major
Programme
Pennant International Group plc ("Pennant", the "Group", or the
"Company"), the AIM quoted supplier of integrated training and
support solutions, products and services which train and assist
operators and maintainers in the defence and regulated civilian
sectors, provides the following business update.
In its Covid-19 announcement on 23 March 2020 (the "Covid-19
RNS"), the Company identified three key potential impacts linked to
the pandemic: (1) delays to milestone payments due to inability to
hold contractual review meetings; (2) a reduction in revenues due
to lockdown restrictions preventing service delivery; and (3)
delays to new orders as customers' priorities shift in response to
the pandemic. This announcement gives further detail on
developments within each of these categories since the Covid-19
RNS.
Cash and Working Capital
The first two risks set out in the Covid-19 RNS carry a
potential immediate cash impact and, indeed, these risks were
further highlighted in the Company's 2019 annual report (published
on 20 April 2020, the "Annual Report") as giving rise to a material
uncertainty in that regard, with the Company noting in the report
that it was taking various steps to mitigate the potentially
detrimental effect on its cashflows.
The Company is therefore pleased to confirm that two key actions
have now been completed which significantly improve the Company's
cash and working capital position.
New Banking Facilities
The Company has re-financed with HSBC UK Bank plc, ending its
long association with Barclays. HSBC is providing the Company with
a range of banking facilities including a GBP4 million overdraft
(an increase of GBP1 million over the previous overdraft facility)
at a rate of 1.95% per annum over the bank's base lending rate from
time to time.
The new facilities are secured against the Company's freehold
property portfolio and do not have any financial covenants
attached.
General Dynamics contract
In the Annual Report it was noted that the pandemic had the
potential to delay the holding of a contractual event with a GBP2
million payment milestone attached. This event related to the
General Dynamics contract.
With the use of virtual technology to circumvent the lockdown,
the event has now been successfully held. The customer has
confirmed in writing that the milestone has been achieved, and the
GBP2 million invoice has been raised.
The formal contract amendment for the GBP1.5 million price
uplift announced on 10 March 2020 has also now been executed.
To further assist its cashflow and cost management during this
period, the Company continues to make use of the UK government's
Coronavirus Job Retention Scheme and has made certain payment
arrangements with HMRC. Given the re-financing and milestone
achievement mentioned above, the Board has determined that it is
not necessary to apply for a Coronavirus Business Interruption Loan
at this time.
Revenues
As anticipated in the Covid-19 RNS, the Group is experiencing
certain reductions in revenue:
ILS Consultancy
The second risk highlighted in the Covid-19 RNS was to the
realisation of consultancy revenues by the Group's 'integrated
logistics support' division; the services are typically delivered
at a customer's site, so if the relevant sites cannot be accessed
due to Covid-19 restrictions, the ability to deliver the services
is affected.
While steps have been taken to mitigate this risk (including
implementation of remote working and designation as an essential
service), revenues from the ILS division are currently running at
20% below budget. The position is expected to improve as
restrictions ease and customer operations begin to return to normal
levels (although a 'catch up' of lost revenues in respect of the
affected months is not anticipated).
UK Helicopter contract
With regard to the Group's GBP3.4 million contract for the
design and build of a helicopter training aid for the UK military
(announced on 31 October 2019), key workshops and a contractual
review meeting continue to be delayed by Covid-19 and other issues
affecting the availability of relevant personnel.
The contract is 'engineered-to-order' for revenue recognition
purposes and the Group expects that progress to completion, and
therefore revenue recognised, will be less than expected for the
current financial year. The customer has been supportive of Pennant
in managing the concomitant cash impact of the delay and has
part-paid a review event in advance of the event being held.
New Orders
The third risk identified in the Covid-19 RNS was that Pennant's
customers would be consumed by their own efforts and concerns
relating to Covid-19 and that the award of new contracts to the
Group would be affected as a result.
Middle East order
In relation to the potential new Middle East order announced on
19 February 2020, the Group anticipates that, due to Covid-19
impacts on the customer, the order will now be placed in the second
half of 2020 (rather than first half, as originally expected). As
the order is believed to comprise generic products with lead times
greater than six months, receipt of the order in the second half
would mean that all revenues associated with the order would be
recognised in the 2021 financial year.
Major Programme
The Company has been endeavouring for some time to clarify the
timeline for the award of the contract for the major programme for
which Pennant was 'down-selected' (as first announced on 9 August
2018). Pennant's contract, if awarded, would be a sub-contract from
a prime contractor, with the supply of the training aids forming an
integral part of a wider package from the prime contractor to a
military end-user.
Pennant's current understanding is that, while the end-user's
requirement for the relevant training aids remains, the prime
contractor has not yet been able to reach agreement with the
end-user as to the terms and scope of the supply for that wider
package. It is not believed that Covid-19 is a primary factor in
this situation, although it has presumably not been conducive to
progress of the relevant negotiations.
Pennant is not a party to these negotiations but remains in
regular dialogue with the prime contractor and will provide a
further update in due course. Pennant retains the people, knowledge
and facilities to deliver the contract and contribute to the UK's
economic recovery post-pandemic.
Management's Next Steps
Taking into account the above developments, Pennant's Board
anticipates that revenues for 2020 will not materially increase
beyond what is currently budgeted based on existing contracts,
namely circa GBP16 million for the year.
A wide-ranging cost reduction exercise was carried out by the
Company last year in response to delays to the award of the major
programme, and further mitigating actions were recently taken to
combat the effects of Covid-19. An additional review of costs is
presently being undertaken to ensure operations remain
appropriately streamlined but properly resourced for the delivery
of core contracted programmes, with costs aligned to baseline
revenues.
Notwithstanding the slowdown caused by Covid-19, in addition to
its three-year contracted order book of GBP33 million at last
year-end, the Group retains a sizeable pipeline of potential
contracts which it will continue to pursue while seeking new
revenue opportunities in accordance with its strategy.
Phil Walker, Pennant Group CEO , commented: "Achieving a GBP2
million contract milestone and securing an increased overdraft
significantly improve the Group's cash position, which is
particularly important in the current Covid-19 induced climate of
slowed revenues and pipeline uncertainty. We continue to work
together with our employees, customers and suppliers to manage the
direct and indirect impacts of Covid-19. We remain focused on
delivering our current contracts, while seeking to convert our
pipeline opportunities and win new business across the Group."
Certain information contained in this announcement would have
constituted inside information (as defined by Article 7 of
Regulation (EU) No 596/2014) ("MAR") prior to its release as part
of this announcement and is disclosed in accordance with the
Company's obligations under Article 17 of MAR.
Enquiries:
Pennant International Group plc www.pennantplc.co.uk
Philip Walker, CEO +44 (0) 1452 714 914
David Clements, Commercial &
Risk Director
WH Ireland Limited (Nomad and www.whirelandcb.com
Broker)
Mike Coe
Chris Savidge +44 (0) 117 945 3470
Walbrook PR (Financial PR) paul.vann@walbrookpr.com
Paul Vann +44 (0)20 7933 8780
Tom Cooper Mob: +44 (0)7768 807631
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END
TSTSEFEFFESSEFI
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