Pennant International Group plc (LON:PEN) Chief Executive Officer Phil Walker caught up with DirectorsTalk for an exclusive interview to discuss highlights from the interim results, the outlook, and the strategic partnership with Aquila Learning.
Q1: Phil, having released your interim results now, what were the key headlines from the period?
A1: In terms of the period under review to the 30th of June, the results were pleasing, if not spectacular for us.
The main headlines really are that it’s the fourth consecutive trading period where we’ve reported a positive EBITDA. So, had a couple of difficult years, the business continued to improve, momentums building and results are in line with what people expected. Even more pleasing for me, sat here today, as I’m able to say that the results are on track to meet the full-year expectations so we’re very much on track to deliver the year’s results as per the forecast.
A couple of noteworthy points to pull out from those results, people may have noted, is in particular the gross margin. The Pennant International’s gross margin is at 47% for the first half, we’re expecting that to go slightly better in the second half, but that’s significantly better than prior periods.
Our net debt position, the cash position is much improved. If you look back at the same period, six month period in 2022, our net debt was around £4.1 million, at this point in time, it’s down to £1.9 million and improving so the key metrics are starting to look much better.
In terms of business winning, we announced £6.5 million of new business in the first half of the year so the order book at the period-end is pretty stable, it’s about £25 million so winning business and keeping the momentum going.
There’s a couple of other things just to really highlight. We obviously secured a big contract last year with Boeing Defence UK on the Apache, in the RNS it highlights the fact that excellent progress we made on that. That programme continues to perform well, it’s on track to deliver on time, which is good news.
We also made an acquisition during the period. In a previous interview, we discussed the acquisition of Track Access Productions, that rail integration is fully complete now, and that rail operation, alongside with our existing rail business is going well.
From the investment point of view, also, we’ve been putting a lot of time and effort into the creation of our new software suite. With the IPS software suite, our GenS product, which is the engineering product that captures the data and is used for the modelling, that LSAR tool (version 2 was released in May), I’m pleased to say having released the product in May, we achieved our first commercial sale of that product in June.
So, it’s been a really solid six months of the business, and results are in line, continued momentum, better cash, improved margins, strong order book, and good acquisition. On the whole, a very good healthy picture for the business.
Q2: How would you describe the outlook for the company over the next 12-18 months?
A2: I think for me, I’m cautiously optimistic. If you look at the macro picture in terms of the uncertainty in the world at the moment, clearly as a defence SME providing a niche solution into a lot of defence customers, this backdrop for us is healthy. We’ve probably got unprecedented level of activity at the moment in the UK, in the Pacific, in North America, with customers wanting to explore ways of improving their training systems, managing their data, so the macro environment is very, very strong.
In terms of actual specifics, we’ve got a revenue forecast for 2023 of £16 million, at the half year, we announced £7 million revenue and we’ve got £8.1 million contracted so we’re about 95% covered for the current year, so we’re on track for the year.
I mentioned the rail acquisition, rail actually is performing well, recently announced the termination of the northern part of HS2 in the rail sector, actually we do nothing on HS2, the products we work on tend to be more regional infrastructure projects. That redistribution of those funds into Northern Rail, Midlands Main Line etc. is good news for us because that’s the type of projects we work on. That rail entity is on track to do £1 million annualised revenue and about £400,000 operating profit annualized, and we’ve got good coverage in terms of order book for 2024. As I sit here today, we’ve got just north of £10 million pounds of revenue contracted so about 65% covered for next year.
So, with a buoyant pipeline, a very positive macro environment for us, and solid contracted revenues, we’re looking very healthy.
Q3: Finally, you recently announced a strategic partnership with Aquila Learning Limited, what does the relationship mean for Pennant International and its customers?
A3: We’ve been working with Aquila Learning, a UK-based SME, for a period now exploring the opportunity to partner. So, we have an IPS integrated product support software and services business has a core tool set so we have a suite of software that’s used to support design, development, operation, maintenance, and training of assets, predominant defence, but it’s also used in aerospace, rail, and other safety critical industries. So we’ve got this core set and the GenS product I alluded to earlier is a key part of that set so we have this toolkit. Using that data, that data is then used in publications for the business, it’s used in modelling, but actually it’s also used in the training system.
So, Aquila Learning, what they’ve got is they’ve got a software capability that allows companies, organisations like defence companies, like the RAF, like BA Systems, like Boeing Defence to make sense of their complex training and the risks through that system and consultancy. So, they’re effectively taking engineering data, technical data and turn it into the training system.
So, we’re both UK SMEs, we’ve both got similar customers, we’ve got an addressable market that’s huge.
The key thing for this is that it’s all geared around a particular industry standard, which would be S-Series, and by working together, we effectively give our users and operators an end-to-end solution. So, from the point where the OEM gives us the data to the end, where they’ve got the training management system and training system in place.
Between Pennant and Aquila, we can offer that integrated end-to-end solution, and we do not believe there’s anyone else on the market that can do that.
