TIDMPEG
RNS Number : 6747V
Petards Group PLC
10 April 2019
10 April 2019
Petards Group plc
("Petards", "the Group" or "the Company")
Final results for the year ended 31 December 2018
Petards Group plc (AIM: PEG), the AIM quoted developer of
advanced security and surveillance systems, is pleased to report
its final results for the year ended 31 December 2018.
Key Highlights:
-- Operational
o Order book at 31 December 2018 over GBP19 million (31 Dec
2017: over GBP18 million)
o Order coverage for 2019 in excess of GBP13 million
o Acquired RTS Solutions software business focused on UK rail
infrastructure
o Significant orders of over GBP6.5 million for eyeTrain
received in H2 2018
o QRO generated over GBP1 million of revenues from two new UK
police framework agreements of 3 and 4 years respectively, with 3
year extension options
o Significant investment in our eyeTrain automated software
applications has created new orders and opened up new business
opportunities
-- Financial
o Total revenues increased to GBP20.0 million (2017: GBP15.6
million)
o Gross margins 34.5% (2017: 38.6%)
o Adjusted EBITDA* GBP2,057,000 (2017: GBP1,619,000)
o Operating profit GBP1,156,000 (2017: GBP1,245,000 including
GBP362,000 exceptional income)
o Pre-tax profit GBP1,126,000 (2017: GBP1,205,000 including
GBP491,000 net exceptional income)
o Net funds (cash less debt) GBP969,000 (31 Dec 2017:
GBP1,286,000)
o Basic EPS 2.01p (2017: 3.31p)
o Diluted EPS 1.95p (2017: 2.32p)
*Adjusted EBITDA comprises operating profit adjusted to remove
the impact of depreciation, amortisation, exceptional items,
acquisition costs and share based payments. A reconciliation of
Adjusted EBITDA to operating profit is included on the face of the
consolidated income statement.
Commenting on the current outlook, Raschid Abdullah, Chairman,
said:
"The Group continues to enjoy a strong order book that provides
the Board with good visibility to plan for the future. The order
book at 31 December 2018 was over GBP19 million, of which over
GBP13 million is scheduled for revenue during 2019. Due to customer
delivery schedules these are weighted towards the second half of
the year. The Group has a strong pipeline of new contracts under
negotiation which it is anticipated will add to the orders for
delivery in the second half of 2019 and for 2020. These together
with the Group's strong market position provides the board with
confidence in its prospects for the year ahead.
This announcement includes inside information as defined in
Article 7 of the Market Abuse Regulation No. 596/2014 and is
disclosed in accordance with the Company's obligations under
Article 17 of those Regulations.
Contacts:
Petards Group plc www.petards.com
Raschid Abdullah, Chairman Mb: 07768 905004
WH Ireland Limited, Nomad and www.whirelandcb.com
Joint Broker
Mike Coe, Chris Savidge Tel: 0117 945 3470
Hybridan LLP, Joint Broker www.hybridan.com
Claire Louise Noyce Tel: 020 3764 2341
claire.noyce@hybridan.com
Square 1 Consulting, Financial
PR
David Bick Mb: 07831 381 201
Tel: 020 7929 5599
david.bick@square1consulting.co.uk
Chairman's statement
I am pleased to report on the Group's annual results for 2018
together with the progress made in meeting our strategic growth
objectives. While the development of our new eyeTrain software
solutions presented some technical challenges, it is gratifying
that Petards' market position has been strengthened and that the
Group is well positioned to continue to win significant new
projects.
Group revenues increased to GBP20.0 million (2017: GBP15.6
million) with Adjusted EBITDA* of GBP2,057,000 (2017: GBP1,619,000)
and profits before tax of GBP1,126,000 (2017: GBP1,205,000 that
included GBP491,000 of net exceptional profit). The Group closed
2018 with net funds of GBP969,000 (2017: GBP1,286,000). As I
reported at the half year stage, the 2018 results reflect the
adoption of IFRS 15, the new revenue recognition standard, details
of which are set out in note 3 to the financial statements.
Rail products continued to provide the majority of the Group's
revenues with around 60% relating to eyeTrain in 2018. The majority
of the Group's overseas sales also derive from the rail sector with
overall Group exports accounting for 23% of revenues. Over the past
few years the Group has placed considerable emphasis on
establishing a strong position in its home rail market, which is
expected to provide good growth prospects over the coming years for
train new build and retrofit applications as the train operators
continue to increase network capacity. Significant investment was
made in 2018 in developing Driver Controlled Operation ("DCO") and
Automatic Selective Door Opening ("ASDO") safety critical software
systems. ASDO forms a key part of the overall solution to help
train operators increase passenger carrying capacity particularly
on rail lines with shorter platforms.
QRO's traffic products had an excellent 2018 in its second full
year as part of the Group. Following its success in winning two
long-term framework agreements with UK police forces, QRO is well
positioned to achieve continued growth for its ANPR products and
new service agreements. In April 2019 it is moving to larger nearby
facilities in Northamptonshire to manage this new business, with
plans to expand the product range.
Defence products had a mixed year. Following a strong first half
year with a number of good contract wins and related revenues, the
second half year proved to be more difficult. The MOD has not
presently sought to re-tender the radio catalogue framework
agreement previously held by the Group for the past 5 years, which
expired in September 2018. While we understand that the MOD will
re-tender in due course, this delay means that the large orders
received in 2018 are not expected to be repeated in 2019.
RTS Solutions made a maiden contribution to Petards' results
following its acquisition in May 2018. I would like to welcome the
team at RTS to the Group and look forward to supporting them in the
future development of the business. The acquisition affirmed the
Board's strategy to pursue ownership of a broader portfolio of
products and RTS provides the Group with its first exposure to rail
infrastructure. Leeds based RTS supplies real-time software
solutions and services that support the operational, maintenance
and safety functions of the UK's rail infrastructure. Since its
acquisition we have created a business development function to
market the software products on a wider basis while at the same
time pursuing business with existing customers where we believe
there is potential for the provision of additional services.
The importance and contribution that the staff within the Group
make cannot be underestimated and 2018 was certainly a challenging
year. On behalf of the Board and shareholders I would like to
express thanks to all of our management and staff at all levels for
their hard work and professionalism and their contribution to the
success of the Group. We look forward to their continued support in
2019.
In line with its strategy the Board is reviewing opportunities
to increase the Group's market presence which will either be in the
form of strategic alliances or the acquisition of complementary
organisations, which is its preferred route.
The Group continues to enjoy a strong order book that provides
the Board with good visibility to plan for the future. The order
book at 31 December 2018 was over GBP19 million, of which over
GBP13 million is scheduled for revenue during 2019, with customer
delivery schedules weighted towards the second half of the year.
The Group has a strong pipeline of new contracts under negotiation
which it is anticipated will add to the orders for delivery in the
second half of 2019 and for 2020. These together with the Group's
strong market position provides the Board with confidence in its
prospects for the year ahead.
Raschid Abdullah
Chairman
*See Alternative Performance Measures Glossary at the end of
this document.
Strategic Report
Business review
Petards' operations continue to be focused upon the development,
supply and maintenance of technologies used in advanced
security, surveillance and ruggedized electronic applications,
the main markets for which are:
-- Rail -software driven video and other sensing systems for
on-train applications sold under the eyeTrain brand to global train
builders, integrators and rail operators, and web-based real-time
safety critical integrated software applications supporting the UK
rail network infrastructure sold under the RTS brand;
-- Traffic -Automatic Number Plate Recognition ("ANPR") systems
for lane and speed enforcement and commercial applications, and UK
Home Office approved mobile speed enforcement systems, sold under
the QRO and ProVida brands to UK and overseas law enforcement
agencies and commercial customers; and
-- Defence - electronic countermeasure protection systems,
mobile radio systems and related engineering services sold
predominantly to the UK Ministry of Defence ("MOD").
Operating review
2018 saw the Group continue to secure the majority of orders
available for its products placed by new train builders for the UK
market. Order intake for eyeTrain products was similar to the prior
year with recurring revenues for spares and repairs continuing to
grow. The acquisition of RTS during the year added to the Group's
rail-related software solutions. The Group also secured
year-on-year increases in both order intake and revenues for its
Traffic and Defence products.
At an operational level the year presented a number of
challenges, particularly in respect of the delivery of some complex
eyeTrain projects. The Group addressed these head-on and it is
pleasing that these have been overcome to the satisfaction of our
customers, albeit at some higher than anticipated cost.
Order intake for eyeTrain products was weighted towards the
second half of the year with significant orders being received for
delivery in 2019 and 2020 from Bombardier Transportation and
Siemens Mobility worth in the region of GBP6.5 million. The Group's
industry experience, the growing number of train types on which
eyeTrain is installed, our willingness to innovate, and the strong
customer relationships built over time, all play a significant role
in continuing to secure such projects.
The Group has invested heavily in developing software that
provides Automatic Selective Door Operation (ASDO), Driver
Controlled Operation (DCO) and Automatic Passenger Counting (APC)
systems that integrate with its other eyeTrain video systems. The
programme required a significant scaling up of our software team
with both permanent and contract staff. It has taken longer than
originally envisaged, however, the core system is now operational
and provides a further differentiator for Petards. It is well
suited to retrofit applications and we have been presented with new
sales opportunities, some of which we expect to be converted in the
coming 12 months.
As more eyeTrain projects go into service, revenues from spares
and service support are expected to continue to grow. This is a key
long-term objective to enhance our customer and product support and
we are seeking to reach agreement on service contracts as warranty
periods expire.
The UK's demand for new and upgraded rolling stock remains
strong and there are a number of major projects for which orders
are scheduled to be placed by customers over the course of the next
year. If Petards is selected then the majority of these are
expected to utilise our existing proven eyeTrain software systems
developed over the past two years. While the development of new
on-board product applications for eyeTrain remains core to the
Group's strategy, the quantum of spend is presently expected to be
much lower in 2019.
Defence products had a strong first half year with the receipt
and delivery of GBP1.5 million in radio equipment orders and the
delivery of the GBP1 million emulator tool for the MOD's transport
aircraft. The MOD also extended Petards post design services
contract for another two years to the end of 2021, worth an
additional GBP1.1 million. However, regretfully that level of
performance was not carried through to the second half of the year.
While Petards continues to win some radio business, at the present
time the MOD has not as yet re-tendered its radio catalogue
framework agreement, previously held by the Group, which expired in
September 2018. While we understand that the MOD will re-tender in
due course, this delay means that the large orders received in 2018
are not expected to be repeated in 2019. Other than the provision
of specialist engineering services, the Group's current defence
activities are mainly as a value-added re-seller of radio
communications and electronic countermeasures equipment.
Strategic report (continued)
Operating review (continued)
The strong order and revenue performance of Traffic products
continued into the second half buoyed by QRO's success in securing
two framework agreements with UK police forces; one with the
Cheshire force and a joint one with Thames Valley and Hampshire.
While Cheshire has been a longstanding customer, the growth in
revenues over the prior year can be attributed to the second
agreement. This has been utilised by other forces in England with
deliveries worth over GBP1 million being made during 2018.
Commercial sales also increased and customer service support
contracts continued to be an important aspect of the business. In
April 2019 QRO will be relocating to new premises in
Northamptonshire to support its anticipated future growth. The
Board is very satisfied with the return on its investment in QRO
over the past two years and looks forward to further growth.
The RTS acquisition in May 2018 was the first since QRO joined
the Group back in April 2016. The initial and contingent
consideration of GBP1.85 million was paid during the year,
including GBP0.6 million paid on a pound for pound basis for
surplus cash in RTS's acquired balance sheet. The consideration was
satisfied in cash from the Group's existing cash reserves and a new
GBP1.25 million five year bank term loan. No further consideration
is expected to be payable.
RTS adds to Petards' existing capabilities in the rail sector
providing the Group with an entry into the UK rail infrastructure
market. It brings with it a portfolio of software solutions and
recurring revenues. In June 2018 it added significantly to its
recurring revenues order book with the renewal of a contract that
related to software licences, maintenance and third line support in
respect of Network Rail's real time failure and incident management
system. The contract will generate annual revenues in excess of
GBP250,000 and runs until June 2023. The final two years are at
Network Rail's option which would add to the order book when
exercised.
Since its acquisition RTS has made steady progress and
contributed GBP0.2 million to Group profits in the period to 31
December 2018 on revenues of GBP0.5 million. Investment of GBP0.1
million was also made in developing a new core module for its
software portfolio, the first revenues on which were realised in
the period. While customer related project delays had an impact on
its financial performance in 2018, those projects remain live and
the revenues are expected to be realised during the course of 2019.
The Board remains confident that RTS will prove to be a good
contributor to Group profits going forward.
Following 2018's positive order intake performance, the Group
closed the year with an order book of over GBP19 million (2017:
over GBP18 million). This provides good coverage of the Group's
forward revenues with over GBP13 million scheduled for recognition
during 2019 and a further GBP5 million for 2020.
Financial review
Operating performance
The year ended 31 December 2018 is the first year that the Group
has reported under IFRS 15 "Revenue from contracts with customers"
and its implementation has not altered the revenue recognition
policy for the majority of the Group's revenue streams. The one
area of the Group's business in which the adoption of IFRS 15 has
resulted in a change, is that of the work performed relating to the
delivery of customer specific development projects.
Prior to the adoption of IFRS 15, the Group recognised such
revenue upon achievement of specific pre-agreed, customer-set
milestones (other than advance payments) and for which the Group
could invoice the customer for payment. Under IFRS 15, work of this
nature results in later recognition of the related revenue and
predominantly affects eyeTrain revenues. The Group has adopted IFRS
15 using the "cumulative effect" method under which comparative
information is not restated. The cumulative effect of revising the
revenue and profit previously recognised up to 31 December 2017 is
shown as an adjustment to brought forward retained earnings,
details of which are set out in note 3 to the financial statements,
as is the effect of the deferral of revenues that would have been
recognised in 2018 had IFRS 15 not been adopted.
Revenues for the year were GBP20.0 million (2017: GBP15.6
million) including exports of GBP4.7 million (2017: GBP5.3
million). The majority of exports related to shipments of eyeTrain
system to customers in Germany, Switzerland and Poland, most of
which are destined for rail vehicles that will be operated in the
UK.
Strategic report (continued)
Financial review (continued)
Operating performance (continued)
Gross margins for the year remained in line with those reported
in the first half year at 34.5%, with the reduction over those
achieved in 2017 (38.6%) reflecting both product mix and higher
than anticipated project costs. With regards to mix, Defence
products comprised almost a third of 2018 total revenues. The
increase over the prior year related to additional bought-in lower
margin product and this had a dilutive effect on the overall
margin. In addition, higher non-recurring project costs were
incurred in the implementation of eyeTrain projects on two new
train platforms, and this work has been completed in the first
quarter of 2019. While the benefits will be seen on future new
orders, these costs had an effect on the gross margin in 2018.
While those higher specific project costs are one-off in nature,
the Group has embarked on a programme of margin improvement across
its supply chain, which it is expected will drive better
returns.
Overall administrative expenses were up to GBP5,728,000 (2017:
GBP4,770,000). The main increases related to higher amortisation
and depreciation charges, the effect of the RTS acquisition and
exceptional income of GBP362,000 netted off against 2017
administrative expenses. Other administrative expenses increased by
4% over the prior year primarily due to higher indirect staff costs
and one-off Defence product tendering costs.
Earnings before interest, tax, depreciation, amortisation,
exceptional items, acquisition costs and share based payment
charges ("Adjusted EBITDA") totalled GBP2,057,000 up from
GBP1,619,000 in 2017. Operating profits were GBP1,156,000 against
GBP1,245,000 in 2017 (2017 included GBP362,000 exceptional
income).
Net financial expenses totalled GBP30,000 (2017: GBP40,000)
albeit that its composition was very different than the prior year
which included interest relating to loan notes converted in 2017 of
GBP131,000, and net exceptional financial income of GBP129,000.
A tax credit of GBP17,000 for the year (2017: GBP32,000 credit)
included the benefit of research and development tax credits
relating to prior years.
Profit after tax was GBP1,143,000 (2017: GBP1,237,000) and basic
earnings per share 2.01p (2017: 3.31p). The equity issued as a
result of the conversion of loan notes in December 2017 had little
effect on 2017's basic earnings per share as they were only in
issue for two weeks but impacted that of 2018 as they were in issue
for the whole year. Fully diluted earnings per share were not
affected to the same extent and were 1.95p (2017: 2.32p).
Research and development
The Group continues to invest in its product offering and during
2018 made a significant investment in its rail products. This
investment totalled GBP1,608,000 (2017: GBP1,290,000) of which
GBP1,444,000 was capitalised (2017: GBP1,043,000). The capitalised
costs relate predominantly to the Group's next generation of
eyeTrain software products which will sit alongside its existing
software portfolio. These new products will support future sales to
the Group's most recent new customers as well as those for all ASDO
systems, retrofitted DCO systems and integrated APC systems. In
addition to eyeTrain, the Group invested to support RTS's software
development roadmap.
Cash and cash flow
Net cash inflows from operating activities for the year were
GBP2,515,000 (2017: GBP539,000).
Net cash outflows from investing activities were GBP3 million
comprising the acquisition of RTS, investment in new product
development and equipment. Net financing inflows were GBP1.3
million of which a net GBP1.1 million concerned the term loan
financing of the RTS acquisition.
At 31 December 2018 the Group's net cash and cash equivalents
were GBP2,117,000 up by GBP793,000 over the year (2017:
GBP1,324,000). The Group also has available to it a GBP0.75 million
2-year revolving credit facility secured in June 2018.
Strategic report (continued)
Brexit
In common with most UK companies, Petards would not be immune to
any potential adverse impact that a disorderly Brexit might have on
the wider economy. However, the Board's current assessment is that
the specific sectors in which the Group operates are not
significantly exposed to particular Brexit risk, although some
impact may be felt in the days immediately following any disorderly
Brexit.
Rail products are the main contributor to Group revenues and
while almost a quarter of the Group's revenues for 2018 were
exported to the EU, the majority related to UK rail projects. The
market sectors to which Petards supplies tend to be highly
regulated and the Group does not anticipate Brexit will change
existing regulations significantly. Like most businesses it can be
affected by any inflationary pressures in the supply chain but
again these are not considered to be specific to the sectors in
which the Group operates. Neither the Group's current order book
nor the orders it expects to receive during 2019 contain
significant foreign currency exposures. The Group has also been
monitoring its major suppliers within its supply chain and they
have indicated that they have taken additional measures, such as
stocking, to ensure continuity of supply.
The UK Long Term Passenger Rolling Stock Strategy for the Rail
Industry published in 2018 continued to express the view that while
Brexit impacts remain unknown, the scenarios covered by the "worst
case" industry modelling already cater for impacts much worse than
the Office of Budgetary Responsibility predictions for Brexit. The
overall long term rolling stock outlook remained unchanged from the
prior year's report and forecasts a national rail fleet increase of
between 40% (5,500 vehicles) and 85% (12,000 vehicles) over the
next 30 years. The investment decisions for new rolling stock
require long term planning and those relating to orders which
Petards expects to receive in the coming year were completed some
time ago.
The Group's other sector exposure, defence and traffic, is also
largely dependent upon UK government expenditure but those for
Petards' products and services are generally subject to shorter
planning cycles. The current indications are that the Group's
forecast revenues take into account any likely adverse impact that
Brexit might have, although Petards may possibly be a beneficiary
of any boost in government spending that may follow Brexit.
Osman Abdullah
Group Chief Executive
Consolidated income statement
for year ended 31 December 2018
Note 2018 2017
GBP000 GBP000
Revenue 4 19,973 15,581
Cost of sales (13,089) (9,566)
Gross profit 6,884 6,015
Administrative expenses (5,728) (4,770)
Adjusted EBITDA* 2,057 1,619
Amortisation of intangibles (590) (547)
Depreciation (209) (162)
Exceptional income 5 - 362
Acquisition costs (77) -
Share based payment charges (25) (27)
----------------------------------------------- ---- -------- -------
Operating profit 1,156 1,245
Financial income (2017 included GBP340,000
exceptional income) 6 3 340
Financial expenses (2017 included GBP211,000
exceptional expense) 6 (33) (380)
Profit before tax 1,126 1,205
Income tax 7 17 32
Profit for the year attributable to
equity shareholders of the parent 1,143 1,237
Earnings per ordinary share (pence)
Basic 11 2.01 3.31
Diluted 11 1.95 2.32
* Earnings before financial income and expenses, tax,
depreciation, amortisation, exceptional items, acquisition costs
and share based payment charges. See Alternative Performance
Measures Glossary at the end of this document.
Consolidated statement of comprehensive income
for year ended 31 December 2018
Note 2018 2017
GBP000 GBP000
Profit for the year 1,143 1,237
Other comprehensive income
Items that may be reclassified to
profit:
Release of foreign currency reserve
on abandonment of US subsidiary 5,
(included in financial expenses) 6 - 211
Total comprehensive income
for the year 1,143 1,448
Statements of changes in equity
for year ended 31 December 2018
Share Share Retained Currency Total
capital premium Equity earnings translation equity
reserve reserve
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 2017 357 68 200 3,768 (211) 4,182
Profit for the year - - - 1,237 - 1,237
Other comprehensive
income - - - - 211 211
Total comprehensive
income for the year - - - 1,237 211 1,448
Equity-settled share
based payments - - - 27 - 27
Conversion of
convertible loan
notes 198 1,383 (169) 142 - 1,554
Exercise of share
options 3 22 (6) - - 19
At 31 December 2017 558 1,473 25 5,174 - 7,230
At 1 January 2018 558 1,473 25 5,174 - 7,230
Adjustment on initial
application of IFRS
15 (net of tax)
* - - - (468) - (468)
Adjusted balance
at
1 January 2018 558 1,473 25 4,706 - 6,762
Profit for the year - - - 1,143 - 1,143
Total comprehensive
income for the year - - - 1,143 - 1,143
Equity-settled share
based payments - - - 25 - 25
Exercise of share
options 17 144 (11) 11 - 161
At 31 December 2018 575 1,617 14 5,885 - 8,091
* The Group has adopted IFRS 15 using the cumulative effect
method, under which the comparative information is not restated
(note 3). The cumulative effect of adopting IFRS 15 is recognised
in equity at the date of first adoption on 1 January 2018.
Consolidated balance sheet
at 31 December 2018
Note
2018 2017
GBP000 GBP000
ASSETS
Non-current assets
Property, plant and equipment 943 825
Intangible assets 4,676 2,488
Investments in subsidiary - -
undertakings
Deferred tax assets 284 344
5,903 3,657
Current assets
Inventories 4,104 3,403
Trade and other receivables 2,553 3,743
Cash and cash equivalents 2,117 1,324
8,774 8,470
Total assets 14,677 12,127
EQUITY AND LIABILITIES
Equity attributable to equity holders
of the parent
Share capital 10 575 558
Share premium 1,617 1,473
Equity reserve 14 25
Currency translation reserve - -
Retained earnings 5,885 5,174
Total equity 8,091 7,230
Non-current liabilities
Interest-bearing loans
and borrowings 9 883 23
Trade and other payables - -
883 23
Current liabilities
Interest-bearing loans
and borrowings 9 265 15
Trade and other payables 5,438 4,859
5,703 4,874
Total liabilities 6,586 4,897
Total equity and liabilities 14,677 12,127
Consolidated statement of cash flows
for year ended 31 December 2018
Note
2018 2017
GBP000 GBP000
Cash flows from operating activities
Profit for the year 1,143 1,237
Adjustments for:
Depreciation 209 162
Amortisation of intangible assets 590 547
Financial income 6 (3) (340)
Financial expenses 6 33 380
Equity settled share-based payment
expenses 25 27
Income tax (credit)/charge 7 (17) (32)
Operating cash flows before
movement in
working capital 1,980 1,981
Change in inventories 1,024 (1,450)
Change in trade and other receivables 1,344 (1,003)
Change in trade and other payables (1,834) 1,057
Cash generated from operations 2,514 585
Interest received 3 -
Interest paid (58) (107)
Tax received 56 61
Net cash from operating activities 2,515 539
Cash flows from investing activities
Acquisition of property, plant
and equipment (325) (509)
Capitalised development expenditure (1,444) (1,043)
Acquisition of subsidiary 8 (1,224) -
Net cash outflow from investing
activities (2,993) (1,552)
Cash flows from financing activities
Bank loan received 9 1,250 -
Bank loan repaid 9 (125)
Finance lease repayments (15) (10)
Proceeds from exercise of share
options 161 25
Net cash inflow from financing
activities 1,271 15
Net increase/(decrease) in cash
and cash equivalents 793 (998)
Total movement in cash and cash equivalents
in the year 793 (998)
Cash and cash equivalents at
1 January 1,324 2,322
Cash and cash equivalents at
31 December 2,117 1,324
Notes
1 Basis of preparation
The financial information set out in this statement has been
prepared in accordance with the recognition and measurement
principles of International Financial Reporting Standards as
adopted by the EU ("adopted IFRSs"), IFRIC interpretations and the
Companies Act 2006 applicable to companies reporting under IFRS. It
does not include all the information required for full annual
accounts.
The financial information does not constitute the Company's
statutory accounts for the years ended 31 December 2018 or 31
December 2017 but is derived from those accounts. Statutory
accounts for 2017 have been delivered to the registrar of companies
and those for 2018 will be delivered in due course. The auditor has
reported on those accounts; his reports (i) were unqualified, (ii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying his report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
2 Changes in significant accounting policies
IFRS 9 Financial instruments (effective 1 January 2018)
IFRS 9 addresses the classification and measurement of financial
assets and liabilities and replaces IAS 39. Among other things, the
standard introduces a forward-looking credit loss impairment model
whereby entities need to consider and recognise impairment triggers
that might occur in the future (an 'expected loss' model). The
Board has considered the impact of the introduction of IFRS 9 and
determined that it does not have a significant impact on the
numbers reported or as previously reported.
IFRS 15 Revenue from contracts with customers (effective 1
January 2018)
IFRS 15 sets out a single and comprehensive framework for
revenue recognition. The guidance in IFRS 15 is considerably more
detailed than previous IFRSs for revenue recognition (IAS 11
Construction Contracts and IAS 18 Revenue and associated
interpretations).
The Group has adopted IFRS 15 retrospectively from 1 January
2018 and has chosen to apply the cumulative effect approach. As a
result, the Group has restated its opening equity position as at 1
January 2018 to reflect the impact of transitioning to IFRS 15. A
summary of the effect of the impact of the adoption of IFRS 15 is
set out at note 3 below.
In line with the requirements of the standard with regards to
the transition option adopted, the Group has not restated its
comparative information which continues to be reported under
previous revenue standards, IAS 11 and IAS 18.
3 Impact of the adoption of IFRS 15
Impact in respect of the position on adoption at 1 January
2018
As reported Reclassification Remeasurement IFRS 15
31 December as adopted
2017 1 January
2018
Balance sheet headings GBP000 GBP000 GBP000 GBP000
Work in progress
within inventories 2,211 - 1,707 3,918
Payments on account
within current trade
and other payables (382) 382 - -
Deferred revenue
within current trade
and other payables - (382) (2,271) (2,653)
Deferred tax assets 344 - 96 440
---------------------------------------- ------------- ----------------- -------------- -------------
As reported
1 January
2018
Retained earnings as previously reported 5,174
Adjustment to earnings from adoption of IFRS 15 -
profit before tax (564)
Adjustment to earnings from adoption of IFRS 15 -
deferred tax 96
Retained earnings on adoption of IFRS 15 - at 1 January
2018 4,706
Impact on the result for the year to 31 December 2018
Result before Impact of Result after
the adoption change the adoption
of IFRS 15 in GAAP of IFRS 15
GBP000 GBP000 GBP000
Consolidated income statement
Revenue 18,198 1,775 19,973
Cost of sales (11,719) (1,370) (13,089)
Gross profit 6,479 405 6,884
Administrative expenses (5,728) - (5,728)
Operating profit 751 405 1,156
Financial income 3 - 3
Financial expense (33) - (33)
Profit before tax 721 405 1,126
Income tax 103 (86) 17
Profit for the year 824 319 1,143
Revenue before the adoption of IFRS 15 were accounted for under
IAS 11 and IAS 18.
An assessment of the impact of IFRS 15 was completed during the
year across the Group's revenue streams, including a comprehensive
review of contracts that were not completed contracts at the date
of initial application.
This review ascertained that under IFRS 15, GBP2,271,000 of
revenue and GBP564,000 of profit recognised in previous accounting
periods up to and including 31 December 2017 would be deferred to
future periods. The effect of this assessment based on the progress
of these contracts during the current year, has been to recognise
revenue of GBP1,961,000 and profit of GBP451,000 in 2018, leaving
revenue of GBP310,000 and profit of GBP113,000 to be recognised in
accounting periods after 31 December 2018.
The impact of IFRS 15 on contracts commencing during the year
and which are incomplete at 31 December 2018 has been to defer
revenue of GBP186,000 and estimated profit of GBP46,000 to future
accounting periods.
4 Segmental information
The analysis by geographic segment below is presented in
accordance with IFRS 8 on the basis of those segments whose
operating results are regularly reviewed by the Board of Directors
(the Chief Operating Decision Maker as defined by IFRS 8) to make
strategic decisions, to monitor performance and allocate
resources.
The Board regularly reviews the Group's performance and balance
sheet position for its entire operations as a whole. The Board
receives financial information, assesses performance and makes
resource allocation decisions for its UK based business as a whole,
therefore the Directors consider the Group to have only one segment
in terms of products and services, being the development, supply
and maintenance of technologies used in advanced security,
surveillance and ruggedized electronic applications.
As the Board of Directors receives revenue, Adjusted EBITDA and
operating profit on the same basis as set out in the consolidated
income statement no further reconciliation or disclosure is
considered necessary.
Revenue by geographical destination can be analysed as
follows:
2018 2017
GBP000 GBP000
United Kingdom 15,285 10,227
Continental Europe 4,250 4,930
Rest of World 438 424
19,973 15,581
The timing of revenue recognition can be analysed as
follows:
2018 2017
GBP000 GBP000
Products and services transferred at a point
in time -IFRS 15 19,058 -
Products and services transferred over time
- IFRS 15 915 -
Products and services - IAS 11 and IAS 18 - 5,921
Construction contract revenue - IAS 11 - 9,660
19,973 15,581
5 Exceptional items
2018 2017
GBP000 GBP000
Exceptional income included in administrative
expenses - 362
Exceptional interest received included in
financial income - 340
Exceptional loss on currency translation reserve - (211)
The 2017 results included two exceptional items. First, the
Group accepted an offer to settle a historic matter, unrelated to
the current trading activities of the Group, which arose over ten
years ago. Under the settlement, on 9 January 2018, the Group
received a total of GBP702,000 in cash comprising an amount of
GBP362,000 plus compensatory interest of GBP340,000.
The second exceptional item was also unrelated to the current
trading activities of the Group. During 2017 the Board decided that
the US subsidiary that had been dormant for several years should be
abandoned, and any future activities that the Group may undertake
in the US would not be conducted through the subsidiary. The
GBP211,000 deficit on the Group's currency translation reserve was
reclassified from equity to income and shown as an expense.
6 Financial income and expenses
2018 2017
GBP000 GBP000
Recognised in profit or loss
Exceptional item - interest receivable on
settlement (note 5) - 340
Interest on bank deposits 1 -
Other exchange gain 2 -
Financial income 3 340
2018 2017
GBP000 GBP000
Interest expense on financial liabilities
at amortised cost 33 133
Exceptional item - foreign exchange loss (note
5) - 211
Other exchange loss - 36
Financial expenses 33 380
7 Taxation
Recognised in the income statement
2018 2018 2017 2017
GBP000 GBP000 GBP000 GBP000
Current tax (credit)/expense
Current tax charge 34 5
Adjustments in respect of
prior years (113) (57)
Total current tax (79) (52)
Deferred tax (credit)/expense
Origination and reversal
of temporary differences 105 5
Derecognition of previously
recognised tax losses 73 -
Recognition of previously
unrecognised tax losses (56) (148)
Utilisation of recognised
tax losses 75 303
Adjustment in respect of
prior years (145) (162)
Effect of differential tax
rate for deferred tax 10 22
Total deferred tax 62 20
Total tax credit in income
statement (17) (32)
7 Taxation (continued)
Reconciliation of effective tax rate
2018 2017
GBP000 GBP000
Profit before tax 1,126 1,205
Tax using the UK corporation tax rate of 19%
(2017: 19.25%) 214 232
Non-deductible expenses 42 81
Non taxable income (21) -
Derecognition of previously recognised tax
losses 73 -
Recognition of previously unrecognised tax
losses (56) (148)
Adjustments in respect of prior years (258) (219)
Effect of differential tax rate for deferred
tax 10 22
Other reconciling items (21) -
Total tax credit (17) (32)
8 Acquisitions
On 11 May 2018, the Group acquired the entire issued share
capital of RTS Solutions (Holdings) Limited which was the sole
shareholder of RTS Solutions (UK) Limited (RTS) for GBP1.8 million,
comprising GBP1.2 million for the business and GBP0.6 million for
surplus cash. This consideration was settled by an initial cash
consideration of GBP1 million, funded by a 5 year bank loan and
GBP547,000 paid from internal cash reserves. Further deferred
consideration of GBP250,000 was paid in June 2018, funded by an
additional drawdown on the 5 year bank loan and a further GBP55,000
was paid in July, funded from cash reserves. The terms of the
acquisition provided for a further amount of up to GBP250,000 to be
payable in the event that the financial performance of RTS for the
year ended 31 March 2019 met certain targets. The fair value of
this element of consideration has been determined to be GBPnil on
the basis that the forecast results were expected to be below the
target amounts.
During the period from acquisition to 31 December 2018, RTS
contributed GBP511,000 of revenue and GBP183,000 of profit to the
Group. Had the results been consolidated from 1 January 2018, Group
revenue would have been GBP20,165,000 and net profit would have
been GBP1,167,000. In determining these amounts, management has
assumed that the fair value adjustments that arose on the date of
acquisition would have been the same if the acquisition occurred on
1 January 2018.
Pre-acquisition carrying amounts were determined based on
applicable IFRSs, immediately prior to the acquisition. The values
of assets and liabilities recognised on acquisition are the
estimated fair values. The goodwill arising on acquisition can be
attributed to a multitude of assets that cannot be readily
separately identified for the purposes of fair value accounting.
None of the goodwill is expected to be deductible for tax
purposes.
The fair value adjustments arise in accordance with the
requirements of IFRSs to recognise intangible assets acquired. In
determining the fair value of intangible assets, the Group has used
discounted cash flow forecasts and these are being amortised over
their estimated useful life.
The Group incurred acquisition related costs of GBP77,000 that
are included within administrative expenses.
8 Acquisition (continued)
The acquisition had the following effect on the Group's assets
and liabilities on the acquisition date:
Provisional
fair values
recognised
on acquisition
GBP000
Net assets acquired
Intangible assets
Technology related assets 407
Customer related assets 146
Property, plant and equipment 2
Inventories 18
Trade and other receivables 131
Cash and cash equivalents 628
Trade and other payables (167)
Deferred tax (94)
Net identified assets and
liabilities 1,071
Goodwill on acquisition 781
Total consideration 1,852
Cash flow
Consideration paid in cash 1,852
Cash and cash equivalents
acquired (628)
Net cash flow 1,224
9 Interest-bearing loans and borrowings
This note provides information about the contractual terms of
the Group's and Company's interest-bearing loans and borrowings,
which are measured at amortised cost.
Group Company
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Non-current liabilities
Bank loan 875 - 875 -
Finance lease liabilities 8 23 - -
883 23 875 -
Current liabilities
Bank loan 250 - 250 -
Current portion of finance
lease liabilities 15 15 - -
265 15 250 -
During the year the Company entered into a term loan facility
of GBP1.25 million repayable by equal quarterly instalments over
60 months. The interest rate is set at LIBOR plus 3.19% and the
loan is secured by a fixed and floating charge over the assets
of the Group.
During the year the Company was also provided a revolving credit
facility of up to GBP750,000 which was undrawn at 31 December
2018. The interest rate on amounts drawn is set at LIBOR plus
3.19% and there is a commitment fee of 1.85% on the undrawn facility.
9 Interest-bearing loans and borrowings (continued)
Changes in liabilities from financing activities
Loans and borrowings Finance lease liabilities
GBP000 GBP000
Balance at 1 January 2018 - 38
New bank loan 1,250 -
Repayment of bank loan (125) -
Payment of finance lease liabilities - (15)
Total changes from financing cash flows 1,125 (15)
Balance at 31 December 2018 1,125 23
10 Share capital
At 31 December At 31 December
2018 2017
Number Number
Number of shares in issue - allotted,
called up and fully paid
Ordinary shares of 1p each 57,468,229 55,768,229
GBP000 GBP000
Value of shares in issue - allotted, called up
and fully paid
Ordinary shares of 1p each 575 558
The Company's issued share capital comprises 57,468,229 ordinary
shares of 1p each, all of which have equal voting rights.
On 22 May 2018 the Company issued 700,000 ordinary 1p shares at
a price of 11.625p each and on 11 June 2018 the Company issued
a further 1,000,000 ordinary 1p shares at a price of 8p each,
on the exercise of options.
11 Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit
for the year attributable to the shareholders by the weighted
average number of shares in issue.
2018 2017
Earnings
Profit for the year (GBP000) 1,143 1,237
Number of shares
Weighted average number of ordinary shares ('000) 56,752 37,418
Basic earnings per share (pence) 2.01 3.31
11 Earnings per share (continued)
Diluted earnings per share
Diluted earnings per share assumes conversion of all potentially
dilutive ordinary shares, which arise from share options, and is
calculated by dividing the adjusted profit for the year
attributable to the shareholders by the assumed weighted average
number of shares in issue. The adjusted profit for 2017 comprised
the profit for the year attributable to the shareholders after
adding back the interest on convertible loan notes amounting to
GBP131,000.
2018 2017
Adjusted earnings
Profit for the year (GBP000) 1,143 1,368
Number of shares
Weighted average number of ordinary shares ('000) 58,627 58,844
Diluted earnings per share (pence) 1.95 2.32
12 Annual Report and Accounts
The Annual Report and Accounts will be sent to shareholders
shortly and will be available to download on the Company's website
www.petards.com.
Alternative Performance Measures Glossary
This report provides alternative performance measures ("APMs"),
which are not defined or specified under the requirements of
International Financial Reporting Standards. The Board believes
that these APMs provide management with useful performance
measurement indicators and readers with important additional
information on the business.
Adjusted EBITDA
Adjusted EBITDA is earnings before financial income and
expenses, tax, depreciation, amortisation, exceptional items,
acquisition costs and share based payment charges. Adjusted EBITDA
is considered useful by the Board since by removing exceptional
items, acquisition costs and share based payments, the year on year
operational performance comparison is more comparable.
Order intake
The value of contractual orders received from customers during
any period for the delivery of performance obligations. This allows
management to monitor the performance of the business.
Order book
The value of contractual orders received from customers yet to
be recognised as revenue. This allows management to monitor the
performance of the business and provides forward visibility of
potential earnings.
Net funds
Total net funds comprises cash and cash equivalents less
interest bearing loans and borrowings. This allows management to
monitor the indebtedness of the Group.
Current net funds
Current net funds comprises cash and cash equivalents less
current liabilities in respect of interest bearing loans and
borrowings. This allows management to monitor the short term
indebtedness of the Group.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR ILMATMBAMBRL
(END) Dow Jones Newswires
April 10, 2019 02:00 ET (06:00 GMT)
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