Pennant International “massive progress being made by the business” (LON:PEN)

Pennant International Group plc (LON:PEN) Chief Executive Officer Phil Walker caught up with DirectorsTalk to discuss the highlights from their trading update, how FY23 is shaping up and the impact the current macro environment in the defence sector will have on the group.

Q1: Phil, just looking at the update, it outlines an improved trading performance for Pennant International, what would you say are the highlights?

A1: It’s a great update for us. As a business, we set ourselves the objectives in 2022 to try and achieve a breakeven performance at £16 million in revenue. I’m afraid to say we failed, instead we have achieved profitability at £14m which is fantastic.

I think the key point to note is that the results demonstrate that the technology and software transformation that we’ve been implementing is now coming though in the performance. EBITA profitability has now been delivered in three consecutive half years which is a big step in the right direction and I’m pleased to say that momentum is definitely building.

I think the other point to note is that coupled with the improved performance, and probably more important is the group’s cash position, the trading update outlines a £3.1 million positive cash swing over the period to £0.4 million of net debt at year end. This was expected but nevertheless it illustrates the massive progress being made by the business.

Q2: How is FY23 shaping up for the group so far?

A2: I would sum it up as being cautiously optimistic. Our strategy around software continues to have a really positive impact with margins, and perhaps they’re improving more quickly than I envisaged. This change in the sales mix coupled with controlled cost base means that the momentum I spoke about a short time ago generated is really continuing through 2023.

This is enhanced by our order book. Our contracted order book announced is nearly 80% of our revenue for the year, this is very encouraging and provides great visibility for FY23.

I would note that probably the last 5 years, the company has managed to secure somewhere in the region of £2-£3 million per annum of ad hoc work in the year. So, with the contracted order book of £13 million plus £2-3 million of ad hoc work being typical, the market expectations looks achievable this year.

Q3: The defence sector, both in the UK and overseas, continues to receive significant press coverage. What impact do you think the current macro environment will have on Pennant International?

A3: It’s a great question. I think the company marks its 65th anniversary and we’ve been operating as a business in the defence sector for almost all of our history. That said, the macro environment clearly is changing and it’s conducive to the group’s capabilities. The increase in the need to manage data, maintain complex equipment, invest in new capabilities aligns neatly with our core capabilities and our strategy.

As a business, we’ve been experiencing significant activity in the UK, probably better than any time when I have been at Pennant, and having just returned from Australia, I can testify to similar activity levels in that market also. I’m off to North America at the end of this month and I know it’s the same there.

So, I’d surmise by saying the backdrop for the company is very positive and we feel well placed to take advantage.

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