Pennant International Group plc (LON:PEN) Chief Executive Officer Phil Walker caught up with DirectorsTalk for an exclusive interview to discuss key financial highlights, the progress of the rail business and the outlook for FY23.
Q1: Pennant International released a trading update on 19th July, what are the key financial highlights?
A1: First and foremost, I’m pleased to report the company reported results in line with expectations so as the year is shaping up, we are more confident of delivering the results that are in the market, which is great news.
For the first half itself, revenues were £7 million which is in a par with the prior year, of which 56% is recurring so continuing to build and maintain that software as a service growth.
The most pleasing thing is the gross margin so we’ve reported a gross margin of 47% for the period which compares favourably with the 41%for the same period last year. That’s definitely a record for the company and the transformation we’ve been making in terms of changing the business mix and the quality of those earnings is really starting to come through, probably quicker than we expected.
So, whilst revenues are flat, costs have been maintained, margin improving so a good story.
In terms of underlying profits, we reported an earnings before tax and amortisation of 0.5 so half a million, that compares favourably with an EBITDA of £100,000 for the same period so on the same revenue, a much better performance. On an EBITDA basis, we’ve delivered EBITDA of 0.8 for the period, the run rate for the year, the target of the year is 1.9 so we’re well on track and that’s almost double what we did last year.
The final point I would like to make is around cash net debt so we saw the net debt improve significantly year on year, we’ve ended the period with about £1.9 million net debt which again when compared to the same period last year, we were about £4.1 million net debt, a £2.2 million improvement.
So, as a whole, a good positive set of results, momentum is building and I’m pleased with the progress we’re making.
Q2: When we last spoke, we talked about Track Access Production and the acquisition of it, how is that progressing now?
A2: We completed the acquisition of Track Access Production in April, I’m pleased to say that the integration is complete. It’s great having the Track Access Production team and their capability as part of our offering which is going down well.
The business itself is delivering revenues in line with what we expected, in fact, they’re probably trading ahead of where we thought they’d be. The combined Pennant Track Access and Track Access Production businesses brought together have had a very good first half, especially turnover.
So, in the first half, the businesses probably outperformed where we thought they’d be, there’s been a number of good joint bids and activity levels are high. As a Pennant Rail offering, that part of the group is now on track to deliver a revenue for the year od about £900,000 and generating operating profit of almost £400,000 for the unit, which is ahead of, like I said, of where we thought we’d be.
So, so far so good, and we hope to continue to bring good news on the rail front.
Q3: We also noted the post-period end contract win that you had. Based on this news and other recent contract wins, how do you see the outlook for Pennant International for FY23?
A3: As I said at the start, I think momentum is with us and we’re on track for the year as a whole. We’ve had a particularly strong end to Q2 so the business has secured £5.52 million worth of contracts in the second quarter which means year to date, we’ve got about £6.5 million of business so that’s a good solid performance.
The order book stood at £27 million at the year end, it now stands at £25 million, it’s slightly down but straight after the year end, as always happens, we won another two contracts, one for services in Australia for AU$1.2 million and another software licence. So, year to date, we won about £7.5 million so the order book is nearer £26 million so pretty much level.
I think the key point to note with the order book is that of that £25/26 million we’ve got contracted, about £8.1 million is scheduled for delivery in the second half of this year. If you add that on top of the revenue generated in the first half, it means that we’re on track for a revenue of about £15.2 million without any contract wins.
So, we’re pretty much 95% plus secured in terms of contracted revenue and the corollary of that is we’re pretty much 95% secured in terms of performance so the year is shaping up well, the outlook for the year is positive and the momentum continues to build in the business.