The Dumfries-based firm made an underlying operating profit of £740,000 in the year to March, down £992,000 (57%) on the £1,732,000 it made in the preceding year.
Sales fell by 30% annually, to £13.1m from £18.6m.
Writing in the accounts for the privately-owned firm, directors underlined the tough trading conditions the business faced in the UK during the year, when the Coalition Government implemented deep cuts in public spending.
They wrote: "The most significant risk for our business is the ongoing economic constraint on Government spending, particularly in the UK."
The directors added: "Given the extremely tight UK business operating environment, we are increasingly focused overseas for opportunities to collaborate with Government, prime contractors and local industry."
Tony Rodgers, commercial director, said the company has achieved encouraging results from a drive to win more business in key overseas markets like the Middle East, Far East and Africa.
The company has won contracts in the Middle East in the current year, which are covered by commercial confidentiality agreements.
Penman is in talks about a significant contract in the Far East that Mr Rodgers said could last for years.
It is focusing attention on areas where its engineering design and development skills would complement local manufacturing and support facilities.
Penman's product range includes armoured trucks and landmine clearance vehicles, cash-in-transit vans and specialist mobile communication units.
Directors reckoned the group delivered a "robust and creditable performance" in the financial year during a global economic slowdown while continuing to invest in developing new products.
"Our Creation UK business is engaged with two major customers in the development of hybrid electric vehicles, a new sector for the group, and we have continued to develop and invest in our unique METRAS military 4X4 vehicle," they wrote.
Mr Rodgers underlined Penman's ambitions to develop a new manufacturing facility in Dumfries that would be suitable for the long term.
The company hopes to win the support of the local council for a plan under which retail outlets would be built on the existing site.
Mr Rodgers noted Penman had made 23 people redundant since March last year to reflect market conditions.
Penman employs around 120 people, mainly in Dumfries.