Final Results
5 November 2013
PipeHawk plc
("PipeHawk" or the "Company")
Final results for the year ended 30 June 2013
Chairman's Statement
I am pleased to be able to report record profits for the PipeHawk group before
the write down in research and development intangible asset which I explain
further below. I am also pleased to say that the trading trends established in
2012-13 have continued into the current financial year.
I can report that turnover for the year ended 30 June 2013 was £5.2m (2012: £3.3m),
an increase of 56 per cent. The Group incurred a loss after taxation for
the year of £1,932,000 (2012: profit £28,000). Loss per share was 5.85p
(2012: profit per share 0.09p).
This result was arrived at after impairing £2,520,000 of research and
development expenditure, which had no cash effect. Accordingly, the Group
achieved an adjusted profit, as adjusted for amortisation and impairment of
intangible fixed asset, in the year ended 30June 2013 of £588,000 (2012: £33,000),
a very creditable performance. Profit per share before amortisation of
research and development expenditure was 1.78p for the year ended 30 June 2013
(2012: 0.09p).
QM Systems
In the period under review, progress at QM Systems has been excellent. As
anticipated, the company has transitioned through a rapid phase of growth with
sales growing by 105% to £3.273m and a very healthy profit being achieved. QM's
highly skilled workforce has significantly increased in size adding further
skills in product handling and conveying systems to an already diverse skill
base. Project sizes have increased with two projects completed with a value
well in excess of £1m each. To accommodate the growth in business QM is
currently expanding its manufacturing and office facilities in its Worcester
facility, this expansion will effectively double manufacturing and office space
available.
The order intake for the beginning of 2013/14 FY has been buoyant with a number
of new client relationships established as well as continued growth with the
existing client base, which it is believed will lead to further growth in
revenue and profit for the current year.
Technology Division
In the period under review, PipeHawk has continued to develop technically and
commercially the e-Safe, e-Spade Lite and e-Spott product families. The e-Safe
product has now been developed to create a family of low cost highly efficient
GPR products for a range of applications. Through the use of two "hot
swappable" antenna's, e-Spade Lite provides a GPR tool that truly caters for
all GPR applications whether shallow or deep targets are to be catered for.
PipeHawk has continued the marketing efforts of these products and most
recently attended the "No Dig" exhibition in Sydney Australia. Interest in the
e-Safe and e-Spade Lite family of products was very good and we have also had
significant interest from the US market.
Under IFRS, it is our practice to capitalise certain relevant expenditure on
our considerable development activities in the expectation of recovering it
against future sales. Your board reviews the carrying value of such expenditure
each year and, this year, we consider that, while we have developed an
excellent set of products which we continue to market, it is appropriate for us
to write off the accumulated cost of their development to date in the sum of £
2,520,000. This has arisen in the year following a reassessment of the group's
financial and human resources allocation to the various business streams,
following the ongoing success of QM Systems as described above. The write off
has no cash effect. We recognise the effect that this has on our balance sheet
but we are confident that the trading prospects of the group's subsidiaries
will rapidly rebuild the strength of the balance sheet in future years. As
stated below, I have renewed my letter of support for the Company in respect of
loans and other amounts due to me amounting to £3.8m.
Adien
Adien enjoyed a very successful year with sales growing by 7% and profits
increasing to £271,000. These results were achieved from the work it was able
to win on large infrastructure projects within both the utilities and transport
sector such as the Nottingham Express Transit phase 2 project. Recent senior
recruitments have added to the company's service offerings in 3d design
information which allows infrastructure planners to find solutions to design
issues right at the start of a project and make efficiency savings that
previously may have resulted in budget overruns towards the end of a project.
The company continues to grow and contribute profitably to the group.
SUMO
SUMO continues to develop and I can report that it has seen good performances
from its previous acquisitions Stratascan Limited and GSB Prospection Limited,
which it purchased in October 2012. These companies now dominate the
geophysical ground probing radar sector made famous last year by the publicity
surrounding their involvement in the discovery of the burial site of Richard
III. Turnover for the year ended 30 June 2013 was £2,934,000 (2012: £2,407,000)
and the operating loss for the year was £130,000 (2012: profit £60,000). Sumo
is accounted for in the group financial statements as a joint venture. The
turnover of SUMO has not been accounted for in the group financial statements
given it is a joint venture.
Related party transactions
In the period under review, I was not called upon to provide working capital
support to the Company which is a further testament to the growing strength of
the Group.
My letter of support dated 22 October 2012 was renewed on 4 November 2013 for a
further year. Loans, other than those covered by the CULS agreement, are
unsecured and accrue interest at an annual rate of Bank of England base rate
plus 2.15 per cent.
The directors, other than myself, consider, having consulted with the Company's
nominated adviser, that the terms of the loans are fair and reasonable insofar
as the Company's shareholders are concerned.
In addition to the loans I have provided to the Company in previous years, my
fellow directors and I have deferred a certain proportion of our fees until the
Company is in a suitably strong position to make the full payments. No further
fees were deferred in the year ended 30 June 2013. At 30 June 2013, these
deferred fees amounted to approximately £825,000 in total, all of which have
been accrued in the Company's accounts.
Strategy & Outlook
The PipeHawk group remains committed to creating sustainable earnings-based
growth and focuses on the expansion of its business with forward-looking
products and services. PipeHawk acts responsibly towards its shareholders,
business partners, employees, society and the environment - in each of its
business areas. PipeHawk is committed to technologies and products that unite
the goals of customer value and sustainable development. In the last year, the
results for the business reflect the efforts put in by management and staff and
therefore I remain optimistic in my outlook for the Group.
Gordon Watt
Chairman
Enquiries:
PipeHawk Plc Tel. No. 01252 338 959
Gordon Watt (Chairman)
Sanlam Securities UK Limited (Nomad and Broker) Tel. No. 020 7628 2200
David Worlidge/Simon Clements
Consolidated Statement of Comprehensive Income for the year ended 30 June 2013
Note 30 June 2013 30 June 2012
£'000 £'000
Revenue 5,224 3,342
Staff costs (2,106) (1,779)
Operating costs (2,367) (1,453)
Operating profit before amortisationand 751 110
impairmentof research and development
expenditure
Amortisation and impairment of research and 5
development expenditure (2,520) (5)
Operating (loss) / profit (1,769) 105
Share of loss in joint venture 6 (35) (17)
(Loss) / profit before interest and (1,804) 88
taxation
Finance costs (162) (158)
(Loss) / profit before taxation (1,966) (70)
Taxation 3 34 98
(Loss) / profit for the year attributable (1,932) 28
to equity holders of the Company*
Other comprehensive income - -
Total comprehensive income for the year net (1,932) 28
of tax attributable to equity holders of
the Company
(Loss)/ profit per share (pence) - basic 4 (5.85) 0.09
(Loss)/ profit per share (pence) - diluted 4 (5.85) 0.06
*Non-GAAP measure - profit for the year
before impairment and amortisation of
research and development expenditure
30 June 2013 30 June 2012
£'000 £'000
(Loss) / profit for the year attributable (1,932) 28
to equity holders of the Company
Adjustment for amortisation and impairment 5
of research and development expenditure 2,520 5
Profit for the year before amortisation and
impairment of research and development 588 33
expenditure
Profit per share (pence) before 4 1.78 0.10
amortisation and impairment of research and
development expenditure - basic
Profit per share (pence) before 4 1.02 0.07
amortisation and impairment of research and
development expenditure - diluted
Consolidated Statement of Financial Position at 30 June 2013
Note 30 June 2013 30 June 2012
Assets £'000 £'000
Non-current assets
Property, plant and equipment 205 196
Goodwill 1,061 1,061
Intangible assets 5 - 2,348
Investment in joint venture 6 58 93
1,324 3,698
Current assets
Inventories 110 149
Current tax assets 47 104
Trade and other receivables 7 1,390 835
Cash and cash equivalents 383 189
1,931 1,277
Total assets 3,254 4,975
Equity and liabilities
Equity
Share capital 330 330
Share premium 5,151 5,151
Retained earnings (7,457) (5,525)
(1,976) (44)
Non-current liabilities
Borrowings 8 2,519 2,729
Trade and other payables 9 1,522 1,394
4,041 4,123
Current liabilities
Trade and other payables 9 1,163 779
Borrowings 10 26 117
1,189 896
Total equity and liabilities 3,254 4,975
Consolidated Statement of Cash Flow for the year ended 30 June 2013
Note 30 June 30 June
2013 2012
£'000 £'000
Cash flows from operating activities
(Loss)/profit from operations (1,769) 105
Adjustments for:
Depreciation 90 73
Impairment of intangible assets 2,520 5
841 183
(Increase)/decrease in inventories 39 48
(Increase)/decrease in receivables (568) 131
Increase/(decrease) in liabilities 356 26
Cash generated by/(used) in operations 11 668 388
Interest paid (6) (6)
Corporation tax received 104 78
Net cash from operating activities 766 460
Cash flows from investing activities
Development costs paid (172) (230)
Purchase of plant and equipment (101) (128)
Sale of plant and equipment 2 -
Net cash used in investing activities (271) (358)
Cash flows from financing activities
New loans and finance leases 59 118
Repayment of loan (314) (125)
Repayment of finance leases (46) (18)
Net cash used in financing activities (301) (25)
Net increase in cash and cash equivalents 194 77
Cash and cash equivalents at beginning of year 189 112
Cash and cash equivalents at end of year 383 189
Statement of Changes in Equity for the year ended 30 June 2013
Share
Share premium Retained
capital account earnings Total
£'000 £'000 £'000 £'000
As at 1 July 2011 330 5,151 (5,553) (72)
Loss for the period - - 28 28
Other comprehensive income - - - -
Total comprehensive income - - 28 28
As 30 June 2012 330 5,151 (5,525) (44)
Loss for the period - - (1,932) (1,932)
Other comprehensive income - - - -
Total comprehensive income - - (1,932) (1,932)
As 30 June 2013 330 5,151 (7,457) (1,976)
Notes to the Final Results for the year end 30 June 2013
1. Basis of preparation
The principal accounting policies adopted in the preparation of the financial
information in this announcement are set out in the Company's full financial
statements for the year ended 30 June 2013 and are consistent with those
adopted in the financial statements for the year ended 30 June 2012.
The financial statements have been prepared in accordance with international
financial reporting standards as adopted by the EU and under the historical
cost convention.
The Group has been generating positive cash flows for the past two years,
although has yet to begin repaying the amounts owed to the Executive Chairman,
GG Watt, whilst revenues have substantially grown. The directors have reviewed
the Group's funding requirements for the next twelve months which show further
anticipated cash flow generation, prior to any repayment of loans from the
Executive Chairman. The directors have furthermore obtained a renewed pledge
from GG Watt to provide ongoing financial support for a period of at least
twelve months from the approval date of the group statement of financial
position. It is on this basis that the directors consider it appropriate to
adopt the going concern basis of preparation within these financial statements.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 June 2012 and 2013, but is derived
from those accounts. Statutory accounts for 2012 have been delivered to the
Registrar of Companies and those for 2013 will be delivered following the
Company's Annual General Meeting. The Auditors have reported on those accounts;
their reports were unqualified and did not contain any statements under
Companies Act 2006 section 498 (2) or (3).
The Auditor's report for the year ended 30 June 2013 contains the following
paragraph:
"Emphasis of matter - Going concern
Without qualifying our opinion we draw attention to the basis of preparation on
going concern in note 1 to the financial statements. This explains that a
material uncertainty exists regarding the group's ability to continue as a
going concern without the support of the Executive Chairman. The financial
statements do not include any adjustments that would result if the group was
unable to continue as a going concern."
2. Segmental analysis
2013 2012
£'000 £'000
Turnover by geographical market
United Kingdom 5,137 3,249
Europe 52 -
Other 35 93
5,224 3,342
The group operates out of one geographical location being the UK. Accordingly
the primary segmental disclosure is based on activity. Per IFRS 8 operating
segments are based on internal reports about components of the group, which are
regularly reviewed and used by Chief Operating Decision Maker ("CODM") for
strategic decision making and resource allocation, in order to allocate
resources to the segment and to assess its performance. The Group's reportable
operating segments are as follows:
* Utility detection and mapping services
* Development, assembly and sale of GPR equipment
* Test system solutions
The CODM monitors the operating results of each segment for the purpose of
performance assessments and making decisions on resource allocation.
Performance is based on external and internal revenue generations and profit
before tax, which the CODM believes are the most relevant in evaluating the
results relative to other entities in the industry. Segment assets and
liabilities are presented inclusive of inter segment balances, as inter-segment
pricing.
In utility detection and mapping services one customer accounted for 35% of
revenue in 2013. In development, assembly and sale of GPR equipment one
customer accounted for 27% of revenue in 2013. In automation and test system
solutions two customers accounted for more than 10% of revenue and in aggregate
these two customers represented 70% of segment revenue (2012: 0%).
Information regarding each of the operations of each reportable segments is
included below.
Utility Development, Test system Total
detection assembly and solutions
and mapping sale of GPR
services equipment
£'000 £'000 £'000 £'000
Year ended 30 June 2013
Total segmental revenue 1,780 171 3,273 5,224
Segmental result 271 (2,471) 431 (1,769)
Finance costs (6) (156) - (162)
Share of operating loss (35)
in joint venture
Loss before taxation (1,966)
Segment assets 882 694 1,679 3,255
Segment liabilities 584 3,476 1,170 5,230
Depreciation and 62 2,345 203 2,610
amortisation
Utility Development, Test system Total
detection assembly and solutions
and mapping sale of GPR
services equipment
Year ended 30 June 2012
Total segmental revenue 1,524 221 1,597 3,342
Segmental result 76 (7) 36 105
Finance costs (158)
Share of operating (17)
loss in joint venture
(Loss) before taxation (70)
Segment assets 1,020 2,837 1,118 4,975
Segment liabilities 987 2,428 1,048 4,463
Depreciation and 49 2 33 84
amortisation
The majority of the Group's revenue is earned via the rendering of services.
3. Taxation
2013 2012
£'000 £'000
United Kingdom Corporation Tax
Current taxation (20) (106)
Adjustments in respect of prior years (14) 8
(34) (98)
Deferred taxation - -
Tax on loss (34) (98)
Current tax reconciliation 2013 2012
£'000 £'000
Taxable (loss) / profit for the year (1,966) (70)
Theoretical tax at UK corporation tax (459) (18)
rate 23.75% (2012: 26%)
Effects of:
- R&D tax credit adjustments (142) (164)
- other expenditure that is not tax 2 11
deductible
- adjustments in respect of prior years -
- accelerated capital allowances 40 (71)
- losses carried forward 572 92
- short term timing differences 21 52
Total income tax expense (34) (98)
The Group has tax losses amounting to approximately £1,720,000 (2012: £
1,800,000), available for carry forward to set off against future trading
profits.
4. Profit/(loss) per share
Basic
This has been calculated on a loss of £1,932,000 (2012: profit £28,000) and the
number of shares used was 33,020,515 (2012: 33,020,515) being the weighted
average number of shares in issue during the year.
Diluted
This has been calculated on a loss of £1,932,000 (2012: profit £28,000) and the
number of shares used was 33,020,515 (2012: 48,114,301) being the diluted
weighted average number of shares in issue during the year. As the Group has
reported a loss for 2013, the effect of the share options and other instruments
are anti-dilutive and are not included.
Adjusted profit per share before amortisation and impairment development costs
The non-GAAP measure has been calculated by adding back the amortisation and
impairment of development costs of £2,520,000 (2012: £5,000) to the loss of £
1,932,000 (2012: profit £28,000). The profit before amortisation and impairment
of development costs is £588,000 (2012: £33,000).
Basic
The number of shares used was 33,020,515 (2012: 33,020,515) being the weighted
average number of shares in issue during the year.
Diluted
The number of shares used was 57,776,229 (2012: 48,114,301) being the diluted
weighted average number of shares in issue during the year.
5. Intangible assets
Development costs Trade marks Total
£'000 £'000 £'000
Cost:
At 1 July 2012 2,397 7 2,404
Additions 172 - 172
At 30 June 2013 2,569 7 2,576
Amortisation
At 1 July 2012 49 7 56
Charge for the year 2,520 - 2,520
At 30 June 2013 2,569 7 2,576
Net book value
At 30 June 2013 - - -
At 30 June 2012 2,348 - 2,348
Development costs Trade marks Total
£'000 £'000 £'000
Cost:
At 1 July 2011 2,167 7 2,174
Additions 230 - 230
At 30 June 2012 2,397 7 2,404
Amortisation
At 1 July 2011 44 7 51
Charge for the year 5 - 5
At 30 June 2012 49 7 56
Net book value
At 30 June 2012 2,348 - 2,348
At 30 June 2011 2,123 - 2,123
At 1 July 2012, the carrying value of the intangible development costs
recognised in the group statement of financial position of £2,348,000 relate to
Pipehawk Plc and QM Systems Limited and stand at £2,171,000 and £177,000
respectively. These arose on specific projects involving the development of
ground probing radar equipment and software, a lightning strike protection
solution and bespoke loop testers for the aerospace sector. Further costs of £
172,000 were incurred during the year to 30 June 2013.
Following the continued success of QM Systems and Adien, the Group has
refocused its financial and human resource towards the more immediately
profitable business streams. Due to this, the group has re-assessed the
carrying value of these specific projects and assets and whilst the group
continues to market the products to which these costs relate, it has been
considered appropriate to impair these costs.
In making this assessment, the group have considered the value in use of these
specific projects based on financial budgets prepared by the directors. The key
assumptions used are those regarding the discount rates, growth rates and
expected to change to sales and direct costs during the period. The discount
rate applied to projections was estimated at 9 or 10% per annum, reflecting the
prevailing pre tax cost of capital in the group.
The budgets show a significant decreased demand related to these projects to
that previously presented in the prior years and based upon actual 2013
activities and those forecast going forward. As a result the group has
recognised an impairment charge of £2,520,000 against development costs which
is included within the statement of comprehensive income.
6. Investment in Joint Venture
Investment in
shares
£'000
Cost:
At 1 July 2012 & 30 June 2013 198
Share of losses
At 1 July 2012 105
Share of losses for the year 35
At 30 June 2013 140
Net investment
At 30 June 2013 58
At 30 June 2012 93
Investment in
shares
£'000
Cost:
At 1 July 2011 & 30 June 2012 198
Share of losses
At 1 July 2011 88
Share of losses for the year 17
At 30 June 2012 105
Net investment
At 30 June 2012 93
At 30 June 2011 110
The investment in joint venture relates to a 28.4% shareholding in the ordinary
share capital of SUMO Limited. SUMO Limited is engaged in the development of a
GPR franchise operation and has a year end of 31 December. For the purpose of
preparing this consolidation, financial information has been prepared for the
year ended 30 June 2013. SUMO Limited's principal place of business is Havant,
Hampshire.
Summarised financial information in respect of the Group's joint venture is set
out below:
30/06/13 30/06/12
£'000 £'000
Total assets 2,791 2,156
Total liabilities 2,587 1,836
Net assets 204 320
Group's share of net assets of joint venture 58 93
Year ended Year ended
30/6/13 30/6/12
Total revenue 2,934 2,118
Total loss for the period (130) (60)
Group's share of loss of joint venture (35) (17)
7. Trade and other receivables
2013 2012
£'000 £'000
Current
Trade receivables 1,340 800
Other receivables 8 8
Prepayments and accrued income 42 27
1,390 835
8. Non-current liabilities: Borrowings
2013 2012
£'000 £'000
Borrowings (note 10) 2,545 2,846
9. Trade and other payables
2013 2012
Current £'000 £'000
Trade payables 607 352
Other taxation and social security 186 201
Payments received on account - 101
Accruals 370 125
1,163 779
2013 2012
Non-current £'000 £'000
Trade payables 209 209
Accruals 1,313 1,185
1,522 1,394
Included within the above amounts are the following amounts owing to directors,
principally in non-current liabilities, which incur no interest charge;
2013 2012
G G Watt £1,306,520 £1,136,176
R G Tallentire £172,329 £213,771
R R MacDonnell £19,000 £19,000
The directors have undertaken not to call upon these amounts until the Group is
in a position to generate sufficient operating cashflows.
10. Borrowing Analysis
2013 2012
£'000 £'000
Due within one year
Bank loans - 97
Obligations under finance lease agreements 26 20
26 117
Due after more than one year
Obligations under finance lease agreement 34 27
Directors' loans 2,485 2,702
2,519 2,729
Repayable
Due within 1 year 26 117
Over 1 year but less than 2 years 2,504 2,717
Over 2 years but less than 5 years 15 12
2,545 2,846
Bank loans comprises a loan from Aldermore Bank PLC which is a confidential
invoice finance facility at a rate of 3.5% over base rate.
Finance lease agreements with Close Motor Finance are at a rate of 4.5% over
base rate. The future minimum lease payments under finance lease agreements at
the year end date was
£59,582 (2012: £47,540)
The director's loan due in more than one year is a loan of £2,485,000 from G G
Watt. Directors' loans attract interest at 2.15% over Bank of England base
rate.
On 13th August 2010 the Company issued £1 million of Convertible Unsecured Loan
Stock 2014 ("CULS") to G G Watt, the Chairman of the Company. The CULS have
been issued to replace loans made by G G Watt to the Company amounting to £1
million.
The principal terms of the CULS are as follows:
- The CULS may be converted at the option of Gordon Watt at a price of 7p per
share at any time prior to 11 August 2014;
- Interest is payable at a rate of 10 per cent per annum on the principal
amount outstanding until converted, prepaid or repaid, calculated and
compounded on each anniversary of the issue of the CULS. On conversion of any
CULS, any unpaid interest shall be paid within 20 days of such conversion;
- The CULS are repayable, together with accrued interest on 11 August 2014
("the Repayment Date");
- The Company has the option, after 1 year to repay the CULS before the
Repayment Date, subject to the Company providing 10 days' notice.
11. Dividends
The directors do not recommend the payment of a dividend (2012: Nil).
12. Copies of the Report and Accounts
Copies of the Report and Accounts will be posted to shareholders shortly, and
will be available from the Company's registered office, Manor Park Industrial
Estate, Wyndham Street, Aldershot, Hampshire GU12 4NZ and from the Company's
website www.pipehawk.com.
Wednesday, 15th May 2024
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