Final Results
17 November 2008
PipeHawk Plc
("PipeHawk" or "the Company")
Final results for the year ended 30 June 2008
Chairman's Statement
This year has been challenging, involving change and transition to the
Company's operating businesses. The mutual trust and commitment that both the
management and the Group's employees have shown has put the Company in a solid
position for moving forward
I can report the turnover for the year ended 30 June 2008 was £2,411,000 (2007:
£3,607,000, both restated for IFRS which excludes SUMO turnover), which is a
decrease of 33 per cent. on the previous year. The Company achieved a loss
after taxation for the year of £327,000 (2007: £109,000 profit). This result
reflects the loss of the largest customer of QM Systems, GE Aviation. Sales to
this customer in the year ended 30 June 2008 fell by £1,273,000 compared to the
previous year.
The Company's GPR services in Adien and SUMO have capitalised on the
investments made to date and have, in the Board's opinion, positioned
themselves as the professional leaders in the field of GPR based surveying.
They are now, largely, bucking the trend of the wider economy that appears to
be in a deep recession. Many of our principal competitors are reducing their
head count whilst our GPR services continue to grow.
QM Systems has taken longer than the Board would have liked to find an
appropriate high calibre managing director to drive the business forward
following the loss of its largest customer. The Board was pleased to appoint
Nick Field as managing director of QM Systems on 1 September 2008.
PipeHawk continues to contribute to Government sponsored initiatives (VISTA and
Mapping the Underworld programmes), which consider the issues surrounding the
mapping and cataloguing of buried utility services as well as the European GPR
trade association.
Fortunately the firm foundations which the Company established in 2007 have
enabled the Company to withstand a difficult period of economic uncertainty and
to emerge positively. The trading performances of the Company's four major
business areas are summarised below.
Adien
Adien, PipeHawk's high definition underground mapping and planning service,
has, in a tightening market where its competitors are contracting, had another
excellent year with a 13 per cent. increase in sales orders received during the
year. It is particularly pleasing to note that some of these orders were for
projects that are expected to run on into 2009 under either formal framework
agreements or long-term contracts. These clients and their projects seem,
currently, to be relatively unaffected by the economic downturn.
Adien's client base continues to develop to include preferred supplier status
with organisations such as Crossrail, Tube Lines, The Environment Agency and
Carillion plc.
Adien formally opened a Scottish office in Livingston in June 2008 and it is
already making a positive contribution. Clients in England are pleased that
they have local contacts that they can rely upon in Scotland.
The Company's vacuum excavation service has been of great interest to Adien's
clients during the year and has enabled Adien to provide a "one-stop shop"
service to clients.
Adien remains confident that its offering of a high quality responsive service
to readily meet the differing requirements of increasingly sophisticated
clients puts it in a strong position for the future.
SUMO
SUMO has continued its turnover growth during 2008. Turnover was £3,030,000
(2007: 2,402,000) and operating profit was £177,000 (2007: £197,000).
The Topographic Surveying Franchise was launched during the second half of
2007. The Franchise model had been successfully proven and provided an
opportunity for surveyors to significantly increase their income. However, the
initiative was adversely affected by an industry-wide shortage of surveyors.
The Company was not able to attract sufficient qualified surveyors to ensure
the viability of the programme roll out across the UK. Consequently, the
programme has been put on hold.
SUMO implemented a review of the market with the objective of identifying
strategically located surveying companies, which could bring additional
services to complement SUMO's core business of utility mapping.
The first acquisition was completed in March 2008 with the purchase of Team
Surveys Limited ("Team"), which is one of the largest surveying companies in
the south west of England. The combined turnover of Team and SUMO based on
historical financial information will be in the region of £4,000,000.
The Team acquisition was funded by the issue of new shares in SUMO to certain
of SUMO's existing shareholders and to new private investors. Following the
acquisition and fundraising the Company now holds approximately 30 per cent.
(previously 36 per cent.) of the issued share capital of SUMO.
SUMO continues to investigate acquisition opportunities and hopes to be able to
conclude further transactions in 2008/9.
Technology Division
The Technology Division has continued the development of its third generation
of GPR technology known as PipeHawk Mk3. The first product emerging from this
development is branded the e-Spade. It was formally launched at GPR2008 in
Birmingham on 17 June 2008. This is the world bi-annual forum for GPR
technology and was co-chaired by PipeHawk's Technical Director, Dr Richard
Chignell. The Board believes that the new technology provides PipeHawk with a
new and highly innovative technology platform that will allow a series of other
products to be rapidly introduced. The second product, the e-Spect, was
launched at the `No-Dig' exhibition in Coventry on 23 September 2008. This is a
GPR-based wall and floor scanner which detects features such as voids and
reinforced steel in concrete.
The approval process for the €8 million EU MineHawk grant is progressing
despite political and financial disruption in both Tanzania and Kenya who are
part of the grant approval process. Much of the software platform written for
the e-Spade will be common to that upon which the MineHawk will be built, and
consequently the Company will be well placed once the MineHawk project receives
approval.
QM Systems
QM Systems has faced a difficult and challenging year following the loss of its
main customer. Consequently, the business strategy has been re-focused to offer
a more diverse range of products and services across a far wider customer base.
In addition to QM's core test solutions business, it has extended the services
it offers to include assembly and automation solutions for a wide range of
applications and industries. It has recently won several new orders in the
automotive and aerospace market and the order book currently stands at its
largest level for over 12 months. The directors are encouraged by the early
signs of a far more rounded and stable business moving forward.
The development of a lightning strike protection test unit earlier this year
has been well received by the market and orders are steadily increasing.
On 1 September 2008, QM Systems appointed a new managing director, Nick Field,
to drive the business forward. Nick brings with him great experience of working
in the automotive and related arenas and has previously successfully managed
and expanded a business similar to QM Systems.
QM Systems' legal action against GE Aviation for breach of contract and IPR
continues on a contingent basis. Further announcements will be made in due
course.
QM Systems is now well placed to continue a much more diverse growth over the
coming year and in the short to medium term. The Board are excited by the
prospects that exist for this business.
Related party transactions
In the period under review, as in previous years, I have undertaken to provide
working capital to the Company. During the year ended 30 June 2008 I advanced
loans to the Company of £300,000, in aggregate. In addition, since 30 June 2008
I have advanced further loans of £190,000 to the Company. The loans have been
made in accordance with a letter of support dated 11 November 2007. The letter
of support was renewed on 13 November 2008 for a further year. The loans are
unsecured and accrue interest at an annual rate of 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 during the period and
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. These deferred fees amount to approximately £125,000 in the year
ended 30 June 2008 and approximately £277,000 in total, all of which have been
accrued in the Company's accounts.
Strategy & Outlook
As indicated above it has been a very difficult year but the Board believes
that PipeHawk is emerging as a stronger and more focused group. Current trading
indicates that the worst may be behind us, the Board considers that the
Company's working capital position is sufficient for its immediate requirements
as the Company's directors continue to provide support in the form of unsecured
loans on normal commercial terms and fee deferral.
The Company's employees have risen to the challenge and I trust them to
continue taking the Company forward into real success and profitability.
Gordon Watt
Chairman
17 November 2008
Consolidated Income Statement
For the year ended 30 June 2008
Note Year ended Year ended
30 June 2008 30 June 2007
£'000 £'000
Revenue 2,411 3,606
Staff costs (1,436) (1,811)
General administrative expenses (1,391) (1,765)
Operating (loss)/profit (416) 30
Share of operating profit in joint 66 71
venture
(Loss)/Profit on ordinary activities (350) 101
before interest and taxation
Finance costs (88) (78)
(Loss)/Profit before taxation (438) 23
Taxation 111 86
(Loss)/Profit for the year (327) 109
attributable to equity holders of
the Company
(Loss)/Earnings per share (pence) - 3 (1.21) 0.41
basic
(Loss)/Earnings per share (pence) - 3 (1.00) 0.32
diluted
There are no recognised gains or losses other than those reported above.
The group's results for the periods above are entirely from continuing
operations.
Consolidated Balance Sheet
at 30 June 2008
Note 30 June 30 June
2008 2007
Assets £'000 £'000
Non-current assets
Property, plant and equipment 231 287
Goodwill 1,061 1,061
Intangible assets 1,025 438
Investment in joint venture 152 86
2,469 1,872
Current assets
Inventories 268 279
Current tax assets 106 80
Trade and other receivables 742 661
1,116 1,020
Total Assets 3,585 2,892
Equity and liabilities
Equity
Share capital 269 269
Share premium 4,842 4,842
Other reserves (4,553) (4,226)
558 885
Non-current liabilities
Borrowings 4 705 563
705 563
Current liabilities
Trade and other payables 5 1,959 1,411
Bank overdrafts 363 33
2,322 1,444
Total equity and liabilities 3,585 2,892
Consolidated Cash Flow Statement
For the year ended 30 June 2008
Year ended Year ended
30 June 30 June
2008 2007
£'000 £'000
Cash flows from operating activities
(Loss)/Profit from operations (416) 30
Adjustments for:
Depreciation 134 165
Impairment of goodwill - 60
(282) 255
Decrease in inventories 11 478
(Increase)/Decrease in receivables (107) 228
Increase/(Decrease) in liabilities 265 (436)
Cash (used in)/generated from (113) 525
operations
Interest received - 3
Interest paid (88) (81)
Corporation tax received 111 86
Net cash (used in)/from operating (90) 533
activities
Cash flows from investing activities
Development costs paid (587) (438)
Purchase of plant and equipment (78) (37)
Sale of plant and equipment - 2
Net cash used in investing activities (665) (473)
Cash flows from financing activities
Issue of ordinary shares less - 29
expenses
New loans and finance leases 540 29
Repayment of bank loan (40) (80)
Repayment of finance leases (75) (34)
Net cash generated from/(used) in 425 (56)
financing activities
Net (decrease)/increase in cash and (330) 4
cash equivalents
Cash and cash equivalents at (33) (37)
beginning of period
Cash and cash equivalents at end of (363) (33)
period
Statement of Changes in Equity
For the year ended 30 June 2008
Consolidated Share Share Retained Total
capital premium earnings
account
£'000 £'000 £'000 £'000
At 1 July 2006 267 4,815 (4,335) 747
Profit for the period - - 109 109
Shares issued 2 27 - 29
At 30 June 2007 269 4,842 (4,226) 885
As at 1 July 2007 269 4,842 (4,226) 885
Loss for the period - - (327) (327)
As at 30 June 2008 269 4,842 (4,553) 558
1. Accounting Policies
Publication of non-statutory accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The consolidated balance sheet at 30 June 2008, and the consolidated profit and
loss account, consolidated cash flow statement and associated notes for the
period then ended have been extracted from the Group's financial statements.
Those financial statements have not yet been delivered to the Registrar of
Companies.
Going concern
The Group continues to develop its range of products and source new buyers and
is optimistic about the positive market reaction to these new products and the
award of significant new contracts within the near future. However at the
balance sheet date the group has net current liabilities of £1,206,000. The
directors have reviewed the group's funding requirements and the Executive
Chairman, G G Watt, has pledged to provide ongoing financial support for a
period of at least twelve months from the approval date of the group balance
sheet. It is on this basis that the directors consider it appropriate to adopt
the going concern basis of preparation within these financial statements.
2. Taxation
2008 2007
£'000 £'000
United Kingdom Corporation Tax
Current taxation (110) (80)
Adjustments in respect of prior years (1) (6)
(111) (86)
Deferred taxation - -
Tax on loss on ordinary activities (111) (86)
Current tax reconciliation 2008 2007
£'000 £'000
(Loss)/Profit on ordinary activities (438) 23
before taxation
Theoretical tax at UK corporation tax (129) 7
rate 29.5 per cent. (2007: 30 per cent.)
Effects of: 2 -
- rate change - (8)
- losses brought forward
- timing differences - trade intangibles (164) (131)
- R&D tax credit adjustments (7) 16
- other expenditure that is not tax (20) 1
deductible
- adjustments in respect of prior years (1) (6)
- accelerated capital allowances 62 19
- losses carried forward 132 19
- short term timing differences 14 (3)
Actual current taxation charge (111) (86)
The Group has tax losses amounting to approximately £1,349,000 (2007: £
877,000), available for carry forward to set off against future trading
profits.
3. (Loss)/Profit per Share
This has been calculated on a loss of £327,000 (2007: profit £109,000) and the
number of shares used was 26,937,181 (2007: 26,917,330) being the weighted
average number of shares in issue during the year. For the fully diluted
calculations the number of shares used for the calculation was 32,563,878.
4. Non-current liabilities: Borrowings
2008 2007
£'000 £'000
Borrowings (note 6) 705 563
5. Current liabilities: Trade and other payables
2008 2007
£'000 £'000
Borrowings (note 6) 455 178
Trade payables 490 432
Other taxation and social security 426 429
Other payables - 13
Payments received on account 56 13
Accruals 532 346
1,959 1,411
6. Borrowing Analysis
2008 2007
£'000 £'000
Due within one year
Bank loans 37 37
Directors' loans 367 73
Obligations under finance lease 51 68
agreements
455 178
Due after more than one year
Bank loans 189 -
Obligations under finance lease 16 63
agreements
Directors' loans 500 500
705 563
Repayable
Due within 1 year 455 178
Over 1 year but less than 2 years 576 547
Over 2 years but less than 5 years 129 16
1,160 741
Bank loans include loans from Barclays £200,000 (2007: £36,896) and the Bank of
Scotland £26,000 (2007: nil).
The Barclays loan is at a rate of 3 per cent. over base rate and is repayable
in monthly instalments, the final payment being made in January 2011. A
debenture has been provided by the company to Barclays with regard to this
loan, together with a cross guarantee and debenture with Adien Limited and QM
Systems Limited. G G Watt has provided a guarantee to Barclays in respect of
this loan as well.
The loan with Bank of Scotland is at a rate of 14.1 per cent. and is repayable
in monthly instalments, the final instalment being in April 2011. The loan is
secured over various plant and equipment.
The finance lease agreements are with Barclays Asset Finance Limited at a rate
of 4.5 per cent. over base rate. The future minimum lease payments under
finance lease agreements at the balance sheet date was £67,697 (2007 £125,451)
Director's loan from G G Watt of £500,000 falls due for repayment in December
2009. Directors' loans attract interest at 2.15 per cent. over Bank of England
base rate.
7. Reconciliation of Operating Profit/(Loss) to Net Cash flow from Operating
Activities
2008 2007
£'000 £'000
Operating (loss)/profit (416) 30
Amortisation of intangible assets - 60
Depreciation of tangible fixed 134 164
assets
Working capital movements
Inventories 11 478
Receivables (107) 228
Payables 265 (435)
Net cash (outflow)/inflow from (113) 525
operating activities
8. Reconciliation of Net Cash Flow to Movement of Net Debt
2008 2007
£'000 £'000
(Decrease)/Increase in cash (330) 4
(Decrease)/Increase in debt and finance (414) 85
lease agreements
Decrease/(Increase) in net debt (744) 89
from cash flows
New finance leases (11) (63)
(Increase)/Reduction in net debt (755) 26
Opening net debt (768) (794)
Closing net debt (1,523) (768)
9. Analysis of Changes in Net Debt
1 July Cashflow 30 June
2007 2008
£'000 £'000 £'000
Cash at bank and in hand - - -
Bank overdraft (33) (330) (363)
Cash (33) (330) (363)
Bank Loans (37) (189) (226)
Director's loans (567) (300) (867)
Finance leases (131) 64 (67)
Borrowings (735) (425) (1,160)
Net debt (768) (755) (1,523)
10. Related Party Transactions
Directors' loan disclosures are given in note 19. The interest payable to
directors in respect of their loans during the year was:
G G Watt £43,912 (2007: £35,938)
R G Tallentire £7,148 (2007: £5.910)
During the year ended 30 June 2008, there were the following transactions with
SUMO Limited and SUMO Services Limited, a subsidiary of the joint venture
company SUMO Limited.
£
Sales 8,659
As at 30 June 2008, there was an amount of £986 (2007: £986) due from SUMO
Limited and £6,631 (2007: £34,511) from SUMO Services Limited.
The bank loans and overdraft are secured by way of a cross guarantee bank
facility across the group.
There is no ultimate controlling party of PipeHawk plc.
11. Dividend
The Directors are not proposing the payment of a dividend in respect of the
year ended 30 June, 2008.
12. Report and Accounts
Copies of the Report and Accounts will be sent to shareholders in due course
and will be available from the Company's registered office, Systems House, Mill
Lane, Alton, Hampshire, GU34 2QG and the Company's website www.pipehawk.com.
Further Enquiries:
PipeHawk Plc
Gordon Watt, Chairman Tel: 01420 590990
John East & Partners Limited
Simon Clements/David Worlidge Tel: 020 7628 2200
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