Final Results
14 November 2014
PipeHawk plc
("PipeHawk" or the "Company")
Final results for the year ended 30 June 2014
Chairman's Statement
I can report that turnover for the year ended 30 June 2014 was £5.1m (2013: £
5.2m). The Group incurred a loss after taxation for the year of £523,000 (2013:
loss £1,932,000 after writing off £2.5m of development expenditure). The loss
per share was 1.55p (2013: loss per share 5.85p). These are disappointing
results and do not reflect the true progress of the group in the last 12
months.
QM Systems
At QM Systems, trading has been steady with growth in revenue of approximately
10%. In order to provide a sustainable platform for substantial growth over the
coming years significant investment has been made both in terms of
infrastructure and resources. Key management personnel have been recruited into
the roles of sales, project leadership, manufacturing and logistics. In
addition the manufacturing facilities in Worcester have been expanded 150% with
the addition of a new manufacturing hall, state of the art clean laboratory
housing 10 engineers and a new electronics and software office providing a 12
desk expansion for our office based staff. This investment in staff and
facilities provides QM with the resource to continue its growth during the
coming period targeting significant growth in revenue combined with a return to
healthy profit following this substantial development.
QM Systems has expanded into a number of new industries with several new
clients. A considerable effort has been invested to develop new relationships
with full intention that this will reap rewards for future trading. It is
important to understand that with entry into new markets and the establishment
of new clients to our client base our focus has been to put client satisfaction
as our primary objective, this in turn means that while we push to establish
strong new relationships in new markets our profitability is reduced, this is
evident in the small loss reported in the accounts.
A decision was made by one of our key clients to locate a production line,
originally intended for UK installation, into India. This has resulted in a
number of our staff spending significant time in India. Whilst we have
recovered our costs, profitability on this extended work package has been
significantly reduced. However, this project has provided QM with an
opportunity to clearly demonstrate that it can operate in a global market.
QM Systems enters the next period having now successfully completed a number of
substantial contracts (£1.5M+) and with excellent management and technical
teams that will be instrumental in driving its business forward to new levels.
We are all very excited by what the future will hold during the coming months.
Technology Division
In the period under review, PipeHawk has continued to develop both technically
and commercially the e-Safe, e-Spade Lite and e-Spott product families. The
e-Safe and e-Spade Lite products were released for production in February 2014
and a programme to build the first 50 units to facilitate market growth was
undertaken. During the first two months of sales in FY 2015, 24 units have been
sold to end customers. A number of these units have been sold to our
distribution partner supporting the Australian and New Zealand markets. Other
units have been sold initially as trial units to major direct clients in the UK
and Europe where we believe significant sales volume will be achieved on
completion of successful evaluation.
Whilst the market today can access tools that can detect metallic utilities
underground, the current development of e-Safe over a number of years has
culminated in the creation of an avoidance tool that is at the forefront of the
market. The product is based on ground probing radar ("GPR") technology, but
does not require the normal skills associated with interpreting GPR information
feedback. The product has be designed to provide a very simple to use, yet
truly capable and accurate machine that can identify the position of
non-metallic as well as metallic utilities underground, unlike most of its
competitors.
Our focus in development over the coming period now shifts to continued
development of the extended e-Spade platform and other GPR applications that
will provide additional market opportunities in utilities detection. Our
commercial focus continues to be on the promotion and sales of the e-Safe and
e-Spade Lite platforms through promotion within larger utilities organisations,
local authorities, primary contractors and the continued development of the
distribution network. Our focus in operations is to continue development of an
upscaleable production platform from which we can manufacture e-Safe and
e-Spade Lite products cost effectively in significant volume.
Adien
Adien traded in tough conditions during the year but maintained a profitable
position despite a number of larger projects being deferred until 2014-15.
Adien have added a number of new services to their portfolio during the year
through the purchase of specialist equipment and look forward to growth and
profitability in the future.
SUMO
SUMO's strong presence in the geophysical ground probing radar sector continues
to drive their growth and profitability. Turnover for the year ended 30 June
2014 was £4,256,000 (2013: £2,934,000) and the operating profit for the year
was £100,000 (2013: loss £130,000). Sumo is accounted for in the group
financial statements as a joint venture - for this reason the turnover of SUMO
has not been accounted for in the group financial statements.
Related party transactions
In the period under review, I was not called upon to provide working capital
support to the Company.
My letter of support dated 5th November 2013 was renewed on 13 November 2014
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.
Under an agreement dated 13 August 2010, the Company issued me with £1 million
of Convertible Unsecured Loan Stock 2014 to replace loans made by me to the
value of £1 million ("the CULS Agreement"). Under the terms of the CULS
Agreement, the CULS were repayable on 13 August 2014. On 13 November 2014, the
Company and I entered into letter of amendment to the CULS Agreement to extend
the repayment date to 13 November 2018 and to change the conversion price from
7p to 5p per share. The CULS may be converted by me at any time prior to 13
November 2018. Interest remains 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 directors, other than myself, consider, having consulted with the Company's
nominated adviser, that the terms of the letter of amendment 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 and the
interest due to us 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
2014. At 30 June 2014, these deferred fees and interest amounted to
approximately £1.43 million 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 focusing 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. 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 Tel. No. 020 7628 2200
Broker)
David Worlidge/Simon Clements
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2014
Note 30 June 2014 30 June 2013
£'000 £'000
Revenue 2 5,111 5,224
Staff costs (2,416) (2,106)
Operating costs (3,196) (2,367)
Operating (loss)/ profit before (501) 751
amortisation and impairment of research and
development expenditure
Amortisation and impairment of research and -
development expenditure (2,520)
Operating loss (501) (1,769)
Share of profit / (loss) in joint venture 28 (35)
Lossbefore interest and taxation (473) (1,804)
Finance costs (149) (162)
Lossbefore taxation (622) (1,966)
Taxation 3 99 34
Loss for the year attributable to equity (523) (1,932)
holders of the Company
Other comprehensive income - -
Total comprehensive loss for the year net (523) (1,932)
of tax attributable to equity holders of
the Company
Lossper share (pence) - basic 4 (1.55) (5.85)
Loss per share (pence) - diluted 4 (1.55) (5.85)
Consolidated Statement of Financial Position
at 30 June 2014
Note 30 June 2014 30 June 2013
Assets £'000 £'000
Non-current assets
Property, plant and equipment 240 205
Goodwill 1,061 1,061
Intangible assets - -
Investment in joint venture 5 86 58
1,387 1,324
Current assets
Inventories 110 110
Current tax assets 65 47
Trade and other receivables 6 1,085 1,390
Cash and cash equivalents 120 383
1,380 1,931
Total assets 2,767 3,254
Equity and liabilities
Equity
Share capital 330 330
Share premium 5,151 5,151
Retained earnings (7,980) (7,457)
(2,499) (1,976)
Non-current liabilities
Borrowings 7 2,414 2,519
Trade and other payables 8 1,683 1,522
4,097 4,041
Current liabilities
Trade and other payables 8 1,142 1,163
Borrowings 7 27 26
1,169 1,189
Total equity and liabilities 2,767 3,254
Consolidated Statement of Cash Flow
For the year ended 30 June 2014
Note 30 June2014 30 June2013
£'000 £'000
Cash flows from operating activities
Loss from operations (501) (1,769)
Adjustments for:
Depreciation 98 90
Impairment of intangible assets - 2,520
(403) 841
Decrease in inventories - 39
Decrease/(increase) in receivables 332 (568)
Increase in liabilities - 356
Cash (used in)/generated by (71) 668
operations
Interest paid (9) (6)
Corporation tax received 54 104
Net cash from operating activities (26) 766
Cash flows from investing activities
Development costs paid - (172)
Purchase of plant and equipment (133) (101)
Sale of plant and equipment - 2
Net cash used in investing activities (133) (271)
Cash flows from financing activities
New loans and finance leases 23 59
Repayment of loan (100) (314)
Repayment of finance leases (27) (46)
Net cash used in financing activities (104) (301)
Net increase in cash and cash (263) 194
equivalents
Cash and cash equivalents at 383 189
beginning of year
Cash and cash equivalents at end of 120 383
year
Statement of Changes in Equity
For the year ended 30 June 2014
Consolidated Share Share Retained Total
capital premium earnings
account
£'000 £'000 £'000 £'000
As at 1 July 2012 330 5,151 (5,525) (44)
Loss for the period - - (1,932) (1,932)
Other comprehensive - - - -
income
Total comprehensive - - (1,932) (1,932)
income
As 30 June 2013 330 5,151 (7,457) (1,976)
Loss for the period - - (523) (523)
Other comprehensive - - - -
income
Total comprehensive - - (523) (523)
income
As 30 June 2014 330 5,151 (7,980) (2,499)
Summary of Significant Accounting Policies
1. Basis of preparation
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 principal accounting policies are set out below.
Basis of preparation - Going concern
The directors have reviewed the Group's funding requirements for the next
twelve months which show further positive anticipated cash flow generation,
prior to any repayment of loans from the Executive Chairman. The directors
therefore have a reasonable expectation that the entity has adequate resources
to continue in its operational exercises for the foreseeable future. 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 2013 and 2014, but is derived
from those accounts. Statutory accounts for 2013 have been delivered to the
Registrar of Companies and those for 2014 will be delivered following the
Company's Annual General Meeting. The Auditor has reported on those accounts;
its reports were unqualified and did not contain any statements under Companies
Act 2006 section 498 (2) or (3).
The Auditor's reports for the years ended 30 June 2013 and 2014 contain 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."
Certain changes to IFRS will be applicable for the Group's financial statements
in future periods. To the extent that the Group has not adopted these early in
the current financial statements, they will not affect the Group's reported
loss or equity but they will affect disclosures.
As at the date of approval of the financial statements, the following standards
and interpretations, relevant to the Group's operations, were in issue but not
yet effective:
IFRS 9 Financial Instruments
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
IFRIC 21 Levies
IAS 36 Amendments Recoverable Amount Disclosures for non-Financial
Assets
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39)
Numerous other minor amendments to standards have been made a result of the
IASB's improvement project.
In addition, the following standards and interpretations, relevant to the
Group's operations, were in issue but had not been approved by the EU:
IAS 19 Amendment - Defined Benefit Plans: Employee Contributions
IFRS 10 and IAS 28 Amendments: Sale or Contribution of Assets between
an Investor and its Associate or Joint Venture
IAS 27 Amendment - Equity Method in Separate Financial Statements
IAS 16 and IAS 41 Amendments: Agriculture: Bearer Plants
IFRS 14 Regulatory Deferral Accounts
IAS 16 and IAS 38 Amendments: Clarification of Acceptable Methods of
Depreciation and Amortisation
IFRS 11 Amendments: Accounting for Acquisitions of Interests in Joint
Operations
IFRS 15 Revenue from Contracts with Customers
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments
2. Segmental analysis
2014 2013
£'000 £'000
Turnover by geographical market
United Kingdom 5,058 5,137
Europe - 52
Other 53 35
5,111 5,224
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 both 2014 and 2013. In development, assembly and sale of GPR
equipment one customer accounted for 24% of revenue in 2014 (27% in 2013). In
automation and test system solutions one customer accounted for more than 21%
of revenue (2013 two customers accounted for 71%).
Information regarding each of the operations of each reportable segments is
included below.
Utility detection Development, Test system Total
and mapping services assembly and solutions
sale of GPR
equipment
£'000 £'000 £'000 £'000
Year ended 30 June 2014
Total segmental revenue 1,466 211 3,434 5,111
Segmental result 33 (467) (66) (500)
Finance costs (5) (143) (1) (149)
Share of operating loss 28
in joint venture
Loss before taxation 622
Segment assets 1025 185 1,557 2,767
Segment liabilities 700 3,481 1,085 5,266
Depreciation and 63 - 35 98
amortisation
Utility Development, Test system Total
detection assembly and solutions
and mapping sale of GPR
services equipment
Year ended 30 June 2013
Total segmental 1,780 171 3,273 5,224
revenue
Segmental result 271 (2,471) 431 (1,769)
Finance costs (6) (156) - (162)
Share of operating (35)
loss in joint venture
(Loss) before taxation (1,966)
Segment assets 1,149 426 1,679 3,254
Segment liabilities 851 3,209 1,170 5,230
Depreciation and 62 2,345 203 2,610
amortisation
The majority of the Group's revenue is earned via the rendering of services.
3. Taxation
2014 2013
£'000 £'000
United Kingdom Corporation Tax
Current taxation (108) (20)
Adjustments in respect of prior years 9 (14)
(99) (34)
Deferred taxation - -
Tax on loss (99) (34)
Current tax reconciliation 2014 2013
£'000 £'000
Taxable (loss) / profit for the year (650) (1,966)
Theoretical tax at UK corporation tax (146) (459)
rate 22.5% (2013: 23.75%)
Effects of:
- R&D tax credit adjustments (10) (142)
- other expenditure that is not tax 4 2
deductible
- adjustments in respect of prior years 9 -
- accelerated capital allowances (7) 40
- losses carried forward 12 572
- short term timing differences 39 21
Total income tax expense (99) (34)
The Group has tax losses amounting to approximately £1,974,306 (2013: £
1,720,000), available for carry forward to set off against future trading
profits.
4. Loss per share
Basic
This has been calculated on a loss of £523,000 (2013: loss £1,932,000) and the
number of shares used was 33,020,515 (2013: 33,020,515) being the weighted
average number of shares in issue during the year.
Diluted
This has been calculated on a loss of £523,000 (2013: loss £1,932,000) and the
number of shares used was 67,945,718 (2013: 67,945,718) being the diluted
weighted average number of shares in issue during the year. The potential
ordinary shares included in the weighted average number of shares are
anti-dilutive and therefore diluted earnings per share is equal to basic
earnings per share.
5. Investment in Joint Venture
Investment in
shares
£'000
Cost:
At 1 July 2013 & 30 June 2014 198
Share of losses
At 1 July 2013 140
Share of profits for the year (28)
At 30 June 2014 112
Net investment
At 30 June 2014 86
At 30 June 2013 58
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
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 2014. 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 June 2014 30 June 2013
£'000 £'000
Total assets 2,426 2,791
Total liabilities 2,124 2,587
Net assets 301 204
Group's share of net assets of joint venture 86 58
Year ended Year ended
30 June 2014 30 June 2013
£'000 £'000
Total revenue 4,256 2,934
Total profit / (loss) for the period 100 (130)
Group's share of loss of joint venture 28 (35)
6. Trade and other receivables
2014 2013
£'000 £'000
Current
Trade receivables 1,039 1,340
Amounts owed by group - -
undertakings
Other receivables 10 8
Prepayments and accrued 36 42
income
_
1,085 1,390
7. Non-current liabilities: Borrowings
2014 2013
£'000 £'000
Borrowings (note 9) 2,441 2,545
8. Trade and other payables
2014 2013
Current £'000 £'000
Trade payables 719 607
Other taxation and social 148 186
security
Payments received on 48 -
account
Accruals 227 370
1,142 1,163
2014 2013
Non-current £'000 £'000
Trade payables 233 209
Amounts owed to group - -
undertakings
Accruals 1,450 1,313
1,683 1,522
Included within the above amounts are the following amounts owing to directors
principally in non-current liabilities.
2014 2013
G G Watt £1,520,681 £1,306,520
R G Tallentire £128,275 £172,329
R R MacDonnell £10,000 £19,000
The directors have undertaken not to call upon these amounts until the Group is
in a position to generate sufficient operating cashflows.
9. Borrowing Analysis
2014 2013
£'000 £'000
Due within one year
Bank loans - -
Obligations under finance lease 27 26
agreements
27 26
Due after more than one year
Obligations under finance lease 29 34
agreements
Directors' loans 2,385 2,485
2,414 2,519
Repayable
Due within 1 year 27 26
Over 1 year but less than 2 years 2,402 2,504
Over 2 years but less than 5 12 15
years
2,441 2,545
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 £55,824 (2013: £59,582)
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 13 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 were
issued to replace loans made by G G Watt to the Company amounting to £1
million. On 13 November 2014 the Company entered into a letter of amendment to
the CULS Agreement under which the conversion price was changed from 7p to 5p
per share and the repayment date was changed to 13 November 2018.
The principal terms of the 2018 CULS are now as follows:
- The CULS may be converted at the option of Gordon Watt at a price of 5p per
share at any time prior to 13 November 2018;
- 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 2018 CULS. On conversion of
any 2018 CULS, any unpaid interest shall be paid within 20 days of such
conversion; and
- The CULS are repayable, together with accrued interest on 13 November 2018
("the Repayment Date").
10. Dividends
The directors do not recommend the payment of a dividend (2013: Nil).
11. 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.
Latest directors dealings
- 5 hours ago Origin Enterprises (CDI)
- 5 hours ago Origin Enterprises (CDI)
- 6 hours ago SSP Group
- 6 hours ago Latham (James)
- 7 hours ago LSL Property Services