Half-yearly Report
20 March 2008
Pipehawk Plc
("Pipehawk" or "the Company")
Interim unaudited results for the six month period ended 31 December 2007
Chairman's Statement
Trading in the first half of the current financial year has been difficult
particularly at the Company's wholly owned subsidiary, QM Systems Limited
("QM").
The Company's turnover in the six months ended 31 December 2007 was £1,848,000
(2006: £2,547,000) resulting in a loss before taxation of £321,000 (2006: loss
£36,000). The core businesses of Adien and Sumo continue to trade ahead of
management expectations but the Company has suffered some set backs at QM.
As announced on 12 November 2007, management and other changes at QM's major
customer, GE Aviation ("GE"), has resulted in GE not collaborating with QM on
bespoke test solution orders for its Joint Strike Fighter and other systems
test work in direct contravention of verbal and written agreements between the
two parties. Accordingly, QM's turnover in the period has fallen by £900,000
compared with the same period in the previous year. To mitigate against this,
we have made a number of staff changes and have reduced the staff costs of QM
by 50 per cent. and your Board has also retained legal advisers to take
appropriate action to seek compensation from GE Aviation on a largely
contingent basis to minimise the associated costs of the action.
During the period under review, QM's directors have been actively engaged in
building both a new customer base and new products for sale into the safety
critical aerospace test industry and has achieved good success in both areas.
Four new products have been developed in conjunction with several blue chip
customers that will have wide applications in the aerospace sector. Sales to
non-GE Aviation customers in the period under review have increased by 179 per
cent. compared to the corresponding period last year.
The approval process for the Euro 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. Our grant advisors continue to provide
positive feedback as to the process and I hope to bring you more encouraging
news soon. Much of the software platform written for PipeHawk III 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.
At the time of writing this statement the final testing of PipeHawk III is
being undertaken and plans are well underway for its launch. In the years since
the first PipeHawk equipment was produced the construction and underground
utilities markets have moved on markedly, to the point where the use of GPR
technology is more than an accepted technology, but is specified as an
essential part of the construction process. Accordingly, the Board expects
PipeHawk III, with its extensive use of modern communication software, will be
readily accepted into the market place.
The evidence to support the acceptance and specification of GPR as best
practice has been demonstrated by the continued growth of both Adien and SUMO.
These two companies continue to lead the field with double digit percentage
growth in sales during the period under review.
The Board considers that the Company's working capital position is sufficient
for its immediate requirements. During the period under review the Company's
directors have provided support in the form of unsecured loans on normal
commercial terms.
In summary, the difficulties caused by both the GE Aviation and MineHawk
situations are being dealt with proactively by your Board and the core
businesses of Adien, SUMO and QM, are growing satisfactorily.
Gordon Watt
20 March 2008
Consolidated Income Statement
For the six months ended 31 December 2007
6 months ended 6 months ended Year ended
31 December 31 December 30 June 2007
2007 2006
(audited)
(unaudited) (unaudited)
£'000
£'000 £'000
Revenue 1,848 2,547 4,471
Less: share of joint venture (648) (530) (865)
turnover
Revenue - continuing 1,200 2,017 3,606
operations
Operating costs (1,511) (2,063) (3,576)
Operating (loss)/profit (311) (46) 30
Share of operating profit in 32 39 71
joint venture
(Loss)/profiton ordinary (279) (7) 101
activities before interest
and taxation
Finance costs (42) (29) (78)
(Loss)/profit before taxation (321) (36) 23
Taxation 30 46 86
(Loss)/profitfor the period (291) 10 109
(Loss)/earningsper share (1.08) 0.05 0.41
(pence) - basic
(Loss)/earnings per share (0.84) 0.05 0.32
(pence) - diluted
Consolidated Balance sheet
As at 31 December 2007
Assets 6 months ended 6 months ended 12 months ended
30 June 2007
31 December 2007 31 December 2006 (audited)
(unaudited) (unaudited)
£'000 £'000 £'000
Non-current assets
Tangible fixed assets 258 325 287
Intangible assets 1,640 1,091 1,499
Investment in joint venture 118 54 86
2,016 1,470 1,872
Current assets
Stock 338 516 279
Trade and other receivables 839 541 741
1,177 1,057 1,020
Total Assets 3,193 2,527 2,892
Equity and liabilities
Equity
Share capital 269 269 269
Share premium 4,842 4,842 4,842
Other reserves (4,517) (4,325) (4,226)
594 786 885
Non current liabilities
Financial liabilities 551 569 563
551 569 563
Current liabilities
Trade and other payables 1,705 1,061 1,411
Bank overdrafts and loans 343 111 33
2,048 1,172 1,444
Total equity and liabilities 3,193 2,527 2,892
Consolidated Cash Flow Statement
For the six months ended 31 December 2007
6 months to 6 months to 12 months
to
31 December 2007 31 December
2006 30 June
(unaudited) 2007
(unaudited)
£'000 (audited)
£'000
£'000
Cash flow from operating
activities
Loss/profit from operations (311) (46) 30
Adjustments for:
Depreciation 102 116 225
(209) 70 255
(Increase)/decrease in stocks (60) 241 478
(Increase)/decrease in receivables (98) 428 228
Decrease/(increase)/ in 152 (792) (436)
liabilities
Cash (used by)/generated from (215) (53) 525
operations
Interest received - - 3
Interest paid (42) (29) (81)
Corporation tax received 30 46 86
Net cash (used in)/generatedfrom (227) (33) 533
operating activities
Cash flows from investing
activities
Purchase of intangibles assets (171) - (438)
Purchase of plant and equipment (42) (13) (37)
Net cash used in investing (213) (13) (475)
activities
Cash flows from financing
activities
Issue of ordinary shares less - 25 29
expenses
New loans 200 11 29
Repayment of bank loan (37) (42) (80)
Finance lease principle payments (33) (25) (34)
130 (31) (56)
Net cash used in financing (83) (41) (529)
activities
Net(decrease)/increasein cash and (310) (74) 4
cash equivalents
Cash and cash equivalents at (33) (37) (37)
beginning of period
Cash and cash equivalents at end (343) (111) (33)
of period
Consolidated Statement of changes in equity
For the six months ended 31 December 2007
Share Share Retained Total
capital premium earnings
account
£'000 £'000 £'000 £'000
12 months ended 30 June 2007
As at 1 July 2006 267 4,815 (4,335) 747
Profit for the period - - 109 109
Shares issued 2 27 - 29
As at 30 June 2007 269 4,842 (4,226) 885
6 months ended 31 December 2007
As at 1 July 2007 269 4,842 (4,226) 885
Loss for the period - - (291) (291)
As at 31 December 2007 269 4,842 (4,517) 594
Notes to the Interim Results
1. Basis of preparation
The Interim Results for the six months ended 31 December 2007 are unaudited and
do not constitute statutory accounts in accordance with section 240 of the
Companies Act 1985.
Full accounts for the year ended 30 June 2007, on which the auditors gave an
unqualified report and contained no statement under Section 237 (2) or (3) of
the Companies Act 1985, have been delivered to the Registrar of Companies.
2. Adoption of International Financial Reporting Standards (IFRS)
For all periods up to 30 June 2007 PipeHawk plc has prepared its financial
statements in accordance with UK Generally Accepted Accounting Principles (UK
GAAP). AIM Rules require that the annual consolidated financial statements of
PipeHawk plc for the year ended 30 June 2008 be prepared in accordance with
International Financial Reporting Standards (IFRS).
Accordingly, these interim financial statements which are for the six months
ending 31 December 2007 have been prepared for the first time in accordance
with International Financial Reporting Standards and are covered by IFRS1,
First-time Adoption of IFRS.
The information presented within these interim financial statements is in
compliance with IAS 34 `Interim Financial Reporting'.
In preparing these interim financial statements the comparative figures
previously reported under UK GAAP have been restated for the transition to
IFRS. The disclosures required by IFRS 1 regarding the transition for the
relevant periods are given in note 3 below. Unless noted the same accounting
policies and methods of computation have been followed in the interim financial
statements as compared to the most recent annual financial statements.
3. Transition from UK GAAP to IFRS
As required under IFRS 1, the equity reconciliations at 1 July 2006 (the
transition date for IFRS) and at 30 June 2007 (date of last UK GAAP financial
statements) are set out below. For comparative purposes, the equity
reconciliation at 31 December 2006 is also included to enable a comparison of
the 2007 published interim figures
The amortisation charged under UK GAAP for the year ended 30 June 2007 was
charged in accordance with UK GAAP policies and was also considered necessary
to bring the goodwill to an accurate carrying value. Under IFRS goodwill cannot
be amortised but an impairment is instead required for the year ended 30 June
2007. The resulting loss for the year ended 30 June 2007 is therefore the same
under IFRS as reported in the audited accounts prepared under UK GAAP.
4. Reconciliation of UK GAAP equity to IFRS equity
30 June 31 December 1 July
2006
2007 2006
Capital and reserves according to UK 885 786 747
GAAP
- - -
Effect of adopting IFRS
Equity according to IFRS 885 786 747
Under IFRS goodwill previously accounted for on the acquisition of investments
has been restated as "Other intangible assets" in accordance with IFRS 3 -
Business combinations. This reclassification does not affect the figures
previously stated. In addition the total assets, equity and liabilities
reported under UK GAAP are the same as that reported under IFRS.
5. Segmental information
The group operates in one geographical location being the UK. Accordingly the
primary segmental disclosure is based on activity.
Utility Development, Test system Total
detection assembly and solutions
and mapping sale of GPR
services equipment
£'000 £'000 £'000 £'000
6 months ended 31 December 2007
Total segmental revenue 1,474 55 319 1,848
Segmental result 50 (179) (163) (292)
6 months ended 31 December
2006
Total segmental revenue 1,262 74 1,211 2,547
Segmental result 95 (213) 128 10
12 months ended 30 June 2007
Total segmental revenue 2,488 151 1,832 4,471
Segmental result 230 (118) (3) 109
6. (Loss)/earnings per share
This has been calculated on losses of £291,000 (2006: profit £10,000) and the
number of shares used was 26,917,330 (2006: 26,897,803) being the weighted
average number of share in issue during the year. For the fully diluted
calculations the number of shares used for the calculation was 34,667,952.
7. Dividends
No dividend was proposed for the six months ended 31 December 2007.
8. Copies of Interim Results
Copies of the Interim Results will be sent to shareholders shortly and will
also be available from the Company's registered office, Systems House, Mill
Lane, Alton, Hampshire, GU34 2QG.
Further enquiries:
Pipehawk Plc Tel: 01420 590990
Gordon Watt
John East & Partners Limited Tel: 020 7628 2200
Simon Clements
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