PIPEHAWK PLC

Earnings Release • Nov 14, 2014

National Storage Mechanism | Additional information

You don't have Javascript enabled. For full functionality this page requires javascript to be enabled.

PIPEHAWK PLC - Final Results

PR Newswire

London, November 13

                                                           14 November 2014                                 PipeHawk plc                         ("PipeHawk" or the "Company")                 Final results for the year ended 30 June 2014Chairman's StatementI 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 lossper share was 1.55p (2013: loss per share 5.85p). These are disappointingresults and do not reflect the true progress of the group in the last 12months.QM SystemsAt QM Systems, trading has been steady with growth in revenue of approximately10%. In order to provide a sustainable platform for substantial growth over thecoming years significant investment has been made both in terms ofinfrastructure and resources. Key management personnel have been recruited intothe roles of sales, project leadership, manufacturing and logistics. Inaddition the manufacturing facilities in Worcester have been expanded 150% withthe addition of a new manufacturing hall, state of the art clean laboratoryhousing 10 engineers and a new electronics and software office providing a 12desk expansion for our office based staff. This investment in staff andfacilities provides QM with the resource to continue its growth during thecoming period targeting significant growth in revenue combined with a return tohealthy profit following this substantial development.QM Systems has expanded into a number of new industries with several newclients. A considerable effort has been invested to develop new relationshipswith full intention that this will reap rewards for future trading. It isimportant to understand that with entry into new markets and the establishmentof new clients to our client base our focus has been to put client satisfactionas our primary objective, this in turn means that while we push to establishstrong new relationships in new markets our profitability is reduced, this isevident 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 anumber of our staff spending significant time in India. Whilst we haverecovered our costs, profitability on this extended work package has beensignificantly reduced. However, this project has provided QM with anopportunity to clearly demonstrate that it can operate in a global market.QM Systems enters the next period having now successfully completed a number ofsubstantial contracts (£1.5M+) and with excellent management and technicalteams 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 DivisionIn the period under review, PipeHawk has continued to develop both technicallyand commercially the e-Safe, e-Spade Lite and e-Spott product families. Thee-Safe and e-Spade Lite products were released for production in February 2014and a programme to build the first 50 units to facilitate market growth wasundertaken. During the first two months of sales in FY 2015, 24 units have beensold to end customers. A number of these units have been sold to ourdistribution partner supporting the Australian and New Zealand markets.  Otherunits have been sold initially as trial units to major direct clients in the UKand Europe where we believe significant sales volume will be achieved oncompletion of successful evaluation.Whilst the market today can access tools that can detect metallic utilitiesunderground, the current development of e-Safe over a number of years hasculminated in the creation of an avoidance tool that is at the forefront of themarket. The product is based on ground probing radar ("GPR") technology, butdoes not require the normal skills associated with interpreting GPR informationfeedback. The product has be designed to provide a very simple to use, yettruly capable and accurate machine that can identify the position ofnon-metallic as well as metallic utilities underground, unlike most of itscompetitors.Our focus in development over the coming period now shifts to continueddevelopment of the extended e-Spade platform and other GPR applications thatwill provide additional market opportunities in utilities detection. Ourcommercial focus continues to be on the promotion and sales of the e-Safe ande-Spade Lite platforms through promotion within larger utilities organisations,local authorities, primary contractors and the continued development of thedistribution network. Our focus in operations is to continue development of anupscaleable production platform from which we can manufacture e-Safe ande-Spade Lite products cost effectively in significant volume.AdienAdien traded in tough conditions during the year but maintained a profitableposition despite a number of larger projects being deferred until 2014-15.Adien have added a number of new services to their portfolio during the yearthrough the purchase of specialist equipment and look forward to growth andprofitability in the future.SUMOSUMO's strong presence in the geophysical ground probing radar sector continuesto drive their growth and profitability. Turnover for the year ended 30 June2014 was £4,256,000 (2013: £2,934,000) and the operating profit for the yearwas £100,000 (2013: loss £130,000). Sumo is accounted for in the groupfinancial statements as a joint venture - for this reason the turnover of SUMOhas not been accounted for in the group financial statements.Related party transactionsIn the period under review, I was not called upon to provide working capitalsupport to the Company.My letter of support dated 5th November 2013 was renewed on 13 November 2014for a further year. Loans, other than those covered by the CULS agreement, areunsecured and accrue interest at an annual rate of Bank of England base rateplus 2.15 per cent.Under an agreement dated 13 August 2010, the Company issued me with £1 millionof Convertible Unsecured Loan Stock 2014 to replace loans made by me to thevalue of £1 million ("the CULS Agreement"). Under the terms of the CULSAgreement, the CULS were repayable on 13 August 2014. On 13 November 2014, theCompany and I entered into letter of amendment to the CULS Agreement to extendthe repayment date to 13 November 2018 and to change the conversion price from7p to 5p per share. The CULS may be converted by me at any time prior to 13November 2018. Interest remains payable at a rate of 10 per cent per annum onthe principal amount outstanding until converted, prepaid or repaid, calculatedand compounded on each anniversary of the issue of the CULS. On conversion ofany CULS, any unpaid interest shall be paid within 20 days of such conversion.The directors, other than myself, consider, having consulted with the Company'snominated adviser, that the terms of the letter of amendment are fair andreasonable insofar as the Company's shareholders are concerned.In addition to the loans I have provided to the Company in previous years, myfellow directors and I have deferred a certain proportion of our fees and theinterest due to us until the Company is in a suitably strong position to makethe full payments. No further fees were deferred in the year ended 30 June2014. At 30 June 2014, these deferred fees and interest amounted toapproximately £1.43 million in total, all of which have been accrued in theCompany's accounts.Strategy & OutlookThe PipeHawk Group remains committed to creating sustainable earnings-basedgrowth and focusing on the expansion of its business with forward-lookingproducts and services. PipeHawk acts responsibly towards its shareholders,business partners, employees, society and the environment - in each of itsbusiness areas. PipeHawk is committed to technologies and products that unitethe goals of customer value and sustainable development. I remain optimistic inmy outlook for the Group.Gordon WattChairmanEnquiries:PipeHawk Plc                                             Tel. No. 01252 338 959Gordon Watt (Chairman)Sanlam Securities UK Limited (Nomad and                  Tel. No. 020 7628 2200Broker)David Worlidge/Simon ClementsConsolidated Statement of Comprehensive IncomeFor the year ended 30 June 2014                                            Note    30 June 2014   30 June 2013                                                           £'000          £'000Revenue                                       2            5,111          5,224Staff costs                                              (2,416)        (2,106)Operating costs                                          (3,196)        (2,367)Operating (loss)/ profit before                            (501)            751amortisation and impairment of research anddevelopment expenditureAmortisation 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             34Loss for the year attributable to equity                   (523)        (1,932)holders of the CompanyOther comprehensive income                                     -              -Total comprehensive loss for the year net                  (523)        (1,932)of tax attributable to equity holders ofthe CompanyLossper share (pence) - basic                 4           (1.55)         (5.85)Loss per share (pence) - diluted              4           (1.55)         (5.85)Consolidated Statement of Financial Positionat 30 June 2014                                         Note     30 June 2014     30 June 2013Assets                                                   £'000            £'000Non-current assetsProperty, plant and equipment                              240              205Goodwill                                                 1,061            1,061Intangible assets                                            -                -Investment in joint venture                 5               86               58                                                         1,387            1,324Current assetsInventories                                                110              110Current tax assets                                          65               47Trade and other receivables                 6            1,085            1,390Cash and cash equivalents                                  120              383                                                         1,380            1,931Total assets                                             2,767            3,254Equity and liabilitiesEquityShare capital                                              330              330Share premium                                            5,151            5,151Retained earnings                                      (7,980)          (7,457)                                                       (2,499)          (1,976)Non-current liabilitiesBorrowings                                  7            2,414            2,519Trade and other payables                    8            1,683            1,522                                                         4,097            4,041Current liabilitiesTrade and other payables                    8            1,142            1,163Borrowings                                  7               27               26                                                         1,169            1,189Total equity and liabilities                             2,767            3,254Consolidated Statement of Cash FlowFor the year ended 30 June 2014                                         Note    30 June2014    30 June2013                                                       £'000          £'000Cash flows from operating activitiesLoss from operations                                   (501)        (1,769)Adjustments for:Depreciation                                              98             90Impairment of intangible assets                            -          2,520                                                       (403)            841Decrease in inventories                                    -             39Decrease/(increase) in receivables                       332          (568)Increase in liabilities                                    -            356Cash (used in)/generated by                             (71)            668operationsInterest paid                                            (9)            (6)Corporation tax received                                  54            104Net cash from operating activities                      (26)            766Cash flows from investing activitiesDevelopment costs paid                                     -          (172)Purchase of plant and equipment                        (133)          (101)Sale of plant and equipment                                -              2Net cash used in investing activities                  (133)          (271)Cash flows from financing activitiesNew loans and finance leases                              23             59Repayment 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)            194equivalentsCash and cash equivalents at                             383            189beginning of yearCash and cash equivalents at end of                      120            383yearStatement of Changes in EquityFor the year ended 30 June 2014Consolidated                    Share        Share       Retained      Total                              capital      premium      earnings                                           account                                £'000        £'000        £'000        £'000As at 1 July 2012                 330        5,151      (5,525)         (44)Loss for the period                 -            -      (1,932)      (1,932)Other comprehensive                 -            -            -            -incomeTotal comprehensive                 -            -      (1,932)      (1,932)incomeAs 30 June 2013                   330        5,151      (7,457)      (1,976)Loss for the period                 -            -        (523)        (523)Other comprehensive                 -            -            -            -incomeTotal comprehensive                 -            -        (523)        (523)incomeAs 30 June 2014                   330        5,151      (7,980)      (2,499)Summary of Significant Accounting Policies 1. Basis of preparationThe financial statements have been prepared in accordance with internationalfinancial reporting standards as adopted by the EU and under the historicalcost convention. The principal accounting policies are set out below.Basis of preparation - Going concernThe directors have reviewed the Group's funding requirements for the nexttwelve months which show further positive anticipated cash flow generation,prior to any repayment of loans from the Executive Chairman. The directorstherefore have a reasonable expectation that the entity has adequate resourcesto continue in its operational exercises for the foreseeable future. Thedirectors have furthermore obtained a renewed pledge from GG Watt to provideongoing financial support for a period of at least twelve months from theapproval date of the group statement of financial position. It is on this basisthat the directors consider it appropriate to adopt the going concern basis ofpreparation within these financial statements.The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 30 June 2013 and 2014, but is derivedfrom those accounts. Statutory accounts for 2013 have been delivered to theRegistrar of Companies and those for 2014 will be delivered following theCompany's Annual General Meeting. The Auditor has reported on those accounts;its reports were unqualified and did not contain any statements under CompaniesAct 2006 section 498 (2) or (3).The Auditor's reports for the years ended 30 June 2013 and 2014 contain thefollowing paragraph:"Emphasis of matter - Going concernWithout qualifying our opinion we draw attention to the basis of preparation ongoing concern in note 1 to the financial statements. This explains that amaterial uncertainty exists regarding the group's ability to continue as agoing concern without the support of the Executive Chairman. The financialstatements do not include any adjustments that would result if the group wasunable to continue as a going concern."Certain changes to IFRS will be applicable for the Group's financial statementsin future periods. To the extent that the Group has not adopted these early inthe current financial statements, they will not affect the Group's reportedloss or equity but they will affect disclosures.As at the date of approval of the financial statements, the following standardsand interpretations, relevant to the Group's operations, were in issue but notyet effective:IFRS 9 Financial InstrumentsInvestment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)IFRIC 21 LeviesIAS 36 Amendments Recoverable Amount Disclosures for non-FinancialAssetsNovation of Derivatives and Continuation of Hedge Accounting(Amendments to IAS 39)Numerous other minor amendments to standards have been made a result of theIASB's improvement project.In addition, the following standards and interpretations, relevant to theGroup's operations, were in issue but had not been approved by the EU:IAS 19 Amendment - Defined Benefit Plans: Employee ContributionsIFRS 10 and IAS 28 Amendments: Sale or Contribution of Assets betweenan Investor and its Associate or Joint VentureIAS 27 Amendment - Equity Method in Separate Financial StatementsIAS 16 and IAS 41 Amendments: Agriculture: Bearer PlantsIFRS 14 Regulatory Deferral AccountsIAS 16 and IAS 38 Amendments: Clarification of Acceptable Methods ofDepreciation and AmortisationIFRS 11 Amendments: Accounting for Acquisitions of Interests in JointOperationsIFRS 15 Revenue from Contracts with CustomersIFRS 9 Financial InstrumentsIFRS 9 Financial Instruments2. Segmental analysis                                                 2014         2013                                                 £'000        £'000Turnover by geographical marketUnited Kingdom                                   5,058        5,137Europe                                           -            52Other                                            53           35                                                 5,111        5,224The group operates out of one geographical location being the UK. Accordinglythe primary segmental disclosure is based on activity. Per IFRS 8 operatingsegments are based on internal reports about components of the group, which areregularly reviewed and used by Chief Operating Decision Maker ("CODM") forstrategic decision making and resource allocation, in order to allocateresources to the segment and to assess its performance. The Group's reportableoperating segments are as follows:  \* Utility detection and mapping services  \* Development, assembly and sale of GPR equipment  \* Test system solutionsThe CODM monitors the operating results of each segment for the purpose ofperformance assessments and making decisions on resource allocation.Performance is based on external and internal revenue generations and profitbefore tax, which the CODM believes are the most relevant in evaluating theresults relative to other entities in the industry. Segment assets andliabilities are presented inclusive of inter segment balances, as inter-segmentpricing.In utility detection and mapping services one customer accounted for 35% ofrevenue in both 2014 and 2013. In development, assembly and sale of GPRequipment one customer accounted for 24% of revenue in 2014 (27% in 2013). Inautomation 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 isincluded below.               Utility detection    Development,     Test system         Total              and mapping services  assembly and       solutions                                    sale of GPR                                     equipment                             £'000          £'000          £'000         £'000Year ended 30 June 2014Total segmental revenue      1,466            211          3,434         5,111Segmental result                33          (467)           (66)         (500)Finance costs                  (5)          (143)            (1)         (149)Share of operating loss                                                     28in joint ventureLoss before taxation                                                       622Segment assets                1025            185          1,557         2,767Segment liabilities            700          3,481          1,085         5,266Depreciation and                63              -             35            98amortisation                           Utility  Development,    Test system        Total                         detection  assembly and      solutions                       and mapping   sale of GPR                          services     equipmentYear ended 30 June 2013Total segmental             1,780           171         3,273          5,224revenueSegmental 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          3,254Segment liabilities           851         3,209         1,170          5,230Depreciation and               62         2,345           203          2,610amortisationThe majority of the Group's revenue is earned via the rendering of services.3. Taxation                                         2014           2013                                         £'000          £'000United Kingdom Corporation TaxCurrent 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          £'000Taxable (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              2deductible- adjustments in respect of prior years  9              -- accelerated capital allowances         (7)            40- losses carried forward                 12             572- short term timing differences          39             21Total 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 tradingprofits.4. Loss per shareBasicThis has been calculated on a loss of £523,000 (2013: loss £1,932,000) and thenumber of shares used was 33,020,515 (2013: 33,020,515) being the weightedaverage number of shares in issue during the year.DilutedThis has been calculated on a loss of £523,000 (2013: loss £1,932,000) and thenumber of shares used was 67,945,718 (2013: 67,945,718) being the dilutedweighted average number of shares in issue during the year. The potentialordinary shares included in the weighted average number of shares areanti-dilutive and therefore diluted earnings per share is equal to basicearnings per share.5. Investment in Joint Venture                                                  Investment in                                                  shares                                                  £'000Cost:At 1 July 2013 & 30 June 2014                     198Share of lossesAt 1 July 2013                                    140Share of profits for the year                     (28)At 30 June 2014                                   112Net investmentAt 30 June 2014                                   86At 30 June 2013                                   58                                                  Investment in                                                  shares                                                  £'000Cost:At 1 July 2012 & 30 June 2013                     198Share of lossesAt 1 July 2012                                    105Share of losses for the year                      35At 30 June 2013                                   140Net investmentAt 30 June 2013                                   58At 30 June 2012                                   93The investment in joint venture relates to a 28.4% shareholding in the ordinaryshare capital of SUMO Limited. SUMO Limited is engaged in the development of aGPR franchise operation and has a year end of 31 December. For the purpose ofpreparing this consolidation, financial information has been prepared for theyear 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 setout below:                                                  30 June 2014  30 June 2013                                                         £'000         £'000Total assets                                             2,426         2,791Total liabilities                                        2,124         2,587Net assets                                                 301           204Group's share of net assets of joint venture                86            58                                                    Year ended    Year ended                                                  30 June 2014  30 June 2013                                                         £'000         £'000Total revenue                                            4,256         2,934Total 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            £'000CurrentTrade receivables                   1,039            1,340Amounts owed by group                   -                -undertakingsOther receivables                      10                8Prepayments and accrued                36               42income                                                  \_                                    1,085            1,3907. Non-current liabilities: Borrowings                                      2014             2013                                     £'000            £'000Borrowings (note 9)                  2,441            2,5458. Trade and other payables                                      2014             2013Current                              £'000            £'000Trade payables                         719              607Other taxation and social              148              186securityPayments received on                    48                -accountAccruals                               227              370                                     1,142            1,163                                      2014             2013Non-current                          £'000            £'000Trade payables                         233              209Amounts owed to group                    -                -undertakingsAccruals                             1,450            1,313                                     1,683            1,522Included within the above amounts are the following amounts owing to directorsprincipally in non-current liabilities.                                               2014                2013G G Watt                                 £1,520,681          £1,306,520R G Tallentire                             £128,275            £172,329R R MacDonnell                              £10,000             £19,000The directors have undertaken not to call upon these amounts until the Group isin a position to generate sufficient operating cashflows.9. Borrowing Analysis                                              2014             2013                                             £'000            £'000Due within one yearBank loans                                       -                -Obligations under finance lease                 27               26agreements                                                27               26Due after more than one yearObligations under finance lease                 29               34agreementsDirectors' loans                             2,385            2,485                                             2,414            2,519RepayableDue within 1 year                               27               26Over 1 year but less than 2 years            2,402            2,504Over 2 years but less than 5                    12               15years                                             2,441            2,545Finance lease agreements with Close Motor Finance are at a rate of 4.5% overbase rate. The future minimum lease payments under finance lease agreements atthe 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 GWatt. Directors' loans attract interest at 2.15% over Bank of England baserate.On 13 August 2010 the Company issued £1 million of Convertible Unsecured LoanStock 2014 ("CULS") to G G Watt, the Chairman of the Company. The CULS wereissued to replace loans made by G G Watt to the Company amounting to £1million. On 13 November 2014 the Company entered into a letter of amendment tothe CULS Agreement under which the conversion price was changed from 7p to 5pper 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 pershare at any time prior to 13 November 2018;- Interest is payable at a rate of 10 per cent per annum on the principalamount outstanding until converted, prepaid or repaid, calculated andcompounded on each anniversary of the issue of the 2018 CULS. On conversion ofany 2018 CULS, any unpaid interest shall be paid within 20 days of suchconversion; and- The CULS are repayable, together with accrued interest on 13 November 2018("the Repayment Date").10. DividendsThe directors do not recommend the payment of a dividend (2013: Nil).11. Copies of the Report and AccountsCopies of the Report and Accounts will be posted to shareholders shortly, andwill be available from the Company's registered office, Manor Park IndustrialEstate, Wyndham Street, Aldershot, Hampshire GU12 4NZ and from the Company'swebsite www.pipehawk.com.