Last checked at 17 Nov 2008 07:00
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 ¢â€š¬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 WattChairman17 November 2008Consolidated Income StatementFor 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 71venture (Loss)/Profit on ordinary activities (350) 101before interest and taxation Finance costs (88) (78) (Loss)/Profit before taxation (438) 23 Taxation 111 86 (Loss)/Profit for the year (327) 109attributable to equity holders of the Company (Loss)/Earnings per share (pence) - 3 (1.21) 0.41basic (Loss)/Earnings per share (pence) - 3 (1.00) 0.32diluted
There are no recognised gains or losses other than those reported above.
The group's results for the periods above are entirely from continuingoperations.Consolidated Balance Sheetat 30 June 2008 Note 30 June 30 June 2008 2007Assets ‚£'000 ‚£'000 Non-current assets Property, plant and equipment 231 287Goodwill 1,061 1,061Intangible assets 1,025 438Investment in joint venture 152 86 2,469 1,872 Current assets Inventories 268 279Current tax assets 106 80Trade and other receivables 742 661 1,116 1,020 Total Assets 3,585 2,892 Equity and liabilities Equity Share capital 269 269Share premium 4,842 4,842Other 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 1,411Bank overdrafts 363 33 2,322 1,444 Total equity and liabilities 3,585 2,892Consolidated Cash Flow StatementFor 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 165Impairment of goodwill - 60 (282) 255 Decrease in inventories 11 478(Increase)/Decrease in receivables (107) 228Increase/(Decrease) in liabilities 265 (436) Cash (used in)/generated from (113) 525operations Interest received - 3Interest paid (88) (81)Corporation tax received 111 86 Net cash (used in)/from operating (90) 533activities 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 - 29expenses New loans and finance leases 540 29Repayment 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) 4cash 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 EquityFor the year ended 30 June 2008Consolidated Share Share Retained Total capital premium earnings account ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 1 July 2006 267 4,815 (4,335) 747Profit for the period - - 109 109Shares issued 2 27 - 29 At 30 June 2007 269 4,842 (4,226) 885 As at 1 July 2007 269 4,842 (4,226) 885Loss for the period - - (327) (327) As at 30 June 2008 269 4,842 (4,553) 5581. 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 37Directors' loans 367 73Obligations under finance lease 51 68agreements 455 178 Due after more than one year Bank loans 189 -Obligations under finance lease 16 63agreements Directors' loans 500 500 705 563 Repayable Due within 1 year 455 178Over 1 year but less than 2 years 576 547Over 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 OperatingActivities 2008 2007 ‚£'000 ‚£'000 Operating (loss)/profit (416) 30Amortisation of intangible assets - 60Depreciation of tangible fixed 134 164assets Working capital movements Inventories 11 478 Receivables (107) 228 Payables 265 (435) Net cash (outflow)/inflow from (113) 525operating 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) 85lease agreements Decrease/(Increase) in net debt (744) 89from cash flows New finance leases (11) (63) (Increase)/Reduction in net debt (755) 26Opening 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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