PipeHawk Regulatory News (PIP)

5 November 2013 PipeHawk plc ("PipeHawk" or the "Company") Final results for the year ended 30 June 2013 Chairman's Statement I am pleased to be able to report record profits for the PipeHawk group beforethe write down in research and development intangible asset which I explainfurther below. I am also pleased to say that the trading trends established in2012-13 have continued into the current financial year. I can report that turnover for the year ended 30 June 2013 was £5.2m (2012: £3.3m),an increase of 56 per cent. The Group incurred a loss after taxation forthe year of £1,932,000 (2012: profit £28,000). Loss per share was 5.85p(2012: profit per share 0.09p). This result was arrived at after impairing £2,520,000 of research anddevelopment expenditure, which had no cash effect. Accordingly, the Groupachieved an adjusted profit, as adjusted for amortisation and impairment ofintangible fixed asset, in the year ended 30June 2013 of £588,000 (2012: £33,000),a very creditable performance. Profit per share before amortisation ofresearch and development expenditure was 1.78p for the year ended 30 June 2013(2012: 0.09p). QM Systems In the period under review, progress at QM Systems has been excellent. Asanticipated, the company has transitioned through a rapid phase of growth withsales growing by 105% to £3.273m and a very healthy profit being achieved. QM'shighly skilled workforce has significantly increased in size adding furtherskills in product handling and conveying systems to an already diverse skillbase. Project sizes have increased with two projects completed with a valuewell in excess of £1m each. To accommodate the growth in business QM iscurrently expanding its manufacturing and office facilities in its Worcesterfacility, this expansion will effectively double manufacturing and office spaceavailable. The order intake for the beginning of 2013/14 FY has been buoyant with a numberof new client relationships established as well as continued growth with theexisting client base, which it is believed will lead to further growth inrevenue and profit for the current year. Technology Division In the period under review, PipeHawk has continued to develop technically andcommercially the e-Safe, e-Spade Lite and e-Spott product families. The e-Safeproduct has now been developed to create a family of low cost highly efficientGPR products for a range of applications. Through the use of two "hotswappable" antenna's, e-Spade Lite provides a GPR tool that truly caters forall GPR applications whether shallow or deep targets are to be catered for. PipeHawk has continued the marketing efforts of these products and mostrecently attended the "No Dig" exhibition in Sydney Australia. Interest in thee-Safe and e-Spade Lite family of products was very good and we have also hadsignificant interest from the US market. Under IFRS, it is our practice to capitalise certain relevant expenditure onour considerable development activities in the expectation of recovering itagainst future sales. Your board reviews the carrying value of such expenditureeach year and, this year, we consider that, while we have developed anexcellent set of products which we continue to market, it is appropriate for usto write off the accumulated cost of their development to date in the sum of £2,520,000. This has arisen in the year following a reassessment of the group'sfinancial and human resources allocation to the various business streams,following the ongoing success of QM Systems as described above. The write offhas no cash effect. We recognise the effect that this has on our balance sheetbut we are confident that the trading prospects of the group's subsidiarieswill rapidly rebuild the strength of the balance sheet in future years. Asstated below, I have renewed my letter of support for the Company in respect ofloans and other amounts due to me amounting to £3.8m. Adien Adien enjoyed a very successful year with sales growing by 7% and profitsincreasing to £271,000. These results were achieved from the work it was ableto win on large infrastructure projects within both the utilities and transportsector such as the Nottingham Express Transit phase 2 project. Recent seniorrecruitments have added to the company's service offerings in 3d designinformation which allows infrastructure planners to find solutions to designissues right at the start of a project and make efficiency savings thatpreviously may have resulted in budget overruns towards the end of a project.The company continues to grow and contribute profitably to the group. SUMO SUMO continues to develop and I can report that it has seen good performancesfrom its previous acquisitions Stratascan Limited and GSB Prospection Limited,which it purchased in October 2012. These companies now dominate thegeophysical ground probing radar sector made famous last year by the publicitysurrounding their involvement in the discovery of the burial site of RichardIII. Turnover for the year ended 30 June 2013 was £2,934,000 (2012: £2,407,000)and the operating loss for the year was £130,000 (2012: profit £60,000). Sumois accounted for in the group financial statements as a joint venture. Theturnover of SUMO has not been accounted for in the group financial statementsgiven it is a joint venture. Related party transactions In the period under review, I was not called upon to provide working capitalsupport to the Company which is a further testament to the growing strength ofthe Group. My letter of support dated 22 October 2012 was renewed on 4 November 2013 for afurther 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. The directors, other than myself, consider, having consulted with the Company'snominated adviser, that the terms of the loans are fair and reasonable insofaras 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 until theCompany is in a suitably strong position to make the full payments. No furtherfees were deferred in the year ended 30 June 2013. At 30 June 2013, thesedeferred fees amounted to approximately £825,000 in total, all of which havebeen accrued in the Company's accounts. Strategy & Outlook The PipeHawk group remains committed to creating sustainable earnings-basedgrowth and focuses 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. In the last year, theresults for the business reflect the efforts put in by management and staff andtherefore I remain optimistic in my outlook for the Group. Gordon WattChairman Enquiries: PipeHawk Plc Tel. No. 01252 338 959Gordon Watt (Chairman) Sanlam Securities UK Limited (Nomad and Broker) Tel. No. 020 7628 2200David Worlidge/Simon Clements Consolidated Statement of Comprehensive Income for the year ended 30 June 2013 Note 30 June 2013 30 June 2012 £'000 £'000 Revenue 5,224 3,342 Staff costs (2,106) (1,779)Operating costs (2,367) (1,453) Operating profit before amortisationand 751 110impairmentof research and developmentexpenditure Amortisation and impairment of research and 5development expenditure (2,520) (5) Operating (loss) / profit (1,769) 105 Share of loss in joint venture 6 (35) (17) (Loss) / profit before interest and (1,804) 88taxation Finance costs (162) (158) (Loss) / profit before taxation (1,966) (70) Taxation 3 34 98(Loss) / profit for the year attributable (1,932) 28to equity holders of the Company* Other comprehensive income - - Total comprehensive income for the year net (1,932) 28of tax attributable to equity holders ofthe Company (Loss)/ profit per share (pence) - basic 4 (5.85) 0.09 (Loss)/ profit per share (pence) - diluted 4 (5.85) 0.06 *Non-GAAP measure - profit for the yearbefore impairment and amortisation ofresearch and development expenditure 30 June 2013 30 June 2012 £'000 £'000 (Loss) / profit for the year attributable (1,932) 28to equity holders of the Company Adjustment for amortisation and impairment 5of research and development expenditure 2,520 5 Profit for the year before amortisation andimpairment of research and development 588 33expenditure Profit per share (pence) before 4 1.78 0.10amortisation and impairment of research anddevelopment expenditure - basic Profit per share (pence) before 4 1.02 0.07amortisation and impairment of research anddevelopment expenditure - diluted Consolidated Statement of Financial Position at 30 June 2013 Note 30 June 2013 30 June 2012Assets £'000 £'000 Non-current assetsProperty, plant and equipment 205 196Goodwill 1,061 1,061Intangible assets 5 - 2,348Investment in joint venture 6 58 93 1,324 3,698 Current assetsInventories 110 149Current tax assets 47 104Trade and other receivables 7 1,390 835Cash and cash equivalents 383 189 1,931 1,277 Total assets 3,254 4,975 Equity and liabilities EquityShare capital 330 330Share premium 5,151 5,151Retained earnings (7,457) (5,525) (1,976) (44) Non-current liabilitiesBorrowings 8 2,519 2,729Trade and other payables 9 1,522 1,394 4,041 4,123 Current liabilitiesTrade and other payables 9 1,163 779Borrowings 10 26 117 1,189 896 Total equity and liabilities 3,254 4,975 Consolidated Statement of Cash Flow for the year ended 30 June 2013 Note 30 June 30 June 2013 2012 £'000 £'000 Cash flows from operating activities(Loss)/profit from operations (1,769) 105 Adjustments for:Depreciation 90 73Impairment of intangible assets 2,520 5 841 183 (Increase)/decrease in inventories 39 48(Increase)/decrease in receivables (568) 131Increase/(decrease) in liabilities 356 26 Cash generated by/(used) in operations 11 668 388 Interest paid (6) (6)Corporation tax received 104 78 Net cash from operating activities 766 460 Cash flows from investing activities Development costs paid (172) (230)Purchase of plant and equipment (101) (128)Sale of plant and equipment 2 - Net cash used in investing activities (271) (358) Cash flows from financing activities New loans and finance leases 59 118Repayment of loan (314) (125)Repayment of finance leases (46) (18) Net cash used in financing activities (301) (25) Net increase in cash and cash equivalents 194 77 Cash and cash equivalents at beginning of year 189 112 Cash and cash equivalents at end of year 383 189 Statement of Changes in Equity for the year ended 30 June 2013 Share Share premium Retained capital account earnings Total £'000 £'000 £'000 £'000 As at 1 July 2011 330 5,151 (5,553) (72) Loss for the period - - 28 28Other comprehensive income - - - - Total comprehensive income - - 28 28 As 30 June 2012 330 5,151 (5,525) (44) Loss for the period - - (1,932) (1,932)Other comprehensive income - - - - Total comprehensive income - - (1,932) (1,932) As 30 June 2013 330 5,151 (7,457) (1,976) Notes to the Final Results for the year end 30 June 2013 1. Basis of preparation The principal accounting policies adopted in the preparation of the financialinformation in this announcement are set out in the Company's full financialstatements for the year ended 30 June 2013 and are consistent with thoseadopted in the financial statements for the year ended 30 June 2012. The financial statements have been prepared in accordance with internationalfinancial reporting standards as adopted by the EU and under the historicalcost convention. The Group has been generating positive cash flows for the past two years,although has yet to begin repaying the amounts owed to the Executive Chairman,GG Watt, whilst revenues have substantially grown. The directors have reviewedthe Group's funding requirements for the next twelve months which show furtheranticipated cash flow generation, prior to any repayment of loans from theExecutive Chairman. The directors have furthermore obtained a renewed pledgefrom GG Watt to provide ongoing financial support for a period of at leasttwelve months from the approval date of the group statement of financialposition. It is on this basis that the directors consider it appropriate toadopt the going concern basis of preparation within these financial statements. The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 30 June 2012 and 2013, but is derivedfrom those accounts. Statutory accounts for 2012 have been delivered to theRegistrar of Companies and those for 2013 will be delivered following theCompany's Annual General Meeting. The Auditors have reported on those accounts;their reports were unqualified and did not contain any statements underCompanies Act 2006 section 498 (2) or (3). The Auditor's report for the year ended 30 June 2013 contains the followingparagraph: "Emphasis of matter - Going concern Without 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." 2. Segmental analysis 2013 2012 £'000 £'000 Turnover by geographical marketUnited Kingdom 5,137 3,249Europe 52 -Other 35 93 5,224 3,342 The 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 solutions The 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 2013. In development, assembly and sale of GPR equipment onecustomer accounted for 27% of revenue in 2013. In automation and test systemsolutions two customers accounted for more than 10% of revenue and in aggregatethese two customers represented 70% of segment revenue (2012: 0%). Information regarding each of the operations of each reportable segments isincluded below. Utility Development, Test system Total detection assembly and solutions and mapping sale of GPR services equipment £'000 £'000 £'000 £'000 Year ended 30 June 2013 Total segmental revenue 1,780 171 3,273 5,224Segmental result 271 (2,471) 431 (1,769)Finance costs (6) (156) - (162)Share of operating loss (35)in joint ventureLoss before taxation (1,966) Segment assets 882 694 1,679 3,255 Segment liabilities 584 3,476 1,170 5,230 Depreciation and 62 2,345 203 2,610amortisation Utility Development, Test system Total detection assembly and solutions and mapping sale of GPR services equipment Year ended 30 June 2012 Total segmental revenue 1,524 221 1,597 3,342Segmental result 76 (7) 36 105Finance costs (158)Share of operating (17)loss in joint venture(Loss) before taxation (70) Segment assets 1,020 2,837 1,118 4,975 Segment liabilities 987 2,428 1,048 4,463 Depreciation and 49 2 33 84amortisation The majority of the Group's revenue is earned via the rendering of services. 3. Taxation 2013 2012 £'000 £'000 United Kingdom Corporation TaxCurrent taxation (20) (106)Adjustments in respect of prior years (14) 8 (34) (98)Deferred taxation - - Tax on loss (34) (98) Current tax reconciliation 2013 2012 £'000 £'000 Taxable (loss) / profit for the year (1,966) (70) Theoretical tax at UK corporation tax (459) (18)rate 23.75% (2012: 26%)Effects of:- R&D tax credit adjustments (142) (164)- other expenditure that is not tax 2 11deductible- adjustments in respect of prior years -- accelerated capital allowances 40 (71)- losses carried forward 572 92- short term timing differences 21 52 Total income tax expense (34) (98) The Group has tax losses amounting to approximately £1,720,000 (2012: £1,800,000), available for carry forward to set off against future tradingprofits. 4. Profit/(loss) per share Basic This has been calculated on a loss of £1,932,000 (2012: profit £28,000) and thenumber of shares used was 33,020,515 (2012: 33,020,515) being the weightedaverage number of shares in issue during the year. Diluted This has been calculated on a loss of £1,932,000 (2012: profit £28,000) and thenumber of shares used was 33,020,515 (2012: 48,114,301) being the dilutedweighted average number of shares in issue during the year. As the Group hasreported a loss for 2013, the effect of the share options and other instrumentsare anti-dilutive and are not included. Adjusted profit per share before amortisation and impairment development costs The non-GAAP measure has been calculated by adding back the amortisation andimpairment of development costs of £2,520,000 (2012: £5,000) to the loss of £1,932,000 (2012: profit £28,000). The profit before amortisation and impairmentof development costs is £588,000 (2012: £33,000). Basic The number of shares used was 33,020,515 (2012: 33,020,515) being the weightedaverage number of shares in issue during the year. Diluted The number of shares used was 57,776,229 (2012: 48,114,301) being the dilutedweighted average number of shares in issue during the year. 5. Intangible assets Development costs Trade marks Total £'000 £'000 £'000 Cost:At 1 July 2012 2,397 7 2,404Additions 172 - 172 At 30 June 2013 2,569 7 2,576 AmortisationAt 1 July 2012 49 7 56Charge for the year 2,520 - 2,520 At 30 June 2013 2,569 7 2,576 Net book valueAt 30 June 2013 - - - At 30 June 2012 2,348 - 2,348 Development costs Trade marks Total £'000 £'000 £'000 Cost:At 1 July 2011 2,167 7 2,174Additions 230 - 230 At 30 June 2012 2,397 7 2,404 AmortisationAt 1 July 2011 44 7 51Charge for the year 5 - 5 At 30 June 2012 49 7 56 Net book valueAt 30 June 2012 2,348 - 2,348 At 30 June 2011 2,123 - 2,123 At 1 July 2012, the carrying value of the intangible development costsrecognised in the group statement of financial position of £2,348,000 relate toPipehawk Plc and QM Systems Limited and stand at £2,171,000 and £177,000respectively. These arose on specific projects involving the development ofground probing radar equipment and software, a lightning strike protectionsolution and bespoke loop testers for the aerospace sector. Further costs of £172,000 were incurred during the year to 30 June 2013. Following the continued success of QM Systems and Adien, the Group hasrefocused its financial and human resource towards the more immediatelyprofitable business streams. Due to this, the group has re-assessed thecarrying value of these specific projects and assets and whilst the groupcontinues to market the products to which these costs relate, it has beenconsidered appropriate to impair these costs. In making this assessment, the group have considered the value in use of thesespecific projects based on financial budgets prepared by the directors. The keyassumptions used are those regarding the discount rates, growth rates andexpected to change to sales and direct costs during the period. The discountrate applied to projections was estimated at 9 or 10% per annum, reflecting theprevailing pre tax cost of capital in the group. The budgets show a significant decreased demand related to these projects tothat previously presented in the prior years and based upon actual 2013activities and those forecast going forward. As a result the group hasrecognised an impairment charge of £2,520,000 against development costs whichis included within the statement of comprehensive income. 6. Investment in Joint Venture Investment in shares £'000 Cost:At 1 July 2012 & 30 June 2013 198 Share of lossesAt 1 July 2012 105Share of losses for the year 35 At 30 June 2013 140 Net investmentAt 30 June 2013 58 At 30 June 2012 93 Investment in shares £'000Cost:At 1 July 2011 & 30 June 2012 198 Share of lossesAt 1 July 2011 88Share of losses for the year 17 At 30 June 2012 105 Net investmentAt 30 June 2012 93 At 30 June 2011 110 The 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 2013. SUMO Limited's principal place of business is Havant,Hampshire. Summarised financial information in respect of the Group's joint venture is setout below: 30/06/13 30/06/12 £'000 £'000 Total assets 2,791 2,156Total liabilities 2,587 1,836Net assets 204 320Group's share of net assets of joint venture 58 93 Year ended Year ended 30/6/13 30/6/12 Total revenue 2,934 2,118Total loss for the period (130) (60)Group's share of loss of joint venture (35) (17) 7. Trade and other receivables 2013 2012 £'000 £'000 CurrentTrade receivables 1,340 800Other receivables 8 8Prepayments and accrued income 42 27 1,390 835 8. Non-current liabilities: Borrowings 2013 2012 £'000 £'000 Borrowings (note 10) 2,545 2,846 9. Trade and other payables 2013 2012Current £'000 £'000Trade payables 607 352Other taxation and social security 186 201Payments received on account - 101Accruals 370 125 1,163 779 2013 2012Non-current £'000 £'000Trade payables 209 209Accruals 1,313 1,185 1,522 1,394 Included within the above amounts are the following amounts owing to directors,principally in non-current liabilities, which incur no interest charge; 2013 2012 G G Watt £1,306,520 £1,136,176 R G Tallentire £172,329 £213,771 R R MacDonnell £19,000 £19,000 The directors have undertaken not to call upon these amounts until the Group isin a position to generate sufficient operating cashflows. 10. Borrowing Analysis 2013 2012 £'000 £'000Due within one yearBank loans - 97Obligations under finance lease agreements 26 20 26 117 Due after more than one yearObligations under finance lease agreement 34 27Directors' loans 2,485 2,702 2,519 2,729 RepayableDue within 1 year 26 117Over 1 year but less than 2 years 2,504 2,717Over 2 years but less than 5 years 15 12 2,545 2,846 Bank loans comprises a loan from Aldermore Bank PLC which is a confidentialinvoice finance facility at a rate of 3.5% over base rate. Finance 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 £59,582 (2012: £47,540) 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 13th August 2010 the Company issued £1 million of Convertible Unsecured LoanStock 2014 ("CULS") to G G Watt, the Chairman of the Company. The CULS havebeen issued to replace loans made by G G Watt to the Company amounting to £1million. The principal terms of the CULS are as follows: - The CULS may be converted at the option of Gordon Watt at a price of 7p pershare at any time prior to 11 August 2014; - 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 CULS. On conversion of anyCULS, any unpaid interest shall be paid within 20 days of such conversion; - The CULS are repayable, together with accrued interest on 11 August 2014 ("the Repayment Date"); - The Company has the option, after 1 year to repay the CULS before the Repayment Date, subject to the Company providing 10 days' notice. 11. Dividends The directors do not recommend the payment of a dividend (2012: Nil). 12. Copies of the Report and Accounts Copies 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.