TIDMPIP
RNS Number : 6994C
PipeHawk PLC
21 October 2020
This announcement contains inside information as stipulated
under the Market Abuse Regulations (EU) no. 596/2014 ("MAR"). With
the publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
21 October 2020
PipeHawk plc
("PipeHawk", "Company" or the "Group")
Final Results for the year ended 30 June 2020
Highlights
- Turnover of GBP8.3 million, an increase of 23.9% (2019: GBP6.7 million)
- Profit before tax of GBP194,000, and increase of 1517% (2019: GBP12,000)
- Earnings per share of 1.69p, up 86% (2019: 0.91p)
- QM Systems has its best year ever both in terms of turnover and profit
Chairman's Statement
I am pleased to report that turnover for the year ended 30 June
2020 was GBP8.3 million (2019: GBP6.7 million), an increase of
23.9%. The Group made an operating profit in the year of GBP405,000
(2019: GBP57,000) and a profit before taxation for the year of
GBP194,000 (2019: GBP12,000) and a profit after taxation of
GBP590,000 (2019: GBP312,000) . The earnings per share for the year
was 1.69p (2019: 0.91p).
Last year we had the politicians faffing around with Brexit
causing delays to orders until Boris Johnson and the British public
gave us a degree of certainty. This lasted for all of four months
until Coronavirus hit and lockdown began. Nevertheless, that window
of opportunity enabled orders to be placed and allowed some
optimism to return which the PipeHawk group and its employees have
taken advantage of and wrestled into an excellent trading result.
Just imagine what we, and the nation as a whole, can achieve once
we are through Coronavirus and freed from the continual negativity
of the naysayers and doom mongers.
QM Systems
At QM Systems, trading during the first eight months was
excellent, with many more orders in the pipeline. Then Coronavirus
came into play and, like most companies within the UK, we
experienced significant disruption. Despite the extensive lockdown
we all experienced for three months followed by the easing of the
lockdown, QM Systems has continued to operate effectively.
Employees that could were set up to work from home. However, our
assembly, installation and commissioning teams were also extremely
busy assembling systems at QM Systems' facility in Worcester or
carrying out installation and commissioning work at client
facilities. The initial four-week period of lockdown created
significant disruption to our activities, However, as our clients
and we learned to adjust to the 'new normal', clean hands, socially
distanced way, business activity stabilised. We were able to regain
access to client facilities to continue to build activity and the
situation actually created opportunities for QM Systems in
supporting overseas companies installing systems into the UK
market.
Despite the setback that Coronavirus has presented, QM Systems
has managed to achieve its best year ever both in terms of turnover
and profit. This is a great achievement given that the order intake
effectively switched off for almost five months from the start of
the strict lockdown period, when many projects we were expecting to
win were placed on hold. During this period, however, our sales
team has worked diligently to open new opportunities and to
continue to keep previous opportunities live and we now sit on a
potential orderbook that is larger than we have ever experienced
previously. Project orders are flowing again and we had been
expecting a return to pre-Coronavirus levels within the next few
months with a number of key larger projects in final contractual
negotiation. This has been helped in no small measure by the work
we have undertaken to diversify our client base across numerous
industries and has enabled us to recover more quickly than a number
of our competitors. Recent measures brought in by the Government to
combat the worsening Coronavirus situation will inevitably have
some delaying effect on securing orders but with the regional
approach being adopted by the Government it is hard to forecast
what effect it will have on trading at QM Systems.
During the year QM Systems has completed the installation and
commissioning work with Cox Powertrain for its Marine Diesel
Outboard Engine, introduced and commissioned a new larger variant
of Carbon Fibre delivery POD with our partner Penso, who are now
selling the vehicle in volume, and installed and commissioned a
QMAC-3 60 station conveyor system with one of QM Systems' key
automotive clients as well as a multitude of other significant
contracts. The products that QM Systems has developed and
manufacture for the Aerospace and Petrochemical industries continue
to sell, seemingly unaffected by Coronavirus factors. QM Systems
has completed the integration of Wessex test equipment into the
business unit and sales have continued to flow nicely into the
business. QM Systems has been working to re-engineer a number of
the Wessex products to reduce costs and increase technology levels
ensuring the products become more IT connected and thus user
friendly.
QM Systems has recently started work on a new GBP1.7 million
project to deliver a bespoke machining and handling system to
Isoclad Limited, one of the UK's largest independent composite
panel manufacturers, for the manufacture of specialist clad panels
for its Customclad service.
The outlook for the current year and beyond for QM Systems is
extremely positive.
Thomson Engineering Design ("TED")
TED has had an exceptionally busy year with key staff stretched
to the limit and a requirement to recruit new members to the team.
Turnover increased by 42% on a year-on-year basis and TED delivered
a genuine pre-tax profit for the first time despite the additional
costs of keeping the workplace a safe and secure environment for
our employees. An excellent result given the difficult climate TED
has endured.
During the year TED developed a number of new, innovative and
exciting products, many of which have been designed for the export
market. Whilst UK sales remained largely stagnant, the export
market, particularly in Southern Asia, has gone from strength to
strength. TED continues to establish itself as the 'Go To' company
in the rail industry for any client who has a requirement for
something that is a little different to the norm. During the year
TED has delivered bespoke rail equipment into New Zealand, a range
of products into plant equipment companies within the UK as well as
products and projects into Canada, the US, France and Australia. It
has continued to focus on new innovation that TED fully expects
will realise future growth with higher volume product sales within
domestic and international markets. These products are expected to
secure sales within the current financial year.
TED has also launched a new website which provides an up-to-date
summary of the products and services offered together with a
significant increase in the use of social media to tell the world
about the quality service which it can offer. The news seems to be
getting through both nationally and internationally.
Technology Division
This has been a disappointing year in terms of European unit
sales of the eSafe technology which has still to recover to
pre-Brexit levels. However; sales to Asia continue to show a
positive trend.
Previous R&D investment into innovative servicing &
maintenance systems is also bearing fruit with noticeable interest
being shown by overseas distributors and resellers.
As UK unit sales continue to be affected by CAPEX restrictions
across key markets, opportunities for long term/project-based hire
are now being explored in those and other markets, while many
existing customers continue their loyalty to the PipeHawk brand
with investment in the maintenance and upgrade of existing
equipment fleets.
With the cancellation of many industry events around the globe,
the opportunity for face-to-face marketing has taken a knock in
recent months but use of virtual communications and outdoor
presentations has maintained a semblance of direct customer contact
in the face of difficult times.
Adien
Adien started the year very well with the renewal of significant
long-term contracts, which provided a strong order book and good
staff utilisation. Then trading at Adien was struck by the
repercussions of the Coronavirus pandemic. Adien adapted and
evolved; it quickly adopted remote working coupled with the
installation of new software which reshaped the business profoundly
in a short period of time and was able to continue to provide its
service throughout the period from March to present day in a most
effective manner suffering principally in the initial stages. Adien
encountered many challenges both external and internal, in terms of
H&S management, organisation, control and communications
through to denial of access to site as clients gradually came to
terms with the outdoor nature of our work and relatively easy
ability to maintain social distancing.
Adien are undertaking several new contracts for all the major
Telecom networks involved in the 5G rollout and this business will
secure 18 to 24 months of additional work. Consolidation of
existing contracts in Energy, Defence and Infrastructure is
expected to continue over a 3 to 5 year period running in tandem
with the Telecom contracts.
Reducing the size of the survey teams, whilst expanding single
working, allows larger volumes of specific contract sites to be
completed in the same time period. Remote/home working provides
more effective time use and long-term cost savings with the
potential to move to less costly premises in 2021. The realignment
of the vehicle fleet to more compact and less costly, more
economical vehicles is also under way. Those cost efficiencies,
taken with the increased levels of business as a result of being
able to offer Adien's services throughout lockdown, bodes extremely
well for the current and next years' expected outturn.
Financial position
The Group continues to be in a net liability position and is
still reliant on my continuing financial support.
My letter of support dated 7 October 2019 was renewed on 28
September 2020 for a further year. Loans due to me, 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%.
The CULS agreement for GBP1 million, provided by myself, was
renewed last year and extended on identical terms, such that the
CULS are now repayable on 13 August 2022.
In addition to the loans I have provided to the Company in
previous years, I have deferred a certain proportion of fees and
the interest due until the Company is in a suitably strong position
to make the full payments.
Historically, my fees and interest payable have been deferred.
During the year under review, the deferred element amounted to
GBP213,000. At 30 June 2020, these deferred fees and interest
amounted to approximately GBP1.6 million in total, all of which
have been recognised as a liability 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. All
divisions of the Group are currently performing well and I remain
optimistic in my outlook for the Group, subject always to any
unusually negative impact from further Coronavirus lockdown or an
absurd reaction from the EU if there is a WTO terms Brexit.
Gordon Watt
Chairman
20 October 2020
Enquiries:
PipeHawk Plc Tel. No. 01252 338 959
Gordon Watt (Chairman)
Allenby Capital (Nomad and Broker) Tel. No. 020 3328 5656
David Worlidge/Asha Chotai
Notes to Editors
For further information on the Company and its subsidiaries, please visit: www.pipehawk.com
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
30 June 2020 30 June 2019
Note GBP'000 GBP'000
Revenue 2 8,325 6,680
Staff costs 5 (3,776) (3,265)
Operating costs (4,144) (3,358)
-------------------- ---------------------
Operating profit 4 405 57
Profit before interest and
taxation 405 57
-------------------- ---------------------
Finance costs 3 (211) (45)
-------------------- ---------------------
Profit before taxation 194 12
Taxation 7 396 300
Profit for the year attributable
to equity holders of the parent 590 312
-------------------------- -----------------------
Other comprehensive income - -
-------------------- ---------------------
Total comprehensive profit/(loss)
for the year attributable to
equity
holders of the parent 590 312
==================== =====================
Profit per share (pence) - basic 8 1.69 0.91
Profit per share (pence) - diluted 8 0.93 0.72
The notes to the financial statements form an integral part of
these financial statements.
Consolidated Statement of Financial Position
at 30 June 2020
Note 30 June 2020 30 June 2019
Assets GBP'000 GBP'000
Non-current assets
Property, plant and equipment 9 811 525
Goodwill 10 1,345 1,190
2,156 1,715
------------------- -------------------
Current assets
Inventories 11 151 134
Current tax assets 394 315
Trade and other receivables 12 1,654 1,592
Cash and cash equivalents 250 774
------------------- -------------------
2,449 2,815
Total assets 4,605 4,530
=================== ===================
Equity and liabilities
Equity
Share capital 17 349 344
Share premium 5,215 5,205
Retained earnings (8,306) (8,896)
------------------- -------------------
(2,742) (3,347)
------------------- -------------------
Non-current liabilities
Borrowings 13 3,255 2,661
Trade and other payables 14 6 3
------------------- -------------------
3,261 2,664
------------------- -------------------
Current liabilities
Trade and other payables 14 1,949 3,270
Borrowings 15 2,137 1,943
------------------- -------------------
4,086 5,213
Total equity and liabilities 4,605 4,530
=================== ===================
The notes to the financial statements form an integral part of
these financial statements.
The financial statements were approved by the board and
authorised for issue on 20 October 2020 and signed on its behalf
by:
Gordon G Watt
Director
Company No: 3995041
Consolidated Statement of Cash Flow
For the year ended 30 June 2020
Note 30 June 2020 30 June 2019
GBP'000 GBP'000
Cash flows from operating
activities
Profits from operations 405 57
Adjustments for:
Depreciation 191 90
Profit on disposal of fixed
asset - (13)
----------------- -----------------
596 134
(Increase)/decrease in inventories (18) 44
Increase in receivables (52) (417)
(Decrease)/increase in liabilities (1,036) 1,570
----------------- -----------------
(Cash used in)/generated by
operations (510) 1,331
Interest paid (69) (147)
Corporation tax received 318 358
----------------- -----------------
Net cash (used in)/generated
from operating activities (261) 1,542
----------------- -----------------
Cash flows from investing
activities
Proceeds from sale of joint
venture - 17
Acquisition of subsidiary
net of cash acquired 23 -
Purchase of plant and equipment (474) (75)
Proceeds from disposal of
fixed assets - 16
----------------- -----------------
Net cash used in investing
activities (451) (42)
----------------- -----------------
Cash flows from financing
activities
Proceeds from borrowings 523 -
Repayment of loan (165) (676)
Repayment of finance leases (170) (69)
----------------- -----------------
Net cash generated from/(used
in) financing activities 188 (745)
----------------- -----------------
Net (decrease)/increase in
cash and cash equivalents (524) 755
Cash and cash equivalents
at beginning of year 774 19
Cash and cash equivalents
at end of year 250 774
================= =================
The notes to the financial statements form an integral part of
these financial statements.
Statement of Changes in Equity
For the year ended 30 June 2020
Share capital Share premium Retained Total
account earnings
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 July 2018 340 5,191 (9,208) (3,367)
Profit for the year - - 312 312
Other comprehensive - - - -
income
-------------- -------------- ---------- --------
Total comprehensive
income - - 312 312
Issue of shares 4 14 - 18
-------------- -------------- ---------- --------
As at 30 June 2019 344 5,205 (8,896) (3,347)
============== ============== ========== ========
Profit for the year - - 590 590
Other comprehensive - - - -
income
-------------- -------------- ---------- --------
Total comprehensive
income - - 590 590
Issue of shares 5 10 - 15
As at 30 June 2020 349 5,215 (8,306) (2,772)
============== ============== ========== ========
The share premium account reserve arises on the issuing of
shares. Where shares are issued at a value that exceeds their
nominal value, a sum equal to the difference between the issue
value and the nominal value is transferred to the share premium
account reserve.
The notes to the financial statements form an integral part of
these financial statements.
1. Summary of Significant Accounting Policies
General information
PipeHawk plc (the Company) is a limited company incorporated in
the United Kingdom under the Companies Act 2006
The financial statements are presented in pounds sterling, the
functional currency of all companies in the Group.
Basis of preparation
The financial information set out in this announcement does not
constitute the Company's statutory accounts for the years ended 30
June 2020 or 2019. The financial information for the year ended 30
June 2019 is derived from the statutory accounts for that year,
which were prepared under IFRSs, and which have been delivered to
the Registrar of Companies. The financial information for the year
ended 30 June 2020 is derived from the audited statutory accounts
for the year ended 30 June 2020 on which the auditors have given an
unqualified report, that did not contain a statement under section
498(2) or 498(3) of the Companies Act 2006.
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.
The Group has applied the practical expedient available on
transition to IFRS 16 not to reassess whether a contract is or
contains a lease. Accordingly, the definition of a lease in
accordance with IAS 17 will continue to apply to those leases
entered into before 1 January 2019. For more information see Leased
assets accounting policy below.
Basis of preparation - Going concern
The directors have reviewed the Parent Company and Group's
funding requirements for the next twelve months which show positive
anticipated cash flow generation, prior to any repayment of loans
advanced by the Executive Chairman. 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 and Parent Company statement of financial
positions. The directors therefore have a reasonable expectation
that the entity has adequate resources to continue in its
operational exercises for the foreseeable future. It is on this
basis that the directors consider it appropriate to adopt the going
concern basis of preparation within these financial statements.
However a material uncertainty exists regarding the ability of the
Group and Parent Company to remain a going concern without the
continuing financial support of the Executive Chairman.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved where the Company has the
power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated statement of comprehensive
income from the effective date of acquisition or up to the
effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with those used by other
members of the Group. All intra-group transactions, balances,
income and expenses are eliminated in full on consolidation
Business combinations
Acquisitions of subsidiaries and businesses are accounted for
using the acquisition method. The cost of the business combination
is measured as the aggregate of the fair values (at the date of
exchange) of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of
the acquiree. The acquiree's identifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition
under IFRS 3 Business Combinations (revised) are recognised at
their fair values at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations, which are recognised and measured at fair
value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and
initially measured at cost, being the excess of the cost of the
business combination over the Group's interest in the net fair
value of the identifiable assets, liabilities and contingent
liabilities recognised.
Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly
controlled entity represents the excess of the cost of acquisition
over the Group's interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities of the subsidiary or
jointly controlled entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment
losses.
For the purpose of impairment testing, goodwill is allocated to
each of the Group's cash-generating units expected to benefit from
the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or
more frequently when there is an indication that the unit may be
impaired. If the recoverable amount of the cash-generating unit is
less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each asset in the
unit. An impairment loss recognised for goodwill is not reversed in
a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the
attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
Revenue recognition
For the year ended 30 June 2020 the Group used the five-step
model as prescribed under IFRS 15 on the Group's revenue
transactions. This included the identification of the contract,
identification of the performance obligations under the same,
determination of the transaction price, allocation of the
transaction price to performance obligations and recognition of
revenue.
The point of recognition arises when the Group satisfies a
performance obligation by transferring control of a promised good
or service to the customer, which could occur over time or at a
point in time.
Sale of goods
Revenue generated from the sale of goods is recognised on
delivery of the good to the customer on this basis revenue is
recognised at a point in time.
Sale of services
In relation to the design and manufacture of complete software
and hardware test solutions and the provision of specialist
surveying, revenue is recognised through a review of the man-hours
completed on the project at the year-end compared to the total
man-hours required to complete the projects. Provision is made for
all foreseeable losses if a contract is assessed as
unprofitable.
Revenue represents the amount of consideration to which the
Group expects to be entitled in exchange for transferring promised
goods or services to a customer, excluding amounts collected on
behalf of third parties.
Revenue from goods and services provided to customers not
invoiced as at the reporting date is recognised as a contract asset
and disclosed as accrued income within trade and other
receivables.
Although payment terms vary from contract to contract invoices
are in general raised in advance of services performed. Where
billing has exceeded the revenue recognised in a period a contract
liability is recognised and this is disclosed as payments received
on account in trade and other payables.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is charged so as to write off the cost of assets over
their estimated useful lives, using the straight-line method. The
estimated useful lives, residual values and depreciation method are
reviewed at each year end, with the effect of any changes in
estimate accounted for on a prospective basis. Assets held under
leases are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, the term of the relevant
lease. Gains and losses on disposals are determined by comparing
the proceeds with the carrying amount and are recognised within the
Statement of Comprehensive Income.
The principal annual rates used to depreciate property, plant
and equipment are:
Equipment, fixtures and fittings 25%
Motor vehicles 25%
Inventories and work in progress
Inventories are stated at the lower of cost and net realisable
value. Costs, including an appropriate portion of fixed and
variable overhead expenses, are assigned to inventories by the
method most appropriate to the particular class of inventory, with
the majority being valued on a first-in-first-out basis. Net
realisable value represents the estimated selling price for
inventories less all estimated costs of completion and costs
necessary to make the sale.
Work in progress is valued at cost, which includes expenses
incurred on behalf of clients and an appropriate proportion of
directly attributable costs on incomplete assignments. Provision is
made for irrecoverable costs where appropriate.
Financial assets
The Group's financial assets consist of cash and cash
equivalents and trade and other receivables. The Group's accounting
policy for each category of financial asset is as follows:
Financial assets held at amortised cost
Trade receivables and other receivables are classified as
financial assets held at amortised cost. They are initially
recognised at fair value plus transaction costs that are directly
attributable to their acquisition or issue and are subsequently
carried at amortised cost using the effective interest rate method,
less provision for impairment.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts due under
the terms receivable, the amount of such a provision being the
difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired
receivable. For receivables, which are reported net, such
provisions are recorded in a separate allowance account with the
loss being recognised within administrative expenses in the
statement of comprehensive income. On confirmation that the
receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision.
The Group's financial assets held at amortised cost comprise
other receivables and cash and cash equivalents in the statement of
financial position.
Derecognition of financial assets
The Group derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire; or it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recorded at
the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs. Financial
liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an
effective yield basis.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
Leased assets
During the year, the Group has changed its accounting policy for
leases where the group is the lessee. The new policy is set out
below and the impact of the change is described in note 20.
Until the 30 June 2019, leases of property, plant and equipment
where the Group, as lessee, had substantially all the risks and
rewards of ownership were classified as finance leases. Finance
leases were capitalised at the lease's inception at the fair value
of the leased property or, if lower, the present value of the
minimum lease payments. The corresponding rental obligations, net
of finance charges, were included in other short-term and long-term
payables.
Leases in which a significant portion of the risks and rewards
of ownership were not transferred to the Group as lessee were
classified as operating leases. Payments made under operating
leases (net of incentives received from the lessor) were charged to
profit or loss on a straight-line basis over the period of the
lease.
IFRS has introduced a single, on-balance sheet accounting model
for lessees, eliminating the distinction between operating and
finance leases. IFRS 16 has impacted how the Group
accounts for leases under IAS 17. On initial application at 1
July 2019 and followed the modified retrospective method, the group
has performed the following:
o Recognised right of use assets and lease liabilities in the
Consolidated Statement of Financial Position, measured at the
present value of future lease payments, discounted using the rate
implicit in the lease or the lessee's incremental borrowing rate,
if this is not stated. These are included within Property, plant
and equipment and current and non-current borrowing.
o Recognised depreciation of right of use assets and interest on
lease liabilities in the Consolidated Statement of Comprehensive
income.
o Separated the total amount of cash paid into a principal
portion and interest, presented within financing activities within
the Consolidated Statement of cash flow.
The incremental borrowing rate is calculated on a lease by lease
basis. The weighted average leasee's borrowing rate applied on the
lease liability on 1 July 2019 was 3.19% - See note 20
For contracts entered into on or after 1 July 2019, the Group
assesses at inception whether the contract is, or contains, a
lease. A lease exists if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for
consideration. The group assessment includes whether:
-- the contract involves the use of an identified asset;
-- the Group has the right to obtain substantially all of the
economic benefit from the use of the asses throughout the contract
period, and;
-- the Group has the right to direct the use of the asset.
At the commencement of a lease, the Group recognises a
right-of-use asset along with a
corresponding lease liability.
The leases liability is initially measured at the present value
of the remaining lease payments, discounted using the individual
entities incremental borrowing rate. The lease term comprises the
non-cancellable period of the contract, together with periods
covered by an option to extend the lease where the Group is
reasonable certain to exercise that option based on operational
needs and contractual terms. Subsequently, the lease liability is
measured at amortised cost by increasing the carrying amount to
reflect interest on the lease liability, and reducing it by the
lease payments made. The lease liability is remeasured when the
Group changes its assessment of whether it will exercise an
extension or termination option.
Right-of-use assets are initially measured at cost, comprising
the initial measurement of the lease liability adjusted for any
lease payments made at or before the commencement date, lease
incentives received and initial direct costs. Subsequently,
right-of-use assets are measured at cost, less any accumulated
depreciation and any accumulated impairment losses, and are
adjusted for certain remeasurement of the lease liability.
Depreciation is calculated on a straight-line basis over the
length of the lease. The Group has elected to apply exemptions for
short-term leases and leases for which the underlying asset is
of
low value. For these leases, payments are charged to the income
statement on a straight-line basis over the term of the relevant
lease. Right-of-use assets are presented within non-current assets
on the face of the balance sheet, and lease liabilities are shown
separately on the statement of financial position in current
liabilities and non-current liabilities depending on the maturity
of the lease payments.
Under IFRS16, right-of-use assets will be tested for impairment
in accordance with IAS36 Impairment of Assets. This has replaced
the previous requirements to recognise a provision for onerous
lease contracts.
Payments associated with short-term leases are recognised on a
straight-line basis as an expense in the profit or loss. Short term
leases are leases with a lease term of 12 months or less.
Pension scheme contributions
Pension contributions are charged to the statement of
comprehensive income in the period in which they fall due. All
pension costs are in relation to defined contribution schemes.
Share based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date. Details regarding the
determination of the fair value of equity-settled share-based
transactions are set out in note 18.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of
equity instruments that will eventually vest. At each statement of
financial position date, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the
revision of the original estimates, if any, is recognised in profit
or loss over the remaining vesting period, with a corresponding
adjustment to reserves.
Foreign currencies
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the rates of exchange
ruling at 30 June. Transactions in foreign currencies are recorded
at the rates ruling at the date of the transactions.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the
consolidated statement of comprehensive income because it excludes
items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by
the year end date.
Deferred tax
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the statement of financial
position liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, and deferred tax
assets are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary
differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill or from
the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
associates, and interests in joint ventures, except where the Group
is able to control the reversal of the temporary difference and it
is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interests are only recognised to the extent that it is probable
that there will be sufficient taxable profits against which to
utilise the benefits of the temporary differences and they are
expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the year in which the liability is
settled or the asset realised, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the year end
date. The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the manner in
which the Group expects, at the reporting date, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognised as an expense or income
in the statement of comprehensive income, except when they relate
to items credited or debited directly to equity, in which case the
tax is also recognised directly in equity.
Impairment of property, plant and equipment
At each year end date, the Group reviews the carrying amounts of
its property, plant and equipment to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss
(if any). Where it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Where a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the
smallest group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in
profit or loss.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in the statement of
comprehensive income.
Research and development
The Group undertakes research and development to expand its
activity in technology and innovation to develop new products that
will begin directly generating revenue in the future. Expenditure
on research is expensed as incurred, development expenditure is
capitalise only if the criteria for capitalisation are recognised
in IAS 38. The Company claims tax credits on its research and
development activity and recognises the income in current tax.
Government Grants
During the period, the Group received benefits from Government
grants. Revenue based Government grants are recognised through the
consolidated statement of comprehensive income by netting off
against the costs to which they relate. Where the grant is not
directly associated with costs incurred during the period, it is
recognised as 'other income'.
Critical judgements in applying accounting policies and key
sources of estimation uncertainty
The following are the critical judgements and key sources of
estimation uncertainty that the directors have made in the process
of applying the entity's accounting policies and that have the most
significant effect on the amounts recognised in these financial
statements.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which goodwill
has been allocated. A similar exercise is performed in respect of
investment and long term loans in subsidiary.
The value in use calculation requires the directors to estimate
the future cash flows expected to arise from the cash-generating
unit and a suitable discount rate in order to calculate present
value, see note 10 for further details.
The carrying amount of goodwill at the year-end date was
GBP1,299,000 (2019: GBP1,190,000). The investment in subsidiaries
at the year-end was GBP1,197,000 (2018: GBP1,197,000).
The methodology adopted in assessing impairment of Goodwill is
set out in note 10 as is sensitivity analysis applied in relation
to the outcomes of the assessment.
Impairment investment in subsidiaries and inter-company
receivables
As set out in note 11, an impairment assessment of the carrying
value of investments in subsidiaries and inter-company receivables
is in line with the methodologies adopted in the assessment of
impairment of goodwill.
2. Segmental analysis
2020 2019
GBP'000 GBP'000
Turnover by geographical market
United Kingdom 8,285 6,509
Europe 19 29
Other 21 142
-------- --------
8,325 6,680
======== ========
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:
-- Adien - Utility detection and mapping services - Sale of services
-- Technology Division - Development, assembly and sale of GPR equipment - Sale of goods
-- QM Systems - Test system solutions - Sale of services
-- TED - Rail trackside solutions (included in the test system
solutions segment) - Sale of services
-- Wessex Precision Instruments Limited - Slip testing equipment
(included in the test system solutions segment) - Sale of goods
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 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.
In utility detection and mapping services two customers
accounted for 22% of revenue in 2020 and one customer for 20% in
2019. In development, assembly and sale of GPR equipment one
customers accounted for 68% of revenue in 2020 and one customer for
39% in 2019. In automation and test system solutions three
customers accounted for 42% of revenue and one customer for 35% in
2019.
Information regarding each of the operations of each reportable
segment is included below, all non-current assets owned by the
Group are held in the UK.
Utility Development, Automation Total
detection assembly and test
and mapping and sale system solutions
services of GPR equipment
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 June 2020
Total segmental
revenue 1,344 81 6,900 8325
------------- ------------------ ------------------ ---------
Operating profit/(loss) 75 (15) 345 405
Finance costs (33) (141) (37) (211)
Profit /(loss) before
taxation 42 (156) 308 194
------------- ------------------ ------------------ ---------
Segment assets 771 1,527 2,307 4,605
Segment liabilities 664 4,379 2,304 7,347
Non-current asset
additions 225 1 258 484
Depreciation and
amortisation 95 1 95 191
============= ================== ================== =========
Utility Development, Automation Total
detection assembly and test
and mapping and sale system solutions
services of GPR equipment
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 June 2019
Total segmental
revenue 1,314 192 5,174 6,680
------------- ------------------ ------------------ ---------
Operating profit (47) 34 70 57
Finance costs (10) (1) (34) (45)
Profit / loss before
taxation (57) 33 36 12
------------- ------------------ ------------------ ---------
Segment assets 529 1,322 2,679 4,530
Segment liabilities 481 4,239 3,157 7,877
Non-current asset
additions 75 - 62 137
Depreciation and
amortisation 55 - 35 90
============= ================== ================== =========
3. Finance costs
2020 2019
GBP'000 GBP'000
Interest receivable and other income - (155)
Interest payable 211 200
211 45
======== ========
Interest receivable and other income
comprises of:
Loan adjustment (see below) - 129
Other income - 26
- 155
======== ========
Interest payable comprises interest
on:
Leases 17 14
Right of use assets - IFRS 16 9 -
Directors' loans 141 147
Other 44 39
211 200
======== ========
Loan adjustment
In 2019, the vendors of Thomson Engineering Limited agreed to
amend the terms of the acquisition and the liability owed to them
was reduced from GBP200,000 to GBP71,000, resulting in an
adjustment of GBP129,000.
4. Operating profit for the year
This is arrived at after charging for the Group:
2020 2019
GBP'000 GBP'000
Research and development costs not
capitalised 2,141 1,774
Depreciation 191 89
Auditor's remuneration
- Fees payable to the Company's auditor
for the audit of the Group's financial
statements 43 43
- Fees payable to the Company's auditor
and its subsidiaries for the provision
of tax services 7 7
Lease rentals:
- other including land and buildings 163 100
======== ========
The Company audit fee is GBP9,000 (2019: GBP9,000).
5. Staff costs
2020 2019
No. No.
Average monthly number of employees, including directors:
Production and research 85 71
Selling and research 10 10
Administration 6 6
-------- ------------
101 87
======== ============
2020 2019
GBP'000 GBP'000
Staff costs, including directors:
Wages and salaries 3,382 2,928
Social security costs 326 284
Other pension costs 68 53
-------- ------------
3,776 3,265
======== ============
6. Directors' Remuneration
Salary Benefits 2020 2019
and fees in kind Total Total
GBP'000 GBP'000 GBP'000 GBP'000
G G Watt 71 - 71 71
S P Padmanathan 26 - 26 25
R MacDonnell 2 - 2 4
---------- --------- -------- --------
Aggregate emoluments 99 - 99 100
========== ========= ======== ========
Directors' pensions 2020 2019
No. No.
The number of directors who are accruing
retirement benefits under:
- defined contributions policies - -
======== ========
The directors represent key management personnel.
Directors' share options
No. of options
At start Granted At end Exercise Date from
of year during of year price which exercisable
year
S P Padmanathan 200,000 - 200,000 3.875p 15-Nov-19
The Company's share price at 30 June 2020 was 4.50. The high and
low during the period under review were 7.00 and 3.75p
respectively.
In addition to the above, in consideration of loans made to the
Company, G G Watt has warrants over 3,703,703 ordinary shares at an
exercise price of 13.5p and a further 6,000,000 ordinary shares at
an exercise price of 3.0p.
7. Taxation
2020 2019
GBP'000 GBP'000
United Kingdom Corporation Tax
Current taxation (396) (306)
Adjustments in respect of prior
years - 6
-------- --------
(396) (300)
Deferred taxation - -
-------- --------
Tax on profits (396) (300)
======== ========
Current tax reconciliation 2020 2019
GBP'000 GBP'000
Taxable profit for the year 194 12
-------- --------
Theoretical tax at UK corporation
tax rate 19% (2019: 19%) 37 2
Effects of:
- R&D tax credit adjustments (414) (333)
- Income not taxable (3) (3)
- other expenditure that is not
tax deductible 1 6
- adjustments in respect of prior
years (17) 4
- short term timing differences 24
-------- --------
Total income tax credit (396) (300)
======== ========
The Group has tax losses amounting to approximately GBP2,855,000
(2019: GBP2,650,000), available for carry forward to set off
against future trading profits. No deferred tax assets have been
recognised in these financial statements due to the uncertainty
regarding future taxable profits.
Potential deferred tax assets not recognised are approximately
GBP535,000 (2019: GBP450,000)
8. Profit per share
Basic (pence per share) 2020 - 1.69 profit per share; 2019 -
0.91 profit per share
This has been calculated on a profit of GBP590,000 (2019:
GBP312,000) and the number of shares used was 34,860,515 (2019:
34,126,707) being the weighted average number of shares in issue
during the year.
Diluted (pence per share) 2020 - 0.93 profit per share; 2019 -
0.72 profit per share
The current year calculation used earnings of GBP510,000 (2019:
GBP392,000) being the profit for the year, plus the interest paid
on the convertible loan note (net of 20% tax) of GBP80,000 (2019:
GBP80,000) and the number of shares used was 55,095,386 (2019:
54,657,116) being the weighted average number of shares outstanding
during the year of 34,860,515 (2019: 34,126,707) adjusted for
shares deemed to be issued for no consideration relating to options
and warrants of 530,409 (2019: 530,409) and the impact of the
convertible instrument of 20,000,000 (2019: 20,000,000).
9. Property, plant and equipment
Freehold Equipment, Leasehold Motor Total
fixtures improvements vehicles
and fittings
GBP000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2019 265 1,775 223 291 2,554
Adjustment for change
in accounting policy
- see note 20 172 - - 26 198
Restated opening
balance 437 1,775 223 317 2,752
Additions 76 118 - 81 275
Transferred in on
Acquisition of subsidiary - 11 - - 11
Disposals - - - (10) (10)
At 30 June 2020 513 1,904 223 388 3,028
========= ============== ============== ========== ==================
Depreciation
At 1 July 2019 16 1,502 223 288 2,029
Charged in year 57 100 - 34 191
Transfer in on acquisition
of subsidiary - 7 - - 7
Disposals - - (10) (10)
At 30 June 2020 73 1,609 223 312 2,217
========= ============== ============== ========== ==================
Net book value
At 30 June 2020 440 295 - 76 811
At 30 June 2019 249 273 - 3 525
========= ============== ============== ========== ==================
The net book value of the property, plant and equipment includes
GBP471,506 (2019: GBP398,744) in respect of assets held under lease
agreements. These assets have been offered as security in respect
of these lease agreements. Depreciation charged in the period on
those assets amounted to GBP148,397 (2019: GBP79,901).
This is split by category as follows:
Asset Group Net book value Depreciation
2020 2019 2020 2019
GBP000 GBP000 GBP000 GBP000
Freehold 192,557 171,992 55,551 5,068
Equipment, fixtures
and fittings 186,796 200,268 61,143 55,040
Motor vehicles 92,153 26,484 31,703 19,793
------------------- ------------------- ------------------- -------------------
Total 471,506 398,744 148,397 79,901
=================== =================== =================== ===================
10. Goodwill
Goodwill Total
GBP'000 GBP'000
Cost
At 1 July 2019 1,250 1,250
Additions 108 108
At 30 June 2020 1,358 1,358
========= ==================
Depreciation
As at 30 June 2019 and 30 June 2020 60 60
========= ==================
Net book value
At 30 June 2020 1,298 1,298
At 30 June 2019 1,190 1,190
========= ==================
The goodwill carried in the statement of financial position of
GBP1,298,000 arose on the acquisition of Adien Limited in 2002
(GBP212,000), the acquisition of QM Systems Limited in 2006
(GBP849,000), the acquisition of TED in 2017 (GBP129,000) and the
acquisition of Wessex in 2019 (GBP108,000).
Adien Limited represents the segment utility detection and
mapping services and QM Systems Limited represents the segment test
system solutions.
QM Systems Limited, TED and Wessex are involved in projects
surrounding:
-- The creation of innovative automated assembly systems for the
manufacturing, food and pharmaceutical sectors.
-- The provision of inspection systems for the automotive,
aerospace, rail and pharmaceutical sectors.
-- Slippage testing
-- Automated test systems.
The Group tests goodwill annually for impairment or more
frequently if there are indicators that it might be impaired.
The recoverable amounts are determined from value in use
calculations which use cash flow projections based on financial
budgets approved by the directors covering a five year period. The
key assumptions are those regarding the discount rates, growth
rates and expected changes to sales and direct costs during the
period. Management estimates discount rates using pre-tax rates
that reflect current market assessments of the time value of money
and the risks specific to the business. This has been estimated at
10% per annum reflecting the prevailing pre-tax cost of capital in
the Company. The growth rates are based on forecasts and historic
margins achieved in both Adien Limited, QM Systems Limited and TED.
For Adien these have been assessed as 19% growth for revenue in
years 1 and 5% for years 2 and 3 and 2.5% thereafter and 2.5% for
overhead growth. For QM Systems these have been assessed as 1%
growth for revenue in year 1 and 10 % in year 2 and 3 and 5% for
years 3 to 5 and 5% for overhead growth. For TED these have been
assessed as 27% growth for revenue in year 1 and 20 % in year 2 and
3 and 5% for years 3 to 5 and 5% for overhead growth. No terminal
growth rate was applied. The reason for the significant Year 1
revenue growth in Adien and TED is an expectation based on current
trading and the pipeline.
11. Inventories
2020 2019
GBP'000 GBP'000
Raw materials 72 71
Finished goods 79 63
--------------- --------
151 134
=============== ========
The replacement cost of the above inventories would not be
significantly different from the values stated.
The cost of inventories recognised as an expense during the year
amounted to GBP2,726,000 (2019: GBP2,241,000). For the Parent
Company this was (GBP3,533) (2019: GBP35,000).
12. Trade and other receivables
2020 2019
GBP'000 GBP'000
Current
Trade receivables 1,010 1,038
Amounts owed by Group - -
undertakings
Prepayment and accrued
income 644 554
-------- --------
1,654 1,592
======== ========
13. Non-current liabilities: borrowings
2020 2019
GBP'000 GBP'000
Borrowings (note 16) 3,255 2,661
14. Trade and other payables
2020 2019
Current GBP'000 GBP'000
Trade payables 528 1,071
Other taxation and social
security 699 272
Payments received on
account 195 1,431
Accruals and other creditors 527 496
-------- ----------
1,949 3,270
======== ============
2020 2019
Non-current GBP'000 GBP'000
Trade payables - -
Amounts owed to Group - -
undertakings
Other creditors 6 3
-------- ----------
6 3
======== ============
The performance obligations of the IFRS 15 contract liabilities
(payments received on account) are expected to be met within the
next financial year.
15. Borrowing analysis
2020 2019
GBP'000 GBP'000
Due within one year
Bank and other loans 275 146
Directors' loan 1,718 1,714
Right of use asset - IFRS
16 69 -
Obligations under lease
agreements 75 83
-------- --------
2,137 1,943
======== ========
Due after more than one
year
Obligations under lease
agreements Right of use
asset - IFRS 16 96 89
180 -
Bank and other loans 576 139
Directors' loan 2,403 2,433
-------- --------
3,255 2,661
======== ========
Repayable
Due within 1 year 2,137 1,943
Over 1 year but less than
2 years 2,470 2,472
Over 2 years but less than
5 years 785 189
-------- --------
5,392 4,604
======== ========
Directors' loan
Included with Directors' loans and borrowings due within one
year are accrued fees and interest owing to GG Watt of GBP1,614,000
(2019: GBP1,601,000). The accrued fees and interest is repayable on
demand and no interest accrues on the balance.
The director's loan due in more than one year is a loan of
GBP2,349,000 from G G Watt. Directors' loans comprise of two
elements. A loan attracting interest at 2.15% over Bank of England
base rate. At the year end GBP1,349,000 (2019: GBP1,433,000) was
outstanding in relation to this loan. During the year to 30 June
2020 GBP84,000 (2019: GBP100,000) was repaid. The Company has the
right to defer repayment for a period of 366 days.
On 13 August 2010 the Company issued GBP1 million of Convertible
Unsecured Loan Stock ("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 GBP1 million and has been recognised in
non-current liabilities of GBP2,349,000.
Pursuant to amendments made on 13 November 2014 and 9 November
2018, the principal terms of the CULS are as follows:
- The CULS may be converted at the option of Gordon Watt at a
price of 3p per share at any time prior to 13 August 2022;
- 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
CULS. On conversion of any CULS, any unpaid interest shall be paid
within 20 days of such conversion;
- The CULS are repayable, together with accrued interest on 13
August 2022 ("the Repayment Date").
No equity element of the convertible loan stock was recognised
on issue of the instrument as it was not considered to be
material.
Leases
Lease agreements with Close Motor Finance are at a rate of 4.5%
and 5.19% over base rate. The future minimum lease payments under
lease agreements at the year end date was GBP157,119 (2019:
GBP133,822) and GBP14,038 (2019: GBP38,102). The difference between
the minimum lease payments and the present value is wholly
attributable to future finance charges.
Bank and other loans
A new working capital loan of GBP240,000 was given by Mirrasand
Partnership from a trust settled by Mr G Watt, on 12 August 2019.
The loan attracts interest at 10% per annum. The balance was
settled in full post year end.
Included in bank and other loans is an invoice discounting
facility of GBP3,505 (2019 GBP127,000).
Included in bank and other loans is a secured mortgage of
GBP146,871 which incurs an interest rate of 2.44% over base rate
for 10 years and at a rate of 2.64% over base thereafter. The
mortgage is secured over the freehold property. As a result of
COVID 19, the capital element of the mortgage was deferred for 6
months, extending the mortgage term for 6 months.
As a result of COVID 19, Coronavirus Business Interruption Loan
Scheme (CBILS) became available for the business. This enabled the
group to secure a loan of GBP400,000, on 15 May 2020 for a term of
6 year at a rate of 3.54% with the 1(st) year being interest free
and without repayment.
The business was also able to secure a Bounce Back loan through
Wessex Precision Engineering of GBP24,000, on 5 June 2020, with an
interest rate of 2.5% with the 1(st) year being interest free and
without repayment.
2020
Brought Cash flows Non-cash: Non-cash: Carried forward
forward New leases Accrued
fees/interest
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Director loan 4,147 (165) - 140 4,121
Leases 172 (82) 64 17 171
Right of use
asset - IFRS
16 198 (88) 130 9 249
Other 285 523 - 43 851
--------- ----------- ------------ --------------- ------------------
Loans and borrowings 4,802 188 194 209 5,392
========= =========== ============ =============== ==================
2019
Brought Cash flows Cash: advance Non-cash: Carried forward
forward Accrued
costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Director loan 4,195 (207) - 159 4,147
Leases 180 (69) 62 (1) 172
Other 737 (469) - 17 285
--------- ----------- -------------- ---------- ----------------
Loans and borrowings 5,112 (745) 62 175 4,604
========= =========== ============== ========== ================
*Included in working capital adjustments in cashflow
statement
16. Financial Instruments and derivatives
The Group uses financial instruments, which comprise cash and
various items, such as trade receivables and trade payables that
arise from its operations. The main purpose of these financial
instruments is to finance the Group's operations.
The main risks arising from the Group's financial instruments
are credit risk, liquidity risk and interest rate risk. A number of
procedures are in place to enable these risks to be controlled. For
liquidity risk these include profit/cash forecasts by business
segment, quarterly management accounts and comparison against
forecast. The board reviews and agrees policies for managing this
risk on a regular basis.
Credit risk
The credit risk exposure is the carrying amount of the financial
assets as shown in note 13 (with the exception of prepayments which
are not financial assets) and the exposure to the cash balances. Of
the amounts owed to the Group at 30 June 2020, the top 3 customers
comprised 45.00% (2019: 56.78%) of total trade receivables.
The Group has adopted a policy of only dealing with creditworthy
counterparties and the Group uses its own trading records to rate
its major customers, also the Group invoices in advance where
possible. The Group's exposure and the credit ratings of its
counterparties are continuously monitored and the aggregate value
of transactions concluded is spread amongst approved
counterparties. Having regard to the credit worthiness of the
Groups significant customers the directors believe that the Group
does not have any significant credit risk exposure to any single
counterparty.
An analysis of trade and other receivables:
2020 Weighted Gross carrying Impairment
average loss value loss allowance
rate
GBP'000 GBP'000
Performing 0.00% 1,654 -
2019 Weighted Gross carrying Impairment
average loss value loss allowance
rate
GBP'000 GBP'000
Performing 0.00% 1,592 -
Interest rate risk
The Group finances its operations through a mixture of
shareholders' funds and borrowings. The Group borrows exclusively
in Sterling and principally at fixed and floating rates of interest
and are disclosed at note 16.
As disclosed in note 16 the Group is exposed to changes in
interest rates on its borrowings with a variable element of
interest. If interest rates were to increase by one percentage
point the interest charge would be GBP15,000 higher. An equivalent
decrease would be incurred if interest rates were reduced by one
percentage point.
Liquidity risk
As stated in note 1 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 statement
of financial position. It is on this basis that the directors
consider that neither the Group nor the Company is exposed to a
significant liquidity risk. Notes 15 and 16 disclose the maturity
of financial liabilities.
Contractual maturity analysis for financial liabilities, (see
note 16 for maturity analysis of borrowings):
2020 Due or Due between Due between Due between Total
due in 1-3 months 3 months-1 1-5 years
less than year
1 month
Trade and
other payables 1,055 - - 6 1,061
=========== ============ ============ ============ ======
2019 Due or due Due between Due between Due between Total
in less 1-3 months 3 months-1 1-5 years
than 1 month year
Trade and
other payables 1,567 - - 3 1,570
============== ============ ============ ============ ======
Financial liabilities of the Company are all due within less
than one month with the exception of the intercompany balances that
are due between 1 and 5 years.
Fair value of financial instruments
Loans and receivables are measured at amortised cost. Financial
liabilities are measured at amortised cost using the effective
interest method. The directors consider that the fair value of
financial instruments are not materially different to their
carrying values.
Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to be
able to move to a position of providing returns for shareholders
and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
The Group manages trade debtors, trade creditors and borrowings
and cash as capital. The entity is meeting its objective for
managing capital through continued support from GG Watt as
described per Note 1.
17. Share capital
2020 2020 2019 2019
No GBP'000 No GBP'000
Authorised
Ordinary shares
of 1p each 40,000,000 400 40,000,000 400
Allotted and fully
paid
Brought forward 34,360,515 344 34,020,515 340
Issued during the
year 500,000 5 340,000 4
Carried forward 34,860,515 349 34,360,515 344
=========== ======== =========== ========
Fully paid ordinary shares carry one vote per share and carry a
right to dividends.
On 4 February 2020, the Company issued 500,000 ordinary 1p
shares at an issue price of 3p per share as a result of the
exercise of share options.
10,903,703 (2019:11,403,703) share options were outstanding at
the year end, comprising the 1m employee options and the 9,903,703
share options and warrants held by directors disclosed below.
Share based payments have been included in the financial
statements where they are material. No share based payment expense
has been recognised.
No deferred tax asset has been recognised in relation to share
options due to the uncertainty of future available profits.
The director and employee share options were issued as part of
the Group's strategy on key employee remuneration, they lapse if
the employee ceases to be an employee of the Group during the
vesting period.
Employee options
Date Options Exercisable Number of Shares Exercise Price
Between March 2015 and March
2022 500,000 3.75p
Between July 2016 and July
2023 100.000 3.00p
Between November 2019 and
November 2026 400,000 3.875p
Directors' share options
No. of options
At start Granted At end Exercise Date from
of year during of year price which exercisable
year
S P Padmanathan 200,000 - 200,000 3.875p 15-Nov-19
The Company's share price at 30 June 2020 was 4.50. The high and
low during the period under review were 7.00p and 3.75p
respectively.
In addition to the above, in consideration of loans made to the
Company, G G Watt has warrants over 3,703,703 ordinary shares at an
exercise price of 13.5p and a further 6,000,000 ordinary shares at
an exercise price of 3.0p..
The weighted average contractual life of options and warrants
outstanding at the year-end is 2.89 years (2019: 3.89 years).
18. Related party transactions
Directors' loan disclosures are given in note 16. The interest
payable to directors in respect of their loans during the year
was:
G G Watt - GBP141,700
The directors are considered the key management personnel of the
Company. Remuneration to directors is disclosed in note 6.
Included within the amounts due from and to Group undertakings
were the following balances:
2020 2019
GBP GBP
Balance due from:
Adien Limited - -
QM Systems Limited - -
TED Limited 377,323 322,603
Wessex Precision Engineering
Limited 66,766 -
Balance due to:
Adien Limited 53,194 106,858
QM Systems Limited 1,009,923 1,125,390
These intergroup balances vary through the flow of working
capital requirements throughout the Group as opposed to intergroup
trading.
There is no ultimate controlling party of PipeHawk plc.
19. IFRS 16 - implementation
Reconciliation of operating lease commitments to lease the lease
liability at 1 July 2019:
GBP'000
--------
Operating leases disclosed at 30 June 2019 224
Discounted using the weighted average incremental
borrowing rate (26)
--------
Lease liability recognised at 1 July 2019 198
========
At 1 July 2019 the right of use asset recognised was GBP198,000
and a corresponding lease liability was GBP198,000.
At 30 June 2020 the financial impact following the introduction
of IFRS 16 is as follows:
Right of use asset GBP'000
--------
At 1 July 2019 198
Additions 130
Depreciation (82)
--------
At 30 June 2020 246
========
Lease liabilities GBP'000
--------
At 1 July 2019 198
Additions 130
Repayments (88)
Interest 9
--------
At 30 June 2020 249
========
Current 69
Non-current 180
--------
Total 249
========
Amounts recorded in the income statement GBP'000
--------
Depreciation charges on right of use assets 82
Interest on lease liabilities 9
--------
Total 91
========
The total cash outflow for leases during the year was
GBP88,000.
20. Government Grants
In addition to the Government assistance disclosed in note 16,
the following Government grants were received and has been
recognised during the period:
2020 2019
GBP000 GBP000
Coronavirus Job Retention Scheme 175 -
grants
Total 175 -
======= ========
Copies of Report and Accounts
Copies of the Report and Accounts will be posted to shareholders
later today and will be shortly 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 .
Notice of Annual General Meeting
The Annual General Meeting ("AGM") of PipeHawk plc will be held
at 11:30 a.m. on 3 December 2020.
Due to Covid-19 and the restrictions and recommendations
introduced in the United Kingdom to prevent its spread, the Company
has had to make changes to the way the Annual General Meeting is to
be held this year. The AGM will be held by electronic means with
the minimum necessary quorum of two shareholders in order to
conduct the business of the meeting. This decision has been made in
consideration of the safety and wellbeing of both the Directors and
Shareholders. Shareholders should not attempt to attend the AGM in
person as no admission will be permitted. Shareholders are strongly
advised to vote on the resolutions via completion of a form of
proxy (enclosed with the Notice of AGM), and to appoint the
Chairman of the meeting as their proxy to ensure all votes are
counted.
The AGM will comprise only the formal votes for each resolution
set out in the Notice of AGM. The Chairman of the meeting will
direct that all resolutions will take place by way of a poll,
rather than on a show of hands, to ensure an accurate reflection of
the views of shareholders and ensure that all proxy votes are
recognised. The results of the poll votes on the proposed
resolutions will be published on the Company's website as soon as
possible following the conclusion of the AGM.
To provide an opportunity for Shareholders to engage as would be
usual at the AGM, Shareholders are encouraged to submit questions
to the Company, by Thursday 26 November 2020 via email at
ir@pipehawk.com. Following the AGM, the Company will upload answers
to the pre-submitted questions to the Company's website, to the
extent that it is able to do so.
The Board will continue to monitor COVID-19 developments as well
as any further UK Government advice and will make further
announcements if any amendment is required to the arrangements
detailed above.
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END
FR MZMZGVGKGGZM
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