REG - PipeHawk PLC - Final results for the year ended 30 June 2024
28/11/2024 07:00
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RNS Number : 9193N PipeHawk PLC 28 November 2024
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the UK Market Abuse
Regulation
28 November 2024
PipeHawk plc
("PipeHawk", "Company" or the "Group")
Final results for the year ended 30 June 2024
Highlights
- Turnover of £9.1 million (2023: £6.5 million). Excluding QM
Systems Ltd, the Group's turnover for the financial year was £2.9 million.
- Loss before taxation and exceptional items for the financial year of
£821,000 (2023: loss £3,284,000). Excluding QM Systems Ltd, the Group' loss
before taxation and exceptional items for the financial year was £0.27
million.
- Cautiously projecting a return to operating profitability in the
current financial year ending 30 June 2025.
I can report that the Group's turnover (including QM Systems Ltd) for the
financial year ended 30 June 2024 (the "Financial Year" or "2023/24 FY")
increased to £9.1 million (2023: £6.5 million). The Group incurred an
operating loss (including QM Systems Ltd) in the Financial Year of £1,215,000
(2023: £2,899,000), a loss before taxation and exceptional items (including
QM Systems Ltd) for the Financial Year of £1,639,000 (2023: loss £3,284,000)
and a loss after taxation and exceptional items (including QM Systems Ltd) of
£821,000 (2023: loss £2,484,000). The loss per share for the Financial Year
was 2.26p (2023: loss per share 6.84p).
In July 2024, QM Systems Ltd ("QM"), a subsidiary of the Group, entered into
administration. Accordingly, the board of directors of the Group (the "Board"
or the "Directors") determined to treat impairment losses and gains related to
QM as exceptional items in these accounts. Due to the impact of the QM
administration the investments were written off in its entirety and suffered
the appropriate qualification in the Group's audit report.
Excluding QM Systems Ltd and focusing on the remaining group operations only,
the Group's turnover for the Financial Year was £2.9 million with an
operating profit of £0.12 million. Loss before taxation and exceptional items
(excluding QM Systems Ltd) for the Financial Year was £0.27 million.
Well, that was an extremely challenging year!
There was cause for cautious optimism as we entered the Financial Year with a
record orderbook across the Group's subsidiaries and throughout the Financial
Year as quotes and interest in the Group's solutions were high. Unfortunately,
the challenging political, economic and financial backdrop in the UK
contributed to what the Board believes is an environment that is currently not
supportive of a manufacturing economy. For example, based on feedback and
discussions with prospective customers, the Board believed that QM's technical
solutions were viewed as better and more cost effective than solutions that
competitors could offer. However, in reality, weak business confidence amongst
our target customer base meant that commitment of the necessary capital
expenditure continued to be deferred. Similarly, whilst all three of QM's
contract manufacturing lines were ready for production, certain of QM's
contracted clients continually deferred start of production ("SOP") until they
viewed business conditions to be more favourable, which failed to materialise
during the Financial Year.
As a result, shortly following the end of the Financial Year, QM went into
administration as orders continued to be deferred and two significant orders
failed to materialise.
On a positive note, the other businesses in the Group service the utilities,
government and rail industries. Our experience in these areas is that they
are significantly less reliant on the confidence of private sector businesses
to commit funds for major investments. Rather they are more driven by the
demands of the public sector, where there has previously been major
underinvestment, but which now appears to be progressing albeit it is still
early days. Additionally, the Board anticipates that Thomson Engineering
Design Ltd and Utsi Electronics Ltd will increasingly be servicing a global
marketplace and will therefore be less affected by the UK's uncertain business
environment. These businesses, including Adien Ltd, had a combined turnover of
£2,934,000 in the Financial Year (2023: £2,284,000) and a pre-tax loss of
£278,000 (2023: £1,511,000). I am therefore cautiously projecting a return
to operating profitability in the current financial year ending 30 June 2025
("Current Financial Year").
Notwithstanding the Board's confidence that the infrastructure sectors are the
right business areas to be in, the economic and political environment in the
UK clearly continues to be inimical to business in general and SMEs in
particular, accordingly the directors have taken the decision to write off the
entirety of the Group's cost of investment and goodwill in its subsidiaries in
these accounts.
QM Systems Ltd ("QM")
The Board believed that QM was on track to report its best ever year for sales
with a turnover of £6,204,000 (2023: £4,185,000) and a pre-tax loss of
£1,361,000 (2023: £1,545,000) despite the minimal intake of new orders
during the Financial Year.
While not adverse to QM's financial position in isolation, QM experienced an
increase in overheads over the past three years in order to cope with an
expected uptick in new projects and the contract manufacturing business.
Similarly, because of the reduced order activity and a rise in enquiries which
needed to be quoted, utilisation of staff was sub-optimal and delivery of
components and fabrications, due to our suppliers struggling with the
recession, impacted the ability for QM to absorb losses. The aforementioned
factors and the loss of the two anticipated material orders led to QM's
financial position being under severe financial pressure, and ultimately
prompted the Group announcing on 16 July 2024 that it had appointed RSM UK
Restructuring Advisory LLP as administrators to QM.
Thomson Engineering Design Ltd ("TED")
As mentioned in my Chairman's statement last year, Network Rail's CP6 funding
round ended in March 2024 and the new round, CP7, started in April 2024.
Network Rail has announced that it has a budget spend of £44 billion over the
next five years so there is now a degree of budget certainty amongst suppliers
and contractors to Network Rail. As a result, TED's business was slow at the
start of the Financial Year up to the point that CP6 finished, but UK orders
picked up significantly in the last quarter of the Financial Year at the start
of CP7, and have continued into the first quarter of the Current Financial
Year. We expect this growth to continue for the next four years as Network
Rail looks for innovative solutions to make the most cost-effective use of its
budget in maintaining and upgrading the UK's rail infrastructure, both for
work on Network Rail's infrastructure and for Eurotunnel.
The TED and Unipart Rail Limited ("Unipart") partnership continues to
strengthen as Unipart gains market presence in the rest of the world selling
'Yellow Plant', having exhibited at many shows around the world. The
partnership has now received orders from Australia, France, Germany and North
America, where large infrastructure projects continue to come to fruition. In
addition, the respective regional Unipart sales teams are working hard to
ensure that the TED name is embedded in future infrastructure projects
enabling the pipeline to continue. Since the memorandum of understanding
(the "MoU") was signed with Unipart in September 2022, the total value of
orders received from Unipart Rails now in excess of £1 million.
The above developments in the UK market and the global market are seen as very
positive for TED over the next few years.
Adien Ltd ("Adien")
The previous financial year which ended on 30 June 2023 was difficult for
Adien, which provides topographical and GPR services to the utilities sector,
with several large projects shelved as business confidence continued to be
undermined by the challenging political environment. However, the combination
of a new managing director appointment re-invigorating the sales team, the
removal of some underperforming staff, and a degree of political stability has
turned the company around. Adien is now meeting its strategic targets and
reporting profits on a monthly basis. During the Financial Year, Adien secured
a fresh framework agreement with SSE and a healthy tranche of ministry of
defence ("MoD") work. These agreements, together with other utility business,
have kept the Adien teams very busy and the current order book is looking
strong with works programmed going into spring next year with full utilisation
of all site teams. Orders continue to remain very strong.
Adien managed to add one further full site team this summer. We are continuing
to seek further staff, though it is difficult to secure suitably qualified and
capable personnel. The search continues and remains the top priority for
operations.
Adien has just moved into new, larger premises; this will allow further
expansion of the sales and operation teams to facilitate the anticipated
ongoing growth in sales.
Utsi Electronics Ltd ("Utsi")
Utsi had a very quiet start to the Financial Year, followed by a flat middle
and a very busy Financial Year end which saw the number of individual sales
overall down over the Financial Year, but the value of completed sales
remaining buoyant by comparison.
The biggest restriction on closing sales continues to be the availability of
raw materials and essential components, with many potential customers simply
not willing or unable to wait the additional time required to complete their
orders. With two significant orders being delayed over four months and
consequently pushing completion to after the Financial Year end, Utsi's
financial results are not as good as they should have been.
Internal investment into new designs to lessen our reliance on high cost
and/or hard to acquire components continues apace.
As market requirement for off the shelf systems has dipped in the UK, overseas
orders have remained broadly flat over the Financial Year.
Our previous decision to concentrate on the specialist system market continues
to deliver, with bespoke system orders now our strongest growth area for both
enquiries and sales.
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 26 November 2023 was renewed on 20 November 2024 to
provide the Group with financial support until 31 December 2025. Loans due to
me, other than those covered by the CULS (as defined below) agreement, are
unsecured and accrue interest at an annual rate of Bank of England base rate
plus 2.15%. These include the further loans provided by me to the Group to
provide QM Systems with the time needed to land the substantial new orders it
was anticipating, which unfortunately failed to materialise.
The Group's £1.0 million convertible unsecured loan stock issued to me (the
"CULS") was renewed on 30 June 2022 and extended on identical terms, such that
the CULS are now repayable on 13 August 2026. Further details of the CULS were
most recently announced by the Group on 26 September 2024.
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 on loans I
have provided until the Company is in a suitably strong position to make the
full payments. During the Financial Year, the deferred element of fees and
interest amounted to £252,000 and the aggregate amount of deferred fees and
interest outstanding to me as at the end of the Financial Year amounted to
approximately £2.0 million in total, all of which has been recognised as a
liability in the Company's accounts.
Disclaimer of audit opinion
The timing of the entry into administration of QM Systems Limited and the
subsequent inability to access the accounting records of that entity due to
the Group ceasing to exercise control over QM Systems Limited has resulted in
the Group's independent auditor being unable to obtain sufficient appropriate
audit evidence in respect of the trading performance and assets and
liabilities in respect of QM Systems Limited. Consequently, as is customary
in this scenario, the Group's independent auditor has not been able to express
an opinion on the Group's and PipeHawk's financial statements. Further
information on the basis for disclaimer of opinion is set out in the
Independent Auditor's Report to the Members of PipeHawk plc on page 13 of the
Report and Accounts and is extracted below.
Strategy & Outlook
The 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. Despite wider current market
conditions, all divisions of the Group are currently performing well, and I
remain optimistic in my outlook for the Group.
Gordon Watt
Executive Chairman
Date: 27 November 2024
Independent Auditor's Report to the Members of PipeHawk Plc for the year ended
30 June 2024
"Disclaimer of Opinion
We were engaged to audit the financial statements of Pipehawk plc (the "Parent
Company") and its subsidiaries (the "Group") for the year ended 30 June 2024,
which comprise:
· the Consolidated statement of comprehensive income for the year
ended 30 June 2024;
· the Consolidated and Parent Company statements of financial
position as at 30 June 2024;
· the Consolidated and Parent Company statements of cash flows for
the year then ended;
· the Consolidated and Parent Company statements of changes in
equity for the year then ended; and
· the notes to the financial statements, including material
accounting policies.
The financial reporting framework that has been applied in the preparation of
the financial statements is applicable law and UK-adopted international
accounting standards.
We do not express an opinion on the accompanying financial statements of the
Group and Parent company. Because of the significance of the matters described
in the Basis for Disclaimer of Opinion section of our report, we have not been
able to obtain sufficient appropriate audit evidence to provide a basis for an
audit opinion on these financial statements.
Basis for Disclaimer of Opinion
After the reporting date, but before we commenced our audit, a significant
component of the group, QM Systems Limited ('QM component') went into
administration. Upon entering administration, the Group ceased to exercise
control over the QM component. As a consequence of the loss of control
management have not been able to provide us with the accounting records
required for our audit of this component. We were unable to obtain sufficient
appropriate audit evidence in respect of the trading performance and assets
and liabilities in respect of QM component making up the Consolidated
statement of comprehensive income, Consolidated statements of changes in
equity and Consolidated statements of cash flows.
Furthermore, the management has not consolidated the financial position of the
QM component in the Consolidated statements of financial position.
The Group and Parent Company are reliant on the continued support of the
Executive Chairman to continue their operations. This gives rise to a material
uncertainty as to whether the Group and Parent Company are able to continue as
a going concern.
As a consequence of these factors, which we consider to be both material and
pervasive to the financial statements, we were unable to conclude whether
these financial statements present a true and fair view of the Group's
financial position.
Opinion on other matter prescribed by the Companies Act 2006
Because of the significance of the matter described in the basis for
disclaimer of opinion section of our report, we have been unable to form an
opinion, whether based on the work undertaken in the course of our audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the directors' report and strategic report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
Notwithstanding our disclaimer of an opinion on the financial statements, in
the light of the knowledge and understanding of the Group and the Parent
Company and their environment obtained in the course of the audit performed
subject to the pervasive limitation described above, we have not identified
material misstatements in the strategic report or the directors' report.
Arising from the limitation of our work referred to above:
· we have not obtained all the information and explanation that we
considered necessary for the purpose of the audit; and
· we were unable to determine whether adequate accounting records
have been kept.
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· returns adequate for our audit have not been received from
branches not visited by us; or
· the parent company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made.
Responsibilities of the directors for the financial statements
As explained more fully in the directors' responsibilities statement set out
on page 12, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and
for such internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group's and Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our responsibility is to conduct an audit of the financial statements in
accordance with International Standards on Auditing (UK) and to issue an
auditor's report.
However, because of the matter described in the basis for disclaimer of
opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these
consolidated financial statements.
We are independent of the Group and company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
United Kingdom, including the FRCs Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Auditor's responsibility in respect of Irregularities and Fraud
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud.
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. We are not responsible for preventing
non-compliance and cannot be expected to detect non-compliance with all laws
and regulations.
These inherent limitations are particularly significant in the case of
misstatement resulting from fraud as this may involve sophisticated schemes
designed to avoid detection, including deliberate failure to record
transactions, collusion or the provision of intentional misrepresentations.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
Leo Malkin (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London"
Enquiries:
PipeHawk plc Tel. No. 01252 338 959
Gordon Watt (Chairman)
Allenby Capital Limited (Nomad and Broker) Tel. No. 020 3328 5656
David Hart / Vivek Bhardwaj
For further information on the Company and its subsidiaries, please visit:
www.pipehawk.com (http://www.pipehawk.com/)
Consolidated statement of comprehensive income
For the year ended 30 June 2024
30 June 2024 30 June 2024 30 June 2024 30 June 2023
Note QM Systems Ltd Group (Excluding QM Systems Ltd) Total
£'000
£'000
£'000 £'000
Revenue 2 6,204 2,934 9,138 6,470
Staff costs 5 (3,291) (1,663) (4,954) (4,176)
Impairment of goodwill 11 - (163) (163) (678)
Operating costs (4,244) (992) (5,236) (4,515)
Operating profit/ (loss) 4 (1,331) 116 (1,215) (2,899)
Profit/(Loss) before interest, taxation and exceptional items (1,331) 116 (1,215) (2,899)
Finance costs 3 (30) (394) (424) (385)
(Loss) before taxation and exceptional items (1,361) (278) (1,639) (3,284)
Taxation (charge) / credit 7 (94) 42 (52) 800
(Loss) before exceptional items (1,455) (236) (1,691) (2,484)
870 -
Exceptional gains on de-recognition of QM Systems Ltd
(Loss) for the year attributable to equity holders of the parent
(821) (2,484)
Other comprehensive income - -
Total comprehensive (Loss) for the year attributable to equity holder of the
parent
(821) (2,484)
(Loss) per share (pence) - basic 8 (2.26) (6.84)
(Loss) per share (pence) - diluted 8 (2.26) (6.84)
The notes form an integral part of these financial statements.
Consolidated statement of financial position
at 30 June 2024
30 June 2024 30 June 2023
Note £'000 £'000
Assets
Non-current assets
Property, plant and equipment 9 447 783
Right of use assets 10 189 2,283
Goodwill 11 - 679
636 3,745
Current assets
Inventories 13 113 253
Current tax assets 80 826
Trade and other receivables 14 1,007 2,767
Cash and cash equivalents 95 148
1,295 3,994
Total assets 1,931 7,739
Equity and liabilities
Equity
Share capital 18 363 363
Share premium 5,316 5,316
Retained earnings (11,952) (11,131)
(6,273) (5,452)
Non-current liabilities
Borrowings 16 3,780 4,913
Trade and other payables 15 121 -
3,901 4,913
Current liabilities
Borrowings 16 2,929 2,886
Trade and other payables 15 1,374 5,392
4,303 8,278
Total equity and liabilities 1,931 7,739
The notes form an integral part of these financial statements.
Consolidated statement of cash flow
For the year ended 30 June 2024
Note 30 June 2024 30 June 2023
£'000 £'000
Cash flows from operating activities
Operating (Loss) (1,215) (2,899)
Adjustments for:
Impairment of Goodwill 163 678
Impairment of right of use assets 347 -
Depreciation 619 579
(86) (1,642)
Decrease / (increase) in inventories 65 87
Decrease / (increase) in receivables 271 (378)
(Decrease) / increase in liabilities (1,002) 2,759
(752) 826
Cash (used in) / generated from operations
Interest paid (173) (196)
Corporation tax received 695 683
Net cash (used in)/ generated from operating activities (230) 1,313
Cash flows from investing activities
Purchase of fixed assets (50) (111)
Net cash used in investing activities (50) (111)
Cash flows from financing activities
(Repayments) / proceeds from borrowings 30 (210)
Repayments of loan (544) (997)
Proceeds of loan 1,313 604
Repayment of leases (572) (455)
Net cash generated from/(used in) financing activities 227 (1,058)
Net (decrease) / increase in cash and cash equivalents (53) 144
Cash and cash equivalents at the beginning of year 148 4
Cash and cash equivalents at the end of year 95 148
The notes form an integral part of these financial statements.
Statement of changes in equity
For the year ended 30 June 2024
Share premium account Retained earnings
CONSOLIDATED Share capital Total
£'000 £'000 £'000 £'000
As at 1 July 2022 363 5,316 (8,647) (2,968)
Loss for the year - - (2,484) (2,484)
Total comprehensive income - - (2,484) (2,484)
As at 30 June 2023 363 5,316 (11,131) (5,452)
Loss for the year - - (821) (821)
Total comprehensive income - - (821) (821)
As at 30 June 2024 363 5,316 (11,952) (6,273)
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 form an integral part of these financial statements.
1 Summary of material accounting policies
1.1. General information
PipeHawk plc (the "Company" or the "Group") is a public limited company
incorporated in the United Kingdom under the Companies Act 2006. The addresses
of its registered office and principal place of business are disclosed in the
company information section on page 1. The principal activities of the
Company and its subsidiaries (the Group) are described on page 7.
The financial statements are presented in pounds sterling, the functional
currency of all companies in the Group. In accordance with section 408 of
the Companies Act 2006 a separate statement of comprehensive income for the
parent Company has not been presented.
1.2. Basis of preparation
The financial statements have been prepared in accordance with UK-adopted
international accounting standards (IAS) The principal accounting policies are
set out below.
Adoption of new and revised standards
A number of new standards and amendments to standards and interpretations have
been issued but are not yet effective and, in some cases, have not yet been
adopted by the UK. The directors do not expect that the adoption of these
standards will have a material impact on the financial statements of the
Company and Group in future periods.
1.3. 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 preparation of cash flow forecasts for the Group requires
estimates to be made of the quantum and timing of cash receipts from future
commercial revenues and the timing of future expenditure. The board consider
that the challenging political, economic and financial backdrop in the UK
presents uncertainties for the group to achieve its revenue growth forecasts.
The directors have obtained a renewed pledge from G G Watt to provide ongoing
financial support including additional funding if required 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.
The financial statement does not include adjustments which would arise in the
event of not being a going concern.
1.4. 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.
On 4 July 2024 the directors of QM, a subsidiary of the Group, held a Board
meeting to consider the company's position following news that two anticipated
material orders will not be forthcoming. Accordingly, the company took
insolvency advice which culminated in the Group announcing on 16 July 2024
that it had appointed RSM UK Restructuring Advisory LLP as administrators to
QM. As a result, the books and records were not available to the Group be
audited and the auditors have qualified their report and issued a disclaimer
audit report..
Furthermore, the directors of PipeHawk plc whilst presenting the profit and
loss account including the unaudited management accounts of QM Systems, have
taken the view that to include the similarly unaudited balance sheet of QM
Systems in the Group's consolidated accounts would be both meaningless and
misleading to shareholders. The consolidated balance sheet therefore treats
the Administration of QM as an adjusting post balance sheet event such that
all of the assets and liabilities of QM have, insofar as the continuing Group
is concerned, no relevance nor value at the year end. The directors could,
within the law, have achieved the same result by moving the year end for these
consolidated accounts to 5 July, but the Board opted to not do this.
As a result of the above, the group has recognised an exceptional gain on
de-recognition of QM Systems Ltd in the Consolidated statement of
comprehensive income which includes an impairment charge of £516,000 in
respect of Goodwill relating to QM Systems Ltd.
1.5. 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.
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.
1.6. Goodwill
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, the attributable amount of goodwill is included
in the determination of the profit or loss on disposal.
1.7. Revenue recognition
For the year ended 30 June 2024 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.
1.8. Sale of goods
Revenue generated from the sale of goods is recognised on delivery of the
goods to the customer. On this basis revenue is recognised at a point in time.
1.9. 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.
1.10. 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%
1.11. 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. The value of work in progress is reduced where
appropriate to provide for irrecoverable costs
.
1.12. 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 based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and
the economic environment, 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.
1.13. Leased/Right of Use assets
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 reasonably 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 statement of financial position, 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.
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.
1.14. 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.
1.15. 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.
1.16. 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, and processed through the profit & loss account.
1.17. 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.
1.18. 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.
1.19. 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 capitalised 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.
1.20. Government grants
During the period, the Group received benefits from Government grants
totalling £18,000 (2023: 0).
1.21. Critical judgement 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.
Consolidation
The de-consolidation of QM Systems Ltd is a critical judgement applied by the
directors, please refer to basis of consolidation note 1.4.
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 11 for further
details.
The carrying amount of goodwill at the year-end date was £ nil (2023:
£679,000). The investment in subsidiaries at the year-end was £ nil (2023:
£988,000).
The methodology adopted in assessing impairment of Goodwill is set out in note
11 as is the sensitivity analysis applied in relation to the outcomes of the
assessment.
Impairment investment in subsidiaries and inter-company receivables
As set out in note 12, 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.
Going concern
The preparation of cash flow forecasts for the Group requires estimates to be
made of the quantum and timing of cash receipts from future commercial
revenues and the timing of future expenditure, all of which are subject to
uncertainty, see Basis of preparation - Going concern note 1.3
2 Segmental analysis
2024 2023
£'000 £'000
Turnover by geographical market
United Kingdom 8,739 6,076
Europe 82 162
Other 317 232
9,138 6,470
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"),
the current executive chairman, 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 Limited - Utility detection and mapping services - Sale of
services
· Utsi Electronics Limited - Development, assembly and sale of GPR
equipment - Sale of goods
· QM Systems Ltd - Automation and test system solutions - No longer
trading, in administration
· Thomson Engineering Design Limited - Rail trackside solutions
(included in the test system solutions segment) - Sale of services
· Wessex Precision Instruments Limited - Non trading
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.
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 detection and mapping services Development, assembly and sale of GPR equipment Automation and test system solutions
Total
£'000 £'000 £'000 £'000
Year ended 30 June 2024
Total segmental revenue 1,448 330 7,360 9,138
Operating (loss) / profit 85 154 (1,454) (1,215)
Finance costs (35) (335) (54) (424)
(Loss) / Profit before taxation 50 (181) (1,508) (1,639)
Segment assets 497 322 1,112 1,931
Segment liabilities 579 6,319 1,220 8,118
Non-current asset additions 48 - 47 95
Depreciation and amortisation 60 18 541 619
Utility detection and mapping services Development, assembly and sale of GPR equipment Automation and test system solutions
Total
£'000 £'000 £'000 £'000
Year ended 30 June 2023
Total segmental revenue 1,125 169 5,176 6,470
Operating (loss) / profit (214) (859) (1,826) (2,899)
Finance costs (39) (236) (110) (385)
(Loss) / Profit before taxation (253) (1,095) (1,936) (3,284)
Segment assets 558 1,181 6,000 7,739
Segment liabilities 734 5,025 7,631 13,390
Non-current asset additions 2 - 265 267
Depreciation and amortisation 80 17 482 579
3 Finance costs
2024 2023
£'000 £'000
Interest payable 424 385
424 385
Interest payable comprises interest on:
Leases 23 107
Directors' loans 259 192
Other 142 86
424 385
4 Operating profit for the year
This is arrived at after charging for the Group:
2024 2023
£'000 £'000
Research and development costs not capitalised 602 2,644
Depreciation 619 579
Impairment of goodwill 163 678
Auditor's remuneration
Fees payable to the Company's auditor for the audit of the Group's financial
statements
53 53
Fees payable to the Company's auditor and its subsidiaries for the provision
of tax services
- 8
The Company's audit fee is £29,000 (2023: £23,000).
5 Staff costs
Group 2024 2023
No. No.
Average monthly number of employees, including directors:
Production and research 89 77
Selling and research 9 9
Administration 10 12
108 98
Group 2024 2023
£'000 £'000
Staff costs, including directors:
Wages and salaries 4,313 3,602
Social security costs 414 376
Other pension costs 227 198
4,954 4,176
Company 2024 2023
No. No.
Average monthly number of employees, including directors:
Selling and research - -
Administration 1 1
1 1
Company 2024 2023
£'000 £'000
Staff costs, including directors:
Wages and salaries 82 87
Social security costs - -
Other pension costs - -
82 87
6 Directors' remuneration
Salary Benefits 2024 2023
and fees in kind Total Total
£'000 £'000 £'000 £'000
G G Watt 71 - 71 71
R MacDonnell 2 - 2 2
T Williams 9 - 9 6
Aggregate emoluments 82 - 82 79
2024 2023
Directors' pensions
No. No.
The number of directors who are accruing retirement benefits under:
Defined contributions policies - -
The directors represent key management personnel.
Refer to note 18 for details of directors share options.
7 Taxation
2024 2023
£'000 £'000
United Kingdom Corporation Tax
Current taxation (68) (800)
Adjustments in respect of prior years 120 -
52 (800)
Deferred taxation - -
Tax on loss 52 (800)
Current tax reconciliation
Taxable loss for the year (1,639) (3,284)
Theoretical tax at UK corporation tax rate 19% (2023: 19%) (383) (622)
Effects of:
R&D tax credit (38) (408)
adjustments
Fixed asset timing differences 4 28
Not deductible for tax purposes 259 3
Impairment of goodwill (31) 129
Deferred tax not recognised 229 73
Adjustments in respect of prior years 120 -
Utilisation of losses 1 (4)
Short term timing differences (109) 1
Total income tax credit
52 (800)
The Group has tax losses amounting to approximately £3,807,000 (2023:
£3,423,000), 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 £723,000
(2023: £650,000).
8 Loss / profit per share
Group
Basic (pence per share) 2024 - Loss (2.26) per share; 2023 - Loss (6.84) per
share
This has been calculated on a loss of £821,000 (2023: Loss £2,484,000) and
the number of shares used was 36,312,823 (2023: 36,312,823) being the weighted
average number of shares in issue during the year.
Diluted (pence per share) 2024 - (2.26) loss per share; 2023 - (6.84) loss per
share
In the current year the potential ordinary shares included in the weighted
average of shares are anti-dilutive and therefore diluted earnings per share
is equal to basic earnings per share.
9 Property, plant and equipment
Group Equipment, fixtures and fittings
Leasehold improvements Motor vehicles
Freehold Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2023 426 1,376 529 172 2,503
Additions - 41 9 - 50
Transfer from right of use assets - 142 142
Disposals (51) (22) (73)
QM Assets Impaired - (278) (517) - (795)
At 30 June 2024 375 1,139 21 292 1,827
Depreciation
At 1 July 2023 50 1,242 256 172 1,720
Charged in year 5 65 98 2 170
Disposals (51) - - (22) (73)
Transfer from right of use assets - - - 142 142
QM Assets Impaired - (220) (354) (5) (579)
At 30 June 2024 4 1,087 - 289 1,380
Net book value
At 30 June 2024 371 52 21 3 447
At 30 June 2023 376 134 273 - 783
10 Right of use
Group Equipment, fixtures and fittings
Leasehold improvements Motor vehicles
Property Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 July 2023 2,580 392 168 147 3,287
Additions - 57 - 18 75
Transfer to motor vehicles - - - (142) (142)
Disposal (2,388) - - - (2,388)
At 30 June 2024 192 449 168 23 832
Depreciation
At 1 July 2023 595 219 54 136 1,004
Charged in year 293 105 39 12 449
Transfer to motor vehicles - - - (142) (142)
Disposal (822) 91 63 - (668)
At 30 June 2024 66 415 156 6 643
Net book value
At 30 June 2024 126 34 12 17 189
At 30 June 2023 1,985 173 114 11 2,283
These assets have been offered as security in respect of these lease
agreements. Depreciation charged in the period on those assets amounted to
£449,000 (2023: £422,000)
11 Goodwill
Group Goodwill Total
£'000 £'000
Cost
At 1 July 2023 1,357 1,357
Additions - -
At 30 June 2024 1,357 1,357
Impairment
As at 30 June 2023 (678) (678)
Additional impairment (679) (679)
Net book value
At 30 June 2024 - -
At 30 June 2023 679 679
The goodwill brought forward in the statement of financial position at 30 June
2023 was £679,000 this has been impaired to £nil following the failure of QM
Systems Ltd, and an extremely cautious approach to both Adien Ltd and Utsi
Ltd.
We consider the CGUs to be the entities as acquired under business
combinations and managed as separate legal entities, each representing a
separately identifiable and independent group of assets contributing to the
cash flows of the CGU.
· Adien Limited specialises in leading edge detection systems in
the field of utilities detection.
· Thomson Engineering Design produces an unparalleled range of
machines, attachments and tools for railway track maintenance.
· Utsi design & manufacturer of innovative Ground Penetrating
Radar (GPR) systems which are used for commercial and
Industrial applications, all over the world.
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 and calculation of the terminal values. The key
assumptions are those regarding the discount rates, growth rates and expected
changes to sales and direct costs due to inflationary pressures 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 17.2% per annum based on
weighted average cost of capital.
The growth rate assumptions are based on management forecasts as below.
· Adien - These have been assessed as 14% growth for revenue in
year 1 with 5% in year 2+3 and 3% for years thereafter.
· UTSI and PipeHawk combined these have been assessed as 9% for
growth for revenue in year 1 and 59% for year 2, with the following 2 years at
3%.
· TED - The distribution agreement with Unipart has now commenced,
along with CP7 and therefore the forecasts are based on a 129% growth for year
1, 20% in year 2, 15% in year 3 and 7% in years 4 and 3% in year 5.
12 Non-current investments
Company
Investment in subsidiaries Total
Investment in subsidiaries
£'000 £'000
Cost
At 1 July 2023 1,903 1,903
Additions - -
At 30 June 2024 1,903 1,903
Impairment
Provided at 30 June 2023 (915) (915)
Additional impairment (988) (988)
Net book value
At 30 June 2024 - -
At 30 June 2023 988 988
Parent and Group interest in ordinary shares and voting rights
Country of incorporation
Subsidiary Principal activity
Adien Ltd 100% England & Wales Specialist surveying
Thomson Engineering Design Ltd 100% England & Wales Specialist in railway equipment
Wessex Precision Instruments Ltd 100% England & Wales Slip test solutions
Utsi Electronics Ltd 100% England & Wales GPR equipment
Wessex Test Equipment Ltd 100% England & Wales Dormant
CE Marking Services Ltd 100% England & Wales Dormant
QM Systems Ltd (in administration)* 100% England & Wales Test solutions
An impairment assessment was performed in line with the assessment of
goodwill, see note 11 for further details.
The registered office of all of the above named subsidiaries, except Adien Ltd
and Utsi Electronics Ltd is Units 2a & 3 Crabtree Road, Forest Vale
Industrial Estate, Cinderford, Gloucestershire, United Kingdom, GL14 2YQ.
The registered office of Adien Ltd is Derek Lewis Building, Millfield Ind
Estate, Bentley, Doncaster, DN5 0SJ
The registered office of Utsi Electronics Ltd is Unit 26, Glenmore Business
Park, Ely Road, Waterbeach, Cambridge, Cambridgeshire, CB25 9PG.
*As noted in the post balance sheet events note, QM Systems Limited has
entered into administration, please refer to Chairman's statement for details.
13 Inventories
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Raw materials 0 106 - -
Finished goods 113 147 - -
113 253 - -
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
£2,709,000 (2023: £2,294,000). For the Parent company this was £nil
(2023: £nil).
14 Trade and other receivables
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Current
Trade receivables 504 1,263 - -
Amounts owed by Group undertakings less provision - - 9 9
Other Debtors 125 374 - 2
Accrued income 235 190 - -
Prepayments 143 940 - -
1,007 2,767 9 11
15 Trade and other payables
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Current
Trade payables 406 1,197 55 34
Other taxation and social security 370 1,002 13 -
Payments received on account 389 2,164 - -
Accruals and other creditors 209 1,029 61 103
1,374 5,392 129 137
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Non-current
Amounts owed to Group undertakings - - 310 2,002
Other creditors 121 - - -
121 - 310 2,002
The performance obligations of the IFRS 15 contract liabilities (payments
received on account) are expected to be met within the next financial year.
The brought forward payments received on account figure was £2,164,000,
during the financial year 2024 £2,164,000 has been recognised as revenue in
the statement of comprehensive income.
16 Borrowing analysis
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
Due within one year
Bank and other loans 783 677 578 379
Directors' loan 2,035 1,783 2,035 1,783
Obligations under lease agreements 111 426 - -
2,929 2,886 2,613 2,162
Due after more than one year
Bank and other loans 342 350 240 221
Directors' loan 3,342 2,501 3,342 2,501
Obligations under lease agreements 96 2,062 - -
3,780 4,913 3,582 2,722
Repayable
Due within 1 year 2,929 2,886 2,613 2,162
Over 1 year but less than 2 years 3,652 3,040 3,522 2,611
Over 2 years but less than 5 years 128 1,873 60 111
6,709 7,799 6,195 4,884
Directors' loans
Included with Directors' loans and borrowings due within one year are accrued
fees and interest owing to G.G Watt of £2,035,000 (2023: £1,783,000). The
accrued fees and interest are repayable on demand and no interest accrues on
the balance.
The director's loan due in more than one year is a loan of £3,342,000 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
£2,342,000 (2023: £1,501,000) was outstanding in relation to this loan.
During the year to 30 June 2024 £543,000 (2023: £393,000) was repaid. The
Company has the right to defer payment for a period of 366 days.
On 13 August 2010 the Company issued £1 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 £1
million and has been recognised in non-current liabilities of £3,342,000.
Pursuant to amendments made on 13 November 2014, 9 November 2018 and 30 June
2022 the principal terms of the CULS are as follows:
- The CULS may be converted at the option of Gordon Watt at a price of
5p per share at any time prior to 13 August 2026;
- 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
2026 ("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.
Bank and other loans
Included in bank and other loans is an invoice discounting facility of
£170,766 (2023: £261,962). The principal terms of which are interest at
2.58% over Bank of England base rate and secured on the company's debtors.
Included in bank and other loans is a secured mortgage of £93,569 which
incurs an interest rate of 2.44% over base rate for 10 years and at a rate of
2.64% over base thereafter.
As a result of COVID 19, Coronavirus Business Interruption Loan Scheme (CBILS)
became available for the business. This enabled the group to secure two loans.
The loan for £400,000 had a remaining balance outstanding of £153,000, and
the second loan of £150,000 had a remaining balance outstanding of £68,000,
both at a rate of 2.96%. The amount of interest paid during the Financial Year
was £18,898.
The business was also able to secure a Bounce Back loan through Wessex
Precision Engineering of £24,000 the remaining balance outstanding is
£14,000, and Utsi obtained £50,000 bounce back loan the remaining balance
outstanding is £29,000 both with an interest rate of 2.5%.
2024 Non-cash:
Bought forward Non-cash: Non-cash: Accrued fees /interests Carried forward
Cash flows Lease release / disposal New leases
£'000 £'000 £'000 £'000 £'000 £'000
Director loan 4,284 769 - - 323 5,376
Leases 2,487 (572) (1,873) 75 90 207
Other 1,028 30 - - 68 1,126
Loans and borrowings 7,799 227 (1,873) 75 481 6,709
2023 Non-cash:
Bought forward Non-cash: Non-cash: Accrued fees/interests Carried forward
Cash flows Lease release / disposal New leases
£'000 £'000 £'000 £'000 £'000 £'000
Director loan 4,446 (393) - - 231 4,284
Leases 2,692 (455) - 156 94 2,487
Other 1,201 (210) - - 37 1,028
Loans and borrowings 8,339 (1,058) - 156 362 7,799
17 Financial instruments
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 14 (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 2024, the top 3 customers comprised 41% (2023: 30%) 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.
Within revenue there are two customers which individually represent 11.8% and
9.1% of the overall revenue for the financial year, this compared to 13.6% and
11.36% in the previous financial year.
An analysis of trade and other receivables:
2024 Weighted average loss rate Gross carrying Impairment loss allowance
value
£'000 £'000 £'000
Performing 0.00% 1,007 -
2023 Weighted average loss rate Gross carrying value Impairment loss allowance
£'000 £'000
Performing 0.00% 2,767 -
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 £23,000
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.
Contractual maturity analysis for financial liabilities:
2024 Less than Due between Due between
1 year 1-2 years 2 - 5+ years Total
£'000 £'000 £'000 £'000
Trade and other payables 1,374 121 - 1,495
Borrowings 2,818 3,614 70 6,502
Lease liability 111 96 - 207
4,303 3,831 70 8,204
2023 Less than Due between Due between
1 year 1-2 years 2 - 5+ years
Total
£'000 £'000 £'000 £'000
Trade and other payables 1,734 - - 1,734
Borrowings 2,514 2,594 204 5,312
Lease liability 426 393 1,668 2,487
4,674 2,987 1,872 9,533
Financial liabilities of the Company are all due within less than three months
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 G G Watt as described per note 1.
18 Share capital
2024 2024 2023 2023
No. £'000 No. £'000
Authorised
Ordinary shares of 1p each 40,000,000 400 40,000,000 400
Allotted and fully paid
Brought forward 36,312,823 363 36,312,823 363
Issued during the year - - - -
Carried forward 36,312,823 363 36,312,823 363
Fully paid ordinary shares carry one vote per share and carry a right to
dividends.
12,893,703 (2023: 12,953,703) share options were outstanding at the year end,
comprising the 2,040,000 employee options and the 10,853,703 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 (2023 :
nil).
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 November 2019 and November 2026 400,000 3.875p
Between November 2020 and November 2027 100,000 3.75p
Between March 2024 and March 2031 1,290,000 8.00p
Between January 2026 and January 2033 1,400,000 14.25p
Directors' share options
Number of options
Granted during the year Lapsed during the year Date from
Directors' share options At start At end of year Exercise price which
of year exercisable
GGWatt 750,000 - - 750,000 8.0p 18 Mar 2024
RMacDonnell 200,000 - - 200,000 8.0p 18 Mar 2024
TWilliams 200,000 - - 200,000 14.25p 10 Jan 2026
The Company's share price at 30 June 2024 was 8.50p. The high and low during
the period under review were 13.00p and 5.25p 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 share options outstanding at the
year-end is 6.86 years (2023: 7.72 years).
The Company's share price at 30 June 2024 was 8.50p. The high and low during
the period under review were 13.00p and 5.25p 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 share options outstanding at the
year-end is 6.86 years (2023: 7.72 years).
19 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 - £251,419
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:
2024 2023
£ £
Balance due from:
Thomson Engineering Design Limited 391,898 679,649
Wessex Precision Engineering Limited 8,520 8,520
Balance due to:
Adien Limited 16,614 99,278
QM Systems Limited - 1,702,813
Utsi Electronics Limited 256,897 200,001
These intergroup balances vary through the flow of working capital
requirements throughout the Group as opposed to intergroup trading. The
balance due from TED £391,898 has been provided for based on a review of
recoverability of intercompany balances.
There is no ultimate controlling party of PipeHawk plc.
Other related party transactions
2024 2023
£ £
Balance due to:
Online Engineering Systems Ltd 200,216 -
20 Government grants
A government grant was recognised during the period:
Group Company
2024 2023 2024 2023
£'000 £'000 £'000 £'000
18 - - -
Grant
18 - - -
21 Post Balance Sheet Events
On 16th July 2024 QM Systems Ltd, the Group's largest subsidiary, was placed
into Administration (for further details see the Chairman's Statement). The
events giving rise to this happened immediately after the year end. Because
this has such a material effect on the Group's balance sheet, as explained in
note 1.4, the directors have reflected the full implications of the
Administration in the Group's consolidated balance sheet at 30 June 2024.
This, the directors believe, fairly reflects the status of the Group as it
moves forward into the current financial year.
22 Copies of Reports and Accounts
Copies of the Report and Accounts will be posted to shareholders later today
and will be available from the Company's registered office, 2a & 3
Crabtree Road, Forest Vale Industrial Estate, Cinderford, England, GL14 2YQ
and from the Company's website www.pipehawk.com (http://www.pipehawk.com/) .
23 Notice of Annual General Meeting
The Report and Accounts will include a notice that the annual general meeting
will be held at the offices of Allenby Capital Limited at 5th floor, 5 St
Helen's Place, London, EC3A 6AB at 11:30 am on 19 December 2024.
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