1              Summary of significant accounting policies

 

 

1.1.   General information

PipeHawk plc (the Company) is a 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 on page 3.  The principal activities of the Company and its subsidiaries (the Group) are described on page 9.

 

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.  For the year to 30 June 2023 the Company recorded a net loss after taxation of £1,822,000 (2022: £282,000).

 

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 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, all of which are subject to uncertainty. The directors have obtained a renewed pledge from G G 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. The financial statement do 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.

 

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 2023 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 did not receive benefits from Government grants.

 

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.

 

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 £679,000 (2022: £1,357,000).  The investment in subsidiaries at the year-end was £988,000 (2022: £1,903,000).

 

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.

 

 

2              Segmental analysis

 

		2023 £'000		2022 £'000
	Turnover by geographical market
	United Kingdom	6,076		5,627
	Europe	162		243
	Other	232		321
		6,470		6,191

 

 

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 - Sale of services ·      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 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	14	18	482		579

 

 

		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 2022
	Total segmental revenue	1,453	246	4,492		6,191
	Operating (loss) / profit	21	(323)	(1,010)		(1,312)
	Finance costs	(36)	(171)	(57)		(264)
	(Loss) / Profit before taxation	(15)	(494)	(1,067)		(1,576)
	Segment assets	655	1,924	5,598		8,177
	Segment liabilities	628	5,226	5,442		11,296
	Non-current asset additions	17	55	2,941		3,013
	Depreciation and amortisation	106	3	316		425

 

 

 

3              Finance costs

		2023 £'000		2022 £'000
	Interest payable	385		264
		385		264
	Interest payable comprises interest on:
	Leases	107		69
	Directors' loans	192		140
	Other	86		55
		385		264

4              Operating profit for the year

 

This is arrived at after charging for the Group:

 

		2023 £'000		2022 £'000
	Research and development costs not capitalised	2,644		2,333
	Depreciation Impairment of goodwill	579 678		424 -
	Auditor's remuneration
	Fees payable to the Company's auditor for the audit of the Group's financial statements	53		45
	Fees payable to the Company's auditor and its subsidiaries for the provision of tax services	8		7
	The Company audit fee is £23,000 (2022: £9,000).

 

 

5              Staff costs

 

	Group			2023		2022
				No.		No.
	Average monthly number of employees, including directors:
	Production and research			77		79
	Selling and research			9		9
	Administration			12		7
				98		95

 

	Group			2023		2022
				£'000		£'000
	Staff costs, including directors:
	Wages and salaries			3,602		3,387
	Social security costs			376		361
	Other pension costs			198		113
				4,176		3,861

 

 

	Company			2023		2022
				No.		No.
	Average monthly number of employees, including directors:
	Selling and research			-		-
	Administration			1		1
				1		1

 

	Company			2023		2022
				£'000		£'000
	Staff costs, including directors:
	Wages and salaries			87		131
	Social security costs			-		7
	Other pension costs			-		4
				87		142

 

 

6              Directors' remuneration

 

		Salary and fees	Benefits in kind	2023 Total		2022 Total
		£'000	£'000	£'000		£'000
	G G Watt	71	-	71		71
	R MacDonnell	2	-	2		2
	T Williams	6	-	6		-
	Aggregate emoluments	79	-	79		73

 

	Directors' pensions			2023		2022
				No.		No.
	The number of directors who are accruing retirement benefits under:
	Defined contributions policies			-		1

 

The directors represent key management personnel.   Refer to note 18 for details of directors share options.

 

 

7              Taxation

 

 

				2023		2022
				£'000		£'000
	United Kingdom Corporation Tax
	Current taxation			(800)		(708)
	Adjustments in respect of prior years			-		-
				(800)		(708)
	Deferred taxation			-		-
	Tax on loss			(800)		(708)
	Current tax reconciliation
	Taxable loss for the year			(3,284)		(1,576)
	Theoretical tax at UK corporation tax rate 19% (2022: 19%)			(622)		(289)
	Effects of:
	R&D tax credit adjustments			(408)		(350)
	Fixed asset timing differences			28		(101)
	Not deductible for tax purposes      Impairment of goodwill			3 129		2 -
	Deferred tax not recognised			73		45
	Adjustments in respect of prior years			-		1
	Utilisation of losses			(4)		-
	Short term timing differences			1		(16)
	Total income tax credit			(800)		(708)

 

The Group has tax losses amounting to approximately £3,423,000 (2022: £3,033,706), 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 £650,000 (2022: £576,404).

 

 

8              Loss / profit per share

 

Group Basic (pence per share) 2023 - Loss (6.84) per share; 2022 - Loss (2.42) per share This has been calculated on a loss of £2,484,000 (2022: Loss £868,000) and the number of shares used was 36,312,823 (2022: 35,812,823) being the weighted average number of shares in issue during the year.    Diluted (pence per share) 2023 - (6.84) loss per share; 2022 - (2.42) 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	Freehold	Equipment, fixtures and fittings	Leasehold improvements		Motor vehicles		Total
		£'000	£'000	£'000		£'000		£'000
	Cost
	At 1 July 2022	426	1,320	474	237			2,457
	Additions	-	56	55	-			111
	Disposals	-	-	-	(65)			(65)
	At 30 June 2023	426	1,376	529	172			2,503
	Depreciation
	At 1 July 2022	45	1,179	168	237			1,629
	Charged in year	5	63	88	-			156
	Disposals	-	-	-	(65)			(65)
	At 30 June 2023	50	1,242	256	172			1,720
	Net book value
	At 30 June 2023	376	134	273	-			783
	At 30 June 2022	381	141	306	-			828

 

 

10           Right of use

 

	Group	Property	Equipment, fixtures and fittings	Leasehold improvements	Motor vehicles	Total
		£'000	£'000	£'000	£'000	£'000
	Cost
	At 1 July 2022	2,580	236	168	147	3,131
	Additions	-	156	-	-	156
	Disposal	-	-	-	-	-
	At 30 June 2023	2,580	392	168	147	3,287
	Depreciation
	At 1 July 2022	299	156	12	115	582
	Charged in year	296	63	42	21	422
	Disposal	-	-	-	-	-
	At 30 June 2023	595	219	54	136	1,004
	Net book value
	At 30 June 2023	1,985	173	114	11	2,283
	At 30 June 2022	2,281	80	156	32	2,549

 

 

These assets have been offered as security in respect of these lease agreements.  Depreciation charged in the period on those assets amounted to £422,000 (2022: £314,000)

 

 

11           Goodwill

.	Group					Goodwill £'000		Total £'000
	Cost
	At 1 July 2022					1,357		1,357
	Additions					-		-
	At 30 June 2023					1,357		1,357
	Impairment
	As at 30 June 2023					(678)		-
	Net book value
	At 30 June 2023					679		1,357
	At 30 June 2022					1,357		1,357

               

The goodwill brought forward in the statement of financial position at 30 June 2022 was £1,357,000 this has been impaired to £679,000 following a management review. The goodwill is made up of Adien Limited in 2002 (£151,000), QM Systems Limited in 2006 (£516,000), TED Limited in 2017 (£0), and Utsi Electronics Limited in 2021 (£12,000).   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.   This financial year due to delay in the Start of Production for the contract manufacturing business, and given the effects of the wider downturn and volatility in the global market uncertainty the directors have taken a prudent view to recognise a goodwill impairment charge totalling £678,000, which consists of an impairment charge on QM Systems Limited £487,000, TED £129,000 and Adien Limited £62,000.   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 Utsi 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 ·      Assembly and sale of GPR equipment ·      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 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. The results of these forecasts have then been further impaired by the group directors in the interests of prudence.   ·      Adien - These have been assessed as 28% growth for revenue in years 1 bringing it back into line with year ending June 2022, with and 2.5% for years thereafter.   ·      UTSI and PipeHawk combined these have been assessed as 63% for growth for revenue in year 1 and 76% for year 2, 45% for year 3, 54% for year 4, and 40% year 5.     ·      QM - The strong pipeline reported last year did convert, and at 30th June 2023 QM had a closing orderbook of £5.8m, the highest ever recorded. In addition, further orders have been received in the new financial year, and the company has a strong pipeline of enquiries. Based on this year 1 is showing growth of 102% This is followed by an expected 16% growth in year 2, 21% in year 3, 7% in year 4 and 23% for years 5, and is expected to include start of production in all three contract manufacturing client projects.   ·      TED - A prudent approach has been applied to TED until activity generated from the recent distribution agreement with Unipart is fully underway. The forecasts are based on a 3% growth for year 1, 20% in year 2, 17% in year 3 and no increase for years 4 and 5.

12           Non-current investments

 

	Company			Investment in subsidiaries		Total
				£'000		£'000
	Cost
	At 1 July 2022			1,903		1,903
	Additions			-		-
	At 30 June 2023			1,903		1,903
*
	Impairment
	Provided at 30 June 2023			(916)		-
	Net book value
	At 30 June 2023			988		1,903
	At 30 June 2022			1,903		1,903

                                                                                                                                                                               

	Subsidiary	Parent and Group interest in ordinary shares and voting rights	Country of incorporation	Principal activity
	Adien Ltd	100%	England & Wales	Specialist surveying
	QM Systems Ltd	100%	England & Wales	Test solutions
	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 (formerly Tech Sales Services Ltd)	100%	England & Wales	Dormant
	CE Marking Services Ltd (formerly MineHawk Ltd)	100%	England & Wales	Dormant

 

An impairment assessment was performed in line with the assessment of goodwill, see note 11 for further details.  On the basis of this assessment an impairment of the investment was made at 30 June 2023.   The registered office of all of the above named subsidiaries, except Thomson Engineering Design Ltd and Utsi Electronics Ltd is Manor Park Industrial Estate, Wyndham Street, Aldershot, Hampshire, GU12 4NZ.   The registered office of Thomson Engineering Design Ltd is Units 2a & 3 Crabtree Road, Forest Vale Industrial Estate Cinderford, Gloucestershire, United Kingdom, GL14 2YQ The registered office of Utsi Electronics Ltd is Unit 26, Glenmore Business Park, Ely Road, Waterbeach, Cambridge, Cambridgeshire, CB25 9PG.

 

 

13           Inventories

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Raw materials	106	150		-	-
	Finished goods	147	190		-	-
		253	340		-	-

 

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 £2,294,000 (2022: £1,886,000).  For the Parent company this was £nil (2022: £41,612).

14           Trade and other receivables

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Current
	Trade receivables	1,263	1,261		-	-
	Amounts owed by Group undertakings less provision	-	-		9	469
	Other Debtors	374	522		2	-
	Accrued income	190	332		-	41
	Prepayments	940	274		-	-
		2,767	2,389		11	510

 

 

15           Trade and other payables

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Current
	Trade payables	1,197	972		34	38
	Other taxation and social security	1,002	447		-	-
	Payments received on account	2,164	839		-	-
	Accruals and other creditors	1,029	601		103	106
		5,392	2,859		137	144

 

 

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Non-current
	Amounts owed to Group undertakings	-	-		2,002	1,398
	Other creditors	-	-		-	-
		-	-		2,002	1,398

 

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 £839,000, during the financial year 2023 £839,000 has been recognised as revenue in the statement of comprehensive income.

 

16           Borrowing analysis

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Due within one year
	Bank and other loans	677	708		379	375
	Directors' loan	1,783	1,644		1,783	1,644
	Obligations under lease agreements	426	322		-	-
		2,886	2,674		2,162	2,019

 

	Due after more than one year
	Bank and other loans	350	491		221	331
	Directors' loan	2,501	2,751		2,501	2,751
	Obligations under lease agreements	2,062	2,370		-	-
		4,913	5,612		2,722	3,082

 

	Repayable
	Due within 1 year	2,886	2,729		2,162	2,072
	Over 1 year but less than 2 years	3,040	3,249		2,611	2,861
	Over 2 years but less than 5 years	1,873	2,361		111	221
		7,799	8,339		4,884	5,154

 

Directors' loans

Included with Directors' loans and borrowings due within one year are accrued fees and interest owing to G.G Watt of £1,783,000 (2022: £1,644,000). 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 £2,501,000 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 £1,501,000 (2022: £1,750,000) was outstanding in relation to this loan.  During the year to 30 June 2023 £393,000 (2022: £200,000) 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 £1million and has been recognised in non-current liabilities of £2,501,000.

 

 

Pursuant to amendments made on 13 November 2014 and 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 3p 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 £261,962 (2022: £299,635). 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 £107,438 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 is £220,000, and the second loan of £150,000 had a remaining balance outstanding is £110,000, both at a rate of 2.96%. The amount of interest paid during the year was £19,837.   The business was also able to secure a Bounce Back loan through Wessex Precision Engineering of £24,000 the remaining balance outstanding is £19,000, and Utsi obtained £50,000 bounce back loan the remaining balance outstanding is £39,000 both with an interest rate of 2.5%.

 

	2023	Bought forward	Cash flows	Non-cash: New leases	Non-cash: Accrued fees/interests		Carried forward
		£'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
	2022	Bought forward	Cash flows	Non-cash: New leases	Non-cash: Accrued fees/interests		Carried forward
		£'000	£'000	£'000	£'000		£'000
	Director loan	4,140	119	-	187		4,446
	Leases	324	(163)	2,584	(53)		2,692
	Other	897	286	-	18		1,201
	Loans and borrowings	5,361	242	2,584	152		8,339

 

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 2023, the top 3 customers comprised 30% (2022: 34%) of total trade receivables in the segment Automation and test system solutions.   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 13.6% and 11.36% of the overall revenue for the financial year.

 

An analysis of trade and other receivables:

 

	2023			Weighted average loss rate	Gross carrying value	Impairment loss allowance
				£'000	£'000	£'000
	Performing			0.00%	2,767	-

 

	2022			Weighted average loss rate	Gross carrying value	Impairment loss allowance
					£'000	£'000
	Performing			0.00%	2,389	-
	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 £15,000 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:

 

	2023	Less than 1 year	Due between 1-2 years	Due between 2 - 5+ years		Total
		£'000	£'000	£'000		£'000
	Trade and other payables	1,734	-	-		1,734
	Borrowings Lease liability	2,514 426	2,594 393	204 1,668		5,312 2,487
		4,674	2,987	1,872		9,533

 

	2022	Less than 1 year	Due between 1-2 years	Due between 2 - 5+ years		Total
		£'000	£'000	£'000		£'000
	Trade and other payables	1,876	-	-		1,876
	Borrowings Lease liability	2,405 322	2,887 363	355 2,007		5,647 2,692
		4,603	3,250	2,362		10,215

 

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

 

		2023	2023		2022	2022
		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		34,860,515	349
	Issued during the year	-	-		1,452,308	14
	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.   12,953,703 (2022: 11,773,703) share options were outstanding at the year end, comprising the 2,100,000 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.   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 July 2016 and July 2023			60,000		3.00p
	Between November 2019 and November 2026 Between November 2020 and November 2027			400,000 100,000		3.875p 3.75p
	Between March 2024 and March 2031 Between January 2026 and January 2033			1,290,000 1,400,000		8.00p 14.25p

 

	Directors' share options       Number of options     Directors' share options   At start of year Granted during the year   Lapsed during the year   At end of year     Exercise price Date from which exercisable   G G Watt 750,000 - - 750,000 8.0p 18 Mar 2024 R MacDonnell 200,000 - - 200,000 8.0p 18 Mar 2024 T Williams - 200,000 - 200,000 14.25p 10 Jan 2026
		The Company's share price at 30 June 2023 was 13p. The high and low during the period under review were 16.5p and 11.25p 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 7.72 years (2022: 7.09 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 - £188,402   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:
			2023 £		2022 £
	Balance due from:
	Thomson Engineering Design Limited		679,649		462,482
	Wessex Precision Engineering Limited		8,520		6,120
	Balance due to:
	Adien Limited		99,278		147,738
	QM Systems Limited		1,702,813		979,323
	Utsi Electronics Limited		200,001		271,115

 

These intergroup balances vary through the flow of working capital requirements throughout the Group as opposed to intergroup trading. The balance due from TED £679,649 has been provided for based on a review of recoverability of intercompany balances.

 

There is no ultimate controlling party of PipeHawk plc.

 

 

20           Government grants

 

In addition to the Government assistance disclosed in note 16, no further Government grants were recognised during the period:

 

		Group			Company
		2023 £'000	2022 £'000		2023 £'000	2022 £'000
	Coronavirus Job Retention Scheme grants	-	48		-	3
		-	48		-	3

 

 

 

21        Copies of Report 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, Manor Park Industrial Estate, Wyndham Street, Aldershot, Hampshire GU12 4NZ and from the Company's website www.pipehawk.com.

22          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, 5 St Helen's Place, London, EC3A 6AB at 11:30 am on 21 December 2023.