PipeHawk plc
Annual Report 2023

Plain-text annual report

COMPANY NO: 3995041 A N N U A L R E P O R T Year ended 30 June 2023 PipeHawk plc is a dynamic business offering advanced engineering solutions to challenging technical requirements across many industries. QM Systems is a market leader in providing solutions and services for electronic system design and manufacture, test equipment, transfer systems and automation and assembly solutions to the automotive, aerospace, rail and other related industries. It specialises in providing full turnkey solutions for any automated assembly process. Thomson Engineering Design produces an unparalleled range of machines, attachments and tools for railway track renewal and maintenance across the globe. Adien Limited is a leader in the field of utility detection and mapping. Its survey teams provide information that is critical in the design processes of almost all construction projects that involve breaking the ground. Utsi is one of the global market leaders in ground probing radar technology with many applications including civil engineering and land mine detection. Our technology provides a superior detection of hidden underground objects and features, dramatically reducing risk, improving safety and saving substantial time and money during identification and excavation. Wessex Precision Instruments is a leading manufacturer and service provider of specialist equipment to test the skid resistance characteristics of vehicle and pedestrian surfaces. Powered by excellent people our reputation is built on exceeding our customers’ expectations in delivering innovative, cost effective quality solutions in all aspects of our business. Through our energetic, innovative and dynamic approach together with our significant investment in R&D we will continue to strengthen our market leading positions. Contents Company information ......................................................1 Consolidated statement of comprehensive income ......17 Chairman’s statement ......................................................2 Consolidated statement of financial position................18 Strategic report..................................................................5 Parent company statement of financial position ..........19 Report of the directors ....................................................7 Consolidated statement of cash flow ............................20 Corporate governance ......................................................9 Parent company statement of cash flow ........................21 Directors’ biographies ....................................................11 Statement of changes in equity ......................................22 Statement of directors’ responsibilities for the annual report ..............................................................................12 Independent auditor’s report to the members of PipeHawk plc ..................................................................13 Notes to the financial statements ..................................23 Notice of annual general meeting ..................................43 Company Information Directors: Gordon G Watt (Executive Chairman) Robert Randal MacDonnell (Non-Executive) Tim Williams (Non-Executive) Secretary: Andrew Tombs Nominated Adviser Allenby Capital Limited and Broker: 5 St Helen’s Place London EC3A 6AB Registered number: 3995041 Registered office: Manor Park Industrial Estate Wyndham Street Aldershot Hampshire GU12 4NZ Auditor: Crowe U.K. LLP 55 Ludgate Hill London EC4M 7JW Solicitors: Gowling WLG 4 More London Riverside London SE1 2AU 1 1 PipeHawk plc Annual Report 2023 Chairman’s Statement “This has been an extremely challenging year” “We have invested significantly to be able to take advantage of the opportunities” “I am confident therefore that the future looks very promising” 2 PipeHawk plc Annual Report 2023 I can report that Group turnover for the financial year ended 30 June 2023 (the “Financial Year” and the 2022/23 FY”) increased to £6.5million (2022: £6.2 million). The Group incurred an operating loss in the Financial Year of £2,899,000 (2022: £1,312,000), a loss before taxation for the Financial Year of £3,284,000 (2022: loss £1,576,000) and a loss after taxation of £2,484,000 (2022: loss £868,000). The loss per share for the financial year was 6.84p (2022: loss 2.42p). Notwithstanding the resurgence of our businesses over the last few months, 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 £678k. It is evident now that the disappointing results delivered during the last two financial years were created over a single 12-month period spanning January 2022 through until December 2022. This was as a result of a perfect storm on the back of a faltering recovery from Covid, the Russian invasion of the Ukraine in February 2022 and the political chaos resulting from the resignation of Boris Johnson as Prime Minister in June 2022, an interregnum until the appointment, and brief term in office, of Liz Truss from September 2022 and finally the appointment of Rishi Sunak in late October 2022. All this set against a background of rising fuel prices and price rises on just about every other manufactured good, whilst the Bank of England “helps” to reduce demand even further by increasing UK interest rates most months whilst saying there is more pain to come! Somewhat surprisingly and despite the aforementioned factors, quotations within the Group’s businesses over this period remained buoyant, evidencing the desire of clients to place orders once they felt confident that a degree of stability had materialised. The first half of the financial year saw a slow start on sales at £2.2 million, however the second half of the financial year saw this rise to £4.3 million. This improvement has continued into the first few months of the current financial year as we anticipate being able to make full use of the much larger facilities which we moved into at QM and TED when the market place was looking much more positive two years ago. We entered the current year with a Group orderbook in excess of £6 million – the highest in our history, so, provided there are no more nasty surprises to upset the resurgence of stability and belief in our economy, I am confident the Group will be able to report a much-improved financial return at the end of the current financial year, with this improvement continuing thereafter. QM Systems For the reasons outlined above, QM had a very tough year having only just moved to premises five times larger with consequent increased overhead costs. Nevertheless, unlike some of its competitors, it has weathered the storm and has come out stronger. Similar to the previous 2021/22 financial year, QM experienced a year of two halves although this time in reverse. The 2022/23 financial year saw QM report a 36% increase in revenue to £4.2m but with a significant loss after tax of £970k for the year. However, the loss was almost entirely created within the first six months where revenue was only £1.3m with a loss after tax of £950k. The company steadily grew revenue throughout the second part of the year achieving a return to profit within the final quarter. Towards the end of the first quarter of the 2022/23 financial year, contract awards again began to flow into the business, and this accelerated through the latter part of 2022 and into 2023. Orders received during the period from September 2022 through to June 2023 exceeded £7m and resulted in QM ending the 2022/23 financial year with its healthiest ever forward orderbook of £5.8m. Many of these orders were quotations provided by QM 12-18 months prior, in some cases more. The average size of order award for QM has increased to approximately £500k with a number of larger orders between £1m to £2m in value also being awarded. QM today Chairman’s Statement sits in a competitive position for contracts with values above £300k. QM now has the infrastructure both in terms of resource and facilities to deliver large multi-million-pound contracts, and today sales generation is focused on larger contracts where QM can add real value to our clients with a very competitive pricing structure. The current financial year will see the Start of Production (SOP) in three contract manufacturing business units with them entering SOP in Q1 2024. This in turn will create a business model that is not reliant totally on Capital expenditure project awards. Revenue continues to increase month on month as we head into the 2023/24 financial year and we have short/medium term visibility on a good return to profitability and stability. Thomson Engineering Design (“TED”) TED generated revenues in the Financial Year of £970k and a loss after tax of £267k and has followed a similar trajectory to QM with a depressed initial six-month period of financial year 2022/23 during which revenues were c. £400k, generating a loss after tax of c. £220k, followed by a more buoyant second half year where revenues were £570k, generating a reduced loss after tax of c. £50k. Sales however did remain below our expectations. As Network Rail approaches the end of the CP6 funding round, a number of new contract awards have been delayed to align to the start of CP7 (March 2024). This clearly has a knock-on effect on TED in delaying UK-based client sales of equipment. However, this impact is restricted to the UK market only. As reported previously, TED signed a distribution agreement with Unipart Rail late in 2022 and this has resulted in a substantial amount of business being quoted to Unipart Rail. TED is now beginning to see a number of these quotations transition into orders. However, this has had little impact on financial year 2022/23. Unipart Rail are now placing orders with TED on a regular basis, and we fully expect to see a rapid growth in revenue contribution as the current financial year 2023/24 continues. Together with increased revenue, Unipart Rail brings a ready-made marketing system to TED’s door that provides TED with unrivalled exposure to global markets. Unipart Rail is locally and actively present in South East Asia, Europe, North America, Australia and the Middle East. Because of this local presence, Unipart Rail understands the respective markets clearly and this in turn helps TED and Unipart Rail to work together to fine tune and develop products for each market. Over the past year, Unipart Rail, with support from TED, has promoted the TED product catalogue at InnoTrans 2022 – the largest rail exhibition in Europe, Rail Live 2022 – the largest rail exhibition in the UK. Trax 2022 – North America, MTI – Japan – Nov 2022 and Aus Rail – Australia Nov 2022. Looking forwards over the coming year, TED’s products will be exhibited at MTI – Japan – June 2024, Trax – North America – June 2024, Rail Live 2023 – UK – July 2024, RSSi / Remsa – US – July 2024 and InnoTrans – Berlin September 2024. TED has continued development of a number of innovative ‘High Output’ machines. This suite of machines, consisting of track and panel handlers, gantry cranes, automated rail threaders and automated dust suppressed ballast brooms work hand in hand to provide rail maintenance and installation operators with a very capable set of tools that can greatly increase the speed with which track systems can be laid for a fraction of the cost of the bigger multi-million train-based systems utilised today. The equipment is far smaller and lightweight, can run on a track bed without needing rails and can be deployed quickly and easily to site at a fraction of the cost of conventional systems. Adien Adien was very badly affected by the disruption to business confidence as a result of the Conservative leadership debacle last year. Several large projects which had been awarded to Adien were shelved at short notice, and longer-term projects were reassessed and pushed onto the back burner. As the reality of deferred work became evident as significantly more than a temporary blip, the company implemented a massive structural change to the business, including the appointment of a new Managing Director, consolidation of roles, leading to some staff being made redundant, implementation of a new corporate plan and a refocusing of the sales department as a whole. This, with the return of a degree of business confidence, has dramatically increased the prospects and resulting orders at Adien. Turnover for the first quarter of the current, 23/24 financial year is almost double that of the same period last year, and resulting in a very satisfactory return to profitability. The forward order book is full, and order enquiries are extremely buoyant. On the whole, the team at Adien are thoroughly enthused, working well together with full commitment to see a very successful 2023/24. UTSI UTSI had a very cyclical year that saw the willingness of UK & EU customers to invest in new sensor technology rise and fall with every global event and interest rate hike. While some overseas markets remained resiliently buoyant, overall retail sales were still down. Demand for our more specialist systems and bespoke design service however remained strong and rose throughout the year, with a number of projects keeping R&D busy and bolstering turnover. Even though the cost of many of our raw materials started to stabilise during the year, with some even falling, average electronic component prices remained higher at the year end than at the beginning, with a number of key components still in short supply and on long lead times. With retail and trade customers resisting further price increases, margins had to be tightened to remain competitive and although UTSI’s overall turnover 3 PipeHawk plc Annual Report 2023 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 Chairman Date: 28 November 2023 Chairman’s Statement increased year on year, it could have been higher were it not for some lingering long lead times in the supply chain, preventing orders being completed during the financial year. As a result, a small loss was realised. While UTSI continues to seek new R&D project opportunities externally, it has also been busy with a few of its own, with internal developments concentrating on new and better sensor systems for use in the growing environmental sciences sector. We expect to see the first of these systems entering the market within the next financial year. 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 6 September 2021 was renewed on 26 November 2023 to provide the Group with financial support until 31 December 2024. Loans due to me, other than those covered by the CULS agreement, are unsecured and accrue interest at an annual rate of Bank of England base rate plus 2.15%. The CULS agreement for £1 million, provided by me, was renewed on 30 June 2022 and extended on identical terms, such that the CULS are now repayable on 13 August 2026. In addition to the loans, I have provided to the Company in previous years, I have deferred a certain proportion of fees and the interest due until the Company is in a suitably strong position to make the full payments. Historically, my fees and interest payable have been deferred. During the year under review, the deferred element amounted to £139,000. At 30 June 2023, these deferred fees and interest amounted to approximately £1.8 million in total, all of which has been recognised as a liability in the Company’s accounts. 4 PipeHawk plc Annual Report 2023 Strategic Report Financial results Turnover for the year ended 30 June 2023 was £6.5 million (2022: £6.2 million). The Group made a loss after taxation for the year of £2,484,000 (2022: loss £868,000). The loss per share was 6.84p (2022: loss per share 2.42p). A detailed review of business as well as future developments is included in the Chairman’s statement. Key performance indicators The Group’s key financial performance indicators are turnover and profit before tax and an analysis using these KPIs is included in the Chairman’s statement and at note 2 “Segmental analysis”. The primary non-financial KPI is the strength of the order book which is also discussed in the Chairman’s statement. Principal risks and uncertainties The principal risks and uncertainties facing the business are: 1. the acceptance by end customers of its products – the Group mitigates this risk by sharing and getting sign off on the proposed solution and by ensuring open lines of communication such that any challenges are identified at an early stage and are resolved with the customer prior to delivery; 2. competitive pressure on pricing and delivery timescales – this risk is mitigated by the high level of technological quality offered by the Group’s solutions and its strong relationships with its key customers; 3. technological changes – mitigated by continued investment in research and development; 4. availability of sufficient working capital - the Group monitors cash flow as part of its day-to-day control procedures. The Board considers cash flow projections at its meetings and ensures that appropriate facilities are available to be drawn down upon as necessary; 5. continued ability to obtain supply of key components to enable projects to be complete in a timely manner– this risk is mitigated by multi sourcing from several suppliers and allowing longer lead times for any potential delays. 6. A key risk for the business is the continuing availability of the financial support arrangements provided by the Executive Chairman described in the Report of the Directors and in note 1, which have been extended for a further 12 months. 7. Major global conflicts causing uncertainty amongst clients. The Group’s financial risks and policies to minimise these are set out in note 17. Statement by the Directors in performance of their statutory duties in accordance with s172(1) Companies Act 2006 The Directors of the Group must act in accordance with a set of general duties. These duties are detailed in section 172(1) of the U.K. Companies Act 2006, which is summarised as follows: A Director of a Company must act in the way he/she considers, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: 1. The likely consequences of any decision in the long term; 2. The interests of the Company’s employees; 3. The need to foster the Company’s business relationships with suppliers, customers and others; 4. The impact of the Company’s operations on the community and the environment; 5. The desirability of the Company maintaining a reputation for high standards of business conduct; and 6. The need to act fairly as between members of the Company. The Board consider that they have fulfilled their duties in accordance with section 172(1) of the UK Companies Act 2006 and have acted in a way which is most likely to promote the success of the Group for the benefit of its stakeholders as a whole in the following ways: Long term benefit Our strategy was designed to have a long-term beneficial impact on the Company and to contribute to its success in delivering excellence with regards to service to its customers whilst ensuring the long term requirements of the other stakeholders are considered. 5 PipeHawk plc Annual Report 2023 Strategic Report Employees The Board considers the employees as one of the key stakeholders within the Group and fundamental to the long-term success of the business. We have various engagement mechanisms, many of which have been in place for a number of years. Annual employee reviews are undertaken and regular communication takes place between management and staff to ensure that any concern or issues are identified and appropriately addressed. The Group provides training to employees as well as social occasions to promote the well-being and connectivity of the teams. The Board recognises the dedication, commitment and engagement of the employees through the year and extends its thanks to them for their efforts. The interest of the employees are always considered when determining the strategic decision and vision of the Group. Customers The commercial teams at each of the Group’s companies are in regular contact with our customers’ key people to ensure that they are well informed and satisfied with the progress of the Group’s projects on their behalf. Face to face meetings take place, as well as other communication such as email and video or phone conferences which allows for an on-going dialogue with the aim of reducing any potential issues or concerns. Suppliers The group works closely with a number of suppliers in different disciplines. We aim to promote collaborative engagement and to build long term partnerships with our suppliers with an objective to minimise risk and optimise costs through the full lifecycle of our relationship. We seek to balance this with the need to ensure the company is not overly reliant on any single supplier. Community and environment The Board recognises its responsibilities with regard to the environment and wider community and takes actions to reduce any negative impact the provision of its services might have in this area. The board regularly looks at ways in which it can operate a sustainable business and has taken actions to reduce its carbon footprint. Currently all waste is recycled by responsible contractors, the target for the next year is to reduce all waste by 50%. Culture and values The Board actively seeks to establish and maintain a corporate culture which will engage and motivate its employees and attract both future employees, customers and suppliers. The Company promotes honesty, integrity and respect and all employees are expected to operate in an ethical manner in all their dealings, whether internal or external. We do not tolerate behaviour which goes against these values which could cause reputational damage to the business or create ongoing conflict or unnecessary tension internally. Current trading Current trading is satisfactory and in line with the directors’ expectations. The strategic report was approved by the Board on 28 November 2023 and signed on its behalf by: Gordon G Watt Executive Chairman 6 PipeHawk plc Annual Report 2023 Report of the Directors The directors present the annual report on the affairs of the Group together with the financial statements for the year ended 30 June 2023. Principal activities and review of business The principal activities of the Group during the year were the development, assembly and sale of automated manufacturing units, test system, rail industry solutions and ground probing radar (GPR) equipment; the provision of GPR based services and the undertaking of complementary Research and Development assignments. Future developments The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s statement and the summary of significant accounting policies. Results and dividends The results for the Group for the year are set out in the consolidated statement of comprehensive income on page 19. The directors do not recommend the payment of a dividend for the year (2022: nil). Subsequent events There are no subsequent events to note. Directors The directors who served during the year are set out below: Gordon G Watt (Executive Chairman) Robert Randal MacDonnell (Non-Executive) Tim Williams (Non-Executive) The directors’ beneficial interests in the share capital of the Company at the date of this report were as follows: 30 June 2023 30 June 2022 Ordinary % of issued Ordinary % of issued Shares of 1p share capital Shares of 1p share capital G G Watt 5,721,500 15.8% 5,721,500 15.8% R MacDonnell 1,431,436 3.9% 1,431,436 3.9% T Williams 20,000 0.1% - - The directors are also interested in unissued Ordinary shares granted to them by the Company under share options held by them pursuant to individual option schemes as set out in note 18. Substantial share interests Other than directors, the Company has been notified of the following persons being interested in more than 3% of the issued share capital of the Company at the date of this report. Ordinary % of issued Shares of 1p share capital S Hamilton 4,583,334 12.6% P Lobbenberg 3,100,000 8.5% R J Chignell 2,204,200 6.1% N Slater 1,821,262 5.0% Research and development The Group continues to undertake research and development activities at its sites in Worcester, Aldershot, Cinderford, Cambridge and Doncaster. This will enable the Group to expand its activity in technology and innovation that will help us greatly in developing new products that will begin directly generating revenue in the future. The Group has undertaken research and development activities in the areas of ground probing radar, rail handling and safety equipment, and test & measurement related equipment. 7 PipeHawk plc Annual Report 2023 Report of the Directors Auditor and disclosure of information to auditor Each of the persons who are directors at the time when this report is approved has confirmed that: (a) so far as each director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and (b) each director has taken all the steps that ought to have been taken as a director in order to be aware of any information needed by the Company’s auditor in connection with preparing their report and to establish that the Company’s auditor is aware of that information. Auditor The reappointment of Crowe U.K. LLP will be proposed at the forthcoming Annual General Meeting, in accordance with section 489 of the Companies Act 2006. Financial instruments Note 17 to the financial statements describes the policies and processes for managing the Company’s capital, its financial risk management objectives, details of its financial instruments and its exposure to credit risk and liquidity risk. Going concern As described in the Chairman’s report, the current economic environment is improving for the Group’s trading subsidiaries in their respective markets as evidenced by healthy order books. However, the directors consider that the outlook presents challenges in terms of sales volumes and in terms of bringing R&D developments to commercialisation. The directors have instituted measures to preserve cash and secure additional finance but these circumstances create uncertainties over future trading results and cashflows. The directors have reviewed the Group's funding requirements for the next twelve months which show positive anticipated cash flow generation, prior to any repayment of loans advanced by the Executive Chairman. The directors have obtained a renewed pledge from Gordon Watt that he is not intending to not request repayment of the loans advanced to the group and will provide ongoing financial support for a period of at least twelve months from the approval date of the Group statement of financial position. 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 for these financial statements. A material uncertainty exists regarding the ability of the Group to remain a going concern without the continuing financial support of the Executive Chairman. Approval The report of the directors was approved by the Board on 28 November 2023 and signed on its behalf by: Gordon Watt Chairman Date: 28 November 2023 8 PipeHawk plc Annual Report 2023 Corporate Governance On 27 September 2018, the Company adopted the Corporate Governance Code (the “Code”), published by the Quoted Company Alliance (the “QCA”). The Company considers the principles within the Code to be best practice, subject to their appropriateness given the size of the Company and the composition of the Board. The following report summarises how the Company complies with the Code. Strategy and business model The Company’s business model and strategy is explained within the Chairman’s Report, including a summary of the challenges in execution of the strategy and how the Company addresses such challenges. Directors The Board currently comprises the executive chairman, Gordon Watt, and two non-executive directors, Randal MacDonnell and Tim Williams. Randal MacDonnell acts as Senior Independent Director. Although Randal MacDonnell has been a non-executive director since 2006, the Board still considers him to be independent. Both executive and non-executive directors are subject to periodic reappointment by shareholders. The requirements of the Company’s articles result in each director being reappointed every three years. The time commitment required from each Director varies in line with the operations of the business. Currently, this commitment is approximately 4 days per week for Gordon Watt,and 6 days per annum for Randal MacDonnell and Tim Williams. For relevant experience, skills and personal qualities of the directors see the Directors’ Biographies section. As described in the Directors biographies the Board believe the directors have the correct skillset to deliver the strategy. In order to keep their skillset up to date the director read relevant publications from applicable professional bodies and attend relevant seminars when possible. The Chairman has regular meetings with the managing directors and boards of the Group’s subsidiary companies. The Chairman holds regular update meetings with each Director to ensure they are performing as they are required. The ability of individual members and the board as a whole to deliver the Company strategy is reviewed annually in an exercise undertaken by the Chairman. Due to the Company’s size and nature, the Board does not consider it necessary to establish a formal board evaluation process, but Board composition will be reviewed again in 2023. During the year the Board, or its committees, have not sought advice on any significant matter. However, the Chairman and Board members can call on external advisers as the need arises. The Board and Committees The full Board meets formally at least three times each year, during the year there were three board meetings. Gordon Watt, Randal MacDonnell and Tim Williams attended all meetings. There was one audit and one remuneration committee meeting during the year; all three directors attended each of these. There is a formal schedule of matters reserved for the Board’s decision. All directors have access to the advice and services of the company secretary, who is also responsible for ensuring that Board procedures are followed. There is also a procedure in place for any director to take independent professional advice, if necessary, at the Company’s expense. The Board considers that, given the size and nature of the business, it is not beneficial to include a full audit committee report or a remuneration committee report in the annual report and accounts for the year ended 30 June 2023. This will be kept under annual review by the Board. 9 PipeHawk plc Annual Report 2023 Corporate Governance Internal controls The directors have overall responsibility for ensuring that the Group maintains a system of internal control, and for reviewing its effectiveness, to provide them with reasonable assurance that the assets of the Group are safeguarded and that the shareholders’ investments are protected. The system includes internal controls covering financial, operational and compliance areas, and risk management. There are limitations in any system of internal control, which are designed to manage rather than eliminate risk and can provide reasonable but not absolute assurance against material misstatement or loss. The Board has undertaken an assessment of the major risk areas for the business and methods used to monitor and control them. In addition to financial risk, this covered operational, commercial, marketing and research and development risks. This risk review has become an ongoing process of identifying, evaluating and managing the significant risks faced by the Group, with regular review by the Board. The additional key procedures designed to provide an effective system of internal control are that: • There is an organisational structure with clearly defined lines of responsibility and delegation of authority. • Annual budgets are prepared and updated as necessary. • Management accounts are prepared on a quarterly basis and compared to budgets and forecasts to identify any significant variances. • The Group appoints staff of the required calibre to fulfil their allotted responsibilities. The Board has considered it inappropriate to establish an internal audit function. However, this decision will be reviewed as the operations of the Group develop. Identification of business risk Regular assessments of ongoing risks facing the business are undertaken as part of the regular Group management meetings in the key areas such as management of working capital, compliance, legal and operational issues. This risk management framework is applied to major initiatives such as acquisitions as well as operational risks within the business including operational health and safety risks. Further details on the principal risks and uncertainties to the Group can be found within the Strategic Report. Through holding the ISO 9001, OHSAS 18001 and other quality standards, the Company ensures compliance with health and safety and other regulations. Corporate Culture The Board and directors take a forward-looking, proactive approach to culture within the Group in order to achieve a level of discipline that aids management with its oversight of risks within the business. There are several values that are important to the Company including: • promoting a culture of respect and tolerance: team members throughout the Group work well together across a broad range of projects; being a team player, honesty and straightforwardness with clients and suppliers and among employees are values that are highly regarded; and • the importance of the individual: we recognise that the business would fail without the loyalty of our employees, so we encourage free-thinking and individuality in the workplace wherever possible. These matters are considered as part of the annual performance evaluation of all employees and reported to the Board. This enables the Board to ensure the Company’s corporate culture is being promoted amongst its employees. 10 PipeHawk plc Annual Report 2023 Directors’ Biographies Gordon Watt BA, FCA, FRSA Chairman Gordon is a chartered accountant having been a partner at RSM Robson Rhodes and then Finance Director/Deputy Chief Executive of British Bus Plc until it was sold to Arriva Plc. He is non-executive chairman of a number of private companies, he became a non-executive director of the Group in 1998, became finance director in December 2001 and Chairman in January 2003. Randal MacDonnell Non-executive Director Randal joined the Group in February 2006. He was previously a director of Kleinwort Benson Securities, Laing & Cruickshank Securities and Chase Manhattan Securities Limited. Prior to that he was a partner in stockbrokers Laurie Milbank & Co. Tim Williams Non-executive Director Tim joined the group in November 2022. He is an experienced HR Director with a broad background in global blue-chip companies. He was previously Group HR Director of Redde Northgate Plc, having served also with Cadbury Schweppes Plc, HSBC, Cardinal Health Inc. and Revlon International. 11 PipeHawk plc Annual Report 2023 Statement of Directors’ Responsibilities for the year ended 30 June 2023 The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with UK-adopted international accounting standards (IAS). Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and accounting estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Strategic Report and the Report of the Directors and other information included in the Annual Report and Financial Statements is prepared in accordance with applicable law in the United Kingdom. The maintenance and integrity of the PipeHawk plc website is the responsibility of the directors. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. 12 PipeHawk plc Annual Report 2023 Independent Auditor’s Report to the Members of PipeHawk plc Opinion We have audited the financial statements of Pipehawk plc (the “Parent Company”) and its subsidiaries (the “Group”) for the year ended 30 June 2023, which comprise: • the Consolidated statement of comprehensive income for the year ended 30 June 2023; • the Consolidated and Parent Company statements of financial position as at 30 June 2023; • 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 significant 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. In our opinion the financial statements: • give a true and fair view of the state of the Group’s and of the Parent Company's affairs as at 30 June 2023 and of the Group’s loss for the period then ended; • have been properly prepared in accordance with UK-adopted international accounting standards; • have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Material uncertainty related to going concern We draw attention to note 1 in the financial statements, which explains that the Group and Parent Company is reliant on the continued support of the Executive Chairman. As stated in note 1, these events or conditions, along with the other matters as set forth in note 1, indicate that a material uncertainty exists that may cast significant doubt on the Group and Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and Parent Company’s ability to continue to adopt the going concern basis of accounting included the following procedures: • obtaining an understanding of directors’ going concern evaluation process; • review of directors’ cash flow forecasts for at least twelve months from the date of sign off; • challenging the key assumptions inherent within the forecast including management’s severe but plausible downside scenarios and mitigations plans; • review of the Group’s liquidity position to understand whether there was an indication of further support being required from the Executive Chairman and the ability for this to be provided; and • considering the adequacy and appropriateness of the disclosures within the financial statements. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Overview of our audit approach Materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and to evaluate the impact of misstatements identified. 13 PipeHawk plc Annual Report 2023 Independent Auditor’s Report to the Members of PipeHawk plc Based on our professional judgement, we determined overall materiality for the Group financial statements as a whole to be £65,000 (2022: £50,000), based on 1% percent of Group Revenue. Materiality for the Parent Company financial statements as a whole was set at £22,000 (2022: £40,000) based on 2% of Total Assets. We use a different level of materiality (‘performance materiality’) to determine the extent of our testing for the audit of the financial statements. Performance materiality is set based on the audit materiality as adjusted for the judgements made as to the entity risk and our evaluation of the specific risk of each audit area having regard to the internal control environment. This is set at £45,500 (2022:£35,000) for the group and £15,400 (2022 :£28,000) for the parent. Where considered appropriate performance materiality may be reduced to a lower level, such as, for related party transactions and directors’ remuneration. We agreed with the Audit Committee to report to it all identified errors in excess of £3,250 (2022: £2,500). Errors below that threshold would also be reported to it if, in our opinion as auditor, disclosure was required on qualitative grounds. Overview of the scope of our audit The Group consists of Pipehawk Plc itself and the subsidiaries as disclosed in Note 12 to the financial statements. Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of material misstatement at the Group level. Based on this understanding we assessed those aspects of the Group’s transactions and balances which were most likely to give rise to a material misstatement and were most susceptible to irregularities including fraud or error. Specifically, we identified what we considered to be key audit matters and planned our audit approach accordingly. We undertook a fully substantive audit with a combination of analytical procedures and substantive testing on significant transactions, balances, and disclosures. The Group and its subsidiaries are accounted for from one central operating location. Our audit was conducted from the central operating location and all Group companies were within the scope of our audit testing. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. This is not a complete list of all risks identified by our audit. Key audit matter How the scope of our audit addressed the key audit matter Group – carrying value of goodwill (refer note 11) Parent Company – carrying value of investments in subsidiaries (refer note 12) Following impairment, the financial statements of Pipehawk Plc includes goodwill of £0.7 million arising on the acquisition of Adien Limited, QM Systems Limited, Thomson Engineering Design Limited, and UTSI Electronics Limited. As required by IAS 36, goodwill is subject to an annual impairment review and the recoverable amount of goodwill is measured in accordance with IAS 36. The group has been making operating losses and therefore there is a risk that the carrying value of goodwill in the Group financial statements and of investments in subsidiaries in the Parent Company financial statements are further impaired. The Group prepares discounted cashflow forecasts to support both the carrying value of goodwill and the investment in subsidiaries in the Parent Company financial statements. We gained understanding of the process by which management prepares its business forecast and design of controls. We evaluated the appropriateness of managements’ identification of cash generating units. We performed testing of the mathematical accuracy of the cash flow models and challenged key assumptions in management’s valuation models used to determine recoverable amount. We specifically challenged the management on three assumption which were the revenue growth rate, discount rate and profit margins. We assessed the appropriateness of the related disclosures in the financial statements. 14 PipeHawk plc Annual Report 2023 Independent Auditor’s Report to the Members of PipeHawk plc Key audit matter How the scope of our audit addressed the key audit matter Revenue recognition (refer note 1.7) The Group recognises revenue from different client contracts. The revenue recognition policy varies depending on the underlying contract and could result in revenue being recognised at a point in time or on a percentage complete basis where certain conditions are met. As revenue has highly judgemental elements it was deemed to be a key audit matter. We validated a sample of contracts to supporting documentation and agreed that revenue has been recognised in line with the Group’s accounting policy. We considered the revenue policy and considered whether this is in line with IFRS 15. Where revenue is recognised over time we challenged management on the contract budgeting process by analysing historical estimates of contract costs compared to actual outcomes for completed projects We also reviewed the performance of the contacts subsequent to year-end to ensure that the cost estimates and revenue recognised as at reporting date is appropriate. We assessed the appropriateness of the related disclosures in the financial statements. Our audit procedures in relation to these matters were designed in the context of our audit opinion as a whole. They were not designed to enable us to express an opinion on these matters individually and we express no such opinion. Other information The directors are responsible for the other information contained within the annual report. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matter prescribed by the Companies Act 2006 In our opinion 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 strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 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: • adequate accounting records have not been kept by the parent company, or 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; or • we have not received all the information and explanations we require for our audit. Responsibilities of the directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 14, 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. 15 PipeHawk plc Annual Report 2023 Independent Auditor’s Report to the Members of PipeHawk plc 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 objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. 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. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: We gained an understanding of the legal and regulatory framework applicable to the Company and Industry in which the company operates, and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud. These included but were not limited to compliance with Companies Act 2006, Listing rules and Tax legislation. Our procedures involved enquiries with management, review of the reporting to the directors with respect to compliance with laws and regulation, review of board meeting minutes and review of legal correspondence. We focused on laws and regulations that could give rise to a material misstatement in the financial statements. Our testing included but was not limited to: • agreement of the financial statement disclosures to underlying supporting documentation; • enquires of management; • testing of journal postings made during the year to identify potential management override of controls; • review of minutes of board meetings throughout the period; and • obtaining an understanding of the control environment in monitoring compliance with laws and regulations. Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. 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 28 November 2023 16 PipeHawk plc Annual Report 2023 Consolidated Statement of Comprehensive Income For the year ended 30 June 2023 Note 30 June 2023 30 June 2022 £’000 £’000 Revenue 2 6,470 6,191 Staff costs 5 (4,176) (3,861) Impairment of goodwill 11 (678) - Operating costs (4,515) (3,642) ––––––––––––– ––––––––––––– Operating (loss) 4 (2,899) (1,312) ––––––––––––– ––––––––––––– (Loss) before interest and taxation (2,899) (1,312) ––––––––––––– ––––––––––––– Finance costs 3 (385) (264) ––––––––––––– ––––––––––––– (Loss) before taxation (3,284) (1,576) Taxation 7 800 708 ––––––––––––– ––––––––––––– (Loss) for the year attributable to equity holders of the parent (2,484) (868) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Other comprehensive income - - ––––––––––––– ––––––––––––– Total comprehensive (Loss) for the year attributable to equity holder of the parent (2,484) (868) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– (Loss) per share (pence) - basic 8 (6.84) (2.42) (Loss) per share (pence) - diluted 8 (6.84) (2.42) The notes on pages 25 to 45 form an integral part of these financial statements. 17 PipeHawk plc Annual Report 2023 Consolidated Statement of Financial Position at 30 June 2023 Assets Note 30 June 2023 30 June 2022 £’000 £’000 Non-current assets Property, plant and equipment 9 783 828 Right of use 10 2,283 2,549 Goodwill 11 679 1,357 ––––––––––––– ––––––––––––– 3,745 4,734 ––––––––––––– ––––––––––––– Current assets Inventories 13 253 340 Current tax assets 826 710 Trade and other receivables 14 2,767 2,389 Cash and cash equivalents 148 4 ––––––––––––– ––––––––––––– 3,994 3,443 ––––––––––––– ––––––––––––– Total assets 7,739 8,177 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Equity and liabilities Equity Share capital 18 363 363 Share premium 5,316 5,316 Retained earnings (11,131) (8,647) ––––––––––––– ––––––––––––– (5,452) (2,968) ––––––––––––– ––––––––––––– Non-current liabilities Borrowings 16 4,913 5,612 Trade and other payables - - ––––––––––––– ––––––––––––– 4,913 5,612 ––––––––––––– ––––––––––––– Current liabilities Borrowings 16 2,886 2,674 Trade and other payables 15 5,392 2,859 ––––––––––––– ––––––––––––– 8,278 5,533 ––––––––––––– ––––––––––––– Total equity and liabilities 7,739 8,177 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– The notes on pages 25 to 45 form an integral part of these financial statements. The financial statements were approved by the board and authorised for issue on 28 November 2023 and signed on its behalf by: Gordon G Watt Director Company No: 3995041 18 PipeHawk plc Annual Report 2023 Parent Company Statement of Financial Position at 30 June 2023 Assets Note 30 June 2023 30 June 2022 £’000 £’000 Non-current assets Property, plant and equipment 9 - - Investment in subsidiaries 12 988 1,903 ––––––––––––– ––––––––––––– 988 1,903 ––––––––––––– ––––––––––––– Current assets Inventories 13 - - Current tax assets 42 75 Trade and other receivables 14 11 510 Cash and cash equivalents 4 - ––––––––––––– ––––––––––––– 57 585 ––––––––––––– ––––––––––––– Total assets 1,045 2,488 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Equity and liabilities Equity Share capital 18 363 363 Share premium 5,316 5,316 Retained earnings (11,657) (9,834) ––––––––––––– ––––––––––––– (5,978) (4,155) ––––––––––––– ––––––––––––– Non-current liabilities Borrowings 16 2,722 3,082 Trade and other payables 15 2,002 1,398 ––––––––––––– ––––––––––––– 4,724 4,480 ––––––––––––– ––––––––––––– Current liabilities Borrowings 16 2,162 2,019 Trade and other payables 15 137 144 ––––––––––––– ––––––––––––– 2,299 2,163 ––––––––––––– ––––––––––––– Total equity and liabilities 1,045 2,488 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Equity includes loss for the year of the Parent Company of £1,822,000 (2022: £282,000). The notes on pages 25 to 45 form an integral part of these financial statements. The financial statements were approved by the board and authorised for issue on 28 November 2023 and signed on its behalf by: Gordon G Watt Director Company No: 3995041 19 PipeHawk plc Annual Report 2023 Consolidated Statement of Cash Flow For the year ended 30 June 2023 Note 30 June 2023 30 June 2022 £’000 £’000 Cash flows from operating activities Operating (Loss) (2,899) (1,312) Adjustments for: Impairment of goodwill 678 - Depreciation 4 579 424 ––––––––––––– ––––––––––––– (1,642) (888) Decrease/(increase) in inventories 87 33 Decrease/(increase) in receivables (378) (580) Increase/(decrease) in liabilities 2,759 286 ––––––––––––– ––––––––––––– Cash generated/(used) by operations 826 (1,149) Interest paid (196) (124) Corporation tax received 683 440 ––––––––––––– ––––––––––––– Net cash generated from/(used in) operating activities 1,313 (833) ––––––––––––– ––––––––––––– Cash flows from investing activities Purchase of plant and equipment (111) (325) ––––––––––––– ––––––––––––– Net cash used in investing activities (111) (325) ––––––––––––– ––––––––––––– Cash flows from financing activities Proceeds/(repayments) from borrowings (210) 286 Proceeds/(repayments) of loan (393) 119 Repayment of leases (455) (163) ––––––––––––– ––––––––––––– Net cash (used in)/generated from financing activities (1,058) 242 ––––––––––––– ––––––––––––– Net increase/(decrease) in cash and cash equivalents 144 (916) Cash and cash equivalents at the beginning of year 4 920 ––––––––––––– ––––––––––––– Cash and cash equivalents at end of year 148 4 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– The notes on pages 25 to 45 form an integral part of these financial statements. 20 PipeHawk plc Annual Report 2023 Parent Company Statement of Cash Flow For the year ended 30 June 2023 Note 30 June 2023 30 June 2022 £’000 £’000 Cash flows from operating activities Loss from operations (1,628) (186) Impairment of investment 916 - Provision for inter-company receivables Depreciation 680 3 Decrease/(Increase) in inventories - 83 Decrease/(increase) in receivables (181) (87) Increase in liabilities 396 (148) ––––––––––––– ––––––––––––– Cash generated by operations 183 (335) Interest paid (48) (32) Corporation tax received 74 94 ––––––––––––– ––––––––––––– Net cash generated from operating activities 209 (273) ––––––––––––– ––––––––––––– Cash flow from investing activities - - ––––––––––––– ––––––––––––– Proceeds from borrowings (205) 259 ––––––––––––– ––––––––––––– Net cash used in financing activities (205) 259 ––––––––––––– ––––––––––––– Net increase in cash and cash equivalents 4 (14) Cash and cash equivalents at the beginning of year - 14 ––––––––––––– ––––––––––––– Cash and cash equivalents at end of year 4 - ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– The notes on pages 25 to 45 form an integral part of these financial statements. 21 PipeHawk plc Annual Report 2023 Statement of Changes in Equity For the year ended 30 June 2023 Consolidated Share Share premium Retained capital account earnings Total £’000 £’000 £’000 £’000 As at 1 July 2021 349 5,215 (7,779) (2,215) Loss for the year - - (868) (868) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Total comprehensive income - - (868) (868) Issue of shares 14 101 - 115 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– As at 30 June 2022 363 5,316 (8,647) (2,968) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Loss for the year - - (2,484) (2,484) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Total comprehensive income (2,484) (2,484) Issue of shares - - - - ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– As at 30 June 2023 363 5,316 (11,131) (5,452) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Parent Share Share premium Retained capital account earnings Total £’000 £’000 £’000 £’000 As at 1 July 2021 349 5,215 (9,552) (3,988) Loss for the year - - (282) (282) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Total comprehensive loss - - (282) (282) Issue of shares 14 101 - 115 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– As at 30 June 2022 363 5,316 (9,834) (4,155) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Loss for the year - - (1,823) (1,823) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Total comprehensive income - - (1,823) (1,823) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Issue of shares - - - - ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– As at 30 June 2023 363 5,316 (11,657) (5,978) ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 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 on pages 25 to 45 form an integral part of these financial statements. 22 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 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. 23 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 1 Summary of significant accounting policies (continued) 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% 24 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 1 Summary of significant accounting policies (continued) 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. 25 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 1 Summary of significant accounting policies (continued) 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. 26 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 1 Summary of significant accounting policies (continued) 1.17. Taxation (continued) 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. 27 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 1 Summary of significant accounting policies (continued) 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 2022 £’000 £’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: • • 28 Adien Limited - Utility detection and mapping services – Sale of services Utsi Electronics Limited - Development, assembly and sale of GPR equipment – Sale of goods PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 2 Segmental analysis (continued) • • • 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 Development, detection assembly and and sale Automation and mapping of GPR test system services equipment 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 Development, detection assembly and and sale Automation and mapping of GPR test system services equipment 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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 29 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 3 Finance costs 2023 2022 £’000 £’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 2022 £’000 £’000 Research and development costs not capitalised 2,644 2,333 Depreciation 579 424 Impairment of goodwill 678 - 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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 30 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 5 Staff costs (continued) 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 Benefits 2023 2022 and fees in kind Total 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. 31 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 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 3 2 Impairment of goodwill 129 - 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. 32 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 9 Property, plant and equipment Group Equipment, fixtures and Leasehold Motor Freehold fittings improvements 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 Equipment, fixtures and Leasehold Motor Property fittings improvements 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) 33 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 11 Goodwill Group Goodwill Total £’000 £’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. 34 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 11 Goodwill (continued) 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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Parent and Group interest in ordinary shares and voting Country of Subsidiary rights 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 35 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 12 Non-current investments (continued) 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 2022 2023 2022 £’000 £’000 £’000 £’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 2022 2023 2022 £’000 £’000 £’000 £’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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 36 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 15 Trade and other payables Group Company 2023 2022 2023 2022 £’000 £’000 £’000 £’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 2022 2023 2022 £’000 £’000 £’000 £’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 2022 2023 2022 £’000 £’000 £’000 £’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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 37 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 16 Borrowings analysis (continued) 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%. Non-cash: Bought Cash Non-cash: Accrued fees/ Carried forward flows New leases interests forward 2023 £’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 –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– 38 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 16 Borrowings analysis (continued) Non-cash: Bought Cash Non-cash: Accrued fees/ Carried forward flows New leases interests forward 2022 £’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: Weighted Gross carrying Impairment average value loss allowance 2023 loss rate £’000 £’000 Performing 0.00% 2,767 - Weighted Gross carrying Impairment average value loss allowance 2022 loss rate £’000 £’000 Performing 0.00% 2,389 - 39 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 17 Financial instruments (continued) 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: Less than Due between Due between 1 year 1-2 years 2-5+ years Total 2023 £’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 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– Less than Due between Due between 1 year 1-2 years 2-5+ years Total 2022 £’000 £’000 £’000 £’000 Trade and other payables 1,876 - - 1,876 Borrowings 2,405 2,887 355 5,647 Lease liability 322 363 2,007 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. 40 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 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 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 Lapsed Date from Directors’ share At start during the during the At end of Exercise which options of year year year year price 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). 41 PipeHawk plc Annual Report 2023 Notes to the Financial Statements For the year ended 30 June 2023 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 2022 2023 2022 £’000 £’000 £’000 £’000 Coronavirus Job Retention Scheme grants - 48 - 3 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– - 48 - 3 ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– 42 PipeHawk plc Annual Report 2023 Notice of Annual General Meeting PIPEHAWK PLC (Registered in England & Wales No. 3995041) NOTICE IS HEREBY GIVEN that the annual general meeting (the AGM) 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 for the purpose of considering and, if thought fit, passing the following resolutions: Ordinary business The following resolutions will be proposed as ordinary resolutions: 1. To receive the accounts for the year ended 30 June 2023 together with the reports of the directors and auditor thereon. (Resolution 1) 2. Gordon Watt retires by rotation, in accordance with the Articles of Association of the Company and having consented to be considered for re-appointment, is hereby re-appointed as a director of the Company. (Resolution 2) 3. To re-appoint Crowe U.K. LLP as auditor of the Company and to authorise the directors to set their remuneration. (Resolution 3) To transact any other ordinary business Serious loss of capital To consider whether any, and if so what, steps should be taken to address the serious loss of capital within the Company, pursuant to section 656 (1) of the Companies Act 2006. Registered Office By order of the Board Manor Park Industrial Estate Wyndham Street Aldershot A Tombs Hampshire Secretary GU12 4NZ Dated: 28 November 2023 Notes: 1. A member of the Company entitled to attend and vote at the AGM may appoint one or more proxies to attend and vote on his/her behalf. A form of proxy for the use of members who are unable to attend the AGM in person is enclosed. A proxy need not be a member of the Company. This instrument appointing a proxy and the power of attorney (if any) under which it is signed, or a notarially certified copy of that power, must be deposited with the Company’s Registrars, SLC Registrars, P.O.Box 5222, Lancing, BN99 9FG, not less than 48 hours before the time of the General Meeting. 2. The completion of a proxy does not preclude a member from attending the AGM and voting in person. 3. As permitted by Regulation 41 of the Uncertified Securities Regulations 2001, only those shareholders who are registered on the Company’s Register of Members at 6.30pm on 19 December 2023 shall be entitled to attend the Annual General Meeting and to vote in respect of the number of ordinary shares in their names at that time. Changes to entries on the register of members after 6.30pm on 19 December 2023 shall be disregarded in determining the rights of any person to attend/or vote at the AGM. 4. Copies of all the Directors’ service contracts are available for inspection at the Company’s registered office during normal business hours on business days from the date of this notice until the close of the AGM and will be available for inspection at the place of the AGM for 15 minutes before the AGM and during the AGM. Perivan.com 266609 43 PipeHawk plc Annual Report 2023 PipeHawk plc is a dynamic business offering advanced engineering solutions to challenging technical requirements across many industries. QM Systems is a market leader in providing solutions and services for electronic system design and manufacture, test equipment, transfer systems and automation and assembly solutions to the automotive, aerospace, rail and other related industries. It specialises in providing full turnkey solutions for any automated assembly process. Thomson Engineering Design produces an unparalleled range of machines, attachments and tools for railway track renewal and maintenance across the globe. Adien Limited is a leader in the field of utility detection and mapping. Its survey teams provide information that is critical in the design processes of almost all construction projects that involve breaking the ground. Utsi is one of the global market leaders in ground probing radar technology with many applications including civil engineering and land mine detection. Our technology provides a superior detection of hidden underground objects and features, dramatically reducing risk, improving safety and saving substantial time and money during identification and excavation. Wessex Precision Instruments is a leading manufacturer and service provider of specialist equipment to test the skid resistance characteristics of vehicle and pedestrian surfaces. Powered by excellent people our reputation is built on exceeding our customers’ expectations in delivering innovative, cost effective quality solutions in all aspects of our business. C o p y T o C o m e Through our energetic, innovative and dynamic approach together with our significant investment in R&D we will continue to strengthen our market leading positions. Contents Company information ......................................................1 Consolidated statement of comprehensive income ......17 Chairman’s statement ......................................................2 Consolidated statement of financial position................18 Strategic report..................................................................5 Parent company statement of financial position ..........19 Report of the directors ....................................................7 Consolidated statement of cash flow ............................20 Corporate governance ......................................................9 Parent company statement of cash flow ........................21 Directors’ biographies ....................................................11 Statement of changes in equity ......................................22 Statement of directors’ responsibilities for the annual report ..............................................................................12 Independent auditor’s report to the members of PipeHawk plc ..................................................................13 Notes to the financial statements ..................................23 Notice of annual general meeting ..................................43 COMPANY NO: 3995041 A N N U A L R E P O R T Year ended 30 June 2023 

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