PipeHawk : Final Results for the Year ended 30 June 2020

This announcement contains inside information as stipulated under the Market Abuse Regulations (EU) no. 596/2014 ("MAR"). With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

21 October 2020

PipeHawk plc

("PipeHawk", "Company" or the "Group")

Final Results for the year ended 30 June 2020

Highlights

• Turnover of £8.3 million, an increase of 23.9% (2019: £6.7 million)
• Profit before tax of £194,000, and increase of 1517% (2019: £12,000)
• Earnings per share of 1.69p, up 86% (2019: 0.91p)
• QM Systems has its best year ever both in terms of turnover and profit

Chairman's Statement

I am pleased to report that turnover for the year ended 30 June 2020 was £8.3 million (2019: £6.7 million), an increase of 23.9%. The Group made an operating profit in the year of £405,000 (2019: £57,000) and a profit before taxation for the year of £194,000 (2019: £12,000) and a profit after taxation of £590,000 (2019: £312,000). The earnings per share for the year was 1.69p (2019: 0.91p).

Last year we had the politicians faffing around with Brexit causing delays to orders until Boris Johnson and the British public gave us a degree of certainty. This lasted for all of four months until Coronavirus hit and lockdown began. Nevertheless, that window of opportunity enabled orders to be placed and allowed some optimism to return which the PipeHawk group and its employees have taken advantage of and wrestled into an excellent trading result. Just imagine what we, and the nation as a whole, can achieve once we are through Coronavirus and freed from the continual negativity of the naysayers and doom mongers.

QM Systems

At QM Systems, trading during the first eight months was excellent, with many more orders in the pipeline. Then Coronavirus came into play and, like most companies within the UK, we experienced significant disruption. Despite the extensive lockdown we all experienced for three months followed by the easing of the lockdown, QM Systems has continued to operate effectively. Employees that could were set up to work from home. However, our assembly, installation and commissioning teams were also extremely busy assembling systems at QM Systems' facility in Worcester or carrying out installation and commissioning work at client facilities. The initial four-week period of lockdown created significant disruption to our activities, However, as our clients and we learned to adjust to the 'new normal', clean hands, socially distanced way, business activity stabilised. We were able to regain access to client facilities to continue to build activity and the situation actually created opportunities for QM Systems in supporting overseas companies installing systems into the UK market.

Despite the setback that Coronavirus has presented, QM Systems has managed to achieve its best year ever both in terms of turnover and profit. This is a great achievement given that the order intake effectively switched off for almost five months from the start of the strict lockdown period, when many projects we were expecting to win were placed on hold. During this period, however, our sales team has worked diligently to open new opportunities and to continue to keep previous opportunities live and we now sit on a potential orderbook that is larger than we have ever experienced previously. Project orders are flowing again and we had been expecting a return to pre-Coronavirus levels within the next few months with a number of key larger projects in final contractual negotiation. This has been helped in no small measure by the work we have undertaken to diversify our client base across numerous industries and has enabled us to recover more quickly than a number of our competitors. Recent measures brought in by the Government to combat the worsening Coronavirus situation will inevitably have some delaying effect on securing orders but with the regional approach being adopted by the Government it is hard to forecast what effect it will have on trading at QM Systems.

During the year QM Systems has completed the installation and commissioning work with Cox Powertrain for its Marine Diesel Outboard Engine, introduced and commissioned a new larger variant of Carbon Fibre delivery POD with our partner Penso, who are now selling the vehicle in volume, and installed and commissioned a QMAC-3 60 station conveyor system with one of QM Systems' key automotive clients as well as a multitude of other significant contracts. The products that QM Systems has developed and manufacture for the Aerospace and Petrochemical industries continue to sell, seemingly unaffected by Coronavirus factors. QM Systems has completed the integration of Wessex test equipment into the business unit and sales have continued to flow nicely into the business. QM Systems has been working to re-engineer a number of the Wessex products to reduce costs and increase technology levels ensuring the products become more IT connected and thus user friendly.

QM Systems has recently started work on a new £1.7 million project to deliver a bespoke machining and handling system to Isoclad Limited, one of the UK's largest independent composite panel manufacturers, for the manufacture of specialist clad panels for its Customclad service.

The outlook for the current year and beyond for QM Systems is extremely positive.

Thomson Engineering Design ("TED")

TED has had an exceptionally busy year with key staff stretched to the limit and a requirement to recruit new members to the team. Turnover increased by 42% on a year-on-year basis and TED delivered a genuine pre-tax profit for the first time despite the additional costs of keeping the workplace a safe and secure environment for our employees. An excellent result given the difficult climate TED has endured.

During the year TED developed a number of new, innovative and exciting products, many of which have been designed for the export market. Whilst UK sales remained largely stagnant, the export market, particularly in Southern Asia, has gone from strength to strength. TED continues to establish itself as the 'Go To' company in the rail industry for any client who has a requirement for something that is a little different to the norm. During the year TED has delivered bespoke rail equipment into New Zealand, a range of products into plant equipment companies within the UK as well as products and projects into Canada, the US, France and Australia. It has continued to focus on new innovation that TED fully expects will realise future growth with higher volume product sales within domestic and international markets. These products are expected to secure sales within the current financial year.

TED has also launched a new website which provides an up-to-date summary of the products and services offered together with a significant increase in the use of social media to tell the world about the quality service which it can offer. The news seems to be getting through both nationally and internationally.

Technology Division

This has been a disappointing year in terms of European unit sales of the eSafe technology which has still to recover to pre-Brexit levels. However; sales to Asia continue to show a positive trend.

Previous R&D investment into innovative servicing & maintenance systems is also bearing fruit with noticeable interest being shown by overseas distributors and resellers.

As UK unit sales continue to be affected by CAPEX restrictions across key markets, opportunities for long term/project-based hire are now being explored in those and other markets, while many existing customers continue their loyalty to the PipeHawk brand with investment in the maintenance and upgrade of existing equipment fleets.

With the cancellation of many industry events around the globe, the opportunity for face-to-face marketing has taken a knock in recent months but use of virtual communications and outdoor presentations has maintained a semblance of direct customer contact in the face of difficult times.

Adien

Adien started the year very well with the renewal of significant long-term contracts, which provided a strong order book and good staff utilisation. Then trading at Adien was struck by the repercussions of the Coronavirus pandemic. Adien adapted and evolved; it quickly adopted remote working coupled with the installation of new software which reshaped the business profoundly in a short period of time and was able to continue to provide its service throughout the period from March to present day in a most effective manner suffering principally in the initial stages. Adien encountered many challenges both external and internal, in terms of H&S management, organisation, control and communications through to denial of access to site as clients gradually came to terms with the outdoor nature of our work and relatively easy ability to maintain social distancing.

Adien are undertaking several new contracts for all the major Telecom networks involved in the 5G rollout and this business will secure 18 to 24 months of additional work. Consolidation of existing contracts in Energy, Defence and Infrastructure is expected to continue over a 3 to 5 year period running in tandem with the Telecom contracts.

Reducing the size of the survey teams, whilst expanding single working, allows larger volumes of specific contract sites to be completed in the same time period. Remote/home working provides more effective time use and long-term cost savings with the potential to move to less costly premises in 2021. The realignment of the vehicle fleet to more compact and less costly, more economical vehicles is also under way. Those cost efficiencies, taken with the increased levels of business as a result of being able to offer Adien's services throughout lockdown, bodes extremely well for the current and next years' expected outturn.

Financial position

The Group continues to be in a net liability position and is still reliant on my continuing financial support.

My letter of support dated 7 October 2019 was renewed on 28 September 2020 for a further year. Loans due to me, other than those covered by the CULS agreement, are unsecured and accrue interest at an annual rate of Bank of England base rate plus 2.15%.

The CULS agreement for £1 million, provided by myself, was renewed last year and extended on identical terms, such that the CULS are now repayable on 13 August 2022.

In addition to the loans I have provided to the Company in previous years, I have deferred a certain proportion of fees and the interest due until the Company is in a suitably strong position to make the full payments.

Historically, my fees and interest payable have been deferred. During the year under review, the deferred element amounted to £213,000. At 30 June 2020, these deferred fees and interest amounted to approximately £1.6 million in total, all of which have been recognised as a liability in the Company's accounts.

Strategy & Outlook

The PipeHawk group remains committed to creating sustainable earnings-based growth and focusing on the expansion of its business with forward-looking products and services. PipeHawk acts responsibly towards its shareholders, business partners, employees, society and the environment in each of its business areas.

PipeHawk is committed to technologies and products that unite the goals of customer value and sustainable development. All divisions of the Group are currently performing well and I remain optimistic in my outlook for the Group, subject always to any unusually negative impact from further Coronavirus lockdown or an absurd reaction from the EU if there is a WTO terms Brexit.

Gordon Watt

Chairman

For further information on the Company and its subsidiaries, please visit: www.pipehawk.com

Consolidated Statement of Comprehensive Income

The notes to the financial statements form an integral part of these financial statements.

Consolidated Statement of Financial Position

at 30 June 2020

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