TIDMHDD
RNS Number : 8896Y
Hardide PLC
11 December 2017
Press Release 11 December 2017
Hardide plc
("Hardide" or "the Group" or "the Company")
Preliminary results for the year ended 30 September 2017
Hardide plc (AIM: HDD), the developer and provider of advanced
surface coating technology, announces its preliminary results for
the year ended 30 September 2017.
Highlights
Financial
-- Record sales of GBP3.24m (2016: GBP2.14m). 51% higher
than FY2016, largely due to recovery of demand from
the oil and gas markets
-- Sales in H2 2017 14% ahead of H1 2017
-- Gross profit of GBP1.59m (2016: GBP0.69m)
-- Gross margin of 49.1% (2016: 31.9%)
-- Group operating loss of GBP1.24m (2016: loss of GBP1.47m)
-- Loss before interest, tax, depreciation and amortisation
reduced to GBP0.74m (2016: loss of GBP1.30m before
exceptional items)
-- Cash at bank at 30 September 2017 of GBP1.21m (2016:
GBP1.97m)
Business & operational
-- Gained full Airbus Approved Supplier status for UK
site
-- Achieved Nadcap accreditation for UK site - the world's
leading independent certification program for special
processes within the aerospace industry
-- Development and trialling of multiple components
for aerospace customers well advanced
-- US coatings facility performing well; 47% of total
group sales to North American customers
-- Technical development work underway on potentially
patentable applications
-- Board continues to maintain a positive view on the
Company's potential for growth
Post-Period
-- Oversubscribed fundraising of GBP2.54m, in two tranches,
announced during October 2017 together with a loan
of US$240,000 from the local economic development
corporation in Martinsville, Virginia. Proceeds will
be used primarily to fund additional capacity and
achieve an aerospace standard facility in the US,
as well as to upgrade existing UK production equipment,
in anticipation of increased demand
-- Two new framework supply agreements signed: with a
major international oil and gas operator and a global
developer and provider of completion technology solutions.
Combined potential revenue of up to GBP1m per annum,
depending on growth of customers' end markets, underpinning
current market revenue forecasts
-- Award of a grant from 'Innovate UK (Manufacturing
and Materials)' to optimise an ultra-low temperature
coating process for certain substrates that could
result in new applications across several sectors
Commenting on the results, Robert Goddard, Chairman of Hardide
plc, said:
"I am very pleased to report that Hardide has achieved record
revenue for the year to 30 September 2017. The positive trend in
the underlying oil and gas market conditions that began in H2 2016
has continued through the full year and beyond. Sales to customers
in each of Hardide's other key sectors of aerospace, flow control
and precision engineering also rose year-on-year.
"The board is encouraged by progress in the diversification and
development of the customer base and efforts to diversify further
will continue. The facility in Virginia is performing well and the
post-period-end fundraise will allow us to increase our capacity in
the US. The expanded production base in the US will serve multiple
sectors of the North American market. At the same time, we aim to
expand further our presence in selected UK & European
markets.
"The civil aerospace market represents significant growth
potential and, in addition to the recently-gained industry
approvals for the UK plant, the Company plans to bring the US
facility to aerospace standard during 2018.
"The board is confident in the outlook and expects the good
progress to continue in 2018 and beyond."
Enquiries:
Hardide plc Tel: +44 (0)
Robert Goddard, Non-Executive 1869 353830
Chairman
Philip Kirkham, CEO
Jackie Robinson, Communications
Manager
IFC Advisory Tel: +44 (0)
Graham Herring / Heather Armstrong 20 3053 8761
finnCap Tel: +44 (0)
Henrik Persson / James Thompson 20 7220 0500
/ Alex Price
Notes to editors:
www.hardide.com
Hardide develops, manufactures and applies advanced technology
tungsten-carbide coatings to a wide range of engineering
components. Its patented technology is unique in combining, in one
material, a mix of toughness and resistance to abrasion, erosion
and corrosion; together with the ability to coat accurately
interior surfaces and complex geometries. The material is proven to
offer dramatic improvements in component life, particularly when
applied to components that operate in very aggressive environments.
This results in cost savings through reduced downtime and increased
operational efficiency. Customers include leading companies
operating in oil and gas exploration and production, valve and pump
manufacturing, precision engineering and aerospace industries.
chairman's and ceo's report
INTRODUCTION
Hardide has made very good progress in the year in all of its
key sectors and the Group is reporting record full year sales of
GBP3.24m (2016: GBP2.14m). The global downturn in oil and gas
activity that began in 2014, and adversely affected most companies
operating in this sector including Hardide, bottomed out in the
first half of the period and by year-end we saw a 92% improvement
in oil and gas sales over FY16. Revenue from our other key sectors
of flow control, aerospace and precision engineering also
increased.
Strategic plans to develop the aerospace sector were advanced
significantly as the UK site gained global approved supplier status
from Airbus and achieved the prestigious Nadcap accreditation. The
latter becoming a pre-requisite for all suppliers to many aerospace
primes and their supply chains worldwide.
Post-period, in October 2017, an oversubscribed fundraising of
GBP2.54m (before expenses) was completed. This comprised an Initial
Fundraising of GBP1.72m at 1.7 pence per Hardide Share and a second
deferred fundraising that will raise a further GBP0.82m at 1.7
pence per Hardide Share. This second tranche is subject to advance
assurance before the end of March 2018 from HM Revenue &
Customs of eligibility under the Enterprise Investment Scheme (EIS)
and/or Venture Capital Trust (VCT) tax relief schemes. At the same
time, Martinsville-Henry County Economic Development Corporation
(MCEDC) approved a US$240,000 loan in support of the expansion of
the Company's Martinsville facility. The proceeds of this loan will
be used to help fund new reactors and other developments at the
Martinsville site and bring it up to aerospace standards. Proceeds
will also be used to upgrade existing UK and US production
equipment, increase marketing resources and strengthen the balance
sheet.
FINANCIAL RESULTS
The Company generated record sales of GBP3.24m in the year ended
30 September 2017 (2016: GBP2.14m). Primarily this reflects a
return in demand from key customers in the oil and gas sector, but
also increasing demand from other sectors and new applications. A
130% increase in gross profit compared with a 51% growth in sales
demonstrates the Company's high operational gearing. The Company
reported an operating loss of GBP1.24m (2016: loss of GBP1.47m).
The result is a GBP0.56m improvement in earnings before interest,
tax, depreciation and amortisation, with a loss of GBP0.74m (2016:
GBP1.30m loss).
On the balance sheet, net assets at 30 September 2017 were
GBP3.29m (2016: GBP4.38m). This included a cash balance of GBP1.21m
(2016: GBP1.97m).
OPERATIONAL OVERVIEW
Customers and Markets
Strong progress was made towards our strategic goal to diversify
our customer and market base. During the oil and gas industry
downturn which began in 2014, we continued with development
projects that are now turning into production sales. This includes
a collaboration with MasterFlo Valve, Inc. of Canada, to develop a
new solution to protect high pressure, high temperature (HPHT)
subsea choke valves. Its success has been demonstrated by
qualification to all API requirements and deployment in deepwater
wells for a major oil and gas operator. Development work with a
global oil and gas operator led to a framework supply agreement
being finalised post-period. This is Hardide's first direct oil and
gas operating company customer. The operator is the ultimate
beneficiary of the improved performance afforded to drilling and
production tools by Hardide's technology. Sales to date have been
to the oil service companies supplying the operating companies and
we believe that working directly with the end-user will result in
new and different applications. A second supply agreement was
signed post-period with an international developer and provider of
completion technology solutions.
The Airbus global approved supplier status and Nadcap
accreditation achieved during the year at Bicester have
strengthened the platform for securing future aerospace business.
Life-testing continues on wing components for the Airbus A320, A330
and A380 and on landing gear parts. Development and trialling of
further components for both fixed- and rotary- wing aircraft is
well underway. We believe the medium and long-term potential value
to the Group is worth the effort involved in the longer sale cycles
in this sector and we are confident that future volume sales will
result.
The Hardide coating continues to be integral to the performance
of the new high-resolution airport X-ray baggage scanning machine
that commenced volume production during 2016. A new application for
Royal Mail moved into production during the year and Hardide-coated
deflector plates are expected to be fitted into all letter sorting
machines in the UK by Christmas 2017. We are currently working with
Royal Mail on the development and testing of two more high-wear
parts for sorting machine applications. The Company is exploring
new precision engineering applications for the coating in the
powder metallurgy, metal injection moulding, plastic extrusion and
3D printing sectors.
Hardide's technical director has delivered several presentations
at high-profile technical conferences throughout Europe and papers
have been published in several international publications. These
continue to raise awareness across existing and new industries and
regions.
Production, Technology, Research & Development and Industry
Accreditations
Sales to customers in North America accounted for 47% of revenue
in FY17 and are expected to rise significantly over the medium and
long term. In anticipation of increased demand, it is planned that
some of the proceeds from the fundraising will be used to acquire
two new coating reactors. An order was placed for the first reactor
in November 2017 and that is intended to be operational by Autumn
2018. So as to accommodate bigger components and greater batch
sizes, the second reactor is planned to be larger than existing
ones. It is expected that this will be ordered late FY18 and be
fully operational in FY20. Investment will also be made to enhance
the capability of pre-treatment and other process areas in the UK
and US and bringing more reactors up to aerospace standards.
The investment in new reactors will also provide the capacity to
support technical development projects. These are fundamental to
the Group's strategy to diversify and win new business. By
dedicating resource to technical development projects during the
recent oil and gas downturn, the Company was well-advanced with
many new applications when the market recovered. At any one time,
the Company has a number of strategic development projects
underway, as well as several in-house and third-party test
programmes aimed at generating new applications.
The Company was very pleased to secure Airbus Approved Supplier
status and the challenging Nadcap global aerospace standard for the
Bicester site during the year, as well as transition to the new
ISO9001:2015 quality management system. Post-period, Hardide
Coatings Ltd completed its transition audit to the new-standard of
aerospace AS9100 Revision D. In September 2017, we recruited an
aerospace-experienced Quality Assurance Manager with responsibility
for both the UK and US sites. Aerospace accreditation of the US
facility to AS9100 is planned during the first half of calendar
year 2018.
The REACh sunset date banning the use of hexavalent chromium
salts in the European Union (EU) passed in September 2017. Before
that date, a group representing industries traditionally using hard
chrome submitted an application for a seven-year extension that
would enable use-specific exemptions to be granted. Their argument
being that this would allow time to industrialise alternatives to
chromium coatings. This application is awaiting a decision by the
European parliament, and is expected to be taken in mid-2018. We
have been in dialogue with our aerospace customers who inform us
that the possible extension will not alter their plans to develop
chromium-free aircraft designs. The life of aircraft and parts
currently in design is far longer than any deferral period and the
additional compliance costs will make hard chromium plating less
available and more expensive. We are confident that the possible
approval of the extension will have no material impact on our
progress in the aerospace market.
Another European regulation is also expected to benefit Hardide
in the longer term: In January 2017, the European Chemicals Agency
(ECHA) proposed to re-classify cobalt metal as a carcinogen,
mutagen and reproductive toxicant. It is expected that allowable
occupational exposure limits for cobalt in inhalable form will be
reduced significantly. When these restrictions are approved, as
they are widely expected to be, the compliant use of HVOF coatings
will be substantially more difficult. High velocity oxy-fuel is a
thermal spray tungsten carbide coating alternative to hard chrome
plating which is produced using cobalt metal powder. The
re-classification will affect the production and handling of the
metal powders used in this technique, the coating application
process and the post-coat grinding. Each of these processes
produces substantial amounts of cobalt dust. This re-classification
is likely to be replicated worldwide as part of the United Nation's
Globally Harmonised System (GHS) - the single worldwide system for
classifying and communicating the hazardous properties of
industrial and consumer chemicals. The Hardide coating process
poses none of these risks and offers a technically, commercially
and environmentally superior alternative.
Intellectual Property
The IP committee met quarterly to review the IP portfolio.
During the year, a European patent was granted for the coating of
industrial diamonds, in addition to the equivalent patent in China.
Research continues into the development of new coating variants and
applications with the objective of strengthening and widening the
Group's IP portfolio.
Brexit effect
There has been no change to the status reported in 2016. That
is, to the extent that it can predict the effects of Brexit, the
Group expects no particular negative effects on its business and is
currently benefitting modestly from the weaker pound. None of the
existing development programmes with customers are expected to be
adversely affected.
STRATEGY
Hardide's coatings are technologically advanced and can convey
considerable commercial advantage by helping to solve complex and
difficult engineering problems. Our coatings provide a unique
combination of advantageous physical properties and would enhance
the product ranges of many other surface technology companies.
While the acceptance process for a new application is typically
long and involved, particularly for large customers, there is
significant potential for long-term revenues once Hardide's
technology is adopted and embedded in a design.
As demonstrated by the successful fundraising in October 2017,
the board continues to maintain its positive view of Hardide's
potential for growth. Accordingly, the Company will invest further
in expanding production capacity, marketing, business development
and R&D. The board is confident in the medium and longer-term
outlook and encouraged by the progress being made in diversifying
and developing the customer base, particularly in North America.
The Company's efforts to further diversify will continue and the
new and soon-to-be-expanded production base in the US will be
deployed to develop North American business across multiple
sectors. At the same time, we aim to expand further our presence in
selected UK & European markets.
The civil aerospace market continues to represent significant
growth potential for us, and in addition to the recently-gained
industry approvals for the UK site, the Company plans to gain
AS9100 aerospace approval for the US facility during 2018.
We see substantial new application opportunities in the oil and
gas sector and are working to convert these into future revenue.
The precision engineering market continues to develop with multiple
new applications foreseen.
At all times, the Group aims to achieve success and customer
satisfaction in a safe, environmentally-conscious and
socially-responsible manner taking account the needs of all
stakeholders. The Company manages hazards to employees by the
deployment of robust safety control systems and procedures and
rigorous adherence to relevant health and safety legislation. In
addition, Hardide encourages the reporting of accidents,
near-misses and unsafe conditions, all of which are regularly
reviewed by the executive's Health & Safety Committee and Board
where appropriate. At every stage of the process our operational
aim is to minimise the overall impact on the environment. Hardide
takes a proactive approach to environmental issues and has targets
to reduce waste and its carbon footprint and these are regularly
reviewed as part of our ISO14001 environmental management
system.
OUTLOOK
Hardide's technical and commercial activity over the year, and
the post-period fundraising, have established a solid platform for
growth and the Group is well positioned to deliver further
improvement in performance. Investment will be made in line with
expected demand and costs will continue to be closely
monitored.
We remain confident in the outlook and expect further progress
in 2018. Against the backdrop of new applications in oil and gas
and precision engineering, and the conversion of aerospace test
programmes into sales, supported by a strong balance sheet, we
continue to see strong growth prospects for the Group.
Finally, we take this opportunity to thank our employees and
shareholders for their continued support.
Robert Goddard Philip Kirkham
Chairman CEO
8 December 2017 8 December 2017
CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2017
2017 2016
GBP000 GBP000
Revenue 3,241 2,142
Cost of sales (1,651) (1,457)
Gross profit 1,590 685
-------------------------------- -------- --------
Administrative expenses (2,325) (1,989)
Depreciation and amortisation (503) (418)
Reversal of fixed asset
impairment - 232
Release of onerous lease
provision - 23
Operating (loss) (1,238) (1,467)
-------------------------------- -------- --------
Finance income 4 6
Finance costs (1) (1)
(Loss) on ordinary activities
before taxation (1,235) (1,462)
-------------------------------- -------- --------
Taxation 139 121
(Loss) on ordinary activities
after taxation (1,096) (1,341)
-------------------------------- -------- --------
(Loss) per share: Basic (0.1)p (0.1)p
(Loss) per share: Diluted (0.1)p (0.1)p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2017
2017 2016
GBP000 GBP000
Assets
Non-current assets
Goodwill 69 69
Intangible assets 1 1
Property, plant & equipment 1,490 1,872
-------------------------------- --------- --------
Total non-current assets 1,560 1,942
-------------------------------- --------- --------
Current assets
Inventories 160 60
Trade and other receivables 622 566
Other current financial
assets 242 270
Cash and cash equivalents 1,212 1,967
-------------------------------- --------- --------
Total current assets 2,236 2,863
-------------------------------- --------- --------
Total assets 3,796 4,805
-------------------------------- --------- --------
Liabilities
Current liabilities
Trade and other payables 488 408
Financial liabilities 5 17
Total current liabilities 493 425
-------------------------------- --------- --------
Net current assets 1,743 2,438
-------------------------------- --------- --------
Non-current liabilities
Financial liabilities 12 3
Total non-current liabilities 12 3
-------------------------------- --------- --------
Total liabilities 505 428
-------------------------------- --------- --------
Net assets 3,291 4,377
-------------------------------- --------- --------
Equity attributable to
equity holders of the parent
Share capital 3,242 3,242
Share premium 10,306 10,305
Retained earnings (10,060) (8,964)
Share-based payments reserve 235 184
Translation reserve (432) (390)
-------------------------------- --------- --------
Total equity 3,291 4,377
-------------------------------- --------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2017
2017 2016
GBP000 GBP000
Cash flows from operating activities
Operating (loss) (1,238) (1,467)
Impairment of intangibles 1 2
Depreciation 503 416
Reversal of fixed asset impairment - (232)
Share option charge 51 28
(Increase) / Decrease in inventories (100) 1
(Increase) / Decrease in receivables (91) (18)
Increase / (Decrease) in payables 78 (160)
Increase / (Decrease) in provisions - (23)
Exchange rate variance - 31
Cash generated from operations (796) (1,422)
-------------------------------------- -------- --------
Finance income 4 6
Finance costs (1) (1)
Tax received 207 64
Net cash generated from operating
activities (586) (1,353)
-------------------------------------- -------- --------
Cash flows from investing activities
Purchase of property, plant
and equipment (152) (561)
Net cash used in investing
activities (152) (561)
-------------------------------------- -------- --------
Cash flows from financing activities
Net proceeds from issue of
ordinary share capital - 1,571
Finance lease repayment (17) (17)
Net cash used in financing
activities (17) 1,554
-------------------------------------- -------- --------
Net (decrease) in cash and
cash equivalents (755) (360)
-------------------------------------- -------- --------
Cash and cash equivalents at
the beginning of the year 1,967 2,327
-------------------------------------- -------- --------
Cash and cash equivalents at
the end of the year 1,212 1,967
-------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2017
Share Share Share-based Foreign Retained Total
Capital Premium Payments Translation Earnings Equity
---------------------- --------- --------- ------------ ------------- ---------- --------
At 1 October
2015 3,041 8,935 154 (648) (7,623) 3,859
---------------------- --------- --------- ------------ ------------- ---------- --------
Issue of new
shares 201 1,370 - - - 1,571
Share options - - 28 - - 28
Exchange translation - - 2 258 - 260
Loss for the
year - - - - (1,341) (1,341)
---------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September
2016 3,242 10,305 184 (390) (8,964) 4,377
---------------------- --------- --------- ------------ ------------- ---------- --------
At 1 October
2016 3,242 10,305 184 (390) (8,964) 4,377
---------------------- --------- --------- ------------ ------------- ---------- --------
Issue of new
shares - 1 - - - 1
Share options - - 51 - - 51
Exchange translation - - - (42) - (42)
Loss for the
year - - - - (1,096) (1,096)
---------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September
2017 3,242 10,306 235 (432) (10,060) 3,291
---------------------- --------- --------- ------------ ------------- ---------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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