TIDMHDD
RNS Number : 5025R
Hardide PLC
12 December 2016
Press Release 12 December 2016
Hardide plc
("Hardide" or "the Group" or "the Company")
Preliminary results for the year ended 30 September 2016
Hardide plc (AIM: HDD), the developer and provider of advanced
surface coating technology, announces its preliminary results for
the year ended 30 September 2016.
Key Points
Financial
-- Sales of GBP2.14m (2015: GBP3.00m). Affected by the oil and gas downturn as expected
-- Sales in H2 25% ahead of H1. Signs of slow recovery from
existing oil and gas customers and conversion of new
opportunities
-- Gross profit of GBP0.69m (2015: GBP1.81m)
-- Group operating loss of GBP1.47m (2015: loss of GBP0.22m)
-- Loss before interest, tax, depreciation and amortisation of
GBP1.30m (2015: loss of GBP0.33m), before crediting reversal of
fixed asset impairment and release of provision
-- Successful fundraising of GBP1.60m completed during September
2016. Enables implementation of growth plans
-- Cash at bank at 30 September 2016 of GBP1.97m
Business/ Operational
-- Good progress made towards increasing aerospace business
-- US coatings facility now operational and generating regular revenue
-- Increasing sales in precision engineering - up 126% from prior year
-- Board expects growth in both aerospace and precision
engineering markets and a slow return in oil and gas activity to
contribute towards improved performance in 2017
-- Costs reduced in response to lower orders from the oil and gas sector
Commenting on the results, Robert Goddard, Chairman of Hardide
plc, said:
"In common with most companies operating in the oil and gas
supply chain, Hardide's full year performance was, as anticipated,
adversely affected by depressed demand. This was due to the
sector's longest and most severe downturn in decades. H2 saw an
improvement over H1 with signs of a tentative recovery from oil and
gas. New opportunities are emerging from key customers in this
sector and we saw a substantial rise in sales to precision
engineering customers.
"Despite weak demand in the oil and gas sector, the underlying
picture is encouraging. Good progress is being made with Airbus and
other aerospace companies in Europe and North America as well as
with our new X-ray machine customer. For the first time, sales to
customers in North America were higher than to UK customers. The
new facility in Virginia is producing regular revenue following
customers' exhaustive verification trials and approvals.
"Accurate forecasting of demand from our oil and gas customers
is always difficult but indications are that the bottom of the
cycle has been reached. With the market reported to be close to
balance, demand is expected to continue on an upward trend during
2017 and beyond. The board remains positive about the Group's
progress in diversifying by end-user and geography, and therefore
the medium and longer-term prospects.
"The cost base is stable and under tight control and the recent
fundraising of GBP1.6m significantly strengthens the balance sheet
and will enable the Group to move forward with its development
plans."
For further information:
Hardide plc
Philip Kirkham, CEO Tel: +44 (0) 1869 353
Jackie Robinson, Communications 830
Manager
finnCap Tel: +44 (0)20 7220
Stuart Andrews / Grant Bergman/James 0500
Thomson
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, nuclear, precision engineering and aerospace
industries.
chairman's and ceo's report
INTRODUCTION
In common with most companies operating in the oil and gas
sector, over the last 18 months Hardide's revenue was adversely
affected by the longest and most severe downturn in global oil and
gas activity in decades. The Group is reporting full year sales of
GBP2.14m (2015: GBP3.00m), primarily reflecting the fall in demand
from customers in oil and gas exploration drilling. In response to
this industry-wide slump, the Company took a number of actions
throughout the year to cut costs and limit cash outflow. This was
achieved while completing the new US coatings facility in Virginia,
which became operational in February 2016.
H2 saw a 25% improvement in sales over H1, with sales to
customers in oil and gas and precision engineering sectors both
rising by over 50%. Indications from major oil and gas customers
are that the bottom of the cycle has been reached, the oil market
is close to balance and so drilling activity is expected to pick up
in 2017.
Significant progress was made with our strategic plan to develop
the aerospace market with technical approval by Airbus of the
coating in late 2015. Our new, highly-experienced aerospace
business development manager is successfully identifying further
applications with potential new customers and a number of new test
programmes are underway. Also, after a lengthy development
programme, sales commenced to the manufacturer of a new type of
high-speed X-ray screening machine for airport baggage. We expect
that sales for this ground-breaking aviation security technology
will grow in line with its adoption and demand for the coating will
rise. Even during this oil and gas downturn, many new applications
have come to us from engineers in the sector as they become
increasingly aware of the potential for Hardide coatings to further
improve tool life, efficiency and reduce operating costs.
A placing of 200,202,000 new ordinary shares at 0.8p per share
was completed during September 2016 and raised GBP1.60m (gross).
The proceeds are to be used to invest in a range of projects and
activities that the board believes will enhance shareholder
value.
FINANCIAL RESULTS
The Company generated total sales of GBP2.14m in the year ended
30 September 2016. This compares with GBP3.00m for the prior year,
with the slowdown in the global oil and gas sector beginning in H2
2015 and continuing throughout 2016. Some signs of a pick-up have
emerged recently and our key oil and gas customers are signalling
that they expect a slow recovery as 2017 progresses.
Gross profit for the year decreased to GBP0.69m (2015: GBP1.81m)
and gross margin reduced to 32% (2015: 60%). This sharp reduction
was due mainly to the mix of product being processed and the fixed
nature of production salaries. In addition, managing component
manufacturing for a growing customer, Virginia site validation and
the recruitment of additional production staff in Virginia also
depressed percentage margins.
After accounting for the reversal of fixed asset impairment and
the release of provision, the Company incurred an operating loss of
GBP1.47m (2015: loss of GBP0.22m). The impairment reversal related
to the redeployment of plant in the US which had previously been
written off; and the release of a provision that covered the final
months of the lease on the Group's former site in Houston, which we
fully-exited in October 2015. The loss before interest, tax,
depreciation and amortisation was GBP1.30m (2015: GBP0.33m loss).
Cash grants of GBP0.18m were received from the Martinsville Henry
County Economic Development Corporation and the Commonwealth of
Virginia.
On the balance sheet, net assets at 30 September 2016 were
GBP4.38m (2015: GBP3.86m). This included a cash balance of GBP1.97m
(2015: GBP2.33m). Final one-off capex costs of GBP0.60m were
incurred in completing the installation and commissioning of the
Virginia facility. Capital expenditure for the Group totalled
GBP0.66m.
OPERATIONAL OVERVIEW
Customers and Markets
The diversification of our customer and market base remains an
important strategic goal. Over the year, we made good progress in
increasing sales to customers in the precision engineering sector.
These rose 126%, with volume orders being received for components
for the new airport X-ray baggage screening machine.
Significant headway was made with Airbus, with the coating being
technically approved for use as an alternative to hard chrome
plating by design engineers and the sub-contractor network.
Life-testing of the coating on specific high-volume Airbus A320
components is now underway, with commercial discussions taking
place regarding these and other volume components for both
single-aisle and wide-body aircraft. Announcements of further
progress are expected during 2017.
The dramatic drop in exploration and drilling by our customers
in the oil and gas and flow control sectors, both in the UK and
North America, resulted in falls in revenue of 47% and 17%
respectively. During the year, we worked closely with a major oil
service company in North America to enhance the performance of an
onshore hydraulic fracturing tool. The technology is now proven and
we expect a strengthening of demand from this customer as North
American onshore drilling activity continues to rise. The
Baker-Hughes rig count, an accepted measure of the state of the
North American drilling industry, has shown encouraging
month-on-month increases since March 2016. After extensive testing
and trials, the coating was specified by a major global
manufacturer for a series of subsea flow control applications and
first orders are now being received for these components. For the
first time, the Company's sales to North America exceeded those to
the UK.
The take-or-pay supply agreement with GE, which had an original
term of two years but as has been previously announced was extended
to three years, expires at the end of February 2017. GE has
indicated that they expect to be left with an excess of inventory
due to reduced customer demand from the oil & gas sector. As
expected by Hardide management, GE needs time to reduce this
overstocking before re-ordering. Clearly, how long that takes will
depend upon their rate of usage. We have current orders in
production that will complete the contract by February 2017. GE has
made clear that the coating has been very successful and as a
result they have now standardised on use of the coating on all
variants of their product and will resume ordering as soon as their
current inventory levels have reduced.
To raise awareness further in new geographies and industries, a
programme of presentations of technical papers at prestigious
international industry conferences was undertaken by Hardide's
technical director. In July, we exhibited at the Farnborough
International Airshow in July where some promising new customer
contacts were made.
Major new customer trials and industry accreditations
The Hardide coating has been technically approved by Airbus and
Leonardo Helicopters (formerly AgustaWestland) as a replacement for
hard chrome plating (HCP). The HCP process uses hexavalent chrome,
which has a sunset date of 21 September 2017 imposed by EU REACh
regulations. While this creates opportunities for Hardide, it is
important to realise that demand for Hardide coatings within the
aerospace sector is not limited to just hard chrome replacement.
For example, the application of Hardide coating to components on
the Eurofighter Typhoon aircraft is related to its anti-galling
properties. Also, the coating is currently being tested as an
alternative to HCP, HVOF (high velocity oxy-fuel) and other hard
coatings in several aerospace companies in Europe and North
America.
The component testing programme with Leonardo Helicopters has
progressed much more slowly than expected. This has been due to the
unavailability of the customer's highly-specialised rig used to
test these safety-critical components. It is now expected that the
tests will begin in early 2017. Post-period we received new parts
from this customer for coating and testing. These are for
less-critical applications, which do not need the specialised rig
and so we expect the testing of them to be quicker.
Trials have also been underway for some time on hydraulic
actuators with a major European manufacturer of aircraft landing
gear. They are now considering the use of Hardide on additional
components.
For some while now, industries traditionally using hard chrome
have been lobbying the EU for an extension of the REACh sunset
date. Part of their argument for this has been the difficulty that
a ban on HCP would present for replacement parts for aircraft no
longer in production. The Company has been in dialogue with its
aerospace customers for some time about the possible extension and
as a result we are confident that if the seven-year extension now
proposed by the European Chemicals Agency is accepted by the
European parliament, it will have no material impact on our
progress in the aerospace markets. None of our aerospace test
programmes or current revenue opportunities are for 'legacy' parts
and none are expected to be affected by any deferral of the sunset
date.
In November 2015, Hardide Coatings Ltd passed its triennial
re-certification audit for the aerospace AS9100:Rev C and ISO9001
quality management systems. During the year, we also upgraded our
environmental certification to the new ISO14001:2015 standard.
Certification of the facility in Virginia is intended to take place
in 2017. For some time now we have been preparing for the aerospace
industry's global accreditation standard, Nadcap. Audit of the
Bicester site has been scheduled by the assessors for the second
quarter of calendar 2017.
Production, Technology, Research & Development
The new production facility in Virginia became production-ready
in February 2016 and is now integral to supporting sales to North
America. Additional production personnel were recruited in
Virginia, bringing the US headcount there to seven. Led by a team
from the UK, procurement, installation and commissioning of
equipment was managed smoothly within time and budget. Validation
of the production process by major US customers took several months
and the site is now approved for production and is producing
regular revenue.
The UK-based technical team was strengthened by the recruitment
of a R&D engineer and the total number of staff in the UK was
reduced during the year to better align with sales revenues.
The Group continued with various test programmes aimed at
developing further potential new applications. These programmes
include both in-house and third-party projects.
Intellectual Property
The IP committee met quarterly to review the IP portfolio.
During the year, a US patent was granted for the coating for
industrial diamonds, a process that enables their secure bonding to
metallic substrates. Research continues into the development of new
coating variants, and if successful these will strengthen and widen
the Group's IP portfolio.
Brexit effect
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, more than 50%
of its revenue being denominated in US dollars. None of the
existing development programmes with customers should 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 enhance the
range of many other companies' offerings. 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.
The board continues to maintain its positive view of the
Company's potential for growth and accordingly will continue to
invest in marketing, business development, R&D and process
development so as to grow revenue and gross profit. Presently, this
has to be considered in the light of the longest downturn for over
20 years in our current main market of oil and gas, and a
commercial landscape with low visibility. Nonetheless, 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. The Group will use its new production base in the US to
develop North American business across multiple market sectors and
we will expand our presence in selected European markets. The civil
aerospace market represents a significant growth potential for our
coating range, as do new applications in the oil and gas sector. We
are also targeting expansion in other precision engineering
sectors.
At all times, the Group aims to operate in a safe,
environmentally-conscious and socially-responsible manner, valuing
its employees' contributions.
OUTLOOK
Visibility from our oil and gas customers remains limited as the
industry adjusts to the lower oil price. However, current market
indications give the board confidence that demand will slowly
return during 2017 as drilling activity picks up. The Company is
well-positioned to benefit when this happens. The board is further
encouraged by progress with the North American fracking tool
manufacturer referred to earlier and is optimistic about potential
opportunities when the sector recovers.
We are in the early stages of growth with our X-ray machine
customer and are moving forward with commercial discussions with
Airbus and tests on new applications with Leonardo Helicopters and
several aerospace component manufacturers.
Our balance sheet is sound and costs are under tight control.
Based on the progress of customers' tests and the range of
strategic development projects underway, the board is positive
about the medium and longer term prospects for the Group.
Robert Goddard Philip Kirkham
Chairman CEO
9 December 2016 9 December 2016
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2016
2016 2015
GBP000 GBP000
Revenue 2,142 3,003
Cost of sales (1,457) (1,198)
Gross profit 685 1,805
-------------------------------- -------- --------
Administrative expenses (1,989) (2,130)
Depreciation and amortisation (418) (161)
Reversal of fixed asset 232 -
impairment
Release of onerous lease
provision 23 269
Operating profit / (loss) (1,467) (217)
-------------------------------- -------- --------
Finance income 6 12
Finance costs (1) (2)
Profit / (loss) on ordinary
activities before taxation (1,462) (207)
-------------------------------- -------- --------
Taxation 121 91
Profit / (loss) on ordinary
activities after taxation (1,341) (116)
-------------------------------- -------- --------
Profit / (loss) per share:
Basic (0.1)p (0.01)p
Profit / (loss) per share:
Diluted (0.1)p (0.01)p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2016
2016 2015
GBP000 GBP000
Assets
Non-current assets
Goodwill 69 69
Intangible assets 1 3
Property, plant & equipment 1,872 1,262
--------------------------------- -------- --------
Total non-current assets 1,942 1,334
--------------------------------- -------- --------
Current assets
Inventories 60 59
Trade and other receivables 566 469
Other current financial
assets 270 271
Cash and cash equivalents 1,967 2,327
--------------------------------- -------- --------
Total current assets 2,863 3,126
--------------------------------- -------- --------
Total assets 4,805 4,460
--------------------------------- -------- --------
Liabilities
Current liabilities
Trade and other payables 408 544
Financial liabilities 17 16
Provision for lease obligation - 21
Total current liabilities 425 581
--------------------------------- -------- --------
Net current assets 2,438 2,545
--------------------------------- -------- --------
Non-current liabilities
Financial liabilities 3 20
Total non-current liabilities 3 20
--------------------------------- -------- --------
Total liabilities 428 601
--------------------------------- -------- --------
Net assets 4,377 3,859
--------------------------------- -------- --------
Equity attributable to
equity holders of the parent
Share capital 3,242 3,041
Share premium 10,305 8,935
Retained earnings (8,964) (7,623)
Share-based payments reserve 184 154
Translation reserve (390) (648)
--------------------------------- -------- --------
Total equity 4,377 3,859
--------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2016
2016 2015
GBP000 GBP000
Cash flows from operating activities
Operating profit / (loss) (1,467) (217)
Impairment of intangibles 2 1
Depreciation 416 160
Reversal of fixed asset impairment (232) -
Share option charge 28 27
Increase in inventories 1 (9)
(Increase) / Decrease in receivables (18) 67
Increase / (Decrease) in payables (160) 81
Increase / (Decrease) in provisions (23) (269)
Exchange rate variance 31 -
Cash generated from operations (1,422) (159)
-------------------------------------- -------- --------
Finance income 6 12
Finance costs (1) (2)
Tax received / (paid) 64 53
Net cash generated from operating
activities (1,353) (96)
-------------------------------------- -------- --------
Cash flows from investing activities
Purchase of property, plant
and equipment (561) (1,029)
Net cash used in investing
activities (561) (1,029)
-------------------------------------- -------- --------
Cash flows from financing activities
Net proceeds from issue of
ordinary share capital 1,571 1
Finance lease repayment (17) (16)
Net cash used in financing
activities 1,554 (15)
-------------------------------------- -------- --------
Net increase / (decrease) in
cash and cash equivalents (360) (1,140)
-------------------------------------- -------- --------
Cash and cash equivalents at
the beginning of the year 2,327 3,467
-------------------------------------- -------- --------
Cash and cash equivalents at
the end of the year 1,967 2,327
-------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2016
Share Share Share-based Foreign Retained Total
Capital Premium Payments Translation Earnings Equity
---------------------- --------- --------- ------------ ------------- ---------- --------
At 1 October
2014 3,041 8,934 127 (639) (7,507) 3,956
---------------------- --------- --------- ------------ ------------- ---------- --------
Issue of new
shares - 1 - - - 1
Share options - - 27 - - 27
Combined instruments - - - - - -
Exchange translation - - - (9) - (9)
Loss for the
year - - - - (116) (116)
---------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September
2015 3,041 8,935 154 (648) (7,623) 3,859
---------------------- --------- --------- ------------ ------------- ---------- --------
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
---------------------- --------- --------- ------------ ------------- ---------- --------
Combined instruments - - - - - -
---------------------- --------- --------- ------------ ------------- ---------- --------
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
---------------------- --------- --------- ------------ ------------- ---------- --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFFDFSLAIIR
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