TIDMHDD
RNS Number : 8809J
Hardide PLC
10 December 2018
10 December 2018
Hardide plc
("Hardide" or the "Group" or the "Company")
Preliminary results for the year ended 30 September 2018
Hardide plc (AIM: HDD), the developer and provider of advanced
surface coating technology, announces its preliminary results for
the year ended 30 September 2018.
Highlights
Financial
-- Record revenues, up 42% to GBP4.61m (2017: GBP3.24m)
-- Gross profit increased by 52% to GBP2.41m (2017: GBP1.59m)
-- Stronger gross margin of 52% (2017: 49%)
-- EBITDA improved by GBP0.44m to loss of GBP0.30m before
exceptional items (2017: loss of GBP0.74m)
-- Successful fundraising of GBP2.54m (before expenses)
-- Cash at bank at 30 September 2018 of GBP3.30m (2017: GBP1.21m)
Business & operational
-- Significant rise in sales to oil and gas sector; supported by
strong demand from the two new supply agreements previously
announced
-- Increased sales benefitted from new customers and the
continuing recovery of the oil and gas sector
-- 84% year-on-year increase in sales to customers in North
America - accounting for 61% of total Group sales
-- Technical work successfully completed with Airbus on
production parts and final commercial discussions underway
-- Investment in additional capacity: third reactor installed
and being commissioned in the US, further upgrades to production
equipment in US and UK
-- Both US and UK sites are now accredited to aerospace quality management system AS9100 Rev D
-- Awarded funding for three projects: one from Innovate UK and
two from The National Aerospace Technology Exploitation Programme
("NATEP")
-- Appointment of two new non-executive directors bringing
extensive aerospace and strategic business experience
-- Appointment of senior independent director
Commenting on the results, Robert Goddard, Chairman of Hardide,
said:
"Hardide has reached an inflexion point, with record sales
across all geographies with a 42% year-on-year increase to
GBP4.61m. Oil and gas revenue grew significantly, benefiting from
the continued recovery in the sector, with strong sales to new and
existing customers.
"We are encouraged by the potential for significant growth in
sales to the civil aerospace sector. Having successfully completed
technical testing, detailed discussions are underway with Airbus
and its tier 1 partners regarding the supply of production parts.
Parts for other US and UK aerospace manufacturers are in various
stages of development, including the final stages of life testing
on transmission parts for Leonardo Helicopters.
"The Board is pleased with the Group's performance and the
positive trading outlook. Our key oil and gas customers are
experiencing a broad-based recovery in activity and are predicting
that the current positive cycle will continue and that the
supply-demand balance will remain favourable. This is positive news
for Hardide and supports the Group's strategy to invest ahead of
revenue as it drives towards profitability in the coming year."
Enquiries:
Hardide plc Tel: +44 (0) 1869
Robert Goddard, Non-Executive Chairman 353830
Philip Kirkham, CEO
Jackie Robinson, Communications Manager
IFC Advisory Tel: +44 (0) 20 3934
Graham Herring / Heather Armstrong / Florence 6630
Chandler
finnCap Tel: +44 (0) 20 7220
Henrik Persson / James Thompson / Matthew 0500
Radley
www.hardide.com
Notes to editors:
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 reported record full year sales of GBP4.61m, a 42%
increase over FY17 (2017: GBP3.24m). The global upturn in the oil
and gas sector, boosted by the two new supply contracts, benefitted
the Group with a strong improvement in oil and gas sales when
compared with FY17. Sales increased across all geographies but was
particularly marked in North America, where an 84% uplift from last
year was achieved.
In February 2018, an oversubscribed fundraising of GBP2.54m
(before expenses) was completed. At the same time, a US$0.24m
low-interest loan facility was made available by Martinsville-Henry
County Economic Development Corporation (MHCEDC) in Virginia, USA.
This has helped fund the third coating reactor, equipment upgrades
and other developments at the Martinsville site, thereby bringing
it up to aerospace standard.
In July 2018, strategic plans to develop the aerospace sector
were advanced in the US as the facility there gained aerospace
certification to AS9100 Rev D. This followed the UK site's
transition to AS9100 Rev D in December 2017. Progress towards
securing aerospace contracts in Europe has gathered pace, with
technical testing concluded and commercial discussions underway on
production parts for Airbus, and parts in development for several
other European and US manufacturers. This slow pace of progress is
normal in the aerospace industry.
We continued our strategy to achieve further growth of the
business by investing ahead of revenue in business development,
production equipment and capacity.
FINANCIAL RESULTS
The Group generated record sales of GBP4.61m in the year ended
30 September 2018 (2017: GBP3.24m). Direct expenses including
production salaries increased by 33% which allowed Group gross
profit to grow by 52% to GBP2.41m. Overhead costs rose by 17% as we
continued to invest in marketing, business development resource,
research and development and IT, as well as reflecting a slight
reduction in grants received compared to the previous year. We
recruited an additional Business Development Engineer for the North
American market; and we incurred significant expense developing the
process to coat extremely complex components which resulted in the
award of the second of our two new supply contracts.
The Group's EBITDA loss reduced by 59% to GBP0.30m (2017:
GBP0.74m loss). Depreciation expense also fell year on year as some
equipment in Martinsville became fully written-down.
In 2015 and 2016, Hardide Coatings, Inc. received two grants
worth a combined US$0.32m towards the cost of the new Martinsville
facility. These grants had performance criteria attached relating
to increasing both the number of employees and the amount of
taxable property at the facility within a certain time frame. We
have reviewed these criteria and decided prudently to make a
provision in the accounts for the potential repayment of these
grants in full. The deep and long recession in the oil industry
during the period 2014 to 2017 meant that the development of our US
business has taken longer than originally projected.
Notwithstanding, we have asked the grantors to extend the
performance review deadlines.
There has been a slight change to the business model in this
financial year. A substantial new, high-volume supply contract has
Hardide responsible for the complete supply and stocking of the
product. This means that in a few cases, in addition to coating
components, the Group is responsible for purchasing the metal for
those components and the sub-contract machining of them. Since the
added-value of Hardide is in the coating and not in the value of
metal or the machining of it, the percentage mark-up that the Group
can achieve on the bought-in elements is lower than the margin on
the coating itself. However, the high sales value under this
contract, albeit at a lower percentage margin, provides a
significant uplift to the Group's overall gross profit. As such,
this supply contract is a very positive development for the Group.
This is the second such contract where customers have asked Hardide
to be responsible for the full supply of the parts; this
significantly improves and secures our position as a long-term
supplier to them.
On the balance sheet, net assets at 30 September 2018 were
GBP5.08m (2017: GBP3.29m). This included a cash balance of GBP3.30m
(2017: GBP1.21m).
OPERATIONAL OVERVIEW
Customers and Markets
Activity returned strongly to the oil and gas sector and with it
the volume of sales in the second half of FY18 to the two customers
with whom we announced new, major supply agreements last year. We
worked with the first customer - a North American provider of
high-value 'completion' technology - to develop an arrangement
whereby Hardide builds an agreed level of stock from which coated
product can be provided on a 'just-in-time' basis. This cuts lead
time for the customer by more than 50%. With the Hardide coating,
their tool lasts longer and enables more efficient production,
thereby lowering extraction cost and delivering competitive
advantage.
The first high-volume production orders were received under the
second agreement, which is with a global oil and gas operator. The
complex design of the component presented considerable technical
and production challenges and it is a notable achievement by the
Hardide technical and production teams that these were overcome.
The technology is now being deployed in a deepwater production
field. Coating of these parts is now being transferred from the UK
to our US facility.
Strong demand is forecast for a third oil and gas application.
This is from a current blue chip oil services customer for key
components in a new downhole tool.
Progress towards securing supply contracts for Airbus components
is gathering pace. Over the last year, substantial development work
has been undertaken with both Airbus and one of their tier 1
suppliers on a range of components. Frequent joint meetings have
been taking place so as to reach a conclusion as fast as is
possible. The availability of trial components and information flow
from the tier 1 partner was challenging, but now all technical
details and required changes have been finalised and agreed. The
focus is now on agreeing commercial terms and once this is done,
pre-production and/or full production orders should follow shortly
thereafter. This pace of progress, while slow and frustrating, is
typical for the introduction of a new process to the aerospace
industry. However, once complete it is expected that demand for the
components will continue for many years.
Additional components for another tier 1 supplier to Airbus are
also in the final stages of a life testing programme, with very
promising results. We expect progress with these components will be
much quicker than with the earlier approval process with
Airbus.
Testing of transmission components at Leonardo Helicopters is
almost complete and the Hardide coating is showing excellent
results.
Other development work is also ongoing with a number of UK,
European and North American aerospace companies including Triumph
Aerospace Systems Group and has been aided by the recent approval
of both Bicester and Martinsville sites to aerospace standard
AS9100 Rev D and also the Nadcap accreditation at Bicester.
Good progress was made in our goal to diversify our customer
base. This is due largely to the three new major contracts and
helped as well by several other smaller accounts arising from
development projects. The resurgence of oil and gas activity and
the protracted process of securing volume aerospace sales means
that our market diversification plans are taking longer than we
would like. However, the Board is satisfied that the risk from
over-reliance on a small number of customers is now much reduced
and that sector diversity will improve as sales into the aerospace
sector result alongside sales to other sectors where trials are
showing promise, including power generation and coating industrial
diamonds for use in the hard-facing of components.
In North America, we strengthened our business development team
by appointing a business development engineer. Based in Houston,
Texas he is dedicated to the oil and gas sector. This will allow
our existing VP of Business Development in North America to
concentrate on developing new markets, including aerospace.
Our first participation in a US aerospace exhibition will take
place in Arizona in December 2018 and in July 2018, we exhibited at
the Farnborough Airshow as part of the North West Aerospace
Alliance group. This resulted in increased awareness of Hardide and
many productive new leads.
New opportunities arose throughout the year as a direct result
of Hardide's technical director making presentations at several top
tier conferences in North America and Europe. We continued to
publish papers and secure editorial in trade journals in these
regions throughout the year.
Being novel technology, achieving awareness has been challenging
but now, with substantial sales into new applications that can be
publicised, together with sustained marketing, awareness of our
technology is improving steadily and expected to lead to new
business and the expansion of our customer base.
Production, Technology, Research & Development and
Accreditations
In July 2018, the quality management system at the production
facility in Martinsville was certified for the first time to the
stringent AS9100 Revision D and ISO9001 and the site is now
approved to coat aerospace and space industry components. While the
UK facility has been approved to this standard for many years, it
transitioned to Revision D in December 2017. A complement to ISO
9001:2015, Revision D includes an increased focus on senior
management commitment, risk management and product safety
requirements.
An emphasis on R&D activity during the oil industry downturn
resulted in the Group making sufficient progress to apply
successfully for three grants for the further development of the
Hardide coating for oil and gas, and aircraft components.
Since January 2018, and with grant support from Innovate UK, the
technical team has been making good progress on a low temperature
variant of the coating. Following in-depth experimental and
analytical work, a production-ready, low temperature coating
process was developed and is now under extensive testing by several
leading UK laboratories. This new coating will enable the Group to
widen the range of materials that can be coated, including some
grades of steel and alloys widely used in the subsea oil and gas,
and aerospace industries. This project will continue until spring
2019.
During the period, the Group was awarded funding for two
projects from NATEP. The funding will help further the application
of Hardide coatings for aircraft components. NATEP is a GBP14.4m
aerospace initiative programme designed to further the application
of 40 technologies in the UK aerospace supply chain. Hardide
Coatings is the lead partner on both of the projects.
The first project is the development of a grinding and
super-finishing methodology for Hardide-A, which is a proven direct
and REACH (Registration, Evaluation, Authorisation and Restriction
of Chemicals) compliant replacement for hard chrome plating. This
project is supported by Airbus and Perfect Bore Manufacturing
Ltd.
The second project is for testing and characterisation of the
low temperature coating and optimisation of the process that will
increase the range of aerospace substrate materials suitable for
Hardide coating. Airbus and Leonardo Helicopters as end-users and
Perfect Bore Manufacturing as component manufacturer and
Westmoreland Laboratories are all support partners. Both projects
began on 1 September 2018 and will each take up to 18 months to
complete.
The recent fundraising enabled the acquisition of a third
reactor for our US site, as well as upgrades to production and
process equipment in the US and UK. These upgrades have brought the
US facility up to aerospace standard and enabled the UK site to
operate more efficiently, as well as to coat a wider range of
products. The new reactor for Martinsville is now in place and will
be commissioned before the end of December 2018. Further investment
in reactors at the Martinsville facility is under constant review.
A new, larger pre-treatment line is also on order for Martinsville
and will be ready early in 2019. The investment in new reactors in
the US will release capacity for technical development projects in
the UK as production for US customers continues to be transferred
to Martinsville.
At any one time, the Group has several strategic development,
feasibility and test programmes underway. These are essential to
our ability to diversify and win new business. Capacity and
resource to undertake this work is fundamental to the long-term
growth of the business.
The predicted significant growth in activity at both the UK and
US sites means that new or additional premises may soon be
required. An evaluation of options is now underway and investment
decisions will be made in line with expected customer demand.
As the business has grown in size and complexity, with multiple
sites and evolving customer needs, new business software is now
required. A new SAGE 200 Enterprise Resource Planning (ERP) system
is being installed and phased-in to business processes. This will
achieve efficiencies in management and administration by
integrating day-to-day processes, including inventory and order
management, accounting, human resources, and customer relationship
management.
Intellectual Property
The IP committee met quarterly to review the IP portfolio.
During the year, new UK and international patent applications were
submitted for a further-enhanced Hardide coating and its new
applications, particularly in power generation. This is currently
under examination by the UK's Intellectual Property Office.
Japanese and Russian Federation patents were granted for the
coating of industrial diamonds. Research continues into the
development of new coating variants and applications with the
objective of strengthening and widening the Group's IP portfolio.
Good progress was made during the year on development of a new
coating variant; also with patent potential.
STRATEGY
Hardide's coatings are technologically advanced and often convey
considerable commercial advantage by helping to solve complex and
difficult engineering problems. Our coatings provide a unique
combination of advantageous properties and would enhance the
product ranges of many other surface technology companies. With
high operational gearing, the Group is working towards
significantly increasing its revenue, which means maximising gross
profit. The Board believes that a strong upward trajectory in gross
profit will be seen externally as a clear indicator of the Group's
value.
As demonstrated by the successful fundraising during the year,
the Board maintains its positive view of Hardide's potential for
growth. Accordingly, the Group 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
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 market sectors.
We see substantial new opportunities in our key sectors and are
working to convert these into sales. The precision engineering
sector continues to develop with multiple new applications
expected.
Employees and shareholders
In addition to expressing its thanks and appreciation to our
loyal and dedicated staff, the Board thanks Jan Ward, who resigned
from the Board during the year, for her contribution. We welcome
our new non-executive directors: Charles Irving-Swift and Tim
Rice.
The majority of our shareholders have continued to support the
Group over many years. They have shared the Board's vision and we
hope that they now feel justified in doing so as sales revenue
accelerates and significant sales to the aerospace sector are in
prospect.
OUTLOOK
The Board is confident of further improvements in performance in
FY19 as we progress towards becoming EBITDA-positive. The increase
in oil and gas activity, the strong sales pipeline in the UK and
North America and the progress being made in test programmes for
new applications support this position.
We continue to nurture our long-term relationships with Airbus
and Leonardo Helicopters and are confident that soon we will see
the benefit to the Group.
Robert Goddard Philip Kirkham
Chairman CEO
7 December 2018 7 December 2018
CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2018
2018 2017
GBP000 GBP000
Revenue 4,613 3,241
Cost of sales (2,201) (1,651)
Gross profit 2,412 1,590
--------------------------------------- -------- --------
Administrative expenses (2,711) (2,325)
Depreciation and amortisation (373) (503)
Exceptional item:
Provision for grant repayment (246) -
Operating (loss) (918) (1,238)
--------------------------------------- -------- --------
Finance income 8 4
Finance costs (3) (1)
(Loss) on ordinary activities before
taxation (913) (1,235)
--------------------------------------- -------- --------
Taxation 48 139
(Loss) on ordinary activities after
taxation (865) (1,096)
--------------------------------------- -------- --------
(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 2018
2018 2017
GBP000 GBP000
Assets
Non-current assets
Goodwill 69 69
Intangible assets 25 1
Property, plant & equipment 2,033 1,490
---------------------------------------- --------- ---------
Total non-current assets 2,127 1,560
---------------------------------------- --------- ---------
Current assets
Inventories 286 160
Trade and other receivables 749 622
Other current financial assets 265 242
Cash and cash equivalents 3,302 1,212
---------------------------------------- --------- ---------
Total current assets 4,602 2,236
---------------------------------------- --------- ---------
Total assets 6,729 3,796
---------------------------------------- --------- ---------
Liabilities
Current liabilities
Trade and other payables 1,336 488
Financial liabilities 10 5
Provisions
Provision for grant repayment 246 -
Total current liabilities 1,592 493
---------------------------------------- --------- ---------
Net current assets 3,010 1,743
---------------------------------------- --------- ---------
Non-current liabilities
Financial liabilities 58 12
Total non-current liabilities 58 12
---------------------------------------- --------- ---------
Total liabilities 1,650 505
---------------------------------------- --------- ---------
Net assets 5,079 3,291
---------------------------------------- --------- ---------
Equity attributable to equity holders
of the parent
Share capital 3,405 3,242
Share premium 12,676 10,306
Retained earnings (10,925) (10,060)
Share-based payments reserve 308 235
Translation reserve (385) (432)
---------------------------------------- --------- ---------
Total equity 5,079 3,291
---------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2018
2018 2017
GBP000 GBP000
Cash flows from operating activities
Operating (loss) (918) (1,238)
Impairment of intangibles 2 1
Depreciation 371 503
Share option charge 73 51
(Increase) in inventories (124) (100)
(Increase) in receivables (149) (91)
Increase in payables 793 78
Increase in provisions 246 -
Cash generated from / (used in) operations 294 (796)
----------------------------------------------- -------- --------
Finance income 8 4
Finance costs (3) (1)
Tax received 93 207
Net cash generated from / (used in) operating
activities 392 (586)
----------------------------------------------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (887) (152)
Net cash used in investing activities (887) (152)
----------------------------------------------- -------- --------
Cash flows from financing activities
Net proceeds from issue of ordinary share 2,533 -
capital
Finance lease repayment (3) (17)
New loans raised 55 -
Net cash generated from / (used in) financing
activities 2,585 (17)
----------------------------------------------- -------- --------
Net increase / (decrease) in cash and
cash equivalents 2,090 (755)
----------------------------------------------- -------- --------
Cash and cash equivalents at the beginning
of the year 1,212 1,967
----------------------------------------------- -------- --------
Cash and cash equivalents at the end
of the year 3,302 1,212
----------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2018
Share Share Share-based Foreign Retained Total
Capital Premium Payments Translation Earnings Equity
---------------------- --------- --------- ------------ ------------- ---------- --------
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
---------------------- --------- --------- ------------ ------------- ---------- --------
At 1 October 2017 3,242 10,306 235 (432) (10,060) 3,291
---------------------- --------- --------- ------------ ------------- ---------- --------
Issue of new shares 163 2,370 - - - 2,533
Share options - - 73 - - 73
Exchange translation - - - 47 - 47
Loss for the year - - - - (865) (865)
---------------------- --------- --------- ------------ ------------- ---------- --------
At 30 September
2018 3,405 12,676 308 (385) (10,925) 5,079
---------------------- --------- --------- ------------ ------------- ---------- --------
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END
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