Preliminary Results

RNS Number : 3852X

Hardide PLC

06 December 2010

 



Press Release

06 December 2010

Hardide plc

("Hardide" or "the Group")

Preliminary results for the year ended 30 September 2010

Hardide plc (AIM: HDD), the provider of unique metal surface engineering technology, announces its preliminary results for the twelve months ended 30 September 2010.

Financial Highlights

·	Group turnover increased 44% to £1.74 million (2009: £1.21 million)
·	Loss before tax and exceptional items decreased 74% to £381k (2009: loss £1.46 million)
·	Group EBITDA loss decreased 87% to £141k (2009: loss £1.12 million). Group EBITDA positive in H2 2010.
·	UK operation, Hardide Coatings Limited, posts maiden full-year pre-tax profit of £378k (2009: loss £324k)
·	Loss per share 0.06p (2009: loss 0.6p)
·	Cost of sales reduced by 24% on a 44% increase in turnover
·	Overheads reduced by 30% compared to 2009

 

Operational Highlights

·	AS9100 aerospace standard certification achieved.  This certifies Hardide as a recognised aerospace manufacturing supplier.
·	Major US and European valve manufacturers launched new Hardide coated applications.   These applications are set to expand and further applications are in development.
·	Testing of new applications underway in several pre-qualified sectors including plastics extrusion equipment, new pump applications, Formula One parts and mud motors for oil and gas drilling services
·	IP and Risk Management board sub-committees formed
·	New website launched

Post-Period Events

·	Houston-based business development representative appointed to accelerate US revenue growth
·	Hugh Smith to resign as non-executive director at AGM in February 2011
·	Bruce Robinson appointed as non-executive director with effect from AGM in February 2011

Commenting on the results, Dr Graham Hine, Chief Executive of Hardide plc, said:  "The directors are pleased to report an improved performance by Hardide plc for the year ending 30 September 2010.  The return of demand from key customers together with new business gains, stabilised costs and minimal capital expenditure has enabled the Group to exceed its earlier internal forecasts.  The UK business, Hardide Coatings Limited, has achieved its first full year of profitability and the Group was EBITDA positive in the second half of the year.

"Whilst Hardide's reliance on a few major customers is reducing, the directors remain cautious and continue to control costs and manage cash carefully.  We are optimistic that we should be able to meet our internal expectations for the current financial year, which envisage further improvements in trading."

For further information:

Hardide plc
Dr Graham Hine, Chief Executive Jackie Robinson, Corporate Communications	Tel: [phone] [e-mail] www.hardide.com

Seymour Pierce Limited Guy Peters	Tel: [phone]
	[e-mail] www.seymourpierce.com

Notes to editors:

Hardide manufactures and applies tungsten carbide-based coatings to a wide range of engineering components.  The Group's patented technology provides a unique combination of ultra-hardness, toughness, low friction and chemical resistance in one coating.  When applied to components, the technology is proven to offer dramatic cost savings through reduced downtime and extended part life.  Customers include leading companies operating in oil and gas exploration and production, valve and pump manufacturing, general engineering and aerospace.  

CHAIRMAN'S STATEMENT

I am pleased to report an improved performance by Hardide plc in a year that continued to present considerable challenges.  The resumption in demand from key customers together with new business, reduced costs and minimal capital expenditure has enabled the Group to exceed management forecasts across all of our financial metrics.

Full year sales to 30 September 2010 rose 44% to £1.74 million from £1.21 million in 2009.  Group EBITDA loss decreased 87% to £141k (2009: loss £1.12 million) with the Group EBITDA positive in the second half of the year.  Group PBT for the year narrowed to a loss before tax and exceptional items of £381k, a 74% reduction from a loss of £1.46 million in 2009.

There has been a general recovery in demand from those of our customers who service the oil and gas drilling tool and flow control markets, with H2 2010 being markedly stronger than H1 2010.  Customer restocking that was in evidence during H1 2010 has stabilised and been replaced with broadly consistent demand.  To assist the forecasting of potential future destocking situations, the board is continually monitoring various indicators to help predict sudden fluctuations in demand.

The improvement in demand in key sectors has been supported by a stabilised cost base, ongoing operational efficiencies and negligible capital expenditure. The full year effect of last year's restructuring and cost reduction programme together with further savings has led to a 30% reduction in overheads compared with 2009. Strong revenue growth coupled with tight control on costs and capex has led to a reduction in our cash outflow compared with 2009. The Group's ability to grow within its current markets was not restricted by these controls. 

It is pleasing to report that Hardide Coatings Limited achieved its first full year of profitability with a pre-tax profit of £378k compared with a loss last year of £324k.  The UK business has demonstrated that it can be profitable at the current, stabilised cost base.  We are beginning to build a more diversified customer base, with new customers won across all key sectors and new products coming to market, such as Hardide-A for hard chrome replacement and a coating for titanium. Our strategic development projects of coatings for aerospace and industrial diamonds are also progressing steadily.

The Houston facility remains hibernated with all plant and equipment in-situ.  This will remain so until demand is such that it is economically viable to resume manufacturing in the US.  The building has been sub-let on terms that will enable a managed re-entry; although further expenditure would be required for the facility to operate profitably as an independent business.

The US hibernation contributed significantly to a 24% reduction in the cost of sales on the 44% increased turnover fulfilled wholly from the UK.  Volume through Houston was such that it had always operated sub-optimally, and greater economies of scale are now being achieved by servicing all US business from the UK. The US is a very important market for the growth of the Group and business development continues apace with notable account gains and test programmes with US based customers across all of our key sectors.  The Group is committed to re-opening the US operation when it is commercially and economically prudent to do so. 

In line with the new edition of the UK Corporate Governance Code, the board has tightened and streamlined several aspects of its operation, without any increase in bureaucracy or impediment to decision making. The board also established intellectual property and risk management sub-committees to manage these key aspects of the Group's business.

On the whole, the board is pleased with the results for the year.  Whilst the economic climate overall has not yet materially improved in all the sectors in which the Group operates, there are indications that demand will continue to return and then grow in these areas.  Meanwhile, the business has clear strategic goals, is operationally and financially fitter, and sharply focused on profitable revenue growth.  The board is optimistic in its outlook for the coming year.

Over the past year, the company has had loyal support from its staff and constructive interest from a number of key shareholders.  The board owes its sincere thanks to both.

Finally, Hugh Smith, our longest serving non-executive director has decided to step down from the board at the next AGM.  We are all enormously grateful to Hugh for his unstinting and constructive work on behalf of the company, particularly on the two main board sub-committees.  Hugh remains an avid supporter of Hardide and intends to retain his shareholding for the foreseeable future.  We shall miss Hugh's wise counsel but wish him and his family well and hope to see him at future AGMs.

Replacing Hugh as a non-executive director and member of both the audit committee and the combined remuneration and nomination committee will be Bruce Robinson (50).  Bruce brings extensive experience of growing technology-based businesses and of the international oil and gas industry.  He spent his early career as an engineer in oilfield services before becoming a founder shareholder and General Manager of Phoenix Petroleum Services, an engineering product and service company that was sold to Schlumberger.  He has since started, run and assisted a wide range of innovative companies developing and exploiting technologies in various industry sectors.

Robert Goddard

Chairman

03 December 2010

CHIEF EXECUTIVE OFFICER'S REVIEW

As we entered the 2010 financial year there was still a high level of uncertainty about the economy and the effect it would continue to have on our business.  We had begun to see signs of stability returning to key customers' markets but there was little visibility of the timing and level of recovery. Towards the end of the half year we began to see a consistently upward trend in demand, particularly from oil and gas, and then valve and other general industrial customers. At that point it was difficult to distinguish sustainable demand from the effects of restocking. However, the second half of the year saw a meaningful return of demand together with new customer gains.  I am pleased to report that this, together with cost and capex controls, has resulted in the first full year of profitability for the UK operating company and the first half year of positive EBITDA for the Group.

In spite of the turbulence over the last 18 months, we have retained experienced people across all parts of the business and this has enabled us to increase activity seamlessly as demand has resumed.  The engineering, operations and technical teams have worked on process improvements, loading capacities and coating methodologies, which all supported the move to profitability for the UK business.

UK: Hardide Coatings Limited

The UK operating company, Hardide Coatings Limited, has achieved full year profitability for the first time with PBT of £378k (2009: loss £324k) on revenue of £1.74 million (2009: £1.09 million).  Sales to oil and gas, valve and general industrial customers were all higher than in 2009.  Gas costs rose significantly during the year but were absorbed without affecting gross margin.

The UK facility is processing all sales from the US with no detrimental effect on lead time.  We have gained new customers in the US during the year and since year-end have contracted an experienced and well-connected representative in the US to pursue new business.

We were proud to achieve AS9100 quality system approval in February 2010.  AS9100 demonstrates the presence of a robust and consistent aerospace quality system and augments the ISO9001 standard by focusing on the more rigorous requirements of the aerospace industry.  Many original equipment manufacturers will only work with AS9100-registered suppliers and this accreditation demonstrates our commitment to quality and to the aerospace industry.

In July 2010, Robin Gillham joined the management team as Business Development Manager focusing on flow control. Robin returned to Hardide having previously worked for the company for four years to 2008 as Sales Manager. He is a valuable addition to the management team having almost 20 years of engineering and technical sales experience and a thorough understanding of the Hardide technology.

Throughout the year, the engineering team and assembly department has steadily improved production efficiency.  One innovation is the design of small chambers that work within the main coating bell but use less consumable material, thereby enabling more efficient coating of smaller batches or smaller parts.  The team has also been looking at ways of coating longer, internal surfaces. Success here will open up further opportunities in new and existing markets.

Across the company, a greater emphasis is being placed on enhancing personal performance and KPIs are being drawn up for all functions.

All health, safety and environmental matters are important to the Group and we recorded no lost time incidents during the year.

Markets

The management team, supported by the board, completed an in-depth strategic review of markets and applications for the Hardide technology in H1 2010.  The process resulted in a comprehensive plan to create a profitable and diversified business.  Throughout the year, progress has been made with diversifying our customer base.  We are pleased to have secured business with several significant flow control, and oil and gas industry customers.  We are particularly excited about the launch of a new Hardide-coated application by a major US valve manufacturer. The customer's product line has proven successful and is set to expand in 2011 with a second line under development.  In Europe, another Hardide-coated application has been developed for a major valve manufacturer requiring a hard-wearing, low-friction coating for subsea deployment.  One of the issues that we continue to face is the reluctance of our customers to allow us to disclose their names or their use of the coating.  We understand that this is due to the high value that they place on the competitive advantage that the coating provides. 

Technology, Research & Development

Headed by Dr Yuri Zhuk, Technical Director, the technical team has made a strong contribution to our diversification strategy over the year providing valuable analysis of the viability of potential applications and leading test programmes for several significant new applications.  These have included new types of pumps, equipment for plastics extrusion, Formula 1 automotive parts and mud motors for the oil and gas industry. 

Tests were also carried out to provide additional information on the bond strength, porosity and fatigue performance of the coatings.  Independent comparative tests were made of Hardide‑A and two other coatings as replacement materials for hard chrome plating; a material widely used in aerospace manufacturing and which is being phased out for environmental reasons.  The results of all the tests have been positive, with the Hardide coatings demonstrating that they are unique in the level and combination of valuable properties that they provide.

An IP sub-committee was formed to optimise the Hardide IP protection within reasonable cost parameters.  Several national patents, which are not expected to be used, were abandoned, which also resulted in cost savings.  In addition to cost rationalisation, this committee also considers how the IPR portfolio should be protected and makes recommendations to the board accordingly.

Both the aerospace and diamond coating projects continue to make steady progress with our customer partners. 

Staff

Our staff have been extremely supportive and hard working over the past two difficult years.  Most of them have not received a salary increase but, as a result of better than expected results, I am delighted that we have been able to award a modest bonus to all employees who have been with us over the course of the last year.

Outlook

At this early stage of the 2010/11 year, we are encouraged by the improving conditions in our customers' core markets.  However economic uncertainties remain and our target is to improve on 2009/10 performance and show strong revenue growth and positive cash generation.  We have a good development pipeline and our strategic projects are progressing to plan.  All projects under development have been benchmarked against our strategic goals and pre-qualified.  This helps provide confidence that a good proportion will be converted to sales.  Furthermore, our more diverse customer base means that we are becoming less vulnerable to a downturn in demand from one customer or in one sector.  These factors support the view that we can meet our expectations for a further improvement in trading over the coming year. 

Our employees, customers and shareholders continue to demonstrate their confidence in the technology and the business and I thank them for their commitment.

Dr Graham Hine

Chief Executive Officer

03 December 2010

FINANCIAL REVIEW

The first quarter of the year started quietly as Hardide continued to feel the effects of reduced demand and inventory cuts by our customers which hit the Group so savagely in 2008/09.  However there were early signs of growth as small orders started being placed, and revenue has improved quarter on quarter through to the end of the year.

While much of the revenue growth came from UK and European customers, there was also growth from US customers whose processing was successfully absorbed into the UK operation upon the hibernation of our Houston facility.  The 44% increase in revenue was achieved within the structure implemented in 2009.  However, we did take the opportunity in the second half of the year to strengthen specific areas of the company, notably technical and sales.  The UK operation was hit by some increases in raw material costs during the second half, however gross margins were maintained as these were offset by economies of scale.  The cost increases should be partially mitigated going forward as new supply contracts kick in.

The effect of increased revenues and a stable cost structure meant that the Group's loss after tax fell from £1,789k in 2009 to £474k in 2010, and EBITDA loss fell from £1,122k in 2009 to £141k in 2010.

The UK operation, Hardide Coatings Limited, recorded a pre-tax profit of £378k against a loss of £324k last year.  Costs of our US subsidiary Hardide Coatings Inc amounted to £191k (2009: £834k) before including a further impairment charge of £126k against the fixed assets there.  The decision was taken in May 2010 to sublease the facility in Houston, however all our equipment remains securely stored there and will be able to be reinstated quickly.  Further cost reductions should be realised in the current year.  Hardide plc recorded a loss of £535k on a consolidated basis (2009: £267k loss) before accounting for a provision against the intercompany loan with Hardide Coatings Inc of £300k.  The increased loss is due to reduced credits for exchange differences of £66k (2009: £377k), if these are stripped out the costs of plc fell from £643k in 2009 to £601k.

As a result of rising revenues and the actions taken on costs last year, cash outflow from operating activities fell to £264k from £1,358k in 2009.  Cash balance at the year end was £536k (2009: £932k).

These results demonstrate that the Group, by taking the actions that it did in 2009, has successfully reduced its cost base without impairing its ability to deal with significant increases in revenue.    

Peter Davenport

Finance Director

03 December 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2010

		2010 £000	2009 £000
Revenue		1,735	1,209
Cost of sales		(649)	(854)
Gross profit		1,086	355
Administrative expenses		(1,293)	(1,854)
Exchange difference on intercompany loan		66	377
Impairment of intangibles		(2)	(2)
Depreciation and amortisation		(134)	(330)
Exceptional item: Impairment of fixed assets		(126)	(364)
Operating loss		(403)	(1,818)
Finance income		2	14
Finance costs		(106)	(13)
Disposal of fixed asset		-	(7)
Loss on ordinary activities before taxation		(507)	(1,824)
Taxation		33	35
Loss on ordinary activities after taxation		(474)	(1,789)
Loss per share: Basic		(0.06)p	(0.6)p
Loss per share: Diluted		(0.04)p	(0.2)p

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 September 2010

		2010 £000	2009 £000
Assets
Non-current assets
Goodwill		69	69
Intangible assets		-	2
Property, plant & equipment		569	796
Total non-current assets		638	867
Current assets
Inventories		26	26
Trade and other receivables		337	208
Other current financial assets		62	101
Cash and cash equivalents		536	932
Total current assets		961	1,267
Total assets		1,599	2,134
Liabilities
Current liabilities
Trade and other payables		258	259
Financial liabilities		55	118
Total current liabilities		313	377
Net current assets		648	890
Non-current liabilities
Financial liabilities		801	748
Total non-current liabilities		801	748
Total liabilities		1,114	1,125
Net assets		485	1,009
Equity attributable to equity holders of the parent
Share capital		2,541	2,541
Share premium		5,259	5,259
Retained earnings		(6,955)	(6,481)
Share-based payments reserve		269	274
Translation reserve		(629)	(584)
Total equity		485	1,009

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 September 2010

		2010 £000	2009 £000
Cash flows from operating activities
Operating loss		(403)	(1,818)
Impairment of intangibles		2	2
Depreciation		134	330
Impairment of fixed assets		126	364
Share option charge		2	64
Decrease in inventories		-	18
Decrease in receivables		(89)	181
Decrease in payables		(1)	(97)
Exchange rate variance		(66)	(377)
Cash generated from operations		(295)	(1,333)
Finance income		2	14
Finance costs		(10)	(75)
Tax received / (paid)		39	36
Net cash generated from operating activities		(264)	(1,358)
Cash flows from investing activities
Purchase of property, plant and equipment		(25)	(30)
Net cash used in investing activities		(25)	(30)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		-	802
Finance lease inception		-	-
Finance lease repayment		(107)	(110)
New loans raised		-	633
Net cash used in financing activities		(107)	1,325
Net increase / (decrease) in cash and cash equivalents		(396)	(63)
Cash and cash equivalents at the beginning of the year		932	995
Cash and cash equivalents at the end of the year		536	932

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

for the year ended 30 September 2010

		2010 £000	2009 £000
Exchange differences on translation of foreign operations		(45)	(279)
Net income recognised directly in equity		(45)	(279)
Loss for the year		(474)	(1,789)
Total recognised income and expense for the year		(519)	(2,068)

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.

The consolidated statement of financial position at 30 September 2010, and the consolidated statement of comprehensive income and consolidated statement of cash flows for the year then ended have been extracted from the Group's 2010 statutory financial statements upon which the auditors have reported.  The auditor's report is unqualified and does not include any statement under Sections 498 (2) (accounting records or returns inadequate or accounts not agreeing with records) or 498 (3) (failure to obtain necessary information and explanations) of the Companies Act 2006.  Those financial statements have not yet been delivered to the

Registrar of Companies.

The auditors have made a matter of emphasis in their audit report relating to uncertainty regarding going concern should the Group not fulfil its current plan for revenues, costs and cashflows.  These matters indicate the existence of a material uncertainty which may cast significant doubt over the Company's ability to continue as a going concern. 

 

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