Preliminary Results

RNS Number : 6918T

Hardide PLC

12 December 2011

 



Press Release

12 December 2011

Hardide plc

("Hardide" or "the Group")

Preliminary results for the year ended 30 September 2011

Hardide plc (AIM: HDD), the provider of unique metal surface engineering technology, announces its preliminary results for the twelve months ended 30 September 2011.

Financial Overview

·	Group turnover increased 12% to £1.95 million (2010: £1.74 million)
·	Gross profit increased by 11% to £1.21k (2010: £1.09k)
·	Group EBITDA loss increased to £225k (2010: loss £141k). Group EBITDA positive in H2 2011
·	Group loss before tax £446k (2010: loss before tax and exceptionals £381k)
·	UK operation, Hardide Coatings Limited, posts full-year pre-tax profit of £409k (2010:  £378k)
·	US sales increased 31% to £373k (2010: £284k)
·	Loss per share 0.05p (2010: loss 0.06p)

Business Overview

·	Investment in business development resources delivered increased sales across all key sectors
·	Dependency on major customer reduced by 6% after 33% increase in sales to other customers
·	US $3.65 million seven-year exclusivity deal announced with US blue chip manufacturer of high-pressure fluid handling equipment
·	Airbus test programme delivers encouraging results with indications of a wider range of aerospace applications for Hardide beyond merely as a replacement for hard chrome
·	Houston-based business development representative appointed to accelerate US revenue growth
·	Bruce Robinson appointed as non-executive director
·	Appointment of Robert Goddard as executive chairman and Bruce Robinson as chief operating officer on interim basis (following resignation of Dr Graham Hine as CEO) to accelerate sales growth and production efficiency.

Post-Period Events

·	Successful raising of £750,000 gross new funds from existing and new investors.  The Group intends to use the net proceeds to facilitate near-term sales growth and undertake modest capital expenditure.

Commenting on the results, Robert Goddard, executive chairman of Hardide plc, said:  "Hardide has grown revenues in each of its key sectors in the year ending 30 September 2011.  The UK business, Hardide Coatings Limited has achieved profitability for the second consecutive year and the Group was EBITDA positive in H2 2011, despite deliberate increases in business development expenses.

"Sales in the first few months of the current year show a continuing improvement across all of our markets and indications from customers are reassuring.  The directors are optimistic that growth will be sustained over the coming year."

For further information:

Hardide plc
Robert Goddard, Executive Chairman Jackie Robinson, Communications Manager	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. 

EXECUTIVE CHAIRMAN'S STATEMENT AND REVIEW

OVERVIEW

Financial

Group revenue for the year ended 30 September 2011 increased 12% to £1.95 million (2010: £1.74 million) with the Group EBITDA positive in the second half of the year.  Severance costs combined with planned increased expenditure in UK and US business development account for a fall back in full year Group EBITDA to a loss of £225k from £141k in 2010. The prior year benefited from a £66k credit due to exchange rate movements.  Group loss before tax for the year fell to £446k from a loss of £381k (before exceptionals but including the exchange rate credit) in 2010.

Cost of sales increased by 13% to £733k from £649k in 2010; a good result in the light of a substantial 36% increase in the cost of gas, the most heavily used raw material in the production process.  Gross margin percentage declined by one point to 62% and gross profit rose 11% to £1.21 million (2010: £1.09 million). 

Business development and severance costs largely accounted for a 12% increase in overheads to £1.44 million (2010: £1.29 million).  Despite this rise, an operating profit of £40k was achieved in H2 2011, after accounting for severance costs; compared with a loss of £380k in H1 2011.  Over the full year, the Group posted an operating loss of £340k (2010: loss of £277k before exceptionals). 

BUSINESS REVIEW

Customers and Markets

After a slow start to the first half of the year, there was a broad recovery in demand at the end of the period and sales rose across all of our key sectors.  Demand continued to rise in H2 2011 and this trend has continued into the start of the new financial year.  The drivers behind this year's growth have been different from 2010 in so far as we have observed no evidence of restocking.  Looking forward, we expect our markets to continue to grow, although we remain alert to any sudden fall back in demand.

Customer and sector diversification remain a key strategic goal for the Group.  Progress was made during the year and the proportion of sales to our major customer was reduced by six percentage points after a 33% increase in sales to other customers.  Sales to US customers rose 31%, comprising a healthy mix of new and repeat business, primarily from blue chip customers in flow control, and oil and gas.  In the US, the Houston manufacturing plant remains in hibernation with the facility partly sub-leased, but the equipment remains moth-balled in-situ and will remain so until it is prudent to resume manufacture there.

In May 2011, the Group signed a seven-year exclusivity agreement with a leading US based manufacturer of high pressure, fluid handling equipment.  This is valued at US$3.65 million over the term.

The downhole and drilling sector of the oil and gas exploration and production (E&P) industry is currently Hardide's main market.  Activity is expected to continue to grow steadily in complex and difficult environments such as shale, high-pressure and sour conditions.  These are operating circumstances in which the Hardide technology excels.  This sector remains a key target for growth and increasing customer diversity within it will reduce our vulnerability to any fall back in demand from any single customer.

Sales in flow control have increased steadily during the year; with a combination of new and repeat orders, particularly for metal-seated ball valves and severe service applications.  The coating has been used by a global manufacturer of severe service valves in several high pressure and abrasive applications in the power generation and refining industries where other hard coatings have failed.  The response from the field has been good and the parts have either outlasted the previous solutions or are still in service.  The coating has also been tested and approved by another global severe service valve manufacturer as a replacement for hard chrome, a coating which is to be phased out for environmental reasons. 

Advanced engineering has been another growth area over the year.  We are working with prospective customers to qualify Hardide for use on parts ranging from wear rings, extrusion dies and sleeves to telemetry housing, cone rings and spherical bearings. 

Directors and Management

Hugh Smith, our longest serving non-executive director stepped down from the board at the AGM in February 2011.  He left with our sincere thanks for his insightful counsel over the years and our best wishes for his retirement.  Bruce Robinson replaced Hugh as a non-executive director and member of both the audit committee and the combined remuneration and nomination committees.  Bruce has brought extensive experience of growing technology-based businesses and of the international oil and gas industry.

Dr Graham Hine, former chief executive officer, resigned in August 2010.  His role has been filled on an interim basis by me and Bruce Robinson working together as executive chairman and chief operating officer respectively.  A specification for a replacement has been created and a search is about to begin.  Meanwhile, Bruce and I are focused on maximising revenue potential while implementing production and operational efficiencies, as well as working with the board to create a new growth strategy.

There were 12 monthly board meetings in the year, with full attendance by directors at each.   In addition there were five meetings of the combined Remuneration and Nominations Committee, four of the IPR Subcommittee, two of the Audit Committee and one of the Risk Subcommittee.

UK: Hardide Coatings Limited

With its stabilised cost base, the UK operating company, Hardide Coatings Limited achieved full year profitability, with a PBT of £409k (2010: £378k) on revenue of £1.95 million (2010: £1.74 million).  Gas and other raw material costs rose significantly during the year but were absorbed with only a slight reduction in the percentage gross margin. 

The UK facility continues to process all sales from the US with no detrimental effect on lead time.  We have extended the contract with our US business development representative to manage existing accounts as well as to pursue new business.

I am pleased to report that the Group secured accreditation of the latest AS9100 Rev. C quality system for aerospace, while also retaining ISO9001 during the year.   AS9100 Rev C requires even more stringent quality systems and many companies are finding it difficult to secure the latest approval, so this is a positive achievement. I am also pleased to report that there were no lost time incidents recorded during the year.  Credit is due to Hardide's operations team for furthering the Group's high standards in these vital areas.

While currently fit-for-purpose, more comprehensive human resource systems will become necessary as Hardide grows.  Further training and better resourced personal development systems will be implemented progressively.

Technology, Research & Development

The commercial, technical, engineering and production teams combine to provide invaluable expertise that enables us to make increasingly well-informed decisions on the viability of a wide range of potential applications.  Recent examples include applications from manufacturers as diverse as those of drinks cartons, kitchen worktops and helicopters.  This doesn't include all the more mainstream enquiries from our key sectors.

In addition, we have ongoing a number of carefully-selected medium and long term test programmes.  These are being progressed alongside our day-to-day business and short term development programmes. The Airbus test programme has delivered encouraging results and indicates there could be a wider range of applications beyond using the Hardide coating exclusively as a replacement for hard chrome.  Tests are either underway or are about to begin with two other major aerospace manufacturers.

The coating of diamonds remains a longer term development project and continues with our customer partners.

Other medium to long term test programmes are ongoing, with a diverse range of applications; including steam turbine blades, metal cutting tools, silicon production equipment, bearing ring seals, textile machinery parts, rotors and impellers.

A review of the work of the Moscow research laboratory was carried out during the year and the decision taken by the board to continue the use of the facility for certain development projects and for fundamental research into new coating variants.

Outlook

Sales in the first few months of the current year show a continuing improvement across all of our markets and indications from customers are reassuring, despite uncertainty in the general economy.  Nonetheless, the Group is alert to the possibility of a sudden fall back in demand from its large customers, although we have no indication that this is going to occur in the foreseeable future.

The management team and directors are focused on generating demand and diversifying the customer base while managing capacity to meet that demand.  We are confident of the increasing strength of our pipeline, in the strategic projects that we are pursuing, and that implementation of the Group's strategy will create and sustain further trading improvements and growth over the coming year.

We are fortunate to enjoy the continued confidence and support of our employees, customers and shareholders and I thank them for their commitment.

Robert Goddard

Executive Chairman

09 December 2011

FINANCIAL REVIEW

While the first half of the year started promisingly from a revenue point of view, the momentum was not maintained and a weak winter period meant half-year sales of £793k were disappointing.  However sales picked up during the spring and remained so to the end of the year, with revenues in the second half year of £1,154k, an improvement of £361k / 45% over the first half.  Revenue for the full year of £1,947k was £212k / 12% ahead of last year.  This has been driven by increased revenue from all sectors, including a 31% increase in business from North America.

Costs of sales increased by £84k, up 13% from £649k to £733k.  While we were hit by some increases in the cost of raw materials compared with 2010, we also increased our production headcount as a result of increased throughput.  However, these were offset by economies of scale such that the cost of sales as a percentage of sales increased by only 1%.  We are now in the first year of a three year supply agreement for our most heavily used (and most expensive) gas, meaning further cost increases should be more limited.  Gross profit increased by £128k to £1,214k from £1,086k last year.

Administrative and interest costs in Hardide Coatings Limited rose by £105k to £805k due to deliberate investment in both UK and US sales capability, giving a pre-tax profit for the operating subsidiary of £409k (2010: £378k).

Hardide PLC's loss increased from £535k to £684k.  Hardide PLC includes the costs of executive and non-executive directors (although a proportion of the former are recharged to the operating subsidiary), all research and development costs including those of the Group's Moscow laboratory, intellectual property costs, the legal and professional costs associated with listing, and the interest charges associated with the convertible loan notes.  There were additional IP costs in the year as one of our patents moved from a European patent to being registered in individual countries, an increase in R&D expenditure, plus costs of the resignation of the Chief Executive Officer in August 2011, not only pay in lieu of notice but also the additional costs of Robert Goddard and Bruce Robinson for their interim executive roles. 

The costs of the Group's hibernated US subsidiary fell to £106k from £191k before exceptional items last year.

The Group's operating loss of £340k was broadly flat compared with 2010 taking into account the exceptional item and exchange rate credit in the prior year.  However, it was a year of two very different halves, with a much better performance in the second. 

Net decrease in cash during the year amounted to £244k compared with a decrease of £396k in 2010, but again the second half performance (£23k outflow) was much stronger than the first (£221k outflow).  The Group has now paid off all of its finance leases, with the last payment being in August.  However, payments of interest on loan notes have now started in their place.  Creditors at the year-end were high relative to the rest of the year for a number of one-off reasons, principally a backlog of invoices from our gas supplier.

Peter Davenport

Finance Director

09 December 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2011

	Note	2011 £000	2010 £000
Revenue	2	1,947	1,735
Cost of sales		(733)	(649)
Gross profit		1,214	1,086
Administrative expenses		(1,439)	(1,293)
Exchange difference on intercompany loan		-	66
Impairment of intangibles		-	(2)
Depreciation and amortisation		(115)	(134)
Exceptional item: Impairment of fixed assets		-	(126)
Operating loss	3	(340)	(403)
Finance income	4	-	2
Finance costs	5	(106)	(106)
Disposal of fixed asset		-	-
Loss on ordinary activities before taxation		(446)	(507)
Taxation	7	65	33
Loss on ordinary activities after taxation		(381)	(474)
Loss per share: Basic	8	(0.05)p	(0.06)p
Loss per share: Diluted	8	(0.03)p	(0.04)p

All operations are continuing.

The accompanying accounting policies and notes form an integral part of these financial statements.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 September 2011

	Note	2011 £000	2010 £000
Assets
Non-current assets
Goodwill	9	69	69
Intangible assets	10	-	-
Property, plant & equipment	11	478	569
Total non-current assets		547	638
Current assets
Inventories	12	24	26
Trade and other receivables	12	406	337
Other current financial assets	12	102	62
Cash and cash equivalents	12	292	536
Total current assets		824	961
Total assets		1,371	1,599
Liabilities
Current liabilities
Trade and other payables	13	370	258
Financial liabilities	13	-	55
Total current liabilities		370	313
Net current assets		454	648
Non-current liabilities
Financial liabilities	14	895	801
Total non-current liabilities		895	801
Total liabilities		1,265	1,114
Net assets		106	485
Equity attributable to equity holders of the parent
Share capital	16	2,541	2,541
Share premium	17	5,259	5,259
Retained earnings	17	(7,310)	(6,955)
Share-based payments reserve	17	248	269
Translation reserve	17	(632)	(629)
Total equity		106	485

The financial statements were approved and authorised for issue by the Board on 09 December 2011.

Robert Goddard

Director

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 September 2011

		2011 £000	2010 £000
Cash flows from operating activities
Operating loss		(340)	(403)
Impairment of intangibles		-	2
Depreciation		115	134
Impairment of fixed assets		-	126
Share option charge		5	2
Decrease in inventories		2	-
Increase in receivables		(109)	(89)
Decrease in payables		112	(1)
Exchange rate variance		-	(66)
Cash generated from operations		(215)	(295)
Finance income		-	2
Finance costs		(10)	(10)
Tax received / (paid)		48	39
Net cash generated from operating activities		(177)	(264)
Cash flows from investing activities
Purchase of property, plant and equipment		(21)	(25)
Net cash used in investing activities		(21)	(25)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		-	-
Finance lease inception		-	-
Finance lease repayment		(46)	(107)
New loans raised		-	-
Net cash used in financing activities		(46)	(107)
Net increase / (decrease) in cash and cash equivalents		(244)	(396)
Cash and cash equivalents at the beginning of the year		536	932
Cash and cash equivalents at the end of the year		292	536

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

for the year ended 30 September 2011

		2011 £000	2010 £000
Cancellation of share options previously charged to profit		26	-
Exchange differences on translation of foreign operations		(3)	(45)
Net income recognised directly in equity		23	(45)
Loss for the year		(381)	(474)
Total recognised income and expense for the year		(358)	(519)

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 2011, 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 2011 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.

 

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