Preliminary Results

RNS Number : 8754X

Hardide PLC

25 November 2014

 



Press Release

25 November 2014

Hardide plc

("Hardide" or "the Group" or "the Company")

Preliminary results for the year ended 30 September 2014

Hardide plc (AIM: HDD), the provider of advanced surface coating technology, announces its preliminary results for the year ended 30 September 2014.

Financial Highlights

·    Group revenue increased by 28% to a record £3.03m (2013: £2.36m)

·    Gross profit increased by 36% to £2.09m (2013: £1.54m) and gross margin increased to 69% (2013: 65%)

·    Group operating profit of £0.18m (2013: loss of £0.80m)

·    Cash at bank at 30 September 2014 of £3.47m (2013 year end: £1.04m)

·    £2.7m (£2.5m net of expenses) raised in a private placement of 167,875,000 new ordinary shares at 1.6 pence with new and existing investors

·    The last remaining loan notes of £633,000 were converted into 140,666,666 new ordinary shares of the Company.

Business and Operational Highlights

·   Major supply contract with the General Electric Company guaranteeing minimum revenue of c. $1.30 million (c. £0.80m) over two years to February 2016 

·   Aerospace test and approval programmes with Airbus and AgustaWestland continue to progress positively. Airbus' is now progressing in the final phases before qualification

·   Advanced engineering and aerospace sales rose by 45%

·   Oil and Gas sales rose by 44%

Post Period Events

·    Installed UK capacity increased by nearly 50%

·    Planning for a new production facility in North America is now at an advanced stage

Commenting on the results, Robert Goddard, Chairman of Hardide plc, said: 

"I am pleased to report record Group revenue for the year to 30 September 2014.  This validates the Group's strategy to increase investment in technical development, sales and marketing to fuel business growth. Further investment in these areas has been budgeted for FY2015 as the Group continues to pursue diversification.

"Of significant strategic importance is the increase in installed UK capacity of nearly 50%.  This will enable the Group to increase production while maintaining its programme to develop new Hardide coating technologies and applications.

"The Board is confident that the Group is in a strong financial and operational position to continue the growth that has been achieved this year.  That same strong financial position and growing demand merits the plan to reinstate production in North America."

For further information:

Hardide plc
Philip Kirkham, CEO  Jackie Robinson, Communications Manager	Tel: [phone] www.hardide.com
finnCap  Stuart Andrews / Grant Bergman	Tel: [phone]      www.finncap.com
Newgate Threadneedle  Adam Lloyd / Heather Armstrong	Tel: [phone] www.newgatethreadneedle.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, nuclear, advanced engineering and aerospace industries. 

chairman's and ceo's report

PERFORMANCE OVERVIEW

Financial

Introduction

The Company is pleased to report record revenue of £3.03m for the year ended 30 September 2014.  This reflects a return to more-normal order levels from the Group's major customer, increasing demand from other existing customers and new accounts.  A 36% increase in gross profit compared with the growth in sales of 28% reflects the Company's high operational gearing. The result has been a modest operating profit of £0.18m, despite additional spend on marketing.

The main feature of the balance sheet is the increase in cash to £3.47m - up from £1.04m in the previous year, mainly due to the net proceeds of £2.5m from the successful private placing in August 2014.

Profit and loss

With sales of £1.31m (2013: £1.26m) for the first six months of the year, the second half of the financial year progressed strongly, with sales of £1.72m (2013: £1.10m).  Second half sales were helped by the supply contract with the General Electric Company (GE) coming 'on stream'; together with a return to higher order levels from our major oil & gas customer.  There was also a rise in demand from accounts established in the first half.

For the full year, sales increased by £0.67m to £3.03m (2013: £2.36m) but the cost of sales increased by just 16% against the 28% increase in revenue; reflecting fixed production salaries and the mix of components that were processed so that a gross margin of 69% was achieved, compared with 65% in the previous year. The net effect was an increase of 36% in gross profit to £2.09m compared with £1.54m the year before.

Operating profit improved to £0.18m from a loss of £0.80m in FY2013.  This was after accounting for a revaluation of fixed assets of £0.07m and the release of a provision of £0.11m in respect of the lease on the Houston facility. 

Profit before tax was £0.11m (2013: £0.90m loss) and EBITDA was £0.12m (2013: £0.23m loss).

Balance sheet and cash flow

Despite improved trading, net working capital utilised for stock, debtors and creditors fell only slightly to £0.16m from £0.19m, largely due to timing differences and improved debtor management.

The net book value of fixed assets increased by £0.14m to £0.38m.  It  includes new laboratory equipment, the transfer and revaluation of some plant from Houston, and other investment to increase UK production capacity.

In August 2014, the Company raised £2.7m gross (£2.5m net of expenses) from a placing of 167,875,000 new ordinary shares at 1.6 pence with new and existing investors.

A provision of £0.38m was made in the FY2013 accounts for the remaining lease costs on the Group's Houston facility under IAS37.  At the FY2014 year end the liability had reduced to £0.27m. 

During the year, Amati Global Investors converted in two tranches all its remaining convertible loan notes of £633,000 into 140,666,666 new ordinary shares of the Company. The Company now has no further outstanding convertible loan notes and its non-trade liabilities at the year-end amounted to just £0.33m (2013: £1.08m).

The combined effect of these changes is a much stronger balance sheet with net assets of £3.96m (2013: £0.62m) of which £3.47m is cash.

Customers and Markets

In February 2014, the Group entered into an important supply contract with GE.  This contract has guaranteed minimum sales of c. $1.3m (c.£0.8m) over the two years to February 2016. The nature of the product and its end-user market means that we are optimistic there will be sales well beyond the initial two‑year term.  Sales from this customer grew steadily, contributing to the improved performance in the second half of the year. 

Sales to oil and gas customers rose by 44% from FY2013.  The main reason was the return to a more‑normal demand pattern from our major customer; as well as additional business from accounts gained in the earlier part of the year.  A notable new application is for part of a specialist downhole tool that is providing significant cost savings to operating companies.  We worked very closely with the customer on engineering and testing and as a result the Hardide coating is now 'designed-in' to the tool.  This meant good growth in turnover with that customer during the second half and we are confident of further growth as the tool becomes more widely adopted.  Other applications are now in test with this customer. 

In the second half of the year we secured our first production order for a fracking tool component from a major oilfield services company.  We look forward to further business in this area.

Revenue from coating flow control components was adversely affected by the phasing of sales to our largest customer in this sector and sales slipped by 11%.  However, the value of orders received from this customer in the financial year increased by almost 20% compared with FY2013, but sales revenue from the later orders will be booked in the next financial year and highlights the effects of this customer's 'lumpy' demand pattern.

Advanced engineering and aerospace revenue grew by 45%; albeit from a low base.  After many years of development, volume orders are now being received and are forecast for components for a new type of high-speed, X‑ray machine for three-dimensional scanning of baggage at airports.  We are encouraged by the customer's estimates of future volumes for this machine, for which a worldwide roll-out is planned.  We also saw an almost 200% rise in sales to a long-term customer who is a world leader in construction equipment.

Sales of Hardide-D have been strong.  This product is the new coating for TSP (thermally stable polycrystalline) diamonds that the Group developed last year to extend the life and improve the performance of drilling tools operating in extremely abrasive environments.  The minimum volumes in the supply agreement with Cutting & Wear Resistant Developments Limited were exceeded and their exclusivity remains in place.

During the course of the year, we invested further in raising the profile of the Company and its coating technology.  Greater awareness among design engineers of a new, advanced coating whose future applications are not yet all known is particularly important to achieve but also very challenging.  Activity included editorial in influential trade publications, e‑marketing, the development of German and Italian language websites and representation at trade exhibitions and conferences.

Germany and Italy are new territories for the Group and we believe they have considerable potential, but until recently we have not had the resources to address the markets there as well as we would like.  Our new agent in Germany is performing well and many customer trials are underway.  Initial business development activity has resulted in orders from both of these countries and we will invest further in sales and marketing in each in FY2015.

Our excellent safety and environmental record remains in place.  No lost-time incidents have been recorded for six years and the Company surpassed all its environmental objectives and maintains its ISO14001 accreditation.

North America

Sales to North America fell back slightly to £0.55m (2013: £0.69m), although order intake from this market increased by 28% compared with FY2013. The main reason for this apparent contradiction is the phasing of orders relative to our year end from a major flow control customer, together with volume orders under the new GE contract starting during the second half.  Orders received from the flow control customer were actually 19% higher than in FY2013 and sales to GE are already scheduled well into FY2015.  The Board is confident about the underlying strength of the North American market and its potential for the Hardide technology.  Looking forward, the Company intends to undertake several strategic development projects with high projected values.  These and other large volume customers have put it to the Company that it should manufacture in North America in order for its products to become more widely accepted there.  This due to concerns about security of supply, order lead time and other logistical costs.  In line with the announcement in August 2014 of our successful equity placement, plans for a new production facility in North America are now at an advanced stage. 

Technology, Research & Development

The Group has increased its technical strength and capability during the year.  Two additional scientists are now in place and a Scanning Electron Microscope (SEM) has been acquired.  The Group's programme of strategic technical development projects has continued successfully, although the high demand in the second half of the year from customers meant that capacity was restricted for trials and development work.

The Group's own test programme to explore for additional beneficial features of the coating and how it performs in so-far-untried conditions continues and will do so throughout 2015. A range of new characteristics of the coating have already been established as a result of this work. 

Intellectual Property

Following the successful commercialisation of the Hardide-D variant developed last year for coating TSP diamonds, a PCT application for international patent protection was filed in March 2014. 

Our research and development laboratory is continuing to work on the fundamental R&D of Hardide coating variants which will potentially add to the patent portfolio in the future. 

Standards and qualifications

The Company's qualification test programmes with Airbus and AgustaWestland are progressing well and now with greater urgency than before.  The REACH 'sunset date' of 2017 for hexavalent chromium salts used in the process of hard chrome plating is fast approaching and this is focusing the industry's attention on securing alternatives.  Both programmes have taken longer than originally expected; mainly because of complex procedures within these two large organisations. 

Since January 2014, we have been developing further our internal systems to achieve compliance with Nadcap, the aerospace industry's global accreditation standard.  This is progressing well and to plan.

Staff

We undertake annual personal performance planning with all of our staff and identify their training and development needs; as well as agreeing personal objectives for the year ahead.  We are pleased that our first technical apprentice has recently completed his training and achieved NVQ level 3.  We also motivate staff to achieve results by means of a bonus incentive system based on company performance. 

The Board thanks the management team and employees for delivering a record sales year and our shareholders for their continued support.  The loyalty and dedication of both have been key factors in our successes and make for a Company with excellent morale.

STRATEGY

Hardide is an innovator in an industry where innovation is not routine and the Company's advanced coatings fill a gap in the ranges that much larger players currently offer to their numerous customers.  As such, it is reasonable to expect the Hardide range would be a very attractive addition, offering scope for growth, new applications and higher profitability in their portfolios.  The Hardide Board therefore takes the view that shareholder value will be maximised by concentrating its resources on growing the Company's gross profit line, but not to the exclusion of achieving a level of profitability.  Accordingly, the board will continue to invest in marketing, product development and manufacturing so as to steadily increase gross profit and the capacity to sustain such growth.  This will involve making revenue and capital investments well ahead of the realisation of the sales that will arise from such investment.  Our recent increase in UK capacity, advanced planning for North American production and continued investment in sales and marketing are all consistent with this approach.

Diversification of our customer base, by geography and by sector remains an important strategic objective.  Breaking into the civil aerospace market is expected to open up an extensive, long-term global market.

At all times, the Group will aim to achieve success in a safe, environmentally-conscious and socially-responsible manner.

OUTLOOK

The Group delivered a record revenue performance in FY2014, with a particularly strong second half.  The improved trading performance is currently being maintained and the Board expects the Group to make good progress in the year ahead.  We are conscious of uncertainties in the global economic outlook, the impact of that on oil prices and the possible knock-on effect on exploration and production investment and thus on demand for our oil and gas industry coatings.  Whilst we maintain close contact with customers in this regard and so far we have had no indications of any softening of demand for our services, we are not complacent.  In any event, our balance sheet is solid and so our plans for strategic investment and growth remain in place and on track.

Robert Goddard	Philip Kirkham
Chairman	CEO
25 November 2014	25 November 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2014

		2014 £000	2013 £000
Revenue		3,030	2,359
Cost of sales		(944)	(815)
Gross profit		2,086	1,544
Administrative expenses		(1,964)	(1,769)
Depreciation and amortisation		(121)	(110)
Impairment of fixed assets		72	(90)
Provision for onerous lease obligations		103	(376)
Operating profit / (loss)		176	(801)
Finance income		9	2
Finance costs		(75)	(103)
Profit / (loss) on ordinary activities before taxation		110	(902)
Taxation		51	54
Profit / (loss) on ordinary activities after taxation		161	(848)
Profit / (loss) per share: Basic		0.01p	(0.08)p
Profit / (loss) per share: Diluted		0.01p	(0.07)p

All operations are continuing.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 September 2014

		2014 £000	2013 £000
Assets
Non-current assets
Goodwill		69	69
Intangible assets		5	2
Property, plant & equipment		383	245
Total non-current assets		457	316
Current assets
Inventories		50	41
Trade and other receivables		571	434
Other current financial assets		199	154
Cash and cash equivalents		3,467	1,037
Total current assets		4,287	1,666
Total assets		4,744	1,982
Liabilities
Current liabilities
Trade and other payables		463	282
Financial liabilities		16	702
Provision for lease obligation		132	86
Total current liabilities		611	1,070
Net current assets		3,676	596
Non-current liabilities
Financial liabilities		37	5
Provision for lease obligation		140	290
Total non-current liabilities		177	295
Total liabilities		788	1,365
Net assets		3,956	617
Equity attributable to equity holders of the parent
Share capital		3,041	2,733
Share premium		8,934	6,085
Retained earnings		(7,507)	(7,841)
Share-based payments reserve		127	275
Translation reserve		(639)	(635)
Total equity		3,956	617

The financial statements were approved and authorised for issue by the Board on 25 November 2014.

Robert Goddard

Chairman

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 September 2014

	2014 £000	2013 £000
Cash flows from operating activities
Operating profit / (loss)	176	(801)
Depreciation	121	110
Impairment of fixed assets	(72)	90
Share option charge	25	35
Increase in inventories	(9)	(8)
(Increase) / Decrease in receivables	(175)	114
Increase / (Decrease) in payables	180	(198)
Increase / (Decrease) in provisions	(104)	376
Cash generated from operations	142	(282)
Finance income	9	2
Finance costs	(51)	(61)
Tax received / (paid)	42	-
Net cash generated from operating activities	142	(341)
Cash flows from investing activities
Purchase of property, plant and equipment	(189)	(69)
Net cash used in investing activities	(189)	(69)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital	3,158	304
Loan repayment	(734)	(262)
Finance lease inception	65	-
Finance lease repayment	(12)	-
Net cash used in financing activities	2,477	42
Net increase / (decrease) in cash and cash equivalents	2,430	(368)
Cash and cash equivalents at the beginning of the year	1,037	1,405
Cash and cash equivalents at the end of the year	3,467	1,037

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2014

	Share Capital	Share Premium	Share-based  Payments	Foreign Translation	Retained Earnings	Total Equity
At 1 October 2012	2,666	5,848	240	(638)	(6,993)	1,123
Issue of new shares	67	237	-	-	-	304
Share options	-	-	35	-	-	35
Combined instruments	-	-	-	-	-	-
Exchange translation	-	-	-	3	-	3
Loss for the year	-	-	-	-	(848)	(848)
At 30 September 2013	2,733	6,085	275	(635)	(7,841)	617
At 1 October 2013	2,733	6,085	275	(635)	(7,841)	617
Issue of new shares	308	2,849	-	-	-	3,157
Share options	-	-	25	-	-	25
Combined instruments	-	-	(173)	-	173	-
Exchange translation	-	-	-	(4)	-	(4)
Profit for the year	-	-	-	-	161	161
At 30 September 2014	3,041	8,934	127	(639)	(7,507)	3,956

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 2014, 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 2014 statutory financial statements upon which the auditors have not yet reported. The auditor's report is expected to be unqualified and is not expected to 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.

Accounting Policies

The preliminary announcement for the year ended 30 September 2014 has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies applied in this preliminary announcement are consistent with those reported in the Group's annual financial statement for the year ended 30 September 2014 with new standards and interpretations which became mandatory for the financial year.

Copies of the Annual Report and Financial Statements will be posted to shareholders shortly and will be available from the Company's registered office at 11 Wedgwood Road, Bicester OX26 4UL.

 

END

 

 

FR BIBJTMBITTTI