Fundraising & Share Consolidation

RNS Number : 4358P

Hardide PLC

08 February 2019

 

THIS ANNOUNCEMENT, AND ALL THE INFORMATION CONTAINED HEREIN, IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ANY NEW ORDINARY SHARES OF HARDIDE PLC IN THE UNITED STATES, CANADA, JAPAN, AUSTRALIA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN ARTICLE 7 OF THE MARKET ABUSE REGULATION NO. 596/2014 ("MAR"). UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

Hardide plc

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

Proposed Fundraising to raise approximately £3.6 million and
Consolidation of the Company's share capital

Hardide plc (AIM: HDD), the developer and provider of advanced surface coating technology, is pleased to announce that it has conditionally raised approximately £3.6 million by the issue of the Placing Shares and the Subscription Shares at a price of 1.5 pence per Fundraising Share (the "Issue Price")* principally to fund further expansion of the Company's UK operations (the "Fundraising"). The Company also announces that it proposes to undertake a share capital consolidation such that every 40 Ordinary Shares in issue will be consolidated into 1 New Ordinary Share (the "Share Capital Consolidation"). Further information on the Fundraising and Share Capital Consolidation can be found below.

The Fundraising and Share Capital Consolidation are subject, amongst other things, to the applicable shareholder approvals being obtained at the Annual General Meeting ("AGM") of the Company to be held at the offices of finnCap Ltd at 60 New Broad Street, London EC2M 1JJ commencing at 11.30 a.m. on 4 March 2019.

*For reference, the Issue Price will be 60 pence in the event the Share Capital Consolidation is approved at the AGM

Use of Proceeds

The Company plans to invest in a new UK facility to replace its existing site. Newly completed premises close to its existing Bicester facility have been identified, with a 15-year lease expected to be signed in March 2019 and a rent-free period agreed until the end of 2019, following which lease and business rates costs of approximately £240,000 per annum will be payable by the Company. This new leasehold building has a footprint of around 20,000ft² (doubling the floor space available in its existing UK premises) and is located on a new industrial estate, allowing for 24/7 operations if required and providing a significant increase in productive floor area with space for further expansion. The new building also has a greater roof height which will enable larger coating reactors to be installed. Being a new building, it will also enable operational efficiencies and a much improved layout, which will help maximise output. It will also present a more professional, premium quality image to potential aerospace, power generation and other customers.

Additionally, management proposes to invest in three further coating reactors of differing capacities and dimensions. The new reactors each have an approximate order lead-time of 12 months, with up-front cash deposits required.  It is intended that at least one of these reactors will be the same size as the Group's existing reactors. However, one will be larger, so as to allow the Group to apply coatings to other components too large for its current reactors. These larger components include turbine blades used in the power generation industry which has been identified by the Directors as a potential and promising growth market for the Company. The third new reactor will be used largely for R&D work in order to further develop the Group's product range.

It is intended that a reactor of the same size as those currently employed at the Group's existing UK facility will be ordered and installed first. The reactors at the current site will then be moved sequentially so as to avoid a fall in production capacity during migration to the proposed new site. This migration is expected to be complete by September 2020.

The new facility will represent a significant upgrade when compared with the existing site, which is now quite old and has an unavoidably suboptimal layout.  Moreover, its size prevents the installation of additional reactors.

The current building lease expires in October 2021, so an element of duplicated running costs will be incurred across both sites for a limited time. 

Current Trading and Outlook

Hardide has reached an inflexion point in its development, achieving record sales across all geographies which in the year ended 30 September 2018 represented a 42% year-on-year increase to £4.61m. As announced in its preliminary results on 10 December 2018, the Company had cash at bank as at the year ended 30 September 2018 of £3.30 million. Oil and gas revenues grew significantly over that period, benefiting from a continued recovery in the sector, with strong sales to new and existing customers.

The Board is also encouraged by the potential for 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. The Company's key oil and gas customers, who are experiencing a broad-based recovery in activity, 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.

The Fundraising

Overall demand for the Group's services and products has increased recently due to a combination of improved business development efforts, recovery in demand from existing customers and the generation of new accounts from customers requiring more diverse coating applications. Examples of these developments include the recently announced contracts with two major companies in the oil and gas sector, increased flow control business and the further progression of component testing with Airbus and Leonardo Helicopters.

The proceeds of the Fundraising are needed to support the Group's ongoing investment programme, with a scale up required since its existing UK facility is too small to allow for further coating reactors to be installed and is currently working near to full capacity.  The Board believes that projected orders from existing customers and likely new demand therefore require an expansion of the Group's production resources.  The Directors also believe that a strengthened balance sheet will allow greater confidence among those customers seeking long-term business with the Group. The proposed Fundraising will also give the Group the ability to expand its research and development work in the UK with the aim of identifying further uses and therefore new market opportunities for its current and pipeline product offering.

The Company has conditionally raised approximately £3.6 million through the issue of 234,200,070 Placing Shares and 5,799,997 Subscription Shares at an issue price of 1.5 pence per Ordinary Share*. The Issue Price effectively represents a 2 per cent. premium to the volume-weighted average price of an Ordinary Share during the period from 9 December 2018 to 7 February 2019 being the last business day immediately prior to this announcement.

Pursuant to the placing agreement entered into between finnCap and the Company, finnCap has conditionally agreed, as agent for the Company, to use its reasonable endeavours to procure subscribers for the Placing Shares. The Placing is conditional, inter alia, upon Resolutions 7 and 8 being passed at the AGM and Admission and has not been underwritten. The Subscription is also conditional on Resolutions 7 and 8 being passed at the AGM, completion of the Placing and Admission.

* For reference, the Issue Price will be 60 pence in the event the Share Capital Consolidation is approved at the AGM and 5,855,003 Placing Shares and 144,999 Subscription Shares would be issued by the Company

The Share Capital Consolidation

The Company currently has 1,698,076,596 Ordinary Shares in issue, each of which has a nominal value of 0.1 pence. The volume-weighted average price per Ordinary Share during the period from 9 December 2018 to 7 February 2019 (being the last day on which the Ordinary Shares were traded on AIM) was 1.47 pence.  

One consequence of having a very large number of shares in issue, with a very low market share price, is that small share trades can result in large percentage movements in share price which can result in considerable share price volatility.  The Board also believes that the bid-offer spread on shares priced at low absolute levels can be disproportionate to the market share price, often to the detriment of Shareholders.

The Directors consider that it is in the best interests of the Company's long term development as a publicly quoted company to have a smaller number of shares in issue and a higher share price.  Accordingly, in order to (i) reduce the number of shares in issue; (ii) create a nominal value for a share which is still significantly below the price at which shares trade; and (iii) attempt to reduce the likelihood of there being large dealing spreads in the Company's shares, thereby helping to reduce the likelihood of share price volatility, the Board is proposing a consolidation of the Ordinary Shares with the Company's share capital being reorganised such that:

every 40 Ordinary Shares in issue on the Record Date will be consolidated into
1 new ordinary share with a nominal value of 4 pence
 

As all of the Ordinary Shares are proposed to be consolidated, the proportion of issued ordinary shareholdings in the Company held by each Shareholder immediately before and immediately after the Share Capital Consolidation will, save for fractional entitlements (the treatment of which will be described in the circular to be posted to Shareholders), remain unchanged.  Shareholder approval of the Share Capital Consolidation is being sought pursuant to Resolution 11.

Assuming completion of the Fundraising and the Share Capital Consolidation, on Admission the Company will have a total 48,451,917 ordinary shares of 4 pence each in issue.

As the current issued share capital of the Company is not divisible by 40 without leaving a fraction of a share following the Share Capital Consolidation, it is intended to conditionally issue and allot, subject to approval of the Share Capital Consolidation by Shareholders at the AGM, on the Record Date, 4 new Ordinary Shares ("Consolidation Shares").  The issued share capital of the Company as at the Record Date will therefore be 1,698,076,600 Ordinary Shares (including the Consolidation Shares).

Related Party Transactions

Substantial Shareholder

Canaccord Genuity Ltd, Marlborough Nano-Cap Growth Fund and Canaccord Genuity Wealth Ltd (together, "Canaccord") have agreed to subscribe for an aggregate 3,466,166 Placing Shares pursuant to the Placing (assuming the Share Capital Consolidation is approved at the AGM). Canaccord is a related party of the Company for the purposes of the AIM Rules by virtue of its status as a substantial Shareholder holding 10% or more of the Existing Ordinary Shares.

The Directors consider, having consulted with the Company's nominated adviser, finnCap, that the terms upon which Canaccord has participated in the Placing are fair and reasonable insofar as Shareholders are concerned.

Directors

The following Directors have agreed to subscribe for the number of Subscription Shares set out below as part of the Fundraising:

		As at the date of this announcement			Immediately following Admission*
	Role	No. of Ordinary Shares	Percentage of Existing Ordinary Share capital		No. of New Ordinary Shares	Percentage of Enlarged Share Capital
Philip Kirkham	Chief Executive Officer	2,592,952	0.15%		81,490	0.17%
Robert Goddard	Chairman	7,311,285	0.43%		202,782	0.42%
Andrew Boyce**	Non-Executive Director	267,134,461	15.73%		6,761,694	13.95%
Charles Irving-Swift	Non-Executive Director	505,050	0.03%		16,792	0.03%
Timothy Rice	Non-Executive Director	550,000	0.03%		17,916	0.04%

Participation in the Fundraising by those Directors listed above constitutes, in each case, a related party transaction for the purposes of the AIM Rules.  Peter Davenport and Dr Yuri Zhuk, being independent directors of the Company for this purpose, consider, having consulted with the Company's nominated adviser, finnCap, that the terms upon which those Directors have participated in the Fundraising are fair and reasonable insofar as Shareholders are concerned.

 

* Assuming the Share Capital Consolidation is approved at the AGM.  In the event the Share Capital Consolidation is not approved, the number of Ordinary Shares held immediately following Admission will be multiplied by a factor of 40, but the applicable percentage of the Enlarged Share Capital will remain the same.

** Aggregate of Andrew Boyce's individual, family and trust holdings.

Annual General Meeting

The Fundraising and Share Capital Consolidation are subject to, amongst other things, Shareholder approval at the AGM of the Company to be held at the offices of finnCap Ltd at 60 New Broad Street, London EC2M 1JJ commencing at 11.30 a.m. on 4 March 2019.

Application will be made to the London Stock Exchange for the Fundraising Shares and (in place of the Ordinary Shares) the New Ordinary Shares arising upon implementation of the Share Capital Consolidation to be admitted to trading on AIM.  No application has been or is being made for the Fundraising Shares or the New Ordinary Shares to be admitted to any other recognised investment exchange.  It is expected that Admission will become effective and that dealings in both the New Ordinary Shares and the Fundraising Shares will commence at 8.00 a.m. on 5 March 2019, on which date it is also expected the Fundraising Shares and the New Ordinary Shares will be enabled for settlement in CREST. Where appropriate, share certificates for those Fundraising Shares and New Ordinary Shares to be held in certificated form will be despatched by first class post by 19 March 2019.

The Fundraising Shares will, when issued, rank pari passu in all respects with the New Ordinary Shares (following Admission) including the right to vote and to receive all dividends and other distributions and any return of capital declared following Admission.

Following Admission of the New Ordinary Shares and the Fundraising Shares (and completion of the Share Capital Consolidation) the Company will have a total 48,451,917 ordinary shares of 4 pence each in issue.

Following the Share Capital Consolidation, the Company's new ISIN Code will be GB00BJJPX768 and its new SEDOL Code will be BJJPX76.

A circular containing further details of the Share Capital Consolidation and the Fundraising will shortly be posted to Shareholders and will be available on the Company's website www.hardide.com/investor-relations.

Capitalised terms not otherwise defined in this announcement shall have the same meaning ascribed to those terms in the circular to be sent to Shareholders and those definitions which appear below unless the context requires otherwise.

Philip Kirkham, Chief Executive Officer of the Company, commented:

"This is an extremely exciting time in the development of the Company. The move to new, larger and modern premises, installation of additional coating reactors and the capability to process larger components will enable us to capitalise on our positive trading environment. We look forward to operating in a dramatically more conducive manufacturing environment and the new opportunities that will afford."

For further information:

Hardide plc Philip Kirkham, CEO Jackie Robinson, Communications Manager	Tel: [phone]
finnCap Limited Henrik Persson/Kate Bannatyne/Matthew Radley	Tel: [phone]

Notes to Editors:

www.hardide.com

Hardide develops, manufactures and applies advanced technology tungsten-carbide coatings to a wide range of engineering components.  Its patented technology is unique in combining, in one material, a mix of toughness and resistance to abrasion, erosion and corrosion; together with the ability to coat accurately interior surfaces and complex geometries.  The material is proven to offer dramatic improvements in component life, particularly when applied to components that operate in very aggressive environments. This results in cost savings through reduced downtime and increased operational efficiency.  Customers include leading companies operating in oil and gas exploration and the production, valve and pump manufacturing, precision engineering and aerospace industries. 

Forward-looking statements

This announcement may include certain "forward-looking statements" and "forward-looking information" under applicable securities laws. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterised by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Assumptions upon which such forward-looking statements are based include that all required third party regulatory and governmental approvals will be obtained. Many of these assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct. Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include changes in market conditions and other risk factors discussed or referred to in this announcement and other documents filed with the applicable securities regulatory authorities. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. The Company undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

finnCap is authorised and regulated by the Financial Conduct Authority (the "FCA") in the United Kingdom. finnCap is acting exclusively for the Company and no one else in connection with the Placing, and finnCap will not be responsible to anyone (including any placees) other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any other matters referred to in this announcement.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by finnCap or by any of their respective affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefor is expressly disclaimed.

No statement in this announcement is intended to be a profit forecast or estimate, and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

The price of shares and any income expected from them may go down as well as up and investors may not get back the full amount invested upon disposal of their shares. Past performance is no guide to future performance, and persons needing advice should consult an independent financial adviser.

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that the Placing Shares are: (i) compatible with an end target market of (a) retail investors, (b) investors who meet the criteria of professional clients and (c) eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; the Placing Shares offer no guaranteed income and no capital protection; and an investment in the Placing Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment, finnCap will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Placing Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the Placing Shares and determining appropriate distribution channels.

The Placing Shares to be issued pursuant to the Placing will not be admitted to trading on any stock exchange other than the AIM market operated by the London Stock Exchange.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

The following text is extracted from the circular to be sent to Shareholders shortly:

1.     Introduction and summary

Hardide announces that it proposes to raise approximately £3.6 million (before expenses) by the issue and allotment of the Placing Shares and the Subscription Shares, both at the Issue Price.  The Fundraising Shares have been agreed to be issued conditional on, inter alia, the passing of certain of the Resolutions. 

The purpose of the circular is to provide you with information about the recent progress of Hardide and the background to and reasons for the Share Capital Consolidation and the Fundraising (together, the "Proposals").  In addition, the circular sets out why the Directors consider the Proposals to each be in the best interests of the Company and its Shareholders as a whole and why the Directors unanimously recommend that you vote in favour of the Resolutions.  The Placing and Subscription are both conditional upon, inter alia, the passing of Resolutions 7 and 8 and Admission becoming effective (as further described in paragraph 7 below).  The Placing is not subject to the Subscription, but the Subscription is conditional upon completion of the Placing.

In that regard, I am pleased to invite you to the Company's Annual General Meeting which will be held at the offices of finnCap at 60 New Broad Street, London EC2M 1JJ commencing at 11.30 a.m. on 4 March 2019.  The Annual Report and Accounts of the Group for the year ended 30 September 2018, which contain the annual consolidation accounts together with the directors' report and the auditors report on those accounts will also be posted to Shareholders today.

The business to be conducted at the Annual General Meeting is set out in the formal Notice of Annual General Meeting contained in the circular to be sent to Shareholders and includes the following ordinary business set out in Resolutions 1 to 6:

·      receiving the audited consolidated financial statements of the Company for the financial year ended 30 September 2018 and the reports of the directors and the auditor thereon;

·      electing Mr Rice and Mr Irving-Swift as directors having been appointed since the last Annual General Meeting;

·      re-electing Mr Kirkham who, in accordance with the Existing Articles, is required to retire by rotation as a director and will offer himself for re-election in the customary way; and 

·      seeking authority for the re-appointment of James Cowper Kreston as auditor of the Company until the conclusion of the next Annual General Meeting at which accounts are laid before the members and deciding their remuneration.  

There are also a number of items of special business to be considered at the Annual General Meeting as set out in Resolutions 7 to 11.

2.     The Proposals

Because the Fundraising requires the Company to obtain approval from Shareholders to grant the Board authority to allot the Placing Shares and the Subscription Shares and to disapply applicable pre-emption rights, completion of the Fundraising is conditional upon the passing by the requisite majority of Shareholders of each of Resolutions 7 and 8 set out in the Notice of Annual General Meeting to be sent to Shareholders. 

The net proceeds of the Fundraising will be used principally to finance a proposed expansion of the Company's capacity in the UK, further details of which are set out below.

The Issue Price effectively represents a 2 per cent. premium to the volume-weighted average price of an Ordinary Share during the period from 9 December 2018 to 7 February 2019 being the last business day immediately prior to this announcement. The Placing, which has been arranged by finnCap pursuant to the terms of the Placing Agreement, is conditional upon, inter alia, Resolutions 7 and 8 being passed at the Annual General Meeting and Admission and has not been underwritten. The Subscription is conditional on Resolutions 7 and 8 being passed at the Annual General Meeting, completion of the Placing and Admission.

The Company is also proposing to undertake a share capital consolidation.

3.     Background to and reasons for the Fundraising

Overall demand for the Group's services and products has increased recently due to a combination of improved business development efforts, recovery in demand from existing customers and the generation of new accounts from customers requiring more diverse coating applications.  Examples of these developments include the recently announced contracts with two major companies in the oil and gas sector, increased flow control business and the further progression of components testing with Airbus and Leonardo Helicopters.

The proceeds of the Fundraising are needed to support the Group's ongoing investment programme, with a scale up required since its existing UK facility is too small to allow for further coating reactors to be installed and is currently working near to full capacity.  The Board believes that projected orders from existing customers and likely new demand therefore require an expansion of the Group's production resources.  The Directors also believe that a strengthened balance sheet will allow for greater confidence among those customers seeking long-term business with the Group.  The proposed Fundraising will also give the Group the ability to expand its research and development work in the UK with the aim of identifying further uses and therefore new market opportunities for its current and pipeline product offering.

The Fundraising is believed by the Board to be a necessary step towards achieving the objectives set out above and to seek to further enhance growth and increase Shareholder value in the longer term.  The Board believes that the additional costs that would be incurred, both financially and in terms of management time, if the Company were to offer all Shareholders the opportunity to acquire Shares (for example, via an open offer or a rights issue), are such that a non-pre-emptive share issue to a limited number of institutional and other investors is a more appropriate method of raising finance in this instance.  The Company will therefore seek approval from Shareholders at the Annual General Meeting to raise finance by means of issuing the Fundraising Shares without first offering them to existing Shareholders.

4.     Use of proceeds

The Company plans to invest in a new UK facility to replace its existing site.  Newly completed premises close to its existing Bicester facility have been identified, with a 15-year lease expected to be signed in March 2019 and a rent-free period agreed until the end of 2019, following which lease and business rates costs of approximately £240,000 per annum will be payable by the Company.  This new leasehold building has a footprint of around 20,000ft² (doubling the floor space available in its existing UK premises) and is located on a new industrial estate, allowing for 24/7 operations if required and providing a significant increase in productive floor area with space for further expansion.  The new building also has a greater roof height which will enable larger coating reactors to be installed.  Being a new building, it will also enable operational efficiencies and a much improved layout which will help maximise output.  It will also present a more professional, premium quality image to potential aerospace, power generation and other customers.

Additionally, management proposes to invest in three further coating reactors of differing capacities and dimensions.  The new reactors each have an approximate order lead-time of 12 months, with up-front cash deposits required.  It is intended that at least one of these reactors will be the same size as the Group's existing reactors.  However one will be larger so as to allow the Group to apply coatings to other components too large for its current reactors.  These larger components include turbine blades used in the power generation industry which has been identified by the Directors as a potential and promising growth market for the Company.  The third new reactor will be used largely for R&D work in order to further develop the Group's product range.

It is intended that a reactor of the same size as those currently employed at the Group's existing UK facility will be ordered and installed first.  The reactors at the current site will then be moved sequentially so as to avoid a fall in production capacity during migration to the proposed new site.  This migration is expected to be complete by September 2020.

The new facility will represent a significant upgrade when compared with the existing site, which is now quite old and has an unavoidably suboptimal layout.  Moreover, its size prevents the installation of additional reactors. 

The current building lease expires in October 2021 so an element of duplicated running costs will be incurred across both sites for a limited time. 

5.     Current trading and outlook

Hardide has reached an inflexion point in its development, achieving record sales across all geographies which in the year ended 30 September 2018 represented a 42% year-on-year increase to £4.61m.  As announced in its preliminary results on 10 December 2018, the Company had cash at bank as at the year ended 30 September 2018 of £3.30m.  Oil and gas revenues grew significantly over that period, benefiting from a continued recovery in the sector, with strong sales to new and existing customers.

The Board is also encouraged by the potential for 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, who are experiencing a broad-based recovery in activity, 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.

6.     Share Capital Consolidation

6.1  Background to and reasons for the Share Capital Consolidation

The Company currently has 1,698,076,596 Ordinary Shares in issue, each of which has a nominal value of 0.1 pence.  It is expected that, immediately prior to the Annual General Meeting, the Company will have 1,698,076,600 Ordinary Shares in issue (assuming that no other Ordinary Shares are allotted and issued by the Company between the date of this announcement and the Annual General Meeting but including a further 4 Ordinary Shares which will be issued in connection with the Share Capital Consolidation as described in paragraph 6.2 below).  The volume-weighted average price per Ordinary Share during the period from 9 December 2018 to 7 February 2019 (being the last day on which the Ordinary Shares were traded on AIM) was 1.47 pence.  

One consequence of having a very large number of shares in issue, with a very low market share price, is that small share trades can result in large percentage movements in share price which can result in considerable share price volatility.  The Board also believes that the bid-offer spread on shares priced at low absolute levels can be disproportionate to the market share price, often to the detriment of Shareholders.

The Directors consider that it is in the best interests of the Company's long term development as a publicly quoted company to have a smaller number of shares in issue and a higher share price.  Accordingly, in order to (i) reduce the number of shares in issue; (ii) create a nominal value for a share which is still significantly below the price at which shares trade; and (iii) attempt to reduce the likelihood of there being large dealing spreads in the Company's shares, thereby helping to reduce the likelihood of share price volatility, the Board is proposing a consolidation of the Ordinary Shares with the Company's share capital being reorganised such that:

every 40 Ordinary Shares in issue on the Record Date will be consolidated into
1 new ordinary share with a nominal value of 4 pence
 

Assuming completion of the Fundraising and the Share Capital Consolidation, on Admission the Company will have a total 48,451,917 ordinary shares of 4 pence each in issue.

As all of the Ordinary Shares are proposed to be consolidated, the proportion of issued ordinary shareholdings in the Company held by each Shareholder immediately before and immediately after the Share Capital Consolidation will, save for fractional entitlements (the treatment of which is described below), remain unchanged.  Shareholder approval of the Share Capital Consolidation is being sought pursuant to Resolution 11.

6.2  Issue of a further 4 Ordinary Shares

In anticipation of Resolution 11 being passed by Shareholders, the Company intends, immediately prior to the Annual General Meeting, to issue 4 additional Ordinary Shares (the "Share Consolidation Shares") so as to enable the total number of Ordinary Shares in issue by the Company to be exactly divisible by 40.  Since the Share Consolidation Shares will only represent a fraction of a New Ordinary Share, this fraction will itself be combined with other fractional entitlements and sold pursuant to the arrangements for fractional entitlements described below.

6.3  Fractional entitlements and consequential amendment to Existing Articles

The Share Capital Consolidation will result in fractional entitlements to a New Ordinary Share where any holding is not precisely divisible by 40.  No certificates will be issued for fractional entitlements to New Ordinary Shares.

Following implementation of the Share Capital Consolidation, certain Shareholders may not have a proportionate holding of New Ordinary Shares exactly equal to their proportionate holding of Ordinary Shares.  Furthermore, any Shareholders holding fewer than 40 Ordinary Shares as at close of business on the Record Date will cease to be a Shareholder, the minimum threshold to receive New Ordinary Shares being 40 Ordinary Shares.

Article 48 of the Existing Articles currently permits the Directors, on behalf of those members affected, to sell those shares representing fractional entitlements which arise from any proposed consolidation.  Any New Ordinary Shares in respect of which there are fractional entitlements will therefore be aggregated and sold in the market for the best price reasonably obtainable on behalf of those Shareholders entitled to share fractions.  The Company will then distribute the proceeds of sale in due proportion to any such Shareholders in accordance with the Existing Articles.

However, in the event that the net proceeds of sale to be distributed to any relevant Shareholder amount to £2 or less, the Directors are of the view that, as a result of the administrative burden and disproportionate costs involved, it would not be in the best interests of the Company to distribute those proceeds of sale.  Accordingly, the Directors propose that the Existing Articles be amended such that the net proceeds arising from the sale of fractions need only be distributed to a Shareholder where it is entitled to receive more than £2 (and, below that minimum threshold, it is proposed the proceeds of sale be retained for the benefit of the Company, or at the discretion of the Directors, donated to charity).  Given the current price per Ordinary Share, it is anticipated that the net proceeds of sale attributable to each relevant Shareholder will be less than £2 and accordingly (assuming the Existing Articles are amended pursuant to Resolution 10) there will be no distribution of any net proceeds of sale. 

For the avoidance of doubt, the Company is only responsible for dealing with fractions arising on registered shareholdings.  For Shareholders whose Ordinary Shares are held in the nominee accounts of UK stockbrokers, the effect of the Share Capital Consolidation on their individual shareholdings will be administered by the stockbroker or nominee in whose account the relevant shares are held.  The effect is expected to be the same as for shareholdings registered in beneficial names, however, it is the responsibility of the stockbroker or nominee to deal with fractions arising within their customer accounts, and not the responsibility of the Company.

The proposed amendment to the Existing Articles is set out in Resolution 10.  However, the Share Capital Consolidation is not conditional on Resolution 10 being passed.

6.4  Rights attaching to the New Ordinary Shares

Each New Ordinary Share will carry the same rights under the Existing Articles as each Ordinary Share does at present, including the right to vote and to receive all dividends and other distributions and any return of capital declared following Admission.

 

6.5  Resulting ordinary share capital

If the Share Capital Consolidation is approved by Shareholders, the issued share capital of the Company immediately prior to completion of the Fundraising is expected to comprise 42,451,915 New Ordinary Shares (assuming no other shares are allotted and issued by the Company between the date of this announcement and the Annual General Meeting but including the issue of the Share Consolidation Shares). 

6.6  Share certificates and CREST accounts

If you hold a share certificate in respect of your Ordinary Shares, your certificate will no longer be valid from the time the Share Capital Consolidation becomes effective.  If you hold 40 or more Ordinary Shares on the Record Date you will be sent a new share certificate evidencing the New Ordinary Share(s) to which you are entitled under the Share Capital Consolidation. 

Such certificates are expected to be dispatched no later than 19 March 2019 by first class post at the risk of each Shareholder.  Upon receipt of the new certificate, you should destroy any old certificate(s).  Pending the despatch of new certificates, transfers of certificated New Ordinary Shares will be certified against the Register.

If you hold your Ordinary Shares in uncertificated form, you should expect to have your CREST account credited with the New Ordinary Shares to which you are entitled on implementation of the Share Capital Consolidation on 5 March 2019 or as soon as practicable after the Share Capital Consolidation becomes effective.

6.7  Taxation 

The following statements are intended only as a general guide to the current tax position under UK taxation law and practice.  They relate only to certain limited aspects of the UK tax position for individual Shareholders who are the beneficial owners of Ordinary Shares, who are resident and domiciled in the UK for tax purposes and who hold their shares in the Company as an investment (and not as securities to be realised in the course of a trade).  The following is not, and is not intended to be, an exhaustive summary of the tax consequences of acquiring, holding and disposing of Ordinary Shares or New Ordinary Shares and it does not constitute advice.

If you are in any doubt as to your tax position or are subject to tax in any jurisdiction other than the UK, you should consult, and rely upon the advice of, a duly authorised professional adviser.

HM Revenue & Customs has given advance assurance that relevant investments in Placing Shares and Subscription Shares should qualify for relief under the EIS legislation. However no guarantee or other assurance is given that the activities of the Company will be such as to attract or retain any qualifying status for EIS or (if applicable) VCT purposes. Any person who is in doubt as to their tax position should consult their professional taxation adviser.

The Share Capital Consolidation should constitute a consolidation of the Company's share capital for the purposes of section 126 of the Taxation of Chargeable Gains Act 1992.  For the purposes of UK taxation of chargeable gains, to the extent you receive New Ordinary Shares under the Share Capital Consolidation, you should not be treated as making a disposal of any of your Ordinary Shares or an acquisition of New Ordinary Shares.  The New Ordinary Shares should be treated as the same asset as, and as having been acquired at the same time and for the same aggregate cost as, the holding of Ordinary Shares from which they derive.

No liability to stamp duty or stamp duty reserve tax should be incurred by a holder of Ordinary Shares as a result of the Share Capital Consolidation.  

7.     The Fundraising

7.1  The Placing Agreement and Subscription Letters

Pursuant to the terms of the Placing Agreement, finnCap has agreed, subject to the fulfilment of certain conditions and on the terms set out therein, to use its reasonable endeavours, as agent for the Company, to procure subscribers for the Placing Shares with certain institutional investors at the Issue Price.  Under the terms of the Subscription Letters, the Company has itself agreed, subject to the fulfilment of various conditions and on the terms set out therein, to issue the Subscription Shares to the Subscribers at the Issue Price.  Neither the Placing nor the Subscription have been underwritten.

Completion of the Placing Agreement and the Subscription Letters are each conditional, inter alia, upon Resolutions 7 and 8 being duly passed, without amendment and by the requisite majority of Shareholders, at the Annual General Meeting and Admission becoming effective on or before 8.00 a.m. on 5 March 2019 (or such later time and/or date as the Company and finnCap may agree, but in any event by no later than 8.00 a.m. on 31 March 2019).  The Placing is not subject to the Subscription, but the Subscription is conditional upon completion of the Placing.  If any of the applicable conditions are not satisfied, neither the Placing Shares nor the Subscription Shares will be issued and all monies received from placees and Subscribers will be returned to them (at their own risk and without interest) as soon as possible thereafter.

The Placing Agreement contains certain customary warranties from the Company in favour of finnCap in relation to, inter alia, the accuracy of the information in the circular and other matters relating to the Company and its businesses.  In addition, the Company has agreed to indemnify finnCap in customary terms in relation to certain liabilities it may incur in respect of the Placing.  finnCap has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties given to finnCap in the Placing Agreement, the failure of the Company to comply with any of its obligations under the Placing Agreement or the occurrence of an adverse change in (amongst other things) national or international financial or political conditions (which in the opinion of finnCap will or is likely to be prejudicial to the Company or to the Placing or Admission).

7.2  Settlement and dealings

Application will be made to the London Stock Exchange for the Fundraising Shares and (in place of the Ordinary Shares) the New Ordinary Shares arising upon implementation of the Share Capital Consolidation to be admitted to trading on AIM.  No application has been or is being made for the Fundraising Shares or the New Ordinary Shares to be admitted to any other recognised investment exchange.  It is expected that Admission will become effective and that dealings in both the New Ordinary Shares and the Fundraising Shares will commence at 8.00 a.m. on 5 March 2019, on which date it is also expected the Fundraising Shares and the New Ordinary Shares will be enabled for settlement in CREST.  Where appropriate, share certificates for those Fundraising Shares and New Ordinary Shares to be held in certificated form will be despatched by first class post by 19 March 2019.

The Fundraising Shares will, when issued, rank pari passu in all respects with the New Ordinary Shares (following Admission) including the right to vote and to receive all dividends and other distributions and any return of capital declared following Admission.

Following Admission of the New Ordinary Shares and the Fundraising Shares (and completion of the Share Capital Consolidation), the Company will have a total 48,451,917 ordinary shares of 4 pence each in issue.

Following the Share Capital Consolidation, the Company's new ISIN Code will be GB00BJJPX768 and its new SEDOL Code will be BJJPX76.

8.     Notice of Annual General Meeting

The Company does not have available to it those authorities as are required to be in place under the Act in order for it to allot new Shares pursuant to the Fundraising and to disapply pre-emption rights in respect of any such allotment.  Accordingly, the Directors are, under Resolutions 7 and 8, seeking authority at the Annual General Meeting to allot the Fundraising Shares in order to implement the Fundraising. 

In addition, the Company is seeking the authorities contained in Resolution 9 which are consistent with those conferred on the Board at last year's Annual General Meeting (albeit only in respect of 10% (rather than the usual 15%) of the Existing Ordinary Share capital) and following such issue, if passed, the Company will, assuming the Share Capital Consolidation is approved, have additional authority available to issue up to a further 4,245,175 New Ordinary Shares representing approximately 8.8% of the Enlarged Share Capital.  In the event that Resolution 9 is passed but the Share Capital Consolidation were not to be approved, the Company would have additional authority available to issue up to a further 169,807,000 Ordinary Shares, again representing approximately 8.8% of the Enlarged Share Capital.  

The purpose of seeking Shareholder approval to the taking of authorities in addition to those required for the Fundraising is to allow the Directors to have a further limited number of Shares available to them for allotment following the Fundraising on a non pre-emptive basis.  While the Directors have no present intention of exercising the additional authorities proposed to be conferred by Resolution 9, they believe that the granting of such authorities will preserve the Board's flexibility to take advantage of further opportunities if and when they arise.

The Annual General Meeting will be held at the offices of finnCap at 60 New Broad Street, London EC2M 1JJ at 11.30 a.m. on 4 March 2019.

Shareholders have the right to attend, speak and vote at the Annual General Meeting (or, if they are not attending the meeting, to appoint someone else as their proxy to vote on their behalf) if they are on the Register at the Voting Record Time (namely 6.00 p.m. on 28 February 2019, or in the event of any adjournment, 48 hours before the adjourned meeting).  Changes to entries on the Register after the Voting Record Time will be disregarded in determining the rights of any person to attend and/or vote at the Annual General Meeting.  If the Annual General Meeting is adjourned, only those Shareholders who are on the Register 48 hours before the time of the adjourned meeting (excluding any part of a day that is not a business day) will be entitled to attend, speak and vote or to appoint a proxy.

The number of Ordinary Shares that a Shareholder holds as at the Voting Record Time will determine how many votes that Shareholder or its proxy will have in the event of a poll.

FUNDRAISING STATISTICS

	Share Capital Consolidation approved by Shareholders	Share Capital Consolidation not approved by Shareholders
Number of Ordinary Shares in issue	1,698,076,596	1,698,076,596
Anticipated number of Ordinary Shares in issue immediately prior to the Annual General Meeting (1)	1,698,076,600	1,698,076,600
Issue Price	60 pence	1.5 pence
Number of Placing Shares to be issued pursuant to the Placing	5,855,003	234,200,070
Number of Subscription Shares to be issued pursuant to the Subscription	144,999	5,799,997
Total number of Fundraising Shares	6,000,002	240,000,067
Number of Shares in issue immediately following Admission	48,451,917	1,938,076,667
Percentage of the Enlarged Share Capital being placed pursuant to the Fundraising	12.4%	12.4%
Gross proceeds of the Fundraising	Approximately £3.6 million	Approximately £3.6 million
Market capitalisation of the Company at Admission at the Issue Price (1)	Approximately £29.1 million	Approximately £29.1 million
ISIN of the Shares	GB00BJJPX768	GB00B069T034
SEDOL of the Shares	BJJPX76	B069T03

(1)  This will include the Share Consolidation Shares but assumes that, other than the Fundraising Shares, no further Shares are issued between the date of this announcement and Admission.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS ⁽²⁾

	2019
Publication of the circular	8 February
Latest time and date for receipt of Forms of Proxy	11.30 a.m. on 28 February
Voting Record Time	6.00 p.m. on 28 February
Annual General Meeting	11.30 a.m. on 4 March
Record Date	6.00 p.m. on 4 March
Share Capital Consolidation effective	6.00 p.m. on 4 March
Admission and commencement of dealings in the Fundraising Shares and (if applicable) New Ordinary Shares on AIM	8.00 a.m. on 5 March
CREST accounts credited with Fundraising Shares and (if applicable) New Ordinary Shares	5 March
Expected date by which definitive new share certificates are to be despatched	19 March

(2)  Each of the times and dates set out in the above timetable and mentioned throughout the circular are London times unless otherwise stated, are based on current expectations and subject to change.  If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement through a Regulatory Information Service.  All events in the above timetable following the Annual General Meeting are conditional on approval, by the requisite majority of Shareholders, of the applicable Resolutions.

DEFINITIONS

"Act"	the Companies Act 2006 as amended from time to time;
"Admission"	admission of the New Ordinary Shares (assuming the Share Capital Consolidation is approved) and the Fundraising Shares to trading on AIM and such admission becoming effective in accordance with Rule 6 of the AIM Rules;
"AIM"	the AIM market operated by the London Stock Exchange;
"AIM Rules"	the AIM Rules for Companies and accompanying guidance notes published by the London Stock Exchange from time to time;
"Annual General Meeting"	the annual general meeting of the Company to be held at the offices of finnCap at 60 New Broad Street, London EC2M 1JJ on 4 March 2019 (or any adjournment thereof), details of which are described in the Notice of Annual General Meeting;
"certificated form" or "in certificated form"	the description of a share or other security which is not in uncertificated form (that is, not in CREST);
"Company" or "Hardide"	Hardide plc, a company incorporated in England and Wales under the Companies Act 1985 with registered number 05344714;
"CREST"	the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the operator (as defined in those regulations);
"CREST Regulations"	the Uncertificated Securities Regulations 2001 (S.I. 2001 No. 3755) (as amended from time to time);
"Directors" or "Board"	the current directors of the Company;
"EIS"	the Enterprise Investment Scheme and related reliefs as detailed in Part 5 of the Income Tax Act 2007 and in schedules 5B and 5BA of the Taxation of Chargeable Gains Act 1992;
"Enlarged Share Capital"	the issued share capital of the Company immediately following Admission comprising, subject to the passing of the applicable Resolutions, the Shares and the Fundraising Shares;
"Euroclear"	Euroclear UK & Ireland Limited, the operator of CREST;
"Existing Articles"	the articles of association of the Company as at the date of this announcement;
"Existing Ordinary Shares"	the 1,698,076,596 Ordinary Shares in issue as at the date of this announcement, all of which are admitted to trading on AIM and being the entire issued ordinary share capital of the Company;
"FCA"	the United Kingdom Financial Conduct Authority;
"Fundraising"	together the Placing and the Subscription;
"Fundraising Shares"	together the Placing Shares and the Subscription Shares;
"Group"	the Company and its subsidiary undertakings (as that term is defined in section 1159 of the Act);
"Issue Price"	the issue price of the Fundraising Shares, being 60 pence per New Ordinary Share (assuming the Share Capital Consolidation is approved) or 1.5 pence per Ordinary Share (in the event the Share Capital Consolidation is not approved);
"London Stock Exchange"	London Stock Exchange plc;
"New Ordinary Shares"	new ordinary shares of 4 pence each in the Company arising pursuant to the Share Capital Consolidation and including (where the context allows, and assuming the applicable Resolutions are approved) a reference to the Fundraising Shares;
"Nominated Adviser" or "finnCap"	finnCap Limited being the Company's nominated adviser and broker;
"Notice of Annual General Meeting" or "Notice"	the notice convening the Annual General Meeting;
"Ordinary Shares"	ordinary shares of 0.1 pence each in the Company;
"Placing"	the conditional placing to certain institutional investors of the Placing Shares at the Issue Price by finnCap, as agent on behalf of the Company, pursuant to the Placing Agreement;
"Placing Agreement"	the conditional agreement dated 8 February 2019 made between finnCap and the Company in relation to the Placing, further details of which are set out in paragraph 7.1 of this announcement;
"Placing Shares"	the 5,855,003 New Ordinary Shares to be issued by the Company (assuming the Share Capital Consolidation is approved) or the 234,200,070 Ordinary Shares to be issued by the Company (in the event the Share Capital Consolidation is not approved) pursuant to the Placing;
"Record Date"	the record date for the Share Capital Consolidation, being 4 March 2019;
"Register"	the register of members of the Company;
"Regulatory Information Service"	a regulatory information service approved by the FCA and which is on the list of regulatory information service providers maintained by it;
"Resolutions"	the ordinary and special resolutions numbered 1 to 11 to be proposed at the Annual General Meeting and set out in the Notice;
"Shares"	Ordinary Shares or New Ordinary Shares, as the context requires;
"Share Consolidation Shares"	the 4 Ordinary Shares to be issued by the Company as part of the arrangements for the Share Capital Consolidation as described in paragraph 6.2 of this announcement;
"Share Capital Consolidation"	the share capital consolidation proposed by Resolution 11 in the Notice, details of which are set out in paragraph 6.1 of this announcement;
"Shareholders"	holders of the Existing Ordinary Shares;
"Subscribers"	subscribers for the Subscription Shares pursuant to the Subscription;
"Subscription"	the conditional subscription by the Subscribers for the Subscription Shares at the Issue Price pursuant to the Subscription Letters;
"Subscription Letters"	the conditional subscription letters to be entered into by the Company and each of the Subscribers in connection with the Subscription;
"Subscription Shares"	the 144,999 New Ordinary Shares to be issued by the Company (assuming the Share Capital Consolidation is approved) or the 5,799,997 Ordinary Shares to be issued by the Company (in the event the Share Capital Consolidation is not approved) pursuant to the Subscription;
"UK" or "United Kingdom"	the United Kingdom of Great Britain and Northern Ireland;
"uncertificated" or "in uncertificated form"	Existing Ordinary Shares recorded on the Register as being held in uncertificated form in CREST, title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;
"US" or "United States"	the United States of America, each State thereof, its territories and possessions (including the District of Columbia) and all other areas subject to its jurisdiction;
"VCT"	a Venture Capital Trust as defined by section 259 of the Income Tax Act 2007; and
"Voting Record Time"	6.00 p.m. on 28 February 2019 (or, in the event of any adjournment of the Annual General Meeting, 48 hours before the adjourned meeting).

Note:  Any reference to any provision of any legislation includes any amendment, modification, re-enactment or extension of it.  Words importing the singular include the plural and vice versa and words importing the masculine gender shall include the feminine or neuter gender.

 

END

 

 

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