Preliminary Results

RNS Number : 0824T

Hardide PLC

10 December 2012

 



Press Release

10 December 2012

Hardide plc

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

Preliminary results for the year ended 30 September 2012

Hardide plc (AIM: HDD), the provider of unique metal surface engineering technology, announces its preliminary results for the twelve months ended 30 September 2012.

highlights

Financial

·    Group turnover increased by 49% to £2.91 m (2011: £1.95 m)

·    Gross profit rose by 73% to £2.09 m (2011: £1.21 m)

·    Group EBITDA increased by £747k to £522k (2011: loss £225k)

·    Maiden operating profit at Group level: £378k (2011: loss £340k) and Group profit before tax improved by £711k to £265k (2011: loss before tax £446k)

·    UK operation, Hardide Coatings Limited, posted full-year pre-tax profit of £1.06 million (2011:  £409k), an increase of 161%

·    US sales increased 56% to £581k (2011: £373k)

·    Profit per share 0.03p (2011: loss of 0.05p)

·    Positive cash flow from operating activities of £449k (2011: outflow of £177k)

·    Successful placing of £750k new equity with new and existing shareholders in November 2011

·    Cash at bank at 30 September 2012 of £1.40 million (2011: year end of £292k), markedly stronger balance sheet

Operational and corporate

·    Philip Kirkham appointed as Chief Executive Officer

·    Lower dependence on a few large customers and total number of repeat customers increased by 45%

·    Airbus test programme continues to deliver encouraging results with generic testing by customer expected to be complete in 2013.  Indications of potential aerospace applications for Hardide beyond hard chrome replacement

·    Andrew Boyce, representing a significant family shareholding, appointed as Non-executive Director

Post-period events

·     New approach to strategic marketing, branding and messaging

·     A programme in place for further investment in sales and marketing

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

"Hardide grew revenues substantially in each of its key sectors in the year ending 30 September 2012.  This, together with the high operating gearing and improved utilisation rates, helped gross margin rise to 72% compared with 62% last year.  This resulted in the Group posting a maiden operating profit of £378k. 

We increased our marketing spend and will increase it again in the coming year.  At the same time, we will further develop our technology for use in new applications and new industries.  Our markedly stronger balance sheet enables us to do this with much greater confidence than hitherto.

The directors are optimistic that the coming year will see further growth in sales and that the additional development spend will also benefit future years."

For further information:

Hardide plc		www.hardide.com
Robert Goddard, Chairman Philip Kirkham, Chief Executive Officer Jackie Robinson, Communications Manager		Tel: [phone] [e-mail]
N+1 Singer		www.n1singer.com
Andrew Craig, Ben Wright		Tel: [phone]

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 provides 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, advanced engineering and aerospace. 

CHAIRMAN'S STATEMENT AND REVIEW

Financial OVERVIEW

It is pleasing to report Hardide's strongest financial performance since incorporation, and by a considerable margin. 

Sales revenue for the year ended 30 September 2012 rose by 49% to £2.91 million (2011: £1.95 million) and there was a maiden operating profit at Group level of £378k, and EBITDA of £522k (2011: £225k loss).  Group profit before tax increased to £265k; up by £711k on a loss of £446k in FY 2011.

Costs of sales increased by only 12% to £820k (2011: £733k).  This was due to fixed production salaries and improved utilisation of assets.  This resulted in a 10% increase in gross margin to 72% (2011: 62%), meaning that gross profit rose by over 70% to £2.09 million (2011: £1.21 million).

A well-deserved staff bonus, as well as the recruitment cost for the new CEO and three other new staff, accounted for most of the 9% increase in expenses to £1.57 million (2011: £1.44 million). 

In November 2011, in a placing to new and existing investors, the Group raised £750,000 (gross) from the issue of 125,000,000 new ordinary shares at 0.6p per share. The proceeds are being used to bolster sales, undertake modest capital expenditure and develop the skills and technology base within the Group.

BUSINESS REVIEW

Customers and Markets

The recovery in demand seen at the end of the previous financial year continued and FY 2012 sales were significantly higher than in FY 2011 across each of our market sectors.  Revenue from the oil and gas sector increased by 43%, flow control (mainly pumps and valves) by 49% and advanced engineering, including aerospace tripled, albeit from a fairly low base.  It is also encouraging that the number of repeat customers increased by 45% over the period.

During the year we added one of the largest global providers of oilfield services and products to our customer list with repeat production sales on coatings for two downhole components and a third in test for this same customer.  We are now working on new applications for five other major oilfield services companies.  New orders were secured from two leading-edge drilling tool developers and tests are underway with several more downhole and drilling-related companies. 

Highlights in the flow control sector included the first production order from a new 'severe service' valve manufacturer, regular monthly orders from a new pump manufacturer, Hardide specified on a new high-pressure valve range and approved on a valve application for a blue chip oilfield services company.  Also of note is our cooperation with EDF Energy by which Hardide has been specified as a solution to a problem with a steam valve at Hinkley Point B nuclear power plant.  EDF Energy is now evaluating the coating for other applications. 

The Group has been following a range of opportunities arising from its membership of the British Valve and Actuators Association and the Valve Manufacturers Association of America.  Awareness of the Hardide technology in this sector is improving, but the majority of our valve sales are still to UK customers.  To address this, the coming year will see a plan to develop our valve customer base in Europe at the same time as expanding our pump business in the region.

A significant growth in sales to the advanced engineering sector was achieved in the year.  This was due to some recovery in demand from customers affected by the economic downturn and also the successful outcome of some long-running test programmes.  Commercial success was achieved in coating titanium, with the first regular production order on a Formula 1 motorsport application.  The directors believe that the success in coating this important but difficult base material for an exacting customer will open up a range of applications in other industries.

Our traditional markets and customers still accounted for the majority of revenue.  However, the improved diversity of the pipeline, together with a re-focused business development strategy and further increases in our business development resources gives us confidence that we will make steady progress in widening our customer base in the coming year and beyond. 

Directors and management

In June 2012, we welcomed our long-standing shareholder Andrew Boyce as a non-executive director.  The Boyce family shareholding amounts to 26.5% of the Group's issued share capital and the family has had a stake in Hardide plc since 2003.  Andrew is a seasoned entrepreneur and investor, having established and operated a number of successful businesses.  He has made a valuable contribution to the board since his appointment and we are very pleased that he has found the time to serve the Company.

In September 2012, after a prolonged search we were pleased to announce the appointment of Philip Kirkham as our new chief executive officer.  Since then, Bruce Robinson and I have resumed our normal non-executive roles.

Philip brings impressive CEO and international experience with a strong background in marketing, sales and production in the metal processing sector.  A Chartered Engineer (CEng) and a European Engineer (Eur Ing) with a BSc in Chemical Engineering and an MSc in Advanced Manufacturing Management, he has held senior management and CEO positions in Rolls Royce plc, Firth Rixson Ltd and the private equity backed Material Advantage Group Ltd.

His immediate focus is the development of the sales and marketing side of the business.  The first elements of new strategies have been developed and these focus initially on achieving more sales to our existing oil & gas and flow control markets where we have good track record and proven technical success.  The plan so far sees increased investment in sales and marketing; including additional business development staff and raising the awareness of the Hardide coating and potential applications among new adopters.  We already appointed a second UK-based business development manager in September 2012 to exploit the oil and gas sector and are planning to recruit a third business development manager in the near future.

I am pleased to report that the Group was able to reward employees with a maximum bonus payout this year. It was very pleasing for the board to be able to recognise in this way the outstanding loyalty and commitment of staff in meeting the challenges of the last few years.

UK: Hardide Coatings Limited

The UK operating company, Hardide Coatings Limited posted a record full year profit, with a PBT of £1.06 million (2011: £409k) on revenue of £2.91 million (2011: £1.95 million) - an increase of 161%.  Material and other costs remained stable and the percentage gross profit margin increased by 10% during the year.

The UK plant processed all sales to the US, which rose by 56% compared with FY 2011.  Efficient customer communications and logistics continued to ensure no adverse effect on lead times.  The Houston manufacturing facility remains hibernated with the plant in-situ and will remain so until demand and UK capacity are such that it makes economic sense to re-open.  The costs of hibernation remain minimised and stable.  A study was conducted during the year to determine the conditions that would allow the re-opening of the facility and the resources and timescales required to do so.

Accreditations under AS9100, ISO9001 and ISO14001 were maintained during the year and the Group continues to strive for the highest standards in these vital areas.

The excellent safety record remains in place with no lost-time incidents recorded during the year. 

Technology, Research & Development

The past year saw a number of production orders emerging from the development pipeline, including some notable technical achievements. 

The technical, engineering and production teams successfully adapted the Hardide process to enable the coating of the interior of hundreds of small holes in a component for a major coatings company.  This technical achievement has resulted in regular repeat orders and has unlocked our ability to coat extremely complex shaped parts made of low-chromium steel.  It also triggered the successful development of a new pre-treatment technique.

We received our first production order for coating on titanium after a successful test programme with a Formula 1 motorsport company.

The test programme continues with Airbus to deliver encouraging results, with generic testing expected to be complete in 2013.  Indications are that there could be a wider range of applications beyond using the Hardide coating solely as a replacement for hard chrome.  Test programmes are also underway with four other major aerospace manufacturers.  These are long-term test programmes and include two new opportunities that have been developed during the year.

Other medium to long-term strategic development projects continue in other areas, including aerospace, defence, industrial turbine blades, oil and gas drilling and pumps.

The Hardide technology has been presented at several prestigious conferences in the oil & gas, flow control and surface engineering sectors in the UK and overseas throughout the year.

Outlook

We have begun the current year with steady customer demand and a good quality pipeline, with a rise in enquiries for new applications and the acceleration of some oilfield test programmes.  Indications from our major customers are that they are forecasting to remain buoyant throughout the coming year, although this may be influenced by global economic circumstances.

Our investment in technology and marketing will rise further in the coming year; much of that increase will be in pursuit of benefits to be realised in the years beyond in the form of new applications and new market sectors.  Our markedly stronger balance sheet enables us to increase spending with much greater confidence than hitherto. 

We will continue to maintain a relentless focus on operational efficiency, quality and cost control.  The plan for this involves multi-skilling of key staff, strengthening quality control and the adoption of 'smart' manufacturing techniques.

Depending on the extent and type of forecast demand, there may be the need to commit in the coming year to additional capital projects to satisfy that demand.

The board has confidence that the prospects are good for the business to move forward significantly in the coming year.

Finally, our thanks must go to our employees, customers and shareholders for their ongoing support as we look forward to further improvements in the year ahead.

Robert Goddard

Chairman

7th December 2012

Financial Review

Revenue for 2011/12 reached a record £2.91m, an increase of £0.97m, or nearly 50% over the prior year.  Although the second half was slightly down on the first, this was a reflection of the exceptionally strong revenues at the start of the year, rather than any underlying weakness in the second half. 

Encouragingly, the significant revenue increases were seen equally across all the Group's market sectors of oil and gas, flow control and advanced engineering, as well as geographically - revenue from North American customers increased by 56% year on year.  Growth came from a mix of existing products with existing customers and new products to existing and new customers.  Our pipeline delivered a number of new accounts during the year and the number of active customer application projects also increased, which augurs well for further conversions in 2012/13. 

In spite of the 49% increase in sales, costs of sales only increased by 12%, reflecting better utilisation of capacity and the relatively fixed nature of production salaries.  We were subject to some increases in raw material prices, principally gases.  However we did manage to avoid other increases or in some cases reduce costs by switching suppliers or bulk buying.  As a result, the overall gross profit margin increased from 62% to 72%.

Group administrative costs rose by 9% to £1.57m, principally due to staff bonus and recruitment costs; although there was an underlying increase in marketing spend.  This will continue to increase in the current year.  The business development function was short-staffed for some of the year, however this was rectified in September and further investment in business development is also planned for this year. 

There was a small impairment of fixed assets in our mothballed Houston facility.  Overhead costs relating to the Houston facility have been reduced to the bare minimum required and are stable year-on-year at £106k.  Corporate central costs of £620k were reduced by £64k compared to prior year.

The overall effect of markedly increased revenues on a relatively fixed cost base was a £718k upswing in Group operating profits from a loss of £340k to an operating profit of £378k.  A great deal of that operating profit improvement also fed through to cash, where cashflow from operating activity improved by £626k from an outflow of £177k in 2011 to an inflow of £449k in the year.

The balance sheet was reinforced by the raising of £714k (net) from existing and new shareholders in November 2011.  This, plus the sustained improvement in trading, has provided the confidence to invest further in sales and marketing, as well as the implementation of a longer-term plan for investment in additional plant and machinery.  Further resources will also be applied to enhance Hardide's product offering.  In spite of the turnover increase, working capital remained stable:  inventories increased by over a third but at £33k remained low; trade debtors increased by 41% from £347k to £490k but reduced in terms of average debtor days; trade creditors actually fell by 22% to £148k.  Net assets increased by over £1m.

During the year we started work on an internal reorganisation to transfer patents and other intellectual property to Hardide plc.  Not only will this mean additional security for the IP, it will also provide a means to utilise more efficiently the Group's brought forward tax losses.  This work should be completed in the first half of 2012/13.

Peter Davenport

Finance Director

7th December 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 September 2012

		2012 £000	2011 £000
Revenue		2,915	1,947
Cost of sales		(820)	(733)
Gross profit		2,095	1,214
Administrative expenses		(1,573)	(1,439)
Depreciation and amortisation		(108)	(115)
Exceptional item: Impairment of fixed assets		(36)	-
Operating profit / (loss)		378	(340)
Finance income		2	-
Finance costs		(115)	(106)
Profit / (loss) on ordinary activities before taxation		265	(446)
Taxation		42	65
Profit / (loss) on ordinary activities after taxation		307	(381)
Profit / (loss) per share: Basic		0.03p	(0.05)p
Profit / (loss) per share: Diluted		0.02p	(0.03)p

All operations are continuing.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 30 September 2012

		2012 £000	2011 £000
Assets
Non-current assets
Goodwill		69	69
Intangible assets		-	-
Property, plant & equipment		379	478
Total non-current assets		448	547
Current assets
Inventories		33	24
Trade and other receivables		549	406
Other current financial assets		98	102
Cash and cash equivalents		1,405	292
Total current assets		2,085	824
Total assets		2,533	1,371
Liabilities
Current liabilities
Trade and other payables		480	370
Financial liabilities		257	-
Total current liabilities		737	370
Net current assets		1,348	454
Non-current liabilities
Financial liabilities		673	895
Total non-current liabilities		673	895
Total liabilities		1,410	1,265
Net assets		1,123	106
Equity attributable to equity holders of the parent
Share capital		2,666	2,541
Share premium		5,848	5,259
Retained earnings		(6,993)	(7,310)
Share-based payments reserve		240	248
Translation reserve		(638)	(632)
Total equity		1,123	106

The financial statements were approved and authorised for issue by the Board on 07 December 2012.

Robert Goddard

Director

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 30 September 2012

	2012 £000	2011 £000
Cash flows from operating activities
Operating profit / (loss)	378	(340)
Depreciation	108	115
Impairment of fixed assets	36	-
Share option charge	1	5
Increase in inventories	(9)	2
Increase in receivables	(139)	(109)
Decrease in payables	110	112
Cash generated from operations	485	(215)
Finance income	2	-
Finance costs	(83)	(10)
Tax received / (paid)	45	48
Net cash generated from operating activities	449	(177)
Cash flows from investing activities
Purchase of property, plant and equipment	(50)	(21)
Net cash used in investing activities	(50)	(21)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital	714	-
Finance lease repayment	-	(46)
Net cash generated by / (used in) financing activities	714	(46)
Net increase / (decrease) in cash and cash equivalents	1,113	(244)
Cash and cash equivalents at the beginning of the year	292	536
Cash and cash equivalents at the end of the year	1,405	292

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 30 September 2012

	Share Capital	Share Premium	Share-based  Payments	Foreign Translation	Retained Earnings	Total Equity
At 1 October 2010	2,541	5,259	269	(629)	(6,955)	485
Issue of new shares	-	-	-	-	-	-
Share options	-	-	(21)	-	26	5
Combined instruments	-	-	-	-	-	-
Exchange translation	-	-	-	(3)	-	(3)
Loss for the year	-	-	-	-	(381)	(381)
At 30 September 2011	2,541	5,259	248	(632)	(7,310)	106
At 1 October 2011	2,541	5,259	248	(632)	(7,310)	106
Issue of new shares	125	589	-	-	-	714
Share options	-	-	(8)	-	10	2
Combined instruments	-	-	-	-	-	-
Exchange translation	-	-	-	(6)	-	(6)
Profit for the year	-	-	-	-	307	307
At 30 September 2012	2,666	5,848	240	(638)	(6,993)	1,123

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 2012, 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 2012 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.

Accounting Policies

The preliminary announcement for the year ended 30 September 2012 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 2012 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.

 

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