TIDMHDD
RNS Number : 7853T
Hardide PLC
25 November 2013
Hardide plc
("Hardide" or "the Group" or "the Company")
Preliminary results for the year ended 30 September 2013
Hardide plc (AIM: HDD), the provider of advanced surface coating
technology, announces its preliminary results for the twelve months
ended 30 September 2013.
Financial Results
-- Group turnover reduced by 17% to GBP2.4m (2012: GBP2.9m),
predominantly as a result of a sudden and significant inventory
adjustment by one major customer.
-- Gross profit decreased by 29% to GBP1.5m (2012: GBP2.1m).
-- Group EBITDA loss of GBP0.2m (2012: profit GBP0.5m) impacted
by a strategic decision to strengthen the UK and US sales teams
along with associated increased marketing expenditure.
-- UK operation, Hardide Coatings Limited: EBITDA of GBP0.5m (2012: GBP1.2m).
-- Group loss before tax of GBP0.9m (2012: profit GBP0.3m) after
GBP0.4m provision for onerous lease under IAS37 and GBP0.1m
impairment of fixed assets relating to the hibernated Houston
facility.
-- UK operation, Hardide Coatings Limited: profit before tax of GBP0.4m (2012: GBP1.1m).
-- US sales up 17% to GBP0.7m (2012: GBP0.6m).
-- Loss per share 0.08p (2012: profit 0.03p).
-- Cash at bank at 30 September 2013 of GBP1.0m (2012 year end: GBP1.4m).
-- In January 2013, a loan note holder converted its convertible
loan note of GBP225,000 into 50,000,000 new ordinary shares of the
Company ("New Ordinary Shares").
-- A Technology Strategy Board (TSB) grant of up to GBP250,000
awarded to part--fund development of a new coating for downhole
tool and other high-wear applications.
Business and Operational Highlights
-- The number of active accounts rose by 31% to 38 from 29 in
the previous year and the number of qualified prospects rose by
40%.
-- Supply agreement for a new coating developed as a result of
the TSB grant. Patent applications have been made for this
product.
-- Commercial agreement with a US-based, blue chip provider of highly-engineered products.
-- Business development activity strengthened by the appointment
of two additional managers, a sales consultant and an agent in
Germany.
-- Test programmes by Airbus and AgustaWestland (AW) continue to
make progress. The expected completion date for generic testing by
Airbus has slipped slightly and our current best estimate is that
both programmes will be completed before mid-2014.
Post Period Events
-- Promising start for sales of the new coating for oil &
gas tools developed with the TSB grant support.
-- Coating for first hydraulic fracturing (fracking) tool
application now on test with a major oil and gas company.
-- Marketing partner is being sought for the pump, valve and power generation markets in Italy.
-- Good signs of recovery of demand from major customer.
Commenting on the results, Robert Goddard, Chairman of Hardide
plc, said:
"Diversification remains a crucial strategic goal and to this
end, there has been further investment in technical development,
sales activity and marketing. Increased investment in these areas
has been budgeted for 2013-14 because the Board maintains its view
that this is required to realise new applications and to fuel
business growth; thereby adding value to the Company.
"Looking forward, the Board expects to see the first results of
these investments in the second half of this coming financial
year.
"The Board remains confident about the Group's prospects in its
key markets and that investment to increase sector penetration and
customer diversity is in the shareholders' best interests."
For further information:
Hardide plc
Robert Goddard, Chairman Tel: +44 1869 353 830
Philip Kirkham, Chief Executive jrobinson@hardide.com
Officer www.hardide.com
Jackie Robinson, Communications
Manager
N+1 Singer
Andrew Craig, Ben Wright Tel: +44 207 496 3000
www.n1singer.com
Notes to editors:
Hardide develops, manufactures and applies nano-structured
tungsten carbide-based coatings to a wide range of engineering
components. The Group's patented technology is unique in combining
a mix of abrasion, erosion and corrosion resistant properties in
one material and its ability to coat interior surfaces and complex
shapes uniformly. When applied to metal components in aggressive
environments, the material is proven to offer dramatic improvements
in component life resulting 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 statement
SUMMARY
The Company experienced a 17% decline in revenue. This was due
to an inventory reduction by a major customer that began in the
latter part of H1 which we highlighted to shareholders at the time
and which continued throughout H2, adversely affecting the full
year result. However, there are good signs that this slowdown is
coming to an end. The drop in demand was particularly disappointing
because the Company is making very good headway in other areas,
including product and technical development, building sales and
marketing momentum and strengthening the patent portfolio.
Mainly as a result of this fall back in demand by the major
customer, sales were 17% lower than last year and fixed factory
overheads meant that the gross profit was GBP0.6m down and as a
percentage of sales slipped to 65% (2012: 72%).
Administrative expenses rose to GBP1.8m from GBP1.6m last year
on the back of increased sales and marketing expenditure, with
additional business development resources recruited in the UK,
Europe and the USA.
The net effect of these movements was a GBP0.7m reduction in
EBITDA to a loss of GBP0.2m.
Diversification remains a challenge in the short-term due to the
long sales cycle. However, progress is being made, with an increase
of over 30% in customer numbers over the year and the successful
completion of one long-term supply agreement and good progress on
another with a major US-based customer. The Board is confident that
the correct strategy is in place to achieve further
diversification.
We remained sufficiently confident during the year to continue
to invest in sales, marketing, product testing and development. As
long as business performance remains as currently projected,
expenditure of this nature will continue to increase ahead of the
sales growth expected in the coming year.
FINANCIAL OVERVIEW
Whilst the Company has reduced its dependence on a small number
of major customers, the progress was not sufficient to mitigate the
effect of the dramatic inventory reduction by one such customer.
This adjustment, combined with delays in other customers' testing
programmes and product introductions across several sectors, led to
a fall back in full year sales revenue by 17% to GBP2.4m (2012:
GBP2.9 m). This is in line with market expectations but
disappointing against a background of our technology performing
exceptionally well and the many positive technical and commercial
developments achieved in the year.
Group gross profit fell by 29% to GBP1.5m (2012: GBP2.1
million), and EBITDA to a loss of GBP0.2m (2012: profit GBP0.5m).
The Group made a loss before tax of GBP0.9m (2012: profit
GBP0.3m).
A prudent view has been taken on the remaining term of the lease
on our Houston facility which is currently mothballed and partially
sublet. We have provided GBP0.4m for the 'onerous' lease and a
further GBP0.1m impairment loss on the remaining plant and
machinery. Excluding these one-off items, Group loss before tax was
GBP0.4m.
Cost of sales remained the same as FY2012 at GBP0.8m; attributed
to fixed production salaries and the mix of components that were
processed, resulting in gross margin reducing to 65% (2012:
72%).
Two new business development staff, a sales consultant, an agent
in Germany and increased marketing spend accounted for the majority
of the 13% increase in expenses to GBP1.8m (2012: GBP1.6m).
In January 2013, a convertible loan note of GBP225,000 was
exercised, resulting in the issue of 50,000,000 New Ordinary
Shares.
The Group was successful in its application for a Technology
Strategy Board (TSB) grant in January 2013 and awarded up to
GBP250,000 towards the project costs. During the year, income from
this grant of GBP53,000 was netted against development expenses
incurred.
BUSINESS REVIEW
Customers and Markets
Total revenue from the oil and gas sector fell by 26%, largely
due to destocking by one major customer.
Sales to the flow control sector fell by 6% due to a general
slowing in project activity but we saw a 28% rise in demand from
our major customer in this sector; the second year in succession
that they have significantly increased orders.
Advanced engineering and aerospace revenue grew by 4% from a low
base.
Across all sectors, eleven new accounts were gained, the number
of repeat customers increased by 31% and the number of qualified
prospects rose by 40%.
During the course of the year, we continued our planned
investment in sales and marketing. As well as appointing additional
sales personnel, our corporate branding and marketing literature
were refreshed and a German language version of our main brochure
was produced. The website was re-designed and more customer-focused
content incorporated. The Company exhibited at and attended many
industry events and the technology was presented at various
seminars and conferences. The Company joined the West of England
Aerospace Forum (WEAF) to reinforce its connection with major
aerospace companies. We also joined NAMTEC, the National Metals
Technology Centre, part of the Advanced Manufacturing Research
Centre (AMRC) run by the University of Sheffield, Rolls-Royce and
Boeing.
Since so many of Hardide coatings' applications are on critical
components with a high cost of failure, final acceptance often
comes only after lengthy testing, sometimes taking years. However,
once approved the coatings are truly embedded and we enjoy long
term relationships, repeat orders and enquiries for new
applications from satisfied customers. Despite great efforts to
expedite progress, we have little influence on the speed of
customers' testing and our experience is that their programmes
often extend well beyond the time and scope first indicated to
us.
Several test programmes reached a conclusion during the year and
eleven new accounts were gained across a range of sectors as a
result. One highlight was the success of long term testing on
critical parts for a world-leading, US-based advanced engineering
company. A strategic supply agreement with minimum guaranteed
annual volumes is now being negotiated and tests on further
components are already underway and are planned to be included in
the agreement's scope when proven.
In April 2013, the Company signed a mutually exclusive five-year
supply agreement with 'hardfacing' specialists Cutting & Wear
Resistant Developments to supply the new coating for
'superabrasive' products for use in oil and gas applications.
In the US
Our plant in Houston remains intact but will not become
operational until demand from North America has reached a
sufficient level. To this end, we are engaged in trials with
several of the world's largest valve and oil and gas service
companies for high volume parts. Lab testing was completed
successfully on our first fracking tool application for a major
oilfield services company and they intend to begin field trials
with results expected early in 2014. These developments, as well as
the appointment of a new US-based business manager are designed to
bolster demand in North America to the point at which the plant can
be re-opened. Sales in North America to new and existing customers
rose by 17% to GBP0.7m (2012: GBP0.6m).
Operations
The production team embarked on a Six Sigma lean manufacturing
programme. This has resulted in efficiency improvements, including
a sharp increase in throughput per cycle for certain components.
Two key process managers have been trained and shortly will be
awarded their Six Sigma green belt status.
In 2013, we were very pleased to recruit our first apprentice
who is being trained as a quality technician while attending
college one day a week. We believe that apprenticeships should play
an important role in our business because they have the potential
to develop skills specific to our technology and so enhance
productivity.
Our excellent safety record remains in place. No lost-time
incidents were recorded during the year and the Company surpassed
all its environmental objectives.
Technology, Research & Development
Rapid progress was made on the further development and
commercialisation of a next-generation superabrasive coating
technology. The new Hardide coating is incorporated into a
hardfacing material that extends the life of drilling and other
tools operating in extremely abrasive environments. The project was
fast-tracked from lab research stage with the support of a TSB
grant. This is the first successful high-performance adhesive
coating of its kind and we believe that the technology is
applicable to other extractive industries and to construction.
Accordingly, we have filed UK and international patent
applications.
In the second half of the year we launched two independent test
programmes. One is investigating the behaviour of the coating on
two widely-used substrates and the other is testing its resistance
to a particular wear mechanism in pumps. The programme is due to be
completed by the end of 2013 and if successful will open up
opportunities in the fast growing subsea sector and for new pump
industry applications.
Erosion tests at Southampton University on behalf of a major oil
and gas customer yielded impressive results. The coating's erosion
rate was 125 times better than stainless steel and seven times
better than HVOF, a competing high performance coating. These
results have been disseminated by our customer and we expect new
applications on the strength of our performance.
Test programmes by Airbus and AgustaWestland (AW) continue to
make progress. Since the coating will be used in safety-critical
applications, tests have had to be very wide-ranging and
detailed.
Airbus has very nearly completed its generic test programme. AW,
having already successfully completed its generic testing, is now
conducting tests on an extremely critical component. If these tests
are successful, this will also qualify the coating for use in
multiple, less-severe applications, where it is thought that there
may be major advantages to be had from using the coating.
With both of these aerospace customers, the availability of test
equipment is an important factor in the time that it takes to
complete these test programmes and grant approval. Our current best
estimate is that both programmes will be completed before
mid-2014.
The reputation of the Hardide coating as an alternative to hard
chrome plating, the production of which is shortly to be severely
restricted under EU and US health, safety and environmental
regulations, was enhanced when a customer, VelanInc authored a
peer-reviewed paper in conjunction with two universities. The
article was published in the journal "Materials Chemistry and
Physics" and concluded that the Hardide coating is a suitable
alternative to hard chrome plating in severe service valves.
Outlook
Looking forward, the Board expects 2014 to show benefits from
investment in business development, the increase in new customers
and from the recent 40% uplift in the number of qualified
prospects. There are further positive commercial and technical
developments underway and a healthy and growing pipeline of
opportunities. Activity in North America is gaining momentum and
opportunities in Germany, Italy and Norway are also being
targeted.
Investment in technology and marketing will continue, and the
Board maintains its view that expenditure ahead of revenue will
realise valuable new applications and fuel business growth and
diversification, thereby improving shareholder value.
We are confident in the outlook for sales, in our plans to
increase sector penetration and diversification, and in our ability
to improve our overall performance.
Finally, our thanks are extended to the management team and
employees for their hard work during the year and to our
shareholders for their continued support.
Robert Goddard Philip Kirkham
Chairman CEO
25 November 2013 25 November 2013
Financial Review
While the year started promisingly, by the end of H1 it became
apparent that one of our major customers was undertaking a
destocking exercise throughout its global operations, and this
continued through the second half. While we converted a number of
new accounts during the year, revenue from these was not sufficient
to offset the decline from the major customer. Indications are that
demand from this major customer will return to more normal levels
in the new financial year.
The consequence of the 17% decline in revenue on an operation
with low variable but high fixed production costs was a larger
decline in gross profit of 29%. Overheads increased by GBP0.2m to
GBP1.8m due to increased marketing, business development and
technology improvement costs.
Revenue from our US customers increased on the back of higher
economic activity there, and we also began to see the benefits of
more active account management from our new US Business Development
Manager. However while the prospects for our North American
business are improving, we have taken the prudent view to provide
under IAS37 an amount of GBP0.4m in the P&L for the remaining
rental on the facility in Houston, less the minimum amounts due to
us from our sub-lessee. Similarly, although there remain
substantial amounts of plant and machinery in situ to facilitate a
quick re-opening should conditions allow, the absence of a decision
to do so has resulted in a write-down of its carrying value to
zero; an additional expense to the P&L of GBP0.1m.
After accounting for these one-off items, the company's pre-tax
loss was GBP0.9m (2012: GBP0.3m profit), if these are excluded,
underlying EBITDA loss was GBP0.2m, down from an EBITDA profit of
GBP0.5m in 2012.
Cash outflow in the year amounted to GBP368k including capital
expenditure of GBP69k and net interest costs of GBP59k.
The company successfully applied for funding from the Technology
Strategy Board to develop a coating variant for hardfacing
material. The grant contributes towards eligible project
expenditure for up to two years. During the year GBP50k was
received, with a further GBP3k accrued. Since these amounts relate
to costs incurred, the grant has been accounted for as a credit to
expenses, rather than income. Substantial amounts of our
developments in other areas continue to be eligible for R&D tax
credits.
The holder of a GBP225k convertible loan note converted and sold
these on ahead of their maturity into 50m ordinary shares at a
conversion price of 0.45p per share. The shares were placed with a
variety of institutional shareholders and private client brokers.
This same holder retains a GBP633k convertible loan note that
matures in the summer of 2014.
Peter Davenport
Finance Director
25 November 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2013
2013 2012
GBP000 GBP000
Revenue 2,359 2,915
Cost of sales (815) (820)
Gross profit 1,544 2,095
----------------------------------------- -------- --------
Administrative expenses (1,769) (1,573)
Depreciation and amortisation (110) (108)
Impairment of fixed assets (90) (36)
Provision for onerous lease obligations (376) -
Operating (loss) / profit (801) 378
----------------------------------------- -------- --------
Finance income 2 2
Finance costs (103) (115)
(Loss) / profit on ordinary activities
before taxation (902) 265
----------------------------------------- -------- --------
Taxation 54 42
(Loss) / profit on ordinary activities
after taxation (848) 307
----------------------------------------- -------- --------
Profit / (loss) per share: Basic (0.08)p 0.03p
Profit / (loss) per share: Diluted (0.07)p 0.02p
All operations are continuing.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2013
2013 2012
GBP000 GBP000
Assets
Non-current assets
Goodwill 69 69
Intangible assets 2 -
Property, plant & equipment 245 379
--------------------------------------- -------- --------
Total non-current assets 316 448
--------------------------------------- -------- --------
Current assets
Inventories 41 33
Trade and other receivables 434 549
Other current financial assets 154 98
Cash and cash equivalents 1,037 1,405
--------------------------------------- -------- --------
Total current assets 1,666 2,085
--------------------------------------- -------- --------
Total assets 1,982 2,533
--------------------------------------- -------- --------
Liabilities
Current liabilities
Trade and other payables 282 480
Financial liabilities 702 257
Provision for lease obligation 86 -
Total current liabilities 1,070 737
--------------------------------------- -------- --------
Net current assets 596 1,348
--------------------------------------- -------- --------
Non-current liabilities
Financial liabilities 5 673
Provision for lease obligation 290 -
--------------------------------------- -------- --------
Total non-current liabilities 295 673
--------------------------------------- -------- --------
Total liabilities 1,365 1,410
--------------------------------------- -------- --------
Net assets 617 1,123
--------------------------------------- -------- --------
Equity attributable to equity holders
of the parent
Share capital 2,733 2,666
Share premium 6,085 5,848
Retained earnings (7,841) (6,993)
Share-based payments reserve 275 240
Translation reserve (635) (638)
--------------------------------------- -------- --------
Total equity 617 1,123
--------------------------------------- -------- --------
The financial statements were approved and authorised for issue
by the Board on 25 November 2013.
Robert Goddard
Director
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2013
2013 2012
GBP000 GBP000
Cash flows from operating activities
Operating (loss) / profit (801) 378
Depreciation 110 108
Impairment of fixed assets 90 36
Share option charge 35 1
Increase in inventories (8) (9)
Decrease in receivables 114 (139)
Decrease in payables (198) 110
Increase in provisions 376 -
Cash generated from operations (282) 485
---------------------------------------------- -------- --------
Finance income 2 2
Finance costs (61) (83)
Tax received / (paid) - 45
Net cash generated from operating activities (341) 449
---------------------------------------------- -------- --------
Cash flows from investing activities
Purchase of property, plant and equipment (69) (50)
Net cash used in investing activities (69) (50)
---------------------------------------------- -------- --------
Cash flows from financing activities
Net proceeds from issue of ordinary share
capital 304 714
Loan repayment (262) -
Net cash used in financing activities 42 714
---------------------------------------------- -------- --------
Net increase / (decrease) in cash and
cash equivalents (368) 1,113
---------------------------------------------- -------- --------
Cash and cash equivalents at the beginning
of the year 1,405 292
---------------------------------------------- -------- --------
Cash and cash equivalents at the end
of the year 1,037 1,405
---------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2013
Share Share Share-based Foreign Retained Total
Capital Premium Payments Translation Earnings Equity
---------------------- --------- --------- ------------ ------------- ---------- --------
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
---------------------- --------- --------- ------------ ------------- ---------- --------
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
---------------------- --------- --------- ------------ ------------- ---------- --------
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
2013, 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 2013 statutory financial
statements. The audit report on the full financial statements has
not yet been signed by the auditor. 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
2013 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 2013 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.
This information is provided by RNS
The company news service from the London Stock Exchange
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