Hardide PLC Interim Results (8864Y)

TIDMHDD

RNS Number : 8864Y

Hardide PLC

14 May 2019

The information communicated in this announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

14 May 2019

Hardide plc

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

Interim Results

for the six months ended 31 March 2019

Hardide (AIM: HDD), the developer and provider of advanced surface coating technology, today announces its results for the six-month period ended 31 March 2019.

Financial Highlights

 
 --   Record revenue for a first half-year - up by 9% to GBP2.35m 
       (H1 2018: 
       GBP2.16m) 
 --   Gross profit of GBP1.05m (H1 2018: 
       GBP1.15m) 
 --   Group operating loss of GBP0.66m (H1 2018: GBP0.32m 
       loss) 
 --   EBITDA loss of GBP0.44m (H1 2018: loss of 
       GBP0.14m) 
 --   Successful fundraising of GBP3.60m (before 
       expenses) in March 2019 to fund continuing investment 
       and long-term growth 
 --   Cash at bank at 31 March 2019 of GBP5.35m (GBP3.23m at 
       31 March 
       2018) 
 

Operational Highlights

 
 --   Diversification of customer base continues - half of 
       revenues in H1 attributable to customers gained in the 
       last three years 
 --   Sales to customers in North America increased by 32% 
 --   Increased sales of 52% in flow control 
 --   Encouraging progress being made in aerospace sector: 
  -   first Airbus A380 component selected for Hardide coating 
  -   numerous components for Airbus in final stages of 
       evaluation 
  -   first coated components currently in-flight testing 
       on an Airbus A321 with a global MRO (maintenance, 
       repair and overhaul) customer 
  -   Leonardo Helicopters began process to make Hardide 
       an approved supplier for flying parts 
 --   Third coating reactor and large pre-treatment line 
       installed in Martinsville 
 --   Order placed for the first coating reactor for the new 
       Bicester site 
 --   Aerospace coating (Hardide-A) produced at the US facility 
       for the first time 
 --   Successful completion of 'Innovate UK' grant-funded project 
       to produce an ultra-low temperature coating process 
 --   Two National Aerospace Technology Exploitation Programme 
       (NATEP) grant-funded projects started 
 --   A new international PCT patent was submitted protecting 
       the latest developments and improvements in the coatings 
 
 

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

"The Group is pleased to have achieved record sales revenue for a first half during this period. This was despite some short-term disruption with one customer and the unpredictability of larger customer projects, which have led us to now expect full-year revenues to be at the lower end of market expectations. More than half of demand in the period was from customers gained within the last three years. Customer and sector diversification are key strategic objectives for the Group and the Board is pleased with the progress being made.

"Indications are that demand will remain strong from customers in the oil and gas, flow control and precision engineering sectors and the Board is pleased with the advances being made towards production orders from aerospace customers in the UK and US. The announcement today with regard to our Hardide-A coating being selected by Airbus is particularly pleasing and a testament to the quality of our offering.

"We remain highly optimistic about the longer-term outlook for the business."

 
 
  Enquiries: 
Hardide plc 
 Robert Goddard, Non-Executive Chairman           Tel: [phone] 
 Philip Kirkham, CEO                                                830 
 Jackie Robinson, Communications Manager 
IFC Advisory                                      Tel: [phone] 
 Graham Herring / Heather Armstrong / Florence                      630 
 Chandler 
finnCap                                           Tel: [phone] 
 Henrik Persson / Kate Bannatyne / Matthew                          500 
 Radley 
 

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 production, valve and pump manufacturing, precision engineering and aerospace industries.

CHAIRMAN'S STATEMENT

Introduction

The Group had record sales revenue for a first half in the six months to 31 March 2019, with more than half coming from new customers gained within the last three years. Customer and sector diversification are key strategic objectives for the Group and the Board is pleased with the progress being made.

Demand is strong from new and existing customers in the UK and North America. Sales to customers in North America increased by 32% compared with the same period last year and the US facility is operating well and producing an excellent quality of product.

Demand from some of our newly-established customers is heavily project-based. This means that we see large, discrete orders on unpredictable timescales, thereby limiting visibility over when revenue will be recorded. As the overall number of clients grows, so diversifying our revenue stream, the individual impact of any one project will decline. The medium- and long-term trends continue to look promising and we are very pleased to be attracting customers of this calibre. Certain customer orders that we expected in the first half are now likely to be in H2.

In H1, one of our significant oil and gas customers made adjustments to the design of the product that uses the components that we coat. They also changed the manufacturer of the parts. This has delayed the phasing of orders for these components from H1 to H2 2019. However, recently there has been a return of demand for these components and our customer expects this to continue throughout H2.

Financial Results

The Group is reporting H1 2019 revenue of GBP2.35m, an increase of 9% compared with the same period last year (H1 2018: GBP2.16m), with Group gross profit of GBP1.05m (H1 2018: GBP1.15m). Whilst revenue is up, gross profit was affected adversely by the impact of the product mix.

Overheads of GBP1.48m (H1 2018: GBP1.29m) increased, primarily due to a strategic investment in a new US--based business development engineer and the planned increase in sales and marketing expenditure. In addition, there was a rise in operational costs at the US site due to the newly-installed third reactor, together with the annual pay award made to all UK and US staff.

The Group made a loss before interest, tax, depreciation and amortisation of GBP0.44m (H1 2018: loss

GBP0.14m) and an operating loss of GBP0.66m (H1 2018: loss of GBP0.32m).

During the period, the Group raised GBP3.60m (before expenses) in a fundraising and undertook a share capital consolidation such that every 40 Ordinary 0.1p Shares in issue were consolidated into 1 New Ordinary 4p Share. Primarily, the proceeds will be used to fund the purchase of three more coating reactors and to move the Company's facilities to new premises nearby where there will be double the floor space. An update on progress in deploying these funds is set out in the Operational Overview below.

Operational Overview

The demand from oil and gas customers continued, with sales being similar to those in H1 2018. The exception was the reduced demand from the major customer mentioned earlier, which was offset by sales of new applications for UK and US customers, and by the return of demand for Hardide--coated industrial diamonds. Sales to flow control customers increased by 52%; a contributing factor being the specification of the Hardide coating on new product ranges for a US pump manufacturer following successful development work last year.

There was encouraging progress in the aerospace sector, with the first coated parts selected for the Airbus A380. These will be replacements for hard chrome plated wing compression flap pads. Numerous other components for the Airbus range of aircraft are currently in the final stages of evaluation prior to approval. A global MRO customer has put the first Hardide-coated components on an Airbus A321 for flight testing prior to approval. A US aerospace customer has also indicated its selection of Hardide for coating certain of their components. This will be the subject of a separate announcement once it has been formally approved by the customer.

The US facility in Martinsville is operating well and Hardide-A, the coating developed specifically for the aerospace sector, was successfully produced there for the first time as work continues to prepare the site for processing aerospace components following its approval to aerospace quality management standard AS9100 RevD in 2018.

Good progress was made in the development of a coating for turbine blades and this has been identified as a product with excellent prospects. Tests commissioned by our customer EDF Energy indicate that the coating can extend the life of steam turbine blades through significantly enhanced resistance to erosion by solid particles and high-speed water droplets. In March 2019, at a joint presentation by EDF Energy and Hardide Coatings to a meeting of the Steam Turbine Users Group, there was considerable interest from several turbine manufacturers. EDF Energy is now developing plans to begin field testing of Hardide-coated blades in a power station turbine. A new international PCT patent incorporating this application was submitted and if granted, will protect the latest developments and improvements in the coatings. This is a long-term project significant potential for developments of markets and of IP.

The Innovate UK grant for the project to develop and characterise the new, low-temperature Hardide coating process was completed successfully at the end of H1 2019. This widens the range of metals and applications that are suitable for Hardide coating and includes many steels used in the aerospace and oil and gas sectors. Hardide-T and Hardide-A, the two most frequently used coatings are now available in low--temperature variants, Hardide-LT and Hardide-LA. A global leader in the energy industry has already ordered the first parts for low temperature coating.

Work started on two, 18-month long projects to apply Hardide's new low-temperature coating in the aerospace sector and develop new finishing techniques. These have been part-funded by the National Aerospace Technology Exploitation Programme (NATEP) and are being carried out in collaboration with Airbus, Leonardo Helicopters and other industry partners. Working with NATEP is already presenting new opportunities for disseminating information about Hardide coatings to the wider aerospace sector.

Following the raising of GBP3.60m (gross) in March 2019, detailed plans are being developed for the move of the UK facility to a new, larger site nearby in Bicester. We expect costs in this regard to be approximately GBP200k in the second half. Planning is underway for a staged move, which is expected to be complete by September 2020.

An order has been placed for the first of three new coating reactors and design of the Group's first larger--capacity reactor has begun. This reactor and a new pre-treatment facility are being designed to accommodate bigger components, including turbine blades used in the power generation industry and various aircraft landing gear components.

Summary and Outlook

Indications are that demand will remain strong from customers in the oil and gas, flow control and precision engineering sectors and the Board is pleased with the advances being made towards production orders from aerospace customers in the UK and US.

Due to the project-based nature of demand from several large customers, prediction of revenue over the short term has always been difficult. Now that we have more project-based customers, sales forecasting has become even more challenging. In future, our increasingly diversified customer base will help smooth these fluctuations. Against this background, we expect revenue for the full year to be at the lower end of market expectations and for EBITDA to be broadly break-even for the second half (before costs associated with the move of facilities as set out above), dependent on the product mix and the phasing of costs associated with the move to new premises.

Accordingly, we remain highly optimistic about the longer-term outlook for the business.

Robert Goddard

Chairman

14 May 2019

Consolidated Statement of Comprehensive Income

For the period ended 31 March 2019

 
 GBP 000                           6 months to      6 months to        Year to 
                                   31 March 2019    31 March 2018    30 September 
                                                                         2018 
                                    (unaudited)      (unaudited)      (audited) 
 
 Revenue                              2,346            2,158            4,613 
 Cost of Sales                       (1,300)          (1,004)          (2,201) 
 
 Gross profit                         1,046            1,154            2,412 
-------------------------------  ---------------  ---------------  -------------- 
 
 Administrative expenses             (1,482)          (1,294)          (2,711) 
 Depreciation                         (226)            (178)            (373) 
 Provision for grant repayment          -                -              (246) 
 
 Operating (loss)/ profit             (662)            (318)            (918) 
-------------------------------  ---------------  ---------------  -------------- 
 
 Finance income                         6                3                8 
 Finance costs                         (1)              (2)              (3) 
 
 Loss on ordinary activities 
  before tax                          (657)            (317)            (913) 
-------------------------------  ---------------  ---------------  -------------- 
 
 Tax                                    -                -               48 
 
 Loss on ordinary activities 
  after tax                           (657)            (317)            (865) 
-------------------------------  ---------------  ---------------  -------------- 
 

Consolidated Statement of Changes in Equity

For the period ended 31 March 2019

 
 GBP 000                                 6 months to      6 months to        Year to 
                                         31 March 2019    31 March 2018    30 September 
                                                           (unaudited)         2018 
                                          (unaudited)                       (audited) 
 
 Total equity at start of 
  period                                    5,079            3,291            3,291 
-------------------------------------  ---------------  ---------------  -------------- 
 
 Profit / (loss) for the period             (657)            (317)            (865) 
 
 Issue of new shares                        3,451            2,470            2,533 
 
 Exchange differences on translation 
  of foreign operation                        6               (85)             47 
 
 Share options                                40               19              73 
 
 Total equity at end of period              7,919            5,378            5,079 
-------------------------------------  ---------------  ---------------  -------------- 
 

Consolidated Statement of Financial Position

As at 31 March 2019

 
 GBP 000                           31 March 2019   31 March 2018   30 September 
                                                                       2018 
                                    (unaudited)     (unaudited)      (audited) 
 
 Assets 
 
 Non-current assets 
 Investments                             -               -              - 
 Goodwill                               69              69              69 
 Intangible assets                      24               1              25 
 Property, plant & equipment           2,122           1,610          2,033 
 
 Total non-current assets              2,215           1,680          2,127 
--------------------------------  --------------  --------------  ------------- 
 
 Current assets 
 Inventories                            357             218            286 
 Trade and other receivables            773             665            749 
 Other current financial assets         198             188            265 
 Cash and cash equivalents             5,348           3,233          3,302 
 
 Total current assets                  6,676           4,304          4,602 
--------------------------------  --------------  --------------  ------------- 
 
 Total assets                          8,891           5,984          6,729 
--------------------------------  --------------  --------------  ------------- 
 
 Liabilities 
 
 Current liabilities 
 Trade and other payables               539             541           1,336 
 Financial liabilities                  37               2              10 
 Provision for grant repayment          246              -             246 
 
 Total current liabilities              822             543           1,592 
--------------------------------  --------------  --------------  ------------- 
 
 Net current assets                    5,854           3,761          3,010 
--------------------------------  --------------  --------------  ------------- 
 
 Non-current liabilities 
 Financial liabilities                  150             63              58 
 
 Total non-current liabilities          150             63              58 
--------------------------------  --------------  --------------  ------------- 
 
 Total liabilities                      972             606           1,650 
--------------------------------  --------------  --------------  ------------- 
 
 Net assets                            7,919           5,378          5,079 
--------------------------------  --------------  --------------  ------------- 
 
 Equity attributable to equity 
  holders of the parent 
 Share capital                         3,645           3,393          3,405 
 Share premium                        15,887          12,625          12,676 
 Retained earnings                   (11,583)        (10,377)        (10,925) 
 Share-based payment reserve            348             254            308 
 Translation reserve                   (378)           (517)          (385) 
--------------------------------  --------------  --------------  ------------- 
 Total equity                          7,919           5,378          5,079 
--------------------------------  --------------  --------------  ------------- 
 

Consolidated Statement of Cash Flows

For the period ended 31 March 2019

 
 GBP 000                               6 months to      6 months to        Year to 
                                       31 March 2019    31 March 2018    30 September 
                                                                             2018 
                                        (unaudited)      (unaudited)      (audited) 
 
 Cash flows from operating 
  activities 
 Operating profit / (loss)                (662)            (318)            (918) 
 Impairment of intangibles                  3                -                2 
 Depreciation                              223              178              371 
 Share option charge                        40               21              73 
 (Increase) / decrease in 
  inventories                              (71)             (58)            (124) 
 (Increase) / decrease in 
  receivables                               56               2              (149) 
 Increase / (decrease) in 
  payables                                (797)              52              793 
 Exchange rate variance                     -               (25)              - 
 Increase in provisions                     -                -               246 
 
 Cash generated from operations          (1,208)           (148)             294 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Finance income                             6                3                8 
 Finance costs                             (1)              (2)              (3) 
 Tax received / (paid)                      -                9               93 
 
 Net cash generated from operating 
  activities                             (1,203)           (138)             392 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Cash flows from investing 
  activities 
 Purchase of property, plant, 
  equipment                               (321)            (360)            (887) 
 
 Net cash used in investing 
  activities                              (321)            (360)            (887) 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Cash flows from financing 
  activities 
 Net proceeds from issue of 
  ordinary share capital                  3,451            2,470            2,533 
 Loans raised                              128               51              55 
 Loans repaid                              (9)               -                - 
 Finance lease repayment                    -               (2)              (3) 
 
 Net cash used in financing 
  activities                              3,570            2,519            2,585 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Net increase / (decrease) 
  in cash and cash equivalents            2,046            2,021            2,090 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Cash and cash equivalents 
  at the beginning of the period          3,302            1,212            1,212 
-----------------------------------  ---------------  ---------------  -------------- 
 
 Cash and cash equivalents 
  at the end of the period                5,348            3,233            3,302 
-----------------------------------  ---------------  ---------------  -------------- 
 

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May 14, 2019 02:00 ET (06:00 GMT)