Hardide PLC Interim Statement

RNS Number : 3604P

Hardide PLC

22 May 2024

 

The information contained within this announcement is deemed by Hardide to constitute inside information pursuant to Article 7 of EU Regulation 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 as amended

 

Hardide plc

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

 

Interim Statement for the six months ended 31 March 2024

 

Financial Highlights

 

Six months ended 31 March:

 

£m	2024	2023	Change
Revenue	2.1	2.9	-0.8
Gross margin %	41.0%	46.7%	-5.7ppts
EBITDA	(0.5)	-	-0.5
(Loss) before tax	(1.0)	(0.6)	-0.4
Cash balance at 31 March	0.7	0.7	-

 

Two months ended 31 March 2024

 

£m	2 months to 31.3.24
Revenue	0.9
Gross margin %	48.3%
EBITDA	-

 

Business and Commercial Highlights

 

·    Return to EBITDA and net cash flow break even since the successful net £0.75m equity fund raise in February

 

·    Revenue growth has resumed in recent months, benefiting from the successful launch of the pre-coated product sales range, focused on industrial spares end user markets

 

·    Increasing sales to the aerospace sector with further new work expected

 

·    Demand recovering again in core markets following recent de-stocking

 

·    Short to medium term business development opportunities in power generation and for sand screens for the oil and gas sector

 

·    Grant funded development work for hydrogen applications showing early promise

 

·    Matt Hamblin (an existing NED) is to become Hardide's new CEO on 3 June. Current interim CEO Steve Paul will continue in a business development role

 

·    The cash break-even point of the business has been lowered by over 20% in revenue terms over the last 18 months, benefiting from margin improvement and cost reduction

 

·    Available cash balance of over £0.7m at 31 March 2024, supplemented recently by an additional US$315k asset backed loan

 

·    Management is focused on delivering an adjusted EBITDA positive performance for the financial year as a whole, prior to an expected one-off £0.4m charge relating to restructuring and CEO transition costs

 

·    A run rate cash positive trading performance is targeted by the financial year end.

 

Andrew Magson, Non-Executive Chair commented:

 

"We are pleased that trading momentum has improved significantly in recent months.

 

With further management action being taken to increase margins and reduce overhead costs, and sales from our recently launched pre-coated product range now gaining traction, the Board continues to expect the business to be EBITDA positive both in the second half year and, prior to charging c. £0.4m of one-off cash restructuring costs, for the financial year as a whole. It is also targeting Hardide to be in a run rate cash positive trading position by the financial year end.

 

More broadly, under new leadership, the Board is confident that Hardide is now much better positioned to realise the significant value inherent in its unique high performance coatings technology."

 

Enquiries:
Hardide plc Andrew Magson, Non-Executive Chair Steve Paul, Interim CEO	Tel: [phone]
IFC Advisory Graham Herring Tim Metcalfe Florence Chandler	Tel: [phone]
Cavendish Capital Markets Ltd - Nominated Adviser and Joint Broker Henrik Persson/ Abigail Kelly (Corporate Finance)	Tel: [phone]
Allenby Capital - Joint Broker Tony Quirke/ Joscelin Pinnington - Sales and Corporate Broking Jeremy Porter/ Dan Dearden-Williams - Corporate Finance	Tel: [phone]

Notes to editors:

www.hardide.com

 

Hardide develops, manufactures and applies advanced technology tungsten carbide/tungsten metal matrix 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 as well as a reduced carbon footprint. Customers include leading companies operating in the energy sectors, valve and pump manufacturing, industrial gas turbine, precision engineering and aerospace industries.

 

 

 

 

 

Overview

 

Recent trading momentum has improved significantly with an EBITDA break-even performance delivered in the last two months of the period and cash break even achieved since the February fund raise.

 

In the six months ended 31 March 2024 ("H1 24") Hardide's revenues were £2.1m (H1 23: £2.9m), of which £0.9m was generated in the last two months. As previously reported, revenues were below expectations in the first part of the financial year, mainly due to customer de-stocking. The EBITDA loss in H1 24 was £0.5m (H1 23: EBITDA break-even). The net cash flow out flow in the period was £0.7m, prior to the net £0.75m proceeds received from the equity fund raise in February. As of 31 March 2024, the Group retained available cash resources of just over £0.7m, similar to the position at 30 September 2023.

 

Under new leadership since mid-February, the management team is implementing swift action to drive revenue growth, improve margins and reduce overheads with the objective of recovering to an adjusted EBITDA positive performance for the financial year as a whole (prior to anticipated one-off restructuring costs), and is targeting a run rate cash positive trading performance by the financial year end.

 

Commercial and operational review

 

The Company's strategy of driving growth by diversifying sources of revenue to better utilise existing spare capacity is beginning to bear fruit, with promising early sales and strong enquiry levels following the recent launch of a range of pre-coated consumable spares sold directly to end customers for use in thermal spray equipment. The concept of enhanced pre-coated product sales is now being expanded and is beginning to be trialled in other industrial applications. This will supplement Hardide's established business of supplying coatings as a service, often to suppliers of larger OEM customers.

 

The Group's revenues analysed by end use market were as follows:

 

£m	H1 24 (£m)	H1 23 (£m)	% change	H1 24 % total	H1 23 % total
Energy	0.8	1.9	-53%	42%	64%
Industrial	0.8	0.9	-19%	36%	33%
Aerospace	0.5	0.1	+400%+	22%	3%
Total	2.1	2.9	-27%	100%	100%

 

The lower levels of demand from large oil service industry customers mainly related to short term de-stocking earlier in the financial year and to a lesser extent lower activity levels than in the prior year, including the impact of sanctions on Russia and new regulations impacting land drilling in the USA. More recently demand has shown some recovery. We are in discussions with customers regarding new products and applications to revive and expand this segment.

 

Sales to industrial customers were also impacted by some de-stocking at the beginning of the period. Business in this market segment has now recovered.

 

Sales growth to the aerospace sector in H1 was very encouraging and we have a visible pipeline of sales scheduled well into 2025. In addition, a number of new applications and opportunities are under development to build on the recent success, with the potential to benefit revenues in the near future.

 

There were no sales to the power generation sector either in the period under review or the prior period, whilst the initial set of turbine blades sold in 2022 are field tested. The customer has indicated that we should expect follow on sales towards the end of the current calendar year. We are also exploring opportunities for sales of spares to support the maintenance aftermarket in this sector.

 

Business improvement initiatives and cost reduction

 

Efforts are underway to strengthen our connection with end-user customers and key decision makers to accelerate the growth in the business, as well as developing new markets as described above and in the business development section below.

 

We have recently enhanced our product and customer costing systems and analysis, and this is assisting better pricing decisions and margin improvement.

 

Together, all the above is enabling us to become more focused in prioritisation of business development projects, with a much clearer understanding developing of which opportunities are more likely to be commercially successful, as well as meeting technical requirements.

 

We continue to refine our overhead structure to better align it with the current size of business, whilst still retaining agility to be entrepreneurial and realise growth opportunities.

 

Over the last 18 months we have taken action to improve margins and lower overhead costs to yield over £1.5m of benefit, thereby lowering the cash break-even point of the business by more than 20% in revenue terms.

 

Financial review

 

Group revenues for the period were £2.1m compared with £2.9m in the first half of the prior financial year, for the reasons explained above.

 

Gross margins reduced to 41.0% from 46.7% in the prior first half year, reflecting less efficient recovery of operational fixed costs due to lower sales revenues. However, it was pleasing to see gross margins rise to 48.3% in the two months to March 2024, ahead of prior period levels, in response to better sales volumes and the profit improvement actions taken.

 

Overhead costs of £1.3m compared favourably with £1.5m the prior H1 due to the cost savings actions described above, which more than offset cost inflation.

 

The EBITDA loss for the period was £0.5m (H1 23: EBITDA break-even) because of lower revenues. The Group recovered to an EBITDA break even position in the final two months of the period due to improved trading momentum, better margins and reduced costs.

 

The net cash out flow in the period, prior to the equity fund raise in February, was £0.7m. We were very grateful to both existing and new shareholders who supported us to raise £0.75m (net of costs) at that time, and we are pleased to report that the improved trading performance since then has enabled us to retain those funds on the balance sheet at the half year period end.

 

The Group's capital invested (defined as the sum of shareholders' funds plus net debt) reduced from £6.7m at 30 September 2023 to £6.3m at 31 March 2024, largely due to depreciation and amortisation charges continuing to be significantly above capital expenditure, as the business remains very well invested with significant spare capacity. The proceeds of the equity issue in February remained held in cash at the period end and therefore this did not materially affect overall levels of capital invested.

 

Funding and going concern

 

The Group's net indebtedness (including IFRS16 lease liabilities) at 31 March 2024 was £2.2m (30 September 2023: £2.4m), comprising cash of £0.7m (30 September 2023: £0.7m), loans of £0.7m (£0.8m) and lease liabilities of £2.2m (£2.3m), respectively. Some £0.2m of the loans and lease liabilities are repayable in the six month period to 30 September 2024 and £0.5m in the twelve month period to 31 March 2025.

 

The Group recently secured an additional US$315,000 of asset backed lending, lifting the Group's currently available cash resources to c. £1m.

 

Group revenues would need to fall more than 15% below latest base case forecasts in the remainder of this financial year and into the next financial year for the Group to be in a position where, absent further action that could be taken in such a scenario to improve margins and reduce costs, it would need to seek further support from shareholders in the 12 months from the date of this report.

 

Therefore, the Directors' expectation is that the company will continue to be a going concern for the foreseeable future and the interim financial statements have been prepared on this basis.  

 

People

 

We were delighted to announce today the appointment of Matt Hamblin as Hardide's new Chief Executive with effect from 3 June. Matt was originally appointed to the Hardide Board as a Non-Executive Director in November 2023. The Board believes Matt's deep understanding of the coatings and surface treatment sector together with his track record of commercialising and achieving profitable growth at Keronite, a coatings business with many similarities to Hardide, is highly aligned with Hardide's strategic objectives.

 

We are very pleased that Steve Paul, our current Interim Chief Executive, will be able to continue to contribute to Hardide's growth agenda by working with us in an ongoing business development capacity. The Board is grateful to Steve for leading Hardide's recently improved trading performance and for introducing new sources of revenue.

 

The Board would also like to thank all Hardide employees for their resilience and commitment to the Group in what has been a very challenging period as we have driven improvements in business performance and reduced the cost base. We also extend our gratitude to colleagues who have recently departed from the Group, acknowledging their contributions to Hardide and wishing them success in their future endeavours. 

 

Business development

 

Under new commercially focussed leadership, the Board is seeking to accelerate revenue growth by diversifying sources of revenue to supplement the Group's traditional model of providing coatings as a service, largely to global OEMs.

 

Whilst traditional revenue streams continue to have significant short to medium term development opportunities - such as sand screens in the oil and gas market, new products and customers in the aerospace sector, and coated turbine blades in power generation - a range of new initiatives are also underway:

 

·    Supply of enhanced pre-coated products for end users in industrial spares markets

·    Opportunities for Hardide to become specified as a solution to address specific customers' requirements

·    Increased presence in the North American market through more targeted business development activity, leveraging our operational facility in Martinsville, USA.

·    Opportunities to sell, lease or licence capacity in partnership with certain customers

·    Development of new markets in emerging technologies, including in hydrogen manufacture and storage. The grant funded development work we are carrying out in this area is generating encouraging initial results.

 

Outlook

 

Management's focus on near-term sales growth is expected to drive second half revenues beyond those of the equivalent period last year and improve considerably upon H1.

 

With further action currently being taken to improve margins and reduce overhead costs, the Board continues to expect the business to be EBITDA positive both in the second half year and, prior to charging c.£0.4m of anticipated one-off cash restructuring costs, for the financial year as a whole. It is also targeting Hardide to be in a run rate cash positive trading position by the financial year end.

 

More broadly, under new leadership, the Board is confident that Hardide is now much better positioned to realise the significant value inherent in its unique high performance coatings technology.

 

 

Andrew Magson                                                                                                              Steve Paul

Non-Executive Chair                                                                                                       Interim CEO

                                                                                22 May 2024

 

 

 

 

 

Consolidated Income Statement

 

£ 000	6 months to 31 March 2024 (unaudited)	6 months to 31 March 2023 (unaudited)	Year to 30 September 2023 (audited)
Revenue	2,116	2,886	5,499
Cost of Sales	(1,248)	(1,539)	(2,886)
Gross profit	868	1,347	2,613
Administrative expenses	(1,350)	(1,497)	(2,871)
Other operating income	-	159	159
Other operating costs	(400)	(538)	(932)
Operating loss	(882)	(529)	(1,031)
Finance income	2	1	3
Finance costs	(23)	(32)	(59)
Finance costs on right of use assets	(54)	(48)	(106)
Loss on ordinary activities before tax	(957)	(608)	(1,193)
Tax	-	(6)	75
Loss on ordinary activities after tax	(957)	(614)	(1,118)

 

 

 

Consolidated Statement of Changes in Equity

 

£ 000	6 months to 31 March 2024 (unaudited)	6 months to 31 March 2023 (unaudited)	Year to 30 September 2023 (audited)
Total equity at start of period	4,292	5,530	5,530
Loss for the period	(957)	(614)	(1,118)
Issue of new shares	755	-	-
Exchange differences on translation of foreign operation	(29)	(94)	(144)
Share options	-	-	24
Total equity at end of period	4,061	4,822	4,292

 

 

Consolidated Statement of Financial Position

 

£ 000	31 March 2024 (unaudited)	31 March 2023 (unaudited)	30 September 2023 (audited)
Assets
Non-current assets
Goodwill	-	69	-
Intangible assets	6	13	9
Property, plant & equipment	4,318	4,837	4,640
Right of Use Assets	1,595	1,813	1,697
Total non-current assets	5,919	6,732	6,346
Current assets
Inventories	215	214	236
Trade and other receivables	668	1,013	742
Other current financial assets	345	232	335
Cash and cash equivalents	732	701	740
Total current assets	1,960	2,160	2,053
Total assets	7,879	8,892	8,399
Liabilities
Current liabilities
Trade and other payables	882	710	919
Financial liabilities - loans	257	239	253
Financial liabilities - deferred income	17	17	17
Financial liabilities - leases	185	171	182
Total current liabilities	1,341	1,137	1,371
Net current assets	619	1,023	682
Non-current liabilities
Financial liabilities - loans	374	629	508
Financial liabilities - deferred income	61	79	72
Financial liabilities - leases	1,992	2,175	2,106
Provision for dilapidations	50	50	50
Total non-current liabilities	2,477	2,933	2,736
Total liabilities	3,818	4,070	4,107
Net assets	4,061	4,822	4,292
Equity attributable to equity holders of the parent
Share capital	4,845	4,063	4,063
Share premium	19,215	19,242	19,242
Retained earnings	(20,275)	(18,814)	(19,318)
Share-based payment reserve	577	553	577
Translation reserve	(301)	(222)	(272)
Total equity	4,061	4,822	4,292

Consolidated Statement of Cash Flows

 

£ 000	6 months to 31 March 2024 (unaudited)	6 months to 31 March 2023 (unaudited)	Year to 30 September 2023 (audited)
Cash flows from operating activities
Operating (loss)	(882)	(529)	(1,031)
Impairment of goodwill	-	-	69
Depreciation - owned assets	310	440	677
Depreciation - right of use assets	90	98	186
Gain on sale and leaseback	-	(159)	(159)
Share option charge	-	-	24
Decrease in inventories	21	273	251
Decrease in receivables	64	73	243
Increase / (decrease) in payables	36	(286)	(93)
Cash (used in) / generated from operations	(361)	(90)	167
Finance income	2	1	3
Finance costs	(23)	(32)	(59)
Interest on right of use assets	(54)	(48)	(106)
Tax received	-	82	161
Net cash (used in) / generated from operating activities	(436)	(87)	166
Cash flows from investing activities
Purchase of intangibles Purchase of property, plant, equipment	- (102)	- (105)	(2) (108)
Net cash used in investing activities	(102)	(105)	(110)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital	755	-	-
Proceeds from sale and leaseback	-	477	477
New loans raised	-	-	-
Loans repaid	(120)	(147)	(286)
Repayment of leases	(111)	(135)	(289)
Net cash generated from / (used in) financing activities	524	195	(98)
Effect of exchange rate fluctuations	6	5	89
Net (decrease) / increase in cash and cash equivalents	(8)	8	47
Cash and cash equivalents at the beginning of the period	740	693	693
Cash and cash equivalents at the end of the period	732	701	740

 

 

Notes

 

1. Basis of preparation of financial information

While the financial information included in these interim financial results for the half year ended 31 March 2024 have been prepared in accordance with the recognition and measurement principles of international accounting standards in conformity with the requirements of Companies Act 2006, this announcement does not contain sufficient information to comply fully with IFRS's.

These interim financial results should be read in conjunction with the consolidated financial statements for the year ended 30 September 2023, which have been prepared in accordance with UK adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under these standards. The interim financial information has been prepared using the accounting policies set out in the statutory accounts for the financial year ended 30 September 2023, and in accordance with AIM Rule 18, and the same accounting policies will be adopted in the 2024 annual financial statements.

The financial information set out herein does not constitute the Company's statutory accounts as defined by section 434 of the UK Companies Act 2006 and have been neither reviewed nor audited by the Company's auditors. A copy of the audited statutory accounts for Hardide plc for the year ended 30 September 2023 has been delivered to the Registrar of Companies and is available at www.hardide.com.

The interim financial results present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

2. EBITDA

Earnings Before Interest, Taxation, Depreciation and Amortisation ("EBITDA") is a key financial performance indicator used by management to assess the operational performance of the Group. This may be reconciled to the Operating Loss as reported in the Income Statement as follows:

£ 000	6 months to 31 March 2024 (unaudited)	6 months to 31 March 2023 (unaudited)	Year to 30 September 2023 (audited)
Operating loss	(882)	(529)	(1,031)
Add back non-cash operating costs:
Impairment of goodwill	-	-	69
Depreciation and amortisation of owned assets	310	440	677
Depreciation and amortisation of right of use assets	90	98	186
EBITDA	(482)	9	(99)

 

 

3. Segmental information

Under IFRS8, operating segments are defined as a component of the entity (a) that engages in business activities from which it may earn revenues and incur expenses (b) whose operating results are regularly reviewed and (c) for which discrete financial information is available. The Group management is organised into UK and USA operation and Corporate central functions, and this factor identifies the Group's reportable segments.

 

6 months ended 31 March 2024	UK operation £000		US operation £000		Corporate £000		Total £000
	1,394		722		-		2,116
External revenue
Reportable segment operating profit / (loss)	(249)		7		(640)		(882)
Segment assets		5,366		1,955		558		7,879
Segment liabilities		2,378		1,088		352		3,818

 

 

 

6 months ended 31 March 2023	UK operation £000		US operation £000		Corporate £000		Total £000
	1,518		1,368		-		2,886
External revenue
Reportable segment operating profit / (loss)	(345)		464		(648)		(529)
Segment assets		6,466		2,299		127		8,892
Segment liabilities		2,522		1,216		332		4,070

 

 

12 months ended 30 September 2023	UK operation £000		US operation £000		Corporate £000		Total £000
	3,154		2,345		-		5,499
External revenue
Reportable segment operating profit / (loss)	(776)		759		(1,014)		(1,031)
Segment assets		6,196		2,054		149		8,399
Segment liabilities		2,594		1,225		288		4,107

 

 

 

 

The Group currently has a single business product, so no secondary analysis is presented. Revenue from external customers is attributed according to their country of domicile. Turnover by geographical destination is as follows:

 

External sales	UK £000	Europe £000	N America £000	Rest of World £000	Total £000
31 March 2024	1,004	97	987	28	2,116
31 March 2023	767	79	2,023	17	2,886
30 September 2023	1,938	95	3,396	70	5,499

3. Earnings per share

	31 March 2024 £000	31 March 2023 £000	30 September 2023 £000
(Loss) on ordinary activities after tax	(957)	(614)	(1,118)
Basic earnings per ordinary share:
Weighted average number of ordinary shares in issue	61,045,033	58,901,959	58,901,959
Earnings per share	(1.6)p	(1.0)p	(1.9)p

 

As net losses were recorded in each of the respective periods, the potentially dilutive share options are anti-dilutive for the purposes of the loss per share calculation and their effect is therefore not considered.

 

4. Going concern

Since our last Annual Report, the Group has been successful in raising the targeted c.£1m of additional funding it was seeking at that time. A net sum of £0.75m in equity finance was raised on 21 February 2024 and the Group recently secured an additional US$315,000 of asset backed lending, lifting the Group's currently available cash resources to c. £1m.

 

Group revenues would need to fall more than 15% below latest base case forecasts in the remainder of this financial year and into the next financial year for the Group to be in a position where, absent further action that could be taken in such a scenario to improve margins and reduce costs, it would need to seek further support from shareholders in the 12 months from the date of this report.

 

Therefore, the Directors' expectation is that the company will continue to be a going concern for the foreseeable future and the interim financial statements have been prepared on this basis.  

 

 

 

 

 

5. Debt maturity

Loans

	31 March 2024 £000	31 March 2023 £000	30 September 2023 £000
Total loans	631	868	761
Maturity analysis:
Within 1 year	257	239	253
1 to 2 years	169	251	212
2 to 3 years	104	170	144
3 to 4 years	54	105	76
4 to 5 years	47	55	57
5+ years	-	48	19

 

 

 

Right of use lease liabilities

	31 March 2024 £000	31 March 2023 £000	30 September 2023 £000
Total lease liabilities	2,177	2,346	2,288
Maturity analysis:
Within 1 year	185	171	182
1 to 2 years	193	180	192
2 to 3 years	195	187	196
3 to 4 years	200	195	199
4 to 5 years	213	202	208
5+ years	1,191	1,411	1,311

 

6. Post balance sheet event

Hardide Inc., a Group company, entered into a US$315,000 loan agreement with the American National Bank and Trust Company, a division of Atlantic Union Bank, on 16 May 2024. The loan is secured on certain assets of Hardide Inc., and the loan amortises over the period to expiry on 19 May 2031. It carries a fixed interest rate of 7% pa. There is the option for Hardide to repay the loan earlier than the expiry date.

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