TIDMHDD
RNS Number : 1213I
Hardide PLC
07 December 2015
Press Release 7 December 2015
Hardide plc
("Hardide" or "the Group" or "the Company")
Preliminary results for the year ended 30 September 2015
Hardide plc (AIM: HDD), the developer and provider of advanced
surface coating technology, announces its preliminary results for
the year ended 30 September 2015.
Key Points
Financial
-- After record H1, overall performance affected by downturn in
oil & gas exploration, as expected
-- Revenue of GBP3.00m (2014: GBP3.03m)
-- Gross profit of GBP1.81m (2014: GBP2.09m)
-- Group operating loss of GBP0.22m (2014: profit of GBP0.18m)
-- Loss before interest, tax, depreciation and amortisation of
GBP0.33m (2014: profit of GBP0.12m)
-- Cash at bank at 30 September 2015 of GBP2.33m (30 Sept 2014: GBP3.47m)
Business/ Operational
-- Key investment projects in UK and US progressed to plan - positioning the business for growth:
- UK facility upgraded - for greater efficiency and increased
capacity. Installation of third large reactor
- new facility in Virginia substantially completed - will be production-ready this month
-- Growing sales to North America and continental Europe - up 117% and 64% respectively
-- Encouraging progress with customer trials across a range of industries, including aerospace
- Airbus programme completed and now waiting for formal technical approval
-- Board remains cautious about near term outlook given oil
& gas sector headwinds. However longer term prospects remain
good, supported by diversification strategy
Commenting on the results, Robert Goddard, Chairman of Hardide
plc, said:
"After a record first half, Hardide's performance in the second
was, as expected, affected by weak demand from the oil & gas
sector, particularly reduced expenditure in exploration. As a
result, full-year revenues are largely flat year-on-year at
GBP3.00m. While this is disappointing, the Company has made
encouraging progress in diversifying its customer base, including
geographically and by end-user markets. Sales to North America more
than doubled and we expect to see a further rise in demand from
this territory, supported by the establishment of our new facility
in Virginia, which is expected to be production-ready this
month.
"The continuing low oil price is a significant headwind for some
of our key customers and accurately forecasting demand from this
sector over the coming year is difficult. However, if the current
conditions persist for the whole of the financial year to 30
September 2016, we expect revenues to be similar to those reported
here. Our balance sheet remains robust and we will maintain tight
control over costs. Based on the range of new products now
undergoing customer testing we remain very positive about the
longer-term prospects for the Group."
For further information:
Hardide plc
Philip Kirkham, CEO Tel: +44 (0) 1869 353
Jackie Robinson, Communications 830
Manager
finnCap Tel: +44 (0)20 7220
Stuart Andrews / Grant Bergman 0500
KTZ Communications Tel: +44 (0)20 3178
Katie Tzouliadis 6378
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, nuclear, advanced engineering and aerospace
industries.
chairman's and ceo's report
INTRODUCTION
After a record first half, Hardide's performance in the second
has been adversely affected by the weak oil & gas sector; in
particular, reduced expenditure in exploration and drilling. As a
result, revenues are largely flat year-on-year at GBP3.00m. While
this is disappointing, the Company has continued to make good
progress in diversifying its customer base; both geographically and
by end-user markets. We have also continued investing in business
development, including R&D, which underpins the Company's
longer term growth prospects.
Over the year, we invested significantly in both the UK and US.
Our new production facility in Virginia is expected to become fully
operational by the end of December 2015 and will support increasing
sales to North America, including sales to the General Electric
Company Inc. ("GE") and other large volume customers. Additional
investment in the UK facility supports our moves into selected
European markets as well as ongoing R&D for new applications
for the existing coatings range and new coatings.
FINANCIAL RESULTS
The Company generated total revenues of GBP3.00m for the year
ended 30 September 2015. This is largely unchanged on the prior
year (2014: GBP3.03m), with the second half of the year affected by
the substantial slowdown in the global oil & gas sector. Gross
profit for the year decreased by 13% to GBP1.81m (2014: GBP2.09m)
and gross margin reduced to 60% (2014: 69%). This mainly reflected
the changes in volume, product mix and the cost of US production
staff for the new facility in Virginia. After accounting for the
Virginia costs, investment in the UK facilities, additional
resource in business development and technical areas, as well as
increased sales and marketing activity, the Company generated an
operating loss of GBP0.22m (2014: operating profit of GBP0.18m).
Post-period with effect from 4 December 2015, the lease on the
Group's dormant Houston facility was terminated, resulting in the
release of GBP269k from the onerous lease provision into the 2015
financial statements.
Costs incurred in creating the new Virginia facility totalled
GBP1.03m which were offset by cash grants of GBP0.30m received in
the year from the Martinsville-Henry County Economic Development
Corporation and the Commonwealth of Virginia, with further
substantial grants and incentives due over the next few years as
the new business develops.
The Company generated a loss before tax of GBP0.21m (2014:
GBP0.11m profit) and the loss before interest, tax, depreciation
and amortisation ("EBITDA") was GBP0.33m (2014: GBP0.12m
profit).
The balance sheet remains robust with net assets at 30 September
2015 of GBP3.86m (2014: GBP3.96m). This included cash balances of
GBP2.33m (2014: GBP3.47m). Capital expenditure totalled
GBP1.04m.
OPERATIONAL OVERVIEW
Customers and Markets
An important objective has been to diversify our customer and
market base, and we continued to make good progress here. While the
oil & gas sector as a whole remains an important market for
Hardide, we are focused on expanding our existing presence in flow
control, plastics processing and advanced engineering, as well as
the aerospace sector. Over the year, sales to our core markets of
oil & gas and flow control increased respectively by 3% (2014:
44%) and 10% (2014: decrease of 11%).
Over the year we made excellent progress in growing sales to
North America. These rose 117% to GBP1.20m (2014: GBP0.55m), with
volumes benefitting from the strategic supply agreement with GE, as
well as the flow control orders received late in the second half of
the last financial year. As previously reported, we have
established an excellent working relationship with GE and in March
2015 our supply agreement was extended by a further year to
February 2017, providing guaranteed sales of c.$2.00 million over
the term. We remain optimistic for a further two-year extension to
this contract and continue to work with GE on other
opportunities.
The new coating facility in Virginia, which we announced in
January 2015, will support the increasing demand projected from
North America and we expect this to be fully operational before the
end of 2015. In anticipation of this, we appointed our first two US
production employees in the second half and they will be managing
the phased transfer of some production work from the UK to
Virginia. Establishing a production presence in the US is an
important step in growing the Group's sales in the region and we
remain confident about progress in this regard.
Sales in the UK decreased by 29%, with the reduction reflecting
weaker demand from oil & gas customers in the second half as
well as a return to more normal levels of orders from a long-term
customer in the construction sector, after an exceptionally high
demand from them in 2014. Orders for coating components for a new
type of airport X-ray machine for three-dimensional scanning of
baggage continue to increase, with sales up 100% year-on-year.
Volume production of the machine commenced this year and we expect
demand increases from this customer as the new machine is rolled
out globally.
Our UK production facility also supports orders from continental
Europe and sales from this territory rose by 64%. The rise mainly
reflects our increased sales and marketing activity in Norway,
Germany and Italy, where we are focusing particularly on the flow
control, plastics processing and advanced engineering sectors. In
Germany, we are seeing considerable interest in our technology from
the plastics processing industry and customer trials are
continuing. Our progress in Germany is also gaining momentum and we
secured our first production order through our agent following the
success of a test programme which began last year. Sales to Norway
also rose, with good demand from customers in the advanced
engineering and flow control sectors.
(MORE TO FOLLOW) Dow Jones Newswires
December 07, 2015 02:00 ET (07:00 GMT)
We continued to promote our unique technology through
conferences and trade exhibitions. Other promotional activity
during the year included international trade media editorial,
direct e-marketing and the production of German and Italian
language marketing materials. Both German and Italian language
websites are now operational.
Major new customer trials and industry accreditations
Previously highlighted has been the good progress we are making
with trials for a number of potential new customers, most
significantly Airbus and AgustaWestland. Both are considering the
use of a Hardide coating as a replacement for hard chrome plating.
EU legislation, which is driving the changes in hard chrome
production processes, has set a sunset date of 21 September 2017,
by which time all manufacturing processes must be compliant. Trials
underway on components for Airbus and AgustaWestland suggest the
potential for good revenues.
The development, test and qualification programme with Airbus,
in its eighth year, is now complete and we submitted our final
documentation to Airbus for approval in early November 2015.
Our qualification programme with AgustaWestland is also
progressing well and coated test parts are now with the helicopter
manufacturer for mechanical testing and evaluation. We expect the
pace of this qualification programme to increase as the September
2017 sunset date approaches for the use of hexavalent chromium.
Post period, in November 2015, Hardide Coatings Ltd passed the
aerospace industry's re-certification audit for the AS9100 and
ISO9001 quality management systems. We are planning for the new
facility in Virginia to be certified in mid-2016. In addition, we
are also preparing for the aerospace industry's global
accreditation standard, Nadcap, and expect to be ready to apply for
the Nadcap audit in spring 2016.
We continue to find exciting and novel opportunities for our
newly-patented coating process for industrial diamonds. These exist
not only within the oil & gas sector but also in advanced
manufacturing, particularly with cutting tools. Several trials are
underway with customers.
Production, Technology, Research & Development
Our coating capacity in the UK increased by nearly 50% with the
commissioning of a third large reactor in October 2014. This was
supported by significant investment in process and technology
upgrades and UK infrastructure improvements. Both new reactors for
the US have been installed with systems that help widen the coating
process parameters and give improved gas utilisation. This is
expected to have quality and cost benefits. The latest control
software has been installed in the UK and US pre-treatment lines,
and the UK line was extensively refurbished. The Company also
invested in a second reactor cooling system and new air ducting for
improved energy efficiency.
Alongside our infrastructure investment, we added technical and
research & development personnel, including strengthening our
capability in metallographic analysis.
We continue with the Group's own testing plans and successfully
concluded several projects in the year. Two projects to test
anti-galling and fracture properties were conducted with
Southampton University and have provided valuable additional data
to support more applications and new operating conditions for the
coating. Further work on understanding these valuable coating
properties is planned to be undertaken during 2016 and we continue
work on expanding the range of materials suitable for our
coatings.
Intellectual Property
During the year the Group strengthened its IP portfolio, filing
national phase patent applications on its new coating for
industrial diamonds in Canada, China, European Patent Office
countries, Japan, Russia and South Korea. The UK patent has already
been granted and the US patent is pending. We are continuing to
research and develop other coating variants with additional
features to add to our growing IP portfolio.
Board Changes
In March, we were delighted to appoint Jan Ward CBE as a
non-executive director. Jan has over 30 years' experience in
high-technology engineering, both in the UK and internationally,
and is CEO and co-founder of Corrotherm International, the global
supplier of specialist metals for critical applications.
Jan replaces William Zakroff who stepped down from the board in
March. He leaves with our very best wishes and grateful thanks for
his contribution over eight years as a non-executive director.
Staff
On behalf of the board, we would like to thank all our
colleagues for their hard work during the year and in particular
their efforts in preparing the new Virginia facility for opening on
time and to budget.
STRATEGY
Hardide's coatings are technologically highly advanced. They
fill a gap in the range of others' surface engineering offerings.
Our coatings provide commercial advantage and while the acceptance
process for a new application is typically long and involved,
particularly for large customers, there is significant potential
for long term revenues once Hardide's technology is adopted.
The board continues to maintain its positive view of the
Company's potential for growth and accordingly will continue to
invest in marketing, business development and product development
so as to drive growth and gross profit. Presently, this has to be
considered in the light of the severe downturn in our main market
of oil & gas, and a commercial landscape with low visibility.
Nonetheless, the board is confident in the longer-term outlook for
Hardide's technology from this sector and is satisfied with the
progress being made in diversifying and developing the customer
base. The Group will take advantage of the benefits of its new
production base in North America and our growing presence in
selected European markets. The aerospace market continues to
represent a significant growth opportunity for our existing product
range and we are also targeting expansion in the flow control,
plastics processing and advanced engineering sectors.
At all times, the Group aims to operate in a safe,
environmentally-conscious and socially-responsible manner, valuing
its employees' contributions.
OUTLOOK
The continuing low oil price is a significant headwind for some
of our key customers and accurately forecasting demand from this
sector over the coming year is difficult. However, if the current
conditions persist for the whole of the financial year to 30
September 2016, we expect revenues to be similar to those reported
here. Our balance sheet remains robust and we will maintain tight
control over costs. Based on the range of new products now
undergoing customer testing we remain very positive about the
longer-term prospects for the Group.
Robert Goddard Philip Kirkham
Chairman CEO
7 December 2015 7 December 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2015
2015 2014
GBP000 GBP000
Revenue 3,003 3,030
Cost of sales (1,198) (944)
Gross profit 1,805 2,086
-------------------------------- -------- --------
Administrative expenses (2,130) (1,964)
Depreciation and amortisation (161) (121)
Impairment of fixed assets - 72
Release of onerous lease
provision 269 103
Operating profit / (loss) (217) 176
-------------------------------- -------- --------
Finance income 12 9
Finance costs (2) (75)
Profit / (loss) on ordinary
activities before taxation (207) 110
-------------------------------- -------- --------
Taxation 91 51
Profit / (loss) on ordinary
activities after taxation (116) 161
-------------------------------- -------- --------
Profit / (loss) per share:
Basic (0.01)p 0.01p
Profit / (loss) per share:
Diluted (0.01)p 0.01p
All operations are continuing.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2015
2015 2014
GBP000 GBP000
Assets
Non-current assets
Goodwill 69 69
Intangible assets 3 5
Property, plant & equipment 1,262 383
--------------------------------- -------- --------
Total non-current assets 1,334 457
--------------------------------- -------- --------
Current assets
Inventories 59 50
Trade and other receivables 469 571
Other current financial
assets 271 199
Cash and cash equivalents 2,327 3,467
--------------------------------- -------- --------
Total current assets 3,126 4,287
--------------------------------- -------- --------
Total assets 4,460 4,744
--------------------------------- -------- --------
Liabilities
Current liabilities
Trade and other payables 544 463
Financial liabilities 16 16
Provision for lease obligation 21 132
Total current liabilities 581 611
--------------------------------- -------- --------
Net current assets 2,545 3,676
--------------------------------- -------- --------
Non-current liabilities
Financial liabilities 20 37
Provision for lease obligation - 140
--------------------------------- -------- --------
Total non-current liabilities 20 177
--------------------------------- -------- --------
Total liabilities 601 788
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December 07, 2015 02:00 ET (07:00 GMT)
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