REG-Hardide PLC Preliminary Results
Released: 17/12/2007
RNS Number:0031K
Hardide PLC
17 December 2007
Press Release 17 December 2007
Hardide plc
("Hardide" or "the Company")
Preliminary Results for the Period to 30 September 2007
Hardide plc (AIM:HDD), the provider of unique surface engineering technology,
announces its preliminary results for the year ended 30 September 2007.
Period Highlights
- Group turnover increased 31% to £2,470,000 (FY 2006: £1,891,000)
- Increased loss after tax of £1,795,000 (FY 2006: loss £906,000) due to
investment in US manufacturing facility
- Loss per share 1.2p (2006: loss 0.7p)
- UK coating business trading EBITDA positive with more than 50 trials
currently underway
- £1million debt issue successfully executed to increase Hardide's growth in
the Aerospace sector
- Gas supply contract secured to save over £600,000 over next three years
- William Zakroff appointed as Non-Executive Director
- Hardide coating approved by Food and Drug Administration for food
processing
- New US$1 million deal with major US customer
- US manufacturing facility generated first commercial orders with blue chip
customers in 2007 with 37 trials currently underway
Commenting on the results, Jim Murray-Smith, Chief Executive of Hardide plc,
said:
"This has been another period of significant growth for the Group, I am very
pleased to announce that Hardide Coatings Limited, the first Hardide subsidiary,
is now trading profitably on a quarterly basis. With the large pipeline of
opportunities currently under review for our US operation, Hardide Coatings Inc.
these results will serve as a solid platform for the Group as it aims to report
an overall profit in the current financial year."
For further information:
Hardide plc
Jim Murray Smith, Chief Executive / Tel: +44 (0) 1869 353 830
Jackie Robinson, Head of Communications
jmurray-smith@hardide.com www.hardide.com
Seymour Pierce
Nicola Marrin Tel: +44 (0) 20 7107 8000
Media enquiries:
Abchurch
Chris Lane / George Parker Tel: +44 (0) 20 7398 7700
chris.lane@abchurch-group.com www.abchurch-group.com
Notes to editors:
Hardide provides and applies tungsten carbide-based coatings to a wide range of
engineering components. The Company's patented technology is unique in that it
combines both abrasion and corrosion resistant properties in one coating. When
applied to components, the technology is proven to offer dramatic cost savings
through reduced downtime and extended component life. Customers include leading
companies operating in oil and gas exploration and production, valve and pumps
manufacturing, general engineering and aerospace.
REPORT OF THE DIRECTORS
CHIEF EXECUTIVE'S REVIEW
I am pleased to report a year of solid growth for Hardide with revenues
increasing to £2.47 million for the year ended 30 September 2007, up 31% from
£1.89 million for the previous full financial year. This strong growth has been
achieved despite Q1 2007 sales being affected by the customer de-stocking issue
which impacted last year's results; this issue was successfully resolved by Q2
2007 and the second half of the year saw a 65% increase from H2 2006. The
Group's UK coatings business, Hardide Coatings Limited, achieved an EBITDA
positive position of £334,000 and is trading profitably on a quarterly basis.
Hardide has won several new prestigious customers in the period under review and
has recently negotiated a US$1 million deal with a major US customer during the
reporting period. However, in line with our accounting policies, this revenue
is not recognised in these results and will be deferred.
The Group has seen sales increase across all of the Group's key sectors of oil
and gas, valves and pumps, and aerospace. Oil and gas, our major customer
market, was particularly strong with Group sales up by 39% to £1.86 million.
With oil prices and energy demand at all time highs, our end user market is
extremely buoyant. Consequently, exploration and production companies continue
to search for new technologies to help them extract more difficult and marginal
reserves. This requires more advanced drilling programmes often in hostile
environments where wear and corrosion can be serious enough to impact project
viability. These factors set a very favourable background for Hardide's
technology.
As reported, the Group has accelerated its expenditure to capitalise on strong
market conditions. While we look to profitably grow our business, these results
reflect our commitment to achieving sustainable profitable performance. We have
continued a strong pace of investment of £700,000 on domestic and international
expansion with the associated capital expenditure, on new technology to improve
productivity, on gaining internationally recognised accreditations and on
strengthening our management and sales teams.
A measure of our growing market impact is the increasing competitor reaction
that we are generating, particularly from the traditional thermal spray coating
players. I believe that we are clearly perceived as a threat to their
established territories as our technology offers many advantages to conventional
coating solutions. This has resulted in interesting invitations for
co-operation which the Board continually reviews.
One of the biggest challenges that we continue to face is the long conversion
times from initial concept talks through engineering design, testing and
approval to specification and customer implementation. Eighteen months is not
an untypical timeframe for a new oil and gas application. We are working on all
stages of the process, and with our customers, to find ways to shorten this.
UK Facility
I am pleased to report a 26.5% increase in sales in the UK to £2.39 million from
£1.89 million last year. Following initial customer conversion, the Group has
been particularly successful in generating a high level of repeat orders and in
the course of the year we have entered supply agreements or test programmes with
customers including Weatherford International Ltd, the Expro Group and
Messier-Dowty. New applications are in various stages of development with
several market leading companies in oil and gas, aerospace and valves. More
than 50 parts are currently in test from the UK and Europe; the latter through
AFILEX France, the Group's agent which was appointed in March 2007.
Our process optimisation programme has recorded a number of tangible results
including a 30% improvement in delivery times. Divisional sales teams have also
been created to align our business with our markets, and we have been embedding
a performance culture giving clear accountability and responsibility as well as
the opportunity for personal development.
US Facility
The Houston plant generated its first new commercial orders in H1 2007. The
development timeline has mirrored that in the UK. Of the 30 ongoing trials that
I reported at our interim results, four have converted to sales, four have
advanced to larger scale tests, and the rest are still moving through the
testing process. Importantly, there have been no failures and we currently have
a total of 37 trials underway. These trials are primarily with major oilfield
service providers or valve manufacturers. It is necessarily slow, but wholly
encouraging that the technology is being proven under rigorous test procedures
that are a standard feature of exploration and production technology
development. Such a number of ongoing trials leads me to report that there is
an extremely healthy pipeline of new business in the US. We have also had good
quality interest following the Food and Drug Administration approval for food
processing that was announced in September 2007.
The Houston facility has been providing vital support to our UK business
enabling us to enter international supply agreements that would not have been
possible without a US presence.
In the coming year, we will complete the transfer to Houston of all parts being
coated in the UK for US customers, and we intend to order a second furnace for
the facility.
People
In June 2007, William Zakroff was appointed as a Non-Executive Director. 'Zak',
who is based in Houston, Texas, brings an international depth to the Board with
his extensive experience in our field of technology and our key markets. He has
proven an extremely pro-active Board member and is leveraging his considerable
connections to our advantage.
We have also strengthened our general management, sales and engineering teams
with a number of appointments throughout the year. Significantly, in March
2007, Neill Ricketts was appointed as Managing Director for UK and European
Operations of Hardide Coatings Limited, bringing 18 years of operations,
production and surface engineering experience.
Following the placing of Proventec's stake in Hardide in February 2007,
Proventec's Chief Executive, David Chestnutt, resigned as Non-Executive Chairman
of the Group. I would like to thank David for his support and guidance over the
years.
Health, Safety and Environment
The Board and management of Hardide plc are committed to the effective
management of health, safety and environmental (HSE) risks. There have been no
recordable or environmental incidents over the last year.
It has been an important part of our corporate philosophy to implement
strategies and processes to perform in a socially responsible manner and for the
Group to adapt alongside growing worldwide environmental concern. I am pleased
to report that this culminated with the award of ISO 14001 in September 2007,
following the re-certification of quality standard ISO 9001 in August 2007. I
believe both of these to be significant achievements for a relatively small
company with such a complex production process and global customers.
Staff training is allocated a generous annual budget, a proportion of which has
been used throughout the year to train all employees in HSE techniques and
awareness.
Research & Development and New Technology
Our research into the development of a new low-slip coefficient coating has
continued to progress throughout the year. We have also focused our R&D efforts
on maximising production and furnace productivity by investing in two powerful
software modelling tools and x-ray fluorescence equipment.
It has taken eight months to integrate the highly sophisticated fluid and
chemical engineering packages, CFdesign and Fluent, into our processes and they
are now calibrated and ready for regular use.
Together with improved failure analysis from the x-ray fluorescence equipment
bought in the first half of this year, I am confident that over the next 12
months, the Group's R&D and technology investment will result in significant
production and cost benefits, as well as enhance our competitive advantage.
In the coming year, we will continue our R&D into new Hardide coating variants
and in response to customer demand, we will be also be looking at ways to coat
larger structures.
Outlook
We will take the same level of energy, drive and ambition for success that has
created our current momentum into the next phase of our development. The Group
is now structured and resourced to significantly increase revenue growth in the
UK and US over the next twelve months, while measures have been taken to reduce
costs through controls such as the reported gas supply contract which will save
a minimum of £600,000 over the next three years.
The Group has a sound strategy being implemented by a talented team of people
and the Board expects all the key segments and markets in which the Group
operates to remain buoyant.
With over 80 parts currently in test and some very exciting development projects
underway with major oil and gas, and aerospace customers, I look forward to a
rewarding year for shareholders and staff.
Our UK operation is trading profitably on a quarterly basis and we are receiving
orders for the Group's US manufacturing facility in Houston, Texas. Although
the Houston operation is still at an early stage, we are confident of securing
further orders from the large pipeline of business on which the Group is
currently focused.
The team at Hardide has worked extremely hard to create this healthy platform
for growth and my thanks go to all our staff for their contributions.
Jim Murray-Smith
Chief Executive Officer
14 December 2007
FINANCIAL REVIEW
Group turnover increased by 31% to £2,470,000 (2006: £1,891,000), driven by
buoyant demand from our core oil & gas customers. Second half turnover amounted
to £1,365,000 a 24% increase compared with the first half and 65% ahead of the
same period last year.
The Group result for the year was a loss after tax of £1,795,000 compared with a
loss of £906,000 for 2006. The increased loss is attributable to costs
associated with the commencement of the Group's US operation. The Group has
also been adversely affected by the current weakness in the US dollar.
Operating costs were £1,180,000 (2006: £817,000), giving gross profit of
£1,290,000 (2006: £1,074,000). The decline in Group gross margin from 57% in
2006 to 52% this year reflects the full year impact of investment in the
productive capacity of our Houston plant. Gross margins in our UK operation
increased from 58% to 62%, where efficiency and productivity gains outweighed
increased input costs.
Group administrative costs rose to £3,115,000 from £2,160,000 in 2006. Major
changes were a £150,000 increase in depreciation charge (of which £114,000 was
in respect of our US plant); a charge of £59,000 to reflect the FRS 20 charge
for share options granted; £112,000 increased cost of premises, reflecting both
expansion in the UK and the full year impact of the US plant; £160,000
investment in strengthening both our UK and US sales, management and technical
teams; £152,000 cost of exchange rate movements on intercompany loans; and
£76,000 being the full year overhead impact of our Houston operation as it moved
from start-up to production phase.
Net interest income was £6,000 (2006: £36,000 income). R&D tax credit for the
year amounted to £26,000 less a £2,000 adjustment relating to prior year. This
compares with £142,000 in the 2006 accounts which was for three claims.
Group expenditure on fixed assets amounted to £439,000 of which £177,000 was in
the US to complete the fit-out of our Houston plant and £262,000 was in the UK,
a significant part of which was £112,000 completion payments on our latest
furnace.
Group stock levels rose by £12,000 to £88,000 and trade debtors increased from
£287,000 to £580,000 caused both by a marked increase in turnover in the two
months prior to year end, and by a delay in receipts from our largest customer
which unfortunately coincided with our year end. This latter situation has
resolved itself.
In February, Proventec plc made a full exit from Hardide plc through the sale of
its subsidiary, Flintstone Management Services Limited's 21.5% stake, via a
placing to two current shareholders. Proventec was an original holder in
Hardide plc and provided vital early stage funding.
Two of our longest standing shareholders further underscored their commitment by
each lending a further £500,000 to accelerate our entry into the aerospace
sector. Both parties have strongly backed the Group since flotation in April
2005 and the Board appreciates their continued support.
Since the year end, the Group has signed a three year contract for the supply of
tungsten hexafluoride to all our plants, at a price which represents a saving of
over £600,000 over the next three years.
Peter Davenport
Finance Director
14 December 2007
HARDIDE PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2007
2007 2006
Note £'000 £'000
Turnover 2 2,470 1,891
Cost of sales (1,180) (817)
Gross profit 1,290 1,074
Administrative expenses
Amortisation 36 36
Depreciation (475) (325)
Share option charge (59) -
Other administration (2,617) (1,871)
Total administrative expenses (3,115) (2,160)
Other operating income - 2
Operating loss (1,825) (1,084)
Net interest 6 36
Loss on ordinary activities (1,819) (1,048)
before taxation
Tax on loss on ordinary 3 24 142
activities
Loss for the financial year (1,795) (906)
Loss per share basic and diluted 4 (1.2)p (0.7)p
All operations are continuing.
The accompanying accounting policies and notes form an integral part of these
financial statements.
STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2007
2007 2006
£'000 £'000
Loss for the financial year (1,795) (906)
Currency differences on foreign 81 11
currency net investments
Total recognised loss for the year (1,714) (895)
HARDIDE PLC
CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2007
30 September 30 September
2007 2006
Note £'000 £'000
Fixed assets
Intangible assets
Goodwill 65 71
Negative goodwill (41) (81)
24 (10)
Tangible assets 1,668 1,753
1,692 1,743
Current assets
Stocks 99 102
Debtors 795 588
Cash at bank and in hand 1,135 1,803
2,029 2,493
Creditors: amounts falling due (657) (584)
within one year
Net current assets 1,372 1,909
Total assets less current 3,064 3,652
liabilities
Creditors: amounts falling due (892) (216)
after one year
Net assets 2,172 3,436
Capital and reserves
Called up share capital 1,467 1,467
Share premium account 3,345 3,345
Other reserve 450 -
Profit and loss account (3,090) (1,376)
Shareholders' funds 5 2,172 3,436
The financial statements were approved by the board of directors on 14 December
2007 and are signed on behalf of the board of directors.
J Murray-Smith
Director
HARDIDE PLC
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2007
Note 2007 2006
£'000 £'000
Net cash outflow from operating activities 6 (1,456) (581)
Returns on investments and servicing of finance
Interest received 31 60
Finance lease interest paid (25) (24)
Net cash inflow from returns on investments and 6 36
servicing of finance
Taxation 107 35
Capital expenditure and financial investment
Purchase of tangible fixed assets (439) (978)
Net cash outflow from capital expenditure and financial (439) (978)
investment
Financing
Issue of shares - 2,375
Capital element of finance lease rentals (95) (91)
New finance lease agreements 209 -
Loans 1,000 -
Expenses paid in connection with share issues - (100)
Net cash inflow from financing 1,114 2,184
(Decrease) / increase in cash 7 (668) 696
STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2007
2007 2006
£'000 £'000
Loss for the financial year (1,795) (906)
Currency differences on foreign 81 11
currency net investments
Total recognised loss for the year (1,714) (895)
HARDIDE PLC
NOTES TO THE PRELIMINARY ANNOUNCEMENT
For the year ended 30 September 2007
1. BASIS OF PREPARATION
The preliminary announcement has been prepared in accordance with applicable
accounting standards and under the historical cost convention.
The principal accounting policies of the group have remained unchanged from the
previous year, apart from the adoption of FRS 20 'Share-Based Payments'.
2. TURNOVER AND LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Turnover is attributable to sales of high-performance coatings to customers in
the oil & gas, valve, pump, aerospace, and general engineering industries.
Geographical segments:
Turnover by origin Turnover by destination
2007 2006 2007 2006
£'000 £'000 £'000 £'000
UK 2,392 1,891 2,047 1,509
USA 78 - 413 367
Other - - 10 15
2,470 1,891 2,470 1,891
Group loss before taxation
2007 2006
£'000 £'000
UK (721) (584)
USA (1,098) (464)
Group loss before (1,819) (1,048)
taxation
Group net assets
2007 2006
£'000 £'000
UK 3,652 2,806
USA (1,480) 630
Group net assets 2,172 3,436
3. TAXATION ON ORDINARY ACTIVITIES
(a) Analysis of credit in the year:
2007 2006
£'000 £'000
Current tax:
UK Corporation tax on the loss for the year - -
Research and development tax credit 26 57
Adjustment in respect of prior years (2) 85
research and development tax credits
24 142
(b) Factors affecting current tax charge:
The tax assessed on the loss on ordinary activities for the year is lower than
the standard rate of corporation tax in the UK of 19% (2006: 19%)
2007 2006
£'000 £'000
Loss on ordinary activities before taxation (1,819) (1,048)
Loss on ordinary activities by rate of tax (346) (199)
Expenses not deductible for tax purposes 17 4
Capital allowances in excess of depreciation (5) (6)
Permanent differences 1 (4)
Tax losses surrendered for R&D tax credit 31 45
Current tax losses carried forward (302) (160)
Total current tax (note 3(a)) - -
The Group has unutilised tax losses in the UK of approximately £4.6m (2006:
£3.4m).
4. LOSS PER SHARE
The calculation of basic loss per share is based on the loss attributable to
ordinary shareholders of £1,795,000 (2006: £906,000) divided by the weighted
average number of ordinary shares in issue during the year which was 146,742,236
(2006: 136,376,295).
The issue of additional shares on the exercise of options would decrease the
basic loss per share and there is, therefore, no dilutive effect of share
options.
5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
The Group
2007 2006
£'000 £'000
Loss for the financial year (1,795) (906)
Exchange differences 81 11
Issue of shares - 2,275
Fair value of share-based payments 59 -
Reclassification of financial liabilities to other 391 -
reserves (FRS 25)
Net (decrease) / increase in shareholders' funds (1,264) 1,380
Shareholders' funds at 1 October 2006 3,436 2,056
Shareholders' funds at 30 September 2007 2,172 3,436
6. NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2007 2006
£'000 £'000
Operating loss (1,825) (1,084)
Share options expense 59 -
Loss on disposal of fixed assets - -
Depreciation of tangible fixed assets 475 325
Amortisation of goodwill (36) (36)
Decrease / (Increase) in stocks 23 (39)
Increase in debtors (224) (22)
Increase in creditors 72 275
Cash outflow from operating activities (1,456) (581)
7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2007 2006
£'000 £'000
Increase / (decrease) in cash (668) 696
Cash (inflow) / outflow from finance leases (114) 91
Cash inflow from loans (1,000) -
(1,782) 787
Net funds at 1 October 2006 1,489 702
Net funds at 30 September 2007 (293) 1,489
8. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The consolidated balance sheet at 30 September 2007 and the consolidated profit
and loss account, consolidated cash flow statement, statement of consolidated
total recognised gains and losses and associated notes for the year then ended
have been extracted from the Group's 2007 statutory financial statements upon
which the auditors opinion is unqualified and does not include any statement
under Section 237 of the Companies Act 1985.
Those financial statements have not yet been delivered to the registrar of
companies.
This information is provided by RNS
The company news service from the London Stock Exchange
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