6 December 2021
("Hardide", "the Group" or "the Company")
Preliminary results for the year ended 30 September 2021
Positive outlook across all target sectors
Hardide plc (AIM: HDD), the developer and provider of advanced surface coating technology, announces its preliminary results for the year ended 30 September 2021.
Revenue of £3.6m (FY20: £4.8m)
Gross profit of £1.3m (FY20: £2.3m)
Gross margin of 36% (FY20: 49%), lower due to the fixed production cost element within cost of sales. Variable margin was 72% (FY20: 73%)
EBITDA loss of £1.5m before exceptional items (FY20: £0.5m loss)
Fundraising of approximately £0.8m together with a CBILS loan of £0.25m in February 2021 to increase cash reserves. Second CBILS loan of £0.25m received in April 2021
Cash at bank at 30 September 2021 of £1.5m (FY20: £2.7m)
The value of orders received during H2 FY21 of £2.5m was 52% higher than in H1 FY21 as demand from customers recovers. Compared with FY20:
· 46% increase in sales to the aerospace sector, from a low base
· 38% increase in sales to the precision engineering sector, including power generation customers
· 46% reduction in sales to the oil & gas sector
· 12% reduction in sales to the flow control sector
Full approval of the new Bicester site for coating flying components received from Airbus. First production order received for Airbus A320 aircraft wing components. We are still waiting for Airbus and their Tier 1 supplier to agree final arrangements before a supply agreement between Hardide and the Tier 1 can be signed
First large production order received for the coating of gas turbine blades for a major European turbine manufacturer
Leonardo Helicopters successfully completed testing of a new transmission system design that includes Hardide-coated components. Production orders are now expected to begin in FY22
A testing and development programme is underway with a large US-based manufacturer of electric vehicles (EVs)
Development of the ESG agenda, including the metrics on which to base our energy usage and CO2 emissions
Equivalent registration of the most recently-secured UK patent is underway in 10 leading industrial countries. The patent covers further-enhancement of the Hardide coating and new applications, including turbine blades and vanes
Fundamental research continues into the development of new coating variants with additional properties conveying significant new and beneficial advantages
Former Bicester site fully vacated just before lease termination on 26 October 2021. Environmental benefits will result from the relocation, as well as saving approximately £100k in dual site running costs
Stronger trading in the first quarter of the new financial year gives the Board confidence in the Group's prospects for FY22
Commenting on the results, Robert Goddard, Chairman of Hardide, said: "Demand is now resurgent across all our sectors and we have a healthy pipeline of exciting opportunities in both current and new markets. Many test programmes that were on hold or slowed by the pandemic are once again gathering pace.
"Opportunities for the Hardide coating have never been more relevant as the world looks to industry to initiate and support measures to limit climate change, waste and pollution. Use of the Hardide coating increases the life and performance of metal parts in high-wear and high-value applications, thereby reducing waste, energy consumption and end-of-life pollution. Our coatings provide solutions to problems that previously would have required a hazardous and environmentally damaging coating process that is now restricted under EU, UK and US health, safety and environmental regulations.
"Looking forward, the much improved sales performance in the first months of the current financial year and the considerable pipeline of opportunities augur well for further growth in sales. This provides us with confidence in the Group's prospects for 2022 and onwards."
Robert Goddard, Non-Executive Chairman
Philip Kirkham, CEO
Jackie Robinson, Communications Manager
Tel: +44 (0) 1869 353 830
Graham Herring / Tim Metcalfe / Florence Chandler
Tel: +44 (0) 20 3934 6630
finnCap - Nominated Adviser and Joint Broker
Henrik Persson / Abigail Kelly
Richard Chambers (ECM)
Tel: +44 (0) 2072 200 500
Allenby Capital - Joint Broker
Jeremy Porter - Corporate Finance
Tony Quirke - Sales and Corporate Broking
Tel: +44 (0) 20 3328 5656
Notes to editors:
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. Customers include leading companies operating in the energy sectors, valve and pump manufacturing, industrial gas turbine, precision engineering and aerospace industries.
chairman's and ceo's report
We are pleased to report on our annual results for the 2021 financial year. Market recovery is demonstrated by the value of orders received during the second half of the year, which are a healthy 52% higher than in the first half. This improvement in order intake has been continuing from all sectors in the first months of FY22.
During the period, the Group raised net new financing of approximately £1.25m to increase cash reserves by way of an equity fundraising and CBILS loans.
The move to the new UK production site at Longlands Road in Bicester was concluded during the year and the final coating reactor was relocated following Airbus' approval of the new facility. The new site provides the opportunity to benchmark our environmental performance and identify areas for further improvement.
The Group has continued to operate throughout the pandemic and to take precautions to protect our employees, contractors and visitors at our UK and US sites. In the UK, where it was operationally appropriate to do so, the Group utilised the Government's Coronavirus Job Retention Schemes to match our workforce to demand and protect employment. In the US, we received funds from the US Small Business Association's 'Paycheck Protection Programs'.
The Group generated sales of £3.6m in the year ended 30 September 2021 (FY20: £4.8m).
The value of orders received during H2 FY21 was 52% higher than in H1 FY21, with the upward trend continuing into FY22.
Direct costs decreased by 6%, primarily due to the reduction in the amount of process gases used, as a consequence of the lower sales volume.
Group gross profit was £1.3m (FY20: £2.3m). Gross margin was 36% (FY20: 49%), the reduction being due to the fixed cost of sales (which mainly comprise production salaries) not decreasing in line with sales revenue.
Overhead costs, which comprise predominantly staffing costs, increased by 1% in FY21 on the previous year. Both years have benefitted to varying degrees from US government and UK COVID-19 government support programmes. Excluding the impact of these, overheads were in line with the previous year.
Before exceptional items, the Group's EBITDA loss was £1.5m (FY20: £0.5m loss) reflecting the reduced revenue.
Borrowings increased from £0.5m in FY20 to £0.8m in FY21, due predominantly to the receipt of two CBILS loans in February and April 2021, each for £250,000. The cash balance at the end of the financial year was £1.5m (FY20: £2.7m).
Net assets at 30 September 2021 were £6.9m (FY20: £8.8m).
Customers and Markets
Aerospace sales increased by 46%. Largely, this was due to demand from BAE Systems for the coating of parts for the Eurofighter Typhoon, together with small production orders from Airbus. The coating has been approved by Airbus for use on parts for the A320, A330, A380 and A400M aircraft and we expect to see orders for coating components for these aircraft during FY22.
The Group is now experiencing further and increased demand. Development projects are underway with a wide range of aerospace customers, including manufacturers of landing gear and from MRO (Maintenance, Repair and Overhaul) companies. During FY21, the Group experienced a marked slowdown of test programmes and commercial discussions, and in some cases their cessation. Many of these have now restarted and are gathering pace.
We are still waiting for Airbus and their Tier 1 supplier to agree final arrangements that will allow a supply agreement to be signed between Hardide and the Tier 1. The timing of this is outside of our control, but indications are that it should be soon. Other components for Airbus from other Tier 1 suppliers are not affected.
Leonardo Helicopters completed successfully the extended test programme of the transmission assembly incorporating Hardide-coated parts. This is the culmination of a long-standing project to develop a number of coating techniques for parts used in the transmission and rotor head systems to reduce 'in-service' costs and extend component life. Production orders are expected to begin in FY22.
The Group attended many virtual and some face-to-face aerospace-related conferences and exhibitions throughout FY21, thereby making new connections and identifying new applications with OEMs and Tier 1 suppliers. The Group intends to exhibit at the Singapore Airshow in February 2022 and at the Farnborough Airshow in July 2022.
Demand is returning in the energy sector as market fundamentals improve. Energy consumption is increasing and our major oilfield services customers are reporting growth in their own businesses. As the global economy recovers, the Board is confident that demand for Hardide-coated products in this sector will return to previous levels, if not beyond.
Recent remarks from the CEO of Schlumberger (October 2021) were very positive about the outlook for the oil & gas sector:
'…the strengthening industry fundamentals, combined with the actions of OPEC+ and continued capital discipline in North America, have firmly established the prospects of an exceptional multiyear growth cycle ahead' and '…our confidence in the onset of an exceptional growth cycle is reinforced.'
Also, in October 2021 the CEO of Halliburton stated:
'…I see a multi-year upcycle unfolding.'
The Group is committed to increasing the proportion of revenue generated from the alternative energy market. Sales to a manufacturer of product for the solar cell industry are expected to increase as this company expands considerably its production facilities in response to increasing demand. Sales and marketing resources have been allocated to identify technologies and components that would benefit from Hardide coatings. Sectors of interest include solar, hydrogen, geothermal, nuclear, gas and wind turbines.
Power Generation and Precision Engineering
Currently, the Group is working on projects with five power generation companies in the UK and EU. These will be based on our recently-patented coating for blades and vanes used in turbines.
In the first months of FY22, blades are already being coated for a major European manufacturer of steam and gas turbines. These are for installation in early 2022 into a high efficiency, low emission gas turbine. Coating these blades and other applications currently in development, can only be undertaken because of the recent installation of Hardide's new, larger-capacity coating reactor and the larger pre‑treatment line in the UK.
The power station field trials of coated steam turbine blades that were scheduled by EDF Energy for 2022, but have been delayed by the pandemic. Meanwhile, the customer is conducting further performance tests.
Demand for our coated components for high‑speed X-ray baggage scanners remained stable throughout the year.
Production, Technology, Research & Development and Accreditations
In August 2021, the last remaining coating reactor in our former site was relocated to the new facility, and this has enabled the Group to reduce its emissions and environmental footprint. New equipment and methods of waste treatment were established in the new facility, thereby reducing significantly the environmental impact of our manufacturing processes. The use of natural gas has been eliminated at the new site and all electricity there is supplied from a REGO-certified (Renewable Energy Guarantees Origin) source. Four electric vehicle (EV) charging points were installed for staff use.
The new UK site and the US facility are both accredited to the aerospace quality management system AS9100D/ISO9001. The new Bicester facility is also accredited to Nadcap's 'Merit Status', and to the environmental standard ISO14001.
Fundamental research continues into the development of new coating variants with potentially revolutionary properties that would open up new markets for Hardide.
Registration of our most recent patent is underway in 10 leading industrial countries. This new patent covers the further-enhancement of the Hardide coating and new applications, including turbine blades and vanes.
EMPLOYEES AND STAKEHOLDERS
The last 18 months have been extremely challenging for our employees. They have had to navigate the uncertainty and change brought about by the pandemic, at home and in the workplace. The Board would like to thank our people for their hard work, flexibility and positive attitude in such difficult circumstances. We are pleased that we were able to utilise the support packages available in the UK and US to ensure that we did not have to reduce the number of our employees.
The Board also thanks shareholders and other stakeholders for their continued loyalty and encouragement.
Demand is now resurgent across all our sectors, and we have a healthy pipeline of exciting opportunities in current and new markets. Test programmes that have been on hold or slowed by the pandemic are once again gathering pace.
Rising global demand for energy, and the increasing oil price, provide favourable conditions for the return of strong revenues from our oil & gas customers. Recovery in the aerospace market is forecast to strengthen in 2022 and beyond, and the Board expects revenues from the coating of multiple aerospace parts and turbine components. Also, we look forward to successful developments in the EV market.
The continuing growth in our order book and the strong first quarter of FY22 give the Board confidence that revenues will strengthen markedly, and therefore the Group's financial performance will improve significantly in FY22. The Board continues to monitor carefully the Group's projected cash position and believes that its reserves will be sufficient for the foreseeable future.
6 December 2021
CONSOLIDATED INCOME STATEMENT
for the year ended 30 September 2021
Cost of sales
Depreciation and amortisation of owned assets
Depreciation of right of use assets
Share based payments
Finance costs on right of use assets
(Loss) on ordinary activities before taxation
(Loss) on ordinary activities after taxation
(Loss) per share: Basic
(Loss) per share: Diluted
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2021
Property, plant & equipment
Right of use assets
Total non-current assets
Trade and other receivables
Other current financial assets
Cash and cash equivalents
Total current assets
Trade and other payables
Provision for grant repayment
Provision for onerous lease and dilapidations
Total current liabilities
Net current assets
Right of use lease liability
Provision for onerous lease and dilapidations
Total non-current liabilities
Equity attributable to equity holders of the parent
Share-based payments reserve
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2021
Cash flows from operating activities
Impairment of intangibles
Depreciation on owned assets
Depreciation on right of use assets
Share option charge
Decrease in inventories
(Increase) / decrease in receivables
(Decrease) in payables
(Decrease) in provisions
Cash used in operations
Right of use asset interest
Net cash used in operating activities
Cash flows from investing activities
Proceeds from sales of property, plant and equipment
Purchase of intangibles
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
New loans raised
Repayment of leases
Net cash generated from financing activities
Effect of exchange rate fluctuations
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2021
At 1 October 2019
Issue of new shares
IFRS 16 adjustment
Loss for the year
At 30 September 2020
At 1 October 2020
Issue of new shares
Loss for the year
At 30 September 2021
Annual report and accounts
The full annual report and accounts for the year ended 30 September 2021, including the basis for preparation and other explanatory notes, will be posted to shareholders in mid-February 2022 and will be available immediately thereafter on the Company's website (www.hardide.com). The announcement of the full report and accounts will be notified. Notice of the Company's annual general meeting will be sent to shareholders at the same time.