TIDMHDD
RNS Number : 6246Z
Hardide PLC
17 May 2023
The information communicated in this announcement is inside
information for the purposes of Article 7 of the Market Abuse
Regulation 596/2014 as it forms part of UK domestic law by virtue
of the European Union (Withdrawal) Act 2018 ("MAR") .
17 May 2023
Hardide plc
("Hardide, the "Group" or the "Company")
Interim Results for the six months ended 31 March 2023
EBITDA breakeven performance driven by continuing revenue growth
and improving gross margin
Hardide plc (AIM: HDD), the developer and provider of advanced
surface coating technology , announces its results for the
six-month period ended 31 March 2023.
Highlights
Financial
-- Revenue of GBP2.9m (H1 FY22: GBP2.7m), a 9% increase
over H1 FY22
-- Gross profit of GBP1.3m (H1 FY22: GBP1.1m)
-- Gross margin improved to 47% (H1 FY22: 41%)
-- EBITDA breakeven achieved (H1 FY22: GBP0.2m EBITDA loss)
-- Available cash resources at 31 March 2023 were GBP0.7m
(30 September 2022: GBP0.7m)
-- Selling price increases successful in mitigating input
cost inflation
-- Profit and working capital improvement actions announced
in December 2022 are running ahead of expectations and
are now expected to yield GBP0.5m of benefit for the
full financial year
Commercial
* Energy (representing 64% of H1 FY23 sales): total
energy sales increased by 29%
* Industrial (representing 33% of H1 FY23 sales):
revenue fell 17% mainly due to the timing of orders
* Aerospace (representing 3% of H1 FY23 sales): sales
to the aerospace sector increased by 10% as
production orders are now regularly being received
Commenting on the results, Philip Kirkham, CEO of Hardide plc,
said:
"The Group performed well in the first half, with revenues up 9%
from H1 FY22 and 22% higher than H2 FY22. This reflected improving
market conditions in the oil & gas sector, new project wins and
the recovery of input cost inflation in selling prices. We were
pleased to deliver an EBITDA breakeven performance for the period,
bringing us closer to achieving our strategic milestone of becoming
EBITDA and operating cash flow positive.
"The Board expects the positive sales growth to continue into
the second half year. Therefore, whilst mindful of ongoing external
economic uncertainties and headwinds, including further cost
inflation, the Board anticipates performance for the full financial
year to be in line with its expectations.
"More broadly, the Board believes that the Group will continue
to benefit from significant growth potential over the short, medium
and longer term from increasing market adoption of our unique
patented coatings technology, which helps customers to improve
operational efficiency, lower life cycle costs and reduce their
carbon footprint."
Enquiries:
Hardide plc
Philip Kirkham, CEO Tel: +44 (0) 1869 353
Jackie Heddle, Communications Manager 830
IFC Advisory Tel: +44 (0) 20 3934
Graham Herring 6630
Tim Metcalfe
Florence Chandler
finnCap - Nominated Adviser and Joint Tel: +44 (0) 2072 200
Broker 500
Henrik Persson/ Abigail Kelly (Corporate
Finance)
Barney Hayward (ECM/Broking)
Allenby Capital - Joint Broker Tel: +44 (0) 20 3328
Tony Quirke/ Joscelin Pinnington - Sales 5656
and Corporate Broking
Jeremy Porter/ Dan Dearden-Williams - Corporate
Finance
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
I am pleased to report that good progress is being made towards
achieving the strategic milestone of the Group becoming EBITDA and
operating cash flow positive.
Revenues in H1 FY23 grew by 9% to GBP2.9m (H1 FY22: GBP2.7m).
The growth rate was softened by the delay of an expected large
project order for the coating of turbine blades. This is now
expected later in this calendar year. Revenue in H1 FY22 had
benefited from an order of similar value; and excluding that order
from H1 FY22 sales, H1 FY23 revenues would be 21% ahead of H1
FY22.
The increase in revenues allowed the Group to improve capacity
utilisation and better leverage fixed costs which, together with
good recovery of input cost inflation in selling prices, enabled a
significant improvement in gross margin to 47% (H1 FY22: 41%).
The combination of revenue growth and higher gross margin
enabled us to deliver an EBITDA breakeven performance for the
period (H1 FY22: EBITDA loss of GBP0.2m).
EBITDA benefited from a net non-recurring property gain of
GBP0.1m described further below. EBITDA in H1 FY22 benefited from
GBP0.2m of Covid support.
The Group balanced its cash flows overall for the period, with
GBP0.7m of available cash resources on the balance sheet at 31
March 2023 (30 September 2022: GBP0.7m). The cash balance has been
relatively stable in recent months, reflecting the EBITDA breakeven
performance. The Group is well invested and, in general, has
sufficient operational capacity to support approximately double the
current annualised revenue, depending on product mix, over the
short to medium term without further major capital investment.
Nonetheless, the Board continues to explore opportunities to
further strengthen the balance sheet to build additional headroom
and resilience.
The Group is making strong progress in commercialising new
applications that have been subject to long and/or delayed test and
development programmes. It is pleasing to note several first new
orders, resulting from these programmes, from customers in the
power generation, oil & gas drilling and aerospace sectors.
Revenue growth is expected to continue into the second half
year, and performance for the full financial year is expected to be
in line with the Board's expectations.
STRATEGIC DEVELOPMENT
The Group is on track to achieve its initial strategic objective
of becoming consistently EBITDA and operating cash flow positive,
enabling us then to drive towards full profitability.
Good progress is being made on technical co-operation with other
large coatings companies to develop mutually beneficial commercial
opportunities; technical and co-operation agreements have been
signed with two global companies.
COMMERCIAL AND OPERATIONAL OVERVIEW
Customers and Markets
In H1 FY23, end use market segmentation was:
-- Energy (including oil & gas, power generation and alternative
energy): 64% (H1 FY22: 54%)
-- Industrial: 33% (H1 FY22: 43%)
-- Aerospace: 3% (H1 FY22: 3%)
Energy
Sales to energy customers increased by 29%.
Recovery from the oil & gas sector was strong with revenue
increasing by 54% compared with H1 FY22. Nonetheless, recovery has
been slower than expected due to ongoing material supply and labour
shortages in the oil & gas supply chain. Indications from
customers are that the situation is improving. We expect revenue
growth from this sector to continue in H2 FY23. The first major
order was received from a new customer for well stimulation
components, and successful trials and developments are underway
with customers in sand control systems, downhole drilling tools and
other oil & gas components.
The delayed order from the existing power generation customer is
now expected later in calendar year 2023. Following extensive
testing, it is expected that our first order will be received in H2
FY23 from the second largest global industrial gas turbine (IGT)
producer, for sets of gas turbine vanes. The coating is also in
trials for coated blades and vanes with other large IGT
manufacturers.
Testing of the coating for both EV battery and hydrogen
applications continues to progress and all tests have been
successful and productive. Customer testing by a major European
company in the hydrogen production and distribution sector is
underway. The Henry-Royce Institute's grant-supported project with
Cranfield University to investigate 'green' hydrogen production
produced very promising results. Further grant applications are
being made to take the project to the next stage.
Industrial
Revenue from our industrial customers fell by 17% primarily due
to phasing of demand. We expect this revenue to recover this in the
second half of the year.
Aerospace
Sales revenue from aerospace customers increased by 10%.
Momentum is building as production orders are now being received
regularly for the coating of wing components for the Airbus A320,
A330, A380 and A400M aircraft with other parts for these aircraft
currently in test. Of particular significance is a new approval
received for high volume components for the Airbus A320 where the
Hardide coating is replacing a competitor's coating. Orders are due
to commence in H2 FY23. Further orders were received for parts for
Lockheed Martin's F35 Joint Strike Fighter. Following Leonardo
Helicopters' approval, orders are now being received for the
coating of transmission system components.
Profit and cash improvement plan
In December 2022 we announced an initiative to improve profit
and cash flow by GBP0.3-0.4m by summer 2023. We are pleased to
report that this initiative is now anticipated to exceed initial
expectations and bring an overall benefit of c.GBP0.5m for the full
financial year, comprising:
-- Cost savings of GBP0.2m
-- Grants to offset development and testing costs of GBP0.1m
-- Selling price increase / cost inflation recovery of
GBP0.1m
-- Working capital improvements of GBP0.1m.
FINANCIAL REVIEW
Income statement
Revenues for H1 FY23 were GBP2.9m, an increase of 9% from H1
FY22 and 22% higher than the prior half year of H2 FY22. This
reflects improving market demand, particularly in the oil and gas
sector, increasing customer adoption of our unique coatings
technology, and price increases to offset input cost inflation.
This revenue growth enabled us to improve capacity utilisation
and better leverage fixed costs, driving a 6 percentage point
increase in gross margin to 47% (H1 FY22: 41%). Together with good
control of overheads, the increase in revenues and improvement in
gross margin enabled us to deliver an EBITDA breakeven performance
for the period (H1 FY22: GBP0.2m EBITDA loss).
The EBITDA breakeven result benefited from a net GBP0.1m
non-recurring gain relating mainly to the purchase, sale and
leaseback of our facility in Martinsville, USA, in December 2022.
The EBITDA loss in H1 FY22 benefited from GBP0.2m of COVID-19 US
Government support.
There were no significant changes in depreciation or financing
costs compared to previous periods. The loss before taxation was
GBP0.6m (H1 22: loss of GBP0.8m).
Cash Flow, Going Concern and Financing
Overall, the Group balanced its cash flows in H1 FY23, with
available cash resources at both the beginning and end of the
period of GBP0.7m. Excluding the one-off cash flow benefit of
GBP0.5m from the new Martinsville leasing arrangements and
adjusting for period-end timing differences relating to supplier
payments, the underlying net cash outflow in the half year was
circa GBP0.2m.
The Group's cash balance has been reasonably stable for the last
few months. This illustrates, alongside the EBITDA breakeven
result, that the Group is now very close to achieving its key
strategic milestone of becoming operating cash flow
self-sufficient. The Group is very well invested, has sufficient
spare operational capacity to support significant revenue growth
and therefore we do not currently anticipate any need for further
large amounts of capital expenditure.
Gross debt at 31 March 2023, comprising Coronavirus Business
Interruption Loan Schemes ("CBILS") and asset finance arrangements,
but excluding lease obligations reported under IFRS 16, was GBP1.0m
(H1 FY22: GBP1.2m). Of the amount outstanding at 31 March 2022,
GBP0.3m is repayable within one year. Net debt at both 31 March
2023 and 2022 was GBP0.3m.
Lease obligations reported under IFRS 16 at 31 March 2023 were
GBP2.3m (31 March 2022: GBP2.0m), the increase being due to the new
10-year property lease agreement entered into in Martinsville in
December 2022.
Therefore, having reviewed cash flow forecasts and associated
sensitivity analysis, the Board has concluded that the Group has
sufficient financial resources to meet its needs for the
foreseeable future and accordingly has prepared the interim
financial statements on a going concern basis.
RISK REVIEW
The Board confirms that the risk assessment disclosed in our
2022 annual report remains relevant for the remainder of the
current financial year. The risks and uncertainties relating to
macroeconomic and geopolitical factors, and the precise timing of
customer orders on revenue realisation are those currently judged
by the Board as being the most relevant to delivery of current
financial year performance expectations.
BUSINESS DEVELOPMENT
Our operational capacity is sufficient to produce a sales
revenue of approximately GBP10m (depending on product mix). With
average current utilisation of this capacity running at around 60%,
there are adequate resources available to achieve our aim of
maximising utilisation of this spare capacity over the next few
years. We aim to do this by new developments including c. GBP1m in
the oil & gas sector, more than GBP1m in power generation and
up to GBP1m in aerospace. We should achieve EPS positive results at
approximately GBP7.5m-GBP8.0m revenue.
OUTLOOK
The Board expects the positive sales growth seen in H1 FY23 to
continue in H2 FY23. Therefore, whilst mindful of ongoing external
economic uncertainties and headwinds, including further cost
inflation, the Board anticipates performance for the full financial
year to be in line with its expectations.
More broadly, the Board believes that the Group should continue
to benefit from significant growth potential over the short, medium
and longer term from increasing market adoption of our unique
patented coatings technology, which helps customers to improve
operational efficiency, lower life cycle costs and reduce their
carbon footprint.
Philip Kirkham
Chief Executive Officer
17 May 2023
Income Statement
GBP 000 Year to
6 months 6 months 30 September
to to 2022
31 March 31 March (audited)
2023 2022
(unaudited) (unaudited)
Revenue 2,886 2,658 5,015
Cost of Sales (1,539) (1,556) (3,135)
Gross profit 1,347 1,102 1,880
----------------------------- --------------- --------------- -------------------
Administrative expenses (1,338) (1,323) (2,821)
Depreciation - owned assets (440) (433) (890)
Depreciation - right of use
assets (98) (64) (318)
Operating loss (529) (718) (2,149)
----------------------------- --------------- --------------- -------------------
Finance income 1 1 4
Finance costs (32) (14) (49)
Finance costs on right of
use assets (48) (40) (80)
Loss on ordinary activities
before tax (608) (771) (2,274)
----------------------------- --------------- --------------- -------------------
Tax (6) 15 86
Loss on ordinary activities
after tax (614) (756) (2,188)
----------------------------- --------------- --------------- -------------------
Consolidated Statement of Changes in Equity
GBP 000 Year to
6 months 6 months 30 September
to to 2022
31 March 31 March (audited)
2023 2022
(unaudited) (unaudited)
Total equity at start of
period 5,530 6,914 6,914
------------------------------------- --------------- --------------- -------------------
Loss for the period (614) (756) (2,188)
Issue of new shares - - 509
Exchange differences on translation
of foreign operation (94) 38 304
Share options - - (9)
Total equity at end of period 4,822 6,196 5,530
------------------------------------- --------------- --------------- -------------------
Consolidated Statement of Financial Position
GBP 000 30 September
2022
31 March 31 March (audited)
2023 2022
(unaudited) (unaudited)
Assets
Non-current assets
Goodwill 69 69 69
Intangible assets 13 27 19
Property, plant & equipment 4,837 5,490 5,402
Right of Use Assets 1,813 1,821 1,660
-------------------------------- --------------- --------------- --------------
Total non-current assets 6,732 7,407 7,150
-------------------------------- --------------- --------------- --------------
Current assets
Inventories 214 362 487
Trade and other receivables 1,013 1,146 955
Other current financial assets 232 357 450
Cash and cash equivalents 701 864 693
Total current assets 2,160 2,729 2,585
-------------------------------- --------------- --------------- --------------
Total assets 8,892 10,136 9,735
-------------------------------- --------------- --------------- --------------
Liabilities
Current liabilities
Trade and other payables 710 665 1,077
Financial liabilities - loans
and deferred income 256 258 257
Financial liabilities - leases 171 199 201
Provision for dilapidations - 12 -
Total current liabilities 1,137 1,134 1,535
-------------------------------- --------------- --------------- --------------
Net current assets 1,023 1,595 1,050
-------------------------------- --------------- --------------- --------------
Non-current liabilities
Financial liabilities - loans
and deferred income 708 941 878
Financial liabilities - leases 2,175 1,815 1,742
Provision for dilapidations 50 50 50
Total non-current liabilities 2,933 2,806 2,670
-------------------------------- --------------- --------------- --------------
Total liabilities 4,070 3,940 4,205
-------------------------------- --------------- --------------- --------------
Net assets 4,822 6,196 5,530
-------------------------------- --------------- --------------- --------------
Equity attributable to equity
holders of the parent
Share capital 4,063 3,942 4,063
Share premium 19,242 18,854 19,242
Retained earnings (18,814) (16,766) (18,200)
Share-based payment reserve 553 562 553
Translation reserve (222) (396) (128)
-------------------------------- --------------- --------------- --------------
Total equity 4,822 6,196 5,530
-------------------------------- --------------- --------------- --------------
Consolidated Statement of Cash Flows
GBP 000 Year to
6 months 6 months 30 September
to to 2022
31 March 31 March (audited)
2023 2022
(unaudited) (unaudited)
Cash flows from operating
activities
Operating (loss) (529) (718) (2,149)
Depreciation - owned assets 440 433 890
Depreciation - right of use
assets 98 64 318
Gain on sale and leaseback (157) - -
Share option charge - - (9)
Decrease in inventories 273 142 17
Decrease / (increase) in
receivables 73 (544) (372)
(Decrease) / increase in
payables (286) (42) 372
(Decrease) in provisions - (22) (34)
Cash generated from operations (88) (687) (967)
-------------------------------------- --------------- --------------- ------------
Finance income 1 1 4
Finance costs (32) (14) (49)
Interest on right of use
assets (48) (40) (80)
Tax received 82 80 78
Net cash generated from
operating activities (85) (660) (1,014)
-------------------------------------- --------------- --------------- ------------
Cash flows from investing
activities
Proceeds from sale and leaseback 477 - -
Proceeds from sales of property,
plant, equipment
Purchase of intangibles - - 7
Purchase of property, plant,
equipment - - (1)
(105) (185) (298)
Net cash used in investing
activities 182 (185) (292)
-------------------------------------- --------------- --------------- ------------
Cash flows from financing
activities
Net proceeds from issue of
ordinary share capital - - 509
Loans raised - 333 325
Loans repaid (147) (75) (261)
Lease principal repayments (135) (98) (251)
-------------------------------------- --------------- --------------- ------------
Net cash used in financing
activities (282) 160 322
-------------------------------------- --------------- --------------- ------------
Effect of exchange rate fluctuations 3 6 134
-------------------------------------- --------------- --------------- ------------
Net decrease in cash and
cash equivalents 8 (679) (850)
-------------------------------------- --------------- --------------- ------------
Cash and cash equivalents
at the beginning of the period 693 1,543 1,543
-------------------------------------- --------------- --------------- ------------
Cash and cash equivalents
at the end of the period 701 864 693
-------------------------------------- --------------- --------------- ------------
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 2023 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 with IFRS's.
These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements for the
year ended 30 September 2022, 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 financial information set out above does not constitute the
Company's statutory accounts as defined by section 434 of the UK
Companies Act 2006. A copy of the statutory accounts for Hardide
plc for the year ended 30 September 2022 has been delivered to the
Registrar of Companies. The auditors have reported on those
accounts; their reports were unqualified and did not include
references to any matters to which the auditors drew attention by
way of emphasis without qualifying their reports. Their reports for
the year ended 30 September 2022 did not contain statements under
section 498 (2) or (3) of the Companies Act 2006.
The consolidated financial statements 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. 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 in to
UK and USA operation and Corporate central functions, and this
factor identifies the Group's reportable segments.
6 months ended UK operation US operation Corporate Total
31 March 2023 GBP000 GBP000 GBP000 GBP000
External revenue 1,518 1,368 - 2,886
Reportable segment
profit / (loss) (395) 442 (661) (614)
--------------------- ------------- ------------- ---------- --------
Segment assets 6,466 2,299 127 8,892
Segment liabilities 2,522 1,216 332 4,070
6 months ended UK operation US operation Corporate Total
31 March 2022 GBP000 GBP000 GBP000 GBP000
External revenue
1,532 1,126 - 2,658
Reportable segment
profit / (loss) (475) 319 (600) (756)
--------------------- ------------- ------------- ---------- --------
Segment assets 7,119 2,724 293 10,136
Segment liabilities 2,897 707 336 3,940
12 months ended UK operation US operation Corporate Total
30 September GBP000 GBP000 GBP000 GBP000
2022
External revenue 3,076 1,939 - 5,015
Reportable segment
profit / (loss) (1,650) 186 (724) (2,188)
--------------------- ------------- ------------- ---------- --------
Segment assets 6,855 2,323 557 9,735
Segment liabilities 2,962 893 350 4,205
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:
UK Europe N America Rest of Total
GBP000 GBP000 GBP000 World GBP000
External sales GBP000
31 March 2023 767 79 2,023 17 2,886
31 March 2022 646 267 1,744 1 2,658
30 September
2022 1,314 666 3,007 28 5,015
3. Earnings per share
31 March 31 March 30 September
2023 2022 2022
GBP000 GBP000 GBP000
(Loss) on ordinary activities after
tax (614) (756) (2,188)
Basic earnings per ordinary share:
Weighted average number of ordinary
shares in issue 58,901,959 55,875,645 56,058,053
Earnings per share (1.0)p (1.4)p (3.9)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
The directors have adopted the going concern basis in preparing
the interim financial statements after assessing the principal
risks and having considered the impact of various downside
scenarios compared to the Group's base case financial plans, the
pace of sales growth and the level of profit margins for a period
of at least 12 months from the date of releasing the interim
results. Whilst the macro-economic position continues to be
uncertain, the directors have considered various impacts on sales,
profitability and cash flows and believe that the Group will have
adequate resources to continue in operational existence for the
foreseeable future.
5. Debt maturity
Loans
31 March 31 March 30 September
2023 2022 2022
GBP000 GBP000 GBP000
Total loans 868 1,092 1,018
Maturity analysis:
Within 1 year 239 242 238
1 to 2 years 251 236 250
2 to 3 years 170 248 217
3 to 4 years 105 167 149
4 to 5 years 55 102 81
5+ years 48 97 83
Deferred income
31 March 31 March 30 September
2023 2022 2022
GBP000 GBP000 GBP000
Total deferred income 96 107 117
Maturity analysis:
Within 1 year 17 16 19
1 to 2 years 17 16 19
2 to 3 years 17 16 19
3 to 4 years 17 16 19
4 to 5 years 17 16 19
5+ years 11 27 22
Right of use lease liabilities
31 March 31 March 30 September
2023 2022 2022
GBP000 GBP000 GBP000
Total lease liabilities 2,346 2,014 1,943
Maturity analysis:
Within 1 year 171 199 201
1 to 2 years 180 182 196
2 to 3 years 187 190 174
3 to 4 years 195 138 133
4 to 5 years 202 136 139
5+ years 1,411 1,169 1,100
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IR KZGMKKVRGFZM
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