REG - Hardide PLC - Interim Results
17/05/2023 07:00
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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 £2.9m (H1 FY22: £2.7m), a 9% increase over H1 FY22
· Gross profit of £1.3m (H1 FY22: £1.1m)
· Gross margin improved to 47% (H1 FY22: 41%)
· EBITDA breakeven achieved (H1 FY22: £0.2m EBITDA loss)
· Available cash resources at 31 March 2023 were £0.7m (30 September 2022:
£0.7m)
· 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 £0.5m 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 353 830
Jackie Heddle, Communications Manager
IFC Advisory Tel: +44 (0) 20 3934 6630
Graham Herring
Tim Metcalfe
Florence Chandler
finnCap - Nominated Adviser and Joint Broker Tel: +44 (0) 2072 200 500
Henrik Persson/ Abigail Kelly (Corporate Finance)
Barney Hayward (ECM/Broking)
Allenby Capital - Joint Broker Tel: +44 (0) 20 3328 5656
Tony Quirke/ Joscelin Pinnington - Sales and Corporate Broking
Jeremy Porter/ Dan Dearden-Williams - Corporate Finance
Notes to editors:
www.hardide.com (http://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 £2.9m (H1 FY22: £2.7m). 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 £0.2m).
EBITDA benefited from a net non-recurring property gain of £0.1m described
further below. EBITDA in H1 FY22 benefited from £0.2m of Covid support.
The Group balanced its cash flows overall for the period, with £0.7m of
available cash resources on the balance sheet at 31 March 2023 (30 September
2022: £0.7m). 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
£0.3-0.4m 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.£0.5m for the full financial year, comprising:
· Cost savings of £0.2m
· Grants to offset development and testing costs of £0.1m
· Selling price increase / cost inflation recovery of £0.1m
· Working capital improvements of £0.1m.
FINANCIAL REVIEW
Income statement
Revenues for H1 FY23 were £2.9m, 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: £0.2m EBITDA loss).
The EBITDA breakeven result benefited from a net £0.1m 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 £0.2m 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 £0.6m (H1 22: loss of
£0.8m).
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 £0.7m. Excluding the
one-off cash flow benefit of £0.5m 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
£0.2m.
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 £1.0m (H1 FY22: £1.2m). Of the
amount outstanding at 31 March 2022, £0.3m is repayable within one year. Net
debt at both 31 March 2023 and 2022 was £0.3m.
Lease obligations reported under IFRS 16 at 31 March 2023 were £2.3m (31
March 2022: £2.0m), 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 £10m (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. £1m in the oil & gas sector, more than £1m in power
generation and up to £1m in aerospace. We should achieve EPS positive results
at approximately £7.5m-£8.0m 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
£ 000 Year to
6 months to 6 months to 30 September 2022
31 March 2023 31 March 2022 (audited)
(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
£ 000 Year to
6 months to 6 months to 30 September 2022
31 March 2023 31 March 2022 (audited)
(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
£ 000 30 September 2022
31 March 2023 31 March 2022 (audited)
(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
£ 000 Year to
6 months to 6 months to 30 September 2022
31 March 2023 31 March 2022 (audited)
(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 £000 US operation Corporate Total
31 March 2023 £000 £000 £000
1,518 1,368 - 2,886
External revenue
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 £000 US operation Corporate Total
31 March 2022 £000 £000 £000
1,532 1,126 - 2,658
External revenue
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 £000 US operation Corporate Total
30 September 2022 £000 £000 £000
3,076 1,939 - 5,015
External revenue
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:
External sales UK Europe N America Rest of World Total
£000 £000 £000 £000 £000
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 2023 31 March 2022 30 September 2022
£000
£000 £000
(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 2022
2023
2022
£000
£000
£000
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 2022
2023
2022
£000
£000
£000
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 2022
2023
2022
£000
£000
£000
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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