Hardide Regulatory News (HDD)

4 Dec 2006 07:01

Hardide PLC04 December 2006 Press Release 4 December 2006 Hardide plc ("Hardide" or "the Company") Preliminary Results for the Period to 30 September 2006 Hardide plc, the provider of unique surface engineering technology, announcesits preliminary results which cover trading for the year ended on 30 September2006. Highlights • Turnover increased to £1.89 million (2005*: £0.69 million)• Gross profit increased to £1.07 million (2005*: £0.41 million)• Loss after tax** £0.91 million (2005*: £0.48 million)• Successful opening of Hardide's manufacturing facility in Houston, Texas, on budget and ahead of schedule• Strengthened Board• Trading improving following customer inventory reduction• Successful fundraising of £2.34 million during the year, £1.80m cash on the balance sheet at the period end * The figures for 2005 cover the period from the Company's formation on 27January 2005 to 30 September 2005. ** after £0.14m R&D tax credit Commenting on the results, Jim Murray-Smith, Chief Executive of Hardide plc,said: "These results are in line with expectations and demonstrate Hardide'scontinued strong growth. The opening of the US manufacturing facility inHouston, which was achieved ahead of schedule and on budget, will further driverevenues. "We are experiencing buoyant market conditions in all of our key markets andhave the capacity to install additional furnaces in both the UK and the US tosatisfy this increased demand." For further information: Hardide plc Jim Murray Smith, Chief Executive Tel: +44 (0) 1869 353 830 jmurray-smith@hardide.com www.hardide.com Daniel Stewart & Company plc Paul Shackleton, Corporate Finance Tel: +44 (0) 207 776 6550 paul.shackleton@danielstewart.co.uk www.danielstewart.co.uk Media enquiries: Abchurch Chris Lane / Laura Riascos de Castro Tel: +44 (0) 20 7398 7700 chris.lane@abchurch-group.com www.abchurch-group.com CHAIRMAN'S STATEMENT These results represent another year of solid growth for Hardide. The Boardtook the decision in November 2005 to exploit the interest shown in Hardide'sunique technology by US-based energy companies by setting up a manufacturingfacility in Houston, Texas, the energy capital of the world. The Companyraised combined funds of £2.34 million (before expenses) in December 2005 andMay 2006 through the issue of 18,886,494 New Ordinary Shares, in part toaccelerate Hardide's development plans in Houston, and also to employ and trainadditional staff to apply the Hardide process. In nine months, the site inHouston was transformed from a greenfield project to an operational coatingsfacility with local people being trained in the technology. The plant isideally located in the heart of the energy community, with state-of-the-artproduction facilities operated by highly-qualified staff. Although early in thesite's development, the furnace has produced validation product for an existingUS customer as well as test components for both new and current customers. The last year has again been a significant period of development for the Groupand I would like to thank Hardide's Chief Executive, Jim Murray-Smith, forleading the management team and staff over this time. In March 2006, Peter Davenport was appointed to the Board of Hardide as FinanceDirector and I welcome him to the role. Peter has already made a majorcontribution to the Hardide management team. The Board is confident that Hardide is well-placed to make solid and continuingprogress over the next financial year and beyond as it engages new customers andnew applications in the UK and overseas. David ChestnuttChairman 1 December 2006 CHIEF EXECUTIVE'S STATEMENT The last financial year has been extremely busy for Hardide, with significantprogress made in sales and international expansion. Sales increased to £1.89million in the year ended 30 September 2006, from £0.69 million reported for theGroup for the previous period. This represents a 73% increase over the previousfull year sales of £1.09 million for the Group's operating subsidiary, HardideCoatings Limited. Substantial increases are reported across all of the Group's key sectors of oiland gas, valves, pumps and aerospace. This performance is attributable to newbusiness generation, further increases in demand for parts from existingcustomers, and it reflects the high level of customer satisfaction that Hardideis delivering. I am delighted to report that our Houston manufacturing plant opened withinbudget and a month ahead of schedule on 1 September 2006. These results were achieved despite two short-term, customer-related issuesoutside of our control which affected the Company's performance against marketforecasts. As previously announced, one of the Company's major oil and gascustomers reduced its inventory during the year, resulting in lower thanexpected sales. Significantly, Hardide remains the specified supplier for thiscustomer and orders have returned to previous levels. Furthermore, we haverecently converted two new applications for the customer, with more in trial inboth the UK and US. The strength of the oil price also led our major energycustomers to focus their resources on maintaining high levels of production; theeffect has been a slow down in field-testing and a longer conversion time forcustomers intending to purchase the Hardide coating. Crucially, field-testingcontinues to produce impressive results with the majority of customers going onto incorporate the Hardide technology. UK FACILITY I am pleased to report a 73% like-for-like increase in sales despite thecustomer inventory reduction and slowdown in testing. The high level of repeatorders and new parts in test are a healthy indicator of customer confidence. Aerospace activity has progressed well with Hardide Coatings Limited receivingformal approved supplier status with BAE Systems and orders ongoing under strictpurchasing and quality procedures. Over the last year, we have seen customers draw increasingly on our engineeringresources whereby we work closely with the customer to add value from the designstage through to manufacture. This turnkey service sets us apart from competingtechnologies and enables us to maximise the effectiveness of the coating whilegiving us greater control over timelines and quality. To nurture and support new talent in the business, we have worked closely withSalford University, which runs the first UK MSc/PgDip in Vacuum Engineering andApplications. The Company has staff on the management board of the course andwe see this as a valuable potential source of trained technical specialists asthe business grows. US FACILITY The Houston plant has received an extremely warm welcome from our existing andprospective US customers and we have a backlog of interest from the top tier ofHouston-based energy services companies as well as the aerospace sector. Thereare a number of different US parts in test which we expect will lead to furthernew customers and applications. Existing US customers are committing toincreasing their order schedule now that the new plant is open and operational. HEALTH, SAFETY AND THE ENVIRONMENT The Group's health and safety record remains exemplary. Operating within strictenvironmental frameworks is essential to working with the market-leaders in ourtarget sectors. We have demonstrated our commitment to environmentalresponsibility by appointing an Environmental Officer to manage our activity inthis area. Over the past year, the Group has been working towards ISO 14001 andis on-track to secure this accreditation. Hardide is committed to anenvironmental supply chain and we are currently reassessing our suppliers toensure that they adhere to our environmental policy. RESEARCH AND DEVELOPMENT Last year I noted our intention to resume R&D activity into additional Hardidecoating variants. Our strategy has proven successful as we secured the USpatent for a new tungsten carbide adhesive and protective coating for industrialdiamond crystals. The Group's R&D programme is ongoing and our development of anew low-slip coefficient coating continues to make progress. R&D will assumeeven greater significance over the next twelve months as we take one of theoriginal UK furnaces out of commercial service and dedicate it to thedevelopment of the next generation of ultra-high performance coatings. MARKETING Notable sales leads were generated at the two largest energy exhibitions of2006; the Offshore Technology Conference in Houston, USA and the GlobalPetroleum Show in Calgary, Canada. Quality leads were also created as the Groupmade its debut at the Farnborough Airshow and attended the premier worldwidevalve show in Maastricht, Holland. Each of these shows has led to a number ofthe new trials in the UK and US; these trials are a fundamental pre-requisitefor sales and the majority are with blue chip industrial companies. Hardide has enjoyed a high and positive media profile over the last yearfeaturing in a large cross-section of quality national, business and technicalmedia in the UK and US. The website (www.hardide.com) was also redeveloped,incorporating new sections and features designed specifically for our technical,investor and media audiences. OUTLOOK The Company has a robust strategy where we position ourselves in close proximityto the markets with the highest potential. I am encouraged by the marketconditions in all our operating areas and we will continue to invest in people,equipment and R&D. I am confident that we have the technology and talent tocontinue the Hardide growth story during the course of the next year and beyond. I would like to give my personal thanks to our employees in the UK and US fortheir commitment and hard work during the last year which is so crucial to ourgrowing business. Jim Murray-SmithChief Executive Officer 1 December 2006 FINANCIAL REVIEW The Group result for the year was a loss after tax of £906k. The last publishedresults for the Group were for the period 27 January to 30 September 2005, inwhich the Group made a loss after tax of £481k. The increased loss was dueprimarily to the investment in our new US facility, as well as the impact of afull year's loss in the Plc of £319k (27 January to 30 September 2005: loss of£90k). The Group's UK operating subsidiary, Hardide Coatings Limited, reducedits full year loss from £701k in 2005 to £162k in 2006. Having reported at the half year turnover of £1,063k, the Group was hit by asudden and unexpected inventory reduction by one of our largest customers overthe summer, which reduced our turnover in the second half of the year to £828k.While this level of turnover and consequent impact on our profitability wasdisappointing, it is comforting that activity with this customer has nowreturned to normal levels, and the demand for Hardide coated product from theend user has remained strong throughout the period. On a like for like basis, turnover at our UK operating subsidiary rose from£1.09m in 2005 to £1.89m, an increase of 73%. This increase was evenly spreadacross each of our existing sales sectors (oil & gas, pumps, valves, andaerospace). It is testament to the effectiveness of the Hardide product thatduring the year we started coating production quantities of 21 new parts fromexisting customers. The Group's sales to US customers rose to £367k in 2006from £91k reported last year, which together with the number of Hardide coatedproducts in field trials with some of the largest US oil & gas companies,provides sound backing for the board's decision to open a facility in Houston,Texas. In spite of the increase in turnover and the expansion of the Group, we havebeen effective at keeping working capital under control. Levels of stockexcluding work in progress were £76k at the year end (2005: £41k), and tradedebtors reduced to £287k from £339k in 2005. The Group had a year end cashbalance of £1,803k. There were increases in some of our costs of sales during the year. The Hardideprocess uses Tungsten Hexafluoride, the cost of which has increased by 13% sincethis time last year. Now that the Group is purchasing globally significantquantities of this gas, we are exercising our purchasing power with the aim ofachieving major price reductions. We have also started to manage the entiresupply chain for certain customers as part of our competitive offering, whichincreases turnover but at a lower margin. Group overheads were £2,160k in the year, compared with £970k reported for theprevious period. Most of the increase is due to the increased length of periodreported, with additional overheads caused by the opening of our Houstonfacility. During the year the Group invested in exhibiting at four major tradeshows during the year, which have provided a rich source of sales leads. Group expenditure on fixed assets amounted to £978k in the year, of which £627kwas for our Houston plant. Of the remaining £351k, £170k was payments for theconstruction of a new furnace for our Bicester plant, which was delivered inlate November. This new furnace will both increase production capacity andallow one of our older furnaces to be taken out of front-line production andreleased for research and development purposes. The arrival of the additionalfurnace and the need to accommodate the overall increase in production has ledto the Group leasing additional factory space. Given the size of the Group and its stage of development, it is appropriate thatthe board has given prominence to monitoring the financial health of the Groupover the past year. The board also monitors a range of non-financial keyperformance indicators including furnace performance, delivery performance andproduct conformance. The board is now in the process of developing a widerrange of non-financial key performance indicators which will form the basis ofperformance review in the coming year. Peter DavenportFinance Director 1 December 2006 HARDIDE PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 September 2006 27 January - 2006 30 September 2005 Note £'000 £'000 Turnover 2 1,891 692Cost of sales (817) (283)Gross profit 1,074 409 Administrative expensesAmortisation 36 40Depreciation (325) (146)Other administration (1,871) (864) Total administrative expenses (2,160) (970) Other operating income 2 68Operating loss (1,084) (493)Net interest 36 12Loss on ordinary activities (1,048) (481)before taxationTax on loss on ordinary 3 142 -activitiesLoss for the financial year (906) (481) Loss per share basic and diluted 4 (0.7)p (0.4)p All operations are continuing. HARDIDE PLCCONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2006 30 September 30 September 2006 2005 Note £'000 £'000Fixed assetsIntangible assetsGoodwill 71 76Negative goodwill (81) (122) (10) (46) Tangible assets 1,753 1,100 1,743 1,054Current assetsStocks 102 63Debtors 588 459Cash at bank and in hand 1,803 1,107 2,493 1,629 Creditors: amounts falling due (584) (313)within one year Net current assets 1,909 1,316Total assets less current 3,652 2,370liabilities Creditors: amounts falling due (216) (314)after one year Net assets 3,436 2,056Capital and reservesCalled up share capital 1,467 1,275Share premium account 3,345 1,262Profit and loss account (1,376) (481) Shareholders' funds 5 3,436 2,056 HARDIDE PLCCONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2006 27 January - Note 2006 30 September 2005 £'000 £'000 Net cash outflow from operating activities 6 (581) (851) Returns on investments and servicing of financeInterest received 60 19Finance lease interest paid (24) (7) Net cash inflow from returns on investments and 36 12servicing of finance Taxation 35 - Capital expenditure and financial investmentPurchase of tangible fixed assets (978) (245) Net cash outflow from capital expenditure and financial (978) (245)investment Acquisitions and disposalsNet cash transferred with subsidiary undertakings - 456 Net cash inflow from acquisitions and disposals - 456 FinancingIssue of shares 2,375 1,750Capital element of finance lease rentals (91) (20)New finance lease agreements - 318Expenses paid in connection with share issues (100) (313) Net cash inflow from financing 2,184 1,735 Increase in cash 7 696 1,107 STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 30 September 2006 27 January - 2006 30 September 2005 £'000 £'000 Loss for the financial year (906) (481)Currency differences on foreign 11 -currency net investments Total recognised loss for the (895) (481)year HARDIDE PLC NOTES TO THE PRELIMINARY ANNOUNCEMENT For the year ended 30 September 2006 1. BASIS OF PREPARATION The preliminary announcement has been prepared in accordance with applicableaccounting standards and under the historical cost convention. The principal accounting policies of the group have remained unchanged from theprevious year. 2. SEGMENTAL INFORMATION Turnover by origin Turnover by destination 27 January - 27 January - 2006 30 September 2005 2006 30 September 2005 £'000 £'000 £'000 £'000UK 1,891 692 1,509 593USA - - 367 91Other - - 15 8 1,891 692 1,891 692 Group loss before taxation 27 January - 2006 30 September 2005 £'000 £'000UK (584) (481)USA (464) - Group loss before (1,048) (481)taxation Group net assets 27 January - 2006 30 September 2005 £'000 £'000 UK 2,806 2,056USA 630 - Group net assets 3,436 2,056 3. TAXATION ON ORDINARY ACTIVITIES (a) Analysis of credit in the year: 27 January - 2006 30 September 2005 £'000 £'000Current tax:Research and development tax credit 57 -Adjustment in respect of prior years 85 -research and development tax credits 142 - (b) Factors affecting current tax charge: The tax assessed on the loss on ordinary activities for the year is lower thanthe standard rate of corporation tax in the UK of 19% (2005: 19%) 27 January - 2006 30 September 2005 £'000 £'000 Loss on ordinary activities before taxation (1,048) (481) Loss on ordinary activities by rate of tax (199) (91)Expenses not deductible for tax purposes 4 -Capital allowances in excess of depreciation (6) (20)Permanent differences (4) (1)Current tax losses carried forward 216 112Research and development tax credit 46 -adjustmentAdjustment in respect of prior year research 85 -and development tax credit Total current tax (note 3(a)) 142 - The group has unutilised tax losses in the UK of approximately £3.4m (2005:£3.0m). 4. LOSS PER SHARE The calculation of basic loss per share is based on the loss attributable toordinary shareholders of £906,000 (2005: £481,000) divided by the weightedaverage number of ordinary shares in issue during the year which was 136,376,295(2005: 127,493,242). The issue of additional shares on the exercise of options would decrease thebasic loss per share and there is, therefore, no dilutive effect of shareoptions. 5. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 27 January - 2006 30 September 2005 £'000 £'000 Loss for the financial year (906) (481)Exchange differences 11 -Issue of shares 2,275 2,537Net increase in shareholders' funds 1,380 2,056 Shareholders' funds at 1 October 2005 2,056 -Shareholders' funds at 30 September 2006 3,436 2,056 6. NET CASH OUTFLOW FROM OPERATING ACTIVITIES 27 January - 2006 30 September 2005 £'000 £'000 Operating loss (1,084) (493)Loss on disposal of fixed assets - 4Depreciation of tangible fixed assets 325 143Amortisation of goodwill (36) (40)(Increase) in stocks (39) (46)(Increase) in debtors (22) (163)Increase / (decrease) in creditors 275 (256) Cash outflow from operating activities (581) (851) 7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 27 January - 2006 30 September 2005 £'000 £'000 Increase in cash 696 1,107Cash inflow / (outflow) from finance leases 91 (405) 787 702Net funds at 1 October 2005 702 -Net funds at 30 September 2006 1,489 702 8. PUBLICATION OF NON-STATUTORY ACCOUNTS The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The consolidated balance sheet at 30 September 2006 and the consolidated profitand loss account, consolidated cash flow statement, statement of consolidatedtotal recognised gains and losses and associated notes for the year then endedhave been extracted from the Group's 2006 statutory financial statements uponwhich the auditors opinion is unqualified and does not include any statementunder Section 237 of the Companies Act 1985. Those financial statements have not yet been delivered to the registrar ofcompanies. This information is provided by RNS The company news service from the London Stock Exchange