Hardide Regulatory News (HDD)

Hardide plc

("Hardide" or "the Group" or "the Company")

Interim Results

for the six months ended 31 March 2016

Key Points

Financial

· Revenue of £0.95m (H1 2015: £1.78m) affected by downturn in oil & gas exploration as expected

· Gross profit of £0.25m (H1 2015: £1.21m)

· Group operating loss of £0.63m, after accounting for revaluation and provision and including US start-up costs (H1 2015: loss of £0.08m)

· EBITDA loss of £0.72m (H1 2015: profit £3,000)

· Cash at bank at 31 March 2016 of £1.00m

Business/Operational

· North America investment project completed on budget and on time

- new facility in Virginia operational - customer site-approval trials ongoing

· Growing sales in advanced engineering and aerospace

- revenue rose by 122% from H1 2015

- £300,000 order to coat components for new airport high-speed X-ray baggage screening machine announced in December 2015

- encouraging progress with coating for diamond trials for major OEMs

· Aerospace test programmes advancing, new opportunities being developed

- Airbus formal technical approval received and first coated aircraft components awaiting life testing by Airbus

- promising new applications in development from customers in USA, UK & Europe

· Cost reduction plan in place to mitigate impact of oil and gas downturn

· Given uncertainty about timing of recovery of oil and gas activity, the Board remains cautious about near term outlook, but believes H2 revenues will be higher than those in H1. Encouraging progress continues with our diversification strategy and longer-term prospects remain good

Commenting on the interim results, Robert Goddard, Chairman of Hardide plc, said:

"Advanced engineering and aerospace sector revenues more than doubled during the half year and Group order intake showed a 44% rise from the prior six months. However, we are in the midst of the longest and most severe global downturn in our core market of oil and gas and this has led to Group revenues falling 46% from the same period last year. In response, the Company has acted quickly and decisively to reduce its cost and expense base while retaining its ability to react quickly when demand from the oil and gas market recovers. However, for the foreseeable future the Company has to operate in these challenging market conditions and continues to grow its business outside oil and gas. With this in mind the Board is considering potential funding options for the business as a precautionary measure. Nonetheless the Board is encouraged by the progress being made in the potentially high-value advanced engineering and aerospace sectors and is confident about the longer-term outlook for the business."

- Ends -

For further information:

Notes to editors:

Hardide develops, manufactures and applies advanced technology tungsten-carbide coatings to a wide range of engineering components. Its patented technology is unique in combining in one material a mix of hardness and toughness together with resistance to abrasion, erosion and corrosion; and 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 oil and gas exploration and production, valve and pump manufacturing, nuclear, advanced engineering and aerospace industries. 

CHAIRMAN'S STATEMENT

Introduction

The continuing low oil price is a significant headwind for our major oil and gas customers and our interim results for the six months to 31 March 2016 reflect the impact that this has had on the Company's business. Good progress continues in other sectors and sales to advanced engineering and aerospace customers rose 122% from H1 2015. Order intake in the half was 44% higher than H2 2015, though down 32% from H1 2015. In response to the challenging market conditions, the Company has acted swiftly to reduce its cost and expense base while retaining the ability to respond quickly when oil and gas activity returns.

Financial Results

The Group is reporting H1 2016 revenue of £0.95m, a decrease of £0.83m compared with the same period last year (H1 2015 £1.78m). Group gross profit was £0.25m, compared with £1.21m in H1 2015. As expected, the combination of opening of the US facility, the fixed nature of production salaries and the mix of product through the UK facility, led to a 23% or £0.13m increase in the cost of sales, despite the fall back in revenue. The value of plant and machinery remaining at our Houston facility, dormant since March 2009, had been written down to zero in the accounts of previous financial years; upon its installation in Virginia, it was revalued back to its net book value at March 2009. This resulted in a revaluation in the profit and loss account of £0.23m. With effect from 4 December 2015, the lease on the Houston facility was terminated and allowed the release of the remaining onerous lease provision of £0.02m. Together with the planned Virginia spend, investment in sales and marketing and UK facility improvements, this resulted in a Group operating loss of £0.63m (H1 2015: loss of £0.08m). The Group made a loss before interest, tax, depreciation and amortisation ("EBITDA") of £0.72m (H1 2015: profit £3,000). The cash balance at 31 March 2016 was £1.00m (31 March 2015: £2.33m). Capex spend in the 12 month period to 31 March 2016 was £1.23m in addition to US revenue costs of £0.27m (net of grants).

Operational Overview

The Group has made good progress in several areas in H1 2015. The first high volume aircraft components have been coated for life testing by Airbus and development work is underway on several other volume Airbus A320 parts. Opportunities are also being developed with other US, UK and European aerospace manufacturers with part-specific technical developments on-going. Coated components are with AgustaWestland for testing, which awaits the allocation of time on a highly specialised test rig. Testing of critical components in the aerospace industry is, by necessity, very stringent and time consuming and requires specialist facilities. Our work on Nadcap is substantially complete and the application for this aerospace accreditation is planned for this summer.

The new production facility in Virginia is operational and supporting a small production team that is processing parts to secure site-approval from certain US customers. Production for those customers will be transferred from the UK in phases following the completion of site-approvals. US capital expenditure and revenue costs relating to the start-up of the new site are now substantially complete, with no further significant spend planned. Also in the US, the patent for coating industrial diamonds has now been granted.

We continue to diversify our customer base and orders from advanced engineering and aerospace customers rose by 122% from H1 2015. In December 2015, the Company announced an order worth more than £300,000 to cover an initial eight month period to supply crucial coated components for a new type of airport high-speed X-ray baggage screening machine. We expect demand to increase further as production of the new machine ramps up.

Success in securing sales of coating for new components normally results from extensive joint development work with customers and their applications and so there tends to be a lengthy period before full commercialisation of new applications. However, several important opportunities are now close to completion and we are continuing to work with existing and potential customers on many new and exciting developments that should be the source of further growth in the medium- to long-term.

Even within the currently depressed oil and gas market, new opportunities continue to emerge in this sector for the Hardide technology. Following successful testing, the Company secured its first large production order to coat components for fracking tools during the period, with a further large order received post-period. In addition we have recently been certified by a major global player on critical subsea flow control components, and are now receiving orders. The coating has also entered development and test in a range of new applications for several oil and gas service and operating companies internationally.

Summary and Outlook

We are in the midst of the longest and most severe global downturn ever experienced in our core market of oil and gas. Timing of the recovery is uncertain and will be determined by macro-economic and political factors. However, from forward orders we already have on-hand we believe that H2 revenues will be higher than those in H1. The Board takes a cautious view of when demand is likely to return from this sector and accepts that the Company has to operate in these challenging market conditions for the immediate future. With this in mind the Board is considering potential funding options for the business as a precautionary measure. Nonetheless the Board is encouraged by the progress being made in the potentially high value advanced engineering and aerospace sectors and is confident about the longer-term outlook for the business.

Robert Goddard

Chairman

6 June 2016

Consolidated Statement of Comprehensive Income

For the period ended 31 March 2016

Consolidated Statement of Changes in Equity

For the period ended 31 March 2016

Consolidated Statement of Financial Position

As at 31 March 2016

Consolidated Statement of Cash Flows

For the period ended 31 March 2016

IMPORTANT NOTICES

No statement in this announcement is intended to be a profit forecast or estimate and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual results and developments could differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement are based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect. Save as required by law or by the AIM Rules for Companies, the Company undertakes no obligation to release publicly the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Directors' expectations or to reflect events or circumstances after the date of this announcement.

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