Hardide Regulatory News (HDD)

17 Dec 2007 07:00

Hardide PLC17 December 2007 Press Release 17 December 2007 Hardide plc ("Hardide" or "the Company") Preliminary Results for the Period to 30 September 2007 Hardide plc (AIM:HDD), the provider of unique surface engineering technology,announces its preliminary results for the year ended 30 September 2007. Period Highlights • Group turnover increased 31% to £2,470,000 (FY 2006: £1,891,000)• Increased loss after tax of £1,795,000 (FY 2006: loss £906,000) due to investment in US manufacturing facility• Loss per share 1.2p (2006: loss 0.7p)• UK coating business trading EBITDA positive with more than 50 trials currently underway• £1million debt issue successfully executed to increase Hardide's growth in the Aerospace sector• Gas supply contract secured to save over £600,000 over next three years• William Zakroff appointed as Non-Executive Director• Hardide coating approved by Food and Drug Administration for food processing• New US$1 million deal with major US customer• US manufacturing facility generated first commercial orders with blue chip customers in 2007 with 37 trials currently underway Commenting on the results, Jim Murray-Smith, Chief Executive of Hardide plc,said: "This has been another period of significant growth for the Group, I am verypleased to announce that Hardide Coatings Limited, the first Hardide subsidiary,is now trading profitably on a quarterly basis. With the large pipeline ofopportunities currently under review for our US operation, Hardide Coatings Inc.these results will serve as a solid platform for the Group as it aims to reportan overall profit in the current financial year." For further information: Hardide plc Jim Murray Smith, Chief Executive / Tel: +44 (0) 1869 353 830 Jackie Robinson, Head of Communications jmurray-smith@hardide.com www.hardide.com Seymour Pierce Nicola Marrin Tel: +44 (0) 20 7107 8000 Media enquiries: Abchurch Chris Lane / George Parker Tel: +44 (0) 20 7398 7700 chris.lane@abchurch-group.com www.abchurch-group.com Notes to editors: Hardide provides and applies tungsten carbide-based coatings to a wide range ofengineering components. The Company's patented technology is unique in that itcombines both abrasion and corrosion resistant properties in one coating. Whenapplied to components, the technology is proven to offer dramatic cost savingsthrough reduced downtime and extended component life. Customers include leadingcompanies operating in oil and gas exploration and production, valve and pumpsmanufacturing, general engineering and aerospace. REPORT OF THE DIRECTORS CHIEF EXECUTIVE'S REVIEW I am pleased to report a year of solid growth for Hardide with revenuesincreasing to £2.47 million for the year ended 30 September 2007, up 31% from£1.89 million for the previous full financial year. This strong growth has beenachieved despite Q1 2007 sales being affected by the customer de-stocking issuewhich impacted last year's results; this issue was successfully resolved by Q22007 and the second half of the year saw a 65% increase from H2 2006. TheGroup's UK coatings business, Hardide Coatings Limited, achieved an EBITDApositive position of £334,000 and is trading profitably on a quarterly basis.Hardide has won several new prestigious customers in the period under review andhas recently negotiated a US$1 million deal with a major US customer during thereporting period. However, in line with our accounting policies, this revenueis not recognised in these results and will be deferred. The Group has seen sales increase across all of the Group's key sectors of oiland gas, valves and pumps, and aerospace. Oil and gas, our major customermarket, was particularly strong with Group sales up by 39% to £1.86 million.With oil prices and energy demand at all time highs, our end user market isextremely buoyant. Consequently, exploration and production companies continueto search for new technologies to help them extract more difficult and marginalreserves. This requires more advanced drilling programmes often in hostileenvironments where wear and corrosion can be serious enough to impact projectviability. These factors set a very favourable background for Hardide'stechnology. As reported, the Group has accelerated its expenditure to capitalise on strongmarket conditions. While we look to profitably grow our business, these resultsreflect our commitment to achieving sustainable profitable performance. We havecontinued a strong pace of investment of £700,000 on domestic and internationalexpansion with the associated capital expenditure, on new technology to improveproductivity, on gaining internationally recognised accreditations and onstrengthening our management and sales teams. A measure of our growing market impact is the increasing competitor reactionthat we are generating, particularly from the traditional thermal spray coatingplayers. I believe that we are clearly perceived as a threat to theirestablished territories as our technology offers many advantages to conventionalcoating solutions. This has resulted in interesting invitations forco-operation which the Board continually reviews. One of the biggest challenges that we continue to face is the long conversiontimes from initial concept talks through engineering design, testing andapproval to specification and customer implementation. Eighteen months is notan untypical timeframe for a new oil and gas application. We are working on allstages of the process, and with our customers, to find ways to shorten this. UK Facility I am pleased to report a 26.5% increase in sales in the UK to £2.39 million from£1.89 million last year. Following initial customer conversion, the Group hasbeen particularly successful in generating a high level of repeat orders and inthe course of the year we have entered supply agreements or test programmes withcustomers including Weatherford International Ltd, the Expro Group andMessier-Dowty. New applications are in various stages of development withseveral market leading companies in oil and gas, aerospace and valves. Morethan 50 parts are currently in test from the UK and Europe; the latter throughAFILEX France, the Group's agent which was appointed in March 2007. Our process optimisation programme has recorded a number of tangible resultsincluding a 30% improvement in delivery times. Divisional sales teams have alsobeen created to align our business with our markets, and we have been embeddinga performance culture giving clear accountability and responsibility as well asthe opportunity for personal development. US Facility The Houston plant generated its first new commercial orders in H1 2007. Thedevelopment timeline has mirrored that in the UK. Of the 30 ongoing trials thatI reported at our interim results, four have converted to sales, four haveadvanced to larger scale tests, and the rest are still moving through thetesting process. Importantly, there have been no failures and we currently havea total of 37 trials underway. These trials are primarily with major oilfieldservice providers or valve manufacturers. It is necessarily slow, but whollyencouraging that the technology is being proven under rigorous test proceduresthat are a standard feature of exploration and production technologydevelopment. Such a number of ongoing trials leads me to report that there isan extremely healthy pipeline of new business in the US. We have also had goodquality interest following the Food and Drug Administration approval for foodprocessing that was announced in September 2007. The Houston facility has been providing vital support to our UK businessenabling us to enter international supply agreements that would not have beenpossible without a US presence. In the coming year, we will complete the transfer to Houston of all parts beingcoated in the UK for US customers, and we intend to order a second furnace forthe facility. People In June 2007, William Zakroff was appointed as a Non-Executive Director. 'Zak',who is based in Houston, Texas, brings an international depth to the Board withhis extensive experience in our field of technology and our key markets. He hasproven an extremely pro-active Board member and is leveraging his considerableconnections to our advantage. We have also strengthened our general management, sales and engineering teamswith a number of appointments throughout the year. Significantly, in March2007, Neill Ricketts was appointed as Managing Director for UK and EuropeanOperations of Hardide Coatings Limited, bringing 18 years of operations,production and surface engineering experience. Following the placing of Proventec's stake in Hardide in February 2007,Proventec's Chief Executive, David Chestnutt, resigned as Non-Executive Chairmanof the Group. I would like to thank David for his support and guidance over theyears. Health, Safety and Environment The Board and management of Hardide plc are committed to the effectivemanagement of health, safety and environmental (HSE) risks. There have been norecordable or environmental incidents over the last year. It has been an important part of our corporate philosophy to implementstrategies and processes to perform in a socially responsible manner and for theGroup to adapt alongside growing worldwide environmental concern. I am pleasedto report that this culminated with the award of ISO 14001 in September 2007,following the re-certification of quality standard ISO 9001 in August 2007. Ibelieve both of these to be significant achievements for a relatively smallcompany with such a complex production process and global customers. Staff training is allocated a generous annual budget, a proportion of which hasbeen used throughout the year to train all employees in HSE techniques andawareness. Research & Development and New Technology Our research into the development of a new low-slip coefficient coating hascontinued to progress throughout the year. We have also focused our R&D effortson maximising production and furnace productivity by investing in two powerfulsoftware modelling tools and x-ray fluorescence equipment. It has taken eight months to integrate the highly sophisticated fluid andchemical engineering packages, CFdesign and Fluent, into our processes and theyare now calibrated and ready for regular use. Together with improved failure analysis from the x-ray fluorescence equipmentbought in the first half of this year, I am confident that over the next 12months, the Group's R&D and technology investment will result in significantproduction and cost benefits, as well as enhance our competitive advantage. In the coming year, we will continue our R&D into new Hardide coating variantsand in response to customer demand, we will be also be looking at ways to coatlarger structures. Outlook We will take the same level of energy, drive and ambition for success that hascreated our current momentum into the next phase of our development. The Groupis now structured and resourced to significantly increase revenue growth in theUK and US over the next twelve months, while measures have been taken to reducecosts through controls such as the reported gas supply contract which will savea minimum of £600,000 over the next three years. The Group has a sound strategy being implemented by a talented team of peopleand the Board expects all the key segments and markets in which the Groupoperates to remain buoyant. With over 80 parts currently in test and some very exciting development projectsunderway with major oil and gas, and aerospace customers, I look forward to arewarding year for shareholders and staff. Our UK operation is trading profitably on a quarterly basis and we are receivingorders for the Group's US manufacturing facility in Houston, Texas. Althoughthe Houston operation is still at an early stage, we are confident of securingfurther orders from the large pipeline of business on which the Group iscurrently focused. The team at Hardide has worked extremely hard to create this healthy platformfor growth and my thanks go to all our staff for their contributions. Jim Murray-Smith Chief Executive Officer14 December 2007 FINANCIAL REVIEW Group turnover increased by 31% to £2,470,000 (2006: £1,891,000), driven bybuoyant demand from our core oil & gas customers. Second half turnover amountedto £1,365,000 a 24% increase compared with the first half and 65% ahead of thesame period last year. The Group result for the year was a loss after tax of £1,795,000 compared with aloss of £906,000 for 2006. The increased loss is attributable to costsassociated with the commencement of the Group's US operation. The Group hasalso been adversely affected by the current weakness in the US dollar. Operating costs were £1,180,000 (2006: £817,000), giving gross profit of£1,290,000 (2006: £1,074,000). The decline in Group gross margin from 57% in2006 to 52% this year reflects the full year impact of investment in theproductive capacity of our Houston plant. Gross margins in our UK operationincreased from 58% to 62%, where efficiency and productivity gains outweighedincreased input costs. Group administrative costs rose to £3,115,000 from £2,160,000 in 2006. Majorchanges were a £150,000 increase in depreciation charge (of which £114,000 wasin respect of our US plant); a charge of £59,000 to reflect the FRS 20 chargefor share options granted; £112,000 increased cost of premises, reflecting bothexpansion in the UK and the full year impact of the US plant; £160,000investment in strengthening both our UK and US sales, management and technicalteams; £152,000 cost of exchange rate movements on intercompany loans; and£76,000 being the full year overhead impact of our Houston operation as it movedfrom start-up to production phase. Net interest income was £6,000 (2006: £36,000 income). R&D tax credit for theyear amounted to £26,000 less a £2,000 adjustment relating to prior year. Thiscompares with £142,000 in the 2006 accounts which was for three claims. Group expenditure on fixed assets amounted to £439,000 of which £177,000 was inthe US to complete the fit-out of our Houston plant and £262,000 was in the UK,a significant part of which was £112,000 completion payments on our latestfurnace. Group stock levels rose by £12,000 to £88,000 and trade debtors increased from£287,000 to £580,000 caused both by a marked increase in turnover in the twomonths prior to year end, and by a delay in receipts from our largest customerwhich unfortunately coincided with our year end. This latter situation hasresolved itself. In February, Proventec plc made a full exit from Hardide plc through the sale ofits subsidiary, Flintstone Management Services Limited's 21.5% stake, via aplacing to two current shareholders. Proventec was an original holder inHardide plc and provided vital early stage funding. Two of our longest standing shareholders further underscored their commitment byeach lending a further £500,000 to accelerate our entry into the aerospacesector. Both parties have strongly backed the Group since flotation in April2005 and the Board appreciates their continued support. Since the year end, the Group has signed a three year contract for the supply oftungsten hexafluoride to all our plants, at a price which represents a saving ofover £600,000 over the next three years. Peter DavenportFinance Director14 December 2007 HARDIDE PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 September 2007 2007 2006 Note £'000 £'000 Turnover 2 2,470 1,891Cost of sales (1,180) (817)Gross profit 1,290 1,074 Administrative expensesAmortisation 36 36Depreciation (475) (325)Share option charge (59) -Other administration (2,617) (1,871) Total administrative expenses (3,115) (2,160) Other operating income - 2Operating loss (1,825) (1,084)Net interest 6 36Loss on ordinary activities (1,819) (1,048)before taxationTax on loss on ordinary 3 24 142activitiesLoss for the financial year (1,795) (906) Loss per share basic and diluted 4 (1.2)p (0.7)p All operations are continuing. The accompanying accounting policies and notes form an integral part of thesefinancial statements. STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2007 2007 2006 £'000 £'000 Loss for the financial year (1,795) (906)Currency differences on foreign 81 11currency net investments Total recognised loss for the year (1,714) (895) HARDIDE PLC CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2007 30 September 30 September 2007 2006 Note £'000 £'000Fixed assetsIntangible assetsGoodwill 65 71Negative goodwill (41) (81) 24 (10)Tangible assets 1,668 1,753 1,692 1,743Current assetsStocks 99 102Debtors 795 588Cash at bank and in hand 1,135 1,803 2,029 2,493 Creditors: amounts falling due (657) (584)within one year Net current assets 1,372 1,909Total assets less current 3,064 3,652liabilities Creditors: amounts falling due (892) (216)after one year Net assets 2,172 3,436Capital and reservesCalled up share capital 1,467 1,467Share premium account 3,345 3,345Other reserve 450 -Profit and loss account (3,090) (1,376) Shareholders' funds 5 2,172 3,436 The financial statements were approved by the board of directors on 14 December2007 and are signed on behalf of the board of directors. J Murray-SmithDirector HARDIDE PLCCONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2007 Note 2007 2006 £'000 £'000 Net cash outflow from operating activities 6 (1,456) (581) Returns on investments and servicing of financeInterest received 31 60Finance lease interest paid (25) (24)Net cash inflow from returns on investments and 6 36servicing of finance Taxation 107 35 Capital expenditure and financial investmentPurchase of tangible fixed assets (439) (978)Net cash outflow from capital expenditure and financial (439) (978)investment FinancingIssue of shares - 2,375Capital element of finance lease rentals (95) (91)New finance lease agreements 209 -Loans 1,000 -Expenses paid in connection with share issues - (100)Net cash inflow from financing 1,114 2,184 (Decrease) / increase in cash 7 (668) 696 STATEMENT OF CONSOLIDATED TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 September 2007 2007 2006 £'000 £'000Loss for the financial year (1,795) (906)Currency differences on foreign 81 11currency net investments Total recognised loss for the year (1,714) (895) HARDIDE PLC NOTES TO THE PRELIMINARY ANNOUNCEMENT For the year ended 30 September 2007 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, apart from the adoption of FRS 20 'Share-Based Payments'. 2. TURNOVER AND LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION Turnover is attributable to sales of high-performance coatings to customers inthe oil & gas, valve, pump, aerospace, and general engineering industries. Geographical segments: Turnover by origin Turnover by destination 2007 2006 2007 2006 £'000 £'000 £'000 £'000 UK 2,392 1,891 2,047 1,509USA 78 - 413 367Other - - 10 15 2,470 1,891 2,470 1,891 Group loss before taxation 2007 2006 £'000 £'000 UK (721) (584)USA (1,098) (464) Group loss before (1,819) (1,048)taxation Group net assets 2007 2006 £'000 £'000 UK 3,652 2,806USA (1,480) 630 Group net assets 2,172 3,436 3. TAXATION ON ORDINARY ACTIVITIES (a) Analysis of credit in the year: 2007 2006 £'000 £'000Current tax:UK Corporation tax on the loss for the year - -Research and development tax credit 26 57Adjustment in respect of prior years (2) 85research and development tax credits 24 142 (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% (2006: 19%) 2007 2006 £'000 £'000 Loss on ordinary activities before taxation (1,819) (1,048)Loss on ordinary activities by rate of tax (346) (199)Expenses not deductible for tax purposes 17 4Capital allowances in excess of depreciation (5) (6)Permanent differences 1 (4)Tax losses surrendered for R&D tax credit 31 45Current tax losses carried forward (302) (160)Total current tax (note 3(a)) - - The Group has unutilised tax losses in the UK of approximately £4.6m (2006:£3.4m). 4. LOSS PER SHARE The calculation of basic loss per share is based on the loss attributable toordinary shareholders of £1,795,000 (2006: £906,000) divided by the weightedaverage number of ordinary shares in issue during the year which was 146,742,236(2006: 136,376,295). 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 The Group 2007 2006 £'000 £'000 Loss for the financial year (1,795) (906)Exchange differences 81 11 Issue of shares - 2,275Fair value of share-based payments 59 -Reclassification of financial liabilities to other 391 -reserves (FRS 25)Net (decrease) / increase in shareholders' funds (1,264) 1,380 Shareholders' funds at 1 October 2006 3,436 2,056Shareholders' funds at 30 September 2007 2,172 3,436 6. NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2007 2006 £'000 £'000 Operating loss (1,825) (1,084)Share options expense 59 -Loss on disposal of fixed assets - -Depreciation of tangible fixed assets 475 325Amortisation of goodwill (36) (36)Decrease / (Increase) in stocks 23 (39)Increase in debtors (224) (22)Increase in creditors 72 275 Cash outflow from operating activities (1,456) (581) 7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2007 2006 £'000 £'000 Increase / (decrease) in cash (668) 696Cash (inflow) / outflow from finance leases (114) 91Cash inflow from loans (1,000) - (1,782) 787Net funds at 1 October 2006 1,489 702Net funds at 30 September 2007 (293) 1,489 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 2007 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 2007 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