REG - Hardide PLC - Interim Statement
22/05/2024 07:15
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RNS Number : 3604P Hardide PLC 22 May 2024
The information contained within this announcement is deemed by Hardide to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended
Hardide plc
("Hardide", "the Group" or "the Company")
Interim Statement for the six months ended 31 March 2024
Financial Highlights
Six months ended 31 March:
£m 2024 2023 Change
Revenue 2.1 2.9 -0.8
Gross margin % 41.0% 46.7% -5.7ppts
EBITDA (0.5) - -0.5
(Loss) before tax (1.0) (0.6) -0.4
Cash balance at 31 March 0.7 0.7 -
Two months ended 31 March 2024
£m 2 months to 31.3.24
Revenue 0.9
Gross margin % 48.3%
EBITDA -
Business and Commercial Highlights
· Return to EBITDA and net cash flow break even since the successful
net £0.75m equity fund raise in February
· Revenue growth has resumed in recent months, benefiting from the
successful launch of the pre-coated product sales range, focused on industrial
spares end user markets
· Increasing sales to the aerospace sector with further new work
expected
· Demand recovering again in core markets following recent de-stocking
· Short to medium term business development opportunities in power
generation and for sand screens for the oil and gas sector
· Grant funded development work for hydrogen applications showing early
promise
· Matt Hamblin (an existing NED) is to become Hardide's new CEO on 3
June. Current interim CEO Steve Paul will continue in a business development
role
· The cash break-even point of the business has been lowered by over
20% in revenue terms over the last 18 months, benefiting from margin
improvement and cost reduction
· Available cash balance of over £0.7m at 31 March 2024, supplemented
recently by an additional US$315k asset backed loan
· Management is focused on delivering an adjusted EBITDA positive
performance for the financial year as a whole, prior to an expected one-off
£0.4m charge relating to restructuring and CEO transition costs
· A run rate cash positive trading performance is targeted by the
financial year end.
Andrew Magson, Non-Executive Chair commented:
"We are pleased that trading momentum has improved significantly in recent
months.
With further management action being taken to increase margins and reduce
overhead costs, and sales from our recently launched pre-coated product range
now gaining traction, the Board continues to expect the business to be EBITDA
positive both in the second half year and, prior to charging c. £0.4m of
one-off cash restructuring costs, for the financial year as a whole. It is
also targeting Hardide to be in a run rate cash positive trading position by
the financial year end.
More broadly, under new leadership, the Board is confident that Hardide is now
much better positioned to realise the significant value inherent in its unique
high performance coatings technology."
Enquiries:
Hardide plc
Andrew Magson, Non-Executive Chair Tel: +44 (0) 1869 353 830
Steve Paul, Interim CEO
IFC Advisory Tel: +44 (0) 20 3934 6630
Graham Herring
Tim Metcalfe
Florence Chandler
Cavendish Capital Markets Ltd - Nominated Adviser and Joint Broker Tel: +44 (0) 2072 200 500
Henrik Persson/ Abigail Kelly (Corporate Finance)
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
Recent trading momentum has improved significantly with an EBITDA break-even
performance delivered in the last two months of the period and cash break even
achieved since the February fund raise.
In the six months ended 31 March 2024 ("H1 24") Hardide's revenues were £2.1m
(H1 23: £2.9m), of which £0.9m was generated in the last two months. As
previously reported, revenues were below expectations in the first part of the
financial year, mainly due to customer de-stocking. The EBITDA loss in H1 24
was £0.5m (H1 23: EBITDA break-even). The net cash flow out flow in the
period was £0.7m, prior to the net £0.75m proceeds received from the equity
fund raise in February. As of 31 March 2024, the Group retained available cash
resources of just over £0.7m, similar to the position at 30 September 2023.
Under new leadership since mid-February, the management team is implementing
swift action to drive revenue growth, improve margins and reduce overheads
with the objective of recovering to an adjusted EBITDA positive performance
for the financial year as a whole (prior to anticipated one-off restructuring
costs), and is targeting a run rate cash positive trading performance by the
financial year end.
Commercial and operational review
The Company's strategy of driving growth by diversifying sources of revenue to
better utilise existing spare capacity is beginning to bear fruit, with
promising early sales and strong enquiry levels following the recent launch of
a range of pre-coated consumable spares sold directly to end customers for use
in thermal spray equipment. The concept of enhanced pre-coated product sales
is now being expanded and is beginning to be trialled in other industrial
applications. This will supplement Hardide's established business of supplying
coatings as a service, often to suppliers of larger OEM customers.
The Group's revenues analysed by end use market were as follows:
£m H1 24 (£m) H1 23 (£m) % change H1 24 % total H1 23 % total
Energy 0.8 1.9 -53% 42% 64%
Industrial 0.8 0.9 -19% 36% 33%
Aerospace 0.5 0.1 +400%+ 22% 3%
Total 2.1 2.9 -27% 100% 100%
The lower levels of demand from large oil service industry customers mainly
related to short term de-stocking earlier in the financial year and to a
lesser extent lower activity levels than in the prior year, including the
impact of sanctions on Russia and new regulations impacting land drilling in
the USA. More recently demand has shown some recovery. We are in discussions
with customers regarding new products and applications to revive and expand
this segment.
Sales to industrial customers were also impacted by some de-stocking at the
beginning of the period. Business in this market segment has now recovered.
Sales growth to the aerospace sector in H1 was very encouraging and we have a
visible pipeline of sales scheduled well into 2025. In addition, a number of
new applications and opportunities are under development to build on the
recent success, with the potential to benefit revenues in the near future.
There were no sales to the power generation sector either in the period under
review or the prior period, whilst the initial set of turbine blades sold in
2022 are field tested. The customer has indicated that we should expect follow
on sales towards the end of the current calendar year. We are also exploring
opportunities for sales of spares to support the maintenance aftermarket in
this sector.
Business improvement initiatives and cost reduction
Efforts are underway to strengthen our connection with end-user customers and
key decision makers to accelerate the growth in the business, as well as
developing new markets as described above and in the business development
section below.
We have recently enhanced our product and customer costing systems and
analysis, and this is assisting better pricing decisions and margin
improvement.
Together, all the above is enabling us to become more focused in
prioritisation of business development projects, with a much clearer
understanding developing of which opportunities are more likely to be
commercially successful, as well as meeting technical requirements.
We continue to refine our overhead structure to better align it with the
current size of business, whilst still retaining agility to be entrepreneurial
and realise growth opportunities.
Over the last 18 months we have taken action to improve margins and lower
overhead costs to yield over £1.5m of benefit, thereby lowering the cash
break-even point of the business by more than 20% in revenue terms.
Financial review
Group revenues for the period were £2.1m compared with £2.9m in the first
half of the prior financial year, for the reasons explained above.
Gross margins reduced to 41.0% from 46.7% in the prior first half year,
reflecting less efficient recovery of operational fixed costs due to lower
sales revenues. However, it was pleasing to see gross margins rise to 48.3% in
the two months to March 2024, ahead of prior period levels, in response to
better sales volumes and the profit improvement actions taken.
Overhead costs of £1.3m compared favourably with £1.5m the prior H1 due to
the cost savings actions described above, which more than offset cost
inflation.
The EBITDA loss for the period was £0.5m (H1 23: EBITDA break-even) because
of lower revenues. The Group recovered to an EBITDA break even position in the
final two months of the period due to improved trading momentum, better
margins and reduced costs.
The net cash out flow in the period, prior to the equity fund raise in
February, was £0.7m. We were very grateful to both existing and new
shareholders who supported us to raise £0.75m (net of costs) at that time,
and we are pleased to report that the improved trading performance since then
has enabled us to retain those funds on the balance sheet at the half year
period end.
The Group's capital invested (defined as the sum of shareholders' funds plus
net debt) reduced from £6.7m at 30 September 2023 to £6.3m at 31 March 2024,
largely due to depreciation and amortisation charges continuing to be
significantly above capital expenditure, as the business remains very well
invested with significant spare capacity. The proceeds of the equity issue in
February remained held in cash at the period end and therefore this did not
materially affect overall levels of capital invested.
Funding and going concern
The Group's net indebtedness (including IFRS16 lease liabilities) at 31 March
2024 was £2.2m (30 September 2023: £2.4m), comprising cash of £0.7m (30
September 2023: £0.7m), loans of £0.7m (£0.8m) and lease liabilities of
£2.2m (£2.3m), respectively. Some £0.2m of the loans and lease liabilities
are repayable in the six month period to 30 September 2024 and £0.5m in the
twelve month period to 31 March 2025.
The Group recently secured an additional US$315,000 of asset backed lending,
lifting the Group's currently available cash resources to c. £1m.
Group revenues would need to fall more than 15% below latest base case
forecasts in the remainder of this financial year and into the next financial
year for the Group to be in a position where, absent further action that could
be taken in such a scenario to improve margins and reduce costs, it would need
to seek further support from shareholders in the 12 months from the date of
this report.
Therefore, the Directors' expectation is that the company will continue to be
a going concern for the foreseeable future and the interim financial
statements have been prepared on this basis.
People
We were delighted to announce today the appointment of Matt Hamblin as
Hardide's new Chief Executive with effect from 3 June. Matt was originally
appointed to the Hardide Board as a Non-Executive Director in November 2023.
The Board believes Matt's deep understanding of the coatings and surface
treatment sector together with his track record of commercialising and
achieving profitable growth at Keronite, a coatings business with many
similarities to Hardide, is highly aligned with Hardide's strategic
objectives.
We are very pleased that Steve Paul, our current Interim Chief Executive, will
be able to continue to contribute to Hardide's growth agenda by working with
us in an ongoing business development capacity. The Board is grateful to Steve
for leading Hardide's recently improved trading performance and for
introducing new sources of revenue.
The Board would also like to thank all Hardide employees for their resilience
and commitment to the Group in what has been a very challenging period as we
have driven improvements in business performance and reduced the cost base. We
also extend our gratitude to colleagues who have recently departed from the
Group, acknowledging their contributions to Hardide and wishing them success
in their future endeavours.
Business development
Under new commercially focussed leadership, the Board is seeking to accelerate
revenue growth by diversifying sources of revenue to supplement the Group's
traditional model of providing coatings as a service, largely to global OEMs.
Whilst traditional revenue streams continue to have significant short to
medium term development opportunities - such as sand screens in the oil and
gas market, new products and customers in the aerospace sector, and coated
turbine blades in power generation - a range of new initiatives are also
underway:
· Supply of enhanced pre-coated products for end users in industrial
spares markets
· Opportunities for Hardide to become specified as a solution to
address specific customers' requirements
· Increased presence in the North American market through more targeted
business development activity, leveraging our operational facility in
Martinsville, USA.
· Opportunities to sell, lease or licence capacity in partnership with
certain customers
· Development of new markets in emerging technologies, including in
hydrogen manufacture and storage. The grant funded development work we are
carrying out in this area is generating encouraging initial results.
Outlook
Management's focus on near-term sales growth is expected to drive second half
revenues beyond those of the equivalent period last year and improve
considerably upon H1.
With further action currently being taken to improve margins and reduce
overhead costs, the Board continues to expect the business to be EBITDA
positive both in the second half year and, prior to charging c.£0.4m of
anticipated one-off cash restructuring costs, for the financial year as a
whole. It is also targeting Hardide to be in a run rate cash positive trading
position by the financial year end.
More broadly, under new leadership, the Board is confident that Hardide is now
much better positioned to realise the significant value inherent in its unique
high performance coatings technology.
Andrew
Magson
Steve Paul
Non-Executive
Chair
Interim CEO
22 May 2024
Consolidated Income Statement
£ 000 Year to
6 months to 6 months to 30 September 2023
31 March 2024 31 March 2023 (audited)
(unaudited) (unaudited)
Revenue 2,116 2,886 5,499
Cost of Sales (1,248) (1,539) (2,886)
Gross profit 868 1,347 2,613
Administrative expenses (1,350) (1,497) (2,871)
Other operating income - 159 159
Other operating costs (400) (538) (932)
Operating loss (882) (529) (1,031)
Finance income 2 1 3
Finance costs (23) (32) (59)
Finance costs on right of use assets (54) (48) (106)
Loss on ordinary activities before tax (957) (608) (1,193)
Tax - (6) 75
Loss on ordinary activities after tax (957) (614) (1,118)
Consolidated Statement of Changes in Equity
£ 000 Year to
6 months to 6 months to 30 September 2023
31 March 2024 31 March 2023 (audited)
(unaudited) (unaudited)
Total equity at start of period 4,292 5,530 5,530
Loss for the period (957) (614) (1,118)
Issue of new shares 755 - -
Exchange differences on translation of foreign operation (29) (94) (144)
Share options - - 24
Total equity at end of period 4,061 4,822 4,292
Consolidated Statement of Financial Position
£ 000 30 September 2023
31 March 2024 31 March 2023 (audited)
(unaudited) (unaudited)
Assets
Non-current assets
Goodwill - 69 -
Intangible assets 6 13 9
Property, plant & equipment 4,318 4,837 4,640
Right of Use Assets 1,595 1,813 1,697
Total non-current assets 5,919 6,732 6,346
Current assets
Inventories 215 214 236
Trade and other receivables 668 1,013 742
Other current financial assets 345 232 335
Cash and cash equivalents 732 701 740
Total current assets 1,960 2,160 2,053
Total assets 7,879 8,892 8,399
Liabilities
Current liabilities
Trade and other payables 882 710 919
Financial liabilities - loans 257 239 253
Financial liabilities - deferred income 17 17 17
Financial liabilities - leases 185 171 182
Total current liabilities 1,341 1,137 1,371
Net current assets 619 1,023 682
Non-current liabilities
Financial liabilities - loans 374 629 508
Financial liabilities - deferred income 61 79 72
Financial liabilities - leases 1,992 2,175 2,106
Provision for dilapidations 50 50 50
Total non-current liabilities 2,477 2,933 2,736
Total liabilities 3,818 4,070 4,107
Net assets 4,061 4,822 4,292
Equity attributable to equity holders of the parent
Share capital 4,845 4,063 4,063
Share premium 19,215 19,242 19,242
Retained earnings (20,275) (18,814) (19,318)
Share-based payment reserve 577 553 577
Translation reserve (301) (222) (272)
Total equity 4,061 4,822 4,292
Consolidated Statement of Cash Flows
£ 000 Year to
6 months to 6 months to 30 September 2023
31 March 2024 31 March 2023 (audited)
(unaudited) (unaudited)
Cash flows from operating activities
Operating (loss) (882) (529) (1,031)
Impairment of goodwill - - 69
Depreciation - owned assets 310 440 677
Depreciation - right of use assets 90 98 186
Gain on sale and leaseback - (159) (159)
Share option charge - - 24
Decrease in inventories 21 273 251
Decrease in receivables 64 73 243
Increase / (decrease) in payables 36 (286) (93)
Cash (used in) / generated from operations (361) (90) 167
Finance income 2 1 3
Finance costs (23) (32) (59)
Interest on right of use assets (54) (48) (106)
Tax received - 82 161
Net cash (used in) / generated from operating activities (436) (87) 166
Cash flows from investing activities
Purchase of intangibles - - (2)
Purchase of property, plant, equipment (102) (105) (108)
Net cash used in investing activities (102) (105) (110)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 755 - -
Proceeds from sale and leaseback - 477 477
New loans raised - - -
Loans repaid (120) (147) (286)
Repayment of leases (111) (135) (289)
Net cash generated from / (used in) financing activities 524 195 (98)
Effect of exchange rate fluctuations 6 5 89
Net (decrease) / increase in cash and cash equivalents (8) 8 47
Cash and cash equivalents at the beginning of the period 740 693 693
Cash and cash equivalents at the end of the period 732 701 740
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 2024 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 fully with
IFRS's.
These interim financial results should be read in conjunction with the
consolidated financial statements for the year ended 30 September 2023, 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 interim financial information
has been prepared using the accounting policies set out in the statutory
accounts for the financial year ended 30 September 2023, and in accordance
with AIM Rule 18, and the same accounting policies will be adopted in the 2024
annual financial statements.
The financial information set out herein does not constitute the Company's
statutory accounts as defined by section 434 of the UK Companies Act 2006 and
have been neither reviewed nor audited by the Company's auditors. A copy of
the audited statutory accounts for Hardide plc for the year ended 30 September
2023 has been delivered to the Registrar of Companies and is available at
www.hardide.com.
The interim financial results 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. EBITDA
Earnings Before Interest, Taxation, Depreciation and Amortisation ("EBITDA")
is a key financial performance indicator used by management to assess the
operational performance of the Group. This may be reconciled to the Operating
Loss as reported in the Income Statement as follows:
£ 000 Year to
6 months to 6 months to 30 September 2023
31 March 2024 31 March 2023 (audited)
(unaudited) (unaudited)
Operating loss (882) (529) (1,031)
Add back non-cash operating costs:
Impairment of goodwill - - 69
Depreciation and amortisation of owned assets
310 440 677
Depreciation and amortisation of right of use assets
90 98 186
EBITDA (482) 9 (99)
3. 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
into 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 2024 £000 £000 £000
1,394 722 - 2,116
External revenue
Reportable segment operating profit / (loss) (249) 7 (640) (882)
Segment assets 5,366 1,955 558 7,879
Segment liabilities 2,378 1,088 352 3,818
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 operating profit / (loss) (345) 464 (648) (529)
Segment assets 6,466 2,299 127 8,892
Segment liabilities 2,522 1,216 332 4,070
12 months ended UK operation £000 US operation Corporate Total
30 September 2023 £000 £000 £000
3,154 2,345 - 5,499
External revenue
Reportable segment operating profit / (loss) (776) 759 (1,014) (1,031)
Segment assets 6,196 2,054 149 8,399
Segment liabilities 2,594 1,225 288 4,107
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 2024 1,004 97 987 28 2,116
31 March 2023 767 79 2,023 17 2,886
30 September 2023 1,938 95 3,396 70 5,499
3. Earnings per share
31 March 2024 31 March 2023 30 September 2023
£000
£000 £000
(Loss) on ordinary activities after tax (957) (614) (1,118)
Basic earnings per ordinary share:
Weighted average number of ordinary shares in issue 61,045,033 58,901,959 58,901,959
Earnings per share (1.6)p (1.0)p (1.9)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
Since our last Annual Report, the Group has been successful in raising the
targeted c.£1m of additional funding it was seeking at that time. A net sum
of £0.75m in equity finance was raised on 21 February 2024 and the Group
recently secured an additional US$315,000 of asset backed lending, lifting the
Group's currently available cash resources to c. £1m.
Group revenues would need to fall more than 15% below latest base case
forecasts in the remainder of this financial year and into the next financial
year for the Group to be in a position where, absent further action that could
be taken in such a scenario to improve margins and reduce costs, it would need
to seek further support from shareholders in the 12 months from the date of
this report.
Therefore, the Directors' expectation is that the company will continue to be
a going concern for the foreseeable future and the interim financial
statements have been prepared on this basis.
5. Debt maturity
Loans
31 March 31 March 30 September 2023
2024
2023
£000
£000
£000
Total loans 631 868 761
Maturity analysis:
Within 1 year 257 239 253
1 to 2 years 169 251 212
2 to 3 years 104 170 144
3 to 4 years 54 105 76
4 to 5 years 47 55 57
5+ years - 48 19
Right of use lease liabilities
31 March 31 March 30 September 2023
2024
2023
£000
£000
£000
Total lease liabilities 2,177 2,346 2,288
Maturity analysis:
Within 1 year 185 171 182
1 to 2 years 193 180 192
2 to 3 years 195 187 196
3 to 4 years 200 195 199
4 to 5 years 213 202 208
5+ years 1,191 1,411 1,311
6. Post balance sheet event
Hardide Inc., a Group company, entered into a US$315,000 loan agreement with
the American National Bank and Trust Company, a division of Atlantic Union
Bank, on 16 May 2024. The loan is secured on certain assets of Hardide Inc.,
and the loan amortises over the period to expiry on 19 May 2031. It carries a
fixed interest rate of 7% pa. There is the option for Hardide to repay the
loan earlier than the expiry date.
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