Half Yearly Report

RNS Number : 7212U

Hardide PLC

30 June 2009

 



Press Release

30 June 2009

Hardide plc

('Hardide' or 'the Group')

Interim Results

Hardide plc (AIM: HDD), the provider of unique surface engineering technology, announces its interim results for the six months ended 31 March 2009. 

Highlights

	Turnover decreased by 30% to £888,000 (H1 2008: £1.26 million)
	Gross profit reduced by 46% to £362,000 (H1 2008: £670,000)
	Group operating profit of £26,000 (H1 2008: loss £777,000) after accounting for credit on the exchange difference on the intercompany loan between Hardide plc and Hardide Coatings, Inc.
	Loss before tax reduced to £54,000 (H1 2008: loss £891,000)
	Houston facility hibernated and UK redundancy programme effected in March 2009. US Business Development Manager retained to continue US sales and sampling function
	Cost reduction plan resulted in H1 2009 savings of over £300,000
	Hardide successfully develops a new coating for titanium
	Management team strengthened with the appointment of Nick King as Business Development Manager in UK and Europe

Post-Period Events

	Hardide secures approval and orders from FMC Technologies (NYSE:FTI), a leading global energy services provider
	Bridging finance of £50,000 secured from two existing shareholders to provide short term working capital while longer term fundraising is concluded.

Commenting on the interim results, Graham Hine, Chief Executive of Hardide plc, said: 'There is no doubting the severity of the global recession. We have faced and tackled complex challenges, but I believe that Hardide has the structure, strategy and people in place to re-establish an upward sales trend which will set the direction for sustainable growth in future shareholder value. I am confident in the recovery and growth of demand for Hardide's technology.'

- Ends -

For further information:

Hardide plc
Graham Hine, Chief Executive	Tel: [phone]
Jackie Robinson, Corporate Communications	www.hardide.com

Seymour Pierce Limited
Nicola Marrin	Tel: [phone]
	www.seymourpierce.com

Media enquiries:

Abchurch
Chris Lane / George Parker	Tel: [phone]
[e-mail]	www.abchurch-group.com

Notes to editors:

Hardide manufactures and applies tungsten carbide-based coatings to a wide range of engineering components.  The Group's patented technology provides a unique combination of ultra-hardness, toughness, low friction and chemical resistance in one coating.  When applied to components, the technology is proven to offer dramatic cost savings through reduced downtime and extended part life.  Customers include leading companies operating in oil and gas exploration and production, valve and pumps manufacturing, general engineering and aerospace. 

CHAIRMAN'S STATEMENT

The interim results for the six months to 31 March 2009 reflect the impact that the global economic downturn has had on the Group's business. This is in line with many other small manufacturers and in our case was aggravated by the sharp fall in sales which began in the second quarter, a result of aggressive de-stocking by our major customer.

The Group is reporting H1 2009 revenue of £888,000, a decrease of 30% compared with the same period last year (H1 2008 £1.26 million). Group gross profit was £362,000, a fall of 46% from £670,000 in H1 2008. Cost of sales decreased by a disproportionate 11% or £67,000 reflecting the relatively fixed production salaries which account for 59% of the cost of sales for H1 2009. The Group made an H1 2009 operating profit of £26,000, compared with a loss of £777,000 in H1 2008, after accounting for a credit on the exchange difference on the intercompany loan between Hardide plc and Hardide Coatings, Inc. Removing the effect of this charge would result in a similar operating result to H1 2008, but with much lower revenue. Similarly, the Group pre tax loss narrowed to £54,000 compared to a loss before tax of £891,000 in the same period last year.

During the course of the reporting period, the Board was required to make some difficult decisions to protect the future of the business. In March 2009, the manufacturing facility in Houston was hibernated and a redundancy programme was implemented in the UK. These decisions were not made lightly but were absolutely necessary to provide a more stable platform from which the business can grow as conditions improve. At the same time, the plan to reduce significantly the cost and expense base has resulted in H1 2009 savings of over £300,000 compared with the same period last year. This does not take into account savings to be made on the hibernation of the Houston plant and post-period steps to further reduce the cost of sales.

It has however been a time of advancement as well as frustration. Crucially, the unique Hardide technology continues to win new and strategically significant customers and there has been no loss of sales due to product failure or under-performance. The coating is continually being proven as an enabling technology with the power to offer unprecedented commercial and technical value to customers. The opportunities for increasing penetration into existing markets, for converting the strong development pipeline and for exploiting the new titanium and diamond coating markets are high.  The Board is confident that Hardide remains a business with significant potential.

All staff and members of the Board have made substantial contributions during this difficult period and I would like to thank them for that and for their loyalty and commitment.

Robert Goddard
Chairman

30 June 2009

CHIEF EXECUTIVE OFFICER'S REVIEW

The last year has been one of extreme turbulence and uncertainty in the global economy, fuelling a downturn which has impacted businesses in most industrial sectors worldwide. The oil sector has been subject to extreme volatility which saw the oil price fluctuating by over US$100 per barrel during the year, falling to less than US$40 in December 2008. In the final part of the period to 31 March 2009, the Group experienced the impact of this global situation as our key customers in the oil and gas, construction and automotive sectors dramatically reduced their production output and expressed uncertainty over their future demand for the Hardide technology. It should be noted that no customers have reduced orders due to dissatisfaction with the product.

The Board took swift and decisive action in March 2009 to protect the future of the business as soon as the extent of the decrease in customer orders was identified. A Group cost reduction plan was implemented which saw the US manufacturing plant hibernated until sales are sufficient to re-start operations. The plant was safely shut down and production was seamlessly transferred to the UK. No customers were lost as a result of this move.  

In the UK, a redundancy programme unfortunately resulted in the loss of five positions.  It is extremely disappointing that this was necessary as the Group has been making notable progress in commercialising a coating for titanium, in testing for the coating of diamonds and diamond grit with customer partners, and in converting blue chip customers after more than 18 months of stringent testing. However, the re-structured organisation and a reduced and streamlined cost base means that the business is well placed for macro-economic recovery and the return to previous sales levels from existing customers.  

The rigorous application of cost reduction initiatives has enabled the Group to drive further operating and cost efficiencies by more than £300,000 or 24% when compared to H1 2008. Gross margin reduced to 41% from 53% in H1 2008 but variable-only margin remained at 76% compared with 77% in the same period last year. 

UK: Hardide Coatings Limited

Hardide Coatings Limited, the UK operating company, was hit by the softening of the oil and gas market in particular. A combination of redundancies, robust cost controls, regular forecasting and a sharply reduced cost and expenses base offset the impact.

In February 2009, the sales resource was enhanced with the appointment of Nick King as Business Development Manager. A senior and highly experienced business development professional, Nick joined from Praxair Surface Technologies Ltd. He brings more than 30 years experience of the surface treatment market and an extensive network of contacts. Nick is a strong addition to the management team and has already made a valuable contribution to our more focused product and market strategy.

The Applications Development Committee led by Technical Director, Dr. Yuri Zhuk has been making good progress on a number of strategically and financially significant new applications. In March 2009, the Group was pleased to announce that it had successfully developed a process to enable the Hardide coating of titanium. This is a significant breakthrough for the coating of a high-performance metal commonly used in the aerospace, defence and motorsport industries. Furthermore, the Group has been making encouraging progress in the development of a new variant coating for diamond which is in test with three customer partners. Sampling is underway for a number of other pre-qualified and prioritised new general industrial and aerospace applications.

Hardide's strategy is clear and recognises the importance of short-term cash generation. In order to turn the significant prospects for Hardide into performance, the Group is working with customer partners to develop priority markets and is accelerating applications that diversify its customer base and end-user markets. By leveraging the Group's unique technology to deliver unparalleled component performance and cost-benefits to customers, Hardide can fulfil a niche that is open to no other provider.

Meanwhile, safety and environmental issues continue to receive high priority from the Board and management, and performance levels remain high and in-line with all statutory requirements.

US: Hardide Coatings, Inc.

It has previously been acknowledged that the sales cycle for the technology in the US was taking longer than expected. When compounded by the effects of the depressed economy, this situation meant that the Group could not sustain the operation of the Houston plant without jeopardising the prospects of the entire business. This led to the hibernation of the facility at the end of March 2009. All production was transferred to the UK site, and no customers were lost in the process. Dan Wilson, US-based Business Development Manager, was retained as an employee and together with the UK operations and engineering teams, he played a key role in the smooth transition of customers, samples and production parts. The intention is for the US plant to re-open when the UK reaches capacity and/or when US sales are sufficient to support the re-start of operations.

The US continues to generate a healthy pipeline of qualified parts in test, and has secured two significant post-period conversions, including FMC Technologies, which have taken more than 18 months of engineering and testing to realise.

Outlook

In the three months since this reporting period, the Group has continued to experience difficult trading conditions and uncertainty from customers, culminating in a fundraising which is pending conclusion at the time of announcing these results.

There is no doubting the severity of the global recession. We have faced and tackled complex challenges, but I believe that Hardide has the structure, strategy and people in place to re-establish an upward sales trend which will set the direction for sustainable growth in future shareholder value. I am confident in the recovery and growth of demand for Hardide's technology.

Graham Hine

Chief Executive Officer

30 June 2009

Consolidated income statement for the period ended 31 March 2009
		6 months to		6 months to		Year to
		31 March 2009 (unaudited)		31 March 2008 (unaudited)		30 September 2008 (audited)
		£ '000		£ '000		£ '000
Revenue		888		1,263		2,123
Cost of Sales		(526)		(593)		(1,132)
Gross Profit		362		671		991
Administrative expenses		(1,002)		(1,273)		(2,499)
Depreciation		(241)		(231)		(500)
Exchange difference on intercompany loan		907		56		418
Operating profit		26		(777)		(1,590)
Interest income		14		21		37
Finance costs		(90)		(135)		(187)
Loss on disposal of fixed assets		(3)		-		-
Profit on ordinary activities before tax		(54)		(891)		(1,740)
Tax						37
Profit for the period		(54)		(891)		(1,703)

Consolidated statement of recognised income and expense for the period ended 31 March 2009
		6 months to		6 months to		Year to
		31 March 2009 (unaudited)		31 March 2008 (unaudited)		30 September 2008 (audited)
		£ '000		£ '000		£ '000
Profit for the period		(54)		(891)		(1,703)
Exchange differences on translation of foreign operations		(753)		(47)		(335)
Total recognised income and expense for the year		(807)		(938)		(2,038)

Consolidated balance sheet at 31 March 2009
		31 March 2009 (unaudited)		31 March 2008 (unaudited)		30 September 2008 (audited)
		£ '000		£ '000		£ '000
Assets
Non-current assets
Investments
Goodwill		69		69		69
Intangible assets		3		6		4
Property, plant & equipment		1,301		1,533		1,366
Total non-current assets		1,373		1,608		1,439
Current assets
Inventories		32		53		44
Trade and other receivables		169		351		325
Other current financial assets		103		156		160
Cash and cash equivalents		446		544		995
Total current assets		750		1,104		1,524
Total assets		2,123		2,712		2,963
Liabilities
Current liabilities
Trade and other payables		305		377		356
Financial liabilities		114		120		110
Provisions				-		-
Total current liabilities		419		497		466
Net current assets		331		607		1,058
Non-current liabilities
Financial liabilities		1,154		920		1,162
Total non-current liabilities		1,154		920		1,162
Total liabilities		1,573		1,417		1,628
Net assets		550		1,295		1,335
Equity
Share capital		1,896		1,467		1,896
Share premium		4,102		3,345		4,102
Retained earnings		(4,755)		(3,967)		(4,705)
Share-based payments reserve		364		465		347
Translation reserve		(1,058)		(16)		(305)
Total equity		550		1,295		1,335

Production at the group's US operation in Houston ceased at the end of March 2009. All plant and machinery is remaining in situ, as our current intention is that the plant will be reopened in due course. A full assessment of the impact of the hibernation on the carrying value of the fixed assets, and of the intercompany loan from Hardide plc, will be made in the full year audited accounts. As at the date of these financial statements, the value of US fixed assets in the group balance sheet was £661,000 and the value of the intercompany loan was £5,062,000.

Consolidated condensed cash flow statement for the period ended 31 March 2009
			6 months to		6 months to		Year to
			31 March 2009 (unaudited)		31 March 2008 (unaudited)		30 September 2008 (audited)
			£ '000		£ '000		£ '000
Cash flows from operating activities
	Operating profit		26		(777)		(1,590)
	Impairment of intangibles		2		1		3
	Depreciation		239		230		497
	Share option charge		19		15		50
	(increase) / decrease in inventories		12		46		55
	(increase) / decrease in receivables		213		287		310
	Increase / (decrease) in payables		(52)		(135)		(155)
	Exchange rate variance		(907)		(56)		(391)
Cash generated from operations			(448)		(389)		(1,221)
	Finance income		14		21		37
	Finance costs		(31)		(53)		(108)
	Tax received / (paid)		-		-		26
Net cash generated from operating activities			(465)		(421)		(1,266)
Cash flows from investing activities
	Purchase of property, plant and equipment		(29)		(98)		(127)
Net cash used in investing activities			(29)		(98)		(127)
Cash flows from financing activities
	Net proceeds from issue of ordinary share capital		-		-		1,173
	Finance lease inception		-		-		-
	Finance lease repayment		(55)		(74)		(145)
	New loans raised		-		-		225
Net cash used in financing activities			(55)		(74)		1,253
Net increase / (decrease) in cash and cash equivalents			(549)		(593)		(140)
Cash and cash equivalents at the beginning of the period			995		1,135		1,135
Cash and cash equivalents at the end of the period			446		544		995

 

END

 

 

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