Hardide Plc (LON:HDD), the developer and provider of advanced surface coating technology, today announced its results for the six-month period ended 31 March 2018.
Financial Highlights
· Revenue up by 43% to £2.16m (H1 2017: £1.51m)
· Gross profit up 67% to £1.15m (H1 2017: £0.69m)
· Group operating loss reduced to £0.32m (H1 2017: £0.69m loss)
· EBITDA improved by £0.29m to a loss of £0.14m (H1 2017: loss of £0.43m)
· Successful fundraising of £2.54m (before expenses)
· Cash at bank at 31 March 2018 of £3.23m (£1.56m at 31 March 2017)
Operational Highlights
· Recovery in demand from the oil and gas sector has been maintained
– sales from this sector rose 54% compared with H1 2017 and 20% compared with H2 2017
– volume sales commenced from the first of the two new supply major agreements
· Sales to flow control and precision engineering customers ahead of both H1 and H2 2017
· Good progress made with Airbus engineering teams on pre-production parts as a prelude to securing contracts
· US facility in Virginia continues to perform well – new reactor due for delivery in H2 2018
· First volume production orders received from the new supply agreement with a manufacturer of land-based drilling and production tools
· Accreditation of the US site to the aerospace quality management system AS9100 is on-track
· Appointment of two new Non-Executive Directors with extensive aerospace and strategic experience
Post Period
· Nadcap annual audit successfully completed at Bicester site
– Nadcap is the world’s leading independent certification program for special processes within the aerospace and defence industry.
· First volume production orders received from the new supply agreement with a North American based, major international operator in the oil and gas sector
Commenting on the interim results, Robert Goddard, Chairman of Hardide plc, said: “The Group has delivered a strong first half with growth in sales to flow control and precision engineering customers alongside improving demand from the oil and gas sector. Trials and new commercial discussions continue to make good progress with our aerospace customers and the Board remains confident in its expectation of new aerospace business in the near future. The Board is pleased with the Group’s performance in the first half, is confident of the outlook for the second half and expects the trading performance for the full financial year to be in line with market expectations.”
Chairman’s Statement
Introduction
The Group had a strong performance in the six months to 31 March 2018, building on the growth in demand seen in H2 2017. Total revenues for the period were 43% ahead of the first half of 2017 and 25% ahead of the second half. Demand from existing customers in the oil and gas sector improved and, together with new business, resulted in sales increasing by 54% compared with H1 2017 and 20% compared with H2 2017. Indications are that demand will remain strong from these customers throughout the second half of the year.
Detailed development and testing work continues with Airbus and Leonardo Helicopters on the journey towards production orders. Good progress has also been made with other OEMs on various customer parts. Commercial discussions are underway for specific components.
In March 2018, Jan Ward stepped down from the Board and two new Non-Executive Directors, Tim Rice and Charles Irving-Swift were appointed. Their combined skills and experience will be of significant value as we develop our aerospace business and diversify into new industrial markets and geographies.
Financial Results
The Group is reporting H1 2018 revenue of £2.16m, an increase of 43% compared with the same period last year (H1 2017 £1.51m) with Group gross profit of £1.15m, compared with £0.69m in H1 2017. Overheads of £1.29m (H1 2017 £1.11m) increased because of a reduction in US grants received compared with H1 2017, coupled with adverse exchange rate movements.
There was a Group operating loss of £0.32m (H1 2017: loss of £0.69m).
The Group made a loss before interest, tax, depreciation and amortisation of £0.14m (H1 2017: loss £0.43m).
During the period, the Group raised £2.54m (before expenses) in two tranches via an over-subscribed fundraising. The proceeds are being used primarily to fund additional capacity and achieve an aerospace standard facility in the US, as well as to upgrade existing UK production equipment, in anticipation of increased demand.
Operational Overview
Demand from oil and gas customers – existing and new – rose 54% from the first half of the previous year and 20% from the second half. The balancing of the oil market is leading to increased activity for our major customers in this sector and they are optimistic about continuing growth into 2019. Sales to flow control customers rose 33% compared with H1 2017 and 48% compared with H2 2017. Outside of oil and gas, our major flow control customer reports increasing business and we have received new components for coating.
First volume orders were received from one of the two new supply agreements mentioned in the 2017 full year results. The North American customer – a provider of high-value completion technology for the onshore drilling market – has confirmed that the Hardide coating is giving it a competitive advantage enabling their innovative tool technology to increase production efficiency and lower the cost of extraction for its customers.
Post-period, the first volume production orders from a global oil and gas operator were received from the second of these new supply agreements. This is a notable achievement as significant technical challenges, due to the complex design of the part, were overcome. Significant volume orders are expected from this customer. Furthermore, this technical success has created a new capability for the Hardide coating that is expected to lead to a range of new applications. An existing customer, which for the past few years has been developing a new downhole tool using our coating on key components, has now started production of the tool. This is an exciting opportunity that should become a long-term revenue stream.
Sales increased by 22% from H1 2017 to customers in the precision engineering sector. Applications for Hardide coated products are many and diverse in this sector and primarily solve high cost problems.
Aerospace developments and trials on various components with Airbus and other OEMs are developing strongly with good progress being made in all areas. Airbus is committing considerable resources and time to this work. However, progress is slow due to the safety-critical nature of the industry. While this is understandable, it is frustrating for the parties concerned who are all working hard to conclude this process. However, once specified on components, lengthy commercial supply arrangements can be expected.
Leonardo Helicopters’ transmission system parts are shortly to commence a final system test with the results expected later in 2018. Again, once specified, a long-term supply arrangement can be expected.
The Board remains confident in its expectation of gaining significant aerospace business in the near future.
The Martinsville site is producing consistent quality product for blue-chip customers in North America. In H2 2018, the balance of production parts for a major US customer will be fully transferred from Bicester to Martinsville. A new coating reactor is being manufactured and is on schedule to be installed at Martinsville in H2 2018. Various operational enhancements were completed at Bicester in the first half of the year.
Aerospace is a key growth market for Hardide in North America as well as Europe. In 2018, we intend to extend our business development team and dedicate a full-time in-country manager to grow our aerospace business in the region.
Summary and Outlook
The Board is pleased with progress made during the first half of the year and expects this momentum to continue through the second half. Forward visibility has always been limited in our business but all indications are that higher activity from oil and gas customers will continue and, together with sales to other sectors, the Board is confident of the outlook for the second half and expects the trading performance for the full financial year to be in line with market expectations.
Robert Goddard
Chairman
14 May 2018
