Hardide plc (LON:HDD), the developer and provider of advanced surface coating technology, today announced its results for the six-month period ended 31st March 2021.
|·||Revenue of £1.8m (H1 2020: £3.0m), in line with H2 2020 and the Board’s expectations|
|·||Gross profit of £0.7m (H1 2020:|
|·||Gross margin of 37% (H1 2020: 55%)|
|·||EBITDA loss of £0.9m (H1 2020: breakeven)|
|·||Cash at bank at 31 March 2021 of £2.3m (£4.9m at 31 March 2020)|
|·||Airbus final approval of the Longlands Road site due July 2021|
|·||Encouraging progress with aerospace customers:|
|· Airbus approvals gained for various A320, A330, A380 and A400M components|
|· Regular Airbus orders for A300 ‘Beluga’ door components|
|· Orders for BAE Eurofighter Typhoon canopy locking components five times higher than the same period last year|
|· New pipeline projects for aircraft landing gear, helicopter and business jet applications|
|·||Exciting development underway with a very large, US-based manufacturer of electric vehicles|
|·||New UK site at Longlands Road functioning as planned and now certified to aerospace quality management system AS9100D and environmental system ISO14001|
|·||Gas turbine blade developments well advanced with a major European manufacturer|
|·||Positive signs of recovery in demand starting to be seen across all key markets|
|·||Long term agreement with a major German Tier 1 supplier to Airbus is in final stages of preparation for the coating of multiple Airbus A320 and A330 components|
|·||Second CBILS loan of £0.25m received in April 2021|
Commenting on the interim results, Robert Goddard, Chairman of Hardide plc, said:
“Whilst the Group has had a challenging first half and the ongoing effects of COVID-19 remain unclear, there are signs of improvement across all of our key markets. Revenue from energy, flow control and aerospace customers all increased in the first half compared with H2 2020 with sales to aerospace customers increasing by 26% and to energy and flow control by 4% each. Predictably, the recovery in demand from oil and gas customers is slow. The overall rate of recovery will depend largely on the speed of roll-out of the vaccination programme, and the associated recovery of air travel and industrial energy consumption, both of which are already being seen across the Far East and North America. The Board believes that a number of factors, including diversification of our customer base, product differentiation, increased awareness of the benefits of the coatings and strong customer relationships position us well for medium- and long-term growth.
“Meanwhile, the Board and management has made excellent progress in developing further the Group’s strategy to build its position in the transition to alternative energy sources, and are pursuing new growth opportunities in various fields. Several applications have been identified already, just one being the exciting development with a large, US-based manufacturer of electric vehicles. Testing is progressing well and at a swift pace.
“Looking ahead, the Board remains confident of an improvement in revenues in H2 and into full year 2022. The Group’s cash position remains sufficient to meet the Company’s working capital requirements for the foreseeable future.”
Trading remained largely stable and in line with our expectations during the period, with sales of £1.8m (H1 2020: £3m), very marginally ahead of the level seen in H2 2020 when the effects of the COVID-19 pandemic first hit our key market sectors. Having undertaken all sensible preventive measures, the UK and US sites have operated normally throughout the pandemic, with no disruption experienced.
Following a very extensive testing and verification process, I am delighted to report that Airbus plan to fully approve all production processes at the new Longlands Road site in July 2021. At the end of June the last remaining reactor will be transferred from Wedgwood Road and final site clearance will commence. The lease on the Wedgwood Road site terminates in October 2021. Provisions have been made for dilapidations.
The Group is reporting first half revenue of £1.8m. Whilst this was expected, it does represent a decrease of £1.2m compared with the same period last year (H1 2020: £3.0m). Group gross profit was £0.7m, and compares with a gross profit of £0.7m in H2 2020 (H1 2020: £1.7m) with a gross margin of 37% (H1 2020: 55%; H2 2020: 38%). Overheads of £1.5m (H1 2020: £1.6m) are also being well-controlled, and once the one-off beneficial impacts of the first US Paycheck Protection Program (£0.2m) and NATEP grant receipts of £0.1m are taken into account, are at the same level as H2 2020. The Group made an EBITDA loss of £0.9m (H1 2020: breakeven) which was also similar to H2 2020 after taking into account the one-off benefits described above. The cash balance at 31 March 2021 of £2.3m (£4.9m at 31 March 2020) was strengthened by £1.3m, primarily from an equity fundraising of £0.8m (before costs) and CBILS loan of £0.25m. Following the period-end, another CBILS loan of £0.25m was also secured.
Due to the dramatic effects of the pandemic on global demand for fossil fuels, sales to our energy customers were significantly reduced from the record levels achieved in H1 2020. Sales to flow control customers, mainly in the industrial pump sector were also affected by COVID-19 when compared with H1 2020; although the reduction was due in part to sales in H1 2020 being particularly strong as our major industrial pump customer was building stock in advance of demand. I am pleased to report that order levels from this customer are now strong again, primarily due to a large increase in US house building activity. We are also seeing the beginnings of an upturn in overall demand: in H1 2021 energy and flow control sales each increased by 4% from H2 2020 and revenue from aerospace increased by 26%.
In July 2021, Airbus will have completed all process approvals and audits at Longlands Road and the last remaining reactor at Wedgwood Road will be transferred and final site clearance will commence. The lease terminates in October 2021. Longlands Road has already gained accreditation to aerospace quality management standard AS9100D and environmental standard ISO14001. Accreditation to Nadcap at the site has been delayed due to COVID-19 travel restrictions and is now expected later this year.
Owing to excellent co-operation from staff and the hygiene and distancing measures introduced at our UK and US sites, both have been fully operational throughout the pandemic. Revenue from North American customers increased by 70% compared to H2 2020 with rising demand from both energy and flow control sectors. First half sales from the Martinsville facility were nearly double those in H2 2020. In Bicester, the government’s ‘flexible furlough’ scheme has been used as appropriate to the fluctuating order load.
The Hardide-A coating is now approved by Airbus for multiple A320, A330, A380 and A440M wing components. Low volume ordering is ongoing for Airbus A380 compression pads and regular small orders are being received for door components for the Airbus A300 Beluga Super Transporter aircraft. Orders for the BAE Eurofighter Typhoon’s canopy locking components were five times higher in the first half than the same period last year. The Group has been building the aerospace pipeline with new projects underway with customers in the UK, Europe and USA for landing gear, helicopter and business jet applications, and hard chrome replacement projects for cargo door and flight control actuation applications. Due to the previous unavailability of their test rig, Leonardo Helicopters has now resumed testing of a new transmission system containing Hardide-coated parts. Test results and final approval are now expected in August 2021.
A long-term supply agreement (“LTA”) is in the final stages of preparation prior to signing with a major German Tier 1 supplier to Airbus. This LTA will include the initial packages of work for A330 and A320 wing components and further items will be added as and when they are approved by Airbus. ‘First Article’ parts for final quality approval are due shortly for coating, with production orders expected to commence towards the end of 2021. This is just one of a number of supply arrangements currently being finalised with other UK and European Tier 1 suppliers to Airbus for components where Hardide-A has been approved already as a superior replacement for hard chrome plating.
Our long-term project for the development of a coating to extend the life and operating efficiency of steam turbine blades with EDF Energy has been delayed during the pandemic as the customer’s staff have been unable to access the laboratories to advance the testing. A large European manufacturer of steam and gas turbines has now developed a technical specification for Hardide-A coating of its gas turbine blades and is starting the process of full validation. Their expectation is for an introduction of these blades into the first new-build gas turbine early in 2022, with more to follow later in 2022.
Two large orders for filtration screens were completed for a very large global oil and gas operating company as part of a previously announced high-volume supply agreement. The customer expects more orders will be placed later in 2021. A similar application with a new customer in Singapore is now in test with them. Hardide has a unique ability to coat components that are critical to optimising the performance of particular types of filtration screens. This application has exciting further potential, both in oil and gas and industrial applications.
Recognising the strategic changes taking place in the global energy industry around the drive to ‘net zero’, the Board has accelerated its strategy to build its position in the alternative energy sector. Several applications have been identified already. For example, development is progressing well and at a swift pace for the use of Hardide-T coating on components used in the production process of lithium-ion (Li-ion) rechargeable batteries. These are commonly used in electric vehicles, as well as in military and aerospace applications. Applications in battery recycling, geothermal, nuclear and biomass energy generation are also being explored. The coating is already embedded into the production process of a European solar energy company, which has major plans for expansion.
Summary and Outlook
The Board has seen encouraging signs of improvement across all our markets. This is despite the ongoing impacts of COVID-19 remaining uncertain in many respects. The speed of recovery will depend largely on the speed of the vaccine roll-out programme and the re-commencement of air travel and industrial energy consumption, and we are already seeing positive signs of that in the UK, Far East and North America. The Board believes that the Group’s progress in diversifying the customer base, product differentiation, increased awareness and strong customer relationships, position it well for medium- and long-term growth.
The Board believes its cash resources to be sufficient to meet the Group’s working capital requirements for the foreseeable future following the February equity fundraise and receipt of two CBILS loans, and with our cautious approach to costs. Looking ahead, the Board remains confident that revenues will start to recover in H2 2021 and improve yet further as we go into 2022.
18 May 2021