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www.hardide.com
H a r d i d e p l c A n n u a l R e p o r t
2016
Hardide plc Annual Report 2016
Hardide plc is the leading global innovator and
provider of advanced tungsten carbide coatings that
significantly increase the working life of critical metal
components operating in abrasive, erosive, corrosive
and chemically aggressive environments.
HardideTM is a family of nanostructured and
patented, low temperature CVD (chemical vapour
deposition) coatings which provide exceptional
wear and corrosion resistance and uniquely
combine extreme toughness with ductility. Our
coatings are ‘value-adding’ to components
and lower operational costs by reducing
downtime, increasing productivity and improving
performance. They can be precision applied to
external and internal surfaces including complex
geometries, enabling a level of engineering design
flexibility not possible with alternative technologies.
Hardide surface engineering technology transforms
the way that parts perform under severe service
conditions. Previously, levels of friction, abrasion
and aggressive chemical attack have led to
part failure, downtime and extreme cost. Our
coatings are enabling customers in high wear/
high value industries including oil and gas drilling
and production, aerospace, flow control, power
generation and precision engineering to optimise
part life, improve product performance and make
significant operating cost savings. The Company
has production facilities in Oxfordshire, UK and
Virginia, USA.
55
Hardide plc is a public limited company domiciled in the UK and incorporated in England & Wales with Registered Number 5344714.
Contents
Introduction
Strategic Report
4
7
13
14
Key Points
Chairman’s and CEO’s Report
Financial Review
Strategic Review
Corporate Governance
18
20
22
Board of Directors
Report of the Directors
Corporate Governance Statement
Financial Statements
26
28
29
30
31
32
46
47
48
49
51
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Group Financial Statements
Parent Company Balance Sheet
Statement of Cash Flows
Statement of Changes in Equity
Reconciliation of Equity
Notes to the Parent Company Accounts
Company Information
54
Directors and Advisors
4
Strategic Report • Key Points
Key Points
Financial
Sales of £2.14m (2015: £3.00m). Affected by the oil and gas downturn as expected
Sales in H2 25% ahead of H1. Signs of slow recovery from existing oil and gas customers
and conversion of new opportunities
Gross profit of £0.69m (2015: £1.81m)
Group operating loss of £1.47m (2015: loss of £0.22m)
Loss before interest, tax, depreciation and amortisation of £1.30m (2015: loss of £0.33m),
before crediting reversal of fixed asset impairment and release of provision
Successful fundraising of £1.60m completed during September 2016. Enables
implementation of growth plans
Cash at bank at 30 September 2016 of £1.97m
Strategic Report • Key Points
5
Business/Operational
Good progress made towards increasing aerospace business
US coatings facility now operational and generating regular revenue
Increasing sales in precision engineering - up 126% from prior year
Board expects growth in both aerospace and precision engineering markets and a slow
return in oil and gas activity to contribute towards improved performance in 2017
Costs reduced in response to lower orders from the oil and gas sector
6
Strategic Report • Chairman's and CEO's Report 7
Chairman’s and CEO’s Report
Introduction
Financial Results
The Company generated total sales of £2.14m in
the year ended 30 September 2016. This compares
with £3.00m for the prior year, with the slowdown in
the global oil and gas sector beginning in H2 2015
and continuing throughout 2016. Some signs of a
pick-up have emerged recently and our key oil and
gas customers are signalling that they expect a slow
recovery as 2017 progresses.
Gross profit for the year decreased to £0.69m (2015:
£1.81m) and gross margin reduced to 32% (2015:
60%). This sharp reduction was due mainly to the mix
of product being processed and the fixed nature of
production salaries. In addition, managing component
manufacturing for a growing customer, Virginia site
validation and the recruitment of additional production
staff in Virginia also depressed percentage margins.
After accounting for the reversal of fixed asset
impairment and the release of provision, the Company
incurred an operating loss of £1.47m (2015: loss of
£0.22m). The impairment reversal related to the
redeployment of plant in the US which had previously
been written off; and the release of a provision that
covered the final months of the lease on the Group’s
former site in Houston, which we fully-exited in October
2015. The loss before interest, tax, depreciation and
amortisation was £1.30m (2015: £0.33m loss). Cash
grants of £0.18m were received from the Martinsville
Henry County Economic Development Corporation and
the Commonwealth of Virginia.
On the balance sheet, net assets at 30 September
2016 were £4.38m (2015: £3.86m). This included a
cash balance of £1.97m (2015: £2.33m). Final one-off
capex costs of £0.60m were incurred in completing the
installation and commissioning of the Virginia facility.
Capital expenditure for the Group totalled £0.66m.
In common with most companies operating in the
oil and gas sector, over the last 18 months Hardide’s
revenue was adversely affected by the longest and
most severe downturn in global oil and gas activity
in decades. The Group is reporting full year sales of
£2.14m (2015: £3.00m), primarily reflecting the fall in
demand from customers in oil and gas exploration
drilling. In response to this industry-wide slump, the
Company took a number of actions throughout the year
to cut costs and limit cash outflow. This was achieved
while completing the new US coatings facility in
Virginia, which became operational in February 2016.
H2 saw a 25% improvement in sales over H1, with sales
to customers in oil and gas and precision engineering
sectors both rising by over 50%. Indications from
major oil and gas customers are that the bottom of
the cycle has been reached, the oil market is close to
balance and so drilling activity is expected to pick up
in 2017.
Significant progress was made with our strategic
plan to develop the aerospace market with technical
approval by Airbus of the coating in late 2015. Our new,
highly-experienced aerospace business development
manager is successfully identifying further applications
with potential new customers and a number of
new test programmes are underway. Also, after
a lengthy development programme, sales
commenced to the manufacturer of a new
type of high-speed X-ray screening machine
for airport baggage. We expect that sales
for this ground-breaking aviation security
technology will grow in line with its
adoption and demand for the coating
will rise. Even during this oil and gas
downturn, many new applications have
come to us from engineers in the
sector as they become increasingly
aware of the potential for Hardide
coatings to further improve tool life,
efficiency and reduce operating
costs.
A placing of 200,202,000 new
ordinary shares at 0.8p per
share was completed during
September 2016 and raised
£1.60m (gross). The proceeds
are to be used to invest in
a range of projects and
activities that the board
believes will enhance
shareholder value.
Strategic Report • Chairman's and CEO's Report 8
Operational Overview
Customers and Markets
The diversification of our customer and market base
remains an important strategic goal. Over the year, we
made good progress in increasing sales to customers
in the precision engineering sector. These rose 126%,
with volume orders being received for components for
the new airport X-ray baggage screening machine.
Significant headway was made with Airbus, with
the coating being technically approved for use as
an alternative to hard chrome plating by design
engineers and the sub-contractor network. Life-
testing of the coating on specific high-volume Airbus
A320 components is now underway, with commercial
discussions taking place regarding these and other
volume components for both single-aisle and wide-
body aircraft. Announcements of further progress are
expected during 2017.
The dramatic drop in exploration and drilling by our
customers in the oil and gas and flow control sectors,
both in the UK and North America, resulted in falls in
revenue of 47% and 17% respectively. During the year,
we worked closely with a major oil service company
in North America to enhance the performance of an
onshore hydraulic fracturing tool. The technology is
now proven and we expect a strengthening of demand
from this customer as North American onshore drilling
activity continues to rise. The Baker-Hughes rig
count, an accepted measure of the state of the North
American drilling industry, has shown encouraging
month-on-month increases since March 2016. After
extensive testing and trials, the coating was specified
by a major global manufacturer for a series of subsea
flow control applications and first orders are now being
received for these components. For the first time, the
Company’s sales to North America exceeded those to
the UK.
The take-or-pay supply agreement with GE, which had
an original term of two years but as has been previously
announced was extended to three years, expires at
the end of February 2017. GE has indicated that they
expect to be left with an excess of inventory due to
reduced customer demand from the oil and gas sector.
As expected by Hardide management, GE needs time
to reduce this overstocking before re-ordering. Clearly,
how long that takes will depend upon their rate of
usage. We have current orders in production that will
complete the contract by February 2017. GE has made
clear that the coating has been very successful and
as a result they have now standardised on use of the
coating on all variants of their product and will resume
ordering as soon as their current inventory levels have
reduced.
To raise awareness further in new geographies and
industries, a programme of presentations of technical
papers at prestigious international industry conferences
was undertaken by Hardide’s technical director. In
July, we exhibited at the Farnborough International
Airshow where some promising new customer contacts
were made.
Major New Customer Trials and
Industry Accreditations
The Hardide coating has been technically approved
by Airbus and Leonardo Helicopters (formerly
AgustaWestland) as a replacement for hard chrome
plating (HCP). The HCP process uses hexavalent
chrome, which has a sunset date of 21 September 2017
imposed by EU REACh regulations. While this creates
opportunities for Hardide, it is important to realise that
demand for Hardide coatings within the aerospace
sector is not limited to just hard chrome
replacement. For example, the application
of Hardide coating to components on the
Eurofighter Typhoon aircraft is related to
its anti-galling properties. Also, the
coating is currently being tested as
an alternative to HCP, HVOF (high
velocity oxy-fuel) and other hard
coatings in several aerospace
companies in Europe and North
America.
The component testing
programme with Leonardo
Helicopters has progressed much
more slowly than expected. This
has been due to the unavailability
of the customer’s highly-
specialised rig used to test these
safety-critical components. It is
now expected that the tests will
begin in early 2017. Post-period
we received new parts from this
customer for coating and testing.
These are for less-critical applications,
which do not need the specialised rig
and so we expect the testing of them to be
quicker.
Trials have also been underway for some time
on hydraulic actuators with a major European
manufacturer of aircraft landing gear. They are
now considering the use of Hardide on additional
components.
Strategic Report • Chairman's and CEO's Report 9
Strategic Report • Chairman's and CEO's Report Intellectual Property
The IP committee met quarterly to review the IP
portfolio. During the year, a US patent was granted
for the coating for industrial diamonds, a process that
enables their secure bonding to metallic substrates.
Research continues into the development of new
coating variants, and if successful these will strengthen
and widen the Group’s IP portfolio.
Brexit Effect
To the extent that it can predict the effects of Brexit,
the Group expects no particular negative effects on
its business and is currently benefitting modestly
from the weaker pound, more than 50% of its revenue
being denominated in US dollars. None of the existing
development programmes with customers should be
adversely affected.
10
For some while now, industries traditionally using hard
chrome have been lobbying the EU for an extension
of the REACh sunset date. Part of their argument for
this has been the difficulty that a ban on HCP would
present for replacement parts for aircraft no longer
in production. The Company has been in dialogue
with its aerospace customers for some time about the
possible extension and as a result we are confident
that if the seven-year extension now proposed by
the European Chemicals Agency is accepted by the
European parliament, it will have no material impact
on our progress in the aerospace markets. None of
our aerospace test programmes or current revenue
opportunities are for ‘legacy’ parts and none are
expected to be affected by any deferral of the sunset
date.
In November 2015, Hardide Coatings Ltd passed
its triennial re-certification audit for the aerospace
AS9100:Rev C and ISO9001 quality management
systems. During the year, we also upgraded our
environmental certification to the new ISO14001:2015
standard. Certification of the facility in Virginia is
intended to take place in 2017. For some time now we
have been preparing for the aerospace industry’s global
accreditation standard, Nadcap. Audit of the Bicester
site has been scheduled by the assessors for the
second quarter of calendar 2017.
Production, Technology, Research &
Development
The new production facility in Virginia became
production-ready in February 2016 and is now integral
to supporting sales to North America. Additional
production personnel were recruited in Virginia,
bringing the US headcount there to seven. Led by
a team from the UK, procurement, installation and
commissioning of equipment was managed smoothly
within time and budget. Validation of the production
process by major US customers took several months
and the site is now approved for production and is
producing regular revenue.
The UK-based technical team was strengthened by the
recruitment of a R&D engineer and the total number of
staff in the UK was reduced during the year to better
align with sales revenues.
The Group continued with various test programmes
aimed at developing further potential new applications.
These programmes include both in-house and third-
party projects.
Strategic Report • Chairman's and CEO's Report 11
Strategy
Outlook
Hardide’s coatings are technologically advanced and
can convey considerable commercial advantage by
helping to solve complex and difficult engineering
problems. Our coatings provide a unique combination
of advantageous physical properties and enhance the
range of many other companies’ offerings. While the
acceptance process for a new application is typically
long and involved, particularly for large customers,
there is significant potential for long-term revenues
once Hardide’s technology is adopted and embedded
in a design.
The board continues to maintain its positive view of the
Company’s potential for growth and accordingly will
continue to invest in marketing, business development,
R&D and process development so as to grow revenue
and gross profit. Presently, this has to be considered in
the light of the longest downturn for over 20 years in our
current main market of oil and gas, and a commercial
landscape with low visibility. Nonetheless, the board is
confident in the medium and longer-term outlook and
encouraged by the progress being made in diversifying
and developing the customer base. The Group will use
its new production base in the US to develop North
American business across multiple market sectors
and we will expand our presence in selected European
markets. The civil aerospace market represents a
significant growth potential for our coating range, as
do new applications in the oil and gas sector. We are
also targeting expansion in other precision engineering
sectors.
At all times, the Group aims to operate in a safe,
environmentally-conscious and socially-responsible
manner, valuing its employees’ contributions.
Visibility from our oil and gas customers remains limited
as the industry adjusts to the lower oil price. However,
current market indications give the board confidence
that demand will slowly return during 2017 as drilling
activity picks up. The Company is well-positioned
to benefit when this happens. The board is further
encouraged by progress with the North American
fracking tool manufacturer referred to earlier and is
optimistic about potential opportunities when the
sector recovers.
We are in the early stages of growth with our X-ray
machine customer and are moving forward with
commercial discussions with Airbus and tests on new
applications with Leonardo Helicopters and several
aerospace component manufacturers.
Our balance sheet is sound and costs are under tight
control. Based on the progress of customers’ tests and
the range of strategic development projects underway,
the board is positive about the medium and longer term
prospects for the Group.
Robert Goddard
Philip Kirkham
Chairman
16 January 2017
CEO
16 January 2017
Strategic Report • Chairman's and CEO's Report 12
Strategic Report • Financial Review
Strategic Report • Financial Review
13
Financial Review
Although total sales revenue fell by 29%, costs of sales
actually increased year on year by £259k, leading to
a reduction in gross profit of £1,120k to £685k. The
majority of this cost increase related to the Virginia
operation as we increased headcount and conducted
customer validation tests ahead of the start of
production. We also incurred increased subcontract
manufacturing costs due to full component supply to
one growing customer. Moreover, sales mix in the year
was skewed away from the higher-margin products.
Compared with the previous year, Group administration
costs were reduced by £141k. Net overheads relating
to the Virginia facility increased by £158k; made up of
cost increases of £30k and reduction in grants received
of £128k. UK overheads fell as we targeted all areas
of discretionary spend to cut non-essential costs,
but maintained expenditure on sales, marketing and
R&D in order to be prepared for future growth in sales.
Overhead costs relating to the Group’s mothballed
Houston facility reduced significantly.
While overall Group headcount increased due to
recruitment in Virginia and some UK sales and
R&D personnel, UK production and administration
headcount fell by five as a result of selective
redundancies and not replacing leavers, as we adjusted
our cost base in light of the fall in revenue.
We took advantage of spare production capacity by
increasing research and development work, hence the
increase in R&D tax credit to £121k.
The lease on our former Houston facility was terminated
at the end of November 2015. We had previously
provided for the lease payments up to the date of
termination, and the final £23k of this provision was
released in this financial year. In previous years, the net
book value of the equipment remaining at Houston had
been impaired because of uncertainty about its future
use. Some of this equipment was relocated to our new
Virginia plant and £232k of the previous impairment
charge on those items was reversed. The remaining
Houston fixed assets were written off, as detailed
in Note 11 to the accounts and related to specialist
fixtures, fixed installations, computer equipment and
leasehold improvements.
With over half of the Group sales revenue denominated
in US dollars, the exchange rate movement towards
the end of the year meant a credit to the P&L of £31k.
The change in exchange rate of sterling with dollar also
meant an increase in the cost price and net book value
of the Group’s fixed assets in Virginia.
Peter Davenport
Finance Director
14
Strategic Report • Strategic Review
Strategic Review
Overview
Production
The board retains its view that the value of the
Company will be maximised by increasing the number
of, and sales revenue from, high-value applications
to customers where the coating provides excellent
performance benefits over competing products. It is
intended to achieve this by additional marketing effort
and continuing work on a number of long-duration
development programmes with high potential. These
include the coating variant to replace hard chromium
plating in the aerospace and other industries and
the use of the newly-patented coating variant for
industrial diamonds in high-performance cutting and
abrasive tools. We will continue to work to develop
useful variants of the coating that are sufficiently
distinct to enable them to be patented. The Board
believes that it is reasonable to expect the Hardide
range would be a very attractive addition to fill a gap
in the ranges that some of the larger players offer to
their customers.
Substantial opportunities for new applications
and new customers or sectors often take years to
develop. However, once qualified, the volumes and
margins for the coating from these sources can
be very attractive. It is important therefore that the
Company has a strong balance sheet and a healthy
cash position to enable it to continue making revenue
investment for the medium to long term.
Historically, the Company has been very exposed
to a small number of customers and markets, and
fall back in demand from these has often presented
considerable difficulties. Recently, further progress
has been made in widening our sector, customer and
product base. Even so, yet greater diversification is
still highly desirable and is being actively pursued.
Sales to the aerospace industry will help considerably
to balance and smooth demand; as will sales to the
precision engineering sector.
The successful establishment this year of a new
coatings facility in the US serves two important
strategic purposes. First, production in the US
enables the Company to address a substantial part of
the large North American market that would otherwise
not be accessible to us. Second, a geographically-
separate production facility provides the needed
security of supply for customers who have effectively
'designed-in' Hardide for critical components and
where there is no alternative to Hardide.
Most growth in demand is expected to arise in North
America and the premises housing our US production
facility allow for considerable expansion of capacity.
There are no plans at present to create further new
coating facilities in other geographies.
Marketing
Although Hardide's coating has wide applicability in
many industry sectors, it is a niche, problem-solving
product. As such, and being fairly novel, is not
nearly as well-known as other, established coatings.
Indeed, potential specifiers and users encountered
at conferences and trade fairs often report that
they had until then been unaware of Hardide. The
need to raise awareness among potential users is of
continuing importance and has been recognised by
the Company for many years. High-level technical
presentations, digital campaigns, attendance at trade
fairs and a range of media such as the trade press
continue to be used to the full extent that resources
permit.
Of course, our business development managers
do make contact with potential users who have
not signalled an interest but unless they have an
immediate need for Hardide’s product they will not
seek to learn about its properties. Instead, business
development staff are mostly concerned with
following up interest expressed by potential users
who have an identified and immediate need.
The customer and sector diversification element of
the Company’s strategy remains in place and there
has been further success this year with substantial
sales of coated components to a UK manufacturer of
a new high-speed baggage scanner. There is high
potential for worldwide sales of this product.
Geographically, we will continue with our push
into the major European 'high-end' manufacturing
markets; particularly Germany, Switzerland and Italy.
In North America we are concentrating on building
demand that will be met by our new US production
facility.
Strategic Report • Strategic Review
15
Power generation
We are partnering on long-term projects with
manufacturers of steam and gas turbines, where use
of the coating can prevent erosion, increase operating
efficiency and reduce maintenance costs. If successful,
this would result in substantial sales over a sustained
period.
Precision engineering
Here, the potential market size is considerable but highly
fragmented. We intend to build on the recent successful
sales of components for high-speed x-ray scanners and
tooling for plastics processing; together with a range of
new opportunities that have been identified.
Product ranges, customers and market
characteristics
The Company classifies its applications for use in five
sectors. These are: Oil and Gas (both exploration and
production), Aerospace, Flow Control, Power Generation
and Precision Engineering. Since Hardide is a unique
product and somewhat ‘niche’, estimates of market size
are hard to make. Despite that, and beginning with the
aerospace industry, we have recently commissioned
external market research to help us understand
addressable market size and improve targeting.
Oil and gas
Historically, this has been the dominant sector for
Hardide and may remain so. However, overall demand
is highly cyclical and our customers within it have been
very concentrated. Determined development work
by the Company in this sector has resulted recently in
very promising prospects for gaining new, significant
customers. Moreover, the conditions in which new oil
and gas reserves are found are increasingly abrasive,
erosive and corrosive and so present more opportunities
for Hardide in an industry where long-term growth in
demand is still forecast.
Customers in the oil and gas industry are famously
secretive and our agreements with them prevent the
Company from publicising the coating’s use. This feature
makes development of new customers much harder than
it otherwise would be.
Aerospace
The aerospace industry is much more open and we
are using the technical approval by Airbus for Hardide
to promote the coating to a range of other aerospace
manufacturers. Though not as large a market in total as
oil and gas, it is expected to grow significantly.
The aerospace industry is notoriously difficult to
penetrate with new products but once that is done, sales
are relatively predictable, consistent and likely to be
sustained over a longer period.
Flow control
The use of high performance coatings for severe-
service pumps and valves tends to be project-based
and therefore demand is uneven and is also somewhat
dependent upon demand from oil and gas customers.
Nonetheless the sector is important to the Company and
we will continue to develop it.
Strategic Report • Strategic Review
16
Risk
Certain process gases are key to the Hardide
technology and their origin being outside Europe
brings the risk of disruption to supplies to the
UK plant due to various factors. We mitigate this
potential risk by having in place supply contracts
and arrangements that include an element of ‘buffer
stock’ held within the UK and Europe. This risk is very
low for the US facility due to the presence there of
multiple suppliers and local production.
A major incident could lead to the closure of the
coating plant in the UK, resulting in a disruption to
service. All operations are carried out to relevant
ISO9001/AS9100 and ISO14001 standards,
equipment is maintained to a planned schedule,
processes of continuous improvement and ‘5S’ are
operating and robust health and safety systems are
in place. An additional electricity supply feed has
been installed into the UK site to reduce the risk
of disruption to the coating reactors. A business
continuity plan is in place which includes duality of
production capability across the UK and US plants.
At all times, the Group aims to achieve success in
a safe, environmentally-conscious and socially-
responsible manner.
Cash
Completion of the new facility in the US, the extended
approval process by Airbus and others, plans for
operational and marketing development and the
severe collapse in demand from our oil and gas
customers necessitated a placing of new equity in the
summer of this year. As a result, there is now a much
stronger cash position and some delayed technical
and market development programmes can now be
resumed.
The proportion of sales made to a few major
customers remains high. However, good progress
has been made recently in developing significant new
accounts and substantial further new applications for
Hardide are in trials.
The Group’s exposure to the oil and gas industry
means that we suffer from volatile demand within this
sector. The high proportion of essentially-fixed costs
in the business means that a rise or fall in sales has
significant impact on profitability.
In the past, cessation or delay of customers’ test
programmes has inhibited the Company’s growth.
While this is now less acute than in the past, it may
still affect the rate of growth of the Company and so
may be viewed as a risk. The Group has little or no
influence over the duration of testing, which nearly
always takes longer than originally projected by
the customer. It is common for test programmes
to take several years to complete, particularly in
safety-critical applications such as aerospace. It is
also a risk that significant application development
time is spent on test programmes that do not result
in sales, or on programmes that get postponed due
to budgetary constraints or changes to customers’
priorities. We mitigate this risk by trying to establish
as early as possible the likelihood of a customer test
programme coming to fruition and that the potential
commercial opportunities for Hardide justifies
embarking on the programme in the first place.
Loss of key technical personnel is a risk for the
Group. In October 2015, a new technical R&D
engineer was appointed and an HR strategy to
address the long-term recruitment, development and
retention of staff is being implemented.
The board has speculated about various degrees
of ‘Brexit’ and the effect they might have on the
Company. These include the effect on currency
exchange rates. Now with its production facility in
the US, the Group has a partial hedge against the
GBP:USD rate of exchange. A global economic
decline stemming from Brexit seems unlikely but were
that to occur, the demand for hydrocarbons would be
held back and as a result so would the demand for
Hardide in this sector and possibly others.
Strategic Report • Strategic Review
17
18
Corporate Governance • Board of Directors
Board of Directors
Robert John
Goddard
Philip David
Kirkham
Peter Neil
Davenport
Chairman
Chief Executive Officer
Finance Director
Robert Goddard (65) joined
the board as Non-Executive
Chairman in January 2008. A
chartered engineer, Robert was
on the board of Burmah Castrol
until March 2000 as Group
Development Director having
previously managed its worldwide
fuels business and a substantial
part of its chemicals business.
He subsequently joined Amberley
Group plc in November 2000 as
Chief Executive, where he turned
around its four speciality chemical
subsidiaries. More recently he has
undertaken a number of advisory
and turnaround assignments.
In addition, he is Chairman of
AIM-quoted Universe Group plc.
He is an active investor in, and
supporter of a number of early-
stage technology companies.
Robert chairs the Risk Committee
and the Audit Committee and is a
member of the IP Committee.
Philip Kirkham (63) was appointed
Chief Executive Officer in
September 2012. Before joining
Hardide, since 2008, he was
CEO of private equity backed
Material Advantage Group
which supplies machined metal
components to the oil and gas
industry. Previously he held senior
management positions at Firth
Rixson Ltd and Rolls-Royce plc.
Philip is a chartered engineer and
a European engineer (Eur Ing) with
a BSc in Chemical Engineering
and an MSc in Advanced
Manufacturing Management. He
is a fellow of both the Institution
of Mechanical Engineers and the
Institution of Engineering and
Technology. Philip is a member of
the Risk Committee and of the IP
Committee.
Peter Davenport (50) joined
Hardide as Financial Controller
in June 2005 and was appointed
Finance Director in March
2006. He is an associate of
the Chartered Institute of
Management Accountants,
with a BA in Geography from
Oxford University and an MSc
in Environmental Science from
Oxford Polytechnic, as well as
holding a Certificate in School
Business Management. Peter
trained as an accountant with
the Royal Mail and worked for
Parcelforce Worldwide for five
years before joining the UK
subsidiary of global coatings
company Valspar. Peter is a
member of the Risk Committee.
Corporate Governance • Board of Directors
19
Dr Yuri Nikolaevich
Zhuk
Andrew Richard
Boyce
Janice Elizabeth
Ward
Technical Director
Non-Executive Director
Non-Executive Director
Dr Yuri Zhuk (55) is a co-founder
of Hardide plc and is currently
responsible for the company’s
technology, R&D, patenting,
production improvement and
applications development
programmes. Dr Zhuk started
his career as a scientist and
later became a technology
entrepreneur gaining over 20
years of successful international
technology business experience.
He holds an MSc (with Distinction)
in Physics and a PhD degree in
Plasma Physics and Chemistry
from the Lomonosov Moscow
State University, and an MBA
from the UK Open University. He
is the author of several patents
and scientific and technical
publications, and has presented
Hardide at leading international
conferences. Yuri chairs the IP
Committee.
Andrew Boyce (54) joined the
board of Hardide plc in June
2012. Andrew represents a family
shareholding with a 17.4% interest
in the Group's issued share
capital: the family having been
an investor in the Group since
2003. Since 1987, Andrew has
been involved in the management
and growth of numerous family
businesses. These encompass
farming, property and other
commercial activities. After
graduating in 1984 with a
Diploma in Agriculture and Estate
Management from the Royal
Agricultural College, Cirencester,
Andrew worked in commercial
property sales and lettings, and
development site appraisals and
acquisitions. Andrew chairs the
Remuneration and Nomination
Committee and is a member of the
Audit Committee.
Jan Ward CBE (59) joined
the board of Hardide plc in
March 2015. Jan is the CEO
and co-founder of Corrotherm
International, a supplier of
specialist metals for critical
applications in the energy and
aerospace sectors. She has
over 30 years’ experience in
industry and over 25 years at
Board level. Jan holds a number
of business appointments and is
the winner of several prestigious
business awards. She holds a
BSc in Mechanical Engineering
and is a Fellow of the Institute of
Directors and of the Royal Society
for Encouragement of Arts,
Manufactures and Commerce.
She was named a CBE in the
2015 New Year’s Honours list for
services to business and was
awarded an Honorary Doctorate
of Engineering by Southampton
Solent University in 2015. Jan is a
member of the Remuneration and
Nomination Committee.
20
Corporate Governance • Report of the Directors
Report of the Directors
Results
The Group loss for the period, after taxation, amounted to £1,341,000 (2015: £116,000 loss).
Directors
The present membership of the Board is set out on page 18, and changes to the board and the beneficial interests of
the directors and their families in the shares of the company are shown below.
Robert Goddard
28 January 2008
6,723,050
4,223,050
Appointed
Resigned
30 September 2016
Number of shares
30 September 2015
Number of shares
Andrew Boyce
Janice Ward
Philip Kirkham
Yuri Zhuk
Peter Davenport
18 June 2012
2 March 2015
1 September 2012
14 March 2005
21 March 2006
-
1,250,000
2,004,717
6,281,132
4,376,667
-
-
754,717
5,031,132
3,126,667
Although Andrew Boyce holds no shares in his own name, he represents family and trust holdings totalling 266,546,226
shares. No director had, during or at the end of the year, a material interest in any contract which was significant in
relation to the company’s business.
Directors’ Interests in Share Options
The company has share option schemes under the terms of which certain directors are able to subscribe for ordinary
shares in the company. Details of the directors’ interests in share options are shown in Note 17 to the Group accounts.
Directors’ Responsibilities for the Financial Statements
The directors are responsible for preparing the Strategic Report, Directors’ Report, and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors have elected to prepare the financial statements in accordance with International Financial Reporting
Standards (IFRSs). Under company law the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and of the company and of the profit or
loss of the Group for that period. In preparing these financial statements, the directors are required to:-
• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will
continue in business; and
• state whether applicable International Financial Reporting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the
Group and company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of corporate and financial information included on
the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Corporate Governance • Report of the Directors
21
Statement of disclosure of information to auditors
Each of the persons who is a director at the date of approval of this report confirms that:
• so far as the director is aware, there is no relevant audit information of which the company’s auditor is unaware, and
• the director has taken all steps that they ought to have taken as a director in order to make themselves aware of any
relevant audit information and to establish that the auditors are aware of that information.
Financial Risk Management Objectives and Policies
The Group uses various financial instruments including finance leases, equity and cash and various items, such
as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial
instruments is to raise finance for the Group’s operations. The existence of these financial instruments exposes the
Group to a number of financial risks. Financial risk management is undertaken by the board’s Risk Management
committee, further details about which appear on page 24.
Going Concern
The directors consider it appropriate to adopt the going concern basis of accounting for these accounts, and have
assessed that the company will continue to be able to do so in the future. In making this assessment, the directors
have considered all available information and have not identified any material uncertainties that cast doubt upon the
continuing use of the going concern basis.
Longer Term Viability
The directors have assessed the prospects of the company, and the risks facing it, both as described more fully in the
Strategic Report, and in their judgment there is a reasonable expectation that the company will be able to continue in
operation and meet its liabilities in full as they fall due.
Substantial Shareholders
At 30 September 2016 the following shareholders had a disclosable interest in 3% or more of the nominal value of the
Company’s shares:
Name
R Boyce & Associates
A Badenoch & Associates
Amati Global Investors Ltd
Hargreave Hale AIM VCT PLC
Unicorn Asset Management Ltd
WSC Richards, OBE
Peter Lobbenberg, esq
Payment Policy and Practice
Shareholding
266,546,226
248,550,000
144,277,219
96,055,000
62,500,100
56,913,000
47,500,000
%
17.4
16.2
9.4
6.3
4.1
3.7
3.1
It is the company’s policy that payments to suppliers are made at the start of the second month following the date of
invoice, unless other arrangements have been agreed. At 30 September 2016 the Group had an average of 67 days
outstanding in trade creditors (2015: 57 days).
Robert Goddard
Director
22
Corporate Governance • Corporate Governance Statement
Corporate Governance Statement
The Corporate Governance Code, April 2016 (the ‘Code’) and the 2014 Requirements for the
'Strategic Report'
Though full compliance with the Code is not mandatory for Hardide, it is the policy of the board to adopt its principles
and comply with its guidelines wherever practicable and helpful. The small size of the Company and its current stage
of development mean that it would not be sensible or possible to adhere to a number of the guidelines in the Code. In
addition to summarising its Corporate Governance procedures, the following statement also sets out some aspects of
the Code with which the Company does not comply and explains why it does not or in some cases complies with the
spirit of the Code by some other means.
The Company's board is aware of the 2014 requirements for the Strategic Report and supports the spirit of these and
where it considers it helpful to shareholders it has adopted this approach in the text of this annual report. However,
again given the size of the Company and its relative lack of complexity, the board has not decided to comply in all
respects with each requirement.
The Role of the Board
During the year, programmed board meetings were held each month, with committee meetings scheduled quarterly or
called as required. Directors' attendance at these meetings was as follows:
Full Board
Audit Committee
Intellectual
Property
Committee
Risk Committee
Remuneration
& Nomination
Committee
Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended
12
12
12
12
12
12
12
12
12
12
12
12
3
-
-
-
3
-
3
-
-
-
3
-
4
4
-
4
-
-
4
4
-
4
-
-
4
4
4
-
-
-
4
4
4
-
-
-
-
-
-
-
8
8
-
-
-
-
8
8
Director
R J Goddard
P D Kirkham
P N Davenport
Y N Zhuk
A R Boyce
J E Ward
In addition, directors who were not members of a committee at the date of its meeting, (R J Goddard, P D Kirkham, P N Davenport) attended by
invitation some parts of the meetings of the Audit, and Remuneration and Nomination Committees
There are four board Committees as detailed further
on in this section. In the normal course, these
Committees make recommendations to the board.
Minutes of Committee meetings are made available
to the board as a whole but may be redacted at
the discretion of the Chairman of the Committee,
if necessary in consultation with the Company
Chairman. Where it is urgent that a recommendation
of a Committee needs to be accepted by the board,
this is done by a directors’ resolution in writing. There
were no written directors' resolutions in the year.
There is a formal schedule of matters reserved for the
board. This includes the setting of high level targets,
approval of budgets, strategy, capital expenditure,
license agreements, incentive schemes and the like.
Authority levels for expenditure are delegated to
individual executives or management committees
according to a schedule agreed by the board.
Whilst the formulation of budgets and strategy is
undertaken mainly by the executive directors, this is
done against a framework set by the whole board,
challenged by the board and finally approved by it. At
certain points in the formulation of strategy, the board
may convene and participate in the development of
certain key aspects of strategy.
Business Reviews
The board reviews at its regular monthly meetings
both the financial position of the Group and
information about non-financial performance. It does
this at each board meeting. Financial information
includes monthly balance sheets, cash flow and profit
and loss accounts for the Group, the Company and
its subsidiaries, together with analysis of movements
in cash, trade debtors and creditors, and fixed assets.
Close attention is also paid to the development of
sales by sector and customer, as well as progress
with initiatives to develop major new sectors and
customers.
Non-financial information reviewed at least monthly
by the board includes reports and key performance
indicators, including plant performance, delivery
performance, research and development activity,
sales activity and health, safety and environmental
performance. Progress with strategic projects is
reviewed monthly.
Corporate Governance • Corporate Governance Statement
23
Non-Executive Directors
It is not thought that the Company is large enough
to warrant the formal appointment of a senior non-
executive director. Instead, other non-executive
directors are actively and regularly consulted by the
Chairman and encouraged to provide feedback.
Similarly, the Chairman has regular contact with major
shareholders and they are free to contact him outside
those meetings, and do so. The Chairman relays
shareholder opinion to the non-executive directors or
the full board, as appropriate.
Open exchange among board members is part of
the culture of the Company and by this means the
Chairman is made aware of matters of substance and
style that merit attention. In addition, each director is
free to speak in confidence to the Chairman; as is any
member of staff.
There is no formal mechanism in place for appraising
the effectiveness of the board as a whole or of the
Chairman alone. The Remuneration and Nomination
Committee has not recommended that such a process
is implemented. Nonetheless, as already stated, the
non-executive directors have frequent contact with the
Chairman and this provides an opportunity to address
concerns on a one-to-one basis.
Composition and Effectiveness
of the Board
Except for Mr Boyce, each of the directors owns
ordinary shares in Hardide plc. Mr Boyce represents a
large percentage of shares by virtue of his directorship
of companies that own Hardide shares. Each of Mr
Kirkham, Mr Davenport, Dr Zhuk and Mr Goddard have
been granted options on ordinary shares of Hardide
plc, all as declared elsewhere in this report.
By virtue of his representing a substantial shareholding,
Mr Andrew Boyce is not considered to be an
independent director. Each of the other two non-
executive directors is considered by the board to be
‘independent’.
The board has again reviewed Mr Goddard’s activities
outside of Hardide and is satisfied that none of these
conflict with his role as Chairman of Hardide.
The terms and conditions for non-executive directors
are agreed by the board. They are available for
inspection at the Company’s registered office and at
the location of the AGM for a period before that meeting
begins.
All directors may have access to independent
professional advice at Company expense if this is felt
by them in their own judgement that it is needed to
enable them to discharge their duties and that the cost
of such advice is reasonable in the circumstances.
Collectively and individually, the directors monitor the
performance of the board and its members on a range
of measures. These include attendance, familiarity with
the board packs, the quality of those board packs, an
understanding of the matters under discussion, the
ability to contribute to board discussion and the quality
of the challenge made to executive proposals and
performance and the thoroughness of reporting and
recommendations made by board Committees. Given
its size, a formal evaluation of board performance by
an outside agency is not believed to be appropriate.
Instead, it is the board's opinion that the Chairman’s
frequent contact with other directors provides sufficient
opportunity for effective two-way ‘calibration’.
Board Committees
There are four standing Committees of the board as
detailed below. Each committee has written terms of
reference approved by the board. These are kept under
review and updated as needed. The membership and
chair of board Committees is determined by the board
but, given the small number of directors, refreshing
membership on a regular or frequent basis is not
possible.
Remuneration and Nomination Committee
The Committee comprises Andrew Boyce (Chair) and
Jan Ward and meets at least annually, in this year it met
eight times. Its duties are to:
1. Determine and agree with the board the framework
or broad policy for the remuneration and contractual
terms of the Company’s Chief Executive, Chairman,
the executive directors and such other members
of the executive management as it is designated to
consider.
2. Design or approve the design of, and determine
targets for, any performance-related pay schemes
operated by the Company and approve the total
annual payments made under such schemes. Such
schemes and payments are subject to final approval
by the board.
3. Review the design of all share incentive plans
for approval by the board. For any such plans,
determine each year whether awards should be
made and, if so, the overall amount of such awards,
the individual awards to directors and other senior
executives and the performance targets to be used.
24
Corporate Governance • Corporate Governance Statement
4. Ensure that contractual terms on termination, and
any payments made, are fair to the individual and
the Company, that failure is not rewarded and that
the duty to mitigate loss is fully recognised.
5. Within the terms of the agreed policy and in
consultation with the Chairman and/or Chief
Executive as appropriate, determine the total
individual remuneration package of each executive
director and other senior executives who report to
the Chief Executive, including bonuses, incentive
payments and share options, other share awards
or other benefits.
6. Oversee any major changes in employee benefits
throughout the Company or Group.
Audit Committee
The Audit Committee comprises Robert Goddard
(Chair) and Andrew Boyce. Peter Davenport attends
by invitation. Whilst no non-executive member of
the board has a full qualification in accounting, Mr
Goddard is deemed competent by virtue of his MBA.
The Audit Committee meets twice each year with the
Company’s auditor at appropriate times during the
reporting and audit cycle, and in addition as required.
The Committee met three times during the year. The
duties of the Audit Committee are to:
1. Monitor the integrity of the financial statements
and the financial reporting process.
2. Review the effectiveness of the Company’s
internal controls and risk management systems.
3. Review the Company’s arrangements for its
employees to raise concerns about possible
wrongdoing, and ensure these arrangements allow
proportionate and independent investigation; and
to review the Company’s procedures for detecting
and preventing bribery and fraud.
4. Monitor the performance of the statutory audit
and review the independence and effectiveness
of the external auditor, and consider and make
recommendations in relation to the appointment,
re-appointment and removal of the Company’s
external auditor.
5. Consider and if necessary agree the terms of
reference under which the Risk Committee
operates, review the work of the Risk Committee
and identify any potential gaps that may need to
be addressed.
The external auditor does not provide any non-
audit services, and there are no other relationships
which may compromise the auditor’s objectivity
and independence. Our current external auditor,
Critchleys LLP, has been in place since 2008, and
their remuneration is disclosed in note 3 to the
accounts. This is our current audit partner’s first year
in the role. The effectiveness of the audit and auditor
are reviewed with reference to the auditor’s audit
plan, post-audit management letter and discussion
with the finance director.
The Committee did not consider any significant
issues during the year.
Intellectual Property Committee
The IP Committee comprises Yuri Zhuk (Chair),
Robert Goddard and Philip Kirkham and meets
quarterly. It is charged with reviewing all matters
relating to intellectual property, including patents,
trademarks and so on. It is also responsible for
non-disclosure agreements and joint development
agreements designed to protect and develop
intellectual property. The Committee makes
recommendations to the board where the Committee
does not have delegated powers.
Risk Management
The board acknowledges that it is responsible
for the Company’s system of risk management,
and manages risk through its Risk Management
Committee. The Committee’s role is to identify the
strategic, operational and financial risks that the
Company may be exposed to and recommends how
these may be avoided, mitigated or insured against,
or some combination of these. Risks are ranked by
assessing their likelihood of occurrence and their
potential impact. Risks looked at by the Committee
include those relating to solvency and liquidity.
This Committee comprises Robert Goddard
(Chair), Philip Kirkham, and Peter Davenport, and
meets quarterly. Reports of the Committee and its
assessment of risks are made to the board and the
Audit Committee. A description of the principal risks
which the Company has identified is included in the
Strategic Report.
The Company is currently too small to operate an
internal audit function, so the Audit Committee is
responsible for examining the Company’s internal
financial policies and procedures and recommending
amendments or improvements.
Remuneration Policy
Remuneration
The policy for the remuneration of the Executive
Directors includes three key objectives:
• To provide remuneration to attract, retain
and motivate Executive Directors and senior
management of the calibre to run the Company
successfully;
Corporate Governance • Corporate Governance Statement
25
• To ensure that there is a strong link between such
remuneration and the Company's strategy; and
not be paid in respect of the year to 30th September
2016.
• To align the Executive Directors' interests with
those of shareholders.
Service Contracts
Remuneration components
The remuneration of the Executive Directors has three
components.
P D Kirkham, P N Davenport and Y N Zhuk have
service contracts which are terminable on up to
12 months' notice by either party. The committee
consider these contracts are in line with the market.
• A base salary Including any benefits and pension.;
Non-executive Directors
• An annual performance related discretionary bonus
(non- pensionable); and
• A long term incentive plan comprising of share
options.
Share Option scheme
The share option plan was reviewed by the
Remuneration Committee during the year and agreed
by the Board under the following terms:
• The award of Share Options should be reviewed at
least annually by the Committee having taken the
advice of both the Company’s Chairman and CEO;
• Share options are recognised as effective means
to encourage the retention of key executives and
employees;
• Awards may be considered for exceptional
performance that has been shown to have, or
is likely to have, a positive impact upon the
company’s share value;
• Awards may be considered for long serving key
executives and employees where it is considered
they have added value over the term of their
employment;
• Vesting Procedures will vary and are likely to be a
balance incorporating both time and performance
related to the Company’s share price;
• Any such award will always be at the discretion of
the Main Board; and
• Employees may be considered for participation
in a share option scheme after completing their
probation period.
Bonus
In the past financial year there was a bonus scheme
in operation for executive directors and members
of staff employed by the Company on or before 1st
October 2015 and still employed by the Company
when the bonus is paid. That bonus scheme
was based on the company's trading being an
improvement over the previous year. Bonuses will
Non-executive Directors' remuneration is reviewed
by all members of the Board other than the non-
executive Director under review. R J Goddard, A R
Boyce and J E Ward all have letters of appointment
terminable on 1 month’s notice by either party.
Robert Goddard is the only non-executive director to
have been granted share options.
Compensation for loss of office
There are no predetermined special provisions
for Executive or Non-Executive Directors with
regard to compensation in the event of loss of
office. The Remuneration Committee considers the
circumstances of individual cases of early termination
and determines compensation payments accordingly
with the aim not to reward poor performance.
Bribery Act, 2010 (the ‘Act’)
Before the Act came into force, the Group had in
place a full “Anti-bribery Policy” and this has been
augmented by a “Whistleblower’s Policy”. Under
guidelines set by the board, a designated ‘Group
Compliance Officer’ manages the processes and
procedures that flow from these policies, in particular
the areas perceived to be most at risk from bribery
or behaviour that is fraudulent or unethical. Any
member of staff may, in confidence, raise concerns
about financial or other impropriety with any director.
The Group Compliance Officer reports to the board
as needed. From time to time, the board considers
whether these policies need to be updated.
Business Model and Strategy
A high-level description of the Group's business
model, strategy and risks appears in the Strategic
Report.
On behalf of the board,
Robert Goddard
Director
16 January 2017
26
Financial Statements • Independent Auditor's Report
Independent Auditor’s Report
To the Members of Hardide plc
We have audited the financial statements of Hardide Plc for the year ended 30 September 2016 which comprise
the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statements of Financial
Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and the related
notes. The financial reporting framework that has been applied in the preparation of the Group financial statements
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The
financial reporting framework that has been applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities
of Directors and Auditors
Scope of the Audit
of the Financial Statements
As explained more fully in the Directors’
Responsibilities Statement (set out on pages 20 and
21) the directors are responsible for the preparation
of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility
is to audit and express an opinion on the financial
statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the
Auditing Practices Board’s (APB’s) Ethical Standards
for Auditors.
An audit involves obtaining evidence about the
amounts and disclosures in the financial statements
sufficient to give reasonable assurance that
the financial statements are free from material
misstatement, whether caused by fraud or error. This
includes an assessment of whether the accounting
policies are appropriate to the Group’s and the
parent company’s circumstances and have been
consistently applied and adequately disclosed, the
reasonableness of significant accounting estimates
made by the directors, and the overall presentation
of the financial statements. In addition, we read all
the financial and non-financial information in the
annual report to identify material inconsistencies with
the audited financial statements and to identify any
information that is apparently materially incorrect
based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent
misstatements or inconsistencies we consider the
implications for our report.
Financial Statements • Independent Auditor's Report
27
Opinion on Financial Statements
In our opinion:
• the financial statements give a true and fair view
of the state of the Group's and of the parent
Company’s affairs as at 30 September 2016 and of
the Group’s profit for the year then ended;
• the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;
• the parent Company financial statements have
been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice;
• the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006; and, as regards the
Group financial statements, Article 4 of the IAS
Regulation.
Opinion on other Matter Prescribed
by the Companies Act 2006
In our opinion:
• the information given in the Strategic Report and
the Directors’ Report for the financial year for
which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are Required
to Report by Exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
• adequate accounting records have not been kept
by the parent Company, or returns adequate for our
audit have not been received from branches not
visited by us; or
• the parent Company financial statements are not in
agreement with the accounting records or returns;
or
• certain disclosures of directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Andrew Rodzynski
Senior Statutory Auditor
for and on behalf of
Critchleys LLP
Statutory Auditor
Oxford
16 January 2017
28
Financial Statements • Consolidated Income Statement
Consolidated Income Statement
For the year ended 30 September 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Depreciation and amortisation
Reversal of fixed asset impairment
Release of onerous lease provision
Operating profit / (loss)
Finance income
Finance costs
Profit / (loss) on ordinary activities before taxation
Taxation
Profit / (loss) on ordinary activities after taxation
Profit / (loss) per share: Basic
Profit / (loss) per share: Diluted
All operations are continuing.
Note
2
11
14
3
4
5
7
8
8
2016
£ ’000
2,142
(1,457)
685
(1,989)
(418)
232
23
(1,467)
6
(1)
(1,462)
121
(1,341)
(0.1)p
(0.1)p
2015
£ ’000
3,003
(1,198)
1,805
(2,130)
(161)
-
269
(217)
12
(2)
(207)
91
(116)
(0.01)p
(0.01)p
The accompanying accounting policies and notes form an integral part of these financial statements.
Financial Statements • Consolidated Statement of Financial Position
29
Consolidated Statement
of Financial Position
At 30 September 2016
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant & equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Other current financial assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Financial liabilities
Provision for lease obligation
Total current liabilities
Net current assets
Non-current liabilities
Financial liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium
Retained earnings
Share-based payments reserve
Translation reserve
Total equity
Note
9
10
11
12
12
12
12
13
13
13
14
16
16
2016
£ ‘000
69
1
1,872
1,942
60
566
270
1,967
2,863
4,805
408
17
-
425
2015
£ ‘000
69
3
1,262
1,334
59
469
271
2,327
3,126
4,460
544
16
21
581
2,438
2,545
3
3
428
20
20
601
4,377
3,859
3,242
10,305
(8,964)
184
(390)
4,377
3,041
8,935
(7,623)
154
(648)
3,859
The financial statements were approved and authorised for issue by the Board on 16 January 2017.
Robert Goddard
Director
30
Financial Statements • Consolidated Statement of Cash Flows
Consolidated Statement
of Cash Flows
For the year ended 30 September 2016
Cash flows from operating activities
Operating profit / (loss)
Impairment of intangible assets
Depreciation
Reversal of fixed asset impairment
Share option charge
(Increase) / Decrease in inventories
(Increase) / Decrease in receivables
Increase / (Decrease) in payables
Increase / (Decrease) in provisions
Exchange rate variance
Cash generated from operations
Finance income
Finance costs
Tax received / (paid)
Net cash generated from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Finance lease repayment
Net cash used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2016
£ ‘000
(1,467)
2
416
(232)
28
1
(18)
(160)
(23)
31
(1,422)
6
(1)
64
(1,353)
(561)
(561)
1,571
(17)
1,554
(360)
2,327
1,967
2015
£ ‘000
(217)
1
160
-
27
(9)
67
81
(269)
-
(159)
12
(2)
53
(96)
(1,029)
(1,029)
1
(16)
(15)
(1,140)
3,467
2,327
Financial Statements • Consolidated Statement of Changes in Equity
31
Consolidated Statement
of Changes in Equity
For the year ended 30 September 2016
Share
Capital
Share Share-based
Foreign
Payments Translation
Premium
Retained
Earnings
At 1 October 2014
Issue of new shares
Share options
Exchange translation
Loss for the year
At 30 September 2015
At 1 October 2015
Issue of new shares
Share options
Exchange translation
Loss for the year
At 30 September 2016
3,041
8,934
127
(639)
(7,507)
-
-
-
-
3,041
3,041
201
-
-
1
-
-
-
8,935
8,935
1,370
-
-
-
3,242
-
10,305
-
27
-
-
154
-
-
(9)
-
-
-
-
(648)
(116)
(7,623)
154
(648)
(7,623)
-
28
2
-
184
-
-
258
-
(390)
-
-
-
(1,341)
(8,964)
Total
Equity
3,956
1
27
(9)
(116)
3,859
3,859
1,571
28
260
(1,341)
4,377
32
Financial Statements • Notes to the Group Financial Statements
Notes to the Group Financial Statements
1. Accounting Policies
Accounting Convention
The Group is required to prepare its financial
statements in accordance with International Financial
Reporting Standards (IFRS), as adopted in the
EU, International Accounting Standards (IAS) and
Interpretations (IFRIC).
Standards, Interpretations and Amendments
to Published Standards not yet Effective
Amendments to standards and interpretations issued,
but not effective for the financial year beginning
1 October 2015 and not early adopted, will have no
material impact on the financial statements.
The following principal accounting policies have
been applied:
Basis of Preparation
The financial statements have been prepared on
the going concern basis, under the historical cost
convention. These financial statements are presented
in pounds sterling because that is the currency of the
primary economic environment in which the Group
operates. All amounts are rounded to the nearest
thousand pounds.
Going Concern
The directors believe that the Company and the
Group have adequate resources to continue in
operational existence for the foreseeable future
Basis of Consolidation
The consolidated financial statements incorporate
the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up
to 30 September each year.
Control is achieved where Hardide plc has the power
to govern the financial and operating policies of
an investee entity so as to obtain benefits from its
activities.
The financial statements of subsidiaries are included
in the consolidated financial statements from the
date that control commences until the date that
control ceases. Transactions between and balances
with Group companies are eliminated together with
unrealised gains on intercompany transactions.
Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the
accounting policies used into line with those used by
the Group.
Acquisitions are accounted for by the purchase
method. The cost of an acquisition is measured
as the fair value at the date of exchange of the
consideration provided plus any costs directly
attributable to the acquisition. On acquisition, the
assets and liabilities and contingent liabilities of
the acquired business that meet the conditions
for recognition under IFRS 3 are measured at their
fair values at the date of acquisition. Any excess
of the cost of acquisition over the fair values of the
identifiable net assets acquired is recognised as
goodwill. Any deficiency of the cost of acquisition
below the fair values of the identifiable net assets
acquired is credited to profit or loss in the period of
acquisition.
Revenue Recognition
Revenue represents the invoiced amount of goods
sold and services provided during the period,
excluding value added tax and other sales taxes,
trade discounts, and intra-group sales. Revenue is
recognised when performance has occurred and
a right to consideration has been obtained. This
is normally when goods have been despatched or
services provided to the customer, title and risk of
loss have been transferred and collection of related
receivables is probable.
Financial Statements • Notes to the Group Financial Statements
33
Research and Development
Impairment of Intangible Assets
Expenditure on research and development costs
is charged to the income statement in the period
in which it is incurred unless such costs should be
capitalised under the requirements of the applicable
standard, which is only when the future economic
benefits expected to arise are deemed probable and
the costs can be reliably measured.
Intangible Assets: Goodwill
Goodwill represents the excess of the cost of
acquisition over the Company’s interest in the fair
value of the identifiable assets and liabilities of a
subsidiary at the date of acquisition. Goodwill is
recognised as an asset and reviewed for impairment
at least annually.
Goodwill arising on acquisitions before the date
of transition to IFRS (01 October 2006) has been
retained at the previous UK GAAP amounts subject to
being tested for impairment at that date and at least
annually thereafter.
On disposal of a subsidiary the attributable amount of
goodwill is included in the determination of the profit
or loss on disposal.
Intangible Assets: Development Costs
Capitalised development costs are amortised on a
straight line basis over their useful economic lives
once the product is available for use.
Intangible Assets: Other
Separable intangible assets are recognised
separately from goodwill on all acquisitions after
the date of transition, are initially measured at fair
value and amortised over their useful economic lives.
Purchased intangible assets are capitalised at cost
and amortised over their useful economic lives.
Goodwill is allocated to cash-generating units for the
purposes of impairment testing. The recoverable
amount of the cash-generating unit to which the
goodwill relates is tested annually for impairment or
when events or changes in circumstances indicate
that it might be impaired. Any impairment is
recognised immediately in the income statement and
is not subsequently reversed.
Intangible assets other than goodwill are tested for
impairment when a trigger event occurs. Useful
lives are also examined on an annual basis and
adjustments, where applicable, are made on a
prospective basis.
Recoverable amount is the higher of fair value less
costs to sell, and value in use. In assessing value in
use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate
that reflects current market assessments of the time
value of money and the risks specific to the asset for
which the estimates of future cash flows have not
been adjusted. An impairment loss is recognised
to the extent that the carrying value exceeds the
recoverable amount.
An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss
is treated as a revaluation decrease. A reversal of an
impairment loss is recognised as income immediately,
unless the asset is carried at a revalued amount, in
which case the reversal of the impairment loss is
treated as a revaluation increase.
34
Financial Statements • Notes to the Group Financial Statements
Property, Plant and Equipment
Leases
Property, plant and equipment are stated at cost
less accumulated depreciation and any recognised
impairment loss.
Depreciation is provided on the cost of assets less
any residual value over their estimated useful lives,
using the straight line method, as follows:
Plant & machinery
2 to 10 years
Leasehold improvements
Over remaining
term of lease
Fixtures & fittings
Computer equipment
4 years
4 years
Depreciation is not charged on assets
under construction.
Borrowing costs related to the purchase of fixed
assets are not capitalised.
The carrying values of property, plant and equipment
and investments measured using a cost basis, are
reviewed for impairment only when events indicate
the carrying value may be impaired.
Investments
Investments held as fixed assets are stated at cost
less any provision for impairment.
Inventories
Inventories are valued at the lower of cost and net
realisable value. The costs incurred in bringing each
product to its present location and condition are
accounted for as follows:
Raw materials
Work in Progress and
Finished goods
Cost of purchase on a
first in, first out basis
Cost of raw materials
and direct labour and a
proportion of manufacturing
overheads based on the normal
level of activity.
Net realisable value is based on the estimated
selling price less estimated costs to completion
and estimated costs necessary to make the sale.
Inventory is regularly tested for obsolescence, any
items so identified are written off to the P&L account.
There is no general obsolescence provision.
Finance leases, which transfer to the Group
substantially all the risks and benefits incidental to
ownership of the leased item, are included in the
balance sheet at fair value or, if lower, at the present
value of the minimum lease payments. Depreciation
is charged over the useful economic life of the assets.
Lease payments are apportioned between the finance
charges and the reduction of the lease liability so as
to achieve a constant rate of interest on the remaining
balance of the liability.
Leases where the lessor retains substantially all the
risks and rewards of ownership are classified as
operating leases. Rentals payable under operating
leases are charged to the income statement on a
straight line basis over the term of the lease.
Financial Instruments
The Group does not enter into hedging or speculative
derivative contracts.
Financial assets and liabilities are recognised
on the Group’s balance sheet when the Group
becomes a party to the contractual provisions
of the instrument.
Income and expenditure arising on financial
instruments is recognised on the accruals basis, and
credited or charged to the profit and loss account in
the financial period to which it relates.
Financial Liabilities and Equity
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into.
A financial liability exists where there is a contractual
obligation to deliver cash or another financial asset
to another entity, or to exchange financial assets or
financial liabilities under potentially unfavourable
conditions. In addition, contracts which result in the
entity delivering a variable number of its own equity
instruments are financial liabilities. Shares containing
such obligations are classified as financial liabilities.
Financial Statements • Notes to the Group Financial Statements
35
Finance costs and gains or losses relating to financial
liabilities are included in the income statement. The
carrying amount of the liability is increased by the
finance cost and reduced by payments made in
respect of that liability.
An equity instrument is any contract that evidences
a residual interest in the assets of the Group
after deducting all of its liabilities. Dividends and
distributions relating to equity instruments are
debited directly to reserves.
Equity instruments issued are recorded at the
proceeds received, net of direct issue costs.
Compound Instruments
Compound instruments comprise both a liability and
an equity component. The elements of a compound
instrument are classified in accordance with their
contractual provisions. At the date of issue, the
liability component is recorded at fair value, which is
estimated using the prevailing market interest rate for
a similar debt instrument without the equity feature.
Thereafter, the liability component is accounted for as
a financial liability in accordance with the accounting
policy set out above. The residual is the equity
component, which is accounted for as an equity
instrument.
Cash and Cash Equivalents
Cash and cash equivalents include cash at bank and
in hand, and short-term deposits with an original
maturity period of three months or less.
Trade and other Receivables and Payables
Trade and other receivables are stated at amounts
receivable less any provision for recoverability. Trade
payables are stated at their nominal value.
Government Grants
Government grants towards research and
development and investment are recognised as
income over the periods necessary to match them
with the related costs and are deducted in reporting
the related expense.
Foreign Currencies
The Company’s functional and presentation currency
is Sterling. Transactions denominated in foreign
currencies are translated into sterling at the rates
ruling at the date of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated at
the rates of exchange ruling at that date. Gains and
losses arising on translation are recognised in the
income statement.
On consolidation, the assets and liabilities of the
Group’s overseas operations are translated into
Sterling at the exchange rate at the date of the
balance sheet. Income and expense items are
translated at the average exchange rates for the
period. Exchange differences arising are classified as
equity and are transferred to the translation reserve.
Exchange gains and losses arising on the translation
of the Group’s net investment in foreign entities are
also classified as equity.
Share-based Payments
The fair value of equity-settled share payments
is determined at the date of grant and is recognised
on a straight line basis over the vesting period based
on the Group’s estimate of options that will eventually
vest.
Fair value is measured by use of a Black-Scholes
pricing model.
Retirement Benefits
The Group operates a stakeholder scheme for
its employees, but does not make any
contributions to it.
Short-term Employee Benefit Costs
The undiscounted amount of short-term benefits
attributable to services that have been rendered
in the period are recognised as an expense. Any
difference between the amount of cost recognised
and the cash payments made is treated as a liability
or prepayment as appropriate.
36
Financial Statements • Notes to the Group Financial Statements
Taxation
The charge for current tax is based on the results for
the period as adjusted for items that are
non-assessable or disallowed, and is calculated using
tax rates that have been enacted or substantively
enacted by the balance sheet date.
Deferred tax assets and liabilities are recognised
where the carrying amount of an asset or liability
in the balance sheet differs from its tax base.
Recognition of deferred tax assets is restricted to
those instances where it is probable that taxable
profit will be available against which the difference
can be utilised. Deferred tax liabilities are recognised
for taxable temporary differences. Such assets
and liabilities are not recognised if the temporary
difference arises from the amortisation of goodwill or
the initial recognition of other assets and liabilities in
a transaction that is not a business combination and
affects neither the tax profit nor the accounting profit.
The amount of the asset or liability is determined
using tax rates that have been enacted or
substantially enacted at the balance sheet date, and
are expected to apply when the deferred tax assets
or liabilities are settled or recovered. Deferred tax
balances are not discounted.
Deferred tax is charged or credited in the income
statement except where it relates to items charged or
credited to equity, in which case the deferred tax is
dealt with there.
Borrowings
Borrowings are classified as current liabilities
unless the Group has an unconditional right to defer
settlement of the liability for at least twelve months
after the balance sheet date. All borrowing costs are
recognised in the income statement in the period in
which they are incurred.
Provisions
Provisions are made when the Group has a present
obligation as a result of past events, it is more likely
than not that an outflow of economic benefits will
be required to settle the obligation, and the amount
can be reliably estimated. Provisions are discounted
to present value where the impact is significant,
using a discount rate that reflects current market
assessments of the time value of money and the risks
specific to the obligation.
Critical accounting estimates and judgments
Estimates and judgments are continually evaluated
and are based on historical experience and other
factors, including expectations of future events
that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions
concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions
that have a significant risk of causing a material
adjustment to the carrying amounts of assets
and liabilities within the next financial period are
addressed below:
(a) Property, plant and equipment represents a
significant proportion of the asset base of the Group
being 39% of the Group's total assets. The estimates
and assumptions made to determine their carrying
value and related depreciation are significant to the
Group's financial position and performance. The
charge in respect of periodic depreciation is derived
after determining an estimate of an asset's expected
useful life and the expected residual value at the end
of its life. No residual value is expected for any of the
Group’s assets and, apart from some items of high-
value specialised equipment, plant and machinery is
estimated to have 4 years of useful life from the date
of purchase or installation.
(b) Recognition of deferred tax assets occur when
it has become probable that future taxable profit
will allow the deferred tax asset to be recovered.
Recognition, therefore, involves judgement regarding
the prudent forecasting of future taxable profits of
the business. Because of the ongoing losses of the
Group, there is uncertainty as to when taxable profits
might occur against which existing tax losses could
be relieved. As such no deferred tax asset has been
recognised.
(c) Going concern basis including its effect on the
impairment of assets. The Group monitors cash
flow as part of its day to day control procedures and
management consider cash flow projections on a
monthly basis and also prepares detailed forward
projections for future periods which also include
various scenarios. As a consequence, the Directors
are satisfied that the Group is able to maintain
sufficient resources to continue in operation for the
foreseeable future. Accordingly, they have adopted
the going concern basis in preparing the financial
statements. Were this not to be the case the carrying
value of the Group’s assets may have to be impaired.
Financial Statements • Notes to the Group Financial Statements
37
2. Segmental Analysis
Under IFRS 8, operating segments are defined as a component of equity (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 in to UK and USA operation and Corporate central functions,
and this factor identifies the Group’s reportable segments.
Year ended 30 September 2016
UK operation
£ ‘000
2016 2015
US operation
£ ‘000
2016 2015
Corporate
£ ‘000
2016 2015
Eliminations
£ ‘000
2016 2015
Total
£ ‘000
2015
2016
External revenue
Inter-segment revenue
Interest revenue
Interest expense
Depreciation
Reversal of Impairment
Income tax income
Release of Provision
Reportable segment
profit / (loss)
Segment assets
Expenditure for
non-current assets
Segment liabilities
1
2,037 3,003
-
-
4
4
2
161
-
-
-
176
-
-
-
105
-
-
-
242
(232)
-
(23)
-
-
-
-
-
-
-
(269)
-
-
2
-
-
-
120
-
-
-
8
-
-
-
91
-
(503)
234
(414)
(18)
(424)
(332)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,142 3,003
-
-
6
1
418
(232)
120
(23)
12
2
161
-
91
(269)
(1,341)
(116)
3,086 3,677
1,701 1,024
2,835 2,075
(2,817) (2,316)
4,805 4,460
57
250
257
348
599
782
9,242 7,097
-
-
1,873 1,333
-
(10,937) (8,177)
656 1,039
428
601
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
2016
2015
UK
£ ‘000
1,007
1,710
Europe
£ ‘000
N America
£ ‘000
Rest of World
£ ‘000
26
92
1,107
1,199
2
2
Total
£ ‘000
2,142
3,003
Four external customers (2015 – three) contributed more than 10% of the Group’s continuing external sales for the year
ended 30 September 2016. The external sales for these customers were £0.450m, £0.426m, £0.369m and £0.315m
which have been recorded within both the UK and US operation reportable segments, excluding central costs.
38
Financial Statements • Notes to the Group Financial Statements
3. Operating Profit or Loss
This is stated after charging / (crediting):
Auditor’s remuneration:
Fees payable to the Company’s current auditor for
the audit of the Company’s accounts
Cost of inventory recognised as an expense
Research and development
Income from grants
Operating lease rentals
- plant and machinery
- property
Share option expense
Depreciation and amortisation
Exchange differences
4. Finance Income
Interest on bank deposits
5. Finance Costs
Interest on finance leases
2016
£ ‘000
2015
£ ‘000
11
614
200
(190)
24
163
28
418
(31)
2016
£ ‘000
6
2016
£ ‘000
1
11
494
96
(323)
28
268
27
161
(11)
2015
£ ‘000
12
2015
£ ‘000
2
Financial Statements • Notes to the Group Financial Statements
39
6. Employees
The average number of employees, including executive directors but not including non-executive directors, during the
year comprised:
2016
Number
2015
Number
Technical
Production
Sales and marketing
Management and admin
Staff costs, including executive and non-executive directors, amounted to:
Wages and salaries
Social security costs
Share option expense
The remuneration of directors during the year was as follows:
Philip Kirkham (Chief Executive)
Dr Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
Robert Goddard (Non-Executive Chairman)
Andrew Boyce (Non-Executive Director)
William Zakroff (Non-Executive Director)
Janice Ward (Non-Executive Director)
Total directors’ remuneration
Salary
Car allowance
Salary
Salary
Fees
Fees
Fees
Fees
13
12
5
5
35
2016
£ ‘000
1,581
165
28
1,774
2016
£ ‘000
153
15
99
77
50
22
-
22
438
10
13
4
5
32
2015
£ ‘000
1,391
159
27
1,577
2015
£ ‘000
150
15
97
76
50
18
7
13
426
40
Financial Statements • Notes to the Group Financial Statements
7. Taxation
UK corporation tax on the profit / (loss) for the year
R&D tax credit
Adjustment in respect of prior year R&D tax credits
Adjustment in respect of prior year UK corporation tax
2016
£ ‘000
-
120
1
-
121
2015
£ ‘000
-
81
10
-
91
The standard rate of corporation tax in the UK is currently 20%. The group has unutilised trading tax losses in the UK of
approximately £1.1m (2015: £0.6m) available to carry forward against future trading profits. The general principle in IAS 12
is that a deferred tax asset is recognised for unused tax losses to the extent that it is probable that future taxable profit will
be available against which the unused tax losses can be utilised. No deferred tax asset has been recognised in respect of
these amounts due to the unpredictability of future taxable profits.
8. Earnings per Ordinary Share
(Loss) / Profit on ordinary activities after tax
Basic earnings per ordinary share
2016
£ ‘000
(1,341)
2015
£ ‘000
(116)
Weighted average number of ordinary shares in issue
1,345,202,056
1,334,678,304
Earnings per share
(0.1)p
(0.01)p
Fully diluted earnings per ordinary share
Number of ordinary shares in issue
Outstanding share options
Total
Earnings per share
9. Goodwill
Cost at 1 October 2015 and 30 September 2016
Net book value at 1 October 2015 and 30 September 2016
1,534,906,304
1,334,678,304
116,759,600
1,651,665,904
(0.1)p
76,833,600
1,411,511,904
(0.01)p
£ ‘000
69
69
Goodwill relates to the acquisition of the net liabilities of Isle Hardide Limited by Hardide Coatings Limited which
occurred in October 2000 and which were valued at £99,095, for which no consideration was paid. The goodwill
had previously been amortised over 20 years under UK GAAP until conversion to IFRS on 1 October 2006. Total
amortisation up to that date amounted to £30,000 giving a net book value of £69,000.
Financial Statements • Notes to the Group Financial Statements
41
10. Intangible Assets
Cost at 1 October
Additions
Disposals
Cost at 30 September
Net book value at 1 October
Amortisation b/fwd
Disposals
Impairment charge
Net book value at 30 September
2016
£ ‘000
2015
£ ‘000
15
-
(9)
6
3
12
(9)
2
1
The intangible assets relate to computer software costs which are amortised over four years.
11. Property, Plant and Equipment
Leasehold
buildings
£ ‘000
Plant, vehicles
and fixtures
£ ‘000
Computer
equipment
£ ‘000
Cost at 1 October 2014
Additions
Disposals
Exchange differences
Cost at 30 September 2015
Depreciation at 1 October 2014
Provided in the year
Disposals
Impairment
Exchange differences
Depreciation at 30 September 2015
Net book value at 1 October 2014
Net book value at 30 September 2015
Cost at 1 October 2015
Additions
Disposals
Exchange differences
Cost at 30 September 2016
Depreciation at 1 October 2015
Provided in the year
Disposals
Reversal of impairment
Depreciation at 30 September 2016
Net book value at 1 October 2015
Net book value at 30 September 2016
244
221
(3)
-
462
217
17
(3)
-
-
231
27
231
462
8
(20)
35
485
231
39
(20)
-
250
231
235
2,852
780
-
-
3,632
2,510
132
-
-
-
2,642
342
990
3,632
644
(611)
96
3,761
2,642
376
(603)
(255)
2,160
990
1,601
125
38
-
-
163
111
11
-
-
-
122
14
41
163
4
(64)
2
105
122
17
(70)
-
69
41
36
15
-
-
15
5
10
-
2
3
Total
£ ‘000
3,221
1,039
(3)
-
4,257
2,838
160
(3)
-
-
2,995
383
1,262
4,257
656
(695)
133
4,351
2,995
432
(693)
(255)
2,479
1,262
1,872
42
Financial Statements • Notes to the Group Financial Statements
12. Current Assets
Inventories
Raw materials and consumables
Receivables
Trade receivables
Other receivables
Other current financial assets
Prepayments
VAT debtor
Accrued income
Cash and cash equivalents
Sterling
US Dollar
Euro
Total current assets
2016
£ ‘000
2015
£ ‘000
60
60
525
41
566
56
12
202
270
1,735
215
17
1,967
2,863
59
59
421
48
469
86
27
158
271
1,451
549
327
2,327
3,126
There is no general provision for bad debts. During the year, no specific trade receivable was classified as a bad
debt. Trade debtors are regularly reviewed for age and possible impairment. It is the directors’ opinion that, as at the
balance sheet date, no trade debt required impairment.
13. Current Liabilities
Trade payables
Taxation and social security costs
Accruals
Finance lease obligations
Lease deposit
Provision for lease obligations
Total current liabilities
2016
£ ‘000
293
45
70
17
-
-
425
2015
£ ‘000
299
45
194
16
6
21
581
Financial Statements • Notes to the Group Financial Statements
43
14. Non-current other Financial Liabilities
Finance lease obligations
2016
£ ‘000
3
3
2015
£ ‘000
20
20
At 30 September 2013 a provision was made for the payments due over the remaining term of the lease on the Group’s
Houston facility, less payments expected to be received under non-cancellable subleases. As at 30 September 2015
$33,000 (£21,000) provision remained to cover the lease obligations up to the termination date of 04 December 2015.
An accrual of $86,000 (£57,000) was made in the 2015 accounts to cover the costs of termination, mainly comprising
broker commissions and compensation payments to the landlord. $8500 (£6,000) deposit was due to be returned to
the sublessee. All these amounts were settled during the 2016 financial year and no further obligations or provisions
exist in relation to Houston.
15. Total Commitments under Operating Leases
In one year or less
In two to five years
In more than five years
Land and buildings
2016
£ ‘000
2015
£ ‘000
Plant
2016
£ ‘000
2015
£ ‘000
7
-
516
523
23
92
493
608
3
57
-
60
11
12
-
23
44
Financial Statements • Notes to the Group Financial Statements
16. Share Capital
Authorised ordinary shares of 1p each
Allotted ordinary shares of 1p each
Authorised ordinary shares of 0.1p each
Authorised deferred shares of 0.9p each
Allotted ordinary shares of 0.1p each
Allotted deferred shares of 0.9p each
2016
2015
Number
000
Value
£ ‘000
Number
000
Value
£ ‘000
-
-
-
-
-
-
1,750,000
1,750
1,750,000
250,000
2,250
250,000
1,534,906
1,535
1,334,678
189,642
1,707
189,642
-
-
1,750
2,250
1,335
1,707
The Company raised a total of £1,601,616 before expenses by way of placing 200,202,000 ordinary 0.1p shares at
a price of 0.8p per share in two tranches, on 09 August and 29 September 2016. During the year, one employee
exercised options over 26,000 shares.
17. Share-based Payment
Outstanding at 1 October 2015
Exercisable at 1 October 2015
Granted during year
Exercised during year
Forfeited during year
Outstanding at 30 September 2016
Exercisable at 30 September 2016
The current directors’ interests in share options are as follows:
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
Number
76,833,600
39,814,000
40,478,000
(26,000)
(526,000)
116,759,600
41,919,100
Number
16,181,000
40,000,000
18,351,000
12,351,000
Weighted average
exercise price
0.66p
0.57p
0.81p
0.45p
0.83p
0.66p
0.62p
Weighted average
exercise price
0.61p
0.81p
0.69p
0.57p
During the year no director exercised any share options. As part of the Company’s share option scheme, the following
options were granted to directors during the year at an exercise price of 0.8p:
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
6,000,000
20,000,000
6,500,000
3,500,000
The fair values of employee options granted are measured at date of grant by the use of a Black-Scholes pricing
model, the assumptions used in the model vary depending on the date of grant and vesting period. Inputs include
share price at date of grant, exercise price, historical volatility, the expected life of the option, and the risk-free interest
rate. Expected volatility is calculated from the recent historical volatility of the share price. No other features are
incorporated into the measurement of fair value.
Valuation of all options granted during this year used a volatility of 70%, a risk-free interest rate of either 1.27% or
1.41% depending upon date of grant, and an expected life of 3.5 or 4 years. The average calculated fair value of
options granted during the year was 0.04p.
Financial Statements • Notes to the Group Financial Statements
45
All options have a maximum term of 10 years from date of grant and are settled with equity upon exercise. No options
expired during the year. Vesting criteria are a mix of time-based and performance-based, the performance criteria are
the market capitalisation or price per share of the Company. At 30 September 2016 the weighted average remaining
contractual life of all outstanding options was 6 years and 4 months.
18. Post Balance Sheet Events
There are no post balance sheet events to report.
19. Related Party Transactions
There were no related party transactions to report with either directors or key management.
20. Capital Commitments
There are no capital commitments at the date of the balance sheet.
21. Contingent Liabilities
Hardide Coatings Inc received a grant of $170,000 from the Commonwealth of Virginia Tobacco Indemnification
and Community Revitalisation Commission, which contained performance obligations concerning the number of
employees and the value of taxable assets located in Henry County, Virginia, to be achieved by the end of December
2017. It received a further grant of $150,000 from the Governor’s Development Opportunity Fund through the Virginia
Economic Development Partnership Authority which contained the same performance obligations but with an
achievement date of 30 June 2018.
If these performance obligations are not met then a proportion of the grant is repayable, the amount depending on the
shortfall against those performance obligations.
22. Financial Instruments – Risk Management
In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. The
Group uses financial instruments comprising borrowings, cash, liquid resources and various items such as trade
debtors and creditors that arise directly from its operations. Exposure to credit, liquidity and market risks arises in the
normal course of the Group’s business. The Group does not enter into derivative financial instruments.
Credit Risk
The Group’s credit risk is primarily attributable to its credit sales. The Group has significant concentration of sales
to a few key customers, however, since the ultimate customers for the Group’s products are predominantly blue-chip
multinational companies, the board believes that this is not a significant risk. Credit risk also arises from cash and
deposits with banks. These risks are reviewed regularly by the board.
Liquidity Risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and
to invest cash assets safely and profitably. The interest rate exposure of the Group as at 30 September 2016 and the
maturity profile of the carrying value of the Group’s financial liabilities are shown in note 13. The Group’s policy is to
ensure that it has sufficient cash to allow it to meet its liabilities. The board receives forecast cash flows on a monthly
basis and uses these as the basis for forward planning.
Market Risk
The Group is exposed to translation and transaction foreign exchange risk arising because the Group has operations
in more than one country. As such, the Group’s net assets arising from such overseas operations are exposed to
currency risk resulting in gains or losses on retranslation into sterling. Foreign exchange risk also arises when Group
companies enter into transactions denominated in a currency other than their functional currency.
Fair Value
The directors consider that the fair values of the financial instruments of the Group are not significantly different from
their book value.
46
Financial Statements • Parent Company Balance Sheet
Parent Company Balance Sheet
At 30 September 2016
Note
2016
£ ‘000
Assets
Non-current assets
Investments
Amounts owed by Group undertakings
Provision
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Net current assets / (liabilities)
Total liabilities
Net assets / (liabilities)
Equity
Share capital
Share premium
Retained earnings
Share-based payments reserve
Total equity
3
4
4
5
6
7
1,100
9,206
(9,206)
1,100
226
1,522
1,748
2,848
1,886
1,886
(138)
1,886
962
3,242
10,305
(12,716)
131
962
2015
£ ‘000
1,100
6,947
(6,947)
1,100
163
812
975
2,075
1,333
1,333
(358)
1,333
742
3,041
8,935
(11,349)
115
742
Under section 408 of the Companies Act 2006 the company has not included its own profit and loss account in
these financial statements. The parent company’s loss for the year was £1,367,000 (2015: loss of £1,467,000) after
accounting for an increase in the provision against the intercompany loan of £2,260,000 and an exchange rate gain on
intercompany loan of £1,317,000.
The accompanying notes form an integral part of these financial statements.
The financial statements were approved and authorised for issue by the Board on 16 January 2017.
Robert Goddard
Director
Financial Statements • Statement of Cash Flows
47
Statement of Cash Flows
For the year ended 30 September 2016
Cash flows from operating activities
Operating profit / (loss)
Share option charge
(Increase) / Decrease in receivables
Increase / (Decrease) in payables
Cash generated from operations
Finance income
Tax received / (paid)
Net cash generated from operating activities
Cash flows from investing activities
Net loan to subsidiaries
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Net cash used in financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2016
£ ‘000
(547)
16
(6)
41
(496)
2
64
(430)
(431)
(431)
1,571
1,571
710
812
1,522
2015
£ ‘000
(431)
8
26
(25)
(422)
9
53
(360)
(1,273)
(1,273)
-
-
(1,632)
2,444
812
48
Financial Statements • Statement of Changes in Equity
Statement of Changes in Equity
For the year ended 30 September 2016
At 1 October 2014
Issue of new shares
Share options
Loss for the year
Provision against intercompany loan
Exchange difference
At 30 September 2015
At 1 October 2015
Issue of new shares
Share options
Loss for the year
Provision against intercompany loan
Exchange difference
At 30 September 2016
Share
Capital
3,041
-
-
-
-
-
3,041
3,041
201
-
-
-
Share Share-based Retained
Earnings
Payments
Premium
Total
Equity
8,934
108
(9,882)
2,201
1
-
-
-
-
8,935
8,935
1,370
-
-
-
-
7
-
-
-
-
1
7
(332)
(332)
(1,518)
(1,518)
-
115
383
(11,349)
115
(11,349)
-
-
(424)
-
16
-
-
383
742
742
1,571
16
(424)
-
3,242
-
10,305
-
131
1,317
(12,716)
1,317
962
(2,260)
(2,260)
Financial Statements • Reconciliation of Equity
49
Hardide plc – Adoption of IFRS
Set out below is a reconciliation to show the effect on the reported figures of the Company moving from UK Generally
Accepted Accounting Practice (UK GAAP) to International Financial Reporting Standards (IFRS). The reconciliations of
equity as at 1 October 2014 (the date of transition to IFRS) and as at 30 September 2015 (the date of our last UK GAAP
financial statements), as required by IFRS 1 are shown below.
First time adoption of IFRS
The Company’s transition date to IFRS was 1 October 2014, which is the beginning of the comparative period for the
year ended 30 September 2015. The Group has applied IFRS 1 for the first time adoption of IFRS and has elected to
use the following exemptions:
• Business combinations – business combinations that took place prior to 1 October 2014 have not been restated;
• Share-based payment – the Group has applied the requirements of IFRS 2 Share-based payments to all grants of
equity instruments after 7 November 2002 that were unvested as of 1 October 2014.
There are no key impacts of implementing IFRS with respect to the Company’s accounts.
Reconciliation of Equity
At 1 October 2014 (date of transition to IFRS)
UK GAAP
£ '000
Effect of transition
to IFRS
£ ‘000
Assets
Non-current assets
Investments
Amounts owed by Group undertakings
Provision
Total non-current assets
Current assets
Other current financial assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Net current assets / (liabilities)
Total liabilities
Net assets
Equity
Current liabilities
Share capital
Share premium
Retained earnings
Share-based payments reserve
Total equity
1,100
5,433
(5,433)
1,100
134
2,444
2,578
3,678
1,477
1,477
1,101
1,477
2,201
3,041
8,934
(9,882)
108
2,201
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
IFRS
£ ‘000
1,100
5,433
(5,433)
1,100
134
2,444
2,578
3,678
1,477
1,477
1,101
1,477
2,201
3,041
8,934
(9,882)
108
2,201
50
Financial Statements • Reconciliation of Equity
Reconciliation of Equity
At 30 September 2015 (date of last UK GAAP financial statements)
UK GAAP
£ '000
Effect of transition
to IFRS
£ ‘000
Assets
Non-current assets
Investments
Amounts owed by Group undertakings
Provision
Total non-current assets
Current assets
Other current financial assets
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Total current liabilities
Net current assets / (liabilities)
Total liabilities
Net assets
Equity
Current liabilities
Share capital
Share premium
Retained earnings
Share-based payments reserve
Total equity
1,100
6,947
(6,947)
1,100
163
812
975
2,075
1,333
1,333
(358)
1,333
742
3,041
8,935
(11,349)
115
742
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
IFRS
£ ‘000
1,100
6,947
(6,947)
1,100
163
812
975
2,075
1,333
1,333
(358)
1,333
742
3,041
8,935
(11,349)
115
742
Financial Statements • Notes to the Parent Company Accounts
51
Notes to the Parent Company Accounts
1. Principal Accounting Policies
The financial statements of the Company are presented as required by the Companies Act 2006 and in accordance
with IFRS. The principal accounting policies adopted are the same as for those set out in the Group’s financial
statements.
2. Employees
The average number of employees, including executive directors but excluding non-executive directors, during the year
comprised:
2016
Number
2015
Number
Management and admin
Sales and marketing
Technical
3
1
3
Staff costs, including executive and non-executive directors, during the year amounted to:
Wages and salaries
Social security costs
Share option expense
2016
£ ‘000
570
58
16
644
Details of individual directors’ remuneration are included in note 6 to the Group financial statements.
3. Investments
Investments in subsidiaries at 1 October 2015 and 30 September 2016
2
1
3
2015
£ ‘000
526
73
8
607
£ ‘000
1,100
At 30 September 2016 the Company held 100% of the share capital of the following subsidiaries:
Class of share
Amount
Country
Nature of business
Hardide Coatings Limited
Hardide Coatings, Inc.
Hardide Aerospace Coatings Limited
Ordinary
Ordinary
Ordinary
100%
100%
100%
UK
USA
UK
Surface engineering
Surface engineering
Surface engineering
4. Amounts Owed by Group Undertakings
The amounts owed by Hardide Coatings Inc amounting to £9,206,000 (2015 £6,947,000) has been classified as a non-
current asset. A provision has been made for the full amount owed because of doubts about its recoverability. The
increase in debt during the year of £2,260,000 has been credited to the profit and loss account in the year.
52
Financial Statements • Notes to the Parent Company Accounts
5. Trade and other Receivables
Prepayments and accrued income
Taxation recoverable
6. Trade and other Payables
Trade creditors
Social security and other taxes
Amounts owed to Group undertakings
Accruals and deferred income
7. Share Capital
Authorised ordinary shares of 0.1p each
Authorised deferred shares of 0.9p each
Allotted ordinary shares of 0.1p each
Allotted deferred shares of 0.9p each
2016
£ ‘000
11
215
226
2016
£ ‘000
85
19
1,742
40
1,886
2015
£ ‘000
18
145
163
2015
£ ‘000
22
19
1,230
62
1,333
2016
2015
Number
000
Value
£ ‘000
Number
000
Value
£ ‘000
1,750,000
1,750
1,750,000
250,000
2,250
250,000
1,534,906
1,535
1,334,678
189,642
1,707
189,642
1,750
2,250
1,335
1,707
Details of the movement in share capital can be found in note 16 to the Group financial statements.
8. Capital Commitments
The company has no capital commitments at 30 September 2016 or 30 September 2015.
9. Contingent Liabilities
There were no contingent liabilities at 30 September 2016 or 30 September 2015.
10. Related Party Transactions
Amounts owed to Hardide Coatings Ltd are shown as a current liability. The movement in the year was a net increase
in the liability of £512,000. This debt is unsecured and is expected to be settled in cash or by the provision of services
from Hardide plc to Hardide Coatings Ltd.
11. Post Balance Sheet Events
There are no post balance sheet events to report.
Financial Statements • Notes to the Parent Company Accounts
53
12. Share-based Payment
Outstanding at 1 October 2015
Exercisable at 1 October 2015
Granted during year
Exercised during year
Forfeited during year
Outstanding at 30 September 2016
Exercisable at 30 September 2016
The current directors’ interests in share options are as follows:
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
Number
60,006,000
33,593,500
37,832,000
-
(500,000)
97,338,000
33,926,500
Number
16,181,000
40,000,000
18,351,000
12,351,000
Weighted average
exercise price
0.62p
0.58p
0.80p
-
0.85p
0.69p
0.58p
Weighted average
exercise price
0.61p
0.81p
0.69p
0.57p
During the year no director exercised any share options. As part of the Company’s share option scheme, the following
options were granted to directors during the year at an exercise price of 0.8p:
Robert Goddard (Chairman)
Philip Kirkham (Chief Executive)
Yuri Zhuk (Technical Director)
Peter Davenport (Finance Director)
6,000,000
20,000,000
6,500,000
3,500,000
The fair values of employee options granted are measured at date of grant by the use of a Black-Scholes pricing
model, the assumptions used in the model vary depending on the date of grant and vesting period. Inputs include
share price at date of grant, exercise price, historical volatility, the expected life of the option, and the risk-free interest
rate. Expected volatility is calculated from the recent historical volatility of the share price. No other features are
incorporated into the measurement of fair value.
Valuation of all options granted during this year used a volatility of 70%, a risk-free interest rate of either 1.27% or
1.41% depending upon date of grant, and an expected life of 3.5 or 4 years.
All options have a maximum term of 10 years from date of grant and are settled with equity upon exercise. No options
expired during the year. Vesting criteria are a mix of time-based and performance-based, the performance criterion is
the market capitalisation of the Company. At 30 September 2016 the weighted average remaining contractual life of all
outstanding options was 6 years and 6 months.
54
Company Information • Directors and Advisors
Directors and Advisors
Directors
A Boyce
P Davenport
R Goddard
P Kirkham
J Ward
Y Zhuk
Secretary
P Davenport
Bankers
Royal Bank of Scotland
32 St Giles
Oxford
OX1 3ND
Nominated
Advisors
and Brokers
finnCap
60 New Broad Street
London
EC2M 1JJ
Registrars
Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR
Registered Office
and Principal Place
of Business
11 Wedgwood Road
Bicester
Oxon
OX26 4UL
Patent Agent
Harrison Goddard Foote
Belgrave Hall
Belgrave Street
Leeds
LS2 8DD
Auditors
Critchleys LLP
Greyfriars Court
Paradise Square
Oxford
OX1 1BE
Hardide plc Annual Report 2016
Hardide plc is the leading global innovator and
provider of advanced tungsten carbide coatings that
significantly increase the working life of critical metal
components operating in abrasive, erosive, corrosive
and chemically aggressive environments.
HardideTM is a family of nanostructured and
patented, low temperature CVD (chemical vapour
deposition) coatings which provide exceptional
wear and corrosion resistance and uniquely
combine extreme toughness with ductility. Our
coatings are ‘value-adding’ to components
and lower operational costs by reducing
downtime, increasing productivity and improving
performance. They can be precision applied to
external and internal surfaces including complex
geometries, enabling a level of engineering design
flexibility not possible with alternative technologies.
Hardide surface engineering technology transforms
the way that parts perform under severe service
conditions. Previously, levels of friction, abrasion
and aggressive chemical attack have led to
part failure, downtime and extreme cost. Our
coatings are enabling customers in high wear/
high value industries including oil and gas drilling
and production, aerospace, flow control, power
generation and precision engineering to optimise
part life, improve product performance and make
significant operating cost savings. The Company
has production facilities in Oxfordshire, UK and
Virginia, USA.
55
Hardide plc is a public limited company domiciled in the UK and incorporated in England & Wales with Registered Number 5344714.
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www.hardide.com
H a r d i d e p l c A n n u a l R e p o r t
2016