Heidelberger Druckmaschinen Annual Report 2017

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FY2017 Annual Report · Heidelberger Druckmaschinen

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www.hardide.com

ANNUAL REPORT 2017

Hardide plc Annual Report 2017

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.

Hardide™ 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 Group has manufacturing facilities in

Oxfordshire, United Kingdom and Virginia, USA.

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Contents

Introduction

Strategic Report

Key Points

Chairman’s and CEO’s Report

Financial Review

Strategic Report

Corporate Governance

Board of Directors

Report of the Directors

Corporate Governance Statement

Financial Statements

Independent Auditor’s Report

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

Notes to the Group Financial Statements

Parent Company Statement of Financial Position

Statement of Cash Flows

Statement of Changes in Equity

Notes to the Parent Company Accounts

Company Information

Directors and Advisors

Strategic Report • Key Points

Key Points

Financial

Record sales of £3.24m (2016: £2.14m). 51% higher than FY2016, largely due

to recovery of demand from the oil and gas markets

Sales in H2 2017 14% ahead of H1 2017

Gross profit of £1.59m (2016: £0.69m)

Gross margin of 49.1% (2016: 31.9%)

Group operating loss of £1.24m (2016: loss of £1.47m)

Loss before interest, tax, depreciation and amortisation reduced to £0.74m

(2016: loss of £1.30m before exceptional items)

Cash at bank at 30 September 2017 of £1.21m

(2016: £1.97m)

Strategic Report • Key Points

Business & Operational

Gained full Airbus Approved Supplier status for UK site

Achieved Nadcap accreditation for UK site - the world's leading independent certification

program for special processes within the aerospace industry

Development and trialling of multiple components for aerospace customers well advanced

US coatings facility performing well; 47% of total Group sales to North American customers

Technical development work underway on potentially patentable applications

Board continues to maintain a positive view on the Group’s potential for growth

Strategic Report • Chairman's and CEO's Report

CHAIRMAN’S AND CEO’S REPORT

Introduction

The Group has made very good progress in the year in
all of its key sectors and the Group is reporting record
full year sales of £3.24m (2016: £2.14m). The global
downturn in oil and gas activity that began in 2014, and
adversely affected most companies operating in this
sector including Hardide, bottomed out in the first half of
the period and by year-end we saw a 92% improvement
in oil and gas sales over FY16. Revenue from our other
key sectors of flow control, aerospace and precision
engineering also increased.

Strategic plans to develop the aerospace sector were
advanced significantly as the UK site gained global
approved supplier status from Airbus and achieved the
prestigious Nadcap accreditation. The latter becoming a
pre-requisite for all suppliers to many aerospace primes
and their supply chains worldwide.

Post-period, in October 2017, an oversubscribed
fundraising of £2.54m (before expenses) was completed.
This comprised an Initial Fundraising of £1.72m at
1.7 pence per Hardide Share and a second deferred
fundraising that will raise a further £0.82m at 1.7 pence
per Hardide Share. This second tranche is subject to
advance assurance before the end of March 2018 from
HM Revenue & Customs of eligibility under the Enterprise
Investment Scheme (EIS) and/or Venture Capital Trust
(VCT) tax relief schemes. At the same time, Martinsville-
Henry County Economic Development Corporation
(MCEDC) approved a US$240,000 loan in support of
the expansion of the Group’s Martinsville facility. The
proceeds of this loan will be used to help fund new
reactors and other developments at the Martinsville site
and bring it up to aerospace standards. Proceeds will
also be used to upgrade existing UK and US production
equipment, increase marketing resources and strengthen
the Statement of Financial Position.

Financial Results

The Group generated record sales of £3.24m in the year
ended 30 September 2017 (2016: £2.14m). Primarily this
reflects a return in demand from key customers in the oil
and gas sector, but also increasing demand from other
sectors and new applications. A 130% increase in gross
profit compared with a 51% growth in sales demonstrates
the Group’s high operational gearing. The Group reported
an operating loss of £1.24m (2016: loss of £1.47m).
The result is a £0.56m improvement in earnings before
interest, tax, depreciation and amortisation, with a loss of
£0.74m (2016: £1.30m loss).

On the Statement of Financial Position, net assets at
30 September 2017 were £3.29m (2016: £4.38m). This
included a cash balance of £1.21m (2016: £1.97m).

Operational Overview

Customers and Markets

Strong progress was made towards our strategic goal
to diversify our customer and market base. During the
oil and gas industry downturn which began in 2014, we
continued with development projects that are now turning
into production sales. This includes a collaboration
with MasterFlo Valve, Inc. of Canada, to develop a new
solution to protect high pressure, high temperature
(HPHT) subsea choke valves. Its success has been
demonstrated by qualification to all API requirements
and deployment in deepwater wells for a major oil and
gas operator. Development work with a global oil and
gas operator led to a framework supply agreement being
finalised post-period. This is Hardide’s first direct oil
and gas operating company customer. The operator is
the ultimate beneficiary of the improved performance
afforded to drilling and production tools by Hardide’s
technology. Sales to date have been to the oil service
companies supplying the operating companies and
we believe that working directly with the end-user will
result in new and different applications. A second supply
agreement was signed post-period with an international
developer and provider of completion technology
solutions.

The Airbus global approved supplier status and Nadcap
accreditation achieved during the year at Bicester have
strengthened the platform for securing future aerospace
business. Life-testing continues on wing components
for the Airbus A320, A330 and A380 and on landing gear
parts. Development and trialling of further components
for both fixed- and rotary- wing aircraft is well underway.
We believe the medium and long-term potential value to
the Group is worth the effort involved in the longer sale
cycles in this sector and we are confident that future
volume sales will result.

The Hardide coating continues to be integral to the
performance of the new high-resolution airport X-ray
baggage scanning machine that commenced volume
production during 2016. A new application for Royal Mail
moved into production during the year and Hardide-
coated deflector plates were fitted into all letter sorting
machines in the UK before Christmas 2017. We are
currently working with Royal Mail on the development and
testing of two more high-wear parts for sorting machine
applications. The Group is exploring new precision
engineering applications for the coating in the powder
metallurgy, metal injection moulding, plastic extrusion
and 3D printing sectors.

Hardide’s technical director has delivered several
presentations at high-profile technical conferences
throughout Europe and papers have been published
in several international publications. These continue to
raise awareness across existing and new industries and
regions.

Strategic Report • Chairman's and CEO's Report

Hardide-T was everything I wanted

in a hard coating. It offers a

far superior level of initial wear

resistance, a continued level of

protection over time and a many-fold

extension of component life.

Mark Jordan
National Asset Lifecycle Manager
Royal Mail

Strategic Report • Chairman's and CEO's Report

Production, Technology, Research & Development

and Industry Accreditations

Sales to customers in North America accounted for 47%
of revenue in FY17 and are expected to rise significantly
over the medium and long term. In anticipation of
increased demand, it is planned that some of the
proceeds from the fundraising will be used to acquire
two new coating reactors. An order was placed for the
first reactor in November 2017 and that is intended to
be operational by Autumn 2018. So as to accommodate
bigger components and greater batch sizes, the second
reactor is planned to be larger than existing ones. It
is expected that this will be ordered late FY18 and be
fully operational in FY20. Investment will also be made
to enhance the capability of pre-treatment and other
process areas in the UK and US and bringing more
reactors up to aerospace standards.

The investment in new reactors will also provide the
capacity to support technical development projects.
These are fundamental to the Group’s strategy to
diversify and win new business. By dedicating resource
to technical development projects during the recent oil
and gas downturn, the Group was well-advanced with
many new applications when the market recovered.
At any one time, the Group has a number of strategic
development projects underway, as well as several
in-house and third-party test programmes aimed at
generating new applications.

The Group was very pleased to secure Airbus Approved
Supplier status and the challenging Nadcap global
aerospace standard for the Bicester site during the year,
as well as transition to the new ISO9001:2015 quality
management system. Post-period, Hardide Coatings
Ltd completed its transition audit to the new-standard of
aerospace AS9100 Revision D. In September 2017, we
recruited an aerospace-experienced Quality Assurance
Manager with responsibility for both the UK and US sites.
Aerospace accreditation of the US facility to AS9100 is
planned during the first half of calendar year 2018.

The REACh sunset date banning the use of hexavalent
chromium salts in the European Union (EU) passed in
September 2017. Before that date, a group representing
industries traditionally using hard chrome submitted
an application for a seven-year extension that would
enable use-specific exemptions to be granted. Their
argument being that this would allow time to industrialise
alternatives to chromium coatings. This application is
awaiting a decision by the European parliament, and
is expected to be taken in mid-2018. We have been in
dialogue with our aerospace customers who inform
us that the possible extension will not alter their plans
to develop chromium-free aircraft designs. The life of

aircraft and parts currently in design is far longer than
any deferral period and the additional compliance costs
will make hard chromium plating less available and more
expensive. We are confident that the possible approval
of the extension will have no material impact on our
progress in the aerospace market.

Another European regulation is also expected to
benefit Hardide in the longer term: In January 2017,
the European Chemicals Agency (ECHA) proposed
to re-classify cobalt metal as a carcinogen, mutagen
and reproductive toxicant. It is expected that allowable
occupational exposure limits for cobalt in inhalable form
will be reduced significantly. When these restrictions
are approved, as they are widely expected to be, the
compliant use of HVOF coatings will be substantially
more difficult. High velocity oxy-fuel is a thermal spray
tungsten carbide coating alternative to hard chrome
plating which is produced using cobalt metal powder. The
re-classification will affect the production and handling
of the metal powders used in this technique, the coating
application process and the post-coat grinding. Each
of these processes produces substantial amounts of
cobalt dust. This re-classification is likely to be replicated
worldwide as part of the United Nation’s Globally
Harmonised System (GHS) – the single worldwide
system for classifying and communicating the hazardous
properties of industrial and consumer chemicals. The
Hardide coating process poses none of these risks and
offers a technically, commercially and environmentally
superior alternative.

Intellectual Property

The IP committee met quarterly to review the IP portfolio.
During the year, a European patent was granted for
the coating of industrial diamonds, in addition to the
equivalent patent in China. Research continues into the
development of new coating variants and applications
with the objective of strengthening and widening the
Group’s IP portfolio.

Brexit Effect

There has been no change to the status reported in 2016.
That is, 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. None of the existing development
programmes with customers are expected to be
adversely affected.

Strategic Report • Chairman's and CEO's Report

Group Sales (GB£ Millions)

H2 2017

1.73

H1 2017

1.51

H2 2016

1.19

0.95

H1 2016

Strategy

Outlook

Hardide’s technical and commercial activity over the year,
and the post-period fundraising, have established a solid
platform for growth and the Group is well positioned to
deliver further improvement in performance. Investment
will be made in line with expected demand and costs will
continue to be closely monitored.

We remain confident in the outlook and expect
further progress in 2018. Against the backdrop of new
applications in oil and gas and precision engineering, and
the conversion of aerospace test programmes into sales,
supported by a strong Statement of Financial Position,
we continue to see strong growth prospects for the
Group.

Finally, we take this opportunity to thank our employees
and shareholders for their continued support.

Robert Goddard

Philip Kirkham

Chairman
15 January 2018

CEO
15 January 2018

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 would enhance
the product ranges of many other surface technology
companies. 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.

As demonstrated by the successful fundraising in
October 2017, the Board continues to maintain its positive
view of Hardide’s potential for growth. Accordingly,
the Group will invest further in expanding production
capacity, marketing, business development and R&D.
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,
particularly in North America. The Group’s efforts to
further diversify will continue and the new and soon-to-
be-expanded production base in the US will be deployed
to develop North American business across multiple
sectors. At the same time, we aim to expand further our
presence in selected UK & European markets.

The civil aerospace market continues to represent
significant growth potential for us, and in addition to the
recently-gained industry approvals for the UK site, the
Group plans to gain AS9100 aerospace approval for the
US facility during 2018.

We see substantial new application opportunities in
the oil and gas sector and are working to convert these
into future revenue. The precision engineering market
continues to develop with multiple new applications
foreseen.

At all times, the Group aims to achieve success and
customer satisfaction in a safe, environmentally-
conscious and socially-responsible manner taking
account the needs of all stakeholders. The Group
manages hazards to employees by the deployment
of robust safety control systems and procedures
and rigorous adherence to relevant health and safety
legislation. In addition, Hardide encourages the reporting
of accidents, near-misses and unsafe conditions, all of
which are regularly reviewed by the executive’s Health &
Safety Committee and Board where appropriate. At every
stage of the process our operational aim is to minimise
the overall impact on the environment. Hardide takes
a proactive approach to environmental issues and has
targets to reduce waste and its carbon footprint and
these are regularly reviewed as part of our ISO14001
environmental management system.

Strategic Report • Chairman's and CEO's Report12

Strategic Report • Financial Review

FINANCIAL REVIEW

Key Financial Performance Indicators

Full year sales amounted to £3.24m as momentum
continued to build in the second half with increased
activity from existing customers as well as contributions
from new customer gains. Revenue in the second half
of the year (H2) at £1.73m was up 14% on the first half’s
£1.51m, and the year as a whole was 51% higher than
the previous year. Performance was driven in particular
by a rebound of sales to the oil and gas sector, although
revenue from all our markets showed year on year
increases.

The cost of sales increased by just 13% compared
with 2016, reflecting the fairly fixed nature of our labour
force as well as the economies of scale of increased
throughput. As a result, gross profit margins reached
49% for the full year (2016: 32%) with a 52% gross margin
in H2.

Administrative expenses increased by 17% to £2.33m
compared with £1.99m in 2016. A significant amount of
this increase is due to the reduction in grants received
towards the costs of our US operation in Martinsville,
which fell by £0.11m compared with the previous
year. Earnings before interest, tax, depreciation and
amortisation showed a loss of £0.74m, an improvement
of £0.56m over the underlying EBITDA loss of £1.30m in
2016. Our new facility in Martinsville, USA made a small
EBITDA loss of £0.03m in its first full year of operation.

The Group’s depreciation charge increased from £0.42m
to £0.50m reflecting a full year’s charge on the equipment
in Martinsville. As we continue to invest in research
and development programmes on new coatings and
applications, our tax charge remains negative.

On the Statement of Financial Position, the net book
value of Property, Plant and Equipment declined due
to the large depreciation charge exceeding additions,
which amounted to £0.15m as we undertook some
minor improvements to processing capability in the UK.
Inventories rose by £0.1m due to increases in raw material
stocks and manufactured components for processing
in the new financial year. There were higher than usual
amounts of parts processed but not despatched at
year end. Trade receivables were 16% higher than the
previous year, but no bad debts were incurred during the
year and none has been provided for.

Peter Davenport

Finance Director

Strategic Report • Financial Review

Gross Profit %

H2 2017

52%

45%

36%

H1 2017

H2 2016

H1 2016

27%

Strategic Report • Strategic Report

STRATEGIC REPORT

Preamble

This strategic report has been prepared after the
successful raising of funds for the further development
of Hardide; particularly in the USA. This was by way
of subscription to and placing of new equity, together
with a 'soft' loan from the municipality in which our US
facility is based.

The fundraising followed several notable successes
in the year to 30 September 2017 and the months
following. These included final approval by Airbus of our
production and laboratory processes, the successful
accreditation to the demanding Nadcap1 aerospace
standard and the signing of framework agreements with
a major international oil and gas operating company
and a global provider of completion technology
solutions.

A review of the business of the Group is included in the
Strategic Report, Financial Review and Chairman’s and
CEO’s Report. These reports describe the principal
activities, key risks and performance indicators together
with the financial position, future developments and
corporate governance of the Group.

Overview

The Board maintains the view that the value of the
Group will be maximised by increasing the number
of and sales revenue from high-value applications;
together with a strong pipeline of future profitable
opportunities. It is intended to achieve this by additional
marketing effort and continuing technical work on
some long-duration but high-potential development
programmes. These include the recently-patented
variant of the coating for industrial diamonds in high-
performance cutting and abrasive tools and multiple
aerospace components. We will continue to work
to develop useful variants of the coating and new
applications that are sufficiently distinct to enable them
to be patented.

The Board believes that the Hardide range would be a
very attractive addition for some of the major coatings
companies. This is because it would fill a gap in their
product range. A larger organisation would also have
the resources and distribution to take Hardide into
many new geographies. The value and viability of that
has been successfully demonstrated by the creation of
our new facility in the US and the additional sales and
customer interest that has arisen as a result.

Substantial opportunities for new applications and new
customers or sectors usually takes years to develop.
However, once qualified, the volumes and margins
for the coating from these can be very attractive. It
is important therefore that the Group has a strong

Statement of Financial Position and a healthy cash
position to enable it to continue making revenue
investment for the medium to long term and to give
security to our customers.

Historically, the Group has been very exposed to a
small number of customers and markets, and fall
back in demand from these has often presented
considerable difficulties. This year, more progress
has been made in widening our sector, customer and
product base. Even so, yet further diversification is still
desirable and is being actively pursued. The expected
sales to the aerospace industry will help considerably
to balance and smooth demand; as will further growth
of sales to the precision engineering sector.

Production

The successful establishment in early 2016 of a
new coatings facility in the US is already serving its
intended purpose of enabling the Group to address a
substantial part of the large North American market
that would otherwise not be accessible to us, as well
as providing a geographically-separate production
facility to provide the security of supply for customers
who have effectively 'designed-in' Hardide for critical
components.

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
even beyond the two additional reactors that can now
be ordered following the fundraising in October 2017.
There are no plans at present to create further new
coating facilities in other geographies.

Sales & Marketing

Customer contact

Although Hardide's coating has wide applicability
in many industry sectors, it is a special, problem-
solving product. As such, and being novel, it is not
nearly as well-known as more established coatings.
Indeed, potential specifiers and users encountered
at conferences and trade fairs often report that they
had until then been unaware of Hardide. Raising
awareness among potential users is of continuing
importance. In recognition of this, the Group will
continue vigorously with its programme of high-level
technical presentations, international email campaigns,
and attendance at trade fairs and conferences. In
addition, a range of channels such as trade press and
social media will continue to be used to the full extent
that resources permit.

1 Nadcap is a global aerospace standard and is the top approval in the aerospace and defence (A&D) market. It is run by an independent agency (PRI) for a

collective of A&D primes (Airbus, Boeing, Lockheed Martin, Raytheon etc.). PRI is the Performance Review Institute and it manages the approval and audit
system for Nadcap so as to ensure common agreed standards and high-quality processes among approved suppliers.

Strategic Report • Strategic Report

Of course, our business development managers do contact
potential users who have not signalled an immediate
interest but unless there is a near-term need for Hardide’s
product they may not seek to learn about its properties.
However, these customers often contact us at a later date
when a need arises. Instead, business development staff
are mostly concerned with following up interest expressed
by potential users who have an identified immediate need.

Diversification

The customer and sector diversification element of the
Group’s strategy remains in place and evidence of success
in this regard is the substantial and potential growth in
sales to a UK manufacturer of a new high-speed baggage
scanner. With tough new standards for airport security,
there is high potential for worldwide sales of this product.

Geographies

Geographically, we will continue with our push into the
major European 'high-end' manufacturing markets;
particularly Germany, Switzerland and Italy. In North
America, our new US production facility has meant that
customers there who are more comfortable with domestic
suppliers are proving to be much more receptive.

Product ranges, customers and market
characteristics

The Group classifies its applications for use into five
sectors. These are: Oil & Gas (both exploration and
production), Aerospace, Flow Control, Power Generation
and Precision Engineering. Since Hardide is a unique
product, estimates of market size are hard to make. Despite
that, and beginning with the aerospace industry, we have
commissioned external market research that has helped
us understand the product opportunities and addressable
market size, and thereby improve targeting.

Oil & Gas

Historically, this has been the dominant sector for Hardide
and may remain so. However, overall demand can be
highly cyclical and our customers within it have been
very concentrated. Determined development work by the
Group in this sector has resulted recently in very promising
prospects for gaining new and significant customers.
Moreover, the conditions in which new oil and gas reserves
are found are becoming 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 & gas industry are famously secretive
and our agreements with them prevent the Group from
publicising their name or 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 the
technical and production approvals by Airbus for Hardide
has enabled us to promote the coating to a wide range
of other aerospace manufacturers. Though not as large a
market in total as oil & gas, our penetration of it is expected
to grow significantly.

The aerospace industry is notoriously reluctant to accept
new products, but once that is done, sales can be 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 the oil and gas, and petrochemical markets.
Nonetheless the sector is important to the Group and we
will continue to develop it.

Power generation

We are partnering on long-term projects with
manufacturers of power generation turbines to improve the
operating performance and efficiency of their equipment.
If successful, this would result in substantial sales over a
sustained period.

Precision engineering

Here, the potential market size is considerable but
specialised and highly fragmented. We intend to build on
the recent aerospace approvals and successful sales to the
precision engineering sector.

Principal Risks and Uncertainties

Despite the greater diversification being achieved, the
proportion of the Group’s sales to a few major customers
remains high. However, good progress is still being made
in developing significant new accounts and substantial
further new applications for Hardide are in trials. As a
proportion of total sales, those to the oil & gas industry
will continue to be significant, especially in the short- to
medium-term as sales are developed with the major oil
and gas customers with whom we signed framework
agreements just after the FY17 year end.

The Group’s exposure to the oil & gas industry means
that we suffer from volatile demand from that 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 Group’s growth. While this is
now much less acute, it may still affect the rate of growth
of the Group and so may be viewed as a risk. The Group
has little or no influence over the duration of testing, which

Cash

The recent successful fund raising will strengthen
our financial position. The Group is planning capital
expenditure to increase and upgrade the Group’s
processing capacity as well as making further revenue
investment in technical and market development. The
strengthened financial position will provide greater
security in the event of another downturn in demand.
Since Hardide is a unique product, it is important to our
major customers that we demonstrate a strong financial
position that will support the Group in the event of
possible adverse trading or disruption to production.

Strategic Report • Strategic Report

nearly always takes longer than originally indicated 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 and technical
resources are 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 justify embarking
on the programme in the first place.

Loss of key technical personnel is a risk for the Group.
We have strengthened the technical team over the past
two years and now have a strong group of well-qualified
people in engineering, metallurgy and chemistry. We
will continue our strategy of developing individuals and
recruit more technical expertise as appropriate.

The Board has speculated about various degrees of
‘Brexit’ and the effect they might have on the Group.
These include the effect on currency exchange rates.
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.

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 operated and robust health
and safety systems are in place. The Group’s business
continuity plan includes duality of production capability
across the UK and US plants, as well as an IT disaster-
recovery plan. Similarly, if disruption to the US site were
to occur, all products there are capable of being coated
in the UK. In 2018, the increase in capacity at the US
facility will provide further security against an inability to
supply due to production difficulties in the UK.

At all times, the Group aims to achieve success and
customer satisfaction in a safe, environmentally-
conscious and socially-responsible manner taking into
account the needs of all stakeholders.

Strategic Report • Strategic Report

Corporate Governance • Board of Directors

BOARD OF DIRECTORS

Robert John Goddard
Chairman

Robert Goddard 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, notably Universe Group plc of which he was
Chairman until October 2017. He is an active investor in,
and supporter of, several early-stage med-tech companies.
Robert chairs the Risk Committee and the Audit Committee
and is a member of the IP Committee.

Philip David Kirkham
Chief Executive Officer

Philip Kirkham 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 Neil Davenport
Finance Director

Peter Davenport 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

Dr Yuri Nikolaevich Zhuk
Technical Director

Dr Yuri Zhuk is a co-founder of Hardide plc and is currently
responsible for the Group’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 Richard Boyce
Non-Executive Director

Andrew Boyce 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.

Janice Elizabeth Ward

Non-Executive Director

Jan Ward CBE 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.

Corporate Governance • Report of the Directors

REPORT OF THE DIRECTORS

Results

The Group loss for the period, after taxation, amounted to £1,096,000 (2016: £1,341,000 loss). The directors have
declared that no dividends will be paid in respect of the 2017 financial year (2016: Nil).

Directors

The present membership of the Board is set out on pages 18 & 19, and changes to the Board and the beneficial
interests of the directors and their families in the shares of Hardide plc are shown below.

Robert Goddard

Andrew Boyce

Jan Ward

Philip Kirkham

Yuri Zhuk

Peter Davenport

Appointed

Resigned

28 January 2008

18 June 2012

02 March 2015

1 September 2012

14 March 2005

21 March 2006

30 September 2017
Number of shares

30 September 2016
Number of shares

6,723,050

1,250,000

2,004,717

6,281,132

4,376,667

1,250,000

2,004,717

6,281,132

4,376,667

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 Group’s business.

The Group’s key management personnel comprise the executive directors.

Directors’ Interests in Share Options

The Group has share option schemes under the terms of which certain directors are able to subscribe for ordinary
shares in Hardide plc. 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)
as adopted by the European Union. 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 as adopted by the European Union 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 Group’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

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 Group’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 receivables and payables 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 Group 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 Group, 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 Group will be able to continue in
operation and meet its liabilities in full as they fall due.

Substantial Shareholders

At 30 September 2017 the following shareholders had a disclosable interest in 3% or more of the nominal value of
Hardide plc’s shares:

R Boyce & Associates

A Badenoch & Associates

Hargreave Hale Investment Managers

Amati Global Investors Ltd

Mr Timothy Simpkin

Unicorn Asset Management Ltd

WSC Richards, OBE

Peter Lobbenberg, esq

Post Balance Sheet Events

Shareholding

266,546,226

246,953,334

144,805,000

144,277,219

66,882,996

62,500,100

56,913,000

47,500,000

17.4

16.1

9.4

4.4

4.1

3.7

3.1

On 27 October 2017 Hardide PLC announced that it had raised £1.716m before expenses by a placing of 100,941,175
ordinary shares. A further £0.821m before expenses will be raised by a placing of 48,294,117 subject to receipt of
advance assurance from HMRC that the shares will qualify as “eligible shares” for the purposes of the Enterprise
Investment Scheme.

On 9 November 2017 Hardide Coatings Inc placed an order for a third chemical vapour deposition reactor for its
Martinsville facility, valued at €576,120. The reactor is expected to be delivered and commissioned in summer 2018.

Hardide Coatings Inc has applied for a 5 year term loan offered by Martinsville - Henry County Economic Development
Corporation. The amount of the loan is $240,000 and can be drawn down in instalments of 30% upon ordering the
reactor, 60% when it is shipped from the manufacturer, and 10% after delivery to Martinsville. The interest rate on the
loan is fixed at 2% for the term, repayments are due quarterly and will start once the loan has been fully disbursed.
The loan is secured against the reactor and Hardide PLC has acted as guarantor.

Robert Goddard

Director

Corporate Governance • Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT

The UK 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 currently-small size of the Group and its present stage
of development mean that it would not be sensible or possible to adhere to all 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 Group 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 of Quoted Companies 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 Group 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:

Director

R J Goddard
P D Kirkham
P N Davenport
Y N Zhuk
A R Boyce
J E Ward

Full Board

Audit Committee Remuneration
& Nomination
Committee

Risk Committee

Intellectual
Property
Committee

Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended

In addition, in some instances directors who were not members of a committee at the date of its meeting attended by invitation some parts of
the meetings of the Audit, and Remuneration & 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
two written directors' resolutions in the year.

There is a formal schedule of matters reserved for the
Board. This includes any raising of funds, the setting of
high level targets, approval of budgets, strategy, capital
& revenue expenditure above certain limits, 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 consideration or
development of certain key aspects of strategy.

Business Reviews

At its regular monthly meetings, the Board reviews
both the financial position of the Group and information
about non-financial performance. It does this at each
Board meeting. Financial information includes monthly
Statements of Financial Position, cash flow and detailed
profit & loss accounts for the Group, the Company and
its subsidiaries; together with analyses of movements
in cash, trade receivables & payables, and Property,
Plant and Equipment. Close attention is also paid to the
development of sales by sector and by customer; as
well as progress with initiatives to develop major new
sectors and customers.

Non-financial information is reviewed at least monthly
by the Board. It includes reports from each executive
director; plant performance; delivery performance;
research & development; sales activity; and health,
safety & environmental performance. Progress on
strategic projects is also reviewed monthly.

Corporate Governance • Corporate Governance Statement

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 his 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 the opportunity to address
concerns on a one-to-one basis.

Composition and Effectiveness
of the Board

Except for Mr Andrew Boyce, each of the directors
directly 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 has been granted options on ordinary shares of
Hardide plc; all as declared elsewhere in this report.

Since he represents a substantial shareholding in Hardide
plc, Mr 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 reviewed Mr Goddard’s activities outside
of Hardide and is satisfied that none of these conflicts
with his role as Chairman of Hardide. The same applies
to the other non-executive directors.

The terms and conditions for non-executive directors are
agreed by the Board. They are available for inspection at
the Hardide plc’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 judgment 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 and
their roles are 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 quarterly. 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 Group's 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 Group 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.

4. Ensure that contractual terms on termination, and any
payments made, are fair to the individual and to the
Company, that failure is not rewarded and that the
duty to mitigate loss is fully recognised.

Corporate Governance • Corporate Governance Statement

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.

Intellectual Property (IP) 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.

Audit Committee

Risk Management 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 Group’s internal

controls and risk management systems.

3. Review the Group’s arrangements for its employees
to raise concerns about possible wrongdoing and
ensure these arrangements allow proportionate and
independent investigation.

4. Review and keep up to date the Group’s procedures

for detecting and preventing bribery and fraud.

5. 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.

6. 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 also provides non- audit
services, but there are no other relationships that
may compromise the auditor’s objectivity and
independence.

Auditor

The auditors, James Cowper Kreston, replaced
Critchleys LLP as auditors for the year ended
30 September 2017 and will be proposed for
reappointment in accordance with section 485 of
the Companies Act 2006. 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.

During the year there were no significant issues that the
Committee needed to consider.

The Board acknowledges that it is responsible for the
Group’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 to which the Group may be
exposed and recommends how these may be avoided,
mitigated, 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.

The members of this Committee, which meets quarterly
are Robert Goddard (Chair), Philip Kirkham, and
Peter Davenport. Reports of the Committee and its
assessment of risks are made to the Board and the
Audit Committee. Descriptions of the principal risks that
the Group has identified are included in the Strategic
Report.

The Group is currently too small to operate an internal
audit function, so the Audit Committee is responsible
for examining the Group’s internal financial policies
and procedures and recommending amendments or
improvements.

Remuneration Policy

Remuneration

The Company is aware of the rules for reporting on
remuneration policy. Although these are not mandatory
for AIM-listed companies, during the coming year, and
in accordance with its normal practice the Board will
consider what policies and actions it may implement
so as to comply with the spirit of the rules, so long as
it is practicable to do so. Policy for the remuneration of
the Executive Directors includes three main objectives.
These are to:

• provide remuneration packages to attract, retain and
motivate Executive Directors and senior management
of the calibre needed to run the Group successfully;

• ensure that there is a strong link between such
remuneration and the Group's strategy; and

• align the Executive Directors' interests with those of

shareholders.

Corporate Governance • Corporate Governance Statement

Remuneration components

Compensation for loss of office

The remuneration of the Executive Directors has three
components. They are:

• a base salary, including any benefits and pension;

• an annual performance-related discretionary bonus

(non-pensionable); and

• a long-term incentive plan comprising share options.

There are no predetermined special provisions for
compensation for Executive or Non-Executive Directors
in the event of loss of office. The Remuneration
Committee considers the circumstances of
individual cases of early termination and determines
compensation payments accordingly. An important
consideration here is not to reward poor performance.

Share Option scheme

Bribery Act, 2010 (the ‘Act’)

The share option plan was reviewed by the
Remuneration Committee during the year and agreed
by the Board under the following terms:

• the granting of Share Options should be reviewed

at least annually by the Committee having taken the
advice of both the Company’s Chairman and its CEO;

• share options are recognised as effective means of

incentivising and encouraging the retention of senior
executives and employees;

• grants may be considered for exceptional

performance that has been shown to have, or is likely
to have, a positive impact upon Hardide plc’s share
value;

• grants 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 vary. Usually they incorporate
the period since grant and the achievement of
particular level of Hardide plc’s share price; and
finally

• any grant is always at the discretion of the Main

Board.

Bonus

Due to the unpredictable market conditions at the start
of the financial year there was no formal bonus scheme
in operation for executive directors and members
of staff for 2016/17. However, a small discretionary
bonus was paid to all members of staff except for the
executive management team and Directors.

Service Contracts

P D Kirkham, P N Davenport and Y N Zhuk have service
contracts that are terminable at up to 12 months'
notice by either party. The committee considers these
contracts are in line with market practice.

Non-executive Directors

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 at one
month’s notice by either party.

Robert Goddard is the only non-executive director to
have been granted share options.

Before the Act came into force, the Group had in place
a full “Anti-bribery Policy” and this was 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 from 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. The main provisions of the Act
and Group policies and procedures appear in the staff
handbook. Annually, all staff are required to confirm
that they have read, understood and complied with
these.

The Market Abuse Regulation (‘MAR’)

To ensure compliance with MAR, considerable work
was undertaken to produce policies and procedures.
Management of these is now greatly facilitated by
software that, among other things maintains insider
lists and provides notifications to the FCA. All relevant
members of staff have received copies of the policies
and procedures.

The General Data Protection Regulation
(‘GDPR’)

This regulation is not due to come into effect until
May 2018. However, recognising the far-reaching
application of the Regulation and the considerable fines
payable in the event of its breach, the Group began
developing a GDPR action plan in July 2017. With
assistance from an external consultancy the Group has
identified data that will be covered and is implementing
policies and procedures aimed at ensuring compliance.

Business Model and Strategy

A high-level description of the Group's business model,
strategy and risks appears in the Strategic Report. A
summary of this is also included in the Chairman’s and
CEO’s Report.

On behalf of the Board,

Robert Goddard

Director
15 January 2018

Financial Statements • Independent Auditor's Report

INDEPENDENT AUDITOR’S REPORT

To the Members of Hardide plc

Opinion

We have audited the financial statements of Hardide Plc (the ‘Company’) for the year ended 30 September 2017 which
comprise the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Financial
Position, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of
Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.

In our opinion:

• the financial statements give a true and fair view of the state of the Group and of the parent company’s affairs as at 30
September 2017 and of the Group’s loss and the Group’s and parent company’s cash flows for the year then ended;

• the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and,
as regard the parent company’s financial statements, as applied in accordance with the provisions of the Companies
Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with
International Standards of Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those
standards are further discussed in the Auditor’s
responsibilities for the audit of the financial statements
section of our report. We are independent of the
Group and Company in accordance with the ethical
requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s
Ethical Standards as applied to listed entities, and we
have fulfilled our ethical responsibilities in accordance
with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.

In particular, we looked at where the directors made
subjective judgments, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that
are inherently uncertain. As in all our audits we also
addressed the risk of management override of internal
controls, including evaluating whether there is evidence
of bias by the directors that represented a risk of
material misstatement due to fraud.

We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion
on the financial statements as a whole, taking into
account our understanding of the Group and parent
company and their environment, the accounting
processes and controls, and the industry in which the
Group and Company operate.

Conclusions relating to going concern

The audit scope was as follows:

We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us to
report to you where:

• the directors’ use of the going concern basis

of accounting in the preparation of the financial
statements is not appropriate; or

• the directors have not disclosed in the financial

statements any identified material uncertainties that
may cast significant doubt about the Group and
parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at
least twelve months from the date when the financial
statements are authorised for issue.

An overview of the scope of our audit

We conducted our audit in accordance with
International Standards on Auditing (UK and Ireland)
(‘ISAs (UK and Ireland)’). We designed our audit by
determining materiality and assessing the risks of
material misstatement in the financial statements.

Hardide plc - the parent company holding investments
throughout the Group - full scope audit.

Hardide Coatings Limited - a trading entity that
generates a significant amount of the trading results for
the Group - full scope audit.

Hardide Coatings Inc - a trading entity that generates a
significant amount of the trading results for the Group -
agreed-upon procedures for the purpose of inclusion in
the consolidated financial statements.

The risks of material misstatement that had the greatest
effect on our audit, including the allocation of our
resources and effort, are identified as ‘areas of focus’ in
the Key audit matters section below. We have also set
out how we tailored our audit to address these specific
areas in order to provide an opinion on the financial
statements as a whole, and any comments we make
on the results of our procedures should be read in this
context. This is not a complete list of all risks identified
by our audit.

Financial Statements • Independent Auditor's Report

Key audit matters

Grant income recognition

Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the financial statements of the current period
and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we
identified, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources
in the audit; and directing efforts of the engagement
team. These matters were addressed in the context
of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide
a separate opinion on these matters. We determined
that there were no key matters applicable to the parent
company to communicate in our report.

Revenue recognition

Risk description

There is an inherent risk of error and fraud regarding
revenue.

How the scope of our audit responded to the risk

To assess the appropriateness and completeness
of revenue recognised in the year we performed the
following procedures:

• discussed the revenue recognition policy with
management and performed a walkthrough to
understand the revenue recognition process;

Risk description

The Group has a number of grant agreements in place.
There is a risk that the grant income is not recognised
correctly or in the wrong period.

How the scope of our audit responded to the risk

To assess the appropriateness and completeness of
grant income recognised in the year we performed the
following procedures:

• gained an understanding through walkthroughs

performed and discussions with management of the
process in place for recognising grant income;

• examined the grants by reference to underlying terms

within the grant agreements;

• reviewed the Group’s expenditure in relation to the
grants to ensure that the grant proceeds were used
for the purposes of the grants;

• reviewed the Group’s performance against the

performance conditions;

• considered the appropriateness and application

of the Group’s accounting policy for grant income
recognition; and

• considered the disclosures in the financial

statements regarding the recognition of grant
income.

• examined a sample of revenue transactions by

Key observations

reference to underlying contractual terms;

• examined on a sample basis sales orders, goods
delivery notes, invoices and postings for items
despatched during the year and around the period
end;

• reviewed manual journals posted to the revenue

account in the period and subsequent to year-end
gaining an understanding of the appropriateness of
these;

• considered the appropriateness and application
of the Group’s accounting policy for revenue
recognition; and

• considered the disclosures in the financial

statements regarding revenue.

Key observations

The results of our testing were satisfactory and we
consider the disclosures surrounding revenue to be
appropriate.

The results of our testing were satisfactory and we
consider the disclosure surrounding the recognition of
grant income to be appropriate.

Share-based payments

Risk description

The Group and Company provides share based
incentive plans for directors and employees. During the
year the Group and Company issued further tranches
of share options, these options vest over a three year
period provided all performance criteria are met. As
detailed in note 17 the total charge to the Statement of
Comprehensive Income for the year was £51,000 (2016:
£28,000).

The selection and application of accounting policies
in accordance with IFRS 2 ‘Share-based payments’ is
complex due to the bespoke nature of arrangements
in place. Further they require significant judgment
regarding the assumptions which are applied in
calculating the fair value of the options.

Financial Statements • Independent Auditor's Report

How the scope of our audit responded to the risk

• examined on a sample basis manual journals

To assess the appropriateness of the application
of accounting standards and the assumptions and
judgments made by management we performed the
following procedures:

• gained an understanding through walkthroughs
performed and discussions with management of
the process in place for issuing share options and
recognising share-based payments;

• examined the documents setting out the scheme
rules and terms of the schemes to determine the
appropriateness of accounting policies made by
management;

• assessed the inputs included in the fair value

calculations, considering the reasonableness of
assumptions made and the methodology followed;

• performed recalculations and sample-testing on the
source documentation to check the accuracy of the
calculations provided; and

• considered the disclosures in the financial statements

regarding the schemes.

Key observations

The results of our testing were satisfactory and we
consider the disclosures surrounding share-based
payments to be appropriate.

Management override

Risk description

In preparing the financial statements management
are required to make judgments, estimates and
assumptions that affect the application of policies and
reported amount of assets and liabilities, income and
expenses. The estimates and associated assumptions
are based on historical experience and various other
factors that are believed to be reasonable under the
circumstances, the results of which form a basis for
making the judgments about the carrying value of
assets and liabilities that are not available from other
sources.

How the scope of our audit responded to the risk

During the course of our audit we performed the
following procedures to address the risk of management
override:

• gained an understanding through walkthroughs

performed and discussions with management of the
process in place for posting journal entries;

• assessed the appropriateness of accounting policy
choices made by management and the basis of key
judgments, estimates and assumptions;

• reviewed manual journal entries posted within
the period for indicators of management bias,
transactions outside the normal course of business
or indicators of fraudulent activity;

deemed to be higher risk gaining an appropriate
understanding of the business rationale as well as
confirming the accuracy of postings; and

• considered the value, nature and cause of

misstatements identified during the course of the
audit to identify indicators of bias.

Key observations

The results of our testing were satisfactory and we
consider the disclosures surrounding accounting
policy choices and key accounting judgments to be
appropriate.

Our application of materiality

We define materiality as the magnitude of misstatement
in the financial statements that makes it probable that
the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use
materiality both in planning the scope of our audit work
and in evaluating the results of our work.

Based on our professional judgment we determined
overall materiality for the financial statements as a whole
to be £62,000 (2016: £42,000), based on 5 per cent of
the pre-tax loss of £1,235,000. As there is Group focus
on improving the profitability of the Group, a profit
benchmark was considered appropriate. Performance
materiality of £44,000 (2016: £29,000) was applied for
testing and it was agreed with the Board that we would
report on all audit differences in excess of £3,000 (2016:
£2,100), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
We also report on disclosure matters that we identified
when assessing the overall presentation of the financial
statements.

Materiality in the prior year was based on a revenue
based benchmark.

Based on our professional judgment we determined
overall materiality for the parent company as a whole
to be £50,000 (2016: £68,000), based on 5 per cent
of the pre-tax loss of £1,002,000 (2016: £1,367,000)
As there is Group focus on improving the profitability
of the Company, a profit benchmark was considered
appropriate. Performance materiality of £35,000
(2016: £48,000) was applied for testing and it was
agreed with the board that we would report on all audit
differences in excess of £2,500 (2016: £3,400), as well
as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also
report on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.

Materiality in the prior year was based on an
expenditure based benchmark.

For each component in the scope of our Group audit,
we allocated a materiality that is less than our overall
group materiality. The range of materiality allocated
across components was between £30,000 and £50,000.

Financial Statements • Independent Auditor's Report

Other information included in the annual
report

The directors are responsible for the other information.
The other information comprises the information included
in the annual report, other than the financial statements
and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information
and, except to the extent otherwise explicitly stated
we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial
statements, our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the audit of
otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement in the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of this
other information, we are required to report that fact. We
have nothing to report in this regard.

Opinions on other matters prescribed by
the Companies Act 2006

In our opinion, based on the work undertaken in the
course of the audit:

• 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; and

• the strategic report and the directors’ report have

been prepared in accordance with applicable legal
requirements.

Matters on which we are required to
report by exception

In the light of the knowledge and understanding of the
Group and parent company and its environment obtained
in the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following
matters in relation to which 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 the 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 and returns; or

• the financial statements are not in agreement with the

accounting records and 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.

Responsibilities of directors

As explained more fully in the directors’ responsibilities
statement set out on page 20, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors
are responsible for assessing the Group and parent
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting
unless the directors’ either intend to liquidate the Group
and parent company or to cease operating, or have no
realistic alternative but to do so.

Auditors’ responsibilities for the audit of
the financial statements

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.

Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in
the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the
basis of these financial statement.

A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/.
This description forms part of our auditors’ report.

James Pitt BA (Hons) ACA (Senior Statutory Auditor)

For and on behalf of
James Cowper Kreston

Chartered Accountants and Statutory Auditors
2 Chawley Park
Cumnor Hill
Oxford OX2 9GY
United Kingdom

15 January 2018

Financial Statements • Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

For the year ended 30 September 2017

Revenue

Cost of sales
Gross profit

Administrative expenses

Depreciation and amortisation

Reversal of fixed asset impairment

Release of onerous lease provision
Operating (loss)

Finance income

Finance costs
(Loss) on ordinary activities before taxation

Taxation
(Loss) on ordinary activities after taxation

(Loss) per share: Basic

(Loss) per share: Diluted

Other Comprehensive Income

Items that may be reclassified to profit or loss:
Exchange differences on translation of foreign operations
Total comprehensive loss for the year attributable to
owners of the parent company

All operations are continuing.

Note

3
4

2017
£ ’000

3,241

(1,651)
1,590

(2,325)

(503)

-
(1,238)

(1)
(1,235)

139
(1,096)

(0.1)p

(42)

(1,138)

2016
£ ’000

2,142

(1,457)
685

(1,989)

(418)

232

23
(1,467)

(1)
(1,462)

121
(1,341)

(0.1)p

258

(1,083)

The accompanying accounting policies and notes form an integral part of these financial statements.

Financial Statements • Consolidated Statement of Financial Position

CONSOLIDATED STATEMENT
OF FINANCIAL POSITION

For Hardide plc, company registered number 05344714

At 30 September 2017

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
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

2017
£ ‘000

1,490
1,560

160

622

242

1,212
2,236

3,796

488

5
493

2016
£ ‘000

1,872
1,942

566

270

1,967
2,863

4,805

408

17
425

1,743

2,438

12
12

505

3,291

3,242

10,306

(10,060)

235

(432)
3,291

3
3

428

4,377

3,242

10,305

(8,964)

184

(390)
4,377

The financial statements were approved and authorised for issue by the Board on 15 January 2018.

Robert Goddard

Chairman

Financial Statements • Consolidated Statement of Cash Flows

CONSOLIDATED STATEMENT
OF CASH FLOWS

For the year ended 30 September 2017

Cash flows from operating activities

Operating (loss)

Impairment of intangibles

Depreciation

Reversal of property, plant and equipment impairment

Share option charge

(Increase) / Decrease in inventories

(Increase) / Decrease in receivables

Increase / (Decrease) in payables

(Decrease) in provisions

Exchange rate variance
Cash generated from operations

Finance income

Finance costs

Tax received
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 (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

2017
£ ‘000

(1,238)

503

(100)

(91)

-
(796)

(1)

207
(586)

(152)
(152)

(17)
(17)

(755)

1,967

1,212

2016
£ ‘000

(1,467)

416

(232)

(18)

(160)

(23)

31
(1,422)

(1)

64
(1,353)

(561)
(561)

1,571

(17)
1,554

(360)

2,327

1,967

Financial Statements • Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

For the year ended 30 September 2017

At 1 October 2015
Issue of new shares

Share options

Exchange translation

Loss for the year
At 30 September 2016

At 1 October 2016
Issue of new shares

Share options

Exchange translation

Loss for the year
At 30 September 2017

Share Share-based
Payments

Premium

Foreign
Translation

Retained
Earnings

Share
Capital

3,041

201

-
3,242

8,935

1,370

-
10,305

3,242

10,305

-
3,242

-
10,306

(648)

(7,623)

258

-
(390)

(1,341)
(8,964)

Total
Equity

3,859

1,571

260

(1,341)
4,377

(390)

(8,964)

4,377

(42)

-
(432)

(1,096)
(10,060)

(42)

(1,096)
3,291

154

-
184

184

-
235

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.

Standards, amendments and interpretations

effective in 2017 and applied by the Group

The Group has adopted the following revisions and
amendments to IFRS issued by the International
Accounting Standards Board, which are relevant to and
effective for the Group’s financial statements for the
period beginning 1 October 2016.

• IFRS 2 Share-based Payment - Definitions of vesting

conditions

• IFRS 3 Business Combinations - Accounting for

contingent consideration in a business combination

• IFRS 5 Non-current Assets Held for Sale and

Discontinued Operations - Changes in methods of
disposal

• IFRS 7 Financial Instruments: Disclosures - Servicing

contracts

• IFRS 7 Financial Instruments: Disclosures

Applicability of the offsetting disclosures to
condensed interim financial statements

• IFRS 8 Operating Segments - Aggregation of

operating segments

• IFRS 8 Operating Segments - Reconciliation of

the total of the reportable segments’ assets to the
entity's assets

• IFRS 10 and IAS 28 Sale or Contribution of Assets
between an Investor and its Associate or Joint
Venture - Amendments to IFRS 10 and IAS 28

• IFRS 10 and IAS 28 Sale or Contribution of Assets
between an Investor and its Associate or Joint
Venture - Amendments to IFRS 10 and IAS 28 IFRS
10, IFRS 12 and IAS 28 Investment Entities: Applying
the Consolidation Exception - Amendments to IFRS
10, IFRS 12 and IAS 28

• IAS 16 Property, Plant and Equipment and IAS
38 Intangible Assets - Revaluation method
- proportionate restatement of accumulated
depreciation/amortisation

• IAS 19 Employee Benefits - Discount rate: regional

market issue

• IAS 24 Related Party Disclosures - Key management

personnel

• IAS 27 - Equity Method in Separate Financial

Statements - Amendments to IAS 27

• IAS 34 Interim Financial Reporting - Disclosure of

information 'elsewhere in the interim financial report'

The Directors have assessed that the adoption of these
revisions and amendments did not have an impact on
the financial position or performance of the Group.

b. Standards, amendments and interpretations that are
not yet effective and have not been early adopted:

At the date of authorisation of these financial
statements, the following Standards and Interpretations
which have not been applied in these financial
statements were in issue but not yet effective:

Effective date* 01 Jan 17

• IAS 7 Disclosure Initiatives - Amendments to IAS 7

• IAS 12 Recognition of Deferred Tax Assets for
Unrealised Losses - Amendments to IAS 12

• AIP IFRS 12 Disclosure of Interests in Other

Entities - Clarification of the scope of the disclosure
requirements in IFRS 12

Effective date* 01 Jan 18

• IFRS 2 Classification and Measurement of Share

based Payment Transactions- Amendments to IFRS
2

• IFRS 9 Financial Instruments

• IFRS 15 Revenue from Contracts with Customers

• IFRIC Interpretation 22 Foreign Currency
Transactions and Advance Consideration

• AIP IFRS 1 First-time Adoption of International

Financial Reporting Standards - Deletion of short-
term exemptions for first-time adopters

• IFRS 11 Accounting for Acquisitions of Interests in

• AIP IAS 28 Investments in Associates and Joint

Joint Operations - Amendments to IFRS 11

• IFRS 14 Regulatory Deferral Accounts

• IAS 1 Disclosure Initiative - Amendments to IAS 1

• IAS 16 and IAS 38 - Clarification of Acceptable
Methods of Depreciation and Amortisation -
Amendments to IAS 16 and IAS 38

Ventures - clarification that measuring investees at
fair value through profit or loss is an investment-by-
investment choice

Financial Statements • Notes to the Group Financial Statements

Effective date* 01 Jan 19

• IFRS 16 Leases

* the standard is effective for accounting periods
beginning in or after this date

The Directors anticipate that the adoption of these
Standards and Interpretations in future periods will have
no material impact on the financial statements of the
Group.

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 Hardide plc and entities
controlled by Hardide plc (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 inter-company 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.

Research and Development

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 Group’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 (1 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, for computer software
this is typically 4 years.

Financial Statements • Notes to the Group Financial Statements

Impairment of Intangible Assets

Investments

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.

Property, Plant and Equipment

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

Depreciation is not charged on assets under
construction. Borrowing costs related to the purchase
of property, plant and equipment 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 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.

Leases

Finance leases, which transfer to the Group
substantially all the risks and benefits incidental to
ownership of the leased item, are included in the
Statement of Financial Position 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 Statement of Financial Position 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 Statements • Notes to the Group Financial Statements

Financial Liabilities and Equity

Foreign Currencies

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.

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.

The Group’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 statement of financial position 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 Statement
of Financial Position. 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 workplace pension scheme for
its employees since November 2016, and makes the
statutory minimum 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.

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 Statement of Financial Position date.

Deferred tax assets and liabilities are recognised
where the carrying amount of an asset or liability in the
Statement of Financial Position differs from its tax base.
Recognition of deferred tax assets is restricted to those
instances where it is probable that taxable profit will be

Financial Statements • Notes to the Group Financial Statements

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 Statement of Financial Position 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
Statement of Financial Position 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 judgment 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.

(d) The Group measures the cost of equity-settled
transactions with employees by reference to the fair
value of the equity instruments at the date at which
they are granted. Estimating fair value for share-
based payment transactions requires determination
of the most appropriate inputs to the valuation model
including the expected life of the share option, volatility
and dividend yield and making assumptions about
them. The assumptions and model used for estimating
fair value for share-based payment transactions are
disclosed in Note 17 to the Consolidated Financial
Statements.

(e) The Group accounts for grants when they are
received or due to be received. Where a grant contains
performance criteria, the likelihood that those criteria
will not be met and therefore a proportion of the grant
will have to be repaid is assessed and, if deemed likely,
a liability is recognised.

Financial Statements • Notes to the Group Financial Statements

2. Segmental Analysis

Under IFRS8, 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 into UK and USA operation and Corporate central functions, and
this factor identifies the Group’s reportable segments.

Year ended 30 September 2017

External revenue

Inter-segment revenue

Interest revenue

Interest expense

Depreciation

Impairment reversal

Income tax income

Release of Provision
Reportable segment
profit / (loss)

Segment assets

Expenditure for

non-current assets

Segment liabilities

UK operation
£ ‘000
2016

2017

US operation
£ ‘000
2016

2017

Corporate
£ ‘000
2016

2017

Eliminations
£ ‘000
2016

2017

-
2

2,504 2,037
-
4
1
176
-
-
-

150

737
-
-

353

105
-
-
-
242
(232)
-
(23)

-
-
2

139

-
-
2
-
-
-
120
-

-
-
-

-
-
-
-
-
-
-
-

Total
£ ‘000
2016

2017

3,241 2,142
- -
4

503

139

418

(232)

120

(23)

(503)

(613)

(414)

(1,002) (1,367)

432

943

(1,096)

(1,341)

3,154 3,086

1,541 1,701

2,003 2,835

(2,902) (2,817)

3,796 4,805

127

277

57
250

599
9,426 9,242

-
2,003 1,873

-
(11,201) (10,937)

155

505

656

428

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

2017

2016

UK
£ ‘000

1,674

1,007

Europe
£ ‘000

N America
£ ‘000

Rest of World
£ ‘000

1,526

1,107

Total
£ ‘000

3,241

2,142

Three external customers (2016 – four) contributed more than 10% of the Group’s continuing external sales for the year
ended 30 September 2017. The external sales for these customers were £0.841m, £0.577m, and £0.475m which have been
recorded within both the UK and US operation reportable segments, excluding central costs.

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 Group’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

2017
£ ‘000

2016
£ ‘000

694

203

(80)

152

503

2017
£ ‘000

614

200

(190)

163

418

(31)

2016
£ ‘000

Financial Statements • Notes to the Group Financial Statements

6. Employees

The average number of employees, including executive directors but not including non-executive directors, during the year
comprised:

Technical

Production

Sales and marketing

Management and admin

Staff costs, including executive and non-executive directors, amounted to:

Wages and salaries

Social security costs

Employer pension contributions

Share option expense

2017
Number

2016
Number

4
37

2017
£ ‘000

1,822

181

51
2,065

5
35

2016
£ ‘000

1,581

165

28
1,774

Of the total share option expense of £51,000 in the year, £35,000 relates to options held by directors.

The Group contributes to defined contribution plans for employees. The assets of the scheme are held separately from
those of the Group in independently administered funds. The Group contributes 1% (2016: Nil) of pensionable salary to the
scheme for all eligible employees who opted into the scheme. The pension cost charge represents contributions payable
by the Group to the fund. There were no amounts outstanding to be paid at the year end.

The directors are the Key Management Personnel of the Group. 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)

Jan Ward (Non-Executive Director)
Total directors’ remuneration

Salary

Car allowance

Salary

Pension

Salary

Fees

2017
£ ‘000

157

101

22
447

2016
£ ‘000

153

22
438

Financial Statements • Notes to the Group Financial Statements

7. Taxation

(a) Analysis of charge in the year:

Loss on ordinary activities before taxation

2017
£ ‘000

(139)

2016
£ ‘000

(121)

(b) Factors affecting current tax charge:
The tax assessed on the profit on ordinary activities for the year is lower than (2016: lower than) the standard rate of

corporation tax in the UK of 19.5% (2016: 20%)

Loss on ordinary activities before taxation

Loss on ordinary activities by rate of tax

Effect of:

Expenses not deductible for tax purposes

Deferred tax not recognised

Adjustment in respect of prior periods

R&D enhanced expenditure

R&D surrendered
Total current tax (note 7a)

2017
£ ‘000

(1,235)

(241)

120

(14)

(95)

81
(139)

2016
£ ‘000

(1,462)

(292)

181

(1)

(95)

81
(121)

The standard rate of corporation tax in the UK is currently 19.5% (2016: 20%). The Group has unutilised trading tax
losses in the UK of approximately £1.1m (2016: £1.1m) 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:

2017
£ ‘000

(1,096)

2016
£ ‘000

(1,341)

Weighted average number of ordinary shares in issue

Earnings per share

1,534,914,852

1,345,202,056

(0.1)p

As net losses were recorded in 2017 and 2016, the potentially dilutive share options are anti-dilutive for the purposes of the
loss per share calculation and their effect is therefore not considered.

9. Goodwill

Cost at 1 October 2016 and 30 September 2017

Net book value at 1 October 2016 and 30 September 2017

£ ‘000

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

2017
£ ‘000

2016
£ ‘000

-
6

-
1

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

11. Property, Plant and Equipment

Leasehold
buildings
£ ‘000

Plant, vehicles
and fixtures
£ ‘000

Computer
equipment
£ ‘000

Cost at 1 October 2015

Additions

Disposals

Exchange differences
Cost at 30 September 2016

Depreciation at 1 October 2015

Provided in the year

Disposals

Impairment

Exchange differences
Depreciation at 30 September 2016

Net book value at 1 October 2015
Net book value at 30 September 2016

Cost at 1 October 2016

Additions

Disposals

Exchange differences
Cost at 30 September 2017

Depreciation at 1 October 2016

Provided in the year

Disposals

Exchange differences
Depreciation at 30 September 2017

Net book value at 1 October 2016
Net book value at 30 September 2017

462

(20)

35
485

231

(20)

-
250

231
235

485

(8)
489

250

(2)
276

235
213

3,632

644

(611)

96
3,761

2,642

376

(603)

(255)

-
2,160

990
1,601

3,761

133

(36)

(50)
3,808

2,160

459

(34)

(26)
2,559

1,601
1,249

163

(64)

2
105

122

(70)

-
69

41
36

105

(15)

-
98

(15)

-
70

36
28

(9)
6

(9)

2
1

Total
£ ‘000

4,257

656

(695)

133
4,351

2,995

432

(693)

(255)

-
2,479

1,262
1,872

4,351

153

(51)

(58)
4,395

2,479

503

(49)

(28)
2,905

1,872
1,490

Financial Statements • Notes to the Group Financial Statements

12. Current Assets

Inventories

Raw materials and consumables

Manufactured parts for resale

Work in progress

Receivables

Trade receivables

Other receivables

Other current financial assets

Prepayments

VAT receivable

Accrued income

Cash and cash equivalents

Sterling

US Dollar

Euro

Total current assets

2017
£ ‘000

2016
£ ‘000

37
160

609

13
622

134
242

834

368

10
1,212

2,236

-
60

525

41
566

202
270

1,735

215

17
1,967

2,863

There is no general provision for bad debts. During the year, no specific trade receivable was classified as a bad debt.
Trade receivables are regularly reviewed for age and possible impairment. It is the directors’ opinion that, as at the
statement of financial position date, no trade receivable required impairment. The ageing of trade receivables is as follows:

Current

1 month

2 months

3 months

More than 3 months
Total trade receivables

2017
£ ‘000

371

219

8
609

A total of £238,000 (2016: £344,000) trade receivables are over 30 days old and therefore overdue.

13. Current Liabilities

Trade payables

Taxation and social security costs

Accruals

Finance lease obligations

Lease incentives
Total current liabilities

2017
£ ‘000

376

2
493

2016
£ ‘000

181

230

(2)
525

2016
£ ‘000

293

-
425

Financial Statements • Notes to the Group Financial Statements

14. Non-current other Financial Liabilities

Lease incentives

Finance lease obligations

2017
£ ‘000

-
12

2016
£ ‘000

3
3

15. Total Commitments under Operating Leases

The future aggregate minimum lease payments under non-cancellable operating leases at the Statement of Financial
Position date were as follows:

Within one year

In the second to fifth years

In more than five years

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

During the year, one employee exercised options over 52,000 shares.

Land and buildings

Plant

2017

2016
£ ‘000 £ ‘000

2017

2016
£ ‘000 £ ‘000

150

513

146
809

241

215
523

-
61

-
60

2017
Number Value
000 £ ‘000

2016
Number Value
000 £ ‘000

1,750,000 1,750

250,000 2,250

1,534,958 1,535

1,534,906 1,535

189,642 1,707

Financial Statements • Notes to the Group Financial Statements

17. Share-based Payment

Outstanding at 1 October 2016

Exercisable at 1 October 2016

Granted during year

Exercised during year

Forfeited during year

Outstanding at 30 September 2017

Exercisable at 30 September 2017

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)

Weighted average

Number

exercise price

116,759,600

41,919,100

9,000,000

52,000

125,707,600

73,957,600

Number

16,181,000

40,000,000

18,351,000

15,351,000

0.66p

0.62p

0.84p

0.45p

0.67p

0.62p

Weighted average
exercise price

0.61p

0.81p

0.69p

0.65p

During the year no director exercised any share options. As part of the Group’s share option scheme, the following options
were granted to directors during the year at an exercise price of 0.975p:

Peter Davenport (Finance Director)

3,000,000

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 65%, a risk-free interest rate of 1.27%, and an expected
life of 3.5 years. The average calculated fair value of options granted during the year was 0.29p per share.

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, or Group profitability, or new business. At 30 September 2017
the weighted average remaining contractual life of all outstanding options was 5 years and 7 months (2016: 6 years and 4
months).

The total charge to the income statement for share options during the year was £51,000 (2016: £28,000).

Financial Statements • Notes to the Group Financial Statements

18. Post Balance Sheet Events

On 27 October 2017 Hardide plc announced that it had raised £1.716m before expenses by a placing of 100,941,175
ordinary shares. A further £0.821m before expenses will be raised by a placing of 48,294,117 subject to receipt of advance
assurance from HMRC that the shares will qualify as “eligible shares” for the purposes of the Enterprise Investment
Scheme.

As a result of the share placing, on 9 November 2017 Hardide Coatings Inc placed an order for a third chemical
vapour deposition reactor for its Martinsville facility, valued at €576,120. The reactor is expected to be delivered and
commissioned during summer 2018.

Consequent upon ordering the new reactor, Hardide Coatings Inc has applied for a 5 year term loan offered by Martinsville
- Henry County Economic Development Corporation. The amount of the loan is $240,000 and can be drawn down in
instalments of 30% upon ordering the reactor, 60% when it is shipped from the manufacturer, and 10% after delivery to
Martinsville. The interest rate on the loan is fixed at 2% for the term, repayments are due quarterly and will start once the
loan has been fully disbursed. The loan is secured against the reactor and Hardide plc has acted as guarantor.

19. Related Party Transactions

There were no related party transactions to report with either directors or key management other than those disclosed in
note 6.

20. Capital Commitments

At the Statement of Financial Position date Hardide Coatings Limited had a capital commitment of £100,000 for the
purchase of equipment (2016: Nil).

21. Contingent Liabilities

Hardide Coatings Inc received a grant of $170,000 during 2015 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 has been agreed with the grantor to defer the assessment date to the end of December 2018.

A further grant of $150,000 was received from the Governor’s Development Opportunity Fund in 2016 through the Virginia
Economic Development Partnership Authority which contained performance obligations concerning the number of
employees and the value of taxable assets located in Henry County, Virginia, but with an achievement date of 30 June
2018.

If these performance obligations are not met then a proportion of the grants are potentially repayable, the amount
depending on the shortfall against those performance obligations. The directors have assessed the Group’s performance
against those obligations and consider they are likely to be achieved.

The same contingent liabilities existed at 30 September 2016.

Financial Statements • Notes to the Group Financial Statements

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’s principal financial instruments are financial assets comprising Trade and other receivables (excluding
prepayments) and cash balances; and financial liabilities comprising trade payables as disclosed in notes 12 and 13.
These are all measured at fair value with changes in carrying amount charged or credited to the Income Statement, with
the exception of borrowings which are measured at amortised cost.

Exposure to credit, liquidity, currency and interest rate 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, in particular the ageing of trade receivables and the amount of cash on
deposit with various institutions. As at 30 September 2017 the Group had trade receivables and other receivables of
£622,000 (2016: £566,000) and cash deposits of £1,212,000 (2016: £1,967,000).

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 2017 and the maturity
profile of the carrying value of the Group’s financial liabilities are shown in note 13. All financial liabilities will be settled
within six months unless stated in note 14. The Group’s policy is to ensure that it has sufficient cash to allow it to meet its
liabilities. This risk is monitored by the Board which receives forecast cash flows on a monthly basis, an annual budget
and quarterly revenue and cost forecasts. The Group currently has no bank credit facility.

Currency 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 risks arise when Group companies enter into transactions denominated in a currency other than their
functional currency. Movements in exchange rates also affect the value of the Group’s foreign currency cash balances in
the UK. Exchange rate movements during the year resulted in a cost of £7,000 (2016: £31,000 gain).

Interest rate risk

Interest rate risk arises on borrowings and cash balances which are at floating interest rates. Changes in rates could have
the effect of either increasing or decreasing the Group's net profit. The major risk is to UK rates and there is no exposure to
rates in the USA or Europe.

As at 30 September 2017, the Group had no floating rate borrowings, and all its cash deposits were in floating rate
accounts.

Financial Statements • Parent Company Statement of Financial Position

PARENT COMPANY
STATEMENT OF FINANCIAL POSITION

For Hardide plc, company registered number 05344714

At 30 September 2017

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

Note

2017
£ ‘000

1,164

9,330

(9,330)
1,164

174

750
924

2,088

2,023
2,023

(1,099)

2,023

3,242

10,306

(13,718)

235

2016
£ ‘000

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

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 £1,002,000 (2016: loss of £1,367,000) after accounting
for an increase in the provision against the intercompany loan of £124,000 and an exchange rate loss on intercompany loan
of £308,000.

The accompanying notes form an integral part of these financial statements.

The financial statements were approved and authorised for issue by the Board on 15 January 2018.

Robert Goddard

Director

Financial Statements • Statement of Cash Flows • Statement of Changes in Equity

STATEMENT OF CASH FLOWS

For the year ended 30 September 2017

2017
£ ‘000

2016
£ ‘000

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

(711)

(9)

(31)
(711)

207
(501)

(271)
(271)

-
-

(772)

1,522

750

STATEMENT OF CHANGES IN EQUITY

For the year ended 30 September 2017

At 1 October 2015
Issue of new shares

Share options

Loss for the year

At 30 September 2016

At 1 October 2016
Issue of new shares

Share options

Loss for the year
At 30 September 2017

Share Share-based
Payments

Premium

Share
Capital

3,041

201

-
3,242

8,935

1,370

-
10,305

3,242

10,305

-
3,242

-
10,306

Retained
Earnings

(11,349)

(1,367)
(12,716)

(12,716)

(1,002)
(13,718)

115

-
131

131

104

-
235

(547)

(6)

41
(496)

64
(430)

(431)
(431)

1,571
1,571

710

812

1,522

Total
Equity

742

1,571

(1,367)
962

962

105

(1,002)
65

Financial Statements • Notes to the Parent Company Accounts

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:

2017

2016

Number

Management and admin

Sales and marketing

Technical

Staff costs, including executive and non-executive directors, during the year amounted to:

Wages and salaries

Social security costs

Share option expense

2017
£ ‘000

589

40
691

Details of individual directors’ remuneration are included in note 6 to the Group financial statements.

3. Investments

Investments in subsidiaries

2017
£ ‘000

1,164

2016
£ ‘000

570

16
644

2016
£ ‘000

1,100

At 30 September 2017 the Company held 100% of the share capital of the following subsidiaries:

Hardide Coatings Limited

Hardide Coatings, Inc.

Hardide Aerospace Coatings Limited

Class of share

Amount

Country

Nature of business

Ordinary

100%

Surface engineering

USA

Surface engineering

Dormant company

4. Amounts Owed by Group Undertakings

The amounts owed by Hardide Coatings Inc amounting to £9,330,000 (2016 £9,206,000) 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 £124,000 (2016 £2,260,000) has been debited to the profit and loss account in the year.

5. Trade and other Receivables

Taxation recoverable

Prepayments and accrued income

2017
£ ‘000

154
174

2016
£ ‘000

215
226

Financial Statements • Notes to the Parent Company Accounts

6. Trade and other Payables

Trade payables

Social security and other taxes

Amounts owed to group undertakings

Accruals and deferred income

2017
£ ‘000

1,902

22
2,023

2016
£ ‘000

1,742

40
1,886

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 £160,000. 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.

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

2017

Number Value
000 £ ‘000

2016
Number Value
000 £ ‘000

1,750,000 1,750

250,000 2,250

1,534,958 1,535

1,534,906 1,535

189,642 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 2017 or 30 September 2016.

9. Contingent Liabilities

There were no contingent liabilities at 30 September 2017 or 30 September 2016.

10. Related Party Transactions

Hardide plc has inter-company transactions with both Hardide Coatings Ltd and Hardide Coatings Inc, both of which are
wholly-owned members of the Group. These are made up of cash and VAT balance transfers, intercompany management
charges, intercompany royalty charges and amounts received by or paid on behalf of other group companies, as follows:

Nature of transaction

Rendering or receiving management services

Transfers of research and development costs

Transfers under licence agreements

Transfers under finance arrangements

Settlement of liabilities on behalf of the entity

2017

2016

With
Hardide

Coatings Ltd Coatings Inc Coatings Ltd Coatings Inc

£ ‘000

140

(149)

250

(503)

102

362

282

(140)

204

(893)

931

Balance outstanding at 30 September 2017

(1,902)

9,330

(1,742)

9,206

Financial Statements • Notes to the Parent Company Accounts

11. Post Balance Sheet Events

On 27 October 2017 Hardide plc announced that it had raised £1.716m before expenses by a placing of 100,941,175 ordinary
shares. A further £0.821m before expenses will be raised by a placing of 48,294,117 subject to receipt of advance assurance
from HMRC that the shares will qualify as “eligible shares” for the purposes of the Enterprise Investment Scheme.

12. Financial Instruments

The financial instruments risk management is disclosed in note 22 of the financial statements and applies to the parent
Company with the amounts as disclosed in notes 5 and 6 of the Company’s notes to the financial statements.

Company Information • Directors and Advisors

DIRECTORS AND ADVISORS

Directors

R Goddard
P Kirkham
P Davenport
Y Zhuk
A Boyce
J Ward

Secretary
P Davenport

Bankers

Royal Bank of Scotland
Dale Street
Liverpool
L2 2PP

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

James Cowper Kreston
2 Chawley Park
Cumnor Hill
Oxford
OX2 9GG