Heidelberger Druckmaschinen Annual Report 2018

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2018

Annual Report

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www.hardide.com

HARDIDE PLC ANNUAL REPORT 2018

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, UK 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

Parent Company Statement of Cash Flows

Parent Company Statement of Changes in Equity

Notes to the Parent Company Accounts

Company Information

Directors and Advisers

Hardide plc Annual Report 2018

Strategic Report Business & Operational Highlights

Hardide plc Annual Report 2018

Business & Operational Highlights

Significant rise in sales to oil and gas sector; supported by strong demand from the

two new supply agreements previously announced

Increased sales benefitted from new customers and the continuing recovery of the oil

and gas sector

84% year-on-year increase in sales to customers in North America - accounting for

61% of total Group sales

Technical work successfully completed with Airbus on production parts and final

commercial discussions underway

Investment in additional capacity: third reactor installed in the US, further upgrades to

production equipment in US and UK

Both US and UK sites are now accredited to aerospace quality management system

AS9100 Rev D

Awarded funding for three projects: one from Innovate UK and two from The National

Aerospace Technology Exploitation Programme (“NATEP”)

Appointment of two new non-executive directors bringing extensive aerospace and

strategic business experience

Appointment of senior independent director

Record revenues,up 42% to £4.61m(2017: £3.24m)h42%Gross profit increasedby 52% to £2.41m(2017: £1.59m)h52%Stronger grossmargin of 52%(2017: 49%)h52%Cash at bank at 30 September 2018of £3.30m(2017: £1.21m)£3.30mEBITDA losses reduced by £0.44m to £0.30m before exceptional items (2017: loss of £0.74m)£0.44mHardide plc Annual Report 2018

Strategic Report Financial Highlights

Financial Highlights

Strategic Report Chairman's and CEO's Report

Hardide plc Annual Report 2018

CHAIRMAN’S AND CEO’S REPORT

INTRODUCTION

Hardide reported record full year sales of £4.61m, a 42%
increase over FY17 (2017: £3.24m). The global upturn in the
oil and gas sector, boosted by the two new supply contracts,
benefitted the Group with a strong improvement in oil and gas
sales when compared with FY17. Sales increased across all
geographies but was particularly marked in North America,
where an 84% uplift from last year was achieved.

In February 2018, an oversubscribed fundraising of £2.54m
(before expenses) was completed. At the same time, a
US$0.24m low-interest loan facility was made available by
Martinsville-Henry County Economic Development Corporation
(MHCEDC) in Virginia, USA. This has helped fund the third
coating reactor, equipment upgrades and other developments
at the Martinsville site, thereby bringing it up to aerospace
standard.

In July 2018, strategic plans to develop the aerospace sector
were advanced in the US as the facility there gained aerospace
certification to AS9100 Rev D. This followed the UK site’s
transition to AS9100 Rev D in December 2017. Progress towards
securing aerospace contracts in Europe has gathered pace,
with technical testing concluded and commercial discussions
underway on production parts for Airbus, and parts in
development for several other European and US manufacturers.
This slow pace of progress is normal in the aerospace industry.

We continued our strategy to achieve further growth of
the business by investing ahead of revenue in business
development, production equipment and capacity.

FINANCIAL RESULTS

The Group generated record sales of £4.61m in the year ended
30 September 2018 (2017: £3.24m). Direct expenses including
production salaries increased by 33% which allowed Group
gross profit to grow by 52% to £2.41m. Overhead costs rose
by 17% as we continued to invest in marketing, business
development resource, research and development and IT, as
well as reflecting a slight reduction in grants received compared
to the previous year. We recruited an additional Business
Development Engineer for the North American market; and we
incurred significant expense developing the process to coat
extremely complex components which resulted in the award of
the second of our two new supply contracts.

The Group’s EBITDA loss before exceptional items of £0.25m
reduced by 59% to £0.30m (2017: £0.74m loss). Depreciation
expense also fell year on year as some equipment in Martinsville
became fully written-down.

In 2015 and 2016, Hardide Coatings, Inc. received two grants
worth a combined US$0.32m towards the cost of the new
Martinsville facility. These grants had performance criteria
attached relating to increasing both the number of employees
and the amount of taxable property at the facility within a
certain time frame. We have reviewed these criteria and decided
prudently to make a provision in the accounts for the potential
repayment of these grants in full. This has been shown as an

exceptional item. The deep and long recession in the oil industry
during the period 2014 to 2017 meant that the development
of our US business has taken longer than originally projected.
Notwithstanding, we have asked the grantors to extend the
performance review deadlines.

There has been a slight change to the business model in this
financial year. A substantial new, high-volume supply contract
has Hardide responsible for the complete supply and stocking
of the product. This means that in a few cases, in addition to
coating components, the Group is responsible for purchasing
the metal for those components and the sub-contract
machining of them. Since the added-value of Hardide is in the
coating and not in the value of metal or the machining of it,
the percentage mark-up that the Group can achieve on the
bought-in elements is lower than the margin on the coating
itself. However, the high sales value under this contract, albeit
at a lower percentage margin, provides a significant uplift to
the Group’s overall gross profit. As such, this supply contract is
a very positive development for the Group. This is the second
such contract where customers have asked Hardide to be
responsible for the full supply of the parts; this significantly
improves and secures our position as a long-term supplier to
them.

On the balance sheet, net assets at 30 September 2018 were
£5.08m (2017: £3.29m). This included a cash balance of £3.30m
(2017: £1.21m).

OPERATIONAL OVERVIEW

Customers and Markets

Activity returned strongly to the oil and gas sector and with it the
volume of sales in the second half of FY18 to the two customers
with whom we announced new, major supply agreements last
year. We worked with the first customer – a North American
provider of high-value ‘completion’ technology – to develop an
arrangement whereby Hardide builds an agreed level of stock
from which coated product can be provided on a ‘just-in-time’
basis. This cuts lead time for the customer by more than 50%.
With the Hardide coating, their tool lasts longer and enables
more efficient production, thereby lowering extraction cost and
delivering competitive advantage.

The first high-volume production orders were received under
the second agreement, which is with a global oil and gas
operator. The complex design of the component presented
considerable technical and production challenges and it is a
notable achievement by the Hardide technical and production
teams that these were overcome. The technology is now being
deployed in a deepwater production field. Coating of these parts
is now being transferred from the UK to our US facility.

Strong demand is forecast for a third oil and gas application.
This is from a current blue chip oil services customer for key
components in a new downhole tool.

Strategic Report Chairman's and CEO's Report

Sales Revenue
By Half Year

Hardide plc Annual Report 20188

Strategic Report Chairman's and CEO's Report

Progress towards securing supply contracts for Airbus
components is gathering pace. Over the last year, substantial
development work has been undertaken with both Airbus
and one of their tier 1 suppliers on a range of components.
Frequent joint meetings have been taking place so as to reach
a conclusion as fast as is possible. The availability of trial
components and information flow from the tier 1 partner was
challenging, but now all technical details and required changes
have been finalised and agreed. The focus is now on agreeing
commercial terms and once this is done, pre-production and/
or full production orders should follow shortly thereafter. This
pace of progress, while slow and frustrating, is typical for
the introduction of a new process to the aerospace industry.
However, once complete it is expected that demand for the
components will continue for many years.

Additional components for another tier 1 supplier to Airbus are
also in the final stages of a life testing programme, with very
promising results. We expect progress with these components
will be much quicker than with the earlier approval process with
Airbus.

Testing of transmission components at Leonardo Helicopters is
almost complete and the Hardide coating is showing excellent
results.

Other development work is also ongoing with a number of UK,
European and North American aerospace companies including
Triumph Aerospace Systems Group and has been aided by
the recent approval of both Bicester and Martinsville sites
to aerospace standard AS9100 Rev D and also the Nadcap
accreditation at Bicester.

Good progress was made in our goal to diversify our customer
base. This is due largely to the three new major contracts and
helped as well by several other smaller accounts arising from
development projects. The resurgence of oil and gas activity
and the protracted process of securing volume aerospace sales
means that our market diversification plans are taking longer
than we would like. However, the Board is satisfied that the
risk from over-reliance on a small number of customers is now
much reduced and that sector diversity will improve as sales
into the aerospace sector result alongside sales to other sectors
where trials are showing promise, including power generation
and coating industrial diamonds for use in the hard-facing of
components.

In North America, we strengthened our business development
team by appointing a business development engineer. Based in
Houston, Texas he is dedicated to the oil and gas sector. This
will allow our existing VP of Business Development in North
America to concentrate on developing new markets, including
aerospace.

Our first participation in a US aerospace exhibition took place
in Arizona in December 2018 and in July 2018, we exhibited at
the Farnborough Airshow as part of the North West Aerospace
Alliance group. This resulted in increased awareness of Hardide
and many productive new leads.

New opportunities arose throughout the year as a direct
result of Hardide’s technical director making presentations
at several top tier conferences in North America and Europe.
We continued to publish papers and secure editorial in trade
journals in these regions throughout the year.

Being novel technology, achieving awareness has been
challenging but now, with substantial sales into new applications
that can be publicised, together with sustained marketing,
awareness of our technology is improving steadily and expected
to lead to new business and the expansion of our customer
base.

Production, Technology, Research & Development
and Accreditations

In July 2018, the quality management system at the production
facility in Martinsville was certified for the first time to the
stringent AS9100 Revision D and ISO9001 and the site is now
approved to coat aerospace and space industry components.
While the UK facility has been approved to this standard for
many years, it transitioned to Revision D in December 2017.
A complement to ISO 9001:2015, Revision D includes an
increased focus on senior management commitment, risk
management and product safety requirements.

An emphasis on R&D activity during the oil industry downturn
resulted in the Group making sufficient progress to apply
successfully for three grants for the further development of the
Hardide coating for oil and gas, and aircraft components.

Since January 2018, and with grant support from Innovate
UK, the technical team has been making good progress on
a low temperature variant of the coating. Following in-depth
experimental and analytical work, a production-ready, low
temperature coating process was developed and is now under
extensive testing by several leading UK laboratories. This new
coating will enable the Group to widen the range of materials
that can be coated, including some grades of steel and alloys
widely used in the subsea oil and gas, and aerospace industries.
This project will continue until spring 2019.

During the period, the Group was awarded funding for
two projects from NATEP. The funding will help further the
application of Hardide coatings for aircraft components. NATEP
is a £14.4m aerospace initiative programme designed to further
the application of 40 technologies in the UK aerospace supply
chain. Hardide Coatings is the lead partner on both of the
projects.

The first project is the development of a grinding and super-
finishing methodology for Hardide-A, which is a proven direct
and REACH (Registration, Evaluation, Authorisation and
Restriction of Chemicals) compliant replacement for hard
chrome plating. This project is supported by Airbus and Perfect
Bore Manufacturing Ltd.

The second project is for testing and characterisation of the low
temperature coating and optimisation of the process that will
increase the range of aerospace substrate materials suitable for
Hardide coating. Airbus and Leonardo Helicopters as end-users
and Perfect Bore Manufacturing as component manufacturer

2018 Turnover by Region

North America: 61%

UK and Europe: 39%

h6%

UK and Europe

Turnover

h84%

North America

Turnover

Hardide plc Annual Report 2018Strategic Report Chairman's and CEO's Report

Group Turnover

2018 Turnover by Region

North America: 61%
UK and Europe: 39%

h6%

UK and Europe
Turnover

h84%

North America
Turnover

Hardide plc Annual Report 201810

Strategic Report Chairman's and CEO's Report

and Westmoreland Laboratories are all support partners. Both
projects began on 1 September 2018 and will each take up to
18 months to complete.

The recent fundraising enabled the acquisition of a third reactor
for our US site, as well as upgrades to production and process
equipment in the US and UK. These upgrades have brought
the US facility up to aerospace standard and enabled the UK
site to operate more efficiently, as well as to coat a wider range
of products. The new reactor for Martinsville is now in place
and will be commissioned before the end of December 2018.
Further investment in reactors at the Martinsville facility is under
constant review. A new, larger pre-treatment line is also on order
for Martinsville and will be ready early in 2019. The investment
in new reactors in the US will release capacity for technical
development projects in the UK as production for US customers
continues to be transferred to Martinsville.

At any one time, the Group has several strategic development,
feasibility and test programmes underway. These are essential
to our ability to diversify and win new business. Capacity and
resource to undertake this work is fundamental to the long-term
growth of the business.

The predicted significant growth in activity at both the UK
and US sites means that new or additional premises may
soon be required. An evaluation of options is now underway
and investment decisions will be made in line with expected
customer demand.

As the business has grown in size and complexity, with multiple
sites and evolving customer needs, new business software is
now required. A new SAGE 200 Enterprise Resource Planning
(ERP) system is being installed and phased-in to business
processes. This will achieve efficiencies in management and
administration by integrating day-to-day processes, including
inventory and order management, accounting, human
resources, and customer relationship management.

Intellectual Property

The IP committee met quarterly to review the IP portfolio. During
the year, new UK and international patent applications were
submitted for a further-enhanced Hardide coating and its new
applications, particularly in power generation. This is currently
under examination by the UK’s Intellectual Property Office.
Japanese and Russian Federation patents were granted for the
coating of industrial diamonds. Research continues into the
development of new coating variants and applications with the
objective of strengthening and widening the Group’s IP portfolio.
Good progress was made during the year on development of a
new coating variant; also with patent potential.

STRATEGY

Hardide’s coatings are technologically advanced and often
convey considerable commercial advantage by helping to
solve complex and difficult engineering problems. Our coatings
provide a unique combination of advantageous properties
and would enhance the product ranges of many other surface
technology companies. With high operational gearing, the
Group is working towards significantly increasing its revenue,
which means maximising gross profit. The Board believes that a
strong upward trajectory in gross profit will be seen externally as
a clear indicator of the Group’s value.

As demonstrated by the successful fundraising during the year,
the Board maintains 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 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 market sectors.

We see substantial new opportunities in our key sectors and are
working to convert these into sales. The precision engineering
sector continues to develop with multiple new applications
expected.

EMPLOYEES AND SHAREHOLDERS

In addition to expressing its thanks and appreciation to our loyal
and dedicated staff, the Board thanks Jan Ward, who resigned
from the Board during the year, for her contribution. We
welcome our new non-executive directors: Charles Irving-Swift
and Tim Rice.

The majority of our shareholders have continued to support the
Group over many years. They have shared the Board’s vision
and we hope that they now feel justified in doing so as sales
revenue accelerates and significant sales to the aerospace
sector are in prospect.

OUTLOOK

The Board is confident of further improvements in performance
in FY19 as we progress towards becoming EBITDA-positive.
The increase in oil and gas activity, the strong sales pipeline in
the UK and North America and the progress being made in test
programmes for new applications support this position.

We continue to nurture our long-term relationships with Airbus
and Leonardo Helicopters and are confident that soon we will
see the benefit to the Group.

Robert Goddard

Philip Kirkham

Chairman
5 February 2019

CEO
5 February 2019

Hardide plc Annual Report 2018Hardide plc Annual Report 2018

Strategic Report Financial Review

FINANCIAL REVIEW

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

Revenue increased by 42% to £4.61m from £3.24m in 2017.
First half sales amounted to £2.16m, with £2.45m in the second
half which benefitted from the two major supply agreements
signed during the year. Costs of sales rose by 33%, which
included the subcontract manufacturing element of one of those
agreements. Nevertheless, gross profit increased by 52% to
£2.41m at a gross margin of 52% (2017: 49%) as the increased
revenue diluted the relatively fixed costs of the production
payroll.

Administrative expenses increased by 17% to £2.71m as we
added business development resource in North America, an
additional NED and continued investment in marketing; together
with ongoing research and development expenditure.

Non-current assets were £0.57m higher than 2017 after
charging depreciation and impairment of intangible assets of
£0.37m. Principally, this reflects the costs of the new reactor
at Martinsville, 90% of which was invoiced in the year. We also
invested in new and upgraded equipment in Bicester and a new
ERP computer system for use by the whole Group.

Inventory levels rose by £0.13m as we now hold a stock of
manufactured components for call-off under one of the major
supply agreements we entered in to in the second half of the
year. Stock components are guaranteed to be purchased
within certain time periods and in the event of termination of the
agreement. We also increased our stocks of raw materials in
anticipation of a large order in Q1 of 2019.

The resulting EBITDA loss of £0.30m before exceptional items
of £0.25m represented an improvement of £0.44m compared to
the 2017 EBITDA loss of £0.74m.

Trade receivables increased by £0.13m or 21%. This was due to
a 42% increase in sales. We did not write off or provide for any
bad debts during 2018.

We have made a provision of £0.25m in the 2018 accounts for
the repayment in full of two US grants received towards the
creation of our new facility in Martinsville, Virginia. These grants
were received during 2014 and included performance targets
for number of jobs created and value of taxable assets installed,
with claw-back provisions should those targets not be met by
specific dates during the 2019 financial year. Due to the slump
in activity in the oil and gas sector, at 30 September 2018 we
had not achieved those targets. We have requested extensions
to the performance dates for both grants but in their absence
we have provided prudently for their full repayment.

Trade payable balances more than doubled to £1.06m, however
this included 60% of the cost of the new reactor, as well as
payables for manufactured stock and raw materials. Also within
current liabilities is the provision for potential repayment of
grants.

During the year we received the first $72,000 instalment of
a $240,000 loan from Martinsville Henry County Economic
Development Corporation, towards the cost of the third reactor
now installed in our Martinsville facility. The balance will be
received during 2019.

Peter Davenport

Finance Director

Strategic Report

Hardide plc Annual Report 2018

Strategic Report

Hardide plc Annual Report 201814

Strategic Report Strategic Report

Hardide plc Annual Report 2018

STRATEGIC REPORT

PREAMBLE

PRODUCTION

This strategic review has been prepared after the successful
raising of £2.54 million (before expenses of £0.07m) for the
further development of Hardide plc; particularly in the USA.
This was by way of subscription to and placing of new equity.
This was in addition to a 'soft' loan from the municipality in
which our US facility is based.

The fundraising followed notable successes in the year to
30 September 2018. Chief among these was the securing
of supply arrangements with two major new customers. The
Company’s US production facility was also accredited to ISO
9001 and AS 9100 Rev D.

OVERVIEW

The Board believes that a strong upward trajectory in gross
profit will be seen externally as a clear indicator of the
Company’s value. Accordingly, the focus is on working and
investing to grow revenues significantly so that, because
of the Company’s high operational gearing1, gross profit is
maximised. Inevitably, in the short term this will not maximise
EBITDA.

As expected, the successful establishment of our new facility
in the US has given rise to additional customer interest and
consequent sales in North America. Of strategic importance
is that it has also demonstrated management’s ability to
undertake the difficult process of transferring its technology to
a remote site. This gives confidence that further geographical
expansion can be made successfully when the time comes.
Whilst there are no current plans to build more coating
facilities in locations other than those the Company has in
North America and the UK, in due course this is likely to
change.

Substantial opportunities for new applications and new
customers or sectors usually take 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 balance sheet and a healthy cash position
to enable it to continue making revenue investment for the
medium to long term. Moreover, our customers need to know
that, as the exclusive supplier of critical parts, the Group is
financially-sound.

Historically, the Group has been very exposed to a small
number of customers and markets, and sharp fall backs in
demand from these has presented existential threats. This
year, more progress has been made in widening our base
of sectors, products and customers. Nonetheless, further
diversification is desirable, and remains a strategic objective.

The successful establishment in early 2016 of our 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 security of supply for
customers who have effectively 'designed-in' Hardide for
critical components.

In the near- to medium-term, most growth in demand is
expected to arise in North America and in anticipation of that,
a third reactor was installed there in November 2018. There
remains space in the existing premises for considerable
further expansion of capacity.

SALES & MARKETING

Customer contact

Although Hardide's coating has wide applicability in many
industry sectors, it is a specialised, 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
remark that they had until then been unaware of Hardide.
It follows that raising awareness among potential users
remains of great importance and increased resources
are being directed at this objective. Thus, 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.

In parallel with these ‘awareness’ campaigns, our business
development managers frequently contact potential users
who have not signalled an immediate requirement. However,
these customers often make contact at a later date when
a need arises. Therefore, business development staff are
concerned mostly with following up interest expressed by
potential users who have an identified and immediate need.

In the US, we have recruited this year a professionally-qualified
mechanical engineer as an additional business development
engineer. He is based in Houston and so is well-placed to
focus on the oil & gas sector, which is his principal target. This
appointment will allow more resource to be applied to develop
other markets, including North American aerospace.

Diversification

The customer and sector diversification element of the
Group’s strategy remains in place and one piece of 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.

1 Over the last three years, revenue has grown at an average rate of 47% and over the same period, gross profit rose by 87%. At the same time, short-run

fixed costs grew by only 17% per year.

Hardide plc Annual Report 2018

Strategic Report Strategic Report

We have successfully developed applications for a major global oil
& gas operator. This is for high volume and high value applications
and we believe will be taken up by others in the field. This,
together with our new supply contract with a North American
manufacturer of well-stimulation tools, is a major customer and
sector diversification away from directional drilling applications
historically very significant to Hardide. They also spread our oil &
gas business across both exploration and production.

Efforts to penetrate the aerospace industry are currently well-
advanced with Airbus, Leonardo and others; this market tends to
be counter-cyclical to the oil & gas sector and should balance well
our portfolio of market sectors.

Geographies

We will continue with our efforts to develop 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 Company classifies its applications 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 and finds many diverse applications,
useful estimates of the overall size of the addressable market are
not possible. However, the addressable market is believed to be
very large indeed.

Oil & Gas

Historically, this has been the dominant sector for Hardide and
may remain so. However, overall demand from the sector can be
highly cyclical and our customers within it have been somewhat
concentrated. Determined development work by the Group in
this sector has resulted in the securing of new and significant
customers. Moreover, the conditions in which new oil & 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 notoriously secretive and
our agreements with them prevent the Company from publicising
their name or the coating’s particular 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.

The aerospace industry is notoriously reluctant to accept new
products, but once that it has, sales can be relatively predictable,
consistent and likely to be sustained over an extended 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 also somewhat dependent upon demand from the
oil & gas, and petrochemical markets. Nonetheless the sector is
important to the Group and we will continue to develop it.

Precision engineering

Here, the potential market size is very large, but it is specialised
and highly fragmented and therefore hard to address.
Nonetheless, we intend to build on the recent aerospace approvals
and successful sales to the precision engineering sector.

Power generation

We are partnering on long-term projects with manufacturers and
important users of turbines for power generation. If accepted,
the Hardide coating will improve the operating performance and
efficiency of such equipment and should result in substantial sales
over a sustained period.

INTELLECTUAL PROPERTY, PRODUCT
DEVELOPMENT AND R&D

New UK and international patent applications have been submitted
recently. The technology covered by these would further enhance
protection of the coating and deposition process, and includes
specific attributes for the coating of industrial gas and steam
turbine blades.

There is a range of metals in common use that cannot tolerate
the temperature of Hardide’s current CVD coating process. Very
good progress has been made this year in developing a low-
temperature process that does not alter the mechanical properties
of these metals. If, as expected, the suitability of the new process
is confirmed then a wider range of new applications will be open
to coating with Hardide; especially in the aerospace and oil & gas
industries.

The development cost of this low-temperature process was
supported by a grant from Innovate UK.

The Company also received a grant from NATEP2 for the
development of applications of the low-temperature coating on
aerospace metals. The same body also awarded a separate
grant for a project to develop innovative techniques for ‘super-
finishing’3 of Hardide-coated product. Both these projects began
on 1st September 2018 and will last for 18 months. Both projects
have multiple industrial partners, including Airbus and Leonardo
Helicopters; Hardide is the lead partner in each case.

The Company continues with its more-fundamental research into
new and potentially-patentable variants of the Hardide coating.

2 National Aerospace Technology and Exploitation Programme

3 The process of achieving extremely fine and precise surface finishes

Strategic Report Strategic Report

Hardide plc Annual Report 2018

A major incident could lead to the closure of the coating
plant in the UK, resulting in a disruption to service. To
mitigate this risk, all operations are carried out to relevant
ISO9001/AS9100 and ISO14001 standards. This means that
equipment is maintained according to a planned schedule
and processes of continuous improvement and ‘5S’ are
operated. Also, robust health and safety systems are in place.
The Company’s business continuity plan includes duality of
production capability across the UK and US plants, as well as
a disaster-recovery plan to be deployed in the event of a major
failure of IT systems. 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 has
provided 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 and takes into account the needs of all
stakeholders.

CASH

The fund raising completed successfully in February 2018
will strengthen our balance sheet and has allowed capital
expenditure that will enable the increase and upgrade of the
Company’s processing capacity, as well as making further
revenue investment in technical and market development.

The strengthened balance sheet 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 balance sheet that will support
the Company in the event of possible adverse trading or
disruption to production.

RISKS

Despite the greater diversification being achieved, the
proportion of the Company’s sales to a few major customers
and sectors remains high. 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 substantial sales
are developed with the major oil & gas customers with whom
we signed framework agreements in this financial year.

The Group’s exposure to the oil & gas industry means that
we are exposed to 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 Company’s growth. While this is now
much less acute, it may still affect the rate of growth of the
Company and so may be viewed as a risk. The Group has
little or no influence over the duration of testing, which nearly
always takes longer than originally 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 the Company devotes
significant application development time and technical
resources 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 recruiting more
technical expertise, partly to provide for succession to vital
roles within the Company.

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 exchange rate. 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 outside Europe brings the risk of disruption to
supplies to the UK plant due to various factors. Furthermore,
most supplies of the process gas pass through other EU
countries and so there is a ‘Brexit risk’. We are mitigating
this potential risk by having in place supply contracts and
arrangements that include an element of ‘buffer stock’ held
within Europe as well at our suppliers’ UK sites. In North
America there are multiple suppliers of process gas and there
is local production of these. Therefore, the risk of shortage in
the US is low.

Hardide plc Annual Report 2018

Strategic Report Strategic Report

PARTICULAR STRATEGIC CHALLENGES

Planning for increases in capacity

Our customers usually have great difficulty in forecasting
their long-term demand and we often see large variances,
both higher and lower, in their actual demand relative to their
forecast. Therefore we use ‘best estimates’ for our future load
and capacity calculations. These are based on our knowledge
of customers and sectors, together with estimates of the
projected value of new applications in our pipeline. Lead
time for the installation of new coating capacity is close to 12
months and so we need to plan capacity at least two years
ahead. The current challenge is how best to increase capacity
in the UK. The current facility there has been running full for
some while and so we are now examining ways of securing
additional space for medium- to long-term expansion.

Increasing volume

As volume and customer numbers increase, the matching
of capacity to demand will become easier. This is because
each new increment in capacity will become a smaller
proportion of existing capacity and the serving of more-
numerous customers will mean that peaks and troughs in
overall demand will become progressively smaller in relation to
average demand. Accordingly, increasing sales is the leading
objective for the Company, especially since, as already
indicated, production overheads rise at a markedly slower rate
than sales. This is amply demonstrated by the most recent
three years where gross profit grew at a rate of nearly twice
that of sales.

Awareness of the Hardide coating and expanding
its market

Being a relatively new product in the industry and the fact
that it often performs a problem-solving role, means that
awareness among potential customers for Hardide and
our awareness of those customers is hard to achieve. The
Company has a programme designed to inform a wider range
of industries about Hardide.

Lead time to acceptance

Nearly always, new customers will undertake rigorous
testing of Hardide’s coating before accepting it and this
process usually takes considerable time. A series of tests
at independent laboratories has been commissioned and
these will provide additional data that in some cases will be
accepted by potential customers and thereby shorten the
acceptance lead time.

Staff numbers & employee expertise

Although employee numbers will not increase as fast as
expected sales, additional, skilled employees will be needed
to cope with the increase in demand and to replace staff who
leave. Since the Hardide coating process is new, unique and not
used by other companies, the only individuals with substantive
and up-to-date knowledge of the process are those employed
by Hardide. This means that recruits for many of our activities
have to be trained by the Company. This takes time and so the
development of new staff needs to be begun ahead of demand.

Corporate Governance Board of Directors

BOARD OF DIRECTORS

Robert John Goddard

Chairman

Philip David Kirkham

Chief Executive Officer

Robert was appointed Chairman in January 2008 and is
a member of the Audit Committee and the Intellectual
Property Committee. He is chairman of the Risk
Committee.

Robert has some 25 years of experience serving on the boards
of public companies, both in the UK and overseas and most
of them as chairman. A chartered engineer and with an MBA
(from London Business School), he has extensive international
experience as a senior executive in the oil industry and in
speciality chemicals. He was Group Development Director of
Burmah Castrol until 2000. Following that he 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 sometimes adviser to, several early-stage med-tech and
pharmaceutical companies.

Current external appointments: Senior Partner at RedStart
Partners; Partner at Boundless Ventures LLP

Philip was appointed Chief Executive Officer on
1st September 2012. Philip is a member of the Intellectual
Property Committee and the Risk Committee.

Philip has an executive general management career spanning
more than 40 years, the last 30 years at board level in
companies predominantly within the metals and engineering
sector. His career includes Manufacturing Director at DSF
Refractories, Divisional Managing Director at MS International
plc, Senior Vice President Metals Division at Firth Rixson
Ltd, Executive Vice President at Rolls-Royce plc and CEO
of Materials Advantage Group. Prior to this he held senior
operational roles at the British Steel Corporation and Sheffield
Forgemasters. He holds a BSc in Chemical Engineering
from the University of Manchester and an MSc in Advanced
Manufacturing Management. Philip is a Chartered Engineer,
European Engineer, Fellow of the Institution of Mechanical
Engineers and Fellow of the Institution of Engineering and
Technology. He brings a wealth of knowledge and experience
in engineering and manufacturing industries as well as
international, general and commercial management experience.

Current external appointments: None

Andrew Richard Boyce

Non-Executive Director

Timothy Julian Rice

Non-Executive Director

Andrew was appointed Non-executive Director on
12th June 2012. Andrew is a member of the Remuneration
and Nomination Committee.

Timothy was appointed Non-executive Director on
20th March 2018. Tim is chairman of the Remuneration and
Nomination Committee.

Andrew represents a significant 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. He has a deep knowledge
and understanding of the Hardide business. He has significant
experience as a director on multiple boards and adds an informed
and challenging dimension to the Board. 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.

Current external appointments: Director of a number of farming
and property companies. Other appointments of note include
non-executive director of Atlantic Healthcare plc, a pharmaceutical
company, where he is chair of the Remuneration Committee
and a member of Nominations Committee, and director of
TDCM Ltd, manufacturer of electric motors for the automotive
sector and electric two-wheeler market, where he is chair of the
Remuneration and Nominations Committee.

Background and suitability for the role: Tim brings more than
30 years of experience in the aerospace and defence sectors,
having held senior executive positions with companies such
as Vector Aerospace, Safran Group, Spirent and Dowty. He
is an experienced adviser to companies in the aerospace and
defence sectors, involved in strategy, business development
and partnering, and organisational change. Tim has a BSc
in Mechanical Engineering and holds an MBA from Warwick
University. In addition, he is a Chartered Engineer, a Fellow of
the Institution of Mechanical Engineers and a Fellow of the Royal
Aeronautical Society.

Current external appointments: Director - C House
Consulting Limited, Trustee - Midlands Air Ambulance Charity,
Trustee - Insight Gloucestershire

Hardide plc Annual Report 2018Corporate Governance Board of Directors

Peter Neil Davenport

Finance Director

Dr Yuri Nikolaevich Zhuk

Technical Director

Yuri is a co-founding director. He is chairman of the
Intellectual Property Committee.

Yuri started his career as a scientist and later became a
technology entrepreneur gaining over 25 years of successful
international technology business experience in advanced
materials. 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. As a co-founder of Hardide, Yuri managed the
Company’s CVD coating technology development from early
laboratory stage to the aerospace-approved manufacturing
technology now used by blue chip customers. He participated
in several fundraisings from the first seed capital round to the
Hardide plc listing on the London Stock Exchange AIM market.
As Technical Director, Yuri is responsible for the Company’s
technology, R&D, patenting, production improvement and
applications development programmes, working with key
customers. He is the author of patents and numerous scientific
and technical publications, and has presented the Company
and technology at leading international conferences. Yuri
brings in-depth knowledge of advanced coatings and surface
engineering technology, proven expertise in management of
R&D and commercialisation of advanced materials, technology
start-ups, patenting and intellectual property management, as
well as general business management experience.

Current external appointments: None

Peter joined Hardide Coatings Limited as Financial Controller
in June 2005, becoming Finance Director of Hardide plc in
March 2006. He is Company Secretary and a member of the
Risk Committee.

Peter joined the Royal Mail Group’s Corporate Accountancy Training
Scheme in 1995 and was placed in a variety of roles throughout
the Group including internal audit, marketing, investment appraisal,
and management accounting. He passed his final CIMA exams in
1998 and joined Parcelforce Worldwide as Operations Analyst and
was promoted to Operations Management Accountant in 2000.
He joined Valspar Industries UK Ltd as Accounts Manager in 2002
with responsibility for all aspects of the finance function of a £10m
turnover business including sales administration, payroll, credit
control, purchase ledger and distribution.

Current external appointments: Director of John Moore Heritage
Services Ltd, an archaeological consultancy

Charles Edward Irving-Swift

Senior Independent Director

Charles was appointed Non-executive Director on 20th March
2018 and designated Senior Independent Director on 23rd
August 2018. Charles is chairman of the Audit Committee.

Charles has spent 35 years in the engineering and construction
materials industries, including 27 years in general management
roles and four years in strategic planning. After an initial plant
management assignment in Germany, Charles assumed pan-
European and global divisional CEO responsibilities for multi-site,
multinational businesses, focusing on the implementation of
performance improvement and restructuring plans with Dana
Corporation (USA), TT electronics, plc, (UK), Armstrong World
Industries, Inc. (USA) and O&S Doors, Ltd (UK) and leading
their growth into new geographical markets abroad. Charles
has extensive international experience, having spent 16 years in
expatriate positions in Germany, France and the USA. He also
brings significant UK plc knowledge to the Board, having served
as Non-Executive Director of Victrex plc, where he was Chairman
of the Audit Committee, and Non-Executive Director of Brammer
plc, where he was Chairman of the Remuneration Committee.
Charles holds a BA Honours Degree in Modern Languages from the
University of Oxford and an MBA from INSEAD Business School in
France. He is fluent in French and German. The Company benefits
from Charles’s extensive international management, strategic
planning and plc board experience in industrial businesses.

Current external appointments: None

Hardide plc Annual Report 201820

Corporate Governance Report of the Directors

REPORT OF THE DIRECTORS

RESULTS

The Group loss for the period, after taxation, amounted to £865,000 (2017: £1,096,000 loss). The directors have declared that no
dividends will be paid in respect of the 2018 financial year (2017: 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

Charles Irving-Swift

Tim Rice

Jan Ward

Philip Kirkham

Yuri Zhuk

Peter Davenport

Appointed

Resigned

Number of shares

30 September 2018

30 September 2017

28 January 2008

18 June 2012

20 March 2018

02 March 2015

20 March 2018

1 September 2012

14 March 2005

21 March 2006

7,311,285

588,235

505,050

550,000

2,592,952

6,281,132

4,376,667

6,723,050

1,250,000

2,004,717

6,281,132

4,376,667

In addition to the shares Andrew Boyce holds in his own name, he also 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 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 judgements 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.

Hardide plc Annual Report 2018

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 judgement 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 2018 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

Amati Global Investors Ltd

Canaccord Genuity Wealth Management (Institutional)

Unicorn Asset Management Ltd

Canaccord Genuity Wealth Management (Non-Discretionary)

W S C Richards OBE

T Simpkin esq

Robert Goddard
Director

5 February 2019

Shareholding

267,134,461

248,550,000

180,878,526

155,557,710

99,101,407

81,829,947

68,520,353

66,882,996

15.7

14.6

10.7

9.2

5.8

4.8

4.0

3.9

Hardide plc Annual Report 2018

Corporate Governance Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE CODE PUBLISHED BY THE QUOTED COMPANIES ALLIANCE (THE ‘CODE’)

The Company has adopted formally the Code published in April 2018 by the Quoted Companies Alliance. It is the policy of the Board to
comply with the Code wherever it is practicable to do so. The following Statement sets out how the Company complies with the salient
aspects of the Code.

THE BOARD

Attendance

During the year, regular scheduled Board meetings were held each month, with Committee meetings scheduled quarterly or called as
required. Directors' attendance at these meetings was as follows:

NEDs only

Scheduled
Board
Meetings
Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended Eligible Attended

Remuneration
& Nomination
Committee

Intellectual
Property
Committee

Audit
Committee

Risk Committee

Director

A R Boyce
12
P N Davenport 12
R J Goddard 12
P D Kirkham 12
T J Rice
6
C Irving-Swift 6

J E Ward

Y N Zhuk

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.

Board Committees

Formulation of strategy

There are four standing Board Committees, as described
later 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 13 such
written directors' resolutions in the year.

Occasionally ad hoc Board Committees are convened when
prompt decisions are required.

Matters reserved by the Board and authority
levels

There is a formal schedule of matters reserved for Board
decision. This includes any raising of funds, the setting
of high level targets, approval of budgets, strategy, and
capital and 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.

Formulation of Corporate Strategy is led by the Chairman
and set by the whole Board. Whilst the creation of budgets
and Business Strategy is undertaken mainly by the executive
directors and done in compliance with the framework of the
Corporate Strategy. The Business Strategy is challenged by
the Board, finally approved and then monitored by it.

Business Reviews

At its regular monthly meetings, the Board reviews both the
financial position of the Group and information about non-
financial performance. Financial information includes detailed
profit & loss accounts, cash flow statements and balance
sheets for 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
applications, sectors and customers.

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

Hardide plc Annual Report 2018

Corporate Governance Corporate Governance Statement

COMPOSITION, CULTURE AND EFFECTIVENESS
OF THE BOARD

Number of directors

Recently, it was decided that there should be a majority of non-
executive directors. In addition, there was a developing need
for a director with high-level expertise, experience and network
in the aerospace industry. Moreover, to comply fully with the
Code, the chairs of the Audit Committee and the Remuneration
& Nomination Committee need to be independent directors and
the Chairman of the Company should not chair either of these
Committees. Perhaps most importantly, it was considered that
some fresh thinking was needed and that the appointment of
two new non-executive directors would help guard against the
development of a mono-culture. Moreover, an additional non-
executive director would mean that the Company would be able
to designate a senior independent director (‘SID’).

Recruitment and induction

Accordingly, after a wide-ranging process lead by a professional
search firm, Tim Rice and Charles Irving-Swift were appointed
as non-executive directors in March 2018. Their respective
backgrounds are set out in the RNS announcement of their
appointments.

The two new directors participated in a comprehensive
induction programme ahead of their first Board and Committee
meetings. These inductions were led by the Chairman and Chief
Executive Officer (CEO) and at various points involved all of the
executive team. Ahead of this, the new directors were issued
with all the terms of reference for the various Board Committees
and the full range of written policies and procedures, including
the Company’s share dealing code.

As a result, both of the new directors were enabled to take
the initiative quickly on several matters and have already
demonstrated their readiness and ability to do so; as well as
contribute valuable new thinking and insights.

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 in the annual report.

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.

Independence of directors

The ‘independence’ of each of the four non-executive directors
has been assessed by four, single purpose ad hoc committees
of directors. Excluded in turn was the non-executive director in
question. The main criteria for independence were:

i. Based on the observed conduct of the director at and outside
Board and Committee meetings, has that director acted clearly
and consistently in the best interests of the Company?

ii. Has there been any matter affecting the Company that might
have given rise or might give rise in the future to any conflict of
interest?

iii. Is the director’s direct or indirect holding of shares or other

financial instruments of the Company substantial enough to
cause an external observer to believe the director in question
might possibly have a potential conflict of interest? In this case,
‘substantial’ has been taken to mean 10% or more of the total
issued share capital.

Mr Boyce is not considered to be an independent director
because he did not satisfy the third of these tests. Nonetheless,
it should be noted that Mr Boyce is party to a Relationship
Agreement with the Company. Each of the three other
non-executive directors is considered by the Board to be
‘independent’.

Culture of the Board

All directors are conscious that the growth now expected
of Hardide will present new challenges. There will be more
specialism and the dynamics of staff interaction will change.
The Board is now well equipped with directors able to support
that change in more ways than hitherto.

Non-executive directors are actively and regularly consulted
by the Chairman and encouraged to provide feedback. Also,
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. Despite this, and
because there are now four non-executive directors, the Board
has concluded that there should be a Senior Independent Director
and has designated Charles Irving-Swift to assume that role.

Open exchange among Board members is a well-established
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.

Rather than raising it at a formal Board meeting, sometimes the
first airing of an idea or a concern can be done more effectively
on an informal basis. To this end, directors are encouraged to
meet informally off-site to discuss any Company matters that
they choose.

The CEO and Chairman have an off-site meeting every month.
At this meeting they discuss the upcoming Board meeting, the
latest performance indicators and particular challenges facing
the Company and high-level ‘people’ issues.

All directors may have access to independent professional
advice at Company expense.

Roles of CEO, Senior Independent Director and
Chairman

As Hardide is a small company, most directors have a range of
tasks and responsibilities

CEO:

All members of the senior management team, including the
other two executive directors report to the CEO. The CEO
develops, gains Board approval for and implements the
Business Strategy, and designs and implements the sales and
marketing plans. By virtue of his deep experience in mechanical
engineering he provides strong support for operations and
engineering. Also, he has the principal responsibility for the
Company’s financial performance. He maintains a strong
relationship with the Chairman and is jointly responsible with him
for shareholder communication and, by way of staff briefings

Hardide plc Annual Report 201824

Corporate Governance Corporate Governance Statement

ensures broader awareness of the Company’s performance
and challenges among employees. These staff briefings are
usually held on a monthly basis. Ensuring compliance with
the quality management systems, adequate staff training,
the health & safety of employees and the environment
performance are direct accountabilities of the CEO.

Senior Independent Director (‘SID’):

This is a recent appointment and the SID is charged with:

i being a conduit for concerns of directors, shareholders

and other stakeholders who prefer to discuss matters that
they have been unable to resolve through other channels.

ii being available to meet principal shareholders.

iii being a sounding board for the Chairman.

iv along with other non-executive directors and having taken

soundings among other suitable parties, conducting
regular reviews of the performance of the Chairman.

The Chairman:

The role of the Company’s Chairman is to:

i ensure effective communication with shareholders.

ii be available to shareholders for private meetings with

principal shareholders.

iii set the overall rules for corporate governance and ensure

compliance with these.

iv lead the development of Corporate Strategy.

v ensure effective and open communication among

directors; particularly at Board meetings.

vi chair the Risk Committee and be an ordinary member
of the Audit Committee and the Intellectual Property
Committee.

vii together with the CEO, direct and lead induction

programmes for new directors.

viii ensure the appropriate content, accuracy, format and

presentation of information for the Board.

Evaluation of the Board and individual directors

The Chairman and the CEO agree annually a set of objectives
for the CEO and this is shared with other non-executive
directors. These objectives are taken into account when
setting remuneration for the CEO. The CEO conducts
performance planning exercises for his direct reports.
Previous year’s performance is discussed each time. As with
the CEO, and in co-operation with him, the Remuneration
& Nomination Committee takes account of personal
performance plans for each executive director.

Collectively and individually, the directors monitor the
performance of the Board as a whole 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; together
with the performance and 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, a process

has been agreed whereby objectives for the Board are agreed
formally and responsibility for the skills and behaviour needed
to meet those objectives is identified and then incorporated
into the performance planning process for each individual
director. Alongside this formal process, the Chairman has
frequent contact with individual directors; this provides the
opportunity for effective two-way ‘calibration’ and is another
way of addressing performance concerns on a one-to-one
basis. The newly-designated SID is also available for one-to-
one meetings with other directors.

Meetings of the four non-executive directors may include
consideration at appropriate times of the performance of
individual executive directors.

Range of skills and experience

A formal exercise was undertaken to establish the range of
skills and experience needed on the Board. These included
professional qualifications and practice in engineering and
accounting, together with relevant experience in corporate
governance and the formulation and implementation of
strategy. Each director was ‘assessed’ against the criteria.
Except for a professional qualification in accounting and
in-depth knowledge of advanced coating technology, at least
two directors possessed each of the skills or experience
assessed as needed among the directors. Four of the
directors have MBAs.

With assistance from the CEO, meetings of the non-
executive directors will re-visit the available range of skills and
experience among the directors and ‘mark’ these against
those ideally needed to achieve the Board’s objectives.

Company Secretary

At present, the Finance Director (Mr Davenport) also acts as
the Company Secretary. The directors have reviewed this
dual role and consider it to be acceptable. This is on the
grounds that the corporate structure of the Company is fairly
simple and Mr Davenport has ready access to advice from a
specialist firm that is familiar with Hardide’s needs in respect
of secretarial matters.

Succession planning

Overseen by the Remuneration and Nominations Committee,
a process is underway to complete a formal succession
plan for those directors and senior staff who are vital to the
operation and ultimate success of the business. The relevant
roles and individuals have been identified and the Chairman
and the CEO have agreed on suitable measures to be put in
place.

Terms of appointment of non-executive directors

The non-executives’ principal terms and conditions are
available for inspection by shareholders ahead of any general
meeting of the Company. What follows is a summary of those
terms and conditions.

Annual fees for the Chairman are £50,000 and those for
the other non-executive directors are £25,000. For Charles
Irving-Swift, these fees are paid wholly under the PAYE
system. For the Chairman, Andrew Boyce and Tim Rice, fees
are paid split between their personal service companies and
the PAYE system.

The terms of appointment of all non-executive directors
require them to serve on Board Committees and devote

Hardide plc Annual Report 2018Corporate Governance Corporate Governance Statement

sufficient time to their roles. All directors are entitled to seek
independent legal advice and have personal indemnity
insurance paid for by the Company.

All directors are obliged to inform the Board of any new
professional commitments or potential conflicts of interest.

Directors are bound by confidentiality, especially with regard
to technology and following the end of their appointment may
not, for one year, be engaged in any business or technology
that is competitive with Hardide.

All non-executive directors’ appointments are terminable at
one month’s notice by either party.

BOARD COMMITTEES

The 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.

The terms of Reference for each standing Board Committee
can be found on the Company’s website.

Remuneration and Nomination Committee

The Committee comprises Tim Rice as chair (since August
2018) and the previous chair, Andrew Boyce. It meets at least
quarterly. In this financial year it met eight times. Its duties are
to:

i Determine and agree with the Board the framework or

broad policy for the remuneration and contractual terms
of the Chief Executive Officer (CEO), Chairman, the
executive directors and such other members of the senior
management as it is designated to consider.

ii 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.

iii Design 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
managers and the performance targets to be used.

iv 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.

v Within the terms of the agreed policy and in consultation
with the Chairman and/or CEO as appropriate, determine
the total individual remuneration package of each executive
director and other senior managers who report to the
CEO, including bonuses, incentive payments and share
options, other share awards or other benefits. Particular
attention is paid to designing remuneration packages that
are in alignment with the budget for the year ahead and
especially with the Company’s strategic goals.

vi At suitable times, review the implementation of succession

plans.

vii Oversee any proposal for major changes in employee

benefits throughout the Group.

Audit Committee

The Audit Committee comprises Charles Irving-Swift (chair
since August 2018) and Robert Goddard (the previous chair).
Normally, the Finance Director attends by invitation. Whilst no
non-executive member of the Board has a full qualification in
accounting, Mr Irving-Swift and Mr Goddard are both deemed
competent by virtue of their MBAs.

The Audit Committee meets at least 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:

i Monitor the integrity of the financial statements and the

financial reporting process.

ii Review and challenge the effectiveness of the Group’s

internal controls, risk identification and risk management
systems.

iii Review the Group’s arrangements for its employees to
raise concerns in confidence and with impunity about
possible wrongdoing and ensure these arrangements allow
proportionate and independent investigation.

iv Review and keep up to date the Group’s procedures for
detecting and preventing bribery and fraud; and ensure
that the Group complies with all relevant legislation in those
jurisdictions where the Group operates and/or employs
staff.

v 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.

vi 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,
including taxation services, but there are no other
relationships with the auditor of which the Company is
aware that may compromise the auditor’s objectivity and
independence.

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

During the year there were no significant matters regarding
the auditor or the audit process that the Committee needed
to act upon.

The Company’s auditors, James Cowper Kreston, were
reappointed for the year ended 30th September 2018 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 by reference to the auditor’s
audit plan, post-audit management letter and discussion with
the finance director and Audit Committee.

Hardide plc Annual Report 201826

Corporate Governance Corporate Governance Statement

Intellectual Property Committee

Share Option scheme

The IP Committee comprises Yuri Zhuk (Chair), Robert Goddard
and Philip Kirkham and meets quarterly. It is charged with
reviewing and in some cases deciding upon all matters relating
to intellectual property, including patents, trademarks and know-
how. It is also responsible for non-disclosure agreements and
joint development agreements designed to protect and develop
intellectual property. When necessary the Committee uses
services of the company Patent Attorneys (HGF) Ltd to perform
patent search and provide legal advice on the IP matters. The
Committee makes recommendations to the Board where the
Committee does not have delegated powers.

Risk Management Committee and the management
of significant events

The Board has overall responsibility for the Company’s system
of risk management and does so in cooperation with its Risk
Management Committee. The Committee’s role is to identify the
strategic, operational and financial risks to which the Company
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 considered by the Committee include
those relating to movements in exchange rates, solvency, and
liquidity; as well as operational risks.

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 Company has identified are included in
the Strategic Report.

The Company has a comprehensive ‘Bid Alert Manual’ and this
is updated at least annually. Much of its content would also be
used in the management of a major adverse incident. Directors
are asked to ensure that a copy is available to them at all times.
In addition, the Company has a Crisis Management and Disaster
Recovery Procedure.

REMUNERATION

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 Code, so long as it is
practicable to do so.

Policy for the remuneration of the executive directors includes
three main objectives. These are to:

i provide remuneration packages to attract, retain and

motivate executive directors and senior management of the
calibre needed to run the Group successfully.

ii ensure that there is a strong link between such remuneration

and the Group's strategy.

iii align the executive directors' interests with those of shareholders.

Remuneration components

The remuneration of the executive directors has three
components. They are:

i base salary.

ii an annual performance-related discretionary bonus (non-

pensionable).

iii a long-term incentive plan comprising share options.

The share option scheme was reviewed by the Remuneration
& Nomination Committee during the year and agreed to by the
Board with 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.

ii share options are recognised as effective means of

incentivising and encouraging the retention of senior
managers and employees.

iii 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.

iv also, grants may be considered for long-serving key

managers and employees where it is considered they have
added value over the term of their employment and should
be recognised, incentivised and retained.

v vesting criteria vary. Usually they incorporate the period since
grant and the achievement of particular share price above
that current at the date of grant.

vi any grant is always at the discretion of the main Board.

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 apart from the non-executive director
under review.

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

Compensation for loss of office

There are no predetermined special provisions for compensation
for executive or non-executive directors in the event of loss of
office. The Remuneration & Nomination Committee considers
the circumstances of individual cases of early termination and
determines compensation payments accordingly. An important
principle is not to reward poor performance.

EXTERNAL ADVISERS

The Company consults a range of professional advisers.
Principally, these are:

Its Nominated Adviser, Broker and Corporate Finance
adviser. These functions are widely understood and so not
elaborated here.

ii Corporate lawyer – who also advises on intellectual property
matters not within the scope of support available from the
patent attorney.

iii Patent attorney – who, in addition to advising on patent

strategy and the handling of patent renewals, also assists
with the preparations of patent applications.

iv Tax adviser. Unless they are conflicted, the Company’s

auditor provides tax advice and prepares returns. It also
advises on R&D tax credits.

Hardide plc Annual Report 2018Corporate Governance Corporate Governance Statement

v A specialist adviser in company secretarial matters. Also
provides advice and looks after the Company’s statutory
books and filings.

vi Adviser on the implementation of data sets, rules and

procedures required under the GDPR (expected to be once-
off only).

The Company distinguishes between Corporate Strategy and
Business Strategy. The former is developed by the full Board
and the latter by executive directors and senior staff, but
approved by the Board. The Company has a policy of re-visiting
its strategies at least annually. The Business Model is derived
from the Business Strategy.

vii Employment lawyer.

CYBER SECURITY

viii A Health, Safety & Environment adviser.

The identities of the first four of these advisers can be found on
the final page of the Company’s Annual Report. The roles of the
last four above are obvious from the title of the adviser and so
are not elaborated upon here.

Recently, the Company has significantly strengthened its
cyber security systems. It has done so with the assistance of
an external specialist cyber security company and has been
awarded the government-backed Cyber Essentials accreditation.

COMMUNICATION WITH STAKEHOLDERS

BRIBERY ACT, 2010 (THE ‘ACT’)

Shareholders

Well before the Act came into force, the Group had in place
a full “Anti-bribery Policy” and this was in parallel with 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 raise, in confidence, concerns about financial or
other impropriety with any director. The Group Compliance
Officer reports to the Board. From time to time, the Board
considers whether these policies need to be updated. The main
provisions of the Act and Company policies and procedures
appear in the staff handbook. Annually, all staff are required
to confirm that they have read, understood and complied with
these.

Hardide’s policy regarding its anti-bribery rules and guidance
thereon may be found on the Company’s website.

THE MARKET ABUSE REGULATION (‘MAR’)

The Company has comprehensive policies and procedures
designed to achieve compliance with MAR. This 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.

Hardide has elected to adopt a 30-day closed period, in
accordance with MAR requirements.

THE GENERAL DATA PROTECTION REGULATION
(‘GDPR’ OR ‘REGULATION’)

This Regulation came into effect in May 2018. Prior to that,
and in recognition of its far-reaching application, as well as
the considerable fines payable in the event of its breach, the
Company, with the assistance of an external consultancy began
developing its GDPR compliance plan in mid-2017. As a result
of this, all the procedures and proper records were in place
before the due date.

FORMULATION OF STRATEGY AND BUSINESS
MODEL

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

When there is a significant event affecting the Company, full use
is made of the Regulatory News Service (the ‘RNS’). Shortly after
full- and half-year results are published, as well when seeking
new funding, the CEO, FD and Chairman make themselves
available to present the results in person, and do so. In addition,
the Chairman has regular contact with significant shareholders
and they are free to contact him with any concerns. Face-to-face
or telephone contact between the Chairman and shareholders
is encouraged by way of letters to significant shareholders
inviting them to make direct contact with either him or the Senior
Independent Director. Alternatively, shareholders are free to
make contact via finnCap, the Company’s brokers.

From time to time, shareholders visit Hardide’s premises. On
these occasions, they are invited to ask questions and are
welcome to express concerns that they may have and give their
opinion on how they would like to see the Company develop.

Hardide’s website is comprehensive and, as well as statutory
documents, includes profiles of directors and descriptions of
a wide range of Company features and activity. Hard copies
of Hardide’s annual report are available from the Company on
request.

Other Stakeholders

In addition to shareholders, the Company considers
stakeholders to include the employees, customers, suppliers,
the local community and other parties with whom it interacts.
As part of its Quality Management Systems, the Company has a
comprehensive ‘map’ of all of its stakeholders.

All UK-based staff are invited to a monthly briefing where the
CEO presents, explains, and responds to questions about,
important developments in the Company or its environment.
Since Hardide’s processes are unique in many respects, new
staff are most unlikely to have knowledge of the processes and
so require lengthy training. Therefore, the Company attaches
great importance to the wellbeing and retention of its staff. All
employees have health plan benefits and undergo regular health
checks as appropriate to their work activity.

The Company is accredited to and complies with the
international environmental management standard, ISO 14001.

On behalf of the Board,

Robert Goddard
Chairman

5 February 2019

Hardide plc Annual Report 2018
28

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 ‘Group’) for the year ended 30 September 2018 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

2018 and of the Group’s loss and the Group’s and parent company’s cash flows for the year then ended;

• the financial statements of the Group and of the parent company 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

AN OVERVIEW OF THE SCOPE OF OUR AUDIT

We conducted our audit in accordance with International
Standards on 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.

CONCLUSIONS RELATING TO GOING
CONCERN

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.

We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)). We designed our
audit by determining materiality and assessing the risks
of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective
judgements, 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.

The audit scope was as follows:

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 – audit
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.

Hardide plc Annual Report 2018Financial Statements Independent Auditor's Report

KEY AUDIT MATTERS

GRANT INCOME RECOGNITION

Key audit matters are those matters that, in our professional
judgement, 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.

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;

• examined a sample of revenue transactions by 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.

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.

Key observations

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 6 the total charge to
the Statement of Comprehensive Income for the year was
£73,000 (2017: £51,000).

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 judgement regarding the assumptions
which are applied in calculating the fair value of the options.

Hardide plc Annual Report 201830

Financial Statements Independent Auditor's Report

How the scope of our audit responded to the risk

• considered the value, nature and cause of misstatements

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 judgements, 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 judgements 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 judgements,
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;

• examined on a sample basis manual journals deemed to

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

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 judgements 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.

On the basis the Group focus is on increasing sales significantly
and transitioning from significant losses, towards break-even
and profitability, a turnover rather than profit measure was
deemed the most appropriate benchmark to use to calculate
materiality. Having regard to both the size of the business and
its performance, 1.5% of turnover was viewed as an appropriate
level to set materiality. Based on our professional judgement
materiality was set at £69,000 (2017: £62,000). Performance
materiality of £48,300 (2017: £44,000) was applied for testing
and it was agreed with the Board that we would report on
all audit differences in excess of £3,500 (2017: £3,000), 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 pre-tax loss based
benchmark.

The parent company does not generate significant sales
and incurs significant expenditure. As a result, we believe a
loss-based measure to be the most appropriate benchmark
to use to calculate materiality. Having regard to both the size
of the company and its performance, 5% of the loss before
tax, after adjusting for foreign exchange gains and losses on
intercompany balances and intercompany charges turnover,
was viewed as an appropriate level to set materiality. Based on
our professional judgement materiality was set at £41,000 (2017:
£50,000). Performance materiality of £28,700 (2017: £35,000)
was applied for testing and it was agreed with the Board that we
would report on all audit differences in excess of £2,100 (2017:
£2,500), 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 pre-tax loss 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 £40,000 and £69,000.

Hardide plc Annual Report 2018Financial 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

RESPONSIBILITIES OF DIRECTORS

As explained more fully in the directors’ responsibilities
statement set out on page 11, 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

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/auditorsresponsibilities
This description forms part of our auditors’ report.

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.

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

For and on behalf of

James Cowper Kreston
Chartered Accountants and Statutory Auditor
2 Chawley Park
Cumnor Hill
Oxford OX2 9GG
United Kingdom

• we have not received all the information and explanations we

5 February 2019

require for our audit.

Hardide plc Annual Report 2018
32

Financial Statements Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2018

Revenue

Cost of sales

Gross profit

Administrative expenses

Depreciation and amortisation

Exceptional item:
Provision for grant repayment

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

2018
£ ’000

4,613

(2,201)

2,412

(2,711)

(373)

(246)

(918)

(3)

(913)

(865)

(0.1)p

(818)

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)

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

Hardide plc Annual Report 2018

Financial Statements Consolidated Statement of Financial Position

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For Hardide plc, company registered number 05344714
at 30 September 2018

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

Provisions

Provision for grant repayment

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

2018
£ ‘000

2,033

2,127

286

749

265

3,302

4,602

6,729

1,336

246

1,592

3,010

1,650

5,079

3,405

12,676

(10,925)

308

(385)

5,079

2017
£ ‘000

1,490

1,560

160

622

242

1,212

2,236

3,796

488

493

1,743

505

3,291

3,242

10,306

(10,060)

235

(432)

3,291

The financial statements were approved and authorised for issue by the Board on 5 February 2019.

Robert Goddard
Chairman

Hardide plc Annual Report 2018

Financial Statements Consolidated Statement of Cash Flows

CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2018

Cash flows from operating activities

Operating (loss)
Impairment of intangibles

Depreciation

Share option charge

(Increase) in inventories

(Increase) in receivables

Increase in payables

Increase in provisions

Cash generated from / (used in) operations

Finance income

Finance costs

Tax received

Net cash generated from / (used in) 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

New loans raised

Net cash generated from / (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

2018
£ ‘000

(918)
2

371

(124)

(149)

793

246

294

(3)

392

(887)
(887)

2,533
(3)

2,585

2,090

1,212

3,302

2017
£ ‘000

(1,238)
1

503

(100)

(91)

(796)

(1)

207

(586)

(152)
(152)

-
(17)

(17)

(755)

1,967

1,212

Hardide plc Annual Report 2018

Financial Statements Consolidated Statement of Changes in Equity

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018

Share
Capital
£ ‘000

Share
Premium
£ ‘000

Share-based
Payments
£ ‘000

Foreign
Translation
£ ‘000

Retained
Earnings
£ ‘000

At 1 October 2016

3,242

10,305

184

(390)

(8,964)

Issue of new shares
Share options

Exchange translation

Loss for the year

-
-

1
-

-
51

-
-

(42)

-
-

(1,096)

At 30 September 2017

3,242

10,306

235

(432)

(10,060)

At 1 October 2017

3,242

10,306

235

(432)

(10,060)

Issue of new shares
Share options

Exchange translation

Loss for the year

163
-

2,370
-

-
73

-
-

(865)

At 30 September 2018

3,405

12,676

308

(385)

(10,925)

Total
Equity
£ ‘000

4,377

1
51

(42)

(1,096)

3,291

2,533
73

(865)

5,079

Hardide plc Annual Report 2018

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 2018 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
Company’s financial statements for the period beginning 1
October 2017.

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

10. IFRS 11 Accounting for Acquisitions of Interests in Joint

Operations - Amendments to IFRS 11

11. IFRS 14 Regulatory Deferral Accounts

16. IAS 24 Related Party Disclosures - Key management

personnel

17. IAS 27 - Equity Method in Separate Financial Statements -

Amendments to IAS 27

18. IAS 34 Interim Financial Reporting - Disclosure of

information 'elsewhere in the interim financial report'

19. IAS 7 Disclosure Initiatives - Amendments to IAS 7

20. IAS 12 Recognition of Deferred Tax Assets for Unrealised

Losses - Amendments to IAS 12

21. AIP IFRS 12 Disclosure of Interests in Other Entities -

Clarification of the scope of the disclosure requirements
in IFRS 12

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

Standards, amendments and interpretations that
are not yet effective for Hardide Plc 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 January 2018

• 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

• AIP IAS 28 Investments in Associates and Joint Ventures -
clarification that measuring investees at fair value through
profit or loss is an investment - by - investment choice

Effective date* 01 January 2019

• IFRS 9 Prepayment features with negative compensation

12. IAS 1 Disclosure Initiative - Amendments to IAS 1

(amendments to IFRS 9)

13. IAS 16 and IAS 38 - Clarification of Acceptable Methods

• IFRIC 23 Uncertainty over income tax treatments

of Depreciation and Amortisation - Amendments to IAS 16
and IAS 38

• IFRS 16 Leases

14. IAS 16 Property, Plant and Equipment and IAS 38

Intangible Assets - Revaluation method - proportionate
restatement of accumulated depreciation/amortisation

15. IAS 19 Employee Benefits - Discount rate: regional market

issue

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

The directors are currently reviewing the impact on the
financial statements of the Group in future periods, particularly
in relation to IFRS 15 and IFRS 16.

Hardide plc Annual Report 2018Financial Statements Notes to the Group Financial Statements

The following principal accounting policies have been
applied:

Basis of preparation

The financial statements have been prepared on the going
concern basis, under the historical cost convention. These
financial statements are presented in pounds sterling because
that is the currency of the primary economic environment in
which the Group operates. All amounts are rounded to the
nearest thousand pounds.

Principal activity

The principal activity of the Group and parent company is a
leading producer of patented Chemical Vapour Deposition
(CVD) coatings for the oil and gas industry, flow control
equipment, advanced engineering and aerospace.

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: 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.

Impairment of intangible assets

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.

Hardide plc Annual Report 201838

Financial Statements Notes to the Group Financial Statements

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

4 years

Computer equipment

4 years

Depreciation is not charged on assets under construction.

The carrying values of property, plant and equipment and
investments measured using a cost basis, are reviewed for
impairment only when events indicate the carrying value may
be impaired.

Investments

Investments held as fixed assets are stated at cost less any
provision for impairment.

Inventories

Inventories are valued at the lower of cost and net realisable
value. The costs incurred in bringing each product to its
present location and condition are accounted for as follows:

Raw materials

Cost of purchase on a
first in, first out basis

Work in Progress and
Finished goods

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 shorter of the
useful economic life of the asset and the lease term. 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 liabilities and equity

Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into.

A financial liability exists where there is a contractual
obligation to deliver cash or another financial asset to another
entity, or to exchange financial assets or financial liabilities
under potentially unfavourable conditions. In addition,
contracts which result in the entity delivering a variable
number of its own equity instruments are financial liabilities.
Shares containing such obligations are classified as financial
liabilities.

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.

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
approximately 100 days or less.

Trade and other receivables and payables

Trade and other receivables are stated at amounts receivable
less any provision for recoverability. Trade payables are
stated at their nominal value.

Government grants

Government grants towards research and development
and investment are recognised as income over the periods
necessary to match them with the related costs and are
deducted in reporting the related expense.

Foreign currencies

The 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.

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

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 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. Research and
Development Tax Credits are recognised on an accruals basis.

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 judgements:

Estimates and judgements 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 30% 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) 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.

(c) 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.

(d) 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.

Hardide plc Annual Report 201840

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 in to UK and USA operation and Corporate central functions, and this factor identifies the Group’s
reportable segments.

Year ended 30 September 2018

External revenue

Inter-segment revenue

Interest revenue

Interest expense

Depreciation

Income tax

Provision
Reportable segment

profit / (loss)

Segment assets

Expenditure for

non-current assets

Segment liabilities

UK operation
£ ‘000
2018 2017

US operation
£ ‘000
2018 2017

Corporate
£ ‘000
2018 2017

Eliminations
£ ‘000
2017

2018

3,757 2,504

856

-
2

159

-
2
1
150
-
-

-
-

214

246

737

-
-
-
353
-
-

-
6

-
2
-
-
139
-

-
-

-
-
-
-
-
-

Total
£ ‘000
2017

2018

4,613 3,241

-
8

373

246

503

139

578

(803)

(613)

(1,499) (1,002)

859

432

(865) (1,096)

4,195 3,154

2,327 1,541

3,141 2,003

(2,925) (2,902)

6,729 3,796

303

711

127
277

584

28
11,242 9,426

-
1,969 2,003

(12,272) (11,201)

887

1,650

155

505

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

2018

2017

UK
£ ‘000

1,759

1,674

Europe
£ ‘000

N America
£ ‘000

Rest of World
£ ‘000

2,801

1,526

Total
£ ‘000

4,613

3,241

Four external customers (2017 – three) contributed more than 10% of the Group’s continuing external sales for the year ended
30 September 2018. The external sales for these customers were £1.043m, £0.971m, £0.594m and £0.500m which have been recorded
within both the UK and US operation reportable segments, excluding central costs.

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

2018
£ ‘000

2017
£ ‘000

1,111

401

(60)

149

371

2018
£ ‘000

694

203

(80)

152

503

2017
£ ‘000

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

- fees payable for tax compliance

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

Interest on loans

Late payment penalty

Hardide plc Annual Report 2018

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:

2018
Number

2017
Number

Technical

Production

Sales and marketing

Management and admin

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

Wages and salaries

Social security costs

Employer pension contributions

Share option expense

2018
£ ‘000

2,148

215

2,457

2017
£ ‘000

1,822

181

2,065

Of the total share option expense of £73,000 in the year, £28,000 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 2% (2017: 1%) 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:

2018
£ ‘000

2017
£ ‘000

Philip Kirkham (Chief Executive)

Dr Yuri Zhuk (Technical Director)

Peter Davenport (Finance Director)

Robert Goddard (Non-Executive Chairman)

Andrew Boyce (Non-Executive Director)

Charles Irving-Swift (Non-Executive Director)

Tim Rice (Non-Executive Director)

Jan Ward (Non-Executive Director)

Total directors’ remuneration

Salary

Car allowance

Accrued bonus

Salary

Pension

Accrued bonus

Salary

Accrued bonus

Fees

180

100

546

157

101

447

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

7. TAXATION

(a) Tax on ordinary activities:

UK Corporation Tax Charge

Adjustment in respect of prior years

Deferred Tax

Origination and reversal of timing differences

Adjustments in respect of prior periods

Effect of rate change on opening balance

Tax

(b) Factors affecting current tax charge:

2018
£ ‘000

(80)

(48)

2017
£ ‘000

(139)

The tax assessed on the profit on ordinary activities for the year is lower than (2017: lower than) the standard rate of corporation tax in the

UK of 19% (2017: 19.5%)

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 to opening/closing deferred tax

Adjustment in respect of prior periods

R&D enhanced expenditure

R&D surrendered

Total current tax (note 7a)

2018
£ ‘000

(913)

(174)

104

(3)

(96)

(48)

2017
£ ‘000

(1,235)

(241)

120

(14)

(95)

(139)

The standard rate of corporation tax in the UK is currently 19% (2017: 19.5%). The Group has unutilised trading tax losses in the UK
of approximately £2.0m (2017: £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.

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

8. EARNINGS PER ORDINARY SHARE

(Loss) / Profit on ordinary activities after tax

Basic earnings per ordinary share:

Weighted average number of ordinary shares in issue

Earnings per share

2018
£ ‘000

(865)

2017
£ ‘000

(1,096)

1,661,657,670

1,534,914,852

(0.1)p

As net losses were recorded in 2018 and 2017, 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 2017 and 30 September 2018

Net book value at 1 October 2017 and 30 September 2018

£ ‘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.

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

2018
£ ‘000

2017
£ ‘000

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

11. PROPERTY, PLANT AND EQUIPMENT

Leasehold
buildings
£ ‘000

Plant, vehicles
and fixtures
£ ‘000

Computer
equipment
£ ‘000

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

Cost at 1 October 2017

Additions

Disposals

Exchange differences
Cost at 30 September 2018

Depreciation at 1 October 2017

Provided in the year

Disposals

Exchange differences
Depreciation at 30 September 2018

Net book value at 1 October 2017
Net book value at 30 September 2018

485

(8)
489

250

(2)
276

235
213

489

7
513

276

1
307

213
206

3,761

133

(36)

(50)
3,808

2,160

459

(34)

(26)
2,559

1,601
1,249

3,808

857

(45)

42
4,662

2,559

326

(42)

21
2,864

1,249
1,798

105

(15)

-
98

(15)

-
70

36
28

(12)

-
103

(12)

1
74

28
29

Total
£ ‘000

4,351

153

(51)

(58)
4,395

2,479

503

(49)

(28)
2,905

1,872
1,490

4,395

891

(57)

49
5,278

2,905

371

(54)

23
3,245

1,490
2,033

Hardide plc Annual Report 2018

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

2018
£ ‘000

2017
£ ‘000

143

134

286

737

749

265

2,013

973

316

3,302

4,602

160

609

622

134

242

834

368

1,212

2,236

Included within cash and cash equivalents is £500,000 (2017: £Nil) held on short-term deposit.

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

A total of £272,000 (2017: £238,000) trade receivables are over 30 days old and therefore overdue.

2018
£ ‘000

465

254

(2)

737

2017
£ ‘000

371

219

609

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

13. CURRENT LIABILITIES

Trade payables

Taxation and social security costs

Accruals

Finance lease obligations

Lease incentives

Loans

Total current liabilities

2018
£ ‘000

1,055

228

1,346

2017
£ ‘000

376

493

During the year the Group entered in to a term loan agreement with Martinsville Henry County Economic Development Corporation for a
5 year term loan of $240,000 (£184,000) to be drawn down in instalments coinciding with the stage payments on a new chemical vapour
deposition reactor being installed in our Martinsville facility. At the balance sheet date $72,000 (£55,000) had been received. The interest
rate on the loan is fixed at 2% over the term, repayments are due quarterly and start once the loan has been fully disbursed. The loan is
secured against the reactor and Hardide plc has acted as guarantor.

14. PROVISIONS

Provision for grant repayment

2018
£ ‘000

246

2017
£ ‘000

During 2015 and 2016 the Group received a total of $320,000 (£246,000) in grants towards the establishment of its new facility in
Martinsville, USA. These grants contained performance obligations concerning the number of employees and the value of taxable assets
to be achieved. If these performance obligations are not met then some or all of the grants are potentially repayable. Having assessed
the Group’s performance against those obligations, the Directors consider they are unlikely to be achieved by the performance dates
currently in place, so have made a provision for the repayment of the full amount of those grants. The Group has applied for an extension
of the specified performance dates, if the extension is not granted then the grants will be repayable by 30 September 2019.

15. NON-CURRENT OTHER FINANCIAL LIABILITIES

Lease incentives

Loans

2018
£ ‘000

2017
£ ‘000

16. 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

Land and buildings

Plant

2018
£ ‘000

2017
£ ‘000

2018
£ ‘000

2017
£ ‘000

151

429

670

150

513

146

809

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

17. SHARE CAPITAL

Allotted ordinary shares of 0.1p each

Allotted deferred shares of 0.9p each

2018

2017

Number
000

Value
£ ‘000

Number
000

Value
£ ‘000

1,698,077

1,698

1,534,958

1,535

189,642

1,707

189,642

1,707

During the year, the Company raised £2,537,000 before expenses (£2,452,000 net of commission, legal fees and expenses) by way of
placing 199,235,290 ordinary 0.1p shares at a price of 1.7p per share, in two tranches on 01 November 2018 and 19 February 2019. Also
during the year 13,883,000 employee share options were exercised.

A description of the Company’s reserves is as follows:
Share Capital - represents the nominal value of shares that have been issued.
Share premium account - includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium.
Other reserve - this comprises the share-based payments reserve, credited with amounts charged to the profit and loss account for
share options.
Profit and loss account - includes all current and prior period retained profits and losses.

18. SHARE-BASED PAYMENT

Outstanding at 30 September 2017

Exercisable at 30 September 2017

Granted during year

Exercised during year

Forfeited during year

Outstanding at 30 September 2018

Exercisable at 30 September 2018

The current directors’ interests in share options are as follows:

Robert Goddard (Chairman)

Philip Kirkham (Chief Executive)

Yuri Zhuk (Technical Director)

Peter Davenport (Finance Director)

Number

125,707,600

73,957,600

11,000,000

(13,883,000)

(1,000,000)

121,824,600

70,074,600

Number

16,181,000

40,000,000

18,351,000

15,351,000

Weighted average
exercise price

0.67p

0.62p

1.61p

0.58p

0.78p

0.81p

0.74p

Weighted average
exercise price

0.61p

0.81p

0.69p

0.65p

During the year no director exercised any share options nor were any options awarded to directors.

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 50%, a risk-free interest rate of 1.16%, and an expected life of 4 years.
The average calculated fair value of options granted during the year was 0.59p 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 2018 the weighted average remaining contractual life of
all outstanding options was 5 years and 4 months (2017: 5 years and 7 months).

The total charge to the income statement for share options during the year was £73,000 (2017: £51,000).

Hardide plc Annual Report 2018

Financial Statements Notes to the Group Financial Statements

19. POST BALANCE SHEET EVENTS

From 01 October 2018 Hardide Aerospace Coatings Limited is no longer dormant.

20. RELATED PARTY TRANSACTIONS

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

21. CAPITAL COMMITMENTS

At the Statement of Financial Position date Hardide Coatings Inc had a capital commitment of €71,000 (£63,000) for the purchase of
equipment (2017: £100,000).

22. CONTINGENT LIABILITIES

There are no contingent liabilities to be disclosed.

23. 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 2018 the Group had trade receivables and other receivables of £749,000 (2017: £622,000) and cash deposits of £3,302,000
(2017: £1,212,000).

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 2018 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 (2017: £7,000 loss).

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 2018, the Group had no floating rate borrowings, and all its cash deposits were in floating rate accounts.

Hardide plc Annual Report 201850

Financial Statements Parent Company Statement of Financial Position

PARENT COMPANY STATEMENT OF FINANCIAL POSITION
For Hardide plc, company registered number 05344714
At 30 September 2018

Note

2018
£ ‘000

2017
£ ‘000

Assets

Non-current assets

Investments

Amounts owed by group undertakings

Provision

Total non-current assets

Current assets

Trade and other receivables

Cash and cash equivalents

Total current assets

Total assets

Liabilities

Current liabilities

Trade and other payables

Total current liabilities

Net current (liabilities)

Total liabilities

Net assets

Equity

Share capital

Share premium

Retained earnings

Share-based payments reserve

Total equity

1,198

10,461

(10,461)

1,198

113

1,830

1,943

3,141

1,969

1,164

9,330

(9,330)

1,164

174

750

924

2,088

2,023

(26)

(1,099)

1,969

1,172

3,405

12,676

(15,217)

308

1,172

2,023

3,242

10,306

(13,718)

235

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 £1,499,000 (2017: loss of £1,002,000) after accounting for an increase in the
provision against the intercompany loan of £1,131,000 and an exchange rate gain on intercompany loan of £277,000.

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

The financial statements were approved and authorised for issue by the Board on 5 February 2019.

Robert Goddard
Director

Hardide plc Annual Report 2018

Financial Statements Parent Company Statement of Cash Flows Parent Company Statement of Changes in Equity

PARENT COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 September 2018

2018
£ ‘000

2017
£ ‘000

Cash flows from operating activities

Operating (loss)

Share option charge

(Increase) / Decrease in receivables

Increase / (Decrease) in payables

Cash used in operations

Finance income

Tax received

Net cash used in 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

(699)

(617)

(518)

(935)

2,533

1,080

750

1,830

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018

At 1 October 2016

Issue of new shares

Share options

Loss for the year

At 30 September 2017

At 1 October 2017

Issue of new shares

Share options

Loss for the year

At 30 September 2018

Share
Capital

Share
Premium

Share-based
Payments

3,242

10,305

3,242

10,306

3,242

163

10,306

2,370

Retained
Earnings

(12,716)

(1,002)

(13,718)

131

104

235

(13,718)

(1,499)

3,405

12,676

308

(15,217)

(711)

(9)

(31)

(711)

207

(501)

(271)

(772)

1,522

750

Total
Equity

962

105

(1,002)

2,533

(1,499)

1,172

Hardide plc Annual Report 2018

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:

2018
Number

2017
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

Employer pension costs

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

3. INVESTMENTS

Investments in subsidiaries

2018
£ ‘000

622

753

2018
£ ‘000

1,198

2017
£ ‘000

589

691

2017
£ ‘000

1,164

At 30 September 2018 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%

USA

Surface engineering

Dormant company

4. AMOUNTS OWED BY GROUP UNDERTAKINGS

The amounts owed by Hardide Coatings Inc amounting to £10,461,000 (2017 £9,330,000) 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
£1,131,000 (2017 £124,000) has been debited to the profit and loss account in the year.

5. TRADE AND OTHER RECEIVABLES

Taxation recoverable

Prepayments and accrued income

2018
£ ‘000

113

2017
£ ‘000

154

174

Hardide plc Annual Report 2018

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

2018
£ ‘000

1,811

108

1,969

2017
£ ‘000

1,902

2,023

Amounts owed to Hardide Coatings Ltd are shown as a current liability. The movement in the year was a net decrease in the liability
of £91,000. 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

Allotted ordinary shares of 0.1p each

Allotted deferred shares of 0.9p each

2018

2017

Number
000

Value
£ ‘000

Number
000

Value
£ ‘000

1,698,077

1,698

1,534,958

1,535

189,642

1,707

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 2018 or 30 September 2017.

9. CONTINGENT LIABILITIES

There were no contingent liabilities at 30 September 2018 or 30 September 2017.

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

With
Hardide
Coatings Ltd
£ ‘000

2018

With
Hardide
Coatings Inc
£ ‘000

With
Hardide
Coatings Ltd
£ ‘000

2017

With
Hardide
Coatings Inc
£ ‘000

127

(151)

376

(261)

764

140

(149)

250

(503)

102

362

Balance outstanding at 30 September

(1,811)

10,461

(1,902)

9,330

11. POST BALANCE SHEET EVENTS

From 01 October 2018 Hardide Aerospace Coatings Limited is no longer dormant.

12. FINANCIAL INSTRUMENTS

The financial instruments risk management is disclosed in note 22 of the Group 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.

Hardide plc Annual Report 2018

Company Information Directors and Advisers

DIRECTORS AND ADVISERS

DIRECTORS

R Goddard
P Kirkham
P Davenport
Y Zhuk
A Boyce
C Irving-Swift
T Rice

Secretary
P Davenport

BANKER

REGISTRAR

PATENT AGENT

Royal Bank of Scotland
Dale Street
Liverpool
L2 2PP

Share Registrars Limited
The Courtyard
17 West Street
Farnham
Surrey
GU9 7DR

Harrison Goddard Foote
Belgrave Hall
Belgrave Street
Leeds
LS2 8DD

NOMINATED
ADVISER
AND BROKER

finnCap
60 New Broad Street
London
EC2M 1JJ

REGISTERED OFFICE
AND PRINCIPAL PLACE
OF BUSINESS

11 Wedgwood Road
Bicester
Oxon
OX26 4UL

AUDITOR

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

Hardide plc Annual Report 2018
HARDIDE PLC ANNUAL REPORT 2018

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.

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